Viant Technology Inc.

Q3 2022 Earnings Conference Call

11/9/2022

spk02: Hello, everyone. Thank you for joining Vyan's third quarter 2022 earnings conference call.
spk03: We'll stand by momentarily and get started here shortly.
spk02: And again, to everyone joining, you're currently holding for today's Vian's third quarter 2022 earnings conference call. Thank you for your patience and holding. We'll be getting started momentarily. Well, hello, everyone, and welcome to Viant's third quarter 2022 earnings conference call. My name is Kelsey, and I will be your operator today. Before I hand the call over to the Viant leadership team, I'd like to go over just a few housekeeping notes for the program. As a reminder, this webinar is being recorded. And after the speaker's remarks, there will be a question and answer session. If you plan to ask a question, please ensure you've set your Zoom name to display your full name and firm. Now, if you'd like to ask a question during this time, please use the raise hand function located at the bottom of your screen. We thank you for your attendance today, and I will now turn things over to Sandra Magnus with Viant Technology. Sandra, over to you.
spk06: Thank you, Kelsey. Good afternoon, and welcome to Viant Technology's third quarter 2022 financial results conference call. On the call today are Tim Vanderhoek, co-founder and chief executive officer, Chris Vanderhoek, co-founder and chief operating officer, and Larry Madden, chief financial officer. I'd like to remind you that we will make forward-looking statements on our call today that are based on assumptions and subject to future events, risks, and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements in our entire Safe Harbor Statement, please refer to the news release issued today, as well as the risks and uncertainties described in our registration statement on Form 10-K and other filings with the SEC. During today's call, we will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures, are included in the news release we issued today and in our filings with the SEC. I would now like to turn the call over to Tim Vanderhoek, Chief Executive Officer of Viant. Tim?
spk10: Thank you everyone for joining us for our third quarter earnings call. We posted good operating results in the third quarter amidst the challenging environment. Total advertiser spend on our platform grew 19% year over year, ahead of market ad spend growth rates as we continue to gain share in the digital advertising market. In the third quarter, revenue was $48.8 million, a decrease of 4% versus the prior year period, and contribution ex-tac was $32.1 million, a decrease of 6% versus the prior year period. Once again, advertiser spend on the platform was up significantly on a year-over-year basis, and existing customers continued to transition their spend from fixed-price contracts to master services agreements paying based on a percent of spend. This dynamic creates a drag on revenue and contribution XTAC in the near term, but we expect that drag to subside in 2023. Our Adelphic DSP continues to resonate in market as a leading self-service platform to plan, buy, and measure digital advertising across channels. We continue to expand customer relationships as many choose to consolidate their ad spend into our platform. Adelphic gives buyers the ability to programmatically access publisher inventory, saving them time and money. We allow buyers to target valued customers based on a variety of criteria and interests that are relevant to the customer. This results in a higher ROI for the buyer. Most importantly, we provide detailed reporting on campaign performance. This helps the buyer to assess the effectiveness of the campaign and make any necessary adjustments. These benefits are even more necessary in challenging economic times as buyers look to boost the return on their advertising investments. Before turning the call over to Chris, I want to take a moment to address what we are seeing across the macroeconomic landscape. While the growth in advertiser spend we saw on our platform in Q3 was strong, we saw a deceleration of advertising spend throughout the quarter, and it is continuing into Q4. Specifically, deceleration in bellwether categories like retail has been significant, and we will provide more detail on the slowing growth later in the call. Our company is nimble and able to quickly pivot as needed. This has been a crucial benefit during these uncertain times, allowing us to stay ahead of the curve and adapt as necessary. We delivered a 3% reduction in non-GAAP operating expenses in the third quarter compared to the previous quarter, and we will continue to make changes to our product priorities so the company is in position to generate positive EBITDA in 2023. While we continue to adjust our costs to be more in line with the economic outlook, we continue to see strong long-term tailwinds. I would like to remind everyone of the three big tailwinds that have Viant poised for future growth. First, people still prefer to watch their favorite movies and TV shows through streaming applications. With large companies like Disney and Netflix