Taboola.com Ltd.

Quarterly Report on Form 10-Q

Table of Contents

	Page No.
PART I.		FINANCIAL INFORMATION	4
Item 1.		Financial Statements (Unaudited)	4
		Consolidated Interim Balance Sheets	5
		Consolidated Interim Statements of ~~Income (Loss)~~Loss	6
		Consolidated Interim Statements of Comprehensive ~~Income (Loss)~~Loss	7
		Consolidated Interim Statements of ~~Shareholders’~~Shareholders' Equity	8
		Consolidated Interim Statements of Cash Flows	910
		Notes to Consolidated Interim Financial Statements	1112
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2728
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	45 48
Item 4.		Controls and Procedures	4649
PART II.		OTHER INFORMATION	4850
Item 1.		Legal Proceedings	48 50
Item 1A.		Risk Factors	4850
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	4850
Item 3.		Defaults upon Senior Securities	4851
Item 4.		Mine Safety Disclosures	48 51
Item 5.		Other Information	4851
Item 6.		Exhibits	4952
Signatures			5052

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words ~~“believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,”~~"believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A, ~~“Risk Factors”~~"Risk Factors" in our Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Unless otherwise stated or unless the context otherwise requires, the terms “Company,” “the registrant,” “our company,” “the company,” “we,” “us,” “our,” “ours,” and “Taboola” refer to Taboola.com Ltd., a company organized under the laws of the State of Israel, and its consolidated subsidiaries.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

TABOOLA.COM LTD.

CONSOLIDATED INTERIM FINANCIAL STATEMENTS

AS OF ~~MARCH 31,~~JUNE 30, 2023

UNAUDITED

INDEX

	Page

Consolidated Interim Balance Sheets	5

Consolidated Interim Statements of ~~Income (Loss)~~Loss	6

Consolidated Interim Statements of Comprehensive ~~Income (Loss)~~Loss	7

Consolidated Interim Statements of Shareholders’ Equity	88-9

Consolidated Interim Statements of Cash Flows	~~9-10~~10-11

Notes to Consolidated Interim Financial Statements	~~11-26~~12-27

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TABOOLA.COM LTD.

CONSOLIDATED INTERIM BALANCE SHEETS

U.S. dollars in thousands, except share and per share data

March 31, December 31,
2023
2022

Unaudited
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
218,849

$
165,893

Short-term investments
55,582

96,914

Restricted deposits
1,091

750

Trade receivables (net of allowance for credit losses of $9,242 and $6,748 as of March 31, 2023 and December 31, 2022, respectively)
212,346

256,708

Prepaid expenses and other current assets
73,531

73,643

Total current assets
561,399

593,908

NON-CURRENT ASSETS
Long-term prepaid expenses
41,262

42,945

Commercial agreement asset
289,451

—

Restricted deposits
3,998

4,059

Deferred tax assets, net
3,218

3,821

Operating lease right of use assets
67,740

66,846

Property and equipment, net
71,731

73,019

Intangible assets, net
173,177

189,156

Goodwill
555,931

555,869

Total non-current assets
1,206,508

935,715

Total assets $ 1,767,907 $ 1,529,623

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade payables
$
223,040

$
247,504

Short-term operating lease liabilities
15,663

14,753

Accrued expenses and other current liabilities
95,182

102,965

Current maturities of long-term loan
33,000

3,000

Total current liabilities
366,885

368,222

LONG-TERM LIABILITIES
Long-term loan, net of current maturities
192,737

223,049

Long-term operating lease liabilities
58,223

57,928

Warrants liability
5,080

6,756

Deferred tax liabilities, net
31,319

34,133

Other long-term liabilities
5,000

5,000

Total long-term liabilities
292,359

326,866

COMMITMENTS AND CONTINGENCIES (Note 11)

SHAREHOLDERS’ EQUITY
Ordinary shares with no par value- Authorized: 700,000,000 as of March 31, 2023 and December 31, 2022; 297,822,375 and 254,133,863 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.
—

—

Non-voting Ordinary shares with no par value- Authorized: 46,000,000 as of March 31, 2023 and December 31, 2022; 45,198,702 and 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.
—

—

Additional paid-in capital
1,209,559

903,789

Accumulated other comprehensive loss
(1,163
)

(834
)
Accumulated deficit
(99,733
)

(68,420
)
Total shareholders’ equity
1,108,663

834,535

Total liabilities and shareholders’ equity $ 1,767,907 $ 1,529,623

	June 30,		December 31,
	2023		2022
	Unaudited
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	204,595	$	165,893
Short-term investments		42,256		96,914
Restricted deposits		1,170		750
Trade receivables (net of allowance for credit losses of $9,685 and $6,748 as of June 30, 2023 and December 31, 2022, respectively)		217,437		256,708
Prepaid expenses and other current assets		70,817		73,643
Total current assets		536,275		593,908
NON-CURRENT ASSETS
Long-term prepaid expenses		40,230		42,945
Commercial agreement asset		289,451		—
Restricted deposits		3,974		4,059
Deferred tax assets, net		3,121		3,821
Operating lease right of use assets		64,364		66,846
Property and equipment, net		71,079		73,019
Intangible assets, net		157,215		189,156
Goodwill		555,931		555,869
Total non-current assets		1,185,365		935,715
Total assets	$	1,721,640	$	1,529,623


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade payables	$	222,232		$	247,504
Short-term operating lease liabilities		16,231			14,753
Accrued expenses and other current liabilities		105,234			102,965
Current maturities of long-term loan		3,000			3,000
Total current liabilities		346,697			368,222
LONG-TERM LIABILITIES
Long-term loan, net of current maturities		192,307			223,049
Long-term operating lease liabilities		54,583			57,928
Warrants liability		5,782			6,756
Deferred tax liabilities, net		26,938			34,133
Other long-term liabilities		5,000			5,000
Total long-term liabilities		284,610			326,866
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS’ EQUITY
Ordinary shares with no par value- Authorized: 700,000,000 as of June 30, 2023 and December 31, 2022; 300,637,035 and 254,133,863 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.		—			—
Non-voting Ordinary shares with no par value- Authorized: 46,000,000 as of June 30, 2023 and December 31, 2022; 45,198,702 and 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.		—			—
Treasury Ordinary shares, at cost - 1,442,000 and 0 Ordinary shares as of June 30, 2023 and December 31, 2022, respectively		(4,358	)		—
Additional paid-in capital		1,226,572			903,789
Accumulated other comprehensive loss		(834	)		(834	)
Accumulated deficit		(131,047	)		(68,420	)
Total shareholders’ equity		1,090,333			834,535
Total liabilities and shareholders’ equity	$	1,721,640		$	1,529,623

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

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TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF ~~INCOME (LOSS)~~LOSS

U.S. dollars in thousands, except share and per share data

	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022			2023			2022
	Unaudited						Unaudited
Revenues	$	327,686		$	354,726		$	332,004		$	342,695		$	659,690		$	697,421
Cost of revenues:
Traffic acquisition cost		211,946			216,498			208,870			199,486			420,816			415,984
Other cost of revenues		26,148			26,198			26,077			26,848			52,225			53,046

Total cost of revenues		238,094			242,696			234,947			226,334			473,041			469,030

Gross profit		89,592			112,030			97,057			116,361			186,649			228,391

Operating expenses:
Research and development		31,985			30,412			34,001			34,079			65,986			64,491
Sales and marketing		60,569			61,368			61,198			66,405			121,767			127,773
General and administrative		25,836			27,949			26,858			25,428			52,694			53,377
Total operating expenses		118,390			119,729			122,057			125,912			240,447			245,641

Operating loss		(28,798	)		(7,699	)		(25,000	)		(9,551	)		(53,798	)		(17,250	)
Finance income (expenses), net		(3,154	)		11,195			(3,827	)		4,764			(6,981	)		15,959

Income (loss) before income taxes		(31,952	)		3,496
Income tax benefit		639			392
Net income (loss)	$	(31,313	)	$	3,888
Loss before income taxes benefit (expenses)								(28,827	)		(4,787	)		(60,779	)		(1,291	)
Income tax benefit (expenses)								(2,487	)		(234	)		(1,848	)		158
Net loss							$	(31,314	)	$	(5,021	)	$	(62,627	)	$	(1,133	)

Net income (loss) per share attributable to Ordinary and Non-voting Ordinary shareholders, basic	$	(0.09	)	$	0.02
Weighted-average shares used in computing net income (loss) per share attributable to Ordinary and Non-voting Ordinary shareholders, basic		333,424,276			247,378,428
Net income (loss) per share attributable to Ordinary and Non-voting Ordinary shareholders, diluted	$	(0.09	)	$	0.01
Weighted-average shares used in computing net income (loss) per share attributable to Ordinary and Non-voting Ordinary shareholders, diluted		333,424,276			260,036,934
Net loss per share attributable to Ordinary and Non-voting Ordinary shareholders, basic and diluted							$	(0.09	)	$	(0.02	)	$	(0.18	)	$	(0.00	)

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

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TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

U.S. dollars in thousands

	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022			2023			2022
	Unaudited						Unaudited
Net income (loss)	$	(31,313	)	$	3,888
Net loss							$	(31,314	)	$	(5,021	)	$	(62,627	)	$	(1,133	)
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale marketable securities		327			—			130			(259	)		457			(259	)
Unrealized gains (losses) on derivative instruments, net		(656	)		(230	)		199			(3,294	)		(457	)		(3,524	)
Other comprehensive income (loss)		(329	)		(230	)		329			(3,553	)		—			(3,783	)
Comprehensive income (loss)	$	(31,642	)	$	3,658
Comprehensive loss							$	(30,985	)	$	(8,574	)	$	(62,627	)	$	(4,916	)

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

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TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS’ EQUITY

U.S. dollars in thousands, except share and per share data

	Non-voting Ordinary shares				Ordinary shares				Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total shareholders’ equity			Non-voting Ordinary shares				Ordinary shares
	Number		Amount		Number		Amount		Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total shareholders’ equity			Number		Amount		Number			Amount		Treasury Ordinary shares			Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total shareholders’ equity

Balance as of January 1, 2023		—	$	—		254,133,863	$	—	$	903,789		$	(68,420	)	$	(834	)	$	834,535
Balance as of March 31, 2023 (unaudited)																						45,198,702	$	—		297,822,375		$	—	$	—		$	1,209,559		$	(99,733	)	$	(1,163	)	$	1,108,663
Share-based compensation expenses		—		—		—		—		16,734			—			—			16,734			—		—		—			—		—			17,215			—			—			17,215
Repurchase of Ordinary Shares																						—		—		(1,442,000	)		—		(4,358	)		—			—			—			(4,358	)
Exercise of options and vested RSUs		—		—		3,581,421		—		1,764			—			—			1,764			—		—		4,256,660			—		—			915			—			—			915
Issuance of Ordinary shares and Non-voting Ordinary shares related to Commercial agreement		45,198,702		—		39,525,691		—		288,063			—			—			288,063
Payments of tax withholding for share-based compensation		—		—		581,400		—		(791	)		—			—			(791	)		—		—		—			—		—			(1,117	)		—			—			(1,117	)
Other comprehensive loss		—		—		—		—		—			—			(329	)		(329	)
Other comprehensive income																						—		—		—			—		—			—			—			329			329
Net loss		—		—		—		—		—			(31,313	)		—			(31,313	)		—		—		—			—		—			—			(31,314	)		—			(31,314	)
Balance as of March 31, 2023 (unaudited)		45,198,702	$	—		297,822,375	$	—	$	1,209,559		$	(99,733	)	$	(1,163	)	$	1,108,663
Balance as of June 30, 2023 (unaudited)																						45,198,702	$	—		300,637,035		$	—	$	(4,358	)	$	1,226,572		$	(131,047	)	$	(834	)	$	1,090,333

	Ordinary shares				Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total shareholders’ equity			Ordinary shares
	Number		Amount		Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total shareholders’ equity			Number		Amount		Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total shareholders’ equity

Balance as of January 1, 2022		234,031,749	$	—	$	824,016		$	(56,445	)	$	—		$	767,571
Balance as of March 31, 2022 (unaudited)																		238,816,867	$	—	$	846,701		$	(52,557	)	$	(230	)	$	793,914
Share-based compensation expenses		—		—		20,346			—			—			20,346			—		—		20,935			—			—			20,935
Exercise of options and vested RSUs		4,785,118		—		4,184			—			—			4,184			1,863,041		—		1,905			—			—			1,905
Payments of tax withholding for share-based compensation		—		—		(1,845	)		—			—			(1,845	)		—		—		(340	)		—			—			(340	)
Other comprehensive loss		—		—		—			—			(230	)		(230	)		—		—		—			—			(3,553	)		(3,553	)
Net income		—		—		—			3,888			—			3,888
Balance as of March 31, 2022 (unaudited)		238,816,867	$	—	$	846,701		$	(52,557	)	$	(230	)	$	793,914
Net loss																		—		—		—			(5,021	)		—			(5,021	)
Balance as of June 30, 2022 (unaudited)																		240,679,908	$	—	$	869,201		$	(57,578	)	$	(3,783	)	$	807,840

