Taboola.com Ltd.

Good day, and thank you for standing by. Welcome to Tabula's third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brinley Johnson with Investor Relations. Please go ahead.

Thank you. And good morning, everyone. And welcome to Zabula's third quarter 2022 earnings conference call. I'm here with Adam Singoda, our founder and CEO, and Steve Walker, our CFO. We issued our earnings press release today before 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. 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 inversely from those anticipated. During this call, we will 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 and the earnings release posted on our website. And with that, I'll turn the call over to Adam.

Thanks, Brinley. Good morning, everyone, and thank you all for joining us for our third quarter call. Q3 was a good quarter. We beat or came near the high end of our guidance on all metrics, delivering $129 million of XTAC and $24 million of adjusted EBITDA. We're holding our annual adjusted EBITDA guidance for 2022 at $152 to $160 million while generating strong cash flow. Lastly, due to continued softness in the advertising market and to be cautious, we decided to lower 2022 revenue guidance by 4% and ex-tech guidance by 6%. We adjusted our cost structure a few months back, and I can tell you we're committed to executing our strategy as a profitable growth company. Our track record demonstrates our ability to succeed in that strategy, And despite everything that's going on in the world, we're not anticipating a decline in XTAC this year versus last. Q4 is historically a high-performing quarter, especially for e-commerce. Additionally, this year, we also have the potential positive effect of the World Cup, but we're not counting on it in our forecast given uncertainties in the market. More than ever, our ability to generate cash matters, and I'm proud of where we are. For 2022, we expect $17 to $25 million of free cash flow. We also expect $58 to $66 million of cash generated before $21 million of net prepayments to publishers and $20 million of cash interest payments, which is another way we look at this internally. We add back publisher prepayments and cash interest payments because publisher prepayments are an investment in our business that we consistently earn back. over time will become insignificant portion of our business to none and cash interest payments are a capital structure decision taking a step back i look at times like this as an opportunity for good companies to become even stronger we have a strong ebda we're generating cash we know what we need to do we have the right priorities and the best team in the world to do so now if it wasn't for the macroeconomics 2022 would have been one of the best years we've ever had More publishers wins than we anticipated, lower churn, and remember, this business, in a normal time, grows 20% year-over-year XTAC, converts 30% to adjusted EBITDA, and 50% or so of that to free cash flow. This is before investment in our growth initiatives, which have the ability to supercharge our growth, including performance advertising, e-commerce, header bidding into display, and tabloid news. Each one of these could generate hundreds of millions of dollars for Taboola in years to come, on top of our core growth, as I mentioned before. We're about $1.4 billion out of $64 billion open web advertising market. And while we're a scale player in our space, which help us get network effect benefits, there's still so much more growth ahead of us between our core and growth initiatives. On the business front, we're winning a lot more than we're losing, and it's very expensive for competitors to take our business. We signed new partnerships with BuzzFeed, Huffington Post, Time Out, all massive and very well-known publishers that made a switch to Taboola to power recommendations for their audiences. We signed new partnerships with Mopo, which is a Hamburg publisher, one of Germany's leading news portals, and Speed, part of Monriff Group in Italy. Using so many of our innovations, Taboola Feed, Newsroom for editors, Homepage for You, which personalizes the homepage. These are great competitive win for us in the market and a validation of publishers choosing Taboola, not only because we generate more revenue, but also because they can empower the entire organization with our technologies. We're also seeing great renewals. We renewed long-term publisher relationships with iMedia, which is big here in the U.S., and Sizer, one of Japan's top publisher publishers, bringing us to 10 years in partnership with each. This is in addition to renewals of long-term publishers, partners all over the world like Faz and Tech24 in Duck and Semina in Latin America. These partnerships happen because of our technology investment. We've spent more than a decade building a core product for publishers that go beyond revenue, which publishers appreciate because it provides value to their entire organization, editorial, audience teams, and revenue. especially if publishers are considering who to partner with for the next three, four, five years, sometimes even more, these investments matter in a meaningful way. Advertisers like us because of our tech, which works for them, but also