Q2 2022 Taboola.com Ltd Earnings Call
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[music].
Good day, and thank you for standing by for which to.
<unk> second quarter 2022 earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during especially when we need to press star one one on your telephone. Please be advised that today's conference is being recorded.
I now like to hand, the conference over to your Speaker today, Jennifer Horsley. Please go ahead.
Thank you and good morning, everyone and welcome to <unk>.
Second quarter 2022 earnings conference call I'm here with Adam <unk>, our founder and CEO and Steve Walker our CFO .
We issued our earnings press release yesterday after market and it is available along with our Q2 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.
Future events could differ materially and adversely from those anticipated.
During this call we 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, Jen good morning, everyone and thank you all for joining us for our second quarter call Q2 was another good quarter, we delivered $143 million of ex Tac growth of 22, 5% and adjusted EBITDA of $34 million. Both beat the high end of our guidance, which gives us confidence to hold our 2022 full year guidance.
While we have seen softness in advertising in the U S. Since the last quarter over the last few weeks the effects of the war in Europe as well as the softness in the U S has been stabilizing we're also seeing the benefit from the diversity in our business for instance, we're seeing strength in our e-commerce business a bit better than we expected as well as we continue to see exponential growth integral.
News, which for the first time, we're showing the run rate to generate north of $50 million in revenue. This year at the same time, given the challenging macro environment. We are taking measures to control our operating expenses prioritizing things that are key and spending less than others.
On the business front, we are seeing good momentum we've spoken this year about the strength of our partnership pipeline and that is translating into many new publisher partnerships in fact to forecast in 2022, we will sign almost as much new business as we did in a record setting year in 2019 for context that equates to nearly double the monthly.
New business, we signed in 2021. So this is the big year for US. This summer has been busy and recent tier one incredible partnerships such as BMC Grey Fox sports time, Dot com and many others.
Great the largest owner of top rated local television stations and digital assets in the U S was a competitive win in your five year partnership that includes the boiler feed across all areas all of its digital properties as well as the Homepages integrations on more than 100 websites. They also will test additional tubular offerings, including triple our newsroom.
Technology offerings that provides important leadership insights to publishers by using advanced AI and signals for more than 500 million daily active users on the tubular network Fox Sports is another new win it's a three year partnership that includes stable of feed as well as our high impact media article recommendation real we're very excited about this partnership.
And it's a proof of our strength in the sports vertical we work with many of the major sports networks in the U S. If only ESPN NBC sports CBS sports USA today sports and Fox sports and many many others, which give our advertisers great vertical is reach and value when choosing to work with Ebola.
We are also seeing many of our existing incredible partners lead choosing tabular and renewing with US for example, Cox Media Group Insider media Newsgroup store content group and many many others when taking a data driven view of our publisher momentum not only are we adding a near record amount of publishers every single month. Our churn is also trending under <unk>.
Spectation, meaning we're keeping more partners than what is in our plan.
Another highlight that we've spoken all of the year is to build a news our Apple news product, but for Android devices, which I'm. So excited about I always say that symbolize the startup of startups and triple our newest is turning into a blueprint for how we can scale, our new business under the tabular infrastructure. We continue to expand the work, we're doing with mobile devices and OEM.
Adding new partners growing in new geographies, expanding how we can recommend personalized news on many screens were on safe device homepage wake screen and so forth to balloon use is growing triple digits as I indicated on our last call and we expect it to cross the $50 million annual run rate by the end of the year, so becoming a.
<unk> contributor to our financials.
What makes this so exciting is how synergetic it is to the rest of our business by bringing more viewers to our publisher sites. This is huge for them in time, we're capturing audience attention can be challenging with tic toc and other social networks.
And is huge for us as well because it results in a publisher deepening their relationship with us over time Youll see the publishers choose tabbouleh not only for generating the highest revenue that can generate not only for utilizing our editorial technology, but also to drive new audience growth through our sites in some countries publishers have started proactively reaching out to us to <unk>.
Our partnerships, mainly because of traffic they see going into other publishers in a market.
