Conference. Those of you who don't know me, my name is Vik Kesavabhotla. I'm one of our senior research analysts here. I lead our coverage of the internet and digital services space. Very excited to welcome to our conference the team from Integral Ad Science. Joining me from the company is Lisa Utzschneider, the company's CEO, and Tania Secor, the company's CFO. We have about 30 minutes scheduled for this conversation, so a bunch of topics to get through, so we'll try to cover as much as we can. With that, Lisa and Tania, thank you so much for joining us today. Maybe for the benefit of those in the room who are not as familiar with the IAS story, if you could talk about just giving us a quick overview of the company and kinda what you offer, and we'll go from there. Sure. Thanks, Vik, for having us. Hi, everyone. I'm Lisa Utzschneider, CEO, and IAS, we're a leading digital media quality company. We focus on measurement and optimization for Fortune 500 brands. We've been around for over 15 years. We have over 2,000 advertising customers. That makes up the majority of our revenue, and I'll give a quick example of what we do just to demonstrate the relevance of our verification solutions. So one of our major accounts is Coke. Coke is a global brand for us, and we verify the quality of media wherever Coke is running digital ads. So, for example, if Diet Coke is running a 30-second YouTube video, we verify that that Diet Coke ad was viewed, it was viewed by a human and not a bot, and it ran adjacent to brand safe, brand suitable content. We're integrated across the entire digital ecosystem, integrated with all of the major tech platforms, including Google, Meta, TikTok, X, and with all of the major DSPs. That's great, and then maybe just kind of level set from the most recent quarter. You obviously just reported Q1 a little while ago. Maybe if you can talk about some of the highlights from the most recent print. You raised guidance for the year. Great to talk about some of that, and then we'll dive into some more topics. Sure. Thanks, Vik. We were pleased to report $114.5 million of revenue in Q1, which was ahead of our guidance, 8% growth year-over-year. That was primarily fueled by very strong growth of our social media offering, which was up 40% in Q1. We also reported a 29% EBITDA margin, which was also stronger than our expectations. We also raised our full-year guidance to $533 million-$541 million of revenue, or 13% growth at the midpoint, which was up $2 million from our original guidance, primarily driven by a robust year for new product revenue. We've made some recent new product launches in the past few months that we're excited to tell you more about today, helping drive that accelerated growth rate as we move through 2024. Awesome. All right, well, that's great background. Maybe let's start off just talking about from a macro standpoint. I'd love to hear what you're observing in terms of advertiser behavior. How would you characterize kind of the health of the spending environment from advertisers this year, and how are you expecting 2024 to shake out from that standpoint? Sure. So we're definitely seeing strength in the digital advertising business. Couple of macro trends to call out. Display is in decline, video is up. So think of video everywhere, both today and in the future, in particular, short-form video. As I like to say, marketers go where the consumers are spending their time, and consumers are spending an inordinate amount of time with the social platforms, creating, sharing, viewing short-form video. So think of Meta Reels, TikTok, YouTube Shorts. In addition to that, also, marketers are very focused on performance, efficiency, ROI, and bringing transparency, especially to their programmatic spend. And as a company, as we continue to shift from core verification solutions to optimization and performance, our products have never been as relevant as they are today. So those are the two biggest macro trends: short-form video, efficiency, and performance. And then maybe if you could talk about from a vertical perspective, kind of what your observations have been. I know one of your peers just talked about in their business, seeing some changing spending patterns in certain aspects of CPG and retail. Curious if you're seeing that as well, and maybe, separate from that, just if you're seeing any verticals that are particularly outperforming or underperforming this year. Yeah. In Q1, we were pleased to see very strong growth in CPG and retail, as well as tech telco. We did see some softness in the auto category and the travel and entertainment category, but saw some improvement as we moved through the quarter. But overall, we have a very diverse profile of revenue by vertical. We don't have customer concentration. In fact, no one customer is even close to 10% of our revenue. One other data point to add, in addition to the diversification of our vertical, is the stickiness of our business. On average, our top 100 advertisers have been with IAS, on average, for over eight years. This demonstrates the stickiness and also the shift we're seeing, that more and more of