Taboola.com Ltd.

Good day, and welcome to the Taboola third quarter 2021 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star then one on your touchtone telephone. If anyone should require assistance during the conference, please press star then zero to reach an operator. As a reminder, this call may be recorded. I would now like to turn the call over to Jennifer Horsley, head of investor relations. You may begin.

Thank you. Good morning, everyone, and welcome to Tabula's third quarter earnings conference call. I'm here with Adam Singolda, our founder and CEO, and Steve Walker, our CFO. We issued our Q3 earnings press release yesterday after market, and it is available along with our Q3 shareholder letter in the investor section of our website. Now I'll quickly cover the safe harbor. Certain statements today, including our expectations for future periods, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information, and we undertake no duty to update them except as required by law. Today's discussion is also subject to the forward-looking statement limitations in the earnings press release. Future events could differ materially and adversely from those anticipated. During this call, we'll use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings release posted on our website. With that, I'll turn the call over to Adam.

Thanks, Jen. Good morning, everyone, and thank you all for joining us for our third quarter call. I'm excited to share the progress we've made. We again delivered incredible performance in the third quarter. We beat our Q3 guidance, we're raising Q4, and as a result, 2021 overall. We also closed this quarter on Connexity, our largest acquisition to date. As a reminder, our Q3 results and our guidance included one month, September, of Connexity's performance. A few numbers that highlight our Q3 performance, revenue worth $339 million in the quarter, up 17% year-over-year. Extech gross profit, which is what left for us after we share revenue with publishers, the main metric we measure as management was $127 million, up 22% year-over-year, above our guidance range of $122 to $124 million. We also delivered strong adjusted EBITDA of $40 million, above our range of $36 to $37 million. While adjusted EBITDA is a good proxy for profitability, Taboola generates good cash flow. Over the last two years, about 60% of our adjusted EBITDA converted to free cash flow. I'm very happy with the team's execution, and these results give us confidence to raise our Q4 and full year 2021 guidance. A couple of highlights on 2021, and Steve, our CFO, will provide more information later. XTAC's gross profit of $512 to $515 million, which translates to growth of 34% to 35% for the year. This is dramatically faster than the advertising market worldwide. This is above our previous guidance of $503 to $509 million that we shared at our e-commerce with connected information session. And to provide additional context, our original projection of XTAC at the beginning of the year when we were on the roads raising money for our public offering was 445 million and 17% growth. We've doubled our initial growth expectation. We now expect adjusted EBITDA of 174 to 177 million, which is growth of 64 to 66% for the full year and above our previous guidance of 168 to 171 million. Again, this is nearly 50% faster growth than our forecast from the beginning of the year of 127 million. Lastly, and I will touch on it later, we did not see an effect in Q3, nor do we expect one in Q4 from privacy dynamics or supply chain. When looking at our performance, I'm encouraged by all of it. It shows, again, that the right strategy, focus, and execution is key to meet and beat our own expectations. Let me share now some details on our strategy, business, and what we're seeing in the market. Starting with Taboola's strategy. Some of you may have heard this. However, as a newly public company, I want to remind everyone about our vision, where we fit, and our winning aspiration. Taboola powers recommendations for the open web. We reach half a billion people a day and help them discover things they may like. The open web, as you may know, is the term for all great websites and publishers out there that you love that are not Facebook, Amazon, Google, Apple, or the like. It's really important, even essential, because it's free and diverse, and it doesn't belong to any one giant company. It belongs to everyone. And that's where Taboola fits. We have established long-term partnerships with some of the most amazing publishers and digital properties in the world, such as BBC Global, CBSI, Comcast, and many others. We work with about 9,000 publishers globally. We are important to them. A lot of times, Taboola is a top three revenue source, and it's part of our product-led approach. We empower the entire publisher organization. We drive audience, engagement growth, and other things. This includes things such as Newsroom, which is used by editorial teams, and our subscription offering that's used by the product team, and many, many more. At the center of what we do is proprietary deep learning recommendation engine that is able to infer what a user might be interested in based on context and our own curiosity left. looking at what people who read this also read. Similar to Amazon, people who bought this also bought. This means that we're not relying on third-party cookies or IDFA, but rather our own proprietary data. We are focused on product innovation and growth, investing $100 million a year in R&D to forever bolster our platform and bring new solutions to our partners. It is critical for us to invest in things our publishers partners want as well as advertisers clients need as they look to diversify outside of the walled gardens. It helps us become more strategic as we look to work with our publisher partners forever. There is also a network effect in our space. Being bigger matters. The more publishers you have, the more reach and data you have. More advertisers can come in and your yield in the end goes up. And yield going up is one of the most important