Q1 2024 Taboola.com Ltd Earnings Call

Participants

Jessica Kourakos; Vice President of Investor Relations; Taboola.com Ltd

Adam Singolda; Founder, Chief Executive Officer, Director; Taboola.com Ltd

Stephen Walker; Chief Financial Officer; Taboola.com Ltd

Laura Martin; Analyst; Needham & Company

Mac Down; Analyst; Citizens JMP

Zach Cummins; Analyst; B. Riley Securities

James Kopelman; Analyst; TD Cowen

Jason Helfstein; Analyst; Oppenheimer & Co. Inc.

Justin Patterson; Analyst; KeyBanc Capital Markets Inc.

Mark Zgutowicz; Analyst; Benchmark Company

Presentation

Operator

Good day and thank you for standing by, and welcome to the Taboola first quarter 2024 earnings conference call. (Operator Instructions)
Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jessica Kourakos. Please go ahead.

Jessica Kourakos

Thank you, and good morning, everyone, and welcome to Fluor's First Quarter 2024 earnings conference call. I'm here with Adam single, the two bullets, Founder and CEO, and Steve Walker to go as CFO. The Company issued earnings materials today before the market and they are available in the Investors section at both websites.
Now I'll quickly cover the safe harbor. Certain statements today, including our expectations for future periods, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings.
These statements are based on currently available information, and we undertake no duty to update them except as required by law. And Today's discussion is also subject to the forward-looking statement limitations in the earnings press release.
Future events could differ materially adversely from those anticipated. During this call, we will use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings release posted on our website.
With that, I'll turn the call over to Adam.

Adam Singolda

Thanks, Jessica, and good morning, everyone, and thank you all for joining us. We had a strong start with Q1 results above the high end of our guidance range across all metrics. X-tack of $139 million grew 20% versus last year. Adjusted EBITDA of $23 million grew more than 100% free cash flow was nearly $27 million in Q1 and also more than doubled last year.
All metrics beat the high end of our guidance range and are on track to meet our full year 2024 guidance. I'm also encouraged to see that our growth rates are accelerating compared to last year. Looking at our use of cash over 100% of free cash flow in Q1 was spent on share buybacks, demonstrating our strong commitment to shareholder returns and confidence in our long-term strategy and ability to execute with a strong Q1 and Q2 guidance showing double digit growth versus the same time last year.
We are reiterating our 2024 guidance, which projects accelerated growth on every metric and making 2024 for a record year for us. Revenue growing 33% to nearly $2 billion, X-Tack growing 25% to almost $670 million. Adjusted EBITDA of over $200 million, growing approximately 2x 2023 and over $100 million of free cash flow, which is also two times 2023 levels.
When looking at our core business. Our main focus is, first, making our advertisers successful and in return growing our yield year over year and a second and a big focus for us this year is ramping young, starting with our initiatives driving advertiser success.
I can tell you just come back from an upside where a lot of what we talked about is our goal to expand our initiatives to make to build a company recognized for quality across all fronts, delivering premium experiences to users and publishers while attracting Tier one performance advertisers.
As I wrote in my shareholder letter. I am happy to report that we've just crossed the 20% mark of our revenue being driven by top brands and agencies, and it's growing fast. We think there's a big upside here in many ways, more than have imagined in the past. You will hear me speak a lot about it this year and onwards. As I think this can be material to our partners as well as for us driving yields even faster.
Let me share a bit more about this. We have recently launched select as a way for premium performance advertisers to reach our top 15% of publishers, which includes Yahoo Apple, NBC, Disney and more with a premium standalone ad experience.
Big brands are willing to pay a premium for it were focused exclusively on performance. This is not a branding play. We're not looking for top of the funnel budget here, but to enable big performance budgets to go beyond social and search to the open web and Taboola as new offerings between TiVo select our Yahoo partnership, our Apple partnership and the success of Tier one advertisers such as Hulu, Citi Verizon.
We hope to differentiate ourselves in the marketplace and help drive yields even faster. Our biggest R&D and product investment is making advertisers successful. I'm happy to share that Maximus conversions adoption continues to grow and is now almost 60% of our revenue. We're focused on improving our retention rates and increasing budgets, also known as NDR.
We're seeing encouraging results from advertisers migrating to MAX conversion and AI, including double digit growth in NDR for advertisers who have migrated to MAX conversion versus ones was not and improving retention rates.
Our main work here is to reduce calls, start by training our AI models and taking advantage of the massive amount of first-party data and clickstream to look for similar best advertisers and bring that know-how front and center.
Switching gears to our second top priority this year ramping up. We're on track to complete the migration by midyear as planned, and we continue to make progress migrating Yahoo's Tier one omnichannel advertisers switchable on.
And we've achieved our goal in Q1 to exceed $100 million in revenue on our supply. While there is still a lot of work to be done, we couldn't be more pleased with the partnership with Yahoo. The work between our leaderships at encouraging performance advertisers are seen when using tablet technology.
One was a success story was with one of the world's largest personal finance software companies where the ads performance was so strong that they increased their budget more than two times over the course of the campaign and are now one of the largest advertisers under Taboola network.
If there was ever a proof that AI matters, this is a good example of it. We spoke last quarter about our relationship with Apple, and I'm happy to share that it has now expanded to new markets. Previously, Apple has selected us to monetize Apple News and Apple stocks as an authorized reseller starting in Australia and Canada. And just recently, we expanded our role to serve as an authorized reseller for Apple News and Apple stocks in the US and UK markets.
I could not be more proud of the tubular team supporting our efforts here, and we have a lot to learn as we onboard this amazing new partnership and I remain confident that Apple will become one of our most important partners.
Turning now to our growth engines to revenues, e-commerce and our better overall product innovation and commercial wins continue to drive our momentum here. Our key investments, particularly news is getting more vertical videos, real-time content onto it, similar to what you're seeing on Instagram or Snap. And we're seeing great user engagement.
In addition, while introducing various utilities, users may like to engage with such as weather or gaming and more. And our ambition here is to over the next many, many years to have people spend over 20 minutes a day with us.
My product team likes to refer to it. We have a chance to become the main dish on the e-commerce front, we had a great quarter, growing solid double digit and exceeding our expectations. Again, we launched Associated Press new e-commerce site powered by Taboola, and it's beautiful. We should check it out, it's called AP. Buyline.
It gives people a chance to check product reviews and make decisions that matter to them, leveraging the trust of AP and our relationships with retailers We also recently integrated with Amazon's DSP to allow Amazon sellers to extend their budgets into Taboola. As an example, let's say you have a store in Amazon and you want to reach buyers in the open web.
You can now extend your reach using Amazon's DSP unattainable or Open Web network of publishers. Our header bidder is still small, but the potential here over time is to integrate across our thousands of publishers, including Yahoo into their display stack, which is an opportunity that can be quite meaningful. We are extremely excited by the prospects of our tubular growth engines and our ability to create synergies with our core business over the long term.
In summary, we're coming in strong into 2024, exceeding our high end of guidance across all metrics, expecting double digit growth in Q2 over last year, while reiterating our 2024 guidance making this year a record year for us, our revenue growth is accelerating while having a strong EBITDA of over $200 million and over $100 million of free cash flow, we're continuing our $1 billion of buyback authorization and we're laser focused this year on advertiser success, which should result in sales growth and ramping up Yahoo.
With that, let me pass the call to Steve to review our financials and outlook in more detail.

