Viant Technology Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 4, 2024

There are 9 speakers on the call.

Operator

Okay. Hello, everyone, and welcome to Viant's 4th 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.

Operator

After the speakers' remarks, there will be a Q and A session. If you plan to ask a question, please ensure you've set your Zoom name to display your full name and firm. And with that out of the way, I would now like to turn the call over to Nicole Kunzmann with The Blueshirt Group.

Speaker 1

Thank you, David. Good afternoon, and welcome to Viant Technology's 4th 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 will 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.

Speaker 1

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 ks for the year ended December 31, 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 IAM. Tim?

Speaker 2

Thanks, Nicole, and thanks, everyone, for joining us today. I'm extremely pleased with our results in the 4th quarter, which reflect the accelerating momentum we are seeing across our business. Revenue in the 4th 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.

Speaker 2

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 4 enterprise grade self-service demand side platforms in the market and one of only 2 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.

Speaker 2

We continue to see increasing traction with larger mid market customers as we become their go to platform. 1 of the notable highlights from the Q4 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 household ID. Approximately 90% of the CTV ad spend through our platform utilizes our household ID.

Speaker 2

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 and 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.

Speaker 2

We have done extensive education and AB 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 1 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.

Speaker 2

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 1st 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.

Speaker 2

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.

Speaker 2

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 republished 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.

Speaker 2

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 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. 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 years ahead.

Speaker 2

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 interests. On that note, in 2023, we rolled out 2 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 debt optimizer offering and the second is our Viant data platform.

Speaker 2

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 bit 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. Bit Optimizer leverages AI to find the best pricing on publisher ad inventory while also driving higher win rates for customers and ad auctions.

Speaker 2

We believe that passing this efficiency and cost savings along to our customer 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 bit 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 Bit Optimizer so much so that we've been hard at work developing the 2nd 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.

Speaker 2

Our data platform activates 1st party data from customers leveraging personal identifiers such as home address, name, email and phone numbers and it doesn't rely on cookies. We've seen good early customer adoption of the Viant data platform as 7 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?

Speaker 2

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 1st 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.

Speaker 2

At our Innovation Day back in October, we announced that we plan to introduce a number of new AI products, most notably chat with data within the Biant 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.

Speaker 2

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 Bit 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 Bit 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.

Speaker 2

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 are 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.

Speaker 2

With that, I'll turn it over to Larry to provide more detail on our financial performance. Larry?

Speaker 3

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 4th 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 4th quarter results. For the full year 2023, revenue totaled $222,900,000 an increase of 13% over 2022.

Speaker 3

Contribution ex TAC was up 15% over last year, totaling $143,400,000 Non GAAP operating expenses totaled $114,300,000 in 2023, a decrease of over 13% over 2022. And adjusted EBITDA totaled $29,100,000 in 2023, up over $35,000,000 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 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.

Speaker 3

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 Bit 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.

Speaker 3

Last year at this time, we committed 3 key financial goals for 2023, and I am pleased to report that we delivered on all three of them. The first was to return to 20 top line growth, which we accomplished in the second half of twenty twenty three. 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.

Speaker 3

And lastly, we committed to significantly increasing adjusted EBITDA. And in 2023, we achieved a $35,200,000 year over year improvement in adjusted EBITDA along with 20% adjusted EBITDA margins. I'll now move on to our results for the Q4. Revenue for the quarter was $64,400,000 an increase of 18% versus the prior year period. Contribution ex TAC for the quarter was $42,600,000 an increase of 28% versus the prior year period.

Speaker 3

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 continued 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 2 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 are scaling. Notably, for the year, the number of percent of spend customers generating at least $500,000 of contribution ex TAC increased by over 30% on a year over year basis.

Speaker 3

Furthermore, this growth trend is even more compelling when viewed over the last few years. Since 2020, the number of percent of 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.

Speaker 3

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 the 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 cookulous channel as well as from the efficiency and performance our direct access offering is providing advertisers.

Speaker 3

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 2023. The financial impact from a lower customer account 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.

Speaker 3

In 2023, the number of customers generating in excess of 1 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.

Speaker 3

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 $29,600,000 down 4% year over year. We continue to increase efficiencies internally to temper growth in operating expenses.

Speaker 3

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 Q4, we generated EBITDA of $13,000,000 above the high end of our guidance and representing an increase of $10,400,000 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 Q4, non GAAP net income, which excludes stock based compensation and other items, totaled $10,800,000 which compares to de minimis non GAAP net income in the prior year period.

