Q4 2021 Outbrain Inc. Earnings Call

Q&A.

At this time I'd like to turn the conference over to Jason caveat. Thank you. Please go ahead.

Good morning, and thank you for joining us on today's conference call to discuss <unk> fourth quarter and full year 2021 results. Joining me on the call. Today, we are operating as co founder and co CEO your own glut co CEO , David Kaufman and CFO at least got a follow up.

During this conference call management will make forward looking statements based on current expectations and assumptions. These statements are subject to risks and uncertainties that may cause actual results to differ materially from our forward looking statements.

These risk factors are discussed in detail in our Form 10-Q for the quarter ended September 32021 filed with the Securities and Exchange Commission and updated in our subsequent reports filed with the commission.

Forward looking statements speak only as of the calls original date, and we do not undertake any duty to update any such statements.

Today's presentation also includes references to non-GAAP financial measures you should refer to the information contained in the company's fourth quarter earnings release for definitional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures earnings release can be found on our IR website investors that outbreak dot com under news and events with.

That let me turn the call over to David.

Thanks, Jason and thank you all for joining us I.

I am pleased to report that as we expected.

I'll bring close the record year of financial and business performance with a strong fourth quarter.

Our <unk> gross profit was up 17% from Q4 2020 to $76 7 million and our adjusted EBITDA grew 13% to $23 9 million exceeding the guidance, we provided last quarter.

For the full year 2021, our gross revenue exceeded $1 billion and our <unk> gross profit was up by 40% year over year as a result, our adjusted EBITDA more than doubled to nearly $89 million.

Our business continued to grow as we work with more media partners and advertisers than ever before.

We continued our growth by focusing on providing open web media platforms with stronger monetization higher engagement and better quality leveraging our unique platform capabilities like smart logic for media owners and conversion bid strategy and real time bidding for advertisers.

Let's start with the supply side.

We continued to deepen the relationships with our existing premium media partners, extending our long term deals among others with CNN Sky News, Buzzfeed, Japan scripts or loans to keep for an average of more than three years.

While at the same time growing our market share with new material partnerships and competitive wins.

It's one excel Uk's largest group of local publishers Olympia for logged in Germany in holiday in Austria.

The momentum of wind continues into 2022, and we anticipate some significant wins in the coming weeks.

Let's talk for a minute about some of the groundbreaking proprietary technology that is helping us win in the market Smart logic.

This solution changes the game will feed personalization, taking publishers from the old world of serving a predefined user experience to everyone to a new world of tailoring the feed experience to the taste of every user.

We have deployed smart logic on about 70% of our mobile web feeds to date.

And are beginning our desktop deployment.

Our media partners see significant value in this offering as it is driving double digit yield lift on average.

It has been a deciding factor in how we continued to extend our deals with existing partners and win more market share as publishers are looking to offer the audiences, particularly younger audiences personalized experiences.

As an example.

The head of technology in monetization at <unk> media in Germany.

Worked with us to implement smart logic and noted they have seen a 61% increase in mobile page monetization as a result, he cited the higher customization to the preferences of users is driving increased engagement and optimize monetization you can see this and many more case studies on our web.

Right.

In addition, we are growing our business with our partners by expanding to more real estate on their properties.

We launched our native header bidding solution building on the strong foundation of our superior native programmatic bidding technology fundamental.

This solution allows us to expand our supply relationships with our media partners by gaining incremental access to high yielding inventory such as in Arctic replacement.

Our unique angle here is the ability to leverage data from our code on page on many of these publishers to improve on our better win rates.

It is important to mention that optimization of these bid is it takes a long time.

We have years of experience existing supply to programmatic pipes in fact, MSA one of our top supply partners has grown over the last couple of years to our programmatic relationships on the Microsoft Open exchange.

In addition, we've seen significant growth in the albumin extended network, which enables outbreaks advertisers to reach an optimized access to third party supply.

The integrations with dozens of SSP on different media platform.

We recently integrated Amazon publisher services, and Google Open bidding that will give us access to exciting and diverse new supply environment, such as new news aggregator apps.

In Q4.

