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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 March 31, 2022
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) 867-0149
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   x   No  o 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer  Smaller 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 Exchange Act).  Yes     No  x
As of May 2, 2022, Outbrain Inc. had 57,729,459 shares of common stock outstanding.


Table of Contents
TABLE OF CONTENTS
Page

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Table of Contents
Note About Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements, may include, without limitation, statements generally relating 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 or are not statements of historical facts. We have based these forward-looking statements largely on our 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 including, but not limited to:
overall advertising demand and traffic generated by our media partners;
factors that affect advertising demand and spending, such as unfavorable economic or business conditions or downturns, instability or volatility in financial markets, and other events or factors outside of our control, such as geopolitical concerns, including the conflict between Russia and Ukraine, supply chain issues, inflationary pressures, labor market volatility, and the pace of recovery or any resurgences of the COVID-19 pandemic;
any failure of our recommendation engine to accurately predict user engagement, any deterioration in the quality of our recommendations or failure to present interesting content to users or other factors which may cause us to experience a decline in user engagement or loss of media partners;
limits on our ability to collect, use and disclose data to deliver advertisements;
our ability to continue to innovate, and adoption by our advertisers and media partners of our expanding solutions;
our ability to meet demands on our infrastructure and resources due to future growth or otherwise;
our ability to extend our reach into evolving digital media platforms;
our ability to maintain and scale our technology platform;
our ability to grow our business and manage growth effectively;
the success of our sales and marketing investments, which may require significant investments and may involve long sales cycles;
the risk that our research and development efforts may not meet the demands of a rapidly evolving technology market;
the loss of one or more of our large media partners, and our ability to expand our advertiser and media partner relationships;
our ability to compete effectively against current and future competitors;
failures or loss of the hardware, software and infrastructure on which we rely, or security breaches;
our ability to maintain our revenues or profitability despite quarterly fluctuations in our results, whether due to seasonality, large cyclical events, or other causes;
political and regulatory risks in the various markets in which we operate; the challenges of compliance with differing and changing regulatory requirements; and
the risks incorporated by reference in Part II, Item 1A "Risk Factors" in this Report, as such factors may be revised or supplemented in subsequent filings with the SEC, and those included elsewhere in this Report.

Accordingly, you should not rely upon forward-looking statements as an indication of future performance. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or will occur, and actual results, events or circumstances could differ materially from those projected in the forward-looking statements. The forward-looking statements made in this Report relate only to events as of the date on which the statements are made. 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 undertake no obligation and do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated 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)
March 31,
2022
December 31,
2021
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$410,875$455,397
Accounts receivable, net of allowances
179,264192,814
Prepaid expenses and other current assets
26,25527,873
Total current assets
616,394676,084
Property, equipment and capitalized software, net
29,59728,008
Operating lease right-of-use assets, net14,302
Intangible assets, net
29,5335,719
Goodwill
63,06332,881
 Deferred tax assets32,91432,867
Other assets
18,46120,331
TOTAL ASSETS
$804,264$795,890
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable
$135,595$160,790
Accrued compensation and benefits
21,67923,331
Accrued and other current liabilities
113,32099,590
Deferred revenue
6,3484,784
Total current liabilities
276,942288,495
Long-term debt236,000236,000
Operating lease liabilities, non-current10,857
Other liabilities
18,76514,620
TOTAL LIABILITIES
$542,564$539,115
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY:
   Common stock, par value of $0.001 per share — 1,000,000,000 shares authorized; 58,994,429 shares issued and 57,563,111 shares outstanding as of March 31, 2022 and 58,015,075 shares issued and 56,701,394 shares outstanding as of December 31, 2021
$59$58
Preferred stock, par value of $0.001 per share — 100,000,000 shares authorized, none issued and outstanding as of March 31, 2022 and December 31, 2021
Additional paid-in capital444,218434,945
Treasury stock, at cost, 1,431,318 shares as of March 31, 2022 and 1,313,681 shares as of December 31, 2021
(18,222)(16,504)
Accumulated other comprehensive loss(5,215)(4,474)
Accumulated deficit(159,140)(157,250)
TOTAL STOCKHOLDERS’ EQUITY
$261,700$256,775
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$804,264$795,890
See Accompanying Notes to Condensed Consolidated Financial Statements.
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Table of Contents
OUTBRAIN INC.
Condensed Consolidated Statements of Operations
(In thousands)

