Outbrain (OB) - 2024 Q4 - Annual Report

Part I Item 1. Business The company operates as a leading omnichannel advertising platform following the acquisition of Teads - On February 3, 2025, Outbrain Inc. completed the acquisition of TEADS for approximately $900 million, consisting of $625 million in cash and 43.75 million shares of Outbrain's common stock; the combined company will operate under the name Teads[23] - The combined company operates a two-sided marketplace, connecting global advertisers with media owners to provide an end-to-end advertising solution across the Open Internet[28][29] - The company's strategy focuses on providing a unified, full-funnel solution, deepening partner relationships, and investing in innovation, particularly in high-growth areas like CTV[62][63][64] Our Offerings The company provides a two-sided marketplace with distinct solutions for advertisers and media owners - Advertiser solutions include multiple buying methods like a CPC performance platform and CPM-based managed/self-service platforms, designed to drive outcomes from branding to performance[32][33] - The company partners with over 10,000 media owners, including premium publishers and CTV/Smartphone OEMs, providing them with advertising revenue and engagement technology; Outbrain's top 20 media partners have an average tenure of 7 years[35] - Agreements with media partners typically involve revenue sharing, programmatic bidding for inventory, or guaranteed minimum payments to secure access to inventory[36] Industry The company operates in the growing digital ad market, driven by video, AI, and regulatory shifts - The digital advertising market for online video, static display, and CTV is projected to grow from $140 billion in 2023 to $192 billion in 2027, representing an 8% CAGR[38] - Consumer time spent on the Open Internet increased from 51% in 2017 to 61% in 2023, while time on social/walled garden platforms decreased, indicating a shift in user behavior that benefits the company's ecosystem[43] - The industry is seeing increased use of AI for content and ad creation, alongside growing regulatory scrutiny on privacy and antitrust, which may favor Open Internet platforms[42][45][46] Our Strengths Key strengths include significant scale, a full-funnel offering, and exclusive publisher relationships - The company is one of the largest Open Internet advertising platforms, with over $1.7 billion in advertising spend in 2024, operating across more than 50 markets[47][50] - Teads maintains strategic Joint Business Partnerships (JBPs) with major brands like Apple and LVMH, representing an average of $5 million in annual spend per JBP as of December 31, 2024[50][51] - The company has high retention rates with its partners; in 2024, Teads retained approximately 90% of its top 500 publisher relationships, and Outbrain retained about 98% of publishers generating over $10,000 quarterly[57] - The company's innovative CTV offering is a significant growth driver, with integrations with leading OEMs like LG and VIDAA, offering exclusive ad inventory on CTV home screens[53] Human Capital Resources The company employs approximately 1,800 people globally with a focus on employee development - The company has approximately 1,800 employees, with a significant presence in Israel (18%), France (16%), Slovenia (6%), and the United States (13%); the remaining 47% are distributed across other global offices[81] Regulatory Environment The company navigates a complex global regulatory landscape, particularly concerning data privacy - The company must comply with major regulations like the EU's Digital Services Act (DSA), which became enforceable in February 2024, and the General Data Protection Regulation (GDPR), which carries significant penalties for non-compliance[86][89] - Data transfer mechanisms, such as the E.U.-U.S. Data Privacy Framework (DPF), are critical for operations but face ongoing legal challenges, creating uncertainty for transferring personal data from the E.U. to the U.S[91] - The company actively participates in self-regulatory bodies like the Network Advertising Initiative (NAI) and Digital Advertising Alliance to adhere to industry standards for responsible data collection and use in digital advertising[93] Item 1A. Risk Factors The company faces significant risks related to acquisition integration, operations, and regulations - A summary of principal risks includes the ability to successfully integrate Teads, realize synergies, manage unexpected costs from the acquisition, and handle potential litigation[102] - Operational risks include high dependence on overall advertising demand, intense competition from both large tech platforms and smaller companies, and the potential loss of large media partners[134][144][150] - Significant legal and regulatory risks stem from evolving data privacy laws like GDPR and CCPA, limitations on data collection (e.g., cookie