Q2 2023 Outbrain Inc Earnings Call
Good day and welcome to the outbreak second quarter 2023 earnings Conference call.
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I would now like to turn the conference over to the management team.
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Good morning, and thank you for joining us on today's conference call to discuss our second quarter 'twenty two 'twenty three years out.
Joining me on the call today, we have our co founder and co CEO you run the life Cos C E O, David Kaufman and CFO , Jason Kim Yeah.
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-K filed for the year ended December 31, 2022 as updated in our Form 10-Q, and other reports and in subsequent reports filed with the Securities and Exchange Commission.
Forward looking statements speak only as of the original date, 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 second quarter earnings release for definitional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures.
Our earnings release can be found on our IR website is that's just the outbreak dot com under news and events with that let me turn the call over to David.
Thank you email, though thank you.
You all for joining us I'm excited to share with you our financial results.
Michigan progress, we're making across multiple strategic for them.
Also as you would hear innovating at a great pace, leveraging AI and other technologies.
We are pleased to report a solid second quarter in which we achieved $54 $6 million in extra gross profit.
Ending 5% sequential quarterly growth and reaching the high end of our guidance and adjusted EBITDA to be $5 million exceeding the high end of our guidance.
And while it is still an uncertain, but relatively stable macro environment, we continue to a focus on driving growth and better performing within our current marketplace, while maintaining tight cost controls and be making strategic investments growing our addressable market both on the advertising side and probably.
As a side to a product and technology that strategy.
I Wanna stopped me the Omics.
Last quarter marked an exciting milestone for our company with the launch of all makes me Alkylate Onyx is a new brand building platform focused on driving high attention from video and high impact, which display ads for premium enterprise threat.
With our core performance platform and now with the launch of our mix. We are proud to be one of the very few advertising platforms that can offer true full funnel capabilities. So advertisers at the global scale on the open web.
From building brand awareness and consideration all the way to customer acquisition.
Onyx is expected to deliver incremental value to us through premium brand campaign carrying high C. P M, which will be delivered outside of our traditional feet.
This launch means we expect to do a lot more with existing and new customers.
It increases our total accessible market.
Estimated capital three times.
This is according to Gartner data that breaks down budget allocation between performance marketing brand building consideration and loyalty.
So what is all makes what makes it unique.
Next is our brand building platform for enterprise brands and agencies. It is built to deliver strong growth from video and high impact to stay campaign.
While most of the advertising market is focused on the ability and we do complete the U.
Alex goes one step further to.
To maximize user attention, which has been proven to drive business impact.
With market this focusing more and more an outcome and broad attention is gaining momentum as it much smarter success kpis for advertisers.
We partner with Adelaide, a leader in attention measurement to allow on next to capture attention unit in real time and use predictive AI.
Find moments and opportunities to maximize customer attention for every campaign.
Yeah, Ron will elaborate later on the technology and how we leverage our powerful prediction capabilities developed over the years.
Yes.
We launched Onyx in mid June and we're off to a great start with more than 25 brands already live or committed to testing.
One of the first campaign, we tested well in partnership with taxes, you pay for Ford.
We used a custom omni experience called hybrid that combines both video and display asset into an interactive experience.
It's exceeded our customers' expectations with allied putting the campaign attention scope, 30% higher than the benchmark.
We continue to experience higher performance than the other I'd benchmark on our Onyx campaigns.
This is a powerful testimony for how long they successfully winning user attention and there's a resolve driving stronger brand impact for advertising.
Our next is now available for enterprise brands and agencies in the U S U K, Germany, France, and Italy and will be launched in other markets later this year.
We've run on extra campaigns in this market for premium brands like visa Porsche Mattel I Hope your radio I'll tell I'll throw in Maryland and others.
Pipeline is building and we expect to generate double digit millions of dollars of revenue from Onyx already in H two of this year.
Just as a side comment, but what makes us great for brand advertisers, but also extremely strategic for our relationship with publishers I don't think that's elevate quality and user experience, which has been one of our key differentiators and taxes and a meaningful premium supply deals.
