TBLA - NASDAQ

Good day, and thank you for standing by. Welcome to the Taboola Fourth 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. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Jessica Kourakos. Please begin.

Thank you, and good morning everyone, and welcome to Taboola's fourth quarter and fiscal 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. And before we talk about the business, I want to start with a word about our people. I've always said that a company's true innovation is its culture and people. And I'm so proud of the tremendous resilience displayed by our nearly 2,000 Taboolars during the war in Israel. Their resilience is what's driving our progress in reaching new users, delivering engaging experiences in the open web, improving our effectiveness at monetization and driving yield. We have real momentum coming into this year, and it shows in our Q4 results and strong 2024 financial guidance. Turning first to our quarterly results, we had a strong end to 2023; Q4 ex-TAC of $168.5 million, growing 6% versus 2023 Q4. Q4 adjusted EBITDA of $50.1 million, a significant beat to the high end of our guidance by $18 million, representing over 30% adjusted EBITDA margin. Free cash flow in Q4 was $10.5 million, bringing our 2023 free cash flow to $52.2 million, representing 3x growth over 2022, as well as 50% conversion to EBITDA, which is our desired stated goal. 2024 is set to be a record year for Taboola across all key measures, revenue, ex-TAC gross profit, adjusted EBITDA, and free cash flow. On the revenue front, we're back to fast growth. Revenue is growing 33% to nearly $2 billion this year. Ex-TAC is growing 25% to $670 million. We are reiterating our adjusted EBITDA guidance of over $200 million, which is 2x 2023. And we are reiterating our free cash flow guidance of over $100 million, also nearly 2x of 2023. On the business front, there is a lot of good momentum. 2024 is benefiting from fast adoption of our AI offerings, and we assume yield expansion this year after two years of softness. Yahoo is ramping up, already crossing the $100 million mark in Q1, with the great trust and collaboration between our teams. Now, and since we've signed the partnership with Yahoo, many investors have asked us what is next, what will be the next Yahoo-style partnership? And I'm very, very happy to share than another iconic consumer brand has just chosen Taboola as its partner of choice to help them grow their advertising business. I hope to share more about this very soon. On the back of our business momentum, strong balance sheet, and commitment to shareholder returns, we're announcing a new share buyback authorization of $100 million, which represents approximately 6% of our current market cap. 2023 was going to be an investment year for growth. We're investing more than $100 million a year in R&D and AI to bring users and advertisers the same amazing experience they have when they interact with search and social platforms. Every day, we're getting closer to the size of X, Pinterest, Snap, and others in revenue and ad spend. And we're paving our way to becoming the very first must-buy platform for the open web. As I reflect on our journey, 10 years ago, we generated just over $200 million in revenue. I remember it like it was yesterday. And this year, 10 years later, we're approaching $2 billion. Now, looking ahead, I see two key themes that will allow us to achieve our financial transformation in 2024. The first one is reaching and engaging users in the open web. With the addition of Yahoo, and now another iconic consumer brand, there's a lot of momentum here. The second one is how well we can monetize our time with consumers, specifically growth in performance advertising and AI to drive yield. Now, let's expand into both of these areas. Starting with how we reach users on the open web. We're seeing great momentum of publishers choosing Taboola on the back of our technology investments. We're so much more than just to publishers as we empower the entire publish organization, the editorial team, subscription team, audience team, monetization team, and more. Publisher win rates continue to improve with terrific new publisher partners joining Taboola family from all around the globe, including A360 Media, Postmedia, Times Internet, Nine Entertainment, and more. We renewed and expanded our scope with existing publishers, including NBC News, McClatchy, Editora Globo, Prisa, Ynet, and more. In the industry, we're seeing a shift of great consumer companies getting into advertising in a bigger way. This includes Disney, Amazon, Netflix, DoorDash, Uber, Walmart, and more, where to some, advertising is already one of the most profitable lines of business they have. I expect that Fortune 500 CEOs will increasingly be asked to present their advertising strategy. And that the advertising industry will get to become a $1 trillion market in years to come. This is just the beginning. Now, while I believe many of these companies would try to sell directly to big brands, many would consider partnering with a technology company like Taboola to reach tens of thousands or hundreds of thousands of mid-funnel performance advertisers. We have an opportunity to become the advertising engine of choice to the open web. We call it advertising in a box. Signing strategic partnerships with publishers and big consumer platforms give Taboola another way to reach users, and access new premium advertisers. And we've seen it already with Yahoo, as incredible brands are starting to spend. And these are the best of the best out there, names like Samsung, and Verizon, Hulu, Hilton Hotels, Southwest Airlines, Citibank, and many others. On the Yahoo front, I can tell you we just had an executive offside for the Yahoo leadership, and we're focused on executing our plans this year, and into 2025. our biggest priority is demand migration of Yahoo omnichannel advertisers. I'm happy to tell you we're seeing good results. And we recently shared the case study of large advertisers seeing 3x in leads