Tech Companies Navigate Challenges and Growth in Q2 2024 Earnings Reports

Enfusion, Inc. (ENFN) Q2 2024 Earnings Call Transcript

Michael Infante - Morgan Stanley Faith Brunner - William Blair Gabriela Borges - Goldman Sachs Alexei Gogolev - JPMorgan Matthew Kikkert - Stifel Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Enfusion Second Quarter 2024 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Following speakers' remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. I would now like to turn the call over to Bill Wright, Head of Investor Relations to begin. Bill Wright Good morning, and thank you, operator. We welcome you to Enfusion's second quarter 2024 earnings conference call. Hosting today's call are Oleg Movchan, Enfusion's Chief Executive Officer; Brad Herring, Enfusion's Chief Financial Officer; and Neal Pawar, Enfusion's Chief Operating Officer. Please note our quarterly shareholder letter, which includes our quarterly financial results has been posted to our Investor Relations website. I would like to remind you that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available in the Investor Relations section of our website. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intend to update them following today's call, except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliation to the nearest GAAP measures can be found in today's quarterly shareholder letter, which is available on the company's website. During the second quarter, we had the pleasure of interacting with many of our investors who attended the William Blair Conference in May and the Morgan Stanley and Jefferies conferences in June. We're grateful for a terrific turnout and hope that everyone walked away from those engaging discussions with as many insights as we did. For those of you who couldn't make it to the William Blair or Morgan Stanley conferences, a webcast can be found on the Investor Relations section of our website. You can also find the full Investor Day presentation from earlier this year on the Investor Relations section of our website. With that, I'd like to turn the call over to Oleg to begin. Oleg Movchan Good morning, and thank you for joining us today to discuss our results for the second quarter of 2024. I would like to personally thank all shareholders for their vote of confidence at our Annual Shareholder Meeting on June 12. It's a great privilege to represent Enfusion as both a Board member and the CEO, and I greatly appreciate all your trust and support. We believe we have the right management team in place with the ability to execute on our long-term strategy. As you know, from our second quarter 2024 earnings release published earlier this morning, we reported a solid quarter and reiterated our 2024 full year guidance. We also remain on track to deliver on our medium-term guidance, which is to achieve a revenue growth rate of 20% plus over the 2025-2027 period. On the call today, we will share several proof points that confirm Enfusion's continued move up-market, adding new clients from the outside of the hedge fund segment in the insurance and banking sectors, while deepening our relationship with our existing client base. I'm also pleased to share that similar to last quarter, our client onboarding satisfaction scores continue to remain at three year highs. As the company scales over the next several quarters, we plan to invest in our services platform, empowering our clients and enhancing our service delivery model as we move up-market. We have more than 1,100 employees working to ensure that Enfusion's platform will be the last upgrade our clients will ever need. Now let me walk you through some key financial highlights from the second quarter. Our economic trajectory remained on track in Q2 '24 with $49.5 million in revenue, representing 16% year-over-year growth. Q2 2024 adjusted EBITDA totaled $10.1 million, translating into a healthy adjusted EBITDA margin of 20.5%. Brad will provide a deeper dive on financials later. We signed 39 new clients in Q2 2024, up from 33 last quarter. This brings our total client count to 879. During the quarter, the seasonally strong launch market in Q1 2024 carried through and accelerated. Many of these funds were naturally drawn to Enfusion's platform. Hence, 64% of our wins in the second quarter were launches, including four wins from established firms. We continue to expect the launch and conversion mix to balance out more with a higher percentage of conversions in the back half of 2024. Q2 ACV increased sequentially from $226,000 to $228,000, another firm record representing 7.5% year-over-year growth. Fund launches this quarter were strong, resulting in healthy bookings growth on both sequential and annual basis. We believe that Enfusion remains the go-to platform provider of the hedge fund community due to high client satisfaction, best-in-class service and a strong referral base. Fund conversions, which have higher seat counts and higher AUM are typically larger and more complex firms with higher ACVs. Our strategy is to move up-market, winning larger asset managers, providing a more stable revenue profile, and offering additional product functionality and managed services. While targeting larger and more complex firms, we intend to continue to protect our core hedge fund segment of the market as these firms come to us organically, translating in lower customer acquisition costs. Shifting gears, let me provide you with a few notable client wins across geographies from this quarter. In the Americas, revenue grew 15% year-over-year, in line with Q2 2023. We are pleased to report that we saw a pickup in U.S. fund launches from Q1 continue into Q2. Just like last quarter, this trend is more than compensated for closures and consolidations witnessed earlier. When put together, the U.S. market has shown broad resiliency with specific call out to credit fund launches. On that note, we had a strong year of credit wins in 2023 as of the end of Q2 were running slightly ahead of that pace year-to-date. Beyond the U.S. market, Canada has been showing notable strength in Q2 2024, bringing in a larger account wins, and we are seeing an improved pipeline there. Now let me highlight several exciting cases of new client wins that serve as proof points of Enfusion's ability to expand our market share in the institutional asset management segment. For example, I'm thrilled to announce that Enfusion signed a U.S.-based health and life insurance company that will move approximately $2 billion of internally managed AUM to the Enfusion platform. Enfusion's mobile app will allow the investment team to make decisions regardless of the allocation, while providing the operations team a real-time view into the trading activity. We believe that the unification of these workloads across the teams into one consolidated framework provides this client with a platform to enable collaboration and scale the internally managed assets. In particular, Enfusion improves the transition process to T+1 settlement and automate regulatory compliance oversight. We have stated throughout the year, we have been pushing hard to win more institutional asset managers and our team has been delivering great execution of this strategy. Today, I'm excited to announce that Enfusion signed Strategic Global Advisors, SGA as a client. SGA is a Newport Beach, California-based women-owned institutional asset management firm with around $3 billion in AUM and AUA. SGA employs a bottom-up quantitative investment process across several loan-only equity strategies. SGA selected Enfusion as their team was looking for a new technology partner to help them drive operational efficiencies across the front office that could scale with them into the future. SGA will utilize Enfusion's OEMS broadly, including Portfolio Workbench for cash flow rebalancing, pre-trade compliance, systematic APIs as well as newly released cash letter reporting. This is a very exciting win as we continue to build momentum in the institutional asset management space. SGA chose to leave their long-term technology provider because of Enfusion's modern, SaaS-native itechnology architecture, commitment to partnership and more predictable total cost of ownership. Turning to Asia Pacific. Revenue grew 10% year-over-year, which compares to 14% growth last year and 13% growth in Q1 '24. As you recall, last quarter, we called out some geopolitical and macroeconomic headwinds in APAC. Despite its regional headwinds persisting, we maintain our growth trajectory by expanding market share and gaining more traction with large traditional asset management firms, both stand-alone and captive. For example, we are very excited to announce that one of the largest banks in China became an Enfusion client in Q2 2024. This client is an asset management division of one of the top 10 banks by total assets in China, top 20 in Asia and top 30 globally. This partnership represents a proof point that the Enfusion platform can serve clients beyond typical asset managers and hedge funds. The client will initially focus on fixed income and will eventually expand to other asset classes on their platform. This bank has undergone a very rigorous evaluation of providers and has selected Enfusion as they require a true front-to-back solution that will provide a lower total cost of ownership versus in-house and third-party solutions. Lastly, Enfusion was able to complete Phase 1 of their requirements within three weeks' time, including integration with an external system, demonstrating the agility, the quality of our onboarding process. As part of our expansion in APAC this quarter, I am pleased to share another milestone for Enfusion. We won our first client in New Zealand, a global equity investment management firm with close to $1 billion under management, which evaluated Enfusion for almost two years. And after a very thorough due diligence process, decided to onboard Enfusion and stop using one of our largest competitors. This win is a reflection of our continued effort to expand our APAC book of business and make it less reliant on Hong Kong in light of the macro headwinds referenced earlier this year. I'm also happy to note that several recent wins in APAC have allowed us to further diversify and improve our client base as two-third of the wins in APAC in Q2 2024 were outside of the hedge fund segment. We diversified our overall portfolio mix in APAC significantly over the past several quarters, while alternative asset managers represented 81% of our APAC portfolio at year-end 2023, this now accounts for only 45% of our client base at the end of Q2 2024. Turning towards EMEA. Revenue grew 28% year-over-year in Q2 2024 as we continue to expand our business in the region, significantly above average trends and above our internal historical trends. Our EMEA team maintains the strong momentum, which results in expanding the client base, which in turn will drive greater brand awareness and upsell opportunities as well as the more balanced global growth profile. It is important to note that our EMEA business growth mix becomes increasingly diversified geographically as we have deliberately expanded our book of business to make it less U.K.-centric and capture the expanded opportunity set in the Continental Europe, Middle East and Africa. Europe remains a very diverse yet opportunistic market as reflected by our strong results over the past few quarters. We specifically called out Scandinavia last quarter for continued strength, and we are now seeing success in Switzerland for two quarters in a row. I am pleased to share our continued expansion in Switzerland this quarter. 2Xideas is among the latest Swiss investment managers to partner with Enfusion and enhance their investment operations. 2Xideas is a Swiss-based independent partner-owned investment firm focused on liquid mid-cap stocks with $1.2 billion AUM. Enfusion has been selected as the primary technology and services provider for 2Xideas to help grow and scale their loan-only equity business while taking advantage of Enfusion's highly experienced managed services team to help with their middle and back-office operations. Let me turn to Africa as another proof point of our ability to expand our EMEA footprint outside of the U.K. and strengthen our global franchise. AG Capital is among the latest South African investment managers to partner with Enfusion and enhance their investment operations. AG Capital provides intermediary financial services to institutions, funds and professional investors. They offer trading and execution solutions, hedge funds and hedge fund incubation services as well as prime services. Enfusion has been selected to run AG Capital hedge fund business, which includes funds across local and domestic, direct and alternative investments with strategies across long term equity, fixed income and global macro. Furthermore, Enfusion has enhanced our partnership with Apex, the largest alternative fund administrator in the country, using a major pain point for some managers transitioning from other platforms. Overall, we view the region as a promising technical opportunity. At this time, I'd like to have Neal Pawar, our COO, make a few comments on products and partnerships. Neal Pawar Thank you, Oleg. As many of you know from Investor Day, my focus since joining Enfusion has been to execute on our up-market strategy. We believe we will succeed by addressing the full investment process needs of our clients, which includes expanding functionality to allow Enfusion to become more deeply relied upon and providing clients with the last upgrade they will ever need. As you may have seen, we issued a product announcement on August 2nd that highlighted the latest portfolio management functionalities released within our Portfolio Workbench tool. The newest version adds support for rebalancing across multiple models, seamless integration with portfolio optimizers and innovative mobile functionality, giving PMs the ability to easily manage performance and risk against benchmarks and model portfolios from a single screen on any device. Our mobile offering is gaining popularity with our clients, and we are continuously enhancing its capabilities. This Portfolio Workbench release reinforces Enfusion's commitment to innovation and user-centric design, enhancing PM's decision-making processes to achieve better performance. The new features to Portfolio Workbench include several new enhancements and use cases around how PM's rebalance portfolios across multiple models as well as optimize decision-making and advanced functionalities. We're very excited to provide these highly requested features to all our clients, including both alternative and traditional asset managers. As a reminder, if you're a client, that every week Enfusion releases its SaaS software to all clients. In the second quarter of 2024, we released a total of 267 software enhancements, including Portfolio Workbench enhancements, expanded functionality for fixed income rebalancing and innovative cash ladder report and much, much more. The beauty of the Enfusion cash ladder is that it is fully integrated into our front-to-back platform and synthesizes on-hand cash balances, the impact of unsettled trades, upcoming corporate actions and asset servicing, forward subscriptions and redemptions and more importantly, model the impact of unexecuted orders sitting in the OEMS. Altogether, this is an example of better decision analytics to help our clients make better portfolio construction decisions. And the cash ladder functionality was requested by clients and prospects, particularly in the institutional asset management space. Keep in mind that all our clients benefit from these enhancements simultaneously ensuring everyone is constantly running the latest version of our platform. Our multi-tenanted SaaS model is based on one investment book of record and it's a competitive edge that cannot be understated. As part of our market strategy, we are investing in our software and services platform to improve service delivery and have made several key hires year-to-date. Developing our enterprise support model allows us to support a larger institutional client base and improve the capabilities we deliver to our clients. We have several initiatives completed and underway to enhance the client model, optimizing workflows by relentlessly focusing on lowering the number of clicks, manual steps and interactions with Enfusion's team to perform common functions. This initiative should empower our customers and our employees to spend their time on higher-value tasks. Our culture of innovation has been a talent magnet for us as it allows Enfusion to be an attractive destination for world-class talent. We have recently added two experienced hires to our team, Chris Sturhahn and Daniel Gastel. Chris joins us as our Chief Product Officer, having most recently worked at Axioma, SimCorp and previously worked at Barclays, Bloomberg and BlackRock. Daniel joined as our Head of Transformation also from BlackRock. I'd now like to hand it back to Oleg to discuss market dynamics and strategy. Oleg Movchan Thank you, Neal. As for market dynamics, the strong launch market continued into Q2 2024 and investors maintain their support of the current hedge fund allocations. As such, we saw healthy demand for both launches and conversions in the segment. On the other hand, our geographical expansion in EMEA, the new win in New Zealand as well as notable wins in the insurance and banking segments reflect the ongoing interest from large institutional and traditional players to decrease the total cost of ownership and upgrade for the less time, their current platform. China and Hong Kong markets continue to show capital outflows. However, Enfusion continues to take market share there, exceeding industry growth. Conversions were lower mix this quarter as this accounts have much larger ACVs and the opportunity to compete is more staggered based upon the timing of contract renewals. We continue to closely monitor the competitive landscape and remain very excited about our positioning. Enfusion consistently demonstrated that despite some short-term volatility, our economic profile remains resilient to macro forces over the long term, given the secular nature of the demand for modern and cost-effective investment technology. I would be remiss if I didn't mention dynamics that we observed in the private market segment. Many of the Enfusion hedge fund clients, both credit-focused and multi-strategy funds are already involved in this asset class and seeing a growing opportunity set. As we see investors allocating more capital to private credit and managers deploy capital they've already raised, the operational challenges related to the portfolio management as well as middle and back office remain formidable. To that end, we are working with our existing and potential clients to enhance our current functionality supporting the asset class and assessing platform enhancements that accelerate our product road map here, both organically and inorganically. An important part of any modern investment process is leveraged in both internal and third-party data sets to create more insights into performance and risk. This is exactly where our visual analytics product comes in. Just like Portfolio Workbench and other related functionality, the next generation of our analytics product will be tightly integrated into the overall platform and help our clients improve quality of their investment decision-making and risk management. In conclusion, we are delivering a world-class product to our existing customers in fueling up-market motion with products and services that position the company to win larger and more profitable new business. As our notable client wins show we're taking share in both new and legacy territories while expanding into segments new to Enfusion. Importantly, we will continue to invest in our business and our people to fuel future growth. Enfusion is a unique platform with unparalleled scale. And just as we did 14 years ago, we're faced with a generational opportunity to disrupt the investment technology landscape for all institutional clients and support all investment workloads for generations to come. I will now turn the call to Brad to discuss our financials. Bradley Herring Thanks, Oleg, and thank you, everyone, for joining us this morning. Once again, we're proud to report another quarter of market-leading growth and continued improvement in our profitability profile. For the second quarter, we generated revenue of $49.5 million, an increase of 16% over the same quarter last year. This represents a slight slowdown in our growth rate from the previous quarter, solely due to the performance of our back book, which I'll talk about more in a moment. Referring to the same descriptors we used in our discussion at Investor Day and on previous calls, our 16% growth for the quarter consisted of 15% from the front book and 1% from the back book. Our front book, which as a reminder, is made up of newly converted logos and launches, has accelerated to its highest level in the previous three quarters. Our front book performance is the result of a strong value proposition as well as some modest improvement in the launch market. With regard to the back book, we saw favorable trends in both downgrades and churn as these metrics continue to track towards more normal levels. However, we did see a moderation in our customers' willingness to bring on additional seat and connection counts, which tempered the growth contributed from the existing customer base. That said, while we're encouraged to see growth contributed from the back book shift from negative to positive, we are still a few percentage points short to where we would like to be in terms of growth contribution from our existing customers. As a reminder, if there are any questions about how we segregated our revenue growth into front and back book components, I would point listeners to the Investor Day materials that are posted on our IR website. First quarter ARR was $195.7 million, up 14% year-over-year and 3% higher than what we reported in Q1. Worth noting is 28% of our ARR at the end of the second quarter was generated from clients contributing over $500,000 annually. This is up 200 basis points compared to the same period last year. This is yet another proof point we are executing on our up-market strategy. Our NDR for the quarter was 103%, which was flat sequentially. Consistent with the discussion on revenues for the quarter, NDR was positively impacted by improvements in churn. However, NDR was negatively impacted by lower customer upsells. NDR continues to be negatively impacted by the consolidation of UBS and CS, which reduced our NDR by 60 basis points in the quarter. As a reminder, that impact will roll off in Q4 of this year. We still have our sight set to expand NDR from 106% to 107% as we close out 2024. However, given the more tempered upsell environment, timing to hit that 106% to 107% range could delay into early 2025. Our adjusted gross profit increased by 18% year-over-year to $33.9 million. This represents an adjusted gross margin in the quarter of 68.5%, which is up 125 basis points over Q2 of last year and up 68 basis points sequentially. The year-over-year margin improvement represents continued scale benefits across the client services labor pool, along with lower hosting costs. Adjusted EBITDA for the quarter was $10.1 million, up 27% compared to the same quarter last year. This represents an adjusted EBITDA margin of 20.5%, which is up 190 basis points from the same period a year ago. The improvement over Q2 of last year was due to continued scale from our SG&A functions, lower D&O insurance costs and reductions in some other corporate fees. Adjusted free cash flow for the quarter was $4.6 million for a free cash flow conversion of 46%. For the trailing four quarters, our adjusted free cash conversion was 46%. GAAP net income for the quarter was $2.5 million, which on an average share count of 129 million shares results in a GAAP EPS of $0.02 per share. Adjusted net income of $6.6 million on the same share count produces an adjusted EPS of $0.05 per share. We ended the quarter with approximately $34 million in cash and cash equivalents with no outstanding debt. Our cash balance combined with $100 million of capacity on our revolver gives us adequate liquidity to support both our organic and inorganic growth objectives that we discussed at our Investor Day in March. Moving on to guidance. I want to open up the discussion with a bit of context. I will summarize the first half of 2024 as follows: We presented a number of proof points to underscore our strength in onboarding new logos, whether that be via conversions of competitive platforms or new launches. As we talked about at Investor Day, the long-term benefit from these new front book onboardings will continue to provide the lion's share of our growth in the future. However, the current market backdrop introduces volatility in our back book as our existing customers look to manage costs by either slowing down incremental spend or managing seat and connection counts. We remain optimistic of the growth capabilities of our back book noticeably because the growth generated from that segment has improved five full percentage points from its lows of last year. Recovery to more normal levels in our back book metrics would generate an additional 2 percentage points to 4 percentage points of growth contribution. Given the current levels of market volatility, it's simply too early to make the call just when that recovery will materialize. Regarding profitability, we continue to practice disciplined capital deployment that is made evident by our ability to deliver market-leading top line growth while at the same time continuing moderate expansion in margins. With that backdrop, we are again confirming our initial full year guidance of revenues between $200 million to $210 million, adjusted EBITDA between $40 million to $45 million and a free cash conversion ranging from 50% to 55%. For modeling purposes, we continue to expect stock-based compensation to land between $19 million and $20 million for the year. We'd now like to open up the call to questions. Operator, please go ahead. Thank you. The floor is now open for questions. [Operator Instructions] Your first question comes from the line of Michael Infante of Morgan Stanley. Your line is open. Michael Infante Great. Thanks for taking my question. Oleg and Neal, great to see the continued product innovation on the Portfolio Workbench and cash laddering front. I'd be curious, if you could frame the impact for us just in terms of how these product enhancements are either improving win rates translating to higher levels of ACV, a prime contract signing or maybe what the quantum of bookings and the pipeline from these new initiatives looks like? Thanks. Oleg Movchan Michael, thanks for the question. Good morning. I will let Neal to handle this question. Neal Pawar Yeah. Hi. I think the way to think about this is the Portfolio Workbench in particular, but also some of the other features that we've mentioned like the cash ladder. These are table stakes for institutional asset managers. When we set out our strategy in our Investor Day earlier this year, we talked about wanting to move into that segment in a much larger way and capture more of that serviceable addressable market. And what we've been steadily doing is closing down any gaps that we had in our platform in order to be fit for purpose for that segment. The work ventures already allowed us to win a number of clients in that space. And now that we've got the cash ladder out there, too. We're continuing to make great traction. And one way to really think about it is that as the Portfolio Workbench gets used by more and more clients is integration into the OMS is key. In a lot of large institutional asset managers, the workflows are very distinct and separate. And so as you flow from a portfolio rebalance into the trade execution of that, there's a number of hops and steps and reconciliations that need to take place. The beauty of an integrated workbench alongside an Order Management System allows sort of a seamless integration front to back so that any change in a portfolio automatically flows into its execution venues. This is allowing us to have a really good pipeline of asset management opportunities, and it's really key for us as we move to grow into that space. Oleg Movchan Yeah. So I just wanted to draw your attention to how this is a huge factor for us to increase our footprint on the front office side and front book economics, how it drives it. So as Neal pointed out, this integration, which we always highlighted is our competitive advantage. It really pulls portfolio manager's eyes towards the OMS. And therefore, when people use our portfolio construction tools, immediate benefits of having OMS integrated into this workflow becomes very obvious. And so the top line that exists between the third-party OMS and our Portfolio Workbench, it just obvious. So that's how we look at it. Michael Infante Helpful. Thank you, both. Brad, just a quick one for you. I think you mentioned some favorable trends just in terms of churn specifically. Can we just unpack that point a little bit further. I think last year in the second quarter and churn was down about 24% sequentially from 1Q to 2Q. I think if I have my numbers correct, it was down about 7% sequentially this quarter. So just curious how you're thinking about the impact of churn on the back book and if you need to see a bit of improvement on churn in order to get that incremental 2 points to 4 points of back book improvement? Thanks. Bradley Herring No, sure. Thanks, Michael. So churn certainly has recovered here in the last couple of quarters. If you look at the way the back book is performed, churn has a little room to go, but it's pretty close to actually where we would expect it on a revenue basis. I think the real topic we talked about in the back book has to do with that upsell. So while churn is a meaningful impact, it's certainly kind of normalized back to where it's not the real kind of long pole in the tent in the back half of the year. It's recovered basically to pretty close to where it should be. There's some other areas in the back book that we're more focused on, primarily that upsell component I mentioned in my remarks. Your next question comes from the line of Faith Brunner of William Blair. Your line is open. Faith Brunner Hi, guys. Thanks for taking my question. You guys talked a lot about your ongoing move up-market and the different investments you guys have been making into your software and services. I guess, can you provide some color on the overall services ecosystem. I guess, what role you guys see partnerships playing in this ecosystem? Are you leaning into system integrators as you move up market or any color there of how you're kind of standardizing that process? Oleg Movchan Yeah. Hi, Faith. Good morning. Great question. Definitely, the key players in the institutional asset side when it comes to onboarding and implementation are very different from where we're used to play, which is simpler clients, hedge funds and whatnot. And so yes, we were in very advanced stages of conversations with consultants, advisors, third-party integrators that are often not only get engaged by clients to onboard whatever system client chooses, but they also play key role in selection of those systems. And so it's really important to us to have these relationships deep and so that the consultants understand Enfusion story. And just to step back for a second. In the broader context, especially for large complex investment organizations, business digitization is a big, big theme. And at the end of the day, people talk about AI and all of those things. And so what's fundamental to that exercise is having data clean all in one place. And there is literally no other software platform than Enfusion that actually has that. And therefore, these people, these organizations, they kind of see the final destination for business digitization. And therefore, we feel Enfusion will become a system of choice when we start converting clients from larger to smaller. And this is where those consultant relationships will be key for us to succeed. Faith Brunner All right. Great. Thanks for the color there. And then one more quick one, if I can. We're continuing to see strong growth in the EMEA region. So I guess, from a capital allocation perspective, what investments are you guys making to really scale those teams out there and continue capitalizing on the growth opportunities? Oleg Movchan Yeah. Great question. So we've been adding to our teams in Europe, most recently also in our product management area where we're bringing more specialized product managers in our OEMS and compliance space because obviously, recognizing that Europe isn't one country and there's actually a large number of very different countries with different accounting rules and regulatory rules. We have to make sure that we have the right talent on the ground to be able to, a, ensure that our product is a fit for all those different geographies; and b, to be able to interact with our clients and help them during onboarding and during evaluation of the platform to make sure that they can see how those functionalities work and live within the Enfusion ecosystem. So it's a great question. It's a super important focus for us. Your next question comes from the line of Gabriela Borges of Goldman Sachs. Your line is open. Gabriela Borges Hi. Good morning. Thanks for taking the questions. I have for Oleg, Neal, or Brad, Talk to us a little bit about the cross-sell motion that's happening in the back book. Are there company-specific products that you're excited to be able to get into the hands of customers that will help ramp that number? How much of this is macro pressure tied to seat count e expansion? Just a little bit of color on how much of that is within your control versus how much of it is you waiting for customers to feel better about the underlying environment? Neal Pawar Hi, Gabriela. This is Neal. First, in terms of the upsell and some of the elements that contribute to that, we're putting a lot of effort in our partnerships. We're doing a number of different partnerships with companies ranging from compliance, reporting, transaction cost analysis, other areas where we can basically connect our clients' data directly to those partner systems such that the experience for a client becomes close to seamless. If they sign the contract and agree that they want to use a particular third-party service through Enfusion's partnership, then all they have to do is let us know, and then we can flow their data through and they can start to receive the benefit. So this is an area that we've been putting a lot more emphasis on of late. And we'll absolutely start to yield dividends for us. Oleg Movchan Gabriela, I'll add to that. So Neal kind of mentioned kind of the product component, but there certainly is a macro component that affects the back book. When you look at how our customers add and subtract seats or add and subtract connections, there certainly is a pattern with what's going on in the macro environment that we watch very closely. We saw that play out last year. We talked about it pretty extensively. We don't see a lot of those changes coming through in large lumps, 10% or 20% adds or subtractions, we see a lot of onesies and two-sies. So what we're watching very closely, especially given some of the volatility that's going on now, we'll be watching that real close over the next probably 30 days to 60 days just to see how our customers react to some of this market volatility and see what that's going to mean on the back book. Bradley Herring And I will just chime in with one more perspective. What we can control is also the level of engagement with our customers. And so whether it's increased level of managed services or custom software development, this is where we try to create some additional glue where this relationship becomes both value creative and also economically beneficial for Enfusion. Gabriela Borges Yeah, absolutely. And Brad, the follow-up to you on the guidance. So a couple of comments in the prepared remarks around you just discussed the back book and then a little bit around visibility and macro. Give us a little bit of perspective on your thought process on maintaining the guide and how you think about the level of conservatism that's embedded in that relative to some of the comments you mentioned about the macro being maybe a little bit less visible. Bradley Herring Great question. We spent a lot of time kind of sorting through this. If you look at how the overall businesses perform, I don't want to lose track of just how well that front book is performing. We talked last year, if you remember, we said, look, as the macro environment gets challenged, the front book has a lot of tailwind. It just takes a little while for that tailwind to materialize. We are starting to see that now. When you look at the back half of the year, the unfortunate side of a difficult macro could be as it was last year, where the macro takes a little bit more of a hit in the near term versus the longer-term effect on a positive side that the front book sees. So when we sat down and look at our guide for the year, given some of the uncertainty that's played out, especially over the last, call it, week, we felt it was prudent not to kind of call the winning game here at half time. So we wanted to let a little bit more time pass, see what that back book looks like. We'll certainly come back and revisit this the third quarter. But given that level of uncertainty, we just felt it was prudent just to leave that guide with the range that we put out there to start the year with. We feel confident with that range. There's still some variability, obviously, with that back book component as to where we're going to land in that range. But we wanted to make sure we at least reconfirmed the range that we put out there at the beginning of the year. Your next question comes from the line of Koji Ikeda of Bank of America. Your line is open. Koji Ikeda Yeah. Hey, guys. Thanks for taking the questions. I wanted to ask kind of a follow-up to the demand question. And so as we're heading into a period of what seems like more volatility, specifically around a potential interest rate regime change, how do you guys think about how this could affect demand? I mean, should demand stay consistent with what we've been seeing over the past several years with everything going on? Enfusion has been around for a long time and have lived through many interest regime changes in the past. And so I just wanted to get an additional color here on how we should be thinking about demand environment heading into what should be an interest rates change? Oleg Movchan Yeah. Thank you, Koji. So I guess I would just first shine the light on some of what I said in the prepared remarks. I mean, I love the fact that you look back and highlighted the fact that Enfusion has been around through all this sort of generations of the market and macroeconomic environments. And 2022 and 2023 are a case in point, right? We see a little bit of a client step and breaks and then everything kind of restarted. So while some short-term volatility in demand could impact our trajectory. Over the long term, we are a low beta business. And it's -- I use this term downside convexity where things become bad. People actually come to us from higher cost -- higher total cost of ownership type players and actually choose us because we're that much effective -- more cost effective. I don't think the interest rates alone will explain everything. I mean we see a lot of things that trigger the carry trade. I don't want to go into macro analysis too much. But the reality is when things are pulled back, some of the hedge funds, in particular that live on concentrated trades, there's very few differentiated ideas out there. They will maybe pause their decisions. However, I do not think that it will impact our up-market motion. In fact, I actually -- I have a high level of conviction that it will only accentuate what we've seen recently, which is continued reevaluation of old database architectures of old kind of managed services paradigm and, of course, kind of obsolete software solutions that just very costly bulky. And in fact, in this environment, precludes people from pivoting very quickly into their investment stance to create better risk management framework and deliver better risk-adjusted returns to the investors. So technically, I don't know over the long term, I have a high level of confidence that this business is very robust and low beta business. Koji Ikeda Got it. Thank you, Oleg. And maybe a follow-up question for Brad. When I look at the NRR, 103%, it is up sequentially and up year-over-year. How to think about the most attractive levers over the next 12 months to drive this metric higher? And then also, I know that a component of NRR is onboarding from the back book. So any way you can quantify how much onboarding from the back book has contributed to the NRR of 103%. Thank you very much. Bradley Herring Yeah. Sure. So some of the nuances that will help accelerate that number. Neal mentioned some of those cross-sell opportunities we are looking at while a lot of product is focused on generating front book onboardings, there are some product capabilities that are in the pipeline that will generate some cross-sell. There's also some penetration rates we're working on. If you think about OEMS, managed services and modules like analytics, all those or cross-sell opportunities that will drive NDR up on that existing customer base. There's also some revisiting of some pricing discussions that we have internally. That will be another positive impact. One of the larger impacts is still going to be how we think about our customers growing underneath us. If you go back to Investor Day, if you remember, we talk about growing our customer base kind of horizontally and vertically. I mentioned the vertical part across an OEMS or managed services, but there's still a vertical component where we pick up additional funds from customers where we may not have a full share of wallet. So those are going to be the big -- the biggest drivers that are going to continue to expand that NDR. I want to mention -- I said it in my remarks, we will get some pickup of that NDR when that CS, UBS impact rolls off. So we'll get a little bit of impact there, but the other -- the majority of the impact is going to come from those things I just walked through. Your next question comes from the line of Alexei Gogolev of JPMorgan. Your line is open. Alexei Gogolev Thank you. Hi, Oleg, Brad, Neal. Could I come back -- Brad, could I come back to your 2024 backlog guidance, please. You mentioned the improvement in churn levels where you thought it would be -- so is it fair to assume that you're still looking at 4% to 5% back book churn this year? Bradley Herring Yeah. Churn is going to fall in the -- I would call it more like a 3% to 5% range. But yes, it's still in the low to mid-single digits for churn specifically. Alexei Gogolev Perfect. And then on organic back book growth, is your assumption still around 7% to 10%, despite everything that you just mentioned earlier on the call? Bradley Herring That's the number we're watching. That's still what we're targeting. It will be interesting to see how the back half of the year plays out. We were good in first quarter. We actually fell right in line with where we expected in first quarter -- second quarter. As I mentioned on the overall back book performance, the weak component was that net organic growth piece. So we're watching that closely just to see how that plays out in the back half of the year. Alexei Gogolev And what specifically drove that slightly weaker dynamic that you expect? Is there any geography that is underperforming? Bradley Herring No. It's a good question, Alexei. We spent a lot of time peeling it back and there were -- there's really no patterns into how the slowdown in that upsell component played out. It was mostly just one seat here, two seat there, one connection here, two connections there. It was no one concentration of a large group of clients. It was no concentrations across geographies or types of clients. It was really just a small sliver coming off across the book in general. So it's a good question. And when we peeled it back, there really was no pattern, which is why we're watching it closely in the back half. Alexei Gogolev Okay. So just to reiterate, timing of NRR getting to 106%, 107% (ph) could theoretically be delayed into 2025, but no change in your midpoint of the guidance for the backlog of 4%. Your next question comes from the line of Parker Lane of Stifel. Your line is open. Matthew Kikkert Hi. This is Matthew Kikkert on for Parker. To start, the guidance notice is calling for accelerated EBITDA margin expansion in the second half. Are there any specific efficiency projects that you would expect to start bearing fruit in the next two quarters? Are you expecting it to be mostly spread out or is there any specific areas where this acceleration is going to come from? Neal Pawar It's generally spread out, but to call out one area, in particular, we've been doing a lot of work in what we're calling sort of self-service. And that is where there's a number of types of activities that today our clients performed through our managed service and our client support staff. And especially as we move into the larger institutional segments, that's much more of an expectation that clients can manage those activities themselves. And so there's been an increased demand for the ability to have self-service tools to do that. Obviously, while it also satisfying clients' demand for that, we're making ourselves more efficient because we're taking a number of activities that normally we would perform. In some cases, unpaid, and we're shifting that back to the clients at their request because they want to have greater control and integration into their system. So that's a good concrete example of where we see some of that efficiencies. But there are obviously other examples more broadly across the platform as well. Oleg Movchan Yeah. So what Neal just mentioned is an effort that's going to mostly manifest itself in gross margins. But then we've also got some really good scale benefits flowing through over some of our G&A functions as well. So it's really going to show up in both places. But you're exactly right. We do expect margins to continue to expand. Matthew Kikkert Okay. That's good to hear. Very helpful. And then secondly, I noticed the new fund launches increasing from 55% to 64% in the quarter. How much impact do you expect traditional fund migrations in the second half? Do you still expect that percentage to trend down moving forward? Yeah. I noticed in the shareholder letter, you mentioned the new fund launches just was 64% in the quarter. I think last quarter, you had mentioned that number would be expected to trend down just given that funds are migrating to the platforms that are launching? Oleg Movchan Yes. That's right. So we see a lot of these launches that are what we call launches in disguise, where existing investment organization is launching a new product. But in some sense, the -- it's kind of a conversion. Why? Because they use something other than Enfusion to operate other investment vehicles. And now if they add new product, they make a decision to choose something other than what they currently have in house. And we think that this is -- the launch is more of a conversion category as opposed to launch category. And we don't expect -- number one, we don't expect the hedge fund watch environment to persist forever, right? It's a cyclical thing. And number two, again, naturally, as we migrate up-market, our larger clients will be more conversion other than launches. And typically, they already have existing infrastructure. Bradley Herring And just to add to that real quick. If you look at the count number, you're right, it's like a 65-35 number. If you look at it on an ARR basis, it's much more skewed towards conversion just because what Oleg mentioned, the size of those clients is significantly bigger. With no further questions, this concludes our Q&A session. I will now turn the conference back over to CEO, Oleg Movchan for closing remarks. Oleg Movchan Well, thanks to all of you for great thoughtful questions and, of course, huge gratitude for our shareholders for supporting us for partnering with us and for sharing our vision that Enfusion's disruptive platform and a disruptive company. And we have reiterated our commitment to work really hard on shareholders we have to deliver value. Thanks. This concludes today's conference call. You may now disconnect.