And ultimately it helped deliver even more revenue so a publisher possible.
Yeah.
Moving to the general market place advertising result.
On the revenue side, we think stabilization in the market.
Was it the signs of growth in the last two weeks of the quarter and sequential growth over the course of Q2 and the strongest starting Q3.
From a vertical perspective, we saw year over year growth in auto health and meet them.
In addition to the continued innovation, we make for conversion beat strategy. One interesting progress in Q2 was to increase the adoption of the manta by our core advertising.
Remind us the manta is our in house performance DSP.
Unlike traditional piece that focus on streamlining media buying for display and video on a CPM basis.
The mandates are connected to most major native advertising SSP and it allows marketers to run performance based campaigns across the entire open web.
If this trend with the mental continues we expect this to lead to increased choke wallet with many of our performance advertising.
Moving to the publisher side, well, we entered into several new exclusive long term partnerships in Q2, including T. M D, Washington times, the messenger and others on.
The device or platform side.
Stablish partnership with discuss commenting platform and started ramping up our placement and Samsung devices to our partnership with update.
With existing partners that want to highlight our success in renewing partnerships to secure our long term business growth with the recent renewals of multiyear deals with New York post in the U S border in Germany, you can benchmark and trend interest Italy.
So overall, we are very excited about the launch of our strategic branding platform Onyx.
We believe will further strengthen our position in the open web is the quality partner premium publishers and the full funnel open web partner for all types of advertising.
I encourage me the 5% sequential growth in Mexico gross profit in Q2, and our profitability and expect significant acceleration in growth rates in the coming quarters. Both the next that gross profit and adjusted EBITDA.
I'll now hand, it over to Iran.
Thanks, David.
Today, I'll cover three areas and update on Keystone and AI update and more detail on what we're doing on earnings as it relates to your attention.
First Keystone, we had a strong quarter of new pumps for launches since our last earnings call. We went live with Keystone on C. N N. Axel Springer is build arena groups the street and some case from Japan among others.
These publishers are advancing various kpis to the Keystone technology, such as subscription E Commerce retail newsletters.
One of the main drivers for this growth has been an important product upgrade from our R&D team.
Moving to Keystone code and integrating it with publisher systems has been a barrier to quickly launching with interested publishers.
So in Q2, we built and launched a new no code solution for Keystone.
Leverages the unique code on page position, we already have the cultures.
That's the new launches so publishers had been lumpiness.
My second topic is AI.
On the last quarterly call I updated you, we've built CECI T into our advertiser product called out right.
This follows an automated AI headlines generator that we built in house several years ago.
At the time of our last call I mentioned that about 50% of the automated AI headlines that advertisers were using we've been originating from our chat chips Chi integration.
So that was a long three months ago, which is decades in AI churns.
Our successful integration and launch since then has now grown to be 100% of the automated headlines suggest the advertisers with our products, which are now coming from <unk> 16.
In addition to the speed scalability and cost efficiencies, resulting from these generative AI capabilities. We're also seeing that the chart you can see headlines adopted by advertisers are yielding on average a 7.5% higher click through rate and the headlines they've created manually what's in their campaigns.
[laughter] better rollout for advertisers typically leads to an increase in advertising dollars spent with us.
Our initial Zen AI integration was limited to the English language over the last quarter, we've added within our advertiser product support for general debate.
And Spanish Portuguese Japanese French Italian and Dutch.
In parallel to these upgrades to our advertiser products I'm also happy to uptake that we've now integrated the chassis could Qi Jenny I take facilities until Keystone, allowing publishers to quickly scale and better personalize their various business offerings to their own audiences.
We've also been busy deploying AI capabilities into our R&D and business operations.
Examples we've deployed to use of Microsoft did help co pilot Susan AI assistant for coding Cross our engineering teams.
And we built our own AI bot based on CECI P. T for automatic coastal views flagging of issues relating to the security and privacy compliance within our code.
