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DATE

Thursday, Nov. 6, 2025, at 8:30 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — David Kostman
  • Chief Financial Officer — Jason Kiviat

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RISKS

  • Jason Kiviat reported, "We experienced volatility in our top line and expect continuation of this in the short term," highlighting ongoing revenue risk.
  • Kiviat noted revenue declined 15% year-over-year in Q3 2025, driven by underperformance in the U.S., UK, and France, key markets that contribute about 50% of total revenue.
  • Kiviat detailed a $10 million revenue headwind from declining page views and the cleanup of underperforming supply on the legacy Outbrain business.
  • Kiviat specified, The revenue impact of these factors has been larger than expected, most notably in our DSP business, where a few large clients significantly reduced their scale across our platform, resulting in a year-over-year Ex-TAC decline of $5 million in Q3 2025.

TAKEAWAYS

  • Revenue -- $319 million, up 42% year-over-year as reported in Q3 2025, primarily driven by the recent acquisition.
  • Pro Forma Revenue Change -- Declined 15% year-over-year on a pro forma basis, highlighting underlying pressure despite top-line growth from the merger.
  • Ex-TAC Gross Profit -- $131 million, an increase of 119% year-over-year as reported in Q3 2025, supported by favorable revenue mix and RPM gains.
  • Adjusted EBITDA -- Adjusted EBITDA was $19 million in Q3 2025.
  • Adjusted Free Cash Flow -- Year-to-date adjusted free cash flow was positive $3 million, but there was a $24 million use of adjusted free cash flow in Q3 due to a $32 million semiannual interest payment.
  • Cash and Liquidity -- $138 million in cash, cash equivalents, and marketable securities at the end of Q3 2025, with €15 million ($17.5 million) in short-term overdraft and $628 million in long-term debt at a 10% coupon maturing in 2030.
  • Cost Synergies -- $14 million recognized in Q3 2025, approaching a $60 million annual run rate by 2026.
  • Restructuring and Integration Costs -- $4 million in acquisition and integration-related costs, plus $1 million in restructuring charges in Q3 2025.
  • CTV Revenue -- Connected TV business grew approximately 40% year-over-year in Q3 2025, is on track to reach $100 million for the year, and now represents about 6% of total ad spend.
  • Cross-Sell October Growth -- October revenue and bookings in cross-sell grew over 55% month-over-month, though off a small base.
  • Q4 Guidance -- Ex-TAC gross profit is expected to be between $142 million and $152 million, with adjusted EBITDA guidance between $26 million and $36 million for Q4 2025.
  • Annualized EBITDA Benefit -- Management expects at least $35 million in annualized adjusted EBITDA improvement from new operational initiatives, with initial impact to begin in Q4.
  • CTV Campaign Activity -- Over 2,500 home screen CTV campaigns were executed, and there is access to more than 500 million addressable TVs globally through partnerships as of Q3 2025.
  • Publisher Traffic Trends -- Publishers, we saw a decline of approximately 10-15% in page views during Q3 2025, according to David Kostman, with single-digit declines in in-app traffic and similar trends continuing from prior quarters.
  • DSP Business Decline -- A small number of large clients exited, leading to a $5 million Ex-TAC revenue drop in Q3 2025, which accounts for about two-thirds of the DSP segment.

SUMMARY

Teads (NASDAQ: TEAD) management reaffirmed confidence in the merger strategy but expressed disappointment in Q3 performance, citing prolonged integration challenges and adverse market dynamics. Leadership actions include organizational restructuring, prioritization of growth verticals such as CTV, and a renewed focus on operational efficiency and cost optimization. The company emphasized tangible early gains in cross-sell and the sales pipeline during Q3 2025, though revenue headwinds from legacy segments—notably DSP and declining publisher page views—continue to weigh on results.

  • Kostman introduced Molly Spielman as Chief Commercial Officer.
  • Innovations in AI, including adoption of unified foundational advertising models, are expected to deliver predictive campaign improvements and further performance optimization in 2026.
  • The company highlighted upcoming Investor Day in March for sharing a detailed three-year strategic outlook, signaling intent for greater transparency and engagement with investors.
  • Kiviat stressed ongoing caution in near-term forecasting due to continued volatility and shorter advertiser planning cycles, with Q4 guidance assuming conservative revenue progression relative to October trends.

