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spk08: Ladies and gentlemen, thank you for standing by and welcome to AdSense second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that this conference is being recorded. I would now like to turn the conference over to your first speaker, David DeStefano with Industrial Relations. David. Please go ahead.
spk01: Good afternoon, and welcome to AdTherent's second quarter 2022 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are AdTherent's Chief Executive Officer, Jim Lawson, and Chief Financial Officer, Chuck Jordan. Before we begin, I'd like to remind you that today's conference call will include forward-looking statements based on the company's current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and our other reports and filings with the Securities and Exchange Commission. All of today's statements are based upon information available to us today, and we assume no obligation to update any such statements except as required by law. We will also refer to both GAAP and non-GAAP financial measures during the call. You can find the reconciliation of our GAAP to non-GAAP measures included in our press release posted to the investor relations section of our website at www.adverit.com. All of our non-revenue financial measures we discussed today are non-GAAP unless we state otherwise. With that, let me turn the call over to Jim.
spk04: Thank you, David, and good afternoon, everyone. Thank you for joining our second quarter 2022 earnings call. During today's call, I will provide an overview of company results for the second quarter of 2022, and we'll discuss key drivers of that performance. I will also review what we are hearing from our customers and how this has informed our guidance for the third quarter and the remainder of the year. Then I will turn it over to Chuck for a more in-depth look at our results, after which I will briefly contextualize our guidance, and then we will take your questions. In the second quarter, we generated $42.5 million in revenue, up 6.5% year-over-year, adjusted gross profit of $28.3 million, up 6.4% year-over-year, and active customers grew by 44 active customers, or 15% year-over-year, to 331 at the end of the second quarter. Growth in the quarter was led by our healthcare and retail verticals. and by our connected TV or CTV and direct access offerings, all of which were up very strong double digits, or in the case of CTV, triple digits. Importantly, these are opportunities in which we are investing most aggressively, and we are heartened to see these investments paying off. Even with the later than expected revenue, we delivered $7.3 million in EBITDA above the high end of our guidance range issued in May. representing over 25% margin. And we did this while investing behind people and technology that will power Adtheorant for years to come. For example, based on current headcount, by year end, our go-to-market team will have 17 more fully ramped sellers than year end 2021. And in the first half of the year, we filled 21 key tech, product, data science, analytics, and strategic partnership positions. all in a tight hiring environment. We will start to see the real benefits of these hires in late 2022 and throughout 2023. In short, we had a highly profitable quarter while investing for the future, and we have a better business now as a result. I want to put this in the context of the unfolding macroeconomic environment and what we are hearing from our advertiser customers. It has been a challenging and unusual few months. with negative macroeconomic sentiment increasingly driving delays, pauses, or postponement of advertising campaigns, and causing advertisers to become less transparent about future spending. Some are now projecting spend in weeks or months instead of quarters or fiscal years. Others have deferred decision-making or lowered spending forecasts. This has reduced our visibility into future campaign activity. supply chain and other idiosyncratic business disruptions also continue to pressure results. For example, airlines and hotels pausing advertising because flights and properties are fully booked. In addition, against this backdrop, ramp time for our new sales hires has been a bit slower than planned, although we remain confident that this exceptional group of talented and proven industry leaders will have a meaningful impact on the business in late 2022 and throughout 2023. As a result of these macro considerations, our business planning and guidance reflects an increased level of conservatism about which campaign opportunities we assume will be executed in full and on time. We've also made significant proactive adjustments to our second half spending plan to adapt to changing market dynamics, including substantially curtailing hiring in the back half of 2022. And if necessary, we have additional levers to flex spending up or down as market conditions dictate. This will enable us to maintain a double-digit adjusted EBITDA margin for full year 2022 while investing behind initiatives that extend our technological lead over competitors. Our investments will be more surgically focused on the highest value opportunities to advance our business near term. including our best-in-class CTV solution, our new direct access transaction model, and a transformational adherent health initiative. I will discuss each of these in more detail shortly. Despite the near-term pressures, brands must still advertise to drive their businesses, and lessons learned following the COVID shutdown are fresh in advertisers' minds. Those who pulled back too much lost out on sales when conditions improved. and we are confident that the investments we have made and will continue to make ensure we will be positioned for accelerating growth when things