Integral Ad Science Holding Corp. (NASDAQ:IAS) Q2 2025 Earnings Call Transcript

Integral Ad Science Holding Corp. (NASDAQ:IAS) Q2 2025 Earnings Call Transcript August 8, 2025

Operator: Good day, and thank you for standing by. Welcome to the IAS Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your first speaker, Jonathan Schaffer, Senior Vice President of Investor Relations. Please go ahead.

Jonathan Schaffer: Thank you. Good afternoon, and welcome to the IAS Second Quarter 2025 Financial Results Conference Call. I’m joined today by Lisa Utzschneider, CEO; and Alpana Wegner, CFO. Before we begin, please note that today’s call and prepared remarks contain forward-looking statements. We refer you to the company’s filings with the SEC posted on our Investor Relations site at investors.integralads.com for more details about important risks and uncertainties that could cause actual results to differ materially from our expectations. We will also refer to non-GAAP measures on today’s call. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is contained in today’s earnings release available on our Investor Relations site.

All financial comparisons, unless noted otherwise, are based on the prior year period. So with these formalities out of the way, I’d now like to turn the call over to our CEO, Lisa Utzschneider. Lisa, you may begin.

Lisa Utzschneider: Thank you, Jonathan. Welcome, everyone, to our 2025 second quarter call. We continued our business momentum and delivered profitable growth in the second quarter that exceeded our expectations. Total revenue increased 16% at a 35% adjusted EBITDA margin. During the quarter, we expanded our relationships with existing customers, added new brand logos and furthered our global reach. We are raising our full year outlook to reflect our positive second quarter performance. We are customer-obsessed at IAS. Our ongoing investment in AI infrastructure enables us to anticipate our customers’ needs and drive demand in this rapidly evolving AI landscape. In the second quarter, we executed on our product priorities of performance, reach and innovation as we enhanced our differentiated technology and grew our platform partnerships.

Our performance products are driving efficiency and ROI for our customers. CTV is the fastest-growing channel in terms of media spend according to eMarketer. Our publisher performance products for CTV were strong contributors in the second quarter. We are growing our international leadership position in CTV with our Publica products as we partner with major broadcasters globally. In the second quarter, we reached a 2-year expansion and renewal with Samsung, a leader in the CTV space and our largest OEM partner. In EMEA, we won the ad serving business of a major German publisher. In APAC, we signed Australia SBS, a public service broadcaster for a strategic deal to monetize their live sports inventory focused on the 2026 FIFA World Cup. In addition, we continue to drive customer adoption of our Vault offering built to increase bidding competition in CTV ad auctions.

We are expanding our capabilities across channels to wherever brands activate their digital advertising. We added to our buy-side offerings for CTV by expanding Quality Sync or QSP into CTV inventory supply to support quality control and supply path insights for CTV. Advertisers now have access to a transparent view into where their ads are being delivered across all their CTV buys to enable them to find the most efficient pathways for their ad dollars. QSP is available across all major DSPs with strength in the second quarter on DV360 launched in the first quarter and on Amazon DSP launched late last year. QSP is part of Total Media Performance or TMP, an AI-driven bundle of our leading measurement and optimization solutions. According to our study of a client campaign, our performance products delivered 8x more efficient eCPMs and nearly $9 in return on ad spend for every dollar spent on media over a 4-month period.

That’s 93% higher than the customer’s target. We continue to see strong demand for our products with significant room to grow with new and existing customers. In the second quarter, we secured several competitive wins. A global apparel company selected IAS for our leading measurement products in the U.S. Our superior brand suitability classification technology and supply path transparency were deciding factors for the company. A luxury retailer switched to IAS from an incumbent provider for our measurement and optimization solutions. We are excited to expand our leading presence in the luxury vertical after demonstrating the value, efficiency and performance of our offerings. A major media and entertainment company selected IAS to provide viewability, invalid traffic and brand safety and suitability products.

