Outbrain Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 10 speakers on the call.

Operator

Good morning,

Speaker 1

and welcome to the Outbrain Inc. 1st Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Speaker 1

Now, I'd like to turn the call over to Outbrain management team.

Speaker 2

Good morning, and thank you for joining us on today's conference call to discuss Outbrain's Q1 2023 results. Joining me on the call today, we have Outbrain's Co Founder and Co CEO, Yaron Galai Co CEO, David Kossman and CFO, Jason Kabiatt. During this conference call, management will make forward looking statements based on current expectations and assumptions. These statements are subject to risks and uncertainties that may cause Actual results could differ materially from our forward looking statements. These risk factors are discussed in detail in our Form 10 ks filed for the year ended December 31, 2022, and in subsequent reports filed with the Forward looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements.

Speaker 2

Today's presentation also includes references to non GAAP financial measures. You should refer to the information contained in the company's Q1 earnings release for definitional information and reconciliations of non GAAP measures The comparable GAAP financial measures. Our earnings release can be found on our IR website, investors. Outbrain.com under News and Events. With that, let me turn the call over to David.

Speaker 3

Thank you, McKenna. In Q1, we exceeded the guidance we provided, delivering $52,200,000 in Exaxe gross profit And positive adjusted EBITDA of $700,000 In what is still an uncertain macro environment, we are focused on 1st, driving growth of usage and better performance in our current marketplace and second, growing our addressable market both on the advertiser side and the publisher side to a focused product and technology led strategy, while maintaining I will start with the macro environment where the outlook continues to be Uncertain. The softness in advertising budgets continues. From a geographical perspective, we are seeing Some more favorable trends on advertiser budgets in Europe versus a more cautious approach in the U. S.

Speaker 3

From an industry perspective, We are encouraged by the accelerating trend of advertisers from enterprise brands to performance marketers increasingly making budget decisions Based on measurable outcomes driven by user attention and engagement and leveraging contextual data. This is why for the last few months, we've been accelerating our focus helping enterprise brands deliver We believe that we are well positioned to deliver on this market need, Thanks to our heritage and strength in predictive AI based performance. We've been working with some of the top global agencies on validating our unique selling proposition and testing it on our platform. We are encouraged by the initial signs And we'll be making several announcements regarding this product launch in the coming weeks. In order to support our efforts in these growth areas, we've also announced Several organizational changes such as the appointment of Anjush Tore, the former Founder and CTO of ZEMENTA, Who has led Outbrain's recommendations and data science department for the past 4 years to also become Chief Product Officer And worked closely with our new CTO, Yonatan Mamman, who has led our engineering organization for the past 5 years.

Speaker 3

We have also announced several changes in our business organization under the new leadership of our CRO, Alex Erlmeier, Who previously led our international business to ensure the right focus on our growth areas with teams in local markets, while at the same time consolidating into hubs certain segments of advertisers and publishers to better serve them with centralized know how Andraj, Yonatan and Alex have each been with us for over a decade. With that, I will move to the publisher side of our business. We continued to solidify our position with Premium Publishers globally. We signed several new deals, including an emphasis on financial publishers with Fortune, Entrepreneur and CoinDesk. We renewed multi year deals with several anchor premium publishers including The Washington Post, Le Monde in France at the end of Q4, ANSA in Italy, Hearst and Pocento in Spain and Orange in France.

Speaker 3

We remain focused on premium publishers We believe the trust they've built with the audiences on the open Internet leads to a deep and meaningful relationship with the readers, which is a flywheel for a better user experience and better attention and engagement moments for advertisers. On the product side, our publishers are enjoying the constant architectural improvements we are making to Smart Logic, Such as optimizing the experiences, reducing widget latency, which is expected to increase revenue. They also continued the adoption of new products and capabilities to optimize the performance on their properties. An additional growth driver is the increase of in article integrations to header bidding or code on page. In Q1, we added about 70 of such in article integrations, which is also an important part of our enterprise brand strategy.

Speaker 3

On the non publisher supply side of the business, Which includes our direct to device partnerships that we highlighted as one of our growth drivers, we also continued to expand. And in the last Few months, we signed partnerships with Smart News, Flipboard, Quora and others, enabling us to expand our advertiser campaigns to such platforms, Leveraging our real time bidding capabilities that optimize the engagement and performance. In Q1 2023, these partnerships contributed Approximately 10% of our revenue. On this front, we are particularly excited about the launch of Uptay News, And an access point of company on Samsung devices in the U. S.

