Hello, and welcome. We'll be beginning in 1 minute. Good day, and thank you for standing by. Welcome to the Taboola First Quarter 2024 Earnings Conference Call. [Operators Instruction] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jessica Kourakos.Â

Thank you, and good morning, everyone, and welcome to Taboola's First Quarter 2024 Earnings Conference Call. I'm here with Adam Singolda, Taboola's Founder and CEO; and Steve Walker, Taboola 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 harbour. 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 statements, 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. We had a strong start with Q1 results above the high end of our guidance range across all metrics. -- ex TAC of $139 million grew 20% versus last year. Adjusted EBITDA of $23 million grew more than 100%. Free cash flow was nearly $27 million in Q1 and also more than doubled last year. All metrics be the high end of our guidance range and are on track to meet our full year 2024 guidance. I'm also encouraged to see that our growth rates are accelerating compared to last year. Looking at our use of cash, over 100% of free cash flow in Q1 were spent on share buybacks, demonstrating our strong commitment to shareholder returns and confidence in our long-term strategy and ability to execute. With a strong Q1 and Q2 guidance showing double-digit growth versus the same time last year, we are reiterating our 2024 guidance, which projects accelerated growth on every metric and making 2024 a record year for us. Revenue growing 33% to nearly $2 billion, ex TAC growing 25% to almost $670 million, adjusted EBITDA of over $200 million, growing approximately 2x 2023 and over $100 million of free cash flow, which is also 2x 2023 levels. When looking at our core business, our main focus is, first, making our advertisers successful and in return, growing our yield year-over-year. And the second and a big focus for us this year is ramping Yahoo. Starting with our initiatives driving advertiser success, I can tell you that just come back from an upside where a lot of what we talked about is our goal to expand our initiatives to make the bulk company recognized for quality across all fronts, delivering premium experiences to users…

Thanks, Adam, and good morning, everyone. As Adam mentioned, we had a strong start to 2024. Our Q1 revenues were approximately $414 million and grew 26% year-over-year, accelerating from Q4 levels. Ex-TAC gross profit was $139 million, which represented a growth of 20% year-over-year. Ex TAC growth was driven by double-digit growth in advertising spend as we on-boarded Yahoo advertisers and saw the benefit of having Yahoo supply available through our platform as well as by accelerating growth in our e-commerce business. In addition, we saw double-digit growth in our premium brand and advertising demand spend, which included strong organic growth as well as the transitioning of advertising spend from Yahoo's platform to Taboola. One note on our financials that is new this quarter. On each of our financial statements in our 10-Q, you will note related party call outs. For instance, on our income statement, you will see that we call out related party revenue and traffic acquisition costs. As you might guess, those related party numbers are for Yahoo!. The traffic acquisition cost disclosure is relatively simple. This is the revenue share we pay to Yahoo! -- and it flows through to payables on the balance sheet and change of payables in the cash flow statement. The related party revenue is not quite as simple to understand. There are 3 types of advertisers spending on Yahoo! -- supply. First, there are what we have historically called omnichannel advertisers. These are advertisers that buy multiple advertising formats through the Yahoo! DSP, display, video and native. They are still built and collected by Yahoo!, but all of the native revenue is spent on the Taboola platform, so they are recognized by Taboola as revenue and appear as a related party revenue. The second type of advertiser is an advertiser that…