improve, as they always do. In the meantime, we are working closely with customers, helping plan how they can use our platform and solutions to drive an immediate and profitable return on their marketing investment. Now I would like to walk through some highlights from the quarter and our near-term investment focus. Starting with CTV, Adtheon's unique machine learning powered advancement discussed on our last few calls have further increased our differentiation in this dynamic and rapidly growing channel, and we are seeing impressive results. CTV revenue grew 107% during the quarter to over 4 million, as compared to 2 million in the second quarter of 2021. Customers are seeing value in our enhanced machine learning optimized version of programmatic CTV, which we have brought to market as A-plus CTV. For example, in the quarter, we helped a nonprofit advertiser drive efficient donations, utilizing a mix of CTV and display, leveraging valuable data from the so-called upper funnel, meaning awareness advertising tactics. To inform our predictive models and drive higher conversion rates, in the lower funnel, meaning the more transactional and performance-focused advertising tactics. Our conversion influence reporting showed that consumers who receive both ad theorem CTV and display ads convert at a 2,000-plus percent higher rate than if exposed to the CTV ad alone, and a 46% higher rate than if exposed to only the display ad. As a result, we drove an approximately 300% return on ad spend for the client, three times above its benchmark. We continue to enhance our CTV offering, and in the second quarter, we rolled out Dynamic CTV. This personalizes a viewer's experience using location, time, and weather signals. For example, a tourism board in a warm weather destination can serve a different version of its creative based on temperature, or other weather conditions in the individual's location. With this new solution, Adtheon can amplify a brand's messaging with many different creative iterations without the need to build out individual video assets. And we have several exciting advancements in the pipeline for the back half of the year and for 2023. I would also like to talk about Adtheon Health. Healthcare is already our largest industry vertical. Through the first half of 2022, we added 37 new healthcare and pharma active customer advertisers year over year and enjoyed strong double-digit growth, driven by our ability to use privacy-forward ad-targeting methods to drive healthcare advertising outcomes more efficiently than other platforms. In the second quarter, we further advanced our Ad Theron Health product development and data infrastructure by executing and operationalizing an expansive de-identified insurance claims data license. This allows us to incorporate privacy-friendly claims data into our algorithms, further increasing the predictive accuracy of our models and solidifying our position as the most data-driven, performance-driving, and privacy-forward digital advertising platform in the sector. We also advanced our go-to-market plan for our healthcare vertical during the quarter, deploying dedicated healthcare leadership and teams and educating customers about our unique value proposition. It is early, but extremely positive feedback from a number of large, existing, and potential customers suggests we have an unprecedented near-term opportunity to accelerate our foothold in this sector, which in 2020 spent $7 billion on advertising. The upfront investment behind this transformational opportunity has been made and will benefit us for years to come. We will share updates about this enhanced out there and health offering in coming quarters. Finally, I would like to comment on our efforts in retail and CPG. As I noted, we drove double-digit year-over-year growth in our retail vertical, driven in large part by earlier investments that enable us to target online and offline sales simultaneously by layering our CPG capabilities onto sophisticated machine learning models which optimize towards these lower funnel metrics. For example, during the second quarter, we partnered with a large retail brand to execute a full funnel campaign utilizing the upper funnel tactics of CTV and video in conjunction with lower funnel tactics of display to drive heightened online sales and site traffic. We saw that users exposed to both video or CTV and then display converted at a 390% higher rate than those exposed to a single tactic only, highlighting that users exposed to the full funnel campaign elements converted at a much higher rate. Lastly, we will continue investing strategically in other verticals, such as CPG. During the second quarter, for example, we formalized a partnership with Catalina to optimize in-progress campaigns based on in-store sales attributed to adherent media. Catalina has access to 22,000 multi-outlet retail stores nationwide and collects purchase data from more than 420 million loyalty cards through retailer point-of-sale systems. By pairing Catalina data with Adtheron's machine learning and predictive targeting capabilities, Adtheron is able to make real-time campaign optimizations across mobile, desktop, and CPV devices to maximize sales for its CPG clients. Shifting focus to our technology. I'd like to give a few quick updates about our ongoing machine learning and platform development. This work is core to who we are and where we are going. We believe that our industry generally relies on stale, inefficient, and ineffective ad targeting methods that cannot deliver the advertiser value offered by ad theorists. Most demand-side platforms, or DSPs, are engineered to target databases of digital IDs, whether they be cookies or audience segment IDs. We offer a disruptive alternative to that status quo based on machine