Good afternoon, everyone. Thanks for joining us for the fireside chat with, with IAS, Integral Ad Science. Very excited to have the company CEO, Lisa Utzschneider, and the company CFO, Tania Secor. I'm Jason Helfstein, I head internet research. Our format today is a fireside chat. If you have some questions, feel free to put them in the chat box below, and I'll try to work them in. First, thank you for joining us. We're gonna start with, I think, the question that's on everyone's mind. Last week, the company reported results that were modestly ahead on revenue, nicely ahead on margins, kept the full year guidance the same. However, the performance of the stock suggested investors were not particularly happy with the result or had different expectations for more upside, given some of the results we've seen out of the platform companies. I think it wasn't terribly surprising to us. Maybe just to start with, talk about how your business, in some cases, may track with real-time spending of advertising, but in some cases, you know, it, it has a much longer, kind of, let's just call it track. So maybe kind of do some, do some comparison where like, you know, what's happening in the spot market, which clearly affects a, a Meta or a YouTube, versus what you may- the, the way your business works. Sure. Thanks, Jason, for having both of us. I'm Lisa Utzschneider, CEO of IAS. I've been at IAS 4.5 years and spent over 20 years in technology. Really looking forward to today's discussion. First, Jason, to answer your first question, we did report our Q2 earnings last Thursday night. We feel very pleased with our earnings result. We beat both top line guide and EBITDA margin guide, and we feel good about the back half of the year. I'm happy to do a high-level framing of our business, and then Tania, feel free to chime in with some data points. When you take a look at our business and our revenue lines, there are 3 lines. The first is optimization. That's our programmatic business. The second is our measurement business, which is fueled primarily by social platforms. The third is our publisher business, which is a much smaller business line, but equally as important. Where we saw real strength in our Q2 earnings result is our measurement business, and in a minute, Tania can take you through the numbers. The reason why measurement and the technology that we're running in the social platforms today is a tailwind for our business, is because marketers want to be where the users are, and the explosive growth and adoption of social platforms, again, is a tailwind for our business. If I'm to step back and frame what that tailwind looks like, there are two levels of building blocks. The first big building blocks are the social platforms, and Jason, I don't know how much time you personally spend in TikTok, but TikTok, hands down, is one of our biggest growth levers for our measurement business today. We are currently running a technology called Total Media Quality, or TMQ, in TikTok, where we're classifying real time, what's happening in the live feed to ensure for marketers they're running adjacent to brand safe and brand suitable content. TikTok, YouTube, Meta, and then X. We'll spend some time, I'm sure, Jason, talking about our X announcement of yesterday. Those are the building blocks. There's a long runway with the social platforms, a long runway with measurement, but I'd say hands down, of those four building blocks, TikTok is the one that's really fueling, today, our measurement growth. Tania, you want to add with some data? Sure, yeah. We're really pleased to see real acceleration in social media revenue. Social media revenue grew 33% in the second quarter, up from 25% in the first quarter, largely driven by TikTok, but also with our partnerships with the other platforms like YouTube and Meta. I think there's some questions as to, you know, how fast when a new product is announced, it, it, it can be adopted. I mean, your pace of announcements, literally this year and last year have been dramatic. Last year, kind of more than double the year before, then this year you're on pace to probably have more. I think now you're at 10 versus a. We're not even at September yet. They're bigger platforms this year than you announced last year. You know, it's not announce it then, you know, a month later, it's 5% of revenue. I mean, like, how, once you make an announcement, like, kind of take us through, like, the pace of, like, how that ends up becoming revenue over time. Sure, let's stick on the TikTok theme. TikTok opened up their live feed to IAS last year, and our beta, we launched the product in 3 markets. 