Teads Holding Co (TEAD) 2026 Q2 法說會逐字稿

Good day, and welcome to Tead's second quarter 2026 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to turn the call over to Tead's Investor Relations. Please go ahead.

Good morning and thank you for joining us on today's conference call to discuss Tead's second quarter results.

Joining me on the call today, we have David Kaufman and Jason Kivia, the CEO and CFO of Tead's.

During this conference call, managers will make forward-looking statements based on current expectations and assumptions, including statements regarding our business outlook and prospects.

The statements are subject to risks and uncertainties that may cause actual results to differ materially from our forward-looking statements.

Risk factors are discussed in detail in our annual report on Form 10-K for the year ended December 31, 2025.

As updated in our subsequent reports filed with the Securities and Exchange Commission, forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements.

Today's presentation also includes references to the non-GAAP financial measures.

You should refer to the information contained in the company's second quarter results announcement for definitional information and reconciliations of non-GAAP measurements to the comparable GAAP financial measures.

Our earnings release can be found on our IR website, investors.teach.com, under News and Events. With that. Let me turn the call over to David.

Thank you, Mat, and good morning, everyone.

For the second quarter, excellent gross profit reached $123 million, adjusted EBITDA was $7 million, and our cash generation remained positive with $3 million in free cash flow.

Our results this quarter highlight two distinctly different trajectories across our business.

To provide clear visibility into the two sides of our business, our enterprise brand and agencies business and our direct response and small-medium enterprises business, which is closely aligned with our legacy outbreak business, we are explicitly breaking out the extra gross profit of each and we'll discuss where our strategic momentum lies, where we are directing capital, and what we see as the drivers of our long-term growth.

Our enterprise business, powered by connected TV growth and omnichannel outcome solutions for global brand and agencies, is our primary growth engine.

Following investments in our product architecture and go-to-market teams, we believe this business is positioned to capture market share, increase growth, and expand margins.

Enterprise delivered $89 million in extra gross profit in Q2 in line with our plan. Advertiser spend stabilized from our prior headwinds in 2025 to be flat year-over-year in Q2, and we expect mid-single-digit extra growth in H2.

As connected TV continues to expand as a proportion of our mix, we expect growth to accelerate into 2027, unlocking natural operating leverage.

Key drivers of this strategic momentum include the further strengthening of CTV, which saw top-line revenue growth of 67% year-over-year in Q2 to approximately $40 million. CTV accounted for 13% of our Q2 revenue compared to 7% in Q2 2025.

Growth is driven by a global home screen leadership position, reaching over 500 million home screens globally and the rollout of SEAD's CED ensemble, our unified full funnel branding and performance suite.

We're excited about the momentum in home screen and believe this is a significant differentiator.

We also expanded our supply and reach. We renewed our exclusive home-screen partnership with LG across Europe and APAC with expansion into new markets, partnered with T-Bold ads across 5.3 million households in North America and the U.K and integrated with Vida Japan, unlocking 2.3 million devices as of July 1.

Another drive is omnichannel adoption.

Home screen growth is actively reinforcing our broader omnichannel packages.

Branding customers utilizing omnichannel campaigns represented 16% of Q2 branding revenue, up from 9% in Q2 2025, and approaching our 18% full-year target.

On the traditional publisher side, we remain focused on higher margin mid-article placements within our premium publisher base, which we monetize with video and high-impact display for our brand advertisers and which form part of our omnichannel offerings.

On the strategic brand and agency partnerships, we secured and renewed major global joint business partnerships with premier enterprise brands including Stellantis, Louis Vuitton, Warner Brothers, and Dyson.

Concurrently, active dialogues and early-stage implementations around AI and data collaborations with major agency-holding companies position us well heading to Q4 and 2027.

So despite potential EBITDA trade-offs, we are making the deliberate choice to continue investing in the enterprise business to capture market share and maximize long-term enterprise value.

Moving to our direct response and SME business. In contrast, this business, which covers affiliate search, performance buyers, and small-medium enterprises direct-to-consumer brands. On our Amplify platform delivered $34 million in extra gross profit, representing a 30% year-over-year decline.

This business is currently navigating significant strategic and operational headwinds and is in transition.

On the macro front, we continue to monitor the changing dynamics in search and open web traffic that are impacting the native advertising industry.

The broader adoption of AI summaries is shifting traditional organic referral patterns industry-wide, resulting in drops in publisher impressions.

Additionally, we are seeing closed ecosystems like the Walled Gardens leverage their own AI and automation to strengthen their positions alongside ongoing platform policy updates, making it more challenging for publishers to monetize through native.