learning and predictive decisioning that will lead the digital advertising industry into the post-ID era. Each quarter, in furtherance of this goal, we operationalize and automate within our platform and across our verticalized solutions new and innovative machine learning advancements and data partnerships. Again, Our business premise is that we target ad impressions with the highest statistical likelihood of driving a customer conversion event. We don't chase user IDs. In Q2, we were pleased to be issued a U.S. patent, data learning and analytics apparatuses, methods, and systems, recognizing one of our valuable ML-based advertising innovations, which we leverage as part of our cost-per-action, or CPA, and KPI optimization strategy. capability suite. This and other innovations enable us to use advanced ML and statistics to score ad impressions and drive KPI performance for customers. We made a number of critical platform enhancements in Q2 which further separate our platform from the alternative programmatic media buying platforms. Among them, we advanced our capabilities in the area of predictive contextual advertising. which we offer as an alternative to standard contextual advertising, which is essentially ad targeting based on publisher content categorization. For example, think serve sports ads to phishing websites. We use impression-specific predictive scoring to identify the impressions within contextually relevant properties, which are most likely to drive specific KPI conversions, such as website sales. Based on historic sales or other KPI conversions, which resulted from ad exposure. And now, due to advancements in Q2, we are incorporating advanced keyword extraction processes into our model building. In plain English, this means we are able to identify keyword combinations on web pages, which our data suggests are more likely to drive sales or other KPI conversions for customer campaigns. And our models will factor these learnings into our platform's real-time scoring and bidding processes, The more impression data we have, the more accurate are our models, and the better return on ad spend we deliver to customers. This is another big step forward for us. In the quarter, we also made substantial progress towards our forthcoming Q3 rollout of ad theorem predictive audiences, which will allow programmatic advertisers to target audiences in a more precise, data-driven, and less opaque manner than is currently possible with traditional targetable audience segments. We mentioned last quarter that we executed a license agreement, which expands to almost 900, the number of impression-specific data objects that our models may consider in evaluating impressions. We are integrating that data into our bidders and solutions and processes, and we are excited to discuss our rollout of Ask Aaron Predictive Audiences next quarter. In support of these efforts, in Q2, we signed another important data license with Peer 39, to operationalize additional contextual data into our solutions. Through this integration, our internal and direct access platform users will be able to perform pre-bid targeting based on contextual sentiment, content quality, and their own brand safety criteria. Advertisers will also be able to curate and activate for campaigns custom categories of inventory that specifically fit their brand significantly. This data will be leveraged within AdSense predicted models to introduce additional ID-independent contextual signals. Finally, I would like to share a quick update and example of our ongoing efforts to operationalize and automate within our platform valuable data science learning. In Q2, we implemented platform automation related to the ingestion of advertiser brand website visitor engagement data for use in our predicted models. and we are already using it to improve customer campaigns. For example, in Q2, we used this platform automation to drive brand website visitation for a destination marketing organization. In a very short campaign window of two and a half weeks, we were able to surpass client benchmarks, driving 3.6 times more visits than the client's campaign goal. Despite the difficult backdrop and decreased visibility into the back half of 2022, we are pleased with the progress we have made in extending the reach of our platform and growing awareness of ads here in the market. We feel great about our positioning in the market and see a tremendous opportunity ahead to capture more of the $13 billion US programmatic digital media market, opportunity that is focused on performance driving execution. Unlike other platforms that focus on targeting users, Attheir predicts the performance of media opportunities using the industry's most advanced machine-learning-powered media buying platform. And we do it in a privacy-forward way without reliance on third-party data licenses, cookies, device IDs, or any of the new unified or individualized IDs in the market now. Most importantly, our platform and products drive industry-leading performance for our customers' campaigns. measured in real business terms such as incremental sales, store visits, registration, travel bookings, online orders, drug prescription bills, insurance policy sales, and other business outcomes. This measurement is increasingly important to brands, and proving return on ad spend is even more important in periods of economic uncertainty. I would like to conclude my remarks by thanking the Ad Theorem team, whose efforts amidst broader macroeconomic uncertainty have been commendable. We are focused on our opportunities and clear objectives, and there is no better team. I will now turn the call over to Chuck to talk about our financial results and guidance, and then I will conclude by offering some perspective on this guidance before going to Q&A.
