Viant Technology Inc.
Q1 2021 Earnings Call Transcript

Published: 14 May 2021

[Operator:]

Hello, everyone and welcome to Viant's First Quarter 2021 Earnings Webinar. My name is Kelsey and I will be your operator today. Before I hand the call over to the Viant team, I would like to go over just a few housekeeping notes for the program. As a reminder, today's webinar is being recorded. After the speakers' remarks, there will be a question-and-answer session. And I will now turn the webinar over to Nicole Borsje. Please, go ahead, Nicole.

[Nicole Borsje:]

Thank you, Kelsey. Good afternoon and welcome to the Viant Technology First Quarter 2021 Financial Results Conference Call. On today's call are Tim Vanderhook, Co-Founder and CEO; Chris Vanderhook, Co-Founder and Chief Operating Officer; and Larry Madden, the company's Chief Financial Officer. I'd like to remind you that we will make forward-looking statements on our call today that are based on assumptions and subject to future events, risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these results except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements and our entire Safe Harbor statement, please refer to the news release issued today as well as the risk and uncertainties described in our registration statement on Form S-1 related to our initial public offering and other filings with the SEC.

[Tim Vanderhook:]

Thank you, Nicole. Good afternoon, everyone, and thank you for joining us today. We're excited to be reporting strong first quarter results that exceeded our prior guidance across the board. I will quickly touch on our financial performance in the quarter and then since we are still in our first year as a public company and some of you are relatively new to Viant's story and positioning in the digital advertising market, I'll touch on Viant's strengths and value propositions. That way we can discuss current market trends and finally how we plan to continue driving growth in our business. Here are the financial highlights for the quarter. Revenue in the first quarter totaled $40.1 million, an increase of 5% year-over-year. Adjusted EBITDA grew 51% to $4.9 million. Viant is continuing to see strong connected television growth, an increase of 66% year-over-year and momentum and customer adaption has continued. Larry will cover the financials in more detail in a moment. Viant has a massive and growing addressable market with several secular trends providing us with significant runway for growth. We focus primarily on the $259 billion U.S. advertising market, which is expected to grow at a 12% CAGR through 2025 due to the increasing focus on digital advertising. More specifically, the U.S. programmatic advertising market is growing at a 21% CAGR and is expected to represent 48% of total U.S. media spend by 2022. Additionally, the TV industry is undergoing significant disruption as internet-enabled connected television has become the preferred vehicle for streaming video content. By 2024, 66% of the U.S. population is expected to be using Connected TV, which is resulting in a CTV ad spend to grow at a 25% CAGR and forecasted to be a $27 billion market in 2025. We believe these secular trends and the continued adaption of our people-based approach, our patented internet connected household identification and our scale and expertise in Connected TV directly attributed to our strong Q1 results. And this gives us confidence to raise our outlook for the full year of 2021. Taking a step back on the Viant story. We have a differentiated approach to the digital advertising industry as the early pioneers of people-based advertising in approach of using real people rather than cookies to target and measure digital advertising. A key theme across all customer segments is that buying ads across these channels is inherently very complex. Yet, brands and agencies are aggressively committed to data-driven advertising. They are also under pressure to defend their spending and measure their return on investment. Viant's software is the solution.

[Larry Madden:]

Thanks, Tim, and thank you, everyone, for joining us today. We are certainly encouraged to see our momentum building as we move through the first half of 2021. Today, I'll be discussing some of the highlights of our Q1 performance, as well as some of the key financial and operational drivers during the quarter. And I will also be reviewing our current expectations for Q2 and the full year 2021. At a high level, despite some continued COVID-related challenges with certain key customer verticals during the quarter, we remain optimistic as we saw solid growth in Q1 and delivered above the high end of our previously issued guidance across all key metrics. Q2 is also looking very strong and we are encouraged by a solid increase in spending so far in Q2 across our retail and travel clients. We've increased our full year 2021 guidance across all metrics and we believe we are poised for an excellent Q2 and strong second half of 2021 as our investments in sales and marketing begin paying dividends and as the economy continues to rebound from the effects of the COVID pandemic.

