Good day, and thank you for standing by. Welcome to the Taboola Second Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jessica Kourakos, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone, and welcome to Taboola's Second Quarter 2025 Earnings Conference Call. I'm here with Adam Singolda, Taboola's Founder and CEO; and Steve Walker, Taboola's CFO. The company issued earnings materials today before the market, and they are available to the Investors section of Taboola's website. Now I'll quickly cover the safe harbor. Certain statements today, including our expectations for future periods, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information, and we undertake no duty to update them, except as required by law. Today's discussion is also subject to the forward-looking statement limitations in the earnings press release. Future events could differ materially and adversely from those anticipated. During this call, we will use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings release posted on our website. With that, I'll turn the call over to Adam.

Thanks, Jessica. Good morning, everyone, and thank you all for joining us today. Let me start by saying that I'm happy with our Q2 performance and the momentum we're seeing since exiting the quarter. We delivered a strong second quarter, beating the high end of our guidance across all key metrics, buying back about 12% of the company in just the first half of the year, reflecting our confidence in the business and our long-term vision. As a result, we're raising full-year guidance across the board and are continuing to aggressively buy back shares. We're also seeing exciting early traction with Realize, our new performance advertising platform, and we truly believe we're just getting started. Before we go deeper on the quarter and our outlook, I want to quickly remind everyone who we are, the opportunity we're going after, and why we believe we can win. Taboola is one of the largest performance advertising platforms on the OpenWeb. Our platform, Realize, helps businesses of all sizes get leads and grow sales. It operates similar to Google Ads or Meta ads, offering a simple-to- use platform powered by AI. The key difference is that while Google reaches users in search and Meta in social, Realize engages 600 million people every day across the OpenWeb on publisher sites like Yahoo, NBC, ESPN, USA Today, Apple News, Samsung, and others, driving those people to action. Our competitive advantage lies in our AI and first-party data drawn from what people actually read about versus what people idealize of themselves in social media, giving advertisers authentic insights into user intent and high- performing outcomes. In 2025, we expect nearly $2 billion in gross revenue and approximately $700 million in ex-TAC gross profit, which is what we keep after we pay our partners and a key…

Thanks, Adam, and good morning, everyone. As Adam mentioned, we had a strong first half of the year. In the second quarter, we reported results above the high end of our guidance across all key metrics. Second quarter revenues reached $465.5 million, representing 8.7% year-over-year growth. Our revenue growth this quarter was driven by an 8.5% year-over-year increase in the number of scaled advertisers, coupled with a 1.8% year-over-year increase in average revenue per scaled advertiser. This reflects strong execution on both acquiring new advertisers and deepening relationships with existing ones. While these 2 metrics can sometimes move in opposite directions as newer advertisers typically start at lower spend levels, this quarter saw broad-based strength across both, which is a positive signal for the health and momentum of our business. As I have said in the past, I'm particularly encouraged by the growth in the number of advertisers because they are essentially the fuel for our future growth. Ex-TAC gross profit reached $172.1 million, representing 15.1% year-over-year growth. This included a 45-basis-point tailwind from foreign exchange rates. Growth was primarily driven by higher advertising spend, margin expansion on certain digital publishers, and strong contributions from Taboola News and Bidded Supply. The growth rate also benefited from a favorable comparison to last year due to the onboarding of Yahoo advertisers. Gross profit for the quarter was $135.6 million, primarily benefiting from strong ex-TAC gross profit growth. As mentioned last quarter, gross profit also benefited from reductions in our other cost of revenues, driven by lower server and network infrastructure costs, some of which came from a reduction in depreciation expenses related to our servers due to a reassessment of their useful. Our net loss was $4.3 million, with non-GAAP net income coming in positive at $30.2 million. Adjusted EBITDA for the…

[Operator Instructions] First question comes from the line of Jason Helfstein with Oppenheimer.

So I guess, literally, just right kind of going on to what you just talked about. So what's the roadmap from here to get back to double digits from the current 3% to 5%? How much of that is investing more in sales, better sales, AdTech? Just take us through how do you get back to double digits.

