Q3 2025 Teads Holding Co Earnings Call
Speaker #3: Good day . Welcome to TD s Third Quarter 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #3: A question and answer session will follow the formal presentation . As a reminder , this conference is being recorded . I would now like to turn the call over to TD's investor Relations .
Speaker #3: Please go ahead .
Speaker #4: Good morning and thank you for joining us on today's conference call to discuss TD third quarter 2020 results . Joining me on the call today we have David Kostman and Jason Kiviat .
Speaker #4: The CEO and CFO of TD's . During this conference call , management will make forward looking statements based on current expectations and assumptions , including statements regarding our business outlook and prospects .
Speaker #4: 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 December 31st , 2024 , as updated in our subsequent reports filed with the Securities and Exchange Commission .
Speaker #4: Forward looking statements speak only as of the call's original date , and we do not undertake any duty to update any such statements .
Speaker #4: Today's presentation also includes references to non-GAAP financial measures . You should refer to the information contained in the company's third quarter earnings release for additional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures .
Speaker #4: Our earnings release can be found on the IR website . Investors under News and Events . With that , let me turn the call over to David .
Speaker #5: Thank you . Josh . Good morning , and thank you for joining us . Before diving into the details of the quarter , I'd like to start with an update on the merger .
Speaker #5: Our turnaround actions and how we're positioning for renewed growth and sustained profitability . While this quarter represents a challenges and our results fell short of expectations , we are taking decisive actions to drive a stronger performance .
Speaker #5: Moving forward . The integration of our two scaled organizations is complex , but a strategic effort , and we are actively addressing the challenges we encountered .
Speaker #5: In addition to the merger complexities , we continue to navigate the dynamic and fast evolving ecosystem marked by shifting traffic patterns across the open internet and increasing competition on the demand side .
Speaker #5: Macro volatility in certain geographies and verticals , and shorter planning cycles continue to affect pacing . At the same time , we remain confident in the strategic thesis behind our merger and are excited about the long term opportunity .
Speaker #5: We believe that the combination of our technology , data capabilities and deep relationships with enterprise brands and agencies places teams in a uniquely strong position to be a strategic partner at a global scale for brands and their agencies and our Cross-screen outcome driven ad platform led by our fast growing connected TV business , is resonating with customers and partners .
Speaker #5: I've just returned from our strategic product offsite , and I can tell you that the innovation , creativity and energy of our teams are truly inspiring .
Speaker #5: This forces our confidence in teasers future and our ability to lead the industry forward with this backdrop , we decided to take decisive actions in an effort to turn the business around , restore growth and improve profitability .
Speaker #5: Over the past two quarters , we've made meaningful progress on the integration and realization of synergies operationally . During Q3 , we restructured the leadership of our regions and improved our sales teams coverage structure and sales processes .
Speaker #5: These measures are already yielding some improvements in key leading indicators , though the revenue impact is still in its early stages . In parallel , after working as one merged team for two quarters , we also decided to conduct a comprehensive business review to identify additional opportunities to restore growth and hence profitability and generate positive cash flow while building a great company .
Speaker #5: The plan we developed focuses on three main dimensions . First , portfolio optimization to product geography and customer segment evaluation . Prioritizing investments in innovation and high growth opportunities while taking steps to improve the profitability of the other parts of the business .
Speaker #5: Second , operational efficiency refining our organizational structure and processes to enhance agility and accountability . And third , cost optimization . Identifying further efficiencies to improve our financial profile and long term cost structure .
Speaker #5: We are rapidly moving into execution of these plans with implementation beginning in the coming weeks with the objective of driving immediate impact . These plans should allow us to continue investing in strategic growth while delivering meaningful , incremental EBITDA .
Speaker #5: We are focused on operating as a positive cash flow business . So far , year to date , we have generated positive adjusted free cash flow and our objective is to focus on improving our cost structure and efficiencies to finish the year positive as well .
Speaker #5: As you may have seen in our separate press release this morning . I'm very excited to welcome on board Molly Spielman as our new Chief Commercial Officer .
Speaker #5: Molly brings a experience on the sales and operations side at scale . She served as Chief Revenue Officer and then chief operating officer at Criteo for five years .
