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 2022


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):
 
Yes
   
No
 
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):
 
Yes
   
No
 



EXPLANATORY NOTE

This report on Form 6-K is being filed and shall be incorporated by reference in any registration statement filed by Taboola.com Ltd. under the Securities Exchange Act of 1934, as amended, that permits incorporation by reference.

TABLE OF CONTENTS

ITEM
Consolidated Interim Financial Statements (Unaudited) as of and for the three and nine months ended September 30, 2022
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 16, 2022
     




Exhibit 99.1

TABOOLA.COM LTD.

CONSOLIDATED INTERIM FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2022

UNAUDITED

INDEX

 
Page
   
2
   
3
   
4
   
5-6
   
7
   
8-24

- - - - - - - - - - - - - - - - -


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

   
September 30,
2022
   
December 31,
2021
 
   
Unaudited
       
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
 
$
188,477
   
$
319,319
 
Short-term investments
   
119,840
     
 
Restricted deposits
   
750
     
1,000
 
Trade receivables (net of allowance for credit losses of $4,947 and $3,895 as of September 30, 2022, and December 31, 2021, respectively)
   
184,794
     
245,235
 
Prepaid expenses and other current assets
   
70,743
     
63,394
 
Total current assets
   
564,604
     
628,948
 
NON-CURRENT ASSETS
               
Long-term prepaid expenses
   
40,652
     
32,926
 
Restricted deposits
   
4,052
     
3,897
 
Deferred tax assets, net
   
2,909
     
1,876
 
Operating lease right of use assets
   
65,217
     
65,105
 
Property and equipment, net
   
73,758
     
63,259
 
Intangible assets, net
   
205,122
     
250,923
 
Goodwill
   
557,559
     
550,380
 
Total non-current assets
   
949,269
     
968,366
 
Total assets
 
$
1,513,873
   
$
1,597,314
 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
CURRENT LIABILITIES
               
Trade payables
 
$
207,775
   
$
259,941
 
Short-term operating lease liabilities
   
13,456
     
12,958
 
Accrued expenses and other current liabilities
   
100,978
     
124,662
 
Current portion of long-term loan
   
3,000
     
3,000
 
Total current liabilities
   
325,209
     
400,561
 
LONG-TERM LIABILITIES
               
Deferred tax liabilities, net
   
42,563
     
51,027
 
Warrants liability
   
4,239
     
31,227
 
Long-term loan, net of current portion
   
284,270
     
285,402
 
Long-term operating lease liabilities
   
56,075
     
61,526
 
Total long-term liabilities
   
387,147
     
429,182
 
COMMITMENTS AND CONTINGENCIES (Note 13)
               
SHAREHOLDERS' EQUITY
               
Ordinary shares with no par value- Authorized: 700,000,000 as of September 30, 2022 and December 31, 2021; 247,348,424 and 234,031,749 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.
   
     
 
Additional paid-in capital
   
887,845
     
824,016
 
Accumulated other comprehensive loss
   
(2,724
)
   
 
Accumulated deficit
   
(83,604
)
   
(56,445
)
Total shareholders' equity
   
801,517
     
767,571
 
Total liabilities and shareholders' equity
 
$
1,513,873
   
$
1,597,314
 

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,
 
   
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
                         
Revenues
 
$
332,462
   
$
338,768
   
$
1,029,883
   
$
970,790
 
Cost of revenues:
                               
Traffic acquisition cost
   
203,125
     
211,899
     
619,109
     
621,137
 
Other cost of revenues
   
26,649
     
19,184
     
79,695
     
52,224
 
Total cost of revenues
   
229,774
     
231,083
     
698,804
     
673,361
 
Gross profit
   
102,688
     
107,685
     
331,079
     
297,429
 
Operating expenses:
                               
Research and development
   
36,237
     
29,946
     
100,728
     
83,889
 
Sales and marketing
   
63,216
     
43,518
     
190,989
     
146,962
 
General and administrative
   
24,685
     
34,345
     
78,062
     
98,489
 
Total operating expenses
   
124,138
     
107,809
     
369,779
     
329,340
 
Operating loss
   
(21,450
)
   
(124
)
   
(38,700
)
   
(31,911
)
Finance income (expenses), net
   
(3,570
)
   
13,960
     
12,389
     
13,077
 
Income (loss) before income taxes
   
(25,020
)
   
13,836
     
(26,311
)
   
(18,834
)
Income tax benefit (expenses)
   
(1,006
)
   
3,460
     
(848
)
   
(6,699
)
Net income (loss)
 
$
(26,026
)
 
$
17,296
   
$
(27,159
)
 
$
(25,533
)
Less: Undistributed earnings allocated to participating securities
   
     
     
     
(11,944
)
Net income (loss) attributable to Ordinary shares – basic and diluted
   
(26,026
)
   
17,296
     
(27,159
)
   
(37,477
)
Net income (loss) per share attributable to Ordinary shareholders, basic
 
$
(0.10
)
 
$
0.08
   
$
(0.11
)
 
$
(0.35
)
Weighted-average shares used in computing net income (loss) per share attributable to Ordinary shareholders, basic
   
255,160,597
     
229,024,803
     
251,865,831
     
107,884,927
 
Net income (loss) per share attributable to Ordinary shareholders, diluted
 
$
(0.10
)
 
$
0.07
   
$
(0.11
)
 
$
(0.35
)
Weighted-average shares used in computing net income (loss) per share attributable to Ordinary shareholders, diluted
   
255,160,597
     
259,262,529
     
251,865,831
     
107,884,927
 

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

- 3 -

TABOOLA.COM LTD.
CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
U.S. dollars in thousands

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
                         
Net income (loss)
 
$
(26,026
)
 
$
17,296
   
$
(27,159
)
 
$
(25,533
)
Other comprehensive income (loss):
                               
Unrealized losses on available-for-sale marketable securities
   
(445
)
   
     
(704
)
   
 
Unrealized gains (losses) on derivative instruments, net
   
1,504
     
     
(2,020
)
   
 
Other comprehensive income (loss)
   
1,059
     
     
(2,724
)
   
 
Comprehensive income (loss)
 
$
(24,967
)
 
$
17,296
   
$
(29,883
)
 
$
(25,533
)

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

- 4 -

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

   
Ordinary shares
   
Additional paid-in
     
Accumulated
     
Accumulated
Other
Comprehensive
   
Total
shareholders’
 
   
Number
   
Amount
   
capital
   
deficit
   
income (loss)
   
equity
 
                                     
Balance as of June 30, 2022 (unaudited)
   
240,679,908
   
$
   
$
869,201
   
$
(57,578
)
 
$
(3,783
)
 
$
807,840
 
                                                 
Share-based compensation expenses
   
     
     
19,150
     
     
     
