Title

Presentation

Integral Ad Science Holding Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to IAS Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentations, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s call is being recorded. I will now like to turn the call over to your host, Mr. Jonathan Schaffer, Senior Vice President of Investor Relations. Please go ahead.

Jonathan Schaffer: Thank you. Good afternoon and welcome to the IAS 2023 fourth quarter and full year financial results conference call. I’m joined today by Lisa Utzschneider, CEO, and Tania Secor, CFO. Before we begin, please note that today’s call and prepared remarks contain forward-looking statements. We refer you to the company’s filings with the SEC posted on our Investor Relations site at investors.integralads.com for more details about important risks and uncertainties that could cause actual results to differ materially from our expectations. We will also refer to non-GAAP measures on today’s call. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is contained in today’s earnings release available on our Investor Relations site.

All financial comparisons unless noted otherwise are based on the prior year period. With these formalities out of the way, I’d now like to turn the call over to our CEO, Lisa Utzschneider. Lisa, you may begin.

Lisa Utzschneider: Thanks Jonathan and welcome everyone to our 2023 fourth quarter and year end call. We delivered strong fourth quarter performance ahead of expectations. Revenue grew 14% to $134.3 million at a 35% adjusted EBITDA margin. Full year 2023 revenue increased 16% to $474.4 million at a 34% adjusted EBITDA margin. Throughout the year, we advanced our commitment to providing the industry’s most actionable data and driving superior results for our customers. Our teams focused on maximizing ROI with AI-driven measurement and optimization solutions for our customers with industry-leading products. Brands trust IAS to safeguard and scale their businesses across all digital channels. We drove media performance through AI/ML and data transparency to ensure our customers realize lasting value for their businesses, while anticipating rapid changes in the industry.

Before we look ahead to 2024, I’d like to share a few highlights from 2023 that position IAS for long-term, durable growth. In 2023, IAS signed over 20 global partnerships with major tech providers including TikTok, Meta, YouTube, X, Criteo, Instacart, Uber, Netflix, Samsung, and Vizio. Our products are built on a foundation of data science and AI. In 2023, we expanded availability of our Total Media Quality, or TMQ product to meet the explosive growth of social media, including short-form video. We launched new products like Quality Attention and Made for Advertising. We also enhanced our total visibility offering for improved optimization of marketer spend. IAS’ global presence is a key differentiator. In 2023, we expanded our international coverage with 40% of our new hires outside of the Americas and opened operations in four key APAC markets; Hong Kong, Taiwan, Thailand, and Vietnam.

We recently announced partnerships with Moj and ShareChat, an Indian social networking platform, to deploy measurement solutions for advertisers on the platforms. Our international presence helped clinch several new global customer wins and renewals in 2023 including Kering, Canva, BT, Singapore Airlines, Panasonic, L’Oréal, LG Electronics, Singtel, Maruti Suzuki, BMW, Ferrero, and Mars. In the fourth quarter, we secured additional wins and major renewals that reinforce IAS’ standing as a leader in the market. We won the following three deals from an incumbent provider. Airbnb switched to IAS as its global verification partner. Airbnb chose IAS based on our robust technological innovation, commitment to customer service including precision billing, distinct product advantages, and superior platform integrations.

A major telecom provider selected IAS as their verification and brand safety partner across all digital investment channels in the U.S. They chose IAS based on our tech, innovation, and service. IAS is a leader in the telecom vertical, working with the top three telecom providers in the U.S. A large insurance carrier switched to IAS for measurement and optimization exclusively based on our innovative solutions and trusted support team. We also secured two exclusive global partnership expansions. Volkswagen Group renewed and expanded its exclusive global partnership with IAS across all of its brands for both measurement and optimization solutions. The renewal agreement has been expanded to include additional products including total visibility, sustainability measurement, and advanced CTV measurement.

IAS expanded its partnership with Shiseido, the Japanese multinational cosmetics company, as its exclusive global verification provider. IAS built on its partnership with Shiseido in EMEA and APAC to include the U.S. which had been serviced by an incumbent provider. In 2023, we made several senior hires with specialized experience to further IAS’ growth in optimization and data science. In November, Kumaresh Singh joined IAS from Meta as Senior Vice President of Data Science to build highly scalable software systems. We plan to grow our data science team to represent 30% of R&D headcount by year end. We achieved several MRC accreditations in 2023 including the industry’s first MRC accreditation for CTV viewability. Recently, IAS received continuing accreditation from the MRC for Meta, including impressions and two-second video viewability data for Facebook Feed and Instagram Feed and Stories.

In the fourth quarter, IAS released its first corporate responsibility report, outlining the tangible progress the company is making to strengthen its environmental, social, and governance initiatives. The report highlights our commitment to innovation and ethical practices, exceptional customer service, and ensuring IAS is a great place to work for our employees. Turning to 2024, I’d like to review our product roadmap priorities. First, we are investing to capture the explosive growth of social media, including short-form video in the live feed. Second, we are evolving our products to support marketing outcomes. Third, we are innovating to make our products easier to activate to drive campaign usage and diversify our customer mix. Lastly, AI is an essential part of our product vision and we are investing in data science.

