Hello and welcome to Inderes's TV. Today I'm joined by the CEO of Verve Remco Westermann once more. So first of all, Remco, welcome to Inderes's TV.

Thank you. Thank you for having me.

And as always, I've been gathering some questions from our investor community. So I will take them one by one. So without further ado, shall we begin?

Let's start.

All right. I thought we could start with the top line and the organic growth in particular, which slowed to 3.5% now in Q2, down from 6.4 in Q1. At the same time, the retention rate remained very strong at 99%. You're adding customer very fast. The net dollar expansion rate improved, but yet still below the 100% threshold, meaning that the drug is really existing clients spending less than a year ago. Uh, so how much of this development is macro on their side versus Verve not winning a bigger share of their wallets?

Yeah, that's a good question. You never know this. Uh, totally. But let's say your analysis. Correct. We grew 3.5% organically overall. We grew 6.5%, let's say, including non-organic. And but if you take in the 3.5%, uh, it was -5% on existing customers and plus eight and a half basically on new customers. So we grew strongly with new customers, but the existing customers did less. Um, that was mostly um, market. I mean, 75% of our revenues is in the US and we see that the US consumer, the, let's say not so well off consumer is really struggling a bit. And also companies that are more focusing on them. Um, so what we saw is that especially CPG and retail, but also within travel and some other sectors, uh, where we really saw, um, yeah, lower budgets than before, which also explains the 95% 5% less than a year ago. Um. That's something that we are of course not happy with. Uh, it's, but it's usual or it's not unusual. Let me say it that way. Um, the, let's say advertising is very much linked to the economy. If the economy goes worst, we have some cyclicality in there. Nevertheless, um, we have a lot of cool things, a lot of, um things that we have been investing and are investing in to further grow. Um, so that's what you see on the new customer growth. Um, the 8.5%. And yeah, even if the market is weak, we can grow. And as I wrote in my CEO word, I was also a bit disappointed about the 3.5%. I think this company can do better or not. I think I'm convinced this company can do that better and we will do better. And we indicated already that, um, let's say in Q3, we saw a bit of a turning point also going more to the positive, which a lot of the stuff, new sellers, etc. is coming in. And that's now not to, to get exaggerated in expectation for Q3, but for Q4, we expect it to be a strong quarter. And Q4 normally is for brand advertising almost QQ1. Um, how to say performance advertising is 3,040% above Q1. So Q4 is always a strong quarter. And that's also the reason that we didn't change our guidance because looking at the current numbers, it's more likely we end up more towards the lower side of the guidance, but with a strong Q4, which absolutely can happen. Uh, we could even end up on the higher side. So that's a bit of a background here. I hope that helps.

Yeah, yeah, for sure. And then looking at mobile in-app, which represent a large chunk of your revenue mix, uh, that was among the strongest channels in open internet programmatic space during the second quarter. And we saw, uh, peers such as magnet and pubmatic growing low double digits in this area. And all three said that the in-app demand was, was good at the, during the quarter. And then simultaneously, uh, your external SSP revenue was quite muted year on year as we talked about, uh, compared to these peers in particular. And we also saw that the ad impressions fell 10% year on year. And you have stated that a part of that was a deliberate choice to reduce the non premium inventory. Uh, could you first give a comment on the on the observations, on the in-app dynamic in this quarter and also sort of size the impact of this, uh, reducing, uh, or reduced non premium inventory over.

Yeah, yeah, it's three different questions. So let me tackle them one by one. Uh, first of all, in-app growth, the companies that you name McKnight, Nexon and Pubmatic basically hardly do any in-app so that they had higher growth numbers. It's clear because they're seeing that also in-app is attractive. Um, a lot of them are, uh, let's say partnering with us. So it's also something that, uh, let's say coming partly from our numbers, but if you look at the overall growth of those three companies, that was all a little bit over 10%. Um, so they're also not growing super fast, uh, a bit faster than we did. But, uh, let's say with 11% or so, not very fast. Um, and in-app is, yeah, let's say we do 90% of our revenues in-app, roughly a 90% for them. It's below 10%. I would say not, not, not knowing all the data exactly, but, uh, therefore that makes it makes a difference. The biggest growth actually in the market was on connected TV. That's where you saw players really grow much faster. The ones that focus on that, um, that's an area that we are not really strong in. Uh, it's on our roadmap, but you cannot do everything at the same time, but the stronger winners in the market, um, basically all one with, uh, with CTV. Um, so that's to your first point and the second, the SSP revenues. Um, yeah, we integrated the SSP or let's say we integrated the the technology stack last year. Um, we didn't see so much growth on the SSP, which, uh, actually on the ad views, as you already said, it was a decline. The decline was based on really, um, focusing on high margin, high quality traffic. So it's volume that we lost, um, which was deliberately mostly, um, but still, let's say we didn't grow too much that it might have had a bit of effect of this clean up, but it was more in the market, as I said before. Um, on top of it, we are experimenting a lot with um, AI routines because as you can see also with some competitors, we need to match demand and supply. And the better your AI, the better this match. But to get better, you also need to experiment. And we have used after now we integrated whole platform a lot of efforts and time on um, how to say optimizing our AI routines. So that was the, the second and I think I answered your third question already of the, on the ad impressions.

