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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, 2024
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 April 30, 2024, Outbrain Inc. had 48,842,763 shares of common stock outstanding.


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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,” “foresee,” “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 fact. 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 the continuation or worsening of unfavorable economic or business conditions or downturns, instability or volatility in financial markets, and other events or factors outside of our control, such as U.S. and global recession concerns, geopolitical concerns, including the ongoing wars between Ukraine-Russia and Israel-Hamas, supply chain issues, inflationary pressures, labor market volatility, bank closures or disruptions, the impact of challenging economic conditions and other factors that have and may further impact advertisers’ ability to pay;
our ability to continue to innovate, and adoption by our advertisers and media partners of our expanding solutions;
the success of our sales and marketing investments, which may require significant investments and may involve long sales cycles;
our ability to grow our business and manage growth effectively;
our ability to compete effectively against current and future competitors;
the loss of one or more of our large media partners, and our ability to expand our advertiser and media partner relationships;
conditions in Israel, including the ongoing war between Israel and Hamas and other terrorist organizations, may limit our ability to market, support and innovate on our products due to the impact on our employees as well as our advertisers and their advertising markets;
our ability to maintain our revenues or profitability despite quarterly fluctuations in our results, whether due to seasonality, large cyclical events, or other causes;
the risk that our research and development efforts may not meet the demands of a rapidly evolving technology market;
any failure of our recommendation engine to accurately predict attention or 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 extend our reach into evolving digital media platforms;
our ability to maintain and scale our technology platform;
our ability to meet demands on our infrastructure and resources due to future growth or otherwise;
our failure or the failure of third parties to protect our sites, networks and systems against security breaches, or otherwise to protect the confidential information of us or our partners;
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outages or disruptions that impact us or our service providers, resulting from cyber incidents, or failures or loss of our infrastructure;
significant fluctuations in currency exchange rates;
political and regulatory risks in the various markets in which we operate;
the challenges of compliance with differing and changing regulatory requirements;
the timing and execution of any cost-saving measures and the impact on our business or strategy; and
the risks described in the section entitled “Risk Factors” in the Annual Report on Form 10-K filed for the year ended December 31, 2023 and 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.
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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, 2024December 31, 2023
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents$71,362 $70,889 
Short-term investments in marketable securities91,909 94,313 
Accounts receivable, net of allowances156,392 189,334 
Prepaid expenses and other current assets38,997 47,240 
Total current assets358,660 401,776 
Non-current assets:
Long-term investments in marketable securities68,349 65,767 
Property, equipment and capitalized software, net41,736 42,461 
Operating lease right-of-use assets, net17,113 12,145 
Intangible assets, net19,516 20,396 
Goodwill63,063 63,063 
Deferred tax assets38,346 38,360 
Other assets19,875 20,669 
TOTAL ASSETS$626,658 $664,637 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable$139,763 $150,812 
Accrued compensation and benefits19,055 18,620 
Accrued and other current liabilities95,594 119,703 
Deferred revenue6,987 8,486 
Total current liabilities261,399 297,621 
Non-current liabilities:
Long-term debt118,000 118,000 
Operating lease liabilities, non-current14,237 9,217 
Other liabilities16,094 16,735 
TOTAL LIABILITIES$409,730 $441,573 
Commitments and Contingencies (Note 10)
STOCKHOLDERS’ EQUITY:
   Common stock, par value of $0.001 per share − one billion shares authorized; 61,915,671 shares issued and 49,091,230 shares outstanding as of March 31, 2024; 61,567,520 shares issued and 49,726,518 shares outstanding as of December 31, 2023.
62 62 
Preferred stock, par value of $0.001 per share − 100,000,000 shares authorized, none issued and outstanding as of March 31, 2024 and December 31, 2023
  
Additional paid-in capital471,593 468,525 
Treasury stock, at cost − 12,824,441 shares as of March 31, 2024 and 11,841,002 shares as of December 31, 2023
(71,704)(67,689)
Accumulated other comprehensive loss(9,200)(9,052)
Accumulated deficit(173,823)(168,782)
TOTAL STOCKHOLDERS’ EQUITY216,928 223,064 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$626,658 $664,637 
See Accompanying Notes to Condensed Consolidated Financial Statements.
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OUTBRAIN INC.
Condensed Consolidated Statements of Operations
(In thousands, except for share and per share data)
(Unaudited)
Three Months Ended March 31,
20242023
Revenue$216,964 $231,774 
Cost of revenue:
Traffic acquisition costs164,810 179,576 
Other cost of revenue10,559 11,043 
Total cost of revenue175,369 190,619 
Gross profit41,595 41,155 
Operating expenses:
Research and development9,193 9,311 
Sales and marketing23,784 25,748 
General and administrative15,215 15,406 
Total operating expenses48,192 50,465 
Loss from operations(6,597)(9,310)
Other income (expense), net:
Interest expense(937)(1,867)
Interest income and other income, net1,405 3,860 
Total other income, net468 1,993 
Loss before benefit from income taxes(6,129)(7,317)
Benefit from income taxes(1,088)(1,712)
Net loss$(5,041)$(5,605)
Weighted average shares outstanding:
Basic49,265,012 51,435,289 
Diluted49,265,012 51,435,289 
Net loss per common share:
Basic$(0.10)$(0.11)
Diluted$(0.10)$(0.11)
See Accompanying Notes to Condensed Consolidated Financial Statements.
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OUTBRAIN INC.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
Three Months Ended March 31,
20242023
Net loss$(5,041)$(5,605)
Other comprehensive income (loss):
Foreign currency translation adjustments98 (1,220)
  Unrealized (losses) gains on available-for-sale investments in debt securities (net of taxes of $74 and $(123) for the three months ended March 31, 2024 and 2023, respectively)
(246)420 
Total other comprehensive loss(148)(800)
Comprehensive loss$(5,189)$(6,405)
See Accompanying Notes to Condensed Consolidated Financial Statements.
