PROSPECTUS SUPPLEMENT
Filed pursuant to Rule
(To Prospectus dated October 6, 2021)
424(b)(3) of the Rules and
 
Regulations Under the
 
Securities Act of 1933
   
 
Registration Statement No. 333-257879

TABOOLA.COM LTD.
 
Ordinary Shares
 
Warrants to Purchase Ordinary Shares
 
Recent Developments
 
We have attached to this prospectus supplement, and incorporated by reference into it, the Form 6-K of Taboola.com Ltd.
 
This prospectus supplement, together with the prospectus, is to be used by the selling shareholders listed in the prospectus in connection with offers and sales from time to time of the ordinary shares and warrants to purchase ordinary shares of Taboola.com Ltd.
 
November 22, 2021
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2021

Commission File Number: 001-40566

TABOOLA.COM LTD.
(Exact name of registrant as specified in its charter)

16 Madison Square West 7th Floor
New York, NY 10010
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of
Form 20-F or Form 40-F:

Form 20-F
 
Form 40-F
 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐



This report on Form 6-K is being filed and shall be incorporated by reference in any registration statement filed by Taboola under the Securities Act of 1933, as amended (the “Securities Act”), that permits incorporation by reference.

TABLE OF CONTENTS
ITEM
 
Interim  Consolidated Financial Statements (Unaudited) as of and for the three and nine months ended September 30, 2021
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
TABOOLA.COM LTD.
       
 
By:
/s/ Stephen Walker
    Name: 
Stephen Walker
    Title:
Chief Financial Officer
       
Date: November 22, 2021
     




Exhibit 99.1

TABOOLA.COM LTD. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2021

UNAUDITED

INDEX

 
Page
   
   
2
   
3
   
4
   
6
   
7-24

- - - - - - - - - - - - - - - - -


TABOOLA.COM LTD.
CONSOLIDATED INTERIM BALANCE SHEETS
U.S. dollars in thousands, except share and per share data


 
September 30,
2021
   
December 31,
2020
 
   
Unaudited
   
Audited
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
 
$
311,768
   
$
242,811
 
Restricted deposits
   
1,065
     
3,664
 
Trade receivables (net of allowance for credit losses of $4,466 and $4,096 as of September 30, 2021, and December 31, 2020, respectively)
   
190,667
     
158,050
 
Prepaid expenses and other current assets
   
47,324
     
21,609
 
Total current assets
   
550,824
     
426,134
 
                 
NON-CURRENT ASSETS
               
Long-term prepaid expenses
   
19,533
     
5,289
 
Restricted deposits
   
3,574
     
3,300
 
Deferred tax assets
   
1,955
     
1,382
 
Right of use assets
   
56,792
     
68,058
 
Property and equipment, net
   
60,201
     
52,894
 
Intangible assets, net
   
259,042
     
3,905
 
Goodwill
   
553,845
     
19,206
 
Total non-current assets
   
954,942
     
154,034
 
Total assets
   
1,505,766
   
$
580,168
 
                 
LIABILITIES, CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY
               
CURRENT LIABILITIES
               
Trade payable
 
$
210,112
   
$
189,352
 
Lease liability
   
16,531
     
15,746
 
Accrued expenses and other current liabilities
   
108,785
     
95,135
 
Loan
   
3,000
     
-
 
Total current liabilities
   
338,428
     
300,233
 
                 
LONG TERM LIABILITIES
               
Deferred tax liabilities
   
50,432
     
45
 
Warrant Liability
   
36,792
     
-
 
Loan
   
285,869
     
63,044
 
Lease liability
   
49,287
     
-
 
Total long-term liabilities
   
422,380
     
63,089
 
                 
COMMITMENTS AND CONTINGENCIES (Note 10)
               
CONVERTIBLE PREFERRED SHARES
               
Preferred A, B, B-1, B-2, C, D and E shares with no par value - Authorized: 0 and 123,389,750 shares at September 30, 2021 and at December 31, 2020 respectively; Issued and outstanding: 0 and 121,472,152 shares at September 30, 2021 and December 31, 2020 respectively.
   
-
     
170,206
 
                 
SHAREHOLDERS' EQUITY
               
Ordinary shares with no par value- Authorized:700,000,000 and 176,535,661 shares as of September 30, 2021, and December 31, 2020, respectively; shares issued and outstanding of 231,640,546 and 41,357,049 as of September 30, 2021 and December 31, 2020, respectively.
   
-
     
-
 
Additional paid-in capital
   
801,988
     
78,137
 
Accumulated deficit
   
(57,030
)
   
(31,497
)
Total shareholders' equity
   
744,958
     
46,640
 
Total liabilities, convertible preferred shares, and shareholders' equity
 
$
1,505,766
   
$
580,168
 
The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

- 2 -

TABOOLA.COM LTD.
CONSOLIDATED INTERIM STATEMENTS OF INCOME (LOSS)
U.S. dollars in thousands, except share and per share data


 
Three months ended
September 30,
   
Nine months ended
September 30,
 

 
2021
   
2020
   
2021
   
2020
 

 
Unaudited
 
                         
Revenues
 
$
338,768
   
$
290,585
   
$
970,790
   
$
837,599
 
Cost of revenues:
                               
Traffic acquisition cost
   
211,899
     
186,288
     
621,137
     
565,449
 
Other cost of revenues
   
19,184
     
14,701
     
52,224
     
45,674
 
                                 
Total cost of revenues
   
231,083
     
200,989
     
673,361
     
611,123
 
                                 
Gross profit
   
107,685
     
89,596
     
297,429
     
226,476
 
                                 
Operating expenses:
                               
                                 
Research and development expenses
   
29,946
     
21,485
     
83,889
     
65,392
 
Sales and marketing expenses
   
43,518
     
32,663
     
146,962
     
99,495
 
General and administrative expenses
   
34,345
     
13,907
     
98,489
     
41,662
 
                                 
Total operating expenses
   
107,809
     
68,055
     
329,340
     
206,549
 
                                 
Operating income (loss) before finance expenses
   
(124
)
   
21,541
     
(31,911
)
   
19,927
 
Finance income (expenses), net
   
13,960
     
(844
)
   
13,077
     
(1,050
)
                                 
Income (loss) before income taxes
   
13,836
     
20,697
     
(18,834
)
   
18,877
 
Provision for income taxes
   
3,460
     
(4,009
)
   
(6,699
)
   
(13,137
)
                                 
Net income (loss)
 
$
17,296
   
$
16,688
   
$
(25,533
)
 
$
5,740
 
                                 
Less: Undistributed earnings allocated to participating securities
   
-
     
(5,819
)
   
(11,944
)
   
(17,046
)
Net income (loss) attributable to ordinary shareholders, basic and diluted
   
17,296
     
10,869
     
(37,477
)
   
(11,306
)
Net income (loss) per share attributable to ordinary shareholders, basic
 
$
0.08
   
$
0.29
   
$
(0.35
)
 
$
(0.28
)
Weighted-average shares used in computing net income (loss) per share attributable to ordinary shareholders, basic
   
229,024,803
     
38,101,268
     
107,884,927
     
40,144,245
 
Net income (loss) per share attributable to ordinary shareholders, diluted
 
$
0.07
   
$
0.18
   
$
(0.35
)
 
$
(0.28
)
Weighted-average shares used in computing net income (loss) per share attributable to ordinary shareholders, diluted
   
259,262,529
     
60,221,497
     
107,884,927
     
40,144,245
 

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

- 3 -

TABOOLA.COM LTD.
 CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY
 U.S. dollars in thousands, except share and per share data

