Outbrain Inc. (OB) Q3 2021 Earnings Call Transcript

Outbrain Inc. (OB 0.74%)
Q3 2021 Earnings Call
Nov 11, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Outbrain third quarter 2021 earnings conference call. [Operator instructions] At this time, I'd like to turn the conference over to Jason Kiviat. Please go ahead.

Jason Kiviat -- Director, Finance Planning and Analysis

Good morning, and thank you for joining us on today's conference call to discuss Outbrain's third quarter 2021 results. Joining me on the call today, we have Outbrain's co-founder and co-CEO, Yaron Galai; co-CEO, David Kostman; and CFO, Elise Garofalo. During this conference call, management will make forward-looking statements based on current expectations and assumptions. These statements are subject to risks and uncertainties that may cause actual results to differ materially from our forward-looking statements.

These risk factors are discussed in detail in our Form 10-Q for the quarter ended June 30, 2021, filed with the Securities and Exchange Commission as updated in our subsequent reports filed with the commission. Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statement. Today's presentation also includes references to non-GAAP financial measures. You can refer to the information contained in the company's third quarter earnings release for definitional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures.

Our earnings release can be found on our IR website, investors.outbrain.com under news and events. With that, let me turn the call over to Yaron.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Thanks, Jason. We're very excited with our Q3 results, which exceeded the high end of our guidance on the key metrics. We achieved this while staying very focused on our core business. David and Elise will cover our results in more detail shortly.

Over the past quarter, we had the opportunity to meet with the large number of investors. Based on the feedback and questions we got in those meetings, I want to talk today about three themes that came up from several investors: first, Outbrain's place in the broader ad tech ecosystem; second, quality of recommendations; and third, the impact of privacy changes like those in iOS 14. Kicking off with the first topic, where does Outbrain sit in the ad tech ecosystem? We view ourselves as an operating system of sorts for publishers and other media owners that currently monetize through ads. How is an operating system different from most of ad tech? Here are a few ways to think about it.

First, ad tech occupies leading placements on the page. In contrast, Outbrain typically powers the entirety of the media owner's feed on all of their pages, videos, and apps. Second, ad tech typically bids for each ad placement and only serves the ads if they win that particular bid. In contrast, the Outbrain is typically chosen as the exclusive feed partner for two to three years at a time.

Our top 20 partners have been using us for seven years on average, giving us strong predictability and visibility. Third, ad tech's sole value to the media owner is in the payment they make for each ad they serve. In contrast, Outbrain delivers significant value to the media owner on top of the ad monetization. For example, about half the links we serve on publishers are what's called organic links, pointing to other stories and other videos within the same culture.

Those do not currently generate any direct revenue for us, but they do generate significant value for our partners, which is a big reason of why Outbrain is so sticky with them. An even better example is the products called audience campaigns. This product, which is part of our operating system for media owners, allows them to use their feed real estate for driving their company's diverse business goals. For example, they can use audience campaign to drive more user subscriptions or to hit their commitments to brands for sponsored content viewership.

To summarize, while we generate our revenues like Facebook and Google via ad monetization, the characteristics of our business are very different for most of ad tech. We powered the entirety of the media owner's feed. We do it for multiple years, not just leaving impressions. And we deliver to our partners significantly more value than just the ads themselves.

Our focus has always been on how we can deliver at the most added value to media owners with products like audience campaigns. And that's an area we plan to focus on even more in this future. The second topic I want to talk about is quality. A few months ago, we announced our most significant algorithmic effort in recent years with the new algorithm called QualityRating.

As the name applies, this algorithm change is focused on quality of the ads and recommendations. There are two main reasons we're investing in this new algorithm. First, we believe that our three constituencies, media owners, advertisers and users, will all benefit from the improved quality of the recommendations in the feed. Specifically, brand advertisers have been indicating that they would increase their spend on Outbrain power feeds as the quality recommendation improves.