19,150
 
Exercise of options and vested RSUs
   
5,441,506
     
     
1,419
     
     
     
1,419
 
Connexity issuance of Holdback
   
1,227,010
     
     
     
     
     
 
Payments of tax withholding for share-based compensation
   
     
     
(1,925
)
   
     
     
(1,925
)
Other comprehensive income
   
     
     
     
     
1,059
     
1,059
 
Net loss
   
     
     
     
(26,026
)
   
     
(26,026
)
Balance as of September 30, 2022 (unaudited)
   
247,348,424
   
$
   
$
887,845
   
$
(83,604
)
 
$
(2,724
)
 
$
801,517
 

   
Convertible Preferred
shares
   
Ordinary shares
               
   
Number
   
Amount
   
Number
   
Amount
   
Additional
paid-in
capital
   
Accumulated
deficit
   
Total
shareholders’
equity
 
                                           
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
 

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

- 5 -

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

   
Ordinary shares
             
Accumulated
Other
    Total  
   
Number
   
Amount
   
Additional paid-in
capital
   
Accumulated
deficit
   
Comprehensive
loss
   
shareholders’
equity
 
                                     
Balance as of December 31, 2021
   
234,031,749
   
$
   
$
824,016
   
$
(56,445
)
 
$
   
$
767,571
 
                                                 
Share-based compensation expenses
   
     
     
60,431
     
     
     
60,431
 
Exercise of options and vested RSUs
   
12,089,665
     
     
7,508
     
     
     
7,508
 
Connexity issuance of Holdback
   
1,227,010
     
     
     
     
     
 
Payments of tax withholding for share-based compensation
   
     
     
(4,110
)
   
     
     
(4,110
)
Other comprehensive loss
   
     
     
     
     
(2,724
)
   
(2,724
)
Net loss
   
     
     
     
(27,159
)
   
     
(27,159
)
Balance as of September 30, 2022 (unaudited)
   
247,348,424
   
$
   
$
887,845
   
$
(83,604
)
 
$
(2,724
)
 
$
801,517
 

   
Convertible Preferred
shares
   
Ordinary shares
               
   
Number
   
Amount
   
Number
   
Amount
   
Additional
paid-in
capital
   
Accumulated
deficit
   
Total
shareholders’
equity
 
                                           
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
 

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

- 6 -

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

   
Nine months ended
September 30,
 
   
2022
   
2021
 
   
Unaudited
 
Cash flows from operating activities
           
Net loss
 
$
(27,159
)
 
$
(25,533
)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
               
Depreciation and amortization
   
68,711
     
30,050
 
Share-based compensation expenses
   
58,971
     
103,594
 
Net loss (gain) from financing expenses
   
7,733
     
(1,857
)
Revaluation of the Warrants liability
   
(26,988
)
   
(17,091
)
Amortization of loan issuance costs
   
1,006
     
119
 
Amortization of premium and accretion of discount on short-term investments, net
   
(322
)
   
 
Change in operating assets and liabilities:
               
Decrease in trade receivables
   
60,672
     
14,544
 
Increase in prepaid expenses and other current assets and long-term prepaid expenses
   
(13,921
)
   
(38,379
)
Decrease in trade payables
   
(54,659
)
   
(27,185
)
Increase (decrease) in accrued expenses and other current liabilities
   
(25,516
)
   
1,380
 
Increase (decrease) in deferred taxes, net
   
(9,676
)
   
2,716
 
Change in operating lease right of use assets
   
11,536
     
10,878
 
Change in operating lease liabilities
   
(16,962
)
   
(12,683
)
Net cash provided by operating activities
   
33,426
     
40,553
 
Cash flows from investing activities
               
Purchase of property and equipment, including capitalized internal-use software
   
(28,476
)
   
(28,774
)
Cash paid in connection with acquisitions, net of cash acquired
   
(7,981
)
   
(583,286
)
Proceeds from restricted deposits
   
98
     
2,325
 
Purchase of short-term investments
   
(126,382
)
   
 
Proceeds from sales and maturities of short-term investments
   
6,160
     
 
Net cash used in investing activities
   
(156,581
)
   
(609,735
)
Cash flows from financing activities
               
Exercise of options and vested RSUs
   
7,467
     
7,479
 
Issuance of Ordinary shares, net of offering costs
   
     
286,170
 
Payments of tax withholding for share-based compensation expenses
   
(4,110
)
   
 
Proceeds from long-term loan, net of debt issuance costs
   
     
288,750
 
Repayment of current portion of long-term loan
   
(2,250
)
   
 
Costs associated with entering into a revolving credit facility
   
(1,061
)
   
 
Issuance of Warrants
   
     
53,883
 
Net cash provided by financing activities
   
46
     
636,282
 
Exchange differences on balances of cash and cash equivalents
   
(7,733
)
   
1,857
 
Increase (decrease) in cash and cash equivalents
   
(130,842
)
   
68,957
 
Cash and cash equivalents - at the beginning of the period
   
319,319
     
242,811
 
Cash and cash equivalents - at end of the period
 
$
188,477
   
$
311,768
 
   
Supplemental disclosures of cash flow information:
 
Cash paid during the year for:
               
Income taxes
 
$
22,599
   
$
7,647
 
Interest
 
$
15,094
   
$
 
Non-cash investing and financing activities:
               
Purchase of property, plant and equipment and intangible assets
 
$
2,764
   
$
1,500
 
Share-based compensation included in capitalized internal-use software
 
$
1,460
   
$
401
 
Deferred offering costs incurred during the period included in long-term prepaid expenses
 
$
   
$
1,688
 
Creation of operating lease right-of-use assets
 
$
11,648
   
$
2,382
 

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

- 7 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 1:-
GENERAL
 

a.
Taboola.com Ltd. (together with its subsidiaries, the “Company” or “Taboola”) was incorporated under the laws of the state of Israel on September 3, 2006.
 
Taboola is a technology company that powers recommendations across the Open Web with an artificial intelligence-based, algorithmic engine developed over the 14 years since the company began operations in 2007. Taboola partners with websites, devices, and mobile apps (collectively referred to as “digital properties”), to recommend editorial content and advertisements on the Open Web. Digital properties use Taboola’s technology platforms to achieve their business goals, such as driving new audiences to their sites and apps or increasing engagement with existing audiences. Taboola also provides monetization opportunities to digital properties by surfacing paid recommendations by advertisers. Taboola is a business-to-business company with no competing consumer interests. Taboola empowers advertisers to leverage its proprietary AI-powered recommendation platform to reach targeted audiences utilizing effective, native ad-formats across digital properties. As part of the Company e-Commerce offerings, it also syndicates its retailer advertisers’ monetized product listings and links (clickable advertisements) into commerce content-oriented consumer experiences on both the Open Web and within the dominant traditional ad platforms. Taboola generates revenues when people (consumers) click on, purchase from or, in some cases, view the ads that appear within its recommendation platform. The Company’s customers are the advertisers, merchants and affiliate networks that advertise on the Company's platform (“Advertisers”). Advertisers pay Taboola for those clicks, purchases or impressions, and Taboola shares a portion of the resulting revenue with the digital properties who display those ads.


b.
On January 25, 2021, The Company entered into a merger agreement with ION Acquisition Corp. 1 Ltd. (“ION”) (the “Merger Agreement”). Under the Merger Agreement, one of Taboola's subsidiaries merged with and into ION, with ION continuing as the surviving company and becoming our direct, wholly-owned subsidiary which was accounted for as a recapitalization, with no goodwill or other intangible assets recorded, in accordance with U.S. GAAP (the “Business Combination”).
 