the brands are looking to work with one verification provider globally, extending the terms of the contracts from one to two or even three years. Yeah. And maybe that's a good segue to talk about just the competitive landscape. And when you think about the IAS offering, what do you think separates the company from other competitors in the market? And when you're talking to prospective customers, what are the biggest things that they're looking for in selecting a vendor? Sure. So brands have become increasingly more sophisticated when it comes to selecting their measurement and optimization provider. We're often seeing product and tech diligence, and a big differentiator for us is the quality and accuracy of our technology, especially as we're all living in this world of AI. So many of our products are powered by AI and the velocity of our product roadmap, we are so ahead of our competitor. Two recent examples, and I know, Vik, we were just talking about this in the lobby, of products that we just recently launched that our competitor has yet to launch, is misinformation detection. We've launched it both in TikTok and Meta, and today, we announced in the press, we've launched deepfake detection. It is the number one request from the major brands gearing up for the US elections. They just want to make sure wherever they're running their digital ads, it is not adjacent to anything related to misinformation or deepfake detection. So I'd say first and foremost, accuracy of the technology, and the velocity of our product roadmap. Second differentiator is our international footprint. 31% of our revenue in Q1 comes from international markets. Our footprint is wider and deeper, and we continue to invest in emerging markets, like Latin America, like Southeast Asia, like India. And for major global brands like a Nestlé or L'Oréal or Coke, global footprint really matters. And I would say the third big differentiator is our global service. It's something we've been investing in for the past 18-24 months. The major brands, they really deeply care about white glove service, and we continue to differentiate ourselves, with service. Yeah. And maybe if you could talk about from a customer perspective, like how do they measure the value that they're getting out of IAS? Maybe what goes into their kind of perspective on ROI, and how often are they evaluating that? I mean, you talked about the contract terms extending. Is that an annual process? Is that happening in real time throughout the year? I mean, how often are they measuring kind of the, the ROI of their relationship? Yeah, great question. So what's interesting in what I call these RFP jump balls between us and our competitor, again, the brands have gotten much more sophisticated in the tech and product diligence, and they often request head-to-head tests as part of the selection process. They wanna take a look at the accuracy of our technology, the lift that we can demonstrate, and the ability to enable the brands to find higher quality media. So a good example, deepfake detection. Today, in that announcement, we're stating that we're 27% greater accuracy in our ability to identify deepfake detection. So in that RFP process, the brands consistently look at accuracy and quality of our technology. In addition to that, with our optimization or programmatic offerings, the brands really wanna understand the ROI. A good example of a differentiated product is our Total Visibility product, where we're providing transparency to Supply Path Optimization, helping brands get greater ROI for every programmatic dollar that they invest. Maybe if we could talk about the pricing environment for a moment. I know if you go back to the fourth quarter conference call, you talked about seeing some more competitive pricing in the measurement portion of the business. It sounded like in one Q, you talked about renewal rates kind of being more stable year-over-year. Just curious what you're observing today in terms of the pricing environment, and talk more about kind of what happened earlier in the year and kind of where we are now. Yeah, sure. So we did see some pressure in pricing for our mature measurement offerings in the back half of 2023, which we previously spoke about, particularly around viewability and IVT. But we were able to drive a premium for our TMQ brand safety and suitability offering. As we moved into, and we thought it was important to disclose what we saw ahead of us, and Q1 played out exactly as we had anticipated. In Q1, the renewals, the measurement renewals that we had in Q1, did renew at a price similar to the current contract, and we had expanded volumes on that group of renewals. And additionally, you know, we did share our overall, you know, price and volume statistics for measurement, and measurement volume did grow 22% in the first quarter. Okay. Maybe talking about kind of the outlook for this year, you know, specifically looking at the optimization portion of your business. Your guidance kind of implies an acceleration in optimization revenue growth as you move through the year. Tania, you kind of alluded to that in your opening