Stephen Walker

Thanks, Adam, and good morning, everyone. As Adam mentioned, we had a strong start to 2024. Our Q1 revenues were approximately $414 million and grew 26% year over year, accelerating from Q4 levels. X-tack gross profit was $139 million, which represented growth of 20% year over year X-Tack growth was driven by double digit growth in advertising spend as we onboarded Yahoo.
Advertisers and saw the benefit of having Yahoo supply available through our platform as well as by accelerating growth in our e-commerce business. In addition, we saw double digit growth in our premium brand and advertising demand spend, which included strong organic growth as well as the transitioning of advertising spend from Yahoo's platform to boule.
One note on our financials that is new this quarter on each of our financial statements in our 10-Q, you will note related party callouts, for instance, on our income statement, you will see that we call out related party revenue and traffic acquisition costs.
As you might guess those related party numbers are for Yahoo. Traffic acquisition cost disclosure is relatively simple. This is the revenue share we pay to Yahoo and it flows through to payables on the balance sheet and change of payables in the cash flow statement. The related party revenue is not quite as simple to understand.
There are three types of advertisers spending on Yahoo. Supply. First, there are what we have historically called omnichannel advertisers. These are advertisers that buy multiple advertising formats through the Yahoo. Dsp display, video and native.
They are still billed and collected by Yahoo. But all of the native revenue is spent on the two bullet platform. So they are recognized by people as revenue and appear as related party revenue.
The second type of advertiser is an advertiser that historically was only spending on native through Yahoo. No display video or other formats and has now been transitioned to bull. These advertisers do not appear in related party revenue because they're now billed and collected directly by tubular.
So they are not the customer related party. The last type of advertiser is an advertiser that had not historically spent through the Yahoo platform, but is now spending on Yahoo. Supply through that to build a platform.
These are historical tubular customers or new customers that we have brought on. They also do not appear in related party revenue since they are billed and collected by to go on. I will note that there is a small amount of other revenue in the related party disclosure that is either from other related parties, companies related to Yahoo or other advertisers that spend through Yahoo on to go up but not through the DSP. However, these are very small part of the related party revenue.
I will also note that the related party revenue also flows through to the balance sheet in the receivables line and into the cash flow statement in the change of receivables. I hope that help explains what is in the related party disclosures.
Now let me get back to our regularly scheduled programming. In Q1 Our net loss was $26.2 million, and our non-GAAP net income was positive $3.8 million. Adjusted EBITDA was $23.5 million, representing a 17% adjusted EBITDA margin year over year.
Adjusted EBITDA was down, which was due primarily to higher expenses related to the onboarding of Yahoo supply that were not in the year-ago period and which preceded the full benefit of Yahoo advertiser transitions.
Free cash flow benefited from the strong stronger than forecasted adjusted EBITDA, partially offset by the expenses related to the onboarding of Yahoo. We are very happy that our teams drove accelerating revenue and ex tech performance in Q1 through the remainder of the year, we expect improving cost efficiency, especially as the revenue from Yahoo. Advertiser transitions catch up with the associated costs, which will drive margin expansion.
Operating expenses were $127 million in Q1, up $9 million year over year as a result of the costs incurred to onboard the significant inventory we are gaining with the addition of Yahoo. We continue to focus on cost discipline despite the hiring required to support onboarding Yahoo.
Our headcount is still roughly flat relative to its peak in July of 2022. With this ongoing expense discipline and our strong growth expectations, we continue to expect that in 2024, we will approach our long-term adjusted EBITDA margin target of 30%.
Gaap net loss for Q1 of $26.2 million included amortization of intangibles of $15.9 million, share-based compensation expenses of $13.8 million and hold back compensation expenses related to the connection to the acquisition of $2.6 million, all of which were excluded from non-GAAP net income. Our non-GAAP net income of $3.8 million was above the high end of our guidance range.
