TBLA - NASDAQ

Good day. And thank you for standing by. Welcome to the Taboola Second Quarter 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 be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jessica Kourakos, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. And welcome to Taboola's second quarter 2024 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. Q2 was another strong quarter, beating guidance on both ex-TAC and adjusted EBITDA and with meaningful cash flow conversion. We saw ex-TAC grow 21% versus last year to $150 million. Adjusted EBITDA of $37 million, growing 138% and free cash flow was over $26 million in Q2, growing 237% and demonstrating 70% conversion from adjusted EBITDA. Not only does this year represent meaningful growth versus last year, it shows our growth rates are accelerating, which is great to see. This is a clear result of our investment in AI, the unique data we have access to, and the laser-focus we have on our strategy and execution. Similar to last quarter, over 100% of our free cash flow was spent on share buybacks, representing our continued commitment to shareholder returns and the confidence in our long-term strategy. With a strong first half of the year, 2024 is shaping up to be a transformational year for Taboola. As a result, we are reiterating our 2024 guidance for ex-TAC, adjusted EBITDA and free cash flow which continues to project meaningful, accelerated growth in 2024 versus last year. And to put things in perspective ex-TAC is growing 25% versus last year to $667 million. Adjusted EBITDA of over $200 million, growing approximately 2x 2023, and over $100 million of free cash flow which is also 2x 2023 levels. 2024 continues to be an important year for us, as we progress towards building one of the most scalable companies in the open web. It’s also setting a strong foundation for 2025 and onwards. When looking at our core business, we have two main focus areas for the remainder of 2024. One, ramping ad budgets now that Apple and Taboola Select are launched, and Yahoo’s advertiser migration is complete. The second priority is making advertisers successful by improving retention rates and growing NDR spend which in return help us grow our yield. Last quarter, I talked about our focus on driving performance advertising and we’ve had clear momentum here, which is reflected in our results and guidance with ex-TAC growth rates improving in Q2 and in Q3. This growth is driven by our focus on premium advertising as a company, while driving results. With the rollout of Taboola Select across our top publishers, Apple now launched, and optimizing our performance on Yahoo, we see a big opportunity focusing on quality moving forward, and bringing those budgets into the open web at scale. Our initiatives to attract Tier 1 brands and agencies showed strong growth year-over-year and accounted for 25% of revenue in Q2. Just this past quarter, we secured commitments from major advertisers in financial services, health and wellness, as well as online publishers which represent multi-millions in ad spend. Additionally, our demand out of China has more than doubled versus the prior year, and shows great traction in the region. Our investments in AI to drive advertiser success are a big part of our momentum. Maximize Conversions, our first AI-powered bidding technology, continues to make significant strides, with adoption now approaching 70% of our revenue, up approximately 10 points from where it was in Q1. Thousands of advertisers are using Max Conversions today and we saw a massive sequential increase of over 100% in the number of advertiser campaigns using this technology. Our efforts are concentrated on enhancing retention rates and increasing budget allocations also known as NDR. We continue to see promising results from advertisers transitioning to Max Conversions, with double-digit NDR growth reported for those who have adopted the platform compared to those who have not. It’s exciting to see more and more advertisers adopting our AI as most of our revenue is performance driven, which means we don’t need to wine and dine people to use our technology. They try it out, if it works they stick around and if not, they stop using it. Looking ahead, we continue to focus on advancing our AI models leveraging our unique data to identify and match users with advertisers, driving results at scale. This type of performance we’re seeing with our advertisers is exactly what the industry needs. You see, in the open web, there is no scalable bridge for advertisers to reach the open web with a focus on performance. And we’re hard at work, making it happen. More about AI and without saying too much, I can tell