Integral Ad Science Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 11 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the IAS Q2 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your first speaker today, Jonathan Shaffer, SVP, Investor Relations with IAS. Please go ahead.

Speaker 1

Thank you. Good afternoon, and welcome to the IAS 2024 Second Quarter Financial Results Conference Call. I'm joined today by Lisa Uchschneider, CEO and Tanya Secor, CFO. Before we begin, please note that today's call and prepared remarks contain forward looking statements. We refer you to the company's filings with the SEC posted on our Investor Relations site at investors.

Speaker 1

Integralads.com for more details about important risks and uncertainties that could cause actual results to differ materially from our expectations. We will also refer to non GAAP measures on today's call. A reconciliation of non GAAP measures to the most directly comparable GAAP measures is contained in today's earnings release available on our Investor Relations site. All financial comparisons, unless noted otherwise, are based on the prior year period. So with these formalities out of the way, I'd now like to turn the call over to our CEO, Lisa Uchschneider.

Speaker 1

Lisa, you may begin.

Speaker 2

Thank you, Jonathan. Welcome everyone to our 2024 Q2 call. I'm excited to discuss our strong second quarter results and increased outlook for the full year. On today's call, I'll review several growth drivers of our business, including key global customer wins, new and enhanced partnerships, our robust product pipeline and the opportunity to pursue additional logo wins following Oracle's announcement to exit the advertising business. We extended our positive business momentum and exceeded our revenue and adjusted EBITDA guidance for the Q2.

Speaker 2

Total revenue increased 14% to $129,000,000 ahead of our prior outlook of $125,000,000 to $127,000,000 We reported double digit growth across all of our businesses in the Q2, including optimization growth up 11%, measurement growth up 17% and publisher growth up 12%. Adjusted EBITDA increased to $46,200,000 at a 36% adjusted EBITDA margin. Once again, we are raising our full year financial outlook to reflect our 2nd quarter outperformance and our expectations for a strong second half of the year. We now expect 2024 revenue growth of 14% at the midpoint with an adjusted EBITDA margin of 34%, well above the rule of 40%. Our increased outlook for 2024 includes continued adoption of our leading social media offerings, the anticipated benefit from recently launched products and the contribution from new logo wins.

Speaker 2

Marketers partner with IES based on our leading AI backed technology that delivers global footprint with 31% of our revenue coming from outside of the Americas. International revenue has grown faster than overall revenue for the 3rd consecutive quarter, driven by strong adoption of our social media offerings. We are excited to announce 2 recent major global brand wins in the important telecommunications vertical. Orange, the largest telecommunications provider in France, selected IAS as its new partner over an incumbent provider. We were awarded this opportunity based on our differentiated products as well as our quality of service.

Speaker 2

Telefonica, a Spanish multinational telecommunications company selected IIS as one of its global strategic partners for both measurement and optimization solutions. Telefonica chose IAS based on our technology, innovation and service. In addition, existing customers are growing with IAS. As discussed on last quarter's call, we've seen a 55% increase in average annual spend in year 2 of new contracts since 2019 based on our advertiser customer data. Stellantis, a leading global automaker, renewed and expanded its partnership with IAS.

Speaker 2

IAS is now the preferred global verification provider to Stellantis, growing our partnership beyond EMEA. Our demonstrated product superiority helps secure this renewal and expansion. Perfetti Van Miele, one of the world's largest manufacturers and distributors of confectionery and chewing gum, has expanded its exclusive global verification partnership with IES beyond EMEA to include the U. S. As well.

Speaker 2

Perfetti extended its partnership with IES for several reasons, including the strength of our video measurement products. IS leads with innovation and trust. We prioritize our roadmap of highly advanced products and platform integrations informed by our close customer partnerships. Year to date, we've launched several AI backed products to provide marketers with additional assurance and insight into the safety and efficacy of their advertising spend. By leaning into our deep technology assets, we are maintaining a high bar for product velocity and flexibility that is resonating with our customers and platform partners.