That's a good sign and another new offering area, where we're making progress as we were a bidder, which we first launched last quarter on Microsoft we have numerous strategies to increase our share of the $64 billion open web market and while most of those involve converting banners to more native advertising formats are new bidder will allow us to bid into display.
Inventory and when a portion of that inventory, we think our bidding advantages threefold, firstly, a unique CPC advertiser demand, 90% of our revenue is from our own advertisers.
We are unique first party data, we might see a user interact with us in the bottom of the article units see what they read in <unk> and then bid on them on a better placement on the homepage and such.
Third we have unique AI technology, we have years of deep learning investment and now we have a team focused exclusively on bidding in the open web perfecting our performance, which is what our Microsoft contract is allowing us to do.
We're early days. However, we have begun piloting debater technology outside of Microsoft in the second quarter, and we're seeing encouraging results on a handful of publishers, we're trying to generate a few millions of dollars. This year the longer term opportunity is significant when you consider <unk> is working with about 9000 publishers and how this can increase our share of wallet within our.
Publisher partnerships lastly, I'm also happy to report that we're seeing good results in our e-commerce business. Despite the macro pressure because of solutions and E. Commerce are 100% performance based where either paid a commission on sale or able to virtually guarantee that the advertisers CPC AD spend we're back out to the ROI goals effectively the same.
Commission, we've seen little to no pullback in this type of ethane historically these types of budgets continue to exist, even though it's in a recession in fact in some cases, we're seeing clients ask us if we can find more opportunities to help them spend as organic traffic has slowed down a bit.
If consumers are becoming better online shoppers through the pandemic and those new behaviors are not going to go back.
Coming off of a good second quarter and looking at the back half of the year, while Theres a lot going on with the recession and advertising softness we have the right priorities as a company. The right team that has been executing together for the past decade. The market is big and we feel optimistic about the tailwind in business that I mentioned earlier. This is also an election here in the U S.
The World Cup year, which have historically driven a good advertising budgets as well as traffic surges, all of which are giving us confidence to reiterate our full year guidance as I finish I want to tell you a strongly believe this is a good time for our company to focus on its fundamental competitive advantage to do the work and care, even more now than ever about adjusted EBITDA.
Free cash flow, we always cared about profitable growth, but now more than ever. It is important so we come out even stronger on the other side of this whenever this and im proud of <unk> north of $150 million adjusted EBITDA. This year, along with our strong cash flow profile.
And at the leadership and board level, we're already thinking about 2023 and beyond on the <unk> as well as my team and now I'll pass it over to Steve who will talk more about our financials.
Thanks, Adam and good morning, everyone as Adam shared we had a solid second quarter, we met or exceeded our Q2 guidance on all measures. Despite some macro headwinds.
Revenue in Q2 was $342 $7 million ex Tac gross profit was $143 $2 million and adjusted EBITDA was $34 2 million. This represented ex Tac growth of 22, 5% year over year or four 7% on a pro forma.
From a basis with connectivity.
On a constant currency basis, the pro forma growth would have been seven 1%.
Our adjusted EBITDA margin or the ratio of adjusted EBITDA to ex Tac gross profit was 23, 9%.
Of the Q2 gross revenue growth of $14 million.
$22 million came from new digital properties, while existing digital property partners decreased $8 million. This is obviously a very unusual event to see our existing partners shrink year over year. This was driven by the weak macroeconomic situation that started in Europe in Q1 and <unk>.
To the U S and much of the rest of the world around the middle of June and our business. This translated to a pullback by advertisers, which resulted in weaker yields and a decline in revenue on those existing property partners.
Our Q2 ex Tac gross profit was $143 $2 million and was up $26 $3 million or 22, 5% year over year.
Adding connectivity to our business, obviously had a positive impact, but we are also seeing the benefits from our diverse revenue base as our growth came from three sources. The addition of new digital property partners to our network growth for new offerings, such as to bullet news and the growth from connectivity this growth more than <unk>.
<unk> offset the impact of the lower yield as well as the anticipated declines in our Microsoft contract as we transition to the new bidder.