volume at 24% lower cost. To share some of Yahoo's good progress, we expect Q1 revenue to cross the $100 million in revenue, which is fast ramping. Beyond working with publishers, we also reach users as part of Taboola News as we bring our publishers' content to Android devices. Taboola News had a spectacular year in 2023, with revenue growing to over $100 million. It is still in early stages, with a lot of work ahead of us, yet we expect another strong year for Taboola News in 2024. This is because device manufacturers all around the world continue to seek differentiated offerings that delight users with personalized experiences. Beyond publishers and Taboola News, we're also reaching users with our Header Bidder. We're continuing to take advantage of our direct demand, unique data, and AI to bid on inventory that is not exclusively ours. Microsoft continues to be our largest Bidder partner, and we expect to expand our scope across a network of publishers in 2024. Microsoft made some changes to its Epic platform in Q4 that impacted all Epic partners they work with, including us. This had a single-digit millions of dollars impact in Q4, and a small impact to 2024, which is already included in our guidance. Now, switching to the second driver of revenue growth, how we monetize time with consumers, essentially how we grow yield. Yield represents the revenue we can generate per user. For comparison, we estimate Meta makes $200 of revenue per user a year in the U.S. Snap makes $33, and we make about $3.00 to $4.00 per user a year. While I think Taboola is among the best in the open web when it comes to monetizing user attention, you can imagine how much runway we have to improve, and how much better the open web can do. When we win, the open web wins. Now, the open web is about an $80 billion market because it uses low yield monetization capabilities invented 30 years ago, such as display banners, text ads, interstitials, and more. And on top of that, only in the open web advertisers are asked to bid using CPC or CPM, which companies like Google or Meta don't do. Now there are three ways Taboola will grow yield. The first one is data. This is where code on page being bigger and getting a large volume of clicks from the network, makes us better at driving conversions to advertisers faster. The second one is AI. Deep learning is really hard to do. We've been at it for years. And, this is a key element as it relates to matchmaking between users to information. And, the third one is advertisers. We've 15,000 to 20,000 advertisers as of now while Google and Meta have 10 million advertisers each. Bringing more advertisers means better diversity and personalization to offer users the ad they may like. We're seeing great momentum from Maximize Conversions, our advanced AI biding technology. Advertisers are seeing up to 50% boost in conversions while maintaining their cost per acquisition or CPA. As well as, some advertisers are seeing reduced CPA by nearly 20%. Let's give an example. If you sold 10 flower bouquets with Taboola and it's cost you $30 to get a single costumer, you can now sell the same 10 bouquets at the cost of $24 per customer. Or, sell up to 15 bouquets at the same $30 cost to acquire that customer. Now that's selling a lot more flowers and saving more which is great. Now as more advertisers adopt our AI and Max Conversions, we expect improved retention, essentially lower churn, as well as increase in net dollar retention, NDRs, which means advertisers are able to spend more with us over time. In Q4, we launched Generative AI ad maker helping advertisers kick off a campaign faster. For self-serviced advertisers, one is four new creative are being generated using our new Generative AI. In 2024, we are focused on enhancing our data integration with Yahoo, continuing adoption, and improvement to maximize conversions as well as launching a new maximized optimization product called Maximize Revenue. Maximize Revenue is the way for advertisers that have direct value associated with conversions like in ecommerce space to optimize their desired return on investment. I am happy to say that with this momentum where already 50% of our revenue is driven by advertisers who adopted Max Conversion and are at steady roadmap were back to yield growth this year. Another segment of advertisers that is helping us drive yield growth and seen momentum is ecommerce. In 2023, we've benefited from the combined fire power of Connexity, Skimlinks, and Taboola. We launched Turnkey Commerce, which is where we partner with publishers to establish or expand their commerce business. This is in high demand, we essentially created commerce content, drive traffic to it, and monetize it. All powered by Taboola. I am very, very happy to say that at the end of 2023, we signed an agreement with the Associate Press, one of the largest and most trusted news publishers in the world, to power its new ecommerce destination using Taboola Turnkey Commerce. Ecommerce represents approximately 20% of ex-TAC. It's premium revenue. And we continue to see it as an important growth driver for Taboola in years to come. Now as I am wrapping up my part, I would be remise in not acknowledging that our industry is facing tectonic changes this year like cookie deprecation, gen AI, and the need for performance advertising in times of recession and market softness. And, we are so ready. We have more code on page than anyone. We understand intent with users clicking on Taboola tens of billions of times a year. And if history is a proxy for the future, we did well when Apple deprecated cookies. In summary, we are coming in strong into 2024 with stunning partnership, fresh revenue growth, and a strong EBITDA and free cash flow profile. We're now seeing a new $100 million buyback authorization. And after two years of yield been soft, we are back to growth as our clients adopt AI faster than any product developed since I started Taboola. With that, let me the pass the call over to Steve to review our financials and outlook in more detail.

