# Teads Holding Co. (TEAD) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Teads Holding Co.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1454938/000145493825000020/outbrain-20241231.htm
Accession: 0001454938-25-000020
Filing date: 2025-03-07
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TEAD/
All MD&A years: /company/TEAD/mda/
Previous year: /company/TEAD/mda/fy2023/ (FY 2023)
Next year: /company/TEAD/mda/fy2025/ (FY 2025)

Item 7. 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 audited annual consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K (this “Report”). 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 discussed below and elsewhere in this Report, particularly under Item 1A, “Risk Factors” and “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 audited consolidated financial statements and notes thereto. In addition to the audited 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.

Acquisition of Teads

On February 3, 2025, Outbrain Inc. (“Outbrain”) completed the previously announced acquisition (“Acquisition”) of TEADS, a private limited liability company (société anonyme) incorporated and existing under the laws of the Grand Duchy of Luxembourg (“Teads”). The consideration paid at the closing of the Acquisition was approximately $900 million, comprised of a cash payment of $625 million, subject to certain customary adjustments, and 43.75 million shares of the Common Stock.

In this Annual Report on Form 10-K (this “Report”), the financial statements of Outbrain do not include the financial position or results of operations of Teads, since the Acquisition occurred subsequent to year-end.

In this MD&A, except where otherwise stated or indicated by context, references to “Outbrain,” the “Company,” “we,” “our,” or “us” are to Outbrain (together with its subsidiaries) prior to the Acquisition, references to “Teads” are to Teads independently and references to the “Combined Company” are to the combined company following the Acquisition. The Combined Company will operate under the name Teads.

Business Overview

The Combined Company, combining the capabilities of Outbrain and Teads, is a leading omnichannel advertising platform focused on driving outcomes across the Open Internet. The Combined Company is headquartered in New York, New York with various wholly-owned subsidiaries, including in Europe, Israel and Asia.

Both Outbrain and Teads operate a two-sided marketplace, which together, create a scaled end-to-end advertising solution. The Combined Company has direct relationships with both (i) global advertisers including Fortune 500 brands, agency holding companies, and small-to-medium sized businesses, and (ii) media owners spanning premium publishers to connected TV (“CTV”) platforms. The Combined Company generates revenue from advertisers purchasing media owner inventory through its platforms.

The Combined Company’s platform is designed to enable advertisers to not only reach their audiences across the entire Open Internet — from web, to CTV, to app environments — but to drive outcomes from those audiences at each step of the marketing funnel. These outcomes include completed views, post-click engagement, brand uplift, sign-ups, sales, and more. The Combined Company’s solution directly addresses the largest challenges in the advertising industry today — including inefficient supply chains and fragmentation, quality and scale of inventory, and the ability to correlate advertising investment to concrete business outcomes. For advertisers and their agencies, the Combined Company offers a single access point to scaled audiences across premium, curated media environments, with technology solutions that drive outcomes from branding to performance. For media owners, the Combined Company provides both sustainable, year-round advertising revenue and technology solutions to more deeply engage and retain audiences.

By combining the respective sets of exclusive media inventory of Outbrain and Teads, from publishers to CTV, the Combined Company believes it provides a more connected consumer experience across the Open Internet.

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The following is a summary of Outbrain’s performance for the years ended December 31, 2024 and 2023:

•Our revenue was $889.9 million in 2024, compared to $935.8 million in 2023. Revenue for 2024 included net unfavorable foreign currency effects of approximately $2.4 million, and decreased $43.5 million, or 4.7%, on a constant currency basis, compared to the prior year period.

•Our gross profit was $192.1 million and our gross margin was 21.6% in 2024, compared to gross profit of $184.8 million and gross margin of 19.7% in 2023.

•Our Ex-TAC Gross Profit(1) was $236.1 million in 2024, compared to $227.4 million in 2023.

•Our net loss was $0.7 million, or (0.4)% of gross profit in 2024, compared to net income of $10.2 million, or 5.5% of gross profit in 2023. Net loss for 2024 included pre-tax acquisition-related costs of $14.3 million relating to the Teads Acquisition, as well as a pre-tax gain of $8.8 million in connection with our repurchase of the remaining Convertible Notes (as defined below). Net income for 2023 included a pre-tax gain of $22.6 million in connection with our repurchases of the first half of our Convertible Notes.

•Our Adjusted EBITDA(1) was $37.3 million in 2024, compared to $28.5 million in 2023. Adjusted EBITDA(1) was 15.8% and 12.5% of Ex-TAC Gross Profit(1) in 2024 and 2023, respectively.

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(1)Ex-TAC Gross Profit, Adjusted EBITDA and constant currency measures are non-GAAP financial measures. See “Non-GAAP Reconciliations” in this Report for definitions and limitations of these measures, and reconciliations to the comparable U.S. GAAP financial measures.

Recent Developments

Acquisition of Teads

On February 3, 2025, we completed the previously announced Acquisition.

On August 1, 2024, we entered into a definitive share purchase agreement (the “Share Purchase Agreement”) with Altice Teads S.A. (the “Seller” or “Altice Teads”), a public limited liability company (société anonyme) incorporated and existing under the laws of the Grand Duchy of Luxembourg and the sole shareholder of TEADS, a private limited liability company (société anonyme) incorporated and existing under the laws of the Grand Duchy of Luxembourg (“Teads”), and Teads. Pursuant to the Share Purchase Agreement, we agreed to acquire all of the issued and outstanding share capital of Teads on the terms and conditions set forth in the Share Purchase Agreement.

Under the terms of the Share Purchase Agreement, the consideration to be paid at the closing of the Acquisition was: (a) a cash payment of $725 million, subject to certain customary adjustments; (b) 35 million newly issued shares of the Common Stock and (c) 10.5 million newly issued Series A Convertible Preferred Shares, par value $0.001 per share, of Outbrain (the “Preferred Stock”). Additionally, Altice Teads was entitled to a deferred cash payment from Outbrain in an amount equal to $25 million, payable after the closing of the Acquisition in one or more installments, to the extent permitted to be paid in compliance with the covenants under the debt financing agreements entered into by Outbrain in connection with the Acquisition (the “Deferred Payment”).

Pursuant to the terms of the Share Purchase Agreement, the Company and Seller also entered into a stockholders agreement (the “Stockholders Agreement”) at closing. Pursuant to the Stockholders Agreement, the number of directors on the Board of Directors of the Company (the “Company Board”) will be increased by two, and the Seller will have the right to nominate for election to the Company Board two persons, one of whom will be non-affiliated with the Seller and must qualify as an independent director pursuant to the requirements of the Nasdaq Stock Market. The Seller will have the right to nominate (1) two directors until the Seller and its affiliated stockholders cease to hold in the aggregate at least 25% of the total voting power of the outstanding capital stock of the Company and (2) one director until the Seller and its affiliated stockholders cease to hold in the aggregate at least 10% of the total voting power of the outstanding capital stock of the Company, in each case on an as-converted basis. Additionally, commencing on the third anniversary of the closing, Seller will have the right to nominate three directors until such time as the Seller and its affiliated stockholders cease to own at least 30% of the total voting power of the outstanding capital stock of the Company, on an as-converted basis.

The Stockholders Agreement also requires that until such time that the Seller and its affiliated stockholders hold in the aggregate less than 15% of the total voting power of the outstanding capital stock of the Company, on an as-converted basis, the

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Seller will (i) take such action necessary to cause its affiliate stockholders to vote their shares at each meeting of the Company’s stockholders in the same manner as recommended by the Company Board, and (ii) comply with customary standstill restrictions with respect to the Company. The Stockholders Agreement also includes restrictions on the transferability of the Common Stock received as consideration in the Acquisition. The Company and Seller also entered into a registration rights agreement (the “Registration Rights Agreement”) at the time of closing of Acquisition, pursuant to which the Company has provided customary demand and piggyback registration rights to the holders of the Registrable Shares (as defined in the Registration Rights Agreement), which includes the Common Stock received as consideration in the Acquisition.

