Outbrain Inc.

Good morning and welcome to the Outbrain Incorporated fourth quarter and fiscal year 2022 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. Now, I'd like to turn the call over to your Outbrain management team.

Good morning, and thank you for joining us on today's conference call to discuss Outbrain's fourth quarter and fiscal year end 2022 results. Joining me on the call today, we have Outbrains co-founder and co-CEO, Jeroen Goli, co-CEO, David Kosman, 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 31, 2021, as updated in our Form 10-Q and other reports, and in 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 statement. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's fourth 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 David.

Thank you, Steve. I'm pleased to report that in Q4, we exceeded the guidance we provided for adjusted EBITDA and we were at the higher end of our guidance for extra gross profit, delivering $7 million of adjusted EBITDA and $59 million of extra gross profit. For the full year 22, our revenue was $992 million, which reflects growth of 2% on a constant currency basis. Our extra gross profit was $235 million, and our adjusted EBITDA was $26 million. Throughout the macroeconomic, political, and industry-specific challenges in 2022, we were driven by the principles of discipline and focus on the core business. We gained significant market share on the premium end of the market, developed strategic drivers that we expect to deliver growth in the coming years, and made measured investments in our business while staying disciplined on cost. We believe that some of the regulatory actions like the DOJ seeking to break up monopolies and the focus on privacy strengthen our competitive position as one of the largest contextual digital advertising companies on the open web. 2022 was a record year of signing new multi-year partnerships with premium publishers, which is the segment we focused on. To give you some relevant numbers, We won from direct competition business worth more than $100 million annually, which is twice the amount we let go. These market share gains were mainly from the largest and most important anchor publishers in the market, such as Axel Springer in Germany, Fox News in the US, Daily Mail in the UK, and Jetty in Italy. New business contributed $46 million just for Q4. This positions us with commanding market shares with the top 5 to 10 news publishers in many markets globally. Most exciting for us is that we are told by partners that our monetization and engagement metrics are higher and that they choose us for our superior ad quality technology and products, proof that our laser focus on the core is paying off. Consistent with our management approach, we're very disciplined about terms of deals including the use of any cash prepayment and avoiding dilution to our shareholders in order to gain business. The acquisition of Video Intelligence also allowed us to broaden our video and made articles present with our publisher partners. We added VI to more than 40 of our existing publishers. We're very excited about the potential growth in the video business in 2023 and beyond. as it also fits well with our strategy for offering full-funnel advertiser solutions, which I will turn on now. In total, we currently have close to 1,000 in-article integrations, whether through header bidding or code on page, which will support primarily our enterprise brand strategy. To the advertiser side, we see a great opportunity to broaden our TAM as enterprise brands are also increasingly looking for more meaningful, measurable results from their awareness and consideration budgets, seeking primarily attention and engagement metrics. Predicting engagement is the cornerstone of our value proposition to performance and direct response advertisers. So a natural extension is leveraging our core AI-based prediction capabilities to be relevant for enterprise brands. Our attractiveness to these advertisers is also driven by the access we can give them to our exclusive premium supply in a direct way. We are, in essence, supply path optimized by design. As one example of our approach to enterprise brands, Audi recently leveraged our brand studio to deliver premium and innovative advertising experiences to maximize the potential of user engagement or interactions users actively had with the creatives. like swipe, watching the video, enabling audio, and clicking through to the audience side. The campaign resulted in a more than three times higher engagement versus comparable formats. So just to close the loop on this flywheel, premium global supply drives more premium brand higher quality advertising, which in turn drives a better user experience. This expansion of our advertiser base was one of the areas of investment in 2022, And you will hear more about that throughout 2023. For performance advertisers, our focus is twofold. Increase automation and improve CPA by helping advertisers adopt the right automated optimization strategy. As a reminder, we've been implementing things like the ability to set targets, CPA, cost per acquisition, drive for maximum conversions, and allow for full automation of the CPC billing for a while. and we see continuous improvement in the performance of our advertisers. We believe that the focus we had on this direction gives us a significant competitive advantage. As a result, in the quarter, we saw double-digit increase in advertisers choosing our fully automated CBS mode, shifting from the semi-automatic mode, and currently we have overall conversion bid strategy adoption of 70% from our advertisers. In 22, we worked with a record number of advertisers, which includes a diversified demand mix across marketer types, vertical, ad formats, and goals. The direct relationships we have with these advertisers is critical in times of economic uncertainty, as we work closely to understand client goals and optimize their campaigns accordingly. However, needless to say, 2022 was a tough year, primarily from advertiser softness in pricing and reduction of campaign budgets. The average prices that we've seen in our marketplace have declined by double-digit percentages versus 2021, and as of the end of the year, are still approximately 10% below even 2019 levels. Therefore, throughout the year, we're also acutely aware of the need to drive efficiencies and act in a disciplined way, the same way we acted in 2020 and 2021, when despite the strong growth, we managed our expenses conservatively and grew our team carefully. Similarly, as soon as we noticed the telltale signs of headwinds in Q1 2022, we moved quickly to cut costs and headcounts. We structured some of our teams, including folding our video intelligence and the mentor teams into our core business, and reduced our originally planned operating expenses for 2022 by more than $50 million, resulting in positive free cash flow in Q4. We are continuously looking to improve our cost structure in 2023 and are accelerating our move of positions to lower-cost geographies, implementing optimizations in our serving infrastructure, and we initiated several internal automation projects across our operations. As to the outlook for 2023, Jason will provide our guidance, but I want to highlight a few of the key assumptions. We assume no meaningful improvement in the macro environment. We believe that our consistent focus on the core that led to our record market share gains and record page views in Q4, combined with the investment made in video, full funnel offering for advertisers and optimizations in our bidding algorithm, and the continuing focus on efficiency, will support the growth, profitability, and free cash flow we expect in 2023 and beyond. I'll now hand it over to Yaron.