Moving from generative AI to our AD, serving algorithms, which had been AI based for several years.
During the first six months of the year, we used Detroit, new unapproved AI algorithms, which have so far resulted in a 4.3% improvement and teach our potential based on our internal testing.
So as you can see our product and engineering teams are racing to build and deploy these new AI capabilities, our cross our algorithms our product and our operations to ensure that our brand is at the forefront of the IR Revolution.
Switching gears to Onyx and attention.
I believe that the world of brand advertising on the web has evolved in three main areas.
The first was the rich ore during this period advertisers, we're focused mostly on buying AD impressions, regardless of how and where those AD impressions happened.
To use TV advertising as an analogy, France, we're paying for their ads, whether the T V sat was turned on or off.
The second was the view ability era during the past decade, or so France got smarter and no longer wanted to stay for ads that were never even beautiful by a human being.
Started demanding do your ability as the major metrics they bought advertising.
So I'll jump back to the TV advertising analogy futility ensures the T. V sat is on when the ads are shown but it doesn't ensure that everyone is actually paying attention to them the bathroom or beer runs during the outbreak will still count is 100% viewable and be advertiser pays for full cost.
So we're now at the very beginning of the third big area of brand advertising on the web and that is the era of attention brand advertisers that want to make sure that their dollars are just theoretically viewable, but rather that a human being is paying attention to them.
Therefore in the coming months, we're all going to be hearing the word attention come up often by many companies in the space.
I want to explain why outbreak with its 15 year heritage of powering new seats for the worlds desktop shirts has such a strong and differentiated position in this era of attention.
Most companies in online advertising, our fixing of attention the way they did about visibility, they're typically looking at an AD placement and deciding in a binary way whether that AD placement is doable or not or whether it's high attention or not.
Their placement based systems and not user based systems.
Our friends huge advantage is that we deeply understand the users' interests of the roughly 1 billion people we serve each month.
Through the new seats with power exclusively with code on page <unk>.
She understands what links and ads are likely to be the most engaging to each individual user.
Through this deep understanding of user interest graph, we can predict on a user by user basis, which specific ads will generate attention.
It's just a brand budgets attention will likely be significant amongst all players in the space, who strongly believes that the biggest winners won't be those that make binary decisions on our placement level, but rather those that can make user pay user predictions as to which brand AD will generate the highest levels of attention by each user and audience.
Our 15 year head start and understanding users' interest in personalization combined with this industry shifts to the Arab attention is the reason, we're so excited what's the timing of introducing onyx.
And with that I'll hand, it over to Jason to cover our financials.
Thanks, Rob.
As David mentioned, we beat our Q2 guidance for adjusted EBITDA and achieved the high end of the guidance range for X that gross profit.
From a demand perspective, we experienced a softer start to Q2 with a stronger relative performance in June where we started to see days of year over year revenue growth in the back half of the month.
The early portion of Q3 has continued this trend from June where it.
Cautiously optimistic about the outlook for the back half of the year.
Geographically Europe is showing stronger signals of demand recovery than the U S.
Revenue in Q2 was approximately $226 million, a decrease of 10% year over year.
Media partners in the quarter contributed 12 percentage points or approximately $30 million of revenue growth year over year.
Net revenue retention of our publishers was 78%, reflecting the lapping of the strong level of AD impressions from the prior period driven by several factors, including the prior period, having heightened traffic around the war in Ukraine.
All of us being more selective on effective and quite a wee bit into as we focus on premium high quality supply driving the best results for our advertisers and optimizing certain calls.
Additionally, we continue to see a headwind from the impact of the demand environment on yield.
Our churn remains low by our standards and our three largest turns year over year contributed just approximately four total points of net revenue retention headwinds in Q2.
That's another data point, our logo retention remained at around 95 per cent for all partners that generated at least $10000.
Ex Tac gross profit was $54 6 million a decrease of 8% year over year, driven primarily by the revenue decline.