releasing even more ad-supported content, we expect the growth rates for connected TV to be significant in the future. Marketers will continue to shift more of their budgets away from traditional TV in favor of streaming. The addressability of connected TV enables marketers to achieve higher ROI than linear television. And we see ourselves as a beneficiary of the more than $60 billion still to be shifted to programmatic over the next five years. Next up is emerging channels. We have always focused on emerging channels as they are the green shoots to large future tailwinds. Connected TV used to be an emerging channel for us, but it is now one of our largest channels. The next two big emerging channels are streaming audio and in-game advertising. Streaming audio has become the go-to method for listeners to consume music, books, and podcasts. There is a significant opportunity for marketers to take advantage of programmatic buying in this very fast-growing and important channel. Although streaming audio only makes up 6% of total spend across our platform today, its addressability and measurability are almost identical to connected TV. The growth rates of streaming audio over the past year show that it definitely has the potential to be a game changer in the industry as advertisers better understand how best to incorporate audio into their media plans. As for the in-game advertising opportunity, this sector of the industry is moving quickly with new ad formats and ways to place ads programmatically. Viant recently announced that we are the first DSP to offer our customers programmatic access to buy ads inside of Minecraft, reaching millions of highly engaged users who spend hours in this unique environment. This entertainment form may be relatively new to programmatic advertising, but it has already gathered a large fan base, resulting in many potential future possibilities for the digital advertising industry. Last, our focus on building measurement and performance-based ad buying capabilities will deliver strong growth in any type of economy. Our goal is to be the most measurable platform for our advertisers, delivering the highest ROI. Viant's long-term view on the opportunity ahead remains as strong as ever. While we must acknowledge a challenging business environment, we also believe that the rich capabilities and flexible nature of our platform in times of shifting consumer spend makes our offering all the more valuable. I'll now turn things over to Chris to discuss some key strategic updates across the business. Chris. Thanks, Tim. In the third quarter, we continue to expand our capabilities and partnerships, bringing more value to our customers while building out one of the leading self-service platforms on the market today. We continue to see marketers and their agencies seek an independent omni-channel DSP that is fully self-service, has industry-leading integrations across all channels, and a strong measurement offering that accurately calculates return on ad spend. Again, reinforcing our leadership position as the DSP with the strongest measurement capabilities, a point of differentiation that brings strong tailwinds of untapped spending behind it. Over the last year, we have seen strong new customer wins with the number of active customers increasing 10% year over year. Additionally, spend per active customer increased 18% over the same period. As advertisers experience strong campaign performance, they continue to consolidate their spending in Adelphic across all channels. The vast majority of Viant customers spend through two or more channels, with an increasing number spending across more than three channels. In Q3, we saw strong year-over-year growth in advertiser spend across our largest channels. Connected TV growth accelerated from 2% in Q2 to 13% in Q3, and audio grew 51%. Audio now represents 6% of total advertiser spend and is now on a growth trajectory to what we saw similar to a few years ago with connected TV. We also saw strong growth of 25% across mobile and desktop. The fact that we are omni-channel, meaning connected TV, desktop, mobile, audio, digital out of home and in-game, is a major benefit to advertisers given the uncertainty in the economy. It means that we can give them greater flexibility to shift budgets that drive the highest ROI, a benefit that is not present in many walled gardens. Open web programmatic platforms that operate across all channels will be the beneficiaries of the spending fallout from walled gardens. I'd also like to comment on the macro environment with respect to spending on our platform. We saw strong growth in the third quarter in categories such as travel and financial services. we recorded record growth in political advertising spend in Q3. Although I would caveat that by saying this category represents a small percentage of overall advertiser spend on our platform, but gives us confidence to continue to focus on growing this category in future periods. Although we had a strong year Although we had strong year-over-year growth in spend of 19% in the quarter, we did experience a slowdown in certain verticals. We continue to see lower than