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spk10: 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.
spk05: 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.
spk04: 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.
spk08: Thanks, David. As David alluded to, 2022 was a challenging year for our industry, which has caused the demand or advertiser side of our business to perform more radically than any year in the past decade plus of our business. Our focus this year was on balancing disciplined cost management while investing in technology that we believe will serve us well into the future based on the spring-loaded supply winds we mentioned. Here are a few of these areas. As I said last quarter, it's clear that revenue diversification is one of the top priorities for many of the best publishers around the world, including some of the publishers we brought into our marketplace in 2022. And they need technology to enable that diverse revenue growth at scale. This is why we introduced Keystone, which takes the best of the optimization technologies we've built at Outbrain for the last 15 years and builds upon them a platform that enables publishers to grow the entirety of their businesses, e-commerce, subscriptions, newsletters, affiliates, et cetera, via technologies. We've now added three premium publishers in Spain, Germany, and Japan, who have deployed the Keystone technology on their site. Switching gears, AI has been a recent point of interest for many, thanks to the advances in technologies like ChatGPT. Before I outline some of the ways we've built AI into the Outbrain stack over the years, I'd like to start with a word of caution, as it's almost guaranteed that all companies in the near future will be hyping themselves as huge manufacturers of AI. I believe the AI story is a bit more nuanced. The AI revolution is at the same time real, overhyped, not entirely new, and partially commoditized. It's real in that there are fascinating breakthroughs happening, which will allow for massive ad creation, smarter prediction algorithms, cost reductions, and more. It's also overhyped, and it's being presented as an immediate magical solution that will replace all unions on all tasks. I think we'll find that the leap from a cool consumer user experience to industrial-grade solutions will require more R&D, more time, and more human support for that last mile of deliverables. It's not entirely new in that many of these technologies have been bubbling up in the past five years or so. I'll speak shortly about how we've built AI into our core prediction algorithms starting in 2019. Lastly, much of AI is likely going to be quickly commoditized. For example, everyone will likely integrate chat GPT-like capabilities into their ad creative generation, which means it'll be a commodity for everyone. All that said, Outbrain has been the leader in AI in the recommendation space for several years. And here are a few ways we leverage AI in machine learning or ML in our business. First, we've been using AI technology for ad creative suggestion since 2021. This has been helping us and our advertisers in two ways. The first way is creating a large number of ad variations to quickly find those that are best performing. The second way is reducing the cost of human labor needed for extensive ad creatives. Close to 10% of new marketers on our platform are now using the AI creative generator in their outbrain campaigns. We are now lab testing the use of ChatGPT for ad creatives and expect to make that available to our advertisers soon as an enhancement to our existing AI technology. Second, at the core of our service, we use machine learning or ML to predict user interest and propensity to convert. These are technologies we've built and deployed starting in 2019. And our systems make around 1 billion such predictions every second, making it one of the biggest AI ML systems in our space. Third, more recently, we started extending these AI-based prediction algorithms into the programmatic space. This means that advertisers looking to buy our brand through programmatic channels such as DSPs and SSDs can now benefit from the ability to target users who we predict will have high propensity to engage with the advertiser and convert to them. We believe this will be specifically interesting for enterprise brands who are looking to more smartly advertise to those users who are more likely to pay attention to them. These specialized technologies are largely homegrown by Outbrain's R&D team, and we've open-sourced components that enable us to keep evolving our AI and ML capabilities in a cost-efficient way. One of the biggest long-term levers in our business is the continuous improvement of our algorithms and the data set our algorithms learn from. I'll start with the data that feeds our algorithms. The more data points we have, the better our CTR predictions and yield potentials become. in 2021 we processed an average of 4.6 billion data points per minute in 2022 we've grown that approximately 50 year over a year to about 7 billion data points per minute when we pursue supply partnerships like the ones we mentioned earlier it's not only the immediate financial value that we consider but also the value of the data we obtain that we use to improve our ai algorithms On the algorithmic side, last year, our R&D team released into production several algorithmic breakthroughs, including the AI technologies I just mentioned, which, according to our internal A-B testing, have improved our CTR and resulting RPM yield potentials by approximately 9.5%. While these improvements are not yet apparent in the results we reported due to the unique macro challenges, we expect them to deliver value when advertising demand springs back from the macro slumps. Now, on to Jason Siviat, our CFO, to discuss the financials.