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

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CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS’ EQUITY

U.S. dollars in thousands, except share and per share data

	Non-voting Ordinary shares				Ordinary shares
	Number		Amount		Number			Amount		Treasury Ordinary shares			Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total shareholders’ equity

Balance as of January 1, 2023		—	$	—		254,133,863		$	—	$	—		$	903,789		$	(68,420	)	$	(834	)	$	834,535
Share-based compensation expenses		—		—		—			—		—			33,949			—			—			33,949
Repurchase of Ordinary Shares		—		—		(1,442,000	)		—		(4,358	)		—			—			—			(4,358	)
Exercise of options and vested RSUs		—		—		7,838,081			—		—			2,679			—			—			2,679
Issuance of Ordinary shares and Non-voting Ordinary shares related to Commercial agreement		45,198,702		—		39,525,691			—		—			288,063			—			—			288,063
Payments of tax withholding for share-based compensation		—		—		581,400			—		—			(1,908	)		—			—			(1,908	)
Other comprehensive loss		—		—		—			—		—			—			—			—			—
Net loss		—		—		—			—		—			—			(62,627	)		—			(62,627	)
Balance as of June 30, 2023 (unaudited)		45,198,702	$	—		300,637,035		$	—	$	(4,358	)	$	1,226,572		$	(131,047	)	$	(834	)	$	1,090,333

	Ordinary shares
	Number		Amount		Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total shareholders’ equity

Balance as of January 1, 2022		234,031,749	$	—	$	824,016		$	(56,445	)	$	—		$	767,571
Share-based compensation expenses		—		—		41,281			—			—			41,281
Exercise of options and vested RSUs		6,648,159		—		6,089			—			—			6,089
Payments of tax withholding for share-based compensation		—		—		(2,185	)		—			—			(2,185	)
Other comprehensive loss		—		—		—			—			(3,783	)		(3,783	)
Net loss		—		—		—			(1,133	)		—			(1,133	)
Balance as of June 30, 2022 (unaudited)		240,679,908	$	—	$	869,201		$	(57,578	)	$	(3,783	)	$	807,840

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

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TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Three months ended March 31,						Six months ended June 30,
	2023			2022			2023			2022
	Unaudited						Unaudited
Cash flows from operating activities
Net income (loss)	$	(31,313	)	$	3,888
Net loss							$	(62,627	)	$	(1,133	)

Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Depreciation and amortization		22,601			22,676			45,393			45,489
Share-based compensation expenses		16,082			19,829			32,617			40,261
Net loss (gain) from financing expenses		(328	)		671
Net loss from financing expenses								236			4,316
Revaluation of the Warrants liability		(1,676	)		(14,042	)		(974	)		(26,000	)
Amortization of loan and credit facility issuance costs		500			358			891			715
Amortization of premium and accretion of discount on short-term investments, net		(281	)		—			(530	)		(137	)

Change in operating assets and liabilities:
Decrease in trade receivables, net		44,362			45,935			39,271			45,616
Decrease (increase) in prepaid expenses and other current assets and long-term prepaid expenses		721			(3,317	)		8,642			(6,350	)
Decrease in trade payables		(22,807	)		(45,864	)		(29,730	)		(52,525	)
Decrease in accrued expenses and other current liabilities and other long-term liabilities		(13,439	)		(16,544	)		1,812			(22,946	)
Increase (decrease) in deferred taxes, net		2,790			(4,086	)
Decrease in deferred taxes, net								(6,494	)		(12,476	)
Change in operating lease right of use assets		4,151			2,895			8,075			7,639
Change in operating lease liabilities		(3,839	)		(4,276	)		(7,460	)		(12,262	)
Net cash provided by operating activities		17,524			8,123			29,122			10,207

Cash flows from investing activities
Purchase of property and equipment, including capitalized internal-use software		(6,350	)		(6,902	)		(10,178	)		(16,252	)
Cash paid in connection with acquisitions, net of cash acquired		—			(620	)		—			(620	)
Investments in restricted deposits		(280	)		—
Investment in short-term deposits		—			(40,026	)
Proceeds from (investments in) restricted deposits								(341	)		10
Proceeds from sales and maturities of short-term investments		41,940			—			77,636			—
Purchase of short-term investments								(21,991	)		(74,855	)
Payments of cash in escrow for acquisition of a subsidiary		—			(2,100	)		—			(2,100	)
Net cash provided by (used in) investing activities		35,310			(49,648	)		45,126			(93,817	)

Cash flows from financing activities
Exercise of options and vested RSUs		1,335			3,399			2,456			6,032
Payment of tax withholding for share-based compensation expenses		(791	)		(1,845	)		(1,908	)		(2,185	)
Repurchase of Ordinary shares								(4,358	)		—
Repayment of long-term loan		(750	)		(750	)		(31,500	)		(1,500	)
Net cash provided by (used in) financing activities		(206	)		804			(35,310	)		2,347

Exchange rate differences on balances of cash and cash equivalents		328			(671	)		(236	)		(4,316	)

Increase (decrease) in cash and cash equivalents		52,956			(41,392	)		38,702			(85,579	)
Cash and cash equivalents - at the beginning of the period		165,893			319,319			165,893			319,319
Cash and cash equivalents - at end of the period	$	218,849		$	277,927		$	204,595		$	233,740

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

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TABOOLA.COM LTD.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

		Three months ended March 31,					Six months ended June 30,
		2023		2022			2023		2022
		Unaudited					Unaudited
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes		$	4,258	$	2,418		$	6,833	$	16,162
Interest		$	5,067	$	3,570		$	9,767	$	10,373
Non-cash investing and financing activities:
Purchase of property and equipment, including capitalized internal-use software		$	36	$	1,809		$	1,705	$	7,353
Share-based compensation included in capitalized internal-use software		$	652	$	517		$	1,332	$	1,020
Creation of operating lease right-of-use assets		$	5,045	$	—		$	5,593	$	3,107

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:-

GENERAL

Taboola.com Ltd. (together with its subsidiaries, the “Company” or “Taboola”) was incorporated under the laws of the state of Israel ~~and commenced its operations~~ on September 3, 2006.

Taboola is a technology company that powers recommendations across the Open Web with an artificial intelligence-based, algorithmic engine developed ~~over the 15 years~~ since the ~~company~~Company began operations in 2007. Taboola partners with websites, devices, and mobile apps (collectively referred to as “digital properties”), to recommend editorial content and advertisements on the Open Web. Digital properties use Taboola’s technology platforms to achieve their business goals, such as driving new audiences to their sites and apps or increasing engagement with existing audiences. Taboola also provides monetization opportunities to digital properties by surfacing paid recommendations by advertisers. Taboola is a business-to-business company with no competing consumer interests. Taboola empowers advertisers to leverage its proprietary AI-powered recommendation platform to reach targeted audiences utilizing effective, native ad-formats across digital properties. As part of the Company e-Commerce offerings, it also syndicates its retailer advertisers’ monetized product listings and links (clickable advertisements) into commerce content-oriented consumer experiences on both the Open Web and within the dominant traditional ad platforms. Taboola generates revenues when people (consumers) click on, purchase from or, in some cases, view the ads that appear within its recommendation platform. The Company’s customers are the advertisers, merchants and affiliate networks that advertise on the Company’s platform (“Advertisers”). Advertisers pay Taboola for those clicks, purchases or impressions, and Taboola shares a portion of the resulting revenue with the digital properties who display those ads.

In November 2022, the Company announced it entered into a 30-year exclusive commercial agreement (the “Commercial agreement”) with Yahoo Inc. and affiliated entities (“Yahoo”), under which Taboola will power native advertising across all of Yahoo’s digital properties, expanding the Company’s native advertising offering. In connection with this transaction, and following approval by the Company’s shareholders on December 30, 2022, the articles of association of the Company were amended and restated (the “Articles”) in their entirety to include a Non-voting Ordinary share class with an authorized share capital of 46,000,000. On January 17, 2023 (the “Transaction closing date”), the Company closed the transaction related agreements, including the issuance of 39,525,691 Ordinary Shares and 45,198,702 Non-voting Ordinary ~~Shares~~shares to Yahoo. Based on the closing share price, on January 17, 2023, of $3.4 per share, the aggregate fair value of the issued shares amounted to $288,063. As part of the Ordinary and Non-voting Ordinary shares issuance, the Company incurred $1,388 issuance expenses.

The Non-voting Ordinary shares are not entitled to vote on or receive notices with respect to any matter pursuant to our Articles and are not entitled to vote or to be counted for purposes of determining whether any vote required under the Articles has been approved by the requisite percentage of voting securities or to be counted towards any quorum required pursuant to the Articles. Except with respect to the voting rights and to the rights to receive notice of meetings of the shareholders, the Non-voting Ordinary shares ~~will~~ have rights identical to the rights of Ordinary Shares. In connection with the transaction, the Company and Yahoo entered into an Investor Rights Agreement, under which, inter alia, Yahoo is entitled, in certain circumstances, to cause the Company to register the Ordinary Shares issued to Yahoo for resale under the Securities Act of 1933, as amended.

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

~~NOTE 1:-~~

~~GENERAL (Cont.)~~

On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) took control of Silicon Valley Bank (“SVB”) and created the National Bank of Santa Clara, which appointed the FDIC as a receiver to hold the deposits of SVB after SVB was unable to continue their operations. SVB’s deposits are insured by the FDIC in amount up to $250 for any depositor and any deposit in excess of this insured amount could be lost. On March 12, 2023, the U.S. Treasury, Federal Reserve and FDIC announced that SVB depositors would have access to all of their money starting March 13, 2023 and the FDIC announced that all of SVB’s deposits and substantially all of its assets had been transferred to a newly created, full-service FDIC-operated bridge bank, Silicon Valley Bridge Bank, N.A (“SVBB”). On March 27, 2023, First Citizens Bank & Trust Company (“First Citizens Bank”) purchased and assumed all deposits and loans of SVBB. As a result, all of the Company’s deposits that were at SVB are now with First Citizens Bank. As of March 31, 2023, the Company maintains immaterial amounts of cash held by First Citizens Bank and has access to all of its cash and cash equivalents and does not expect losses or material disruptions to its ongoing operations. The Company does not have any other material relationships with SVB.

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of Taboola.com Ltd. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited consolidated financial statements as of that date, but does not include all of the disclosures, including certain notes required by GAAP on an annual reporting basis. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

Therefore, these unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2022, filed with the SEC on March 13, 2023.

In the opinion of the Company’s management, the unaudited consolidated interim financial statements have been prepared on a basis consistent with the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s unaudited interim consolidated financial statements. The results of operations for the three and six months ended ~~March 31,~~June 30, 2023, are not necessarily indicative of the results to be expected for the full year ending December 31, 2023, or any other future interim or annual period.

Use of Estimates

The preparation of the interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the interim consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period and accompanying notes. Actual results could differ from those estimates.

~~Table of Contents~~

~~TABOOLA.COM LTD.~~

~~NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

~~NOTE 2:-~~

~~SIGNIFICANT ACCOUNTING POLICIES (Cont.)~~

The Company’s management regularly evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination of revenue reporting as gross versus net in the Company’s revenue arrangements, (2) allowances for credit losses, (3) operating lease assets and liabilities, including the incremental borrowing rate and terms and provisions of each lease (4) the useful lives of its ~~commercial~~Commercial agreement asset, property and equipment and capitalized software development costs, (5) income taxes, (6) assumptions used in the option pricing models to determine the fair value of share-based compensation (7) the fair value of financial assets and liabilities, including the fair value of marketable securities, Private Warrants and derivative instruments (8) the fair value of acquired intangible assets and goodwill annual impairment test, and (9) the recognition and disclosure of contingent liabilities.

These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances; the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Table of Contents

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

As of ~~March 31,~~June 30, 2023, the impacts to the Company’s business due to geopolitical developments and macroeconomic factors, such as rising interest rates, inflation and changes in foreign currency exchange rates, continue to evolve. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.

Significant Accounting Policies

The Company’s significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2022, as filed with the SEC on March 13, 2023. There have been no significant changes to these policies during the ~~three~~six months ended ~~March 31,~~June 30, 2023, except as noted below.