because they're looking at us as a way to diversify outside of the walled garden, especially now when there's so many changes around privacy, where the open web and taboola is a contextual powerhouse. I think over time, millions of advertisers will look for an alternative to the walled gardens, and that's a huge opportunity for us. We talked about our core business, and I'm not happy with us getting down 4% revenue and 6% XTAC, but I'm encouraged with us reaffirming our adjusted EBITDA and generating positive cash flow. We're accomplishing all of this while investing in four exciting things that I truly think can help us reimagine the open web as we know it and the growth our partners can experience with us outside of the walled gardens. We mentioned on our investor day that our next big milestone is $1 billion in XTACs, which implies $300 million of adjusted EBITDA with roughly $150 million of free cash flow, and that we're investing in recommending anything and anywhere. Let's break it down. Recommend anything means answering the question, what other types of advertisers can Taboola recommend to make our engine even more relevant and drive yield growth? Here, we have two main initiatives. Number one, a focus on performance advertising, which helps us make different types of advertisers successful with Taboola. We're investing heavily here. We've got Drupal or engineering working on this, and the upside here is meaningful for our advertisers, publishers, and us as well. We already reach half a billion people a day, and by making even more advertisers successful, we can make a meaningful impact on our yields altogether, how much we're able to pay our publishers, and even more advertisers can rely on us. Number two, same category of recommending anything is e-commerce. We intend to scale e-commerce to become one third of our business over time, as well as our publishers revenue. E-commerce for publishers is a good business and retailers want to be on trusted publisher sites all day long, but it takes time to create the content, build an audience and match that audience with the right e-commerce demand. But once publishers get it up and running, they never want to give it up. We believe a third of all of our publishers revenue will become e-commerce driven. I mentioned that in our shareholder letter, but one of the exciting synergies we're seeing right now around e-commerce is called DCO, which stands for Dynamic Creative Optimization. Essentially, it connects to these retailers, starting to get scale on Taboola supply. DCO is one of the biggest growth engines for social companies, and it could be for Taboola as well, which leads us to recommending Anywork. And this is essentially where else can Taboola be beyond the bottom of article, homepage, and our traditional placements. Here, we have two more main initiatives. Header bidding, which allows us to tap into the multi-billion dollar display market. We have momentum and we're live on 50 plus websites. We estimate that our existing 9,000 publishers are generating between $20 to $30 billion in display revenue a year. And there's a high demand from publishers to join our header bidding beta. I mean, really high demand for this product. While we're still in early stages, we're seeing strong results, anywhere from 5% to 10% win rates. And at scale, this will allow us to support our publishers, making their display revenue grow. And this will grow our share of wallets, make our advertisers more successful, and potentially generate hundreds of millions of dollars using our unique first-party data and AI. The last investment is Taboola News. This is where we're integrating our recommendation engine into Android devices these days. And over time, we intend to be part of audio devices, automobiles, and even more. When I think about the future, I think everyone will be fighting for users' attention and time. And I'm convinced that trusted news will be everywhere people spend their time. It's how our kids will discover information. This is already tracking for over $50 million a year for Taboola, growing triple digits. Moreover, the more this business grows, the more competitive we become as our publishers can start relying on traffic we send them at no cost, much like Google does with SEO. As I finish my part, there's no doubt the world is going through a lot these days, and it has an effect on our business as much as anyone, and that's no fun. Saying that, I personally feel more focused than ever and energized about Taboola's future to become the leading recommendation engine for the open web. We have the ability to change the way consumers discover information outside of the wall of gardens, anywhere they may be. Our fundamentals, the metrics our management team is tracking every single day are strong, perhaps as strong as they've ever been. Our culture is strong. we have a strong adjusted EBITDA, we generate cash, and we have growth engines that can double and triple Taboola, e-commerce, header bidding, performance advertising, and Taboola News. I'm looking forward to our upcoming earning call and engaging with investors in the upcoming months, where I'll do the best to answer any question you may have. I'll now pass it over to Steve, our CFO, to talk more about our financials.