you that we have a new generative AI offering coming to market soon. We call her, Abby. This product is very impressive. Abby is laser focused on driving advertiser success and addressing a key friction-point for advertisers. We plan to officially introduce Abby in the third quarter, and I suspect you will be amazed by what you’ll see. Stay tuned for updates on this one. Now I know all of you are thinking about Yahoo. So let me give you an update. I’m happy to say we’re done migrating Yahoo’s advertisers and we’re hard at work growing budgets into the second half of the year. We keep seeing good performance from advertisers who have migrated, as demonstrated in one case study featured in our shareholder letter, where a leading hotel group took advantage of Taboola on Yahoo and saw 77% lower CPA than their target goal and 36% lower CPA than the next-best-performing channel. Another great example of our performance on Yahoo is evident in our work with a global technology company that achieved a 130% increase in impressions at a 28% lower CPM year-over-year when compared to similar campaigns. As we increasingly prove our performance with Tier 1 brands and agencies, invest in premium experiences for advertisers with the addition of Apple, Tabola Select, Yahoo and more, it allows us as a company to grow ad budgets across the Taboola network overall. As a reminder, advertiser success drives yield growth which bolsters our competitive advantage, as well as our profitability. Turning now to our growth engines, Taboola News, e-commerce and our bidder. Our product innovation and commercial wins continue to drive good momentum, and it shows in our financial results. In Q2, we signed a significant, exclusive and global Taboola News OEM partnership. This new deal will expand our reach into all global markets, featuring multiple touch points for users to discover news they may like. Our product team is focused on testing new video experiences as well as various new utilities such as weather, sports and others. These enhancements resulted in over 20% increase in time spent on the Taboola News platform compared to Q1 2024. Moving to eCommerce, we delivered another strong quarter. This success is driven by outstanding advertiser revenue retention in our core markets and the expansion into new high-growth advertising channels and international markets. We’re now also seeing growth with creators across various social platforms, coming to us with a desire to review products they’re passionate about and drive performance to our merchants. We call that ShopYourLikes. It is showing amazing potential and it is already contributing to our growth. This early success positions us well to keep growing eCommerce in the years ahead. Moving to our bidding product which is where we use our unique data, AI, and direct advertiser relationships to bid on supply that is not exclusively ours. We had a number of exciting developments in Q2. After successfully collaborating with Microsoft for several years now, I’m happy to say that we renewed our partnership and are excited to expand our bidder technology to capitalize on emerging supply opportunities. Our efforts are now focused on integrating with high-traffic platforms such as Outlook, Casual Games, and Microsoft 365. By extending our technology to these new areas, we aim to enhance our advertising capabilities and deliver even more targeted and effective campaigns across Microsoft’s diverse ecosystem. In summary, 2024 is shaping up to be a transformational year for Taboola, with a strong Q2, beating guidance on both ex-TAC and adjusted EBITDA; reiterating our 2024 guidance for ex-TAC, adjusted EBITDA and free cash flow; and accelerating growth metrics in Q2 and for the year. There is a lot of good momentum in the advertising industry. I believe this market will reach $1 trillion in years to come, with more and more companies around the world looking to tap into advertising in a big way, utility apps, streamers, OEM, and more. While many companies would want to sell to top brands, it’s not easy, and many would want a friend like Taboola to access tens of thousands of advertisers, drive performance to them, and build a meaningful advertising business. We have the size, the tech, the sales force, and the experience to support many, many of them. I often think of it like advertising in a box or advertising-as-a-service, which we can do a lot more over the next five to 10 years as we partner with many great companies. There is a lot of good work ahead of us. It’s a big step up financially and strategically for us and we are ready. With that, let me pass the call to Steve to review our financials and outlook in more detail.