3 markets went to 7 markets, now we just went from 7 markets to 20, and now over 30 markets. Having that international rollout is really important for the global marketers. To your point, Jason, it takes time to drive that product adoption in the new international markets. Yes, TikTok is ahead in terms of international rollout, product adoption. The beauty of the product is it's scalable and portable. We've taken the product, we've now launched it in YouTube in 30 languages. We just launched that in second quarter, so that will take time to see that adoption. Then the back half of this year, Meta's up next in opening up their live feed, where fourth quarter, we're slated to launch that beta, and then X is the next social platform. Yes, long runway, but it does take time to drive the product adoption, both in the international markets. The other thing I should add is, the TMQ product, we've also gone from four languages to 90 languages. I mean, so you mentioned X, still getting used to calling it that. I know. Y- y- just any other color you want to share on, on that partnership and kind of what it took to get out there, particularly now with kind of them having an advertising, you know, DNA CEO? Like, what, what do you think that means for, for IAS and your clients? Sure. We were thrilled to be selected as X's exclusive partner to launch their pre-bid brand safety, brand suitability product. The announcement came last night. We've been receiving very positive feedback from our advertiser base about that announcement. It's first to market, as I mentioned before, it's exclusive, and also it's a 1-year commitment with X. X, in particular, has been a social platform that the marketers, they've been clamoring for independent third-party verification providers to get in the live feed of X. Again, they just want to rest assured that when they're running their advertising campaigns, that they're running adjacent to brand safe and brand suitable content. Tania, can we go back to the quarter for a sec? Maybe unpack price versus volume trends in the quarter and kind of what you thought the factors were that influenced those. Sure. During the quarter, we reported very strong growth in measurement of 23% and optimization of 10%. Our revenue is a function, it's a very simple revenue model. It's a function of price, so our CPM price, as well as the volume in the period. From a pricing perspective, we have a blended CPM that we that we negotiate directly with the advertisers, so it doesn't move around the way CPMs move around in media. On the measurement side, we saw a positive price variance in the second quarter and strong volumes on the media, on the measurement side, and then on the optimization side, we saw a 14% volume increase on optimization with a flat, slightly down CPM. The CPMs of both of those businesses really reflect the product mix and the customer mix in the period, so it's an average. We saw, you know, growth in measurement of 5% on the CPM side, optimization slightly flat, slightly down flat. Like I said, it was really driven by the mix of product and customers. We do not expect to see negative CPMs on the optimization side going forward. Got it. Then within optimization, Context Control, I think is a big part of that. I think that's been a really successful product, but, I mean, again, not to make, you know, a lot of one quarter, but I think the, the obvious question is: Is Context Control maturing? If so, like, what else can be added to the optimization portfolio? Are there other ways to kind of reaccelerate growth for Context Control? I'm happy to take that, Tania. As you said, Jason, Context Control has been a wildly popular product with our advertiser base. We launched the product in March of 2020, and for those of you who aren't familiar with Context Control, there are two parts to it. Contextual avoidance, at the pre-bid level, advertisers can set a pre-bid setting, like adult content or violent content. This is the content that I don't want to run my ads adjacent to. They also can set pre-bid settings of content and Contextual environments that they do want their brands running adjacent to, depending on the campaign. It has taken off like wildfire. It represents almost half of our programmatic revenue, which is half of IAS's total revenue. To your point, over 90 of our top advertisers, of 100, have adopted Context Control, Contextual avoidance in particular. There are areas of Context Control that we're feeling really good about in terms of additional runway. The first is mid-market. We consider mid-market north of our top 100 accounts, so 101 and above. They typically spend between $200,000 and $1 million. The sales team is heads down, driving the mid-market adoption of Context Control. Second area is international. International is a big differentiator for IAS. We have deep relationships in EMEA, in APAC, the team is heads down, driving Context Control adoption in international markets. Then the one other thing I'll add is, we continue to innovate with our optimization solutions. A good example is the first half of this year, we've launched 16 new segments for