Outbrain Inc. [OB] Filings

10-Q 1 outbrain-20230930.htm 10-Q outbrain-20230930

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 September 30, 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 October 31, 2023, Outbrain Inc. had 50,155,414 shares of common stock outstanding.

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TABLE OF CONTENTS


		Page
Part I - Financial Information
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Income (Loss)	7
	Condensed Consolidated Statements of Stockholders’ Equity	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	12
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	47
Part II - Other Information
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 5.	Other Information	50
Item 6.	Exhibits	51
Signatures		52

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Note About Forward-Looking Statements

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

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

•factors that affect advertising demand and spending, such as the continuation or worsening of unfavorable economic or business conditions or downturns, instability or volatility in financial markets, and other events or factors outside of our control, such as U.S. and global recession concerns, geopolitical concerns, including the ongoing wars between Ukraine-Russia and Israel-Hamas, supply chain issues, inflationary pressures, labor market volatility, bank closures or disruptions, the pace of recovery or any resurgences of the COVID-19 pandemic, and the impact of unfavorable economic conditions and other factors that have and may further impact advertisers’ ability to pay;

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

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

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

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

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

•conditions in Israel, including the recent attack by Hamas and other terrorist organizations from the Gaza Strip and Israel’s war against them, may limit our ability to market, support and innovate on our products due to the impact on our employees as well as our advertisers and their advertising markets, which would lead to a decrease in revenues and adversely affect our operations;

•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;

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•the timing and execution of, and the expected benefits from, our cost-saving measures, including our workforce reduction; any changes in management’s plans, assumptions, estimates and projections with respect to our cost-savings measures; the impact of the cost-saving measures, including the workforce reduction, on our business or strategy; and

•the risks described in the section entitled “Risk Factors” in the Annual Report on Form 10-K filed for the year ended December 31, 2022 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)


	September 30, 2023		December 31, 2022
	(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents	$	64,549	$	105,580
Short-term investments in marketable securities	104,052		166,905
Accounts receivable, net of allowances	171,239		181,258
Prepaid expenses and other current assets	47,009		46,761
Total current assets	386,849		500,504
Non-current assets:
Long-term investments in marketable securities	45,339		78,761
Property, equipment and capitalized software, net	43,198		39,890
Operating lease right-of-use assets, net	12,657		11,065
Intangible assets, net	21,233		24,574
Goodwill	63,063		63,063
Deferred tax assets	37,046		35,735
Other assets	21,089		27,556
TOTAL ASSETS	$	630,474	$	781,148

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current Liabilities:
Accounts payable	$	125,724	$	147,653
Accrued compensation and benefits	16,510		19,662
Accrued and other current liabilities	117,460		126,092
Deferred revenue	6,832		6,698
Total current liabilities	266,526		300,105
Non-current liabilities:
Long-term debt	118,000		236,000
Operating lease liabilities, non-current	9,940		8,445
Other liabilities	17,602		18,812
TOTAL LIABILITIES	$	412,068	$	563,362

Commitments and Contingencies (Note 12)

STOCKHOLDERS’ EQUITY:
Common stock, par value of $0.001 per share − one billion shares authorized, 61,219,485 shares issued and 50,598,994 shares outstanding as of September 30, 2023; one billion shares authorized, 60,175,020 shares issued and 52,226,745 shares outstanding as of December 31, 2022.	61		60
Preferred stock, par value of $0.001 per share − 100,000,000 shares authorized, none issued and outstanding as of September 30, 2023 and December 31, 2022	—		—
Additional paid-in capital	465,401		455,831
Treasury stock, at cost − 10,620,491 shares as of September 30, 2023 and 7,948,275 shares as of December 31, 2022	(62,419)		(49,168)
Accumulated other comprehensive loss	(11,798)		(9,913)
Accumulated deficit	(172,839)		(179,024)
TOTAL STOCKHOLDERS’ EQUITY	218,406		217,786
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	630,474	$	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	230,015	$	229,017	$	687,589	$	734,116
Cost of revenue:
Traffic acquisition costs	173,224		176,347		524,024		558,597
Other cost of revenue	10,401		10,756		31,999		30,955
Total cost of revenue	183,625		187,103		556,023		589,552
Gross profit	46,390		41,914		131,566		144,564
Operating expenses:
Research and development	8,681		9,911		28,033		30,858
Sales and marketing	21,472		26,852		73,116		82,369
General and administrative	13,617		12,224		44,766		41,215
Total operating expenses	43,770		48,987		145,915		154,442
Income (loss) from operations	2,620		(7,073)		(14,349)		(9,878)
Other (expense) income, net:
Gain on repurchase of convertible debt	—		—		22,594		—
Interest expense	(1,456)		(1,924)		(4,428)		(5,748)
Interest income and other income (expense), net	358		3,199		5,733		(1,710)
Total other (expense) income, net	(1,098)		1,275		23,899		(7,458)
Income (loss) before provision for income taxes	1,522		(5,798)		9,550		(17,336)
Provision (benefit) for income taxes	1,014		(1,174)		3,365		(504)
Net income (loss)	$	508	$	(4,624)	$	6,185	$	(16,832)