remarks. Can you talk about some of the drivers that are gonna support that acceleration as you move towards the back half of 2024? Sure. So in Q1, as we were exiting Q1 through March, we saw a pickup in demand for optimization. We're forecasting in the second quarter, our optimization growth rate in the second quarter, to more than double than the 3% growth of optimization in the first quarter. This is a robust year for new product offerings. We've recently announced, you know, some new products, but also we're expecting continued adoption of our existing products on the optimization front. Notably, Total Visibility is a driver of optimization growth. We're rolling out QSP into new DSPs, and you saw the announcements on things like attention and made for advertising. Yeah. And when you think about kind of the risk factors into the balance of the year, what are kind of the biggest things that stand out to you that could impact the range? Overall ad optimization, which Uh, optimization In particular primarily, but Yeah Overall as well. Yeah. Overall, you know, we have good visibility a few quarters out, but as we look out to the full-year, our midpoint of our guidance was 13% overall, the main driver being social and measurement. We expect that to be the revenue growth to be higher than the midpoint of our range. But in optimization, we are expecting acceleration for all the reasons I just talked about. We do expect double-digit growth and optimization on a full-year basis, although slightly lower than that midpoint of our revenue guidance. Yeah. One thing just to add to what Tania said, a few things about our robust product roadmap. Increasingly, we've become much better at prioritizing and simplifying our product roadmap, and launching products at higher velocity. So the products that Tania mentioned around made for advertising, those are those clickbait sites, it's brands, you know, they're a third-party research sites. It's 20%, $0.20 to every $1 is wasted on clickbait sites. Brands want us to detect the MFA or misinformation, or Quality Sync. That's ensuring streamlining and simplifying our integrations with the DSPs pre-bid, post-bid. Those products are all live. Several of those products are past beta stage. We had announced in our Q1 earnings, made for advertising the clickbait sites. We had 100 campaigns in the beta. These products are proven, and now it's all about driving adoption at scale and high velocity. Yeah. Maybe going back to one of the comments you made earlier in terms of macro observations. You talked about kind of the spending shifting towards some of these other channels, like, or channels like video in particular. Just maybe if you could talk more about those macro trends, but also, like, how, Is that a good thing for the business? And how do you think kind of IAS positioned, if that kind of continues to evolve in terms of where the spending is going? Yeah. So video everywhere and the consumption of video everywhere, for both short-form video on the social platforms, and we haven't even touched on CTV, it's great for our business. A couple of reasons: Video commands a higher CPM than display. Secondly, video, when you think about short-form video, especially in the live feeds of social platforms, it's user-generated, highly unpredictable, highly dynamic, but it's where the users are spending their time. And brands just want to rest assured that IAS is identifying which environments are brand safe within the live feeds, and which environments are not brand safe. So this does require incredibly sophisticated technology. As Tania mentioned, TMQ or Total Media Quality, is our differentiated multimedia classification technology, that we can classify frame by frame. That's every single second of a live video in a live feed of a social platform, and we are demonstrating the value by finding higher quality media for the brands. This is reflected in the social growth that was cited in Q1 earnings of 40% year-over-year. We also shared on Meta alone, after launching TMQ in early February in Meta, both in Meta Reels, Instagram Reels, and Facebook News Feed, we saw a 50% increase year-over-year in volumes. It's a demonstration of the high adoption and the value that brands are seeing with this technology, and now it's just a matter of continuing to drive the upsell and cross-sell, given that the technology is running across all of the major social platforms. Yeah. Maybe double-clicking on the Meta comment that you just made. It sounds like you said 50% so far this year. Just how do you expect that to evolve as we go forward in terms of 2024, but also the next couple of years, in terms of the opportunity with that product? Yeah. So with Meta, we haven't sized future years in terms of Meta growth, but couple of stats on Meta. Meta is the largest social platform in the digital ecosystem. They have shared the incredibly explosive growth of short-form video adoption, both in Meta Reels, in Instagram Feed, and the Facebook News Feed. And the product that we launched, at launch, we launched it February 5th, first rollout was seven languages. Now we're in over 25 languages, but