MNTN - NYSE

Hello, and welcome to the MNTN Third Quarter 2025 Results Conference Call. [Operator Instructions] I would now like to turn the call over to Brinlea Johnson. Please go ahead.

Good afternoon. Thank you for joining us for MNTN's Third Quarter 2025 Earnings Call. With me today is Mark Douglas, CEO; and Patrick Pohlen, CFO. Just to remind everyone, today's call includes forward-looking statements that are subject to risks and uncertainties, and actual results could materially differ from those anticipated in these forward-looking statements. For the risks and uncertainties that may affect future results, please see our most recently filed periodic report, which is also available on our website. we will discuss non-GAAP financial measures on today's call. Reconciliations of these measures are available in our earnings materials on our website. With that, I'll turn the call over to Mark. Please go ahead.

Thank you for joining us today. We had another strong quarter with revenue and adjusted EBITDA growth, as well as positive net income. But before we get into the numbers, I want to take a step back and talk about what makes MNTN different, why this moment in time is so exciting and where our next stage of growth is coming from because understanding MNTN is key to understanding our results, and this quarter's success is a direct reflection of our strategy and technology. I founded MNTN with the mission to democratize television advertising. For decades, the industry has been dominated by the 200 biggest advertisers, big brands with big budgets and big agencies to support them. We built MNTN for everyone else. MNTN is focused on the millions of other small and medium-sized businesses that never thought they could afford to advertise on television. One thing I've said before, but you'll hear me say over and over, 97% of MNTN customers have never run a TV ad before coming on to MNTN. This means we're bringing new people to TV advertising and creating our own category. For years, these small to medium-sized businesses have served as the real growth engine of digital advertising because they are focused on one thing, performance marketing. They expect their advertising investments and platforms to be measurable, targetable and as ROI-driven as search and social. TV could never be bought and measured the way digital could, and that kept a lot of businesses shut out of one of the biggest opportunities in marketing. That changed when we built MNTN Performance TV, a self-serve platform that makes connected TV measurable, accessible and performance-driven. Today, MNTN advertisers can launch campaigns across more than 200 premium streaming networks like CNN, Paramount+, Bravo, ESPN and more. They can target audiences using real intent data powered by AI and measure actual business outcomes like site visits, conversions and return on ad spend. That's a monumental shift for television advertising, transforming TV from a branding medium to a true performance channel. Let's not forget, television is still the most powerful medium in the world. Every day, more than 5.5 billion people watch TV for an average of 3.5 hours, more than the nearly 4 billion who use social media and more than any other form of entertainment. It's what people talk about at dinner, not the video they scroll pass on social media, but the season premiere of Landman, the finale of White Lotus or that last game of the World Series. And the way we watch TV has fundamentally changed. Connected TV is now the fastest-growing segment in all of advertising, and it's not slowing down. Yet despite that growth, CTV remains undermonetized because most of the spend still comes from a small number of large brands. TV had never traditionally been considered performance channel, only brand. We're changing that. MNTN is bringing the small business revolution to television just as Meta did for social and Google did for search. More than 80% of digital ad spend on these platforms still comes from small and midsized businesses. But TV has historically been out of reach for them. We're opening that door and unlocking the next wave of growth for Connected TV. Streaming TV captures the attention of consumers with professionally produced content that costs millions to make. And now with MNTN, every business can reach their next customer alongside that same premium content. It resonates in a way that other media just can't. That's the magic of television. And now with MNTN, every brand can be part of it. Our Performance TV platform is the most advanced software in Connected TV, and it makes getting an ad on TV simple. Advertisers can launch, manage and optimize campaigns entirely on their own in a self-serve environment that delivers real-time results. Everything is automated from targeting to optimization, bringing the precision and accountability of digital performance marketing to television. Performance TV gives advertisers of every size the ability to run measurable performance-driven campaigns across the best and biggest streaming networks in the world. And we didn't stop there. We've also removed one of the biggest barriers to TV advertising, creative. While creative might seem like a commodity, for our customers, it's an [ on-ramp ], a critical enabler that helps them get started quickly and stay engaged within our ecosystem. So we've built a complete suite of creative tools to meet every brand where they are. It started with our acquisition of QuickFrame, which connects brands with a marketplace of over 5,000 vetted video professionals quickly and affordably. It expanded through our continued partnership with Ryan Reynolds, George Dewey and the Maximum Effort team. Then last week, we took that even further by launching the public beta of QuickFrame AI, a new platform powered by the best generative AI models out there that lets advertisers create complete TV spots in minutes. We've lowered the barrier to creating an ad, a huge enabler that accelerates how quickly businesses can launch on MNTN and bring their stories to TV. It's simply helping more customers say yes to television. As we scale, our buying power and optimization technology drives lower cost per view and therefore, stronger returns for our clients. The more advertisers that join MNTN, the more efficient the platform becomes. Our buying power drives down costs. Our optimization technology improves performance. And as our customers see stronger return on ad spend, they invest more. That creates a virtuous cycle. Scale drives efficiency and efficiency drives growth. And because our model scales with efficiency, not headcount, every new advertiser strengthens our unit economics and improves performance across the entire network, the true definition of a flywheel effect. And as a result, our Performance TV business has averaged 39% year-over-year growth for the past 6 quarters, and our customers are seeing great results. Take [ Fazzo ], a fast-growing e-commerce brand that sells personalized apparel and home goods. They started testing MNTN last summer. What began as a small trial quickly became a core performance channel with spend more than doubling year-over-year, verified visits up over 120% and a return on ad spend consistently above 20x.

