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spk01: Thank you for standing by and welcome to the third quarter 2022 conference call and webcast for System One. Joining me today to discuss System One's business and financial results are our co-founder and CEO, Michael Blend, and our chief financial officer, Tritavish Kadambi. A recording of this conference call will be available on our investor relations website shortly after this call has ended. I'd like to take this opportunity to remind you that during the call, we will be making forward-looking statements. This includes statements relating to the operating performance of our business, future financial results and guidance, strategy, long-term growth, and overall future prospects. We may also make statements regarding regulatory or compliance matters. These statements are subject to known and unknown risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in the registration statement on Form S-1 filed on April 13, 2022, in our Form 10-K for the fiscal year 2021 filed on March 31, 2022, in our Form 10-Q for the second quarter of 2022 filed on August 15, 2022, and in our Form 10-Q for the third quarter of 2022 as well as the certain uncertainty and unpredictability in our business, the markets, and the global economy generally. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as the date hereof, and System 1 disclaims any obligation to update any forward-looking statements except as required by law. Our discussion today will include non-GAAP financial measures, including adjusted gross profit and adjusted EBITDA. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, may be found on our investor relations website. I would now like to turn the conference call over to System 1's co-founder and chief executive officer, Michael Blend.
spk02: Thanks, Kyle. Good afternoon, everyone, and thank you for joining us for our Q3 earnings call. Together with me is Triti Kadambi, System 1's longtime CFO. Before we dive into our business performance, I wanted to give a quick recap of our year to date. In January, our entry into the public markets was an exciting time for System 1. We joined forces with the excellent team at Protected, and the first half of the year, we got off to the start we expected. Even as much of the technology market started to decline, our advertising and subscription businesses were exceeding our already high expectations. Our performance through June gave us the confidence that 2022 was going to be another banner growth year for System 1. In hindsight, we probably should have been a bit more guarded. Since January, the NASDAQ is down more than 30% and technology stocks in particular have had a rough 2022. We've also seen some difficult macroeconomic conditions that are affecting the digital advertising markets we operate in. These conditions have made our early life as a public company bumpier than we hoped and expected when we went public. It's not easy to ignore the outside noise, but our team is staying heads down, focused on the business and playing for the longer term. We are disappointed with how the back half of 2022 is looking, but we also are weathering the storm of a difficult market. So let's get on to our quarterly update. On the operating front, we continue to focus on our priorities that will enable us to significantly scale over the next few years. In Q3, we made considerable progress upgrading our ramp platform, launching new subscription products, integrating recent acquisitions, and pushing into new marketing areas. Some of these efforts, particularly our increased marketing as we scale new subscription products, have had a negative effect on our short-term financials. However, we are confident these shorter-term investments will pay off many multiples over time. So let's talk about our investment in RAMP specifically. As we mentioned last quarter, for most of the year, upwards of 25% of our product and engineering teams have been working on our next generation ramp platform. We've made significant progress and our new platform is faster, better, and more efficient. Increased automation will enable us to keep scaling our business without adding significant headcount. Faster performance accelerates our international expansion in particular, and advanced machine learning improves the overall performance of our platform. We began migrating over to our new platform during Q3. As we migrate advertising traffic, we also keep some traffic on our legacy platform to maintain a direct head-to-head comparison. Our data shows we are seeing a material monetization lift in certain areas, in some cases well over double digit percentages. The lift comes from two primary areas, faster speed and better monetization algorithms. As we move more traffic to the platform and further optimize our algorithms, we expect to see continued improvements. It was a very difficult decision to focus so much of our 2022 product and engineering efforts on a longer-term initiative, particularly during a year in which we went public. But we believe we have made the right decision. We have also continued to make good progress integrating our Road Warrior, Coupon Follow, and Answers.com recent acquisitions. Coupon Follow officially launched our new cashback shopping program across all participating merchants, and we continue to work on integrating coupon data across our network of owned and operated properties. For roadwarriorandanswers.com, we are focused on increasing paid traffic and delivering on our acquisition thesis by