Thanks, Jason. So I think in terms of looking like how do we get back to double-digit growth, I think, first of all, let me talk about how to think about our business right now. So we obviously don't want to guide to next year or anything like that. But having said that, the best way to look at our forward-looking growth rates is to look at our full-year guide now, which is 3% to 5%. That guide doesn't include Realize. And obviously, the path back to double-digit growth is for Realize to start to allow us to win more budgets from social, win more budgets from display, basically to expand into that much larger TAM that we talked about at our Investor Day. That is the primary thing that needs to happen to get back to double-digit growth. For now, we're not baking it into our guide for the rest of this year. And I think the way to think about our business is that 3% to 5% growth, but we think Realize can get us back to double-digit growth.

And then just a quick follow-up. So obviously, performance marketing has gotten increasingly competitive just for a lot of reasons. Just maybe talk about why you think the product fits the need of marketers right now.

Yes, I can get this one. So in general, I think we've realized we -- the first thing we did is we made it very easy for advertisers, big and small to work with us. So we're no longer asking them for a specialized type of workflow. They can import their social formats. They can import the display formats, give us -- it's very much like a Google Ad Manager, whereby they give us their goal. We advise them using AI, what budget they should use. And from that point on, we take it across all of our different types of supply. And I think because Taboola has such a huge distribution with incredible partners such as Yahoo! and Apple and Microsoft and Disney, NBC, USA Today, local sites, sports sites, we have reached to consumers such that we get to see -- outside of Google and Meta, we see people on a consistent basis, probably more than anyone in the OpenWeb. And then alongside our investment in AI, which is now very significant, we're very good at looking for conversions quickly for advertisers, and then from there, grow the budget. I spoke about earlier in my remarks about a few case studies out of hundreds of advertisers that have tested Realize, and we're seeing exactly the type of dynamics you want to see. One, we're working with new advertisers that beforehand did not work with Taboola because of us being specialized and focused on native. Now that we make it easier for people to try us out, we're seeing new advertisers that are trying Realize and are succeeding. And the second thing we're seeing is growth in budgets. And like Stephen mentioned, that is the main focus for the company to get more advertisers to work with us and to get budgets to go up and right. So I think we're best positioned outside of Meta and Google to find conversions for advertisers because it's easy, we have the distribution. We have the data and AI to make it work.

The next question comes from the line of Laura Martin with Needham & Company.

And I want to follow up on this answer you just gave to Jason's question. I would have said that this 2% increase in budget is disappointing because I agree with what you just said, that increasing budgets from existing clients is the whole purpose behind Realize to try to get some of those native clients display budgets. So while the 9% increase in scale clients is really impressive, the 2% is really disappointing, and I do think that's our primary focus. So why isn't that growth higher for existing clients, do you think?

Yes. Laura, so I think that's a good question. And I think it's -- thanks for prompting on because it's important for us to talk about that. I think we have a good slide in our backup deck that's on our investors.taboola.com that you can take a look at. What you see there is that the number of scaled advertisers continues to grow, and you see kind of a nice up into the right trend. The average revenue per scaled advertiser has been kind of in that similar range for probably 7 or 8 quarters now. But the reason for that is the existing advertisers that we do have that have already been in that scaled category are growing. They're growing year-over-year, and that is the growth. But as we bring on new advertisers, they tend to start at the lower end of that range, and then they kind of grow over time. So they bring down the average somewhat. So basically, it's just because of the fact that we continue to grow that number of scaled advertisers that brings down the overall average.

So this isn't a same-store number. You're not looking at the prior year scaled advertiser holding it constant and look at theirs, you're allowing the new ones to lower the average.

That's correct. So it's not a same store. But by the way, that is a very interesting observation and maybe something that we'll look at in the future, giving some indication of more same-store.

Yes. I think that would be the better -- the more interesting number if it's growing faster than 2% because 2%, if that's your primary focus, does not look very impressive. And then, Adam, for you, OpenWeb. So sort of an increasing number of people are saying the OpenWeb is dead in part because this Google Search moving to Google Answers and sort of ChatGPT answering questions rather than sending links really does threaten sort of the OpenWeb writ large. And I understood your point that you have the best biggest brand clients. But I mean, even if the biggest brand client has 30% of its traffic coming from search, that's about to go to 0 in theory over the next 5 years. So they don't really sound very immune. But more importantly, I'd like you to discuss the whole notion of does the open Internet survive the change in generative AI search behavior?