Thank you, Mark. We reported strong third quarter results, delivering on our prior revenue guidance and exceeding our previous adjusted EBITDA guidance. Our solid performance reflects continued customer adoption of Performance TV, particularly by small and midsized companies that had not previously advertised on television. Our third quarter revenue increased to $70 million, up 31% year-over-year after adjusting for the divestiture of Maximum Effort on April 1, 2025. Please note, we included a table in our press release and in our investor presentation that breaks out our growth over the past several quarters, both including and excluding the prior year's contribution from Maximum Effort. On a GAAP basis, which includes the prior year's contribution from Maximum Effort, total third quarter revenue grew 23% year-over-year. Gross margin for Q3 increased to 79% compared to 72% in Q3 of 2024, an increase of 720 basis points. We continue to drive additional gross margin improvements across our core business and believe we have a number of levers that we can use to maintain and grow our gross margin on a year-over-year basis. The table we included in the press release and in our investor presentation also breaks out the gross margin contribution from Maximum Effort. You can see that of the 720 basis point year-over-year improvement in our reported gross margins, our core PTV business improved over 400 basis points with the balance coming from the impact of the Maximum Effort divestiture. As you can see from the table in our earnings release, at the end of Q3, we had 3,316 active PTV customers when measured over the trailing 12 months. On a year-over-year basis, this represents growth of 67%. Recently, we have made inroads moving down market into the SMB market opportunity, which we believe is a testament to the strength of our platform and to its applicability across companies of all sizes with performance marketing budgets. This initiative has helped support the strong growth of our customer base. Accordingly, our calculated Q3 ARPU, which reflects this increased mix of smaller customers on our base, was $20,904, in line with our expectations. Our expansion rate, which measures the spend of our current customers as compared to those same customers' spend a year ago, is quite healthy and remains well north of 115%, demonstrating that when our customers achieve their desired returns on advertising spend, they continue to increase their budgets with us. Total operating expenses for the third quarter were $47.7 million. We achieved positive net income of $6.4 million for a GAAP EPS of $0.09 a share. Of note, this was the company's first quarter of GAAP profitability in the last 4 years. Adjusted EBITDA was $16 million, up from $10.5 million in Q3 of '24, an increase of 52.9%. The company's adjusted EBITDA margin grew to 22.8% compared to 18.3% in Q3 of 2024. This improvement was driven by increased revenue and gross margin expansion and demonstrates the leverage inherent in our model. We will continue to invest strategically in sales and marketing and R&D to support future revenue growth, while remaining focused on delivering operating leverage. Our balance sheet remains strong, and we ended the quarter with $179 million in cash and cash equivalents with no debt outstanding. We ended the quarter with 73.2 million shares outstanding. Looking ahead, we remain confident in our momentum and the underlying health of our business. For Q4, which is typically a seasonally strong quarter for us, we expect revenue in the range of $85.5 million and $86.5 million, representing a 34% year-over-year growth rate at the midpoint of $86 million when normalizing for the effect of the divestiture of Maximum Effort. This translates into a reported GAAP growth rate, which includes Maximum Effort in the year ago, comparison of 23.2% at the midpoint. We expect adjusted EBITDA to be between $25 million and $26 million, reflecting continued leverage as we scale the business, while continuing to remain disciplined in our investments. Our Q4 guidance implies full year 2025 revenue between $288.5 million and $289.5 million, representing 35.5% year-over-year growth at the midpoint when normalizing for the effect of the Maximum Effort divestiture and 28.1% year-over-year growth on a GAAP basis. 2025 adjusted EBITDA would be between $64.9 million and $65.9 million for an EBITDA margin of 22.6% at the midpoint. To wrap up, we delivered another solid quarter and believe MNTN will continue to gain market share in the massive Performance TV market. We are confident that our future growth initiatives and the strength of our operating model will position MNTN to drive continued growth and profitability. With that, we will open the line for questions.