INDUSTRY GLOSSARY

  • Ex-TAC: Revenue net of traffic acquisition costs; represents gross profit before operating expenses in ad tech businesses.
  • RPM: Revenue per mille; ad revenue earned per 1,000 page views or impressions.
  • CTV: Connected TV; ad inventory delivered over an internet-connected television platform.
  • DSP: Demand-Side Platform; software system that allows advertisers to buy digital ad inventory via automated, real-time bidding.
  • Cross-Sell: Generating revenue by selling existing customers additional, often complementary, products or services within the organization's wider portfolio.

Full Conference Call Transcript

David Kostman: Thank you. Good morning, and thank you for joining us. Before diving into the details of the quarter, I'd like to start with an update on the merger, our turnaround actions, and how we're positioning Teads Holding Co. for renewed growth and sustained profitability. While this quarter presented challenges, and our results fell short of expectations, we are taking decisive actions to drive a stronger performance moving forward. The integration of our two-scale organization is complex but a strategic effort, and we are actively addressing the challenges we encountered.

In addition to the merger complexities, we continue to navigate a dynamic and fast-evolving ecosystem marked by shifting traffic patterns across the open Internet, increasing competition on the demand side, macro volatility in certain geographies and verticals, and shorter planning cycles continue to affect pacing. At the same time, we remain confident in the strategic thesis behind our merger and are excited about the long-term opportunity. We believe that the combination of our technology, data capabilities, and deep relationships with enterprise brands and agencies places Teads Holding Co. in a uniquely strong position to be a strategic partner at the global scale for brands and their agencies.

Our cross-screen outcome-driven ad platform, led by our fast-growing connected TV business, is resonating with customers and partners. I've just returned from our strategic product off-site, and I can tell you that the innovation, creativity, and energy of our teams are truly inspiring. This reinforces our confidence in Teads Holding Co.'s future and our ability to lead the industry forward.

With this backdrop, we decided to take decisive actions in an effort to turn the business around, restore growth, and improve profitability. Over the past two quarters, we've made meaningful progress on the integration and realization of synergies. Operationally, during Q3, we restructured the leadership of our regions and improved our sales team's coverage structure and sales processes. These measures are already yielding some improvements in key leading indicators, though the revenue impact is still in its early stages. In parallel, after working as one merged team for two quarters, we also decided to conduct a comprehensive business review to identify additional opportunities to restore growth, enhance profitability, and generate positive cash flow while building a great company. The plan we developed focuses on three main dimensions. First, portfolio optimization through product, geography, and customer segment evaluation, prioritizing investments in innovation and high-growth opportunities while taking steps to improve the profitability of other parts of the business. Second, operational efficiency, refining our organizational structure and processes to enhance agility and accountability. And third, cost optimization, identifying further efficiencies to improve our financial profile and long-term cost structure. We are rapidly moving into execution of these plans with implementation beginning in the coming weeks with the objective of driving immediate impact. These plans should allow us to continue investing in strategic growth while delivering meaningful incremental EBITDA. We are focused on operating as a positive cash flow business. So far year-to-date, we've generated positive adjusted free cash flow, and our objective is to focus on improving our cost structure and efficiencies to finish the year positive as well. As you may have seen in our separate press release this morning, I'm very excited to welcome on board Molly Spielman as our new Chief Commercial Officer. Molly brings a wealth of experience on the sales and operations side at scale. She served as Chief Revenue Officer and then Chief Operating Officer at Criteo for five years when the company grew revenues from $100 million to over $2 billion. Most recently, Molly was the Chief Revenue Officer at Oracle Advertising, where she helped clients realize value through the activation of third-party audiences and contextual targeting. Prior to that, she held senior leadership roles at Millennial Media and Yahoo. I'm truly excited to welcome Molly to our leadership team. She brings exceptional experience, fresh perspective, and a proven ability to lead through transformation. Her insight and commitment to excellence will not only strengthen our leadership team but also inspire our entire organization as we move forward towards a stronger future. Now I will turn to some highlights from the quarter. Connected TV remains our most important growth area. In Q3, we saw continued growth of approximately 40% year-over-year. On a standalone basis, assuming continuation of recent trends, our CTV business is expected to hit the $100 million mark by the end of the year. As a reminder, our CTV business focuses on three key pillars: on-screen, the innovative CTV placement where we continue to be a global leader, other proprietary formats such as PAWS ads and in-play, and cross-screen, which facilitates full-funnel activation. Our Connected TV home screen product continues to gain traction, establishing Teads Holding Co. as a leader in this market. We've executed over 2,500 home screen campaigns since launch and expanded partnerships with major CTV players, including TCL and Google TV, alongside existing relationships, some of which are exclusive, including LG, Samsung, and Hisense, giving us access to over 500 million addressable TVs globally.