On February 3, 2025, the parties entered into Amendment No. 1 to the Share Purchase Agreement (the “SPA Amendment”), which revised certain terms of the Share Purchase Agreement. Under the SPA Amendment, the consideration paid at the closing of the Acquisition was: (a) a cash payment of $625 million, subject to certain customary adjustments, and (b) 43.75 million shares of the Common Stock. The parties also agreed to make certain changes to the forms of Stockholder Agreement and Registration Rights Agreement originally attached to the Share Purchase Agreement to reflect the elimination of the creation and issuance of the Preferred Stock, as well as the elimination of the Deferred Payment.

On February 3, 2025, we completed the Acquisition for an aggregate closing day consideration of approximately $0.9 billion, including $625 million in cash, subject to certain customary adjustments, and 43.75 million shares of the Common Stock. Following the closing, the Seller owns approximately 46.6% of the Company’s issued and outstanding shares of the Common Stock (based on the amount of issued and outstanding shares of the Common Stock as of December 31, 2024). We believe that the Acquisition will create one of the largest Open Internet advertising platforms, which is differentiated by its ability to drive outcomes for awareness, consideration, and performance objectives, across CTV, web and mobile applications. See Notes 1, 2, 9 and 16 to the accompanying audited consolidated financial statements for additional information on the Acquisition.

2025 Restructuring Plan

On February 3, 2025, in connection with the completion of the Acquisition, the Combined Company announced a restructuring plan (the “Plan”), involving a reduction in workforce, as part of its efforts to streamline operations and reduce duplication of roles. The Combined Company estimates that it will incur approximately $20 million to $25 million in charges in connection with the Plan, of which approximately $18 million to $24 million is expected to be incurred in 2025. These charges will consist primarily of severance and related costs.

The actions associated with the employee restructuring under the Plan were initiated in February and are expected to be implemented in large part by the second quarter of 2025, and completed by the first quarter of 2026. The estimates of the charges and expenditures that the Combined Company expects to incur in connection with the Plan, and the timing thereof, are subject to a number of assumptions, and actual amounts may differ materially from estimates. In addition, the Combined Company may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the Plan.

Credit Agreements

In connection with the entry into the Share Purchase Agreement on August 1, 2024, the Company entered into a debt commitment letter, dated August 1, 2024, with Goldman Sachs Bank USA, Jefferies Finance LLC and Mizuho Bank, LTD, pursuant to which these parties committed to provide (i) a $100 million senior secured revolving credit facility and (ii) a senior secured bridge facility in an aggregate principal amount of up to $750 million.

Subsequently, on February 3, 2025 (the “Credit Facilities Closing Date” or “Acquisition Closing Date”), in connection with the completion of the Acquisition, Outbrain and its wholly-owned subsidiary, OT Midco Inc. (“Midco”), entered into a credit agreement (the “Credit Agreement”) among the Company, Midco, the additional borrowers party thereto from time to time, Goldman Sachs Bank USA, as sole administrative agent and swingline lender, U.S. Bank Trust Company, National Association, as the collateral agent, and the lenders, issuing banks and arrangers party thereto from time to time. The Credit Agreement provided for (a) a super senior secured revolving credit facility in an aggregate principal amount of $100.0 million (the “2025 Revolving Facility”) and (b) a senior secured bridge term loan credit facility in an aggregate principal amount of $625.0 million (the “Bridge Facility” and, together with the Revolving Facility, the “Credit Facilities”). See the “Liquidity and Capital Resources” section below and Note 16 to the accompanying audited consolidated financial statements for additional information regarding the Credit Facilities. On the Credit Facilities Closing Date, Midco borrowed $625 million in aggregate principal amount under the Bridge Facility (the “Bridge Loans”). The proceeds of the Bridge Loans were used to finance the consideration for the Acquisition and to pay related transaction fees, costs and expenses. The 2025 Revolving Facility may be used for working capital and other general corporate purposes of the Company and its subsidiaries.

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Further, on the Credit Facilities closing date, in connection with the entry into the Credit Agreement described above, the Company terminated the Second Amended and Restated Loan and Security Agreement, dated as of November 2, 2021, by and among the Company, Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, Zemanta Holding USA Inc. and Zemanta Inc. (“2021 Facility”).

Senior Secured Notes

On February 11, 2025, Midco completed a private offering (the “Offering”) of $637.5 million in aggregate principal amount of 10.000% senior secured notes due 2030 (the “Notes”) at an issue price of 98.087% of the principal amount thereof in a transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). See the “Liquidity and Capital Resources” section below and Note 16 to the accompanying audited consolidated financial statements for additional information regarding the Notes.

The proceeds from the Offering were used, together with cash on hand, to (i) repay in full and cancel the indebtedness incurred under the Bridge Facility, including accrued and unpaid interest thereon, that was used to finance and pay costs related to the acquisition of Teads, as well as pay fees and expenses incurred in connection with the Offering and the Bridge Facility refinancing.

Repurchase of Outstanding Convertible Notes

On September 19, 2024, we repurchased the remaining $118.0 million aggregate principal amount of our 2.95% Convertible Senior Notes due 2026 (the “Convertible Notes”) out of the initially issued principal balance of $236.0 million via a privately negotiated repurchase agreement with Baupost Group Securities, L.L.C., the sole holder of the Convertible Notes, for approximately $109.7 million in cash, including accrued interest, representing a discount of approximately 7.5% to the principal amount of the repurchased notes. As a result, we recorded a pre-tax gain of approximately $8.8 million within gain on convertible debt in the Company’s consolidated statement of operations for the year ended December 31, 2024. Following the closing of the repurchase, the repurchased notes were cancelled by The Bank of New York Mellon (the “Trustee”), and there were no Convertible Notes outstanding as of December 31, 2024.

Conditions in Israel

Many of the Combined Company’s 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 the Combined Company’s business and operations. Following the October 7th attacks by Hamas terrorists in Israel's southern border, Israel declared war against Hamas and since then, Israel has been involved in military conflicts with Hamas, Hezbollah, a terrorist organization based in Lebanon, and Iran, both directly and through proxies like the Houthi movement in Yemen and armed groups in Iraq and other terrorist organizations. Additionally, following the fall of the Assad regime in Syria, Israel has conducted limited military operations targeting the Syrian army, Iranian military assets and infrastructure linked to Hezbollah and other Iran-supported groups. Although certain ceasefire agreements have been reached with Hamas and Lebanon (with respect to Hezbollah), and some Iranian proxies have declared a halt to their attacks, there is no assurance that these agreements will be upheld, military activity and hostilities continue to exist at varying levels of intensity, and the situation remains volatile, with the potential for escalation into a broader regional conflict involving additional terrorist organizations and possibly other countries.

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 the Combined Company’s 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, Hezbollah, and the other terror organizations is difficult to predict and the Combined Company is continuing to monitor the situation and assessing its potential impact on its business.

The Combined Company cannot attribute the impact of the current trends in advertising demand to any particular factor, including the conditions in Israel, and cannot predict the impact if the war continues or escalates further. See Item 1A “Risk Factors” included in this Report for more information regarding certain risks associated with the Israel-Hamas conflict.

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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 geopolitical tensions, including the effects of the wars between Russia-Ukraine and Israel-Hamas and the expansion of such conflicts, the U.S. presidential administration transition and general economic uncertainty. The current macroeconomic environment, with variables such as inflation, increased interest rates, tariffs and trade wars, bank disruptions, recessionary concerns, bankruptcies, currency exchange rate fluctuations, global supply chain disruptions, and labor market volatility, has negatively impacted the Combined Company’s advertisers. Accordingly, these conditions have adversely impacted the Combined Company’s business and could, if they continue or worsen, adversely impact the Combined Company in the future, including if its advertisers were to reduce or further reduce their advertising spending as a result of any of these factors. The Combined Company continues to monitor its operations, and the operations of those in its ecosystem (including media partners, advertisers, and agencies). These conditions make it difficult for the Combined Company, its 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 the Combined Company’s advertisers’ ability to pay, which would negatively impact the Combined Company’s business, financial condition, and results of operations.