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OUTBRAIN INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except for number of shares)
(Unaudited)
Common Stock
Additional
Paid-In
Capital
Treasury Stock
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance – January 1, 2024
61,567,520 $62 $468,525 (11,841,002)$(67,689)$(9,052)$(168,782)$223,064 
Vesting of restricted stock units, net of shares withheld for taxes
348,151 — (37,492)(153)— — (153)
Shares repurchased under the share repurchase program— — — (945,947)(3,862)— — (3,862)
Stock-based compensation— — 3,068 — — — — 3,068 
Other comprehensive loss— — — — — (148)— (148)
Net loss
— — — — — — (5,041)(5,041)
Balance – March 31, 2024
61,915,671 $62 $471,593 (12,824,441)$(71,704)$(9,200)$(173,823)$216,928 
Common Stock
Additional
Paid-In
Capital
Treasury Stock
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance – January 1, 2023
60,175,020 $60 $455,831 (7,948,275)$(49,168)$(9,913)$(179,024)$217,786 
Vesting of restricted stock units, net of shares withheld for taxes
281,469 — — (48,202)(213)— — (213)
Shares repurchased under the share repurchase program— — — (1,313,073)(6,142)— — (6,142)
Stock-based compensation— — 2,895 — — — — 2,895 
Other comprehensive loss— — — — — (800)— (800)
Net loss
— — — — — — (5,605)(5,605)
Balance – March 31, 2023
60,456,489 $60 $458,726 (9,309,550)$(55,523)$(10,713)$(184,629)$207,921 









See Accompanying Notes to Condensed Consolidated Financial Statements.
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OUTBRAIN INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended March 31,
20242023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(5,041)$(5,605)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment1,639 1,704 
Amortization of capitalized software development costs2,409 2,641 
Amortization of intangible assets852 1,596 
Amortization of discount on marketable securities(642)(1,241)
Stock-based compensation2,927 2,611 
Non-cash operating lease expense1,195 1,146 
Provision for credit losses1,693 2,639 
Deferred income taxes(174)(437)
Other338 (1,054)
Changes in operating assets and liabilities:
Accounts receivable30,398 (1,478)
Prepaid expenses and other current assets7,262 4,598 
Accounts payable and other current liabilities(31,875)(28,017)
Operating lease liabilities(1,205)(1,138)
Deferred revenue(1,471)(317)
Other non-current assets and liabilities300 1,874 
Net cash provided by (used in) operating activities8,605 (20,478)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of a business, net of cash acquired(181)(285)
Purchases of property and equipment(1,335)(3,749)
Capitalized software development costs(2,627)(2,853)
Purchases of marketable securities(31,578)(32,762)
Proceeds from maturities of marketable securities31,492 35,615 
Other (5)
Net cash used in investing activities(4,229)(4,039)
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock repurchases and share withholdings on vested awards(4,015)(6,355)
Principal payments on finance lease obligations(255)(509)
Payment of contingent consideration liability up to acquisition-date fair value (547)
Net cash used in financing activities(4,270)(7,411)
Effect of exchange rate changes363 (436)
Net increase (decrease) in cash, cash equivalents and restricted cash
469 (32,364)
Cash, cash equivalents and restricted cash — Beginning
71,079 105,765 
Cash, cash equivalents and restricted cash — Ending
$71,548 $73,401 
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents$71,362 $73,214 
Restricted cash, included in other assets$186 $187 
Total cash, cash equivalents, and restricted cash$71,548 $73,401 


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OUTBRAIN INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)
Three Months Ended March 31,
20242023
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds$2,133 $2,313 
Cash paid for interest$1,815 $3,581 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchases of property and equipment included in accounts payable$418 $820 
Operating lease right-of-use assets obtained in exchange for lease obligations$6,055 $1,339 
Acquisition consideration payable$ $285 
Stock-based compensation capitalized for software development costs$141 $284 


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 and Summary of Significant Accounting Policies
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 the “OB” ticker symbol.
Outbrain is a leading technology platform that drives business results by connecting media owners and advertisers with engaged audiences to drive business outcomes across the Open Internet. The Company’s platform provides advertisements on media owners’ online properties. The Company generates revenue from advertisers through consumer engagements with advertisements that it delivers across a variety of third-party media owners’ online properties. The Company pays traffic acquisition costs to its media owner partners on whose digital properties the advertisements are shown. The Company’s advertiser solutions are mainly priced using a performance-based model based on the actual number of engagements generated by consumers, which is highly dependent on its ability to generate trustworthy and interesting advertisements to individual consumers based on its proprietary algorithms. A 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 consumer 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, 2023, filed with the Securities and Exchange Commission on March 8, 2024 (“2023 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 credit losses, 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, valuation of 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.
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.
The Company generally does not require collateral to secure accounts receivable, with the exception of certain customers with higher potential credit risk who are required to prepay for their campaigns. No single advertiser accounted for 10% or more of the Company’s total revenue for the three months ended March 31, 2024 or 2023, or 10% or more of its gross accounts receivable balance as of March 31, 2024 and December 31, 2023.
During the three months ended March 31, 2024 and 2023, none of the Company’s media owners accounted for 10% of its total traffic acquisition costs.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Segment Information
The Company has one operating and reporting segment. The Company’s chief operating decision maker is its 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 (“EGC”) and can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards would otherwise 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 EGC or until the Company affirmatively and irrevocably opts out of the extended transition period.
Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires enhanced disclosures about significant segment expenses and profitability measures for all public entities, including those that have one reportable segment. The ASU is required to be applied retrospectively and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is in the process of evaluating the impact of ASU 2023-07 on its segment disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 is focused on increased visibility into specific income tax components, requiring disclosures of specific categories and a greater disaggregation of information by jurisdiction within the effective tax rate reconciliation and income taxes paid disclosures. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. The Company is in the process of evaluating the impact of ASU 2023-09 on its tax-related disclosures.
