Good day, and thank you for standing by. Welcome to Taboola’s First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference may be recorded. I would now like to hand the conference over to your speaker today, Jennifer Horsley, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Taboola's first quarter 2022 earnings conference call. I'm here with Adam Singolda, our Founder and CEO; and Steve Walker, our CFO. We issued our earnings press release yesterday aftermarket, and it is available, along with our Q1 Shareholder Letter in the Investors section of our website. Now, I'll quickly cover the Safe Harbor. Certain statements today, including our expectations for future periods, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information, and we undertake no duty to update them, except as required by law. Today's discussion is also subject to the forward-looking statement limitations in the earnings press release. Future events could differ materially and adversely from those anticipated. During this call, we will use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings release posted on our website. With that, I'll turn the call over to Adam.

Thank you, Jen. Good morning, everyone, and thank you all for joining us for our first quarter call. Q1 was a strong quarter; we beat our targets, delivering 31% ex-TAC gross profit growth over Q1 of last year, right from 4% on a pro forma basis. We also generated $35 million of adjusted EBITDA despite a very challenging macro environment. Before I walk through the highlights from the quarter though, I want to address the revised guidance we issued today in conjunction with our results. The revision was driven by basically two factors: the main factor is the economic uncertainty caused by the war in Ukraine, which increased in the second quarter in a bigger way; and secondly, the advertising business in Europe. More than 30% of our revenue and global yields are from advertisers in Europe. In many ways, it's similar to what we saw in the pandemic, but obviously on a smaller scale where businesses slowed down their spending, primarily in Europe. The second factor is the launch of our bidder, which is now live and off to a good start, but still behind plan. Now that we're live and we're seeing real data, we're even more bullish about the growth opportunity here, not only on Microsoft itself but also on other platforms, which we do plan on integrating via header bidding in the short term. Due to these two factors, we are lowering our full-year 2022 guidance ranges and expect gross profit to be between $595 million to $616 million and adjusted EBITDA to be between $152 million to $162 million. Steve will speak more about our guidance in a few minutes as well. I'm obviously not happy about having to adjust guidance, especially after a strong first quarter. I can assure you that our new guidance factors in both of these two one-time events, and we do not want to do this again. The fundamentals of our business are strong; we are profitable, generating cash, and we have technological advantages. Our team is passionate and energized, and our intention is to keep meeting and exceeding our clients', partners', and investors' expectations. Looking beyond the two events, we are profitable and growing, expecting to generate significant cash flow in 2022 with this new guidance. Overall, the business is gaining a lot of momentum in the areas we love. We won new deals, expanded relationships with important partners, launched new products, and made progress in capturing more of the $64 billion open web advertising market. There are a few things that I want to highlight that I'm very excited about. First, I’m taking a much bigger focus on growing our performance advertisers, achieving even greater scale and relevance. Aiming to achieve something that I believe only four companies have ever done: Amazon, Google, Snap, and Facebook. Many advertisers, big and small, rely on them to grow. We're going big here, and you should expect SmartBid to receive even more attention and innovation. As an example, our new guidance assumes that we will double our engineers in that area over the next year and quadruple over the next two years. This includes, of course, our AI engineers as well. On the other side of it, and over time, we see Taboola as a place where any performance advertiser can find positive ROI and succeed, especially as social networks will not be able to target consumers as effectively as they used to. I believe in the open web and contextual advertising as a significant part of the future for advertisers. The second thing I want to highlight is that during our Investor Day, I spoke a lot about our endless growth opportunities and the momentum we're generating by replacing traditional banners with personalized relevant recommendations. You see, most of the $64 billion open web advertising market is made up of banners—advertising formats invented 30 years ago, when Tamagotchis and DVDs were popular. While Tamagotchis and DVDs are long gone, banners remain in the digital space. As you think about our total addressable market (TAM) and our growth, we're liberating the open web from these outdated banner ads into relevant personalized experiences. This shift harnesses the power of the wall gardens and brings it to the open web. At this stage, there's endless room for growth on this journey of replacing banners with Taboola. Amazon has moved away from banners to paid recommendations; on Twitter there are no banners, just paid posts; on Instagram you don't see banners, just paid posts; and on search pages, obviously, there are no banners but paid search results. The open web is the only place where banners remain, and they were invented 30 years ago. This is our market, and we have advantages in capturing it. In the first quarter, we continued to replace banners in the middle of the