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Q3 2023 Integral Ad Science Holding Corp Earnings Call

Participants

Jonathan Schaffer; Head of IR; Integral Ad Science Holding Corp.

Lisa Utzschneider; CEO & Director; Integral Ad Science Holding Corp.

Tania R. Secor; CFO; Integral Ad Science Holding Corp.

Andrew Jordan Marok; Research Analyst; CIMB Research

Brian Nicholas Fitzgerald; Senior Analyst; Wells Fargo Securities, LLC, Research Division

Cal Bartyzal; Research Analyst; Craig-Hallum Capital Group LLC, Research Division

James Edward Heaney; Equity Associate; Jefferies LLC, Research Division

Jason Stuart Helfstein; MD & Senior Internet Analyst; Oppenheimer & Co. Inc., Research Division

Justin Tyler Patterson; Director of Internet and Media Equity Research & Lead Senior Analyst; KeyBanc Capital Markets Inc., Research Division

Mark John Zgutowicz; Senior Equity Analyst; The Benchmark Company, LLC, Research Division

Mark Patrick Kelley; MD & Senior Equity Research Analyst; Stifel, Nicolaus & Company, Incorporated, Research Division

Mark Stephen F. Mahaney; Senior MD & Head of Internet Research; Evercore ISI Institutional Equities, Research Division

Matthew F. Farrell; VP & Senior research analyst; Piper Sandler & Co., Research Division

Raimo Lenschow; MD & Analyst; Barclays Bank PLC, Research Division

Timothy Wilson Nollen; Senior Media Analyst; Macquarie Research

Youssef Houssaini Squali; MD & Senior Analyst; Truist Securities, Inc., Research Division

Presentation

Operator

Thank you for standing by, and welcome to IAS Q3 2023 Earnings Conference Call. At this time, all participants are in 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 turn the call over to your host, Mr. Jonathan Schaffer, VSP of Investor Relations. Please go ahead.

Jonathan Schaffer

Thank you. Good afternoon, and welcome to the IAS 2023 Third Quarter 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 third quarter call. We reported strong results that exceeded our prior expectations. Revenue increased 19% to $120.3 million, and adjusted EBITDA reached $40.6 million at 34% margin. We are raising our financial outlook for the full year to reflect our positive third quarter performance and business momentum in the fourth quarter. Tania will provide a detailed review of our financial results and increased outlook for the full year.

Let me start by highlighting some key wins and expansions that reinforce the value of our AI-backed products, platform integrations, superior service, and geographic reach. BMW named IAS as its global verification partner. BMW selected IAS for our technology, innovation with products like Total Media Quality or TMQ, vertical expertise in the auto sector, extensive international footprint, and high-quality service. We are delighted that Ferrero, a global sweet packaged food company, has named IAS as its exclusive global measurement and optimization provider. We secured a major renewal and expansion of our partnership with Mars, the home of iconic brands including M&M, Snickers, Kind and Pedigree. This multiyear exclusive agreement includes IAS's leading market measurement and optimization offerings with annual minimum impression commitments. The renewal also expands our relationship with Mars to new markets including Mexico, Brazil, Germany and the APAC region.

During the third quarter, we generated a 41% year-over-year increase in social media revenue, surpassing 33% social media growth in the second quarter. The accelerated growth in social media reflects the investments we're making in our technology and integrations with the major social platforms. Our TMQ product identifies higher-quality media at a 3x rate, which leads to higher returns on advertising spend for marketers. As TMQ is AI-backed, the data becomes more accurate and adds greater value over time. We frame the social media opportunity for IAS in terms of big building blocks which are the live feeds, and the medium building blocks of short-form video. Let me update you on the latest initiatives underway.

Since expanding inventory coverage of our Total Media Quality for YouTube product suite, impression growth and active accounts have doubled in September from July. We've seen strong customer adoption of TMQ with YouTube from clients including Dyson, Volvo and Kimberly-Clark. Advertisers using our TMQ products on YouTube now have access to a suitability dashboard that allows them to analyze brand suitability trends and create a custom suitability profile.

During the quarter, we expanded our brand safety YouTube product suite capabilities to Google Video Partners or GBP. IAS is now providing viewability and invalid traffic, or IVT measurement, for YouTube shorts inventory and offers brand safety, suitability, viewability, and IVT measurement across GBP. In addition, we enhanced our integration with Google Campaign Manager 360. Marketers now have the ability to wrap tags, create and launch campaigns with ease. This enhancement ensures advertiser data is automatically populated in IAS Signal, our UI dashboard, and creates greater efficiencies and reduced campaign creation time.

We continue to drive customer adoption of our TMQ brand safety and suitability measurement product on TikTok. TMQ is now available to advertisers in 50 markets, up from 30 at the end of second quarter and ahead of our expectation of 40 markets by year-end. Active measurement campaigns on TikTok have more than doubled year-to-date, and impressions have quadrupled.

In August, IAS announced an exclusive first-to-market partnership with X to provide pre-bid brand safety and suitability for video across the social platform. We are currently in beta testing, expect to move quickly to launch in the coming weeks, with a host of blue-chip clients. IAS was selected by X based on the sophistication of our TMQ product. With this expansion, IAS leads the industry in providing end-to-end support for marketers on X with a full array of solutions from measurement to optimization. IAS plans to offer brand suitability verification on Meta for both Facebook and Instagram Feed and Reels. We remain on track to begin client testing in Q4 of this year.