See Note 1 to the Company’s audited consolidated financial statements for the year ended December 31, 2023 in the Company’s 2023 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 advertisers are physically located:
Three Months Ended March 31,
20242023
(In thousands)
USA$59,409 $72,216 
Europe, the Middle East and Africa (EMEA)135,819 133,754 
Other21,736 25,804 
Total revenue$216,964 $231,774 
Contract Balances. There were no contract assets as of March 31, 2024 or December 31, 2023. Contract liabilities primarily relate to advance payments and consideration received from customers. As of March 31, 2024 and December 31, 2023, the Company’s contract liabilities were recorded as deferred revenue in its condensed consolidated balance sheets.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Investments in Marketable Securities
All of the Company’s debt securities are classified as available-for-sale. The Company’s cash equivalents and investments as of March 31, 2024 and December 31, 2023 consisted of the following:
March 31, 2024
(In thousands)Fair Value Level
Amortized cost (1)
Gross Unrealized GainsGross Unrealized LossesEstimated Fair ValueCash EquivalentsShort-term investmentsLong-term investments
Money market funds1$13,238 $ $ $13,238 $13,238 $ $ 
U.S. Treasuries215,007  (15)14,992 6,576 8,416  
U.S. government bonds241,070 9 (124)40,955  22,818 18,137 
Commercial paper213,197 1 (14)13,184 1,499 11,685  
U.S. Corporate bonds299,395 75 (268)99,202  48,990 50,212 
Total cash equivalents and investments$181,907 $85 $(421)$181,571 $21,313 $91,909 $68,349 
December 31, 2023
(In thousands)Fair Value Level
Amortized cost (1)
Gross Unrealized GainsGross Unrealized LossesEstimated Fair ValueCash EquivalentsShort-term investmentsLong-term investments
Money market funds1$15,355 $ $ $15,355 $15,355 $ $ 
U.S. Treasuries214,977 1 (29)14,949 3,497 11,452  
U.S. government bonds239,048 40 (114)38,974  20,762 18,212 
Commercial paper29,422 11 (3)9,430  9,430  
U.S. Corporate bonds2100,146 275 (197)100,224  52,669 47,555 
Total cash equivalents and investments$178,948 $327 $(343)$178,932 $18,852 $94,313 $65,767 
___________________________
(1) The amortized cost of debt securities excludes accrued interest of $1.5 million and $1.4 million, respectively, as of March 31, 2024 and December 31, 2023.
The following table presents the fair value of the Company’s available-for-sale securities by contractual maturity:
March 31, 2024
(In thousands)
Within 1 year$113,222 
After 1 year through 3 years68,349 
Total fair value$181,571 
The following table presents the fair value of investments and gross unrealized losses recorded in other comprehensive loss, by investment category and the length of time the securities have been in a continuous loss position:
March 31, 2024
Less than 12 Months 12 Months or MoreTotal
(In thousands)Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. Treasuries$12,291 $(4)$2,701 $(11)$14,992 $(15)
U.S. government bonds23,948 (75)11,589 (49)35,537 (124)
Commercial paper9,757 (14)  9,757 (14)
U.S. Corporate bonds49,786 (195)18,396 (73)68,182 (268)
 Total$95,782 $(288)$32,686 $(133)$128,468 $(421)

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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 2023
Less than 12 Months 12 Months or MoreTotal
(In thousands)Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. Treasuries$1,279 $ $4,711 $(29)$5,990 $(29)
U.S. government bonds6,798 (9)16,964 (105)23,762 (114)
Commercial paper3,649 (3)  3,649 (3)
U.S. Corporate bonds40,031 (119)18,840 (78)58,871 (197)
 Total$51,757 $(131)$40,515 $(212)$92,272 $(343)

For marketable securities with unrealized loss positions, the Company does not intend to sell these securities and it is more likely than not that the Company will hold these securities until maturity or a recovery of the cost basis. No allowance for credit losses was recorded for these securities as of March 31, 2024 and December 31, 2023.

4. Goodwill and Intangible Assets
The Company’s goodwill balance as of March 31, 2024 and December 31, 2023 was $63.1 million. The Company has not recorded any accumulated impairments of goodwill.
The gross carrying amount and accumulated amortization of the Company’s intangible assets are as follows:
March 31, 2024
Weighted Average Amortization
Period
Gross Value
Accumulated
Amortization
Net Carrying
Value
(In thousands)
Developed technology8.0 years$18,411 $(11,213)$7,198 
Customer relationships5.0 years5,882 (5,477)405 
Publisher relationships8.0 years18,791 (11,018)7,773 
Trade names8.8 years5,290 (1,910)3,380 
Content provider relationships5.0 years284 (127)157 
Other15.8 years898 (295)603 
Total intangible assets, net$49,556 $(30,040)$19,516 
December 31, 2023
Weighted Average Amortization
Period
Gross Value
Accumulated
Amortization
Net Carrying
Value
(In thousands)
Developed technology8.0 years$18,410 $(10,900)$7,510 
Customer relationships5.0 years5,972 (5,530)442 
Publisher relationships8.0 years18,973 (10,863)8,110 
Trade names8.8 years5,326 (1,779)3,547 
Content provider relationships5.0 years284 (113)171 
Other15.8 years898 (282)616 
Total intangible assets, net$49,863 $(29,467)$20,396 
No impairment charges were recorded for the Company’s intangible assets subject to amortization during the three months ended March 31, 2024 and 2023.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of March 31, 2024, estimated amortization related to the Company’s identifiable acquisition-related intangible assets in future periods was as follows:
Amount
(In thousands)
2024$2,599 
20253,466 
20263,466 
20273,111 
20283,062 
Thereafter3,812 
Total$19,516 
5. Balance Sheet Components
Accounts Receivable and Allowance for Credit Losses
Accounts receivable, net of allowance for credit losses consists of the following:
March 31, 2024December 31, 2023
(In thousands)
Accounts receivable$167,979 $199,714 
Allowance for credit losses(11,587)(10,380)
Accounts receivable, net of allowance for credit losses$156,392 $189,334 
The allowance for credit losses consists of the following activity:
Three Months Ended
March 31, 2024
Year Ended December 31, 2023
(In thousands)
Allowance for credit losses, beginning balance
$10,380 $5,512 
Provision for credit losses
1,645 8,220 
Write-offs
(438)(3,352)
Allowance for credit losses, ending balance
$11,587 $10,380 
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consists of the following:
March 31, 2024December 31, 2023
(In thousands)
Prepaid traffic acquisition costs$22,046 $26,398 
Prepaid taxes7,070 11,371 
Prepaid software licenses3,342 2,224 
Other prepaid expenses and other current assets6,539 7,247 
Total prepaid expenses and other current assets$38,997 $47,240 
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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:
March 31, 2024December 31, 2023
(In thousands)
Capitalized software development costs$81,016 $78,389 
Computer and equipment62,134 61,529 
Leasehold improvements3,301 3,300 
Software3,243 3,221 
Furniture and fixtures1,091 1,098 
Property, equipment, and capitalized software, gross150,785 147,537 
Less: accumulated depreciation and amortization(109,049)(105,076)
Total property, equipment and capitalized software, net$41,736 $42,461 
Accrued and Other Current Liabilities
Accrued and other current liabilities consists of the following:
March 31, 2024December 31, 2023
(In thousands)
Accrued traffic acquisition costs$58,270 $75,870 
Accrued agency commissions12,103 12,376 
Accrued tax liabilities11,504 15,596 
Operating lease obligations, current 3,621 3,684 
Accrued professional fees3,330 3,261 
Interest payable753 1,566 
Other 6,013 7,350 
Total accrued and other current liabilities$95,594 $119,703 
In addition to accrued traffic acquisition costs, accounts payable includes $127.9 million and $137.6 million of traffic acquisition costs as of March 31, 2024 and December 31, 2023, respectively.