[Operator Instructions] Your first question comes from the line of Shyam Patil with Susquehanna.

Mark, you mentioned that you guys are averaging almost 40% year-over-year growth over the past 6 quarters, which when you look at the overall market that you're in, it's by far the highest growth rate in CTV. Can you just talk about what's driving that? And then, how you think about the runway ahead of you from here?

Sure. Thanks for the question, Shyam. So there are a number of growth drivers in place for the business. And so, I'll start with the business ones first. You're seeing accelerating new customer growth. So that's as a result of our continued investment in marketing and sales, as well as our expansion in the small business. Our expansion rate is well north of 115%, meaning new customers are spending more over time. And we have a really efficient go-to-market motion. So approximately 3 years ago, 2% of our leads came -- were inbound. Now, that percentage is, north of 75% is inbound. That's a direct result of our marketing investment. But there's also technology, so improved targeting, the MNTN Matched, which is our AR targeting system. We have partnerships with over 200 premium streaming networks. So we have the right content. And now, I think QuickFrame AI is really critical. You can get true 30-second professional-quality videos using AI technology, and we have a number of partnerships for that. So all of that combined is driving the growth, and it's going to continue to drive the growth. And we're really early, by the way. I mean, this market is huge, and we're really just at the early stages of really monetizing this market to the levels of search and social. So we're pretty excited about that.

Your next question comes from the line of Robert Coolbrith with Evercore ISI.

Congratulations on the solid results. I wanted to ask about your expectations for the QuickFrame AI launch. How do you think that could impact your close rate, your time to get customers up and running, and then, also maybe the rate of creative refresh for your existing customers as well? And then, secondly, I just wanted to ask about the sales and marketing expense in Q3. It looked like that ticked down a little bit sequentially. Just curious if that was increased efficiency or maybe a timing difference around the QuickFrame AI launch. Anything else you could tell us about that?

All right. Thanks for the question. So the way to think about QuickFrame AI is, 97% of MNTN's customers have never advertised on TV before. So they don't have TV commercials when we meet them. And so, we want -- we've always addressed that problem. We want to do even more. So the way we see it is, QuickFrame AI is an accelerant. It's basically an enabler for our customers doing a few things. One, it's going to shorten the time to go live, so meaning customer gets creative faster, they can go live faster. It lowers the cost of the creative like an order of magnitude or more. And because it's lowering the cost, we don't think that they'll save the money. What we think they'll do is they'll create a lot more creative. And so, more creative equals more return on ad spend because now they can A/B test their way to the best messaging and do that very cost-efficiently. So this is really a critical part of our business. It's always been in terms of creative. And now with QuickFrame AI, we're really excited about it. By the way, I encourage everyone go to quickframe.com to see QuickFrame AI. It's honestly a pretty amazing tool. So we're pretty excited about it. We literally launched it late last week. So we're very excited about it.