Speaker 3

Replacing the existing user provider. Through our partnership with Update, we'll now also be able to access that highly valuable inventory for our advertisers. Moving to the advertiser side of our marketplace. I refer to the macro trends impacting demand and resulting in stable, but still lower CPCs than last year. On our end, we continue to improve the programmatic access to our network.

Speaker 3

In Q1, we fully integrated our performance DSP, ZAManta, into our core, such as all our advertisers can select the platform of their choice to access the outbreak supply and our extended network of supply via the Dementa platform or through our Amplify dashboard. We are also leveraging many of the AI driven ROAS improvements in our Amplify dashboard into our programmatic Marketplace. We are seeing some promising success stories for our advertisers, and we believe that we could see significant further scaling the use of the ZEMATA technology for our core advertisers. Bringing together our investment in AI and CBS Conversion Beat strategy, I wanted to highlight the results of 1 of our customers who have built 1 of the world's top selling language learning apps. They used Outbrain's title suggestions, a tool powered by AI technology that automatically suggests the titles by scanning The brand landing pages alongside conversion bid strategy, which resulted in an improvement of 20% average click through rate And a 20% conversion rate improvement.

Speaker 3

The combination of these products resulted in quality leads And a more effective use of campaign dollars for Babble's team. Another growth driver we highlighted and are excited about is our video business, which includes the VI acquisition and our Outstream video product. In Q1, we saw significant new wins With VI's smart video product, including Der Spiegel and Apte in Germany, ANSA in Italy and Evening Standard in the UK. These represent just a few examples of the new in article placements won in Q1. Alongside More than the 190 implementations of the BI product in existing outbound publishers.

Speaker 3

The power and impact that video experiences can have In capturing attention and driving engagement is one of the keys for the future of our enterprise brand strategy. To sum it up, we are pleased that we exceeded our guidance for Q1 and considering the macro headwinds we are proceeding with caution. We are focused on product and technology led improvements of the performance of our marketplace and in growing our addressable market for particularly our offering for enterprise brands. At the same time, we are maintaining cost discipline across the company consistent with our previously stated objective of generating positive cash flow in 2023. I'll now hand it over to Yaron.

Speaker 4

Thanks, David. Times like this are the perfect opportunity to keep inventing and innovating around product, Algorithms and AI. I want to highlight a few of the areas where we brought new innovations to our platform during the last quarter. Let's start with the algorithms. On our last call, I shared some of the progress we made on the algorithmic side during 2022, culminating in a 9.5% improvement of our yield potential.

Speaker 4

This is based on our internal AD testing of algorithms. While these improvements were muted in last year's numbers due to the macro demand challenges, They are spring loaded, so to speak, into our platform. During the Q1, we released 5 new algorithm updates, which are internal indicates it further improves our RPM yield potential by another 2.7%. Here are two examples. First, we released a new exploration strategy based on what academics call Wilson's score interval, which improves the efficiency of how our system tests This algorithm allows us to save ad impressions that were previously used for testing ads and instead serve 2nd, we doubled the number of model parameters in our online prediction algorithm And boosted the throughput of predictions we can process to about 1,000,000,000 predictions per second.

Speaker 4

We've done that while maintaining a very low latency of processing These are just two examples of 5 algorithm upgrades we released in Q1. When advertiser demand is robust, we expect the 2.7% increase in yield potential to continue compounding our results on top of the previous upgrades. Switching gears to serving efficiency, which is another example of how we're using these times to innovate by improving our operating model. We've been intensely focused on reducing our cost of sales, while maintaining our serving capabilities and RPM yield levels. As a reminder, the majority of our data center capabilities are operated by us in house with a certain footprint on public clouds like Microsoft Azure.

Speaker 4

We find the speed much more cost efficient at our scale than relying on public clouds. But more importantly, It allows our engineers better control and the ability to better optimize serving our architecture for our specific needs and for efficiency. In Q1, we released a new framework that calculates in real time the revenue potential of each ad we serve. And based on that, it dynamically allocates more or less Compute resources for handling that specific ad. We started implementing this on some of the ads we serve and initial results are showing an approximately 10 Saving on cost of sales on those specific ads without a noticeable impact on RPM.