We also continued to grow our supply in new environment beyond traditional publishers.

We signed partners such as vivo in highway in Q4, and these partnerships I expect it to connect our brands to advertisers with millions of new users.

Revenue from these types of partners doubled year over year and drove more than 10% of our topline revenue.

Let's switch to the demand side.

Our demand continues to grow and benefit from positive market momentum.

In Q4, we had a record number of advertisers directly running their AD campaigns on our platform and our highest ever average spend per advertiser.

Advertisers using our brand increasingly realize the opportunities to grow the business and reach more customers on the open web in contrast to some of the limitations, they're experiencing on walled gardens.

We see an increasing number of high end brands shifting budgets to outcome based campaign goals more.

More than 40% of our business comes from Brian and agencies. For example, we grew our business with Disney class supporting the growth of subscribers for the streaming service across Europe . Amazon also increased the budget with us promoting Amazon prime by leveraging our native video formats. These are just two examples.

More and more businesses are embracing digital customer experiences and sell direct to consumer as well as increasing the digital budgets.

Further in a consumer survey conducted by a third party market Research company. It was found that consumers trust the content and recommendations they find on news special interest in herbicide significantly more than those found on social media.

The same survey reported that over 20% of consumers tend to spend less time on social media in the next six months.

This reinforces our optimism in the opportunity to continue to grow our recommendations on the open web.

We are investing in building the operational infrastructure to support our growth.

Our team by nearly 200 people in 2021 and Israel in Slovenia, We have R&D hubs, where our highest growth region.

We're very pleased with the strategic investment to accelerate our video offering through the acquisition of premium contextual video solution be the intelligence ovi in short.

We are already seeing some of the benefits of the synergy having launched the offering on several of our publishers in Q1.

With <unk>, we are able to accelerate our growth in the large market of being streamed video, which is very desirable for advertisers, particularly brands.

It also gives us an entry point to CTV.

We plan to accelerate <unk> growth by leveraging <unk> global footprint and deep publisher relationships.

To sum up the 40% growth year over year <unk> gross profit for 2021 came in large part because we are realizing the value of the investments we have made in our business over the last few years.

We will continue to invest in technology.

Typically in our core engine, we choose as deep machine learning and AI to personalized recommended content and ads over to over 1 billion users around the world.

At least we will provide more details on our guidance.

You will see software growth rate for Q1, driven by lapping a very strong Q1 in 2021 heavy with political and pandemic news consumption.

As well as an impact on some timing factors on optimization and expansion opportunities.

We expect to see an acceleration of excellent growth over the remainder of the year.

We anticipate a lot of headroom to grow so overall I'm very optimistic about the future of our business and the role we play in supporting journalism, and a free and open internet.

Now I'll hand, it over to Iran.

Thanks, David.

Before I switch to my prepared remarks, I wanted to acknowledge the situation in Ukraine.

Part of the video intelligence acquisition, we announced earlier in the year, we now have small R&D team based in Q3.

Entire operating team supporting our Ukraine colleagues wishing for speedy return to peace of normalcy for the people of Ukraine, We don't expect any material negative impact on our business from the events in Ukraine.

I want to talk today about a few important directions, our industry has taken and how we're innovating and leading the way on those.

The change I'll cover in more detail today is the imminent demise of third party cookie.

Also talk about supply path optimization or spo.

Now cookies started this almost a half and the early browsers and the 19 nineties and while they had some neat intended uses those unintended consequences of tracking and targeting that will remainder lengths in the future.

Now cookies themselves are not then when used in a specific site is what's called first party cookies. They are immensely valuable for example for those who enjoy wordell begin would not exist if it werent for first party cookies.

Operating uses such first party cookies to supplement our contextual data signals driving our personalization algorithms and these are here to stay for years to come none of the trade organizations browser companies or governments have been proposing any changes to first party cookies.

Here are a couple of ways, we've been pushing forward on product and technology in recent years to ensure that we leverage these market trends as competitive advantages for years to come.

As you May know contextual targeting technologies don't use any cookies at all and target ads to the current context. These are interested in.

