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 ...

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 ...

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)

Outbrain Inc. (NASDAQ:OB) Q4 2021 Results Conference Call March 1, 2022 8:30 AM ET Company Participants Jason Kiviat - Sr. Director, FP&A Yaron Galai - Co-Founder and Co-Chief Executive Officer David Kostman - Co-Chief Executive Officer Elise Garofalo - Chief Financial Officer Conference Call Participants Andrew Boone - JMP Securities Shweta Khajuria - Evercore Ross Sandler - Barclays Laura Martin - Needham Operator Good morning, and welcome to Outbrain's Fourth Quarter and Full Year 2021 Earnings Conferenc ...

Financial Performance - Q4 2021 - Revenue increased to $290 million, a 18% increase compared to $245 million in Q4 2020[19] - Ex-TAC Gross Profit increased to $77 million, a 15% increase compared to $67 million in Q4 2020[19] - Gross Profit increased to $67 million, a 17% increase compared to $58 million in Q4 2020[19] - Adjusted EBITDA reached $24 million, representing 31% of Ex-TAC gross profit and 20% of revenue[25] - Net income was $39 million, which included a one-time tax benefit of $318 million[25] Financial Performance - Full Year 2021 - Revenue reached $1016 billion, a 32% increase compared to $767 billion in FY 2020[31] - Ex-TAC Gross Profit increased to $272 million, a 40% increase compared to $194 million in FY 2020[31] - Gross Profit increased to $240 million, a 46% increase compared to $165 million in FY 2020[31] - Adjusted EBITDA reached $89 million, representing 33% of Ex-TAC gross profit and 20% of revenue[34] - Net income was $11 million, representing 1% of revenue[34] Media Partner Performance - Media Partner Net Revenue Retention was 126%[21] - New Media Partners accounted for 7% of revenue[21]