In terms of cash generation, we had approximately $32.4 million in operating cash flow in Q1 and free cash flow of $26.8 million. This includes net publisher prepayments, which were a source of cash of $7.3 million and interest payments on our long-term debt, which were a use of cash of $3.6 million.
As I have highlighted in previous quarters. I would note that net publisher prepayments were a source of cash this quarter due to the fact that new prepayments were lower than the amortization of historical prepayments.
Let's turn to the balance sheet, you can see that our net cash balance remains healthy. Our net cash position of $35.5 million remained positive at the end of Q1 even after share repurchases, cash and cash equivalents, plus our short-term investments were $181 million at the end of Q1. Cash and cash equivalents and short-term investments remained above our long-term loan balance of $145.5 million.
Speaking of our share repurchases, we repurchased $28 million of shares in Q1. We still have $92 million of authorizations under our previously announced $100 million expansion of our repurchase plan. When we initiated our buyback program, we stated that our intent was to at least offset any dilution and maintain our issued and outstanding shares at end of Q1 2023 levels.
You can see that we have exceeded that goal as our issued and outstanding shares at the end of Q1 2024 were lower than the end of Q1 2023 by almost 5 million shares.
In terms of future use of cash, we continue to be able to fund our organic growth investments from our operating cash flow. As we said last quarter, we believe that at current valuations, the best use of our free cash flow is to buy back shares.
To the extent that we have additional cash to deploy, we will consider paying down our long-term debt. As always, both share repurchases and early retirement of debt are contingent upon the availability of sufficient working capital. I'm also happy to report that the process in Israel for share repurchases has been updated for Israeli companies like to Bourla with securities listed outside Israel.
Under the new process, we must post the notice on our website that we intend to buy back shares. And if no creditors object within 30 days, we can begin the buybacks. The process still requires our board to conclude that we meet a financial strength test as specified in the rules. So going forward, you may see us post notices of our intention to buy back shares to our investor page.
Now let me shift to our forward looking guidance. Two important expectations are included in this guidance first, while there is significant work left to be done, we expect the Yahoo advertiser migration to be complete by the middle of this year, and we will continue ramping Yahoo into 2025.
Second, we expect yield growth to turn positive in 2024 as the volume of our contextual data increases with the addition of Yahoo and other supply to our network and our investments in performance advertising, bear fruit. As I mentioned, we are very happy with the strong start to 2024, and we are reiterating our guidance for 2024.
This guidance implies strong top line growth and improving profitability. We expect revenue of $1.89 billion to $1.94 billion, which represents growth of 33% at the midpoint. We expect gross profit of $535 million to $555 million and X-Tack gross profit of $656 million to $679 million.
That ex is up roughly 25% year over year at the midpoint, we are reiterating our 2024 adjusted EBITDA guidance of over $200 million and free cash flow expectation of over $100 million. I will note that the adjusted EBITDA and free cash flow guidance represents roughly a doubling of both metrics versus 2023.
Finally, we are expecting non-GAAP net income of $84 million to $104 million in 2024. We are also introducing Q2 2024 guidance. This quarter, we expect revenues of $410 million to $440 million, gross profit of $110 million to $120 million, X-Tack gross profit of $140 million to $150 million, adjusted EBITDA of $20 million to $30 million and non-GAAP net income of zero to positive $10 million.
Let me finish by saying that we are very happy with our first quarter performance. Our growth is accelerating in 2024, and I'm looking forward to the step change we are expecting in our financials in 2024. The growth investments we have made in 2023.
The additional scale that Yahoo is bringing and the additional supply, we will be onboarding as part of a new partnership with Apple is accelerating our journey towards becoming a must-buy for advertisers looking to reach consumers and the open web.
And with that, let me pass it back to Adam for some closing remarks.