Speaker 2

We also remain steadfast in our commitments to the highest standards for the quality and accuracy of our products and our commitment to adhere to stringent principles and guidelines for the responsible use of AI. In June, we announced the availability of the industry's first deep fake detection offering. Currently in beta testing, the new offering is expected to help advertisers avoid running adjacent to deep fake content and to further verify the safety and suitability of their digital media investments through trusted and safe AI powered technology. We were delighted to pull forward availability of deep fake detection to the first half of twenty twenty four to meet high customer demand ahead of the Olympics and U. S.

Speaker 2

Elections. Made for advertising, MFA, represents challenge for marketers seeking to avoid web pages created solely to serve ads and clutter sites with high ad density and high ad to content ratio as they can lead to lower performance. Since launching our MFA ad driven product in general availability in the second quarter, we are seeing 100% month over month growth in usage. As marketers seek to maximize their return on their digital ad a massive and sustainable market opportunity and we have only just begun to scratch the surface. Social media increased to 53% of measurement revenue and 22% of total revenue in the 2nd quarter.

Speaker 2

We believe our total media quality TMQ product suite provides marketers with unparalleled granularity and insights. Recently, we announced new platform partnerships with Pinterest, Reddit and Snap. We also built on our existing integrations with platform partners, including Meta, YouTube and TikTok, which offer our TMQ product suite. We continue to invest in our pre bid optimization products in social media, including GARM, Global Alliance For Responsible Media. We currently provide pre bid solutions across several of the largest social platforms, including X, where IAS was selected to be the 1st to market based on our leading AI capabilities and our TMQ product offering.

Speaker 2

In June, IS expanded its brand safety and suitability measurement product for YouTube to include reporting for Performance Max and Demand Gen campaigns on Google Ads. Performance Max is Google's campaign type that enables advertisers to access all Google Ads inventory through a single unified campaign. DemandGen is a new Google Ad solution that helps advertisers find and convert consumers with immersive, relevant and visual creatives that grab attention and spur action in the right moment. During the second quarter, we expand our global reporting and insights now available for Amazon DSP MediaVise through a server to server integration on Amazon DSP. Advertisers will now have access to measurement coverage for campaigns across Amazon Custom Audiences and Twitch inventory.

Speaker 2

IIS' solutions available to advertisers in Amazon DSP include Viewability, IVT and brand safety and suitability. IS continues to lead the global market in CTV. We offer top tier products, including granular measurement solutions at the content and channel level, optimization solutions for ad fraud protection and MRC accredited measurement metrics. Our CTV investments are yielding significant results with the majority of our clients using CTV optimization solutions showing exceptional IVT pass rates. Additionally, Publica has introduced creative quality assurance, which automatically adjusts ad creatives to meet the specific requirements of various CTV channels and apps.

Speaker 2

This innovation is designed to eliminate advertiser blind spots and enhances programmatic effectiveness, leading to greater reach and scale for advertisers and improve yield management for publishers. In June, Oracle announced they were exiting the advertising business at the end of September. I've highlighted several IAS customer wins in recent quarters where we displaced incumbent providers, including Oracle. Following Oracle's announcement, we are pursuing this unprecedented opportunity with ingenuity and resources at scale to offer our industry leading capabilities and capture potential incremental revenue. We are currently involved with dozens of RFPs and we are working closely with potential large and midsized partners on transition planning, including onboarding, integration and support.

Speaker 2

We are addressing their needs with our products, tech, talent and reputation for high integrity with a history of strong partnerships across the digital ecosystem. We have welcomed more than 20 Oracle Advertising employees to IES since June. These new hires enhance our capabilities across functions in addition to bringing relevant experience with some of the largest platforms, publishers and brands. Our pursuit of the Oracle business is another example of one of our core values at IIS, our bias for action. We are doing what's right, not only for IES, but for clients, partners and the industry at large.

