Integral Ad Science Holding Corp

NASDAQ:IAS

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the IAS 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, Jonathan Schaffer, SVP, Investor Relations with IAS. Please go ahead.

[Jonathan Schaffer, executive]

Thank you. Good afternoon, and welcome to the IAS 2024 Second Quarter Financial Results Conference Call. I'm joined today by Lisa Utzschneider, CEO; and Tania Secor, 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 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, executive]

Thank you, Jonathan. Welcome, everyone, to our 2024 second quarter call. I'm excited to discuss our strong second quarter results and increased outlook for the full year. On today's call, I'll review several growth drivers of our business, including key global customer wins, new and enhanced partnerships, our robust product pipeline and the opportunity to pursue a digital logo win following Oracle's announcement to exit the advertising business. We extended our positive business momentum and exceeded our revenue and adjusted EBITDA guidance for the second quarter. Total revenue increased 14% to $129 million, ahead of our prior outlook of $125 million to $127 million. We reported double-digit growth across all of our businesses in the second quarter, including optimization growth up 11%, measurement growth up 17% and publisher growth up 12%. Adjusted EBITDA increased to $46.2 million at a 36% adjusted EBITDA margin. Once again, we are raising our full year financial outlook to reflect our second quarter outperformance and our expectations for a strong second half of the year. We now expect 2024 revenue growth of 14% at the midpoint with an adjusted EBITDA margin of 34%, well above the Rule of 40. Our increased outlook for 2024 includes continued adoption of our leading social media offerings, the anticipated benefit from recently launched products and the contribution from new logo wins. Marketers partner with IAS based on our leading AI-backed technology that delivers actionable data to drive superior results. They value our customer service, which includes the industry's largest global footprint with 31% of our revenue coming from outside of the Americas. International revenue has grown faster than overall revenue for the third consecutive quarter, driven by strong adoption of our social media offerings. We are excited to announce 2 recent major global brand wins in the important telecommunications vertical. Orange, the largest telecommunications provider in France, selected IAS as its new partner over an incumbent provider. We were awarded this opportunity based on our differentiated products as well as our quality of service. Telefonica, a Spanish multinational telecommunications company, selected IAS as one of its global strategic partners for both measurement and optimization solutions. Telefonica chose IAS based on our technology, innovation and service. In addition, existing customers are growing with IAS. As discussed on last quarter's call, we've seen a 55% increase in average annual spend in year 2 of new contracts since 2019 based on our advertiser customer data. Stellantis, the leading global automaker, renewed and expanded its partnership with IAS. IAS is now the preferred global verification provider to Stellantis, growing our partnership beyond EMEA. Our demonstrated product superiority helped secure this renewal and expansion. Perfetti Van Melle, one of the world's largest manufacturers and distributors of confectionery and chewing gum, has expanded its exclusive global verification partnership with IAS beyond EMEA to include the U.S. as well. Perfetti extended its partnership with IAS for several reasons, including the strength of our video measurement products. IAS leads with innovation and trust. We prioritize our road map of highly advanced products and platform integrations informed by our close customer partnerships. Year-to-date, we've launched several AI-backed products to provide marketers with additional assurance and insight into the safety and efficacy of their advertising spend. By leaning into our deep technology assets, we are maintaining a high bar for product velocity and flexibility that is resonating with our customers and platform partners. We also remain steadfast in our commitment to the highest standards for the quality and accuracy of our products and our commitment to adhere to stringent principles and guidelines with the responsible use of AI. In June, we announced the availability of the industry's first deepfake detection offering. Currently in beta testing, the new offering is expected to help advertisers avoid running adjacent to deepfake content and to further verify the safety and suitability of their digital media investments through trusted and safe AI-powered technology. We were delighted to pull forward availability of deepfake detection to the first half of 2024 to meet high customer demand ahead of the Olympics and U.S. elections. Made For Advertising, MFA, represents a major industry challenge for marketers seeking to avoid web pages created solely to serve ads and clutter sites with high ad density and high ad to content ratio as they can lead to lower performance. Since launching our MFA ad-driven product and general availability in the second quarter, we are seeing 100% month-over-month growth in usage. As marketers seek to maximize their return on their digital ad investments across channels, we