   
Convertible Preferred shares
   
Ordinary shares
   
Additional paid-in
   
Accumulated
   
Total
Shareholders’
 
   
Number
   
Amount
   
Number
   
Amount
   
capital
   
deficit
   
Total
 
                                           
Balance as of December 31, 2020
   
121,472,152
   
$
170,206
     
41,357,049
   
$
-
   
$
78,137
   
$
(31,497
)
 
$
46,640
 
                                                         
Conversion of Preferred Shares to Ordinary Shares
   
(121,472,152
)
   
(170,206
)
   
121,472,152
     
-
     
170,206
     
-
     
170,206
 
Issuance of Ordinary Shares
                   
61,299,565
             
442,171
     
-
     
442,171
 
Share based compensation expenses
   
-
     
-
     
-
     
-
     
103,995
     
-
     
103,995
 
Exercise of options and vested RSUs
   
-
     
-
     
7,511,780
     
-
     
7,479
     
-
     
7,479
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
(25,533
)
   
(25,533
)
                                                         
Balance as of September 30, 2021 (unaudited)
   
-
   
$
-
     
231,640,546
   
$
-
   
$
801,988
   
$
(57,030
)
 
$
744,958
 

   
Convertible Preferred shares
   
Ordinary shares
   
Additional paid-in
   
Accumulated
   
Total
Shareholders’
 
   
Number
   
Amount
   
Number
   
Amount
   
capital
   
deficit
   
Total
 
Balance as of December 31, 2019
   
121,472,152
     
170,206
     
44,903,273
     
-
     
47,257
     
(39,990
)
   
7,267
 
                                                         
Cancellation of restricted shares
   
-
     
-
     
(7,411,689
)
   
-
     
-
     
-
     
-
 
Share based compensation expenses
   
-
     
-
     
-
     
-
     
10,747
     
-
     
10,747
 
Exercise of options
   
-
     
-
     
674,233
     
-
     
1,049
     
-
     
1,049
 
Net income
   
-
     
-
     
-
     
-
     
-
     
5,740
     
5,740
 
                                                         
Balance as of September 30, 2020 (unaudited)
   
121,472,152
   
$
170,206
     
38,165,817
   
$
-
   
$
59,053
   
$
(34,250
)
 
$
24,803
 

   
Convertible Preferred shares
   
Ordinary shares
   
Additional paid-in
   
Accumulated
       
   
Number
   
Amount
   
Number
   
Amount
   
Capital
   
deficit
   
Total
 
                                           
Balance as of June 30, 2021 (unaudited)
   
-
   
$
-
     
211,198,259
   
$
-
   
$
621,664
   
$
(74,326
)
 
$
547,338
 
                                                         
Issuance of Ordinary Shares
                   
17,328,049
     
-
     
157,689
     
-
     
157,689
 
Share based compensation expenses
   
-
     
-
     
-
     
-
     
20,075
     
-
     
20,075
 
Exercise of options and vested RSUs
   
-
     
-
     
3,114,238
     
-
     
2,560
     
-
     
2,560
 
Net income
   
-
     
-
     
-
     
-
     
-
     
17,296
     
17,296
 
                                                         
Balance as of September 30, 2021 (unaudited)
   
-
   
$
-
     
231,640,546
   
$
-
   
$
801,988
   
$
(57,030
)
 
$
744,958
 

- 4 -

TABOOLA.COM LTD.
CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY
U.S. dollars in thousands, except share and per share data

   
Preferred shares
   
Ordinary shares
   
Additional paid-in
   
Accumulated
       
   
Number
   
Amount
   
Number
   
Amount
   
Capital
   
deficit
   
Total
 
                                           
Balance as of June 30, 2020 (unaudited)
   
121,472,152
   
$
170,206
     
38,016,649
   
$
-
   
$
52,427
   
$
(50,938
)
 
$
1,489
 
                                                         
Share based compensation expenses
   
-
     
-
     
-
     
-
     
6,254
     
-
     
6,254
 
Exercise of options
   
-
     
-
     
149,168
     
-
     
372
     
-
     
372
 
Net income
   
-
     
-
     
-
     
-
     
-
     
16,688
     
16,688
 
                                                         
Balance as of September 30, 2020 (unaudited)
   
121,472,152
   
$
170,206
     
38,165,817
   
$
-
   
$
59,053
   
$
(34,250
)
 
$
24,803
 

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

- 5 -

TABOOLA.COM LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

   
Nine months ended
September 30,
 
 
2021
   
2020
 
   
Unaudited
 
Cash flows from operating activities:
           
             
Net income (loss)
 
$
(25,533
)
 
$
5,740
 
Adjustments to reconcile net loss to net cash flows provided by operating activities:
               
Depreciation and amortization
   
30,050
     
26,848
 
Share based compensation expenses
   
103,594
     
11,013
 
Net gain from financing expenses
   
(1,857
)
   
(937
)
Revaluation of the warrant liability
   
(17,091
)
   
-
 
Accrued interest, net
   
119
     
519
 
                 
Change in operating assets and liabilities:
               
Decrease in trade receivables
   
14,544
     
37,842
 
Decrease (increase) in prepaid expenses and other current assets and long-term prepaid expenses
   
(38,379
)
   
14,831
 
Decrease in trade payable
   
(27,185
)
   
(27,396
)
Increase in accrued expenses and other current liabilities
   
1,380
     
15,457
 
Increase (decrease) in deferred taxes, net
   
2,716
     
(1,635
)
Change in operating lease Right of use assets
   
10,878
     
10,143
 
Change in operating Lease liabilities
   
(12,683
)
   
(10,807
)
Net cash provided by operating activities
   
40,553
     
81,618
 
                 
Cash flows from investing activities
               
Purchase of property and equipment, including capitalized platform costs
   
(28,774
)
   
(13,680
)
Cash paid in connection with acquisitions, net of cash acquired (see Note 5)
   
(583,286
)
   
(202
)
Decrease (increase) in restricted deposits
   
2,325
     
68
 
Decrease in short-term deposits
   
-
     
28,963
 
Net cash provided by (used in) investing activities
   
(609,735
)
   
15,149
 
                 
Cash flows from financing activities
               
Exercise of options and vested RSUs
   
7,479
     
1,049
 
Issuance of share, net of offering costs
   
286,170
     
-
 
Issuance of warrant
   
53,883
     
-
 
Proceeds from long term loans, net of debt issuance cost
   
288,750
     
-
 
Net cash provided by financing activities
   
636,282
     
1,049
 
Exchange differences on balances of cash, cash equivalents
   
1,857
     
937
 
                 
Increase in cash, cash equivalents
   
68,957
     
98,753
 
Cash and cash equivalents - at the beginning of the period
   
242,811
     
86,920
 
Cash and cash equivalents - at end of the period
 
$
311,768
   
$
185,673
 
                 
Supplemental information:
               
Cash paid for income taxes
 
$
7,647
   
$
9,483
 
Noncash activities
               
Purchase of property, plant and equipment
 
$
1,500
   
$
1,403
 
Unpaid offering cost
 
$
1,688
     
-
 

The accompanying notes are an integral part of the unaudited consolidated interim financial statements.
- 6 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 1:-
GENERAL


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

Taboola is a technology company that empowers advertisers to leverage its Artificial Intelligence, or AI, powered platform to reach targeted audiences with an effective, native ad-format across websites, devices and services such as mobile apps and games (collectively referred to as “digital properties”). Digital properties use Taboola’s recommendation platform to monetize their content, increase user engagement and build new audiences.


b.
Merger Agreement

On January 25, 2021, the Company and Toronto Sub Ltd., a Cayman Islands exempted company and wholly owned subsidiary of  Taboola (“Merger Sub”) entered into a merger agreement (“Merger Agreement”), with ION Acquisition Corp. 1 Ltd., a Cayman Islands exempted company (“ION”), which was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. ION’s Class A ordinary shares, warrants, and units were previously listed on the NYSE under the symbols ‘‘ION,’’ ‘‘ION.WS,’’and ‘‘ION.U,’’ respectively.

