Good day, and thank you for standing by. Welcome to the IAS Third Quarter 2021 Earnings Conference Call. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your host today, Jonathan Schaffer, Vice President, Investor Relations. Please go ahead..

Thank you. Good afternoon, and welcome to the IAS 2021 Third Quarter Financial Results Conference Call. I’m joined today by Lisa Utzschneider, CEO; and Joe Pergola, CFO. Before we begin, please note that today’s call contains forward-looking statements.

We refer you to the company’s filings with the SEC for more details about important risks that could cause actual results to differ materially from our expectations. On today’s call, we will also refer to non-GAAP measures.

A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is contained in today’s earnings release available on the company’s IR site, investors.integralads.com. With these formalities out of the way, I’d now like to turn the call over to our CEO, Lisa Utzschneider. Lisa, you may begin..

programmatic; social; CTV; and international. I’d like to review each of these areas and discuss our recent progress. Our first growth pillar is our Programmatic business, which achieved record performance in the quarter.

We experienced incredible customer adoption of context control, our contextual targeting solution in the third quarter, which resulted in 49% growth in our programmatic business.

Launched in 2020, Context Control helps marketers avoid undesirable content and increasingly target content that is suitable for their campaigns and better aligns with their brand values.

Context Control uses our natural language processing and machine learning knowledge graph to classify content across over 300 contextual segments based on the semantics and emotion of a page. Recent IAS research confirms that when ads were next to contextually relevant content, 73% of consumers find the ads more appealing.

HBO Max is a great example of the power of Context Control for brands. They understand that not all contexts are equal for driving advertising outcomes.

The flexibility of a solution like Context Control provides HBO Max and others the ability to balance the values of their brand, while simultaneously finding those contexts where their ads resonate most. In the last 18 months, we integrated Context control with all major DSPs, including Google DV360, The Trade Desk and Xander.

Recently, we enhanced discoverability of Context Control for programmatic within our DV360 integration. Context Control is now available in more than 50 countries, in more than 30 languages to meet increased global demand for our solutions that drive outcomes not reliant on consumer data or third-party cookies.

Last month, we launched IAS Signal, our new unified reporting platform that delivers the data and insights advertisers and publishers need to easily manage their digital campaigns.

IAS Signal is our latest product innovation, incorporating several feature updates into one powerful platform, while setting a strong foundation for further enhancements coming soon. Additionally, we are forging deeper relationships with programmatic marketers through Total Visibility, our optimization solution.

As more budget shifts to programmatic, marketers require greater media quality and transparency. Total Visibility provides marketers with actionable insights to optimize their campaign spend and drive higher yield by focusing on the most efficient and cost-effective pathways.

Available currently in Google DV360 with plans to extend to additional DSP partners, Total Visibility has provided added value for marketers within programmatic, increasing both customer engagement and stickiness.

It is also yet another example of our strategic partnership with Google that includes channel signs for YouTube and Automated Tag, the only automated tagging solution available in Google Campaign Manager. The growth of social platforms is another important growth pillar for IAS.

On our last call, we discussed our beta program with TikTok to provide a prebid brand safety solution for in-feed video ads. Our technology provides precise scoring for content in TikTok’s live feeds, including frame-by-frame video, text and audio, and offers controls consistent with Global Alliance for Responsible Media, or GORM categories.

Since then, we’ve launched our brand safety solution available to all marketers on TikTok in Germany, France and the U.S., with more markets expected soon. This is game changing for the industry, because we’re delivering unique technology that marketers need to protect their brand reputations while keeping up with TikTok’s dynamic platform.

I’m so proud of the IAS team as it’s an excellent demonstration of our ability to lead the industry, innovate on behalf of our customers, and launch differentiated products. We look forward to continuing to innovate with TikTok, providing a safe and targeted ad experience for marketers in the live theme.