Thanks, Steve. In summary, it's great to see our business momentum and growth rates accelerating. It's an exciting time for us here at Taboola seen our investments panning out. Starting with our financials, we started 2024 strong with a beat above our high end of guidance across all metrics. Our growth rates are accelerating, which is good to see. In Q2, we're guiding for double-digit growth versus Q2 of last year and 2024 is a record year for us overall with nearly $2 billion in revenue, north of $200 million of EBITDA and over $100 million of free cash flow. We're executing on our buyback program, which demonstrates our confidence in our ability to execute and create shareholder value. When looking at our business, our top 2 priorities this year are making advertisers successful and ramping Yahoo. On advertising success, MAX conversion is a hit with advertisers. After 6 months, it's almost 60% adoption and advertisers who have adopted it are generating double-digit higher MDR. We're also focusing on attracting premium advertisers, which will select accessing our top 15% of our network, including Yahoo!, Disney, Apple, NBC and others. On Yahoo!, we're on track to complete the migration by midyear as planned, and we crossed the $100 million in Q1 as we thought. Beyond that, we're seeing great momentum overall. Our relationship with Apple is now expanding to the U.S. and U.K. beyond Canada and Australia, our growth engines, e-commerce, to bullet news and header bidding are showing strong momentum and becoming more and more synergetic to our core business, making our publisher and advertiser business stronger. I'm excited to be exactly where we are. We know what we need to do. We have an incredible team all around the world working hard to build the very first must buy advertising company for the Open Web. Thank you all for being part of our journey. And with that, let's open it up for questions. Operator?

 [Operators Instructions]. Our first question comes from the line of Laura Martin of Needham.

There's a lot going on and great numbers guys. Congratulations. So my first question is on these priorities. So I know that you're trying to onboard these omnichannel advertisers at Yahoo!, but there's a lot that you're talking about and in the shareholder letter about performance, high-quality performance advertisers. So is this just an overall part of a strategy to just increase the total number of advertisers, I was surprised that the Yahoo! -- priority isn't #1 and that you've elevated this performance -- high-quality performance advertisers to be a higher priority than Yahoo. Can you speak to that, please?

Yes. Sure. or, I'm looking forward to seeing you very soon at the event. So overall, with Yahoo!, one thing that we're seeing, and I mentioned the letter also an interested case study of the performance advertiser or one of the largest personal finance advertiser that was able to migrate and double the spend on us in the Taboola technology. In general, we're seeing something that is fairly new to us, which is we're premium advertisers that there are great names in Hulu and Verizon and Samsung names we mentioned before, are coming on board. There -- when they're seeing good performance, their ability to spend a lot more is quite exciting. And two, they're willing to pay a premium for doing so, which is also why we launched Taboola Select, which is a way to essentially create like this index of the top of our company-wide network between Yahoo and Apple and Disney and NBC and BBC and others, to allow advertisers to buy a specific kind of like segregated ad unit, a stand-alone ad unit and pay a premium for it. So what we think is that there's an opportunity for us to grow our portion of kind of top-tier performance brand advertiser. And again, this is not a top of the funnel kind of a tension play. This is by far a performance focus using Max conversion, Pixel on page, all the things we like. However, coming from agencies and brands and a lot of it we've learned from the partnership with Yahoo. So that's why we're speaking a lot about it. That's why we've launched Taboola Select. And that's a lot of what excites me because I think as Taboola grows from $2 billion to $3 billion to $4 billion in revenue, there's an opportunity to become much more kind of short of wallet for brands and agencies but performance focused. I think it also is an opportunity to elevate our company overall quality. So I like where it's going, and that's why we're speaking about it. And to your question about why I think performance advertiser was actually the #1 priority and then by far, actually, maybe even #2 or 3 and 4 is because I see such an opportunity to accelerate yields from where we are over the next many, many years. And if you think about that, if you can double the company's yield, you double the company's revenue, and I think we can double and triple Taboola by just growing yield. And that is, by far, the biggest thing we can do for our company and shareholders. So we have the biggest focus on that from the performance advertising tech team, our sales team, even our work with Yahoo. So I do think that for Taboola over the next 3 to 5 years, yield expansion is by far the biggest thing we can do. And of course, in 2024, Yahoo is the biggest thing we have going on.

And then secondly, I was intrigued in the shareholder letter, you set a goal of 30 minutes of engagement a day. Could you talk about where your engagement is today? And what the core drivers of engagement growth are? How do you bridge the gap between what your engagement level is today in terms of minutes? And like what is it you're going to do? What are the tools to get to that 30 minutes of engagement of data, which is your goal?

