Good day. Welcome to Outbrain Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would like to turn the call over to Outbrain's Investor Relations. Please go ahead.

Good morning, and thank you for joining us on today's conference call to discuss Outbrain Inc.'s first quarter 2025 results. Joining me on the call today, we have David Kostman and Jason Kiviat, the CEO and CFO. During this conference call, management will make forward-looking statements based on current expectations, including statements regarding our business outlook. These statements are subject to risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. These risk factors are discussed in detail in our Form 10-K filed for the year ending December 31, 2024, as updated in our subsequent reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first quarter earnings release for definitional information and reconciliation of non-GAAP measures to the comparable GAAP financial measures. Our earnings release can be found on our IR website at investors.outbrain.com. With that, let me turn the call over to David Kostman.

Good morning. Thank you for joining us today. I'm pleased to share that we had a strong start to the year. As a reminder, Outbrain and Teads merged on February 3, to form the new Teads. I'm glad to report that we achieved our Q1 guidance both in terms of Ex-TAC gross profit and adjusted EBITDA, while achieving significant milestones in the integration. Our vision for the new Teads is clear: to create the open Internet advertising platform for elevated outcomes, from branding to performance. Our end-to-end platform empowers brands to connect the consumer journey from discovery to purchase, driving real business outcomes. The open Internet provides a different level of access to incremental scale and user moments, but we've lacked a solution that can connect the fragmented channels of the open Internet in order to drive real business outcomes across all stages of the marketing funnel. That's where the new Teads comes in. We believe there are several key factors that will enable Teads to become the platform of choice to drive outcomes from branding to performance on the open Internet. First, we have direct exclusive media relationships that allow us to curate inventory at massive scale globally. This means that we have significant flexibility around the use of such supply, mimicking the control the walled gardens have of owned and operated inventory. The fact that we are an end-to-end platform provides advertisers with the optimized transparent supply path that's essential for delivering outcomes. And we do this at a significant global scale across 50 markets and 2 billion users. Second, these unique media relationships also yield a wealth of proprietary data around how consumers engage and take action. We access over 1 billion data points each minute, which fuel our AI-powered algorithm. That algorithm tailors our inventory environment…

Thanks, David. As David mentioned, we achieved our Q1 guidance for Ex-TAC gross profit and adjusted EBITDA following our completion of the acquisition of Teads in February. We closed the transaction in the middle of Q1, and we are already starting to realize the benefits of this combination in our financials. And we are very pleased with the progress of our integration, both from a financial standpoint and with respect to the integration of people and systems. Revenue in Q1 was approximately $286 million, reflecting an increase of 32% year over year on an as-reported basis, driven primarily by the impact of the acquisition. For context, given the timing of the closing of the transaction in February, we estimate a year-over-year decline of approximately 7% on a pro forma basis for the full quarter. This is our best estimate of a like-for-like year-over-year comparison. As a reminder, this represents an improvement as compared with a pro forma 9% decline year over year in Q4. We attribute the improvement to several factors, including a reduction of the employee uncertainty and distraction that we saw in the period following the deal announcement prior to the deal closing and team restructuring. Notably, we saw in Q1, which continued into Q2, improvement in the trends of the U.S. business, which represents around 30% of our revenue. Ex-TAC gross profit in the quarter was $103.1 million, an increase of 98% year over year on an as-reported basis, driven primarily by the impact of the acquisition. Note that Ex-TAC gross profit growth is outpacing revenue growth, which is driven primarily by a net favorable change in our revenue mix resulting from the acquisition as well as the continuation of improvements to revenue mix from the legacy operating business. And as with revenue, while we're in the…

Thank you. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Ygal Arounian with Citigroup. Please proceed.

Hey, guys. Good morning. Nice to see the results in light of the macro context. I guess first, maybe, can we just expand on the macro a little bit more, you know, what you're seeing? So shortening of planning and buying cycles doesn't sound like there's been any real pullback yet. And then on that opportunity, as advertisers scrutinize budgets, can you talk a little bit more about how you could capture that? And are you seeing any difference from advertisers on their focus between brand and performance? Is performance holding up better than brand? Let me just start there, and then I have a follow-up. Thanks.

