10-Q 1 ef20012468_10q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q


☒
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: 001-40566

TABOOLA.COM LTD.
(Exact name of registrant as specified in its charter)


Israel
(State or other jurisdiction of
incorporation or organization)
Not Applicable
(I.R.S. Employer
Identification No.)
 
16 Madison Square West
7th Floor
New York, NY
(Address of principal executive offices)
10010
(Zip code)
 
212-206-7633
(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on which registered
Ordinary shares, no par value
 
TBLA
 
The Nasdaq Global Market
Warrants to purchase Ordinary shares
 
TBLAW
 
The Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act: None

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 ☐ No

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 ☐ No

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

As of October 31, 2023 the Registrant had outstanding 298,239,500 Ordinary shares and 45,198,702 Non-Voting Ordinary shares.

Taboola.com Ltd.
Quarterly Report on Form 10-Q
Table of Contents
Page No.
PART I.
4
Item 1.
4
 
4
 
5
  6
  7
  9
  11
Item 2.
 28
Item 3.
 49
Item 4.
 50
PART II.
 51
Item 1.
 51
Item 1A.
51
Item 2.
 52
Item 3.
 52
Item 4.
 52
Item 5.
 52
Item 6.
 53
  53

2
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Unless otherwise stated or unless the context otherwise requires, the terms “Company,” “the registrant,” “our company,” “the company,” “we,” “us,” “our,” “ours,” and “Taboola” refer to Taboola.com Ltd., a company organized under the laws of the State of Israel, and its consolidated subsidiaries.

3
PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

TABOOLA.COM LTD.

CONSOLIDATED INTERIM BALANCE SHEETS
U.S. dollars in thousands, except share and per share data

   
September 30,
    
December 31,
  
   
2023
    
2022
  
   
Unaudited
        
ASSETS
            
CURRENT ASSETS
            
Cash and cash equivalents
  
$
238,259
    
$
165,893
  
Short-term investments
    
12,467
      
96,914
  
Restricted deposits
    
1,487
      
750
  
Trade receivables (net of allowance for credit losses of $10,794 and $6,748 as of September 30, 2023 and December 31, 2022, respectively)
   
232,118
      
256,708
  
Prepaid expenses and other current assets
    
71,549
      
73,643
  
Total current assets
    
555,880
      
593,908
  
NON-CURRENT ASSETS
                
Long-term prepaid expenses
    
40,854
      
42,945
  
Commercial agreement asset
    
289,451
      
—
  
Restricted deposits
    
4,111
      
4,059
  
Deferred tax assets, net
    
3,467
      
3,821
  
Operating lease right of use assets
    
65,003
      
66,846
  
Property and equipment, net
    
75,792
      
73,019
  
Intangible assets, net
    
141,235
      
189,156
  
Goodwill
    
555,931
      
555,869
  
Total non-current assets
    
1,175,844
      
935,715
  
Total assets
  
$
1,731,724
    
$
1,529,623
  
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
CURRENT LIABILITIES
            
Trade payables
  
$
252,727
    
$
247,504
  
Short-term operating lease liabilities
    
19,015
      
14,753
  
Accrued expenses and other current liabilities
    
108,229
      
102,965
  
Current maturities of long-term loan
    
53,000
      
3,000
  
Total current liabilities
    
432,971
      
368,222
  
LONG-TERM LIABILITIES
                
Long-term loan, net of current maturities
    
141,829
      
223,049
  
Long-term operating lease liabilities
    
52,232
      
57,928
  
Warrants liability
    
6,023
      
6,756
  
Deferred tax liabilities, net
    
25,560
      
34,133
  
Other long-term liabilities
    
6,000
      
5,000
  
Total long-term liabilities
    
231,644
      
326,866
  
COMMITMENTS AND CONTINGENCIES (Note 12)
      