Speaker 4

In fact, we believe that over time this Technology may help us increase RPMs by allocating more compute resources to those specific ads with the highest potential of driving high RPMs while staying disciplined on cost of sales. Lastly, AI is obviously an area we're very focused on. I spoke about this in more detail last quarter and our engineers are obviously exploring multiple ways of leveraging AI on our platform. As I mentioned previously, we've been using our AI solutions for a while to assist advertisers with scaling headline creatives. David mentioned Babble is one example of an advertiser successfully using this technology to achieve better outcomes.

Speaker 4

We've now built a more robust solution that includes AI headline creatives from OpenAI's Chat GPT. And by April, about 50% of the ad headlines we've suggested to outbrain advertisers were originating from ChatGPT. Another area our engineers have been focusing AI efforts on is predictions of ad viewability. Late last year, we started including our AI predictive viewability within programmatic channels. As David mentioned, viewability is an important factor for We're either building or evaluating AI solutions on areas such as code writing And automated code review testing with solutions such as GitHub Copilot on image creation and enhancement for ad images, And with that, I'll hand it over to Jason to cover our financials.

Speaker 5

Thanks, Yaron. As David mentioned, we beat our Q1 guidance for both ex TEC gross profit and adjusted EBITDA. From a demand perspective, we experienced a continued soft but fairly normal pattern in Q1, with strengthening demand over the course of the quarter in both Europe and the U. S. The early portion of Q2 has remained volatile.

Speaker 5

We've seen a softer start in the U. S. And more relative strength in Europe. Revenue in Q1 was approximately $232,000,000 a decrease of 7% year over year on a constant currency basis and 9% on an as reported basis. The decrease year over year was driven primarily by lower yields as we continued to lap a prior year period that was not meaningfully impacted by the headwinds on advertising demand affecting our These headwinds were partially offset by growth via new supply partners.

Speaker 5

New media partners in the quarter contributed 11 percentage points Approximately $29,000,000 of revenue growth year over year, which compares favorably to the approximately 7 points of growth from new media partners that we have averaged in 202020 20 Net revenue retention of our publishers was 80%, reflecting the continued impact of the demand environment on yields, which drove the majority of the decline year over year. Our churn remains very low by our standards and our 3 largest churns year over year contributed just 4 total points of net revenue retention headwind in Q1. As another data point, our logo retention was 95% for all partners that generated at least $10,000 in Q1 2022. Extech gross profit was $52,200,000 a decrease of 17% year over year on a constant currency basis and 18% as reported. Consistent with what we've seen in the past several quarters in this environment, the steeper decline of ex pat gross profit year over year versus revenue was driven by An unfavorable mix of revenue lower performance on certain media partners driven in part by the demand headwinds we're seeing, which impacts a portion of our take rates with certain partners And the impact of onboarding and optimizing significant new supply partners, which is challenged by the weaker than normal demand environment.

Speaker 5

Moving to expenses. Operating expenses decreased approximately $3,400,000 year over year to $50,500,000 in the Q1. The decrease is driven largely by lower personnel related costs coming from lower headcount year over year, favorability of FX rates and lower variable compensation. This was partially offset by higher bad debt expense and higher severance costs, the latter of which relates to some of the organizational changes that David referred to To prioritize the efforts of our team, as mentioned in previous quarters, we implemented a series of cost reduction efforts to adjust the current business headwinds. And as we said in the prior quarter, We plan to keep our expenses essentially flat over the remaining quarters of the year.

Speaker 5

We finished Q1 with a headcount of approximately 9 70 FCEs, which is down 4% year over year and down 8% since we began the cost reductions in Q2 of last year. We Continue to focus on driving greater efficiencies in our operations and as noted in the prior quarter, headcount accounts for around 70% of our operating expenses. As a result, adjusted EBITDA was approximately $1,000,000 in Q1. Moving to liquidity. Free cash flow, which as a reminder, we define as cash from operating activities less CapEx and capitalized software costs, was a net use of cash in the period Approximately $27,000,000 The use of cash was primarily due to significant slowdown in collections of customer receivables, Driven most meaningfully by the sudden closure of Silicon Valley Bank in March.