are extending our reach through new and enhanced platform and partner integrations. Social media represents a massive and sustainable market opportunity, and we have only just begun to scratch the surface. Social media increased to 53% of measurement revenue and 22% of total revenue in the second quarter. We believe our Total Media Quality, TMQ product suite, provides marketers with unparalleled granularity and insights. Recently, we announced new platform partnerships with Pinterest, Reddit and Snap. We also built on our existing integrations with platform partners, including Meta, YouTube and TikTok, which offer our TMQ product suite. We continue to invest in our pre-bid optimization products in social media, including GARM, Global Alliance for Responsible Media. We currently provide pre-bid solutions across several of the largest social platforms, including [ X ], where IAS was selected to be the first to market based on our leading AI capabilities and our TMQ product offering. In June, IAS expanded its brand safety and suitability measurement product for YouTube to include reporting for Performance Max and Demand Gen campaigns on Google Ads. Performance Max is Google's campaign type that enables advertisers to access all Google Ads inventory through a single unified campaign. Demand Gen is a new Google ad solution that helps advertisers find and convert consumers with immersive, relevant and visual creatives that grab attention and spur action in the right moment. During the second quarter, we expanded our global reporting and insights now available for Amazon DSP media buys through a server-server integration on Amazon DSP. Advertisers will now have access to measurement coverage for campaigns across Amazon custom audiences and Twitch inventory. IAS solutions available to advertisers and Amazon DSP include viewability, IVT and brand safety and suitability. IAS continues to lead the global market in CTV. We offer top-tier products, including granular measurement solutions at the content and channel level, optimization solutions for ad fraud protection and MRC-accredited measurement metrics. Our CTV investments are yielding significant results with the majority of our clients using CTV optimization solutions, showing exceptional IVT pass rates. Additionally, Publica has introduced creative quality assurance, which automatically adjusts [ ad ] creatives to meet the specific requirements of various CTV channels and apps. This innovation is designed to eliminate advertiser blind spots and enhances programmatic effectiveness, leading to greater reach and scale for advertisers and improve yield management for publishers. In June, Oracle announced they were exiting the advertising business at the end of September. I've highlighted several IAS customer wins in recent quarters where we displaced incumbent providers, including Oracle. Following Oracle's announcement, we are pursuing this unprecedented opportunity with ingenuity and resources at scale to offer our industry-leading capabilities and capture potential incremental revenue. We are currently involved with dozens of RFPs, and we are working closely with potential large and midsized partners on transition planning, including onboarding, integration and support. We are addressing their needs with our products, tech, talent and reputation for high integrity with a history of strong partnerships across the digital ecosystem. We have welcomed more than 20 Oracle advertising employees to IAS since June. These new hires enhance our capabilities across functions in addition to bringing relevant experience with some of the largest platforms, publishers and brands. Our pursuit of the Oracle business is another example of one of our core values at IAS, our bias for action. We are doing what's right not only for IAS, but for clients, partners and the industry at large. The feedback we've received has been overwhelmingly positive, including at the Cannes Lions Festival of Creativity, where we hosted over 200 meetings and panel discussions. Before closing, I would like to welcome Bob Lord as a new member of IAS's expanded Board of Directors. Bob is a highly regarded technology leader with a wealth of experience in technology, digital media, data science and enterprise SaaS. He currently serves as the Chief Executive Officer of RWL Advisory LLC, a consulting and advisory services firm, and his career includes senior level roles at IBM, AOL and Razorfish. We are excited to welcome Bob and expand our Board to include another industry expert as we continue to innovate and drive forward the future of media measurement and optimization. In conclusion, we reported another positive quarter of innovation and execution. The investments we're making in technology are leading to higher customer engagement and increased demand for our products. Now that we're halfway through the year, we have greater visibility and even higher confidence in raising our full year outlook. Our focus is on driving growth and continuing the momentum we've established. We have several tailwinds in our favor, including strong social media adoption, our robust product pipeline, new logo wins and the opportunity to pursue additional revenue following Oracle's exit. We intend to deliver sustainable, profitable growth, and we look forward to keeping you updated on our progress. And with that, I'll turn the call over to Tania to review the financials, and then we'll take your questions.