Treasury Ordinary Shares

The Company may repurchase its Ordinary shares from time to time in the open market, or in other transactions, and holds such shares as treasury Ordinary shares. The Company presents the cost to repurchase treasury Ordinary shares as a separate component and as a reduction of shareholders’ equity.

The Company may reissue treasury Ordinary shares from time to time for various corporate purposes, including in connection with compensatory awards.

Reclassification

Certain amounts in the corresponding prior periods have been reclassified to conform with the current year’s presentation. Such reclassifications did not affect net ~~income (loss),~~loss, changes in the shareholders’ equity or cash flows.

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 3:-

CASH AND CASH EQUIVALENTS

The following table presents for each reported period, the breakdown of cash and cash equivalents:

	March 31,		December 31,		June 30,		December 31,
	2023		2022		2023		2022
	Unaudited				Unaudited

Cash	$	142,766	$	142,127	$	112,179	$	142,127
Money market accounts and funds		71,717		22,583		88,911		22,583
Time deposits		4,366		1,183		3,505		1,183

Total Cash and cash equivalents	$	218,849	$	165,893	$	204,595	$	165,893

NOTE 4:4:-

FAIR VALUE MEASUREMENTS

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level to classify them for each reporting period. The Company did not have any transfers between fair value measurements levels in the ~~three~~six months ended ~~March 31,~~June 30, 2023.

The following table sets forth the Company’s assets and liabilities that were measured at fair value as of ~~March 31,~~June 30, 2023 and December 31, 2022, by level within the fair value hierarchy:

		Fair value measurements as of							Fair value measurements as of
Description	Fair Value Hierarchy	March 31, 2023			December 31, 2022			Fair Value Hierarchy	June 30, 2023			December 31, 2022
		Unaudited							Unaudited
Assets:
Cash equivalents:
Money market accounts and funds	Level 1	$	71,717		$	22,583		Level 1	$	88,911		$	22,583
Short-term investments:
Corporate debt securities								Level 2	$	23,099		$	21,636
U.S. agency bonds								Level 2	$	8,249		$	20,491
Commercial paper								Level 2	$	6,472		$	8,565
U.S. government treasuries	Level 2	$	17,378		$	46,222		Level 2	$	4,436		$	46,222
Corporate debt securities	Level 2	$	16,028		$	21,636
U.S. Agency bonds	Level 2	$	15,731		$	20,491
Commercial paper	Level 2	$	6,445		$	8,565


Liabilities:
Warrants liability:
Public Warrants	Level 1	$	(2,364	)	$	(2,856	)	Level 1	$	(2,740	)	$	(2,856	)
Private Warrants	Level 3	$	(2,716	)	$	(3,900	)	Level 3	$	(3,042	)	$	(3,900	)
Derivative instruments liability:
Derivative instruments designated as cash flow hedging instruments	Level 2	$	(969	)	$	(313	)	Level 2	$	(770	)	$	(313	)

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 4:4:-

FAIR VALUE MEASUREMENTS (Cont.)

The Company classifies its money market accounts and funds as Level 1 based on quoted market prices in active markets.

The Company classifies its U.S. government treasuries, corporate debt securities, commercial paper, U.S. agency bonds and derivative financial instruments within Level 2 as they are valued using inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded.

The Company measures the fair value for Warrants by using a quoted price for the Public Warrants, which are classified as Level 1, and a Black-Scholes simulation model for the Private Warrants, which are classified as Level 3, due to the use of unobservable inputs.

The key inputs into the Black-Scholes model for the Private Warrants were as follows:

Input	March 31, 2023			December 31, 2022			June 30, 2023			December 31, 2022

Risk-free interest rate		3.71% - 3.86	%		4.08% - 4.18	%		4.39% - 4.66	%		4.08% - 4.18	%
Expected term (years)		2.51 - 3.25			2.75 - 3.50			2.26 - 3.00			2.75 - 3.50
Expected volatility		67.6% - 69.8	%		67.5% - 69.3	%		70.8% - 73.0	%		67.5% - 69.3	%
Exercise price	$	11.50		$	11.50		$	11.50		$	11.50
Underlying Stock Price	$	2.72		$	3.08
Underlying share price							$	3.11		$	3.08

The Company’s use of a Black-Scholes model required the use of subjective assumptions:

●

The risk-free interest rate assumption was interpolated based on constant maturity U.S. Treasury rates over a term commensurate with the expected term of the Private Warrants.

●

The expected term was based on the maturity of the Private Warrants of five years following June 29, 2021, the Business Combination date (as defined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 13, 2023), and for certain Private Warrants the maturity date was determined to be five years from October 1, 2020, ION initial public offering effective date.

●

The expected share volatility assumption was based on the implied volatility from a set of comparable publicly-traded companies as determined based on size and proximity.

The following table presents the changes in the fair value of Warrants liability:

	Private			Public			Total			Private			Public			Total
Input	Warrants			Warrants			Warrants			Warrants			Warrants			Warrants

Fair value as of December 31, 2022	$	3,900		$	2,856		$	6,756		$	3,900		$	2,856		$	6,756
Change in fair value		(1,184	)		(492	)		(1,676	)		(858	)		(116	)		(974	)
Fair value as of March 31, 2023 (unaudited)	$	2,716		$	2,364		$	5,080
Fair value as of June 30, 2023 (unaudited)										$	3,042		$	2,740		$	5,782

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 11:-

COMMITMENTS AND CONTINGENCIES

Commercial Commitments

In the ordinary course of the business, the Company enters into agreements with certain digital properties, under which, in some cases it agrees to pay them a guaranteed amount, generally per thousand page views on a monthly basis. These agreements could cause a gross loss on digital property accounts in which the guarantee is higher than the actual revenue generated. These contracts generally range in duration from 2 to 5 years, though some can be shorter or longer.

Non-cancelable Purchase Obligations

In the normal course of business, the Company enters into non-cancelable purchase commitments with various parties to purchase primarily software and IT related-based services. As of ~~March 31,~~June 30, 2023, the Company had outstanding non-cancelable purchase obligations in the amount of ~~$24,136.~~$24,645.

Legal Proceedings

In April 2021, the Company became aware that the Antitrust Division of the U.S. Department of Justice is conducting a criminal investigation of hiring activities in the Company’s industry, including the Company. The Company ~~is cooperating~~cooperated with the Antitrust Division. ~~While there can be no assurances as~~

In July 2023, subsequent to the ~~ultimate outcome,~~interim balance sheet date, the Company ~~does not believe~~was notified in writing by the Antitrust Division of the U.S. Department of Justice that ~~its conduct violated applicable law.~~it was no longer a subject or target of the previously disclosed criminal investigation of hiring activities in the Company’s industry, including the Company.

Table of Contents

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 11:-

COMMITMENTS AND CONTINGENCIES (Cont.)

In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes, or claims. The Company investigates these claims as they arise and ~~record~~records a provision, as necessary. Provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Although claims are inherently unpredictable, the Company is currently not aware of any matters that, it believes would individually or taken together, have a material adverse effect on its business, financial position, results of operations, or cash flows.

~~Table of Contents~~

~~TABOOLA.COM LTD.~~

~~NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS~~

~~U.S. dollars in thousands, except share and per share data~~

NOTE 12:-

RELATED PARTY BALANCES AND TRANSACTIONS

The Company is a party to certain transaction related agreements with Yahoo, pursuant to which the Company issued 39,525,691 Ordinary Shares and 45,198,702 Non-voting Ordinary shares to Yahoo, and granting Yahoo the right to appoint one representative to the Company’s board of directors, resulting in Yahoo to become a principal shareholder effective the Transaction closing on January 17, 2023 (see Note 1b).

Prior to 2023, the Company and its affiliates entered into agreements in the ordinary course of business with Yahoo and its affiliates. In connection with these agreements, for the three and six months ended ~~March 31,~~June 30, 2023 (including the portion prior to the Transaction closing date), the Company recorded revenues from Yahoo or its affiliates in the amount of ~~$7,114.~~$7,190 and $14,304, respectively. As of ~~March 31,~~June 30, 2023, in regards to Yahoo and its affiliates, the Company’s balances of trade receivables were ~~$5,333,~~$5,085, and its balances of trade payables were ~~$6,399.~~$5,926 associated with the Company’s payments to digital properties on revenues presented on a net basis.

The Company and Yahoo, pursuant to the Omnibus Agreement entered into on November 28, 2022, each agreed to pay certain expenses in connection with the Transaction and each party agreed to reimburse the other for some or all of these expenses. Under these arrangements, the Company recognized $2,623 expenses, net in the three and six months ended June 30, 2023.

NOTE 13:-

GEOGRAPHIC INFORMATION

The following table represents total revenue by geographic area based on the Advertisers’ billing address:

	Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022		2023		2022
	Unaudited				Unaudited
Israel	$	57,626	$	50,694	$	48,970	$	49,102	$	106,597	$	99,796
United States		112,904		134,686		125,803		129,531		238,707		264,217
Germany		30,775		38,392		30,662		29,093		61,437		67,485
United Kingdom		17,711		18,544		17,506		19,401		35,216		37,945
Rest of the world		108,670		112,410		109,063		115,568		217,733		227,978
Total	$	327,686	$	354,726	$	332,004	$	342,695	$	659,690	$	697,421

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TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 14:-

NET ~~INCOME (LOSS)~~LOSS PER SHARE ATTRIBUTABLE TO ORDINARY SHAREHOLDERS

Three months ended
March 31,

2023
2022

Ordinary
shares

Non-voting
Ordinary
shares

Ordinary
shares

Non-voting
Ordinary
shares

Unaudited

Numerator:
Net income (loss) attributable to Ordinary shareholders, basic and diluted

$
(27,870
)
$
(3,443 )
$
3,888

$
—

Denominator:
Weighted-average shares used in computing net income (loss) per share attributable to Ordinary shareholders, basic

296,763,107
36,661,169
247,378,428

—

Weighted-average shares used in computing net income (loss) per share attributable to Ordinary shareholders, diluted 296,763,107 36,661,169 260,036,934 —

Net income (loss) per share attributable to Ordinary and non-voting Ordinary shareholders, basic

$
(0.09
)
$
(0.09 )
$
0.02

$
—

Net income (loss) per share attributable to Ordinary and non-voting Ordinary shareholders, diluted $
(0.09 ) $
(0.09 ) $
0.01 $
—

	Three months ended June 30,											Six months ended June 30,
	2023						2022					2023					2022
	Ordinary shares			Non-voting Ordinary shares			Ordinary shares			Non-voting Ordinary shares		Ordinary shares			Non-voting Ordinary shares		Ordinary shares			Non-voting Ordinary shares
	Unaudited

Numerator:
Net loss attributable to Ordinary shareholders, basic and diluted	$	(27,288	)	$	(4,026	)	$	(5,021	)	$	—	$	(55,138	)	$	(7,489)	$	(1,333	)	$	—

Denominator:
Weighted-average shares used in computing net loss per share attributable to Ordinary shareholders, basic		306,386,357			45,198,702			250,777,915			—		301,537,937			40,953,520		249,095,931			—
Weighted-average shares used in computing net loss per share attributable to Ordinary shareholders, diluted		306,386,357			45,198,702			250,777,915			—		301,537,937			40,953,520		249,095,931			—

Net loss per share attributable to Ordinary and non-voting Ordinary shareholders, basic	$	(0.09	)	$	(0.09	)	$	(0.02	)	$	—	$	(0.18	)	$	(0.18)	$	(0.00	)	$	—
Net loss per share attributable to Ordinary and non-voting Ordinary shareholders, diluted	$	(0.09	)	$	(0.09	)	$	(0.02	)	$	—	$	(0.18	)	$	(0.18)	$	(0.00	)	$	—

The potential shares of Ordinary Shares that were excluded from the computation of diluted net loss per share attributable to Ordinary ~~and Non-voting Ordinary~~ shareholders for the periods presented because including them would have been anti-dilutive are as follows:

	Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022		2023		2022
	Unaudited				Unaudited

Warrants		12,349,990		12,349,990		12,349,990		12,349,990		12,349,990		12,349,990
RSUs		28,550,688		10,645,660		26,949,979		21,964,961		26,949,979		21,320,295
Outstanding share options		28,449,625		20,000		27,309,646		38,563,838		27,309,646		38,563,838
Issuable Ordinary Shares related to Business Combination under holdback arrangement		1,704,406		3,681,030		1,744,192		3,681,030		1,744,192		3,681,030
Total		71,054,709		26,696,680		68,353,807		76,559,819		68,353,807		75,915,153

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Item 2.