We won this customer as a result of our best-in-class service and suitability offerings. We are also driving penetration across our product stack with existing customers. Volkswagen of America chose to adopt TMQ across the major social platforms in the U.S. This builds on our multiyear partnership with Volkswagen Group for our measurement and optimization offerings, including QSP and total visibility. TMQ provides Volkswagen with transparency and efficiency across the social platforms, helping to maximize return on ad spend while ensuring their brands are protected. We have completely transformed our head-to-head testing capabilities in the last 12 months. As a result, another major automotive company switched to IAS following a competitive RFP process with our performance products.

We were originally selected to provide our verification offerings in the U.S. We’ve now expanded this partnership to include QSP to drive improved outcomes for the brand while optimizing for safety. A leading financial services company expanded their relationship with IAS to include Social Optimization in the second quarter. Our superior automation capabilities allowed this company to scale their needs across social environments while prioritizing performance. We are expanding our product reach through deeper integrations with our platform partners. In June, we launched new contextual category reporting for Meta platforms across Facebook and Instagram feed and reels. We are closing the loop for advertisers by aligning measurement reporting to contextual categories available through IAS’ first-to-market content block less optimization solution for Meta.

During the quarter, we extended our track record of first-to-market platform integrations on the strength of our leading AI-backed technology. In June, we announced a partnership with Lyft, enabling advertisers to validate the quality of their Lyft media buys with our viewability, invalid traffic and brand safety measurement. As the first media quality measurement partner for Lyft Media, we are trusted to ride along on every impression. This enables us to provide advertisers with greater transparency into their media buys through trusted and transparent metrics. In June, we announced a strategic partnership with Snap and Lumen Research to bring customized attention measurement to Snapchat. Snap Attention Measurement will now enable advertisers to directly and seamlessly gain social attention metrics, combining Lumen eye tracking and IAS’ AI-powered media quality data to create a bespoke Snapchat attention score within the IAS Signal platform.

Our leading global presence is a clear differentiator and important contributor to our customer growth and retention. International accounts represented over 50% of adoption of our ramping Prebid Social Optimization offering in the second quarter. Our performance products are purpose-built for mid-market customers and offer streamlined self-serve, easy-to-activate solutions. We are excited to announce the partnership with StackAdapt, a mid-market focused technology company in advertising and marketing. We are integrating IAS pre-bid avoidance and targeting within the StackAdapt DSP, so brands of any size can remain confident that they are optimizing impressions with greater confidence and accuracy. In June, the IS team attended the Cannes Lions Festival of Creativity, where we unveiled new signal platform capabilities.

The Signal application platform offers customers a unified experience across activation, Prebid Optimization and post-bid measurement, encompassing open and closed ecosystem, CTV and emerging channels. Recent enhancements enable mid-market customers to adopt measurement features via self-service. We are investing in new agentic and Gen AI capabilities to accelerate activation and deliver actionable insights. At IAS, we are scaling Gen AI into our technology and product stack to drive innovation. Up to 97% of model validation has moved from humans in the loop to Gen AI. Our AI labeling is now 29x faster and 45% more precise than human annotators. We process 50 years of video content per day, up from just 2 years of video less than 24 months ago.

This heightened velocity and precision fuels premium products like Total Media Quality, Prebid Social Optimization and our TMP bundled solution. Leveraging our AI models, we can now launch new suitability profiles quickly, detect new content risk at speed and proactively build custom segments. These capabilities position IAS as the industry signal to what works when investing in digital advertising. Last week, we announced that we received the first ethical artificial intelligence certification from the Alliance for Audited Media. This certification sets IAS apart for our use of AI and underscores our high standards of responsible and ethical AI across our measurement products and services. We are investing in top talent to amplify our innovation leadership and enhance our go-to-market capabilities.

In July, we appointed industry leader, Care Seifer, as Executive Vice President of Global Sales, reporting into Mark Brabowski’ COO. In conclusion, we executed on our strategic priorities in the second quarter and built on our growth momentum. Our investments in performance, reach and innovation continue to drive results. We believe there is significant runway for growth as we scale product adoption, add new customers and partners and deepen existing relationships. We were thrilled to welcome Alpana Wegner as our new CFO in June. Alpana brings over 25 years of financial leadership to IAS, including significant public company experience. Alpana is off to a great start. We are excited to have her join today’s call. I will now turn the call over to Alpana to review the financials, and then we’ll take your questions.