significantly increasing growth from marketing efforts. Our efforts on both properties are starting to show promise, And Answers.com in particular is approaching a $10 million revenue run rate, and that's up from almost zero at the time of the acquisition. So moving on to our financials, Q3 was a tale of two cities. In our subscription business, we have positive news to report. As we discussed during our Q2 earnings call, headwinds in the overall digital advertising market have provided an opportunity to acquire additional new subscribers to our owned and operated subscription products. This translates to an increase in new subscribers across our product suite. We added 338,000 new subscribers in Q3 at an average CTA in the mid $60 range. And for the third consecutive quarter, we added more than 100,000 new subscribers for our newer Total Adblock product. At current growth rates, Total Adblock is on its way to being another 1 million plus subscriber flagship product for us. We also launched a new mobile utility application, Speedy Clean, in Q3. consistent with our plan of launching new products on a regular cadence. We're bullish on these opportunities to continue to add meaningful numbers of new subscribers. With our accelerated customer acquisition also comes increased in-quarter marketing expenses. Our Q3 marketing spend was $22 million versus an estimated $19 million when we reported in August. We expect that trend to continue in Q4. While this will result in a hit to 2022 EBITDA, it will also translate into increased 23 EBITDA as these subscribers renew. This is an important dynamic for our investors to understand. We often will have quarters where we spend more on marketing than anticipated due to increased opportunity to acquire customers. Each time we do this, you should expect a reduction in near-term EBITDA with a corresponding increase in our future EBITDA performance. The subscription team continues to be focused on activating new customer acquisition channels, launching new products and increasing retention across our renewing customer base. I remain excited about our near-term and long-term opportunities in this segment. In our advertising business, The story is not so rosy. When we last reported earnings in August, we thought we saw glimmers of a turnaround heading into the fall. Unfortunately, advertising has continued to be negatively impacted by macroeconomic trends that we communicated last quarter. These trends continued into Q3 and in some cases accelerated since our last investor call. The headwinds are impacting consumer demand and our ability to acquire traffic on our buy side and lowering monetization rates on the sell side. This combination is putting pressure on our ability to scale our marketing spend. On a positive note, we were able to increase our margin per session from 35% up to 38% quarter over quarter. This points to the ability of RAMP to maintain our spread in uneven economic cycles. However, in our owned and operated business, the amount of overall advertising spend we've been able to put to work is down substantially from our Q3 and Q4 budget. This has been driven by lower overall consumer demand, as well as a decrease in the amount of revenue we generate each session. As our advertising gross profit is largely driven by our marketing spend, our advertising gross profit is coming in substantially under budget. Our partner network has also been impacted by these same trends, and the momentum we saw in this segment exiting Q2 has slowed somewhat. A treaty is going to walk you through the specifics of our lower advertising spend and lower revenue procession. Overall, we remain bullish on our business model and the growth opportunities we see across our different businesses. system one remains highly profitable and our long-term strategy to invest during a forecasted economic downturn has not changed now let me be clear we are very disappointed in the underperformance of our advertising business in the back half of this year we recognize that the macro environment remains choppy and we are very focused on our cost structure and operating efficiencies We expect minimal OPEX increases in 2023, and growth is going to come from realizing our investments in our technology, expanding our current advertising markets, continuing to push our international expansion, and scaling our subscription products. We know our recent performance has not met the expectations of our new public shareholders. Management shares your pain. as we own over 50% of System 1 and much of our net worth is in System 1 stock. We remain highly aligned with our public shareholders. Now, while we have not had the 2022 growth that we expected, our business is continuing to show its resilience. We are generating substantial cash flow in difficult market conditions, and our management team knows how to navigate through these economic headwinds. While we are watching expenses very closely, We also will continue to invest in our ramp platform and our customer acquisition initiatives. In the past, this strategy has paid off, and we are confident history will repeat itself. Now, we are confident in our long-term success. We can't control the macro environment, and I can't predict where our share price will be next week or next month. As we said last quarter, we have begun our announced corporate stock buyback and I personally plan to be a buyer of our stock at these levels. I'll now hand things off to Triti to discuss this quarter's results and our updated guidance. Take it away, Triti.