Speaker #5: wealth of from $600 million to over $2 billion . Most recently , Molly was the chief revenue officer at Oracle Advertising , where she helped clients realize value to the activation of third party audiences and contextual targeting .
Speaker #5: Prior to that , she held senior leadership roles at Millennial Media and Yahoo ! And truly excited to welcome Molly to our leadership team .
Speaker #5: She brings exceptional experience , fresh perspective , and a proven ability to lead through transformation . Her insight and commitment to excellence will not only strengthen our leadership team , but also inspire our entire organization as we move forward towards a stronger future .
Speaker #5: Now , I will turn to some highlights from the quarter . Connected-tv remains our most important growth area in Q3 , we saw continued growth of approximately 40% year over year on a standalone basis .
Speaker #5: Assuming continuation of recent trends . Our CTV business is expected to hit the $100 million mark by end of year . As a reminder , our CTV business focuses on three key pillars .
Speaker #5: Home screen , the innovative CTV placement where we continue to be a global leader . Other proprietary formats such as polls , ads and in-play and Cross-screen , which facilitates full funnel activation .
Speaker #5: Our connected TV home screen product continues to gain traction , establishing TD's as a leader in this market . With executed over 2500 home screen campaigns since launch and expanded partnerships with major CTV players , including TCL and Google TV , alongside existing relationships , some of which are exclusive , including LG , Samsung and Hisense , giving us access to over 500 million addressable TVs globally .
Speaker #5: We believe that new research from the media , mental Institute demonstrates the power of our CTV home screen , which , based on early results , achieved a 48% retention rate and delivered a 16% attention premium over YouTube .
Speaker #5: Skippable ads Cross-screen adoption is strong , with over 10% of our branding advertisers now active across both CTV and web . During Q3 , we launched CTV performance , which is designed to enable brands to bring to bridge awareness and performance goals across premium streaming and video environments .
Speaker #5: For example , in a recent campaign with Men's Wearhouse , teeth generated over 41,000 site visits and more than 50,000 incremental store visits , which we believe demonstrates that CTV can now drive measurable outcomes across the funnel .
Speaker #5: While CTV continues to grow quickly , we continue to experience declining page views on premium publishers , partly due to increased adoption of AI summaries and volatility in our programmatic supply .
Speaker #5: However , this has been partially offset by ongoing RPM improvements and by actions taken by publishers to increase engagement of the audiences , particularly on their applications .
Speaker #5: On the cross-sell front , i.e. selling performance solutions to legacy clients clients such as Homes.com , Lavazza and Nissan are successfully combining branding and performance campaigns , driving measurable full funnel results .
Speaker #5: Encouragingly , we are seeing improvements in new business opportunities and a notable inflection in cross-sell revenue , albeit from a small base . With October revenue and bookings growing by more than 55% month over month in cross-sell .
Speaker #5: This important to remember the open internet remains a vital channel for advertisers seeking incremental reach and unique audience engagement . For example , a recent case study with a major US CPG brand demonstrated over 90% incremental reach when extending campaigns beyond social into the open internet , which we believe is a powerful example of Tesla's ability to connect brands with new audiences .
Speaker #5: Beyond walled gardens . In addition to our CTV expansion , diversifying beyond traditional publishers into potential high growth , high value media environments , our retail media innovation continues to advance with more updates and partnerships being announced soon , providing enterprise brands with simplified access to multiple retail media networks through TD's ad manager .
Speaker #5: Moving to AI and algorithmic breakthroughs . The acceleration of our AI and algorithmic capabilities stands as one of the most exciting and impactful outcomes of the merger , already yielding tangible improvements and establishing a highly promising trajectory for 2026 .
Speaker #5: First , the combination of the two companies Data science teams , data sets and know how is resulting in real benefits for both brand and performance campaigns .
Speaker #5: With improved conversion rates , click through rates , auction level bids , and AI based campaign pacing . After a testing period , we are in the process of rolling out some of these benefits to the entire network .
Speaker #5: Second , the adoption of large language foundational models for advertising our next generation approach trains a single unified advertising foundational model that learns from all available data .
Speaker #5: User actions , publisher signals , and advertiser goals to deliver exceptional predictive power across the entire advertising lifecycle . This shift represents a transformative step in that selection and personalization , unlocking performance improvements across every stage of the funnel .
