Taboola.com Ltd.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Taboola Third Quarter 2023 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, simply press star 1-1 on your telephone keypad. At this time, I would like to turn the conference over to Ms. Jessica Karakis, Head of Investor Relations for the Safe Hoffer. Ma'am, please begin.

Thank you and good morning, everyone, and welcome to Taboola's third quarter 2023 earnings conference call. I'm here with Adam Singolda, Taboola's founder and CEO, and Steve Walker, Taboola's CFO. The company issued earnings materials today before the market, and they are available in the investors section of Taboola's 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 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 in the earnings release posted on our website. With that, I'll turn the call over to Adam.

Thanks, Jessica. Good morning, everyone, and thank you all for joining us for our third quarter call. Before we talk about the business, I want to first address the war in Israel. These last few weeks have been incredibly hard for us as we continue to face unimaginable events. The safety and well-being of our employees is our very top priority, and we have implemented multiple initiatives to support our people and their families during this crisis. I'm very, very proud of Tabula's tremendous resilience during this difficult time. The work has been instrumental in keeping Tabula safe and in implementing our business continuity plans, and it shows in our confidence in our future. As I think about our mission, it is clear to me now more than ever how essential professional journalism is. Society needs thriving sources of truth we can all count on. And Taboola has always been, and forever will be, the biggest supporter of the open web, publishers, and our commitment to them is more necessary than ever. Our alignment and win-win approach makes it such that when we do well, the open web does well too. And now, let's turn into our business results, which I'm very proud of. Financially, we had a strong performance in Q3, beating the high end of our guidance across all metrics. We achieved $125 million in XTAC gross profit, $23 million in adjusted EBITDA, and $23 million in free cash flow. We're also excited to raise the midpoint over full year 2023 guidance for adjusted EBITDA and non-GAAP net income. Free cash flow over the last 12 months is $55 million, which is three times what it was a year ago for the same time period. 2024 is basically here. And given how we're executing on our key business priorities, we're reiterating our 2024 guidance of over $200 million in adjusted EBITDA and over $100 million of free cash flow. Last year, when we launched our new bidder platform with Microsoft as our design partner, many investors asked us how this new AI technology would affect Microsoft. We said we believe it will make it a growing part of our business. And in Q3, I'm very happy to share that Microsoft is nearly 2x what it was last year at the same time. YAR integration is going well and is on track. Now, I care about it not only because it's a good thing for Taboola and for advertisers, but because it's also a big step towards making Taboola the first open web must buy ad platform. Google for search, Meta for social, Taboola for the open web. These were just some highlights from this quarter and why I'm happy with our momentum as a company. There are two main factors that drive Taboola's revenue. The first is our ability to reach users and deliver engaging experiences in the open web so they spend more time with us and engage with our recommendation engine. The second is our ability to monetize our interaction with consumers, also referred to as our yield. I said before that with just investing in yield on the same user base, we have now, I believe we can double and triple Taboola's revenue. There's a lot of growth to be had here. Now let's dive in and start with our ability to reach consumers and create engaging experiences. In our core business, Working with publishers all over the world, we've seen strong momentum with publishers continuing to trust us and sign long-term partnerships. We saw strong renewals and net new wins such as Nextar, Absolute Sports, Excite Japan, and more. And many of our existing long-term partners renewed their partnership with us. Publishers like Gannett, Cox Media Group, Sports One, McClatchy, NDTV, and more. Our core is going to get even stronger as part of our 30-year partnership with Yahoo, the fifth largest media property in the U.S. As of Q3, Taboola is now offering exclusive access to 100% of Yahoo's global native supply, which means that advertisers can now start buying on Yahoo through Taboola. And this is our main focus, migrating Yahoo native advertisers and onboarding new ones. In addition, Yahoo DSP now has Taboola Edge Console integrated inside, and it looks awesome. That was the initial part of enabling Yahoo omnichannel advertisers to migrate to Taboola. And I can share with you that early results of migrated omnichannel advertisers are very promising. In summary, there's still a lot of work to do, but I feel really good about the progress so far and continue to expect to be fully ramped up by mid-2024. When you look beyond our core, working with publishers, we reach consumers on Android OEM devices as part of Taboola News. This business is becoming an important part of how Taboola reaches consumers and creates engaging experiences for them. Taboola News grew strong double digit in Q3 and is on track to approach $100 million in revenue in 2023. In the quarter, we rolled out partnership with Realme, one of the world's fastest growing smartphones brands adding more than 6 million devices to our existing reach. And this is on top of existing partnerships with companies like Xiaomi and Samsung, Oppo and others. Finally, we found ways to engage with even more consumers through our bidding technology. Advancing our bidding technology and getting more advertisers benefiting from it in Q3 provided us with X-Tech improvement in the quarter. We've shared with investors that last year in April, Microsoft will be moving to our new bidding technology which they helped us design, and it will help us make Microsoft grow. And indeed, in Q3, as a result, the revenue was nearly 2x higher than Q3 of last year. Now that I've reviewed the first part of how Taboola grows its revenue by reaching consumers and creating engaging experiences, which is essentially our supply, let me move into the second way we grow revenue, which is by improving yield. As you know, half of our R&D is working on AI technology, helping advertisers to succeed with Taboola. In Q3, max conversions went into general availability, which is a way for advertisers to share with us their objective as a business and let Taboola AI do the rest. No need anymore for them to guess a CPC or anything of that kind, which is essentially how Google and Meta do it today. We're working deeply with NVIDIA research team to advance our AI capabilities even further, And I'm happy to say that max conversion is now one of our fastest adopted technologies ever, and we've seen encouraging results. In Q3, we saw meaningful improvement in net dollar retention for campaigns using max conversions, which is essentially the leading indicator we want to see and track. I believe that the majority of our revenue will be using this sophisticated AI in 2024. Our investments into generative AI technology have had a good impact as well. We made our Gen AI offering available in July, helping our advertisers, many of which are self-service, to create titles and thumbnails. I'm happy to say that Gen AI already represents over 2% of revenue from ads created in Taboola ads. This week, we introduced a new feature called Taboola Generative AI Ad Maker, which allows advertisers to edit existing creative automatically instead of just creating images from scratch. As we've shared before, about a third of our company's revenue came from self-service advertisers. So we care a lot to make this as easy and as effective process as we can. While over 2% of our revenue is using GenAI, 25% of all ad creatives from self-service advertisers are made with our GenAI. So overall, we're seeing clients adopting our GenAI capabilities, which contributes to our efforts as a company to grow our yield. Finally, one of our big investments to bolster monetization and drive yield growth is e-commerce. In Q3, we saw double-digit growth in e-commerce, driven by strong momentum in Europe as part of our international expansion, and Yahoo now being a new supply channel for retailers in the U.S. Overall, we're seeing well over 100% NDR among top advertisers, which is just unbelievable. In summary, I'm very happy with where we are as a company, our performance in Q3, and our momentum heading into 2024, which is a big year for us. And with that, let me pass the call over to Steve to review our financials and outlook in more detail.