On your second question, Rob, yes, the sales and marketing expense dipped down a little bit. I think it was 30.5% as a percentage of revenue. I don't think that -- and the long-term target is 25% to 30%. So we're kind of just outside the range, but we are going to strategically invest in sales and marketing. We're probably going to add some headcount. It'll be the first time in 3 years that we add headcount. And we also might do our own marketing. Again, as Mark mentioned, we're already north of 75% inbounds from using our own product to drive inbound leads. So we will do that, though, strategically and smartly.

Your next question comes from the line of Andrew Boone with Citizens.

I would love to talk about just the 4Q revenue guide and the acceleration that's built in there. Patrick, is there anything to call out as we think about the drivers of that? And then, Mark, you talked about just the efficiency of go-to-market. And Patrick, it sounds like there may be a slight increase in terms of sales and marketing as we think about kind of 4Q. Can you just talk about the efficiency of go-to-market and how we think about that net add number going forward?

Sure. So the guide is $85.5 million to $86.5 million. So we're keeping a pretty narrow range. We -- midpoint is 86%, Andrew. That would be 34%, giving effect to the Maximum Effort divestiture. We're also guiding $25.5 million at the midpoint for adjusted EBITDA. That's 29.7% adjusted EBITDA margin. It is our strong quarter seasonally. And we just see a lot of opportunity in the quarter and frankly, in the business as a whole.

Yes. And I'll add to that also. So because of how strong the marketing is on our go-to-market motion, we look at our marketing expenses there on essentially a monthly basis and make small adjustments either for new product or because we want to bring in maybe additional small business. So it's something that generally is trending the way we want, but we will adjust up and make small adjustments up and down quarter-to-quarter, while still hitting the adjusted EBITDA targets that we're setting for the business.

Can you -- did we answer your second question, Andrew?

Just anything in terms of the onboarding of customers, anything around self-service or any other kind of change in terms of how you guys are kind of growing the net add number? And then, how do we think about that going forward?

So Andrew, I'm going to correct you again, not self-service. The platform has always been self-service, self-sign-up.

Yes. So the -- yes, so the platform, like Patrick said, self-service has always been a part of the platform from day 1. What you're seeing is, as we go a bit more down market on small business, that's all self-sign-up, and so -- meaning that, that new customer doesn't in any way interact with our sales team. Just like they might go to Google and create an AdWords account, they just go to MNTN and create a MNTN Performance TV account. And so, all of that revenue, as well as an increasing portion of our mid-market revenue, comes from that investment in marketing, where we're over 75% in terms of inbound -- the percentage of revenue that comes from inbound leads.

We still are getting great efficiency from our sales team, even with the heads we're planning to add.

Yes.

Your next question comes from the line of Andrew Marok with Raymond James.

Two, if I could. So maybe building on to that last point a little bit. So, on the PTV customer growth, obviously, we have the emphasis on the S in SMB. Have there been any surprises relative to expectations in terms of the ability to onboard customers or their behavior once they've gotten on to the platform? And then, separately, can you expand a little bit on your success in the agency business that you called out in the press release? Is there anything you've done there that specifically made agencies take note? Or is it more just like a general scaling of awareness in MNTN and the maturity of the offering?

