Integral Ad Science Holding Corp.

Thank you for standing by and welcome to IAS third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, it will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the call over to Jonathan Schaefer, VP Invest Relations. Please go ahead.

Thank you. Good afternoon and welcome to the IAS 2022 Third Quarter Financial Results Conference Call. I'm joined today by Lisa Utschneider, CEO. As announced this afternoon via press release, Tanya Secor has been appointed as CFO, effective December 5th. We look forward to Tanya joining for our next earnings call. On today's call, Lisa will address high-level financial results in her comments. In addition, we have posted Lisa's prepared remarks along with a more detailed financial review on our investor relations site, investors.integralads.com. Anil Sukumaran, our Chief Accounting Officer, will also be available with Lisa during the Q&A session on today's call. Please note that today's call and prepared remarks contain forward-looking statements. We refer you to the company's filings with the SEC, which are posted on our investor relations site, 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. 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 Utschneider. Lisa, you may begin.

Thanks, Jonathan, and welcome, everyone, to our 2022 third quarter earnings call. As mentioned, we posted detailed financial review on our IR site, but let me start with a few financial highlights. We've reported a 28% increase in third quarter revenue year over year to $101.3 million. which compares favorably to our previously revised outlook of $99 to $101 million. International represented 31% of third quarter revenue unchanged from the second quarter. Gross profit margin was 81%. Adjusted EBITDA increased 19% year-over-year to $30.1 million at a 30% margin as we exceeded the rule of 50. We also reached net income profitability for the third consecutive quarter. As a result of our positive Q3 performance and current business trends, we are modestly increasing our previously revised full-year revenue outlook. We are also raising the midpoint of our revised full-year adjusted EBITDA range. During the quarter, we delivered innovative and differentiated solutions to our customers that drove upsell and cross-sell opportunities. The adoption of context control, which includes both avoidance and targeting, is a great example of how we meet the evolving needs of our customers. Since launching context control in 2020, the business has grown to represent 45% of programmatic revenue in Q3, and more than $80 million in revenue expected in full year 2022. The tremendous growth of context control demonstrates our ability to develop and scale products that become meaningful revenue contributors over time. New context control avoidance wins include Toyota in the US and American Express in Italy. We're committed to providing coverage of context control globally and have expanded to 45 languages. In addition to further penetrating our top 100 customers, we see additional opportunities to grow the avoidance business in the mid-market as well as internationally where adoption is increasing. Context control targeting represents a large addressable market. We're activating testing and learning with new customer wins in the U.S. and EMEA across industry verticals. including travel and entertainment, finance, consumer packaged goods, and tech telco. In social media, which continues to represent a dynamic and growing opportunity for IES, we are making significant gains with our major platform partners. IES leads the market with the launch of a full end-to-end measurement suite and TikTok's live feed, including brand safety, brand suitability, viewability, and invalid traffic or IPT detection. In October, we launched a post-bid measurement brand safety and suitability solution in TikTok. We are leveraging our 100% machine learning multimedia classification technology for video, image, audio, and text enhanced by our context acquisition. We can analyze content with greater granularity at the video and frame levels in the live feed, offering both pre-campaign targeting and campaign measurement solutions. With Twitter, we plan to roll out our beta for our post-bib brand safety solution in the coming weeks. The recent Netflix announcement further validates IAS's technology leadership in the important CTV market. We were delighted to announce that Netflix has selected IAS as a transparency partner to support their much-anticipated ad-supported plan starting in Q1 2023. Our initial focus will be on viewability and IVT post-bid measurement. We've established a leading market presence in CTV. Unlike linear TVs, one-size-fits-all approach to advertising, CTV is an addressable and measurable medium, and we're building confidence and trust with marketers and publishers. Our Publica business acquired last year is a leading solution to drive yield for streaming publishers. We provide superior technology while maintaining independence from the media selling business. We are focused on maximizing revenue for our publisher clients across device manufacturers, broadcasters, and multi-channel video programming distributors including Samsung, AMC, Fox, DirecTV, and Philo. We also deliver the best experience for the consumer by incorporating the video recognition technology acquired through the context acquisition. By utilizing context