Slightly lower year over year decline gross profit compared with revenue as a result of largely offsetting impact of revenue mix changes and better performance of certain media partners, which led to an improvement in margin.
For both revenue and expect gross profit currency fluctuations did not have a material impact on year over year growth rates for the quarter.
Moving to expenses.
Operating expenses remained essentially flat year over year, increasing slightly to $51 7 billion in the quarter as we continued to exercise discipline around spending.
There were several offsetting factors driving the flat year over year cost.
To adjust to the continued macroeconomic uncertainty create additional operating efficiencies and support the company's strategic growth and profitability objectives, we announced at the end of May a reduction in our workforce of approximately 10%.
We did in Q2's operating expenses are $2 3 million of severance and related costs related to this cost reduction initiative.
Some of the personnel related costs declined $3 $8 million year over year, driven by head count reduction and FX favorability.
For non comp we saw an increase in bad debt expense of about $1 billion year over year, which was driven by several customer bankruptcies, particularly in the programmatic advertising space.
Monitoring closely to mitigate the risk of further losses.
As a result, adjusted EBITDA was approximately three and a half million dollars in Q2.
Moving to liquidity.
Free cash flow, which as a reminder, we define as cash from operating activities less capex and capitalized software costs.
The net use of cash in the quarter of approximately $2 million. The small net use of cash was driven by the timing of working capital.
As noted last quarter in April we repurchased $118 million aggregate principal amount of convertible notes for approximately $96 $2 million in cash including accrued interest.
Presenting a discount of approximately 19% to the principal amount of the repurchase there.
We viewed the chance to repurchase a portion of the debt at a considerable discount to be opportunistic given the strength of our balance sheet with the remaining cash balance that retain the optionality to invest in opportunities that can drive further shareholder value.
As a result, we ended the quarter with $218 million of cash cash equivalents and investments in marketable securities on the balance sheet and $118 million of long term convertible debt.
In December the company's board of directors authorized a $30 million share repurchase program incremental to the $30 million program fully executed in 2022.
He began executing the new program purchasing one and a half million shares or about $7 $1 billion year to date through June 30th.
Continue to believe it's an attractive way to enhance shareholder value under current market conditions.
Now turning to our outlook.
In our guidance, we assume a continuation of the trends we've seen in the first weeks of Q3 seasonal increases in AD spend that we typically see to finish the year and additional growth from bringing on X to market.
Despite a lower level of visibility into advertising budgets, we have incremental visibility to our EBITDA plan based on the cost actions. We've taken earlier this year with that context, we have provided the following guidance.
For Q3, we expect ex tech gross profit of $56 5 million to $59 $5 million and.
And we expect adjusted EBITDA of seven and a half million dollars, a nine and a half million dollars.
We maintain our previous full year 2023 guidance of at least $237 million of expect gross profit and are increasing our previous full year guidance for adjusted EBITDA to at least $30 million now.
Now I'll turn it back to the operator for Q&A.
We will now begin the question and answer session.
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Assemble roster.
The first question comes from Shred it.
With Evercore ISI.
Yeah.
Please go ahead.
Hey, Thanks for taking my questions. Let me try cases for honest so would you please explain.
How the product works you mentioned.
Dollars in revenue contribution in the back half that.
That's great in terms of the mechanics of the product so where are the ads.
I think getting high why why do they attract higher CPM and what would be a good example in terms of what's driving you are expanding into a higher.
That'd be great and then the other question I had.
Jason in terms of head count reductions are you.
Thank goodness.
He had done he has today and what are you thinking for that.
Thank you.
That's right David.
Thanks for the question so onyx the in terms of financials, we expect it to do between 10 to 20 million in the second half of the year and the product is the brand awareness and consideration product targeted at enterprise brands and it's basically placed either in me the article Endobiotic with placement.
In the 110 show avoids it could be from our experience could be doom and it could be high impact display or a combination of the two for example, we mentioned on the Ford example, equals the hybrid hybrid and where we combine video.