Pursuant to the Merger Agreement, on June 29, 2021, Merger Sub merged with and into ION, with ION surviving the merger (the “Merger Transaction”).

Pursuant to the Merger Agreement, at the effective time of the Merger Transaction (the “Effective Time”), (a) each issued and outstanding unit of ION, consisting of one Class A ordinary share of ION, par value $0.0001 per share (“Class A Ordinary Shares”), and one-fifth of one warrant of ION entitling the holder to purchase one Class A Ordinary Share per warrant at a price of $11.50 per share (“ION Warrants”), was automatically separated and the holder thereof was deemed to hold one Class A Ordinary Share and one-fifth of one ION Warrant, (b) each Class A Ordinary Share outstanding immediately prior to the Effective Time was exchanged for one ordinary share no par value per share of Taboola (“Taboola Ordinary Shares”), (c) each Class B ordinary share of ION, par value $0.0001 per share, outstanding immediately prior to the Effective Time, was exchanged for one Taboola Ordinary Share and (d) each ION Warrant outstanding immediately prior to the Effective Time, including both the ION Warrants issued to public shareholders in ION’s initial public offering (the “Public Warrants”) and the ION warrants issued in a private placement to ION’s sponsors in ION’s initial public offering (the “Private Placement Warrants” or “Private Warrants”), was assumed by Taboola and become a warrant to purchase one Taboola Ordinary Share. Each step above took place after a preferred shares conversion and a Stock Split (as further described in c below).
 
After the Effective Time and once the Taboola Warrants become exercisable, Taboola may redeem the outstanding Taboola Warrants (except as described herein with respect to the Private Placement Warrants) in whole and not in part at a price of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption (the “30-day redemption period”); and if, and only if, the closing price of the Taboola Ordinary Shares equals or exceeds $18.00 per share, subject to certain adjustments, for any 20 trading days within a 30-trading day period ending three business days before the notice of redemption is sent to the warrant holders. Except as described below, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants.

- 7 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 1:-
GENERAL (Cont.)
 
After the Effective Time, the Private Placement Warrants (including the Taboola Ordinary Shares issuable upon exercise of such warrants) are not redeemable by Taboola so long as they are held by ION’s sponsors, members of ION’s sponsors or their permitted transferees. ION’s sponsors or their permitted transferees, have the option to exercise the Private Placement Warrants on a cashless basis.
 

Concurrently with and following the execution of the Merger Agreement, Taboola and certain accredited investors (“PIPE Investors”) entered into a series of subscription agreements, which closed concurrently with the closing of the merger under the Merger Agreement, providing for the purchase by the PIPE Investors at the Effective Time of an aggregate of 13,500,000 Taboola Ordinary Shares at a price per share of $10.00 (assuming the Stock Split has been effected), for gross proceeds to Taboola of $135,000 (collectively, the “PIPE”). The closing of the PIPE was conditioned upon the consummation of the Merger Transaction.

Concurrently with and following the execution of the Merger Agreement, Taboola and certain accredited investors (the “Secondary Investors”) entered into share purchase agreements pursuant to which the Secondary Investors purchased 15,120,000 Taboola Ordinary Shares from certain shareholders of Taboola, at a price per share of $10.00 (assuming the Stock Split had been affected), for gross proceeds of $151,200.

On June 29, 2021, following the Merger Transaction and other transactions contemplated by the Merger Agreement, ION became a direct, wholly owned subsidiary of Taboola. As a result, Taboola's shares and warrants became listed on The Nasdaq Global Market under the symbols “TBLA” and “TBLAW”, respectively

The ION Business Combination was accounted for as a recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. It has been determined that Taboola was the accounting acquirer based on evaluation of the following facts and circumstances:


Taboola’s existing shareholders will have the greatest voting interest in the combined entity.

Taboola’s directors will represent the majority of the board of directors of the combined company following the consummation of the Business Combination.

Taboola’s senior management will be the senior management of the combined company following the consummation of the Business Combination.

Taboola is the larger entity based on historical operating activity and has the larger employee base.

The Subscription Agreements related to the PIPE, which were executed concurrently with and following the Merger Agreement, resulted in the issuance of Taboola Ordinary Shares, leading to an increase in share premium.

The total ION cash amount and the PIPE consideration, net of transaction costs, were allocated to the equity and Warrant liability of the Company as of the Merger Transaction date in amounts of $284,482 and $53,883, respectively. The transaction costs related to the Warrant liability in the amount of $4,183 were recognized as general and administrative expenses in the Company's statement of income (loss) for the nine months ended September 30, 2021.

- 8 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 1:-
GENERAL (Cont.)


c.
On June 29, 2021, the Company’s board of directors and the stockholders, approved a 2.700701493 for 1 stock split, pursuant to which all Convertible Preferred Shares, Restricted Shares, Restricted Share Units, options to purchase Ordinary Shares, exercise price and net income (loss) per share amounts were adjusted retroactively for all periods presented in Company’s unaudited consolidated interim financial statements as if the stock split had been in effect as of the date of these consolidated financial statements.


d.
On September 1, 2021, the Company completed the acquisition of Shop Holding Corporation (“Connexity”) (“Connexity Acquisition”), an independent e-Commerce media platform in the open web, from Shop Management, LLC (“Seller”).  Connexity is a technology and data-driven integrated marketing services company focused on the e-commerce ecosystem. Through a focus on performance-based retail marketing, Connexity enables retailers and brands to understand their consumers better, acquire new customers at a lower cost, and increase sales from their target consumers. Connexity offers a comprehensive range of marketing services to online retailers and brands in the U.S. and Europe, including syndicated product listings, search marketing, and customer insights. Connexity corporate headquarters is in Santa Monica, California, and the company also maintains offices in New York, New York; London, England; and Karlsruhe, Germany.
The Connexity Acquisition was accounted for by the purchase method of accounting, and, accordingly, the purchase price has been allocated according to the fair value of the assets acquired and liabilities assumed.
In accordance with the acquisition method of accounting, the total purchase price for the Connexity Acquisition was $760,883, subject to customary purchase price adjustments for working capital, the payment of existing Connexity debt, expenses and the other terms and conditions described in the Purchase Agreement.
For the preliminary indication of the fair value of the identifiable assets acquired please refer to Note 5.


e.
In September 2021, Taboola entered into a registration rights agreement under which Taboola agreed, in certain circumstances, to register the Taboola ordinary shares issued to the seller for resale under the Securities Act of 1933, as amended.

- 9 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
 

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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, 2020, 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 as of and for the year ended December 31, 2020, included in the Company’s final prospectus dated October 6, 2021 relating to its Registration Statement on Form F-1/A as filed with the SEC.
 
In management’s opinion, the unaudited consolidated interim financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of September 30, 2021 and the Company’s unaudited interim consolidated statement of income (loss) and convertible preferred shares and shareholders’ equity for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 2021 and 2020. The results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the full year ending December 31, 2021, or any other future interim or annual period.
 

