Outbrain Inc. (NASDAQ:OB) Q1 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call indicated strong financial performance with a 32% revenue increase and a 98% rise in Ex-TAC gross profit, driven by the Teads acquisition. Despite some risks like debt obligations and cash flow concerns, the company anticipates growth in H2 2025 and has shown resilience in demand. The Q&A highlighted optimism about merger synergies and opportunities in vertical video and CTV. While some management responses lacked specificity, the overall sentiment and strategic initiatives suggest a positive short-term stock price movement.

Key Financial Performance

Revenue $286 million, reflecting an increase of 32% year over year, driven primarily by the impact of the acquisition. On a pro forma basis, there was an estimated decline of approximately 7% for the full quarter, an improvement from a pro forma 9% decline in Q4.

Ex-TAC Gross Profit $103.1 million, an increase of 98% year over year, driven primarily by the impact of the acquisition and a favorable change in revenue mix.

Adjusted EBITDA $10.7 million, representing a greater than 7x increase year over year, despite nascent synergy capture due to the timing of the acquisition.

Free Cash Flow A use of cash of approximately $7 million, negatively impacted by $16 million in acquisition-related costs and restructuring charges. Excluding these amounts, free cash flow would have been a positive $10 million.

Cash and Cash Equivalents $106 million on the balance sheet, with $16 million in overdraft borrowings classified as short-term debt.

Long-term Debt $637.5 million in principal amount due in 2030, with a net balance of $611 million as of March 31.

Net Debt $471 million, calculated as long-term debt net of discounts and deferred financing fees.

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Operating Highlights

Moments vertical video solution: Moments provides an immersive experience of social media’s scrollable format to traditional publishing environments, with over 70 publishers adopting it and delivering close to 80% viewability.

CTV revenue growth: CTV revenue grew over 50% year over year, now representing approximately 5% of total ad spend, with access to over 300 million TV screens globally.

Joint Business Partnerships (JBPs): Closed Q1 with more than 50 JBPs, including commitments from Ferrero, Halion, Philip Morris International, and Beiersdorf, indicating growth opportunities.

Cost synergies: On track to achieve $60 million in annualized cost savings by 2026, with 90% of compensation-related targets already actioned.

Free cash flow: Free cash flow was a use of cash of approximately $7 million, but would have been positive $10 million excluding acquisition-related costs.

Merger with Teads: Outbrain and Teads merged on February 3, forming the new Teads, aiming to create an open Internet advertising platform.

AI integration: Focus on implementing AI across engineering and product solutions to enhance service delivery.

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Risk or Challenges

Regulatory Issues: The company mentions risks and uncertainties that may cause actual results to differ materially from forward-looking statements, which are discussed in detail in their Form 10-K.

Integration Challenges: The merger with Teads presents integration challenges, including the need to align people and systems effectively.

Market Competition: The company faces competitive pressures from walled gardens and other digital advertising platforms, which may impact their market share.

Economic Factors: Advertisers are shortening their planning and buying cycles, which could affect revenue predictability and budgeting.

Supply Chain Challenges: The company relies on exclusive media relationships and unique inventory, which may pose risks if these relationships are disrupted.

Debt Obligations: The company has significant long-term debt of $637.5 million, which may impact financial flexibility and operational decisions.

Cash Flow Risks: Free cash flow was a use of cash of approximately $7 million in Q1, indicating potential liquidity risks.

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Guidance & Outlook

Merger with Teads: Outbrain and Teads merged on February 3, 2025, forming the new Teads, aimed at creating an open Internet advertising platform.

Strategic Partnerships: Closed Q1 with over 50 Joint Business Partnerships (JBPs) with major brands, providing opportunities for growth in new product lines and marketing objectives.

CTV Revenue Growth: CTV revenue grew over 50% year over year, now representing approximately 5% of total ad spend.

AI Integration: Focus on implementing AI across engineering and product solutions to enhance service delivery.

Cost Synergies: Targeting $60 million in annualized cost savings by 2026, with $40 million expected in 2025.

Q2 Ex-TAC Gross Profit Guidance: Expecting Ex-TAC gross profit of $141 million to $150 million.

Q2 Adjusted EBITDA Guidance: Expecting adjusted EBITDA of $26 million to $34 million.

