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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 001-40643
Outbrain Inc.
(Exact name of registrant as specified in its charter)
Delaware
20-5391629
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
111 West 19th Street, New York, NY 10011
                                 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (646) 859-8594
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.001 per shareOBThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  o    No  x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated fileroAccelerated filero
Non-accelerated filer  xSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes        No  x
As of July 31, 2021, Outbrain Inc. had 55,151,688 shares of common stock outstanding.


Table of Contents
TABLE OF CONTENTS
Page

2

Table of Contents
Note About Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. You can generally identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions that concern our expectations, strategy, plans or intentions. We have based these forward-looking statements largely on our current expectations and projections regarding future events and trends that we believe may affect our business, financial condition and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Accordingly, you should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those projected in the forward looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding:
overall advertising demand and traffic generated by our media partners;
factors that affect advertising spending, such as economic downturns and unexpected events;
the effects of the ongoing and evolving COVID-19 pandemic, including the resulting global economic uncertainty, and measures taken in response to the pandemic;
our ability to continue to innovate, and adoption by our advertisers and media partners of our expanding solutions;
our ability to extend our reach into evolving digital media platforms;
our ability to continue to grow our business;
our research and development efforts;
the loss of one or more of our large media partners, and our ability to expand our advertiser and media partner relationships;
our future financial and operating results;
our ability to compete effectively against current and future competitors;
our ability to maintain our profitability despite quarterly fluctuations in our results, whether due to seasonality, large cyclical events, or other causes; and
our ability to maintain and scale our technology platform.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q may not occur. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
3

Table of Contents
Part I Financial Information
Item 1. Financial Statements
OUTBRAIN INC.
Condensed Consolidated Balance Sheets
(In thousands, except for number of shares and par value)
June 30,
2021
December 31, 2020
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$111,334$93,641
Accounts receivable, net of allowances
168,127165,449
Prepaid expenses and other current assets
22,20218,326
Total current assets
301,663277,416
Property, equipment and capitalized software, net
23,46024,756
Intangible assets, net
7,4269,812
Goodwill
32,88132,881
Other assets
12,38311,621
TOTAL ASSETS
$377,813$356,486
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable
$131,171$118,491
Accrued compensation and benefits
17,91023,000
Accrued and other current liabilities
93,321109,747
Deferred revenue
5,5135,512
Total current liabilities
247,915256,750
Other liabilities
16,58717,105
TOTAL LIABILITIES
$264,502$273,855
Commitments and Contingencies (Note 8)
Convertible preferred stock, par value of $0.001 per share, Series A, B, C, D, E, F, G and H — aggregate of 27,766,563 shares authorized as of June 30, 2021 and December 31, 2020; and aggregate of 27,652,449 shares issued and outstanding as of June 30, 2021 and December 31, 2020
162,444162,444
STOCKHOLDERS’ DEFICIT:
Common stock, par value of $0.001 per share — 65,183,785 shares authorized as of June 30, 2021 and December 31, 2020; 17,764,264 and 17,158,802 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
1817
Additional paid-in capital97,27792,705
Accumulated other comprehensive loss(4,130)(4,290)
Accumulated deficit(142,298)(168,245)
TOTAL STOCKHOLDERS’ DEFICIT
(49,133)(79,813)
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
$377,813$356,486
See Accompanying Notes to Condensed Consolidated Financial Statements.
4

Table of Contents
OUTBRAIN INC.
Condensed Consolidated Statements of Operations
(In thousands)
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(Unaudited)
Revenue
$247,153 $157,862 $475,177 $335,194 
Cost of revenue:
Traffic acquisition costs
180,324 118,140 347,937 254,946 
Other cost of revenue
7,767 7,648 14,709 15,521 
Total cost of revenue
188,091 125,788 362,646 270,467 
Gross profit
59,062 32,074 112,531 64,727 
Operating expenses:
Research and development
8,474 6,903 16,902 13,885 
Sales and marketing
21,186 17,816 41,054 38,111 
General and administrative
12,247 7,056 22,640 21,949 
Total operating expenses
41,907 31,775 80,596 73,945 
Income (loss) from operations
17,155 299 31,935 (9,218)
Other income (expense), net:
Interest expense
(189)(266)(359)(431)
Interest income and other income (expense), net
(943)(685)(3,196)556 
Total other income (expense), net
(1,132)(951)(3,555)125 
Income (loss) before provision for income taxes
16,023 (652)28,380 (9,093)
Provision for income taxes
822 1,971 2,433 3,100 
Net income (loss)
$15,201 $(2,623)$25,947 $(12,193)

Net income (loss) per common share:
Basic
$0.34 ($0.16)$0.58 ($0.73)
Diluted
$0.28 ($0.16)$0.51 ($0.73)
See Accompanying Notes to Condensed Consolidated Financial Statements.
