Outbrain (US:OB)2024-08-08 20:42Part I - Financial Information Financial Statements The company's unaudited condensed consolidated financial statements show key figures and a subsequent agreement to acquire Teads S.A Condensed Consolidated Balance Sheets Total assets and liabilities decreased as of June 30, 2024, driven by lower accounts receivable and payable Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $356,561 | $401,776 | | Cash and cash equivalents | $75,080 | $70,889 | | Accounts receivable, net | $153,809 | $189,334 | | Total Assets | $626,210 | $664,637 | | Total Current Liabilities | $261,346 | $297,621 | | Accounts payable | $129,377 | $150,812 | | Long-term debt | $118,000 | $118,000 | | Total Liabilities | $410,234 | $441,573 | | Total Stockholders' Equity | $215,976 | $223,064 | Condensed Consolidated Statements of Operations Revenue decreased year-over-year for Q2 and H1 2024, resulting in a net loss compared to a net income in the prior year Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $214,148 | $225,800 | $431,112 | $457,574 | | Gross Profit | $45,576 | $44,021 | $87,171 | $85,176 | | Loss from operations | ($5,627) | ($7,659) | ($12,224) | ($16,969) | | Net (Loss) Income | ($2,199) | $11,282 | ($7,240) | $5,677 | | Diluted Net (Loss) Income per Share | ($0.04) | ($0.09) | ($0.15) | ($0.16) | Condensed Consolidated Statements of Cash Flows Net cash from operations improved significantly in H1 2024, while investing and financing activities saw reduced cash movements Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $12,236 | ($18,651) | | Net cash (used in) provided by investing activities | ($759) | $79,398 | | Net cash used in financing activities | ($6,485) | ($105,277) | | Net increase (decrease) in cash | $4,600 | ($45,776) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue by geography, debt structure, and the significant subsequent agreement to acquire Teads S.A - The company operates as a single reporting segment, with its Chief Executive Officer acting as the chief operating decision maker30 Revenue by Geography (in thousands) | Region | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | USA | $59,863 | $68,889 | $119,272 | $141,105 | | EMEA | $130,724 | $134,486 | $266,543 | $268,240 | | Other | $23,561 | $22,425 | $45,297 | $48,229 | | Total | $214,148 | $225,800 | $431,112 | $457,574 | - As of June 30, 2024, the company had $118.0 million in principal amount of 2.95% Convertible Senior Notes due 2026 outstanding6364 - On August 1, 2024, Outbrain entered into a definitive agreement to acquire Teads S.A. for $725.0 million in cash, 35.0 million shares of common stock, and 10.5 million shares of Series A Convertible Preferred Stock899093 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses decreased revenue but improved gross profit and Adjusted EBITDA, alongside the planned Teads acquisition Business Overview and Recent Developments The company's Q2 2024 performance shows lower revenue but higher gross profit, highlighted by the agreement to acquire Teads S.A Q2 2024 Performance Summary (in millions) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Revenue | $214.1 | $225.8 | | Gross Profit | $45.6 | $44.0 | | Ex-TAC Gross Profit (Non-GAAP) | $56.0 | $54.6 | | Net (Loss) Income | ($2.2) | $11.3 | | Adjusted EBITDA (Non-GAAP) | $7.4 | $3.5 | - On August 1, 2024, Outbrain agreed to acquire Teads S.A. for $725.0 million in cash, 35.0 million common shares, and 10.5 million shares of Series A Convertible Preferred Stock110111 - The company acknowledges that the ongoing war in Israel and broader macroeconomic uncertainties have negatively impacted advertisers115117119 Factors Affecting Our Business Business performance is driven by media partner retention, new partner growth, user engagement, and strategic technology investments - Media partner net revenue retention was approximately 89% for both the three and six months ended June 30, 2024123 - Revenue from new media partners contributed approximately 6% and 5% to revenue growth for the three and six months ended June 30, 2024, respectively124 - The company is focused on expanding into new environments and formats, including video and high-impact display through its Onyx by Outbrain™ platform127130 - Investment in its AI prediction engine and proprietary cloud infrastructure is a key competitive advantage for cost-effective scaling132135 Results of Operations Q2 2024 revenue fell 5.2% YoY while gross profit grew 3.5%, though the company recorded a net loss versus a prior-year net income - Q2 2024 vs Q2 2023: Revenue decreased by $11.7 million (5.2%), primarily due to lower ad impressions and weaker demand from existing partners153 - Q2 2024 vs Q2 2023: Gross profit increased by $1.6 million (3.5%) as Traffic Acquisition Costs (TAC) decreased at a faster rate (7.6%) than revenue155156 - H1 2024 vs H1 2023: Revenue decreased by $26.5 million (5.8%), while gross profit increased by $2.0 million (2.3%), shifting the company to a net loss of $7.2 million164168177 - H1 2024 vs H1 2023: Operating expenses decreased by $2.7 million (2.7%), driven by lower severance costs, partially offset by $3.7 million in fees for the Teads acquisition170 Non-GAAP Reconciliations Reconciliations show increased Ex-TAC Gross Profit and Adjusted EBITDA for Q2 2024, with a significant improvement in free cash flow Reconciliation of Gross Profit to Ex-TAC Gross Profit (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Gross profit | $45,576 | $44,021 | $87,171 | $85,176 | | Other cost of revenue | $10,381 | $10,555 | $20,940 | $21,598 | | Ex-TAC Gross Profit | $55,957 | $54,576 | $108,111 | $106,774 | Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | ($2,199) | $11,282 | ($7,240) | $5,677 | | Adjustments | $9,608 | ($7,779) | $16,046 | ($1,479) | | Adjusted EBITDA | $7,409 | $3,503 | $8,806 | $4,198 | Reconciliation to Free Cash Flow (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $12,236 | ($18,651) | | Purchases of property and equipment | ($2,140) | ($5,091) | | Capitalized software development costs | ($5,130) | ($5,503) | | Free cash flow | $4,966 | ($29,245) | Liquidity and Capital Resources The company maintains strong liquidity of $294.0 million and has secured debt financing for the upcoming Teads acquisition Available Liquidity as of June 30, 2024 (in thousands) | Source | Amount | | :--- | :--- | | Cash and cash equivalents | $75,080 | | Short-term investments | $87,592 | | Long-term investments | $66,217 | | Revolving Credit Facility | $65,144 | | Total | $294,033 | - The company has a debt commitment for a $100 million revolving credit facility and a $750 million bridge facility to fund the Teads acquisition192 - Under its $30 million share repurchase program, the company repurchased $5.9 million of its common stock in H1 2024, with $6.6 million remaining available199 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency, interest rate, inflation, and credit risks, with specific sensitivities outlined - The company is exposed to foreign currency risk as a majority of operating expenses are in USD, but the remainder are primarily in New Israeli Shekels, British pound sterling, and Euros214 - A hypothetical 10% change in weighted-average exchange rates would result in a $4.8 million favorable or unfavorable change to operating income for H1 2024215 - Interest rate risk exposure is primarily from the company's $75.1 million in cash and $153.8 million in marketable securities217218 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures are effective to provide reasonable assurance221 - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting222 Part II - Other Information Legal Proceedings The company is not currently party to any material legal proceedings that would materially impact its financial condition - The Company is not currently a party to any material legal proceedings that would have a material adverse effect on its business or financial condition71225 Risk Factors Significant risks are associated with the pending Teads acquisition, including completion uncertainty, integration challenges, and increased debt - The completion of the Teads acquisition is subject to conditions, and failure to complete it could materially harm the company's stock price and business226227 - The company faces risks in successfully integrating Teads' operations and realizing anticipated synergies, with potential for business disruption231233 - To fund the acquisition, the company will incur up to $750 million of new debt, which will substantially increase its indebtedness236 - Post-transaction, Altice will own approximately 42% of the company's common stock and will have significant influence over the company234235 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 464,054 shares for approximately $2.0 million during the three months ended June 30, 2024 Share Repurchases for Three Months Ended June 30, 2024 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Approx. Value Remaining in Program (thousands) | | :--- | :--- | :--- | :--- | :--- | | April 2024 | 261,650 | $4.11 | 244,448 | $7,615 | | May 2024 | 221,175 | $4.57 | 219,606 | $6,615 | | June 2024 | 28,317 | $4.57 | — | $6,615 | | TOTAL | 511,142 | $4.33 | 464,054 | | Exhibits This section lists exhibits filed with the Form 10-Q, including agreements related to the Teads acquisition and officer certifications