Let’s review these priorities in more detail. As an unbiased, independent third-party provider, we are delivering solutions to help marketers measure and optimize performance in dynamic, user-generated social environments. We are expanding availability and increasing adoption of our highly differentiated TMQ product to reach social media users globally. TMQ is activated in the live feeds of the four major social platforms today to meet high marketer demand: With Meta, we were delighted to announce earlier this month the availability of our AI-driven TMQ brand safety and suitability measurement product across Facebook and Instagram Feed and Reels. IAS’ new post-bid brand safety and suitability expansion with Meta gives advertisers increased transparency into whether their campaigns are appearing next to safe and suitable content.

We expect to ramp adoption throughout 2024 and into 2025. We’ve seen healthy adoption of our TMQ product in TikTok. In 2023, the number of active post-bid campaigns increased over 350% and the number of tracked ads increased over 550%. In November, IAS expanded its TMQ product for TikTok to 21 new countries for a total of over 50 markets. In December, IAS expanded our YouTube TMQ product capabilities. IAS now offers our brand safety and suitability measurement product to advertisers for YouTube Shorts inventory as part of its existing Total Media Quality for YouTube product suite. On February 1st, IAS expanded its partnership with X for all U.S. advertisers. IAS classifies all vertical video ad adjacencies for brand safety and suitability aligned to the GARM framework, giving advertisers maximum control over where their ads appear on the X vertical video feed.

Additionally, we are expanding our post-bid brand safety and suitability measurement solution currently in GA in the U.S. to other countries in Q1. We are also continuing to evolve TMQ to offer marketers more choice into how content is classified with more categories, including misinformation ahead of this year’s U.S. elections. Regarding outcomes, we are focused on driving superior results for marketers with products only IAS offers including total visibility, MFA, and attention. IAS’ unique total visibility product enables customers to connect performance metrics, such as conversions and sales lift, supply path, and cost of media to IAS’ media quality metrics including viewability, context, attention, and brand suitability. Total visibility is now integrated with Yahoo’s DSP, expanding our coverage and providing greater insights into the total supply path.

In the fourth quarter, IAS announced its new Made for Advertising, or MFA, site detection, and avoidance solution backed by AI. Our differentiated approach to MFA considers both the quality of the ad environment and characteristics of the traffic source, meeting the specific preferences of each marketer. In January, IAS announced that our Quality Attention solution is now available in GA. Our differentiated attention product is the only solution available that uses advanced machine learning, actionable data from Lumen Research’s eye-tracking technology, and a variety of signals obtained as part of IAS’ core technology to weigh into a single attention score. Publica by IAS continues to be recognized as a market-leading CTV ad server. In 2023, the team won five awards including being named by Digiday as the Best Video Ad Server.

Univision, Foxtel, and Hallmark are the latest streaming publishers to implement Publica by IAS to help them grow their advertising revenue and improve their viewers’ streaming experiences. Publica by IAS also announced support of Open Path from The Trade Desk. Along with the direct DSP integrations carried out in 2023 from platforms such as Yahoo, Publica now empowers publishers to curate their optimal demand paths to maximize programmatic CTV advertising revenue. Our business today is weighted towards a loyal base of large advertising customers with an average tenure of over eight years for our top 100 marketers. At the end of the fourth quarter, we had 222 large advertising customers with annual spend of at least $200,000 per year. Revenue from these large advertising customers represented 87% of our total advertising revenue for the trailing twelve-month period.

We are seeing more competitive pricing in measurement on a select group of large contract renewals in exchange for increased volume commitments and multi-year exclusive agreements. We have factored this dynamic into our growth outlook for 2024. We continue to diversify our customer mix and grow our presence with mid-tier, performance-based marketers. On the product side, we are enabling adoption and activation through new capabilities. Since integrating Quality Sync into major DSPs including The Trade Desk, we’ve seen the number of Quality Sync impressions increase threefold since the beginning of 2023. We have also implemented an enhanced go-to-market strategy for mid-tier clients. We have partnered with independent agencies and vertical-specific DSPs and launched new contextual segments.

We have also hired several new programmatic sales specialists. In January, Parker Bohlen joined IAS from Amazon as Senior Vice President Global Optimization Sales. In 2024, we believe generative AI will accelerate product development and drive greater efficiencies. We are leveraging AI to help marketers identify higher quality media with greater transparency into their advertising buys. AI already powers our TMQ, attention, and MFA offerings. We are moving towards the launch of a real-time data platform in the first half of 2024 as discussed at our analyst and investor day last year. We also expect that cookie deprecation will increase demand for our solutions. Our technology is focused on the what and the where of the media event, rather than on the who.