~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with Taboola’s accompanying unaudited interim consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q for the three and six months ended ~~March 31,~~June 30, 2023 (the “Quarterly Report”) and audited consolidated financial statements and the related notes appearing in our Annual Report on Form 10-K for the year ended December 31, 2022 (the ~~(the "Annual Report"~~“Annual Report”)filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 13, 2023. Some of the information contained in this discussion and analysis is set forth in our Annual Report on Form 10-K, including information with respect to Taboola’s plans and strategy for Taboola’s business, and includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth inPart I, Item 1A~~“Risk~~ “Risk Factors” in our Annual Report and “Note Regarding Forward-Looking Statements” in our Annual Report and elsewhere herein, Taboola’s actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Throughout this section, unless otherwise noted or the context requires otherwise, “we,” “us,” “our” and the “Company” refer to Taboola and its consolidated subsidiaries, and in references to monetary amounts, “dollars” and “$” refer to U.S. Dollars, and “NIS” refers to New Israeli Shekels.

Overview

Taboola is a technology company that powers recommendations across the Open Web with an artificial intelligence, or AI-based, algorithmic engine that we have developed ~~over~~since the ~~past 15 years.~~Company began operations in 2007. Taboola has also recently expanded more directly into e-Commerce, allowing its partners with digital properties the ability to use its platforms to display advertising suited to the audiences of those partners’ web sites or other digital services.

We think of ourselves as a search engine, but in reverse — instead of expecting people to search for information, we recommend information to people or enable our partners to use our technology. You’ve seen us before: we partner with websites, devices, and mobile apps, which we collectively refer to as digital properties, to recommend editorial content and advertisements on the Open Web, outside of the closed ecosystems of the walled gardens such as Facebook, Google, and Amazon.

Digital properties use our technology platforms to achieve their business goals, such as driving new audiences to their sites and apps, or increasing engagement on site — and we don’t charge them for these services. We also provide a meaningful monetization opportunity to digital properties by surfacing paid recommendations by Advertisers. Unlike walled gardens, we are a business-to-business, or B2B, company with no competing consumer interests. We only interact with consumers through our partners’ digital properties, hence we do not compete with our partners for user attention. Our motivations are aligned. When our partners win, we win, and we grow together.

We empower Advertisers to leverage our proprietary AI-powered recommendation platform to reach targeted audiences utilizing effective, native ad formats across digital properties. We generate revenues primarily when people (consumers) click on, purchase from or, in some cases, view the ads that appear within our partners’ digital experiences via our recommendation platform. Advertisers pay us for those clicks, purchases or impressions, and we share the resulting revenue with the digital properties who display those ads and generate those clicks and downstream consumer actions.

Our powerful recommendation platform was built to address a technology challenge of significant complexity: predicting which recommendations users would be interested in, without explicit intent data or social media profiles. Search advertising platforms have access, at a minimum, to users’ search queries which indicate intent, while social media advertising platforms have access to rich personal profiles created by users. In contrast, we base our recommendations on an extensive dataset of context and user behavior derived from the intersection of thousands of digital properties and millions of recommended items, including ads and editorial content.

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Yahoo Partnership

In November 2022, we announced we had entered into a 30-year exclusive commercial agreement with Yahoo, under which we will power native advertising across all of Yahoo’s digital properties, expanding our native advertising offering. In January 2023 we closed on the various related agreements, including the issuance of 39,525,691 Ordinary Shares and 45,198,702 Non-Voting Ordinary Shares to Yahoo. ~~See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.~~

Key Factors and Trends Affecting our Performance

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and those referred to in Part II, Item 1A, “Risk Factors.”

Business and Macroeconomic Conditions

Global economic and geopolitical conditions have been increasingly volatile due to factors such as the war in Ukraine, inflation, rising interest rates and supply chain ~~disruptions and the prolonged COVID-19 pandemic which has impacted and may continue to impact certain regions.~~disruptions. The economic uncertainty resulting from these factors has negatively impacted advertising demand and our yields. Further, the impacts of inflation, which persisted throughout 2022 and the first ~~quarter~~half of 2023, has increased the costs of equipment and labor needed to operate our business and could continue to adversely affect us in future periods. These factors, among others, including continued supply chain disruptions, make it difficult for us and our Advertisers to accurately forecast and plan future business activities, and could cause our Advertisers to reduce or delay their advertising spending with us, which, in turn, could have an adverse impact on our business, financial condition and results of operations. We are monitoring these macroeconomic conditions closely and may continue to take actions in response to such conditions to the extent they adversely affect our business.

Cost Restructuring Program

In September 2022, in response to macroeconomic conditions, the Company announced and implemented a cost restructuring program impacting approximately 6% of the Company’s global headcount.

Maintaining and Growing Our Digital Property Partners

We engage with a diverse network of digital property partners, substantially all of which have contracts with us containing either an evergreen term or an exclusive partnership with us for multi-year terms at inception. These agreements typically require that our code be integrated on the digital property web page because of the nature of providing both editorial and paid recommendations. This means that in the vast majority of our business, we do not bid for ad placements, as traditionally happens in the advertising technology space, but rather see all users that visit the pages on which we appear. Due to our multi-year exclusive contracts and high retention rates, our supply is relatively consistent and predictable. We had approximately 15,000, 16,000 and 9,000 digital property partners in the fourth quarter of 2022, 2021 and 2020, respectively. In 2022, we saw a decrease in the number of long-tail digital property partners on our network, partially due to our own efforts to clean up our network and reduce low performing networks. Despite the decrease in the number of digital property partners on the network, our overall volume of page views went up over 20% from Q4 2021 to Q4 2022, demonstrating that the decrease in the number of digital property partners in our network was driven by smaller digital property partners and more than offset by the addition of larger digital property partners.

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Historically, we have had a strong record of growing the revenue generated from our digital property partners. We grow our digital property partner relationships in four ways. First, we grow the revenue from these partnerships by increasing our yield over time. We do this by improving our algorithms, expanding our Advertiser base and increasing the amount of data that helps target our ads. Second, we continuously innovate with new product offerings and features that increase revenue. Third, we innovate by launching new advertising formats. Fourth, we work closely with our digital property partners to find new placements and page types where we can help them drive more revenue.

For the majority of our digital properties partners, we have two primary models for sharing revenue with digital property partners. The most common model is a straight revenue share model. In this model, we agree to pay our partner a percentage of the revenue that we generate from advertisements placed on their digital properties. The second model includes guarantees. Under this model, we pay our partners the greater of a fixed percentage of the revenue we generate and a guaranteed amount per thousand page views. In the past, we have and may continue to be required to make significant payments under these guarantees.

Growing Our Advertiser Client Base

We have a large and growing network of Advertisers, across multiple verticals. We had approximately 18,000, 15,000 and 13,000 Advertiser clients working with us directly, or through advertising agencies, worldwide during the fourth quarter of 2022, 2021 and 2020, respectively. A large portion of our revenue comes from Advertisers with specific performance goals, such as obtaining subscribers for email newsletters or acquiring leads for product offerings. These performance Advertisers use our service when they obtain a sufficient return on ad spend to justify their ad spend. We grow the revenue from performance Advertisers in three ways. First, we improve the performance of our network by developing new product features, improving our algorithms and optimizing our supply. Second, we secure increased budgets from existing Advertisers by offering new ad formats and helping them achieve additional goals. Third, we grow our overall Advertiser base by bringing on new Advertisers that we have not worked with previously. In addition to our core performance Advertisers, video brand Advertisers are a small but growing portion of our revenue.

Improving Network Yield

One way that we grow our revenue is by increasing the yield on our network, which is a general term for the revenue that we make per advertising placement. Because we generally fill close to 100% of advertising impressions available, yield is generally not affected by changing fill rates, but rather is impacted in four ways. First, we increase our yield by improving the algorithms that select the right ad for a particular user in a particular context. These algorithms are based on Deep Learning technology and are a key competitive advantage. Second, we continuously innovate and develop new product offerings and features for Advertisers, which help increase their success rates on our network and improve yield. Third, as we grow our Advertiser base and mix of Advertisers, including adding Advertisers able to pay higher rates, our yields increase because of increasing competitive pressure in our auction. Finally, we increase our yield by optimizing the way we work with digital properties, including changing formats and placements. Increasing yield drives higher revenues on all digital property partners. Increasing yield also generally increases margins for ex-TAC Gross Profit, a non-GAAP measure, for those digital property partners to whom we are paying guarantees. In periods of slower growth or periods of economic stress advertising demand may decline causing a decrease in yields despite our efforts.

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Product and Research and Development

We view research and development expenditures as investments that help grow our business over time. These investments, which are primarily in the form of employee salaries and related expenditures and hardware infrastructure, can be broken into two categories. This first category includes product innovations that extend the capabilities of our current product offerings and help us expand into completely new markets. This includes heavy investment in AI (specifically Deep Learning) in the form of server purchases and expenses for data scientists. This category of investment is important to maintain the growth of the business but can also generally be adjusted up or down based on management’s perception of the potential value of different investment options. The second category of investments are those that are necessary to maintain our core business. These investments include items such as purchasing servers and other infrastructure necessary to handle increasing loads of recommendations that need to be served, as well as the people necessary to maintain the value delivered to our customers and digital property partners, such as investments in code maintenance for our existing products. This type of investment scales at a slower rate than the growth of our core business.

Managing Seasonality

The global advertising industry has historically been characterized by seasonal trends that also apply to the digital advertising ecosystem in which we operate. In particular, Advertisers have historically spent relatively more in the fourth quarter of the calendar year to coincide with the year-end holiday shopping season, and relatively less in the first quarter. We expect these seasonality trends to continue, and our operating results will be affected by those trends with revenue and margins being seasonally strongest in the fourth quarter and seasonally weakest in the first quarter.

Privacy Trends and Government Regulation

We are subject to U.S. and international laws and regulations regarding privacy, data protection, digital advertising and the collection of user data. In addition, large Internet and technology companies such as Google and Apple are making their own decisions as to how to protect consumer privacy, which impacts the entire digital ecosystem. Because we power editorial recommendations, digital properties typically embed our code directly on their web pages. This makes us less susceptible to impact by many of these regulations and industry trends because we are able to drop first party cookies. In addition, because of this integration on our partners’ pages, we have rich contextual information to use to further refine the targeting of our recommendations.

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Key Financial and Operating Metrics

We regularly monitor a number of metrics in order to measure our current performance and project our future performance. These metrics aid us in developing and refining our growth strategies and making strategic decisions.

(dollars in thousands, except per share data)	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022			2023			2022
	Unaudited						Unaudited
Revenues	$	327,686		$	354,726		$	332,004		$	342,695		$	659,690		$	697,421
Gross profit	$	89,592		$	112,030		$	97,057		$	116,361		$	186,649		$	228,391
Net income (loss)	$	(31,313	)	$	3,888
Net loss							$	(31,314	)	$	(5,021	)	$	(62,627	)	$	(1,133	)
EPS diluted (1)	$	(0.09	)	$	0.01		$	(0.09	)	$	(0.02	)	$	(0.18	)	$	(0.00	)
Ratio of net income (loss) to gross profit		(35.0	%)		3.5	%
Ratio of net loss to gross profit								(32.3	%)		(4.3	%)		(33.6	%)		(0.5	%)
Cash flow provided by operating activities	$	17,524		$	8,123		$	11,598		$	2,084		$	29,122		$	10,207
Cash, cash equivalents, short-term deposits and investments	$	274,431		$	317,953		$	246,851		$	308,473		$	246,851		$	308,473

Non-GAAP Financial Data (2)
ex-TAC Gross Profit	$	115,740		$	138,228		$	123,134		$	143,209		$	238,874		$	281,437
Adjusted EBITDA	$	10,122		$	34,856		$	15,661		$	34,168		$	25,783		$	69,024
Non-GAAP Net Income (Loss) ~~(3)~~	$	(4,101	)	$	22,095		$	(1,406	)	$	15,794		$	(5,507	)	$	37,889
Ratio of Adjusted EBITDA to ex-TAC Gross Profit		8.7	%		25.2	%		12.7	%		23.9	%		10.8	%		24.5	%
Free Cash Flow	$	11,174		$	1,221		$	7,770		$	(7,266	)	$	18,944		$	(6,045	)

(1)

The weighted-average shares used in the computation of the diluted EPS for the three months ended ~~March 31,~~June 30, 2023 and 2022 are ~~333,424,276~~351,585,059 and ~~260,036,934,~~250,777,915, respectively, and for the six months ended June 30, 2023 and 2022 are 342,491,457 and 249,095,931, respectively. The weighted-average shares for the three and six months ended June 30, 2023 include 45,198,702 Non-Voting Ordinary Shares.

(2)	Refer to “Non-GAAP Financial Measures” below for an explanation and reconciliation to GAAP metrics.

