Q3 2021 Taboola.com Ltd Earnings Call

November 10, 2021

Thank you for your patience and please continue to standby the triple.

For the third quarter of 2001 earnings call will begin momentarily. Thank you for your patience and please continue to standby.

[music].

Good day and welcome to the two below third quarter 2021 earnings call. At this time, all participants almost only mode. After the speaker's presentation there'll be a question answer session.

I ask a question during the session you will need to press Star then one on your touch some telephone.

I mean once you require assistance during the conference. Please press Star then she wants to reach an operator.

As a reminder, this call maybe recorded I would now.

Like to turn the call over to Jennifer Horsley head of Investor Relations you may begin.

Thank you good morning, everyone and welcome to third quarter earnings Conference call I'm here with Adam singles are founder and CEO and Steve Walker our CFO.

So we.

We issued our Q3 earnings press release yesterday after market and he is available along with our Q3 shareholder letter in the investors section of our 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.

Sure events could differ materially and adversely from those anticipated. During this call 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, Jay and good morning, everyone and thank you all for joining us for our third quarter call I'm excited to share. The progress. We've made we again delivered incredible performance in the third quarter. We beat our Q3 guidance were raised in Q4 and as a result 2021 overall, we also closed this quarter on connectivity our largest acquisition to date.

As a reminder, our Q3 results and our guidance included one month September of connectivity performance.

Numbers that highlight our Q3 performance revenue was $339 million in the quarter up 17% year over year ex Tac gross profit, which is work left for us after we share revenue with publishers. The main metric. We measure is management was $127 million up 22% year over year above our guidance range of 102.

$2 million to $124 million. We also delivered strong adjusted EBITDA of $40 million above our range of $36 million to $37 million, while the adjusted EBITDA is a good proxy for profitability to boil that generates good cash flow over the last two years about 60% of our adjusted EBITDA converted to free cash flow.

I'm very happy with the team's execution and these results give us confidence to raise our Q4 and full year 2021 guidance a couple of highlights on 2021 and Steve Our CFO will provide more information later.

Gross profit of $512 million to $515 million, which translates to growth of 34% to 35% for the year. This is dramatically faster than the advertising market worldwide.

This is above our previous guidance of $503 million to $509 million that we shared at our e-commerce with connected information session.

And to provide additional context, our original projection of ex Tac at the beginning of the year when were on the road raising money for a public offering was $445 million and 17% growth.

Our initial growth expectation.

We now expect adjusted EBITDA of $174 million to $177 million, which was growth of 64% to 66% for the full year and above our previous guidance of 168 to 171 million again. This is nearly 50% faster growth than our forecast from the beginning of the year of 127.

Million.

Lastly, and I will touch on it later, we did not see an effect in Q3, nor do we expect one in Q4 from private to dynamics or supply chain.

When looking at our performance I am encouraged by all of it he chose against the White strategy focus and execution is key to meet and beat our own expectations. Let me share now some details on our strategy business and what we're seeing in the market.

So starting with Ebola strategy. Some of you may have heard may heard. This however is a newly public company I wanted to remind everyone about our vision, where we fit in our winning aspiration to bullet powered recommendations for the open web we reach half a billion people a day and help them discover things. They may like the open web as you May know is the term for all grade.

Website publishers out there that you love, but our notch Facebook Amazon, Google Apple or the like it's really important even in central because it's free and diverse and it doesn't belong to anyone Giants company. It belongs to everyone and Thats, what the real estate.

We have established long term partnerships with some of the most amazing publishers and digital properties in the world such as the BBC Global CBA side, Comcast and many others. We work with about 9000 publishers globally. We are important to them a lot of timetable as a top through revenue source and its part of our product led approach we empowered.

The entire publisher organization, we drive audience engagement growth and other things. This includes things such as newsroom, which is used by editorial teams and our subscription offering but he was by the product team and many many more at the center of what we do is proprietary to deep learning recommendation engine that is able to infer what a user might be interested in based on current.

<unk> and our own curiosity left.

Looking at what people who read this also red similar to Amazon people, who bought this also bought this means that we're not relying on third party cookies or idea Fe, but rather our own proprietary data.

We are focused on product innovation and growth investing $100 million a year in R&D to forever bolster our platform and bring new solutions to our partners and it's critical for us to invest in things like publishers partners want as well as advertisers clients need as they look to diversify outside of the walled gardens.

This will become more strategic as we look to work with our publisher partners Forever. There is a.

Also a network effect in our space being bigger matters. The more publishers you have the more reach and data you have more advertisers can come in and your yields in the end goes up and yields going up is one of the most important things we'd like to see is it makes us even more competitive we participate in a $64 billion market called <unk>.

<unk> web and this is our foundation of business with a moat built on 14 years of technology and algorithms innovation direct publishers and advertisers relationships.

<unk> and predictability of our business model along with the relationship we built have allowed us to expand beyond core recommendations to two main areas.

First is to expand into recommending anything over the next 10 plus years much like you can search for anything when Google what to read what to buy where to go we want to diversify what to recommend and to grow our yield for publishers in that way, which helps us become even more competitive over time, we want to work on and apps games and other types of verticals in <unk>.

Three we continue to see great progress with recommending video we call it high impact placements, which is work where we expand from bottom of article into meat article Homepages section floods and other places. This is where we serve that video formats something agencies and brands love at this point brands and agencies is roughly 15% of our business and then.

Every time, we start with video our yield is even higher we're able to pay our publishers, even more we earn more it's high quality advertising experience. It's just great.

Our connectivity acquisition falls within our recommending anything strategy, allowing us to recommend products and tap into the huge 40 billion open web E Commerce market Connexity will help us transform the open web into one big shopping cart and mentioned how much you trust the publisher that reviews of products more and how much would consider buying a product you've seen it says it's better.

<unk> Kutter says, it's better our future today review Dot Com said, its better, especially on the back of the pandemic. We are buying online so much more and trusted publishers can shape that future in a big way, we expect it in coming years, one third of the open web publishers revenue will be E. Commerce. This is a great for retailers as they want to diversify outside.

Set of walled garden themselves.

There is no other comparable connexity out there in size or scope and we believe by client connectivity, we have years of advantage in this space.

The second area of growth for us is expanding to a command anywhere. This is where we're taking our recommendation engine and publisher partners anywhere people spend their time as an example is stable and use our version of Apple news, but for Android devices, we had great momentum this quarter on this as well, where we announced partnerships like xiaomi, reaching over 100 million devices.

Samsung, which we discussed in previous quarter overtime, you should expect to see table anywhere on a connected TV apps as even every app on the T V needs AI to engage consumers with our content will be in automobiles like Spotify has music integrations, we expect to pull out to bring podcast local news entertainment to any color out there and audio devices.

Home interaction with consumers over time, we want to be recommending anywhere.

Now, let me discuss our strategy and how over time, we recommend anything in anywhere I'd like to share some business momentum and progress we've made in the third quarter.

It's only one month of Q3 includes connectivity, let me share some updates about tubular business before Connexity, we've continued to build new relationships with premium publishers and digital properties in Q3, 46% of our growth came from new relationships to name a few we announced line today think of them as what's apples Asia Pacific nine mess.

<unk>, App, which has more than $188 million global monthly active users and provides a wide range of services to its users line today's services of news and content hub within the line App and Kabul. His recommendation engine will operate online today, Hong Kong to start connecting users with news they may like but never knew existed much like Apple news does.

We also announced a new three year strategic partnership with weather Zone, Australia's largest private whether service. This partnership includes the boiler feed our high impact placements, which is also where our video solution fits and Tabouleh news. Both of these examples are great demonstration of our growth in our core market.

The advertiser side, we are constantly building new relationships with advertisers and agencies looking to reach consumers and brand safe environment on trusted publisher sites and open web and diversify outside of the walled gardens are good example from Q3 is where we entered the new three year strategic partnership with Dentsu, India and multinational agency.

Headquartered in London under this partnership our publishers in India will have access to dentsu offering across its entire customer portfolio. Denso agencies was also able to drive brand awareness consideration and conversion from trusted brand safe environments.

In Q3, 54% of our growth came from growing existing clients, primarily driven by yield when thinking about yield as I wrote in my letter investors should think revealed much like race drivers look at their dashboard RPM is everything that matters RPM is revenue generated for 1000 impressions and it's a multiplication.

Of three variables clickthrough rates ctr cost per click CPC and cost per conversion CVR. None of these should ever be looked at in isolation and in fact, there are scenarios, where <unk> go up but you know it can go down who could prioritizing Tyson created gets higher click through rates, but conversion if you will.

Go down advertisers would lower CPC and yield will actually be lower. Another example, can be prioritizing aggressive class advertisers, who gets higher clickthrough rates traditionally pay much lower CPC is here as well yield would go down like click through rates went up much like in racing cars, where speedometer doesn't match.

<unk> and only RPM matters, all starting to open web.

Click through rate is irrelevant.

CPC is irrelevant and conversions are irrelevant as independent variables only when the three come together RPM can go higher.

What type of measures yield an RPM checking my letter if you want to learn more about this area.

Outside of core we also made great progress in our two growth areas, we've been discussing recommending anything in anywhere within recommending anything looking at recommending video, we announced a partnership with NBC sports will launch a high impact placements, which means we're expanding our presence to meet articles homepages and highly visible placements, which brands and agencies.

We love these high impact placements are key drivers for our video initiatives, which also helps us grow our yield and as a result become an even bigger revenue driver for our publishers partners.

To further assist in that we also announced in the quarter brand safety partnership we attained the trustworthy Accountability group called Tag brand safety certification that confirms to advertisers that tabbouleh has high standards and has taken proactive steps to drive high quality traffic tag is an organization that works too.

Kris Trust and transparency in digital advertising, we also announced a new partnership with double verify that makes available directly within tabbouleh ads console advertisers can now easily used that was very high solution to verify brand safety.

Sharing more on our progress through a commend anything let's look at how do we recommend products. We made a big bet. This quarter acquiring connexity, we closed the transaction on September <unk>, and therefore recognized one month of the results in hours connectivity had a strong Q3 exceeding all of our expectations and selling new publishers like nearing web.

And your merchants, such as Dell UK and others.

To give further context on the success connectivity is having I will share a few Q3 success stories, one large publisher partner in North America is starting in the 150% commerce content growth year over year with connectivity into 2022 as well as taking the success in the U S and expand our team in Europe, which works with connectivity.

