Good day, and thank you for standing by. Welcome to the Taboola Q1 2026 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Aadam Anwar, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone, and welcome to Taboola's First Quarter 2026 Earnings Conference Call. I'm here with Adam Singolda, Taboola's Founder and CEO; and Steve Walker, Taboola's CFO. The company issued earnings materials today before the market, and they are available in the Investors section of Taboola's 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 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.

Thanks, Aadam. Good morning, everyone, and thank you for joining us today. We're starting the year off strong with our first quarter results exceeding the high end of our guidance across all metrics. We're seeing continued acceleration in our growth, which gives us the confidence to raise our full year guidance across the board. We now expect excess gross profit growth of 8% while maintaining 30% adjusted EBITDA margins and strong free cash flow conversion. As I said last year, we believe we've reached an inflection point with Realize driving advertiser success. I'm confident that this momentum gives us a clear path to double-digit growth over time. We're not there yet, but we're moving in the right direction, and I'm proud of the team executing against it. In the first quarter, we repurchased approximately 7 million shares for a total of $23.5 million while continuing to invest in R&D to support our long-term growth ambitions. And including this quarter, we've now bought 19% of Taboola between 2025 and year-to-date 2026, which we're very pleased with. We plan to continue allocating the majority of our free cash flow towards share repurchases, which we view as our most compelling capital allocation opportunity. Before getting into the details, let me remind you who we are and how we compete. Taboola is one of the largest performance advertising companies outside of search and social, referred to as the open web. Similar to how Google and Meta understand intent within their own platform, Taboola understands intent across billions of consumers who read, watch and engage with trusted OEMs, apps and publishers across the open web. We then convert these signals into profitable and measurable outcomes for advertisers. That proprietary intent data and the AI-driven conversion machine we've built, that is Taboola. In a world where AI is evolving so quickly, I believe the winners will be those with either unique data that LLMs cannot get or access to unique supply and distribution. Taboola has both. To execute on our mission in 2026, we're focused on 3 priorities: first, investing in our technology to advance Realize; second, with Krishan Bhatia joining as the Chief Business Officer, further verticalizing our sales organization around our ideal customer profiles, where we're seeing stronger retention and spend growth over time; and third, strengthening our brand. As advertisers see stronger results on Realize, our ability to expand the budgets we manage continues to grow. In the first quarter, Realize drove increases in both scaled advertisers, those who spend more than $100,000 a year with us, and the budgets we manage. Scaled advertisers grew 3.5% and average revenue per scaled advertiser grew 5%. As we scale, we benefit from more data, which powers our AI systems and drives continuous performance improvements, reinforcing our ability to grow budgets over time. This progress comes from our investments we've been making across our technology, strengthening our user graph to better understand users across sites and devices, leveraging unique signals from Taboola News, high-intent content like product reviews, intent signals driven by a massive amount of people clicking on our ads, along with ongoing improvements to our bidding and core algorithms. Just a few weeks ago, we introduced Realize+, our agentic framework for advertisers, something the team has been building towards for a long time. Meta has Advantage+. Google has Performance Max, and now we have Realize+. The idea is simple. Advertisers who want greater control, such as setting budgets by strategy, defining goals by geo and managing campaigns more hands-on can continue to use Realize. However, for those who prefer full automation, they can simply provide a budget and objective and Realize+ will take care of the rest, including audience targeting, creative generation, placements and continuous optimization. What matters here isn't just simplification, it's performance at scale. By reducing operational complexity and improving outcomes, Realize+ reacts autonomously to the dynamic marketplace in real time, deciding and executing strategies which drive better performance outcomes. This allows advertisers to confidently shift more budgets into the system over time. That's how we grow. We want to make it really easy to use Realize and succeed. Our second priority is our go-to-market, where we're building a more repeatable engine to grow our share of advertisers' budget. The foundation of this strategy is verticalizing, organizing our sales team by industry and focusing on clearly defined ideal customer profiles, what we call ICPs. For Taboola, these ICPs are performance-oriented advertisers who prioritize measurable outcomes, require scalable customer acquisition and operate in mid- to low-funnel categories such as travel, health care, auto, personal finance and more. By aligning our verticalized teams to these ICPs, we develop deeper expertise, execute faster and stay focused on delivering advertisers' outcomes. Lastly, on brand and perception, we're making real progress in how the market sees Taboola. As we invest in products like Realize+, onboarding incredible advertisers and partners, we're shaping our brand to be recognized as an AI-driven performance platform. This takes time, but we're building trust and shifting perception. In the end, I measure this by outcomes. Are we breaking more advertisers, driving more demand and growing faster or not. At the end of the day, companies either accelerate their growth or they don't. And to bring it all together, we feel good about where we are and even more importantly, about where we're going. We're seeing early signs of what this business can become when technology, data and execution come together. It's still early, but we're moving in the right direction. It's an exciting time for us at Taboola, and we look forward to updating you all on our progress throughout the year. With that, I'll hand it over to Steve.

