Teads Holding Stock

Thank you. Good day and welcome to TATE's second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would like to turn the call over to TID's Investor Relations. Please go ahead.

Good morning, and thank you for joining us on today's conference call to discuss TEADS' second quarter results. Joining me on the call today, we have David Kaufman and Jason Kiviat, the CEO and CFO of TEADS. During this conference call, managers will make forward-looking statements based on current expectations and assumptions. including statements regarding our business outlook and prospects. The 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 annual report on Form 10-K for the year ended December 31, 2025. As updated in our subsequent reports filed with the Securities and Exchange Commission, Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements. Today's presentation also includes references to the non-GAAP financial measures.

You should refer to the information contained in the company's second quarter results announcement for definitional information and reconciliations of non-GAAP measurements to the comparable GAAP financial measures. Our earnings release can be found on our IR website, investors.tease.com, under News and Events. With that, let me turn the call over to David.

Thank you, May, and good morning, everyone. For the second quarter, excellent gross profit reached $123 million, adjusted EBITDA was $7 million, and our cash generation remained positive with $3 million in free cash flow. Our results this quarter highlight two distinctly different trajectories across our business. To provide clear visibility into the two sides of our business, our enterprise brand and agencies business, and our direct response and small and medium enterprises business, which is closely aligned with our legacy outbound business, we are explicitly breaking out the extra gross profit of each, and we'll discuss where we're going to be in the next our strategic momentum lies, where we are directing capital, and what we see as the drivers of our long-term growth. Our enterprise business powered by connected TV growth and omni-channel outcome solutions for global brand and agencies is our primary growth engine. Following investments in our product architecture and go-to-market teams, we believe this business is positioned to capture market share, increase growth, and expand margins. Enterprise delivered 89 million in extra gross profit in Q2 in line with our plan.

Advertiser spend stabilized from our prior headwinds in 2025 to be flat year-over-year in Q2, and we expect mid-single-digit extra growth in H2. As connected TV continues to expand as a proportion of our mix, we expect growth to accelerate into 2027, unlocking natural operating leverage. Key drivers of this strategic momentum include the further strengthening of CTV, which saw top-line revenue growth of 67% year-over-year in Q2 to approximately $40 million. TTV accounted for 13% of our Q2 revenue compared to 7% in Q2 2025. Growth is driven by our global home screen leadership position, reaching over 500 million home screens globally, and the rollout of T's CEV Ensembler, our unified full funnel branding and performance suite. We're excited about the momentum in home screen and believe this is a significant differentiator. We also expanded our supply and reach.

We renewed our exclusive home screen partnership with LG across Europe and APAC with expansion into new markets. with TiVo's ads across 5.3 million households in North America and the UK, and integrated with Vida Japan, unlocking 2.3 million devices as of July 1st. Another drive is omnichannel adoption. Home screen growth is actively reinforcing our broader omnichannel packages. Branding customers utilizing omnichannel campaigns represented 16% of Q2 branding revenue, up from 9% in Q2 2025. And and approaching our 18% full-year target. On the traditional publisher side, we remain focused on higher margin, mid-article placements within our premium publisher base, which we monetize with video and high-impact display for our brand advertisers and which form part of our omni-channel offerings. On the strategic brand and agency partnerships, we secured and renewed major global joint business partnerships with premier enterprise brands, including Stellantis, Louis Vuitton, Warner Brothers, and Dyson. Concurrently, active dialogues and early stage implementations around AI and data collaborations with major agency holding companies position us well heading to Q4 in 2027.

So despite potential EBITDA trade-offs, we are making the deliberate choice to continue investing in the enterprise business to capture market share and maximize long-term enterprise value. Moving to our direct response and SME business. In contrast, this business, which covers affiliate search, performance buyers, and small medium enterprises direct to consumer brands, on our AMP platform delivered 34 million in extra gross profit, representing a 30% year-over-year decline. This business is currently navigating significant strategic and operational headwinds and is in transition. On the macro front, we continue to monitor the changing dynamics in search and open web traffic that are impacting the native advertising industry. The broader adoption of AI summaries is shifting traditional organic referral patterns industry-wide, resulting in drops in publisher impressions. Additionally, we are seeing closed ecosystems like the walled gardens leverage their own AI and automation to strengthen their positions alongside ongoing platform policy updates, making it more challenging for publishers to monetize through native.

As we discussed for the last few quarters, we also implemented a deliberate quality reset such that a portion of our revenue decline was self-directed. exited certain low-margin direct response accounts, and pruned lower-quality open web supply to enforce brand safety and elevate supply standards for strategic brand partners. Most of these actions, as we reported in the past, were taken throughout 2025. To address these shifts, we're executing a plan focused on client outcomes, new supply, and operational efficiency. In Q2, we launched Teads Engage operating system, an AI-powered publisher operating system designed to unify content and add inventory to monetize complete reader sessions, rather than relying on volatile search-driven page views. This is a strategic product launch that aims to change the dynamics of the business, resulting in higher margins for us, and better engagement and yield for our partners. Some of our premium publishers, including Penske Media, the Arena Group, Scripps, New York Post, and others, are in different stages of testing, and we have seen significant lift in yield. In addition, we are entering new supply channels.

We're opening higher margin programmatic environments, including active dialogues with leading AI players to leverage our global scale and data across emerging LLM channels. We are making targeted enhancements within our Amplify platform to optimize advertiser targeting and campaign efficiency, and launching new formats like vertical video with the aim of helping our direct response clients achieve stronger ROAS outcomes. And lastly, we are reorganizing our internal structure, centralizing teams, and embedding AI tools to streamline processes, thereby reducing the cost base of this business. To sum up, we're actively addressing near-term headwinds in our direct response and SME, resolving the temporary cost pressures from Q2, and capturing meaningful efficiencies across our operations to plant AI. Most importantly, our core strategy remains on track. CTV is accelerating, our enterprise business is executing according to plan, and we plan to continue investing in our highest margin platform to drive long-term growth and expand operating leverage across teams. I will now turn the call over to Jason for a detailed review of our financials.

Thanks, David. We met our Q2 guidance for XTAC gross profit, and due to a confluence of factors, our adjusted EBITDA came below our expected range. I'll touch more on this and the steps we're taking in a moment. Revenue in Q2 was approximately $285 million, reflecting a 17% decline year over year. What we're seeing in the latter part of Q2 and into Q3 is diverging trends across our enterprise customers versus our direct response and SME customers. CTV continues its impressive growth and even accelerated as compared with the last few quarters. And our focus on omnichannel also continues to bear fruit, with enterprise customers showing momentum in our results. We exited Q2 with May and June both showing positive year over year growth in advertiser spend from enterprise customers.

This is an important milestone for us as one, it aligns with our budget plan of returning this business to growth this year, and two, we believe we've seen the low point and it's behind us now. We see the momentum continuing into Q3, where we forecast an H2 return to year-over-year growth of X-Tech from this side of the business. On the other end of the spectrum, our direct response and SME customers have seen a downward trend that accelerated in Q2 and into Q3. David spoke about the factors influencing this and the steps we're taking in our product and organization to adjust for the evolution of the landscape. Extract gross profit in the quarter was $123 million, a decrease of 14% year-over-year. Again, it's important to note the divergence in trends we're seeing between customer types. We see improvement in revenue from enterprise customers, where we drive substantially higher ex-tech margins as compared with the direct response in SME customers, where we continue to encounter headwinds.