[Chris Vanderhook:]

Thank you, Larry. We continue to invest in the future and we are focused on execution and growth within three primary categories

[Tim Vanderhook:]

Thanks, Chris. Viant is well-positioned for future growth. There is an increase in consumer spend and trends in their digital consumption habits that are growing at fast rates and within new formats and channels. Alongside this dynamic, we're seeing advertising revenue growth projections increase. Marketers are embracing the ability to reach people in new and much more targeted and strategic ways. Our vision, which we started more than 20 years ago is finally coming to fruition. Brands and agencies are embracing our competitive advantages. They rely on Viant's people-based approach, Household ID and our scale and expertise and Connected TV. We take the complexity and most importantly, the anxiety out of advertising and ultimately help brands and agencies maximize their return on investment. We are very pleased with our start to 2021 and are excited to be raising guidance for the year. I want to thank you for your attention today and your interest in Viant. We look forward to building on our momentum in the quarters ahead.

[Operator:]

And we will take our first question from Laura Martin with Needham. Laura, your line is now open.

[Laura Martin:]

Can you guys see and hear me?

[Tim Vanderhook:]

I can hear you.

[Operator:]

We can hear you well. Please go ahead.

[Laura Martin:]

Fantastic. Great. I'll just ask one and then a follow up. So, can you talk about universal ID? I understand that your household tech doesn't rely on cookies, but can you talk about whether you think universal ID will be successful and whether people-based solutions will work in the open web? I understand how Household ID is really great for CTV I get that. But it does feel like there are uses for a personal ID in the open Internet that would drive faster growth for you guys outside of CTV. Could you talk about that?

[Tim Vanderhook:]

Yes, thanks for the question. We'll get to your follow-up question right after that. Our competitors have taken an approach of a hash email identifier as a replacement for the cookie. We've taken a different approach, which is Household ID in aggregating those users. Going back to the statistics we shared in the slide, this is all about scale. So, if we really look at where UID 2.0 is that today, we're at the ground stages, ground zero. It hasn't even really launched with any momentum versus our household ID, which has 80% scale, it's been in market for many years. And now with CTV coming in in such a strong way, this idea is becoming kind of the de facto lead in the way forward, because it's delivering on the scale marketers need. One challenge that everyone talks about in this new way forward of a cookie-less world is all around what's going to work for targeting. But there is an important other side of the vehicle which is what works for measurement; targeting and email theoretically might work in terms of connecting a logged in user on a website to enable audience segments, so data driven advertising can still happen. I think one of the biggest ways and one of the biggest gaps that we see is, yes, a marketer can buy ads through unified ID but can they actually measure the responses that are happening on their website. If you think of broad categories like automotive, many of these transactions aren't taking place online, it's simply key buying activities that are taking place on these marketers website. The ability to measure those interactions on the advertisers website and attribute them to which ad drove that is a key differentiator that the household ID brings relative to UID 2.0. So let me just say this in layman's terms, if I show an ad on CNN and let's say that user is logged in, and I later come to the marketers website and perform the key buying action; our software will actually report, record and attribute that conversion to the appropriate app. Contrast that to UID 2.0, or any hash email based identifier, where there is not a purchase with an email attached, a marketer loses the visibility into that conversion and being able to decide which publisher, which ad message drove that conversion on the website. So UID 2.0, everyone's focused on the targeting side, there's equally bigger challenges to the adoption when you look at marketers would have to adopt this entire framework as well, and a lot of marketers aren't selling the actual product on their website. Relative to a household ID, we are a frictionless system; we don't require publishers to stop and register on a website, we don't require marketers to include anything. Our system works seamlessly with the same pixel, same ad delivery, same programmatic setup that's currently in place today, and we've achieved a scale of 80%, which is now more, i.e. 80% is now bigger than 55% of cookies across the bidstream. So our household ID has far surpassed what cookies are today in the bidstream, and as more and more marketers understand our solution and the implementation, how it truly is frictionless, we think adoption towards our approach is going to be substantial.

[Laura Martin:]

Okay, thank you. And then Larry, maybe my second follow-up question for you. My recollection from the IPO is that CTV was about 30% of your revenue, it's now 45% because it's growing 66%. But your overall revenue growth was only 5%. So can you talk about what's happening in the 70% of the business at the IPO date by -- not by ad vertical like autos versus travel, but by what's happening in mobile? What's happening in display? What's shrinking, in order for total revenue to be growing at 5% but CTV revenue to be growing at 65%?

