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Outbrain (OB) - 2023 Q1 - Quarterly Report
2023-05-09 20:07
Part I - Financial Information This section presents condensed consolidated financial statements, management's discussion of financial condition, results of operations, market risks, and controls. [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and accompanying detailed notes. [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Cash and cash equivalents | $73,214 | $105,580 | $(32,366) | | Total current assets | $480,787 | $500,504 | $(19,717) | | Total assets | $745,766 | $781,148 | $(35,382) | | Total current liabilities | $275,213 | $300,105 | $(24,892) | | Total liabilities | $537,845 | $563,362 | $(25,517) | | Total stockholders' equity | $207,921 | $217,786 | $(9,865) | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Revenue | $231,774 | $254,216 | $(22,442) | -8.8% | | Total cost of revenue | $190,619 | $200,285 | $(9,666) | -4.8% | | Gross profit | $41,155 | $53,931 | $(12,776) | -23.7% | | Total operating expenses | $50,465 | $53,857 | $(3,392) | -6.3% | | Loss from operations | $(9,310) | $74 | $(9,384) | N/A | | Net loss | $(5,605) | $(1,890) | $(3,715) | 196.6% | | Basic Net loss per common share | $(0.11) | $(0.03) | $(0.08) | 266.7% | [Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Net loss | $(5,605) | $(1,890) | $(3,715) | 196.6% | | Foreign currency translation adjustments | $(1,220) | $(741) | $(479) | 64.6% | | Unrealized gains on available-for-sale investments | $420 | $0 | $420 | N/A | | Total other comprehensive loss | $(800) | $(741) | $(59) | 8.0% | | Comprehensive loss | $(6,405) | $(2,631) | $(3,774) | 143.4% | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric | Balance – January 1, 2023 (in thousands) | Balance – March 31, 2023 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Additional Paid-In Capital | $455,831 | $458,726 | $2,895 | | Treasury Stock (Amount) | $(49,168) | $(55,523) | $(6,355) | | Accumulated Other Comprehensive Loss | $(9,913) | $(10,713) | $(800) | | Accumulated Deficit | $(179,024) | $(184,629) | $(5,605) | | Total Stockholders' Equity | $217,786 | $207,921 | $(9,865) | - The company repurchased **1,313,073 shares** for **$6.142 million** under its share repurchase program during Q1 2023[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Net cash used in operating activities | $(20,478) | $(2,641) | $(17,837) | | Net cash used in investing activities | $(4,039) | $(40,764) | $36,725 | | Net cash used in financing activities | $(7,411) | $(458) | $(6,953) | | Net decrease in cash, cash equivalents and restricted cash | $(32,364) | $(44,526) | $12,162 | | Cash, cash equivalents and restricted cash — Ending | $73,401 | $411,066 | $(337,665) | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section details accounting policies, financial instrument valuations, debt, equity, and other significant financial matters. [Note 1. Organization, Description of Business and Summary of Significant Accounting Policies](index=12&type=section&id=Note%201.%20Organization,%20Description%20of%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) - **Outbrain** is a leading recommendation platform powering the open web, generating revenue from marketers through user engagements with promoted recommendations on third-party media owners' online properties[30](index=30&type=chunk) - The company's advertiser solutions are mainly priced using a performance-based model, highly dependent on its proprietary algorithms to generate trustworthy and interesting recommendations[30](index=30&type=chunk) - No single marketer accounted for **10% or more of total revenue** for Q1 2023 or Q1 2022, indicating diversified advertiser relationships[40](index=40&type=chunk) [Note 2. Revenue Recognition](index=14&type=section&id=Note%202.%20Revenue%20Recognition) | Region | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | USA | $72,216 | $85,577 | | Europe, the Middle East, and Africa (EMEA) | $133,754 | $139,675 | | Other | $25,804 | $28,964 | | Total revenue | $231,774 | $254,216 | [Note 3. Acquisition](index=15&type=section&id=Note%203.%20Acquisition) - **Outbrain** acquired **video intelligence AG (vi)** on January 5, 2022, for approximately **$54.2 million**, paid in cash and **355,786 shares** of common stock (fair value **$4.2 million**)[49](index=49&type=chunk) - The acquisition expanded the Company's video product offerings to include in-stream high-quality video content, aiming for better user experience and advertiser value[49](index=49&type=chunk) [Note 4. Investments in Marketable Securities](index=15&type=section&id=Note%204.%20Investments%20in%20Marketable%20Securities) | Investment Type | March 31, 2023 Fair Value (in thousands) | December 31, 2022 Fair Value (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Money market funds | $31,566 | $39,198 | | U.S. Treasuries | $23,616 | $31,404 | | U.S. government bonds | $76,315 | $76,360 | | Commercial paper | $43,602 | $42,968 | | U.S. Corporate bonds | $100,947 | $94,934 | | Total cash equivalents and investments | $276,046 | $284,864 | - As of March 31, 2023, the total estimated fair value of debt securities in an unrealized loss position was **$225.8 million**, with aggregate unrealized losses of **$1.5 million**, all for less than twelve months[54](index=54&type=chunk) [Note 5. Goodwill and Intangible Assets](index=16&type=section&id=Note%205.%20Goodwill%20and%20Intangible%20Assets) - Goodwill balance remained constant at **$63.1 million** as of March 31, 2023, and December 31, 2022, with no accumulated impairments[56](index=56&type=chunk) | Intangible Asset | March 31, 2023 Net Carrying Value (in thousands) | December 31, 2022 Net Carrying Value (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Developed technology | $8,447 | $8,759 | | Customer relationships | $551 | $834 | | Publisher relationships | $9,121 | $9,956 | | Trade names | $3,996 | $4,136 | | Content provider relationships | $214 | $228 | | Other | $654 | $661 | | Total intangible assets, net | $22,983 | $24,574 | - Estimated amortization for identifiable acquisition-related intangible assets for the remainder of 2023 is **$2.6 million**, totaling **$23.0 million** through 2027 and thereafter[60](index=60&type=chunk) [Note 6. Balance Sheet Components](index=17&type=section&id=Note%206.%20Balance%20Sheet%20Components) [Accounts Receivable and Allowance for Credit Losses](index=17&type=section&id=Accounts%20Receivable%20and%20Allowance%20for%20Credit%20Losses) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Accounts receivable | $188,934 | $186,770 | | Allowance for credit losses | $(7,452) | $(5,512) | | Accounts receivable, net | $181,482 | $181,258 | - The provision for credit losses, net of recoveries, was **$2.794 million** for the three months ended March 31, 2023[61](index=61&type=chunk) [Prepaid Expenses and Other Current Assets](index=18&type=section&id=Prepaid%20Expenses%20and%20Other%20Current%20Assets) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Prepaid traffic acquisition costs | $25,702 | $23,149 | | Prepaid taxes | $10,507 | $15,280 | | Prepaid software licenses | $3,675 | $2,465 | | Total prepaid expenses and other current assets | $47,562 | $46,761 | [Property, Equipment and Capitalized Software, Net](index=18&type=section&id=Property,%20Equipment%20and%20Capitalized%20Software,%20Net) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Computer and equipment | $61,106 | $59,536 | | Capitalized software development costs | $70,836 | $67,685 | | Total property, equipment and capitalized software, net | $40,366 | $39,890 | [Accrued and Other Current Liabilities](index=18&type=section&id=Accrued%20and%20Other%20Current%20Liabilities) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Accrued traffic acquisition costs | $70,003 | $73,396 | | Accrued tax liabilities | $9,974 | $15,013 | | Total accrued and other current liabilities | $114,813 | $126,092 | [Note 7. Fair Value Measurements](index=19&type=section&id=Note%207.%20Fair%20Value%20Measurements) | Financial Instrument | March 31, 2023 Total Fair Value (in thousands) | December 31, 2022 Total Fair Value (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Cash equivalents and investments | $276,046 | $284,864 | | Restricted time deposit | $187 | $185 | | Severance pay fund deposits | $5,066 | $5,378 | | Foreign currency forward contract (asset) | $610 | $726 | | Foreign currency forward contract (liability) | $1,165 | $1,463 | - The company uses foreign currency forward exchange contracts to manage foreign currency risk, with net losses of **$0.1 million** in Q1 2023 and **$0.7 million** in Q1 2022 from mark-to-market adjustments[71](index=71&type=chunk)[72](index=72&type=chunk) - The company's **2.95% Convertible Senior Notes due 2026** had a carrying value of **$236.0 million** and an estimated fair value of **$180.4 million** as of March 31, 2023[73](index=73&type=chunk) [Note 8. Leases](index=21&type=section&id=Note%208.%20Leases) | Lease Type | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Operating lease right-of-use assets, net | $11,381 | $11,065 | | Finance lease assets (Property, equipment and capitalized software, net) | $1,394 | $1,858 | | Total lease assets | $12,775 | $12,923 | | Total lease liabilities | $13,526 | $13,693 | | Lease Cost Component | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Operating lease cost | $1,317 | $1,338 | | Finance lease cost (Depreciation & Interest) | $498 | $1,031 | | Total lease cost | $1,815 | $2,369 | [Note 9. Long-Term Debt](index=21&type=section&id=Note%209.%20Long-Term%20Debt) - The company has **$236.0 million** aggregate principal amount of **2.95% Convertible Senior Notes due July 27, 2026**, with interest payable semi-annually[78](index=78&type=chunk)[79](index=79&type=chunk) - The company maintains a **$75.0 million** revolving credit facility with **First Citizens Bank** (formerly **SVB**), with no outstanding borrowings and **$64.8 million** available capacity as of March 31, 2023[85](index=85&type=chunk)[89](index=89&type=chunk) [Note 10. Income Taxes](index=23&type=section&id=Note%2010.%20Income%20Taxes) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate | **23.4%** | **34.3%** | - The **Inflation Reduction Act of 2022** is not expected to have a material impact on the company's consolidated financial statements based on current income and share repurchase program[91](index=91&type=chunk) [Note 11. Commitments and Contingencies](index=23&type=section&id=Note%2011.%20Commitments%20and%20Contingencies) - The company is not currently a party to any material legal proceedings[93](index=93&type=chunk) - The **U.S. Department of Justice's Antitrust Division** is conducting a criminal investigation into hiring practices in the company's industry, with the company cooperating and believing its conduct did not violate applicable law[94](index=94&type=chunk) [Note 12. Stockholders' Equity](index=24&type=section&id=Note%2012.%20Stockholders'%20Equity) - The **Board** approved a new **$30 million** **share repurchase program** on December 14, 2022[97](index=97&type=chunk) | Metric | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | | Shares repurchased | **1,313,073** | | Fair value of repurchased shares (including commissions) | **$6.1 million** | | Remaining availability under program | **$23.9 million** | | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Accumulated Other Comprehensive Loss | $(10,713) | $(9,913) | [Note 13. Stock-based Compensation](index=24&type=section&id=Note%2013.%20Stock-based%20Compensation) | Expense Category | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Research and development | $502 | $537 | | Sales and marketing | $1,026 | $1,173 | | General and administrative | $1,083 | $1,023 | | Total stock-based compensation | $2,611 | $2,733 | - As of March 31, 2023, remaining unrecognized **stock-based compensation** expense was **$1.8 million** for unvested **stock options** and **$22.1 million** for unvested **RSUs**[103](index=103&type=chunk) [Note 14. Net Loss Per Common Share](index=27&type=section&id=Note%2014.%20Net%20Loss%20Per%20Common%20Share) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss per share (Basic & Diluted) | $(0.11) | $(0.03) | | Weighted-average shares - basic and diluted | **51,435,289** | **57,237,012** | - Approximately **14.7 million shares** (including convertible debt, options, warrants, and **RSUs**) were excluded from diluted net loss per share calculation for Q1 2023 due to their anti-dilutive effect[110](index=110&type=chunk) [Note 15. Subsequent Events](index=27&type=section&id=Note%2015.