Outbrain Inc.

Good day and welcome to Outbrain Incorporated second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd like to turn the call over to Outbrain's investor relations. Please go ahead.

Good morning and thank you for joining us on today's conference call to discuss Outbrain's second quarter 2024 results. Joining me on the call today, we have Operating CEO, David Kostman, 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 31st, 2023, as updated in a subsequent report 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 second quarter earnings release for definitional information and reconciliations of the non-GAAP measures to the comparable GAAP financial measures. Her earnings release can be found on our website, investors.outbrain.com, under News and Events. With that, let me turn the call over to David.

Thank you, Sam. Good morning, and thank you for joining us today for our second quarter 2024 earnings call. Last Thursday, we announced the definitive agreement to acquire Teads, combining the two companies into a platform that we believe will define the next generation of open Internet advertising. This is a transformative merger that positions us as one of the largest open Internet advertising platforms. It dramatically changes our financial profile in terms of profitability and growth opportunities. We believe the combination will deliver significant accretion to our shareholders through synergies and the financial leverage of the transaction. The two companies have amazing teams of talented, innovative, driven people that have been instrumental in establishing our two companies as category creators and leaders, Albany in performance and Teeth in branding. Together, we believe we will create a scaled, global platform that can deliver outcomes for advertisers currently only rivaled by World Gardens. We've been clear that our vision is to become a true end-to-end, full funnel platform for the open Internet, with a level of service and standards centered on serving brand needs. The use of our merger routines allows us to take a massive leap forward in executing this strategy. The reception we've seen from many industry players reinforces our confidence in the merger's rationale. Many of our partners, from media owners to brands and agencies, express their excitement about the opportunities the new company would create. For example, Peter Wurtenberger, Executive Vice President at Axel Springer, wrote to us, This is a significant milestone for both companies, and we are thrilled to see your expanded capabilities. We look forward to seeing the positive impact this partnership will have on the industry and on our collaboration. And another one, Alexandra Chaban, CEO of Group M France, one of our agency partners wrote, this merger of the leaders in performance marketing and video branding promises to be an exciting and transformative alliance. These statements are just two of many examples of the overwhelmingly positive feedback from so many of our clients, and I want to take this opportunity to thank them for that and for their continued partnership. The two companies will continue to operate as standalone businesses as we prepare the post-merger integration plans. Closing, which is subject to regulatory approvals, out-brain shareholder vote, and other standard closing conditions, is expected by Q1 2025. Now I want to provide an update on Q2 and the progress on our 2024 growth drivers. For Q2, I'm pleased to report that we delivered extra gross profits of $56 million towards the higher end of our guidance. We significantly exceeded our adjusted EBITDA guidance with $7.4 million, and we generated positive free cash flow for the fourth consecutive quarter. These results are driven by positive trends in our core business and the momentum in our growth drivers. As you may recall, these growth drivers we talked about revolve around three pillars. The first pillar refers to expanding our share of wallet with advertisers across both brands and agencies as well as performance advertisers. ONIX direct sales continue to grow through the combination of new clients, new markets, and rebookings. We successfully launched ONIX in Israel and Spain and have several campaigns live in both countries. This is in addition to the US, UK, Germany, Italy, and Japan. In addition, Onyx has continued to see strong rebooking rate of nearly 40% in Q2, reflecting the business impact Onyx has delivered for our clients. Notably, we've secured multiple campaigns from enterprise partners such as Disney+, Purina, Nissan, including a great campaign promoting the Taylor Swift AeroStore. Sorry, I had to mention this campaign to get some credit with my daughter. On the performance side, of our business, one of our main initiatives is shifting certain buyer profiles to our DSP, Zemanta. Our DSP enables these clients to drive ROAS at a larger scale on the open internet, allowing us to capture a larger share of wallets from these clients at a higher extract margin. In the first half of 2024, we achieved remarkable growth on our DSP, with advertiser spend growing by approximately 50% in comparison to the first half of 2023. Moving on to our second pillar, we've continued to expand our supply footprint outside of our traditional feed, enabling advertisers to reach consumers with a range of placements across the entirety of the open Internet. These revenues, which are on inventory beyond our traditional feeds, We presented approximately 27% of our revenue in Q2 2024 versus 24% in Q2 2023. Our third pillar, we continue to invest in deepening our partnerships with top premium media owners. We signed new exclusive feed partnerships, among others with Ebra in France and the Daily Beast in the U.S. We also renewed several partnerships, including Ad Alliance in Germany and Vox in the US. This resulted in logo retention of 99% in Q2. Also keystone, so continued adoption by some of our top premium publishers. Let me share a few highlights on our products and algo. We launched a new AI-driven targeting solution, Predictive Demographics. Predictive demographics enables our clients to reach relevant demographic audiences without relying on third-party cookies. Outbrain predictive demographics is establishing itself as a real option for demographic targeting among the mentor buyers, with early data showing an adoption rate surpassing traditional third-party targeting segments by up to 40%. For one of our recent clients, a public health campaign in the U.S., Predictive demographics drove 2.7 times higher click-through rate in comparison to campaigns using third-party demographic segments. We are encouraged by these results, which signal to us that advertisers are looking for privacy-forward audience solutions that can drive results. On the heels of Google's announcement to reverse their plans to deprecate third-party cookies in Chrome, we remain committed to driving results with contextual and privacy-centric signals. The successful launch of predictive demographics is a reflection of this. On the algo side, our click-through rate has witnessed double-digit growth in the first half of 2024, and we've also witnessed our third consecutive quarter of year-over-year RPM growth, sustaining our upward momentum. In conclusion, Our second quarter has been marked by growth, new partnerships, and innovative strides in improving campaign performance and user engagement. I'm confident that our trajectory remains strong and that we are well positioned for sustained success in the future. We are thrilled to embark on the next chapter with Teads and are focused on executing our strategy to build towards becoming the preferred full funnel platform for brands on the open internet. With that, I'll turn it over to Jason.