[Tania Secor, executive]

Thanks, Lisa, and welcome, everyone. We are delighted to report total revenue growth of 14% for the second quarter with double-digit gains across our optimization, measurement and publisher businesses. We are also raising our full year guidance to reflect our positive second quarter performance and strong outlook for the second half of the year. We expect to drive accelerated revenue growth as we move through 2024 with third quarter growth of 15% at the midpoint of our guidance. Total revenue in the second quarter increased 14% to $129 million, exceeding our prior outlook of $125 million to $127 million. Our stronger-than-expected performance benefited from measurement growth of 17%, optimization growth of 11% and publisher growth of 12% in the period. Total revenue from advertisers, which includes optimization and measurement revenue, increased 14% in the second quarter and represented 86% of total revenue for the period. Drilling down further, optimization revenue grew to $58.5 million in the second quarter. Optimization growth of 11% significantly exceeded our prior expectation of more than doubling the first quarter growth rate. Optimization growth in the second quarter reflects strong performance across verticals, including CPG and finance, the contribution from recent new logo wins and increased demand for our premium price optimization products. During the quarter, Quality Sync revenue increased approximately 3 times versus the prior year period. We expect further acceleration in our optimization growth rate in the third and fourth quarters as we move through the year due to customer adoption of our recently launched products, ongoing Quality Sync expansion and new logos. Measurement revenue increased 17% to $52.7 million in the second quarter. Social media revenue grew 34% in the second quarter with strength across platforms, including TMQ on Meta, YouTube and TikTok. Meta volumes benefited from strong overall growth in the second quarter. Meta was our largest and fastest-growing platform sequentially from the first quarter as a result of the launch of TMQ on Meta in February. Social media represented 22% of total revenue in the second quarter compared to 21% in the first quarter of 2024 and 18% in the second quarter of 2023. Social media revenue represented 53% of total measurement revenue with the balance being Open Web, which increased modestly in the second quarter. As a result of the strong growth in social media, video grew 22% in the second quarter. Video accounted for 53% of measurement revenue, up from 50% in the second quarter of 2023. From a vertical perspective, CPG and retail were strong contributors to measurement revenue in the period. Publisher revenue increased 12% to $17.8 million in the second quarter. Publisher revenue reflects continued adoption of our Publica solutions by large OEM partners, partially offset by the performance of our non-CTV [ supply side ] business. Publica revenue increased more than 20% in the second quarter. Publisher revenue represented 14% of total second quarter revenue. We continue to invest in global market expansion and talent to extend our leading international presence. 31% of our total revenue in the second quarter were $40 million, was from outside of the Americas. In addition, 43% of measurement revenue was from outside of the Americas. International growth of 16% benefited from growth in social media spend, including TMQ in both EMEA and APAC as well as the contribution from new logos. During the quarter, revenue in the [ Americas ] increased 13%. Gross profit margin for the second quarter was 79% at the upper end of our full year gross margin target of 77% to 79%. Sales and marketing, technology and development and general and administrative expenses combined [ decreased ] 23% year-over-year, primarily as a result of $23.5 million of stock-based compensation expense related to return target options recognized in the second quarter of 2023. Stock-based compensation expense for the period was $15 million, at the low end of our prior outlook of $15 million to $17 million. Adjusted EBITDA for the second quarter, which excludes stock-based compensation and onetime items, was $46.2 million at a 36% margin, ahead of our prior outlook of $37 million to $39 million. This was driven primarily by higher-than-expected revenue and improved operating efficiencies. We continue to capitalize internally developed software related to new product development, which contributed to adjusted EBITDA in the quarter. Net income for the second quarter was $7.7 million or $0.05 per share, unchanged from the prior year period. Net income for the second quarter of 2023 includes the onetime charge of $23.5 million related to return target options as well as an income tax benefit of $29.1 million in the prior year period. Moving to our performance metrics. Our second quarter net revenue retention, or NRR, was 112% on a trailing 12-month basis. The total number of large advertising customers, which includes both mid-tier and top-tier clients with annual revenue of over $200,000 increased to 232, up 12% compared to 208 last year and up sequentially from 227 in the first quarter of 2024. The increase year-over-year was driven primarily by growth in mid-tier advertisers with annual spend between $200,000 and $1 million. Revenue from large advertising customers was 85% of total advertising revenue at the end of the period, up from 84% at the end of the second quarter of 2023. We continue to [Technical difficulty] and maintain a healthy balance sheet with cash and cash equivalents at the end of the second quarter of $71 million. During the quarter, we reduced our long-term debt by $30 million to $95 million. As a result, our net debt at the end of the second quarter was $24 million. Turning to guidance. For the third quarter ending September 30, 2024, we expect total revenue in the range of $137 million to $139 million or 15% year-over-year growth at the midpoint. Adjusted EBITDA for the third quarter is expected in the range of $48 million to $50 million or a [ 30% ] margin at the midpoint. For the full year 2024, we are raising the midpoint of our revenue outlook by $4 million. We now expect full year revenue of $538 million to $544 million or 14% year-over-year growth at the midpoint versus the prior range of $533 million to $541 million. We are raising our full year adjusted EBITDA guidance to $180 million to $184 million or a 34% margin at the midpoint versus the prior range of $174 million to $180 million at a 33% margin. As Lisa discussed, we are actively pursuing the Oracle opportunity following their decision to exit the advertising business. We have already won several Oracle deals that we expect to contribute in the fourth quarter and factored into our full year guide. We will include any additional wins in our future quarterly financial guidance. A few additional modeling points. Our gross profit margin outlook remains unchanged in the range of 77% to 79% for the full year, which reflects our higher hosting costs related to our video offerings. Third quarter stock-based compensation expense is expected in the range of $16 million to $17 million. Full year 2024 stock-based compensation expense is expected in the range of $63 million to $65 million compared to our prior expectation of $63 million to $66 million. We expect weighted average shares outstanding for the third quarter in the range of 161 million to 162 million shares and 160 million to 162 million shares for the full year. To conclude, our second quarter results reinforce our confidence in the financial goals we set for the full year. We are pleased to raise our 2024 revenue growth outlook to 14% at the midpoint and adjusted EBITDA margin to 34% at the midpoint. As a result, we expect to exceed the Rule of 40 for the third consecutive year since our IPO. With a strong balance sheet, low debt and healthy cash flow, we are investing in strategic initiatives to drive sustainable growth. Lisa and I are now ready to take your questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Andrew Marok of Raymond James.

