Hello, everyone, and welcome to Viant Technology's Second Quarter 2022 Earnings Webinar. My name is Kelsey, and I will be your operator today. Before I hand the call over to the Viant leadership team, I'd like to go over just a few housekeeping notes for the program. As a reminder, this webinar is being recorded. [Operator Instructions] We thank you for your attendance today, and I will now turn things over to Nicole Borsje with the Blueshirt Group. Nicole?

Thank you, Kelsey. Good afternoon, and welcome to Viant Technology's Second Quarter 2022 Financial Results 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, 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 statements, 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 risks and uncertainties described in our registration statement on Form 10-K and with 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 GAAP to non-GAAP measures, are included in the news release we issued today and in our filings with the SEC. I would now like to turn the call over to Tim Vanderhook, Chief Executive Officer of Viant. Tim?

Thank you, everyone, for joining us for our second quarter earnings call. We continued to build on momentum across our business in the second quarter. Total spend on our platform grew 32% year-over-year as we continued to gain share in the growing market for programmatic advertising. Customers are rapidly adopting our DSP software to purchase their digital advertising campaigns as it provides a complete platform of ad personalization and measurement for cookie and cookieless devices. As we continue to execute our long-term strategy of acquiring new customers and moving fixed price customers to our percentage of spend business model, this creates a near-term drag on our reported GAAP revenue growth rates relative to the growth rates we are seeing of total advertiser spend on the platform. We have made tremendous progress executing against our strategic plan and remain very excited about the conversations we are having with customers as they consolidate more of their ad budgets in Viant's DSP. The tailwinds shifting ad dollars into programmatic channels have never been stronger, and we are continuing to enhance our platform and organization for long-term profitable growth. We are very encouraged by the ongoing traction we are having with customer additions, while the average spend per active customer on our platform continues to grow. We remain on track to achieve our long-term financial targets and are well capitalized to fund our growth objectives. Advertisers are increasingly seeking an independent omnichannel platform for digital advertising that delivers tangible return on investment without relying on cookies and device identifiers. It's also critical in times when budgets and spending priorities shift that advertisers have the flexibility to quickly reallocate spend to match their reach and audience goals. For example, budgets may dictate a shift away from brand campaigns across CTV and into more performance-based marketing…

Thanks, Tim. In the second quarter, we continued to build on our platform with new partnerships and integrations that are driving more value for our customers. As Tim mentioned, we're also pleased to welcome Dustin to the team and see a meaningful opportunity to further build upon our product suite under his leadership. For the seventh consecutive quarter, we grew our active customers now totaling 336, a 17% increase over the prior year period. Marketers and their agencies continue to seek out an independent [buy-side] platform that is fully self-service, has industry-leading integrations across all channels, and a strong measurement offering that accurately calculates return on ad spend. To expand on Tim's comments on macroeconomic trends, we are seeing that ad spending from CPG and automotive continues to lag due to ongoing supply chain-related issues. We also began to see ad spending soften more broadly throughout the month of June. This broad slowdown was highlighted in connected TV ad spending as marketers pulled back their investments in brand advertising, while shifting some of that spending to performance-based advertising campaigns. As a result, connected TV spending grew just 2% in the quarter, or 28%, excluding CPG and automotive. Conversely, we saw large increases in spending across all other channels with desktop and mobile up 56%, audio up 80%, and digital out-of-home up 214%. Although there are macroeconomic headwinds at play, marketers still need to advertise to reach new consumers and engage current ones across all channels. Now I want to highlight the value of an omnichannel DSP like Viant. As conditions and markets change, marketers will react. The key for them is to have a partner like Viant that can allow them to shift their spending habits to adapt to the everchanging landscape. Marketers saw the benefits of the DSP at…

