Viant Technology Inc. Q2 FY2023 Earnings Call

Hello, everyone. And welcome to Viant’s Second Quarter 2023 Earnings Conference Call. My name is Catherine, and I will be your operator today. Before I hand the call over to Viant’s leadership team, I’d like to go over just a few housekeeping notes for the program. As a reminder, this webinar is being recorded. After the speakers’ remarks, there will be a question-and-answer session. If you plan to ask a question, please ensure you set your Zoom name to display your full name and firm. If you’d like to ask a question during the time, please use the raise hand function located at the bottom of your screen. Thank you for your attendance today. And I will now turn the call over to Ben Tapper with Viant Technology.

Thank you, Catherine. Good afternoon, and welcome to Viant Technology’s second 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 want to remind you that we will be making forward-looking statements today, including our guidance for Q3 2023 and our platform development initiatives, which are based on assumptions and are subject to various future events, risks, and uncertainties that could result in actual results differing significantly from those projected. These forward-looking statements only reflect our position as of today, and we are not obligated to update or revise them except as required by law. For more information about the factors that might cause actual results to differ from our forward-looking statements, please refer to the news release issued today and to the risks and uncertainties discussed in our quarterly report on Form 10-Q for the quarter ended June 30, 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 comparable GAAP measures, can be found in the news release issued today, available on the Investor Relations page of our website and in our SEC filings. I would now like to turn the call over to Tim Vanderhook, Chief Executive Officer of Viant. Tim?

Thanks, Ben, and thanks, everyone, for joining us today. I’m excited to share that we had a great second quarter, as we built on our momentum through the first quarter amid an improving macro environment. We significantly exceeded our guidance range on both revenue and adjusted EBITDA. The increasing adoption rates of our household ID, advanced reporting and data platform products drove our outperformance in the quarter as customers look for smarter and more efficient ways to deliver their ad campaigns. At the same time, leveraging our internally developed AI drove our own productivity. As we look into the rest of the year and throughout 2024, we see a number of tailwinds accelerating our growth; first, the continued application of artificial intelligence; second, Google’s deletion of cookies in 2024; and third, the ongoing transition of $60 billion of linear television moving into Connected TV. I want to share a bit more on each of these areas and provide more clarity on how we see them driving our growth and profitability. The promise of artificial intelligence is not really new for the ad tech industry. At Viant, we’re working aggressively toward our vision of building an autonomous ad platform. Similar to the way the automotive industry has its sights set on self-driving cars to boost the number of vehicles sold per year, we believe an autonomous ad platform that leverages AI to help advertisers achieve superior campaign performance will grow our total addressable market. Our goal is to leverage AI to make the programmatic ad opportunity available to millions of small and midsized businesses by making it simple for them to reach new customers and grow their businesses. We envision AI as the key to scaling our customer count from the hundreds into the millions and unlike