Outbrain (OB) - 2021 Q4 - Annual Report

Part I Business 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] - 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][50][54] 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][64][67] - 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] Risk Factors 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][112] - 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] - 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][140] - 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][166][168] - 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][492] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[218] Properties 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] - A key technology and development facility is located in Netanya, Israel, occupying approximately 44,000 square feet[220] Legal Proceedings 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] Mine Safety Disclosures This item is not applicable to the company - Not applicable[223] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[228] - On February 28, 2022, the Board of Directors approved a stock repurchase program authorizing up to $30 million of its common stock[232][556] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][290] - 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][300] - 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][387] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - 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][377] Financial Statements and Supplementary Data 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] 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] - Subsequent to year-end, the company completed the acquisition of vi for approximately $55 million and authorized a $30 million stock repurchase program[556][557] Changes in and Disagreements With Accountants on Accounting and Financial Disclosures 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] Controls and Procedures 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] - No material changes were made to internal control over financial reporting during the quarter ended December 31, 2021[560] Other Information The company reports no other information for this item - None[563] Part III Directors, Executive Officers and Corporate Governance Information required by this item will be included in the company's 2022 Proxy Statement and is incorporated herein by reference Executive Compensation 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 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 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 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 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] - No financial statement schedules are filed with this report[576] Form 10-K Summary The company reports no summary for this item - None[583]