       
SHAREHOLDERS’ EQUITY
                
Ordinary shares with no par value- Authorized: 700,000,000 as of September 30, 2023 and December 31, 2022; 300,692,928 and 254,133,863 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
    
—
      
—
  
Non-voting Ordinary shares with no par value- Authorized: 46,000,000 as of September 30, 2023 and December 31, 2022; 45,198,702 and 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
    
—
      
—
  
Treasury Ordinary shares, at cost - 6,672,915 and 0 shares as of September 30, 2023 and December 31, 2022, respectively
     (23,157 )     —  
Additional paid-in capital
    
1,244,667
      
903,789
  
Accumulated other comprehensive loss
    
(218
)
    
(834
)
Accumulated deficit
    
(154,183
)
    
(68,420
)
Total shareholders’ equity
    
1,067,109
      
834,535
  
Total liabilities and shareholders’ equity
  
$
1,731,724
    
$
1,529,623
  

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

4
TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF LOSS
U.S. dollars in thousands, except share and per share data

   
Three months ended
September 30,
    
Nine months ended
September 30,
  
    2023
    2022
     2023     2022
  
    Unaudited
 
Revenues
  
$
360,221
    
$
332,462
     $ 1,019,911     $ 1,029,883  
Cost of revenues:
                                
Traffic acquisition cost
    
231,786
      
203,125
       652,602       619,109  
Other cost of revenues
    
27,776
      
26,649
       80,001       79,695  
                                 
Total cost of revenues
    
259,562
      
229,774
       732,603
       698,804  
                                 
Gross profit
    
100,659
      
102,688
       287,308       331,079  
                                 
Operating expenses:
                                
Research and development
    
35,890
      
36,237
       101,876       100,728  
Sales and marketing
    
59,664
      
63,216
       181,431       190,989  
General and administrative
    
23,839
      
24,685
       76,533       78,062  
Total operating expenses
    
119,393
      
124,138
       359,840       369,779  
                                 
Operating loss
    
(18,734
)
    
(21,450
)
     (72,532 )     (38,700 )
Finance income (expenses), net
    
(4,402
)
    
(3,570
)
     (11,383 )     12,389  
                                 
Loss before income taxes expenses
    
(23,136
)
    
(25,020
)
     (83,915 )     (26,311 )
Income tax expenses
    
—
      
(1,006
)
     (1,848 )     (848 )
Net loss
  
$
(23,136
)
  
$
(26,026
)
   $ (85,763 )   $ (27,159 )
                                 
Net loss per share attributable to Ordinary and Non-voting Ordinary shareholders, basic and diluted
   $
(0.07
)
  
$
(0.10
)
   $
 (0.25 )   $ (0.11 )

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

5
TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands

   
Three months ended
September 30,
    
Nine months ended
September 30,
  
   
2023
    
2022
     2023
     2022
  
   
Unaudited
  
Net loss
  
$
(23,136
)
  
$
(26,026
)
   $ (85,763 )   $ (27,159 )
Other comprehensive income (loss):
                                
Unrealized gains (losses) on available-for-sale marketable securities
    
46
      
(445
)
     503       (704 )
Unrealized gains (losses) on derivative instruments, net
    
570
      
1,504
       113       (2,020 )
Other comprehensive income (loss)
    
616
      
1,059
       616       (2,724 )
Comprehensive loss
  
$
(22,520
)
  
$
(24,967
)
   $ (85,147 )   $ (29,883 )

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

6
TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS’ EQUITY
U.S. dollars in thousands, except share and per share data

   
Non-voting Ordinary
shares
    
Ordinary shares
                                
   
Number
    
Amount
    
Number
    
Amount
    
Treasury
Ordinary
shares
   
Additional
paid-in
capital
    
Accumulated
deficit
    
Accumulated
other
comprehensive
loss
    
Total
shareholders’
equity
  
                                                       
Balance as of June 30, 2023 (unaudited)
    
