TBLA - NASDAQ

Good day and thank you for standing by. Welcome to the Taboola Quarter One 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please note that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Rick Hoss, Head of Investor Relations of Taboola. Please go ahead.

Thank you, and good morning, everyone. And welcome to Taboola's first quarter 2023 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 Investors 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 first quarter call. We had strong performance in Q1, beating the high end of our guidance across all metrics. We achieved $116 million in ex-TAC gross profit, $10 million in adjusted EBITDA and $11 million in free cash flow. We’re also excited to raise the midpoint of our full year 2023 guidance. Now, while we are not fully guiding for 2024, we expect a step change in our financial performance, with over $200 million in adjusted EBITDA and over $100 million in free cash flow. I have said in the past that it is rare for a company to have this level of clarity and confidence a full year in advance. We have such confidence in those numbers that today we announced a share buyback program of up to $40 million in 2023, and also our intention to continue paying down debt up to $50 million this year. Our strong performance in Q1 was driven by a few things. In our core business, we keep seeing meaningful publisher wins such as Conde Nast, Univision, The Blaze, and Kicker in Germany. I’m spending a lot of time with publishers, existing and those who are yet to work with us and it’s incredible for me to see the quality of the conversation around how Taboola can empower the editorial teams, how we can help publishers diversify their revenue and how we can help publishers drive new audiences through Taboola News. Additional drivers for our Q1 strong performance was eCommerce business and Taboola News, both of which performed better than expected in the first quarter. While we don’t plan on reporting this quarterly, when looking at 2022, you can see our revenue is diverse; about 15% of our ex-TAC is eCommerce, approximately 10% is video, and roughly 5% is Taboola News. The rest, call it 70% of our business, is core native advertising. Taboola’s vision is to be the recommendation engine for the Open Web. Think Amazon, Instagram, TikTok, they are AI-driven recommendation engines, making money from native advertising. These are ads that look and feel native to their platform. Taboola's mission is to brings the best of the walled gardens, things such as user experience, data, AI, and advertisers to the brand safe environment of the Open Web. Our business is predictable because 90% of our revenue is coming from advertisers working with us directly rather than through ad exchanges. Our partnerships with publishers are exclusive and long-term with most publishers sign a three to 10-year partnerships with Taboola, and now recently signed a 30-year partnership. We have significant scale, reaching now about 600 million active users a day. As a reminder, we measure our business on ex-TAC gross profit, adjusted EBITDA and free cash flow. Over the last three years, our business has grown more than 20% year-over-year on an ex-TAC basis, has generated about 30% adjusted EBITDA margin and has converted about 50% of adjusted EBITDA to free cash flow after adjusting for interest payments and prepayments to publishers, which we consider to be an investment. Over time we expect these two payments to go to zero. Our core business is strong. We are the partner of choice for over 8,000 publishers. We developed a unique technology optimizing for life time value, empowering publishers to diversify their revenue streams such as eCommerce, subscription, native, header bidding, and video. Publishers deploy our AI on their homepage, they use our editorial tools to make decisions, they build eCommerce sections, dynamically match content and ads that are relevant, and often Taboola is a top three revenue source to our publishers. Back in the day, people used to say nobody got fired for buying IBM and the same can be said about Taboola these days, it’s a safe bet to choose Taboola. More than 8,000 publishers grow revenue, engagement, and audience and around 18,000 advertisers use Taboola to grow their business. Before updating you about our core business and four priorities, I wanted to share a recent experience. I am a strong believer in making things personal. We encourage everyone at Taboola to get closer to our clients and to each other.

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 paydown 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; ex-TAC gross profit of $115.7 million versus the midpoint of $109 million; adjusted EBITDA of $10.1 million versus the midpoint of zero or breakeven; 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 U.S. and LATAM. eCommerce 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 Taboola means our eCommerce offerings. Our teams have achieved this revenue performance while improving cost efficiency, indicated by adjusted EBITDA and non-GAAP net income overperformance outpacing revenues and ex-TAC gross profit. 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. GAAP 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-GAAP net income. Our non-GAAP 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 removed 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 still 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-TAC gross profit of $529 million to $546 million; adjusted 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 eCommerce. 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; ex-TAC 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 are 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 very bright from our vantage point, which is why we are confident in announcing our intention to both buyback shares and continue to paydown our debt. If you want to hear more about our story, we will be attending the Oppenheimer, Needham, and TD Cowen investor events this quarter, so we hope to see many of you at those events. With that, let’s open it up to questions.