things we like to see as it makes us even more competitive. We participate in a $64 billion market called Open Web, and this is our foundation, a business with a moat built on 14 years of technology and algorithms innovation, direct publishers and advertisers' relationships. The strengths and predictability of our business model, along with the relationship we've built, have allowed us to expand beyond core recommendations to two main areas. First is to expand into recommending anything. Over the next 10 plus years, much like you can search for anything on Google, what to read, what to buy, where to go, we want to diversify what we recommend and to grow our yield for publishers in that way, which helps us become even more competitive. Over time, we want to recommend apps, games, and other types of articles. In Q3, we continue to see great progress with recommending video. We call it high-impact placements, which is where we expand from bottom of article into mid-article, home pages, section fronts, and other places. This is where we serve a video format, something agencies and brands love. At this point, brands and agencies are roughly 15% of our business, and every time we serve a video, our yield is even higher. We're able to pay our publishers even more. We earn more. It's high-quality advertising experience. It's just great. Our Connexity acquisition falls within our recommending anything strategy, allowing us to recommend products and tap into a huge 40 billion open web e-commerce market. Connexity will help us transform the open web into one big shopping cart. Imagine how much you trust a publisher that reviews a product more, and how much you'd consider buying a product if CNET says it's better, or if Wired Cutters says it's better, or if you said today review.com says it's better. Especially in the back of the pandemic, we're buying online so much more, and trusted publishers can shape that future in a big way. We expect that in coming years, one-third of the open web publisher's revenue will be e-commerce. This is also great for retailers, as they want to diversify outside of Wallgarden themselves. There's no other comparable Connexity out there in size or scope, and we believe by acquiring Connexity, we have years of advantage in the space. The second area of growth for us is expanding to recommend anywhere. This is where we're taking our recommendation engine and publisher partners anywhere people spend their time. As an example is Taboola News, our version of Apple News, but for Android devices. We had great momentum this quarter on this as well, where we announced partnerships like Xiaomi, reaching over 100 million devices, or Samsung, which we discussed in previous quarter. Over time, you should expect to see Taboola anywhere. Unconnected TV apps, as even every app on the TV needs AI to engage consumers with their content, will be in automobiles like Spotify has music integrations. We expect Taboola to bring podcasts, local news, entertainment to any car out there. And other devices at home, interaction with consumers. Over time, we want to be recommending anywhere. Now that we've discussed our strategy and how over time we recommend anything and anywhere, I'd like to show some business momentum and progress we've made in the third quarter. As only one month of Q3 included Connexity, let me share some updates about Taboola business before Connexity. We continue to build new relationships with premium publishers and digital properties. In Q3, 46% of our growth came from new relationships. To name a few, we announced LINE today. Think of them as WhatsApp of Asia Pacific. LINE messaging app reaches more than 188 million global monthly active users and provides a wide range of services to its users. Line Today serves as a news and content hub within the Line app, and Taboola's recommendation engine will operate on Line Today Hong Kong to start connecting users with news they may like but never knew existed, much like Apple News does. We also announced a new three-year strategic partnership with Weather Zone, Australia's largest private weather service. This partnership includes Taboola Feed, our high-impact placement, which is also where our video solution fits, and Taboola News. Both of these examples are a great demonstration of our growth in our core market. On the advertiser side, we are constantly building new relationships with advertisers and agencies looking to reach consumers in brand safe environment on trusted publisher sites in the open web and diversify outside of the walled gardens. A good example from Q3 is where we entered the new three-year strategic partnership with Dentsu India, a multinational agency headquartered in London. Under this partnership, our publishers in India will have access to Dentsu offering across its entire customer portfolio. Dentsu agencies were also able to drive brand awareness, consideration, and conversion from trusted and brand-safe environments. In Q3, 54% of our growth came from growing existing clients, primarily driven by yield. When thinking about yield, as I wrote in my letter, investors should think of yield much like race drivers look at their dashboard. RPM is everything that matters. RPM is revenue generated per 1,000 impressions. And it's a multiplication of three variables. Click-through rates, CTR. Cost-per-click, CPC. and cost per conversion, CVR. None of these should ever be looked at in isolation, as in fact, there are scenarios where CTRs go up, but yield can go down. You could prioritize enticing creatives, get higher click-through rates, but conversions will go down, advertisers would lower CPC, and yield will actually be lower. Another example can be prioritizing aggressive class advertisers who get higher click-through rates traditionally, but pay much lower CPCs. Here as well, yield would go down, why click-through rates went up. Much like in racing cars, where speedometer doesn't matter and only RPM matters, also in the open web, click-through rates is irrelevant, CPC is irrelevant, and conversions are irrelevant as independent variables. Only