45,198,702
    
$
—
      
300,637,035
    
$
—
     $
 (4,358 )  
$
1,226,572
    
$
(131,047
)
  
$
(834
)
  
$
1,090,333
  
Share-based compensation expenses
    
—
      
—
      
—
      
—
       —      
16,650
      
—
      
—
      
16,650
  
Repurchase of Ordinary Shares
     —       —       (5,230,915 )     —       (18,799 )     —       —       —       (18,799 )
Exercise of options and vested RSUs
    
—
      
—
      
4,705,408
      
—
       —      
2,750
      
—
      
—
      
2,750
  
Connexity issuance of Holdback 
    —       —       581,400       —       —       —       —       —       —  
Payments of tax withholding for share-based compensation
    
—
      
—
      
—
      
—
       —      
(1,305
)
    
—
      
—
      
(1,305
)
Other comprehensive income
    
—
      
—
      
—
      
—
       —      
—
      
—
      
616
      
616
  
Net loss
    
—
      
—
      
—
      
—
       —      
—
      
(23,136
)
    
—
      
(23,136
)
Balance as of September 30, 2023 (unaudited)
    
45,198,702
    
$
—
      
300,692,928
    
$
—
     $
 (23,157 )  
$
1,244,667
    
$
(154,183
)
  
$
(218
)
  
$
1,067,109
  

    Ordinary shares              
       
   
Number
    
Amount
    
Additional
paid-in
capital
    
Accumulated
deficit
    
Accumulated
other
comprehensive
loss
    
Total
shareholders’
equity
  
 
                                    
Balance as of June 30, 2022 (unaudited)
    
240,679,908
    
$
—
    
$
869,201
    
$
(57,578
)
  
$
(3,783
)
  
$
807,840
  
Share-based compensation expenses
    
—
      
—
      
19,150
      
—
      
—
      
19,150
  
Exercise of options and vested RSUs
    
5,441,506
      
—
      
1,419
      
—
      
—
      
1,419
  
Connexity issuance of Holdback 
    1,227,010       —       —       —       —       —  
Payments of tax withholding for share-based compensation
    
—
      
—
      
(1,925
)
    
—
      
—
      
(1,925
)
Other comprehensive income
    
—
      
—
      
—
      
—
      
1,059
   
1,059
Net loss
    
—
      
—
      
—
      
(26,026
)
    
—
      
(26,026
)
Balance as of September 30, 2022 (unaudited)
    
247,348,424
    
$
—
    
$
887,845
    
$
(83,604
)
  
$
(2,724
)
  
$
801,517
  

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

7
CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS’ EQUITY
U.S. dollars in thousands, except share and per share data

   
Non-voting Ordinary
shares
   
Ordinary shares
                        
        
   
Number
    
Amount
    
Number
    
Amount
    
Treasury
Ordinary
shares
    
Additional
paid-in
capital
    
Accumulated
deficit
    
Accumulated
other
comprehensive
loss
    
Total
shareholders’
equity
  
                                                       
Balance as of January 1, 2023
    
—
    
$
—
      
254,133,863
    
$
—
     $
 —    
$
903,789
    
$
(68,420
)
  
$
(834
)
  
$
834,535
  
Share-based compensation expenses
    
—
      
—
      
—
      
—
       —      
50,599
      
—
      
—
      
50,599
  
Repurchase of Ordinary Shares
     —       —       (6,672,915 )     —       (23,157 )     —       —       —       (23,157 )
Exercise of options and vested RSUs
    
—
      
—
      
12,543,489
      
—
       —      
5,429
      
—
      
—
      
5,429
  
Connexity issuance of Holdback
    —       —        1,162,800       —       —       —       —
       —       —  
Issuance of Ordinary shares and Non-voting Ordinary shares related to Commercial agreement
    
45,198,702
      
—
      
39,525,691
      
—
       —      
288,063
      
—
      
—
      
288,063
  
Payments of tax withholding for share-based compensation
    
—
      
—
      
—
      
—
       —      
(3,213
)
    