6. 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 contracts. 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.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:
March 31, 2024
Level ILevel IILevel IIITotal
(In thousands)
Financial Assets:
Cash equivalents and investments (1)
$13,238 $168,669 $ $181,907 
Restricted time deposit (2)
 186  186 
Severance pay fund deposits (2)
 4,809  4,809 
Foreign currency forward contract (3)
 513  513 
Total financial assets$13,238 $174,177 $ $187,415 
Financial Liabilities:
Foreign currency forward contract (4)
 266  266 
Total financial liabilities
$ $266 $ $266 
December 31, 2023
Level ILevel IILevel IIITotal
(In thousands)
Financial Assets:
Cash equivalents and investments (1)
$15,355 $163,577 $ $178,932 
Restricted time deposit (2)
 190  190 
Severance pay fund deposits (2)
 4,901  4,901 
Foreign currency forward contract (3)
 1,254  1,254 
Total financial assets$15,355 $169,922 $ $185,277 
Financial Liabilities:
Foreign currency forward contract (4)
 106  106 
Total financial liabilities
$ $106 $ $106 
_____________________
(1)Money market securities are valued using Level I of the fair value hierarchy, while the fair values of U.S. Treasuries, government bonds, commercial paper, and corporate bonds are considered Level II and are obtained from independent pricing services, which may use various methods, including quoted prices for identical or similar securities in active and inactive markets. See Note 3 for additional detail of the Company’s fixed income securities by balance sheet location.
(2)Recorded within other assets.
(3)Recorded within prepaid expenses and other current assets.
(4)Recorded within accrued and other current liabilities.
The Company records the fair values of the assets and liabilities relating to its undesignated foreign currency forward contracts on a gross basis in its condensed consolidated balance sheets, as they are not subject to master netting arrangements. There is no cash collateral required to be pledged by the Company or its counterparties. The Company enters into foreign currency forward exchange contracts to manage the effects of fluctuations in foreign currency exchange rates on its net cash flows from non-U.S. dollar denominated operations.
By entering into foreign currency forward contracts, the Company is exposed to a potential credit risk that the counterparty to its contracts will fail to meet its contractual obligations. If a counterparty fails to perform, the Company’s maximum credit risk exposure would be the positive fair value of the foreign currency forward contracts, or any asset balance, which represents the amount the counterparty owes to the Company. In order to mitigate the counterparty risk, the Company performs an evaluation of its counterparty credit worthiness, and its forward contracts have a term of no more than 12 months. During the three months ended March 31, 2024 and 2023, the Company recognized net losses of $0.9 million and $0.1 million, respectively, within interest income and other income (expense), net in its condensed consolidated statements of operations, related to mark-to-market adjustments on its undesignated foreign currency forward contacts.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The 2.95% Convertible Senior Notes due 2026 (“Convertible Notes”) are recorded within long-term debt on the Company’s 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 Convertible Notes, based on Level II measurements of the fair value hierarchy:
March 31, 2024December 31, 2023
Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
(In thousands)
Convertible Notes
$118,000$96,583$118,000$95,958
See Note 8 for additional information relating to the Convertible Notes.
7. 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 2032.
The following table summarizes assets and liabilities related to the Company’s operating and finance leases:
 Condensed Consolidated Balance Sheets LocationMarch 31, 2024December 31, 2023
(In thousands)
Lease assets:
 Operating leasesOperating lease right-of-use assets, net$17,113 $12,145 
    Finance leasesProperty, equipment and capitalized software, net6 226 
Total lease assets$17,119 $12,371 
Lease liabilities:
Current liabilities:
Operating leasesAccrued and other current liabilities$3,621 $3,684 
Finance leasesAccrued and other current liabilities7 254 
Non-current liabilities:
Operating leasesOperating lease liabilities, non-current14,237 9,217 
Finance leasesOther liabilities  
Total lease liabilities$17,865 $13,155 
The following table presents the components of the Company’s total lease expense:
Three Months Ended March 31,
20242023
(In thousands)
Operating lease cost
   Fixed lease costs (1)
$1,195 $1,146 
   Variable lease costs (2)
131 32 
   Short-term lease costs (1)
115 139 
Finance lease cost:
    Depreciation (3)
220 464 
    Interest (4)
3 34 
Total lease cost$1,664 $1,815 
_______________________________________________________________
(1)Recorded within cost of revenue and operating expenses.
(2)Recorded within operating expenses.
(3)Recorded within cost of revenue.
(4)Recorded within interest expense.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of March 31, 2024, the maturities of the Company’s lease liabilities under operating and finance leases were as follows:
YearOperating LeasesFinance Leases
(In thousands)
Remainder of 2024$3,727 $7 
20254,845  
20264,226  
20273,784  
20282,442  
Thereafter3,595  
Total minimum payments required$22,619 $7 
Less: imputed interest(4,761) 
Total present value of lease liabilities$17,858 $7 
8. Long-Term Debt
Convertible Notes
As of each of March 31, 2024 and December 31, 2023, the Company had $118.0 million principal amount of Convertible Notes outstanding, 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 mature on July 27, 2026, unless earlier converted, redeemed, or repurchased.
