Outbrain (OB) Q4 2024 Earnings Call February 27, 2025 07:45 PM ET Company Participants None - ExecutiveDavid Kostman - CEO & DirectorJason Kiviat - CFOAndrew Boone - Managing DirectorJames Heaney - SVP - Equity ResearchYgal Arounian - Director - Internet Equity Research Conference Call Participants Laura Martin - Managing Director, Senior Internet & Media Analyst Operator Good day, and welcome to Outbrain Incorporated Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. At this time, al ...

Credit Agreement and Financing - Outbrain Inc. has secured a credit agreement dated February 3, 2025, with Goldman Sachs Bank USA as the sole Administrative Agent[1]. - The agreement includes commitments for loans and borrowings, with specific sections detailing repayment procedures and interest elections[2]. - The credit facility is structured to support Outbrain's operational and strategic initiatives, including potential market expansions and product developments[3]. - The agreement outlines provisions for letters of credit and swingline loans, enhancing liquidity management capabilities[4]. - The credit agreement includes terms for increased costs and break funding payments, which may impact future financial performance[6]. - The agreement specifies conditions for additional borrowers, allowing for flexibility in capital structure[8]. - The credit facility is anticipated to support Outbrain's long-term growth strategy and operational efficiency[10]. - The credit agreement outlines specific terms for borrowing, including interest rates tied to the ABR, which reflects current market conditions[17]. - The Applicable Commitment Fee for the Revolving Facility Loans is 0.375% when the Secured Leverage Ratio is ≤ 1.70 to 1.00, and increases to 0.500% when the ratio exceeds 1.70 to 1.00[36]. - The Applicable Margin for Bridge Loans is set at 4.75% per annum for SOFR Loans and 3.75% per annum for ABR Loans, with a cumulative increase of 0.50% per annum on each three-month anniversary of the Closing Date[38]. - The Initial Borrower must pay any accrued additional interest and fees within ten Business Days if the corrected Applicable Commitment Fee is higher than what was previously paid[37]. - The minimum borrowing amount for ABR Revolving Facility Loans and SOFR Loans is $1,000,000, while for Swingline Loans it is $500,000[74]. - The Borrowing Minimum for ABR Revolving Facility Loans is set at $1,000,000[74]. - The Borrowing Multiple for ABR Revolving Facility Loans is $250,000, and for SOFR and Swingline Loans, it is $100,000[76]. Strategic Acquisitions - The Initial Borrower, Outbrain Inc., is acquiring all issued and outstanding shares of the Target, TEADS, as part of a strategic acquisition agreement[15]. - The acquisition is supported by a credit extension from lenders, indicating confidence in the growth potential of the combined entities[15]. - The Initial Borrower has requested credit from lenders to facilitate the acquisition, highlighting the financial backing for this strategic move[15]. - The acquisition is expected to enhance market presence and expand product offerings, aligning with the company's growth strategy[15]. - The Initial Borrower is focused on leveraging the acquisition to drive future revenue growth and market expansion[15]. Compliance and Financial Management - Outbrain's financial statements will be subject to compliance with the terms outlined in the credit agreement, ensuring transparency and accountability[9]. - The agreement includes provisions for maintaining compliance with financial covenants, ensuring fiscal responsibility post-acquisition[14]. - The Initial Borrower is committed to adhering to affirmative covenants, including maintaining accurate financial records and compliance with laws[14]. - The agreement includes provisions for quarterly lender calls, ensuring ongoing communication and transparency with stakeholders[14]. - The company is required to deliver corrected financial statements if inaccuracies in previously delivered statements would have led to a different Applicable Commitment Fee[37]. - The company is committed to compliance with all requirements of the Security Documents, ensuring the integrity of its financial agreements[116]. Financial Performance and Reporting - The company reported a consolidated total debt amounting to a significant principal, excluding certain liabilities such as letters of credit and non-recourse indebtedness[136]. - Consolidated total assets were determined on a pro forma basis, reflecting the total assets of the company and its subsidiaries[135]. - The consolidated net senior secured leverage ratio was calculated based on total debt secured by collateral relative to EBITDA for the most recent test period[134]. - The company reported a consolidated net income for the period, contributing to the overall EBITDA calculation[162]. - Total interest expense and related costs were included in the EBITDA calculation, reflecting the company's financing activities[163]. - The company incurred depreciation and amortization expenses, impacting the overall financial performance[164]. - The company projected expected cost savings from various initiatives, which are anticipated to enhance EBITDA by up to 15%[166]. - The net income from non-wholly-owned subsidiaries was included in the financial results, indicating additional cash flow potential[166]. - The company highlighted the importance of adjustments identified in its financial model to reflect operational efficiencies[166]. - Cash payments related to non-cash accruals were deducted from the current period's income, ensuring accurate financial reporting[166]. - The company emphasized the impact of foreign exchange gains or losses on its financial position, affecting overall valuation[165]. Definitions and Terms - The term "Benchmark" initially refers to the Term SOFR Reference Rate, which may be replaced by a Benchmark Replacement in case of a Benchmark Transition Event[61]. - The definition of "Asset Sale" includes any Disposition of assets with a Fair Market Value less than $5,000,000 or 2.0% of EBITDA for the most recently ended Test Period[44]. - "Capital Markets Indebtedness" refers to debt securities issued in public offerings or private placements, excluding commercial bank facilities and similar debts[93]. - "Cash Equivalents" include various forms of liquid assets such as government-backed securities and money market funds, with specific maturity and rating requirements[98]. - The term "Change in Law" encompasses any new laws or regulations adopted after the closing date that may affect the financial obligations of the company[101]. - "Change of Control" is defined by specific conditions under which the ownership structure of the company may change significantly[104]. - The "Collateral Agent" is identified as U.S. Bank Trust Company, National Association, responsible for managing collateral for secured parties[112]. - The "Collateral and Guarantee Requirement" mandates that certain agreements must be executed by the Initial Borrower and Guarantors on the closing date[113]. - "Cash Management Agreement" refers to agreements providing cash management services, including treasury management and electronic funds transfer services[100]. - "Captive Insurance Subsidiary" is defined as any subsidiary regulated as an insurance company[95]. - "Capitalized Lease Obligation" refers to liabilities from capital leases that must be reflected on the balance sheet according to GAAP[94].