Speaker 5

Upon the news, we asked customers to hold payments for over a week Until we were able to set up supplemental operating accounts at additional financial institutions. We have regained full access to all of our funds held at the bank And collections in April have returned to more normal levels as we switch over customers to the new accounts. We estimate around $15,000,000 as the temporary impact of reduced cash and cash equivalents on our balance sheet as of March 31, resulting from this and other operational challenges impacting collections as of the balance sheet date. As these issues have been resolved, we expect the DSO and cash balance to normalize to our historical levels in the coming months. So while it impacted our cash flows for Q1, we do not expect it will impact our cash flow on a full year basis.

Speaker 5

As we said, our objective is to achieve positive free cash flow for the year. As a result, we ended the quarter with $318,000,000 of cash, cash equivalents and investments in marketable securities on the balance sheet $236,000,000 of long term convertible debt. On April 14, we repurchased $118,000,000 Aggregate principal amount of the convertible notes for approximately $96,200,000 in cash, including accrued interest, Representing a discount of approximately 19% to the principal amount of the repurchase notes. We view the opportunity to repurchase The debt at a considerable discount to be opportunistic, given the strength of our balance sheet with the remaining cash balance that retains In December, The company's Board of Directors authorized $30,000,000 share repurchase program, incremental to the $30,000,000 program fully executed in 2022. We began executing the new program in Q1, though we temporarily paused share repurchases upon the news of STV's closure and due to our purchase of the convertible notes in April.

Speaker 5

We are monitoring closely as our cash collections normalize, and we continue to believe it is an attractive way to enhance shareholder value under current market conditions. Now turning to our outlook. As discussed today and in prior quarters, visibility to advertising budgets remains limited. In our guidance, we assume that current macro conditions persist with no material deterioration or improvement, regular seasonality and as noted in the prior quarter, Continued execution of our growth drivers such as optimization of new supply partners, algorithmic improvements, expansion of our video and full funnel offerings And attracting new partners. With that context, we have provided the following guidance.

Speaker 5

For Q2, we expect Ex TAC gross profit of $52,000,000 to $55,000,000 and we expect adjusted EBITDA of $500,000 to $1,500,000 We maintain our previous full year 2023 guidance provided at the beginning of the year of at least $237,000,000 of ex pat gross profit and at least $28,000,000 of adjusted EBITDA. Now, I'll turn it back to the operator for Q and A.

Speaker 1

Thank you. At this time, we'll be conducting a question and answer A confirmation tone will indicate your line is in the question Our first question comes from the line Ashweta Khajuria with Evercore ISI, please proceed with your question.

Operator

Okay. Thank you for taking my questions. Jason, for the guidance that you've provided, Could you please help us think through the cadence for the rest of the year when it comes to EBITDA as well as revenue ex DAC Growth rates, specifically, the 2nd quarter EBITDA guidance came in lighter than we would have thought. So anything to call out there and how you're Thinking about driving profitability in the back half and the same thing for top line growth. Thanks a lot.

Speaker 5

Hey, Shweta, sure. So I think we mentioned on our call last time and just tried to reiterate on the prepared remarks just now that Our plan is to keep the expenses pretty flat each quarter of the year. And if you look back at the last 5 or 6 quarters as well, You'll see that we've been on a cash expenses, meaning ex tech minus EBITDA equals cash expenses Basis, we've been pretty flat around $51,000,000 to $52,000,000 of cash expenses. And Our intent is still in our guidance now to keep the cash expenses flat over the course of this year. So the EBITDA growth really in the toward the end of the year is coming from the ex TAC growth, right?

Speaker 5

And so just to talk to that for a moment, We do have our normal kind of process here for forecasting, which is considering trends In the first part, obviously through Q1 and the first part of Q2, using current FX rates, which for us is April, normal seasonality is And flat macro, meaning not an improvement and not a deterioration from what we've seen so far. And on top of that, our growth levers, right. And so we've talked about a little bit, I think, on the last couple of calls, but just what they are is scaling our Supply growth through new partners, I think David touched on some of the exciting kind of new platforms and partners that we're opening ourselves up to now. Obviously, Yaron talked to some of the algorithmic improvements that we have and we're continuing to invest there and see fruit That we expect to grow more over the course of the year and also notably the expansion of our video And full funnel offerings and mid article placements as David talked about today. So those are some of the things we expect to grow really more over the back half of the year and keeping expenses That's essentially the cadence that we expect.