Interest on the Convertible Notes 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.
See Note 9 to the Company’s 2023 Annual Report on Form 10-K for additional information relating to the Company’s Convertible Notes, including the redemption and conversion provisions.
Revolving Credit Facility
The Company’s First Amendment to the Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank, a division of First Citizens Bank & Trust Company, 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 Convertible Notes, unless all of the Convertible Notes have been converted to common equity securities of the Company.
Outstanding loans under the Facility, as recently amended, accrue interest, at the Company’s option based upon borrowing availability under the Facility, 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) SOFR plus an applicable margin of 1.5% to 2.0% per annum, subject to a SOFR adjustment ranging from 0.10% to 0.15%, depending on the length of the borrowing. 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 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 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 Facility contains a financial covenant that requires, in the event that credit extensions under the Facility equal or exceed
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 related financial covenants as of March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023, the Company had no borrowings outstanding under the 2021 Revolving Credit Facility and its available borrowing capacity was $58.1 million and $75.0 million, respectively, based on the defined borrowing formula. Other assets in the Company’s condensed consolidated balance sheets as each of March 31, 2024 and December 31, 2023 included deferred financing costs of $0.3 million, which are being amortized over the term of the Facility.
9. Income Taxes
The Company’s interim provision for (benefit 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, 2024 and 2023, were 17.8% and 23.4%, respectively. The Company’s effective tax rate for the three months ended March 31, 2024 was lower than the United States federal statutory tax rate of 21%, primarily due to a deduction related to foreign-derived intangible income, partially offset by the tax impact related to the profitability of non-U.S. jurisdictions and certain non-deductible stock-based compensation expenses. The Company’s effective tax rate for the three months ended March 31, 2023 was higher than the U.S. federal statutory tax rate of 21%, primarily due to certain non-deductible stock-based compensation expenses partially offset by a deduction related to foreign-derived intangible income.
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.
11. Stockholders’ Equity
Share Repurchases
On December 14, 2022, the Company’s Board of Directors (the “Board”) approved a new share repurchase program, authorizing the Company to repurchase up to $30 million of its 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 Securities Exchange Act of 1934, as amended. The repurchase program may be commenced, suspended, or terminated at any time by the Company at its discretion without prior notice.
The following is a summary of the Company’s share repurchase activity under its share repurchase program for the three months ended March 31, 2024 and 2023:
Three Months Ended March 31,
20242023
(In thousands, except share information)
Shares repurchased
945,947 1,313,073 
Fair value of shares repurchased
$3,862 $6,142 
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

As of March 31, 2024, the remaining availability under the Company’s $30 million share repurchase program was $8.6 million. Commission costs associated with share repurchases and excise taxes accrued as a result of the Inflation Reduction Act of 2022 do not reduce the remaining authorized amount under the repurchase programs.
In addition, the Company may periodically withhold shares to satisfy employee tax withholding obligations arising in connection with the vesting of restricted stock units and exercise of options and warrants in accordance with the terms of the Company’s equity incentive plans and the underlying award agreements. During the three months ended March 31, 2024 and 2023, the Company withheld 37,492 and 48,202 shares, respectively, with a fair value of $0.2 million and $0.2 million, respectively, to satisfy the employee tax withholding obligations.
The following table details the changes in accumulated other compressive loss, net of tax:
Foreign Currency Translation LossUnrealized Loss on Investments in Marketable SecuritiesTotal Accumulated Other Comprehensive Loss
(In thousands)
Balance–December 31, 2023$(9,039)$(13)$(9,052)
Other comprehensive income (loss), net of tax98 (246)(148)
Balance–March 31, 2024$(8,941)$(259)$(9,200)
There were no amounts reclassified from AOCI to earnings during any of the periods presented.
12. Stock-based Compensation
Equity Incentive Plans
In July 2021, the Board and the Company’s stockholders approved the 2021 Long-Term Incentive Plan (the “2021 Plan”), which may be used to grant, among other award types, stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”). The number of shares of common stock reserved for future issuance under the 2021 Plan will 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, 2024, 8,727,382 and 827,216 shares were available for grant under the 2021 Plan and the 2007 Plan, respectively. The Company generally issues new shares for stock option exercises and vesting of RSUs.
The Company recognizes stock-based compensation expense for stock-based awards 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 RSUs and PSUs is based on the fair value of the Company’s common stock on the date of grant, as adjusted based on achievement of any performance conditions. The Company accounts for forfeitures as they occur.
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,
20242023
(In thousands)
Research and development$713 $502 
Sales and marketing1,067 1,026 
General and administrative1,147 1,083 
Total stock-based compensation$2,927 $2,611 
As of March 31, 2024, the Company’s remaining unrecognized stock-based compensation expense was $0.7 million for unvested stock options and $20.2 million for unvested RSUs.
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OUTBRAIN INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The following table summarizes stock option and RSU activity for the three months ended March 31, 2024:
Stock Options (1)
RSUs (2)
Outstanding—December 31, 2023
2,409,553 3,507,083 
Granted 100,191 
Exercised/Vested (348,151)
Forfeited
(54,282)(46,475)
Outstanding—March 31, 2024
2,355,271 3,212,648 
____________________
(1) Includes 2,861 SARs, which are accounted for as liability awards.
(2) Includes 90,000 performance-based RSUs issued in 2023 with a grant date fair value of $4.82 per share.
The weighted average grant date fair value of service-based RSUs granted during the three months ended March 31, 2024 was $3.85 per share.
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 November 2024 and September 2026. As of March 31, 2024 and December 31, 2023, 188,235 warrants were outstanding and exercisable with a weighted average exercise price of $7.57.
Employee Stock Purchase Plan
As of March 31, 2024, approximately 2,849,545 shares of the Company’s common stock have been reserved for issuance under the Company’s 2021 Employee Stock Purchase Plan (the “ESPP”), which is subject to annual automatic evergreen increases. There have been no shares purchased under the ESPP as it is not yet active.
See Note 13 to the Company’s 2023 Annual Report on Form 10-K for additional information relating to the Company’s share-based compensation awards.
