Viant Technology Inc. (NASDAQ:DSP) Q4 2023 Earnings Call Transcript
Viant Technology Inc. (NASDAQ:DSP) Q4 2023 Earnings Call Transcript March 4, 2024
Viant Technology Inc. misses on earnings expectations. Reported EPS is $0.04 EPS, expectations were $0.11. Viant Technology Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Okay. Hello, everyone, and welcome to Viant's Fourth Quarter 2023 Earnings Conference Call. My name is David and I will be your operator today. Before I hand the call over to the Viant leadership team, I'd like to go over a few housekeeping notes for the program. As a reminder, this webinar is being recorded. After the speakers' remarks, there will be a Q&A session. [Operator Instructions] And with that out of the way, I would now like to turn the call over to Nicole Kunzman with The Blueshirt Group.
Nicole Kunzman: Thank you, David. Good afternoon and welcome to Viant Technology's fourth quarter 2023 earnings conference call. On the call today are Tim Vanderhook, Co-Founder and Chief Executive Officer; Chris Vanderhook, Co-Founder and Chief Operating Officer; and Larry Madden, Chief Financial Officer. I'd like to remind you that we'll make forward-looking statements on our call today, including, but not limited to, our guidance for Q1 2024 and our platform development initiatives that are based on assumptions and subject to future events, risks, and uncertainties that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of today and we undertake no obligation to update or revise these statements, except as required by law.
For more information about factors that may cause actual results to differ materially from forward-looking statements in our entire safe harbor statement, please refer to the news release issued today, as well as the risks and uncertainties described in our annual report on Form 10-K for the year ended December 31st, 2023, under the heading risk factors and other filings with the SEC. During today's call, we will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release issued today, which has been posted on the Investor Relations page of the company's website and in our filings with the SEC.
I would now like to turn the call over to Tim Vanderhook, Chief Executive Officer of Viant. Tim?
Tim Vanderhook: Thanks Nicole and thanks everyone for joining us today. I'm extremely pleased with our results in the fourth quarter, which reflect the accelerating momentum we are seeing across our business. Revenue in the fourth quarter grew 18% year-over-year, while contribution ex-TAC grew 28%, resulting in an almost 400% increase in adjusted EBITDA for the quarter. Our growth in contribution ex-TAC was the highest we've had since the post-COVID recovery spike in 2021. This was driven by a record quarter for total ad spend on our platform, as we continue to grow our market share and capture more of our customers' ad budgets. I'm pleased with our team's commitment to execution, as we closed out a strong year of growth and innovation for Viant.
The success we are having today is a result of the strategic role we play in the programmatic ad ecosystem, as an independent buy-side platform, coupled with our ability to capitalize on this position with our strong product market fit. Viant is one of only four enterprise-grade self-service demand-side platforms in the market and one of only two platforms that are buy-side only, meaning that we are completely independent from representing any publisher inventory. We believe marketers are becoming more acutely aware that they need an omnichannel platform that doesn't also service publishers to achieve their desired campaign outcomes. Viant fits squarely with what advertisers today are looking for, particularly with mid-market businesses that require a more data-driven platform that can achieve better outcomes, along with a higher level of support compared to one-size-fits-all platforms that cater to large multinational brands.
We continue to see increasing traction with larger mid-market customers as we become their go-to platform. One of the notable highlights from the fourth quarter was our strong double-digit growth in Connected TV, representing almost 40% of total spend on our platform, our largest channel in the quarter. Our success with CTV is being driven in part by our Household ID technology that allows advertisers to achieve targeting and attribution in cookie-free environments, which is particularly critical for Connected TV. We have achieved meaningful scale with customers using our Household ID. Approximately 90% of the CTV ad spend through our platform utilizes our Household ID. We think this is indicative of the penetration we could see across all channels once cookies have been phased out.
We have invested more than 10 years of R&D and customer education on our Household ID technology on the premise that cookie-based advertising would one day be obsolete across all channels and this vision is becoming much closer to a reality today. Perhaps what's most important is that we're really seeing this mindset shift with advertisers. They are looking for alternative solutions that support cookie-less advertising and measurement, as they realize measurement and reporting that is relying on cookies won't work anymore. We have done extensive education and A/B testing with customers, who have seen for themselves that they can achieve greater campaign results with Household ID compared to the cookie. Household ID has lower instances of fraud, higher accuracy of addressability, and far superior measurement capabilities, as it measures both e-commerce and in-store sales activity, resulting from ad campaigns.