Our ex Tac net dollar retention for our publishers was 99% for cable on a standalone basis, just under 100% driven by the weaker yield by highlighted earlier.
Looking at operating expenses, they were down $28 million year over year. The decline was driven by $58 million of lower share based compensation expenses as the prior year was unusually high as a result of going public excluding stock based comp operating expenses were higher by <unk>.
<unk> $30 million with slightly less than half of that coming from higher depreciation and amortization from intangibles driven by the <unk> acquisition the.
The remaining increase came mainly from investments we made in the business, including higher labor expenses, reflecting the inflationary environment and type job and tight job market as well as from the inclusion of connectivity, which we did not close on until September one 2021.
As Adam mentioned, given the macro pressures, we are taking actions to reduce operating expenses going forward, including reducing discretionary spend and decreasing our rate of hiring we generated adjusted EBITDA of $34 $2 million, which was above our guidance of $23 million to $28 million a decree.
<unk> year over year, driven by our investments in the business.
Adjusted EBITDA margin of 23, 9% was lower year over year, but in line with our expectations.
GAAP net loss of $5 million included warrant liability revaluation benefit of $12 million share based compensation expenses of $20 million and intangibles amortization of $16 million all of which were excluded from non-GAAP net income of $15 eight.
Million.
Which was above our guidance of 6% to $11 million.
In terms of cash generation in Q2, we had $2 million in operating cash flow, while free cash flow was negative $7 million.
Cash flow in the quarter was negatively impacted by approximately $22 million from a combination of onetime tax payments and publisher prepayments. We ended Q2 with a strong balance sheet and positive net cash our cash and short term investments balance of $308 $5 million <unk>.
<unk> above our debt balance of $288 million.
We also recently entered into a $90 million five year senior secured revolving credit facility, which further improves our liquidity position.
Shifting now to our expectations for Q3, and the rest of 2022 I won't go through all the numbers as they are outlined in detail in our press release overall, our over achievement in Q2 provides us confidence to reiterate our 2022 guidance on ex Tac and adjusted EBITDA, which are the main metrics we focus on.
We are lowering expectations for our revenue, mostly due to our mix of business more revenue is coming from areas with higher ex Tac margins, such as connectivity Tabbouleh news and certain high margin core regions.
And less is coming from areas with lower ex Tac margins.
We also anticipate some tailwind in Q4 from the U S elections, the World Cup and strong performance from connectivity, which is a Q4 driven business.
I should note that our guidance assumes continued weakness in the macroeconomic environment at current levels. This weakness has translated into the lower advertising demand we experienced throughout the second quarter.
Our guidance does not assume a further weakening of demand or a departure from our normal fourth quarter seasonality.
Overall, the fundamentals of our business are strong we expect over $150 million of adjusted EBITDA for the year and healthy free cash flow. We are seeing near record new publisher partnership growth exponential growth into Bull and news and strength in E. Commerce, we are being judicious in our investments and managing costs.
<unk>, while still investing in areas that are important to our strategy and growth. We believe all of this will position us for accelerated growth as we come out of this period of economic weakness.
With that let's open it up to questions.
Thank you as a reminder to ask a question you will need to press star one one on your telephone once again Thats star one please standby with composite Q&A roster.
On loan for questions.
Our first question comes from the line of James complement from Cowen Your line is open.
Good morning, and thanks for taking the question.
First one for.
As for Adam on <unk>, Congrats on hitting the $50 million run rate given the rapid growth. If we look out maybe one to two years, how should we frame the size of the opportunity there versus the overall school of business and in terms of growth drivers at <unk> is it largely adding more device manufacturers and more regions or are you focused on.
User penetration and engagement.
And engagement in your existing footprint and then I have a follow up for Steve sure.
Sure Hi, good morning, Thanks for the question and everyone for joining so just before I get into the details I think it's exciting because it shows that we can organically build significant businesses that had financial contribution to our existing base and future base.
So I'm excited about that that's an organic effort, it's not an M&A. So that to me that shows we have the culture and infrastructure to build successful diversed business under the <unk> infrastructure, So I like it.
