Taboola.com Ltd. (TBLA) Earnings

Management highlights

Adam Singolda mentioned the company started the year strong with first quarter results exceeding guidance across all metrics. They are seeing continued acceleration in growth and raising full-year guidance. Priorities include investing in technology to advance Realize, verticalizing the sales organization with Krishan Bhatia joining as chief business officer, and strengthening the brand. In the first quarter, scaled advertisers grew 3.5% and average revenue per scaled advertiser grew 5%. They introduced Realize Plus, an agenting framework for advertisers. Steve Walker discussed revenues growing 9% year over year, XTAC gross profit increasing, growth profit, net income, adjusted EBITDA, and the impact of foreign exchange. They repurchased approximately 7 million shares in the first quarter.

Guidance

For the second quarter, revenues are expected to be between $492 and $505 million, gross profit between $147 and $152 million, XTAC gross profit between $189 and $194 million, adjusted EBITDA between $49 and $55 million, and non-GAAP net income between $36 and $43 million. For the full year, revenues are expected to be between $2 and $2.06 billion, gross profit between $610 and $630 million, XTAC gross profit between $760 and $781 million, adjusted EBITDA between $222 and $240 million, and non-GAAP net income between $167 and $191 million. Adjusted EBITDA guidance reflects a forecasted headwind from foreign exchange rates of approximately $13 million in operating expenses, partially offset by XTAC tailwinds. Without the foreign exchange headwind, adjusted EBITDA margins would be approximately 34%.

Segment performance

In the first quarter, revenues grew 9% year over year to $466.4 million. XTAC gross profit increased 11% year-on-year to $168.1 million. Growth profit for the quarter was $129.6 million, up 9% year-over-year. Net income for the quarter was $59.1 million, with non-GAAP net income coming in at $17.2 million. Adjusted EBITDA for the quarter was $26.7 million, a margin of 16%. Scaled advertisers grew 3.5%, and average revenue per scaled advertiser grew 5%. XTAC's gross profit growth is expected to be 8% for the full year with 30% adjusted EBITDA margin and strong free cash flow conversions. Revenues for the full year are expected to be between $2 and $2.06 billion, gross profit between $610 and $630 million, XTAC gross profit between $760 and $781 million, adjusted EBITDA between $222 and $240 million, and non-GAAP net income between $167 and $191 million.

Risks & headwinds

Foreign exchange was a meaningful headwind in the quarter. The Israeli shekel had a significant impact on operating expenses, with a $13 million headwind to adjusted EBITDA for the year. Also, future events could differ materially and adversely from those anticipated as mentioned in the safe harbor statement.

Analyst Q&A

• Q: Can you remind us why you make the distinction between scaled advertisers and what is the turn level different with non-scaled advertisers or why do we make this distinction in scaled advertisers?

  A: As a performance advertising platform, scaled advertisers who spend more than $100,000 a year with them tend to be a more stable line of revenue, more sustainable and predictable. There are leading indicators that get advertisers to that stage and it's a good proxy for the technology platform's progress and revenue sustainability.

• Q: How are you thinking about some of these agentic AI LLMs and whether you think that drives revenue growth for you in the future?

  A: Agent-to-agent advertising buying is in an era, with Taboola able to interact in the cloud, and it's early days but expected to move very fast and be a bigger portion of the industry in the future.

• Q: Was that using Realize to, you know, perhaps go beyond some of the traditional bottom of page inventory that you've been trafficking in going into the other parts of the page? Or was it just more general kind of the capabilities to Realize that was driving that?

  A: Realize is seeing utilization of various capabilities, including format diversification, supply diversification, and predictive audiences, which accelerates advertiser success and spend.

• Q: Why isn't the revenue upside flowing to the bottom line as much?

  A: It has to do with foreign exchange rates, primarily the Israeli shekel, which is a $13 million headwind to adjusted EBITDA for the year. Higher exchange rates have outsized impact on non-GAAP net income due to not fully hedging non-cash expenses.

• Q: How much conservatism is baked into that from a macro perspective, given everything that's going on in the world today? And then maybe how much of a contribution from something like live events?

  A: The advertising marketplace in the performance space has been fairly resilient. Live events are more of a traffic event than an advertiser interest event, with more branding oriented and smaller impact on revenue.

• Q: Can you unpack the outperformance in the quarter and what were the contributions of growth from new products such as Realize and Superdive? And if any at all growth is embedded in the full year guide from those products? And then on Realize Plus, it's just doing more of the legwork for an advertiser. Is there anything to know on just the take rate and pricing and how that might compare to a traditional campaign?

  A: Outperformance is driven by making advertisers successful and existing advertisers spend more. Deeper Dive is growing fast but still small. Realize Plus makes it easier for advertisers, early days, and optimistic about its potential.

• Q: Do you see Taboola's growth story as largely organic going forward, or do you see potential opportunity for additional acquisitions over time or partnerships and new verticals? And what sort of adjacent or additional competencies would Tabula potentially look to add over time as you continue to grow and look to capture greater share of digital advertising?

  A: Most growth will continue to be organic, but open to acquisitions and partnerships. Focus on business side with agencies and advertisers, technology side with Realize and Realize Plus, and AI in general.

• Q: Tabula has currently a little under 1600 employees. If I understood that right from the 10 Q that's down quite a bit from I think about 2000 employees roughly a year ago. So I assume你're seeing some efficiency gains and We're wondering how much of the efficiency is tied to AI initiatives or other areas within the company. And I guess looking ahead a year or two, what can you tell us about potential headcount trends, maybe areas of hiring as you continue to ramp Realize and how you balance those investment opportunities around Realize Against to focus to remain prudent with regards to cost discipline going forward?

  A: Current employee count is around 1,950, down from over 2,000. AI is an opportunity for efficiency, with R&D looking at 10x impact of engineers. Future headcount trends are towards more efficiency, with AI expected to impact cost efficiency.