Five fold in 2022, and another example, a fashion company spend with connectivity five times higher year to date with the peak shopping season still to go they tested with connectivity and moved into always on campaign, which means they now trust connectivity and intend to spend as much as they can so long that it converts.

I personally am engage in conversations where publishers are choosing to move either to renew or for the first time as they want connectivity built into the forecast and their strategy as well as ours. It's only been a few months and I like seeing these early signs of the market reacting positively. This is only the beginning since the acquisition close we are.

Worked through the details of our integration and our plans to capture $100 million of synergies we outlined in our e-commerce with connected information session. In late September we're even more confident in our future success. After a deep dive with the team and when I think about our competitive advantage in the commerce affiliate space specifically there are four things.

Unique to US one strong relationship with publishers, who trust us and they wanted to do more with us to strong relationships with advertisers retailers and merchants built on the foundation of high performing scaled network.

<unk> data, we know what people read and know what people buy and we can use that to guide publishers about which content they need to write about I hear so many times. It's many publishers have never got into e-commerce, because it will not show or to even begin what to write.

Chose authentic to the readers we can help.

And for a last but not least traffic the ability to drive audiences to our publisher partners to build on our reaches half a billion people a day and we can provide positive our traffic to those pieces of content, we can create together.

We then recommend anywhere we recently announced the Tabbouleh news, where we take our publisher partners to other canvases, where users spend their time continues to scale and now drives an average of more than $220 million a month engagements on editorial content through mobile device and OEM partnerships.

This represents an increase of more than 270% year over year in.

In Q3, we announced another exciting partnership with Xiaomi as part of cable news Xiaomi is one of the second largest Android OEM manufacturer in the world and they will integrated feed of Timberland news under devices.

Now, taking a big picture view and before I pass it over to Steve to discuss our results further I want to make a few comments on the market more broadly.

As we've stated before we are a business that is not reliant on third party cookies, and we instead leveraged contextual signals to deliver relevant recommendations.

This is also true for connectivity whether comments recommendations are solely intent driven.

This quarter there was a lot of conversation on privacy impact on Iris changes in <unk>, we did not see an impact from these on our business to bullet yield keep growing through our ability to leverage contextual signals due to our hearts coated integrations with 9000 publishers through which to reach 500 million active users every single day.

This is an important now and we'll become even more important over time as advertisers look for alternatives to the walled garden.

There also have been a lot of conversation in news about supply chain challenges faced by some manufacturers and businesses were tracking just like everyone and it's clear to us all but as I updated on my letter, we did not seen impacts from supply chain challenges in Q3 and that is mainly due to our diverse advertiser base and growth in digital first advertisers.

We're also feeling comfortable about Q4 and raising our guidance. So in summary, I'm very excited about what we accomplished in Q3 and how connected integration is making progress and what is still to come in Q4, and 2022 I will now hand, it over to Steve who will dive deeper on our financial performance and guidance.

Thanks, Adam and good morning, everyone as Adam shared we had a very good third quarter and have expectations for a strong close to the year. If you read our earnings release, you noticed that we beat our Q3 guidance on all measures and we are raising our guidance going forward.

Before I get into specific numbers I have a couple of items to highlight now that we've completed that connects the acquisition first we closed the connects via acquisition on September one and as a result, we have one month of Connexity results in our reported Q3 financials. This is consistent with the guidance that we gave during our e-commerce.

With connectivity information session on September 28, which also included one month of connectivity results in our Q3 guidance.

Second we have determined that going forward, we will account for connectivity business on a net revenue basis.

Previously Connexity had accounted for a portion of their business on a gross revenue basis and a portion of it on a net revenue basis. This change only impacts the top line revenues going forward connects these revenues will be what we keep after we pay our publisher partners equivalent to ex Tac growth.

Profit for the rest of the tubular business.

To have our comparisons on an apples to apples basis, we adjusted our Q3 and full year guidance to reflect this net revenue recognition treatment for connectivity.

In our e-commerce with Connexity information session, we guided to gross revenues of $338 million to $342 million in Q3, and one 392 to $1 $4 billion for the full year with this change in accounting the <unk>.

Adjusted guidance for revenues in Q3 is $331 million to $335 million and would have been 135 to $1 $3 $6 billion for the full year.

With our outperformance in Q3, and our higher expectations for the full year. We have raised the full year 2021 gross revenues guidance to be 136 to $1 $3 7 billion.

Again note that nothing else changes in our guidance due to this accounting change the only adjustment is the top line revenues.

Since we are still relatively newly public I will also repeat the comment I made last quarter to remind everyone of how we look at and measure our business.

We're focused on achieving profitable growth the way we measure our performance against this goal is by looking at two measures to measure growth. We look at our ex Tac gross profit growth rates ex Tac as what we keep from our revenues. After we pay our publisher partners to measure profitability, we look at our adjusted EBITDA margin.

<unk> or adjusted EBITDA margin adjusted EBITDA divided by our ex Tac gross profit just SaaS businesses have a rule of 40, where they always want their growth rate plus their profit margin to exceed 40%, we too want that some of our ex Tac growth rate and our adjusted EBITDA margin to exceed.

<unk>, 40%.

So now onto our Q3 results.

Revenue was $339 million ex Tac gross profit was $127 million and adjusted EBITDA was $40 million. This represented ex Tac growth of 22% year over year and an adjusted EBITDA margin of 31, 4%, which means that.

We were a rule of 50 company this quarter.

All of these results were above our guidance for Q3 as Adam shared we are seeing continued good progress in the business, winning new business executing on our recommend anything and recommend anywhere growth initiatives and realizing very good yield expansion.

Of the Q3 gross revenue growth of $48 million $23 million came from new digital property partners and $25 million came from growth of existing digital property partners. As a reminder, when we talk about growth from new digital properties that is revenue that is coming from publisher.

Or is that are new to our network since last year. The new revenue growth was right in line with our plan. So we are continuing to see plenty of opportunities to bring new digital properties onto our network.

In terms of growing our existing relationships, our net dollar retention or N. D are on an ex Tac gross profit basis exceeded expectations. It was 112%, which primarily reflects strong improvement in yield so very good growth on both fronts, bringing on new partners.

And also growing our existing partner relationships.

Our ex Tac gross profit was up $23 million or 22% year over year. It benefited from the growth in both new and existing digital properties. The addition of one month of Connexity as well as from the continued flywheel effect that Adam referenced.

This effect drives improvements in yield and helps us move from pain. Some publishers on minimum guarantees to paint on Rev share over time.

These gains year over year were partially offset by the withholding in 2020 of $7 million in guaranteed Tac payments to publishers that were subsequently paid in the fourth quarter of 2020, which made for a more difficult comparison with 2020.

Turning to operating expenses, which were up $40 million year over year. There are three noteworthy items to call out first $13 million at the year over year increase in operating expenses was due to share based compensation, which is higher now that we're public <unk>.

Excluding share based compensation operating expenses were up $27 million.

Second part of this year over year increase comes from including one month of connectivity and operating expenses.

Third there are higher professional fees and legal expenses related to our M&A transactions.

In terms of more routine operations, we had higher expenses driven by public company expenses as we expected. In addition expenses were up due to a partial return to more normal operations following the Covid pandemic.

This included a partial reopening of offices in several countries and some increased travel.

The strong revenue performance flowed through to the adjusted EBITDA of $40 million, which was better than expectations and guidance. It was however flat year over year as the increase in gross profit was offset by the increases in operating expenses that I just described.

From a margin perspective, the 31, 4% ratio of adjusted EBITDA to ex Tac gross profit was above our guidance and model.

It is worth noting that net income was $17 $3 million, which was $600000 higher year over year.

Net income was above our expectations.

Net loss of $5 million to $7 million.

Driven by a $17 million reduction in warrant liability lower income taxes, and higher gross profit that more than offset higher operating expenses.

Lastly, Q3 produced free cash flow of $19 million through nine months free cash flow was $11 $8 million and we expect to exceed our original guidance from our pipe deck of $33 million in free cash flow for the year.

I would also like to note that if you look back to the beginning of 2020, we expect our ratio of free cash flow to adjusted EBITDA for the 24 months that will end. This December to be approximately 60% that means for every dollar of adjusted EBITDA that we will report in 2020 in 2021.

One we will convert 60 into free cash flow. This is very consistent with the directional guidance. We have given that we expect approximately 60% of our adjusted EBITDA to convert to cash over any reasonably long period of time.

We ended the quarter with $312 million in cash and cash equivalents after the cash consideration paid for the connectivity acquisition.

After netting out the $300 million in debt that we raised for the acquisition. We had positive net cash. So we feel good about where we are from a capitalization point of view.

Following our strong performance in Q3, which was on the back of a strong first half we are raising expectations for Q4 as as well as our full year guidance I won't go through our Q4 guidance, which is detailed in our release for the full year of 2021, though we are now projecting ex Tac.

<unk> profit will be $512 million to $515 million, which represents growth of 34% to 35% versus 2020.

That is an increase from our previous guidance of 31% to 33% growth that we gave during our e-commerce with connectivity information session.

We're expecting 2021 full year, adjusted EBITDA to be $174 million to $177 million, which represents growth of 64% to 66% versus 2020.

This step.

<unk> is a very healthy adjusted EBITDA margin, meaning adjusted EBITDA divided by ex Tac gross profit of over 34%.

Per my previous comments about always seeking to beat the rule of 40, our growth rate of 34% to 35% and our adjusted EBITDA margin of over 34% well exceeded that goal.

For modeling purposes, we estimate the fully diluted shares outstanding at the beginning of Q4 to be approximately 272 million shares.

We are not updating at this time the guidance for 2022 that we provided during our e-commerce with Connexity information session, except to adjust the topline revenues guidance for connectivity for the connects via accounting change that I mentioned earlier. This results in our previous 2022 revenues guide.

<unk> of one seven to $1 $75 billion to be recast as 159% to $1 six $3 billion.

To be clear the only change in these numbers is to reflect that accounting change and that change does not affect the fundamentals of the business. We look forward to providing an update on our 2022 expectations during our Q4 earnings call.

Let me wrap up by saying that we continue to see many paths for growth in our business and we continue to invest in these growth areas. We believe we will continue to grow our core business by bringing on more digital property partners and by growing revenue from our existing partners, primarily by continuing to grow our yield and has added.