Speaker 2

The feedback we've received has been overwhelmingly positive, including at the Cannes Line Festival of Creativity, where we hosted over 200 meetings and panel discussions. Before closing, I would like to welcome Bob Lord as a new member of IES' expanded Board of Directors. Bob is a highly regarded technology leader with a wealth of experience in technology, digital media, data science and enterprise SaaS. He currently serves as the Chief Executive Officer of RWL Advisory LLC, a consulting and advisory services firm, and his career includes senior level roles at IBM, AOL and Razorfish. We are excited to welcome Bob and expand our Board to include another industry expert as we continue to innovate and drive forward the future of media measurement and optimization.

Speaker 2

In conclusion, we reported another positive quarter of innovation and execution. The investments we're making in technology are leading to higher customer engagement and increased demand for our products. Now that we're halfway through the year, we have greater visibility and even higher confidence in raising our full year outlook. Our focus is on driving growth and continuing the momentum we've established. We have several tailwinds in our favor, including strong social media adoption, our robust product pipeline, new logo wins and the opportunity to pursue additional revenue following Oracle's exit.

Speaker 2

We intend to deliver sustainable, profitable growth and we look forward keeping you updated on our progress. And with that, I'll turn the call over to Tanya to review the financials, and then we'll take your questions.

Speaker 3

Thanks, Lisa, and welcome everyone. We are delighted to report total revenue growth of 14% for the Q2 with double digit gains across our optimization, measurement and publisher businesses. We are also raising our full year guidance to reflect our positive second quarter performance and strong outlook for the second half of the year. We expect to drive accelerated revenue growth as we move through 2024 with 3rd quarter growth of 15% at the midpoint of our guidance. Total revenue in the 2nd quarter increased 14% to $129,000,000 exceeding our prior outlook of $125,000,000 to $127,000,000 Our stronger than expected performance benefited from measurement growth of 17%, optimization growth of 11% and publisher growth of 12% in the period.

Speaker 3

Total revenue from advertisers, which includes optimization and measurement revenue increased 14% in the 2nd quarter and represented 86% of total revenue for the period. Drilling down further, optimization revenue grew to $58,500,000 in the 2nd quarter. Optimization growth of 11% significantly exceeded our prior expectation of more than doubling the Q1 growth rate. Optimization growth in the 2nd quarter reflects strong performance across verticals, including CPG and Finance, the contribution from recent new logo wins and increased demand for our premium priced optimization products. During the quarter, QualitySync revenue increased approximately 3 times versus the prior year period.

Speaker 3

We expect further acceleration in our optimization growth rate in the 3rd 4th quarters as we move through the year due to customer adoption of our recently launched products, ongoing quality sync expansion and new logos. Measurement revenue increased 17 percent to $52,700,000 in the 2nd quarter. Social media revenue grew 34% in the second quarter with strength across platforms including TMQ on Meta, YouTube and TikTok. Meta volumes benefited from strong overall growth in the Q2. Meta was our largest and fastest growing platform sequentially from the Q1 as a result of the launch of TMQ on Meta in February.

Speaker 3

Social media represented 22% of total revenue in the 2nd quarter compared to 21% in the Q1 of 2024 and 18% in the Q2 of 2023. Social media revenue represented 53% of total measurement revenue with the balance being open web, which increased modestly in the second quarter. As a result of the strong growth in social media, video grew 22% in the 2nd quarter. Video accounted for 53% of measurement revenue, up from 50% in the Q2 of 2023. From a vertical perspective, CPG and retail were strong contributors to measurement revenue in the period.

Speaker 3

Publisher revenue increased 12% to $17,800,000 in the 2nd quarter. Publisher revenue reflects continued adoption of our by large OEM partners, partially offset by the performance of our non CTV supply side business. Publica revenue increased more than 20% in the 2nd quarter. Publisher revenue represented 14% of total second quarter revenue. We continue to invest in global market expansion and talent to extend our leading international presence.