5

Table of Contents
OUTBRAIN INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(Unaudited)
Net income (loss)
$15,201$(2,623)$25,947$(12,193)
Other comprehensive income (loss):
Foreign currency translation adjustments
(1,060)155160(1,682)
Comprehensive income (loss)
$14,141$(2,468)$26,107$(13,875)
See Accompanying Notes to Condensed Consolidated Financial Statements.
6

Table of Contents
OUTBRAIN INC.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit
(In thousands, except for number of shares)
(Unaudited)
Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Deficit
SharesAmountSharesAmount
Balance – April 1, 202127,652,449$162,44417,367,049$17$94,540$(3,070)$(157,499)$(66,012)
Issuance of common stock upon exercise of employee stock options292,74511,2371,238
Issuance of common stock upon vesting of restricted stock units104,470
Stock-based compensation1,5001,500
Other comprehensive loss(1,060)(1,060)
Net income15,20115,201
Balance –June 30, 202127,652,449$162,44417,764,264$18$97,277$(4,130)$(142,298)$(49,133)
Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Deficit
SharesAmountSharesAmount
Balance – December 31, 202027,652,449$162,44417,158,802$17$92,705$(4,290)$(168,245)$(79,813)
Issuance of common stock upon exercise of employee stock options395,89111,5331,534
Issuance of common stock upon vesting of restricted stock units209,571
Stock-based compensation3,0393,039
Other comprehensive income160160
Net income25,94725,947
Balance –June 30, 202127,652,449$162,44417,764,264$18$97,277$(4,130)$(142,298)$(49,133)
Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Deficit
SharesAmountSharesAmount
Balance – April 1, 202027,652,449$162,44416,716,692$17$89,599$(7,360)$(182,180)$(99,924)
Issuance of common stock upon exercise of employee stock options42,289115115
Issuance of common stock upon vesting of restricted stock units73,834
Stock-based compensation1,0031,003
Other comprehensive income155155
Net loss(2,623)(2,623)
Other22
Balance –June 30, 202027,652,449$162,44416,832,815$17$90,717$(7,205)$(184,801)$(101,272)
Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Deficit
SharesAmountSharesAmount
Balance – January 1, 202027,652,449$162,44416,584,315$17$88,446$(5,523)$(172,602)$(89,662)
Issuance of common stock upon exercise of employee stock options100,525438438
Issuance of common stock upon vesting of restricted stock units147,975
Stock-based compensation1,8331,833
Other comprehensive loss(1,682)(1,682)
Net loss(12,193)(12,193)
Other(6)(6)
Balance –June 30, 202027,652,449$162,44416,832,815$17$90,717$(7,205)$(184,801)$(101,272)
See Accompanying Notes to Condensed Consolidated Financial Statements.