Three Months Ended March 31,
20222021
(Unaudited)
Revenue
$254,216 $228,024 
Cost of revenue:
Traffic acquisition costs
190,696 167,613 
Other cost of revenue
9,589 6,942 
Total cost of revenue
200,285 174,555 
Gross profit
53,931 53,469 
Operating expenses:
Research and development
10,428 8,428 
Sales and marketing
27,395 19,868 
General and administrative
16,034 10,393 
Total operating expenses
53,857 38,689 
Income from operations
74 14,780 
Other expense, net:
Interest expense
(1,871)(170)
Interest income and other income (expense), net
(1,081)(2,253)
Total other expense, net
(2,952)(2,423)
(Loss) income before provision for income taxes
(2,878)12,357 
(Benefit) provision for income taxes
(988)1,611 
Net (loss) income
$(1,890)$10,746 

Weighted average shares outstanding:
Basic57,237,012 17,221,336 
Diluted57,237,012 20,057,226 
Net (loss) income per common share:
Basic
($0.03)$0.24 
Diluted
($0.03)$0.21 
See Accompanying Notes to Condensed Consolidated Financial Statements.
5

Table of Contents
OUTBRAIN INC.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(In thousands)
Three Months Ended March 31,
20222021
(Unaudited)
Net (loss) income
$(1,890)$10,746
Other comprehensive (loss) income:
Foreign currency translation adjustments
(741)1,220
Comprehensive (loss) income
$(2,631)$11,966
See Accompanying Notes to Condensed Consolidated Financial Statements.
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Table of Contents
OUTBRAIN INC.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except for number of shares)
(Unaudited)
Common StockAdditional Paid-in CapitalTreasury StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance – January 1, 202258,015,075$58$434,945(1,313,681)$(16,504)$(4,474)$(157,250)$256,775
Exercise of employee stock options, warrants and restricted stock awards, net of shares withheld for taxes411,85512,273(95,138)(1,425)849
Vesting of restricted stock units, net of shares withheld for taxes211,713(22,499)(293)(293)
Acquisition stock consideration355,7864,1904,190
Stock-based compensation2,8102,810
Other comprehensive loss(741)(741)
Net loss(1,890)(1,890)
Balance –March 31, 202258,994,429$59$444,218(1,431,318)$(18,222)$(5,215)$(159,140)$261,700
Convertible Preferred StockCommon StockAdditional Paid-in CapitalTreasury StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmountSharesAmount
Balance – January 1, 202127,652,449$162,44417,439,488$17$95,055(280,686)$(2,350)$(4,290)$(168,245)$(79,813)
Exercise of employee stock options, net of shares withheld for taxes129,4901544(26,344)(249)296
Vesting of restricted stock units105,101
Stock-based compensation1,5391,539
Other comprehensive income1,2201,220
Net income10,74610,746
Balance –March 31, 202127,652,449$162,44417,674,079$18$97,138(307,030)$(2,599)$(3,070)$(157,499)$(66,012)

See Accompanying Notes to Condensed Consolidated Financial Statements.
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Table of Contents
OUTBRAIN INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended March 31,
20222021
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income$(1,890)$10,746 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization of property and equipment2,4041,604 
Amortization of capitalized software development costs2,2951,997 
Amortization of intangible assets1,569926 
Stock-based compensation2,7331,487 
Non-cash operating lease expense1,168 
(Benefit) provision for credit losses(249)653 
Deferred income taxes(340)(385)
Other1,0542,401 
Changes in operating assets and liabilities:
Accounts receivable15,88513,916 
Prepaid expenses and other current assets1,418(1,495)
Other assets1,560197 
Accounts payable and accrued and other current liabilities(31,121)(27,191)
Operating lease liabilities(1,097) 
Deferred revenue1,659440 
Other311110 
Net cash (used in) provided by operating activities(2,641)5,406 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired(34,524) 
Purchases of property and equipment(2,809)(239)
Capitalized software development costs(3,445)(2,529)
Other14 (19)
Net cash used in investing activities(40,764)(2,787)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants2,274548 
Tax withholdings on vested stock-based compensation awards(1,718)(249)
Principal payments on finance lease obligations(1,014)(1,106)
Net cash used in financing activities(458)(807)
Effect of exchange rate changes(663)(430)
Net (decrease) increase in cash, cash equivalents and restricted cash
(44,526)1,382 
Cash, cash equivalents and restricted cash — Beginning
455,59294,067 
Cash, cash equivalents and restricted cash — Ending
411,066$95,449 
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents$410,875$95,042 
Restricted cash, included in other assets191407 
Total cash, cash equivalents, and restricted cash$411,066$95,449 
See Accompanying Notes to Condensed Consolidated Financial Statements.