And the world of text and articles a core team of operators and myself were the pioneers of contextual advertising on the Internet at my previous company.

Now we've complemented that with the acquisition of <unk> video intelligence, which adds to our bringing some deep contextual targeting technologies specifically for video.

<unk> also allows us to serve highly relevant video content and adds to the user without any use of cookies at all.

These capabilities are very exciting for us in 2022, but will likely be paramount for us and for our partners in 2023 and beyond as third party cookies come to their end on remaining browsers.

Over the past few months, we've also been innovating at a fierce pace on the opportunities afforded to us by the demise of third party cookies I want to share. One example here.

We recently announced a technology called engagement that strategy or <unk> for short.

UBS is a progression of a couple of year old technology that we built called conversion bid strategy or Cvs, which is used by thousands of <unk> advertisers.

Both technologies are designed to automate the targeting and bidding capabilities for advertisers an outbreak.

By using these technologies advertisers can achieve tremendous skill on their campaigns, while automatically optimizing their Roe or return on ad spend.

Our breakthrough innovation on EPS is that it does not use any form of cookie data at all.

Instead, EPS connect to the advertisers analytics system be it Google analytics, Adobe et cetera, and aggregate insights from them.

And then based on our advanced data science capabilities EPS automatically targets highly engaging ads to the right users.

CBS is in its early stages with several dozen advertisers using it.

We're excited excited about the innovation here is we believe that our technology approach is unique and should give us a great headstart in the calculus world as we keep pushing this technology forward.

Switching gears to another topic that has been on People's minds lately is that of supply path optimization or spo.

You might not have heard of this acronym specifically, but you may have heard of the recent skirmished, resulting from it where the trade desk recently announced that it would start driving demand through googles open bidding.

This move could also affect many of the ssds that are currently serving ads from the trade desk.

One of the relative strength of the operating model is that we are an end to end marketplace without any of the ads spaghetti that you typically see between all these dueling AD tech companies.

There is no supply path optimization or world for the simple reason that our supply path is very simple.

Our media partners and our advertisers, there's only one company outbreaks.

For the vast majority of our business, we work with both sides of our marketplace directly.

This ensures not only full transparency for our partners, but also that the advertisers are used to maximize its return on AD spend and then about 70 of each advertiser dollar ends up in our partners' pockets.

For about 85% of our business, we don't rely on any <unk> or <unk> or other links in the state of your chain.

There are several other areas of big change currently happening, which we are investing in and expect to leverage over time for.

For example, the shift to registered of known users on many publishers authorize a reader revenue in the form of subscriptions and ecommerce related revenue, which many publishers are keen to capitalize on.

As with our market, leading innovations on Evs and the acquisition of <unk>. We are looking at these big market trends is tremendous innovation opportunities for <unk> and for our partners, who rely on <unk> technologies I'm looking forward to sharing more about our innovations we're working on in future quarters.

And with that I'll hand, it over to Lisa to talk about our financial results in more detail.

Great. Thanks <unk>.

Please it was another quarter of strong financial performance hitting both our excess gross profit and EBITDA guidance for Q4.

We also again, so very healthy adjusted EBITDA margins. Despite our continued investment in our people and products to drive continued innovation and market leadership.

For the quarter revenue grew 18% or $44 million year over year to approximately approximately $290 million.

26 million or 10 points of growth came from net revenue retention of our existing supply base.

As a reminder is equivalent to the same store sales metric.

This growth came from generating higher yields despite lapping a very strong Q4, 2020, which saw steep COVID-19 recovery and volume benefits in the U S election cycle.

On a two year stack basis, Q4 grew 53% versus Q4 2019, the highest two year growth quarter of 2021.

In addition to retention growth. We also grew by approximately seven points or $18 million as compared to Q4 2020 from the addition of new supply partners. This has been a steady source of revenue growth for us over the past two years.

Mobile devices exceeded 70% of our total revenues in the fourth quarter.

At Southwest Plaza in Q4, which is the revenue we keep after paying traffic acquisition costs for our media partners increased $11 million or 17% year over year to $77 million.

