Q3 2023 Taboola.com Ltd Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome to the Tabbouleh third quarter 2023 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.
Ask a question simply press star one on your telephone keypad.
At this time I would like to turn the conference over to Jessica Caracas.
Investor Relations for the Safe Harbor Ma'am please begin.
Thank you and good morning, everyone and welcome to <unk> third quarter 2023 earnings Conference call I'm here with Adam singled out two bullets, founder and CEO and Steve Walk Archibald CFO. The company issued earnings materials today before the market and they are available in the investors section of troubles.
Website.
Now I'll quickly cover the safe Harbor.
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.
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, Jessica good morning, everyone and thank you all for joining us for our third quarter call.
Before we talk about the business I want to first address the war in Israel.
The last few weeks have been incredibly hard for us as we continue to face unimaginable events.
The safety and wellbeing of our employees is our very top priority and we have implemented multiple initiatives to support our people and their families. During this crisis.
I am very very proud of Ebola is tremendous resilience. During this difficult time. The work has been instrumental in keeping people safe and in implementing our business continuity plans and it shows in our confidence in our future.
Think about our mission is clear to me now more than ever how essential professional journalism is society needs driving sources of truth, we can all count on and that's always been in forever will be the biggest supporter of the open web publishers and our commitment to them is more necessary than ever.
Our alignment and win win approach makes it such that when we do well the open web as well too.
And now, let's turn into our business results, which I'm very proud of.
Financially we had a strong performance in Q3, beating the high end of our guidance across all metrics, we achieved $125 million in ex Tac gross profit $23 million and adjusted EBITDA and $23 million in free cash flow. We're also excited to raise the midpoint of our full year 2023 guidance for adjusted EBITDA.
And non-GAAP net income.
Free cash flow over the last 12 months is $55 million, which is three times what it was a year ago for the same time period.
'twenty 'twenty four is basically here and given how we're executing on our key business priorities. We're reiterating our 2024 guidance of over $200 million and adjusted EBITDA and over $100 million of free cash flow.
Last year, when we launched our new better platform and Microsoft as our design partner many investors asked us how this new AD technology would affect Microsoft We said, we believe it will make its growing parts of our business and in Q3, I'm very happy to share that Microsoft is there any two X what it was last year at the same time.
Yeah integration is going well and is on track now I care about is not only because it's a good thing for tabbouleh and for our advertisers, but it's also a big step towards making to rollout. The first open web must buy ads platform, Google for search meta for social capital after the open web.
These are just some highlights from this quarter and what I'm happy with our momentum as a company. There are two main factors that drive <unk> revenue. The first is our ability to reach users and deliver engaging experiences in the open web so they spend more time with us and engage with our recommendation engine the.
The second is our ability to monetize our interaction with consumers also referred to as our yield I've said before that is just investing in yield on the same user base. We have now I believe we can double and triple Triple as revenue Theres a lot of growth to be had here now, let's dive in and start with our ability to reach consumers and create engaging.
<unk> in.
In our core business working with publishers all over the world, we've seen strong momentum with publishers continuing to trust us and sign long term partnerships, we saw strong renewals and net new wins, such as Nexstar absolute sports excite, Japan and more and in many of our existing long term partners renewed their partners.
With us publishers like Gannett Cox Media group sports, one Mcclatchy Ndtv and more.
Our cars are going to get even stronger as part of our 30 year partnership with Yahoo.
<unk> largest media property in the U S. As of Q3, two bullets now offering exclusive access to 100% of yahoos global Nellix supply, which means that advertisers can now start buying on Yahoo through tomorrow and this is our main focus migrating Yahoo native advertisers and Onboarding newmont.
In addition, <unk> now has tabbouleh etch console integrated inside and it looks awesome that was an initial part of enabling Yahoo, omnichannel advertisers to migrate to tubular and I can share with you that early results of migrated omnichannel advertisers are very promising.
In summary, there are still a lot of work to do but I feel really good about the progress so far and continue to expect to be fully ramped up by mid 2024.
When you look beyond our core working with publishers, we reach consumers on Android OEM devices as part of cable news.
This business is becoming an important part of how to boiler reaches consumers and create engaging experiences for them to be willing to use grew strong double digits in Q3 and is on track to approach $100 million in revenue in 2023 in the quarter rolled that partnership with really one of the worlds fastest.
Growing smartphones brand, adding more than 6 million devices to our existing reach and this is on top of existing partnerships with companies like Xiaomi and Samsung <unk> and others.
Finally, we found ways to engage with even more consumers through our bidding technology advancing our bidding technology and getting more advertisers benefiting from it in Q3 provided us with ex Tac improvement in the quarter.
We've shared with investors that last year in Apple, Microsoft will be moving to a new bidding technology, which they helped us design and it will help us make Microsoft grow and indeed in Q3 as a result, the revenue was nearly two <unk> higher than Q3 of last year.
Now that I've reviewed the first part of how to build that grows its revenue by reaching consumers and creating engaging experiences which is essentially our supply let me move into the second way, we grow revenue, which is by improving yield.
As you know half of our R&D is working on AI technology, helping advertisers to succeed with the rollout in Q3, Max conversions went into general availability, which is a way for advertisers to share with us our objective as a business and let's.