before an ad runs along with our server-side ad insertion stitching capabilities in the live stream, Publica ensures that the viewer has a positive experience without having to endure duplicative or repetitive ads, or in some cases, offensive or mistargeted ads. For marketers, Publica provides insights into which ads have been delivered in what content to what audiences. We also enable buyers to easily activate campaigns programmatically across private marketplaces connecting them directly to the highest quality CTV inventory. We are focused on delivering CTV solutions to provide content level transparency, fraud detection, targeting of contextually relevant, suitable content, and ensuring that ads have been rendered while TV is on. According to a recent study by GroupM and iSpot, 17% of impressions delivered through CTV streaming devices are delivered while TV screens are off. Our new on-screen completion rate metric addresses this issue and validates if a TV was off while a device continued to stream, if an ad was fully rendered on screen, and if the ad played to completion. Publica is on track to contribute approximately 8% of total revenue for the full year, or approximately $32 million. We are also extending our capabilities into the fast-growing audio and gaming markets where advertisers are increasingly looking to our solutions. In audio, we are partnering with Spotify to create the industry's first third-party brand safety and suitability reporting tool. At Advertising Week in New York, David Byrne, the Director of Global Advertising Brand Safety at Spotify, commented that it's great to have a partner like IAS. and together our responsibility is to make sure that advertisers feel safe, secure, and trust what we're bringing to them in the audio space. In Q3, we announced the launch of a post-bid verification product for audibility and IVT measurement. We're actively working to expand these capabilities to additional audio platforms. In gaming, we partnered with Israeli-based Anzu where we are in market with viewability and IVT measurement solutions. We're looking to extend these capabilities beyond mobile in-app to other gaming environments, including consoles, PCs, and desktops. We're also testing with other platform providers to expand our coverage within gaming. We're delighted to announce that Kimberly-Clark selected IES as their global ad verification and proactive brand safety prevention solution in a multi-year agreement at the end of the third quarter. This partnership with a major CPG company was secured after a head to head against other providers. We were awarded the opportunity based on the value of our solutions, our high standard of service and global support, and our insights as a service approach. I couldn't be prouder of the team for this win. We continue to strengthen our senior leadership team to help guide IAS in our next phase of growth. In May, we appointed Yanis Dosios to the newly created position of chief commercial officer responsible for global sales and marketing. Under his leadership, Yanis is enhancing our go-to-market strategy across functions to bring best-in-class enterprise-level sales and activations to our customers globally. International is a key differentiator for IaaS as global marketers look to simplify and consolidate verification under one provider. In August, we welcome Thomas Joseph, or TJ, as our Chief Technology Officer. TJ brings a high degree of technical expertise and global enterprise experience with Microsoft. Most recently, he helped drive the Pandora integration at SiriusXM. TJ is already making an impact, aligning the engineering organization to support our product roadmap and long-term growth strategy. Today, we are excited to announce another key addition to the senior leadership team. Tanya Secor will join IES as Chief Financial Officer. Based in New York, Tanya is a highly accomplished finance leader with 25 years of financial leadership experience and a proven track record of building teams and scaling organizations for growth. Most recently, Tanya was global CFO for RGA and Reprise, interpublic groups, digital innovation, and digital media agencies, respectively. Her deep background in FP&A and capital markets, along with her relevant industry experience, make Tanya a great fit for IAS. We look forward to Tanya joining the team on December 5th and to introducing her to everyone. Lastly, we're excited to support marketers' efforts to track and reduce their carbon footprint. We recently announced a partnership with UK-based Goodloop, a purpose-led advertising platform that's moving the industry towards positive, climate-friendly advertising. We are working with Omnicom and Sanofi Aventis on pilot testing in Q4 with broader availability in 2023. In closing, 2022 is shaping up to be another year of expanding capabilities and delivering revenue growth and profitability that exceed the rule of 50. We continue to focus on driving efficiencies in our business and prudent expense management as reflected in our adjusted EBITDA outlook. With the recent additions to our senior leadership team, including today's announced CFO appointment, we are adapting and aligning our execution for the current environment. We are currently in the thick of planning for 2023, and we believe that we are setting the stage for long-term durable growth. And with that, we are ready to take your questions. Operator?