autonomous vehicles, our industry hasn’t fully realized this vision yet. However, we have been focused on laying the groundwork of automation and training deep learning models that solve programmatic traders’ problems one-by-one to help them improve their campaign results in a more automated fashion. One great example of this is the release of our new AI-powered Bid Optimizer late in the second quarter. This translated into immediate benefits for our advertisers in the form of more efficient CPM pricing. For customers who have opted into the AI-powered Bid Optimizer, we have achieved a CPM savings on average of over 35% for the same publisher ad inventory. Bid Optimizer is achieving incredible results for our clients and is a great example of how Viant is leveraging newly developed AI to increase the value of our ad platform to our customers, which drives them to consolidate more of their ad budget into our platform. We believe that the application of AI in the programmatic is the largest market opportunity since the invention of real-time bidding itself. These new AI-powered solutions are allowing us to deliver a best-in-class experience and results to our customers. We have an exciting product pipeline and I’m excited to share more with you in the future. On the second point I touched on, Google’s impending deletion of cookies, which they have recently stated is set to start in Q1 of 2024. This will create additional revenue opportunities for Viant. I’d like to remind investors that Viant’s patented technology gives marketers the ability to execute omnichannel advertising using our household ID and this does not rely on the cookie like other solutions in the market. Our household ID has achieved more than 80% availability across all ad requests that we see. We believe that Google’s pending deletion of cookies and other identifiers will further accelerate the growth of ad spend flowing through our platform. On the third opportunity, linear TV to streaming. The adoption of streaming services will continue to shift marketers’ dollars and we see an additional $60 billion of ad spend coming into the programmatic ad market. In CTV, our household ID is available on over 90% of all ad requests, which is a significant advantage in this fast-growing space. I’m happy to report that we outpaced the market in Q2 with strong double-digit growth in CTV. There are multiple factors that contributed to this growth, but our ability to measure return on ad spend against a household rather than a device is critical in a cookieless environment like CTV. And it’s important to remember why CTV gets so much attention. Nearly 70% of Americans engage with CTV and there’s still significant room to grow. As linear TV dominance wanes, no single measurement protocol has been developed. With the application of our Viant household ID, marketers can confidently apply the ad spend previously allocated to linear TV to a far more sophisticated CTV ecosystem. Now with the use of Viant’s ad platform, those marketers can run campaigns in this high growth channel with the same precision and visibility expected from a programmatic platform. And to close, we had a very strong second quarter. We’re making immediate strides on our AI initiatives that are translating directly into value for our customers and our shareholders. We’re well positioned and excited to share the strong financial results we’re expecting for Q3 as well, which Larry will touch on in a bit. We are accelerating our momentum into the second half and we look forward to providing an update on our product pipeline at an Innovation event this fall with more details on that to come soon. Now I will hand the call over to Chris to discuss more around our products and customers.

