Earnings Call Transcript - DSP Q2 2024

Operator, Operator

Hello everyone and welcome to Viant Technology's Second Quarter 2024 Earnings Conference Call. My name is Annabeth 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 call 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've set your Zoom name to display your full name and firm. If you would like to ask a question during this 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 Nicole Kunzman.

Nicole Kunzman, Investor Relations

Thank you, Annabeth. Good afternoon and welcome to Viant Technology's Second Quarter 2024 Earnings Conference Call. On the call today are Tim Vanderhook, Co-Founder and Chief Executive Officer; Chris Vanderhook, Co-Founder and Chief Operating Officer; and Larry Madden, Chief Financial Officer. I'd like to remind you that we will make forward-looking statements on our call today, including, but not limited to, our guidance for Q3 2024, our platform development initiatives, and industry trends that are based on assumptions and subject to future events, risks and uncertainties that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of today and we undertake no obligation to update or revise these statements except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements in our entire Safe Harbor statement, please refer to the news release issued today as well as the risks and uncertainties described in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, under the heading risk factors and in our filings with the SEC. During today's call, we will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the news release issued today and in our earnings presentation, which have been posted on the Investor Relations page of the company's website and in our filings with the SEC. I would now like to turn the call over to Tim Vanderhook, Chief Executive Officer of Viant.