our advertisers, based directly on their feedback in terms of additional pre-bid segments that they are looking for. Segments like DEI, child content avoidance, they don't want to run their brands adjacent to child content, or political, political news. Again, we're heads down innovating overall for optimization, but also the sales team is driving hard to drive up the adoption of Context Control, as I mentioned before. ... and then do we, and I wanna get into, like, the puts and takes with the second half, but, with the, with the kinda coming Writers' Strike, it is obviously gonna impact the start of the, the linear television season. Presumably eyeballs are gonna go, or time spent is gonna go somewhere else. Could that be a, a kind of a tailwind for you, if digital engagement actually increases in the back half? Sure. As you know, Jason, I spend a lot of time directly with marketers, and I got to spend 2 weeks ago, 48 hours with many CMOs. A topic du jour during that conference was the impact of the Writers' Strike. Absolutely, that will be a, and is a tailwind for our business. Couple of trends that I heard about the Writers' Strike: streaming up, engagement with streaming content, streaming platforms, that's 1 tailwind. Another tailwind they were sharing is sports, and live sports in particular. Third is ongoing engagement in the social platforms, as users are spending more time than ever in the social platform. Yes, we see that as a tailwind for our business. Tania, can you just talk about some of, like, the puts and takes, how you think about the back half? You know, like, we have the base case scenario, like, you know, like what would drive upside to the base case scenario? What would drive downside to the base case scenario? Sure. Thanks, Jason. We had such a solid quarter. We were really excited to beat the upper end of our guidance, both on revenue and EBITDA for the quarter. As we look out to the full year, really pleased to be. We raised the midpoint of our guidance range by $1 million for both revenue and profitability. We're forecasting double-digit growth on the top line, 33% margins on EBITDA. When I think about the puts and takes, as you said, for the rest of the year, you know, first is the macroeconomic overlay. We've had positive signals in the economy. We've had some less, more concerning signals. We're cautiously optimistic about the second half of the year, but, you know, if the economy improves, we would benefit from that. The other thing, as Lisa said, we've seen, seen some increased sentiment from marketers around positivity. We still have another half of the year to go. Incremental investment by marketers, particularly as it relates to volume, benefits our business. I'd also call out from a social perspective, we saw such robust growth in the second quarter. We're making a lot of progress with these partnerships. I think social could have upside. Yet again, we are being thoughtful, particularly as the fourth quarter in our business is our largest quarter. It typically represents 28%-29% of our revenue, so we're being thoughtful, and we'll continue to update our guide as we move throughout the year. Okay. That's helpful. Lisa, I wanna talk about TAM for a minute. I mean, I think because this isn't a traditionally defined industry, and I haven't exactly seen a, a Gartner or an IDC kind of TAM, you know, we, we get asked, like: "How big is this industry? What's your market share?" I, like, we've kind of. I can go, "Well, you know, is it 1%-5% of, like, media revenue will be reinvested in a bunch of tools that help the advertisers?" I... Like, what's your perspective? I mean, what... You know, look, some of it, you, you see it, but I'm sure there's, like, no advertiser where, like, 100% of their budget also gets, like, funneled through you, so there's a very easy mathematical equation, like, but what do you think is the right ratio for, for, for, specifically for your industry, for the, you know, 3, 4, 5 players who do what you do? Sure. well, Jason, there's the TAM, and then there's the SAM, right? Numbers that we've looked at in the past in terms of our addressable market within verification, and granted, this is growing as the whole digital pie continues to grow, ex search, ex China, roughly $6 billion in revenue. In terms of percentages, we typically don't share take rates, but estimates have been between 1%-3% of take rate. Additional context I'll add to that take rate is an important trend to note, and we've seen this especially over the last 24 months, is that the global marketers, they're consolidating their investments in one verification provider globally. Over our last few earnings calls, we've cited these big global wins, I'm so proud of the sales team, that they're putting on the board. Wins like L'Oréal, Hershey, Kering, Ford. These are iconic brands who are saying: "We wanna work with one