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OUTBRAIN INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)
Three Months Ended March 31,
20222021
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds$2,393$53
Cash paid for interest$3,606$162
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Stock-based compensation capitalized for software development costs$77$52
Purchases of property and equipment included in accounts payable$13$2
Property and equipment financed under capital obligation arrangements$$842
   Acquisition consideration payable$11,483$
   Stock consideration issued for acquisition of a business$4,190$
 Deferred financing costs included in accounts payable and accrued expenses$42$
See Accompanying Notes to 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 Adopted Accounting Pronouncements
Organization and Description of Business
Outbrain Inc., together with its 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. In connection with the Company’s initial public offering (“IPO”), its common stock began trading on The Nasdaq Stock Market LLC (“Nasdaq”) on July 23, 2021 under “OB” ticker.
Outbrain is a leading recommendation platform powering the open web. The Company’s platform provides personalized recommendations that appear as links to content, advertisements and videos on media owners’ online properties. The Company generates revenue from marketers through user engagements with promoted recommendations that it delivers across a variety of third-party media owners’ properties. The Company pays traffic acquisition costs to its media owner partners on whose digital properties the recommendations are shown. The Company’s 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 its ability to generate trustworthy and interesting recommendations to individual users based on its proprietary algorithms. A small portion of the Company’s 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 (“U.S. GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in 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 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 18, 2022 ("2021 Form 10-K").
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. Estimates and judgments are based on historical information and on various other assumptions that the Company believes 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, and the recognition and measurement of income tax uncertainties and other contingencies. Actual results could differ materially from these estimates.
Reclassifications
Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation.
Certain Risks and Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, restricted cash and accounts receivable. The Company’s 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.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company generally does not require collateral to secure its accounts receivable. No single marketer accounted for 10% or more of the Company’s total revenue for the three months ended March 31, 2022 or 2021, or for 10% or more of its gross accounts receivable balance as of March 31, 2022 or December 31, 2021.
During the three months ended March 31, 2022, one media owner accounted for approximately 10% of the Company’s total traffic acquisition costs. For the three months ended March 31, 2021, two media owners individually accounted for approximately 12% and 10% of the Company’s total traffic acquisition costs.
Segment Information
The Company has one operating and reporting segment. The Company’s chief operating decision maker is its Co-Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis.
New 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
Leases
In February 2016, the Financial Accounting Standards Board (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). This comprehensive new standard amends and supersedes existing lease accounting guidance and is intended to increase transparency and comparability by recognizing right-of-use (“ROU”) lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. In July 2018, this guidance was amended to allow companies to use the beginning of the period in which this standard is adopted as the date of initial application.

The Company adopted Topic 842 on January 1, 2022 using the transition election allowing it not to restate prior periods. As such, results for reporting periods beginning on January 1, 2022 are presented under Topic 842, while prior period amounts continue to be reported in accordance with the Company’s historical accounting treatment under ASC 840, Leases. The Company elected the package of practical expedients permitted under the transition guidance, which allows not to reassess its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to separate the lease and non-lease components for its real estate leases and not to recognize lease assets and liabilities for operating leases with initial terms of 12 months or less. The Company did not elect the “hindsight” practical expedient. The Company uses its incremental borrowing rate to determine the present value of lease payments, as the Company’s leases do not have a readily determinable implicit discount rate. The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and amount in a similar economic environment.