We believe that new research from the Media Mental Institute demonstrates the power of our CTV home screen, which, based on early results, achieved a 48% attention rate and delivered a 16% attention premium over YouTube skippable ads. Cross-screen adoption is strong, with over 10% of our branding advertisers now active across both CTV and web. During Q3, we launched CTV performance, which is designed to enable brands to bridge awareness and performance goals across premium streaming and video environments. For example, in a recent campaign with Men's Wearhouse, Teads Holding Co. generated over 41,000 site visits and more than 50,000 incremental store visits, which we believe demonstrate that CTV can now drive measurable outcomes across the funnel.

While CTV continues to grow quickly, we continue to experience declining page views on premium publishers, partly due to increased adoption of AI summaries and volatility in our programmatic supply. However, this has been partially offset by ongoing RPM improvements and by actions taken by publishers to increase engagement of the audiences, particularly on their applications. On the cross-sell front, selling performance solutions to legacy clients, clients such as homes.com, Lavaxa, and Nissan, are successfully combining branding and performance campaigns, driving measurable full-funnel results. Encouragingly, we're seeing improvements in new business opportunities and a notable inflection in cross-sell revenue, albeit from a small base, with October revenue and bookings growing by more than 55% month-over-month in cross-sell.

It is important to remember that the open Internet remains a vital channel for advertisers seeking incremental reach and unique audience engagement. For example, a recent case study with a major US CPG brand demonstrated over 90% incremental reach when extending campaigns beyond social into the open Internet, which we believe is a powerful example of Teads Holding Co.'s ability to connect brands with new audiences beyond walled gardens. In addition to our CTV expansion, diversifying beyond traditional publishers into potential high-growth, high-value media environments, our retail media innovation continues to advance, with more updates and partnerships being announced soon, providing enterprise brands with simplified access to multiple retail media networks through Teads ad manager.

Moving to AI and algorithmic breakthroughs, the acceleration of our AI and algorithmic capabilities stands as one of the most exciting and impactful outcomes of the merger, already yielding tangible improvements and establishing a highly promising trajectory for 2026. First, the combination of the two companies' data science teams, datasets, and know-how is resulting in real benefits for both brand and performance campaigns, with improved conversion rates, click-through rates, option-level bids, and AI-based campaign pacing. After a testing period, we're in the process of rolling out some of these benefits to the entire network. Second, the adoption of large language foundational models for advertising.

Our next-generation approach trains a single unified advertising foundational model that learns from all available data, user actions, publisher signals, and advertiser goals, to deliver exceptional predictive power across the entire advertising life cycle. This shift represents a transformative step in ad selection and personalization, unlocking performance improvements across every stage of the funnel. We believe the improvements to our platform driven by this foundational model could be one of the most significant drivers of performance going forward. To sum it up, we fully acknowledge that our integration journey has come with challenges and the progress has not been linear.

However, we remain confident in the strength of our vision, the resilience of our teams, and what we believe is the unique value proposition of our integrated platform. We are enhancing our leadership team, sharpening our execution, focusing resources in the areas of greatest opportunity, and taking decisive steps to build a more efficient, innovative, and profitable business. Looking ahead to 2026, our growth and profitability strategy will center on five key pillars: first, connected TV growth through home screen formats and cross-screen activations; second, deepened strategic relationships with agencies and enterprise brands; third, expansion of performance campaigns with enterprise clients; fourth, algorithmic and AI advancement driving nonlinear improvements in results; and fifth, enhanced profitability in our direct response business.

We plan to share a detailed three-year outlook and involvement at an upcoming Investor Day in March, and we look forward to discussing our progress and vision in more depth at that time. With that, let me now turn it over to Jason Kiviat to walk through the financials.

Jason Kiviat: Thanks, David. I want to start by saying I'm disappointed by our results, landing slightly below our Q3 guidance for Ex-TAC gross profit and adjusted EBITDA. We experienced volatility in our top line and expect continuation of this in the short term, but we are committed to taking steps to protect our cash flow as we focus on realizing our long-term vision. Revenue in Q3 was approximately $319 million, reflecting an increase of 42% year-over-year on an as-reported basis, driven primarily by the impact of the acquisition. On a pro forma basis, we saw a year-over-year decline of 15% in Q3. I'll touch a little more on the headwinds David mentioned and we spoke about last quarter.