And and display.
These are normally see P ends at the double digits for those brand awareness campaigns, so that they don't.
Expect it took my pie of CPM and in the network. We're very excited about it it really grows our offering to a full funnel partner two brands, where languaging menu existing brand relationships that we have with customers like.
For example, a lot of that that use us for performance and now we also have a dialogue with them around brand awareness campaigns, so leveraging that but he's also really opens the door for us to have much more strategic dialogues with the big holding companies the big agencies and enterprise brands that didn't work before without because they were most interested in.
And building brand awareness.
The duration, so very excited about it both from a product strategy and potential financial impact.
Hey, it's Michael I'll take the second one so on the head count reduction obviously, you know we felt it was prudent in this environment to exercise discipline around costs as we have in the past and improve our cost structure going forward.
You know, what we announced was about a 10% workforce reduction and really focused on efficiencies around having our teams are automation and focusing on the priority growth areas like robotics of course, so you know what we effectively.
Good with that as we reduced our annualized costs by about $12 million to $14 million. That's at about half of that we expect to benefit from this year until you're twenty-three and you know that that brings our head count now to about 870 people. We are we are hiring.
Tiring no obviously for critical positions now in that obviously some of the strategic position Onyx as some of our priority hiring right. Now. So you know I feel like we're back to business as usual following me a reduction though.
Thanks, David.
Thank you.
The next question comes from Laura Martin with Needham. Please go ahead.
Good morning.
So let's start with the bad debt number so a million dollars I assume it was.
Media Math did you talk about what you think exposure additional exposure might be to that.
That number.
Sure Yeah. So we did see a higher bad debt expense in Q1 as well so maybe I'll talk about it with respect to the full the full first half of the year. Our total bad debt expense was about between four and $5 million, which for US is basically a full year number. So so exceptionally high in this in this first.
Half of the year.
You know really a few drivers obviously, the the kind of macro pressure on many of the advertising and programmatic businesses is the main driver. There. We did see you know a few large bankruptcies driving you know close to half of that bad debt expense in the first half of the year, obviously, there's a few big programs.
Companies, you know media math in center core or the highly publicized ones and you know the two of those alone accounted for like a million dollars or so of our of our bad debts in the quarter and in the first half.
The remaining amounts you know we don't think there's there's there's two too big of an exposure actually we think you know.
A good chunk of the <unk> of it is really just aging and a good chunk of that aging is.
The Big Agency Holdco, who were just you know slow payers and and you know part of it is that they might be collecting slower even from from their brands.
And so you know, we're very formulaic, obviously with her with our bad debt expense and the aging. So we see opportunity to to reverse some of that expense in the second half of the year, but yeah. I mean I think in this environment, we should expect to have a.
The higher than normal bad debt expense.
Okay.
Great. Thanks, and then Keystone versus on it are they complementary.
Or do they go after different supply side.
Capabilities I know they both keeping your relationship one mothballed funnel and the other one is sort of a deeper relationship with.
Buyers are you finding the same suppliers that supply side guys are interested in both products are different.
Supply side guys interested in those two products do they work together are totally independent.
Hi, Lauren.
Okay.
But outside I mean, they are they are separate product, they're very complementary bodies totally focused on the advertising side, which is onyx and where it's more of a full funnel solution for advertisers totally new markets for us that this increases our Tam by TUI Ag's Keystone is a.
The supply publisher focused product that is a business optimization platform for publishers saw two different products. So you run anything else.
It's just that they obviously.
I come from the same RMB sauce, and we obviously look at the synergies and how they can work well together for the benefit of publishers.
Thank you and generally and maybe one more comment I mean, both of them are elevating the strategic relationships, we have with the two sides of the marketplace. Keystone is a very strong strategic tool for publishers looking to diversify revenues on the advertising side existing a new we're becoming a much.
Broader partner I think.
Companies generally are looking to work with partners dispositions, nothing a pretty unique position in the market on the two sides of being able to provide a much broader offering which is strategic on the Tucson.