[Andrew Marok, analyst]

Congrats on the quarter. I wanted to start on the optimization business. Thank you for the color on some of the moving pieces that went behind the acceleration this quarter. And maybe it's a bit unfair to ask it like this off the back of a strong quarter, but how is the visibility in this business given that it's bounced around a little bit in light of some of those premium product uptake drivers that you've been talking about?

[Lisa Utzschneider, executive]

I'll take that. So we continue to see strong momentum in the optimization business, putting double-digit growth, 11% growth on the Board for Q2. A couple of specific verticals to call out that have done well with optimization, including finance and CPG.

[Andrew Marok, analyst]

And then maybe one on Oracle and [ Moat ], if I could. Thank you, Tania, for some of the guidance assumptions there. But how much of the opportunity would you say is still outstanding? And is there anything maybe about [ Moat ] customers or some of their customer segments that positions you better as a go-forward vendor versus some of your competitors?

[Lisa Utzschneider, executive]

Sure. I'll take that one, too, Andrew. So we're in the stake of the Oracle opportunity, and we're [ planning ] to win. We've already won several deals and are currently pursuing dozens of RFPs with brand platforms and publishers, both in the U.S. and internationally. And we've all factored in a contribution from Oracle into our full year in fourth quarter. One other noteworthy thing to call out is since June, we've also hired over 20 former Oracle employees across several functions, including sales, solution engineers and customer support. The one deal, the signed deal that I am able to call out on the call is OpenX. So IAS, we have partnered with OpenX to provide OpenX with AI-driven brand safety, suitability and IVT.

[Operator]

Our next question comes from the line of Jason Helfstein of Oppenheimer & Company.

[Jason Helfstein, analyst]

What percent of clients have deployed TMQ for Meta at this point? And I guess, what inning are we in with Meta TMQ just more broadly? I mean, you said we're just scratching the surface. So I guess I can answer my own question just like the first inning. But any more color there as we're just thinking about the ramping of this business? And then a follow-up, how long will it take to win and onboard [ Moat ] clients? Will this happen this year or is that like take into next year?