While the operational changes we made in the U.S. and Europe are showing a measurable improvement in terms of building a stronger sales pipeline that gives us confidence in the longer-term improvement, we continue to see a lower rate of sales in key countries, namely the U.S., UK, and France. As noted last quarter, these three regions, which represent about 50% of revenue, are effectively driving all of the headwind on the legacy Teads Holding Co. business, with many other countries neutral or growing, including the DACH region, which is our second largest. The impact of the operational changes is encouraging, but it's clear that the timeline to see the real fruits of these changes is longer than we anticipated.

The pipeline is growing, and we're focusing our resources and efforts in the coming quarters on driving long-term and sustainable value propositions for enterprise advertisers. On the legacy Outbrain business, we see a couple of drivers. One, we continue to see lower page views year-over-year. The residual impact from our cleanup of underperforming supply remains a headwind of about $10 million year-over-year in the quarter. And generally speaking, we continue to see lower page views on our partner sites, continuing the trend from prior quarters.

While we also continue to see growth in RPM that partially offsets this, it has been less of an offset in the last couple of months, causing the page view decline to have a larger negative impact on revenues in the quarter. Following the merger, we made several strategic decisions around components of the legacy Outbrain business that we wanted to deemphasize and potentially decommission. These decisions are centered around quality and focused on our long-term vision. Examples of these actions include the supply cleanup we talked about, as well as additional changes we have made around content restrictions for certain segments of demand, and the deemphasis of our DSP business and DIY platform.

The revenue impact of these factors has been larger than expected, most meaningfully in our DSP business, where a few large clients lowered their scale meaningfully across our platform, driving a decline in Ex-TAC year-over-year of $5 million in Q3. On the positive side, CTV revenue continues to be a growth driver, growing around 40% in the quarter and projected to $100 million for the year. This is an area where we still see ourselves in the early innings, representing about 6% of our total ad spend, with a margin that has expanded year-over-year as we scale it and further differentiate our offering.

Ex-TAC gross profit in the quarter was $131 million, an increase of 119% year-over-year on an as-reported basis. Note that Ex-TAC gross profit growth is outpacing revenue growth, which is driven primarily by a net favorable change in our revenue mix resulting from the acquisition but additionally aided by the continuation of improvements to revenue mix and RPM growth in the legacy Outbrain business. Other cost of sales and operating expenses increased year-over-year, predominantly driven by the impact of the acquisition. Note, in the quarter, we recognized $4 million of acquisition and integration-related costs as well as $1 million of restructuring charges.

Also note that we recorded a benefit from deal-related cost synergies in Q3 of approximately $14 million, approaching the $60 million annual run rate for 2026 that we had guided previously. This was always an initial milestone in our view, and we feel there is more opportunity ahead. Adjusted EBITDA for Q3 was $19 million. Adjusted free cash flow, which as a reminder, we define as cash from operating activities plus CapEx, capitalized software costs, as well as direct transaction costs, was a use of cash of $24 million in the quarter, driven largely by the $32 million semiannual interest payment made in August. Year-to-date, we have generated adjusted free cash flow of $3 million.

As a result, we ended the quarter with $138 million of cash, cash equivalents, and investments in marketable securities on the balance sheet. We continue to have €15 million or about $17.5 million in overdraft borrowing, classified in our balance sheet as short-term debt. And we have $628 million in principal amount of long-term debt at a 10% coupon due in 2030. We generated positive adjusted free cash flow year-to-date and are focused on improving our cost structure and operating as a cash flow-generating business. As David mentioned, we are working intently on ways to drive better profitability and growth as a combined company. This involves a deep analysis of our operating model and opportunities for efficiencies.

As we move into the implementation of these plans in the coming weeks, we expect the benefit to adjusted EBITDA of at least $35 million on an annualized basis and to start seeing a small impact of that in Q4. As we look towards Q4, our visibility, like others in this space, remains challenged by the shorter planning cycles from advertisers. Given this and the seasonality of the business, we exercised an increased level of caution in our guidance. With that context, we provided the following guidance. For Q4, we expect Ex-TAC gross profit of $142 million to $152 million, and we expect adjusted EBITDA of $26 million to $36 million.

Now I'll turn it back to the operator for Q&A.

Operator: Thank you. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit to one question and one follow-up question and requeue for additional questions. Our first question is from Matt Condon with Citizens. Please proceed.

Matt Condon: Thank you so much for taking my questions. My first one is just, could we just unpack the headwinds in the quarter here for multiple things? Is it just mainly the continuation of the things that saw last quarter? How much of it was the degradation in search traffic? And then also, I think you called out some macro headwinds as well. Could you just parse through those and just talk about the different components?