Speaker 3

Non GAAP earnings per Class A share totaled $0.14 in the 4th quarter, which compares to $0.00 in the prior year period. In terms of share count, we ended the quarter with 62,800,000 Class A and Class B common shares outstanding, and we also ended the quarter with $216,500,000 of cash and cash equivalents, which translates to a noteworthy $3.45 per share outstanding. We had $231,600,000 of positive working capital and no debt at quarter end, and we continue to have access to a $75,000,000 undrawn credit facility. In Q4, we also generated 23 $200,000 of cash flow from operations. This solid financial foundation positions us extremely well to fully capitalize on the substantial market opportunity ahead of us.

Speaker 3

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 scaled customers in the company's history, along with many newer customers that are in the process of scaling. So with that backdrop, for the Q1 of expect revenue in the range of $49,000,000 to $52,000,000 representing growth of 21% year over year at the midpoint. We expect contribution ex TAC in the range of $33,000,000 to $35,000,000 or growth of 21% year over year at the midpoint.

Speaker 3

Non GAAP operating expenses are expected to be between $31,000,000 $32,000,000 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 $2,000,000 to $3,000,000 which represents a year over year increase of $2,900,000 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 $20,000,000 We expect depreciation and amortization to total approximately $18,000,000 And in terms of share count, we expect to end 2024 with approximately 65,000,000 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.

Speaker 3

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.

Speaker 3

And with that, I'll hand it back to Tim for any final remarks.

Speaker 2

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.

Operator

Thank you, Tim. We will now move to taking your And our first question comes from Laura Martin with Needham.

Speaker 4

Hi there, guys. Great numbers. Congratulations.

Speaker 2

Thanks,

Speaker 3

Jill.

Speaker 4

Great. So I want to first focus in your prepared remarks, Tim, you talked about the competitive advantage of your household ID compared to cookies. But could you please remind us how that how your household is compared to the Privacy Sandbox by Google and UID 2.0 by Trade Desk? Remind us why yours is better than those 2.

Speaker 2

Yeah. Really good question. As it relates to Privacy Sandbox, one thing to keep in mind, Privacy Sandbox is only the Chrome web browser. So you're talking about desktop or laptops and smartphones. And that's where it's really focused on kind of showing an ad to that device and that same device purchasing the product from the advertiser.

Speaker 2

And it helps tie that together, similar to what programmatic advertising has been all about. But we view Privacy Sandbox as limiting to only the Chrome ecosystem. The Household ID getting to the second part of the question, Household ID works across devices. And in connected television, one thing you have to do is you're going to expose an ad on a CTV, but consumers can't purchase the product through connected televisions yet. They're either going to use their smartphone or go in store and purchase the product itself.

Speaker 2

Household ID ties both e commerce transactions from another device or in store pickups. And we do that by using the 1st party data and tying it to the household ID. 1st party data from the advertiser, Many advertisers, if you buy a product, are shipping it to your home or you're a part of the program, like you're a loyalty member and those get added in. So by ingesting the advertisers first party information and just to go back to a household ID, effectively what that is, is your home physical address. That's what we anchor all of our ID to.

Speaker 2

So when you think of your physical address, it's not tied to big tech like email addresses potentially could be that are here today, but could be taken away tomorrow. So we believe that building on top of household ID is the correct way forward, not just for the near term while cookies get deleted, but for the long term because it's a data point that Big Tech doesn't control. One other point, Laura, I just want to mention the difference between really the household ID and many other solutions out there is the current penetration of our household ID in market. On average, it's north of 80% of all ad requests that we have our DSP handles. And specifically in Connected TV, it's over 90%.

Speaker 2

So, over 90% of the time when marketers buy CTV through our platform, they're able to leverage the household ID. And I'm not aware of any other alternative identifier or other source out there that has that level of scale. Great point.

Speaker 4

Okay, great. And then my second one is, I'm really interested that you're sort of jettisoning your smaller clients and that ties into direct access. Is it your feeling that direct access where you tie in directly to these walled gardens is disintermediating a lot of those cost intermediaries. But in the end of this like play this out over 3 years, do we end up with just a lot fewer players in the open Internet and small guys on both sides of the wall, PSSPs and DSPs just go away because they can't affect they can't actually spend the money to do like to keep up with some of these technological developments?