verification provider, IAS. We want IAS to verify all of our digital media wherever we're running it, worldwide." The most recent example that we share, shared last week on our earnings call was L'Oréal. Complete competitive jump ball. We were verifying L'Oréal's inventory in the U.S. We won the global account, and we will now be verifying, 45 markets for L'Oréal, wherever they're running their digital advertising in those 45 markets. I think that kind of goes to the point of, like, how this is still quite early for marketers. Very early. When I take a step back and think about it, for an industry that's most famous quote was: "You know, I know half my advertising is wasted, I just don't know which half." I mean, like, that is the most famous quote in advertising. The fact that, you know, if you're a digital advertiser, 100% of your advertising should be going through one of these channels, and just to make that point, that, you know, you have advertisers, like, they only do a region. Like, depending on their mix, maybe that's 30% is, is being run through, maybe it's 50%. You know, again, we have platforms that they're spending tons of money on, who historically haven't enabled you to, to do this on the behalf of their clients. We, we did talk about TikTok a bunch, we talked about Twitter. YouTube obviously is huge. You've had a number of announcements with them, so I just wanna understand, you know, a little bit about the opportunity there, and maybe like, the progress that you've made with the integrations there. Sure. Google is a really important strategic partner of IAS, and we are chugging along with YouTube, house on fire. Few areas that we've announced in the first half of this year in terms of providing additional innovation for our marketers who are running on YouTube, we now offer brand safety and suitability on YouTube. Secondly, as I mentioned before, we launched Total Media Quality on YouTube in 30 languages, the back half of 2nd quarter. The beauty of that is we already have an existing advertiser base using our verification solutions on, on YouTube, so being able to drive up that adoption of these new solutions, is quick turn. Then the third area that's really exciting, and we're getting a lot of questions about it, is the whole landscape of short-form video. TikTok is giving the other platforms a run for their money. Recently, YouTube launched Shorts, Meta launched Reels, both in Facebook and Instagram. In second quarter, with both YouTube Shorts and Meta Reels, we've launched viewability and invalid traffic. It's a question that's coming up in most of our investor calls over the last few days coming out of earnings. Again, it's early days, but both Google and Meta talked about the incredible adoption rate of these products by users. It's up and to the right. We're thrilled that both platforms selected IAS to run viewability and invalid traffic. We're looking forward to driving that adoption in the back half of this year. Maybe an update on what you're doing with Amazon? Sure. Few things that we're doing with Amazon. On the optimization front, programmatic, we offer pre-bid segments within Amazon's DSP. Also, on the measurement side, we offer IAS's core verification measurement solution with display and video, and on the publisher side, and we have mentioned this on our last earnings call, we offer Amazon Publisher Services Market. We're now integrated in APS. The other thing I'll mention with Amazon is we are an AWS customer, so Amazon is a very strategic and important account for us, and given how much data we process every single day on behalf of our customer base, we are a cloud-based platform, and Amazon and AWS in particular, has been a really, really important platform to help turbocharge our growth. As, as I've been trying to think about like, what, what inning, you know, both IAS and kind of the industry is with, with these tools, you know, and I think about open web versus walled garden, pretty much everyone started with open web. Meanwhile, walled gardens, by our estimates, are about 82% of spend. I think it's like, you know, you know, okay, so we've done really well with the 18%, right? There's been impediments to the 82%, and we're now kind of knocking down each one to get there. As, as you do each one of these deals, I mean, you know, is the R&D different when you kind of set up a walled garden deal? Like, just how do the economics kind of differ for like, you know, an open web situation versus like a walled garden situation? Sure, I'm happy to take that, and Tania, if you'd like to add. What's really important with our technology is everything that we build is global, scalable, repeatable. We're not in the business of building one-off shiny objects. That's the first thing. Second thing, everything that we build, TMQ, what I was talking about before on the social platforms, backed by AI ML, the technology