[Larry Madden:]

Great question, Laura. Couple of things I would say to that. So, we are certainly seeing a trend of advertisers shifting dollars into CTV, away from desktop and mobile; basically as CTV generally provides a better ROI for these marketers. Our platform in particular works extremely well on CTV as we can provide, as Tim said, both the targeting and the true measurement, and were benefiting from this trade trend which is what you're seeing in the significant increase in CTV. Additionally, if you look at -- not to get into verticals, but in particular, retail, travel and automotive clients are typically much more direct response oriented, which is typically more targeted at mobile and desktop. So the decline in these verticals in Q1, we did see modest declines in mobile and desktop during the quarter. That being said, we do expect that trend will reverse as these sectors improve in the coming quarters.

[Laura Martin:]

Super helpful. Thanks, guys. Thank you very much.

[Operator:]

Our next question will come from Maria Ripps with Canaccord. Maria, please go ahead.

[Maria Ripps:]

Yes. Can you hear me?

[Tim Vanderhook:]

Yes, we can.

[Maria Ripps:]

Thanks so much. So congrats on strong results. And it's good to see you guys sort of raising your guidance, and I appreciate all the color there. But I guess at this point, how much visibility do you have around your full year outlook? And what are some puts and takes that could potentially impact it? And then, I have a quick follow-up.

[Tim Vanderhook:]

Larry, do you want to take that?

[Larry Madden:]

Yes, I'll take the beginning of that. So certainly with Q2, we have -- you know, we're now in the middle of May, we have very good visibility. Honestly, there is still some work to be done there. I think in the back half, what we're seeing as a general matter is the planning cycles with a lot of our marketers and agencies have shortened. While we're having the discussions and we're getting a very positive feedback and commitments, we have less visibility longer term and this really more came in play after when COVID came through and it's continuing through that we're seeing shorter planning cycles with that. That being said, based on in terms of a lot of factors, in terms of the increase in sales investments, in terms of the momentum we're seeing in CTV, in terms of the verticals now starting to come back that have been heavily impacted by COVID, especially with travel and retail, we're seeing that right now in Q2, that gives us a lot of confidence in terms of going forward into the year in terms of what we can do in the second half.

[Maria Ripps:]

Great. Just to follow up around your guidance, it seems like it implies a pretty strong profitability flow through. Can you just maybe comment on what's driving that? Obviously, Q1 came in much stronger on profitability and are there any changes to the pace of investment this year or is it just driven by revenue upside? And maybe more broadly, can you maybe refresh us on your margin expansion philosophy over the next year or two?

[Larry Madden:]

Yes, so the first part of that, certainly we've increased the revenue, so that that will flow through to EBITDA, hence our higher guidance relative to EBITDA. The other things we're seeing though, in terms of investment, we're on pace, but what we thought we were doing in terms of incremental headcount, we expected the large majority of the way through our 2021 hiring plans by the end of Q2. So, we're not pulling back in terms of investment. That's kind of in line with what we had originally expected. But as we've always done, we are very focused on finding efficiencies in the business. Chris talked about the mediator product. That results in a huge efficiency and savings for us and we continue to look at non-personnel areas where we can squeeze money out of our budgets. So, I think it's increased revenue, it's the increased efficiency, it is not a lack of investment. We're continuing to drive forward with investing and growing the team and really getting most of that done by the second half or by the end of Q2, such that we can truly benefit from that investment in the second half. In terms of margin expansion, obviously, that will come with revenue growth. We will continue to invest as we are in 2021, we will continue to invest to take advantage of the opportunity going forward. But we think in the mid to near term that we can, with investment, get that even margin as a percentage revenue ex-TAC, up to 35%, which is what has been our plan since before we went IPO.

[Maria Ripps:]

Got it. That's very helpful. Thank you very much.

[Operator:]

As a reminder to the audience, please raise your hand if you would like to ask a question. You can find the raise your hand feature in the lower part of your menu at the bottom of the screen. We'll move on to Aaron Kessler with Raymond James. Aaron, your line is open.

[Aaron Kessler:]

Thanks, guys. A couple questions, maybe just on the direct cost as a percentage of revenues, I noticed those increased a bit sequentially. Can you give us the reason behind that, I suppose maybe a shift away from percentages and then how should we think about that going forward? Then, two, just the pipeline, given shift to a cookieless feature, what are you starting to see from conversations with some of the agencies and direct clients? Are you starting to see that the pace of those conversations increased as we move into a cookieless feature over the next year or so? Thank you.

[Tim Vanderhook:]

Thank you, Aaron. In terms of direct costs, I assume you're looking at platform operations?

[Aaron Kessler:]

Yes, direct cost as a percentage. I think it went up to about 33% of the GAAP revenues versus about 31% in Q4?

