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spk04: Good morning, and welcome to Outbrain's third quarter 2021 earnings conference call. Today's call is being recorded, and we have allocated an hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Jason Kiviat. Please go ahead.
spk10: Good morning, and thank you for joining us on today's conference call to discuss Outbrain's third quarter 2021 results. Joining me on the call today, we have Outbrain's co-founder, Co-CEO, David Kostman, and CFO, Elise Garfalo. During this conference call, management will make forward-looking statements based on current expectations and assumptions. 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 thank you for the quarter ended June 30th, 2021, filed with the Securities and Exchange Commission, as updated in our subsequent reports filed with the Commission. Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statement. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's third quarter earnings release for definitional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures. Our earnings release can be found on our IR website, investors.outbrain.com, under News and Events. With that, let me turn the call over to Yaron. Thanks, Jason.
spk11: We're very excited with our Q3 results, which exceeded the high end of our guidance on the key metrics. We achieved this while staying very focused on our core business. David and Elise will cover our results in more detail shortly. Over the past quarter, we had the opportunity to meet with a large number of investors. Based on the feedback and questions we got in those meetings, I want to talk today about three themes that came up from several investors. First, Outbrain's place in the broader ad tech ecosystem. Second, quality of recommendations. And third, the impact of privacy changes like those in iOS 14. Kicking off with the first topic, where does Outbrain sit in the ad tech ecosystem? We view ourselves as an operating system of sorts for publishers and other media owners that currently monetize through ads. How is an operating system different from most of ad tech? Here are a few ways to think about it. First, ad tech occupies leading placements on the page. In contrast, Outbrain typically powers the entirety of the media owner's feed on all of their pages, videos, and apps. Second, ad tech typically bids for each ad placement and only serves the ad if they win that particular bid. In contrast, Outbrain is typically chosen as the exclusive feed partner for two to three years at a time. Our top 20 partners have been using us for seven years on average, giving us strong predictability and visibility. Third, ad tech's sole value to the media owner is in the payment they make for each ad they serve. In contrast, Outbrain delivers significant value to the media owner on top of the ad monetization. For example, about half of the links we serve on publishers are what's called organic links, pointing to other stories and other videos within the same publisher. Those do not currently generate any direct revenue for us, but they do generate significant value for our partners, which is a big reason of why Outbrain is so sticky with them. An even better example is a product called audience campaigns. This product, which is part of our operating system for media owners, allows them to use their feed real estate for driving their company's diverse business goals. For example, they can use audience campaigns to drive more user subscriptions or to hit their commitments to brands for sponsored content viewerships. To summarize, while we generate our revenues like Facebook and Google via ad monetization, the characteristics of our business are very different from most of ad tech. We power the entirety of the media owner's feed, we do it for multiple years, not fleeting impressions, and we deliver to our partners significantly more value than just the ads themselves. Our focus has always been on how we can deliver the most added value to media owners with products like audience campaigns. And that's an area we plan to focus on even more in the future. The second topic I want to talk about is quality. A few months ago, we announced our most significant algorithmic effort in recent years with the new algorithm called Quality Rating. As the name implies, this algorithm change is focused on quality of the ads and recommendations. There are two main reasons we're investing in this new algorithm. First, we believe that our three constituencies, media owners, advertisers, and users, will all benefit from the improved quality of the recommendations in the feed. Specifically, brand advertisers have been indicating that they would increase their spend on outbrain-powered feeds as the quality of recommendation improves. Second, we view this as a potential driver of yield growth by expanding the reach of users who engage with outbaring recommendations. Historically, our algorithms have been very tuned for maximizing user engagement, and they did so by giving the most consideration to actual engagements or clicks, while hardly giving any algorithmic attention to those silent audiences who don't tend to click on recommendations. But those silent audiences are roughly 95% of those exposed to outbrain recommendation. And it's a huge yield opportunity for us to be able to better address even a small percent of those. We're currently working with two major US publishers on the launch of the first phase of quality rating. This is the groundwork for soliciting quality signals from about a third of their desktop users. When we announced quality rating, we said that we will gradually roll this out well into next year in order to allow media owners and