page, the homepage and other placements. Some examples include E-Online, Globes in Israel, Seven West Media in Australia, and others. Thirdly, I'm incredibly excited about our OEM partners scaling rapidly with Taboola News. This is becoming an increasingly meaningful part of our business; it's growing fast and scaling. It also relates to our vision of capturing more consumer time, as we talked about on our Investor Day. There is exciting momentum here, which I hope to update you about soon. Back to the first quarter, we have a very strong publisher pipeline and saw progress with new deals and renewals— a lot of significant expansion in the size and length of the agreements. To give you some examples, Penske Media Corporation (PMC), a leading independent global media publisher that features monthly audiences of more than 310 million people with sites like Variety, Rolling Stone, and others, recently moved to Taboola. Publishers are choosing Taboola all over the world—not just in the U.S. but in countries like Italy, France, and Spain and so on. I had a chance to personally talk to the CEOs of some of these organizations, and in many cases, the reason they chose Taboola is that it allows them to generate more revenue and provides technologies that help them run their business. As I told my Board this week, looking into the market while spending 14 years working with publishers, we provide them with the technology they desire that goes beyond just revenue. We empower their editorial teams and help drive growth. I believe that in most markets, 70% of Taboola is worth 100% of our competitors, which explains not only our high win rates but also our higher gross margin as a proxy for competitive advantage. It is very expensive to convert a publisher from Taboola. Other examples include one of our top five revenue publishers globally, which just extended their contract with us for five years. Associated Press (AP), Insider, and Altice are other notable names that have recently chosen Taboola. As I mentioned earlier, I’m very excited about the advertiser side of our business. We recently updated that our advertiser base has crossed the 15,000 mark, and in Q1, we expanded our work with well-known brands such as Heinz, Canada Goose, Volvo, Michelin, Hyundai, Chipotle, Emirates, Progressive Insurance, and Honda, among many, many others. In Q1, we also signed and renewed trade agreements with a number of agencies, including Dense Air in the UK, Omnicom in Germany, TMF, AC Digital, Publicis, and Goldschmidt Partnership in Israel. In Q1, 15% of our revenue came from brands and agencies, and we expect this percentage to grow. As you think about the future beyond our core business, we want to keep diversifying what we recommend; we call it our debt strategy, recommending anything: video, commerce, gaming, audio, and more. Additionally, we want to grow the time we have with consumers by being wherever they may be. Tom Inbal, our VP of Strategy, talked about this during our Investor Day, and we call that 'recommend anywhere' on mobile devices, connected TV, automobiles, and more. You may have seen the recent article on Digiday discussing the importance of personalized homepages. They referenced the Washington Post, New York Times, and Taboola's 'Homepage for You' product, which we've been talking about a lot recently. We launched it in early January as part of a newsroom—our editorial suite for writers and editors—and the idea is to make every homepage on the internet personalized, driven by the editorial team plus AI. It's a winning offering; it's more than just money, and publishers are choosing us because of it. Some examples include the Miami Herald, McClatchy, NDTV, The Independents, and Synacor. On the privacy front, which is one of our advantages, we just announced an expansion of Taboola's trust portfolio. We work with brand safety leaders including IAS, DoubleVerify, News Guard, Tag, and IBUK. We believe we are a leader in content review and safety, and these partnerships are critical to demonstrating our commitment to a safe, privacy-protected web. This also supports our expanding work with brands and agencies. We're also seeing good headway in e-commerce, which comprised 15% of ex-TAC gross profit in Q1. It's been a little over six months since we closed the Connexity acquisition, and we're making steady progress, signing advertisers, including e-commerce and new publishers deals and merging offices while importantly coming together as one team, one strong family. Progress on synergies in Q1 includes a variety of factors, including the expansion of Connexity's publisher solution in APAC and EMEA, where we've broadened Connexity's commerce monetization solution to 14 new countries. Our teams are trained and actively pitching several new partnerships weekly per country. Success is also building with Taboola ad sales, selling Connexity's advertising solutions. We’ve previously spoken of the success we're experiencing out of China with multiple new advertisers signed within the U.S., and a new retail vertical sales team is in place, trained, and pitching Connexity e-commerce regularly. Lastly, leveraging Taboola's supply network for Connexity advertisers is taking off within the U.S. A total of 54 merchants have already given consent to move forward with Taboola Pixel. Within Europe, we have built a robust pipeline of over 200 clients, made up of both new prospects and existing merchants. Before I hand it off to Steve, 2022 started strong; we had two one-time events that we consider now to be behind us. We've factored those into our new guidance, and we're executing strongly when it comes to the key areas of growth in our business with publishers and advertisers. Our goal is to recommend anything and anywhere in the open web. And now, I’ll turn it over to Steve, who will dive deeper into our financial performance and guidance.