The strength and scale of our Household ID is a core driver of our recent results and is responsible for one of the strongest new customer pipelines in our company's history. Another reason we are seeing strong momentum in CTV is the ongoing expansion of our direct access offering. In today's programmatic ad landscape, there are multiple players on each side of the ecosystem that are charging for services and driving the cost of ad impressions higher. With Direct Access, we are partnering with many of the largest CTV content owners in the industry to bring this inventory directly to our customers. Advertisers see a lower cost of media with a higher win rate in ad auctions, as well as fewer instances of fraud, all contributing to better return on ad spend and better campaign performance.
And Direct Access isn't just about delivering better pricing to our customers, it's also about enabling our customers to match their first-party data with the largest content owners in the world, essentially enabling walled garden level addressability on the world's most premium content. We think this creates a massive amount of value for our customers and they are seeing that they can deliver on their campaign KPIs through CTV Direct Access better than they would be able to on social or search. This traction is clearly materializing in our results, as over 40% of our CTV spend in the quarter was through our Direct Access program, up from over 25% in Q3. We are continuing to extend the capabilities of our platform across all channels by expanding on our AI product suite, which Chris will dive into further in a minute.
These new features will help customers save money, drive a higher return on ad spend and enable them to be more efficient with their advertising dollars, which we believe will drive further consolidation of their ad budgets on our platform. We see a significant opportunity to scale our business by leveraging AI and machine learning technology to build the features and automation that best serve the needs of mid-market customers. The investments we're making in our platform and innovation have been recognized by industry leaders and we are pleased that our AI product suite won the 2024 Innovation Award from Business Intelligence Group. This recognition further validates that we are making notable strides towards our vision of autonomous advertising.
A final topic I want to touch on is our focus on sustainability and our goal to decarbonize digital advertising. For our company, I am proud to announce that Viant has achieved carbon-neutral status in 2023, as indicated in our first sustainability report we published last week. I am incredibly proud of the team that worked on this company-wide goal and it now enables us to turn our efforts to delivering a completely carbon-free supply chain for our customers. We also launched our Adtricity program last year, which helps our advertising customers quantify the carbon footprint of their ad campaigns and is designed to enable them to curb their own emissions stemming from their digital ad spend to meet their corporate sustainability goals. We continue to believe that advertisers will choose to spend their ad dollars through a platform that enables them to not just drive efficient ad pricing, but also do so with no emissions.
Viant delivers on both of those tenants, and we believe we have a substantial lead over our competitors when it comes to providing marketers with a sustainable supply chain. With that, I'll turn it over to Chris to cover some of our recent product updates.
Chris Vanderhook: Thanks Tim. I'd like to take a few minutes today discussing our top priorities for 2024 that frame our strategy for growing our market share in the quarters and years ahead. The first priority is continuing to integrate more AI and machine learning into our platform to deliver a better experience for our customers. We had a strong year of incorporating premium AI products into our platform in 2023 that have been delivering on customer happiness, as they continue to see better results and a more efficient user experience. This point can't be overstated, as customers of DSPs look for platforms that are easy to use, hit their KPIs, and are supported by someone that only serves their interest. On that note, in 2023, we rolled out two key initiatives that further leverage the power of AI to make our platform better and easier to use for customers.
The first is our AI Bid Optimizer offering, and the second is our Viant Data platform. I'd like to elaborate further on both, specifically how we're leveraging AI and machine learning to make improvements to our customers' experience by getting them more return on their ad dollars. At the same time, these products are priced to help drive our revenue, while saving money for our customers. We launched our AI powered Bid Optimizer in Q2 of 2023 and we've seen strong adoption from our customer base. We've seen incredible adoption with this product because it has helped our customers achieve 35% average savings from a CPM standpoint. Bid Optimizer leverages AI to find the best pricing on publisher ad inventory, while also driving higher win rates for customers and ad options.
We believe that passing this efficiency and cost savings along to our customer, all -- not only increases their return on ad spend, but also increases their spend on our platform to reach a wider audience. At the same time, we see a significant revenue opportunity for us from our AI Bid Optimizer product, as we take a small percentage of the savings that's generated, while the rest is passed along to our customers. We're excited by the customer response we've received for AI Bid Optimizer. So, much so that we've been hard at work developing the second generation of this product that we plan to launch later this summer. We expect it will generate even higher savings compared to our current offering, which is going to deliver even bigger wins for our customers.