Factors Affecting the Combined Company’s Business

Retention and Growth of Relationships with Media Partners

The Combined Company relies on its relationships with its media partners for a significant portion of its advertising inventory and its corresponding ability to drive advertising revenue. To further strengthen these relationships, the Combined Company continuously invests in its technology and product functionality to drive user engagement and monetization by (i) improving its algorithms, referred to as its AI prediction engine; (ii) attracting and procuring relevant demand; (iii) expanding the adoption of its enhanced products by media partners; and (iv) expanding its demand capabilities to new formats.

The Combined Company’s relationships with media partners are typically long-term, exclusive, and strategic in nature. Outbrain’s top 20 media partners, based on its 2024 revenue, have been using its platform for an average of seven years, despite their typical contract length being two to four years. At Outbrain, net revenue retention has been an important indicator of media partner satisfaction, the value of its platform, as well as its ability to grow revenue from existing relationships.

At Outbrain, media partner net revenue retention is calculated 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. Outbrain’s media partner net revenue retention was approximately 88% for the year ended December 31, 2024 and approximately 86% for the year ended December 31, 2023.

The Combined Company’s growth also depends on its 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. For Outbrain, revenue generated on new media partners’ properties contributed approximately 6% to revenue growth for the year ended December 31, 2024 and approximately 8% for the year ended December 31, 2023.

The Combined Company’s growth depends on media partners’ ability to drive traffic to their properties, including websites, apps, streaming services and more. The proliferation of social media properties and other platforms, as well as the adoption of AI have negatively impacted and may continue to negatively impact the Combine Company’s media partners’ growth.

User Engagement with Relevant Media and Advertising Content

Driving attention and engagement is the key pillar of the Combined Company’s platform that drives value for consumers, media partners, and advertisers. The Combined Company’s AI prediction algorithm manages this dynamic, matching consumers with editorial and advertiser experiences that will deliver attention and engagement across the Open Internet. The Combined Company believes that the user experience has a profound impact on long term user behavior patterns and thus

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“compounds” over time, improving its long-term monetization prospects. This principle guides the Combined Company’s behavior and, as a result, it strives to compound consumer attention and engagement, continually enhancing value for both advertisers and media owners.

Growth in attention and engagement is driven by several factors, including enhancements to the Combined Company’s AI prediction technology, growth in the breadth and depth of its data assets, the size and quality of its content and advertising index, user engagement, new media partners, expansion on existing media partners and expansion to new media environments and formats. As the Combined Company grows attention and engagement, it is able to collect more data and continually improve its prediction engine, which drives better results for its advertiser and media owner partners. This growth “flywheel” can be measured by growth of the consumer data points the Combined Company drives, such as click-through-rate (“CTR”). CTR improvements increase the number of clicks on its platform. The Combined Company believes that it has a significant opportunity to further grow consumer engagement, and thus its business, as today CTR for ads on its platform is less than 1% of ads served.

Advertiser Retention and Growth

The Combined Company’s engine serves the ad experiences that are predicted to deliver high attention or engagement, rather than prioritizing simply based on price of the ads. The Combined Company believes this approach leads to better ROAS for advertisers, whether they are focused on driving a performance outcome, or a branding outcome. The Combined Company’s growth is partially driven by retaining and expanding the amount of spend by advertisers on its platform, as well as by acquiring new advertisers. Through Outbrain’s recent acquisition of Teads, the Combined Company has expanded its total addressable market to now include top of the funnel marketing, while also attracting more diverse, premium demand. The Combined Company views its full-funnel offering of both branding and performance capabilities as an opportunity to increase its share of wallet from advertisers and agencies. In addition, Teads’ joint business partnerships represent a significant overall portion of Teads revenue and are strategic for driving advertiser retention and growth.

The Combined Company continually invests in enhancements to its platform that allow advertisers to drive concrete business outcomes and ROAS. In particular, the Combined Company is expanding its usage of AI to automate manual tasks in campaign set up and optimization, and to enhance advertiser creative and landing page performance. Teads has also historically invested in supporting advertisers with developing creative ads across formats, as a value added service to its advertisers.

Prices paid by advertisers on the Combined Company’s platform fluctuate period to period for a variety of reasons, including supply and demand balance, macroeconomic conditions, and seasonality. In order to grow the Combined Company’s revenue and Ex-TAC Gross Profit and maximize value for its advertisers and media partners, its focus as a business is on driving business outcomes and ROAS for advertisers, not on optimizing for price.

For the year ended December 31, 2024, over twenty thousand unique advertisers were active on Outbrain’s owned and operated platform, in addition to the thousands of advertisers who access the platform through Outbrain’s programmatic partnerships.

Expansion Into New Environments, New Experiences and New Ad Formats

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, the Combined Company is focused on utilizing its AI prediction technology to bring curated, relevant consumer experiences to these new devices, experiences and formats.

Fundamentally, the Combined Company plans to continue to make its platform available for media partners on all types of devices and platforms and evolve its business to apply its technology to the most popular methods of media consumption, which now include unique video, high-impact display, and other new media experiences, such as Moments, Outbrain’s vertical video offering launched in 2024.

Examples of new environments in which content consumption is expected to grow include pre-installed applications on Smartphones, Smartphone content feeds, gaming applications, push notifications, and CTV. Through the acquisition of Teads, the Combined Company has created an omnichannel outcomes platform, enabling advertisers to not only reach their audiences across the entire Open Internet — from web, to CTV, to app environments — but to drive outcomes from those audiences at each step of the marketing funnel.

The development and deployment of new ad formats allow the Combined Company to better serve consumers, media partners and, ultimately, advertisers who seek to target and engage consumers at scale; the Combined Company believes this continues to open and grow new types of advertiser demand, while ensuring relevance as the environments in which it operates diversify.

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Investment in the Combined Company’s Technology

Innovation is a core tenet of the Combined Company and its industry. The Combined Company plans to continue its investments in its people and its technology in order to retain and enhance its competitive position. For example, improvements to the Combined Company’s AI prediction engine or use of additional data signals, help it deliver more relevant ads, driving higher user engagement, thereby improving ROAS for advertisers and increasing monetization for its media partners.

The Combined Company strongly believes in the transformative power of AI in shaping the future of sustainable media, and Outbrain has been utilizing AI technology for years to empower both media owners and advertisers in their businesses. The Combined Company leverages 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. The Combined Company uses machine learning to predict consumer interest and propensity to convert ads to sales. The Combined Company’s technology has developed into a robust AI machine learning system and is largely homegrown by its Research and Development team. One of the strongest long-term levers in the Combined Company’s business is the continuous improvement of its algorithms and the data sets its algorithms learn from. The Combined Company’s direct integrations across its media partners’ properties provide it with a large volume of proprietary first-party data, including context, user interest and behavioral signals. The more data points the Combined Company has, the better its advertisers’ ROAS, and yield potential can be.

Outbrain’s Smartlogic product dynamically adjusts both the arrangement and the formats of content delivered to a user, depending on the user’s preferences and a media partner’s key performance indicators, designed to provide a tailored and engaging feed experience. The Combined Company continues to invest in media partner and advertiser focused tools, technology, and products as well as privacy-centric solutions.

Industry Dynamics

The Combined Company’s business depends on the overall demand for digital advertising, on the continuous success of its 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. The Combined Company’s experience in this space enables it 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 this Report for additional information regarding changing industry dynamics with respect to industry participants and the regulatory environment. Given the Combined Company’s focus on context and engagement, the depth and length of its media partner relationships, and its scale, the Combined Company believes that it is well positioned in the long-term to address and potentially benefit from many of these industry dynamics. Additionally, the Combined Company is confident that its strength in delivering engagement and clear outcomes for advertisers, built on its proprietary AI prediction engine, aligns well with the ongoing market shift towards increased accountability and expectations of ROAS from digital advertising spend.

Seasonality

The global advertising industry experiences seasonal trends that affect most participants in the digital advertising ecosystem. The Combined Company’s revenue has generally fluctuated from quarter to quarter as a result of a variety of factors, including seasonality, as many advertisers allocate the largest portion of their budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing, as well as the timing of advertising budget cycles. Historically, the fourth quarter of the year has reflected the highest levels of advertiser spending, and the first quarter generally has reflected the lowest level of advertiser spending.