Moving to operating expenses, we saw an increase of $16 million to $58 million in the fourth quarter approximately $9 million was from higher personnel related costs, reflecting continued investment in our global teams, adding nearly 200 people in 2021 and.

In addition, this quarter, we have higher costs associated with being public and are seeing higher marketing Feeney and facility expenses as activity gradually comes back to more normal operations.

Adjusted EBITDA, our primary measure of profitability increased 13% year over year to $23 9 million in Q4, which is over 30% of our SaaS gross profit in the period, despite approximately $1 5 million or six points of unfavorable foreign currency headwind on EBITDA.

And then just a final comment on the P&L in the fourth quarter. We recorded a one time tax benefit of $31 $8 million to income tax expense related to the release of evaluation allowance on our U S deferred tax assets.

This valuation release is triggered by our conclusion that it is now more likely than not that we will realize the majority of our deferred tax assets in the U S. As a result of our ongoing profitability.

You can see this impact as well on our balance sheet through an increase in other assets.

Now moving to liquidity.

Free cash flow, which we define as cash provided from operating activities less capex and cap software was.

The net use of cash in the period of $13 million.

Use of cash as a result of business mix and the timing of cash flows as well as a jumping capex versus earlier in the year.

The timing of server delivery.

For the year, 2020 , one free cash flow was positive $37 million and approximately $50 million consistent with our plan when adjusting for one time, IPO M&A and other nonrecurring matters.

We ended the year with $455 million of cash and cash equivalents on the balance sheet and $236 million of convertible debt at December 31.

Of note we closed the <unk> acquisition in January and so the impact of that is not included in these year end balances, but will be seen in 2022.

In light of our healthy balance sheet and expected continued cash generation our board authorized a $30 million share repurchase program on February 28.

The program allows us to repurchase our shares at our discretion and reflects the board's confidence in our brand strategy and long term growth prospects, while showcasing management's ability to be strong stewards of capital.

We believe there is meaningful misalignment between our value and our stock price and thus believe this buyback program provides an opportunity to drive value back to our shareholders, while continuing to invest in growth.

The timing and amount of any repurchases will of course depend on market conditions share price applicable legal requirements and other factors.

Lastly, turning to our guidance.

We're introducing full year 2022 expectations for ex Tac gross profit of $324 million to $332 million or approximately 21% growth year over year at the midpoint.

And adjusted EBITDA of $94 million to $103 million or approximately 11% growth year over year at the midpoint.

Presenting a healthy 30% EBITDA to ex Tac margin.

We are confident in our growth for 2020 to a few factors of note.

We have strong visibility into expected sizable new supply for Q2 and into the second half of the year, including an expected top 10 sites publisher win.

And we have the planned expansion in article placements to header bidding, which will continue to scale over the course of 'twenty two.

We also expect to drive yield through the continued adoption of smart logic and ongoing tech and algo advancement.

And last of course, and importantly for US is our acquisition and investment in the eye.

As a reminder, with Ti we gained immediate access to the in stream video market significantly increasing our video Tan.

Integration is underway and we are very encouraged by the initial receptivity from our publishers and expect to invest and drive scaling throughout 2022.

So overall, our expectation for the excess spread over the year is that have one share of ex Tac will be in the low 40% contribution wise and have two in the high 50% contribution wise.

For the first quarter, we expect ex Tac gross profit of 63, 5% to $64 5 million or approximately 6% growth year over year at the midpoint.

And adjusted EBITDA of $8 million to $9 million, which is lower year over year, given our excess expectation and with respect to our investment in growth and the cost of becoming public.

For Q1, we are lapping a very strong comp versus last year recall Q1, 'twenty one had a very strong news cycle due to COVID-19 vaccines and political events, which drove higher pages for our partners.

In addition, we are facing a few additional headwinds in the quarter.

First the unfavorable impact of timing of certain optimization and expansion opportunities on existing publishers.

As well, we're experiencing an unfavorable and favorable revenue mix from media partners in the period.

And last we have notable headwinds on growth from moves in foreign currency as.

As a data point in January we saw three points of headwind on ex Tac and over 10 points on EBITDA growth.

