Viant Technology Inc. (NASDAQ:DSP) Q1 2024 Earnings Call Transcript

Viant Technology Inc. (NASDAQ:DSP) Q1 2024 Earnings Call Transcript April 30, 2024

Viant Technology Inc. misses on earnings expectations. Reported EPS is $-0.20152 EPS, expectations were $-0.07. DSP isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Well, hello, everyone, and welcome to Viant Technology’s First Quarter 2024 Earnings Conference Call. My name is Kelsey and I will be your operator today. Before I turn the webinar over to the Viant leadership team, I’d like to go over just a few housekeeping notes for the program. As a reminder, today’s webinar is being recorded. Attendees are in a view and a listen-only mode, but following the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] We thank you all for your attendance today and I will now turn the webinar over to Nicole Kunzman with The Blueshirt Group. Nicole, over to you.

Nicole Kunzman: Thank you, Kelsey. Good afternoon and welcome to Viant Technology’s first quarter 2024 earnings conference call. On the call today are Tim Vanderhook, Co-Founder and Chief Executive Officer; Chris Vanderhook, Co-Founder and Chief Operating Officer; and Larry Madden, Chief Financial Officer. I’d like to remind you that we’ll make forward-looking statements on our call today, including, but not limited to, our guidance for Q2 2024 and our platform development initiatives that are based on assumptions and subject to future events, risks, and uncertainties that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of today and we undertake no obligation to update or revise these statements, except as required by law.

For more information about factors that may cause actual results to differ materially from forward-looking statements and other — in our entire Safe Harbor statement, please refer to the news release issued today, as well as the risks and uncertainties described in our quarterly report on Form 10-Q for the quarter ended March 31, 2024, under the heading Risk Factors and other filings with the SEC. During today’s call, we will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release issued today, which has been posted on the Investor Relations page of the company’s website and in our filings with the SEC.

I would now like to turn the call over to Tim Vanderhook, Chief Executive Officer of Viant. Tim?

Tim Vanderhook: Thanks Nicole and thanks everyone for joining us today. We had a very strong start to the year with results ahead of our expectations in the first quarter. Revenue in Q1 grew 28% year-over-year, while contribution ex-TAC grew 22%, driving adjusted EBITDA of more than $3 million in the quarter. The momentum we saw in the second half of last year has carried in the 2024 as expected. Our strong results in Q1 were driven by accelerating momentum in CTV, which outpace the market with more than 50% growth year-over-year as we continue to take share, capturing a larger percentage of our customers budgets. Simultaneously, we are continuing to improve the ease of use and efficiency of our platform by delivering on our vision of autonomous advertising through ongoing releases of AI-related platform enhancements and products.

The rapid adoption of our patented Household ID is driving strong campaign performance and measurement results for our customers. CTV was again a bright spot for us this quarter. In the success we are having is a testament to the value we are driving for our customers through this channel. As advertisers are looking for more impactful formats and channels to drive the biggest return on their ad dollars, we are capturing market share in CTV. This increase in share is due in part to our direct access program, which connects our customers directly with premium CTV inventory from the likes of Disney and Paramount. And this is becoming a notable driver of CTV spend on our platform. With more than $60 billion and linear TV budget, shifting to connected TV, we are — we see our strong foothold in CTV as a significant long-term tailwind for Viant.

Chris will elaborate on this a bit more in a minute. Another area of strength for us in Q1 was streaming audio, which has historically being growing very fast and has now reached critical mass. Streaming audio had a record quarter for Viant, accounting for 10% of ad spend on our platform. Streaming audio is another channel that is gaining momentum with advertisers due to its scale, premium content and targeting capabilities. Streaming audio and CTV together represented more than half of total ad spend on our platform in the first quarter, a notable milestone for us as desktop in particular continues to fall out of favor with advertisers, favoring higher performing channels like CTV and streaming audio. The performance of our Household ID technology positions us extremely well to increase our share, while simultaneously benefiting from advertisers shifting more of their ad budgets to these channels.