Do the rest no need anymore for them to get the CPC or anything of that kind, which is essentially how Google and meta do it today were working deeply within video research team to advance our AI capabilities, even further and I'm happy to say that snacks conversion is not one of our fastest adopted technologies ever.
And we've seen encouraging results in Q3, we saw meaningful improvement in net dollar retention for campaigns using Max conversions, which is essentially the leading indicator we want to see and track I believe that's the majority of our revenue will be using dystrophin ticket in AI in 2024.
Our investments into generative AI technology have had a good impact as well we made our journey I offering available in July helping our advertisers many of which are self service to create titles and stimulus I'm happy to say that Jenny I already represents over 2% of revenue from AD created interval at this.
Week, we introduced a new feature called <unk> that generated AI AD maker, which allows advertisers to edit existing creative automatically instead of just creating images from scratch as.
As we've shared before about a third of our company's revenue came from self service advertisers. So we care a lot to make this as easy and effective process as we can.
Well over 2% of our revenue, reducing Jennie O 25% of all at creative from self service to advertisers are made with our journey II.
So overall, we're seeing clients adopt here in January capabilities, which contributes to our efforts as a company to grow yield.
Finally, one of our big investments to bolster monetization and drives yield growth is E. Commerce in Q3, we saw double digit growth in e-commerce, driven by strong momentum in Europe as part of our international expansion and Yahoo, now being a new supplier channel for our retailers in the U S.
Overall, we're seeing well over 100% MTR among top advertisers, which is just unbelievable.
In summary, I am very happy with where we are as a company our performance in Q3, and our momentum heading into 2024, which is a big year for us and with that let me pass the call over to Steve to review, our financials and outlook in more detail.
Thanks, Adam and good morning, everyone before I dive into our financial performance, Let me reiterate what Adam said about the war in Israel. It is so hard to hear the stories of this conflict, but like Adam I'm amazed everyday by the resilience of <unk> in Israel and the way our employees have continued to run our business under <unk>.
Such trying circumstances.
<unk> is our largest global office with over 600 employees and we have had over 100, who either were called into action in the reserves or had a significant other called into action.
In terms of our business exposure in Q3, we reported that approximately 10% of our revenue comes from advertisers with $1 billion addresses in Israel. However, most of that revenue is what we call export revenue and is actually targeting consumers and publishers outside of Israel in fact less than 2% of our raw.
Revenue is what we would consider domestic Israeli revenue, meaning advertisers spending on Israeli publishers and targeting Israeli consumers. It is because of the diversity of our revenue model business continuity plans and the amazing efforts of our employees globally that we have not seen a material impact on our business.
Yes, though we obviously continue to monitor the situation.
Now, let me turn to our Q3 results and our forward looking guidance.
As Adam noted our Q3 results beat the high end of our guidance on all metrics. We are also raising the midpoint of our full year 2023 guidance for adjusted EBITDA and non-GAAP net income and reiterating our 2020 for expectations of over $200 million of adjusted EBITDA and over one <unk>.
<unk> million dollars in free cash flow.
In Q3 revenues were $362 million versus the midpoint of our guidance of $344 million gross profit was $107 million versus the midpoint of $89 million ex Tac gross profit was $128 4 million.
Versus the midpoint of a $118 million adjusted EBITDA was $22 $8 million versus the midpoint of $4 million and non-GAAP net income was $6 $7 million versus the midpoint of a loss of $14 million.
I will note that the revenue performance shows a return to year over year growth of 8% our ex Tac gross profit was roughly in line with last year, reflecting some margin compression due to the add rate declines in 2022, which have since stabilized in 2023, we continue to expect X.
Tack to return to positive growth in Q4.
Positive free cash flow of $22 8 million in Q3 was stronger than anticipated three main factors drove this over performance first our stronger than forecasted ex Tac gross profit contributed to our adjusted EBITDA beat.
We did a good job of controlling operating expenses, which further enhanced our adjusted EBITDA performance.
Both of these factors flowed through to operating cash flow and to free cash flow.
Lastly, our Q3 free cash flow also benefited from the timing of our payables and from a delay in some capital expenditures. Both of these were temporary benefits that will reverse in Q4.
As Adam said, our strong revenue and ex Tac gross profit performance was driven by strength in our e-commerce bidding and <unk> businesses as well as relatively stable yields in our core business.
E Commerce had double digit growth in Q3, driven by strong momentum in Europe and the U S.
Revenue retention was well over 100% among top advertisers. In addition, we are seeing great success ramping to bullet speeds and now Yahoo as supply channel for our retail advertisers.
To bolus feed supply is now a top 10 traffic source globally, we continue to forecast that tool and news will approach a $100 million in revenues this year versus $50 million in revenues in 2022.
Finally, our bidding offerings continue to gain momentum Microsoft registered nearly two times more ex Tac in Q3 2023 versus the same quarter last year. Thanks to advances in our AI powered bidding technology.
Our teams have achieved this strong revenue ex Tac performance, while improving cost efficiency indicated by our adjusted EBITDA margin in Q3 exceeding the margin that was implied by the midpoint of our Q3 guidance.
Operating expenses were $119 $4 million in the quarter down $4 $7 million year over year. This decrease was primarily the result of our focus on cost reductions that we announced in Q3 of last year.