Use of Estimates
 

The preparation of unaudited consolidated interim financial statements in conformity with 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 date of the unaudited consolidated interim financial statements and the reported amounts of revenue and expenses during the reporting periods and accompanying notes. Significant items subject to such estimates and assumptions include, those related to accounts receivable and allowance for credit losses, acquired intangible assets and goodwill, the useful life of intangible assets, capitalized software and property and equipment, the incremental borrowing rate for operating leases, share-based compensation including the determination of the fair value of the Company’s share-based awards, the fair value of the private warrant, the fair value of intangible assets, and the valuation of deferred tax assets and uncertain tax positions.
 
The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from those estimates.
 

- 10 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
In March 2020, the World Health Organization (”WHO”) declared the novel coronavirus COVID-19 ("COVID-19") a global pandemic. The pandemic adversely affected workforces, economies, and financial markets globally in 2020 and the nine month of 2021 and, until contained, is still expected to disrupt general business operations. The COVID-19 pandemic and the measures taken by many governments around the world in response could in the future meaningfully impact our business, results of operations and financial condition. The Company is currently unable to predict the duration of that impact but continues to monitor its accounting estimates of the carrying value of certain assets and liabilities and will continue to do so as additional information is obtained or new events occur. Actual results could differ from our estimates and judgments, and any such differences may be material to our financial statements.
 
Significant Accounting Policies
 
The Company’s significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, in the Company’s final prospectus dated October 6, 2021 relating to its Registration Statement on Form F-1/A as filed with the SEC. There have been no significant changes to these policies during the nine months ended September 30, 2021, except as noted below.

Warrant Liability
 
The Company evaluated the Public Warrants and Private Placement Warrants (collectively, ‘‘Warrants’’, which are discussed in Note 1b, and Note 2) in accordance with ASC 815-40, ‘‘Derivatives and Hedging — Contracts in Entity’s Own Equity’’, and concluded that a provision in the Warrant Agreement related to certain tender or exchange offers, as well as provisions that provided for potential changes to the settlement amounts dependent upon the characteristics of the holder of the warrant, preclude the Warrants from being accounted for as components of equity.
As the Warrants meet the definition of a derivative as contemplated in ASC 815 and are not eligible for an exception from derivative accounting, the Warrants are recorded as derivative liabilities on the Balance Sheet and measured at fair value at inception (on June 29, 2021, the date of the Business Combination) and at each reporting date in accordance with ASC 820, ‘‘Fair Value Measurement’’, with changes in fair value recognized in the Statement of income (loss) in the period of change.

Accounting for share-based compensation
 
The fair value of each option award is estimated on the grant date using the Black-Scholes option pricing model. The fair value of each option award is estimated using the following assumptions:

   
Nine months ended September 30,
 
   
2021
   
2020
 
             
Volatility
   
51.47% - 54.72
%
   
47.65% - 53.82
%
Risk-free interest rate
   
0.61% - 1.27
%
   
0.38% - 1.68
%
Dividend yield
   
0
%
   
0
%
Expected term (in years)
   
5 - 6.86
     
5.99 - 6.25
 

- 11 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
 
Business combinations
 
The Company accounts for business combinations using the acquisition method of accounting. The Company determines the recognition of intangible assets based on the following criteria: (i) the intangible asset arises from contractual or other rights; or (ii) the intangible asset is separable or divisible from the acquired entity and capable of being sold, transferred, licensed, returned or exchanged. The Company allocates the purchase price of business combinations to the tangible assets, liabilities and intangible assets acquired, based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statement of income (loss). The process of estimating the fair values requires significant estimates, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer contracts, merchant/network affiliate relationship, publisher relationship, technologies, tradenames and discount rates. The Company estimates fair value based upon assumptions that are believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Revenue recognition
 
Connexity’s operations are consolidated beginning on September 1, 2021, the acquisition date. Connexity revenues are primarily derived from usage-based fees from customers accessing the Connexity enterprise cloud computing services platform for cost-per-click (“CPC”) advertising and performance-based cost-per-action (“CPA”) advertising.

CPC revenues consist of fees paid by online merchants and advertisers when a consumer is redirected to their website by the Connexity’s syndicated product listing platform, which feeds shopping-related content from merchants to ad platforms, publishers, and social influencers. CPA revenues are gathered when Connexity enters a performance-based arrangement with a merchant or advertiser. The company recognizes revenues when the performance criteria have been met.

The determination of whether revenue should be reported gross of amounts billed to advertisers (gross basis) or net of payments to digital properties partners (net basis) requires significant judgment and is based on management assessment of whether Connexity is acting as the principal or an agent in the transaction. Connexity’s revenues are reported net of the related digital property cost, as the Company believes that Connexity acts as an agent in its arrangements as it does not have the ability to direct the service to its customers.

Recently Issued Accounting Pronouncements
 
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing a variety of exceptions within the framework of ASC 740. These exceptions include the exception to the incremental approach for intra-period tax allocation in the event of a loss from continuing operations and income or a gain from other items (such as other comprehensive income), and the exception to using general methodology for the interim period tax accounting for year-to-date losses that exceed anticipated losses. The guidance will be effective for the Company beginning January 1, 2021, and interim periods in fiscal years beginning January 1, 2022.
 
- 12 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Early adoption is permitted. The Company is currently evaluating the effect that ASU 2019-12 will have on its consolidated financial statements and related disclosures.

NOTE 3:-
CASH AND CASH EQUIVALENTS
 
The following table presents for each reported period, the breakdown of cash and cash equivalents:

      
September 30,
   
December 31,
 
 
2021
   
2020
 
 
Unaudited
   
Audited
 
           
Cash
 
$
178,232
   
$
115,693
 
Money market funds
   
126,533
     
10
 
Time deposits
   
7,003
     
127,108
 
 
               
Total Cash and cash equivalents
 
$
311,768
   
$
242,811
 

NOTE 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. There have been no transfers between fair value measurements levels during the nine months ended September 30, 2021.

The following table sets forth the Company’s assets and liabilities that were measured at fair value as of September 30, 2021, by level within the fair value hierarchy (in thousands):


 
September 30, 2021
 

 
Fair value measurements using input type
 
   
Unaudited
 
Description:
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Money market funds
 
$
126,533
   
$
-
   
$
-
   
$
126,533
 
                                 
Liabilities:
                               
Warrant Liability – Public Warrants
   
9,583
     
-
     
-
     
9,583
 
Warrant Liability – Private Placement Warrants
   
-
     
-
     
27,209
     
27,209
 

The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the balance sheet. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within Finance income (expenses), net in the unaudited consolidated interim statement of income (loss).

- 13 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 4:-
FAIR VALUE MEASUREMENTS (Cont.)

Initial Measurement

The Company established the initial fair value for the Warrants as of June 29, 2021, the date of the Company’s Merger Transaction, using a quoted price for the Public Warrants and a Black-Scholes simulation model for the Private Placement Warrants. The Private Warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs.

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

Input
 
June 29, 2021
   
September 30, 2021
 
 
(Initial Measurement)
       
             
Risk-free interest rate
   
0.73% - 0.89
%
   
0.76% - 0.92
%
Expected term (years)
   
4.26 - 5.00
     
4.01 - 4.75
 
Expected volatility
   
65.3% - 65.7
%
   
37.8% - 65.7
%
Exercise price
 
$
11.50
   
$
11.50
 
Underlying Stock Price
 
$
10.54
   
$
8.46
 
                 

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 warrants.