advertisers to adjust to the changes and ensure their expected ROI from Outbrain is not negatively impacted during the transition, like they sometimes experience when Google or Facebook made algorithmic changes. We will obviously keep updating on this area in future calls. Another topic relating to quality is the placement of the feed. There's this common myth we hear often about ads above the fold being of naturally high quality and therefore more desirable quality, while ads at the bottom of the page are viewed as less desirable. The reason we chose to focus in our early days so intensely on the end of the article placement is that it's actually, in our view, among the best real estate from a user engagement point of view. At the top of the page, we've found that most users ignore all the ads. Outbrain is primarily a CPC or cost per click based company. And just like Google search on most of our ads, we only earn money when the user finds it interesting enough to click and engage with the ad. Cost per click is the model that typically delivers the best return on ad spend for advertisers. That said, expanding into new placements on the page is an exciting incremental growth opportunity that we are pursuing because it is valuable to deepen our relationships with publishers and have a diverse inventory for different advertiser needs. David will talk more about this. In the long run, we believe it's more likely for high engagement partners like Outbrain to expand to other placements like MidArticle than it is for low or no engagement companies to expand into content recommendations. The third and final topic I'll cover is the cookie deprecation and IDFA ATT changes in the iOS ecosystem. Now, we've all seen the massive hits that companies like Snap and Facebook have taken in their mobile ad revenues due to the changes made by Apple. What's important to understand is that those companies that were hardest hit are those whose monetization happens primarily within the native iOS app environment. We believe that Outbrain is very well positioned for these changes, While two thirds of our business is mobile, only about 4% of our revenue is generated within iOS native app environments. In addition, we've always relied on our contextual targeting capabilities and the first party data that we have from powering the feeds on so many premium publishers. Both contextual and first part data are proving to be very effective. Companies like Facebook rely heavily on PII, personally identifiable information, to profile users and then retarget those users with ads across different apps. Our brain has no PII and has never had any. Therefore, our contextual and other technologies that do not rely on things like IDSA have been able to nicely compensate on yields for whatever impact it may have had. As our industry is a very dynamic one that constantly poses new opportunities for us, I will keep updating you on topics such as privacy, quality, and other areas where we see exciting opportunities. And with that, I'd like to hand things over to David, who will cover our Q3 results.
spk07: Thank you, Yaron. As you can see, we experienced very strong growth in Q3, exceeding the high end of our guidance range on both extra gross profit and adjusted EBITDA. Revenue grew 34% year-over-year to $251 million. Extra gross profit increased 40% year-over-year to $68 million. And we continued to demonstrate strong operating leverage, delivering adjusted EBITDA of $20 million. Our superior growth rate over the last 12 months and in Q3, which is entirely organic, is a clear testament to our market leadership. I provide some color on our Q3 results by touching on several of the key technology and business drivers. Let's start with the media owner side. As a reminder, we grow by renewing and expanding our business with existing partners and by adding new partners. We had a great quarter on these two fronts. Our net revenue retention of 128% in the quarter continued the trend we have experienced over the last 12 months and demonstrates the superior monetization we deliver to our existing partners. In Q3, our top five media owner partners, which includes one non-exclusive partner, experienced actually meaningfully higher growth than our company, which delivered 34% total growth. The focus on our core business is paying off in our wins of new media partners and renewals of key partners. We added over 100 new digital properties in Q3. Some examples of premium media groups wins from competition are Grupo Abreu in Brazil, Piper Media in the Netherlands, Toyota in Austria, and Despan in the U.S. We also had a very strong renewal cycle of existing publishers, including renewal of multi-year agreements with key partners such as Altice in Europe and Vice Media in the US. One of the key factors for both retention and new business wins is the continued growth in yield. A key driver for that is our smart logic technology. As a reminder, this is our dynamic optimization technology that takes our feet to the next level. Historically, recommendation feeds had a significant component of manual business decisions, such as the decision when and where to sell video, what kind of ads and organic content to serve to each user, etc. Outbrain's smart logic is a breakthrough which evolved those manual business decisions into AI-driven dynamic decisions. For example, In a pre-smart logic feed, a manual business decision to serve 30% videos would mean that 100% of the users will see 30% of videos. With smart logic technology, we dynamically optimize for showing more videos to those users who like video most, while minimizing it for those who are unlikely to engage with it. SmartLogic has many more dynamic optimization