Thanks, Tim. Q2 was another strong quarter of wins across our client base, with particularly strong results within the mid-market, where we believe our efficiency, attribution and measurement capabilities, along with our unrivaled customer support have made us a go-to choice for marketers whose objective is maximizing their return on ad spend. In the past, I’ve discussed crucial elements that differentiate the Viant platform and make us such a formidable solution in the mid-market. First and foremost, you must offer the best product, which means the lowest CPM to deliver the best return on ad spend. Second, you must demonstrate superior performance in the form of comprehensive measurement and reporting. And finally, you have to provide the support infrastructure to ensure the customer experience is seamless. With more than 14,000 ad agencies in the U.S. alone, the mid-market is a large and dynamic marketplace and one in which we are particularly well suited to win. In much the same way, mid-market agencies have become attractive choices for brands looking to establish themselves in innovative and creative ways, so too are their preferred tech partners. In this way, Viant is working with these mid-market agencies and brands to break free from a tired paradigm of one-size-fits-all platforms by offering industry-leading tools, approaches and service. The benefits of the self-service programmatic model are well known. But at Viant, we specialize in multiple pathways to get our clients up to speed on our platform. Our intuitive user interface and focus on automation further enhances that ramp-up, while our unique data tools enable targeting, forecasting, reporting, and ultimately, visibility that is largely unavailable anywhere else. I want to talk a little bit more about two specific areas of our DSP that truly differentiate us and each in their own right are vital to the success of mid-market customers. For several quarters, we’ve discussed investments we’ve been making in the Viant Data Platform, with a long history of effectively and safely leveraging massive data sets to drive our customers’ success, the Viant Data Platform in many ways is the culmination of that journey. How to manage data and how to extract value from that data are two questions faced by nearly all of our clients. They want to be able to use their first-party data in conjunction with their advertising campaigns. Through integrations with industry-leading data warehouses and clean room providers, we’re able to provide secure solutions that deliver real-time insights that can be inserted directly into campaign design and implementation. None of our competitors have a tool suite this comprehensive. And more importantly, none of our competitors have Viant’s track record to leverage that data in a commercially viable and privacy-friendly way. The Viant Data Platform is being leveraged by our largest customers and as they future-proof their programmatic advertising strategy for the impending deletion of third-party cookies by Google next year. Clients leveraging our household ID, along with the Viant Data Platform are able to deliver relevant ads while still being able to measure the impact of those ads in a cookieless world. Next, I want to share more information on our supply path optimization initiative, Direct Access. Direct Access is a program that develops the most efficient supply path for our customers by creating partnerships with premium content owners to monetize their content directly, while lowering costs for advertisers by eliminating the reselling of inventory amongst middlemen. Our focus for the Direct Access Program has centered on CTV. Tim discussed the strong results we’re seeing in the CTV space and Direct Access is helping to drive that success. With a more efficient supply chain, advertisers see lower cost of media, with a higher win rate in ad actions, as well as lower instances of fraud, which all boils down to better campaign performance and higher return on ad spend. Notably, we’ve partnered with many of the largest Connected TV content owners in the industry, representing some of the most premium inventory being watched by consumers. Although still early, our Direct Access Program is gaining a lot of attention by both new and existing customers who are seeking lower CPMs on premium inventory by leveraging a more efficient supply path. In the second quarter, Direct Access represented more than 10% of CTV spend and we expect that to increase throughout the year as we see steady adoption by our clients. Additionally, I’m proud to announce Viant’s recent inclusion in Prebid.org. Prebid is open source technology that provides an alternative path for premium publishers to take bids directly on their advertising inventory rather than through multiple resellers. This leads to better economics for publishers and advertisers alike, and ultimately, a more efficient programmatic ecosystem. We expect to release new technology in this area as more and more publishers look to gain direct access to our customers’ demand across all channels. And with that, I’ll close by saying we’ve wrapped an excellent first half of the year and we’re encouraged by the strong Viant signals we’re seeing from our customers as we move into the second half. We continue to focus on delivering best-in-class product and we believe the gains we’ve made so far this year are only the beginning. Thank you and I’ll now turn it over to Larry to provide more details on our financial performance.

