Thank you for standing by, and welcome to IAS Fourth Quarter and Full Year 2022 Financial Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the call over to Jonathan Schaffer, Vice President, Investor Relations. Please go ahead..

Thank you. Good afternoon, and welcome to the IAS 2022 fourth quarter and full year financial results conference call. I'm joined today by Lisa Utzschneider, CEO; and Tania Secor, CFO. Before we begin, please note that today's call and prepared remarks contain forward-looking statements.

We refer you to the company's filings with the SEC, posted on our Investor Relations site at investors.integralads.com, for more details about important risks and uncertainties that could cause actual results to differ materially from our expectations. We will also refer to non-GAAP measures on today’s call.

A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is contained in today's earnings release available on our Investor Relations site. All financial comparisons, unless noted otherwise, are based on the prior-year period.

So, 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..

Our TikTok offering includes a full end-to-end measurement suite in TikTok’s For You feed. We’re driving customer adoption of our TikTok offering with active post-bid campaigns up 54% in the fourth quarter compared to the third quarter.

In 2023, we aim to scale marketer demand for our TikTok solutions and expand availability into over 20 additional markets. IAS is excited to join the TikTok Marketing Partners Program as a badged measurement partner for their new Brand Safety & Suitability specialty.

IAS was chosen thanks to our record of wins on TikTok and meeting their highest standard of measurement solutions. As a badged partner, IAS brings marketers a comprehensive set of media quality solutions to manage their advertising campaigns on TikTok.

With Meta, we’re excited to continue our partnership and value their commitment to implementing suitability controls and verification for Feed. With Twitter, we announced our expansion into third-party brand safety and suitability measurement in the U.S.

With Tweet-level analysis, advertisers can better understand the content that appears adjacent to their ads on Twitter’s feed. This significant advancement now provides Twitter advertisers with reporting that is aligned with GARM brand safety and suitability risk levels.

For broader analytics, advertisers can access campaign-level reporting for overall metrics. In CTV, we are leading with innovation and scale. We ensure trust, performance, and control to both buyers and sellers. We were delighted to announce that Netflix selected IAS as a transparency partner for their ad supported plan.

We look forward to partnering with Netflix to provide viewability and invalid traffic verification of Netflix inventory. By the end of 2023, 78% of CTV video ad spending in the U.S. is expected to be bought programmatically according to eMarketer. IAS is enabling marketers to increase their programmatic buying in CTV without sacrificing media quality.

For CTV publishers, Publica provides yield through unified auctions, inventory management and ad stitching that enables CTV content and ads to be delivered in a seamless stream. Publica was recently named Best Video Ad Server in the AdWeek Readers Choice Awards.

Publica is now making it possible for publishers to access IAS insights within the Publica UI. This enables streaming publishers to optimize their inventory around the trusted IAS metrics the buy side uses to inform their ad buying practices. This feedback loop of IAS data facilitates the buying and selling of CTV inventory at scale.

For marketers, we offer a single platform to verify, optimize, and measure addressable TV. IAS has created private marketplaces with over 90 publishers in 2022 to ensure greater transparency and access to higher quality CTV media. Marketers and publishers depend on our solutions to ensure their digital media quality needs are met.

Retail media is an exciting opportunity for marketers and represented over $44 billion dollars in total ad spend in the U.S. in 2022 according to eMarketer. We provide measurement solutions in retail media across nine out of the top 10 largest networks. Measurement represents the starting point for IAS in retail media.

We look forward to helping marketers fully realize the ROI potential in this high growth medium. In emerging channels, we continue to make progress with Spotify in audio, launching the industry’s first third-party brand safety and suitability reporting tool for podcasts.

In gaming, IAS announced its first-to-market partnership with Gadsme, a premium in-game advertising platform. IAS will verify Gadsme’s ad inventory globally and provide marketers with third-party viewability and invalid traffic reporting. Our products have never been more relevant as marketers lean into our differentiated solutions.

IAS enables safe content to thrive which results in greater efficiency and return on ad spend for marketers and increased yield and optimization for publishers. Our model is highly differentiated as our pricing is independent of the media rate and negotiated eCPMS directly with marketers.