Turning to optimization, we are prioritizing ease of activation and transparency, which are particularly important for mid-tier performance-based marketers. We are driving product adoption and streamlining customer activation with a single point of integration. Our differentiated total visibility product enables marketers to optimize campaign spend with greater insights into the quality, supply path and cost of programmatic ads and now with an overlay of marketing outcomes.

We've expanded our total visibility offering with our new performance dashboard, which allows marketers to analyze metrics such as success rate over time and cost per action alongside financial and media quality insights. We are also increasing the number of contextual segments, which allows for higher avoidance in targeting customization. Lastly, we are expanding our reach via increased DSP coverage. We are excited to announce that we have enhanced our integration with Amazon Ads to include our context control pre-bid segments. In addition to our standard pre-bid segments within Amazon CSP, customers can now easily discover and avoid unsuitable content and reach contextually relevant content.

In Retail Media, IAS is a leader in independent verification with coverage for viewability, fraud and brand safety with the top retail media networks. Year-to-date revenue from Retail Media Networks has grown nearly 150%. We are delighted to partner with Instacart and bring a new level of transparency to Instacart Ads, the company's advertising products and solutions. IAS will provide viewability and IVT measurement on Instacart Ads, which reaches more than 5,500 CPG brands. At Advertising Week in New York City, I hosted a panel that included Tim Castelli, VP, Global Advertising Sales of Instacart. Tim spoke to Instacart's ability to see across the grocery sales ecosystem and to provide actionable data for marketers. We look forward to helping Instacart optimize the Instacart Ads experience for our brand partners.

We launched our previously announced first-to-market partnership with Criteo's Commerce Media Platform in September. IAS's partnership with Criteo allows brands and agencies to measure viewability and IVT on a retailer's site across any on-site ad format and in Criteo's network of 210 retail partners. Marketers can be assured their media buys are driving engagement and validating real users. We also launched 8 pre-bid brand safety content categories to allow marketers the ability to optimize their programmatic buying in Criteo's Commerce Max DSP.

We've discussed how we are harnessing AI to accelerate the rollout of new markets and advanced capabilities for products such as context control and TMQ. In addition, our product development is fueled by AI, which is a major point of differentiation for IAS and a gamechanger for our customers. AI is a critical component of the new products we're launching in emerging areas, including attention and made for advertising or MFA. Our quality attention measurement product helps advertisers assess campaign performance and unlock superior results. We launched a quality attention beta in August, which generated a high level of interest from advertisers. Over 1.5 billion impressions have already been measured using multivariable models that identify which signals are most relevant to optimize the insights being delivered. In our early beta analysis, we found that higher retention can lead to a nearly 3x lift in success rates and 98% better cost efficiency. We launched the second phase of the measurement beta last week, which includes Lumen's eye-tracking technology.

In October, IAS announced its new MFA site detection and voidance solution to align with our customers' media strategies related to this type of content. Leveraging AI and ML, IAS technology aims to improve transparency into advertiser campaign quality, identify where spend is allocated, and inform optimizations to minimize waste. According to the ANA's programmatic media supply chain transparency study from June, 21% of all advertisement impressions measured were served on MFA sites. The IAS MFA product is available now as a beta measurement offering with general availability expected in early 2024.

In our CTV publisher business, Publica is integrating with TV OEMs, which serve as the entry point into the CTV ecosystem and the live TV experience. OEMs often build their own proprietary advertising businesses and provide their ad-serving technology through a growing number of streaming services. During the quarter, Vizio selected Publica to help operate its global CTV advertising business. We look forward to expanding our partnership with Vizio and our previously announced exclusive renewal with Samsung in addition to exploring new OEM opportunities.

Publica recently announced a direct integration with Yahoo! Backstage. Via the server, server connection publishers using the Publica ad platform can now access ad budgets from the Yahoo! DSP directly within the Publica unified auction.

During the third quarter, we earned our first certification from TrustArc, which conducts annual privacy-focused third-party attestations. The TRUSTe Enterprise Privacy seal certifies that IAS' data privacy policies and practices align with the standards set by the leaders in governance and compliance.

To conclude, I am proud of the team for delivering a strong quarter, and we are excited about our positive outlook for the fourth quarter. We are executing against our product roadmap with highly differentiated technology and fast-growing channels, including short-form video. As we begin our planning process for 2024, we intend to prioritize investment in innovation that leverages AI to bring the most advanced products to our customers. And with that, I'll turn the call over to Tania to review the financials.

Tania R. Secor

Thanks, Lisa, and welcome, everyone. We're pleased to report another strong quarter of profitable growth. We accelerated our revenue growth in the third quarter to 19% and adjusted EBITDA margin reached 34%. We are raising our full year outlook to reflect our outperformance in the third quarter and positive business momentum into the fourth quarter.

Total revenue in the third quarter increased to $120.3 million, well ahead of our prior outlook of $112 million to $114 million. Both optimization and measurement revenue reported growth in excess of 20% for the quarter.

Turning to our business lines, optimization revenue grew 21% to $57.0 million. Optimization revenue benefited from increased product adoption and enhanced DSP integrations. In addition, we experienced a larger contribution from our T&E vertical, which we expect to moderate in the fourth quarter. CPG performed well and tech telco improved from the second quarter.