Reports another quarter of accelerated growth and profitability, achieved Q4 guidance on Ex TAC gross profit and Adjusted EBITDA, and generated strong cash flow Closed acquisition of Teads in February 2025; Combined company operating under the name Teads NEW YORK, Feb. 27, 2025 (GLOBE NEWSWIRE) -- Outbrain Inc. (Nasdaq: OB), which is operating under the new Teads brand, announced today financial results for the quarter and full year ended December 31, 2024. Fourth Quarter and Full Year 2024 Key Financial Me ...

Core Viewpoint - Outbrain Inc. is expected to report fourth-quarter 2024 results on February 27, with revenue estimates suggesting a 7.1% growth year-over-year, but earnings are projected to be at breakeven compared to 9 cents per share a year ago [1][2]. Financial Performance - The Zacks Consensus Estimate for revenues in the upcoming quarter is $68.3 million, indicating a 7.1% increase from the previous year [2]. - Outbrain has a history of earnings surprises, having beaten the Zacks Consensus Estimate in the last four quarters with an average surprise of 144.6% [3]. - The company currently has an Earnings ESP of 0.00% and a Zacks Rank of 1 (Strong Buy) [4][5]. Partnerships and Growth Drivers - In Q3 2024, Outbrain renewed key agreements with publishing partners like Huffington Post and expanded partnerships with competitors, enhancing its premium inventory and performance data [6][7]. - The company’s revenue from supply beyond traditional feeds accounted for nearly 28% of total revenue in Q3 2024, up from 26% in Q3 2023, indicating consistent growth in this area [15]. Stock Performance and Valuation - Outbrain's stock has increased by 46.3% over the past year, underperforming its industry’s 58.3% rise but outperforming the S&P 500's 19.1% increase [8]. - The stock is currently trading at a trailing 12-month price-to-earnings ratio of 15.7X, significantly lower than the industry average of 42.1X, suggesting it is undervalued [12]. Financial Position - As of Q3 2024, Outbrain had $131 million in cash and no outstanding debt, providing a strong financial position to invest in technology and market expansion [14]. - The company has demonstrated sustainable growth with positive free cash flow for five consecutive quarters and has consistently exceeded adjusted EBITDA expectations [16][17]. Investment Considerations - Outbrain is well-positioned for future success due to its premium media partnerships, diversified offerings, and strong balance sheet, making it an attractive investment opportunity this earnings season [17][18].