We’re also energized by future opportunities to apply this brand safety technology, which we developed internally, to other social media platforms. Last year, our research found that just 17% of industry experts believe social platforms provide enough transparency around issues such as brand risk and viewability.

As more social platforms open up to third-party measurement, IAS is well positioned to remove the black box for marketers and ensure they have visibility into their ad campaigns on social platforms. Last week, we announced that we achieved MRC accreditation for integrated third-party measurement on Facebook.

This milestone underscores how customers rely on our advanced technology to drive transparency and greater outcomes for their campaigns across the largest digital platforms, including Facebook. The MRC accreditation includes impression and viewability measurement and reporting of display and video ads across both Facebook and Instagram.

CTV, our third growth pillar, represents a fundamental shift in TV viewing and ad-supported content. That’s why we’re taking a unique approach to building products that address the needs of CTV advertisers and publishers to power the user experience.

There are 4 key advantages to CTV over linear TV, including flexibility, optimization, data and insights, and targeting and control, which includes consumer addressability. We call this TV 2.0, as our role evolves from ad verification to ad intelligence. We’re very pleased with the initial onboarding of Publica acquired during the third quarter.

As a reminder, Publica is a leading video ad platform for CTV that delivers the quality of linear TV advertising across programmatic CTV environments. Independent of demand relationships, Publica helps CTV publishers improve yields and monetizations by unifying their direct campaigns and programmatic demands.

Where IAS has historically been weighted towards marketers on the buy side, Publica has deep rooted supply-side partnerships with leading global CTV publishers like ViacomCBS, Samsung and Philo, along with integrations with over 30 of the largest supply-side platforms or SSPs. Publica is demand agnostic and completely independent of media execution.

This is one of the many reasons so many publishers have adopted their technology. They are free to service the sell-side without any bias towards demand. Publica also brings an ad server and unified ad auction that gives us the ability to move further upstream into CTV programmatic for both publishers and marketers.

Since acquiring Publica, we’ve been heads down on our long-term integration plans. We’re excited to leverage assets from both companies to build the most innovative and relevant products for the CTV ecosystem. At the same time, we will maintain IAS’ neutrality and standing as an independent third-party verification provider.

The trust of our partners is paramount, and will remain so. Our current CTV offerings with Publica includes CTV fraud detection, covering general invalid traffic, or GIVT, as well as the ability to measure video rendered, video viewable and video viewable completion rates, currently available in a beta version.

In addition, we have CTV app level transparency live and reporting. And with our innovative integration, we now have CTV and mobile in-app measurement capabilities. We just released app level monitoring and blocking in video for CTV that includes brand safety monitoring and video filtering.

We also plan to introduce new features that provide greater visibility for marketers. In the fourth quarter, we expect to launch new solutions that offer granular insights into where CTV ad impressions have played, including on which channel and even on which show.

This level of supply transparency is unheard of in the CTV universe, and represents a major competitive differentiator for IAS and CTV. Lastly, I’d like to highlight international growth, which represents our fourth growth pillar.

Our revenue mix of Americas versus rest of the world was 64-36 for the third quarter, including Publica, which primarily serves U.S. publishers today. International revenue growth continues to outpace growth in the Americas as we increase our strong footholds in EMEA and APAC, while investing in LatAm and Southeast Asia.

As mentioned, everything we build is designed to be global, scalable and repeatable. That includes Context Control, which is seeing tremendous adoption across all regions. During the period, for example, we secured a global mandate for Context Control with Jaguar Land Rover.

As our digital media quality solutions have expanded in scope and become more strategic, more global marketers are looking to IAS to meet their needs at scale across all channels and markets. Our combination of innovative solutions in Global Reach uniquely positions IAS in the market.

During the quarter, we expanded our agreement with Pernod Recard as their exclusive media quality partner, and now active in their largest global markets, including the U.S. and the U.K. Our international growth is also being driven at the local level through integrations with global and region-specific platforms.