spk07: Thanks, Jeroen. As David mentioned, we beat our Q4 guidance for adjusted EBITDA and achieved our guidance for expat gross profit. Last quarter, I mentioned the continued volatility of advertising budgets, warranting a cautious approach to our Q4 guidance. This proved to be prudent, as we did see a softer second half of Q4 than we would typically expect from our historical seasonality in terms of the level of advertising demand. However, along the same lines, demand has been seasonally stronger than expected in January and into February in both the US and Europe, showing signs of stability. Revenue in Q4 was approximately $258 million, a decrease of 7% year-over-year on a constant currency basis and 11% on an as-reported basis. The decrease year-over-year was driven by lower yields, owing largely to the headwinds on advertising demand affecting our industry. These headwinds were partially offset by growing our supply from winning new, quality, long-term partnerships. These new media partners in the quarter contributed 16 percentage points, or approximately 46 million, of revenue growth year-over-year, by far our largest contribution of new partner revenue and page views on record, and far greater than the seven points of growth we had averaged in 2020 and 2021. Further, this growth comes in a period of demand headwinds, which means that the supply growth would likely have contributed to even larger revenues in a more normal macro environment. Net revenue retention was 74%, reflecting the continued impact of the demand environment on pricing, which drove the majority of the decline year over year. Our logo retention was far higher, at 96% for all partners that generated at least $10,000 in Q4 2021. As an additional data point, Our net revenue retention for full year 2022 was 86%, with essentially the entire 14% decline on existing partners driven by the impact of the demand environment on pricing, as our ad impressions were flat year over year, implying 100% in our retention of ad impressions on same-store sales bases. Additionally, FX rates remained a headwind on revenue. As a reminder, more than 60% of our revenue is generated outside of the U.S., largely in European markets. XTAC gross profit was $59.2 million, a decrease of 21% year-over-year on a constant currency basis and 23% as reported. Consistent with what we've seen in the past several quarters, the steeper decline of XTAC gross profit year-over-year versus revenue was driven by a few factors. One, an unfavorable mix of revenue, or in other words, a higher percentage of our revenue is from partners or segments with lower take rates. Two, lower performance on certain media partners, driven in part by the demand headwinds we're seeing, which impact the portion of our take rates with certain partners. And three, the impact of onboarding and optimizing significant new supply partners, which is challenged by the weaker-than-normal demand environment. As we said on the prior call, we expect to grow out of this headwind in the coming quarters, assuming no further deterioration in the macro environment. Moving to expenses. Operating expenses decreased approximately 6.6 million year-over-year to 51.8 million in the fourth quarter. The majority of the decrease is due to higher one-time expense items incurred in the prior year. The rest of the decrease is due to lower personnel-related costs, driven by lower variable compensation and favorability of FX rates, offset partially by the impact of increased headcount, mainly due to our VI acquisition in January. As mentioned in previous quarters, We implemented a series of cost reduction efforts to adjust the current business headwinds. We began 2023 with a headcount of approximately 980 FTEs, which is down 7% from June and down 2% from January 2022, as we continue to focus our attention on driving greater efficiencies in our operations. We are planning to maintain headcount, which accounts for around 70% of our operating expenses, to stay essentially flat for 2023. As a result, adjusted EBITDA was approximately $7.1 million in the quarter. Moving to liquidity. Free cash flow, which we define as cash provided from operating activities, less capex, and capitalized software costs, was approximately $11.5 million in Q4. For full year 2022, we saw a net use of cash of approximately $22 million. This was primarily driven by lower profitability. In total, we ended the quarter with $351 million of cash, cash equivalent, and investments in marketable securities on the balance sheet, and $236 million of long-term convertible debt. We announced previously that in February 2022, our board authorized a $30 million share repurchase program. In November, we completed repurchasing the full amount authorized, which resulted in the repurchase of approximately 6.4 million shares. In December, the company's board of directors authorized a new and incremental $30 million share repurchase program. which we began executing in Q1. We continue to believe it is an attractive way to enhance shareholder value under current market conditions while still investing in growth opportunities. Now turning to our outlook. As discussed today and in prior quarters, visibility to advertising budgets remains limited. In our guidance, we assume that current macro conditions persist with no material deterioration or improvements and regular seasonality. With that context, we have provided the following guidance. For Q1, we expect ex-tech gross profit of $50 million to $52 million, and we expect adjusted EBITDA of negative $2.5 million to break even. For full year 2023, we expect ex-tech gross profit of at least $237 million, and we expect adjusted EBITDA of at least $28 million. To provide additional context to how we see 2023, Our expectation is that we return to year-over-year growth in Q3 as we begin to laugh at the deterioration of the macro environment we saw throughout H1 2022. And we drive growth from areas that we have invested in over the past year, scaling our new supply, growing advertiser spend and improving yields through product and algorithm innovation, expanding the deployment of our video and full funnel offering, and growing our relationships with existing and attracting new publishers and non-publisher platforms. As we assume a flat macro environment, our assumed growth over the course of the year is driven by our execution of these investment areas, contributing more meaningfully in the second half of the year. Our guidance also assumes that expenses are roughly flat to where they have been for the past year or so. We plan to achieve this through operating our core more efficiently and strict prioritization of investment areas. However, we will monitor results and the environment closely with a focus on profitability and cash flow generation.