Operator

Okay. Thanks, Jason. And go ahead.

Speaker 3

Shanta, maybe just to add, I mean, on 2nd quarter, the way we're looking at EBITDA is pretty much in line with our internal plans. I know that some of you have still higher numbers, But what we have for us is not a surprise. I mean, pretty much, our plan, we never gave specific guidance for Q2, and that we're maintaining the guidance for the year.

Operator

Okay. That's helpful. Thanks, David. Jason, just a follow-up on your prior comments. Any way to quantify the impact of the growth drivers in the back half in terms of contribution.

Operator

And that's it for me. Thank you.

Speaker 5

Sure. So not to give specific numbers, but maybe Order of magnitude, not one of those four things that I listed is really the lion's share, but the biggest if you combine The kind of video expansion and growth of the upper funnel enterprise brand strategy that David talked about that probably be the largest. Number 23 would be scaling Our supply and also adding additional new suppliers. And then Algo, number 4, that's been our biggest driver over the last couple of years Combined, but as we've noted in this demand environment, it's just not as impactful despite the lift that we see in our AB test. So keeping that as I have the smallest of the 4 right now.

Operator

Okay. Thanks, David. Thanks, Jason.

Speaker 1

Thank you. Our next question comes from the line of Andrew Boone with JMP Securities. Please proceed with your question.

Speaker 6

Hi, guys. Good morning and thanks for taking my questions. I wanted to ask 2. The first just on tick rates. We've seen a couple of quarters now where it's been below kind of 2021 levels.

Speaker 6

Is there anything structurally that changed in the contracts over the last Kind of 2 years of the ad market was just higher where we should think about take rates now being lower just given higher maybe guarantees that are in there. Is there anything else to call out in So take rates. And then in terms of existing publishers, can you just broadly speaking talk about the path back to 100%. Is this just Comp's getting easier. What else can you guys do to drive existing publishers back to that 100% level that you guys had so consistently before?

Speaker 6

Thanks so much.

Speaker 5

Thanks, Andrew. So maybe I'll start. So just on the take rates, nothing has changed As far as contract terms or anything like that, we still I think we've said in the past around 20% of our revenue is subject to Minimum RPM revenue guarantees, that's still the same vicinity as it's The things that have driven it down have been obviously, we've been saying the same thing for a few quarters as we continue to lap The period that's not affected by the headwinds, but it's in the mix. Some of the Exciting supply we won, not to speak to anything individually, but maybe at lower rates Some different segments or geographies, obviously, macro is playing the biggest factor in the supply and demand No imbalance that we continue to see in this environment. And obviously, the new Kind of taking time to scale.

Speaker 5

I mean, those are the things that have brought it down. Those are also the things that will bring it back up. We do have downside protections on these generally. There's not like an unlimited risk and I don't expect these to go down materially further versus the current levels that they're at. If we get back to the levels from a couple of years ago, Probably we'll take some level of macro recovery, but there's definitely things in our control to drive them higher.

Speaker 5

Obviously, the algo improvements, expansions of segments with higher take rates, and we do expect some of that to happen over the tail end of this year, Particularly video expansion, which drives higher margins for us and also higher better seasonality generally in the end of the year versus the beginning of the year. We have higher take rates at the end of the year versus the beginning of the year. As far as retention, again, we're still kind of lapping this Challenged period. So I think as we kind of get into the back half of the year, we'll have an easier comp and not expect to be the The same 80% range that we've been. We did see some improvement from the prior quarter.

Speaker 5

Obviously, I think it was 74% last quarter versus 80% this And that's really driven by some improvement in pricing and also improvement in click through rates that we've seen kind of each month of Q1, we've seen improvement And again, not churn driven, logo retention, I said 95%, The largest returns combined was under 4%. So again, as we get towards the back half of the year, I think the comps will use and we'll be able to see more growth Through how we used to grow through land and expand.

Speaker 6

Thank you.

Speaker 1

Thank you. Our next question comes from the line of Ross Sandler with Barclays. Please proceed with your question.