Speaker 3

31% of our total revenue in the 2nd quarter or $40,000,000 was from outside of the Americas. In addition, 43% of measurement revenue was from outside of the Americas. International growth of 16% benefited from growth in social media spend including TMQ in both EMEA and APAC as well as the contribution from new logos. During the quarter, revenue in the Americas increased 13%. Gross profit margin for the 2nd quarter was 79% at the upper end of our full year gross margin target of 77% to 79%.

Speaker 3

Sales and marketing, technology and development and general and administrative expenses combined decreased 23% year over year, primarily as a result of $23,500,000 of stock based compensation expense related to return target options recognized in the Q2 of 2023. Stock based compensation expense for the period was $15,000,000 at the low end of our prior outlook of $15,000,000 to $17,000,000 Adjusted EBITDA for the 2nd quarter, which excludes stock based compensation and one time items, was $46,200,000 at a 36% margin, ahead of our prior outlook of $37,000,000 to $39,000,000 This was driven primarily by higher than expected revenue and improved operating efficiencies. We continue to capitalize internally developed software related to new product development, which contributed to adjusted EBITDA in the quarter. Net income for the 2nd quarter was $7,700,000 or $0.05 per share, unchanged from the prior year period. Net income for the Q2 of 2023 includes the one time charge of $23,500,000 related to return target options as well as an income tax benefit of $29,100,000 in the prior year period.

Speaker 3

Moving to our performance metrics. Our 2nd quarter net revenue retention or NRR was 112% on a trailing 12 month basis. The total number of large advertising customers, which includes both mid tier and top tier clients with annual revenue of over $200,000 increased to 232, up 12% compared to 208 last year and up sequentially from 227 in the Q1 of 2024. The increase year over year was driven primarily by growth in mid tier advertisers with annual spend between $200,000 $1,000,000 Revenue from large advertising customers was 85% of total advertising revenue at the end of the period, up from 84% at the end of the Q2 of 2023. We continue to generate strong cash flows and maintain a healthy balance sheet with cash and cash equivalents at the end of the second quarter of $71,000,000 During the quarter, we reduced our long term debt by $30,000,000 to $95,000,000 As a result, our net debt at the end of the second quarter was $24,000,000 Turning to guidance.

Speaker 3

For the Q3 ending September 30, 2024, we expect total revenue in the range of 137 dollars to $139,000,000 or 15% year over year growth at the midpoint. Adjusted EBITDA for the 3rd quarter is expected in the range of $48,000,000 to $50,000,000 or a 36% margin at the midpoint. For the full year 2024, we are raising the midpoint of our revenue outlook by $4,000,000 We now expect full year revenue of $538,000,000 to $544,000,000 or 14% year over year growth at the midpoint versus the prior range of $533,000,000 to $541,000,000 We are raising our full year adjusted EBITDA guidance to $180,000,000 to $184,000,000 or a 34% margin at the midpoint versus the prior range of $174,000,000 to $180,000,000 at a 33% margin. As Lisa discussed, we are actively pursuing the Oracle opportunity following their decision to exit the advertising business. We have already won several Oracle deals that we expect to contribute in the 4th quarter and factored into our full year guide.

Speaker 3

We will include any additional wins in our future quarterly financial guidance. A few additional modeling points. Our gross profit margin outlook remains unchanged in the range of 77% to 79% for the full year, which reflects our higher hosting costs related to our video offerings. 3rd quarter stock based compensation expense is expected in the range of $16,000,000 to $17,000,000 Full year 2024 stock based compensation expense is expected in the range of $63,000,000 to $65,000,000 compared to our prior expectation of $63,000,000 to $66,000,000 We expect weighted average shares outstanding for the 3rd quarter in the range of 161,000,000 to 162,000,000 shares and 160,000,000 to 162,000,000 shares for the full year. To conclude, our 2nd quarter results reinforce our confidence in the financial goals we set for the full year.