Thank you, Chris. Before I start, I want to remind everyone that we have a presentation available on our Investor Relations website that includes additional financial information for today's call. As Tim mentioned, we built on our momentum from the first quarter, surpassing our revenue and adjusted EBITDA guidance for Q2 and reaching the upper limit of our guidance for contribution excluding TAC. Our revenue for the quarter was $57.2 million, which represents a 12% increase compared to the same period last year, up 37% from Q1, and above the high end of our guidance. The contribution excluding TAC for the quarter stood at $33.7 million, reflecting a 6% increase from the prior year, a 20% rise over Q1, and at the high end of our guidance. We are observing positive trends in ad spending, as indicated by the revenue and contribution growth rates in Q2 accelerating from Q1 levels. We anticipate that this positive trend will continue and strengthen in the latter half of the year. In terms of customer segments, we experienced a robust recovery in our retail and consumer goods categories, both showing strong growth in double digits for the quarter, while spending in our travel, online gambling, and automotive sectors remained strong. We also saw significant growth in CTV this quarter, partially due to the successful outcomes from our Direct Access Program. Moreover, our clients are responding well to our distinctive ability to deliver highly targeted messaging at the household level, even in a cookieless environment. In the second quarter, CTV made up over a third of total advertiser spending on our platform. Video, which includes both CTV and mobile video formats, accounted for more than half of the spending on our platform and experienced substantial growth this quarter. Streaming audio, though still early in its development, also saw solid double-digit growth during the period. The promising growth trajectory of streaming audio resembles the initial success we had with CTV and reinforces our commitment to staying at the forefront of current and future ad spending trends. The advertiser spend per active customer rose by 7% year over year, and our percent of spend customers spent, on average, over three times what fixed-price customers did. It's essential to note that the benefits of our self-serve DSP continue to enhance the difference between our percent of spend customers and fixed-price customers. Our percent of spend customers not only have higher retention rates but also show a greater willingness to expand their business with us. We finished the quarter with 314 active customers, a net decrease of 13 customers during the period. As mentioned in previous earnings calls, our approach to customer growth focuses on fostering stronger relationships with high-quality customers who can spend more. In line with this strategy, we are gradually moving away from servicing lower-tier customers and are actively bringing on customers with higher long-term value potential. This strategic transition allows us to concentrate on forming lasting partnerships that support sustainable growth and success. Regarding operating expenses, our non-GAAP operating expenses reached $26.9 million for the quarter, which is a 23% year-over-year decline. This decrease reflects our commitment to achieving operational efficiency across the business. While realizing these cost savings, we remain dedicated to investing in future growth, as shown by a 39% increase in the size of our product and engineering teams over the same timeframe. Our strategy aims for a balance between efficiency improvements and investing in the teams and technologies that will drive our long-term success. The integration of generative AI technologies across our organization has had a significant effect, leading to a noteworthy rise in productivity. These initiatives have allowed us to achieve impressive outcomes with fewer resources, which further solidifies our confidence in our ability to significantly enhance our operating margins. One internal productivity metric we utilize is revenue per employee, which increased by 27% this quarter compared to the previous year. By harnessing state-of-the-art AI, we are well-prepared to continue advancing both innovation and operational efficiency. For the second quarter, our adjusted EBITDA was $6.8 million, significantly above the upper limit of our guidance and an increase of about $10 million from last year and $7.2 million from the prior quarter. The adjusted EBITDA margin, as a percentage of contribution excluding TAC, was 20.2% for the quarter, marking a 30-percentage-point improvement year-over-year. For Q2, our non-GAAP net income, which does not include stock-based compensation, amounted to $5.1 million, compared to a non-GAAP net loss of $5.9 million in the same period last year. Non-GAAP earnings per Class A share were $0.06 for this quarter, compared to a loss of $0.08 in the previous year. We ended the quarter with 62.4 million Class A and Class B shares outstanding and $204 million in cash, equating to approximately $3.27 per share. We had $224 million in positive working capital and no debt at the end of the quarter, along with access to a $75 million unused credit facility. This solid financial position prepares us to fully leverage the significant market opportunities ahead. Looking towards Q3, we are optimistic about the accelerating growth trends in our business and the ongoing improvements in the advertising landscape. We anticipate revenue between $56 million and $59 million for the third quarter, which would reflect an 18% year-over-year increase at the midpoint. Contribution excluding TAC is expected to be in the range of $35 million to $37 million, reflecting a 12% year-over-year increase at the midpoint. Non-GAAP operating expenses are projected to be between $28.5 million and $29.5 million, representing a year-over-year decline of 14% at the midpoint. Finally, we estimate adjusted EBITDA to be between $6.5 million and $7.5 million, reflecting an $8.8 million year-over-year increase at the midpoint. In summary, Q2 was another quarter of strong performance. The strength of our platform, combined with our unmatched service, continues to be pivotal in attracting new clients and nurturing growth with existing ones. As the overall economy displays signs of recovery, we are well equipped to capitalize on our momentum and increase our market share. Our strong financial profile, effective cost management, and unwavering focus on execution will enable us to achieve robust topline growth and expand EBITDA margins moving forward. Above all, our commitment to providing long-term value to our customers and shareholders remains central to our mission. With that, we have completed our prepared remarks, and I will now hand it back to the Operator to open the floor for questions.