Upon adoption, the Company recognized operating right of use assets of $14.8 million and operating lease liabilities of $15.2 million in its consolidated balance sheet as of January 1, 2022. In addition, the Company reclassified deferred rent and lease incentives as a component of right-of-use assets. The adoption of the new lease standard did not have a material impact the Company’s results of operations or cash flows and there was no cumulative-effect adjustment to the opening balance of retained earnings.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Credit Losses
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 early adopted ASU 2016-13 as of January 1, 2022, using the adoption method based on the aging schedules of accounts receivable. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
See Note 1 to the Company’s audited consolidated financial statements for the year ended December 31, 2021 in the Company’s 2021 Form 10-K for a complete disclosure of the Company’s significant accounting policies.
2. Revenue Recognition
The following table presents total revenue based on where the Company’s marketers are physically located:
Three Months Ended March 31,
20222021
(in thousands)
USA
$85,577$78,087
Europe, the Middle East and Africa (EMEA)
139,675126,545
Other
28,96423,392
Total revenue
$254,216$228,024
Contract Balances
There were no contract assets as of March 31, 2022 or December 31, 2021. Contract liabilities primarily relate to advance payments and consideration received from customers. As of March 31, 2022 and December 31, 2021, the Company’s contract liabilities were recorded as deferred revenue in the condensed consolidated balance sheets.
3. Acquisition
On November 19, 2021, the Company entered into a definitive agreement, by and among the Company and the shareholders of video intelligence AG (“vi”), a Swiss-based contextual video technology company for digital media owners, for the acquisition of all of the outstanding shares of vi for a purchase price of approximately $55 million. The acquisition was completed on January 5, 2022. The purchase price was paid in the form of cash and Outbrain common stock, with the first installment of $37.3 million in cash and the equity portion paid at closing, and the substantial majority of the remaining cash balance payable in the third quarter of 2022. The equity portion of the purchase price was comprised of 355,786 shares of the Company’s common stock with a fair value of $4.2 million, and is subject to a post-closing adjustment based on market price of our stock to be determined one year from closing, at which time any required adjustment is to be paid in cash. Aggregate consideration for the acquisition of vi will not exceed approximately $55 million in total. This acquisition expands the Company’s video product offerings to include in-stream high-quality video content, delivering a better user experience and more value to its advertisers.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the total purchase consideration as of the acquisition date:
January 5, 2022
(in thousands)
Cash consideration paid on acquisition date$37,311 
Fair value of deferred consideration payable in cash10,936 
Fair value of contingent consideration payable547 
Stock consideration4,190 
Total consideration$52,984 

This acquisition was accounted for as a business combination under the acquisition method of accounting and the results of operations of vi have been included in the Company’s results of operations as of the acquisition date. The Company incurred transaction costs relating to the vi acquisition of $0.2 million during the three months ended March 31, 2022, which were included in general and administrative expenses in the Company’s condensed consolidated statements of operations. The Company allocated the purchase price to identifiable assets acquired based on their estimated fair values at acquisition date, which required management to use significant judgment and estimates, including valuation methodologies, estimates of future revenue, cost and cash flows, discount rates, and identifying comparable companies. The Company engaged third-party valuation specialists to assist in determining the fair values of the acquired assets and liabilities.
The preliminary allocation of the purchase price to the identifiable assets and liabilities based on their estimated fair values as of the acquisition date was as follows:
January 5, 2022
(in thousands)
Cash and cash equivalents$2,787 
Accounts receivable3,849 
Prepaid expenses and other current assets995 
 Property and equipment, net
43 
Publisher relationships10,783 
Customer relationships732 
Content provider relationships284 
Technology intangibles9,985 
Trademark3,704 
Accounts payable(2,571)
Accrued and other liabilities(2,768)
Deferred tax liability(5,021)
Net assets acquired22,802 
Goodwill30,182 
Total$52,984 

The fair values of the publisher relationships were determined using the multi-period excess earnings income approach and the fair values of the customer and content provider relationships were determined using the cost approach. The fair value of trade names and technology was determined using the relief-from-royalty method. Identifiable intangible assets acquired are amortized on a straight-line basis over their estimated useful lives. The Company estimated useful lives of acquired publisher relationships and technology to be 8 years, and tradenames to be 9 years, and other relationships to be 5 years. Amortization expense for amortizable intangible assets is included within sales and marketing expense in the Company’s condensed consolidated statement of operations.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The excess of the purchase price over the aggregate fair value of the identifiable assets acquired was recorded as goodwill and is primarily attributable to expected synergies and increased offerings to customers the Company expects from future growth and potential monetization opportunities. Goodwill is not amortized but will be tested for impairment at least annually, or more frequently if there are indicators of impairment. The goodwill is not deductible for tax purposes.
4. Fair Value Measurements
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company’s financial instruments include restricted time deposits, severance pay fund deposits and foreign currency forward contract assets. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the Company uses the fair value hierarchy described below to distinguish between observable and unobservable inputs:
Level I — Valuations based on quoted prices in active markets for identical assets and liabilities at the measurement date;
Level II — Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be principally corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level III — Valuations based on unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
The following table sets forth the fair value of the Company’s financial assets measured on a recurring basis by level within the fair value hierarchy:
March 31, 2022
Level ILevel IILevel IIITotal
(In thousands)
Financial Assets:
Restricted time deposit (1)
$$191$$191
Severance pay fund deposits (1)
$$5,897$$5,897
    Foreign currency forward contract (2)
$$6$$6
Total financial assets
$$6,094$$6,094
December 31, 2021
Level ILevel IILevel IIITotal
(In thousands)
Financial Assets:
Restricted time deposit (1)
$$195$$195
Severance pay fund deposits (1)
$$6,086$$6,086
Foreign currency forward contract (2)
$$741$$741
Total financial assets
$$7,022$$7,022
_____________________
(1)Recorded within other assets
(2)Recorded within prepaid expenses and other current assets

