DSP - NASDAQ

Hello, everyone. And welcome to Viant’s Third Quarter 2022 Earnings Conference Call. My name is Kelsey, and I will be your operator today. Before I hand the call over to the Viant leadership team, I’d like to go over just a few housekeeping notes for the program. As a reminder, this webinar is being recorded. And after the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] We thank you for your attendance today and I will now turn things over to Sandra Magnus with Viant Technology. Sandra, over to you.

Thank you, Kelsey. Good afternoon. And welcome to Viant Technologies third quarter 2022 financial results 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 that are based on assumptions and subject to future events, risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update 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 our entire Safe Harbor statement, please refer to the news release issued today, as well as the risks and uncertainties described in our registration statement on Form 10-K 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 GAAP to non-GAAP measures are included in the news release we issued today 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.

Thank you everyone for joining us for our third quarter earnings call. We posted good operating results in the third quarter amidst a challenging environment. Total advertiser spend on our platform grew 19% year-over-year, ahead of market ad spend growth rates as we continue to gain share in the digital advertising market. In the third quarter, revenue was $48.8 million, a decrease of 4% versus the prior year period and contribution ex-TAC was $32.1 million, a decrease of 6% versus the prior year period. Once again, advertiser spend on the platform was up significantly on a year-over-year basis and existing customers continue to transition their spend from fixed price contracts to master services agreements paying based on a percent of spend. This dynamic creates a drag on revenue and contribution ex-TAC in the near-term, but we expect that drag to subside in 2023. Our Adelphic DSP continues to resonate in market as a leading self-service platform to plan, buy and measure digital advertising across channels. We continue to expand customer relationships as many choose to consolidate their ad spend into our platform. Adelphic gives buyers the ability to programmatically access publisher inventory, saving them time and money. We allow buyers to target valued customers based on a variety of criteria and interests that are relevant to the customer. This results in a higher ROI for the buyer. Most importantly, we provide detailed reporting on campaign performance. This helps the buyer to assess the effectiveness of the campaign and make any necessary adjustments. These benefits are even more necessary in challenging economic times as buyers look to boost the return on their advertising investments. Before turning the call over to Chris, I want to take a moment to address what we are seeing across the macroeconomic landscape. While the growth in advertiser spend we saw on our platform in Q3 was strong, we saw a deceleration of advertising spend throughout the quarter and it is continuing into Q4. Specifically, deceleration in bellwether categories like retail has been significant and we will provide more detail on this slowing growth later in the call. Our company is nimble and able to quickly pivot as needed. This has been a crucial benefit during these uncertain times, allowing us to stay ahead of the curve and adapt as necessary. We delivered a 3% reduction in non-GAAP operating expenses in the third quarter compared to the previous quarter and we will continue to make changes to our product priorities so the company is in position to generate positive EBITDA in 2023. While we continue to adjust our costs to be more in line with the economic outlook, we continue to see strong long-term tailwinds. I would like to remind everyone of the three big tailwinds that have Viant poised for future growth. First, people still prefer to watch their favorite movies and TV shows through streaming applications. With large companies like Disney and Netflix releasing even more ad-supported content, we expect the growth rates for connected TV to be significant in the future. Marketers will continue to shift more of their budgets away from traditional TV in favor of streaming. The addressability of connected TV enables marketers to achieve higher ROI than linear television and we see ourselves as a beneficiary of the more than $60 billion still to be shifted to programmatic over the next five years. Next up is emerging channels. We have always focused on emerging channels as they are the green shoots to large future tailwinds. Connected TV used to be an emerging channel for us, but it is now one of our largest channels. The next two big emerging channels are streaming audio and in-game advertising. Streaming audio has become the go-to method for listeners to consume music, books and podcasts. There is a significant opportunity for marketers to take advantage of programmatic buying in this very fast-growing and important channel. Although streaming audio only makes up 6% of total spend across our platform today, its addressability and measurability are almost identical to connected TV. The growth rates of streaming audio over the past year show that it definitely has the potential to be a game changer in the industry as advertisers better understand how best to incorporate audio into their media plans. As for the in-game advertising opportunity, this sector of the industry is moving quickly with new ad formats and ways to place ads programmatically. Viant recently announced that we are the first DSP to offer our customers programmatic access to buy ads inside of Minecraft, reaching millions of highly engaged users who spend hours in this unique environment. This entertainment form may be relatively new to programmatic advertising, but it has already gathered a large fan base, resulting in many potential future possibilities for the digital advertising industry. Last our focus on building measurement and performance based ad buying capabilities will deliver strong growth in any type of economy. Our goal is to be the most measurable platform for our advertisers delivering the highest ROI. Viant long-term view on the opportunity ahead remain as strong as ever, while we must acknowledge the challenging business environment we also believe that rich capabilities and flexible nature of our platform in times of shifting consumer sense makes our offering all the more valuable. I will now turn things over to Chris to discuss some key strategic updates across the business. Chris?