13. Net Loss Per Common Share
The following table presents the computation of the Company’s basic and diluted loss per share:
Three Months Ended March 31,
20242023
(Dollars in thousands)
Numerator:
Net loss$(5,041)$(5,605)
Denominator:
Weighted-average shares - basic and diluted49,265,012 51,435,289 
Net loss per share:
Basic$(0.10)$(0.11)
Diluted$(0.10)$(0.11)
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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 net loss per share for each period presented because they are anti-dilutive:
Three Months Ended March 31,
20242023
Convertible debt4,720,000 9,440,000 
Options to purchase common stock2,395,550 2,611,077 
Warrants188,235 188,235 
Restricted stock units3,418,466 2,435,522 
Total shares excluded from diluted loss per share
10,722,251 14,674,834 
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 8, 2024 (“2023 Form 10-K”). In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs, and expectations, and involve risks and uncertainties that could cause actual results, events, or circumstances to differ materially from those projected in the forward-looking statements. Factors that could cause or contribute to these differences include those 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, as well as those discussed below and elsewhere in this Report, including under the caption “Note About Forward-Looking Statements.”
The purpose of this Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to provide the readers of our financial statements with narrative information from our management, which is necessary to understand our business, financial condition, and results of operations. The MD&A should be read in conjunction with our condensed consolidated financial statements and notes thereto. In addition to the condensed consolidated financial statements prepared in accordance with the generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP financial measures throughout this discussion to provide investors with supplemental metrics used by our management for financial and operational decision making. These measures are supplemental and are not an alternative to our financial statements prepared in accordance with U.S. GAAP. See “Non-GAAP Reconciliations” in this Report for the definitions and limitations of these measures, and reconciliations to the most comparable U.S. GAAP financial measures.
Business Overview
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 with various wholly-owned subsidiaries, including in Israel, Europe and Asia.
Outbrain is a leading technology platform that drives business results by connecting media owners and advertisers with engaged audiences to drive business outcomes, reaching over a billion unique consumers around the world. Outbrain’s artificial intelligence (“AI”) prediction engine powers a two-sided platform for advertisers and media owners that delivers concrete business outcomes. Our platform enables thousands of digital media owners to provide tailored experiences to their audiences, delivering audience engagement and monetization. For tens of thousands of advertisers, from enterprise brands to performance marketers, our platform optimizes audience attention and engagement to deliver greater return on investment at each step of the marketing funnel.
Outbrain operates a two-sided marketplace, which means we usually have exclusive control over all aspects of the consumer experience, allowing us to quickly test and deploy new formats for our advertisers and media owners. Since inception, we have been guided by the same core principles pertaining to our three constituents: consumers, media partners, and advertisers.
Consumers. Our platform is centered on predicting consumer attention and engagement. We believe that by focusing our algorithm on optimizing toward these consumer-centric factors, we are able to cultivate user behavior patterns that compound over time, delivering greater effectiveness and efficiency for our advertisers, superior long-term monetization for our media partners, as well as increased value for Outbrain.
Media Partners. We are committed to supporting the long-term success of our media partners. We strive to develop multi-year contracts with media partners, with the objective of delivering long-term revenue and deeper audience engagement. Our media partners include both traditional publishers and companies in new and rapidly evolving categories, such as mobile device manufacturers.
Advertisers. We offer unique advertising solutions across the marketing funnel and provide a single access point to not only reach, but drive real business outcomes from consumers across the Open Internet. We provide advertisers from enterprise brands to performance marketers with solutions to optimize consumer attention and engagement, to deliver accountable business results and greater return on investment.
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Through our direct, usually exclusive code-on-page integrations with media owners, we have become one of the largest online advertising platforms on the Open Internet. In 2023, we provided personalized ads to over a billion monthly unique consumers, delivering on average over 12 billion experiences promoting content, services, and products per day, with tens of thousands of advertisers directly using our platform.
The following is a summary of our performance for the periods presented:
Our revenue was $217.0 million in the three months ended March 31, 2024, compared to $231.8 million in the three months ended March 31, 2023.
Our gross profit was $41.6 million and our gross margin was 19.2% for the three months ended March 31, 2024, compared to gross profit of $41.2 million and gross margin of 17.8% for the comparable period in 2023.
Our Ex-TAC Gross Profit(1) remained flat at $52.2 million in each of the three months ended March 31, 2024 and 2023.
Our net loss was $5.0 million, or (12.1)% of gross profit, in the three months ended March 31, 2024, compared to net loss of $5.6 million, or (13.6)% of gross profit, for the comparable period in 2023.
Our Adjusted EBITDA(1) was $1.4 million for the three months ended March 31, 2024, compared to $0.7 million for the three months ended March 31, 2023. Adjusted EBITDA(1) was 2.7% and 1.3% of Ex-TAC Gross Profit(1) in the three months ended March 31, 2024 and 2023, respectively.
______________________
(1)Ex-TAC Gross Profit and Adjusted EBITDA are non-GAAP financial measures. See “Non-GAAP Reconciliations” in this Report for definitions and limitations of these measures, and reconciliations to the comparable GAAP financial measures.
Recent Developments
Israel-Hamas War
Many of our employees, including certain members of our management team and board of directors, operate from Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations.
In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on the Israeli population and industrial centers located along Israel’s border with the Gaza strip and in other areas within the State of Israel. These attacks resulted in extensive deaths, injuries and the kidnapping of civilians and soldiers. In response, Israel’s security cabinet declared war against Hamas and a military campaign against this terrorist organization commenced in parallel to their continued rocket and terror attacks. In addition, since the commencement of these events, there have been continued hostilities along Israel’s northern border with Lebanon (with the Hezbollah terror organization). Furthermore, the Houthi movement, which controls parts of Yemen, launched several attacks on marine vessels traversing the Red Sea, which were thought either to be in route toward Israel or to be owned by Israeli persons. The Red Sea is a vital maritime route for international trade traveling to or from Israel, and in response to the Houthi movement’s attacks, coalition forces led by the United States and Great Britain have targeted sites in Yemen. In addition, Iran launched attacks on specific targets in Israel and indicated that it may continue to do so in the future. It is possible that hostilities with Hezbollah in Lebanon and with Iran will escalate, and that other terrorist organizations, including Palestinian military organizations in the West Bank as well as other hostile countries will join or intensify the hostilities and these clashes may escalate in the future into a greater regional conflict.
