Outbrain Inc. [OB] Filings

10-Q 1 outbrain-20230331.htm 10-Q outbrain-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission file number 001-40643

Outbrain Inc.

(Exact name of registrant as specified in its charter)


Delaware									20-5391629
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)


111 West 19th Street,	New York,	NY	10011
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (646) 867-0149

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of April 30, 2023, Outbrain Inc. had 51,152,134 shares of common stock outstanding.

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TABLE OF CONTENTS


		Page
Part I - Financial Information
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40
Part II - Other Information
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		43

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Note About Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements may include, without limitation, statements generally relating to possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. You can generally identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “foresee,” “potential” or “continue” or the negative of these terms or other similar expressions that concern our expectations, strategy, plans or intentions or are not statements of historical fact. We have based these forward-looking statements largely on our expectations and projections regarding future events and trends that we believe may affect our business, financial condition, and results of operations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors including, but not limited to:

•overall advertising demand and traffic generated by our media partners;

•factors that affect advertising demand and spending, such as the continuation or worsening of unfavorable economic or business conditions or downturns, instability or volatility in financial markets, and other events or factors outside of our control, such as U.S. and global recession concerns, geopolitical concerns, including the ongoing conflict between Russia and Ukraine, supply chain issues, inflationary pressures, labor market volatility, and the pace of recovery or any resurgences of the COVID-19 pandemic;

•risks and uncertainties related to the recent closure of Silicon Valley Bank (“SVB”) and other bank disruptions;

•our ability to continue to innovate, and adoption by our advertisers and media partners of our expanding solutions;

•the success of our sales and marketing investments, which may require significant investments and may involve long sales cycles;

•our ability to grow our business and manage growth effectively;

•our ability to compete effectively against current and future competitors;

•the loss of one or more of our large media partners, and our ability to expand our advertiser and media partner relationships;

•our ability to maintain our revenues or profitability despite quarterly fluctuations in our results, whether due to seasonality, large cyclical events, or other causes;

•the risk that our research and development efforts may not meet the demands of a rapidly evolving technology market;

•any failure of our recommendation engine to accurately predict user engagement, any deterioration in the quality of our recommendations or failure to present interesting content to users or other factors which may cause us to experience a decline in user engagement or loss of media partners;

•limits on our ability to collect, use and disclose data to deliver advertisements;

•our ability to extend our reach into evolving digital media platforms;

•our ability to maintain and scale our technology platform;

•our ability to meet demands on our infrastructure and resources due to future growth or otherwise;

•outages or disruptions that impact us or our service providers, resulting from cyber incidents, or failures or loss of our infrastructure, which could adversely affect our business;

•significant fluctuations in currency exchange rates;

•political and regulatory risks in the various markets in which we operate;

•the challenges of compliance with differing and changing regulatory requirements; and

•the risks described in the section entitled “Risk Factors” and elsewhere in this Report.

Accordingly, you should not rely upon forward-looking statements as an indication of future performance. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or will occur, and actual results, events, or circumstances could differ materially from those projected in the forward-looking statements. The forward-looking statements made in this Report relate only to events as of the date on which the statements are made. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. We undertake no obligation and do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events or otherwise, except as required by law.

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Part I Financial Information

Item 1. Financial Statements

OUTBRAIN INC.

Condensed Consolidated Balance Sheets

(In thousands, except for number of shares and par value)


	March 31, 2023		December 31, 2022
	(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents	$	73,214	$	105,580
Short-term investments in marketable securities	178,529		166,905
Accounts receivable, net of allowances	181,482		181,258
Prepaid expenses and other current assets	47,562		46,761
Total current assets	480,787		500,504
Non-current assets:
Long-term investments in marketable securities	65,951		78,761
Property, equipment and capitalized software, net	40,366		39,890
Operating lease right-of-use assets, net	11,381		11,065
Intangible assets, net	22,983		24,574
Goodwill	63,063		63,063
Deferred tax assets	35,637		35,735
Other assets	25,598		27,556
TOTAL ASSETS	$	745,766	$	781,148

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current Liabilities:
Accounts payable	$	137,759	$	147,653
Accrued compensation and benefits	16,185		19,662
Accrued and other current liabilities	114,813		126,092
Deferred revenue	6,456		6,698
Total current liabilities	275,213		300,105
Non-current liabilities:
Long-term debt	236,000		236,000
Operating lease liabilities, non-current	8,890		8,445
Other liabilities	17,742		18,812
TOTAL LIABILITIES	$	537,845	$	563,362