The expected term was determined based on the expected date of the initial Merger Transaction, as the Warrants expire on the date that is 5 years from the completion of the initial Merger Transaction and for certain Private Warrants 5 years from the date of the initial public offering effective date.

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

Subsequent Measurement

The following table presents the changes in the fair value of warrants liability (unaudited):

Input
 
Private
Warrants
   
Public
Warrants
   
Total
Warrants
 
                   
Initial measurement on June 29, 2021
   
39,143
     
14,740
     
53,883
 
Change in fair value
   
(11,934
)
   
(5,157
)
   
(17,091
)
Fair value as of September 30, 2021
   
27,209
     
9,583
     
36,792
 

- 14 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 5:-
BUSINESS COMBINATIONS

On September 1, 2021, the Company consummated the Connexity Acquisition, an independent e-Commerce media platform in the open web.

In accordance with the acquisition method of accounting, the total purchase price for the Connexity Acquisition was $760,883, subject to working capital adjustments, comprised of $593,894 in cash, $157,689 for the fair value of 17,328,049 shares of the Company’s ordinary shares issued, and additional $9,300 to be paid subsequently.

Final transaction consideration is expected to be agreed upon between the parties by the end of November 2021. In addition to the purchase consideration and pursuant to holdback agreements with certain Connexity employees, the Company is committed to issue 3,681,030 of the Company’s ordinary shares, to be released to those employees over the period of three years after the acquisition date, subject to their continued service. The Company also agreed to issue up to a $40,000 in equity awards as retention bonuses to Connexity continuing employees which will vest in five annual installments following the acquisition date. The vesting of the holdback and the retention consideration are subject to continued employment, and therefore recognized as compensation expense over the requisite service period.


1.
Under the preliminary purchase price adjustment, Taboola allocates the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the preliminary estimates of their estimated fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management at the time of the acquisition.
 

2.
Such estimates are subject to change during the measurement period which is not expected to exceed one year. Any adjustments to the preliminary purchase price allocation identified during the measurement period will be reflected as an adjustment to the goodwill in the reporting period in which the adjustment is identified.

As a result of Connexity Acquisition, the Company recognized $840 as compensation expenses for the three and nine months ended September 30, 2021. The recognition of the compensation expenses of $75, $150, $148, and $467 are included in cost of revenue, Sales and marketing, Research and development and General and administrative in the consolidated statements of income (loss), respectively.

The following table summarizes the preliminary fair value of assets acquired and liabilities assumed (unaudited):


 
September 1, 2021
 

 
(in thousands)
 
       
Cash and cash equivalent
 
$
10,608
 
Other current assets
   
59,336
 
Intangible assets
   
262,323
 
Goodwill
   
534,639
 
Other noncurrent assets
   
3,369
 
Total assets acquired
   
870,275
 
Current liabilities
   
62,294
 
Deferred tax liability, net
   
47,098
 
Total liabilities assumed
   
109,392
 
Total purchase consideration
 
$
760,883
 


- 15 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 5:-
BUSINESS COMBINATIONS (Cont.)

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired, and is attributable primarily to expected synergies, economies of scale and the assembled workforce of Connexity. Goodwill is not deductible for income tax purpose. The following table summarizes the preliminary estimate of the intangible assets and their estimated useful lives as of the acquisition date:

   
Fair Value
   
Useful life
 
   
(in thousands)
   
(in years)
 
             
Merchant/ Network affiliate relationships
 
$
140,403
     
4.0
 
Publisher relationship
   
43,245
     
4.0
 
Trademark
   
23,580
     
3.0
 
Technology
   
55,095
     
5.0
 
Total intangible assets acquired
 
$
262,323
         
                 

The results of operations of Connexity have been included in the unaudited consolidated interim financial statements since the date of the acquisition. Additionally, the Company incurred transaction costs $5,524 and $6,221 during the three and nine months ended September 30, 2021, which were included in general and administrative expenses in the unaudited consolidated interim statements of income (loss).
 
NOTE 6:-
GOODWILL AND INTANGILE ASSETS, NET

Goodwill
 
The following table represents the changes to goodwill:
 

 
Nine Months Ended
September 30, 2021
 
   
(in thousands)
 
       
Balance as of December 31, 2020
 
$
19,206
 
Additions from acquisitions
   
534,639
 
Balance as of September 30, 2021
 
$
553,845
 

 
Intangible Assets, Net
 
Intangible assets consisted of the following as of September 30, 2021:
 
   
Gross Fair
Value
   
Accumulated
Amortization
   
Net Book
Value
   
Weighted-
Average
Remaining
Useful Life
 
   
(in thousands)
   
(in years)
 
Merchant/ Network affiliate relationships
   
140,403
     
(2,925
)
   
137,478
     
3.92
 
Publisher relationship
   
43,245
     
(901
)
   
42,344
     
3.92
 
Trademark
   
23,580
     
(655
)
   
22,925
     
2.92
 
Technology
   
71,950
     
(17,713
)
   
54,237
     
4.91
 
Customer relationship
   
12,256
     
(10,198
)
   
2,058
     
2.33
 
Total
   
291,434
     
32,392
     
259,042
         

- 16 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 6:-
GOODWILL AND INTANGILE ASSETS, NET (Cont.)

Intangible assets consisted of the following as of December 31, 2020:
 
   
Gross Fair
Value
   
Accumulated
Amortization
   
Net Book
Value
   
Weighted-
Average
Remaining
Useful Life
 
   
(in thousands)
   
(in years)
 
Technology
 
$
16,855
   
$
(15,686
)
 
$
1,169
     
0.73
 
Customer relationship
   
12,256
     
(9,520
)
   
2,736
     
3.25
 
Total
 
$
29,111
   
$
(25,206
)
 
$
3,905
         

Amortization expenses for intangible assets were $5,908 and $642 for the three months ended September 30, 2021 and 2020, respectively, and $7,186 and $1,921 for the nine months ended September 30, 2021 and 2020, respectively. Amortization of technology is included in cost of revenue and amortization of the other intangible assets are included in sales and marketing expense in the unaudited consolidated interim statements of income (loss).
 
The expected future amortization expenses by year related to the intangible assets as of September 30, 2021 are as follows:
 
   
September 30, 2021
 
   
(in thousands)
 
Year Ending December 31,
     
2021 (Remainder)
 
$
16,441
 
2022
   
65,675
 
2023
   
65,646
 
2024
   
62,306
 
2025
   
41,627
 
Thereafter
   
7,347
 
Total
 
$
259,042
 

- 17 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 7:-
LOAN

Concurrently with the closing of the Connexity Acquisition, on September 1, 2021, Taboola entered into a $300,000 senior secured term loan credit agreement (the “Credit Agreement”), among Taboola, a wholly-owned Taboola subsidiary, as borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.  The Credit Agreement provides for borrowings in an aggregate principal amount of up to $300,000 (the “Facility”).

The Facility was fully drawn at closing, net of issuance expenses of $11,250, and the proceeds were used by Taboola to finance, in part, the Connexity Acquisition.

The Facility is subject to customary borrowing conditions and bears interest at a variable annual rate based on LIBOR or Base Rate plus a fixed margin. The Facility will mature on the seventh anniversary of the closing date and amortizes at a rate of 1.00% per annum payable in equal quarterly instalments, with the remaining principal amount due at maturity.