The Company’s 2.95% Convertible Senior Notes due 2026 (“Convertible Notes”) are recorded within long-term debt in its condensed consolidated balance sheets at their carrying value, which may differ from their fair value. The fair value of Convertible Notes is estimated using external pricing data, including any available market data for other debt instruments with similar characteristics. The following table summarizes the carrying value and the estimated fair value of the Company’s Convertible Notes, based on Level II measurements of the fair value hierarchy:
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 2022December 31, 2021
Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
(In thousands)
Convertible Notes
$236,000$209,497$236,000$234,348
5. Balance Sheet Components
Accounts Receivable and Allowance for Credit Losses

The allowance for credit losses is based on the best estimate of the amount of probable credit losses in accounts receivable. The allowance for credit losses is determined based on historical collection experience, reasonable and supportable forecasted information, and any applicable market conditions. The allowance for credit losses also takes into consideration the Company’s current customer information, collection history, and other relevant data. The Company reviews the allowance for credit losses on a quarterly basis. Account balances are written off against the allowance when it is deemed probable that the receivable will not be recovered.
Accounts receivable, net of allowance for credit losses consists of the following:
March 31, 2022December 31, 2021
(In thousands)
Accounts receivable
$183,417 $197,216 
Allowance for credit losses
(4,153)(4,402)
Accounts receivable, net of allowance for credit losses
$179,264 $192,814 
The allowance for credit losses consists of the following activity:
Three Months Ended March 31, 2022Year Ended December 31, 2021
(In thousands)
Allowance for credit losses, beginning balance
$4,402 $4,174 
Provision for credit losses, net of recoveries
(217)2,601 
Write-offs
(32)(2,373)
Allowance for credit losses, ending balance
$4,153 $4,402 
Property, Equipment and Capitalized Software, Net
Property, equipment and capitalized software, net consists of the following:
March 31, 2022December 31, 2021
(In thousands)
Computer equipment
$44,996 $43,316 
Capitalized software development costs
57,756 54,233 
Software
2,592 2,817 
Leasehold improvements
1,194 1,547 
Furniture and fixtures
41 83 
Property, equipment and capitalized software, gross
106,579 101,996 
Less: accumulated depreciation and amortization
(76,982)(73,988)
Total property, equipment and capitalized software, net$29,597 $28,008 
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following:
March 31, 2022December 31, 2021
(In thousands)
Accrued traffic acquisition costs
$64,711$60,274
Accrued agency commissions
11,86410,639
Acquisition consideration payable
11,525
Accrued professional fees
5,9686,569
Accrued tax liabilities
5,2069,240
Operating lease obligations, current4,076
Finance lease obligations, current
2,5843,069
Interest payable
1,2763,094
Other
6,1106,705
Total accrued and other current liabilities $113,320$99,590
In addition to accrued traffic acquisition costs, accounts payable as of March 31, 2022 and December 31, 2021 included traffic acquisition costs of $123.8 million and $147.4 million, respectively.
6. Leases
The Company leases certain equipment and computers under finance lease arrangements, as well as office facilities and managed data center facilities under non-cancelable operating lease arrangements for its U.S. and international locations that expire on various dates through 2031. These arrangements require the Company to pay certain operating expenses, such as taxes, repairs and insurance and contain renewal and escalation clauses. The Company’s options to extend or terminate a lease are not included in the lease terms, unless the Company is reasonably certain it will exercise that option. The Company’s leases generally do not contain any material restrictive covenants.
The Company’s minimum lease payments include fixed payments for non-lease components included in the lease agreement, but exclude variable lease payments that are not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuations from period to period. Non-lease components that are variable in nature are recorded as variable lease expenses in the period incurred.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes assets and liabilities related to the Company’s operating and finance leases:
Condensed Consolidated Balance Sheet Location
March 31, 2022
(In thousands)
Lease assets
 Operating leasesOperating lease right-of-use assets, net$14,302 
    Finance leasesProperty, equipment and capitalized software, net3,877 
Total lease assets$18,179 
Lease liabilities
Current liabilities:
Operating leasesAccrued and other current liabilities$4,076 
Finance leasesAccrued and other current liabilities2,584 
Non-current liabilities:
Operating leasesOperating lease liabilities, non-current10,857 
Finance leasesOther liabilities1,523 
Total lease liabilities$19,040 