spk03: Thanks, Michael. As previously mentioned, the headwinds we saw early in Q3 have persisted significantly longer than we had hoped, which has impacted our results versus guidance. However, given the investments we have made thus far and the progress we've made with our ramp migration, we feel we are in a strong position to grow significantly when the advertising markets rebound. One quick note, as I talk about year-over-year results for the prior year, I will be combining the results of System 1 and Protected for 2021 periods to provide an apples-to-apples comparison of our results. Let's move on to Q3 results. Revenue was $201 million as compared to 210 million last year, a 4% year-over-year decrease. The year-over-year decrease was driven by owned and operated advertising, which was down 10%, partially offset by an increase in network revenue of 13% and an increase in subscription revenue of 16%. Adjusted gross profit was 63 million, an increase of 9% compared to last year's adjusted gross profit of 58 million. Revenue-less advertising spend for the owned and operated advertising segment grew approximately 12%, 13% for the partner network segment, and 5% for the subscription segment. Revenue and adjusted profit were lower than expected for the owned and operated advertising segments. In our previous guidance, we had forecasted spending approximately $115 million in advertising during the quarter. However, as a result of reduced consumer demand and specifically less available user sessions for us to acquire, we only deployed $106 million of advertising spend. Reflective of lower overall advertiser demand, we saw revenue per session at $0.14, down $0.02 sequentially, and down $0.05 year over year. Similarly, our acquisition cost per session was $0.10, also down $0.02 sequentially, and down $0.05 year over year. Even in this environment, RAMP still identified and acquired over a billion sessions to our own and operated advertising properties in the quarter, reflecting a 25% increase year over year. Revenue and adjusted gross profit in our network advertising business was down quarter over quarter, impacted by the same headwinds we saw with our own and operated advertising business. Year over year, revenue was up 13% and network sessions were up 31% over the same period. We saw 364 million sessions on our platform, an 8% quarter-over-quarter increase, but revenue per session was down 30% quarter-over-quarter from $0.04 to $0.03. These trends in cost and monetization per session across both our owned and operated and partner network advertising businesses are in line with the softness recorded by Google, one of our key monetization partners in their partner network business. Conversely, our subscription business performed well. with revenue up 16%. We continue to benefit from the shift to renewing customers and our ability to retain and upsell the large total AV user base. Subscriber ARPU was $19.40 in the quarter versus $17.13 last year. Total subscribers were flat quarter over quarter as we saw increased churn as we anniversary renewal terms for subscribers acquired during Q2 of 2020 and 2021, which were peak pandemic periods. Total subscribers are at 4% year-over-year. The challenged advertiser macro environment gave us an opportunity to deploy more advertising spend than forecasted at attractive cost to acquire metrics. We spent close to $22 million on subscription customer acquisition marketing in the quarter versus our guidance forecast of approximately $19 million, which represented a $5 million increase in marketing spend year-over-year. As we have discussed in the past, given the attractive payback characteristics of our subscribers, less than one year, and overall LTV to CAC ratio of around 3x, we generally will make the trade-off to invest short-term gross profit in exchange for future highly profitable cash flows from customer renewals. With respect to FX exposure, while our advertising business, including our international business, primarily transaction US dollars, we do have some FX exposure on the subscription side, as we acquire and build customers in their local currency. In the third quarter, the impact of FX rate changes was a negative $450,000 to adjusted gross profit and adjusted EBITDA. Operating expenses, net of ad backs, were $34 million for the third quarter of 2022. compared to 21 million last year. The year-over-year increase is reflective of our continued investment in RAMP, primarily via headcount, and increased OpEx as a result of public company costs and costs assumed from acquired businesses. That being said, going forward, we do not expect to see material increases in headcount or other operating expenses in 2023 over our current trajectory. Instead, we expect to generate operating leverage as we align our existing resources around our biggest growth opportunities. Adjusted EBITDA was $29 million versus $37 million last year, representing a 46% margin on gross profit. With respect to liquidity, we ended the quarter with $32 million of cash on the balance sheet. Gross debt was $439 million, which includes the $49 million revolver balance to finance the coupon follow acquisition. As of September 30th, LTM billings-based EBITDA, as defined by our credit facility, was $148 million, resulting in a net leverage ratio of 2.75 times. now on to q4 guidance our guidance assumes that the current macro environment will continue throughout q4 which will continue to negatively impact our ability to scale advertising spend we expect some tailwinds from