Our second AI-enhanced product is related to the Viant Data platform. Our Data platform activates first-party data from customers, leveraging personal identifiers such as home address, name, e-mail, and phone numbers, and it doesn't rely on cookies. We've seen good early customer adoption of the Viant Data platform, as seven out of our top 10 customers were using it in 2023, and there's certainly a virtuous cycle with the Viant Data platform. These large customers have spent more with us because they have achieved outsized campaign performance. Why is this? It's because the Viant Data platform creates connectivity of customer first-party data that often sits dormant in a clean room and directly activates that data in the Viant DSP. Many advertisers have selected to house their data in clean rooms, but few have any idea how to make that data actionable across their advertising campaigns.
The Viant Data platform gives advertisers the ability to frictionlessly match first-party data in their clean room to the platform, build custom AI targeting models, and measure their sales activity resulting from the ad impressions delivered in the DSP. The most measurable platforms will be the big winners, but you can't measure unless you have access to the sales data. And with cookies disappearing, advertisers are seeking a platform that can make their first-party data interoperable for targeting and measurement use cases across their programmatic campaigns. This is why we are so excited about the opportunity for the Viant Data platform. At our Innovation Day back in October, we announced that we plan to introduce N number of new AI products, most notably Chat with Data within the Viant Data platform.
Previously, users needed to have some knowledge of advanced programming languages to use the software. But now with the use of generative AI and a natural language user interface, we're enabling non-programming business users with no coding experience, we're giving them access to the data and services that the Viant Data platform provides. We believe this will help meaningfully drive adoption across our customer base and with the rollout of these new features, we're optimistic that we should be able to see adoption rates similar to what we've seen with AI Bid Optimizer in recent quarters. In addition, we see the Viant Data platform, as a meaningful revenue-generating opportunity for us, as we deliver a superior product that enhances our customers' experience with programmatic advertising.
We look forward to the official launch of Chat with Data later this year. And finally, I want to reiterate our position as a buy-side only demand-side platform that -- and how it's so increasingly important for advertisers. Our ability to deliver products such as Direct Access and AI Bid Optimizer are really only possible because of our dedication and commitment to our advertiser customers, ensuring they receive the best possible pricing on ad inventory, while driving the return on ad spend higher. Our customers are in turn able to get transparent data to see, which publishers are helping them achieve their campaign and audience goals. And they can independently choose whether or not they want to continue working with specific publishers, depending on the results they are seeing.
It's not up to Viant to direct our customers to work with certain publishers. We're proud to be able to give our customers choice without having any competing incentive to drive them one way or another. As Tim mentioned, there are very few independent buy-side platforms in the ecosystem and we're continuing to build on our capabilities to deliver the best experience for our advertising customers. We're really excited about the new product features we have on the horizon and we look forward to providing updates in the near-term, as new offerings become available. With that, I'll turn it over to Larry to provide more detail on our financial performance. Larry?
Larry Madden: Thank you, Chris. Before I begin, I'd like to remind everyone that we have posted a presentation to our Investor Relations' website that includes supplemental financial information to accompany today's call. As Tim discussed, we had a strong fourth quarter, which capped a year of accelerating growth for Viant. I'll provide a high-level update on the full year before getting into the detailed fourth quarter results. For the full year 2023, revenue totaled $222.9 million, an increase of 13% over 2022. Contribution ex-TAC was up 15% over last year, totaling $143.4 million. Non-GAAP operating expenses totaled $114.3 million in 2023, a decrease of over 13% over 2022. And adjusted EBITDA totaled $29.1 million in 2023, up over $35 million on a year-over-year basis.
Our strong results this year were a function of both our ability to deliver a comprehensive platform, perfectly tailored to meet the needs of advertisers in this ever-changing landscape, as well as a stable macro environment. As the year unfolded, we saw a consistent acceleration in growth rates, as we continue to execute and gain market share. Notably, our year-over-year contribution ex-TAC growth rates showed remarkable progress quarter-by-quarter in 2023, starting at 2% growth in Q1 and 6% growth in Q2 and increasing to an impressive 22% growth in Q3 and 28% growth in Q4. In 2023, we remain focused on providing the performance and support that our mid-market clients require and they responded by scaling their advertising budgets on our platform.