David Kostman: Hey, Ned. Yeah. Of course, I will. Okay. Sure. So go ahead. Let me just maybe at the high level. I think overall, you see the combination of factors. We don't believe there's anything structural. It's a lot of it relates to distractions from the merger and the execution challenges that we highlight that are taking longer than we had anticipated, and you know, we needed to take deeper actions that Jason highlighted. And there is some weakness in certain geographies and verticals, but, you know, we believe that with the actions we're taking, we can turn the business around.

Jason Kiviat: Sure. Yeah. I mean, just, you know, breaking it down a little bit as far as what was maybe disappointing to us in Q3 versus what we expected a few months ago. You know, certainly, just an increased level of demand volatility and, you know, kind of drivers on both sides of the business. On the Teads Holding Co. side, we talked about the operational changes we made early in the quarter in response to the slowdown that we started to see at the end of Q2.

And, you know, effectively, what we've seen is just a slower than anticipated impact from those changes, and it's really impacting the same key countries that we talked about last quarter, in the U.S., UK, and France. You know, typically, Q3 builds towards September, being, you know, usually the strongest month of the quarter, and it still was, but, you know, not to the level that we would typically see historically, which was a little bit of a negative surprise for us. Visibility does remain challenged with advertisers. You know, they still have a shorter planning cycle we've been talking about since, really, the beginning of this year with the tariff announcements and other things kind of impacting that.

On the positive side, you know, we did see growth in some regions. We did, you know, we do see just kind of health and the impact of the changes that we made. The pipeline as we measure it is growing. We see, you know, that starting to pay off a little bit in October here, but it's still early days, and we think it'll take longer. You know, we also see stronger cross-sell. We see stronger CTV, which are really two of our very main focus areas, as David said. So some optimism there. On the Outbrain side, we continue to see lower page views year-over-year.

The residual impact from our cleanup of underperforming supply remains a headwind of about $10 million year-over-year in the quarter. And generally speaking, we continue to see lower page views on our partner sites, continuing the trend from prior quarters. While we also continue to see growth in RPM that partially offsets this, it has been less of an offset in the last couple of months, causing the page view decline to have a larger negative impact on revenues in the quarter. Following the merger, we made several strategic decisions around components of the legacy Outbrain business that we wanted to deemphasize and potentially decommission. These decisions are centered around quality and focused on our long-term vision.

Examples of these actions include the supply cleanup we talked about, as well as additional changes we have made around content restrictions for certain segments of demand, and the deemphasis of our DSP business and DIY platform. The revenue impact of these factors has been larger than expected, most meaningfully in our DSP business, where a few large clients lowered their scale meaningfully across our platform, driving a decline in Ex-TAC year-over-year of $5 million in Q3. On the positive side, CTV revenue continues to be a growth driver, growing around 40% in the quarter and projected to $100 million for the year.

This is an area where we still see ourselves in the early innings, representing about 6% of our total ad spend, with a margin that has expanded year-over-year as we scale it and further differentiate our offering. Ex-TAC gross profit in the quarter was $131 million, an increase of 119% year-over-year on an as-reported basis. Note that Ex-TAC gross profit growth is outpacing revenue growth, which is driven primarily by a net favorable change in our revenue mix resulting from the acquisition but additionally aided by the continuation of improvements to revenue mix and RPM growth in the legacy Outbrain business. Other cost of sales and operating expenses increased year-over-year, predominantly driven by the impact of the acquisition.

Note, in the quarter, we recognized $4 million of acquisition and integration-related costs as well as $1 million of restructuring charges. Also note that we recorded a benefit from deal-related cost synergies in Q3 of approximately $14 million, approaching the $60 million annual run rate for 2026 that we had guided previously. This was always an initial milestone in our view, and we feel there is more opportunity ahead. Adjusted EBITDA for Q3 was $19 million.

Adjusted free cash flow, which as a reminder, we define as cash from operating activities plus CapEx, capitalized software costs, as well as direct transaction costs, was a use of cash of $24 million in the quarter, driven largely by the $32 million semiannual interest payment made in August. Year-to-date, we have generated adjusted free cash flow of $3 million. As a result, we ended the quarter with $138 million of cash, cash equivalents, and investments in marketable securities on the balance sheet. We continue to have €15 million or about $17.5 million in overdraft borrowing, classified in our balance sheet as short-term debt.

