Viant Technology Inc. (NASDAQ:DSP) Q2 2023 Earnings Call Transcript

Viant Technology Inc. (NASDAQ:DSP) Q2 2023 Earnings Call Transcript August 7, 2023

Operator: Hello, everyone. And welcome to Viant’s Second Quarter 2023 Earnings Conference Call. My name is Catherine, and I will be your operator today. Before I hand the call over to Viant’s leadership team, I’d like to go over just a few housekeeping notes for the program. As a reminder, this webinar is being recorded. After the speakers’ remarks, there will be a question-and-answer session. If you plan to ask a question, please ensure you set your Zoom name to display your full name and firm. If you’d like to ask a question during the time, please use the raise hand function located at the bottom of your screen. Thank you for your attendance today. And I will now turn the call over to Ben Tapper with Viant Technology.

Ben Tapper: Thank you, Catherine. Good afternoon. And welcome to Viant Technology’s second quarter 2023 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 will make forward-looking statements on our call today, including our guidance for Q3 2023 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.

Photo by Danial Igdery on Unsplash

For more information about these factors that may cause actual results to differ materially from forward-looking statements and 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 June 30, 2023, under the heading Risk Factors on — 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, Ben, and thanks, everyone, for joining us today. I’m excited to share that we had a great second quarter, as we built on our momentum through the first quarter amid an improving macro environment. We significantly exceeded our guidance range on both revenue and adjusted EBITDA. The increasing adoption rates of our household ID, advanced reporting and data platform products drove our outperformance in the quarter as customers look for smarter and more efficient ways to deliver their ad campaigns. At the same time, leveraging our internally developed AI drove our own productivity. As we look into the rest of the year and throughout 2024, we see a number of tailwinds accelerating our growth; first, the continued application of artificial intelligence; second is Google’s deletion of cookies in 2024; and third, the ongoing transition of $60 billion of linear television moving into Connected TV.

I want to share a bit more on each of these areas and provide more clarity on how we see them driving our growth and profitability. The promise of artificial intelligence is not really new for the ad tech industry. At Viant, we’re working aggressively toward our vision of building an autonomous ad platform. Similar to the way the automotive industry has its sight set on self-driving cars to boost the number of vehicles sold per year, we believe an autonomous ad platform that leverages AI to help advertisers achieve superior campaign performance will grow our total addressable market. Our goal is to leverage AI to make the programmatic ad opportunity available to millions of small and midsized businesses by making it simple for them to reach new customers and grow their businesses.

We envision AI as the key to scaling our customer count from the hundreds into the millions and unlike autonomous vehicles, our industry hasn’t fully realized this vision yet. However, we have been focused on laying the groundwork of automation and training deep learning models that solve programmatic traders’ problems one-by-one to help them improve their campaign results in a more automated fashion. One great example of this is the release of our new AI-powered Bid Optimizer late in the second quarter. This translated into immediate benefits for our advertisers in the form of more efficient CPM pricing. For customers who have opted into the AI-powered Bid Optimizer, we have achieved a CPM savings on average of over 35% for the same publisher ad inventory.

Bid Optimizer is achieving incredible results for our clients and is a great example of how Viant is leveraging newly developed AI to increase the value of our ad platform to our customers, which drives them to consolidate more of their ad budget into our platform. We believe that the application of AI in the programmatic is the largest market opportunity since the invention of real-time bidding itself. These new AI-powered solutions are allowing us to deliver a best-in-class experience and results to our customers. We have an exciting product pipeline and I’m excited to share more with you in the future. On the second point I touched on, Google’s impeding deletion of cookies, which they have recently stated is set to start in Q1 of 2024.

This will create additional revenue opportunities for Viant. I’d like to remind investors that Viant’s patented technology gives marketers the ability to execute omnichannel advertising using our household ID and this does not rely on the cookie like other solutions in the market. Our household ID has achieved more than 80% availability across all ad requests that we see. We believe that Google’s pending deletion of cookies and other identifiers will further accelerate the growth of ad spend flowing through our platform. On the third opportunity, linear TV to streaming. The adoption of streaming services will continue to shift marketer’s dollars and we see an additional $60 billion of ad spend coming into the programmatic ad market.

In CTV, our household ID is available on over 90% of all ad requests, which is a significant advantage in this fast-growing space. I’m happy to report that we outpaced the market in Q2 with strong double-digit growth in CTV. There are multiple factors that contributed to this growth, but our ability to measure return on ad spend against a household rather than a device is critical in a cookieless environment like CTV. And it’s important to remember why CTV gets so much attention. Nearly 70% of Americans engaged with CTV and there’s still significant room to grow. As linear TV dominance wanes, no single measurement protocol has been developed. With the application of our Viant household ID, marketers can confidently apply the ad spend previously allocated to linear TV to a far more sophisticated CTV ecosystem.