Sure. So thanks for the question, Ygal. Maybe I'll start. Yeah, I mean, so what we saw in Q1 was really improvements in demand levels from January into February and March. And as I said in the prepared remarks, an overall continuation of that positive trend of the improving growth rates for the legacy Teads business into Q2, so far so good. We haven't seen any meaningful impact in our results to date stemming from, you know, the uncertainty in the macro. You know, clarifying maybe what I said on the call, you know, the shortened selling and buying cycles, you know, maybe, as an example, if you, you know, typically, might get, you know, a month or two months warning on a budget, maybe it comes in, you know, a few weeks closer to the start date than typical. So, you know, to us, that indicates, obviously, there's more scrutinization of the ad spend happening, which obviously, you know, the second part of your question, we view as a good thing for us. But, you know, obviously, there is a little bit of, you know, visibility, and obviously, I think, you know, you have to factor that into your giving the outlook and the guidance. You know, obviously, verticals, you know, we look at, you know, there's, you know, some stronger, some weaker, but nothing unusual, I would say. And, you know, as I said, we're seeing really more positives than negatives at this point, you know, in terms of, you know, the legacy Outbrain business continues growth in the same growth drivers, yields are up, the improvement, as I said, in the year-over-year growth rates for legacy Teads in the U.S. in particular, which is encouraging. You know, positivity that we see in the team is eagerly starting the early days here of the cross-sell. We have our first wins there. So generally good things. Obviously, we're being balanced in our guidance just given the uncertainty, but, you know, so far so good is how I would view it.

Maybe I would add, you know, hi, it's David, to the last point around advertisers. So our breakdown is generally 70% performance, 30% branding. But what we need to focus on is that we drive outcomes. And whether it's brand dollars or performance dollars, advertisers, whether it's a direct-to-consumer or an enterprise brand, are looking for measurable outcomes. And this is how we look at the future, and we're now positioned in the market as a platform that drives the best outcomes both for branding and performance. So we are very strategically important for our partners, and we believe that as long as we can continue and deliver on those measurable outcomes, that's what's going to continue in the ability to increase share of wallet. I want to make one comment on performance. I mean, Ygal, you've been following us for a few years. So before the merger, we've been talking about the increase in growth of share of wallet we have from pure performance advertisers to our managerial that we've been granted as alpha and DSP. So that trend continues, and there we help performance advertisers bid into third-party environments. Are there display advertising? And so something we've been doing already for a few years. Before we merged, it accounted for about 30% of our business, was outside of the feed. So we believe we are very well balanced in terms of the macro also in addition to the points that Jason kind of Okay. Great. And then

the one on kind of fundamentals. Also on the integration, and you guys called out the strong JVP wins, and that's nice to see it. It's How much of that is maybe a direct result of the new combination versus things that may have been in the pipeline? And I think if I'm understanding you correctly, you guys are saying that the cross-selling opportunity hasn't really even started. I know if that was more of a once you think that that started to flatten two q, but just talk a little bit about what you're seeing there and the opportunity from cross-selling. Thank you.

Well, I'll take that. So we're very excited about the JBPs, I think, to huge asset that sort of we have today at these relationships, and we highlighted the size of the companies we work with, whether it is enterprise brand, their agency, even the SMEs, and you're working with large customers which have big budgets. The growth in that is coming, I think, also from a combination of the two companies. There's tremendous excitement about this combined value proposition so that we have a weekly internal messaging in company. After that, posted a video post a meeting with one large agency where we got more share of wallet because we now are able to bring to a legacy team client performance capabilities. They all, at the end, have they want to sell a product. They want to get a lead. They want to get someone to download an application or anything. So I think that that is helping. I mean, I cannot pinpoint directly that the growth is coming just on that. But we've had hundreds of meetings, and the response is phenomenal to this value proposition of performance and branding combined. So I'm sure it will be a big growth driver.

Our next question is from Andrew Boone with Citizens. Please proceed.

Thanks so much for taking the question. You guys highlighted the improvement in Teads results in prepared remarks. Can you guys just speak through that and talk through kind of the trends that you guys are seeing and moving that business back into kind of a strong growth position? And then one of the striking things that you guys called out here is just the size of some of your larger clients. And so can you just step back and talk about the opportunity, whether that be larger clients or smaller clients? Or kind of how are you guys thinking about that? And just kind of explain why you guys wanted to highlight that disclosure. So much.

Sure. So maybe I could start. Thanks for the question, Andrew. In terms of the legacy Teads business, obviously, it's something that we, you know, we talked about the idiosyncratic headwinds on the business in Q4. You know, something, you know, one of which was, you know, region-specific, and, you know, we kind of updated on already last quarter. But, you know, I think the bigger kind of, you know, impact was about, you know, just the impact of the pending merger on the team, and there was a hiring freeze and lack of focus. And I think just a lot of, you know, concern of okay. When is this going to close? And, you know, is there a restructuring happening? You know, we do feel that the overhang from that has really relieved, and we see it in the results. Really since, you know, we've gotten certainty of kind of the closing date and, you know, which obviously we got in January. We, you know, have seen just kind of month-over-month improvement, right, in those year-over-year trends. So obviously, the focused execution, the, you know, the restructuring very quickly, and everyone kind of knows their role and the team and how everything fits in and the product roadmap, we really feel like it's kind of lifted and given everyone kind of the ability to just go do what they're good at. And we feel good about the trends we've seen and, you know, expecting to get to, you know, pro forma overall growth in the second half of the year still from that.