As we discussed for the last few quarters, we also implemented a deliberate quality reset, such as a portion of our revenue decline was self-directed.

We exited certain low margin direct response accounts, improved lower quality open web supply to enforce brand safety and elevate supply standards for strategic brand partners. Most of these actions, as we reported in the past, were taken throughout 2025.

To address these shifts, we're executing a plan focused on client outcomes, new supply, and operational efficiency.

In Q2, we launched Teams Engage Operating System, an AI-powered publisher operating system designed to unify content and add inventory to monetize complete reader sessions rather than relying on volatile search views and page views.

This is a strategic product launch that aims to change the dynamics of the business, resulting in higher margins for us and better engagement and yield for our partners.

Some of our premium publishers, including Penske Media, The Arena Group, Scripps, NeoPost and others are in different stages of testing and we have seen significant lifts in yield.

In addition, we are entering new supply channels. We are opening higher-margin programmatic environments, including active dialogues with leading AI players, to leverage our global scaling data across emerging L&M channels.

We are making targeted enhancements within our Amplify platform to optimize advertiser targeting and campaign efficiency and launching new formats like vertical video with the aim of helping our direct response clients achieve stronger ROAS outcomes.

And lastly, we are reorganizing our internal structure, centralizing teams, and embedding AI tools to streamline processes, thereby reducing the cost base of this business.

To sum up, we are actively addressing near-term headwinds in our direct response in SME, resolving the temporary cost pressures from Q2 and capturing meaningful efficiencies across our operations to planned AI.

Most importantly, our core strategy remains on track. CTV is accelerating, our enterprise business is executing according to plans, and we plan to continue investing in our highest margin platform to drive long-term growth and expand operating leverage across teams.

I will now turn the call over to Jason for a detailed review of our financials.

Thanks, David. We met our Q2 guidance for expect gross profit, and due to a confluence of factors, our adjusted EBITDA came below our expected range. I'll touch more on this and the steps we're taking in a moment.

Revenue in Q2 was approximately $285 million, reflecting a 17% decline year over year. What we're seeing in the latter part of Q2 and into Q3 is diverging trends across our enterprise customers versus our direct response and SME customers.

CTV continues its impressive growth and even accelerated as compared with the last few quarters and our focus on omnichannel also continues to bear fruit, with enterprise customers showing momentum in our results. We exited Q2 with May and June both showing positive year-over-year growth in advertiser spend from enterprise customers.

This is an important milestone for us as one, it aligns with our budget plan of returning this business to growth this year and two. We believe we've seen below point and it's behind us now.

We see the momentum continuing into Q3, where we forecast an H2 return to year-over-year growth of Extech from this side of the business.

On the other end of the spectrum, our direct response and SME customers have seen a downward trend that accelerated in Q2 and into Q3.

David spoke about the factors influencing this and the steps we're taking in our product and organization to adjust for the evolution of the landscape.

XTAC gross profit in the quarter was $123 million, a decrease of 14% year-over-year.

Again, it's important to note the divergence in trends we're seeing between customer types. We see improvement in revenue from enterprise customers, where we drive substantially higher XTAC margins as compared with the direct response in SME customers, where we continue to encounter headwinds. Therefore, we are seeing overall higher margins year-over-year, driven by this mixed improvement. As well as through the benefits of further scaling our CTV and in particular CTV home screen business.

Other cost of sales and operating expenses decreased year over year through synergies and operating efficiencies, but we did see a spike in expenses in the back half of the quarter that unfortunately contributed to our adjusted EBITDA being below our guidance range in the quarter.

There were several factors that drove the higher expenses. Timing and cutoff of expenses drove approximately half of the variance versus our expectations. This is across areas that are largely discretionary, such as T&E and marketing, as well as temporary transitionary costs as we migrated cloud platform onto a new provider.

FX fluctuations continue to be a headwind on costs, largely attributed to the fluctuations in the Israeli shekel, and bad debts continue to be elevated, related primarily to prior customers whose business with us was impacted by quality initiatives implemented last year and as David mentioned, we've made continued investments in the acceleration of our enterprise customers and are starting to see the benefits of that.

While much of the higher expenses impacting the quarter are temporary and timing related, as we expect to step down in cost in Q3, we're scrutinizing the cost structure in lower profit and more scalable areas in an effort to drive investments in our enterprise business aimed at acceleration of growth.

Adjusted EBITDA for Q2 was approximately $7 million, and we generated $3 million of free cash flow in the quarter.

As a result, we ended the quarter with $91 million of cash equivalents, and investments in marketable securities on the balance sheet and have access to $40 million via our revolving credit facility.