Now with the use of Viant’s ad platform, those marketers can run campaigns in this high growth channel with the same precision and visibility expected from a programmatic platform. And to close, we had a very strong second quarter. We’re making immediate strides on our AI initiatives that are translating directly into value for our customers and our shareholders. We’re well positioned and excited to share the strong financial results we’re expecting for Q3 as well, which Larry will touch on in a bit. We are accelerating our momentum into the second half and we look forward to providing an update on our product pipeline at an Innovation event this fall with more details on that to come soon. Now I will hand the call over to Chris to discuss more around our products and customers.

Chris Vanderhook: Thanks, Tim. Q2 was another strong quarter of wins across our client base, with particularly strong results within the mid-market, where we believe our efficiency, attribution and measurement capabilities, along with our unrivaled customer support have made us a go-to choice for marketers whose objective is maximizing their return on ad spend. In the past, I’ve discussed crucial elements that differentiate the Viant platform and make us such a formidable solution in the mid-market. First and foremost, you must offer the best product, which means the lowest CPM to deliver the best return on ad spend. Second, you must demonstrate superior performance in the form of comprehensive measurement and reporting. And finally, you have to provide the support infrastructure to ensure the customer experience is seamless.

With more than 14,000 ad agencies in the U.S. alone, the mid-market is a large and dynamic marketplace and one in which we are particularly well suited to win. In much the same way, mid-market agencies have become attractive choices for brands looking to establish themselves in innovative and creative ways, so too are their preferred tech partners. In this way, Viant is working with these mid-market agencies and brands to break free from a tired paradigm of one-size-fits-all platforms by offering industry-leading tools, approaches and service. The benefits of the self-service programmatic model are well known. But at Viant, we specialize in multiple pathways to get our clients up to speed on our platform. Our intuitive user interface and focus on automation further enhances that ramp-up, while our unique data tools enable targeting, forecasting, reporting, and ultimately, visibility that is largely unavailable anywhere else.

I want to talk a little bit more about two specific areas of our DSP that truly differentiate us and each in their own right are vital to the success of mid-market customers. For several quarters, we’ve discussed investments we’ve been making in the Viant Data Platform, with a long history of effectively and safely leveraging massive data sets to drive our customers’ success, the Viant Data Platform in many ways is the culmination of that journey. How to manage data and how to extract value from that data are two questions faced by nearly all of our clients. They want to be able to use their first-party data in conjunction with their advertising campaigns. Through integrations with industry-leading data warehouses and clean room providers, we’re able to provide secure solutions that deliver real-time insights that can be inserted directly into campaign design and implementation.

None of our competitors have a tool suite this comprehensive. And more importantly, none of our competitors have Viant’s track record to leverage that data in a commercially viable and privacy-friendly way. The Viant Data Platform is being leveraged by our largest customers and as future-proof their programmatic advertising strategy for the impending deletion of third-party cookies by Google next year. Clients leverage our household ID, along with the Viant Data Platform are able to deliver relevant ads while still being able to measure the impact of those ads in a cookieless world. Next, I want to share more information on our supply path optimization initiative, Direct Access. Direct Access as a program that develops the most efficient supply path for our customers by creating partnerships with premium content owners to monetize their content directly, while lowering costs for advertisers by eliminating the reselling of inventory amongst middlemen.

Our focus for the Direct Access Program has centered on CTV. Tim discussed the strong results we’re seeing in the CTV space and Direct Access is helping to drive that success. With a more efficient supply chain, advertisers see lower cost of media, with a higher win rate in ad actions, as well as lower instances of fraud, which all boils down to better campaign performance and higher return on ad spend. Notably, we’ve partnered with many of the largest Connected TV content owners in the industry, representing some of the most premium inventory being watched by consumers. Although still early, our Direct Access Program is gaining a lot of attention by both new and existing customers who are seeking lower CPMs on premium inventory by leveraging a more efficient supply path.

In the second quarter, Direct Access represented more than 10% of CTV spend and we expect that to increase throughout the year as we see steady adoption by our clients. Additionally, I’m proud to announce Viant’s recent inclusion in Prebid.org. Prebid is open source technology that provides an alternative path for premium publishers to take bids directly on their advertising inventory rather than through multiple resellers. This leads to better economics for publishers and advertisers alike, and ultimately, a more efficient programmatic ecosystem. We expect to release new technology in this area as more and more publishers look to gain direct access to our customers’ demand across all channels. And with that, I’ll close by saying we’ve wrapped an excellent first half of the year and we’re encouraged by the strong Viant signals we’re seeing from our customers as we move into the second half.