Speaker #5: We believe the improvements to our platform , driven by these foundational models , could be one of the most significant drivers of performance going forward .
Speaker #5: To sum it up , we fully acknowledge that our integration journey has come with challenges and the progress has not been linear . However , we remain confident in the strength of our vision , the resilience of our teams and what we believe is the unique value proposition of our integrated platform .
Speaker #5: We are enhancing our leadership team , sharpening our execution , focusing resources in the areas of greatest opportunity and taking decisive steps to build a more efficient , innovative and profitable business .
Speaker #5: Looking ahead to 2026 , our growth and profitability strategy will center on five key pillars . First , Connected-tv growth through home screen formats and Cross-screen activations .
Speaker #5: Second , deepened strategic relationships with agencies and enterprise brands . Third , expansion of performance campaigns with enterprise clients . Fourth , algorithmic and AI advancement driving non-linear improvements in results .
Speaker #5: And fifth , enhanced profitability in our direct response business . We plan to share a detailed three year outlook and roadmap at an upcoming Investor Day in March , and we look forward to discussing our progress and vision in more depth at that time .
Speaker #5: With that , let me now turn it over to Jason to walk through the financials . Thanks .
Speaker #6: David . I want to start by saying I'm disappointed by our results . Landing slightly below our Q3 guidance for exact gross profit and adjusted EBITDA .
Speaker #6: We experienced volatility in our top line and expect continuation of this in the short term . But are committed to taking steps to protect our cash flow as we focus on realizing our long term vision .
Speaker #6: Revenue in Q3 was approximately 319 million , reflecting an increase of 42% year over year on an as reported basis , driven primarily by the impact of the acquisition on a pro forma basis .
Speaker #6: We saw a year over year decline of 15% in Q3 . I'll touch a little more on the headwinds . David mentioned , and we spoke about last quarter .
Speaker #6: While the operational changes we made in US and Europe are showing a measurable improvement in terms of building a stronger sales pipeline , that gives us confidence in the longer term improvement we continue to see a lower rate of sales in key countries , mainly US , UK and France .
Speaker #6: As noted last quarter , these three regions , which represent about 50% of revenue , are effectively driving all of the headwind on the legacy business with many other countries neutral or growing , including the region , which is our second largest .
Speaker #6: The impact of the operational changes is encouraging , but it is clear that the timeline to see the real fruits of these changes is longer than we anticipated .
Speaker #6: The pipeline is growing and we're focusing our resources and efforts in the coming quarters on driving long term and sustainable value propositions for enterprise advertisers .
Speaker #6: On the legacy outbrain business , we see a couple drivers . One , we continue to see lower pageviews year over year . The residual impact from our cleanup of underperforming supply partners remains a headwind of about $10 million year over year .
Speaker #6: In the quarter , and generally speaking , we continue to see lower pageviews on our partner sites , continuing the trend from prior quarters , while we also continue to see growth in RPM .
Speaker #6: That partially offsets this . It has been less of an offset in the last couple of months , causing the pace of decline to have a larger negative impact on revenues in the quarter following the merger , we made several strategic decisions around components of the legacy Outbrain business that we wanted .
Speaker #6: The de-emphasize and potentially decommission . These decisions are centered around quality and focus on our long term vision . Examples of these actions include the supply cleanup we talked about , as well as additional changes we have made around content restrictions for certain segments of demand and the de-emphasis of our DSP business and DIY platform .
Speaker #6: The revenue impact of these factors has been larger than expected . Most meaningfully in our DSP business , where a few large clients lowered their scale meaningfully across our platform , driving a decline in year over year of $5 million in Q3 .
Speaker #6: On the positive side , CTV revenue continues to be a growth driver , growing around 40% in the quarter and projected to $100 million for the year .
Speaker #6: And this is an area where we still see ourselves in the early innings , representing about 6% of our total ad spend with a margin that is expanded year over year as we scale it and further differentiate our offering stack .
Speaker #6: Gross profit in the quarter was $131 million , an increase of 119% year over year on an as reported basis . Note that profit growth is outpacing revenue growth , which is driven primarily by a net favorable change in our revenue mix resulting from the acquisition , but additionally aided by the continuation of improvements to revenue mix and RPM growth from the legacy offering business .