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Group 1 - Outbrain Inc., now operating under the Teads brand, successfully closed a private offering of $637.5 million in senior secured notes due 2030 at an issue price of 98.087% [1][2] - The size of the offering was increased from the previously announced $625.0 million [2] - The proceeds from the offering were used to repay and cancel the indebtedness incurred under the senior secured bridge facility related to the acquisition of Teads [3] Group 2 - Outbrain and Teads combined on February 3, 2025, creating a new omnichannel outcomes platform for the open internet [4] - The new Teads focuses on driving full-funnel results for marketers by leveraging predictive AI technology and connecting quality media with brand creative [4] - The company partners with over 10,000 publishers and 20,000 advertisers globally, employing nearly 1,800 people across 36 countries [4]

Core Viewpoint - Outbrain Inc., now operating under the Teads brand, will release its Q4 and full year 2024 results on February 27, 2025, followed by a conference call to discuss the results and business outlook [1]. Group 1: Company Announcement - The company will announce its financial results before the market opens on February 27, 2025 [1]. - A conference call is scheduled for 8:30 a.m. (Eastern Time) on the same day to discuss the results [1]. Group 2: Conference Call Details - The conference call can be accessed by dialing 1-877-497-9071 for U.S. callers and 1-201-689-8727 for international callers [2]. - A replay of the call will be available two hours after it concludes, accessible at 1-877-660-6853 for U.S. callers and 1-201-612-7415 for international callers, with a passcode of 13750872 [2]. - The replay will be available until March 13, 2025 [2]. Group 3: Company Background - Outbrain Inc. and Teads merged on February 3, 2025, and are now operating under the Teads brand [4]. - The new Teads serves as an omnichannel outcomes platform for the open internet, focusing on delivering full-funnel results for marketers [4]. - The company partners with over 10,000 publishers and 20,000 advertisers globally, employing nearly 1,800 people across 36 countries [4].

Group 1: Outbrain Inc. (OB) - Outbrain Inc. shares increased by 7.5% to $7.20, with a higher-than-average trading volume, contrasting with a 0.7% loss over the past four weeks [1] - The stock's recent gains are attributed to Outbrain's acquisition of Teads, which is expected to strengthen its position in the open web advertising market [1] - The consensus EPS estimate for Outbrain is $0.12 per share, reflecting a year-over-year increase of 33.3%, with expected revenues of $70 million, up 9.7% from the previous year [2] Group 2: Earnings Estimates and Trends - The consensus EPS estimate for Outbrain has remained unchanged over the last 30 days, indicating that stock price movements may not sustain without earnings estimate revisions [3] - Outbrain currently holds a Zacks Rank of 1 (Strong Buy), suggesting strong potential for future performance [3] Group 3: Riot Platforms, Inc. (RIOT) - Riot Platforms, Inc. has a consensus EPS estimate of -$0.27, which is a 156.3% decrease from the previous year's report, and has seen a 1.7% change in estimates over the past month [4] - Riot Platforms currently holds a Zacks Rank of 2 (Buy), indicating a positive outlook compared to Outbrain [4]