Our head count is down approximately 6% from its peak in July of 2022.
With our ongoing expense discipline and strong growth expectations. We expect that in 2024, we will make significant progress toward our long term adjusted EBITDA margin target of over 30%.
GAAP net loss for the quarter of $23 $1 million included amortization of intangibles of $16 million share based compensation expenses of $13 $6 million and hold back compensation expenses related to the connects via acquisition of $2 six.
All of which were excluded from non-GAAP net income.
Our non-GAAP net income of $6 7 million was above the high end of our guidance range.
In terms of cash generation, we had approximately $32 5 million in operating cash flow in Q3 with free cash flow of around $22 8 million.
This includes net publisher prepayments, which were a source of cash this quarter of $7 2 million and interest payments on our long term debt, which were a use of cash of $4 $8 million I would like to note that net publisher prepayments were a source of cash for the second consecutive quarter. This was due to the.
The fact that new prepayments were lower than the quarterly amortization of historical prepayments.
Now, let's turn to the balance sheet, you can see that our net cash balance remains healthy cash and cash equivalents plus our short term investments increased from $246 $9 million at the end of Q2 to $257 million at the end of Q3 and remain there.
Our debt principal balance of $202 $7 million.
I would note that the $202 $7 million debt balance reported at the end of Q3 was before we repaid an additional $50 million in Q4, which I will discuss in a moment.
The increase in our cash and cash equivalents balance was driven by our strong free cash flow performance of almost $23 million and includes approximately $19 million of.
Share repurchases.
I also wanted to provide an update on our share buyback and debt repayment programs as you probably recall, we announced that we would buy back up to $40 million of shares in 2023 and that we intended to repay up to an additional $50 million of our long term debt in the second half of the year.
The share buyback program was initiated on June <unk> and as of September 30, we repurchased a total of approximately $6 7 million shares at an average price per share of $3 45.
We continued to repurchase shares in Q4 and as of Friday November 3rd we had repurchased a total of approximately $3 3 million additional shares at an average price of $3 69.
Additionally in October we voluntarily prepaid another $50 million of our long term debt, which means that we have voluntarily prepaid a total of $141 million since Q4 2022.
We are also announcing an expansion of our share repurchase program of up to an additional $40 million as well as our intention to pay down up to $30 million more of our long term debt in the first half of 2024.
With the share repurchase program and the debt Paydown are contingent upon the availability of sufficient working capital.
As an Israeli company. We are also required to obtain Israeli court approval for share repurchases. Our current approval expires November 16th and courts are currently operating at a limited capacity due to the war, but we expect to obtain approval once Israeli courts are back to normal operations.
Now, let me shift to our forward looking guidance for the full year of 2023, we are raising the midpoint of our adjusted EBITDA and non-GAAP net income guidance due to our strong operating performance year to date, we believe it is prudent to reiterate our full year 2023 revenue gross profit.
And ex Tac guidance, given our desire to be more conservative in the face of greater near term uncertainty given what is going on in Israel.
We expect revenues of 143 8 billion to 146 9 billion gross profit of $420 million to $436 million.
Ex Tac gross profit of $531 million to $546 million.
We are raising our adjusted EBITDA range to 75% to $82 million and our non-GAAP net income to $7 million to $12 million.
I will also note that despite 2023 being a year of strategic investment in Yahoo, and in our growth initiatives, we expect to generate positive free cash flow for the full year.
We continue to be very excited by the addition of Yahoo to our business Adam mentioned earlier that 100% of Yahoos Global supply is now available to advertisers through to <unk> platform and we continue to focus on migrating the advertisers.
As we have previously stated we expect the revenue to start ramping in Q4 in the double digit millions of dollars range and we will expect to reach full run rate by the middle of 2024.
Finally, we are issuing Q4 guidance for Q4 of 2023, we expect revenues of $418 million to $449 million gross profit of $132 million to $148 million.
Ex Tac gross profit of $164 million to $179 million, adjusted EBITDA of $26 million to $33 million.
And non-GAAP net income of negative three to positive $2 million.
Let me finish by saying that we are happy with our third quarter performance and to be able to raise the midpoint of our guidance on adjusted EBITDA and non-GAAP net income for the full year. We are also excited about the step change we are expecting in our business as reflected by reiterating our 2024 targets of at least 200.
$1 million of adjusted EBITDA, and at least $100 million of free cash flow.
Perhaps most importantly, though we are excited about the momentum we are building in our business. It is really amazing to start to see advertisers, who previously spent their native budgets through Yahoo, starting to use the <unk> platform and hearing them talk about their great experience. It is also great to hear stories of tabbouleh advertise.
<unk> starting to spend money on Yahoo supply and being excited about the performance they are able to reach to achieve.
The additional scale that Yahoo will bring and the growth of our core business is helping us in our progress towards becoming a must buy for advertisers looking to reach consumers in the open web.
With that let me pass it back to Adam for some closing remarks.
Thanks, Steve you've heard Steve and I share our point of view this quarter and how excited we are about our momentum we beat the high end of our guidance on all metrics in Q3, we're laser focused on growing our reach and engagement with consumers as well as our yield and we're doing a good job progressing dose Jan integration is going well.