Speaker 2

Well, I would say that certainly direct access, ours is focused on the largest content owners in the world and specifically in CTV. They want to connect direct with our customers' demand. And I think there's a few reasons for that. But most notably, they want to connect with our customers' demand because that's incremental demand to them. And those are typically customers that are not doing large upfronts that they've done linear television upfronts with for 30, 40 years.

Speaker 2

Our mid market customers are a way to bring new revenue to their platform. So that's why we see such a great response. For marketers, it's a no brainer. Do you want to buy through a middleman or do you want to buy direct? It's quite simple.

Speaker 2

So, I don't think it's so much about weeding out smaller players or anything like that, but I just think it's an efficiency play. Marketers are always going to choose a path that gets them more of their budgets going towards working media than less. So that's why we think that the response is so high.

Speaker 4

And one of the and this is my last one, just building on that comment. So Chris, what's the CPM uplift? You guys said that there was a higher more money went to the publisher and your clients save money. What's the CPM uplift when you do this direct, when you cut out the intermediaries?

Speaker 2

So it's a great point. So a great question. It's interesting because when a marketer buys through direct access, they actually are achieving lower CPMs. So they're getting lower CPMs, but they're winning their auctions at a higher percentage. And why is that?

Speaker 2

That's because the publisher themselves, the publishers within direct access are actually seeing the meaningful CPM increase. That's why the auctions are being won at a higher percentage. We see those really in CTV, we're seeing those upwards of 20% higher CPMs in CTV. These are with some of the most premium players in the market. So, it's incredible results for publishers that are part of direct access and it's great for our customers.

Speaker 2

Again, they're getting lower CPMs in market.

Speaker 4

Okay. That's just what I wanted. Thanks you guys. Congratulations again.

Speaker 2

Thank you,

Speaker 5

You talked a bit in your prepared remarks about getting into the larger end of the mid market and the strength of your customer pipeline. Can you maybe elaborate, has there been any impact to the mid market on the testing of cookie deprecation that we've seen so far that has catalyzed maybe the strength of your pipeline over the last couple of months since that's been implemented?

Speaker 2

Yes. Andrew, thanks for the question. Certainly, in the mid market, we always editorialize a bit around the fact that the dollars have to work harder in the mid market. We also find that mid market advertisers are much more data driven and the results just matter to them more. And so, without a doubt, anytime somebody is testing household ID versus say cookies, they are able to see higher return on investment really because we are measuring at the household level and they're all when you do that, you're not just seeing e commerce transactions, you're also seeing physical retail being brought in.

Speaker 2

So they see the true impact of what ads have, again, not just on e commerce, but on e commerce plus in store. One thing, Andrew, just in terms of the strength of the pipeline, I think that is really owed to the mindset shift by marketers that they're actually choosing new platforms now given the reality of cookie deprecation has started. Whereas in the prior years, there was a lot of education and you know what, we'll make a decision when Google eventually does delete the Chrome cookie. So I think there's a lot of activity that's happening. There's that mindset shift by the advertisers that the time is now and the cookie deprecation is real.

Speaker 2

And so they're more active in their decision making versus prior.

Speaker 5

Great. Thank you. And for my second, maybe a bit of a different topic. Obviously, the AI product suite is a point of emphasis and internally developed to this point. So as you kind of build up your cash balance and continue to be cash generative, how do you think about the build versus buy decision in AI as you seek to further scale that suite?

Speaker 2

Yes. Well, I would say when it comes to the newer AI technologies like generative AI, there's not really a lot to go out and acquire. And so all these ideas are new. The technology is still new. We found the fastest way to market in that area was certainly to build, especially given the expertise we have in house as it relates to data and our ability to apply AI to data.

Speaker 2

Our Viand Data platform, it's really like no other in the marketplace. We don't have a lot of competition when it comes to that product itself. And so, for us, it was a pretty easy decision to actually build that product from scratch, given we have world class expertise in house and we've got many, many customers already on the data platform. And again, I said it previously, but I'll state it, it, all the AI that's taking place is happening inside of our data platform. That is where 98 percent of the AI is getting applied.

Speaker 2

And so any customer already live, we have a huge advantage of being able to scale new products out. When it comes to M and A, we're always on the lookout for complementary products and services that we think we could AI, it certainly the build made a heck of a lot more sense for our first set of products that we brought out. If things change and something shows up that looks like we believe could have a high attach rate to what customers are using our DSP or data platform for, we'll certainly take a hard look at it.