Commitments and Contingencies (Note 11)

STOCKHOLDERS’ EQUITY:
Common stock, par value of $0.001 per share − one billion shares authorized, 60,456,489 shares issued and 51,146,939 shares outstanding as of March 31, 2023; one billion shares authorized, 60,175,020 shares issued and 52,226,745 shares outstanding as of December 31, 2022.	60		60
Preferred stock, par value of $0.001 per share − 100,000,000 shares authorized, none issued and outstanding as of March 31, 2023 and December 31, 2022	—		—
Additional paid-in capital	458,726		455,831
Treasury stock, at cost − 9,309,550 shares as of March 31, 2023 and 7,948,275 shares as of December 31, 2022	(55,523)		(49,168)
Accumulated other comprehensive loss	(10,713)		(9,913)
Accumulated deficit	(184,629)		(179,024)
TOTAL STOCKHOLDERS’ EQUITY	207,921		217,786
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	745,766	$	781,148

See Accompanying Notes to Condensed Consolidated Financial Statements.

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OUTBRAIN INC.

Condensed Consolidated Statements of Operations

(In thousands, except for share and per share data)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Revenue	$	231,774	$	254,216
Cost of revenue:
Traffic acquisition costs	179,576		190,696
Other cost of revenue	11,043		9,589
Total cost of revenue	190,619		200,285
Gross profit	41,155		53,931
Operating expenses:
Research and development	9,311		10,428
Sales and marketing	25,748		27,395
General and administrative	15,406		16,034
Total operating expenses	50,465		53,857
(Loss) income from operations	(9,310)		74
Other income (expense), net:
Interest expense	(1,867)		(1,871)
Interest income and other (expense) income, net	3,860		(1,081)
Total other income (expense), net	1,993		(2,952)
Loss before benefit from income taxes	(7,317)		(2,878)
Benefit from income taxes	(1,712)		(988)
Net loss	$	(5,605)	$	(1,890)

Weighted average shares outstanding:
Basic	51,435,289		57,237,012
Diluted	51,435,289		57,237,012

Net loss per common share:
Basic	$	(0.11)	$	(0.03)
Diluted	$	(0.11)	$	(0.03)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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OUTBRAIN INC.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Net loss	$	(5,605)	$	(1,890)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(1,220)		(741)
Unrealized gains on available-for-sale investments in debt securities (net of tax of $123 for the three months ended March 31, 2023)	420		—
Total other comprehensive loss	(800)		(741)
Comprehensive loss	$	(6,405)	$	(2,631)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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OUTBRAIN INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except for number of shares)

(Unaudited)


	Common Stock		Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit		Total Stockholders’ Equity
		Shares			Amount			Shares			Amount
Balance – January 1, 2023		60,175,020	$	60		$	455,831	(7,948,275)	$	(49,168)		$	(9,913)	$	(179,024)	$	217,786

Vesting of restricted stock units, net of shares withheld for taxes		281,469	—			—		(48,202)	(213)			—		—		(213)
Shares repurchased under the share repurchase program		—	—			—		(1,313,073)	(6,142)			—		—		(6,142)
Stock-based compensation		—	—			2,895		—	—			—		—		2,895
Other comprehensive loss		—	—			—		—	—			(800)		—		(800)
Net loss		—	—			—		—	—			—		(5,605)		(5,605)
Balance – March 31, 2023		60,456,489	$	60		$	458,726	(9,309,550)	$	(55,523)		$	(10,713)	$	(184,629)	$	207,921


	Common Stock		Additional Paid-In Capital			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit		Total Stockholders’ Equity
		Shares			Amount			Shares			Amount
Balance – January 1, 2022		58,015,075	$	58		$	434,945	(1,313,681)	$	(16,504)		$	(4,474)	$	(157,250)	$	256,775


Exercise of employee stock options, warrants and restricted stock awards, net of shares withheld for taxes		411,855	1			2,273		(95,138)	(1,425)			—		—		849
Vesting of restricted stock units, net of shares withheld for taxes		211,713	—			—		(22,499)	(293)			—		—		(293)
Acquisition stock consideration		355,786	—			4,190		—	—			—		—		4,190
Stock-based compensation		—	—			2,810		—	—			—		—		2,810
Other comprehensive loss		—	—			—		—	—			(741)		—		(741)
Net loss		—	—			—		—	—			—		(1,890)		(1,890)
Balance – March 31, 2022		58,994,429	$	59		$	444,218	(1,431,318)	$	(18,222)		$	(5,215)	$	(159,140)	$	261,700

See Accompanying Notes to Condensed Consolidated Financial Statements.