We’re a volume-based model and not immune to volatility in ad spend; however, the essential nature of our solutions provides us with some level of insulation. Building on our accomplishments in 2022, we plan to continue to innovate further on behalf of our customers with data as the foundation.

Under the leadership of our new CTO, we are enhancing our tech stack for greater scale and the ability to access, process and analyze data to fuel superior results for marketers. This will enable us to support future growth and innovation in high growth areas. In conclusion, we made tremendous strides in 2022 to position IAS for long-term success.

We strengthened our leadership team, invested in high-growth areas and solidified our partnerships. We are thrilled to extend our market presence with recent logo wins which highlights the success of our new go-to-market strategy. I am excited to unleash the potential of IAS in 2023 and beyond. We are geared up and ready to go.

Thanks to everyone on today’s call for your ongoing support. I’ll now turn it over to Tania. We are thrilled to have her on the team and she is making a tremendous impact already.

Tania?.

for the full year 2023, we expect gross profit margin of approximately 78% to 80%, reflecting investment in our data infrastructure and increased hosting costs. We expect to optimize the gross profit margin of these offerings as we scale over time. At the midpoint of our guidance, we expect adjusted EBITDA margin expansion in 2023.

We expect increased operating leverage in 2023 as operating expenses, excluding stock-based compensation and one-time items, are expected to grow at a slower rate than revenue. This is due primarily to the December 2022 restructuring and our focus on efficiency and productivity.

First quarter stock-based compensation expense is expected in the range of $11 million to $13 million. Full-year stock-based compensation expense is expected in the range of $62 million to $66 million. The increase compared to 2022 primarily reflects the incremental expense due to the second year of our annual RSU program.

We expect weighted average shares outstanding for the first quarter in the range of 154 million to 155 million, and for the full year 155 million to 157 million shares. We're very pleased with our fourth quarter performance, and we're off to a strong start in the first quarter of 2023.

We see tremendous opportunity for IAS's products globally and continued demand for our differentiated offerings with several exciting new wins. We will continue to invest in tech innovation to enhance our value proposition for marketers and publishers.

We will also maintain fiscal discipline to optimize our resources and deliver efficiencies in a dynamic environment. I'm excited to be part of the IAS team, and I look forward to engaging with all of you. Lisa and I are now ready to take your questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Jason Helfstein of Oppenheimer. Your question please, Jason..

Thanks. Two questions. The first, Lisa, and just as we all think about the Internet advertising sector, we kind of think about like bracketing into three buckets, you have Tier 1, which is like meta and search. Then you have like kind of other platforms, we'll call them like Tier 2 and then kind of like open web and display called Tier 3.

And it seems that when you go into an ad recession, the cutbacks happened in reverse order, right? They cut back Tier 2 than Tier 3 and the last thing people cut back or advertisers is like meta and search.

Given your exposure to those categories; do you think it's fair to say that as a result of that, you saw cutbacks maybe earlier? And then as a result, as the spending comes back, you see kind of a greater rebound on the platforms that you serve the most? That's my first question, and then I have a quick follow-up for Tania? Thanks..

Okay. Thanks Jason. So the way to think about macroeconomic and the way marketers invest in digital advertising, I'll say there are two buckets. The first is marketers want to go where the users are.

And when you look at the trends right now, rapid explosive adoption of socials, all things related to social platforms; and secondly, streaming rapid adoption of CTV. Those are the two areas and platforms where IS, we are completely leaning in.

They are core priorities for our 2023 product and tech road map, and we are innovating in both social and CTV, and that's where marketers are investing their digital advertising. So I'd put both of those buckets in the Tier 1, those large major platforms.

The second point I want to make is marketers, they're investing more in video, again as where the users are going and how they're consuming media, they want site, sound, emotion.

And when you take a look at our projections and where we are investing, we're shifting from display to video, and we'll continue to double down in video, both in Open Web and in the major platforms..

And then, Tania, you just quick on the guide. You're guiding first quarter for 15% growth, the full year for 12%. How are you thinking about the cadence by quarter? Are you assuming second quarter is a low point for growth? Or any other color there? Thanks..

Sure. So our guide reflects a pretty strong momentum that we're seeing right now as we head into the first quarter, continuing from the fourth quarter. And I would say, overall, our seasonality that we expect in 2023 should be similar to the seasonality we've seen in the past..