The draft of Israeli military reservists, as well as the evacuation of Israeli citizens from areas near conflict zones have adversely affected our employees impacted by such actions. In addition, future government-imposed restrictions and precautions in response to such conflicts may negatively impact our employees, management and directors by interrupting their ability to effectively perform their roles and responsibilities. In addition, further hostilities involving Israel, possible damage to facilities and infrastructure, increased cyber attacks, the interruption or curtailment of trade between Israel and its trading partners, and/or the willingness to do business with companies with operations in Israel, as well as macroeconomic indications of deterioration of Israel’s economic standing as reflected in the downgrading in Israel's credit rating by rating agencies that took place in parallel to these events, could adversely affect our business, financial condition and results of operations and could make it more difficult for us to raise capital. The intensity and duration of Israel’s current war against Hamas and the other terror organizations is difficult to predict and we are continuing to monitor the situation and assessing its potential impact on our business.
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We cannot attribute the impact of the current trends in advertising demand to any particular factor, including the Israel-Hamas War, and cannot predict the impact if the war continues or escalates further. See Item 1A “Risk Factors” included in our 2023 Annual Report for more information regarding certain risks associated with the Israel-Hamas conflict.
Macroeconomic Environment
General worldwide economic conditions have recently experienced significant instability, as well as volatility and disruption in the financial markets, resulting from factors including the effects of the wars between Russia-Ukraine and Israel-Hamas, bank closures, and general economic uncertainty. The current macroeconomic environment, with variables such as inflation, increased interest rates, bank disruptions, recessionary concerns, bankruptcies, currency exchange rate fluctuations, global supply chain disruptions, and labor market volatility, has negatively impacted our advertisers. Accordingly, these conditions have adversely impacted our business and could, if they continue or worsen, adversely impact us in the future, including if our advertisers were to reduce or further reduce their advertising spending as a result of any of these factors. We continue to monitor our operations, and the operations of those in our ecosystem (including media partners, advertisers, and agencies). These conditions make it difficult for us, our media partners, advertisers, and agencies to accurately forecast and plan future business activities and could cause a further reduction or delay in overall advertising demand and spending or impact our advertisers’ ability to pay, which would negatively impact our business, financial condition, and results of operations.
Factors Affecting Our Business
Retention and Growth of Relationships with Media Partners
We rely on relationships with our media partners for a significant portion of our advertising inventory and our corresponding ability to drive advertising revenue. To further strengthen these relationships, we continuously invest in our technology and product functionality to drive user engagement and monetization by (i) improving our algorithms, referred to as our AI prediction engine; (ii) effectively managing supply and demand; (iii) expanding the adoption of our enhanced products by media partners; and (iv) expanding our demand capabilities to new formats and business lines such as Onyx.
Our relationships with media partners are typically long-term, exclusive, and strategic in nature. Our top 20 media partners, based on our 2023 revenue, have been using our platform for an average of seven years, despite their typical contract length being two to four years. Net revenue retention is an important indicator of media partner satisfaction, the value of our platform, as well as our ability to grow revenue from existing relationships.
We calculate media partner net revenue retention at the end of each quarter by starting with revenue generated on media partners’ properties during the same period in the prior year, “Prior Period Retention Revenue.” We then calculate the revenue generated on these same media partners’ properties in the current period, “Current Period Retention Revenue.” Current Period Retention Revenue reflects any expansions within the media partner relationships, such as any additional placements or properties on which we extend our recommendations, as well as contraction or attrition. Our media partner net revenue retention in a quarter equals the Current Period Retention Revenue divided by the Prior Period Retention Revenue. To calculate media partner net revenue retention for year-to-date and annual periods, we sum the quarterly Current Period Retention Revenue and divide it by the sum of the quarterly Prior Period Retention Revenue. These amounts exclude certain revenue adjustments and revenue recognized on a net basis. Our media partner net revenue retention was approximately 89% for the three months ended March 31, 2024.
Our growth also depends on our ability to secure partnerships with new media partners. New media partners are defined as those relationships in which revenue was not generated in the prior period, except for limited instances where residual revenue was generated on a media partner’s properties. In such instances, the residual revenue would be excluded from net revenue retention above. Revenue generated on new media partners’ properties contributed approximately 5% to revenue growth for the three months ended March 31, 2024.
User Engagement with Relevant Media and Advertising Content
Driving attention and engagement is the key pillar of our platform that drives value for consumers, media partners, and advertisers. Our AI prediction algorithm manages this dynamic, matching consumers with editorial and advertiser experiences that will deliver attention and engagement across the Open Internet. We believe that the user experience has a profound impact on long term user behavior patterns and thus “compounds” over time, improving our long-term monetization prospects. This principle guides our behavior, and as a result, we do not focus on the price of ads, nor on maximizing such prices, as key performance indicators for the business. We strive to compound consumer attention and engagement, continually enhancing value for both advertisers and media owners.
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Growth in attention and engagement is driven by several factors, including enhancements to our AI prediction technology, growth in the breadth and depth of our data assets, the size and quality of our content and advertising index, user engagement, new media partners, and expansion on existing media partners. As we grow attention and engagement, we are able to collect more data and continually improve our prediction engine — which drives better results for our advertiser and media owner partners. This growth “flywheel” can be measured by growth of the consumer data points we drive, such as click-through-rate (“CTR”). CTR improvements increase the number of clicks on our platform. We believe that we have a significant opportunity to further grow consumer engagement, and thus our business, as today CTR for ads on our platform is less than 1% of ads served. With the launch of Onyx, we have expanded the measurable consumer data points that fuel our prediction engine, expanding our ability to drive concrete business outcomes at each step of the marketing funnel.
Advertiser Retention and Growth
Our engine serves the ad experiences that are predicted to deliver high attention or engagement, rather than on price of the ads. We believe this approach leads to better return-on-ad-spend (“ROAS”) for advertisers, whether they are focused on driving a performance outcome, or a branding outcome. Our growth is partially driven by retaining and expanding the amount of spend by advertisers on our platform, as well as by acquiring new advertisers. Our recent launch of Onyx by Outbrain™ expands Outbrain’s total addressable market to now include top of the funnel marketing dollars while also attracting more diverse, premium demand.