Thanks, Adam, and good morning, everyone. We're happy to start the year on a strong note. In the first quarter, we continue to build on the momentum we built last year, delivering results that exceeded the high end of our guidance across every metric. In the first quarter, revenues grew 9% year-over-year to $466.4 million. We remain focused on increasing advertiser investments through Realize, our performance advertising platform. Continued product enhancements and new feature launches contributed to solid execution during the quarter. This was evident in our first quarter scaled advertiser metrics, which showed a 3.5% rise in the number of scaled advertisers and a 5% increase in average revenue per scaled advertiser. Ex-TAC gross profit increased 11% year-on-year to $168.1 million in the first quarter. Growth was primarily driven by higher advertising spend, largely supported by the scaling of Realize as well as strong performance from Taboola News and Bidded Supply. Gross profit for the quarter was $129.6 million, up 9% year-over-year. Growth in ex-TAC gross profit contributed to this performance, but was partially offset by an increase in infrastructure and operational costs as we continue to scale the business for future growth. Net income for the quarter was $59.1 million with non-GAAP net income coming in at $17.2 million. Net income came in higher due to proceeds from a one-time legal settlement. This settlement was adjusted out of non-GAAP net income. Adjusted EBITDA for the quarter was $26.7 million, a margin of 16%. This reflects continued discipline in expense management while continuing to invest in strategic priorities to support long-term growth. And I would note that the legal settlement I mentioned previously does not contribute to adjusted EBITDA. Foreign exchange was a meaningful headwind in the quarter. On a constant currency basis, first quarter ex-TAC gross profit showed a tailwind of approximately $3.6 million, while operating expenses saw a headwind of approximately $8.2 million, primarily reflecting the strength of the Israeli shekel, where we have a significant employee and cost base. In aggregate, FX represented roughly a $4.7 million headwind to the first quarter adjusted EBITDA. Excluding this impact, adjusted EBITDA would have been $31.4 million, which would have represented an adjusted EBITDA margin of 19.1%. We expect FX to remain a headwind for the remainder of 2026. In terms of cash generation, we had $108.7 million in operating cash flow in the first quarter and free cash flow of $90.3 million. Free cash flow for the quarter benefited from the legal settlement I mentioned previously. As a reminder, we expect to sustainably convert free cash flow from adjusted EBITDA at a 60% to 70% rate over any typical 4-quarter period. Turning to the balance sheet. We remain in a strong financial position. We ended the first quarter with a net cash balance of $83.9 million. Cash and cash equivalents totaled $150.3 million, which more than offset our long-term debt of $66.4 million. Last year, we secured a $270 million revolving credit facility. And as of March 31, we maintained approximately $203.6 million of available liquidity. We remain focused on disciplined capital allocation, prioritizing investments in sales and R&D while returning excess capital to shareholders through share repurchases. In the first quarter, we repurchased approximately 7 million shares at an average price of $3.41 for a total consideration of $23.5 million. As a result, shares outstanding declined to approximately 273 million at quarter end, down from about 276 million at the end of 2025. We have approximately $160 million remaining under our authorization and continue to view share repurchases as a compelling use of the majority of our free cash flow. Moving to guidance. For the second quarter, we expect revenues to be between $492 million and $505 million, gross profit to be between $147 million and $152 million, ex-TAC gross profit to be $189 million to $194 million, adjusted EBITDA to range from $49 million to $55 million and non-GAAP net income to be $36 million to $43 million. Reflecting continued adoption of Realize and its features, we are raising our full year guidance across all metrics. We now expect revenues to be between $2 billion and $2.06 billion, gross profit to be between $610 million and $630 million, ex-TAC gross profit to be $760 million to $781 million, adjusted EBITDA to be $222 million to $240 million and non-GAAP net income to be $167 million to $191 million. I would note that our adjusted EBITDA guidance reflects a forecasted headwind from foreign exchange rates of approximately $13 million in operating expenses, partially offset by ex-TAC tailwinds. Without this headwind from foreign exchange, adjusted EBITDA margins would be approximately 34%. In summary, the first quarter results exceeded the high end of our guidance range across all metrics, reflecting strong execution and continued momentum in the business. We continue to build on the momentum we've seen with Realize and are focused on accelerating growth. We continue to stay disciplined in our approach and our steady progress reinforces our confidence in our ability to return to sustainable double-digit growth over time. With that, let's move to Q&A. Operator, can you please open the line for questions?