spk02: Thank you, Jim, and thanks again to everyone for joining us today. Before discussing detailed financial results, I'd like to point out that in addition to our GAAP results, I'll be discussing certain non-GAAP results. Our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results, can be found in our earnings release that is posted on our website, www.adtherent.com. As Jim mentioned at the outset, the second quarter was a challenging and unusual three months with macroeconomic conditions deteriorating and presenting new headwinds for our brand and agency customers. Now I'll walk you through our second quarter financial performance and then discuss our guidance for the third quarter and for full year 2022. Total revenue in the second quarter was $42.5 million, an increase of $2.6 million or 6.5% as compared to the second quarter of 2021, driven by continued strength in the company's healthcare and pharma retail, travel, and software and websites verticals. We experienced year-over-year decreases in our BFSI, government education nonprofit, and industry and agriculture verticals. We are very pleased with the momentum in our CTV offering. Our CTV revenue grew over 100% during the quarter to $4 million as compared to nearly $2 million in the second quarter of 2021. fueled by expanded capabilities and integrations. In discussing the remainder of the income statement, unless otherwise noted, all references to our expenses and operating results are on a non-GAAP basis. You can find information on the most directly comparable GAAP metrics in our second quarter earnings press release. Adjusted gross profit, a non-GAAP metric that removes traffic acquisition related platform operations costs in the second quarter was $28.3 million, or 66.7 percent of revenue, compared to 66.9 percent in the same period of the prior year. Moving down the income statement to operating expenses, second quarter operating expenses were $41.2 million, an increase of $3.9 million, or 10.3 percent, versus the second quarter of 2021. Platform operations expenses for Q2 2022 were up $2.6 million, or 14.2%. The increase was mainly attributable to traffic acquisition costs, an increase in allocated equity-based compensation costs, hiring-driven increases in allocated costs of our personnel responsible for monitoring campaign performance, and volume-driven increases in hosting expense. Sales and marketing expenses for Q2 2020 were up approximately 2.7 million, or 31.6%, primarily due to an increase in equity-based compensation allocated to sales and marketing, an increase in employee expenses related to hiring for the sales and customer support teams, and an increase in travel-related expenses as sales personnel continue to resume more traditional business travel. Technology and development expenses for Q2 2022 were up approximately $1.5 million, or 55.5%, primarily due to incremental software expense incurred in Q2 2022, an increase in employee-related costs to support research and product development, and an increase in equity-based compensation allocated to technology and development. General and administrative expenses for Q2 2022 were down approximately $2.9 million or 36% over the prior year Q2, primarily due to a one-time lease termination fee incurred in Q2 of 2021 related to our decision to terminate our primary New York City headquarters office lease for a more cost-effective lease. Professional services expenses decreased this past quarter due to the elevated legal and professional expenses we incurred in Q2 of 2021 related to public company readiness. Equity-based compensation expense allocated to general and administrative increased versus Q2 of the prior year. Insurance expense in Q2 2022 was up as well, mainly driven by directors' and officers' insurance premiums. We also had an increase in employee expenses related to hiring for the general and administrative teams. Moving to earnings, we exceeded the high range of our Q2 guidance. Over the course of the quarter, we continued investing and advancing our technology initiatives and, as we have a history of doing, manage our operational expenses carefully. Our Q2 adjusted EBITDA for the quarter was $7.3 million versus $12 million for Q2 of 2021. Adjusted EBITDA margin for the quarter was 25.8% versus 45.2% for Q2 of 2021. Now let's turn to our guidance for the third quarter and full year 2022. We are lowering our revenue adjusted gross profit and adjusted EBITDA guidance in response to the current uncertain macroeconomic environment. Third quarter 2022 revenue is expected to be between $37.5 million and $39.5 million, representing a decrease of 5.1% to essentially flat compared to the third quarter of 2021. For the full year, we expect revenue to be between $160 and $180 million, representing a decrease of 3.2% to an increase of 8.9% compared to 2021. The third quarter 2022 adjusted gross profit is expected to be between 24.6 and 25.9 million, representing a decrease of 3.8% to an increase of 1.3% compared to the third quarter of 2021. For the full year, we expect adjusted gross profit to be between 105.9 million and 119 million, representing a decrease of 3.1% to an increase of 8.8% compared to 2021. Although we see softening and uncertainty in the top line, we expect our margin profile to remain strong. Third quarter 2022 adjusted EBITDA is expected to be between 3.1 and 4 million. Our full year 2022 adjusted EBITDA result is expected to be between 17.5 and 27.5 million, or approximately 16.5% to 23.1% of adjusted gross profit. Now I will turn it back over to Jim to offer some perspective on our revised guidance.