In addition, we continue to build relationships with local brands and their agencies in all markets. Our new customer, Alibaba, is a great example from the quarter that was developed through our exclusive partnership with Omnicom Group in France.

Moving forward, we will continue to invest in these growth pillars and wherever we see potential to extend our position in the market. Emerging categories like audio and gaming, for example, may offer additional opportunities to expand our portfolio and drive customer engagement.

Podcasts, music streaming and gaming platforms represent potential new formats where our technology may help ensure fraud-free, brand-safe and targeted environments for marketers. At IAS, we are focused on innovation and profitable growth. That requires having the right team, which is why we prioritize talent acquisition and retention.

During the third quarter, we added over 100 new employees. That’s more employees than in any quarter in the last 2 years. Our recent hires have been across functional areas, including sales, engineering and customer success with 51 new employees in Europe and APAC. We have focused on adding expertise in video programmatic.

We have also prioritized senior-level leaders with track records of driving scaled growth, including the appointment of a new SVP of Product Engineering and a new VP of Data Engineering during the period. There’s always more to do, and we continue to focus on building our team, but we are excited by our recent progress.

And finally, we are customer obsessed. In October, we held our first Customer Advisory Council meeting. These meetings will be held quarterly with just an incredible roster of council members from iconic Fortune 500 brands, representing key verticals, including CPG, financial services, automotive, technology and health care.

I was so impressed at our first meeting by the commitment of the council members to brand safety and suitability and to tackling issues for the broader industry. I was also honored by their partnership with IAS, which we greatly appreciate. Thank you for your ongoing support and interest in IAS.

We’re very pleased with our recent performance, excited about our prospects as we move into the busiest period of the year, and committed to delivering results for all of our stakeholders. And with that, I’ll turn it over to Joe to review the financials..

for the Americas, total revenue for the quarter was $50.3 million, up 36% year-over-year; EMEA was at $20.2 million, up 21%; and APAC was $8.5 million, up 36%. Before moving on from our revenue performance, I’d like to comment on our supply side and geographical mix following the Publica acquisition.

Our supply side revenue is expected to increase due to the contribution from Publica. As a result, we expect our segment mix will reflect higher supply side revenue. In addition, Publica to date has operated primarily in the United States.

While we plan to leverage IAS’ international footprint to expand Publica’s global reach, we expect their revenue contribution will increase the share for the Americas in our reported geographic mix for the foreseeable future. Gross profit increased 31% to $65.2 million with an 82% gross margin comparable to the prior year period.

Non-GAAP operating expenses, which excludes stock-based compensation expenses for comparability, increased at a rate significantly below our top line growth, reflecting our efficient operating model as well as lower costs due to COVID.

Total operating expenses increased by $14 million, which includes higher G&A costs related to hiring talent and professional fees to support our growth as a public company. Stock-based compensation expense for the period was $8.1 million, which includes additional expenses related to Publica. Turning to our non-GAAP measures and KPIs.

Adjusted EBITDA for the third quarter, which excludes stock-based comp and other onetime items, increased 38% year-over-year to $25.4 million or a 32% margin. The combination of our strong adjusted EBITDA margin performance and top line growth enabled us to exceed the rule of 60 for the period.

Our third quarter net revenue retention, or NRR, was 129% compared to 107% in the prior year period, which was significantly impacted by the COVID-19 pandemic. Total advertising customers grew by 11% year-over-year to 2,045 advertisers. Our total number of large advertising customers with annual revenue over $200,000 grew by 14% year-over-year to 183.

IAS is well capitalized to fuel the company’s long-term growth. We received approximately $282 million in net proceeds from the IPO in the third quarter. As we outlined in our prospectus, we are committed to reducing our long-term debt exposure. At the end of the third quarter, we replaced our existing credit facility.