It's right now just to give you. Some further color on the business. It's it's trending to be over $50 million. This year for the first time, we're sharing that number it's live in about 200 million active users a month.
And actually it's now about 30% of our entire tubular clicks.
So if you remember I spoke previously about annual clicks of about 30 billion clicks a year.
<unk> is about 30% of our overall clicks now just to show the level of engagement. So that's where we're getting also if you remember at our investors day, we spoke about in Tomo VP strategy spoke about how do we get more time with consumers how do we get more engagements with consumers. This is definitely one of our biggest vehicles to be more valuable to people.
And open web beyond just websites. So all of those trends are very good trends in terms of how we intend to make that a bigger business financially.
All of the above in terms of your question. So one more touch points. So right now we have our Oems use us either in the wake screen, which mean, which means are swiping rights.
The average consumer looks at their screen about 80 to 100 times a day. So they have their picture of their family under under lock screen, but it can swipe right and then theyre getting high quality personalized feed.
Recipes and news of things they may like based on our data and AI. So thats one touch point on <unk>.
As an example, using that's quite broadly and then you have minus one which is a different touch points that is currently being used and adopted mainly by Samsung and others and this is more like the Apple news traditional one when you're unlocking your phone into slide <unk> <unk> is.
Is the feed in more and more countries. So that's the second touch point and then actually some of our Oems for speaking with us about other touch points electrification and bringing news to some widgets that they have on the device. So all of those things essentially increased our pool. If you will so revenue per user. So one thing we're doing is upselling and upgrading Oems to use more <unk>.
<unk> that helps us.
First thing is to get more devices I would say certainly there is also a matter of geographies, obviously, some geographies have higher.
Financial implication versus others.
Moreover, penetrating the U S. The UK, Japan, and other countries where in general the advertising strength is more noticeable you should expect to be on used to have.
A bigger impact longer term mutual long term expect it to be hundreds of millions of dollars in revenue and a significant portion of our business.
And then a quick follow up for Steve just in terms of AD verticals. We've heard from other companies reporting that U S. Consumer remains relatively strong while there has been more than it has been pulled back or perhaps just caution on the enterprise side is that in line with what you're seeing among your advertiser clients any color there would be helpful. Thank you.
Yes.
Yes, so that's roughly consistent with what we're seeing so generally speaking what you're seeing is that.
From an advertiser perspective.
The pullback has been more on branding advertising and things that they can't measure the ROI on as as easily so that further up the funnel you go the more we're seeing kind of conservatism from our advertisers.
Lower funnel performance.
As has been more robust so thats one reason that connectivity has been an area of strength for us because they are at the very bottom of the funnel there are Google equivalent at the bottom of the funnel. So we're seeing kind of more from an advertiser perspective, youre seeing more conservatism that further up you go from the funnel, but as you pointed out I think also.
So the consumer has been fairly strong so our advertisers that are more directed towards consumer tend to hold up a bit better anything that's more directed.
Towards enterprise is a little bit softer for us, though our enterprise business is fairly small so most of what we do is targeted to consumers.
So that's another reason that we've probably held up a little bit better in some ways.
Great. Thanks, a lot guys I appreciate all the color sure. Thanks James.
Operator next question.
Our next question.
Our next question comes from the line of Andrew <unk> from JMP Securities. Your line is open.
Good morning, Matt on for Andrew Thanks for taking my questions. So my first one just you mentioned publisher performance advertisers.
A key priority in the letter can you just help me understand the key drivers of improving ROI, there and anything that Youre excited Matt on the.
On the roadmap and then two just on new publisher share gains.
Pretty significant how should we think about this impacting 2022 and is there potential tailwind in 2023 publishes mature thanks, yes.
Hi, good morning, and thanks for the question. So on the performance advertising I will say that is by far our biggest investment that's the Northstar that's deliberation into tableau, becoming even more successful over time, we had about 15000 direct advertisers who worked with us.