Second, we view this as a potential driver of yields growth by extending the reach of users who engage with Outbrain recommendations. Historically, our algorithms have been very tuned from maximizing user engagement, and they did so by giving the most consideration to actual engagements or clicks, while hardly giving any algorithmic attention to those silent audiences who don't intend to click on recommendations. But those silent audiences are roughly 95% of those exposed to Outbrain recommendation. And it's a huge yield opportunity for us to be able to better address even a small percent of those.

We're currently working with two major U.S. publishers on the launch of first days of QualityRating. This is the ground work for soliciting quality signals from about a third of their desktop users. When we announced QualityRating, we said that we will gradually roll this out well into next year in order to allow media owners and advertisers to adjust to the changes and ensure their expected ROI from Outbrain is not negatively impacted during the transition, like they sometimes experience when Google or Facebook made algorithmic changes.

We will obviously keep updating on this area in future calls. Another topic relating to quality is the placement of the feed. There's this common myth we hear often about ads above the fold being of naturally high quality and therefore more desirable, while ads at the bottom of page are viewed as less desirable. The reason we chose to focus in our early days so intensely on the end of the article placements is that it's actually, in our view, among the best real estate from a user engagement point of view.

At the top of the page, we have found that most users ignore all the ads. Outbrain is primarily a CPC or cost-per-click-based company. And just like Google Search on most of our ads, we only earn money when we user finds it interesting enough to click and engage with the ad. Cost-per-click is the model that typically delivers the best return on ad spend for advertisers.

Then said, expanding into new placements on the page is an exciting incremental growth opportunity that we are pursuing as it is valuable to deepen our relationships with publishers and have a diverse inventory for different advertiser needs. David will talk more about this. In the long run, we believe it's more likely for high-engagement partners, like Outbrain, to expand to other placements, like mid-article, than it is for low or no-engagement companies to expand into content recommendations. The third and final topic I'll cover is the cookie deprecation and the IDFA ATT changes in the iOS ecosystem.

Now, we've all seen the massive hit the companies like Snap and Facebook have taken in their mobile ad revenues due to the changes made by Apple. What's important to understand is that those companies that were hardest hit are those whose monetization have been primarily within the native iOS ad environment. We believe that Outbrain is very well-positioned for these changes. While two-thirds of our business is mobile, only about 4% of our revenue is generated within iOS native app environments.

In addition, we've always relied on our contextual targeting capabilities in the first party data that we have from powering the feeds on so many premium publishers. Both contextual and first party data are proving to be very effective. Companies like Facebook rely heavily on PII, personally identifiable information, to profile users, and then retarget those users with ads across different apps. Outbrain has no PII and has never had any.

And therefore, our contextual and other technologies that do not rely on things like IDFA have been able to nicely compensate on yields for whatever impact it may have had. As our industry is a very dynamic one that constantly poses new opportunities for us, I will keep updating you on topics such as privacy, quality, and other areas where we see exciting opportunities. And with that, I'd like to hand things over to David who will cover our Q3 results.

David Kostman -- Co-Chief Executive Officer

Thank you, Yaron. As you can see, we experienced very strong growth in Q3. Exceeding the high end of our guidance range on both Ex-TAC gross profit and adjusted EBITDA. Revenue grew 34% year over year to 251 million.

Ex-TAC gross profit increased 40% year over year to 68 million, and we continued to demonstrate strong operating leverage, delivering adjusted EBITDA of 20 million. Our superior growth rate over the last 12 months and in Q3, which is entirely organic, is a clear testament to our market leadership. I'll provide some color on our Q3 results by touching on several of the key technology and business drivers. Let's start with the media owner side.

As a reminder, we grow by renewing and expanding our business with existing partners and by adding new partners. We had a great quarter on these two fronts. Our net revenue retention of 128% in the quarter continued the trend we have experienced over the last 12 months and demonstrate the superior monetization we deliver to our existing partners. In Q3, our top five media owner partners, which includes one non-inclusive partner, experienced actually meaningfully higher growth than our company, which delivered 34% total growth.