[Lisa Utzschneider, executive]

Sure. I'll take those questions, Jason. So in terms of Meta measurement and TMQ, in particular, on social continues to be a tailwind for our business and especially with Meta, which is the largest social platform. Our Meta revenue increased more than any other platform, both sequentially and versus prior year. In terms of volumes, Meta volumes, they're up close to 50% since launch of TMQ in February. And from a client base, just over 50% of our social clients spend on Meta. You might remember, in first quarter, we reported over 100 clients adopted Meta TMQ after launching the product in February. In second quarter, we saw a significant increase in the number of Meta clients who adopted Meta TMQ. So we're really pleased with the adoption rate that we're seeing across all of the major social platforms, in particular, Meta and TMQ. And to answer your second question related to [ Moat ], so as I mentioned earlier to Andrew, we are playing to win Oracle customers. We are pursuing multiple RFPs. Dozens of RFPs actually are currently in the pipeline. As I'm sure you're aware, Oracle announced that they are exiting the business as of September 30th. So that does give you a time line to know when those Oracle clients are shutting off with Oracle. We have factored some revenue in our guide in fourth quarter. But I would say that the majority of those wins would be factored into 2025 since we'd have to integrate them, onboard them and get them live.

[Operator]

Our next question comes from the line of James Heaney of Jefferies Group.

[James Heaney, analyst]

Your guidance does imply a nice acceleration into the fourth quarter. I was just hoping you could talk about some of the tailwinds that you're seeing that give you confidence in your growth getting into what looks to be like high teens or maybe even low 20s in the holiday quarter? And then just curious on Q3, if you have any tailwind from Olympics?

[Tania Secor, executive]

Sure. James, this is Tania. So we're really pleased for -- with our execution in the first half of the year where we beat on our second quarter results across all 3 of our businesses. And as a result, we're rolling that forward into our full year guidance, raising our full year guidance by $4 million at the midpoint of the range. And as you noted, yes, we are expecting -- our guide does imply 17% growth in the second half of the year, up from 16% growth in the second half of the year in 2023. And there's multiple levers there, right? It's the strong execution and momentum we've seen to date. The cumulative impact of the new products that we've launched and our clients adopting those new products, we've been successful with new logos and expecting that trend to continue in the second half. And then we also have factored in a contribution from the Oracle clients that we've already won where we have line of sight. So net-net, really pleased to be raising our guide and also raising our profit as well.

[James Heaney, analyst]

And then also on Olympics for Q3?

[Tania Secor, executive]

Correct. Yes, we do expect some moderate impact from Olympics and political, but it's small.

[James Heaney, analyst]

And then maybe, Lisa, if I can try one more, just on -- there's a lot of new CTV inventory coming online with Amazon, Netflix, Disney. Could you just talk about how you're participating in that? And yes, just your position within CTV for some of these premium publishers?

[Lisa Utzschneider, executive]

Sure. So CTV -- there's a long runway with CTV. And as you mentioned, some of those premium players like Netflix, we see lots of opportunity. We do have a partnership with Netflix, where we're offering our core verification solutions on CTV. We've been running that partnership for over 1 year, and we'll continue to work with the various streaming platforms as they also open up their premium inventory for our verification solutions to offer them.

[Operator]

Our next question comes from the line of Omar Dessouky of Bank of America.

[Unknown Analyst]

It's [ Arthur ] on for Omar. So firstly, maybe just quickly on the guide. So full year guidance raised slightly. It looks like optimization did better than expected in the quarter. I'm just wondering like if your assumptions around sort of growth for optimization and measurement has changed at all? Like do you still expect, for example, management to outgrow optimization for the balance of the year? And then I have a follow-up question, if I could.

[Tania Secor, executive]

[ Arthur ], our -- from a revenue perspective, our views of growth in optimization and measurement are fairly unchanged since last time we provided guidance. At the midpoint of our guidance, full year guidance range for revenue, we're forecasting 14% growth, and we expect measurement growth to accelerate from the second quarter levels, primarily fueled by social. Optimization growth is expected to be slightly lower than the midpoint, but still accelerating from second quarter levels, continuing the trend we've seen from first quarter to second quarter into the second half of the year for all the reasons I talked about early, particularly on optimization with our new product launches and new logos. And we also anticipate high single-digit growth in publisher for the remainder of the year.