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In addition, expenditures by advertisers tend to be cyclical and discretionary in nature, reflecting changes in brand advertising strategy, budgeting constraints, and buying patterns, and a variety of other factors, many of which are outside of the Combined Company’s control. The quarterly rate of increase in traffic acquisition costs is generally commensurate with the quarterly rate of increase in revenue. However, traffic acquisition costs have, at times, grown at a faster or slower rate than revenue, primarily due to the mix of the revenue generated or contracted terms with media partners. The Combined Company generally expects these seasonal trends to continue, though historical seasonality may not be predictive of future results given the potential for changes in advertising buying patterns and macroeconomic conditions. These trends will affect the Combined Company’s operating results and the Combined Company expect its revenue to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole.

Outbrain’s Definitions of Outbrain Financial and Performance Measures

Revenue

Outbrain generates revenue from advertisers through ads that we deliver across a variety of media partner properties. We charge advertisers for clicks on and, to a lesser extent, impressions of their ads, depending on how they choose to contract with us. We recognize revenue in the period in which the click or impression occurs.

The amount of revenue that we generate depends on the level of demand from advertisers to promote their content to users across our media partners’ properties. We generate higher revenue at times of high demand, which is also impacted by seasonal factors. For any given marketing campaign, the advertiser has the ability to adjust its price in real time and set a maximum spend. This allows advertisers to adjust the estimated ad spend attributable to the particular campaign. Due to the measurable performance that our advertisers achieve with us, a portion of our advertisers increase their level of spend with us over time as long as their ROAS objectives are met.

Our agreements with advertisers provide them with considerable flexibility to modify their overall budget, price (cost-per-click or cost-per-impression), and the ads they wish to deliver on our platform.

Traffic Acquisition Costs

We define traffic acquisition costs (“TAC”) as amounts owed to media partners for their share of the revenue we generated on their properties. We incur traffic acquisition costs in the period in which the revenue is recognized. Traffic acquisition costs are based on the media partners’ revenue share or, in some circumstances, based on a guaranteed minimum rate of payment from us in exchange for guaranteed placement of our ads on specified portions of the media partner’s digital properties. These guaranteed rates are typically provided per thousand qualified page views, whereas our minimum monthly payment to the media partner may fluctuate based on how many qualified page views the media partner generates, subject to a maximum guarantee. As such, traffic acquisition costs may not correlate with fluctuations in revenue, and our rates may remain fixed even with a decrease in revenue. Traffic acquisition costs also include amounts payable to programmatic supply partners.

Other Cost of Revenue

Other cost of revenue consists of costs related to the management of our data centers, hosting fees, data connectivity costs and depreciation and amortization. Other cost of revenue also includes the amortization of capitalized software that is developed or obtained for internal use associated with our revenue-generating technologies.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing and general and administrative expenses. The largest component of our operating expenses is personnel costs. Personnel costs consist of wages, benefits, bonuses, stock-based compensation and, with respect to sales and marketing expenses, sales commissions.

Research and Development. Research and development expenses are related to the development and enhancement of our platform and consist primarily of personnel and the related overhead costs, amortization of capitalized software for non-revenue generating infrastructure and facilities costs.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel and the related overhead costs for personnel engaged in marketing, advertising, client services, and promotional activities. These expenses also include advertising and promotional spend on media, conferences, and other events to market our services, and facilities costs.

General and Administrative. General and administrative expenses consist primarily of personnel and the related overhead costs, professional fees, facilities costs, insurance, and certain taxes other than income taxes. General and administrative personnel costs include, among others, our executive, finance, human resources, information technology and legal functions. Our

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professional service fees consist primarily of accounting, audit, tax, legal, information technology and other consulting costs, including our implementation of and compliance with Sarbanes-Oxley Act requirements.

Other Income, Net

Other income, net is comprised of gain on convertible debt, interest expense, and interest income and other income, net.

Gain on convertible debt. In April 2023, we repurchased $118.0 million of our Convertible Notes at a discount of approximately 19% of the principal amount and recorded a pre-tax gain of $22.6 million. In September 2024, we repurchased the remaining $118.0 million of our Convertible Notes at a discount of approximately 7.5% of the principal amount and recorded a pre-tax gain of $8.8 million.

Interest Expense. Interest expense consists of interest expense on the Convertible Notes, our 2021 revolving credit facility and capital leases. Interest expense may increase if we incur any borrowings under our revolving credit facility or if we enter into new debt facilities or capital leasing arrangements.

Interest Income and Other Income, net. Interest income and other income, net primarily consists of interest earned on our cash, cash equivalents and investments in marketable securities, discount amortization on our investments in marketable securities, and foreign currency exchange gains and losses. Foreign currency exchange gains and losses, both realized and unrealized, relate to transactions and monetary asset and liability balances denominated in currencies other than the functional currencies, including mark-to-market adjustments on undesignated foreign exchange forward contracts. Foreign currency gains and losses may continue to fluctuate in the future due to changes in foreign currency exchange rates.

Provision for Income Taxes

Provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions, as well as deferred income taxes and changes in valuation allowance, reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Realization of our deferred tax assets depends on the generation of future taxable income. In considering the need for a valuation allowance, we consider our historical and future projected taxable income, as well as other objectively verifiable evidence, including our realization of tax attributes, assessment of tax credits and utilization of net operating loss carryforwards.

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Results of Operations

Outbrain has one operating segment, which is also our reportable segment. The following tables set forth our results of operations for the periods presented:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","2023"],["","(In thousands)"],["Consolidated Statements of Operations:"],["Revenue","","$","889,875","","$","935,818"],["Cost of revenue:"],["Traffic acquisition costs","","653,731","","708,449"],["Other cost of revenue","","44,042","","42,571"],["Total cost of revenue","","697,773","","751,020"],["Gross profit","","192,102","","184,798"],["Operating expenses:"],["Research and development","","37,080","","36,402"],["Sales and marketing","","97,498","","98,370"],["General and administrative","","70,162","","58,665"],["Total operating expenses","","204,740","","193,437"],["Loss from operations","","(12,638)","","(8,639)"],["Other income (expense), net:"],["Gain on convertible debt","","8,782","","22,594"],["Interest expense","","(3,649)","","(5,393)"],["Interest income and other income, net","","9,209","","7,793"],["Total other income, net","","14,342","","24,994"],["Income before provision for income taxes","","1,704","","16,355"],["Provision for income taxes","","2,415","","6,113"],["Net (loss) income","","$","(711)","","$","10,242"],["Other Financial Data:"],["Research and development as % of revenue","","4.2","%","","3.9","%"],["Sales and marketing as % of revenue","","11.0","%","","10.5","%"],["General and administrative as % of revenue","","7.9","%","","6.3","%"],["Ex-TAC Gross Profit (1)","","$","236,144","","$","227,369"],["Adjusted EBITDA (1)","","$","37,300","","$","28,455"]]
[[/GREPCENT_TABLE]]

______________________

(1)Ex-TAC Gross Profit and Adjusted EBITDA are non-GAAP financial measures. 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.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Revenue

Revenue decreased $45.9 million, or 4.9%, to $889.9 million in 2024 from $935.8 million in 2023. Revenue for 2024 included net unfavorable foreign currency effects of approximately $2.4 million, and decreased $43.5 million, or 4.7%, on a constant currency basis, compared to the prior year period. Our reported revenue decreased approximately $107 million due to net revenue retention of 88% on existing media partners, as we have experienced lower ad impressions from certain supply partners. This decrease was partially offset by growth of approximately 6.0%, or $60 million, from new media partners.

See “Non-GAAP Reconciliations” for information regarding the constant currency measures provided in this discussion and below to supplement our reported results.