As marketers lose the ability to measure and target campaigns with third-party cookies, we believe IAS can fill those gaps using more context and introducing new metrics like attention. Our full-year 2024 revenue outlook calls for double-digit top-line growth and solid profitability. We expect to benefit from increased product availability of TMQ and Quality Sync and the launch of new products including Quality Attention and MFA as well as emerging opportunities such as retail media. As a result of these new products, new logo wins, expanding wallet share with existing clients, and second half events including the Olympics and the U.S. elections, we expect to ramp performance as we move through the year. We’re coming off a strong fourth quarter and positive full-year 2023 performance, highlighted by 16% revenue growth at a 34% adjusted EBITDA margin.

As we look to the future, we are investing to capture an exciting opportunity across several fast-growing channels. We value the trust marketers place in IAS to protect, measure, inform, and optimize their brand campaigns. By leveraging our differentiated data to ensure that our insights power outcomes, we elevate the quality of digital media across the digital ecosystem. We are ensuring access to higher quality media and driving higher ROI for our brand and publisher partners which is at the heart of the IAS value proposition. I’d like to thank all of our customers, partners, employees, and shareholders for their commitment and support and look forward to updating you on our progress. And with that, I’ll turn the call over to Tania to review the financials and then we’ll take your questions.

Tania Secor: Thanks Lisa and welcome everyone. We’re pleased to report positive fourth quarter and full year results that exceeded expectations for both revenue and profitability. Our performance was driven by double-digit gains in our measurement and optimization businesses in both the fourth quarter and full year. We also delivered a 35% adjusted EBITDA margin in the fourth quarter, while reducing indebtedness and investing for long-term growth. Total revenue in the fourth quarter increased 14% to $134.3 million, ahead of our prior outlook of $130 million to $132 million. For the full year 2023, total revenue increased 16% to $474.4 million. Total revenue from advertisers, which includes optimization and measurement revenue, increased 16% in the fourth quarter and represented 87% of total revenue for the period.

Strength in CPG was attributable to new logo wins in prior periods and retail benefited from the holiday season. Optimization revenue grew 16% to $63.6 million in the fourth quarter. Optimization revenue benefited from double-digit growth of Context Control, driven by our previously announced enhanced integration with Amazon Ads as well as increased client adoption of Quality Sync across our DSP partners. Measurement revenue increased 18% to $52.6 million in the fourth quarter. Social media measurement revenue represented 49% of total measurement revenue, with the balance being open web which was up modestly in the fourth quarter. Social media revenue represented 18% of total revenue in the fourth quarter, compared to 16% in the prior year period.

We realized 37% growth in social media due to the rapid adoption of our TMQ product. The majority of the growth of social media measurement revenue in the fourth quarter was from short-form video including Meta Reels, TikTok, and YouTube Shorts. As a result of the strong growth in social media, video grew 40% in the fourth quarter. Video accounted for 55% of measurement revenue, up from 47% in the fourth quarter of 2022. Publisher revenue increased 2% to $18.1 million in the fourth quarter. Publisher revenue reflects modest growth in both Publica and in our non-CTV supply side businesses. Publisher revenue represented 13% of total fourth quarter revenue. International revenue, excluding the Americas, increased 16% year-over-year. International revenue increased on the strength of continued adoption of our TMQ social media product and recent wins in EMEA and APAC.

While international revenue represented 32% of total revenue in the fourth quarter, 46% of total measurement revenue came from outside of the Americas. Gross profit margin for the fourth quarter and full year 2023 was 79%, in line with our full year margin target of 78% to 80%. Gross margin performance reflects investment in data infrastructure and increased hosting costs compared to the prior year. Sales and marketing, technology and development, and general and administrative expenses combined increased 2% year-over-year as a result of increased efficiency and productivity through streamlined operations. In addition, the year-over-year comparison reflects the impact of the restructuring charge in the fourth quarter of 2022. Adjusted EBITDA for the fourth quarter, which excludes stock-based compensation and one-time items, increased 19% year-over-year to $47.5 million at a 35% margin, ahead of our prior outlook for the period.

Adjusted EBITDA for the full year 2023 increased 26% year-over-year to $159.5 million at a 34% margin. Net income for the fourth quarter was $10.2 million, or $0.06 per basic and diluted share. This compares to net income of $11.5 million or $0.07 per basic and diluted share in the fourth quarter of 2022. Turning to our performance metrics. Our fourth quarter net revenue retention, or NRR, of 116% was unchanged from the third quarter of 2023 due to strong product adoption from existing clients. The total number of large advertising customers, which includes both mid and top-tier clients with annual revenue over $200,000, increased to $222,000, up 12% compared to $199,000 last year and up sequentially from $219,000 in the third quarter of 2023.

Revenue from large advertising customers was 87% of total advertising revenue at the end of the period, up from 85% at the end of the third quarter of 2023 and up from 84% at the end of the fourth quarter of 2022. We maintain a healthy balance sheet with strong cash flow conversion that enables us to lower our debt and provides us with financial flexibility to invest in the long-term growth of the business. Cash and cash equivalents at the end of the fourth quarter were $125 million. During the quarter, we reduced our long-term debt by $20 million to $155 million. In 2023, we reduced indebtedness by a total of $70 million. As a result, our net debt at the end of 2023 was $30 million or 0.2 times trailing twelve month adjusted EBITDA. Turning to guidance.

