Taboola.com Ltd.

Ladies and gentlemen, thank you for standing by and welcome to the WS4 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 will need to press star 1 1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host. Rick Huss, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Tabula's fourth quarter 2022 earnings conference call. I'm here with Adam Singolda, our founder and CEO, and Steve Walker, our CFO. We issued our earnings materials today before the market, and they are available 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 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, Rick. Good morning, everyone, and thank you all for joining us for our fourth quarter call. We delivered solid financial performance in Q4. We came in in the middle of our guidance on all metrics, while adjusted EBITDA was slightly ahead. For the full year 2022, we achieved $569.6 million of XTAC, $156.7 million of adjusted EBITDA, and positive free cash flow. Overall, 2022 was a challenging year, but also a year of significant accomplishments. I'm very proud of our team at Taboola and the way we were able to manage through the macro environment. Keep our heads down and execute. 2022 was the second best year we've had for stunning new publisher partnerships with over 90% higher new revenue per month than 2020 and 2021. We won a lot. Great new publisher partners joined us, such as Condé Nast, Buzzfeed Japan, Huffington Post, Prisa, Groupe Godot, Network 18, United Internet Media, and Dumont. We won back publishers that had previously left us, such as Slate, Kickr, West, Friends, and more. We send key renewals such as CBSI, Tegna, Fox Sports, and BuzzFeed Brazil. As you recall, our strategy is twofold. We want to be recommending anything users may like, content, commerce, overtime apps, TV shows, and more. We call that Taboola Anything. The second part of our strategy is called Taboola Anywhere, which is taking our publisher content, technology, and advertisers anywhere people spend their time, on OEM devices like Samsung and Xiaomi as an example. But over time, we want to bring our content to automobiles, home audio devices, and more. On the Taboola Anywhere front, 2022 was the year when Taboola News, our version of Apple News but for Android devices, exceeded $50 million in annual revenue, and it's growing triple digits. We like that type of growth as well as the strategic value it has to our overall core business as publishers are getting more and more traffic from Taboola News. As part of our Taboola Anything strategy, e-commerce gained meaningful momentum with Dynamic Creative Optimization, DCO, rolling out, which is the main advertiser success stories for companies like Snap and Meta. Additionally, we recently announced that Time.com will be launching a new Taboola turnkey commerce solution, which I will talk about later. We finished the year with an incredible 30-year partnership with Yahoo. This is a three-way partnership. It includes Yahoo Advertisers buying Taboola Network, It includes building new contextual segments, and lastly, powering native advertising exclusively for nearly 900 million users a month. This is really big. 2023 is assumed to be pre-Yahoo rollout, while 2024 will have partial Yahoo contribution and meaningful gains. In 2023, we're guiding for 6% lower X-TAC compared to 2022, adjusted EBITDA of $70 million, and positive free cash flow. The four reasons for weaker year-over-year results. First, Q1 and H1 of 2022 were uniquely strong as compared to how we ended 2022 due to the war in Europe and macroeconomics hitting the U.S. As part of that, we're entering 2023 with $50 million less XTAC on a run-rate basis than 2022. We expect to return to year-over-year growth in Q3 and Q4 as we lap hard comparables from 2022 H1. Second, we're investing in successful Yahoo! transition, which will cost us roughly $30 million this year, and it includes people, servers, and infrastructure. Third, we're investing in performance advertising, e-commerce, and header bidding. We believe these three growth investments will help us double and triple Taboola revenue when Yahoo! launches. And fourth, winning market share over time includes a net publisher prepayment estimate of $50 million this year. Like I mentioned last quarter, we've seen net prepayments to publishers being insignificant to none over time as we continue to become even more and more strategic to the entire publisher organization. So you should assume this is not a permanent part of our financial model. Let me say that while it's hard to accept declines this year, it's very rare that management teams know what the future will look like and are willing to guide for it. 2024 will be a step change in revenue with Yahoo ramping. We expect to generate at least $20 million in adjusted EBITDA and at least $100 million of free cash flow in 2024. And to be conservative, this assumes Yao is only being live by June of 2024 and no revenue in 2023. Obviously, we're working very hard to beat those assumptions we're sharing with you right now. That's why we refer to 2023 as an investment year. We're putting in meaningful resources this year for gains we feel strongly are coming next year and beyond. Taking a step back, especially with Google and Meta now being less than 50% of the ad market and privacy concerns on the rise, advertisers will be looking for contextual advertising partners with scale. With the Yao partnership, we're one step further towards our long-term goal of becoming the largest open web advertising company in the world by revenue. We estimate that we will have roughly $2.5 billion of revenue in 2022 if Yao had been live on our network throughout the year and we were fully integrated. That's what has put us side by side to companies like Twitter, Snap, Pinterest, and the Trade Desk, with mainly Google and Meta and Amazon much bigger than us. And Taboola is the only company, to my knowledge, at our side that is fully dedicated to the open web, serving both publishers and advertisers directly. I'm convinced that the open web will have a wall-guarding strong company that is going after our estimated $70 billion TAM, and I believe we're making meaningful steps towards becoming that vision with Yahoo launching as well as our growth engines materializing. Now let me provide a brief update on those growth engines, performance advertising, e-commerce, and header bidding. These are where we have the most to gain as a company to further drive growth in years to come. Our goal with our investment in performance advertising is to make Taboola the first and best choice for any performance advertiser