—
      
—
      
(3,213
)
Other comprehensive income
    
—
      
—
      
—
      
—
       —      
—
      
—
      
616
      
616
  
Net loss
    
—
      
—
      
—
      
—
       —      
—
      
(85,763
)
    
—
      
(85,763
)
Balance as of September 30, 2023 (unaudited)
    
45,198,702
    
$
—
      
300,692,928
    
$
—
     $
 (23,157 )  
$
1,244,667
    
$
(154,183
)
  
$
(218
)
  
$
1,067,109
  

    Ordinary shares                
      
   
Number
    
Amount
    
Additional paid-in
capital
    
Accumulated
deficit
    
Accumulated
other
comprehensive
loss
    
Total
shareholders’
equity
  
 
                                    
Balance as of January 1, 2022
    
234,031,749
    
$
—
    
$
824,016
    
$
(56,445
)
  
$
—
    
$
767,571
  
Share-based compensation expenses
    
—
      
—
      
60,431
      
—
      
—
      
60,431
  
Exercise of options and vested RSUs
    
12,089,665
      
—
      
7,508
      
—
      
—
      
7,508
  
Connexity issuance of Holdback
    1,227,010       —       —
       —       —       —  
Payments of tax withholding for share-based compensation
    
—
      
—
      
(4,110
)
    
—
      
—
      
(4,110
)
Other comprehensive loss
    
—
      
—
      
—
      
—
      
(2,724
)
    
(2,724
)
Net loss
    
—
      
—
      
—
      
(27,159
)
    
—
      
(27,159
)
Balance as of September 30, 2022 (unaudited)
    
247,348,424
    
$
—
    
$
887,845
    
$
(83,604
)
  
$
(2,724
)
  
$
801,517
  

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

8
TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

   
Nine months ended
September 30,
  
   
2023
    
2022
  
   
Unaudited
  
Cash flows from operating activities
            
Net loss
  
$
(85,763
)
  
$
(27,159
)
                 
Adjustments to reconcile net loss to net cash flows provided by operating activities:
                
Depreciation and amortization
    
70,709
      
68,711
  
Share-based compensation expenses
    
48,868
      
58,971
  
Net loss from financing expenses
    
1,269
      
7,733
  
Revaluation of the Warrants liability
    
(733
)
    
(26,988
)
Amortization of loan and credit facility issuance costs
    
1,220
      
1,006
  
Amortization of premium and accretion of discount on short-term investments, net
    
(923
)
    
(322
)
                 
Change in operating assets and liabilities:
                
Decrease in trade receivables, net
    
24,590
      
60,672
  
Decrease (increase) in prepaid expenses and other current assets and long-term prepaid expenses
    
2,554
      
(13,921
)
Increase (decrease) in trade payables
    
2,222
      
(54,659
)
Increase (decrease) in accrued expenses and other current liabilities and other long-term liabilities
    
5,377
      
(25,516
)
Decrease in deferred taxes, net
    
(8,218
)
    
(9,676
)
Change in operating lease right of use assets
    
12,447
      
11,536
  
Change in operating lease liabilities
    
(12,038
)
    
(16,962
)
Net cash provided by operating activities
    
61,581
      
33,426
  
                 
Cash flows from investing activities
                
Purchase of property and equipment, including capitalized internal-use software
    
(19,839
)
    
(28,476
)
Cash paid in connection with acquisitions, net of cash acquired
    
—
      
(7,981
)
Proceeds from (investment in) restricted deposits
    
(594
)
    
98
  
Proceeds from sales and maturities of short-term investments
    
107,669
      
6,160
  
Purchase of short-term investments
     (21,991 )     (126,382 )
Net cash provided by (used in) investing activities
    
65,245
      
(156,581
)
                 
Cash flows from financing activities
                
Exercise of options and vested RSUs
    
5,429
      
7,467
  
Payment of tax withholding for share-based compensation expenses
    
(3,213
)
    