The focus on our core business is paying off in our wins of new media partners and renewals of key partners. We added over a hundred new digital properties in Q3. Some examples of premium media groups win from competition are Grupo Abril in Brazil, Pijper Media in The Netherlands, [Inaudible] in Austria, [Inaudible] in the U.S. We also had a very strong renewal cycle of existing publishers, including renewal of multi-year agreements with key partners such as Altice in Europe and VICE Media in the U.S.

One of the key factors for both retention and new business wins is the continued growth in yield. A key driver for that is our SmartLogic technology. As a reminder, this is our dynamic optimization technology that takes our feed to the next level. Historically, recommendation feeds had a significant component of manual business decisions, such as the decision when and where to show video, what kind of ad and organic content to show to each user, etc.

Outbrain's SmartLogic is a breakthrough, which evolve those manual business decisions into AI-driven dynamic decisions. For example, in a pre-SmartLogic feed, a manual business decision to show 30% videos would mean that 100% of the users will see 30% of video. With SmartLogic technology, we dynamically optimize for showing more videos to those users who like video most, while minimizing it for those who are unlikely to engage with it. SmartLogic has many more dynamic optimization elements, and we believe will continue to support our leadership in the market.

We have also been gaining greater show of inventory with our partners with growth in mid-article placement. We are leveraging our media partner strategic relationships to secure incrementally inventory, either through exclusive arrangement or through programmatic bidding. Some of our partners who have touch placement include Group Nine in Australia, FUNKE in Germany, IDG, and many other. These placements are more desirable for video, brand awareness, and other types of advertisement.

We've seen above-company revenue growth rates on mid-article placement though this still represents only few percent of our revenue mix. Lastly, on the media owner side, we're also seeing the fruits of our hubbing effort around small and medium publishers, increasing focus on servicing the larger partners in the local region, while ensuring the media partners transferred to the hub to receive adequate attention toward revenue optimization. We more than doubled the average RPM from these partners once they move to the hub. Moving on to the demand of advertiser side, where our focus is on scaling advertisers by continuously improving our AI-based return on ad spend solution and adding workflow automations to drive campaign efficiency.

Here are two examples. First, for Conversion Bid Strategy or CBS, we saw continued customer adoption. As a reminder, CBS is the machine learning-based conversion, optimization engine we first introduced to market a couple of years ago and continues to evolve. It drives higher growth for our advertisers and has made a real difference for them, including brands and e-commerce buyers, driving higher performance, more efficient running of campaign, resulting in increased budgets for us.

Second, we launched an AI-based product which allows advertisers to optimize specifically toward the engagement goals. By connecting the first party data, such as Google Analytics, to our platforms. This solution allows advertisers to optimize toward goals, such as time on site, number of pages, bounce rate, and others, leveraging the marketers' own first party data. We also continued to see success with advertisers to expanding our formats and placement.

As an example, video increased to approximately 9% of our revenue in Q3, growing faster than other formats. We expect to continue to invest in our video offering, such as our key product, and see it as an area of strategic growth. I want to highlight that in the last 12 months, 53 out of the top 100 of the Forbes' list of the world's most valuable brands spend directly with us on our platform. We believe, and also getting feedback from our media owner partners, that we provide a higher-quality experience on the property due to the fact that we focus on premium brand and direct relationships with advertisers, especially on the e-commerce side.

In summary, we're excited about the product and technology investments we are making and the growth opportunities ahead of us. We're encouraged by positive secular market trends. We continue to see a shift of advertising dollars to digital and to the open web, following consumers' increasing queues of digital channel. We expect this to lead to more advertisers, higher budgets, and also higher pricing.