Speaker #6: Other cost of sales and operating expenses increased year over year , predominantly driven by the impact of the acquisition note in the quarter , we recognized 4 million of acquisition and integration related costs , as well as 1 million of restructuring charges .
Speaker #6: Also note that we recorded a benefit from deal related cost synergies in Q3 of approximately $14 million , approaching the $60 million annual run rate for 2026 that we had guided previously .
Speaker #6: This was always an initial milestone in our view , and we feel there is more opportunity ahead . Adjusted EBITDA for Q3 was 19 million and adjusted free cash flow , which , as a reminder , we define as cash from operating activities , less CapEx and capitalized software costs , as well as direct transaction costs was a use of cash of $24 million in the quarter , driven largely by the $32 million semi-annual interest payment made in August .
Speaker #6: Year to date , we have generated adjusted free cash flow of $3 million . As a result , we ended the quarter with $138 million of cash .
Speaker #6: Cash equivalents and investments in marketable securities . On the balance sheet and continue to have €15 million , or about $17.5 million in overdraft borrowings classified on our balance sheet as short term debt .
Speaker #6: And we have $628 million in principal amount of long term debt at a 10% coupon due in 2033 , generated positive adjusted free cash flow year to date , and are focused on improving our cost structure and operating as a cash flow , generating business .
Speaker #6: As David mentioned , we are working intently on ways to drive better profitability and growth as a combined company , which involves a deep analysis of our operating model and opportunities for efficiencies .
Speaker #6: As we move into the implementation of these plans . In coming weeks , we expect the benefit to adjusted EBITDA of at least $35 million on an annualized basis and to start seeing a small impact of that in Q4 .
Speaker #6: As we look towards Q4 , our visibility , like others in this space , remains challenged by the shorter planning cycles from advertisers .
Speaker #6: Given this and the seasonality of the business , we exercise an increased level of caution in our guidance . And with that context , we provided the following guidance for Q4 , we expect gross profit of $142 million to $152 million , and we expect adjusted EBITDA of $26 million to $36 million .
Speaker #6: Now , I'll turn it back to the operator for Q&A .
Speaker #3: Thank you . If you would like to ask a question , please press Star One on your telephone keypad . A confirmation tone will indicate your line is in the question queue .
Speaker #3: You may press star two if you would like to remove your question from the queue . And for participants using speaker equipment , it may be necessary to pick up your handset before pressing the star keys .
Speaker #3: Please limit to one question and one follow up question and requeue for additional questions . Our first question is from Matt Condon with citizens .
Speaker #3: Please proceed .
Speaker #7: Thank you so much for taking my questions . My first one is just can we just unpack the headwinds in the quarter here ?
Speaker #7: There are multiple things . Is it just mainly the continuation of the things that you saw last quarter ? How much of it was the degradation in search traffic ?
Speaker #7: And then also , I think you called out some some macro headwinds as well . Could you just parse through those and just talk about the different components ?
Speaker #6: Hey . Yeah , of course I will . Oh , okay . Sure .
Speaker #5: Let me just maybe at the high level , high . I think overall , you see a combination of factors . We don't believe there's anything structural .
Speaker #5: It's a lot of it relates to distractions from the merger . The execution challenges that we highlight that are taking longer than than we had anticipated .
Speaker #5: And we needed to take deeper actions .
Speaker #8: That Jason highlighted . And there is some weakness in certain geographies . And verticals . But , you know , we believe that , you know , we with the actions we're taking , we can turn the business around .
Speaker #8: If you want to give more details .
Speaker #6: Sure . Yeah . I mean , just the , you know , breaking it down a little bit as far as what was maybe disappointing to us in Q3 versus what we expected a few months ago , certainly just an increased level of demand volatility .
Speaker #6: And , you know , kind of drove drivers on both sides of the business . You know , on the TV side , we talked about , you know , the operational changes we made early in the quarter in response to the slowdown that we started to see at the end of Q2 .
Speaker #6: And effectively , what we've seen is just a slower , slower than anticipated impact from those changes . And it's really impacting the same .
Speaker #6: The same key countries that we talked about last quarter in US , U.K. and France . You know , typically Q3 builds towards a September being , you know , easily the strongest month of the quarter .