Thanks, Tim. In the third quarter, we continue to expand our capabilities and partnerships, bringing more value to our customers, while building out one of the leading self-service platforms on the market today. We continue to see marketers and our agencies seeking independent omnichannel DSP that is fully self-service has industry-leading integrations across all channels and a strong measurement offering that accurately calculate return on ad spend, again, reinforcing our leadership position as a DSP with the strongest measurement capabilities, a point of differentiation that brings strong tailwinds of untapped spending behind it. Over the last year, we have seen strong customer wins with the number of active customers increasing 10% year-over-year. Additionally, spend per active customer increased 18% over the same period. As advertisers experienced strong campaign performance, they continue to consolidate their spending in Adelphic across all channels. The vast majority of buying customers spend through two or more channels with an increasing number spending across more than three channels. In Q3, we saw strong year-over-year growth in advertiser spend across our largest channels. Connected TV growth accelerated from 2% in Q2 to 13% in Q3 and audio grew 51%, audio now represents 6% of total advertiser spend and is now on a growth trajectory to what we saw similar to a few years ago with Connected TV. We also saw strong growth of 25% across mobile and desktop. The fact that we are omnichannel, meaning connected TV, desktop, mobile, audio, digital out-of-home and in-game is a major benefit to advertisers given the uncertainty in the economy. It means that we can give them greater flexibility to shift budgets that drive the highest ROI, a benefit that is not present in many walled gardens. Open web programmatic platforms that operate across all channels will be the beneficiaries of the spending fallout from walled gardens. I’d also like to comment on the macro environment with respect to spending on our platform. We saw strong growth in the third quarter in categories such as travel and financial services. We recorded record growth in political advertising spend in Q3. Although, I would caveat that by saying this category represents a small percentage of overall advertiser spend on our platform, but gives us confidence to continue to focus on growing this category in future periods. Although we had a strong year -- although we had a strong year-over-year growth in spend of 19% in the quarter, we did experience a slowdown in certain verticals. We continue to see lower than normal spending in verticals like automotive and CPG, but we also saw our fastest growing category, retail, began to show signs of softness in Q3 that is now extending into Q4. Amid the backdrop of the slowdown in the spending, we have been staying close to our customers. We are continuing to see greater focus by clients around measurement, which ultimately means they want performance-based results from their ad spending. These factors are narrowing our product roadmap focus as we move into next year. One of our biggest product priorities will be to continue our industry-leading work in measurement. A substantial number of our customers rely on our unique management capabilities to drive campaign performance. As performance-based buying increases throughout a recession, our platform leadership and measurement will allow us to consolidate more spend. As campaign performance continues to be a top priority for advertisers. We continue to invest in products, utilizing machine learning and artificial intelligence that further improve campaign performance in an automated fashion. Our clients are seeing a lot of success in Adelphic with these products. This will not only drive more spending on our software, but it will save our customers time and money. I have talked previously about our focus on building automation within our software as a core differentiator and this area is an important component of that. On the partnership front, we recently announced an integration with Snowflake that will allow any Snowflake customer to match their customer data with our Household ID. Many advertisers, data companies and content owners are hosting their data with Snowflake. As less data is available in the midstream, inoperability with companies like Snowflake will offer content owners to easily authenticate their users to allow for addressable advertising to be measured. This will be a big win for content owners and advertisers as the industry moves towards responsibly delivering addressable advertising, while eliminating reliance on Apple and Google. Lastly, I am extremely proud of the industry-wide recognition of our category leadership. We are once again named as the leader in demand-side platforms by G2 in their Fall 2022 Grid report. Additionally, this quarter G2 also recognized Viant as a leader in their Enterprise Grid Report for cross-channel advertising. This is third-party validation based on the strength of our self-service platform for omnichannel advertising stems directly from the value we provide to customers. The platform advances we are focused on today will help set us up as we move forward for sustainable long-term growth and ongoing market share gains. We are an independent buy-side platform that is well positioned in the market with a fully self-service solution, industry-leading integrations across all channels and a leading measurement offering. Let me now turn things over to our CFO, Larry Madden, to discuss our financials. Larry?