elements, and we believe we'll continue to support our leadership in the market. We have also been gaining greater share of inventory with our partners, with growth in mid-article placement. We are leveraging our media partners' strategic relationships to secure incremental inventory, either through exclusive arrangements or through programmatic bidding. Some of our partners for such placements include Group 9 in Australia, Funke in Germany, IDG, and many others. These placements are more desirable for video, brand awareness, and other types of advertising. We've seen above-company revenue growth rates on mid-article placements, though this still represents only a few percent of our revenue mix. Lastly, on the media owner side, we're also seeing the fruits of our hubbing efforts around small and medium publishers, increasing focus on servicing the larger partners in the local region, while ensuring the media partners transferred to the hub receive adequate attention towards revenue optimization. We more than doubled the average RPM from these partners once they moved to the hub. Moving on to the demand of advertisers side, where our focus is on scaling advertisers by continuously improving our AI-based return on ad spend solution and adding workflow automations to drive campaign efficiency. Here are two examples. First, for conversion bid strategy or CBS, we saw continued customer adoption. As a reminder, CBS is the machine learning-based conversion optimization engine we first introduced to market a couple of years ago and continues to evolve. It drives higher ROAS for our advertisers and has made a real difference for them, including brand and e-commerce buyers, driving higher performance, more efficient running of campaigns, resulting in increased budgets for us. Second, we launched an AI-based product which allows advertisers to optimize specifically towards engagement goals by connecting their first-party data, such as Google Analytics, to our platforms. This solution allows advertisers to optimize towards goals such as time on site, number of pages, bounce rate, and others, leveraging the marketer's own first-party data. We also continue to see success with advertisers through expanding our formats and placement. As an example, video increased to approximately 9% of our revenue in Q3, growing faster than other formats. We expect to continue to invest in our video offering, such as our clip product, and see it as an area of strategic growth. I want to highlight that in the last 12 months, 53 out of the top 100 of the Forbes list of the world's most valuable brands spent directly with us on our platform. We believe in also getting feedback from our media owner partners that we provide a higher quality experience on the properties due to the fact that we focus on premium brands and direct relationships with advertisers, especially on the e-commerce side. In summary, we're excited about the product and technology investments we are making and the growth opportunities ahead of us. We're encouraged by positive secular market trends. We continue to see a shift of advertising dollars to digital and to the open web, following consumers' increasing use of digital channels. We expect this to lead to more advertisers, higher budgets, and also higher pricing. For media owners outside of the World Gardens, they continue to focus on being the authentic providers of news and information and are focusing on levering their first-party data to offer better targeting for advertisers in an environment that is less impacted by IDFA, continues to adjust for cookie-less worlds. We plan to continue to be focused on our core value proposition, and we expect all these trends to continue to provide us with strong tailwinds. I now hand it over to our CFO, Elise.
spk04: Thanks, David. We delivered another quarter of strong financial performance, beating both our XTAC gross profit and EBITDA guidance in Q3. In addition to the top line growth, the strength of operating leverage in our model is evident with a very healthy adjusted EBITDA margin at 29% of exact gross profit, even as we grow investment in our people and products to drive innovation. Revenue grew 34% or $64 million to approximately $251 million year over year. Continued strength in net revenue retention of our existing supply base, which, as a reminder, is equivalent to a same-store sales metric, grew revenues approximately $52 million, or 28%, as we continue to drive value and expansion for our media partners. Consistent with prior periods, higher yields on our platform drove this growth. To put our net revenue retention in context, last quarter we touched upon the multiple growth levers of our business and how they interconnect through technology, supply, and demand to compound platform growth. The examples David gave today, like SmartLogic driving engagement, CBS driving advertiser ROAS, and the growth of video overall are great demonstrations of how we leverage our massive distribution asset to grow revenue and yield for our partner and ourselves. Now, in addition to retention, we also grew by approximately 12 million or seven points as compared to Q3 2020, from the addition of new supply in the quarter. Approximately half of this was driven by growth of new media environments and SNP. Across revenue in total, we saw continued strength in mobile, which represented approximately 70% of total revenues in the third quarter. And geographically, we continue to see strength globally. As a reminder, approximately 60% of our revenues are outside the U.S. On exact gross profit, which is the revenue we keep after paying traffic acquisition costs to our media partners, we increased 19 million, or 40% year-over-year, to 