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OUTBRAIN INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 30, 2021June 30, 2020
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$25,947$(12,193)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property and equipment3,2853,402
Amortization of capitalized software development costs4,0923,627
Amortization of intangible assets1,8182,401
Loss (gain) on sale of assets4(1,112)
Stock-based compensation2,9481,858
Provision for doubtful accounts1,3851,128
Deferred income taxes(602)(221)
Other3,211(1,492)
Changes in operating assets and liabilities:
Accounts receivable(3,852)37,373
Prepaid expenses and other current assets(4,565)(941)
Other assets(465)(1,494)
Accounts payable12,380(1,817)
Accrued and other current liabilities(21,201)5,893
Deferred revenue(7)937
Other483454
Net cash provided by operating activities24,86137,803
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(676)(1,175)
Capitalized software development costs(5,089)(4,468)
Proceeds from sale of assets1,117
Other(31)(30)
Net cash used in investing activities(5,796)(4,556)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options and warrants1,542405
     Deferred financing costs(494)
Principal payments on capital obligation arrangements(2,273)(2,606)
Borrowings on revolving credit facility10,000
Net cash (used in) provided by financing activities(1,225)7,799
Effect of exchange rate changes(161)(1,312)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH17,67939,734
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period94,06749,982
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period111,746$89,716
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents$111,334$89,327
Restricted cash, included in other assets412389
Total cash, cash equivalents, and restricted cash111,746$89,716
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds$1,958$462
Cash paid for interest$331$390
Stock-based compensation capitalized for software development costs$85$110
Purchases of property and equipment included in accounts payable$57$71
Property and equipment financed under capital obligation arrangements$1,837$2,532
See Accompanying Notes to Condensed Consolidated Financial Statements.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Organization, Description of Business, Basis of Presentation, Use of Estimates and Recently Issued Accounting Pronouncements
Organization and Description of Business
Outbrain Inc., together with our subsidiaries, (“Outbrain”, the “Company”, “we”, “our” or “us”) was incorporated in August 2006 in Delaware. The Company is headquartered in New York, New York and has wholly-owned subsidiaries in Israel, Europe, Asia, Brazil and Australia.
Outbrain is a leading recommendation platform powering the open web. Our platform provides personalized recommendations that appear as links to content, advertisements and videos on media owners’ online properties. We generate revenue from marketers through user engagements with promoted recommendations that we deliver across a variety of third-party media owners’ properties. We pay traffic acquisition costs to our media owner partners on whose digital properties the recommendations are shown. Our advertiser solutions are mainly priced using a performance-based model based on the actual number of engagements generated by users, which is highly dependent on our ability to generate trustworthy and interesting recommendations to individual users based on our proprietary algorithms. A small portion of our revenue is generated through advertisers participating in programmatic auctions wherein the pricing is determined by the auction results and not dependent on user engagement.
Basis of Presentation
The accompanying condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in condensed consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2020.
In July 2021, the Company completed a 1-for-1.7 reverse stock split of its common and convertible preferred stock. All shares presented within these condensed consolidated financial statements have been adjusted to reflect the reverse stock split for all periods presented. See Note 22, “Subsequent Events” for additional information.
Offering Costs
In connection with the Company’s initial public offering (“IPO”), the Company incurred certain accounting, legal, and financing costs directly related to the offering. Such costs will be recorded against the proceeds from the offering. In July 2021, the Company completed its IPO. See Note 11, “Subsequent Events” for additional information.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. Estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, the allowance for doubtful accounts, sales allowance, software development costs eligible for capitalization, valuation of deferred tax assets, the useful lives of property and equipment, the useful lives and fair value of intangible assets and goodwill, the fair value of stock-based awards, the recognition and measurement of income tax uncertainties and other contingencies. Actual results could differ materially from these estimates.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Certain Risks and Concentrations
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, restricted cash and accounts receivable. Our cash and cash equivalents and restricted cash are generally invested in high-credit quality financial instruments with both banks and financial institutions to reduce the amount of exposure to any single financial institution.
We generally do not require collateral to secure accounts receivable. No single marketer accounted for 10% or more of our total revenue for the three months and six months ended June 30, 2021 or June 30, 2020, or for 10% or more of our gross accounts receivable balance as of June 30, 2021 or December 31, 2020.
For the three months and six months ended June 30, 2021, one media owner individually accounted for approximately 10% and 11%, respectively, of our total traffic acquisition costs. For the three months ended June 30, 2020, two media owners each individually accounted for 10% and 14% of our total traffic acquisition costs, and each accounted for 12% and 14% of our total traffic acquisition costs for the six months ended June 30, 2020.
Segment Information
We have a single operating and reporting segment. Our chief operating decision maker is our Co-Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis.
Recently Issued Accounting Pronouncements
Under the JOBS Act, the Company meets the definition of an emerging growth company and can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the Company is no longer an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period.