Tim Vanderhook, CEO

Thanks, Nicole, and thanks everyone for joining us today. We saw continued momentum in the second quarter with record advertiser spend on our platform, a notable milestone that exceeded our seasonally strong Q4 of 2023. Revenue in Q2 grew 15% year-over-year, while contribution ex-TAC grew 23%. Our ongoing focus on improving efficiency and disciplined expense management continues to drive outperformance in adjusted EBITDA, which increased 41% year-over-year to $9.6 million in the quarter. I am pleased with our team's ongoing commitment to innovation and execution, which drove our consistency and strong results. We remain laser-focused on building on our differentiated position as one of only a couple independent self-service buy-side platforms in the market. As advertisers look for alternatives to the largest legacy players in the industry, Viant is capitalizing on the shifting sentiment and is committed to growing our market share across the programmatic advertising market. Discussions across the ecosystem such as the Department of Justice's Antitrust Lawsuit against Google demonstrate that advertisers are unhappy with the dominating behavior of a handful of players in the industry. Many ad-tech partners are frustrated with the centralized power exerted over the ecosystem. Our ability to capitalize on this changing sentiment is reflected in our results and the growing number of partnerships and integrations we are building. Major content owners, data companies, agencies, and advertisers are coming to us for an alternative solution to the largest DSPs in the market. We believe we are uniquely positioned to capitalize on this changing sentiment. A key area of differentiation for us is our vision for autonomous advertising, supported by our award-winning and ever-evolving suite of AI products and features. Today, I am thrilled to announce a significant milestone in our journey. Given the amount of AI-related initiatives in development, we are ready to properly brand our AI Suite. So today we are announcing the rebranding of our AI Suite under the name ViantAI. ViantAI is designed to revolutionize digital ad campaigns by seamlessly crafting high-impact, multi-channel ad experiences that reach the right audience at the right time with precision. We are rebranding our suite of AI products previously announced as Bid Optimizer, Chat with Data, and AI recommendations under ViantAI. ViantAI is focused on developing AI agents that deliver automation for the four key components of programmatic advertising: planning, buying, measurement, and optimization. Under planning, our latest innovation is a large language model or LLM. Already launched internally, it delivers comprehensive omni-channel media plans in seconds. This LLM has been heavily trained on thousands of ad campaigns, encompassing years of historical ad spend, enabling us to create high-impact media plans that are designed to achieve the goals of any advertiser. This includes selecting high-quality CTV apps, mobile apps, websites, and digital out-of-home locations. It makes recommendations of campaign budgets across channels like display, CTV, streaming audio, and digital out-of-home. We are showcasing this to clients now and are receiving tremendous feedback. Under buying, we released version 2 of our bid optimizer in Q2. The improvements achieved with version 2 are substantial, and Chris will talk more about this in a bit. For measurement, we previously announced Chat with Data, which is continuing to be tested internally with live customer data. We have made great strides and expect this product to be out in Q4. Our final phase towards full autonomy is the application of autonomous optimization, which we expect to release in 2025. This will be an AI-driven agent that dynamically adjusts campaigns in real-time, employing advanced ad strategies like channel allocation, publisher selection, dayparting, and audience discovery. Investing in ViantAI is investing in the future of advertising. We are excited about the transformative impact that will have and will look forward to sharing more updates as we progress. Our vision is resonating with customers who are continuing to scale with us as evidenced by the expansion we are seeing with our largest customer cohort. Our top 100 customers have increased contribution ex-TAC by 29% on a trailing 12-month basis. We are scaling well with our agency partners and continue to add new advertisers within these agencies, which we believe is a testament to the superior service and results we are driving for them. We expect to continue to capitalize on the market tailwinds in our favor and drive more spend from existing customers. We have also had great success this year attracting new customers to our platform, which Larry will talk more about shortly. Our pipeline of large customers continues to grow, and we feel very good about our ability to win more of these advertisers over the long term. Our success with customers is also driven by our focus and investments into the fastest growing channels in programmatic, notably CTV and streaming audio. We continue to see particularly strong momentum in these channels, with both reaching record spend levels in the quarter. The growth in CTV spend on our platform continues to outpace the market, growing more than 40% year-over-year in the quarter, while streaming audio almost doubled year-over-year. Together, these channels represented more than 50% of spend on our platform in the quarter. We expect them to continue to see outsized growth relative to other programmatic channels, as they provide access to some of the most premium content in the market at scale, while also allowing for advanced targeting and measurement capabilities despite the absence of cookies. We are continuing to make investments in our direct access program, which gives our customers more seamless access to these channels, and Chris will touch on this in a bit. In addition, our patented household ID technology continues to be a differentiator for us in the market, enabling customers to plan, buy, and measure campaigns across all channels, regardless of the presence of cookies. Before turning things over to Chris, I wanted to share some thoughts on Google's recent announcement to reverse course on cookie deprecation. We touched on this briefly last quarter, but this news doesn't change our overall vision of making programmatic advertising easier, more efficient, and more effective for our customers with leading measurement and targeting capabilities across all ad formats. CTV is a core driving force across the ad industry as a whole, beyond even linear TV and social channels. And the only way to plan, execute, and measure omni-channel campaigns to include CTV is with alternative identifiers such as our household ID. As we noted last quarter, less than 10% of spend across our platform leverages third-party cookies. We see this number continuing to shrink over time, given the industry's increasing focus on cookie-free channels like CTV. If anything, we believe this announcement from Google is helpful for the industry, as it eliminates the uncertainty that has been complicating the landscape for the last few years. Our long-term strategy and focus remain unchanged, and we look forward to continuing to drive growth and capture share in this very large and growing market for programmatic advertising. With that, I'll turn it over to Chris.