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Cost of Revenue and Gross Profit

Traffic acquisition costs decreased $54.7 million, or 7.7%, to $653.7 million in 2024, compared to $708.4 million in the prior year period. Traffic acquisition costs included net favorable foreign currency effects of approximately $1.1 million, and decreased $53.6 million, or 7.6%, on a constant currency basis, compared to the prior year period. The decrease in traffic acquisition costs was primarily related to the decrease in our revenue, a net favorable change in our revenue mix and improved performance from certain deals. As a percentage of revenue, traffic acquisition costs decreased 220 basis points to 73.5% in 2024, from 75.7% in 2023.

Other cost of revenue increased $1.5 million, or 3.5%, to $44.0 million in 2024, compared to $42.5 million in the prior year period, primarily due to higher hosting costs, partially offset by lower server depreciation expense and network costs. As a percentage of revenue, other cost of revenue increased 40 basis points to 4.9% in 2024 from 4.5% in 2023.

Gross profit increased $7.3 million, or 4.0%, to $192.1 million in 2024, compared to $184.8 million in 2023. This increase was largely attributable to lower traffic acquisition costs, partially offset by lower revenue, as previously described. Gross profit for 2024 included net unfavorable foreign currency effects of approximately $1.3 million, and increased $8.6 million, or 4.6%, on a constant currency basis, compared to the prior year period.

Ex-TAC Gross Profit

Our Ex-TAC Gross Profit increased $8.7 million, or 3.9%, to $236.1 million in 2024, from $227.4 million in 2023. Ex-TAC Gross Profit for 2024 included net unfavorable foreign currency effects of approximately $1.3 million, and increased $10.0 million, or 4.4%, on a constant currency basis, compared to the prior year period. The increase in Ex-TAC Gross Profit was primarily attributable to the net favorable change in our revenue mix and improved performance from certain deals, partially offset by lower revenue. See “Non-GAAP Reconciliations” for the related definition and reconciliations to our gross profit.

Operating Expenses

Operating expenses increased by $11.3 million, or 5.8%, to $204.7 million in 2024, from $193.4 million in 2023. The reported increase in operating expenses was primarily attributable to higher professional fees of $13.0 million (including acquisition-related costs of $14.3 million in 2024, offset in part by the absence of the prior period regulatory matter costs of $0.7 million). The increase in operating expenses was also driven by a $2.7 million increase in personnel-related costs (including lower severance costs of $2.8 million), largely driven by higher incentive-based compensation. These increases were partially offset by a $5.0 million decrease in our provision for credit losses.

The components of operating expenses are discussed below:

•Research and development expenses — increased $0.7 million, primarily due to slightly higher personnel-related and office costs.

•Sales and marketing expenses — decreased $0.9 million, primarily due to lower personnel-related costs largely attributable to lower severance and related costs in 2024 as compared to 2023.

•General and administrative expenses — increased $11.5 million, primarily attributable to higher professional fees of $12.9 million (inclusive of acquisition-related costs of $14.3 million in 2024, offset in part by the absence of the prior period regulatory matter costs of $0.7 million), and higher personnel costs of $3.4 million largely driven by increased incentive-based compensation costs. These increases were partially offset by a $5.0 million decrease in the provision for credit losses.

Operating expenses as a percentage of revenue increased 230 basis points to 23.0% in 2024 from 20.7% in 2023, primarily attributable to increased acquisition-related costs and lower revenue.

Total Other Income, Net

Total other income, net, decreased $10.7 million to $14.3 million in 2024, compared to $25.0 million in 2023, primarily driven by a lower pre-tax gain of $13.8 million recorded in 2024, as compared to 2023, in connection with the repurchases of our Convertible Notes. The decrease in other income, net was also attributable to an unfavorable change of $2.4 million in mark-to-market adjustments on undesignated foreign exchange forward contracts used to manage our foreign currency exchange risk on net cash flows from our non-U.S. dollar denominated operations. These decreases were partially offset by an increase of $4.3 million resulting from the remeasurement of transactions denominated in currencies other than the functional currencies, as well

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as reduced interest expense of $1.7 million due to the lower outstanding principal balance of Convertible Notes, which were repurchased in September 2024.

Provision for Income Taxes

Provision for income taxes was $2.4 million in 2024, compared to $6.1 million in 2023. Our effective tax rate was 141.7% in 2024, compared to 37.4% in 2023, primarily due to the limited pre-tax income in 2024 magnifying the impact of certain unfavorable tax rate reconciling items such as non-deductible transaction costs, partially offset by favorable items such as a release of valuation allowance.

The Company has evaluated the potential impact of the Organization for Economic Cooperation and Development’s (“OECD”) Pillar Two Global Minimum Tax framework, which introduces a global minimum tax rate of 15% for multinational enterprises. Based on this evaluation, and the legislation currently enacted globally, the Company does not anticipate any material impact on its consolidated financial statements at this time. The Company has determined that it meets the transitional Country-by-Country Reporting safe harbor tests in all jurisdictions where it operates and, as a result, does not expect to be subject to any top-up tax under the OECD Pillar Two rules for the 2024 fiscal year.

A provision enacted as part of the 2017 Tax Cuts & Jobs Act requires companies to capitalize certain research and experimental expenditures for tax purposes in tax years beginning after December 31, 2021. As a result, as of December 31, 2024, the Company’s U.S. federal net operating losses have been fully utilized, with the exception of those subject to the annual limitation provided for in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), which resulted in higher cash taxes and lower effective tax rate due to a deduction related to foreign-derived intangible income.

Our future effective tax rate may be affected by the geographic mix of earnings in countries with different statutory rates. Additionally, our future effective tax rate may be affected by our ongoing assessment of the need for a valuation allowance on our deferred tax assets or liabilities, or changes in tax laws, regulations, or accounting principles, tax planning initiatives, as well as certain discrete items.

Net (Loss) Income

As a result of the foregoing, we recorded net loss of $0.7 million in 2024, as compared to net income of $10.2 million in 2023. As previously discussed, our net loss for 2024 included pre-tax acquisition-related costs of $14.3 million relating to the Acquisition, as well as pre-tax gains of $8.8 million in connection with our repurchase of the remaining Convertible Notes. Our net income for 2023 included a pre-tax gain of $22.6 million in connection with our repurchases of the first half of our Convertible Notes.

Adjusted EBITDA

Our Adjusted EBITDA increased $8.8 million to $37.3 million in 2024 from $28.5 million in 2023, primarily due to higher Ex-TAC Gross Profit, as previously described. Our Adjusted EBITDA for 2024 included net unfavorable foreign currency effects of approximately $1.2 million. See “Non-GAAP Reconciliations” for the related definitions of Adjusted EBITDA and reconciliations to our net income (loss).

Non-GAAP Reconciliations

Because we are a global company, the comparability of our operating results is affected by foreign exchange fluctuations. We calculate certain constant currency measures and foreign currency impacts by translating the current year’s reported amounts into comparable amounts using the prior year’s exchange rates. All constant currency financial information being presented is non-GAAP and should be used as a supplement to our reported operating results. We believe that this information is helpful to our management and investors to assess our operating performance on a comparable basis. However, these measures are not intended to replace amounts presented in accordance with U.S. GAAP and may be different from similar measures calculated by other companies.

We present Ex-TAC Gross Profit, Adjusted EBITDA, Adjusted EBITDA as a percentage of Ex-TAC Gross Profit, and Free Cash Flow because they are key profitability measures used by our management and the Board to understand and evaluate our operating performance and trends, develop short-term and long-term operational plans, and make strategic decisions regarding the allocation of capital. Accordingly, we believe that these measures provide information to investors and the market in understanding and evaluating our operating results in the same manner as our management and the Board.

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These non-GAAP financial measures are defined and reconciled to the corresponding U.S. GAAP measures below. These non-GAAP financial measures are subject to significant limitations, including those identified below. In addition, other companies in our industry may define these measures differently, which may reduce their usefulness as comparative measures. As a result, this information should be considered as supplemental in nature and is not meant as a substitute for revenue, gross profit, net income (loss) or net cash provided by operating activities presented in accordance with U.S. GAAP.

Ex-TAC Gross Profit

Ex-TAC Gross Profit is a non-GAAP financial measure. Gross profit is the most comparable U.S. GAAP measure. In calculating Ex-TAC Gross Profit, we add back other cost of revenue to gross profit. Ex-TAC Gross Profit may fluctuate in the future due to various factors, including, but not limited to, seasonality and changes in the number of media partners and advertisers, advertiser demand or user engagements.