spk04: Thanks, Chuck. Given the volatility of the current backdrop, I want to be as transparent as possible about what our current guidance assumes. And I want to be clear that nothing has changed in our longer-term outlook. If anything, we are more optimistic about the role Adtherent will play in the overall programmatic landscape in the medium term as we continue to increase our technological lead over peers. In the near term, however, to reflect our reduced visibility, we are being meaningfully more circumspect as we identify which campaign opportunities we believe will be executed in full and on time in the back half of 2022. We are also providing a broader range than usual to reflect the impact consumer sentiment could have on advertiser spending around the winter holidays, during which time additional and non-forecasted customer budgets are typically reallocated to us because we are top performers on campaigns. In advance of revising our forecast, we recently convened our entire sales leadership team for a three-day off-site and conducted a line-by-line assessment of the pipeline for the balance of 2022. We pressure tested the underlying assumptions and moderated expectations for clients that are more exposed to inflationary or financial pressures and pose the biggest risk for further ad budget reduction. At the low end of our revenue guidance range for the full year, 160 million, we assume the following. The macroeconomic environment continues to weaken through year end. The holiday advertising season is less robust than recent years as inflation and other factors alter how advertisers spend. And we receive no Q4 incremental ad spend, meaning no additional budgets allocated to us later in the year which were not in our pipeline. Typically, our Q4 incremental is 15% to 20% of the quarter's forecasted revenue. At the upper end of our revenue guidance range for the full year, $180 million, We assume the economy and general macro sentiment among corporate clients stabilizes at current levels and does not deteriorate further over the back half of the year, but that we receive lower than average fourth quarter incremental. Furthermore, to be extra conservative, the entire guidance range assumes lower than expected benefit from direct access growth, which has been a break spot for us in the first half, including contract wins with much larger organizations, than we have previously served on a direct access or self-service basis. In turning to the outlook for Q3 and full-year EBITDA, we have already altered our spending plans as a response to the more challenging demand environment. As we have done in previous disruptions, such as COVID, we flexed down spend to protect the profitability of our business. We have materially curtailed hiring plans for the back half of 2022. and we retain other levers at our disposal to reduce spending should industry trends deteriorate further. However, we will continue to invest in our platform and technology to position ourselves for growth in the years to come. Specifically, we will prudently invest behind our technology and product and team to enhance platform and vertical offerings and roll out products faster, as well as make targeted hires in sales and marketing to continue expanding our footprint to meet demand as it materializes. With that, I will turn it over to the operator to moderate our question and answer session.
spk08: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Nat Schindler from Bank of America. Please go ahead.
spk07: Yes, thanks, guys. So I'm trying to understand what's going on here. Obviously, there is a real concern about the macro backdrop, and you saw across a lot of the large ad form advertising plays issues with ad spend and budgets in Q2 and going forward. But I'm trying to compare you guys and similar results I just saw from other similar small demand-side platforms, smaller demand-side platforms, to the largest demand-side platform in the space. Trade Desk just reported better than expected results and expecting 26% growth at least I think they said in the next quarter. So why would you guys be getting hit or at least why are you seeing or guiding to such a hit from the macro? Um, that those guys that theoretically are more, are larger and more broadly exposed are not.