%20Subsequent%20Events) - On April 14, 2023, the company repurchased **$118.0 million** of **Convertible Notes** for **$96.2 million** cash, achieving a **19% discount** to principal[111](index=111&type=chunk) - This repurchase will result in a pre-tax gain of approximately **$22.6 million** in Q2 2023[111](index=111&type=chunk) - The company redeemed **$80.3 million** of marketable securities, incurring a **$0.6 million** loss, to finance the repurchase[111](index=111&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operating results, market risks, and future outlook. [Business Overview](index=28&type=section&id=Business%20Overview) - **Outbrain** is a leading recommendation platform for advertisers and digital media owners, reaching over **one billion unique users** globally[115](index=115&type=chunk) - The platform provides personalization, engagement, and monetization solutions to thousands of digital media properties and helps tens of thousands of advertisers attract new customers and grow their businesses[115](index=115&type=chunk) - **Outbrain** operates a two-sided marketplace, typically with exclusive control over the user experience, allowing for rapid testing and deployment of new formats[117](index=117&type=chunk) [Recent Developments](index=29&type=section&id=Recent%20Developments) [Partial Repurchase of Convertible Senior Notes](index=29&type=section&id=Partial%20Repurchase%20of%20Convertible%20Senior%20Notes) - On April 14, 2023, **Outbrain** repurchased **$118.0 million** of **Convertible Notes** for **$96.2 million** cash, representing a **19% discount** to principal[122](index=122&type=chunk) - This repurchase is expected to result in a pre-tax gain of approximately **$22.6 million** in the second quarter of 2023[122](index=122&type=chunk) [Impacts of SVB Closure](index=29&type=section&id=Impacts%20of%20SVB%20Closure) - The closure of **Silicon Valley Bank (SVB)** on March 10, 2023, negatively impacted Q1 2023 cash flow from operations due to delays in collecting customer payments[124](index=124&type=chunk) - **Outbrain** regained full access to **SVB** funds, and its **revolving credit facility** and foreign currency forward contracts remained in effect with **First Citizens Bank**, which acquired **SVB**[123](index=123&type=chunk) - While Q2 may be impacted by resolving March 2023 delays, the company expects limited to no impact on cash flow for the full year[124](index=124&type=chunk) [Macroeconomic Environment](index=30&type=section&id=Macroeconomic%20Environment) - Significant instability in worldwide economic conditions, including the Russia-Ukraine conflict, COVID-19 pandemic effects, inflation, increased interest rates, and bank disruptions, has negatively impacted advertisers[126](index=126&type=chunk) - These conditions make it difficult to forecast and plan future business activities and could lead to further reductions or delays in overall advertising demand and spending[126](index=126&type=chunk) [Factors Affecting Our Business](index=30&type=section&id=Factors%20Affecting%20Our%20Business) [Retention and Growth of Relationships with Media Partners](index=30&type=section&id=Retention%20and%20Growth%20of%20Relationships%20with%20Media%20Partners) - **Outbrain's** top **20 media partners** have used its platform for an average of over **seven years**, with typical contract lengths of **two to four years**, often exclusive[128](index=128&type=chunk) - Media partner net revenue retention was **80%** for the three months ended March 31, 2023, reflecting lower yields due to weaker demand and macroeconomic conditions[129](index=129&type=chunk)[157](index=157&type=chunk) - Revenue generated from new media partners contributed approximately **11% ($28.5 million)** to revenue growth for the three months ended March 31, 2023[130](index=130&type=chunk)[157](index=157&type=chunk) [User Engagement with Relevant Media and Advertising Content](index=30&type=section&id=User%20Engagement%20with%20Relevant%20Media%20and%20Advertising%20Content) - **Outbrain** optimizes algorithms for overall user experience rather than just price, aiming to cultivate user behavior patterns that compound engagement and improve long-term monetization[131](index=131&type=chunk) - Growth in user engagement is driven by enhancements to the recommendation engine, growth in data assets, and expansion on existing and new media partner properties[132](index=132&type=chunk) - **Click Through Rate (CTR)** for ads on the platform is currently less than **1%** of recommendations served, indicating significant opportunity for growth[132](index=132&type=chunk) [Advertiser Retention and Growth](index=31&type=section&id=Advertiser%20Retention%20and%20Growth) - **Outbrain's** value proposition to advertisers is to deliver measurable engagement that drives business outcomes and better **return on ad spend (ROAS)**[120](index=120&type=chunk)[133](index=133&type=chunk) - Over **30,000 unique advertisers** were active on the platform in 2022, and the company continues to grow programmatic partnerships to efficiently expand its advertiser base[135](index=135&type=chunk) [Expansion Into New Environments, New Content Experiences and New Ad Formats](index=31&type=section&id=Expansion%20Into%20New%20Environments,%20New%20Content%20Experiences%20and%20New%20Ad%20Formats) - **Outbrain** plans to expand its platform into new environments such as connected TVs (**CTV**), screens for autonomous vehicles, and pre-installed smartphone applications[137](index=137&type=chunk) - The acquisition of **video intelligence AG (vi)** in Q1 2022 expanded the company's video product offerings to include in-stream high-impact video formats[137](index=137&type=chunk) [Investment in Our Technology and Infrastructure](index=31&type=section&id=Investment%20in%20Our%20Technology%20and%20Infrastructure) - **Outbrain** continuously invests in technology and infrastructure, including algorithm improvements to deliver more relevant ads and enhance user engagement[139](index=139&type=chunk) - The **Smartlogic** product dynamically adjusts content arrangement and formats based on user preferences and media partner KPIs for a personalized feed experience[139](index=139&type=chunk) - The company's proprietary micro-services, **API-based cloud infrastructure** allows for an average of **300 code deployments per day**, supporting scalable and cost-effective growth[140](index=140&type=chunk) [Industry Dynamics](index=32&type=section&id=Industry%20Dynamics) - The digital advertising industry is rapidly evolving, with content consumption shifting online and increasing demand for targeted, performance-driven ads[141](index=141&type=chunk) - Regulatory changes, such as **Apple's Identifier for Advertisers policy** and **Google's cookie roadmap**, are impacting industry participants[141](index=141&type=chunk) - **Outbrain** believes its innovation focus, deep media partner relationships, and scale position it well to benefit from these industry dynamics and the shift towards accountability in digital advertising[141](index=141&type=chunk) [Seasonality](index=32&type=section&id=Seasonality) - The global advertising industry is seasonal, with the fourth quarter typically having the highest advertiser spending and the first quarter the lowest, impacting **Outbrain's** revenue[142](index=142&type=chunk) - Traffic acquisition costs generally increase commensurately with revenue, but may fluctuate due to revenue mix or contracted terms with media partners[142](index=142&type=chunk) [Definitions of Financial and Performance Measures](index=32&type=section&id=Definitions%20of%20Financial%20and%20Performance%20Measures) [Revenue](index=32&type=section&id=Revenue) - Revenue is generated from advertisers for clicks on and, to a lesser extent, impressions of their ads, recognized in the period the engagement occurs[143](index=143&type=chunk) - Revenue generation depends on advertiser demand and is impacted by seasonal factors, with advertisers having flexibility to adjust budgets and pricing in real time[144](index=144&type=chunk)[145](index=145&type=chunk) [Traffic Acquisition Costs](index=33&type=section&id=Traffic%20Acquisition%20Costs) - **Traffic acquisition costs (TAC)** are amounts owed to media partners for their share of revenue or based on guaranteed minimum rates for ad placements[146](index=146&type=chunk) - **TAC** are incurred when revenue is recognized and may not correlate directly with revenue fluctuations due to revenue mix or fixed rates with media partners[146](index=146&type=chunk) [Other Cost of Revenue](index=33&type=section&id=Other%20Cost%20of%20Revenue) - Other cost of revenue comprises data center management, hosting fees, data connectivity costs, depreciation, and amortization of capitalized software for revenue-generating technologies[147](index=147&type=chunk) [Operating Expenses](index=33&type=section&id=Operating%20Expenses) [Research and Development](index=33&type=section&id=Research%20and%20Development) - Research and development expenses are primarily personnel and related overhead costs for platform development and enhancement, including amortization of capitalized software for non-revenue generating infrastructure[149](index=149&type=chunk) [Sales and Marketing](index=33&type=section&id=Sales%20and%20Marketing) - Sales and marketing expenses include personnel, overhead, sales commissions, advertising, promotional activities, and facilities costs for marketing, client services, and brand promotion[150](index=150&type=chunk) [General and Administrative](index=33&type=section&id=General%20and%20Administrative) - General and administrative expenses include personnel, overhead, professional fees (accounting, audit, tax, legal, IT, consulting), facilities costs, insurance, and certain taxes[151](index=151&type=chunk) [Other Income (Expense), Net](index=33&type=section&id=Other%20Income%20(Expense),%20Net) - Other income (expense), net, includes interest income from cash and investments, interest expense on debt and leases, and foreign currency exchange gains and losses[153](index=153&type=chunk) [Benefit from Income Taxes](index=33&type=section&id=Benefit%20from%20Income%20Taxes) - Benefit from income taxes is based on the annual estimated effective tax rate, adjusted for discrete items, and includes federal, state, and foreign income taxes, deferred taxes, and valuation allowance changes[154](index=154&type=chunk) - Realization of deferred tax assets depends on future taxable income, considering historical and projected income, tax attributes, and net operating loss carryforwards[155](index=155&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) [Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022](index=34&type=section&id=Three%20Months%20Ended%20March%2031,%202023%20Compared%20to%20Three%20Months%20Ended%20March%2031,%202022) [Revenue](index=34&type=section&id=Revenue) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Revenue | $231,774 | $254,216 | $(22,442) | -8.8% | - Revenue included net unfavorable foreign currency effects of approximately **$5.8 million** in Q1 2023[157](index=157&type=chunk) - On a constant currency basis, revenue decreased by **$16.6 million**, or **6.5%**, compared to the prior year period[157](index=157&type=chunk) - Net revenue retention on existing media partners was **80%**, contributing to a **$51.6 million** decrease in revenue, while new media partners contributed **$28.5 million (11%)** in growth[157](index=157&type=chunk) [Cost of Revenue and Gross Profit](index=35&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Profit) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Traffic acquisition costs | $179,576 | $190,696 | $(11,120) | -5.8% | | Other cost of revenue | $11,043 | $9,589 | $1,454 | 15.2% | | Gross profit | $41,155 | $53,931 | $(12,776) | -23.7% | - **Traffic acquisition costs** as a percentage of revenue increased to **77.5%** in Q1 2023 from **75.0%** in Q1 2022 due to unfavorable revenue mix and lower performance[159](index=159&type=chunk) - Other cost of revenue increased primarily due to higher hosting fees, increased internal use software amortization, and network security costs[160](index=160&type=chunk) [Ex-TAC Gross Profit](index=35&type=section&id=Ex-TAC%20Gross%20Profit) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | **Ex-TAC Gross Profit** | $52,198 | $63,520 | $(11,322) | -17.8% | - **Ex-TAC Gross Profit** included net unfavorable foreign currency effects of approximately **$0.4 million** in Q1 2023[162](index=162&type=chunk) - The decrease was primarily driven by lower revenue, unfavorable revenue mix, and lower performance from certain deals[162](index=162&type=chunk) [Operating Expenses](index=35&type=section&id=Operating%20Expenses) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Total operating expenses | $50,465 | $53,857 | $(3,392) | -6.3% | - Operating expenses included net favorable foreign currency effects of approximately **$3.2 million** in Q1 2023[163](index=163&type=chunk) - The decrease was primarily due to lower