As of September 30, 2021, the total future principal payments related to Credit Facilities are as follows (unaudited):

   
September 30, 2021
 
   
(in thousands)
 
Year Ending December 31,
     
2022
 
$
3,000
 
2023
   
3,000
 
2024
   
3,000
 
2025
   
3,000
 
2026
   
3,000
 
2027
   
3,000
 
2028
   
282,000
 
Total
 
$
300,000
 

The Facility is guaranteed by Taboola.com, Ltd. and all of its wholly owned material United States and Israeli subsidiaries, subject to certain exceptions set forth in the Credit Agreement (collectively, the “Guarantors”). The obligations of the Borrower and the Guarantors are secured by substantially all the assets of the Borrower and the Guarantors including stock of subsidiaries, subject to certain exceptions set forth in the Credit Agreement.

- 18 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 8:-
SHAREHOLDERS' EQUITY


a.
Composition of share capital of the Company:

   
September 30, 2021
 
December 31, 2020
 
Unaudited
 
Audited
 
Authorized
 
Outstanding
 
Authorized
 
Outstanding
 
Number of shares
                 
Ordinary shares (no par value)
 
700,000,000
 
231,640,546
 
176,535,661
 
41,357,049


b.
Share option plan:

During the years 2007, 2016, 2017, 2020 the Company adopted several share incentive plans (together the “Company's legacy share incentive plan” or “Legacy Plans”). In June 2021 the Company retired the Legacy Plans and adopted the 2021 Share Incentive Plan (the “2021 Share Incentive Plan” or “2021 Plan”, and together with the Legacy Plans, the “Plans”).
In addition, during June 2021, the Company adopted the Employee Stock Purchase Plan (the “ESPP”).

The Company adopted the Plans and the ESPP to provide incentives to employees, directors, consultants and/or contractors.

Under each of the Plans, the Company's employees, directors, consultants and/or contractors may be granted any equity-related award, including option to acquire the Company ordinary shares; restricted shares; and restricted share units (“RSU”).

The options generally vest over 4 years and expire 10 years after the date of grant. Most of the RSUs granted prior to June 30, 2021, were subject to a two-tiered vesting arrangement, including a time-based vesting component which is generally over 4 years, and an additional vesting condition of a Merger/Sale or IPO being consummated within 5 years of the grant. Any equity grant that is forfeited or canceled before expiration becomes available for future grants under the Plans.

As of September 30, 2021, the maximum number of Taboola ordinary shares available for issuance under the 2021 Share Incentive Plan is equal to the sum of (i) 31,698,288 shares, (ii) any shares subject to awards under the Legacy Plans which have expired, or were cancelled, terminated, forfeited or settled in cash in lieu of issuance of shares or became unexercisable without having been exercised, and (iii) an annual increase on the first day of each year beginning in 2022 and on January 1st of each calendar year thereafter during the term of the 2021 Plan, equal to the lesser of (A) 5% of the outstanding shares on the last day of the immediately preceding calendar year and (B) such amount as determined by Taboola’s board of directors if so determined prior to January 1 of a calendar year.

- 19 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data


NOTE 8:-
SHAREHOLDERS' EQUITY (Cont.)

The following is a summary of share option activity and related information for the periods from January 1, 2021, through September 30, 2021 (including employees, directors, officers and consultants of the Company):

         
Options Outstanding
 
   
Outstanding Share Options
   
Weighted-Average Exercise Price
   
Weighted Average Remaining Contractual Life (Years)
   
Aggregate
Intrinsic
Value
 
                         
Balance as of December 31, 2020
   
46,064,449
   
$
1.54
     
5.62
   
$
247,117
 
                                 
Granted
   
9,821,068
   
$
6.97
                 
Exercised
   
(5,855,643
)
 
$
1.07
           
$
49,765
 
Forfeited
   
(1,031,372
)
 
$
3.11
                 
                                 
Balance as of September 30, 2021
   
48,998,502
   
$
2.63
     
5.96
   
$
285,492
 
                                 
Exercisable as of September 30, 2021 (unaudited)
   
32,189,643
   
$
1.56
     
4.32
   
$
222,069
 

The aggregate intrinsic value in the table above represents the total intrinsic value that would have been received by the option holders had all option holders exercised their options on the last date of the period.

The weighted-average grant date fair value of options granted during the nine and three months ended September 30, 2021, was $ 9.39 and 9.93, respectively.

As of September 30, 2021, unrecognized share-based compensation cost related to unvested share options and RSUs was $107,224, which is expected to be recognized over a weighted-average period of 2.62 years.

The following is a summary of the RSU activity and related information for the from January 1, 2021 through September 30, 2021 (including employees of the Company):

   
Outstanding
Restricted Shares Unit
   
Weighted-Average Grant Date Fair Value Per Share
 
             
Balance as of December 31, 2020
   
12,755,167
   
$
5.64
 
Granted
   
7,088,855
   
$
9.43
 
Vested
   
(1,656,137
)
       
Forfeited
   
(405,098
)
 
$
7.50
 
                 
Balance as of September 30, 2021(unaudited)
   
17,782,787
   
$
7.54
 

- 20 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 8:-
SHAREHOLDERS' EQUITY (Cont.)

The restricted share units were subject to multiple vesting conditions, such as time-based vesting and additional vesting condition whereby any of the RSUs shall not lapse, and no RSUs shall become vested prior and subject to the consummation of a Merger/Sale or an IPO (as defined in the respective incentive plan), which was satisfied upon Taboola becoming a publicly-traded company on the Nasdaq Global Market.

The total equity-based compensation expense related to all of the Company's equity-based awards recognized for the nine and three months ended September 30, 2021, was comprised as follows:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2021
   
2020
   
2021
   
2020
 
   
Unaudited
 
                         
Cost of revenues
 
$
443
   
$
327
   
$
1,023
   
$
579
 
Research and development
   
7,749
     
2,292
     
20,134
     
4,343
 
Sales and marketing
   
3,997
     
2,505
     
40,168
     
4,402
 
General and administrative
   
7,751
     
1,396
     
42,269
     
1,689
 
                                 
Total share-based compensation expense
 
$
19,940
   
$
6,520
   
$
103,594
   
$
11,013
 

NOTE 9:-
INCOME TAXES:

The Company’s effective tax rate is highly dependent upon the geographic distribution of its worldwide earnings or losses and tax regulations. The Company’s effective tax rates were 36% and (70%) for the nine months ended September 30, 2021 and 2020, respectively. The difference between the Company’s effective tax rate and the 23% statutory rate in Israel for the nine months ended September 30, 2021, resulted primarily from tax profitable jurisdictions, mainly the U.S. and is due to non-deductible tax expenses related primarily to the share-based compensation payments. In the nine months ended September 30, 2020, the effective tax rate was also affected by the US BEAT tax regime.

- 21 -


TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 10:-
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 pageviews 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 September 30, 2021, the Company had outstanding non-cancelable purchase obligations in the amount of $6,055.
 
Legal Proceedings


a.
In October 2019, one of the Company's digital properties (the "Digital Property") filed a claim against the Company in the Paris Commercial Court for approximately $706 (the "Claim"). According to the Claim, the Company allegedly has failed to pay certain minimum guarantee payments for the years 2016 to 2019. It is the Company's position that there are no merits to the Claim because the Digital Property did not act in accordance with the agreement and a counterclaim in the amount of $1,970 was filed by the Company for a refund of certain compensation that was paid. A virtual trial took place on February 24, 2021, and the Paris Commercial Court dismissed Digital property claims and ordered them to pay an amount of approximate $12 thousand in costs to Taboola. On June 1, 2021, the Digital Property filed an appeal against the decision of the Paris Commercial Court, and their appellate briefs in early September. Taboola will have to file its response to these claims by January 31, 2022.


b.
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 with the Antitrust Division.  While there can be no assurances as to the ultimate outcome, the Company does not believe that its conduct violated applicable law.


c.
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 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.