~~(3)~~

~~Three months ended March 31, 2022 have been adjusted to exclude the impact of foreign currency exchange rates to be consistent with current period presentation.~~

Revenues

All of our Revenues are generated from Advertisers with whom we enter into commercial arrangements, defining the terms of our service and the basis for our charges. Generally, our charges are based on a CPC, CPM or CPA basis. For campaigns priced on a CPC basis, we recognize these Revenues when a user clicks on an advertisement we deliver. For campaigns priced on a CPM basis, we recognize these Revenues when an advertisement is displayed. For campaigns priced on a performance-based CPA basis, the Company generates revenue when a user makes an acquisition. Certain revenues are recognized net of traffic acquisition costs.

Gross profit

Gross profit is calculated as presented on our consolidated statements of income (loss) for the periods presented.

Net income (loss)

Net income (loss) is calculated as presented on our consolidated statement of income (loss) for the periods presented.

EPS diluted

EPS diluted is calculated as presented on our consolidated statements of income (loss) for the periods presented.

Ratio of net income (loss) to gross profit

We calculate Ratio of net income (loss) to gross profit as net income (loss) divided by gross profit.

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Cash flow provided by operating activities

Net cash provided by our operating activities is calculated as presented on our consolidated statements of cash flows for the periods presented.

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Cash, cash equivalents, short-term investments and deposits

Cash equivalents are short-term highly liquid marketable securities investments, money market account and funds, commercial paper and corporate debt securities, with an original maturity of three months or less at the date of purchase and are readily convertible to known amounts of cash.

Short-term investments consisted of marketable securities classified as available-for-sale at the time of purchase.

Short-term deposits are bank deposits with maturities of more than three months but less than one year.

ex-TAC Gross Profit

We calculate ex-TAC Gross Profit as gross profit adjusted to add back other cost of revenues.

Adjusted EBITDA

We calculate Adjusted EBITDA as net income (loss) before finance income (expenses), net, income tax expenses, depreciation and amortization, further adjusted to exclude share-based compensation including Connexity holdback compensation expenses and other noteworthy income and expense items such as M&A costs and restructuring costs which may vary from period-to-period.

Non-GAAP Net Income (Loss)

We calculate Non-GAAP Net Income (Loss) as net income (loss) adjusted to exclude revaluation of our Warrants liability, share-based compensation expense including Connexity holdback compensation expenses, M&A costs and amortization of acquired intangible assets, foreign currency exchange rate gains (losses), net, and other noteworthy items that change from period to period and related tax effects.

Ratio of Adjusted EBITDA to ex-TAC Gross Profit

We calculate Ratio of Adjusted EBITDA to ex-TAC Gross Profit as Adjusted EBITDA divided by ex-TAC Gross Profit.

Free Cash Flow

We calculate Free Cash Flow as Net cash flow provided by operating activities minus purchases of property, plant and equipment, including capitalized internal-use software. We expect our Free Cash Flow to fluctuate in future periods as we invest in our business to support our plans for growth.

Non-GAAP Financial Measures

We are presenting the following non-GAAP financial measures because we use them, among other things, as key measures for our management and board of directors in managing our business and evaluating our performance. We believe they also provide supplemental information that may be useful to investors. The use of these measures may improve comparability of our results over time by adjusting for items that may vary from period to period or not be representative of our ongoing operations.

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These non-GAAP measures are subject to significant limitations, including those identified below. In addition, other companies may use similarly titled measures but calculate them differently, which reduces their usefulness as comparative measures. Non-GAAP measures should not be considered in isolation or as a substitute for GAAP measures. They should be considered as supplementary information in addition to GAAP operating, liquidity and financial performance measures.

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ex-TAC Gross Profit

We believe that ex-TAC Gross Profit is useful because traffic acquisition cost, or TAC, is what we must pay digital properties to obtain the right to place advertising on their websites, and we believe focusing on ex-TAC Gross Profit better reflects the profitability of our business. We use ex-TAC Gross Profit as part of our business planning, for example in decisions regarding the timing and amount of investments in areas such as infrastructure.

Limitations on the use of ex-TAC Gross Profit include the following:

●

Traffic acquisition cost is a significant component of our cost of revenues but is not the only component; and

●

ex-TAC Gross Profit is not comparable to our gross profit and by definition ex-TAC Gross Profit presented for any period will be higher than our gross profit for that period.

The following table provides a reconciliation of revenues and gross profit to ex-TAC Gross Profit:

	Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022		2023		2022
	(dollars in thousands)				(dollars in thousands)
Revenues	$	327,686	$	354,726	$	332,004	$	342,695	$	659,690	$	697,421
Traffic acquisition cost		211,946		216,498		208,870		199,486		420,816		415,984
Other cost of revenues		26,148		26,198		26,077		26,848		52,225		53,046
Gross profit	$	89,592	$	112,030	$	97,057	$	116,361	$	186,649	$	228,391
Add back: Other cost of revenues		26,148		26,198		26,077		26,848		52,225		53,046
ex-TAC Gross Profit	$	115,740	$	138,228	$	123,134	$	143,209	$	238,874	$	281,437

Adjusted EBITDA and Ratio of Adjusted EBITDA to ex-TAC Gross Profit

We believe that Adjusted EBITDA is useful because it allows us and others to measure our performance without regard to items such as share-based compensation expense, depreciation and amortization, and interest expense and other items that can vary substantially depending on our financing and capital structure, and the method by which assets are acquired. We use Adjusted EBITDA and GAAP financial measures for planning purposes, including the preparation of our annual operating budget, as a measure of performance and the effectiveness of our business strategies, and in communications with our board of directors. We may also use Adjusted EBITDA as a metric for determining payment of cash or other incentive compensation. Limitations on the use of Adjusted EBITDA include the following:

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●

~~although~~Although depreciation expense is a non-cash charge, the assets being depreciated may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

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●

Adjusted EBITDA excludes share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;

●

Adjusted EBITDA does not reflect, to the extent applicable for a period presented: (1) changes in, or cash requirements for, our working capital needs; (2) interest expense, or the cash requirements necessary to service interest or if applicable principal payments on debt, which reduces cash available to us; or (3) tax payments that may represent a reduction in cash available to us; and

●

The expenses and other items that we exclude in our calculation of Adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from Adjusted EBITDA when they report their operating results.

	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022			2023			2022
	(dollars in thousands)						(dollars in thousands)
Net income (loss)	$	(31,313	)	$	3,888
Net loss							$	(31,314	)	$	(5,021	)	$	(62,627	)	$	(1,133	)
Adjusted to exclude the following:
Finance (income) expenses, net		3,154			(11,195	)		3,827			(4,764	)		6,981			(15,959	)
Income tax benefit		(639	)		(392	)
Income tax (benefit) expenses								2,487			234			1,848			(158	)
Depreciation and amortization		22,601			22,676			22,792			22,813			45,393			45,489
Share-based compensation expenses		13,527			17,039			13,890			17,640			27,417			34,679
Holdback compensation expenses (1)		2,555			2,790			2,645			2,792			5,200			5,582
M&A and other costs (2)		237			50			1,334			474			1,571			524
Adjusted EBITDA	$	10,122		$	34,856		$	15,661		$	34,168		$	25,783		$	69,024

(1)

Represents share-based compensation due to holdback of Taboola Ordinary Shares issuable under compensatory arrangements relating to Connexity acquisition.

(2)

Includes ~~commercial agreement asset acquisition costs.~~one-time costs related to the Commercial agreement.

We believe that the Ratio of Adjusted EBITDA to ex-TAC Gross Profit is useful because TAC is what we must pay digital properties to obtain the right to place advertising on their websites, and we believe focusing on ex-TAC Gross Profit better reflects the profitability of our business.

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The following table reconciles ratio of net ~~income (loss)~~loss to gross profit and Ratio of Adjusted EBITDA to ex-TAC Gross Profit:

	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022			2023			2022
	(dollars in thousands)						(dollars in thousands)
Gross profit	$	89,592		$	112,030		$	97,057		$	116,361		$	186,649		$	228,391
Net income (loss)	$	(31,313	)	$	3,888
Ratio of net income (loss) to gross profit		(35.0	%)		3.5	%
Net loss							$	(31,314	)	$	(5,021	)	$	(62,627	)	$	(1,133	)
Ratio of net loss to gross profit								(32.3	%)		(4.3	%)		(33.6	%)		(0.5	%)

ex-TAC Gross Profit	$	115,740		$	138,228		$	123,134		$	143,209		$	238,874		$	281,437
Adjusted EBITDA	$	10,122		$	34,856		$	15,661		$	34,168		$	25,783		$	69,024
Ratio of Adjusted EBITDA margin to ex-TAC Gross Profit		8.7	%		25.2	%		12.7	%		23.9	%		10.8	%		24.5	%

Non-GAAP Net Income (Loss)

We believe that Non-GAAP Net Income (Loss) is useful because it allows us and others to measure our operating performance and trends without regard to items such as the revaluation of our Warrants liability, share-based compensation expense, cash and non-cash M&A costs including amortization of acquired intangible assets, foreign currency exchange rate (gains) losses, net and other noteworthy items that change from period to period and related tax effects. These items can vary substantially depending on our share price, acquisition activity, the method by which assets are acquired and other factors. Limitations on the use of Non-GAAP Net Income (Loss) include the following:

●

Non-GAAP Net Income (Loss) excludes share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;

●

Non-GAAP Net Income (Loss) will generally be more favorable than our net income (loss) for the same period due to the nature of the items being excluded from its calculation; and

●

Non-GAAP Net Income (Loss) is a performance measure and should not be used as a measure of liquidity.

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The following table reconciles net income (loss) to Non-GAAP Net Income (Loss) for the periods ~~shown*:~~shown:

	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022			2023			2022
	(dollars in thousands)						(dollars in thousands)
Net income (loss)	$	(31,313	)	$	3,888
Net loss							$	(31,314	)	$	(5,021	)	$	(62,627	)	$	(1,133	)
Amortization of acquired intangibles		15,969			15,780			15,962			15,828			31,931			31,608
Share-based compensation expenses		13,527			17,039			13,890			17,640			27,417			34,679
Holdback compensation expenses (1)		2,555			2,790			2,645			2,792			5,200			5,582
M&A and other costs (2)		237			50			1,334			474			1,571			524
Revaluation of Warrants		(1,676	)		(14,042	)		702			(11,958	)		(974	)		(26,000	)
Foreign currency exchange rate losses (3)		429			216
Foreign currency exchange rate losses (gains) (3)								(663	)		2,490			(234	)		2,706
Income tax effects		(3,829	)		(3,626	)		(3,962	)		(6,451	)		(7,791	)		(10,077	)
Non-GAAP Net Income (Loss)	$	(4,101	)	$	22,095		$	(1,406	)	$	15,794		$	(5,507	)	$	37,889

* Three months ended March 31, 2022 have been adjusted to exclude the impact of foreign currency exchange rates to be consistent with current period presentation.

(1)

Represents share-based compensation due to holdback of Taboola Ordinary Shares issuable under compensatory arrangements relating to Connexity acquisition.

(2)

Includes ~~commercial agreement asset acquisition costs.~~one-time costs related to the Commercial agreement.

(3)

Represents non-operating foreign currency exchange rate gains or losses related to the remeasurement of monetary assets and liabilities to the Company’s functional currency using exchange rates in effect at the end of the reporting period.

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Free Cash Flow

We believe that Free Cash Flow is useful to provide management and others with information about the amount of cash generated from our operations that can be used for strategic initiatives, including investing in our business, making strategic acquisitions, and strengthening our balance sheet. We expect our Free Cash Flow to fluctuate in future periods as we invest in our business to support our plans for growth. Limitations on the use of Free Cash Flow include the following:

●

It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures. For example, cash is still required to satisfy other working capital needs, including short-term investment policy, restricted cash, repayment of loan and intangible assets;

●

Free Cash Flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities; and

●

This metric does not reflect our future contractual commitments.

	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
	(dollars in thousands)
Net cash provided by operating activities	$	11,598		$	2,084		$	29,122		$	10,207
Purchases of property and equipment, including capitalized internal-use software		(3,828	)		(9,350	)		(10,178	)		(16,252	)
Free Cash Flow	$	7,770		$	(7,266	)	$	18,944		$	(6,045	)

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Three months ended
March 31,

2023 2022
(dollars in thousands)
Net cash provided by operating activities

$
17,524

$
8,123

Purchases of property and equipment, including capitalized internal-use software

(6,350
)

(6,902
)
Free Cash Flow

$
11,174

$
1,221

Components of Our Results of Operations

Revenues

Cost of revenues

Our cost of revenue primarily includes traffic acquisition cost and also includes other cost of revenue.