personnel-related costs (**$3.7 million**) from headcount reductions and lower professional costs (**$1.9 million**), partially offset by a **$2.9 million** increase in provision for credit losses[163](index=163&type=chunk) [Total Other Income (Expense), Net](index=36&type=section&id=Total%20Other%20Income%20(Expense),%20Net) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Total other income (expense), net | $1,993 | $(2,952) | $4,945 | - The increase was primarily due to **$2.4 million** of income from the investment program initiated in July 2022 and a **$2.2 million** increase in net foreign currency gains[166](index=166&type=chunk) [Benefit from Income Taxes](index=36&type=section&id=Benefit%20from%20Income%20Taxes) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Benefit from income taxes | $(1,712) | $(988) | $(724) | | Effective tax rate | **23.4%** | **34.3%** | - The lower effective tax rate in Q1 2023 was primarily attributable to a deduction related to foreign-derived intangible income[167](index=167&type=chunk) [Net Loss](index=36&type=section&id=Net%20Loss) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Net loss | $(5,605) | $(1,890) | $(3,715) | 196.6% | [Adjusted EBITDA](index=36&type=section&id=Adjusted%20EBITDA) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | **Adjusted EBITDA** | $695 | $11,608 | $(10,913) | -94.0% | | **Adjusted EBITDA** as % of **Ex-TAC Gross Profit** | **1.3%** | **18.3%** | **-17.0%** | N/A | - **Adjusted EBITDA** included net favorable foreign currency effects of approximately **$2.6 million** in Q1 2023[172](index=172&type=chunk) [Non-GAAP Reconciliations](index=37&type=section&id=Non-GAAP%20Reconciliations) [Ex-TAC Gross Profit](index=37&type=section&id=Ex-TAC%20Gross%20Profit) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Gross profit | $41,155 | $53,931 | $(12,776) | -23.7% | | Other cost of revenue | $11,043 | $9,589 | $1,454 | 15.2% | | **Ex-TAC Gross Profit** | $52,198 | $63,520 | $(11,322) | -17.8% | [Adjusted EBITDA](index=37&type=section&id=Adjusted%20EBITDA) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Net loss | $(5,605) | $(1,890) | $(3,715) | 196.6% | | Depreciation and amortization | $5,941 | $6,268 | $(327) | -5.2% | | **Stock-based compensation** | $2,611 | $2,733 | $(122) | -4.5% | | **Adjusted EBITDA** | $695 | $11,608 | $(10,913) | -94.0% | [Free Cash Flow](index=38&type=section&id=Free%20Cash%20Flow) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Net cash used in operating activities | $(20,478) | $(2,641) | $(17,837) | | Purchases of property and equipment | $(3,749) | $(2,809) | $(940) | | Capitalized software development costs | $(2,853) | $(3,445) | $592 | | **Free cash flow** | $(27,080) | $(8,895) | $(18,185) | [LIQUIDITY AND CAPITAL RESOURCES](index=39&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) [Sources of Liquidity](index=39&type=section&id=Sources%20of%20Liquidity) | Metric | March 31, 2023 (in thousands) | | :-------------------------------- | :-------------------------------- | | Cash and cash equivalents | $73,214 | | Short-term investments | $178,529 | | Long-term investments | $65,951 | | **Revolving Credit Facility** (available capacity) | $64,784 | | Total available liquidity | $382,478 | - Approximately **$31.0 million** of cash and cash equivalents was held outside the United States by non-U.S. subsidiaries as of March 31, 2023, with no current plans for repatriation[191](index=191&type=chunk) [Material Cash Requirements](index=40&type=section&id=Material%20Cash%20Requirements) [Long-term debt](index=40&type=section&id=Long-term%20debt) - As of March 31, 2023, the company had **$236.0 million** principal amount of **Convertible Notes** due July 27, 2026[193](index=193&type=chunk) - Post-quarter, **$118.0 million** of these notes were repurchased, reducing the remaining outstanding principal to **$118.0 million**[194](index=194&type=chunk) [Other Contractual Cash Obligations](index=40&type=section&id=Other%20Contractual%20Cash%20Obligations) - After the April 2023 repurchase, the remaining long-term debt commitment is **$118 million**, with annual interest obligations reduced to approximately **$3.5 million** through 2026[196](index=196&type=chunk) [Share Repurchases](index=40&type=section&id=Share%20Repurchases) - The company repurchased **1,313,073 shares** for **$6.1 million** under its **$30 million** **share repurchase program** during Q1 2023[198](index=198&type=chunk) - As of March 31, 2023, **$23.9 million** remained available under the **share repurchase program**[198](index=198&type=chunk) [Capital Expenditures](index=40&type=section&id=Capital%20Expenditures) - **Capital expenditures** were **$3.7 million** in Q1 2023[200](index=200&type=chunk) - Anticipated **capital expenditures** for 2023 are between **$11 million** and **$14 million**, mainly for servers, related equipment, and leasehold improvements[200](index=200&type=chunk) [Cash Flows](index=41&type=section&id=Cash%20Flows) [Operating Activities](index=41&type=section&id=Operating%20Activities) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Net cash used in operating activities | $(20,478) | $(2,641) | $(17,837) | - The increase in cash used was primarily due to a **$13.1 million** decline in working capital, largely attributable to delays in customer payment collections after the **SVB** closure[202](index=202&type=chunk) [Investing Activities](index=41&type=section&id=Investing%20Activities) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Net cash used in investing activities | $(4,039) | $(40,764) | $36,725 | - The decrease in cash used was primarily due to **$34.2 million** less cash used for business acquisitions (**vi** acquisition in prior year) and **$2.9 million** net proceeds from marketable securities maturities[204](index=204&type=chunk) [Financing Activities](index=41&type=section&id=Financing%20Activities) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Net cash used in financing activities | $(7,411) | $(458) | $(6,953) | - The increase in cash used was primarily due to **$4.6 million** higher treasury share repurchases and a **$2.3 million** decline in proceeds from **stock option** and warrant exercises[205](index=205&type=chunk) [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - No material changes to critical accounting policies and estimates compared to the **2022 Form 10-K**[207](index=207&type=chunk) [Recently Issued Accounting Pronouncements](index=42&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) - Refer to Note 1 for information on recently issued accounting standards[208](index=208&type=chunk) [JOBS Act Transition Period](index=42&type=section&id=JOBS%20Act%20Transition%20Period) - As an emerging growth company, **Outbrain** has elected to use the extended transition period under the **JOBS Act** for adopting new or revised accounting standards[209](index=209&type=chunk) - This election may result in financial statements that are not comparable to companies that have adopted new standards as of public company effective dates[209](index=209&type=chunk) [Off-Balance Sheet Arrangements](index=42&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company does not engage in off-balance sheet financing arrangements or have interests in variable interest entities[210](index=210&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, including foreign exchange, interest rate, inflation, and credit risks. [Foreign Currency Risk](index=39&type=section&id=Foreign%20Currency%20Risk) - **Outbrain's** consolidated results are subject to foreign currency fluctuations, with operating expenses primarily denominated in U.S. Dollars, New Israeli Shekels, British pound sterling, and Euros[213](index=213&type=chunk) - A hypothetical **10% change** in weighted-average exchange rates would result in a **$1.9 million** unfavorable or favorable change to operating loss for Q1 2023[214](index=214&type=chunk) [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) - Interest rate risk primarily relates to cash and cash equivalents (**$73.2 million**) and marketable securities (**$244.5 million**) as of March 31, 2023[216](index=216&type=chunk) - Long-term debt of **$236.0 million** bears a fixed interest rate[215](index=215&type=chunk) - A **100-basis point change** in interest rates would alter the fair value of the investment portfolio by approximately **$1.6 million**[217](index=217&type=chunk) [Inflation Risk](index=39&type=section&id=Inflation%20Risk) - The business is subject to inflation risk, which could lead to higher costs (e.g., wages) and reduced ad spending[218](index=218&type=chunk) [Credit Risk](index=39&type=section&id=Credit%20Risk) - Financial instruments subject to credit risk include cash, cash equivalents, investments, and receivables[219](index=219&type=chunk) - The company monitors customer credit levels and counterparty creditworthiness for foreign currency forward contracts to mitigate risk[219](index=219&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting. [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, including **Co-Chief Executive Officers** and **Chief Financial Officer**, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023[220](index=220&type=chunk) [Changes in Internal Control over Financial Reporting](index=40&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - No material changes to internal control over financial reporting occurred during Q1 2023[221](index=221&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=40&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) - Management acknowledges that control systems provide only reasonable, not absolute, assurance and are subject to inherent limitations, including resource constraints[222](index=222&type=chunk) Part II - Other Information This section covers legal proceedings, risk factors, equity sales and repurchases, and other miscellaneous information. [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference from Note 11 of the condensed consolidated financial statements. - Information on legal proceedings is incorporated by reference from Note 11 of the condensed consolidated financial statements[223](index=223&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the company's **2022 Form 10-K**. - No material changes to risk factors as previously disclosed in the **2022 Form 10-K**[224](index=224&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no recent unregistered equity sales, details IPO proceeds use, and provides common stock repurchase data. [Recent Sales of Unregistered Equity Securities](index=41&type=section&id=Recent%20Sales%20of%20Unregistered%20Equity%20Securities) - No recent unregistered sales of equity securities[225](index=225&type=chunk) [Use of Proceeds](index=41&type=section&id=Use%20of%20Proceeds) - Net proceeds of **$145.1 million** from the **July 2021 IPO** were used for working capital, general corporate purposes, and the acquisition of **video intelligence AG**[226](index=226&type=chunk)[227](index=227&type=chunk) [Purchases of Equity Securities by the Issuer](index=41&type=section&id=Purchases%20of%20Equity%20Securities%20by%20the%20Issuer) | Period | Total shares purchased (1) | Average price paid per share (2) | Total shares purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :---------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------------------- | | January 2023 | **639,008** | **$4.31** | **613,992** | $27,366 | | February 2023 | **466,982** | **$5.12** | **464,384** | $25,002 | | March 2023 | **255,285** | **$4.74** | **234,697** | $23,897 | | TOTAL | **1,361,275** | **$4.67** | **1,313,073** | | - The total shares purchased include repurchases under the **$30 million** program and shares withheld for employee tax obligations on vested awards[229](index=229&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) No other information is reported in this item. - No other information is reported[230](index=230&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the **Certificate of Incorporation**, **Note Repurchase Agreement**, and certifications. - The exhibit index lists documents such as the **Certificate of Incorporation**, **Note Repurchase Agreement**, and various certifications (e.g., **Section 302 and 906 of Sarbanes-Oxley Act**)[233](index=233&type=chunk) Signatures The report is signed by David Kostman (**Co-CEO**) and Jason Kiviat (**CFO**) on May 9, 2023. - The report was signed by David Kostman (**Co-Chief Executive Officer**) and Jason Kiviat (**Chief Financial Officer**) on May 9, 2023[236](index=236&type=chunk)
Outbrain (OB) - 2022 Q4 - Annual Report
2023-03-15 20:04
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________ FORM 10-K ______________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to _______ Commission file number 001-40643 ______________________________ OUT ...