Weighted average shares outstanding:
Basic	50,881,194		55,232,611		51,178,127		56,679,302
Diluted	51,240,968		55,232,611		57,696,222		56,679,302

Net income (loss) per common share:
Basic	$	0.01	$	(0.08)	$	0.12	$	(0.30)
Diluted	$	0.01	$	(0.08)	$	(0.15)	$	(0.30)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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OUTBRAIN INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	508	$	(4,624)	$	6,185	$	(16,832)
Other comprehensive income (loss):
Foreign currency translation adjustments	(6)		(2,013)		(2,667)		(4,750)
Unrealized gains (losses) on available-for-sale investments in debt securities (net of taxes of $(64) and $447, respectively, for the three months ended September 30, 2023 and 2022, and $(232) and $447, respectively, for the nine months ended September 30, 2023 and 2022)	212		(1,937)		782		(1,937)
Total other comprehensive income (loss)	206		(3,950)		(1,885)		(6,687)
Comprehensive income (loss)	$	714	$	(8,574)	$	4,300	$	(23,519)

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
Vesting of restricted stock units, net of shares withheld for taxes		400,139	1			(1)		(42,065)	(189)			—		—		(189)
Shares repurchased under the share repurchase program		—	—			—		(200,000)	(988)			—		—		(988)
Stock-based compensation		—	—			3,484		—	—			—		—		3,484
Other comprehensive loss		—	—			—		—	—			(1,291)		—		(1,291)
Net income		—	—			—		—	—			—		11,282		11,282
Balance – June 30, 2023		60,856,628	$	61		$	462,209	(9,551,615)	$	(56,700)		$	(12,004)	$	(173,347)	$	220,219
Vesting of restricted stock units, net of shares withheld for taxes		362,857	—			—		(37,776)	(193)			—		—		(193)
Shares repurchased under the share repurchase program		—	—			—		(1,031,100)	(5,526)			—		—		(5,526)
Stock-based compensation		—	—			3,192		—	—			—		—		3,192
Other comprehensive income		—	—			—		—	—			206		—		206
Net income		—	—			—		—	—			—		508		508
Balance – September 30, 2023		61,219,485	$	61		$	465,401	(10,620,491)	$	(62,419)		$	(11,798)	$	(172,839)	$	218,406

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	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
Exercise of stock options, net of shares withheld for taxes		284,130	—			1,479		—	—			—		—		1,479
Vesting of restricted stock units, net of shares withheld for taxes		264,098	1			(1)		(38,864)	(353)			—		—		(353)
Shares repurchased under the share repurchase program		—	—			—		(1,388,317)	(7,501)			—		—		(7,501)
Stock-based compensation		—	—			3,586		—	—			—		—		3,586
Other comprehensive loss		—	—			—		—	—			(1,996)		—		(1,996)
Net loss		—	—			—		—	—			—		(10,318)		(10,318)
Balance – June 30, 2022		59,542,657	$	60		$	449,282	(2,858,499)	$	(26,076)		$	(7,211)	$	(169,458)	$	246,597
Exercise of stock options, net of shares withheld for taxes		88,966	—			191		—	—			—		—		191
Vesting of restricted stock units, net of shares withheld for taxes		252,161	—			—		(47,577)	(240)			—		—		(240)
Shares repurchased under the share repurchase program		—	—			—		(3,394,326)	(16,078)			—		—		(16,078)
Stock-based compensation		—	—			3,085		—	—			—		—		3,085
Other comprehensive loss		—	—			—		—	—			(3,950)		—		(3,950)
Net loss		—	—			—		—	—			—		(4,624)		(4,624)
Balance – September 30, 2022		59,883,784	$	60		$	452,558	(6,300,402)	$	(42,394)		$	(11,161)	$	(174,082)	$	224,981

See Accompanying Notes to Condensed Consolidated Financial Statements.