For the first quarter ending March 31st, 2024, we expect total revenue in the range of $111 million to $113 million, a 6% year-over-year growth rate at the midpoint. Adjusted EBITDA for the first quarter is expected in the range of $28 million to $30 million, or a 26% margin at the midpoint of the range. For the full year 2024, we expect total revenue in the range of $530 million to $540 million, a 13% year-over-year growth rate at the midpoint. Adjusted EBITDA for the full year 2024 is expected in the range of $171 million to $179 million, or a 33% margin at the midpoint of the range. As Lisa referenced earlier, our first quarter outlook reflects more competitive pricing in measurement on a select group of large contract renewals in exchange for increased volume commitments and multi-year exclusive agreements.

We have also factored into our Q1 outlook the implementation of previously negotiated pricing by one optimization account. We expect to ramp revenue growth from first quarter levels as we move through the year driven by robust new product launches in 2024 including Meta brand safety as well as the ongoing adoption of our social media products, the expansion of our Quality Sync product, and the roll out of our attention and MFA offerings. We have also factored into our outlook the anticipated contribution from upcoming major events in the second half of the year including the summer Olympics and the U.S. elections. We are managing costs to match this anticipated revenue ramp in 2024, and we expect quarterly adjusted EBITDA margins in 2024 to increase as we move through the year.

We expect gross profit margin in the range of 77% to 79% for the full year which reflects ongoing investments in our premium offerings, which include higher hosting costs. We expect slightly slower growth in our operating expenses relative to revenue growth in 2024, as we maintain expense discipline and continue to invest in growth initiatives. First quarter stock-based compensation expense is expected in the range of $14 million to $16 million. Full-year 2024 stock-based compensation expense is expected in the range of $72 million to $76 million. We expect weighted average shares outstanding for the first quarter in the range of 159 million to 160 million shares and 160 million to 162 million shares for the full year. To conclude, we plan to grow revenue at a double-digit rate for the full year 2024 as we launch new products and expand our market reach.

We will continue to maintain healthy adjusted EBITDA margins while delivering superior value to our customers with an expanded portfolio of highly sophisticated solutions. Lisa and I are now ready to take your questions. Operator?

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Andrew Marok with Raymond James. Your line is now open.

See also 12 Things Retirees Need to Know About Social Security and Taxes and 13 Best Diversified Dividend Stocks To Invest In.

Andrew Marok: Great. Thank you for taking my questions. Two for me, if I could. One, as you continue to work together with Meta for your TM2 expansion, I know you haven’t disclosed anything quantitatively in the past. But as that process through testing and integration has evolved, have you changed your outlook at all on the pace of scaling and revenue contribution?

Lisa Utzschneider: Hi Andrew, happy to take that question. So, we were delighted to launch TMQ for Brand Safety and suitability in Meta earlier this month. A couple of things I’d also like to share about Meta. We expect Meta to be one of our largest growth drivers in 2024. Similar to last year, in 2024, Meta will continue to be our largest social platform and approximately half of our social customers spend on Meta today. So, we see significant upsell for existing Meta clients as well as the opportunity to cross-sell Meta TMQ to non- Meta clients.

Tania Secor: And Andrew, to answer the second part of your question, no, we’ve not seen any change or expect any change in our outlook for Meta brand safety revenue in 2024.

Andrew Marok: Hey thank you. And then maybe one more, if I could. You mentioned that 32% of your revenue is coming from international, but 46% of measurements. And I know in the past, you’ve talked about kind of there being a pipeline for measurement to optimization. So can you walk us through some of the moving pieces in international customers, specifically as to why that might proceed at a different pace than domestic? Thank you.

Tania Secor: Sure. And just to confirm, yes, we’re really thrilled to see the acceleration of our international growth, particularly in the second half of the year with the second half year international growth rate of 17% versus 10% in the first half. That was primarily fueled by measurement, particularly social. So, measurement was 46% of our revenue was outside of the Americas for measurement, and that was up from 42% in the third quarter. So, really accelerating social growth. And then the dynamics in terms of program optimization versus measurement outside the U.S., those trends really just reflect the lower level of optimization spend outside of the Americas.

Andrew Marok: Okay. Thank you.

Operator: Thank you. Our next question comes from the line of Mark Kelley with Stifel. Your line is now open.

Mark Kelley: Great. Thank you very much. I was hoping maybe you could expand a little bit on the pricing pressure that you’re seeing beyond what you said in the prepared remarks. I guess, can we expect that to continue and be something that is a headwind throughout the year? I know you gave us full year guidance, but I guess what’s the right way to think about that? And then second, I guess, just Q1, the growth rate pretty big decel. And then in the second half or, I guess, the remaining three quarters is a pretty nice uptick to get you to the full year. I guess, what are the moving pieces that should reaccelerate the growth beyond Q1? Thank you.