First, I would like to call upon Maria Ripps from Canaccord. Maria, you can now begin.

All right. Thanks so much for taking my questions. Can you hear me okay?

Yes.

Yes.

Yeah.

Thanks so much. Could you discuss how the macro environment evolved during Q2 and so far in Q3 compared to your expectations? Were the better-than-expected results primarily due to a stronger macro environment, or have you observed indications that your investments in the platform are helping you gain market share?

Yeah. Larry, you want to take the first one.

Yeah. I mean, I think, the key here is and we said this last quarter, it’s truly stabilized coming out of January. Really the second half of last year into January, there was much more uncertainty and really since that point, we have seen a stabilization across the board. Q2 grew faster than Q1. We expect that trend to continue in Q3. Part of that in Q3 at least is easier comps given that we were impacted last Q3 and Q4 by the macro challenges. But we are also winning a larger share of our customer budget. So it’s really two-fold in terms of the acceleration of growth rates.

On the...

We’re not assuming that the economy is going to improve in Q3. We’re assuming it remains stable as it is today.

And on the second question, I do believe we’re gaining market share in the mid-market product is performing very, very nicely, our team is executing very well and we offer what they need, which is the household ID, the data platform, the level of analytics that the holding companies have to offer their customers. So I do believe it was macroeconomic improvement somewhat, but I also believe that we are gaining market share in that mid-market area.

Got it.

I would add one other point to that is, where we’re seeing the improvement in areas like retail and CPG, which had been down for a couple of quarters, that came back nicely in Q2...

Okay.

That’s more of a macro development.

Got it. That’s very helpful. And then how much of incremental upside do you think it’s reasonable to expect as a result of the 3P cookie deletion next year and do you think most marketers are sort of prepared for this transition at this point?

I would say that most marketers are not prepared for the transition. They continue to operate with the current platforms that utilize cookies until they don’t work anymore. There’s no point to make a change until they do. In terms of how to size the upside opportunity, my personal opinion towards it is that it’s an enormous wall of money that’s currently being spent that needs to get replatformed into platforms that operate in this new world of consumer privacy-friendly or a lack of identifiers in the old ways. So to me, a huge wall of cash that will be replatformed. Our platform has been out for multiple years now being tested, poked, prodded, questioned and yet it continues to deliver results that marketers are looking for in these environments and so I think we’re very well positioned as that shift away from cookie ovens.

And I think the larger one, just in terms of the market, Maria, if you look back to Apple’s changes with the IDFA, you saw the impact that that had on Meta and Snap immediately. A few quarters later, you saw that hit even YouTube. Most people aren’t focused on what’s happening in 2024 here when Google deletes the cookie. They’ve been somewhat muted around the Google’s mobile ad ID, but the same exact thing is going to happen. So we not only expect it to hit open web players that are completely cookie-based. We think that will be a beneficiary of that. But we also believe that this is going to hit Meta, it’s going to hit Snap, Google, all these other walled gardens that more money is still set to come out of those.

Our estimate indicates that Apple’s iOS accounted for about a third of the advertising spend. This is our best assessment regarding social platforms like that. The change at Google is expected to have a significantly larger impact on those businesses, making it a considerable challenge for them.

Got it. That’s very helpful. Thank you so much for the color.

Thank you. Next up we have Laura Martin from Needham.

Hi, guys. I’ll ask two. The first one, I’m very curious that your third leg was the $60 billion moving from linear TV to connected television and I think it’s great you guys are doing the direct access. My question to you is, have you really gotten any inclination that advertisers on linear are willing to substitute content-based buying and targeting with audience-based buying and targeting, which is required if they’re really going to move money into the open Internet?

I would say yes. If the answer were no, digital would never have grown in the first place. We've observed that digital consistently outperforms analog technologies over time because it is more advanced and yields better returns for publishers and advertisers. There is no doubt in my mind that addressable advertising surpasses traditional broadcast advertising and is not in direct competition with it. Digital will significantly outperform linear. This was part of my addressed remarks. The main challenge is that linear is measured using a Nielsen panel that provides gross rating points, while digital is measured through actual data, which reflects real impressions delivered and verified. There is a significant difference in how they are measured, and marketers are working on bridging the gap between the two. However, I wouldn't describe anyone I've spoken to as being unwilling to invest in streaming or addressable CTV; they are simply waiting for consumers to fully embrace that channel.

Okay. Super cool. And then the second thing I was really interested in is the 35% number. So you implemented AI and now you’re getting your customers to you’re a buy-side platform, 35% lower prices for the same content, I’d...

Unreal. Unreal results.