Thanks, Adam, and good morning, everyone. As Adam mentioned, we’ve had a strong first half of the year and are well-positioned to continue this momentum into the second half. Let’s dive into the details of our financial performance. Q2 results were strong and showed accelerating growth across all key metrics. Revenue of $428.2 million grew 29% year-over-year and ex-TAC gross profit of $149.5 million grew 21% year-over-year. Ex-TAC growth in Q2 was primarily driven by an increase in advertiser spend particularly with Tier 1 premium advertisers and growth in the availability of premium supply through our platform. Net loss was $4.3 million, with non-GAAP net income coming in positive at $23 million. Adjusted EBITDA for the quarter of $37.2 million was up 138% year-over-year and reflected a 25% adjusted EBITDA margin. Free cash flow of $26.2 million benefited from the stronger than projected adjusted EBITDA. Q2 operating expenses of $122.4 million were essentially flat with the year ago period, demonstrating our strong focus on cost discipline. Headcount increases were primarily limited to the growth areas of our business. With ongoing expense discipline and strong growth expectations, we continue to expect to approach our long-term adjusted EBITDA margin target of 30% in 2024. The GAAP net loss for Q2 of $4.3 million narrowed significantly from $31.3 million for Q2 2023. Q2 2024 GAAP net loss included amortization of intangibles of $15.8 million, share-based compensation expenses of $15.7 million, and holdback compensation expenses related to the Connexity acquisition of $2.6 million. Excluding those items, our non-GAAP net income of $23 million exceeded the high end of our guidance range for the quarter. In terms of cash generation, we had approximately $38.8 million in operating cash flow in Q2 and free cash flow of $26.2 million. This includes net publisher prepayments, which contributed $23.6 million to cash flow, and interest payments on our long-term debt, which used $3.7 million. Turning to the balance sheet, our net cash balance remains robust. We ended Q2 with a net cash position of $29.5 million, even after share repurchases. Cash and cash equivalents totaled $182.2 million, remaining above our long-term loan balance of $152.7 million. Regarding share repurchases, we bought back $26.7 million of shares in Q2. We still have $66 million remaining under our previously announced $100 million repurchase plan. Our goal remains to at least offset dilution and maintain our share count compared to Q1 2023 levels. At the end of Q2 2024, our issued and outstanding shares were down by 2.7 million shares compared to the end of Q1 2023. For future cash use, we continue to prioritize share buybacks given current valuations, though we will also consider paying down long-term debt if additional cash becomes available. Now turning to the future. I’m confident in the ongoing trends within our business and the capabilities of our team to sustain strong and accelerated growth. We’ve had a solid start to the year and we’re optimistic about the opportunities that lie ahead. Our guidance reflects strong expectations for Q3 and the remainder of the year. We continue to expect yield growth to turn positive in 2024 as we continue to ramp advertising spend due to our advertiser success initiatives and as contextual data increases due to our increased scale. With a strong first half and continued optimism for the year, we are reaffirming our annual guidance for gross profit, ex-TAC gross profit, adjusted EBITDA, and non-GAAP net income. As previously stated, gross profit is projected to be between $535 million and $555 million and ex-TAC gross profit is expected to be in the $656 million to $679 million range. That ex-TAC guidance reflects a 25% increase year-over-year at the midpoint. Our adjusted EBITDA guidance remains over $200 million, and we expect free cash flow to exceed $100 million, representing roughly a doubling of both metrics compared to 2023. We anticipate non-GAAP net income of $84 million to $104 million for the year. We are updating our revenue expectations to $1.735 billion to $1.765 billion, representing a 22% growth at the midpoint. This is primarily due to a test we will be conducting as part of our ongoing collaboration with Yahoo. Specifically, we will be testing some new ad formats on a portion of Yahoo’s inventory to see how they perform for advertisers and how much further financial growth we can generate. During this test period, that revenue will be recognized as a TAC offset rather than revenue. Therefore our ex-TAC will remain approximately the same, but our revenue will be reduced. As I have said many times in the past, ex-TAC is the metric on which we focus and measure ourselves and this change does not affect our expected 25% year-over-year increase in ex-TAC. I would also note that there will be no change to adjusted EBITDA, free cash flow or any other key metrics as a result of this test. For the third quarter, we are issuing the following guidance: We expect revenues to be between $416 million and $446 million, gross profit from $129 million to $139 million, ex-TAC gross profit from $159 million to $169 million, adjusted EBITDA from $42 million to $52 million, and non-GAAP net income from $20 million to $30 million. In conclusion, we are confident in our ability to expand and scale our business while adhering to a disciplined and balanced spending strategy. Our focus is on improving efficiency and profitability, even as we continue to invest in our growth. We believe that our ongoing investments in technology will yield long-term benefits for our publishers and advertisers, which will show up in our financial performance and therefore benefit shareholders. Our momentum is stronger than ever, with key milestones including the completion of Yahoo’s advertiser migration, our ongoing partnership with Apple, and a major new OEM deal for Taboola News. This progress brings us closer to becoming a must buy for advertisers looking to engage with consumers around the world on the open web. And with that, let’s move to Q&A. Operator, can you please open the line for questions.