Thanks, Chris, and thank you, everyone, for joining us today. Before I begin, I'd like to remind everyone that we have posted a presentation to our Investor Relations website with supplemental financial information to accompany today's presentation. As Tim mentioned, we are very pleased with the market share gains we achieved in Q2. Advertiser spend across our platform increased 32% over the prior year period and 15% over the prior quarter, despite a deceleration in spend that we saw in the last month of the quarter, as some of our customers adjusted their spending levels due to the challenging adverse macroeconomic environment. We continue to be pleased with increased adoption of our software as evidenced by the growth in our active customer base and average spend per active customer, with both increasing year-over-year and quarter-over-quarter. Our growth in advertiser spend has been driven by our long-term strategy of new and existing customers expanding their usage of our platform through our percent of spend pricing option, which we expect to continue moving forward. We believe that the lifetime value of a customer using our percent of spend pricing option is significantly greater than that of a fixed price customer as percent of spend customers typically ramp spend over time as they consolidate their advertising budgets on our platform. Percent of spend customers have also have higher retention rates as compared to fixed-price customers. In Q2, customers using our percent of spend pricing options spent, on average, approximately 3x that of customers using our fixed-price pricing option. Increasing customer adoption of our percent of spend pricing option has always been our goal because we believe it creates a deeper relationship with our customers and provides for more consistent, predictable, long-term value creation. We are pleased to see this adoption occurring faster than…

[Operator Instructions] And we will hear first from Lloyd Walmsley with UBS.

I have a couple, if I can. First, help us elaborate a little bit. It sounds like you said, if I caught all the disclosures right, auto and CPG were down 13%, but showed some improvement during the quarter. So I guess the worst impacted by the macro verticals are improving, but the overall shape of the quarter sounded like it was exiting a little bit slower, and that's continuing into 3Q. I guess the question is, it sounded like outside of auto and CPG things were broadly pretty strong. Where are you seeing the most decel in the 3Q maybe by vertical? And anything you can share on by advertiser type, brand [ER] or advertiser size, I guess? Anything you could help us a bit more there would be great. And then the second one would just be, it sounds like a great hire you guys had with Dustin. Maybe you can just talk about some of the product initiatives you guys are most excited about that maybe he's adding some fuel to now that he's on the platform.

Yes. Larry, do you want to take the first portion?

Yes. In terms of some of the budget cuts that we've seen, again, we said start it'd in June, but we are seeing it continue. It's across a few different customer verticals. In terms of dollars, I would say it's probably most pronounced across CPG and retail, which are 2 of our largest verticals. You mentioned the improvement that we've noted on CPG and auto in Q2 relative to Q1 and the prior year Q4. That's largely driven by the fact that the comps are getting easier. This has been an issue for several quarters. The amounts are getting smaller, so therefore, the growth that we saw there improved, but it's partly due to relatively easier comps. The other thing I would say is other verticals such as travel and healthcare, they continue to do well. So it really is a case-by-case advertiser. It is probably a little more skewed towards certain verticals versus others. But it's really -- even within something like retail, you have different segments of that market, some are cutting and many others aren't. So it's really a case by case. But I would say CPG and retail are probably the most significant ones.

And just, Lloyd, a little bit more color on that. The pullbacks that we're seeing have largely been in brand-based advertising, particularly we saw it in CTV. We definitely saw a little bit of a pullback there. As I noted in my remarks, we did see a reallocation of some of that money into more performance-based campaigns. And I think that propped up desktop and mobile quite a bit. But it's largely what we're seeing in CTV is in the scatter market where we expected to see a larger increase in spending. And really, we saw most pronounced in June, and we expect that to continue into Q3.

Yes. I'll take the question on Dustin. What an incredible hire for Viant to be able to get a leader over in Amazon's advertising business working on their DSP. To give you an example, he'd previously worked on putting the first ads on Fire TV and then building out that platform. So his ability to come in and shape our CTV from a format perspective and a channel and continue our leadership there is going to be big, but the long-term vision of autonomous advertising and making that a reality where it takes less people to do this very complicated task of purchasing programmatic advertising and simplifying that process is the big goal. But I can tell you, just in a short stint he's been in here, the process that he's brought from Amazon and instituted in our product and engineering team is topnotch. And I think we're going to see huge productivity gains just from the process alone. And then coupled with his vision on where we can take this in CTV, we think it's going to be very meaningful and impactful. As he gets his sea legs, we'll probably hold an Investor Day and a Customer Day further out to share some of what that vision looks like.