spk02: Now, I'll turn it back to the operator for Q&A.
spk10: Thank you. We will now be conducting a question and answer session. If you would 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 hand step before pressing the star key. One moment, please, while we poll for questions.
spk02: Thank you. Our first question is from Ross Sandler with Barclays.
spk10: Please proceed with your question.
spk00: Hey, guys. Good morning. Maybe just starting with the macro, Dickie, maybe you could answer this one and then one for Jason after that. But the guidance, you said normal seasonality for 2023. You said growth rates will be positive in 3Q. That all sounds pretty good. You're one of the few companies that's reporting a little bit later than the rest. So you know, we're in the first stage of easy comps lapping the Ukraine conflict in March. What are you guys seeing right now across categories and geos as far as, you know, the overall environment? And then what does it take to get to that positive growth rate in the back half? Is that just a function of easy comps or an improving environment? And then Jason, you know, Can you just talk over the next couple of years, like without giving specifics, what's the path on the X-TAC margin, the GPX-TAC margin, and what does it take to get back to the kind of previous cadence or range that that number is normally in? Thanks a lot. Hey, Ross.
spk07: Sure, hey. Okay.
spk04: If you want to start, I'll... Okay, so I'll start the... So generally we've been saying we see stability in the market. So we saw rates of decline that started in the end of Q1 into Q2, and then those rates of decline have stabilized. And we assume that that's what we're going to see going into next year. So no major improvement, but relative stability, we had, I think Jason mentioned, I mean, second half of December was softer, but then January and February are definitely looking okay. Okay. We don't see any major differences currently between Europe, which is a big part of our business, and the U.S., so generally the trends are pretty similar. And when we talk about the second half, I mean, it's driven not just by easier comps, but really by many of our efforts and growth drivers coming more to bear fruit in Q4 and in Q3 and Q4, and maybe I'll turn to Jason on that.
spk07: Sorry, yeah, so, I mean, the trends we saw really in the course of the year, you know, our biggest, just as a reminder, our biggest stepdowns for us that we saw were in Q2, and we saw a much more normal seasonality into the second half. And as Dickie said, you know, December was softer, as we, I think, heard from a lot of our peers as well, with relative strength in January and into February. For March, we've got positive trends. positive indications from the market. And so, you know, cautiously, we're expecting a normal, I would call a normal seasonal uptick in March. So, you know, visibility obviously remains limited. But again, our diversity of our advertiser mix and without any reliance on any specific vertical is certainly an asset for us. Just from Vertical's perspective, I think you might have asked in Q4, we saw positive signs. Again, we don't overly rely on any one of these, but positive signs from automotive, travel, and retail, while finance and entertainment were actually weaker in Q4 than Q3, which is unusual. And political was minimal. We didn't expect much, so not very disappointed by that, but that was it. And then you know, for, for, for 2023, I think, uh, you know, we started to say this, but, uh, you know, we're really using our, our normal, our normal process for, for, for forecasting, which we've been using for, for, for several years, you know, which is, you know, expecting, you know, using the, the trends that we see into Q1, flat macro, normal seasonality, uh, and then, and, and to, to get that growth, it's really coming from, from yes, lapping, you know, and, and the things we've done really in, in, in the last, you know, couple of quarters, uh, that, that will start to pay off. I think, uh, you know, really more into the second half of this year. And just to expand, you know, briefly on those, you know, like I said, we've added a ton of supply and premium supply at that. And we're traditionally a land and expand model is how we view ourselves. That's why we report the net revenue retention and why it's been over 100% historically, you know, this year notwithstanding. But we drive that growth on this, on our existing, you know, and our recently won partners through technology, learning the audience, driving optimizations, expansions, really finding out how to best monetize for each partner, which is largely through our technology, discovering that over and over. And it takes a couple quarters from our history and what we tend to do. I think