Context control revenue grew at a double-digit rate as a result of accelerated mid-tier growth, which more than doubled versus the second quarter. We are expanding our mid-tier presence by adding new product capabilities, enhancing our go-to-market with the hiring of new programmatic specialists, and establishing new partnerships with mid-tier agencies.

Measurement revenue increased 23% to $47.8 million in the third quarter. The increase in measurement revenue was attributable primarily to accelerated growth in social media of 41% compared to 33% in the second quarter. We continue to increase adoption of new and existing social media products with expanded market reach. During the quarter, we increased customer uptake of TMQ in both TikTok and YouTube, including YouTube Shorts. In Meta, we saw an increase in existing products with impression growth in Reels.

Social media measurement revenue represented more than half of total measurement revenue for the first time at 51% in the third quarter, up from 47% in the second quarter of 2023, with the balance being open web, which continued to grow. Social media revenue represented 20% of total revenue in the third quarter, up from 18% in the second quarter of 2023.

Video, which commands a pricing premium to display, grew 40% in the third quarter as a result of growth in social media. Video accounted for 54% of measurement revenue in the third quarter, up from 50% in the second quarter of 2023. On a combined basis, total revenue from advertisers, including optimization and measurement revenue, increased 22% and represented 87% of third quarter revenue.

Publisher revenue increased to $15.5 million in the third quarter. Publica revenue growth was partially offset by the performance of our non-CTV supply side businesses. Publica represented more than half of publisher revenue in the quarter. We continue to innovate and deepen our integrations with publishers and platforms, including Samsung and Vizio as we continue to build our pipeline to support Publica's growth. Publisher revenue represented 13% of total third quarter revenue.

International revenue, excluding the Americas, accelerated to 17% year-over-year growth from 10% in the second quarter of 2023. EMEA revenue growth was particularly strong at 20% due to the contribution from previously announced new global and regional wins. Additionally, increased adoption of our TMQ social media product drove measurement revenue internationally. While international revenue represented 31% of total revenue in the third quarter, 42% of measurement revenue came from outside of the Americas.

Gross profit margin for the third quarter was 79%, which keeps us on track to deliver on our full year margin expectation of 78% to 80% and reflects investment in our data infrastructure and increased hosting costs. Sales and marketing, technology and development, and general and administrative expenses combined only increased 2% year-over-year as a result of increased efficiency and productivity through streamlined operations. In addition, lower expense growth reflects higher capitalization of internally developed software related to long-term investments in our technology and improved productivity of our engineering team.

Adjusted EBITDA for the third quarter, which excludes stock-based compensation and onetime items, increased 35% year-over-year to $40.6 million. Our strong adjusted EBITDA margin of 34% was due to higher-than-expected revenue for the period as well as increased operating efficiencies. We remain focused on continuing to invest in the long-term growth of the business.

Net loss for the third quarter was $13.7 million or $0.09 per share. Net loss for the quarter was driven by the timing of our income tax provision related to stock-based compensation from the return target options expensed in the second quarter.

Turning to our performance metrics, our third quarter net revenue retention, or NRR, increased to 116% versus 115% in the second quarter due to higher product adoption. The total number of large advertising customers, which includes both mid and top-tier clients with annual revenue over $200,000, increased to 219, up 19% compared to 184 last year and up sequentially from 208 in the second quarter of 2023. Revenue from large advertising customers was 85% of total advertising revenue at the end of the period, up from 84% at June 30 and up from 81% at the end of the third 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 third quarter were $92 million. During the quarter, we reduced our long-term debt by $20 million to $175 million, resulting in net debt of $83 million. Year-to-date, we've reduced indebtedness by $50 million. Our net debt to trailing 12-month adjusted EBITDA is currently 0.5x.

Turning to guidance. For the fourth quarter ending December 31, 2023, we expect total revenue in the range of $130 million to $132 million, a 12% year-over-year growth rate at the midpoint. Adjusted EBITDA for the fourth quarter is expected in the range of $45 million to $47 million or a 35% margin at the midpoint of the range. For the full year 2023, we are increasing our revenue and adjusted EBITDA ranges to reflect our strong third quarter results and fourth quarter outlook. We are raising the midpoint of our full year outlook by $9 million and now expect total revenue in the range of $470 million to $472 million or 15% year-over-year growth at the midpoint of the range.

We are increasing the midpoint of our adjusted EBITDA outlook for the full year 2023 by $7 million to $157 million to $159 million or approximately 34% adjusted EBITDA margin at the midpoint of the range.

A few additional modeling points. We continue to expect gross profit margin in the range of 78% to 80% for the full year. Fourth quarter stock-based compensation expense is expected in the range of $15 million to $16 million. Full year stock-based compensation expense, which includes the RTO expense, is now expected in the range of $81 million to $82 million. We expect weighted average shares outstanding for the fourth quarter in the range of 157.5 million to 158.5 million shares and 156 million to 157 million shares for the full year.

We delivered strong revenue growth and adjusted EBITDA profitability in the third quarter. As a result of our third quarter performance and business momentum in the fourth quarter, we are raising our full year outlook. We're in a healthy financial position, and we will continue to invest in the business to drive long-term growth to enhance shareholder value. Lisa and I are now ready to take your questions. Operator?