And we have $628 million in principal amount of long-term debt at a 10% coupon due in 2030. We generated positive adjusted free cash flow year-to-date and are focused on improving our cost structure and operating as a cash flow-generating business. As David mentioned, we are working intently on ways to drive better profitability and growth as a combined company. This involves a deep analysis of our operating model and opportunities for efficiencies. As we move into the implementation of these plans in the coming weeks, we expect the benefit to adjusted EBITDA of at least $35 million on an annualized basis and to start seeing a small impact of that in Q4.

As we look towards Q4, our visibility, like others in this space, remains challenged by the shorter planning cycles from advertisers. Given this and the seasonality of the business, we exercised an increased level of caution in our guidance. With that context, we provided the following guidance. For Q4, we expect Ex-TAC gross profit of $142 million to $152 million, and we expect adjusted EBITDA of $26 million to $36 million. Now I'll turn it back to the operator for Q&A.

Operator: Thank you. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit to one question and one follow-up question and requeue for additional questions. Our next question is from Ygal Arounian with Citigroup. Please proceed.

Ygal Arounian: Excuse me. Hey. Good morning, guys. So I know you're not gonna wanna give a 2026 outlook here, but just, you know, given how 2025 has trended and, you know, the work on integration, maybe if you could just, I know investors are gonna wanna look into 2026 and get a better sense of the confidence level and, you know, initially some of the sales execution. Now we're, you know, changing some of the product. $35 million is of savings you're calling out. Any help for investors to kind of think through the pace of this and the level of confidence that other stuff really finally starts to come through and kind of think about next year.

David Kostman: I think we're not giving specific guidance to 2026. What we see is, you know, some positive indicators month-over-month in growth in CTV, growth in cross-sell, and we decided on focus areas of innovation that are gonna be focused around the agent side, the CTV side. We believe that with a combination of sort of the plans we have around the sort of EBITDA improvement, we expect to get to single-digit growth in certain areas of the business and run certain areas of the business for profitability. Once we finalize these plans, we will be communicating in more detail.

Jason Kiviat: Maybe what I could add to that, Ygal, this is Jason, just to give a little bit more color. You know, we definitely see an impact of the changes that we've made, you know, kind of confirming the operational drivers that we talked about last quarter. And what I mean by that is, you know, for example, we made the changes with the structure in the U.S., which has been our underperforming region. We made the change in July. We immediately saw, you know, more meetings, more RFPs, a bigger, healthier pipeline being built, you know, equity being built with the brands and agencies that we've worked with historically. We are starting to see early returns. You know?

I mean, in October, you know, early kind of results from that impact, you know, it's still down, but it's down less by close to 10 points on a year-over-year basis. Right? And so it's nominal. It's early, but we do think this is the kind of thing that pays off more over time. And that it's not, you know, as quick of a turnaround as we had hoped for. We've spent a lot more time with clients ourselves, understand a little bit more about some of the challenges and starting to address them and how we win.

And that's, you know, prioritization of product, just strategic relationship building, commercial terms, and these are things that are not, you know, as we had hoped, you know, a ninety-day, you know, sales cycle turnaround. But rather things that probably take a few quarters. Right? And so we feel good. We feel obviously off smarter. We think we need to make changes and we've talked about what we're doing there. But, you know, we feel good about the areas that we're focused on for sure.

Ygal Arounian: And so just, is it fair to say that I'm starting you're starting to see some early benefits from your from the from the sales? The organization is still down, but it's still taking time. But it's starting to see improvements and then the kind of structural change you're talking about. All that's pretty new and starts to come through more next year. Or, I guess, in April and into next year?

David Kostman: I think that's very fair, and as Jason said, we already see signs again. There are leading indicators in terms of RFP sizes, of these opportunities, more opportunities are opening, more active meetings, that are leading to generating pipeline. Again, October was less of a decline than in September. We see good data points in the U.S., which is the main market we address. I think in the UK, we're also starting to see some impact of the changes. I'm very excited to have Molly on board. I mean, she brings tremendous experience. I mean, she's real glad she was the CRO and COO of Twilio in years where they grew from half a billion to $2 billion.

She's a very experienced sales leader, operational leader. I think it's we spent a lot of time in the last few weeks looking at this. She believes obviously, there's a huge opportunity here, and it's sort of in our control to fix.

Ygal Arounian: Very helpful. Thank you.

Operator: Our next question is from Laura Martin with Needham and Company. Please proceed.

Laura Martin: Hey. So let's start. Jason, one of the things you said is you lost several big clients and about $5 million of revenue from them. Can you go into the background of why they turned away from your DSP? Like, what you know, is it just that we're getting winners and losers and they're pulling money? Is it stuff Trade Desk is doing that's out of your control? I assume there's nothing you did that in a single quarter that so it's something somebody else is doing like Amazon or Trade Desk. Or taking share from you. But can you talk about that and why that isn't structural? Because it sort of sounds structural to me.