And what's interesting is that even in the recession time or like you know macroeconomic dynamics, you don't really see performance advertisers churn they may lower budgets, but they don't churn so much which is again another source of strength for our company as you have direct relationship with performance advertisers were spending a lot of time on a variety of things when it relates to smart.
Based on performance advertising.
One of them, which is worth mentioning is.
Is it sort of a multi touch point optimization. So for a long time smartly to is optimizing for a single convergence or whether that was a click or a subscription or time on site or something like that is enough smart, but a lot of our effort is to be able to capture multiple touch points and optimized for all of them, So advertisers get and again an easy.
Our job getting to that quick conversion getting many conversions and make it easy for them to work with us. So that's been a lot of our recent work.
And to go beyond a single kind of conversion optimization point, the second thing that.
That has been taking our time over the last quarter has been header bidding. So header bidding is using smart be tech stack.
We're seeing really encouraging signs I mean, you all know that Microsoft was a successful launch we talked about that a quarter ago and that was basically one publisher using a better technology. So thats technology went from zero to nine digits overnight, but over the last 90 days, we've been implementing the same technology called header bidder I Cross.
A handful of publishers and that's already generating millions of dollars in revenue.
And that's very that's incremental and we have 9000 publishers, but thats been using smart bid tech stack.
Again helps advertisers get.
The right users.
And at a lower CPA. So just to give you a little color on that if we're seeing you.
John .
It seemed to be see reading about furniture, but then we might see you later on our homepage and Theres a display inventory there our header bidder might bid on you, even though we don't have.
A java script on page when might beat on that display trying to show you a furniture AD. So that helps us to see you multiple times not only at the bottom of the article and effectively get advertisers more opportunities to get conversion and payless to tubular from the CPA perspective, so that those things have been.
Keeping us busy over the last quarter and Thats, our biggest effort performance advertising.
And then to your second question about new publisher gains and their impact on 2022 and 2023, then so first of all I want to say, we're extremely excited Adam mentioned that in his prepared remarks, it's our second best year on record in terms of new publisher business.
Which is amazing it's double the monthly rate of last year. So thats.
It's a very impressive gain.
And we're very excited about that.
In terms of its impact going forward. So you have to kind of understand how publishers usually ramp with us. So usually initially we started off smaller with them and we grow over the first couple to a few quarters as we launch more properties more of the positions that we had agreed on doing.
And they also get more profitable over that time period. So usually we start off a little bit lower on our margins and it grows over time as we bring on the right demand too.
Put on those publishers. So that's kind of the typical ramping period. So a lot of those launched in the last quarter or two some of them are launching have even launched in Q3. So what I would expect is and this is factored into our forecast we will expect.
Improved performance in Q4 improved revenue gains from those publishers in Q4, and then it will really impact 2023, because thats, where youll start to see them at their fully ramped level as well as margins probably at what will be the sustainable margin level. So we expect kind of growth of those in Q4.
Even more growth from them in 2023.
I'll just note that it's a good question about how that impacts us because if you look at our overall business we're actually.
In a very strong position.
That new publisher business is one aspect of that but Adam also talked about <unk> and news it growing and ramping as is really going to have a positive impact on our business.
Adam mentioned this in his either prepared remarks, our letter, but we have in some markets now we have publishers, calling us, saying, we want to do a partnership with you because we see the traffic from tubular news going to other sites and we want to be part of that so it's really going to impact our business in multiple ways. So we think we're between.
That between connectivity being an area of strength.
And the new publish our business we bring on we think we're going to be very very well positioned now wants to add rates recover and we get out of this period of kind of macro weakness.
Great. Thanks, guys.
Thanks, Matt Operator next question.
Our next question.
Our next question comes from Laura Martin from Needham Your line is open.
Good morning, good numbers you guys. So let's step a couple levels and at the 30000 foot level I'll ask two questions, but let's say one at a time Microsoft.
So Microsoft now has zander I wanted to Netflix.
I'm interested in your point of view about whether you think that after they get sorted out on the CTV market they become a new competitor in the open internet.
Thereby sort of Disadvantaging incumbents over the next three years you have a point of view on that.
Hey, good morning, Laura.