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OUTBRAIN INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,605)	$	(1,890)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment	1,704		2,404
Amortization of capitalized software development costs	2,641		2,295
Amortization of intangible assets	1,596		1,569
Amortization of discount on marketable securities	(1,241)		—
Stock-based compensation	2,611		2,733
Non-cash operating lease expense	1,146		1,168
Provision for credit losses	2,639		(249)
Deferred income taxes	(437)		(340)
Other	(1,054)		1,054
Changes in operating assets and liabilities:
Accounts receivable	(1,478)		15,885
Prepaid expenses and other current assets	4,598		1,418
Accounts payable and other current liabilities	(28,017)		(31,121)
Operating lease liabilities	(1,138)		(1,097)
Deferred revenue	(317)		1,659
Other non-current assets and liabilities	1,874		1,871
Net cash used in operating activities	(20,478)		(2,641)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of a business, net of cash acquired	(285)		(34,524)
Purchases of property and equipment	(3,749)		(2,809)
Capitalized software development costs	(2,853)		(3,445)
Purchases of marketable securities	(32,762)		—
Proceeds from maturities of marketable securities	35,615		—
Other	(5)		14
Net cash used in investing activities	(4,039)		(40,764)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options and warrants	—		2,274
Treasury stock repurchases and share withholdings on vested awards	(6,355)		(1,718)
Principal payments on finance lease obligations	(509)		(1,014)
Payment of contingent consideration liability up to acquisition-date fair value	(547)		—
Net cash used in financing activities	(7,411)		(458)
Effect of exchange rate changes	(436)		(663)

Net decrease in cash, cash equivalents and restricted cash	(32,364)		(44,526)
Cash, cash equivalents and restricted cash — Beginning	105,765		455,592
Cash, cash equivalents and restricted cash — Ending	$	73,401	$	411,066

RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents	$	73,214	$	410,875
Restricted cash, included in other assets	$	187	$	191
Total cash, cash equivalents, and restricted cash	$	73,401	$	411,066

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OUTBRAIN INC.

Condensed Consolidated Statements of Cash Flows (Continued)

(In thousands)


	Three Months Ended March 31,
	2023		2022
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds	$	2,313	$	2,393
Cash paid for interest	$	3,581	$	3,606

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Stock consideration issued for acquisition of a business	$	—	$	4,190
Purchases of property and equipment included in accounts payable	$	820	$	13
Operating lease right-of-use assets obtained in exchange for lease obligations	$	1,339	$	447
Acquisition consideration payable	$	285	$	11,483
Stock-based compensation capitalized for software development costs	$	284	$	77
Unpaid deferred financing costs in accounts payable and accrued expenses	$	—	$	42

See Accompanying Notes to Condensed Consolidated Financial Statements.

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization, Description of Business and Summary of Significant Accounting Policies

Organization and Description of Business

Outbrain Inc., together with its subsidiaries (“Outbrain,” the “Company,” “we,” “our” or “us”), was incorporated in August 2006 in Delaware. The Company is headquartered in New York, New York with various wholly-owned subsidiaries, including in Israel, Europe and Asia. In connection with the Company’s initial public offering (“IPO”), its common stock began trading on The Nasdaq Stock Market LLC (“Nasdaq”) on July 23, 2021 under the “OB” ticker symbol.

Outbrain is a leading recommendation platform powering the open web. The Company’s platform provides personalized recommendations that appear as links to content, advertisements and videos on media owners’ online properties. The Company generates revenue from marketers through user engagements with promoted recommendations that it delivers across a variety of third-party media owners’ online properties. The Company pays traffic acquisition costs to its media owner partners on whose digital properties the recommendations are shown. The Company’s advertiser solutions are mainly priced using a performance-based model based on the actual number of engagements generated by users, which is highly dependent on its ability to generate trustworthy and interesting recommendations to individual users based on its proprietary algorithms. A portion of the Company’s revenue is generated through advertisers participating in programmatic auctions wherein the pricing is determined by the auction results and not dependent on user engagement.

Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 15, 2023 (“2022 Form 10-K”).

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and judgments are based on historical information and on various other assumptions that the Company believes are reasonable under the circumstances. Estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, the allowance for credit losses, sales allowance, software development costs eligible for capitalization, valuation of deferred tax assets, the useful lives of property and equipment, the useful lives and fair value of intangible assets, valuation of goodwill, the fair value of stock-based awards, and the recognition and measurement of income tax uncertainties and other contingencies. Actual results could differ materially from these estimates.

Reclassifications

Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation.

Cash and Cash Equivalents and Investments

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of cash on hand and highly liquid investments in money market funds, U.S. government bonds and commercial paper. Most of our cash deposits are above the $250,000 Federal Deposit Insurance Corporation (“FDIC”) limit and, therefore, not insured.

The Company’s investments in debt securities are classified as available-for-sale and are recorded at fair value. The Company classifies its investments in debt securities as short-term or long-term, based on each security’s maturity date. Unrealized gains and losses on available-for-sale securities are recognized in other comprehensive (loss) income (“OCI”), net of taxes.

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Restricted Cash

Restricted cash represents security deposits for facility leases and is included in other assets in the accompanying condensed consolidated balance sheets.

Certain Risks and Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, restricted cash, and accounts receivable. The Company’s cash and cash equivalents and restricted cash are generally invested in high-credit quality financial instruments with both banks and financial institutions to reduce the amount of exposure to any single financial institution.

The Company generally does not require collateral to secure accounts receivable. No single marketer accounted for 10% or more of the Company’s total revenue for the three months ended March 31, 2023 or March 31, 2022, or 10% or more of its gross accounts receivable balance as of March 31, 2023 and 2022.

During the three months ended March 31, 2023, none of the Company’s media owners accounted for 10% of its total traffic acquisition costs. During the three months ended March 31, 2022, one media owner accounted for 10% of the Company’s total traffic acquisition costs.

Segment Information

The Company has one operating and reporting segment. The Company’s chief operating decision maker is its Co-Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis.

New Accounting Pronouncements

Under the JOBS Act, the Company meets the definition of an emerging growth company and can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the Company is no longer an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period.

Recently Issued Accounting Pronouncements

The Company has considered all new accounting pronouncements and has concluded that based on the current information, there are no new pronouncements that are expected to have a material impact on its results of operations, financial condition, or cash flows.

See Note 1 to the Company’s audited consolidated financial statements for the year ended December 31, 2022 in the Company’s 2022 Form 10-K for a complete disclosure of the Company’s significant accounting policies.

2. Revenue Recognition

The following table presents total revenue based on where the Company’s marketers are physically located:


	Three Months Ended March 31,
	2023		2022
	(In thousands)
USA	$	72,216	$	85,577
Europe, the Middle East, and Africa (EMEA)	133,754		139,675
Other	25,804		28,964
Total revenue	$	231,774	$	254,216

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contract Balances. There were no contract assets as of March 31, 2023 or December 31, 2022. Contract liabilities primarily relate to advance payments and consideration received from customers. As of March 31, 2023 and December 31, 2022, the Company’s contract liabilities were recorded as deferred revenue in its condensed consolidated balance sheets.

3. Acquisition

On January 5, 2022, the Company acquired all of the outstanding shares of video intelligence AG (“vi”), a Swiss-based contextual video technology company for digital media owners, for an aggregate purchase price of approximately $54.2 million, which was paid in the form of cash and Outbrain common stock. The equity portion of the purchase price was comprised of 355,786 shares of the Company’s common stock with a fair value of $4.2 million. The first installment of $37.3 million in cash and the equity portion were paid at closing, an additional $10.6 million was paid in the third quarter of 2022, and $1.2 million was paid in the first quarter of 2023. The consideration paid during the first quarter of 2023 included $0.9 million of contingent consideration, $0.5 million of which was recognized on the acquisition date, and $0.4 million recorded as a fair value adjustment in the Company’s consolidated statement of operations for the year ended December 31, 2022, based on the market price of the Company’s stock determined one year from closing. This acquisition expanded the Company’s video product offerings to include in-stream high-quality video content, delivering a better user experience and more value to its advertisers.