[Operator Instructions] Our first question comes from the line of Laura Martin of Needham. Your line is now open.

Hi there. Oh my God, what great numbers, you guys. Congratulations.

Thank you.

My first question, so you’re talking about premium, but I would have said, Adam that your entire business was built on these premium news websites. And so when you’re talking about creating premium, this focus on premium, I don’t understand what you’re – are you saying that the ad units are becoming more premium or somehow your latest content you’re signing up is even more premium than the historical news sites that you’ve had as publishers since your beginning? How is the new stuff more premium than the old publishers you used to represent?

Yes. Good morning and thanks for the question and kind words. So I think the way I think about it is the open web is always carries kind of a premium element to it as compared to UGC. You can imagine an advertiser campaign on a social network. There’s always the risk of user generated content above or below it, which is adjacent to it and that’s a risk. And putting your ad on publishers such as Disney and NBC and CBS, I think always carries an editorial voice, which is by definition, has a premium carried with it. So I’m a big believer that will stand the test of time. And it’s important for advertiser community and for consumers. What we’ve been seeing recently with kind of the addition of Yahoo, Apple, and then the launch of Taboola Select, is that if you’re able to create on those great publishers, independent kind of standalone ad units, think of it like a homepage ad unit or others, then advertisers are willing to pay a premium to be kind of on their own. So for that, I think there’s an opportunity for us to attract kind of bigger brands that will pay even more to be just on their own. And that’s a big, it’s now about over 20% of our revenue. And we think we have an opportunity to attract a lot of dollars from brands who historically will not come to us because of that.

Okay. Okay. Okay, that makes sense. And then could you give us just a little bit of a deep dive on what’s going on with Apple? The countries of you in, when you think about, like, the progress you’ve made on the oldest countries with Apple, what have you seen in Apple News in terms of the ramp, in terms of revenue, growth rates? What’s different about the advertisers you’re getting on Apple News? Could you talk about Apple specifically kinds of progress you’re making there?

Sure, I can address that. Hi, Laura. So I think what we’ve announced publicly is that we’re now rolled out in all four countries where Apple News and Apple Stocks are active, which is the U.S., the UK, Canada, and Australia. So that is, while it’s not a global rollout per se, it is everywhere that they operate that business for Apple. And as we’ve said in the past, what we’re basically doing is providing the advertising. So if you swipe right on your iPhone and you find the news app and you click on one of the articles in that article, you’ll see ads that’s usually us. There is NBCUniversal also sometimes provides ads there, but it’s usually us. And then if you go back to the newsfeed in that newsfeed, you’ll see ads as well and those are us as well. In terms of where we are, we haven’t disclosed specifics on the ramp or the financials. What we have said is that it will be a ramp, meaning it’s not a turn it on and you immediately get a bunch of revenue. We actually have to sell demand specifically for this. So to be kind of a ramp over time, we’re making good progress there. We’re excited about it because as you asked about in the first question about premium, it is the ultimate premium experience for advertisers. It’s one of the only ways they can get onto native Apple apps and advertise their products and services. So it’s exciting for advertisers and what we think the biggest impact for our business, we’ve said that we think this can be – Apple can be one of our biggest publishers over time. I say one of, it’s not Yahoo level, but it can be a good size. But it especially helps us sell premium advertisers. And that’s what we’re seeing, getting a lot more premium advertisers interested in our supply.