Outbrain (OB) - 2022 Q4 - Earnings Call Transcript
2023-03-02 18:10
Outbrain Inc. (NASDAQ:OB) Q4 2022 Results Conference Call March 2, 2023 8:30 AM ET Company Participants David Kostman - Co-CEO and Director Yaron Galai - Co-Founder, Chairman and Co-CEO Jason Kiviat - CFO Conference Call Participants Ross Sandler - Barclays Andrew Boone - JMP Securities Shweta Khajuria - Evercore ISI Ygal Arounian - Citigroup Laura Martin - Needham and Co Operator Good morning, and welcome to the Outbrain Inc. Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all p ...
Outbrain (OB) - 2022 Q3 - Earnings Call Transcript
2022-11-11 20:56
Outbrain Inc. (NASDAQ:OB) Q3 2022 Earnings Call Transcript November 10, 2022 8:30 AM ET Company Participants Anthony Erasmus - Investor Relations David Kostman - Co-Chief Executive Officer Yaron Galai - Co-Founder & Chief Executive Officer Jason Kiviat - Chief Financial Officer Conference Call Participants Laura Martin - Needham Ross Sandler - Barclays Andrew Boone - JMP Securities Shweta Khajuria - Evercore ISI Operator Good morning, and welcome to Outbrain Incorporated Third Quarter 2022 Earnings Conferen ...
Outbrain (OB) - 2022 Q3 - Quarterly Report
2022-11-10 21:49
[Part I - Financial Information](index=4&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Outbrain Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, are presented with detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased from **$795.9 million** to **$753.2 million** by September 30, 2022, driven by reduced cash, while stockholders' equity declined from **$256.8 million** to **$225.0 million** Condensed Consolidated Balance Sheets (Key Figures) | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $137,871 | $455,397 | | Total current assets | $482,211 | $676,084 | | Total assets | $753,199 | $795,890 | | Total current liabilities | $265,909 | $288,495 | | Total liabilities | $528,218 | $539,115 | | Total stockholders' equity | $224,981 | $256,775 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Outbrain reported a net loss of **$4.6 million** for Q3 2022, a significant improvement from a **$53.9 million** net loss in the prior-year period, largely due to the absence of one-time charges Condensed Consolidated Statements of Operations (Key Figures) | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $229,017 | $250,784 | $734,116 | $725,961 | | Total cost of revenue | $187,103 | $190,515 | $589,552 | $553,161 | | Gross profit | $41,914 | $60,269 | $144,564 | $172,800 | | Total operating expenses | $48,987 | $66,685 | $154,442 | $147,281 | | (Loss) income from operations | $(7,073) | $(6,416) | $(9,878) | $25,519 | | Net loss | $(4,624) | $(53,906) | $(16,832) | $(27,959) | | Basic EPS | $(0.08) | $(1.13) | $(0.30) | $(1.01) | - Net loss for Q3 2021 included a one-time charge of **$42.0 million** related to the exchange of senior notes upon IPO and **$16.5 million** of one-time incremental cumulative stock-based compensation expense[15](index=15&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) The company reported a comprehensive loss of **$8.6 million** for Q3 2022 and **$23.5 million** for 9M 2022, including net loss and other comprehensive losses from foreign currency and unrealized investment losses Condensed Consolidated Statements of Comprehensive Loss (Key Figures) | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(4,624) | $(53,906) | $(16,832) | $(27,959) | | Foreign currency translation adjustments | $(2,013) | $(1,187) | $(4,750) | $(1,027) | | Change in unrealized losses on available-for-sale investments | $(1,937) | — | $(1,937) | — | | Total other comprehensive loss | $(3,950) | $(1,187) | $(6,687) | $(1,027) | | Comprehensive loss | $(8,574) | $(55,093) | $(23,519) | $(28,986) | [Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)) Stockholders' equity decreased from **$256.8 million** at January 1, 2022, to **$225.0 million** at September 30, 2022, primarily due to net losses, other comprehensive losses, and **$42.4 million** in treasury stock repurchases Changes in Stockholders' Equity (Key Figures) | Metric (in thousands) | Jan 1, 2022 Balance | Sep 30, 2022 Balance | | :-------------------- | :------------------ | :------------------- | | Total Stockholders' Equity | $256,775 | $224,981 | | Treasury Stock, at cost | $(16,504) | $(42,394) | | Accumulated Deficit | $(157,250) | $(174,082) | - Share repurchases under the program amounted to **$16.1 million** for the three months ended September 30, 2022, and **$42.4 million** for the nine months ended September 30, 2022[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For 9M 2022, net cash used in operating activities was **$13.3 million**, a shift from **$61.1 million** provided in prior year, with **$274.6 million** used in investing and **$24.5 million** in financing activities Condensed Consolidated Statements of Cash Flows (Key Figures) | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | | Net cash (used in) provided by operating activities | $(13,267) | $61,077 | | Net cash used in investing activities | $(274,582) | $(11,360) | | Net cash (used in) provided by financing activities | $(24,528) | $340,043 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(317,552) | $388,782 | | Cash, cash equivalents and restricted cash — Ending | $138,040 | $482,849 | - Investing activities for 9M 2022 included **$209.0 million** in purchases of marketable securities and **$45.2 million** for the acquisition of vi[25](index=25&type=chunk) - Financing activities for 9M 2022 included **$25.9 million** in treasury stock repurchases[25](index=25&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail Outbrain's accounting policies, significant transactions, and financial instruments, covering business model, revenue, acquisitions, fair value, balance sheet, leases, goodwill, debt, taxes, commitments, equity, stock-based compensation, and EPS [1. Organization, Description of Business, Basis of Presentation, Use of Estimates and Recently Adopted Accounting Pronouncements](index=14&type=section&id=1.%20Organization%2C%20Description%20of%20Business%2C%20Basis%20of%20Presentation%2C%20Use%20of%20Estimates%20and%20Recently%20Adopted%20Accounting%20Pronouncements) Outbrain Inc. operates as a leading recommendation platform, generating revenue from marketers, with financial statements prepared under U.S. GAAP using estimates, and adopted new lease and credit loss standards with no material impact - Outbrain is a leading recommendation platform powering the open web, generating revenue from marketers through user engagements with promoted recommendations[32](index=32&type=chunk) - The company adopted ASU 2016-02 (Leases) on January 1, 2022, recognizing **$14.8 million** in operating right-of-use assets and **$15.2 million** in operating lease liabilities, with no material impact on results or cash flows[46](index=46&type=chunk)[47](index=47&type=chunk) - Early adopted ASU 2016-13 (Credit Losses) on January 1, 2022, with no material impact on condensed consolidated financial statements[48](index=48&type=chunk) [2. Revenue Recognition](index=16&type=section&id=2.%20Revenue%20Recognition) Outbrain generates revenue from marketers based on user engagements, with Q3 2022 revenue at **$229.0 million**, EMEA contributing **$125.8 million**, and USA **$76.7 million** - Revenue is generated from marketers for clicks and impressions on ads delivered across media partner properties[32](index=32&type=chunk) Revenue by Geographic Location | Region | Three Months Ended Sep 30, 2022 (In thousands) | Three Months Ended Sep 30, 2021 (In thousands) | | :----- | :--------------------------------------------- | :--------------------------------------------- | | USA | $76,728 | $94,599 | | EMEA | $125,766 | $125,102 | | Other | $26,523 | $31,083 | | Total | $229,017 | $250,784 | [3. Acquisition](index=17&type=section&id=3.%20Acquisition) Outbrain acquired video intelligence AG (vi) on January 5, 2022, for approximately **$55 million**, expanding video offerings and recognizing **$30.2 million** in goodwill and intangible assets - Acquisition of video intelligence AG (vi) completed on January 5, 2022, for approximately **$55 million**, expanding video product offerings[53](index=53&type=chunk) Total Purchase Consideration for vi Acquisition | Consideration Type | Amount (in thousands) | | :----------------- | :-------------------- | | Cash consideration paid on acquisition date | $37,311 | | Fair value of deferred consideration payable in cash | $10,936 | | Fair value of contingent consideration payable | $547 | | Stock consideration | $4,190 | | Total consideration | $52,984 | - The acquisition resulted in **$30.2 million** in goodwill and identifiable intangible assets including publisher relationships (**$10.8 million**), technology intangibles (**$10.0 million**), and tradenames (**$3.7 million**)[54](index=54&type=chunk) [4. Fair Value Measurements](index=18&type=section&id=4.%20Fair%20Value%20Measurements) Outbrain measures financial assets and liabilities at fair value, with total financial assets at **$311.7 million** as of September 30, 2022, and Convertible Notes fair value estimated at **$183.7 million** versus **$236.0 million** carrying value Fair Value of Financial Assets and Liabilities (September 30, 2022) | Category | Level I (in thousands) | Level II (in thousands) | Level III (in thousands) | Total (in thousands) | | :------- | :--------------------- | :---------------------- | :----------------------- | :------------------- | | Financial Assets | $71,287 | $240,380 | $— | $311,667 | | Financial Liabilities | $— | $2,908 | $— | $2,908 | Convertible Notes Carrying Value vs. Fair Value | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Carrying Value | $236,000 | $236,000 | | Estimated Fair Value | $183,679 | $234,348 | - The company uses foreign currency forward exchange contracts to manage foreign currency risk, recognizing gains of **$0.4 million** and losses of **$3.6 million** for the three and nine months ended September 30, 2022, respectively[61](index=61&type=chunk) [5. Balance Sheet Components](index=20&type=section&id=5.%20Balance%20Sheet%20Components) Outbrain's new investment program in July 2022 classified debt securities as available-for-sale, with cash equivalents and investments totaling **$306.2 million** and **$1.9 million** in unrealized losses, while net accounts receivable decreased to **$165.5 million** Cash Equivalents and Investments (September 30, 2022) | Type | Estimated Fair Value (in thousands) | | :--- | :---------------------------------- | | Money market funds | $71,287 | | U.S. Treasuries | $40,745 | | U.S. government bonds | $92,072 | | Commercial paper | $41,667 | | U.S. Corporate bonds | $60,381 | | Total | $306,152 | - Total estimated fair value of debt securities in an unrealized loss position was **$234.9 million**, with aggregate unrealized losses of **$1.9 million** as of September 30, 2022[64](index=64&type=chunk) Accounts Receivable, Net of Allowance for Credit Losses | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Accounts receivable | $170,654 | $197,216 | | Allowance for credit losses | $(5,128) | $(4,402) | | Accounts receivable, net | $165,526 | $192,814 | [6. Leases](index=22&type=section&id=6.%20Leases) Outbrain leases equipment and office facilities, with operating lease right-of-use assets at **$11.9 million** and liabilities at **$12.7 million** as of September 30, 2022, and total lease cost for 9M 2022 was **$6.4 million** Lease Assets and Liabilities (September 30, 2022) | Category | Amount (in thousands) | | :------- | :-------------------- | | Operating lease right-of-use assets, net | $11,927 | | Finance leases (Property, equipment and capitalized software, net) | $2,416 | | Total lease assets | $14,343 | | Operating lease liabilities (current + non-current) | $12,658 | | Finance lease liabilities (current + non-current) | $2,597 | | Total lease liabilities | $15,255 | Total Lease Expense (Nine Months Ended September 30, 2022) | Component | Amount (in thousands) | | :-------- | :-------------------- | | Operating lease cost | $3,751 | | Financing lease cost | $2,618 | | Total lease cost | $6,369 | [7. Goodwill and Intangible Assets](index=24&type=section&id=7.