Alpana Wegner: Thanks, Lisa. It’s great to be here today. I’m excited to join the IAS team. I’ve been impressed with the company’s deep customer relationships, AI-first technology and differentiated products, all of which provides us with a strong foundation to increase shareholder value as we execute on our growth strategy. Let’s start with our second quarter results, and then we’ll turn to our financial outlook for the third quarter and full year. Total revenue in the second quarter increased 16% to $149 million, ahead of our prior outlook as a result of the higher-than-expected spend on our social measurement offerings and optimization products. We also benefited from the contribution of the new customers, including the Oracle wins.

During the second quarter, we generated double-digit growth in our optimization and publisher businesses, and our measurement revenue growth rate increased to 8% from 4% in the first quarter with continued gains in social media. Optimization revenue grew 16% to $68 million in the second quarter. We continue to capitalize on the industry shift to performance with our leading optimization products. We also benefited from the strength in financial services, particularly in insurance as well as increased adoption of our QSP product across DSPs, most notably DV360 and Amazon DSP. Measurement revenue increased 8% to $57 million in the second quarter. Measurement growth was fueled by the strength in the retail and financial services verticals. Looking at measurement revenue by channel.

Social media revenue grew 22%, representing 60% of measurement revenue and 23% of total revenue with increased spend from large accounts. Open Web revenue declined 7% year-over-year, which is the same rate as the first quarter, representing the balance of our measurement revenue. Turning to measurement revenue by format. Video grew 26% on the strength of TMQ, accounting for 61% of measurement revenue. We continue to see consistent trends in display impacted by the shift to social measurement and optimization. Publisher revenue increased 36% to $24 million, representing 16% of total revenue. We continue to expand our OEM partnerships, which include our new CTV products such as our Publica Vault offering. We also benefited from the onboarding of new customers.

International revenue in the second quarter grew 8% to $43 million and year-to-date increased 13% and represented 30% of total revenue. International revenue growth in the second quarter reflects timing of advertiser campaigns. In addition, 45% of measurement revenue in the second quarter came from outside of the Americas. We continue to prioritize global coverage where our product capabilities are a key competitive differentiator. Turning to profitability. Gross margin for the second quarter was 77%, reflecting our ongoing infrastructure investments as well as higher costs related to optimization growth. We expect gross margin to improve in the back half of the year due to typical seasonality and increased operational efficiencies. Operating expenses for the second quarter, excluding stock-based compensation, increased 14% due primarily to the timing of compensation-related items.

In addition, sales and marketing increased due to investment in mid-market sales. The increase in technology and development reflects higher investments in our engineering and product teams and G&A increased as a result of higher professional services fees, partially offset by lower bad debt expense. Stock-based comp expense for the period was $19 million, within our expected range. Adjusted EBITDA, which excludes stock-based compensation and onetime items, increased 12% to $52 million at a 35% margin ahead of our prior outlook as a result of higher revenue. On a year-over-year basis, adjusted EBITDA margin reflects lower gross margin in the quarter as well as the timing of certain compensation-related items as previously anticipated. Net income for the second quarter was $16 million or $0.10 per share compared to $8 million or $0.05 per share in the second quarter of 2024.

Moving to our performance metrics. Our second quarter advertiser net revenue retention, or NRR, was 110% on a trailing 12-month basis. The total number of large advertising customers, which includes both mid-tier and top-tier customers with annual revenue over $200,000 grew to 240 compared to 232 in the prior year period. Revenue from large advertising customers was 87% of total advertising revenue on a trailing 12-month basis. We continue to generate strong cash flows with $55 million in operating cash flow this quarter. We maintained a healthy balance sheet with cash and cash equivalents at the end of the second quarter of $91 million. During the quarter, we paid off our remaining long-term debt. We also announced the extension of our $300 million credit facility, which increases our borrowing capacity with an accordion feature that allows borrowings to at least $550 million at more favorable rates.