Thanks, Adam, and good morning, everyone. As Adam mentioned, we had a strong end to 2023. Our Q4 revenues were approximately $420 million and grew 13% year over year, accelerating from Q3 levels. Ex-TAC's gross profit was $169 million, which represented growth of 6% year over year. Ex-TAC growth was driven by double-digit growth in advertising spend and included a small contribution from Yahoo in the quarter. These positive factors were partially offset by margin compression due to the ad rate declines in 2022, which have since stabilized in 2023. Net income was $3.7 million, and non-GAAP net income was $31.4 million. Adjusted EBITDA was $50.1 million, representing a 30% adjusted EBITDA margin. Year-over-year, adjusted EBITDA was down, which was due primarily to higher expenses related to the onboarding of Yahoo's supply that were not in the year-ago period. Operating expenses excluding Yahoo would have been relatively flat year-over-year, reflecting strong cost discipline in 2023, which we plan to continue into 2024. For the full-year of 2023, we finished with over $1.4 billion in revenue, $536 million in ex-Tac gross profit, and $99 million in adjusted EBITDA. We had a net loss of $82 million and non-GAAP net income of $33 million. We also generated $52 million of free cash flow in 2023, which was up 181% versus 2022. Free cash flow benefited from the stronger than forecasted adjust EBITDA, which reflects the cost controls mentioned previously, partially offset by the expenses related to the onboarding of Yahoo inventory in the period. Free cash flow in Q4 would have been even stronger if not for the timing of some payables and capital expenditures that we mentioned were delayed last quarter. As Adam said, our strong revenue and Ex-Tac gross profit performance was driven by strength in our e-commerce, bidding, and Taboola News businesses, as well as the initial contributions from Yahoo and relatively stable yields in our core business. E-commerce had double-digit growth in 2023, driven by strong growth in advertising budgets from some of our largest retail advertisers, as well as strong momentum in Europe. In addition, we are seeing great success ramping Taboola's feeds and now Yahoo as supply sources for our retail advertisers. In fact, Taboola's feed supply has become a top ten traffic source globally for these advertisers. As we have stated previously, Taboola News grew very quickly and exceeded $100 million in revenues in 2023. In total, e-commerce, Taboola News, and Header Bidding now represent approximately 30% of our ex-Tac gross profit. This is exciting because each represents very valuable forms of supply that are valued by high-quality advertisers. Our teams have achieved accelerating revenue and ex-Tac performance while improving cost efficiency, indicated by our strong adjusted EBITDA margin exiting 2023. Operating expenses were $489 million in 2023, up $11 million year-over-year as a result of the cost incurred to onboard the significant inventory we are gaining with the addition of Yahoo. Excluding Yahoo, as I mentioned earlier, operating expenses were essentially flat with the prior year. Our headcount is down approximately 2.5% from its peak in July of 2022. With our ongoing expense discipline and our strong growth expectations, we expect that in 2024 we will approach our long-term adjusted EBITDA margin target of 30%. GAAP net loss for 2023 of $82 million included amortization of intangibles of $63.9 million, share-based compensation expenses of $53.7 million, and holdback compensation expenses related to the -- connects the acquisition of $10.6 million, all of which were excluded from non-GAAP net income. Our non-GAAP net income of $32.6 million was above the high end of our guidance range. In terms of cash generation, we had approximately $84.4 million in operating cash flow in 2023 and free cash flow of $52.2 million. This includes net publisher prepayments, which were a source of cash of $19.7 million, and interest payments on our long-term debt, which were a use of cash of $18.5 million. As I have highlighted in previous quarters, I would note that net publisher prepayments were a source of cash for the full-year due to the fact that new prepayments were lower than the amortization of historical prepayments. Let's turn to the balance sheet. You can see that our net cash balance remains healthy. Our net cash position of $36.2 million remained positive at the end of Q4, even after share repurchases. Cash and cash equivalents, plus our short-term investments decreased from $250.7 million at the end of Q3 to $181.8 million at the end of Q4. This reflected a $50 million prepayment of our debt and $32 million used for share buyback activity in Q4. Cash and cash equivalents and short-term investments remained above our debt principal balance of $142.2 million. Speaking of our share repurchases, I would also like to provide an update on our share buyback and debt repayment programs. The share buyback program was initiated on June 1, and as of December 30, we had repurchased over 15 million shares at an average price of $3.62 for total repurchases of $55.1 million. The average repurchase price of $3.62 represented a return of approximately 30% based on our closing price on Monday. Today, we are also announcing a new share buyback authorization of $100 million