Speaker 5

Loud and clear. Appreciate the detail. Thank you. Thank you.

Operator

Okay. Our next question comes from Chris Kuntarej with UBS.

Speaker 6

Great. Thanks for taking the question. Could we just talk a little bit about how you guys see

Operator

last year?

Speaker 2

Yes. Thanks for the question, Chris. I can tell you, I think at the beginning of towards the end of 2022 moving into 2023, the whole landscape, there was a lot of customer uncertainty out there and really just around the economy. What we see is that clients are much more resilient this time around moving into 2024, much more confident and certainly around their budget planning. So, we feel really good around that.

Speaker 2

As Tim mentioned and Larry did as well, this is the best pipeline and largest customer pipeline we've seen of some of our larger customers out there. As we continue to move up market within the mid market still, more and more customers coming on board that have that what we call spendability, the ability to continue to increase their spending year over year when they have success on the platform. So, we're extremely confident in the outlook for 2024, so excited to get the year kicked off.

Speaker 3

I would add a couple of things to that, Chris. Although we didn't give guidance for 2024, we did on our last earnings call give some kind of signals. We basically said that in 2024, we expect to grow faster than the overall market, continuing to grow market share, especially in the mid market. We also expect revenue in CXT to grow faster than non GAAP operating expense, which will drive incremental EBITDA and EBITDA margin expansion. So we certainly are very bullish on 2024.

Speaker 3

We haven't put out a number, but we do expect to grow faster than the market.

Speaker 6

Got it. Very helpful. And you guys kind of dovetail nicely into my follow-up question, which was on the strength of the pipeline. Can you just maybe remind us how we should be thinking about the time from when a new client is coming on board to when they're really kind of up and running kind of the variability of that and maybe whether or not we any of the 1Q guide is a function of a couple of these key customers ramping? Thanks.

Speaker 2

I don't think we have any outsized one customer. I know we don't have some outsized one customer. There's no swing onboarding process is relatively quick. And but typically, I will just say this one thing. Typically, in year 1, a customer is testing.

Speaker 2

And it's usually in the 2nd year that we see them really amp their spending up. We see 1.5 to 3 times increase that they spent in the 1st year. It's that year over year impact that we see. And the great thing just to remind you about this is these DSPs, they have extremely high, very sticky rates with customers. We retain a really, really large percentage.

Speaker 2

And every year on platform, they continue to add more and more budgets. That's one of the reasons why at the end of 2022, moving into 2023, we really turned our focus to some of these larger customers that have that ability to continue to spend multiples more every year on their own platform.

Speaker 6

Got it. Thank you very much.

Operator

Okay. Our next question comes from Matt Condon with Citizens JMP.

Speaker 7

Thank you for taking my questions. My first one is just on the 2nd generation of the AI bit optimizer. What can we expect this to do to the model as far as is it another step function change as far as the 35% savings on CPMs? Any color there would be helpful.

Speaker 2

Yes. Joel, I don't want to share any specifics around that too early, but we would the 2nd generation is aimed at how we generate larger cost savings for customers, number 1. Number 2, there's a bunch of other benefits that traders of these platforms that they're gaining by using AI Bit Optimizer. Yes, they get the savings. And yes, when you get savings, you're hitting you're actually getting a higher return on ad spend because your cost of media is lower to achieve a customer.

Speaker 2

But there's lots of other benefits of automation that we're introducing within this, just pacing their budgets, making sure they have the proper amount of media spend in market on a daily basis. That's very important for traders. And then traders have oftentimes multiple KPIs. It may not just be sales. It might be reaching a certain target a certain percentage of a target, let's say males, they want to reach at the highest possible rate.

Speaker 2

There's lots of other benefits that we're focused on. But in the end, what we're looking to do, like we did with version the 1st generation of AI bit optimizer, I talked about it in my comments, which is customer happiness. So when they find their ease of use of the platforms is there and they're hitting their KPIs at accelerated rates, they continue to spend more. So that's really our focus. But more to come on the 2nd generation of AI Bit Optimizer.

Speaker 2

We're really looking to see, can we save our customers even more and deliver more bigger wins for them.

Speaker 7

Awesome. That's super helpful. And then maybe just for my second one on direct access now over 40% of CTV spend, where can this get to over time? Any color there also would be helpful. Thank you, guys.