Thank you.
Yeah.
The next question is from Ross Sandler with Barclays. Please go ahead.
Hey, guys just a couple of questions. So can you just talk about the environment sounds like you're starting to see positive growth rates.
Before the beginning of three Q.
What he owes what categories are driving that strength.
As we look at you know you said 10 to 20 million, which is a good start for onyx, but if it is truly incremental.
I would guess if it's incremental budget I would guess that the the ramp into 'twenty four would be more than just like a low single digit.
Incremental bump to revenue so how do you think about.
That product scaling as we get into 'twenty four and then the last question the AR.
G P ex Tac margin finally turned back up for the first time in.
Two years. So how are we thinking about that are we through the worst of the.
Guarantees and macro headwinds around.
Ex Tac margin thanks, a lot.
Thanks, Ross I'll start with the demand trends are all I'll be brief yeah. So what we what we saw obviously in Q1 was with sequential improvement each month of the quarter in terms of demand. While Q2 was much more mixed you know April was mixed softer may and stronger June Q3, after a better than expected start in July .
Relative to June so so yeah relatively stronger trends, particularly in Europe versus U S. Obviously, the AR, the strengthening euro and the pound versus the dollar has helped there.
C P c's, they're still down year over year in Q2, but obviously as we lap easier comps into Q3, we can see an inversion there and just maybe anecdotally we did see an improvement in yields sequentially Q2 versus Q1.
So it was again positive trends.
The reasons for optimism going forward.
Verticals wise I don't we're not overly diverse we're pretty diversified and we're not overly concentrated so auto health and retail were stronger finance has been weak and remains a weaker than the other verticals for us.
And so maybe Dave ourselves up with the with the Moms and yes. So we saw an improvement of about two.
200 basis points.
This is Q1 and about 50 basis points versus last year. So we are encouraged by that we expected you know that the yields will not go that the margin will not go through the Dol and.
Hope to get it back to prior levels I think to get it to historical very high levels I think it will be dependent on some market recovery, but overall, we are excited about this trend and definitely through the second half of the year.
And regarding on ink, so it's a well we're off to a great start I mean, what we're getting right now we've test budgets and where they're going into a bunch of people, which are most significant but definitely next year. Our expectation is that we developed many strategic relationships with many of these holding companies.
And many of these brands and then youre going into a different order of magnitude of all of our.
Brand dollars and campaign, so I mean, we're not giving a forecast for 'twenty four but we expect that if we hit the numbers for a H two significant growth of it into 24 and in coming years. Okay. No expectation. If it becomes you know a few hundred million dollar business over the next few weeks.
Good.
Thank you.
The next question comes from Andrew Boone with JMP Securities. Please go ahead.
Good morning, and thanks for taking my questions I wanted to ask about tools to improve yield how are you guys thinking about key drivers and as we get to the back half of this year and into 'twenty four on key drivers that can step up yield and then secondly, just quantifying that is as I think about not publish a retention historically it's been one.
081, 10 kind of in that level.
Is there a path to get back there or do you guys think that you guys can recover that those levels kind of as macro stabilizes. Thanks, so much.
Hey, Joe.
I'll take the <unk> question you round here so you'll just.
The end result of everything it's.
Obviously with the technology.
And we keep investing in the technology and the algorithms are specifically mentioned.
Mentioned in the comments earlier, we've just in the algorithm.
Updates we've done in the first half of the year, we've seen a potential increase of four.
4% click through rate.
So that's that's deployed network widen those those changes compound over time.
The next of those obviously would be the level of data and the quality of that.
And on top of that it's the AD base so into that part of the yield go a few things one is just getting the advertising selling and back perhaps too with a with that so obviously, where it said that their unaccepted I think because its a great leg with.
Selling a new types of advertisers and new campaigns.
The other side is what what they run with us the more kind of algorithm food.
Algorithm has the better the results are and that was the example, I gave of the AI capabilities. We've.