Blend Labs, Inc (BLND) Q2 2024 Earnings Call Transcript

Winnie Ling - Head-Legal and People Nima Ghamsari - Co-Founder and Head-Blend Amir Jafari - Head-Finance and Administration Bryan Michaleski - Investor Relations Lead Good afternoon, and welcome to Blend's Second Quarter 2024 Earnings Conference Call. My name is Winnie Ling, and I'm the Head of Legal and People for the company. Joining us today are Nima Ghamsari, Co-Founder and Head of Blend; and Amir Jafari, our Head of Finance and Administration. After Nima and Amir deliver their prepared remarks, we'll open up the call for questions, moderated by our Investor Relations lead, Bryan Michaleski. You can find the supplemental slides on our Investor Relations webpage at investors.blend.com. During the call, we'll refer to certain non-GAAP measures, which are reconciled to GAAP results in today's earnings release and in the appendix to our supplemental slides. Non-GAAP measures are not intended to be a substitute for GAAP results. Also, certain statements made during today's conference call regarding Blend and its operations, in particular, its guidance for the third quarter of 2024 may be considered forward-looking statements under federal securities laws. The company cautions you that forward-looking statements involve substantial risks and uncertainties and a number of factors, many of which are beyond the company's control, could cause actual results, events or circumstances to differ materially from those described in these statements. Please see the risk factors we've identified in our most recent 10-K, 10-Qs and other SEC filings. We are not undertaking any commitment to update these statements if conditions change, except as required by law. Thank you, Winnie. Good afternoon, everyone. Welcome to our second quarter earnings call. The results we're sharing with you today reflect continued execution against the objectives we set out to achieve late last year, and I'm encouraged that our ongoing commitment to serving our customers through innovation and technology is paying off. We signed a number of important new deals this quarter. We brought more customers live on our platform, and we saw a record high economic value per funded loan, all of which showcase the applicability of our platform to the challenges facing origination broadly today. Before we get in the details of our progress, I want to spend a moment to share our latest perspective on the environment that we're operating in. Since we last spoke, there's been a meaningful shift in the tides in the lending environment across the U.S. and see in the bond market, the bond market seems to be signaling that the Fed's target rate could end the year potentially more than 100 basis points lower than where we've been for the last year. Mortgage rates hit their lowest level since April 2023 earlier this week. And we're already starting to see this show up in our business through application activity levels. And while I'd say it's too early for us to tell how this is going to convert into fundings or revenue or what lies ahead going forward in mortgage rates because things shift seemingly day to day. It's an encouraging signal as we look into the second half of the year. Even more importantly though, I'm hearing from our customers, the market that there's now a greater sense of urgency to get ready for the new market environment. In particular, while profitability has been low for mortgage companies in recent periods, that's kind of led to an appetite for investment being low, but as they see the light at the end of the tunnel and they see rates coming down on the horizon, they're growing more optimistic. And that means that they're willing to have the conversation about how technology can move them forward. Shifting away from the macro, our business is ramping up. We had several new customer wins across mortgage and consumer banking, as well as a pipeline that is as strong as it's been for quite some time, particularly strong in mortgage and home equity. As a reminder, our strongest periods of bookings typically in the third and fourth quarters because our customers were mostly banks and credit unions. They budget for the upcoming year in those quarters. And so, over the past 6 months, we've been building a pipeline, we've been seeing it mature in the past few months, and I feel confident that we're well positioned to execute some key partnerships during this important time. On the product front, we continue to be a leader in digital origination of innovation, and we're investing across our platform. Amongst the newer additions to our portfolio are products focused on helping consumers refinance in an automated streamlined way as well as a real-time home equity product, allowing borrowers to quickly tap the equity in their homes as well as new features in our platform to leverage the recent advancements in AI. And this is timely because with so much money on untapped home equity and more loans becoming in the money as rates come down, we're confident these products will be at the forefront of helping people access this enormous opportunity. We also made a lot of progress towards our fourth quarter non-GAAP operating profitability goal, which Amir will talk a little bit about later in the work we've done in that area and how we're continuing to pace towards that goal. But before we get to that, let me share some more details on these highlights, starting with our platform. When we launched Blend Builder, we intended to create an ecosystem in which Blend, our customers and our partners could all innovate on a single platform. And we already have capabilities built into the platform that span credit bureaus, income verification, automated underwriting, digital closing, already integrating the platform. And every quarter, we're adding to this list, so I want to start highlighting some of the things that we're doing. This quarter, we're excited to announce some new functionality in the platform, starting with new account funding. So, for digital account opening, debit card funding is a critical piece of that. And we launched a new partnership with Astra. This unlocks a better deposit funding experience without the friction and cost it typically takes both for consumers, the friction to go through that process and the cost it typically takes for a bank or credit union to turn on that functionality. And so, in the end, now our customers can access this integration by being on the platform and offer more options to end consumers to be able to drive deposits to their institution. You'll hear about how Langley Federal Credit Union is already benefiting from this later. We're also incorporating some new advancements with AI on our platform. We've integrated some of the latest large language models and are applying them to some very practical use workflows, which is very important to me for it to be a very practical use case. And given the rate of improvement AI, we're now in a position to leverage it to automatically, for example, process documents provided during the workflows. There are still documents collected during most of the lending and origination workflows. And so, for example, if you need to verify a birth certificate to open a new account, our platform can in real-time read and confirm the birth certificate name and date maps the data provided by the consumer. And if there's an issue or a difference, prompt the consumer to make a correction if there isn't a match. And the simple examples like this are important because they happen all the time, but it also illustrates the ability for AI to streamline things that people otherwise wouldn't have a very cheap economical real-time way to solve. And this application of AI is still in early stage and improving area, but we expect we can apply it broadly to all sorts of documents that come in the process to simplify and lower the cost of lending and account opening, and that could be spanning from income documentation, bank statements or other types of things that are needed throughout the process. We also bring together these capabilities, the income verification, the assets, the AI, all the things that I mentioned earlier for our customers to create end-to-end solutions that apply to the market more broadly. Our deposit account solution and our consumer loan solutions are great examples of this. And we've been expanding our product suite as time goes on. And 2 new areas that I'm excited to share with you today are: one, around a next-generation refinance flow and the second is a next-generation home equity flow. In particular, I'll talk about the refinance flow because it's so timely. It's important because as rates look to come down in an ideal world, a consumer could see the rates come down, have a few taps to get approved, lock in their new rate and savings and then close that institution in a matter of a week or two. Unfortunately, today, it's a very arduous process that takes weeks to complete for the consumer, if not, in some cases, months and thousands of dollars in cost, and requires quite a bit of elbow grease from the institution that's offering that loan. Credit reports have to be reviewed; income has to be verified. The filing needs to be underwritten. Our new flow takes a lot of the capabilities that I talked about earlier to create a brand-new flow around refinancing these loans in a very automated, streamlined way to offer a great experience for consumers, quick savings and a much lower cost, faster way for the institution to produce those refinance loans. And while this is still in the early stages, we already have one customer data, and we have a couple of other projects that we're starting with us to deploy. And as you can imagine, it has broad interest from the rest of our customer base. And it gets an example of something where everyone wins with technological innovation. Consumers get help with their finances, which they might need in this environment, lenders get to be able to serve a greater number of them and at a lower cost. And if solutions like this can be broadly deployed in the market, which is obviously our goal, more people will lower their payments and lenders are be able to serve them, which is more profitable for them and consumers will be more financially well off. Citing some of our business highlights for the quarter, our continued focus on delivering leading mortgage capabilities and helping us land new customers and expand with our renewing customers. Last month, Horizon Bank, an $8 billion financial institution based in the Midwest, selected Blend as our mortgage partner, Horizon was looking for a technology provider with highly automated workflows and advanced loan officer tools that could help them significantly improve operational efficiency and loan officer productivity, all while delivering a great consumer experience. It was a pretty competitive process and we're excited Horizon chose to power their consumers' home buying journey. We also created another competitive takeaway with a large regional bank, which it was a customer coming out for renewal, and they were frustrated with their existing technology. They wanted a solution that was more than just an application intake tool and had the automation in place. So, loan officer didn't have to spend a lot of time manually inputting data into the loan origination system or chasing down documents. They are impressed with our integrations into these systems and the automation is built into our origination flows, including, for example, the automatic generation delivery of conditions and documents to borrowers, we're able to get this customer live in only a few weeks. And since then, they've already added home equity lending to their mix. Before I turn to financial holds mortgage, I want to also talk about some investments we made to our product and specifically around the needs of independent mortgage banks who have, in particular, been hurt a lot in this environment. And so, we've taken a refreshed look at our product strategy within the customer segment to make sure we remain ahead of the curve. And that's resulted in a handful of new features in development that we're making good progress on. And I'll share a couple of them. The first relates to loan officer and branch configurability improvements. When you talk about top performing loan officers, many of them prefer to manage their own workflows rather than be constrained by our very broad standard. So, for example, a loan officer might prefer to have a conversation before they call a consumer's credit. While others may prioritize getting that consumer to get as much done before they get on the phone with them, so they can have a more detailed conversation. And so, we want to help loan officers have more autonomy on how they manage those workflows and help them manage their costs and their sales motion. And so, as a result, we're investing in the ability for loan officers to be able to configure their bond experience to better fit the preferences of the workflow. The second upgrade around the customer rolling out for these independent mortgage banks is a more automated disclosures flow, which is particularly important around the refinance experience because the automation is required. So, we're working on the ability to automatically generate the documents that loan officers are required to provide to borrowers such as a loan estimate and put in place the guardrails such that this disclosure delivered ideally in real-time, accurately in a regulatory compliant way. These are just 2 of the many upgrades in our development pipeline to empower loan officers and independent mortgage banks to provide a more tailored experience to their customers. And given the potential for an uptick in volumes based on what we're seeing with lower rates coming in, the timing couldn't be better. Now, turning to some financial highlights. Our economic value per funded loan increased by nearly $5 this quarter. Customers are recognizing the benefit of applying our technology throughout the home buying process, and we're delivering more value as adoption and utilization of our attached products continue to rise. So, for example, Blend Close, we're seeing more customers adopt this solution and deploy it more broadly across their loan books. One particular area of strength that I'm excited about, and we're seeing is within our remote online notarization solution, which offers borrowers the flexibility to sign all their real estate documents with an online notary through electronic signatures from the comfort of their home, making the whole mortgage loan application process faster, more secure and fully digital from start to finish. Our customers are already completing hundreds of these high-value closing each month. While this may not seem like a lot given the scale of our business and the scale of the mortgage industry, we're just getting started, and we expect these volumes to ramp up as the solution gets rolled to more eligible loans and more customers. This is a big deal both for consumers who want that digital closing experience but also for us because the price per unit on that is even greater than our mortgage software price, and it's something that our customers love as well because it saves them time. And some of the early data we received that shows that has been incredible. Our solution has taken defect rates on signatures down to nearly 0 in a couple of the cases. It saved nearly 1.5 days off of the typical origination time. And so, the solution is transformative with thesis highlighting why we think digital first and standardizing around that for closings in the industry is very important. And data points such as these add momentum to our sales strategy and service proof points that the power of the technology can drive better business results. Our customers trust that we'll be able to continue to innovate in ways that serve their bottom line and are increasingly coming back to us for more ways to apply our latest technology to their current problems. One example of this is one of our oldest and largest anchor customers on our mortgage solution who's already expressed interest in embedding the digital closings and their mortgage experience ahead of their renewal next year. And that momentum exemplifies our growing confidence in continuing to expand the value we both deliver and earn on every loan that Blend touches. Further on this point, it was just last year that we shared our expectation to achieve an economic value per funded loan of $90 sometime in 2024. With the traction we've seen year-to-date, we feel like this achievement is behind us already. And as we've heard more from our customers about their latest plans to deploy our add-on solutions in more meaningful ways, it made sense to reset our expectations for this growth avenue. Our latest outlook is that the economic value per funded loan will exceed $100 exiting 2024 a nearly $10 improvement in just a year's time. We remain focused on enhancing these products in a way that simplifies their deployments as well as breaking down limitations to make as many loans eligible to utilize these accretive solutions. Turning over to Consumer Banking. Q2 marks the first time this business generated $8 million of revenue in the quarter, representing 37% year-over-year growth. And we've shared our near-term expectations for this business, a $50 million run rate and 35% compounded annual growth from 2024 to 2026. We're now pacing ahead of that 35% growth rate, a testament to the speed and execution of our implementation teams who have been able to get customers up and running quickly as well as our go-to-market teams who have done a great job of sharing our consumer banking value proposition to new and existing customers. Last week, we shared some compelling statistics on the recent implementation of Langley Federal Credit Union, one of the top 100 largest credit unions in the United States with more than 5 billion assets. So, Langley selected Blend's deposit account opening solution. And since going live in March, they've reported significant improvements across several key areas. Starting with, they've seen a staggering 37% increase in new digital account openings since going live with Blend. And July representing the highest month on record for digital account openings ever for them. On the back end, the rate at which they approved applications that come in required any contact center intervention decreased from 32% of applications to just 7% of applications after implementing Blend. The combination of driving new business while also improving operational efficiency creates a unique competitive edge for our customers. And this is why many of our customers who originally launched with 1 or 2 products on Blend end up expanding with us over time. And you can see that quantified in our pipeline. Coming to the second half of the year, we have about 40 cross-sell opportunities in our pipeline across our full suite of consumer making products. For years, there's been this trend of consumers wanting to have a simple single interface that they can understand everything the bank or credit union can do for them. And we've talked about this for some time, but we knew it would take time to evolve, which makes sense when you're an institution of billions of dollars in assets and numerous product lines, operating in different systems and different silos, it does take time. It does feel like we have recent inflection point. The signs are all there. We have some large deals with very large financial institutions like Navy Federal Credit Union and Citizens Bank. We have a growing interest from large credit unions for us to power their entire platform, and we have a pipeline of cross-sell that's accelerating growth. These are all signs that we've turned the corner and are making meaningful progress towards the vision of frictionless or encompassing banking. Shifting gears to home equity lending. Home equity makes up a large portion of our current cross-sell opportunities. And these prospects are often ones that have seen firsthand, how much of a differentiated Blend solutions are in other areas, and they're ready to expand the partnership into this area of the business, particularly given the macro trend around how much equity has been built up in homes. Consumers have benefited from that home price appreciation over the past few years, and they may tune and find themselves owning a large amount of equity in homes that as the rate environment comes down, they can tap in a very low-rate way. And so, it may be common again to start of home remodeling project or renovation project or pay down some more expensive debt that they have that they can consolidate into one place. And so, as a result, it's become a very natural area for our customers to want to serve their consumers in this environment. Before I hand off to Amir that will help translate this into our quarter and the results we've seen in our upcoming guidance, let me take a moment to reiterate some of the key areas of momentum that I see for Blend in the second half of the year. To start, the data we observed in just the past week tells we may be on the cusp of a shift in the lending landscape. It's an encouraging signal that the activity that underpins our business is nearing return to growth. Even more importantly, our business could be poised to benefit. We have more customers. We have a lot of loans going through the system. We have good market share. And every incremental one that we do, we're creating a lot more value and we're getting a lot more revenue from it. And so, the work we've done to optimize our expense structure on top of that will just give us a lot of financial leverage as the overall macro rebounds. Second, our investment in our platform is maturing at just the right moment. modern experiences such as the AI integrations or the real-time home equity experience or the refinance flow that creates much faster and much simpler refinance for consumers who need it. This has all been work that's come together after years of working on this platform from the ground up. This new evolution of the way that we build our technology is resonating and our customers are bringing more ideas of the applicability of our solution to their own businesses and new and compelling ways. And we haven't let up on our community to innovate in the ways that serve each of our various customer segments. One of the great aspects of well-built technology that can be flexible enough to solve some of the broadest and most unique challenges facing the industry we serve. In RIs, there are almost no limits to the applicability of our solution, and we're continuing to evolve to the needs of our customer base that result in more value for them and us. And lastly, I'm excited to share with you that our pipeline opportunities that we just can apply to is as healthy as I've seen it for a long time. And I think a lot of that has to do with the macro as well as the maturation of our solutions. Our sales team, including myself, we're busy on the road, listing the customers, the growing wish lists from prospects as well as even existing customers who are using our products. And it's clear that Blend is top of mind and a top choice for them to deliver best-in-class modern origination experiences. And as more of our focus -- our customers, focus to what's ahead, our phones are staying incredibly busy. I look forward to sharing some of the new innovative partnerships that we're set to establish in the next few months with you all very soon. And with that, let me turn over to Amir to discuss our second quarter results. Amir, over to you. Amir Jafari Thank you, Nima, and good afternoon, everyone. I'm pleased to be joining you today to discuss our financial results for the second quarter. Our second quarter marks another period of strong execution. We welcome several new customers to our platform. We increased the pace of growth in consumer banking. We've reached a new high for our economic value per funded loan, and we took one step closer to reaching our goal of fourth quarter non-GAAP operating profitability. Before I jump into the results, let me just remind you that unless otherwise stated, all results are non-GAAP. Total company revenues in the second quarter were $40.5 million, ahead of the midpoint and near the high-end of our guidance. We reported platform revenue of $28.7 million, which was also ahead of the midpoint of our guidance. Our mortgage suite revenue was $18.5 million, in line with our expectations for a decrease in aggregate industry originations in the quarter. As Nima shared, we brought in a number of new mortgage customers this year and put together a strong pipeline to fuel growth in the future quarters. We do believe aggregate industry originations will likely be up in the third quarter as compared to Q2. And if the market is right and predicting multiple rate cuts this year, the volume increase should persist into next year, assuming affordability increases for homebuyers. Turning to another highlight. Our mortgage suite economic value for funded loan rose by more than $5 compared to last quarter and by approximately $11 compared to the same period last year, reaching $97. The step-up in our per funded loan rates continue to be primarily driven by higher attach rates of our value accretive add-on products. Shifting to the other key part of our platform. Consumer banking products continue to drive expansion of our footprint with customers with revenue for those products growing 37% year-over-year to a total of $8 million. Our pace of growth is accelerating as we launch new deployments that add incremental platform fees, as well as more adoption of our full suite of solutions. With 37% year-over-year growth, just 2 quarters into the 3-year guidance we provided at our Investor Day, we are on the right track to exceed the 35% CAGR target. We also generated $2.2 million of professional services revenue, which was consistent with the same period last year. We reported title revenue of $11.8 million, exceeding the high-end of our guidance range. Moving on to gross profit. Total company non-GAAP gross profit was $21.8 million. Our non-GAAP Blend platform segment gross margins were 71% compared with 74% a year prior. Our software, we reported non-GAAP software gross margins of 79% compared with 81% a year prior. Our non-GAAP title margins came in at 11% for the second quarter, which was consistent with the same period last year. Non-GAAP operating costs for the second quarter totaled $27.4 million compared with $41.6 million in the previous year. And as we invest in our platform and go-to-market functions, we continue to boost efficiency to balance out our investments. This is also leading to a business that is more durable and resilient than ever. Our non-GAAP loss from operations was $5.6 million in Q2, coming in well ahead of the high end of our guidance range. We expect more improvement in Q3 as we pace towards our target of non-GAAP operating profitability in Q4. For the second quarter, our remaining performance obligations landed at $87.4 million, which represents an increase of $34.2 million compared to the second quarter of 2023 when RPO was $53.2 million. This marks the fifth consecutive quarter where our RPO balance increased year-over-year, with Q2 growing by 64% year-over-year. RPO in the second quarter decreased by $5.6 million compared to Q1 of 2024, given the pace of go-live to ramp for our customers. Now that we're in the second half of the year, we're starting to negotiate a number of renewals and new deals, which should bring us back to quarterly growth, along with year-over-year outperformance. Free cash flow for the quarter was negative $8.5 million, which compares to negative $34.6 million in the same quarter last year. Free cash flow for the quarter did include approximately 1 months' worth of interest expense from our term loan, which we paid down in full at the end of April with the capital received from a valued investment. Our unlevered free cash flow, which includes -- which excludes the impact of interest expense, was negative $6.9 million in the second quarter. Despite the decrease in Q2, the momentum that we've created in pushing towards positive free cash flow isn't slowing down. Many of our customers time their renewals at the end of their fiscal year. So, Q1 seasonally tends to have a larger influx of prepayment cash inflows. The company is debt-free, and we're operating at a high level of efficiency. The expectation is that we'll still generate positive quarterly cash flow sometime shortly after reaching non-GAAP operating profitability. Beyond this, we are also seeing additional leverage from our partnership with Haveli. We ended the quarter with approximately $120 million of cash, cash equivalents, marketable securities, inclusive of restricted cash. In light of the visibility that we have towards profitable growth, combined with our strong balance sheet and significantly reduced cash needs, we are excited to share that our Board has authorized our first share repurchase program of up to $25 million. We continue to believe that our current valuation does not properly reflect the market opportunity, our comprehensive product offerings and the expense discipline that we have instilled in our business. Additionally, this decision was contemplated in conjunction with all of the planned investments we are making into the next generation of our origination technology that Nima shared with you. We are confident our balance sheet is in a position of strength to achieve our current set of investment objectives and provide shareholder return. Lastly, let me move on to our outlook for the third quarter of 2024. We expect platform revenue to be between $28 million and $31 million in Q3 of 2024. We expect our title business revenue to be between $11.5 million and $12.5 million. Our total company revenue outlook is expected to be $39.5 million and $43.5 million for Q3. Our guidance is based on an internal assessment of customer level growth as well as our own outlook of Q3 origination activity based on application volume observed to date through the customer base. Our total non-GAAP net operating loss is expected to be between $4 million and $7 million for Q3, with the midpoint representing a 65% improvement year-over-year. And with that, I thank you again for joining. Bryan, we're now ready for questions. Thank you, Nima, Amir and Winnie for your remarks. With that, we'll now ship to the Q&A portion of the call. [Operator Instructions]. Our first question comes from Dylan Becker with William Blair. Dylan, you can mute and please go ahead. Dylan Becker Gentlemen, nice job here. Maybe Nima, starting for you. Obviously, some recent news on the rate dynamic here throughout the balance of the year. I wonder, obviously, that has an impact on affordability, but supply has been a big constraint as well. You kind of called out some of the home equity piece. But can we start to shift away from some of that lock in that incentivizes more sellers into the market here, kind of getting a push from both the supply side and the demand side to help fuel some of that recovery. Nima Ghamsari Yes. It's a good question, Dylan. Thanks for the question. I think it's interesting -- everyone understands that refinance are very interest rate-sensitive because you have to be in the money unless you're taking cash out, but you have to be in the money to refinance otherwise. But actually, purchase tends to be relatively sensitive to interest rates as well. So, I think it will unlock new supply, new demand. And I also think the general macro that we're seeing where consumers have sort of been waiting for a long time. We might start to see some of those who felt locked in when rates start having a 5 handle on them. Start feel like it's, okay, it's going to move and think rates are moving in the right direction. So, I can move homes and refinance that new home that I buy in a year or 2 in the for handle and not feel like it's a big difference because, yes, people have been waiting on the sidelines for a long time and only wait so long. Dylan Becker Sure. Okay. That makes perfect sense. And maybe obviously, great to see the consumer strength as well here and what sounds like healthy pipeline commentary. I know it's a bit of an earlier initiative too, but it sounds like there's been some notable go-lives. So, kind of help us get a sense of the referenceability, some of the value that's been tied and realized from some of those early customers that's helping kind of fuel the later-stage pipeline activity that seems to be growing pretty nicely? Nima Ghamsari Yes. Actually, I love the idea of reference ability as a key tenant because it's the same word we use internally. We want every customer to be referenceable. We want them to be that happy to get the solution. And when we did the Langley Federal Credit Unit case study, I was, frankly, even surprised by how good it turned out. Obviously, we believe in our solutions, but the numbers were so good, the 37% growth in accounts going down from 32% requiring contact center intervention now to 7%. That's almost 3 quarters drop, maybe more than 3 quarter drop in how many contact interventions they needed. So, things like that become really critical. Actually, another anecdote from a customer today that I saw that their -- they had a new feature that they rolled out and almost doubled the number of people who are getting to the flow without that contact center intervention. It was a different customer. And then so I think those kinds of things that we do because it's building more capabilities into our platform, every future product that we offer, not even for that same product, not just for deposit account opening, but every future product we build or capability rollout is going to have that benefit built into it. So, it becomes this sort of self-fulfilling prophecy over time if we can keep executing on making these flows better and having a good true north for our customers. Bryan Michaleski Our next question comes from Joe Vafi with Canaccord Genuity. Joe? Joe Vafi Guys, good afternoon, and really nice to see really nice progress in the business. I guess, Nima following up when -- on the commentary that customers kind of now know it's time to get ready for a rebound. Can they get ready quickly here? Or is it going to take them a whole another budget cycle to get ready if they want to be in a position to, I guess, be positioned for a rebound in mortgage volumes. And then I'll have a quick follow-up. Nima Ghamsari Yes. It's a good -- I mean, another great question. One, I think it is something where they see it as a critical part of their business going forward, being able to help customers if they want to lower their monthly payments, if the macro on mortgage does shift. And so, we are seeing some customers who were kind of standing on the sidelines in terms of deploying new technology. They suddenly came to the table in the last month or 2, wanting to move really quickly. And by really quickly, I mean, abnormally quickly for organizations of their size. And so, it turns out that these organizations can move quickly if it's important enough at the very top of the house. Now, that won't be true to all of them, but we're definitely seeing it a sizable institution as well as smaller, more nimble ones. And so, I think it just sort of goes to show how important this is going to become for their long-term ability to serve their customers, getting something in place. And we're excited that we can build a solution like that. Having a solution where a consumer can go through and get through the process of refinancing a loan and locking their rate mostly in the first few minutes, I mean, it's pretty -- it's going to be pretty -- should it all work out how we hope and how we think it's going to work out. It should be pretty powerful for the market and help lots of consumers, hopefully, millions of consumers long-term. Joe Vafi Sure. That's pretty exciting. And then kind of on that same note, I think you called the refinance product, I think, refinance flow or something like that. And I know you mentioned that you were in beta with one customer there. Just wondering if there's a time line on getting that out to general production because it does feel like it's a great product. And I definitely know that sometimes the refinance process is even more arduous than a purchase mortgage. So, just wanted to get a little more color on that next-generation refinance product. Nima Ghamsari Yes. And I mean, it's the same question a lot of our customers are asking us right now, Joe. They're sort of a growing interest list, and there's only so much capacity we can handle at once to roll that out. But we have -- like I said, we have the next 2 already lined up. I mean, we plan to make this available as soon as we can because we realize the timeliness of it, we just want to be able to do it in a really, let's call it, highly impactful way. I'll say there's 2 things working in our favor in terms of be it in this case. One is we're using existing capabilities in our platform that have already existed for a long-time. Think about the things you need to do to do a refinance, you need to run credit, you need to check the new price of the loan, what the new interest rate will be and you compare your old payments to your new one, you need to calculate the fees, bake in those fees to make sure that, that is encapsulated in the loan capture. You need to do income verification in some cases, an asset verification in some cases, if you're on underwriting steps, if it generates documents and then get what's called intent to proceed in order to lock the rate. Those steps, those have already existed in our platform. It's really about how we bring it together in a seamless way. I mean, it's unique to have all those steps in a platform that a consumer accesses, but how we bring it together is very important. And so, we already -- it's bringing together something we've already been doing for about 8 months. And so, we feel good about the state of our product. And the reason I think we'll be able to roll out our customers effectively is that it's going to reuse a lot of the same integrations to their middle and back-office systems that we already have in place with them. So, I think we'll benefit from those things. I would say, in aggregate, it's too soon to tell how long it will take for us to get broad adoption in the market with something like this because sometimes these are as regulated institutions, they want to take extra measures to make sure they do the right things. But we're going to move as fast as seemingly possible. Bryan Michaleski Our next question comes from Ryan Tomasello with KBW. Ryan Tomasello In terms of the add-on products and mortgage, you've called out nice traction with the closed solution Nima. It'd be helpful if you could quantify where those attach rates are today, where you think they can go? And just generally, what you find is the biggest hurdle to overcome for getting customers to adopt that solution? And then as a follow-up on the same topic, income verification seems like a pretty interesting opportunity for the company given the competitive dynamics in that space with some of the higher cost incumbents. Have you seen any notable traction in that product? And just generally, how are you thinking about that opportunity for income verification? Nima Ghamsari Yes. We don't share specific attach rates on either of these 2 products. I can say we've done great traction in the Blend closed product, but we still have a lot of white space ahead of us. There's a lot of opportunity still within our current customer base. And we also are seeing -- actually, it's interesting because we see a lot of benefit for our customers to doing digital close, I called some of this out during the call, where digital closings can help them close loans faster, have less errors on the loan files and the signature documents, things like that. And so, it ends up being a win-win. It just sometimes takes time to answer a question, why is it not 100% today? It seems obvious that 100% of people want to -- not have to -- even if they go in person, not have to go and sign on 50 different pieces of paper, it seems pretty natural not want to have that as part of your process. It just takes time and there's a lot of myth in this industry around digital closing. I even hear today from some of our customers well, there's a lot of states where you can't do digital closings. And that's not entirely true. I mean, there are certain parts of the country and certain counties even that make it more difficult than others. But those are very rare. It's a small, call it, less than 10% or around 10% of the volume in the country that's not eligible for a fully digital closing. And in which case, you can even do a hybrid digital closing, which is an offering we have to do the note digitally, but do the D electronically. And so, the short answer is we have a good attach rate, but a lot of runways ahead of us to close, and we're excited to keep building on that solution. And we want to make that the market standard for how all the closings of the mortgage industry happen. On the income piece, I am excited about the income piece. The interest thing about the income piece is it's not about one vendor or one solution. If you're a customer of ours, what you want is a provider that can bring together all those solutions and all the necessary pieces so that a consumer -- you can help them with a consumer who is self-employed. You can help them with a consumer who's traditional payroll provider, you can help them with a consumer who wants to upload their documents and you want to read the data from the documents using AI in real-time. And so, I think that Blend will bring to that space is the best-in-class orchestration of what I'll call the broader income set of things that have to happen in the broader income waterfall. I think that's the real opportunity for Blend long-term. But we're definitely seeing interest from our customers. They want to find a way to make income verification, automated and faster and cheaper. And so, I won't share specific numbers around that. It's near another area of business we find very interesting. Ryan Tomasello And just a follow-up for Amir. It sounds like this is the case, but just to clarify, the 4Q operating income profitability for the fourth quarter, that's still something you think is achievable? And I guess, given 4Q is typically, has negative seasonality. Maybe that's more muted this year in light of rate cuts. But just help us understand the bridge from the second quarter that gets you there or the leverage you have to pull on the expense side, better remaining? And then also, if you'd expect operating income to be sustainably profitable after that fourth quarter inflection? Amir Jafari Thanks for the question, Ryan. Yes, I think, first and foremost, just to confirm for everybody, although we've stated this, yes, we're definitely confirming our path to breakeven in Q4, and we still have line of sight to that. So, we feel great, including just how we're stepping with regards to our operating expenses, and ultimately, what you saw in our net operating loss results. Second, you're right, Q4 definitely has an aspect of negative seasonality and putting aside maybe what you're seeing from the overall kind of movements in the news and in the macro, it will still take a little bit of time. And so, for us to be able to achieve this whole notion of being breakeven in Q4, it's important to us because it is at a seasonally low point, which is, I think, an important point of emphasis to us. That takes us to maybe also wear your head, which is, is this going to be something sustainable? And so, although we haven't given forward guidance outside of Q4, our intentions are quite consistent with what we shared at our Investor Day, which is in the foreseeable future, we will shift to becoming much more free cash flow oriented in how we speak. And as I stated on this earnings call, we do have line of sight and our plans are to be able to move to just that in the foreseeable future. And then lastly, this notion of just kind of where do we have levers. Our levers are not just expenses maybe the way that we've looked at them historically. The way that we operate today, again, through the lens of operational excellence is to dissect every process to ensure that it's just operating not just with the velocity, but in terms of its maximum efficiency. And Builder, by the way, is one aspect that's helping us kind of find more and more ways to be efficient. And we're kind of using the momentum, not necessarily Builder directly, but across the rest of the organization to do just that, you're seeing a trickle to what we shared in results this quarter. Bryan Michaleski Our next question comes from David Unger with Wells Fargo. David Unger So, just building on the breakeven comments, as you work towards achieving profitable free cash flow in the somewhat near future with the support of a strategic partner, how should we think about the balance between improving cash flow versus investing for growth, especially as you think through buying back stock? Amir Jafari David, I'd say the best answer for us is just -- it's been what we've been consistently saying around the following notions. One, we plan to remain extremely balanced. And by that, I mean, we never kind of let this pendulum swing too far when there was a negative sentiment nor will we let it swing too far when maybe things are happening quite quickly in the short-term. The reason that we stay balanced is because, again, the mindset that we've created in Phase 2 of Blend is everything is very ROI-centric. And so, we have a high level of conviction in some of the initiatives. A few of them you've heard Nima speak to, our next-gen refi flows, elements of home equity as an example. And so, that conviction exists in either scenario, and it's part of kind of this balanced approach followed by ROI. And then lastly, I'd take just a notion of free cash flow. The approach that we've taken is -- as we build up the customer base and as you hear the sentiment of what we're sharing with you, some of what you can see in things like RPO, over time, as we continue to land more and more of these customers and drive our renewals, you'll see that build, which is what is going to get us to this path to free cash flow positive. Nima Ghamsari Maybe I'll just add a quick note there, David, too. On one of the prior calls, I think it was 3 or 4 quarters ago, I talked about innovation per dollar going up as it relates to building new things because we have our own platform that we built from the ground up, and we spend a lot of time and money doing. And that platform is very powerful. It has so many built-in capabilities. Those capabilities are like building -- they are like LEGO blocks, so you can drag and drop for different flows. And just to give you a very practical example, this next-gen refi flow is the most integrated, most complex products. We probably -- I have to think through all the examples of things we've built, but that we've ever had to build, and we built it for a fraction of what we built our first mortgage product, a small fraction. And it's because when you like we've invested so much in this underlying platform that allows us to innovate at extremely high level of efficiency and almost like allow us to innovate too fast for the market to even, in some cases, absorb that innovation. And so, it's a little bit on us for making sure that we continue to innovate. But I want to make that clear. We have our foot to the gas and innovation, and we're still managing to hit these great operating loss targets and hopefully operating profit here soon, like we've guided to targets and a longer-term free cash flow positivity despite all those things. So, I'm pretty excited about our path forward and the innovation side. David Unger I Very much appreciate all the detail. And just a follow-up for me. So, in terms of the 3Q guide, sorry if I missed this, so it's based off your internal forecast, but I'm just wondering the timing of when you came up with that guide, given how much the market's moved in the past couple of weeks. Amir Jafari The movements that you're seeing for the last 2 weeks per se, David, they're not necessarily in those numbers. It takes time as you think about the conclusion of a funded loan to go through a start and submit. And so, I'd say to the gist of your question, it's -- we are seeing some early indicators that are very positive, as Nimo alluded to, but our guidance was built just off of what we're seeing with our customers, that was really built off before what you're seeing in the last few weeks. Bryan Michaleski Seeing no further questions. This concludes today's earnings call. Thank you all for joining. Have a nice rest of your day.

Earnings call: PubMatic sees growth amid market challenges in Q2 2024 By Investing.com

