Outbrain Inc.

Good morning, and welcome to Outbrain Inc.' 's second quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Anthony Rasmus. Thank you, and over to you, sir.

Good morning, and thank you for joining us on today's conference call to discuss Outbrain's second quarter 2022 results. Joining me on the call today, we have Outbrains co-founder and co-CEO Yaron Goli, co-CEO David Kostman, and CFO Jason Kibiat. 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 10-K filed for the year ended December 31st, 2021, as updated in our Form 10-Q for the quarter ended March 31st, 2022, and 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 such statements. Today's presentation also includes references to non-GAAP financial measures, You should refer to the information contained in the company's second 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, investors.outbrain.com, under the news and events section. With that, let me turn the call over to David.

Hi, and good morning. We are pleased to report that despite continuing macroeconomic headwinds, We delivered on the guidance we provided for Q2 with extra gross profit of $59.3 million and adjusted EBITDA of $5.9 million. We also grew revenues by 2% or 6% on a constant currency basis. At a high level, on the one hand, we are gaining significant market share with media owners. We are growing our number of active advertisers and we are growing our number of engagements with users. So overall positive metrics. At the same time, the worsening macroeconomic environment and declines in the advertising market are negatively impacting our financial results. Therefore, operationally, we are focused on making the long-term investments that will position us to be stronger coming out of this downturn and also at the same time deepening our cost reduction efforts to drive efficiencies. Let's move to our business and start with the supply side. We have continued to win significant market share with new, large, month-to-year publisher deals. These wins greatly increase our supply footprint and set the company up for much faster growth when advertising demand recovers. In Q2, we launched our partnership with several new large publishers, which we have previously announced, such as Axel Springer, and we also launched a direct-to-device partnership with Xiaomi on the platform side. We renewed long-term deals with many publishers, including Meredith, Vox, Scripps, and others. We're expanding on existing publisher pages by leveraging our acquisitions to grow our footprint in one of our core expansion areas, high-quality, brand-safe video placement, and in programmatic channels, leveraging many years of experience with our video technology. We have implemented our quality rating with several large publishers and are getting positive feedback as to the impact on quality and RPM. Also, post-quarter, we extended our global momentum of premium publisher wins to the U.S., and in August, we signed a multi-year exclusive agreement and launched on a top U.S. publisher. By adding this publisher, we are now the exclusive content recommendation partner four of the top five editorial news publishers in the US by the way the fifth is using an in-house solution so if there is a must buy open web feed for advertisers in the US our brain it is we expect to announce additional major wins in the near term a few words about the short-term impact of this tremendous supply growth these are typically multi-year deals, and we model and analyze them looking at the totality of the potential length of the partnership. We are choosing to gain as much smart market share locked under long-term contracts. However, the initial rollout and getting to full optimization can take time, and combining this with softness on the advertiser side is negatively impacting our short-term results, as you will see from our guidance. On the technology and algo front, SmartLogic adoption on our core network continues to grow, comprising over 80% of mobile and over 50% of desktop partner integration. We are continuously improving the performance of SmartLogic and believe this is one of the key differentiators in our publisher wins and that this platform will continue to support our growth. Now let me turn to the demand side. We continue to see demand softness hit the industry and significantly drive down pricing. Compared to last year, we've seen high double-digit year-over-year declines in CPCs, also impacted by foreign exchange. But our advertiser base has expanded, our co-engagement metrics have grown year-over-year, delivering growth to our performance marketers, and we are seeing great progress in our direct business with enterprise brands, which grew by double digits in Q2. As we mentioned in previous calls, we are focused on expanding our brand business. Our quality focus is helping us land brand budgets and win premium publishers who are looking to improve their user experience and limit certain categories of performance advertisers. This type of brand budget, particularly in Europe, where brand and agency budgets account for more than 60% of our demand, are more impacted in the short term by the softness in the market. but we believe this is the right long-term direction for Outbrain as the premium quality player in the market. To further support this effort, we launched an initiative this quarter called Brand Studio, a dedicated team and resource hub designed to enable these major brands to quickly get up and running with successful campaigns on Outbrain's platform for maximum engagement and memorable interactions. Currently, we are working with a globally recognized food and beverage brand along with a premium auto brand for this new offering. According to our internal data, initial results for the premium auto brand show more than three times higher engagement than benchmarks for comparable formats in the auto category and 18% more dwell time across the publisher page compared to industry benchmarks. Let me sum up. We ended another quarter on target, and are building and investing in the future. That said, we remain very cautious about our ability to accurately predict the future macro impacts on the business. Conditions have deteriorated globally, but we are particularly impacted by our large presence in Europe and Japan, which account for over 40% of our revenues, and where results are further negatively impacted by exchange rates. Therefore, as you will hear from Jason, we are revising our outlook downward at this time, I'm personally disappointed to be in such a position, but these are difficult times in terms of the high level of uncertainty as to the outlook. Having gone through cycles, these times of uncertainty and challenges provide a real opportunity to recalibrate and make sure we act in a fiscally responsible manner. I believe that we will come to this period as a stronger and more disciplined organization. We've made adjustments to our cost base, responding to these environments, which Jason will elaborate on, and we continue to monitor the trend. We're focused on controlling the things we can control, and we're focused on making the long-term investments that will position us to be stronger coming out of this downturn. From a strategic perspective, the supply winds in H1 and our competitive position in major markets is a great testament to the strength of our technology, our monetization and engagement capabilities, and the quality of our trusted partnerships. While the current macroeconomic situation is challenging, we also see it as a driver of opportunity to lock up gains in supply that we expect will pay off for our shareholders when economic conditions stabilize and we see stronger demand. We believe that the secular trends driving our industry, such as the shift of marketing budgets to digital, the importance of more measurable results for advertisers, and the deprecation of third-party cookies provide our brain with tremendous opportunity. We believe that continuing to focus on our core business, our commitment to premium publishers, and expansion of quality brand and agency advertising is the right one for our shareholders. So despite the headwinds, we will remain focused on investing in our top growth areas. We have a strong balance sheet with over $150 million of net cash to support our growth strategy. We believe our long-term investment thesis is compelling and and we have great conviction in the opportunity in front of us. With that, I will turn it over to Yaron.