Thanks, Adam, and good morning, everyone. Let me address right upfront our revised guidance. As Adam discussed earlier, there were two factors that caused us to reduce our guidance. The first and main one was caused by the war in Ukraine and the resulting macro weakness, which negatively impacted our European advertising business, making up more than 30% of our overall revenue. The economic and political uncertainty created by the war caused advertisers to cut back on their spending in Europe. We saw an initial dip when the war started, but yields seemed to recover in March before declining again towards the end of the month and in early April. We have also seen a related effect affecting our growth, which is a weakening of the euro against the U.S. dollar. This translates into lower U.S.-denominated revenue when we convert our euro revenues into dollars. We estimate the foreign exchange rate's impact on our growth in Q1 was about 1.5%, and we'll have a similar effect on the full year of 2022. We felt it was judicious to be conservative and therefore factored both the cautious outlook on yield for the balance of the year and the weaker euro into our forward-looking guidance. The second factor was the bidder that launched 100% on Microsoft on April 1st. While it's off to a good start, it is behind our plan. We have incorporated current performance levels of the bidder into our forward-looking guidance. We believe there is potential upside to this, as we have identified opportunities for improvement and will start using the bidder to compete for display inventory via header bidding on publisher sites beyond Microsoft. However, we chose not to factor either of these potential upsides into our guidance, as we prefer to remain conservative. I'm obviously not happy about having to adjust our guidance, and I can assure you that I don't want to be in this position again later this year. We believe our updated guidance fully incorporates the effects of these two factors, both of which we believe are one-time events. Now, more specifically on our results, as Adam shared, we had a solid first quarter; we met or exceeded our Q1 guidance on all measures despite some macro headwinds as I just described. Revenue in Q1 was $335 million; ex-TAC gross profit was $135 million; and adjusted EBITDA was $35 million. This represented ex-TAC growth of 31% year-over-year or 8.4% on a pro forma basis, with Connexity contributing approximately 10% on a constant currency basis. We had an adjusted EBITDA margin of 25.2%. As I stated last quarter, Q1 2022 presented a challenging comparison because organic ex-TAC gross profit grew 54% year-over-year in Q1 2021, which was an exceptionally strong performance. Of the Q1 gross revenue growth of $52 million, $21 million came from new digital properties, while $31 million came from growth of existing digital property partners. Our growth in existing revenue came from a combination of yield improvements and upsells of additional platform capabilities to existing publishers, such as our high-impact placements offering. Our Q1 ex-TAC gross profit was $138 million, representing a $32 million or 31% year-over-year increase. This growth stemmed from three sources: the addition of new digital property partners to our network, growth among existing digital property partners, and the incorporation of Connexity into our business. Our ex-TAC net dollar retention for our publishers continues to be positive at 106% for Taboola on a standalone basis. Looking at operating expenses, they were up $52 million year-over-year, consistent with our expectations and driven by multiple factors. First, we’re growing and investing in our business. Second, the inclusion of Connexity; and third, higher depreciation and amortization from intangibles relating to the Connexity acquisition. Fourth, various costs related to being a public company; fifth, some additional costs due to the resumption of travel and the reopening of offices as the pandemic receded; and sixth, higher labor expenses reflecting the inflationary environment and a tight job market. We generated adjusted EBITDA of $35 million, which was above our guidance of $32 million to $34 million, representing a $1.4 million year-over-year increase. The adjusted EBITDA margin of 25.2% was lower year-over-year, but it was in line with expectations given the planned higher operating costs I just described. GAAP net income of $3.9 million included a warrant liability revaluation benefit of $14 million, share-based compensation expense of $17 million, and an intangibles amortization of $15 million, all of which were excluded from non-GAAP net income of $21.9 million; this was above our guidance of $12 million to $14 million. In terms of cash generation, Q1 is typically the lowest cash generation quarter, and we were pleased to have $8 million in operating cash flow and $1.2 million in free cash flow, marking an improvement of $16 million year-over-year. We ended Q1 with a strong balance sheet position and positive net cash. Our cash and short-term deposits balance of $318 million exceeds our debt balance of $285 million. Shifting now to our expectations for the rest of 2022, we're updating our guidance and now expect revenues to be between $1.5 billion and $1.54 billion. Gross profit is expected to be between $485 million and $505 million; ex-TAC gross profit, between $595 million and $615 million; adjusted EBITDA between $152 million and $160 million; and non-GAAP net income between $83 million and $91 million. The fundamentals of our business are strong. Looking beyond those two one-time events that we've adjusted for in our new guidance, we continue to be a company that's growing at a good rate, profitable, and generating solid EBITDA and significant positive cash flow. Our five-year compound average growth rate for ex-TAC based on this new guidance is 23%, and we expect to generate over $150 million of adjusted EBITDA in 2022. We continue to demonstrate a competitive advantage based on our strong ex-TAC margin, which is almost 40%. We're bullish about our business and believe that over time, Taboola could become a 20% per year grower with a 30% plus adjusted EBITDA margin business. As we believe the fundamentals are strong, we do not plan on reducing our investment in our business at this time. We believe that strong businesses benefit from continuing to invest through downturns, and those investments will position us strongly for growth acceleration going into 2023. With that, let's open it up to questions.