PubMatic (ticker: PUBM), a digital advertising technology company, reported a 6% revenue increase in the second quarter of 2024, despite facing macroeconomic softness and changes in bidding approach by a large demand-side platform (DSP) buyer. The company highlighted its strong growth in omnichannel video, mobile app, and emerging revenue products, and remains confident in its long-term, profitable revenue growth. PubMatic's GAAP gross profit rose to $42.1 million, with a 10% year-over-year increase, and adjusted EBITDA reached $21 million, marking a 31% margin. The company's outlook for the third quarter projects revenue between $65 million and $67 million and anticipates full-year revenue to hit between $288 million and $292 million. PubMatic's earnings call revealed a company navigating market challenges while capitalizing on the growing shift towards programmatic advertising. With a robust omnichannel strategy and key partnerships, PubMatic is poised to harness opportunities in the evolving digital ad space. PubMatic (PUBM) continues to demonstrate financial resilience and strategic foresight in the digital advertising space. Recent data from InvestingPro underlines the company's robust financial health and forward-looking growth prospects. A key InvestingPro Tip highlights that PubMatic's management has been aggressively buying back shares, signaling confidence in the company's value and future performance. Additionally, the company holds more cash than debt on its balance sheet, providing a solid foundation for sustained operations and investment in growth areas. InvestingPro Data further enriches our understanding of PubMatic's market position: Moreover, analysts predict that PubMatic will be profitable this year, as noted in another InvestingPro Tip, further reinforcing the company's potential to deliver value to its stakeholders. For readers interested in a deeper dive into PubMatic's financial outlook, additional InvestingPro Tips are available at https://www.investing.com/pro/PUBM, offering a comprehensive analysis of the company's financial health and market prospects. Operator: Hello, everyone. And welcome to PubMatic Second Quarter 2024 Earnings Call. My name is Annabeth Ferris, and I will be your Zoom (NASDAQ:ZM) operator today. Thank you for your attendance today. As a reminder, this webinar is being recorded. I will now turn the call over to Stacie Clements with The Blueshirt Group. Stacie Bosinoff Clements: Good afternoon, everyone, and welcome to PubMatic's earnings call for the second quarter ended June 30, 2024. This is Stacie Clements with The Blueshirt Group, and I'll be your operator today. Joining me on the call are Rajeev Goel, Co-Founder and CEO, and Steve Pantelick, CFO. Before we get started, I have a few housekeeping items. Today's prepared remarks have been recorded, after which Rajeev and Steve will host live Q&A. [Operator instructions]. A copy of our press release can be found on our website at investors.pubmatic.com. I would like to remind participants that during this call, management will make forward-looking statements, including, without limitation, statements regarding our future performance, market opportunity, growth strategy, and financial outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and future conditions. These forward-looking statements are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. You can find more information about these risks, uncertainties, and other factors in our reports filed from time to time with the Securities and Exchange Commission and are available at investors.pubmatic.com, including our most recent Form 10-K and any subsequent filings on Form 10-Q or 8-K. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. All information discussed today is as of August 8, 2024, and we do not intend and undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law. In addition, today's discussion will include references to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, and free cash flow. These non-GAAP measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our press release. And now, I will turn the call over to Rajeev. Rajeev Goel: Thank you Stacie. And welcome, everyone. We continued to deliver strong growth in key secular areas. Revenue from omnichannel video which includes CTV, mobile and desktop devices, grew 19% over Q2 last year. Mobile app grew even faster. Driving this was significant growth in monetized impressions. We expanded existing customers and partners such as Haleon (LON:HLN), Omnicom Media Group, and Mars, and we signed new marquee customers like Roku and Disney+ Hotstar. Looking beyond these rapid growth areas, our revenue in the quarter was impacted by some macro softness and a large DSP buyer on our platform that changed their bidding approach, as mentioned on our call in May. We now expect activity from this buyer to stabilize in the coming months. Importantly, the growth we've delivered outside of this one buyer highlights the momentum we're seeing in the rest of the business. The programmatic market is rapidly maturing as content creators and media buyers build out their ad tech stacks, and I'm confident that the solutions we offer today, and the investments we are making in supply path optimization, CTV, commerce media, audience targeting and performance marketing will drive long-term, profitable revenue growth. It's no coincidence that content creators and buyers are investing in these same areas to scale and grow their businesses. As inventory expands and ad budgets shift to digital, there's a fundamental shift toward programmatic. To better illustrate this, we need only look at some of the key outcomes of the recently concluded Upfronts. With the growing onslaught of streaming inventory now available, the market is maturing, bringing CTV prices down and attracting a greater share of advertisers' media budgets as they see higher ROI from this channel. We are benefiting from this lift. In the second quarter, CTV growth accelerated significantly in both monetized impressions and revenue growth. Adding to the opportunity, many of the biggest names in streaming like Netflix (NASDAQ:NFLX), Disney, NBC, and Roku are opening up programmatic access to their premium inventory, and many of them are leveraging PubMatic technology to do so. Programmatic is also reshaping ad buying across the open internet. We have seen an accelerated pace of conversations with walled gardens and social companies as they seek access to unique ad budgets and premium inventory available via PubMatic's platform. For example, PubMatic has expanded its work with Amazon (NASDAQ:AMZN) Ads to include enhanced API integrations that provide streamlined access to PubMatic's SSP inventory and participation in the Certified Supply Exchange Program, which enables advertisers using the Amazon DSP to create unique deals to reach Amazon audiences on PubMatic inventory. None of these major industry shifts would be possible without the use of sell-side technology. PubMatic enables content creators to have full control and transparency to bring their inventory to market. Our solutions facilitate data-driven targeting across their supply, create liquidity for their inventory, and ultimately drive yield in conjunction with their insertion order-based direct sales. We also offer scaled access to ad budgets. In many cases, we are signing new publishers because of our strong media buyer relationships built over many years via supply path optimization. While early investments with agency holding companies continue to deliver growth in SPO, we are also seeing tremendous success with independent agencies and direct brands. Haleon, the consumer health company with a portfolio of household name brands including Advil, Tums, and Centrum, is on a journey to optimize the quality of their media while reducing the carbon footprint of their media buying operations. To solve these challenges, they needed to get closer to the publisher and directly control their media supply chain. They selected PubMatic to create a global marketplace that meets Haleon's inventory quality targets, resulting in a significant increase in the number of impressions won while improving the environmental sustainability and effectiveness of their campaigns. Underpinning the growth in SPO activity is Activate. Omnicom Media Group in the Netherlands recently expanded their SPO relationship to include Activate. With Activate, PubMatic offers OMG curated marketplaces for scaled access to multi-publisher deals as well as direct access to premium inventory. The greatest testament to the strength of Activate is the impressive results clients are seeing. When Mars Petcare was seeking to build awareness and consideration for Greenies pet treats, they and their agency GroupM tapped Activate to create an optimized path to premium CTV supply. Key to enabling this is Activate's ability to make the entire digital advertising supply chain more efficient by reducing the overhead caused by using multiple technology platforms for each ad impression. Jonathan Tuttle, associate director of media for Mars Pet Nutrition North America, explained that leveraging Activate to go direct to media supply was a game changer for the brand, allowing them to invest more of their budget in working media. In his own words, "One of the primary goals of our media at Mars is to drive business efficiencies through new and innovative approaches to the way we buy and deliver our media. We were able to accomplish this in spades by leveraging PubMatic Activate." Ultimately, Mars exceeded their sales lift goal by 20% and exceeded incremental sales goals by 126%. The greenfield opportunities we see for Activate are amplified by the growing trends in programmatic advertising across streaming media. These trends mirror what we are seeing across our business with our rapidly growing CTV publisher footprint, many of which are scheduled to go live in the second half of 2024. We recently onboarded Disney+ Hotstar, India's streaming platform offering a wide range of content across Indian and international titles, as a preferred SSP. This summer has seen a boon of live sports content coming to streaming devices, with the Olympic Games in Paris, the T20 global cricket tournament, Copa America and the Euros all occurring within a few weeks span. On top of that, the active political cycle is bringing more eyeballs to streaming media. With premier publisher relationships and media buyers already on our platform, we are participating in these CTV consumption tailwinds. Additionally, I'm excited to share that we recently integrated into Roku's newly announced Roku Exchange, providing advertisers with access to their highly engaged audiences across premium live and on-demand programming. PubMatic brings the strength of our SPO relationships as well as unique budgets from Activate to maximize demand for Roku's streaming ad inventory. As I mentioned last quarter, we believe we are in the early stages of a new CTV and online video flywheel for growth. Adding to this momentum is an increase in mobile app, which is the vast majority of mobile ad spend. Our mobile app revenue grew over 20% for the third straight quarter, nearly double 2024's expected year-over-year market growth rate of 13%. PubMatic has a decade of experience providing mobile solutions, empowering app developers and providing buyers with a more efficient and controlled path to deliver ad experiences on mobile devices. Together, these have resulted in mobile app market share gains. Major apps like Dwango, Newsbreak and Talkatone are seeing success through their integrations with our tech. We see mobile app as a key differentiator for PubMatic amongst our peer set; we are one of the only omnichannel SSPs to have a scaled SDK footprint integrated directly into publishers' apps. This provides us with increased performance along with greater control of the ad experience for the end user as we render the ad in the mobile device. Programmatic mobile app advertising is nearing an inflection point of growth. All of the major mediation layers, including AppLovin (NASDAQ:APP), Google (NASDAQ:GOOGL) AdMob, and Unity, are moving away from waterfall auctions to embrace unified auction technology. This is exactly what our OpenWrap software is built to enable. OpenWrap SDK showed strong growth, doubling in revenue from a year ago. All of this opens up ad opportunities for more buyers, including performance-oriented brand buyers looking to drive outcomes and ROI within mobile app environments. Our existing SPO relationships provide us with direct access to advertiser and agency budgets to fill this inventory and take advantage of this growing opportunity. This is one of the reasons Roblox chose to partner with PubMatic. Together, we are implementing programmatic media buying with select buyers and expect to expand access to more buyers later this year. Targeted investments in commerce media are adding significant long-term opportunity and contributing to growth. Our technology enables commerce companies to build their ad businesses by unlocking the value of their shopper data and ad inventory, both onsite and offsite. The commerce media market is growing faster than any other form of digital advertising. Our conversations with retailers and transactional commerce companies have accelerated over the past few months as we continue to scale our commercial and engineering teams dedicated to this line of business. We have an active pipeline of over 100 commerce media companies in every region and one consistent theme has emerged - commerce media networks are increasingly in the market for leading SSP technology like PubMatic's. Leading retail media companies Instacart and Klarna, which we announced in early Q2, are expected to launch later this year. Ridesharing apps also represent a huge opportunity. For example, Uber (NYSE:UBER)'s advertising business is on pace to exceed a billion dollars this year. We see this as a growing customer segment for PubMatic, and in Q2, we signed Rapido, an Indian ride-hailing service for 10 million people across 120 cities. Rapido selected PubMatic initially for our monetization and unified auction technology with the opportunity to expand to onsite and offsite audience monetization as they evolve their commerce media offering. I couldn't be more excited about the breadth of opportunities ahead of us in commerce media. We see this line of business as a natural extension of our omnichannel platform. As a sell-side technology leader, we continue to invest and innovate, unlocking new avenues for growth. As digital advertising becomes increasingly programmatic, both media buyers and content owners are choosing to build their advertising businesses on our platform, with several large, exciting partnerships set to launch over the coming months. Our product portfolio supports the key secular growth drivers across the industry - supply path optimization, CTV, mobile app, commerce media and addressability. I'll now turn the call over to Steve for the financials. Steve Pantelick: Thank you, Rajeev. And welcome, everyone. Revenue grew 6% over Q2 last year, which was lower than expected largely due to the changes made by one large DSP buyer in late May. This impact was approximately $2 million, primarily in desktop display. Late quarter weakness in several ad verticals represented an additional $1 million shortfall. Based on the timing of the DSP changes, our software optimizations will continue through Q3. In the coming months, we expect activity from this buyer to stabilize. Note, this was the last major DSP to make this shift to exclusively first price auctions and nearly all impressions on our platform are now transacted via this bidding approach. The majority of our business delivered strong results which helped partially offset this impact. Excluding this DSP buyer, our business in aggregate grew nearly 10% year-over-year. Our omnichannel video, mobile, and emerging revenue products all grew well above our expectations. This outcome highlights the value of our diverse, omnichannel platform and productive multi-year investments in key secular growth areas. Looking at the quarterly highlights. Ad buyers are consolidating spend on our platform. SPO activity, which drives greater visibility and incremental margin, was over 50%. Monetized impressions across all formats and channels grew 12% over last year and overall CPMs were stable year-over-year. Q2 was the fourth quarter in a row where our total monetized impressions grew in double-digit percentages year-over-year. Emerging revenue streams, comprised of new products like Activate and growing data partnerships and enterprise software integrations, almost doubled year-over-year and contributed 2 percentage points of growth. We added 25% incremental gross impression capacity on our platform year-over-year while at the same time, lowered the trailing twelve month cost of revenue per million impressions by 14%, driven by ongoing software optimization. Our cost management and productivity improvements allowed us to keep our GAAP cost of revenue flat year-over-year;. Gross Profit was $42.1 million, an increase of 10% year-over-year and adjusted EBITDA was $21 million or 31% margin. Overall, the positive results we're seeing in the growth areas of our business, and the advertising ecosystem's accelerating shift towards programmatic platforms, position us well for long term, profitable growth. Breaking Q2 down by format and channel. We saw continued secular growth above market rates for omnichannel video revenue, which includes CTV, mobile and desktop devices, which grew 19% over Q2 last year, driven by an increase in monetized impressions of over 50%. CTV monetized impressions nearly doubled over last year. Our mobile app business, across video and display, continued to perform strongly and grew over 20% year-over-year for the third quarter in a row. Total mobile, inclusive of web, app, video and display, increased 12% year-over-year. We expect continued growth in mobile as we ramp up our partnerships with Roblox and others. Display faced the largest year-over-year headwind from the combined DSP change and the Yahoo! business challenges that emerged in Q3 last year. Despite these challenges, display increased 2% year-over-year. Excluding the DSP change and Yahoo! impacts, display revenues exceeded expectations and increased 21% year-over-year. For reference, the year-over-year decline in Yahoo! revenues in Q2 was approximately $2 million. Beginning this Q3, we will have lapped the step down in the Yahoo! business. Across the globe, all regions grew in the second quarter. We also expanded our existing publisher revenues on a trailing 12-month basis with net dollar-based retention at 108%. Excluding Yahoo!, net dollar-based retention was 117%. Looking at growth in ad spend, 6 of our top 10 ad verticals, in aggregate, grew above 20% year-over-year - shopping, business, food and drink, personal finance, health and fitness and style and fashion. At the same time, we saw a notable slowdown in other verticals - technology and computing, automotive, travel, and arts and entertainment. Overall, the top 10 ad verticals combined increased by 18% over Q2 last year. Our long-term relationships with buyers continued to expand as activity from SPO climbed to over 50% of total activity on our platform. Underscoring the long-term strategic value and stickiness of these relationships, the trailing 12-month net spend retention rate from SPO partners with at least three years of spending on our platform was 120%. In February, I outlined our key operating priorities to lay the foundation for delivering multi-year accelerated revenue growth and incremental margin expansion. I'm happy to share that we have made significant progress on these priorities. First, we continue to invest in supply path optimization, adding buyer-focused sales team members to address the large greenfield opportunity within SPO from independent agencies and direct brands. We're also focused on creating additional value for publishers and buyers by expanding the breadth of our emerging products such as OpenWrap, an important solution as we differentiate in mobile. We have also responded proactively to Google's change in plans to keep third-party cookies, and are selectively reallocating resources from Google's Privacy Sandbox to other growth areas of the business. For example, we are reallocating resources to Connect and our data targeting efforts to take advantage of the rise in performance media and commerce media. We are confident that the use of alternative targeting solutions will continue to increase as buyers seek higher ROI and publishers seek incremental ways to increase monetization, leveraging their valuable data assets. Second, we remain focused on optimizing our infrastructure and making prudent investments in CapEx to keep pace with the success we have had in increasing monetized impressions, while improving our margins, and unlocking dollars to fund new products. Two thirds of the incremental capacity we added in Q2 was the direct result of software optimization as opposed to CapEx. Our team is driving tangible cost savings, while optimizing via software and AI to deliver incremental efficiencies across our owned and operated infrastructure. For example, our engineers are continuously deploying software revisions that improve the throughput of our ad servers. Because we own and operate our own infrastructure, we are able to customize our infrastructure to process high volumes of ad impressions while minimizing our hardware and operating costs. These savings allow us to make investments to drive revenue growth while delivering strong margins. Moving down the P&L. GAAP operating expenses in Q2 were $46.1 million, lower than Q1 and a 2% increase over the prior year. Note, last year's Q2 included $5.7 million in expense related to the bankruptcy of one of our DSP partners. Our OpEx reflects both prudent cost management and targeted investments in technology and sales. Across these two areas combined, we have increased full time employees by 17% year-over-year. Q2 GAAP net income was $2 million or $0.04 per diluted share. Adjusted EBITDA was $21 million, or 31%, and included other income related to our work to build and test integrations with the Google Privacy Sandbox. This income was received, in part, to offset Privacy Sandbox development costs we already incurred during the first six months of 2024. We have a strong balance sheet that supports our long-term capital allocation strategy. We ended the quarter with $166 million in cash and marketable securities and zero debt. Year-to-date through July 31, 2024, we have repurchased 2 million shares of Class A common stock for $41 million in cash. Since the inception of our repurchase program in February 2023, we have bought back a total of 6 million shares for $100 million. We have $75 million remaining in our repurchase program authorized through December 31, 2025. We generated $12 million in net cash provided by operating activities and delivered approximately $7 million in free cash flow. Note, over the next couple of quarters, we expect an increase in DSOs as our accounts receivable mix changes as the result of the bidding changes made by one of our large DSPs. We view this as a short-term phenomenon that will work its way through our working capital by mid-next year. Now turning to our outlook. We are adjusting our full year outlook based on our latest assessment of the DSP bidding change and recent macro trends. First, the timing of the DSP bidding change in late May prevented us from offsetting the impact in the quarter. This impact was approximately $2 million. Because we operate in a real time environment, our planned software changes could not be tested at scale until the DSP made its change. Given the complexity of these changes, optimization efforts have continued into the third quarter. Related to this change, we are reducing our full year revenue outlook by $5 million comprised of the $2 million impact in Q2 plus an estimated $3 million impact in the second half of the year. We expect activity from this buyer to stabilize in the coming months. Second, we are also factoring into our full year revenue guidance an estimated $5 million impact related to macro softness based on the trends we saw in several ad verticals in Q2. $1 million of this impact occurred in Q2 and we are estimating an additional $4 million impact over the second half. Despite these two factors, we are encouraged by the rapid growth we're seeing in key, secular areas of the business, notably omnichannel video and mobile app. Emerging revenue is also building momentum, growing sequentially quarter-over-quarter. We also see upside in Q4 from several major customers newly integrated or soon to be integrated onto our platform. In addition, political spend and recent upfront deals with a growing mix of programmatic ad spend will command greater proportions of ad budgets in the second half of the year. For Q3 revenue, we expect $65 million to $67 million, or approximately 4% year-over-year growth at the midpoint. For the full year, we expect revenue to be between $288 million and $292 million, or 9% year-over-year growth at the midpoint. In terms of costs, we expect GAAP cost of revenue to increase sequentially each quarter in the low single-digit percentages. We also expect GAAP operating expenses to increase sequentially in the low single-digit percentages for both Q3 and Q4 as we continue to invest for long-term growth. With our revenue guidance and expected cost structure, which is largely fixed in the near term by design, we expect Q3 adjusted EBITDA to be between $15 million and $17 million or approximately 24% margin at the midpoint. For the full year, we expect adjusted EBITDA to be between $87 million and $91 million, or approximately 31% margin at the midpoint. Our full year CapEx projections remain in line with our prior expectations of $16 million to $18 million, with a bias to the higher end of the range as we take advantage of continued strong growth in omnichannel video and mobile app impressions. Most of our CapEx will be made in Q3. In terms of Q3 and Q4 free cash flow, the timing of this CapEx and earlier referenced change in DSOs, our free cash flow will be somewhat lower in the short term, but revert back to historical trends next year. In closing, Q2 demonstrated our ability to deliver strong growth in key secular areas of the business while achieving robust profitability. Looking ahead, our strong financial profile and proven, durable business model positions us well to manage through the current environment and take advantage of the significant opportunities ahead in programmatic advertising. With that, I will turn the call over to Stacie for questions. A - Stacie Bosinoff Clements: [Operator instructions]. Well, our first question comes from Ian Peterson, Evercore. Ian Peterson: Two if I may. First, it'd be great to get just a little bit more clarity on the DSP headwind. Did that $2 million impact to Q2 come in line with your expectations or below your expectations? And how should we think about that $3 million headwind contribution to Q3 and Q4? Will it be spread evenly between the two or more so in Q3? And then my second question is it'd be great to get some more color on which verticals you are seeing softness in both Q2 and Q3 to date. Rajeev Goel: Maybe I can just start a little bit and then I'll turn it over to Steve on some of the financial aspects of your question. So we're seeing strong growth in a number of secular areas, as we talked about, but that is being overshadowed by the DSP bidding change in the near term, where that DSP converted all of its auctions to first price auctions, where historically that DSP used a combination of first and second price. And the good news is that these changes make their methodology consistent with the rest of the industry, which had made this change over the last several years. So let me turn it over to Steve now. Steve Pantelick: With respect to the impact in the second quarter, because of the timing very late, relatively speaking, to what we had assumed, we just didn't have time to optimize at scale because we operate a real time auction environment. So it was slightly worse than we had expected. So that $2 million is a function of sort of the timing. Now, when I think about the impact in the coming months, I think it'll be more weighted to the third quarter than the fourth quarter because, as I said, we have fully engaged on a real time basis optimizing, and we see some really good progress and outcomes as a result of those efforts. Now, with respect to the softness, there's a couple verticals that we start to see softness right at the tail end of Q2. And the reason why we are looking at it closely is that they were on a very strong trajectory, fourth quarter, first quarter, and then we saw some weakness emerge, and that has continued into July. So ad vertical number one is the technology area. Strong growth up until, let's call it, about June, and then on a year-over-year basis basically flatlined. In terms of other areas that we saw some softness, we saw softness in automotive, travel, and arts and entertainment. And all told, those are important verticals for us and do reflect what we've seen other companies comment in terms of softness they're seeing relative to specific verticals. Now, having said all that, we also saw a really good robust growth in very important verticals for shopping, business, food and drink, personal finance, health and fitness, all grew above 20% in the second quarter. So we see this as, I'll call it, an air pocket, not really a significant impact to the second half, and you can see that in the guidance that we've given. It's really just a couple million dollars to reflect that. And then the last thing I'll say, ultimately, we feel really good about the core growth of our business, the omnichannel video and mobile, and these are areas that we've been investing in extensively. And the transition in terms of this one, DSP, we obviously see as a short-term phenomenon and feel that it's going to be something that we'll be looking at the rearview mirror early next year. Stacie Bosinoff Clements: Our next question comes from Shweta Khajuria at Wolfe. Shweta Khajuria: Rajeev or Steve, Trade Desk (NASDAQ:TTD) just reported and Magnet reported yesterday, they did not call weakness out or any softness out. So any particular reason that you're calling it out in the third quarter guide? Steve Pantelick: I'll take that. So as we always endeavor to do, we are transparent in terms of the trends that we're seeing, so I can't comment on what other companies are seeing. The reality is we are a very broad scale SSP, omnichannel. We have 20 plus ad verticals. We're a global business. So we really do see a lot of activity across the globe. And these specific ad verticals wouldn't be normally sort of called out unless we saw some trend in the near term. As I said a moment ago, we're not sensing this is a major change. What we, as we always try to do, is put together a prudent guidance, reflecting the puts and the takes, and so that's what we've seen recently. At the same time, from our perspective, we have many other areas that are growing very rapidly, and I called out the ad verticals that are performing strongly. Stacie Bosinoff Clements: And our next question comes from Matt Swanson at RBC. Matthew Swanson: Maybe if I could start on some of the commentary around some of the emerging products and the cross-sell into the SPO. Rajeev, I think you had one good customer example there. Could you just talk a little bit more about the SPO installed base and just, I guess, how much traction there is with the emerging products and kind of getting more leverage, I guess, out of those SPO relationships? Rajeev Goel: Why don't we talk about - I'll talk about emerging revenue streams, emerging products broadly, and then we can get into Activate and SPO, in particular. So we've, obviously, been talking about these products for quite some time, OpenWrap solution, Activate, Connect + Convert, so that's for data and for e-commerce. And collectively, what we're doing is building new innovative solutions, bringing those solutions to customers that are already on our platform, delivering value for them and also creating leverage within our business. And this is all done via cross-sell and upsell into the existing customer base, in some cases on the buy side, and in some cases on the publisher side of the ecosystem. And in the case of commerce media, bringing in a new type of customer in terms of commerce media networks or transaction or retail-based companies. So we're really excited about the progress there. Steve commented on the contribution to revenue growth. When we look specifically at SPO and Activate, we're seeing, I think, really good progress. So as a reminder with Activate, we're creating a single layer of technology for buyers to connect with publishers really for high-value transactions like CTV and online video. And it's roughly a $65 billion TAM expansion, and there's been very strong and positive feedback on our vision and capabilities. So it's resonating. The Mars Group and case study, that's I think a great example and indicates that the product is real and it's capable. It's definitely not mature or full featured yet, so we're working on a lot of new capabilities all the time, but it's clearly delivering on the promise or the value proposition. And now we're also scaling it up, so we're seeing a lot of good pipeline interaction in every region across multiple buyer customer types, agencies, and advertisers. We're signing up agencies at a at a pretty good pace. Omnicom Netherlands, expansion of SPO relationship to utilize Activate is a good example of this. And the product really came from listening to the ecosystem, right? So with SPO, we're spending more time with buyers, we heard about some of the challenges and thought about opportunities that we have to build specifically to help them create more efficiency, create more leverage in their business around some of these transaction types that had not yet moved into programmatic. So we're really excited about it. I'll turn it over to Steve if he has any comments as well. Steve Pantelick: I think just to build on that perspective and excitement that we feel. First and foremost, this set of products has really shown great momentum over the last year. We see growth every quarter sequentially. As a category, contributes 2 percentage points of total company growth, all of which have the potential to continue to grow and be much bigger parts of our business in the future. And the other facet that we've shared in the past, but is really important to understand in terms of the impact on our bottom line is that we are repurposing leveraging our existing cost base. So the marginal profitability of these offerings is quite high, and so it gives us opportunities to reinvest for further growth and obviously to our incremental profitability. Matthew Swanson: Maybe just a quick one on guidance for you, Steve. I know this isn't like the biggest contributor, but it's been a very odd political season from a seasonality standpoint. How are you thinking about when political revenue might come in Q3 versus the full-year guide? Steve Pantelick: The way that we have put together our forecast around political spend is really take a look at the last presidential cycle four years ago. Obviously, we have a lot of contacts, buyers, publishers and the ecosystem. And our latest thinking is that there's going to be relatively little contribution in the third quarter, and the bulk of it will be coming through, and let's call it the last month and a half-ish of the presidential cycle. So, primarily a fourth quarter benefit. And it's really just a function of getting in front of people, close to when they're going to vote. So from our perspective, nothing's fundamentally changed in terms of our confidence in delivering a very nice uptick as a result of political. A couple things to call out. Four years ago, we did not have a CTV business. We then built a business that's growing very rapidly. And as we shared, the monetized impressions are growing double digit. In fact, last quarter, it doubled. And so, that CTV business positions us very well to take advantage of political spend, which we do believe will index more on the CTV vector. So overall, we're feeling good about political. It's still early in the cycle, but we do anticipate to get our fair share of political spend. Stacie Bosinoff Clements: And our next question comes from James Heaney from Jefferies. James Heaney: Can you just talk about the trends that you're seeing on the pricing side? Is it fair to say that that's where most of the softness is showing up? And then any commentary you can provide on just pricing versus volume growth for the rest of the year? And then I had a follow up. Steve Pantelick: From our perspective, we're actually very positive about the trends that we're seeing. Number one, our progress for the majority of our business is all volume-driven. As I just mentioned a moment ago, omnichannel video is seeing double-digit growth in monetized impressions on a year-over-year basis, and we're delivering close to 20% revenue in the second quarter. And so, when I look at that part of our business through the rest of the year, I expect that we're going to continue to see very similar patterns, double-digit growth in revenues and double-digit growth in monetized impressions. Now, in terms of where we're seeing CPM pressure is really related to sort of the display format, particularly desktop, not surprisingly. And that's sort of the, what I'll call, the instantiation of what we saw from the change with the DSP spending approach that those CPMs were impacted. But overall, our overall company CPMs were stable to up in the second quarter, and that really underscores the value and the benefit of our omnichannel platform, number one. Number two, the benefit impact from having a mix moving toward higher value formats, i.e., video. So overall, our expectations are double-digit growth in the fastest growing areas of our business. I anticipate display will probably be in the single digits through the balance of the year, mostly coming through pressure of CPM, but offset by monetized impression growth. The last thing I'll comment, and I shared it in the script, and that is the core display business that we have is doing quite well. So if you strip out the impact of Yahoo! and strip out the impact of the DSP, our display revenues actually grew 20%. So what that means is that we are getting the benefit of consolidation and more and more publishers are relying on us to monetize this very important format. James Heaney: Maybe just a follow-up. Looking at your Q4 revenue guide, it does look like pretty decent sequential growth and acceleration on a year-on-year basis. Could you just talk about the factors driving that, whether that's some seasonal factors or just improvements that you're expecting? Steve Pantelick: To frame it out for you and for others of the call. Last year fourth quarter, our Q4 versus Q3 grew over 30%. And so, the number you were referencing in our guidance, the implication is that we would grow our fourth quarter 36% versus the third quarter. And so, the build-up of that is a couple of things. First, the very strong secular growth that we're seeing in omnichannel video and mobile, and that's going to continue, as I said. We also are anticipating the incremental benefit of political, couple million dollars that will supplement that. In addition, we're going to see the incremental benefit from our emerging products, Activate, OpenWrap, etc. And then, Rajeev called out on the call a number of major customers that are either integrated or will be integrated that will add incremental revenues in the fourth quarter. So, overall, we feel very good about our ability to step from the third quarter guide into the fourth quarter. Stacie Bosinoff Clements: Our next question comes from Steve Hromin at Oppenheimer. Steven Hromin: Hi. This is Steve asking for Jason. So just two questions from us. So one, why did the change only impact one DSP? Do you have different protocols for different DSPs? And secondly, more of a housekeeping, does your full-year CapEx guide include capitalized software? Steve Pantelick: Rajeev, you want to take the first one? Rajeev Goel: Steve, on your first question, so this impact - this is really the last DSP of any significance to make the shift from first and second price auctions to first price only, and all other DSPs have made this change over the last several years. So that's why, on your first question, it really only affects this one DSP. Steve Pantelick: Now, with respect to the housekeeping, the CapEx is solely related to PPE - property, plant, and equipment. You'll see in our financials the incremental related to software capitalization. Stacie Bosinoff Clements: Great. At this time, I'm going to turn the call back over to Rajeev for closing remarks. Rajeev Goel: Thank you, Stacie, and thank you all for joining us today. Content creators and buyers are turning to sell side technology and choosing PubMatic to build their advertising businesses. With numerous new customers and expansion of existing customers already on the platform, we believe secular areas like omnichannel video, connected TV, commerce, media, and mobile app will continue to drive our growth. With SPO activity climbing to over 50%, our opportunity will disproportionately grow as the market continues to shift to programmatic. We look forward to meeting with many of you over the next month at various investor conferences. Thanks. And have a great afternoon, everyone.