Spoke about earlier, our investments in recommend anywhere and recommend anything growth strategies are showing good promise and we look forward to telling you more about that in future calls.

Finally that connects the acquisition is a game changer that will provide significant upside to our business going forward on that note lets open it up for questions.

As a reminder to ask a question. Please press Star then one.

Thank you. Your question has been answered and you'd like to remove yourself from the Q plus the donkey.

Our first question comes from Stephen Ju with Credit Suisse. Your line is open.

Okay. Thank you and good morning, everybody so Adam thank.

Thank you announced yesterday smart dimensions.

We understand this product correctly it seems like other companies who have.

We at least conceptually similar solutions.

About this being a catalyst to the hopefully onboard more long tail marketers because this helps too.

<unk> advertising in general So we're wondering if this will help you.

And the Advertiser base from a credit of about 14000, or so just hopefully something much bigger.

But also.

<unk> also expanded relationships with publishers like NBC, but Onboarding I think you mentioned line.

<unk> as well as Shelby so conceptually how would your products to be deployed on Florida today.

And you have about 500 million users right now like what can these two partnerships do in terms of hopefully on duplicated duplicated protracted user question. Thanks.

Hey, good morning.

Good morning, everyone.

For the question Stephen.

Start with the first one.

Smart.

Dimension is a big deal in the sense that it is going to do two things one of them you touched on.

Which is help advertisers.

Smaller advertisers, who may not have the knowhow of statistically the advertisers to be successful and Thats basically it's very much a com.

Hands off or really autonomous experience for advertisers, who ansible I can succeed so that's going to be launching yet we expect to happen in the second one is actually even for existing advertising base is up until now they had to log into to build multiples.

Multiple times a day creates multiple campaigns to find further optimization beyond the way we used to do it now they're going to have to actually do that much less which will free up their time towards more reachable to increase budgets, so and just to be successful with us as a recap of what exactly dimension is up until now.

85% of our revenue that is controlled by smart, which is our AI software that helps advertisers to be successful optimize at the publisher level, which means if one site.

<unk> did really well for a certain type of advertiser, smart, which would increase the CPC to get more traffic from that site and if it was not performing to a decreased of secrecy.

GAAP. It created is that Smart me did not take into account as an example, one example that I'd like to give is it lets say these publisher had one article it was actually great for the for the advertiser, but the publisher as a whole was not that great Smart Mitch.

Decreased to CPC, even though one article is really doing well for that advertiser as of now it will not happen smug, which will basically creates more dimensions and more granular view of the tubular network and so that piece of the article each will increase the price and for the rest of the site. It will decrease to price so advertisers will be more successful in.

Fashion and then many other examples of given a bunch on my letter, but I'm very excited about it. The team has done a lot of hard work to develop this and I hope to see even more advertisers being successful with us.

So thats about smartly dimension about Xiaomi in line this is great.

Bulla.

As a reminder, what it means so companies like Xiaomi, which has a honeymoon devices will integrate if that's possible in news which is.

Without recommending anywhere that's one of our growth engines areas that means that when people buy xiaomi as it continues to rollout to boiler will be pre installed on the device. It will be in the wake screens. So as you look into the bias will surface news you might like so it's very much domain experience the user experience that people will have.

<unk> powered by <unk> and what's really nice about it is not only this is a revenue opportunity and I'm excited about it it's actually very strategic to us because as opposed to Apple News every time you click on a piece of news that you just covered by <unk>, We opened a browser and you go to the publisher site, which means that over time demonstrable unused become successful.

Our publishers will receive traffic from tubular, which would be similar to SCO, which is a big part of googles business with Facebook and Twitter and the like and it means we're going to be more important to publishers. So when you think about the competitive advantage and how we continue to grow over time yield is obviously very important.

But if we can become 5%, 10% and more publishers sources of traffic using tableau news, that's going to be a big deal. So we fly an integral with Xiaomi. That's that's how it's integrated line, it's going to be again, a feed of recommendations integrated in the <unk> shale.

It's on the devices in the wake screen.

Great. Thanks.

Operator next question.

Our next question comes from Andrew Boone with JMP Securities. Your line is open.

Hi, guys. Thanks for taking the question I'd like to hit on Smart dimensions as well can you just help us understand the AD performance and look you guys started kind of your machine learning deep learning efforts five years ago.

How do we think about this developing over time as you guys kind of add more data and publishers adopt it more advertisers adopt tomorrow can you just talk about whats the benefit today as well as kind of how that develops over time.

Yes so.

Yes.

So such a bit more information about that we've added so dimension adds about 40 dimensions that smart, which will start looking into which we did not do up until now so that includes.

Day of week time of day location platform. So again just to give this a follow up on the same example, I've given before let's say publisher did really well and smartwatch wanted to increase the price because of that smart, but did not take into account the location. So it could be that some geographies are really good at some geographies are not as good so now that could be broken.

<unk> automatically by smart grid, so the advertiser watching smart meter once smart it might.

Break that companion to 40 pieces based on what works and what's not behind the scenes. So the advertisers wouldn't have to do anything and up until now and by the way that's very common for other companies in our space.

And Thats whats been chasing an advantage a lot of times as advertisers have to bill knowhow of how to optimize in the platform. They work with so they have to kind of figure out is just what I can in this geography is just waiting for that time of day should be create something for the morning, something from the evening all of those efforts on the advertiser side, a lot of times prevent them from even working with it.

Certain platforms. So that's that's just to give you some more color on the types of dimensions, and then again the expectation I have is that there will be able to be even more successful, which means that they'll get more budget with us and will drive better conversion rates.

CPA will be even more attractive and then it would be easier for them to work with us increased the budget and more advertisers to come along.

And then again I'm happy to give more examples over time, what we do is we especially now with connectivity. We have about 1 million purchases amongst that connects he's getting I think we've talked about that on the information session. As we're emerging datasets of connectivity and the data set the readership tabbouleh smart, which we'll be able to note even more.

And then further.

Optimizing for Advertisers' success, our goal is for advertisers to.

Lowest conversion lowest CPA acquisition costs. So they can scale with us and for that data helps us AI helps us getting more publishers helps us.

Continuous and forever.

If I had to kind of guess.

From one to 10, where we're still early I mean, I think there's so much work for us to do this is of course, a big announcement.

But there's so much more for us to do and.

It's a big effort for R&D.

Me just jump in and put it in kind of a broader context I think we've talked about as Adam just kind of alluded to we've talked about the fact that we're very early in our yield growth journey. We believe so we think that we could grow our business.

Over time almost exclusively just by growing yield if we wanted to and I think this is a really important step along that journey. So we've talked in the past about how yield grows from algo improvements. It grows from bringing on more advertisers to increase kind of density and it grows with bringing on more data.

This is kind of a synthesis of all three of those right because it's bringing in more data getting more granular with it making more advertisers successful. So we can bring on more advertisers over time. So this is a really important step in that journey, but kind of just demonstrates how early we are in that journey and how we can continue to grow the business through yield.

Also just one last note that I think it's worth.

Sharon and I wrote about that I, even put it a screenshot of the car dashboard, but smart job is to on the one side help advertisers to be successful and that's measured digitally with a conversion measurement. So how what's the price of an acquisition and how much you're able to scale and on the publisher side, it's measured by optimizing for yield which is <unk>.

Revenue per thousand impressions as a reminder, our smart b does not care about clickthrough rates independently does not care about CPC independently does not care about conversion rates independently in fact, any one of them is completely dangerous to monitor and track. So smart, which was just looking at optimizing for click through rate. It was it would have prioritized enticing.

Creative it would prioritize perhaps even advertisers that don't succeed ansible.

Until then it's just early in that over time <unk> would go down and yields would go down so actually it's quite dangerous to look at just one metrics Margaret is looking at all three and on the advertiser side, making sure conversions are exciting and meeting their thresholds. That's a lot of hard work and that's why we invest so much in deep learning to make sure that successful.

Thanks for the question Andrew.

Really that addressed it.

Yes.

That was great can I can I follow up with a second in terms of just connectivity.

As we think about e-commerce demand just coming onto the platform more broadly can you talk about bringing ecommerce fan specifically onto more core to us right. So so how are you guys incorporating especially when you think about for Q E.

e-commerce onto the core to Google platform. Thanks.

Thanks, guys, yes, yes, definitely and thanks for the question. So so I would say that the most immediate thing, which we're working on is to bring.

And actually the demand onto <unk> core experience saves our tubular feeds all around the world on 9000 publishers.

We've mentioned that you believe a single digit percentage of our traffic is high intent already and is able to basically absorb those high pain and premium retailers that are looking to convert.

In the open web so that's something that we expect Jeff and it's one of the synergies and then if you remember we've talked about it over time one of the biggest goals. We have is to increase the portion of traffic. The open web has and as a proxy of publishers have with intent from single digit to too much more than that and that's going to be.

A lot of great work that we've started doing and I'm seeing good momentum for publishers.

First the immediate thing is we're working on basically hasnt connectivity advertisers bidding in the tubular ecosystem and my expectation is that about a single percent of traffic will gave us to win that demand and the yields will be much higher when that happens.

If you saw what I mentioned 15 minutes of Facebook in terms of revenues is about one minute and Google So intent.

Great.

Very quickly higher RPM.

And yields so that's that's going to happen and we're working on having to bid on.

On our network and when the wind is going to be higher yields more revenue for publishers.

More margin and all those good things.

Okay.

Thank you operator next question.

Our next question comes from Laura Martin with Needham Your line is open.

Adam I just wanted to build on that last question you just answered.

Talk about content quality.

When you look at your core business very high quality.

Content publishers like USA today interactive NBC news to them, but it feels like disconnects, a deficit that lead yet where you're writing content driving.

To sell something it feels very low quality.

So tell me why I'm wrong about that and why the connectivity acquisition doesn't sort of turn you into more of a lead Gen company in a way very high premium new representation that you've done historically.

Yeah. Good question good morning, Laura good good good.

Heading.

So first of all before I been connected and taken tabbouleh. Aside if you just look at the market the can market view youre seeing.

The following dynamics, you're seeing companies like the New York Times, which is definitely high quality publisher.

In wire cutter and investing in reviews and high intent content that sit side by side at the New York times, but owned by the Nuc time, you're looking at USA today. They owned review Dot Com, which is a nine digit revenue business big business as an extension of them. If you look at content.