For media owners outside of the walled garden, they continue to focus on being the authentic providers of news and information, and are focusing on leveraging the first party data to offer better targeting for advertisers in an environment that is less impacted by IDFA continues to adjust for a click-less world. We plan to continue to be focused on our core value proposition, and we expect all these trends to continue to provide us with strong tailwind. I'll now hand it over to our CFO, Elise.

Elise Garofalo -- Chief Financial Officer

Thanks, David. We delivered another quarter of strong financial performance, beating both our Ex-TAC gross profit and EBITDA guidance in Q3. In addition to the topline growth, the strength of operating leverage in our model is evident with a very healthy adjusted EBITDA margin at 29% of Ex-TAC gross profit, even as we grow investment in our people and products to drive innovation. Revenue grew 34% or 64 million to approximately 251 million year over year.

Continued strength in net revenue retention of our existing supply base, which, as a reminder, is equivalent to a same store sales metric, grew revenues approximately 52 million, or 28%, as we continue to drive value and expansion for our media partners. Consistent with prior periods, higher yields on our platform drove this growth. To put our net revenue retention in context, last quarter, we touched upon the multiple growth levers of our business and how they interconnect through technologies, supplies, and demands, a compound platform growth. The examples David gave today, like SmartLogic driving engagement, CBS driving advertiser [Inaudible], and the growth of video overall, are great demonstrations of how we leverage our massive distribution asset to grow revenue and yields for our partner and ourselves.

Now, in addition to retention, we also grew by approximately 12 million or 7 points as compared to Q3 2020 from the addition of new supply in the quarter. Approximately half of this was driven by growth of new media environments and SMP. Across revenue in total, we saw continued strength in mobile, which represented approximately 70% of total revenues in the third quarter. And geographically, we continue to see strength globally.

As a reminder, approximately 60% of our revenues are outside the U.S. On Ex-TAC gross profit, which is the revenue we keep after paying traffic acquisition costs to our media partners, we increased 19 million or 40% year over year to 68 million. Ex-TAC gross profit outpaced revenue growth due to favorable revenue mix in the quarter. Moving to operating expenses, we saw an increase of 28 million to approximately 67 million in the third quarter.

Approximately 16.5 million or more than half of the $28 million increase is now recurring and was triggered by our IPO as it relates to incremental stock-based compensation expense for awards with an IPO performance condition. Excluding this one-time impact, operating expenses increased approximately 12 million, primarily from higher personnel-related costs, reflecting continued investment in our global team, adding over a hundred people, particularly in the R&D and sales organizations, as well as higher incentive comp in the period. In addition, this year, we have higher costs associated with becoming public and are seeing higher marketing T&E and facility expenses as activity gradually comes back to more normal operations versus the post-COVID lows of 2020. Adjusted EBITDA, our key measure of profitability, increased 56% year over year to approximately 20 million this quarter, as the yield improvements we delivered on our platforms benefited the bottom line even with our continued investment in the business.

And just a final comment on the P&L, in addition to the IPO-triggered stock-based comp, we also had one-time charges of 42 million related to the exchange of our senior notes upon IPO in July. Moving to liquidity to recap Q3. We had 482 million of cash and cash equivalents on the balance sheet and 236 million of convertible debt at September 30th. We raised significant capital in the third quarter: 200 million was raised from the sale of our now public convertible notes for the Baupost Group, and our IPO raised 160 million of gross proceeds.

Aside from capital market activity, we generated substantial free cash flow in the period of over $30 million. Free cash flow, which we define as cash provided from operating activity, less capex and CAP software, was driven by EBITDA strength and positive working capital. Also on liquidity, as disclosed in plans, we announced our amended revolver. With the pending maturity of our existing facility, we amended and extended to a new upside facility of $75 million with SVB.