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Jason Helfstein of Oppenheimer. Your line is now open.

Hey, thanks. Hi, everybody. Two questions. First, has the pace of the Yahoo integration changed since the Analyst Day? Any color there. And then number two, on the buyback, just want to know kind of why now. And is there a formula investors should think about in terms of repurchasing a certain amount of free cash over EBITDA on a go forward basis? Or is this more just being opportunistic? Thanks.

Hey, Jason. Good morning. So, on the Yahoo front, since the event we have transitioned into phase one, so back then it was phase zero, which means that we're building the functionality to start moving revenue into our systems. We still expect phase two to end back half of this year and gradually start growing revenue. What I will share, that's another piece of information that's seen, is that our teams wonder having great momentum and spending a lot of time together. But we're also looking to have an accelerated plan of capturing revenue even faster. So on that one, we'll keep updating, but overall good momentum. And we're trying to see if we can get this even faster.

Hey, Jason. So to your second question about the share buyback. So I think, first of all, in terms of why now, so we feel very good about our Q1 numbers and especially about our 2024 projections of $200 million plus of EBITDA and $100 million plus of free cash flow. So that gives us good confidence to do a share buyback at this time. I'll note that our core is strong. We've got good publisher wins. Our investment in performance advertising is looking promising. And our growth engines are strong. eCommerce we mentioned is particularly strong right now. Taboola News is beating our projections. And as Adam just mentioned, we feel good about Yahoo and where we're at with that. So that's the why now. In terms of kind of how to think about what we're doing and how investors should think about it. So we want shareholders to be focused on free cash flow per share, and in particular free cash flow per share in 2024, because that's what we're focused on. So the goal of buying back shares is to offset dilution from employee shares so that investors can hold the expectation of kind of maintaining current shares outstanding levels. So that's the -- I think that's the expectation that should be set, is that we'll maintain our current share levels. I will say obviously things happen and you aren't always able to achieve that, but that's the goal, stable share account. And I'll also note that the other reason for why now is kind of given our share price right now, and frankly, the cost of debt, we just think it's a good ROI for shareholders to both be buying back shares and paying back debt at this point.

Yep.

I think we're ready for the next question.

Thank you. One moment, please. Our next question comes from the line of James Kopelman of TD Cowen. Your line is now open.

Good morning, and thanks for taking the question. First for Adam, what do you view as the differentiating factors that are continuing to attract all these 8,000 publishers? And then, can you remind us roughly what the prepayment trend is for the remainder of the year relative to last year? I think after having one of your best years for publisher wins, and then I have a quick follow up for Steve.

Sure. I can start. So one, I think we're -- our core is very strong, and you can see that both in terms of publisher wins and as well as advertisers working with us directly, 18,000 advertisers and 8,000 publishers. On the publisher front, and I mentioned that on the letter, I'm personally having really incredible conversations with existing publishers and publishers or yet to be working with us. And the quality of the conversation is so much about our full platform offering, as it relates to homepage personalization. We call that Homepage For You, Newsroom for editors. We have now 3,500 writers and editors using our Newsroom product, which is -- it's a company on its own. And that's so valuable because it means when the publishers work with Taboola, think of the workflows and how many people on the organization is using Taboola to make decision as to which content they should write, what helps them drive subscription, how do they move traffic around from a journey perspective. Then we have the eCommerce and Turnkey, Time.com launched recently, nj.com have advanced launched earlier this year. Then is Taboola News which we help them drive traffic to their site. So when you think of a publisher point of view, especially in today's world, they want to have less vendors and more partners, and they want partners who can do a lot of different things with them and for them. And as part of that, I think, over time we'll see more and more of kind of this trend of publishers making decisions to work with less companies, but do a deeper integration, longer term partnerships, and honestly more quality conversations. So when it comes to that, I think it's -- I made a joke that when I was younger, people used to say, nobody gets fired for not buying IBM. And I feel more and more publishers, it's a safe bet for publishers at all levels to choose Taboola.