(4,110
)
Repurchase of Ordinary shares
     (23,157 )     —  
Repayment of long-term loan
    
(32,250
)
    
(2,250
)
   Costs associated with entering into a revolving credit facility
     —       (1,061 )
Net cash provided by (used in) financing activities
    
(53,191
)
    
46
  
                 
Exchange rate differences on balances of cash and cash equivalents
    
(1,269
)
    
(7,733
)
Increase (decrease) in cash and cash equivalents
    
72,366
      
(130,842
)
Cash and cash equivalents - at the beginning of the period
    
165,893
      
319,319
  
Cash and cash equivalents - at end of the period
  
$
238,259
    
$
188,477
  

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

9
TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

   
Nine months ended
September 30,
  
   
2023
    
2022
  
   
Unaudited
  
Supplemental disclosures of cash flow information:
  
Cash paid during the year for:
            
Income taxes
  
$
9,935
    
$
22,599
  
Interest
  
$
14,580
    
$
15,094
  
Non-cash investing and financing activities:
                
Purchase of property and equipment, including capitalized internal-use software
  
$
5,694
    
$
2,764
  
Share-based compensation included in capitalized internal-use software
  
$
1,731
    
$
1,460
  
Creation of operating lease right-of-use assets
  
$
10,604
    
$
11,648
  

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

10
TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 1:-
GENERAL

a.
Taboola.com Ltd. (together with its subsidiaries, the “Company” or “Taboola”) was incorporated under the laws of the state of Israel on September 3, 2006.
Taboola is a technology company that powers recommendations across the Open Web with an artificial intelligence-based, algorithmic engine developed since the Company began operations in 2007. Taboola partners with websites, devices, and mobile apps (collectively referred to as “digital properties”), to recommend editorial content and advertisements on the Open Web. Digital properties use Taboola’s technology platforms to achieve their business goals, such as driving new audiences to their sites and apps or increasing engagement with existing audiences. Taboola also provides monetization opportunities to digital properties by surfacing paid recommendations by advertisers. Taboola is a business-to-business company with no competing consumer interests. Taboola empowers advertisers to leverage its proprietary AI-powered recommendation platform to reach targeted audiences utilizing effective, native ad-formats across digital properties. As part of the Company e-Commerce offerings, it also syndicates its retailer advertisers’ monetized product listings and links (clickable advertisements) into commerce content-oriented consumer experiences on both the Open Web and within the dominant traditional ad platforms. Taboola generates revenues when people (consumers) click on, purchase from or, in some cases, view the ads that appear within its recommendation platform. The Company’s customers are the advertisers, merchants and affiliate networks that advertise on the Company’s platform (“Advertisers”). Advertisers pay Taboola for those clicks, purchases or impressions, and Taboola shares a portion of the resulting revenue with the digital properties who display those ads.

b.
In November 2022, the Company announced it entered into a 30-year exclusive commercial agreement (the “Commercial agreement”) with Yahoo Inc. and affiliated entities (“Yahoo”), under which Taboola will power native advertising across all of Yahoo’s digital properties, expanding the Company’s native advertising offering. In connection with this transaction, and following approval by the Company’s shareholders on December 30, 2022, the articles of association of the Company were amended and restated (the “Articles”) in their entirety to include a Non-voting Ordinary share class with an authorized share capital of 46,000,000. On January 17, 2023 (the “Transaction closing date”), the Company closed the transaction related agreements, including the issuance of 39,525,691 Ordinary shares and 45,198,702 Non-voting Ordinary shares to Yahoo. Based on the closing share price, on January 17, 2023, of $3.4 per share, the aggregate fair value of the issued shares amounted to $288,063. As part of the Ordinary and Non-voting Ordinary shares issuance, the Company incurred $1,388 issuance expenses.
The Non-voting Ordinary shares are not entitled to vote on or receive notices with respect to any matter pursuant to our Articles and are not entitled to vote or to be counted for purposes of determining whether any vote required under the Articles has been approved by the requisite percentage of voting securities or to be counted towards any quorum required pursuant to the Articles. Except with respect to the voting rights and to the rights to receive notice of meetings of the shareholders, the Non-voting Ordinary shares have rights identical to the rights of Ordinary shares. In connection with the transaction, the Company and Yahoo entered into an Investor Rights Agreement, under which, inter alia, Yahoo is entitled, in certain circumstances, to cause the Company to register the Ordinary shares issued to Yahoo for resale under the Securities Act of 1933, as amended.

