Outbrain Inc

NASDAQ:OB

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and welcome to Outbrain Inc. Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder this conference is being recorded.Now I'd like to turn the call over to [indiscernible], Investor Relations. Please go ahead.

[Unknown Executive]

Good morning, and thank you for joining us on today's conference call to discuss Outbrain third quarter 2023 results. Joining me on the call today, we have Outbrain Co-Founder and Co-CEO, Yaron Galai; Co-CEO, David Kostman; and CFO, Jason Kiviat. During this conference call, management will make forward-looking statements based on current expectations and assumptions. These statements are subject to risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. These risk factors are discussed in detail in our Form 10-K filed for the year ended December 31, 2022, as updated in our Form 10-Q and in subsequent reports filed with the Securities and Exchange Commission.Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's third quarter earnings release for definitional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures. Our earnings release can be found on our Investor Relations website, investors.avg.com under, News and Events.With that, let me turn the call over to David.

[David Kostman, executive]

Thank you, Randy. First, I want to touch on the situation in the Middle East. At Outbrain, we stand with the people of Israel who have been affected by the recent events. Our hearts go to all the people that are impacted by the horrific situation. We all know people that have suffered and retrained hope for better peaceful days in the region. I want to take this opportunity to thank so many of you. First and foremost, our employees in Israel and around the globe for your unwavering commitment. Our business partners and our investors and analysts for the outpouring expressions of support. This means a lot to us.From an operational perspective, we have approximately 380 employees in Israel. About 30 have been called to reserve duties. Our offices are located in Netanya, North of Telaviv in the centre of Israel. The safety and well-being of our employees and their families is our top priority. Since October 7, we have continued to execute on our business priorities and deliver on our commitments to our customers. We do have business continuity pending place should the situation further escalate.Now I will turn to our financial results and business trends. We are pleased with the resumption of year-over-year growth in Q3. We grew X10 gross profit by 8% to $56.8 million, within the range of our guidance. Our adjusted EBITDA of $10.3 million exceeded significantly the high end of our guidance and can be attributed to the top line growth and to our cost discipline. We also saw improvements in our ex-TAC margin. In terms of current trends, the macro environment, which remains volatile, combined with the ongoing situation in the Middle East, leads us to a more cautious outlook for revenues and ex-TAC gross profit in Q4, as you will hear from Jason. In early October, we've seen a spike in war related news pages, which are generally more difficult to monetize as certain brands have brand safety concerns around these type of pages. We have also experienced some brand budget cuts and delays in launching campaigns, resulting in slower than normal seasonal Q4 uptick.Despite these near-term headwinds going into 2024, we are excited with our differentiated position in the market with focus on the premium side of publishers and advertisers. Our platform offers full final results for advertisers at scale on the open web and enables total publisher revenue and audience growth, all leveraging our AI-driven prediction engine. We believe this provides us with a strong foundation for further growth in 2024 and beyond. Let me turn to the advertiser side of our business. Outbrain has traditionally been and continues to be a cost per click native advertising customer acquisition platform that uses AI to deliver strong performance on CPA goals across the open web.Yaron will touch on Q3 notable investments in AI and automation capabilities in our core buying platforms, such as the growth in our codeless conversion features for self-serve advertiser base. We continue to innovate to drive return on edge and scale for diverse fact of performance advertising. We are seeing growing adoption of our performance DSP Zemanta with additional amplified clients moving budget to buy more effectively across open web SSP and not only on the outgoing marketplace. As a reminder, the mentors on a percent of spend to the platform, and we have seen record levels of spend growth on the Zemanta in 2023.On the branding and awareness front, at the start of Q3, we launched Onyx. Our new brand building platform that runs video, high-impact display and rich media ad leveraging our brand AI to maximize user attention. Since the launch, we have worked with more than 100 brand advertisers. These advertisers include Sephora, Paramount, L'Oreal, Lancome, Nestle and many others. For many of these advertisers, we are demonstrating that we can outperform incumbent vendors through a unique combination of beta creative, running on higher tension placements and utilizing smarter technology to drive attention. We continue to consistently deliver above-benchmark results in terms of attention. For example, with our high-impact display ads on mobile, we see an average 58% higher pension rate versus the Adelaide benchmark.Also in our video business, which is a core component of our Onyx offering we switched our focus from Altria video to instream pre-roll, leveraging our Video Intelligence acquisition. The shift is starting to pay off with higher margins for the buses segment. We expect video to be even more strategic for our future growth.Another differentiated element of our offering is the ability to drive both performance and awareness for brands. This makes us one of the very few companies beyond the World Garden, it can deliver advertiser objectives across the full funnel consumer journey. As an example, for many years, AARP has been leveraging our amplified performance platform to drive objectives like audience development. Now we have expanded the relationship to encompass branding objectives where Onyx will help them build brand awareness with potential new members.These types of engagements with advertisers get us excited about our strategy to address the larger segment of advertising budget from both new and existing clients. Despite some of the slowdown in brand advertiser business that I referred to, we still expect to close the year, as we said before, with $10 million to $20 million of Onyx's business. Moving to the publisher side. We continue to focus on improving the performance of our premium publisher wins over the last 12 to 18 months. Among our renewals of long-term partnerships in Q3, I want to highlight Liquip in France, the [indiscernible] in Germany as well as Box in the U.S. a partner we have been working with exclusively for close to a decade.We are currently engaged in several discussions with large publishers globally and feel strong momentum driven by several elements of differentiation. One, our focus on having a balanced portfolio of premium global publishers with a single publisher picking up outside demand; second, beyond ex-premium demand; and third, Keystone capabilities and product stations. To sum it up, considering the current macro environment and the situation in the Middle East, we are more cautious about our short-term revenue outlook, but we continue to leverage our cost discipline to drive profitability and cash flow generation. We are pleased with the resumption of year-over-year growth in Q3 and expect further acceleration in 2024, leveraging our strategic investments.With that, I will turn it over to Yaron.