deprecation), and compliance with international advertising standards[220][222] - Geopolitical risks, particularly the ongoing conflict in Israel where a material part of operations and key personnel are located, could adversely affect operations and business continuity[162][164] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[274] Item 1C. Cybersecurity Risk Management and Strategy The company maintains a comprehensive cybersecurity program overseen by the Board's Audit Committee - Outbrain utilizes the COBIT framework and holds ISO 27001, 27017, and 27032 certifications; Teads utilizes the NIST framework and maintains SOC2 Type 2 certification[276] - The Board's Audit Committee provides oversight for cybersecurity risk, receiving quarterly reports from management and briefings from the Chief Information Security Officer (CISO)[280][281][282] - Following the acquisition, Teads' legacy information systems are maintained separately but are being evaluated for operational integration into the company's overall cybersecurity strategy[285] Item 2. Properties The company leases office and technology facilities globally, with key locations in New York and Israel - Corporate headquarters are located in New York, NY, in a 23,000 sq. ft. office[286] - Major technology and development centers are located in Netanya, Israel (60,000 sq. ft.) and Ljubljana, Slovenia (16,000 sq. ft.)[287] - The legacy Teads business is headquartered in Paris, France, with a significant technology presence in Montpellier, France[288] Item 3. Legal Proceedings Details regarding legal proceedings are referenced in the notes to the financial statements - Details on legal proceedings can be found in Note 11 of the financial statements[290] Item 4. Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[291] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section covers the company's common stock, dividend policy, and share repurchase program - The company's common stock trades on Nasdaq under the symbol "OB"; following the Teads acquisition, the combined company is expected to operate under the name Teads[293] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, prioritizing reinvestment into the business and debt obligations[295] Share Repurchase Activity (Q4 2024) | Period | Total Shares Purchased | Average Price Paid | Approx. Dollar Value Remaining ($ thousands) | | :--- | :--- | :--- | :--- | | October 2024 | 15,846 | $4.61 | $6,615 | | November 2024 | 1,268 | $5.04 | $6,615 | | December 2024 | 21,140 | $6.19 | $6,615 | | TOTAL | 38,254 | $5.50 | $6,615 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Outbrain's pre-acquisition financial performance, liquidity, and key business drivers - On February 3, 2025, Outbrain completed the acquisition of Teads; the financial statements in this report do not include Teads' results as the acquisition occurred after the fiscal year-end[303][304] - In connection with the acquisition, the combined company announced a restructuring plan on February 3, 2025, involving a workforce reduction and estimated charges of $20 million to $25 million[318] - To finance the acquisition, the company secured new credit facilities and subsequently issued $637.5 million in 10.000% senior secured notes due 2030 to refinance the initial bridge loan[321][323][324] Outbrain Financial Performance Summary (FY 2024 vs. FY 2023) | Metric | FY 2024 | FY 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $889.9M | $935.8M | -4.9% | | Gross Profit | $192.1M | $184.8M | +4.0% | | Ex-TAC Gross Profit (Non-GAAP) | $236.1M | $227.4M | +3.9% | | Net (Loss) Income | ($0.7M) | $10.2M | -106.9% | | Adjusted EBITDA (Non-GAAP) | $37.3M | $28.5M | +30.9% | Results of Operations Revenue declined 4.9% to $889.9 million, while gross profit grew 4.0% to $192.1 million in 2024 - Revenue decreased by $45.9 million (4.9%) year-over-year, attributed to an 88% net revenue retention rate on existing media partners, offset by approximately 6% growth from new media partners[371] - Traffic acquisition costs (TAC) decreased by 7.7% to $653.7 million, and as a percentage of revenue, TAC improved to 73.5% from 75.7% in the prior year[373] - Operating expenses increased by $11.3 million, primarily due to $14.3 million in acquisition-related costs for the Teads transaction[377] Consolidated Statements of Operations (In thousands) | | Year Ended December 31, 2024 | Year Ended December 31, 2023 | | :--- | :--- | :--- | | Revenue | $889,875 | $935,818 | | Traffic acquisition costs | $653,731 | $708,449 | | Gross profit | $192,102 | $184,798 | | Total operating expenses | $204,740 | $193,437 | | Loss from operations | ($12,638) | ($8,639) | | Net (loss) income | ($711) | $10,242 | Non-GAAP Reconciliations This section reconciles GAAP metrics to non-GAAP measures like Ex-TAC Gross Profit and Adjusted EBITDA Reconciliation of Gross Profit to Ex-TAC Gross Profit | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Gross profit (GAAP) | $192,102 | $184,798 | | Other cost of revenue | $44,042 | $42,571 | | Ex-TAC Gross Profit (Non-GAAP) | $236,144 | $227,369 | Reconciliation of Net (Loss) Income to Adjusted EBITDA | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net (loss) income (GAAP) | ($711) | $10,242 | | Adjustments (Interest, Taxes, D&A, etc.) | $20,898 | $32,954 | | Stock-based compensation | $15,461 | $12,141 | | Merger and acquisition costs | $14,256 | $0 | | Severance costs | $742 | $3,509 | | Gain related to convertible debt | ($8,782) | ($22,594) | | Adjusted EBITDA (Non-GAAP) | $37,300 | $28,455 | Liquidity and Capital Resources The company maintains liquidity through cash, investments, and credit facilities, securing new financing for the Teads acquisition - On February 11, 2025, the company's subsidiary completed a private offering of $637.5 million in 10.000% senior secured notes due 2030 to refinance the bridge loan used for the Teads acquisition[414] - As of December 31, 2024, $6.6 million remained available for repurchases under the company's $30 million share repurchase program[420] Sources of Liquidity as of Dec 31, 2024 (in thousands) | Source | Amount | | :--- | :--- | | Cash and cash equivalents | $89,094 | | Short-term investments | $77,035 | | Revolving Credit Facility | $58,125 | | Total | $224,254 | Summary of Cash Flows (in thousands) | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $68,561 | $13,746 | | Net cash provided by investing activities | $67,153 | $69,640 | | Net cash used in financing activities | ($117,702) | ($117,068) | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks including foreign currency, interest rate, and inflation - The company is exposed to foreign currency risk as a majority of its revenue and expenses are in U.S. Dollars and Euros, with significant operating expenses also in New Israeli Shekels[448] - A hypothetical 10% adverse change in weighted-average exchange rates would result in a $10.5 million unfavorable change to operating loss for the year ended December 31, 2024[450] - Interest rate risk primarily affects the company's cash, cash equivalents, and investment portfolio; a 100 basis point change in interest rates would alter the portfolio's fair value by about $0.2 million[453] Item 8. Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for fiscal year 2024 Consolidated Balance Sheet Summary (As of Dec 31, 2024) | | Amount (in thousands) | | :--- | :--- | | Total Current Assets | $343,131 | | Total Assets | $549,213 | | Total Current Liabilities | $289,471 | | Total Liabilities | $317,870 | | Total Stockholders' Equity | $231,343 | Consolidated Statement of Operations Summary (Year Ended Dec 31, 2024) | | Amount (in thousands) | | :--- | :--- | | Revenue | $889,875 | | Gross Profit | $192,102 | | Loss from Operations | ($12,638) | | Net Loss | ($711) | Consolidated Statement of Cash Flows Summary (Year Ended Dec 31, 2024) | | Amount (in thousands) | | :--- | :--- | | Net cash provided by operating activities | $68,561 | | Net cash provided by investing activities | $67,153 | | Net cash used in financing activities | ($117,702) | | Net increase in cash | $18,646 | Item 9A. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective - Based on an evaluation as of December 31, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[672] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2024, based on the COSO 2013 framework[677] - The report does not include an auditor's attestation on internal control over financial reporting, as permitted for emerging growth companies under the JOBS Act[680] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors and governance is incorporated by reference from the 2025 Proxy Statement - Information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference[684] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2025 Proxy Statement - Information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference[686] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the 2025 Proxy Statement - Information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference[687] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions is incorporated by reference from the 2025 Proxy Statement - Information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference[688] Item 14. Principal Accountant Fees and Services Information on accountant fees is incorporated by reference from the 2025 Proxy Statement - Information required by this item will be included in the 2025 Proxy Statement and is incorporated herein by reference[689] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the report - This item provides an index to the company's financial statements and lists all exhibits filed with the Form 10-K, including key agreements related to the Teads acquisition[692][693] Item 16. Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[699]