Also, we continue to evaluate our cost and capital structure for opportunities to improve our financial profile and opportunistic alternatives to strengthen our balance sheet.

Summarizing, we feel good about the progress we're seeing on the enterprise business and are taking steps through product strategy and cost structure to adapt to the secular challenges of the Dr. And SME business, given the volatility of the DR and SME business and as we execute on our strategic initiatives, we are suspending guidance, including with respect to our previously provided full-year 2026 EBITDA guidance.

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

(Operator Instructions)

First question from Brianna Diaz with Citizens. Please go ahead.

Last quarter, you referenced evaluating potential transactions.

Can you update us on that process? I noticed that wasn't included in the prepared remarks. Understood if there's not much to share, but just wondering if that's still on the table.

And then just you highlighted the deliberate decision to continue to invest in the enterprise business.

Even a trade-off, just how are you balancing those investments against the profitability profile and just the overall liquidity position and how you think about the returns on those investments and underwriting that?

Yeah, I'll take it. Thanks, Brianna.

So on the first question and immediate say of in the prepared remarks, we're continuing to evaluate opportunities to.

Strengthen our balance sheet. I think there are opportunities ahead of us that are coming out of the situation and if there's anything specific to update, we will report. At the same time, on the cost structure, we are continuing to look at efficiencies and how we can drive better results, more efficiency, particularly through implementation of AI and other organizational measures.

On your second question, it's really about focusing on the growth drivers. We have tremendous momentum around CTV, omnichannel, the brand and enterprise business.

AI integrations with NCP for agencies and we want to invest in this part of the business. We, as Jason said, we expect to return it to growth. We see tremendous opportunities there to differentiate and we plan to continue to invest in that business. We see great return there. It's a much higher margin part of our business and sort of the more legacy related outbrain business is a business we're running. For profitability and we're going to do sort of the best we can in order to really increase the margins of the business and to that also have much better operating leverage.

Next question comes from Lauren Martin with Needham. Please go ahead.

Good morning. Starting with direct response and SME business, the decline of 30%. How much of that, David, would you say was traffic related to this shift from Google getting rid of blue links and moving action to AI answers? How much was the context? And then how much was actually something other than that? And does that decline then hurt your ability to sell omnichannel?

Does it hurt the other side of the business because it's been harder to sell the omnichannel products on the CTV side? I wanted to start with that question.

Hey, Laura. So on the first part, I mean, we're seeing page view declines, and we've talked about it for a few quarters.

And it's anywhere for some publishers it's 10%, 15%. Some of them see higher percentages. Overall on the premium side of our publishers, it varies by country, but I would say it's in the 15% to 25% of page view decline. That is impacting it.

The other things we saw are just impacts on the ability to monetize some of these pages, which also have impacted that business. But I think it's important generally when you look at our business today, the focus and the growth is on the brand and enterprise segment of the client, which is higher margin.

So we are shifting a lot of investments and focus there. And there's no real impact on the ability to sell omnichannel. Most of the omnichannel is going into the in read placement. If you look at the traditional publisher space, the in read is the one that's sort of after the first or second paragraph. So it's not really impacted by any of these other trends we see. There's some opportunities that we see for brands in the end of the article, and there we. Launched Engage OS, you saw that, which I think is really changing the dynamic also of how the end of article is treated.

Okay, all right, super helpful. And then I know you've been, I know when we met in con, you were saying you're really focusing a lot on the ad agency, and it sounded like your prepared remarks that you're getting some traction there. So, could you update us?

On what's going on with the large ad agencies and where you're seeing traction on getting products placed and tried at the ad agencies?

So about the, I mean, if you look at the billings of the enterprise side of the business, it's about 90-plus percent is built through the big agencies. What we are seeing is through the investments that we did in the Teams Ad Manager platform.

Increasing traction around integrations at the AI level on activation and planning with agencies.

This is true, I think, across the board that some of these hold co-agencies where we're getting more traction than others. I mean, I don't want to go into specific customers, but overall, I think.

Efforts and investments we're making in the platform, and the offering are very well received and that's why I think the confidence talk about growth in the second half of the year, we're talking about potential acceleration to these dialogues into 2027. I think this world where we are pretty uniquely positioned in terms of the ability to deliver branding and performance, ability to deliver CTV, online video, provide measurements, provide attribution. We have exclusive inventory on the home screen of CTV, which is a huge advantage, and we're very well positioned in that market today.

No further questions. I will turn the call back over to David Kosman for closing remarks.

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

Thank you.

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