This acquisition was accounted for as a business combination under the acquisition method of accounting and the results of operations of vi have been included in the Company’s results of operations since January 5, 2022. The Company incurred transaction costs relating to the vi acquisition of $0.2 million, which were included in general and administrative expenses in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2022.

See Note 2 to the Company’s audited consolidated financial statements for the year ended December 31, 2022 in the Company’s 2022 Form 10-K for additional information relating to purchase price allocation and intangible assets recorded in connection with this transaction.

4. Investments in Marketable Securities

All of the Company’s debt securities are classified as available-for-sale. The Company’s cash equivalents and investments as of March 31, 2023 and December 31, 2022 consisted of the following:


		March 31, 2023
(In thousands)	Fair Value Level	Amortized cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Cash Equivalents		Short-term investments		Long-term investments
Money market funds	1	$	31,566	$	—	$	—	$	31,566	$	31,566	$	—	$	—
U.S. Treasuries	2	23,825		—		(209)		23,616		—		19,759		3,857
U.S. government bonds	2	76,932		3		(620)		76,315		—		60,013		16,302
Commercial paper	2	43,700		—		(98)		43,602		—		43,602		—
U.S. Corporate bonds	2	101,519		49		(621)		100,947		—		55,155		45,792
Total cash equivalents and investments		$	277,542	$	52	$	(1,548)	$	276,046	$	31,566	$	178,529	$	65,951

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


		December 31, 2022
(In thousands)	Fair Value Level	Amortized cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Cash Equivalents		Short-term investments		Long-term investments
Money market funds	1	$	39,198	$	—	$	—	$	39,198	$	39,198	$	—	$	—
U.S. Treasuries	2	31,721		—		(317)		31,404		—		23,701		7,703
U.S. government bonds	2	77,259		—		(899)		76,360		—		52,254		24,106
Commercial paper	2	43,126		3		(161)		42,968		—		42,968		—
U.S. Corporate bonds	2	95,599		29		(694)		94,934		—		47,982		46,952
Total cash equivalents and investments		$	286,903	$	32	$	(2,071)	$	284,864	$	39,198	$	166,905	$	78,761

___________________________

(1) The amortized cost of debt securities excludes accrued interest of $1.1 million and $1.0 million, respectively, as of March 31, 2023 and December 31, 2022.

The total estimated fair value of debt securities in an unrealized loss position as of March 31, 2023 was $225.8 million, all of which has been in an unrealized loss position for less than twelve months. The aggregate amount of unrealized losses as of March 31, 2023 was $1.5 million. The total estimated fair value of debt securities in an unrealized gain position is $18.7 million. For marketable securities with unrealized loss positions, as of March 31, 2023, the Company did not intend to sell these securities and it was more likely than not that the Company will hold these securities until maturity or a recovery of the cost basis. No allowance for credit losses was recorded for these securities as of March 31, 2023 and December 31, 2022.

The following table shows the fair value of the Company’s available-for-sale securities by contractual maturity:


	March 31, 2023
	(In thousands)
Within 1 year	$	210,095
After 1 year through 2 years	65,951
Total fair value	$	276,046

5. Goodwill and Intangible Assets

The Company’s goodwill balance as of March 31, 2023 and December 31, 2022 was $63.1 million. The Company has not recorded any accumulated impairments of goodwill.

The gross carrying amount and accumulated amortization of the Company’s intangible assets are as follows:


	March 31, 2023
	Weighted Average Amortization Period	Gross Value		Accumulated Amortization		Net Carrying Value
	(In thousands)
Developed technology	8.0 years	$	18,411	$	(9,964)	$	8,447
Customer relationships	5.0 years	5,915		(5,364)		551
Publisher relationships	8.0 years	18,859		(9,738)		9,121
Trade names	8.8 years	5,303		(1,307)		3,996
Content provider relationships	5.0 years	284		(70)		214
Other	15.8 years	894		(240)		654
Total intangible assets, net		$	49,666	$	(26,683)	$	22,983

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Notes to Condensed Consolidated Financial Statements

(Unaudited)


	December 31, 2022
	Weighted Average Amortization Period	Gross Value		Accumulated Amortization		Net Carrying Value
	(In thousands)
Developed technology	5.8 years	$	18,411	$	(9,652)	$	8,759
Customer relationships	4.1 years	5,856		(5,022)		834
Publisher relationships	6.3 years	18,738		(8,782)		9,956
Trade names	8.7 years	5,279		(1,143)		4,136
Content provider relationships	5.0 years	284		(56)		228
Other	15.8 years	888		(227)		661
Total intangible assets, net		$	49,456	$	(24,882)	$	24,574

No impairment charges were recorded for the Company’s intangible assets subject to amortization during the three months ended March 31, 2023 and 2022.