Chris Vanderhook, CFO

Thanks, Tim. I wanted to spend a few minutes today on our recent product updates and dig deeper into some of the positive business dynamics that we are seeing. We were excited to officially roll out Bid Optimizer 2.0 in June, which is driving significant savings over what we saw in version 1.0. As a reminder, Bid Optimizer is an AI agent bidding solution that enables marketers to achieve better bid price discovery, real-time data processing, and predictive ad performance, saving customers time and money by achieving lower CPMs and driving higher return on ad spend. Our upgraded solution is powered by a deep learning neural network trained on Viant’s entire bid stream and is capable of processing millions of requests per second. Bid Optimizer is now running on over 65% of the impressions on our platform, up from 50% under version 1.0, which notably expands the number of impressions and potential cost savings that we can pass along to our customers. A powerful example of customer savings with Bid Optimizer has been Juice Media, who began using the product in Q3 2023. They share that they have seen significant savings in media costs, and for one client in particular, they tripled their performance with the help of Bid Optimizer. This feedback shows that our customers are benefiting from the cost savings and better performance, which has driven more spend to our platform since its rollout. We're excited about the early adoption we are seeing, and we expect to continue to build on Bid Optimizer 2.0 to drive incremental savings for our customers. Next, we are seeing continued increased demand for our advanced reporting solutions, which are becoming a meaningful driver of Contribution ex-TAC. These solutions provide advertisers with closed-loop return on ad spend, as well as lift and incrementality reporting, integrating both online and offline activities, which is becoming increasingly important for customers. We have seen that marketers are willing to pay for advanced reporting because they are losing signal on certain channels and are having a hard time figuring out what is really driving campaign performance. Within walled gardens, advertisers get data on attribution and last-click behavior. But clients are getting smarter and are really looking for reliable data that shows what's driving incremental contributions or incremental sales. Customers value the capabilities and completeness of the advanced reporting solutions we offer, and we expect these products will continue to drive revenue and contribution ex-TAC in the coming quarters. Another dynamic at play in the industry is the acceleration of streaming and the growing dissatisfaction with walled gardens, which is driving more dollars to CTV. Analytics prove that CTV drives incremental impact and outcomes where the walled gardens merely show ads to people who are already going to make a purchase. This is why so many consumers continue to see ads for products and companies that they already buy from. The data shows that CTV is the most impactful channel for creating new demand. We show clients all the time that if you want to grow your revenue, allocate more dollars to CTV. Our direct access offering in CTV is a significant differentiator for us and a major reason why advertisers are increasingly choosing the Viant DSP. There are a number of benefits of direct access that are driving customer adoption. The first is that we are targeting logged-in users of premium CTV content owners, which enables the same addressability as walled gardens. Second is that we are bringing the world's most premium content directly to advertisers and eliminating non-value-added middlemen. This lowers the price of premium CTV on our platform because clients know they are buying directly from the source. The quality and scale of the content partners who have joined Direct Access is incredible and includes Disney, Paramount, Warner Brothers Discovery, NBC Universal, Roku, Samsung, VIZIO, and many other premium content owners and platforms. Advertisers today prefer structuring campaigns around premium publisher content over user-generated content on social channels. Third, we are experiencing a new paradigm with the accelerating rise of streaming and the growing dissatisfaction with the walled gardens, with the larger players trying to set the rules for ad tech. As we continue to scale our direct access program, we provide improved addressability and industry-leading measurement to deliver real contributions for advertisers. Our direct access program continues to resonate with advertisers, and in Q2, well over half of our CTV spend came through direct access—more than twice the spend compared to the prior-year period. We expect this trend to continue moving forward given the superior performance that our clients experience due to the quality of content, addressability, transparency, and efficiency offered by direct access. Finally, I want to add to what Tim touched on in terms of our differentiation in the market, regardless of the presence of cookies across the ecosystem. We recently conducted a market test in conjunction with Havas Media Network, one of the largest media holding companies in the world, to measure the effectiveness of our household ID versus cookies. The test was run for a client in the healthcare space to compare the success rates of two campaigns, one conducted using cookies and the other using the Viant Household ID. The cookie-less approach, which leveraged our Household ID technology, achieved 100% scale and a 93% unique reach across premium publishers, demonstrating how our platform delivers a scalable identity solution for their clients. Other cookie-less tests have been done with other platforms that have had underwhelming results as they have stalled out in scaling their alternative ID solutions compared to cookies. Where the Viant Household ID is scaled across approximately 80% of all ad opportunities, competitive alternate IDs are available less than 15% of the time. This is a great example of our leadership in this area. And with that, I'll turn the call over to Larry to provide more detail on our financial performance.