Traffic acquisition cost

Traffic acquisition cost, or TAC, consists primarily of cost related to digital property compensation for placing our platform on their digital property and cost for advertising impressions purchased from real-time advertising exchanges and other third parties. Traffic acquisition cost also includes up-front payments, incentive payments, or bonuses paid to the digital property partners, which are amortized over the respective contractual term of the digital property arrangement. For the majority of our digital properties partners, we have two primary compensation models for digital properties. The most common model is a revenue share model. In this model, we agree to pay a percentage of our revenue generated from advertisements placed on the digital properties. The second model includes guarantees. Under this model, we pay the greater of a percentage of the revenue generated or a committed guaranteed amount per thousand page views (“Minimum guarantee model”). Actual compensation is settled on a monthly basis. Expenses under both the revenue share model as well as the Minimum guarantee model are recorded as incurred, based on actual revenues generated by us at the respective month.

Other cost of revenues

Other cost of revenues includes data center and related costs, depreciation expense related to hardware supporting our platform, amortization expense related to capitalized internal-use software and acquired technology, digital and services taxes, personnel costs, and allocated facilities costs. Personnel costs include salaries, bonuses, share-based compensation, and employee benefit costs, and are primarily attributable to our operations group, which supports our platform and our Advertisers.

Gross profit

Gross profit, calculated as revenues less cost of revenues, has been, and will continue to be, affected by various factors, including fluctuations in the amount and mix of revenue and the amount and timing of investments to expand our digital properties partners and Advertisers base. We hope to increase both our Gross profit in absolute dollars and as a percentage of revenue through enhanced operational efficiency and economies of scale.

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Research and development

Research and development expenses consist primarily of personnel costs, including salaries, bonuses, share-based compensation and employee benefits costs, allocated facilities costs, professional services and depreciation. We expect research and development expenses to increase in future periods to support our growth, including continuing to invest in optimization, accuracy and reliability of our platform and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments.

Sales and marketing

Sales and marketing expenses consist of payroll and other personnel related costs, including salaries, share-based compensation, employee benefits, and travel for our sales and marketing departments, advertising and promotion, rent and depreciation and amortization expenses, particularly related to the acquired intangibles. We expect to increase selling and marketing expenses to support the overall growth in our business.

General and administrative

General and administrative expenses consist of payroll and other personnel related costs, including salaries, share-based compensation, employee benefits and expenses for executive management, legal, finance and others. In addition, general and administrative expenses include fees for professional services and occupancy costs. We expect our general and administrative expense to increase as we scale up headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.

Finance income (expenses), net

Finance income (expenses), net, primarily consists of interest income (expense) including amortization of loan and credit facility issuance costs, Warrants liability fair value adjustments, gains (losses) from foreign exchange fluctuations and bank fees.

Income tax benefit (expenses)

The statutory corporate tax rate in Israel was 23% for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, although we are entitled to certain tax benefits under Israeli law.

Pursuant to the Israeli Law for Encouragement of Capital Investments-1959 (the “Investments Law”) and its various amendments, under which we have been granted ~~Privileged~~“Privileged Enterprise” status, we were granted a tax exemption status for the years 2018 and 2019. The 2018 tax exemption resulted in approximately $10.4 million of potential tax savings. In 2019 we did not benefit from the Privileged Enterprise status because we did not have taxable income. The benefits available to a Privileged Enterprise in Israel relate only to taxable income attributable to the specific investment program and are conditioned upon terms stipulated in the Investment Law. We received a Tax Ruling from the Israeli Tax Authority that ~~its~~our activity is an industrial activity and therefore eligible for the status of a Privileged Enterprise, provided that we meet the requirements under the ruling. If we do not fulfill these conditions, in whole or in part, the benefits can be revoked, and we may be required to refund the benefits, in an amount linked to the Israeli consumer price index plus interest. As of ~~March 31,~~June 30, 2023, management believes that we meet the aforementioned conditions.

For 2021 and subsequent tax years, we adopted The “Preferred Technology Enterprises” (“PTE”) Incentives Regime (Amendment 73 to the Investment Law) granting a 12% tax rate in central Israel on income deriving from benefited intangible assets, subject to a number of conditions being fulfilled, including a minimal amount or ratio of annual research and development expenditure and research and development employees, as well as having at least 25% of annual income derived from exports to large markets. PTE is defined as an enterprise which meets the aforementioned conditions and for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion.

As of ~~March 31,~~June 30, 2023, we have an accumulated tax loss carry-forward of approximately ~~$41.4~~$84.2 million in Israel. The tax loss can be offset indefinitely. Non-Israeli subsidiaries are taxed according to the tax laws in their respective jurisdictions.

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The following table provides consolidated statements of ~~income (loss)~~loss data for the periods indicated:

	Three months ended March 31,						Three months ended June 30,
	2023			2022			2023			2022

Revenues	$	327,686		$	354,726		$	332,004		$	342,695
Cost of revenues:
Traffic acquisition cost		211,946			216,498			208,870			199,486
Other cost of revenues		26,148			26,198			26,077			26,848
Total cost of revenues		238,094			242,696			234,947			226,334
Gross profit		89,592			112,030			97,057			116,361
Operating expenses:
Research and development		31,985			30,412			34,001			34,079
Sales and marketing		60,569			61,368			61,198			66,405
General and administrative		25,836			27,949			26,858			25,428
Total operating expenses		118,390			119,729			122,057			125,912
Operating loss		(28,798	)		(7,699	)		(25,000	)		(9,551	)
Finance income (expenses), net		(3,154	)		11,195			(3,827	)		4,764
Income (loss) before income taxes		(31,952	)		3,496
Income tax benefit		639			392
Net income (loss)	$	(31,313	)	$	3,888
Loss before income taxes								(28,827	)		(4,787	)
Income tax expenses								(2,487	)		(234	)
Net loss							$	(31,314	)	$	(5,021	)

Comparison of the three months ended ~~March 31,~~June 30, 2023 and 2022

Revenues decreased by ~~$27.0~~$10.7 million, or ~~7.6%~~3.1%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022. Existing digital property partners, including the growth of new digital property partners (beyond the revenue contribution determined based on the run-rate revenue generated by the partners when they are first on-boarded) decreased by approximately ~~$65.1~~$51.3 million. This decrease was primarily driven by lower yields due to weaker demand on our platform, reflecting the current macroeconomic conditions and the impact on advertising spend. New digital property partners contributed approximately ~~$38.1~~$40.6 million of new Revenues on a 12-month run rate basis calculated based on their first full month on the network.

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Gross profit decreased by ~~$22.4~~$19.3 million, or ~~20.0%~~16.6%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022.

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Ex-TAC Gross Profit, a non-GAAP measure, decreased by ~~$22.5~~$20.1 million, or ~~16.3%~~14.0%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022, primarily due to a decrease in existing digital property partners. This decrease was primarily driven by lower yields due to weaker demand on our platform, reflecting the current macroeconomic conditions and the impact on advertising spend and a mix shift to lower margin digital properties.

Cost of revenues ~~decreased~~increased by ~~$4.6~~$8.6 million, or ~~1.9%~~3.8%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022.

Traffic acquisition cost ~~decreased~~increased by ~~$4.6~~$9.4 million, or ~~2.1%~~4.7%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022.

Revenues decreased ~~at a higher rate than~~while Traffic acquisition cost increased primarily due to a mix shift to lower margin digital properties and decreased yield on digital properties with guarantee obligations.

The cost of guarantees (total payments due under guarantee arrangements in excess of amounts the Company would otherwise be required to pay under revenue sharing arrangements) as a percentage of traffic acquisition costs were approximately ~~19%~~20% and 10% for the three months ended ~~March 31,~~June 30, 2023 and ~~March 31,~~June 30, 2022, respectively.

Other cost of revenues decreased by $0.8 million, or 2.9%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily as a result of a decrease in data and hosting expenses.

Research and development expenses decreased by $0.1 million, or 0.2%, for the three months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022 primarily attributable to $1.0 million decrease in employee and subcontractors related costs offset by increase of expenses in connection with the Yahoo arrangement and increase in communication and IT services expenses.

Sales and marketing expenses decreased by $5.2 million, or 7.8%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The decrease is attributed to a decrease of $2.7 million in employee and subcontractors related costs including share-based compensation expenses and a decrease of $2.5 million in advertising and promotion expenses.

General and administrative expenses increased by $1.4 million, or 5.6%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, a result of a increase of $0.8 million in employee and subcontractors related costs including share-based compensation expenses and $1.7 million in credit losses expenses and insurance expenses in connection with the Yahoo arrangement, offset by $1.8 million decrease in legal consultants expenses related to regulatory matters.

Finance income (expenses), net decreased by $8.6 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, mainly attributable to $12.7 million Warrants liability devaluation, partially offset by a $3.2 million improvement in foreign currency exchange rate losses (gains).

Income tax expense increased by $2.3 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

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The following table provides consolidated statements of loss data for the periods indicated (dollars in thousands):

	Six months ended June 30,
	2023			2022

Revenues	$	659,690		$	697,421
Cost of revenues:
Traffic acquisition cost		420,816			415,984
Other cost of revenues		52,225			53,046
Total cost of revenues		473,041			469,030
Gross profit		186,649			228,391
Operating expenses:
Research and development		65,986			64,491
Sales and marketing		121,767			127,773
General and administrative		52,694			53,377
Total operating expenses		240,447			245,641
Operating loss		(53,798	)		(17,250	)
Finance income (expenses), net		(6,981	)		15,959
Loss before income taxes benefit (expenses)		(60,779	)		(1,291	)
Income tax benefit (expenses)		(1,848	)		158
Net loss	$	(62,627	)	$	(1,133	)

Comparison of the six months ended June 30, 2023 and 2022

Revenues decreased by $37.7 million, or 5.4%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. Existing digital property partners, including the growth of new digital property partners (beyond the revenue contribution determined based on the run-rate revenue generated by the partners when they are first on-boarded) decreased by approximately $116.4 million. This decrease was primarily driven by lower yields due to weaker demand on our platform, reflecting the current macroeconomic conditions and the impact on advertising spend. New digital property partners contributed approximately $78.7 million of new Revenues on a 12-month run rate basis calculated based on their first full month on the network.

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Gross profit decreased by $41.7 million, or 18.3%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Ex-TAC Gross Profit, a non-GAAP measure, decreased by $42.6 million, or 15.1%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to a decrease in existing digital property partners. This decrease was primarily driven by lower yields due to weaker demand on our platform, reflecting the current macroeconomic conditions and the impact on advertising spend and a mix shift to lower margin digital properties.

Cost of revenues increased by $4.0 million, or 0.9%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Traffic acquisition cost increased by $4.8 million, or 1.2%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Revenues decreased while Traffic acquisition cost increased primarily due to a mix shift to lower margin digital properties and decreased yield on digital properties with guarantee obligations.

The cost of guarantees (total payments due under guarantee arrangements in excess of amounts the Company would otherwise be required to pay under revenue sharing arrangements) as a percentage of traffic acquisition costs were approximately 20% and 10% for the six months ended June 30, 2023 and June 30, 2022, respectively.

Other cost of revenues decreased by $0.8 million, or 1.5%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily as a result of a decrease of $0.3 million in employee related costs and a decrease of $0.7 million in data expenses partially offset by an increase of ~~$0.3~~$0.7 million in ~~data and~~ hosting expenses.

Research and development expenses increased by ~~$1.6~~$1.5 million, or ~~5.2%~~2.3%, for the ~~three~~six months ended ~~March 31,~~June 30, 2023 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2022 primarily attributable to an increase of ~~$1.5~~$1.0 million in Communication and IT services and $0.5 million in employee and subcontractors related ~~costs mainly from increase in headcount.~~costs.

Sales and marketing expenses decreased by ~~$0.8~~$6.0 million, or ~~1.3%~~4.7%, for the ~~three~~six months ended ~~March 31,~~June 30, 2023 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2022. The decrease is mainly attributed to a decrease of ~~$2.0~~$4.5 million in advertising and promotion and a decrease of ~~$1.0~~$1.8 million in ~~employee~~employees and subcontractors related costs including share-based compensation ~~expenses partially offset by an increase of $1.9 million in salaries and other employee related costs due to increase in headcount.~~expenses.

General and administrative expenses decreased by ~~$2.1~~$0.7 million, or ~~7.6%~~1.3%, for the ~~three~~six months ended ~~March 31,~~June 30, 2023 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2022, primarily a result of a decrease of ~~$1.1 million in employee related costs and a decrease of $1.4~~$3.2 million related to M&A costs and legal consultants expenses related to regulatory ~~matters.~~matters offset by an increase of $2.7 million in credit losses and insurance expenses.