Great. Well, look forward to that.

[Operator Instructions] We'll move on to Matt Condon with JMP.

Matt Condon on for Andrew Boone. Just 2 for me. I appreciate the comments on the convergence between contribution ex-TAC and spend. But is there any more color you can give in 2023 and just the pace of that? And then 2, with cookie deprecation being pushed out to 2024, can you just talk about how that's changing your conversation with marketers and maybe just the overall go-to-market strategy?

I'll let Larry take the first one, but I'll jump in on the delay of cookies getting deprecated add to anything. When we look at the bid stream today, 3 out of 4 ads don't have a cookie or a device ID today. I think the nagging issue is that Chrome still has the cookie. One of the toughest things that Viant is up against is just status quo. And as long as Google has that cookie, some marketers get comfortable and they're going to keep with this old, outdated technology for a longer time period. So, for us, it's just challenging status quo, but marketers -- it doesn't change the fact that these are still going away in the future. There's just more time. And so we've actually taken third-party cookies and brought them back into our platform for use across the Chrome web browser and improve the product there, given that now they're going to be available until the end of 2024 as the stated date. So today, as it works in the cookieless channel, we're operating on the people-based data set. In the cookie or trackable channel of Chrome, we're utilizing the third-party cookie. And we updated our WWC software release earlier this year to incorporate third-party cookies once again while they exist. So we improved our product with the use of them inside of Chrome. And again, 40% of mobile ad impressions are on iOS devices and there are no device identifiers there. All these new channels, connected TV, streaming audio, digital out of home that are powering our outsized growth in those channels are all using the technology that we created around the household ID. And we think this is just a continual drumbeat. And once that status quo finally needs to get upended, we do believe our leadership position there will reap us rewards.

But, Matt, just to add to that, I would just look at the customer wins that we continue to knock down. We continue to outperform there. We're winning more customers every day. A lot of that is really because, yes, we have great software. Our platform is incredibly easy to use. We have a vast amount of supply integrations. However, that said, our differentiation lies within the fact that we have our household ID embedded in the software, and it makes it easy for marketers to come in, use that ID across all channels. And ultimately, it bears out in performance. They see what their return on ad spend is across all these channels. You just can't do that with a cookie any longer. You can certainly serve an ad in Chrome and see if somebody went to the website and bought a product, but again, only in Chrome. So I think the market widely recognizes the limitations that are there with the cookie. And we're just focused around continuing to knock down customers and continuing to invest in our household ID technology.

Yes. And Matt, with respect to your first question regarding the mix shift and the impact on revenue and ex-TAC growth rates. As we've been saying all year, that was expected in 2022, and this is what we want to happen. It's just happening much faster than we expected, which is having a significant impact on revenue and ex-TAC growth rates. It certainly creates some short-term pain in terms of those growth rates, but we do believe it better positions us long term. As we mentioned in the prepared remarks, in Q2, percent of spend customers spent 3x what the average fixed price customers spent. So that's the direction we clearly want to go. In terms of how long that will play out, I think as we move, and we've said this before, as we move into 2023, we do expect this trend to begin to improve as the revenue and ex-TAC growth rates will start to converge with the spend growth rates as the impact of this mix shift becomes less significant. In other words, the delta between spend growth and revenue growth will narrow as percentage of spend continues to make it a larger part, but that will take some time. But we'll start seeing that in 2023. And then beyond that, it will get closer and closer.

Larry, Tim, and Chris, that does conclude the questions for today. So on behalf of Viant Technologies, I'd like to thank you all for your participation today. That does conclude today's webinar. We'll see you next quarter.