There are limitations on the use of Ex-TAC Gross Profit in that traffic acquisition cost is a significant component of our total cost of revenue but not the only component and, by definition, Ex-TAC Gross Profit presented for any period will be higher than gross profit for that period. A potential limitation of this non-GAAP financial measure is that other companies, including companies in our industry which have a similar business, may define Ex-TAC Gross Profit differently, which may make comparisons difficult. As a result, this information should be considered as supplemental in nature and is not meant as a substitute for revenue or gross profit presented in accordance with U.S. GAAP.

The following table presents the reconciliation of Ex-TAC Gross Profit to gross profit, the most directly comparable U.S. GAAP measure, for the periods presented:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","2023"],["","(In thousands)"],["Revenue","","$","889,875","","","$","935,818"],["Traffic acquisition costs","","(653,731)","","","(708,449)"],["Other cost of revenue","","(44,042)","","","(42,571)"],["Gross profit","","192,102","","","184,798"],["Other cost of revenue","","44,042","","","42,571"],["Ex-TAC Gross Profit","","$","236,144","","","$","227,369"]]
[[/GREPCENT_TABLE]]

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) before gain related to convertible debt; interest expense; interest income and other income, net; provision for income taxes; depreciation and amortization; stock-based compensation, and other income or expenses that we do not consider indicative of our core operating performance, including, but not limited to merger and acquisition costs, regulatory matter costs, and severance costs related to our cost saving initiatives. We present Adjusted EBITDA as a supplemental performance measure because we believe it facilitates operating performance comparisons from period to period.

We believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and the Board. However, our calculation of Adjusted EBITDA is not necessarily comparable to non-GAAP information of other companies. Adjusted EBITDA should be considered as a supplemental measure and should not be considered in isolation or as a substitute for any measures of our financial performance that are calculated and reported in accordance with U.S. GAAP.

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The following table presents the reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable U.S. GAAP measure, for the periods presented:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","2023"],["","(In thousands)"],["Net (loss) income","","$","(711)","","","$","10,242"],["Interest expense","","3,649","","","5,393"],["Interest income and other income, net","","(9,209)","","","(7,793)"],["Gain related to convertible debt","","(8,782)","","","(22,594)"],["Provision for income taxes","","2,415","","","6,113"],["Depreciation and amortization","","19,479","","","20,702"],["Stock-based compensation","","15,461","","","12,141"],["Regulatory matter costs, net of insurance proceeds","","\u2014","","","742"],["Merger and acquisition costs(1)","","14,256","","","\u2014"],["Severance costs","","742","","","3,509"],["Adjusted EBITDA","","$","37,300","","","$","28,455"],["Net (loss) income as % of gross profit","","(0.4)","%","","5.5","%"],["Adjusted EBITDA as % of Ex-TAC Gross Profit","","15.8","%","","12.5","%"]]
[[/GREPCENT_TABLE]]

_________________________

(1)Primarily includes costs related to our acquisition of Teads

Free Cash Flow

Free cash flow is defined as cash flow provided by operating activities, less capital expenditures and capitalized software development costs. Free cash flow is a supplementary measure used by our management and the Board to evaluate our ability to generate cash and we believe it allows for a more complete analysis of our available cash flows. Free cash flow should be considered as a supplemental measure and should not be considered in isolation or as a substitute for any measures of our financial performance that are calculated and reported in accordance with U.S. GAAP.

The following table presents the reconciliation of free cash flow to net cash provided by operating activities.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["","(In thousands)"],["Net cash provided by operating activities","$","68,561","","","$","13,746"],["Purchases of property and equipment","(7,380)","","","(10,127)"],["Capitalized software development costs","(9,913)","","","(10,107)"],["Free cash flow","$","51,268","","","$","(6,488)"]]
[[/GREPCENT_TABLE]]

LIQUIDITY AND CAPITAL RESOURCES

The Combined Company regularly evaluates the cash requirements for its operations, commitments, acquisitions, development activities and capital expenditures and manages its liquidity risk in a manner consistent with its corporate priorities. The Combined Company’s current investment program is focused on achieving maximum returns within its investment policy parameters, while preserving capital and maintaining sufficient liquidity.

The Combined Company believes that its operating cash flow, cash and cash equivalents and investments, and available borrowing capacity, will be sufficient to fund its anticipated operating expenses and capital expenditures for at least the next 12 months and the foreseeable future. However, there are multiple factors that could impact the Combined Company’s future liquidity, including its business performance, ability to collect payments from advertisers, having to pay media partners even if advertisers default on their payments, or other factors described under Item 1A “Risk Factors” included in this Report.

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Sources of Liquidity

The Combined Company’s primary sources of liquidity are cash receipts from its advertisers, cash and cash equivalents, investments in marketable securities, and the available capacity under its revolving credit facilities discussed below.

While Outbrain’s collections during the three months ended March 31, 2023 were negatively impacted by the closure of Silicon Valley Bank, we have historically experienced higher cash collections during our first quarter due to seasonally strong fourth quarter sales, and, as a result, our working capital needs typically decrease during the first quarter. The Combined Company generally expects these trends to continue in future periods.

As of December 31, 2024, in addition to cash flow from our operations, Outbrain’s available liquidity was as follows:

[[GREPCENT_TABLE]]
[["","","December 31, 2024"],["","","(In thousands)"],["Cash and cash equivalents (1)","","$","89,094"],["Short-term investments","","77,035"],["Revolving Credit Facility (2)","","58,125"],["Total","","$","224,254"]]
[[/GREPCENT_TABLE]]

__________________________

(1) As of December 31, 2024, approximately $31.9 million of our cash and cash equivalents was held outside of the United States by our non-U.S. subsidiaries. As of December 31, 2024, we plan to either reinvest indefinitely our earnings from our foreign subsidiaries or repatriate them tax neutrally. The Combined Company is in the process of evaluating its cash requirements post-Acquisition. If future earnings are repatriated and the Combined Company is unable to do it in a tax neutral manner, it may be required to accrue and pay additional taxes, including any applicable foreign withholding tax and income taxes.

(2) Our Second Amended and Restated Loan and Security Agreement, as amended by the First Amendment thereto, 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. Our borrowing availability under the Facility is calculated by reference to a borrowing base which is determined by specified percentages of eligible accounts receivable, based on the defined borrowing formula. The Facility was scheduled to terminate on November 2, 2026. However, in connection with the entry into the Credit Agreement upon the closing of the Acquisition, this Facility was early terminated on February 3, 2025, and replaced with the new 2025 Revolving Facility, as defined below.

The Facility contained 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 included events of default and customary affirmative and negative covenants applicable to us and our 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 contained a financial covenant that required, in the event that credit extensions under the Facility equal or exceed 85% of the lesser of the available commitments under the Facility or upon the occurrence of an event of default, our Company to maintain a minimum consolidated monthly fixed charge coverage ratio of 1.00. We were in compliance with all of the financial covenants under the 2021 Revolving Credit Facility as of December 31, 2024 and December 31, 2023.

February 2025 Credit Agreement

As discussed above, on the Credit Facilities Closing Date, the Company and Midco entered into the Credit Agreement. The Credit Agreement established the Credit Facilities, including the 2025 Revolving Facility and the Bridge Facility. The Bridge Facility had a maturity date of February 2, 2026, and could be extended under some circumstances.

Under the Bridge Facility, the Bridge Loans bore interest, at Outbrain’s option, at (a) a secured overnight financing rate (“Term SOFR”), subject to a “zero” floor, plus an interest rate margin of 4.75% per annum or (b) an alternate base rate plus an interest rate margin of 3.75% per annum, in each case subject to an increase by 0.50% on each three-month anniversary of the Credit Facilities Closing Date. In addition, for so long as any Bridge Loans remained outstanding, the Bridge Facility accrued a duration fee equal to 0.25% of the aggregate principal amount of outstanding Bridge Loans. Loans under the 2025 Revolving

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Facility (the “Revolving Loans”) bear interest, at the Company’s option, at (x) Term SOFR, subject to a “zero” floor, plus an interest rate margin of 4.25% per annum or (y) an alternate base rate plus an interest rate margin of 3.25% per annum. In addition, the 2025 Revolving Facility accrued an unused commitment fee at a rate ranging from 0.375% to 0.50%, depending on the Company’s senior secured net leverage ratio, as set forth in the Credit Agreement.