Therefore, we are seeing overall higher margins year-over-year driven by this mixed improvement, as well as through the benefits of further scaling our CTV and in particular CTV home screen business. Other cost of sales and operating expenses decreased year over year through synergies and operating efficiencies, but we did see a spike in expenses in the back half of the quarter that unfortunately contributed to our adjusted EBITDA being below our guidance range in the quarter. There were several factors that drove the higher expenses. Timing and cutoff of expenses drove approximately half of the variance versus our expectations. This is across areas that are largely discretionary, such as T&E and marketing, as well as temporary transitionary costs as we migrated cloud platform onto a new provider. FX fluctuations continued to be a headwind on cost, largely attributed to the fluctuations in the Israeli shekel, and bad debts continued to be elevated, related primarily to prior customers whose business with us was impacted by quality initiatives implemented last year. And as David mentioned, we've made continued investments in the acceleration of our enterprise customers and are starting to see the benefits of that.

While much of the higher expenses impacting the quarter are temporary and timing related, as we expect to step down in cost in Q3, we're scrutinizing the cost structure in lower profit and more scalable areas in an effort to drive investments in our enterprise business aimed at acceleration of growth. Adjusted EBITDA for Q2 was approximately $7 million, and we generated $3 million of free cash flow in the quarter. As a result, we ended the quarter with $91 million of cash, cash equivalents, and investments in marketable securities on the balance sheet, and have access to $40 million via our revolving credit facility. Also, we continue to evaluate our cost and capital structure for opportunities to improve our financial profile and opportunistic alternatives to strengthen our balance sheet. Summarizing, we feel good about the progress we're seeing on the enterprise business and are taking steps through product strategy and cost structure to adapt to the secular challenges of the DR and SME business. Given the volatility of the DR and SME business, and as we execute on our strategic initiatives, we are suspending guidance, including with respect to our previously provided full year 2026 EBITDA guidance.

Now, I'll turn it back to the operator for Q&A. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 1 on your touchtone phone. To confirm the polling process, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any keys.

First question from Brianna Diaz with Citizens. Please go ahead. Great. Thank you so much for taking my questions. Last quarter, you referenced evaluating potential transactions. Can you update us on that process? I noticed that wasn't included in the prepared remarks. Understood if there's not much to share, but just wondering if that's still on the table. And then just you highlighted the deliberate decision to continue to invest in the enterprise business. term, even a trade-off, just how are you balancing those investments against the profitability profile and just the overall liquidity position and how you think about the returns on those investments and underwriting that?.

I'll take it. Thanks, Brianna. So on the first question, I think we did say also in the prepared remarks we're continuing to evaluate opportunities to strengthen our balance sheet. I think there are opportunities ahead of us that are coming out of the situation, and if there's anything specific to update, we will report. At the same time, on the cost structure, we obviously to look at efficiencies and how we can drive better results, more efficiency, particularly through implementation of AI and other organizational measures. On your second question, it's really about focusing on the growth drivers. We have tremendous momentum around CTV, Omnichannel, the brand and enterprise business, and AI integrations with MCP, what agencies, and we want to invest in this part of the business. We, as Jason said, we expect to return it to growth. We see tremendous opportunities there to differentiate, and we plan to continue to invest in that business.

We see great return there. It's a much higher margin part of our business and sort of the legacy related outbrain business is a business that we're running for profitability and we're going to do sort of the best we can in order to really increase the margins of the business and through that also have much better operating leverage.

Thank you. It's helpful. Thank you. Next question comes from Lauren Martin with Needham. Please go ahead.

Good morning. Starting with direct response in SME business, the decline of 30%, how much of that, David, would you say was traffic related to this shift from Google getting rid of blue links and moving action to AI answers? How much was the context? And then how much was actually something other than that. And does that decline then hurt your ability to sell Omni Funnel? Does it hurt the other side of the business because it's been hurt? to sell the omni-channel products on the CTV side I wanted to start with that question.

Hey, Laura. So on the first one, I mean, we were seeing page view declines. I mean, we talked about it for for a few quarters and it's anywhere for some publishers, it's 10, 15%. Some of them see higher percentages overall on the premium side of our publishers. It varies by country, but I would say it's in the 15 to 25% of paid good design. That is impacting it. The other things we saw are just impacts on the ability to monetize some of these pages which also have impacted that business but I think it's important generally when you look at our business today the focus and the growth is on the brand and enterprise segment of the client which is higher margin So we are shifting a lot of investments and focus there. And there's no real impact on the ability to sell omnichannel. Most of the omnichannel is going into the in-read placement.

If you look at the traditional publisher space, the in-read is the one that's sort of in the after the first or second paragraph. impacted by any of these other trends we see there's some opportunities that we see for brands in the end of the article and there we launched engage OS you saw you saw that which I think is really changing the dynamic also of how the end of article is treated.

Okay, great. Super helpful. And then I know you've been, I know when we met in Cannes, you were saying you're really focusing a lot on the ad agencies, and it sounded like your prepared remarks that you're getting some traction there. So could you update us on what's going on with the large ad agencies and where you're seeing traction and getting feedback?.

products placed and tried at the ad agencies. Sure. So about the, I mean, if you look at the billings of the enterprise side of the business, it's about 90 plus percent is built through the big agencies. What we are seeing is 2D investments that we did in the Tees Ad Manager platform, increasing traction around integrations at the AI level on activation and planning with agencies. And this is true, I think, across the board. There's some of these hold co-agencies where we're getting more traction than others. I mean, I don't want to go into specific customers, but overall, I think the effort efforts and investments we're making in the platform and the offering are very well received. That's why I think we're confident to talk about growth in the second half of the year.

We're talking about potential acceleration through these dialogues into 2027. I think this world where we are pretty uniquely positioned in terms of the ability to deliver branding and performance, ability to deliver CTV, online video, provide measurements, provide attribution. We have exclusive inventory on the home screens of CTV, which is a huge advantage. I think we're very well positioned in that market today.

Thank you. Thank you. There are no further questions. I will turn the call back over to David Kossman for closing remarks.

Thank you all for joining us and we do look forward to updating you on our progress. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good day, and welcome to Teads' First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Teads Investor Relations. Please go ahead.

Good morning, and thank you for joining us on today's conference call to discuss Teads' first quarter results. Joining me on the call today, we have David Kostman and Jason Kiviat, the CEO and CFO of Teads.

During this conference call, management will make forward-looking statements based on current expectations and assumptions, including statements regarding our business outlook and prospects. 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 annual report on Form 10-K for the year ended December 31, 2025, as updated in our subsequent reports filed with the Securities and Exchange Commission.

Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first quarter results announcement 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.teads.com, under News and Events.

With that, let me turn the call over to David.

Thank you, Dani. Good morning, everyone, and thank you for joining us. Before we dive into our Q1 highlights, I want to frame our current market position. One year into the combination of Outbrain and Teads, the new Teads has evolved into the definitive omnichannel outcomes platform. By combining our premium video and performance heritages, we've created the connected tissue between the living room and the mobile screen, delivering the precise accountability that today's advertisers demand across CTV and the open Internet and from branding to performance.

To understand our scale, it's best to look at the two distinct advertiser bases that fuel our platform. First, our enterprise business, which is composed of global brands and major advertising agencies. In 2025, these generated approximately $900 million in revenue, accounting for approximately 80% of our Ex -TAC due to its higher margin profile. About half of this, roughly EUR 450 million, is driven through the world's leading agencies like Publicis, Omnicom, Havas, Stagwell as well as brand direct relationships. Our enterprise brand roster includes icons such as Apple, LVMH, Stellantis and Nestle. We now manage approximately 50 global joint business partnerships, which moves us beyond vendor status into strategic territory involving data collaboration and large-scale spending frameworks.