Thanks, Chris, and thank you, everyone, for joining us today. Before I begin, I’d like to remind everyone that we have posted a presentation to our Investor Relations website with supplemental financial information to accompany today’s presentation. As Tim mentioned, we are pleased with the level of advertiser spend across our platform in Q3, especially considering the current state of the economy. Advertisers spend across our platform increased 19% in the quarter over the prior year period, reflecting continued market share gains and both revenue and EBITDA were within our guidance for the quarter. This afternoon, I will be discussing some of the highlights of our Q3 performance, the key financial and operational drivers during the quarter and our current expectations for Q4. In terms of topline metrics for the third quarter, as I said, advertiser spend across our platform increased 19% over the prior year period and 1% over the prior quarter. On a year-to-date basis through September, advertiser spend has increased 30% from the prior year. In the third quarter, revenue was $48.8 million, a decrease of 4% versus the prior year and 5% versus the prior quarter. And contribution ex TAC was $32.1 million, a decrease of 6% versus the prior year period and an increase of 1% over the prior quarter. As a reminder, revenue from our percent of spend pricing option is recorded at -- is recorded after deducting traffic acquisition costs or TAC, whereas fixed price revenue is recorded before deducting TAC. Therefore, as the percent of spend, pricing option continues to make up a larger part of our advertiser spend mix relative to the prior year period, we will have a near-term drag on our revenue and contribution ex-TAC growth rates. While the impact of this mix shift has negatively impacted revenue and contribution ex-TAC growth rates in 2022 relative to advertiser spend growth rates, we have seen such growth rates begin to converge over the last two quarters and we expect that trend to continue to improve as we move forward and the impact of the mix shift becomes less significant. As we mentioned on our earnings call, beginning mid-Q2, some customers began reducing their normal spending levels due to the adverse macroeconomic environment. This trend continued throughout Q3 with year-over-year growth rates decelerating throughout the quarter. The pullback has been especially pronounced across our fixed price pricing action, which tends to be less resilient during challenging macroeconomic times. Conversely, our percent of spend pricing option has demonstrated much greater resiliency as evidenced by our customers continuing to adopt and increase their spend using this pricing option. The growth in spend on the platform in 2022 continues to be driven by new and existing customers expanding their use of our platform through our percent of spend pricing option. Increasing customer adoption of our percent of spend pricing option has always been our goal as we believe it creates a deeper relationship with our customers and provides for more consistent, predictable long-term value creation. We believe that the lifetime value of a customer using our percent of spend pricing option is significantly greater than that of a fixed price customer. As a percent of spend customers ramp spend over time, they consolidate budgets on our platform, leading to higher retention rates. In Q3, customers using our percent of spend pricing option on average nearly 3 times that of customers using our fixed price pricing option. Non-GAAP operating expenses, which is defined as the difference between contribution ex-TAC and EBITDA totaled $33.9 million in the quarter, representing a year-over-year increase to 23% and a quarter-over-quarter decrease of 3%. The year-over-year increase is the result of investments we made over the last 18 months to enhance our product capabilities and expand our sales and technology teams. We have been investing to scale the business, accelerate growth and drive market share gains. However, as Tim discussed, given worsening macroeconomic conditions, we significantly slowed the pace of investment in Q3 and reduced non-GAAP operating expenses in the quarter by 3% versus Q2. For the quarter, we generated adjusted EBITDA of negative $1.8 million, which was in line with our expectations. For the quarter, our non-GAAP net loss, which excludes stock-based compensation, totaled negative $4.4 million and non-GAAP loss per diluted share of Class A common stock was negative $0.06 for the quarter. From a liquidity perspective, we ended the quarter with $200 million in cash, $229 million of positive working capital