Sign in

You're signed outSign in or to get full access.

OI

Outbrain Inc. (OB)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 delivered margin-led outperformance: Ex‑TAC gross profit reached $56.0M (26.1% margin), at the high end of guidance, and Adjusted EBITDA was $7.4M, materially above the $1–$4M guide, despite revenue declining 5% YoY to $214.1M .
  • Mix and execution improved profitability: gross margin rose 180 bps YoY to 21.3% and Ex‑TAC margin rose ~190 bps YoY; adjusted net income was ~breakeven ($0.1M) as GAAP net loss reflected $3.2M acquisition costs and $0.6M severance .
  • Guidance: Q3 guide implies sequential acceleration (Ex‑TAC GP $58–$62M; Adj. EBITDA $8–$10.5M); FY24 Ex‑TAC GP maintained ($238–$248M) and FY24 Adj. EBITDA raised to $31.5–$36M (from $30–$35M) .
  • Strategic catalyst: announced definitive agreement to acquire Teads (~$1B), targeting a scaled, full‑funnel open‑internet platform with substantial expected EBITDA and synergy potential; management expects closing by Q1’25 (subject to approvals) .
  • Estimates context: S&P Global consensus for revenue/EPS was unavailable via our data connection; benchmarking vs company guidance shows a clear beat on profitability and high‑end delivery on Ex‑TAC gross profit (see “Estimates Context”) .

What Went Well and What Went Wrong

What Went Well

  • Ex‑TAC and EBITDA outperformance; fourth straight quarter of positive FCF: “we delivered ex‑TAC gross profit of $56 million towards the high end of our guidance” and “significantly exceeded our adjusted EBITDA guidance with $7.4 million,” with positive FCF for the fourth consecutive quarter .
  • Product and mix momentum: third consecutive quarter of YoY RPM growth; Predictive Demographics early adoption surpassing third‑party segments by up to 40%; non‑feed supply reached ~27% of revenue (vs 24% LY) .
  • Advertiser traction: Zemanta DSP advertiser spend up ~50% in 1H24 vs 1H23; Onyx direct sales with ~40% rebooking in Q2 and new enterprise campaigns; new/renewed premium publishers (EBRA, The Daily Beast; Ad Alliance; Vox) .

What Went Wrong

  • Top‑line pressure: revenue fell 5% YoY to $214.1M amid low pricing (CPC) and demand environment; GAAP net loss of $2.2M vs $11.3M profit LY (benefited then by a $22.6M convertible notes gain) .
  • Partner transition headwind: migration at a key partner (Microsoft) created volatility; management said the transition reduced Q2 ex‑TAC by high single‑digit percentage and implied ex‑TAC would have grown double‑digits YoY otherwise .
  • Non‑recurring costs: net loss included $3.2M acquisition‑related costs and $0.6M severance, which weighed on GAAP profitability despite operational improvements .

Financial Results

Quarterly performance (oldest → newest)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$248.229 $216.964 $214.148
Gross Profit ($USD Millions)$53.232 $41.595 $45.576
Gross Margin (%)21.4% 19.2% 21.3%
Ex‑TAC Gross Profit ($USD Millions)$63.804 $52.154 $55.957
Ex‑TAC Margin (%)25.7% 24.0% 26.1%
Adjusted EBITDA ($USD Millions)$14.004 $1.397 $7.409
Net (Loss) Income ($USD Millions)$4.057 $(5.041) $(2.199)
Diluted EPS ($)$0.08 $(0.10) $(0.04)
  • Q2 YoY/QQ trends: Revenue -5% YoY; Gross margin +180 bps YoY; Ex‑TAC margin +190 bps YoY; Adjusted EBITDA +112% YoY; Ex‑TAC GP +3% YoY .

Q2 2024 Actual vs Guidance vs Estimates

MetricQ2 2024 Guidance (as of May 9)Q2 2024 Actualvs GuidanceConsensus (S&P Global)vs Consensus
Ex‑TAC Gross Profit ($M)$53–$57 $56.0 High end N/AN/A
Adjusted EBITDA ($M)$1–$4 $7.4 Beat N/AN/A
Revenue ($M)N/A$214.1 N/AN/AN/A
Diluted EPS ($)N/A$(0.04) N/AN/AN/A

Note: S&P Global consensus estimates were unavailable via our data connection at the time of analysis. We benchmarked results against company guidance instead .

Balance sheet and cash flow highlights (Q2 2024)

  • Cash, cash equivalents and marketable securities: $228.9M ($75.1M cash & equivalents; $153.8M investments) .
  • Long‑term convertible notes: $118.0M .
  • Operating cash flow: $3.6M; Free cash flow: $0.3M in Q2 .
  • Share repurchases: 464,054 shares for $2.0M in Q2; $6.6M remaining authorization (paused given Teads deal) .