And on track Advertisers' success and yield growth get a lot of our attention with Max conversions being adopted faster than anything we've ever done 2024 is around the corner and we are reiterating over $200 million in EBITDA, which is nearly three times, our EBITDA guidance this year as well as over $100 million in free cash.
Cash flow and another big step up from this year, all of which supports our plan to buy more shares back and prepay more debt.
<unk> mission is to make the open web strong and to empower editorial teams all over the world to provide trusted content in an engaging way the drive is exciting growth to publishers and advertisers as I stated in my shareholder letter supporting the open web has never been as important as it is now.
Proud to be part of <unk> and I'm proud of our execution. This year and I am pleased working passionately to pursue our mission I'm, sending our employees and Israeli my prayers and my heart is with them every moment of the day. Thank you all for joining US today, we look forward to interacting with many of you over the next few weeks.
With that let's open it up to questions operator.
Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue simply press the pound key.
Again to ask a question. Please press star one one on your telephone keypad.
Please standby, while we compile the Q&A roster.
Yes.
Our first question or comment comes from the line of Jason <unk> from Oppenheimer. Mr. Houston. Your line is open.
Hey, Thanks, Andrew just wanted to send support for everyone in Israel.
So two questions one just maybe on the guide so to the extent youre expressing.
Little bit some kind of conservatism there how much of it is.
Quickly July will call like the impact is.
Israel like very company specific or is it a specific as opposed to like you just may be having some broader macro concerns that.
If things kind of expand in the middle East.
It impacts advertising more broadly.
Call macro so that's question one question two.
What are the conversations you're having with advertisers about what you.
You can do for them with the Yahoo asset and how that might be different either than Yahoo is doing for them before or kind of how theyre thinking about like where those dollars are now and why.
Working with you.
Distribution.
Really makes sense. Thanks.
Thanks, Jason.
Thanks for the support for Israel, We all are that's on our minds all of our mines constantly right now so thanks for that.
In terms of your question about the Q4 guidance and what were thinking there. So first of all obviously, we're really happy with our performance in Q3. So we had a big beat on all metrics, which is great to see gen.
Generally looking forward, we wanted to be conservative we didn't want to assume the same level of outperformance would continue.
We're just trying to be conservative there I will note we saw relatively normal seasonality in October so there wasn't anything really unusual in terms of what we're seeing.
So net net overall, we're just trying to be conservative.
Did raise the midpoint of EBITDA and non-GAAP net income because we feel very good about our cost containment, but we are trying to be conservative on the revenue side.
Yes, good morning, gentlemen, and thanks for that and in order to drive so with regards to Yahoo. There are few things that.
We're seeing first of all it's already getting some traction as I mentioned on the call then and that's good for us because it validates what we assumed back then when we when we partnered with Yahoo, or that the quality of supply and with advertisers to get the value. They get is is higher than the average value. They get in general So it's very good for them.
So now this is as we progress can continue to showcase that too.
Net new advertisers and existing advertisers as you wanted to spend more the.
The second thing is that there's a whole slew of kind of journey in which if you look at the type of supply that have now it's a lot of kind of homepage and greater placements that today to both our traditionally doesn't have a lot of that.
Most of our supply today, and we will recommend to consumers is bottom of articles for the most part and yeah. It's quite the opposite it's a lot of kind of as high impact concrete placement. So for advertisers, it's a great mix of reaching consumers in multiple touch points, So let's say that.
And also over time, we will be able to come up with new formats that we're also excited about again as it relates to homepage placement specifically, so I would start with one it's very valuable it works, which is great and two it's a very new type of supply versus like the Blue line I think in general what.
A lot of the open web has to offer I, given how yao our successfully launching their homepage with consumers. So I would say quality of advertisers' success homepage and formats.
Thank you.
Thank you. Our next question or comment comes from the line of James Kopelman from TD Cowen Mr. Kopelman. Your line is now open.
Taking the question the first one is for Adam.
Generative AI you mentioned, 25% of self served creative is based on generic tools I'm curious in terms of advertiser feedback do you find that clients are adopting these tools, primarily because it's helping them save time and creative resources or is it more of the Gen. II is also helping drive better conversions or is it some combination of both.
And then you also mentioned that Gen. AI can help you improve yield.
Could you also remind us how yields are trending in Q3 more broadly and I'm curious if it's been recovering along with the recent AD market stabilization.
Then I have a follow up for Steve. Thanks, Okay. Okay, I can start on them and they're going to have that.
If I answer your question so on <unk>, we're getting kind of like both.
Feedback from clients, we're seeing that first of all as I mentioned over 2% of our of our revenues now with Jenny I, which is because a lot of our business is direct and its performance advertising driven our clients. The only do what works for them and they continue to do it so long that it works because thats a good feedback from the market that <unk> is not only something to drive productivity and of course.
<unk> is helping them save time and getting a more campaigns going in diverse campaigns.
<unk> gives us such a good offering automatically but we also see that voted by the field in the way that revenue has been growing the tax for Jennie O. So I do like it and I hope that over time more and more of our revenue will be driven like I said the vast majority of our revenue next year I expect to be using sophisticated AI in general like Max converge.
And Rollouts and other things, but then also with Jenny I, though so that that's very important to us.
From an <unk> perspective.
As you know it's about half of our technology organization of R&D is working on performance advertising advertising success and expansion. So this is talk couple of mine for us.