Thanks, Adam, and good morning, everyone. Before I dive into our financial performance, let me reiterate what Adam said about the war in Israel. It is so hard to hear the stories of this conflict. But like Adam, I'm amazed every day by the resilience of tubulars in Israel and the way our employees have continued to run our business under such trying circumstances. Israel is our largest global office with over 600 employees, and we have had over 100 who either were called into action in the reserves or had a significant other called into action. In terms of our business exposure, In Q3, we reported that approximately 10% of our revenue comes from advertisers with billing addresses in Israel. However, most of that revenue is what we call export revenue and is actually targeting consumers and publishers outside of Israel. In fact, less than 2% of our revenue is what we would consider domestic Israeli revenue, meaning advertisers spending on Israeli publishers and targeting Israeli consumers. It is because of the diversity of our revenue model, business continuity plans, and the amazing efforts of our employees globally that we have not seen a material impact on our business, though we obviously continue to monitor the situation. Now let me turn to our Q3 results and our forward-looking guidance. As Adam noted, our Q3 results beat the high end of our guidance on all metrics. We are also raising the midpoint of our full year 2023 guidance for adjusted EBITDA and non-GAAP net income and reiterating our 2024 expectations of over $200 million of adjusted EBITDA and over $100 million in free cash flow. In Q3, revenues were $360.2 million versus the midpoint of our guidance of $344 million. Gross profit was $100.7 million versus the midpoint of $89 million. Extact gross profit was $128.4 million versus the midpoint of $118 million. Adjusted EBITDA was $22.8 million versus the midpoint of $4 million. And non-GAAP net income was $6.7 million versus the midpoint of a loss of $14 million. I will note that the revenue performance shows a return to year-over-year growth of 8%. Our XTAC gross profit was roughly in line with last year, reflecting some margin compression due to the ad rate declines in 2022, which have since stabilized in 2023. We continue to expect XTAC to return to positive growth in Q4. Positive free cash flow of $22.8 million in Q3 was stronger than anticipated. Three main factors drove this overperformance. First, our stronger than forecasted XTAC gross profit contributed to our adjusted EBITDA beat. Second, we did a good job of controlling operating expenses, which further enhanced our adjusted EBITDA performance. Both of these factors flowed through to operating cash flow and to free cash flow. Lastly, our Q3 free cash flow also benefited from the timing of our payables and from a delay in some capital expenditures. Both of these were temporary benefits that will reverse in Q4. As Adam said, our strong revenue and XTAC gross profit performance was driven by strength in our e-commerce, bidding, and Taboola News businesses, as well as relatively stable yields in our core business. E-commerce had double-digit growth in Q3, driven by strong momentum in Europe and the U.S. Revenue retention was well over 100% among top advertisers. In addition, we are seeing great success ramping Taboola's feeds and now Yahoo as supply channel for our retail advertisers. Taboola's feed supply is now a top 10 traffic source globally. We continue to forecast that Taboola News will approach $100 million in revenues this year versus $50 million in revenues in 2022. Finally, our bidding offerings continue to gain momentum. Microsoft registered nearly two times more XTAC in Q3 2023 versus the same quarter last year, thanks to advances in our AI-powered bidding technology. Our teams have achieved this strong revenue and XTAC performance while improving cost efficiency, indicated by our adjusted EBITDA margin in Q3, exceeding the margin that was implied by the midpoint of our Q3 guidance. Operating expenses were $119.4 million in the quarter, down $4.7 million year over year. This decrease was primarily the result of our focus on cost reductions that we announced in Q3 of last year. Our headcount is down approximately 6% from its peak in July of 2022. With our ongoing expense discipline and strong growth expectations, we expect that in 2024, we will make significant progress toward our long-term adjusted EBITDA margin target of over 30%. Gap net loss for the quarter of $23.1 million included amortization of intangibles of $16 million, share-based compensation expenses of $13.6 million, and holdback compensation expenses related to the Connexity acquisition of $2.6 million, all of which were excluded from non-gap net income. Our non-GAAP net income of $6.7 million was above the high end of our guidance range. In terms of cash generation, we had approximately $32.5 million in operating cash flow in Q3, with free cash flow of around $22.8 million. This includes net publisher prepayments, which were a source of cash this quarter of $7.2 million, and