Adam Singolda

Thanks, Steve. In summary, it's great to see our business momentum and growth rates accelerating. It's an exciting time for us to hit the boiler seen our investments pending out.
Starting with our financials, we started 2024 strong with a beat above our high end of guidance across all metrics, our growth rates are accelerating, which is good to see. In Q2, we're guiding for double digit growth versus Q2 of last year and 2024 is a record year for us overall with nearly $2 billion in revenue north of $200 million of EBITDA and over $100 million of free cash flow.
We're executing on our buyback program, which demonstrates our confidence in our ability to execute and create shareholder value.
When looking at our business, our top two priorities this year are making advertisers successful and ramping Yahoo. On advertiser success. Mix conversion is ahead with advertisers. After six months, it's almost 60% adoption.
And advertisers who have adopted are generating double digit higher NDR. We're also focusing on attracting premium advertisers, which both select accessing our top 15% of our network, including Yahoo. Disney, Apple, NBC and others on Yahoo. We're on track to complete the migration by midyear as planned, and we crossed the $100 million in Q1 as we thought. Beyond that, we're seeing great momentum.
Overall, our relationship with Apple is now extending to the U.S. and U.K. beyond Canada and Australia. Our growth engines, e-commerce, tubular news and header bidding are showing strong momentum and becoming more and more synergetic to our core business, making our publisher and advertiser business stronger. I'm excited to be exactly where we are.
We know what we need to do. We have an incredible team all around the world working hard to build the very first must-buy advertising company for the open web. Thank you all for being part of our journey.
And with that, let's open it up for questions. Operator?

Question and Answer Session

Operator

Thank you. At this time, we will conduct the question and answer session. (Operator Instructions)
Laura Martin, Needham. Your line is now open.

Laura Martin

Good morning. Boy, there's a lot going on and great numbers guys. Congratulations. Yes, thank you, Laura. So my first question is on these priorities. I know that you're trying to onboard these omnichannel advertisers at Yahoo, but there's a lot that you're talking about in the shareholder letter about performance, high quality Pharmos appetite.
So is this just an overall part of the strategy to just increase the total number of advertisers. I'm surprised that the Yahoo priority is that number one and that you've elevated this performance high quality performance advertisers to be a higher priority than Yahoo. Can you speak to that, please?