Our first question comes from the line of Daniel Medina of Needham & Company.

Can you hear me? It's Laura Martin, can you guys hear me?

Laura, we hear you, if you can hear us.

Okay. Yes, I just didn't know if you can hear me. Yes. So I have two. One is on the scaled advertiser number, these numbers look great. Can you remind us why you make this distinction between scaled advertisers and non-scaled advertisers? And is the churn level different with non-scaled advertisers? Why do we make this distinction in scaled advertisers? And then the other thing is, I think I saw it when we were talking last week, Adam, we were talking about your integration into Claude and how you sort of think that these LLMs are kind of a new source of demand for Taboola. Could you go into how you're thinking about some of these agentic AI LLMs and whether you think that drives revenue growth for you in the future?

It was good seeing you last week at POSSIBLE in Miami. So with the first question as it relates to scaled advertisers. The reason we think that matters is, as a performance advertising platform, people try Taboola and some of them obviously succeed and some of them need more work to succeed. But what happens when someone exceeds the $100,000 mark, they tend to be a very stable line of revenue for us. It means they've tested enough and tried enough of our capabilities to feel good about the performance that they were hoping to get. And at that point, for us, that becomes a more sustainable, predictable line of revenue, and we can grow that base over time. So I think for investors, that's an important metric because it's a good proxy for, one, how are we doing as a technology platform? Are we able to grow that number? Are we able to get more and more clients to be happy with what we're seeing as that compares to Meta and Google. And two, that revenue is fairly predictable as it relates to churn rates and things like that, like you mentioned. So we think that's a good metric to track. Internally, there are leading indicators that get advertisers to that stage. Usually, we lower churn rates, and they're able to spend more money with us until they hit that scaled advertiser point. So that's why we track it internally. And I think for investors, that's a good proxy for our progress as a technology company as well as how sustainable that revenue is moving forward. About agentic AI, which we talked a lot about last week, and I'm personally very excited about it. I think as an industry, we're going through a significant revolution with AI, not only affecting almost everything we see and touch, but now specifically with programmatic protocols. We're spending a lot of time with agencies and big advertisers. For the last 30 years, they've spent tens of billions of dollars buying programmatic different types of supply. The challenge with programmatic protocols is that they normalize for the lowest denominator. They can't really take advantage of the unique data different companies have. They can't take advantage of the unique supply companies have. With agents now—an agent-to-agent era we're embarking on—you can now, with Taboola, go to Claude and using an MCP, basically a skill that is able to talk within the app or within the CLI, you can talk to Taboola Realize or you can talk to Taboola Realize+, never leave Claude and interact with your objectives. The reason this is exciting is you can do the same with Google, you can do the same with Meta, you can do the same with Taboola and even TV, which means for a $200 subscription with Claude, you can now buy search, social, open web and TV. And that is quite big. It's early days, but I think things will move very fast. I suspect a year from now, Laura, when you and I do a fireside chat and talk about where things stand, I suspect agent-to-agent advertising buying will be a much bigger portion of the industry.

Our next question comes from the line of Barton Crockett of Rosenblatt.

I was curious, you credited Realize was driving some of the upside in the quarter and in the guidance for the year. I was wondering if you could be a little more specific about what in Realize was driving the upside. Was that using Realize to perhaps go beyond some of the traditional bottom-of-page inventory that you've been trafficking in, going into other parts of the page? Or was it just more general capabilities of Realize that were driving it? And the other question is on the guide. You guys are raising the ex-TAC gross profit guide and revenue guide at both the high and low end, but the EBITDA and net income guides are less changed. Why isn't the revenue upside flowing to the bottom line as much?