In doing so, we reduced our long-term debt by nearly $121 million or 1/3 overall, and lowered our interest rate on our revolver by more than half. Our cash balance at the end of the quarter was $63.7 million, which includes cash from the IPO, gives effect to the cash used for the Publica acquisition and to repayment of the prior credit facility.

Based on the outperformance in the third quarter and momentum in our business, we are increasing our financial outlook for the fourth quarter and full year 2021, including Publica. For the fourth quarter, we expect revenue of $94 million to $96 million with adjusted EBITDA of $28 million to $30 million.

For the full year, we expect revenue of $315 million to $317 million with adjusted EBITDA of $98 million to $100 million. The midpoint of our upwardly revised full year revenue guidance range represents anticipated growth, including Publica, of approximately 31% year-over-year. A few additional modeling points.

For the fourth quarter, we expect stock-based compensation of $9 million to $10 million. We expect shares outstanding for the fourth quarter of approximately 153.5 million to 155 million. As Lisa referenced, we continue to hire at a record pace, and we do expect adjusted EBITDA margins to reflect additional head count in future quarters.

In closing, we’re coming off a strong third quarter with double-digit revenue growth across all categories and adjusted EBITDA performance, reflecting, in part, the benefits of greater scale and efficiencies in our model.

As our increased guidance highlights, we expect to end 2021 on a high note with anticipated momentum in our business in the fourth quarter, especially in programmatic, as we expect continued customer adoption of our contextual targeting solutions. This should position us well heading into 2022. Lisa and I are now ready to take your questions..

And our first question comes from the line of Brian Fitzgerald with Wells Fargo..

Programmatic continued to be very strong in the quarter. And we know contextual is a key tailwind there. But I also think you alluded to an expanded DSP relationship.

So we’re wondering if you could unpack some of the drivers there, maybe in terms of existing customers adopting the Context Control or new customers coming to the platform specifically for contextual capabilities versus a new DSP or an expanded partnership? And then maybe a quick follow-on to that, too.

Where do you think we are today in terms of contextual adoption across your customer base and the industry more broadly?.

Great question. So I’ll take it one at a time. The first Programmatic. We’re thrilled with the continued accelerated growth that we’re seeing with programmatic and Context Control adoption, in particular.

A trend that we’re seeing that’s quite promising is when we initially launched Context Control in March of 2020, where we saw the adoption rate initially and the DSP we launched with The Trade Desk was in the U.S. So last year, it was primarily U.S. adoption as we rolled context control across all of the major DSPs, including DV360.

And what we’re seeing this year in Q3, in particular, is continued adoption in the U.S., but additionally, international adoption, both in EMEA and APAC. We’re seeing that nice trend of international adoption, both in terms of avoidance, but also we’re seeing increasing adoption with the Context control contextual targeting solutions.

And then 1 other thing to call out that we’re also seeing nice adoption is we continue to invest in our programmatic reporting capabilities to help marketers have a more seamless experience. Its easier discoverability of context control. And I think the improvements that we’re making in reporting is also driving up adoption rates..

And our next question comes from the line of Mark Mahaney with Evercore..

This is Ben on for Mark. I just wanted to follow up on that last part. In terms of what percentage of the context control revenue is avoidance versus, I don’t know, positive targeting, the right way to say that.

I understand, I think the majority of it is kind of avoidance, but I just got an update on how that trends throughout the quarter, that would be great..

Ben, this is Joe Pergola. Thanks for the question. So 36% of our overall programmatic revenue is attributed to Context control. Primarily, that’s currently today is the avoidance. We’re working actively building the pipeline with our marketers on targeting and seeing a lot of traction. But I’d say primarily today through Q3, it’s avoidance..

Okay. And then if I can just ask a follow-up.

Like how do you think the OpenSlate acquisition by Double Verify affects the competitive dynamic for selling that Context control solution to your customers?.

Great question. So with the OpenSlate acquisition and Context control, the reality is we’re just seeing dozens and dozens of net new contextual activations. We saw in Q3. We anticipate to continue to see in Q4. In addition to that, some of these new DSP relationships that we announced should set us up for a solid 2023 growth as they ramp up.