Adam Singolda

Yes, sure, Ira. And looking forward to seeing you very soon, the event. So So overall with Yahoo. One thing that we're seeing, and I mentioned a letter also an interesting case study of a performance advertiser, one of the largest personal finance advertiser that was able to migrate and double the spend.
One, Susan, the Tubular Technology in general, we're seeing something that is fairly new to us, which is we're premium advertisers that are great names in Oahu and Verizon, Samsung and names were mentioned before, are coming on board there.
And when they're seeing good performance, their ability to spend a lot more is and it's quite exciting and to do willing to pay a premium for doing so, which is also why we at launch to build a Select, which is a way to essentially create like this index of the top of our company wide network between Yahoo and Apple and known design and BC. and DBC. and others, and to allow advertisers to buy a specific kind of like segregated ad unit, a standalone ad unit and pay a premium for it.
So what we think is that there's an opportunity for us to grow our portion of kind of top tier performance brand advertiser. And again, this is not us top of the funnel kind of retention play. This is our by far our performance focus using the Numax conversion pixel on page, all the things we like, however, coming from agencies and brands and a lot of it, we've learned from the partnership with Yahoo.
So that's why we're thinking a lot about it. That's why we've launched a with select. And that's that's a lot of what it excites me because I think as the world grows from two to three to $4 billion in revenue. There's an opportunity to become much more kind of share of wallet for brands and agencies, but performance focused on it. I think it also is an opportunity to elevate our company overall quality.
So I like where it's going, and that's why I was thinking about it. What is your question about why I think performance advertisers actually the number one priority. And then by far actually maybe the number two, three and four is because I see such an opportunity to accelerate yields from where we are over the next many, many years.
And if you think about that, if you can double the Company's yield, you double the Company's revenue and I think we can double and triple double it by just growing yield. And that is by far the biggest thing we can do for our company and shareholders.
So we have the biggest focus on that from the performance advertising tech team or sales team, even our work with Yodle, suggesting that for top line over the next three to five years, yield expansion is by far the biggest thing we can do. And of course, in 2020 for Yahoo, is the biggest thing we have going on.

Laura Martin

Okay, very helpful. And then secondly, I was intrigued in the shareholder letter, you set a goal of 30 minutes of engagement a day. Could you talk about where your engagement is today and what but the core drivers of engagement growth are.
How do you bridge the gap between what your engagement level is today in terms of minutes and like what is it you're going to do where the tools to get to that 30 minutes of engagement to date, which is your call?

Adam Singolda

Yes, or the biggest driver for that is to be the news as far as we see today. So what happens is to build a new is more and more OEMs are integrating us to be in the what they call lock screen, Alex going, which is even before the consumer economy is interacting with the device itself.
And then I was joking on earlier saying that my team is referring to that as the main dish, the crystal ball, it becomes the first thing they see before they even go to Facebook and Google or other apps so that we become the first thing consumers do and the average consumers of looking under lock screen over $100 times a day.
Now what we see now is that over the last quarter and I mentioned that in my letter, we're introducing more and more vertical videos, think of it like reels or inadequate Snap is doing. And that is expanding engagement with consumers.
And we're seeing acceleration in time and engagement. And because of that, our product roadmap this year is more and more getting oriented around one video, specifically full-screen vertical video and to utilities. As an example, we're now introducing consumers to whether we're offering them games. We're offering them to CNO if you're Vargo, what does that mean?
And so we're giving you more things that you might like using AI to personalize different utilities you might like to engage with. And thanks to that we're getting more time with consumers. So we didn't share it to bill in your current kind of time. But I can tell you it's in the single digit as of now, but growing. We have some cases when it's more than 10 minutes.
And I believe that over the next many, many years, my aspirations to get this to be kind of consistently double digit or 20 minutes a day. And I know my philosophy is that if you get people's time over time, you build a great business around that.
So if you build something that consumers want and they use it again and again, and again, the revenue follows. And that's why we like to build a news because one, I think it helps us to become even more important to consumers.
But again, it's mega synergetic to our core because Daniel, you click to go to a publisher site. It's stimulus publishers, and it allows us to become a growing source of traffic to publishers and especially with Gemini and bar, the Gemini, all the things, I think it matters to publishers a lot.

Laura Martin

Very helpful. Thank you, Adam, very much.

Adam Singolda

Sure.

Operator

Thank you. Please stand by for us question.
[Mac Down] of Citizens JMP. Your line is now open.

Mac Down

Thank you for taking my questions. My first one is just after a strong beat in 1Q relative to your guidance, you left the full year guidance unchanged. If there's something that's happening in the macro or otherwise, it's preventing you from raising your guidance.
And then my second question is just as you're expanding your coverage of Apple News and Apple stock to the US and UK. Can you just help contextualize the opportunity and how you expect this to impact financials in 2024? Thank you so much.

Stephen Walker

Yes. So good question on the guidance. So in terms of our full year guidance, where we're obviously happy that Q1, we grew 26% year over year on a revenue basis and 20% year over year on a stack basis. So it was a very strong quarter for us and we expect improved adjusted EBITDA margins as we move to the back half. So we're still expecting our full year adjusted EBITDA margins to be 30% or at least to approach 30%.
So I think we're pretty happy with where we are 2024. In fact, is going to be a record year for us. It will be our highest X-Tack and highest adjusted EBITDA on record. So overall, we think the guidance is really strong. We feel good about where we're at, but it's still very early.
So while we feel very good about where we're at with, there's a lot of work to do and we don't want to adjust the rest of the year yet being as early as it is. So we're very happy with where we stand. We're just not ready to change the full year at this point in terms of Apple opportunity?