Lisa Utzschneider: Sure. Mark, I’ll take your first question, and then Tania will take your second. So, in terms of competitive pricing dynamics that we’re seeing, as we mentioned in the script, we offered more competitive pricing and measurement on a select group of large contract renewals in exchange for volume commitments and multiyear exclusive agreements. The way to think about that is, yes, we were facing those competitive dynamics, but we thought it was — the strategic thing to do is to ensure that we renew these large accounts and ensure that they drive up volume. Also, our strategy has been to secure measurement renewals so that we can upsell and cross-sell our offerings, expand geographies and ramp over time.

Tania Secor: Yes. And in terms of the ramp, Andrew, moving out of the first quarter as we look at the rest of the year, we expect to ramp revenue growth as we move through the year due to it being a robust new year for new product launches in 2024, including Meta brand safety as well as ongoing adoption of our social media offerings; the expansion of our Quality Sync products and the rollout of our attention and MFA offerings. And all of these components, whether the first quarter or the ramp through the year are factored into our guidance on a full year basis with 13% guidance at the midpoint of the range.

Lisa Utzschneider: Yes. And just to add to that, those four key drivers that we are innovating and investing in our product tech road map between social optimization, CTV, and also retail media, we are very excited to launch the new products and see that ramp in the back half of the year. And one other thing to add, we are forecasting another year of profitable growth and just can’t wait to drive that adoption of our differentiated solutions across the biggest platforms in the industry.

Mark Kelley: Yes, thank you both.

Operator: Thank you. Our next question comes from the line of Brian Fitzgerald with Wells Fargo. Your line is now open.

Brian Fitzgerald: Thanks guys. And maybe really quickly just to circle back on the pricing question. It sounds like there may have been some — they may have been more defensive in nature thus far. I’m wondering if you’re also using pricing more aggressively as a lever to dislodge business from competitors? So, that’s the first question. And then I have a follow-up after that.

Lisa Utzschneider: Yes. Happy to take that, Fitz. So, as you know, it’s a highly competitive market. And yes, we made the call to — in order to shore up and close just under a dozen large advertisers and renew them. We agreed to reduce pricing again for higher volumes and also exclusivity in multiyear contracts. And as you can imagine, we’re always in a jump ball. So, yes, in terms of pricing, we just ensure that we’re maintaining a competitive price and we’re on par with what’s happening in the industry.

Brian Fitzgerald: Okay. And then the second question for me was just with respect to third-party cookies and the privacy sandbox after looking over the back and forth between the IIB Tech Labs and Google, it seems as though there is still some work to be done to allow for verification for the new on-device auctions. Could you talk about your preparations there and how you’re thinking about both the risks and the opportunities from on-device auctions?

Lisa Utzschneider: Sure. Happy to answer that. So, as we’ve discussed in the past, we expect that cookie deprecation, it will increase demand for our solutions because our technology focuses on the what and the where and never on the who. And also, as marketers, as they lose the ability to measure and target campaigns with third-party cookies, we strongly believe that IAS can fill those gaps using more context and introducing new metrics like Attention.

Operator: Thank you. Our next question comes from the line of Raimo Lenschow with Barclays. Your line is now open.

Raimo Lenschow: Hey, thanks for taking my question. A quick one. Lisa, you talked about the different drivers for the year, but there’s quite a few factors that kind of should help you in terms of as you said, Olympic, Election, et cetera, et cetera. How do you — in that respect, like I’m thinking about the guidance, like how do you think about the puts and takes on the cycle then and what your expectation is in terms of advertising spending, et cetera, as we go through the year because it does feel like there’s a good few tier wins that should help you this year? Thank you.

Lisa Utzschneider: Yes, Raimo. Happy to answer that one, too. So, I had mentioned before, the four key drivers; social optimization, CTV and retail, media. The two largest drivers hands-down for 2024 are social and optimization social. Social, as we announced a few weeks ago, we were thrilled to launch TMQ in Meta, largest social platform, but we have been running TMQ in the other three major social platforms throughout 2023. The technology of TMQ, it’s getting smarter, more sophisticated as we’re running it. Our sales team is much more comfortable in telling the story of TMQ, driving adoption. And also just to add that advertisers, they’ve been clamoring for brand safety and suitability, solutions and technology within the live feed of Meta.

So, in terms of a ramp, I do think we’ve been pleased with the ramp we’ve seen so far over the last few weeks with TMQ and Meta, but we expect a steady ramp in the first half of the year and an accelerated ramp in the back half of the year. The one other thing I want to note on social, we’re also hearing a lot of feedback from the marketers who are looking at the upcoming U.S. elections, I mean it’s a gigantic election year around the globe, U.S. elections in particular. And what marketers are asking for is misinformation as a segment that we embed in TMQ as one of the — segment. So, that’s also another capability that we’re poised to launch in the first half of the year to get ahead of the U.S. elections and help advertisers find higher-quality media during the election season.