we'll also grow in our model through, again, adding new partners, and that's both traditional publishers and what we call the platform's or the non-publisher partners. So that's the original equipment manufacturers, browsers, minus one screens. That's more than 10% of our revenue at this point. And I don't expect another year of 16% new growth, but certainly the seven that we came to kind of see every single time is probably more in the ballpark of what to expect there, though they're not guiding specifically to that. And yeah, we continue to invest in our algorithms and optimizations. Jeroen mentioned on the call, we actually saw really, really big gains in our predictions. With the supply and demand imbalance, we haven't been able to see it come through our overall results yet, but more coming there, and we're obviously cautious about how we put it in just based on what we've seen this year. And then I would just say expansion of video. and our full funnel offerings of, you know, mid-article placements, different types of other formats and placements, and we'll probably talk more about that in the coming quarters as an area of focus. And then, you know, at the same time, keeping expenses flat, which is what we assume in our guidance for the year, and we plan to, you know, we've been flat, if you kind of look back at the last, you know, year and a half, by the way, by operating our core more efficiently and really, really, you know, focusing on prioritization of how we can invest smartly and repurpose resources to expand our core. So that's really the story for the year. As far as I think your second question was just about the margin. The things that I mentioned have brought the margin down are actually the same types of things that will bring it up. So just what those are again, mix. So it's always going to be a factor. We've got, you know, thousands and thousands of partners and they all have different kinds of take rates. And it depends where kind of the, the mix of the revenue is generated, you know, just to, just to give an example, you know, not talking to any specific publishers, but we're not, we're not obsessed with, with the number, you know, when we're adding a new partner, you know, if it's at a lower than average rate, but we still see the dollars are, are, are attractive and profitable. There's more to it as well. I mean, the, the, the reach and the audience that it brings us for our advertisers that might convert well for certain types of advertisers and open share of wallet is also what we look at as well as the data that it adds. I think you already mentioned just how much, how much, how many more data points we're adding now with, with, with adding all these partners. And, you know, we view that as growing, growing yields across our entire network when we, when we improve our data as well. You know, the other that's, that's, that's mixed, you know, Demand, you know, headwinds really and the supply-demand imbalance is probably the biggest thing. If I had to pick one that's driven it down and macro improvement will certainly be the biggest thing that drives it back up. But I think there's some things that we can certainly do ourselves to drive it back up through just, again, better yields, you know, better click-through rates, et cetera, to, you know, find some leverage there as well. And then ramping up, you know, again, on these new partners, we find that it takes several quarters to drive the yields higher. And a lot of these deals, that means higher take rates as well. So again, things that are brought down are the things that will bring it back up.
spk00: Thanks. That was the longest answer in history conference calls, so congratulations.
spk04: I wanted to add something, but it was long enough, so we leave that there. I think the one thing actually I do want to say, I talked in the prepared remarks about the flywheel. I mean, the winds of premium supply and the investments we're making into mid-article video and really driving more share of wallet, increasing our time by getting into awareness and consideration dollars from brands are also important drivers. And we will see those, I think, materializing in the second half of the year in a more meaningful way. We expect that.
spk02: Thank you. Our next question is from Andrew Boone with JMP Securities.
spk10: Please proceed with your question.
spk09: Good morning, and thanks so much for taking my questions. I wanted to start off just on the competitive environment. Jeroen talked about the importance of just data. So to that angle, can you talk about what the competitive environment now looks like that the Dabula and Yahoo deal closed? How much of an advantage is scale, and does this change the competitive dynamic as you guys speak with publishers and advertisers?