interest payments on our long-term debt, which were a use of cash of $4.8 million. I would like to note that net publisher prepayments were a source of cash for the second consecutive quarter. This was due to the fact that new prepayments were lower than the quarterly amortization of historical prepayments. Now let's turn to the balance sheet. You can see that our net cash balance remains healthy. Cash and cash equivalents plus our short-term investments increased from $246.9 million at the end of Q2 to $250.7 million at the end of Q3 and remained above our debt principal balance of $202.7 million. I would note that the $202.7 million debt balance reported at the end of Q3 was before we repaid an additional $50 million in Q4 which I will discuss in a moment. The increase in our cash and cash equivalence balance was driven by our strong free cash flow performance of almost $23 million and includes approximately $19 million of share repurchases. I also want to provide an update on our share buyback and debt repayment programs. As you probably recall, we announced that we would buy back up to $40 million of shares in 2023, and that we intended to repay up to an additional $50 million of our long-term debt in the second half of the year. The share buyback program was initiated on June 1, and as of September 30, we repurchased a total of approximately 6.7 million shares at an average price per share of $3.45. We continued to repurchase shares in Q4, and as of Friday, November 3rd, we had repurchased a total of approximately 3.3 million additional shares at an average price of $3.69. Additionally, in October, we voluntarily prepaid another $50 million of our long-term debt, which means that we have voluntarily prepaid a total of $141 million since Q4 2022. We are also announcing an expansion of our share repurchase program of up to an additional $40 million, as well as our intention to pay down up to $30 million more of our long-term debt in the first half of 2024. Both the share repurchase program and the debt pay down are contingent upon the availability of sufficient working capital. As an Israeli company, we are also required to obtain Israeli court approval for share repurchases. Our current approval expires November 16th, and courts are currently operating at a limited capacity due to the war, but we expect to obtain approval once Israeli courts are back to normal operations. Now let me shift to our forward-looking guidance. For the full year of 2023, we are raising the midpoint of our adjusted EBITDA and non-GAAP net income guidance due to our strong operating performance year to date. We believe it is prudent to reiterate our full year 2023 revenue, gross profit, and extract guidance given our desire to be more conservative in the face of greater near-term uncertainty given what is going on in Israel. We expect revenues of $1.438 billion to $1.469 billion, gross profit of $420 to $436 million, Hextech gross profit of $531 to $546 million. We are raising our adjusted EBITDA range to $75 to $82 million, and our non-GAAP net income to $7 to $12 million. I will also note that despite 2023 being a year of strategic investment in Yahoo and in our growth initiatives, we expect to generate positive free cash flow for the full year. We continue to be very excited by the addition of Yahoo to our business. Adam mentioned earlier that 100% of Yahoo's global supply is now available to advertisers through Taboola's platform, and we continue to focus on migrating advertisers. As we have previously stated, we expect the revenue to start ramping in Q4 in the double-digit millions of dollars range, and we'll expect to reach full run rate by the middle of 2024. Finally, we are issuing Q4 guidance. For Q4 2023, we expect revenues of $418 to $449 million, gross profit of $132 to $148 million, XTAC gross profit of $164 to $179 million, adjusted EBITDA of $26 to $33 million, and non-GAAP net income of negative three to positive $2 million. Let me finish by saying that we are happy with our third quarter performance and to be able to raise the midpoint of our guidance on adjusted EBITDA and non-GAAP net income for the full year. We are also excited about the step change we are expecting in our business as reflected by reiterating our 2024 targets of at least $200 million of adjusted EBITDA and at least $100 million of free cash flow. Perhaps most importantly, though, we are excited about the momentum we are building in our business. It is really amazing to start to see advertisers who previously spent their native budgets through Yahoo starting to use the Taboola platform and hearing them talk about their great experience. It is also great to hear stories of Taboola advertisers starting to spend money on Yahoo's supply and being excited about the performance they are able to achieve. The additional scale that Yahoo will bring and the growth of our core business is helping us in our progress towards becoming a must-buy for advertisers looking to reach consumers in the open web. With that, let me pass it back to Adam for some closing remarks.