On June 29, 2021 (the “Transaction Date”), the Business Combination closed and the Company’s ordinary shares, no par value per share (the “Ordinary Shares”) and Public Warrants (as defined in our Annual Report on Form 20-F for the year ended December 31, 2021 filed with the SEC on March 24, 2022, and together with the Private Warrants, the “Warrants”) began trading on The Nasdaq Global Market LLC on June 30, 2021, among other things. .

NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
 
The accompanying unaudited consolidated interim financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of Taboola.com Ltd. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
 
The consolidated balance sheet as of December 31, 2021, 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.
 
- 8 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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, 2021, included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 24, 2022.
 
In the opinion of the Company’s management, the unaudited consolidated interim financial statements have been prepared on a basis consistent with the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s unaudited consolidated interim financial statements. The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022, or any other future interim or annual period.
 
Use of Estimates
 
The preparation of the consolidated interim financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the interim consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period and accompanying notes. Actual results could differ from those estimates. On an ongoing basis, the Company's management evaluates estimates, including those related to accounts receivable and allowance for credit losses, acquired intangible assets and goodwill, the useful life of intangible assets, capitalized internal-use software, 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 financial assets and liabilities, including the fair value of marketable securities, the Private Warrants and derivative instruments, and the valuation of deferred taxes 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.
 
Significant Accounting Policies
 
The Company’s significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 20-F as of and for the year ended December 31, 2021, as filed with the SEC dated March 24, 2022. There have been no significant changes to these policies during the nine months ended September 30, 2022, except as noted below.

Cash and cash equivalents

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

- 9 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Derivative Financial Instruments

The Company accounts for derivatives and hedging based on ASC 815 (“Derivatives and Hedging”). ASC 815 requires the Company to recognize all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on their intended use and their designation.

Changes in the fair value of these derivatives are recorded in accumulated other comprehensive income (loss) as a component of shareholders’ equity in the consolidated balance sheets until the forecasted transaction occurs. Upon occurrence, the Company reclassifies the related gains or losses on the derivative to the same financial statement line item in the consolidated statements of income (loss) to which the derivative relates. In case the Company discontinues cash flow hedges, it records the related amount in finance income (expenses), net, on the consolidated statements of income (loss).
 
The Company accounts for its derivative financial instruments as either prepaid expenses and other current assets or accrued expenses and other current liabilities in the consolidated balance sheets at their fair value.
 
Marketable Securities

The Company classifies its marketable securities as available-for-sale at the time of purchase and reevaluates such classification at each balance sheet date. The Company may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result, the Company classifies its marketable securities, including those with maturities beyond 12 months, as current assets in the consolidated balance sheets.
 
The Company carries these securities at fair value and records unrealized gains and losses, net of taxes, in accumulated other comprehensive income (loss) as a component of shareholders’ equity, except for changes in allowance for expected credit losses, which are recorded in finance income (expenses), net.
 
The Company periodically evaluates its available-for-sale debt securities for impairment. If the amortized cost of an individual security exceeds its fair value, the Company considers its intent to sell the security or whether it is more likely than not that it will be required to sell the security before recovery of its amortized basis. If either of these criteria are met, the Company writes down the security to its fair value and records the impairment charge in finance income (expenses), net, in the consolidated statements of income (loss).
 
If neither of these criteria are met, the Company determines whether credit loss exists. Credit loss is estimated by considering changes to the rating of the security by a rating agency, any adverse conditions specifically related to the security, as well as other factors.
 
Realized gains and losses on available-for-sale marketable securities are included in the consolidated statements of income (loss).
 
- 10 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 3:-
CASH AND CASH EQUIVALENTS
 
The following table presents for each reported period, the breakdown of cash and cash equivalents:

   
September 30,
2022
   
December 31,
2021
 
   
Unaudited
       
             
Cash
 
$
153,205
   
$
137,050
 
Time deposits
   
30,115
     
57,205
 
Money market accounts and funds
   
5,157
     
125,064
 
                 
Total Cash and cash equivalents
 
$
188,477
   
$
319,319
 

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. The Company did not have any transfers between fair value measurements levels in the nine months ended September 30, 2022.

The following table sets forth the Company’s assets and liabilities that were measured at fair value as of September 30, 2022 and December 31, 2021, by level within the fair value hierarchy:

          
Fair value measurements
as of
 
Description
   
Fair Value
Hierarchy
 
September 30,
2022
   
December 31,
2021
 
          
Unaudited
       
Assets:
                 
Cash equivalents:
                 
Money market accounts and funds
   
Level 1
 
$
5,157
   
$
125,064
 
Short-term investments:
                     
U.S. government treasuries
   
Level 2
 
$
59,970
   
$
 
Corporate debt securities
   
Level 2
 
$
23,618
   
$
 
U.S. agency bonds
   
Level 2
 
$
20,769
   
$
 
Commercial paper
   
Level 2
 
$
15,483
   
$
 
                       
                       
Liabilities:
                     
Warrants liability:
                     
Public Warrants
   
Level 1
 
$
(2,328
)
 
$
(8,963
)
Private Warrants
   
Level 3
 
$
(1,911
)
 
$
(22,264
)
Derivative instruments liability:
                     
Derivative instruments designated as cash flow hedging instruments
   
Level 2
 
$
(2,020
)
 
$
 

- 11 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 4:-
FAIR VALUE MEASUREMENTS (Cont.)

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

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

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

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

Input
 
September 30,
2022
   
December 31,
2021
 
             
Risk-free interest rate
   
4.09% - 4.16
%
   
1.07% - 1.18
%
Expected term (years)
   
3.01 - 3.75
     
3.75 - 4.50
 
Expected volatility
   
74.1% - 76.5
%
   
66.1% - 68.6
%
Exercise price
 
$
11.50
   
$
11.50
 
Underlying Stock Price
 
$
1.81
   
$
7.78
 
                 
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 based on the maturity of the Warrants five years following June 29, 2021, the Merger Transaction date, and for certain Private Warrants the maturity was determined to be five years from the date of the October 1, 2020, ION initial public offering effective date.