Given how much supply, we are adding and the trends of our yield today, which I would say, it's mostly flat today are in line with the seasonality, we expect which to me is encouraging given how much supply we are adding I do expect expansion in 2024 of that given our investments in yield as I mentioned, it's a lot of what you do.
And I think mainly driven not by the market's recovery, but mainly our internal investment in technology. So I don't wait for the world to get better tableau will make it better.
And then Steve in terms of the Yahoo investments earlier in the year you identified I think roughly $30 billion in Yahoo related expenses for 2023 is that still how youre thinking about the size of that.
That investment for this year and then taking a step back obviously early November but can you remind us how far along we are in terms of the overall investment for the integration, both 2023 and 2024 to get us to the full ramp point of mid next year.
Sure so.
So first of all we've managed to figure out ways to cut down on the amount of increased cost that we expect to have from Yahoo. So thats been a good thing thats one of the reasons that we have part of the cost discipline that I've talked about and part of the reason that we're ahead on adjusted EBITDA.
So I don't expect the full $30 million anymore. So that's good I think in terms of thinking about how much are we investing and where are we adding to where are we in terms of the investment I think I said in my prepared remarks that most of the.
The increase in operating expenses in Q4 is really around two things, it's mostly investment in Yahoo, with a little bit of investment in our E Commerce business as well both of which are ahead of the revenue. So that that's why the cost is up a bit more than the revenue.
So that's if you want to see how much we are investing and you can kind of look at the delta of our operating expenses in Q4 and that gives you a pretty good idea.
I would say as of right now we expect most of the hiring that we need to support.
The transition of the Yahoo business to <unk> to be done by the end of Q1. So we are in that ramp phase, yet where it's not all there yet, but it will probably all be added by the end of Q1.
And just as a reminder for everybody in terms of the revenue we're starting to transition to advertisers now the impact on Q4 will be small, but then will be fully ramped by the middle of next year.
Yes.
Great. Thanks, guys.
Thank you James.
Our next question or comment comes from the line.
Martin from Needham Mr. Martin Your line is now open.
Hey can you guys hear me okay.
Yes, good morning.
<unk>.
Yeah.
So I wanted to ask about so my net revenue ex Tac is down 1%.
Despite the fact that we are selling new Yahoo AD avails, we had strong growth in Microsoft <unk> e-commerce at double digits and new revenue growth. So my question is what's falling is it just the yield because we're bringing all of this new AD units on for Yahoo, and we're not bringing on their new demand.
What's going wrong with offsetting all of these wonderful cross categories that you wrote about in the press release.
Yeah I'll take it.
Actually if you look at the business right the core supply of our business in the core business in general is very strong we're winning publishers who are investing in the expansion.
Q3 revenue is up over last year, 8% Q4 dollars 17 up.
Versus last year. The main thing that is still affecting us is which we're carrying from the end of 'twenty to 'twenty. Two is the decline of yield in 2022, because the yields went down throughout the year. The beginning of 2023. It was just the pilot was smaller and that's something that we're still carry and so we're still seeing that in our results, but as we as we go next.
And yield.
And like I said I do expect it to go up.
Right in 2024, we're going to see that recovering and again, mainly because of our investment as a company. So the main thing.
The greatest optics is that end of 2022, and how we started 2023.
Let me also just add that if you if you look at the midpoint of our guide we are expecting gross revenues to grow 17% year over year in Q4, and an ex Tac to grow 8% year over year in Q4. So we're basically returning to growth. We're just lapping some tougher comparables.
Before yield declines happened in 2022.
Okay Super helpful. Okay. My second one is on one of the things I'm glad you're reiterating 2024, the $200 million and $100 million of free cash flow as well my question to you Adam is as a use of cash to prepay more debt and repurchase more shares with that huge step up in free cash flow and EBITDA.
Implies that you don't actually have a better return on capital use of funds, which would imply that you don't think there is there something in the fundamentals of your business you can invest and Thats a higher return. So could you speak to that why is shrinking your capital structure is their highest return on capital.
Yes, So I think let me let me jump in Lora.
Adam would love to answer it but he pointed at me so yes.
I think what I would say as we can we can fund all the investments that we wanted to do in our in our business out of our existing operating cash flow. So we really don't need to use any of the cash that we that we are going to use on share buybacks or debt repayment.
To fund any sort of new initiatives.
And we think I think we've talked about this in the past we think of R&D as an investment and that's why we spend our money. We think we're investing the right amount right now in those new initiatives I think there is a there is a natural limit in terms of how many things any one company can do and we have a lot of investment initiatives going on.
We've got investments going on in E. Commerce, we're bringing on Yahoo. We've got our performance advertising investments.
We obviously are continuing to invest in our bidding platform. So we're investing in a lot of things. We think we're investing the right amount and yet we were still able to generate excess cash flow and we think right now frankly buying back shares is a very good use of our cash.
Because we think there's a good return on that and that is getting expensive. So we do want to pay that down. So we have enough cash flow that we can do all of those things and then just one more note to add is that we also had the management we care about free cash flow per share for buying buying back share helps us and our investors to kind of track that over time, as we kind of stabilize our share count.
So that's another thing that we care about and we hope over time, we can we can spend more time on.