Recently adopted accounting pronouncements
On January 1, 2021, we early adopted Accounting Standards Update (“ASU”) 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplified the accounting for convertible debt instruments by reducing the number of accounting models used to allocate proceeds from five to three, removing certain conditions for equity classification and amending earnings per share calculations to assume share settlement and to require the if-converted method to be applied to all for convertible debt instruments. The adoption of this standard did not have an impact on our consolidated financial statements as of the date of adoption. We will apply this guidance to our Convertible Notes upon consummation of our IPO.
Recently issued accounting pronouncements not yet adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months, regardless of their classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). In June 2020 the FASB issued ASU 2020-05 Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities. The amendments in this update defer the effective date of ASU 2016-02 for private companies to fiscal years beginning after December 15, 2021, and interim periods within fiscal
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
years beginning after December 15, 2022. Early application continues to be permitted. The Company plans to adopt this standard on January 1, 2022, as required. The Company is in the process of analyzing its lease portfolio and assessing the impacts of adoption on its consolidated financial statements. The Company expects its assets and liabilities to increase in connection with the recording of right-of-use assets and lease liabilities upon adoption of this standard.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires consideration of forward-looking information to calculate credit loss estimates. These changes will result in an earlier recognition of credit losses. The Company's financial assets held at amortized cost include accounts receivable. The amendments in ASU 2020-05 deferred the effective date for Topic 326 to fiscal years beginning after December 15, 2022. The Company plans to adopt this standard on the earlier of January 1, 2023 or on losing its emerging growth company status. The Company does not expect the adoption of this standard will have a material impact on the consolidated financial statements or related disclosures.
See Note 1 to the Company’s audited consolidated financial statements for the year ended December 31, 2020 in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on July 23, 2021 for a complete disclosure of the Company’s significant accounting policies.
2. Revenue Recognition
The following table presents total revenue based on where our marketers are physically located:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands)(In thousands)
USA
$92,991$62,231$171,078$127,781
Europe, the Middle East and Africa (EMEA)
126,03379,347252,578169,824
Other
28,12916,28451,52137,589
Total revenue
$247,153$157,862$475,177$335,194
Contract Balances
There were no contract assets as of June 30, 2021 or December 31, 2020. Contract liabilities primarily relate to advance payments and consideration received from customers. As of June 30, 2021 and December 31, 2020, the Company’s contract liabilities were recorded as deferred revenue in the condensed consolidated balance sheets.
3. Fair Value Measurements
The following table sets forth the fair value of our financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:
June 30, 2021
Level ILevel IILevel IIITotal
(In thousands)
Financial Assets:
Restricted time deposit (1)
$$412$$412
Severance pay fund deposits (1)
$$5,239$$5,239
Total financial assets
$$5,651$$5,651
Financial Liabilities:
Foreign currency forward contract (2)
$$40$$40
Total financial liabilities
$$40$$40

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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 2020
Level ILevel IILevel IIITotal
(In thousands)
Financial Assets:

Restricted time deposit (1)
$$426$$426
Severance pay fund deposits (1)
$$5,379$$5,379
Foreign currency forward contract (3)
$$553$$553
Total financial assets
$$6,358$$6,358
_____________________
(1)Recorded within other assets
(2)Recorded within accrued and other current liabilities
(3)Recorded within prepaid expenses and other current assets
4. Balance Sheet Components
Accounts Receivable, Net
Accounts receivable, net consists of the following:
June 30,
2021
December 31, 2020
(In thousands)
Accounts receivable
$172,928$169,623
Allowance for doubtful accounts
(4,801)(4,174)
Accounts receivable, net
$168,127$165,449
Allowance for Doubtful Accounts
The allowance for doubtful accounts consists of the following activity:
Six Months Ended June 30, 2021Year Ended December 31, 2020
(In thousands)
Allowance for doubtful accounts, beginning balance
$4,174$3,281
Provision for doubtful accounts, net of recoveries
1,4462,668
Write-offs
(819)(1,775)
Allowance for doubtful accounts, ending balance
$4,801$4,174
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Property, Equipment and Capitalized Software, Net
Property, equipment and capitalized software, net consists of the following:
June 30,
2021
December 31, 2020
(In thousands)
Computer equipment
$35,672 $41,735 
Capitalized software development costs
48,902 43,728 
Software
3,168 3,444 
Leasehold improvements
1,653 2,805 
Furniture and fixtures
285 908 
Property, equipment and capitalized software, gross
89,680 92,620 
Less: accumulated depreciation and amortization
(66,220)(67,864)
Total property, equipment and capitalized software, net$23,460 $24,756 
Current Liabilities
At June 30, 2021 and December 31, 2020, accrued and other current liabilities of $93.3 million and $109.7 million, respectively, included accrued traffic acquisition costs of $62.3 million and $77.2 million, respectively. In addition, accounts payable included $123.7 million and $111.7 million of traffic acquisition costs as of June 30, 2021 and December 31, 2020, respectively.