Speaker #6: And it still was . But , you know , not to the not to the level that we would typically see historically , which was which was a little bit of a negative surprise for us .
Speaker #6: You know , visibility does remain challenge with advertisers . You know , they still have a shorter planning cycles . We've been talking about , you know , since really the beginning of this year with , with , with with the tariff announcements and other things kind of impacting that .
Speaker #6: On the positive side , you know , we did see , you know , I said growth in some regions , we did you know , we do see just kind of health and the impact of the changes that we made .
Speaker #6: The pipeline , as we measure it is growing . We see , you know , that , you know , starting to pay off a little bit in October here .
Speaker #6: But it's still early days . And we think it'll it'll take longer . You know , we also see , stronger cross-sell . We see stronger CTV which are which are really two of our very main focus areas .
Speaker #6: As David said . So , so , so some optimism there . On the operating side , I think , you know , you asked about the impact of the pages .
Speaker #6: They did tick a little bit lower in Q3 than what we saw in Q2 , and we also saw , RPM continues to to grow and be an offset against that .
Speaker #6: But there was a little bit less of an offset in Q3 as the quarter went on . And that drove it a little bit of the softness as well as as I said on the call , the strategic decisions we made around quality , the supply cleanup in H1 , demand content restrictions that we've employed , you know , having a bigger impact than , than than what we expected .
Speaker #7: Thank you so much . And then just this is a follow up . Just what is your willingness to if things don't materialize just to take the right steps to protect free cash flow here as we look out into the rest of this year and into 2026 .
Speaker #8: We we set it on the call . I think we are committed to it . We generated positive free cash flow year to date adjusted positive free cash flow .
Speaker #8: And we're taking all the steps to to continue to do that . We talked about the plan that is really a transformational plan around deciding on which areas to focus and invest .
Speaker #8: So we're still in investment on in certain growth areas . But I think we're looking at the business components in a in a smarter way .
Speaker #8: We did this exercise in the last eight weeks to really analyze in depth the business decided on the focus areas . And part of that we will be generating a minimum of $35 million of incremental EBITDA .
Speaker #8: That's combination of this transformation and cost efficiencies . So we definitely committed to that .
Speaker #7: Thank .
Speaker #9: You .
Speaker #3: Our next question is from . Yigal Aronian with Citigroup . Please proceed .
Speaker #10: Excuse me . Hey , good morning guys . So I know you're going to want to give a 2026 outlook here , but just , you know , given how 2025 is trended and , you know , the work on integration , maybe if you could just I know investors are going to want to look look into 2026 .
Speaker #10: And get get a better sense of the confidence level on , you know , some of the the sales execution . Now where , you know , changing some of the product , $35 million of savings .
Speaker #10: You're calling out and any help for investors to kind of think through the the pace of this and the level of confidence that this stuff really finally starts to come through and kind of think about next year .
Speaker #8: I think we're not giving specific thanks . We're not giving specific guidance to 2026 , what we see is , you know , some positive indicators .
Speaker #8: Month over month in growth in CTV , growth in cross-sell . And we decided on focus areas of innovation that are going to be focused around the agency side .
Speaker #8: The CTV side . We believe that that with a combination of sort of the plans we we have around the sort of EBITDA improvements will get us to a , you know , we expect to get to single digit growth in certain areas of the business and run certain areas of the business for profitability .
Speaker #8: Once we finalize these plans , we will be communicating in more detail .
Speaker #6: Maybe what I could add to that , Jason , just to give a little bit more color , you know , we definitely see an impact of the changes that we've made .
Speaker #6: You know , kind of confirming the operational , you know , drivers that we talked about last quarter . And what I mean by that is , you know , for example , we made the changes with the structure in the US , which has been our , you know , underperforming region .
Speaker #6: We made the change in July . We immediately saw more meetings , more RFPs , a bigger , healthier pipeline being built . You know , equity being built with with the with the brands and agencies that that we've worked with historically .
Speaker #6: And we are starting to see early returns . You know , I mean , in October , you know , early , early kind of results from that impact .
Speaker #6: It's still down , but it's down less by by close to ten points on a year over year basis . Right . And so it's nominal .