Yes. Thank you. Uh, and you mentioned the guidance briefly earlier in your response. Uh, and I thought we could turn to the full year outlook. Uh, now the Q3 is essentially done and you have kept your guidance unchanged so far, suggesting that it went reasonably well in Q3. And if we turn to Q4 instead, uh, what would specifically have to go wrong for you to still miss the low end of the 145 million adjusted EBITDA guidance?

Yeah. Good question. I mean, we expecting to hit the guidance to meet the guidance, as I said before, um, more likely on the lower side, but not to rule out that we can still also go more on the higher side. Um, that's the reason we kept the guidance. Um, yeah. What went wrong? I mean, if the economy really gets into disaster status, um, which I don't expect us is pretty resilient. We will still have some pains there. Um, if. Yeah, I think that's the main thing for the rest, I wouldn't know what helping us maybe a positive thing is, um, the midterms, the elections in the US. Uh, we see now some revenues coming in and we're not specialized in it, but it basically lifts the whole market. So October, November 6th November I think is the elections. Uh, we should also see a bit of extra demand in the market from that.

Yes. And now we're already on to my next question, which was about the midterm elections. And you said in your previous interview that you expect more from it relative to the FIFA World Cup that you didn't see as a revenue catalyst? Uh, but now that we are closer to the midterm elections, how how favorable do you see the setup for Verve into this?

Yeah, as I mentioned, we are not a specialized specialist in it, neither. We were in sports, I mean, which was the FIFA thing. Um, but the good thing about midterms, it's such big budgets that are being spent that we will see some of that on our exchange. Uh, we will see, um, let's say that CPMs in the market. So prices will go up because of the extra demand. So from our experience and nothing is always the same of course, but in an election period, which is either the full election every four years or the midterm two years later, we always see positive effect on the market. And we see in our platform a bit of that already, but it's still early. Um, yeah. October. Now we should expect some more things and especially towards the end of October.

All right. Let's shift to Sales build and revenue leadership. So the sales force has more than doubled from a year ago. And at the same time, as we mentioned earlier, the organic growth decelerated from Q1 to Q2. Uh, and people seem to be eager to know if there's any tangible metrics that shows that the investments are really working, given that we haven't yet seen that on the top line. And at what point do you conclude that it isn't working?

Good question. Uh, I can already confirm that I yield because we see the growth. And as earlier in the interview I said we had a negative on existing customers, but we had an 8.5% growth on new customers. And that's largely due to also new sellers that we have. So in that sense, we see the positive side of it and there's more to come. And, um, yeah, I don't see that this is a disaster or something like that. So very positive here. And we will further continue to ramp up the sales. Got it.

And then on the chief revenue officer, which was replaced in July, and that was the third change in that seat in a matter of months and without any separate communication to the market. So people are wondering the reasons behind this change and why it wasn't flagged more clearly, maybe. And given that the Sales build is the center of the H2 story for for Verve, and also the implication that these changes can have to the ramp and how we are keeping the sales organization stable through it.

Yeah, yeah. Good question. But one thing is wrong. I mean, or I count wrong, but it's the second change because we had a zero for a long time. And then we had a new one that was one. And then that one didn't stay so long. That's correct. For half a year. And we have a second now. And that's, uh. Alessandro. Giuliana. So in that sense, I think the tree is a little bit overdoing it. Um, it's the second change. And yes, um, let's say companies grow, we grow, we have doubled our revenues every three years in the last eight years. And with a growing company, sometimes you need to replace people. Sometimes people don't want to stay in their role anymore. And in this case, it didn't work out. We found out that out on both sides actually pretty fast, and we decided to split and change it. And Alessandro, who now took over is, uh, internal grown up. Uh, he's, let's say was managing our DSP before, so I'm super happy to have him promoted in there. But these things are part of running a company. And, uh, I've had this question more often and I'd say my answer is, should I keep somebody who is not fit for the role or who doesn't want to do it anymore in a role? Of course not, because that will not get you a good result. And, and hiring is not always perfect, but it's part of it. Um, why didn't we communicate it? Because normally we only communicate, uh, board and CEO and CFO changes. Um, that's according to, let's say the, the different governances. So that's the reason that we don't comment on each change in the, in the company, but we're also not hiding it. I mean, it's normally in our communication. Right?