5. Goodwill and Intangible Assets
The Company’s goodwill balance was $32.9 million as of June 30, 2021 and December 31, 2020 and the Company has not recorded any accumulated impairments of goodwill.
The gross carrying amount and accumulated amortization of our intangible assets are as follows:
As of June 30, 2021
Amortization
Period
Gross ValueAccumulated
Amortization
Net Carrying
Value
(In thousands)
Developed technology
36-48 months
$8,425$(8,425)$
Customer relationships
48 months5,550(3,742)1,808
Publisher relationships
48 months8,820(5,154)3,666
Trade names
8 years1,747(511)1,236
Other
14 years860(144)716
Total intangible assets, net
$25,402$(17,976)$7,426
As of December 31, 2020
Amortization
Period
Gross ValueAccumulated
Amortization
Net Carrying
Value
(In thousands)
Developed technology
36-48 months
$8,425$(8,388)$37
Customer relationships
48 months5,694(3,166)2,528
Publisher relationships
48 months9,111(3,986)5,125
Trade names
8 years1,805(395)1,410
Other
14 years830(118)712
Total intangible assets, net
$25,865$(16,053)$9,812
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
No impairment charges were recorded during the three months and six months ended June 30, 2021 and June 30, 2020.
As of June 30, 2021, estimated amortization related to our identifiable acquisition-related intangible assets in future periods was as follows:
As of June 30, 2021Amount
(In thousands)
2021$1,781
20223,563
2023805
2024270
2025270
Thereafter
737
Total
$7,426
6. Long Term Debt
Revolving Credit Facility
The Company is party to a loan and security agreement (“Revolving Credit Facility”) with Silicon Valley Bank (“SVB”), which matures on November 2, 2021, and provides the Company with an initial maximum borrowing capacity of up to $35.0 million that the Company may use to borrow against its qualifying receivables based on a defined borrowing formula.
The Revolving Credit Facility contains customary conditions to borrowings, events of default and negative covenants, including covenants that restrict the Company's ability to dispose of assets, merge with or acquire other entities, incur indebtedness, incur encumbrances, make distributions to holders of its capital stock, make investments or engage in transactions with our affiliates. The Company is also subject to financial covenants with respect to a monthly modified liquidity ratio and Adjusted EBITDA for trailing six-month periods.
Our obligations under the Revolving Credit Facility are secured by a first priority security interest in substantially all of the assets of the Company with a negative pledge on our intellectual property. The Company was in compliance with all financial covenants under its Revolving Credit Facility as of June 30, 2021.
As of June 30, 2021 and December 31, 2020, we had no borrowings outstanding under our Revolving Credit Facility and our available borrowing capacity was $35.0 million based on the defined borrowing formula.
7. Income Taxes
The Company’s effective tax rates for the three months and six months ended June 30, 2021 were 5.1% and 8.6%, respectively. The Company’s effective tax rates for the three and six months ended June 30, 2020 were (302.3)% and (34.1)%, respectively. The changes to the effective tax rates were primarily due to a loss from operations in the prior year periods. The Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to the full valuation allowance recorded against the U.S. deferred tax assets for the three and six months ended June 30, 2021, and our deferred tax assets in the U.S. and in one of our foreign subsidiaries for the three and six months ended June 30, 2020, respectively.