normal spending in verticals like automotive and CPG, but we also saw our fastest growing category, retail, begin to show signs of softness in Q3 that is now extending into Q4. Amid the backdrop of the slowdown in spending, we have been staying close to our customers. we are continuing to see greater focus by clients around measurement, which ultimately means they want performance-based results from their ad spending. These factors are narrowing our product roadmap focus as we move into next year. One of our biggest product priorities will be to continue our industry-leading work in measurement. A substantial number of our customers rely on our unique measurement capabilities to drive campaign performance. As performance-based buying increases throughout a recession, our platform leadership and measurement will allow us to consolidate more spend. As campaign performance continues to be a top priority for advertisers, we continue to invest in products utilizing machine learning and artificial intelligence that further improve campaign performance in an automated fashion. Our clients are seeing a lot of success in Adelphic with these products. This will not only drive more spending in our software, but it will save our customers time and money. I've talked previously about our focus on building automation within our software as a core differentiator, and this area is an important component of that. On the partnership front, we recently announced an integration with Snowflake that will allow any Snowflake customer to match their customer data with our household ID. Many advertisers, data companies, and content owners are hosting their data with Snowflake. As less data is available in the bid stream, interoperability with companies like Snowflake will allow for content owners to easily authenticate their users to allow for addressable advertising to be measured. This will be a big win. for content owners and advertisers as the industry moves towards responsibly delivering addressable advertising while eliminating reliance on Apple and Google. Lastly, I'm extremely proud of the industry-wide recognition of our category leadership. We were once again named as a leader in demand-side platforms by G2 in their fall 2022 grid report. Additionally, this quarter, G2 also recognized Viant as a leader in their enterprise grid report for cross-channel advertising. This third-party validation, based on the strength of our self-service platform for omni-channel advertising, stems directly from the value we provide to customers. The platform advances we are focused on today will help set us up as we move forward for sustainable long-term growth and ongoing market share gains. We are an independent buy-side platform that is well positioned in the market with a fully self-service solution, industry-leading integrations across all channels, and a leading measurement offering. Let me now turn things over to our CFO, Larry Madden, to discuss our financials. Larry.
spk07: Thanks, Chris, and thank you everyone for joining us today. Before I begin, I'd like to remind everyone that we have posted a presentation to our investor relations website with supplemental financial information to accompany today's presentation. As Tim mentioned, we are pleased with the level of advertiser spend across our platform in Q3, especially considering the current state of the economy. Advertiser spend across our platform increased 19% in the quarter over the prior year period, reflecting continued market share gains, and both revenue and EBITDA were within our guidance for the quarter. This afternoon, I will be discussing some of the highlights of our Q3 performance, the key financial and operational drivers during the quarter, and our current expectations for Q4. In terms of top line metrics for the third quarter, as I said, advertiser spend across our platform increased 19% over the prior year period and 1% over the prior quarter. On a year-to-date basis through September, advertiser spend has increased 30% from the prior year. In the third quarter, revenue was $48.8 million, a decrease of 4% versus the prior year and 5% versus the prior quarter. And contribution exact was $32.1 million, a decrease of 6% versus the prior year period and an increase of 1% over the prior quarter. As a reminder, revenue from our percent of spend pricing option is recorded after deducting traffic acquisition costs, or TAC, whereas fixed price revenue is recorded before deducting TAC. Therefore, as the percent of spend pricing option continues to make up a larger part of our advertiser spend mix relative to the prior year period, we will have a near-term drag on our revenue and contribution ex-TAC growth rates. While the impact of this mixed shift has negatively impacted revenue and contribution extract growth rates in 22 relative to advertiser spend growth rates, we have seen such growth rates begin to converge over the last two quarters and we expect that trend to continue to improve as we move forward and the impact of the mixed shift becomes less significant. As we mentioned on our last earnings call, beginning mid Q2, some customers began reducing their normal