[Part I - Financial Information](index=5&type=section&id=Part%20I%20-%20Financial%20Information) This section provides the company's unaudited condensed consolidated financial statements, management's analysis of financial performance, market risk disclosures, and internal controls assessment [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Presents Outbrain Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flows, with notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets significantly increased to **$747.3 million** driven by IPO proceeds and debt, turning stockholders' equity positive Condensed Consolidated Balance Sheets (In thousands) | | September 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | **ASSETS** | | | | Cash and cash equivalents | $482,447 | $93,641 | | Total current assets | $671,506 | $277,416 | | TOTAL ASSETS | $747,344 | $356,486 | | **LIABILITIES & EQUITY** | | | | Total current liabilities | $270,817 | $256,750 | | Long-term debt | $236,000 | — | | TOTAL LIABILITIES | $522,780 | $273,855 | | TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | $224,564 | ($79,813) | | TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) | $747,344 | $356,486 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue grew **34.5%** in Q3 2021, but a **$53.9 million** net loss was recorded due to a **$42.0 million** one-time IPO-related charge Key Operational Metrics (In thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $250,784 | $186,510 | $725,961 | $521,704 | | Gross Profit | $60,269 | $41,873 | $172,800 | $106,600 | | (Loss) income from operations | ($6,416) | $3,621 | $25,519 | ($5,597) | | Net (loss) income | ($53,906) | $2,541 | ($27,959) | ($9,652) | | Diluted Net (loss) income per share | ($1.13) | $0.05 | ($1.01) | ($0.58) | - The net loss for Q3 2021 included a significant one-time charge of **$42.0 million** related to the exchange of senior notes upon the company's IPO[14](index=14&type=chunk) [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) The company reported a comprehensive loss of **$55.1 million** in Q3 2021, primarily due to a net loss and foreign currency translation adjustments Comprehensive (Loss) Income (In thousands) | | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net (loss) income | ($53,906) | $2,541 | | Foreign currency translation adjustments | (1,187) | 1,006 | | **Comprehensive (loss) income** | **($55,093)** | **$3,547** | [Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Stock%20and%20Stockholders%27%20Equity%20%28Deficit%29) Stockholders' equity significantly increased to **$224.6 million** due to the IPO, including conversion of preferred stock and issuance of new common shares - In connection with the IPO, all outstanding convertible preferred stock with a carrying value of **$162.4 million** was converted into 28,091,267 shares of common stock[19](index=19&type=chunk) - The company issued 8,000,000 shares of common stock from its IPO, raising net proceeds of **$145.1 million** after issuance costs[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities increased to **$61.1 million**, while financing activities provided **$340.0 million** from IPO and debt issuance Cash Flow Summary (In thousands) | | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $61,077 | $43,525 | | Net cash used in investing activities | ($11,360) | ($6,868) | | Net cash provided by (used in) financing activities | $340,043 | ($3,247) | | **Net increase in cash, cash equivalents and restricted cash** | **$388,782** | **$34,278** | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes cover accounting policies, the July 2021 IPO, debt exchange, a DOJ antitrust investigation, and a new **$75 million** revolving credit facility - Outbrain is a recommendation platform that generates revenue from marketers through user engagements with promoted recommendations on third-party media owners' properties[27](index=27&type=chunk) - On July 27, 2021, the company closed its IPO, issuing 8 million shares of common stock and receiving net proceeds of **$145.1 million**[28](index=28&type=chunk) - In July 2021, the company issued **$200 million** in senior notes, which were then exchanged for **$236 million** of 2.95% Convertible Senior Notes due 2026 upon the IPO closing, resulting in a **$42 million** charge[61](index=61&type=chunk)[62](index=62&type=chunk) - The company was notified on April 29, 2021, that the U.S. Department of Justice's Antitrust Division is conducting a criminal investigation into hiring practices in its industry, which includes Outbrain[75](index=75&type=chunk) - Subsequent to the quarter end, on November 2, 2021, the company entered into a new amended and restated revolving credit facility for up to **$75.0 million**[91](index=91&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong revenue growth, Q3 net loss impacted by IPO-related charges, increased Adjusted EBITDA, and a confident liquidity position [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q3 2021 revenue grew **34.5%** to **$250.8 million**, but a **$53.9 million** net loss resulted from one-time IPO-related charges Financial Performance vs. Prior Year (In millions) | Metric | Q3 2021 | Q3 2020 | Change | Nine Months 2021 | Nine Months 2020 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $250.8 | $186.5 | +34.5% | $726.0 | $521.7 | +39.2% | | Gross Profit | $60.3 | $41.9 | +43.9% | $172.8 | $106.6 | +62.1% | | Net (Loss) Income | ($53.9) | $2.5 | - | ($28.0) | ($9.7) | - | - Q3 2021 net loss was driven by **$42.0 million** in one-time charges for the exchange of senior notes and **$16.5 million** in one-time incremental stock-based compensation expense related to the IPO[109](index=109&type=chunk)[153](index=153&type=chunk) - Revenue growth was driven by net revenue retention on existing media partners (**28%** of growth in Q3) and new media partners (**7%** of growth in Q3)[143](index=143&type=chunk) [Non-GAAP Reconciliations](index=37&type=section&id=Non-GAAP%20Reconciliations) Reconciliations for non-GAAP measures show Q3 2021 Ex-TAC Gross Profit at **$68.1 million** and Adjusted EBITDA at **$19.9 million** Reconciliation of Gross Profit to Ex-TAC Gross