8. Commitments and Contingencies
From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, we may receive letters alleging infringement of patent or other intellectual property rights. We are not currently a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that, in our opinion, would have a material adverse effect on our business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On April 29, 2021, we were notified that the Antitrust Division of the U.S. Department of Justice is conducting a criminal investigation into the hiring in our industry that includes us. We are cooperating with the Antitrust Division. While there can be no assurance regarding the ultimate resolution of this matter, we do not believe that our conduct violated applicable law.
9. Stock-based Compensation
We issue equity awards under our Omnibus Securities and Incentive Plan adopted in September 2007, as amended in January 2009 (the “Plan”). The Plan is administered by the Company’s board of directors or designated person(s) and provides for grants of options, and restricted awards. As of June 30, 2021, approximately 586,964 shares were available for grant under the Plan.
We recognize stock-based compensation for stock-based awards, including stock-options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) based on the estimated fair value of the awards. We estimated the fair value of our stock option awards on the grant date using the Black-Scholes option pricing model. The fair value of our RSAs and RSUs is the fair value of our common stock on the date of grant.
In our accompanying condensed consolidated statements of operations, we recognized stock-based compensation for our employees and non-employees as follows:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(in thousands)(in thousands)
Research and development$446$189$694$367
Sales and marketing
7845421,3391,017
General and administrative
231211915474
Total stock-based compensation
$1,461$942$2,948$1,858
During the three months and six months ended June 30, 2021 and June 30, 2020, we have not recorded any stock-based compensation related to our stock option awards, RSAs, RSUs and SARs that vest upon the satisfaction of a performance condition because the performance condition is not probable of occurring until a qualifying liquidity event (qualified IPO or change of control) has occurred. If a qualifying liquidity event had occurred on June 30, 2021, we would have recorded approximately $12.8 million in additional stock-based compensation related to our stock options, RSAs, RSUs and SARs that vest upon the satisfaction of a performance condition. Such expense will be recognized in the third quarter of 2021 as a result of the July IPO (see Note 11, “Subsequent Events” for additional information).
Determination of fair value
The estimated grant-date fair value of our stock options and warrants was calculated using the Black-Scholes option pricing model, based on the following weighted-average assumptions:
Six Months Ended June 30, 2021
Expected term (in years)6.0 years
Risk-free interest rate1.07 %
Expected volatility43.6 %
Dividend rate %
Weighted-average grant date fair value$5.17 
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes stock option, RSA and RSU activity under the Plan and related information:
Options Outstanding
RSAs and RSUs
Unvested and
Outstanding
Number of
Shares
Weighted-
Average
Exercise
Price
Number of
Shares
Weighted-
Average
Grant
Date Fair
Value
Outstanding—December 31, 20205,475,481$6.364,036,409$9.35
Granted7,059$12.33247,029$12.33
Exercised/ Vested
(422,231)$4.62(209,571)$9.75
Forfeited
(274,555)$4.27(92,411)$10.10
Outstanding—June 30, 20214,785,754$6.643,981,456$9.50
Exercisable—June 30, 20213,603,813$5.52


Stock Options
The weighted-average grant date fair value of stock options granted during the six months ended June 30, 2021 was $5.17. As of June 30, 2021, total unrecognized stock-based compensation related to unvested stock options was $4.8 million, which is expected to be recognized over a weighted-average period of 3.4 years. Certain stock options vest only upon IPO or other performance conditions.
Restricted Stock Awards
Certain RSAs issued during 2012 and 2013 relate to common stock issued in exchange for loans in the amount of the exercise price of the awards. The awards were also subject to a performance condition that is not probable until an IPO occurs. Because the notes were considered to be in-substance nonrecourse notes receivable, the awards are treated as a stock options for accounting purposes.
Restricted Stock Units
For those RSUs subject to occurrence of a performance condition because the performance condition is not probable until an IPO or certain merger and acquisition events have occurred, we have not recorded any stock-based compensation to date. As of June 30, 2021, the unrecognized stock-based compensation related to unvested RSUs not subject to performance conditions is $10.2 million.