Speaker 3

We are pleased to raise our 2024 revenue growth outlook to 14% at the midpoint and adjusted EBITDA margin to 34% at the midpoint. As a result, we expect to exceed the rule of 40 for the 3rd consecutive year since our IPO. With a strong balance sheet, low debt and healthy cash flow, we are investing in strategic initiatives to drive sustainable growth. Lisa and I are now ready to take your questions. Operator?

Operator

Thank you. At this time, we will conduct the question and answer Our first question comes from the line of Andrew Maroc of Raymond James. Your line is now open.

Speaker 4

Hi, thanks for taking my questions and congrats on the quarter. I wanted to start on the optimization business. Thank you for the color on some of the moving pieces that went behind the acceleration this quarter. And maybe it's a bit unfair to ask you like this off the back of a strong quarter, but how is the visibility in this business given that it's bounced around a little bit in light of some of those premium product uptake drivers that you've been talking about?

Speaker 2

I'll take that. Thanks, Andrew. So we continue to see strong momentum in the optimization business, putting double digit growth, 11% growth on the board for Q2. Couple of specific verticals to call out that have done well with optimization, including finance and CPG.

Speaker 4

Great. And then maybe one on Oracle and Mode, if I could. Thank you, Tanya, for some of the guidance assumptions there. But how much of the opportunity would you say is still outstanding? And is there anything maybe about Moats customers or some of their customer segments that positions you better as a go forward vendor versus some of your competitors?

Speaker 4

Thank you.

Speaker 2

Sure. I'll take that one too, Andrew. So we're in the thick of the Oracle opportunity and we're playing to win. We've already won several deals and are currently pursuing dozens of RFPs with brands, platforms and publishers both within the U. S.

Speaker 2

And internationally. And we've also factored in a contribution from Oracle into our full year outlook in 4th quarter. One other noteworthy thing to call out is since June, we've also hired over 20 former Oracle employees across several functions, including sales, solution engineers and customer support. The one deal, the signed deal that I am able to call out on the call is OpenX. So IES, we have partnered with OpenX to provide OpenX with AI driven brand safety, suitability and IVT.

Speaker 4

Thank you.

Operator

One moment for our next question. Our next question comes from the line of Jason Helfstein of Oppenheimer and Company. Your line is now open.

Speaker 5

Thanks for taking the question. Please really appreciate all the color in the prepared remarks, super helpful. What percent of clients have deployed TMQ for Meta at this point? And I guess what inning are we in with Meta, TMQ more broadly? I mean, you said we're just scratching the surface.

Speaker 5

So I guess I can answer my own question and just say the first thing. But any more color there as we're just thinking about the ramping of this business? And then a follow-up, how long will it take to win and onboard moat clients? Will this happen this year or does that like take into next year? Thanks.

Speaker 2

Sure. I'll take those questions, Jason. So in terms of meta measurement and TMQ in particular on social continues to be a tailwind for our business. And especially with Meta, which is the largest social platform. Our Meta revenue increased more than any other platform both sequentially and versus prior year.

Speaker 2

In terms of volumes, meta volumes, they're up close to 50% since launch of TMQ in February. And from a client base, just over 50% of our social clients spend on Meta. You might remember in Q1, we reported over 1 100 clients adopted MetaTMQ after launching the product in February. In Q2, we saw a significant increase in the number of Meta clients who adopted MetaTMQ. So we're really pleased with the adoption rate that we're seeing across all of the major social platforms, in particular Meta and TMQ.

Speaker 2

And to answer your second question related to Mode, so as I mentioned earlier to Andrew, we are playing to win Oracle customers. We are pursuing multiple RFPs. Dozens of RFPs actually are currently in the pipeline. As I'm sure you're aware, Oracle announced that they are exiting the business as of September 30. So that does give you a timeline to know when those Oracle clients are shutting off with Oracle.

Speaker 2

We have factored some revenue in our guide in 4th quarter, but I would say that the majority of those wins would be factored into 2025 since we'd have to integrate them, onboard them and get them live.

