Taboola.com Ltd.

The three pillars to e-commerce we focus on, content creation, driving traffic, and monetization. Over the last six months, we've launched e-commerce in a box with the launch of Taboola Turnkey Commerce. Every publisher that wants to get into e-commerce but has little to no content that's attractive to retailers cannot do that with Taboola. We do all of the work for publishers from using our data to know which content makes sense for us to write on behalf of the publisher to driving traffic to it and, of course, monetizing it with relationship with merchants and service providers. Last quarter, we announced our first two publisher partners for this initiative, Time and Advanced Local. While early, both launches are off to a good start. Traffic to Taboola turnkey commerce sections of both sites is already growing fast and monetization has begun. And finally, to our fourth growth engine, Yahoo. At our information session we held in March this year, we explained the process of integrating Yahoo into Taboola network in four specific phases. Since the event, we've transitioned into phase one from phase zero, which means we're developing the technical infrastructure to allow Gemini ad spend through Taboola's platform and test on a single digit percentage of demand. We expect to go into phase two, which is gradually transition ad spend and supply from Gemini to Taboola in the second half of this year. The Taboola team is interacting daily with Yahoo to migrate advertisers into Taboola platform focusing on advertisers' performance and spend. I can share that Yahoo and Taboola teams are working on accelerating our rollout so we can capture revenue faster. In closing, I'm energized about our position in the market. I think we have a unique opportunity to build the very first large-scale, must-buy, open web company publishers and advertisers can rely on. Google for search, Meno for social, and Taboola for the open web. We are focused We have our four key company priorities. We are lean and executing on our plans. While Taboola is among the largest in our space, we're still small as it relates to the $70 billion open web market, so there's a lot of growth for us to capture. What I tell myself and Taboola employees is that we have all we need to execute on our strategy and dreams. These are times to lay low and execute, and that's all we care about. Thanks for joining us, and I'll now pass it over to Steve our CFO, to talk more about our financials.

Thanks, Adam, and good morning, everyone. As Adam noted, our Q1 results beat the high end of our guidance on all metrics. We are also raising the midpoint of our full year 2023 guidance and reiterating our 2024 expectations of over $200 million in adjusted EBITDA and over $100 million in free cash flow. As Adam explained, we are very confident in those forecasts and therefore announced today both a share buyback program of up to $40 million in 2023, and also our intention to continue to pay down our long-term debt. We repaid $30 million of our long-term debt in April, which means that we have repaid a total of $91 million since Q4 2022, and we intend to repay up to another $50 million this year, likely in the third quarter after certain cash balances become available. Let me talk now about our Q1 results, which exceeded the high end of our guidance on all metrics. For Q1, revenues were $327.7 million versus the midpoint of our guidance of $312 million. Gross profit of $89.6 million versus the midpoint of $82 million. Extact gross profit of $115.7 million versus the midpoint of $109 million. Adjustee Vida of $10.1 million versus the midpoint of zero or break even. And non-GAAP net income of negative $4.1 million versus the midpoint of negative $17 million. We generated positive free cash flow of $11.2 million. I will note that Q1 and Q2 growth rates suffer from difficult comparables in 2022. before the digital advertising market weakness. We expect to return to positive growth in the second half of 2023. Relative to our guidance, we saw overperformance, particularly in the US and LATAM. E-commerce continues to impress, taking the momentum of the last several quarters of 2022 into this year. We're seeing strong spend from some of our key partners, such as Walmart, Wayfair, and Macy's, as advertisers increase the focus on immediate returns on their advertising spend. This benefits bottom-of-funnel channels, which for Tuula means e-commerce offerings. Our teams have achieved this revenue performance while improving cost efficiency, indicated by adjusted EBITDA and non-gap net income per overperformance, outpacing revenues, and XTAC gross profits. Operating expenses were $118.4 million in the quarter, down $1.3 million year over year. This decrease was primarily the result of our focus on cost reductions that we announced in Q3 of last year. We expect to show lower expenses as a percentage of revenue on a full year over year basis for 2023. Our headcount is down approximately 8% from its peak in July of 2022, and currently stands at approximately 1,730 full-time employees. Gap net loss for the quarter of $31.3 million included amortization of intangibles of $16 million, share-based compensation expenses of $13.5 million, and holdback compensation expenses related to the Connexity acquisition of $2.6 million, which were excluded from non-gap net income. Our knot and gap net loss of approximately $4.1 million was above the high end of our guidance range. In terms of cash generation, we had approximately $17.5 million in operating cash flow in Q1, with free cash flow of around $11.2 million. If you remove the impact of net publisher prepayments, which were a source of cash this quarter of $3.9 million, and interest payments on our long-term debt, which were a use of cash of $5.1 million, our cash flow would have been $12.3 million. It is interesting to note that net publisher prepayments were a source of cash this quarter. This was due to the fact that new prepayments were lower than the quarterly amortization of historical prepayments. While we expect net publisher prepayments to be a use of cash in 2023, it does show how they can become neutral to a source of cash in the future. Let's turn to the balance sheet. Cash and cash equivalents plus our short-term investments increased from $262.8 million at the end of 2022 to $274.4 million at the end of Q1 2023. Historically, Q1 tends to be a positive cash flow quarter for us as we collect on the higher revenues from Q4. I would also like to note that with the current instability in the banking industry, we continue to evaluate our banking relationships and have minimized our exposure to regional banks in the U.S. and less stable banks internationally. This is obviously a developing situation that we will continue to monitor and adjust as necessary. Now let me shift to our forward-looking guidance. For the full year 2023, we are raising the midpoint of our guidance by increasing the lower bound but keeping the upper bound steady. We expect revenues of $1.427 billion to $1.469 billion, gross profit of $418 million to $436 million, ex-tax gross profit of $529 million to $546 million, Adjust EBITDA of $65 million to $80 million, and non-GAAP net income of negative $5 million to positive $10 million. For the full year, we assume that we will invest in our Yahoo partnership, but to be conservative, we are still not factoring in the associated revenues that could be generated in 2023. We will update this in future quarters. This guidance also assumes continued investment in our other key company priorities of performance advertising, bidding, and e-commerce. Despite being a year of strategic investment, we expect to generate positive free cash flow in 2023 for the full year. We anticipate free cash flow to turn negative in Q2 and Q3 with significantly positive cash generation in Q4, all due to normal seasonality. Finally, we are issuing Q2 guidance. For Q2 2023, we expect revenues to be between $296 million and $322 million, gross profit between $78 million and $88 million, XTAC gross profit of $105 million and $115 million, and adjusted EBITDA between negative $4 million and positive $6 million, and non-GAAP net income of negative $26 million and negative $16 million. Let me finish by saying that we're happy with our first quarter performance and to be able to raise the midpoint of our guidance for the full year. We are also excited about our adjusted EBITDA and free cash flow targets for 2024. The future looks bright from our vantage point, which is why we're confident in announcing our intention to both buy back shares and continue to pay down our debt. If you want to hear more about our story, we will be attending the Oppenheimer, Needham, and TD Cowan investor events this quarter, so we hope to see many of you at those events.

With that, let's open it up to questions.