Finance income (expenses), net decreased by ~~$14.3~~$22.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2022, mainly attributable to ~~$12.3~~$25.1 million Warrants liability devaluation.

Income tax benefit ~~increased~~(expenses) decreased by ~~$0.2~~$2.0 million ~~or 63.0%,~~ for the ~~three~~six months ended ~~March 31,~~June 30, 2023 compared to the ~~three~~six months ended ~~March 31,~~June 30, 2022.

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Liquidity and Capital Resources

Our primary cash needs are for working capital, personnel costs, contractual obligations, including payments to digital property partners, office leases and software and information technology costs, capital expenditures for servers and capitalized software development, payment of interest and required principal payments on our long-term loan and other commitments. We fund these cash needs primarily from cash generated from operations, as well as from cash and cash equivalents on our balance sheet when required. For the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, we generated cash from operations of ~~$17.5~~$29.1 million and ~~$8.1~~$10.2 million, respectively.

As part of our growth strategy, we have made and expect to continue to make significant investments in research and development and in our technology platform. We also plan to selectively consider possible future acquisitions that are attractive opportunities we deem strategic and value-enhancing. To fund our growth, depending on the magnitude and timing of our growth investments and the size and structure of any possible future acquisition, we may supplement our available cash from operations with issuances of equity or debt securities and/or make other borrowings, which could be material.

As of ~~March 31,~~June 30, 2023 and December 31, 2022, we had ~~$274.4~~$246.9 million and $262.8 million of cash, cash equivalents and short-term investments, respectively, and $5.1 million and $4.8 million in short and long-term restricted deposits, respectively, used, mainly, as security for our lease commitments. Cash and cash equivalents consist of cash in banks and highly liquid marketable securities investments and money market account and funds, with an original maturity of three months or less at the date of purchase and are readily convertible to known amounts of cash. Short-term investments generally consist of bank deposits, U.S. government treasuries, commercial paper, corporate debt securities, and U.S. agency bonds.

We believe that this, together with net proceeds from our engagements with Advertisers and digital property partners, will provide us with sufficient liquidity to meet our working capital and capital expenditure needs for at least the next 12 months. In the future, we may be required to obtain additional equity or debt financing in order to support our continued capital expenditures and operations. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our business, growth, and results of operations.

On August 9, 2022 we entered into an incremental revolving credit facility amendment to our existing senior secured credit agreement ~~(“Amended~~(the “Amended Credit Agreement”). The Amended Credit Agreement provides for borrowings in an aggregate principal amount of up to $90 million (the “Revolving Facility”). The proceeds of the Revolving Facility can be used to finance working capital needs and general corporate purposes. Borrowings under the Revolving Facility are subject to customary borrowing conditions and will bear interest at a variable annual rate based on Term SOFR or Base Rate plus a fixed margin. The Amended Credit Agreement also contains customary representations, covenants and events of default as well as a financial covenant, which places a limit on our allowable net leverage ratio. As of ~~March 31,~~June 30, 2023, we had no outstanding borrowings under the Revolving Facility.

As of ~~March 31,~~June 30, 2023, there was ~~$234.2~~$203.5 million in principal amount of debt outstanding under our long-term loan.

In April 2023, we voluntarily prepaid $30.0 million in principal amount of debt outstanding under our long-term loan. We will consider the repurchase and retirement of additional debt based on, among other factors, our working capital and capital expenditures needs, liquidity position and possible alternative uses of cash.

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In May 2023, our Board of Directors authorized a share buyback program (the “Buyback Program”) for the repurchase of up to $40.0 million of the Company’s outstanding Ordinary shares, with no expiration date. As permitted by the Buyback Program, share repurchases may be made from time to time, in privately negotiated transactions or in the open market, including through trading plans in compliance with Rule 10b5-1, at the discretion of our management and as permitted by securities laws and other legal requirements, including Rule 10b-18 of the Exchange Act. The Buyback Program does not obligate the Company to repurchase any specific number of shares and may be discontinued, modified or suspended at any time.

The Buyback Program commenced in June 2023 and during the six months ended June 30, 2023, we repurchased 1.4 million Ordinary shares at an average price of $3.02 per share (excluding broker and transaction fees). As of ~~May~~June 30, 2023 the Company had remaining authorization to repurchase shares up to an aggregate amount of $35.6 million. See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Note 9 2023 we have insignificant cash held by First Citizens Bank & Trust Company, the entity which ultimately acquired the deposits and loans of Silicon Valley Bank (“SVB”). We hold most of our cash, cash equivalents and short-term investments at multiple other large U.S. financial institutions. We do not anticipate a material impact on our financial condition or operations as a result of SVB’s circumstances. See Note 1c of Notes to the Unaudited Consolidated Interim Financial Statements.

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We are taking actions to reduce growth of operating expenses in response to continuing macroeconomic uncertainty, including uncertainty regarding advertising demand and spending. Any of these uncertainties could impact key areas of our operating performance, including ex-TAC and yields, as well as liquidity. Actions we are taking include reducing discretionary spend and decreasing our rate of hiring. While we believe these actions will be beneficial, we cannot predict the degree to which they will mitigate these uncertainties.

Our future capital requirements and the adequacy of available funds will depend on many factors, including the risks and uncertainties set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 under Item 1A. “Risk Factors,” and in our subsequent filings with the SEC.

	Three months ended March 31,						Six months ended June 30,
	2023			2022			2023			2022
	Unaudited						Unaudited
Cash Flow Data:
Net cash provided by operating activities		17,524			8,123		$	29,122		$	10,207
Net cash provided by (used in) investing activities		35,310			(49,648	)		45,126			(93,817	)
Net cash provided by (used in) financing activities		(206	)		804			(35,310	)		2,347
Exchange rate differences on balances of cash and cash equivalents		328			(671	)		(236	)		(4,316	)
Increase (decrease) in cash and cash equivalents		52,956			(41,392	)	$	38,702		$	(85,579	)

Operating Activities

During the ~~three~~six months ended ~~March 31,~~June 30 2023, net cash provided by operating activities was ~~$17.5~~$29.1 million, an increase of ~~$9.4~~$18.9 million, compared to ~~$8.1~~$10.2 million for the same period in 2022. The ~~$17.5~~$29.1 million was related to our net loss of ~~$31.3~~$62.7 million adjusted by non-cash charges of ~~$36.8~~$77.6 million and changes in working capital of ~~$12.0~~$14.1 million.

The ~~$36.8~~$77.6 million of non-cash charges primarily consisted of depreciation and amortization of ~~$22.6~~$45.4 million and share-based compensation expense related to vested equity awards of ~~$16.1 million, partially offset by $1.7 million of Warrants liability devaluation.~~$32.6 million.

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The ~~$12.0~~$14.1 million increase in cash resulting from changes in working capital primarily consisted of ~~a $44.4~~$39.3 million decrease in trade receivables, net and ~~an increase~~$8.6 million decrease of in ~~deferred taxes, net of $2.8 million,~~prepaid expenses and other current assets and long-term prepaid expenses, partially offset by a$29.7 million decrease in trade payables ~~of $22.8~~and $6.5 million ~~and a~~ decrease in ~~accrued expenses and other current and long-term liabilities of $13.4 million.~~deferred taxes, net.

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Net cash provided by operating activities of ~~$8.1~~$10.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 was primarily related to our net ~~income~~loss of ~~$3.9~~$1.1 million adjusted by non-cash charges ~~including~~of $64.6 million and changes in working capital of $53.3 million. The non-cash charges are mainly related to depreciation and amortization expenses of ~~$22.7~~$45.5 million, mainly from Connexity intangibles acquired, and share-based compensation expense ~~related to vested equity awards~~ of ~~$19.8~~$40.3 million ~~mostly triggered by going public, partially~~ offset by ~~a $25.3 million decrease in working capital and by $14.0~~revaluation benefit of $26.0 million of warrant liability devaluation. The $25.3 million decrease in cash resulting from changes in working capital primarily consisted of a $45.9 million decrease in trade payables, a $16.5 million decrease in accrued expenses and other current and long-term liabilities, a $4.1 million decrease in deferred taxes, net and a $3.3 million increase in other current assets (including prepaid), partially offset by a $45.9 million decrease in trade receivables.the Warrants liability.

Investing Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, net cash provided by investing activities was ~~$35.3~~$45.1 million, an increase of ~~$84.9~~$138.9 million, compared to ~~$49.6~~$93.8 million in net cash used in the same period in 2022. Net cash provided by investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2023 primarily consisted of ~~$41.9~~$77.6 million proceeds from sales and maturities of short-term investments partially offset by ~~$6.4~~$22.0 million purchase of short-term investments and $10.2 million purchase of property and equipment, including capitalized internal-use software.

Net cash used in investing activities of ~~$49.6~~$93.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 primarily consisted of ~~$40.0~~$74.9 million of ~~investment in~~purchase of short-term ~~deposits, of $6.9~~investments, $16.3 million ~~of purchases~~purchase of property and equipment, including capitalized internal-use software and $2.1 million payments of cash in escrow for acquisition of a subsidiary.

Financing Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, net cash used in financing activities was ~~$0.2~~$35.3 million, a decrease of ~~$1.0~~$37.7 million, compared to ~~$0.8~~$2.3 million in net cash provided for the same period in 2022. Net cash used in financing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2023 ~~primarily~~ consisted of ~~$0.8 million payment of tax withholding for share-based compensation and $0.8~~$31.5 million repayment of the current portion of long-term loan and $4.4 million repurchase of Ordinary shares and $1.9 million payment of tax withholding for share-based compensation, offset by ~~$1.3~~$2.5 million proceeds received from share option exercises and vested RSUs.

Net cash provided by financing activities of ~~$0.8~~$2.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, primarily consisted of ~~$3.4~~$6.0 million from proceeds received from share option exercises and vested RSUs offset by ~~$1.8~~$2.2 million payment of tax withholding for share-based compensation.

Contractual Obligations

The following table discloses aggregate information about material contractual obligations and the periods in which they are due as of ~~March 31,~~June 30, 2023. Future events could cause actual payments to differ from these estimates.

	Contractual Obligations by Period												Contractual Obligations by Period
	2023		2024		2025		2026		2027		Thereafter		2023		2024		2025		2026		2027		Thereafter
	(dollars in thousands)												(dollars in thousands)
Debt Obligations	$	32,250	$	3,000	$	3,000	$	3,000	$	3,000	$	189,985	$	1,500	$	3,000	$	3,000	$	3,000	$	3,000	$	189,985
Operating Leases (1)		13,160		18,108		16,075		13,311		9,614		13,692		8,469		19,539		16,173		13,240		9,589		13,692
Non-cancellable purchase obligations (2)		19,123		4,763		247		3		—		—		17,217		6,818		511		99		—		—
Total Contractual Obligations	$	64,533	$	25,871	$	19,322	$	16,314	$	12,614	$	203,677	$	27,186	$	29,357	$	19,684	$	16,339	$	12,589	$	203,677

(1)

Represents future minimum lease commitments under non-cancellable operating lease agreements.

(2)

Primarily represents non-cancelable amounts for contractual commitments in respect of software and information technology.

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The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty. The table above does not reflect any reduction for prepaid obligations as of ~~March 31,~~June 30, 2023. As of ~~March 31,~~June 30, 2023, we have a provision related to unrecognized tax benefit liabilities totaling ~~$3.7~~$6.5 million and other provisions related to severance pay and contribution plans, which have been excluded from the table above as we do not believe it is practicable to make reliable estimates of the periods in which payments for these obligations will be made.

Other Commercial Commitments

In the ordinary course of our business, we enter into agreements with certain digital properties, under which, in some cases we agree to pay them a guaranteed amount, generally per thousand page views on a monthly basis. These agreements could cause a gross loss on digital property accounts in which the guarantee is higher than the actual revenue generated. These contracts generally range in duration from 2 to 5 years, though some can be shorter or longer. These contracts are not included in the table above.

Recent Accounting Pronouncements

During the period covered by this report, there were no material recent accounting pronouncements impacting our accounting policies that are not already discussed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Critical Accounting Estimates

Our discussion and analysis of financial condition results of operations are based upon our consolidated financial statements included elsewhere in this report. The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances ~~including the anticipated impact of COVID-19,~~ and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates.

Our critical accounting policies are those that materially affect our consolidated financial statements and involve difficult, subjective or complex judgments by management. There have been no material changes to our critical accounting policies and estimates of and for the year ended December 31, 2022, included in the Company’s Form 10-K filed with the SEC on March 13, 2023.