[Tim Vanderhook:]

Part of that is -- a couple of things going on there. One is the increase in headcount, which on a year-over-year basis is up something like 17%. If you look at it on a quarter-over-quarter basis, our total -- let me let me restart that, the first thing to be important to notice that we have $17 million plus of stock-based comp in our operating expenses in Q1. Hence why we're pulling from -- we're going to be talking a lot about non GAAP OpEx, which excludes that. If you look at operating expenses excluding SBC, it's essentially flat with last year and that is despite the fact that we have made, over the last 12 months, pretty significant investment in additional headcount. I'm not sure if that answers your question. I just want to make sure I got the right.

[Aaron Kessler:]

Yes, I was just looking at the gap between. I think the revenue ex-TAC versus a cap revenues, it seems that the gap widened a little bit more than we saw in the previous quarter.

[Tim Vanderhook:]

Yes, that's a portion of that $70 million of stock-based comp is included in in that number.

[Aaron Kessler:]

Okay, got it. Then just maybe if you can comment on the pace of conversations around cookieless feature and what it means for the pipeline?

[Larry Madden:]

Yes, definitely, pace of conversations have definitely increased. It's in the news every day, whether it be changes in the ID ecosystem, whereas six-seven months ago, we are educating clients that this is happening and that you start getting ready for this. Clients understand they have to be ready for this come years. So, definitely, the pace is increasing. New sales hires are kick starting new conversations. One other thing I want to point out, our WWC release, I think is going to help us quite a bit, where we're essentially more effectively embedding everything throughout the platform, really making household ID apparent in all those areas and not just in the buying section. I really think that that is really going to increase customer adoption towards us come second half of the year. We did previously say that we think the real payoff is going to be in 2022 when Google does delete cookies. But we are seeing a real interest in testing other solutions. Our agency partners are leaning forward because I know they got to be ready. So, we expect that pace to pick up even more as we go throughout the end of the year.

[Aaron Kessler:]

Great. Thank you.

[Operator:]

Our final question will come from Rocco Strauss. Rocco, please go ahead. Your line is open.

[Rocco Strauss:]

All right. Thank you very much. I hope you can hear me. I have two from me. The first is on IDs again. I'm just curious to what extent your household ID is still driven off old Myspace assets and then more generally, around unified ID 2.0 or the commentary that that you have given already is Viant in any kind of capacity of using unified ID or planning to use it or contributing to that? That would be one question. Then the other one was probably more a bit of an educational one here. I guess if I'm using the midpoint of your fiscal year '21 guidance, it seems like you're monetizing at like a 67% take rate, which seems quite high versus peers like retail or like the trade desk. So, I guess, it will be helpful if you could walk us through your inventory mix here, owned and operated versus like third party as well as any kind of additional services within that revenue that may drive that checkpoint up? Thank you.

[Chris Vanderhook:]

Rocco, thanks for the questions. I'll take the first. I'll leave Larry for the next question. Is household ID driven off of Myspace data set? That answer is an emphatic No, totally irrelevant from the Myspace data set and not used at all UID 2.0 Viant plans, when we changed our name to Viant it in 2015, we launched people based and brought it to market under a programmatic platform, really the first one to do that. Our approach at the time was email. So, our ability to accept the hash email identifier from a publisher we've had since 2016. The trade desk is re architecting their software for that basic concept there. But the issue with email is that the publishers simply don't have that data point. So, it's a false premise to say that every publisher available universally is going to be able to capture an email and pass it through. Certainly, if the hashed email identifier comes through a bid stream, we have the ability to bid on that hash email identifier just like anyone on the UID 2.0 framework. Prior to it being called UID 2.0, it was called IAB Project Reorg. It was an entire industry wide effort, but the trade desk has since renamed it to their own UID 2.0. But what is it, if a publisher captures an email address and sends it through, we have no problem bidding and buying off that half female identifier. We just don't see it scaling past 20% to 30% of all available ad requests given our history and experience in dealing with this important identifier for the past six years. It simply doesn't scale because publishers don't have the data point required. The head of the internet, the major media companies, in connected television will likely be able to authenticate a large portion of their paid subscribers. But we see the better identifier being this household identifier approach, which really aggregates all devices in a household and doesn't rely on that device for storage of it or any change that big tech does. So, we believe that the household ID is the scale that all of our competitors will move to over the course of time once they see what's around the corner of the hash email identifier. Larry, I'll leave it for you on the take rate as well.