KPIs and operating metrics

KPIQ4 2023Q1 2024Q2 2024
RPM (YoY)Return to YoY growth YoY growth (2nd consecutive quarter) YoY growth (3rd consecutive quarter)
Publisher Net Revenue Retention91% 89% 89%
Logo Retention (≥$10k)96% 98% 99%
Non‑feed supply mix~20% of 2023 advertiser spend >25% of advertiser spend ~27% of revenue
Zemanta DSP advertiser spend growth$125M 2023 spend (context) +~40% YoY +~50% YoY (1H24)
New media partners revenue contribution+4 pts (~$11M) +5 pts (~$11M) +6 pts (~$14M)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Ex‑TAC Gross Profit ($M)FY 2024$238–$248 $238–$248 Maintained
Adjusted EBITDA ($M)FY 2024$30–$35 $31.5–$36 Raised
Ex‑TAC Gross Profit ($M)Q3 2024—$58–$62 New
Adjusted EBITDA ($M)Q3 2024—$8–$10.5 New
Ex‑TAC Gross Profit ($M)Q2 2024$53–$57 $56.0 High end
Adjusted EBITDA ($M)Q2 2024$1–$4 $7.4 Beat

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23, Q1’24)Current Period (Q2’24)Trend
AI/technology (CTR, targeting, tools)CTR improved in H2’23; AI core to prediction; growing AI creative tools; 89% automated bidding adoption Double‑digit CTR gains YTD; Predictive Demographics launch with up to 40% higher adoption vs 3P segments Strengthening adoption and measurable lift
Macro/pricingPricing (CPC) soft; RPM turned positive in Q4; H1’24 CPC down YoY; RPM up on CTR CPC still low YoY but improved through Q2; RPMs up for 3rd straight quarter Incremental improvement, but cautious
Product performance (Onyx, Zemanta)Onyx H2’23 $10–$20M; Q1 Onyx >$7M; Zemanta spend +~40% YoY Onyx rebooking ~40%; Zemanta +~50% YoY (1H24) Durable momentum in both
Supply/partnersSupply volatility from key tech partner began impacting Q4/Q1 Microsoft transition completed in May; high single‑digit ex‑TAC headwind; expect optimization/rescaling Near‑term headwind; medium‑term opportunity
Regional trendsEurope (Germany, Spain, Italy) stronger than U.S. Continued strength in Germany/Spain Europe positive
Regulatory/legalCookie deprecation risk limited due to first‑party/contextual strengths Reiterated privacy‑centric approach; Predictive Demographics Well‑positioned without 3P cookies
Strategic M&A—Definitive agreement to acquire Teads; full‑funnel scale; closing targeted Q1’25 Transformative catalyst

Management Commentary

  • “We delivered ex‑TAC gross profit of $56 million towards the high end of our guidance. We significantly exceeded our adjusted EBITDA guidance with $7.4 million, and we generated positive free cash flow for the fourth consecutive quarter.” — CEO David Kostman .
  • “Pricing remains low relative to our history... this, along with continued improvements in click‑through rates, drove acceleration in RPMs... Ex‑TAC gross profit was $56 million, an increase of 3% year‑over‑year.” — CFO Jason Kiviat .
  • On Microsoft transition: “The transition involves access to new supply opportunities... we remain focused on the optimization and rescaling of our demand. This volatility impacted our ex‑TAC gross profit in Q2 by high single‑digit percentage.” — CFO/CEO .
  • On Teads: “A transformative transaction... create one of the largest end‑to‑end full‑funnel platforms for the Open Internet... expected to be highly accretive and transform our financial profile.” — CEO David Kostman .

Q&A Highlights

  • RPM drivers and durability: Record CTRs and improving CPC trends (still YoY headwind but narrowing) underpin RPM and margin gains; management expects acceleration into Q3/Q4 with easier comps in Q4 (≈8 pts of benefit) and election tailwinds .
  • Microsoft supply transition: First native partner to complete migration; near‑term volatility leads to wider H2 ranges; longer‑term access to new supply (Outlook, games) and potential upside .
  • Geographic color: Europe, especially Germany and Spain, outperformed; U.S. flatter .
  • Mix shift and accounting: Growth areas like Zemanta are net revenue businesses and can trade gross vs Ex‑TAC optics, but expand margins .
  • Capital allocation: Repurchases paused given pending Teads acquisition; $6.6M authorization remaining as of 6/30/24 .

Estimates Context

  • S&P Global consensus for Q2’24 revenue and EPS was unavailable via our data connection at the time of this analysis; we therefore benchmarked actuals against company guidance and prior disclosures .
  • Results vs guidance: Ex‑TAC GP landed at the high end ($56.0M vs $53–$57M); Adjusted EBITDA materially beat ($7.4M vs $1–$4M). Guidance was raised for FY24 Adjusted EBITDA ($31.5–$36M from $30–$35M), with FY24 Ex‑TAC GP maintained at $238–$248M .

Key Takeaways for Investors

  • Margin expansion narrative intact: Ex‑TAC take‑rate improvements and mix (Zemanta, Onyx, non‑feed) are lifting margins and EBITDA despite soft CPCs; Q2 delivered high‑end Ex‑TAC and a significant EBITDA beat .
  • Near‑term watch: Microsoft transition remains the key operational swing factor; mgmt quantified a high‑single‑digit ex‑TAC headwind in Q2 but sees normalization as optimization/rescaling progresses .
  • 2H setup: Q3 guide implies sequential acceleration; Q4 benefits from easier comps (~8 pts) and election catalysts, supporting the FY24 EBITDA raise .
  • Strategic catalyst: Teads merger targets scaled, full‑funnel capabilities (video/branding + performance) and sizable synergy potential; closing targeted Q1’25 pending approvals .
  • Cash and flexibility: $228.9M in cash/investments vs $118.0M convert; positive operating cash flow and FCF in Q2; repurchases paused pending M&A .
  • KPI durability: RPMs up for the third straight quarter; 99% logo retention; non‑feed supply now ~27% of revenue, diversifying beyond traditional feed .
  • Risk balance: Macro pricing remains below historical norms; M&A execution/integration and debt financing for Teads are added variables to monitor .