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

A 10% increase or decrease of the NIS, Euro, British pound sterling, or the Japanese yen against the U.S. dollar would have impacted the consolidated statements of ~~income (loss)~~loss as follows:

	Operating loss impact Three months ended March 31,												Operating loss impact Six months ended June 30,
	2023						2022						2023						2022
	(dollars in thousands)												(dollars in thousands)
		+10	%		-10	%		+10	%		-10	%		+10%			-10%			+10%			-10%
NIS/USD	$	(841	)	$	841		$	(1,765	)	$	1,765		$	(126	)	$	126		$	(2,978	)	$	2,978
EUR/USD	$	204		$	(204	)	$	1,358		$	(1,358	)	$	169		$	(169	)	$	2,226		$	(2,226	)
GBP/USD	$	(481	)	$	481		$	(1,289	)	$	1,289		$	(104	)	$	104		$	(2,135	)	$	2,135
JPY/USD	$	354		$	(354	)	$	570		$	(570	)	$	312		$	(312	)	$	945		$	(945	)

To reduce the impact of foreign exchange risks associated with forecasted future cash flows related to payroll expenses and other personnel related costs denominated in NIS and their volatility, we have established a hedging program and use derivative financial instruments, specifically foreign currency forward contracts, call and put options, to manage exposure to foreign currency risks. These derivative instruments are designated as cash flow hedges.

Interest Rate Risk

Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change.

Our cash, cash equivalents, and short-term investments are held mainly for working capital purposes. The primary objectives of our investment activities are the preservation of capital and the fulfillment of liquidity needs. We do not enter into investments for trading or speculative purposes. Such interest-earning instruments carry a degree of interest rate risk. Changes in interest rates affect the interest earned on our cash and cash equivalents and short-term investments, and the market value of those securities.

As of ~~March 31,~~June 30, 2023, we had approximately $~~234.2~~203.5 million of outstanding borrowings under our long-term loan with a variable interest rate. In April 2023 we voluntarily prepaid $30.0 million of the principal amount of the debt outstanding under the long-term loan. See Liquidity and Capital Resources for information regarding our incremental revolving credit facility amendment.

Fluctuations in interest rates may impact the level of interest expense recorded on future borrowings. We do not enter into derivative financial instruments, including interest rate swaps, to effectively hedge the effect of interest rate changes or for speculative purposes.

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Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations, other than its impact on the general economy. However, if our costs, in particular labor, sales and marketing, information system, technology and utilities costs, were to become subject to significant inflationary pressures, we might not be able to effectively mitigate such higher costs. Our inability or failure to do so could adversely affect our business, financial condition, and results of operations.

Credit Risk

Credit risk with respect to accounts receivable is generally not significant, as we routinely assess the creditworthiness of our partners and Advertisers. Historically, we generally have not experienced any material losses related to receivables from Advertisers. We do not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in our accounts receivable.

As of ~~March 31,~~June 30, 2023, we maintained cash balances primarily in banks in Israel, the United States and the United Kingdom. In the United States and United Kingdom, the Company deposits are maintained with commercial banks, which are insured by the U.S. Federal Deposit Insurance Corporation (“FDIC”) and Financial Services Compensation Scheme (“FSCS”), which is authorized by the Bank of England (acting in its capacity as the Prudential Regulation Authority), respectively. In Israel, commercial banks do not have government-sponsored deposit insurance. Historically we have not experienced losses related to these balances and believe our credit risk in this area is reasonable. As of ~~March 31,~~June 30, 2023, we maintained cash balances with U.S. and United Kingdom banks that significantly exceed FDIC and FSCS insurance limits and we expect we will continue to do so. We regularly monitor bank financial strength and other factors in determining where to maintain cash deposits but may not be able to fully mitigate the risk of possible bank failures.

Our short-term investments, which were $~~55.6~~42.3 million as of ~~March 31,~~June 30, 2023, are investments in marketable securities with high credit ratings as required by our investment policy and are not insured or guaranteed.

Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading the risk across a number of major financial institutions. However, failure of one or more of these financial institutions is possible and could result in losses.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as ~~amended)~~amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~March 31,~~June 30, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~March 31,~~June 30, 2023, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

~~Table of Contents~~

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in ~~management’s~~management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our consolidated business prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

Item 1A.

Risk Factors

Investing in our ordinary shares involves a high degree of risk. We describe risks associated with our business in Part I, Item 1A: ~~“Risk Factors”~~"Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2022. Each of the risks described in those Risk Factors may be relevant to decisions regarding an investment in or ownership of our ordinary shares. The occurrence of any such risks could have a significant adverse effect on our reputation, business, financial condition, revenue, results of operations, growth, or ability to accomplish our strategic objectives, and could cause the trading price of our ordinary shares to decline. You should carefully consider such risks and the other information contained in this report, including our condensed consolidated interim financial statements and related notes and ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations, before making investment decisions related to our ordinary shares

There are no additional material changes to the Risk Factors in our Annual Report on Form 10-K of which we are currently aware; but our Risk Factors cannot anticipate and fully address all possible risks of investing in our ordinary shares, the risks of investing in our ordinary shares may change over time, and additional risks and uncertainties that we are not aware of, or that we do not consider to be material, may emerge. Accordingly, you are advised to consider additional sources of information and exercise your own judgment in addition to the information we provide.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~On January 17, 2023~~The following table presents Ordinary shares repurchased pursuant to our Ordinary share buyback program for the Company filed a Current Report on Form 8-K announcing the closing of the Yahoo transaction and various related agreements, including the issuance of 39,525,691 Ordinary Shares and 45,198,702 Non-Voting Ordinary Shares to Yahoo in an unregistered transaction exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(a)(2) thereof.three months ended June 20, 2023.

Period	(a) Total Number of Shares Repurchased		(b) Average Price Paid Per Share ⁽¹⁾		(c) Total Number of Shares Purchased as Part of Publicly Announced Program		(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program ⁽²⁾
April 1 - April 30, 2023		—	$	—		—	$	—
May 1 - May 31, 2023		—	$	—		—	$	40,000,000
June 1 - June 30, 2023		1,442,000	$	3.02		1,442,000	$	35,641,792

(1)	Excludes broker and transaction fees.

(2)

On May 10, 2023, the Company announced a share buyback program for the repurchase of up to $40.0 million of our Ordinary shares. The program does not have an expiration date and permits us to purchase our Ordinary shares from time to time in the open market, including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, in privately negotiated transactions or otherwise. The timing and amount of any share buybacks will be subject to market conditions and other factors determined by the Company. The Company may suspend, modify or discontinue the program at any time in its sole discretion without prior notice.

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Item 3.

Defaults upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

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Item 6.

Exhibits

	Exhibit No.		Exhibit Description
	3.1*10.1		12^th ~~Amended and Restated Articles of Association of the Registrant (incorporated by reference~~Amendment to ~~Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on January 17, 2023)~~
	10.1*		~~Omnibus Agreement,~~Compensation Package, dated as of November 28, 2022, by and among the Registrant, College Top Holdings, Inc. and Yahoo AdTech JV, LLC (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on January 17, 2023)
	10.2*		~~Investor Rights Agreement, dated as of January 17,~~June 1, 2023, by and between the Registrant and ~~College Top Holdings, Inc. (incorporated by reference to Exhibit~~ Adam Singolda
	10.2 ~~of the Registrant’s Current Report on Form 8-K filed with the SEC on January 17, 2023)~~		Amendment No. 2, dated as of June 12, 2023, to the Credit Agreement by and among Taboola.com Ltd., Taboola, Inc., as borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent
	31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
	31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
	32		Section 1350 Certifications
	101.INS		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
	101.SCH		Inline XBRL Taxonomy Extension Schema Document.
	101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
	101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
	101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document.
	101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
	104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

* Incorporated by reference.

~~Table of Contents~~

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York, on this 9~~10th~~th day of ~~May~~August 2023.

	By: /s/ Stephen C. Walker
	Name:	Stephen C. Walker
	Title:	Chief Financial Officer

Israel (State or other jurisdiction of incorporation or organization)	Not Applicable (I.R.S. Employer Identification No.)
16 Madison Square West 7th Floor New York, NY (Address of principal executive offices)	10010 (Zip code)
212-206-7633 (Registrant’s telephone number, including area code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary shares, no par value	TBLA	The Nasdaq Global Market
Warrants to purchase ordinary shares	TBLAW	The Nasdaq Global Market

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

	Gross Fair Value		Accumulated Amortization			Net Book Value
Merchant / Network affiliate relationships	$	146,547	$	(59,704	)	$	86,843
Technology		74,193		(37,789	)		36,404
Publisher relationships		42,933		(19,678	)		23,255
Tradenames		24,097		(14,715	)		9,382
Customer relationships		13,146		(11,815	)		1,331
Total	$	300,916	$	(143,701	)	$	157,215

	Gross Fair Value		Accumulated Amortization			Net Book Value
March 31, 2023 (unaudited)
Merchant/ Network affiliate relationships	$	146,547	$	(51,563	)	$	94,984
Technology		74,193		(34,920	)		39,273
Publisher relationships		42,933		(16,994	)		25,939
Tradenames		24,097		(12,703	)		11,394
Customer relationships		13,146		(11,559	)		1,587
Total	$	300,916	$	(127,739	)	$	173,177


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	March 31, 2023									June 30, 2023
	Unaudited									Unaudited
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate debt securities										$	23,130	$	1	$	(32	)	$	23,099
U.S. agency bonds											8,260		—		(11	)		8,249
Commercial paper											6,484		—		(12	)		6,472
U.S. government treasuries	$	17,440	$	—	$	(62	)	$	17,378		4,446		—		(10	)		4,436
Corporate debt securities		16,089		—		(61	)		16,028
U.S. Agency bonds		15,786		—		(55	)		15,731
Commercial paper		6,461		—		(16	)		6,445
Total	$	55,776	$	—	$	(194	)	$	55,582	$	42,320	$	1	$	(65	)	$	42,256

	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government treasuries	$	46,452	$	—	$	(230	)	$	46,222
Corporate debt securities		21,762		—		(126	)		21,636
U.S. agency bonds		20,622		—		(131	)		20,491
Commercial paper		8,599		—		(34	)		8,565
Total	$	97,435	$	—	$	(521	)	$	96,914

	Reclassification of losses into income (loss) from accumulated other comprehensive loss				Reclassification of losses into loss from accumulated other comprehensive loss
	Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022		2023		2022
	Unaudited				Unaudited
Cost of revenues	$	28	$	3	$	54	$	142	$	82	$	145
Research and development		315		20		536		959		851		979
Sales and marketing		56		4		100		182		156		186
General and administrative		49		3		104		161		153		164
Total losses recognized in the consolidated interim statements of income (loss)	$	448	$	30
Total losses recognized in the consolidated interim statements of loss					$	794	$	1,444	$	1,242	$	1,474

	Carrying Amount		Carrying Amount

Balance as of December 31, 2022	$	555,869	$	555,869
Purchase accounting adjustment		62		62
Balance as of March 31, 2023 (unaudited)	$	555,931
Balance as of June 30, 2023 (unaudited)			$	555,931

Year Ending December 31,
2023 (Remainder)	$	47,916	$	31,954
2024		60,519		60,519
2025		51,407		51,407
2026		13,244		13,244
2027		91		91
Total	$	173,177	$	157,215

	Outstanding Share Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value		Outstanding Share Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Balance as of January 1, 2023		35,488,179		$	3.08		6.72	$	40,516		35,488,179		$	3.08		6.72	$	40,516
Granted		—			—		—		—		—			—		—		—
Exercised		(1,318,697	)		1.24		—	$	2,416		(2,096,400	)		1.22		—		3,870
Forfeited		(199,432	)		5.94		—		—		(406,596	)		5.72		—		—
Balance as of March 31, 2023 (unaudited)		33,970,050		$	3.12		6.64	$	28,663
Exercisable as of March 31, 2023 (unaudited)		27,059,535		$	2.33		6.29	$	25,591
Balance as of June 30, 2023 (unaudited)											32,985,183		$	3.16		6.50	$	37,082
Exercisable as of June 30, 2023 (unaudited)											26,886,665		$	2.45		6.20	$	33,726

	Outstanding Restricted Shares Unit			Weighted Average Grant Date Fair Value		Outstanding Restricted Shares Unit			Weighted Average Grant Date Fair Value

Balance as of January 1, 2023		23,521,009		$	6.60		23,521,009		$	6.60
Granted		10,165,344			3.63		11,785,624			3.53
Vested (*)		(2,262,724	)		6.65		(5,741,681	)		6.27
Forfeited		(781,458	)		6.84		(1,635,920	)		6.10
Balance as of March 31, 2023 (unaudited)		30,642,171		$	5.60
Balance as of June 30, 2023 (unaudited)							27,929,032		$	5.41