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

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

Input
 
Private
Warrants
   
Public
Warrants
   
Total
Warrants
 
                   
Fair value as of December 31, 2021
 
$
22,264
   
$
8,963
   
$
31,227
 
Change in fair value
   
(20,353
)
   
(6,635
)
   
(26,988
)
Fair value as of September 30, 2022 (unaudited)
 
$
1,911
   
$
2,328
   
$
4,239
 

- 12 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 5:-
SHORT-TERM INVESTMENTS
 
The following is a summary of available-for-sale marketable securities:

   
September 30, 2022
 
   
Unaudited
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair
Value
 
U.S. government treasuries
 
$
60,335
   
$
   
$
(365
)
 
$
59,970
 
Corporate debt securities
   
23,787
     
     
(169
)
   
23,618
 
U.S. agency bonds
   
20,899
     
     
(130
)
   
20,769
 
Commercial paper
   
15,523
     
     
(40
)
   
15,483
 
Total
 
$
120,544
   
$
   
$
(704
)
 
$
119,840
 

As of December 31, 2021 the Company did not have any available-for-sale marketable securities.

For the nine months ended September 30, 2022, the unrealized losses related to marketable securities (which were accumulated in a period of less than 12 months) were determined not due to credit related losses, therefore, the Company did not record an allowance for credit losses for its available-for-sale marketable securities.
 
As of September 30, 2022, all of the Company’s available-for-sale marketable securities were due within one year.
 
NOTE 6:-
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company enters into foreign currency forward and option contracts with financial institutions to protect itself against the foreign exchange risks, mainly exposure to changes in the exchange rate of the New Israeli Shekel (“NIS”) against the U.S. dollar that are associated with forecasted future cash flows for up to twelve months. The Company’s risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates; these derivative instruments are designated as cash flow hedges. The Company does not enter into derivative transactions for trading or speculative purposes.

As of September 30, 2022, the notional amounts of the Company’s derivative instruments designated as cash flow hedging instruments outstanding in U.S. dollars, which are translated and calculated based on forward rates, amounted to $16,168.

The Company records all cash flow hedging instruments on the consolidated balance sheets at fair value. The fair value of cash flow hedging instruments recorded as liabilities as of September 30, 2022, was $2,020, which were recorded in accrued expenses and other current liabilities in the consolidated interim balance sheets.

- 13 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 6:-
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Cont.)

The changes related to cash flow hedging instruments, recorded in the consolidated interim statements of income (loss), for the three and nine months ended September 30, 2022, were as follows:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2022
   
2022
 
   
Unaudited
 
Cost of revenues
 
$
145
   
$
290
 
Research and development
   
992
     
1,971
 
Sales and marketing
   
190
     
376
 
General and administrative
   
165
     
329
 
Total losses recognized in the consolidated interim statements of income (loss), net
 
$
1,492
   
$
2,966
 

Effect of Foreign Currency Contracts on Accumulated Other Comprehensive Loss
 
Net unrealized losses of foreign currency contracts designated as cash flow hedging instruments are recorded in accumulated other comprehensive losses.
 
The changes in unrealized losses on the Company’s derivative instruments recorded in accumulated other comprehensive loss were as follows:

   
Nine months ended
September 30,
2022
 
   
Unaudited
 
       
Unrealized losses on derivative instruments as of December 31, 2021
 
$
 
Changes in fair value of derivative instruments
   
(4,986
)
Reclassification of losses recognized in the consolidated interim statements of income (loss) from accumulated other comprehensive loss
   
2,966
 
Unrealized losses on derivative instruments as of September 30, 2022 (unaudited)
 
$
(2,020
)

As of December 31, 2021 the Company did not have any derivative instruments or hedging activities.

All net deferred losses in accumulated other comprehensive loss as of September 30, 2022, are expected to be recognized over the next twelve months as operating expenses in the same financial statement line item in the consolidated interim statements of income (loss) to which the derivative relates.

- 14 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 7:-
BUSINESS COMBINATION
 
Connexity
 
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 an office in Karlsruhe, Germany.
 
In accordance with the acquisition method of accounting, the total purchase price for the Connexity Acquisition was $753,217, comprised of $593,894 in cash and $157,689 based on the fair value of 17,328,049 shares of the Company’s ordinary shares on the closing date and additional subsequent payment of $1,634 made during 2022 (of which $431 were accrued in December 2021) as final settlement for net working capital adjustments.
 
Gravity R&D Zrt.
 
In July 2022, the Company completed the acquisition of Gravity R&D Zrt. ("Gravity R&D") a privately-held company based in Budapest, Hungary, which provides personalization recommendation services for a total consideration of $6,982, net of cash acquired. As part of a preliminary purchase price allocation , $1,790 was attributed to identified intangible assets, $5,976 to goodwill.
 
Total acquisition costs of $742 were incurred in relation to the acquisition, which were recognized as an expense and included in general and administrative expenses in the consolidated interim statements of income (loss).
 
The results of Gravity R&D operations were consolidated in the Company's consolidated interim financial statements commencing on the date of the acquisition and were immaterial to the Company’s results of operations for the three and nine months ended September 30, 2022.

- 15 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 8:-
GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill
 
The following table represents the changes in the carrying amounts of the Company’s total goodwill:
 
   
Carrying
Amount
 
       
Balance as of December 31, 2021
 
$
550,380
 
Purchase accounting adjustment (1)
   
1,203
 
Additions from acquisition (2)
   
5,976
 
Balance as of September 30, 2022 (unaudited)
 
$
557,559
 

     
(1) Additional payment related to final settlement for net working capital adjustments for the Connexity Acquisition.
(2) Related to the Gravity R&D acquisition.
 
Intangible Assets, Net
 
Definite-lived intangible assets, net consist of the following:
 
   
Gross Fair
Value
   
Accumulated
Amortization
   
Net Book
Value
 
September 30, 2022 (unaudited)
     
Merchant/ Network affiliate relationships
 
$
146,547
   
$
(35,279
)
 
$
111,268
 
Technology
   
74,193
     
(29,167
)
   
45,026
 
Publisher relationships
   
42,933
     
(11,628
)
   
31,305
 
Tradenames
   
24,097
     
(8,672
)
   
15,425
 
Customer relationship
   
13,156
     
(11,058
)
   
2,098
 
Total
 
$
300,926
   
$
(95,804
)
 
$
205,122
 

December 31, 2021
 
Gross Fair
Value
   
Accumulated
Amortization
   
Net Book
Value
 
Merchant/ Network affiliate relationships
 
$
146,547
   
$
(10,879
)
 
$
135,668
 
Technology
   
73,403
     
(20,616
)
   
52,787
 
Publisher relationships
   
42,933
     
(3,640
)
   
39,293
 
Tradenames
   
23,997
     
(2,711
)
   
21,286
 
Customer relationship
   
12,256
     
(10,367
)
   
1,889
 
Total
 
$
299,136
   
$
(48,213
)
 
$
250,923
 

- 16 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 8:-
GOODWILL AND INTANGIBLE ASSETS, NET (Cont.)