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased to **$63.1 million** by September 30, 2022, from **$32.9 million** due to the vi acquisition, with net intangible assets also increasing to **$26.0 million** and estimated future amortization of **$26.0 million** Goodwill Carrying Value | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------- | :----------- | :----------- | | Goodwill, opening balance | $32,881 | $32,881 | | Acquisition of vi | $30,182 | — | | Goodwill, closing balance | $63,063 | $32,881 | Net Carrying Value of Intangible Assets (September 30, 2022) | Intangible Asset | Net Carrying Value (in thousands) | | :--------------- | :-------------------------------- | | Developed technology | $9,071 | | Customer relationships | $1,073 | | Publisher relationships | $10,704 | | Tradenames | $4,212 | | Content Provider Relationships | $242 | | Other | $674 | | Total intangible assets, net | $25,976 | - Estimated amortization for identifiable acquisition-related intangible assets is **$26.0 million** for future periods[86](index=86&type=chunk) [8. Long-Term Debt](index=25&type=section&id=8.%20Long-Term%20Debt) Outbrain's long-term debt includes **$236.0 million** in 2.95% Convertible Senior Notes due 2026 and a **$75.0 million** revolving credit facility with **$66.6 million** available and no outstanding borrowings - On July 27, 2021, the company exchanged **$200 million** senior subordinated secured notes for **$236 million** 2.95% Convertible Senior Notes due 2026[88](index=88&type=chunk) - The 2021 Revolving Credit Facility provides up to **$75.0 million**, with **$66.6 million** available and no outstanding borrowings as of September 30, 2022[95](index=95&type=chunk)[100](index=100&type=chunk) - The company was in compliance with all financial covenants under its 2021 Revolving Credit Facility as of September 30, 2022[100](index=100&type=chunk) [9. Income Taxes](index=27&type=section&id=9.%20Income%20Taxes) Outbrain's effective tax rate for Q3 and 9M 2022 was **20.2%** and **2.9%**, respectively, influenced by earnings mix and tax positions, with no material impact expected from the Inflation Reduction Act Effective Tax Rates | Period | Effective Tax Rate | | :----- | :----------------- | | 3 Months Ended Sep 30, 2022 | 20.2% | | 9 Months Ended Sep 30, 2022 | 2.9% | | 3 Months Ended Sep 30, 2021 | (10.2)% | | 9 Months Ended Sep 30, 2021 | (36.2)% | - The Inflation Reduction Act of 2022 is not expected to have a material impact on consolidated financial statements[103](index=103&type=chunk) [10. Commitments and Contingencies](index=27&type=section&id=10.%20Commitments%20and%20Contingencies) Outbrain has no material legal proceedings but is cooperating with a DOJ criminal investigation into industry hiring practices, believing its conduct complied with applicable law - No material legal proceedings are currently pending or threatened[105](index=105&type=chunk) - Cooperating with a U.S. Department of Justice criminal investigation into industry hiring practices, believing its conduct complied with applicable law[106](index=106&type=chunk) [11. Stockholders' Equity](index=28&type=section&id=11.%20Stockholders'%20Equity) Outbrain's Board approved a **$30 million** stock repurchase program on February 28, 2022, with **$23.6 million** used to repurchase **4,782,643** shares by September 30, 2022, and **$6.4 million** remaining - Board approved a **$30 million** stock repurchase program on February 28, 2022[108](index=108&type=chunk) Share Repurchases Under Program | Period | Shares Repurchased | Fair Value of Shares Repurchased (in thousands) | | :----- | :----------------- | :-------------------------------------------- | | 3 Months Ended Sep 30, 2022 | 3,394,326 | $16,078 | | 9 Months Ended Sep 30, 2022 | 4,782,643 | $23,579 | - As of September 30, 2022, **$6.4 million** remained available under the repurchase program[108](index=108&type=chunk) [12. Stock-based Compensation](index=29&type=section&id=12.%20Stock-based%20Compensation) Stock-based compensation expense for Q3 and 9M 2022 was **$2.7 million** and **$8.8 million**, respectively, a decrease from prior year due to one-time IPO-contingent awards, with **$31.4 million** unrecognized expense as of September 30, 2022 Stock-based Compensation Expense | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $447 | $1,685 | $1,740 | $2,379 | | Sales and marketing | $1,153 | $5,587 | $3,736 | $6,926 | | General and administrative | $1,105 | $11,176 | $3,319 | $12,091 | | Total stock-based compensation | $2,705 | $18,448 | $8,795 | $21,396 | - Q3 2021 included **$16.5 million** of one-time incremental cumulative stock-based compensation expense for IPO-contingent awards[117](index=117&type=chunk) - As of September 30, 2022, unrecognized stock-based compensation expense was **$2.5 million** for stock options and **$28.9 million** for RSUs[117](index=117&type=chunk) [13. Net Loss Per Common Share](index=30&type=section&id=13.%20Net%20Loss%20Per%20Common%20Share) Outbrain reported a basic and diluted net loss per common share of **$(0.08)** for Q3 2022 and **$(0.30)** for 9M 2022, with potentially dilutive shares excluded due to anti-dilutive effect Net Loss Per Common Share | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss per share: Basic | $(0.08) | $(1.13) | $(0.30) | $(1.01) | | Net loss per share: Diluted | $(0.08) | $(1.13) | $(0.30) | $(1.01) | - Approximately **15.3 million** potentially dilutive shares were excluded from diluted EPS for the three and nine months ended September 30, 2022, due to anti-dilutive effect[126](index=126&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Outbrain's financial condition and operations, highlighting Q3 2022 revenue decrease and 9M increase, both impacted by foreign currency and macroeconomic conditions, detailing the vi acquisition, business drivers, and non-GAAP reconciliations [Overview](index=32&type=section&id=Overview) Outbrain is a leading recommendation platform providing personalization, engagement, and monetization solutions to digital media properties, serving over **1 billion** monthly unique users and **24,000** advertisers in 2021 - Outbrain is a leading recommendation platform for the open web, providing personalization, engagement, and monetization solutions[129](index=129&type=chunk) - In 2021, the platform served over **1 billion** monthly unique users and **24,000** advertisers, delivering over **10 billion** recommendations daily[135](index=135&type=chunk) Financial Performance Summary | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $229.0M (down 8.7% YoY) | $250.8M | $734.1M (up 1.1% YoY) | $726.0M | | Gross Profit | $41.9M (down 30.5% YoY) | $60.3M | $144.6M (down 16.3% YoY) | $172.8M | | Net Loss | $4.6M | $53.9M | $16.8M | $28.0M | | Adjusted EBITDA | $1.7M (down 91.5% YoY) | $19.9M | $19.2M (down 70.5% YoY) | $65.0M | [Acquisition of video intelligence AG](index=33&type=section&id=Acquisition%20of%20video%20intelligence%20AG) Outbrain acquired video intelligence AG (vi) on January 5, 2022, for approximately **$55 million**, expanding video product offerings to enhance user experience and advertiser value - Acquisition of Swiss-based contextual video technology company, video intelligence AG (vi), completed on January 5, 2022, for approximately **$55 million**[137](index=137&type=chunk) - The acquisition expanded Outbrain's video product offerings to include in-stream high-quality video content, aiming to deliver better user experience and advertiser value[137](index=137&type=chunk) [Macroeconomic Environment](index=33&type=section&id=Macroeconomic%20Environment) The macroeconomic environment, characterized by inflation and recession concerns, negatively impacted Outbrain's advertisers, leading to reduced spending and ongoing risks for the company's business - Macroeconomic environment (inflation, recession concerns, currency fluctuations, supply chain disruptions) negatively impacted advertisers and Outbrain's business[138](index=138&type=chunk) - These conditions make forecasting difficult and could lead to further reductions in advertising demand and spending[138](index=138&type=chunk) [Factors Affecting Our Business](index=34&type=section&id=Factors%20Affecting%20Our%20Business) Outbrain's business is driven by retaining media partners, enhancing user engagement, expanding its advertiser base, investing in technology, and adapting to evolving industry dynamics and privacy regulations [Retention and Growth of Relationships with Media Partners](index=34&type=section&id=Retention%20and%20Growth%20of%20Relationships%20with%20Media%20Partners) Media partner net revenue retention was **81%** for Q3 2022 and **90%** for 9M 2022, impacted by weaker demand and foreign currency, with new partners contributing approximately **11%** to revenue growth - Media partner net revenue retention was **81%** for Q3 2022 and **90%** for 9M 2022, primarily due to weaker demand and unfavorable foreign currency effects[142](index=142&type=chunk) - New media partners contributed approximately **11%** to revenue growth for both the three and nine months ended September 30, 2022[143](index=143&type=chunk) [User Engagement with Relevant Media and Advertising Content](index=34&type=section&id=User%20Engagement%20with%20Relevant%20Media%20and%20Advertising%20Content) Outbrain prioritizes user engagement through proprietary algorithms for personalized content and ads, aiming for long-term monetization and creating a growth flywheel through enhanced algorithms and data - Focuses on improving user experience and engagement through personalized recommendations, rather than maximizing price per engagement[144](index=144&type=chunk) - Growth in user engagement is driven by algorithm enhancements, data assets, content/advertising index quality, and platform expansion[145](index=145&type=chunk) [Advertiser Retention and Growth](index=34&type=section&id=Advertiser%20Retention%20and%20Growth) Outbrain aims to grow its advertising business by maximizing user engagement and ROAS, attracting new advertisers, and expanding programmatic partnerships, having served over **24,000** unique advertisers in 2021 - Strategy focuses on delivering engagement and ROAS for advertisers, not optimizing for ad price[146](index=146&type=chunk)[147](index=147&type=chunk) - Over **24,000** unique advertisers were active on the platform in 2021, with continued growth in programmatic partnerships[148](index=148&type=chunk) [Expansion Into New Environments, New Content Experiences and New Ad Formats](index=35&type=section&id=Expansion%20Into%20New%20Environments%2C%20New%20Content%20Experiences%20and%20New%20Ad%20Formats) Outbrain is expanding into new digital environments like CTV and pre-installed apps, developing solutions for evolving content and ad formats, with the vi acquisition enhancing video product offerings including In-Stream video ads - Expanding into new environments (CTV, autonomous vehicle screens, smartphone native feeds) and new content/ad formats[149](index=149&type=chunk)[150](index=150&type=chunk) - Acquisition of vi in Q1 2022 expanded video product offerings to new formats and environments, including In-Stream video ads and CTV[150](index=150&type=chunk) [Investment in Our Technology and Infrastructure](index=35&type=section&id=Investment%20in%20Our%20Technology%20and%20Infrastructure) Outbrain continuously invests in technology and infrastructure, including algorithm improvements and its Smartlogic product, supported by a proprietary micro-services, API-based cloud infrastructure enabling scalable growth - Continuous investment in technology and infrastructure, including algorithm improvements and Smartlogic product for personalized feeds[152](index=152&type=chunk) - Proprietary micro-services, API-based cloud infrastructure allows for scalable growth and an average of **300** code deployments per day[152](index=152&type=chunk) [Industry Dynamics](index=35&type=section&id=Industry%20Dynamics) The digital advertising industry is rapidly growing, with Outbrain well-positioned to address evolving dynamics like user privacy and platform changes due to its innovation, strong media partner relationships, and focus on measurable ROAS - Digital advertising is a rapidly evolving and growing industry, with increasing online content consumption and demand for targeted ads[153](index=153&type=chunk) - Company is well-positioned to address industry changes (e.g., user privacy, platform leader policies) due to innovation, media partner relationships, and focus on ROAS[153](index=153&type=chunk) [Seasonality](index=36&type=section&id=Seasonality) The global advertising industry, including Outbrain, experiences seasonal trends with Q4 historically highest and Q1 lowest spending, causing quarterly revenue fluctuations expected to continue due to advertiser budget cycles - Global advertising industry experiences seasonal trends; Q4 historically highest spending, Q1 lowest[154](index=154&type=chunk) - Revenue fluctuates quarterly due to seasonality, advertiser budget cycles, and macroeconomic conditions[154](index=154&type=chunk) [Definitions of Financial and Performance Measures](index=36&type=section&id=Definitions%20of%20Financial%20and%20Performance%20Measures) This section defines Outbrain's key financial and performance