Teads Holding Co. (TEAD) Q3 2025 Earnings Call Transcript

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Overview

The earnings call highlights several negative factors: declining sales in key regions, revenue volatility, and challenges with legacy business and cost structure. Despite some positive developments in CTV and cross-sell, the Q&A section reveals management's cautious stance and avoidance of specific future guidance, which may concern investors. The overall sentiment, coupled with the loss of major clients and structural traffic declines, suggests a negative stock price reaction in the short term.

Key Financial Performance

Revenue in Q3 $319 million, reflecting an increase of 42% year-over-year on an as-reported basis, driven primarily by the impact of the acquisition. On a pro forma basis, there was a year-over-year decline of 15% in Q3 due to lower sales in key regions (U.S., U.K., and France) and declining page views on partner sites.

Connected TV (CTV) Revenue Grew approximately 40% year-over-year in Q3 and is projected to reach $100 million for the year. Growth is attributed to the expansion of CTV home screen campaigns and partnerships with major CTV players.

Ex-TAC Gross Profit in Q3 $131 million, an increase of 119% year-over-year on an as-reported basis. Growth outpaced revenue growth due to a favorable change in revenue mix from the acquisition and RPM improvements.

Adjusted EBITDA in Q3 $19 million, reflecting challenges in top-line volatility and operational changes. However, cost synergies from the acquisition contributed positively.

Adjusted Free Cash Flow Year-to-Date $3 million, with a use of cash of $24 million in Q3 due to a $32 million semiannual interest payment. Focus remains on improving cost structure and generating positive cash flow.

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Operating Highlights

Connected TV (CTV) Growth: CTV business grew approximately 40% year-over-year in Q3 and is expected to hit $100 million by year-end. Key pillars include innovative CTV placements, proprietary formats, and cross-screen activations. Over 2,500 home screen campaigns executed, with partnerships expanded to include TCL and Google TV, alongside existing relationships with LG, Samsung, and Hisense.

AI and Algorithmic Advancements: Integration of data science teams and adoption of large language foundational models have improved conversion rates, click-through rates, and campaign pacing. These advancements are expected to drive significant performance improvements in 2026.

Geographic Expansion and Partnerships: Expanded partnerships with major CTV players like TCL and Google TV, providing access to over 500 million addressable TVs globally. Retail media innovation continues to advance, offering enterprise brands simplified access to multiple retail media networks.

Leadership Restructuring: Restructured regional leadership and improved sales team coverage and processes, yielding early improvements in key indicators.

Cost Optimization: Identified efficiencies to improve financial profile, aiming for $35 million annualized adjusted EBITDA benefit starting Q4.

Merger Integration and Synergies: Progress made on integration and synergy realization, with $14 million in Q3 cost synergies and a $60 million annual run rate target for 2026.

Strategic Focus Areas: Focus on connected TV growth, deepened relationships with agencies and brands, expansion of performance campaigns, AI advancements, and profitability in direct response business.

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Risk or Challenges

Merger Integration Challenges: The integration of two scaled organizations has been complex, leading to operational difficulties and challenges in achieving synergies.

Dynamic Ecosystem and Competition: Shifting traffic patterns across the open Internet and increasing competition on the demand side are creating challenges.

Macro Volatility: Economic uncertainties in certain geographies and verticals, along with shorter planning cycles, are affecting business pacing.

Declining Page Views: Lower page views on premium publishers and volatility in programmatic supply are negatively impacting revenue.

Operational Changes in Key Regions: The U.S., U.K., and France, which represent about 50% of revenue, are experiencing lower sales rates, creating headwinds.

Legacy Business Challenges: Strategic decisions to deemphasize certain components of the legacy Outbrain business, such as DSP and DIY platforms, have led to larger-than-expected revenue declines.

Short-Term Revenue Volatility: Volatility in top-line revenue is expected to continue in the short term, impacting financial performance.