And in early review of FX movements in February suggest continued headwinds for the quarter. We saw some of this in Q4 as I as I mentioned earlier.

So in summary, even with the slower growth in Q1, we're confident in our expectations for the year as outlined and we'll continue to invest in the many areas of opportunity both David and your own touched upon today.

Now I'll turn it back to the operator for Q&A.

Thank you.

Ladies and gentlemen at this time, we will be conducting a question and answer session.

I'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

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

Hi, guys. Good morning, and thanks for taking my questions.

The first is just on Microsoft So tabbouleh updated their agreement with Microsoft and talk about kind of a change in the bidding strategy can you guys help us unpack that and what does that mean for our brand.

Then secondly, going back to kind of a longer term initiative just on a quality score I think you guys began testing.

Last year and now into 2022 can you talk about where you are and share any early results. Thank you so much.

Andrew I think hi, it's David Thanks for doing that take the Microsoft question.

So on Microsoft.

<unk> been working with Microsoft over 10 years now and for the last couple of years already.

I have worked with them very closely in the programmatic environment. So the strategic relationship we have with Mexico goes way beyond MSN and me over the last couple of years collaborated very closely in several other areas and specifically on the announcements you've heard too on Mexico Open exchange. So we've been scaling our revenue on.

On debt exchange for the last couple of years, and it's really leveraging the deep expertise in bidding and third party supply and we work very closely with them to continuously improve our capabilities.

Is there a continuous long term effort in terms of the change that was announced we were obviously very pleased with it.

With the changes announced at the end of the last year, because it basically eliminated certain advantages that other players have in the auction.

This will lead to significant new inventory available on the open exchange in 2022.

So that's and we believe that we have a good chance of winning the shale. These impressions since we've been bidding in this environment for years in developing a bidder and improving it takes it's a long it's a long time. So very excited about this and we think that this will lead to further growth with Microsoft which is.

The strategic partner for Us.

Do you want to take the second question.

Yes, thanks, Andrew around here.

So in regards to quality rating as we've said in the past this will be a multi quarter effort touches a lot of parts of our product and algorithm. So there's a lot of work going on under the Hood.

Last quarter, we shared that we were working with two major U S. Publishers on this first phase of quality rating, which is the <unk>.

And the data signals on those publishers. We're currently up to 12 publishers in the U S that are enabled with data signals required for quality rating.

And so we continue to roll this out and work on it Theres a lot more progress to be done and we'll keep updating in the future quarters as we go.

Alright, thank you.

Our next question comes from the line of sweat to Krish <unk> with Evercore. Please proceed with your questions.

Okay. Thank you very much let me try two please one is could you please talk about.

Growth in supply and your strategy going forward in terms of driving growth from perhaps long tail.

Media Partners and then the second question is help us with the Q1 guide.

And full year guide for both topline and EBITDA I guess I understand there are some headwinds that you pointed to but is there anything else. In addition to that perhaps certain verticals that you saw headwinds from and why the EBITDA margin contraction for full year 'twenty two thank you.

Thanks, David I'll take the first part and then I'll turn to Andy So regarding the supply expansion. So best we've highlighted also in this quarter, we have a very strong momentum on the premium supply.

Really announce.

<unk> relationships with regard to some of them here and we have a few in the pipeline that it needs to be fair to say, we feel very good about.

Market share, gaining and also deepening and expanding relationships with existing premium publishers in terms of mid and long tail. What we did we in the last year had the effect of having all of those so we have a much more effective operation and we generate leads for those we have the multi mated whale.

On boarding them. So this is again a big.

<unk> vector for us and on top of that the new environments that we talk about backlog screens mobile carriers.

Signed in Q4, Huawei, which is a big one in vivo and few others. So we see good growth on generally on supply and within existing partners and we talked about how the bidding tends or partners already adopting our header bidding platform that we announced so we are very comfortable in terms of.

<unk>.

The growth with supply of new and existing and Youll see this in the annual guidance that we gave above 20%.

Yeah.