that replaces our former buyback plan, which was largely exhausted. We are fortunate enough to be able to fund our organic growth investments from our operating cash flow. Given that, we believe that at current valuations the best use of our free cash flow is to buy back shares. To the extent that we have additional cash to deploy, we intend to pay down our long-term debt. We did this in October of 2023, in fact when we voluntarily prepaid another $50 million of our long-term debt, bringing the total debt that we have voluntarily prepaid to $141 million. As always, 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. Also of note, we will be filing a general purpose shelf in the coming days. We consider it good corporate hygiene for a company at our stage to have a general purpose shelf on file. Given we believe our stock is a great value at current levels and have announced a new buyback authorization today, we obviously do not intend to issue new shares at this time. I just wanted to make sure that was clear. Now let me shift to our forward-looking guidance. As Adam mentioned earlier, in the last 12 months, we invested in technology that advanced our e-commerce and Taboola News offerings, successfully launched maximized conversions and onboarded all of Yahoo's global native supply onto the Taboola network. 2023 was a year in which we invested heavily in these initiatives, sometimes in advance of revenue. As we look ahead, we see the following tailwinds driving outsized growth in our business through 2025. First, we expect the Yahoo Advertiser migration to be materially complete by Q3 2024 and to continue ramping into 2025. Second, we expect yield growth to turn positive in 2024. Third, we expect a phased onboarding of the supply from our new iconic consumer brand partner in 2024 and 2025. And lastly, we expect further yield gains over time as the volume of our contextual data increases with the addition of Yahoo and other supply to our network, which will further enhance yield. As a result, we are initiating guidance for 2024 that includes strong top line growth and improving profitability. We expect revenue of $1.89 billion to $1.94 billion, which represents growth of 33% at the midpoint. We expect gross profit of $535 million to $555 million and ex-TAC gross profit of $656 million to $679 million. That ex-TAC is up roughly 25% year-over-year at the midpoint. We are reiterating our 2024 adjusted EBITDA guidance of over $200 million and free cash flow expectation of over $100 million. I will note that the adjusted EBITDA guidance represents a doubling of that metric versus 2023. Finally, we are expecting non-GAAP net income of $84 million to $104 million in 2024. We continue to be very by the addition of Yahoo to our business. Adam mentioned earlier we feel good about the progress with Yahoo, and we expect revenue on Yahoo to exceed $100 million in Q1. For competitive purposes and due to the fact that Yahoo's supply has been fully integrated into our broader publisher network, we will treat disclosures around Yahoo similarly to how we treat other major publishers on our network on a going-forward basis. Finally, we are introducing Q1 2024 guidance. This quarter, we expect revenues of $387 million to $413 million, gross profit of $94 million to $106 million, ex-TAC gross profit of $123 million to $135 million, adjusted EBITDA of $10 million to $17 million, and non-GAAP net income of negative $15 million to negative $3 million. Let me finish by saying that we are happy with our fourth quarter performance, and excited about the step change growth that we are expecting in our business in 2024. The growth investments we have made in 2023, the additional scale that Yahoo is bringing, and the additional supply we will be onboarding as part of a new partnership with an iconic consumer brand is accelerating our journey 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. I've never been more bullish about Taboola, and I'm so proud of our Taboolars' dedication, passion, making us the high-performing company through the most difficult of times. We're coming in strong into 2024, making it a record year for us. Revenue is growing 33% to $2 billion, ex-TAC is growing 25% to nearly $670 million, EBITDA is doubling to over $200 million, free cash flow is nearly doubling to over $100 million. And on the back of these numbers, we're now seeing an authorization of $100 million of buyback, essentially looking to buy 6% of our company. As I mentioned, our industry is changing. And with companies like Netflix and Disney, Uber, DoorDash, Amazon, and more expending through advertising initiatives, I suspect we're in the beginning of an exciting ad mania. Taboola has a chance of becoming the partner of choice to many of them. And as I said at the beginning of our call, in addition to Yahoo, I'm incredibly excited to have just signed another iconic consumer brand that validates Taboola's advertising-in-a-box value proposition. Our vision is to become the recommendation engine for the open web, and build the very first multibillion dollar gateway for advertisers to reach publishers, OEMs, and apps outside of walled gardens. Today is a good day for us. I'm excited to get 2024 going. To everyone, thank you for being part of our journey. And with that, let's open it up to questions. Operator?