- 22 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 11:-
SEGMENT INFORMATION

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

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2021
         
2020
   
2021
   
2020
 
   
Unaudited
 
                               
Israel
 
$
48,715
         
$
42,734
   
$
133,761
   
$
126,540
 
United Kingdom
   
16,344
     
1
     
14,310
     
49,080
     
35,453
 
United States
   
125,239
             
120,595
     
369,710
     
369,894
 
Germany
   
37,967
             
24,641
     
106,342
     
70,677
 
France
   
11,988
             
13,121
     
43,337
     
31,612
 
Rest of the World
   
98,515
             
75,184
     
268,560
     
203,423
 
                                         
Total
 
$
338,768
           
$
290,585
   
$
970,790
   
$
837,599
 

NOTE 12:-
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY SHAREHOLDERS

The following table sets forth the computation of basic and diluted net income (loss) per share attributable to ordinary shareholders for the periods presented:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2021
   
2020
   
2021
   
2020
 
   
Unaudited
 
Basic net profit (loss) per share
                       
Numerator:
                       
Net income (loss)
 
$
17,296
   
$
16,688
   
$
(25,533
)
 
$
5,740
 
Less: Undistributed earnings allocated to participating securities
   
-
     
(5,819
)
   
(11,944
)
   
(17,046
)
Net income (loss) attributable to ordinary shares – basic
   
17,296
     
10,869
     
(37,477
)
   
(11,306
)
                                 
Denominator:
                               
Weighted-average shares used in computing net income (loss) per share attributable to ordinary shareholders, basic
   
229,024,803
     
38,101,268
     
107,884,927
     
40,144,245
 
Net income (loss) per share attributable to ordinary shareholders, basic
 
$
0.08
   
$
0.29
   
$
(0.35
)
 
$
(0.28
)
                                 
Diluted net profit (loss) per share
                               
Numerator:
                               
Net income (loss) attributable to ordinary shares – diluted
   
17,296
     
10,869
     
(37,477
)
   
(11,306
)
                                 
Denominator:
                               
Weighted-average shares used in computing net income (loss) per share attributable to ordinary shareholders, basic
   
229,024,803
     
38,101,268
     
107,884,927
     
40,144,245
 
Weighted average effect of dilutive securities—effect of share-based awards
   
30,237,726
     
22,120,229
     
-
     
-
 
Weighted-average shares used in computing net income (loss) per share attributable to ordinary shareholders, diluted
   
259,262,529
     
60,221,497
     
107,884,927
     
40,144,245
 
                                 
Net income (loss) per share attributable to ordinary shareholders, diluted
 
$
0.07
   
$
0.18
   
$
(0.35
)
 
$
(0.28
)
                                 

- 23 -

TABOOLA.COM LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 12:-
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY SHAREHOLDERS (Cont.)

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

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2021
   
2020
   
2021
   
2020
 
   
Unaudited
 
                         
Warrants
   
12,350,000
     
-
     
12,350,000
     
-
 
RSUs
   
-
     
-
     
8,825,040
     
2,227,686
 
Outstanding share options
   
-
     
-
     
46,705,718
     
43,701,256
 

NOTE 13:-
SUBSEQUENT EVENTS

a.
Following the Connexity Acquisition, on October 5, 2021, the Board of Directors of the Company, approved the retention equity grant issuances for certain Connexity employees as contemplated by the agreements for the Connexity Acquisition in a total amount of $ 39,205.

b.
To enable certain executives and directors and the Company to obtain the potential benefits of a net issuance mechanism, the Company is seeking shareholder approval at a special shareholder general meeting to be held on December 14, 2021 to amend its current compensation policy and compensation terms of the Company’s directors and Chief Executive Officer in accordance with Israeli law to permit net issuance or other mechanisms to satisfy tax withholding obligations related to equity-based compensation.

On November 16, 2021, the Tel Aviv District Court Economic Department (the “Israeli court”) approved the motion previously filed by Taboola on October 10, 2021, which sought the approval of a program of up to $60,000, to be utilized, if so determined by its board of directors, in connection with a net issuance mechanism to satisfy tax withholding obligations related to equity-based compensation on behalf of its directors, officers and other employees and possible future share repurchases. The Company does not have a current intention to adopt a share repurchase program.

The approval by the Israeli court is limited to a six (6) month period. The Company expects to make successive requests to the Israeli court for similar approvals.

On November 18, 2021, the Company’s board of directors granted the Company’s management the discretion to utilize the net issuance mechanism to satisfy tax withholding obligations related to equity-based compensation, subject to obtaining shareholder approval.

- - - - - - - - - - - - - - - - - - - -

- 24 -



Exhibit 99.2

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 audited consolidated financial statements and the related notes appearing in our registration statement on Form F-1 on file with the U.S. Securities and Exchange Commission (the “SEC”) and the pro forma financial information as of and for the year ended December 31, 2020 and the six months ended June 30, 2021 under the heading “Unaudited Pro Forma Condensed Combined Financial Information” included in our Prospectus dated October 6, 2021 forming part of our registration statement on Form F-1/A. Some of the information contained in this discussion and analysis is set forth elsewhere in our registration statement on Form F-1/A, 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 in the section titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements,” 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” to 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 the past 13 years.
 
We think of ourselves as a search engine, but in reverse — instead of expecting people to search for information, we recommend information to people. 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 recommendation platform 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 AI-powered recommendation platform to reach targeted audiences, utilizing effective, native ad-formats across digital properties. We generate revenues when people click on or, in some cases, view the ads that appear within our recommendation platform. Advertisers pay us for those clicks or impressions and we share the resulting revenue with the digital properties who display those ads.
 
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 indicates 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.
 
Our annual Revenues grew to $1,188.9 million in 2020, from $1,093.8 million in 2019 and $909.2 million in 2018. Over the same three years, our Gross profit grew to $319.5 million, from $232.0 million and $234.2 million, and our ex-TAC Gross Profit grew to $382.4 million, from $295.8 million and $281.5 million, respectively. Our Net income (loss) for the same three years was $8.5 million, ($28.0) million and $10.7 million, respectively, while our Adjusted EBITDA was $106.2 million, $34.1 million and $66.9 million, respectively. For more information about ex-TAC Gross Profit and Adjusted EBITDA, see “— Non-GAAP Financial Measures.”


ION Merger Agreement

On January 25, 2021, we and one of our subsidiaries entered into a Merger Agreement with ION Acquisition Corp. 1 Ltd., or ION. Under that agreement, our subsidiary merged with and into ION, with ION continuing as the surviving company and becoming our direct, wholly-owned subsidiary. The Merger Agreement and the related transactions were unanimously approved by both our and ION’s boards of directors. The ION business combination, or the “Business Combination,” closed June 29, 2021 and our ordinary shares and warrants began trading on the NASDAQ on June 30, 2021. In connection with the Merger Agreement, we also obtained commitments for the purchase in private transactions which closed concurrently with the Business Combination of approximately $285 million of our ordinary shares, of which approximately $150 million was purchased directly from certain of our existing shareholders, primarily from early investors.