One im happy for them I think thats, an exciting deal with Netflix and obviously theres a lot going on.
Thank you.
What will they do in the future. It's hard for me to say I mean, when it comes to using that demand they might develop a netflix and utilizing that in other channels that sounds like a good opportunity again I don't know what they will do some of it thats more is relevant for DSB than companies that funnel demand into other channels like the trade desk and others. So maybe they will get into that business Mark I think when it comes to <unk>.
Open-web, an open internet, if you're thinking about building a network of publishers and a network of advertisers and doing all the things. We do that takes a lot of effort that goes even beyond revenue right. So publishers now when they signed with you for three or four or five years. They expect you to do so much more than just CPM. They want you to help them engage consumers drive new audiences to <unk>.
Aside from that we held them with subscription give them analytics. It takes a decade to build all of those things and a lot of R&D efforts. So that you are differentiated in the marketplace and windows goods publisher relationships for a long time. So it's hard for me to say well they'll do over a long time, but I do think.
Whoever and whichever direction they take.
To build an open web kind of publisher oriented company that takes I think a decade, but he might want to use that demand in other channels and that sounds like a good idea.
If thats, what you if that's where you're going.
Okay. My second macro question staying up at that level is.
We had you guys reported.
Numbers, 5% pro forma growth versus just recorded right on top of your 17% and that TV is growing so fast so that is my question.
You feel that the mobile universe.
We now have revenue.
For the first time in history.
You feel that the mobile open internet is losing share to connected TV and the next big growth driver over the next three years is going to be the connected TV.
And it's going to be taking share from the mobile digital ad market.
Give us your opinion on that.
I think there are different buckets right. So I think CTV is mainly competing with linear TV and that is another question is nowhere as TV, which is $100 billion budgets I think in the U S.
They go in and Thats a lot of if you think about traditional linear video ads that are before the show during the show after the show how are they transitioning into a digital measurable the world I think that CTV right. So I think thats, where thats going and then there's a whole streamer is versus not and how is that going to pan out.
Open web and in General if you look at Google Facebook Tabbouleh.
That's that's hundreds of billions of dollars market. There are many performance advertising like most of the Googles revenues performance most of the Facebooks revenues performance most of the Amazons digital advertising revenues performance most of <unk> revenue performance those performance budgets with basically fuel the advertising space. That's the vast majority of the advertise.
<unk> market I don't think those translate easily into a TV environment. So if you think about converting to bind products and subscriptions and affiliate marketing and E. Commerce, I think that's way more down funnel and more lean and lean forward type of environment, which is a computer or mobile web and app. So.
Think that these are two big by the way two big markets.
And right now I think we're seeing we're seeing some headwinds from with the recession everything in the U S and we've seen affecting in newer and newer in Europe , but over time and our performance advertising is very strong market and I am encouraged by where it is.
It can be in the future, we'll just have to weather the storm as it is now but I don't think these are the different markets and the future is bright.
Thank you very much super helpful. Thank you.
Thank you Laura operator next question.
Our next question.
Our next question comes from the line of Jason <unk> from Oppenheimer. Your line is open.
Hi, it's <unk> on for Jason Thanks for taking the question. So just two quick questions.
Building off of the bitter questions from earlier when do you fully expect the better product to be incremental to revenue.
What are your long term expectations for let's say 2023, and 2024 and the second question is how are you planning to like restrained operating expenses in the back half of this year and can we get some additional color on each segment.
Sure so with regards to header bidding we haven't given guidance I can tell you one as a proxy we did share publicly on my letter that a handful of publishers generate millions of dollars and we have 9000 publishers. So again I'm not suggesting you should the multiple the number I just gave you by 1000, but I will tell you for <unk> top III priority.
I mentioned that last quarter, and I mentioned and again the number one is performance advertising. The second thing is header bidding, which is taking advantage of our CPC budget first party data across the inventory of display and the open web and the third one is E. Commerce. Those are the three things that are a must win biggest investment sources for tubular and I think that will drive the most amount of <unk>.
Relative advantage, so why don't we minutes.