there's still quite a bit of runway, both with upsell and cross-sell, as we continue to roll out new languages. Second thing to call out is what we're running and offering in Meta today. It's all post-bid measurement. It is not pre-bid measurement. In addition to that, is continuing to launch new segments on top of what we're running in Meta today. Great examples. Misinformation segment that we launched in April is another segment that brands have been asking for. Everything is built according to GARM, which is a third-party framework. Yeah. So maybe kind of segueing into, you mentioned the GARM framework, just can you talk more about the accreditations that the company has? I know there's a few announcements that you had in the past few months of new accreditations that you had. If you could talk about those, and then also just for the benefit of those who maybe aren't as close, just talk about the accreditation process and the steps that go into earning that. Yeah, sure. So, media, MRC or Media Rating Council, is a critical third-party industry that, as we verify the quality of media, MRC accredits the quality of our technology. We often get asked that question, "Okay, so you're holding the tech platforms accountable. Who's holding your tech accountable?" The MRC is holding us accountable. We've had a robust MRC roadmap. We've announced multiple accreditations related to both invalid traffic detection, CTV. I mean, we could bring in the whole list, but Yeah the good news is, we have a deep partnership with the MRC. They are very close to our upcoming roadmap, and we ensure that every single global product that requires accreditation, that we continue to provide it. Okay. A couple other kind of themes that I wanted to hit on, maybe first on cookies. So can you talk about kind of the, the concept of cookie deprecation? How does that impact your business, and, and how are you expecting that to affect, you know, IAS going forward? Yeah, great question. We often get asked this one, too. So as the world shifts from user-based targeting to cookieless targeting, it's actually a tailwind for our business. We process billions and billions of web events every day. Those web events are related to- Mm the what and the where the ad ran in the environment. It's never the who, consumer PII data. We do not process consumer PII data. So as marketers are leaning in for more sophisticated, contextual solutions, they turn to IAS for those solutions. Also, we're working very closely with Google, the Privacy Sandbox, and all of the work that they are doing right now. We're ensuring that our solutions and technology will abide by what gets rolled out by Google. Yeah. Maybe also going back to, You talked about this a little bit in one of your previous answers, but the progress that you made in international markets, can you talk about some of the key highlights there? You know, how big of a part of the business is that now? Great to hear about that. Yeah. So as Lisa highlighted, our international footprint is a competitive differentiation. 31% of our revenue is from outside of the Americas, across the whole business, but when you unpack that, and you look at measurement, for example, 42% of our revenue comes from outside of the Americas in measurement, and that's really driven by the, the adoption of social, our TMQ offering, particularly in markets in Europe and Asia. Really pleased to see the 13% growth in our international markets, you know, which is stronger than our overall growth rate, and it's a reflection of the investments we've made in some very specific countries, investments we've made around customer service, which is extremely important to global brands, as well as, you know, the hiring that we've made in our, in our go-to-market strategy. What's different about the blocking and tackling of the international opportunity versus kind of what you've had in the U.S., in terms of kind of building out that infrastructure and the sales process? I'm curious if you have any observations there. Yeah. I would say because the majority of our business is with global brands, these Fortune 500 brands, it is critical that we build for scale. Yeah. That we build products that can scale globally, that are easy to adopt in any market. We've created a playbook for our global brands to ensure that as they prioritize their markets, they typically have tier one, tier two, tier three, with a rollout, for example, of Meta TMQ, that we have the right tools in place, the right positioning in place. We have a sales and service team and technical service that's equipped to work with a Nestlé or a Coke, that is rolling our solutions out in 30, 40, 50 markets. That's the most important thing, is the global, scalable, repeatable. Yeah. One of the other segments that I think you've talked about recently is the middle market opportunity. I'm curious if you could talk more about the progress that you've made there, and similar to what I asked on international, what's kind of different about blocking and tackling in the middle market versus kind of your typical larger customer? Sure, so we're seeing nice green shoots out