The 2025 Revolving Facility may be used for working capital and other general corporate purposes of the Company and its subsidiaries. Up to $10.0 million of the 2025 Revolving Facility is available in the form of letters of credit and up to $20.0 million of the 2025 Revolving Facility is available in the form of swingline loans. The Company may seek incremental commitments under the 2025 Revolving Facility from lenders or other financial institutions up to an aggregate principal amount equal to the greater of $62.5 million and 25% of the Company’s EBITDA (as defined in the Credit Agreement). The 2025 Revolving Facility lenders will not be under any obligation to provide any such incremental commitments, and any such increase in commitments will be subject to certain customary conditions precedent.

Additional wholly-owned subsidiaries of the Company organized in certain jurisdictions may become borrowers under the 2025 Revolving Facility from time to time. The Credit Facilities are senior secured obligations of Outbrain, Midco and the Credit Facilities Guarantors (as defined in Note 16), provided, that, with respect to the application of proceeds from enforcement or distressed disposals of collateral, the 2025 Revolving Facility will rank super senior to other senior secured indebtedness of the Company, Midco and the Credit Facilities Guarantors, including the Bridge Facility.

See Note 16 to the accompanying audited consolidated financial statements for additional information related to terms and conditions, covenants, guarantees, and events of default.

Material Cash Requirements

The Combined Company plans to meet its liquidity needs through available cash, cash generated from its operations and its borrowing capacity. The Combined Company’s primary uses of liquidity are payments to its media partners, its operating expenses, capital expenditures, its long-term debt and the related interest payments. The Combined Company primarily uses its operating cash for payments due to media partners and vendors, as well as for personnel costs, and other employee-related expenditures. Outbrain’s contracts with media partners are generally variable based on volume or guarantee a minimum rate of payment if the media partner reaches certain performance targets. See “Definitions of Financial and Performance Measures —Traffic Acquisition Costs.” The Combined Company may also acquire or make investments in complementary companies or technologies, such as the Acquisitions.

Acquisition of Teads

On February 3, 2025, Outbrain consummated the previously announced Acquisition for consideration paid in closing of $625 million in cash, subject to certain customary adjustments, and 43.75 million shares of the Common Stock. The Company’s subsidiary, Midco, borrowed $625 million in aggregate principal amount of Bridge Loans under the new Credit Agreement described above, which together with cash on hand, were used to pay the cash portion of the Acquisition consideration, to repay amounts outstanding under the Facility and to pay related transaction fees, costs and expenses.

Debt Obligations

Senior Secured Notes

On February 11, 2025, Midco completed a private offering (the “Offering”) of $637.5 million in aggregate principal amount of 10.000% senior secured notes due 2030 (the “Notes”) at an issue price of 98.087% of the principal amount thereof in a transaction exempt from registration under the Securities Act. The Notes bear interest from February 11, 2025 at an annual rate of 10.000%, payable semi-annually on February 15 and August 15 of each year, commencing on August 15, 2025. The Notes will mature on February 15, 2030. The Notes are guaranteed, jointly and severally on a secured, unsubordinated basis by Outbrain and each existing and future wholly-owned subsidiary of Outbrain that becomes a borrower, issuer or guarantor under our super senior secured revolving credit facility. The Notes are also secured by first-priority lien over (i) all or substantially all assets of OT Midco, Outbrain and Teads Australia PTY Ltd, a subsidiary of Outbrain in Australia, and (ii) certain assets of some of the other direct and indirect subsidiaries of Outbrain in England and Wales, Canada, Germany, Mexico, Singapore, Switzerland, Luxembourg, Japan, Italy, France and Israel.

The proceeds from the Offering were used, together with cash on hand, to (i) repay in full and cancel the indebtedness incurred under the Bridge Facility, including accrued and unpaid interest thereon, that was used to finance and pay costs related to the Acquisition, as well as pay fees and expenses incurred in connection with the Offering and the Bridge Facility refinancing.

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Midco may redeem the Notes in whole or in part at any time prior to February 15, 2027 at a redemption price equal to 100.000% of the principal amount thereof plus a ‘‘make-whole’’ premium set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. Midco may redeem the Notes in whole or in part, on or after February 15, 2027, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, prior to February 15, 2027, Midco may redeem up to 40% of the Notes with the proceeds of certain equity offerings, at a redemption price equal to 110.000% of the principal amount redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. During each of the two successive twelve-month periods commencing on the Closing Date and ending on February 15, 2027, Midco will have the option to redeem up to 10% of the aggregate principal amount of Notes at a redemption price equal to 103.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

Upon certain change of control events, the holders of the Notes may require Midco to repurchase all or a portion of the Notes at a purchase price of 101.000% of their principal amount plus accrued and unpaid interest, if any, to, but excluding the date of purchase. In addition, subject to certain conditions and limitations, Midco must, within 30 days after Outbrain’s delivery of its annual report, with respect to Outbrain’s fiscal years ending December 31, 2025 and 2026, apply an amount equal to the Excess Cash Flow Amount (as defined in the Indenture) to make an offer to purchase outstanding Notes at a price equal to 100.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to but excluding the date of purchase.

The terms of the Indenture, among other things, limit the ability of Outbrain and its restricted subsidiaries to (i) incur or guarantee additional indebtedness or issue preferred stock, (ii) pay dividends or make other restricted payments; (iii) make certain investments, (iv) transfer and sell assets, (v) create or incur certain liens, (vi) engage in certain transactions with affiliates and (vii) consolidate or merge or transfer all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications. The Indenture provides for customary events of default which include, among other things (subject in certain cases to customary grace and cure periods), defaults based on (i) the failure to make payments under the Indenture when due, (ii) breach of covenants, (iii) acceleration of other material indebtedness, (iv) bankruptcy events and (v) material judgments. Generally, if an event of default occurs, the trustee or the holders of at least 30% in principal amount of the then outstanding Notes may declare all of the Notes to be due and payable.

Teads Short-Term Debt

Teads’ short-term debt, on an unaudited basis as the Acquisition close date was approximately $15.5 million. This balance is unaudited, is presented for illustrative purposes and was derived from the historical consolidated financial information of Teads. This Report does not include Teads’ historical consolidated financial statements for any periods, as the Acquisition closed subsequent to Outbrain’s year end.

Treasury Share Repurchases

On December 14, 2022, our Board approved a new stock repurchase program, authorizing us to repurchase up to $30 million of of the Common Stock, 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 at our discretion without prior notice. As of December 31, 2024, the remaining repurchase availability under our $30 million share repurchase program was $6.6 million, reflecting repurchases of 1,410,001 shares for $5.8 million in 2024 and 3,729,462 shares for $17.8 million in 2023. 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 to our publicly announced programs, we 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 our equity incentive plans and the underlying award agreements. During 2024 and 2023, we withheld 162,157 shares and 163,265 shares, respectively, with a fair value of $0.8 million in each year, to satisfy the minimum employee tax withholding obligations.

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Capital Expenditures

Outbrain’s cash flow used in investing activities has primarily consisted of capital expenditures and capitalized software development costs. We spent $7.4 million in capital expenditures in 2024, primarily relating to expenditures for servers and related equipment, office equipment and leasehold improvements. The Combined Company currently anticipates that its capital expenditures will be between $7 million and $9 million in 2025, primarily relating to expenditures for servers and related equipment, other equipment, and leasehold improvements, including the currently anticipated incremental capital expenditures for the Teads business. However, these amounts are preliminary and actual amounts may vary from these estimates.

Other Contractual Cash Obligations

The following table presents Outbrain’s other material contractual obligations as of December 31, 2024. This table does not reflect the contractual cash obligations of the Teads business acquired in February 2025, which the Combined Company is in the process of evaluating.