Speaker 5

Thank you.

Operator

One moment for our next question. Our next question comes from the line of James Heaney of Jefferies Group. Your line is now open.

Speaker 6

Great. Thanks for taking the questions. Your guidance does imply a nice acceleration into the Q4. I was just hoping you could talk about some of the tailwinds that you're seeing that give you confidence in your growth getting into what looks to be like high teens or maybe even low 20s in the holiday quarter? And then just curious on Q3 if you have any tailwind from Olympics?

Speaker 3

Sure. Hey, James, it's Tanya. Thanks for the question. So we're really pleased for with our execution in the first half of the year where we beat on our 2nd quarter results across all three of our businesses. And as a result, we're rolling that forward into our full year guidance, raising our full year guidance by $4,000,000 at the midpoint of the range.

Speaker 3

And as you noted, yes, we are expecting our guide does imply 17% growth in the second half of the year, up from 16% growth in the second half of the year 2023. And there's multiple levers there, right? It's the strong execution and momentum we've seen to date, the cumulative impact of the new products that we've launched and our clients adopting those new products. We've been successful with new logos and expecting that trend to continue in the second half. And then we've also have factored in a contribution from the Oracle clients that we've already won where we have line of sight.

Speaker 3

So net net, really pleased to be raising our guides and also raising our profit as well.

Speaker 6

Great. And then also on Olympics for Q3?

Speaker 3

Correct. Yes. We do expect some moderate impact from Olympics and political, but it's small.

Speaker 6

Great. And then maybe, Lisa, if I can try one more just on there's a lot of new CTV inventory coming online with Amazon, Netflix, Disney. Could you just talk about how you're participating in that? And, yes, just your position within CTV for some of these premium publishers? Thank you.

Speaker 2

Sure. So CTV, there's a long runway with CTV. And as you mentioned, some of those premium players like Netflix, we see lots of opportunity. We do have a partnership with Netflix where we're offering our core verification solutions on CTV. We've been running that partnership for over a year and we'll continue to work with the various streaming platforms as they also open up their premium inventory for our verification solutions to offer them.

Operator

Our next question comes from the line of Omar DeSouki of Bank of America. Your line is now open.

Speaker 7

Hey guys, it's Arthur on for Mark. Thanks for taking the question. So firstly, maybe just quickly on the guide. So full year guidance raised slightly. It looks like optimization did better than you expected in the quarter.

Speaker 7

I'm just wondering like if your assumptions around sort of growth for optimization and measurement has changed at all? Like do you still expect, for example, measurement to outgrow optimization for the balance of the year? And then I have a follow-up question, if I could. Thank you.

Speaker 3

Arthur, our from a revenue perspective, our views of growth in optimization and measurement are fairly unchanged since last time we provided guidance. At the midpoint of our guidance, full year guidance range for revenue, we're forecasting 14% growth and we expect measurement growth to accelerate from the 2nd quarter levels primarily fueled by social. Optimization growth is expected to be slightly lower than the midpoint, but still accelerating, from 2nd quarter levels continuing the trend we've seen from first quarter to second quarter into the second half of the year for all the reasons I talked about early, particularly on optimization with our new product launches and new logos. And we also anticipate high single digit growth in Publisher for the remainder of the year.

Speaker 7

Perfect. Thank you. And then just a follow-up question on Publica. I mean, within like CTV, as serving there are already some sort of like prominent players like FreeWheel or Magnite. I'm just curious like what you guys sort of see as a gap in the market that Publica is looking to fill?

Speaker 7

Thank you.

Speaker 2

Yes. So Publica continues to be a strategic differentiator for IES. We posted double digit growth with Publica in 2nd quarter. That growth is driven by our strategic OEM partnerships, including Samsung. We're also continuing to invest in our non Publica business too and just seeing healthy growth across the publisher business.