seasonality but given current marketing conditions we believe it is prudent to be conservative with our projections additionally we are seeing several pockets of new subscriber growth in our subscription business that we will continue to pursue While we view this very positively, the short-term effect of increased marketing spend in the current period impacts Q4 adjusted gross profit. We are estimating Q4 revenue to come in between $178 million and $193 million, representing an 8% sequential decline at the midpoint. For the full year, we expect revenue to be basically flat year over year. We are estimating Q4 adjusted gross profit to come in between 57.5 million and 62.5 million, representing a 6% decline from Q3 at the midpoint. For the year, we expect adjusted gross profit to grow 21% year-over-year. We are estimating Q4 adjusted EBITDA to come in between 24.5 million and 29.5 million, representing an 8% sequential decline at the midpoint. For 2022, we expect EBITDA to be flat year-over-year. As part of our guidance, we are assuming that we will deploy approximately $100 million of advertising spend to acquire traffic to our own and operated sites at a spread of approximately 40%, slightly higher than what we saw in Q3. For our network advertising business, we're assuming approximately 350 million network sessions with monetization at $0.03 a session in line with Q3. We're also expecting to spend approximately $24 million on customer acquisition for our own and operated subscription products. resulting in an average of 4,000 daily sales and an average CTA of $65 a user. Last quarter, we announced that our board of directors approved a repurchase program for both shares and public warrants of up to $25 million. To date, we've purchased 190,000 shares at a cost of $1.1 million, which leaves us with $23.9 million remaining on the initial authorization. Along with paying down the revolver, we will continue to evaluate the repurchase program as a use of capital for the balance of the year. While our recent financial performance has been negatively impacted by market conditions, we have a proven business model with a track record of performing through volatility. In the short term, we will continue to streamline our cost structure while investing in and deploying our resources against our most compelling opportunities. We have been prudent stewards of capital historically, and we expect to be able to continue delivering adjusted EBITDA, operating cash flow, and margin expansion in the short term without compromising our future success.
spk06: Thank you for joining us today, and now let's go to questions. Thank you, Trudy. We will now go to live Q&A.
spk01: The first question is from Tom Forte with DA Davidson. Tom, go ahead with your question.
spk04: Great. So thanks for all the details. I want to start with what I think is probably like a silver lining type question. So historically, strategic M&A has been one thing you've done very well. I would imagine that there's a lot of attractively priced opportunities today. Can you talk about how you think about the landscape for potential strategic M&A?
spk02: Yeah, sure. Thanks for joining, Tom. Yeah, so we're continuing to be out there in the market looking at opportunities. And we're seeing a lot of interesting things. We don't have anything to report now. We're also trying to be very disciplined, as we always have. And we're really waiting for pricing to adjust a little bit in the M&A market. We haven't seen that just yet. I think the last three to five months have been a little bit of a shock to the system and the digital advertising markets that we play in. And as we're going out and looking for companies to acquire, they haven't yet seen
spk06: come around to the price and everything is more reasonable in this market. It'll happen, Tom.
spk04: All right. And then from my follow-up, I like to think a lot about how when the pandemic first started in April of 20, digital advertising went negative. But then when we realized the economy was holding up reasonably well, digital advertising rebounded very significantly. So how should we think about the things that you're monitoring when looking for a rebound in digital advertising? And then how quickly will a rebound hit your performance?
spk02: Yeah, sure. So if you go back to COVID, it was probably the last big shift we saw in digital advertising. That happened almost overnight. And our system adjusted, I would say, down. So we lowered pricing as revenue per session goes down. And then as it rebounded, I don't know if people can go back a couple years, two and a half years ago, things rebounded pretty quickly. And then our system snapped back really quickly as well. Same thing will happen this time. This is actually a little bit more of a sustained, I would say, leveling off in digital advertising than we saw at the start of COVID. At that point in 2020, things snapped back pretty quickly. Right now, what we're seeing is things have essentially leveled off more than we would have expected. And particularly in Q3 and Q4, which is where typically we would expect the markets to start ripping upwards pretty quickly as you're heading into the holiday buying season. We just haven't seen that yet. You know, the holiday shopping will for sure be kicking in a little bit more, more strongly here around the Thanksgiving. And we hope to see an uptake then. But we haven't seen, you know, the expected moves in the markets that we've seen really the past, you know, 10 years we've been in operation.