To your second part of that question about prepayment expectations, our expect -- so I mentioned in my prepared remarks that the -- it was first quarter publisher prepayments were actually a source of cash. Because the prepayments that we did in this quarter were lower than the amortization of previous prepayments, that we do expect them to be a use of cash for the full year, though probably on the order of sub $10 million. So that we think that it'll be going down from last year and towards zero. As Adam has said, he thinks these go to zero over time, so this will be a lower year for that we think. I will only caveat that with if the right publisher deal came along, obviously we would use that as a tool to win the right publishers, but our expectation right now is that there'll be sub $10 million in terms of the use of cash for the year.

Great. And then a quick follow up for Steve. How should we think about ex-TAC seasonality for the 2023 quarters? I know we sometimes think of 2Q and 3Q as being similar in terms of percentage of the full year's ex-TAC, and then 4Q is higher. Is that how we should think about 2023? And are there any additional seasonality factors that you'd like to call out to help us with the modeling this year? Thank you.

Sure. So we expect, right now, Q2 is actually going to be similar on an ex-TAC basis to Q1. So it's a -- it's -- the seasonality over the last several years has kind of shifted a bit and you kind of see an upward trend as you go through the year, but we actually expect Q2 to be similar to Q1. And then we expect the second half to improve, especially if you're looking on a year-over-year basis. By the way, I mentioned this in my prepared remarks. Q1 and Q2 are particularly tough comps, Q3 and Q4 become easier comps. We also -- our expectation is that at some point we'll start seeing Yahoo revenue, which will help us in the back half as well. So I think that's our expectation is Q2 will be similar to Q1, and then we will see an upward trend from there.

Great. Thank you very much.

Thank you. One moment, please. Our next question comes from the line of Andrew Boone with JMP Securities. Your line is now open.

Good morning and thanks for taking my questions. I wanted to go to two more product oriented questions. Adam, can you talk a little bit about performance advertising and your learnings as you spent more time in Israel with engineers? Talk about the product roadmap there, and then what are the key drivers for yield today and the rest of 2023? And then on header bidding, your publisher display integrations, can you talk about what needs to happen for that to become the next billion dollar business? Where are you guys in testing and what are publishers telling you? Thanks so much.

Sure. And hey, thanks for joining. So I was in Israel. I spent a month there and I joined -- it was so fun for me to join every day to different tracks, being with engineers and product managers, see what they see and share my point of view. And we met clients, we had with all hands. It was really energizing. I came back even more energized. And for me, that's not always that easy, but I was, and I am. We're laser focused on kind of two buckets to simplify our thinking on the engineering side. One is new advertisers who come into Taboola. What is their experience, and how do we make them successful? We're focusing on the time for first conversions, how many conversions can they see so they get good momentum and a variety of different metrics that we believe are living indicators to get new advertisers to want to stay and then grow. So that's one bucket, and I'll speak to that in a second. The second bucket is existing advertisers. We have now 18,000, which I'm proud of. That's a growing number, which is great. And then here the question is predictability. How they can rely on us and how they can increase their spend while at least sustaining good performance or even improving performance? So think of those are like two buckets, right? New clients and existing clients. And then the biggest track -- we have multiple tracks that are focused on helping those two buckets be successful. The things I'm mostly excited about are probably threefold. The first one is measurement and how we continue to improve the way we measure our business on the advertiser journey. The second is, on the matching front. So this is more of an AI and how do we help, match the right advertiser with the right content and the right consumer. And the third one is more bidding strategies, which is -- this is fairly big. So we launched target CPA in beta about a quarter ago. It's used by at the time. I shared this was used by a few hundreds of advertisers. We're going to move that to general availability, so that's going to be great. And right after that we're launching, and I mentioned that in my letter, max conversions. And for those who just not fully grasp those two bidding strategies and what they mean, if today 18 successful advertisers work with Taboola, find success and they work with us, they give us the CPC, and budget and things of that nature, what they really care about is how -- what is the acquisition cost you're trying to get to, and how many of conversions can they get? So if you're a flower shop and try to get someone to become your client and you know that a client is worth $50, really what all you want to do with Taboola is tell Taboola here is $10,000. I'm willing to pay $50, get me as many as you can and see if we can do it. That's about to happen on the second half of the year. I've seen early kind of like test of these things with some of our early advertisers. It's like back to the future. It's really great. It's how advertisers are used to work with Google and Facebook, and soon it's how they're going to work with us. So all of those things are happening full force. We're shipping about five, six times more features to the field than we did a year ago. And that's mainly because we now have 200 engineers working on performance advertisers versus 50. And that's my number one. I dream about performance advertisers when I go to sleep. It has the biggest upside for our business. Like I told the Board yesterday, we had a Board meeting. I said, if we're doing nothing, but performance advertising and we do this well, Taboola can be a $10 billion revenue company just by doing that so much better. And we're pretty good at it already. So this is top of mind for us. About the header bidding, so let me just say a lot of good momentum on that one as well. Microsoft is doing well. I think Steve mentioned that. Yahoo and that launch is -- I think there's a opportunity for another MSN just on the bidding front Taboola on the display front on the Yahoo. So that can be a big bucket. And then we have our current 50, 60 publishers that are in progress phase of us, kind of like moving to the next level of rolling that to more publishers. So I don't want to share too much at this point, but I'll just say that I feel good about this becoming incremental, hundreds of millions of dollars for Taboola in line of sight between now and more publishers. And just Microsoft, it's continuing to perform well. So for us, Andrew, what we need to do to get there is mainly keep executing, testing that publishers that are currently working with us, and then moving that to general availability so that 8,000 publishers can use it.