Nothing is currently drawn on that facility. Last, turning to our guidance. Our new raised full year 2021 guidance is as follows: Ex-TAC gross profit up 269.9 million to 271.9 million, or approximately 39% growth year over year at the midpoint, and adjusted EBITDA of 87.5 million to 88.5 million, or approximately 114% growth year over year at the midpoint, more than doubling last year and representing a very healthy 32% to 33% EBITDA to Ex-TAC margin. For the fourth quarter, we expect Ex-TAC gross profit of 74.5 million to 76.5 million, or approximately 15% growth year over year at the midpoint, and an adjusted EBITDA of 22.5 million to 23.5 million, or approximately 9% growth year over year at the midpoint.

That concludes our prepared remarks. I'd like to turn it back to the operator to open the line for Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Shweta Khajuria with Evercore ISI. Please proceed with your question.

Shweta Khajuria -- Evercore ISI -- Analyst

OK. Thank you. Let me try two, please. Yaron, can you please -- so you talked about IDFA.

You did not see -- the company did not see meaningful impact or headwinds from IDFA. Could you please remind us of cookie depreciation? That may be a big topic next year as we approach 2023. And how should we think about potential in that? Have you tried an environment where you don't use cookies? And are you seeing any meaningful impact? And then, the second question is on verticals, would you please talk about what you saw across advertising verticals, so retail travel, auto? Any particular areas of strength or weakness? Thank you.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Thanks, Shweta. So, Yaron here. I'll take the first question, and maybe David will take the second one. In regards to IDFA, you asked if there is any environment where we tried -- where we experimented without third party cookies.

And there are for couple of years. There have been no third party cookies allowed on Firefox and on Safari. And the results we're seeing now are after two years of third party cookies not being available on those places. IDFA is a very similar mechanism to third party cookie.

So we think we're in a very good to position from two different angles. So, the first one is contextual. Just to remind, myself and a team of Outbrainers pioneered the space of contextual targeting about 20 years ago. And it's a core of what we've been doing at Outbrain since the first day, so we're seeing really the strength of contextual capabilities in our results this quarter.

And second is the vast amount of first party data that we have. Again, we power the entirety of feed for the media owners and publishers that we partner with. That gives us a tremendous insight into all the engagement, the user engagements, both on ads, but also on the organic recommendations. All that drives first party data for us, which, again, is immune to some of the changes with the cookies that we're talking about.

The last point, I'll just mention. I did mention it in the prepared remarks. We are a major, mostly mobile company. So, about two-thirds of our business is mobile.

But where the IDFA and ATT changes are most significant, and we saw that from other companies reporting, is in the native iOS app environments. And those are about 4% of our business, so it's not really as meaningful as Mobile Web, Android, and other places. But again, contextual and first party data are key strengths for us. David?

David Kostman -- Co-Chief Executive Officer

Hey, Shweta. Thanks, Yaron. So I'll address the show of the vertical. So, of course, I would say that the overall demand continues to be very strong.

I mean, the shift to digital and to measurable outcomes, we continue to see that in the strong tailwind. We particularly, we have a wide variety of advertiser types. We work with enterprise brands, agencies, and developers, direct-to-consumer brands, publishers. So, we are following the global supply chain issues.

And as an example, we've seen some automotive budgets temporarily tightening in Q3 and Q4. But due to our diversity, it has not had any material impact on our financial. And we see continued strength in verticals, like health, entertainment, finance, and others.

Shweta Khajuria -- Evercore ISI -- Analyst

Okay. Thanks, Yaron. Thanks, David.

Operator

Thank you. Our next question comes from the line of Ross Sandler with Barclays. Please proceed with your question.

Ross Sandler -- Barclays -- Analyst

Hey, guys, morning. Yaron, the comment about brands spending more budget with you, guys, if you improve the quality score algorithm was pretty interesting. Can you just elaborate on how that might work and what you're doing before versus what you're going to do in the future? And could that be a big revenue driver next year? Is that more just a long-term thing? And then, David, the video, 9% of rev in the third quarter under indexes to some of your peers who have much higher valuations than you guys. Is there a way to get more video placements from your publishers? Or is there something about news publishers that just maybe have less video inventory than the overall industry? Any way to get more into that swim lane? Thanks a lot.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Thanks, Ross. Yaron, here. So there are two main reasons. We're focusing the investments on the QualityRating algorithms, both, again, I think are interesting yield in growth opportunities for us down the road.