[Unknown Analyst]

And then just a follow-up question on Publica. I mean in -- within like CTV as serving, there are already some sort of like prominent players like FreeWheel or Magnite. I'm just curious like what you guys sort of see as a gap in the market that Publica is looking to fill?

[Lisa Utzschneider, executive]

Yes. So Publica continues to be a strategic differentiator for IAS. We posted double-digit growth with Publica in second quarter. That growth is driven by our strategic OEM partnerships, including Samsung. We're also continuing to invest in our non-Publica business too and just seeing healthy growth across the publisher business. In particular, with Publica, the areas where we are helping the brands is providing greater transparency to where their ads are running in programmatic CTV, because advertisers and brands are just tired of sort of the black box of programmatic CTV and they'd like to understand where their ads are running, whether it be by channel, by genre, by show. So that's an area where Publica is really leaning in and helping the brands as there's just so much opportunity as brands shift more and more of their linear TV dollars over into CTV. And then the second area where Publica is helping is solving [ for the ] frequency capping issues. So again, we're really pleased with the double-digit growth of Publica as our partners.

[Operator]

Our next question comes from the line of Matthew Cost of Morgan Stanley.

[Matthew Cost, analyst]

So just following up on the CTV point, there's been a lot of news coverage about new inventory coming online, that's been covered in some prior questions. But there's also been a discussion in the press about higher-priced inventory, giving away the lower price inventory at higher volumes. And given that you're a volume-driven business, I guess, on the CTV side, are you seeing any specific benefit from increased volumes on CTV? And then I have one follow-up as well.

[Lisa Utzschneider, executive]

So in terms of CTV, we are leaning into, as I mentioned before, partnerships like Netflix that are opening up their inventory on the premium side. In terms of the programmatic where we see the opportunity is [ biddable ], programmatic demand in CTV. Broadcasters, they'll continue to sell out their high production quality content. And there are new players in the field who sell fast and are dependent on programmatic revenue. And we feel there is an opportunity for IAS in both buying models. For example, Open Measurement SDK will allow for viewability and user engagement to be measured regardless of how a publisher has chosen to make their inventory available. So as I mentioned before, it's early days in CTV, and we're really looking forward to continuing to innovate on behalf of our partners.

[Matthew Cost, analyst]

And then just following up, just on the broader ad market, it's been kind of a mixed set of earnings results so far this quarter from the ad ecosystem. Are there any specific areas of strength or weakness from a vertical perspective that you're seeing and any jitters at all in the market so far this year?

[Lisa Utzschneider, executive]

Yes. So we're pleased with the fact that we have a diversified portfolio from a vertical perspective. We're seeing strength across all of our verticals. Our 2 strongest verticals were CPG and retail in second quarter, both increasing by double-digits. Measurement, in particular, driven by TMQ, we saw strength with CPG and retail. But I think it's also important to note that nearly every vertical increased in percent of growth in the quarter. And then in terms of optimization, CPG and finance were the 2 strongest verticals. So we'll continue to keep a close eye on this diversification because it's really important to maintain a healthy portfolio for our business.

[Operator]

Our next question comes from the line of Matt Farrell of Piper Sandler.

[Matthew Farrell, analyst]

Congrats on the really strong results. My question would just be around the EBITDA upside in Q2, pretty significant beat. Is there anything onetime in the beat? And as we think about moving forward, how should we be thinking about the different levers and the balance between margin expansion and revenue growth maybe in the back half and maybe into '25 as well?

[Tania Secor, executive]

Yes. We're really pleased with the beat in the second quarter on our EBITDA margin of 36% versus expectations. There were a couple of factors that drove that. First was the drop-through of the higher-than-expected revenue. Secondly, we had a higher level of capitalization of internally developed software as the R&D team was very busy and successful in launching several new products, and we aligned our costs in the quarter to better align with the ramping revenue in the third quarter and fourth quarter. As we move forward through the year, look, we're continuing to invest in the business to drive longer-term sustainable growth. We do not expect the same percentage of capitalized internally developed software as we move through the year, as we saw in the second quarter.