I can start, and thank you for the question. So on the first one, with Realize, essentially, we're really seeing utilization of all the various capabilities the platform offers for advertisers being used more, which accelerates advertiser success, which accelerates spend on our platform, and that's why we're able to raise our guidance and feel good about our way towards double-digit growth consistently and organically as a company. That includes things such as format diversification, which you mentioned. It's much easier now to start a campaign with either vertical video or display. On the supply side, we're plugged into much more traditional display inventory if that's what advertisers want; vertical format, if that's what advertisers want. On our OEM, we have full-screen advertising placements, in-app inventory, which is over $100 million a year as well. So we're seeing, on the supply side, further diversification of types of inventory advertisers can get. One of our leading tech features that advertisers really use is predictive audiences. Advertisers keep using our ability to predict how many more conversions they can get based on the seed of conversion they already have with us. To oversimplify this, if you're a personal finance mortgage company and you were able to get 1,000 leads with Taboola, we're able to predict how much money you need to give us to get the next 1,000 conversions, which is comforting for advertisers who are looking for stability and predictability with us. They want to know how much more budget they need to give us so they can scale their spend and work with us on the platform. That's something advertisers really like. As you've probably seen with Realize+, this will, over time, drive even further acceleration of how advertisers use Taboola. With Realize today, advertisers open sometimes dozens or hundreds of campaigns with Taboola and manage that manually, which some of them like. But with Realize+, Realize+ may open dozens, hundreds and sometimes thousands of campaigns for advertisers on a daily basis—geo campaigns, different bidding strategies, retargeting, and more. I expect to see further automatic utilization of what Realize can do with Realize+. All of those things together increase spend, grow the scaled advertisers and help us accelerate the guidance for the year.

Regarding your second question about the flow-through on some of our guidance, the biggest factor on why we didn't flow through as much of the beat on adjusted EBITDA and non-GAAP net income as we did on ex-TAC and revenue has to do with foreign exchange rates, primarily the Israeli shekel. The shekel will impact our OpEx by about $13 million this year. It's a $13 million headwind. That obviously has a big impact on adjusted EBITDA. We're happy though that even with that headwind, we're still guiding to 30% adjusted EBITDA margins for the year. Without that headwind, our adjusted EBITDA margins would be around 34%. On non-GAAP net income, it's even more extreme because we tend to hedge our cash expenses but are not 100% hedged. We hedge cash expenses; we don't hedge noncash expenses. Therefore higher exchange rates have an outsized impact on non-GAAP net income. We try to be conservative there, and the flow-through is less because of that.

Our next question comes from the line of Tyler DiMatteo of BTIG.

Steve, two for you. My first one, on the guidance, how much conservatism is baked into that from a macro perspective, given everything that's going on in the world today? And then how much of a contribution from something like live events? I know in the past you said live events are maybe more of a traffic boost than an actual revenue boost per se, but curious on those two things. And then the second question: has the timeline to double-digit growth changed at this point?

Good questions. Generally speaking, when it comes to the macro, it's been pretty impressive that the advertising marketplace, especially our advertising marketplace in the performance space, has been fairly resilient in the face of wars, tariffs and other macro events. It's continued to be relatively resilient, which is good. When it comes to events like the World Cup and elections, you're right in your characterization: it's more of a traffic event for us than an advertiser interest event. Those events tend to be more branding oriented, so the impact on us is more about traffic than direct advertiser spend. We do get some flow-through, but it's usually smaller than for, say, the connected TV marketplace. On the timeline to double-digit growth, we feel good. Adam mentioned in his prepared remarks that we feel we're on the path to consistent double-digit growth. We still feel we've seen an inflection in the business and continue to make progress towards that. Obviously, as you can see in our guide, we're not there yet, so we're still working toward it, but I wouldn't say the timeline has changed based on what we've seen recently.

Our next call comes from the line of Brianna Diaz of Citizens.

This is Brianna on for Matt Condon. Can you just unpack the outperformance in the quarter? What were the contributions of growth from new products such as Realize and DeeperDive? Is any growth embedded in the full year guide from those products? And on Realize+, in doing more of the live work for an advertiser, is there anything to know about take rate and pricing and how that might compare to a traditional campaign?

I can start, Steve, feel free to join. In terms of the contribution right now, it's primarily driven by our strategy to make advertisers successful so they spend more money with us and we get more advertisers to work with us. Most of what you're seeing in the business is directly correlated to us making more advertisers successful and existing advertisers spending more with us, which is tracked through the scaled advertisers: 3.5% more scaled advertisers and increases in average spend per advertiser. That's primarily Realize, which is most of our revenue as a company. The vast majority of our $2 billion of spend, gross revenue, is direct to Realize. It's not programmatic through channels; it's advertisers buying from us, much like they buy from Meta and Google. DeeperDive, which you mentioned, is growing really fast. We just had a Board meeting yesterday, and we talked about how much fun it is to build a start-up within a start-up like DeeperDive organically, with a small team bringing a ChatGPT-like product for the open web. DeeperDive does things other products can't do, like suggesting questions based on first-party data that we have, and it's been used by partners like Nexstar, Huffington Post, BuzzFeed, Independent and Reach. Financially, it's still small, though effective CPMs on a DeeperDive page and advertiser conversion rates are at the top. If DeeperDive continues to scale, it can make meaningful impact for publishers and advertisers and for us. I'm fairly optimistic about Gemini and Google given what we're seeing in DeeperDive; I suspect similar trends there. On Realize+, yes, it's basically making it dramatically easier for advertisers. Big advertisers who have Realize operations but want a Performance Max-type offering can use Realize+. Realize+ works for huge advertisers and smaller advertisers by automating many permutations of Realize that would be difficult for a small human team to execute on. Realize+ doesn't sleep, so we're optimistic about where it can go. It's early, and we'll continue to update.