spk04: Yeah. Thanks for the question. First of all, the trade desk has a great business. Um, and I congratulate them on a great quarter. What I would say is we're very early in our growth investment. We went public in December, and we have implemented a number of investments, both within our go-to-market organization and in our technology and solutions and data investments that really have yet to show up in our financial performance. We're small enough at this point that the macroeconomic conditions have had an impact on us in the sense that a handful of campaigns, a handful of customers potentially pausing or telling us that they do not have visibility into the next month, much less the next quarter. In our world as a smaller business, that is something that we need to take into account. We do not have any intention as a business team and a leadership team of delivering on the low end of our guidance. But as a new public company, we do want to be very transparent and we want to err on the side of full visibility into what we believe is a worst case scenario. And that worst case scenario is now on the table. We have no intention... Again, our job is to wake up every day and exceed the high end of our guidance, and we believe that we can do that. But what our objective is in our guidance is to share in the most transparent way possible that as a new company, as a smaller company with less of a footprint and with less long-term, multi-year SaaS-based licenses, that we will have – you know, a worst-case scenario, if you will, that is on the table and that is being shared in this way. So, I mean, we have no idea whether, in fact, a Q4 is going to be what we typically expect, where we win budgets from other campaigns and we win lots of incremental towards the end of the year because our campaigns are performing better, and that's typically what happens in our world. We just don't have that visibility. We have a visibility problem right now. And we are scaling our direct access transaction method, which means that our platform, which we believe is the best platform in the market if you're trying to drive performance, that that platform will be in more tech stacks. That platform will be used by more buyers of media. Currently, our transaction method is is a bit more episodic, certainly more episodic than the trade desk in full transparency. That's just where we are as a business. We're younger, we're earlier. We're making investments in our tech to make data science, machine learning, the optimizations that we do, they drive real, tangible, measurable value for our customers. And that's really what we're focused on. We cannot compare ourselves to the trade desk. We cannot compare ourselves to companies that have been doing this on the public stage much longer than us. We need to make sure that our platform is the best platform in market using machine learning, privacy-forward methods to drive outcomes. Our customers are happy. We broke more customers this quarter than expected, over 15% year-over-year growth in active customers. We will land and expand within those opportunities. So, yeah, not the quarter we wanted in terms of revenue growth. But again, we are early in our journey. We've made investments that we believe will pay off significantly in the future. And that's where our focus is at this point.
spk07: And sorry, just one follow up to that. You talked about it as being a visibility problem. Do you really feel like the visibility fundamentally changed? When did my company start advertisers change from being, okay, this is what I want to spend the next quarter or two more. This is, I want to spend the next couple of weeks or something. When did they?
spk04: I'm sorry, Nat. I thought you were done with your question. No, I was just saying, when did that start? We, in the, in the middle of June, in our perspective, everything changed prior to June. we had a number of what we would say one-off supply chain hiccups where we would have a company tell us that they didn't have products because they couldn't get the supplies and therefore they were going to pause the campaign. They were very one-off in nature. And we did not believe that that was going to be a systematic issue because it was impacting campaigns here and there, but it wasn't a, it wasn't a big deal in June with inflation and with the sentiment and the economy changing with the stock market doing what it was doing, there was a number of budget cuts that we saw. We had customers tell us that their budgets were being cut and that they were only committing to campaigns the next month, whereas we typically have conversations about what's going to happen, not only next quarter, but the rest of the year. So we just didn't see the same level of transparency from customers. We saw a shake in confidence in the economy. We saw a shake in confidence in future profitability. And frankly, given that digital advertising is a fluid, intentionally, expenditure, We want to be on the conservative side of our guidance at this point. We believe that we will do very well this year. We believe that we will have a very profitable year. We will execute on our technical advancement and we will make our platform better and we will be the most competitive and performance driving privacy forward platform that exists. But we have to be patient and we're willing to be patient. We knew when we went public that we would be judged every quarter and we take responsibility for that and we own that. And we don't like the fact that we're a little bit under our guidance for the quarter. But at the same time, we want to share what we believe is a lack of visibility into the fourth quarter especially, which has always been our biggest quarter. And we just want to put that on the table and then, you know, go from there. But nothing has changed in terms of our confidence about our business. But, you know, that's where we sit at this point.
spk07: Great. Thank you.
spk05: Thank you, Nat.
spk08: The next question is from John Blackbridge with Callen. Please go ahead.