and no debt. With that, I will now turn to our guidance for Q4. Many of our advertisers are navigating a challenging environment with higher inflation and weakening consumer demand, which creates a volatile demand environment. Given this uncertainty, we believe there could be a wider range of outcomes for Q4, which is reflected in our guidance. The pullback in advertiser spend we experienced in Q3 due to the worsening macroeconomic climate is continuing Q4. Since June, we have seen year-over-year growth rates in advertiser spend decelerate each month with spend across our fixed price pricing option actually declining over that period. As I said, fixed price tends to be less resilient during adverse macroeconomic times as compared to percent of spend. Additionally, Q4 is being negatively impacted by a challenging fixed price comp in Q4 of last year. In Q4 2021, we did exceptionally well in the jobs and employment customer vertical across fixed price. These customers spend significantly to close out 2021 in an effort to capitalize on the heightening demand for labor. In 2022, customers across this vertical have significantly reduced spending across the board as the labor market is cooled, with many companies either freezing hiring or announcing layoffs. As Chris mentioned, growth across our largest customer vertical, retail, also slowed significantly in Q3, as a result of the challenging macroeconomic environment. That trend has continued into Q4 and we now expect spend across our retail vertical to decline in Q4. Based on these factors, we expect advertiser spend to decline in Q4 between 11% and 20% year-over-year. On a quarter-over-quarter basis, we expect advertiser spend to increase between 1% and 11% over Q3 levels, which is well below the normal seasonal uptick we typically see in Q4. For Q4, we expect revenue in the range of $52 million to $57 million, which represents a year-over-year decline of 31% to 37%. The pronounced decline in revenues due to expected declines across our fixed price pricing option due to the factors discussed, partially offset by continued growth across our percent of spend pricing opportunity. The expected year-over-year decline in revenue across our jobs and employment customer vertical is driving half of the total expected revenue decline at the midpoint of our guidance for Q4. The good news is that we do not expect potential continued weakness across jobs and appoint verticals to have a material impact on 2023, as spend throughout 2022 across this vertical was de minimis due to the challenges in the labor market. Contribution ex-TAC is expected to be in the range of $32 million to $35.5 million for Q4, which represents a year-over-year decline of 27% to 34%. Importantly, in Q4 contribution ex-TAC is expected to decline less than revenue. This is being driven by the increased mix of spend across the percent of spend model versus fixed price versus the prior year. This is a trend we expect to continue going forward as fixed price becomes a smaller and smaller percentage of total spend. In Q4, we also expect advertiser spend growth rates and contribution of TAC growth rates to further converge as fixed price continues to represent a smaller share of the total metrics, another trend we expect to continue as we move into 2023. In terms of non-GAAP operating expenses for Q4, we now expect a range of $33.5 million to $34.5 million, which represents a year-over-year increase of 8% to 11% and a quarter-over-quarter change of negative 1% to positive 2%. As we mentioned, given the ongoing macro uncertainty we intend to rigorously prioritize and aggressively manage costs. For 2023 we intend to align our cost structure such that irrespective of the challenges that the economy may pose we are positioned to deliver positive EBITDA for the year. And finally, we expect EBITDA in the range of negative $1.5 million to positive $1 million in Q4. In closing, while inflation, supply chain shortages and higher interest rates, among other factors, are contributing to a difficult market and certainly represent a near-term headwind, we remain confident in our ability to deliver long-term topline growth and EBITDA expansion. We believe our points of differentiation will enable us to successfully capitalize on the market opportunity in front of us. We are confident that our strong balance sheet and disciplined cost management during these challenging times will enable us to weather this economic storm and come out the other side even stronger. That concludes our prepared remarks today and with that I will now turn back over to the Operator to open the video to questions. Operator?