Our patented Household ID tech is a differentiator for us as it enables our customers to achieve superior campaign performance across all channels. Brands using our Household Identifier have seen increased reach, better frequency control and improved close loop measurement in their campaigns. As we look to make programmatic advertising easier and more effective for our customers, we continue to invest in our technology and platform with the ultimate vision of autonomous advertising. There are four key elements to this vision. First, making programmatic ad buying as simple as search in social, while delivering best-in-class campaign performance. Second, enabling our customers to unlock insights from their own first party data and seamlessly use those insights to drive campaign performance.

Third, leveraging AI driven automation to minimize choice overload for our customers, while they manage complex campaigns. And fourth, providing the most comprehensive campaign reporting and analysis suite [ph]. The overarching goal of this vision is to enable our customers to get the most out of every advertising dollar they spend. We are continuing to win share of wallet from customers due to our ability to deliver on this vision, and make our customers more successful with their campaigns. Before turning it over to Chris to discuss recent product updates, I want to take a minute to address the latest announcement from Google regarding their plans to delay cookie deprecation. We’ve proactively managed through this dynamic situation since prior to 2020 when Google first announced the deprecation of cookies.

And our conversations with customers have not changed. We remain focused on making programmatic ad buying easy, efficient and more measurable and we are winning share as a result. Our customers already have the ability to compare their results using Household ID versus the alternative use of cookies side by side, and they continue to choose Household ID over cookies for their ad campaigns. In fact, we estimate less than 10% of total ad spend across our platform utilizes cookies today. Because of the strength of our Household ID we continue to see tremendous growth and opportunity across all advertising channels. Google’s announcements related to the chrome web browser doesn’t impact the trend of advertisers increasing spend with platform’s that offer smarter and more efficient ways to buy programmatic ads and we are continuing to stay focused on this.

With that, I will turn it over to Chris.

Chris Vanderhook: Thanks, Tim. I’ll spend a few minutes today revisiting our strategic priorities for 2024, and some recent updates and a few key areas. We’ve remained extremely encouraged by the customer activity we’re seeing across our business both in winning more share of wallet with existing customers, and building on our pipeline of new, larger customers. Our vision for autonomous advertising is a big part of what’s driving this as the new products and features we’ve recently added, are attracting larger customers to our platform. We’re onboarding new customers who are more quickly adopting our newer products, which we believe is further evidence that our strong product market fit will continue to drive more advertising dollars to our platform over time.

Our pipeline of customers coming into Q1 was as promising as ever. We’ve now seen a number of these larger customers get on boarded and expect them to become meaningful spenders with Viant over the course of this year. A key area of differentiation for us is our AI product suite, which includes AI Bid Optimizer, Chat with Data and AI Recommendations. These tools together are designed to allow for simplified yet more effective media buying and campaign execution for our customers. We’ve highlighted AI Bid Optimizer on recent calls, and I’m excited that we will be releasing version 2.0 of the AI Bid Optimizer ahead of schedule in June. Bid Optimizer 1.0 has historically been able to help customers achieve 35% average savings from a CPM standpoint.

And we’re excited about the updated version because we expect it to drive even more savings for our customers. Bid Optimizer has been one of the key products that new customers are really gravitating to, and we’re pleased to be able to help them lower their media costs and drive higher return on ad spend as they quickly ramp on our platform. We’re also excited about the continued adoption of the Viant data platform and additional AI based features in our pipeline, including Chat with Data. Our internal teams have made great progress, improving the reliability and usability of Chat with Data to give our customers a more intuitive experience and enable greater insights from their first party data with the help of generative AI. We expect to release Chat with Data to more customers later this year.

Another big area of strategic focus for us continues to be our direct access program, which is seeing incredible adoption. As one of two buy side only, self service platforms, we are in a unique position to be able to connect directly with publishers to offer premium CTV content directly to our advertiser customers. This program is helping drive a lower cost of media and higher win rates for advertisers and ad options, ultimately delivering better return on ad spend and improved campaign performance for our customers. Direct Access enables our customers to match their first party data with the likes of Disney and Paramount, enabling walled garden level addressability and closed loop measurement on the world’s most premium content. We’re seeing growing adoption of Direct Access as part of the overall strength we’re seeing in CTV, and over 50% of our CTV spend in the quarter was through our Direct Access program up from over 40% in Q4.