spk04: Thank you. And then my last question is, I wanted to know if there was anything interesting happening on a category basis. So it seems like travel in particular has been very strong. The beauty of your model is you're well diversified. So you're not over dependent on financial services with mortgages, even more difficult things like that. But yeah, is there anything interesting going on in a category basis? What categories are helping and what categories might be hurting you?
spk02: Yeah, for sure. So some of the larger categories that are that are pretty profitable for us, like finance, jobs, the general health category, those have been a little bit negatively impacted. And you're seeing that show up in some of our marketing numbers. There's other categories like travel is up substantially year over year. Auto has, I think, flat to slightly up. So we haven't really seen auto negatively impacted the way that some of the other categories have been. So our system is moving around, finding the categories we should be in. It just happens right now some of those categories have been down. a little bit of the lower revenue and lower performing categories than we would typically see. Shopping, I would say, is an area where we would have expected to see a little bit more of a bounce right now. Again, you know, fast forward a couple weeks, you know, when Thanksgiving rolls around, we might see more of a bump, but it's been a little bit slower to accelerate than we typically would see in a Q4.
spk04: Great. Thanks for taking my questions, Michael.
spk06: Thanks, Tom. Appreciate it. The next question comes from Shweta Kajaria with Evercore ISI. Shweta?
spk00: Thank you. Triti, could you please talk to how you're thinking about expense management next year and just at a high level, how you're thinking about guardrails for growth and margins? Thank you.
spk03: Sure. Thanks for the question, Shweta. Thanks for joining. So with respect to headcount, just to echo kind of the comments from the prepared remarks, Again, a lot of the OpEx growth that we've seen this year has been driven by first-year public company expenses, everything from legal, insurance, audit fees. Also, OpEx acquired from the businesses that we acquired around Coupon Follow, Road Warrior, etc. And then also investment in RAMP. As we think about going forward in 2023 and beyond, we don't expect and are not planning for any real significant increases in OpEx off of our current run rate. So we believe a lot of those are one-time step-ups, both in terms of the investment in ramp as well as the public company costs. So just from a margin perspective and an EBITDA perspective, We'd expect, you know, gross profit to a high degree to float directly down to EBITDA going forward. You know, specifically as we think about, you know, what we hope is kind of an inevitable rebound in the advertising markets. In terms of guardrails around gross profit margins specifically, that's certainly something we spend a lot of time thinking about and planning towards. You know, I think even just a real testament to Ramp and the business that we built, you know, we still saw actually an expansion in our spread between RPS and CPS on the O&O side this past quarter, you know, maintaining that 4 cent spread and, you know, actually going up a little bit if you go out to the decimals to 38%. So again, those are things we're constantly looking at as we think about ramp, as we think about how we're operating in the market. And at the same time, on the subscription side, we're continuing to really be able to harvest the subscribers that we've acquired in the past. And that model in terms of really high flow through renewal revenue has also been helping us from a margin perspective. It's why still we're able to kind of maintain 46% EBITDA margins on gross profit, even in Q3 with what we saw on the macro headline side.
spk06: Thanks, Shweta. The next question will come from Dan Kernos with Benchmark. Dan, go ahead.
spk05: There we go.
spk06: Sorry.
spk05: So, Michael, having ownership of Coupon Follow, I'd love to kind of get your perspective because there's been You know, it's funny listening to guys like GroupM to say retail media is the next greatest thing and all the dollars are shifting there. It's a sexy thing right now, but it's maybe not the biggest dollars. I'd love to hear from your perspective, you know, as you view, you know, we saw the weakness of sort of, you know, Google networks. And there's kind of a narrative out there around sort of the intermediaries versus. organic, you know, Amazon and eBay, obviously both spending a bunch of money to, you know, provide sort of, they should be the starting focal point for search now too. So how do you view kind of the ecosystem spend? Is there a shift? in spend to some of those categories, you know, obviously monetizable queries are just way down. So like when things come back, do you anticipate those budgets coming back and your ability to continue acting as a screen? You know, do you think that there's any change to kind of the ecosystem from the dollar shift that we've seen out there?