So, the first one is being able to address more of that time and majority of users. And all the algorithmic efforts in recent years for us have been really focused on most engaged users and on the highest engagement signals. So, we take those signals like clicks and engagements with videos, and build the algorithms around those. Those are kind of very high-fidelity signals from users.

What QualityRating has focused on is on those 95% or so of users that are not engaging with Outbrain recommendations. And we think there's a tremendous opportunity to increase the reach and the percent of audience that actually engages with our recommendations and generates yield for us. The second is, I think -- and these are big industry trends, the bigger brands are focused more on brand-safe environment and high-quality premium environments. And in talking to many of them, including the ones we work with, they're saying, if we can make more of those placements be more appealing for them on quality and the premiumness, they'll be looking to spend more.

And so, QualityRating is really, we think a big opportunity for us for growth on both those areas, brands and increasing the reach of our engagement with more users.

David Kostman -- Co-Chief Executive Officer

Hey, Ross, it's David. So thanks for your questions. Great questions. So, we are very excited about video generally.

Today, it's about 9% to 10% of our revenues. It's been growing very fast for us, faster than our core, but we think there's much more opportunity out there. So, we're continuing to invest in it. So, in the dimension of the current publishers, we believe that, sort of the in-article placements and above the fold placements are better suited for that.

So, I mentioned I think in the prepared remarks that many publishers that we're working on, whether it's programmatic or through exclusive deals on getting those placements that are more targeted brand awareness. And we're also looking quite aggressively into expanding into potentially other platforms. So, video is a big area of focus for us. And I think we'll see continued growth in video for us both the publishers and looking into other platforms.

Operator

Thank you. Our next question comes from the line of Andrew Boone with JMP Securities. Please proceed with your question.

Andrew Boone -- JMP Securities -- Analyst

Hi, guys. Good morning and thanks for taking the questions. I've got two just on, kind of the competitive nature. One on the advertiser side.

So, as pricing has been reportedly up across social networks, can you talk about what sort of spillover you're seeing in terms of new advertisers coming into the platform? And then, it's great to see revenue from existing publishers up 28%. I have to think that makes you more competitive within the new publisher addition side of the business. And so, you know, as guys reported, I think a hundred ads this quarter, a hundred ads last quarter. Do you think momentum is increasing there? Can we see that start to accelerate even further as your product initiatives are driving yield for publishers? Thank you so much.

David Kostman -- Co-Chief Executive Officer

Hey, Andrew. It's David. Thanks for the question. So, I'll start with the second part.

On the publisher side, we are seeing, you know, very strong momentum both on the new wins and current discussions we're having with the publishers and in terms of increasing the yields for our current partners. We've seen the numbers. I mean, this is a very strong continued net retention rate 128% is a great number. And it is coming from continuous improvements in technology, improving the yield growing within those publishers, real estate to more placement.

And so, I think, yes, we are enjoying a good momentum. And again, we're going to obviously be announcing some good partnerships during the quarter, those that are relevant. On the advertiser side, I mean, pricing is on -- I mean, we've also experienced higher prices in our network, so that's also part of the increasing yield that you see. But I think we do provide a very strong alternative and we see more advertisers that are being -- I wouldn't say priced out, but I think have more available budgets to spend on our platform rather than on some of the walled gardens.

But also now, our platform, I think, the increased demand is driving higher prices.

Andrew Boone -- JMP Securities -- Analyst

Thank you.

Operator

Our next question comes from the line of Laura Martin with Needham. Please proceed with your question.

Laura Martin -- Needham and Company -- Analyst

Hey, guys. Good morning. So I'm interested in your 2022 outlook sort of on a macro level. In terms of autos and supply chain, do you have a -- do you think that by second half, we're going to get a step-up in overall advertising in the macro environment? I'm interested in your macro outlook.