Our ability to deliver high-performing campaigns, while enabling best-in-class attribution and reporting is particularly vital in an environment, where advertising budgets are under increased scrutiny. Specifically in the mid-market, where ad dollars must work harder, our platform's ability to track return on ad spend in real-time allows for continual campaign adjustments, so that our customers' objectives are not only met, but surpassed. Also central to our success in 2023 was our team's focus on innovation, as exemplified by the introduction of exciting cutting-edge products and features during the year, such as AI Bid Optimizer, Direct Access, and the Viant Data platform. These advancements are driving exceptional performance for our customers and meaningful incremental revenue and contribution ex-TAC for Viant.
Last year at this time, we committed to three key financial goals for 2023, and I am pleased to report that we've delivered on all three of them. The first was to return to 20%-plus top line growth, which we accomplished in the second half of 2023. And per our Q1 2024 guide, which I will speak to in a moment, we expect that trend to continue, setting a promising tone for the year ahead. Secondly, we pledged to drive operational efficiencies throughout the organization, in part by leveraging the power of AI. As a result, we were able to lower our non-GAAP operating expenses by 13% in 2023, while also growing top line results. And lastly, we committed to significantly increasing adjusted EBITDA and in 2023, we achieved a $35.2 million year-over-year improvement in adjusted EBITDA, along with 20% adjusted EBITDA margins.
I'll now move on to our results for the fourth quarter. Revenue for the quarter was $64.4 million, an increase of 18% versus the prior year period. Contribution ex-TAC for the quarter was $42.6 million, an increase of 28% versus the prior year period. Our growth continues to be driven by the strong results across our percentage of spend offering, which represents the large majority of spend across our platform. Throughout 2023, we continue to make significant progress across the side of the business, growing both our existing customers and adding new scalable customers to the platform. As Tim mentioned, we are in a unique position of being one of only two scaled, self-service platforms in the market exclusively serving the buy side. This, coupled with our focus on the mid-market is driving new customers to the platform, while at the same time, existing customers were scaling.
Notably, for the year, the number of percentage spend customers generating at least $500,000 of contribution ex-TAC increased by over 30% on a year-over-year basis. Furthermore, this growth trend is even more compelling when viewed over the last few years. Since 2020, the number of percentage spend customers generating at least $500,000 of contribution ex-TAC has increased at an impressive average annual rate of over 40%. Looking ahead, we remain confident that these trends will continue, as existing customers continue to scale and new larger mid-market customers are added. In terms of customer verticals, we continue to see strong momentum across our retail and consumer goods verticals, as well as our healthcare and travel customer verticals.
One other customer vertical that we haven't talked about before that is doing particularly well is what we call our public services vertical, which includes governmental agencies, municipalities and other public sector entities such as universities. In terms of formats, video, which includes both mobile video and CTV, continues to perform extremely well. In the quarter, video represented nearly 60% of spend on our platform, as cookie-based display ads continue to fall out of favor with advertisers. As a result of the impending cookie deprecation, video and specifically CTV, are becoming a dominant preferred channels for advertisers. From a channel perspective, we had another very strong quarter in CTV with solid double-digit growth ahead of the market.
We continue to benefit from the traction we are having with customers adopting our Household ID across this cookie-less channel, as well as from the efficiency and performance our Direct Access offering is providing advertisers. CTV was our largest channel in Q4, representing nearly 40% of total ad spend on our platform and it remains one of our fastest-growing channels. Another strong channel for us was streaming audio, which had extremely high growth in the quarter and represented nearly 10% of overall spend. As we've discussed on prior calls, at the beginning of 2023, we made a strategic decision to prioritize customers with significant long-term value over smaller, lower-spending customers. Consequently, our overall customer count decreased in 2023.
The financial impact from a lower customer count has been nominal in 2023, as those customers historically represented a very small percent of total spend on the platform. That being said, as we sharpened our focus on higher-value customers within the mid-market customer segment, we had a record number of large customers on the platform. In 2023, the number of customers generating in excess of $1 million of contribution ex-TAC increased over 20% from the prior year period. In addition, contribution ex-TAC across our 100 largest customers grew by over 20% year-over-year. In line with our commitment to nurturing and expanding our relationship with larger customers, while rapidly scaling with new ones, we've decided to streamline our metrics concerning customers.