Thanks, Steve. We've heard Steve and I share our point of view this quarter and how excited we are about our momentum. We beat the high end of our guidance on all metrics in Q3. We're laser focused on growing our reach and engagement with consumers, as well as our yield, and we're doing a good job progressing those. YAR integration is going well and on track. Advertiser success and yield growth get a lot of our attention, with max conversions being adopted faster than anything we've ever done. 2024 is around the corner, and we're reiterating over $200 million in EBITDA, which is nearly three times our EBITDA guidance this year, as well as over $100 million in free cash flow, another big step up from this year, all of which support our plan to buy more shares back and prepay more debt. Taboola's mission is to make the open web strong and to empower editorial teams all over the world to provide trusted content in an engaging way that drives exciting growth to publishers and advertisers. As I stated in my shareholder letter, supporting the open web has never been as important as it is now. I'm proud to be part of Taboola, and I'm proud of our execution this year and our employees working passionately to pursue our mission. I'm sending our employees in Israel my prayers, and my heart is with them every moment of the day. Thank you all for joining us today. We look forward to interacting with many of you over the next few weeks. With that, let's open it up to questions. Operator?

Ladies and gentlemen, if you have a question or comment at this time, please press star 1-1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, to ask a question, please press star 1-1 on your telephone keypad. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Jason Hellstein from Oppenheimer. Mr. Hellstein, your line is open.

