IAS Q3 2022 Prepared Remarks
Jonathan Schaffer, VP, IR
Thank you. Good afternoon, and welcome to the IAS 2022 Third Quarter Financial Results Conference
Call. I'm joined today by Lisa Utzschneider, CEO.
As announced this afternoon via press release, Tania Secor has been appointed as CFO, effective
December 5th. We look forward to Tania joining for our next earnings call. On today’s call, Lisa willaddress high-level financial results in her comments. In addition, we have posted Lisa’s prepared
remarks along with a more detailed financial review on our investor relations site:
investors.integralads.com. Anil Sukumaran, our Chief Accounting Officer, will also be available with Lisa
during the Q&A session on today’s call.
Please note that today's call and prepared remarks contain forward-looking statements. We refer you tothe company's filings with the SEC, which are posted on our investor relations site atinvestors.integralads.com/financial-information/sec-filings, for more details about important risks anduncertainties that could cause actual results to differ materially from our expectations.
We will also refer to non-GAAP measures. A reconciliation of non-GAAP measures to the most directlycomparable GAAP measures is contained in today's earnings release available on our investor relationssite at investors.integralads.com/financials. All financial comparisons, unless noted otherwise, are basedon 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, CEO
Thanks Jonathan, and welcome everyone to our 2022 third quarter earnings call.
As mentioned, we’ve posted a detailed financial review on our IR site, but let me start with a few
financial highlights.
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We reported a 28% increase in third quarter revenue year-over-year to $101.3 million dollars,
which compares favorably to our previously revised outlook of $99 to $101 million dollars.
International represented 31% of third quarter revenue, unchanged from the second quarter.
Gross profit margin was 81%.
Adjusted EBITDA increased 19% year-over-year to $30.1 million dollars at a 30% margin, as we
exceeded the Rule of 50.
We also reached net income profitability for the third consecutive quarter.

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As a result of our positive Q3 performance and current business trends, we are modestly
increasing our previously revised full-year revenue outlook. We are also raising the midpoint of
our revised full-year adjusted EBITDA range.

During the quarter, we delivered innovative and differentiated solutions to our customers that drove
upsell and cross-sell opportunities. The adoption of Context Control, which includes both avoidance andtargeting, is a great example of how we meet the evolving needs of our customers. Since launching
Context Control in 2020, the business has grown to represent 45% of programmatic revenue in Q3 andmore than $80 million dollars in revenue expected in full year 2022. The tremendous growth of Context
Control demonstrates our ability to develop and scale products that become meaningful revenue
contributors over time.
New Context Control avoidance wins include Toyota in the U.S. and American Express in Italy. We'recommitted to providing coverage of Context Control globally and have expanded to 45 languages. In
addition to further penetrating our top 100 customers, we see additional opportunities to grow the
avoidance business in the midmarket as well as internationally where adoption is increasing.
Context Control targeting represents a large addressable market. We’re activating, testing, and learningwith new customer wins in the U.S. and EMEA across industry verticals including travel andentertainment, finance, consumer packaged goods, and tech/telco.
In social media, which continues to represent a dynamic and growing opportunity for IAS, we are making
significant gains with our major platform partners.
IAS leads the market with the launch of a full end-to-end measurement suite in TikTok’s live feed,
including brand safety, brand suitability, viewability and invalid traffic, or IVT, detection. In October, welaunched a post-bid measurement brand safety and suitability solution in TikTok. We are leveraging our
100% machine-learning multimedia classification technology for video, image, audio, and text enhancedby our Context acquisition. We can analyze content with greater granularity at the video and framelevels in the live feed, offering both pre-campaign targeting and campaign measurement solutions.
With Twitter, we plan to roll out our beta for our post-bid brand safety solution in the coming weeks.
The recent Netflix announcement further validates IAS’s technology leadership in the important CTV
market. We were delighted to announce that Netflix has selected IAS as a transparency partner tosupport their much anticipated ad-supported plan starting in Q1 2023. Our initial focus will be on
viewability and IVT post-bid measurement.
We’ve established a leading market presence in CTV. Unlike linear TV’s “one-size-fits-all” approach toadvertising, CTV is an addressable and measurable medium, and we’re building confidence and trustwith marketers and publishers.
Our Publica business acquired last year is a leading solution to drive yield for streaming publishers. We
provide superior technology while maintaining independence from the media selling business. We arefocused on maximizing revenue for our publisher clients across device manufacturers, broadcasters, andmultichannel video programming distributors including Samsung, AMC, Fox, DirecTV, and Philo. We alsodeliver the best experience for the consumer by incorporating the video recognition technology
acquired through the Context acquisition. By utilizing Context before an ad runs along with our serverside ad insertion stitching capabilities in the live stream, Publica ensures that the viewer has a positive
experience without having to endure duplicative or repetitive ads, or in some cases offensive or
mistargeted ads.
For marketers, Publica provides insights into which ads have been delivered in what content and to what
audiences. We also enable buyers to easily activate campaigns programmatically across private
marketplaces connecting them directly to the highest quality CTV inventory.
We are focused on delivering CTV solutions to provide content-level transparency, fraud detection,
targeting of contextually relevant and suitable content, and ensuring that ads have been rendered whilea TV is on. According to a recent study by GroupM and iSpot, 17% of impressions delivered through CTV
streaming devices are delivered while TV screens are off. Our new OnScreen Completion Rate metricaddresses this issue and validates if a TV was off while a device continued to stream, if an ad was fully
rendered on screen, and if the ad played to completion.
Publica is on track to contribute approximately 8% of total revenue for the full year, or approximately$32 million dollars.
We are also extending our capabilities into the fast-growing audio and gaming markets where
advertisers are increasingly looking to our solutions.
In audio, we are partnering with Spotify to create the industry's first third-party brand safety andsuitability reporting tool. At Advertising Week in New York, David Byrne, the Director of Global
Advertising Brand Safety at Spotify, commented that “It’s great to have a partner like IAS, and together,
our responsibility is to make sure that advertisers feel safe, secure, and trust what we’re bringing tothem in the audio space.” In Q3, we announced the launch of a post-bid verification product for
audibility and IVT measurement. We’re actively working to expand these capabilities to additional audio
platforms.
In gaming, we’ve partnered with Israeli-based Anzu where we are in-market with viewability and IVT
measurement solutions. We’re looking to extend these capabilities beyond mobile in-app to othergaming environments including consoles, PCs, and desktops. We’re also testing with other platform
providers to expand our coverage within gaming.
We’re delighted to announce that Kimberly-Clark selected IAS as their global ad verification andproactive brand safety prevention solution in a multi-year agreement at the end of the third quarter.
This partnership with a major CPG company was secured after a head-to-head against other providers.
We were awarded the opportunity based on the value of our solutions, our high standard of service andglobal support, and our insights-as-a-service approach. I couldn’t be prouder of the team for this win.