First Meredith.

Is generating $1 billion a year from high end 10 pieces of content and of course. There is also a very high quality journalistic organization.

Can go on and on and seeing it obviously in Red ventures in general Mega successful. So the way, it's Jay Theres going to be two types of integration and by the way I believe.

All the publishers, we will do it.

I believe a third of the revenue of the open web will be like like that so there's going to be two ways, it's going to happen one.

Some publishers will say, we'll take I've seen that strategy, where CBS I will have CBS news CBS sports and CNET that was before it was acquired by Red ventures or will be like the New York Times will have the new claims dot com and we will have large cutter that carries the clout and trust of the new tonnes into separate domain review Dot com have you sit today.

And so forth and then you'll have publishers that will say well, we will build the sub domain. We will have a section on our site called shop or reviews or something like that.

So I think that's what's going to happen, we're already seeing I think the examples of given it show us that there is a highly journalistic organization did you want to tap into a $40 billion open web e-commerce.

High intent budget debt right now most of them are outside of it so I think.

We're going to launch a site that carries the trust.

Over them or they will launch a sub domain.

And I have seen actually some great. Examples also outside of the U S and I think everybody looking at led ventures CNET reviewed Hearst Meredith know IFC everybody's, saying, we want that strategy to where the Hell do we begin how do you I know what to write about.

I spent a lot of time over the last month with publishers everybody want it. The biggest question to me is where do we begin what should we write what field endemic authentic to our leaders and that's the main question would they do it all of them literally they began how do they write it so it feels at home and it shows relevant to the consumer.

That is where connectivity comes in that is worth data comes in they're going to ask Connexity give us a sequence and a pipeline of things we need to right that makes sense to our readers and then help us monetize that then how green retailers CPC and CPA. So I think on tobacco companies like led ventures and all of those folks we're going to see everyone.

On wanting to do it and I think connectivity being the largest by far in this space, we can be an enabler for that transition.

Yes.

Thanks.

Great. Thanks.

Operator next question.

Our next question comes from Cheyenne to kill with <unk>.

Your line is open.

Hey, guys. Thanks for taking the question. This is Jared on for Shaun.

I know that you aren't updating your 'twenty two outlets at this point.

<unk> been revising credit connects to the accounting changes, but given the 21 raise how are you thinking about the setup into 2002, we see further upside at this point.

Hi, Jared.

Yeah. Good question. So I think the reason that we're not raising 2022 at this point is we basically just released that guidance.

Roughly a month ago. So we are at this point, we're still standing by that we still feel very good about 2022, and we think we have good strength going into the year, but.

We'll update that guidance SaaS, we released our Q4 results in February So we will give an update then I think.

Generally speaking to your broader question I think what you are asking about is how do we feel going into the year and how is.

How are we doing I think generally speaking we're feeling very good we obviously raised Q4 because we.

Had a great Q3, we see good strength going into Q4 here. The Connexity is doing very well, we're actually ahead of our.

Our expectations for where they were going to be at this point, they're part of the reason that we're raising in Q4. So we feel good about their numbers as well. So I think we have very good strength going into into 2022, and we're looking forward to talking to you in February about our Q4 results and then probably revising expectations for 2022 at that.

Point.

Great. Thank you and then just one more if you don't mind following up on your <unk> commentary there do you mind, helping us unpack your progress towards that $100 million in synergies that you were speaking to and when might that $400 million be realized.

Yes.

In terms of just where we are we're making good progress I would say on the people front.

We're in London. The teams are already together in New York I expect the first half of the year, we'll have the folks being together.

Those are great.

Connectivity keep signing great advertisers and publishers. So I would say the business is continuing to have great momentum Merriam Webster assigned Dell U K signed.

So that's just day independently as exciting to me are more on synergies AD sales, which was one of the synergies as a reminder, connectivity has built an amazing business with to add salespeople. We obviously have many so as people all around the world. We've started the global expansion essentially via our international salespeople that includes China, and Brazil to start but more to come.

And in fact, it was a nice surprise, Joe because we saw that as a <unk> typically in China reached out to retailers many of them wanted to actually buy in the U S. As well so not only in China mainland that's great because that's basically means demand from China being exported into the U S, which is great for yield here in the U S.

And continuous growth here as well so at shows from a synergy perspective has started China and Brazil to start publishers, we started upselling to publishers just the Standalone <unk>.

<unk> of skin links and Connexity.

Which is related to us Laura has asked before I will tell you. We're thinking also at the leadership level given to <unk> is a bigger company and we have.

More sources, how do we build sort of a Bachelor publishers that gets even more resource heavy implementation, where we can grow even faster. So growth is something on our mind, we wanted to really double down and make this a huge success and I already said publicly that I believe in four years, that's going to be sort of our business. So.

Very much believers. So we started the Upselling. That's also has happened on the integration front since the close.

And these are the high level things that have started.

And that's only been amongst plus into it. So that's very encouraging to me and and personally I can tell you I've.

I spent time with our team and spending time with with publishers and I'm getting really exciting feedback and people are basically telling us. It also affects renewals and signatures. So I'm seeing good signs from the market that they want in E Commerce and affiliate strategy.

And they look for us to to help them get there.

Yes.

Great. Thanks, Operator next question.

Our next question comes from John Blackledge with Cowen Your line is open.

Great. Thanks, two questions.

Could you discuss the video advertising progress in third quarter and more broadly how do you view video as a growth driver in the coming years and second question on the iOS. The Apple changes just given the measurement and targeting issues caused by the Apple changes do you think <unk> might see higher AD demand in the coming quarter quarters of the platts.

One is affected.

The kind of deal with deal with the changes thank you.

Yes, hi, and good questions. So let's start with video video is represents about brands and agencies in general which is primarily video.

It's very important for us, it's about 15% of our business.

That's great every percent of traffic that gets a video very similar to e-commerce generates higher yield it's high quality, it's higher yield so it's great for the consumer it's great for the publisher scripts with advertisers. So in general we loved to increased.

Portions of our business when we can bring premium demand, it's page pays more and create states.

On a flywheel effect for our business. So in general we care about it and it's about 50% of our business at our size that means it's significant.

We announced this quarter that dentsu sign with us its a big agency. It is going to start in India, where basically all of their clients will have access to <unk>.

In the region. So that was a big big progress and in general we're seeing good momentum with brands and agencies, especially as we sign more and more what you call high impact placements.

So hindsight placement is the main way, we expand our our recommendation into video the way. It works is up until now or few quarters ago. The vast majority of our footprint in the open web was bottom of article and Thats fantastic for our cost performance advertisers and ecommerce, but for video they want brands and agencies want something else.

They want much more visible do you want to be in the middle of the page you want to be in the homepage to want to be in the section front. So like I said one of the biggest advantages of <unk> is that we are a publisher company. We work with many of them for three or four or five years. It's exclusive its global its long term. They trust us we have great relationships in the absolute with US we have to do with them constant.

So that means that when we bring a new solution to market. They really consider that we're not buying traffic and hope for the best.

We work with them we are integrated on their pages. So this quarter, we announced as an example, NBC sports launching high impact placements that means you will now see tool.

On those placements I mentioned and brands and agencies will be able to funnel high quality video demand into those spaces and Thats. Just one example.

As a summary, I am seeing good momentum on both the advertiser side with companies like <unk> and others coming in appreciating the open web they want to diversify outside of olive garden, and so forth and to obtain the publishers doing more with us.

And then expanding into placements we've never been I think it's also a good indication of the transition of the open web from traditional advertising formats banners and things like that into in feed native Instagram like formats, which is basically to build evolution. So I see it.

The open web as a whole, it's a $6 billion to $4 billion market, it's mostly steel monetize with banner's unbelievable.

That's going to in my belief change aggressively my kids will view, a very different open web and the more I am seeing NBC sports of the world transitioning into hybrid placements from our school AD formats. That's a great sign so all of those things happen. Its 50% is high yield so we care about it that's about the first question. The second question about <unk>.

Short short term I don't know how much we'll see that because people are at fixed advertisers time to change, but I do think and I'm hearing a lot of kind of chatter from the market about advertisers being unhappy about prices going up.

And in general advertisers really want to diversify and have more channels that can that can scale with so I do think over time, we'll see more advertisers try and other things. So they don't feel locked into one or two or three channels and thats also ties into smart the dimension. That's why it's so important for us to make sure that when advertisers come.

Tubular because I'd say it makes it hard for them to succeed on other platforms. It works.

So thats.

So again I'm not sure if in Q4, we will see a big rise, but I do think overtime, we will see advertisers coming in for <unk>.

The reasons and Thats, one as well.

Thank you.

Thanks, John Operator, I think we had clinical one last question.

Our last question comes from Sean <unk> with Oppenheimer. Your line is open.

Hey, Doug.

Jason I'm going to take the question Hey, how are you.

So maybe just help us understand the timing I guess as to the mechanics and timing.

<unk>.

Right now are you assuming in your 2022 guidance.

Kind of the positive impact of bringing connectivity to their quota legacy.

Real estate that'd be that question more like is it in there and you know kind of maybe.

And then.

You had a September one closed I mean can you help us understand that.

We wanted to get the organic growth the impact of connectivity on third quarter and kind of what's factored in the fourth quarter guidance and then I guess lastly was there any one time items in G&A do you want to call out because it seemed a little high.

Great. Yes, thanks, Jason good questions. So first of all on connectivity in 2022. So I think you know us well enough at this point to know that we tend to try and be fairly conservative with items that we that are less certain so the connect.

<unk> synergies are something that I consider to be its a little bit like our growth initiatives, great big opportunities that we're going to be conservative with until we start to see.

See them showing up in our numbers. So we've been pretty conservative with how we are factoring connexity synergies into 2022. So when we did the can actually information session. We raised our 2022 growth guidance by about 1% that translates into about $6 million of ex Tac.

That's about what we have factored into the 2022 plan for connectivity synergies at this point. So we think thats conservative, but that's that's our intent is to be conservative with it. So that gives you an idea of how we're thinking about that.

In terms of organic growth.

Yes, the way to think about organic growth in our business.

Right now is that fair.

For 2020.

Let me talk about Q3 first so in Q3, we had one month of connectivity in there we grew roughly 22%.

Year over year in that quarter, if we didn't have the.

<unk>.