measures, including Revenue, Traffic Acquisition Costs, Other Cost of Revenue, Operating Expenses, Other Income (Expense), Net, and (Benefit) Provision for Income Taxes - Revenue is generated from advertisers based on clicks and impressions on ads[155](index=155&type=chunk) - Traffic acquisition costs are amounts owed to media partners for their share of revenue[158](index=158&type=chunk) - Operating expenses include research and development, sales and marketing, and general and administrative costs, with personnel costs as the largest component[160](index=160&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) Outbrain's operations show Q3 2022 revenue decrease but 9M increase, both impacted by foreign currency, with gross profit and Adjusted EBITDA declining due to revenue mix and increased operating expenses, despite reduced net loss from prior-year one-time charges [Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021](index=38&type=section&id=Three%20Months%20Ended%20September%2030%2C%202022%20Compared%20to%20the%20Three%20Months%20Ended%20September%2030%2C%202021) Revenue decreased by **8.7%** to **$229.0 million**, with a **3.1%** decrease on a constant currency basis, primarily due to lower net revenue retention (**81%**) on existing media partners, partially offset by **11%** growth from new partners Q3 2022 vs. Q3 2021 Financial Highlights | Metric (in thousands) | Q3 2022 | Q3 2021 | Change ($) | Change (%) | Constant Currency Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :---------- | :--------------------------- | | Revenue | $229,017 | $250,784 | $(21,767) | (8.7)% | (3.1)% | | Gross Profit | $41,914 | $60,269 | $(18,355) | (30.5)% | (27.7)% | | Ex-TAC Gross Profit | $52,670 | $68,115 | $(15,445) | (22.7)% | (20.2)% | | Operating Expenses | $48,987 | $66,685 | $(17,698) | (26.5)% | (20.8)% | | Net Loss | $(4,624) | $(53,906) | $49,282 | 91.4% | N/A | | Adjusted EBITDA | $1,686 | $19,857 | $(18,171) | (91.5)% | N/A | - Revenue decrease included **$14.0 million** net unfavorable foreign currency effects[172](index=172&type=chunk) - Net loss improvement was primarily due to the absence of **$42.0 million** one-time charges related to senior notes exchange and **$16.5 million** one-time stock-based compensation expense in Q3 2021[186](index=186&type=chunk) [Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021](index=41&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202022%20Compared%20to%20the%20Nine%20Months%20Ended%20September%2030%2C%202021) Revenue increased by **1.1%** to **$734.1 million**, or **5.4%** on a constant currency basis, driven by **11%** growth from new media partners, partially offset by lower net revenue retention (**90%**) on existing partners 9M 2022 vs. 9M 2021 Financial Highlights | Metric (in thousands) | 9M 2022 | 9M 2021 | Change ($) | Change (%) | Constant Currency Change (%) | | :-------------------- | :---------- | :---------- | :---------- | :---------- | :--------------------------- | | Revenue | $734,116 | $725,961 | $8,155 | 1.1% | 5.4% | | Gross Profit | $144,564 | $172,800 | $(28,236) | (16.3)% | (13.4)% | | Ex-TAC Gross Profit | $175,519 | $195,355 | $(19,836) | (10.2)% | (7.5)% | | Operating Expenses | $154,442 | $147,281 | $7,161 | 4.9% | 9.4% | | Net Loss | $(16,832) | $(27,959) | $11,127 | 39.8% | N/A | | Adjusted EBITDA | $19,158 | $65,021 | $(45,863) | (70.5)% | N/A | - Revenue increase included **$31.1 million** net unfavorable foreign currency effects[188](index=188&type=chunk) - Net loss improvement was primarily due to the absence of **$42.0 million** one-time charges related to senior notes exchange and **$16.5 million** one-time stock-based compensation expense in 9M 2021[198](index=198&type=chunk) [Non-GAAP Reconciliations](index=43&type=section&id=Non-GAAP%20Reconciliations) Outbrain uses non-GAAP measures like Ex-TAC Gross Profit, Adjusted EBITDA, and Free Cash Flow to supplement GAAP results, providing insights into operating performance and capital allocation, with reconciliations to comparable GAAP counterparts - Non-GAAP measures (Ex-TAC Gross Profit, Adjusted EBITDA, Free Cash Flow) are used to assess operating performance and capital allocation[201](index=201&type=chunk) Ex-TAC Gross Profit Reconciliation | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Gross profit | $41,914 | $60,269 | $144,564 | $172,800 | | Other cost of revenue | $10,756 | $7,846 | $30,955 | $22,555 | | Ex-TAC Gross Profit | $52,670 | $68,115 | $175,519 | $195,355 | Adjusted EBITDA Reconciliation | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(4,624) | $(53,906) | $(16,832) | $(27,959) | | Adjustments (e.g., interest, taxes, D&A, stock-based comp) | $6,310 | $73,763 | $35,990 | $92,980 | | Adjusted EBITDA | $1,686 | $19,857 | $19,158 | $65,021 | [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) Outbrain's liquidity is supported by cash, cash equivalents, marketable securities, and its revolving credit facility, with **$345.0 million** in cash and investments as of September 30, 2022, anticipating sufficient liquidity for at least the next **12 months** - Primary liquidity sources: cash, cash equivalents, marketable securities, cash from operations, IPO proceeds, Convertible Notes, and revolving credit facility[212](index=212&type=chunk) Cash, Cash Equivalents and Investments | Metric (in thousands) | Sep 30, 2022 | | :-------------------- | :----------- | | Cash and cash equivalents | $137,900 | | Short-term investments in marketable securities | $136,300 | | Long-term investments in marketable securities | $70,800 | | Total | $345,000 | - Anticipates sufficient funds for operating expenses, capital expenditures (**$15 million** for 2022), and interest payments for at least the next **12 months**[215](index=215&type=chunk)[216](index=216&type=chunk) [Treasury Share Repurchases](index=46&type=section&id=Treasury%20Share%20Repurchases) Outbrain's Board approved a **$30 million** stock repurchase program on February 28, 2022, with **$23.6 million** used to repurchase **4,782,643** shares by September 30, 2022, and **$6.4 million** remaining, plus an additional **$4.2 million** used in October 2022 - Board approved a **$30 million** stock repurchase program on February 28, 2022[220](index=220&type=chunk) Share Repurchases Under Program | Period | Shares Repurchased | Amount (in millions) | | :----- | :----------------- | :------------------- | | 3 Months Ended Sep 30, 2022 | 3,394,326 | $16.1 | | 9 Months Ended Sep 30, 2022 | 4,782,643 | $23.6 | - As of September 30, 2022, **$6.4 million** remained available under the program. An additional **$4.2 million** was used in October 2022[220](index=220&type=chunk)[253](index=253&type=chunk) [Cash Flows](index=47&type=section&id=Cash%20Flows) For 9M 2022, net cash used in operating activities was **$13.3 million**, a significant decrease from **$61.1 million** provided in prior year, with **$274.6 million** used in investing and **$24.5 million** in financing activities Summary of Net Cash Flows | Activity | 9 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :------- | :----------------------------------------- | :----------------------------------------- | | Operating | $(13,267) | $61,077 | | Investing | $(274,582) | $(11,360) | | Financing | $(24,528) | $340,043 | | Effect of exchange rate changes | $(5,175) | $(978) | | Net (decrease) increase | $(317,552) | $388,782 | - Free cash flow for 9M 2022 was a use of **$33.6 million**, compared to **$49.8 million** provided in 9M 2021, due to lower operating cash flow and higher capital expenditures[211](index=211&type=chunk)[224](index=224&type=chunk) - Investing activities for 9M 2022 included **$209.0 million** for marketable securities and **$45.2 million** for the vi acquisition[225](index=225&type=chunk) [Contractual Obligations](index=47&type=section&id=Contractual%20Obligations) No material changes occurred to Outbrain's contractual obligations for 9M 2022 beyond those disclosed in the Leases note and the 2021 Form 10-K - No material changes to contractual obligations for the nine months ended September 30, 2022, other than those disclosed in Note 6 (Leases) and the 2021 Form 10-K[227](index=227&type=chunk) [Critical Accounting Policies and Estimates](index=48&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Outbrain's financial statements rely on management's estimates and assumptions under U.S. GAAP, with no material changes to critical accounting policies and estimates previously disclosed in the 2021 Form 10-K - No material changes to critical accounting policies and estimates compared to those described in the 2021 Form 10-K[229](index=229&type=chunk) [Off-Balance Sheet Arrangements](index=48&type=section&id=Off-Balance%20Sheet%20Arrangements) Outbrain does not engage in off-balance sheet financing arrangements nor has interests in variable interest entities - Does not engage in off-balance sheet financing arrangements or have interests in variable interest entities[230](index=230&type=chunk) [Recently Issued Accounting Pronouncements](index=48&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) As an emerging growth company, Outbrain uses an extended transition period for new accounting standards, potentially affecting comparability with other public companies - As an emerging growth company, Outbrain uses the extended transition period for new accounting standards, potentially affecting comparability with other public companies[231](index=231&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Outbrain is exposed to foreign currency and interest rate risks, with a strengthening U.S. Dollar negatively impacting operations, and a hypothetical **10%** exchange rate change or **100 basis point** interest rate change significantly affecting income or investment fair value [Foreign Currency Risk](index=48&type=section&id=Foreign%20Currency%20Risk) Outbrain's consolidated results are subject to foreign currency fluctuations, with the strengthening U.S. Dollar unfavorably impacting operations, and a hypothetical **10%** exchange rate change potentially altering operating income/loss by **$2.8 million** (Q3 2022) or **$6.9 million** (9M 2022) - Consolidated results are subject to foreign currency exchange rate fluctuations[235](index=235&type=chunk) - Strengthening U.S. Dollar had an unfavorable impact on operations during Q3 and 9M 2022[236](index=236&type=chunk) - A hypothetical **10%** change in weighted-average exchange rates could result in a **$2.8 million** (Q3 2022) or **$6.9 million** (9M 2022) change in operating income/loss[236](index=236&type=chunk) [Interest Rate Risk](index=49&type=section&id=Interest%20Rate%20Risk) Outbrain's interest rate risk primarily stems from its cash, cash equivalents (**$137.9 million**), and marketable securities (**$207.1 million**), with long-term debt of **$236.0 million** bearing a fixed rate, and a **100 basis point** interest rate change impacting the investment portfolio's fair value by approximately **$1.7 million** - Exposure to interest rate risk primarily relates to cash, cash equivalents (**$137.9 million**), and marketable securities (**$207.1 million**)[238](index=238&type=chunk) - Long-term debt of **$236.0 million** bears a fixed interest rate[237](index=237&type=chunk) - A **100 basis point** change in interest rates would change the fair value of the investment portfolio by approximately **$1.7 million**[239](index=239&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Outbrain's management concluded its disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter, acknowledging inherent limitations - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of September 30, 2022[240](index=240&type=chunk) - No material changes to internal control over financial reporting occurred during the three months ended September 30, 2022[241](index=241&type=chunk) - Management acknowledges inherent limitations of control systems, which provide reasonable, not absolute, assurance[242](index=242&type=chunk) [Part II - Other Information](index=50&type=section&id=Part%20II%20-%20Other%20Information) [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) Outbrain refers to Note 10 for legal proceedings, indicating no material pending or threatened cases, but cooperation with a DOJ criminal investigation into industry hiring practices - Information on legal proceedings is incorporated by reference from Note 10 of the financial statements[244](index=244&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) No material changes to Outbrain's risk factors were disclosed in its 2021 Form 10-K and subsequent Quarterly Reports on Form 10-Q - No material changes to risk factors previously disclosed in the 2021 Form 10-K and subsequent 10-Q filings[245](index=245&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Outbrain reported no recent unregistered sales of equity securities, with **$145.1 million** net IPO proceeds used for working capital, general corporate purposes, and funding the vi acquisition, and details common stock repurchases under a **$30 million** program - No recent unregistered sales of equity securities[246](index=246&type=chunk) - Net proceeds from July 2021 IPO (**$145.1 million**) used for working capital, general corporate purposes, and funding the vi acquisition (**$37.3 million** in Jan 2022, **$10.6 million** in July 2022)[247](index=247&type=chunk)[248](index=248&type=chunk) Purchases of Equity Securities by the Issuer (Q3 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :----- | :--------------------- | :--------------------------- | | July 2022 | 983,391 | $5.33 | | August 2022 | 1,071,048 | $5.25 | | September 2022 | 1,387,464 | $3.94 | | TOTAL | 3,441,903 | N/A | [Item 5. Other Information](index=51&type=section&id=Item%205.%20Other%20Information) No other information is reported in this section [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including employment agreements, Sarbanes-Oxley Act certifications, and XBRL interactive data files - Lists exhibits filed, including employment agreements, certifications (Sarbanes-Oxley Act), and XBRL data files[257](index=257&type=chunk) [Signatures](index=53&type=section&id=Signatures) The report was duly signed on **November 10, 2022**, by Co-Chief Executive Officer David Kostman and Chief Financial Officer Jason Kiviat on behalf of Outbrain Inc - Report signed by Co-Chief Executive Officer David Kostman and Chief Financial Officer Jason Kiviat on **November 10, 2022**[262](index=262&type=chunk)