Amortization expenses for intangible assets were $15,983 and $5,908, for the three months ended September 30, 2022 and 2021, respectively, and $47,591 and $7,186, for the nine months ended September 30, 2022 and 2021, respectively.
 
The estimated future amortization expense of definite-lived intangible assets as of September 30, 2022, is as follows (unaudited):
 
Year Ending December 31,
     
2022 (Remainder)
 
$
15,977
 
2023
   
63,910
 
2024
   
60,565
 
2025
   
51,479
 
2026
   
13,191
 
Total
 
$
205,122
 

NOTE 9:-
FINANCING ARRANGEMENTS

Long-term loan

Concurrently with the closing of the Connexity Acquisition, on September 1, 2021, the Company entered into a $300,000 senior secured term loan credit agreement (the “Credit Agreement”), among the Company, Taboola Inc., a wholly-owned Company’s subsidiary (the “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 the Company to finance a portion of 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 installments, with the remaining principal amount due at maturity.

The Facility is mandatorily prepayable with a portion of the net cash proceeds of certain dispositions of assets, a portion of Taboola’s excess cash flow and the proceeds of incurrences of indebtedness not permitted under the Credit Agreement.

The Credit Agreement also contains customary representations, covenants and events of default. Failure to meet the covenants beyond applicable grace periods could result in acceleration of outstanding borrowings and/or termination of the Facility. As of September 30, 2022, the Company was in compliance with the Facility covenants.

- 17 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 9:-
FINANCING ARRANGEMENTS (Cont.)

As of September 30, 2022, the total future principal payments related to Facility loan are as follows (unaudited):

   
Amount
 
Year Ending December 31,
     
2022 (current maturities)
 
$
750
 
2023
   
3,000
 
2024
   
3,000
 
2025
   
3,000
 
2026
   
3,000
 
2027
   
3,000
 
2028
   
281,250
 
Total
 
$
297,000
 

The Facility is guaranteed by the Company and all of its wholly-owned material 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.

The total interest expenses recognized in connection with the long-term loan for the three and nine months ended September 30, 2022, were $5,028 and $12,700, respectively.

Revolving Credit Agreement

On August 9, 2022, the Company amended its Credit Agreement to provide for a five-year senior secured revolving credit facility (the “Revolving Credit Agreement”), among the Company, Taboola Inc., a wholly-owned Company’s subsidiary (the “Borrower”), and the lenders party thereto, with Citibank N.A., as lead arranger and JPMorgan Chase Bank, N.A., as administrative agent. The Revolving Credit Agreement provides for revolving loans in an aggregate committed principal amount of up to $90,000 (the “Revolving Loans”).

Certain representations, events of default and covenants of the Revolving Credit Agreement are substantially the same as those in the Credit Agreement. However, the Revolving Credit Agreement contains a financial covenant requiring the Company to maintain a Total Net Leverage Ratio (as defined in the Credit Agreement) as at the last day of each fiscal quarter. Borrowings under the Revolving Credit Agreement are subject to customary conditions and will bear interest at a variable annual rate based on Term SOFR or Base Rate plus a fixed margin. The lenders under the Credit Agreement and the lenders under the Revolving Credit Agreement are secured by the same collateral, including substantially all the assets of the Borrower and the Guarantors (as defined in the Credit Agreement) including shares of subsidiaries, subject to certain exceptions in the governing documents.

The proceeds of any Revolving Loans may be used for the working capital, capital expenditures and other general corporate purposes of Taboola and its subsidiaries and may also be used for Restricted Payments, Investments (including permitted acquisitions) and Restricted Debt Payments (each, as defined in the Credit Agreement) to the extent permitted under the Credit Agreement.

- 18 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 9:-
FINANCING ARRANGEMENTS (Cont.)

As of September 30, 2022, the Company was in compliance with the financial covenants and had no outstanding borrowings under the Revolving Credit Agreement.

As of September 30, 2022, deferred financing costs associated with entering into a Revolving Credit Agreement in the total amount of $1,061, were included in short and long-term prepaid expenses in the Company’s consolidated interim balance sheet.

The deferred financing costs are amortized on a straight-line basis over the term of the Revolving Credit Agreement. For the three and nine months ended September 30, 2022, deferred financing costs amortization amounted to $34.

NOTE 10:-
RESTRUCTURING

In September 2022, the Company announced and implemented a cost restructuring program impacting approximately 6% of the Company’s global headcount. This strategic reduction was intended to manage the Company’s operating expenses in response to market conditions and ongoing business prioritization efforts.

The restructuring expenses recognized in the consolidated interim statements of income (loss) for the three and nine months ended September 30, 2022, primarily consisting of one-time incremental employee termination benefits and other costs related to Company’s business prioritization, were as follows:

   
Three and nine months ended
September 30,
2022
 
   
Unaudited
 
       
Cost of revenues
 
$
99
 
Research and development
   
1,815
 
Sales and marketing
   
1,176
 
General and administrative
   
293
 
Total restructuring expenses recognized in the consolidated interim statements of income (loss)
 
$
3,383
 

As of September 30, 2022, $1,142 related to restructuring expenses were included in "Accrued expenses and other current liabilities" in the consolidated interim balance sheet.

- 19 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 11:-
SHAREHOLDERS' EQUITY AND SHARE INCENTIVE PLANS

Share Incentive Plans


a.
On May 19, 2022, the Company received the approval of the Israeli court for its motion to extend its former motion to allow the Company to utilize the 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 “Program”) of up to $60,000. The Company’s board of directors will have the authority to determine the amount to be utilized for the Program. The Company intends to continue filing extension requests for the court approval on an ongoing basis as required.

For the nine months ended September 30, 2022, the Company utilized the net issuance mechanism in connection with equity-based compensation for certain Office Holders, which resulted in a tax withholding payment by the Company of $4,110 which was recorded as a reduction of additional paid-in capital.


b.
The following is a summary of share option activity and related information for the nine months ended September 30, 2022 (including employees, directors, officers and consultants of the Company):

   
Outstanding
Share
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Aggregate
Intrinsic
Value
 
Balance as of December 31, 2021
   
47,532,923
   
$
2.64
     
5.73
   
$
247,734
 
Granted
   
20,000
     
6.52
                 
Exercised
   
(6,515,494
)
   
1.11
           
$
21,189
 
Forfeited
   
(1,290,684
)
   
4.80
                 
Balance as of September 30, 2022 (unaudited)
   
39,746,745
   
$
2.82
     
6.37
   
$
23,130
 
Exercisable as of September 30, 2022 (unaudited)
   
36,116,645
   
$
1.88
     
5.74
   
$
20,694
 

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 months ended September 30, 2022, was $3.80.