when the three come together, RPM can go higher. That's what Taboola measures, yield and RPM. Check my letter if you want to learn more about this area. Outside of core, we also made great progress in our two growth areas we've been discussing, recommending anything and anywhere. Within recommending anything, looking at recommending video, we announced a partnership with NBC Sports who launched our high-impact placements, which means we're expanding our presence to meet articles, homepages, and highly visible placements, which brands and agencies love. These high-impact placements are key drivers for our video initiative, which also helps us grow our yield and, as a result, become an even bigger revenue driver for our publishers' partners. To further assist in that, we also announced in the quarter brand safety partnerships. We obtained a trustworthy accountability group called TAG, Brand Safety Certification, that confirms to advertisers that Taboola has high standards and has taken proactive steps to drive high-quality traffic. TAG is an organization that works to increase trust and transparency in digital advertising. We also announced a new partnership with DoubleVerify that makes available directly within Taboola Ads console. Advertisers can now easily use double verify solutions to verify brand safety. Sharing more on our progress to recommend anything, let's look at how we recommend products. We made a big bet this quarter acquiring Connexity. We closed the transaction on September 1st and therefore recognized one month of the results in hours. Connexity had a strong Q3, exceeding all of our expectations and signing new publishers like Merriam-Webster and new merchants such as Dell UK and others. To give further context on the success Connexity is having, I will share a few Q3 success stories. One large publisher partner in North America is starting in 150% commerce content growth year over year with Connexity into 2022, as well as taking the success in the U.S. and expand their team in Europe, which works with Connexity five-fold in 2022. In another example, a fashion company spent with Connexity five times higher year-to-date with the peak shopping season still to go. They tested with Connexity and moved into always-on campaigns, which means they now trust Connexity and intend to spend as much as they can so long as it converts. I personally am engaged in conversations where publishers are choosing Taboola either to renew or for the first time as they want Connexity built into the forecast and their strategy as well as ours. It's only been a few months, and I like seeing these early signs of the market reacting positively. This is only the beginning. Since the acquisition closed, we have worked through the details of our integration and our plans to capture $100 million of synergies we outlined in our e-commerce with Connexity information session in late September. We're even more confident in our future success after a deep dive with the team. And when I think about our competitive advantage in the commerce affiliate space specifically, there are four things that are unique to us. One, strong relationship with publishers who trust us and want to do more with us. Two, strong relationships with advertisers, retailers, and merchants built on the foundation of high performing scale network. free data. We know what people read and now what people buy. And we can use that to guide publishers about which content they need to write about. I hear so many times that many publishers have never got into e-commerce because they were not sure where to even begin, what to write so that it feels authentic to the readers. We can help. And four, last but not least, traffic. The ability to drive audiences to our publisher partners to build on our reaches, half a billion people a day, and we can provide positive ROI traffic to those pieces of content we can create together. We didn't recommend anywhere. We recently announced that Taboola News, where we take our publisher partners to other canvases where users spend their time, continues to scale and now drives an average of more than 220 million monthly engagements on editorial content through mobile device and OEM partnerships. This represents an increase of more than 270% year over year. In Q3, we announced another exciting partnership with Xiaomi as part of Taboola News. Xiaomi is one of the second largest Android OEM manufacturers in the world, and they will integrate a feed of Taboola News on their devices. Now, taking a big picture view, and before I pass it over to Steve to discuss our results further, I want to make a few comments on the market more broadly. As we've stated before, we are a business that is not reliant on third-party cookies, and we instead leverage contextual signals to deliver relevant recommendations. This is also true for Connexity, where the commerce recommendations are solely intent-driven. This quarter, there was a lot of conversation on privacy, impact on IRS changes, and IDFA. We did not see any impact from these on our business. Taboola's yield keeps growing through our ability to leverage contextual signals due to our hard-coded integrations with 9,000 publishers, through which we reach 500 million active users every single day. This is important now and will become even more important over time as advertisers look for alternatives to the walled garden. There also has been a lot of conversation and news about supply chain challenges faced by some manufacturers and businesses. We're tracking this like everyone, and it's new to us all, but as I updated on my letter, we did not see an impact from supply chain challenges in Q3, and that is mainly due to our diverse advertiser base and growth in digital-first advertisers. We're also feeling comfortable about Q4 and raising our guidance. So in summary, I'm very excited about what we accomplished in Q3 and how connectivity integration is making progress and what is still to come in Q4 in 2022. I will now hand it over to Steve, who will dive in deeper on our financial performance and guidance.