Outbrain (OB) - 2022 Q2 - Quarterly Report
2022-08-12 20:10
[Part I - Financial Information](index=4&type=section&id=Part%20I%20-%20Financial%20Information) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Outbrain Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2022, including balance sheets, statements of operations, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets slightly decreased to $794.1 million, driven by lower cash and cash equivalents, while total liabilities increased and stockholders' equity decreased Condensed Consolidated Balance Sheets (in thousands) | Account | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $391,409 | $455,397 | | Accounts receivable, net | $180,411 | $192,814 | | Goodwill | $63,063 | $32,881 | | Intangible assets, net | $28,220 | $5,719 | | **Total Assets** | **$794,141** | **$795,890** | | **Liabilities & Equity** | | | | Total current liabilities | $284,352 | $288,495 | | Long-term debt | $236,000 | $236,000 | | **Total Liabilities** | **$547,544** | **$539,115** | | **Total Stockholders' Equity** | **$246,597** | **$256,775** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q2 2022, revenue slightly increased to $250.9 million, but the company reported a net loss of $10.3 million, driven by higher costs and operating expenses, with a similar trend for the six-month period Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Q2 2022 (Unaudited) | Q2 2021 | Six Months 2022 (Unaudited) | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$250,883** | **$247,153** | **$505,099** | **$475,177** | | Gross Profit | $48,719 | $59,062 | $102,650 | $112,531 | | (Loss) Income from Operations | ($2,879) | $17,155 | ($2,805) | $31,935 | | **Net (Loss) Income** | **($10,318)** | **$15,201** | **($12,208)** | **$25,947** | | Diluted EPS | ($0.18) | $0.28 | ($0.21) | $0.51 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, net cash used in operating activities was $1.1 million, a significant decrease from the prior year, primarily due to net loss and increased investing activities from the vi acquisition Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 (Unaudited) | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($1,130) | $24,861 | | Net cash used in investing activities | ($51,309) | ($5,796) | | Net cash used in financing activities | ($7,690) | ($1,225) | | **Net (decrease) increase in cash** | **($64,004)** | **$17,679** | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, the acquisition of video intelligence AG, adoption of new accounting standards, long-term debt, and the stock repurchase program - On January 5, 2022, the company completed the acquisition of video intelligence AG ("vi") for a total consideration of approximately **$53 million**, expanding its video product offerings. The purchase price was allocated to identifiable assets, with **$30.2 million** recorded as goodwill[49](index=49&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) - The company holds **$236 million** in 2.95% Convertible Senior Notes due 2026, which are convertible at an initial price of **$25 per share**. The company also has a **$75 million** revolving credit facility, which was undrawn as of June 30, 2022[75](index=75&type=chunk)[81](index=81&type=chunk) - On February 28, 2022, the Board approved a stock repurchase program authorizing the purchase of up to **$30 million** of common stock. As of June 30, 2022, **$22.5 million** remained available under the program[91](index=91&type=chunk) - The company adopted new accounting standards for Leases (Topic 842) and Credit Losses (Topic 326) on January 1, 2022. The adoption of the lease standard resulted in the recognition of **$14.8 million** in right-of-use assets and **$15.2 million** in lease liabilities[42](index=42&type=chunk)[43](index=43&type=chunk)[45](index=45&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2022 performance, noting a 1.5% revenue increase to $250.9 million but a decline in profitability to a net loss of $10.3 million and reduced Adjusted EBITDA, primarily due to higher costs and macroeconomic headwinds [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Q2 2022 revenue grew 1.5% to $250.9 million, but gross profit declined 17.5% to $48.7 million, and operating expenses rose 23.1%, resulting in an operating loss of $2.9 million Results of Operations (in millions) | Metric (in millions) | Q2 2022 | Q2 2021 | Change | Six Months 2022 | Six Months 2021 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$250.9** | **$247.2** | **+1.5%** | **$505.1** | **$475.2** | **+6.3%** | | *Constant Currency Growth* | *N/A* | *N/A* | *+6.2%* | *N/A* | *N/A* | *+9.9%* | | Gross Profit | $48.7 | $59.1 | -17.5% | $102.6 | $112.5 | -8.8% | | Ex-TAC Gross Profit (Non-GAAP) | $59.3 | $66.8 | -11.2% | $122.8 | $127.2 | -3.5% | | Net (Loss) Income | ($10.3) | $15.2 | -167.8% | ($12.2) | $25.9 | -147.1% | | Adjusted EBITDA (Non-GAAP) | $5.9 | $24.6 | -76.0% | $17.5 | $45.2 | -61.3% | - Revenue growth was driven by new media partners, including the vi acquisition, which contributed approximately **10%** to revenue growth in Q2 2022. This was partially offset by a net revenue retention of **91%** on existing media partners due to weaker advertiser demand amid macroeconomic conditions[122](index=122&type=chunk)[149](index=149&type=chunk) - Traffic acquisition costs (TAC) as a percentage of revenue increased to **76.4%** in Q2 2022 from **73.0%** in Q2 2021, due to an unfavorable revenue mix and lower performance from certain deals[151](index=151&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, the company held $391.4 million in cash, with liquidity supported by cash from operations and an undrawn $75 million revolving credit facility, deemed sufficient for future operations and debt service Liquidity and Capital Resources (in thousands) | Metric (in thousands) | June 30, 2022 | | :--- | :--- | | Cash and cash equivalents | $391,409 | | Long-term debt (Convertible Notes) | $236,000 | | Revolving Credit Facility Availability | $74,424 | - Net cash used in operating activities was **$1.1 million** for the first six months of 2022, a significant decrease from **$24.9 million** provided by operations in the prior-year period, driven by lower net income after non-cash adjustments[197](index=197&type=chunk)[198](index=198&type=chunk) - The company expects to continue funding its **$30 million** share repurchase program with cash from operations. An additional **$5.1 million** of shares were repurchased in July 2022[192](index=192&type=chunk)[226](index=226&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from foreign currency fluctuations, particularly due to non-U.S. dollar operating expenses, and from inflation, while interest rate risk is limited by fixed-rate debt - The company is exposed to foreign currency risk as a majority of operating expenses are in U.S. Dollars, but the remainder is primarily in New Israeli Shekels, British pounds, and Euros. A hypothetical **10%** change in weighted-average exchange rates would impact operating income by **$2.2 million** for the three months ended June 30, 2022[210](index=210&type=chunk)[211](index=211&type=chunk) - Interest rate risk is primarily related to cash equivalents and potential future borrowings. The company's **$236.0 million** in long-term debt has a fixed interest rate, mitigating this risk[212](index=212&type=chunk) - Inflation poses a risk by potentially increasing operating costs (like wages) and leading to reduced ad spend from advertisers, which could harm business results[209](index=209&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - As of June 30, 2022, the company's co-CEOs and CFO concluded that disclosure controls and procedures are effective at a reasonable assurance level[214](index=214&type=chunk) - There were no changes to the internal control over financial reporting during the three months ended June 30, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[215](index=215&type=chunk) [Part II - Other Information](index=43&type=section&id=Part%20II%20-%20Other%20Information) [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company is cooperating with a U.S. Department of Justice criminal investigation into industry hiring practices, believing its conduct complied with applicable law, and is not a party to other material legal proceedings - The company is cooperating with a U.S. Department of Justice Antitrust Division criminal investigation into industry hiring practices. The company does not believe its conduct violated the law[89](index=89&type=chunk)[218](index=218&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors with a new disclosure on Environmental, Social, and Governance (ESG) risks, noting that failure to meet evolving stakeholder expectations could negatively impact reputation and business - A new risk factor was added concerning Environmental, Social, and Governance (ESG) issues. The company acknowledges that failure to meet increasing stakeholder expectations on ESG practices could negatively impact its reputation, business, and stock price[220](index=220&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered equity sales, details IPO proceeds used for working capital and the video intelligence AG acquisition, and outlines its stock repurchase program, including 1.4 million shares repurchased in Q2 2022 - Net proceeds from the July 2021 IPO have been used for working capital and to fund the acquisition of video intelligence AG, with payments of **$37.3 million** in January 2022 and **$11.2 million** in July 2022[223](index=223&type=chunk) Stock Repurchase Program Activity (Q2 2022) | Period (2022) | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Remaining Authorization (in thousands) | | :--- | :--- | :--- | :--- | :--- | | April | 26,941 | $10.25 | — | $30,000 | | May | 3,880 | $8.53 | — | $30,000 | | June | 1,396,380 | $5.40 | 1,388,317 | $22,541 | | **Total Q2** | **1,427,201** | **$5.50** | **1,388,317** | **N/A** | [Other Information](index=44&type=section&id=Item%205.%20Other%20Information) Effective August 12, 2022, Wenkai Bradshaw was appointed as the company's principal accounting officer, having served as Corporate Controller since 2016 - Effective August 12, 2022, Wenkai Bradshaw was appointed as the company's principal accounting officer. She has served as the company's Corporate Controller since 2016[227](index=227&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including certifications by principal executive and financial officers and XBRL data files
Outbrain (OB) - 2022 Q2 - Earnings Call Transcript
2022-08-11 16:37
Outbrain, Inc. (NASDAQ:OB) Q2 2022 Earnings Conference Call August 11, 2022 8:30 AM ET Company Participants Anthony Erasmus - IR Yaron Galai - Co-Founder & CEO David Kostman - Co-CEO Jason Kiviat - CFO Conference Call Participants Ross Sandler - Barclays Andrew Boone - JMP Securities Shweta Khajuria - Evercore Laura Martin - Needham Operator Good morning, and welcome to Outbrain, Inc.'s Second Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answe ...