As of September 30, 2022, unrecognized share-based compensation cost related to unvested share options was $30,090, which is expected to be recognized over a weighted-average period of 1.5 years.

- 20 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 11:-
SHAREHOLDERS' EQUITY AND SHARE INCENTIVE PLANS (Cont.)


c.
The following is a summary of the RSU activity and related information for the nine months ended September 30, 2022:

   
Outstanding
Restricted Shares
Unit
   
Weighted
Average Grant
Date Fair Value
 
             
Balance as of December 31, 2021
   
21,613,189
   
$
8.16
 
Granted
   
14,717,795
     
5.52
 
Vested (*)
   
(5,574,171
)
   
6.98
 
Forfeited
   
(3,085,786
)
   
6.90
 
Balance as of September 30, 2022 (unaudited)
   
27,671,027
   
$
6.60
 

(*) A portion of the shares that vested were netted out to satisfy the tax obligations of the recipients. During the nine months ended September 30, 2022, a total of 1,213,643 RSUs were canceled to satisfy tax obligations, resulting in net issuance of 1,074,782 shares.

The total release date fair value of RSUs was $23,945, during the nine months ended September 30, 2022.

As of September 30, 2022, unrecognized share-based compensation cost related to unvested RSUs was $118,966, which is expected to be recognized over a weighted-average period of 2.92 years.

The total share-based compensation expense related to all of the Companys share-based awards recognized for the three and nine months ended September 30, 2022 and 2021, was comprised as follows:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
Cost of revenues
 
$
673
   
$
443
   
$
2,227
   
$
1,023
 
Research and development
   
7,343
     
7,749
     
20,888
     
20,134
 
Sales and marketing
   
5,654
     
3,997
     
18,351
     
40,168
 
General and administrative
   
5,040
     
7,751
     
17,505
     
42,269
 
Total share-based compensation expense
 
$
18,710
   
$
19,940
   
$
58,971
   
$
103,594
 


d.
On September 1, 2022, pursuant to Connexity three years holdback agreement with certain Connexity employees, the Company issued 1,227,010 Ordinary shares.

- 21 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:-
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 (3.2%) and (35.5%) for the nine months ended September 30, 2022 and 2021, respectively. The difference between the Company’s effective tax rate and the 23% statutory rate in Israel for the nine months ended September 30, 2022, resulted primarily from valuation allowance in Israel, tax expenses in multiple jurisdictions which were offset against tax benefits derived from losses incurred in the U.S.

NOTE 13:-
COMMITMENTS AND CONTINGENCIES

Commercial Commitments

In the ordinary course of the business, the Company enters into agreements with certain digital properties, under which, in some cases it agrees to pay them a guaranteed amount, generally per thousand page views on a monthly basis. These agreements could cause a gross loss on digital property accounts in which the guarantee is higher than the actual revenue generated. These contracts generally range in duration from 2 to 5 years, though some can be shorter or longer.
 
Non-cancelable Purchase Obligations
 
In the normal course of business, the Company enters into non-cancelable purchase commitments with various parties to purchase primarily software and IT related-based services. As of September 30, 2022, the Company had outstanding non-cancelable purchase obligations in the amount of $21,840.
 
Legal Proceedings
 

a.
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.


b.
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 in the aggregate, have a material adverse effect on its business, financial position, results of operations, or cash flows.

- 22 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 14:-
GEOGRAPHIC 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,
 
   
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
     
           
       
Israel
 
$
48,157    
$
48,715
   
$
147,953    
$
133,762
 
United Kingdom
   
16,134
     
16,344
     
54,079
     
49,080
 
United States
   
129,616
     
125,239
     
393,833
     
369,710
 
Germany
   
25,073
     
37,967
     
92,558
     
106,342
 
Rest of the world
   
113,482
     
110,503
     
341,460
     
311,896
 
Total
 
$
332,462
   
$
338,768
   
$
1,029,883
   
$
970,790
 

NOTE 15:-
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,
 
   
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
Basic net income (loss) per share
                       
Numerator:
                       
Net income (loss)
 
$
(26,026
)
 
$
17,296
   
$
(27,159
)
 
$
(25,533
)
Less: Undistributed earnings allocated to participating securities
   
     
     
     
(11,944
)
Net income (loss) attributable to Ordinary shares – basic
 
$
(26,026
)
 
$
17,296
   
$
(27,159
)
 
$
(37,477
)
                                 
Denominator:
                               
Weighted-average shares used in computing net income (loss) per share attributable to Ordinary shareholders, basic
   
255,160,597
     
229,024,803
     
251,865,831
     
107,884,927
 
Net income (loss) per share attributable to Ordinary shareholders, basic
 
$
(0.10
)
 
$
0.08
   
$
(0.11
)
 
$
(0.35
)
                                 
Diluted net income (loss) per share
                               
Numerator:
                               
Net income (loss) attributable to Ordinary shares – diluted
 
$
(26,026
)
 
$
17,296
   
$
(27,159
)
 
$
(37,477
)
                                 
Denominator:
                               
Weighted-average shares used in computing net income (loss) per share attributable to Ordinary shareholders, basic
   
255,160,597
     
229,024,803
     
251,865,831
     
107,884,927
 
Weighted-average effect of dilutive securities - effect of share-based awards
   
     
30,237,726
     
     
 
Weighted-average shares used in computing net income (loss) per share attributable to Ordinary shareholders, diluted
   
255,160,597
     
259,262,529
     
251,865,831
     
107,884,927
 
Net income (loss) per share attributable to Ordinary shareholders, diluted
 
$
(0.10
)
 
$
0.07
   
$
(0.11
)
 
$
(0.35
)

- 23 -

TABOOLA.COM LTD.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 15:-
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY SHAREHOLDERS

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

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
                         
Warrants
   
12,349,990
     
12,350,000
     
12,349,990
     
12,350,000
 
RSUs
   
20,135,294
     
     
17,994,340
     
8,825,040
 
Outstanding share options
   
34,666,838
     
     
34,666,838
     
46,705,718
 
Issuable Ordinary shares related to business combination under holdback arrangement
   
2,454,020
     
     
2,454,020
     
 
Total
   
69,606,142
     
12,350,000
     
67,465,188
     
67,880,758
 


- 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 Annual Report on Form 20-F for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 24, 2022 and the pro forma financial information as of and for the year ended December 31, 2021 under the heading “Unaudited Pro Forma Condensed Combined Financial Information” included in our Prospectus dated September 29, 2022 forming part of our registration statement on Form F-3 filed with the SEC, as it may be further amended from time to time. Some of the information contained in this discussion and analysis is set forth elsewhere in our registration statement on Form F-3, 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 sections 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” 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 14 years. Taboola has also recently expanded more directly into e-Commerce, allowing its partners with digital properties the ability to use its platforms to display advertising suited to the audiences of those partners’ websites or other digital services.
 