In 2025 alone, these JBPs represented over $200 million in spend. These partners activate through Teads Ad Manager or TAM, for both brand and performance goals across CTV and the open internet. While we compete with major DSPs, we win because of our end-to-end stack. One, we have created exclusive supply. We offer premium environment others simply can't access. Second, first-party data. Our code on page provides unique signals for cookie-less world. This data is augmented by strategic data and measurement partnerships.

Third, AI-driven creative. We optimize the big idea for any screen. Fourth, our global scale. In a world of consolidation, brands want a scaled global partner they can trust. Second, our direct response engine. This represents approximately $500 million in revenue and 20% of our Ex-TAC and includes affiliates direct-to-consumer brands, search-focused buyers and others. These are what we call elastic buyers. They are always on as long as we hit their ROAS targets. Primarily activating through our amplified platform, which is the legacy Outbrain stack. This business is a high-volume efficiency play. We differentiate here through superior algorithmic performance and AI-led content optimization and workflows.

In this space, we compete against some of the legacy Outbrain competitors. What makes the new Teads truly unique is that these two worlds are now converging in our favor. We are integrating Outbrain's industry-leading performance algorithms into Teads Ad Manager, TAM. This creates a powerful, unified workflow. And for the first time, a holding company agency can manage a high-gloss branding campaign and a high-velocity conversion campaign within a single seamless environment. In CTV specifically, we are seeing a clear shift. Advertisers are no longer just looking for reach. They want video that drives action.

Our ability to leverage AI for creative optimization and performance tracking across both CTV and the web is a unique value proposition that we are starting to scale. To see how this works in practice, I'll bring you one example. If we look at Gucci Beauty's recent omnichannel campaign for its Gucci Flora collection. They deployed a premium attention-driven strategy, combining CTV home screen and in-Read placements to stand out in the crowded luxury fragrance category. By aligning media delivery with high-interest environments like fashion and travel, Gucci achieved market-leading incremental gains across the entire funnel.

Awareness, this campaign delivered a 175% increase in top-of-mind awareness compared to the control group. In terms of attention, which is a key KPI we deliver. We saw 29% higher consumer attention versus standard beauty benchmarks. On the ad recall front, Gucci Beauty achieved 2.8x higher ad recall than the category average. And on consideration, this strategy drove a 3-point lift in brand consideration and preference over its competitors. This is one recent example, but it demonstrates that Teads can deliver a unified journey that most point solutions simply cannot replicate.

Teads can do this due to the breadth of our offerings across screens and the depth of our offering from branding to performance. Turning you to our Q1 results, this was a pivotal quarter of execution. We exceeded our Ex-TAC revenue guidance. We saw good indications from partners that Teads is on a strong path to becoming an essential AI-powered global platform for the modern advertiser. We executed with a new leadership team in a focused and effective way, putting behind us many of the integration challenges we experienced in 2025.

To illustrate how this strategy is translating into results, here are a few data points. Our CTV revenue grew over 50% year-over-year, with particularly strong momentum in EMEA and APAC. We've solidified our home screen leadership through partnerships with LG, Samsung and Google TV. We believe this gives us the largest footprint of this high-value inventory globally. 13% of our campaigns are now omnichannel, compared to 8% in Q1 of last year, as more clients realize the benefits of the full funnel approach I just described. We successfully renewed partnerships with many enterprise brands, including McDonald's, Heineken, and Volkswagen.

In our direct response business, we launched vertical video formats and continue to drive CTV campaigns. And we continued the aggressive adoption of AI in our product solutions, engineering teams, and across internal functions. To sum it up, the foundational integration work of 2025 is behind us. We have a new leadership team in place. Our product road map is focused and truly differentiated value proposition, and our client base is validating our strategy. We are operating according to our plan and remain confident in our trajectory.

I will now turn the call over to Jason to review the financials.

Thanks, David. As David mentioned, we exceeded our Q1 guidance for Ex-TAC gross profit and achieved our guidance for adjusted EBITDA. Revenue in Q1 was approximately EUR 266 million, reflecting a 7% decline year-over-year. As I noted in our last update in March, we've seen a more stable top line to start this year. We continue to see progress in our areas of focus, and David touched on a lot of this in his remarks. Importantly, we're starting to see that in our results as we continue to drive towards a return to year-over-year growth by Q4 of this year.

Ex-TAC gross profit in the quarter was EUR 108 million, an increase of 5% year-over-year. We closed the acquisition in February of last year, on a pro forma basis, this represents a decline of 11% year-over-year, as compared with the 19% decline we reported in Q4. So we're starting to see some progress, and particularly in Europe, the Middle East and Asia. Excluding the U.S., we grew revenue from enterprise customers year-over-year, and we believe we will see a greater positive impact in the U.S. in the coming quarters from the changes we've made in our operations. Based on the dynamics of the prior year headwinds, we have our hardest comparison period of the year in Q2, but forward is expected to significantly ease in Q3 and Q4, mainly due to the quality-related cleanups we did in our direct response business last year, which started having a material impact in Q3 of 2025.

As noted last quarter, this is expected to be a headwind of approximately $20 million of Ex-TAC year-over-year, with the vast majority in H1, phasing down to a minimal amount by Q4. We expect to continue to make progress on our turnaround in Q2. But as you'll see in our Q2 guidance, this is partially muted by the comps and is expected to right itself in H2. Note that Ex-TAC gross profit growth is outpacing revenue growth due to a net favorable change in our revenue mix post acquisition, with more business from enterprise advertisers and agencies, as well as the continuation of improvements to revenue mix and RPM growth that we've seen for several quarters. Other cost of sales and operating expenses decreased year-over-year, largely driven by one-time costs in the prior year period, the realization of gear-related synergies, and the additional cost reductions we discussed and implemented last quarter.

Looking back, our restructuring efforts have reduced our compensation run rate by over 20% year-over-year. This was offset partially in Q1 by the impact of the shorter comparison period in the prior year, including increased amortization of the acquired intangibles, as well as an unfavorable FX impact. On the whole, we have a streamlined cost structure and a more efficient operation. We expect a similar cost level for the balance of the year, with some seasonality mainly in Q4 and additional opportunities to continue to drive efficiency through ongoing integration. Adjusted EBITDA for Q1 was approximately $1 million and adjusted free cash flow was a use of cash of $41 million in the quarter. The use of cash was driven by the timing of our semi-annual bond interest payment of $31 million. The low seasonality of Q1, which is typical in our business as well as timing of working capital.

Working capital typically fluctuates for us quarter-to-quarter based on timing of collections and payments. Typically, Q1 is a very strong seasonal net working capital quarter for us, but as H2 was very strong last year, there was timing and cut off element impacting Q1. As a result, we ended the quarter with $99 million of cash, cash equivalents and investments in marketable securities on the balance sheet. As we've said in the past, we are always evaluating our cost and capital structure for opportunities to improve our financial profile.

In that regard, we are evaluating opportunistic alternatives that may be available to us to strengthen our balance sheet and build a more durable capital structure. Now I'll turn to guidance. For Q2 2026, we expect Ex-TAC gross profit of $121 million to $131 million, and we expect adjusted EBITDA of $14 million to $22 million. For full year 2026, we continue to expect adjusted EBITDA of approximately $100 million. Now I'll turn it back to the operator for Q&A.

[Operator Instructions] The first question comes from Laura Martin with Needham & Company.

So David, could you talk about the work you're doing now with ad agencies and what kind of feedback and learning you're getting from them right now? And then, Jason, when you think about the free cash flow level, given what the current outlook and both Q1 reported and also what you're seeing today, could you talk about progress in free cash flow for this year, please?