that want to reach consumers in the open web. We're currently focusing our investment in four key areas. First, We're working on our bidding strategies that will help advertisers with different goals to be successful on our network. Previously, we shared how SmartBid automates the bidding process for our advertising partners. Now, we're working on enhancement to SmartBid that will allow advertisers to do things like set a target CPA and allow algorithms to even set the initial bid rather than just adjust the bid across the network as SmartBid did previously. Or to maximize conversions even at the expense of CPA targets. Now, second, we're working on a new way of finding high-intent nuggets of very specific audiences in our supply. Third, we're investing in new ways to help advertisers drive clicks and conversions, such as with new creative formats and enhanced landing pages. For instance, we're currently working on generative artificial intelligence that will help advertisers write more creative and appealing headlines and even generate new images from scratch. If you can, please come to see our demo of this amazing generated AI technology at our Yahoo Deal information session on March 1st. It's really cool stuff. Fourth, we're investing in technologies that will be smarter about how to match ads with users, and especially how we ensure that advertisers see results as quickly as possible. I just came back from a trip to Israel during which I spent time with our R&D teams working on this, and I have to tell you, I was blown away about how passionate our 200-person tech team Strong is and about the future of Taboola advertising platform. We have so much more that we can do. We continue to see good progress with our investment in e-commerce as well. I mentioned the momentum we're seeing with DCO. Essentially, Connexity retailers automatically place their product libraries on our network. It has allowed us to significantly grow the amount of e-commerce demand that shows up in our traditional taboola placements, such as in the bottom of article feeds. We recently launched e-commerce circulation widgets to help drive users to commerce pages, which helps our publishers drive traffic from general news pages to high intent commerce pages. We also just announced an exciting new initiative in e-commerce that we call Taboola Turnkey Commerce. This was the missing link to take our e-commerce business to the next level. Every publisher that wants to get into e-commerce but has little or no content attractive to retailers can now do that with Taboola. Taboola does all of the work for the publisher, from using our data to know which content makes sense, for us to write on behalf of the publisher. We write the content, we drive traffic to it, we monetize it with the relationships we have with the merchants and service providers. And I got to tell you, we're very, very excited to have announced our two publisher partners with this initiative, Time and Advanced Publications through their nj.com site. I don't know of any other full-stack e-commerce solution that can do any of what I just talked about. Now, while it's all new for us, I can tell you publishers are calling us about this left and right. Look, everyone wants a New York Times Wirecutter service on their website, and we will enable it. Last but not least, we're investing heavily in header bidding. This is important to our future because this is one of the ways that we will expand beyond our traditional bottom of article placement and continue to grow our share of the open web is still dominated by display ads head of bidding allows us to compete for this supply using our first party data our unique cpc demand and our proprietary technology that is able to predict which ads are likely to perform well generate a profitable cpm based bid we launched this technology with our first partner microsoft in april of 2022 and we're generating hundreds of millions of dollars of revenue from this partnership since then we have started beta testing this technology with an additional 50-plus publisher partners, and we're starting to see traction. For the first time, we're starting to see few publishers generating a few millions of dollars a year from it on top of our core Taboola partnership, which increases our share of wallets and our moat as we look to win new partnerships and expand existing partnerships. 2023 will be the year of investment in our 30-year partnership to be the exclusive native advertising partner for Yahoo. This is big for us. big for Yahoo, and I think big for the advertising community. It will be very critical for our financials. As I shared publicly, if this was live in 2022, it would have multiplied our free cash flow five times to more than $100 million of free cash flow and add $150 million of adjusted EBITDA. We are full-on in planning mode, and 2023 will require a lot of work and investment to make it a successful transition. Just think about thousands of advertisers transitioning, many page types, infrastructure, and more. We expect the transition to occur in three phases. Currently, phase zero, we are designing the technology migration plan. You can think of this phase as designing the plumbing system between the two platforms. So when completed, advertisers on YOW platform can spend on Taboola supply and advertisers on Taboola's platform can spend on YOW supply. Soon, we will move to phase one of the migration in which we will build the plumbing system and test the pipes by starting to flow small amounts of demand between the platforms. move some of supply and transition a small number of advertisers to test the experience. We expect phase one to be completed in the second half of 2023. Once we validate the pipes and our transition plans, phase two will begin and will involve transitioning the advertisers and supply from Yahoo to Taboola. At that point, the migration will mostly be blocking and tackling, but we will need to be thoughtful in the process because we want every advertiser making a transition to have a great experience and to thrive and grow on the Taboola platform. We do not want to trade long-term gains for short-term revenue. We expect phase two to begin in the second half of 2023 and be completed mid-2024, at which point we will be fully ramped and we'll be able to focus on additional growth opportunities from our partnership with Yahoo. We're building a rocket this year and 2024 will have liftoff. We will become bigger and more competitive, and I was never as excited about where we are as a company and our future. I'll now pass it over to Steve, our CFO, to talk more about our financials.