I think that's a great question. So a few things, just starting with some stats, and then we can go into where I think it's going. So overall, for us as a company, we have seen a minimal impact to date from LLM-driven search changes. I spoke about 5% of our U.S. traffic as of now comes from search, and that's primarily because we have 2 types of publishers, one that are very big and are known brands who have a lot of direct traffic. So for them, search is 30%, 40%. And then we have sort of like big platforms such as Microsoft, Yahoo, Apple, and others, they don't get any search traffic. They're fairly or very little. So for that reason, as a company, we have about 5% comes from search, Google Search specifically. And the decline we've seen is in the mid-single digits. So as of now, it's not material. To me, in fact, that was the meeting I had before coming here today. I think where it's going is very exciting to me. I think that while search traffic may go down and will reduce page views to publishers from that perspective, there is a new kind of birth of new type of traffic that will go up, and that is LLM on publisher sites. And I think you may have seen we announced deeper dive, and I spoke about that, but to me, publishers for the first time that have trust with consumers could capitalize on offering LLM to consumers and create a new touch point and a new interaction with consumers that may be worth a lot more than the search traffic they lose. So if I'm a financial publisher or a sports publisher or a local site or a national site with a travel section, someone talking on my site about the travel they may take or mortgage you're considering taking using LLM, which is a behavior they're used to on ChatGPT, will be worth a fortune in my opinion. So I just -- I can tell you, I just booked a trip with my family in August. I started on ChatGPT. I spent 30 minutes, 30 seconds there, but I spent 30 minutes across the web looking for reviews and images because I knew want my racks to be upset that I'm taking it to a bad place. So I think the consumer behavior is that you start with some engines, but you then spend a lot of time reviewing, reading, getting curious, and educated before you make a decision, and that's where the OpenWeb shines. So I think that there's a huge opportunity for LLM thriving on the OpenWeb in ways that we have not seen yet.

And then my last question, which is my third question, is, walk me through why you would -- I love the fact you're shrinking the capital base. But why would you spend $100 million buying in shares and not touch the $88 million worth of debt when we don't have an AdTech company other than you guys really that has financial leverage?

Yes. No, that's a good question, Laura. So the way we're managing it right now is we're basically using the revolver as our kind of cushion to allow us to keep basically cash neutral roughly. So you saw we had about $27 million of net cash at the end of last quarter. But throughout the quarter, that fluctuates between kind of a negative net cash balance of around $30 million to $40 million, up to a positive cash balance of up to about $50 million to $60 million. And we use the revolver to manage that. So the way we're managing is we're managing to roughly cash neutral on an average basis over the course of the quarter, and then using the excess cash flow we have beyond that to buy back shares. So -- and we think that's the right way to do it because, a, it's very low risk. We, generally speaking, have enough cash to pay off the revolver at any given moment anyway. But it's also fairly capital efficient because we're able to swing into negative net cash territory for brief periods using the revolver and continue to be aggressive in our share buyback. So that's the way we're managing things. And generally, the other thing I would say is if you do the kind of capital structure math, we should be buying back shares in our belief, up to a much higher share price. So we think it's a good use of cash as well.

The next question comes from the line of Matt Condon with Citizens.

My first one is just on Realize. Can you just walk through again what are the potential gating factors as far as that ramping here at the end of '25, maybe into '26? Is it a function of just getting into annual budgeting and breaking in there? Can you just talk about just how we should think about the ramp into 2026?

