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  Title	Moody's Ratings assigns first time B1 CFR to Outbrain Inc., outlook stable
  ID	6565240
  External ID	7522504450
  Author	Unknown
  Published Date	Feb. 4, 2025, 9:35 a.m.
  Summary	New York, February 04, 2025 -- Moody's Ratings (Moody's) assigned a B1 Corporate Family Rating (CFR) and a B1-PD Probability of Default Rating (PDR) to Outbrain Inc. (Outbrain). Concurrently, we assig
  Tags	press-release
  URL	https://ratings.moodys.com/ratings-news/436690
  Sentiment	Negative: 0.00933    Neutral: 0.23523    Positive: 0.75544
  Relevance	0.04425

• Content Details

  Content ID	4069742
  Key	39a9c25c-ce3f-4626-8f83-09ed0a507681
  Content	New York, February 04, 2025 -- Moody's Ratings (Moody's) assigned a B1 Corporate Family Rating (CFR) and a B1-PD Probability of Default Rating (PDR) to Outbrain Inc. (Outbrain). Concurrently, we assigned a B1 to the $625 million proposed backed senior secured notes due 2030 issued by OT Midco Inc., a wholly owned subsidiary of Outbrain Inc. Also, Outbrain is issuing a $100 million proposed super senior revolving credit facility due 2029 (unrated). The Speculative Grade Liquidity (SGL) rating assigned is SGL-2. The outlook is stable. On August 1, 2024, Outbrain announced that it signed a definitive agreement to acquire Teads S.A. (Teads) from Altice Teads S.A. for approximately $900 million. Proceeds from the new notes will be used to fund the cash portion of the acquisition price while the remaining will be funded with approximately $160 million of cash on the balance sheet and 43.75 million shares of Outbrain's common stock (valued approximately at $260 million as of the closing price on January 31, 2025). The new equity will be issued to Altice Teads. S.A. With the necessary regulatory approvals obtained, Outbrain completed the transaction in February 2025. Governance risks, including a short track record of operating as a public company, were material to the rating action and remain a key consideration to the ratings. "Through the acquisition of Teads, Outbrain will be able to provide a full-funnel marketing strategy that leverages Teads' strength in branding with Outbrain's expertise in performance marketing. While there are cross-selling opportunities, there are execution risks associated with realizing revenue and cost synergies and integrating the platforms," said Alison Chisuhl Jung, a Moody's Ratings VP-Senior Analyst. All ratings are subject to the execution of the transaction as currently proposed and our review of final documentation. RATINGS RATIONALE The B1 CFR reflects our view that Outbrain's pro forma Moody's adjusted debt to EBITDA (before synergy assumptions) will be 4.0x as of December 31, 2024. We expect leverage to improve to around low-3x over the next 12-18 months based on revenue growth of low-single digits and Moody's adjusted EBITDA margin (to total revenue) in the low teens. Operating performance is projected to be primarily driven by increase in transaction fees as more ads are traded on Outbrain's proprietary platform, growth in connected TV (CTV) ads, revenue synergies realized through cross-selling opportunities, and cost synergies related to workforce efficiencies. There are significant growth opportunities in CTV as advertisers focus on data-driven insights, audience segmentation and interactive capabilities that will achieve brand reach goals. We expect CTV revenue to account for 5% of combined revenue in the next 12-18 months from 1% in 2023. The higher traffic acquisition costs (TAC) associated with CTV compared to other products is expected to impact the overall profitability; however, this will be partially mitigated by cost synergies related to streamlining business operations. The de-levering is supported by earnings growth as our assumption for debt does not incorporate any opportunitistic repurchases. Outbrain benefits from combined revenue scale of approximately $1.5 billion in a fragmented industry, global diversification, expansion of product offerings, strong network of publishers and advertisers, and good liquidity. With the addition to Teads' products, Outbrain will expand its product mix to display, video and CTV which results in an uplift to profitability due to the lower percentage of TAC and provides the company with the ability to adjust to changes in market demand in a response to a changing consumer preference. Based on the expanded product mix, the company can utilize its approximately 30,000 advertisers and agencies and 10,000 digital properties to target end users based on the different stages of the marketing funnel. However, Outbrain's credit profile is constrained by the company's exposure to cyclical advertising revenue, the competitive dynamics of the industry and the dependence on digital properties for ad placement. Although no one publisher represents more than 10% of total revenue, partnerships with digital properties such as MSN and CNN are significantly important. A potential risk exists if these relationships were to deteriorate, or if these partners chose to allocate more supply to competing platforms – outcomes that, although not anticipated, could materially affect Outbrain's financial performance. Furthermore, larger publishers may leverage their scale to renegotiate for a higher TAC or use TAC as a deciding factor when choosing an ad platform. Additionally, the execution risks associated with realizing revenue and cost synergies in the short term and migrating Outbrain to Teads platform in the long term further constrain the credit profile. The SGL-2 rating reflects our expectation that Outbrain will maintain good liquidity supported by pro forma $86 million of consolidated cash on hand as of 2024, free cash flow generation of $60-$100 million in the next 12-18 months and access to external liquidity provided by the proposed $100 million revolving credit facility. The company's cash needs are modest and predictable relative to internally generated cash flows and consist of roughly $64 million of interest expense, $35-40 million of capex and modest working