Speaker 7

Hey, guys. Just two questions. David, these new senior management changes or appointments,

Speaker 3

Can you just give us

Speaker 7

some more color on overall strategy and how this new structure better equips And then Yaron, the 10% efficiency improvement for ad serving, that data point is pretty interesting. Just broadly, how is AI helping with efficiency or The productivity of your engineering team, just any high level color on this cost savings As a strategy or is it just shipping product quicker using like these new Copilot tools and stuff like that? Thank

Speaker 3

you. Hey, Ross. Good morning. I'll take the first one. So on the senior management, it's about It was about generally about timing of promoting the right talent from within to new positions.

Speaker 3

You can see that there is And this is a little bit more on programmatic. So, Andras, who's been he was the Founder and CEO of Zemento, very Strong on programmatic and Algo AI machine learning, so we wanted to emphasize that and push it more into the product. This is why we also gave him the responsibility for the product organization and Alex has led our international business, which is more brand focused than the U. S. Business.

Speaker 3

And right now, we're pushing very hard on the enterprise brand front. So we believe that his relationships with agencies, brands and his understanding of the business And just generally, it was the right time to make some changes and refresh management for the next few years.

Speaker 4

Hey, Ross. Hey, Ron here. I'll take the second question. So first, the cost of sales I made before. The way what our engineers did is deploying AI predictive technologies To try to predict on the fly in real time how valuable each one of the ads that we are about to serve is for us and for the publisher.

Speaker 4

And based on that AI predicted kind of valuability, we in real time, we deploy more or less Compute resources. So it really affects our actual ad serving and data center capacity. And so for ads that are predicted to be lower of lower value, we use less compute data center resources and those That are more valuable, we use more resources. And for those ads that we served through this architecture, We've seen about a 10% savings in cost of sales. So we think that's a very exciting use of kind of AI predictive model.

Speaker 4

In terms of where else, I'd say our engineers are pretty much all over this in many different directions. I did mention briefly, code writing is Probably something that will be assisted. It's going to continue being human engineered. We still don't see anything on code writing It is replacing software human software engineers anytime soon, but assisting in writing code more efficiently and faster, I think, is exciting for our engineers. In terms of code testing and review, that's an area where we think we can have the engineers be much more efficient and have much more And a robust and fast code review testing using AI.

Speaker 4

And then on pretty much everything you can imagine on generative I mentioned that on headline or ad creative generation, we now deploy chat GPT on about 50% of Headline suggestions for advertisers and we think there's much more to do there. And the areas we're exploring not deployed yet, but We're exploring our on the image generated AI for ad creative. So I'd say the answer is all of the above.

Speaker 3

Plus, I happened to be in Israel a couple of weeks ago, and we had a hackathon of all our engineers globally doing competition around ideas and It's like top 3 and it's a very exciting thing. Everyone is embracing it across all the dimensions. Yaron mentioned and I think it's going to be a

Speaker 1

Thank you. Our next question comes from the line of Laura Martin with Needham and Company.

Speaker 8

Just continuing on that really interesting generative IA question, Yaron. Is there your cost control was really excellent in the quarter, but doesn't this generative AI work you're doing actually add costs? Or does it I mean, are you talking about cost savings and

Speaker 1

the new

Speaker 8

content capabilities that generated AI? But doesn't it add isn't it Costly doesn't add cost to this stuff or am I wrong about that?

Speaker 4

And besides, how much compute resources to dedicate or to take off each one of the ads that we process, so that's on cost of sales. On the generative AI part like the CheckTBT headlines and things like that, the way we view it is ROI driven. It's about creating many more variations of the ads, which feeds into the algorithms, which allows us to drive higher click rates And higher yield. So the way we do that is really ROI based and obviously a bunch of it takes investments, but if the return is there, we'll deploy it and if

Speaker 9

not, not.

Speaker 8

Okay, interesting. And then, Jason, one for you. In terms of Cash allocation. So your free cash flow is negative $27,000,000 but I noticed that you still bought in $3,000,000 worth of shares. So my question is, talk to me about cash allocation.

Speaker 8

Since it feels like you really need cash for the business right now, Why would you be shrinking your shareholder base at the same time, please?