Larry Madden, CFO

Thank you, Chris. Before I begin, I'd like to remind everyone that we have posted a presentation to our Investor Relations website that includes supplemental financial information to accompany today's call. As Tim discussed, we continued our strong momentum in the second quarter, where we achieved record spend on our platform and 23% growth in Contribution ex-TAC. Revenue and Contribution ex-TAC were both toward the high end of our guidance ranges, and we once again outperformed on adjusted EBITDA. Our success in CTV and streaming audio continued to be a big driver of performance in the quarter, with record spend across both channels. On a combined basis, CTV and streaming audio spend grew nearly 50% year-over-year in Q2, and represented over 50% of total spend on our platform for the quarter. We also continue to benefit from increased customer adoption across our AI product suite, which drove meaningful incremental revenue and Contribution ex-TAC in the quarter. As Tim discussed, there is a shifting sentiment in the market where advertisers and partners are looking for alternatives outside the larger legacy players in the industry. This dynamic further enables us to continue scaling our existing customers while also adding new, larger mid-market customers to our platform. As one of the few independent self-serve buy-side platforms in the market, we expect that trend to continue moving forward. In terms of existing customers, on a trailing 12-month basis through Q2, the percentage of spend customers generating over $500,000 of Contribution ex-TAC increased nearly 30% and the percentage of customers generating over a million of Contribution ex-TAC increased by nearly 40% year-over-year. We're also really pleased with the rapid scaling of new customers as the top 20 customers added in the past year generated on average nearly $300,000 of Contribution ex-TAC during the period. These positive customer trends have enabled us to continue up pacing overall market growth. With that, I'll now turn to our results for the second quarter. Revenue for the quarter was $65.9 million, an increase of 15% versus the prior year period and in the upper half of our guidance range. On a quarter-over-quarter basis, revenue increased 23% from Q1. Contribution ex-TAC for the quarter was $41.6 million, an increase of 23% versus the prior year period, and also in the upper half of our guidance range. On a quarter-over-quarter basis, Contribution ex-TAC increased 22% from Q1. In terms of customer verticals, healthcare, consumer goods, travel, public services, and automotive were the biggest drivers of growth in the quarter. In terms of channels, CTV and streaming audio are increasing in strategic value for customers and continue to drive meaningful growth on our platform. CTV achieved record spend levels in the quarter, growing over 40% on a year-over-year basis and representing more than 40% of total spend on the platform. Streaming Audio also achieved record spend levels in the quarter, nearly doubling on a year-over-year basis and representing almost 10% of total spend on the platform. Customers are leveraging our household ID technology to execute their omni-channel campaigns across these high engagement cookie-less channels. Direct access also continues to be a differentiator for us, providing customers with a higher return on ad spend versus other platforms. In terms of formats, video, which includes CTV, continued to represent over 60% of total spend on our platform in the quarter. Video and audio, on a combined basis, represented over 70% of total spend in the quarter. Turning now to operating expenses for the quarter. Our non-GAAP operating expenses totaled $32 million in Q2, representing an increase of 3% over Q1 and 19% over the prior year period. We remain focused on making strategic investments in our business, specifically around our technology and AI initiatives, to best position ourselves for long-term market share gains and increasing profitability. As we invest, we also remain hyper-focused on driving efficiencies internally, and to that end, we have been able to increase contribution ex-TAC per employee by over 20% over the last 12 months. For the second quarter, we generated adjusted EBITDA of $9.6 million above the high end of our guidance and representing an increase of over 41% over the prior year period and an increase of more than 200% over the prior quarter. The adjusted EBITDA margin as a percentage of contribution ex-TAC was 23% for the quarter, an improvement of 3 percentage points from the prior year period, and 14 percentage points from the prior quarter. For the second quarter, GAAP net income totaled $1.5 million, which compares to a GAAP net loss of $3.2 million in the prior year period. GAAP earnings per class A share were break-even in the second quarter, which compares to a GAAP loss per class A share of $0.07 in the prior year period. Non-GAAP net income, which excludes stock-based compensation and other items, totaled $7.2 million for the quarter, which compares to non-GAAP net income in the prior period of $5.1 million, representing an impressive 41% year-over-year improvement. Non-GAAP earnings per Class A share totaled $0.08 in the quarter, which compares to $0.06 in the prior year period. In terms of share count, we ended the quarter with 63.4 million shares outstanding, consisting of 16.4 million Class A shares and 47 million Class B shares. We also ended the quarter with $210 million in cash and cash equivalents, and we had $227 million of working capital and no debt at quarter end. We continue to have access to a $75 million undrawn credit facility. In Q2, we also generated $14 million of cash flow from operations and $10 million of free cash flow. Since the inception of our share repurchase program in early May 2024, we repurchased a total of 809,000 shares of Class A common stock for approximately $8 million in cash through August 9, 2024. Accordingly, we have $42 million remaining on our $50 million authorized repurchase program. Turning now to our outlook. For the third quarter of 2024, we currently expect revenue in the range of $67.5 million to $70.5 million, representing a year-over-year increase of 16% and a quarter-over-quarter increase of 5% at the midpoint. Contribution ex-TAC is expected to be in the range of $44 million to $46 million, representing year-over-year growth of 15% and quarter-over-quarter growth of 8% at the midpoint. Non-GAAP operating expenses are expected to be between $33 million and $34 million in Q3, representing a year-over-year increase of 14% and a quarter-over-quarter increase of 5% at the midpoint. We expect adjusted EBITDA to be in the range of $11 million to $12 million, which represents a year-over-year increase of 19% and a quarter-over-quarter increase of 20% at the midpoint. Finally, we expect an adjusted EBITDA margin, as a percentage of contribution ex-TAC, of 26% at the midpoint. In closing, we are excited by the momentum we are seeing across our business. Our existing customers are increasing spend on our platform, and we are adding new scalable customers to the mix. Our leadership position across CTV and streaming audio, driven in part by the value of our household ID and direct access program, continues to play a pivotal part in our overall growth and market share gains. The increasing adoption across our expanding AI product suite is driving performance for our customers and incremental growth for the business. We remain ultra-focused on building on this momentum in the quarters ahead. And with that, I will now turn it back over to the operator to open the line for questions.