68 million. Exact gross profit outpaced revenue growth due to favorable revenue mix in the quarter. Moving to operating expenses, we saw an increase of $28 million to approximately $67 million in the third quarter. Approximately $16.5 million, or more than half of the $28 million increase, is nonrecurring and was triggered by our IPO as it relates to incremental stock-based compensation expense for awards with an IPO performance condition. Excluding this one-time impact, operating expenses increased approximately $12 million primarily from higher personnel-related costs, reflecting continued investment in our global team, adding over 100 people, particularly in the R&D and sales organizations, as well as the higher incentive comps in the period. In addition this year, we have higher costs associated with becoming public and are seeing higher marketing, T&E, and facility expenses as activity gradually comes back to more normal operations versus the post-COVID lows of 2020. Adjusted EBITDA, our key measure of profitability, increased 56% year-over-year to approximately $20 million this quarter, as the yield improvements we delivered on our platform benefited the bottom line, even with our continued investment in the business. And just a final comment on the P&L. In addition to the IPO-triggered stock-based comp, we also had one-time charges of $42 million related to the exchange of our senior notes upon IPO in July. Moving to liquidity to recap Q3. We had $482 million of cash and cash equivalents on the balance sheet and $236 million of convertible debt at September 30th. We raised significant capital in the third quarter. $200 million was raised from the sale of our now public convertible notes to the ValPost Group. And our IPO raised $160 million of gross proceeds. Aside from capital market activity, we generated substantial free cash flow in the period of over $30 million. Free cash flow, which we define as cash provided from operating activities, less CapEx and CapSoftware, was driven by EBITDA strengths and positive working capital. Also on liquidity, as disclosed in plans, we announced our amended revolver. With the pending maturity of our existing facility, we amended and extended to a new upside facility of $75 million with SVB. Nothing is currently drawn on that facility. Last, turning to our guidance. Our new raised full year 2021 guidance is as follows. EXTAC growth profit of 269.9 to 271.9 million, or approximately 39% growth year-over-year at the midpoint. And adjusted EBITDA of 87.5 to 88.5 million, or approximately 114% growth year-over-year at the midpoint, more than doubling last year and representing a very healthy 32% to 33% EBITDA to EXTAC margin. For the fourth quarter, we expect exact gross profit of 74.5 to 76.5 million, or approximately 15% growth year-over-year at the midpoint, and adjusted EBITDA of 22.5 to 23.5 million, or approximately 9% growth year-over-year at the midpoint. That concludes our prepared remarks. I'd like to turn it back to the operator to open the line for Q&A. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit to one question and one follow-up and return to the queue. Our first question comes from the line of Shweta Kajurio with Evercore ISI. Please proceed with your question.
spk02: Okay, thank you. Let me try two, please. Yaron, can you please, so you talked about IDFA. You did not see, the company did not see meaningful impact or headwinds from IDFA. Could you please remind us of cookie deprecation? That may be a big topic next year as we approach 2023, and how should we think about potential impact? Have you tried an environment where you don't use cookies and are you seeing any meaningful impact? And then the second question is on verticals. Could you please talk about what you saw across advertising verticals, so retail, travel, auto, any particular areas of strengths or weakness? Thank you.
spk11: Thanks, Rebecca. So you're on here. I'll take the first question and maybe David will take the second one. In regards to IDFA, you asked if there's any environments where we tried, where we experimented without third-party cookies. And there are. For a couple of years, there have been no third-party cookies allowed on Firefox and Safari. And the results we're seeing now are after two years of third-party cookies not being available on those places. IDFA is a very similar mechanism to IDFA. to third party cookies. So we think we're in a very good position from two different angles. So the first one is contextual. Just to remind myself and a team of Outbrainers who pioneered the space of contextual targeting about 20 years ago. And it's a core of what we've been doing at Outbrain since the first day. So we're seeing really the strength of contextual capabilities in our results this quarter. The second is the vast amount of first-party data that we have. Again, we power the entirety of a feed for the media owners and publishers that we partner with. That gives us a tremendous insight into all the engagements, the user engagements, both on ads but also on the organic recommendations. All that drives first-party data for us, which, again, is immune to some of the changes with the cookies that we're talking about. The last point I'll just mention, I did mention it in the prepared remarks. We are a major, mostly mobile company. So about two-thirds of our business is mobile. But where the IDFA and HT changes are most significant, and we saw that from other companies reporting, is in the native iOS app environments. And those are about 4% of our business, so it's not really as meaningful as mobile web, Android, and other applications. But again, contextual and first-party data are key strengths for us. David?