We continue to focus on delivering best-in-class product and we believe the gains we’ve made so far this year are only the beginning. Thank you and I’ll now turn it over to Larry to provide more details on our financial performance.

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 mentioned, we successfully capitalized on our first quarter momentum, exceeding our revenue and adjusted EBITDA guidance for Q2 and achieving the high end of our guidance for contribution ex-TAC. Revenue for the quarter was $57.2 million, an increase of 12% versus the prior year period, 37% higher than Q1 and exceeding the high end of our guidance. Contribution ex-TAC for the quarter was $33.7 million, an increase of 6% versus the prior year period, 20% higher than Q1 and at the high end of our guidance.

We continue to see improving signs with regards to ad spend as evidenced by Q2 revenue and contribution ex-TAC growth rates accelerating from Q1 levels. We expect this encouraging trend to persist and strengthen throughout the second half of the year. In terms of customer verticals, we saw a strong rebound across our retail and consumer goods verticals, with both delivering solid double-digit growth in the quarter, spending across our travel, online gambling and automotive verticals also remained strong. In terms of channels, we saw a robust growth in CTV in the quarter, driven in part by the promising outcomes of our Direct Access Program. Additionally, our customers continue to positively respond to our unique ability to deliver highly targeted messaging at the household level in this cookieless environment.

In the second quarter, CTV accounted for over one-third of total advertisers spend on our platform. From a format perspective, video, encompassing both CTV and mobile video, accounted for more than half the spend on our platform and had strong growth in the quarter. Streaming audio though still in its early stages, also experienced solid double-digit growth in the quarter. The promising upward trajectory of streaming audio in many ways mirrors the early success we had with CTV, reaffirming our commitment to remaining at the forefront of the driving forces behind present and future ad spending. Advertiser spend per active customer increased 7% on a year-over-year basis and our percent of spend customers spent on average more than 3 times that of fixed-price customers.

It is important to highlight that the cohort effect created by the power and scale of our self-serve DSP continues to widen the gap between our percent of spend customers and fixed price customers. Our percent of spend customers not only exhibit higher retention rates, they also have a greater propensity to expand their business with us. We ended the quarter with 314 active customers, a net decline of 13 customers during the period. As discussed on previous earnings calls, our philosophy around customer growth centers on cultivating deeper relationships with high quality customers capable of higher spending levels. As part of that strategy, we are gradually shifting away from servicing lower end customers, while actively attracting and onboarding customers with greater long-term value potential.

This strategic shift allows us to focus on building enduring partnerships that contribute to sustainable growth and success. Moving on to operating expenses. In the quarter, our non-GAAP operating expenses totaled $26.9 million, reflecting a year-over-year decrease of 23%. This reduction reflects our commitment to driving operating leverage across the business. While achieving these cost efficiencies, we remain equally dedicated to investing in future growth as demonstrated by a notable 39% increase in the size of our product and engineering teams over the same period. Our approach is to strike a balance between efficiency gains and investing in the teams and technologies that will propel our long-term success. The integration of generative AI technologies across our organization has also had a profound impact, resulting in significant — in a significant increase in productivity.

These transformative initiatives have enabled us to achieve remarkable end results with fewer resources, further strengthening our confidence in our ability to substantially grow our operating margins. One metric we use internally to measure productivity is revenue by per employee, which grew 27% in the current quarter versus the prior year period. By leveraging cutting-edge AI, we are well positioned to continue driving both innovation and operational efficiency. For the second quarter, we generated adjusted EBITDA of $6.8 million, well above the high end of our guidance and representing an increase of approximately $10 million from the prior year period and $7.2 million from the prior quarter. Adjusted EBITDA margin as a percentage of contribution ex-TAC was 20.2% for the quarter, representing a 30-percentage-point improvement from the prior year period.

For the second quarter, non-GAAP net income, which excludes stock-based compensation, totaled $5.1 million, which compares to a non-GAAP net loss of $5.9 million in the prior year period. Non-GAAP earnings per Class A share totaled $0.06 in the current quarter, which compares to a loss of $0.08 in the prior year period. In terms of share count, we ended the quarter with 62.4 million Class A and Class B common shares outstanding. We also ended the quarter with $204 million in cash, which translates to a noteworthy $3.27 per share outstanding. We had $224 million of positive working capital and no debt at quarter end and we continue to have access to a $75 million undrawn credit facility. This solid financial foundation positions us extremely well to fully capitalize on the substantial market opportunity ahead of us.

As we look ahead to Q3, we’re optimistic about the accelerating growth rates of our business and the continuing improvement in the advertising environment. For the third quarter, we expect revenue in the range of $56 million to $59 million, representing a year-over-year increase of 18% at the midpoint. We expect contribution ex-TAC in the range of $35 million to $37 million, a year-over-year increase of 12% at the midpoint. Non-GAAP operating expenses are expected to be $28.5 million to $29.5 million, representing a year-over-year decline of 14% at the midpoint. And finally, we expect adjusted EBITDA to be in the range of $6.5 million to $7.5 million, which represents a year-over-year increase of $8.8 million at the midpoint. In closing, Q2 marked another quarter of strong execution.