And then, secondly, one of the things that Jeff Green was talking about on his call, The Trade Desk call, was that he thinks that CTV specifically tilts the balance of power away from walled garden into ad -- sort of open-internet ad tech. And I'm sort of interested in that thematic. I know you guys don't do CTV. But thematically, do you also agree with that, that you think there are things going on in the ecosystem that will benefit sort of open-internet competitors like yourself compared to walled gardens, which has taken the lion's share of digital ad growth over the last decade?

Elise Garofalo -- Chief Financial Officer

OK. Hi, Laura. Good morning and thanks for joining. I'll take maybe the '22 context and then hand it back over to the partners here for CTV.

As it relates to '22, I mean, you're right, we haven't put anything out in the public domain. But I think, broadly speaking, we do believe that the secular shifts we are seeing are here to stay. Advertising recovery remains very strong. And we do believe that our daily -- as our daily routines become more increasingly normal, there's still more demand strength on the comps.

So, as David referred to earlier, we see a little bit of what we see a temporary softening in some of those verticals, but we think that that's really minor relative to the increasing budgets both within those softer verticals, but also travel and entertainment and others that we think there's much more on the comp for us. In terms of timing, I think second half next year probably makes more sense than early this year as we continue to see deferrals and delays, and what our new norm become. But broadly, we see a very strong advertising market. And we think, again, there's more to come next year.

Yaron, I think you're muted.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Yes. That is a good point. Thanks. Hi, Laura.

Yaron here. So, I think the broader theme in your second question is around the walled gardens versus the non-walled gardens, whether it's open web or CTV environment? And I think the big shift that we're seeing at this point is, you know, coming after about a decade of the walled gardens basically owning the best datasets and being able to use that dataset across different apps, different browsers, different devices with almost no limitations, I think what we're seeing now is the battle of the walled gardens or the platforms, like Apple and Google, saying, "That's coming to an end. And we're now going to start capping that ability to take PII and use it across the apps and different devices." And obviously, advertisers, historically, if we look historically, they've never taken barriers like that and said, you know, "OK, now we'll advertise less." Historically, as we've seen in the past two decades, more and more budgets move to digital, and it's just a growing piece of advertising. And so, we do think that the -- you know, with those limitations coming on the ability to use PII and move it between devices and apps, and we're seeing the biggest pain probably in the Facebook and Snap areas, we do think that the open web is going to benefit significantly from this.

And the open web historically has a tremendous amount of context and first party data. First party data did not have big advantages in the past because third party data was so easy to use. But now, that value is coming back to the publishers that own a tremendous amount of first party data and to their biggest partners that are deeply embedded with those publishers. So we think those trends in the industry are very positive for the open web in general and for Outbrain in particular.

Laura Martin -- Needham and Company -- Analyst

Very helpful. Thank you very much.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Brent Thill -- Jefferies -- Analyst

Good morning. Sixty percent of the revenue, I believe, is international. It'd be great to kind of hear how that's trending versus the U.S. And also, I think you don't break out the customer count, but I think last quarter, you mentioned 20,000-plus.

I just was curious if that number was growing. Any change in terms of the total absolute customer ads this quarter?

Elise Garofalo -- Chief Financial Officer

Good morning. Just looking at our international profile, that rate remains around 60% outside of the U.S., and it continues to outpace the U.S. growth as it has all year. We see that outside the U.S., there was more pressure last year.

So some of that higher outpacing that we saw in half one is to a lesser degree and half two. But we continue to see international outpacing the U.S. On the advertiser front, I mean, we typically will disclose that on an annual basis, mainly because quarter to quarter, it can vary. But absolutely fair to say, consistent with what you're seeing in the overall strength of the results that year over year, our advertiser count has increased.