spending levels due to the adverse macroeconomic environment. This trend continued throughout Q3 with year over year growth rates decelerating throughout the quarter. The pullback has been especially pronounced across our fixed price pricing option, which tends to be less resilient during challenging macroeconomic times. Conversely, our percent of spend pricing option has demonstrated much greater resiliency as evidenced by our customers continuing to adopt and increase their spend using this pricing option. The growth in spend on the platform in 2022 continues to be driven by new and existing customers expanding their use of our platform through our percent of spend pricing option. Increasing customer adoption of our percent of spend pricing option has always been our goal as we believe it creates a deeper relationship with our customers and provides for more consistent, predictable, long-term value creation. We believe that the lifetime value of a customer using our percent of spend pricing option is significantly greater than that of a fixed price customer. As percent of spend customers ramp spend over time, they consolidate budgets on our platform, leading to higher retention rates. In Q3, customers using our percent of spend pricing option, on average, nearly three times that of customers using our fixed price pricing option. Non-GAAP operating expenses, which is defined as the difference between Contribution X-TAC and EBITDA, totaled $33.9 million in the quarter, representing a year-over-year increase of 23% and a quarter-over-quarter decrease of 3%. The year-over-year increase is the result of investments we've made over the last 18 months to enhance our product capabilities and expand our sales and technology teams. We have been investing to scale the business, accelerate growth, and drive market share gains. However, as Tim discussed, given worsening macroeconomic conditions, we significantly slowed the pace of investment in Q3 and reduced non-GAAP operating expenses in the quarter by 3% versus Q2. For the quarter, we generated adjusted EBITDA of negative 1.8 million, which was in line with our expectations. For the quarter, our non-GAAP net loss, which excludes stock-based compensation, totaled negative 4.4 million, and non-GAAP loss per diluted share of Class A common stock was negative 6 cents for the quarter. From a liquidity perspective, we ended the quarter with $200 million in cash, 229 million of positive working capital, and no debt. With that, I'll now turn to our guidance for Q4. Many of our advertisers are navigating a challenging environment with higher inflation and weakening consumer demand, which creates a volatile demand environment. Given this uncertainty, we believe there could be a wider range of outcomes for Q4, which is reflected in our guidance. The pullback in advertiser spend we experienced in Q3 due to the worsening macroeconomic climate is continuing Q4. Since June, we have seen year-over-year growth rates in advertiser spend decelerate each month with spend across our fixed price pricing option actually declining over that period. As I said, fixed price tends to be less resilient during adverse macroeconomic times as compared to percent of spend. Additionally, Q4 is being negatively impacted by a challenging fixed price comp in Q4 of last year. In Q4 2021, we did exceptionally well in the jobs and employment customer vertical across fixed price. These customers spent significantly to close out 2021 in an effort to capitalize on the heightened demand for labor. In 2022, customers across this vertical have significantly reduced spending across the board as the labor market has cooled, with many companies either freezing hiring or announcing layoffs. As Chris mentioned, growth across our largest customer vertical, retail, also slowed significantly in Q3 as a result of the challenging macroeconomic environment. That trend has continued into Q4 and we now expect spend across our retail vertical to decline in Q4. Based on these factors, we expect advertiser spend to decline in Q4 between 11% and 20% year over year. On a quarter over quarter basis, we expect advertiser spend to increase between 1% and 11% over Q3 levels, which is well below the normal seasonal uptick we typically see in Q4. For Q4, we expect revenue in the range of $52 million to $57 million, which represents a year-over-year decline of 31% to 37%. The pronounced decline in revenue is due to expected declines across our fixed-price pricing option due to the factors discussed, partially offset by continued growth across our percent of spend pricing option. The expected year-over-year decline in revenue across our jobs and employment customer vertical is driving about half of the total expected revenue decline at the midpoint of our guidance for Q4. The good news is that we do not expect potential continued weakness across jobs and employment vertical to have a material impact on 2023, as spend throughout 2022 across this vertical was de minimis due to the challenges in the labor market. Contribution XTAC is expected to be in the range of $32 to $35.5 million for Q4, which represents a year-over-year decline of 