Speaker 5

Sure. So maybe I'll start and David, if you have anything to add, feel free to chime in. But just to clarify, Larry, we actually it was $6,000,000 of cash that we spent on share repurchases in Q1. Again, we're considering Market conditions and pricing and everything, we do feel it is accretive for our shareholders. Obviously, you have to weigh the context of the environment and our trends on the business and all of that as well, which we'll continue to do.

Speaker 3

Yes. I think, Laura, we do believe it was the right use of capital. We have Significant amount of cash on our balance sheet. We are, according to our plan, planning to be cash flow profitable this year. So I I think this is not the right use for shareholders.

Speaker 3

And we are also excited about the Baupost buyback where we managed to Buy back half of the debt at very attractive financial terms, and we believe that shifts the value from sort of That paper into the equity holders of the company.

Speaker 1

Thanks very much. Thanks, guys. Thank you. Our next question comes from the line of Yigal Arunyan with Citi. Please proceed with your question.

Speaker 9

Hello? Can you guys hear me all right?

Speaker 5

Yes, we can hear you now.

Speaker 9

Okay. Great. Thanks. I guess just first question, just quickly, give us a little bit of an update on Keystone, What the progress has been and some of the trajectory we could expect there?

Speaker 3

Maybe I'll take that. Thank you, Ron. This is problematic. On our last call, we mentioned that we had 3 more publishers, 2 in the EU and 1 in Japan. I would say that since then we deployed the Codon page of Keystone on 2 more new publishers and we see a healthy pipeline of those.

Speaker 9

Okay, thanks. Sorry, there's some background noise there. I hope it's not coming through on your end. Just think about Last year's pace of large publisher sign ups,

Speaker 3

which has slowed a little bit

Speaker 9

this year, Actually, we need to be thinking about how you guys are focused on the integrations there versus looking to And this year and how that changes over the course of the year and into next year?

Speaker 3

I'll take that one. So last year was a record year of premium publisher wins. And as we said, we are very, very focused On the premium side of the market, because we also believe it does support sort of the that we're having now to more premium enterprise brands. This year, we're looking at it more as Jason said earlier, we're looking more into going back to hopefully to A better mix of the net revenue retention versus new. We still had I mean, you'll see a very strong growth in new in the coming couple of quarters because of the new Publishers that we went up last year, but it should be hopefully getting back to a more normalized level of the mix you've Seeing in prior years from us, where they we are getting closer hopefully soon to the 100% Net revenue retention on existing and low single digits up to low double digits growth in new.

Speaker 9

Thanks. And if I could just ask one last bigger picture question. We're coming To the tail end of earnings here for digital advertisers and thinking about some of the trends we've seen this quarter, I guess, notably on Meta, they looked at outperformed The market, the guidance for the Q2 was really strong. We're seeing not just from them, but across the board, but Advantage Plus Some innovation around ad products. And when we've done some of our checks, you've heard things like advertisers are getting stronger ROAS or as They did in the past, I didn't say.

Speaker 9

So it looks like we're moving past some of those headwinds and maybe not all the way back to I know we're certainly not everywhere, but things have kind of evolved since all that came into place. And just bigger picture how that impacts You see that impacting your business and how things move forward here.

Speaker 3

I think we saw similar trends that what you mentioned between January, February and March of the Improvement April May started more volatile. April started more volatile and stabilized towards the end of the quarter. So we're still in an uncertain environment Generally on demand, the one trend that we see that is very forceful is for Advertisers looking for measurable outcome, measurable returns on their spend, even if we're talking about brand awareness campaigns or brand consideration campaigns, This plays very well for us because we can deploy our predictive analytics, predictive capabilities into delivering much better results for those campaigns. That's While we are focused on that, we also believe that premium supply attracts premium demand. That's why we are focused on the premium supply side.

Speaker 3

So These areas we started making more significant investments last year. We're very limited right now on the amount of areas where we invest. So I would say Keystone and this area I want to be investing and we believe that we can benefit from this trend from advertisers.

Operator

Thank you.

Speaker 1

Thank you. Ladies and gentlemen, this

Speaker 3

Hi, this is David. So thank you very much for joining us, and We look forward to seeing you on our next call. Thank you.

Speaker 1

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Outbrain Q1 2023
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