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of Taboola.com Ltd. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited consolidated financial statements as of that date, but does not include all of the disclosures, including certain notes required by GAAP on an annual reporting basis. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

Therefore, these unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2022, filed with the SEC on March 13, 2023.

In the opinion of the Company’s management, the unaudited consolidated interim financial statements have been prepared on a basis consistent with the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s unaudited interim consolidated financial statements. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the full year ending December 31, 2023, or any other future interim or annual period.

Use of Estimates

The preparation of the interim 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 disclosure of contingent assets and liabilities at the dates of the interim consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period and accompanying notes. Actual results could differ from those estimates.

The Company’s management regularly evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination of revenue reporting as gross versus net in the Company’s revenue arrangements, (2) allowances for credit losses, (3) operating lease assets and liabilities, including the incremental borrowing rate and terms and provisions of each lease (4) the useful lives of its Commercial agreement asset, property and equipment and capitalized software development costs, (5) income taxes, (6) assumptions used in the option pricing models to determine the fair value of share-based compensation (7) the fair value of financial assets and liabilities, including the fair value of marketable securities, Private Warrants and derivative instruments (8) the fair value of acquired intangible assets and goodwill annual impairment test, and (9) the recognition and disclosure of contingent liabilities.

These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances; the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

As of September 30, 2023, the impacts to the Company’s business due to geopolitical developments and macroeconomic factors, such as rising interest rates, inflation and changes in foreign currency exchange rates, continue to evolve. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.

Significant Accounting Policies

The Company’s significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2022, as filed with the SEC on March 13, 2023. There have been no significant changes to these policies during the nine months ended September 30, 2023, except as noted below.

Treasury Ordinary Shares

The Company may repurchase its Ordinary shares from time to time in the open market, or in other transactions, and holds such shares as treasury Ordinary shares. The Company presents the cost to repurchase treasury Ordinary shares as a separate component and as a reduction of shareholders’ equity.

The Company may reissue treasury Ordinary shares from time to time for various corporate purposes, including in connection with compensatory awards.

Reclassification

Certain amounts in the corresponding prior periods have been reclassified to conform with the current year’s presentation. Such reclassifications did not affect net loss, changes in the shareholders’ equity or cash flows.

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 3:-
CASH AND CASH EQUIVALENTS
The following table presents for each reported period, the breakdown of cash and cash equivalents:

   
September 30,
    
December 31,
  
   
2023
    
2022
  
   
Unaudited
        
             
Cash
  
$
113,350
    
$
142,127
  
Money market accounts and funds
    
120,334
      
22,583
  
Time deposits
    
4,575
      
1,183
  
Total Cash and cash equivalents
  
$
238,259
    
$
165,893
  

NOTE 4:-
FAIR VALUE MEASUREMENTS

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them for each reporting period. The Company did not have any transfers between fair value measurements levels in the nine months ended September 30, 2023.