27% to 34%. Importantly, in Q4, Contribution XTAC is expected to decline less than revenue. This is being driven by the increased mix of spend across the percent of spend model versus fixed price versus the prior year. This is a trend we expect to continue going forward as fixed price becomes a smaller and smaller percentage of total spend. In Q4, we also expect advertiser spend growth rates and contribution attack growth rates to further converge as fixed price continues to represent a smaller share of the total mix, another trend we expect to continue as we move into 2023. In terms of non-GAAP operating expenses for Q4, we now expect a range of $33.5 to $34.5 million, which represents a year-over-year increase of 8% to 11% and a quarter-over-quarter change of negative 1% to positive 2%. As we mentioned, given the ongoing macro uncertainty, we intend to rigorously prioritize and aggressively manage costs. For 2023, we intend to align our cost structure such that irrespective of the challenges that the economy may pose, we are positioned to deliver positive EBITDA for the year. And finally, we expect EBITDA on the range of negative $1.5 million to positive $1 million in Q4. In closing, while inflation, supply chain shortages and higher interest rates, among other factors, are contributing to a difficult market and certainly represent a near-term headwind, we remain confident in our ability to deliver long-term top-line growth and EBITDA expansion. We believe our points of differentiation will enable us to successfully capitalize on the market opportunity in front of us. We are confident that our strong balance sheet and disciplined cost management during these challenging times will enable us to weather this economic storm and come out the other side even stronger. That concludes our prepared remarks today. And with that, I will now turn it back over to the operator to open the video to questions. Operator?
spk02: Great. Thank you so much, Larry. And as a reminder to the audience, please use the raise your hand feature located at the bottom of your screen to indicate that you do have a question. And our first question will come from Laura Martin with Needham and Company.
spk03: Laura, please go ahead. Laurie, you are currently muted. If you'll go ahead and – yeah.
spk12: There you go. I got it. Okay. Sorry. No problem. I'm still working on my phone. Okay. I got two. So the first one is one of the great things about your ID tracking has been it's been a household ID. And one of the things we're hearing from D.C. is that what the regulators may go after next is ISP privacy. Okay. Would that affect your household ID, or is your household ID not dependent on ISP data in the home?
spk10: Our household ID is not dependent on ISP data in the home, so I don't believe it would have any impact.
spk12: Fantastic answer. Okay, great. So the other thing is, I just want to make sure I understand this guidance. So we're going to go from 19% growth in Q3 to negative 11 to negative 20% growth in Q4. Am I reading that right?
spk07: That's correct.
spk12: So what did they do? They just all left and went to Hawaii? How is this kind of decel possible in a 90-day period?
spk10: Well, as Larry mentioned, we've seen continual deceleration since about June of every single month as the economy continues to worsen. I think the biggest impacts on ours, jobs was a pretty significant contributor. That's contributing to a large chunk of that spend decline with that industry being at a very different place this year than last year. And the second one I would point to is retail spending. We are expecting to decelerate year over year.
spk12: So guys are canceling their ad campaigns is what that means for fourth quarter.
spk10: Yeah, I think you're just not seeing the holiday, you know, the bump in holiday spending that you always see. And you can see, you know, we're not really seeing it into the fourth quarter. Predominantly in retail, that's the big drag. And that's where we've been doing extremely well. It's been our fastest growing category. But, yeah, we just really haven't seen a lot of it show up in the fourth quarter.
spk12: Okay. Thanks, guys.
spk10: And one point on that, just to be clear, it's not that we lost any of those customers or anything like that. We just haven't seen the increase in spending.
spk07: I would add one thing as well. I mean, we're seeing it more on the fixed price side of the business. Percentage of spend side continues to grow. We expect it to grow in Q4. We expect it to grow at faster than the market. And we expect that to continue going forward. And now percentage of spend is by far the majority of our spend. But the impact of fixed price is particularly negative on the revenue growth and the XTAC growth.
spk02: Thank you. We'll move on to Andrew Boone with JMP.
spk09: Hi, guys. Thanks for taking my questions. I wanted to touch on that last point in terms of thinking about holding on to these clients through the downturn. Can you guys talk about what you're doing there to just make sure that whether this is six months, a year, you know, a few weeks, that they're there on the other side of this? Yeah.