What we are seeing, I think, as a product of our tools, and David mentioned CBS and many of the things we have talked about over the many months, is on top of growing the account, we're also deepening the spend or the share wallet with our partners. So we see growth on both dimensions.

Brent Thill -- Jefferies -- Analyst

Thank you.

Operator

Our final question comes from the line of Nick Jones with Citi. Please proceed with your question.

Nick Jones -- Citi -- Analyst

Great, Thanks for taking the questions. I guess two, you mentioned some softening and some verticals, is this kind of tied to supply chain constraints and certain kind of e-com verticals or broadly? Is that the right way to think about how kind of the softness in verticals may improve into next year? Then I have a follow-up.

David Kostman -- Co-Chief Executive Officer

Nick, maybe I'll take that. It's David, hey. So, we have not experienced in our business the softness. We've seen some budget, for example, in automotive being temporarily shifting.

But when you look at our overall diversity of our advertiser base and, you know, the -- not just the verticals, but also the type of advertisers, it has impacted us. We continue to see strength in other verticals like health, entertainment, travel, financing. So, we've seen no impact on it. I mean, we've seen number shifting, but no impact on the business at all.

And generally, the trends or the shift to digital and to measurable outcomes, and the variety that we have, really, I think, we don't see that as impacting us.

Nick Jones -- Citi -- Analyst

Great. And then maybe on click-through rate, I know that's kind of a focus is to improve click-through rates. You're talking about what kind of investments you might be making, kind of for the rest of year and into next year to continue to drive that higher. Is there still quite a bit of runway to improve that? Thanks.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Yeah. Thanks, Nick. Yaron here. So click-through rate is definitely one of our biggest --

Elise Garofalo -- Chief Financial Officer

Yaron, I think you're having -- yeah, no. You are unmuted, but it conflicts --

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Yeah, sorry. OK. Nick. I need to improve my unmuting skills.

But thanks, Nick, for the question. Yaron here. So, click-through rate is definitely a big area of investment for us since we started the company. It's basically a, you know, user engagement business and being able to drive that over the years is very important for us.

We think there's still tremendous opportunities again about -- as we've said a few times, about 95% of the audiences that we already reached, they're seeing the Outbrain recommendations are not currently engaging or clicking on the recommendation. So, we think there's tremendous opportunity to grow and engage a broader audience. That's a big reason we're investing in the QualityRating algorithm. Again, that algorithm is -- we think it's going to benefit all users, but most specifically, it's taking those implicit quality signals from users from both engagers and non-engagers, and making the recommendations more relevant and interesting for those.

We think that's a great opportunity. One way to think about the opportunities we have on click-through-rate is when we look at the organic recommendations. About half of the links that we serve are organic recommendations to a publisher's own content and the click-through rates we've been seeing on organic recommendations are generally about double the ones we're seeing on the paid recommendations. So, you know, no big heroic deeds.

We know we can – the doubling of the click-through rate is something that's already happening within our recommendations. Obviously, organic and ads are slightly different, but it's, we think those are realms of possibilities. And we're definitely investing more technology and algorithms for that.

Nick Jones -- Citi -- Analyst

Great. Thank you.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Yaron Galai for closing remarks.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Thank you. Thanks. We're very excited with the growth that we've had over the past quarter, as you can see in our results. And this is a result of focusing on execution and on excellence in our core business, which is very exciting for us.

We'll keep updating obviously on the things in our dynamic industry and on changes where we see great opportunities. And we hope to see you all in the next quarter. Thanks.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Jason Kiviat -- Director, Finance Planning and Analysis

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

David Kostman -- Co-Chief Executive Officer

Elise Garofalo -- Chief Financial Officer

Shweta Khajuria -- Evercore ISI -- Analyst

Ross Sandler -- Barclays -- Analyst

Andrew Boone -- JMP Securities -- Analyst

Laura Martin -- Needham and Company -- Analyst

Brent Thill -- Jefferies -- Analyst

Nick Jones -- Citi -- Analyst

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