Our next question comes from the line of James Kopelman of TD Cowen.

First for Adam: Taboola has benefited over time from acquisitions and large partnerships like Connexity and Yahoo!, Apple News and other large partnerships. Do you see Taboola's growth story as largely organic going forward, or do you see potential opportunity for additional acquisitions or partnerships in new verticals? What adjacent competencies would you potentially look to add over time? And then a follow-up for Steve.

Great question. Two-part answer: one, most of our growth will continue to be organic. At the same time, I'm happy with our share buybacks—I've enjoyed reducing the share count as a shareholder myself. We like using free cash flow to buy shares, and we intend to continue doing that this year. Our appetite for a big acquisition is small, though we are always evaluating opportunities. Regarding big growth engines over the next few years, we see three areas. One is business: sales growth with agencies, advertisers and partnerships. There are companies that want a strong partner to build advertising for them; we've done that well with Yahoo! and Apple and Microsoft, and I expect more such partnerships. Second is technology: investing in Realize, Realize+ and our roadmap because we think our technology can drive increased revenue per publisher or partner. Our pipeline on the publisher side has never been stronger. Meetings and seniority of people taking meetings are promising. The third is AI in general: our COO is leading a multiyear project to imagine Taboola as an AI-native company—how we'd operate if we started today—constantly looking for innovation to be more productive internally and externally. Between those three waves—business, technology and AI—we expect organic, consistent growth and are excited about the future.

Thanks, James. On headcount, we're actually around 1,950 employees today. That's down from over 2,000 as a result of a restructuring adjustment to reduce investment in certain areas we no longer wanted to prioritize. That was a relatively ordinary course adjustment. We are still hiring in other areas. That adjustment wasn't primarily about AI, although we are always looking for places to use AI to become more efficient. I won't predict specific future headcount because it depends on how we grow as a company, but can we be more efficient with the same number of people? Yes. For example, our R&D group is working on a project to use AI to 10x the impact of their engineers. It doesn't necessarily mean needing fewer people, but it means we can get much more efficient with the people we have and support growth more efficiently. The trend line is towards more efficiency, and we're excited about AI's impact on cost efficiency going forward.

Our next question comes from the line of Naved Khan of B. Riley Securities.

On Realize, can you talk about the spend per advertiser on Realize and how it compares to legacy native? Are you adding more verticals beyond finance, travel, etc.? And then talk about costs related to AI: as you put in more AI features in your products, how should we think about the impact from a cost perspective as adoption increases?

I'll jump in. On Realize, we're focused on three things that will impact growth: focusing on ICPs—ideal customer profile verticals—and keeping our organization focused on the verticals we've identified so we can raise retention and spend within those verticals. We're not adding more ICPs right now; we're making the current ones successful. Second, we're investing in our brand, repositioning from a native company to an all-performance advertising company. Third, we're investing in tech such as Realize+ and our Claude skill where you can interact with Realize directly in an agent-to-agent way. Those things will drive growth. Regarding AI costs, AI is an opportunity to do more with less. It should make us more cost-efficient. We do have to pay for AI, but we are being smart about it. In many cases, we host our own AI—bringing in open-source models and hosting them on our infrastructure—which is less expensive than relying entirely on third-party hosted models. So generally, AI should drive cost efficiencies even after accounting for AI costs themselves.

This concludes the question-and-answer session. I would now like to turn it back to Adam Singolda, CEO, for closing remarks.

Thanks, everyone, for being with us this morning. Q1 wasn't just about beating the numbers. It's another step towards building the largest kind of walled garden outside of the walls—helping advertisers drive outcomes on the open web through Realize and now through Realize+, while growing our partners across publishers, apps and OEMs. We're executing on our priorities, raising the guidance with confidence in our path to double-digit growth organically and consistently. I love that we've been able to buy 19% of our shares since last year, and we do intend to aggressively keep buying shares this year. We appreciate your support and look forward to staying in touch in the weeks ahead. Thanks, everyone.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.