Speaker #6: It's early . But we do think this is the kind of thing that pays off more over time and that it's not , you know , as you know , as quick of a , as quick of a turnaround as , as we had hoped for .
Speaker #6: We've spent a lot more time with clients ourselves , understand a little bit more about some of the the challenges and starting to address them and how we win .
Speaker #6: And that's prioritization of product . Just strategic relationship building , commercial terms . And these are things that are not , you know , as we had hoped , you know , a 90 day , you know , sales cycle turnaround , but rather things that probably take a few quarters .
Speaker #6: Right . And so we feel good . We feel obviously a lot smarter . We think we need to make changes and and we've talked about what we're what we're doing there .
Speaker #6: But you know , we feel good about the areas that we're focused on for sure .
Speaker #10: So just is it fair to say that you're starting to see some really benefits from from the from the sales reorganization still down , but still taking time .
Speaker #10: But starting to see improvements . And then the kind of structural changes you're talking about . All that's pretty new and starts to come through more next year , or I guess in four .
Speaker #10: Q and into next year .
Speaker #8: I think . I think that's that's very fair . And as Jason said , we already see signs again . They're leading indicators in terms of how p sizes of of this opportunities , more .
Speaker #5: Opportunities are opening more active meetings that are leading to , to generating pipeline . Again , October was less of a decline than in September .
Speaker #5: We see good data points in in in the US , which is the main market . We , we address , I think in the UK we also starting to see some impact of the changes .
Speaker #5: I'm very excited to have Molly on board . I mean , she brings a tremendous experience . I mean , she's sort of led .
Speaker #5: She was the CRO and CEO of credo in years where they grew from half a billion to to 2 billion . And she's very experienced sales leader , operational leader , I think it's we spent a lot of time in the last few weeks looking at this , she believes .
Speaker #5: Obviously there's a huge opportunity here and it's sort of in our control to fix .
Speaker #10: Very helpful .
Speaker #11: Thank you guys .
Speaker #3: Our next question is from Laura Martin with Needham and Company . Please proceed .
Speaker #12: Hey , so let's start . Jason , one of the things you said is you lost several big clients in about 5 million of revenue from them , you know , can you go into the background of why they turned away from your DSP ?
Speaker #12: Like what you know , is it just that we're getting winners and losers and they're pulling money ? Is it stuff ? Trade Desk is doing that's out of your control ?
Speaker #12: I assume there's nothing you did that in a single quarter that so it's something somebody else is doing . Like Amazon or Trade Desk or taking share from you .
Speaker #12: But can you talk about that and why that isn't structural ? Because it sort of sounds structural to me . Let's start with that one .
Speaker #6: Sure . Yeah . So to maybe give a little more color on that . Yeah . It's a small number of customers that I was referring to buying on our , on our Outbrain DSP business .
Speaker #6: It made up the majority . It made up about two thirds of our DSP business coming from this , this kind of small group and segment of customers spending on it .
Speaker #6: And , you know , I kind of quoted the impact there of a $5 million zrtec impact year over year . You know , we we've made changes around around supply .
Speaker #6: You know , as I said , in the first half of the year , we've also been making changes . And this part's not really anything new for us .
Speaker #6: But , you know , we continuously do this of , you know , content rules and content restrictions to make sure , you know that things are up to our quality and what we want to what we want to allow out there .
Speaker #6: And , you know , some of these changes , you know , made by us and also changes that just impact the customers from their own business models and how they're able to to use the platform to , to run their own business models , cause them to reduce their spend .
Speaker #6: You know , dramatically . And you know , we did expect an impact . We didn't expect it to be so binary is maybe how I would put it .
Speaker #6: But , you know , we we saw the spend , you know , leave . And it's not that it went somewhere else as far as we know .
Speaker #6: I think it's just , you know , impacts their model and their ability to spend in general . And as I said , you know , we don't expect this to come back online .
Speaker #6: Certainly in Q4 . And , you know , this was this was like two thirds of the DSP business and the rest of the business is is really fundamentally different .
Speaker #6: I don't see a similar risk with the remaining with the remaining portion . But but hope that is helpful .
Speaker #5: Maybe just to to to clarify on that . I mean , the whole move to of more premium network is a big move .