We think of ourselves as a search engine, but in reverse — instead of expecting people to search for information, we recommend information to people or enable our partners to use our technology. You’ve seen us before: we partner with websites, devices, and mobile apps, which we collectively refer to as digital properties, to recommend editorial content and advertisements on the Open Web, outside of the closed ecosystems of the walled gardens such as Facebook, Google, and Amazon.
 
Digital properties use our technology platforms to achieve their business goals, such as driving new audiences to their sites and apps, or increasing engagement on site — and we don’t charge them for these services. We also provide a meaningful monetization opportunity to digital properties by surfacing paid recommendations by advertisers. Unlike walled gardens, we are a business-to-business, or B2B, company with no competing consumer interests. We only interact with consumers through our partners’ digital properties, hence we do not compete with our partners for user attention. Our motivations are aligned. When our partners win, we win, and we grow together.
 
We empower advertisers, merchants, and affiliate networks, which we individually and collectively refer to as advertisers (“Advertisers”), to leverage our proprietary AI-powered recommendation platform to reach targeted audiences utilizing effective, native ad formats across digital properties. We generate revenues primarily when people (consumers) click on, purchase from or, in some cases, view the ads that appear within our partners’ digital experiences via our recommendation platform. Advertisers pay us for those clicks, purchases or impressions, and we share the resulting revenue with the digital properties who display those ads and generate those clicks and downstream consumer actions.
 
Our powerful recommendation platform was built to address a technology challenge of significant complexity: predicting which recommendations users would be interested in, without explicit intent data or social media profiles. Search advertising platforms have access, at a minimum, to users’ search queries which indicate intent, while social media advertising platforms have access to rich personal profiles created by users. In contrast, we base our recommendations on an extensive dataset of context and user behavior derived from the intersection of thousands of digital properties and millions of recommended items, including ads and editorial content.


ION Merger

On January 25, 2021, we and one of our subsidiaries entered into a merger agreement with ION Acquisition Corp. 1 Ltd. (“ION”) (the “Merger Agreement”). Under the Merger Agreement, our subsidiary merged with and into ION, with ION continuing as the surviving company and becoming our direct, wholly-owned subsidiary (the “Business Combination”). On June 29, 2021, the Business Combination closed and the Company’s ordinary shares, no par value per share (the “Ordinary Shares”) and Public Warrants (as defined in our Annual Report on Form 20-F for the year ended December 31, 2021 filed with the SEC on March 24, 2022, and together with the Private Warrants, the “Warrants”) began trading on The Nasdaq Global Market LLC on June 30, 2021, among other things. In connection with the Merger Agreement, we also obtained commitments for the purchase in private transactions that 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 consideration amounted to approximately $800 million, including retention incentives and was subject to customary purchase price adjustments for working capital and indebtedness.

In connection with the 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 and also paid approximately $595.5 million in cash.
 
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 a portion of the Connexity acquisition.
 
See Notes 7, 8 and 9 of Notes to Unaudited Consolidated Interim 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 September 29, 2022 forming part of our registration statement on Form F-3, as it may be amended from time to time, filed with the SEC.

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 other risks and uncertainties set forth in the Company’s Annual Report on Form 20-F for the year ended December 31, 2021 under Item 3.D. “Information About the Company - Risk Factors,” the Company’s Registration Statement on Form F-3 filed on September 29, 2022, as it may be amended or supplemented from time to time, under the sections entitled “Cautionary Note Regarding Forward-looking Statements” and “Risk Factors” and in the Company’s subsequent filings with the SEC.


Maintaining and Growing Our Digital Property Partners

We engage with a diverse network of digital property partners, substantially all of which have contracts with us containing either an evergreen term or an exclusive partnership with us for multi-year terms at inception. These agreements typically require that our code be integrated on the digital property web page because of the nature of providing both editorial and paid recommendations. This means that in the vast majority of our business, we do not bid for ad placements, as traditionally happens in the advertising technology space, but rather see all users that visit the pages on which we appear. Due to our multi-year exclusive contracts and high retention rates, our supply is relatively consistent and predictable. We had approximately 16,000, 9,000 and 7,000 digital property partners in the fourth quarter of 2021, 2020 and 2019, 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.
 
For the majority of our digital properties partners, we have two primary models for sharing revenue. The most common model is a straight revenue share model. In this model, we agree to pay our partner a percentage of the revenue that we generate from advertisements placed on their digital properties. The second model includes guarantees. Under this model, we pay our partners the greater of a fixed percentage of the revenue we generate and a guaranteed amount per thousand page views. In the past, we have and may continue to be required to make significant payments under these guarantees.

Growing Our Advertiser Client Base

We have a large and growing network of Advertisers, across multiple verticals. We had approximately 15,000, 13,000 and 12,000 Advertiser clients working with us directly, or through advertising agencies, worldwide during the fourth quarter of 2021, 2020 and 2019, 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 obtain 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. Macroeconomic factors including ones affecting advertiser demand may cause yield to decline in certain periods, but the decline may be mitigated to the extent that our yield enhancing strategies are effective.

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 privacy, data protection, digital advertising and the collection of user data. In addition, large Internet and technology companies such as Google and Apple are making their own decisions as to how to protect consumer privacy, which impacts the entire digital ecosystem. Because we power editorial recommendations, digital properties typically integrate our scripts or code directly on their web pages. This makes us less susceptible to impact by many of these regulations and industry trends because the digital properties we work with are able to drop Taboola cookies as 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.

Macroeconomic Conditions

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


Cost Restructuring Program

In September 2022, in response to macroeconomic conditions, the Company announced and implemented a cost restructuring program impacting approximately 6% of the Company’s global headcount. Restructuring expenses were approximately $3.4 million for the three months ended September 30, 2022 primarily consisting of one-time incremental employee termination benefits and other costs related to the Company’s business prioritization.

See Note 10 to our consolidated interim financial statements for additional details regarding the cost restructuring program.