It raises concerns about why there was a 35% overcharge on clients. I wonder how you've achieved such significant improvements using AI, given that machine learning has been available for around five years, and generative AI is the latest development. Is the use of generative AI the reason for these drastic improvements?

I wouldn’t classify it as generative AI. I would classify it as deep learning versus machine learning. That’s really the difference of the two that were applied. And you’re right, 35% is an enormous number and one that we’re really proud of. And I think the one thing that is important is, we achieved 35% savings on what we believe is already the lowest CPMs being cleared through all competitive DSPs. So we do believe we had the lowest CPMs and we just raised the bar again. And that is our goal. If you watch any of the discussions that I have in the industry, we go to war with the sell-side to drive pricing down and we unleash technologies, data, algorithms, everything we can to work on behalf of that advertiser and this is just another breakthrough innovation that’s changed the game for the buy-side and one that’s going to reap huge benefits for us as we continue to compete in the market.

Nearly all of our customers are currently self-service, giving them control over bid pricing. Our platform consistently helps achieve the lowest prices during bidding, but ultimately, the customer has the final say. With our new AI-powered Bid Optimizer, we are working behind the scenes to assist when customers choose to use it, while still providing insights that ensure they remain in control of their bid prices, with our system working diligently on their behalf. The savings in CPM are significant, and our clients appreciate this. Additionally, it offers multi-KPI-based optimization, leading clients to find their pacing and ad performance more streamlined and balanced. We have received positive feedback from our customers regarding this innovation.

It’s part of the reason in the prepared remarks, we feel the AI opportunity is more important than the invention of the real-time bidding protocol itself, because of the numbers that we’re seeing internally when it’s applied and trained properly and given the chance to go, it really is a transformative technology for ad tech, in general, and I think, for many other industries as well.

Great. Thank you very much. Great numbers.

Thank you.

Thanks, Laura.

Thanks.

Thank you. Our next question will be from Andrew Boone from JMP.

Hi, guys. Congrats on the strong results. The key takeaway for me this quarter is the inflection in profitability, right? EBITDA came in much better than we expected. If I go back and I look at 2020 and 2021, assuming a stable macro environment, do you guys have a path to kind of high 20s margins next year or how do we think about you guys balancing the profile of growth versus profitability?

Yeah. It’s hard to comment on next year, Larry, please comment if you’d like to. I think what we’re focused on is the application of artificial intelligence internally, as well as externally for our clients and then we’re going to see adoption rates of these technologies. AI is also a scary concept for some users of it. They don’t know how it’s going to do. They don’t want to mess up results. So it’s watching the adoption rates. In a perfect world, certainly, those numbers you talk about are achievable in a perfect world. But again, customers have to adopt it. The product has to perform. But certainly, the early results we’re seeing are encouraging.

I want to emphasize that for next year, we will keep making strategic investments and continue to innovate. However, I do not expect our operating expenses to grow anywhere close to the growth of our contribution ex-TAC and revenue. Therefore, to address your question, our EBITDA margins will be higher next year than they are this year.

That’s helpful. And then I wanted to go back to the mid-market, right? You guys answered this in a certain respect with Maria’s question. But how do you guys think about the needs of the middle market agency and how are they different than the holdco and how are you guys addressing that, right? So how are you guys winning that business? Thanks so much.

First, the mid-market agencies and customers prioritize campaign performance and the return on ad spend. Unlike holdcos, which often engage in broadcast-style buying and focus on delivering numerous ad impressions, mid-market customers are keenly aware of their customer acquisition costs and require effective performance. A key factor in this performance is the cost of ad impressions, which we are addressing through our AI Bid Optimizer. Additionally, mid-market clients typically do not have the staffing levels seen in programmatic trading, necessitating a more automated platform. Our strong emphasis on automation allows us to meet these needs. Ultimately, mid-market clients require the same sophisticated ad platforms as larger firms, capable of targeting the right ads to the right audiences at competitive prices. This is where our DSP plays a crucial role in enhancing employee productivity and helping them achieve their advertising goals.