spk07: Hey, Shweta. Thanks, everyone. So I'll address the issue of the vertical. So first, I will say that the overall demand continues to be very strong. I mean, the shift to digital and to measurable outcomes, we continue to see that as a strong tailwind. We particularly have a wide variety of advertiser types. We work with enterprise brands, agencies, app developers, direct-to-consumer brands, publishers. So we are following the global supply chain issues. And as an example, we've seen some automotive budgets temporarily tightening in Q3 and Q4. But due to our diversity, it has not had any material impact on our financials. And we see continued strength in verticals like health, entertainment, finance, and others.
spk03: Okay. Thanks, Jeroen. Thanks, David. Thank you. Our next question comes from the line of Ross Sandler with Barclays.
spk04: Please proceed with your question.
spk00: Hey, guys. Morning. You wrote in the comments about brands spending more budget with you guys if you improve the quality score algorithm. It was pretty interesting. Can you just elaborate on how that might work and what you were doing before versus what you're going to do in the future? And could that be a big revenue driver next year? Is that more just a long-term thing? And then, David, the video 9% of rev in the third quarter, under indexes to some of your peers who have much higher valuations than you guys. Uh, is there a way to get more video placements from, from your publishers or is there something about news publishers that just maybe have less video inventory than the overall industry? Any way to get more into that swim lane? Thanks a lot.
spk11: Thanks Ross. You're on here. So, uh, there are two main reasons where, uh, we're focusing the investments on the quality rating algorithms, both, uh, both again I think are interesting yield and growth opportunities for us down the road so the first one is being able to address more of that silent majority of users and all the algorithmic efforts in recent years for us have been really focused on most engaged users and on the highest engagement signals so we take those signals like clicks and engagements with videos and build the algorithms around those those are kind of very high fidelity signals from users. What quality rating is focused on is on those 95% or so of users that are not engaging with our brand recommendations, and we think there's a tremendous opportunity to increase the reach and the percent of audience that actually engages with our recommendations and generates yield for us. The second is, I think, you know, and these are big industry trends, the bigger brands, are focused more on brand safe environments and high quality premium environments. And in talking to many of them, including the ones we work with, they're saying if we can make more of those placements be more appealing for them on quality and premiumness, they'll be looking to spend more. And so quality rating is really, we think, a big opportunity for us for growth on both those areas, brands and increasing the reach of our
spk08: engagement with more users.
spk07: Hey Ross, it's David. So thanks for your question. Great question. So we are very excited about video generally. Today it's about 9-10% of our revenues. It's been growing very fast, faster than our core, but we think there's much more opportunity out there. So we continuing to invest in it. So in the dimension of the current publishers, we believe that sort of the in-article placements and above-the-fold placements are better suited for that. So I mentioned, I think, in the prepared remarks that many publishers that we're working on, whether it's programmatic or through exclusive deals on getting those placements that are more targeted at brand awareness, And we're also looking quite aggressively into expanding into potentially other platforms. So video is a big area of focus for us. And I think we'll see continued growth in video for us, both with publishers and looking into other platforms.
spk03: Thank you.
spk04: Our next question comes from the line of Andrew Boone with JMP Securities. Please proceed with your question.
spk01: Hi guys, good morning and thanks for taking the questions. I've got two just on kind of the competitive nature. One on the advertiser side. So as pricing has been reportedly up across social networks, can you talk about what sort of spell over you're seeing in terms of new advertisers coming to the platform? And then it's great to see revenue from existing publishers up 28%. I have to think that makes you more competitive within the new publisher edition side of the business. And so, you know, you guys reported, I think a hundred ads this quarter, a hundred ads last quarter. Do you think momentum is increasing there? Can we see that start to accelerate even further as your product initiatives are driving yield for publishers? Thank you so much.