Cost Structure and Efficiency: Efforts to improve cost structure and efficiencies are ongoing, but the timeline for realizing benefits is longer than anticipated.

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Guidance & Outlook

Connected TV (CTV) Growth: CTV business is expected to hit the $100 million mark by the end of 2025, with continued growth of approximately 40% year-over-year. The company plans to expand its CTV home screen product and cross-screen activations, leveraging partnerships with major CTV players like TCL, Google TV, LG, Samsung, and Hisense.

AI and Algorithmic Advancements: The company is accelerating its AI and algorithmic capabilities, including the adoption of large language foundational models for advertising. These advancements are expected to drive significant performance improvements across the advertising lifecycle, with a promising trajectory for 2026.

Operational Efficiency and Cost Optimization: Plans to refine organizational structure and processes to enhance agility and accountability, alongside identifying efficiencies to improve financial profile and long-term cost structure. These measures aim to deliver meaningful incremental EBITDA and positive cash flow.

2026 Growth and Profitability Strategy: The strategy will focus on five key pillars: CTV growth, deepened strategic relationships with agencies and enterprise brands, expansion of performance campaigns with enterprise clients, algorithmic and AI advancements, and enhanced profitability in the direct response business.

Q4 2025 Guidance: Ex-TAC gross profit is expected to range between $142 million and $152 million, with adjusted EBITDA projected between $26 million and $36 million.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you unpack the headwinds in the quarter, including degradation in search traffic and macro headwinds?

A:The CEO and CFO explained that the headwinds were due to a combination of factors, including distractions from the merger, execution challenges, and weakness in certain geographies and verticals. They noted demand volatility, slower-than-expected impact from operational changes, and shorter planning cycles by advertisers. However, they also highlighted growth in some regions, stronger cross-sell, and CTV as positive developments.

Q:What is your willingness to take steps to protect free cash flow if things don't materialize?

A:The CEO stated that they are committed to generating positive free cash flow and have a transformational plan to focus on growth areas. They aim to generate a minimum of $35 million in incremental EBITDA through transformation and cost efficiencies.

Q:Can you provide insights into the confidence level for 2026 and the pace of improvements?

A:The CEO and CFO avoided giving specific guidance for 2026 but mentioned positive indicators such as growth in CTV and cross-sell. They noted early returns from operational changes and emphasized that improvements will take time, with some benefits expected in Q4 and into next year.

Q:Why did you lose several big clients and $5 million in revenue from them?

A:The CFO explained that changes in supply and content rules impacted a small group of customers, leading to a $5 million Ex-TAC impact. These changes were deliberate as part of a move to a more premium network, and the company does not expect this revenue to return.

Q:What is causing the decline in traffic, and is it structural?

A:The CEO noted a 10-15% decline in page views for traditional publishers, partly due to AI summaries and changes in discovery. He emphasized that the company is offsetting this decline with improvements in RPM and partnerships with publishers to increase engagement.

Q:What are your expectations for free cash flow positivity and the timeline for sustainable free cash flow?

A:The CFO stated that year-to-date adjusted free cash flow is positive, and they expect the year to be around breakeven. They are implementing a $35 million EBITDA improvement plan and optimizing cash taxes and other areas to ensure cash flow positivity.

Q:What are the assumptions behind the Q4 Ex-TAC gross profit guidance?

A:The CFO explained that the guidance reflects caution due to demand volatility and shorter planning cycles. October showed some improvement, but headwinds from Q3 are expected to persist. Positive factors include growth in CTV and cross-sell, but the overall guidance is conservative.

Q:Review of Unclear Management Responses

A:Management avoided giving specific guidance for 2026, using vague language about positive indicators and emphasizing that improvements will take time. They also did not provide a clear breakdown of the impact of AI on traffic decline or detailed plans for addressing it.

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Earnings Word Cloud

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

TEAD Transcript

Teads Holding Co. (TEAD) Q3 2025 Earnings Call Transcript

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