Thank you. [Operator Instructions] Our first question today will be coming from Andrew Boone of JMP Securities. Your line is open.

Great, thanks so much for taking my questions. Adam, as we think about yield improvements in 2024 and the inflection that you guys are expecting, can you just help us understand what the key drivers, as well as what are products that are your key priorities in terms of improving yield over the next year? And then I want to step back and talk about a big-picture question for Yahoo and Taboola. If I go back and I think about 2022 pro forma revenue of kind of that $2.5 billion of gross revenue, is that still on the table? Is that still the roadmap as we think about maybe 2025 or what are the puts and takes as we think about that benchmark? Thanks so much, guys.

Sure, thanks for the question. Good morning, everyone. So, on the Yahoo front, there's a lot going on. And as you know, it's number one investment as a company because we think this drive the most amount of value to our clients, our partners, and to Taboola itself in a competitive way as we're adopting and going off to a new business. So, let me just drive in, into that. 2024, we're starting strong. We've lapsed conversion already crossing the 60% adoption. As a quick reminder, Max Conversions is kind of our AI that allows clients and advertisers to work with us in a similar way to how they work with Google and Facebook, where they don't have to tell us what is the CPC they want to bid or what is the CPM they're looking to buy; they just give us their budgets. At times they give us their targets for what is worth -- what is the client worth, we do the rest. It's the fastest adopted product since I started Taboola, and it's really fantastic. We're seeing great case studies, not only from Taboola's advertisers, now also with Yahoo advertisers migrating to Taboola's technology. And we're publishing those case studies because we're seeing advertisers that essentially either are able to spend more or new advertisers that are churning less. And this is a really good metrics for us to follow. Again, we know as flower examples on my letter. But essentially just from a numbers perspective, we're essentially seeing up to 50% boost in the amount of conversions at the same price. And in other times, we're seeing the same amount of conversions, but the price is being reduced by 20%. These are serious numbers. And also, just from the client's perspective, the experience they have working with us, it's so much simpler and more easy to do than they have to do with -- in the Epic industry, which I always argue one of the Achilles heels of the Epic industry is that we're still working with advertisers the way we used to work 30 years ago, whereby everyone around us, mainly platforms and walled gardens have evolved to using AI. So, I want, by the end of this year, really the vast majority of Taboola's business, as you know, approaching $2 billion, to be using AI, and CPC and CPM to be kind of a story from the past. That what's coming next for us, and going to launch in H2, Max Revenue, this is on top of Max Conversion, it's another sophisticated AI-based strategy allowing clients that know what is the price associated with a purchase to give us that margin and revenue growth they have, and we optimize for that. This is going to launch in the second-half of the year, which will be additive to Max Conversion. Gen AI is continuing to get great adoption by self-service. As you know, I love self-service. This is an opportunity to get kind of introduced to great new clients. There -- a lot of times they come small, but they potentially become big, and one in every four creative titles and thumbnails you just saw with OpenAI, they're now already the industry is talking about video creation, so who knows where that goes. But one in four creative is using gen AI, so that's been great. E-commerce is another source of -- a bolster in our yield in 2024. You may have seen that I mention in the letter that Associated Press just chose Taboola to launch its e-commerce business. You all know Times.com, you know advanced also working with us in e-commerce with turnkey, and now AP, that was a new announcement today, and all that is helping us to essentially attract new retailers and improve our, basically, weighted average yield across the network. Then you add data integration, we're looking to expand our contextual data segments with Yahoo, that's something that I'm very excited about, especially on the back of current H2 cookie deprecation, so that's also going to compound our ability to drive yield. And last but not least, more advertisers. So, we're migrating advertisers from Yahoo. We expect that to be fully complete in Q3. And these are best -- the crème de la crème, best of the best. You see others, Samsung, and Citi, and Verizon, these are fantastic enterprise advertisers. All of those things, from the technology side, the data side, and the client side are compounding our yield expansion. And you may have seen also, and I mentioned that on earlier -- on my remarks, that after two years of softness in yield that all of us have experienced in this industry, Taboola, we kind of assume that if nothing happens in the market, we will do better than the market. So, we assume that yield is back to growth in 2024. It's in our budgets, it's in our guidance. So, we expect all these initiatives to come to fruition.

And then to your second question about $1 billion opportunity with Yahoo, the simple answer on that is yes, we still believe there is more than $1 billion of value in that partnership. It's been -- by the way, we did say that we expect to see $100 million in revenue from the supply in Q1, so that's encouraging. That's a good step towards that. Advertisers will be fully migrated only in Q3, so that's also key to capturing the base value of the partnership. And then, from there, what we expect is that the revenue will continue to grow as we capture synergies to get us to the full billion dollar value. So, yes, we expect it. It'll happen over time.

Thank you so much.

Thank you. [Operator Instructions] And our next question will be coming from Jason Helfstein of Oppenheimer. Your line is open.

Hey everybody. Just some clarification and then a question, so to be clear, so the $100 million in Yahoo, that's not cumulative, that's like for first quarter, correct?

Correct, that's $100 million on Yahoo supply in Q1.

And then, you said the fourth quarter obviously was like meaningfully below that. You're not giving the number, but we have to guess. Just repeat the language you said, how much it was like the way you described in the fourth quarter?

We said low tens of millions.

Okay. So, I mean like so kind of hit the elephant in the room here. I mean, if you play around with the math that means that like the kind of ex-Yahoo, the business is decelerating, but like that's not really fair, right? Because at the end of the day you have certain amount of advertiser demand, there's different publishing sources, different yields you're trying to get. So, just how should we all look, we're going to all kind of play with math for the next year to look at the kind of the with and without Yahoo impact. Like how are you thinking about that? Because I don't think you're describing the business is like slowing down. So, just how do you think about like the puts and takes around bringing that inventory in kind of like the yields you get out of that versus other inventory and like should we be doing that math on the growth ex-Yahoo and then just one quick follow-up on identity and cookies?

Okay. So, I'll take that first question and it's a good question. So, first of all, we're growing nearly $500 million in top line revenue this year, so 33% year-over-year, so obviously, strong growth. A good chunk of it is Yahoo, but not all of it. As you observed, the complexity of that is that Yahoo comes with both supply and advertiser demand. In the $100 million that we just talked about, that is Q1 and that's revenue on the Yahoo Supply. And but it's a mix of Taboola advertisers and Yahoo Advertisers. So, where the top line growth comes from over time is also migrating the Yahoo advertisers over and growing our overall advertiser base, thanks to this really great high quality supply we have. So, in order to get full growth, we need to go there. That's Wave 1, and we expect to have the advertisers migrated by Q3. And then, as I mentioned before in answer to Andrew's question, then Wave 2 is to start to grow the synergies to get to the full $1 billion of value. So, you are correct that it's not as simple as you just bring over the supply and you're done. We have to bring over the advertisers. It's more complex. So, that's kind of the way to think about it. And you're right, our core business is still growing. It's just that Yahoo will take time to get to the full ramp.

And then, just on Identity, you've talked in the past that you're not dependent on cookies and so folks should be less concerned about kind of where we go from here. However, there's going to be more identity metrics that obviously are going to be adopted and coming to the market, on third-party metrics like can you use those metrics to drive kind of even more yield even though you don't need to use identity? Thanks.