We're staffing to be very successfully and that's where all of that I think we have.
And differentiated offering in the header bidding space because no. One has so much first party data like we do because of our recommendation widgets and our hearts clearly on the page and no. One has so many direct CPC advertisers like we do so is it going to enter the display inventory.
Expected would happen.
We're able to win enough.
Inventory that it's not branded advertising and is not search advertising. There is an area. There that is just for.
For us to grab.
I do think this will become hundreds of millions of dollars for the company.
I'm not giving you a timeline because we're not ready to do that but I'm very encouraged by 90 days into Microsoft launching us generating.
Hundreds of millions of dollars for the company.
I'm not giving you a timeline because we're not ready to do that but I'm very encouraged by 90 days into Microsoft launching us generating millions of dollars from just a testing on a bunch of small publishers that to me is a good sign.
And I intend to continue to invest in that and the second thing I'll tell you that every publisher thats launching header bidding by tubular means that our share of wallet goes up. So if you are a publisher working with us and you're generating $20 million, a year and with header bidding you're generating 20 something million dollars a year, it's just a little bit harder to replace toilet now because we're just a bigger portion of your.
Overall revenue, which is another level of note as we are thinking about protecting our open web and publisher relationships. So again, it's very synergetic and.
And I think it's very incremental to our finance it will be one hundreds of millions of dollars I believe.
Over the midterm long term, but we're not ready to give a specific timeline.
In terms of the operating expense question I think Thats a very good question and we are definitely <unk>.
Actions right now to bring our operating expenses more in line with where revenues are right now given the macroeconomic weakness. So we've already taken some actions we've already reduced dramatically our hiring plans. We've looked at all of our discretionary expense spending and we've already cut budgets on that.
We're taking.
Ongoing look at that and we will probably take additional actions I will say most of those will probably impact Q4 more than they will impact Q3.
Things like hiring plans, obviously that impacts outer quarters more than they impact the near quarters. So generally speaking we've already taken actions, we're bringing our operating expenses down.
We expect to see that impact in Q4, we will also see bottom line margin improvements in Q4 as we.
Ram up those new publishers that I talked about in their margins improve and we expect to see that in Q4. We also think that Q4 revenue will be a bit stronger than Q3 with some of the tailwind there in terms of U S elections and World Cup. So we think that will help improve bottom line margins as well, but we.
We're very conscious of our operating expenses and we are bringing those more in line as Adam mentioned at the beginning.
In times like this cash flow matters more than more than anything else. So we are working to make sure that we maximize that for this year.
Thank you.
So Edwin operator next question. Thank.
Thank you Juan for next question.
Our next question comes from the line of Stephen Ju from Credit Suisse. Your line is open.
Adam So.
As you talk through more of the connectivity advertisers have you been able to get.
The feedback or sense in terms of how much better or worse the ROI.
Maybe relative to some of the other channels they may be buying traffic from it.
Seems like it's very.
I guess principal it should be delivering what should be a more highly qualified higher intent traffic. So the rois should be superior versus most other channels out there.
Yes.
Yes go ahead, Jeff.
What's the second question.
Second question I mean, you talked about dropping.
Yields for all the obvious reasons macro et cetera.
What are you hearing from your publisher partners their revenue.
Revenue generation drops.
I suppose they probably will not be doing any better that somebody else in.
It seemed like tubular continues to win.
<unk> partners regardless.
Theoretically as your revenue yields hold up better versus the next.
Are you receiving any new inquiries from folks who are currently partners. Thanks.
Yes, sure good morning, Steven So so so one.
But the connectivity. So you interesting things that have happened over the last quarter.
You saw in my letter it was a source of strength in times, where macro economic sort of soft in debate in the U S by the way they're stabilized over the last few weeks as Q3 started but nevertheless, it was about it was impacting.
Our thinking about the rest of the year, even though we're holding the year.
Connectivity was a source of strength what was interesting is that our retailers came to us and said that organic traffic to their sites was lower and they were looking for connectivity to sort of bridge. The gap. Because then you would essentially meant guaranteed.