Thank you. Our first question comes from Stephen Jue with Credit Suisse. Your line is open.

Okay, thank you. So Adam, can you give us a little color on the bidder product that you called out as being behind plan? What is it designed to do? What do you think is the reason for the slower pace of customer activity? Do you think it's a product problem or an ROI problem? Or do you think there's an awareness issue? And regarding the weakness you cited in Europe, did overall activity just step down after the war, and has it not really recovered since? Does the guidance basically assume that Europe is down about 25% versus where you had planned before and that this will persist for the balance of the year? Thanks.

Sure. Hi, good morning, Steve, and good morning everyone. Regarding the bidder, as an update, I’m pleased to say it's fully live now. We have developed it over the last year or so, and the team has integrated it with Microsoft, who has supported us in the design. I'd say we're seeing a few aspects performing better than expected and others that are behind. Overall, it's below our expectations, but off to a good start, and we believe that as we look forward—especially on Microsoft and outside of Microsoft—there's a lot of growth opportunity for us. Recall that at Investor Day, we mentioned Microsoft was somewhat of a drag on our growth in past years, but that won't be the case going forward. We're pleased that the team was able to build the technology in such a short time — a success that has taken other companies as long as 10 years to achieve. We believe the bidder will become a strong growth opportunity for Taboola. As for Europe, Stephen can take that part.