Let's start with that one.

Jason Kiviat: Sure. Yeah. So to maybe give a little more color on the yeah. It's a small number of customers that I was referring to, you know, buying on our Outbrain DSP business. It made up the majority. It made up about two-thirds of our DSP business coming from this small group and segment of customers spending on it. And, you know, it kind of quoted the impact there of $5 million Ex-TAC impact year-over-year. You know, we've made changes around supply, you know, as I said in the first half of the year, we've also been making changes, and this part's not really, you know, anything new for us, but, you know, we continuously do this.

So, you know, content rules and content restrictions to make sure, you know, that things are up to our quality and what we want to allow out there. And, you know, some of these changes, you know, made by us and also, you know, changes that just impact the customers from their own business models and how they're able to use the platform to run their own business models caused them to reduce their spend dramatically. And, you know, we did expect an impact. We didn't expect it to be so binary. Is maybe how I would put it. But, you know, we saw the spend leave, and it's not that it went somewhere else, as far as we know.

I think it's just, you know, impacts their model and their ability to spend in general. And as I said, you know, we don't expect this to come back online certainly in Q4. And, you know, this was large. This was, like, two-thirds of the DSP business, and the rest of the business is really fundamentally different. I don't see a similar risk with the remaining portion, but I hope that is helpful.

David Kostman: Maybe just, Laura, to clarify on that. I mean, the whole move to a more premium network is a big move. I mean, it's something that takes time. We can't always assess the whole impact. I mean, we talked about $10 million in revenue impact from the moving supply sources. Deemphasizing the DSP. These are legacy Outbrain, I would say, outperform performance. Other people are taking some of this business. We as we move forward with the more premium placement that we need to offer, the guarantee of quality to the enterprise clients.

I mean, we got certain steps that are hurting more than we had anticipated, but I think it's gonna be something that, again, we're not as Lisa said, we don't expect it to come back. I mean, it's something that sort of we deliberately are doing, and right now, I'm feeling the pain of it, but I think when we're looking at the strategic direction of the company, these are some of the right moves, and some of it happening faster than we thought.

Laura Martin: Okay. Yeah. That makes sense. And that's helpful because it limits the downside set to the DSP segment. Okay. And then, David, one of the things you said at the top of your comments was that you are seeing you're the first actually ad tech company that's reported that says they're seeing a diminution in traffic. Magna said they're hitting record traffic levels even excluding bots. So I'm curious about that. Do you think that's because your content is primarily news? And that also sounds structural. So can you talk about this, the traffic demise that you're seeing that at least other CEOs are not admitting to? So I'm interested in what you're seeing on the traffic side.

David Kostman: So I would just not use the word demise. What we have seen, and we analyzed this, obviously, databases. When we look at the so our business is growing very fast on CTV. We're expanding beyond the traditional publisher world in a very aggressive way, and this is I talked about the focus area. On the traditional publisher side, when we look at the sort of list of premium publishers, we saw around between 10-15% decline in page views. I mean, these are the numbers we are seeing. I think it's very consistent with everything you're reading out there.

So if everyone is saying that there's no decline in publisher page views, I suggest you do a chat GPT and you'll see those numbers. What we see, I think it's a little bit softer on in-app traffic. In-app traffic is about 30% of those publishers' traffic, and there we see still some decline in the page views lower than that. So single-digit on the in-app and on the web around 10 to 15%. That's what we see on a certain segment of publishers that I believe is representative.

Laura Martin: Very interesting. Thanks so much.

Operator: Our next question is from Zach Cummins with B. Riley Securities. Please proceed.

Ethan Widell: Hi there. This is Ethan Widell calling in for Zach Cummins. Thanks for taking my questions. I guess just piggybacking on that conversation about page views, how much of that do you suspect is coming from disruption from GenAI search and otherwise, what would you attribute the decline to?

David Kostman: It's difficult to put a specific number there that say that it is accelerated the decline of because it's accelerating because of AI summaries and the changes in discovery. I think it is impacting the traffic to those websites.

Ethan Widell: Understood. And then regarding free cash flow going forward, maybe what are your expectations in terms of, you know, free cash flow positivity or maybe what the timeline to sustainable free cash flow looks like?