Great and highest with I'll pick up on on the balance of the question. So so just generally picking up a year and some of the drivers that David just mentioned, we do expect a higher ramp up as the year progresses based on the visibility and high confidence will supply the timing of the scaling of certain product and optimization.

Course, the scaling of our V I acquisition.

In terms of how the year pans out we did share in the prepared remarks, but I think worthy of repeating here is that for ex Tac, we expect will spread over the year and half one will be in the low 40% contribution wise and have two in the high 50% contribution wise.

Now for the year, we have an expected, 30% so still healthy EBITDA margin.

But Q1 is under pressure because of the factors we spoke about on the Q1 top line.

But also important to remember that we made this investment in Capex right people.

Plus public company cost.

Plus the return of some COVID-19 expenses that none of these are new we've been talking about for a few quarters, but they are steadily in the Q1 expenses and lapping a period last year, where they weren't.

This combined with the FX headwinds that I outlined our cooperage on favorably on the quarter.

So again, I think youll see EBITDA ramping probably more steeply and ex Tac.

But again, we do believe in Indesit.

Embedded in our forecast is to be at 30% EBITDA margins for the year.

Okay. Thank you Louise Thanks, David if I can quickly follow up on that help us with your confidence level in accelerating growth through.

Through the year, you talked a little bit about visibility give us some sense of what gives you confidence with the with the guide thanks.

Okay.

Maybe I'll take that if you want to take it go ahead and I can I can tap on any but we haven't.

Strong I mean, we see we have visibility into a sizable new supply that's coming in in Q2 with some wins.

We're seeing a very good trajectory of the expansion on the in article placements.

We're seeing I mean, we have we talked about the adoption of smart logic was again continues to be a game changer.

We see an increasing adoption in mobile and we just started this year to deploy it also in the desktop environment. So we see those advancements and then.

We I mean, we just closed the deal in January of this year.

It gives us access to in stream video restarting integration, we have already more than a handful of partners.

From our publishers.

Deploying <unk>, so very excited about that so.

I think the main effect that that gives us good confidence.

Okay. Thanks, a lot David.

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

A question for your own.

We've seen some headlines recently.

A lot of tier one publishers are ditching Google's amp.

I think you guys even may work with some of these folks. So just how do you view that was good color on the third party cookies earlier, but how do you view.

Uh huh.

This potential change going on on the publisher landscape as an opportunity to.

Pick up additional inventory in 'twenty two.

And do you think given some of the hot water GUL has gone into as far as there.

Display exchange business.

Any thoughts on picking up shares.

Move away from from from those services. Thanks, a lot.

Thanks, Ross So that's the first question the Google apps, we have been.

In early <unk>.

<unk> partner, we were one of the first launch there and so we support that format and we do for publishers that worked without brain. We typically are powering the recommendations on every media they have and that does conclude Guam I think the opportunity with with some of those publishers as you mentioned starting to physically go out.

Is that kind of tick tick back their sovereignty over the <unk>.

User interface the amount of recommendations they want to place them there.

The split between content and add all those things are now going to be back in the and the publishers control and theyre not going to just be tied to the.

The.

Prescribed simply by Google. So I think that is an opportunity to pick up more inventory and a way to grow those.

<unk> mobile.

The ads that we serve with our partners.

And the Google environment, So definitely that.

In regards to the second Google question, and the regulatory scrutiny there they're undergoing I think some of the regulations there were.

Quaid.

Quite surprising and I think many publishers found out to be.

The amount that they're getting from that from the Google ecosystem is not necessarily what the advertiser failures kind of different prices on <unk>.

Different sides of the Google auction and I think that just goes back to the to the comments I made before we are an end to end marketplace with only a single player between us and the advertiser and the media owner of the publisher that provides our partners with great transparency.

They know exactly what the advertiser are paying and they get their cut and that's why also.

When we compare to the broader at X system.

On a percentage basis, our partners snake.

Makes a lot more than they make about 70% of every dollar of the advertiser spends wallet.

It's generally assumed that it's about 40% and so I think that too is a new regulation that should.

<unk> been even more comfort.

Running more real estate without rates.

Our next question comes from the line of Laura Martin with Needham. Please proceed with your question.