spk02: yeah so i guess there's a that's really a two-part question so we wouldn't anticipate you know google doing anything but continuing to stay very strong in digital marketing it's the best you know advertising machine ever invented and um you know we think people will advertisers will continue to spend as much money as they possibly uh can profitably on on google uh i think your question though also really addresses are we getting you know direct advertiser uh demand on onto coupon follow you know the shopping site that we that we own the answer is yes yeah we're having definitely advertisers and retailers come and want to spend as much as they can on on on coupon follow um and so we're getting you know a ton of direct advertisers there People want to work directly with us to send shoppers directly to their site. The issue that we're seeing here in Q4 is that shopping demand from the consumer side, the supply really hasn't kicked in as substantially as we would like to have seen. um you know again so shopping is one of the verticals that we thought would be a little bit stronger here in q4 and we just we just haven't seen it yet um so so i guess you know if you fast forward absolutely as the market normalizes a bit and consumer uh consumers want to buy more things that they typically do you know we're going to have the direct advertiser demand there waiting for more consumers to come in got it and then you know just
spk05: It's funny, you and I have kind of talked about this in the past, but just as we think about the strength of your platform benefiting from market disruptions, it sounds like we're seeing a huge shift away from brand towards performance. Pretty much everyone has kind of said that going into next year. You guys have obviously been incredibly strong in performance development. We're seeing a little bit of downward pressure on pricing across several verticals and kind of, you know, ad buckets or industries or categories. And so your ability to kind of maybe reach in a little bit and take some market share. I just kind of love to hear if there are any particular areas where you guys think there's some opportunity. I'm not sure CTV has washed out enough yet, but just love to hear your thoughts.
spk02: Yeah, I mean, look, so what's been pretty interesting, and this is the way our platform always works, is market conditions change. We really shift with it. So even in, you know, it's the digital operating market is, you know, it's not having the best back half of 2022. And as pricing has come down, we've been able to go and, you know, find the categories where we can maintain profitability. As Trudy mentioned, our session count is actually pretty good. in Q3 and here looking at Q4. So we have been able to find the pockets and the verticals where there is consumer demand. Right now, what we're seeing is some of those verticals are some of the lower paying, lower revenue verticals. So while we can maintain our margin, the actual dollars that we can put to use, we're just not putting as many marketing dollars to use as we'd like. And so obviously, as things revert, which they always do, digital marketing goes through cycles. And this is particularly not a great one. As digital marketing reverts and the economy reverts, we'll be ripping up along with it. And then one thing that is happening, when you look at the, remember, we've got the subscription business as well, which is doing quite well. And as we see the overall advertising market depressed a little bit on both the buy and the sell side, so prices are coming down a little bit when we're buying traffic and we're making a little bit less when we're selling the traffic. That's actually allowed our subscription business to move up in the ad auction is a way to think about it because the amount of revenue we make on a session into our subscription business hasn't changed. So as pricing comes down, we're able to actually get by more than more marketing dollars on subscription. And so that one in particular has taken up a lot of the slack that the advertising market has given it. And so we're seeing subscriber growth and new subscriber acquisitions go up materially as the digital advertising market is depressed.
spk06: Got it. Super helpful. Thanks, guys. Thanks, Sam. Thanks for joining.
spk01: For the next question, we're going to go back to Tom Forte with DA Davidson. Go ahead, Tom.
spk04: Great. Three more for me. So you talked about, and I'm sure that 2.0 is probably not the right number, but we'll call it Ramp 2.0 versus Ramp 1.0. Can you quantify the potential benefits, higher sales, better margins, both?
spk02: So it's really on the buy and the sell side. Most of the work and the upgrades that we've done on our platform have been more focused on sell side. And so what we're seeing is essentially better monetization per session. And we get enormous leverage out of that. We don't have all of our traffic on sales. You know, our new platform, we're trying to be very measured about it. And but we are starting to move, move more and more of it over. And what you'll see is we can buy traffic for the same price. So our costs are the same. We make in some cases materially more on that traffic. It's not across every every traffic segment that we're on. And so our algorithms, you know, optimization algorithms are different, you know, if we're in France or Japan or the U.S. And it's different in different verticals as well. But as we're seeing revenue per session go up, all of that money drops to the bottom line. And so we actually have pretty high hopes. um as we're moving more and more traffic and getting our optimization algorithms uh working better you know that increases margin substantially and then as we're making more money on the on the sell side so more per session we actually can increase pricing on the on the buy side and get more sessions in the door so so that combination um you know, will allow us, you know, particularly as ad markets start normalizing, we should be ripping pretty nicely as ad markets normalize. And Trude, do you want to add anything there?