Hey, Laura. Good morning. Thanks for joining. So on the agency front, we're very focused around strengthening the depth of strategic integrations around data and ID with the agencies, and a lot of focus around how we start driving agentic campaign setup, management of campaigns to agents on Teads Ad Manager. And we're working on just general interconnectivity and making their workflows more efficient, to, again, using AI, automated workflows and make the campaigns much more effective. I mean I highlighted on the call one thing, the integration of performance capabilities into Teads Ad Manager, which is again the platform that they access is very helpful in terms of enabling agencies to run campaigns that are both branding and conversions in one platform. And that will increase again the share of wallet that we can get from these agencies because they're very focused on efficiency and workflows and ability to run campaigns on one dashboard.

Sure. And here's Jason for the second question, Laura. Thanks for it. Q1, obviously, maybe a little bit of surprise to some people who see the number of the free cash flow being down EUR 41 million, not a surprise to us. We ended Q4 with just a pretty high working capital balance in terms of just cut off timing of cash going in or out before or after New Year's. So that wasn't a surprise. And obviously, the interest payment we know is scheduled twice a year, including in February. So not a surprise for us.

We also had severance payments related to our restructuring that we announced in Q4 going out in Q1. So all that said, we're up a little bit higher actually, in the month subsequent in April in cash balance. And we do expect, and we said last quarter that at our guidance of around EUR 100 million of EBITDA, that should be a small use of cash for the year net-net, but it will go up and down just based on the timing of working capital throughout the year.

The next question comes from Brianna Diaz with JMP Securities.

David, with the new leadership, have you made any structural changes to the go-to-market model now that they've been in the position and in the seat for a few months? And just what are the changes you're seeing in regard to the U.S. business and what gives greater confidence that, that can rebound in the coming quarters?

And then Jason, just you mentioned the evaluation of opportunistic alternatives to strengthen the balance sheet and build a more durable capital structure. I don't think any debt was repurchased in the quarter. Can you just update us on the status of the reevaluations or what the possibilities are? And just on cash, can you help us understand maybe what a minimum cash level you guys would be able to comfortably operate?

Hi, Brianna Diaz. In terms of the go-to-market, which we have changed a little bit the coverage model around agencies and strategic accounts. So we're putting emphasis on integrating these two by, changing the coverage model and incentives. That's a big one. In the U.S. specifically, we have a new team Molly, who joined us as the Chief Commercial Officer end of November, brought a new GM for North America, Nirali, in February, and we've made some changes around the leadership of the organization. And we see the momentum already into the second quarter of the U.S. also picking up.

We highlighted that we had real strength in the first quarter in EMEA and APAC. And I think we see some of the steps we took in EMEA and APAC in the second half of last year will also translate into hopefully the same impact in the U.S. going into the second quarter and the second half of the year.

Yeah. Thanks, Brianna. This is Jason for the second part. Yes, we're actively evaluating our structure, exploring possible transactions that would optimize the capital structure, considering all available options to us and working with our advisers and our board towards that end. We don't intend to discuss anything further regarding this at the moment, but just wanted to share that it's something that we are looking into.

And as far as the minimum cash question, it's a good question. It's evolved over time as we've progressed through our integration at the time of the actual merger, a year and a few months ago, we said it was probably around EUR 100 million. It's certainly less than that today. It varies by time of year and even by time of month, just based on, as I said, working capital flows and needs. It's probably in the $70 million to $80 million range. But again, we're working to even bring that further down through further integration. And obviously, in any way we can reduce the requirement definitely is more efficient use of cash.

Our next question comes from Ed Alter with Jefferies.

Can you remind us with kind of the CTV business growing faster than some of the other parts of the business, how that impacts the mix of Ex-TAC gross margins? And similarly, if your CTV spend could move be it to other CTV formats besides home screen?

Maybe I'll start generally with CTV. Sorry, just start generally. I think when we look at CTV, it's -- the CTV itself, the business that is growing more than 50%. It's on the average margin of the company, which is around the 40s. And this is what is important about it is that it also leads to growth in other placements. So we're looking at focusing on leveraging CTV for omnichannel. So the example I gave on the call is one of many examples.

You can look at many case studies where our advertisers are using the entry point of CTV into the living room, but then expanding their campaigns into online video, into the in-read placement, and then expanding it further also from branding to performance. So for us, CTV is a great growth business, and it's a great sort of platform for growing the overall business across the board.

And just as a follow-up, is there any kind of ambition to move beyond home screen ads to other formats on CTV given that part of your business is growing so well?

For sure. I mean, the home screen is one part of the business. We don't break it down exactly, but I would say it's around half, and we have obviously in-stream. We are now advancing with formats around in-play and pause ads. So it's the biggest area of investment for us product-wise is the CTV area in terms of format, optimizing the creative with AI in the Teads Brand Studio and really leveraging then the CTV to the rest of our business. But it's -- the home screen is where we have, in many regions, exclusivity. So it gives us a great entry point and a great ability to work with advertisers on the most premium placements that drive the most attention.

And by being smarter about packaging, offering broader solutions and campaigns that are broader than just the home screen, I think we're leveraging that to grow the entire business. But the home screen is a great entry point, the exclusivities we have with LG in many geographies, with Samsung, we're now expanding that home screen position. We believe we are the only platform for the large agencies where they can actually launch CTV home screen campaigns on multiple OEMs. These integrations take time in the optimization. So I think we have a very solid position there that is a springboard to grow significantly CTV and omnichannel.

Thank you. At this time, I would like to turn the floor back to David Kaufman for closing remarks.

Thank you all for joining. As you can see, I think we have all the critical pieces really to turn the buzzwords of omnichannel and full funnel into a repeatable growth driver in reality. We're executing. We are confident on the ability to hit the goals we gave -- set ourselves and we presented you for 2026. And I think the market is going in our direction, and we're very excited about the trajectory, and we'll see you in the next quarterly call. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

Good day. Welcome to Teads' Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to Teads Investor Relations. Please go ahead.

Good morning, and thank you for joining us on today's conference call to discuss Teads fourth quarter and full year 2025 results. Joining me on the call today, we have David Kostman and Jason Kiviat, the CEO and CFO of Teads.

During this conference call, management will make forward-looking statements based on current expectations and assumptions, including statements regarding our business outlook and prospects. 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 annual report on Form 10-K for the year ended December 31, 2024, as updated in our subsequent reports filed with the Securities and Exchange Commission.

Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's fourth quarter and full year 2025 results announcement for definitional information and reconciliation of non-GAAP measures to the comparable GAAP financial measures. Our earnings release can be found on our IR website, investors.teads.com, under News and Events. With that, let me turn the call over to David.

Thank you, Matt. Good morning, everyone, and thank you for joining us. About a year ago, we brought Outbrain and Teads together. The goal was and still is to build a best-in-class digital advertising platform that delivers results across every screen from the phone in your pockets, to the TV in your living room, and for every advertiser's objective from branding to actual sales.

Year 1 was a transition. We managed the friction of merging 2 different cultures, technologies and businesses while navigating some tough market conditions. We also make a deliberate choice to build a sustainable premium marketplace and walked away from some low-quality revenue.

It was a hard call, but we believe it was a necessary one to protect our marketplace and ensure that we can grow our business with the world's biggest brands. The lessons we learned allowed us to sharpen our focus in the second half of the year, we've simplified the org chart, rightsized our cost and brought in fresh leadership. Now we believe we are moving into 2026 with strong alignment on our strategic priorities and a well-defined execution plan. We expect this to be the inflection point in the year we return to growth.

Looking at Q4. We hit the high end of our guidance on Ex-TAC, beat our adjusted EBITDA target and generated positive free cash flow. Beyond the numbers, there are a few key indicators I want to highlight. First, CTV is accelerating. Our focus on the living room is paying off. We crossed the $100 million annual revenue mark with growth hitting 55% in Q4 and with strong growth on the home screen placements.