Right, regarding Europe, the way to frame what happened is almost like a small version of the pandemic focused on Europe, not the world as a whole. Advertisers, facing economic uncertainty, do two things: they cut their budgets, scaling back their activity, and we end up earning less-per-click. The rationale here is that advertisers worry their consumers will be less willing to buy from them, prompting them to lower their bid rates. This had a cascading effect, reducing our earnings and impacting our global yields as well because European advertisers often aim to reach U.S. consumers and those in other countries. So, when you mentioned that Europe might be down by 25%, it impacts our global business rather than just the European business. So that’s the overall assessment of those dynamics.

From a moving forward perspective, we believe both the bidder and the scenario in Europe are single one-time events, and the revised guidance includes all these changes. From this point on, we expect to see upward momentum.

I just want to highlight that despite the adjustments, the fundamentals of our business remain strong. We still expect to generate over $150 million of adjusted EBITDA and significant positive cash flow this year.

Right.

Thank you.

Operator, we'll take the next question.

Our next question comes from Laura Martin with Needham. Your line is open.

Good morning. I'll ask two, let's do one at a time. I want to ask about trade desks and open path. I understand that you guys are supply path optimized since you have direct relationships with buyers and sellers. But my question is, isn't the trade desk's open path essentially doing your job in a way, but in the open Internet? If these journalistic companies like the Washington Post adopt it and don't charge for it, doesn’t that make it harder for you to take customers from open path since they have optimized the supply chain, which is one of your big brand promises when signing a new customer? Can you sort of speak to that?

Yes, first of all, good morning, Laura. It's essential to remember that Taboola's supply and demand are unique to us. If you go to ESPN, CNBC, BBC, or any of our publisher partners, the real estate we create does not resemble what the trade desk aims to do with open path. We provide both editorial and paid recommendations, and that differs significantly from what any single ad model can offer. From a supply perspective, it's very distinctive and native. The demand is also unique; most of it comes from performance advertising, supplemented by about 15% from brands and agencies. This unique dynamic places Taboola in a different addressable market compared to the trade desk. I also believe that as we look ahead, banners are at risk of becoming obsolete. We're experiencing considerable momentum focusing on replacing banners with carousel experiences that are half editorial and half paid. From a publisher perspective, the preference would undoubtedly be to offer a more engaging experience than mere banner ads. We're currently seeing good momentum in adopting this model in publications like E-Online, NBC Sports, and Southeast Asia.

In addition to our unique supply and demand, we also have unique data. This is something we've discussed before. Our insights into what consumers are reading and their interests provide different targeting options that the trade desk doesn't offer. This distinction gives our advertisers something different from what they receive with the trade desk.

That’s why we expect 9% of revenue from SmartBid.

That's super helpful. Thank you for that. My other question is regarding your operating costs. Steve, you mentioned that you will keep costs in line even though revenue may be a little softer. Adam, you said you were going to double your engineering resources over the next year. My question is around hiring: Have you encountered issues hiring, and have you been able to ramp up your spending as quickly as you'd like, considering the tight labor market?

Yes, it is tight for sure, especially when it comes to tech resources. It’s a very challenging environment. So far this year, we're slightly behind on our hiring plan, but April, for instance, was our best hiring month in the last 18 months. It seems that things may be loosening up a bit, and we expect to catch up with our hiring targets by the end of the year. So, while things are competitive, there may be some positive movement based on our recent experiences.

We are also adopting an international strategy to expand our tech hubs. We have one in Israel and have recently opened another in LA through Connexity, and we are seeing great momentum, so we’re opening up new tech hubs to attract top talent.

We've been hearing that if you allow people to work remotely, it’s easier to recruit. What's your in-office policy, Adam?

First off, I want to clarify that we don't force anyone to return. We empower our leaders to decide what works best for them. We operate in 22 countries, and the office attendance varies significantly by location. In Israel, a majority attend the office daily, while in China, for example, many are still working from home. Therefore, our approach is regional. Personally, I believe that face-to-face interactions foster a sense of culture and collaboration essential for execution, which is why I emphasize the importance of being in the office. However, it's a gradual process.