Historically, we've provided a customer count inclusive of all customers generating over $5,000 of contribution ex-TAC on a TTM basis. This metric included many smaller legacy customers that did not have the capacity to scale. Consequently, we believe that metric doesn't accurately portray the health of our business and we no longer intend to report on it. Moving forward, we will focus on providing insights relative to performance across our larger customers, which we believe to be a much more dependable gauge of success. Turning now to operating expenses for the quarter. Our non-GAAP operating expenses totaled $29.6 million, down 4% year-over-year. We continued to increase efficiencies internally to temper growth in operating expenses. That being said, we remain focused on making thoughtful investments in our business, specifically around our product and engineering teams and our sales team to best position ourselves for long-term market share gains.
For the year, we increased headcount by 8%, ending the year with a total of 333 heads. For the fourth quarter, we generated EBITDA of $13 million above the high end of our guidance and representing an increase of $10.4 million or nearly 400% from the prior year period. Adjusted EBITDA margin, as a percentage of contribution ex-TAC was 31% for the quarter, an improvement of more than 22 percentage points from the prior year period. For the fourth quarter, non-GAAP net income, which excludes stock-based compensation and other items, totaled $10.8 million, which compares to de minimis non-GAAP net income in the prior year period. Non-GAAP earnings per Class A share totaled $0.14 in the fourth quarter, which compares to $0.00 in the prior year period.
In terms of share count, we ended the quarter with 62.8 million Class A and Class B common shares outstanding, and we also ended the quarter with $216.5 million of cash and cash equivalents, which translates to a noteworthy $3.45 per share outstanding. We had $231.6 million of positive working capital and no debt at quarter end and we continue to have access to a $75 million undrawn credit facility. In Q4, we also generated $23.2 million of cash flow from operations. This solid financial foundation positions us extremely well to fully capitalize on the substantial market opportunity ahead of us. Turning now to our outlook. We expect to continue taking share in the market with our differentiated people-based approach to programmatic advertising and remain encouraged by the spending patterns we are seeing.
We began 2024 with the largest number of scale customers in the company's history, along with many newer customers that are in the process of scaling. So, with that backdrop, for the first quarter of 2024, we expect revenue in the range of $49 million to $52 million, representing growth of 21% year-over-year at the midpoint. We expect contribution ex-TAC in the range of $33 million to $35 million or a growth of 21% year-over-year at the midpoint. Non-GAAP operating expenses are expected to be between $31 million and $32 million in Q1, representing a year-over-year increase of 11% at the midpoint and a quarter-over-quarter increase of 6% at the midpoint. And finally, we expect adjusted EBITDA to be in the range of $2 million to $3 million, which represents a year-over-year increase of $2.9 million at the midpoint.
I'd also like to take this opportunity to provide some modeling points for the full year 2024. For 2024, we expect stock-based compensation to total approximately $20 million. We expect depreciation and amortization to total approximately $18 million. And in terms of share count, we expect to end 2024 with approximately 65 million Class A and Class B common shares outstanding. In closing, despite some of the challenges posed by the ad budget landscape in 2023, we're pleased with our team's consistent execution throughout the year, resulting in double-digit top line growth and the profitability ahead of our expectations. Once again, we achieved the rule of 40 in Q4 by a significant margin with contribution ex-TAC growth of 28% and adjusted EBITDA margins of 31%, together totaling almost 60% in Q4.
Our relentless focus on expense management and the integration of AI to drive internal efficiencies has undoubtedly yielded positive results and we anticipate building on this momentum in the year ahead. Our commitment to delivering a best-in-class DSP for our customers remains unwavering, and we believe we hold a distinct advantage in the market with our Household ID technology, especially as the reality of cookie deprecation sets in. The introduction of new products, as Chris discussed, will also further expand our revenue opportunities and market position in the years ahead, reinforcing our confidence in continued market share gains going forward. We're excited about the opportunity to capitalize on these ever-evolving market dynamics and believe we're extremely well-positioned to continue driving growth and profitability in the year ahead.
And with that, I will hand it back to Tim for any final remarks.
Tim Vanderhook: Thanks Larry. In summary, we are really pleased with the progress we made in 2023, and we wouldn't be where we are without the hard work of our employees and the relationships we've built with our partners and customers. We have many irons in the fire, and we're excited about the opportunities ahead for Viant, as we roll out more offerings in our AI product suite and continue to capitalize on the mindset change of advertisers, amid the deprecation of cookies. We are confident in our ability to execute on our targets, as we did consistently in 2023, and we look forward to continuing our momentum in the year ahead. I'd like to hand it back to the operator to open the line for questions.
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