Yes. I think we'll take the right thing about it is, from a downside protection in terms of risk that companies might have, we believe the risk is mitigated for two reasons. 1, we have the past with Apple deprecated cookies in 2020 and we did well. In fact, we actually accelerated yield, so that's good. And the second thing is that we have a large amount of first-party cookies today as we store we reach 600 million people a day and people click on Taboola tens of billions of times. So, we think we have a good kind of setup for cookie deprecation. So, the way I think about it is, we can do well and potentially even grow because again, in the past, other demand came to us when it couldn't find other channels and we were a good channel to spend money on. If there's anything in the market that can accelerate that even further, we'll take it. I just don't -- personally I feel comfortable because we don't need any new solution to do well. I think we have what we need to cross that bridge successfully to our publishers and advertisers. And again, just as a reminder, the vast majority about 90% of our revenue comes from clients who buy from Taboola Direct. No programmatic, no agencies, which means that we have pixels on their pages. So, when someone moves from our publishers to their pages, we know we drove that conversion. So, that's why we don't need third-party cookies to demonstrate value to clients as they buy from us. This is a fundamental point. There is I feel there is potentially even further upside to yield, but the downside is mitigated.

Thank you.

Thank you. One moment for the next question. Our next question will be coming from Laura Martin of Needham & Company. Your line is open.

Good morning, you guys. My first one is on political. So, globally, there's a really strong election cycle going on in 2024. And can you remind us how that impacts your impression growth and your readership and how that flows through to revenue in a political year, please? And then I'll ask my second one after that.

Good morning, Laura. Thanks for the question. Hey, it's up. So, the way we think about historically, we did see some bump in kind of demand coming on political season, but especially from video with some more kind of increase in video demand in our guidance and way we kind of like manage the business, we don't assume that is coming. So, want to be conservative in terms of what might happen. There is also potential acceleration in traffic because there is more viewership and things of that nature. Again we don't assume those things as a material kind of like financial benefit to us. But historically, we did see some nice bumps, but again nothing too significant that we would like to sort of embed in our planning.

Okay. So, that's an upside driver because it's not in the numbers, super helpful. By the way, they're talking about $17 billion of spending in the U.S. alone. So, I think it might be a bigger political year than people than your historical lift.

That's good.

The second question I had for you, Adam is I'm really curious as you bring over these new types of advertisers that Taboola has never had with Yahoo like Verizon and Citi and these big enterprise, high quality branding customers. Is that, A, I'm really interested in what kinds of challenges or what kinds of things they need that your historical advertisers have not? And secondly, does it give you new product ideas when you think about the product roadmap? Are there things these types of advertisers are asking for that could sort of, if you develop them could really forever accelerate the trajectory of revenue growth of Taboola. What's your point of view on that?

Yes, this is it's such a good question, because we obviously this is a very new type of segment of clients that get introduced to Taboola. Most of it right now is on the Yahoo side, right, like we're filling that incredible kind of publisher with a mix of Taboola and Yahoo advertisers. But what we're seeing is, first of all, they really appreciate the technology that we can bring to the table. So, they're adopting Max conversion, our pixels and these are new things to them and it allows us and our account managers to and I think a lot of our account managers are always daily to see the graphs and to see the trends and these are really good trends, both in terms of increase of budgets and performance as it relates to conversion rates and CPA. So, it's early days. It's only $100 million. So, it's still early days, but I'm seeing really good things and they are very happy. So, these clients want to spend time with us and the Yahoo team and this is all good beginning. Where I think it's going is this potentially will allow us to develop new formats and kind of new experiences that those clients are used to getting either historically from Yahoo or on other channels. And I think that might open up a whole new way users would experience sponsored content and ads on its own network, as well as in Yahoo over time. So, I would say, stay tuned for potential UX innovation and formats and experiences that those brand advertisers are looking for that we are yet to offer. So, I do think they might make us even better, those clients. And we try to be humble. We're learning. We're asking questions, and we're spending time with them. But I'm excited mainly by the performance. That's the most important thing. But I'm sensing they would like us to further develop the way we present ads on the open web, and that might affect not only our relationship with Yahoo but whether how we render ads across our entire network, Disney and NBC and the rest of our great partners.

Thanks very much.

Thank you. One moment for the next question. Our next question will be coming from James Kopelman of TD Cowen. Your line is open.

Good morning. Thanks for taking the question. The first one is for Adam. In the letter you referenced the amount of contextual data that Taboola has for AI and deep learning. Can you talk about how you view Taboola's growing data set as a differentiator when it comes to training AI and leveraging generative AI over time? And then I have a follow-up for Steve.