Outbrain (OB) - 2022 Q1 - Earnings Call Transcript
2022-05-14 12:45
Outbrain Inc. (NASDAQ:OB) Q1 2022 Earnings Conference Call May 12, 2022 8:30 AM ET Company Participants Yaron Galai - Co-Founder And Co-CEO David Kostman - Co-CEO Elise Garofalo - Chief Financial Officer Jason Kiviat - Sr. Director, FP&A Conference Call Participants Andrew Boone - JMP Securities Shweta Khajuria - Evercore ISI Laura Martin - Needham Ross Sandler - Barclays Operator Greetings, and welcome to Outbrain, Inc., First Quarter 2022 Earnings Conference Call. At this time, all participants are in a l ...
Outbrain (OB) - 2022 Q1 - Quarterly Report
2022-05-13 22:14
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ Commission file number 001-40643 Outbrain Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation ...
Outbrain (OB) - 2021 Q4 - Annual Report
2022-03-18 20:23
Part I [Business](index=5&type=section&id=Item%201.%20Business) Outbrain is a leading recommendation platform connecting media partners and advertisers to deliver personalized content and monetize digital properties - Outbrain's mission is to help digital media owners by recommending content, products, and services to users, powering discovery feeds for thousands of digital media properties, reaching over **one billion unique users monthly**[22](index=22&type=chunk) - The company operates a two-sided marketplace, offering Outbrain Engage for media partners to manage and monetize content, and Outbrain Amplify for advertisers to reach consumers at scale with measurable ROAS[26](index=26&type=chunk)[50](index=50&type=chunk)[54](index=54&type=chunk) Key Business Statistics (2021) | Metric | Value | | :--- | :--- | | Monthly Unique Users Reached | Over 1 billion | | Daily Recommendations Delivered | Over 10 billion | | Advertisers on Platform | Over 24,000 | | Revenue from Mobile | 68% | | Average Tenure of Top 20 Media Partners | Over 7 years | - Growth strategies include deepening relationships with existing partners, acquiring new partners, continuously improving user engagement via AI, growing ad inventory, and increasing advertiser spend through enhanced tools and new ad formats like video[63](index=63&type=chunk)[64](index=64&type=chunk)[67](index=67&type=chunk) - In January 2022, Outbrain acquired video intelligence AG ("vi"), a contextual video technology company, to expand its video offerings into formats like In-Stream and connected TV (CTV)[68](index=68&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from advertising demand, intense competition, data privacy laws, and a DOJ investigation into hiring practices - Business operations are highly dependent on overall advertising demand, which can be affected by economic downturns, with the largest partner accounting for **11% of 2021 revenue** posing a significant risk[107](index=107&type=chunk)[112](index=112&type=chunk) - The company faces intense competition from other ad tech platforms (Taboola, Criteo) and large digital platforms (Google, Facebook, Amazon) which have greater resources and scale[125](index=125&type=chunk) - Limitations on the ability to collect and use data, such as the discontinuation of third-party cookies by Google and Apple's privacy changes, could diminish the value of the platform and adversely affect business[135](index=135&type=chunk)[140](index=140&type=chunk) - The company is subject to evolving global data privacy laws, including GDPR and CCPA/CPRA, where non-compliance could result in significant fines and reputational harm[160](index=160&type=chunk)[166](index=166&type=chunk)[168](index=168&type=chunk) - On April 29, 2021, the company was notified that the Antitrust Division of the U.S. Department of Justice is conducting a criminal investigation into hiring activities in the industry, with which Outbrain is cooperating[180](index=180&type=chunk)[492](index=492&type=chunk) [Unresolved Staff Comments](index=44&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[218](index=218&type=chunk) [Properties](index=44&type=section&id=Item%202.%20Properties) Outbrain's corporate headquarters are in New York, NY, with a significant technology and development presence in Netanya, Israel, and other global offices - Corporate headquarters are located in New York, NY, occupying approximately **22,300 square feet** under a lease expiring in October 2027[219](index=219&type=chunk) - A key technology and development facility is located in Netanya, Israel, occupying approximately **44,000 square feet**[220](index=220&type=chunk) [Legal Proceedings](index=44&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings that would have a material adverse effect on its business, but is cooperating with a DOJ investigation - The company is cooperating with a criminal investigation by the Antitrust Division of the U.S. Department of Justice regarding hiring practices in its industry[492](index=492&type=chunk) [Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[223](index=223&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=45&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Outbrain's common stock began trading on Nasdaq in July 2021, and the company does not anticipate paying cash dividends, having approved a stock repurchase program in February 2022 - The company's common stock began trading on Nasdaq on **July 23, 2021**, under the symbol "OB"[226](index=226&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[228](index=228&type=chunk) - On **February 28, 2022**, the Board of Directors approved a stock repurchase program authorizing up to **$30 million** of its common stock[232](index=232&type=chunk)[556](index=556&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Outbrain achieved significant 2021 revenue and gross profit growth, improved Adjusted EBITDA, and strengthened liquidity, despite one-time charges impacting net income Financial Performance Summary (2019-2021) | Metric (in millions) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $1,015.6 | $767.1 | $687.3 | | Gross Profit | $240.3 | $165.1 | $141.8 | | Ex-TAC Gross Profit* | $272.1 | $194.3 | $170.3 | | Net Income (Loss) | $11.0 | $4.4 | $(20.5) | | Adjusted EBITDA* | $88.9 | $41.1 | $19.3 | - Revenue growth in 2021 was driven by a **126% net revenue retention rate** from existing media partners and a **7% contribution** from new media partners[259](index=259&type=chunk)[290](index=290&type=chunk) - 2021 net income of **$11.0 million** was significantly impacted by several one-time items: a **$31.8 million tax benefit**, a **$42.0 million pre-tax charge** for exchanging senior notes, and **$16.5 million** in pre-tax IPO-related stock compensation expense[251](index=251&type=chunk)[300](index=300&type=chunk) - As of **December 31, 2021**, the company had **$455.4 million** in cash and cash equivalents and **$236.0 million** in long-term debt from its Convertible Senior Notes[324](index=324&type=chunk)[387](index=387&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks primarily from foreign currency exchange rates and interest rates, impacting operating expenses and potential future borrowings - The company is exposed to foreign currency risk as operating expenses are denominated in multiple currencies, including the New Israeli Shekel, British pound sterling, and Euro[374](index=374&type=chunk) - A hypothetical **10% adverse change** in weighted-average exchange rates would result in an unfavorable change of **$4.7 million** to the operating loss for the year ended December 31, 2021[375](index=375&type=chunk) - Interest rate risk is primarily associated with cash and cash equivalents and potential future borrowings under the revolving credit facility, as the **$241.1 million** in outstanding debt as of December 31, 2021, has a fixed interest rate[376](index=376&type=chunk)[377](index=377&type=chunk) [Financial Statements and Supplementary Data](index=69&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements, detailing financial position, operations, and cash flows, with notes on key accounting policies and subsequent events - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements[382](index=382&type=chunk) Consolidated Balance Sheet Highlights (as of Dec 31) | Account (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $455.4 | $93.6 | | Total Assets | $795.9 | $356.5 | | Total Liabilities | $539.1 | $273.9 | | Long-term debt | $236.0 | $0.0 | | Total Stockholders' Equity (Deficit) | $256.8 | $(79.8) | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account (in millions) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $1,015.6 | $767.1 | $687.3 | | Gross Profit | $240.3 | $165.1 | $141.8 | | Income (loss) from operations | $34.6 | $10.2 | $(14.6) | | Net Income (Loss) | $11.0 | $4.4 | $(20.5) | | Diluted EPS | $0.20 | $0.08 | $(1.34) | - In Q4 2021, the company released **$31.8 million** of its U.S. valuation allowance on deferred tax assets, concluding it is more likely than not that these assets will be realized[543](index=543&type=chunk) - Subsequent to year-end, the company completed the acquisition of vi for approximately **$55 million** and authorized a **$30 million** stock repurchase program[556](index=556&type=chunk)[557](index=557&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosures](index=105&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None[558](index=558&type=chunk) [Controls and Procedures](index=105&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal control over financial reporting - Management concluded that as of **December 31, 2021**, the company's disclosure controls and procedures were effective[559](index=559&type=chunk) - No material changes were made to internal control over financial reporting during the quarter ended **December 31, 2021**[560](index=560&type=chunk) [Other Information](index=105&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[563](index=563&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=106&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information required by this item will be included in the company's 2022 Proxy Statement and is incorporated herein by reference [Executive Compensation](index=106&type=section&id=Item%2011.%20Executive%20Compensation) Information required by this item will be included in the company's 2022 Proxy Statement and is incorporated herein by reference [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=106&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required by this item will be included in the company's 2022 Proxy Statement and is incorporated herein by reference [Certain Relationships and Related Transactions, and Director Independence](index=106&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information required by this item will be included in the company's 2022 Proxy Statement and is incorporated herein by reference [Principal Accountant Fees and Services](index=106&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information required by this item will be included in the company's 2022 Proxy Statement and is incorporated herein by reference Part IV [Exhibits and Financial Statement Schedules](index=107&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements included in Item 8 and notes that no financial statement schedules are required, along with an index of filed exhibits - The financial statements are listed and can be found starting on page **68** of the report[575](index=575&type=chunk) - No financial statement schedules are filed with this report[576](index=576&type=chunk) [Form 10-K Summary](index=109&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no summary for this item - None[583](index=583&type=chunk)