[[GREPCENT_TABLE]]
[["","Payments Due by Period"],["","Total","","2025","","2026-2027","","2028-2029","","Thereafter"],["","(In thousands)"],["Operating lease obligations (1)","19,541","","","5,314","","","8,198","","","4,429","","","1,600"],["Other commitments(2)","49,664","","","24,466","","","17,136","","","8,062","","","\u2014"],["Total (3)","$","69,205","","","$","29,780","","","$","25,334","","","$","12,491","","","$","1,600"]]
[[/GREPCENT_TABLE]]

___________________

(1)Operating lease agreements primarily relate to leases for certain office facilities, vehicle leases and managed data center facilities. See Note 8 to the accompanying financial statements for additional information relating to our leases.

(2)Other commitments include data service contracts and other hosting agreements, network services, and other costs to maintain our platform.

(3)We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, we have excluded $6.0 million from the preceding table related to uncertain tax positions, including accrued interest and penalties as of December 31, 2024.

Cash Flows

The following table summarizes the major components of our net cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2022"],["","(In thousands)"],["Net cash provided by operating activities","$","68,561","","","$","13,746"],["Net cash provided by investing activities","67,153","","","69,640"],["Net cash used in financing activities","(117,702)","","","(117,068)"],["Effect of exchange rate changes","634","","","(1,004)"],["Net increase (decrease) in cash, cash equivalents and restricted cash","$","18,646","","","$","(34,686)"]]
[[/GREPCENT_TABLE]]

Operating Activities

Net cash provided operating activities increased $54.9 million, to $68.6 million in 2024, as compared to $13.7 million in 2023. This increase was primarily driven by a $52.0 million favorable change in our working capital, largely attributable to lower accounts receivable and prepaid expense, offset in part by lower accounts payable, reflecting faster cash collections, lower prepayments to our media partners, and improved profitability. In addition, net income after non-cash adjustments increased $2.0 million in 2024, compared to 2023.

Our free cash flow increased $57.8 million, to $51.3 million in 2024, as compared to a use of cash of $6.5 million in 2022, primarily reflecting higher operating cash flow, as discussed above, as well as lower capital expenditures in 2024. Free cash flow is a supplemental non-GAAP financial measure. See “Non-GAAP Reconciliations” for the related definition and a reconciliation to net cash provided by operating activities.

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Investing Activities

Cash from investing activities decreased $2.4 million, to net cash provided by investing activities of $67.2 million in 2024, from net cash provided by investing activities of $69.6 million in 2023. This decrease was primarily driven by lower net proceeds of $5.6 million from sales and maturities of marketable securities under our investment program (net of purchases), reflecting lower early redemptions of available-for-sale securities in connection with the repurchase of our Convertible Notes in September 2024, than in the prior year period. This decrease was partially offset by lower capital expenditures of $2.7 million in 2024, compared to 2023.

Financing Activities

Cash used in financing activities increased to $117.7 million in 2024, as compared to $117.1 million in 2023. This decrease in cash was primarily due to the $13.6 million increase in the repurchase price paid for the Convertible Notes in September 2024 over the repurchase price of those repurchased in April 2023, and deferred financing costs of $1.1 million paid in 2024. These decreases in cash were largely offset by lower treasury share repurchases of $11.9 million and lower principal lease payments of $1.6 million due to the expiration of all of the remaining finance leases in 2024.

Critical Accounting Policies and Estimates

Our audited consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these audited consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the following policies may involve a higher degree of judgment and complexity in their application than most of our accounting policies and represent the critical accounting policies used in the preparation of our audited consolidated financial statements. Readers are encouraged to consider this summary together with our audited consolidated financial statements and the related notes, including Note 1, for a more complete understanding of the critical accounting policies discussed below.

Revenue Recognition

The determination of whether our revenue should be reported on a gross or net basis involves judgment. In general, we act as a principal on behalf of our advertisers and revenue is recognized gross of any costs that we remit to the media partners. In these cases, we determined that we control the advertising inventory before it is transferred to our advertisers. Our control is evidenced by our ability to monetize the advertising inventory before it is transferred to our advertisers. For those revenue arrangements where we do not control the advertising inventory before it is transferred to our advertisers, we are the agent and recognize revenue on a net basis.

Stock-based Compensation

We measure stock-based compensation based on the grant date fair value of the awards and account for forfeitures as they occur. Determining the fair value of stock-based awards requires management to use estimates and assumptions, which involve uncertainties and are subjective in nature. Changes in key assumptions could impact the fair value of our stock-based compensation awards.

The fair value of our previously issued stock options was determined using the Black-Scholes option valuation model, which uses key inputs such as the expected volatility, the risk-free rate, the expected term and the expected dividend yield. The fair value of our restricted stock units (“RSUs”) is based on the fair value of the Common Stock on the date of grant. Stock-based compensation expense for options and RSUs is recognized on a straight-line basis over the respective requisite service periods.

Our performance stock units (“PSUs”) granted in 2023 have a service condition, as well as a performance condition. Such awards vest over a period of three years, subject to the employee’s continued employment and satisfaction of certain pre-established performance targets based on our financial metrics, up to a maximum of 100% of the PSUs granted. The fair value of these awards is determined based on the closing price of the Common Stock at the date of grant and expense is recognized ratably during the 3-year performance period, based on our expectation of attaining the performance targets. Cumulative expense adjustments are reflected whenever there is a change in expected achievement of the performance condition, which may cause expense volatility in the period of change.

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In June 2024, we granted market-based PSU awards to our senior executives, which are earned subject to achievement of specified stock price hurdles for 20 days out of a 30-trading day window during the 3-year performance period, as well as continued employment through the quarterly vesting dates over a 3-year period. The number of shares that are eligible to vest range from 0% to 100% of the number of PSUs granted based on achievement of the specified stock price hurdles, with half of our CEO’s PSU award subject to vesting based on two additional above-target stock price hurdles.

We estimate the fair value of PSU awards with a market condition using a Monte Carlo simulation valuation model, which uses subjective assumptions and simulates multiple stock price paths of the Common Stock to determine the fair value of market-based PSUs on the date of grant. Key assumptions in determining the fair value include expected volatility, risk free interest rate and dividend yield. Compensation expense is recognized using an accelerated attribution method over the greater of the derived service period, based on the Monte Carlo simulation, or the explicit quarterly service period. Compensation expense, net of forfeitures, is recorded regardless of whether the market condition will be ultimately satisfied.

Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using an asset and liability approach, which requires recognition of deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled.

We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. In evaluating our ability to recover our deferred tax assets within the jurisdictions in which they arise, we consider all available positive and negative evidence, including our history of pre-tax income, projected future taxable income, the scheduled reversals of deferred tax liabilities, taxable income available to carryback to prior years and our tax planning strategies. As a result of our analysis, during 2024 and 2023, after weighing all of the evidence, we determined that the positive evidence, particularly the evidence that was objectively verifiable, continued to outweigh the negative evidence. However, upon evaluating our forecasted state taxable income, we increased our valuation allowance against state net operating loss carryforwards by $0.3 million and $0.5 million in 2024 and 2023, respectively.

We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results. The provision for income taxes includes the effects of any reserves that we believe are appropriate, as well as the related interest and penalties.

We have not made any material changes in the accounting methodology used to account for income taxes during the past three fiscal years. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. Other than those potential impacts, we do not believe there is a reasonable likelihood that there will be a material change in tax related balances.

Recently Adopted and Recently Issued Accounting Pronouncements

See Note 1 to the accompanying audited consolidated financial statements for recently adopted accounting standards, as well as recently issued accounting standards, which may have an impact on our financial statements upon adoption.

Off-Balance Sheet Arrangements

We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes special purpose entities and other structured finance entities.

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JOBS Act Transition Period

We are an emerging growth company as defined in the JOBS Act. The JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of some accounting standards until they would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption of certain accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our audited consolidated financial statements may not be comparable to companies that have adopted new or revised accounting pronouncements as of public company effective dates.

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