With that, I’ll turn it over to Larry to provide more detail on our financial performance. Larry?

Larry Madden: Thanks, Chris. Before I begin, I’d like to remind everyone that we have posted a presentation to our Investor Relations website that includes supplemental financial information to accompany today’s call. As Tim discussed, we had a very strong start to the year with Q1 results coming in towards the high-end of our guidance or better across all key metrics. Many of the trends that drove our strength in 2023 continued into the first quarter of 2024. Most notably, the progress we’ve made in the last year towards our vision of autonomous advertising is resonating with both existing and prospective customers. The AI based features and products that we’ve rolled out in recent quarters are driving both increased efficiency and higher return on ad spend for our customers.

In turn, our customers are consolidating more of their ad spend onto our platform. We are also having more discussions than ever with large potential customers leveraging these early success stories. We intend to continue investing to further drive our innovation engine. And as Chris mentioned, we have some exciting new AI based features and products coming in the months ahead. In terms of customer growth, during the quarter, we continue to scale our existing customers while also adding new larger mid market customers to our platform. On a trailing 12-month basis, the number of customers generating over 1 million of contribution ex-TAC increased by nearly 20% on a year-over-year basis, and the number of percent of spend customers generating over a $500,000 of contribution ex-TAC increased more than 30% on a year-over-year basis.

Moreover, contribution ex-TAC across our top 100 customers grew an impressive 25% on a trailing 12-month basis as of the end of Q1. These positive customer trends have enabled us to continue outpacing overall market growth. With that said, I’ll now turn to our results for the first quarter. Revenue for the quarter was $53.4 million, an increase of 28% versus the prior year period and above the high-end of our guidance range. Contribution ex-TAC for the quarter was $34.1 million, an increase of 22% versus the prior year and above the midpoint of our guidance range. In terms of customer verticals, we continue to see strong momentum in the quarter across our retail, consumer goods and travel customer verticals, our public services vertical continue to perform exceptionally well during the quarter, as did our financial services and business services verticals.

Terms of channels, CTV and streaming audio continue to be the most meaningful drivers of growth in the first quarter. CTV grew over 50% on a year-over-year basis and represented over 40% of total spend on the platform. While streaming audio achieved record spend levels in the quarter, nearly doubling on a year-over-year basis. Streaming audio represented 10% of total spend on the platform in Q1. We continue to benefit from the traction we are having with customers adopting our Household ID across these high engagement cookieless channels. Our Direct Access offering has also been an important driver of our CTV growth given the increased efficiency and performance it provides advertisers. In terms of formats, video, which includes CTV represented 60% of total spend on our platform in the quarter.

Turning now to operating expenses for the quarter. Our non-GAAP operating expenses totaled $31 million in Q1, representing an increase of 9% over the prior year period and 5% over the prior quarter. We continue to drive efficiencies internally, while remaining focused on making strategic investments in our business specifically around our technology and sales teams to best position ourselves for long-term market share gains and increasing profitability. For the quarter, we generated adjusted EBITDA of $3.1 million above the high-end of our guidance and representing an increase of $3.5 million from the prior year period. Adjusted EBITDA margin as a percentage of contribution ex-TAC was 9% for the quarter, an improvement of 10 percentage points from the prior year period.

For the first quarter, non-GAAP net income, which excludes stock-based compensation and other items totaled $1.3 million, which compares to a non-GAAP net loss in the prior year period of $1.8 million. Non-GAAP earnings per share per class A share totaled $0.02 in the first quarter, which compares to a loss of $0.03 in the prior year period. In terms of share count, we ended the quarter with 63.4 million shares outstanding, consisting of 16.4 million Class A shares and 47 million Class B shares. We ended the quarter with $206 million in cash and cash equivalents. We had $227 million of positive working capital and no debt at quarter end, and we continue to have access to a $75 million undrawn credit facility. In Q1, we also generated $3.8 million of cash flow from operations.