capital cash use. The revolver is expected to be undrawn at the close of the transaction. The revolver is subject to a springing net consolidated senior secured leverage covenant when 40% of the revolver is drawn. We expect the covenant to be set with sufficient headroom. Outbrain's ESG Credit Impact Score of CIS-4 reflects exposure to social and governance risks. The company has exposure to customer relations due to the changing regulations with respect to privacy including elimination of third-party cookies; however, direct integration with many digital properties and majority of ads being cookie-less mitigate this risk. In addition, the company has a short track record of operating as a public company (July 2021) and has not articulated a clear financial leverage target. However, we do not expect the company's near-term capital allocation strategy to prioritize additional debt-funded acquisitions or distributions to shareholders. The debt instrument rating incorporates Outbrain's B1-PD probability of default and an average expected family recovery rate of 50% at default. The B1 rating of the proposed senior secured notes is in line with the B1 CFR as it reflects the ranking within the capital structure behind the super senior revolving credit facility and because it represents the preponderance of the debt capital structure. The notes are secured on a first lien basis following the super senior revolver by substantially all assets as well as by guarantees from the parent company, Outbrain Inc. and several U.S. and non-U.S. material subsidiaries. The new notes are not subject to financial maintenance covenants. The stable rating outlook reflects our expectations for EBITDA margin to gradually expand to low-to-mid teens, Moody's adjusted debt to EBITDA to decline towards low-3x and liquidity to remain good over the next 12-18 months. It also reflects our expectation that Outbrain will not engage in material debt-financed acquisitions or shareholder-friendly distribution activities in the near term. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The ratings could be upgraded if Outbrain is able to consistently grow revenue and EBITDA resulting in Moody's adjusted debt to EBITDA sustained below 3.0x and free cash flow to debt of above 10% with a commitment to operating at that leverage level. Also, the company would need to maintain very good liquidity position on a sustained basis and successfully integrate Outbrain ads into Tead's platform in the long term. The ratings could be downgraded if operating performance deteriorates materially resulting from difficulties in realizing the synergies, a loss or unfavorable change in terms of key contractual agreements or weak ad demand such that Moody's adjusted debt to EBITDA is sustained above 4.0x. A shift to more aggressive financial policies or a deterioration in liquidity could also pressure the ratings. Outbrain Inc. (NASDAQ: OB) is a technology company that develops and operates a recommendation platform on the open web. The platform is used to recommend articles, slideshows, blog posts, photos, and videos to users. The company generates revenue through a pay-per-click or at times pay-per-impression model where advertisers pay when users click or view on their content, and a portion of the revenue is shared with publishers. Outbrain became a publicly traded company in July 2021. The company generated revenue of $890 million as of last twelve months ended December 2024. The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://ratings.moodys.com/rmc-documents/356424. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions. For any affected securities or rated entities receiving direct credit support/credit substitution from another entity or entities subject to a credit rating action (the supporting entity), and whose ratings may change as a result of a credit rating action as to the supporting entity, the associated regulatory disclosures will relate to the supporting entity. Exceptions to this approach may be applicable in certain jurisdictions. For ratings issued on a program, series, category/class of debt or security, certain regulatory disclosures applicable to each rating of a subsequently issued bond or note of the same series, category/class of debt, or security, or pursuant to a program for which the ratings are derived exclusively from existing ratings, in accordance with Moody's rating practices, can be found in the most recent Credit Rating Announcement related to the same class of Credit Rating. For provisional ratings, the Credit Rating Announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. Moody's does not always publish a separate Credit Rating Announcement for each Credit Rating assigned in the Anticipated Ratings Process or Subsequent Ratings Process. These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. At least one ESG consideration was material to the credit rating action(s) announced and described above. Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/rmc-documents/435880. The Global Scale Credit Rating(s) discussed in this Credit Rating Announcement was(were) issued by one of Moody's affiliates outside the EU and UK and is(are) endorsed for use in the EU and UK in accordance with the EU and UK CRA Regulation. Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Alison Chisuhl Jung Vice President - Senior Analyst Lenny J. Ajzenman Associate Managing Director Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2025 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. 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  Publisher URL	https://ratings.moodys.com/
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  Trust Flow Score	18
  Citation Flow Score	26

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  Data Source Name	Quantexa News (#5)
  Data Source Type	news
  Data Source URL	https://app.aylien.com/dashboard
  Description	Welcome to Quantexa News API — the most powerful way to aggregate, filter, and integrate global news data into your apps and models.
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