We continue to strengthen our senior leadership team to help guide IAS in our next phase of growth. In
May, we appointed Yannis Dosios to the newly created position of Chief Commercial Officer responsible
for global sales and marketing. Under his leadership, Yannis is enhancing our go-to-market strategy
across functions to bring best-in-class enterprise level sales and activations to our customers globally.
International is a key differentiator for IAS as global marketers look to simplify and consolidate
verification under one provider.
In August, we welcomed Thomas Joseph, or TJ, as our Chief Technology Officer. TJ brings a high degreeof technical expertise and global enterprise experience with Microsoft. Most recently, he helped drive
the Pandora integration at SiriusXM. TJ is already making an impact, aligning the engineeringorganization to support our product roadmap and long-term growth strategy.
Today, we are excited to announce another key addition to the senior leadership team: Tania Secor will
be joining IAS as Chief Financial Officer. Based in New York, Tania is a highly accomplished finance leader
with 25 years of financial leadership experience and a proven track record of building teams and scalingorganizations for growth. Most recently, Tania was global CFO for R/GA and Reprise, Interpublic Group’s
digital innovation and digital media agencies, respectively. Her deep background in FP&A and capital
markets, along with her relevant industry experience, make Tania a great fit for IAS. We look forward to
Tania joining the team on December 5th and to introducing her to everyone.
Lastly, we’re excited to support marketers’ efforts to track and reduce their carbon footprint. We
recently announced a partnership with U.K.-based Good-Loop, a purpose-led advertising platform that's
moving the industry towards positive, climate-friendly advertising. We are working with Omnicom andSanofi Aventis on pilot testing in Q4 with broader availability in 2023.
In closing, 2022 is shaping up to be another year of expanding capabilities and delivering revenue
growth and profitability that exceed the Rule of 50. We continue to focus on driving efficiencies in ourbusiness and prudent expense management as reflected in our adjusted EBITDA outlook.
With the recent additions to our senior leadership team including today’s announced CFO appointment,
we are adapting and aligning our execution for the current environment. We are currently in the thick ofplanning for 2023, and we believe that we are setting the stage for long-term durable growth.
And with that, we are ready to take your questions. Operator?
Detailed Financial Commentary
IAS partners closely with our advertisers and publishers to build multi-year, minimum impressioncommitments, as well as blended cost per thousand impressions, or CPM, agreements independent of
the media rate. We command premium CPM rates for our solutions including: Context Control, video,social platforms, and CTV products.
Total revenue increased 28% year-over-year to $101.3 million dollars and compared favorably to ourprior guidance of $99 to $101 million dollars.