The following table presents the components of the Company’s total lease expense:
Condensed Consolidated Statement of Operations LocationThree Months Ended March 31, 2022
(In thousands)
Operating lease cost
   Fixed lease costsCost of revenue and operating expenses$1,168 
   Variable lease costs Operating Expenses30 
   Short-term lease costsCost of revenue and operating expenses140 
Financing lease cost:
     DepreciationCost of revenue943 
     InterestInterest expense88 
Total lease cost$2,369 
As of March 31, 2022, the maturities of the Company's lease liabilities under operating and finance leases were as follows:
YearOperating LeasesFinance Leases
(in thousands)
Remainder of 2022$3,646 $2,267 
20233,717 1,741 
20243,314 257 
20253,315  
20261,550  
Thereafter1,177  
Total minimum payments required$16,719 $4,265 
Less: imputed interest(1,786)(158)
Total present value of lease liabilities$14,933 $4,107 
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of March 31, 2022, future leases payments for leases that have not yet commenced were not material.
The following table summarizes weighted-average lease terms and discount rates for the Company’s leases:
March 31, 2022
Weighted-average remaining lease term (in years)
     Operating leases4.41 years
     Finance leases1.57 years
Weighted-average discount rate
     Operating leases5.19%
     Finance leases7.41%
Supplemental cash flow information related to leases is as follows:
Three Months Ended March 31, 2022
(In thousands)
Cash paid for amounts included in measurement of lease liabilities:
    Operating cash outflows from operating leases$1,097 
    Cash flows from finance leases$1,014 
New operating lease assets obtained in exchange for new lease obligations$447 
As of December 31, 2021, prior to the adoption of Topic 842, future minimum lease payments under the Company’s non-cancelable operating leases and capital leases were as follows:
Year Ending December 31:
Operating
Leases
Capital
Leases
(In thousands)
2022$4,214 $3,329 
20233,128 1,741 
20242,768 257 
20252,630  
20261,399  
Thereafter929  
Total minimum payments required$15,068 $5,327 
7. Goodwill and Intangible Assets
The changes in the carrying value of the Company’s goodwill balance was as follows:
March 31, 2022December 31, 2021
(In thousands)
Goodwill, opening balance$32,881 $32,881 
   Acquisition of vi30,182  
Goodwill, closing balance$63,063 $32,881 
The Company has not recorded any accumulated impairments of goodwill.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The gross carrying amount and accumulated amortization of the Company’s intangible assets are as follows:
As of March 31, 2022
Weighted Average Amortization
Period
Gross ValueAccumulated
Amortization
Net Carrying
Value
(In thousands)
Developed technology
5.8 years$18,411$(8,716)$9,695
Customer relationships
4.1 years5,999(4,284)1,715
Publisher relationships
6.3 years19,028(6,498)12,530
Tradenames
8.7 years5,337(708)4,629
Content Provider Relationships
5.0 years284(13)271
Other
14.0 years878(185)693
Total intangible assets, net
$49,937$(20,404)$29,533
As of December 31, 2021
Weighted Average Amortization
Period
Gross ValueAccumulated
Amortization
Net Carrying
Value
(In thousands)
Developed technology
3.2 years$8,425$(8,425)$
Customer relationships
4.0 years5,345(4,050)1,295
Publisher relationships
4.0 years8,403(5,777)2,626
Tradenames
8.0 years1,665(572)1,093
Other
14.0 years876(171)705
Total intangible assets, net
$24,714$(18,995)$5,719
No impairment charges were recorded during the three months ended March 31, 2022 and 2021.
As of March 31, 2022, estimated amortization related to the Company’s identifiable acquisition-related intangible assets in future periods was as follows:
YearAmount
(In thousands)
Remainder of 2022$4,911
20234,240
20243,470
20253,470
20263,471
Thereafter
9,971
Total
$29,533
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
8. Long-Term Debt
Convertible Notes
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 its senior subordinated secured notes due July 1, 2026 for $236 million aggregate principal amount of 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. 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 Note, in which case the conversion rate applicable to the conversion of that Convertible Note will be increased if it is converted by holders after it is called for redemption.
Holders may convert all or any portion of their Convertible Notes, in multiples of $1,000 principal amount, into shares of the Company’s common stock at any time until the second scheduled trading day immediately preceding the maturity date, at the conversion rate then in effect. The Company will settle conversions of the Convertible Notes by paying or delivering, as the case may be, cash, shares of common stock, or a combination thereof, at its election.
Upon the occurrence of a fundamental change (as defined in the Indenture), subject to certain conditions, holders of the Convertible Notes may require the Company to repurchase for cash all or any portion of their Convertible Notes in principal amounts of $1,000 or an integral multiple thereof, at a repurchase price of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date. In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event or convert its Convertible Notes called for redemption during the related redemption period, as the case may be. The Indenture contains customary covenants and events of default.
