Taboola.com(TBLA) - 2023 Q1 - Quarterly Report

PART I Financial Statements (Unaudited) Presents Taboola.com Ltd.'s unaudited interim financial statements as of March 31, 2023, detailing financial position, performance, and cash flows Consolidated Interim Balance Sheets Total assets increased to $1.77 billion as of March 31, 2023, driven by a $289.5 million commercial agreement asset, with equity rising to $1.11 billion Balance Sheet Highlights (in thousands) | Balance Sheet Highlights (in thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,767,907 | $1,529,623 | | Cash and cash equivalents | $218,849 | $165,893 | | Commercial agreement asset | $289,451 | $0 | | Goodwill | $555,931 | $555,869 | | Total Liabilities | $659,244 | $695,088 | | Long-term loan, net | $192,737 | $223,049 | | Total Shareholders' Equity | $1,108,663 | $834,535 | - A new 'Commercial agreement asset' of $289.5 million was recognized, related to the 30-year exclusive agreement with Yahoo[17][27] Consolidated Interim Statements of Income (Loss) The company reported a net loss of $31.3 million in Q1 2023, a shift from prior year net income, as revenues decreased to $327.7 million and operating loss widened Income Statement (in thousands) | Income Statement (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenues | $327,686 | $354,726 | | Gross Profit | $89,592 | $112,030 | | Operating Loss | $(28,798) | $(7,699) | | Net Income (Loss) | $(31,313) | $3,888 | | Diluted EPS | $(0.09) | $0.01 | Consolidated Interim Statements of Cash Flows Net cash from operations increased to $17.5 million in Q1 2023, while investing activities provided $35.3 million, leading to a $53.0 million increase in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,524 | $8,123 | | Net cash provided by (used in) investing activities | $35,310 | $(49,648) | | Net cash provided by (used in) financing activities | $(206) | $804 | | Increase (decrease) in cash and cash equivalents | $52,956 | $(41,392) | Notes to Consolidated Interim Financial Statements Detailed notes disclose the $288.1 million Yahoo commercial agreement, issuance of shares, financing arrangements including a $300 million term loan, and $16.1 million in share-based compensation expense - On January 17, 2023, the company closed its 30-year commercial agreement with Yahoo, issuing shares with an aggregate fair value of $288.1 million[27] - The company has a $300 million senior secured term loan and an undrawn $90 million revolving credit facility; a $30 million term loan prepayment was made in April 2023[65][69][73] Revenue by Geography (in thousands) | Revenue by Geography (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | United States | $112,904 | $134,686 | | Israel | $57,626 | $50,694 | | Germany | $30,775 | $38,392 | | United Kingdom | $17,711 | $18,544 | | Rest of the world | $108,670 | $112,410 | | Total | $327,686 | $354,726 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 performance, attributing a 7.6% revenue decline to macroeconomic headwinds, while highlighting the Yahoo partnership and cost management efforts, with liquidity deemed sufficient Key Factors and Trends Affecting Performance Performance is impacted by macroeconomic volatility and seasonality, leading to a September 2022 cost restructuring, while growth strategies focus on expanding partnerships, advertiser base, and improving network yield - Global economic and geopolitical volatility has negatively impacted advertising demand and yields, leading to a cost restructuring program in September 2022 affecting approximately 6% of global headcount[103][104] - The company's growth strategy focuses on increasing revenue from its approximately 15,000 digital property partners and 18,000 advertiser clients by improving algorithms, offering new products, and finding new ad placements[105][107][109] - The business is subject to seasonal trends, with advertising spend typically highest in the fourth quarter and lowest in the first quarter[113] Key Financial and Operating Metrics Key GAAP metrics for Q1 2023 include $327.7 million in revenues and $89.6 million in gross profit, while non-GAAP metrics show ex-TAC Gross Profit of $115.7 million and Adjusted EBITDA of $10.1 million Key Metrics (in thousands) | Key Metrics (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenues | $327,686 | $354,726 | | Gross profit | $89,592 | $112,030 | | Net income (loss) | $(31,313) | $3,888 | | Non-GAAP Metrics | | | | ex-TAC Gross Profit | $115,740 | $138,228 | | Adjusted EBITDA | $10,122 | $34,856 | | Free Cash Flow | $11,174 | $1,221 | Reconciliation: Net Income (Loss) to Adjusted EBITDA (in thousands) | Reconciliation: Net Income (Loss) to Adjusted EBITDA (in thousands) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income (loss) | $(31,313) | $3,888 | | Finance (income) expenses, net | $3,154 | $(11,195) | | Income tax benefit | $(639) | $(392) | | Depreciation and amortization | $22,601 | $22,676 | | Share-based compensation expenses | $13,527 | $17,039 | | Holdback compensation expenses | $2,555 | $2,790 | | M&A and other costs | $237 | $50 | | Adjusted EBITDA | $10,122 | $34,856 | Results of Operations Q1 2023 revenues decreased by 7.6% to $27.0 million due to weaker advertising demand, while gross profit fell 20.0%, and guarantee costs significantly impacted traffic acquisition costs - Revenues decreased by $27.0 million (7.6%) year-over-year, primarily due to lower yields from existing digital properties, partially offset by new partners[167] - Ex-TAC Gross Profit decreased by $22.5 million (16.3%) year-over-year, attributed to lower yields and a mix shift to lower margin digital properties[170] - The cost of guarantees increased significantly, representing 19% of traffic acquisition costs in Q1 2023, up from 10% in Q1 2022[172] Liquidity and Capital Resources As of March 31, 2023, the company held $274.4 million in cash and investments, with an undrawn $90 million revolving credit facility, believing liquidity is sufficient for the next 12 months, and made a $30 million loan prepayment - The company's primary cash needs are for working capital, personnel, and contractual obligations, funded mainly by cash from operations, which was $17.5 million in Q1 2023[179] - As of March 31, 2023, the company had $274.4 million in cash, cash equivalents, and short-term investments, and an undrawn $90 million revolving credit facility[181][183] - In April 2023, the company voluntarily prepaid $30.0 million of its outstanding long-term loan, which had a principal balance of $234.2 million at quarter-end[184] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks including foreign currency, interest rate, inflation, and credit risks, with significant exposure to NIS, EUR, GBP, JPY, and a $234.2 million variable-rate loan - The company is exposed to foreign currency risk, particularly from the NIS, Euro, British pound, and Japanese yen; a 10% adverse change in the NIS/USD rate would have an $0.8 million impact on operating loss[208] - The company has interest rate risk from its $234.2 million variable-rate long-term loan, where fluctuations will impact interest expense[211] - Credit risk is present from accounts receivable and cash deposits held in banks, which significantly exceed FDIC and FSCS insurance limits[215][216] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level[219] - No material changes were identified in the company's internal control over financial reporting during the first quarter of 2023[221] PART II Legal Proceedings The company is cooperating with a U.S. Department of Justice criminal investigation into industry hiring activities, believing its conduct was lawful, and is not party to other material legal proceedings - The company is cooperating with a U.S. Department of Justice criminal investigation into hiring activities in its industry but does not believe its conduct violated applicable law[90] Risk Factors No material changes to risk factors were identified from those disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - There are no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022[223] Unregistered Sales of Equity Securities and Use of Proceeds On January 17, 2023, the company issued 39.5 million Ordinary Shares and 45.2 million Non-Voting Ordinary Shares to Yahoo in an unregistered transaction related to their commercial agreement - In January 2023, the company issued 39,525,691 Ordinary Shares and 45,198,702 Non-Voting Ordinary Shares to Yahoo in an unregistered transaction related to their commercial agreement[224] Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including agreements related to the Yahoo transaction and CEO/CFO certifications - Lists exhibits filed with the report, including agreements related to the Yahoo transaction and CEO/CFO certifications[229]