Yes. So I'll start with the small business. So small business was approximately 6% of our revenue in Q4 of last year. It's now 15% 3 quarters later and still growing. The midsized market is also still growing. So the core of our business has always been midsized. We're layering in more small business, and that's happening even faster. And as we just said in answering the previous question that the efficiency in doing that continues to grow. We're also just anecdotally -- well, not anecdotally, we're measuring it, that mid-market is also just doing self-sign-up. And so -- and what we're seeing in those cohort of customers is that spend is pretty strong. We expected the small business, once a customer comes live, the spend to grow at a slower rate than potentially a customer that came in talking to our sales team, but we're not seeing that. They're actually coming on board, spending well. And we're seeing that as a sign that the market, which is so nascent in the size and the growth of the Performance TV market, we see it as a sign plus some other things that the market is going from -- moving from the early stage to a stage where kind of -- you reach what I'd kind of refer to as escape velocity, where people just know they need to be on Performance TV. So we're pretty excited about that. And overall, we are really happy with the results we're getting in that sector, and we have a team dedicated to it also in terms of just the success of self-sign-up in that cohort of customers. And can you repeat your second question, Andrew? I apologize for that.

Yes. No worries. Thank you for the answer on the first one. It was on the agency business. Anything there that you've specifically done to appeal to agencies? Or is that kind of building on that theme of just greater awareness and escape velocity?

Yes. So we created a dedicated team. So agencies kind of grew for us organically. We were traditionally pretty much 100% direct to brand, which is unusual. I mean, I think we -- possibly we're the only company that was 100% direct-to-brand for television because previously, you always had an agency involved. Some of our customers, though, did have agencies, and we just kind of organically grew those relationships and realized like this is a really healthy opportunity, put a dedicated team on it. And the results we announced early in the quarter is kind of the results of creating that dedicated team. We have product coming that we think is particularly appealing to that cohort of customers. And these are independent agencies that are traditionally strong in performance marketing. So these are the agencies that built their business on paid search, built their business on paid social and now are signing agreements where -- committed agreements with MNTN using MNTN's dedicated platform for Performance TV. So we think that sector is going to continue to grow. And we have some product announcements in the future, I think, that are going to be pretty interesting to everyone. That is almost a direct result of some of the conversations we've had with those agency customers.

Your next question comes from the line of Rob Sanderson with Loop Capital.

I've got 2 as well. Maybe we could stay on agencies for a moment. You recently disclosed that the agency channel -- agency-led accounts, rather, are up like 4x. Now, is that like an effort to move more upmarket and bring in larger brands? I know, Mark, you just described that this has sort of grown organically because there's opportunity here. But you didn't really mention agencies in response to earlier question about demand drivers. So I just want to get any color as to what you should expect or investors should expect from these new agency efforts as a driver of incremental demand in '26 and '27 and beyond.

Sure. So the way to think about this is there -- traditionally, I think most people think about -- when you think agency, they think big ad agency, holding company like WPP, [ OMV ], those kind of firms. They are big partners with other companies in the space because they're focused on big companies, big global brands essentially and the budgets of those big global brands. The agencies we're referring to are independent agencies. There's literally thousands of them. 500 of the thousands are probably -- account for more than half the market. And again, they are focused on the needs of performance marketers. So businesses that are -- mid-market businesses generally that are basically trying to be very successful with search, social, and now AI and also now Performance TV, they're seeing Performance TV as an opportunity to grow their business. And what we've done is we put a dedicated effort to making that successful, supporting them in that effort. We're supporting their marketing, their ability to explain Performance TV to their customers and other -- we're giving them creative credits that they can use to help customers initially get live. And so, this is a kind of expanding channel for it, but the customers in the channel are still the exact same customer. They are mid-market brands, performance brands, in some cases, small business brands. So the profile of our customer is not changing. Just we're getting access to another way to reach those new customers. And so, it doesn't fundamentally in any way change the model, but it definitely somewhat accelerates the growth in terms of those mid-market businesses, especially the growth in their budgets.

That makes sense. If I could have a follow-up. Just several weeks back, you announced a partnership with PubMatic. So I wanted to ask kind of where does partnering with SSPs sort of fit in? You've got direct relationships with 200 publishers, pretty comprehensive supply. Do SSPs kind of fill in gaps here or -- and augment these supply relationships? Or what other benefits do these types of partnerships bring to MNTN?