Thank you, guys.

Thanks, Andrew.

Thank you. Next up we have Andrew Marok from Raymond James.

Yeah. Thank you for taking my questions. Understanding that you’re making intentional efforts in terms of which customers to allocate resources to, I guess, in light of that customer list optimization, how many of the remaining 314 customers do you think are ones that you can forge these higher value relationships with, and I guess, how does that impact your sales strategy and potentially the sales and marketing line as well?

The majority of our customers fit that profile, and we’re really pleased with our engagement levels. What you’re pointing out is our decision regarding lower spending customers who don’t adopt our services at the same rate as higher spending customers. We haven’t removed them from the platform, but those who spend less will face higher pricing, which may lead to some dropping off. We’re aiming for mid-market customers prepared to spend tens of millions, and that’s where our focus lies.

At this stage, yeah. It’s important to scale with customers that can scale with you.

Great. And then with Direct Access, we’ve seen a good number of peers introducing these kinds of disintermediating products, whether coming from the demand side and the supply side or vice versa. I guess can you talk about how you see that space evolving if everyone has a Direct product? And then how does Viant kind of set themselves apart in that future scenario?

I don’t think the focus is on disintermediating. From our perspective as the buy-side, we represent the advertiser, and our goal is to secure the lowest possible price and remove any unnecessary technology costs along the way. In programmatic advertising, there has historically been a lot of middlemen, and the buy-side has been actively working to eliminate those inefficiencies. As a result, companies that maintain direct relationships with publishers will continue to perform well. This trend of supply path optimization has been developing over the past three to four years, as there is a strong desire for the most direct connection to content owners without unnecessary intermediaries taking a cut. Ultimately, price is a crucial factor in campaign performance, and our customers depend on us to enhance that performance. We will remain firmly on the buy-side, and these initiatives are not focused on the sell-side; instead, they provide the sell-side with direct access to our customers' demand.

Appreciate the color. Thank you.

Thank you, Andrew.

Our next question is from Jason Kreyer from Craig-Hallum.

Hi, guys. Thank you. Great results. You talked a lot about mid-market, and so after the quarter, we saw the announced bankruptcy of one of your competitors and I think they had a presence in the mid-market. Just curious if you see an opportunity for further share gain on the heels of that?

Yeah. I believe you’re referring to the bankruptcy of MediaMath that happened right at the end of Q2 there. We had many shared customers with MediaMath. We believed we were gaining market share from MediaMath regardless of the bankruptcy, and obviously, they filed bankruptcy, which was tough to see for the employees. But I think it’s due to we offer a superior product and that was just capitalism playing out. We saw benefits the day of MediaMath’s bankruptcy filing. We had many shared customers and we saw budgets flowing out of MediaMath and into our platform. And so we were evaluating MediaMath from an acquisition perspective. Unfortunately, we couldn’t get conviction on their cost structure. It was just upside down there. But ultimately, we felt like our product was going to beat them competitively and organically and so we decided not to deploy capital there, which I think proved to be a good decision. We gained many more ad dollars, not necessarily new customers, but more ad dollars in the platform the day they did file bankruptcy. So I think, one, they’re just one competitor in the mid-market. We compete against Yahoo! a lot in the mid-market head-to-head and we’re very focused on beating them in that area as well, too, and we’ve done a good job at that. And so I think, overall, we’re gaining market share from multiple people and what happened in MediaMath was an unfortunate event.

I have a follow-up question for Larry. The GAAP revenue outperformance exceeded the contribution from ex-TAC performance. I'm not sure if this is related to a change in revenue models between fixed fee and percentage of spend. That's just my speculation. Could you clarify the difference?