Built into our <unk> and five products, which taken advertiser campaign. So once we've sold it they take the advertiser campaign and through AI. They recommend a variety of new headlines and variations, which when the advertisers are accepted those what we've seen is more than a 7% improvement in click through rate, which translates to yield.
So the yield result, I'd say is kind of be the result of all the activities, we do operationally business technology and algorithm.
Okay.
And on the retention I'll take that one Andrew.
Just yeah I mean, obviously you know we've said the last couple of quarters that you know the biggest headwind has had been had been set demand and yields and that remains a headwind.
Just to note. We did you know grow ex tax sequentially up about 5% from from Q1 to Q2. Despite the despite revenue kind of continuing to see these headwinds and the one thing you know I.
We noted on the call. This time was just AD impressions, you know where your year over year headwind in Q2, you know several factors no material difference in insurance is still we feel pretty pretty low levels for us the lapping of the war in Ukraine, and particularly in Europe . There was pretty high page views last year in Q1 and Q2 from that.
It was a headwind and we've also just.
We've made changes and we continue to be changes in our supply better optimized for Mercury will roll off in quality and service costs and you know that might have a negative impact on revenue and AD impressions, but where we're driving higher we think ex Tac and profitability because of it and so that's the goal and I think in half two as the comps are easier.
Well, we'll expect to get to a much more normal split between retention and new expected to be around 100, a 100 and in our or in Q3, and you don't even higher ex Tac growth. So that's the that's the plan for H two.
Thank you.
Thank you.
The next question is from.
With Citi. Please go ahead.
Hey, guys. Good morning, you had an excellent I'm pretty calm.
That's my first question would be.
The converts you bought back.
Wondering what's the plan for the rest of the converts on the balance sheet.
Just more generally how we should think about capital allocation going forward.
And then my second one would be.
Generally beihai.
You know we gave a nice update on the chat GPT integration.
Yes, they've been more down the road, how should we think about margin.
For Tonight.
Generally I integrations are from here.
You can't keep it impacting.
Over the next couple of years, how you think it could impact the advertising space for you guys.
I think frankly, it's David so regarding kept on allocation in the converts. So we took the opportunity to be purchased.
The notes are at a very attractive price. So we did that.
In April of this year, we're continuing to look to look at that opportunity, but right now I think we had a good good place on on the convert.
And we did announce.
A new buyback of $30 million earlier this year, we still have significant dry.
Dry powder in there and you know we intend to continue to buy back some shares not not that very high level. So we expect it to be moderate we think the.
Share price is still an attractive return on capital costs, but we also want to make sure that we have enough cash in hand to do acquisitions and the environment for acquisitions is becoming a little better both on the private side and the public side. So we definitely wanted to make sure. We also have.
Enough cash for that so I think we are right now it's at a good balance.
With the buybacks that moderate amounts.
Hey.
Around here I'll take the G&A I a question. So I think generally the there is going to have a bunch of impact on our media in general and in advertising specifically.
In media, obviously every publisher we're talking to is looking to.
Generative AI tools or assistance, some obviously are going.
More extreme and are talking publicly about about generating content Jenny I think others are looking at this as assistance to other team members, which is approach.
Really like and that's that's on the media side. So I think we're going to see much more efficiencies and creating a creative content and using kind of assistance with generative.
Dressed charters and things like that.
On the advertising side as I mentioned, we're using a generative their eye for headline Chris.
Accretion or suggestions.
And we take the seat that is provided to us by the advertiser to the message they want to get out, but then with the generative AI, we can generate 200 different variations, which they didn't think about it and they're not going to deploy.
Deploy.
Big teams to create those variations, but when they get those recommended automatically it makes them very efficient at looking at them reviewing them and approving them and again, we're seeing direct a positive impact in our advertising systems with a click through rate and better return on that spend with those advertisers that are.
Nothing that.
The last piece, which I think is gonna be interesting on G&A I work for Kimberly looking into and playing with in lab, but haven't released anything its obviously on the image side.