The one other thing to talk about is in optimization, we’re seeing a noticeable shift from the brands towards performance, and we are leaning into performance and investing heavily in a couple of key areas around optimization. Total visibility where insights drive outcomes, it’s a big differentiator for IAS, where we’re providing greater transparency for marketers in terms of higher-quality media where they can run it programmatically, Quality Sync, MFA, and Attention. And again, that will be ongoing, driving the adoption of all of those products in optimization throughout the year.

Raimo Lenschow: Okay. And just maybe one follow-up. On TMQ, and you mentioned that you kind of have already seen adoption for some of the other platforms. Like how does the advertiser — what’s the rollout? Does that you really run test cases? Or is it like a full rollout? And so how quickly does it kind of shore up for you? Can you just help us to understand that a little bit better? Thank you.

Lisa Utzschneider: Sure. Happy to answer that. So, you might remember, Raimo, last year, when we first launched Total Media quality or TMQ in TikTok, the beta was three markets, three languages, then we moved to seven markets, four languages, 20 languages and then we unlocked it to over 90 languages over 50 markets. So, in terms of a TikTok scale, that is now just driving global scale, accelerated scale. YouTube today, we’re offering total media quality across the 30 languages. TMQ is now running in Meta. We launched it in early February. So, it’s just a couple of weeks of data, but we’re very pleased with the adoption that we’re seeing of total media quality in Meta. The great news about Meta is we already have a robust advertiser base using IAS’ solutions within Meta.

Also, we’re very comfortable in launching the product because we’ve built sophisticated technology with the other social platforms. So, we were able to port over the technology embedded in Meta. The beta with Meta was roughly eight weeks, but the product is full GA. It’s global, and we currently offer it in seven languages around the world with Meta.

Raimo Lenschow: Okay. Thank you.

Lisa Utzschneider: Thank you, Raimo.

Operator: Our next question comes from the line of Jason Helfstein with Oppenheimer. Your line is now open.

Jason Helfstein: Thanks. Two questions. One, I guess you got asked about kind of the competition question, I guess, or some of the pricing headwinds questions. But I mean, I think there’s been a general view that the switching costs are reasonably — there is a switching cost, and it takes a while if you switch vendors. So, I guess the question is, why offer kind of pricing concessions? Is this, ultimately, you’re giving short-term pricing concessions for long-term volume. And so as you look out like 18 months it nets out ahead? Or just is it just like kind of new dynamics that other companies are being more competitive on pricing? And then the second question, just thoughts on share repurchases. Obviously, you have the capacity just general thoughts there? Thank you.

Lisa Utzschneider: Sure. Happy to speak to the pricing dynamics that we’ve seen in Q1 and that we spoke to. Similar to the back half of 2023. I remember in our previous calls, we talked a lot about marketers leaning into greater efficiencies, greater ROI, looking to generate more bang for the buck with their digital advertising investments. And what we saw with some of these renewals and renegotiations is that marketers, they see so much value in our product offerings, yet they wanted to negotiate more competitive pricing in exchange for higher volume commitments, multiyear exclusive agreements, and we were comfortable with that, especially given all of the new products that we’re launching in 2024 that drive high value, drive differentiation for the brands.

And it’s now our job to drive adoption with the marketers with these differentiated products. The other thing, too, Jason, I know you’ve heard this stat before, we have an incredibly sticky loyal customer base on average, our customer tenure for our top 200 accounts is eight years, and we have every intention of maintaining the trust that we have, the longevity of our customer base, and help them grow their business with them.

Tania Secor: Jason, on your second question, we have agreed. We have a very healthy balance sheet, strong cash flow in 2023. And our primary focus is to continue to invest in the growth of the business. There’s an incredible opportunity to continue to expand the business.

Operator: Thank you. Our next question comes from the line of Brian Pitz with BMO Capital Markets. Your line is now open.

Tim O’Shea: Yes, hey. It’s Tim O’Shea. Thanks for taking my call. So, Lisa mentioned talking about some of the explosive growth of social media, including short-form video, also talked about how Meta will be the largest social platform in 2024. I’m just struggling to reconcile these types of statements with the guidance for Q1 that’s suggesting the 6% growth and I think 13% growth for 2024 at the midpoint. So, the question is, is it possible to quantify the impact of these new lower-priced high-volume contracts? Is how much of those new contracts are factored into the guidance? And then secondly, what’s — can you walk us through how the advertisers are approaching some of these new social products you’re rolling out? What does adoption look like? What’s the feedback look like? And frankly, when should we expect IAS to realize some of this explosive growth that we’re talking about? Thank you.