Stock Appreciation Rights (SARs)
The Plan provides for the award of SARs that are granted in connection with a related option to certain employees. The fair value of each SAR award is estimated using a similar method described for stock options. The fair value of each vested SAR award is recalculated at the end of each reporting period and the liability and expense adjusted based on the new fair value. Because these SARs vest upon an IPO and the satisfaction of other performance conditions and these performance conditions are not probable to occur until an IPO has occurred, we have not recorded any stock-based compensation for the six-month periods ended June 30, 2021 and 2020 or recorded a liability related to these SAR grants as of June 30, 2021 or December 31, 2020. As of June 30, 2021 and December 31, 2020, 3,390 SAR awards were outstanding with a weighted average grant date fair value of $3.93.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock-Based Awards Granted Outside of Equity Incentive Plans
Warrants
The Company issued equity classified warrants to purchase shares of common stock to certain third-party advisors, consultants and financial institutions with exercise prices ranging from $0.37 to $8.28 per share. The exercise period of the warrants is until the earlier of the closing of an IPO, the closing of a deemed liquidation event or the end of the warrant terms. As of June 30, 2021 and December 31, 2020, the Company had 621,089 warrants outstanding with a weighted exercise price of $4.96.
10. Income (Loss) Per Share
We apply the two-class method to calculate basic and diluted income (loss) per share attributable to common stockholders as shares of our convertible preferred stock are participating securities due to their participation rights. The two-class method is an earnings allocation method under which earnings per share is calculated for common stock considering a participating security’s rights to undistributed earnings as if all such earnings had been distributed during the period. Our participating securities are not included in the computation of loss per share attributable to common stockholders in periods of net loss because the convertible preferred stockholders have no contractual obligation to participate in losses.
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands, except share and per share data)
Numerator:
Basic and diluted:
Net income (loss)    
$15,201$(2,623)$25,947$(12,193)
Less: undistributed earnings allocated to participating securities
(9,255)(15,798)
Net income (loss) attributable to common stockholders
$5,946$(2,623)$10,149$(12,193)

Denominator:
Basic weighted-average shares used in computing income (loss) attributable to common stockholders
17,519,24316,752,43517,371,162 16,696,606 
Weighted average dilutive share equivalents:
Stock options, Warrants, RSAs and RSUs
3,417,9112,643,791
Diluted weighted-average shares used in computing income (loss) attributable to common stockholders
20,937,15416,752,43520,014,95316,696,606 
Net income (loss) per share attributable to common stockholders:
Basic
$0.34$(0.16)$0.58$(0.73)
Diluted
$0.28$(0.16)$0.51$(0.73)
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following weighted average shares have been excluded from the calculation of diluted income (loss) per share attributable to common stockholders for each period presented because they are anti-dilutive:
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Convertible preferred stock27,652,44927,652,44927,652,44927,652,449
Options to purchase common stock
1,050,0002,145,9151,050,0002,133,454
Warrants
339,771339,771
Restricted stock units
133,630219,770116,971245,389
Total shares excluded from diluted income (loss) per share
28,836,07930,357,90528,819,42030,371,063
11. Subsequent Events
Initial Public Offering
On July 22, 2021, the Company’s Form S-1 was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) in connection with the IPO of its common stock and its common stock began trading on Nasdaq on July 23, 2021. On July 27, 2021, the Company closed its IPO and issued 8,000,000 shares of its common stock at an initial offering price of $20.00 per share, for gross proceeds of $160.0 million before deducting underwriting discounts and commissions of $11.2 million. Deferred offering costs, primarily consisting of accounting, legal and other costs directly related to the IPO, were capitalized within prepaid expenses and other current assets in the Company’s balance sheet as of June 30, 2021. Approximately $4 million of transaction costs will be reclassified to stockholders’ equity and recorded against the proceeds of the offering.
In connection with the IPO, all of the shares of the Company’s convertible preferred stock outstanding automatically converted into an aggregate of 28,091,267 shares of the Company’s common stock, with all series converted on a one-to-one basis, with the exception of Series F, which was converted at 1.14-to-1, based on the terms of the Series F agreement and the IPO price. The carrying value of convertible preferred stock of $162.4 million was reclassified to stockholders’ deficit.