spk06: Hi. Yeah, this is Bill Kerr. I'm for John. I had two quick ones, if you could. So customer growth in 2Q – uh came in ahead of what we were expecting and was really solid we were just uh wondering what you attribute the strength and and the customer growth to and how um you know how you're viewing the potential for new customer growth as we go through the the back half this year and enter 2023 and then i had one more after that yeah thanks thank you for that question we it all starts with with landing new opportunities and we are very happy
spk04: that in the second quarter we landed 15% more active customers spending money on our platform, finding value in our platform. We will extract more revenue and opportunity from those customers because our platform works. So it starts with getting out in market, earning new opportunities. As we invest more, and we talk a lot about these in our calls, we talk about the verticalization, and we talk about the data partnerships, and we talk about the new ways that we're making our platform more efficient and easier to use, and that we're making our platform accessible in different ways, now through a direct access method where self-service users can use it. The fact that our platform now has more data integrations, our platform has got a more streamlined workflow, Our performance optimizers, our algorithm engagement and activation is easier and more automated. These things are making it easier for customers to say yes. We are having more meetings than we've had, despite the fact that, again, we are seeing some inconsistencies and some negativity in the market from a macro perspective. But we're also seeing, from time to time, really, really strong signals when it comes to our pipelines. and the opportunities that we have. So yes, we're growing more in terms of customer acquisition. And from there, we will earn their business year over year, as we have for 10 years, where we outperform the other programmatic platforms by driving a lower cost per action, lower cost per sale, and really holding ourselves accountable and sharing the return on ad spend that we deliver for platforms that we do not believe other DSPs deliver. This is not, in 2022, advertisers need to be asking themselves, what am I getting for my ad spend? There are a lot of entrenched big DSPs and other companies out there that are sucking up a lot of media dollars. Advertisers need to start asking hard questions. What am I getting for my digital investments? At Xerent, we're a little bit disruptive. We're coming in. We're small. We have a new method. We're using machine learning statistics to analyze impressions. We're not just retargeting IDs. And therefore, we have a case that we need to make. We need to show up at the table and say, please make a spot for us. We have something new to offer. And that's going to take a little bit of time. But we're very happy with the fact that we are getting those opportunities. On the direct access side especially, direct access in our go-to-market plan is relatively new. We historically sold our platform in a more managed capacity. Now we are one after. We offer our platform to buyers, whoever they desire to transact. And doing that has made it very, very valuable to customers. If they have transactions, if they have teams that can transact on campaigns and they can license our platform and they can execute. And we've made investments to make that platform easier to use. And we've made investments to make more data providers, more measurement providers, turnkey within our platform. So we feel good about it. We're obviously, you know, being conservative, but as a very new company in this environment, we feel like it's just in the best long-term interest of the business to do that.
spk06: Great. That's super helpful. Thank you. And then you mentioned that new sales hires have been strong. Can you just talk to us or sort of talk us through how you feel about where you are in that investment cycle behind the sales force?
spk04: Absolutely. Excellent question. We feel, and I'll talk not just about sales hires, but I'll talk about our tech products, data science, data and analytics, and other technical hires, because that's at the end of the day, those were the two main investments. that we made in the first half of the year. I'll put it this way. On the go-to-market side, we will begin 2023 with 17 more fully ramped sales quota carrying sales professionals than we had at the beginning of 2022. Due to the environment, due to number of factors, it's been a little bit slower to ramp some of these exceptionally talented individuals that we have hired, but they are showing incredible promise. They're driving great pipeline, and we feel really good about them, and we're really happy that they're in our organization. We hired them in a really hard hiring environment. A lot of people want to work at our company because we sell a product that works. So 17 fully ramped, that means they've been here training, learning, engaging with customers for nine months at that point. So by the end of the year, we'll have 17 more than we had at the beginning of last year. They will drive results. On the tech side, we have 23 new data science, technologists, product people, all in-house. And the profitability that we drove in the second quarter was despite those investments. Now, in the second half of the year, we're going to hold back, we're going to tighten, and we're going to be very disciplined. Until we have more visibility into that revenue upside and the growth, we're going to be very, very disciplined about hiring. But having said that, we have a lot of exceptional, gifted, motivated people in the building now that we didn't have at the beginning of the year. And it's going to make our business better.
spk05: Great. Thanks so much for the questions. Thank you.
spk08: Again, if you have a question, please press star then 1. The next question is from Andrew Boone with JMP Securities. Please go ahead.
spk03: Good afternoon, and thanks for taking my questions. Can we talk about the supply side of the equation? So understood you guys will buy impressions and help advertisers achieve their objectives. Just what happened on display pricing? How do we think about take rates and the go forward of the supply side of the equation?