Speaker 2

In particular with Publica, the areas where we are helping the brands is providing greater transparency to where their ads are running in programmatic CTV because advertisers and brands, they're just tired of sort of the black box of programmatic CTV and they'd like to understand where their ads are running, whether it be by channel, by genre, by show. So that's an area where Publica is really leaning in and helping the brands as there's just so much opportunity as brands ship more and more of their linear TV dollars over into CTV. And then the second area where Publica is helping is solving for the frequency capping issues. So again, we're really pleased with the double digit growth of Publica as our partners.

Speaker 7

Understood. Appreciate it. Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Matthew Koss of Morgan Stanley. Your line is now open.

Speaker 3

Matthew?

Speaker 8

Hi, can you hear me? Yes. Sorry about that. So just following up on the CTV point. There's been a lot of news coverage about new inventory coming online that's been covered in some prior questions.

Speaker 8

But there's also been discussion in the press about higher priced inventory giving away to lower priced inventory at higher volume. And given that you're a volume driven business, I guess, on the CTV side, are you seeing any specific benefit from increased volumes on CTV? And then I have one follow-up as well. Thank you. So

Speaker 2

in terms of CTV, we are leaning into, as I mentioned before, partnerships like Netflix that are opening up their inventory on the premium side. In terms of the programmatic, where we see the opportunity biddable programmatic demand in CTV. Broadcasters, they'll continue to sell out their high production quality content and there are new players in the field who sell fast and are dependent on programmatic revenue. And we feel there is an opportunity for IES in both buying models. For example, open measurement and STK will allow for viewability and user engagement to be measured regardless of how a publisher has chosen to make their inventory available.

Speaker 2

So as I mentioned before, it's early days in CTV and we're really looking forward to continuing to innovate on behalf of our partners.

Speaker 8

Great. Thank you. And then just following up, just on the broader ad markets, it's been kind of a mixed set of earnings results so far this quarter from the ad ecosystem. Are there any specific areas of strength or weakness from a vertical perspective that you're seeing and any jitters at all in the market so far this year?

Speaker 2

Yes. So, we're pleased with the fact that we have a diversified portfolio from a vertical perspective. We're seeing strength across all of our verticals. Our 2 strongest verticals were CPG and retail in 2nd quarter, both increasing by double digits. Measurement in particular, driven by TMQ, we saw strength with CPG and retail.

Speaker 2

But I think it's also important to note that nearly every vertical increased in percent of growth in the quarter. And then in terms of portfolio for our business.

Operator

Our next question comes from the line of Matt Farrell of Piper Sandler. Your line is now open.

Speaker 9

Thanks guys. Congrats on the really strong results. My question would just be around the EBITDA upside in Q2, pretty significant beat. Is there anything one time in the beat? And as we think about moving forward, how should we be thinking about the different levers in the balance between margin expansion and revenue growth, maybe in the back half and maybe into 2025 as well?

Speaker 3

Thanks. Yes, we were really pleased with the beat in the second quarter on our EBITDA margin of 36% versus expectations. There were a couple of factors that drove that. First was the drop through of the higher than expected revenue. Secondly, we had a higher level of capitalization of internally developed software as the R and D team was very busy and successful in launching several new products, and we aligned our costs in the quarter to better align with the ramping revenue in the Q3 and Q4.

Speaker 3

As we move forward through the year, look, we're continuing to invest in the business to drive longer term sustainable growth. We do not expect the same percentage of capitalized internally developed software as we move through the year as we saw in the 2nd quarter.

Operator

Our next question comes from the line of Yon Kim of Loop Capital. Your line is now open.

Speaker 10

All right. Thank you. Lisa, as your mix of business on social and CTV continues to increase, has your go to market motion changing at all? For instance, are you more focused on agencies than ever before rather than just selling directly to the brands? You're realizing that the agency maybe have a much bigger role in the decision making process out there?

Speaker 10

And then also, is this also an opportunity to go after medium sized and smaller advertisers Or do you continue to increase your footprint in social channel?