Yes, I can start. So the biggest thing is, as you know, from Realize, the biggest opportunity for us is that we're tapping into a much bigger market of essentially performance budgets. So if you think about advertisers the way they think about advertisers the way they think about the future, and I think now more than ever, performance advertising is becoming the key part that advertisers want to make sure they're good at and they're diversified outside of search and social. In a world that's a bit volatile and things are changing. The first thing advertisers talk is brand dollars. And the last thing the stop is their kind of oxygen line, which is the performance advertising budget. And with Realize, we're tapping into 2 types of kind of parts of that market. The first one is display advertising budget, which is highly fragmented. So here, Realize needs to essentially be better than alternative ad tech platforms that are getting -- we estimate to be more than $10 billion a year. Many, many, many small companies that are getting a piece of that pie. And we think Taboola has a significant advantage because of our first-party data, because of our AI and distribution to allow us to take a piece of that sort of $10 billion display budget. That's part of it. And the second thing is that advertisers tell us that when they spend money on social at large, they're seeing some diminishing return at the tail of their spend. So if you look at kind of like their conversion rates over time, it starts well on social platforms, and then they get to kind of a bigger goal. And in the end of that campaign, a lot of times, it's too expensive. So they would love to give us 10%, 50% of their social spend, and see if we can drive similar performance. So we realize we're hard at work going after those 2 buckets. I think the first one, the display one, we're seeing kind of a lot of traction because, again, it's highly fragmented. And I think we have an advantage there, and social will be longer term for us. But that's how I see us doubling and tripling Taboola's revenue in years to come, taking advantage again of our first-party data and technology. And I'm happy that we were conservative in the way we think about the business to give our team an opportunity to work hard to keep innovating, learning from the market, and essentially see budget growth, which will drive the company's growth over time.

And then my second one is just on the growth scaled advertisers. Can you just talk about what were the drivers there? Was it just better budgets out of existing clients because of the improved macro environment or new customer acquisitions? Can you just talk about the driver there?

Yes. So I think if you look at the 2 numbers, the number of scaled advertisers grew about 9% and the average revenue per scaled advertiser grew about 2%. The number of scaled advertisers has been consistently growing for us over the last few years. And that, frankly, is just good sales effort from our sales teams, bringing on new customers and then working to grow them over time. I think it kind of speaks to our advantage as a performance advertising platform, the fact that we are able to show that performance to the advertisers and get them to scale with us. That's why we've been able to grow the number of scaled advertisers over time. And as I said to Laura earlier, I think generally, what I want to see for now is that the average revenue per scaled advertiser kind of stays in that relative range that it's been right now and doesn't shrink per se. But as long as it's staying in that range, I think being able to grow the number of scaled advertisers is really important because that, as I've said in my prepared remarks and in past quarters, that's the fuel for future growth because now we can work to grow those advertisers even more over time.

Next question comes from the line of Zach Cummins with B. Riley Securities.

Congrats on the solid quarter. First question, can you give us an update in terms of just the overall tariff environment? I know during your last earnings call, you mentioned kind of a modest headwind out of China with some of your customers and impacts on the advertising spend there. So any sort of update you can give on that front, and kind of the assumptions that you're making for second half of this year?

Yes. So the simple answer on the assumptions that we're making for the second half of the year is more of the same. And as we said last quarter, we did see a reduction in China spend or China revenue to our business. It's not material. It was less than 1% or right around 1%. And currently, China accounts for about 5% of our revenue. So it's not -- the impact hasn't been huge. But we're assuming that that does not really come back the rest of the year. And in fact, last year, Q4, China was actually an area of strength for us. So we're not factoring that into the guide for the rest of the year. And so we've taken it into account and assumed kind of more of what we're seeing right now. By the way, we've seen a very slight recovery in the China revenue, but nothing material at this point, which is why we're not factoring any recovery into our guidance.

And nice to see the continued expansion of the share repurchase program. Steve, any sort of update you can give around kind of approval from Israeli authorities in terms of the 25% holder? Just curious on that front or just maintaining the existing structure that you have in place right now. Yes.

No, good question. So first of all, just to kind of explain to everybody what it is that you're mentioning about the buyback. So we just got an additional $200 million of authorization for our buyback. So we've got about $285 million of total authorization for our buyback now. We chose to do that kind of during this quarter just to be proactive because Israel has regulations around what you -- some hoops you have to jump through in order to get the approval to be able to do buybacks. It takes some time. So we wanted to do that kind of mid-quarter here and get it set up. So it's just being proactive. In terms of the approval for not having to buy back shares from Yahoo! -- to the exception from the -- or exemption from the 25% rule, unfortunately, I don't have anything specific or any specific update on that currently. We're working on it. We'll update you when we have something material to say about it. But unfortunately, I don't even have a timeline at this point.