To the other part of the question, Andrew, thanks on that. So we are highlighting those customers. We believe that there's a huge opportunity to get more share of wallet from these customers. I mean, a lot of the spend goes to point solutions, DSPs. We believe that our platform on the open Internet by delivering better outcomes with elevated credit will allow us to get market share and gain more share from these very, very large customers, whether they are enterprise brands. Some of them are small and medium enterprises, but still between mid and budget. And, obviously, direct response customers. So it is about growing our share of wallet from them both for their branding dollars and for their performance campaigns and doing that sort of across the board on different screens. And I think that's the opportunity. I mean, it has a tremendous sales team today combined with the legacy Outbrain and legacy Teads with hundreds of people across the world organizing verticals. So we're very excited about the ability to drive a lot more share of wallet through these capabilities.

Thank you.

Our next question is from Laura Martin with Needham and Company. Please proceed.

Hi there. Yes. So you guys had a really central activation at 20% conversion rate or something? When do we start seeing revenue from these positive meetings you're having?

Hey, Laura. Thank you. So, yeah, Possible was great. Sorry I wasn't there, but I know you had some good meetings there with our team. We are looking at returning back to growth. I mean, as Teads in the second half of the year. And it's a combination of some of the things Jason mentioned around just improvement in the performance of the legacy Teads business. But a lot of it is also coming from cross-selling and selling performance solutions to TV advertisers, spending some branding solutions to the SME advertisers. So that is reflected in our plans for the second half of the year. We have already seen some of these sales happening with certain customers, so I think it's going to ramp up in an exponential way into the second half of the year.

Okay. So there isn't a typical you sign an MSA, and then they experiment it. There's not a typical path. Just you just have to wait till but and you don't see a headwind of tariff? Against people bringing new business to you?

At the moment, as Jason, we have not seen any meaningful impact of tariffs.

Okay. And that wouldn't affect all these means? Okay. That's interesting. Okay. And then my other thing is, you know, one of the things that's been really threatening sort of the existence of the open Internet as an existential threat is ad agencies have cut off their funding of news sites. And so I'm wondering if you're and there's been a lot of pushback on that and really trying to get ad agencies to be more nuanced about the type of news that they are willing to advertise on. Have you seen any reversal or people advertising on news sites again?

Yeah. So I think, actually, we have seen more openness than anything. There's better technology solutions that allow advertisers to be much more selective into what they're trying to block, so now doing sort of really large-scale blocking of new pages, but actually being much more granular around specific things that they want to block. And I feel very positive about this topic actually that's very close to my heart. We did the panel at Teads with an talk about it at hand with some of our partners on the agency side. Some of the CMOs, and publisher side. I think there is a change of that. I think the ability of reaching incremental audiences at times where they are engaging with authentic content that is professionally produced. The value of that has been proven. There's tons of research out there that shows that there is no actually, detriment. Actually, there's a positive impact of being associated with pages which have credible, authentic, journalistic, or other professionally created content. And I think that is a big opportunity for us also to grow monetization within our base of supply partners.

Okay. Great. Thanks very much.

Thank you. Our next question is from James Heaney with Jefferies. Please proceed.

Great. Thank you, guys. I'd love to hear your perspective. Just on the ruling and the DOJ, Google lawsuit. Curious how do you think Teads would benefit if Google were to divest its ad serving and publisher side tech. And then I had a follow-up question.

Great. So I'll take that. Thank you. So the Google, ruling off setting is a good thing for the overall ecosystem. It affects us probably directly less than others because we are an end-to-end platform that has direct exclusive relationships on the supply. So we don't go for most of the business rep through GAM or through the ad exchange or DBT 60. So we have exclusive supply which is one of the differentiators why we can drive better outcomes, by the way, when you look at other point solutions like DSPs, so it's impacting us less. I think overall on the SSP front, I think it could potentially provide a great, headwind to SSPs. Which could benefit us I mentioned, say, for example, on the performance side, on the direct response side of our business, we have been, over the last years, expanding significantly with third-party supply. This display, other SSDs, As this market becomes more open and more competitive, I think it allows us to even further grow the value we can bring to our performance marketers on this third-party supplier. So that's a direct positive. But, overall, I think us being an end-to-end platform with direct code on page, first-party data. This is less impactful on us directly.

Great. And then just one on your moments vertical video product. Would just love to hear what your strategy is for expanding that product into new publishers and how we should be thinking about that as a growth driver for the business.