Great. Thank you so much, Larry. [Operator Instructions] And our first question will come from Laura Martin with Needham & Company. Laura, please go ahead. Laura, you are currently muted, if you go ahead and unmute. Yeah.

Right now I got it. Okay. Sorry.

No problem.

Different technology, I am still working on my phone. Okay. I got two. So the first one is, one of the great things about your ID tracking has been it’s been a Household ID. And one of the things we are hearing from D.C. is that what the regulators may go after next is ISP privacy. Would that affect your Household ID or is your Household ID not dependent on ISP data in the home?

Our Household ID is not dependent on ISP data in the home. So I don’t believe it would have any impact.

Fantastic answer. Okay. Great. So the other thing is, I just want to make sure I understand this guidance. So we are going to go from 19% growth in Q3 to negative 11% to negative 20% growth in Q4. Am I reading that right?

That’s correct.

So what did they do? They just left and went to Hawaii. How is this kind of decel possible in a 90-day period?

Well, as Larry mentioned, we have seen continual deceleration since about June, although, every single month as the economy continues to worsen. I think the biggest impacts on ours jobs was a pretty significant contributor, that’s contributing to a large chunk of that spend decline with that industry being in a very different place this year than last year. And the second one I would point you is retail spending, we are expecting to accelerate year-over-year.

Guys are cancelling their ad campaigns is what that means for fourth quarter.

I think you are just not seeing the holiday, the bump in holiday spending that you always see. And you could see -- we are not really seeing it into the fourth quarter. Predominantly in retail, that’s the big drag and that’s where we have been doing extremely well. It’s been our fastest-growing category. But, yeah, we just really haven’t seen a lot of it show up in the fourth quarter.

Okay. Thanks, guys.

And one point on that, just to be clear, it’s not that we lost any of those customers or anything like that. We just haven’t seen the increase in spending.

I would add one thing as well. I mean we are seeing it more on the fixed side -- fixed price side of the business. Percentage spend side continues to grow. We expect it to grow in Q4. We expect it to grow at faster than the market. And we expect that to continue going forward. And now a percentage of spend is by far the majority of our spend. But the impact to fixed price is particularly negative on the revenue growth and the ex-TAC growth.

Thank you.

Thanks, Laura.

We will move on to Andrew Boone with JMP.

Hi, guys. Thanks for taking my questions. I wanted to touch on that last point in terms of thinking about holding on to these clients through the downturn. Can you guys talk about what you are doing to just make sure that in -- whether this is six months, a year, a few weeks that they are there on the other side of this.

Yeah. So the first thing I would say is, that we are certainly seeing a greater focus, as I spoke about earlier around performance-based campaigns as opposed to more brand-based campaigns. So we see a shift going on there. We think we excel there. So -- and I know that I specifically think within retail, but this really reaches more broad than just retail. We are doing really well there. What today though is how long it lasts, I can’t predict what -- most of this is macro. Nearly all of this is macro, so I can’t predict on when that lets up. But what I will say is about, an open web platform that is in all these channels or those omnichannel like we are, it gives them the option ability to continue to shift their spending with the same company and the same software to get the highest ROI. Why is that important? [Technical Difficulty] that, single-channel companies, like some of the walled gardens are strictly a mobile app. If they start performing in that mobile app or particular operating system, they pull the budget. So our system is set up and you are seeing, I talked about this too, we are now -- the majority of our customers are buying in three or more channels, which is incredible and it shows you how they can easily shift spends and the platform does that in an automated way for them to reach whatever ROI goals that they have. So I am not worried about losing these customers at all. I think that’s a factor. It really is macroeconomic and I would say too, for most of these customers talk, that I think, their businesses are certainly damaged. I think that if the uncertainty of what’s going to happen in the economy and consumer spending uncertainty is what’s giving pause to a lot of these marketers, both in retail and in other categories.

Going to the deck, auto and CPG were down 21% year-over-year. We have highlighted auto in past, it is vertical that stop you guys I think one, like a year and half ago. Can you just talk about the process you guys are going through in terms hardening the platform for diversification that you guys have across your advertiser set. Yes, you have done a good job by adding more clients, just where are you guys in terms of just broader and -- broadening the exposure to various verticals?

Yeah. Well, look, we invested in our sales force substantially leading up to this point and I think they are out pounding the payment to find different categories of advertisers that are looking for programmatic advertising or a demand-side platform that’s out there. Most are currently utilizing a DSP and we are having active conversations with them regularly. I think in terms of diversification, I know -- or revenue concentration, Larry, do we have any concentration issues?

Not. No. Not at all. Retail still is our largest, even though it is declining at this point. But there’s no one -- and we have grouped our verticals pretty broadly. There’s no one vertical that’s more than 18%, 17% of our total spend.

But what I will say in terms of diversification, Andrew, reading in your question a little bit. On the jobs and employment, as Larry stated, we don’t have -- there’s no material impact on that -- on us on a go-forward basis. There was a big heavy up in that category towards the end of last year and that category has largely dried up understandably. Outside of that, we are -- I will say that we have constantly broke a lot of new categories. Every few years, there’s a new category of advertising that pops up or becomes large. So I will give you an example like in the casino and online gaming space. We have done extremely well there. That was a category that largely didn’t just a few years ago. So we mobilized pretty quickly around that. And as typical recessions go, some categories are down and new ones pop up and we are usually pretty quick to attack those.

