Outbrain Inc.

Good day, ladies and gentlemen, and welcome to Outbrain Incorporated third 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 now 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 third quarter 2024 results. Joining me on the call today, we have Outbrain's CEO, David Kosman, and CFO, Jason Kiviat. During this conference call, management will make forward-looking statements based on current expectations and assumptions, including statements regarding our business outlook and prospects, as well as our pending transaction with TEAS. 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, and in our definitive proxy statement filled with the Securities and Exchange Commission on October 31st, 2024. As updated 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 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 IR website, investors.outbrain.com, under News and Events. With that, let me turn the call over to David.

Thank you, Sarah. Good morning, and thank you for joining us today. I'd like to start with a brief update on the status of the transaction we did. We are still on track to close in Q1 2025 as planned. We have cleared the necessary regulatory reviews in the U.S. and in several other countries and are progressing in the remaining geographies. We have a shareholder meeting to approve the deal set for December 5th, We're very pleased to report that the integration planning process is progressing smoothly, contributing to our excitement about the opportunity and our conviction regarding the synergies. Now let me provide an update on Q3 and progress against our 2024 growth drivers. For Q3, I'm pleased to report that we delivered extra gross profit within our guidance range. We exceeded our adjusted EBITDA guidance and we generated positive free cash flow for the fifth consecutive quarter. I want to highlight that we grew XTAC dollars year over year for four out of the last five quarters. The other quarter was flat. And XTAC margin has improved year over year for six consecutive quarters, despite the headwinds of one significant partner. We believe that these results are driven by positive trends in our core business and momentum across our growth pillars. Our first pillar refers to expanding our share of wallet with brands and agencies, as well as performance advertisers. We are gaining traction with our cross-sell solutions from branding to performance, delivering on our full funnel value proposition. U.S. advertisers, including Disney, Amazon, and Betterment, invested in both Outbring performance solutions and Onyx branding solutions, showcasing the benefit of leveraging both products to drive incremental outcomes. On the performance side, the Albrain DSP, previously known as the Manta, continues to see steady adoption. Advertisers are increasingly embracing our platform for its comprehensive tooling and ability to drive scale performance across the open internet. This allows us to capture a larger share of wallets with a 60% year-over-year increase in the advertising spend on this platform year-to-date. Moving on to our second growth pillar for 2024, we've continued to expand beyond our traditional feed, opening new opportunities for advertisers to drive results. This revenue, which is generated from supply beyond our traditional feeds, represented approximately 28% of total revenue in Q3 2024, compared to 26% in Q3 of last year. We have continued to grow this metric quarterly for the last six consecutive quarters, demonstrating our focus on expanding our inventory diversity. We believe this expanded supply is also a key enabler to power advertiser outcomes at scale across the open Internet. Our third pillar refers to our continued focus on deepening our premium media owner partnerships, a key strategic asset of our business. These relationships ensure a steady base of premium exclusive inventory while giving our brand unique contextual and engagement insights that fuel our performance and predictive capabilities. We successfully renewed agreements with some of our important publishing partners, including Huffington Post and Meteor in France. We also secured new business partnerships from competitors and launched new partners, including Sports Fun in Germany and Reuters and Newsweek in Japan. This again demonstrates our superior value proposition when it comes to strategic relationships with premium publishers globally. Now I'd like to give an update on some of our recent product and technology advancements. In September, we successfully launched Moments by Outbrain in beta. On a personal level, I truly believe Moments is one of the most exciting products I've seen in our space in the last few years. Moments brings the immersive experience of social media to the open Internet, transforming our feeds on traditional publishers into vertical video environments with swipeable navigation. Data publishers like Axel Springer and Fortune use their own professional vertical video content to create entirely new audience engagement opportunities on their sites. Brands benefit by extending the impact of their social creative assets from platforms like TikTok and Reels to the open internet, creating a premium full-screen video experience. Moments has already shown early signs of generating high audience engagement, with 40% of users watching three or more videos. An August 2024 study by Media Science found that vertical video ads delivered in Moments enhanced the performance of ads delivered on social platforms alone. We believe this indicates a strong opportunity for brands to compound the impact of the social strategies on the open internet, driving higher brand recall and recognition. Now let's turn to AI. We are accelerating AI integration into our performance and creative offerings, improving efficiency and outcomes with a clear focus on the segment of our sophisticated large-scale advertisers. We are doing this through our creative automation suite, which allows marketers to easily use AI to create new ad images, tailor images, and adjust headlines to deliver better results. The Creative Automation Suite uses Outbrain's predictive insights to fuel the product's generative AI, delivering more relevant, highly targeted creatives optimized for consumer engagement. We have several case studies demonstrating how performance clients have been able to meaningfully increase their campaign click-through rates by using AI-based creative automation tools. In addition, we recently expanded our collaboration with Microsoft Azure, integrating Azure Open AI solution to a range of outgoing services. We believe that Azure solutions will allow us to continue to enhance our existing creative solutions prioritizing ad creatives with predicted higher return on investment. We also focused on deploying AI into our internal processes. We're proud to highlight that Auburn has been recognized as one of the 25 most innovative UiPath customers for our advancements in business efficiency with AI. Our team stood out among global applicants for its ability to use AI and automation to redefine the way teams work. By automating key workflows, particularly within our small-medium publishers and ad operations divisions, we've reduced manual workloads by some 40%, enabling our account managers to focus on revenue generation and their clients. To wrap up, we are pleased with our continued year-over-year xDAG and profit margin improvements, And we are confident that our focus on innovation and our growth drivers will continue to drive success into 2025 and will be highly relevant to the success of our integration with ETH. Now I'll turn it over to Jason for a more detailed financial update.