Speaker #5: I mean , it's something that takes time . We can't always assess the whole impact . I mean , we talked about $10 million in revenue impact from the moving supply sources .
Speaker #5: De-emphasizing the DSP design legacy . Outbrain Inc. , I would say hard core performance . Other people are taking some of this business .
Speaker #5: We , as we move forward with the more premium placements that we need to offer , the guarantee of quality to the enterprise clients .
Speaker #5: I mean , these are certain steps that are hurting more than we had anticipated , but I think it's going to be something that , again , we're not as I said , we don't expect it to come back .
Speaker #5: I mean , it's something that sort of we deliberately are doing and right now , obviously feeling the pain of it . But I think when we're looking at the strategic direction of the company , these are some of the right moves and some of this happening faster than we thought .
Speaker #12: Okay . Yeah , that makes sense . And that's helpful because it limits the downside . Sent to the DSP segment okay . And then David , one of the things you said at the top of your comments was that you are seeing you're the first actually adtech company that's reported that says they're seeing a diminution in traffic .
Speaker #12: Magnet said . They're hitting record traffic levels , even excluding bots . So I'm curious about that . Do you think that's because your content is primarily news or and that also sounds structural .
Speaker #12: So can you talk about this ? The traffic demise that you're seeing that that at least other CEOs are not admitting to . So I'm interested in what you're seeing on the traffic side .
Speaker #5: So I would just not use the word demise . And what we have seen and we analyzed this obviously daily basis . When we look at the .
Speaker #5: Our business is growing very fast on CTV. We're expanding beyond the traditional publisher world in a very aggressive way. And this is, I talked about the focus area on the traditional publisher side.
Speaker #5: When we look at the sort of list of premium publishers we saw around between 10 and 15% decline in pages . I mean , these are the numbers we're seeing .
Speaker #5: I think it's very consistent with everything you're reading out there . So if everyone is saying that there's no decline in publisher page views , I suggest you do a ChatGPT and you'll see those numbers .
Speaker #5: What we see . I think it's a little bit softer on on in-app traffic , in-app traffic is about 30% of those publishers traffic .
Speaker #5: And then we see still some decline in in the paid boost lower than that . So single digit on the in-app and on the web , around 10 to 15% .
Speaker #5: That's what we see on a certain segment of publishers that I believe is representative .
Speaker #12: Very interesting . Thanks so much .
Speaker #3: Our next question is from Zack with RBC . Sorry , B Riley Securities , please proceed .
Speaker #3: Cummins
Speaker #13: Hi there . This is Ethan Weidel calling in for Zack Cummins . Thanks for taking my questions . I guess just piggybacking on that conversation about
Speaker #13: page views , how much of that do you suspect is coming from disruption from AI search and otherwise ? What would you what would you attribute the decline to ?
Speaker #5: It's difficult to put a specific number on it . I would say that it is accelerate the decline of pages is accelerating because of AI summaries and and the changes in in discovery .
Speaker #5: So I think it is it is impacting the traffic to , to those websites .
Speaker #13: Understood . And then regarding free cash flow going forward maybe what are your expectations in terms of free cash flow positivity . Or maybe what the timeline to sustainable free cash flow looks like .
Speaker #5: Just want to say one comment on the page view still . I mean , what what we didn't mention , but we're seeing we continuously see improvements in in RPMs , so we offsetting some of that decline .
Speaker #5: I mean , we had eight consecutive quarters in growth on revenue per pages . Our PM , we diversifying the business . We're working with those publishers with the eocs around how to monetize LM sort of inputs and platforms that they are using .
Speaker #5: So there's a lot that's being done . It's not that I think publishers are saving there . And and not doing taking actions .
Speaker #5: We are partnering with many of them to increase the engagement of users . We are continuously improving RPMs . I mentioned on my prepared remarks , I think one of the exciting things is the algorithmic improvements that we see out of the merger , and we think that is only the beginning and we into 2026 , see a really great trajectory of continuous , significant improvements on those RPMs .
Speaker #5: So that's on that front . Sorry , Jason .
Speaker #6: Yeah . So your question , Ethan , about cash flow . So with cash flow is something that we take very seriously . Of course , year to date , our adjusted free cash flow is is positive at a few million dollars .