Profit (In thousands) | | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Gross profit | $60,269 | $41,873 | $172,800 | $106,600 | | Other cost of revenue | 7,846 | 6,771 | 22,555 | 22,292 | | **Ex-TAC Gross Profit** | **$68,115** | **$48,644** | **$195,355** | **$128,892** | Reconciliation of Net (Loss) Income to Adjusted EBITDA (In thousands) | | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | ($53,906) | $2,541 | ($27,959) | ($9,652) | | Adjustments | 73,763 | 10,220 | 92,980 | 29,735 | | **Adjusted EBITDA** | **$19,857** | **$12,761** | **$65,021** | **$20,083** | [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and equivalents reached **$482.4 million** due to IPO proceeds and debt, with a new **$75 million** revolving credit facility secured - Principal sources of liquidity are cash from operations, **$145.1 million** in net proceeds from the July 2021 IPO, and proceeds from the issuance of Convertible Notes[179](index=179&type=chunk)[201](index=201&type=chunk) - On July 27, 2021, the company exchanged **$200 million** of senior notes for **$236 million** of 2.95% Convertible Senior Notes due 2026[191](index=191&type=chunk) - On November 2, 2021, the company entered into a new Amended and Restated Loan and Security Agreement with SVB for a revolving credit facility of up to **$75 million**, maturing in 2026[186](index=186&type=chunk) Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $61,077 | $43,525 | | Net cash used in investing activities | ($11,360) | ($6,868) | | Net cash provided by (used in) financing activities | $340,043 | ($3,247) | [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks primarily from foreign currency exchange rates and interest rates, with a **$1.1 million** impact from a 10% FX change - The company's primary market risks are foreign currency exchange risk and interest rate risk[209](index=209&type=chunk) - A hypothetical **10%** change in weighted-average foreign exchange rates would result in a **$1.1 million** favorable or unfavorable change to operating income for the three months ended September 30, 2021[211](index=211&type=chunk) - Interest rate risk is primarily tied to cash equivalents and potential future borrowings under the revolving credit facility, as the **$236 million** in convertible notes carry a fixed interest rate[212](index=212&type=chunk)[213](index=213&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes identified - Management concluded that as of September 30, 2021, the company's disclosure controls and procedures were effective at a reasonable assurance level[214](index=214&type=chunk) - There were no changes to internal control over financial reporting during the third quarter of 2021 that materially affected, or are reasonably likely to materially affect, internal controls[215](index=215&type=chunk) [Part II - Other Information](index=45&type=section&id=Part%20II%20-%20Other%20Information) This section covers legal proceedings, key risk factors, details on unregistered equity sales and IPO proceeds, and a list of filed exhibits [Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) The company is not party to material legal proceedings but is cooperating with a DOJ criminal investigation into industry hiring practices - The company is cooperating with a criminal investigation by the Antitrust Division of the U.S. Department of Justice into hiring practices in its industry[293](index=293&type=chunk) - The company is not currently a party to any legal proceeding that would be expected to have a material adverse effect on its business, financial condition, or cash flows[218](index=218&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) Key risks include dependence on advertising demand, intense competition, data privacy regulations, cookie deprecation, and political instability in Israel - A summary of principal risks includes: - Dependence on overall advertising demand and media partner traffic - Failure to manage growth effectively - Loss of large media partners - Failure of the recommendation engine to predict user engagement - Intense competition in the digital advertising industry - Limitations on the ability to collect, use, and disclose data - Hardware/software failures or security breaches - Political and regulatory risks in various markets[221](index=221&type=chunk) - The business is subject to evolving data privacy laws such as GDPR in Europe and CCPA/CPRA in California, which could impact data collection and usage for advertising[273](index=273&type=chunk)[278](index=278&type=chunk)[281](index=281&type=chunk) - The discontinuation of third-party cookies by major browsers like Chrome and Apple's opt-in privacy models could adversely affect the business by limiting data collection capabilities[253](index=253&type=chunk)[255](index=255&type=chunk) - Political, economic, and military conditions in Israel, where many employees and management are located, could materially and adversely affect the business[237](index=237&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity sales occurred; **$145.1 million** net IPO proceeds are for working capital, general corporate purposes, and potential acquisitions - On July 27, 2021, the company sold 8,000,000 shares of common stock in its IPO at **$20.00** per share, for net proceeds of **$145.1 million**[332](index=332&type=chunk) - There has been no material change in the planned use of IPO proceeds, which are intended for working capital, general corporate purposes, and potential acquisitions[333](index=333&type=chunk) [Exhibits](index=68&type=section&id=Item%206.%20Exhibits) This section indexes all exhibits filed with the Form 10-Q, including corporate documents, debt agreements, and officer certifications - The report includes exhibits such as the Indenture for the 2.95% Convertible Senior Notes, the 2021 Long-Term Incentive Plan, and officer certifications[336](index=336&type=chunk) [Signatures](index=69&type=section&id=Signatures) The report was signed and authorized on November 12, 2021, by the Co-Chief Executive Officer and Chief Financial Officer - The report was signed on November 12, 2021, by the Co-CEO and CFO[339](index=339&type=chunk)[340](index=340&type=chunk)