spk03: No, I think that's right. I mean, the other thing is also, I think on international, there's a really big advantage in terms of the way that the new ramp platform is optimized specifically around speed. And that has a really big impact to Michael's point, mainly on the sell side as well.
spk02: Yeah. Yeah, that's right. Some of the simple things, Tom, we're literally just making the whole platform operate faster. You know, we'll see a direct correlation to getting efficiencies in our buy and sell side. And so we literally have done things that, you know, putting servers closer to where our major traffic centers are, things like that, that have helping quite a bit.
spk04: All right, so then Trudy sort of, Trudy must have saw my next question. So on international expansion, I feel like you touched on that a couple of times in your prepared remarks. Can you talk about that? And then I know you talked about the impact of the strong dollar as it pertains to your subscription business. Is there any impact on your ads business from the strong dollar?
spk03: Sure. So let me take those in order. So as a percentage of advertising revenue on our platform, international was 19% in Q3. That's up over 18% in Q2 of this year and 15% in Q3 of last year. So still growing strong, slowed down a little bit, I think, along with all of the macro headwinds in terms of what we have seen in the velocity of that percentage. Again, international still remains a very strong initiative for us. And, you know, again, not just, we think that should be, you know, 25 to 30% of our advertising business while the entire pie continues to grow. With respect to FX, very little impact on the international side. So the platforms that we buy and monetize on, primarily Google on the monetization side, and then Google and other large partners on the buy side. primarily are denominated in dollars throughout. So we're buying and selling in dollars, even though the traffic itself is international. So little exposure or very little exposure there for us.
spk04: All right. Then last question, and I'm trying to think of the perfect way to phrase this. The social networking environment right now is unique when you think about what's going on with kind of the individual company's You are early in identifying TikTok and starting to leverage TikTok. But given what's going on in social networking right now, is it easier or more difficult for you to make money on social networking traffic right now?
spk02: We haven't seen a big shift in terms of our ability to effectively buy traffic. I think our Facebook, I have to go look at the last month or two, it's been up a bit, our spend on Facebook. So we haven't seen things really shift around much. And remember, a lot of the social networks, particularly ones that are more mobile focused, which is really all of them, You know, we're the kind of advertisers that are not super adversely affected by the by some of the changes in privacy that Apple rolled out. So we're more search and intent based advertiser, which is, you know, we have an advantage there. So we haven't seen big, big really anything go up or down. What we have seen on TikTok is we don't have huge scale on TikTok. We've been in there kind of experimenting and learning their system. We are recently starting to get some pretty substantial scale. A little bit on the advertising side of the business, but our subscription business is starting to figure out some really interesting marketing techniques on TikTok. And what's interesting about TikTok is you're creating the advertisements, which are more video-based. Some of those advertisements are actually transportable over to some of the other video-based platforms. So we're optimistic that as those ad formats get a little bit more standardized, you can create one ad that you're going to be able to use across all the various video-based platforms.
spk04: Great. Thanks so much for taking both sets of my questions.
spk06: Yeah, thanks, Tom. I appreciate you joining.
spk01: At this time, there are no further questions, so we'll turn it back to Michael Blend for closing remarks.
spk02: Okay. Well, thanks, everybody, for joining our Q3 earnings call. We are powering our way through what has been a somewhat difficult macro environment in digital advertising, but we're heads down and continuing to invest in our technology and our people. I like to say that our performance reflects the diversification of our business. We're happy right now as the overall digital marketing macro environment looks a little bit weaker. We're really glad to have this subscription business to be able to take advantage of that weaker environment. We are keeping a close eye on costs for next year, but no matter the market conditions for next year, we intend on rewarding our shareholders with a lot of growth in 2023. So thanks for sticking with us. Thanks for joining. And I look forward to meeting some of you at our upcoming investor conferences in the next couple months. Thank you very much.
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