spk10: So the first thing I would say is that we're certainly seeing a greater focus, as I spoke about earlier, around performance-based campaigns as opposed to more brand-based campaigns. So we see a shift going on there. We think we excel there. And I know that if I specifically think within retail, but this really reaches more broad than just retail, we're doing really well there. Um, what I'll say though, is how long it lasts. You know, I, I can't predict what the, most of this is Mac, you know, all of nearly all of this is macro. So I can't predict on when that lets up. But what I'll say is about an open web platform that isn't all these channels or those omni-channel like we are, it gives them the option ability to continue to shift their spending with the same company and the same software to get the highest ROI. Why is that important? And what's the benefit of that? Single-channel companies, like some of the wall gardens, are strictly a mobile app. If they stop performing in that mobile app or a particular operating system, they pull the budget. So our system is set up, and you're seeing – and I talked about this too – we're now – The majority of our customers are buying in three or more channels, which is incredible. And it shows you how they can easily shift spends. And the platform does that in an automated way for them to reach whatever ROI goals that they have. So I'm not worried about losing these customers at all. I don't think that's a factor. It really is macroeconomic. And I would say, too, for most of these customers, it's not that I think their businesses are extremely damaged. I think that it's the uncertainty of what's going to happen in the economy and consumer spending uncertainty is what's giving pause to a lot of these marketers, both in retail and in other categories.
spk09: You know, going to the deck, auto and CPG were down 21% year over year. You know, we've highlighted auto in the past as a vertical that's troubled you guys, I think, you know, what, is that like a year and a half ago? Can you just talk about the process that you guys are going through in terms of hardening the platform for diversification that you guys have across your advertiser set? You guys have done a good job of adding more clients, but just where are you guys in terms of just broadening the exposure to various verticals?
spk10: Yeah, well, look, we invested in our sales force pretty substantially leading up to this point. And I think they're out pounding the pavement to find the different categories of advertisers that are looking for programmatic advertising or a demand side platform that's out there. Most are currently utilizing a DSP and we're having active conversations with them regularly. I think in terms of diversification or revenue concentration, Larry, do we have any concentration issues?
spk07: No, not at all. Retail still is our largest, even though it is declining at this point. But there's no one, and we've grouped our verticals pretty broadly. There's no one vertical that's more than 18, 17% of our total spend.
spk10: But what I will say in terms of diversification, Andrew, I'm just reading in your question a little bit on the jobs and employment, as Larry stated, we don't have there's no material impact on that on us on a go forward basis. There was a big heavy up in that category towards the end of end of last year. And that that category has largely dried up, you know, understandably. Outside of that, I will say that we've constantly broke a lot of new categories. Every few years, there's a new category of advertising that pops up or becomes large. So I'll give you an example, like in the casino and online gaming space. We've done extremely well there. That was a category that largely didn't exist a few years ago. So we mobilized pretty quickly around that. And as typical recessions go, some categories are down and new ones pop up and we're usually pretty quick to attack those.
spk09: One more and then I will pass it on. But you guys highlighted EBITDA in 2023. Clearly you've made significant investments in the sales force over the last kind of year. Can you just talk about your priorities in terms of investments that you guys want to maintain or continue to focus on as we think about EBITDA profitability for 23?
spk10: I think we're going to remain opportunistic around, you know, our priorities will be around product and engineering. Although, you know, what I will say is we're not going to spend like crazy there. We're going to be measured, but we know that there's great talent in the market and it is a great opportunity to pick up that talent. We have a great product roadmap as well that we're really confident in. But just overall, what we will say is that we're going to be measured around our cost next year. And regardless of what happens in the economy, we're going to set up going into the year that we'll deliver a positive view of $1.23.
spk03: Thanks, guys.
spk02: And as a reminder to the audience, please use the raise hand feature located at the bottom of your screen to indicate you have a question. And we will now hear from Maria Ripps with Canaccord.
spk03: Hi, Maria. Hi.
spk01: Thank you so much for taking my question. I just wanted to expand on the last question around verticals. And my apologies if this was already covered. So we're hearing about very early signs of recovery in the order vertical. Is that something that you are sort of seeing on your end? And could this be sort of an area of upside over the next couple of quarters?