Yeah, Hi, there.

Great numbers you guys congratulations.

Beyond that I would love for you to give us a little more.

On this big trend you talked about it in your comments the rise of reader revenues subscription and E. Commerce revenue was a big market trends could.

Could you I would love to hear you talk more about that and how you see that shift affecting the outbreak.

It is a big trend that you're seeing.

Sure. Thanks, Laura so.

We're we're obviously I think as everyone else are looking at those trends seem to be.

The effort that many cultures are putting them to diversify their revenue, putting a registration wall subscription walls.

<unk> et cetera, and.

There are a few ways this affects us so on the most immediate.

Level. It does make some of these publishers that are now benefiting from from reader revenue.

It suddenly turns them into also potential buyers nowadays they can suddenly drive.

Drive our user acquisition efforts on our amplify side become buyers of of traffic and audiences because they can start tracking there.

Their customer acquisition costs and the LTV that they got from from those consumers. The second thing, which I think is a very healthy thing in general for the recommendation.

Monday, so players like that Brian is when you have reader revenue. It means that you need to provide a great user experience to the readers you need to provide them with very engaging content keeps them engaged on on your properties you can't just kind of slap a paywall and hope that people pay for it.

So the most important kind of user experience tool that publishers have to increase user engagement getting people to consume more pages and hitting those those paywalls, especially the metered paywall is the recommendation partner that they have.

And it goes way beyond ads, we've been talking about this since our since our IPO.

It's not just about the ads that are being served so it's an important piece of our business, but it's really about being the operating system for everything the publisher recommend their own videos articles. There are E. Commerce offers whatever it may be in the core of that is our sort of operating system for managing the seat of recommendations. So we'll see.

That is a great opportunity to kind of really signed beyond just the AD real estates that we take and we're investing a lot in the R&D again too early to share here, but in future quarters I'll talk about this more about how we're going to leverage these trends in the market.

Hey, Bill I'll add the Laura it's David.

Just on E Commerce I mean.

Specifically on e-commerce . So we currently have.

Strong e-commerce demand in LC, then in different places placements on publish those pages. So and we are adding features that are more friendly, allowing better capabilities for E. Commerce buyers I mean, the biggest growth categories of demand, we don't break it down between the direct to consumer brands. So we are.

Big believers that.

We want to ensure quality is a direct relationship directly with the advertiser is important for us and we hear that those sexually from publishers and publishers when they look at those they prefer that you have the direct relationship and by the way. They are also trying to go directly to large retailers and other thank you.

The other platforms and build direct relationships with them. So we believe that again like we generate all types of demands. We don't assume you need to automate demand channel of a kind and we have a very strong sort of becomes suffering and we are focusing also on <unk>.

And this is a little bit more in the future, but integrating more intent data to drive better performance for them.

So thats on the E Commerce front.

Yeah.

Super helpful. That's great. My second question and my final question is.

I'm very excited about <unk>, which you just closed in January my question is it.

Perfect perfect situation clean piece of paper, what do you want to accomplish with <unk> by year end 2022, and is the growth I understand the big picture idea that its tam growth rates, but im very interested in.

How do you think.

Drives the revenue line in 2022 and is that because it integrates into your old products or is it essentially a standalone new product that is the primary growth driver.

Thank you.

I'll take that so we're very excited about now again, we closed the early January we're seeing already the fruits of the potential synergy with us So it's actually.

It's all it's in all the fronts that you.

You mentioned so first we are integrating it into our seed is another call. It another offering golf contextual relevant video and received good monetization opportunities there.

It's growing there in optical top of page contextually relevant video content into our publishers, it's really leveraging the global footprint of the relationships, we have with publishers to bring them to bring them. There and then they have a foothold in CPD. The team is very experienced around CTV and.

We are investing right now a lot of resources more than they could have done themselves into leveraging the platform to offer as we call. It cross channel alternatives for brand buyers, both digital and connected TV and so we're very excited about it we think it's again expansion over time leveraging our care.

<unk> global presence and relationships entrants into CPG in terms of the contribution I mean, we didn't disclose the numbers, but I can tell you that from our guidance, it's very low sort of in the low single digit that we expected this year.