Thank you.

One moment, please. Our next call comes from the line of Laura Martin from Needham. Your line is now open.

Hey, there. Let's just follow up on that answer right there. So Adam, how do you allocate engineering resources beside -- between like this public -- improving the performance advertising compared to onboarding Yahoo? How do you figure out how to allocate resources to those two enormous tasks?

So first of all, no, we allocate resources mainly to the top four priorities, right? So there are many things Taboola is doing. But we spend -- management energy and resources, just as a high level on our top four priorities. Performance advertising, Yahoo, eCommerce and bidding. And then within those, we do prioritize Yahoo and performance advertising at a higher level because we think there is a short-term, midterm and long-term, big upside for us, both in terms of making our business stronger in improving our moat and like I said, increasing the yield, which will -- as you know, increasing yield for Taboola, improves not only revenue, but also ex-TAC margin and EBITDA margin and things of that nature. So those two get more resources. And then, we believe that we've modeled that correctly in terms of ROI. So you know how we put together for this year and we can speak about that again for Yahoo. Yahoo, it's -- we believe it's going to start ramping the second half of the year and hopefully, even faster as it relates to next year. We're working on that. So I think we're -- it's the right thing to do to invest in that. And obviously some of those resources will go to other things once Yahoo is live.

Yeah. The only thing I would add in terms of how we allocate R&D resources is, and we talked about this a little bit when we did our cost cutting back in Q3 of last year. We're very focused on things with sub two-year payback periods right now. So whereas previously we had some initiatives which Adam had previously called them his speedboat initiatives, they're further out in the future. We've cut back on most of that and focused our priorities now on things that we have or our resources on, things that we believe have sub two-year payback. So that's why we have the list of the four priorities because we think those are all very short-term payback and frankly can have the biggest leverage on our business.

Super helpful. And then, Adam, my other question for you is, you touched on Generative AI and I'm interested in what use cases you're seeing over the next three years for Generative AI. I know you've talked about content creation and specialization in the past, but could you talk about how you think Generative AI will get built into your models over the next three years, the use cases for.