Okay Super helpful. My last one is on.
Yeah, there's a lot of industry pressure on made for advertising websites could you talk about whether you get caught up in that.
In that category and that negative feedback loop from a lot of industry.
A lot of industry criticism right now of that type of web site.
Yes of course, so we monitor the industry discussion I'll say I'll tell you we're not concerned about it as it relates to US we have a small single digit percent of revenue spent by publishers of all kinds. So it's more from an exposure perspective, and we feel good about our leadership with our policies and our moderation team. We have about 100 people working full time kind of making sure that we adhere to those part.
And we support the industry trends towards making sure that advertisers know exactly where they spend and what value. They get so I think it's a very good discussion to have and as a company I think we're in a good place.
Thank you very much.
Thanks, Laura.
Our next question or comment comes from the line of Andrew Boone from.
JMP Securities Mr. <unk>. Your line is now open.
Good morning, and thanks for taking my questions.
Adam I wanted to go to a big picture question in terms of the strategy of Yahoo deal in the first place.
We've talked about in the past the benefits of scale and just.
Relate back to where we are today like how we scale playing through and benefiting the overall platform for tableau.
Relates to today and then how do we think about that for 'twenty.
Yes. Good morning, Thanks for the question.
This is maybe one of the main thing.
Keeps me excited as it relates to our journey over the next three or four five years, because I think today for advertisers and it's I think it's always important to take the point of view of the client when advertisers and about $10 million of them spend on Google and $10 million spend on Facebook and we're seeing the growth of advertising spending with Amazon and we're seeing we've seen.
More and more businesses and video is getting so much energy on making sure that advertisers.
<unk> supported because everyone sees the opportunity with the advertising sector I think when their point of view is it's uniquely.
Complicated to buy open web today.
Dozens of companies and they're all in the sub $1 billion range revenue scale.
And then they have.
Yeah.
Each have different platforms different account management team, it's just too much.
To complicate it too much I think for the most for the most part Theres very few amount of companies that actually have direct relationships with advertisers right. We had about 18000 clients working with us directly which I'm proud of them, but a magic bullet with 30000, 40000, 50000 or 100000, but to get there to get to the point of to Advertiser says.
Need cable as a must have we need at our strategy.
We have to be bigger.
When we get Yahoo, fully ramped up and we get through our call. It $2 $5 billion run rate, we're bigger than Twitter right at that point, we're in the same realm of snap and Pinterest.
At the point, it's a whole different area code and I Hope. This is this is our one level up.
Places that these days. So this is when we get the Master Sword. You know this is where we get to become invincible and we're one level up and advertisers will say well we cant ignore this open web opportunity search for Google in a social Facebook and tubular and Thats, not where we want to and we want to get to four and $5 billion in revenue and be truly become an alternative to the wall.
So I see as a great partner and an amazing source of supply, which is exclusive to the table as it relates to native a lot of formats alot homepage, a lot of goodness that has that with us.
And I think it is going to get us one step forward.
Kind of getting outside of the epic as it is today nothing wrong with that but I do want to build it to be just one step outs bigger cyber geysers bill strategies with us.
Thanks, Tom and then you guys in the past you've talked about bidding being $1 billion plus opportunity understood. The vertical commentary around Microsoft This last quarter.
Talk about the path to be able to make that $1 billion opportunity where are you guys to go on what need Bob Congrats Michael Thank you.
Sure So, yes, I'm very happy.
Always happy when we tell something to our investors and analysts in a year. After it happens on time, so I'm very happy to Microsoft is double what it was a year ago, which is what we started is going to be and it is so that's first of all that makes me happy as we are in.
It's still a new public company and we're trying to build trust with our community.
So I think over time this is going to be our better technology and Theres a lot of work Youre right were still view it as a startup within its a start up it makes one hundreds of millions of dollars, but it's still a startup we're going to plug that in across all of our publisher base. This is still early stages and we wanted to do a good job and the way you want to think about it is every display inventory.
That exist across our 9000 publishers.
Which I think those display inventory today, they probably generate $20 billion to $30 billion, if we take the 10% or greater 5% of it. This is a good $1 billion and then you have Yahoo, which has a very significant display business, which I also we also hope to be 510% of and then you have other areas, where we can bid into that completely.
Outside of a browser like CTV, perhaps in other other places so over the next three to five years.
At least I want to be part of our core display ecosystem. So that's a 9000 publishers and Yahoo, and I wanted to take a 5% rate of 10% of it.
If that takes us three to five years, that's a good $1 billion or more and then overtime.
I think we can get a better integrated into kind of non drivers or environments, such as CTV and others.
That will take some time, but that's how we get to 1 billion anymore.
Alright, thanks, guys.
Thank you.
Our next question or comment comes from the line of Dan <unk> from B Riley Securities. Mr. Day. Your line is now open.
Hey, Good morning, guys can you hear me.
Yes.
Okay, Hey, Adam.
Are you.
Good How're you doing.
They did.
So just quick one for me you talked about.
Our focus in the near term here being migrated to spend over two.
Over to you.
It's a book of the Yahoo inventory, just maybe if you could give us a peek into what your game plan is to make that happen as quickly as possible.
As effective as possible in terms of migrating budgets over or is it the salespeople, reaching out and get test budgets over.