spk10: Well, automotive. Go ahead, Larry.
spk07: I was going to say, I can take that. As you know, we've talked about it a lot. That vertical has been down probably eight quarters at this point. It represents a relatively small percentage of the total. But we are actually seeing signs in Q4, interestingly enough, of that starting to turn to the positive.
spk03: Great. Thank you so much. That's all I have. And we'll now hear from Andrew Marek with Raymond James.
spk05: Great. Thanks for taking my questions. You've spoken towards this point, I think, a little bit previously in the Q&A session. But just to the extent that the reduced spend outlook is the result of companies either Shutting down ad spend or pulling back on ad spend more broadly or just kind of consolidating the number of partners that they're working with. Just trying to think of, you know, the differences between those two scenarios and how easy it would be to reacquire that business once either spend or the relationships came back.
spk10: Yeah, that's a good question. Thanks, Andrew. No, I don't. In our case, it's not that we've lost those customers and they've shut down, you know, spending entirely with the exception, what I would say of this jobs vertical. And again, I don't we haven't lost those customers. It's just due to the environment that they've they have really nosedive a lot of the spend there. But what I will say is, yes, to your point, we're fully confident. We still have those clients. They're still in our software. And it's more of a deceleration of the spend. But we're fully confident that when that spend comes back, it will be in our software. Yeah. And just to remind everyone, this is the benefit of programmatic advertising. It's the flexibility to pause budgets when your business needs to pause budgets. But programmatic advertising is the first to turn back on as soon as they're ready to reaccelerate. And we've seen this cycle many, many times. And I'm sure this is just the lull while they're fixing their own business. And the programmatic advertising will be the first button that they push to turn back on.
spk05: Got it. Thank you. And then one more, if I could. Reading through the slide deck, it looks like you're reiterating your intentions for $500 million in revenue by 2025 and 35% EBITDA margins. I guess in light of the tough conditions now and assuming that that maybe lasts into early 2023, can you kind of just draw that line for us and how the thinking around the trajectory of that has changed? Thank you.
spk10: Yeah, I mean, based on when we look at our current customers, the cohorts and the expected growth with expected new customer acquisition, I think where that could go awry if new customer acquisition has a hiccup in the first half of 2023, maybe in the outer cohorts. As we see it, though, we believe we have The customers on the platform and the scaling of those cohorts is continuing as planned. We talked about the percent of spend business model still doing very well, and we're winning customers, and they're consolidating more spend. So I don't see any need that puts risk to that 2025 number in my mind.
spk04: Chris, anything else? No, that's good. Great. Thank you. Thank you.
spk02: Craig Hallams, Jason Krayer has the next question.
spk11: Okay, sorry about that. I want to talk about the cadence of Q3, Q4, just from a channel perspective. You highlighted in Q3 the reacceleration of CTV and audio. Just as you go into Q4, are you still seeing more resilience there, or are there specific categories that are falling off versus others that are holding up better?
spk10: Yeah, I mean, we didn't give any – hi, Jason. We didn't give any guide around that. I'd have to get back to you on those splits. I mean, I think what we're seeing is that really we are seeing an uptick. If you look at our guide, we are seeing an uptick from Q3. But I would expect it to be largely consistent with what we saw in Q3. But I don't have a split for you right now on where we are in the quarter. And our guide, you know, admittedly was a little bit wider than we normally would give. And part of that is just we're seeing such a late planning cycle, very similar to coming out of COVID. There was a real late planning cycle coming out of COVID really for the balance of 2020. And we're seeing that again. And so we still we still think that that and I know speaking with some clients, they're still budgeting up in the air, even for December, which typically you don't you don't see. It's already largely planned by this point. So tough for me to give you a read on that. But but just off the top, I would say I would expect to be largely consistent. But broadly speaking, we've seen brand advertising budgets give way to performance advertising budgets, and I think that's the overarching shift that most advertisers have right now. Larry?