gets smarter over time as we're running the technology. With that, because what we build is scalable, portable, with smart technology, and what I'll say with the social platforms in particular, everything we're building is according to GARM industry standards. What I mean by that, and the marketers insisted it, that the definition of different categories of content is consistent with every single platform. That makes our life so much easier. What I mean is, the definition of, let's say, violent content or hate speech, it's the same taxonomy, the same definition, the same thresholds that marketers can dial up or down equally across all the platforms. That makes it much easier to build at scale, to build products that are portable and repeatable, and again, that get smarter over time. Tania, anything else? Yeah to add? Yeah, I'd chime in, too. We're doing that, you know, in a profitable, profitable way. You can see what Lisa's talking about in our margins, right? EBITDA margin in the second quarter was up 140 basis points versus the second quarter last year. On a full year basis, our guide is our EBITDA at the midpoint is 200 basis points higher than our EBITDA margins in 2022. That's even despite the headwinds of our guide around gross margins being down 200-300 basis points. ... Maybe, Tania, another question for you. Americas are 70% of revenue, yet the biggest platforms are, you know, closer to 50/50. Just how do you see the geographic mix, mix changing over time? Over time? Yeah. Our geographic, our international footprint is a huge differentiator for us. Correct, 70, 30, 30% of our revenue coming from outside the U.S. A couple call-outs that I did wanna highlight, though, when you break that down and you look at measurement alone, 41% of measurement revenue comes from outside the U.S. That, particularly in Europe, also in Asia, but particularly in Europe, that growth rate and measurement is greater than the growth rate in the U.S., and that is because of the investments we're making, the large global wins that we're lighting up on the scoreboard. Lisa talked about some of these in our recent earnings calls around L'Oréal, LG, Singtel, Maruti Suzuki. These investments we're making in emerging markets and the investments we're making in our global sales organization as well, are really helping fuel international growth. Just a reminder for the audience, again, if anyone has any questions, feel free to put them in the chat down below. Let's talk about AI. I've avoided bringing that up until quite late into the presentation. You know, AI is gonna be used in many different ways in advertising, ad creation, buying, analytics. You know, is it, is it a, a, a headwind or a tailwind for IAS? Yeah, Jason, you could have opened the call talking about AI. AI- No, we talked about AI the whole time, and I wanna figure out what... Yeah, no, bring it on! We are leaning into AI. It is the core of the DNA of our company. Science is in the name of Integral Ad Science, and we are leveraging AI, OpenAI, to enhance our product offerings, to speed our go-to-market. A good example, I know I've shared this on the live call, is the Total Media Quality product that I spoke to before. Highly sophisticated technology, we're running it in the live feeds of the social platforms, and I'm not exaggerating, overnight, within 24 hours, and this is a high five to our team. Go, team! By leveraging OpenAI, we were able to go from 4 languages with TMQ to over 90 languages, and I'll add, with a high accuracy rate of those languages. I believe our closest competitor, they're offering their product in the social platforms, I believe they still only have four or five languages. That is a perfect example of how leveraging OpenAI, layering it on top of our differentiated advanced technology for the benefit of our marketers to speed our product roadmap and our ability to ship, that is our strategy moving forward when it comes to leveraging AI. I wanna go in a different... I wanna talk about advertisers leveraging it for themselves. We think about- Sure ...computer-generated ads, computer-generated buying, which you could argue DSPs do that, now we're talking about more like, technically, the, the risk of errors actually go up. Does that make what you do more important to kinda be like, almost like to help keep those ads on the rails? Great question. We're getting a lot of incoming feedback from marketers and questions: "How can I, as a marketer, a major global marketer, leverage AI to drive higher engagement with the consumer, higher ROI?" We're also getting questions like, "IAS, what are you doing about deepfakes? How are you thinking about that? IAS, how are you thinking about upcoming..." We haven't even talked about the elections yet next year. "How are you thinking about misinformation and politics, and ensuring that my brands are protected?" With that, we do have