Question and Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Mark Kelley of Stifel.

Mark Patrick Kelley

Thank you very much. Goof afternoon, everyone. I wanted to ask you 2 quick ones. First, just optimization really outperformed in Q3. I guess can you talk through more of the moving pieces? I know you called out more mid-market clients driving some of the performance there. But just curious if the Amazon DSP partnership, can that lead to continued reacceleration and optimization? I guess what should we be thinking about there? And then second, separately, when we're thinking through the Meta Feed access, I know you're on track to test with clients in Q4, but is there kind of like a set cadence from going from testing to GA that you can maybe point us to from some of the other integrations with the social platforms? Thank you.

Lisa Utzschneider

Sure. Happy to take both questions, Mark. The first on optimization, we did see strong growth in optimization revenue in third quarter of 21% growth year-over-year. It was due to various factors, including increased product adoption, enhanced DSP integrations. And also, I should call out context control grew at a faster rate due to the acceleration that we're seeing in the mid-tier channel. The other thing I'll call out with the Meta Feed access, as we mentioned, we're thrilled that we are heading towards launching a beta towards the end of fourth quarter with Meta. Meta is our largest social platform and you can see the strength of our measurement growth in third quarter. We'll launch the beta and GA is expected sometime early in 2024. And then we've discussed before, Mark, with Meta, because it is our largest social platform, and we already have a significant client base of advertisers who are using IAS solutions in Meta, I do think that the acceleration -- we'll see an acceleration at both the beta and the launch of the GA.

Operator

Our next question comes from the line of Andrew Marok of Raymond James.

Andrew Jordan Marok

Congrats On the quarter. You talked about a lot of large new customers driving some strength in the results. Are there any commonalities in the feedback that you're receiving as to why you were selected over competitors? Anything that's coming up in multiple of your conversations?

Lisa Utzschneider

Sure. Happy to take that, Andrew. And then Tania, feel free if you want to add additional color. We were delighted to announce those 3 large brands of BMW and Mars and expanding our partnership with Mars in the third quarter. A couple of callouts in terms of why these major marketers are selecting IAS and expanding with IAS due to our product innovation with products like TMQ in particular. BMW, our vertical expertise in the auto sector. And with all 3 of the brand's extensive international footprint and high-quality service. Tania, anything else you'd like to add?

Tania R. Secor

Sure. I would just also add that we have a really strong presence with what we define as large customers. You can see in the KPIs that we disclosed the growing nature of those large customers and pleased to be reporting 219 large customers at the end of the third quarter, up from 184 at the end of third quarter last year.

Andrew Jordan Marok

Great. And then one more, if I could. I know the made for advertisement topic has been a big attention-grabbing subject in the industry. What has the feedback been on your MFA product so far? And how should we expect that scaling curve to progress? Could it be maybe more front-end loaded than a typical product, given all of the attention around MFAs at the moment? Thank you.

Lisa Utzschneider

Yes. Happy to take that one, too. Media quality remains a top priority for brands. And as we're seeing in the industry, we're seeing a surge of lower-quality environments, which brands do want to avoid because they just don't see the conversions that they'd like to see. Third party has cited the MFA issue as advertisers are wasting as much as 20% of their ad spend on MFA. And to address this problem, IAS, we recently announced our new MFA AI site detection and avoidance solution. It's available now in beta measurement offering post-bid. With GA will be both pre-bid and post-bid expected in early 2024. And so far, the feedback has been very positive from our advertisers. They've been clamoring for this MFA technology. And the other thing I should call out is our MFA technology is backed by AI.

Operator

Our next question comes from the line of Raimo Lenschow of Barclays.

Raimo Lenschow

I missed my name. I think that was me. Congrats from me as well on a great quarter. Just at the moment, a big discussion is that we're going into the important Q4 holiday season. What are you seeing, especially since you have a lot of international, a great international perspective? What do you see in terms of how this is shaping up for you? What are the advertisements saying given like this is such an important part of the year? And then I have one follow-up, please.

Lisa Utzschneider

Okay. Great question, Raimo. A few things with that. We're pleased with our increased forecast in the fourth quarter and full year, and this reflects positive advertising outlook for the fourth quarter. As you know, I spend a lot of time with the brands, and they continue to share, both in the U.S. and internationally, that they're doubling down on ROI and driving efficiency, which makes our products even more relevant today more than ever. And then the other thing the marketers have been sharing about fourth quarter is they're very focused on driving customer engagement and retention during this holiday season.

Raimo Lenschow

Yes. Okay. Perfect. Thank you. And then just more one point for modeling you guys next year. If you think about the Meta Feed access and that's going GA in early 2024, do you -- are you going to limit that somehow to have like a more controlled rollout? Or is this going to be like open for everyone? And how should we think about that kind of playing out in the numbers? Thank you and congrats from me again.