The following table sets forth the Company’s assets and liabilities that were measured at fair value as of September 30, 2023 and December 31, 2022, by level within the fair value hierarchy:

         
Fair value measurements
as of
  
Description
  
Fair Value
Hierarchy
  
September 30,
2023
    
December 31,
2022
  
 
        
Unaudited
        
Assets:
                
Cash equivalents:
                
Money market accounts and funds
  
Level 1
  
$
120,334
    
$
22,583
  
Short-term investments:
                    
Corporate debt securities
  
Level 2
  
$
7,932
    
$
21,636
  
Commercial paper
  
Level 2
  
$
4,535
    
$
8,565
  
U.S. government treasuries
  
Level 2
  
$
—
    
$
46,222
  
U.S. agency bonds
    Level 2   $
—     $
20,491  

                   
Liabilities:
                    
Warrants liability:
                    
Public Warrants
  
Level 1
  
$
(3,734
)
  
$
(2,856
)
Private Warrants
  
Level 3
  
$
(2,289
)
  
$
(3,900
)
Derivative instruments liability:
                    
Derivative instruments designated as cash flow hedging instruments
  
Level 2
  
$
(200
)
  
$
(313
)

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 4:- FAIR VALUE MEASUREMENTS (Cont.)

The Company classifies its money market accounts and funds as Level 1 based on quoted market prices in active markets.

The Company classifies its U.S. government treasuries, corporate debt securities, commercial paper, U.S. agency bonds and derivative financial instruments within Level 2 as they are valued using inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded.

The Company measures the fair value for Warrants by using a quoted price for the Public Warrants, which are classified as Level 1, and a Black-Scholes simulation model for the Private Warrants, which are classified as Level 3, due to the use of unobservable inputs.


The key inputs into the Black-Scholes model for the Private Warrants were as follows:

Input
  
September 30,
2023
    
December 31,
2022
  
             
Risk-free interest rate
    
4.74% - 4.91
%
    
4.08% - 4.18
%
Expected term (years)
    
2.01 - 2.75
      
2.75 - 3.50
  
Expected volatility
    
66.0% - 69.0
%
    
67.5% - 69.3
%
Exercise price
  
$
11.50
    
$
11.50
  
Underlying share price
  
$
3.79
    
$
3.08
  

The Company’s use of a Black-Scholes model required the use of subjective assumptions:

●
The risk-free interest rate assumption was interpolated based on constant maturity U.S. Treasury rates over a term commensurate with the expected term of the Private Warrants.

●
The expected term was based on the maturity of the Private Warrants of five years following June 29, 2021, the Business Combination date (as defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023), and for certain Private Warrants the maturity date was determined to be five years from October 1, 2020, ION initial public offering effective date.

●
The expected share volatility assumption was based on the implied volatility from a set of comparable publicly-traded companies as determined based on size and proximity.

The following table presents the changes in the fair value of Warrants liability:

   
Private
    
Public
    
Total
  
Input
  
Warrants
    
Warrants
    
Warrants
  
                   
Fair value as of December 31, 2022
  
$
3,900
    
$
2,856
    
$
6,756
  
Change from private to public holdings     (1,714 )     1,714       —  
Change in fair value
    
103
      
(836
)
    
(733
)
Fair value as of September 30, 2023 (unaudited)
  
$
2,289
    
$
3,734
    
$
6,023
  

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:-
SHORT-TERM INVESTMENTS

The following is a summary of available-for-sale marketable securities:

   
September 30, 2023
  
   
Unaudited
  
   
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Estimated
Fair
Value
  
Corporate debt securities
   $
7,943
     $
—
     $
(11
)
   $
7,932
  
Commercial paper
    
4,542
      
—
      
(7
)
    
4,535
  
Total
  
$
12,485
    
$
—
    
$
(18
)
  
$
12,467
  

   
December 31, 2022
  
   
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Estimated
Fair
Value
  
U.S. government treasuries
  
$
46,452
    
$
—
    
$
(230
)
   $ 46,222  
Corporate debt securities
    
21,762
      
—
      
(126
)
     21,636  
U.S. agency bonds
    
20,622
      
—
      
(131
)
     20,491  
Commercial paper
    
8,599
      
—
      
(34
)
     8,565  
Total
  
$
97,435
    
$
—
    
$
(521
)
   $
96,914  

As of September 30, 2023, the Company had no significant unrealized losses related to marketable securities (which were accumulated in a period of less than 12 months) and determined the unrealized losses are not due to credit related losses, therefore, the Company did not record an allowance for credit losses for its available-for-sale marketable securities.
As of September 30, 2023, all of the Company’s available-for-sale marketable securities were due within one year.

