Outbrain Inc.

And welcome to Outbrain Incorporated third quarter 2023 earnings conference call. This time all participants are in listening mode. Let your ancestors know, follow the formal presentation. As a reminder, this conference is being recorded. I'd like to turn the call over to Outbrain Investor Relations. Please go ahead.

Good morning, and thank you for joining us on today's conference call to discuss Outbrain's third quarter 2023 results. Joining me on the call today, we have Outbrains co-founder and co-CEO, Jeroen Galli, co-CEO, David Kostin, and CFO, Jason Kiviat. 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, 2022, as updated in our Form 10-Q, 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 statements. 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 investor relations website, investors.outbrain.com, under news and events. With that, let me turn the call over to David.

Thank you, Randy. First, I want to touch on the situation in the Middle East. At Outbrain, we stand with the people of Israel who have been affected by the recent events. Our hearts go to all the people that are impacted by the horrific situation. We all know people that have suffered, and we pray and hope for better, peaceful days in the region. I want to take this opportunity to thank so many of you, first and foremost our employees in Israel and around the globe, for your unwavering commitment. our business partners, and our investors and analysts for the outpouring expressions of support. This means a lot to us. From an operational perspective, we have approximately 380 employees in Israel. About 30 have been called to reserve duty. Our offices are located in Netanya, north of Tel Aviv, in the center of Israel. The safety and well-being of our employees and their families is our top priority. Since October 7, we have continued to execute on our business priorities and deliver on our commitments to our customers. We do have business continuity plans in place should the situation further escalate. Now I will turn to our financial results and business trends. We are pleased with the resumption of year-over-year growth in Q3. We grew X-Time gross profit by 8% to $56.8 million. within the range of our guidance. Our adjusted EBITDA of $10.3 billion exceeded significantly the high end of our guidance and can be attributed to the top-end growth and to our cost discipline. We also saw improvements in our extract margin. In terms of current trends, the macro environment, which remains volatile, combined with the ongoing situation in the Middle East, leads us to a more cautious outlook for revenues and ex-tax gross profit in Q4, as you will hear from Jason. Since early October, we've seen a spike in war-related news pages, which are generally more difficult to monetize, as certain brands have brand safety concerns around these types of pages. We have also experienced some brand budget cuts and delays in launching campaigns, resulting in slower-than-normal seasonal Q4 uptick. Despite these near-term headwinds, going into 2024, we're excited with our differentiated position in the market, which focuses on the premium side of publishers and advertisers. Our platform offers full-funnel results for advertisers at scale on the open web and enables total publisher revenue and audience growth. all leveraging our AI-driven prediction engine. We believe this provides us with a strong foundation for further growth in 2024 and beyond. Let me turn to the advertiser side of our business. Our brand has traditionally been and continues to be a cost-per-click native advertising customer acquisition platform that uses AI to deliver strong performance on CPA goals across the open web. Yaron will touch on Q3 notable investments in AI and automation capabilities in our core buying platforms, such as the growth in our codeless conversion features for self-serve advertiser base. We continue to innovate to drive return on ad spend and scale for diverse sets of performance advertisers. we are seeing growing adoption of our performance DSP, Zementa, with traditional amplified clients moving budgets to buy more effectively across open web SSPs and not only in the outgoing marketplace. As a reminder, Zementa operates on a percent of spend through the platform, and we have seen record levels of spend growth on Zementa in 2023. Under branding and awareness front, at the start of Q3, we launched Onyx, our new brand-building platform that runs video, high-impact display, and rich media ads, leveraging our brand's AI to maximize user attention. Since the launch, we have worked with more than 100 brand advertisers. These advertisers include Sephora, Paramount, L'Oreal, Lancome, Nestle, and many others. For many of these advertisers, we are demonstrating that we can outperform incumbent vendors through a unique combination of better creatives, running on high attention placement, and utilizing smarter technology to drive attention. We continue to consistently deliver above benchmark results in terms of attention. For example, with our high-impact display ads on mobile, we see an average 58% higher attention rate versus the Adelaide benchmark. Also, in our video business, which is a core component of our Onyx offering, we switched our focus from out-stream video to in-stream pre-roll, leveraging our video intelligence acquisition. This shift is starting to pay off with higher margins for the video segments. we expect video to be even more strategic for our future growth. Another differentiated element of our offering is the ability to drive both performance and awareness for brands. This makes us one of the very few companies beyond the walled gardens that can deliver advertiser objectives across the full funnel consumer journey. As an example, For many years, AARP has been leveraging our amplified performance platform to drive objectives like audience development. Now, we have expanded the relationship to encompass branding objectives where ONIX will help them build brand awareness with potential new members. These types of engagements with advertisers get us excited about our strategy to address a larger segment of advertising budgets from both new and existing clients. Despite some of the slowdown in brand advertiser business that I referred to, we still expect to close the year, as we said before, with $10 to $20 million of Onyx business. Moving to the publisher side, we continue to focus on improving the performance of our premium publisher wins over the last 12 to 18 months. Among our renewals of long-term partnerships in Q3, I want to highlight L'Equipe in France, Berliner Verlag and Zeit in Germany, as well as Vox in the US, a partner we have been working with exclusively for close to a decade. We are currently engaged in several discussions with large publishers globally and feel strong momentum driven by several elements of differentiation. One, our focus on having a balanced portfolio of premium global publishers with no single publishers taking up outsized demand. Second, the onyx premium demand. And third, keystone capabilities and product vision. To sum it up, considering the current macro environment and the situation in the Middle East, we are more cautious about our short-term revenue outlook but we continue to leverage our cost discipline to drive profitability and cash flow generation. We are pleased with the resumption of year-over-year growth in Q3 and expect further acceleration in 2024, leveraging our strategic investments. With that, I will turn it over to Yaron.