Thanks, Laura.

Thank you.

Operator, next question.

Our next question comes from James Kopelman with Cowen. Your line is open.

Good morning. As you look across industry verticals, can you talk about where you saw advertiser strength during the quarter? Which verticals have held up the best into April and May, versus those that saw the most impact from macro factors? Any insight into your conversations with advertisers would be helpful. Second, regarding your forward guidance, what are the two or three biggest factors that could drive upside over the quarter or through the remainder of the year? How much potential upside could stem from macro improvement versus execution on your growth initiatives, including Connexity or new features like SmartBid? Thanks.

Thanks, James. First, on verticals, I think we’ve seen geographical impacts more than sector-specific impacts. Europe has experienced much more weakness, while the U.S. has been less affected—and Asia Pacific and LATAM have seen minor impacts as well. Overall, it’s a regional issue. In Europe, brands and agencies have shown more impact than performance advertisers. For example, our VP of EMEA mentioned that they've had almost every brand in Europe request not to be displayed on any pages discussing the war. Thus, they’ve reduced their spend and targets significantly. We are seeing some softness in e-commerce due to supply chain issues, but it's not by a large margin compared to our core performance advertising. In general, it's been even across the board, but brand and agency dollars have been more affected.

For the second part of your question regarding execution, our guidance reflects that we’ve factored in those two one-time events, and we're optimistic about meeting and exceeding expectations moving forward. A few key areas of execution opportunities for us are: first, a strong publisher pipeline. We've noted our recent successes—like with PMC—and how people choose Taboola due to our technology and revenue advantages. Our winning strategy has expanded, allowing more growth with publishers we've secured that traditionally relied on banners. Second, performance advertisers are a significant focus; we aim to replicate the successes of only a few companies in performance advertising. Third, Taboola News is undergoing explosive growth with three-digit rates we’ve seen this past year. Finally, the bidder is live now, and we have a lot of potential opportunities that we’re optimistic will drive growth.

Let me clarify a couple things from a numbers perspective: The upside on the bidder is based on ongoing improvements, and we haven’t included header bidding in our guidance yet, so that presents pure upside. We anticipate that this year will likely be one of our best years for new publisher revenue, next to 2019, which was exceptional. So, cumulatively, the outlook for new publishers looks very good.

Thanks, James. Operator, next question?

Our next question comes from Andrew Boone with JMP Securities. Your line is open.

Good morning, and thanks for taking my questions. I have guidance inquiries followed by an operational question. I think Microsoft historically was around 20% of gross profit ex-TAC. You highlighted that Europe is 30% of revenue. Can you help us size the impacts of those two as we think about guidance? Also, given the softer demand, can you remind us how many contracts are fixed CPM versus percentage of revenue? How should we think about the impact of softer demand on take rates? Lastly, regarding Connexity, what do you believe is missing right now from your advertiser suite? What will you focus the new engineering resources on?

Starting with the split on impacts, the foreign currency exchange rate's estimated effect on our growth was around 1.5%. Most of the remainder was due to the softness in European demand, resulting from the war. The launch of the bidder played a smaller role in the overall reduction. Without revealing specific numbers, that’s the way to think about those three components. Regarding guarantees, in our Q1 filings, we indicated that 9% of our TAC was paid out under guarantees, and we expect that trend to remain consistent for Q2 with possible slight upward movement.

Regarding your advertising question: As I reflect on the opportunity on the advertising side, Google and Facebook have amassed millions of advertisers, and we’re at 15,000. We’re not including those who work indirectly with agencies. The goal is to become the fifth company to make a significant impact on the success of advertisers, much like those giants. Hence, that’s my long-term vision, and we have a roadmap of product development and engineering investments to propel us toward that target. This journey will take several years, but our upside remains substantial, as our performance and yield continually improve.