spk07: I was just going to give a little bit more specific. It is, in fact, kind of consistent across the channels, with the exception being streaming audio, which continues even in Q4 to grow, albeit a relatively small percentage of the total.
spk11: Okay. Larry, maybe stick with you just on the pricing models. When a customer that, when an advertiser on the fixed fee model sees some of that pullback, does that give you the opportunity to convert them over to percent of spend or does that usually lead to more client churn and then the opportunity to get them back on the platform in a quarter or two?
spk07: Yeah, I think it's more kind of reducing those budgets and or pausing some of those budgets. As Tim and Chris mentioned, the clients aren't leading. There's always the opportunity and we're always pushing clients to convert to a percentage of spend. It really depends where they are in their kind of programmatic life cycle in terms of whether they have the trading capabilities, etc., But we're constantly talking to our fixed price clients about converting. So that doesn't change. We do that in tough times and in good times.
spk04: Thank you.
spk03: And we will now hear from Chris Kantarich with UBS.
spk08: Hi, can you hear me okay? Yeah, go ahead, Chris. Great. Hi, Chris. Just maybe digging into the advertising spend guide for 4Q and trying to understand the delta between the down 11, down 20 that you're guiding to. Should we be thinking about... I guess, how should we be thinking about retail playing into how you would end up as down 20 versus down 11 in 4Q? Would it be an acceleration of those decelerating trends? Are we already at negative spend in October? Just curious how we should be thinking about retail specifically playing into that guide.
spk10: Larry, do you want to take that?
spk07: Yeah. I mean, firstly, in terms of kind of where we are, obviously October is in the bag. October was we saw a low single digit decline and consistent really with the last four or five months. Each month since really June, the decel increases. So we're seeing that into November. Then November is going down a bit more than October went down. On the retail side, it is impactful because we do expect that to decline significantly. As I said earlier, that is our largest vertical. And so the impact of that is certainly an important part of it. In terms of the range, I mean, it's just given the significant uncertainty out there, we're just being pragmatic in terms of giving a wider range than we ordinarily would, especially mid-quarter. Just to, you know, not fully understanding exactly what's going to happen. We have a good sense of what's going to happen, but We felt the wider range made sense given given the increased uncertainty.
spk08: Got it. And as we kind of think about those like tier two, tier three type of verticals, the long tail for you, is that at all? Is there an assumption baked into that guidance that it starts to the weakness that you're seeing in a couple of these verticals starts to widen out? Or is it really we should be thinking about retail and jobs is already kind of baked in?
spk07: I think that is true. There are, I mean, as in what we went through with COVID, there are certain verticals that actually are doing better. But certainly retail, jobs, travel, for example, is still strong even in Q4, to give you a sense.
spk10: But the answer specifically, certainly it's baked in to the guide. Retail and, oh, I just lost my train of thought. Jobs. Jobs.
spk04: Thank you.
spk08: Got it. Okay. It's a further weakness in retail, but not an accelerating pace of that retail weakness, if that makes sense. Well, certainly accelerated downward from Q3. OK. OK. And just maybe stepping back to just thinking about 23 and the return to profitability. Just how should we be thinking about scenarios for you to return to double digit type of EBITDA margins for next year? What would need to happen for that to play out?
spk10: You know, I think as we look at it, it will take an acceleration of spend to get back to that double-digit EBITDA. I would just say we slowed the pace of our hiring plans pretty tremendously relative to what we were thinking at the start of the year, and we kind of will stay ahead of the curve. In terms of just overall operating expenses, they are very much under management's control. There's nothing that we feel like we have to keep spending on to be able to achieve growth in the future. It's more about just managing through this, you know, mid to near-term hiccup.
spk04: Understood. Thank you.
spk02: That does conclude our question and answer session for today. Tim, Chris, or Larry, do any of you have any closing comments for today?
spk10: That's it. Thanks for joining the call and we'll see you next year.
spk02: Great. Thank you so much, Chris. And everyone, we thank you so much for joining us today. Again, this does conclude today's earnings call. We thank you all for your participation and look forward to seeing you next earnings. Happy holidays, everyone.
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