Yes, sure. So, as it relates to just the amount of data we have, I think the most important thing and I speak a lot about becoming the must-buy for the open web. And what I mean by that is, it's a matter of how big is your actual gross revenue and your spend, because this is a good proxy for how reliant advertisers become on you, because you're big enough that it's worth their time to spend money with you. Because again, I think today the ad tech industry is a bit fragmented, or too fragmented for advertisers to rely on you. And I'm looking at companies like Snapchat and Pinterest and X, it's in the $2 billion to $4 billion range and now we're getting into that range. So, I think, first of all, the most important thing to become a must-buy is growing revenue and get that flywheel going so that advertisers want to work with you and it's worth their time. Two, the footprint we have and the code on the page Taboola has, I would argue, is probably the largest in the open web or in the world. I don't know of any company that has a first-party relationship with publishers like Taboola at our site, which really gives us first-party access to everything that takes place on the page, from context to scrolling to clicks to purchases to things of that nature. And I think that's growing exponentially, obviously, with Yahoo. So, this is, I think, one of the most important assets the company has, which is code on page exclusively for long term. And this is what gives us also predictability as a business to know that we don't expect any big shift one way to the other. And then, as we look into Gen AI, I think it's important to kind of reference what exactly is Gen AI can do to the market. Gen AI eventually is going to be a technology that is available to everyone. What's going to make a difference from one company to the other is really the amount of data and the type of data you can prompt into the engine so you can get better outcomes. So, as an example, when an advertiser comes to Taboola and suggests thumbnails and titles for me, we are able to say, well, we've seen, let's take an example, an insurance client comes to Taboola, we're able to say, we've seen a billion dollars of insurance spent over the last few years, and we can prompt that into the engine, and then we're getting really great, kind of authentic and new and original titles and thumbnails we can suggest to the client. So, I think what makes us special here is the amount of data we have, our size, and this is also why I love the Yahoo partnership, and as I mentioned in the letter, there's another iconic consumer brand that is signed and starting to roll with us. All of those will give us more data to prompt into the Gen AI. And we have a senior person leading Gen AI, Taboola now. And I can tell you we're working on very exciting things because I believe that the biggest opportunity Gen AI has to the advertising industry is to simplify the experience of buying ads. Today it's very, very complicated to succeed. And I think Gen AI can make it really simple. So, what's to come is our unique data into Gen AI and producing special creatives that others don't have.

And then for Steve, high level, how should we think about the seasonality of both gross revenue and Ex-Tac in 2024, given the various moving parts around Yahoo, the new unnamed publishing partner, and your typical historical seasonality. And then, finally, I just want to ask about OpEx efficiencies. What are some of the ways that you're able to limit headcount increases this year, even as you scale? Thank you.

So, in terms of the seasonality, so Yahoo is like a very large publisher in our traditional core business. So, I think their seasonality is very similar to our historical pre-connect of the seasonality. So, that's the way to think about adding them to our network. As a company, as we've become more and more fourth-quarter-dominated because of our e-commerce business in particular. And this year, obviously, with the bringing on Yahoo over the course of the year, we'll be more back half loaded than usual as well. But generally, the way to think of seasonality with Yahoo is it's like a large publisher and they have very similar seasonality to other large publishers. They're number one or number two in news, sports, finance, and that is pretty much what the kind of core of our base is. So, that's a way to think about seasonality. In terms of OpEx and how we control headcount here, I think we've shown pretty good cost discipline over the course of the last year. I mentioned in my prepared remarks that our OpEx for Q4 and in fact for all of 2023 would have been flat year-over-year except for the hiring that we did for Yahoo to support that. I would expect that our fourth quarter OpEx space is probably going to be similar to what it is the rest of this year. There may be a slight increase as a result of some additional hiring that we have to do for Yahoo, but we're really working on kind of keeping a lid on costs. And the way we do that is we find efficiencies and we find ways to leverage the people we have to do more. Frankly, we're using generative AI and other AI tools internally now to generate productivity and to improve things. So, for -- and a great example, that is exactly what Adam talked about. Historically, our account managers who support our advertisers used to spend a lot of time helping the advertiser figure out what's a good headline, what's a good creative or image for this ad. Now we have generative AI tools that help them do it, can generate a dozen of them instantly, whereas it used to take a lot of thought and a lot of time to come up with a dozen. So, it's all about productivity, finding ways to leverage your people across more accounts, and I think we're doing a pretty good job of that.

Great. Thanks, guys. I appreciate all the color.

Thanks, James.

Thank you. One moment for the next question. Our next question will be coming from Dan Day of B. Riley Securities. Your line is open.

Yes, morning guys, and thanks for taking the questions. So, this iconic consumer brand that you've mentioned here, possible to say whether it's a traditional open web publisher that you typically partner with, but maybe on a bigger scale. So, you feel like it's worth specifically calling out or maybe like a new type of partner. I'm thinking something like a retail media network or a company maybe new to the advertising business or something along those lines. And then, if there's any prepayment or anything else that could impact cash flow associated with this publisher with.

Yes, we can't say the name. It's not a traditional publisher. So, it's an iconic brand that signed and rolling out to us. I don't think we can mention the name, but I hope we can mention that soon.

Okay, great. So, question, it seems like every week, since you last reported, we're hearing about layoffs at open web publishers, how much this industry is really struggling to survive for a lot of them, especially how they're struggling to generate traffic off search and social and anywhere near the levels they have in the past. So, given you're in part dependent on them generating traffic to their properties, how do you think about that as either a headwind, an opportunity for you to help them through these struggles?

Sorry, Daniel. I missed a part of that question. Can you give it to me again?

Yes, just generally, open web publishers are struggling. A lot of them going through layoffs and struggling to generate traffic. So, just how you think about your role as an ad tech partner here in helping them continue to generate traffic and what you can do there.