spk04: And I'll take that. So I think the Yahoo deal is an interesting supply deal that gives scale. But the way we look at it, it's a big opportunity for us in the next couple of years. I mean, it's very distracting. It will take a long time. And, you know, we see a big opportunity to take market share on the demand side. I mean, Germany shutting down gives us an opportunity. And Gemini, by the way, had, you know, a few third party, large supply partners. We took the largest one, which is the U S publisher in the summer. And I think the, they are also exiting other very, very large third party supply deals. So we see opportunity there in the demand. And it's also a focus on, by the way, I have to admit, I still look at Yahoo finance and track all my stocks there. So I love it. And. It's still a deal that will take a lot of time to materialize at the end. It does give more data, but it's also when we look at sort of market segments and where we're focusing on, this is a pure native deal. I mean, native is great, but we're expanding much more into, as I said, into full funnel, other areas of publishers in mid-article video consideration awareness. So again, this is very, very native focused. I think it's a great financial deal for Apollo. Obviously, you know, dilution to shareholders of a competitor, but I think it's a, you know, great financial deal for Apollo. But at the end, I think once it materializes, I think it will give, again, it's another publisher deal. I mean, it's not more than getting more data from publishers at scale. And I think that they will be able to, you know, gain the scale from additional user data. It's not very clear. I mean, again, how much of the Yahoo data we'll be able to use there rather than just, you know, first party data from clicks that all of us have from publishers. So that's not clear, but definitely a deal at scale. I think we've heard some, you know, from some publishers, some concern about sort of such a large stake of a major publisher in a competitor. So it's, you know, balanced. I think in the next two years for us, we see it as an opportunity and, you know, congratulations to them. I mean, it does give them you know, a lot larger scale, uh, longer term on, on, on some of the, of the user data. Generally you asked about competitive environment. I know we're getting a lot of questions on extract margins and all that. So I just maybe want to use that. I mean, it's really not comparable when, you know, comparing the extract margins, uh, we do hear from sort of the publishers we want that, uh, you know, we did large surveys also with a lot of publishers that, you know, when we win it, um, because of ad quality, monetization, insights that we provide. And when you compare the numbers of the AgStack, obviously, you know, the competitor you're referring to has a lot of other things in there. I mean, there's Connexity that's accounted, and, you know, we estimate it could account for a few hundred basis points. There's other, you know, fees and data fees, and owned and operated sites like Shopsdilla and BizWit. So it's very difficult to compare at this point in terms of when sort of the analysts look at the exit margin.
spk09: That makes sense. Thanks. And then I wanted to touch back on Keystone. I'd love to hear more about what publishers are telling you, and then just how do you guys feel about the pipeline for 2023? Thanks so much.
spk08: Andrew, thanks to everyone here. So we formally announced Keystone in the middle of Q4, so it's very recent. And we mentioned at the time that we're doing it for design partners in the US and Europe. Now I just mentioned that we have three new publishers with the code on page. And two of those in Europe and one in Japan, so it's also expanding to other countries. What's important to remember is we launched this into a market that's not very favorable in terms of of paying for technologies. Keystone is a SaaS platform, and these are paid partnerships, but we're using this in the short term, especially in these market conditions as a product differentiator, as a way to establish a stronger moat with those publishers that we work with. That's just more important than the short-term financials. That said, we mentioned last year we did about a couple million dollars in revenue from Keystone, and we expect that to accelerate this year faster or outpace the growth of revenue. But again, it's still small compared to the around billion dollars of our corporate.
spk02: Thank you so much. Thank you.
spk10: Our next question is from Sweta Khajuria with Evercore ISI. Please proceed with your question.
spk01: Okay, thank you. David, you mentioned that when you were talking about the publisher wins, you mentioned a few things, what allowed you to gain share, superior ad quality, tech and product, et cetera. Can you provide more color in terms of what exactly is driving share gains in these publisher wins? And then, Jason, how did... I guess how should we think about just the seasonality from Q1 to Q2? Understood that you expect growth starting Q3. Could you please help with that? Thank you.