Lisa Utzschneider

Thanks, Raimo. As I like to say, we always follow Meta's lead, and they are our largest social platform this year, and we expect Meta to continue to be our largest social platform in 2024. In terms of the rollout, as I mentioned, we are on track to offer brand suitability verification on Meta for both Facebook, Instagram and Reels and we remain on track to start the client testing in fourth quarter of this year. Because we already have an established base of advertisers that are running IAS solutions on Meta, I do anticipate both the beta and GA will be accelerated. Timing of the GA, like I said before, early 2024. But they're such a valued partner for us. And then the other thing I will call out with Meta, and just the social platforms in particular, is just the uptick that we're seeing in short-form video, both with Meta Reels and YouTube Shorts. I know last Q2 earnings call, we talked about the launch of viewability and invalid traffic, both in Meta Reels and in YouTube Shorts, and that has also been a nice tailwind for the 41% growth that we're seeing in measurement in third quarter.

Operator

Our next question comes from the line of James Heaney of Jefferies.

James Edward Heaney

Great. Thanks for taking the question. Just looking at your Q4 revenue guidance, I imply roughly sequential growth of 8% to 10%. Which if I look back historically, would be one of the slower sequential growths in the holiday quarter. Is there anything that has you concerned? Or is there just some conservatism baked in? And then I had one more follow-up for Lisa. Thank you.

Lisa Utzschneider

Sure. Sure, James. Happy to address that. The third quarter, we're really pleased with our above-expectation performance both on the measurement and optimization side. Two things that are worth noting, I talked about this a bit in the script, is that we saw stronger-than-expected growth in T&E, which is our second largest vertical. We expect that to moderate in the fourth quarter. And then secondly, we did see very strong growth in context control, double digit with multiple factors driving that growth. But as we have shared in the past, we do expect context control growth to moderate in the fourth quarter. But really pleased to be raising our guide for the fourth quarter by $2 million at the midpoint.

James Edward Heaney

Great. Thanks for that. And Lisa, could you just talk more about the traction that you're getting on the TikTok product? I think you're now live in like 50 countries. Just talk about the contribution from that product and how to think about the roadmap for 2024. Thank you.

Lisa Utzschneider

Yes. Great question, James. With TikTok, we are firing on all cylinders across social platforms and including TikTok. We continue to drive customer adoption of our TMQ brand safety and suitability measurement product on TikTok. TMQ is now available to advertisers in 50 markets. That's up from 30 at the end of second quarter and ahead of our expectations of 40 markets by yearend. And then I know we had already said it previously on the call, but our active post-bid campaigns on TikTok more than doubled year-to-date, and impressions have quadrupled. We're just thrilled with our partnership with TikTok. We're thrilled with the fact that brands are leaning into our differentiated technology backed by ML/AI. And I'm incredibly proud of the team on just speed to market and again, delivering differentiated value for our brands.

Operator

Our next question comes from the line of Brian Fitzgerald of Wells Fargo.

Brian Nicholas Fitzgerald

Yes, I think that was me. Great to see the acceleration in optimization. We wanted to ask, among the larger customers that you have, you've done a great job with contextual penetration there. But wondering if you could talk about continued runway for optimization growth with those customers? Can they light up contextual more geos from more campaigns? And then wondering if you could talk about attention as well. Does that potentially drive a wave of adoption and growth similar to what you've seen with context control? How are you thinking about that?

Lisa Utzschneider

Sure. I'm happy to take both, Fitz. As I mentioned previously, we're -- a few things. We're pleased with the double-digit growth that we're seeing in context control for this quarter. And it's reflected both with the acceleration that we're seeing with mid-tier and then also it's driven by contribution that we're seeing from some of the large CPG logos that we signed several quarters ago. Mid-tier is an area that I know we've talked about last quarter, but we're very, very focused on driving the acceleration of the mid-tier channel. And again, we are seeing great growth quarter-over-quarter, more than doubling, and we'll continue to invest and innovate in automation, in simplifying our product offerings, and in particular, simplifying our optimization products for our mid-tier channels. That's where we're at with mid-tier. And then great question on attention. As we're seeing in the landscape with attention, brands are increasingly seeing attention as a key component of their media quality strategy. We were pleased to launch our quality attention post-bid beta in third quarter. It has generated a high level of interest from advertisers. We're now on track to launch the second phase of the measurement beta in fourth quarter. It includes Lumen. You might remember the partnership that we announced, Fitz, with Lumen that has an industry-leading eye-tracking technology. And a few things to call out since our attention beta launch. We've already measured over 1 billion impressions using multivariable ML models which identify which signals are more relevant to optimize the insights being delivered. It's incredibly cool technology. And then the other thing that we're seeing that's very encouraging, in our early beta analysis, we found higher attention can lead to nearly 3x lift in conversion rates. Again, feeling really good about the rollout of the beta, looking forward to the second phase of the beta with Lumen's differentiated eye-tracking technology, and the advertisers are completely leaning into the solution.

Operator

Our next question comes from the line of Jason Helfstein of Oppenheimer.

Jason Stuart Helfstein

Two questions. Lisa, is Reels and Feed with respect to kind of Facebook/Instagram, are they going along the same timeline? Or is it kind of different and product specific? And then second, thoughts around the opportunities around performance advertising. Is that something that you're thinking about in the pipeline? Do you organically go there? Do you use M&A to get there? Thanks.