Sure. So, I can take this one. So, overall, on our network, we're not seeing any material impact to date. I think also many of our publishers are enterprise big publishers that have a lot of direct traffic. So, to date, we haven't seen any material impact. And then, also, I think this is an opportunity for us because the way we approach working with publishers it's really at the most strategic level, whereby they're able to use our homepage for you to drive homepage personalization. They're able to use our e-commerce business to drive diversification of revenue, subscription. We have mentioned AI to help them kind of personalize a page once users lands on it. And I think if you're a publisher, especially if you're a senior person on the publisher side or a senior product manager, when you think about who do you want to work with, you just want to make sure that you can work with companies that can drive audience growth, because you're concerned about that going down. You want to make sure you work with companies that can increase your engagement with consumers, and then as well as kind of like your ARPU or your lifetime value. So, I think this is such an important differentiation we have. I can tell you I just had a call a week ago with a fairly big publisher from the CEO and the CEO asked me, what about Taboola News? Are we getting Taboola News as part of the deal? And I said, well, of course. And I said, but we have to work for a long time because we can't just put people on and off. And the entire conversation was about added value. It wasn't about CPMs. It wasn't about yields. So, it wasn't about guarantees. It wasn't about redshirt. It was about other things publishers are thinking about. So, this is, to me, such a fun part of my job, as well as an exciting moment that publishers want to work with us because all of the technology investments we make beyond just money.

So Daniel --

Okay, great. Just to -- sorry, go ahead.

Back to your first question about the iconic consumer brand, I checked with our PR folks, and what we're allowed to say is we were selected by Apple as an official advertising partner for Canada and Australia at this point. So, I think that's what we're allowed to say.

Okay, awesome.

Yes, good to hear.

Thanks, guys.

Thank you. One moment for the next question. Our next question is coming from Justin Patterson of KeyBanc. Your line is open.

Great. Thanks for the question. I just want to up level the conversation a little bit around these bigger brands that are opening up like Yahoo originally and now Apple in there. It seems like this is just a new opportunity for Taboola power a lot more of these bigger brands. I guess, one, just what's really changed around that? Was it just Yahoo that opened this door over the past year? And then two, as you've gone through Yahoo, how should we think about just the incremental investment to support more of these brands to win more business and scale up over time? Thank you.

I will start, Justin, because I can't believe the CFO was able to break about Apple. Now, Steve, we are going to have to talk about this afterwards. But obviously we are very excited about Apple choosing to invest into this exciting market. So, to your question I think to me what's fascinating is that, you can already see companies like Amazon and others speaking about advertizing being the second or EBITDA they have. So, the trend is that advertizing is going to become a trillion dollar market. And, I believe board members of all Fortune 500 companies are going to ask their CEOs what is your advertizing strategy because it's too big. And if you reach consumers, it cannot be ignored. Not only that, it can be a fantastic if not one of the most lucrative growth engine for Fortune 500 companies all around the world. Now, I think the way it's going to pan out is that many of these great companies would want to sell directly to the top of the market. We would like to build relationship with enterprise account. However, there are two things that would be missing. One, it's unlikely they are going to sell to tens of thousands or hundreds of thousand's performance made from the advertisers. And the second thing that it is unlikely they will develop a technology that use AI and data and match make between users and ad in a way that works for advertisers to continue to buy. And this is exactly I think where Taboola has an opportunity which I am very excited about. I mean I never knew -- I never thought few years ago, we will be in a position where we will announce a billion dollar partnership with great company like Yahoo And now, Steve stole my thunder. But now, Apple chose Taboola. And I think this potentially can become an opportunity for the company to kind of be this ad engine or call it advertiser in a box for these companies that say, well, we should get a billion dollar or more from the advertizing space. So, I am excited about it. This is more than I ever thought will happen. But I do think it's happening. Again, we are seeing exciting partnership, Pinterest, with Yahoo Netflix, with Microsoft. This is really a whole new beginning in my opinion. And, I hope we can play a big part of it.

In terms of -- sorry.

No, go ahead. Sorry, Steve.

Yes. In terms of incremental investment required to support these types of partnerships, I guess what I would say is the reason I think we are winning some of these great partnerships is because we have invested so much in our performance advertizing capabilities. And while I think we have a long ways to go, I still consider us in the early innings here. In terms of being great, we are well-faceted at it. And I think that's what helps us win these partnerships. Obviously every partnership we do of significant scale has some unique requirement. Yahoo, we are definitely learning from -- as Adam mentioned earlier, we are learning from the advertisers things that they would like. Maybe they got to move it from Yahoo previously. Maybe there is new things we're learning that they would like but they never got from Yahoo, but we could do. So, yes, you always invest something in terms of building capabilities for any large partnership. But it's all part of kind of our core business like as Adam said, we're learning from these advertisers things that they want. We will invest in it that will impact -- then positively impact all of our business not just that partnership. So, while there is investment, it's basically just a way to advance your business. And it's true of all these partnerships that we are signing.

Got it. Thank you both. And from what it's worth, Adam, you still brought the thunder there.

Thank you. Thank you, sir. I appreciate that. And Steve will still get a review after this, but thank you.