spk07: Hey, Andrew. It's David. Thanks for the question. So I'll start with the second part on the publisher side. We are seeing very strong momentum both on the new wins and current discussions we're having with the publishers and in terms of increasing the yield for our current partners. You've seen the numbers. I mean, this is a very strong continued net retention rate. 128% is a great number. And it is coming from continuous improvements in technology, improving the yield, growing within those publishers, real estate to more placement. And so I think, yes, we are enjoying a good momentum. And again, we're going to obviously be announcing some good partnerships during the quarter, those that are relevant. On the advertiser side, I mean, pricing is under pressure. I mean, we've also experienced higher prices in our network, so that's also part of the increase in yield that you see. But I think we do provide a very strong alternative and we see more advertisers that are being, I won't say priced out, but I think have more available budgets to spend on our platform rather than on some of the world's gardens. But also on our platform, I think the increased demand is driving higher pricing.
spk09: Thank you.
spk03: Our next question comes from the line of Laura Martin with Needham. Please proceed with your question.
spk12: Hey, guys. Good morning. So I'm interested in your 2022 outlook sort of on a macro level in terms of autos and supply chain. Do you have a – do you think that – By second half, we're going to get a step up in overall advertising in the macro environment. I'm interested in your macro outlook. And then secondly, one of the things that Jeff Green was talking about on his call, on the Trade Desk call, was that he thinks that CTV specifically tilts the balance of power away from walled gardens into sort of open internet ad tech. And I'm sort of interested in that thematic – I know you guys don't do CTV – but But thematically, do you also agree with that, that you think there are things going on in the ecosystem that will benefit sort of open Internet competitors like yourself compared to Walgreens, which has taken the lion's share of digital ad growth for the last decade?
spk03: Okay. Hi, Laura.
spk04: Good morning, and thanks for joining. I'll take maybe the 22 context and then hand it back over to partners here for CTV. As it relates to 22, I mean, you're right, we haven't put anything out in the public domain. But I think broadly speaking, we do believe that the secular shifts we are seeing are here to stay. Advertising recovery remains very strong, and we do believe – As our daily routines become more increasingly normal, there's still more demand strength on the come. So as David referred to earlier, we see a little bit of what we see as temporary softening in some of those verticals, but we think that that's really minor relative to the increasing budgets both within those softer verticals, but also travel and entertainment and others that we think there's much more on the come for us. In terms of timing, I think second half next year probably makes more sense than early this year as we continue to see deferrals and delays and what our new norm becomes. But broadly, we see a very strong advertising market, and we think, again, there's more on the come next year.
spk03: Yaron, I think you're muted.
spk08: Yes, that is a good point.
spk11: Thanks. Hi, Laura. Yaron here. I think the broader theme in your second question is around the walled gardens versus the non-walled gardens, whether it's open web or CTV environments. I think the big shift that we're seeing at this point is coming after about a decade of the walled gardens basically owning the the best data sets and being able to use that data set across different apps, different browsers, different devices with almost no limitations. I think what we're seeing now is the battle of the walled gardens or the platforms like Apple and Google saying, you know, that's coming to an end. And we're now going to start capping that ability to take TII and use it across apps and different devices. And obviously advertisers historically, if we look historically, they've never taken barriers like that and said, okay, now we'll advertise less. Historically, as we've seen in the past two decades, more and more budgets move to digital and it's just a growing piece of advertising. And so we do think that with those limitations coming on the ability to use PII and move it between Devices and apps and we're seeing the the biggest pain probably in the in the Facebook and snap areas We do think that the open web is going to benefit significantly from this and the open web historically is a tremendous amount of Context and first party data first party data did not have big advantages in the past because third party data was so easy to use but now that That value is coming back to the publishers that own a tremendous amount of first-party data and to their biggest partners that are deeply embedded with those publishers. So we think those trends in the industry are very positive for the open web in general and for Outbrain in particular.
spk12: Very helpful. Thank you very much.
spk03: Thank you. Our next question comes from the line of Brent Thill with Jefferies.
spk04: Please proceed with your question.