In conjunction with our earnings released today, we also announced that our Board has authorized an open ended share repurchase program of up to $50 million of the company’s common shares. This program reflects our continued commitment to enhancing shareholder value and our confidence in the long-term prospects of the company. Turning now to our outlook. We expect that our momentum with customers leveraging our Household ID technology, as well as our new AI related products and features will continue to drive increasing share in the large and growing programmatic market. We remain very encouraged by the spending patterns we are seeing with our customers and by our large pipeline of highly scalable advertisers, leading to increased optimism about our prospects moving forward.

So with that backdrop, for the second quarter of 2024, we expect revenue in the range of $63.5 million to $66.5 million, representing a year-over-year increase of 14% and a quarter-over-quarter increase of 22% at the midpoint. Contribution ex-TAC is expected to be in the range of $40 million to $42 million representing year-over-year growth of 22% and quarter-over-quarter growth of 20% at the midpoint. Non-GAAP operating expenses are expected to be between $32 million and $33 million in Q2, representing a year-over-year increase of 21% and a quarter-over-quarter increase of 5% at the midpoint. We expect adjusted EBITDA to be in the range of $8 million to $9 million, which represents a year-over-year increase of 25% and a quarter-over-quarter increase of 176% at the midpoint.

And finally, we expect an adjusted EBITDA margin as a percentage of contribution ex-TAC of 21% at the midpoint. One last point I’d like to make relative to the Q2 guide. At the midpoint of the guide, Q2 would represent the fourth consecutive quarter of 20 plus percent growth and contribution ex-TAC. Finally, I’d like to make a few comments relative to our expectations for the full year. As we’ve said before, in 2024, we expect contribution ex-TAC to grow faster than the overall market, continuing to expand our market share, especially in the mid market. We also expect to continue benefiting from the growing customer adoption of our newer products such as AI Bid Optimizer, our advanced reporting solutions and the Viant data platform which are driving incremental revenue and contribution ex-TAC.

We expect to similarly benefit from new products launching in the second half of 2024 including AI Bid Optimizer 2.0 and Viant Chat with Data. For the year, we also expect contribution ex-TAC to grow faster than non-GAAP operating expenses, driving incremental adjusted EBITDA and increased adjusted EBITDA margins. In closing, we believe our investments in our platform and technology have positioned us extremely well to continue driving growth and profitability in the quarters ahead. We have a unique opportunity to serve as a scaling customer base of mid-market advertisers who recognize the value of our Household ID technology and AI based solutions. Our strong results in the first quarter demonstrate that our strategy is working with customers, and we are capitalizing on the strong tailwinds for programmatic advertising.

We’re excited about our momentum and the opportunities ahead of us. And with that, I’ll turn it back to the operator for questions. Operator?

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Q&A Session

Operator: Thanks so much, Larry. [Operator Instructions] And our first question is going to come from Matt Condon with Citizens. Matt please go ahead with your question.

Matt Condon: Thank you guys for taking my question. Maybe first, could you just give us some color around just the linearity of demand in the quarter? And then maybe as we think about heading into the back half of the year, is there anything that you can give us as far as the visibility that you have, as you think about, maybe just the full year 3Q and 4Q? And then my second question is just on with The Trade Desk announcing a partnership with Roku this morning, that’s giving them access to their data. What opportunities do you guys have maybe to launch similar partnerships that can give you access to unique data that can help drive performance, particularly in CTV as it becomes a larger portion of your business. Thank you.

Tim Vanderhook: Larry, I’ll take the first. In terms of linearity of the demand Matt, essentially, Q1, we typically see the quarter build throughout the 3 months, with each month being better than the prior month. That held true this year. It was a little bit different last year, where it was very slow at the beginning of the quarter. But we started the quarter very strong and that momentum continued throughout.

Chris Vanderhook: In relation to the Roku partnership, I didn’t get a chance to read the full extent of it. We have a strong partnership with Roku as well. We have an integration with them that leverages the Roku ID match to the Viant Household ID. So I didn’t get a chance to read that. But I do know that our customers are serving addressable advertising into Roku and their whole user base. So I’d have to check back with you on that.