Amplitude (AMPL) Q2 2024 Earnings Call Transcript | The Motley Fool

Hello, everyone. Welcome to Amplitude's second quarter 2024 earnings conference call. I'm Yaoxian Chew, vice president of investor relations. Joining me are Spenser Skates, CEO and co-founder of Amplitude; Andrew Casey, chief financial officer; and Mike Dean, VP, corporate controller. During today's call, management will make forward-looking statements, including statements regarding our financial outlook for the third quarter and full year 2024, the expected performance of our products, our expected quarterly and long-term growth, investments, and our overall future prospects. These forward-looking statements are based on current information, assumptions, and expectations, and are subject to risks and uncertainties, some of which are beyond our control, that could cause actual results to differ materially from those described in these statements. Further information on the risks that could cause actual results to differ is included in our filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements and we assume no obligation to update these statements after today's call except as required by law. Certain financial measures used on today's call are expressed on a non-GAAP basis. We use these non-GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. These non-GAAP financial measures have limitations and should not be used in isolation from or as a substitute for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release, which can be found on our investor relations website at investors.Amplitude.com. Thanks, Yao, and good afternoon, everyone. Welcome to our 2024 second quarter earnings call. I'm going to focus on three topics today, Q2 financial results and what we're seeing, how we're going after our market opportunity, and continued product innovation and customer stories. I'm pleased to report that we beat across all guided metrics this quarter. Our second quarter revenue was $73.3 million, up 8% year over year. Annual recurring revenue was $290 million, up $5 million from the end of the first quarter. We now have more than 3,200 paying customers. In Q2, customers representing $100,000 or more of ARR grew to 547, an increase of 10% year over year. We are operating responsibly and have generated $5.7 million of free cash flow year to date. Before we get into the quarter's details, I want to call out that we were revising our annual guidance lower on non-GAAP operating profit for the year while raising revenue. This is due to a change in Russian sanctions announced in June. Without this, operating profit guidance would have been unchanged. We'll go into more detail shortly. Our top priority at Amplitude is reaccelerating growth. We are making great progress. New business remained healthy in the second quarter. Amplitude's value proposition continues to resonate and our win rates are strong. In spite of tight IT budgets, companies are investing in digital experiences. I would characterize the macro environment as stable quarter to quarter. We continue to feel great about our competitive position, particularly against point solutions and legacy players. We have a differentiated platform approach, customers find value quickly, and privacy regulations are helping to drive incremental demand. As expected, churn also remained high in the second quarter. This was driven by some of our most severe legacy contract resets, which we have been highlighting for several quarters. We are optimistic that the significant majority of overbought to optimization contracts of this nature are now in our rearview mirror. We are building momentum from the many improvements we've made in go-to-market. Amplitude Plus, our self-serve offering, continues to gain momentum with customers of all sizes and types. Plus performance was strong in Q2. New onboarding improvements and a simplified data setup process are driving uplifts and activation. Plus also continues to serve as a valuable feedback loop, informing our win-simple approach on core Amplitude. Our named account approach led to higher quality deals in Q2 than in prior quarters. We also saw better platform attach rates and steady improvement in enterprise land ASPs. Improved account management is letting us better align with customer initiatives and land larger customer engagements from the start. We are growing our ability to gain mindshare and budget across product, marketing, and data buyers. The customer expansions we are unlocking are also of higher quality. During the start of the pandemic, data volume increases drove many of our largest expansions. Today, customers are expanding because Amplitude is viewed as the right future-proof enterprise-ready platform in a world where companies win and lose based on their digital experience. I'm also very encouraged by the continued green shoots that we called out in prior quarters. Customer relationships are healthier post-renewal, with customers using more of our platform and attaching services. We are more aligned with our customers' current growth ambitions than we have been in the last year. In our top 100 customers, underlying utilization trends continue to improve quarter to quarter. Cohort health is visibly improving. For customers who have optimized with us one time, a majority of the associated ARR either renews flat or grows off of that base. For customers acquired in the second half of 2022 and later, gross and net retention patterns continue to show better dynamics than those from 2020 and 2021. Pipeline signals also are encouraging for the second half of the year and into 2025, thanks to coordinated efforts across marketing, sales, and partnerships. We are seeing particular strength in our U.S. enterprise business. International markets, while behind the United States in terms of maturity, are demonstrating the same level of latent demand. Average deal size in our second half pipeline is up by 25% year on year, and we're seeing a significant increase in large deal opportunities. Now, let's address the item that accounts for the change in non-GAAP operating profit outlook. In April 2022, we stopped all new sales activity in Russia and Belarus. We also terminated all contracts with customers that we knew to be targeted by U.S. sanctions, Russian government owned, Russian oligarchs owned, or Russian government-controlled news outlets. We continue to serve customers who did not meet that criteria. On June 12, the U.S. Department of the Treasury increased the scope of sanctions on Russia, leaving us unable to serve any customers in Russia and highly unlikely to be able to collect from these previously unaffected customers. If not for this isolated incident, our outlook on operating profit for the year would have been unchanged. While this weighs on what would have been a much stronger Q3 and exit growth rate, I would like to draw focus to the bigger picture. We are raising revenue guidance for the year despite facing material headwind in Q3. The business improvements we have put in place are starting to deliver results. We believe ARR and revenue reacceleration are both well within our reach. We expect to be free cash flow positive for the year. We continue to invest behind the biggest driver of long-term growth for Amplitude product innovation. Next slide, please. Our thesis is that analytics is the center of gravity for any workflow that touches customer and product data. Without analytics, the rest of the stack is much less useful. Session Replay is making rapid progress in its second live quarter. There is a lot of customer pain experienced from fragmented tooling. Our platform is continuing to displace point solutions, aid in renewal discussions, and offer a shorter time to value for our platform. We expect a larger unlock when we launch mobile Session Replay later this year. Experiment and CDP landed with marquee customers, and some of our largest expansions this quarter were catalyzed by our non-analytics offerings. A confluence of tight customer budgets, enhanced product maturity, and improving field enablement are letting us lean in. Today, 21% of our annual contracted customers use more than one product, up from 15% at the same time last year. Customers who use more products retain better. Industry analysts are also recognizing our leadership. Amplitude was named as the only leader in the latest Forrester Wave for feature management and experimentation. We achieved the highest possible scores across 11 criteria, with particular callouts for our platform breadth, depth, user interface pricing, and vision. We announced the general availability of Amplitude's Snowflake native offering in June. Our warehouse-native approach is all about extending what has made Amplitude successful, being one of the most open-agnostic and trusted ways to access and find insights from customer data. Early interest here is encouraging. We've made other huge strides in our mission to win the enterprise. Large, sophisticated enterprises have different needs and one of their top requests is for enterprise-grade controls. That's why I'm excited to announce enterprise-grade data access controls and data mutability. These advancements help to eliminate data drift, ensure compliance, and reduce friction around managing data privacy. With our enterprise-grade digital analytics platform, customers can keep data in sync with their data warehouse confidently control who sees what. With improved security, scalability, and privacy, we're confident we can convert the most conservative chief data officers into Amplitude champions. Last quarter I talked about radical simplicity. We've always been a self-serve platform, but now we want to eliminate the learning curve altogether. This is one of the most ambitious projects we've taken on as a company. We've reimagined our product experience from top to bottom and we will be launching a brand-new Amplitude on September 10th. We're offering users a single line of code to get up and running, default dashboards out of the box, auto-capture and visual taggling, bundling of Session Replay and experiment SDKs with analytics out of the box, new navigation and user interface, and a new conversational version of our AI assistant and search. Analytics, today is hard. We are going to make it easy. All the priceless customer behavior, product and community knowledge embodied in Amplitude will be approachable to everyone. It will be radically easier to get started, get insights and get value. We want Amplitude to be a daily habit, and our new platform will help get us there. I can't wait to share more. Turning to customers. In Q2, we landed and grew with HubSpot, Fanatics Live, Cloudflare, SketchUp, Writer, character.ai, Volvo, Icelandair, Cook Children's Health Care System, and Farmers Business Network. A notable highlight this quarter is SketchUp, a business unit of Trimble. Globally, they are one of the largest 3D modeling tools in the construction and industrial industry, with tens of millions of monthly users. With this renewal, product, and data teams are drastically increasing the amount of data from their web and mobile applications. In addition to going live with Amplitude CDP, SketchUp aims to democratize data across the business, empowering product managers with self-service insights. With Amplitude, SketchUp will be able to enact PLG best practices, everything from encouraging free to paid upgrades, keeping users engaged after the initial learning curve, and identifying churn as it happens. We're excited to support SketchUp in their ongoing data-centric transformation and look forward to contributing to their continued success. We also had a win with Cook Children's Health Care System, one of the largest nonprofit pediatric medical centers in the U.S. They are migrating from Google due to data privacy and HIPAA compliance concerns. With a focus on digital transformation and optimizing the patient experience, they chose Amplitude to power user insights with their newly launched web experience. Amplitude will let them connect web and mobile patient journeys to increase patient appointment conversion and identify channel performance across marketing campaigns. character.ai has been an Amplitude customer for less than a year and is already expanding its use cases and adoption of Amplitude. They're one of the fastest growing AI companies, empowering users to create and interact with various AI characters that feel alive. Amplitude has proven critical in tracking their users' onboarding flow and the success of new feature releases. This is especially important as they roll out their new voice feature, which allows users to hear characters speaking to them in one-to-one chats. They are consolidating their analytics efforts by adding our whole suite to this renewal. Another great win this quarter is with a global job search platform which saw the potential to consolidate multiple point solutions and for Amplitude to become their single source of truth. Before Amplitude, the team couldn't trust the results of the experiments they would run. They spent more time arguing than running tests. By moving away from Optimizely onto Amplitude, they could finally scale their experimentation program by eliminating two big blockers, a lack of data trust, and the painful overhead associated with integrations and data pipelines. This is a great example of how our Amplitude approach solves pain with unbeatable value. With our digital analytics platform, Amplitude is able to bring together product leaders, data scientists, engineers, and growth teams to make data-driven decisions, streamline workflows, and connect insights to actions at scale. Before I turn the call over, I want to thank Mike Dean for his contributions during this period of transition to Amplitude. He is one of the rock stars at this company and has done an amazing job, rising to this occasion at an important time for Amplitude as interim finance leader. I'm excited to introduce our new chief financial officer, Andrew Casey. Andrew has more than 25 years of battle-tested enterprise software experience. He has had senior finance roles across ServiceNow, Oracle, and HP. More recently, he took WalkMe public in his IPO and was CFO of Lacework. I've gotten to know Andrew well recently. He has a fantastic combination of strategic thinking while being able to get into the details operationally. He also has a genuine passion for the space we're in. We're both in it for the long term, and I'm looking forward to working closely with him as we write the next chapter of growth for Amplitude. We have been up-leveling every area of our business and building momentum. We continue to see more pockets of strength and weakness. We will turn our green shoots into something more as we build a defining generational software company. Thank you for your interest in Amplitude. I'd now like to turn it over to Andrew for a brief introduction before Mike walks you through the financial results. Andrew Casey -- Chief Financial Officer Thank you, Spenser. I'm very excited to be here. I joined Amplitude because it solves a universal critical business need with an elegant solution. I've never met a company that ever said that I want to understand my customer less or that they don't really care about their digital products. Over the last few days, I've spent meeting many people across our organization and I found that there are so many great materials that have already been put in place over the last year. I have been most impressed by the passionate customers, the world-class platform that Amplitude provides, and the team that Spenser is building. I can't wait to turn the page together and have a part in leading Amplitude toward the next chapter of growth. I look forward to getting to know many of you in the coming weeks. And with that, I'll pass it over to Mike to share more details on results and outlook for the quarter. Mike Dean -- Vice President, Corporate Controller Thanks, Andrew and Spenser, and thanks to everyone joining us today. I'm happy to report that we beat across the board on all guided metrics this quarter. Turning to our second quarter results, as a reminder, all financial results that I will be discussing, with the exception of revenue, are non-GAAP. Our GAAP financial results, along with a reconciliation between our GAAP and non-GAAP results, can be found on our earnings press release and supplemental financials on our IR website. Second quarter revenue was $73.3 million, up 8% year over year and 1% quarter over quarter. Total ARR increased to $290 million exiting Q2, an increase of 8% year over year and $5 million sequentially. Here are more details on key elements of the quarter. New ARR was about one-third land and two-thirds expand-driven. Churn was down slightly quarter to quarter as customers on multiyear contracts optimized their renewals. Linearity on churn was better than expected, which resulted in sequential revenue growth. The total number of customers representing $100,000 or more of ARR in Q2 grew to 547, an increase of 10% year over year. Underlying utilization trends across our largest customers continue to improve quarter to quarter, which is also impacting gross margins. We believe that the worst excesses of the pandemic surge embedded in our ARR are now behind us. End period NRR was 96%, and NRR on a trailing 12-month basis was 98%. Gross margin was 76% for the second quarter, down 2 percentage points year over year, and 1 percentage point quarter over quarter. Investments in enterprise-related professional services, along with improving utilization, caused a sequential margin downtick. Sales and marketing expenses were 48% of revenue, up 3 percentage points year over year. Here we are focusing investment around our named account approach. Increased investment in our international efforts and travel expenses were also key drivers of the year-on-year increase. G&A was 15% of revenue, up 1 percentage point year over year. There was approximately $0.6 million of non-recurring expenses in the quarter related to executive search, severance, and legal fees. Total operating expenses were $59 million, up 11 percentage points year on year. We continued to be judicious about hiring across the board. Operating profit was negative $3.7 million, or negative 5% of revenue, which represents a 4-percentage point decline on a year-over-year basis. Net loss per share was $0.00 based on 122.6 million of basic and fully diluted shares compared to net income per share of $0.02 cents with 126.3 million diluted shares a year ago. Free cash flow in the quarter was positive $6.8 million or 9.3% of revenue compared to $19.3 million or 28.5% of revenue a year ago. Free cash flow was impacted by lower operating profit and early timing of some payments. Now let's turn to our outlook. We are assuming that the macroeconomic environment continues to be challenging throughout the rest of the year. Spenser mentioned that we are seeing a greater number of larger deals in our pipeline. We believe this warrants additional conservatism as buyer scrutiny remains high. Now let me unpack how Russian sanctions affect our financials. We estimate a negative impact of $3 million to full year ARR. We also estimate a negative impact to full year operating profit of $4 million. This is due to a combination of lost revenue and changes to our expectations of our ability to collect open receivables. It is important to note that our full year operating income guidance would have remained unchanged without these sanctions. As a result of these factors, we are expressing heightened caution on Q3 ARR. For the third quarter of 2024, we expect Q3 revenue to be between $73.5 million and $74.5 million, representing an annual growth rate of 5% at the midpoint. We expect non-GAAP operating loss to be between negative $2.2 million and negative $1.2 million. And we expect non-GAAP net income per share to be between $0.00 and $0.01, assuming diluted shares outstanding of approximately 131.6 million. For the full year, we are raising our full year revenue outlook to be between $294.5 million and $296.5 million, an annual growth rate of 7% at the midpoint. We are reducing our outlook for non-GAAP operating income to be between negative $5 million and negative $2 million. We expect non-GAAP net income per share to be between $0.05 and $0.08, assuming shares outstanding of approximately 131.4 million as measured on a fully diluted basis. And here's more color for your modeling purposes. We continue to expect end-period NRR to remain below 100% and NRR to trough in the mid-90s this year. We continue to expect year-over-year ARR growth to trough in Q3 of this year in the mid-single digits. We continue to expect to be free cash flow positive for the full year. Our long-term opportunity remains unchanged. We are controlling what we can control. We are delivering on free cash flow and investing appropriately against opportunities that we expect will drive long-term value. We believe ARR and revenue reacceleration are both well within our reach. With that, I'll open it up to Q&A. Great. Spenser and Mike will be answering questions. Please turn your microphone and camera on and limit yourself to one question, one follow-up in the interest of time. Our first question comes from Koji Ikeda, Bank of America, followed by Tyler Radke from Citi. Koji Ikeda -- Analyst Hey, guys. Thanks so much for taking the question. I wanted to dig in a little bit more about this Russia impact. I might be a little bit confused here, but I just wanted to make sure I run through these numbers properly. OK. So, essentially what happened was there was additional considerations for Russia business, and it's affecting ARR, but just trying to understand why operating income goes down but revenue goes up. I'm trying to understand those puts and takes there of why that happens because it seems like ex Russia, the guidance would have been raised quite a bit. I'm just trying to understand that a little bit more, please. Mike Dean -- Vice President, Corporate Controller Yeah, certainly. Thanks for the question. One of the big impacts is bad debt. So, there's aged receivables there. And so, with that, you're going to have an opex impact, as well as revenue. As talking about raising revenue for the full year, though, that's because we believe that we're in a fundamentally different place as a business. And as a reminder, we've beat our expectations for the first half of the year. And so, with that, naturally that's going to flow through to the full year. And so, the Russia impact is a mix of both lost revenue, but there is a large bad debt component to aged receivables at that time. Koji Ikeda -- Analyst Got it. Now that makes a lot more sense. Thank you. And just maybe the follow-up there. And one more, if I may. Is Andrew going to be on the call, too, or are you holding them back for maybe the next one? To make it clear he's only been here for, since Monday of this week in the business. And so, the representations come from me as CEO, as well as Mike as interim head of finance, so. Koji Ikeda -- Analyst Gotcha, gotcha. So, just one quick follow up there on the Russia impact. Is this just a second half effect? Or should we expect any sort of bleed through into 2025? Mike Dean -- Vice President, Corporate Controller So, most of the impact is going to be felt in Q3, but there is a lost revenue impact as well. And so, with that, there will be some impact into 2025 as well. Koji Ikeda -- Analyst OK, gotcha. And then maybe just one quick one for Andrew. I do realize that you started on Monday. Welcome to the team. Super excited to be working with you. But just thinking big picture perspective, what are some of the first priorities or things that you'll be looking at maybe over the next six months? Andrew Casey -- Chief Financial Officer I think it's really important as a new leader joining an organization that you spend time to really understand how the business has been run. Spenser and the team have built a really vibrant business with a really great customer base. And I want to understand, how we are aligning our strategic objectives, our long-term growth perspectives around those objectives, and then see how I can lean in. As you may or may not know, I've had a lot of experience with respect to scaling businesses in the past, and I spend a good amount of time meeting with customers and helping the sales teams work with our customers to drive the greatest value possible. And I figure that's probably where I'll spend some of my initial time, is to understand what processes we have in place and how best I can help the teams really drive that growth. Koji Ikeda -- Analyst Got it. Thanks, guys. Thanks for taking the questions. Next question, Matt Pryde from Citi, followed by Arjun Bhatia from Blair. Matt, go ahead, please. Matt Pryde -- Analyst Hi, team. Just one quick question on AI. Just curious if what you see in terms of event volume intensity for GenAI use cases like character.ai. Spenser Skates -- Co-Founder and Chief Executive Officer Yes. I think these are software applications first and foremost. Now, obviously, the interface is a little different in that you'll have a chat or a conversational interface versus one where you're pointing and clicking or using a touch interface. But at the end of the day, what we track is customer behavior, and so it ends up being the same thing underlying. character.ai has huge amount of use, as you might expect. We also work with Midjourney, who has a huge amount of use as you'd expect, and they're tracking similar things. What does the onboarding funnel look like, where are users getting stuck, whether things correlate to upsell or to long-term engagement and retention? And so, even though the interface with generative AI is different, the underlying idea that you're tracking a user journey and you're trying to figure out how to improve that is all the same. Arjun, go ahead. Next question after Arjun, Nick Altmann from Scotia. One for you. Maybe I'll start off. It's interesting to hear and encouraging to hear that you're seeing strength in the U.S. enterprise business and large deals in the pipeline. I'm curious how the constitution of those enterprise customers that are evaluating Amplitude is different perhaps from what your customer base was three, four years ago. What's new and what's maybe not there that was there several years ago? And then part of that question is, why now? Because we do hear of macro challenges in the enterprise. So, what's your perspective on why these businesses are looking at Amplitude right now? Spenser Skates -- Co-Founder and Chief Executive Officer Yeah, so let me hit the macro challenges piece and then I'll talk about how the composition has changed over the last few years. I think even during the worst parts of macro, in the last few quarters, new business demand for Amplitude and digital analytics generally has always been strong. I think the growth deceleration that we've seen has been largely as a result of the optimization of the contracts. And now that the significant majority of those in our rearview mirror, that is a structural change to how we're going to be set up for growth. Even if you were to look internally at the new numbers, any particular quarter, they'd be quite good. In terms of the customer base, I think the changes that Thomas has been driving over the last two years in our go-to-market enterprise motion, we're really starting to see some great impacts from that. A lot more conversations with traditional companies like we're talking with some of the largest quick-serve restaurants in the world as example, healthcare companies like Cook Children's Health Care System. That was a really big win in Q2. And we didn't really see those companies. If I were to go rewind the clock two or three years ago, and so I think the strategic focus across the board with go-to-market, with the named account structure that we rolled out, drove more focus from marketing partnerships and sales and SDRs. And then with everything we're doing on the product side, like we just announced both data mutability and data access controls, which are a big deal for those traditional enterprises, has really helped show that, OK, we are a viable player. And this technology is not just for digital native tech companies, but it also applies to anyone with a digital experience, including if you're a traditional company. Now, obviously, we're still seeing a lot of great traction with tech companies and expect that to be a significant part of our customer base for some time. But it's great to see us making progress on that crossing the chasm moment to the rest of the enterprise. I was going to say just one additional thing. I think a lot of times in industry we get a little focused on the soup du jour, if you will, of macro things that are going on. But digital transformation is a multi-decade process, and every company is going to go through a process and steps through which they're going to digitize their methods of reaching out to customers and their business processes. And ultimately, I think Amplitude has a really great opportunity to be a lead player and that transformative event for most of those customers. So, I think it's great that even though we have a macro background, which isn't great, these types of investments, these types of focuses, they take many, many, many years to evolve, and it's great that we're starting to make those investments now. Spenser Skates -- Co-Founder and Chief Executive Officer Yeah. And you're going to do them regardless of the macro. As I mentioned, like, this is a top priority for so many companies that we talk with, even though they're thinking through tighter budgets, more scrutiny, more questions, and ROI. Arjun Bhatia -- Analyst Yes, there's a secular trend there. And then the follow-up actually, on the product side, Spenser. The Warehouse-native analytics and the work that you're doing with Snowflake, how should we think about where that impacts your customers? Is that ease of implementation? Is that cost savings? Is that better outcome? What is the ROI that the customers will see from that? Spenser Skates -- Co-Founder and Chief Executive Officer Ease of implementation and access to that existing customer base from the cloud data warehouse, particularly Snowflake, to become Amplitude customers more easily. So, the big deal with Warehouse-native Amplitude is instead of having to create a data pipeline from your cloud data warehouse to an analytics product like Amplitude, you're just running SQL queries directly on top of that data. And so, if you have that data already collected on the customer journey, then you can just turn Amplitude on top of it and be off and running with a lot less implementation cost. And so, we've already seen it come up -- it's early. We just launched it in June. We've already seen it come up as a consideration, particularly in larger companies that have made big investments into the cloud data warehouse. I was in one conversation with a traditional company a few weeks ago where they called it the biggest differentiator we had versus everything else they were looking out on the market because they knew that it would make it much easier to get some of their smaller teams up and running more quickly. So, philosophically, we want to be data agnostic. So, as the proliferation of different ways to set up your data stack continues, we want to make sure to work with every different one. Warehouse-native is just another way to do that. And then for us it's about how do we win the applications on top of that data. So, analytics, experimentation, CDP, Session Replay, we'll have more to come. Next question, Nick Altmann from Scotia, followed by Rob Oliver from Baird. Nick go ahead please. Nick Altmann -- Analyst Awesome. Thank you. Spenser, you guys highlighted how some of the go-to-market adjustments are starting to bear fruit. And when you think about the historical drag on net new ARR, right, a lot of that has been macro induced and churn induced. But when we think about the upswing, when the macro gets better and you guys are sort of lapping this churn dynamic, how much of the improvements in go-to-market -- how impactful can the improvements in the go-to-market motion be? As things progress, you get through this renewal base and hopefully we get a little bit of a better demand environment here. Spenser Skates -- Co-Founder and Chief Executive Officer Yeah. So, Nick, I want to be clear like, the path to reacceleration as I look through the next few quarters and in 2025, we're not dependent on any improvements in macro. We're saying, hey, macro stays as bad as it is and we're still set up to accelerate in terms of how much net arrow we're putting up a quarter. I'd say the changes that we've been driving with the enterprise focus, massive, massive improvement. I mean, those customers are just stickier, long term. We're talking about starting out at a three-year contract instead of a one-year contract. We're talking about doing much larger, wider deployments across hundreds or thousands of people in some cases. The change that we made at the start of this year was we moved to a new named account structure that halved the total number of companies we were going after. So, it went from about 24,000 to about 12,000. And that focus has driven really great execution that we're starting to see. So, that shows up in the pipeline call-out that I made for second half in Q4. That shows up in larger lands. That shows up in just healthier renewal rates and healthier expansions. That shows up with more of the platform being landed right at the start. And so, you're using those expensive human resources to where you're going to have the greatest ROI. So, I'd say that's going without that, we'd be in a much, much worse place as a business. And so, that will set us up for reacceleration even if the macro continues to stay bad over the next few quarters. Nick Altmann -- Analyst OK. Awesome. And then the second question just kind of to dovetail off that answer, right? You have customers who maybe, historically speaking, you wouldn't be in discussions with. I think you said the ASPs in the pipeline are up 25%. So, there's definitely sort of bigger deals in the pipeline. The challenge with that is maybe sales cycles can elongate and things maybe take longer to close. So, I guess what have you seen maybe over the past couple of quarters with those big deals? Have they taken a little bit longer to close? And on the flip side of the equation going forward with, when you look at this pipeline with larger deals out there, are you guys sort of baking in sales cycle elongation or stuff to kind of move around from quarter to quarter? Just any commentary around sort of the flip side of the equation in terms of those large deals would be helpful. Thanks. Spenser Skates -- Co-Founder and Chief Executive Officer Yeah, I mean, I think one of the changes that you have to go through when you're going after that sort of business is to be having a longer-term outlook versus just the quarter in front of you. And so, I'd say one of the motions that I've kind of glossed over, but to your call out is very important, is we're now looking at pipeline multiple quarters out. We're looking at renewals a year out from when they would versus just fighting quarter to quarter to maximize that particular quarter, which is why I gave the callout on the Q4 pipeline. We're already looking at renewals in 2025. And so, that's a natural part of going upmarket, is that you'll get those longer valuation cycles. I will say they're not that much longer in terms of total time. There is an urgency to get it. So, many companies have made big investments into their data stack. And you have CEOs and product leaders and marketing leaders asking, hey, when is this actually going to get some ROI out of this? And we're such a key part of that equation because we drive that self-service, otherwise the data is all locked up and trapped within whatever their data stack is. And so, there's like, very much in urgency from the customer side around, hey, I want to demonstrate some quick ROI. Like, I'll tell you one story where we had a meeting with a customer in Europe a few months ago, Decathlon, and they had been longtime Google Analytics users. They weren't happy with a bunch of the changes with Google Analytics 4, they had actually driven their entire team to switch over to Amplitude and their goal is to complete that within a 12-month period. So, they've gone from zero to about 600 users on Amplitude in two quarters. That is the fastest ramp I've ever seen for someone getting up to speed with analytics. And then they have the goal to get to multiple thousands by the end of this year. So, I was blown away by the urgency that they had to make that switch. And as we make them successful, that's going to be a great lighthouse story for other retail customers. But it really speaks to the urgency that we are seeing a lot of buyers have in this environment. Mike Dean -- Vice President, Corporate Controller In adding on also with your question of how it impacts our guidance, we recognize this increase in pipeline and ASPs is also against a backdrop where buyer scrutiny remains high. And so, with that, that's fully baked into our guidance as well. Next question, Rob Oliver from Baird, followed by Taylor McGinnis from UBS. Rob, go ahead, please. Robert Oliver -- Analyst Great. Thanks, guys. Appreciate it. So, just one from me, Spenser on really just a follow-up on Nick's question. The customers paying over $100,000 grew 10%, accelerated sequentially. You called out some success on the non-analytics side as well. And it sounds like most of this is self-help. So, very encouraging signs. I'd be curious to know what you're seeing in terms of consolidation in the market. Are we at the point now where some of those, and I know you've said customers that are post '22 are continuing to expand with you guys? But are you getting a sense when you look at your pipeline that there is a significant opportunity around you guys consolidating other vendors as well? Is that part of what's happening in the market, notwithstanding the fact that there's a tough macro? Spenser Skates -- Co-Founder and Chief Executive Officer Yeah, absolutely. I think. Well, first, the tough macro is actually driving the consolidation because people want fewer vendor relationships. They want to have lower total cost of ownership, never mind the advantages of having the platform be integrated. And then there's just these tools work better together. And that was one of the -- that was the founding thesis for Amplitude, which is analytics, is the core of the stack. So, I cited that SketchUp, moved on to our CDP, I cited a large global job company ended up moving from Optimizely to Amplitude. It's part of why Forrester called us out as the leader is because our vision is for the entire platform and they're hearing that from buyers, hey, I just don't want a point solution for experimentation. It's got to be integrated with the analytics and it's got to offer something more broad than that. Every single company that -- whenever I have a conversation with a customer universally, whether it's Session Replay, whether it's experimentation, whether it's some of the other stuff we're planning further out in our roadmap, there is a desire to move on to the platform. So, yes, that is a huge, huge trend driving our business generally. And I think that's going to -- doing that right, doing both the creation of the platform and the suite, along with the motion to get it into the hands of customers is going to be a big driver of our success in the space. That's why we talked about our strategy in the past, one of the pillars being win the category. And so, it's not just about analytics anymore, it's about how does that work with Session Replay and experimentation and other parts of the stack. Robert Oliver -- Analyst And then just a quick follow-up on international. Does the move toward named account, which clearly is having a positive impact on your go-to-market, is that also include international? And can you talk a little bit about it? One of the call-out wins that you cited was international. So, if you could talk a little bit about how the international sales force is structured as well. Thanks. Spenser Skates -- Co-Founder and Chief Executive Officer Yes, named accounts. Yes, the named account approach applies to U.S., applies to Europe, it applies to Asia. So, the way we've done international is we look at, we've chosen a few Tier 1 markets. For example, UK, France, Germany, Europe, Japan, Korea, and Asia. There's the U.S., obviously, as well as Canada and Brazil. I'm sure I missed one in that list. And then within those markets, we're saying, OK, let's make sure to focus the -- our enterprise sellers and our emerging enterprise sellers on these 12,000 named accounts. And then anything else goes into our velocity bucket. So, we actually, we made an announcement. We just hired a new leader in Europe, Lee Edwards, who's going to be running the sales team out there. So, very, very excited. We have a lot of great accounts there. I mentioned Decathlon earlier. We have Le Monde, we have a lot of other great enterprises. And it's about how do you bring the same success that we've had in the U.S. there. I think the important thing to recognize is just the market's early all over, no matter where you go. And so, we want to make sure to invest appropriately against that opportunity. And that's why we have field teams and all the GLs that I mentioned. Andrew, look forward to working with you as well. Thanks, guys. Next question, Claire Gerdes from UBS, followed by Jackson Ader from KeyBanc. Claire, go ahead, please. It's not working. Can you give that another try? There we go. Sorry about that. Thanks for taking the question here for -- on for Taylor McGinnis. Yes, I just wanted to ask about the launch of the new Amplitude in September, the new platform. Exciting to hear about that. It sounds like it'll lower some of the barriers to getting started. So, I guess what kind of new opportunities are you expecting that that will open up? And just any kind of like pricing changes or anything we should be mindful of? Thanks. Spenser Skates -- Co-Founder and Chief Executive Officer So we're not doing any pricing changes as part of the launch. The launch is very focused on thinking about what Amplitude -- what is not just Amplitude, what is analytics going to look like in the future. And so, if you talk to any team trying to implement self-service analytics at a company, you will get all these stories about how painful and long the process is. You have to create a tracking plan, you have to get the engineering team to implement hundreds of lines of code. You have to get data flowing in, you got to train your team on it, you got to learn the semantics of what does a chart mean, how do you do a funnel analysis, and so on. And the goal is to cut as much of that out as possible. So, you're only doing one line of code, you're getting a whole bunch of dashboards out of the box, and then you're getting on that train of analytics value as quickly as possible. So, I expect a few different things. One, it's going to bring analytics to a whole new set of companies that have wanted it but have really struggled with the cumbersome and long implementation processes that analytics currently takes. And then two, that'll get them to value that much quicker and start to get on that train. If I think out 5 or 10 years from now about what the winning company in this space is going to look like there is no way is it going to be as difficult as it is today. So, we've been putting in a lot of work on the product development team over the last few months in preparation for this launch about all the different areas that I outlined. And yes, we're going to be excited to launch that September 10th, and we think that's going to open up a whole new segment of customers that's going to accelerate more companies landing. That's going to get them up to speed and faster. Next question, Jackson from KeyBanc followed by J.R. from Piper. Jackson. Go ahead, please. Jackson Ader -- Analyst Thanks. Hey, guys. First question on the sales marketing motion, how much your sales marketing expenses are split between net new go-get versus renewals? Spenser Skates -- Co-Founder and Chief Executive Officer So what we're trying to do is obviously minimize the amount that's on renewals at the end of the day. So, you're really focusing the sales efforts on both net new customers, as well as expanding existing customers. And that's really where you're spending the cycle. And the goal is when you're up and running, you kind of minimize that cost. One of the changes we've made is introducing a premium services package that helps attach specifically just to, OK, let's make sure you've implemented, let's make sure you're getting value, let's make sure you renew. And so, that helps separate out some of the costs. Mike, I don't know if we have a breakdown on any of that stuff or any way to characterize it. Mike Dean -- Vice President, Corporate Controller No, we don't share that publicly, but everything that you've highlighted is there. The other thing that I'd highlight is that we're investing in the enterprise and so professional services related to that is impacting the gross margin specifically. And that's what's happening there. But that's all an investment to better the customer base in the enterprise. Jackson Ader -- Analyst And then I guess a quick follow-up along a similar line. But I just think if you're leaning into some of the product-led growth on the lower end, is there going to be an opportunity to kind of, like, structurally reshape some of these expense lines, maybe shifting some sales marketing away and into R&D? Like should we expect more? Can we just talk a little bit about how the structural changes of the expenses might look in the next couple of years? Spenser Skates -- Co-Founder and Chief Executive Officer Yeah. So, I want to be careful about giving any explicit guidance. Obviously, that's something, as Andrew comes on board, that we're going to be looking to shape together as we think about it. Let me give some high-level points on it, though. First is that you're right on. I think the key is putting the expensive human resources onto the enterprise accounts where you see, call it 300,000, 500,000, million Plus opportunity. And then anything below that line, if you're thinking about sub-100,000, you're really getting -- you're automating that more and more. So, there's always going to be a need, especially when you talk about a digital analytics deployment at scale. For human interaction, you need to coordinate stakeholders. There's work to make all of them successful. And then at the low end, like you mentioned, automating more and more of the motion. I think the other benefit of PLG, as you mentioned, is that it makes it much easier, so you don't even need all those human resources for all the implementation. So, I think absolutely, that's, long term, one of the aspirations where you're getting more of the enterprise customer base coming through the PLG motion. We've seen a few early successes there. I mentioned a railway company last quarter, as well as one of the large chip companies out there that came in actually through the Plus motion, and that obviously makes the cost of sale and getting them up and running much, much cheaper. So, that's absolutely a lever that we're going to be using to reduce cost, overall expense to acquire customers over time. We are fundamentally a product company, a product-led company. And so, starting with great product and winning with great product is the core of Amplitude. And so, on a relative basis. Yes. Investing more there over time is directly where we're going. Jonh from Piper, followed by Elizabeth Porter from Morgan Stanley. Unknown speaker -- -- Analyst Great. Thanks for taking the question. I'd love to go back to Session Replay for a moment. What's been the competitive response since adding the product earlier this year? And curious if you've seen pricing turn more aggressive there. And just in general, any views on competition this quarter would be helpful. Spenser Skates -- Co-Founder and Chief Executive Officer Yeah, so Session Replay, that has been -- so we just launched it in Q1 and it has been the fastest ramp we've seen in terms of additional products outside of analytics. Every single company that we talk to that already uses our analytics and has another third-party vendor for Session Replay is interested in consolidating. I don't think I've talked to one that says, oh, no, we're happy with our stand-alone one. It just, it makes so much sense because you can do have a lower total cost of ownership and then the integration and workflows is actually really key too. One of the great use cases with using Session Replay and analytics is that you can look at, say, users that encountered a bug or encountered an issue, an error and then watch the sessions to see where they ran into that and what caused it and then go back and fix that. We've already used that. We've seen a lot of our customers use that and it's not something you can do if you have a Session Replay provider stand-alone. So, we're seeing a lot of pull from that end. In terms of the costs, like, yes, that is the point. Yes, we are going to give price pressure to these other players in the market and we can offer something like, I'd say half the cost, but that's accretive to us, saves the customer money, drives more overall values. Just a win on all fronts. And so, in a lot of ways, we are kind of the lower-cost provider because you're coming onto our platform. Next question, Elizabeth Porter, Morgan Stanley, followed by Clark Wright, D.A. Davidson. Elizabeth, go ahead, please. Elizabeth Porter -- Analyst Great. Thanks so much. I actually have a follow-up to Claire's question on the new product rollout. I was curious if you've had prior new platform rollouts and what those -- any sort of changes in KPIs you may have seen in the past as it relates to improvements in retention or engagement? And I'm just looking to any historical precedents that we can look to kind of inform our view on the new opportunity. Spenser Skates -- Co-Founder and Chief Executive Officer We haven't done one like that since we've been public. I think the last change that we made in this was probably six or seven years ago. So, this is the biggest that we've done since that point in time. So, Elizabeth, there isn't a ton of precedent. What I will say on just some of the quick stats, we're seeing about somewhere between a 40% and 50% increase in data activation. So, of the percentage of people that sign up, how many actually end up getting data? We're seeing a lot more engagement from new customers on Session Replay and on experimentation. So, that's been a real positive as well. My expectation is this will lead to us getting more customers, as well as having the customers that do come in be more likely to be successful in activating get through the whole funnel. Now it is our first salvo at this and so we're going kind of to continue iterate and beat the drum past September 10th on this because we want to be the leaders here and so that there's no reason to choose anyone else over Amplitude. And so, I'm excited to see and report on the results once we get to the other side of the launch. Elizabeth Porter -- Analyst Great. And then just as a follow-up quickly on NRR, there was modest contraction, kind of as expected. Would just love to unpack some of the drivers between absolute churn, down sell, and upsell, kind of any areas that you'd call out that actually saw a little bit of better improvement? Kind of what maybe got a little bit worse? Mike Dean -- Vice President, Corporate Controller Yeah. So, we've said that we're going to trough in the mid-90s this year and that's where we are right now. The big impact is obviously the optimizations for the multiyear contracts that happened, and then we're going to have a headwind in Q3 with Russia as well. Absent that, we believe we're in a fundamentally different place to reaccelerate growth and that's well within our reach. Awesome. Last question, Clark Wright, D.A. Davidson. Clark, go ahead, please. Clark Wright -- Analyst So we've seen consecutive quarters accelerating -- Yaoxian Chew -- Vice President of Investor Relations Sorry, Clark, we can't hear you on the audio. Much better, much better. Clark Wright -- Analyst Good now? OK, perfect. So, we have seen consecutive quarters of accelerating customer count growth. And we'd love to understand where these companies are starting at and how do you plan to drive these new logos to your 50K Plus cohort, whether it's through incremental product adoption or seed ads. Spenser Skates -- Co-Founder and Chief Executive Officer Yeah. So, I want to be clear on customer count, we continue to disclose that because we have historically, but it lumps in the Plus customers as well, which only started at the end of last year. So, the year-on-year comparisons are not apples to apples. And so, part of the reason why we disclosed 100K customer Plus is because those are like, you can think of those as real or large or enterprise customers. And so, I'd focus more on that. With that said, you do see it is great to see so many companies coming on to Plus for the first time. And those are a great feeding ground to where those companies will upgrade to larger plans, use more of Amplitude over time. They're starting to be a small revenue contribution to the quarter as well. So, it's all good. But yes, it's not quite an apples-to-apples comparison with if you were to look a year ago, so we don't emphasize it quite as much. Yaoxian Chew -- Vice President of Investor Relations Awesome. Great. Thank you for that last question. With that, I'm seeing no further questions in queue. We will be at the Citigroup Global Tech Conference and Piper Sandler Growth Frontiers Conference in September. Details will be posted on our IR website. Thank you very much for attending our 2Q earnings conference call. You may now disconnect.

Earnings call: Xometry posts record Q2 revenue, eyes $1 billion target By Investing.com