spk05: Good morning. 60% of the revenue, I believe, is international. It would be great to kind of hear how that's trending versus the U.S. And also, I think you don't break up the customer count, but I think last quarter you mentioned 20,000-plus. Just was curious if that number was growing, any change in terms of the total absolute customer ads this quarter.
spk03: Sure. Good morning, James.
spk04: Just looking at our international profile, that's right, it's raised around 60% is outside of the U.S., and it continues to outpace the U.S. growth as it has all year. We see that outside the U.S. there was more pressure last year, so some of that higher outpacing that we saw in half one is to a lesser degree in half two, but we continue to see international outpacing the U.S. On the advertiser front, I mean, we typically will disclose that on an annual basis, mainly because quarter to quarter, it can vary. But absolutely fair to say, consistent with what you're seeing in the overall strength of the results, that year over year, our advertiser count has increased. What we are seeing, I think, as a product of our tools, and David mentioned CVS and many of the things we've talked about, over the many months is on top of growing the count, we're also deepening the spend or the share wallet with our partners. So we see growth on both dimensions.
spk09: Thank you.
spk03: Our final question comes from the line of Nick Jones with Citi. Please proceed with your question.
spk06: Great. Thanks for taking the questions. I guess, too, you mentioned some softening and some verticals. Is this kind of tied to supply chain constraints and certain kind of econ verticals or broadly? Is that the right way to think about how kind of the softness and some verticals may improve into next year? And then I have a follow-up.
spk07: I think maybe I'll take that. It's David Hayes. So we have not experienced in our business stuff that we've seen, you know, some budgets, for example, in automotive being temporarily shifting. But when you look at the overall diversity of our advertiser base and you know, the, not just the verticals, but also the type of advertisers, it has impacted us. We continue to see strength in, in other verticals like health, entertainment, travel, Finance, and so we've seen no impact on it. I mean, we've seen numbers shifting, but no impact on the business at all. And generally, the trends of the shift to digital and to measurable outcomes and the variety that we have really, I think we don't see that as impacting us.
spk06: Great. And then maybe on click-through rate, I know that's kind of a focus is to improve click-through rate. Can you talk about what kind of investments you might be making kind of through the rest of this year and into next year to continue to drive that higher? There's still quite a bit of runway to improve that. Thanks.
spk11: Yeah, thanks, Nick. You're wrong, Gary. So click-through rate is definitely one of our biggest... You're wrong.
spk04: I think you're having... Yeah, no, you were unmuted, but it sounds like... Yeah, sorry. Okay, Nick.
spk11: Yeah. I need to improve my unmuting skills. But thanks, Nick, for the question. You're right here. So click-to-rate is definitely a big area of investment for us since we started the company. It's basically a user engagement business, and being able to drive that over the years is very important for us. We think there's still tremendous opportunities. Again, about, as we've said a few times, about 95% of the audiences that we already reach, they're seeing the outbrain recommendations are not currently engaging or clicking on the recommendation. So we think there's tremendous opportunity to grow and engage a broader audience. That's a big reason we're investing in the quality rating algorithm. Again, that algorithm we think is going to benefit all users, but most specifically it's taking those implicit quality signals from users, both engagers and non-engagers, and making the recommendations more relevant and interesting for those who think that's a great opportunity. One way to think about the opportunities we have on click-through rate is when we look at the organic recommendations. About half of the links that we serve are organic recommendations to a publisher's own content. And the click-through rates we've been seeing on organic recommendations are generally about double the ones we're seeing on the paid recommendations. So with no big heroic deeds, we know that doubling the click-through rate is something that's already happening within our recommendations. Obviously, organic and ads are slightly different, but we think those are realms of possibilities, and we're definitely investing more in technology and algorithms for that.
spk08: Great. Thank you.
spk03: Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Yaron Goli for closing remarks.
spk09: Thank you.
spk08: Thanks.
spk11: We're very excited with the growth that we've had over the past quarter, as you can see in our results. And this is a result of focusing on execution and on excellence in our core business, which is very exciting for us. We'll keep updating, obviously, on the things in our dynamic industry and on changes where we see great opportunities, and we hope to see you all in the next quarter. Thanks.
spk04: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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