One more and then I will pass it on. You guys highlighted EBITDA in 2023. Clearly, you have made significant investments in the salesforce over the last kind of year. Can you just talk about your priorities in terms of investments that you guys want to maintain or continue to focus on as we think about EBITDA profitability for 2023?

Definitely. I think we are going to remain opportunistic around -- our priorities will be around product and engineering. Although, what I will say is, we are not going to spend like crazy there. We are going to be measured, but we know that there’s great talent in the market and it is a great opportunity to pick up that tone. We have a great product roadmap as well that we are really confident in. But just, overall, what we will say is that, we are going to be measured around our cost next year. And regardless of what happens in the economy, we are going to set up going into the year that we will deliver positive EBITDA in 2023.

Thanks, guys.

[Operator Instructions] And we will now hear from Maria Ripps with Canaccord.

Hi, Maria.

Yeah. Thank you so much for taking my question. I just wanted to expand on the last question around verticals and my apologies if this was already covered. So we are hearing about very early signs of recovery in the auto vertical. Is that something that you are sort of seeing on your end and could this be sort of an area of upside over the next couple of quarters?

Well, on…

I…

I converted -- go ahead, Larry.

I was just going to say I can take that. That -- as you know, we have talked about it a lot, that vertical has been down probably eight quarters at this point. It represents a relatively small percentage of the total. But we are actually seeing signs in Q4, interestingly enough of that starting to turn to the positive.

Great. Thank you so much. That’s all I have.

And we will now hear from Andrew Marok with Raymond James.

Great. Thanks for taking my questions. You have spoken towards this point, I think, a little bit previously in the Q&A session. But just to the extent that the reduced spend outlook is the result of companies either shutting down ad spend or pulling back on ad spend more broadly or just kind of consolidating the number of partners that we are -- that they are working with. Just trying to think of the differences between those two scenarios and how easy it would be to reacquire that business once either spend or the relationships came back?

Yeah. That’s a good question. Thanks, Andrew. No. I don’t -- in our case, it’s not that we have lost those customers and they have shut down spending entirely. With the exception of what I would say of this jobs vertical, and again, I don’t -- we haven’t lost those customers. It’s just due to the environment that they have really no dive a lot of the spend there. But what I will say is, yes, to your point, we are fully confident. We still have those clients. They are still in our software. It’s more of a deceleration of spend. But we are fully confident that when that spend comes back, it will be in our software.

Yeah. And just to remind everyone, this is the benefit of programmatic advertising. It’s the flexibility to pause budgets when your business needs to pause budgets, but programmatic advertising is the first to turn back on as soon as they are ready to reaccelerate. We have seen this cycle many, many times and I am sure this is just a low, while they are fixing their own business and the programmatic advertising will be the first button that they pushed to turn back on.

Got it. Thank you. And then one more, if I could, reading through the slide deck, it looks like you are reiterating your intentions for $500 million in revenue by 20%, 25% and 35% EBITDA margins. I guess in light of the tough conditions now and assuming that maybe lasts into early 2023, can you kind of just draw that line for us and how the thinking around the trajectory of that has changed? Thank you.

Yeah. I mean based on when we look at our current customers, the cohorts and the expected growth with the expected new customer acquisition, I think, where that could go arrive if new customer acquisition has a hiccup in the first half of 2023, maybe in the outer cohorts. As we see it, though, we believe we have the customers on the platform and the scaling of those cohorts is continuing as planned. We talked about the percent of spend business model still doing very well and we are winning customers and they are consolidating more spend. So I don’t see any need that puts risk to that 2025 number in my mind. Chris, anything else to add?

No.

Great. Thank you.

Thank you.

Craig-Hallum’s Jason Kreyer has been the next question.

Okay. Very well. I want to talk about the cadence of Q3 and Q4 just from a channel perspective, you highlighted in Q3, the reacceleration of CTV and audio. Just as you go into Q4, are you still seeing more resilience there or are there specific categories that are falling off versus others that are holding up better?

Yeah. I mean, we didn’t give any -- hi, Jason. We didn’t give any guide around that. I’d have to get back to you on those splits. I mean I think what we are seeing is that -- really we are seeing an uptick -- if you look at our guide, we are seeing an uptick from Q3 overall. But I would expect it to be largely consistent with what we saw in Q3. But I don’t have a split for you right now on where we are in the quarter and our guide admittedly was a little bit wider than we normally would give. And part of that is just we are seeing such a late planning cycle very similar to coming out of COVID. There was a real late planning cycle coming out of COVID really for the balance of 2020 and we are seeing that again. And so we still think that -- and I know speaking with some clients, they are still budgeting up in the air even for December, which typically you don’t see. It’s already largely planned by this point. So, tough for me to give you a read on that, but just off the top, I would say, I would expect it to be largely consistent.