Thank you..

Thanks Jason..

Thank you. Our next question comes from the line of Mark Kelley of Stifel. Your question please Mark..

Great. Thank you very much. I just want to go back to the kind of macro bigger picture question. I'm just curious how conversations with advertisers have gone so far in 2023. Is there any improvement relative to December? Any more visibility on your end? And then second, happy to hear you talk about Retail Media a little bit more tonight.

Can you maybe frame how large that channel is today? And what we can expect from a growth perspective for IAS over the next year or two? Thank you..

Sure. Happy to take those, Mark. So in terms of marketers and you know we've talked about this. I personally spent a lot of time with marketers, with the agencies in the field. And I have to say, feedback from them is they're optimistic about 2023 and the investments that they are making in digital advertising.

But I will also say in this current macroeconomic environment that we're all in, marketers are they're doubling down in ROI. They're doubling down in efficiency, and our products at IS have never been more relevant. So we are seeing optimism and we'll just continue to innovate on behalf of marketers. And then in terms of retail media.

Retail media, it's also a top priority for us at IAS. It's one of the fastest-growing emerging channels, and marketers are absolutely leaning into retail media networks and shifting their linear dollars into retail media.

We work with nine out of the top ten retail media platforms, including platforms like Walmart, Amazon, CVS, Walgreens, and we'll continue to invest in retail media. In terms of size of the market, I mean, I think it's been estimated north of a $50 billion marketplace. So huge opportunity, lots of greenfields in the retail media space..

Great. Thank you, Lisa..

Yes thanks, Mark..

Thank you. Our next question comes from the line of James Heaney of Jefferies. Your question please James..

Great. Thank you, guys. What specifically caused the outperformance you saw in the fourth quarter? We've definitely heard a number of companies talk about December being a challenging month for advertising.

So I would love to hear just your thoughts on what's offset that weakness? Then my second question is just around context control, kind of what you're seeing in Q4 and then so far early in Q1. Lisa, are there any mile markers or just adoption of where you're going to be by the end of the year? Thank you..

Yes, great questions. Thanks, James. So in terms of Q4 performance, we're very pleased with our results for fourth quarter that we delivered 15% year-over-year growth. We saw performance across all of our business lines.

And there are a couple of key verticals where we saw strength, and then I'm happy to end it to Tania, if you want to add some additional color on fourth quarter. But the verticals included automotive, we saw strength, tech telco as well as performance from the World Cup.

Tania, do you want to add?.

Yes. I just would add two other things to that, Lisa. We also saw strong spend in the fourth quarter on the new logos from 2022 and contextual avoidance also contributed to the above expectation of performance on the programmatic side..

Okay. Great. And James, to your second question around context control. A couple of callouts there. Our programmatic growth, it did exceed expectations for fourth quarter. We continue to see just rapid adoption of context control, represents 47% of programmatic in fourth quarter, up from 45% in third quarter.

And we expect to continue to see strong growth in context control in 2023 both in terms of contextual avoidance, seeing healthy adoption both in the U.S. and international markets, EMEA in particular. And we're also seeing a strong uptick with contextual targeting product, and we'll continue to invest in our context control..

Great. Thank you..

Thank you..

Thank you. Our next question comes from the line of Brian Fitzgerald of Wells Fargo. Your question, please, Brian..

Thank you. We know it's still early, but as premium CTV ramps, could you talk through the value add that you provide the marketing partners? Are you finding some of the viewability issues that you've talked about in the past as you're delivering that value is resonating.

Any sense of whether marketers or platforms want to go further with additional functionalities like brand safety and suitability?.

Sure. Happy to take that, Fitz. So we're winning in CTV everywhere. We have global breadth and depth across all of the major CTV ad-supported platforms. And IAS, we're the only provider with line of sight into the entire CTV ecosystem. And I have to say we have the most robust and forward-thinking product portfolio.

And then the other thing that differentiates us, Fitz, in the CTV ecosystem, it's our data. We have incredibly robust data from our Publica integration and our ability to combine our Publica data with our IAS data, we give greater transparency to marketers. So they have a better understanding of where their ads are running on programmatic CTV.