As a result, we have greater flexibility to pursue our growth initiatives as part of our build, buy partner strategy. Turning to guidance. We remain encouraged by the current advertising environment as reflected in our positive second quarter performance and increased outlook for the full year. Our outlook assumes that the macro environment in the second half of the year remains consistent with what we are seeing today. For the third quarter ending September 30, 2025, we expect total revenue in the range of $148 million to $150 million or 12% year-over-year growth at the midpoint. Adjusted EBITDA for the third quarter is expected in the range of $51 million to $53 million or a 35% margin at the midpoint. We are raising our full year 2025 revenue and adjusted EBITDA outlook.

For the full year 2025, we are increasing our revenue outlook to $597 million to $605 million or 13% year-over-year growth at the midpoint. For the full year 2025, we are increasing our adjusted EBITDA outlook to $208 million to $214 million or a 35% margin at the midpoint. A few additional modeling points. We expect to maintain gross margin for the full year 2025 in the range of 77% to 79%. Third quarter stock-based compensation expense is expected in the range of $18.5 million to $19.5 million and $71 million to $73 million for the full year. We expect weighted average shares outstanding for the third quarter in the range of 166 million to 167 million shares and 165 million to 167 million shares for the full year. We expect an effective tax rate of approximately 25% for the full year 2025.

In conclusion, we executed on our strategic plan in the second quarter and extended our business momentum with 16% revenue growth. Based on the midpoints of our increased revenue and adjusted EBITDA outlooks for 2025, we expect to reach the Rule of 48 for the full year, which speaks to our commitment to delivering profitable growth. We look forward to updating you on our progress moving forward. And with that, Lisa and I are now ready to take your questions. Operator?

Operator: [Operator Instructions] Our first question is going to come from the line of Andrew Marok with Raymond James.

Q&A Session

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Andrew Jordan Marok: Maybe first, if we could talk about the Moat customers. I guess, how would you characterize your progress on getting those customers up the curve? I know there was the intent to just acquire them and then upsell them eventually on some of your premium-priced products. Kind of wondering how that’s going at this point.

Lisa Utzschneider: Sure, Andrew. Thank you for the question. Happy to take it. So, we continue to see great momentum with our Oracle customers. As you might remember, back half of last year, the team did a terrific job of signing over 75 accounts, 70% renewal rate, very focused on onboarding, integrating the new brands, publishers and platforms to IAS. Round into 2025, the team is very focused on cross-selling and upselling all of these 3 customer types. And we’re seeing great performance, especially in our optimization solutions. The Oracle customers are leaning into optimization. In addition to cross-sell and upsell, the team is also putting — continuing to put new Oracle wins across the board. So really excited about the ramp. We’re excited about the ongoing strength of the Oracle business. And the team, again, they’re doing a great job both extending the existing accounts and then putting new wins on the board.

Andrew Jordan Marok: Great. And maybe one more, if I could. It kind of dovetailed into that last question. On the Social Optimization features, obviously, you’re continuing to put out new segments, new capabilities, et cetera. Is there ever a point at which you kind of hit a critical mass where some customers who may have been on the fence about adopting Social Optimization, that’s the key decision factor for them and they choose to come over? Or is it something where it’s just an additional value enhancer for the customers that you have and are looking to acquire?

Lisa Utzschneider: Yes, happy to take that one, too. So, we’re very pleased with the onboarding we’re also seeing with Prebid Social Optimization. You might remember that we have hundreds and hundreds of advertisers who’ve already adopted TMQ across all of the major social platforms, Meta being the largest one. In addition to continuing to increase and expand the TMQ adoption internationally, the team is also very focused on driving adoption of Prebid Social Optimization. And for example, what we’re seeing quarter-over-quarter is we’ve doubled the number of advertisers who’ve adopted Prebid Social and where we’re seeing lots of adoption happening is in EMEA. In addition to Prebid Social, we were also thrilled that Meta announced this afternoon.