Connexity Acquisition
 
          On September 1, 2021 we completed our previously announced acquisition of Shop Holding Corporation, which we refer to as Connexity. The total purchase price of approximately $800 million included retention incentives, and is subject to customary purchase price adjustments for working capital and indebtedness.
 
At closing, we issued 17,328,049 of our ordinary shares based on a fair value of shares at the closing date of $157.7 million to the seller and paid the seller approximately $593.9 million in cash with an additional $9.3 million to be paid subsequently.
 
An additional 3,681,030 shares are deliverable to Connexity employees in installments over three years following the closing as part of holdback arrangements, subject to continued employment with Taboola. Separately, certain employees of Connexity have been granted incentive equity awards of approximately $40 million that will settle in our ordinary shares and will vest subject to their continued employment with Taboola over the next approximately five years.
 
At the closing we also entered into a $300 million senior secured term loan credit agreement and used the full proceeds of the loan, net of issuance cost to finance, in part, the Connexity acquisition. See Notes 5, 6 and 7 of Notes to Unaudited Interim Consolidated Financial Statements.

For further information please refer to the “Unaudited Pro Forma Condensed Combined Financial Information” and other information regarding the Connexity acquisition included in our Prospectus dated October 6, 2021 forming part of our registration statement on Form F-1/A and our report on Form 6-K dated September 1, 2021.

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 in the section entitled “Risk Factors” included in our Prospectus dated October 6, 2021 forming part of our registration statement on Form F-1/A.


Maintaining and Growing Our Digital Property Partners
 
We have a robust network of digital property partners under contracts that provide exclusivity and cover multiple years 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. This is true across all platforms and in all geographies. Due to our multi-year exclusive contracts and high retention rates, our supply is relatively consistent and predictable. We had approximately 9,000, 7,000 and 6,000 digital property partners in the fourth quarter of 2020, 2019 and 2018, respectively.
 
We have 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.
 
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 fixed 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 13,000, 12,000 and 10,000 advertiser clients working with us directly, or through advertising agencies, worldwide during the fourth quarter of 2020, 2019 and 2018, 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.


Product and Research & 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 data privacy, 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 whole digital ecosystem. Because we power editorial recommendations, digital properties typically embed our code directly on their web pages. This makes us less susceptible to 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.

Impact of COVID-19

In December 2019, COVID-19 was first reported to the World Health Organization, or WHO, and in January 2020, the WHO declared the outbreak to be a public health emergency. In March 2020, the WHO characterized COVID-19 as a pandemic. The spread of COVID-19 initially significantly impacted the digital advertising industry, reducing advertising budgets, lowering ad rates and leading advertisers to defer planned ad campaigns.
 
We experienced a notable decline in advertising rates soon after the onset of the COVID-19 pandemic, and we attribute an approximately 12% reduction in our second quarter of 2020 revenue to the pandemic. We took three steps to address the reduction in advertising rates, which resulted in a gradual recovery in revenue that continued throughout the remainder of the year. First, we worked with our digital property partners to optimize yield by focusing on revenue-generating enhancements. Second, we focused our sales efforts on finding advertisers that were still spending online and trying to reach consumers who were sheltering at home. This effort, combined with a return of spend from certain types of advertisers, allowed us to grow our advertiser base and increase yield. Finally, we continued our investment in our algorithms that help improve yields. After the reduction in advertising and rates in the first two quarters of 2020, we saw a strong recovery in our network yield in the third quarter. The gains in network yields we realized in the second half of 2020 continued into the first two quarters of 2021 and we expect network yields to increase during the second half of 2021 at rates consistent with pre-COVID historical levels.


As a result of the pandemic, we restricted employee travel, asked all non-essential personnel to work from home, cancelled physical participation in sales activities, meetings, events and conferences, which reduced our operating expenses. We also examined the efficiency and impact of expenditures across our business and found more efficient ways to work in many cases. This included imposing a hiring freeze while we worked to optimize the way we conducted business. As part of our close relationship with our digital property partners, certain of our partners that had guarantee compensation arrangements agreed to forgo their guarantee compensation and instead shift to 100% revenue share until yield recovered. In connection with these arrangements, for certain digital property partners, we extended their agreements. In the fourth quarter of 2020, we returned to guarantee arrangements with substantially all of the affected digital property partners and agreed with them to undo the 100% revenue share arrangement, reinstate the original payment terms, and make payments, retroactively, of the guarantee under the original compensation terms.
 
The ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, we cannot predict whether any worsening or continuation of the pandemic, or any resulting recession, will adversely affect our business.

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.
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2021
   
2020
   
2021
   
2020
 
   
Unaudited
   
Unaudited
 
                         
Revenues
 
$
338,768
   
$
290,585
   
$
970,790
   
$
837,599
 
Gross profit
   
107,685
     
89,596
     
297,429
     
226,476
 
ex-TAC Gross Profit (1)
   
126,869
     
104,297
     
349,653
     
272,150
 
Net cash provided by operating activities
   
26,573
     
33,776
     
40,553
     
81,618
 
Free Cash Flow (1)
   
19,474
     
30,730
     
11,779
     
67,938
 
Net income (loss)
   
17,296
     
16,688
     
(25,533
)
   
5,740
 
Adjusted EBITDA (1)
   
39,734
     
40,055
     
114,080
     
73,200
 
Net income (loss) Margin
   
5.1
%
   
5.7
%
   
-2.6
%
   
0.7
%
Ratio of Net income (loss) to Gross profit
   
16.1
%
   
18.6
%
   
-8.6
%
   
2.5
%
Ratio of Adjusted EBITDA to ex-TAC Gross Profit (1)
   
31.3
%
   
38.4
%
   
32.6
%
   
26.9
%
Cash, cash equivalents and short-term deposits
   
311,768
     
185,673
     
311,768
     
185,673
 

(1)
Non-GAAP measure. Refer to “—Non-GAAP Financial Measures” below for an explanation and reconciliation to GAAP metrics.


Revenues
 
Substantially all of our Revenues are generated from advertisers. We enter into commercial arrangements with advertisers defining the terms of our service and the basis for our charges. Generally, our charges are based on a CPC or CPM 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.

Gross profit

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

ex-TAC Gross Profit

We calculate ex-TAC Gross Profit as Gross profit adjusted to include Other cost of revenues.

Net cash provided by operating activities

Net cash provided by operating activities is our Net income (loss) adjusted for non-cash charges and net cash provided by changes in our working capital.

Free Cash Flow

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

Net income (loss)

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

Adjusted EBITDA

We calculate Adjusted EBITDA as Net income (loss) before net financial expenses, income tax expenses/ benefit and depreciation and amortization, further adjusted to exclude share-based compensation and other noteworthy income and expense items such as certain merger or acquisition related costs, which may vary from period-to-period.

Net income (loss) Margin

Net income (loss) Margin is Net income (loss) divided by Revenues.
 
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.



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.

Cash, cash equivalents and short-term deposits

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less. Short-term deposits are bank deposits with maturities of more than three months but less than one year.

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.
 
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 and financial performance measures.

ex-TAC Gross Profit

We believe that ex-TAC Gross Profit, which we calculate as Gross profit adjusted to include Other cost of revenues, 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 September 30,
   
Nine Months
Ended September 30,
 
   
2021
   
2020
   
2021
   
2020
 
   
(unaudited)
   
(unaudited)
 
             
   
(dollars in thousands)
   
(dollars in thousands)
 
Revenues
 
$
338,768
   
$
290,585
   
$
970,790
   
$
837,599
 
Traffic acquisition cost
   
211,899
     
186,288
     
621,137