[Larry Madden:]

Rocco, in terms of the take rate, so Rev ex-TAC as a percentage of GAAP revenue is not a take rate in our in our model. Spend is a number that is much higher than GAAP revenue. The reason we show Rev ex-TAC is because we have different pricing models with different revenue accounting treatment. Our GAAP revenue represents spend on our fixed pricing option, but on our subscription and percentage of spend option, it represents spend after deducting media and data costs. It is not a spend number, it's a GAAP revenue number. But what we focus on is Rev ex-TAC because that essentially then takes out the media and data costs out of the fixed pricing option such that Rev ex-TAC normalizes the three different pricing options; it's all net of media and data costs. But it is not a take rate when you do Rev ex-TAC divided by GAAP revenue, you would have to do that divided by spend, but spend is not a metric that we disclose.

[Rocco Strauss:]

All right. Great, guys. Thank you.

[Operator:]

Now we will take a question now from Andrew Boone. Andrew, please go ahead with your question.

[Andrew Boone:]

Hi, guys. Thanks for taking the question. I just wanted to touch base in terms of the Salesforce . And just any progress you guys can share in terms of getting that up and scaled and kind of the client perception as you guys kind of have more feet on the street? Thanks so much.

[Chris Vanderhook:]

First and foremost, let's just talk about the quality of the candidates coming in from the pipeline. Viant really has, post its IPO, the product in the marketplace. I think everyone in the industry is recognizing the scale and accuracy that our ID brings in the frictionless nature that we can use the current ecosystem. When you have that brand halo going on in the market, it attracts a huge level of talent, much higher quality of caliber of individuals coming on board to the team. We mentioned Kendra from a Chief People Officer, David Stayhi , lead heading up our agency partnerships came to us from Google. I could go on and on and on about the great companies that these individuals have left to come join the Viant team. Really, it's because the product works and it's scaled today. I think that's what's drawing it the big talent here.

[Larry Madden:]

As far as the sales hires making headway there, we're well on our way there. We're hopeful that we're going to hire the majority of those really by second half. Our plan is to be well through that hiring plan through the second half. We want to make sure we're hiring the right people, but as Tim said, we're seeing absolutely great candidates across great technology companies coming our way. One other point I want to note, I think, obviously, we are a challenger brand and I think both from people who are coming to work here, they understand the opportunity and they want to make an impact. I think commercially moving to the clients, I think clients like the challenger as well. What we hear consistently is they don't want to just see more Google, they don't. A company like us coming, I think, it's been very refreshing for them. We are having great conversations. A lot of times when you're getting great sales hires, you're also providing familiar faces for those clients. So, we've seen that pay some dividends as well. It's still early. We're going to give them time to ramp up, but we're excited about what they're going to contribute in the back half of the year.

[Andrew Boone:]

Just to clarify, and this may be more of a Larry question, but this is more of a 2022 event as we start to see that sales capacity fully get up and scaled and running?

[Larry Madden:]

Certainly fully ramped, but we do expect and we always had planned it. That's why we were very aggressive in terms of trying to bring as many of them on in the first half of this year so that we get some benefit in the second half of 2021. But clearly, it will have much more profound effect than 2022.

[Tim Vanderhook:]

Yes. Really, just let's talk about which events matter the most. Google deleting the cookie from Chrome is going to be one of the biggest accelerators for our business because as of right now, our competitors can still rely on that cookie to execute their business day-to-day. When Google pulls that rug out and there is no cookie, we really get to see whose ID system really has the scale and the accuracy that marketers are looking for. We've got many, many years of experience in doing this and a clear patented process. So again, we focus all on bringing the team in and hiring. This is all getting ready for 2022 when Google Chrome actually pulls that cookie and the QPS pipe goes from 55% of the cookie down to zero. And then we'll see what our competitors really have behind their software.

[Andrew Boone:]

Great, thanks, guys.

[Operator:]

There are no further questions, Tim, Chris and Larry. I'll turn it back to you for any closing remarks.

[Tim Vanderhook:]

Thank you very much for everyone joining us today. Last thing I want to thank is our employees. We wouldn't be here without you, your dedication, effort level and tremendous level of brainpower that you bring to work each and every day. I just want to say thank you for all of that. And we look forward to continuing to build the momentum in the future quarters to come. Thanks, everyone.

[Operator:]

Thank you so much. And again, this does conclude today's webinar. We thank you all for your participation. You may now disconnect.