Yes. Well-- the biggest driver for that is Taboola news as far as we see today. So what happens is Taboola news is more and more OEMs are integrating us to be in the whether they call lock screen or lake screen, which is even before the consumer kind of is interacting with the device itself. And then I was joking on earlier saying that my team is referring to that as the main dish because Taboola becomes the first thing they see before they even go to Facebook and Google or other apps. So that's -- we become the first thing consumers do. and the average consumer is looking under lock screen over 100 times a day. Now what we see now is that over the last quarter, and I mentioned that in my letter, we're introducing more and more vertical videos. Think of it like reels or like what Snap is doing, and that is expanding engagement with consumers, and we're seeing acceleration in time and engagement. And because of that, our product road map this year is more and more getting oriented around one video, specifically full-screen vertical videos, and two, utilities. As an example, we're now introducing consumers to whether we're offering them games. We're offering them to see if you're Virgo, what does that mean? And so we're giving you more things that you might like. We're using AI to personalise different utilities you might like to engage with -- and thanks to that, we're getting more time with consumers. So we didn't share Taboola's current kind of time. But I can tell you, it's in a single digit as of now, but growing. We have some cases when it's more than 10 minutes. And I believe that over the next many, many years, my aspiration is to get this to be kind of consistently double digit or 20 minutes a day. And my philosophy is that if you get people's time, over time, you build a great business around it. So if you build something that consumers want and they use it again and again and again, the revenue follows. And that's why I really like Taboola news because one I think it helps Taboola become even more important to consumers. But again, it's mega synergetic to our core because then you click to go to a publisher site, it's to be publishers and it allows us to become a growing source of traffic to publishers and especially with Jennie and Bar, the Gemini all those things, I think it matters to publishers a lot.

Our next question comes from the line of Mat Condon of Citizens JMP.

My first one is just after a strong beat in 1Q relative to your guidance, and you left the full year guidance unchanged. Is there something that's happening in the macro or otherwise preventing you from raising your guidance? And then my second question is just as you're expanding your coverage of Apple News and Apple stock to the U.S. and U.K., can you just help contextualise the opportunity and how do you expect this to impact financials in 2024?

Yes. So good question on the guidance. So in terms of our full year guidance, we're obviously happy that Q1, we grew 26% year-over-year on a revenue basis and 20% year-over-year on an ex-TAC basis. So it was a very strong quarter for us. And we expect improved adjusted EBITDA margins as we move to the back half. So we're still expecting our full year adjusted EBITDA margins to be 30% or at least to approach 30%. So I think we're pretty happy with where we are. 2024, in fact, is going to be a record year for us. It will be our highest ex-TAC and highest adjusted EBITDA on record. So overall, we think the guidance is really strong. we feel good about where we're at. But it's still very early. So while we feel very good about where we're at, there's a lot of work to do, and we don't want to adjust the rest of the year yet being as early as it is. So we're very happy with where we stand. We're just not ready to change the full year at this point. In terms of Apple opportunity...

Yes, we don't like to speak about any specific accounts for reasons you can imagine. But what I can tell you is, one, it's very exciting for us to work with a company like Apple now in 4 markets. Obviously, the U.K. and the U.S. are great markets to expand our relationship with. We do think that this drives 2 things for us as a company one -- following also Laura's question, this is a very good anchor kind of a step forward towards Taboola giving premium advertisers yet another way to reach consumers. So there's no more premium than Apple, and that's really awesome for us to have that relationship and offer that to brand quality advertisers that are looking for performance. So that's one. It fits perfectly well with our kind of elevating and getting even more access to top brands all around the world. And two, we do believe that Apple has a chance of becoming one of our largest partners. So I'm comfortable saying that without getting into specifics.Â

Our next question comes from the line of Zach Cummins of B. Riley Securities.