Lisa Utzschneider

Yes, sure, happy to take both, Jason. With Reels, with Meta Reels as I mentioned earlier, we launched viewability invalid traffic in Meta Reels, and in Shorts in Q2. Both are a nice driver of our accelerated measurement growth in third quarter. In terms of the upcoming beta in fourth quarter with Meta and the live feed, that does include Facebook, Instagram and Meta Reels. That will all be part of the beta in fourth quarter, and so same timeline with GA scheduled for early 2024. In terms of performance advertising, with performance advertising, the way we look at that, it's a couple of things. The first is, historically, the mid-tier channel, and we define mid-tier as a channel of advertisers spending between $200,000 and $1 million with IAS, many of them are performance advertisers. And I think that's a big reason why they're leaning into our context control solution. But also, the other thing that we're focused on is our total visibility product and enhancing that product within our overall optimization offering. And you might remember, total visibility provides transparency with supply path optimization. It helps provide additional insights across outcomes, cost targeting tactics. That's an area where we are investing more resources, more time and energy. And in 2024, I think in terms of performance advertisers, they'll see, and all advertisers, will see an enhanced total capability offering.

Operator

Our next question comes from the line of Mark Mahaney of Evercore.

Mark Stephen F. Mahaney

This is Ian on for Mark. Congrats on the good quarter. Two questions, if I may. First, it'd be great to kind of walk or go back to the macro. Are you seeing any signs of brand advertisers pausing in Q4 related to the geopolitical risks in the Middle East? And maybe secondly, can you remind us of maybe the trends that happened for advertisers in 2020 related to the Ukraine war? And maybe has there been increased need or conversations around your guys' brand safety, brand suitability products? And second question on operating expenses for the fourth quarter, do you guys expect to see any leverage? Or if there was, where would we expect to see that? Thanks.

Lisa Utzschneider

Okay. Thanks, Ian. I'll take the first 2 questions, and then Tania can take the third question. Firstly, regarding the crisis in the Middle East, our hearts go out to all of those who are impacted by the war. We'll continue to ensure our products provide value to our global customer base during this difficult time. In the Ukrainian conflict that occurred a few years ago, we did see advertisers engage in our context control offering. And I don't want to correlate the 2, but we did see more and more advertisers leaning into our sophisticated context control so that their brands ran adjacent to appropriate content. Tania, do you want to take a --

Tania R. Secor

Yes, on the third, on your last question, we do expect operating leverage in the fourth quarter. The midpoint of our guidance has EBITDA, adjusted EBITDA at 35%. We've improved our EBITDA margin every quarter this quarter and pleased to be raising both our revenue and EBITDA guide, and that 35% in the fourth quarter would be higher than 34% in the fourth quarter of 2022.

Operator

Our next question comes from the line of Youssef Squali of Truist.

Youssef Houssaini Squali

Thank you very much. A couple for me as well. Starting maybe with the optimization, Tania, I think last quarter you said something to the extent that growth there was going to be similar to the growth in Q2, which was more like 9%, 10%. You ended up obviously doing more than double that. Can you maybe speak to the linearity of demand for optimization throughout the quarter? And where you guys were off, which things surprised you the most I guess in a good way? And then second, on the Q4 guide, I think you just said earlier that there are 2 areas that account for maybe the slower growth expected in Q4. One was T&E and the other was the context control, which grew double digits, which you think should moderate in terms of growth. Maybe you can just explain why we should expect both of these to decelerate sequentially. Thank you.

Tania R. Secor

Sure. We were really pleased to see the acceleration of growth and optimization in the third quarter. And we, after the second quarter earnings call, we talked about optimization growth with possible upside, but the beat was stronger than we had expected on the optimization front. There were several factors driving that. One was just overall across the T&E sector, we saw a stronger spend from particularly media brands and entertainment clients who really spent more in terms of volumes, particularly around promotional campaigns, and we expect that to moderate in the fourth quarter. But we also, as we talked about earlier, we're really pleased to see that some of the investments we made around mid-tier clients on the context control front did have an impact on our third quarter performance. We were pleased to see that. In terms of linearity, the digital media programmatic spend tends to be more variable than other forms of digital media, and we were just pleased to see the benefits from that in the third quarter.

Youssef Houssaini Squali

And on the second question?

Tania R. Secor

Was your second question about overall?

Youssef Houssaini Squali

Yes, just the reasons for the slowdown, sequential slowdown you're expecting across both.

Tania R. Secor

You mean in the fourth quarter?

Youssef Houssaini Squali

Yes.

Tania R. Secor

Yes. Like I said, we were really pleased to be able to raise our guidance in the fourth quarter. On the measurement front, we are -- we expect that social and the strong numbers that we've reported on social will continue to drive double-digit growth in measurement. We're also expecting double-digit growth in optimization, but just wanted to call out the 2 areas we expect moderation, which is the T&E industry moderating because we saw such strong growth in the third quarter and context control growth.

Operator

Our next question comes from the line of Justin Patterson of KeyBanc.

Justin Tyler Patterson

Great. Thanks very much. Two, if I can. First, I just wanted to go back to kind of the demand environment for brand safety products. I realize that you can't completely correlate it with geopolitical risk. But if I step back, it does seem like there's a lot more scrutiny on user-generated content. You certainly have a lot more channel exposure there across short-form video these days. Curious just how you're thinking about the demand for products like context control and the rest as we had through Q4 and into 2024, which will also likely have a pretty heated political cycle. And then also stepping back, you now have several large marketplace clients in there like Uber and Instacart. Curious just what your initial learnings are, at least more so on the Uber side in there, and how you think that can be more of a contributor over the next few years. Thank you.