Full-Year 2025 Adjusted EBITDA Guidance: Continuing to expect adjusted EBITDA of at least $180 million.

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Shareholder Return Plan

Share Repurchase Program: The company has not mentioned any share repurchase program during the call.

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Key Q&A

Q:Can you expand on the macro context and how advertisers are scrutinizing budgets? Are you seeing any difference between brand and performance focus?

A:We saw improvements in demand levels from January into March, with no meaningful impact from macro uncertainty. Shortened selling and buying cycles indicate more scrutiny on ad spend, which we view positively. Performance is holding up better than brand, with a breakdown of 70% performance and 30% branding.

Q:How much of the strong JVP wins is a direct result of the new combination versus things that may have been in the pipeline?

A:The growth in JVPs is coming from a combination of the two companies, with excitement about the combined value proposition. We cannot pinpoint the growth directly to the merger, but the response to our combined capabilities has been phenomenal.

Q:Can you speak through the trends in the Teads business and the opportunity with larger clients?

A:The legacy Teads business has seen month-over-month improvement since the merger closure. We believe there’s a huge opportunity to gain more share of wallet from both large and small clients.

Q:When do we start seeing revenue from the positive meetings you’re having?

A:We are looking at returning to growth in the second half of the year, with sales already happening with certain customers. We expect exponential growth in the second half.

Q:Have you seen any reversal in ad agencies advertising on news sites?

A:We have seen more openness from advertisers, with better technology allowing for more selective blocking of content. There’s a positive impact of being associated with credible content.

Q:How do you think Teads would benefit if Google were to divest its ad serving and publisher side tech?

A:The ruling is good for the ecosystem, and while it impacts us less directly, it could provide a headwind to SSPs, allowing us to grow our performance marketing.

Q:What is your strategy for expanding the vertical video product into new publishers?

A:Vertical video is a big category for engagement and brand promotion. We will continue to invest in vertical video opportunities.

Q:Can you provide context around your second-half guidance and adjusted EBITDA progression?

A:We expect low single-digit growth in the second half, factoring in improvements from legacy Teads and early revenue synergies. We anticipate significant cost synergies ramping up.

Q:What is the differentiation of your CTV offering and near-term opportunities?

A:We have exclusivity on home screen placements for certain TV manufacturers, which helps increase our share of wallet. We see a huge opportunity in performance CTV.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer regarding the specific percentage of growth attributed to the merger in the JVP wins, stating that they cannot pinpoint the growth directly to the merger. Additionally, while they mentioned the positive impact of being associated with credible content, they did not provide specific data or examples to support this claim.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

OB Transcript

Outbrain Inc. (NASDAQ:OB) Q1 2025 Earnings Call Transcript

Positive5-10

Outbrain, Inc. (OB) Q1 2025 Earnings Call Transcript

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The earnings call presents a mixed picture. Strong revenue growth and optimistic guidance for H2 2025 are positive, but integration challenges, significant debt, and macroeconomic uncertainties pose risks. The lack of a share repurchase program and unclear management responses further temper enthusiasm. Despite these concerns, the company's strong financial performance and strategic initiatives like AI integration and vertical video expansion offer potential upside. Without market cap data, assuming a balanced reaction, the overall sentiment leans towards neutral, predicting a stock price change between -2% to 2% over the next two weeks.

Outbrain Inc. (NASDAQ:OB) Q4 2024 Earnings Call Transcript

Unknown3-3

The earnings call presents mixed signals: a decrease in revenue and regulatory concerns are offset by positive adjusted EBITDA growth and synergies from the Teads acquisition. The lack of share repurchase and unclear guidance responses add uncertainty. Given the stable CPCs, improved RPMs, and strong cash position, the market reaction is likely to be neutral over the next two weeks.

Outbrain Inc. (OB) Q4 2024 Earnings Call Transcript

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The earnings call reveals several concerning factors: a decrease in revenue, integration risks from the recent acquisition, increased competition, and regulatory scrutiny. Although there is positive EBITDA growth, the lack of share repurchases and unclear management responses in the Q&A add to the uncertainty. Despite some positive indicators like improved gross profit and cash flow, the overall sentiment leans negative due to these risks and lack of clear guidance.

OB Report

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