Operator, Operator

Thank you for that. The first question comes from Andrew Marok at Raymond James. Your line is open.

Andrew Marok, Analyst

Hello. Thank you for taking my questions and congrats on the results. I wanted to talk a little bit about the size of the opportunity remaining, obviously very early days on the AI side, but hearing the tailwinds that it's providing to the business is interesting. I guess, can you just give a sense of the penetration rates you're seeing with these AI enabled services among your clients right now? And is it just kind of a solution-by-solution approach or is it sort of a, you know, you get one, you get them all?

Tim Vanderhook, CEO

Hi, Andrew. It's Tim. And thanks for the comments on the quarter. It's good to see you. Overall, long-term, we do see it as a suite of solutions that work together, and that's again, going against our goal towards autonomous advertising. We've tried to outline the four pillars where we're automating all those functions in some of our prepared remarks. Currently, it has been solution-by-solution. We talked about the second generation of Bid Optimizer, now up to 65% of all impressions, and we've seen tremendous adoption there. I think when we complete the autonomous side at some point in 2025, the idea is that they're all working together.

Andrew Marok, Analyst

Okay, great. Thank you for that. And then maybe a quick one on direct access. So an impressive list of publisher partners heard there, but maybe one that was conspicuous in its absence was Netflix. As they're kind of building out their ad-tech stack and the kind of future of their ads business? One, how do you see that playing out? And two, how do you see your role potentially in that? Thank you.

Tim Vanderhook, CEO

Great. Thanks for that too. So on Netflix, you know, we're going to remain on the buy side, and we have a list of partners announced there, Magnite being one of them. So we'll have access to that. We think in the U.S., we don't believe it's a very scaled consumer base at this point. It is in other markets where we operate. So it hasn't been a big area for demand from our customers yet, but I think as they gain more scale, certainly we'll pick up.

Operator, Operator

Your next question comes from Jason Kreyer from Craig-Hallum. Your line is now open.

Jason Kreyer, Analyst

You guys hear me okay? Yeah. Hi, Jason. Hey guys, nice quarter here. You've had the AI or the autonomous solutions in the market for a few quarters. Just curious, any pushback you get from advertisers, anybody hesitant to adopt these solutions or maybe waiting for more proof points before they jump in?