Guarantee hold backs last year, if we had paid out those guarantees that would have been $7 million more attack last year, and we would have actually grown 29%. So on an as reported basis, we reported 22% it would've been 29% without those that unusual item last year.

In terms of.

On a pro forma basis without the without the unusual item last year of those guarantee repayments it would've been 22% growth in as reported it would be 15% growth. So that gives you kind of a sense of how how to look at it for Q3 for 2012.

One as a whole we're reporting 34% to 35% growth of ex Tac and on a.

Straight organic or without the the connectivity piece.

It would have been 26% on a pro forma basis.

So that gives you some idea of how to think about the organic growth.

Your last question was you asked about any sort of unusual items in operating expenses. I believe is what you were asking about so in Q3, we did have some unusual items that we could that we should mention so.

If you look at 2020 versus 2021 for Q3, and you looked at a similar opex as a percentage of gross revenue or of X really of gross revenue, we were up about $28 $5 million versus what you would've expected.

And of that there are the unusual items, where there was a $13 $5 million increase in stock based comp. So that's just higher stock based comp related to us being public we had one month of connectivity. This year, obviously didn't have connectivity last year. So that was about $4 million roughly of an unusual increase.

We also add depreciation and amortization went up about $3 $5 million in this quarter due to the connectivity purchase price accounting, so amortization of the Connexity goodwill.

And then we had $2 million. This year. This year this quarter of M&A costs related to closing the <unk> transaction and about $4 million of public company expenses. This this year that we didn't have last year. So all of that those unusual items add up to be about $27 million.

Of the $28 $5 million increase year over year in terms of unusual items.

Hopefully that gives you a sense of what was unusual about this quarter relative to last year.

Great. Thank you very much.

Alright, thanks, Thanks, Jason.

Yes.

There are no further questions I'd like to turn the call back over to Adam for any closing remarks.

Thank you and thanks, everyone for joining.

Energized by our progress financially, we're beating 34% growth year over year faster than the entire industry over the last two years, 60%.

Our adjusted EBITDA converts to free cash flow, which obviously matters and I think unique to boot.

We're well positioned and strong market dynamics.

They are taking place with privacy in supply chain, we're doing we're doing really well and growing connectivity is bidding financials were integrating we're just getting started a $100 million of synergies.

<unk> seen good growth in our core business with yield, beating our expectations Smart dimensions line and others R. R.

We're taking our technologies and also the growth engines that we love recommending anything anywhere to with our newest Shaone me NBC sports with video then too. So there's a lot of good momentum we're having a good time I look forward to talking to many of you over the next few weeks, thanks for listening and asking good questions and also looking forward to.

Q4 in 2022, just to begin and thanks, everyone.

Thank you for participating this does conclude the conference you may now disconnect everyone have a great day.

Okay.

[music].

Okay.

[music].

Good day and welcome to the symbol of third quarter 2021 earnings call. At this time all participants are almost the only mode. After the speaker's presentation there'll be a question and answer session.

That's a good question during the session you will need to press Star then one on your touch tone telephone.

Once you require assistance during the conference. Please press Star then she loves to reach an operator.

As a reminder, this call maybe recorded I would now.

Like to turn the call over to Jennifer Horsley head of Investor Relations you may begin.

Thank you good morning, everyone and welcome to two bullets third quarter earnings Conference call I'm here with Adam <unk>, our founder and CEO and Steve Walker our CFO.

No.

We issued our Q3 earnings press release yesterday after market and its available along with our Q3 shareholder letter in the investors section of our website.

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 for 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, John and good morning, everyone and thank you all for joining us for our third quarter call I'm excited to share. The progress. We've made we again delivered incredible performance in the third quarter. We beat our Q3 guidance were raised in Q4 and as a result 2021 overall.

We also occurred this quarter on connectivity, our largest acquisition to date.

As a reminder, our Q3 results and our guidance included one month September of connectivity performance.

A few numbers that highlight our Q3 performance revenue was $339 million in the quarter up 17% year over year ex Tac gross profit, which is whats left for us after we share revenue with publishers. The main metric. We measure is management was $127 million up 22% year over year above our guidance range of 100.

$22 million to $124 million. We also delivered strong adjusted EBITDA of $40 million above our range of 36% to $37 million.

Adjusted EBITDA is a good proxy for profitability to boil that generates good cash flow over the last two years about 60% of our adjusted EBITDA converted to free cash flow.

I am very happy with the team's execution and these results give us confidence to raise our Q4 and full year 2021 guidance a couple of highlights on 2021 and Steve Our CFO will provide more information later ex Tac gross profit of $512 million to $515 million, which translates to growth of 34.

To 35% for the year. This is dramatically faster than the advertising market worldwide. This is above our previous guidance of $503 million to $509 million that we shared at our e-commerce with connected information session.

And to provide additional context, our original projection of ex Tac at the beginning of the year when were on the road raising money for a public offering was $445 million and 70% growth we've doubled our initial growth expectation.

We now expect adjusted EBITDA of $174 million to $177 million, which is growth of 64% to 66% for the full year and above our previous guidance of $168 million to $171 million again. This is nearly 50% faster growth than our forecast from the beginning of the year of 127.

<unk>.

Lastly, I will touch on later, we did not see an effect in Q3, nor do we expect one in Q4 from privacy dynamics or supply chain.

When looking at our performance I am encouraged by all of it it shows against the right strategy focused on execution is key to meet and beat our own expectations. Let me share now some details on our strategy business and what we're seeing in the market.

Starting with Ebola strategy. Some of you may or May heard. This however is a newly public company I wanted to remind everyone about our vision, where we fit and our winning aspiration.

Power's recommendations for the open web we reach half a billion people a day and help them discover things. They may like the open web as you May know is the terms for all great websites and publishers out there that you love that are not Facebook, Amazon, Google Apple or the like it's really important even essential because it's free and diverse and it doesn't belong to anyone.

Giant company it belongs to everyone and Thats, what they will face.

We have established long term partnerships with some of the most amazing publishers and digital properties in the world such as the BBC Global CBS side, Comcast and many others. We work with about 9000 publishers globally, we're important to them a lot of timetable as a top through revenue source and as part of our product led approach we empowered.

Entire publish organization, we drive audience engagement growth and other things. This includes things such as newsroom, which is used by Vittorio teams and our subscription offering fuelled by the product team and many many more at the center of what we do is proprietary to deep learning recommendation engine that is able to infer what a user might be interested in based on current.

<unk> and our own curiosity U S.

Looking at what people who read this also similar to Amazon people, who bought this also bought this means that we're not relying on third party cookies or idea Fe, but further our own proprietary data.

We are focused on product innovation and growth investing $100 million a year in R&D to forever bolster our platform and bring new solutions to our partners and it's critical for us to invest in things are publishers partners want as well as advertisers clients need as they look to diversify outside of the walled gardens. It helps us to become more strategic.

As we look to work with our publisher partners Forever. There is also a network effects in our space being bigger matters. The more publishers you have the more reach and data you have more advertisers can come in and your yields in the end goes up and yields going up is one of the most important things we like to see is it makes us even more competitive with.

Participate in a $64 billion market called open web and this is our foundation of business with a moat built on 14 years of technology and algorithms innovation direct publishers and advertisers relationships.

The strength and predictability of our business model along with the relationship we built have allowed us to expand beyond core recommendations to two main areas.

First is to expand into recommending anything over the next 10 plus years much like you can search for anything on Google what to read like Dubai, where to go we want to diversify what to recommend and to grow our yields for publishers in that way, which helps us become even more competitive.

The time, we went to our common apps games and other types of verticals in Q3, we continued to see great progress with recommending video we call. It high impact placements, which is work where we expand from bottom of article intimate article Homepages section fronts. In other places. This is where we serve the video formats something agencies and brands love It.

This point Brandon agencies, roughly 15% of our business and every time, we serve that video our yield is even higher we're able to pay our publishers even more we earn more it's high quality advertising experience. It's just great.

Our connectivity acquisition falls within our recommending anything strategy, allowing us to recommend products and tap into the huge $40 billion open web E Commerce market Connexity will help us transform the open web into one big shopping cart imaging, how much you trust the publisher that reviews of products more and how much would consider buying a product at CNET says it's better.

Our wires cutter says, it's better our future today review Dot Com said, its better, especially on the back of the pandemic. We are buying online so much more and trusted publishers can shape that future in a big way, we expected in coming years, one third of the open web publishers revenue will be E. Commerce. This is a great for retailers as they want to diversify.

Outside of walled garden themselves.

There is no other comparable connexity out there in size or scope and we believe by client connectivity, we have years of advantage in this space.

The second area of growth for us is expanding to recommend anywhere. This is why we're taking our recommendation engine and publisher partners anywhere people spend their time as an example is stable and use our version of <unk>, but for Android devices, we had great momentum this quarter on this as well, where we announced partnerships like xiaomi, reaching over $100 million devices are.

<unk>, which we discussed in previous quarter overtime, you should expect to see table anywhere on connected TV apps as even every app on the TV needs AI to engage consumers with our content will be in automobiles like Spotify has music integrations, we expect to rollout to bring podcast local news entertainment to any color out there and audio devices at home.

<unk> interaction with consumers over time, we want to be recommending anywhere.

Now, let's discuss our strategy and how over time, we recommend anything in anywhere I'd like to share some business momentum and progress we've made in the third quarter.

It's only one month of Q3 includes Connexity, let me share some updates about tubular business before Connexity, we've continued to build new relationships with premium publishers and digital properties in Q3, 46% of our growth came from new relationships to name a few we announced line today think of them as what's App of Asia Pacific.

Line messaging, App, which has more than $188 million global monthly active users and provides a wide range of services to its users line today's services of news and content hub within the line App and Kabul. His recommendation engine will operate online today, Hong Kong to start connecting users with news they may like but never knew existed much like Apple news.

John.

We also announced a new three year strategic partnership with weather Zone, Australia's largest private whether service. This partnership includes the boiler feed our high impact placements, which is also our video solution fits and tubular news. Both of these examples are great demonstration of our growth in our core market on the advertiser side, we are constantly building new <unk>.

Nation ships with advertisers and agencies looking to reach consumers and brand safe environment on trusted publisher sites and open web and diversify outside of the walled gardens are good example from Q3 is where we entered the new three year strategic partnership with Dentsu, India and multinational agency headquartered in London under this partnership are.