spk04: Hi, Shweta. So on the competitive wins, and they were very significant this year, obviously we gained significant market share among premium publishers, which is, again, the area we are focused on. It's been a record year of those wins, and it's driven by a combination of technology product, superior monetization and optimization that we bring, customer service. It's really a combination. And the vision, I think people do connect with sort of our long-term vision for the publisher industry. I think Keystone is an important site. It's not part of those deals necessarily, but it's a very important factor in terms of the narrative and sort of how we look sort of in the next few years into how we can partner with publishers. These are typically very long-term deals. I mean, some of them actually are beyond five years, you know, most of them are, you know, three to five years. So we're very excited about those. I think that when we also do these deals, we're trying to also increase our presence into mid-article and we have a, you know, very nice success with sort of leveraging those to implement VI. We want to leverage some of the other placements in mid-article and other placements to grow our sort of enterprise brand strategy that I talked about. So it's a combination of those in the financial terms matter too. I said we are more disciplined around prepayment and cash. We also didn't give any equity to get those supply deals. So overall, we're very comfortable. Great year. Need to focus in 2023 on growing those. As Jason said, a big driver for this year is sort of these deals being more and more optimized, driving better yields. you know, with some recovery in the ad market, obviously that's your own referred, I think, spring loaded supply. Again, the CPCs are still lower by 10% versus 2019. So we had record paid views in Q4. So once demand recovers a little bit, then obviously we continue to improve internally. We don't just hope for market recovery, but algorithmic improvements and others. I think we will see that reflected in the financial results.
spk07: Hey, Shweta, this is Jason. We'll take the second one, right? So, yeah, I mean, like I said, normal seasonalities that we expect with layering on some of these growth drivers on top. You know, as you can see, you know, Q1 fully feeling the effects of laughing, the tough comp, and really what happened last year was we saw advertising budgets reset at the beginning of Q2, and then again, you know, each kind of month of Q2. So it's still dealing with... With, you know, a partial tough comp, easing up over the period to be kind of an easier comp at the Q3, right? And so with that in mind, I would expect, you know, directionally, not any hard numbers here, but to go from, you know, the implied year-over-year decline that we're giving in our Q1 guidance, which is, you know, clearly double digits down, to be, you know, in Q2 probably down single digits, let's say mid to high single digits down in Q2, and then really scaling, again, over the second half of the year if that helps with the modeling.
spk01: That's very helpful. Thanks, Jason. Thanks, David.
spk02: Thank you.
spk10: Our next question is from Yaigul Arunian with Citigroup. Please proceed with your question.
spk06: Hey, good morning, guys. I guess first I just want to maybe get a little bit more color on some of the things we've talked about. First, on onboarding of new supplies, so it sounds like that will normalize over the next couple of quarters, but anything more we could add about where we are with that, what's left? And same thing on the move of funnel, talking about video and on the mid-article, Um, you know, just kind of technically, uh, again, David, you said that that's going to start contributing more over the course of the year, but you know, where are you in conversations with advertisers, publishers, you know, what needs to get done to, to get that, um, to those stages?
spk04: Thanks. So I think the, the, the first part, thanks. He got the first part on, on the ramp up and we're following here. Traditional pattern we've, we've seen for more than a decade in terms of, and when you ramp up those big partners, I mean, it takes a few months, so it's gradually, we see yields improving on those deals, and it's really following the patterns we've seen before. Again, the challenge is that there is softness in demand, and the depth of demand resulting in lower CPCs is definitely not ideal when you're ramping up so much supply. We talked about winning more than $100 million of new business. That's a lot for a year. But we are confident that they're following our models and following the traditional patterns of ramping up. And again, the record paid views we had in Q4 will yield in better financial performance once we ramp those deals also up and we see potentially some improvement in CPCs. In terms of the sort of our strategy around getting more, I mean, we have a big business today with enterprise brands already in many of the European countries, most of our businesses and agencies and brands. But what we've seen that there's a huge opportunity when these brands are shifting to desire and request more accountability, real measurements, real outcomes. That is where we excel. I mean, our company is based on the ability to predict engagement. Those brands today are looking for very clear attention metrics, engagement metrics, and we believe we can drive those better than many others and really create a unique selling proposition, which goes back to why we're focused on the premium supply. I mean, these brands want to be on premium supply. So if you look at in the most most of the large geographies we have a controlling market share among the top five or top 10 publishers, which are the names that these advertisers have to be on. So what we need to do, I mean, we're doing certain product improvements around that. We're getting more share in header bidding and made articles, which is very important. We are in the hundreds. I mean, we've been doing this by the way for a long time. I mean, we, when we IPO we talked about the acquisition of Samantha and the bidding technology that we've in continuously improved over the years and served us very well, both on our large partner, Microsoft, which we've been working for for a long time on this bidding and with them and in hundreds of other properties. So that is helping us in terms of our ability to be very competitive on, on mid article. the VI acquisition falls perfectly into that with the in-stream video that is more of a awareness type campaign format that advertisers are looking at. So it's all coming together. Um, you know, you'll hear more about it in 23 in a, in a bigger way, but we're very excited about that direction. And again, it works within, we are very focused. I mean, this premium supply, premium quality demand, better user experience that that's where we are in the market.