The last question comes from James Kopelman with TD Cowen.

Congrats on the quarter. I have a couple. First, for Adam, I think you mentioned Taboola News growing double digits. Maybe any additional or updated color on how big you see the opportunity at Taboola News over time, compared to what I think at one point was a historical run rate of around $100 million in revenue. What do you see as the near-term opportunities for Taboola News? Should we expect to see a broader rollout of countries and device OEMs? Or is future growth being driven primarily by some of the prior metrics, higher engagement yield, et cetera? And then I have 1 or 2 follow-ups.

Sure. Thanks for the question. So a few things about Taboola News. One, I'll just -- I'll say, I like this business a lot. It follows really great within Realize strategy of having supply that is unique. that converts and advertisers like. So in this case, just as a reminder for people, this is where Taboola is the news experience on devices such as Xiaomi and Samsung and others that where they see either on the live screen or they have to swipe right to see the news feed from all of our publishers, they click on that and then we're the first thing they do before they open a browser, before they open social network. Taboola is the first experience they have on their device. So it's a very special moment on the consumer journey. So the second quarter was good. It's growing faster than growth in devices and performance, and new touch points that we're testing with. Without getting into too much kind of guidance on this, I'll just say we're having good momentum, and we'll continue to invest in this. And again, the main thing we are trying to do is get more devices, more partners around the world that are good for our advertisers and can give us more kind of unique supply that we want to get for Realize. So overall, like the business, it's growing faster, and it's something that is relevant to Realize strategy.

And then just a quick follow-up, I guess, either for Adam or for Steve. Just given the ongoing macro uncertainty, what's your sense of conditions in the digital ad market as we head into late summer? What are you hearing from your conversations with clients with regards to ad budgets in the second half of the year? And maybe just remind us again, what's the geographic split of your business, North America versus Europe versus other regions?

Yes. Good questions. So first of all, on the macro side of things, we're seeing basically continued stability. So I think we've talked about in the past that the way our advertiser partners talk about their view of things is that there's -- they're keeping a close eye on things. Obviously, the tariffs and everything that's going on with the tariffs is concerning to them, but they're not cutting spend. They're just keeping an eye on it. So that's kind of what we're still hearing from our advertiser partners. So generally speaking, that has continued. And I think that's what we built into our guide, as I mentioned earlier, is basically that we expect kind of continued stability of the ad markets. In terms of our geographic split, we're fairly diversified. We are about -- with bringing on Yahoo!, we're about 50% U.S. plus, but we are pretty well diversified outside the U.S. as well. And even where we have revenue inside the U.S., in many cases, there are -- the advertisers are spending globally with us. So it's brands that are trying to reach consumers globally, and we're a good global source of that because we have a lot of traffic and eyeballs outside the U.S. So about 50% U.S., but very well globally diversified.

Last quick one for Steve. I think sales and marketing G&A might have been just a touch higher than what we were modeling heading in. Anything to call out to drive the slight increase there? And then how should we think about modeling, I guess, expenses in the second half, or any commentary on headcount?

Yes. So the first quarter and second quarter had a couple of unusual timing items between the 2. So if you look at our first quarter expenses and then our second quarter, first quarter was lower, second quarter ticked up quite a bit. I would look at the average of those 2 quarters to give you a good sense of what the third quarter and fourth quarter will be. So second quarter was actually higher than it should have been because of the timing issues with Q1. So think of the average of those 2 quarters going forward. I think that's the best way to look at it, frankly.

This concludes the question-and-answer session. I would now like to turn it back to Adam Singolda, CEO, for closing remarks.

Thank you, everyone, for joining us this morning. As you see, we've had a strong second quarter and ready to build on this momentum throughout the year. Realize, which is our main focus as a company to grow spend from advertisers and grow Taboola, it's early days, but we like what we're seeing, and we're just getting started. We're laser-focused going after the performance advertising market, giving advertisers choice beyond Google and Meta. Thanks again, everyone, for continued support. We're looking forward to talking to all of you in weeks to come.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.