Yes. So we've always had partnerships with various SSPs. I think we announced a partnership with -- obviously, with PubMatic, the one you're referencing. We also announced a partnership with Magnite early in the quarter. They did a press release in terms of certain premium content, what's called Pause Ads that they have brought into the market. So the way those SSP relationships work, I think that's important to understand. Every streaming network, when we do a direct relationship with that network, they are still running an auction and the SSP is the auctioneer. They are the Sotheby's of that auction in this example. So even when we say, oh, we have a direct relationship with, for example, Paramount, Paramount is using one of these SSPs as the connection between their inventory and MNTN, even though we've negotiated terms and pricing directly with Paramount. So the SSPs have always been in place. Now, what we announced with PubMatic is, we're very focused on premium and what we call super premium content. It performs really well. And our customers love it, meaning they're on the most premium television content. These shows cost millions of dollars an episode to create often. And so, we want to get more and more of that supply. You're seeing live sports come online, Pause Ads. And so, we're expanding our relationships across the board, not only with kind of all our content is premium and continuing that, but also specific opportunities to get even more premium content. We did that with PubMatic, and I'll see -- I think you'll see us continue to do that both directly with the streaming networks, as well as with the SSPs, who are the conduits between us and the streaming networks in terms of the actual movement of the ad impressions between, for example -- in my example, Paramount and MNTN to bid on it and buy it.

Your next question comes from the line of Matthew Cost with Morgan Stanley.

Two, if I could. Just one on the pace of customer adds. Is there any seasonality that we should be aware of in terms of the just gross number or net number of new customers coming on to the platform? Because the guide would imply, I think, very strong customer growth in the fourth quarter. So I guess, how should we think about contribution of user growth? And should we expect a seasonal pickup there in the fourth quarter or customer growth, I should say? And then, the second question is just on the gross margin front. It seems like around 79% gross margins, give or take, this quarter, you're really kind of getting towards the upper end of the 75% to 80% range that you've talked about historically. I guess, Patrick, you talked about in the prepared remarks the potential for further gross margin improvement. So I guess, where are we in that journey?

So I'll take the first part of the question. So in terms of the pace of customer adds, we are continuing to invest strongly in sales and marketing. And I think you're also seeing just, again, the market like more companies just assuming that they should be looking at Performance TV. When we first launched kind of the -- essentially launched the market, the concept of Performance TV, we -- a lot of our sales and marketing effort was just convincing people, they could be on television. They just thought of it as something that was very expensive, very time-consuming. Creative, they were going to have to roll 18-wheelers to build -- to shoot creative. And it was something that was out of reach for the small and midsized sector. Now increasingly, that's not the case. They are aware this is doable, and they are seeking us out or sales cycles -- one of the metrics -- our sales cycles have steadily gone down. So I think the pace at which we're bringing on customers is both a combination of our investment in making it happen, as well as a shortening of our sales cycle and increasingly from now with QuickFrame AI, a shortening of the go-live process. Creative used to take 40 days on average. We had -- like a customer yesterday built creative like in 2 hours, and really compelling creative through the partnerships we have on the generative models. So that's what's happening there, and we are excited about that. I think you're going to continue to see that. And then, I'll hand the gross margin question over to Patrick.

So we did have nice gross margin expansion in Q3, Matthew, 720 basis points. 400 plus of that was attributable to MNTN, that increased revenue, and then 300-plus basis points were attributable to the Maximum Effort divestiture. The latter is a structural permanent change. And as we enter Q4, we've talked about it's the highest quarter from a revenue perspective. And so, that will drive further gross margin improvements during the quarter. We also -- as I mentioned, I believe, on the last call, we have switched our hosting provider to GCP. And that -- if the hosting environment remained constant, which it likely won't, that is also a significant reduction in that COG portion of -- in that COG item. So it's a long-winded way of saying that we expect there will be levers for us to pull on a go-forward basis. We are in the range currently of 75% to 80% long-term gross margin.

[Operator Instructions] There are no further questions at this time. I will now hand it back to Mark Douglas for closing remarks.

I just want to say thanks, everyone, for attending the call. We're very excited about the results for the quarter and, honestly, even more excited for Q4 and beyond. So we'll see you on future earnings calls. Thank you.