So we’re looking forward for accelerated growth across the board when it comes to programmatic..

And our next question comes from the line of Jason Helfstein with Oppenheimer..

I want to add to, so just further update on Publica now that you’ve kind of owned it for longer. Just kind of how are you thinking about that for next year? Just any color as we’re all going to try to think about our models for next year. And then can you talk about kind of you’ve got the MRC accreditation.

And so what does that mean, for example, like social platforms like Facebook meta seems to not want to comply with the MRC, you having that accreditation.

Like what does that mean in the context of like potentially winning a Facebook or – and just how does that play into your discussion with advertisers?.

France, Germany and the U.S. Marketers are thrilled with the performance that they ar’ seeing in TikTok. And we’re hoping that interest and ngoing’ demand we’re seeing from marketers, Facebook hears it loud and clear.

So that they ultimately open up their live feed for independent third-party verification companies to build similar brand safety solutions within the in-feed of Facebook..

And our next question comes from the line of Brent Thill with Jefferies..

Lisa, Apple left a small wake turbulence throughout the industry this quarter. And I’m curious if anything you’re seeing post that fly over from what you’re hearing from your clients. And for Joe, really continued good performance in international as you kind of dive into it.

Anything to call out that you put a bigger spotlight on?.

It’s a great question. I’ll take the first question, Brent. So we actually see that as a tailwind – an ongoing tailwind for our business as marketers continue to shift away audience-based targeting to contextual targeting. And as you know, our prebid solutions, we don’t rely on cookies or individual identifiers.

So again, it’s accelerated growth as more and more marketers are leaning into differentiated contextual targeting solutions like Context Control..

Yes. And Brent, thanks for the question on international. So tremendous performance internationally, as you saw. Right now, we have all regions exceeding double-digit growth. And what we’re seeing internationally is not only acceleration of new logo wins, but into our programmatic solutions as well.

So we’re very pleased with the performance and look forward to the opportunity..

And our next question comes from the line of Raimo Lenschow with Barclays..

Congrats from me as well. Lisa and Joe, yesterday, we discussed with another company kind of volumes in the industry.

Is there anything that you’re seeing there? And then following on from Brent’s question on IDFA, like in terms of – like I know you guys are excited, but where are customers on that understanding on their journey that they need to change.

Could you just kind of talk a little bit of what you’re seeing in your conversations, please?.

Sure. Thanks, Raimo. I think I’ll take both questions. So to tackle the first round – around volume. So the trend has been very positive, both in the volumes that we’ve seen in the past quarter, as well as quarter-to-date, which is reflected in our increased outlook for the full year.

So volumes continue to increase as more and more users are spending even more time on social platforms and viewing stream content, and as marketers are shifting away from linear budgets to online budgets.

And then in terms of the second question, that one, could you repeat it, please, that one about Apple?.

Yes. So I was just wondering – you mentioned, obviously, you are excited about IDFA, because the world is changing, and it looks like it’s coming to you. But where are customers in their journey of understanding it, kind of thinking about adopting more of your solution, et cetera.

Like where are we on that journey?.

Great question. So as I mentioned before, with this shift, as marketers are moving away from audience-based targeting to contextual targeting, they’re looking for differentiated sophisticated contextual targeting solutions. That’s exactly what Context Control is. We’ve launched that product early last year. But the trend that we’re seeing is twofold.

The first, early adoption last year with many U.S. marketers, we’re seeing a shift where U.S. marketers continue to adopt Context Control. But now we’re seeing more and more international markets adopting Context Control, both in terms of avoidance, but also proactive contextual targeting.

The other trend we're seeing is more and more markete’s leaning Into our contextual targeting solution where they’re seeking out appropriate content for their brands, and we’re seeing nice adoption rate, actually dozens and dozens of new logos signing up for Context Control across all of the markets..