Programmatic revenue for the third quarter grew 40% year-over-year. Programmatic represented 55%
of total revenue from advertisers. Programmatic growth was attributable primarily to continued
adoption of Context Control, most notably our contextual avoidance solutions. IAS realized continued
penetration of Context Control among the top 100 accounts, growth in the domestic midmarket, andincreased adoption internationally. Context Control represented 45% of total Programmatic revenue inthe third quarter, up slightly from the second quarter.
Our Advertiser Direct revenue, which includes open web and social platforms, increased 13% year-overyear. We saw improved performance in the tech/telco, travel and entertainment, automotive, and CPG
verticals. We continue to see impression volumes shift from the open web to social platforms withincreased video adoption. Video commands a pricing premium and accounted for 47% of total
Advertiser Direct revenue in the quarter, relatively unchanged from the second quarter of 2022. Social
accounted for 44% of Advertiser Direct revenue in the period, up from 43% in the second quarter.
On a combined basis, total revenue from advertisers, including Advertiser Direct and Programmatic
revenue, represented 85% of third quarter revenue.
Supply side revenue from publishers increased to $15.3 million dollars, including revenue generated by
Publica which is tracking according to plan for the full year. Total supply side revenue represented 15%
of our third quarter revenue.
We continue to grow our leading global market presence. International revenue increased 10% in thequarter and represented 31% of total revenue in the third quarter, consistent with the 2022 second
quarter. Our current revenue mix between Americas and rest-of-world reflects results for Publica which
is primarily U.S. based. We continue to expand Publica’s reach internationally by leveraging our global
presence. Total revenue for the Americas was $69.8 million dollars, up 39%; EMEA was $23.1 million
dollars, up 14%, and APAC was $8.4 million dollars, essentially flat versus the prior year.
Gross profit margin was 81% compared to 82% in the prior year’s period, primarily reflecting increased
hosting fees and other costs as we scale the business.
Operating expenses excluding stock-based compensation grew 24% versus our top-line growth of 28%,
reflecting our efficient operating model. Total operating expenses for the third quarter of 2022 reflects
increased year-over-year sales and marketing costs as we returned to more normal business activity, thehiring of new employees in the period, as well as higher G&A expenses related to public company costs.
Stock-based compensation expense for the period was $14.2 million dollars, in line with our priorexpectation of $13.5 to $15 million dollars.
Moving on to profitability and performance metrics:●

Adjusted EBITDA for the third quarter, which excludes stock-based comp and other one-time
items, increased 19% year-over-year to $30.1 million dollars, at a 30% margin.

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As expected, foreign exchange, which is excluded from adjusted EBITDA, was a loss of $4.1
million in the quarter. We expect a negative impact from foreign exchange in the fourth quarter
based on our international presence.
We achieved net income for the quarter of $0.8 million dollars, or $0.00 cent per share. This
marks our third consecutive quarter of net income profitability. We believe adjusted EBITDA
remains the best measure of profitability for the company.
Our third quarter net revenue retention, or NRR, was 120%, reflecting continued growth inspend of our top customers.
Total advertising customers grew 5% year-over-year to 2,152 advertisers.
Our total number of large advertising customers with annual revenue over $200,000 dollars
increased to 184 compared to 183 last year and up from 173 in the 2022 second quarter.

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We ended the third quarter with cash and cash equivalents of $73.6 million dollars compared to $73.2
million dollars at December 31st, 2021. We generated $24.4 million dollars in cash from operations
during the quarter and repurchased 3,080,061 shares at a total cost of $23.7 million dollars in an open
market transaction.
We are modestly increasing our revised full-year outlook for revenue. In addition, we remain focused on
profitable growth, and we are raising the midpoint of our revised full-year adjusted EBITDA range.
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For the fourth quarter ending December 31, 2022, we expect total revenue in the range of $110
million to $112 million dollars.
Adjusted EBITDA for the fourth quarter is expected in the range of $35 million to $37 million
dollars.
For the full year 2022, we expect total revenue in the range of $401 million to $403 million
dollars.
Adjusted EBITDA for 2022 is expected in the range of $122 million to $124 million dollars.
We continue to expect Publica to represent approximately 8% of our total forecasted revenue
for the full year.

A few additional modeling points:●●●

For the full year 2022, we continue to expect gross profit margin of approximately 81% andadjusted EBITDA margin of approximately 31%.
Stock-based compensation expense for the fourth quarter of 2022 is expected to be in the range
of $13.5 million to $14.5 million dollars. Full-year stock-based compensation expense is
expected to be in the range of $46.5 to $47.5 million dollars. Based on current expectations, we
expect dilution to remain at low single digit levels for the year.
Weighted average shares outstanding for the fourth quarter are expected to be in the range ofapproximately 153 million to 154 million. We expect full year weighted average shares
outstanding to be in the range of 154 million to 155 million.