Xometry , Inc. (XMTR), the AI-powered marketplace for on-demand manufacturing, reported a robust financial performance for the second quarter of 2024, showcasing record revenue, gross profit, and margins. The company's marketplace revenue surged by 25% year-over-year (YoY) to $117 million, contributing to a total quarterly revenue of $133 million, a 19% increase from the previous year. Xometry's active buyer base expanded significantly, with a 27% YoY growth, indicating strong marketplace engagement. The company outlined its strategic initiatives aimed at deepening penetration in the manufacturing sector and is on track to achieve adjusted EBITDA profitability at a $600 million revenue run rate, with sights set on reaching $1 billion in revenue. Xometry's performance in Q2 2024 reflects a strong execution of its growth initiatives and a disciplined approach to capital allocation. The company's emphasis on user experience, transparency, and technology integration positions it favorably in an uncertain macro environment. With a clear strategy and confidence in its continued growth, Xometry is poised to achieve its profitability targets and expand its presence in the manufacturing industry. Xometry Inc.'s (NASDAQ:XMTR) recent financial report for Q2 2024 has demonstrated impressive growth, with a significant uptick in marketplace revenue and an expanding active buyer base. InvestingPro data and tips offer additional insights into the company's financial health and stock performance that may be of interest to investors. InvestingPro Tips highlight that Xometry has seen a strong return over the last month, with a 32.34% increase in price total return, signaling a positive market reaction to the company's growth trajectory. However, analysts suggest caution as they do not anticipate the company will be profitable this year, which aligns with the company's own projections of reaching adjusted EBITDA profitability at a later stage. InvestingPro Data reveals a market capitalization of $783.98 million, reflecting the company's value in the eyes of investors. Despite the lack of profitability over the last twelve months and a negative P/E ratio of -11.05, the company's revenue has grown by 19.42% over the last twelve months as of Q1 2024. This indicates a strong top-line performance, which the company is likely aiming to translate into bottom-line results in the future. For investors seeking a deeper analysis, there are additional InvestingPro Tips available, which can be accessed for further guidance on the potential investment opportunities and risks associated with Xometry's stock. To sum up, Xometry is navigating through its growth phase with a focus on scaling up and improving profitability. Investors should weigh the company's strong revenue growth and marketplace momentum against the backdrop of its current lack of profitability and high price volatility. As always, a comprehensive evaluation with the help of additional InvestingPro Tips is recommended for those considering an investment in Xometry. Operator: Good day and thank you for standing by. Welcome to the Xometry Q2 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Shawn Milne, VP of Investor Relations. Shawn Milne: Good morning and thank you for joining us on Xometry's Q2 2024 Earnings Call. Joining me are Randy Altschuler, our Chief Executive Officer; and James Miln, our Chief Financial Officer. During today's call, we will review our financial results for the second quarter and discuss our guidance for the third quarter and full year 2024. During today's call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, strategy, long-term growth, and overall future prospects. Such statements may be identified by terms such as believe, expect, intend, and may. These statements are subject to risks and uncertainties which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed before the market opened today and in our filings with the U.S. Securities and Exchange Commission, including our Form 10-Q for the quarter ended June 30, 2024. We caution you not to place undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in our expectations. We'd also like to point out that on today's call, we will report GAAP and non-GAAP results. We use these non-GAAP financial measures internally for financial and operating decision-making purposes and as a means to evaluate period-to-period comparisons. Non-GAAP financial measures are presented in addition to, and not as a substitute or superior to measures of financial performance prepared in accordance with U.S. GAAP. To see the reconciliation of these non-GAAP measures, please refer to our earnings press release distributed today and our Investor Presentation, both of which are available on the Investors section of our website, at investors.xometry.com. A replay of today's call will also be posted on our website. With that, I'd like to turn the call over to Randy. Randolph Altschuler: Good morning, everyone, and thank you for joining us for our Q2 2024 earnings call. Q2 was a strong quarter for Xometry across many fronts. Our AI-powered marketplace delivered record revenue, record gross profit, and record gross margins. Powered by AI, our on-demand custom manufacturing marketplace continues to gain significant market share as buyers and suppliers realize the value, convenience, and resiliency of our platform to strengthen their supply chains globally. We made great progress in Q2 and are focused on driving further penetration in this massive market through our key growth initiatives. As I spend time with customers around the globe, I see firsthand that we are increasingly becoming embedded across our customer supply chains as our marketplace digitizes inefficient and cumbersome processes while delivering value and reliability for buyers. Likewise, Xometry's platform enables suppliers to digitally monetize manufacturing capacity, improve profitability, and access global demand at minimal cost. In Q2, many Fortune 500 customers depended upon Xometry to help strengthen their supply chains, as we surpassed the $500 million annual revenue run rate. One of the largest global technology companies expanded production programs into a new line of business, and a top global medical device company embedded the Xometry marketplace directly into their procurement program. We have a tremendous run rate for growth by increasing our penetration rates across manufacturing processes and end markets in a highly fragmented industry. In Q2, we delivered accelerating growth with revenue increasing 19% year-over-year to a record $133 million, driven by our marketplace business. Q2 marketplace revenue grew 25% year-over-year and a robust 9% quarter-over-quarter. We saw strength across many end markets, including semiconductors, industrial equipment, consumer products, aerospace and defense. Q2 gross profit increased 21% year-over-year. Q2 marketplace gross profit increased 33% year-over-year and a strong 15% quarter-over-quarter, driven by our AI-powered marketplace and increasing network of active suppliers. As we scale our data, our machine learning AI models get better pricing and matching, which in turn fuels gross profit dollar growth. The proof is in the results. In the past three years, we expanded our marketplace gross margin from 23.5% to 33.5%, underscoring the power of our AI-driven model. In Q2, we further invested in our marketplace technology, including key hires in machine learning and data science. We expect to expand marketplace gross margin and drive strong gross profit growth in the second half of 2024. Strong marketplace revenue and marketplace gross profit growth drove a 70% improvement in our adjusted EBITDA loss to a record-low 2% of revenue. We delivered strong leverage in our U.S. marketplace while making investments to drive international growth and scale. In order to drive sustained market share gains, we're focused on these growth initiatives. First, expanding our network of active buyers and suppliers. In Q2, active buyers increased 27% year-over-year with net additions of over 3,000. We expect our active buyer growth to remain healthy as there are millions of potential buyers and Xometry's brand awareness is growing, but still low. We continue to increase the breadth and depth of our supplier network, which increased 36% in 2023. In Q2, we expanded our supplier base in the United States and other markets such as India and Turkey. We're also growing our supplier reach in specific processes, including tube cutting, tube bending, and other tooling-based processes to support anticipated areas of customer growth. For our suppliers, we continue to enhance Workcenter, the digital operating system for manufacturing. In Q2, we further digitized the recruitment and onboarding experience for suppliers directly through Workcenter. Second, expanding the marketplace menu. Our goal is to be the primary destination for our customers manufacturing and supply chain needs. To help accomplish that, we need to provide Instant Quoting for as many manufacturing processes and materials as possible. In Q2, we made progress doing just that. For example, in Europe, we added 10 new materials, including new steel and aluminum grades for CNC, and expanded 3D printing finishing options. To expedite our development of new auto-quoted processes within Xometry's AI-powered Instant Quoting Engine, we are leveraging Google's Vertex AI alongside a proprietary data and algorithms. We are now beta testing new auto quote tube bending, and tube cutting, which we expect to release later in Q3. Third, driving deeper enterprise engagement. Some of our biggest customers are the largest companies in the world. In Q2, we made strong progress with our land and expand efforts as the number of marketplace accounts with last 12 months spend of at least $50,000 increased 24% year-over-year to 1,436. While our growth with these accounts has been strong over the years, there is a terrific opportunity to significantly accelerate Xometry's adoption by them. To make that happen, we have a two-pronged approach. First, we're leading with our technology. In Q2, we launched an ERP integration with a large global medical device company, which reduces friction in the procurement process. Additionally, the feedback for team space remains positive, with rapid adoption, including over 3,300 teams and strong engagement on the platform. Team space moves -- the Xometry marketplace from a focus on individual buyers and parts to procurement teams managing programs. Second, we continue to invest in our enterprise sales efforts, increasing our bench strength, including the hiring of our new Chief Sales Officer, Subir Dutt, in May. Subir brings significant experience, leading high-performing, high-growth sales teams that cater to large enterprise customers across nearly every sector. Fourth, growing internationally. In Q2, international revenue increased 31% year-over-year, driven by strong growth in Europe. Xometry Asia expanded into new English-speaking countries including Australia, Singapore, and New Zealand. In China, Xometry launched enhanced customer service capabilities on its WeChat mini app for buyers to quote, order, and track delivery. Through Xometry.eu, Xometry.uk, and Xometry.asia, we have leveraged Xometry's core technology to provide localized marketplaces in 15 different languages with networks of suppliers across Europe and Asia as well as North America. Our enterprise strategy is successful in Europe as well. In Q2, a U.K.-based aerospace equipment manufacturer chose Xometry for high-volume manufacturing. Xometry enabled them to move away from in-house production by providing flexible, scalable capacity to quickly produce certified parts, significantly reducing lead times. This partnership simplifies their business processes and effectively make Xometry an extension of their procurement department. In Q2, international revenue accounted for 15% of total marketplace revenue. We believe international can reach the 30% to 40% level in the long term, as with many other global online marketplaces. Fifth, enhancing supplier service solutions. In Q2, we continue to invest in important foundational work to modernize the Thomas advertising platform. We're focused on restoring Thomas advertising growth given the 85% plus gross margin and strong contribution margin opportunity of the platform. By improving the underlying platform technology, we will enhance the experience for both users and advertisers, providing opportunities for growth and engagement. One of our top goals is to drive increasing advertiser penetration on the platform, which is approximately 1% today out of the roughly 500,000 suppliers listed on Thomas. The Thomas platform continues to attract new logos and expand relationships with key customers. In Q2, Thomas signed a new partnership with the Italian trade agency Machines Italia to connect buyers to the North American subsidiaries of dozens of Italian manufacturers. Also, Thomas expanded its relationship with American Crane (NYSE:CR), one of the largest manufacturers and distributors of cranes in the United States. I'm proud of the collective efforts of our global team. Our continued strong execution and growth demonstrates the significant strides we're making to digitize supply chains. The combination of our extensible technology platform, expanding data lake and rapidly growing networks of buyers and suppliers will continue to fuel strong growth and margin expansion. I'll now turn the call over to James for a more detailed review of Q2 and our business outlook. James Miln: Thanks, Randy, and good morning everyone. As Randy mentioned, Q2 was a record quarter for Xometry across many fronts. Q2 revenue increased 19% year-over-year to $133 million driven by strong marketplace growth. Q2 marketplace revenue was $117 million and supplier services revenue was $15.3 million. Q2 marketplace revenue increased 25% year-over-year, driven by strong execution across our teams and growth initiatives. Q2 active buyers increased 27% year-over-year to 61,530, with a net addition of 3,026 active buyers. Q2 marketplace revenue per active buyer decreased 1% year-over-year and increased 4% quarter-over-quarter. The number of accounts with last 12 months spend of at least $50,000 on our platform increased 24% year-over-year to 1,436 with 55 net new accounts. As we continue to deepen our relationships with our customers across many end markets, supplier services revenue declined 13% year-over-year in Q2, primarily driven by the discontinuation of the sale of tools and materials in the U.S. and wind down of non-core services. As Randy mentioned, we are modernizing the Thomas advertising platform, including investments to improve user and advertiser engagement. The number of active paying suppliers for Q2 2024 was 6,992 on a trailing 12-month basis, a decrease of 7% year-over-year. Q2 gross profit was $52.9 million, an increase of 21% year-over-year with gross margin of 39.9%. Q2 gross margin for marketplace was a record 33.5%, up 180 basis points year-over-year. Q2 marketplace gross margin is a clear validation of our machine learning AI-powered economic model, which optimizes pricing with more data and improves matching with an expanding supplier network. Q2 marketplace gross profit dollars increased 33% year-over-year. We are focused on driving marketplace gross profit dollar growth through the combination of top line growth and gross margin expansion. Q2 gross margin for supplier services was a record 88.9%, driven by our increasing focus on the higher gross margin Thomas marketing and advertising services. Moving on to Q2 operating costs. Q2 total non-GAAP operating expenses increased 6% year-over-year to $55.7 million, well below revenue growth. As I said last quarter, we are applying stronger discipline and rigor to our capital and resource allocation across teams. In Q2 2024 this resulted in non-GAAP operating expenses remaining flat quarter-over-quarter, driving strong leverage across sales and marketing, operations, and product development. Marketplace advertising spend increased 9% year-over-year, or 6.9% of marketplace revenue, down 100 basis points year-over-year, as we continue to closely monitor advertising spend and efficiency. Q2 adjusted EBITDA loss was $2.6 million, or 2% of revenue, compared with 7.8% of revenue in Q2 2023. Q2 adjusted EBITDA loss improved $6 million year-over-year, or 70%, driven by growth in revenue and gross profit. At the end of the second quarter, cash and cash equivalents and marketable securities were $241 million. Q2 was a clear demonstration of the ability for Xometry's AI-powered marketplace to deliver strong gross margin expansion and gross profit growth. We remain focused on operating expense discipline while investing in our growth initiatives. In prior years, we delivered 20% plus incremental adjusted EBITDA margin year-over-year, driven by our efforts. In the first half of 2024, we delivered 25% year-over-year incremental adjusted EBITDA margin. We expect to reach adjusted EBITDA profitability at the $600 million revenue run rate. As we scale above that level towards $1 billion-plus, we expect continued 20% plus incremental adjusted EBITDA leverage. We have a large market opportunity ahead and low penetration rates across many end markets such as aerospace and processes, including CNC. We will continue to balance investing in the future with driving operating leverage in the model. Now moving on to guidance, we are reaffirming our fiscal 2024 revenue outlook and continue to expect marketplace growth of at least 20%. Marketplace growth for the first six months of 2024 has been stronger than expected, increasing close to 25% year-over-year, driven by healthy underlying metrics and excellent execution by our team. While the underlying metrics continue to be strong, we remain mindful of the uncertain macro. We expect marketplace gross profit to grow faster than marketplace revenue and we expect to drive improving operating leverage year-over-year through 2024, as we execute on our strong roadmap of growth initiatives. For the third quarter, we expect revenue in the range of $136 million to $138 million, representing year-over-year growth of 14% to 16%. We expect Q3 marketplace growth to be approximately 18% to 20% year-over-year. We expect Q3 supplier services to be down approximately 5% to 10% year-over-year due to the wind-down of non-core services. In Q3, we expect adjusted EBITDA loss to be in the range of $1.5 million to $3.5 million, improving from a loss of $4.2 million in Q3 of 2023. In Q3, we expect stock-based compensation expense, including related payroll taxes, to be approximately $8 million or 6% of revenue. With that, operator, can you please open up the call for questions? Operator: [Operator Instructions] Our first question today comes from Brian Drab with William Blair. Your line is open. Brian Drab: Hi. Good morning. Thanks for taking my questions and congratulations on a solid result in a tough environment. I just wanted to ask first, I think a question that's going to be on a lot of people's minds is what are you seeing here in the first five weeks of the third quarter? You just put up 25% growth in the first half of the year. James just mentioned is stronger than expected. But if you're going to hit 20% for the full year, I guess, you said at least 20%. It seems to imply maybe a little bit of a slowdown in growth year-over-year for the second half. So what are you seeing so far in the third quarter? Randolph Altschuler: Yes. Hi, Brian, this is Randy, and thank you. And I just want to reiterate, we're seeing strong metrics across the business, continue to be strong. We're not signaling that we think there is going to be a slowdown in the second half of the year, but we're sticking to the guidance that we provided through the beginning of the year, which is marketplace growth of at least 20%, and supplier services down 10% year-over-year. So we're just being consistent, but the underlying metrics continue to be strong. Shawn Milne: Yes, Brian, hi, it's Shawn. Just remember, Brian, in the fourth quarter, the year-of-year comparison goes from 22% last year in Q3 to 42%. Just keep in mind that the comp in Q4. And the second thing that James said in his prepared remarks is we expect very strong gross profit dollar growth in the second half. We saw a real step up in our gross margin in Q2 for marketplace, and that's important when you think about your models in the second half of the year. Brian Drab: Yes, definitely see that tough comp coming in the fourth quarter. So appreciate that. I guess, I'll just ask one more question for now. What are you expecting after such a solid gross margin result in the marketplace? What are you expecting for gross margin in the marketplace in the third quarter and going forward in general? James Miln: Yes, Brian, it's James. Thanks for the question. So we're really pleased with the performance of the gross margin, as we said on the call, this really validates the AI-driven model. The increasing data we're seeing on the platform, the ability for us to connect -- match best with the best and optimal supplier, optimizing pricing, hitting 33.5% in Q2, that's up 180 basis points year-over-year. That's really helping drive this gross profit improvement. We still think we can target towards 35% by the end of the year. We'll -- we believe that with the increasing growth of the marketplace, the data, the suppliers, you know that we've got all the components that continue that drive. Really excited about that. I think it's a really important part of the value proposition of the marketplace in Xometry as we go through the rest of this year. Operator: Thank you. Our next question comes from Nick Jones with Citizens JMP. Your line is open. Nick Jones: Great. Thanks for taking the questions. I have two. The first one on kind of marketplace revenue per active buyer, sequentially it improved. Can you speak to or put a fine reply on kind of active buyer purchasing behavior, are they looking for kind of longer delivery times? Looking for steeper discounts through your kind of portal? Is there any color there would be really helpful just to kind of understand how they're behaving? And then the second question is really on sales and marketing, you're driving nice leverage there in terms of kind of maybe absolute dollars. I guess, how flexible are you planning to be with the sales and marketing spend through the rest of the year? Thank you. James Miln: Thanks, Nick. So this is James. Okay, thanks for the question. Really pleased again with the performance in the quarter. Active buyers up net add of over 3,000, active buyers growing 27% year-over-year. And a lot of our growth initiatives are supporting both buyer growth with continuing to expand the network, bringing more market menu options, increasing growth in enterprise as well as they can grow revenue per buyer. We grew accounts with more than $50,000 up 24% year-over-year. So that was a nice add in the quarter. And I think those enterprise and marketplace menu efforts are all there to help us continue to drive both of these metrics going forward. Randolph Altschuler: Yes, I'm just going to add also again we're seeing very strong underlying metrics. Customers are obviously -- buyers are leaning into Xometry and we're taking market share. And just to double down what James said, we can see that not only in the absolute number of buyers but also as you think about these larger accounts, the enterprise accounts, these bigger 50,000 plus more and more of them are coming to us as Xometry is a terrific option for them in this -- in the broader market. Shawn Milne: Yes, it's Shawn, just on the advertising side we continue to certainly monitor that closely and balance that against our growth initiatives. We talked about on the call, we saw a real good leverage there, year-over-year was -- advertising as a percent of marketplace revenue was 6.9%, in Q2 down 100 basis points year-over-year, while we drove 25% marketplace growth. So feeling good about our marketing efforts. Nick Jones: Great. Thanks, guys. Operator: Thank you. Our next question comes from Ron Josey with Citi. Your line is open. Ronald Josey: Hi, thanks for taking the question. Randy, you talked about new auto-quote categories, overall the benefits and expanding internationally. I wanted to understand a little bit more as instant quoting expands, just how has this capability improved conversion rates? Wondering how it's changed sort of the go-to-market approach overall. And we've mentioned a few times over the past year, just the use of Vertex to accelerate development here. We'd love to understand a little bit more how Vertex is helping to expand or accelerate this instant quoting capability. And then second question is for James. You mentioned or reiterated the goal to end 4Q with the 35%, I think, marketplace gross profit margin. Just wanted to understand a little bit more on the drivers there. Is that basically the results of land and expand coming out there and working more complex products on the platform international? Any specific products or factors to call out that drives continued gross margin expansion here? Thank you. Randolph Altschuler: Thanks for the question. This is Randy. So, the benefits of more and more that we can auto-quote are sort of mirrored. First of all, it reduces friction within the buyer experience. And we know not just in the case of manufacturing, but across all markets, the more and more you can reduce friction, and make it easier for a customer, the more they're going to lean in and buy from you, frankly. And the same thing is true as you digitize it. Again, our customers are used to more and more of their lives being digitized. It's logical for them for that to happen in manufacturing. So, the more that it can be digitized, that's also very powerful. And then we become more and more that one-stop shop for that customer. So, many of our buyers, when you think about a company, particularly larger companies, they're buying across multiple categories of manufacturing technologies. The more that we can be that one-stop shop and they can lean into us from everything, from machining to two, 3D printing all those things under one roof, the more likely they are to stay with us and put more and more of their share of wallet. And again, it's talked about, sort of strong underlying metrics in our market, taking market share. And part of that is, because we're just making it easier-and-easier for the buyers to come to us. The Google Vertex AI relationship has been terrific, because they're giving us AI techniques that they've got that are helping us release these models faster. And that will be key. We're looking at increasing the pace of the new auto-quote technologies that we add to our marketplace and Google's techniques. And they're really good at this, that that team are helping us make that happen. And as I said, you'll start seeing that this quarter and in quarters to follow. James Miln: And hi, Ryan, it's James. So, on the gross margin and gross profit growth, just to reiterate on the progress to-date, records 33.5% in the quarter, up 180 basis points year-over-year. And that's driving gross profit growth 33% on the marketplace outpacing the 25% on revenue. So, as we said before, and we outlined also in our best of deck, AI is the main driver of gross margin expansion over time. So what's really going on there with more data, with the expanding supply network and the improvements on our own machine learning and AI price prediction, which has continued to optimize, and as we grow and lead as a leading marketplace and we're getting more and more data, it's enabling the system - to be able to really optimize between the supplier cost side, and the pricing and the buyer side. So our system really balances that buyer and supplier pricing and conversion rates over time, driving overall gross profit dollar growth. So adding new processes to the menu, adding new options is really helpful. Those are things that over the long-term continue to just grow, again, the data and the supplier network that we have, and help us continue on what we've done over the last few years and expand. As Randy said on the call, and expanding the margin already 10 points. It's not always going to be exactly a linear trend. It will depend on what's going on supply and demand in the market as well. But from the progress we've seen so far this year and over multiple years, I think we feel confident we'll continue to be on a track towards this 35% goal. Unidentified Analyst: Hi, this is [Danny] on for Cory. Thanks for the questions. For the first, it looks like international growth decelerated a bit in 2Q. Can you maybe parse out the different trends you're seeing from international customers versus trends in the U.S.? And then for the second question, I believe you called out semiconductors as a strong end market in 2Q. Can you maybe expand on what you're seeing here, and kind of whether this is being driven by broader demand for AI adoption? Thanks. James Miln: Thanks, this is James. On the international, really pleased with the performance there. I think we look at Q-on-Q, continuing to see really good additions to that growth through the first half of the year. We did have a very strong comp a year ago. That business nearly doubled in growth a year ago. So, we're really pleased with the performance that we're seeing there and continue to see that as a big driver and a big opportunity to become a bigger part of our business as we move forward. Randolph Altschuler: Yes, and to be clear, I mean, the trends in international are very strong. As James said, it's really just a comp issue. It's nothing more than that. And we're very pleased with what's going on internationally and continue to see huge opportunity to continue to grow that market aggressively. On the semiconductor side, we're definitely benefiting from a lot of different trends, whether it's the trend in AI. You've got domestic investments that are being happening as well here in the United States. So it's a multiple - or multitude of factors that are driving that. And that's become a nice sector for us. Unidentified Analyst: Thanks. Operator: Thank you. And our next question comes from Matt Swanson with RBC. Your line is open. Matt Swanson: Yes, thank you for taking my question and congratulations on the quarter. Maybe building on some of the comments about market share gains and people leaning into telemetry, it was great to hear the traction in Teamspace. I think you said up to 3,300 teams. Maybe you could just give us a little bit more color on kind of the customer feedback as it's starting to get more broadly adopted, and anything you're noticing from kind of the usage trends with it? Randolph Altschuler: Yes, this is largely a technology story. And the more that we can reduce that friction for the customer, the more that we can make it, when you think about teams of buyers together building projects or products, or entire programs, things like communication between them, being able to share documentation, being able to integrate within the ERP system, that the purchasing system of the customer. The ability to reorder more parts from that program, because the programs will - go over periods of time and need to be able to reorder parts periodically. All those different factors, the more that we can make those seamless, the more that we can digitize those, and make it intuitive to the customer, the more that they're going to continue to lean into telemetry. And particularly when you think about our B2B audience, reliability and convenience are key factors. And with our digital and extensible platform, that's very attractive to them. And we're constantly adding. I talked about in my script, we're making investments on the machine learning side and on the data science side. And just overall, in our technology team to continue to make it easier for our customers. Matt Swanson: That's super helpful. And that was really nice to hear the resiliency, in what feels like an uneven macro environment. I was just curious, if we do see headwinds, are there any tailwinds that come from that? And the idea that either you see more supplier interest because demand is harder to come by or just the ROI of the platform making it more attractive to buyers. Do you see any offsets, or is it change your go-to-market motion at all? Shawn Milne: Yes, it's Shawn. I mean, it's a good point. I mean, clearly we're becoming more important for both our buyers and suppliers. And we've said before, we spend very little on supplier acquisition and certainly this environment, they're leaning in more with Xometry. And the more we can offer them with our work center software, we can help them improve their operations. And really again, as Randy said on the call, it's important to understand we're allowing these suppliers to monetize their capacity digitally. This is something that's not been done before. So we've got more suppliers coming to us and expanding the network. James Miln: Yes, Matt, this is James. Just to add to that, I think yes the key offering that Xometry provides to both buyers and suppliers is this flexible, resilient supply chain solution. So for buyers being able to instantly access multiple solutions, cut the platform to be able to take away a lot of complexity. And then on supplier side, accessing in effect global demand at minimal cost, and being able to utilize their assets can optimize their profitability as well. So I think, and this is a broader point on, I think whatever the macro trends and even as things go through the rest of this year and even with political changes as well, I think that our platform and the flexibility and resiliency that we have, it makes us well suited to support our buyers and our suppliers through that. Randolph Altschuler: Yes, and just to add one more thing for buyers, the transparency of our pricing and the ability for them to see in real time as they change quantities, materials, processes. If a buyer is looking to optimize, get the best deal and find that most efficient way to do that, our technology enables them to make that happen. And again, just going back to that user experience and transparency, reducing the friction, making it easy for them to make choices and see what those choices cost. That's very powerful. And the more uneasy the environment, the more customers want that transparency. Matt Swanson: Thank you. Operator: Thank you. And our next question is from Greg Palm with Craig-Hallum. Your line is open. Greg Palm: Yes, thanks. Good morning, everybody. Just thinking back to Q2, just putting a finer point on outperformance. Can you just give us a little bit of sense on where you saw the most outperformance relative to maybe the initial guide? And then just in terms of kind of what you're seeing more broadly out there, I mean, it's very clear manufacturing trends are slowing here, but it doesn't sound like you're sort of seeing it. So can you maybe just give us a little bit of sense on, again, kind of why or how you're taking more shift, I guess, now in this kind of environment? James Miln: Hi Greg. Thanks for the question. It's James, I'll kick it off and then you can add. I think overall, we see some strong evidence that we're executing really well across all of our end markets and all of our processes, as well as controlling expenses in a disciplined way. So despite the uneven and uncertain macro environment, our focus on our growth initiatives and on executing on those, I didn't ask what's coming through here. And then the gross profit performance coming in 33% that was a real strong highlight for the quarter. I think we were really pleased with how we were able to execute on that, the models and delivering that gross margin. That was probably part of the, an important driver of our relative outperformance when it came to adjusted EBITDA as well. Randolph Altschuler: Yes, and just to add, I mean, they said before the metrics, underlying metrics remain strong. We feel good about where the second half of the year as well. A lot of this, as we think about gaining market share, a lot of it is better technology and just making it easier for all the different segments of the markets or for the buyers, whether it's team space, more auto-quote processes, the ability to link into their ERP systems, all those things just make it very compelling for a buyer. And then on the supplier side, work center, we continue to invest in work center. That's the system, the manufacturing execution system that we give to our suppliers to manage work from Xometry is their own work. We're continuing to develop that and reduce friction for them. So it makes them, the more that they can move quicker, more efficiently, the more profitable it is for our suppliers. So not only are our buyers always wanting to do better, but our suppliers are too and our technology plus our matching algorithms that optimize, which employer makes which parts, you pair that together with work center and our continuous improvement in those, that's very appealing. Greg Palm: Yes, okay. Makes sense. And then just on the EBITDA guide for Q3, so essentially the same level of EBITDA as Q2, higher level of revenue. It's obviously, it implies something a lot less than that 20% incremental margin, James, so just give us a little bit of color kind of what's backed in or what's assumed in the EBITDA guide for Q3 versus what you saw in Q2? James Miln: Thanks Greg. So again, really pleased with the performance we drove in the second quarter. We saw a 70% increase improvement in the adjusted EBITDA loss, where 2% of revenue there on the loss. As we've talked about and framed, the path here is profitability beyond the $600 million run rate. And what Randy and I are working on with the team is to make sure that we're investing the right amount. We're being disciplined on how we're executing across our OpEx space, and we're optimizing to the great growth opportunity that there is ahead as we scale. So, we were able to execute really well in the second quarter as we look to the second half of the year and getting to that $600 million run rate. We're really just making sure that we've got those, we're putting our investments in place and allocating our capital in the most efficient way, they drive to that end result of getting, surpassing break-even and getting into profitability as we pass $600 million. And I think overall that fits within the 20% EBITDA incremental path. Operator: This does conclude our question-and-answer session and the program for today. Thank you for your participation in today's conference. You may now disconnect. Have a great day.

Earnings call: Expedia Group sees growth in Q2 2024 amid market challenges By Investing.com

Expedia Group Inc. (EXPE), a leading online travel platform, reported solid financial results for the second quarter of 2024, with a 10% increase in room nights and a 6% rise in both gross bookings and revenue compared to the previous year. Despite facing a softer demand in the third quarter, the company has prioritized enhancing its consumer business and investing in the B2B segment through technology, supply, and partnerships. Expedia Group has also launched the One Key loyalty program in the U.S. and has plans for a UK launch. With strong liquidity and reduced debt levels, the company remains optimistic about its long-term growth prospects, even as it anticipates a challenging macro environment ahead. In conclusion, Expedia Group's second quarter of 2024 showed resilience and growth despite some market headwinds. The company's focus on cost control, strategic investments in its B2B segment, and international expansion, along with the introduction of the One Key loyalty program, positions it to navigate a challenging macro environment. With a strong financial foundation and a clear strategy for its consumer and B2B businesses, Expedia Group is poised to continue its trajectory towards long-term profitable growth. Expedia Group Inc. (EXPE) has demonstrated notable financial performance and strategic initiatives, as highlighted in their recent earnings report. To complement the article's analysis, let's delve into some InvestingPro Insights that can provide additional depth to the company's current standing and future prospects. InvestingPro Data shows that Expedia has a market capitalization of $15.63 billion, which underscores its significant presence in the online travel industry. The company's P/E ratio stands at 20.63, but it's worth noting that when adjusted for the last twelve months as of Q1 2024, the ratio improves to 12.83. This suggests that investors may be undervaluing the company's earnings potential in the near term. Additionally, the gross profit margin for the same period is an impressive 88.39%, indicating a strong ability to retain revenue after the cost of goods sold is accounted for. Expedia's stock price movements have been identified as quite volatile by InvestingPro Tips, which is an important consideration for investors looking for stability. However, this volatility can also present opportunities for savvy investors who can time the market effectively. Moreover, analysts predict the company will be profitable this year, which is corroborated by the fact that the company has been profitable over the last twelve months. For readers interested in further insights, InvestingPro offers additional tips on Expedia Group Inc., which can be found at https://www.investing.com/pro/EXPE. These tips include observations on Expedia's management's aggressive share buybacks, high shareholder yield, and moderate level of debt. It's also worth noting that while the company does not pay a dividend, its financial health and strategic initiatives may present other avenues for shareholder value creation. In conclusion, the InvestingPro Insights suggest that Expedia Group Inc. stands on solid financial ground with potential for growth, despite some challenges in the market. With a total of 11 InvestingPro Tips available, investors can gain a comprehensive view of the company's financial health and strategic positioning. Operator: Good day everyone and welcome to the Expedia Group Q2 2024 Financial Results Teleconference. My name is Elliot and I will be your operator for today's call. [Operator Instructions] For opening remarks, I will turn the call over to Senior Vice President, Corporate Development, Strategy and Investor Relations, Harshit Vaish. Please go ahead. Harshit Vaish: Good afternoon and welcome to Expedia Group's second quarter 2024 earnings call. I'm pleased to be joined on today's call by our CEO, Ariane Gorin; and our CFO, Julie Whalen. As a reminder, our commentary today will include references to certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in our earnings release. And unless otherwise stated, any reference to expenses excludes stock-based compensation. We will also be making forward-looking statements during the call which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions which are subject to risks and uncertainties that are difficult to predict. Actual results could materially differ due to factors discussed during this call and in our most recent Forms 10-K, 10-Q and other filings with the SEC. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. Our earnings release, SEC filings and a replay of today's call can be found at our Investor Relations website at ir.expediagroup.com. And with that, let me turn the call over to Ariane. Ariane Gorin: Thanks, Harshit and thank you all for joining us today. I've been CEO for about a quarter now and have spent most of my time in 3 areas: First, refocusing our team on the basics and execution to accelerate growth in our consumer business; second, sharpening our long-term strategy; and third, making sure we have the right leadership team in place. All with the goal of delivering better experiences to travelers and more value to our partners. I'm really pleased to already see some signs of progress as demonstrated by our second quarter results. We grew room nights by 10% and grew gross bookings and revenue by 6% versus last year. This was at the high end of our expectations and was driven by substantial improvement of Vrbo as well as continued strength in Brand Expedia in our advertising business and in our B2B segment. We also executed well in controlling our costs with cost of sales and overheads both declining year-over-year. The travel environment was healthy in the second quarter. And like the last few quarters, we saw stronger demand internationally relative to the U.S. Compared to last year, we grew room nights mid-single digits in the U.S. low double digits in Europe and in the high teens in the rest of the world. Prices held up for both hotel and vacation rentals but we saw continued pricing pressure for air and car. In terms of trends so far in the third quarter, we've seen some softness in demand and Julie will provide more details on this in a few minutes. But regardless of the market environment, we're focused on executing what's in our control and what we know will drive long-term value. Now, let me talk a little bit about the second quarter results themselves. In our Consumer business, we grew gross bookings by 1% which was an improvement of nearly 400 basis points in the first quarter. Our focus on the basics, traffic, conversion, attach rates and marketing efficiency is showing solid early results. The traffic growth across our 3 core brands which are Expedia Hotels.com and Vrbo accelerated sequentially by roughly 500 basis points and conversion rates continue to improve. The percent of bookings through our apps also increased, up over 500 basis points year-on-year. And in terms of attach, multi-item trips grew by 9% compared to last year. And this is important because when travelers buy more than one product from us, they're getting more value, so they're more likely to repeat. On marketing, excluding our investments in Vrbo and international markets, our consumer business showed some year-on-year marketing leverage in the second quarter. Brand Expedia continued its strong performance with booked room nights up nearly 20%, while Vrbo improved meaningfully from its Q1 low point and exited the quarter back to modest growth. Vrbo's recovery continued from higher marketing spend, better supply and Vrbo specific product releases. Look, we certainly have more product work to do on Vrbo, in particular, on our app but we're encouraged with our progress and the sequential improvement in the business. Vrbo also benefited from more cross shoppers from our One Key loyalty program. Nearly 30% of travelers that earned One Key Cash on either Brand Expedia or Hotels.com and then redeemed it on Vrbo were completely new to Vrbo. So One Key is a great source of new travelers for the brand. Also, One Key hit its first year anniversary in the U.S. this summer. We're super pleased to see our large growing member base enjoy the flexibility to earn and burn One Key Cash across our 3 core brands and get great tiered member discounts. Customers who redeem One Key Cash or use member discounts repeat more often. So this gives us a lot of confidence that the benefits of One Key will build further over time. This summer, we're hitting 2 more milestones in the program. In July, we launched a co-branded credit card with Wells Fargo (NYSE:WFC) and MasterCard in the U.S. and expect this to reinforce the value proposition of One Key. We're also launching One Key in the U.K. in the third quarter. Like the U.S., the U.K. is a market where all 3 of our big consumer brands are present. Beyond the U.K., though, we're pausing further international rollout of One Key. Most international markets have only either Brand Expedia or Hotels.com operating at scale with limited Vrbo presence. So we're going to take the time to tailor our value proposition for these markets. In addition, this should minimize further near-term disruption to Hotels.com which was the brand most impacted by One Key's U.S. rollout. More importantly and as a reminder, all our loyalty members worldwide on our legacy Expedia and Hotels.com programs continue to benefit from the improved member discounts that we launched last summer. Finally, we made good progress on our international expansion. As an example, in May, we launched Expedia point of sale in UAE and Saudi Arabia. Though it's early days, we've been pleased with the results so far. Turning to B2B. We had another strong quarter with bookings growing 20%, though like last quarter, this was a 200 basis point deceleration. All of our partner segments grew well. And always, while we on-boarded new partners, a significant portion of the quarter's growth came from existing partners. A couple of highlights from the quarter were the renewal of our lodging deal with Trip.com and a new partnership with Cathay Pacific using our White Label Template. Moving on to supply which powers both our consumer and B2B segments, we continue to improve our offerings. For flights, we just signed a partnership with Ryanair (LON:0RYA) and will soon add their supply to our marketplace. In Vacation Rentals, we grew our supply double digits while removing properties that weren't providing acceptable guest experiences and we source more listings with flexible cancellation policies and discounts. All of this reinforces the Vrbo value proposition. We're also investing in more powerful tools, what we call our visibility boosters to help our supply partners attract the travelers they want. More hotels are using these tools to fill hotel rooms and our revenue from these products grew over 40% in the first half of this year and that's a great win-win. Before I turn the call over to Julie to talk about our financial results and guidance, I want to touch on our path forward and where I'm focusing our teams. Improving the performance of our consumer business remains our biggest priority. We're capitalizing on our tech investments for the last few years, while at the same time, digging into what product capabilities and configurations, we need to strengthen Vrbo and the Hotel.com brand. We're getting surgical in identifying drivers of repeat behavior in addition to loyalty and app usage, whether it's burning One Key Cash or adopting AI-enabled products like price predictions. We want all of our core brands, Expedia, Hotels.com and Vrbo to have clear value propositions and drive healthy growth and we're making adjustments to ensure we have the right focus. In B2B, after 12 quarters and over 20% booking growth, we expect continued normalization and we'll continue to invest in our technology, supply and partnerships to extend our lead in the segment. Finally, we continue to execute with cost discipline everywhere. On cost of sales, we've reduced spend and improved gross margins substantially over the last several quarters. We're exploring additional opportunities to rationalize our marketing spend and on overhead, we're using technology and AI to further boost productivity. In closing, I'm encouraged by our second quarter results and I'm incredibly proud of and thankful to our employees who rallied together and are working tirelessly to deliver on our ambition, to help travelers around the world experience great trips and create lifelong memories. And with that, let me hand it over to Julie. Julie Whalen: Thank you, Ariane and good afternoon, everyone. We are pleased with our second quarter results including double-digit room night growth, a sequential acceleration in our B2C business, driving gross bookings to 6% and EBITDA margins expanding approximately 70 basis points in the first half. As far as the financial details for the second quarter, total gross bookings of $28.8 billion were up 6% versus last year, driven by total lodging gross bookings which grew 8%, led by our hotel business growing 11% and the improvement in our Vrbo business. We were happy to see that we have held or grown hotel gross booking share in virtually all of our key markets. In our Vrbo business, we saw a significant acceleration as we moved through the quarter which drove our total gross bookings sequential acceleration of approximately 300 basis points from the first quarter. Revenue of $3.6 billion grew 6% versus last year, led by our B2B business, Brand Expedia and our advertising business. Total revenue margin was flat year-over-year as the uplift from advertising growth was offset by fewer stays given the lower gross bookings in the first quarter, the shift of Easter stays into the first quarter and the contra revenue arising from pricing actions. As a reminder, pricing actions from prior periods negatively impacted both revenue and revenue margins this quarter as it is recorded as contra revenue at the time of the stay. Cost of sales was $358 million for the quarter and $45 million or 11% lower versus last year which combined with our strong revenue growth, drove approximately 190 basis points of leverage as a percentage of revenue year-over-year. We continue to see our ongoing initiatives are delivering transactional efficiencies. Direct sales and marketing expense in the second quarter was $1.8 billion which was up 14% versus last year. Sales and marketing deleverage this quarter as a percentage of gross bookings primarily due to higher commissions to our partners from the strong growth in our B2B business which grew over 20% as well as the planned ramp in marketing spend in Vrbo and international markets to drive incremental growth. As we have stated previously, commissions paid to our B2B partners are in our direct sales and marketing line and are more expensive as a percentage of revenue than our B2C business. However, because they are generally paid on a stayed basis to contractually agreed upon percentages, the returns are more guaranteed and immediate. In our B2C business, we saw some deleverage this quarter as we reinvested back into our Vrbo business and our international markets to drive improving growth in global market expansion. Excluding these investments, we saw some marketing leverage in our B2C business in the second quarter. Overhead expenses were $606 million, a decrease of $21 million versus last year or 3%. This resulted in approximately 165 basis points of leverage, primarily driven by lower people costs in products and tech from our actions to rationalize our headcount as well as the timing of both new hires and other salary-related costs across our key growth areas of the business. We remain committed to driving efficiencies across our P&L and we're pleased to see that the cost actions we have taken, as previously announced, continue to drive savings across capitalized labor, cost of sales and overhead costs. On the bottom line, we delivered strong second quarter EBITDA of $786 million which was up 5% year-over-year with an EBITDA margin of 22.1%, deleveraging slightly for approximately 15 basis points year-over-year. Our first half EBITDA margins, however, expanded by approximately 70 basis points year-over-year which exceeded our expectations due to strong expense management despite the impact from our pricing actions and our investments in marketing. As far as our EBIT performance which includes the impact of stock-based compensation, depreciation and amortization, we delivered $475 million of EBIT with a margin of 13.3%, delivering approximately 20 basis points of expansion year-over-year in the second quarter and 95 basis points of expansion in the first half. The additional 25 basis points of expansion as compared to EBITDA is driven by leverage from stock-based compensation from flat year-over-year cost as well as leverage from depreciation that grew slower than revenue. Our year-to-date free cash flow remained robust at $4 billion, up 4% year-over-year, driven by our strong first half EBITDA growth and lower capital expenditures. Moving on to our balance sheet. We ended the quarter with strong liquidity of $8.7 billion, driven by our unrestricted cash balance of $6.2 billion and our undrawn revolving line of credit of $2.5 billion. Our debt level remains at approximately $6.3 billion with an average cost of 3.7%. Our gross leverage ratio had further reduced 2.3x, continue to make progress towards our target gross leverage ratio of 2x driven by our ongoing strong EBITDA growth. In addition, our strong cash position enabled us to repurchase $1.2 billion or 9.2 million shares year-to-date. We continue to believe that our stock remains undervalued and does not reflect our expected long-term performance of the business. As such, we expect to utilize the strong cash-generating power of our business and our remaining $3.6 billion share repurchase authorization to continue to buy back our stock opportunistically. Moving now to our outlook for the rest of the year. While we accelerated our gross bookings throughout Q2, entering the third quarter, we have seen a more challenging macro environment and a slowdown in travel demand, consistent with recent commentary from others in the travel industry. And while we saw flat ADRs on a like-for-like basis in Q2, we saw a decline in July stemming from FX headwinds and from consumers trading down to lower-priced properties. And we've also seen more continued softness in air ticket prices. In addition, we have seen some headwinds from new pricing display regulations that kicked off on July 1st in California and we are monitoring it closely. These factors collectively drove weaker-than-expected growth across both our consumer and B2B businesses in July and are influencing our outlook for Q3 and the full year. Given this backdrop, we expect third quarter gross bookings and revenue growth to be in the range of 3% to 5% versus last year. And as a result of the range of possible top line growth and our marketing investments in Vrbo and our international markets, we expect approximately 100 basis points of deleverage to our third quarter EBITDA and EBIT margins versus last year. As for the full year, we expect gross bookings to be at the low end of our previously communicated range of mid- to high single digits at approximately 4% and revenue growth to be 2 points higher at approximately 6% with our earnings outlook holding at EBITDA and EBIT margins relatively in line with last year. In closing, we are pleased with our performance and the acceleration we saw in our Vrbo business during the second quarter. And while the more recent market environment is challenging, it is this ongoing execution against our growth initiatives, combined with our strong financial position to give us confidence in our long-term opportunity to deliver profitable growth. And with that, let me open the call for questions. Operator: [Operator Instructions] Our first question comes from Mark Mahaney with Evercore ISI. Mark Mahaney: Two questions, please. First on Vrbo. It sounds like that's started to recover to growth exiting the quarter. Any thoughts on what that trajectory is like? And I know you've got headwinds going into the back half of the year but if you can isolate out the headwinds, just talk about what that growth recovery path looks like. And then real quick hit on advertising revenue, expectations for how that's trending? Are you able to kind of maintain the growth you've had there. And I think that was sort of solid 20%. Julie Whalen: Yes. I mean, for Vrbo, obviously, it's hard to make that call right now because we're staring at this July trends. But certainly, our expectation is to drive that business to growth and get it back to where it used to be. And so as we said, we saw substantial acceleration as they move from the beginning of the year. So basically, as we ended the quarter with some modest growth but now we're in this moment in July, where it's a little bit hard to read the business. But certainly, long term, that is our expectation. As far as the advertising business, I mean, that business is on fire. We have got a lot of opportunity with that business to continue to drive its growth. I mean, if I think if you look back, it's been at least in the high 20s for a while now and we don't have any reason to believe that that's going to significantly change going forward. Ariane Gorin: And I would just add that on the advertising business, when the market gets soft, actually, you could imagine that some of our supply partners will want to spend more in advertising where they know that the travel demand is going to be. So as we're looking at how the market evolves, obviously, I think our teams will be looking at how can we help our supply partners in getting the volume. Operator: Our next question comes from Eric Sheridan with Goldman Sachs (NYSE:GS). Eric Sheridan: Maybe 2 questions, if I could, a bit more of a bigger picture in nature. In terms of the role of CEO that you've now had for a couple of months, wanted to know if you could just reflect on some of the key learnings you've had and go a little bit deeper on the turnaround of some of the brands like Vrbo and Hotels.com. And what you've learned about the ability to possibly speed up some of that recovery or some of the aspects that might take longer pieces of time to sort of implement leaving the side or isolating some of the macro variables from your insights there. And then the second, you come out of the B2B business. As you continue to move out of B2B and into this broader CEO role, what do you think remains relatively underappreciated or misunderstood about the B2B business, now it sits inside Expedia? Ariane Gorin: Thanks for the question, Eric. In terms of the consumer business, as I stepped in, I think I had always appreciated the work that we had done on the platform that was going to allow us to accelerate innovation across the Board. So for example, in the second quarter, we were able to release flexible date search in all 3 of our big brands at the same time. And we wouldn't have been able to do that, had we not done the platform work. That being said, when we did the work to move Vrbo and Hotels.com onto our common front end, we did give up some of the things that made those brands a bit more unique. On Vrbo, collaboration was a big -- it was sort of something that was used a lot in Vrbo. And when we migrated it, the good thing was we got the trip planning collaboration onto Brand Expedia but we lost some of the functionality in Vrbo. Now the good news is, we've added a bunch of it back and there's still work to be done. But it just meant that we went through a period of time in the migration where we moved back. Similarly with Hotels.com, when we move to One Key, we sort of downplayed an advantage that Hotels.com had. It had a really big differentiator and its loyalty program. So the good news is that both of those brands have great brand awareness, have people who love to come back to them. But I've just realized it's going to take work to get them back to where we want. And so as I think about sort of the months and the quarters ahead, it's how do we take all the capabilities that we've built in the platform across the board on a horizontal basis and sort of figure out what needs to be configured or built differently for Vrbo and Hotel.com. But overall, I feel good about that. It's just -- it's going to take some time to get there. And I would also add for Hotels.com, it will benefit as we go back into international. Hotels.com is a brand that's got great brand recognition in places like the Nordics and elsewhere. And what we've seen in these early days of leaning back into some of those international markets is that we're seeing good results. In terms of the B2B business and what's maybe misunderstood or underappreciated. Funny, when I took on the business about 10 years ago, I remember thinking, what are the moats around it, what's differentiated around it. And what I sort of have concluded over the years is it's a combination of things. You have to have really great supply and we have great lodging supply. We're doing a lot of work to get B2B-specific lodging supply. You have to have great technology, an excellent sales team, super partner relationships and be very hungry and aggressive and be open to a lot of partnerships. So I just -- I guess the way I think of it is, there is a massive travel industry. What is at $2.3 trillion. Our own brands have a small part of it. And so with the B2B business, we could really look to what is all the innovation we have in our company that can help power all of the other travel players out there. Operator: Our next question comes from Lee Horowitz with Deutsche Bank (ETR:DBKGn). Lee Horowitz: Two, if I could. So you clearly have a number of marketing priorities ahead of you as you look to take share in Vrbo, lean back into international markets, while also facing some building ADR pressures, as you called out which have their own margin impact. I guess with that in mind, how do you think about the levers that you have at your disposal to drive margin expansion sort of on a go-forward basis given those investment priorities? And then maybe, Ariane, another one on the B2B business. I guess, how do you think about sort of the interplay between B2B and B2C? Is there a world where the success of your B2B business can actually prove cannibalistic to your B2C business? If you help partners create super compelling travel rewards programs, presumably that's a piece of the pie that core Expedia doesn't have access to any more. How do you think about managing those 2 in that sort of environment? Ariane Gorin: Okay. Thanks for the question, Lee. Julie, do you want to take the first one and I'll take the second. Julie Whalen: Sure. So from a leverage perspective, obviously, we have been able to do a really great job with cost of sales, where costs have actually been down year-over-year, much less leveraging. And while over time, that will start to moderate because obviously, that can't go on in perpetuity. We still expect to drive incredible leverage on that line. We've got a lot of opportunities to continue to drive efficiencies there across our merchant fees and our operations, whether it's on AI and technology and all sorts of things that we're looking at to further drive efficiencies there. At the same time, you can see, although this quarter is a little bit of anomaly, we did have overhead that was down to last year as well. And so we're still -- we did several cost actions as we announced earlier in the year and so we're benefiting from those. That's helping that line drive leverage to help the total P&L. And certainly, we are very focused on looking at every line in the P&L to see what the opportunity is and how we can go after it. So we can take that money either deliver it to the body [ph] or to reinvest it in the business. We did say this year, however, that as you alluded to, we are making the investments in marketing, in Vrbo and international markets because we want to reinvigorate those businesses. And clearly, by what we saw in the second quarter, it works. So it's important that we continue to do that and keep that momentum going. So as we've guided to and as we said, this year, we don't expect much leverage. But longer term, we're certainly not guiding to '25 at this time. But longer term, we absolutely expect to have margin leverage going forward because all of the things that we're investing and driving towards to bring in more direct traffic should enable us to get more leverage on the marketing line in addition to all the good work we're doing on cost of sales and overhead. And if I think I've said before, if you could see the Brand Expedia P&L, who is the least disrupted brand, it's doing just that. And we've got strong top of line growth and we've got strong marketing leverage. And so it's something that we're working towards with the other brands to get there over time. And then on the second question on B2B and B2C. So I would say, in the geography, there are certain geographies in which our B2C brands aren't very present. And so it's obvious that anything we're doing in B2B there is going to be incremental. But it's true that there are many geographies in which we have both businesses and consumers go to many different places for travel. Of course, I think any travel company would love to have consumers only come to them. But consumers sometimes will shop for personal travel on their favorite OTA, hopefully, one of ours, they might have business travel where they're using their corporate travel bookings rule. They may be in an airline program and have loyalty points and want to spend those points. And so we see the opportunity to power the technology and inventory in every one of those cases. And it's actually a big value driver that we bring to our supply partners because we make it easier for them to reach demand not only through us but also through our B2B partners. And fundamentally, I think that it just forces our own B2C brands to be even more competitive and to up our game. Operator: Our next question comes from Trevor Young with Barclays (LON:BARC). Trevor Young: First question, can you just expand a bit on the cadence of growth throughout the quarter? Was it steady and then July saw the step down? And was there any nuance around that step down in July across geos? And then second question, more of a bigger picture one. We're now a few quarters in from the completion of the tech platform migration. What gives you confidence that all the transformation work that you've done in the past few years is working and will pay off? Ariane Gorin: Julie, do you want to take the first one? I'll take the second. Julie Whalen: Yes, sure. In the second quarter, we basically saw comps accelerating and that's because, as we've said, the main accelerating driver was Vrbo. And so we basically came from a low, so to speak, at the beginning of the year and accelerated by quarter and was the main driver to drive the full acceleration of the business. So we saw accelerating comps in Q2 and then like I said, in July, there's just a lot going on that's hard to understand with precision. And so we saw sort of this noise in the P&L in our business. And really, when you look at it from a geo perspective, to answer your question, it's a lot in U.S. that we're seeing. We're seeing a couple of other areas but mostly it's U.S. focused. Ariane Gorin: In terms of the replatforming, as I said earlier, it's really unlocked a lot of capabilities that we didn't have before. One of them, for example, is our testing platform. Already this year, we've done more tests on Vrbo than we did all of platform migrations, we've been able to put something like One Key in place where we have a view of a customer across all of our brands. We -- as I said, we're able to release the ability to do flexible date shopping in the second quarter across all of our brands. So there are a number of, I would say, e-commerce basics that we're able to roll out across all of our brands without having to do the work multiple times. Now going forward, what we're digging into is where are their configurations or maybe even some brand-specific features that we need to build on top because it's true that the last few years, so much of our capacity went to sort of rebuilding some of the foundations and to migrations. Operator: Our next question comes from Conor Cunningham with Melius Research. Conor Cunningham: Just on B2B, I think your growth in the quarter was over 20%, a pretty tough comp sort of in process. But I think in the prepared remarks, you mentioned a deceleration. Just curious if you could unpack that a little bit, what's driving the slowdown. And then just on the implied guide for fourth quarter, I realize that you don't have a lot of visibility but can you just talk about how you see the booking window kind of evolving from here? Julie Whalen: Yes. So on B2B, yes, we've seen a little bit of deceleration. And as you alluded to, of course, we're still at 20%. So it's still really a strong business. And we alluded to the fact that as global demand normalizes, that, that business would see some of that growth come down as it also normalizes. So that's not too unusual for us to see. Obviously, in the July period that we've alluded to, they also are impacted by a lot of the dynamics that I mentioned as far as what's going on in July. And so they can have a little bit more of an impact than what was sort of just the global normalization but we're really excited about that business. Ariane spoke about it. There's just so much opportunity there. And given our leadership position and all the opportunities we see going forward, it should continue to drive strong growth. It's just that we've got this moment right now, where we're seeing some of this macro impacting it. But the underlying health of the business is incredibly strong. As far as the booking windows, it's interesting, we have been seeing for a while now in our B2C hotel business that the windows have actually been expanding slightly year-over-year. But as we entered July, they actually or during the month of July, they actually shortened just a little, not a lot but just a little bit in that month. And that's the first time we've seen that in a while. On the Vrbo side, they've been shortening for a while and they're kind of just doing a similar thing. So there wasn't anything material that changed in July but we did see a little bit of that in the hotel side of things. Ariane Gorin: And maybe I'll just add a little bit on the first part on B2B. As Julie said, B2B is a much more geographically diverse business than our consumer business. And so over the last few quarters, it's really benefited from a lot of the travel demand, in particular, in Asia. And so the deceleration we've seen a couple -- for the last couple of quarters which still was a very strong growth, was coming from the normalization of that growth, in particular, in Asia. Now as Julie said, as we headed into July, we saw some slowdown and that was more with the U.S. part of the business. Operator: Our next question comes from Naved Khan with B. Riley. Naved Khan: Yes. I just wanted to double click on the annual guide, Julie a little bit. So I think the prior guidance was mid- to high single digits for both bookings and revenue and now you're guiding to revenue of 6% and bookings were 4%. So -- and you also noted some weakening in the airfare. So I'm just trying to figure out how I should think about the lodging business, you talked about ADR weakening. So room night is going to grow faster than maybe the 6% or just give us some goal post there or just your thoughts on how to think about the lodging business and room nights and ADRs. Julie Whalen: Yes. I mean, fortunately, we haven't -- we don't guide to that level by the line item. And obviously, all of that has been assumed in the numbers that we have presented here for the full year. But certainly, everything I mentioned impacts the lodging business. So there will be an impact to that on all those metrics for the lodging business but we're not providing guidance on those right now. Naved Khan: Okay. And then I have a follow-up on the cost side of things. So of the restructuring that you announced earlier this year, how much of that has been action and how much has yet to follow in the second half? Julie Whalen: Yes. The majority of that has been action. There were some that we took action on in Q1, some that we took action on Q2 and so that's why you're seeing the favorability in overhead because you're getting the full quarter of the Q1 action and then you're getting the additional Q2 action that's coming through. There's a little bit that's left on that but not significant. But of course, it doesn't mean we're stopped looking at every single line and where we can find efficiencies elsewhere. It's just on that particular cost action that we mentioned, we're almost through it. Operator: Our next question comes from Kevin Kopelman with TD Securities. Kevin Kopelman: Just one, so quickly on the macro. You called out ADR softness. Are you seeing any softness in nights? And then could you just give more color on how you're managing the B2C advertising expenses in the second half given the backdrop? Julie Whalen: Sorry, you said -- can you repeat the first part of the question? Kevin Kopelman: The first part was on the macro softness that you're seeing quarter-to-date, you called out the ADR softness but are you also seeing a slowdown in kind of underlying nights activity, particularly with stays. Julie Whalen: Yes, we are. In particular, stage, you said? Kevin Kopelman: Well, just kind of separating out the window versus how much we actually look like they're going to be traveling. Julie Whalen: Yes. No, we're definitely seeing a reduction in nights. I mean it's not just a booking window play, if that's what you're talking about or just an ADR play. There's definitely, as we said, there's been some softening in travel demand which is impacting the transactions side of it. But it's a combo of all, right? I mean there's certainly -- all those other factors are also true. As far as your B2C advertising expense question, I mean, obviously, that's what our plans are been assumed that's from the guidance that we gave and we said that we are guiding to on the year EBITDA margins to be relatively in line with last year. So we're managing to that, while still investing in Vrbo international markets. And so certainly, we will be looking at advertising, seeing what makes sense relative to the top line and any other variable costs associated with that depending on where that top line goes. But that what we're managing to is the full year EBITDA margins relatively in line with last year. Ariane Gorin: And I would just remind you and as Julie said, obviously, looking very closely at what are the macro trends, what are the demand trends, where do we want to spend in marketing and advertising. And we look at marketing, promotions and pricing and loyalty all sort of in the same bucket to then say which of these is going to be most effective given the environment. And then even within marketing, are we going to put money more into performance or into social or into other channels. And I spent a lot of time with our marketing team just looking at where we're getting the best returns, where we're leaning in, where do we need to pull back and the like. Kevin Kopelman: And you noted maybe rationalizing some marketing spend. What were you referring to there? If you could share any more color? Ariane Gorin: So we -- I mean, one of the things we've been doing in the last bit of time is really interrogating every dollar of our marketing spend. And for example, looking at nonworking versus working marketing spend, understanding the returns on each because we -- especially if we're going into an environment that is a bit more volatile. It's just so important that every dollar. We understand the returns when we're investing more in international and Vrbo, we need to be making up for efficiency elsewhere. Operator: Our next question comes from Ken Gawrelski with Wells Fargo. Ken Gawrelski: Just two, if I may. First, could you've talked about the EXPLORE Conference in May a lot about your marketing plans and your advertising and media plans, I should say, not your marketing plan, sorry. Could you talk about opportunities, not necessarily in the short term but over the kind of next 1 to 2 years, how you can continue to grow that business robustly and what the opportunities look like? And then second is just more tactical. As you think about the One Key expansion to the U.K. Do you expect that to be a material and how material do you expect that to be on Hotels.com in the back half of the year? Ariane Gorin: Thanks for the question. Let me start with the first one. So you're right, we talked about the travel media network at EXPLORE and we're really excited about the opportunity to grow advertising and to bring value to our advertisers. Today, a lot of our advertising business happens on the shopping and booking moments of the travel funnel. So when someone's in the search results or when they're in the booking process, there's not as much sort of when they're in the dreaming and very upper funnel and there isn't as much, for example, in post booking. So we think that there's an opportunity there. We also think that there's an opportunity to expand in the number of partners who are using our advertising tools. So whether it's the sponsored listings and having more hotels or airlines using sponsored listings, or new products that we can bring to destination, management organizations think that there's a lot of growth and opportunity there as well. I'd also call out that we're doing some interesting work on providing more tools to these advertisers. So making it easier for them to sort of self-serve on some of our advertising products, self-serve on sort of getting -- letting us do more of the targeting for them, we're about to introduce some video into our ads which we think will make those perform better. So I would just say for the long term, we think there's a lot of opportunity here. On the question about One Key and expansions in the U.K., I don't think it's going to have a material impact at the company level. Certainly, you learned from the One Key rollout in the U.S. on how to treat the sort of higher value of Hotels.com customers who might feel like they're getting a sort of downstep in their value and we're using that in the U.K. but I think at a company level, it's not material. Operator: Our next question comes from Richard Clarke with Bernstein Societe Generale (OTC:SCGLY) Group. Richard Clarke: Just a question on the pause on the rollout of One Key. Does that mean that the Hotels.com buy 10 nights get 1 free. That will remain in all markets, apart from North America in the U.K.? And is that awkward to your sort of supply partners that they've got to deal with you in multiple different loyalty schemes. And what does it mean for your sort of B2B rollout? I think One Key was one of the things you were offering as part of the B2B rollout. So how would that affect the rollout of B2B in sort of non-U.S., non-U.K. markets? Ariane Gorin: Yes. Okay. Thanks for the question. In terms of whether the Hotels.com 10 for 1 will remain the same outside of the U.S. and the U.K., the answer is yes. It's a simple program. For now, it's remaining that way as we work to figure out what would the path forward be. For our supply partners, our hotels, for example, it's completely transparent to them. They participate in member deals where they provide different levels of discount for different tiers of members and we actually translate that into our Hotels.com rewards program. So if I'm a hotel, I'm able to reach those Hotels.com rewards members, whether they're in a country that has the existing 10 for 1 stamps or whether they're in the U.S. In terms of B2B, actually, One Key is not rolled out to the B2B business. That's a business where we're providing inventory and technology but a lot of our partners have their own loyalty program. You may be thinking about -- we've talked about rolling out One Key to our advertising partners and allowing them to use some of their advertising dollars to accelerate One Key earn for their hotels. And that, again, won't really make a difference. They can do that in the U.S. and the U.K. It won't be something that we can do outside of that. But again, this is why we are going to take the time to think about what is the value proposition for our loyalty programs in countries where we only have one big brand at scale. Operator: Our next question comes from John Colantuoni with Jefferies. John Colantuoni: Great. Two quick ones for me. First, on the 3Q outlook, does your outlook for the third quarter assumes there's a recovery in night in August and September relative to July? And second question, just talk to some of the pricing reductions you started making last quarter and how that impacted conversion. And now that you're seeing some trade down, whether you might have to lean in a little bit more there. Julie Whalen: Yes. As far as the first question on the 3Q outlook, we have not sort of baked in any upside or something in September. We've looked at obviously run our various scenarios and what the information that we have based on what's happening in July and ran that out as to where we think the quarter will land. Certainly, it's also you have to take into consideration for revenue at least what happened in prior quarters because then the states come to fruition in the third quarter. So we already have some of that data and that's just going to play out. But certainly, based on all the new data in July, we've just run our scenarios and let it play out for Q3 accordingly but there wasn't any sort of step-up in September that we assumed. As far as the pricing actions, yes, we had made a call, you probably remember from last quarter that we had done some pricing actions towards the end. That then we're going to be coming into this quarter, we did see that come in. And we only do those pricing actions if we get the returns. And so certainly, they are driving conversion for us. And so as we have been doing, we're going to continue with that, going forward as it is a good returning marketing lever for us. Operator: Our next question comes from Jed Kelly with Oppenheimer. Jed Kelly: Great. Just going back to the B2B opportunity. Is there any way you can sort of give us a backlog or just frame like the amount of contracts you think are up that can potentially drive growth there? And then just on Vrbo, just thinking of the fourth quarter marketing strategy, that's usually when you have like a large brand campaign. If this softness continues, can you just talk about how that impacts your marketing strategy? Ariane Gorin: So on the first one, so thanks for the questions. On the first one, I'm not going to share details about the pipeline. What I will say is we're thoughtful about which deals we want to bid for. I think often when you have an B2B team, it's as important which deals you decide not to bid for and which ones you decide to bid for. And we have a super experienced team, a great business development team that's being thoughtful about where do we want to play and where do we not. I'd also say that growth can come from finding new partners but growth also comes from our existing partners. So sometimes you might have a partner that we're powering 3 of their points of sale and then they decide that they're going to expand into another couple of countries and it's incumbent on our team to make sure that we're the ones powering them as they're growing their business. So when you think about the B2B business, it's not just that sort of the pipeline of new business, it's also what are all the actions we're doing in our existing partners in order to either win share or to just grow along with them. Julie Whalen: As far as the Vrbo marketing strategy, certainly, we learned from last year that you don't want to pull back too much on the marketing spend because Q1 -- sorry, as you're entering in Q1 is a really big time for Vrbo. So that's part of the reason why we're even guiding in Q3 to pressure on EBITDA because we want to continue investing in Vrbo for that very reason because we're investing for the longer term. And so we would continue to invest in Vrbo. I mean, obviously, it depends if there's some massive level of softness that all things are off the table. But we're not expecting that but it's not how we've been guiding. And so our expectation is we continue to invest in to Vrbo and that's assumed, obviously, within our margin guidance on the year to be relatively in line with last year. Operator: Our final question comes from Ron Josey with Citigroup. Ron Josey: Maybe, Ariane, a follow-up to your comment there on investment in marketing. I thought the 20% growth in room nights in Brand Expedia was a really key highlight. So I wanted to understand just the drivers here, maybe a little more on geographic mix. And really, the benefits from the advertising side of the brand continues to evolve. And then I think I heard you say conversion rates improved in the quarter as in multiproduct attach rates. And so again, just wanted to dive a little bit deeper on the product to hear how the funnel, how transactions are going on Expedia overall. Ariane Gorin: Yes. Thanks, Ron, for the question. As you said, I mean, Brand Expedia has been a great highlight for us. And it's also what gives me confidence because it was the least disruptive of all of our brands and it's the brand that's gotten all of our innovation going into it. We've also, over a number of years, really built up the brand value there. We spent quite a bit in marketing over time and now we're seeing leverage with it because we have a great app installed base, strong repeat, a great member base and the value proposition on Brand Expedia to shopping and booking multi-item scripts, whether it's directly through the package path or buying a flight and then later coming back and buying a hotel at a discounted rate, is really strong for travelers. So I would just say, in general, we feel good about it. It's still to my liking to U.S. focused. I mean, as is our whole consumer business, we'd like to see more growth internationally. But as you say, Expedia is really a highlight. So thank you for the question. Operator: I will now hand the call back over to Ariane Gorin for closing remarks. Ariane Gorin: Okay. Well, so I just want to thank you all again for joining us. Julie and I appreciate the questions. I just want to leave you with the thought that, we know the environment is becoming more volatile. But regardless, we believe we have a lot of opportunity ahead. We have great consumer brands that travelers love, a differentiated B2B business, diverse supply, the strongest it's ever been and a really powerful tech platform. So as we look to the future, we're going to use these assets to drive profitable growth. Thank you, all. Operator: That concludes today's call. You may now disconnect your lines. Have a nice day.