Yes. But one fun story is that just in Cañon, we spent some time on the Apple team. And if there’s ever a moment when you’re so happy to be proud of your job, as we sit together and they shared how much they’re excited and happy with our partnership, and that was nice to see and also for the team to be in that moment.

Thank you very much. Great numbers, Guys.

Thanks, Laura.

Thank you. Our next question comes from the line of Jason Helfstein of Oppenheimer & Co. Your line is now open.

Hey, thanks for taking question. Two questions. Can you provide the Yahoo contribution in the quarter? I mean, it was $100 million in the first quarter. I mean, if you don’t want to be exact, you can say kind of plus or minus that? And then just any kind of – has your view changed on the contribution for the full year? And then second, you’re not changing the outlook for revenue ex-TAC. Maybe just give some color specific areas you’re seeing. Are you seeing any areas of weakness? We’re hearing some pockets of weakness from other companies in the ad market versus kind of specific areas of strength you’re seeing. Thank you.

Sure. I can start with kind of like high level and then, Steve, you can get into the numbers. So overall, Jason, the Yahoo partnership, we’re very happy. On the one side, I think it’s giving us a special access to support, special access to data. And that’s something advertisers they want to buy and it performs well. I published in the letter some case studies. So I think as it relates to our strategy to keep growing supply that is unique, data that is unique and specifically works for performance advertisers, that’s something that will play an important role not only this year but in years to come. I also think it validates – we just spoke about Apple, but as great consumer companies are considering tapping into the advertising space, Yahoo and Apple and others will play an important role in just validating that Taboola can be a good partner. So from that perspective, I’m happy. I think as it relates to software, I mentioned that advertising migration is finished. We’re seeing great results. Again, we published some case studies. We’re laser focused on making sure that advertisers get to benefit from this partnership. And our main focus in H2 is to growing budgets from advertisers as we get into Q3 and Q4. Steve, maybe you want to speak more about the numbers.

Yes. And Jason, I think we’ve said that Yahoo is part of our core now. We’re not really breaking out numbers there, so we won’t get into real specifics on that. In terms of your second question, though about areas of weakness and strength that we’re seeing, So we continue to see strength in eCommerce. So that’s been kind of an ongoing theme for multiple quarters now where we continued to see increased performance in our eCommerce units, so that’s been a particular area of strength. Obviously, our growth this year is being driven also by the ramp of Yahoo. And so we’re seeing a nice influx of high premium demand, premium demand on our site – on our platform. So that’s been an area of strength, kind of just generally premium. I don’t think that there’s specific areas that I call out that we’re seeing particular weakness. There’s always ups and downs in many areas. So in any given quarter, we have some areas that we didn’t see quite the performance. But fortunately we’re diversified enough that it’s not something that really I would call out has been a particular area of weakness. The one other thing I would say is obviously we see strengths in certain geographies. For instance, China has been a market for us that’s been particularly strong in terms of advertising spend, not for the Chinese market domestically, but more globally spending on U.S. supply and the like. So geographically, we see some strengths and weaknesses as well, but nothing, again on the weakness side that really jumps out.

Thank you.

Thanks, Jason.

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

Good morning. Thanks for taking the question. The first one is for either Adam or Steve. Now that advertisers are migrated and Yahoo is ramping nicely, can you help us think about a normalized growth rate for the Taboola core business or for core plus growth areas like news and e-commerce relative to the historical growth framework that you've provided. And by normalizing I mean, looking at say, 18 to 24 months, what do you see as the ongoing growth opportunity for your combined business over time? And then I have a follow-up for Steve.