As of March 31, 2023, estimated amortization related to the Company’s identifiable acquisition-related intangible assets in future periods was as follows:


	Amount
	(In thousands)
Remainder of 2023	$	2,600
2024	3,466
2025	3,466
2026	3,466
2027	3,116
Thereafter	6,869
Total	$	22,983

6. Balance Sheet Components

Accounts Receivable and Allowance for Credit Losses

Accounts receivable, net of allowance for credit losses consists of the following:


	March 31, 2023		December 31, 2022
	(In thousands)
Accounts receivable	$	188,934	$	186,770
Allowance for credit losses	(7,452)		(5,512)
Accounts receivable, net of allowance for credit losses	$	181,482	$	181,258

The allowance for credit losses consists of the following activity:


	Three Months Ended March 31, 2023		Year Ended December 31, 2022
	(In thousands)
Allowance for credit losses, beginning balance	$	5,512	$	4,402
Provision for credit losses, net of recoveries	2,794		3,227
Write-offs	(854)		(2,117)
Allowance for credit losses, ending balance	$	7,452	$	5,512

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consists of the following:


	March 31, 2023		December 31, 2022
	(In thousands)
Prepaid traffic acquisition costs	$	25,702	$	23,149
Prepaid taxes	10,507		15,280
Prepaid software licenses	3,675		2,465
Prepaid insurance	1,361		1,503
Other prepaid expenses and other current assets	6,317		4,364
Total prepaid expenses and other current assets	$	47,562	$	46,761

Property, Equipment and Capitalized Software, Net

Property, equipment and capitalized software, net consists of the following:


	March 31, 2023		December 31, 2022
	(In thousands)
Computer and equipment	$	61,106	$	59,536
Capitalized software development costs	70,836		67,685
Software	3,124		3,113
Leasehold improvements	3,001		2,859
Furniture and fixtures	1,168		1,177
Property, equipment, and capitalized software, gross	139,235		134,370
Less: accumulated depreciation and amortization	(98,869)		(94,480)
Total property, equipment and capitalized software, net	$	40,366	$	39,890

Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following:


	March 31, 2023		December 31, 2022
	(In thousands)
Accrued traffic acquisition costs	$	70,003	$	73,396
Accrued agency commissions	14,180		13,451
Accrued tax liabilities	9,974		15,013
Accrued professional fees	5,071		4,915
Operating lease obligations, current	3,113		3,236
Finance lease obligations, current	1,517		1,758
Interest payable	1,333		3,074
Other	9,622		11,249
Total accrued and other current liabilities	$	114,813	$	126,092

In addition to accrued traffic acquisition costs, accounts payable includes $129.2 million and $136.8 million of traffic acquisition costs as of March 31, 2023 and December 31, 2022, respectively.

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

7. Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company’s financial instruments include restricted time deposits, severance pay fund deposits and foreign currency forward contracts. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the Company uses the fair value hierarchy described below to distinguish between observable and unobservable inputs:

Level I — Valuations based on quoted prices in active markets for identical assets and liabilities at the measurement date;

Level II — Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be principally corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level III — Valuations based on unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:


	March 31, 2023
	Level I		Level II		Level III		Total
	(In thousands)
Financial Assets:
Cash equivalents and investments (1)	$	31,566	$	244,480	$	—	$	276,046
Restricted time deposit (2)	—		187		—		187
Severance pay fund deposits (2)	—		5,066		—		5,066
Foreign currency forward contract (3)	—		610		—		610
Total financial assets	$	31,566	$	250,343	$	—	$	281,909
Financial Liabilities:
Foreign currency forward contract (4)	—		1,165		—		1,165
Total financial liabilities	$	—	$	1,165	$	—	$	1,165


	December 31, 2022
	Level I		Level II		Level III		Total
	(In thousands)
Financial Assets:
Cash equivalents and investments (1)	$	39,198	$	245,666	$	—	$	284,864
Restricted time deposit (2)	—		185		—		185
Severance pay fund deposits (2)	—		5,378		—		5,378
Foreign currency forward contract (3)	—		726		—		726
Total financial assets	$	39,198	$	251,955	$	—	$	291,153
Financial Liabilities:
Foreign currency forward contract (4)	—		1,463		—		1,463
Total financial liabilities	$	—	$	1,463	$	—	$	1,463

_____________________

(1)Money market securities are valued using Level I of the fair value hierarchy, while the fair values of U.S. Treasuries, government bonds, commercial paper, corporate bonds and municipal bonds are considered Level II and are obtained from independent pricing services, which may use various methods, including quoted prices for identical or similar securities in active and inactive markets. See Note 4 for additional detail of the Company’s fixed income securities by balance sheet location.