Earnings call: Yelp sees growth and efficiency in Q2 2024 results By Investing.com

Yelp Inc. (NYSE:YELP), the company known for its business reviews and search services, has reported a strong second quarter for 2024. The company's net revenue reached a record $357 million, marking a 6% year-over-year increase. Yelp's net income stood at $38 million, with adjusted EBITDA at $91 million, both surpassing expectations. The services business, particularly the home services category, showed significant growth. Despite challenges in the restaurant and retail sectors, Yelp is optimistic about its strategies for growth and its role in the AI search space. Yelp's second quarter results demonstrate the company's ability to adapt and thrive in a competitive and changing market. With a focus on innovation, efficiency, and strategic growth, Yelp is well-positioned to capitalize on its strengths in the local search and services market. The company's optimism, despite the challenges faced by certain sectors, suggests a strong belief in its business model and future prospects. As Yelp continues to evolve and expand its offerings, it remains a key player in the digital space with potential for further growth. Operator: Hello, and welcome to the Q2 2024 Yelp, Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Kate Krieger, Director, Investor Relations. You may begin Kate Krieger: Good afternoon, everyone. And thanks for joining us on Yelp's second quarter 2024 earnings conference call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman; Chief Financial Officer, David Schwarzbach; and Chief Operating Officer, Jed Nachman. We published a shareholder letter on our Investor Relations website and with the SEC, and hope everyone had a chance to read it. We'll provide some brief opening comments and then turn to your questions. Now, I'll read our Safe Harbor statement. We'll make certain statements today that are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. In addition, we are subject to a number of risks that may significantly impact our business and financial results. Please refer to our SEC filings as well as our shareholder letter for a more detailed description of the risk factors that may affect our results. During our call today, we may discuss adjusted EBITDA, adjusted EBITDA margin and free cash flow, which are non-GAAP financial measures. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with Generally Accepted Accounting Principles. In our shareholder letter released this afternoon and our filings with the SEC, each of which is posted on our Investor Relations website, you will find additional disclosures regarding these non-GAAP financial measures, as well as historical reconciliations of GAAP net income or loss to both adjusted EBITDA and adjusted EBITDA margin, and a historical reconciliation of GAAP cash flows from operating activities to free cash flow. And with that, I will turn the call over to Jeremy. Jeremy Stoppelman: Thanks, Kate. And welcome, everyone. Yelp delivered record net revenue and strong profitability in the second quarter. Net revenue increased by 6% year-over-year to $357 million as we introduced more than 20 new features and updates in the quarter, reflecting our product-led strategy. With a disciplined approach, we expanded net income margin by 6 percentage points and adjusted EBITDA margin by 1 percentage point from the prior year period. Businesses in our restaurant, retail and other categories continued to face a challenging operating environment in the second quarter, resulting in a decline in revenue for RR&O of 3% year-over-year. At the same time, our services business, which remains the focus of our product-led strategy in 2024, saw continued momentum. Services revenue increased by 11% year-over-year, making it the 13th consecutive quarter of double-digit growth. We saw even stronger performance in the home services category, which increased by approximately 15% year-over-year. Request to quote project growth accelerated from approximately 20% year-over-year in the first quarter to approximately 35% year-over-year in the second quarter. This acceleration resulted from both organic improvements as well as paid project acquisition. Regarding our paid project acquisition, we continued to see strong top-of-funnel metrics including projects, ad clicks and CPCs. As we scaled spend in the quarter, we also saw early indications of retention benefits among newer businesses with fewer reviews, which often experienced difficulty competing with established advertisers for leads. We plan to leverage this learning to become more precise in lead distribution, narrowing our focus towards the opportunities that we believe have the highest return. With just 20% of services revenue coming from multi-location businesses, we also see an opportunity to extend our success with SMBs in these categories to enterprise businesses. We have been adapting our services product offerings to better fit the needs of these larger advertisers. We recently launched Request-a-Quote for brands and introduced a new leads API. This enables multi-location businesses to compete for the millions of Request-a-Quote projects available on Yelp and seamlessly manage leads across multiple business pages. More broadly, our product and engineering teams continued to leverage AI to further optimize advertisers' budgets by displaying the most relevant ad content to consumers. In the second quarter, ad clicks increased by 9% year-over-year, while average CPC decreased by 1% year-over-year. We also rolled out a number of user experience and back-end improvements to our website, and introduced a number of new features to make Yelp more useful for consumers with accessibility needs. In summary, we were pleased with the continued progress on our product roadmap in the second quarter, particularly in services, while we delivered strong profitability. Overall, we remain confident in our strategy to drive profitable growth and shareholder value over the long term. With that, I'll turn it over to David. David Schwarzbach: Thanks, Jeremy. In the second quarter, net revenue increased by 6% to a record $357 million, $2 million above the high end of our outlook range. Driven by our disciplined approach, net income was $38 million, or $0.54 per share on a diluted basis, representing an 11% margin. Adjusted EBITDA reached $91 million, representing a 26% margin, putting it $16 million above the high end of our outlook range. Continued strength in services categories drove this growth. Advertising revenue in services increased by 11% year-over-year to a record $223 million. As Jeremy mentioned, restaurants and retailers remained pressured in the quarter, resulting in a 3% year-over-year decline in RR&O revenue to $118 million. A decrease in RR&O locations offset growth in services locations in the second quarter. This resulted in an overall decline of 6% year-over-year in paying advertising locations to 531,000. We remain focused on driving growth through our most efficient channels. Self-serve continued its momentum, growing approximately 20% year-over-year in the second quarter. This makes it the 15th consecutive quarter with year-over-year growth at or above this level. At the same time, multilocation revenue came in approximately flat year-over-year, reflecting continued softness in RR&O. Similarly, Yelp audiences maintained its annual run rate of approximately $45 million in the second quarter. We continued to see growth opportunities for Yelp Audiences, and recently expanded its reach to enable advertisers to connect with our high-intent audience through audio platforms, along with additional connected TV platforms. Turning to expenses, in the second quarter, we remained disciplined in our allocation of resources while focusing on opportunities that have the potential to drive incremental returns. This resulted in our net income margin improving by 6 percentage points year-over-year and our adjusted EBITDA margin improving by 1 percentage point year-over-year. We achieved this even as we invested $12 million in paid services project acquisition during the quarter. In the second quarter, we also reduced stock-based compensation expense as a percentage of revenue by 1 percentage point year-over-year, and remained focused on reaching less than 8% by the end of 2025. We expect these efforts to stack over time, improving the quality of our adjusted EBITDA and benefiting GAAP profitability in the years to come. Returning capital to shareholders through share repurchases continues to be a key element of our capital allocation strategy. In the second quarter, we repurchased $63 million worth of shares at an average purchase price of $37.94 per share. As of June 30, 2024, we had $456 million remaining under our existing repurchase authorization. We plan to continue repurchasing shares in the second half of 2024, subject to market and economic conditions. Turning to our outlook. In the second quarter, services revenue maintained double-digit growth, while RR&O revenue remained impacted by a challenging operating environment for businesses in those categories, with additional pressure as we move through the second half of the quarter. As we look to the third and fourth quarters of the year, we expect these trends to persist. In the third quarter, we expect net revenue to be in the range of $357 million to $362 million. For the full year, we now expect net revenue will be in the range of $1.410 billion to $1.425 billion, a decrease of $12.5 million from the midpoint of our prior range. Turning to margin, our business continues to demonstrate its underlying profitability, and we remain dedicated to disciplined expense management. In addition, as Jeremy mentioned, we are narrowing the focus of our paid project acquisition efforts. And expect to spend approximately $35 million in total for the year on paid search, having spent $19 million in the first half of the year. We expect third quarter adjusted EBITDA to be in the range of $82 million to $87 million. For the full year, we now expect adjusted EBITDA to be in the range of $325 million to $335 million, an increase of $10 million at the midpoint, despite continued RR&O headwinds in the second half of the year. As a result of subleasing a portion of our Toronto office space in July, we expect to incur an impairment charge of approximately $4 million in the third quarter related to right-of-use assets and leasehold improvements associated with the underlying operating leases. We expect third quarter net income to be reduced by the full amount of the charge, but do not expect it to impact adjusted EBITDA. In closing, Yelp's second quarter results reflect our ability to drive leverage in the business amid a challenging macro backdrop. We continue to believe in the significant growth opportunities ahead as we focus our investment on areas that we believe will drive business performance and shareholder value over the long term. With that, operator, please open up the line for questions. Operator: [Operator Instructions] Thank you. Your first question comes from the line of Eric Sheridan with Goldman Sachs (NYSE:GS). Your line is open. Eric Sheridan: Thanks for taking the question. I know we'll talk a lot about the macro environment tonight, but I wanted to ask maybe two bigger picture questions. First, Jeremy, the AI landscape and what it might mean for search. And local services continues to evolve, and there's been a lot of announcements around data licensing in that environment as well. Wanted to get your most updated thoughts on the AI landscape and what that might mean for Yelp in the years ahead. That would be number one. And number two. Obviously there was the antitrust decision with respect to Alphabet (NASDAQ:GOOGL) recently, and I know we don't yet know what the remedies might be around that. But how do you think about that ruling? And again, what that means -- might mean over the medium or longer term in terms of competition in the landscape of search and local services? Thanks. Jeremy Stoppelman: Sure. Happy to take those, Eric. Thanks for the questions. AI landscape, I would say, very exciting. Obviously, we've already taken steps to leverage LLMs and find early wins. Obviously, within search there's improvements that we've made summarizing business reviews, we've rolled that out. We've incorporated LLMs into our ad tech as well as leveraged neural nets. So within the business itself, there's so much that we're able to take advantage of. Yelp Assistant comes to mind, obviously, a recent launch that helps walk people through submitting a project, and that's really showing some promise. So, very exciting from an on Yelp product standpoint. And then when you look out at the wider landscape, I think really exciting opportunities for Yelp. One early search engine out there is Perplexity. When they were looking at where to get their local data and how to service their users with trusted local information, they turned Yelp. And so that's a really good sign. Obviously, they're one of many companies that are working on this. We would hope to see many more of these flourish. And that of course ties into your antitrust question, which I could take in a second. On the data licensing side, we do have a significant data licensing business. There's lots of conversations going on in that area, we'll keep you posted. We do see a lot of opportunities there, both to grow our existing business as well as find additional revenue streams through folks that are looking to leverage AI. And, of course, we also have an AI API that we've put out there that's showing some early signs of promise. And also, when I think about the Yelp Assistant and the way that that product works, that lends itself quite well to a potential Yelp API application as well. And so you think about some of these next generation search services when a user is asking something that has local intent, that's about a home services project that can be then hitting our API and matching that user with relevant businesses, it has monetization built in. So I think that's a really exciting new area for us to pursue. Obviously, we haven't even built the thing, but it's just something on my mind. There is a clear vision and opportunity that we have there. On the antitrust decision side, DOJ versus Google, obviously, that's a huge watershed moment, I would say, for antitrust. And certainly we're very excited about it. This is something that we've been calling for scrutiny of Google regulation and antitrust enforcement. So, we're very excited, obviously. The wheels of justice turned slowly. I testified in front of the Senate in 2011, so it's been a long time that we've been advocating for scrutiny of Google and its illegal monopolistic practices. And so, it's great that we've reached this moment. I do think it is going to breathe a lot of oxygen into the search space. It's going to create opportunities for startups, it's going to create opportunities for innovation for smaller companies like Yelp and others. So, it's very exciting. There's a lot of factors at play here. It's hard to predict exactly what might the remedies be, how will it play out. Obviously, Google will do its best to delay things, as well as likely appeal etc. So, it's going to take some time to fully play out, but I think a very positive development for Yelp. Eric Sheridan: Thank you. Operator: Your next question comes from the line of Jason Kreyer with Craig-Hallum Capital Group. Your line is open. Cal Bartyzal: Great. Thank you. This is Cal on for Jason. So, first question, can you just kind of walk us through what you're seeing in paid search? Looks like you might be pulling back the budget a little bit this year, but just curious the thoughts on your confidence in that opportunity, and whether you're seeing any early signs of users returning to the platform after you've acquired them through paid search, more engagement. Just kind of curious, your thoughts there. Jeremy Stoppelman: Yes, Cal, I can take that question. So to set the stage a little, we're talking about Yelp driving projects through paid search. So, those projects show up as Request-a-Quote. And if you look at the top-of-funnel metrics, Request-a-Quote project's up to 35%, you can see that impact there. So we're really excited about what we've learned. Sure enough, there is a large pool of untapped leads that we can bring into the Yelp ecosystem, at what we think are pretty reasonable prices. So that's a really exciting first step. As we saw those projects flowing through our system, where we saw the most opportunity was, and the businesses that seem to be reacting to those additional leads the fastest seem to be businesses with fewer reviews. So no reviews or just a few reviews, they seem to be really picking up on the additional value. And so as a result, as we go into the back half of the year, we're going to be focusing on that lead distribution, trying to drive those leads to the businesses that are most likely to change their behavior, whether it's upping their budget, retaining for a longer period, etc. So I think, it's still a very exciting area for us. We've learned a lot and so we're honing in on where the ROI is. And obviously, we want to be thoughtful with our shareholders' money and drive a healthy ROI over the long term. Cal Bartyzal: Perfect. Makes sense. And then secondly, can you just kind of give any additional color on the progression of some of these RR&O pressures throughout Q2 and how that's kind of progressed into Q3? Jed Nachman: Sure, Cal. This is Jed, I can take that. Yes, certainly as we move to the back half of the second quarter, we saw some additional pressure on the restaurant, retail and other category. And that was a continuation as well from what we saw kind of in the first quarter. Really our large restaurant, retail and other customers have felt the impact of declining transactions and not really being able to really take price like they were able to do over the last couple of years. And that's reflected in some of the current marketing budgets. We do believe that we are in a cyclical moment for RR&O, and while the timeframe for recovery is unknown, we expect consumer spending to return and are well positioned to participate in that recovery when that happens. In the meantime, we are laser-focused on the services opportunity with a multi-location. Right now, service -- only 20% of services revenue is multi-location. And we recently launched a bunch of improvements to the business owner platform that allow for streamlined handling of leads on the Yelp platform, as well as releasing a leads API that gives our enterprise customers the ability to ingest Yelp leads into their own CRM and work within their own internal processes. We've also created a playbook for multi-location customers to utilize the Request-a-Quote system for the first time. And we're running full speed ahead on that opportunity while we wait for a full recovery. I will say we're keeping up relationships, certainly on the restaurant, retail on other side, and feel that those are very strong. And we'll be well positioned when that comes back. Cal Bartyzal: Great. Thank you guys. Operator: Your next question comes from the line of Colin Sebastian with Baird. Your line is open. Colin Sebastian: Thanks. Good afternoon, everybody. Nice quarter, guys. Maybe just to follow-up a bit on the outlook provision for the second half and the decision to pare back on the paid project acquisition. Was there more of a general decision to favor profitability over growth given macro or other considerations? Or is it really just a reallocation of priorities? And I think related to that, I guess, if you're pleased with the levels of retention, do you have confidence that other ways of engaging consumers and service providers will kind of give you that same level of, I guess, lifetime value? Thank you. David Schwarzbach: Hi, Colin, it's David. I'll answer the first part of that. On the outlook, the decision around paid search was very much independent of the overall profitability that we saw in the second quarter and the outlook for the year, and the impact of what's happening to RR&O on revenue. So, they're actually very separate. I want to underscore that we think that we continue to become even more efficient. And so we are driving that underlying profitability and that's what put us in a position to raise the guide for the full year. And then when we think about the LTV of these, the opportunity with advertisers, we, as Jeremy said, are really looking for the folks who are going to be most responsive. And there's work to do in order to ensure that we're actually funneling those leads directly to the advertisers that are most responsive. And what we did see was that folks who are unreviewed or only have a few reviews, they do respond when they get those leads. So, we're directing it there, but there's more work to do. We're going to keep you posted. We'll come back, obviously, on the Q3 call to provide the next update, and we're going to continue to refine it. Colin Sebastian: Okay. Thanks, David. Operator: Your next question comes from the line of Sergio Segura with KeyBanc. Your line is open. Sergio Segura: Great. Thank you for taking the questions. I wanted to return back to the RR&O weakness you guys saw in the quarter. So the shareholder letter mentions competition from food delivery as a secondary reason for the weakness in that category. I guess, given the solid results those food delivery platforms reported this quarter, just what gives you the confidence that competition is any more significant factor than the challenge -- for the challenges that you're seeing within that category? Jed Nachman: Thanks, Sergio. I can take that. This is Jed. Certainly at the margins there are some pressures from the delivery ad platforms. But our belief is it is largely macro. And in talking to customers, their posture in light of what's happening to the consumer these days and spending habits, and what is a volatile outlook for the second half of the year, then it largely falls in the camp of macro. That's not to say there's not a marginal competitive dynamic coming in from these delivery ad platforms. A lot of that had been baked in kind of from prior years as consumer behavior changed. Sergio Segura: Understood. And then maybe a second one. I was hoping if you could just talk about the EBITDA outperformance for the quarter, that came in nicely above the outlook you gave. So just wondering what was the primary driver behind that or what was different versus your initial outlook? Was it more finding efficiencies in the business or just a shift in investment spend to the second half? Just any color behind the EBITDA outperformance for the quarter would be helpful. Thanks. David Schwarzbach: Sure. Thanks for the question. So in terms of the second quarter, we did see increased efficiency in our marketing spend. So, while we spent $12 million on paid search across our other marketing spend, we've been able to actually improve the results that we're seeing. And so we got leverage there that was a significant factor. Another, probably on the more technical side, relates to capitalized software CapDev. We had more projects that we were able to capitalize, so that contributed. There are, third, just the normal puts and takes from a forecasting perspective around things like healthcare that have some variance to them that ended up being positive. So when you combine those things -- and again, just to underscore what I was saying to Colin, we do think that we are continuing to be even more efficient as a business. So we took those, and maybe just to clarify what I said in response to Colin's question, certainly the reduction of $5 million from the prior expectation of $40 million of spend in 2024 to $35 million contributes to the higher EBITDA, even though those decisions, again, are quite independent. So, that is a contributor. But fundamentally, we just see ourselves continuing to get better and better at delivering against our roadmap and against our marketing targets. When you take those things together, I think that 26% adjusted EBITDA in the second quarter, again, is yet another proof point of the continuing leverage that we think we're building in the business. Sergio Segura: Understood. Thank you. Operator: Your next question comes from the line of Josh Beck with Raymond James. Your line is open. Josh Beck: Thanks for taking the question. Maybe to go back to Eric's earlier question about generative AI, I'm kind of curious on how you maybe disect the data licensing benefit from just potential traffic. It certainly seems like, just with Perplexity, that you're featured quite heavily when it's local or review-oriented query. And I'm just wondering, which one of those two dimensions do you see as the most important? And a little bit related, we've got a pretty good idea of what the Apple (NASDAQ:AAPL) intelligence system will look like with iPhone 16 and beyond. Does that kind of create any opportunity for you within the Apple ecosystem? Jeremy Stoppelman: Hi, Josh, happy to answer those questions. On how do we think about data licensing versus traffic, I mean, this is the age old question for Yelp. We've had lots of these structures in the past. And I think the fact of the matter is, we have very unique data. We have very accurate information on local businesses. We have sort of attributes about them. We have hours, things like that. And then we have all the subjective information around ratings and reviews with incredible depth. And so, if you are an AI player looking to do a search experience in local, we are a natural partner to turn to. And of course there's Google out there, but they're competing with everyone else. And so I think that plays into our positioning as a go-to source of information in the coming years. So I think it's an exciting opportunity for us. There's different ways that we can work with some of these potential partners, we can provide APIs, we're happy to do that. We have some APIs out there, we're going to continue building that out. For certain experiences, it may make more sense to license data. We certainly do that already in a variety of non-AI applications. So that's a possibility as well. So, it's a target-rich environment. It's rapidly developing. It's hard to say how big it will be and what it means. But I think the thing that we can all come back to is, Yelp is an incredible resource for local information, for helping people to connect with businesses. And so, to the extent that we are the best channel for that kind of information, the best place to go, I think that will position us well for whatever develops in the AI space. And then for pivoting to the Apple question. We have a great relationship with Apple. Our data is incorporated throughout their Maps application. You may have noticed, Request-a-Quote has been added recently to Apple Maps. And so that's great. As far as what their plans are in the future, I have no idea. Obviously, we're a resource to them. So to the extent there's opportunities we're always -- the doors are open for that. But really can't comment on the direction that Apple's going to take things in from an AI perspective. Josh Beck: Okay. Yes, I think we all await anxiously. And maybe more of a just financial framework question. EBITDA margins have kind of roughly been low to mid-20s for the last three to four years. Is that somewhat of a line that you would look to hold depending on various macro scenarios as we think about '25? And then just anything else that we need to be mindful of in terms of trends as we're thinking about key factors for growth next year? David Schwarzbach: Josh, thanks for the question. And obviously we'll have a lot more to share when we get to the Q4 call next year. But fundamentally, I just want to underscore again, we think that a product-led strategy will enable us to deliver margin leverage over time. And I'd say over the past several years, margins actually have increased. And then, what we have done is taken the opportunity, as we were doing with paid search, to invest in the business. So, we're always looking at ways to drive top line performance. And a theme for us most definitely has been tapping into all of this off-Yelp traffic, whether it's through paid search, whether it's through syndication on sites like Facebook (NASDAQ:META), and whether it's monetizing our own audience of off-Yelp through something like Yelp Audiences. So we're going to continue to look for those opportunities and we're very disciplined. If we think there's an ROI to be had, then we're going to make that incremental investment. But again, what we have been able to do over the past number of years is to continue to drive margins up and take time along the way to continue to invest in the business. So, the whole time we've been talking about profitable growth, our commitment is to deliver long term profitable growth. And we're always evaluating the best way to run the business that takes into account the trade-offs between top line growth and delivering EBITDA. That's something that we'll continue to do and we'll look forward to sharing more about '24 when we get there, I mean, excuse me, for '25 when we get there. Josh Beck: Super helpful. Thank you both. Operator: Our next question comes from the line of Dion Lee with Evercore. Your line is open. Dion Lee: Great. Thanks for taking the question. First, I have a just to follow-up on the AI search again for the, you mentioned Perplexity. But maybe at a high level, do you have a sense of whether the traffic through these AI search engines have better conversion or higher intent? If you can just kind of share any color around what you've seen in user behavior around Yelp content and then AI search context? Jeremy Stoppelman: This is Jeremy, I can take that one. Again, I think AI search represents an exciting opportunity for Yelp as a partner to the ecosystem that develops here. I think it's really too early to sort of describe the characteristics or know what it means. The players that are out there, Perplexity or otherwise, are all pretty small still. And if you step back and look at the overall search industry, it's still very much structured the same way it always has been, which is Google is completely dominant and an abusive monopoly as the court recently ruled. So unfortunately, that structure remains. How AI search develops and infuses competition is an interesting possibility. And I think antitrust could also play into that. So depending on how that all plays out, that could breathe oxygen into the environment and create a lot of new and interesting competitors for Google. Dion Lee: Got it. And second question, just on ad pricing. If you can parse out the CPC trends for services and RR&O separately, I'm assuming that you're seeing more pricing pressure on RR&O side, if you can double click on that. And also, just given the improvement you've made in the ad tech stack, should we expect this to be reflected in ad pricing improvement maybe to counter or to offset some of the macro pressure as you're able to drive greater ROAs from the ad stack improvement? Thank you. David Schwarzbach: Thanks for the question. Just zooming out for one second if I can. We have built an auction system for matching consumers with advertisers. That auction system takes into account a very large number of parameters. And what we're really doing is finding the market clearing price at a moment in time for that visitor in the category they're searching for, in the geography at that time of the year. And what we're always striving to do is to get better and better at doing that matching. And fundamentally what we believe is that when we do that well, we drive incremental value to the advertisers in terms of cost per lead, and we drive incremental value to the consumer in the form of relevance. So, the trends over the past several quarters has been around the same level of growth, which is 9% click growth with about flat CPC growth. Now, I just want to underscore, we did see real strength in growth in clicks in the second half of next year. So, over the coming two quarters, we do expect that CPCs will moderate and that is to go up a few percentage points. Click growth will come down a few percentage points. But obviously, it's clicks time CPC, and that's what supports the guide that we've given you. Now, what are the things that we're concerned with in terms of being able to continue to deliver value with continuing to also deliver on the revenue targets? That is where we're always trying to drive, and again I just want to underscore, cost per lead. If we have a more relevant lead, then we do believe that advertisers would be willing to pay more on a cost-per-click basis. So, that's something that we track very closely. It's something that we've been able to do in the past. And we do have quite a robust roadmap to continue to drive improvements in the ad tech stack. Dion Lee: Thank you very much. Operator: [Operator Instructions] Your next question comes from the line of Georgia Anderson with Wolfe Research. Your line is open. Georgia Anderson: Hi, I'm on for Shweta Khajuria, and I just had a question in relation to your guidance for the full year. What kind of -- what's giving you confidence that you can raise EBITDA by $10 million? And how do you really plan to offset this weakness in RR&O that we've talked about so far? David Schwarzbach: Thanks for the question, Georgia. Fundamentally, there are a couple of things that are happening simultaneously that do give us the confidence to be able to raise the EBITDA guide. The first is, again, notwithstanding the fact that we have spent $12 million on paid search in the second quarter and still have, so that's $90 million in the first half, we've revised our estimate to $35 million. So even as we spend $60 million in the second half, we believe that the improvements that we've been able to make to the way that we build our advertising programs, that those will persist. And there's something I did want to underscore that's very important about our broad effort around paid search, something that we've said in the past which is, as we have built out our capability to purchase leads at scale, and as we've worked to do that efficiently and generate a ROAs, we've made numerous improvements to the site from the experience, whether it's new account creation, magic links for login, the way that we buy those ads, the landing pages that we land folks to, we're now embarked on improving the way that we direct those leads. That has benefit not just for paid search around consumer acquisition, but more broadly, all of the marketing that we're doing in paid search, for instance, around business acquisition. And then broadly enabling consumers to use Yelp in a more seamless way. It also rolls over to the Request-a-Quote side where we've continued to make improvements. So, you take this focus on continuous improvement, you combine it with very, very strong discipline around incremental spend, and we feel that that supports, obviously, the guide that we've provided for the second half of the year. Georgia Anderson: That's helpful. Thank you. Operator: This concludes the question-and-answer session and concludes today's conference call. Thank you for joining. You may now disconnect your lines.