But broadly speaking…

Yeah.

… we have seen brand advertising budgets give way to performance advertising budgets and I think that’s the overarching shift that most advertisers have right now. Larry?

I was going to get a little bit more specific. It is, in fact, kind of consistent across the channels, With the exception being streaming audio, which continues even in Q4 to grow, albeit a relatively small percentage of the total.

Okay. Larry, maybe stick with you just on the pricing models, when a customer that, when an advertiser on the fixed fee model sees some of that pullback, does that give you the opportunity to convert them over 2% spend and that usually lead to more client churn and then the opportunity to get them back on the platform in a quarter or two?

Yeah. I think it’s more of reducing those budgets and/or posing some of those budgets. As Tim was mentioning we are not -- the clients aren’t leading, there’s always the opportunity and we are always pushing clients to convert to percentage of spend, it really depends where they are in their kind of programmatic life cycle, in terms of whether they have the trading capabilities, et cetera. But we are constantly talking to our fixed price clients about converting. So that doesn’t change. We do that in tough times and in good times.

Thank you.

And we will now hear from Chris Kantareg [ph] with UBS.

Hi. Can you hear me okay?

Yeah. Go ahead, Chris.

Great. Hi. Chris on for Lloyd. Just maybe digging into the advertising spend guide for 4Q and trying to understand the delta between the down 11% and down 20% that you are guiding to? Should we be thinking about -- I guess, how should we be thinking about retail playing into how you would end up as down 20% versus down 11% in 4Q? Would it be an acceleration of those decelerating trends? Are we already at negative spin in October? Just curious how we should be thinking about retail specifically playing into that guide?

Larry, do you want to take that.

Yeah. I mean, firstly, in terms of kind of where we are, obviously, October’s in the back. October it was, we saw a low single-digit decline and consistent really with the last four months or five months each month since really June, the decel increases. So we are seeing that into November, that November is going down a bit more than October went down. On the retail side it is impactful, because we do expect that to decline. As I said earlier, that is our largest vertical and so the impact of that is certainly an important part of it. In terms of the range, I mean, it’s -- just given the significant uncertainty out there. We are just being pragmatic in terms of giving a wider range than we ordinarily would, especially mid-quarter. Just to -- not fully understanding exactly what’s going to happen? We have a good sense of what’s going to happen. But we felt the wider range made sense given the increased uncertainty.

Got it. And as we have kind of think about those, like, Tier 2, Tier 3 type of verticals, the long tail for you. Is that at all -- is there an assumption baked into that guidance that it starts to -- the weakness that you are seeing in a couple of these verticals starts to widen out or is it really we should be thinking about retail and jobs is already kind of baked in?

I think that is true. There are -- I mean as in -- what we went through with COVID, there are certain verticals that actually are doing better, but certainly retail, jobs, travel, for example, is still strong even in Q4 to give you a sense.

And then…

Again to answer specifically, certainly it’s baked in to the guide, retail…

Okay.

Retail and…

I see.

I just lost my train of thought…

Jobs.

Jobs. Thank you.

Got it. Okay. So further weakness in retail, but not at an accelerating pace of that retail weakness, if that makes sense.

Well, certainly accelerated downward from Q3.

Okay. Okay. And just maybe stepping back to just thinking about 2023 and the return to profitability, just how should we be thinking about like scenarios for you to return to double-digit type of EBITDA margins for next year? What would need to happen for that to play out?

I think as we look at, it will take an acceleration of spend to get back to that double-digit EBITDA. I would just say we slowed the pace of our hiring plans pretty tremendously relative to what we were thinking at the start of the year and we kind of will stay ahead of the curve. In terms of just overall operating expenses, they are very much under management’s control. There’s nothing that we feel like we have to keep spending on to be able to achieve growth in the future. It’s more about just managing through this mid- to near-term hiccup.

Understood. Thank you.

That concludes our question-and-answer session for today. Tim, Chris or Larry, do any of you have any closing comments for today?

That’s it. Thanks for joining the call and we will see you next year.