I don’t know if you saw that announcement with Threads the fact that IAS has been selected to expand our partnership with Meta through a new test to measure ThreadsFeed inventory. And it starts today, the test. It’s with a limited number of advertisers, but we’ll be running third-party brand safety and suitability measurement for the ThreadsFeed, again, with a select group of advertisers. Meta also plans to make the third-party verification for ThreadsFeed globally available in the coming months. And again, this deep strategic collaboration that we have with Meta, it underscores our mutual dedication to brand safety, transparency and innovation. So, we were thrilled that, that announcement came out this afternoon, and we’re thrilled we’ve already started the test on Threads.

Operator: Our next question is going to come from the line of James Heaney with Jefferies.

James Edward Heaney: You continue putting up really impressive growth in the publisher segment. Just hoping you could talk a bit more about the underlying drivers there and how we should think about the growth in that segment going forward.

Lisa Utzschneider: Sure. Thanks, James. Happy to take that one, too. Yes. So again, we’re really pleased with the 36% growth in the publisher business that we put on the board for second quarter. A couple of drivers of the publisher business, it includes expanding our OEM partnerships including driving adoption of new CTV products, including Vault, which helps the OEMs with their bidding functionality. We’ve also benefited in Publica. The team, again, has done a great job of putting new customers on the board. We cited a few of them previously in internationally, both in EMEA and APAC. So, Publisher continues to be a tailwind for our business, both with Publica, which is a leading CTV platform as well as IAS Publisher, which we are seeing double-digit growth in second quarter as we continue to drive greater enhancements for the traditional publishers with IAS solutions.

Operator: [Operator Instructions] Our next question comes from the line of Youssef Squali with Truist Securities.

Youssef Houssaini Squali: This is Nick Gruner on for Youssef. So, on the 3Q guide, can you just unpack a little bit what’s baked in across optimization, measurement and publisher? And then stepping back to like trends in the international markets, can you just talk about what trends you’re seeing across these markets and where you’re seeing pockets of strength or weakness?

Alpana Wegner: Yes. Thanks, Nick, for the question. This is Alpana. It’s great to speak with you today. And I’ll take the first one in terms of the guide on a business line basis, and then I’ll let Lisa weigh in on your question on the international markets. So, from an overall second half perspective and what we’re seeing trending in the business, we’re happy coming off of a strong Q2 with the 16% growth in the top line. As we look across the various lines of business, we continue to expect measurement to be in the high single digits and similar to what we saw in Q2. We expect optimization to continue to see the trends that we’re seeing there more broadly in terms of the shift of spend. And we see that continue to grow in the mid-teens, just below what we saw in Q2.

And then from a publisher standpoint, we still anticipate, as Lisa just mentioned, strong double-digit growth. We do have some anniversarying of some benefits year-over-year from last year, but we continue to see growth there in the double digits, more in line with what we’re seeing from a total company perspective.

Lisa Utzschneider: Sure. Thanks, Alpana. And I’ll take the second question, Nick, in terms of international trends that we’re seeing. So our international footprint, it continues to be a big differentiator at IAS, growing 13% in the first half of the year. A couple of callouts in terms of trends that we’re seeing in international. The first is social. When you take a look at social, as I mentioned before, TMQ, so TMQ adoption as these large Fortune 500 global brands continue to adopt our TMQ solution in international markets, emerging markets. We really pleased with that adoption we’re seeing across EMEA and APAC as well as Prebid Social Optimization adoption, in particular, in EMEA. Second trend, as I mentioned before, Publica, we love the fact that the team is putting international wins on the board, both in EMEA and APAC.

We have been investing in more boots on the ground with Publica and CTV. And then the third trend I’ll call out, not necessarily a trend, but China, we announced China 2 quarters ago, and we have luxury and CPG brands that are running our China in solutions. You might remember that’s IAS verification solutions that we’re offering to major global brands who want to extend the reach into China. We’re really pleased with the beta that we’re seeing in China, and we are starting to hire in China.