Yeah. Absolutely. So I'm not going to talk about productivity and other things because everyone is talking about that. That's a bit boring I think at this point to talk about that context. In the case of the business, what I think's interesting is -- so right now we're testing. It's already part of our Taboola ads console. And if you -- I think you've seen it, Laura, but for those who listen, if you haven't seen it, you should check it out. It's fairly cool. Advertisers can now -- on Taboola, they can get suggested title and suggested thumbnails not only by Taboola prompting Generative AI with what we think would be good for insurance advertisers, but rather using our historic data to prompt into Generative AI titles and thumbnails. We already know from past experience have worked for advertisers in that vertical or in that type of segment. And that gives us an edge because the suggested creatives we give back to advertisers are based on previous success. And in general, my belief is that when it comes to Generative AI, anyone can use it, consumers can use it and business can use it, but the differentiation, the big differentiation will be the data. It's a garbage in, garbage out, as they say in computer science. So I think companies will have unique data, they can prompt into those engines. We'll have an edge and an advantage. We have -- we're fairly big. We reach 600 million people every day. We're probably among the biggest in our space. So we have a lot of performance advertisers that have working with us and we're going to use -- we are using that data as an edge and an advantage. So that's happening now and it'll be happening more and more. I think the second thing that might be interesting is on the more landing page creation opportunity. We had a Hackathon I've saw a glimpse of that. Obviously that's not ready yet. But you can imagine that one of the challenges advertisers have now is that they're not sure how to build the landing page and integrate pixels and how to create the workflows so that they can be successful. They might have really, really good products, but they're just not building the landing pages in a way that could be successful for different channels. So if you work with Google or Facebook or Taboola, it could be that you need different landing pages. And I think that's going to be fascinating to see a whole universe where landing pages are being automatically generated and optimized by Generative AI. And that can be very creative in my opinion. That will take some time, but I think that can be the next step after creative optimization.

Super helpful. Thank you very much.

Sure. Thanks.

Thank you. One moment, please. Our next question comes from the line of Stephen Jue from Credit Susie. Your line is now open.

All right. Thank you. So Adam, I think, you cited eCommerce strength in the first quarter results. Is this primarily a function of a ramp in Connexity or product? And the advertisers you cited here and previously are generally larger and are pretty well resourced. So what can we do to broaden the client base here? And also, stepping back a little bit, I'm just wondering if you can more broadly talk about what you are hearing from advertisers. It does seem like the budget cuts have stopped for the time being and overall seems stable, but are there any rising sources of worry or concern you're hearing about or conversely any sort of optimism? Thanks.

Yeah. So first of all, overall what you've seen, and I think it's part of why eCommerce is doing so well is that advertisers are looking to work with channels and partners that are very good at attribution for performance and to showcase that it's working. So the more you're able to show advertisers in it, and that's why we're focusing on that so much, that you're a good place for them to spend their money in ROI, you're going to get the budget, you're going to get retention, you're going to get happy clients. So we have 18,000 of those as I mentioned on the eCommerce front, which is -- it started with Connexity and Skimlinks and now it's just more Taboola commerce holistically. As I mentioned, eCommerce in the box. We're seeing even greater advertiser success over there. So I'll say that we're seeing advertisers just coming in even stronger to work with us on the eCommerce front. I think especially now they're looking for great -- I don't know if we're as good as Google search, but it feels to me based on the momentum that advertisers really like working with our eCommerce initiatives. So again, I don’t know if that's because of the overall macro or just because we're great or both, but we're doing a good job on eCommerce and I'm happy to see that momentum. Two, I think, since the acquisition, we're working more holistically as one company. So there's a lot of synergies between data integrations, different initiatives like DCO advertisers, Taboola core advertisers buying Connexity, Connexity core advertisers buying Taboola. We have more salespeople selling and cross-selling. So those things are contributing to eCommerce. And I'll tell you, my goal is to double that business. I mean, it's a great business. It should be -- it's about 15% of ex-TAC last year. I want this to be 30%. It's such a great business. It's quality advertising for consumers. So I think it's a combination of -- we're doing really good for advertisers and since the acquisition, we're working better together as one. And we're enjoying the benefits of that. So that was one part of the question. Feedback from advertisers is basically performance. And I can tell you -- by the way, and I wrote this in my letter, see, I don't focus anymore on recession and market softness and things of that nature. I focus on execution and product, and does it work or does it not work? I don't want to hear about anything else personally. I come to work, I think I know what we need to do. We know what we need to do. We need to do the work. And I think we have a huge upside during that. So we have everything we need at our disposal to execute on our plans and dreams. And mainly as it relates to advertisers, I think they want the same. They want to work with companies that can showcase fast. They're putting money into their channels. They can see conversions, many of them fast, so they can stick around and increase spend. These are the two things advertisers want now more than ever.