Lisa Utzschneider

Okay. Justin, happy to take both. The first is around the increasing demand that we're seeing from advertisers for our brand safety and suitability solutions. And a big reason why we're seeing this uptick in demand, and we're seeing the increase in our measurement revenue in third quarter, is because brands want to be where the users are. And the users are spending more and more time of their time in social platforms. Even when you think about the 2 major platforms and their earnings from last week, Meta. Meta Reels, Meta on their earnings call cited that Reels has driven more than 40% increase in time spent on Instagram since launch. And Google, their YouTube Shorts now average over 70 billion daily views and are watched by over 2 billion signed in users every month. And exactly to your point, Justin, that these social platforms, it's user-generated content, highly dynamic, highly unpredictable. Brands, they want to connect with consumers while they're on the social platforms. They just want to rest assured that their brands run adjacent to brand safe and brand suitable content. And our AI-backed TMQ products, the brands, they're leaning in, and that's why we're seeing such strong both impression growth and adoption of the product, which is great to see. And then in terms of your second question was related to Retail Media Networks, is that right?

Justin Tyler Patterson

Yes, that's right.

Lisa Utzschneider

And the Ubers of the world, yes. With Retail Media, that's another marketplace that's just growing and accelerated growth. And when we take a look at retail media networks, we're also seeing significant growth in that channel. Year-to-date, our revenue from retail media networks, it's grown nearly 150%, and we were thrilled. I know last quarter we announced our partnership with Uber. This quarter, we launched a partnership with Instacart, where we're bringing a new level of transparency to Instacart Ads and offering viewability and invalid traffic. And then the other partner I should call out is Criteo. We announced in third quarter our first-to-market partnership with Criteo's Commerce Media Platform where we are on Criteo enabling brands and agencies to measure viewability and invalid traffic on retailers' sites across Criteo's network of 210 retail partners. We'll continue to invest in the retail media space. We're thrilled with the partnerships that we've launched, and also, the partnerships that we're strengthening. And again, it's been a tailwind for our business.

Operator

Our next question comes from the line of Jason Kreyer of Craig-Hallum.

Cal Bartyzal

Thank you. This is Cal Bartyzal on for Jason. First one from me, it sounds like you guys are having a lot of success in your go-to-market strategy. I know that was a big point of emphasis at the Investor Day. Just curious, anything you would highlight there? Maybe any efficiencies you've seen as AI becomes a broader part of your strategy and go-to-market priorities as we go towards 2024?

Lisa Utzschneider

Yes. Great question. Thanks, Cal. With the go-to-market strategy in AI, I mean AI and ML is core to everything that we do at IAS. It fuels our differentiated technology. One new example I can share is related to our TMQ product, and especially with this accelerated option that we're seeing across the social platforms with TMQ. This is hot off the press scale, but we currently classify 40 years of video content across all the media platforms, social media platforms every day. IAS, we evaluate every pixel and every second for true in-content classification in more than 90 languages across all the major social platforms. And again, this is because of our highly sophisticated TMQ product backed by ML, AI, and we're very proud of the products' capability. It's getting smarter over time and the rapid adoption rate that we're seeing, and we're really looking forward in particular to launching our beta with Meta later in the fourth quarter with TMQ.

Cal Bartyzal

Awesome, thank you. Just last one for me real quick, just want to circle back to some of the stuff with the TV OEMs. Pleased to see the Samsung expansion and now you guys are integrating with Vizio. Maybe as you guys kind of build out these OEM relationships, I mean how much do you see this public differentiator growing and being able to be applied to generate wins across other segments of the business? Thank you.

Lisa Utzschneider

Yes, great question. When we take a look at CTV, there's a lot of runway. With CTV, it's cited as a $25 billion market in 2023. We've consistently said that CTV is a long game and we are building a robust pipeline with the OEM providers. This quarter we announced our partnership with Vizio as well as last quarter announcing that we renewed our exclusive partnership with Samsung. And these larger OEM deals, they typically do have a larger, a longer sales cycle. But our team, they're heads-down focused on closing these deals, integrating the deals, and continuing to launch innovative products. The way to think about it is big $25 billion marketplace, but long runway, longer sales cycle, especially with the OEMs. But lots of upside.

Operator

Our next question comes from the line of Matt Farrell of Piper Stanley.

Matthew F. Farrell

Congrats on the strong results and thanks for taking my questions. For the first one, I know you're not going to provide any quantitative commentary on 2024 today, but any way you could help us think about the qualitative, the major puts and takes for next year as you're kind of going through your operational planning right now?

Tania R. Secor

Sure. We continue to expect and plan for double-digit growth in 2024. It's still early days, and we're deep in our budgeting and planning process. We'll provide our 2024 outlook when we report on our fourth quarter results.

Matthew F. Farrell

Thanks. And maybe just a follow-up. You all are on pace to drive some really solid EBITDA margin expansion here in 2023, even as you've made some investments in AI. How should we be thinking about the cadence of margin expansion moving forward? And what are the primary drivers kind of as we think over the next couple of years? Thanks.