<unk>, India will have access to dentsu offering across its entire customer portfolio. Denso agencies was also able to drive brand awareness consideration and conversion from trusted brand safe environment.

In Q3, 54% of our growth came from growing existing clients, primarily driven by yield when thinking about yield as I wrote in my letter and investors should think revealed much like growth drivers look at our dashboard RPM is everything thats matters RPM is revenue generated for 1000 impressions and it's a multiplication of.

Three variables clickthrough rates CPR.

Cost per click CPC and cost per conversion CVR. None of these should ever be looked at in isolation is in fact, there are scenarios, where <unk> go up but can go down who could prioritizing Tyson creative gets higher click through rates, but conversions will go down advertisers would lower CPC and yields will actually.

B lower another example can be prioritizing aggressive class advertisers, who gets higher click through rates traditionally let's pay much lower CPC is here as well yield will go down light crudes relates went up.

Much like in racing cars, whereas predominant or doesn't matter and only RPM matters also on the open web.

Croatia is irrelevant.

<unk> irrelevant and conversions are irrelevant as independent variables all aimed at three come together RPM can go higher.

Tubular measures yield an RPM checking my letter if you want to learn more about this area.

Outside of core we also made great progress in our two growth areas, we've been discussing recommending anything in anywhere within recommending anything looking at recommending video, we announced a partnership with NBC sports will launch our high impact placements, which means we're expanding our presence to meet articles homepages and highly visible placements, which brands and agents.

We love these high impact placements are key drivers for our video initiatives, which also helps us grow our yield and as a result become an even bigger revenue driver for our publishers partners to further assist in that we also announced in the quarter brand safety partnership we obtained the trustworthy accountability group called Tag.

Brand safety certification this confirms to advertisers that tabbouleh has high standards and has taken proactive steps to drive high quality traffic Tag is an organization that works works to increase trust and transparency in digital advertising, we also announced a new partnership with double verify that makes available directly within <unk>.

<unk> console advertisers can now easily used up a very high solutions to verify brand safety.

Sharing more on our progress to recommend anything let's look at how we recommend products. We made a big bet. This quarter acquiring connexity, we closed the transaction on September <unk>, and therefore recognized one month of the results in hours.

<unk> had a strong Q3 exceeding all of our expectations and selling new publishers like nearing Webster and your merchants, such as Dell UK and others.

Further context on the success connectivity is having I will share a few Q3 success stories, while large publisher partner in North America is starting in the 150% commerce content growth year over year with connectivity into 2022 as well as taking the success in the U S and expand our team in Europe, which works with connectivity.

Five fold in 2022, and another example, a fashion company spend with connectivity five times higher year to date with the peak shopping season still to go they tested with connectivity and moved into always on campaigns, which means they now trust connectivity and intend to spend as much as they can so long that it converts.

I personally am engage in conversations where publishers are choosing to work either to renew or for the first time as they want connexity built into the forecast and their strategy as well as ours. It's only been a few months and I like seeing these early signs of the market reacting positively. This is only the beginning since the acquisition closed we have.

Walk through the details of our integration and our plans to capture $100 million of synergies we outlined in our e-commerce with connected information session in late September.

We're even more confident in our future success after a deep dive with the team and when I think about our competitive advantage in the commerce affiliate space. Specifically there are four things that are unique to us one strong relationship with publishers, who trust us and want to do more with us to strong relationships with advertisers retailers and merchants.

<unk> built on the foundation of high performing scaled network.

<unk> data, we know what people read and know what people buy and we can use that to guide publishers about which content they need to write it out I hear so many times as many publishers have never got into e-commerce, because it will not show or to even begin what right. So that feels authentic to the readers we can help.

And for our last but not least traffic the ability to drive audiences to our publisher partners to build on our reaches half a billion people a day and we can provide positive our traffic to those pieces of content, we can create together.

We then recommend anywhere we recently announced the Tabbouleh news, where we take our publisher partners to other canvases, where users spend their time continues to scale and now drives an average of more of more than $220 million monthly engagements on editorial content through mobile device and OEM partnerships. This represents an increase of.

More than 270% year over year in Q3, we announced another exciting partnership with Xiaomi as part of cable news Xiaomi is one of the second largest Android OEM manufacturer in the world and they will integrate a feat of tubular news under devices.

Now, taking a big picture view and before I pass it over to Steve to discuss our results further I'll make a few comments on the market more broadly.

As we've stated before we are a business that is not reliant on third party cookies, and we instead leveraged contextual signals to deliver relevant recommendations.

This is also true for connectivity whether comments recommendations are solid intent driven.

This quarter there was a lot of conversation on privacy impacts on IRS changes in <unk>, we did not see an impact from these on our business towards yield keep growing through our ability to leverage contextual signals due to our hearts coated integrations with 9000 publishers through which to reach 500 million active users every single day.

This is an important now and we'll become even more important over time as advertisers look for alternatives to the walled garden.

There also have been a lot of conversation in news about supply chain challenges faced by some manufacturers and businesses were tracking just like everyone and it's clear to us all but as I updated on my letter did not been impacts from supply chain challenges in Q3 and that is mainly due to our diverse advertiser base and growth in digital first advertisers.

So feeling comfortable about Q4 and raising our guidance. So in summary, I am very excited about what we accomplished in Q3 and how connected integration is making progress and what is still to come in Q4, and 2022 I will now hand, it over to Steve who will dive in deeper on our financial performance and guidance.

Before I get into specific numbers I have a couple of items to highlight now that we have completed the connects via acquisition first we closed the <unk> acquisition on September one and as a result, we have one month of connects to the results in our reported Q3 financials. This is consistent with the guidance that we gave during our e-commerce.

With Connexity information session on September 28, which also included one month of connectivity results in our Q3 guidance.

Second we have determined that going forward, we will account for connectivity business on a net revenue basis.

Profit for the rest of the tubular business.

To have our comparisons on an apples to apples basis, we adjusted our Q3 and full year guidance to reflect this net revenue recognition treatment for connectivity.

Adjusted guidance for our revenues in Q3 is $331 million to $335 million and would have been 135 to $1 $3 $6 billion for the full year.

With our outperformance in Q3, and our higher expectations for the full year. We have raised the full year 2021 gross revenues guidance to be 136 to $1 $3 7 billion.

Again note that nothing else changes in our guidance due to this accounting change the only adjustment is the top line revenues.

Since we are still relatively newly public I'll also repeat the comment I made last quarter to remind everyone of how we look at and measure our business. We're focused on achieving profitable growth. The way we measure our performance against this goal is by looking at two measures to measure growth, we look at our ex Tac.

<unk> gross profit growth rates ex Tac as what we keep from our revenues after we pay our publisher partners to measure profitability. We look at our adjusted EBITDA margin or adjusted EBITDA margin adjusted EBITDA divided by our ex Tac gross profit.

Just SaaS businesses have a rule of 40, where they always want their growth rate plus their profit margin to exceed 40%, we too want that some of our ex Tac growth rate and our adjusted EBITDA margin to exceed 40%.

So now onto our Q3 results.

We were a rule of 50 company this quarter.

That are new to our network since last year, the new revenue growth was right in line with our plan. So we are continuing to see plenty of opportunities to bring new digital properties onto our network.

In terms of growing our existing relationships, our net dollar retention or <unk> on an ex Tac gross profit basis exceeded expectations. It was 112%, which primarily reflects strong improvement in yield so very good growth on both fronts, bringing on new partners and.

Also growing our existing partner relationships.

Our ex Tac gross profit was up $23 million or 22% year over year. It benefited from the growth in both new and existing digital properties. The addition of one month of connectivity as well as from the continued flywheel effect that Adam referenced this effect drives improvements in yield.

And helps us move from pain, some publishers on minimum guarantees to paint on Rev share over time.

Excluding share based compensation operating expenses were up $27 million.

Second part of this year over year increase comes from including one month of Connexity in operating expenses.

Third there are higher professional fees and legal expenses related to our M&A transaction.

This included a partial reopening of offices in several countries and some increased travel.

This strong revenue performance flowed through to the adjusted EBITDA of $40 million, which was better than expectations and guidance. It was however flat year over year as the increase in gross profit was offset by the increases in operating expenses that I just described.

From a margin perspective, the 31, 4% ratio of adjusted EBITDA to ex Tac gross profit was above our guidance and model.

It is worth noting that net income was $17 $3 million, which was $600000 higher year over year.

Net income was above our expectations.

Net loss of $5 $7 million.

Driven by a $17 million reduction in warrant liability lower income taxes, and higher gross profit that more than offset higher operating expenses.

We ended the quarter with $312 million in cash and cash equivalents after the cash consideration paid for the connectivity acquisition.

After netting out the $300 million in debt that we raised for the acquisition. We had positive net cash. So we feel good about where we are from a capitalization point of view.

<unk> profit will be $512 million to $515 million, which represents growth of 34% to 35% versus 2020.

That is an increase from our previous guidance of 31% to 33% growth that we gave during our e-commerce with connectivity information session.

We're expecting 2021 full year, adjusted EBITDA to be $174 million to $177 million, which represents growth of 64% to 66% versus 2020.

This demonstrates a very healthy adjusted EBITDA margin, meaning adjusted EBITDA divided by ex Tac gross profit of over 34%.

Per my previous comments about always seeking to beat the rule of 40, our growth rate of 34% to 35% and our adjusted EBITDA margin of over 34% well exceeded that goal.

For modeling purposes, we estimate our fully diluted shares outstanding at the beginning of Q4 to be approximately 272 million shares.

We are not updating at this time the guidance for 2022 that we provided during our e-commerce with Connexity information session, except to adjust the topline revenues guidance for connectivity for the connectivity accounting change that I mentioned earlier this results in our previous 2022 revenues guiding.

<unk> of one 7% to $1 $75 billion to be recast as 159% to $1 six $3 billion.

To be clear the only change in these numbers is to reflect that accounting change and the change does not affect the fundamentals of the business. We look forward to providing an update on our 2022 expectations during our Q4 earnings call.

Let me wrap up by saying that we continue to see many paths for growth in our business and we continue to invest to invest in these growth areas. We believe we will continue to grow our core business by bringing on more digital property partners and by growing revenue from our existing partners, primarily by continuing to grow our yield and has added.

I spoke about earlier, our investments in recommend anywhere and recommend anything growth strategies are showing good promise and we look forward to telling you more about that in future calls.

