Taboola.com Ltd. Ordinary Shares 2026 Q2 Earnings Call

Thank you. Good morning, everyone. Welcome to Taboola's second 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 market open. They're available in the investors section of Taboola's website. I'll quickly cover the safe harbor. Certain statements today include 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. 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'll 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 press release posted on our website. With that, I'll turn the call over to Adam.

Thanks, Adam. Good morning, everyone. Thank you for joining us today. The second quarter was another important step forward for Taboola. We continued to execute and delivered results above our guidance across our key metrics despite dealing with two headwinds during the quarter. The first was a Google policy change that deprecated our Explore More product. The second was our decision to remove low-quality publishers that were not delivering value for advertisers. Despite these two headwinds, I'm happy with our ability to beat our key metrics, accelerate growth, and repurchase a lot of shares. More importantly, we had some large strategic wins that demonstrate meaningful progress against our long-term vision. We expect these new wins to gradually begin contributing to our ex-TAC in the fourth quarter and to ramp more considerably in 2027. These tailwinds give us the confidence to raise our full-year ex-TAC guidance to 9%.

What gives me confidence isn't just the financials. It's the validation we got this quarter that our strategy is working. We're continuing to offer advertisers a viable option beyond search and social while investing in our tech to drive advertiser success and strengthening our relationship with some of the world's leading publishers. Together, these reinforce our confidence in our path forward sustainable double-digit ex-TAC growth. Before getting into more detail, let me remind everyone 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 platforms, Taboola understand intent across the billions of consumers who read, watch, and engage within 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 fast, 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. Turning now into two strategic milestones that further validate our Realize strategy. First, we expect to announce a first-of-its-kind expansion with one of our largest existing publisher partners, a premier media and entertainment company. This marks an important evolution for us, expanding our role from monetizing individual bottom-of-article placements to monetizing everything, including display, vertical formats, native, and more. To put this opportunity into perspective, we estimate that display advertising alone on this publisher represents two or three times the revenue of the traditional native placements we've historically monetized. This is important for three reasons.

First, it's a validation of our Realize product and strategy built with the purpose to expand wallet share within our publishers by moving beyond native ads to handle their full suite of ad placements need. Second, we believe it will demonstrate how publishers can move away from relying on multiple ad tech providers and now consolidate it all into a single partner. By doing this, publishers can reduce complexity, lower operational burden, improve efficiency, and drive stronger revenue outcomes. Lastly, this will create an opportunity for our advertisers to take advantage of even more premium supply. We expect this to be a model for how things can be done with other publishers going forward. This partnership demonstrates that publishers increasingly value partners that can combine AI, proprietary data, and advertiser demand to drive better monetization.

At the same time, we continue to see strong validation of our strategy through our ability to win some of the world's leading publishers. A great example is Fox News, one of the top five publishers in the U.S. We've already built a strong relationship with Fox Local, Fox Sports, and Fox Weather. The addition of Fox News represents a substantial growth opportunity and a significant expansion of our partnership across the Fox ecosystem. We believe this win reflects the investments we're making in Realize and our continued focus on helping premium publishers, like Fox, generate more value through performance advertising and AI. We're encouraged by this highly competitive win. We believe it will further validate our ability to continue taking share in the performance advertising market.

Moving beyond our business wins, we've continued investing in our technology, particularly Realize, our performance advertising platform, driving greater scale, better signals, and stronger performance for advertisers. We believe the future of advertising will increasingly be powered by AI, moving from manual campaign management to intelligent systems that understand advertisers' goals, make decisions, and continuously optimize performance. That's the vision behind Realize+, our AI-powered optimization framework that brings to the open web the kind of automation advertisers have come to expect from solutions like Google Performance Max and Meta's Advantage+. Since launching Realize+ beta, more than 300 advertisers have already adopted the platform, and we're seeing encouraging early results as advertisers use AI to improve campaign efficiency and performance. We also believe AI will fundamentally change how advertisers interact with advertising platforms, particularly holding companies, agencies, and large advertisers.

That is why we built our MCP and Claude integration, which enable advertisers and agencies to plan, launch, and optimize campaigns through natural language conversations with AI. While still early, we're encouraged by the momentum, with a few millions of dollars of advertiser spend already flowing through the integration. We believe these investments position us well to lead the next generation of performance advertising and create more value for advertisers across the open web. To wrap things up, we continue to execute across the business and raised our full-year ex-TAC guidance. Importantly, we also delivered strategic wins that demonstrate progress against our long-term vision. We're also allocating capital with discipline. In the second quarter, we repurchased approximately nine million shares for $41 million, continuing to return the majority of our free cash flow through buybacks.

We've repurchased approximately 20% of our outstanding shares since the beginning of 2025 while maintaining the right balance between investing for growth and returning capital to shareholders. As we look ahead, we're excited about the momentum we're building. The actions we've taken and the initiatives we're putting in place are positioning us well for the back half of the year and into 2027. We're building a stronger, more durable business and are excited about the path ahead as we continue building the leading performance advertising platform for the open web. With that, I'll hand it over to Steve.

Thanks, Adam, and good morning, everyone. We're pleased with our performance in the second quarter. We continue to execute against our strategy and delivered results above our guidance across our key metrics. In the second quarter, revenues grew 2% year-over-year to $476.8 million. Revenue was below our guidance this quarter, primarily as a result of two factors. The first was our continuing effort to optimize supply quality. As part of our ongoing focus on improving the quality and performance of our publisher network, we took a more aggressive approach in the second quarter by exiting publisher relationships that did not meet our standards for advertiser success. Because this should improve advertiser success across our network, we believe this will improve long-term revenue despite the negative impact on 2026 revenues. The second factor relates to the impact from Google's policy changes that affected our Explore More feature, as Adam described earlier.

This feature enabled users to discover additional sponsored content from a publisher's site after they clicked on the back button. However, due to Google's policy change, we were no longer able to provide that product starting this quarter. Despite these headwinds, I was happy to see that the number of scaled advertisers on our network grew 2% year-over-year, though we did see an impact from the headwinds on our average revenue per scaled advertiser, which remained relatively flat. xTAC gross profit increased 12% year-over-year to $192.4 million in the second quarter. Growth in xTAC gross profit outpaced the growth in revenues due to a combination of factors. First, given the reduction in supply due to our network cleanup and the deprecation of Explore More, we saw an increase in ad rates, which drives higher xTAC margins.

Second, we had a shift in the mix of our business towards higher margin areas, partially driven by those same cleanup efforts. Our strong xTAC growth also reflects the continued scaling of Realize, along with strong contributions from Taboola News. I would note that if it were not for the Google policy change that affected our Explore More product, we would have exceeded the high end of our xTAC gross profit guidance. Gross profit for the quarter was $139.5 million, up 3% year-over-year. Growth in xTAC gross profit contributed to this growth. This growth was partially offset by a one-time non-cash write down of approximately $12 million related to certain publisher prepayments that we no longer expect to recoup, which obviously does not impact the long-term economics of our business. Net income for the quarter was $4.3 million, with non-GAAP net income coming in at $41.3 million.