Earnings call: The Trade Desk reports robust growth, eyes CTV expansion By Investing.com

The Trade Desk (NASDAQ:TTD) has reported significant growth in its second-quarter 2024 earnings, with a 26% increase in revenue to $585 million. CEO Jeff Green attributes this success to the company's innovative approach and the growing value of data-driven and programmatic advertising, particularly in Connected TV (CTV). The company's new platform, Kokai, is enhancing client capabilities in targeting new audiences across the open internet. With strong adoption of its UID2 identity framework, The Trade Desk is optimistic about its future, especially with partnerships in CTV and Retail Media. Despite Google (NASDAQ:GOOGL)'s shifting stance on cookies, The Trade Desk remains committed to its UID2 framework, which is becoming increasingly prevalent in CTV and digital audio. The company expects at least $618 million in revenue for Q3, with adjusted EBITDA projected at about $248 million. The Trade Desk continues to navigate the evolving digital advertising landscape with a strong emphasis on innovation and strategic partnerships. The company's dedication to enhancing programmatic advertising capabilities, particularly in the rapidly growing CTV sector, positions it favorably in the market. With a solid financial foundation and a clear vision for the future, The Trade Desk aims to maintain its momentum and capitalize on the opportunities presented by changes in the industry. The Trade Desk's recent earnings report showcases a company that's not only growing its revenue but also maintaining a robust financial structure. The InvestingPro Data highlights a substantial market capitalization of $47.08 billion, reflecting investor confidence in the firm's market position. However, it's worth noting that the company is trading at a high earnings multiple, with a P/E Ratio of 185.5, which signals a premium valuation by the market. One of the InvestingPro Tips that stands out is the company's impressive gross profit margin, which sits at 81.29% for the last twelve months as of Q1 2024. This indicates The Trade Desk's strong ability to control costs and maximize profit from its revenues - a key factor in its financial health and a possible driver of the revenue growth of 24.88% during the same period. Another notable InvestingPro Tip is that The Trade Desk holds more cash than debt on its balance sheet, providing it with financial flexibility to invest in growth opportunities or weather economic downturns. This is particularly important in the digital advertising space, where innovation and quick adaptation to market changes are crucial. Investors interested in a deeper dive into The Trade Desk's financial health and future prospects can find additional InvestingPro Tips by visiting https://www.investing.com/pro/TTD. As of the latest count, there are 11 more tips available that could provide further insights into the company's performance and valuation. In summary, The Trade Desk's financial data and InvestingPro Tips paint a picture of a company that's experiencing healthy growth and maintaining a strong profit margin, albeit with a high valuation. These insights could be valuable for investors considering the company's stock in the context of its current market position and future potential. Operator: Greetings. Welcome to the Trade Desk Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Chris Toth. You may begin. Chris Toth: Thank you, operator. Hello and good afternoon to everyone. Welcome to the Trade Desk second quarter 2024 earnings conference call. On the call today are Founder and CEO, Jeff Green; and Chief Financial Officer, Laura Schenkein. A copy of our earnings press release is available on our website in the Investor Relations section at thetradedesk.com. Please note that aside from historical information, today's discussion and our responses during the Q&A may include forward-looking statements. These statements are subject to risks and uncertainties and reflect our views and assumptions as of the date such statements are made. Actual results may vary significantly and we expressly disclaim any obligations to update the forward-looking statements made today. If any of our beliefs or assumptions prove incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. For a detailed discussion of risks, please refer to the risk factors mentioned in our press release and our most recent SEC filings. In addition to our GAAP financial results, we present supplemental non-GAAP financial data. A reconciliation of the GAAP to non-GAAP measures is available in our earnings press release. We believe that presenting these non-GAAP measures alongside our GAAP results offers a more comprehensive view of the company's operational performance. With that, I will now turn the call over to Founder and CEO, Jeff Green. Jeff? Jeff Green: Thanks, Chris, and thank you to everyone for joining the call. As you've seen from the press release, we delivered very strong growth once again in the second quarter. Revenue was up 26% to $585 million. Our growth rate significantly outpaced the rest of the digital marketing industry, just as it has every quarter for the last few years. I'm convinced that our success has been forged on the back of consistent, strong 20% plus revenue growth year-after-year for the past several years. By comparison, our ad funded peers have gone through periods of much lower-growth and even stagnation in some cases. That means we are consistently gaining market share quarter-after-quarter and year-after-year. And I firmly believe that's because we continue to bring the best innovation and best value to the market. And perhaps more important, I believe that we will continue to outpace the market in the years to come led by areas such as Connected TV, which are only getting stronger. In fact, one of the most bullish things happening in advertising today are evident in our performance. Through the first half of this year, CTV growth has accelerated versus the first half of last year. Before I get into the core of my remarks, let me make a macro observation about the marketing and advertising industry. I've recently been meeting with many CMOs from the world's leading brands around the world, including at the recent Cannes Lions Festival in France. Through all of these meetings, one thing has become very clear to me. These leaders are dealing with a lot of uncertainty. They are looking for answers and they are looking for partners who can help them. The pandemic was the nucleus of a great deal of change for them. The pandemic has been followed by several years of economic uncertainty, whether it's inflation or dramatic changes in fiscal and monetary policies around the world or supply shortages or unpredictable consumer demand. One top CMO talks about the difficulty of what he described as, the illusion of growth, where it appears that companies are doing well, stock prices are up, but the average consumer feels more constrained than ever in terms of purchasing power. That has significant implications on how companies market products from pricing to packaging to advertising. And perhaps more than anything else, it's putting a premium on the efficacy of marketing. More than ever, CMOs have to prove that what they are doing is working. And increasingly, that means revising traditional dependencies on cheap reach and all the legacy mechanisms and beliefs that support cheap reach. It means embracing the power of programmatic data-driven advertising. We are convinced that the only scaled response to all the changes CMOs and agencies are facing is to embrace data-driven buying. To get a healthy and competitive global economy, all roads require scaled programmatic advertising and that bodes well for the long-term prospects of this company, the Trade Desk. As a result of these trends, our relationships with the world's leading brands and their agencies are only getting stronger. It's one of the key reasons we continue to significantly outperform the market and why I believe we'll continue to gain share in the years ahead. I'd like to spend the bulk of my time unpacking this a little. Because I think for most leading CMOs, there is a growing bifurcation in the market. It's being driven by efficacy of new channels such as CTV, by the emergence of new conversion data such as retail data by a growing focus on premium inventory and by rapid advances in the innovation of our industry. Let me start with this point around efficacy. I often talk about how we compete against walled gardens. And to give them due credit, it's very easy for companies to work with big tech walled gardens. They offer easy on-ramps to massive scale in terms of ad impressions with the promise of easy mass reach. And of course, for the most part, they also control the scorecard. So it's very easy for walled gardens to take credit for things like last touch attribution or last click attribution. While in the process, disintermediating a brand and their customer and giving little or no credit to the rest of the marketing funnel. For many marketers dealing with macro uncertainty over the last few years, this cheap reach solution has been attractive. But more and more CMOs, especially those at the world's leading brands have become concerned with the flaws in this strategy for a number of reasons. A few of those. First, much of the mass scale is predicated on cheap, owned and operated content, which is often just user generated videos or social content that is essentially free to produce and ultimately mostly lower quality and higher risk for large advertisers The big tech owners of this content have an inherent incentive to direct demand toward it because the margins on it are so significant. But it's often not where the marketers target customers spend most of their time nor where they're the most leaned in. Second, after several years of uncertainty, the business flaws of cheap reach are more apparent than ever. If a CMO has been going to the CEO or CFO and saying, look, I was able to drive down costs, and the scorecard says it's working. But then a couple of years later down the road, business results are not consistent with those marketing metrics. And as a result, there's a disconnect. This is arguably one of the main reasons that CMOs have the shortest tenure on the C-suite, marketing performance data predicated on cheap reach that doesn't match up with the business outcomes over time. And last leading CMOs at large brands have been leaning into alternatives to this cheap reach that offer much greater efficacy, and by extension, a much closer correlation to business performance. At the center of this is the revolution in TV advertising, driven by the mass shift to streaming TV where advertisers get to target based on authenticated logged-in users. And building on that is the emergence and availability of new kinds of marketing conversion data such as retail data, where advertisers can understand the impact of campaign spend on actual customer outcomes much more clearly. Take HP (NYSE:HPQ). They recently came to us to test the efficacy of CTV advertising using UID2. Buying on Disney+ and Hulu on our platform, they were able to drive a 23% reduction in cost per unique household reach, with much greater precision and frequency management. As HP's North America Head of Programmatic, Caitlin Nardi said, using the Trade Desk UID2 solution with our first-party data helped us increase our unique audience reach, boost our cost efficacy and improve how we measure conversions and sales. That's a really great affirmation of the case for the efficacy of CTV, in part because of the embrace of UID2 by most of the major streaming companies. But layer in new data elements such as retail conversion data, and the story gets even stronger. Rossmann is one of the largest retailers in Germany. It's something like CVS in the United States. They worked with us to drive demand for one of their diaper ranges. Using CTV, they were able to drive 170% incremental reach improvement. In addition to that, they were able to understand with precision that every 1,000 impressions served resulted in 20 actual sales. That's a very impressive return on ad spend. They were also able to see the impact of using their own first-party data. When they use that data as their targeting seed, every dollar was between three to four times more likely to drive a sale. When you compare these kinds of efficacy results to the murkiness of cheap reach, it's easy to understand why CMOs are increasingly looking to unlock the power of programmatic on the open premium internet. Let me touch on this point too, the open premium internet. Since we last spoke, we put out a report, the Sellers and Publishers Report. The report kicked off more discussion in our industry than anything we'd ever put out there and I encourage you to download it if you haven't already. The level of industry discussion actually surprised me, in part because I think the report highlighted many of the trends we've been talking about for some time, in particular, where value is shifting on the internet. One of the trends that, that report showcases is the massive shift over the last four years in terms of where consumers are spending their digital time. It used to be that consumers spend about 60% of their time within walled gardens and 40% on the open internet. That trend has completely reversed since the pandemic. Why? Well, in large part, it's because of the mass consumer shift to emerging premium open internet channels such as CTV and digital audio. In the US, over the last decade or so, consumers have doubled the time they spend in these two channels alone to around five hours per day, significantly more than they spend on social media. Companies like Spotify (NYSE:SPOT), Netflix, Disney, Warner Bros, Discovery (NASDAQ:WBD) and others have fundamentally changed the way that consumers behave. I would also add that the time that consumers spend in these channels is much more leaned in and engaged than the time spent on channels such as social media. You're much more leaned in when watching the latest hit show or the Olympics or listening to your favorite podcast than you are watching endless short videos of teenagers pulling wheelies on the West Side Highway. To come back to my earlier point, while walled gardens have always done a good job of providing easy access to ad impressions at scale with their own reporting system, today, advertisers have an alternative. For large brands, the premium open internet now rivals walled gardens in terms of scale, thanks to advances in key channels like CTV and audio. But that's where the similarities end. On the open internet, advertisers get to showcase their brands against premium content where their targeted audience is highly engaged and they get to measure campaign performance with much greater rigor based on high levels of authentication and actual consumer conversion data. So while walled gardens still account for the bulk of global advertising spend, we're starting to see many cases where the open internet is commanding the first dollar. CMOs of the world's leading brands also recognize that certain channels, especially digital audio, represent tremendous value, considering the amount of consumer engagement in those channels. On average, in the US, consumers spend around three hours per day listening to music, podcasts and other types of digital audio. And yet digital audio commands a small fraction, by comparison of advertising demand. But that's beginning to change, especially as companies like Spotify make investments to enable more programmatic and automated buying as they highlighted in their most recent earnings call. I would be remiss not to touch on the ever-evolving identity landscape in the context of all of this. What I hope you've noticed in many of our recent reports, including recent earnings reports is that UID2 has been embraced across the digital advertising ecosystem, but perhaps most aggressively by channels that never relied on cookies to begin with, particularly in CTV. UID2 has never been a direct cookie replacement. UID2 has always been about building an identity framework that is much better than cookies could ever aspire to be. It's addressing much bigger issues and is expected to have more ubiquity than cookies ever did or do, an identity framework that works across all digital advertising channels, not just display, and distributes control among many advertisers, publishers and consumers, not just a couple of walled gardens that own browsers. UID2 improves consumer privacy controls while preserving the value exchange of relevant advertising for free content, the essential value exchange of the internet. As most of you probably know, recently, Google announced a change in their long-promoted plans. They reversed their plans and suggested they're no longer getting rid of third-party cookies. I have long predicted that Google would never deprecate cookies. I've never believed it would make much strategic sense for them to do so, and we're seeing that play out now. It's really hard to claim leadership on privacy while also consolidating control over identity, especially when that control is so important to preserving your ad demand in channels such as YouTube all derived from search. I don't know where Google goes from here. We've gone from cookie deprecation to flock to privacy sandbox and back to no cookie deprecation. If you're a company in the ad business that's dependent on Google, and there are many of them, this must be maddening. Understandably so. Google offers are not very compelling and often repeated argument to both the advertising industry and the regulators, both regulators addressing privacy and competition. They argued that privacy sandbox complexity and deprecation of internet functionality was good for everyone. But for The Trade Desk, it doesn't really matter. Our plans haven't changed. We, along with many others, have created the new identity fabric of the open internet, one that is so much more fit for purpose than cookies could ever be. UID2 has already reached a critical mass of adoption, which has made it an essential identity signal, and UID2 continues to gain strong adoption across publishers, data partners and advertisers. For example, FOX is scaling UID2 and OpenPath deployment across their entire digital portfolio, having started with Tubi three years ago. And in recent weeks, we've seen Roku (NASDAQ:ROKU) and DIRECTV adopt UID2. These are significant steps forward. Similarly, in Europe, EUID is gaining momentum, with adoption from publishers such as Le Figaro in France, and Reach in the UK, a publisher who boast more than 130 UK newspapers, including The Mirror and The Express. All of this brings me to my third point, the value of innovation in our business. In order to help advertisers think about efficacy in new ways and to help them take advantage of the premium open internet where consumers are most leaned in. After years of development, we launched our most ambitious platform to date, Kokai. Kokai allows our clients to deploy data about their most loyal customers and then use that data as a seed to grow and harvest the next generation of loyal customers. Kokai helps them target those new audiences across the many thousands of destinations that comprise the best of the open internet, and it leverages AI to help them make sense of the roughly 15 million ad opportunities we see every second and the hundreds of variables associated with each one of them. And all of this happens in the context of what any given client's unique business growth goals are. I've been incredibly encouraged by the early results from Kokai. For those campaigns that have moved from Solimar to Kokai in aggregate, incremental reach is up more than 70%. Cost per acquisition has improved by about 27% as data elements per impression have gone up by about 30%. In addition, performance metrics have improved by about 25%, helping to unlock performance budgets on our platform for years to come. So our clients are getting more precise, more cost efficient and then they're able to reinvest for even more reach and drive a much better return on ad spend. Given everything I said about what CMOs today are trying to accomplish and the pressures that they are under, I firmly believe that we have met the moment with Kokai. We are still in the very early days of programmatic advertising. We are just getting started in terms of how data-driven precision will help advertisers optimize every dollar of their ad spend. At end state, all of the rapidly approaching $1 trillion advertising TAM will be digital or at least transacted digitally and the vast bulk of it will be transacted programmatically. And we are thrilled and thankful to be partnering with the world's most forward-thinking marketers as we bring that value to life. We believe we've aligned our interest with theirs, creating a very bright future for both of us. Let me bring my remarks to a close by summarizing what all of this means for us and why I believe The Trade Desk is positioned so well to capture more than our fair share of that $1 trillion TAM. We're in the midst of a period of tremendous change in our industry, change that's the result of macro market pressures as well as rapid innovation such as Kokai. A powerful open internet advertising ecosystem is coming of age, one that provides a compelling alternative to the cheap reach dynamics of walled gardens. That ecosystem includes the world's leading streaming TV and digital audio companies, almost all of whom are partnering with us in new ways. From Disney to Netflix to Roku to FOX to NBC with the Olympics, these companies are trusting The Trade Desk to bring them the most valuable advertising demand. The world's leading retailers and commerce data companies are partnering with us to help advertisers close the loop on campaign spend to consumer purchase. Partners across the ecosystem are working with us to build the new identity fabric of the open internet and we're pioneering new innovations that help advertisers take advantage of their data, target new audiences with efficacy, leverage AI as a copilot and embrace the very best of the open internet. In doing so, we are offering premium value to our clients. And as a result, we are solidifying our position as the default DSP of the open internet. As I've said many times before on these calls, our profitable business model gives us incredible flexibility to make investments and continue to drive growth and to always think about driving innovation and value for the long-term, not just this year or next. Working with our clients and with their needs in mind, we are not afraid to make the big calls. And you see that every day in how we develop our partner ecosystem, how we innovate and how we help clients harness the value of the open internet. I could not be more excited and confident about the powerful alternative we provide to the marketplace today. With that, I'll hand it over to Laura, who will take you through more of the financial details. Laura Schenkein: Thank you, Jeff, and good afternoon, everyone. We delivered a strong second quarter with revenue of $585 million, representing 26% year-over-year growth. During the quarter, we benefited from a relatively stable digital advertising environment supported by both agencies and brands. We continue to gain market share as more advertisers sought greater efficiency and measurable results, particularly in CTV and Retail Media. Our business model, with its wide range of large advertisers and vertical markets, also contributed to our success. Additionally, our growing access to premium inventory, including major events like the Olympics for the first time through NBCU as well as gaining access to platforms like Roku and Netflix also help ensure long-term durability and success, something we take great pride in. With the strong top line performance in Q2, we generated approximately $242 million in adjusted EBITDA or about 41% of revenue. When we outperform on the top line, we often see that outperformance throughout our financial statements as was the case again in Q2. I'm proud of our focused efforts to consistently generate meaningful positive EBITDA and free cash flow while continuing to invest in the critical areas of the business that will drive our future growth. From a scale channel perspective, CTV, by a wide margin, led our growth again during the quarter. In Q2, video, which includes CTV, represented a high 40s percentage share of our business and continues to grow as a percentage of our mix. Mobile represented a mid-30s percentage share of spend during the quarter. Display continued to represent a low double-digit percent share of our business and audio represented around 5%. Geographically, North America represented about 88% of our business in Q2 and international represented about 12%. We're pleased that international growth outpaced North America for the sixth quarter in a row. Across both EMEA and Asia Pacific, CTV continued to drive our growth. While still small relative to the share of CTV spend produced in North America, we see significant opportunities to capture share in these verticals. In terms of the verticals that represent at least 1% of our spend, growth was broad-based again this quarter. We saw strong performance in the majority of our verticals, particularly in home and garden, food and drink and shopping. Family relationships and healthy living verticals were both below average. Overall, we continue to see healthy trends across our verticals and we continue to believe there is opportunity for us to gain share in the verticals we serve. Turning now to expenses. Excluding stock-based compensation, operating expenses in Q2 were $363 million, up 19% year-over-year. While there are ample opportunities to achieve more leverage within our operating expenses, our primary objective remains on growing spend on our platform and gaining more share of the global advertising market. During the second quarter, we continued to invest in our team, our platform and our infrastructure to support sustained growth. Thanks to our careful management of operating expenses in recent years, we are well positioned to innovate our platform, invest in cutting-edge technologies like AI, expand our teams and further distance ourselves from competitors. Income tax expense was $27 million for the second quarter, driven primarily by our pretax profitability and nondeductible stock-based compensation. Adjusted net income was $197 million or $0.39 per fully diluted share. Net cash provided by operating activities was $81 million for Q2 and free cash flow was $57 million. DSOs exiting the quarter were 90 days, down about two days from a year ago. DPOs were 75 days, down about one day from a year ago. We exited the second quarter with a strong cash and liquidity position. Cash, cash equivalents and short-term investments ended the quarter at $1.5 billion. We have no debt on the balance sheet. In Q2, we did not repurchase any shares of our Class A common stock. We will continue to approach the repurchase program opportunistically depending on market conditions and capital priorities. Now turning to our outlook for the third quarter. We continue to see strong spend in key areas, including CTV and Retail Media. We estimate Q3 revenue to be at least $618 million, which would represent growth of 25% on a year-over-year basis. We estimate adjusted EBITDA to be approximately $248 million in Q3. In closing, we are extremely pleased with our strong performance in the second quarter and throughout the first half of the year. The opportunity ahead of us has never been more promising. We are positioned within a large and expanding market, supported by a business model that consistently delivers robust top line growth, significant profitability and strong cash flow. With key growth drivers such as CTV, Retail Media, International expansion, a strong identity strategy and a major product upgrade with Kokai, we remain confident and optimistic about our future as we navigate the second half of this year and look forward to 2025 and beyond. That concludes our prepared remarks. And with that, operator, let's open up the call for questions. Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Shyam Patil with SIG (LON:SHI). Shyam, please proceed. Shyam Patil: Hey, guys. Congrats on another great quarter. Jeff, could you maybe provide your high-level thoughts on the current digital ad environment right now? And kind of going back to what you mentioned kind of at the start of the call, what's allowing Trade Desk to continue to so meaningfully outperform everyone else and gain share? Thank you. Jeff Green: Thanks, Shyam. Really appreciate the question. So first let me just talk about our company before I talk about the macro environment. I don't know that I have ever been more proud of our team across the board, not just in our go-to-market teams, but of course, our engineering team and throughout the entire company. I don't know that we've ever been firing on all cylinders in the way that we are right now. And that has absolutely been essential in this environment, because we've never had more change, especially in CTV in a three to four month period than we've had. All good things coming at us, just lots of opportunity, but responding to it all and adjusting to it all is something that I think our team has done really, really well. One thing that I do want to highlight at a macro level that I think makes us different than other players in the space is that we are not a destination and we are not sell-side. So often we get compared to other companies that are dependent on ads, but they are destinations, whether they are an app or whether they're a mobile company or whether they're a website. People are trying to go to those destinations and then they have added inventory that they have to sell in those moments. We are not a destination or a B2B company that represents buyers. So there is a big difference right now between the sell-side and the buy-side. And we're seeing some changes on the sell-side in almost every category, but we are not on the sell-side. We are on the buy-side. And as a result of that, I believe that The Trade Desk is in a stronger position than we have ever been before. CMOs are facing a greater degree of uncertainty than they have generally, but it's really important, I think, to note that we see a relatively stable digital advertising environment, especially when we're comparing that to the macro. Nonetheless, CMOs are being asked from CFOs to deliver growth. CFOs are saying we have to have real growth now and that puts more pressure on the CMOs than ever. And of course they're in an environment with inflation and some consumer weakness and some higher interest rates and a bunch of other macro themes that investors know all too well. But those pressures are actually creating a better macro environment for us. All of those things, including some of the pressures on the sell-side, create a buyer's market. And the pressures on CMOs create data-driven, rational buying, and they're looking to us to help them put their data to work and make more informed decisions. They're being asked to do more with less. They're being asked by their CFO to prove that the ROI is better. It's no wonder they're coming to us asking for joint business plans and say how can we build long into the future, especially when there seems to be no other company in the world more focused on the open internet and helping to monetize that for all the great premium content owners on the open internet, but of course, representing the buyer to help them figure out what is best for them. Of course, we're not immune to the macro changes that we've seen over the last few years, but we are convinced that with our model, our approach and the fact that we're focused on the buy-side, that we will continue to gain share in any environment. It is a buyer's market. We believe it always have been and always will be, in digital advertising, and so as a result, we're in a better position than we've ever been before. Thanks, Shyam. Shyam Patil: Thanks Jeff. Operator: Okay. The next question comes from Youssef Squali with Truist. Please proceed. Youssef Squali: Great. Thank you very much. Yeah, thanks for all the color on CTV. I'd like to double-click on that, if you don't mind. Can you talk a little bit about the competitive environment within CTV with the rise, particularly with the rise of Amazon (NASDAQ:AMZN) Prime Video's ad business and the impacts you're seeing on competitors, both in terms of CPMs or pricing and in terms of ad budget shifts? Thank you. Jeff Green: You bet. Thanks so much for the question. So I just want to underline what I said in answer to the last question, which is that we are not a destination, which, of course, is a sell-side function of where you're a content owner and trying to monetize that content. We're instead partnering with all of those and trying to figure out what to buy on behalf of the biggest brands in the world. And by representing the buyers in a buyer's market, we think we're in a stronger position than we've ever been before. As it relates to the competitive nature of the ad environment, I mentioned also in the last question that I don't know that we've had a three or four month period where we've seen more change. I think it's worth highlighting a couple of those. So Netflix announced in that time frame that they will expand their buying capabilities to include The Trade Desk as one of its main programmatic partners going forward. FOX announced an expanded partnership, which I intently work with them personally on this to expand to UID2, of course, and OpenPath across all of FOX brands and the AdRise technology platform. E.W. Scripps is one of the first CTV content owners to adopt OpenPass, which is a new single sign-on that we are launching or just launched. Roku is adopting UID2, of course, allowing advertisers to implement more precise targeting and put their data to work as they're buying media on the Roku platform. And of course, in EMEA, CTV is leading the EUID adoption, with major players like TF1 and M6 in France, for instance. So those that's all just in the last three or four months. But of course that sets a contrast to what you're seeing at Amazon, which I would just say is another rollout of a walled garden. And the reason I say that's in contrast is because all those companies I just mentioned, I would argue that the decisions that they made are to join the open internet, and to recognize that the walled garden playbook doesn't really work in CTV. And the reason why the walled garden playbook doesn't work in CTV is because nobody has enough share to be draconian or even to target well, even to be effective, because of the fact that TV is fragmented. There is no one single player that has anything close to what Facebook (NASDAQ:META) does in social or what Google has in search. So as a result, if you house a bunch of inventory there and then don't enable people to bring data to work from other places, it will not perform as well. And so it is true that more inventory has been coming online in CTV, but what sometimes I think is lost, especially in discussions about CPMs is that there is a greater desire for marketers to find their exact audiences than they've ever been or than there has ever been. And they're look they have to look across all these different pools of inventory in order to find the small pieces in each of them that give them the efficacy that they need to be effective and to put their dollars to work as effectively as possible. That's only possible when you're looking across the entire open internet. And when you consider the fact that perhaps our greatest strategic asset is that we are objective that we don't own media. And so as a result, we can help the biggest brands in the world objectively figure out whether they should buy Hulu or Netflix or Spotify or Yahoo. And that objectivity is in greater compromise, I would argue, at Amazon than anywhere. And that's in large part because not only does Amazon have its own owned and operated inventory as it relates to CTV inventory. It also operates as the second largest search engine in the English-speaking world and then it also competes in building products with almost every major advertiser in the world. So that conflict of interest, I think, makes it very difficult. But a biddable marketplace with price discovery, with competition and data is where everybody is heading and I believe that there's no one better positioned to capture the value of that than us. Thanks for the question. Chris Toth: Thanks, Youssef. Next question, John. Operator: The next question comes from Justin Patterson with KeyBanc. Please proceed. Justin Patterson: Great. Thank you very much. Good afternoon. And Jeff thanks for that LinkedIn post on chocolate chip cookies the other day. That was great. I guess now that the dust is settling on cookie deprecation in the privacy sandbox, how does your strategy and investment level really change around UID2 going forward? Thank you. Jeff Green: Thanks so much, Justin, and next time we speak, I'll show you more photos but I appreciate the shout out then and appreciate the question today. First, I don't know that there's a lot more to say about cookies than what I've already said, only because as was pointed out to me by somebody I was interviewing recently and respect a lot. He said one of the things that I love talking to you is it doesn't matter what clips I take from the past. They're always consistent. You said the same thing four years ago that you're saying today. I said in 2020, it was not a good idea for Google to get rid of cookies for that. And I stand by that today. And so because that message has been consistent, there's not a lot new to say. But just to reiterate some of the highlights, cookies were never the best technology to provide personalization. And in a privacy-centric environment, they need to be upgraded. It is not a surprise that privacy sandbox is dead that when you complicate the open internet and deprecate it at the same time and then ask the internet to make huge investments in it, even if you pay them $5 million each, it apparently doesn't work, and that is something that we predicted as they were rolling it out and offered that criticism in private and in public. But I want to be super clear, because occasionally, this point gets lost despite the fact that we've made it again and again. We did not build UID2 as a replacement for cookies. It is way bigger than that. We actually wanted to build an identity framework that can live on irrespective of what Google or Apple (NASDAQ:AAPL) or anybody else does. And if there's anything that we've learned from the changes in the last four or five years, it's that Google, in particular, but also Apple, can't be trusted on these issues. And that anybody whose strategy is simply to depend on them and hope for the best, they ought to rethink or at least consider getting a backup plan. And so we built UID2 with the purpose of making something that could live irrespective of the decisions made at Google or Apple. and as a result, it's quickly becoming ubiquitous. Now when I say it's becoming ubiquitous, I especially mean in CTV and in audio, in places where people are logged on. Where there are log-ins, UID2 have been extremely valuable and it is quickly becoming ubiquitous. Where there are not log-ins, which includes, in most browsers, namely Safari as well as Chrome, there's still a lot of work to do in creating authentication, consent and personalization that makes the advertising effective enough to replace the CPMs the way that Google wanted to in deprecating cookies. I believe that's part of the reason why they have created some delay, but that also is a bit of a double edged sword because it could give publishers a sense that they can slow down and take their time, which is not a good idea. Given the efficacy of things like UID2, in order for them to compete, they need to adopt a more sophisticated technology, which puts some pressure on them to continue to change. So hopefully, this doesn't slow them down in that regard. But the bottom line for this, for us, is how does our strategy change is the result of cookie deprecation? Not at all. Thank you so much for the question. Chris Toth: Thanks, Justin. Next question, John. Operator: Yes. The next question comes from Vasily Karasyov with Cannonball Research. Please proceed. Vasily Karasyov: Thank you. Good afternoon. Jeff, you spoke about what is going on in the Connected TV market and short-term concerns because of Prime Video entering the space here. I wanted to ask you to talk about what will happen in the next two or three years in the midterm with all the premium inventory sources like Disney, Roku and Netflix and possibly others becoming more available on your platform. How does this impact your revenue growth trajectory in the midterm? Thank you. Jeff Green: Thanks so much for the question. So I truly believe that The Trade Desk is in a stronger position than it's ever been and I think we might be in the very best position of any player in the market to benefit from the changes in streaming and the move to connect television. I mentioned to the team all the time. I'm way more concerned about the tidal wave of opportunity being too big and that's not being equipped to handle all of the opportunity that comes to us than I am that the wave doesn't exist or it's too small. But if you step back for a second, I believe there's a macro changing of the guard that is happening. It used to be that the first dollar that went to digital went to Google and to Facebook, and that's partly because they built such easy on-ramps, partly because they had so much to scale. They did a lot of things right. But that's changing for a bunch of reasons and not least of which is that most of their content outside of search is not premium. It is user-generated content. And the only reason why I believe that not so many dollars is both because of the easy on-ramp, but especially because it had so much scale and there's nowhere else to go. Now there is. Now there's premium content and the premium content is becoming more and more available. So when the largest brands in the world get to choose between a variety of different premium content owners and then compare that with user-generated content, with measurement that is somewhat suspect to them, it just becomes easier and easier for them to put the first dollar in the open internet, led by CTV and audio, which I would argue those two are the most premium content on the internet altogether. It's no wonder that as they put the first dollar there, that it creates this incredible opportunity for us. Now for a long time, CPMs were very high for these content owners because there was scarcity of supply, especially early on in the pandemic. But as a result of all of them seeing the benefits of ad funded models or at least hybrids where you can have a subscription and also ads and let the consumer pay however they want, they're seeing that they can get incremental subscribers by offering them ads in part because many of them have subscription fatigue and had so many different options to choose from. But we've seen a little bit more of a surge of inventory than we've seen in the past. And so as a result, that requires some restabilizing or rebalancing of CPMs and what gets bought and what doesn't. You ask what's going to happen over the next couple of years. I believe they're all going to get the balance right. They're not going to get too many ads in the commercial breaks and also not too few and consumers are going to be able to pay however they want. And they're going to have access to more subscriptions than they have today. And that will, in large part, be brought to you by ads that will be more effective than they've ever been in television history. And so when you put all of that together, I really believe that we're on the early path to the most effective television ecosystem ever, where you have premium content that is getting funded at rates that we've seen in recent years, but not just on speculation, it's actually being funded and paid for because of these dialed-in hybrid ways that I believe will be better than it's ever been before in part because the content is better than it's ever been before, but also and maybe especially because the advertising itself will be more effective because we can put data to work in a way that never could have happened in linear television. So as we see some of the legacy media companies struggle a little bit, I believe their only way out is programmatic advertising is data-driven advertising that will get them higher CPMs and it will make all of our clients compete to be on their platform, and it will get them incremental subscribers. But I think over the next two or three years, we will see the most effective advertising maybe ever emerge out of the digital advertising space. Operator: Okay. The next question comes from Mark Mahaney with Evercore. Please proceed. Mark Mahaney: Okay. Hey, Jeff, I just want to follow up on the question I asked you last quarter, except events have changed. And that had to do with maybe the increasing dislocation in the market related to Google and all the regulatory scrutiny. And since that time, we've obviously had a DOJ decision. We'll probably have another one in the next three to six months and probably be negative two. Google Network (LON:NETW) is now kind of negative on negative like their revenue base is declining on a base that was declining. And I just wonder if that's what you're seeing in the market and CMOs are really coming to you and looking for more aggressively for an alternative than they were in the past, particularly in light of the regulatory and legal changes that Google is almost certainly going to have to face. Jeff Green: Thanks, Mark. I really appreciate the question, and you couldn't be more right that the world changed a lot since the last time we talked about this on this call roughly 90 days ago. So, yes, you're right, 2024 is shaping up to be a very big year on the regulatory side and there's probably almost everyone is hearing this knows the Department of Justice won in their suit or trial against Google as it relates to Google Search. And there, of course, is another upcoming trial that will begin likely in September, where the Department of Justice is suing Google over anticompetitive practice in ad tech. In my opinion, the Department of Justice's case against Google on the ad tech side is even more compelling than it was on the search side. Now the one thing that I think Google had in its favor on this most recent case, although it lost, was that it's more simple. It's simpler than the case in ad tech. The ad tech case is quite complicated. But I think it's interesting to point out that one of the things that was under the most amount of scrutiny was the focus on partnerships that were deemed illegal and the payments that Google made to Apple, for instance, that kept them on the sidelines and limited competition. And that at a moment of inflection as Cantor highlighted is a moment where market needs competition, most of all. And as we head into this trial, I believe that same discussion about partnership and especially as it relates to Jedi Blue and Facebook will come up. I think it will come up around open bidding. And the product that Google deployed called open bidding and some of the important mechanics about those auctions that I think will likely be scrutinized, but also the partnerships. But even though I do think that all of that will once again be on trial, I think, there are a bunch of things that we can predict will happen irrespective of the outcome of that trial. One is what you highlighted early on, which is we have historically competed, and I jokingly say, we competed against the 37th highest priority at Google. Not too long ago, we started competing with the 47th highest priority at Google because it was downgraded. And as you point out, the network business, essentially shrinking on shrinking, represents, I think, a deprioritization. And as they continue to upgrade their focus on Gemini and Cloud and AI and Search and YouTube, I think network and open internet is less important to them than ever. I think the cookie decision underscores that same thing as well. So what I think that does create opportunity for us that we haven't seen before in this form. I think it also makes it very possible for us to continue to service the open internet and to continue to be very focused on what we're doing. So as they downgrade their focus on the open internet, that's, of course, been our only focus since inception. So it does create room for us to do more. It does create some uncertainty, especially on the sell-side, which is where they're being challenged in this trial and how that will shape up. But I think the thing that is absolutely certain is that they will be moving more slowly and more carefully than ever. They are a weaker competitor than they've been for us in years past. And as I've often said, we've been winning in an unfair market. Imagine what we could do if we're competing in a fair market. I think as a result of that, I believe, we'll win no matter what the outcomes of this case are, but it will still be fun to watch. Thanks for the question. Operator: Next question comes from Shweta Khajuria with Wolfe Research. Please proceed. Shweta Khajuria: Thank you for taking my questions. I'll try two, please. First is on Netflix. Jeff, could you please give an update on where you are with their partnership and how should we think about the time line on scaling and perhaps potential contribution as we think about 2025? And then the second one is on your earlier comments, a couple of questions ago on Trade Desk being raised up in consideration by advertisers. So is it fair to assume that the ROIs that they're seeing, the advertisers are seeing now, are very comparable, either even higher than nonsearch social ad dollars that are played and that's why you're gaining share? Thank a ton. Jeff Green: You bet. Thanks for the question. So first about Netflix. I am so excited about this partnership in part because I don't know that there is a partnership where I've had a longer relationship with the C-suite and yet waited so long to have any actual partnership with Netflix. And it's great to see that they've had some early success with ads, and I'm so excited that we now can talk about our formal partnership and the discussions that we've been having for a very long time. First of all, let me just say I'm a big fan of the leadership at Netflix and believe that they are very rational players, and I love that they, in some ways, come with a very objective and open mind as a result of not being a legacy media company of not having ever been in traditional media, but instead, of course, always been essentially a digital player. As it relates to the time lines, we have begun some testing. All we're doing really is putting -- we're putting real money and real campaigns on it, but it's just testing the pipes, nothing that has scaled. I think we'll start seeing that ramp up a little bit this year. But really it's in the next few years that I think we'll see it ramp up and really start to contribute to us and to them, but we'll spend the rest of this year sort of proving it out. And I think next year will be a very important year for the future of both of us and for the future of our partnership. So very excited about that. On the second question, where why is Trade Desk sort of rising in the consideration set for marketers? Part of it is absolutely ROI and return on ad spend and all of those performance metrics and our timing as it relates to shipping Kokai could not have been better as it relates to contributing to those performance metrics. But it's also that premium content like Netflix or Spotify or so many others are coming online and that as we have the opportunity to buy for more quality premium internet destinations, it creates more opportunity for marketers to see returns and to be associated with the most premium content on the internet. And when they have more choices and they can put more data to work because of things like UID2 just the flywheel spins faster. While at the same time, I think they're just a bit more suspicious of the metrics inside of walled gardens. But also the content itself, that user-generated content has been under greater scrutiny, especially as more alternatives pop up. So it's a bit of a double-edged sword. Thanks so much for the question. Shweta Khajuria: Thanks, Jeff. Operator: Next question comes from Tim Nollen with Macquarie. Please proceed. Tim Nollen: Thanks very much. Another question on CTV. I hope you don't mind, Jeff, I'm sure you don't. Given the ongoing weakness that we've seen in linear TV, even through this reporting season through Q2, there was a flood of CTV ads on Amazon Prime earlier this year, and now we've seen Netflix and Roku and others open up to more programmatic CTV. I wonder if you could comment, are you seeing more on the appetite for the CTV sellers to really adopt biddable programmatic, not just delivery of programmatic ads, but actually using auction-based bidded decision programmatic tools? And if you have any observations from the upfront markets that I think are more or less done now as toward as to the seller's appetite towards bidded programmatic. Thanks. Jeff Green: You bet. Thanks, Tim, for the question. So there absolutely is a greater desire to lean into biddable for both buyers and sellers. So most of television has been transacted over the last few decades the same way that it was decades before that, which is martini lunches and handshakes and parties at the upfront. But you buy in bulk and it was quite literally broadcast. You buy it out and it gets broadcast to all the people in a specific place watching a specific show. And shows were a proxy for audience. You bought football because they are more likely to drink beer, but you didn't know anything about the user in an anonymized way or able to put any data to work. Biddable is the very best way to put that data to work and it's the very best way to get higher CPMs for the content owners. So while, at first, they're a little reluctant because it's a foreign way of doing business, it's just unfamiliar to those in TV, but the math and the CPMs don't lie. And as a result, you're seeing more and more of them embrace that. And as CPM costs have been high, you're seeing the advertisers say, well, why am I paying two or three times what I used to in broadcast if I'm not getting better results or are not able to bring my data to work. So the tolerance to pay high CPMs, if you don't get something more is lower than it was a year or two or three ago. So as a result, both sides are pushing towards biddable and the results are in and it's showing that it is a more effective way to buy and sell. So I think you're going to see the trends push us more and more toward biddable. It does require a lot of work to get to manage fill rates and to do forecasting and you're going to see companies on both sides, being in buy side and supply side, continue to make big investments, in part so that we can continue to run upfronts, but those upfronts will look more like forward contracts than handshakes and partners. And those forward contracts can be always on. And if they can operate in biddable environments where people just have a greater ability to choose, but they also can make commitments and intentions to spend a very large scale while at the same time, getting the right to choose. So we'll see more and more of that in years to come, but the trend is definitely towards biddable. Thanks for the question, Tim. Operator: Absolutely. The next question is from Brian Pitz with BMO Capital. Please proceed. Brian Pitz: Thank you. Jeff, a lot of discussion around bringing demand to CTV, but any thoughts on timing around bringing more demand to Retail Media and how you see partnerships developing there? And then maybe separately talking about LinkedIn post, you recently said advertisers need an identity strategy and publishers need an identity and authentication strategy. How does Trade Desk best position itself to enable these strategies and transitions essentially for both sides? Thanks. Jeff Green: Yes. Thanks so much. So on the Retail Media side, there is definitely an opportunity for us to continue to drive spend there. And I've mentioned before that I believe the two greatest threats to walled gardens and the bringing down of their walls are number one, CTV for all the reasons we've talked about on this call, and number two, Retail Media. And the Retail Media is important because it changes the measurement game. So a few times in the prepared remarks and in the comments I've mentioned some of the flaws of measurement inside of walled gardens. But if you're actually connecting the ads that you showed to a specific user and then the purchase that they make later, it becomes much more irrefutable to show the connection between the ad shown and the purchase. And Retail just has tremendous promise for that. And not only is that good for advertisers, but that is also good for retailers who are all trying to find their way to compete in this digital world and to compete with the Amazons of the world. So our partnerships with companies like Walgreens and Walmart (NYSE:WMT) and Target (NYSE:TGT) and so many others are just great examples of the opportunities that exist in Retail Media, and we have merely scratched the surface. And I'm so proud of what we've done with those companies and the others. You're right. I did mention that every advertiser should have an identity strategy and that strategy can't just be cross your fingers and hope that cookies never go away, and for publishers, they need to have an identity strategy and an authentication strategy. And what I mean by that is when it comes to authentication, if you're not in CTV or audio where 100% of your users log-in, and that's not true of all CTV players, but that's true of most of them, then you need to find a way to get them logged in and to address consent, in other words, ask them, if you can provide them with personal content and create a quid pro quo that makes it worth it. Everybody needs to be developing that strategy, especially if you're in browser right now. So they've been given a bit more time, but they need to use that time to act. And even if Google does nothing more, you have to use that time to act simply because things like UID are so effective for CTV and audio and other channels and for those that have log-ins even in the browsing world that it will make it so that we prioritize that media over those that are just dependent on cookies or something else. So naturally, over time, it becomes very important. And this is more important for those in journalism than anywhere, just because they tend to move very slow and not be technological innovators, so it becomes really important that they respond to that. And advertisers, if you're not putting your data to work with an identity strategy, in other words, how can I use my data in a consumer-friendly way and privacy-centric way, how can I put my data to work so that I can do better marketing? If you're not thinking about that and honoring the sort of sacred relationship that you have with your customers, then you're doing it wrong, and you're likely to lose to those that are doing that. So there's a fair amount of pressure on both buy-side and sell-side to sort of get with the times. And all of this change is happening so fast, but all of that has created opportunity for us at an unprecedented pace, and that's part of the reason why we're so bullish. And when you add the deployment of what I think is our best product yet and certainly the product that I am most proud of our team for shipping in my whole career, not just at The Trade Desk. In Kokai, I just think we have such a bright future ahead. So thanks for the question and for the discussion today from all of you. Operator: Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