Tim Vanderhook: And just to close the loop on the first part of your question, so in terms of the second half of 2024, as you know, we haven’t given guidance in terms of what we think we will do. But what we have said is we do expect to continue to outpace the market. I think market expectations for U.S programmatic are in the 15% to 16% growth rate this year and we believe certainly for the full year we will outpace that growth.

Matt Condon: Great. Thank you so much.

Operator: Andrew Marok with Raymond James has the next question.

Andrew Marok: Great. Thank you for taking my question. You talked a little bit about the cookie deprecation deadline push earlier, I guess kind of wanted to get your thoughts at all, like, given the scale of the CMAs problems with the privacy sandbox, I think it’s almost 80 complaints that they brought up. Do you see this impasse ever being solved? And if it’s not kind of how does that impact the evolution of usage of the Household ID?

Tim Vanderhook: Yes, I think just the implementation, just getting to Google’s deprecation of third-party cookies, there’s lots of decision makers at the table. And so I think they’re kind of stuck in between that decision. So it’s not a shock that it continues to get delayed there. I do think there will be resolution one way or the other. And I think that resolution will fall on the side of more privacy friendly approaches to internet advertising, just in the long run. So we think the Household ID if you look at it today, we mentioned in the prepared remarks, less than 10% of ad spend utilizes cookies across our platform today. One thing that most people forget about is third-party cookies really are just the Google Chrome web browser.

When it comes to an omni-channel DSP like ourselves, that’s less than 25% of the available ad opportunities on the platform. So our customers are spending utilizing the Household ID 90% of the time across the platform. And it’s because of the strength that that offers them. And that strength is it works across channels, across websites and apps, and ties both in store and eCommerce sales, and a third-party cookie just doesn’t deliver that. So that’s why we mentioned that so much more and more customers are choosing Household ID because of those benefits I just described.

Andrew Marok: Great. Thank you. And if I could sneak one in on streaming audio. I guess what are some of the drivers behind that outsized growth in that channel? Is there something about it, that maybe appeals more strongly to kind of the smaller and midsized clients that you tend to over index with or maybe less lift from a creative perspective? Anything behind that? Thank you.

Chris Vanderhook: Well, I think, number one, the clients are just seeing really good results. They see the results, because there’s not a lot of ad clutter. I would say number one. If you’re listening to a podcast, or you’re streaming music, it’s really a dedicated listener. So I think that’s number one. I think the ad recall rates are extremely high for customers who are seeing the results. The second thing I’ll say is that much like any emerging channel, the more and more supply that comes online or is available in programmatic, that also adds to the growth. So we saw a tremendous amount of supply towards the end of last year, that will be coming online for ’24. So I think that added it as well, across all major audio platforms, both podcasts and in music and radio.

Tim Vanderhook: Yes, I would just add to that it’s the scale, the premium nature of the content and the targeting capabilities, very similar to connected television.

Andrew Marok: Interesting. Thank you.

Tim Vanderhook: Thank you.

Operator: Moving on to Maria Ripps with Canaccord.

Tim Vanderhook: Hi, Maria.

Maria Ripps: Can you hear me?

Tim Vanderhook: Yes.

Maria Ripps: Well, thanks so much for taking my questions. So first, you called out momentum in the public services vertical. And I feel like you sort of call out strength there for several consecutive quarters now. Is there any additional color maybe you can provide with regards to what’s driving this incremental spend? Are there any specific types of government agencies or municipalities? I think you called out [indiscernible] universities last quarter that sort of you see momentum with [indiscernible] will be great.

Tim Vanderhook: Yes, I think a lot of the customers in that vertical have historically been direct response display based advertisers. They’re really focused and use the cookie. And I think that they’ve seen their results precipitously decline over the last 3 or 4 years. So many of them are heavy in CTV and now they’re able to see returns when buying television like advertising. So I think that’s really the biggest — that’s the biggest area, specifically around other organizations, whether it be universities or different municipalities, sustainability has been — it’s been a nice focus for them as well. And so our efforts around our Adtricity program has definitely helped in that area. We have a big leadership position around sustainability, something we’re pretty serious about, and that’s also led to some client wins as well.