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Financial Data and Key Metrics Changes - Revenue grew 34% year-over-year to approximately $251 million [33] - Ex-TAC gross profit increased 40% year-over-year to $68 million [33] - Adjusted EBITDA rose 56% year-over-year to approximately $20 million [62] Business Line Data and Key Metrics Changes - Net revenue retention was 128%, indicating strong monetization from existing partners [35] - The company added over 100 new digital properties in Q3, including significant renewals with key partners [36] - Video revenue increased to approximately 9% of total revenue, growing faster than other formats [45] Market Data and Key Metrics Changes - Approximately 70% of total revenues came from mobile, with 60% of revenues generated outside the U.S. [56][111] - The company experienced strong growth in various verticals, particularly in health, entertainment, and finance, despite some temporary tightening in automotive budgets [77][118] Company Strategy and Development Direction - The company positions itself as an operating system for publishers, focusing on long-term partnerships and delivering value beyond ad monetization [11][17] - Investments in algorithmic improvements, such as the quality rating algorithm, aim to enhance ad quality and expand user engagement [18][84] - The company plans to deepen relationships with publishers and expand into new ad placements to drive growth [26][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning amidst privacy changes and the shift towards contextual targeting [29][30] - The outlook for advertising recovery remains strong, with expectations for increased budgets and higher pricing in the digital advertising space [101][102] - The company anticipates continued growth opportunities driven by the shift of advertising dollars to digital and the open web [47][108] Other Important Information - The company raised significant capital through its IPO and convertible notes, enhancing its liquidity position [63][64] - Operating expenses increased due to investments in personnel and costs associated with becoming public [58][60] Q&A Session Summary Question: Impact of cookie depreciation and advertising verticals - Management noted that the company has successfully operated without third-party cookies in certain environments and sees strength in contextual targeting and first-party data [73][75] - Demand remains strong across various verticals, with some temporary tightening in automotive budgets [77] Question: Quality score algorithm and revenue potential - The quality rating algorithm aims to improve engagement with non-engaging users and attract more brand advertisers [84][86] Question: Video revenue growth and publisher placements - Management is focused on expanding video placements and sees significant growth potential in this area [88][89] Question: Competitive landscape and advertiser pricing - The company is experiencing higher pricing in its network, which is driving yield improvements and attracting new advertisers [96] Question: Macro outlook for 2022 - Management believes that advertising recovery will remain strong, with expectations for increased budgets in the second half of 2022 [102][104] Question: International revenue trends and customer count - International revenue continues to outpace U.S. growth, and the advertiser count has increased year-over-year [111][112]

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 June 30, 2021 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) Delaware 20-5391629 (State or other jurisdicti ...

Outbrain Inc. (NASDAQ:OB) Q2 2021 Earnings Conference Call August 17, 2021 8:30 AM ET Company Participants Yaron Galai - Co-Founder And Co-CEO David Kostman - Co-CEO Elise Garofalo - CFO Jason Kiviat - Sr. Director, FP&A Conference Call Participants Nick Jones - Citi Shweta Khajuria - Evercore ISI Ron Josey - JMP Securities. Ross Sandler - Barclays Operator Good morning, and welcome to Outbrain's Second Quarter 2021 Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for ...