Speaker 2

Well, I think certainly direct access when it comes to connected television, it can get in the very, very high percentages, north of 80%, I think can make sense. There when you think of contrast that to the open web of display and the number of websites available there versus the number of apps in these CTV environments, it's substantially less. So, in terms of managing these direct integrations, we think it can get as high north of 80% of spend going direct access. It's really all driven by our customers. They have choice of course have choice in how they purchase their media.

Speaker 2

But more and more, we're seeing that the preferred way would be direct.

Operator

Okay. Our next question comes from Jason Kreyer with Craig

Speaker 8

Hallum. Perfect. Thank you, guys. Just want to go back to the AI topic. You introduced several solutions late last year and I think more coming this year.

Speaker 8

But just wondering if you could unpack like the rate of new customer adoption or willingness of customers to move over more budgets and utilize those AI functions with bigger component of their spend?

Speaker 2

Yes. I would say that when it comes to AI adoption, there is hesitancy. And so but the great part about these platforms is that you can test it with a small amount of budget, see the actual results and then make how do you scale into it. I will certainly I'll tell you that no one has selected it and then shut it off that I'm aware of. More and more as soon as you start to get the testing, we see adoption move pretty rapidly throughout the quarter because it makes their lives easier and more reliability on hitting your results of the KPIs.

Speaker 2

So I think it's the reliability factor that people are testing. Is it consistent? Does it do anything negative? And then they usually ramp within the quarter. So we've seen tremendous adoption through Q4 of 2023 and we expect a similar rate of adoption throughout 2024 for the remaining customers who haven't selected it.

Speaker 2

And as we release generation 2, a bit optimizer and the results become even more compelling, we do think the vast, vast majority of our customers will be using that new technology. And one other point there, Jason, back in October at our Innovation Day, you see that we kind of pre launched ahead of time some of these new products, these AI products that we have on market. Why are we doing that? We want to help educate our customers. We want to help get them familiar with products, understand the value and the benefits to them.

Speaker 2

We always know that as a DSP, you have to give the customers choice. You have to we're not going to we don't make the decisions. They self direct everything they're going to do. So we want to make sure that we're out there in market with our customers helping educate on the benefits. And we think that's an easier way and it's one of the reasons why I think we've seen such good adoption

Speaker 8

today. Thank you. A follow-up for me. Just on cookie deprecation, just curious if you've seen anything notable kind of in the 1st 60 days here, and I know it's just 1%. And then overall just in terms of customer behavior, what are the things that you're seeing in your business that gives you confidence that you're going to benefit and take on more budget as we go down the path of deprecation more widespread?

Speaker 2

Yes. I think one of the early things we've seen is a we've seen a lot of RFI's and RFPs for replatforming. Marketers understand and I think overall in the market, there is way too large of a dependence by some by a lot of marketers on cookie based display advertising. We're too they're way too overly indexed there from a budget perspective And marketers are now realizing and they've seen in 2023 the value of CTV. And I think this is an important point because there's a lot of growth figures around CTV.

Speaker 2

I think eMarketer has it pegged at 23% growth in 2024. But what's not factored and that's predominantly just linear budgets moving into streaming. But what no one's paying attention to is as cookie deprecation goes, what's going to be hit are these lower funnel direct response cookie based display advertising budgets that are in the many tens of billions that are we believe are going to get re platformed. They're going to move to other channels that deliver on customer KPIs, truly deliver. And we have a there's been a recent study that also came out that marketers, the number one form of value, what's going to help a marketer hit their KPIs, what channel is that?

Speaker 2

The number one channel was CTV. It wasn't search, it wasn't social and it certainly wasn't display advertising. So we think that there's an even larger growth opportunity in CTV as cookies continue to deprecate, marketers are going to move that money to what's going to hit KPIs and CTV is going to be a big winner there. So we're seeing a large amount of customers looking to re platform towards platforms that are really, really garnered towards CTV, but also in measurement. Who's going to restore their vision on measurement when cookies go away.

Speaker 2

So that bodes really well for us.

Operator

Okay. At this time, there are no more questions.

Speaker 2

Great. Thank you, everyone, for joining the Q4 2023 earnings call. We look forward to talking again next quarter.

Operator

This concludes today's webinar. Thank you so much for

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Earnings Conference Call
Viant Technology Q4 2023
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