Tim Vanderhook, CEO

Yeah, I think the number one thing that we look to get is there's always a trust factor you have to establish with clients. And the number one thing that we focus on is we need to show the customer value right up front. So marketers will come in and they'll opt into these features or products. And they're like Bid Optimizer; they instantly see the savings. Version 1.0 was about 35% savings and we're seeing a significant increase over that in 2.0. Hence, that's why you saw the adoption rate get up to around 65% in version 2.0, coming off of 1.0, which was just about 50%. So when you prove out the customer value, then they really trust it and they're opting into those. So that's a big area of focus that we really try and hammer home before we release anything.

Chris Vanderhook, CFO

Yeah, and I would just say in terms of customer pushback, no, they just want to make sure it's accurate. So Bid Optimizer proves that out. Chat with Data, which is taking someone's spoken language and converting it to SQL query and getting into the database, there's probably higher areas of concern there to ensure that the SQL is correct and the numbers they're looking at are accurate. So I wouldn't call it pushback, but I'd certainly say it's looked at under a bigger microscope. With all these products, we're really trying to elevate the human traders on the platform. We're trying to elevate their performance. We see these as assistants to them that are really helping supercharge their efforts. A machine can give an insight, but it's really the human that drives it to a strategic insight. We see this playing really well with customers as we roll out new products.

Jason Kreyer, Analyst

That's helpful to hear what advertisers are looking for. One follow-up: You made the point that large marketers are looking for alternatives to kind of the biggest industry participants. Maybe how does that, in the conversations you're having with these marketers, increase the opportunity for Viant or what are you hearing from them that will evolve your role going forward?

Tim Vanderhook, CEO

Yeah, I think it's what they are looking for. They're looking for tools that help automate a lot of what they're doing. We've talked about this so many times before, but there's simply too many choices in programmatic advertising. Just like you're seeing the productivity across our own revenue or contribution ex-TAC per employee, they're looking to replicate those results pretty similarly. What else would you add?

Chris Vanderhook, CFO

I would say, one is cost savings, which immediately translates into betterAdvertising and business performance for the clients. I think we've been hammering that drum pretty hard. Marketers know that, especially if you're buying premium ad formats that are good at creating new demand. They want to be able to do that as efficiently as possible. So everything we're doing from direct access to Bid Optimizer, that's where marketers are seeing, hey, we need an alternative that's really doing this, not just racking up fees, not forcing us into products that some competitors might build. I think we're a great option there. The other one is just around our model of focusing on the mid-market. We are moving up-market within the mid-market. Larger clients really appreciate that we service them. They like the support and we know that they need to be successful on the platform. Being a good partner to them really helps.

Operator, Operator

Your next question comes from Laura Martin at Needham. Your line is open.

Laura Martin, Analyst

Great. So my first one is your second sentence says we're seeing a market share shift where advertisers are increasing their look for alternatives to the largest players in the industry. That implies you're including Trade Desk, because you're doing more than Google. I understand why Google clients are moving to you. In cases where someone chooses Viant over Trade Desk, why?

Tim Vanderhook, CEO

Well, I wouldn't say it's, you know,

Chris Vanderhook, CFO

Probably not a single reason.

Tim Vanderhook, CEO

I would say that, you know, there's other scale players in the market. I would put the walled gardens in there as well. They're really looking, again, I'll talk about our mid-market focus. It's just a good whitespace area for us. They want something that's not one size fits all for only the biggest multinational marketers in the world. Our clients are extremely data-driven and the advertising needs to perform. I think the products that we build really help them drive efficiency. That's a big area for a need for alternatives. In the end, this boils down to campaign performance. We live and breathe that every day. That's why you win clients and why you keep them. The scale of the household ID versus other DSPs as an alternative identifier that works holistically continues to be a point that we're driving home. The productivity of using our software to buy media versus different software is evident. We have new products in the pipeline that can expand our leadership position.

Laura Martin, Analyst

Okay. And then my follow-up question is on connected television. I'm interested if you're seeing downward pressure on CPMs and whether, if you are, whether you think that's one of the things that drove your 40% CTV revenue growth in the quarter.