Everything that has to do with the creative and this is going to impact I think in a larger way the advertising industry, we're going to have a lot of creative come through general debate.
We're not yet comfortable with the hallucinations that are happening in that space.
So we're still tinkering with that haven't launched yet, but obviously I think over time.
Or did they I and image and creative side is going to be Oh, it's going to be interesting as well.
Just wanted to add to your own comment.
Related to our Nixon brands through just saw it last point there on creativity is important I mean, we use the brand studio, which is our in house studio to work with existing creative repurpose them and create high impact displays create.
<unk> unique ability to generate attention with creative so in that area. We're looking at.
Quentin tends to be how to use AI to improve these processes to generate better better return on on those creatives and phosphate duration. So grants to do it is an area, where AI, where it had been to experimenting with AI around the Grand studio pool phonics.
Okay. Thanks, guys Super helpful.
The next question comes from Dan D with B Riley Securities. Please go ahead.
Yeah morning, guys I appreciate you taking the questions. So just to clarify on Onyx is it something that your publisher partners need to opt into them.
Are you only able to serve your impressions on publisher partners or is it something kind of more like a traditional S. S. T that maybe it could be.
Extended across the open web regardless of whether.
The the publisher itself as a core content recommendation partner or not.
And then David so they they do not need to opt in we were using getting me the article placements, which we have and continue to acquire.
We acquire whether it's cold on page or through a waterfall to header bidding. So this is one area and then.
Endobiotic replacements are ones that we have and we don't need to have them opt in so a lot of the supply is totally in our control.
And publishers like excited about the offering it does the improved user experience with better quality and high yield.
Yeah.
Great. Thanks, and then I appreciate the commentary on the new Keystone wins in the quarter, you mentioned, a couple of pretty large publishers and Theyre just whether you can talk about the recurring revenue from that becoming material at some point.
And then as far as pricing of products.
It's tough to answer for publishers right now do you feel like you need to price it at a discount in this environment to drive adoption in first and then you go down. The line you can increase prices as you prove out the product or has that not been a concern in your pricing.
Pricing is expected.
And so just your own here thanks for the question.
On the on the pricing side, we're obviously working with these publishers and we work with them at a very large capacity and our AR and our existing business and so we know that.
The best way long term.
To create values to ensure that they're seeing tremendous business value from Keystone, they're driving their other business kpis and pushed that growth, where we're confident there's plenty plenty for everyone to have.
Don't break out the Keystone revenue from the rest of the business, but Keystone is really a great way to help us both with retention of publishers.
It's very strategic for them it starts.
Getting us involved with all their business objectives, not just with native advertising and we also had.
It will help us improve the B N R. R.
You will see the results are baked into that into those and it definitely should also help us win new publishers, who are looking to diversify their revenue streams, but don't really have any great technology to support support those efforts.
And then I wanted to just add the two the cheapest answer about being trimmed mentality. So onyx is the incremental on the two sides of the marketplace on the advertising side beat up incremental budget that we never had access to which we may increase or and very significantly and on the publisher side. These are outside of the fee.
So then not placement that we did that in the feet. These are either mid article or endo vertical.
100% sure voice high impact display you'll be deals. So they are incremental the endo vertical could theoretically have some impact on the feed itself, but you're only going to be served when its a high RPM generating.
Great I appreciate the answers guys. Thanks.
Yeah.
Thank you.
This concludes our question and answer session.
I would like to turn the conference back over to the management team for any closing remarks.
Thanks, Operator, we're happy to have delivered strong results for Q2, and we continue to focus on disciplined execution.
We're excited with the opportunities that recent developments in AI are introduced and we're staying on the forefront.
This revolution by implementing AI capabilities across our product algorithms and operations. We're also very excited with the launch of Onyx, our innovation for brand advertisers focused on attention. Thanks for your time.
Forward to updating you again next quarter.
Yeah.
Thank you.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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