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OUTBRAIN INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	6,185	$	(16,832)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Gain on repurchase of convertible debt	(22,594)		—
Depreciation and amortization of property and equipment	5,195		8,061
Amortization of capitalized software development costs	7,261		7,061
Amortization of intangible assets	3,301		4,694
Amortization of discount on marketable securities	(2,875)		(765)
Stock-based compensation	9,153		8,795
Non-cash operating lease expense	3,361		3,224
Provision for credit losses	6,077		2,209
Deferred income taxes	(2,834)		(8,363)
Other	(234)		1,339
Changes in operating assets and liabilities:
Accounts receivable	3,993		16,793
Prepaid expenses and other current assets	(1,566)		(8,189)
Accounts payable and other current liabilities	(28,355)		(32,417)
Operating lease liabilities	(3,279)		(3,042)
Deferred revenue	97		1,904
Other non-current assets and liabilities	5,383		2,261
Net cash used in operating activities	(11,731)		(13,267)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of a business, net of cash acquired	(312)		(45,151)
Purchases of property and equipment	(7,870)		(10,851)
Capitalized software development costs	(7,864)		(9,493)
Purchases of marketable securities	(86,885)		(209,004)
Proceeds from sales and maturities of marketable securities	186,650		—
Other	(9)		(83)
Net cash provided by (used in) investing activities	83,710		(274,582)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt obligations	(96,170)		—
Proceeds from exercise of common stock options and warrants	—		3,944
Treasury stock repurchases and share withholdings on vested awards	(13,251)		(25,890)
Principal payments on finance lease obligations	(1,477)		(2,582)
Payment of contingent consideration liability up to acquisition-date fair value	(547)		—
Net cash used in financing activities	(111,445)		(24,528)

Effect of exchange rate changes	(1,568)		(5,175)

Net decrease in cash, cash equivalents and restricted cash	(41,034)		(317,552)
Cash, cash equivalents and restricted cash — Beginning	105,765		455,592
Cash, cash equivalents and restricted cash — Ending	$	64,731	$	138,040

RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents	$	64,549	$	137,871
Restricted cash, included in other assets	$	182	$	169
Total cash, cash equivalents, and restricted cash	$	64,731	$	138,040

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OUTBRAIN INC.

Condensed Consolidated Statements of Cash Flows (Continued)

(In thousands)


	Nine Months Ended September 30,
	2023		2022
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds	$	7,548	$	4,101
Cash paid for interest	$	6,240	$	7,356

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	$	2,439	$	2,357
Operating lease right-of-use assets obtained in exchange for lease obligations	$	4,505	$	1,153
Acquisition consideration payable	$	258	$	1,195
Stock-based compensation capitalized for software development costs	$	418	$	686

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 technology platform that drives business results by engaging people across the open Internet. Outbrain’s technology provides personalization, engagement and monetization solutions to thousands of digital media properties, including a number of the world’s most prestigious publishers. 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, U.S. treasuries and commercial paper. Most of the Company’s 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 and nine months ended September 30, 2023 or 2022, or 10% or more of its gross accounts receivable balance as of September 30, 2023 and December 31, 2022.

During the three and nine months ended September 30, 2023 and 2022, none of the Company’s media owners accounted for 10% of its 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 would otherwise apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the Company is no longer an 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 advertisers are physically located:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In thousands)
USA	$	70,018	$	76,728	$	211,123	$	247,384
Europe, the Middle East and Africa (EMEA)	136,085		125,766		404,325		405,734
Other	23,912		26,523		72,141		80,998
Total revenue	$	230,015	$	229,017	$	687,589	$	734,116

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contract Balances. There were no contract assets as of September 30, 2023 or December 31, 2022. Contract liabilities primarily relate to advance payments and consideration received from customers. As of September 30, 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 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. Restructuring

On May 31, 2023, the Company announced a reduction in its global workforce of approximately 10%, to adjust to the continued macroeconomic uncertainty, create additional operating efficiencies, and support the Company’s strategic growth and profitability objectives. As a result, the Company recorded pre-tax charges of approximately $2.3 million for employee severance and related benefit costs in its condensed consolidated statement of operations for the second quarter of 2023, $1.5 million of which was recorded within sales and marketing expenses, $0.4 million within research and development expenses, and $0.4 million within general and administrative expenses. These costs were in addition to $0.8 million of severance and related costs related to reorganization activities undertaken in in the first quarter of 2023.