Finally that connects the acquisition is a game changer that will provide significant upside to our business going forward on that note lets open it up for questions.

As a reminder to ask a question. Please press Star then one.

Thanks for your question has been answered and you'd like to remove yourself from the queue press the pound key.

Our first question comes from Stephen Ju with Credit Suisse. Your line is open.

Okay. Thank you and good morning, everybody so Adam thank.

Thank you announced yesterday smart fit dimensions.

We understand this product correctly it seems like other companies who have.

We released conceptually similar solutions.

About this being a catalyst to the hopefully onboard more long tail marketers because this helps too.

<unk> advertising in general So we're wondering if this will help you.

And the Advertiser base from the court about 14000, or so it's hopefully something much bigger.

But also you.

<unk> also expanded relationships with publishers like NBC, but Onboarding I think you mentioned line early.

<unk> as well as Shelby so conceptually how would your products deployed on Florida today.

<unk>.

And you have about 500 million users right now like what can these two partnerships do in terms of hopefully on duplicate it duplicated our protracted user growth. Thanks.

Hey, good morning.

Good morning, everyone.

For the question Stephen.

Start with the first one.

Smart.

Dimension is a big deal in the sense that it is going to do two things one of them you touched on.

Which is help advertisers.

Smaller advertisers, who may not have the knowhow of statistically the advertisers to be successful and Thats basically it's very much a com hem.

Hands off or in a really autonomous experience for advertisers who onto villa can succeed so that's going to be once and yet we expect to happen in the second one is actually even for existing advertising base is up until now they have to log into to build.

Multiple times a day creates multiple campaigns to find further optimization beyond the way we used to do it now they're going to have to actually do that much less which will free up their time towards more reachable to increase budget, so and just to be successful with us as a recap of what exactly dimension is up until now.

85% of our revenue that is controlled by a smart grid, which is our AI software that helps advertisers to be successful optimize at the publisher level, which means if one site.

What did really well for a certain type of advertiser, smart, which would increase the CPC to get more traffic from that site and if it was not performing to a decrease in secrecy.

GAAP. It created is that smart we did not take into account as an example, one example that I'd like to give is it lets say this publisher had one article that was actually great for the partner for the advertiser, but the publisher as a whole was not that great Smart Mitch.

Decrease the CPC, even though one article is really doing well so that advertiser as of now it will not happen smart, which will basically creates more dimension and more granular view of the tubular networks and for that piece of the article it will increase the price and for the rest of the site. It will decrease the price so advertisers will be more successful in.

So thats about smartly dimension about Xiaomi in line. This is great for <unk>.

<unk>.

As a reminder, what it means so companies actually Ionia, which has 100 million devices will integrate if that's possible in news which is.

<unk> recommending anywhere that's one of our growth engines areas that means that when people buy xiaomi as it continues to rollout to below will be pre installed on the device. It will be in the wake screens. So as you look on the device will surface news you might like so it's very much domain experience the user experience that people will have.

<unk> powered by <unk> and what's really nice about it is not only this is a revenue opportunity and I'm excited about it it's actually very strategic to us because as opposed to Apple News every time you click on a piece of news that you discovered by <unk>, We opened a browser and you go to the publisher site, which means that over time demonstrable unused become successful.

Our publishers will receive traffic from tubular, which would be similar to SCO, which is a big part of googles business, where Facebook and Twitter and alike and it means we're going to be more important to publishers. So when you're thinking about the competitive advantage and how we continue to grow over time yield is obviously very important.

But if we can become 5%, 10% and more publishers sources of traffic using to build our news that's going to be a big deal. So we fly an integral with Xiaomi. That's that's how it's integrated line, it's going to be again, a feed of recommendations integrated in the <unk> shale meets on the devices in the wake screen.

Great. Thanks.

Next question.

Our next question comes from Andrew Boone with JMP Securities. Your line is open.

Hi, guys. Thanks for taking the question I'd like to hit on Smart dimensions as well can you just help us understand the AD performance and look you guys started kind of machine learning deep learning efforts five years ago.

Sure.

How do we think about this developing over time as you guys kind of add more data and publishers adopt it more and advertisers adopt mark can you just talk about whats the benefit today as well as kind of how that develops over time.

Yes so.

Yes.

A bit more information about that we've added so dimension adds about 40 as I mentioned that smart, which will start looking into which we did not do up until now so that includes.

<unk> automatically by smart big so the advertiser watching smart meter once smart with Mike.

Break that companion to 40 pieces based on what works and what's not behind the scenes so to advertise it wouldn't have to do anything and up until now and by the way that's very common for other companies in our space and.

And Thats, a differentiation and advantage a lot of times as advertisers have to bill knowhow of how to optimize in the platform. They work with so they have to kind of figure out is just what I can in this geography is just waiting for that time of day and should be create something for the morning, something from the evening all of those efforts on the advertiser side, a lot of times prevent them from even working with us.

To work with us increased the budget and more advertisers to come along.

And then again I'm happy to give more examples over time, what we do is we especially now with connectivity we had about 1 million.

<unk> is a month that connects he's getting I think we've talked about that on the information session. As we're emerging datasets of connectivity and the data set the readership of tabbouleh, smart, which will enable to note even more and then further.

Optimized for advertisers' success, our goal is for advertisers to.

Lowest conversion lowest CPA acquisition costs. So they can scale with us and for that data helps us AI helps us getting more publishers helps us.

That's a continuous and forever kind of efforts if I had to kind of guest from.

From one to 10, where we're still early I mean, I think there's so much work for us to do this is of course, a big announcement, Andrew but there's so much more for us to do and.

It's a big effort for R&D, Yes, let me just jump in and put it in kind of a broader context I think we've talked about as Adam just kind of alluded to we've talked about the fact that we're very early in our yield growth journey. We believe so we think that we could grow our business.

As a synthesis of all three of those right because it's bringing in more data getting more granular with it making more advertisers successful. So we can bring on more advertisers over time. So this is a really important step in that journey, but kind of just demonstrates how early we are in that journey and how we can continue to grow the business through yield.

I'll also just one last note that I think it's worse.

And I wrote about that I, even put it a screenshot of the car dashboard, but smart job is to under one side help advertisers to be successful and thats measured usually with a conversion measurement. So.

What's the price of an acquisition and how much we're able to scale and on the publisher side, it's measured by optimizing for yields which is RPM revenue per thousand impressions. As a reminder, our smart, but does not care about clickthrough rates independently does not care about CPUC independently does not care about conversion rates independently in fact, any one of them is completely dangerous.

To monitor and track the smart, which was just looking at optimizing particularly it was it would have prioritized enticing creative it would prioritize perhaps even advertisers that don't succeed.

Until the launch this early and then Overtimes GPC would go down and yields would go down so actually it's quite dangerous.

Look at just one metrics Margaret is looking at all three and on the Advertiser side, making sure conversions are exciting and meeting their thresholds. That's a lot of hard work and Thats why we invest so much in deep learning to make sure that successful.

Thanks for the question Andrew.

Hopefully that addressed it.

Greg can I follow up with a second in terms of just connectivity.

As we think about e-commerce demand, which is coming onto the platform more broadly can you talk about bringing e-commerce stand specifically onto more core to US right. So so how are you guys incorporating especially when you think about for Q e-commerce onto the core to Google platform. Thanks.

Thanks, guys, yes, yes, definitely and thanks for the question. So I would say that the most immediate thing, which we're working on is to bring <unk>.

Connectivity demand onto <unk> core experience as our tubular feeds all around the world on 9000 publishers.

We've mentioned that you believe a single digit percentage of our traffic is high intent already and is able to basically absorb those high pain and premium retailers that are looking to convert.

In the open web so thats something that we expect Jeff and it's one of the synergies and then if you remember we've talked about it over time one of the biggest goals. We have is to increase the portion of traffic. The open web has and as a proxy of publishers have with intent from single digit to too much more than that and thats going to be.

A lot of great work that we've started doing and I'm seeing good momentum for publishers.

First the immediate thing as well.

Working on basically Hasnt connectivity advertisers bidding in the tubular ecosystem and my expectation is that about a single percent of traffic will gable to win that demand and the yields will be much higher when that happens.

If you saw what I mentioned <unk> 15 minutes of Facebook in terms of revenues is about one minute and Google So intense.

Creates a logarithmic.

The higher RPM.

So that's that.

What's going to happen and we're working on having them bid on.

On our network and when the wind is going to be higher yield more revenue for publishers.

More margin and all those good things.

Great.

Thank you operator next question.

Our next question comes from Laura Martin with Needham Your line is open.

Adam I just wanted to build on that last question you just answered.

Talk about content quality.

When you look at your core business.

High quality.

Content publishers like USA today Interactive NBC news Bloomberg.

Like disconnects, a staff was about lead yet where youre writing content.

Hi, Thanks.

Okay.

It feels very low quality.

So tell me why I'm wrong about that and why the connectivity acquisition doesn't sort of turn you into more of a lead Gen company in a way very high premium.

Representation that you've done historically.

Yes, good question and good morning, Laura good good good to chatting. So first of all before I been connection and taken tabbouleh. Aside if you just look at the market that can market view youre seeing.

The following dynamics Youre seeing companies like the New York Times, which is definitely high quality publisher acquiring large cutter and investing in reviews and high intent content that sit side by side to the New York times, but owned by the Nuc time Youre looking at USA today. They owned review Dot Com, which is a nine digit revenue business big business as in <unk>.

Tension of them if you look at content.

Hurst Meredith.

Is generating $1 billion a year from high end 10 pieces of content and of course those are also very high quality journalistic organization.

Can go on and on seeing that obviously in Red ventures in general Mega successful. So the way I'd say it is going to be two types of integration and by the way I believe.

All the publishers, we will do it.

I believe a third of the revenue of the open web will be like like that so there's going to be two ways, it's going to happen one.

Some publishers will say, we'll take I've seen that strategy, where CBS side will have CBS news CBS sports and CNET that was before it was acquired by Red ventures or will be that the New York Times will have the New York Times Dot Com and we will have large color that carries the clout and trust of the neocons into separate domain review dot com of use it today and so forth.

And then you'll have publishers that will say well, we will build the sub domain. We will have a section on our site called shop or reviews or something like that.

So I think that's what's going to happen we're already seeing.

I think the examples of given show us that there is a highly journalistic organization did you want to tap into a $40 billion open web E Commerce Hyatt.