Very excited about the strategic value and the growth that we provided in years to come.

Okay, and CTV as defined by the Iab is over 50 inch screens I assume that is not what you mean by CTV when you use the word <unk>.

Yeah.

I mean should we view that sort of they are selling into symptoms can be plus Pluto Tv's applications.

Displayed on connected Tvs, and they're using extra the relevant technology to place contextually relevant to add there.

I hope this answers your question.

Yes, thank you very much.

Thanks, Laura.

Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Hey, guys. This is James on for Brian . Thanks for the thanks for the questions what impact if any did you see from Omaha hitting at the end of December and into January where there any AD verticals that slowed down materially in <unk> and is that slowdown impacting your Q1 guide at all that's my first question and my second one is <unk>.

<unk> be thinking about your uses of cash over the next few years, if you've announced the repurchase and done some M&A, but can you just remind us again of your big strategic plans that you are prioritizing in the in the short to medium term. Thanks, Ken.

Hi, James maybe I will take the first one.

The vertical impact I mean, we've seen and we said it in the last quarter, we have a very good mix of advertisers is very balanced.

Even if we see an impact in certain vertical it doesn't really impact us in the overall network. We've seen some slowdown in the order kind of arena ultra category with a good one for US I mean, we generate a lot of need for top brands in the world people, who want to come and visit the dealership.

Less cost less money spent on it.

Trying to create leads to visit dealerships.

Really did not have any impact on us we are following.

And then <unk>.

Fans around verticals.

We have very diversified we're very strong in financial health Entertainment and others and so it really did not have any impact.

At least you want to take the cash.

Sure.

Hey, Jay.

So right on the cash.

Things are one we did share with you details in and around our buyback program.

$30 million program, we think with our healthy balance sheet and expected cash generation.

This is fairly modest and of course, it doesn't impact on your growth initiatives for us, but we think it's a prudent use of capital at this time.

Beyond that we're being very thoughtful.

On the M&A front I mean, you saw the recent <unk> acquisition.

And we will continue to manage and assess that pop that pipeline I mean, we're very keen just like we said over the past few quarters drive how do we drive shareholder value looking at accelerating growth with business and technology and product as well.

We think M&A the strength of ours, and we're an attractive strategic partner for many of the opportunities we see and so.

So we'll continue to be active on that front, but nothing at this stage right now.

Yeah.

There are no further questions in the queue I would like to hand, the call back to management for closing remarks.

Sure.

Operator, we just kind of maybe make one clarifying point on some of the Q1 drivers specifically with respect to FX, we had some investor inquiry offline and we thought it would be beneficial to share with this group. So in addressing the Q1 guidance, we talked about headwinds from foreign currency.

So the way to think about that we're seeing on ex Tac and we're seeing it on EBITDA. So when we look at in Q1 results and we're comparing them to Q1 2020, it's very common to look at things on a constant currency basis.

And so when we look at ex Tac gross profit constant currency Q1, 2021 to this quarter, we see about three percentage points of growth headwind, if I translate that to dollars last year, we had $60 million of that Seth.

If we reported this year it would be $2 million less.

Okay, just FX moves alone so that's a headwind without anything being different.

And on EBITDA same thing, but more pronounced last year, we had $20 million of EBITDA. This year. If we reported it would be 18 on a constant currency basis, so $2 million less or 10% 10 points of growth headwind.

So it is putting a headwind on our business.

But we are global we operate in multiple currencies and so these things happen.

Often there's puts and takes all the time the waste converging this quarter, mainly on the euro and the shekel is producing notable pressure on the year over year comps.

So we hope that additional color helps if not of course, we're available for any follow up questions for the group.

With that I'll put it to your own for some closing remarks.

Thanks Ali.

So we want to thank you all for the time today, we're excited with our Q4 and the full year 2021 record breaking results. We're really looking forward to sharing with you over the next months the progress we're making on our innovative breakthrough products such as smart logic, CBS Evs header bidding slows our VA integration and new partnerships. Thank you everyone.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.