Second, performance cross-selling is scaling. We saw a 300% jump in sales to enterprise customers compared to Q3. Now to be clear, that is still just a few million dollars per quarter, but we believe it demonstrates how much headroom we have to grow. Third, in Q4, we renewed several of our joint business partnerships with leading global brands and have many more in process of resigning in Q1.

The feedback from surveying our partners 1 year into the merger is excellent, highlighting creative excellence, innovation and media added value, and the renewals demonstrate the strategic nature of these relationships.

On the operational side, we expect that our December restructuring will save us between $35 million to $40 million annually. In addition, we've added top-tier talent like Mollie Spilman, our Chief Commercial Officer; Dani Cushion, our Chief Marketing Officer; and Nirali Jain, who heads our North American business.

We've also flattened the leadership structure to make sure our teams can move faster and drive speed and accountability. For 2026, the strategy for our enterprise advertisers is built on 3 pillars. First, we will continue to lead with our CTV offerings by focusing on 2 clear differentiators, home screen leadership and omnichannel branding to performance.

On the home screen, we're continuing to win. We are not just another ad in stream. We are an entry point to the living room and TVs. And our leadership is anchored by our strategic partnerships with leading OEMs like LG, Samsung, NVIDIA and Vizio. In Q4, we further solidified our position by expanding our relationships with LG, signing exclusive partnerships in Italy and Greece. And in Q1 of this year, we expanded our footprint through an exclusive partnership with Samsung TV in certain regions in Asia Pacific.

We are further expanding this reach through new integrations with Google TV and Rakuten, all focusing on integration of these OEMs and bringing the premium, highly visible and valuable placements directly into Teads Ad Manager.

In terms of scale, we have access now to well over 500 million addressable TVs globally and already ran well over 3,500 campaigns on home screens. What we hear from our partners is that they choose to work with Teads due to the unique combination of our direct relationships with the most premium brands of the world through our 60-plus joint business partnerships and the quality of our creative services is ensuring that creatives are well adapted to the unique environment of the home screen and the integration with our platform Teads Ad Manager, which makes transacting on multiple OEMs easier and faster.

And we're proving that CTV plus Web is a winning combination. Our thesis is simple. Using the big screen for awareness, then we're targeting on mobile drives measurable sales. For example, our recent partnership with all Accor, a global hotel operator, demonstrated that omnichannel activation on Teads not only drove 23% lift in brand favorability, but also a 17-point increase in purchase intent. That's a massive win for our advertisers and a differentiator for Teads.

Second point on enterprise. We are deepening our strategic relationships with agencies. We are working on integration of our audiences with the world's leading agencies and on other data collaborations. A great example of this is our new integration with Havas, which allows their planners to activate our audiences directly from their own planning environment, driving both speed and efficiency.

Third, we are scaling our performance business for enterprise advertisers. We are integrating performance capabilities, leveraging legacy Outbrain know-how directly into Teads Ad Manager designed to create a frictionless experience for agencies buying full funnel, and we are advancing our algorithmic capabilities and investing in superior post-campaign measurement.

We expect these investments to drive continuous improvements in ROAS and overall campaign performance for our enterprise advertisers. Turning to our direct response advertisers. There, we are purely focused on ROAS, plain and simple, and internally on driving efficiencies that grow profitability.

The 2025 trimming of our supply and demand sources to ensure higher quality will impact our year-over-year comparisons early on, but the foundation of our business is significantly stronger today than it was a year ago. We also see here exciting opportunities such as running direct response performance campaigns on CTV. In Q4 of last year, we had several million dollars of such sales.

One general comment. You will hear our peers discuss supply path shortening as a new initiative, but for us, it is a foundational architecture. We provide a straight line to the source of premium supply, whether that's an LG home screen or a top-tier global publisher, which is one of the reasons we can deliver superior outcomes from branding to performance.

AI. AI is the engine behind many of these growth areas. It's both a performance driver for our clients and a productivity tool for our engineers and teams. On the algorithmic side, we have progressed on the integration of our AI and data infrastructure, and we are already seeing tangible results.

In addition, by using LLM models to sharpen our predictive delivery, for example, by analyzing the content of ads to extract additional relevant signals, we are achieving 2 goals at the same time. We're hitting better KPIs for our advertisers, specifically by lowering the cost per acquisition, and we're seeing a path forward expanding our own margins at the same time.

We're also investing in transitioning from manual campaign setups and toward agentic-driven goal setting, which we believe will simplify the experience for our partners and allow our technology to optimize for outcomes more effectively.

To sum it up, I believe the heavy lifting of the transition is behind us. We've used the second half of last year to build a leaner, faster and better teams. We saw some positive indicators in Q4 into Q1. We have started the year with strategic clarity, a well-defined execution plan and the right leadership, which I'm confident will allow us to make 2026 a breakout year.

I will now turn it over to Jason to walk through the financials.

Thanks, David. As David mentioned, we achieved our Q4 guidance for Ex-TAC gross profit at the high end of our range and exceeded our range for adjusted EBITDA, generating positive adjusted free cash flow in both the quarter and for the full year.

Revenue in Q4 was approximately $352 million, reflecting an increase of 50% year-over-year on an as-reported basis, primarily reflecting the impact of the acquisition. On a pro forma basis, we saw a year-over-year decline of 17% in Q4.

I spoke last quarter about the drivers of volatility in our top line stemming from both legacy Teads and operating businesses. I'll reiterate them briefly here in the context of what we anticipate for 2026. But an important takeaway is that since we last reported in November, we have seen a more stable top line. Within our enterprise clients, we saw a deceleration in our top line starting in June that we attribute largely to operational challenges and distraction of the merger. This primarily impacted us in several key markets, most notably the U.S. and U.K. However, the changes we implemented in leadership and operations in Q3 are yielding positive indications in Q4 and into Q1, giving us confidence that we can see a return to growth by Q4 of this year.

CTV growth has accelerated. Top line in the U.K. has stabilized, and our sales of performance campaigns to enterprise customers, including cross-selling is accelerating. Within our direct response clients through both strategic decisions around quality and external factors, including deliberately exiting lower-quality demand and supply sources from our ecosystem, we've churned a small but meaningful segment of arbitrage-based customers.

This impacted our revenues primarily in H2 and most meaningfully in Q4. And while we feel we have a healthier long-term business from these changes, we expect that this will impact our year-over-year comps through much of 2026. The year-over-year comparison impact for 2026 is expected to be a headwind of approximately $20 million of Ex-TAC with the vast majority of that in H1, phasing down to a minimal amount by Q4.

Ex-TAC gross profit in the quarter was $152 million, an increase of 122% year-over-year on an as-reported basis and a decline of 19% on a pro forma basis. Note that Ex-TAC gross profit growth is outpacing revenue growth due to a net favorable change in our revenue mix post acquisition as well as the continuation of improvements to revenue mix and RPM growth that we've been seeing for the last few years.

Other cost of sales and operating expenses increased year-over-year, primarily reflecting the impact of the acquisition as well as a noncash impairment in goodwill. As a result of recent declines in our share price and overall market capitalization, we were required under accounting standards to perform an impairment assessment and ultimately recorded an impairment to goodwill of around $350 million. This accounting adjustment is entirely noncash and does not impact our liquidity, operating cash flows or our debt covenants.

I also want to be clear and emphasize, we fully believe in the fundamental strategy of our omnichannel full funnel offering, but as we've reported, the operational challenges have led us to a timetable longer than we initially anticipated, resulting in this impairment charge. As our actions exemplify, we are committed to returning to growth and improving profitability.