Roy for them, they know that the connectivity that performance advertising channel. They know what the type of <unk> that can get and they increased the budget with connectivity.
They saw a decrease in organic traffic. So that was that was interesting to see and by the way they buy either CPC or some sort of a commission base, but essentially it's a guaranteed our right to them and again, especially in times of weakness as a channel like connectivity becomes even more important because it's a bottom of the funnel and it's sort of a.
Guaranteed.
Value of the consumer and the price they pay so.
That's one thing that we saw they don't tell us about I know never tells us really how better we are than others. We do know that if they increase their budgets or they stay with us. It means that we meet our margin threshold.
Dr. Google and Facebook and I can tell you are talking to our sales team, we always want to know how we're doing.
Versus other companies, but the best we know as a proxy of adjust them keep spending with us in growing with us because it to them. It's a very sensitive piece of information. So so I think connectivity is probably an amazing channel for them because they have seen in.
An increase over the last 90 days versus what we expected and what they told us by the way is that the main reason why the decrease in the organic traffic, which makes sense.
So so so that's about that one more thing that is exciting with regards to connectivity is that we've seen some encouraging signs of positive ROI and scale of connectivity advertisers under tabbouleh network. So if you remember that was one of the synergies that we're most excited about last quarter.
Because that can be big right. There are a lot of direct advertisers to boiler has half a billion people a day, so scaling e-commerce advertisers onto <unk> existing publisher base.
Is it can be meaningful and we start seeing some encouraging signs by that I mean positive and some scale, but more to come. So all of that is about E. Commerce with publishers tell us I was expecting and one of the publishers. This morning.
As you saw our.
Fairly positive results is that we're we're holding our performance fairly strong I think in part because we're very diverse we have we have commerce with performance we have video.
We have now header bidding that some of them are testing lifted with the news that sending more traffic. So we have this diverse ways of making our publishers strong.
And also I should go back to the pandemic 2020 was a very strong year for tubular because especially in times of uncertainty I think that's where our partners come closer to each other so we're seeing good engagements with our publishers, we call. It a recession package I'm not sure.
We have a recession package out there for publishers that essentially means how can we do more now in times when we all want to stay closer to each other and bet on each other and ups and upgrade our experiences so that might mean more placements different UX AB test a variety of things integrate things you might not have done before.
Failed to CF connectivity spoke about more publishers talking about creating heightened content to get E. Commerce. So we are seeing more engagement. Our pipeline is the strongest we've ever seen kind of 2019 doubled gross amongst versus last year and about what last year was a good year. So.
I am encouraged by our publisher relationships and and.
And partnerships and I think especially right now this is a good time to bet on people and partnerships and do more with each other.
Thank you.
Thank you.
Stephen did you have another question.
Thanks, operator.
Have any other questions in the queue.
No you can now wrapped up the call.
Okay. Thanks, so thanks, everyone for joining joining us.
<unk>.
I wrote in my letter and it can hear Stephen I here, we're happy about the fundamentals being strong despite some challenging macroeconomic factors we'd be at the second quarter. We are holding 2022, we're generating north of a $150 million adjusted EBITDA with a strong cash flow for the year and most importantly, the business and especially on momentum.
Two at the pipeline of our publishers as the strongest we've seen in a very long time.
We had good wins with Fox sports and Gray and PMC. Another good friends and partners that have joined together for the next 345 years and hopefully forever.
The amount we are growing our supply is.
<unk>, which has significant e-commerce.
So happy with connected to being part of our family, especially right now we're seeing the effect of having a diverse business and especially having different buckets of advertising budgets. That's coming to play. So that was a source of strength in 2020 to enable our news which to me is.
The founder to SaaS being able to found two to start and co found another company within tabbouleh, it is getting to over $50 million of business.
Organically awesome. It means we have the right culture to invest in ourselves and build organically things that can mean a lot to us.
Most importantly, our people are energized we're working hard this is a good time to do the work and we are well positioned for the rest of the 22 in the future. So thanks, everyone and were looking forward to engage with you later today or this week.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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