Adam Singolda

Yes, we don't like to speak about any specific accounts or threes, as you can imagine. But what I can tell you is one it's very exciting for us to work with a company like Apple in oh nine in four markets and obviously the UK and the US are great markets to expand our relationship with we do think that this drives two things for us as a company.
One following on also Laura's question, this is a very good anchor kind of our step forward towards people are giving premium advertisers yet another way to reach consumers. So there's no more premium than Apple, and that's that's really awesome for us to have that relationship and offer that to brand quality advertisers that are looking for performance.
So that's one. It fits perfectly well with our kind of elevating and getting even more access to top brands all around the world and to we do believe that Apple has a chance of becoming one of our largest partners. So I'm comfortable saying that without getting into specifics.

Mac Down

Thank you so much. That's helpful.

Operator

Thank you.
Zach Cummins, B. Riley Securities. Your line is now open.

Zach Cummins

Hi, good morning. Thanks for taking my questions and congrats on the strong Q1 results. I really just had a follow up question around kind of the assumptions that are baked into your Q2 guidance here in how we should think about the progression going into the second half of the year, just based on the unchanged outlook.
And then part two is just with the expanded Apple relationship can you talk about kind of the additional work on the development side that's going to be required as you continue to onboard and ramp that relationship in second half of this year?
Yes.

Adam Singolda

So what's the what's the question about the Q2 guidance, those specifically?

Zach Cummins

And just just key assumptions that are baked into that versus I mean, the strong performance out of the gate here and kind of how we should think about the progression into the second half of the year to hit that full year guidance range of three firms.

Adam Singolda

Got it. So I think in terms of the Q2 guidance and frankly, the full year guidance, the most important assumptions that we're making there are one that the Yahoo is fully ramped by midyear. So there's still a lot of work to do.
There were, but we're making good progress. I think Adam alluded to earlier how we are seeing some really good results from some of the advertisers we brought across, but we got to finish that work and get the rest of the advertisers across so that, that's assumption.
One is that that happens, we're also assuming that in the back half of the year, especially, we start to see some yield gains as we basically from those new advertisers that we're bringing across and from our own work on performance advertising that we start to see benefit from that and we start to gain some yield assumptions or some yield gains as a result.
And then I think the other kind of basic assumption that we've made, which I think we talked about last quarter is that operating expenses will kind of be running at roughly Q4 levels for the year. So from a EBITDA basis, that's the basic assumption.
But I think the most important two assumptions are the first two Yahoo. Ramping by midyear, and we start to see some yield gains gains as we move into the back half in terms of dev work required to make Apple's successful?
Yes, I don't think there's anything. It's a it's a publisher partner of ours. So there's nothing that is dramatically special or unique or different about. It's I think all the work that we're doing on making performance advertisers successful and the performance advertising work that applies to Apple, just like it applies to any of our other publishers.
So I don't think there's anything particularly unique. Obviously, they're a big partner. They have their own requirements, but that's true any of our publishers. So nothing really unique there.

Zach Cummins

Great. Thanks for taking my questions.

Adam Singolda

Thanks, Zach.

Operator

Thank you.
James Kopelman, TD Cowen. Your line is now open.

James Kopelman

Good morning and thanks for taking the question. First one is for Adam. You mentioned financial advertisers doubled their campaign budget or more than doubled. What was the role of AI. specifically in the success that they experienced? And how will that potentially reach reap larger benefits as more advertisers take advantage of your AI and JNI tools.
And then also, I also wanted to ask about retention rates, which you mentioned benefit from training your AI models. Question is how much of your R&D budget are you allocating toward training AI models over time? And then I have a follow-up for Steve.

Adam Singolda

Sure. Good morning and good questions. So on the first question, next, conversion and AI play an incredibly important part of advertiser success. And in this case, what you're saying is is a fantastic brand name that we all know that's migrating to use to bolus core technology to roll the ads with MAX conversion and what they're seeing.
And but their objective was in a very lower funnel specific metrics. They were looking to get. And once starting to work with us, they had an initial spend goal which were significant by the way, and the results were so great that they were they decided to double the spend. I don't know if that, you know, doubling came from someplace else, but I was happy to see it.
But I can tell you it was all driven by AI and specifically showing that cost per acquisition is well within the range or whether we're expecting an even better. And you know, like like I told my Board yesterday, we had a meeting. I said all I want to just 1,000 of those, right? I just want to see that again and again and again, because at the end of the day. If you think about Triple M, we now reach about 600 million people a day DAUs, so roughly the size of Snapper. So and so we have significant reach and a lot of supply.
So for me, if I can continue to make advertisers successful and get more budgets, I truly believe we can double and triple the company and that is why this is the number one priority for the company. And that is why we invest so much from the product and tech team on making performance advertisers successful and ideally top tier performance advertisers successful in terms of amortization, nearly half of our R&D works on a variety of different things relating to performance advertising.
And I can tell you now that team presents to the Board. Every board. It's top of mind for our management team, our Board and us as a company.
In terms of financials, I'm not sure if which are specifically how much dollar wise, but it's about half of our tech team. He's working on that.