Then it is in place to start visiting budgets over.
And then is there a plan down the line to deprecate the old Gemini platform.
Maybe might get people using it.
Started leak testing on the core platform.
Sure.
I'll jump in on that one Dan.
So first of all yes, there are detailed plans in place I don't want to get into too many specifics because its obviously getting into the weeds in terms of how we're working with our key customer like Yahoo, but what I can say is we've said all along that we would start migrating.
The advertisers in the back half of the year. You. Obviously are all saw the announcement that the supply is now fully available through the tabbouleh platform. So that has started now.
We're making good progress we feel good about where we're at I think Adam mentioned that it's really it's really nice to hear stories of some of the advertisers that have migrated over and how there.
Finding having a good experience I heard about one advertiser just last earlier this week or maybe it was late last week and all blurred together, but about how they are hitting record levels of spend versus what they've ever done with Yahoo directly and in fact are now spending more with us than they are with meta.
Which was kind of amazing to hear.
So I think so.
So far our progress is encouraging our sales teams have a plan that they're executing on.
I don't want to get into all the specifics there, but we're making good progress and we still feel very good about getting that fully migrated by middle of next year and being at full ramp starting in Q3.
Great. Thanks, Steve.
Just the other one we did here yesterday from a peer about.
Revenue headwinds from an increase in publisher Pageviews attributable because the war related content advertisers blocking dose for brand safety suitability reasons, just making it more challenging to monetize those incremental Patriots. So just wondering if you guys have seen anything similar over the last few weeks.
Yes, so I mean.
We obviously have business out of Israel, So about 10% of our revenue in Q3 came from Israel, but that revenue most of it is what we call export revenue, which is businesses advertisers that are actually trying to reach consumers in other countries. The U S. UK wherever they are.
Trying to reach those consumers, it's not in Israel and that tends to be much less affected by what's going on only around 2% of our revenue is what we would consider domestic Israel revenue, which as advertisers spec.
Spending on Israeli publishers.
And because of that we're not seeing a huge impact and.
And in fact by the way on those publishers traffic is up revenue is down so it kind of offsets itself somewhat so it's a small enough portion of our business that we're really not seeing an impact overall on our business.
Obviously, we're monitoring pretty closely though because we need to see if it spreads or if anything more happens, but as of now we're not seeing a material impact.
Okay, great. Thanks, guys.
Alright.
Thank you our next question or comment comes from the line of.
Sergio <unk> from Keybanc.
Your line is now open.
Great. Thank you and good morning, Adam Good morning, Steve two questions first on Max conversion.
How broad has adoption been and how has that impacted net dollar retention per campaign using it and.
When should we see full adoption of that product and then principal and is great progress towards the $100 million in revenue how should we think about the drivers for the next $100 million revenue.
Thank you.
I can start and Steve feel free to jump in on that conversion.
First it's like I said in my letter.
It's great to see the adoption, it's about 30% now of our revenue has been adopted.
With Max conversion, which is at the levels that it is one of our recent sophisticated AI that helps clients and advertisers share their business objective with us, but not have to provide a CPC, which is very common in Ed tech, but not commenting with Google and Facebook.
We are now we look more like a Google and Facebook from the Advertiser point of view and it is our fastest growing adopted product central started to rollout in 2007, but that's that's pretty awesome to see.
What's good about it it does affect MTR I think we shared this let's Steve check it but I think we shared.
In our in our letter and press release some numbers.
But it does affect MTR. So I will tell you advertisers the court of clients, who use AI in Mexican version.
See better.
And <unk> as well as lower churn and these are kind of the leading truly leading indicators that we're tracking as a company.
We have aggressive growth.
Proving them.
So and my expectation is that this would be the majority of our revenue in 2024, it will be driven by AI and <unk> conversion is relative the next iteration, which will be a rollout and that's where.
Advertisers can optimize for revenue as well.
Just conversions. So this is this is there is a whole roadmap into transferring before in fact, just before this call I had an.
And our coach with RVP.
Facts on that and it's very exciting to see what what's your plan to do as it relates to table a news there's a bunch of things that we're going to their first of all it's a great business on its own because.
It helps our core business get stronger through instant energetic.
As a win win orientation Derrick we send traffic throughout publishers, Dave grow audience, especially in times of the open web could you.
It's more attention.
And in general we're growing that business in a few ways, one existing relationships with Xiaomi and Samsung in outflow in real me and others.
We can get to more markets with them, so theres that geography expansion.
And that's going to help us get more users. The second thing is get more touch points. So if you look at many of our Oems today, they tend to work with us in one or two touch parts, but not all of them at the same time and there is an opportunity there. So they might have us on the lock screen it might have us in the minus one you might have seen an amplification of indebtedness to consumers.
They might have had from the browser, but a lot of times, they just starting to certain integration and the growth over time, so there's a whole vertical expansion opportunity with existing Oems.
And how much more we can do with them and then you have other kind of mid sized Oems.
And all of that has been working with carriers, which we have not yet really done. So over time, you can imagine people that supports not only Oems directly, but perhaps carriers and again this is a.
510 years roadmap for this business.
So theres a lot of ways. This can become hundreds of millions of dollars and in fact, even even more.
Thank you.
Our next question or comment comes from the line of Mark <unk> from the benchmark company. Mr. Good or was your line is now open.