Thank you, Andrew. Operator, next question?

Our next question comes from Steven Roman with Oppenheimer. Your line is open.

Hey, it's Jason. So, a couple of questions, both related. It seems like many suspect we're heading toward a recession, and we’re witnessing companies cut back on spending. Why are you choosing not to cut back? Also, the market appears to question your business model, stemming from previous concerns regarding traditional click models versus content recommendation—more specifically, how you plan to narrow the perceived gap between your intrinsic value and the market’s valuation of your company. So, again, why are you continuing to invest while others cut back? And how do you envision influencing the market’s perception regarding your value creation?

Thanks, I'll begin with the first question regarding spending. The primary objective of our investments, as articulated at our Investor Day, pertains to R&D. Thus, our expenditure growth is directed towards new product development and growth in areas beyond our core business. The translation of these investments exists in improved yields by onboarding more advertisers, increasing overall revenue, and enhancing publisher tool experiences. As you've seen, Taboola News is one of our fastest-growing segments, tripling since last year due to our continued investment. It's vital for strong companies to invest during downturns, and currently, we are fortunate that our fundamental metrics are solid.

Regarding the second question on market perception, it relies on how you assess industry transitions and the total addressable market we currently occupy. Taboola has the potential to develop into a $10 billion revenue powerhouse alongside walled garden platforms. The open web is missing a large-scale company in this space, relied upon by advertisers akin to their partnerships with search engines and social media platforms. We aim to replace traditional advertising formats with personalized recommendation feeds. Moreover, the partnerships we fortify with publishers empower their growth, ensuring they view us as invaluable allies rather than just revenue generators.

Let me follow up quickly. The focus on long-term growth is clear. Is there concern about employee retention, particularly regarding stock compensation? Are employees feeling discouraged by the current stock performance and stating that their stock options are now out of the money?

Yes, I understand that concern. The transition to becoming a public company means our nearly 2,000 employees now engage with the stock market as traders. It’s a novel experience for us since we are accustomed to building and innovating rather than trading. While employees are undoubtedly affected by stock price variations—particularly those whose compensation relies on stock performance—I believe they value far more than short-term financial metrics. Employee development, career growth, and company culture significantly influence retention. The dynamic is something all companies face during challenging market conditions.

Thanks, Jason. Operator, we have one last question.

Our last question comes from Shyam Patil with Susquehanna. Your line is open.

Hey, guys, this is Jared on for Shyam. Thank you for taking the question. Digging into Connexity, we saw that it represented about 15% of ex-TAC gross profits in the quarter, roughly in line with Q4. How did this perform against your expectations? Are you comfortable with that range of ex-TAC gross profit in the near term? Looking ahead, do you think Connexity’s sensitivity to macro factors is similar to that of the core business, or are there unique aspects to highlight?

Connexity has performed in line with our expectations; we’re happy with its contribution. We believe it can comprise about a third of publisher revenues moving forward and anticipate robust growth despite short-term e-commerce headwinds. We're enthusiastic about its future, regardless of current challenges, and its performance aligns with our long-term commitment.

Thanks, Jared. Now, I’ll hand it back to Adam to wrap up.

Thank you all for joining us today. I’m very bullish about Taboola's growth. The fundamentals of the business are exceptionally strong, as they were before this revision. We’ve considered two one-time events; they are now in our past and fully factored into our guidance. Trust me, we do not want to do this again. As I look into the rest of 2022 and the future of the Internet, I’ll summarize three points: we’re replacing banners with native, personalized experiences like Amazon's homepage; e-commerce will be integral; and recommendation engines will proliferate. Our high gross margins serve as a proxy showcasing our competitive advantage. We're generating over $150 million of adjusted EBITDA and high tens of millions of dollars of free cash flow in 2022, and my team is more energized than ever. To quote the American rapper Fat Joe: It's all the way up!

This concludes today's conference call. Thank you for participating. You may now disconnect.