of mid-market. We define mid-market as spending between $200,000 and $1 million annually. Yeah. The way to think about mid-market, these are performance advertisers. They deeply care about the ROI. They care about transparency. We have a mid-tier team in place, that is calling on these mid-tier markets, also focused on mid-tier, agencies there are several verticals in particular they're very focused on. I know in the Q1 earnings we shared, for example, unlocking certain DSPs, like pharmaceutical DSPs. But again, demonstrating the value of our solutions, demonstrating how investing in verification, enables, mid-market to drive higher ROI. Yeah. I forgot to bring this up when we were talking about Meta, but maybe similar to that. Can you talk about the progress you've had with TikTok as well in terms of social platforms? I know you've highlighted that in some of the recent calls. You know, how has the progress been with that platform, and how are you expecting that to go from here? Yeah. So TikTok continues to be a great strategic partner. We have our TMQ product running now in over 60 markets, and I believe now it's 34 languages. That's almost double to our nearest competitor. We also shared that the majority of our revenue on TikTok is international. Again, a reflection of the importance of what I was saying before, that our products are global, scalable, and repeatable, that are easy for adoption across all of the markets. Yeah. The other thing with TikTok, I applaud them for also rolling out misinformation with us, in April. Yep. Maybe shifting gears a little bit, Tania, a couple of questions for you, just in, in terms of the financials. So one thing that's been coming up is the cash flow generation of the company. Could you talk a little bit about how investors should think about the cash flow conversion of this business and how you expect that to trend going forward? Sure. In 2023, we had a very strong EBITDA margin of 34%, and over the past couple years, we have seen very strong conversion of that EBITDA into free cash flow. In the past couple of years, it's ranged from 45% to 60%, and as we look forward into 2024 with our expanding EBITDA, we're looking for a cash flow conversion at approximately the midpoint of that range. Yep. And then in terms of capital allocation priorities Mm-hmm. How are you planning to use some of that cash? Sure. Our primarily, our primary focus is investment in the business. It's a large TAM. There's multiple levers for growth, and we're really, you know, prioritizing our investments to drive that top-line growth over 2024 and in the longer term. We have done several acquisitions in the past four years, so we do continue to look at inorganic growth as well. We've got a very strong balance sheet with net debt of $41 million, and that continues. We continue to pay that down. We have a very flexible debt facility because it's a revolving facility, which we can go in and out of, and excited about, you know, continuing to look at investment opportunities inorganically. I think we're coming up on time. I wanted to leave a minute here just to also allow you any kind of key messages you want to leave the audience with on IAS or kind of key parts of the story that you wanted to highlight as we kind of wrap up here. Yeah. So, in addition to social being a tailwind for our business, we mentioned the 40% year-over-year growth. Love the adoption of Total Media Quality, continue to innovate and roll out new segments like misinformation, like deepfake detection. Another highlight for Q1 was our publisher growth, where we saw double-digit publisher growth, and in particular, in CTV. Publica is an acquisition that we made, in summer of 2021, which is a leading CTV platform. Again, differentiator, our competitor doesn't have it, where we are helping major OEMs of the world, like Samsung, drive up yield, drive up optimization of programmatic CTV, inventory. And having access to massive amounts of programmatic CTV inventory, is again, a tailwind for our business, in that we're helping the OEMs drive up higher yield, but also helping brands drive greater adoption of, CTV inventory. The other thing to call out in CTV is we love our partnerships with the premium platforms of the world, like a Netflix, like an Amazon, and we'll continue to drive our verification solutions within those CTV platforms. Mm. Then the final thing I'll say is AI. So we are bullish on AI. We invest heavily in data science. Data science represents 30% of our engineering org. We are figuring out how to drive greater value for our advertising customers by unlocking AI. Two great examples I already cited, launching misinformation, launching deepfake detection ahead of our competition, ahead of the U.S. elections. We're just getting started with AI. Awesome. All right, well, I think that's a good place for us to wrap up. I think we're just about out of time. Lisa and Tania, thank you both for joining us today. Thank you. Thanks to everyone in the room. If you have any follow-up questions, please feel free to reach out to us or the team, and we'll wrap it up there. Thanks, everyone. Okay, thank you.