Hey, thanks, and just want to send support for everyone in Israel. So two questions. One, just, Steve, maybe on the guide, so to the extent you're expressing a little bit, some kind of conservatism there, how much of this is specifically to, we'll call it the impact In Israel, like, very company-specific or Israel-specific as opposed to, like, you're just maybe having some broader macro concerns that, you know, if things kind of expand in the Middle East, that it impacts advertising more broadly, you know, called macro. So that's question one. And question two, what are the conversations you're having with advertisers about what you, you know, you can do for them with the Yahoo assets and how that might be different either than Yahoo was doing for them before or kind of how they're thinking about like where those dollars are now and why, you know, like working with you on Yahoo distribution, you know, really makes sense. Thanks.

Thanks, Jason. And thanks for the support for Israel. We all are, that's on our minds, all of our minds constantly right now. So thanks for that. In terms of your question about the Q4 guidance and what we're thinking there. So, first of all, obviously, we're really happy with our performance in Q3. So, we had a big beat on all metrics, which is great to see. Generally, you know, looking forward, we wanted to be conservative. We didn't want to assume the same level of outperformance would continue. So we're just trying to be conservative there. I will note we saw relatively normal seasonality in October, so there wasn't anything really unusual in terms of what we're seeing. So, you know, net-net overall, we were just trying to be conservative. You know, we did raise the midpoint of EBITDA and non-GAAP net income because we feel very good about our cost containment, but we were trying to be conservative on the revenue side.

Good morning, Jason. Thanks for the notes as well. So with regards to Yahoo, there are a few things that we're seeing. First of all, it's already getting some traction, as I mentioned on the call, and that's good for us because it validates what we assumed back then when we partnered with Yahoo, that the quality of supply and what advertisers get, the value they get is higher than the average value they get in general. So it's very good for them. So now this is, as we progress, we can continue to showcase that to net new advertisers and existing advertisers as we wanted to spend more. The second thing is that there's a whole slew of kind of journey in which Yahoo, if you look at the type of supply they have now, it's a lot of kind of homepage and great placements that today Taboola traditionally doesn't have a lot of. So most of our supply today and what we recommend to consumers is bottom of articles for the most part, and Yahoo is quite the opposite. It's a lot of kind of this high-impact homepage placement. So for advertisers, it's a great mix. operating consumers in multiple touch points. So I would say that. And also, over time, we'll be able to come up with new formats that we're also excited about, again, as it relates to homepage placement specifically. So I would start with one, it's very valuable. It works, which is great. And two, it's a very new type of supply versus what Taboola, and I think in general, what, you know, a lot of the open web has to offer, given how Yahoo was successfully launching their homepage with consumers. So I would say quality of advertiser success, homepage and format.

Thank you. Thank you. Our next question or comment comes from the line of James Copelman from TD Cowan. Mr. Copelman, your line is now open.

Taking the question. The first one is for Adam. On generative AI, you mentioned 25% of self-serve creative is based on gen AI tools. I'm curious, In terms of advertiser feedback, do you find that clients are adopting these tools primarily because it's helping them save time and creative resources, or is it more that Gen AI is also helping drive better conversions, or is it some combination of both? And then you also mentioned that Gen AI can help you improve yield. Could you also remind us how yield is trending in Q3 more broadly? And I'm curious if it's been recovering along with the recent ad market stabilization. And then I have a follow-up for Steve. Thanks.

Okay, I can start and let you know if I answered your question. So on Gen AI, we're getting kind of like both feedback from clients. We're seeing that, first of all, as I mentioned, over 2% of our revenues now with Gen AI, which is because a lot of our business is direct and it's performance advertising driven, our clients, they only do what works for them and they continue to do it so long that it works. So that's a good feedback from the market that Gen AI is not only something that drives productivity and, of course, helps them save time and and get more campaigns going and diverse campaigns because it gives them such a good offering automatically. But we also see that voted by the field in the way that revenue has been growing attached to Gen-AI. So I do like it. And I hope that over time, more and more of our revenue will be driven. Like I said, vast majority of our revenue next year, I expect to be using sophisticated AI in general, like Max Conversion and ROAS and other things, but then also with Gen-AI. So that's very important to us. And I think from a yield perspective, you know, as you know, it's about half of our technology organization of R&D is working on performance advertising success and yield expansion. So this is top of mind for us. Given how much supply we're adding and the trends of our yield today, which I would say it's mostly flat today or in line with the seasonality we expect, which to me is encouraging given how much supply we're adding, I do expect expansion In 2024, of that, given our investment in yield, as I mentioned, it's a lot of what we do. And I think mainly driven not by the market recovery, but mainly our internal investment in technology. So I don't wait for the world to get better. Tabula will make it better.