Core Insights - Outbrain Inc. has successfully completed the acquisition of Teads, creating a unified omnichannel outcomes platform for the open internet, operating under the Teads brand [2][22] - The merger aims to address significant gaps in the advertising industry by providing a scaled end-to-end platform that drives outcomes from branding to purchase across various screens [4][8] Company Overview - The new Teads will be one of the largest open internet companies, with a combined advertising spend of approximately $1.7 billion for FY24, reaching 2.2 billion consumers [8] - The company will leverage Outbrain's predictive technology and AI optimization to enhance marketing solutions, offering a single partner for marketers to achieve measurable outcomes [3][22] Financial Highlights - The combined companies are preliminarily reporting an Ex-TAC Gross Profit of approximately $623 million and Adjusted EBITDA of approximately $230 million for 2024, including estimated synergies of $65-75 million [8][16] - The transaction value is approximately $900 million, consisting of $625 million in cash and 43.75 million shares of Outbrain [10][12] Strategic Goals - The merger is expected to create a stronger ecosystem that prioritizes beautiful creative experiences, trust, and transparency in media, ultimately delivering meaningful outcomes for all stakeholders [6][22] - The company anticipates achieving $65-75 million in annual revenue and cost synergies in FY 2026, with further opportunities for expanded synergies in subsequent years [15][28] Operational Structure - Outbrain CEO David Kostman will lead the combined company, with former Teads CEOs Jeremy Arditi and Bertrand Quesada serving as Co-Presidents [8] - The new Teads will directly partner with over 10,000 publishers and 20,000 advertisers globally, enhancing its market reach and operational capabilities [22]

Stock Performance - Outbrain Inc (OB) shares surged 63% in the past year, outperforming the industry's 28.5% rally but underperforming the Zacks S&P 500 Composite's 64.1% rise [1] - OB's performance significantly surpassed peers MediaAlpha Inc (MAX) and UiPath Inc (PATH), which gained 5.7% and declined 42.9% respectively over the past year [1] Strategic Partnerships - Outbrain strengthened premium media owner partnerships, securing renewed agreements with Huffington Post and Meteo in France [5] - The company secured new partnerships with Sports one Germany, Reuters, and Newsweek in Japan, demonstrating superior value proposition in global premium publisher relationships [6] AI Integration - OB is integrating AI into performance and creative offerings, enhancing efficiency and targeting sophisticated large-scale advertisers [7] - The creative automation suite uses AI to generate ad images, tailor content, and adjust headlines for better results [8] - Expanded collaboration with Microsoft Azure integrates Azure OpenAI solution into OB's services, improving ad creative solutions and ROI [9] Financial Outlook - Zacks Consensus Estimate projects 2024 revenues at $237.8 million (4.6% YoY growth) and 2025 revenues at $262.7 million (10.5% YoY growth) [10] - 2024 earnings estimated at 12 cents per share, reversing from 8 cents loss in 2023, with 2025 earnings projected at 30 cents per share (over 100% YoY increase) [11] Operational Challenges - OB reported operating profit of $5.7 million in Q4 2023 but incurred losses of $6.6 million, $5.6 million, and $3 million in Q1, Q2, and Q3 2024 respectively [12] - Q3 2024 revenues increased 5% QoQ but failed to fully recover losses, with cost control issues contributing to turbulent operating performance [13] - Traffic acquisition costs showed inconsistency, declining 11% in Q1 2024, slipping 4% in Q2, and increasing 4% in Q3 [14] Financial Metrics - OB's trailing 12-month ROE of 2.2% underperforms industry average of 3.4% [15] - Current ratio of 1.2 in Q3 2024 underperforms industry average of 2.16, declining 11.8% QoQ and 17.2% YoY [17] - Current ratio above 1 indicates ability to pay short-term debt, but declining cash and cash-equivalent balance may impact future liquidity [19] Investment Considerations - OB's AI integration focus and premium media partnerships, coupled with strong financial outlook, make it favorable for long-term investment [20] - Recent operating losses, weak capital returns, and liquidity concerns suggest monitoring execution of AI-driven strategies before further investment [21]