Thank you good morning, Adam it's Steve.
Curious on the <unk>.
Who advertiser migration I'm, just curious how much visibility you have.
On making that happen.
By mid 2024.
Maybe more specifically do you have.
Our concentration of advertisers that are committed to moving over after the seasonal high.
Today period.
And then.
Just.
In terms of E. Com just broadly speaking can you talk about how your go to market. There is perhaps evolving and sort of what types of new client engagements you are seeing.
Obviously, you are having some continued pretty.
Pretty strong growth there, but just maybe how that strategy is evolving thanks.
Sure I'll start with the Yahoo Advertiser migration question. So yes, I think we have very good we're partnering very closely with Yahoo. On this it's in yahoos best interest to help us with this migration because obviously the revenue that those advertisers bring flows back to them largely sub here, we're working hand in.
And with them, we have good visibility from working with them on what we need to do we obviously know kind of what the concentration is in which advertisers.
We need to move like that is what we're working with them on so I think we have very good visibility I think we have a pretty good notion of what we can get done on that so I feel good that we have we have what we need we have the visibility and we have a plan in place with them to help make it happen.
Yes, so about e-commerce.
I first of all I'm very happy with our decision on a strategic decision to.
To acquire connectivity and get into ecommerce and significant way I think it is going to play a very important role in the future of Ebola as well as the future of the open web so.
It's a very lucrative.
Part of our business that will continue to be such and we're seeing that.
<unk> of our business that I mentioned that we saw double digit growth in ecommerce in Q3 and that is driven by a lot of what we said we would do internationally, especially in Europe, the synergy with <unk> and now Yahoo infrastructure supply on top of what connectivity had before I'll tell you couple of there is now a top 10 partner III E Commerce buyer.
So retailers now when they see worse traffic coming from cable is now a top 10 traffic for us which is great.
Again, we're signing new clients as you know, we're investing more in growth more sales.
The U S. So we are seeing in EMEA and APAC on new clients and new affiliate partnerships. So all of that is as Greg and as it relates to.
Our business, it's tending to be about 20% or almost 30% of our ex Tac, which is great. Because it's very premium consistent reliable source of revenue and over time, I think thats going to that has a chance of being a third of our business as well as a third of our publishers. We're seeing some publishers that now make as much money from e-commerce as they make.
Native advertising some of them even make more than from E. Commerce. If you think about that future that means if you're not in the E. Commerce and you don't have an E. Commerce offering you may not you may be kind of irrelevant overtime. So thats that makes me happy.
And then just in terms of capacity to address the E com opportunity how would you characterize that.
In terms of having enough capacity too.
Address.
We see a big opportunity.
Yes, I'll jump in on that I think so when you say capacity I assume you are talking about people resources and the other resources, we need to run the business or that kind of how you or what youre thinking about.
Alright sales strategy broadly, yes, diagnose capacity, what's interesting yeah I.
What's interesting is.
And I think we said this at the time that we acquired connectivity.
This is a business that makes very good revenue very strong EBITDA.
It's run by <unk>.
Private equity firm for a long time, despite the fact that frankly.
Our view there it was probably under invested in in terms of looking for seeking growth. So I think what we're doing right now is we're investing more resources into growth areas.
For connectivity and for our E Commerce business more broadly so for instance, we're bringing on more salespeople to sell new merchants in the U S and abroad, we're helping them expand internationally into territories, where they really didn't have strong presence historically.
And then we're also taking advantage of other synergies that worked with are our core business for instance.
Disclosed in our shareholder letter that.
And in my prepared remarks that actually.
Beula feeds are now a top 10 supply source for our e-commerce.
Advertisers are our merchants as we call them. So it's it's been.
It's been a success story in terms of all the good things that are going on there and I think I would characterize it as we have we have what we need to run the business I think there's still opportunity to invest more and grow faster over time, and that's really what we're doing now so thats in Q4 here I mentioned that Theres really two areas that we're investing.
<unk> more people in and Thats, Yahoo, and E Commerce, and it's because we think there is potential to grow e-commerce, even more and faster.
I would say we have we have what we need to keep it going we probably can invest more to grow it faster.
Great that's helpful. Steve Thanks, so much.
Thanks, Mark thank.
Thank you I'm showing no additional questions in the queue at this time I'd like to turn the conference back over to Mr. Adams from Goldman for any closing remarks.
Thanks, operator, and thanks to everyone for joining us today as you can see from our results we feel very good about our performance this quarter and where we're going there.
There are many many things that are going strong, enabling us e-commerce.
AI powered bidding technology, with Microsoft and others, our core business, which is well positioned and only getting stronger with Yahoo, and a massive investment in performance advertising technology to drive yield expansion like I told you. That's one of the key things, it's going to it can double and triple triple overtime on its own I look forward to 2024 to arrive.
To be an important year for us as we make big step forward towards to come in the very first ever large scale must buy advertising company in the open width, finishing.
Finished my summary here the same way I started the call today I want to send our employees in Israel and their families. My prayers. My heart is with all of you and I think about you all the time.
And I want to thank everyone for their hard work and dedication, especially given what's going on in the world and to our investors on thanks for the support and interest and here's to a great great 2024.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
Yes.
Okay.
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Okay.