The Company was not required to bifurcate the embedded conversion feature and the Convertible Notes were not issued with a substantial premium. As such, the Company accounted for the Convertible Notes as a liability under the no proceeds allocated model. The Company calculates earnings per share using the if-converted method.
Revolving Credit Facility
On November 2, 2021, the Company entered into the Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank (“SVB”) (the “2021 Revolving Credit Facility”), which provides, subject to borrowing availability and certain other conditions, for revolving loans in an aggregate principal amount of up to $75.0 million (the “Facility”), with a $15.0 million sub-facility for letters of credit. The Company’s borrowing availability under the Facility is calculated by reference to a borrowing base which is determined by specified percentages of eligible accounts receivable. The Facility will terminate on the earlier of (i) November 2, 2026 or (ii) 120 days prior to the maturity date of the Company’s 2.95% Convertible Senior Notes due 2026, unless the Convertible Notes have been converted to common equity securities of the Company.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Outstanding loans under the Facility accrue interest, at the Company’s option, at a rate equal to either (a) a base rate minus an applicable margin ranging from 1.5% to 1.0% per annum or (b) LIBOR plus an applicable margin of 1.5% to 2.0% per annum, in each case based upon borrowing availability under the Facility. The undrawn portions of the commitments under the Facility are subject to a commitment fee at a rate ranging from 0.20% per annum to 0.30% per annum, based upon borrowing availability under the Facility.
The 2021 Revolving Credit Facility contains representations and warranties, including, without limitation, with respect to collateral; accounts receivable; financials; litigation, indictment and compliance with laws; disclosure and no material adverse effect, each of which is a condition to funding. Additionally, the 2021 Revolving Credit Facility includes events of default and customary affirmative and negative covenants applicable to the Company and its subsidiaries, including, without limitation, restrictions on liens, indebtedness, investments, fundamental changes, dispositions, restricted payments and prepayment of the Convertible Notes and of junior indebtedness. The 2021 Revolving Credit Facility contains a financial covenant that requires, in the event that credit extensions under the Facility equal or exceed 85% of the available commitments under the Facility or upon the occurrence of an event of default, the Company to maintain a minimum consolidated monthly fixed charge coverage ratio of 1.00.
The obligations of the Company, and the other subsidiary co-borrowers under the 2021 Revolving Credit Facility are secured by a first-priority lien on substantially all the assets of the Company and such other subsidiary co-borrowers.
The Company was in compliance with all of the financial covenants under its 2021 Revolving Credit Facility as of March 31, 2022. As of March 31, 2022 and December 31, 2021, the Company had no borrowings outstanding under its revolving credit facilities and its available borrowing capacity was $69.8 million and $75.0 million. respectively, based on the defined borrowing formula. Other assets in the company’s condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021 included deferred financing costs of $0.5 million, which are being amortized over the term of the 2021 Revolving Credit Facility.
9. Income Taxes
The Company’s interim (benefit) provision from income taxes is determined based on its annual estimated effective tax rate, applied to the actual year-to-date income and adjusted for the tax effects of any discrete items. The Company’s effective tax rates for the three months ended March 31, 2022 and 2021 were 34.3% and 13.0%, respectively. The Company’s effective tax rate for the three months ended March 31, 2022 was higher than the United States federal statutory tax rate of 21%, primarily due to the inclusion of foreign subsidiaries’ income in the U.S., as well as due to certain non-deductible stock-based compensation expenses. The effective tax rate for the three months ended March 31, 2021 was lower than the federal statutory tax rate of 21%, primarily due to full valuation allowance recorded against the Company’s deferred tax assets in the U.S. during the period, the majority of which was released during the fourth quarter of 2021.
10. Commitments and Contingencies
Legal Proceedings and Other Matters
From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, nor is it aware of any pending or threatened litigation that, in its opinion, would have a material adverse effect on its business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.