Sure. I can address that. Hi James, how are you? Sorry about that. I asked you a question and I talked right over you. But we've said in the past and I think we still feel this way that the way we kind of see our business going forward is that our normalized growth rate should be for our core business. We want to see something in the 10% to 15% range, and we want to see that kind of consistently each year with a lot of that growth coming from increased ad spend and driving higher yields based on all of our investments in advertiser success and the like. So that's kind of our core business. And then we would – we want our growth drivers, Taboola News, e-commerce, bidding or bidded supply to add to that growth and get us more in the 15% to 20% range. So that's kind of how we see our business. So we've got our core growing 10% to 15%, and then we see our growth drivers adding to that on the order of getting us up to 15% to 20%.

Great. And then a follow-up, I guess, also for you, Steve. You mentioned cost efficiencies is a continuing focus. What are some of the biggest factors driving your ability to effectively manage these cost lines as you did so well in the second quarter despite the strong revenue growth?

Yes. So that's a good question. So I think there's a couple of things that's helping with our efficiency over time. So one is some of the new supply that we are bringing on right now is highly scaled supply. So I've said this in the past, for instance, Yahoo being one big publisher for us doesn't take as much to support as the number, the 5,000 smaller publishers that would be required to get to that level of revenue. So just scale of our supply helps. Also, some of the investments that we're doing in our technology platform to help advertisers succeed can help us make more efficient – be more efficient as well. So for instance, we've done some demos of this, and Adam has talked about it, some of the generative AI tools that we have now for advertisers to automatically create creatives and headlines and do a lot of the things that they found difficult previously helps with productivity for the advertiser, helps them do more things on their own, so we have to support them less. So that's helping us with our efficiency as well. And then I think in general, obviously, as we scale the business as a whole, scale just helps you become more efficient on a cost basis, naturally. For instance, we don't need extra engineers to support our core business even as it gets larger because there's a certain baseline level of support that you need and you don't have to scale that up. So the scale itself helps. So I think those are the three areas I'd call out that are kind of allowing us to grow without increasing costs at the same pace.

Great, thanks Steve. Appreciate the extra color.

Thank you. One moment for our next question. Our next question comes from the line of

Hi, good morning. Congrats on the strong results and thanks for taking my questions. First question I had is really, Adam, I wanted to ask, any sort of incremental learnings that you can share just with the migration with the Yahoo advertisers now being complete. I mean, are there incremental formats or incremental, I guess, tools that these advertisers are looking for that maybe you weren't expecting going through the migration. Just curious on any incremental insights you can share on that front? And then I have one follow-up for Steve.

Yes. So a few thoughts on that. One, what we're learning from this size of partnership and working with these great advertisers and to me, really what I'm learning about the industry is that on the back of pandemic recession, the world work going through whatever it's going through, the focus advertisers of all sizes have on performance, just mid-funnel and lower funnel to make sure that whatever money they spend works, it's just unbelievable to me to see. There is no more room for let's spend and hope for the best. Let's get a bottle of wine over dinner and do some RFP. Those days are just gone. You're seeing advertisers of both sizes, you're seeing teams dedicated to understand and measure value of spend. And I think this is, for us, very reassuring as it relates to our strategy to be the performance bridge for the open web and for advertisers of all sizes to be able to spend on this great publishers. So that's one thing. Two, and I mentioned it earlier, we're seeing this opportunity with new formats and new placements in a way that is new to us. In many ways, most of Taboola's business, pre-Yahoo, was bottom of article and most of Yahoo's business is home page and mail and new formats and new placements and that's unique and special, and that helps us understand that different formats, different placements and different environments can create new opportunities for advertisers to reach the open web, still looking for performance. So that's something that's very unique. And as well as look about the future, I think we're going to be laser focused on this type of dynamics where we have more not only just supply, but unique supply, unique data that can perform for advertisers. So I would say premium, unique formats, but mainly the focus of performance from different types of advertisers is now more apparent to me than ever.

Understood. That's helpful. And Steve, just – my one follow-up question is just – really helpful that you gave some insight to this within the script, but can you just talk about the dynamics that you're lowering your gross revenue outlook? It seems like a testing phase with Yahoo. Is that something that will eventually revert back and we will get a much more normalized kind of conversion from gross revenue to ex-TAC gross profit?