As of September 30, 2023, accrued severance and related liabilities recorded within accrued compensation and benefits in the Company’s condensed consolidated balance sheet were $0.1 million, reflecting cash payments of $3.0 million made during the nine months ended September 30, 2023, with the remainder expected to be paid during the fourth quarter of 2023.

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

5. 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 September 30, 2023 and December 31, 2022 consisted of the following:


		September 30, 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	$	17,109	$	—	$	—	$	17,109	$	17,109	$	—	$	—
U.S. Treasuries	2	13,677		—		(67)		13,610		2,987		10,623		—
U.S. government bonds	2	39,719		—		(299)		39,420		—		34,003		5,417
Commercial paper	2	23,013		—		(23)		22,990		1,988		21,002		—
U.S. Corporate bonds	2	78,981		—		(635)		78,346		—		38,424		39,922
Total cash equivalents and investments		$	172,499	$	—	$	(1,024)	$	171,475	$	22,084	$	104,052	$	45,339


		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 $1.0 million as of September 30, 2023 and December 31, 2022.

On April 14, 2023, in connection with the Company’s partial repurchase of its 2.95% Convertible Senior Notes due 2026 (“Convertible Notes”), the Company redeemed some of its available-for-sale marketable securities prior to their maturities to finance the debt repurchase. The proceeds from the sales of securities were $78.9 million and a gross realized loss of $0.6 million was released from other comprehensive loss and recorded within interest income and other income (expense), net in the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2023. The gross realized loss was determined using the specific identification method.

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


	September 30, 2023
	(In thousands)
Within 1 year	$	126,136
After 1 year through 2 years	45,339
Total fair value	$	171,475

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents the fair value in investments and gross unrealized losses recorded in other comprehensive loss, by investment category and the length of time the securities have been in a continuous loss position:


	September 30, 2023
	Less than 12 Months				12 Months or More				Total
(In thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Treasuries	$	3,924	$	(1)	$	6,699	$	(66)	$	10,623	$	(67)
U.S. government bonds	13,070		(63)		26,349		(236)		39,419		(299)
Commercial paper	22,990		(23)		—		—		22,990		(23)
U.S. Corporate bonds	62,994		(490)		15,353		(145)		78,347		(635)
Total	$	102,978	$	(577)	$	48,401	$	(447)	$	151,379	$	(1,024)

As of December 31, 2022, all of the Company’s marketable securities had been in an unrealized loss position for less than twelve months.

For marketable securities with unrealized loss positions, the Company does not intend to sell these securities and it is more likely than not that the Company will hold these securities until maturity or a recovery of the cost basis. No allowance for credit losses was recorded for these securities as of September 30, 2023 and December 31, 2022.

6. Goodwill and Intangible Assets

The Company’s goodwill balance as of September 30, 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:


	September 30, 2023
	Weighted Average Amortization Period	Gross Value		Accumulated Amortization		Net Carrying Value
	(In thousands)
Developed technology	8.0 years	$	18,411	$	(10,588)	$	7,823
Customer relationships	5.0 years	5,801		(5,323)		478
Publisher relationships	8.0 years	18,628		(10,181)		8,447
Trade names	8.8 years	5,258		(1,587)		3,671
Content provider relationships	5.0 years	284		(98)		186
Other	15.8 years	897		(269)		628
Total intangible assets, net		$	49,279	$	(28,046)	$	21,233

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OUTBRAIN INC.

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 and nine months ended September 30, 2023 and 2022.