So in terms of viewability, that's what marketers are looking for as they definitely want to move more of their linear TV dollars over into programmatic CTV, but they just want the transparency and visibility to understand where their ads are running..

Great, thanks Lisa. Appreciate it..

Yes. Thanks Fitz..

Thank you. [Operator Instructions] Our next question comes from the line of Andrew Marok of Raymond James. Please go ahead, Andrew..

Thanks for taking my questions.

Wanted to dig in a little bit maybe on the tech side of retail media and the kind of progress of innovation there? Because you've talked about in the past how, to some extent, some tech can be portable between social feeds, for instance, or video formats, but is retail media more of a ground-up build? Or do you have aspects of the platform that can kind of be repurposed to specifically suit retail media? And then I have a follow-up..

Yes. Great question, Andrew. So the way we think about retail media and the tech requirements, it's a few. There are a few steps involved. The first is integrations with the major retail media platforms, ideally server-to-server integrations that helps with data flow, it makes it more seamless and easier to scale.

The other part of the integration is ensuring that our verification solutions are accessible to both the major marketers who are selling their products, both on the retail media platforms, that's called the O&O inventory and off of the retail media platforms and being able to extend it into mid and smaller advertisers who are selling their products.

But I have to say, with retail media, where I see the big opportunity is in the data and leveraging our differentiated data, I spoke to the data before in terms of our IS measurement data, combined with CTV data and being able to layer that data with the retail media networks and helping those advertisers running on the retail media networks find higher quality media, which leads to higher ROI that is nirvana for the marketers..

Great. That’s really helpful. One other thing I did want to ask about was what was really driving the uptick that we saw in the number of large customers in 4Q? Because I think the sequential increase there was notably higher than I think we’ve seen in the past..

I want to make sure I understood the question, so large uptick of the larger customers in the fourth quarter..

In the large customers, yes, so 199 from 183 last year, 184 last quarter..

Sure. Tania can take that one..

Sure. Hi, Andrew. We had – we’re pleased to see the strong performance of our top advertisers in the quarter. We’ve got a very diverse base of advertisers with an eight-year tenure. And what is notable there is that one-third of those new accounts added were international clients..

Great. Thank you..

Thanks, Andrew..

Thank you. Our next question comes from the line of Mark Mahaney of Evercore. Please go ahead, Mark..

This is Ian Peterson on for Mark. Just one quick question. I know you guys didn’t talk about in-app gaming at all or have it in the press release. Just curious if you guys could go over where you’re at in terms of in-app gaming? Should we expect any kind of meaningful contribution in 2023? And then I also have a follow-up. Thanks..

Sure. Great question, Ian. So we’re very exciting about the gaming vertical. We see it as an important emerging vertical for our business. And the way to think about gaming in 2023 is this is a build year where we’re continuing to ensure our integrations are done, onboarding advertisers to our verification solutions on gaming.

And I would expect in 2024, that’s where we would see meaningful revenue..

Great. Thanks. And then on the follow-up, apologize if this has been covered already. Looks like EMEA has been continued to grow strong Q3 and the Q4. I’m just curious on what you’re hearing in terms of like sentiment from advertisers there, especially just given all of the regulatory headwinds. Thanks..

Sure. Yes, we’re excited that we are starting to see some strength coming out of EMEA in the fourth quarter. We saw it with some of those sizable wins that I called out. Two out of the four wins are actually headquartered in EMEA and we saw the uptick of 13% in the quarter highlighted by major win like carrying.

Also it represented 32% of our revenue in the fourth quarter international in total. So we love the fact that we are seeing strength in the numbers in EMEA. It demonstrates our international footprint and the fact that more and more marketers are leaning into our solutions and seeing relevance with our products..

Thank you. I would now like to turn the conference back to Lisa Utzschneider for closing remarks.

Madam?.

Thank you everyone for joining us on today’s call. We’re coming off a strong fourth quarter and we’re pleased with our start to the New Year with positive demand trends and major brand wins. It’s clear that marketers value our products, particularly in the current environment where return on ad spend is a top priority.

We’ll look forward to seeing you at the upcoming investor events and to updating you on our progress. Thank you..

This concludes today’s conference call. Thank you for participating. You may now disconnect..