(2)Recorded within other assets.

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(3)Recorded within prepaid expenses and other current assets.

(4)Recorded within accrued and other current liabilities.

The Company records the fair values of the assets and liabilities relating to its undesignated foreign currency forward contracts on a gross basis in its condensed consolidated balance sheets, as they are not subject to master netting arrangements. There is no cash collateral required to be pledged by the Company or its counterparties. The Company enters into foreign currency forward exchange contracts to manage the effects of fluctuations in foreign currency exchange rates on its net cash flows from non-U.S. dollar denominated operations.

By entering into foreign currency forward contracts, the Company is exposed to a potential credit risk that the counterparty to its contracts will fail to meet its contractual obligations. If a counterparty fails to perform, the Company’s maximum credit risk exposure would be the positive fair value of the foreign currency forward contracts, or any asset balance, which represents the amount the counterparty owes to the Company. In order to mitigate the counterparty risk, the Company performs an evaluation of its counterparty credit worthiness, and its forward contracts have a term of no more than 12 months. The Company had foreign currency forward contracts with Silicon Valley Bank (“SVB”), which was closed by the California regulators on March 10, 2023. On March 12, 2023, the Department of the Treasury, Federal Reserve and the FDIC approved actions enabling the FDIC to complete its resolution of SVB in a manner that fully protects all depositors and converted SVB to Silicon Valley Bridge Bank, N.A. On March 27, 2023, First-Citizens Bank & Trust Company (“First Citizens Bank”) entered into an agreement with the FDIC to acquire the Silicon Valley Bridge Bank, N.A and the Company’s existing foreign currency forward contracts were assumed by the First Citizens Bank. Therefore, the Company does not anticipate any nonperformance under its foreign currency forward contracts. During the three months ended March 31, 2023 and 2022, the Company recognized net losses of $0.1 million and $0.7 million, respectively, within interest income and other income (expense), net in its condensed consolidated statements of operations, related to mark-to-market adjustments on its undesignated foreign currency forward contracts.

The Company’s 2.95% Convertible Senior Notes due 2026 (“Convertible Notes”) are recorded within long-term debt in its condensed consolidated balance sheets at their carrying value, which may differ from their fair value. The fair value of Convertible Notes is estimated using external pricing data, including any available market data for other debt instruments with similar characteristics. The following table summarizes the carrying value and the estimated fair value of the Company’s Convertible Notes, based on Level II measurements of the fair value hierarchy:


	March 31, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
			(In thousands)
Convertible Notes	$	236,000	$	180,446	$	236,000	$	180,752

See Note 15 for information regarding partial redemption of the Convertible Notes in April 2023.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

8. Leases

The Company leases certain equipment and computers under finance lease arrangements, as well as office facilities and managed data center facilities under non-cancelable operating lease arrangements for its U.S. and international locations that expire on various dates through 2032.

The following table summarizes assets and liabilities related to the Company’s operating and finance leases:


	Condensed Consolidated Balance Sheets Location	March 31, 2023		December 31, 2022
		(In thousands)
Lease assets:
Operating leases	Operating lease right-of-use assets, net	$	11,381	$	11,065
Finance leases	Property, equipment and capitalized software, net	1,394		1,858
Total lease assets		$	12,775	$	12,923

Lease liabilities:
Current liabilities:
Operating leases	Accrued and other current liabilities	$	3,113	$	3,236
Finance leases

Outbrain Inc. [OB] Filings
10-Q	[2023-05-09]
10-K	[2023-03-15]
10-Q	[2022-11-10]
10-Q	[2022-08-12]
10-Q	[2022-05-16]
10-K	[2022-03-18]
10-Q	[2021-11-12]
10-Q	[2021-08-20]
S-1	[2021-06-29]