Innovid Corp. (CTV) Q2 2024 Earnings Call Transcript

Innovid Corp. (NYSE:CTV) Q2 2024 Earnings Conference Call August 6, 2024 8:30 AM ET Company Participants Lauren Hartman - Investor Relations Zvika Netter - Chief Executive Officer & Co-Founder Anthony Callini - Chief Financial Officer Conference Call Participants Matthew Cost - Morgan Stanley Matt Condon - JMP Securities Laura Martin - Needham & Co. Operator Greetings, and welcome to the Innovid Q2 2024 Earnings Call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lauren Hartman. Thank you. You may begin. Lauren Hartman Thank you, operator. Before we begin, I'll remind you that today's call may contain forward-looking statements and that the forward-looking statement disclaimer included in today's earnings release available on our Investor Relations page also pertains to this call. These forward-looking statements may include, without limitation, predictions, expectations, targets or estimates regarding our anticipated financial performance, business plans and objectives, future events and developments, changes in our business, competitive landscape, technological or regulatory environment and other factors could cause actual results to differ materially from those expressed by our forward-looking statements made today. Our historical results are not necessarily indicative of future performance, and as such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them, except as required by law. In addition, today's call will include non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margins and free cash flow. We use these non-GAAP measures in managing the business and believe they provide useful information to our investors. These measures should be considered in addition to and not as a substitute for our GAAP results. Reconciliations of the non-GAAP measures to the corresponding GAAP measures, where appropriate, can be found in the earnings release available on our website and in our filings with the SEC. Hosting today's call are Zvika Netter, Innovid's Co-Founder and CEO; as well as Anthony Callini, Innovid's CFO, both of whom will participate in our Q&A session. I will now turn the call over to Zvika to begin. Zvika Netter Thanks, Lauren, and welcome, everyone, to our 2024 second quarter earnings call. Today, I'll review our second quarter results and provide an update regarding our ongoing strategic initiatives and progress in the market. I'll then turn the call over to our Chief Financial Officer, Tony Callini, who will provide further details with respect to our Q2 results and full year 2024 outlook, followed by Q&A. We're proud to deliver another quarter of double-digit growth and improving margin. Revenue grew 10% year-over-year in the second quarter to $38 million. Adjusted EBITDA grew 29% to $5.9 million. Adjusted EBITDA margin increased to 15.5%, up from 13% in the prior year. CTV impressions, our key growth driver, increased by 21% over last year. The solid business momentum we delivered in the first half of the year keeps us on track to execute against our long-term targets and in line with our full year financial guidance. Our adjusted EBITDA margin expansion also demonstrate our ability and commitment to delivering profitable growth while continuing to invest in strategic innovation for the future of CTV. We have made momentous progress since the beginning of 2024, including the launch of our strategic Harmony initiative and new partnerships with the world-leading players in the market. As we shared last quarter, in April 2024, we launched the Harmony initiative and product suite. We created Harmony to solve some of the biggest challenges facing CTV advertising today and to build a better CTV advertising for future of tomorrow. As TV rapidly transitions to fully digital future, our aim is to optimize CTV advertising at the infrastructure level to improve efficiency and ROI, enhance transparency and control, reduce carbon emissions and provide a better viewing experience for consumers. I'm excited to share that we've seen great progress in the last couple of months with clients, publishers and partners. As part of our Harmony launch in April, we introduced a new product called Harmony Direct, which streamlines the supply path, making it more sustainable and transparent. Supply path optimization helps advertisers ensure more of their dollars go towards working media and helps publisher increased revenue opportunities. The data from our early results have been positive. Our data partners saw a benefit of up to 15% improved yield and an average increase of 8% in working media. We are encouraged that more and more forward-thinking industry leaders are adopting Harmony Direct to help address the complexities of the CTV ecosystem. A few weeks ago, we announced that Goodway Group and Vizio joined the Harmony initiative. Alongside previously announced partners like Roku, PMG, Assembly and the CMI Media Group. And in light of the successful results, PMG, an early agency adopter, is now rolling out Harmony Direct across its portfolio of clients. In addition to Harmony Direct, we announced last week that we launched our Harmony Frequency product, the first holistic frequency management solution for CTV and digital advertising. Frequency management remains a consistent challenge for advertisers. Until now, advertisers and media providers have had to separately manage frequency with each publisher or DSP platform. This led to ads being shown repeatedly to the same audiences and left key audiences underexposed. Through our ad server, we are able to see every impression, publisher, platform, device and household across the entire ecosystem on both direct and programmatic media buys. Advertisers adopting Harmony Frequency can now prevent overexposure, maximize budget by reallocating spend to under-exposed households and improve the viewing experience by limiting ad fatigue. We're currently in beta testing for Harmony Frequency with CTV platforms, brand partners and some of the leading DSPs in the world. We're especially excited to include Yahoo DSP as one of our first to market partners. We anticipate moving to general availability later this year. The strategic importance of the Harmony initiative and specifically Harmony Frequency have been a key topic of discussion among industry leaders. In June, I had the pleasure of attending the Cannes Lions Festival together with my Innovid colleagues, where we met with leading brands, publishers and industry partners. Many of our conversations reaffirm the long-term potential of our Harmony initiative and validated our efforts to solve the problems in the CTV industry today. In addition to conversations about Harmony, there were many discussions at Cannes focused on the expanding CTV market. I'm very encouraged by these conversations and the elevated strategic position that Innovid holds as a critical and leading player in the industry. To reinforce that point, I am also excited to announce a new strategic collaboration that demonstrate our essential position in the market and the power of the Innovid platform. Earlier this morning, we shared that we are collaborating with Nielsen, a global leader in audience measurement, with the aim of providing a seamless workflow and holistic view of the cross-media ads universe. By leveraging Innovid's ad-serving infrastructure to access Nielsen ONE, Nielsen and Innovid together would provide a seamless workflow, ultimately driving greater usability and coverage for ad measurement. Together, we aim to provide the industry with a holistic comprehensive view of cross-media ad campaigns by integrating directly with Nielsen's established currency solution, Innovid will enhance its position as a vital player for TV and digital advertising, opening new avenues for growth. Nielsen and Innovid will be testing the technical integration in the coming months, and we look forward to updating you all on our progress. In addition to this exciting collaboration with Nielsen, we remain committed to investing in Innovid's own measurement solutions, which are used by some of the leading global advertisers and publishers. We also are introducing more and more real-time optimization solutions with Harmony, powered by our evolving measurement solution. Finally, I am pleased to share some customer wins and expansions from the second quarter. We signed new clients and expanded our relationship with leading brands such as WNBA, Eli Lilly, Lundbeck, Purple Innovation, Habit Burger and The Wonderful Company. We're particularly excited about the expanded partnership with leading publishers, Amazon and Spectrum. We remain very focused on delivering value for our clients across our suite of products and are committed to driving impact for their businesses. None of these partnerships, accomplishments or growth would have been possible without a world-class team, which is why I'm proud that Innovid was recently named on Inc.'s Best Workplaces list of 2024. I want to thank our employees for all their hard work and for creating a workplace that balances innovation and culture. Our unique culture has been a driving force behind our ability to lead industry change. I'm very pleased with the progress we have made so far in 2024. I am excited about our sustained business momentum. Our Harmony initiative continues to be well received and adopted by industry leaders. We are well positioned to benefit from the secular CTV trends and are confident in Innovid's underlying business strength. Our second quarter results keep us on track to execute in 2024 and deliver double-digit profitable growth over the long term. With that, I'll ask Tony to take us through the numbers and provide some insights into Q3 and full year expectations. Tony? Anthony Callini Thank you, Zvika, and good morning, everyone. In addition to the inspiring business progress that Zvika just shared, we're also pleased to report another strong quarter of financial performance. On a year-over-year basis, Q2 marks the third consecutive quarter of double-digit revenue growth, eighth straight quarter of adjusted EBITDA margin expansion and fourth consecutive quarter of free cash flow improvement. Now, let's dig into the numbers. Second quarter revenue grew 10% year-over-year to $38 million. Breaking that down further, ad serving and personalization revenue was up 11%, while measurement revenue grew 6%. As a percentage of revenue, ad serving and personalization made up 78% while measurement accounted for 22%. The growth in ad serving and personalization reflects the continued shift to CTV and some level of stabilization in ad spending as compared to last Q2. In fact, CTV revenue from ad serving and personalization grew 21% over the second quarter of 2023. As a reminder, Innovid's ad serving and personalization revenue closely correlates with ad impression volume served through our platform. Within this category, CTV impression volume increased 21%, as more impressions continue to transition to CTV. This is the second consecutive quarter where both CTV impressions and CTV revenue from ad serving and personalization grew by more than 20% on a year-over-year basis. And as a percentage of total video impressions, CTV represented 54% as compared to 51% in last Q2. Mobile video volume grew by 13% and represented 35% of all video impressions, while desktop volume decreased by 9% and reflected 11% of all video impressions. As we've seen over the last few quarters, CTV impressions continue to consistently grow, while mobile and desktop have been more inconsistent. Going forward, we'd expect to see similar trends with both CTV and mobile growing and desktop being less predictable. That said, all three of these devices represent consumers watching streaming applications. So, it's also helpful to look at the total video impressions served, which grew 14% overall in the second quarter as compared to the second quarter of 2023. Moving to measurement. The consistent growth in measurement revenue reflects the ongoing value of our measurement capabilities as a key part of the Innovid platform. Not only did measurement revenue grew 6% over last Q2, we also grew 7% sequentially from Q1. As the measurement business model is more subscription-oriented than the ad-serving business, we see an opportunity to steadily grow the customer base over time and add more committed revenue to our business. We expect our unique ability to combine creative, delivery and measurement solutions to provide differentiated client value and be a catalyst for continued revenue growth. Further, the Nielsen partnership we announced this morning is another positive data point of the power of our platform for the future of TV measurement. Stepping back and looking at overall revenue performance in Q2, we're proud to have grown revenue double digits for the third consecutive quarter and had 20%-plus CTV revenue growth for the second consecutive quarter, all in the midst of an inconsistent macro environment as some verticals have resumed normal spending levels, while others remain cautious with their advertising spending. In the second half of the year, we anticipate continued uncertainty augmented by the US election cycle, which is reflected in our outlook for the remainder of 2024. Now, moving on to costs and expenses. Revenue less cost of revenue calculated out to 76% of revenue, improving from 75% in Q2 last year. Our margins continue to improve as the business scales, reflecting the operating leverage embedded in our business model. As we include more automation and AI into our offerings, we expect this to be a continued catalyst for margin expansion. Q2 total operating expenses, excluding depreciation, amortization and impairment, totaled $37.9 million, an increase of 6% from $35.9 million last year. Employee count at the end of June was 463 as compared with 450 at the end of Q2 2023. We remain committed to managing our cost base while making strategic investments in high-growth areas to drive improved profitability and generate long-term value creation for our shareholders. Q2 net loss was $10.5 million or a per share loss of $0.07. This compares with a net loss of $19 million and a per share loss of $0.14 in Q2 2023. The outstanding common share count at quarter close was 145.8 million shares. Adjusted EBITDA in the second quarter was $5.9 million, a $1.3 million improvement or a 29% increase as compared to $4.5 million in Q2 last year. As I mentioned earlier, this is the eighth consecutive quarter of year-over-year adjusted EBITDA margin expansion, as our margin improved to 15.5% this past quarter as compared to 13% last year. These improvements reflect the impact of sustained revenue growth, lower cost of revenues as a percentage of revenue, and operating costs that grew nominally over the prior year, demonstrating the leverage inherent in our operating model. I'll now turn to the balance sheet and cash flow. We ended Q2 in a strong financial position with $30.6 million in cash and cash equivalents and no outstanding balance on our revolving debt facility. As a reminder, we have $50 million available on that debt facility. On a net cash basis, or to say it another way, cash and cash equivalents less outstanding revolver balance, the $30.6 million on hand at the end of Q2 2024 is a 31% improvement as compared to the $23.4 million of net cash at the end of Q2 2023. During the quarter, net cash provided by operating activities was $1.2 million, and free cash flow was a use of $1.3 million, a 38% improvement over the $2 million of free cash flow used in Q2 2023. If we look at free cash flow on a trailing 12-month basis, we have seen an improvement of $14 million as compared to the same 12-month period ended June 30, 2023. Finally, let me touch on our outlook for the third quarter and provide an update for the full year 2024. We are proud of our ability to continue to execute in an uncertain economic environment and are confident in the underlying strength of our business, opportunities for disruption and ability to grow revenue in a profitable way. We remain committed to our long-term financial target of 20%-plus annual revenue growth and 30%-plus adjusted EBITDA margin. As I mentioned earlier, we anticipate continued uncertainty in the second half of 2024 amplified by the current US election cycle. We will continue to monitor ad market dynamics, but have already factored in some level of ongoing uncertainty in our guidance and are reaffirming our full year expectations today. In the third quarter of 2024, we expect total revenue in a range of $40 million to $42 million, representing 13% year-over-year growth at the midpoint. We expect Q3 adjusted EBITDA in a range of $6.5 million to $8.5 million as compared to $6.5 million in the third quarter of last year. For the full year, we are reiterating our prior guidance of $156 million to $163 million in revenue, reflecting 14% annual growth at the midpoint, and adjusted EBITDA between $24 million and $29 million. We had another strong quarter of consistent double-digit revenue growth, margin expansion and free cash flow improvement, putting us another step closer to achieving our long-term targets. We remain encouraged by the secular market dynamics driving CTV growth and new product offerings like Harmony. We continue to invest in long-term sustainable growth while efficiently managing our cost structure and strengthening our financial condition. This concludes our prepared remarks. Zvika and I are now happy to take your questions. Operator, please begin the Q&A session. Question-and-Answer Session Operator We will now be conducting a question-and-answer session. [Operator Instructions] The first question we have is from Matthew Cost of Morgan Stanley. Please go ahead. Matthew Cost Hi, everybody. Thanks for taking the questions. I have two. Zvika, you mentioned a couple of new customer wins in the quarter. And I was wondering if you could just walk through kind of the common thread between those new customer wins. What are the pain points that they're seeing that are causing them to work with you? And generally, are they -- is the entry point for them, is it on the ad serving side, or are they coming in kind of with a broader group of products? And then for Tony, just on the guidance for the second half, I think there's a decent amount of acceleration in terms of just the dollar add sequentially in 2Q -- sorry, in 3Q and then again in 4Q based on the quarterly and full year guidance you gave. I guess, maybe walk us through the drivers of that and your level of confidence in being able to achieve that sort of sequential acceleration between here and the end of the year? Thank you. Anthony Callini Zvika, do you want me to -- I can take the second one first. I think the question around the new customer wins was directed to you, but let me take the one on the sequential guidance going from Q2 to Q3 to Q4. Yes, Matt, I think as we looked at the year, I mean, we had always anticipated that this would be a year where momentum would be building over the course of the year. And I think if you look at the different drivers that we have between volume increases, cross-selling success, upselling success and those sorts of things. I mean, we're kind of living that as we go through the year. And so, as we think about the second half and as we've mentioned, I mean, we're trying to balance some of the potential uncertainties of just some of the macros and the election in particular with some of the more tailwinds that we're seeing. So I think from our perspective, we feel confident in the full year guidance, pleased with our second quarter results. And as we look at that sequential uptick from quarter-over-quarter, I mean, that's kind of what we're seeing in the business. And the drivers are, again, kind of volume. And I think you're seeing that most pronounced in just the CTV specific growth, which is where CTV video impressions and CTV video revenue both grew over 20% for the second straight quarter. So that is something that we've always said is our primary growth driver. It gets weighed down by some other things, specifically desktop, mobile has been a little bit more inconsistent, but that CTV growth of the 20%-plus is one of the things that gives us the most confidence. And as we look out, we really feel strongly like we haven't really seen that inflection point yet where there's going to be a bend in the curve as things like live sports and more ad-supported streaming come online. And so, our strategy all along is just going to put ourselves in the best position to take advantage of that when that ultimately comes. Zvika Netter Tony, do you want me to take also the... Anthony Callini Yes, you may take the one on the -- I think that was directed to you for the new customer wins if there's any common threads. Zvika Netter Yeah. In terms of -- so clearly, we are known for being an ad server, specifically with a focus on CTV online video that will support other omni channel. So, in case there's an RFP or somebody is looking for -- it's rare that there's an RFP, somebody is looking to switch from mainly Google to a more advanced ad server, especially somebody's brand invest more and more in CTV as it grows, they will switch to us -- look to switch. So that's the most common. Though we definitely have cases where customers -- and then from there, we cross-sell and upsell. But we definitely had cases where people with brands and agencies starts with the measurement or DCO on top of -- using our products on top of the Google ad server and then eventually switch to Innovid. And the reason we win, it's basically by our focus on product, being really the best around CTV and video in terms of the delivery, the creative tools and measurement. And the other one is neutrality. And I think there was another development in the suit against Google in terms of antitrust. That is a tailwind for us. Matthew Cost Great. Thank you. Zvika Netter Thank you. Operator The next question we have is from Shyam Patil of Susquehanna. Please go ahead. Unidentified Analyst Good morning. This is Jason on for Shyam. Thank you for taking our questions. Maybe a couple from me. One on new CTV inventory coming into the ecosystem. Can you just talk about the impact that new CTV inventories had on the ecosystem? And maybe how much of a driver Amazon's Prime Video has been for CTV impressions overall? And then, one on verticals. Can you dive in more specifically on any vertical trends that you observed in the second quarter? Are there any areas of particular strength or weakness that you would call out? Thank you. Zvika Netter Sure. So in terms of new inventory, constantly, the inventory of CTV is growing in -- by 2x, right? So, one is people are spending more and more time in front of connected TV in front of the television in general, consuming content through an IP connection on a connected TV. And at the same time, there are more and more, which is connected, of course, more and more options and more content to watch. Primarily, I would say, beyond Netflix, of course, and Disney+ and HBO and Amazon investing heavily in the space, live sports is a massive, massive driver, because live sports tends to be exclusive. There's very unique place where you can consume it. And clearly, it's live, right? So that's a huge driver, and we're seeing more and more deals around live sports in CTV and that drives volume also. And as Tony mentioned, we saw in the second half -- sorry, in the second quarter, 21% volume increase in terms of the number of ads we delivered year-over-year, and that's -- given the environment we're in, that's a very nice growth. So that's how it impacts us. In terms of specific and clearly in a better environment, we will expect to see even higher numbers. Remember that eventually, we believe 100% of television will all be CTV. So, there's still plenty of room for growth in the coming years. In terms of specific verticals, Tony, do you want to take that? Anthony Callini Yes, I can certainly take that. I mean, it's continuing the trends that we've seen. Things like CPG and pharma have been strong and continue to be strong. Auto is an interesting one where a year ago, that was really challenged, and we've seen that kind of sequentially improve every quarter, and it continues to do so. So that's one that makes us -- we're pretty bullish on auto at this point. At the same time, retail and that's probably not surprising given some of the macro news out there. Retail was probably the category this quarter that was off the most. We've had -- and I know we've talked about things like finance, insurance, tech and telecom, all being off. I mean, they're kind of a mixed bag there. None of them are really growing tremendously, some of them are continuing to decline in small amounts. But I would say that's kind of stabilized. Retail is the one that, of the categories that we look at, was probably the most disappointing. And again, as I said, I mean, we're all kind of paying attention to the macro news out there, seeing similar terms across the retail sector. But not a positive, I think auto is the one that continues to strengthen, and we feel pretty good about. Unidentified Analyst Great. Thank you very much. Operator The next question we have is from Matt Condon of JMP Securities. Please go ahead. Matt Condon Thank you for taking my questions. My first one is just on the strategic collaboration with Nielsen. Can you just talk about what your goal is here and maybe what you expect -- what effect do you expect this to have on your platform? And then, my follow-up is, Tony, just with the Harmony initiative rolling out, and I think most of the R&D investments are made, can you just talk about maybe what are the investments that you expect going forward? And then, how we expect just spend across the OpEx lines, the trend going forward? Thank you so much. Zvika Netter Thanks, Matt. Clearly, we are extremely excited about the partnership with Nielsen and the plan to partner around integrating our platform with the Nielsen platform. Nielsen is a leading, I think, almost a household brand, definitely in this industry all over the world around currency for television and measurement of television, kind of the legacy of television and Innovid is extremely focused on the future of television and CTV. So, the fact that we're joining forces to create a much more streamlined workflow for our customers. So basically, all our customers are also using Nielsen. So, to create a better integration and better workflow between the platforms as we look into the future of measurement for television is something we're extremely proud of and excited. I believe, also together with the Nielsen team, and we plan to spend the next months further integrating and exploring ways that it's pretty clear for us that we can generate additional value for our mutual customers. It's a long-term contributor for growth. Clearly, the expectation that there will be a monetary upside on top of everything else we're doing, but that's definitely in the long-term side of things. I would argue in the short term, it's a clear signal. There's so many -- there are several companies in the measurement space, several contenders when currency -- Nielsen is leading the currency for TV measurement. Innovid never tried to be a currency. So the fact that they chose us and we chose them to partner and really address all the needs of the industry around measurement of TV and CTV, I believe it goes a long way also in the short term, in terms of potentially influencing or at least signaling to the brands and agencies who we are, what we do, what we're heading and that somebody like Nielsen is comfortable to partner with us towards their core business, which is measurement. And the other question, I think I'll give to Tony. Anthony Callini Yes. I can take that. I mean this was the question, if I understand it right, it was just kind of broadly about investments, maybe more specifically about investments in Harmony. Yes, Matt, great question. We've always said that we're -- the investment in Harmony really was just part of our normal run rate for our development team. We're very blessed that we have a very talented and gifted development team and innovation is in our name, and that's what we always do. So, looking at our financials, you can clearly see there is no significant uptick in R&D as we went through this initiative, and we were able to really kind of support this with the existing team. There's still more development work to do. I mean this is -- we're just getting the kind of the frequency product into market now. So, there's a little bit to do. But I would say, overall, zooming out, it's going to be the same group, and we're going to continue to kind of focus on driving innovation with the team we have. In terms of how to think about spending going forward, and one of the things I've always really loved about this business is just how much leverage there is in the operating model and is a pretty much a pure software play. We can scale pretty well and the unit economics are great. And so, I would imagine that as we grow, there'll be some growth-oriented investments that we'll make. We've been very thoughtful to not get out ahead of ourselves in terms of investing ahead of revenue. And so, I expect more of that as we go forward. And I think that, that's reflected in our -- both our results with the EBITDA expansion over the last eight quarters and then also the long-term targets, which ultimately we believe we should be able to get to a 30%-plus EBITDA margin. Matt Condon Great. Thank you so much. Operator Thank you. The next question we have is from Laura Martin of Needham & Co. Please go ahead. Laura Martin Hi, there. I have two questions. One is one of the big valuation upside of Innovid is that it serves as into both walled gardens and into the open Internet, but I was curious, do you guys actually serve ads into Amazon Prime Video? Zvika Netter One question? I think you said -- there are one or two questions? Just to make sure... Laura Martin Yes. So that's my first one. Do you actually have the right to serve into Amazon Prime Video? I'm curious about that. And then -- my other question was on your slide that's called the four growth drivers, I really like this notion that you guys have talked about a lot, where you have a product and then you're going to upsell and you're going to cross-sell products to get like more revenue per customer. And maybe I don't understand Harmony correctly, but I thought Harmony actually called on the sell-side clients, the publisher clients, which would mean you really couldn't sell it to your buy-side clients. But do I understand the target universe for Harmony incorrectly? Zvika Netter Okay. First of all, hi, and thank you for the question. Laura Martin Hi. Zvika Netter I'll take the first one. Amazon, yes, we are not only serving ads into the Amazon platform. We also -- Amazon is also a customer around measurement and other products, and you should definitely expect to see more -- even on Harmony, more between Innovid and Amazon. Sometimes people ask, even if we serve ads into YouTube, given the fact that Google owns a competitive ad server, the Google Campaign Manager and clearly, they are on YouTube, and the answer, we also serve there. So, without -- if you look at our large customers like General Motors and Verizon, their ads are not going to be delivered and then hence, they're not going to pay if their ads are not delivered into all these platforms. So, it's a must that we will actually deliver and then measure everything that goes through our system. And the reason we can do it because we're not a DSP, and we'll connect us to the Harmony question in a second, since we're not buying or selling media, we're not buying or selling data. The walled gardens are open to us as we deliver billions and billions of impressions, which turns into billions of dollars of media for those platforms. As to Harmony sell-side, buy side, both the beautiful Harmony is going to harmonize the entire industry, and it must create value both for the buy side and the sell side. Actually, a lot of the inefficiency is exactly there. It's between the buy side and the sell-side, whether it's Harmony Direct with supply price optimization, minimizing the tax that you need to pay along the way and the number of hubs and also it's a greener solution. We just announced Frequency. And that is generating more money for publishers, but it's also in that way, that money when it goes directly to publisher is then used to working media. So, you're paying for more impressions. So, from a brand perspective, you spend $1 million by using Harmony Direct, you actually get more of those dollars, let's say, instead of having only $800,000, $850,000, you can get $950,000. In working media, in this case, everybody is happy, but at least the buy side and the sell side are happy. And with the Frequency management, same thing, it's the -- actually -- this one benefits the DSPs. Of course, it benefits the customers. But what we did there, Laura, is -- and that's a very recent release is it's in beta now. And with some of the largest DSPs out there, we announced a partnership with Yahoo DSP. Basically, what it does, it measures frequency across the entire campaign, walled gardens, open Internet, programmatic, non-programmatic, biddable and non-biddable, and then looks at frequency in areas where there's over frequency, it caps them. And now when there's under exposure, it actually signals to the DSP to buy those impressions. So, it signals to the industry to the publishers and the DSP stopped spending money here, but you should spend more money in this area which they are underexposed. So then in a way -- not in a way, there's way less waste. There's more efficiency that the customer is not paying a single dollar more than they planned. But the certain publishers are getting more demand for certain underexposed audiences. And that's something that only Innovid can do because we see everything, right? The DSP is part of it. But the DSP is happy because we're sending them the signal. So, the reason we call it Harmony, it's exactly because of this, it's a win-win-win situation. And it sounds odd, but there is actually a way to configure this industry that everybody will make more -- we'll get more value out of CTV. And hopefully, that will drive more faster linear dollars into CTV, which I think everybody is going to be happy about. Laura Martin Super helpful. Thank you very much. Zvika Netter Thank you. Operator Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the floor back over to Zvika Netter for any closing comments. Zvika Netter Thank you. And again, thank you all for joining us today. We're extremely proud of the momentum we saw in the second quarter where we continue to deliver profitable double-digit growth with profitable growth, while we keep investing in things like Harmony Direct and Harmony Frequency management, and there's a whole roadmap coming ahead of it, more integrations with some of the largest streaming platforms in the world, including some that we didn't mention today, and hopefully, we'll mention in the future. We talked about the Nielsen integration and partnership and with the goal to deliver a lot more value. So, doing all of that will keep increasing quarter after quarter, increasing our EBITDA and having double-digit growth in an environment like this is something that we're very proud of. And again, I want to thank our employees, our customers and partners all over the world. And thank you all for joining us today, and we're going to keep you posted about our progress. Have a great day. Bye. Operator That concludes today's conference. Thank you for joining us. You may now disconnect your lines.