Yes. So first of all, yes, it will revert back. So it's a short-term test that we're doing with Yahoo. And as I mentioned in my prepared remarks, we basically are testing new ad formats on some of their inventory to see if we can drive even better yields and even better advertiser performance. And during that test, we're recognizing the revenue as a TAC offset just because of the way that we set up the test, that's the fun of accounting. And therefore, our ex-TAC should not be affected, but it affected gross revenue. And obviously, it doesn't affect adjusted EBITDA or anything else. So it's really just a technical accounting thing related to the way we set up this test with Yahoo. And yes, it will revert back. We haven't disclosed exactly – well, I guess, I can say it should revert back early next year.

Understood. Thanks for taking my questions and best of luck for the rest of the quarter.

Thank you.

Thank you. Our next question comes from the line of Matt Condon of Citizens JMP. Your line is now open.

Thank you for taking my questions. My first one is just on Max Conversions. You guys are approaching 70% of revenue. As this product becomes widely adopted, what are the next key priority, maybe key product priority areas that you guys are focused on, on driving improved yields? And then my second one is just on the renewed partnership with Microsoft in the quarter. I know you guys are expanding to better cover areas? Just what can we expect from this over time from a financial perspective? Or what's the ramp there? What are you guys hoping for? Thank you so much.

Sure. I can start. So from advertiser success initiative, as you know, that's our main focus of the company as we believe there's so much growth for us this year and next years given our unique access to supply already. So one, we're happy to see that the adoption keeps going up from 60% to 70%. That's a significant step-up from the Q1. The second thing that I mentioned in the letter, which is impressive is that not only more advertisers are using it, but the amount of campaigns that are using Max Conversion has doubled. So now you're seeing basically more engagements with clients. You're seeing more engagement on a per campaign basis. And this is all driven by our AI investment. And what we like to see here is essentially two things. We want to see retention rates going up as in it's easier to become a successful Taboola advertiser or client. And we want to see NDR going up, which means that your spend with us is going up over time. I did mention that we're seeing double-digit NDR rising over the last Q1 versus Q2, and that's very encouraging. And as it relates to what's coming after – first of all, we're not done. I did mention Abby, which was a GenAI initiative in my letter. It was a piece that relates to what we believe is a big friction point for advertisers in the ecosystem in general. So we should stay tuned for an exciting Q3, not Apple launching a new iPhone, Taboola launching Abby. So this is all coming up, and that will help advertisers be successful with GenAI initiatives. And then later, we're working on introducing Max revenue, which will allow advertisers to have basically multiple kind of pixel to maximize revenue across a variety of products they may want to sell. This will come after. So we're very hard at work, keep rolling out next conversion. We're going to roll out Abby in Q3. Stay tuned. It's going to be really, really cool. And the next revenue will come after that. So all of those things, what we want to see on track is retention rates and NDRs.

And then to your second question about Microsoft, yes, so we are happy to say that we renewed our partnership with them. The renewal comes with some interesting new opportunities to actually bid on new supply areas that we didn't have access to before, such as Outlook, Casual Games, Microsoft 365. So we think this is a great opportunity. I think we teased this a little bit in past quarters where we said we thought there were some back half growth opportunities with Microsoft. That's what these are. It's basically expanding what we do with Microsoft to new areas. So we think that's exciting, and we're looking forward to having access to that new inventory.

Thank you.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Adam Singolda, CEO, for closing remarks.

Thank you, everyone, for joining us this morning and for your support. As you can sense, we're very excited to close out the first half of the year with another strong quarter with our growth rate accelerating. And as I look ahead, there's a big opportunity for us as there's such a gap in the market for advertisers to reach premium open web and drive results at scale while driving results for and growth for journalism. So I can tell you there's something that I believe is a significant gap in the market, and we are laser-focused on making it happen. So we look forward to meeting many of you and sharing our progress. Thanks for being part of our journey.