And to that end, in the quarter, we recognized $6 million of restructuring charges, primarily related to the reduction in force we announced and largely executed in December. The restructuring is expected to save approximately $35 million to $40 million annually from the elimination of both filled and unfilled roles.

Adjusted EBITDA in Q4 was $37 million, and adjusted free cash flow, which, as a reminder, we define as cash from operating activities less CapEx, capitalized software costs as well as direct transaction costs was approximately $3 million in the fourth quarter and $6 million for the year.

As a result, we ended the quarter with $139 million of cash, cash equivalents, and investments in marketable securities on the balance sheet, and continue to have EUR 15 million or about $17.5 million in overdraft borrowings classified in our balance sheet as short-term debt.

Additionally, we have $628 million in principal amount of long-term debt at a 10% coupon due in 2030. As we've said in the past, we are always evaluating our cost and capital structure for opportunities to improve our financial profile. In that regard, we are evaluating opportunistic alternatives that may be available to us to strengthen our balance sheet and build a more durable capital structure.

Now I'll turn to our guidance. We are focused on operating as a cash flow-generating business. We've taken recent steps to improve our cost structure, and we'll continue to look for opportunities as we further advance our integration and leverage the exciting avenues to streamline operations that are now available with AI.

We've taken steps to realign our team, appoint new leadership and enhance our focus on the areas that we feel will help us return to top line growth. And while we feel good about the steps we're taking and the progress we're seeing, we acknowledge the uncertainty of the overall environment and how it may impact the time line and progress as we pursue a return to top line growth.

So with that, we have provided the following guidance. For Q1 2026, we expect Ex-TAC gross profit of $102 million to $106 million, and we expect adjusted EBITDA of breakeven to $3 million. And for full year 2026, we expect adjusted EBITDA of approximately $100 million. While this level of annual EBITDA would potentially result in a small use of cash, we are comfortable with our cash balance and borrowing ability. And additionally, we see opportunities to generate positive free cash flow this year.

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

[Operator Instructions] Our first question comes from the line of Laura Martin with Needham & Company.

On the sales force, I was just wondering, are we pretty much staffed up now on the sales force from the integration? And do you expect smooth sailing going forward on those kinds of hires? And then secondly, I was really interested, David, in your comments on the exclusive deals with Samsung and LG. Are those for homepage programmatic, the way Nexen is talking about? Or is that for -- I was just wanting you to expand on what rights you have that are exclusive right now.

Sure. Laura, thanks for the question. So first, on the sales force, we are confident we have the right leadership team and the right team in place. So I do anticipate smooth sailing. Nothing is smooth, but I think we're very confident we have a good team. I think we replaced the people we wanted to replace, and I'm very confident with what I see in the last few months with the new leadership.

On the home screens, we've been at this for about 2 years working on a home screen. So we have exclusive relationships in certain geographies with LG. We have exclusive relationship in certain geographies with Samsung. We had, until last year, an exclusive relationship with VIDDA, which now also Nexen is involved, but what we do and where our advantage is really that we work directly integrated between Teads Ad Manager and the home screen.

These are very unique special formats and the advantages we have around creative adaptation to the different formats and the ability of advertisers to really buy and optimize across multiple OEMs in one platform. That's a huge advantage. You can activate it programmatically, but when you activate it programmatically, it's very different in terms of the outcomes that you can drive.

The premium brand relationship we have directly are a big factor why these companies work with us exclusively. We have a global footprint in more than 50 markets. They do want those premium brands on the home screen. I mean, there's no tolerance for other type of brands. So that's a huge advantage that we have.

So between Teads Ad Manager direct integration, ability to run campaigns across multiple OEMs, the creative adaptation and the premium brands that gives us a huge scale, and I think huge head start on that business. And it's also driving other parts of our business. We talked on -- I mentioned on the call, the omnichannel. So the ability to activate on the home screen, and then on the web is a big advantage and the ability to drive just performance campaigns. So we believe we have a 2-year head start there, and it's a great differentiator for us.

Our next question comes from the line of Matt Condon with Citizens.

The first one is just can you provide additional color just on the securitization of the business? And just what trends are you seeing so far in 1Q that give you confidence that you've got this back on the right track? My second one is on the organizational changes, just do we have the right team in place today across the entirety of the business? And should we expect anything or any other changes going forward?

Thanks, Matt. This is Jason. I can take the -- I think I got -- it was a little broken, but I think your first question was about Q1 trends and what gives us confidence. So if I miss anything you said, I'll just start there. Yes, look, I think we're seeing improvement in Q1, right? Maybe I know the numbers might be a little funky with the timing of the acquisition last year being a few days into February. And so the pro forma and the as-reported periods are slightly different.

On an as-reported basis, we are guiding at our midpoint to something fairly flat year-over-year for Ex-TAC. And on a pro forma basis, is down, but not down to the same level what we saw in Q4, where we were down a bit more. So what we're seeing in this early part of Q1 and what we expect for the full quarter is closing of the gap quite a bit here, and that means we're seeing better than what's typical in Q1 relative to Q4, and it's really concentrated in the areas that we're focusing on, which obviously when you're focusing on something, and then you see improvements in it, it gives you some confidence, right?

So CTV is accelerating though through the home screens and the omnichannel, as David said, we're focused on driving more performance sales, obviously, a big part of the kind of synergies of the combination, and we do see momentum there. And then I know I've talked a little bit about some of the operational challenges that have been driving the headwinds for much of the last year or 6 months or so in U.K. and U.S. are the countries I've kind of called out.

In the U.K., we do see a relative improvement and a big shrinking of the gap starting in Q1 here. And as David mentioned, in the U.S., we have new leadership in Q1, and we do feel good and gain some confidence from the pipeline that we see in March and beyond. So cautiously optimistic, but we've taken meaningful steps to focus and reduce costs and focus and realign around the things that we think will drive growth, and we're starting to see good indications of those things.

And I think, Matt, in terms of the team, I'm very comfortable. I mean, we started the year with a very clearly defined execution plan. We sort of elevated to the leadership team, some people from the product and tech side. So I'm very comfortable with where we are. We've rolled out very specific goals and targets, and I think the execution plan is well defined with the right team at this point.

Our next question comes from the line of James Heaney with Jefferies.

Just what are the assumptions behind the full year EBITDA guide? How should we think about the linearity of growth and margin as we move throughout the year? And then any color you can maybe also provide around linearity of Ex-TAC gross profit growth? I think you said getting the growth in Q4, but any other things to think about moving throughout the year?

Sure. Thanks, James. I'll take that. It's Jason. I mean, our guidance of approximately $100 million of EBITDA, it does not imply a full year Ex-TAC growth on a pro forma basis, but we do expect to get to growth by the end of the year by Q4. So maybe some color on kind of how we see that playing out. A couple of points of context. For one, I did mention on the call, we have this year-over-year comp headwind of about $20 million of Ex-TAC from the quality cleanup. And just to put that into kind of when we see that happening, it started to really impact us fully in Q4, and maybe about half of the impact we talked about in Q3 from the supply cleanup and some of the early impacts there.

So the full impact, about $8 million of a headwind in Q4 of Ex-TAC, and we expect that same $8 million to impact Q1 and Q2 as well before starting to shrink in Q3 and be de minimis for Q4. So the comps do ease as the years go on. That's the biggest kind of headwind that we see kind of moving forward. And generally, we expect it will take a few quarters to build back to growth from the year-over-year decline that we reported in Q4. We see improvement, as I said, in Q1. We think it will take a few quarters to get to growth, but believe that our changes in focus, leadership and operations are driving this change. We start to see it in Q1 from the things we did last year and the things that we're doing in Q1, we think will help more and more as the year goes on.