Congrats on the strong Q1 results. I just had a follow-up question around kind of the assumptions that are baked into your Q2 guidance here and how we should think about the progression going into the second half of the year just based on the unchanged outlook. And then part 2 is just with the expanded Apple relationship, can you talk about kind of the additional work on the development side that's going to be required as you continue to onboard and ramp that relationship in the second half of this year?

 Yes. So what's the question about the Q2 guidance though specifically?

Just key assumptions that are baked into that versus, I mean, the strong performance of the date here and kind of how we should think about the progression into the second half of the year to hit that full year guidance range that's reaffirmed.

Got it. So I think in terms of the Q2 guidance and frankly, the full year guidance, the most important assumptions that we're making there are: one, that the Yahoo! -- is fully ramped by midyear. So there's still a lot of work to do there. We're -- but we're making good progress. I think Adam alluded to earlier how we are seeing some really good results from some of the advertisers we brought across, but we got to finish that work and get the rest of the advertisers across. So that's assumption one is that, that happens. We're also assuming that in the back half of the year, especially, we start to see some yield gains as we basically from those new advertisers that we're bringing across and from our own work on performance advertising, that we start to see benefit from that and we start to gain some yield assumptions or some yield gains as a result. And then I think the other kind of basic assumption that we've made, which I think we talked about last quarter is that operating expenses will kind of be running at roughly Q4 levels for the year. So from an EBITDA basis, that's the basic assumption. But I think the most important 2 assumptions were the first 2, Yahoo! ramping by midyear, and we start to see some yield gains as we move into the back half. In terms of dev work required to make Apple successful, I don't think there's anything -- it's a publisher partner of ours. So there's nothing that is dramatically special or unique or different about it. I think all the work that we're doing on making performance advertisers successful and the performance advertising work. that applies to Apple just like it applies to any of our other publishers. So I don't think there's anything particularly unique. Obviously, they're a big partner. They have their own requirements, but that's true of any of our publishers. So nothing really unique there.

Our next question comes from the line of James Kopelman of TD Cowen.

 First one is for Adam. You mentioned the financial advertiser doubled their campaign budget more than doubled. What was the role of AI, specifically in the success that they experienced? And how will that potentially reap larger benefits as more advertisers take advantage of your AI and GenAI tools? And then I also wanted to ask about retention rates, which you mentioned benefit from training your AI models. The question is how much of your R&D budget are you allocating toward training AI models over time? And then I have a follow-up for Steve.

Sure. And good questions. So on the first question, MAX conversion and AI play an incredible important part of advertiser success. In this case, what you're seeing is a fantastic brand name that we all know that's migrating to use Taboola core technology Taboola ads with MAX conversion. And what they're seeing -- and their objective was very lower funnel specific metrics that we're looking to get. And once starting to work with us, they had an initial spend goal, which was significant, by the way. The results were so great that they decided to double the spend. Now I don't know if that's doubling came from something else, but I was happy to see it. But I can tell you, it was all driven by AI and specifically shown that cost per acquisition is well within the range of what we were expecting and even better. And like I told my board yesterday, we had a board I said, all I want is just 1,000 of those, right? I just want to see that again and again and again. Because at the end of the day, if you think about Taboola, we now reach about 600 million people a day DAUs. So roughly the size of snap or so. And so we have significant reach and a lot of supply. So for me, if I can continue to make advertise successful and get more budget, I truly believe we can double and triple the company. And that is why this is the #1 priority for the company, and that is why we invest so much from the product and tech team on making performance advertisers successful and an ideally top-tier performance advertisers successful. In terms of allocation, nearly half of our R&D works on a variety of different things relating to performance advertising. And I can tell you that team presents to the Board every board. It's top of mind for our management team, our Board, us as a company. In terms of financials, I'm not sure if we shared specifically how much dollar-wise, but it's about half of our tech team is working on that.