And then turning to leverage capital allocation and cash. So the strategy seems to be growing out of the debt. Uh, I think you also mentioned that in our previous interview and the adjusted leverage rose to 3.3 in Q2. And one question on this, which is quite specific, but at what organic organic growth rate to do, you need to grow at in order to get back to the 1.5 to 2.5 range. And how far from that rate are you today?

Yeah. Thanks for this question. Um, where do I start? The target is to get under two and a half because we are totally aware that investors in Europe and if that's in Scandinavia, in Sweden or in in Germany, they don't like companies that have a high leverage, even if it's growth companies and now growing a bit less fast in the quarter, they even like it less. So we need to further deliver. Um, we would have delivered if we wouldn't have done the acquisitions in Q3 last year, but I'm still convinced it was really valuable for the mid and long term to do those acquisitions, even though they hurt the, the leverage on the short term. Um, Ocado and, and, um, I'd say both at a lot of value to this company. So it's for us, um, important to find the balance and the balance should now be more towards, let's say, delivering the 1.5 is on the low side. I rather would say let's get under 2.5. And to your question there's more ways of doing that. Or the one is of course increasing revenues. And by that EBITDA. That's a logical one. The other one is to pay less interest. So we are slowly buying back bonds in the market. Um yeah that saves interest payments of course. And the third way to do it of course is reducing cost. Um, also something that we are doing, and you saw quite a lot of adjustments in Q2. And that has to do with us optimizing our cost side with the integrated platform. Uh, we can be more efficient. We need less people with AI optimization agents, uh, taking over tasks. We need less people. And we did quite a bit of restructuring in Q2. We, for example, close to Berlin office. Um, and also in Q3, you will, let's say we continue with the further bring down the cost. So growing the revenues with that, growing the EBITDA, bringing down Sorry. And yeah. Of course. And then bring down the cost. Bring the EBITDA even more. And then also paying less interest. And looking at our working capital of course, um which we've also talked about, which is this non-recourse facility where we have um, let's say verbal, not yet official confirmation that we will get to $125 million from 100 million. So all those things help and will. Yeah, bring us further on the path of delivering.

And then on the capital allocation. And I think we have touched on this previous interview as well. So maybe if I ask it differently, uh, will sort of the capital allocation, uh, priority change if you come back to the 1.5 to 2.5, uh, leverage range in any larger ways relative to how you do now or see it now?

Yeah, it's a bit early to say.

I mean, um, capital allocation, there's more things to, to talk about. The one is dividends or share buybacks. They are only allowed if you're under 2.5 buy our bond terms. So that's one. Um then of course you could do other M&A but other things have not been decided. So at the moment our aim is really at delivering. And I think that's that's yeah, the capital allocation for the time being is really um, looking that we get towards the 2.5 below 2.5 as fast as possible.

And we have also talked a lot about the securitization program that you have. And in, in August, uh, the CFO, Christian, mentioned that the expansion of this program was day days from being signed, uh, beyond the 100 million cap that you have today toward 125 150 over time. Uh, given that the previous program's terms end in Q3 is the new one now signed? And, uh, what's the new frame and term?

Yeah, I would say the Term agreements are in touch, but we haven't done any formal communication, so I need to be a bit careful. As I said before, we have verbal commitment that it will be extended to 125. Um, so that's what we soon will also be communicating. I expect when the contracts are signed. So in that sense we are all in the in the green and on the path that Christian described. All right. Got it.

And then switching to the competitive landscape, we got a few questions there. Uh, if we look at the hard numbers, it's clear that the Walled gardens has been, uh, winning further market shares from the open internet for some time. And I think that you mentioned also this in, in Q2. Q2. Now, um, and one of the arguments that benefits the open internet that I think you also touched on during the capital markets day, uh, is the gap between time spent and share of wallet, but that sort of, uh, change hasn't been played out yet? Uh, rather the other way around. Given the hard numbers. Uh, do you believe that this gap will just self-correct itself over time, or are there any specific events or drivers that needs to materialize for closing this gap?