So on a pro forma basis, we expected to see improvement each quarter of the year, and then Q4 being where we hit the positive growth. In terms of expenses to get to EBITDA, obviously, you can see in our guidance for Q1, it's substantially reduced expenses from -- obviously, from the restructuring and the step-up of full year of synergies now that we have compared to last year.

So you can see the lower cost base, and that's even despite FX headwinds of a few million dollars that we see from the weakening of the dollar versus mainly the euro and the shekel. But we -- the rest of the year, a few million dollar step-up probably in Q2 and Q3 just based on seasonality, revenue-related items and some fully staffing where we have some empty roles right now, and then a normal Q4 seasonal step-up as you've seen in our results this year as well would be what I expect.

Yes. Very thorough answer. Maybe just quickly for either of you. Anything on just specific ad verticals that you'd want to call out in terms of strength or weakness? I mean, any particular standouts that you want to highlight?

Maybe I'll take that. I mean, there's nothing really to -- that is material. I mean, we don't have any vertical that's sort of double digit even. So we see some weakness in CPG and automotive, some strength in health and finance, but nothing really of note.

Our next question comes from the line of Zach Cummins with B. Riley Securities.

David, I wanted to ask about the Google TV opportunity. I mean, can you maybe go a little more into detail around that announcement? And what sort of growth opportunity does that unlock for you as we move forward in 2026 for CTV home screen?

Look, overall, CTV home screen is a huge opportunity for us. We are, as I said, I mean, 2 years into it. We have a huge base of OEMs. We added Google TV to that. I'm sorry, this is New York background noise. So we added Google TV recently. We added TCL, Wale and many others. So the overall opportunity is huge. I mean, it today accounts for a big percentage of our CTV business. We've grown in Q4 55% and expect similar growth rates or better for this year on that business.

And I said it earlier, I think we have clear differentiators there. I think the direct access is a big differentiator. The premium direct premium advertiser relationship is a big advantage. And that's why I think these OEMs and other applications on CTV really sign up with Teads in order to make sure that, that experience on the home screen is the best they can offer to their audiences. So it's a large opportunity, and it also helps us to, as I mentioned earlier, to omnichannel sales, sell more campaigns to our advertisers also around online video, combining the CTV home screen and the web. So it's a very big opportunity. It's a big area of investment for us, and we're very excited about it.

Understood. And my one follow-up question is just around the proactive cleanup of some of the inventory throughout 2025, obviously, a meaningful headwind when you think of Ex-TAC over the next couple of quarters. But is that process largely behind us now? Do you have the ideal mix of inventory now that you're focusing more so on enterprise-level brands?

Yes. I think it's behind us in terms of executing on that cleanup or trimming of supply and demand quality. So we walked away from about $20 million in revenue. The impact will continue into the first half of this year. It was about $8 million headwind in Q4. It will continue through the first half of this year, but we have a much healthier network. We're actually delivering better ROAS for our performance advertisers and the network and the marketplace is much more suitable for the premium brands we work with.

And this concludes -- we have reached the end of the question-and-answer session. I would like to turn the floor back over to David Kostman for closing remarks.

Thank you very much for attending today. As you can hear, we are somewhat encouraged by the sequential trends that we see. We do believe that '26 will be an inflection point for us. We're very focused on execution and also finding the sort of right levers to invest in, in the attractive growth areas that we see like CTV. So excited about the future and look forward to updating you.

And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.

Good day. Welcome to Teads Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to Teads Investor Relations. Please go ahead.

Good morning, and thank you for joining us on today's conference call to discuss Teads Third Quarter 2025 Results.

Joining me on the call today, we have David Kostman and Jason Kiviat, the CEO and CFO of Teads.

During this conference call, management will make forward-looking statements based on current expectations and assumptions, including statements regarding our business outlook and prospects. 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-K filed for the year December 31, 2024, as updated in our subsequent reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements.

Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's third quarter earnings release for additional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures.

Our earnings release can be found on the IR website, investors.teads.com, under News and Events.

With that, let me turn the call over to David.

Thank you, Josh. 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 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 2 scaled organizations is complex with 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 and 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 in a uniquely strong position to be a strategic partner at a global scale for brands and their agencies. And 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 offsite, and I can tell you that the innovation, creativity and energy of our teams are truly inspiring. This reinforces our confidence in Teads' future and our ability to lead the industry forward.

With this backdrop, we decided to take decisive actions in effort to turn the business around, restore growth and improve profitability. Over the past 2 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 1 merged team for 2 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 3 main dimensions: First, portfolio optimization to product, geography and customer segment evaluation, prioritizing investments in innovation and high-growth opportunities while taking steps to improve the profitability of the 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 have 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 Mollie Spilman as our new Chief Commercial Officer. Mollie 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 5 years when the company grew revenues from $600 million to over $2 billion. Most recently, Mollie 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 Mollie 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 stand-alone basis, assuming continuation of recent trends, our CTV business is expected to hit the $100 million mark by end of year. As a reminder, our CTV business focuses on 3 key pillars: on screen, the innovative CTV placement where we continue to be a global leader, other proprietary formats such as POS ads and in-play and cross-screen, which facilitates full-funnel activation.

Our connected TV home screen product continues to gain traction, establishing Teads 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 Mentor Institute ] demonstrate 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 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 pay 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 their audiences, particularly on their applications.

On the cross-sell front, i.e., selling performance solutions to legacy Teads clients, clients such as Homes.com, Lavazza 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 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 U.S. 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' 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 2 companies' data science teams, data sets and know-how is resulting in real benefits for both brand and performance campaigns with improved conversion rates, click-through rates, auction level bids and AI-based campaign pacing. After a testing period, we are 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 5 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 advancements driving nonlinear improvements in results; and fifth, enhanced profitability in our direct response business. We plan to share a detailed 3-year outlook and road map 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 to walk through the financials.

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 a continuation of this in the short-term, but 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 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 U.S., U.K. and France. As noted last quarter, these 3 regions, which represent about 50% of revenue, are effectively driving all of the headwind on the legacy Teads 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 time line 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 partners 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 focus 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. And 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 from 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. And adjusted free cash flow, which, as a reminder, we define as cash from operating activities less CapEx and 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 and continue to have EUR 15 million or about $17.5 million in overdraft borrowings classified on 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, which involves a deep analysis of our operating model and opportunities for efficiencies. As we move into the implementation of these plans in coming weeks, we expect a benefit to adjusted EBITDA of at least $35 million on an annualized basis and to start seeing a small impact of that in Q4.

And as we look towards Q4, our visibility, like others in the 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. And 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 Instructions] Our first question is from Matt Condon with Citizens.

My first one is, just can we just unpack the headwinds in the quarter there were multiple things. Is it just mainly the continuation of the things that you 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?

Let me just maybe at the high level, I think overall, you see a 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 we needed to take deeper actions that Jason highlighted. There is some weakness in certain geographies and verticals, but we believe that we -- with the actions we're taking, we can turn the business around.

Jason, do you want to give more details?

Sure. Yes. I mean just 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. Certainly, just an increased level of demand volatility and kind of drove drivers on both sides of the business. On the Teads 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 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 U.S., U.K. and France. Typically, Q3 builds towards September being easily the strongest month of the quarter, and it still was, but 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. They still have shorter planning cycles. 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, we did see, I said, growth in some regions. We did -- 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 that starting to pay off a little bit in October here, but it's still early days, and we think it will take longer. We also see stronger cross-sell. We see stronger CTV, which are really 2 of our very main focus areas, as David said. So some optimism there.