And then you also asked a little bit about retention rates. So I think we disclosed in this -- in our shareholder letter this time that our NDR of our advertisers that are using our AI and our new tools there have double-digit improvements in their NDR, which is a great measurement of kind of how they're doing. We haven't disclosed any new information about advertiser retention rates, but obviously, your NDR can't be that positive if you're losing your advertisers. So it's obviously a good sign.

Yes. I think you were asking. So what we do now, and again, we didn't show the financial cost of that. But what we're doing is we're essentially -- and that's a big transition in 2024. We're spending a lot more resources on training or AI to -- from a constant perspective, to look at historic data so that we can create a list of recommendations that are taking advantage in a greater way from advertisers that are like you. So if you're starting a campaign with Taboola today, if I remember, I said earlier that one of the biggest opportunities and challenges around advertiser retention is shown in success really, really fast. The faster you can get the conversion, the less -- the likelihood of churn. So what we're doing now is we're training our models in a significant new way to take advantage of historic data and create better list of recommendations that can come faster to consumers so that hopefully, we can make conversions come earlier in the process. And from that increased retention rates. So that's what we're doing now. And I did mentioned that in the letter.

And then just one last one for Steve. On the cadence of sales and marketing expense through 2024, it is your biggest OpEx line. Can you just remind us what are the key drivers this year for sales and marketing? And should it -- should that expense line continue to rise sequentially throughout the year given your various investments? And do you have any other call-outs across OpEx as we go through the year?

Yes. I think so generally, we've hired most of the people that were going to hire -- most of this hiring, by the way, in sales and marketing is to support the transition of advertisers from Yahoo to Taboola and to support kind of that revenue jump. So we've hired most of what we're going to hire at this point. Q1 was a mostly full quarter for that. So while there probably will be a slight step up going forward, it's not going to be very large. So generally speaking, I think we're at about the right level, at least now. Now let's -- we've got work left to do. We're going to finish that work over the next couple of months and by midyear, we're supposed to be fully ramped, then we'll reevaluate. We'll just see where we're at and see if there's any need for additional resource or anything like that. But as of now, the expectation is we have what we need. And like I said, the only other call out I would give is that we think that we're going to be roughly flat on operating expenses from here for the rest of the year. So I think, generally, we feel good about where we're at with the caveat that we'll reevaluate once we have all those advertisers on board and we understand what we need to do.

 Our next question comes from the line of Jason Helfstein of Oppenheimer.

So 2 questions. Just one on the progress around Yahoo!, given you did $100 million in the quarter, and I think we had like a $450 million target for the year, it would seem like you're definitely going to track above that given the seasonality. So I don't know if you want to kind of help us think about what the new number would be, whether it's like $500 million or $550 million. And then second, if we back out Yahoo! -- would imply like the business was down 4%, although we have talked about how it's not really a fair way to look at it for a host of reasons. But were there any specific pockets of weakness, either on a product side or geographic side or ad category side that just we need to be mindful for in the quarter?

So one, we crossed the $100 million as we expected, which is great to see. We'd like to see that things would still happen. I think at this point, we're looking at Yahoo as part of our core, similar to Apple, similar to other big partners we have in a way that we have one source of demand, and that demand is being distributed across multiple types of publishers, some big and some small. And Yahoo is obviously a big publisher. So from that perspective, core, if you do that type of math, it's growing double digits, which is good to see. So from that perspective, I'm happy. I'm happy here even to see performance advertisers that are spending and migrating and getting good results. We spoke about that earlier today. So things are moving as we like to see. We're on track to complete the migration by midyear as we planned. And again, there's a lot of work ahead of us. So we're not taking it lightly. It's obviously ramping a big partnership. But as of now, there's nothing new to share beyond the fact that we do the work, and it's going as planned.

Our next question comes from the line of Justin Patterson of KeyBanc.