[Operator]

Our next question comes from the line of Yun Kim of Loop Capital.

[Yun Suk Kim, analyst]

Lisa, as your mix of business on social and CTV continues to increase, has your go-to-market motion changing at all? For instance, are you more focused on agencies than ever before rather than just selling directly to the brands? [ You're ] realizing that the agency maybe have a much bigger role in the decision-making process out there? And then also, is this also an opportunity to go after medium-sized and smaller advertisers? Or are you -- continue to increase your footprint in social channel?

[Lisa Utzschneider, executive]

Sure. Happy to take that. So in terms of brands and agencies in the sales motion, when it comes to driving the social adoption, both are equally as important, especially with the fact that the majority of the brands that are adopting TMQ, as I mentioned before, across the social platforms, they are Fortune 500 customers, and the majority of them are global customers. So the sales motion is typically engaging with the global account, advertiser directly, negotiating the terms and the agency executes the paperwork of the social platform. So our teams are double down, both with brands and with agencies. They're doing it globally to cross-sell, upsell our existing advertisers who are running our solutions across the social platforms and then also pursuing new brands to adopt our TMQ solutions on social. And then in terms of the mid-tier channel, we saw yet another quarter of double-digit revenue growth with our mid-market clients and increased adoption in context control. And we've also added new mid-market logos. It's a great demonstration of the execution that our team is doing, both in the second quarter and they're poised to drive adoption in the back half of the year.

[Yun Suk Kim, analyst]

Just another question. Obviously, we are seeing social channel growing fast, especially in the international market. Is that changing the overall pricing dynamics for the company? Are you seeing the similar attach rate? And any update on the previous solutions for Meta in terms of when we can expect that to ramp?

[Lisa Utzschneider, executive]

Yes. So there are a few things to call out about the social platforms. The first is we're seeing rapid adoption, especially in the international markets with our TMQ solution across the major social platforms, and we'll continue to drive that adoption. In addition to that, in Q2, we announced 3 social platform partnerships, new ones. First to market with Snap. We launched TMQ on Snap in June with 90 languages. We also launched Pinterest in second quarter and Reddit in early fourth quarter we'll launch. So we're very focused again to drive TMQ adoption across all of the major social platforms and driving additional coverage and opportunity to be able to expand and drive our TMQ across the new social platforms.

[Tania Secor, executive]

Yes. In terms of your question on international, yes, social was a driver of our overall international growth rate, with our international growth rate of 16% in the second quarter. And that adoption we saw both across Europe and Asia as well as contribution from new logos internationally.

[Lisa Utzschneider, executive]

And then just to follow up on your question regarding pre-bid solutions. Pre-bid on social, it's in high demand with the brands. The social platforms, they're leaning into the brands' demand to offer pre-bid solutions. We're well on our way. We're live with pre-bid social on platforms like TikTok, [ X ] and LinkedIn. And as the brands continue to request pre-bid on the other major social platforms, we're poised to launch those products.

[Operator]

Our next question comes from the line of Jason Kreyer of Craig-Hallum.

[Jason Kreyer, analyst]

Just on optimization, it seems like you had some nice pricing improvements with CPM up 9%. Curious if there's any particular solutions that are driving those pricing changes?

[Lisa Utzschneider, executive]

Sure. Yes, we were pleased with our optimization results in the second quarter with 11% growth year-over-year. You might recall in our last earnings call we talked about the robust product road map that we had in place to launch many new optimization products. We've launched some of those products second quarter. We'll continue to launch and drive adoption in the back half of the year. MFA in particular is seeing great adoption in second quarter. We had 100 campaigns in beta on MFA. And as we noted with MFA, we just have seen tremendous adoption. Other products include Context Control from the mid-tier clients, in particular, that we're driving new mid-tier logos with Context Control.

[Operator]

I'm showing no further questions at this time. I would now like to turn it back to Lisa Utzschneider, CEO, for concluding remarks.

[Lisa Utzschneider, executive]

Thanks, everyone, for joining today's call and for your questions. We're coming off a strong second quarter, and we look forward to building on our momentum in the back half of the year. We highlighted several growth drivers, and we will continue to lead with credibility and transparency as we execute on [indiscernible] [ goals ]. Have a great night.

[Operator]

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.