Lisa Utzschneider: Sure. I’ll take the advertiser adoption of the social products because I think that would feed into the new contract question, Tim. So, as I mentioned before, we are currently running the brand safety and suitability product of TMQ in all four of the social platforms. In terms of innings, I’d put TikTok at fourth inning, fifth inning, YouTube third inning, X, we’re the exclusive provider of pre-bid leveraging TMQ, and Meta, we launched February 5th. So, we launched three weeks ago with Meta, and there is a ramp in terms of adoption. Granted, as I mentioned before, in Meta, we already have the advertiser base of customers using our verification solutions with Meta. So the adoption of TMQ is easier than TikTok.

TikTok we had to go and get advertisers on board to TikTok, utilizing our products. But there is a ramp. And I could give an example. So if you think of one of our global brands, take an example, hypothetical, like a Coke. Coke has roughly 250 brands running in 200 markets as one of the major global marketers. That’s both traditional and digital media. So if you think about a Coke that considers brand safety, suitability, the protection of their brand equity and reputation as a strategic priority, adopting a product like TMQ, ensuring that adoption happens across all of their prioritized markets and turning it on for all of their digital campaigns we’ve really shortened that cycle, but there are some steps involved in making sure that all of those priority markets adopt the TMQ product.

And as I mentioned before, because we’ve already launched the product and it’s running globally in a TikTok in YouTube, we have a lot of experience in terms of what it takes to launch TMQ in the live feed, but there is time required in order to drive adoption of the products.

Lisa Utzschneider: And then in terms of your question as it relates to Q1, there’s really two main factors impacting Q1, and we factored both of these into our guide. One is the measurement renewals that Lisa talked about where we were able to retain these clients and set ourselves up to be successful to expand these relationships over time with — by offering rates on par with the industry on the measurement front. And then on the optimization side, we did have one large optimization clients that had previously negotiated preferred optimization rates and working with one of the DSPs that they run in that DSP implemented those preferred rates and that became effective in Q1. So it’s really those two things that are impacting our Q1 guidance.

Operator: Thank you. Our next question comes from the line of Jason Kreyer with Craig-Hallum.

Jason Kreyer: Yeah. Just on pricing, I’m curious and Tania, you called this out just now, but if you’re seeing any other similar pricing pressures across optimization or maybe that was unique to the one customer? And then inside of measurement, is there any risk that we need to think about the trickle-down just as far as like you’re renewing large customers at more attractive rates, does that end up trickling down into smaller customers with a little bit of more pricing pressure there, too?

Tania Secor: Jason, on your first question, this really on the optimization front, this really was a unique situation related to one client based on a previously negotiated pricing arrangement. And then your second question on measurement. Look, we’re winning with large clients. We have a proven track record of expanding up-sell and cross-selling with expanding NRR. And we’re confident in the strategy to — and this was really less than a dozen renewals, and we’re confident in the strategy moving forward to drive the long-term growth of the business. And as I mentioned, that’s all been factored into our 2024 guidance.

Operator: Thank you. Our next question comes from the line of Justin Patterson with KeyBanc. Your line is open.

Unidentified Analyst: Thank you. This is Jacob on for Justin. In the prepared remarks, you spoke to investments in AI you’re making during 2024. What are the key investments you’re making over the course of the year? And when should we be expecting to see returns from the investments?

Lisa Utzschneider: Sure. I’d be happy to answer that. So science is in the name of our company and AI/ML, it’s at the core of everything that we do. It fuels our differentiated technology. We have been leveraging AI for several years now. And I could give you a couple of examples of our products that we leverage AI for TMQ, Meta, attention or just a few examples. But TMQ product in particular, we can currently classify 40 years of video content across all media platforms. IAS evaluates every pixel at every second for true in content classification each day in more than 90 languages across all major social platforms. And the sophistication of the technology is represented with our social revenue growth in the last quarter. The other thing to call out is that our emerging products like attention, MFA, they’re almost 100% run by AI technology.

And then the one other thing to call out with TMQ is that by leveraging AI, we’re able to drive the generation of 4 terabytes of high valuable video classification every single day, which enables us to provide that granular frame by frame in BDO, real-time, pre and post big content avoidance and contextual targeting for our customers. So we’re bullish on AI. We have an incredible data science team. We announced in our last earnings call hiring a new Head of Data Science. And also in 2024, we’ll continue to invest in science and AI and have 30% of our engineering or be made up of data scientists.

Unidentified Analyst: Thank you.

Operator: Thank you. Our next question comes from the line of Youssef Squali with Truist Securities. Your line is now open.

Robert Zeller: This is Robert Zeller on for you. Thanks for taking the question. On the pricing dynamic and measurement, can you remind us on the lines of contracts for customers and when the remaining contracts are up for renewals? And is there any reason why your existing customers wouldn’t ask for these deals and seeing treatment when their contracts are up? And then just quickly, you guys mentioned that it was also in exchange for exclusivity. I think you were kind of under the assumption that most advertisers just work with one partner. So I’m curious like what percentage of customers are exclusive versus which aren’t? Thanks.

Tania Secor: All right. I’ll take that. On average, our measurement clients have contracts in the range of one to three years. This is not — this was a select group of large clients on the measurement side that we offered these arrangements in order to drive expansion over time. And then in terms of your last question I mean, almost all of our customers are exclusive versus working with multiple partners.