Tania R. Secor

I would have similar comments in terms of our EBITDA margin as we look out in 2024. Our focus remains on balancing growth and profitability. In 2023, we demonstrated our ability to expand EBITDA margins by driving efficiencies and productivities. And we're deep in our planning for next year, and we'll provide a further update in the fourth quarter.

Operator

Our next question comes from the line of Mark Zgutowicz of The Benchmark Company.

Mark John Zgutowicz

Thank you. I was just hoping to get maybe some cadence on measurement next year. And I know you're not wanting to quantify anything, but just at a very high level, if you think about all the deals that you've signed both last quarter and this quarter, is there any reason to expect any of those deals to contribute to the first half of the year? Or is that all sort of more backend weighted or into further quarters out?

Lisa Utzschneider

Sure, I'm happy to take that, Mark. The way we think about and size the social platform opportunities, large building blocks, medium building blocks. Large building blocks include Meta, YouTube, TikTok, to a lesser extent X. Medium building blocks are tuck-in Meta Reels and YouTube Shorts. And when you take a look at where we are in the product lifestyle and product adoption, YouTube TMQ launched in June, up and running, product adoption in place in over 30 languages. TikTok, as I mentioned before, humming, 50 markets, over 90 languages. Meta, we're pacing towards the fourth quarter beta with Meta. And then Meta Reels and YouTube seeing nice adoption of our viewability invalid traffic and Meta Reels will also be part of the fourth quarter. Several of these social platforms are already generating significant revenue for IAS and it's early days. We're just going to continue to focus on investing in the innovation, driving the product adoption, land and expand into new markets, and have a strong start to 2024 with our social platform offerings.

Mark John Zgutowicz

Thanks, Lisa, that's helpful. And I just have one last quick one for Tania. You had commented that mid-tier was -- I'm trying to remember what you exactly said, I think meaningful contributor to optimization in the third quarter. I was just wondering if you could further quantify that and sort of what the pace of that penetration might look like over the next 12 months?

Lisa Utzschneider

Sure. Yes, we were really pleased to see the growth, particularly in optimization from the investments we've made in mid-tier clients. In fact, the growth rate for our mid-tier revenue in optimization in the third quarter doubled from the second quarter, so a big contributor to our overperformance in the third quarter.

Mark John Zgutowicz

Okay. In terms of revenue contribution, is there any color you can provide there?

Lisa Utzschneider

Yes. I mean we've been making investments in mid-tier around product integration, hiring programmatic specialists. We do expect those investments to continue to pay off, and we were pleased to see the ramp so quickly in the third quarter.

Operator

Our next question comes from the line of Tim Nollen of Macquarie.

Timothy Wilson Nollen

Thanks for taking the question. I know we've had a number of questions on the social media roll on, and I've got a 2-part related question to that as well. I noticed that your CPMs you say were flat in the 9 months and the 3 months. I wonder if the social media CPMs, if you could talk about what the pricing might be like on those. If you might get better CPMs out of those over time? And then relatedly, it sounds like these social media roll-ons are all well underway or at least there's a lot even more to come next year. I would assume that costs are largely done, or let us know maybe if there are any incremental costs you'll have to incur there. And if not, can this be a nice driver of profitability upside from here and a more sustainable operating income higher levels? Thanks.

Lisa Utzschneider

Yes, correct. In both the year-to-date period and the third quarter, we were really pleased to see an acceleration of volumes in measurement overall, which accelerated to 25% volume growth, up from 17%. And we were able to do that while also having at our average CPMs for the quarter consistent with the prior year period. Pleased to see that. In social in particular, it's a higher mix of video and video is a premium to our display ads, so that was a tailwind for CPMs. The other thing is we're really pleased to see expansion internationally in markets like Europe and APAC in the quarter with strong growth there and our CPMs are slightly lower in those markets. That was an offset to the favorable mix on CPMs.

Timothy Wilson Nollen

That's good color. Can you talk about the profitability upside potential please?

Lisa Utzschneider

Yes. The beauty of our TMQ technology that's running in the live feeds of the social platforms now is that the product is backed by AI/ML. It gets smarter over time. And we don't see significant increase in cost as the product scales over time. If the technology gets smarter, it gets more efficient and it operates at scale.

Timothy Wilson Nollen

Right. I know you're not talking '24 guidance by any means, but the implication might be if CPMs can rise on social and more social rolls on and there's no incremental cost, we could be getting optimistic about better profitability going forward?

Tania R. Secor

I would temper that. We have executed on a consistent track record and driven profitable growth consistently throughout 2023 quarter-by-quarter with our margin improvement. We have a large TAM ahead of us. We've taken a balanced approach to driving revenue growth and profitability, and we'll continue to maintain that balance. Because I think it's important as we're driving these efficiencies and productivity that we're also investing in the growth of the business.

Operator

I'm showing no further questions at this time. I'd like to turn the call back over to Lisa Utzschneider, CEO, for any closing remarks.

Lisa Utzschneider

Thanks, everyone, for joining today's call. We are coming off a strong third quarter with double-digit growth in measurement and optimization, and we are excited to execute on our strategy in the fourth quarter. We will continue to innovate with the most advanced AI technology to ensure marketers maximize their spend and protect their brand equity. We look forward to meeting with you at several upcoming investor events and to updating you on our progress in the new year.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. You all may disconnect. Have a great day.

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