And then for Steve, in terms of the Yahoo investments, earlier in the year, you identified, I think, roughly $30 million in Yahoo-related expenses for 2023. Is that still how you're thinking about the size of of that investment for this year. And then taking a step back, obviously only November, but can you remind us how far along we are in terms of the overall investment for the integration, both 2023 and 2024 to get us to the full ramp point of the next year?

Sure. So first of all, we've managed to figure out ways to cut down on the amount of increased costs that we expect to have from Yahoo. So that's been a good thing. That's one of the reasons that we've, part of the cost discipline that I've talked about and part of the reason that we're ahead on the Just Be Bidah. So I don't expect the full 30 million anymore. So that's good. I think in terms of thinking about how much are we investing and where are we in terms of the investment, I think I said in my prepared remarks that most of the increase in operating expenses in Q4 is really around two things. It's mostly investment in Yahoo. with a little bit of investment in our e-commerce business as well, both of which are ahead of the revenue. So that's why the cost is up a bit more than the revenue. So that's, if you want to see how much we're investing, you can kind of look at the delta of our operating expenses in Q4, and that gives you a pretty good idea. I would say, you know, as of right now, we expect Most of the hiring that we need to support the transition of the Yahoo business to Taboola to be done by the end of Q1. So we're in that ramp phase yet. It's not all there yet, but it'll probably all be added by the end of Q1. And just as a reminder for everybody, in terms of the revenue, we're starting to transition advertisers now. The impact on Q4 will be small, but then we'll be fully ramped by the middle of next year.

Great. Thanks, guys.

Thank you. Our next question or comment comes from the line of Laura Martin from Needham. Ms. Martin, your line is now open.

Hey. Can you guys hear me okay?

Yes. Good morning.

Great. Good morning. So I wanted to ask about, so my net revenue XTAC is down 1%. Despite the fact that we're selling new Yahoo ad avails, we have strong growth in Microsoft of 2X, e-commerce of double digits, and news revenue growth. So my question is, what's falling? Is it just the yield because we're bringing all those new ad units on for Yahoo and we're not bringing on their new demand? What's going wrong that's offsetting all these wonderful growth categories that you wrote about in the press release, Adam?

Yeah, I'll take it. So it's actually, if you look at the business, right, the core supply of our business and the core business in general is very strong. We're winning publishers. We're investing in yield expansion. Q3 revenue is up over last year, 8%. Q4 is 17% up versus last year. The main thing that is still affecting us, which we're carrying from the end of 2022, is the decline of yield in 2022. So because the yield went down throughout the year, the beginning of 2023, it was just the pie was smaller. And that's something that we're still carrying, and we're still seeing that in our results. But as we're going to expand yield, and like I said, I do expect it to go up and right in 2024, we're going to see that recovering. And again, mainly because of our investment as a company. So the main thing that created this optics is the end of 2022 and how we started 2023.

Let me also just add that if you look at the midpoint of our guide, we are expecting gross revenue to grow 17% year-over-year in Q4 and XTAC to grow 8% year-over-year in Q4. So we're basically returning to growth. We're just lapping some tougher comparables from before yield declines happened in 2022. Okay.

Super helpful. Okay. My second one is on One of the things, I'm glad you're reiterating 2024, the $200 million and the $100 million of free cash flow as well. My question to you, Adam, is the use of cash to prepay more debt and repurchase more shares with that huge step up in free cash flow and EBITDA implies that you don't actually have a better return on capital use of funds, which would imply that you don't think there's something in the fundamentals of your business you can invest in that's a higher return. So could you speak to that? Why shrinking your capital structure is their highest return on capital?