spk06: Thanks, and I think Dave, I'll stick with you on this next one. You mentioned the DOJ and Google, and obviously it's been a big topic, especially this earnings from open web, open web advertiser companies. Maybe you want to get your expanded thoughts on what that means, what you think it might mean for Google, and if there's more specifics to how it impacts operating and the benefits that that will drive. Thank you.
spk08: Yeah, how you going? I'll take that one. The the Google lawsuit, you know, it doesn't have any direct impact on us currently. But I think obviously, one of the most meaningful things happening to the whole industry, Google needless to say, is the most dominant player in online advertising and competes with everyone, us included, both on the on the publisher supply side and the demand side. The DOJ is, I think, pretty clear in wanting to reduce Google's monopolistic hold on online advertising. If they succeed, you know, I'd have to think that helps all players, benefits all players in the space. But I think also if Microsoft has any learning experience, I think also in the interim while DOJ is is looking to break Google's ad business. I think we might stand to benefit as publishers specifically might be more cautious in giving the majority of their business to someone that's now dealing with antitrust. And I think it'll really benefit us and others in the space that are deep with publishers and advertisers and being able to really run faster on product and partnerships in the space.
spk02: Thanks, guys.
spk10: Thank you. Our next question is from Laura Martin with Needham & Co. Please proceed with your question.
spk03: Good morning. My first one is on guarantees. I think, Jason, you guys used to give us the percent of the tax that was guaranteed, and I'm interested in that number, as well as when you're signing these new deals, that unprecedented level of supply. What was your, how, what percent of those are guarantees? That's my first question.
spk07: Sure. So yeah, we've shared, I think, the percentage of revenue that's subject to the guarantees, which we've said in the past was around 20%. And it still is, by the way, around that 20% level. It hasn't changed meaningfully. On the new deals, not going to specifically talk to any terms on any specific deal, but it has been a combination. So there have been some of our 16 points of growth this year from adding new there's been a combination of both guarantee and non-guarantee or just rev share type of deal.
spk03: Okay, great. Thank you, Jason. And then, David, early on in your prepared comments, you said that you got $100 million of new business, two times more than you lost. So the way I heard those words, it meant that you lost $50 million with the business. And I didn't understand whether, does that mean you lost $50 million to a competitor or just the spending was lower or delayed? Could you clarify that please?
spk02: You're muted. Hi. Yeah.
spk04: Okay. So we were, we were talking about the, uh, again, the winds of market share. So we did win well north of a hundred million. I need to be cautious, but it was well north of a hundred million of, of new business. And we did move away from about half of that last year.
spk03: And I'm just asking you to expand on that. You moved away from it. What does that mean?
spk04: That means that we lost some of it to competitors, some of it to other solutions.
spk03: Okay. And that's a little higher than normal, right?
spk04: I wouldn't say so. I think the general shift You've seen, I mean, we reported new business of $46 million for Q4. That's much higher than we've had. You know, it's 30% higher than competition. So we feel good about those market share positions. Again, especially focusing on the premium high end of the market, which is where we're focused on. So we're getting those anchor deals done. And, you know, we feel that, you know, relative market. I mean, in market share gains, I think this is a very strong year.
spk02: Okay, thank you. Thank you.
spk10: There are no further questions at this time. I'd like to hand the call back over to Yaron Galai for any closing comments.
spk08: Thanks, Operator, and thank you all for joining us today for our 2022 year-end earnings. Before we wrap up, I want to take this opportunity to welcome Nithya Das to the AppRain Board of Directors. Nithya brings significant industry expertise as the top executive at AppNexus among the pioneers of programmatic advertising and OLO. We're very excited to have her depth of experience on our board. Last year was a challenging one for us given the significant macro headwinds, but whether macro is challenging or accommodating, at AppRain we are committed to staying focused on our core and being very disciplined in our priorities and our costs. We look forward to seeing you in our Q1 earnings call.
spk02: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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