Speaker 2

Sure. Happy to take that. So in terms of brands and agencies in the sales motion when it comes to driving the social adoption, both are equally as important, especially with the fact that the majority of the brands that are adopting TMQ, as I mentioned before, across the social platforms, they're Fortune 500 customers and the majority of them are global customers. So the sales motion is typically engaging with the global account advertiser directly, negotiating the terms and the agency executes the paperwork of the social platform. So our teams are double down both with brands and with agencies.

Speaker 2

They're doing it globally to cross sell, upsell our existing advertisers who are running our solutions across the social platforms and then also pursuing new brands to adopt our TMQ solutions on social. And then in terms of the mid tier channel, we saw yet another quarter of double digit revenue growth with our mid market clients and increased adoption in context control and we've also added new mid market logos. It's a great demonstration of execution that our team is doing both in the second quarter and they're poised to drive adoption in the back half of the year.

Speaker 10

Okay, great. Much appreciate all the details there. Just another question. Obviously, we are seeing the social channel growing fast, especially in the international markets. Is that changing the overall pricing dynamics for the company?

Speaker 10

Are you seeing the similar attach rate? And any update on the previous solutions for Meta in terms of when we can expect that to ramp? Thanks.

Speaker 2

Yes. So there are a few things to call out about the social platforms. The first is we're seeing rapid adoption, especially in the international markets with our TMQ solution across the major social platforms and we'll continue to drive that adoption. In addition to that, in Q2, we announced 3 social platform partnerships, new ones, first to market with Snap. We launched TMQ on Snap in June with 90 languages.

Speaker 2

We also launched Pinterest in 2nd quarter and Reddit in early Q4 will launch. So we're very focused again to drive TMQ adoption across all of the major social platforms and driving additional coverage and opportunity to be able to expand and drive our TMQ across the new social platforms.

Speaker 10

Thank you so much.

Speaker 3

Yes. In terms of your question on international, yes, social was a driver of our overall international growth rate with our international growth rate of 16% in the 2nd quarter. And that adoption we saw both across Europe and Asia as well as contribution from new logos internationally.

Speaker 2

And then just to follow-up on your question regarding Prebid Solutions. Prebid on social is in high demand with the brands. The social platforms, they're leaning into the brand's demand to offer Prebid solutions. We're well on our way. We're live with Prebid Social on platforms like TikTok, X and LinkedIn.

Speaker 2

And as the brands continue to request prebid on the other major social platforms, we're poised to launch those products.

Speaker 10

Great. Thank you so much.

Speaker 2

Yes. Thank you.

Operator

One moment for our next question. Our next question comes from the line of Jason Kreyer of Craig Hallum. Your line is now open.

Speaker 7

Great. Thank you. Just on optimization, it seems like you have some nice pricing improvements with CPMs up 9%. Curious if there's any particular solutions that are driving those pricing changes?

Speaker 2

Sure. Yes, we were pleased with our optimization results in the 2nd quarter with 11% growth year over year. You might recall in our last earnings call, we talked about the robust product roadmap that we had in place to launch many new optimization products. We've launched some of those products 2nd quarter. We'll continue to launch and drive adoption in the back half of the year.

Speaker 2

MFA in particular is seeing great adoption in 2nd quarter. We had 100 campaigns in beta on MFA. And as we noted, with MFA, we just have seen tremendous adoption. Other products include context control from the mid tier clients in particular that we're driving new mid tier logos with context control.

Speaker 10

Thank you.

Operator

I'm showing no further questions at this time. I would now like to turn it back to Lisa Schneider, CEO for concluding remarks.

Speaker 2

Thanks everyone for joining today's call and for your questions. We're coming off a strong second quarter and we look forward to building on our momentum in the back half of the year. We've highlighted several growth drivers and we will continue to lead with credibility and transparency as we execute on our stated goals. Have a great night.

Operator

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

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Earnings Conference Call
Integral Ad Science Q2 2024
00:00 / 00:00