Tim Vanderhook, CEO

I didn't look at the exact numbers prior to the call, but nothing noticeable in terms of downward pressure on CPMs. I think the premium CTV owners get premium CPMs. If you're looking at open exchange or other options, there might be some pressure there, but there was already kind of two different CPM prices between those two. I would say both have been pretty consistent, and I wouldn't say that was a factor in our growth.

Chris Vanderhook, CFO

No, I will say though, if you just look at the upfront market, I think there was some pressure possibly on some of the premium guys. Netflix has recently been reported that they've come down on their CPMs. I think that happens with some of the fast channels that are out there possibly. But nonetheless, in our software, by the time a client moves their upfront plan into the DSP, for the premium buyers, a lot of those rates may be already set from their upfront buys. In the spot market, we really haven't seen much of that.

Laura Martin, Analyst

Thank you. Great numbers, guys.

Tim Vanderhook, CEO

Thank you.

Operator, Operator

Your next question comes from Maria Ripps at Canaccord. Your line is open.

Maria Ripps, Analyst

Great. Thanks for taking my questions. First, can you talk about some of the conversations that you may have had with prospective clients who had been moving further down the sales pipeline in anticipation of Google deleting third-party cookies? Are you still expecting to acquire those customers, and have you seen any changes to your sales pipeline since Google's announcement?

Tim Vanderhook, CEO

No, the pipeline was pretty robust leading into it. I think everyone, whether they believed Google was going to do it or not, was already in the mindset that the time is now to start looking for alternatives. Many of those are directly in the pipeline and built in there. I do see when cookie disruption does happen, budget shifts from current cookie-based players into non-cookie or alternative IDs will occur. I think that's where that final leg of the stool will kick in. But it is hard to tell, because 10% or less of our media spend is on cookies. It's hard to know how big that opportunity is transacting in the cookie-based DSPs.

Chris Vanderhook, CFO

I think the other thing to point out is where we see a shift. When we talked about this in our prepared remarks, it's away from the measurement of cookie-based systems. Marketers are starting to understand that just because someone clicked on a search link doesn't assign all of the credit to that. They may have seen a television ad, a streaming audio spot, or a billboard. They are starting to understand that. I have not had one conversation with an agency or a marketer since Google's recent announcement where they were just going back all into cookies. The fact is, if you look at the bitstream, it's around 30% or less, and it continues to decrease every quarter. Even with Google's announcement, if they move to a user opt-out or opt-in on cookies, we still believe cookies are going to continue to decrease. Marketers are certainly looking to measure advertising based on what's creating demand rather than giving credit to whatever the last ad was shown to a person who was probably already going to buy.

Maria Ripps, Analyst

Got it. That's very helpful. And then how should we think about the potential benefit from political advertising, both embedded in your Q3 guide and maybe any thoughts for Q4, especially now that your exposure to streaming audio is increasing?

Tim Vanderhook, CEO

I'll let Larry talk about it in the guide. We do okay in political advertising. I think we have some good products there. In the last two years, I believe we were in the mid-single digits. We think it's going to kind of remain there. We haven't really projected in our numbers substantial upside.

Chris Vanderhook, CFO

One of the hardest parts for us in political advertising is a lack of awareness among those controlling the dollars. We are working to change that awareness, but I don't know if we will catch it this cycle.

Larry Madden, CFO

To be a little bit more specific: In cycles such as the midterms and presidential cycles, we tend to do about 2% to 3% of whatever the second half spend is, typically seeing most of that come in the second half. We haven't assumed that we'll do more than that in our Q3 guide. There will be some more political in Q4, and we'll have a better sense as we move through Q3 what that might look like. However, we are assuming that it's kind of business as usual. We are obviously growing, so by keeping it at 2% or 3%, we are taking in more money, but we aren't assuming much growth this cycle.

Operator, Operator

Your next question comes from Matt Condon with JMP. Your line is open.