And our next question comes from the line of Dan Salmon with BMO Capital..

Two questions, one for Lisa, one for Joe. Lisa, you mentioned in your comments, Publica’s ad server and unified ad and the potential opportunity to move a little further upstream for both advertisers and publishers.

Could you just spend a little bit more time on that? And what the product roadmap might have in store from those 2 products? And then, Joe, I think just a quick one for you. I saw the trailing 12-month advertiser count in the 10-Q, I may have missed the publisher total.

Can you share that with us?.

Yes, sure. Thanks, Dan. So in terms of Publica, we are working through that short, long-term product roadmap. But the one thing I do want to call out when it comes to Publica’s unified auction, and their video ad server, it is mutually exclusive, right? So IAS, we’re a third-party independent verification company.

It’s so important that we remain neutral and independent like the Switzerland of media quality. So Publica will continue to use their unified auction ad server independent of our verification solutions.

But in terms of the roadmap, as I mentioned on the call, transparency is mission critical for marketers and what marketers are looking for, I’ve mentioned this earlier, the TV 2.0, which is basically marketers moving away from ad verification towards ad intelligence, and they’re looking for granular insights to understand where the impression played when it comes to programmatic CTV.

That is what they get on linear TV and they’re looking for the same thing on CTV. This is game-changing for the industry that shortly will be launching live near real-term impression level data reporting for marketers and buyers.

We’ll be launching it later in fourth quarter, where – it’s the first in market where marketers finally, we’ll be able to see where their ads ran, which channel and which genre. So we’re really excited for this launch later in the quarter. Again, it’s a game changer for the industry..

And thanks, Dan, on the question for – regarding the number of publishers. Our focus continues to be on the advertiser count at 2,045, up 11%. Coupling that with our other key metrics at 129% NRR, real testament for the business as we’re scaling. From a total customer point of view, and adding in the amount of publishers, it’s at 136.

But what we need to be cognizant of is the partial quarter addition of Publica in our supply side number. And then this Q4 will be our first full quarter with Publica under IAS ownership..

And our last question comes from the line of Andrew Marok with Raymond James..

You've given some metrics around the savings, the total visibility advertisers experience after adopting. And I assume that some of those savings are then reinvested.

So with that, can you give us some color on what you see as the size of the opportunity from expanding total visibility to other DSPs? And any potential timelines around that?.

Great. Great question. I love talking about Total Visibility. So Total Visibility, it offers visibility into supply path optimization. Total Visibility came from an acquisition of a company we acquired earlier this year called Amino Payments.

And what marketers are looking for similar to what I was talking about earlier when it comes to CTV, is they want to get out of the black box of programmatic. They want greater transparency and visibility into what they're buying in programmatic and performance.

And with Total Visibility, we're offering it, running it through Google DV360, Google's DSP, and it gives the marketer visibility into all of the SSPs that their advertising is running on. And even more importantly, the performance of the SSP buys.

And so the marketer in real time, can adjust accordingly what's working well, what's not, drives great optimization for the marketer and gives them more transparency.

With that team, the Total Visibility team, we are looking to extend some of the insights that we're gleaning from the Total Visibility product into our other programmatic reporting capabilities, and we'll be thrilled to share what that road map looks like when we're ready to share it..

And this concludes our question-and-answer session. And I would like to turn the conference back over to Lisa Utzschneider for any further remarks..

Okay. Well, thank you again, everyone, for your time today. I hope that gives you a good understanding of the tremendous momentum that we have in the business. We are firing on all cylinders at IAS. I am so incredibly proud of our entire team and of the Q3 results that we shared today.

We continue to invest in all of the growth accelerators that we mentioned earlier on the call when it comes to programmatic, CTV, social platforms and also international expansion. And we’re looking forward to a strong close of this year and rounding out next year with really great momentum. So thank you again for your time today..

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day..