So looking at this, part of a broader suite of vertical video experience. There's some moments that is one type of format. I don't want to be too technical here. It's one type of format, but there's other vertical opportunities that we see where we can leverage our end-of-article placement to create a vertical experience that is very, very suitable for brand advertising or for brands that want to drive performance. So overall, we think vertical video is a big category. It increases engagement of audiences with content. And is a great canvas for advertisers that want to promote either performance or brand. We've been seeing great success with Moment. I mentioned on the call some of the data points. And we will continue to invest quite significantly into all vertical video opportunities.

Great. Thank you.

Our next question is from Zach Cummins with B. Riley Securities. Please proceed.

Yes. Hi, good morning. Thanks for taking my questions. I just wanted to get a little more context around your second-half guidance. I think, David, you might have alluded to it, but just curious if you're still assuming kind of a return to low single-digit growth in the second half of the year on a pro forma basis and just from a modeling perspective, I know synergies are expected to ramp throughout the year. So just curious of how we should be thinking about kind of the adjusted EBITDA progression for the pro forma in the second half of this year?

Sure. Thanks for the question, Zach. I'll take that one. Yeah. So obviously, as I said, we're factoring in, you know, a number of things, you know, the continued improvement of the year-over-year growth rates that we've seen from the legacy Teads business, continued growth obviously from the legacy operating business we've been talking about for about a year now. And, obviously, the early days of the revenue synergy capture. So we are expecting something there, but we're obviously being fairly conservative in our model for that. And, of course, you know, acknowledging that the uncertainty in the world exists right now, we are accounting for that even though we haven't seen any meaningful impact so far, you know, considering all the positives. You know, there are also, you know, anecdotally some, you know, some easing of the comps for us, particularly on legacy Teads business. You know, as we get later in the year, as we talked about the idiosyncratic headwinds from last year's Q4 as well. And so, yeah, all that kind of comes together, and we still do expect, as we said last quarter, you know, to get to the pro forma growth year over year in the second half of this year. And in terms of expenses and how that kind of relates to EBITDA, you know, we've now shared that we expect to realize about $40 million of cost synergies alone in 2025, and that's really ramping over the next few quarters. We only had about $2 million of benefit in Q1 just based on the timing of closing and actions being put in place. We expect that to step up in Q2 but even more so in Q3 and for Q4. And, you know, much of those actions are actually already done. It's really just a matter of time at this point before the accounting, you know, is able to recognize those savings. So, you know, we feel very confident about that in terms of, you know, the expenses getting lower over the course of the year. Q2 also has some, you know, marketing events and, you know, just timing type issues, making Q2 really the high watermark in terms of expenses for the year. So when you put it all together, we feel good about obviously maintaining our guidance, the historical seasonality is one that two-thirds of the EBITDA has always been recognized in if you put these two companies together. So between that and the synergies, we feel very good.

Thank you. Just on other is a financially transformational year with this merger so you can see, for example, the ramp-up of, based on the guidance of EBITDA is with 3x the EBITDA in Q2 from Q1. So we are seeing it. I mean, it's really the timing of a lot of these efficiencies synergies coming in, the cross-sell that is starting in five geographies now in Europe, and in the US, all of these things will come in, and we'll have, you know, we expect a significant impact, obviously, going into the second half.

Understood. And my one follow-up question is just around your CTV business, and appreciate the disclosure there in terms of the growth rate and percentage of spend. So just curious of really how the combined entity has a differentiated CTV offering and where is kind of the near-term opportunities that you see to continue that momentum here in the coming quarters?

So, today, the differentiation is two aspects. One is we have for some TV manufacturers and operating systems, LG, Vida in certain geographies of the world, exclusivity on a home screen placement that's a highly impactful sort of native placement when you look at the different piles and you decide what to do. So spend a lot of time there. So we have exclusivity on that. That helps us also increase in general, our share of wallet with video advertisers. Once they do displacement, we will also get some of the in-stream regular, call it, video advertising from them. We're trying to grow them because these formats are, you know, you can buy them programmatically. They are unique, and they're really leveraging the tremendous power that we have at Teads with brand advertisers. These are the type of advertisers that CTV and applications want to have on the home screen so that that's a big differentiator today. When we're looking into the future, we see a huge opportunity on performance CTV. I think it's early days for that. And when you combine the performance capabilities of legacy Outbrain, the SME base that we have, the ease of producing today video for these types of advertisers, and the ability to target and deliver outcomes. We are spending a lot of time working on sort of the implementation strategy for on CTV. We think we're uniquely positioned to capture significant share there.

Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.

We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing remarks.

So thank you all for joining. I want to take this opportunity to thank our close to 2,000 employees across the world. It's been a great journey until now, and I'm very excited to see sort of the one team, one dream coming together. It's also been great. I mean, if some of our partners are on the call, I mean, on the business side, I mean, they've been tremendous, and the validation we get from them is really fueling the energy. And thank you all for continuing to support us as shareholders, and we look forward to continuing the dialogue. Thank you.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.