Teads (NASDAQ:TEAD) reported a 26% decline in third-quarter revenue and an adjusted EBITDA loss as weakness in its enterprise and direct-response businesses outweighed growth in connected TV advertising.
Revenue fell to approximately $235 million, while ex-TAC gross profit declined 28% year over year to $93.5 million. Adjusted EBITDA was a loss of $8.1 million, and free cash flow before interest payments was negative $1.4 million, management said on the earnings call.
CEO David Kostman said an unexpectedly weak August in Europe, the Middle East and Africa contributed to a slowdown in the enterprise business. He cited macroeconomic factors and structural pressures on the open internet, although he said revenue improved toward the end of the quarter and into October.
Enterprise Weakness and Connected TV Growth
Enterprise ex-TAC gross profit fell 14% year over year to $75 million, compared with a 6% decline in the second quarter. Kostman said Asia-Pacific grew 5% in the third quarter, while North America declined 15%.
Connected TV revenue grew 37% and represented approximately 20% of the enterprise business, Kostman said. Year-to-date connected TV revenue through the third quarter was nearly $100 million.
The CEO said connected TV growth slowed from the preceding quarter but accelerated again in October, which he attributed partly to seasonality. Teads is using its connected TV offerings to sell packages that also include web advertising, he said.
Kostman said Teads expanded its footprint of HomeScreen placements to more than 500 million devices worldwide through partnerships including Pluto TV and Telly. The company also signed joint business partnerships with brands including BMW, Lenovo, Shell and Kia.
Publisher Traffic Pressures
The direct-response and small and medium enterprise business recorded $20 million in ex-TAC gross profit, down 50% year over year. Kostman said AI-generated search summaries and algorithm updates have reduced referral traffic, publisher page views and advertising impressions across the open internet.
In response to an analyst question, Kostman said the company was seeing page-view declines ranging from 20% to as much as 60% at some publishers. He said monetization had also become more challenging, though he believed page-view declines were stabilizing and that improvements to Teads’ algorithms were helping monetize existing pages.
“The page view declines, we think they have reached, we hope they have reached the bottom,” Kostman said.
He said the direct-response and SME business was more severely affected than enterprise because its feed product requires the company to fill all available inventory. Teads’ EngageOS platform is intended to help publishers improve yield and user engagement; some publishers using it have seen double-digit growth in both measures, he said.
Impairment, Costs and Liquidity
Chief Financial Officer Jason Kiviat said Teads recorded a $272 million full impairment of goodwill following declines in its share price and market capitalization. The noncash charge does not affect liquidity, operating cash flows or debt covenants, he said.
Excluding the impairment, other cost of sales and operating expenses declined approximately 10% year over year, despite foreign-exchange headwinds. Kiviat said the company believed it had room to make further cost adjustments but did not quantify potential savings.
Free cash flow was negative $33 million in the quarter, including a $31 million semiannual interest payment in August. Teads ended September with approximately $140 million in total liquidity, including $90 million in cash and amounts available under its credit facilities, Kiviat said.
During the quarter, Teads closed a $125 million accounts-receivable borrowing facility. Its available borrowing base was approximately $60 million at closing, with $55 million drawn, according to Kiviat.
The company also announced that Kiviat will transition out of the CFO role after 13 years with Teads. Incoming CFO Michael Coyle said he would work with the leadership team on operational transformation and the capital structure, while Kiviat said he would support the handover in the coming months.
About Teads (NASDAQ:TEAD)
Teads is a global advertising technology company that operates an omnichannel digital advertising platform. The company connects advertisers and agencies with publishers and audiences across digital media, helping brands plan, buy, deliver and measure advertising campaigns through a combination of technology, data and creative services.
Its offerings include video, display, native, connected television and other digital advertising formats. Teads provides tools for campaign management, audience targeting, automated media buying, creative development and performance measurement.