The power of our platform, combined with our unparalleled service, continue to be strong drivers in attracting new business and fostering growth in existing relationships. As the broader economy shows encouraging signs of improvement, we are well positioned to build on our momentum and further grow our market share. Our robust financial profile, disciplined cost management and relentless focus on execution position us to achieve strong topline growth and EBITDA margin expansion going forward. Above all, our dedication to delivering long-term value to both our customers and shareholders remains at the core of our mission. And with that, we have concluded our prepared remarks and I will now turn it back over to the Operator to open the video to questions.

Operator?

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Q&A Session

Operator: [Operator Instructions] First, I would like to call upon Maria Ripps from Canaccord. Maria, you can now begin.

Maria Ripps: All right. Thanks so much for taking my questions. Can you hear me okay?

Tim Vanderhook: Yes.

Chris Vanderhook: Yes.

Larry Madden: Yeah.

Maria Ripps: Yeah. Thanks so much. Could you maybe touch on how sort of the macro environment progressed throughout Q2 and so far in Q3 relative to your expectations? And were better-than-expected results more of a function of strong — maybe stronger broader macro environment or you’ve seen some signs that sort of suggesting that all the investments in the platform are enabling you to take market share?

Tim Vanderhook: Yeah. Larry, you want to take the first one.

Larry Madden: Yeah. I mean, I think, the key here is and we said this last quarter, it’s truly stabilized coming out of January, really the second half of last year into January, there was much more uncertainty and really since that point, we have seen a stabilization across the Board. Q2 grew faster than Q1. We expect that trend to continue in Q3. Part of that in Q3 at least is easier comps given that we were impacted last Q3 and Q4 by the macro challenges. But we are also winning a larger share of our customer budget. So it’s really two-fold in terms of the acceleration of growth rates.

Tim Vanderhook: On the…

Larry Madden: We’re not assuming that the economy is going to improve in Q3. We’re assuming it remains stable as it is today.

Tim Vanderhook: And on the second question, I do believe we’re gaining market share in the mid-market product is performing very, very nicely, our team is executing very well and we offer what they need, which is the household ID, the data platform, the level of analytics that the holdcos have to offer their customers. So I do believe it was macroeconomic improving somewhat, but I also believe that we are gaining market share in that mid-market area.

Maria Ripps: Got it.

Larry Madden: I would add one other point to that is, where we’re seeing the improvement in areas like retail and CPG, which had been down for a couple of quarters, that came back nicely in Q2…

Maria Ripps: Okay.

Larry Madden: That’s more of a macro development.

Maria Ripps: Got it. That’s very helpful. And then how much of incremental upside do you think it’s reasonable to expect as a result of with the 3P [ph] cookie deletion next year and do you think most marketers are sort of prepared for this transition at this point?

Tim Vanderhook: I would say that most marketers are not prepared for the transition. They continue to operate with the current platforms that utilize cookies until they don’t work anymore. There’s no point to make a change until they do. In terms of how to size the upside opportunity, I — my personal opinion towards it is that it’s an enormous wall of money that’s currently being spent that needs to get replatformed into platforms that operate in this new world of consumer privacy-friendly or a lack of identifiers in the old ways. So to me, a huge wall of cash that will be replatformed. Our platform has been out for multiple years now being tested, poked, prodded, questioned and yet it continues to deliver results that marketers are looking for in these environments and so I think we’re very well positioned as that shift away from cookie ovens.

Chris Vanderhook: And I think the larger one, just in terms of the market, Maria, if you look back to Apple’s changes with the IDFA, you saw the impact that that had on Meta and Snap immediately. A few quarters later, you saw that hit even YouTube. Most people aren’t focused on what’s happening in 2024 here when Google deletes the cookie. They’ve been somewhat muted around the Google’s mobile ad ID, but the same exact thing is going to happen. So we not only expect it to hit open web players that are completely cookie-based. We think that will be a beneficiary of that. But we also believe that this is going to hit Meta, it’s going to hit Snap, Google, all these other walled gardens that more money is still set to come out of those.

Tim Vanderhook: Yeah. Our estimate is Apple’s iOS was about a third of the ad spend. That’s how we — our best guess on social platforms like that. The Google change should have twice the size impact on those businesses. So it will be a tough challenge for them.

Maria Ripps: Got it. That’s very helpful. Thank you so much for the color.

Operator: Thank you. Next up we have Laura Martin from Needham.