On the Outbrain side, I think you asked about the impact of the page views. They did tick a little bit lower in Q3 than what we saw in Q2. And we also saw RPM continues to grow and be an offset against that, but there was a little bit less of an offset in Q3 as the quarter went on, and that drove it a little bit of the softness as well as, as I said on the call, the strategic decisions we made around quality, the supply cleanup in H1, demand content restrictions that we've employed having a bigger impact than what we expected.

And then just as a follow-up, just what is your willingness to -- if things don't materialize, just to take the right steps to protect free cash flow here as you look out into the rest of this year and into 2026?

I think we said it on the call, I think we are committed to it. We generated positive free cash flow year-to-date adjusted positive free cash flow, and we're taking all the steps to continue to do that. We talked about the plan that is really a transformational plan around deciding on which areas to focus and invest. So we're still in investment only in certain growth areas, but I think we're looking at business components in a smarter way. We did this exercise in the last 8 weeks to really analyze in-depth the business, decided on the focus areas. And part of that, we will be generating a minimum of $35 million of incremental EBITDA, that's a combination of this transformation and cost efficiencies. So we're definitely committed to that.

Our next question is from Ygal Arounian with Citigroup.

So I know you're not going to want to give a 2026 outlook here, but just given how 2025 has trended and the work on the integration, maybe if you could just -- I know investors are going to want to look into 2026 and get a better sense of the confidence level on initially some of the sales execution. Now we're changing some of the product, $35 million 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 this stuff really finally starts to come through and kind of think about next year?

I think we're not giving specific -- Ygal, thanks. We're not giving specific guidance to 2026. What we see is some positive indicators month-over-month in growth in CTV, growth in cross-sell, and we decided on focus areas of innovation, they're going to be focused around the agency side, the CTV side. We believe that, that with a combination of sort of the plans we have around the sort of EBITDA improvement will get us to -- 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.

Maybe what I could add to that, Ygal, this is Jason, just to give a little bit more color. We definitely see an impact of the changes that we've made kind of confirming the operational drivers that we talked about last quarter. And what I mean by that is, 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 more meetings, more RFPs a bigger, healthier pipeline being built, equity being built with the brands and agencies that we've worked with historically. And we are starting to see early returns. I mean, in October, early kind of results from that impact, 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 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 prioritization of product, just strategic relationship building, commercial terms. And these are things that are not as we had hoped, a 90-day sales cycle turnaround, but rather things that probably take a few quarters, right? And so, we feel good. We feel obviously a lot smarter. We think we need to make changes, and we've talked about what we're doing there. But we feel good about the areas that we're focused on for sure.

Okay. So just -- is it fair to say that you're starting to see some early benefits from the sales reorganization still down, still taking time, but starting to see improvements and then the kind of structural changes you're talking about all that's pretty new and starts to come through more next year, or I guess, in 4Q and into next year?

I think that, Ygal, that's very fair. And as Jason said, we already see signs, again, they are leading indicators in terms of RFP sizes of those 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 U.K., we're also starting to see some impact of the changes. I'm very excited to have Mollie on board. I mean she brings a tremendous experience. I mean she's sort of led. She was the CRO and COO of Criteo in years where they grew from $0.5 billion to $2 billion. She is 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.

Our next question is from Laura Martin with Needham & Company.

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 -- 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 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.

Sure. Yes. So to maybe give a little more color on the -- yes, it's a small number of customers that I was referring to buying on our Outbrain DSP business. It made up the majority. It made up about 2/3 of our DSP business coming from this kind of small group and segment of customers spending on it. And I kind of quoted the impact there of $5 million Ex-TAC impact year-over-year. We've made changes around supply.

As I said in the first half of the year, we've also been making changes. And this part is not really anything new for us, but we continuously do this of content rules and content restrictions to make sure that things are up to our quality and what we want to allow out there. And some of these changes made by us and also 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 we did expect an impact. We didn't expect it to be so binary is maybe how I would put it. But we saw the spend leave, and it's not that it went somewhere else as far as we know. I think it's just impacts their model and their ability to spend in general.

And as I said, we don't expect this to come back online certainly in Q4. And this was like 2/3 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.

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 removing supply sources, deemphasizing the DSP. These are legacy Outbrain, I would say, hardcore performance. Other people are taking some of this business. We -- as we move forward with the more premium placements that we need to offer the guarantee of quality to the enterprise clients, I mean these are certain steps that are hurting more than we had anticipated, but I think it's going to be something that, again, we're not -- as Jason said, we don't expect it to come back. I mean it's something that sort of we deliberately are doing. And right now, obviously, 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 this happening faster than we thought.

Okay. Yes, that makes sense. And that's helpful because it limits the downside 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. Magnite 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.

So I would just not use the word demise. What we have seen and we analyze this obviously daily basis, 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 areas.

On the traditional publisher side, when we look at the sort of list of premium publishers, we saw around between 10% and 15% decline in paid 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 ChatGPT 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.

Our next question is from Zach Cummins with RBC -- sorry, B. Riley Securities.

This is Ethan Widell calling in for Zach Cummins. 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?

It's difficult to put a specific number of it. I would say that it is -- the decline is accelerating because of AI summaries and the changes in discovery. So I think it is impacting the traffic to those websites.

Understood. And then regarding free cash flow going forward, maybe what are your expectations in terms of free cash flow positivity or maybe what the time line to sustainable free cash flow looks like?

Just 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 that decline. I mean we had 8 consecutive quarters in growth on revenue per pages, RPM. We're diversifying the business. We're working with those publishers with POCs around how to monetize LLM sort of inputs and platforms that they are using. So there's a lot that's being done. It's not that I think publishers are sitting 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 on 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 is only the beginning, and we into 2026, see a really great trajectory of continued significant improvements on those RPMs. So that's on that front.

Sorry, Jason.

Yes. 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 a few million dollars. We do expect the year to be around breakeven, depending on just timing of working capital around period end, et cetera. 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 lower cash taxes, lower CapEx, lower restructuring costs and things that do partially offset that. So we do think we're in okay shape for this year. And obviously, as I say, we take it very seriously in a lot of our look at the project that we're moving to the implementation phase on now in our analysis, cash flow guides a lot of that as well.

And as I said, we do expect to take that $35 million of improvement to EBITDA on a run rate basis, starting here with some impact in Q4. So we do think there will be a sizable impact on 2026. And continue to obviously work also on other cash taxes optimization and those things as well are areas that we still are less than a year from merging and still optimizing at this point. So we do 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 how serious we view it and how important it is to us.

[Operator Instructions] Our next question is from James Heaney with Jefferies.

Yes. It would 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.

Sure. So maybe I'll start here, David, anything you want to add, please do. Our giving guidance here, obviously, we've got a lot to consider. So the visibility is still a little bit challenged by the volatility we've seen. Advertisers continue to have 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 a little bit of pause, and we want to exercise additional caution when we're giving guidance. So all that said, we think it's prudent to be conservative and set ourselves up here.

Maybe just some of the facts that we're seeing so far into Q4 that might be helpful beyond that. October is performing on the legacy Teads 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, 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 based on my remarks on the things that we're considering in here.

On the Outbrain side, we do assume the headwinds that impacted Q3 will impact Q4 even more so within the DSP business, as we said, certain segments of demand, and that drives a deceleration of the performance relative to Q3.

Smaller, but on the positive is, we do see October growth in CTV. We do see October acceleration in cross-selling. And these are 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, we think it's prudent to guide the way that we are. And I will say that we do expect our cash flow for the year to be around breakeven.

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

Thank you. Thank you for joining. 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.

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