Yeah. First of all, compared to last year, the growth rates in spending, revenue, and contribution excluding TAC are starting to align more closely. Last year, that was not the case due to the mix shift we were experiencing. However, there may still be some fluctuations in relative growth rates each quarter, influenced by mix and the seasonality of customer spending. We don't expect the growth rates of the various topline metrics to differ significantly from each other, definitely not as they did last year. Looking ahead, as fixed price continues to represent a smaller portion of our total revenue, we anticipate that the growth rates for contribution excluding TAC will surpass those of revenue, and we expect to observe this trend on a quarterly basis. However, in the long run, we foresee this scenario.

Great. Thank you.

And our last question of the day is from Chris Kuntarich from UBS.

Hi, Chris. Are you there?

I think you’re on mute, Chris.

Apologies. Can you guys hear me now?

Yeah.

Great. Can we just talk about some cost efficiencies, it seems like you guys have gotten great leverage there, just visibility into the ability to take further cost efficiencies as you guys are growing your headcount in the R&D group at 39%?

We had already identified significant cost efficiencies from the measures we implemented at the end of last year. However, the productivity improvements from using AI tools internally have been remarkable. This applies to our marketing team utilizing large language models, our data science group, and our analytics teams using these tools to enhance customer insights based on campaign performance data. In engineering, we've seen fantastic productivity gains by adopting basic tools like GitHub Copilot, and we believe we are just beginning to tap into this potential. While there may be some increased technology costs associated with using more AI tools, they are minimal compared to the benefits we are experiencing. This will continue to be a major focus for us in the latter half of the year.

Got it. As we consider some of the unique successes you've mentioned, the AI Bid Optimizer clearly stands out, providing 35% savings on CPM. I’m curious if you could quantify its contribution for the quarter or if you're noticing increased budgets opening up anecdotally. Is it leading to more discussions on your end? Could you help us understand the potential upside from this?

It's a revenue driver as well. It's important to discuss the business model as we roll this out. When we achieve savings for our customers, we make a percentage of that savings, which is generally about 20%. As we create value for our customers, it also creates value and grows our revenue. Adoption was quite early in Q2, so we wanted to share some of the data points on these exciting numbers. Adoption is currently low, but the positive aspect is that it is expected to scale in the future, becoming another revenue driver for Viant as we exit 2023 and enter 2024 with more widespread customer adoption. Moreover, seeing a 35% savings in the initial data points can help accelerate adoption through our sales team, and I believe that’s significant.

If a customer typically goes on the platform and inputs their budget, a 35% reduction in CPM means they will receive more ad impressions. More ad impressions lead to greater reach and influence on consumers, ultimately resulting in more customers and improved campaign performance. This is why we emphasize the importance of price. While it can vary by customer, the price paid often has a significant impact on campaign performance. For example, if you pay $10 CPM compared to $5 CPM, the $10 CPM must generate twice the performance of the $5 CPM to justify the higher cost. Thus, CPM pricing is crucial for performance. When our performance compares favorably to other platforms, it allows us to capture a larger market share. Although, as Tim mentioned, we are still in the early stages, we are very optimistic about the future and anticipate steady adoption leading into the end of the year.

I believe what we are observing is worth noting, as I mentioned during our last earnings call. When discussing Direct Access, we see it as a significant difference. Interestingly, publishers are not receiving lower CPMs; instead, they are receiving higher CPMs. Our win rate in the auction is improving, and we are discovering that several intermediaries in the middle are being squeezed out. By combining our Direct Access efforts with our AI Bid Optimizer, we are identifying the true market price. This is what our clients are seeking. It’s a constantly evolving situation; one quarter may show a stronger market, and some publishers might sell out, resulting in price increases from one quarter to the next. Ultimately, clients want assurance that they are getting a fair deal, and we are committed to delivering that.

Got it. Thanks for the color.

Perfect.

That concludes our questions portion.

Great. Well, I’d like to thank everyone for joining the earnings call. I want to thank the Viant team for an incredible execution in the second quarter and we will see you all at an Innovation Day later this year and at our next earnings call. Thanks for joining.

Thank you everyone for joining us today. This now concludes today’s webinar. You may now disconnect. Have a great day.