Yeah, so I think, let me jump in, Laura. Adam would love to answer it, but he pointed at me. So I think what I would say is we can fund all the investments that we want to do in our business out of our existing operating cash flow. So we really don't need to use any of the cash that we are going to use on share buybacks or debt repayment to fund any sort of new initiatives. And we think, I think we've talked about this in the past, we think of R&D as an investment, and that's where we spend our money. We think we're investing the right amount right now in those new initiatives. I think there's a... natural limit in terms of how many things any one company can do. And we have a lot of investment initiatives going on. We've got investments going on in e-commerce. We're bringing on Yahoo. We've got our performance advertising investments. We obviously are continuing to invest in our bidding platform. So we're investing in a lot of things. We think we're investing the right amount, and yet we're still able to generate excess cash flow. And we think right now, frankly, buying back shares is a very good use of our cash. because we think there's a good return on that, and debt's getting expensive, so we do want to pay that down. So, you know, we have enough cash flow that we can do all of those things.

And just one more note to add is that we also, as a management, we care about free cash flow per share. So buying back share helps us and our investors to kind of track that over time as we kind of stabilize our share count. So that's another thing that we care about, and we hope over time we can spend more time on.

Okay, super helpful. My last one is... You know, there's a lot of industry pressure on May for advertising websites. Could you talk about whether you get caught up in that category and in that negative sort of feedback loop from a lot of industry criticism right now of that type of website?

Yeah, of course. So we monitor the industry discussion. I'll tell you, we're not concerned about it as it relates to us. We have a small single-digit percent of revenue spent by publishers of all kinds. So it's a small, you know, from an exposure perspective. And we feel good about our leadership with our policies and our moderation team. We have about 100 people working full-time, kind of making sure that we adhere to those policies. And we support the industry trends towards making sure that advertisers know exactly where they spend and what value they get. So I think it's a very good discussion to have. And as a company, I think we're, you know, we're in a good place.

Thank you very much.

Thanks a lot. Thanks. Thank you. Our next question or comment comes from the line of Andrew Boone from JMP Securities. Mr. Boone, your line is now open.

Good morning and thanks for taking my questions. Adam, I wanted to go to a big picture question in terms of the strategy of the Yahoo deal in the first place. We've talked about in the past the benefits of scale And so just to relate that to where we are today, right? Like how is scale playing through and benefiting the overall platform for Taboola as it relates to today? And then how do we think about that for 24? Yeah.

Good morning. Thanks for the question. I, this is maybe one of the main thing that, um, keeps me excited. Um, as it relates to our journey over the next, you know, three, four, five years, because I think today for advertisers and it's, I think it's always important to take the point of view of the client. when advertisers and, you know, about 10 million of them spend on Google and 10 million about spend on Facebook. And we're seeing the growth of advertisers spending with Amazon. And we're seeing, we're seeing how more and more businesses, you know, Nvidia is spending so much energy on making sure that advertisers are supported because everyone sees the opportunity with the advertising sector. I think when you, you know, their point of view is it's uniquely complicated to buy open web today. You have dozens of companies, And they're all in the sub-billion dollar range revenue scale. And then they each have different platforms, different account management teams. It's just too much. It's too complicated, too much. And I think for the most part, there's a very few amount of companies that actually have direct relationship with advertisers, right? We had about 18,000 clients working with us directly, which I'm proud of. But imagine Taboola with 30,000, 40,000, 50,000, or 100,000. But to get there, to get to the point that advertiser says we need, Taboola is a must-have, we need a Taboola strategy, we have to be bigger. I think when we get Yahoo fully ramped up and we get to our, call it $2.5 billion run rate, we're bigger than Twitter at that point. We're in the same realm as Snap and Pinterest. At that point, it's a whole different area code. And I hope this is our one level up. You know, I play Zelda these days, so this is when we get the master sword, you know. This is where we become invincible and we're one level up. And advertisers will say, well, we can't ignore this open web opportunity. Search for Google, you know, social Facebook and Taboola. And that's not where we want to end. We want to get to four and five billion dollars in revenue and truly become an alternative to the walled gardens. So I see Yao as a great partner. an amazing source of supply, which is exclusive to Taboola as it relates to native, a lot of formats, a lot of homepage, a lot of goodness that has that with us. And I think it's going to get us one step forward, kind of getting outside of the ethic as it is today. Nothing wrong with that, but I do want Taboola to be just one step out bigger so advertisers build strategies with us.