spk04: Well, one of the great things about this business is that we have price optimization built into our platforms that makes sure that we always get the most efficient price. So we see and we've seen in down economic times, we've seen fluctuations in the price of media. During COVID, media was cheap and we were able to, despite the fact that we had low demand, we were able to do quite well because we were able to buy media very cheap. So our price optimizers, and by the way, I would note that we pass on the full benefit of that to our customers. And I think that that's somewhat unique in the industry. We don't take a part of that savings. This is a savings that we share with our customers. This is a value of using our platform. So I think we're seeing an interesting environment where there's potentially going to be opportunities to be very efficient on the supply side. And again, our investment in optimizers, and we've talked about our optimizers in prior calls, and I would just reiterate that we have optimizers which now work together, where we have models that simultaneously optimize towards performance and the lowest price media that you can possibly buy while delivering that level of of performance. We want to drive sales, return on ad spend, cost per action that exceeds our customers' goals. That's the business that we are in. We can use the upper funnel. We can drive upper funnel campaigns, but we're really a data-driven business about driving lower funnel results.
spk03: Andrew, does that answer your question? Yeah, that's great. And then secondly, is there a way for us to dissect the macro impact versus the underlying performance? You know, you guys added kind of auto data previously. You're adding another data set now. Is there any way to think about just the improvement that you guys would provide in a more neutral environment on just advertiser performance and ROI? Thanks so much. Appreciate that.
spk04: Yeah, absolutely. So I think we need to wait to fully see the impact that we're going to have in market with, for example, some of the data sets that we've talked about bringing on board. As a machine learning company and a technology company, one of the ways that we can make an impact is to bring in better and bigger data that is the source. Bring in the real source data, the most accurate, data that you can find whether it's in our healthcare space insurance claims data or in other verticals there are different data sets but access those data sets and then we can create seed audiences in our models that allow us to go find ad impressions that have attributes that look like the seed audience that is converting or that is within a given audience segment, so to speak. So, Ad Theron predictive audiences is something that we have made a big investment in. We've talked about the investments that we've made in the consumer data. And we've talked about the investments that we've made with insurance claims data for Ad Theron Health. And what we're doing is we're building algorithms that analyze that data and then make that data actionable for our advertisers. so that we can understand and see signals in the data that help us buy media. And those are macro aggregated de-identified signals that allow us to ingest billions and billions and billions of ad requests, augment those ad requests with the data that we have licensed, and then have our models tell us, this is the media you need to place the ads on because that is gonna drive performance. It is a sea change from yesterday's methods, which are most predominantly practiced by all the other platforms, of licensing lists of IDs and then targeting those IDs because the licensed providers of those IDs say that the IDs correspond with interest. Nobody really knows where that information came from, and we propose a new method. So I think that's, at the end of the day, where our investments are focused, we want the Ad Theron Health Initiative, which we believe is very significant. And our Ad Theron Predictive Audiences are a version of that across all of our verticals. Because the more unique data sets that we have that are relevant to specific verticals, our data scientists can build algorithms that factor into that additional unique data, and then we can augment bid requests with more and more data, provide more and more robust reporting, and essentially take this industry from its current status quo of targeting cookies and targeting Apple IDs and Android IDs and take it to a world where you can statistically analyze ad impressions based on the likelihood that those ad impressions are actually going to drive a conversion without knowing who the person is and without caring who the person is.
spk05: Great. Thanks, Jim. Thank you.
spk08: This concludes our question and answer session. I would like to turn the conference back over to Jim Lawson, CEO, for any closing remarks.
spk04: Thank you, everybody, for joining the call today. We have built and are working very hard to enhance and refine a very disruptive and highly differentiated media buying platform, premised on data science and machine learning. We believe we bring a very unique and valuable platform and solution to the table for advertisers who seek to derive measurable ROI on their ad spend. We are admittedly new to the public market, listing late in 2021 during a pandemic, and we are navigating a choppy macro environment. But our platform and team and footprint and progress with clients is better than ever before. We will always do our best to share a transparent view of the market and our immediate financial projections. But we will continue to focus on the medium and long term and the tremendous growing opportunity that we see for Adtheon. Thank you very much for being here today. It's an honor and we appreciate your support.
spk08: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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