Good. Good point. I'm never a believer in things that heal by itself. So you need to act, of course. And um, let's say the Walled gardens have done a great job in building critical mass and getting a ton of good data and then really showing also outcomes with that. So they have their reports and all those things. Um, and if you are a marketing manager in an branded company, your CEO will not, let's say hurt you or not have any question marks. If you use Google or Facebook as an advertising partner, the problem that we have in the open market is that there are so many smaller companies that basically almost everything is subscale. And, um, so those are things that need to consolidate. There's too many parties here And that's what we are working on. I mean, we have in the last six years, been able to build one of the top advertising companies somewhere in the top ten, top 15. We are now in the US. So we have scale. We have an integrated platform that is transparent. We have data, we have tons of data, really good data. For example, the consent data, the data that we have, the how to say the, the, the search intent data. So those things really have built a good basis. Now we need to show really that our outcomes are at least as good or rather better. And they will be better because let's say the pricing, as you already said, is different in the open market, but then our outcomes are better. And that's the reason that we are investing into different segments like retail media, CPGs, where we really can show on the point of sale that a product was bought, and then you can really optimize the whole advertising chain before that, from sofa to the store and in the store to really make sure that you influence buying behavior. So that's what we're working on. And so it's not going by itself. But, um, yeah, looking at this sector, there's far too many people or too many companies in this open internet. Um, and there's not enough differentiation there. So those things is really what we're working on becoming one of the biggest ones, but also especially being differentiated. Right?

Another question we got was, uh, regarding the fact that you are one of very few players spanning the whole stack, DSP, SSP across in-app web, retail, media, CTV, digital, out of home. While most rivals deliberately pick a lane in the space and in a market that moves this fast, can you realistically out invest the focus specialist in every one of those areas? And where does Verve generally generally aim to lead versus where are you content to to be a fast follower in the market?

Yeah a clear question. Good question on strategy. Um, it's very clear. We are able to do everything. We believe strongly in working directly for advertiser and publisher because it's the most efficient for everybody in the chain and the most transparent with regards to channels we are specialist in. And that's where we're really strong. Uh, one of the leading companies in that and also in targeting on, on in-app and things. So that's where we really are excelling. So I agree a bit with the one who asked question. You cannot be top of the bill in everything of that. But we're really good in in-app, but we are also able to serve the other channels because we think that's important and we see that that's important because advertisers want to run it in multi-channels. They want to have the measuring results from all those channels. So it's super important to to be able to do also the other channels, but the focus is clearly on in-app because that's where we are leading. MM.

And then a question that I guess is along the lines of the current sales build. Uh, and the bet that you are doing there. So in June, Applovin open broad self-serve access where advertisers basically onboard themselves, no sales contact. And you already have self-serve pieces like match to one and self-serve accounts, uh, within Verve for advertisers. Uh, but yet your growth path is, uh, rapidly expanding high touch Salesforce. So why are more sales persons, uh, the right call for Verve rather than scaling self-serve to lower onboarding barrier?

Yeah, there's different pockets in the market. I mean, there is a market for self-serve and it might even grow in the future, especially with AI, it's much easier. You can really say, okay, I want to sell, I don't know, and uh, sparkling, uh, drink to um, youngsters. And then the AI does the rest that can work. Um, it's maybe not always 100% what you want yet it might develop in the direction, but the majority of the market is still into agencies that decide who they work with. And that's not self-serve. So you need to have those sellers to really open the doors to to get in there. And then you can use the self-serve for them. So it's not the definition of contradiction, but to open the doors to work with those agencies. And there's over 4000 agencies in the US. You need people that talk to them, work with them, and that makes sure that we get a chance to prove that our technology, our services are better.

And then as a closing question, I thought we could do a fun thought experiment. Uh, say we sit down and have the same interview in, in, in five years. And it turns out that Verve is generating north of 2 billion in revenue at a 30% adjusted EBITDA margin. Looking back, what did Verve do to get there?

I think it's possible. Uh, although I think also that let's say, um, if we are at 2 billion revenues, we should most likely do more than 35% of EBITDA because this is really a scaling business that we are in. And, um, with further scaling, with growing to that level to 2 billion level, we should be more profitable than at 35%. Um, yeah, what have we done? We have really executed on what we're doing now. We have really built moats, a differentiation, first of all, idealists. We are really good in that something that we proved. Um, then let's say we have our retail media that we're good in. We have quite a bit of oh and oh, exclusive inventory in games, for example. Uh, so we are differentiating more and more in the market with more differentiation, you can grow faster. Um, our AI routines, which I said before, so our platform is yield is better. So those are things. So it's not a single thing, but it's really growing, getting trusted by the agencies, working together with them and their clients And most of all also showing outcome proving outcomes.

And then on the flip side, if revenue turns out to be 20% lower than today and the margin is only 15% in that scenario, what went wrong?

I think that scenario shouldn't happen. I mean, it could be that the market is a disaster, but even then we should grow. So I don't believe in a scenario like that. If it's really if we have our act so bad together, we should sell the company. Um, because then we do something wrong. So in my view, uh, let's say doing 20% less, we are a growth company and we had the 3.5%, or let's say the six and a half overall is already very low for us. And going down is something that, uh, yeah, I don't see happening.

And with that, uh, Remco, thank you so much for joining me today. And thank you all for watching.

Thank you very much for having me.