High intent budget debt right now most of them are outside of it so I think.

We're going to launch a site that carries the trust.

Over them or they will launch a sub domain.

And I have seen actually some great. Examples also outside of the U S and I think everybody is looking at led ventures CNET reviews, Hearst Meredith know IFC everybody's, saying, we want that strategy to where the Hell do we begin how do you I know what to write about.

I spent a lot of time over the last month with publishers everybody want it. The biggest question to me is where do we begin what should we write what field endemic and authentic to our readers and that's the main question would they do it all of them whether they began how do they write it so it feels at home and it shows relevant to the consumer.

That is where connected it comes in that is worth data comes in they're going to ask Connexity give us a sequence and a pipeline of things we need to right that makes sense to our readers and then help us monetize that then how green retailers CPC and CPA. So I think on tobacco companies like led ventures and all those folks we're going to see everyone.

On wanting to do it and I think connexity deemed the largest by far in this space, we can be an enabler for that transition.

Sure.

Thanks.

Great. Thanks, Operator next question.

Our next question comes from Cheyenne to kill with <unk>. Your line is open.

Hey, guys. Thanks for taking the question. This is Jared on for Shaun.

I know that you aren't updating your 'twenty two outlook at this point.

In revising credit connects to the accounting changes.

But given the 21 raise how are you thinking about the setup into 2002, we see further upside at this point.

Hi, Jared.

Good question. So I think the reason that we're not raising in 2022 at this point is we basically just released that guidance.

Roughly a month ago. So we are at this point, we're still standing by that we still feel very good about 2022, and we think we have good strength going into the year, but.

We'll update that guidance as we released our Q4 results in February So we will give an update then I think.

Generally speaking to your broader question I think what you are asking about is how do we feel going into the year and how is.

How are we doing I think generally speaking.

We're feeling very good we obviously raised Q4 because we.

Had a great Q3, we see good strength going into Q4 here. The Connexity is doing very well, we're actually ahead of our.

Point.

Yes.

In terms of just where we are we're making good progress I would say on the people front.

We're in London. The teams are already together in New York I expect the first half of the year, we'll have the folks being together.

<unk> are great.

Connectivity keep signing great advertisers and publishers. So I would say the business is continuing to have great momentum Merriam Webster assigned Dell U K signed.

So thats just not independently as exciting to me are more on synergies AD sales, which was one of the synergies as a reminder, connectivity has built an amazing business with to add salespeople. We obviously have many so as people all around the world. We've started the global expansion essentially via our international salespeople that includes China, and Brazil to start but more to come.

And in fact, it was a nice surprise there because we saw that as our AD sales, particularly in China reached out to retailers. Many of them wanted to actually buy in the U S. As well so not only in China mainland Thats, great because thats basically means demand from China being exported into the U S, which is great for yield here in the U S.

S and continuous growth here as well so at shows from a synergy perspective has started China and Brazil to start publishers, we started upselling to publishers just the Standalone <unk>.

Service of schematics and connectivity.

Which is related to what Laura has asked before I will tell you. We're seeing can also deliver ship level given to <unk> is a bigger company and add.

The only sources, how do we build sort of a batch of publishers that gets even a more resource heavy implementation, where we can grow even faster. So growth is something on our mind, we wanted to really double down and make this a huge success and I already said publicly that I believe in four years, that's going to be sort of our business. So.

Very much believers. So we started the upselling that also has happened on the integration front since the close.

And these are the high level things that have started.

And thats only been amongst plus intuit. So so that's very encouraging to me and personally I can tell you and we.

And they look for us to help them get there.

Yes.

Great. Thanks, Operator next question.

Our next question comes from John Blackledge with Cowen Your line is open.

Great. Thanks, two questions.

Could you discuss the video advertising progress in third quarter and more broadly how do you view video as a growth driver in the coming years and second question on the iOS. The Apple changes just given the measurement and targeting issues caused by the Apple changes do you think to go it might see higher AD demand in the coming quarter quarters in the platts.

Forms affected.

The kind of deal with deal with the changes thank you.

Yes, hi, and good questions. So let's start with video video is represents about brands and agencies on general which is primarily video.

It is very important for us, it's about 15% of our business.

That's great every percent of traffic that gets video very similar to e-commerce generates higher yield it's high quality, it's higher yield so it's great for the consumer it's great for the publisher scripts with advertisers. So in general we love to increase.

Portions of our business when we can bring premium demand, it's page pays more and create states.

On a flywheel effect for our business. So in general we care about it and it's about 15% of our business at our size that means it's significant.

We announced this quarter that dentsu sign with us its a big agency. It is going to start in India, where basically all of their clients will have access to <unk>.

In the region. So that was a big big progress and in general we're seeing good momentum with brands and agencies, especially as we sign more and more electrical high impact placements.

So hindsight placement is the main way, we expand our our recommendation into video the way. It works is up until now our few quarters ago. The vast majority of our footprint in the open web was bottom of article and Thats fantastic for our cost performance advertisers and ecommerce, but for video they want brands and agencies want something else.

What is much more visible do you want to be in the middle of the page we want to be in the homepage to want to be in a section front. So like I said one of the biggest advantages of <unk> is that we are a publisher company. We work with many of them for three or four or five years. It's exclusive its global its long term. They trust us we have great relationships in the absolute with US we have to win.

Constantly does that means that when we bring a new solution to market. They really consider that we're not buying traffic and hope for the best.

We work with them we are integrated on their pages. So this quarter, we announced as an example, NBC sports launching high impact placements that means you will now see tool.

On those placements I mentioned and brands and agencies will be able to funnel high quality video demand into those space, but that's just one example.

As a summary, I am seeing good momentum on both the advertiser side with companies like <unk> and others coming in appreciating the open web they want to diversify outside of Olive garden, and so forth and <unk> seen the publishers doing more with us.

Look at the open web as a whole is a $6 $4 billion market, it's mostly steel monetize with banner's unbelievable.

That's going to in my belief change aggressively my kids will view, a very different open web and the more I am seeing NBC sports of the world transitioning into hybrid placements from our school AD formats. That's a great sign so all of those things happen and its 50% is high yield. So we care about it that's about the first question. The second question about <unk>.

Tubular because I'd say it makes it hard for them to succeed on other platforms. It works.

So thats.

So again I'm not sure. It in Q4, we will see a big rise, but I do think overtime, we will see advertisers coming in for other reasons and Thats one as well.

Thank you.

Thanks, John Operator, I think we had planned for one last question.

Our last question comes from Sean Ross with Oppenheimer. Your line is open.

Hey, Jason I'm going to take the question Hey, how are you.

So maybe help us understand the timing I guess distribute mechanics. So.

Right now are you assuming in your 2022 guidance.

Kind of the positive impact of bringing connectivity to Dakota legacy.

Real estate that'd be that question more like is it in there.

Glen maybe.

And then.

You had at the Denver, one closed I mean can you help us understand.

We wanted to get the organic growth the impact of connectivity on third quarter and kind of what's factored in the fourth quarter guidance and.

And then I guess lastly was there any one time items. The G&A do you want to call out because it seemed a little high.

That are less certain so the connectivity synergies or something that I consider to be its a little bit like our growth initiatives, great big opportunities that we're going to be conservative with until we start to see see them showing up in our numbers. So we've been pretty conservative with how we are fat.

During connexity synergies into 2022 or so.

When we did the connectivity information session. We raised our 2022 growth guidance by about 1% that translates into about $6 million of ex Tac. That's about what we have factored into the 2022 plan for connectivity synergies at this point, so we think thats conservative, but that's that's our intent.

Is to be conservative with it so that gives you an idea of how we're thinking about that.

In terms of organic growth I guess, the way to think about organic growth in our business.

Right now is that for 2020, let me talk about Q3 first so in Q3, we had one month of connectivity in there we grew.

Roughly 22%.

Year over year in that quarter, if we didn't have the.

<unk>.

Guarantee hold backs last year, if we had paid out those guarantees that would have been $7 million more attack late last year, and we would have actually grown 29%. So on an as reported basis, we reported 22% it would've been 29% without those that unusual item last year.

In terms of.

On a pro forma basis without the without the unusual item last year of those guarantee repayments. It would have been 22% growth in as reported it would be 15% growth. So that gives you kind of a sense of how how to look at it for Q3 for $2000.

One as a whole we're reporting.

34% to 35% growth of ex Tac and on a.

Straight organic or without the the connectivity piece.

It would've been 26% on a pro forma basis. So that gives you some idea of how to think about the organic growth.

If you look at 2020 versus 2021 for Q3, and you looked at a similar opex as a percentage of gross revenue or of X really of gross revenue.

We're up about $28 $5 million versus what you would've expected.

And of that there are the unusual items, where there was a $13 $5 million increase in stock based comp. So that's just higher stock based comp related to us being public.

We had one month of Connexity. This year, obviously didn't have connectivity last year. So that was about $4 million roughly of an unusual increase.

We also add depreciation and amortization went up about $3 $5 million in this quarter due to the connectivity purchase price accounting, so amortization of the Connexity goodwill.

The $28 $5 million increase year over year in terms of unusual items.

So hopefully that gives you a sense of what was unusual about this quarter relative to last year.

Great. Thank you very much.

Alright, thanks, Thanks, Jason.

There are no further questions I'd like to turn the call back over to Adam for any closing remarks.

Thank you and thanks, everyone for joining.

I feel energized by our progress financially, we're beating 34% growth year over year faster than in the entire industry over the last two years, 60% of our adjusted EBITDA converts to free cash flow, which obviously matters and I think unique to tabbouleh.

We're well positioned and strong market dynamics that are taking place with privacy in supply chain. We're doing we're doing really well and growing connectivity is bidding financials were integrating we're just getting started a $100 million of synergies.

<unk> seen good growth in our core business with yield, beating our expectations Smart dimensions line and others are.

We're taking our technologies and also the growth engines that we love and are recommending anything in anywhere to with our newest Shaone me NBC sports with video Dentsu.

So there's a lot of good momentum, we're having a good time I look forward to talking to many of you over the next few weeks. Thanks for listening and asking good questions and also looking forward to our Q4 and 2022 just to begin and thanks everyone.

Thank you for participating this does conclude the conference you may now disconnect everyone have a great day.

Q3 2021 Taboola.com Ltd Earnings Call

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