As of September 30, 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	$	865
2024	3,460
2025	3,460
2026	3,460
2027	3,115
Thereafter	6,873
Total	$	21,233

7. Balance Sheet Components

Accounts Receivable and Allowance for Credit Losses

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


	September 30, 2023		December 31, 2022
	(In thousands)
Accounts receivable	$	179,947	$	186,770
Allowance for credit losses	(8,708)		(5,512)
Accounts receivable, net of allowance for credit losses	$	171,239	$	181,258

The allowance for credit losses consists of the following activity:


	Nine Months Ended September 30, 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	6,455		3,227
Write-offs	(3,259)		(2,117)
Allowance for credit losses, ending balance	$	8,708	$	5,512

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consists of the following:


	September 30, 2023		December 31, 2022
	(In thousands)
Prepaid traffic acquisition costs	$	26,410	$	23,149
Prepaid taxes	12,396		15,280
Prepaid software licenses	2,239		2,465
Other prepaid expenses and other current assets	5,964		5,867
Total prepaid expenses and other current assets	$	47,009	$	46,761

Property, Equipment and Capitalized Software, Net

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


	September 30, 2023		December 31, 2022
	(In thousands)
Capitalized software development costs	$	75,965	$	67,685
Computer and equipment	65,708		59,536
Software	3,221		3,113
Leasehold improvements	3,207		2,859
Furniture and fixtures	1,066		1,177
Property, equipment, and capitalized software, gross	149,167		134,370
Less: accumulated depreciation and amortization	(105,969)		(94,480)
Total property, equipment and capitalized software, net	$	43,198	$	39,890

Accrued and Other Current Liabilities

Accrued and other current liabilities consists of the following:


	September 30, 2023		December 31, 2022
	(In thousands)
Accrued traffic acquisition costs	$	75,978	$	73,396
Accrued tax liabilities	13,720		15,013
Accrued agency commissions	9,783		13,451
Accrued professional fees	4,032		4,915
Operating lease obligations, current	3,411		3,236
Interest payable	696		3,074
Finance lease obligations, current	593		1,758
Other	9,247		11,249
Total accrued and other current liabilities	$	117,460	$	126,092

In addition to accrued traffic acquisition costs, accounts payable includes $114.3 million and $136.8 million of traffic acquisition costs as of September 30, 2023 and December 31, 2022, respectively.

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

8. 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:


	September 30, 2023
	Level I		Level II		Level III		Total
	(In thousands)
Financial Assets:
Cash equivalents and investments (1)	$	17,109	$	154,366	$	—	$	171,475
Restricted time deposit (2)	—		182		—		182
Severance pay fund deposits (2)	—		4,354		—		4,354
Foreign currency forward contract (3)	—		38		—		38
Total financial assets	$	17,109	$	158,940	$	—	$	176,049
Financial Liabilities:
Foreign currency forward contract (4)	—		1,627		—		1,627
Total financial liabilities	$	—	$	1,627	$	—	$	1,627


	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, and corporate bonds are considered Level II and are obtained from independent pricing services, which may use various methods, including quoted prices for identical or similar securities in active and inactive markets. See Note 5 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 protected 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 Silicon Valley Bridge Bank, N.A and the Company’s existing foreign currency forward contracts were assumed by First Citizens Bank. During the three and nine months ended September 30, 2023, the Company recognized net losses of $1.0 million and $1.2 million, respectively, within interest income and other income (expense), net in its condensed consolidated statements of operations, related to mark-to-market adjustments on its undesignated foreign currency forward contacts. The Company recorded corresponding net gains of $0.4 million and net losses of $3.6 million, respectively, for the three and nine months ended September 30, 2022.

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


	September 30, 2023				December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
			(In thousands)
Convertible Notes	$	118,000	$	95,745	$	236,000	$	180,752

See Note 10 for additional information relating to the Convertible Notes, half of which were repurchased in April 2023.

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OUTBRAIN INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

9. 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	September 30, 2023		December 31, 2022
		(In thousands)
Lease assets:
Operating leases	Operating lease right-of-use assets, net	$	12,657	$	11,065
Finance leases	Property, equipment and capitalized software, net	533		1,858
Total lease assets		$	13,190	$	12,923

Lease liabilities:
Current liabilities:
Operating leases	Accrued and other current liabilities	$	3,411	$	3,236
Finance leases	Accrued and other current liabilities	593		1,758
Non-current liabilities:
Operating leases	Operating lease liabilities, non-current	9,940		8,445
Finance leases	Other liabilities	—		254
Total lease liabilities		$	13,944	$	13,693

The following table presents the components of the Company’s total lease expense:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In thousands)
Operating lease cost
Fixed lease costs (1)	$	1,079	$	1,091	$	3,361	$	3,224
Variable lease costs (2)	98		54		256		116
Short-term lease costs (1)	157		137		459		411
Finance lease cost:
Depreciation (3)	397		657		1,324

Outbrain Inc. [OB] Filings
10-Q	[2023-11-07]
10-Q	[2023-08-08]
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]