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 6:-
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company enters into foreign currency forward contracts and put and call options with financial institutions to protect itself against the foreign exchange risks, mainly exposure to changes in the exchange rate of the New Israeli Shekel (“NIS”) against the U.S dollar that are associated with forecasted future cash flows for up to twelve months. The Company’s risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates; these derivative instruments are designated as cash flow hedges. The Company does not enter into derivative transactions for trading or speculative purposes.

As of September 30, 2023 and December 31, 2022, the notional amounts of the Company’s derivative instruments designated as cash flow hedging instruments outstanding are in U.S. dollars amounted to $4,415 and $38,669, respectively.

Gross notional amounts do not quantify risk or represent assets or liabilities of the Company but are used in the calculation of settlements under the contracts.
The Company records all cash flow hedging instruments on the consolidated balance sheets at fair value. The fair value of cash flow hedging instruments recorded as liabilities were $200 and $313 as of September 30, 2023 and December 31, 2022, respectively, which were recorded in accrued expenses and other current liabilities in the consolidated interim balance sheet.

The changes related to cash flow hedging instruments, recorded in the consolidated interim statements of loss, for the three and nine months ended September 30, 2023 and 2022, were as follows:

   
Reclassification of losses into loss from accumulated
other comprehensive loss
  
   
Three months ended
September 30,
    
Nine months ended
September 30,
  
   
2023
     2022
     2023     2022  
   
Unaudited
  
Cost of revenues
  
$
60
    
$
145
     $
142     $
 290  
Research and development
    
627
      
992
       1,478       1,971  
Sales and marketing
    
114
      
190
       270       376  
General and administrative
    
117
      
165
       270       329  
Total losses recognized in the consolidated interim statements of loss
  
$
918
    
$
1,492
     $
 2,160     $
 2,966  

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 6:-
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Cont.)

Effect of Foreign Currency Contracts on Accumulated Other Comprehensive Loss
Net unrealized losses of foreign currency contracts designated as cash flow hedging instruments are recorded in accumulated other comprehensive loss.

The changes in unrealized losses on the Company’s derivative instruments recorded in accumulated other comprehensive loss were as follows:

   
Nine months ended
September 30,
  
   
2023
    
2022
  
   
Unaudited
  
Unrealized losses on derivative instruments at the beginning of the period
   $ (313 )   $
 —  
Changes in fair value of derivative instruments
     (2,047 )     (4,986 )
Reclassification of losses recognized in the consolidated interim statements of loss from accumulated other comprehensive loss
     2,160       2,966  
Unrealized losses on derivative instruments at the end of the period
   $ (200 )   $
 (2,020 )
All net deferred losses in accumulated other comprehensive losses as of September 30, 2023, are expected to be recognized over the next twelve months as operating expenses in the same financial statement line item in the consolidated interim statements of loss to which the derivative relates.

NOTE 7:-
GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill
The following table represents the changes in the carrying amounts of the Company’s total goodwill:
   
Carrying
Amount
  
       
Balance as of December 31, 2022
  
$
555,869
  
Purchase accounting adjustment
    
62
  
Balance as of September 30, 2023 (unaudited)
  
$
555,931
  

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:-
GOODWILL AND INTANGIBLE ASSETS, NET (Cont.)

Intangible Assets, Net

The following is a summary of definite-lived intangible assets, net as of September 30, 2023 (unaudited):
 

  
Gross Carrying
Amount
    
Accumulated
Amortization