James Kopelman

And then you also asked a little bit about retention rates. So I think we disclosed in this in our shareholder letter this time that our the NDR of our advertisers that are using our AI and our new like our new tools, there have double digits improvements in their NDR, which is a great measurement of kind of how they're doing. We haven't disclosed any new information about advertiser retention rates, but obviously your NDR can't be that positive if you're losing your advertisers. So it's obviously a good sign.

Adam Singolda

Yes, I think you were asking. So what do we do now? And again, within the sort of financial cost of that. That's what we're doing it. We're essentially and that's a big transition in 2024. We're spending a lot more resources on training or AI to from a cold start perspective to look at historic data so that we can create list of recommendations that are taking advantage in a greater way from advertisers that are like you. So if you're starting a campaign with double that today.
Please remember, as I said earlier, that's one of the biggest opportunities and challenges around advertiser retention is shown and success really, really fast the faster you can get them conversions, the less likely to churn.
So what we're doing now is we're training our models in a significant new way to take advantage of historic data and create a better list of recommendations that can come faster to consumers so that hopefully we can make conversions come earlier in the process and from that increase retention rates so that's what we're doing now. And we've mentioned that in the letter.

James Kopelman

And then just one last one for Steve. On the cadence for sales and marketing expense through 2024, it is your biggest OpEx line. Can you just remind us what are the key drivers this year for sales and marketing? And should it should that expense line continue to rise sequentially throughout the year, given your various investments? And do you have any other call-outs across OpEx as we go through the year?

Stephen Walker

Yes, I think so. Generally, we've hired most of the people that we're going to hire. Most of this hiring, by the way in sales and marketing is to support the transition of advertisers from Yahoo to LA and to support kind of that revenue jump.
So we've hired most of what we're going to hire at this point. Q1 was a mostly full quarter for that. So while there probably will be a slight step up going forward. It's not going to be very large. So generally speaking, I think we're at about the right level, at least now, let's say we've got work left to do. We're going to finish that work over the next couple of months.
And by midyear, we're supposed to be fully ramped, then we'll reevaluate. We'll just see where we're at and see if there's any need for additional resource or anything like that. But as of now, the expectation is we have what we need.
And like I said, the only other call-out I would give is that we think that we're going to be roughly flat on operating expenses from here for the rest of the year. So I think generally we feel good about where we're at with the caveat that we'll reevaluate once we have all those advertisers on board and we understand what we need to do.

James Kopelman

Great. Thanks, guys. I appreciate all that.

Adam Singolda

Thanks, James.

Operator

Thank you.
Jason Helfstein, Oppenheimer. Your line is open.

Jason Helfstein

Thanks, to your question. So two questions on just one on the progress around Europe and given you did $100 million in the quarter, and I think we had like a 450 target for the year. It would seem like you're definitely going to track above that given the seasonality.
So and I don't know if you want to kind of help us think about what the new number would be, whether it's like 500 by 50.
And then second, on the bag area would imply like, you know, the business is down for other. We have talked about how it's not really a fair way to look at it for a host of reasons, but were there any specific pockets of weakness either on a product side or geographic side or ad category side that we need to be mindful for on that in the quarter? Thanks.

Adam Singolda

Also hedging. Morning. No, so one, you know, we already crossed the $1 million as we expected, which is great to see. We'd like we'd like to see that things we say happen. And I think at this point we're looking at.
Yes, as part of our core, similar to Apple, Apple's similar to other big, big partners, we have in a way that we have one source of demand and that demand has been distributed across multiple types of publishers, some big and some small and now is obviously a big publisher.
So from that perspective, in our core, if you do that type of math is growing double digits, which is good to see. So from that perspective, I'm happy and I'm happier even to see performance advertisers that are spending and migrating and getting good results.
We spoke about that earlier today. So things are things are moving as we'd like to see. We're on track to complete the migration by midyear as we planned. And again, there's a lot of work ahead of us. So we're not taking it lightly. It's obviously ramping a big, a big partnership. But as of now, there's nothing new to share beyond the fact that we did the work and it's going as planned.