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,
 
(dollars in thousands, expect per share data)
 
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
Revenues
 
$
332,462
   
$
338,768
   
$
1,029,883
   
$
970,790
 
Gross profit
 
$
102,688
   
$
107,685
   
$
331,079
   
$
297,429
 
Net income (loss)
 
$
(26,026
)
 
$
17,296
   
$
(27,159
)
 
$
(25,533
)
EPS diluted (1)
 
$
(0.10
)
 
$
0.07
   
$
(0.11
)
 
$
(0.35
)
Ratio of net income (loss) to gross profit
   
(25.3
%)
   
16.1
%
   
(8.2
%)
   
(8.6
%)
Cash flow provided by operating activities
 
$
23,219
   
$
26,573
   
$
33,426
   
$
40,553
 
Cash, cash equivalents and short-term investments
 
$
308,317
   
$
311,768
   
$
308,317
   
$
311,768
 
                                 
Non-GAAP Financial Data (2)
                               
ex-TAC Gross Profit
 
$
129,337
   
$
126,869
   
$
410,774
   
$
349,653
 
Adjusted EBITDA
 
$
24,157
   
$
39,734
   
$
93,181
   
$
114,080
 
Non-GAAP Net Income
 
$
10,215
   
$
48,299
   
$
48,104
   
$
95,991
 
IPO Pro forma Non-GAAP EPS diluted (3)
 
$
0.040
   
$
0.186
   
$
0.189
   
$
0.375
 
Ratio of Adjusted EBITDA to ex-TAC Gross Profit
   
18.7
%
   
31.3
%
   
22.7
%
   
32.6
%
Free Cash Flow
 
$
10,995
   
$
19,474
   
$
4,950
   
$
11,779
 

 
(1)
The weighted-average shares used in this computation for the three months ended September 30, 2022 and 2021 are 255,160,597 and 259,262,529, respectively, and for the nine months ended September 30, 2022 and 2021 are 251,865,831 and 107,884,927, respectively. Outstanding shares for the nine month periods increased significantly year-over-year as a result of the Company going public.
 
(2)
Refer to “Non-GAAP Financial Measures” below for an explanation and reconciliation to GAAP metrics.
 
(3)
Refer to “IPO Pro forma Non-GAAP EPS basic and diluted” below for a description and calculation of IPO Pro forma Non-GAAP EPS basic and diluted.


Revenues

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

Gross profit

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

Net income (loss)

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

EPS diluted

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

Ratio of net income (loss) to gross profit

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

Cash flow provided by operating activities

Net cash provided by our operating activities is calculated as presented on our consolidated statements of cash flows for the periods presented.
 
Cash, cash equivalents and short-term investments

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


ex-TAC Gross Profit
 
We calculate ex-TAC Gross Profit as gross profit adjusted to include other cost of revenues.
 
Adjusted EBITDA

We calculate Adjusted EBITDA as net income (loss) before finance income (expenses), net, income tax benefit (expenses) for income taxes 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 and restructuring costs which may vary from period-to-period.

Non-GAAP Net Income

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

IPO Pro forma Non-GAAP EPS basic and diluted
 
IPO Pro forma Non-GAAP EPS basic and diluted are presented for the three and nine months ended September 30, 2021. We calculate IPO Pro forma Non-GAAP EPS basic and diluted by adjusting EPS to exclude revaluation of our Warrants liability, share-based compensation expense including Connexity holdback compensation expenses, foreign currency exchange rate gains (losses), net, M&A costs and amortization of acquired intangible assets, other noteworthy items that change from period to period, related tax effects per calculated net income (loss) and weighted-average shares used in computing net income per share attributable to ordinary shareholders, basic and diluted; and further adjusting on a pro forma basis assuming Taboola went public and consummated the related transactions as of January 1, 2021.


The following table provides a reconciliation of the numbers of shares used to calculate the Non-GAAP EPS to IPO Pro forma Non-GAAP EPS basic and diluted:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
GAAP weighted-average shares used to compute net income (loss) per share, basic
   
255,160,597
     
229,024,803
     
251,865,831
     
107,884,927
 
Add: Non-GAAP adjustment for Ordinary shares issued in connection with going public
   
     
     
     
114,313,773
 
IPO Pro forma Non-GAAP weighted-average shares used to compute net income per share, basic
   
255,160,597
     
229,024,803
     
251,865,831
     
222,198,700
 
                                 
GAAP weighted-average shares used to compute net income (loss) per share, diluted
   
255,160,597
     
259,262,529
     
251,865,831
     
107,884,927
 
Add: Non-GAAP adjustment for Ordinary shares issued in connection with going public
   
     
     
     
114,313,773
 
Add: Dilutive Ordinary share equivalents
   
870,513
     
     
2,358,472
     
33,980,786
 
IPO Pro forma Non-GAAP weighted-average shares used to compute net income per share, diluted
   
256,031,110
     
259,262,529
     
254,224,303
     
256,179,486
 
                                 
IPO Pro forma Non-GAAP EPS, basic (1)
 
$
0.040
   
$
0.211
   
$
0.191
   
$
0.432
 
IPO Pro forma Non-GAAP EPS, diluted (1)
 
$
0.040
   
$
0.186
   
$
0.189
   
$
0.375
 
 

(1)
IPO Pro Forma Non-GAAP EPS basic and diluted is presented only for the three and nine months ended September 30, 2021 assuming Taboola went public and consummated the related transactions in each case as of January 1, 2021. Therefore, the Non-GAAP net income does not include any adjustments of undistributed earnings previously allocated to participating securities, assuming these securities converted to ordinary shares in each case as of January 1, 2021.

Ratio of Adjusted EBITDA to ex-TAC Gross Profit

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

Free Cash Flow

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

Non-GAAP Financial Measures

We are presenting the following non-GAAP financial measures because we use them, among other things, as key measures for our management and board of directors in managing our business and evaluating our performance. We believe they also provide supplemental information that may be useful to investors. The use of these measures may improve comparability of our results over time by adjusting for items that may vary from period to period or may 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,
 
   
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
   
(dollars in thousands)
 
Revenues
 
$
332,462
   
$
338,768
   
$
1,029,883
   
$
970,790
 
Traffic acquisition cost
   
203,125
     
211,899
     
619,109
     
621,137
 
Other cost of revenues
   
26,649
     
19,184
     
79,695
     
52,224
 
Gross profit
 
$
102,688
   
$
107,685
   
$
331,079
   
$
297,429
 
Add back: Other cost of revenues
   
26,649
     
19,184
     
79,695
     
52,224
 
ex-TAC Gross Profit
 
$
129,337
   
$
126,869
   
$
410,774
   
$
349,653
 

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

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

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

This metric does not reflect our future contractual commitments.


The following table provides a reconciliation of net cash provided by operating activities to Free Cash Flow:

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2022
   
2021
   
2022
   
2021
 
   
Unaudited
 
   
(dollars in thousands)
 
Net cash provided by operating activities
 
$
23,219
   
$
26,573
   
$
33,426
   
$
40,553