This is Jacob on for Justin. With the revenue from top brands aggress the 20% revenue mark, what efforts are driving the recent success you're seeing with these advertisers? And with the introduction of Taboola Select, is there anything you can share in terms of early reception from these premium advertisers and how you believe this expands the opportunity with a cohort of advertisers?

 So what we can say is what's driving success for those advertisers and why is our premium kind of brands and agencies business growing to above 20%. I think it's a combination of factors. As with anything, it's not one thing. So Adam spoke earlier about the fact that we're seeing really good performance of MAX conversions and our AI technology for those advertisers. So that's definitely a big part of it. So I think the financial advertiser that we talked about who came across and spent a lot more than they even expected to because it was working so well for them. That's a big part of it. Like when the technology works, you get more budgets. But we've also had a sales focus on this -- so we have built out capabilities and teams that are specifically targeting and building relationships with major brands and agencies, and that's helping. What we realized is that with the success we're seeing with the technology being at the state it is, we then announced Taboola Select because we think we're at the right time and in the right position now to package everything together into an offering for these large brands and agencies that we think works really well. Technology works. We've got the right inventory. Like if you think about the quality of our publisher inventory and what's happened to it over the last year, we've added Apple, we've added Yahoo. We've built our relationship with Microsoft, like we have really, really high-quality supply that has grown dramatically. We've got technology that's working for them. And now we've got the sales capabilities. So we decided to put it all together into an offering called Taboola Select that we think is now at the right time in place to really succeed. So that's kind of how it all came together. So the success comes from technology, it comes from sales focus, it comes from the right -- having the right supply, and we're now at the right time and moment to really package it together and go sell it aggressively.

Our next question comes from the line of Mark Zgutowicz of the Benchmark Company.

This is Alex on for Mark. Could you perhaps quantify the e-commerce revenue ex TAC penetration in 1Q and what you factored into your growth expectations throughout the year as you lean into these new relationships? And then how should we be thinking about the ex-TAC margin accretion potential upon this mix shift to e-commerce over the near and medium term?

So we don't break out our e-commerce business specifically. So I'll give you kind of some flavor of what we have said historically. So first of all, what we've said is that e-commerce is growing faster than the rest of our business. So that's great. Like it's a growing part of our business. What's excited about that, by the way, is that e-commerce demand, in particular, is extremely high quality. So it's coming from a combination of merchants like Walmart and Target and other people like that as well as from brands selling directly themselves like a Wayfair or a Skechers or companies like that. So it is -- we're showing really good momentum. It's exceeding the growth rate of the rest of our business, and we expect that, that's going to continue. So that's kind of what we've disclosed about e-commerce. Again, we haven't really disclosed how much of the breakout it is over time. In terms of what's the opportunity to kind of grow ex-TAC margins over time, especially relative to e-commerce. So first of all, what we've said is we expect to be at around 35% ex-TAC margin this year. That's kind of the midpoint of our guidance. We've said that we think that we have an opportunity to get that back up to 40% and beyond that over time. And part of that will be growth of e-commerce. E-commerce will be reported on a net basis. So it's highly accretive to ex-TAC margins just because of that. But even beyond that, it's a really high-value demand and helps us with our margins overall. So I think we do believe we have a good opportunity to grow our ex-TAC margins back above 40% over time. And a part of that will be from e-commerce.

Thank you. I'm seeing no further questions. I would now like to hand the call back over to Adam Singolda.

Thanks for joining us, everyone, on the call today. I hope you can see we're very happy with our strong start to the year. The key things that take away from the call today are: one, Q1 showed a great momentum in the business being the high end of our guidance, reiterating 2024, which makes this year a record year for us. Our growth rates are accelerating, which is great to see. And then our top 2 priorities our advertising success and ramping Yahoo!, both are doing well. Apple News is now expanding. Last quarter, it was in Australia and Canada, now it's in the U.S. and the U.K. And there's a lot going on, a lot of work, but we're very happy with the strong momentum we have seen so far. I hope to see everyone soon, and thanks for joining us.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.