Thank you.

Thanks Steven.

Thank you. One moment, please. Our next question comes from the line of Justin Patterson from KeyBanc Capital Markets. Your line is now open.

Thank you. This is Sergio Segura on for Justin. We had two questions. Just how should we think about the pipeline of publisher additions for the rest of the year? And then a follow up on Generative AI. Just how should we think about the cost implications from these investments? Thank you.

Sorry. So can you repeat the question real quick? I had audio breakup here.

Sure. Yeah. We had two just on the publisher additions, how that pipeline is looking for the rest of the year? And any way we should think about the cost implications from the investments in Generative AI.

Yeah. So on the pub additions and new publisher revenue, so we're ahead of our plan so far this year. So we continue to see good momentum on signing up new publishers. Adam mentioned some of the names earlier, but generally speaking, we're seeing good progress. Pipeline still looks very strong, so we expect that this year will be another very good year in terms of adding new publishers. And I think we tend to always talk about the fact that when we add new publishers, they tend to be lower margin initially, and then we're able to grow the margin over time. So I think it's also very promising for the future because I think it'll help us -- as we look forward, it'll help us to grow ex-TAC over time as we improve the margin on those publishers. In terms of Generative AI and cost implications and things, again, I think Adam said we do expect it to be a productivity boost. So we do expect it to help our AMs, for instance, be more account managers on the advertising side be more productive because they don't -- they can -- they don't have to sit there and work to generate new headlines and things for the advertisers. Generative AI can help them with that. But even more important than that, our expectation is that it'll help us with our advertiser success and performance advertising initiatives. It'll help advertisers become more successful on our platform. Because one of the things that's important when you're advertising on a platform like ours is to test things. Test new headlines, test new images, test different ways of getting your message out there. Test new landing pages even with different messaging and different ways of converting people to what the advertiser wants them to do. Whether it's sign up for a newsletter, sign up for an email list, buy a product, buy a service, that landing page is key and Generative AI can help all of those things. As Adam mentioned, we're already using it to generate headlines for our advertisers. We're already using it to generate images for our advertisers. Landing page is probably coming soon. So I think it's even more important than the productivity boost. We think it'll have a positive impact on the success of advertisers on our platform. I'll also mention that one of the things that gives us a particular advantage in that area is that Generative AI, the most important thing about Generative AI and using it effectively is having the data to train it on what works and what doesn't. So if you want to generate new headlines for your advertisers, what you need to do is you need to train the Generative AI tools on what has worked historically, so that the tools can basically make good recommendations to your advertisers. And the advantage that Taboola has on that front is that we're much larger than most people in our space. Most people who do what we do, one of the largest companies on the Open Web. And therefore, we have a lot more data to train these tools about what works and what doesn't. So we think we have a real advantage there, and we think, like I said, that will translate into advertiser success over time and help us expand our advertiser base and just make them more successful.

Thank you, Steve.

Thank you everyone for joining us today. I think as you can tell from our remarks and the questions and the recent communication, we're excited to be where we are. I'm personally very energized about our position in the market. I think we have an opportunity to build the very first large scale must by Open Web company, that both publishers and advertisers can rely on, side by side to Google for search or side by side to Meta and other social companies. Taboola can be the gateway to the Open Web. Two side of the marketplace that can optimize user experience, AI and data and all those things that advertisers and publishers need and want. We're fully focused on our four key priorities, performance advertising, bidding, eCommerce, and Yahoo. We're lean. We execute on our plans. And once Yahoo is launched, we expect to be at $2.5 billion run rate. And this is out of a $70 plus billion Open Web market. So we're bigger, but still a small portion of this, big market. So there's a lot of growth for us and we're excited to go there. And what I tell -- and like I said earlier, what I tell myself and Taboola is that at our size, we have everything we need to execute and reach our financial objectives and dreams. These are times to lay low, do the work, execute, and that's all we care about. So we look forward to interacting with many of you. Thanks for joining today. And may you all discover things you love and never knew existed. Thanks.