Jason Helfstein

Okay.

Operator

Thank you.
Justin Patterson, KeyBanc. Your line is open.

Justin Patterson

Thanks for taking my question. This is Jacob on for Justin. With revenue from top brands agencies growth and 20% of revenue mark up, what efforts are driving the recent success you're seeing with these advertisers? And with the introduction of tubular Select, is there anything you can share in terms of early reception from these premium and advertisers and how you believe this expands the opportunity with us go to advertisers?

Stephen Walker

Yes. Thanks for the thanks for the question, Jacob. So what we can say is what's driving success for those advertisers? And why is our premium kind of brands and agencies business growing to above 20%?
I think it's a combination of factors as with anything. It's not one thing. So Adam spoke earlier about the fact that we're seeing really good performance of MAX conversions and our high technology for those advertisers. So that's definitely a big part of it.
So I think the financial advertiser that we talked about who came across and spent, I know a lot more than they even expected to because it was working so well for them. That's a big part of it like when the technology works, you get more budget, but we've also had a sales focus on this.
So we have built out capabilities and teams that are specifically targeting and building relationships with major brands and agencies. And that's helping what we realized is that with the with the success we're seeing with the technology being that the state is we then announced two bullets select because we think we're at the right time and in the right position now to package everything together into an offering for these large brands and agencies that we think works really well.
Technology works. We've got the right inventory, like if you think about the quality of our publisher inventory and what's happened to it over the last year, we've added Apple. We've added Yahoo. We've built our relationship with Microsoft Live.
We have really, really high quality supply that has grown dramatically. We've got technology that's working for them. And now we've got the sales capability. So we decided to put it all together into an offering called two bullets select that we think is now at the right time and place to really succeed. So that's kind of how it all came together.
So the success culture and technology, it comes from sales focus. It comes from the right having the right supply. And we're now at the right time and moment to really package together and go sell it aggressively.

Justin Patterson

Thank you.

Operator

Thank you.
Mark Zgutowicz, Benchmark Company. Your line is now open for you guys.

Mark Zgutowicz

This is Alex on for Mark. Thanks for taking the questions. Could you perhaps quantify the e-commerce revenue ex tag penetration in 1Q and what you factored into your growth expectations throughout the year?
As you lean into these new relationships? And then how should we be thinking about the extract margin accretion potential from this mix shift to e-commerce over the near and medium term? Thank you.

Adam Singolda

So we don't break out our e-commerce business specifically. So I'll give you kind of some flavor of what we have said historically. So first of all, what we've said is that e-commerce is growing faster than the rest of our business. So that's great, Mike. It's a growing part of our business. What's excited about that by the way is that e-commerce demand in particular is extremely high-quality.
So it's coming from a combination of merchants like Walmart and Target and other people like that as well as from brands selling directly themselves like a Wayfair or a, um, Skechers or companies like that. So it is a we're showing really good momentum. It's exceeding the growth rate of the rest of our business and we expect that that's going to continue.
So that's kind of what we've disclosed about e-commerce. Again, we haven't really disclosed how much of the breakout it is over time in terms of what's the opportunity to kind of grow X-Tack margins over time, especially especially relative to e-commerce?
So first of all, what we've said is we expect to be at around 35% ex tax margin this year. That's kind of the midpoint of our guidance. We've said that we think that we have an opportunity to get that back up to 40% and beyond that over time.
And part of that will be growth of e-commerce. E-commerce we report on a net basis. So it's highly accretive to our exact margins just because of that. But even beyond that, it's a really high value demand and helps us with our margins overall. So I think we do believe we have a good opportunity to grow our exact margins back above 40% over time and a part of that will be from e-commerce.

Mark Zgutowicz

Great. Thank you very much.

Operator

Thank you. I'm seeing no further questions. I would now like to hand the call back over to Adams Agoda.

Adam Singolda

Thanks for joining us, everyone on the call today. And I hope you can say we're very happy with our strong start to the year. The key things that take away from the call today are one. Q1 showed a great momentum in the business, hitting the high end of our guidance, reiterating 2024, which makes this year a record year for us. Our growth rates are accelerating, which is great to see.
And then our top two priorities are advertiser success and ramping Yahoo. Both are doing well. Apple News is now expanding our last quarter. It was in Australia and Canada. Now it's in the US and the UK and there's a lot going on a lot of work, but we're very happy with the strong momentum we have seen so far. I hope to see everyone soon, and thanks for joining us.

Operator

Thank you. For your participation in today's conference. This does conclude the program. You may now disconnect.