Robert Zeller: Okay. Thank you.

Operator: Thank you. Our next question comes from the line of Mark Zgutowicz with The Benchmark Company. Your line is now open.

Mark Zgutowicz: Thank you. Just a couple of questions on social. You mentioned higher than normal international growth. And given the modest 4Q sequential social growth that you witnessed, does that imply that domestic was weaker and perhaps impacted by pricing pressures in fourth quarter? And then on your commentary around accelerating social revenue exiting 1Q, is it safe to assume that 1Q measurement is expected to be roughly flat year-over-year? And if so, can you talk about or provide some clarity on how much new product sell-through is needed to offset what I assume would be pricing pressure flow through — through the year? And then just two quick housekeeping, if I may. Could you comment on total large advertiser customer count in 4Q? What percentage of that was of trailing revenue and then also impression in volume growth? Thank you.

Tania Secor: Okay. Let’s go through one at a time. So first, in terms of social, no, we continue to see robust growth in social in the fourth quarter of 37%. We were excited to see the social growth outside of the US — outside of the Americas and measurement overall, but we continue to see growth in social in the fourth quarter in the Americas. And then your second question was around accelerated revenue on social exiting the first quarter. Could you clarify your second question?

Mark Zgutowicz: Yeah, sure. Just I think you had said you expect to see accelerating social revenue exiting 1Q, which — and given your guidance for 1Q and then subsequently the year, does that imply that your 1Q social revenue was roughly flat or it’s expected to be roughly flat year-over-year?

Tania Secor: So we are anticipating slower growth in social in the first quarter for the reasons we talked about earlier and expecting social to ramp throughout the year, particularly with the launch of Meta brand safety and suitability as well as continued sustainable growth in short-form video.

Mark Zgutowicz: Okay. And then on total large advertiser count in 4Q and your impression in volume growth?

Tania Secor: Sure. So our total large advertiser count in the fourth quarter was 222 large advertisers, which was up 12% from the prior year. And then in terms of the — were you asking about volume and price in the fourth quarter?

Mark Zgutowicz: Yes, advertiser direct impression and volume.

Tania Secor: Yes, on the measurement front, yes. So on the measurement front, we don’t disclose the fourth quarter in particular, but on a full year basis, as you can see in our 10-K, we had — for the full year, had robust volume growth of 25% across measurement, and our average CPMs for the year were consistent with the prior year. So when you back into the fourth quarter, you can estimate that on the measurement front, our volumes continue to be very strong in the mid-20% in the fourth quarter. And then our average CPM in the fourth quarter did moderate with a decline in the mid-single digits.

Mark Zgutowicz: Okay, Tania. Thanks. That’s helpful.

Operator: Our next question comes from the line of Omar Dessouky with Bank of America. Your line is now open.

Omar Dessouky: Thanks for squeezing me in. I appreciate it. So I just wanted to get some clarification on a couple of things I’ve heard on the call so far. Number one, you said that revenue would ramp as the year went on. So are you implying that we should be modeling sequential growth through the fourth quarter quarter-on-quarter?

Tania Secor: Sure. Hey, Omar. The way to think about the — the contribution and how we ramp through the year, I mean, we guide obviously for the full year in one quarter. But as you think about the contribution as we ramp through the year, you should expect revenue contribution in the second half of the year as a percentage of the full year to be more weighted to the second half of the year?

Omar Dessouky: Okay. Okay. So then the second clarification would be — you talked a little bit about this — your top 11 clients. There’s some change in pricing there. It sounds to me like you’re not assuming that there’s going to be a similar change in pricing or the contract with the other 90 top clients that you have in your guidance. Is that — did I understand that correctly?

Tania Secor: So Omar, yes, we have reflected in our guidance for the full year, our assessment of upcoming measurement renewals. And also just to clarify my prior comments, when I talked about the second half contribution as a percent of the full year, I was saying compared to prior years. So expect a slightly higher second half contribution as a percent of full year revenue compared to that ratio in prior years.

Omar Dessouky: And then my final question is, given that this is a strategy on your part to lock in these clients for a little bit longer, are you also considering the potential upside from upselling in your guide?

Tania Secor: Yes. As we move through the year, we do expect to see the benefits of these renewals, particularly as it relates to volume commitments, and these are multiyear exclusive agreements.

Omar Dessouky: Okay. Those are all my questions. I appreciate it.

Operator: Thank you. I would now like to hand the conference back over to Lisa Utzschneider, CEO, for closing remarks.

Lisa Utzschneider: Thanks, everyone, for joining today’s call. We’re pleased to have reported strong results for the 2023 fourth quarter and full year. As we move through 2024, we expect to accelerate growth as we benefit from several growth drivers, including the rollout of new AI-backed products. We are excited to execute on our growth strategy in 2024, and we look forward to sharing our story at upcoming investor events.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.