On April 29, 2021, the Company was notified that the Antitrust Division of the U.S. Department of Justice is conducting a criminal investigation into the hiring practices in its industry that includes the Company. The Company is continuing to cooperate with the Antitrust Division. While there can be no assurance regarding the ultimate resolution of this matter, the Company does not believe that its conduct violated applicable law.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
11. Stockholders’ Equity
Share Repurchases
On February 28, 2022, the Company’s Board of Directors approved a stock repurchase program under which the Company is authorized to purchase up to $30 million of the Company's common stock, par value $0.001 per share, with no requirement to purchase any minimum number of shares. The manner, timing, and actual number of shares repurchased under the program will depend on a variety of factors, including price, general business and market conditions, and other investment opportunities. Shares may be repurchased through privately negotiated transactions, or open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act. The repurchase program may be commenced, suspended or terminated at any time by the Company at its discretion without prior notice.
The Company may also from time to time withhold shares in connection with tax obligations related to vesting of restricted stock units in accordance with the terms of its equity incentive plans and the underlying award agreements. During the three months ended March 31, 2022 and 2021, the Company withheld 117,637 shares and 26,344 shares, respectively, with a fair value of $1.7 million and $0.2 million, respectively, to satisfy the minimum employee tax withholding obligations.
12. Stock-based Compensation
In July 2021, the Board and the Company’s stockholders approved, the 2021 Long-Term Incentive Plan (the “2021 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 2021 LTIP. The 2021 LTIP may be used to grant, among other award types, stock options, restricted share awards (“RSAs”) and restricted stock units (“RSUs”). 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, as amended and restated on January 21, 2009 (“2007 Plan”), remain subject to the 2007 Plan. As of March 31, 2022, approximately 40,000 and 7,885,000 shares were available for grant under the 2007 Plan and the 2021 LTIP, respectively.
The Company recognizes stock-based compensation for stock-based awards, including stock options, RSAs, RSUs and stock appreciation rights (“SARs”) based on the estimated fair value of the awards. The Company estimates the fair value of its stock option awards on the grant date using the Black-Scholes option pricing model. The fair value of RSAs and RSUs is the fair value of the Company’s common stock on the date of grant.
The following table summarizes stock-based compensation expense recognized in the Company’s condensed consolidated statements of operations for the periods presented:
Three Months Ended March 31,
20222021
(in thousands)
Research and development$537$247
Sales and marketing
1,173555
General and administrative
1,023685
Total stock-based compensation
$2,733$1,487
As of March 31, 2022, the Company’s unrecognized stock-based compensation expense was $3.3 million for unvested stock options and $21.4 million for unvested RSUs.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes stock option activity for the three months ended March 31, 2022:
Stock Options
Number of
Shares
Weighted-
Average
Exercise
Price
Outstanding—December 31, 20213,482,900$8.11
Granted$
Exercised
(223,620)$3.61
Forfeited
(7,991)$10.63
Outstanding—March 31, 20223,251,289$8.42
Exercisable2,495,313$7.61
The following table summarizes RSU activity for the three months ended March 31, 2022:
RSAs and RSUs
Number of
Shares
Weighted-
Average
Grant
Date Fair
Value
Outstanding—December 31, 20211,848,142$11.61
Granted173,375$10.75
Vested (211,713)$10.63
Forfeited
(31,499)$11.73
Outstanding—March 31, 20221,778,305$11.64

As of March 31, 2022 and December 31, 2021, 3,390 SARs awards were outstanding, which are accounted for as liability awards.
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, which expire between 2024 and 2026. As of March 31, 2022 and December 31, 2021, the Company had 188,235 warrants and 376,470 warrants outstanding, respectively, with a weighted exercise price of $7.57, reflecting 188,235 warrants exercised during the three months ended March 31, 2022.
Employee Stock Purchase Plan
In July 2021, the Board and the Company’s 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 approximately 1,830,000 shares of the Company’s common stock have been reserved for issuance under the ESPP, which is subject to automatic annual increases.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
13. Net (Loss) Income Per Common Share
The following table sets forth basic and diluted net (loss) income per share for the periods presented.
Three Months Ended March 31,
20222021
(In thousands, except share and per share data)
Numerator:
Basic and diluted:
Net (loss) income    
$(1,890)$10,746 
Less: undistributed earnings allocated to participating securities
 (