Reverse Stock Split
In connection with the IPO, our board of directors and stockholders approved a 1-for-1.70 reverse stock split of our common stock. The reverse stock split became effective on July 13, 2021. The par value of the common stock was not adjusted as a result of the reverse stock split. In addition, adjustments corresponding to the reverse stock split were made to the ratio at which the convertible preferred stock converted into common stock immediately prior to the closing of the IPO, in accordance with existing terms of the convertible preferred stock. All share and per-share amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively to reflect the reverse stock split and adjustment of the conversion ratio of the convertible preferred stockholders.
Shares Authorization
In July 2021, the Company’s certificate of incorporation was amended and restated to provide the Company with the authority to issue up to 1.1 billion shares, comprised of 1.0 billion shares of $0.001 par value common stock and 0.1 billion shares of $0.001 par value preferred stock. Each holder of common stock is entitled to one vote with respect to each share of common stock and is entitled to dividends, if and when declared by the Board of Directors, subject to preferential rights of preferred stockholders.
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Table of Contents
OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Equity Plans
In July 2021, the Company’s Board of Directors adopted, and its stockholders approved, the 2021 Long-Term Incentive Plan (the “LTIP”), which became effective in connection with the closing of the Company’s IPO. A total of 5,050,000 shares of the Company’s common stock have been reserved for issuance under the LTIP, which is subject to automatic annual increases. The LTIP may be used to grant stock options, full value awards and cash incentive awards. The number of shares of common stock reserved for future issuance under the 2021 Plan will also be increased pursuant to provisions for annual automatic evergreen increases. The Company’s previous awards issued under its 2007 Omnibus Securities and Incentive Plan (“2007 Plan”), as amended and restated on January 21, 2009 remain subject to the 2007 Plan, including its lock-up provisions of up to 180 days after the IPO.
In July 2021, the Company’s Board of Directors adopted, and its stockholders approved, a new 2021 Employee Stock Purchase Plan (the “ESPP”), which became effective in connection with the closing of the Company’s IPO. A total of 1,263,000 shares of the Company’s common stock have been reserved for issuance under the ESPP, which is subject to automatic annual increases.
Convertible Notes
On July 1, 2021, the Company completed the sale of $200 million aggregate principal amount of senior subordinated secured notes due July 1, 2026 (the “Notes”), in a private placement to one or more institutional investors affiliated with and funds managed by The Baupost Group, L.L.C. (the “Baupost Investors”), pursuant to a Senior Subordinated Secured Note Purchase Agreement dated July 1, 2021 (the “Note Purchase Agreement”). The Notes, which were exchanged and cancelled upon the IPO, bore interest that accrued at the rate of (i) prior to July 1, 2024, 10.0% per annum and (ii) on and after July 1, 2024, 14.5% per annum, payable quarterly and were guaranteed by certain of the Company’s wholly-owned subsidiaries and secured by a second priority lien on all of the Company’s and its subsidiaries’ tangible and intangible assets, subject to certain excluded assets, permitted liens and customary exceptions.
On July 27, 2021, in connection with the closing of the Company’s IPO and pursuant to the terms of the Note Purchase Agreement, the Company exchanged $200 million aggregate principal amount of the Notes due July 1, 2026 for $236 million aggregate principal amount of the Company’s 2.95% Convertible Senior Notes due 2026 (the “Convertible Notes”), pursuant to an indenture, dated as of July 27, 2021 (the “Indenture”), between the Company and The Bank of New York Mellon, as trustee. Upon the issuance of such Convertible Notes, the Notes and the obligations of the Company and the guarantee thereunder have been canceled and extinguished. The Convertible Notes will mature on July 27, 2026, unless earlier converted, redeemed or repurchased.
Interest on the Convertible Notes accrues from July 27, 2021 and is payable semi-annually in arrears on January 27 and July 27 of each year, beginning on January 27, 2022, at a rate of 2.95% per year. The initial conversion rate for the Convertible Notes is 40 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of $25 per share of the Company’s common stock), subject to adjustment.
The Company may not redeem the Convertible Notes prior to July 27, 2024. On or after July 27, 2024, the Company may redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. In addition, calling any Convertible Note for redemption will constitute a “make-whole fundamental change” (as defined in the Indenture) with respect to that Convertible No