David Kostman: Just want to sorry. I want to have one comment on the page views. Still. I mean, what we didn't mention, but we're seeing we continuously see improvements in RPM. So we're offsetting some of the anti-decline. I mean, we had eight consecutive quarters in both on revenue per page views, RPM. We're diversifying the business. We're working with those publishers with POCs around how to monetize LLM sort of inputs and that they are using. So there's a lot that's being done. It's not that think, publishers are saving there and not doing taking actions. We are partnering with many of them to increase the engagement of users. We are continuously improving RPM.

I mentioned in my prepared remarks, I think one of the exciting things is the algorithmic improvement that we see out of the merger. And we think that it's only the beginning, and we into '26, see a really great trajectory of continued significant improvement on those RPMs. So that's on that front. Sorry, Jason.

Jason Kiviat: Yeah. So your question, Ethan, about cash flow. So cash flow is something that we take very seriously, of course. Year-to-date, our adjusted free cash flow is positive at, you know, a few million dollars. We do expect the year to be around breakeven depending on just timing of working capital around period end, etcetera. You know, we are seeing, of course, lower Ex-TAC. It's resulting in lower EBITDA, lower cash flow, which has brought down our versus our expectations from earlier in the year. But we also do expect, you know, lower cash taxes, lower CapEx, lower restructuring costs, things that do partially offset that. So we do think we're in okay shape, you know, for this year.

And, obviously, as I say, we take it very seriously in a lot of our, you know, look at the project that we're, you know, moving to the implementation phase on now in our analysis, you know, cash flow guides a lot of that as well. And, you know, as I said, we do expect to take that, you know, $35 million of improvement to EBITDA on a run rate basis, you know, starting here in, you know, with some impact in Q4. So we do think there'll be a sizable impact on 2026. And, you know, continue to obviously work also on other cash, you know, cash taxes, optimization, and those things as well.

Are areas that we still are, you know, less than a year from merging and still, you know, optimizing at this point. So, you know, we aim to generate cash. It's important for us to do so. I'm not guiding, obviously, anything for 2026 at this point, but I want to make sure you take away from here, you know, how serious we view it and how important it is to us.

Ethan Widell: Understood. Well, I appreciate that color. Thank you.

Operator: As a reminder, this is star one on your telephone keypad. If you would like to ask a question. Our next question is from James Heaney with Jefferies. Please proceed.

James Heaney: Yes, great. Thanks for the question. It'd be great just to hear a little bit more about some of the puts and takes for the Q4 Ex-TAC gross profit guide and what you're assuming for that. Thank you.

Jason Kiviat: Sure. So maybe I'll start here, David. Anything you want to add, please do. You know, our giving guidance here obviously, you know, we've got a lot to consider. So, you know, the visibility is still a little bit challenged by the volatility we've seen. Advertisers continue to have, you know, much shorter planning cycles than we historically are used to. And, obviously, based on how Q3 played out, where the end of the quarter spike was much more muted than we historically have seen. It certainly gives us, you know, a little bit of pause, and we want to exercise additional caution when we're giving guidance.

So, you know, all that said, you know, we think it's prudent to be conservative and, you know, set ourselves up here. Maybe just some of the facts that we're seeing so far into Q4 that might be helpful beyond that? You know, October is performing, you know, on the legacy Teads Holding Co. side. October is performing a little bit better than what we saw in Q3. October is typically about 30% of the quarter. So we're still dealing with the bulk of it ahead of us, and there still is volatility in the pipeline.

And our guidance, you know, based on what I'm telling you, our guidance for the balance of the quarter is implying a lower performance than what we saw in October. Again, kind of take from that, you know, based on my remarks on, you know, the things that we're considering in here? On the Outbrain side, we do assume the headwinds that impacted, you know, Q3 will impact Q4 even more so? Within the DSP business, as we said. Certain segments of demand, and that drives the deceleration of the performance relative to Q3. You know, smaller, but on the positive is, you know, we do see October growth in CTV.

We do see October acceleration in cross-selling, and these are, you know, off a small base, but meaningful accelerations in our focus areas. Right? So it gives us some optimism there, but, obviously, weighing the collective here, you know, we think it's prudent to guide the way that we are. And I will say that, you know, we do expect our cash flow for the year to be around breakeven. Thank you.

Operator: We have reached the end of our question and answer session. I would like to turn the conference back over to David Kostman for closing remarks.

David Kostman: Thank you. Thank you for joining us. As you can see, we are very focused on execution, financial discipline. We are investing in growth areas still. We have a clear plan of how to extract more EBITDA into next year. And look forward to keeping you updated on the progress. Thank you.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.