We continually invest in enhancements to our platform that allow advertisers to drive concrete business outcomes and ROAS. In particular, we are expanding our usage of AI to automate manual tasks in campaign set up and optimization, and to enhance advertiser creative and landing page performance.
Prices paid by advertisers on our platform fluctuate period to period for a variety of reasons, including supply and demand balance, macroeconomic conditions, and seasonality. In order to grow our revenue and Ex-TAC Gross Profit and maximize value for our advertisers and media partners, our focus as a business is on driving business outcomes and ROAS for advertisers, not on optimizing for price.
For the year ended December 31, 2023, tens of thousands of unique advertisers were active on our owned and operated platform, in addition to the thousands of advertisers who access Outbrain and Onyx environments through our programmatic partnerships.
Expansion Into New Environments, New Experiences and New Ad Formats
The accelerating pace of technological innovation has rapidly changed consumer habits. The available mediums and formats for consumers to engage with media has greatly expanded over the last several years. As this evolution in media consumption and consumer behavior continues, we are focused on utilizing our AI prediction technology to bring curated, relevant consumer experiences to these new devices, experiences and formats.
Fundamentally, we plan to continue to make our platform available for media partners on all types of devices and platforms and evolve our business to apply our technology to the most popular methods of media consumption, which now include unique video, high-impact display, and other new media experiences.
Examples of new environments in which content consumption is expected to grow include pre-installed applications on Smartphones, Smartphone content feeds, gaming applications, and push notifications. Additionally, we believe there is a strong opportunity to develop better personalization solutions for the visual and video consumption of news media across the Open Internet.
Through our acquisition of vi in the first quarter of 2022, we expanded our video product offerings to new formats and environments, including pre-roll video formats. With the introduction of Onyx by Outbrain™, we have expanded our investment in applying our AI prediction to these new video and high-impact formats, delivering a curated consumer experience that drives attention for enterprise brands. We plan to continue to evaluate strategic acquisition or investment opportunities as part of our growth strategy in the future.
The development and deployment of new ad formats allow us to better serve consumers, media partners and, ultimately, advertisers who seek to target and engage consumers at scale; we believe this continues to open and grow new types of advertiser demand, while ensuring relevance as the environments in which we operate diversify.
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Investment in Our Technology and Infrastructure
Innovation is a core tenet of our Company and our industry. We plan to continue our investments in our people and our technology in order to retain and enhance our competitive position. For example, improvements to our AI prediction engine help us deliver more relevant ads, driving higher user engagement, thereby improving ROAS for advertisers and increasing monetization for our media partners.
We strongly believe in the transformative power of AI in shaping the future of sustainable media, and have been utilizing AI technology for years to empower both media owners and advertisers in their businesses. We leverage AI in a manner designed to enable media owners to increase their revenues and connect with audiences on their own platforms within the Open Internet. We use machine learning to predict consumer interest and propensity to convert. We make around 1 billion such predictions every second. Our technology has developed into a robust AI machine learning system and is largely homegrown by our Research and Development team. One of the strongest long-term levers in our business is the continuous improvement of our algorithms and the data sets our algorithms learn from. Our direct integrations across our media partners’ properties provide us with a large volume of proprietary first-party data, including context, user interest and behavioral signals. The more data points we have, the better our CTR predictions and yield potential can be.
Our Smartlogic product dynamically adjusts both the arrangement and the formats of content delivered to a user, depending on the user’s preferences and our media partner’s key performance indicators (“KPIs”), designed to provide a tailored and engaging feed experience. We continue to invest in media partner and advertiser focused tools, technology, and products as well as privacy-centric solutions. For example, Keystone by Outbrain™ enables a more holistic management of overall revenue for media owners increasingly focused on revenue diversification.
We believe that our proprietary micro-services, API-based cloud infrastructure provides us with a strategic competitive advantage, as we are able to deploy code hundreds of times per day and grow in a scalable and highly cost-effective manner. As we develop and deploy solutions for enhanced integration of our technologies in new environments, with new content and ad formats, we anticipate activity through our platform to grow. We anticipate that the investment in our technology, infrastructure and solutions will contribute to our long-term growth.
Industry Dynamics
Our business depends on the overall demand for digital advertising, on the continuous success of our current and prospective media partners, and on general market conditions. Digital advertising is a rapidly growing industry, with growth that has outpaced the growth of the broader advertising industry. Content consumption continues to shift online, requiring media owners to adapt in order to successfully attract, engage and monetize their consumers. The soaring volume of online content, amplified by the latest generative AI innovations, has made content curation tools even more essential for consumers and media owners alike.
AI is revolutionizing content creation, distribution, and personalization; automating tasks like video editing, image recognition, and language translation. AI-powered systems are also improving content delivery, helping media platforms suggest relevant movies, shows, articles, and advertisements to consumers. This is especially important at a time when advertisers increasingly anticipate measurable results from their digital advertising investments. Our experience in this space enables us to more nimbly capitalize on the opportunities for media owners and advertisers to leverage AI and automation to engage consumers and optimize their business goals.
Regulators across most developed markets are increasingly focused on enacting and enforcing user privacy rules as well as exerting tighter oversight on the major “walled garden” platforms. Industry participants have recently been, and likely will continue to be, impacted by changes implemented by platform leaders, such as Apple’s change to its Identifier for Advertisers policy and Google’s evolving roadmap pertaining to the use of third-party cookies within its Chrome web browser. See Item 1A, “Risk Factors'' in our 2023 Form 10-K for additional information regarding changing industry dynamics with respect to industry participants and the regulatory environment. Given our focus on context and engagement, the depth and length of our media partner relationships, and our scale, we believe that we are well positioned in the long-term to address and potentially benefit from many of these industry dynamics. Additionally, we are confident that our strength in delivering engagement and clear outcomes for advertisers, built on our proprietary AI prediction engine, aligns well with the ongoing market shift towards increased accountability and expectations of ROAS from digital advertising spend.
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