Outbrain (US:OB)2022-08-12 20:10Part I - Financial Information Financial Statements 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 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 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 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 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 goodwill495152 - 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, 20227581 - 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 program91 - 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 liabilities424345 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 conditions122149 - 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 deals151 Liquidity and Capital Resources 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 adjustments197198 - 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 2022192226 Quantitative and Qualitative Disclosures About Market Risk 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, 2022210211 - 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 risk212 - Inflation poses a risk by potentially increasing operating costs (like wages) and leading to reduced ad spend from advertisers, which could harm business results209 Controls and Procedures 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 level214 - 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 controls215 Part II - Other Information Legal Proceedings 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 law89218 Risk Factors 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 price220 Unregistered Sales of Equity Securities and Use of Proceeds 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 2022223 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 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 2016227 Exhibits This section lists exhibits filed with the Form 10-Q, including certifications by principal executive and financial officers and XBRL data files