a team heads down, thinking deeply about how to leverage AI and address some of these really complex questions that are right in front of us today on behalf of the marketers. You're launching a new political product here at the Oppenheimer conference. No, just kidding, everyone. No, we're announcing the X partnership that got launched yesterday. Thank you. No, that, that timing was terrific. We appreciate that. Yeah. Tania Secor, a question about investments in growth and product versus margin expansion. You know, these are levers you can choose. You know, how, you know, how do you think about it? What should investors-- You haven't given long-term guidance, so- Mm How should investors think about the long-term margin potential for the business? Sure, yeah, and this is, you know, near and dear to my heart as a CFO, Jason. It's really important from my perspective that we are driving efficiency and productivity across the organization, being lean and efficient, but at the same time, making sure that we are investing, 'cause there's so many opportunities for growth. We talked about them at Investor Day. You know, many levers, we've got deep integrations across all of our platform partners to take advantage of the growth opportunity in digital media. Areas that we're investing in, that we're funding from these efficiencies, and you can see it, as I talked about earlier, in our expanding EBITDA margins. Areas that we're investing in include doubling down in data science, investing in our product, in our engineering organization, and continuing to build our data and technology capabilities, and then also in our go-to-market from a sales and marketing perspective, particularly around programmatic specialists, and expanding those headcount and that investment to continue to grow our optimization. Overall, we haven't given long-term guidance overall about margins, but we are very thoughtful, as you can hear my philosophy, around driving efficiency and productivity, and making those investments to drive top-line revenue growth. ... another one, and then I'll, I'll kind of will finish up with a CTV question, Lisa. You know, how should investors think about, like, target debt, debt leverage or cash? How, how much does the interest rate environment impact, like, let's say, your target debt leverage, where 3 or 4 years ago you thought about a target debt leverage of something, now with higher interest rates, maybe that's less appealing. You know, how do you think about how should investors think about target leverage versus cash? Yeah. Lisa, you want me to take that one? Yeah. Yep. Yeah, yeah, absolutely. Right now, our debt, net of cash, is $96 million, which is less than 1 times EBITDA. We have a lot of debt capacity at the organization, our free cash flow is really strong. In fact, the second quarter, we had extremely strong free cash flow due to some key initiatives, some particularly tax initiatives that even generated more free cash flow in the second quarter. Free cash flow continues to be strong. We paid down $30 million of debt earlier this year. We plan to continue to pay down debt. Yes, the rising interest rate environment has crept up our interest expense, we're continuing to look at ways to minimize that in this environment. So, so last question. You know, Lisa, like, you know, how should investors think about, like, internal development versus M&A, you know, from here? You know, you know, look, we've probably seen private market multiples bottom out and kind of rebounding now with the equity market. I think your timing of the public acquisition was, was quite well and financially favorable. You know, should, should investors think about this is more about internal development story, you know, M&A or both? Great question. Since joining IAS 4.5 years ago, we've made 4 acquisitions. The way we see those acquisitions, 3 tech tuck-ins, and the fourth being Publica, which brought both technology and top-line revenue. In everything that we do in our product and tech roadmap, we apply a lens of build-buy-partner, right? When we look at future landscape, listen to the needs of our customers, the way we view M&A, tech tuck-ins. What is technology out there that could enhance our current product and tech roadmap and accelerate our go-to-market and speed- to- market? Few areas of interest for us, all things related to performance marketing, outcomes, attention, click fraud is high interest, especially in the APAC region. Absolutely, exploring M&A opportunities, but again, it's in the spirit of enhancing our current product tech roadmap. Great. I think we're gonna end there. I wanna thank the IAS team for joining us today. If anyone has any more questions, feel free to reach out to me or your Oppenheimer representative, and enjoy the rest of the conference. Great. Thank you, Jason. Thanks, everyone. Thanks, Jason. Have a good day. Thank you.