Operator: Our next question comes from the line of Jason Helfstein with Oppenheimer.

Jason Stuart Helfstein: I just ask one. So Lisa, we’ve seen a bunch of volatility like between the different segments between measurement and optimization, if you look at year-over-year growth on a quarterly basis. It kind of feels like we shouldn’t be focusing on quarterly trends there and instead looking at it on an annual basis on a trailing 12-month basis. But just — can you just unpack that a bit? Because I just think there just continues to be surprised how like volatile those kind of components have been quarter-to-quarter.

Lisa Utzschneider: Thanks, Jason, for the question. Happy to answer it. So, a couple of things to note. The first is we’re pleased with our 16% growth in Q2. We’re seeing strength across all of our businesses, including 16% in optimization. Measurement, yes, it’s single digit at 8%, but it doubled quarter-over-quarter. We continue to see strength in social at 22% as well as CTV publisher in at 36%. Our Q2 performance, it’s actually driven by higher-than-expected spend in social from the large global advertisers who I had cited before as well as we really pleased with the adoption we’re seeing of our optimization products. Similar to last quarter, we continue to see a shift from the big brands as they are shifting away from open web display into optimization as they’re leaning in for solutions that are driving ROI, efficiency, transparency and performance as well as continue to spend in social.

So we — actually, it’s playing out as expected, and we’re really pleased with our performance.

Operator: [Operator Instructions] And our last question is going to come from the line of Jacob Armstrong with Key.

Unidentified Analyst: I guess, first, can you talk about the drivers of optimization average CPMs growing 10% year-over-year this quarter, while optimization volumes saw considerable deceleration? And maybe more broadly, can you kind of discuss how you’re viewing pricing as a growth lever moving forward?

Lisa Utzschneider: Yes, I’m happy to take that, too. So again, we’re really pleased with our optimization performance in the quarter at 16% growth. With optimization products, our Prebid products, we continue to drive and command a premium price for optimization, which we’re pleased with. Our optimization pricing, it increased 10% year-over-year in Q2, primarily related to the ongoing adoption of QSP. We’ve been really pleased with our QSP adoption, especially as we lit up the last 2 DSPs being Google DV360 and Amazon and very pleased with the performance of QSP across those 2 DSPs as well as all of the major DSPs.

Unidentified Analyst: If I have time for one follow-up. On social this quarter, is there anything you can share on advertiser adoption of the meta optimization products and how that’s progressing? And maybe just more broadly on how you’re viewing the Social Optimization opportunity as a whole?

Lisa Utzschneider: Yes, happy to take that one, too. So, as I mentioned before, we have more than doubled the number of brands on Meta who are adopting Prebid Social from Q1 to Q2. And we also have seen over 50% of the adoption is coming from international, in particular, EMEA. You might remember both Meta and TikTok, over 50% of our revenue comes internationally. So we love the adoption rate we’re seeing and the strength internationally. The other thing I should call out with Meta, we were also pleased in Q2 with the expansion of the content categories, which provides additional coverage on Meta for our brands, extending 46 content categories as well as in 34 languages. The other noteworthy thing I should call out about social is in addition to Meta and the other large social platforms I’ve mentioned, we’re also really pleased with the contribution that we’re seeing with some of the other really important social platforms include Reddit, Pinterest and Snap.

So we’re well diversified across the social platforms. And again, really pleased with the adoption rate that we’re seeing, and there’s definitely room for growth with the adoption, both of our pre- and post-bid measurement products on the social platforms.

Operator: And I would now like to hand the conference back over to Lisa Utzschneider for any closing remarks.

Lisa Utzschneider: Thanks, everyone, for joining today’s call. We executed on our strategic plan and delivered another strong quarter of profitable growth. As a result, we raised our outlook for the full year. Our continued momentum reflects the hard work and dedication of the global IAS team. I’d like to thank the team for their efforts, along with the support of our customers and shareholders. We look forward to speaking with you throughout the quarter. Have a good night.

Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.

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