Matt Condon, Analyst

Thank you for taking my question. I just wanted to ask one on the data clean rooms or the buying data platform. I see that you guys integrated with Google Cloud's BigQuery data clean rooms in the quarter, and then also you're launching Chat with Data in Q4. Can you just talk about how the Viant data platform and greater adoption there impacts the P&L?

Tim Vanderhook, CEO

Definitely. I mean, clean room matching is effectively replacing a process called cookie syncs. It is an identical process to how the industry became interoperable through this concept of cookie sync tables. Clean room matching is doing a very similar process, but just with different types of identifiers. For us, our focus is interoperability. We did announce the Google Cloud platform in GBQ that you've noticed. We're integrated with Snowflake, and we are working with AWS on it. The whole goal here is to make it interoperable so that anyone—data companies, supply sources, or advertisers with their first-party data in those platforms—can easily and with a single click access drive connectivity to our platform and that data. In terms of what does it mean for the financials of the business, a lot of it comes from measurement and us basically providing better measurement to these advertisers. We have seen measurement revenue included under the Viant data platform revenue, which has ticked up our contribution ex-TAC. So, it has an expanding—if you look at our financial profile, it will increase contribution ex-TAC over time with adoption.

Chris Vanderhook, CFO

We think the interoperability going back to that real quick speeds up customer adoption. The main thing that clients want is the ability to use their first-party data in advertising. When you are integrated with the largest companies that house CRM data for our clients, it just makes a seamless approach for moving their first-party data into their DSP and then using it for targeting and measurement.

Matt Condon, Analyst

That's super helpful. Maybe just a follow-up: Larry, you've done a good job of driving profitability here. Just as we think about 2025 and understand you're not giving any formal guidance for 2025, but what are the key investment areas? Should we see anything different as far as additional engineering or sales force investments in 2025?

Larry Madden, CFO

You will see trends similar to '24. I mean, clearly we're not going to invest our growth in overhead any faster than our growth in contribution ex-TAC. The investments we make will primarily be around engineering and product and sales, certainly around all of the innovation around AI. I would expect kind of low double-digit, low-teens growth in terms of investment for '25, consistent with what we've been doing this year.

Chris Kuntarich, Analyst

Hi, thanks for taking the question. Maybe a first one on Direct Access. Curious to hear how you think about what inning you're in as it relates to ramping your partners and how you think about balancing the quality of the inventory within the Direct Access program versus continuing to grow it. And then Larry, maybe just a double click on the expense question that was just asked. Is it still right to be thinking about low teens growth for expense growth here in '24?

Tim Vanderhook, CEO

Yeah, I'll take the first part of that. Chris, thanks for the question. Kind of what inning are we in? Well, it represents I think over half of—we had said on CTV spend running through Direct Access. I don’t know if we are playing professional baseball. We're in the fourth or fifth inning, I guess. I would say, however, on the program, what's really interesting about it, the first part was just doing a direct integration, helping marketers save on fees. They are not paying middlemen; they're buying direct from the source. That was kind of the first phase of growth. The next is really around the data matches there where they are integrated, matching their subscriber data to our Household ID. This drives great addressability for marketers. This is the same addressability they are used to getting from walled gardens like social. However, they're on the world's most premium content. This is an incredible advertising execution. Half of our CTV spending is going through it, and I think it will continue to drive our CTV spending on the platform.

Chris Vanderhook, CFO

Just to add to that before Larry kicks in, I think one thing that differentiates Viant versus other alternative IDs is that Disney may have a logged-in user, but we know other email addresses that are part of that household. If the logged-in user is Tim but Laura buys the product or service, we can properly attribute and measure the response to the advertising to that household. Other identifiers fail aggressively in that. There is a lot of value added for both the big media companies and other quality content providers that join the program. Larry, did you want to take the other question?

Larry Madden, CFO

Yeah. In terms of overhead for '24, it will be in the low teens, which is what we've been saying all along. You can see the guide in Q3 where we guide overhead. Q4 overhead will be kind of low single-digit percentages above Q3. You add that all up, and you're still in the low teens.

Operator, Operator

That concludes today's webinar. You may now disconnect.

Tim Vanderhook, CEO

Thank you everyone.