Speaker #6: We do expect the year to be around break depending on just timing of working capital around period end , etc. . You know , we are seeing , of course , lower extech .
Speaker #6: It's it's resulting in lower EBITDA , lower cash flow , which is brought down our versus our expectations from earlier in the year .
Speaker #6: But we also do expect lower cash taxes , lower CapEx , lower restructuring costs and things that do partially offset that . So we do think we're in okay shape , you know , for this year .
Speaker #6: And obviously , as I say , we take it very seriously in a lot of our , you know , look at the the project that we're moving to the implementation phase on now in our analysis , you know , cash flow guides a lot of that as well .
Speaker #6: And , you know , as I said , we do expect to take about $35 million of improvement to EBITDA on a run rate basis , starting here in , you know , in with some impact in Q4 .
Speaker #6: So we do think there'll be a sizable impact on 2026 and , you know , continue to obviously work also on , on , on , on other cash , you know , cash taxes , optimization and those things as well are areas that we still are , you know , less than a year from , from , you know , merging and still , you know , optimizing at this point .
Speaker #6: So , you know , we do aim to generate cash . It's important for us to do so . I'm not guiding obviously anything for 2026 at this point .
Speaker #6: But I want to make sure you you take away from here , you know how serious we view it and how important it is to us .
Speaker #13: Well, I appreciate that color. Thank you.
Speaker #3: As a reminder to Star One on your telephone keypad , if you would like to ask a question , our next question is from James Healy with Jefferies .
Speaker #3: Please proceed .
Speaker #14: Yeah . Great . Thanks for the question . It'd be great just to hear a little bit more about some of the puts and takes for the Q4 gross profit guide , and what you're assuming for that .
Speaker #14: Thank you .
Speaker #6: Sure . So maybe I'll start here , David , anything you want to add ? Please do you know our giving guidance here ?
Speaker #6: Obviously , you know , we've got a lot to consider . So , you know , the visibility is still a little bit challenged by the volatility .
Speaker #6: We've seen , you know , advertisers continue to have you know , much . You know shorter planning cycles than than we historically are used to .
Speaker #6: And obviously based on how Q3 played out where the end of the quarter spike was much more muted than we historically have seen .
Speaker #6: You know , certainly gives us , you know , a little bit of pause . And we want to exercise additional caution when we're giving guidance .
Speaker #6: So , you know , all that said , you know , we you know , think it's prudent to to be conservative and and , you know , set ourselves up here maybe just some of the facts that we're seeing so far into Q4 , that might be helpful .
Speaker #6: Beyond that , you know , October is performing on the legacy side . October is performing a little bit better than what we saw in Q3 .
Speaker #6: October is typically about 30% of the quarter . So we're still dealing with the bulk of it ahead of us , and there still is volatility in the pipeline and our guidance , you know , based on based on what I'm telling you or guidance for the balance of the quarter is is implying a lower performance than what we saw in October .
Speaker #6: Again , kind of take from that , you know , based on my remarks on , you know , the things that we're considering in here on the Outbrain Inc. side , we do , you know , assume the headwinds that impacted , you know , Q3 will impact Q4 even more .
Speaker #6: So within the DSP business . As we said , certain segments of demand and that drives deceleration of the performance relative to Q3 .
Speaker #6: You know . Smaller . But on the positive is , you know , we do we do see October , you know , growth in CTV .
Speaker #6: We do see October acceleration in cross-selling . And these are , you know , off a small base . But meaningful accelerations . And our focus areas .
Speaker #6: Right . So it gives us some optimism . There . But obviously weighing the collective here , you know , we think it's prudent to guide the way that we are .
Speaker #6: And I will say that , you know , we do expect our cash flow for the year to be around breakeven .
Speaker #15: Thank you .
Speaker #3: We have reached the end of our question and answer session . I would like to turn the conference back over to David for closing remarks .
Speaker #5: Thank you . Thank you for joining . As you can see , we are very focused on execution , financial discipline . We are investing in growth areas .
Speaker #5: Still . We have a clear plan of how to extract more EBITDA into into next year . And look forward to keeping you updated on the progress .
Speaker #5: Thank you .
Speaker #3: Thank you . This will conclude today's conference . You may disconnect your lines at this time , and thank you for your participation .