[Yaron Galai, executive]

Thanks, David. I want to join David's comments and clearly say, I stand with the people of Israel and together with our colleagues there we are committed to overcoming and to continuing the great level of service and products that all Outbrain customers and partners have come to expect. Since our last call, we've added several new Keystone partners, Neopost, the New Republic Entrepreneurial Magazine, Publisher desk and others. During this last quarter, we started experimenting with an added business model for Keystone, where its cost is covered through revenue sharing on publishers' ad slot. We believe that this addition will help us further accelerate Keystone with more options. 2 updates on the AI front. One, algorithmic AI and on generative AI. First, one of our core AI algorithms have been conversion bid strategy for CBS, which automates our advertisers the optimization of their ad campaigns. When using [indiscernible] CBS, an advertiser can automatically maximize their conversion or the return on ad spend, which is also known as ROAs. And CBS is based on our home-grown AI algorithms and the majority of our current advertisers contains are running on CBS technology. This last quarter, we've deployed a new technology that upgrade CBS with CoVis capability. Using this codeless layer, marketers on our brand can now significantly accelerate the pace of deploying new conversion events and further improve their ROA.This technology marks a significant stride in our dedication to marketing automation, combined with self-serve functionality, and it will be a foundational layer for more automation capabilities, we are planning to build upon this new layer in the coming months. Second, on generative AI. One of the most exciting frontiers for us with generative AI is the automation of Adverity. Adverity is like algorithm. And the more variety we have in our ad index, the better our algorithms can match each individual ad to each individual person. So Adverity results in better ad matching, which ultimately leads to higher click to rates also known as CTR and higher RPM. One of the earliest AI capabilities we've built almost 10 years ago was for automated image cropping in our ads. So for example, our technology will auto crop an image to better focus on faces or the areas of interest of an image. This has been a CTR driver for us for many years. Now we're experimenting in the lab with generative AI capabilities that will also enable the reverse upscaling images and growing them while filling the new index spaces with automatically generated content. Another generative AI capability we're experimenting with in the R&D lab is the automatic creation of face variation.Now for an advertiser, it might upload an ad with the photo of 1 model and then our technology can automatically offer the identical product image with a variety of, say, 20 different AI-generated model faces. Both these capabilities are still in R&D lab node with early testers. We expect these type of capabilities to significantly boost our Adverity, which will improve the appeal of offering ads to more people and ultimately help continue driving our click-through rates rate. Anecdotally, following all of our recent investments in algorithmic and generate AI, our advertising CPRs, the past couple of months has been among 3-year record high. This is especially encouraging in light of the weaker demand environment. As a reminder, our yield is a result of ad pricing time click-through rates.And with that, I'll hand it over to Jason Kiviat for our financial results.

[Jason Kiviat, executive]

Thanks, Yaron. As David mentioned, based on our growth and cost discipline, we exceeded our Q3 guidance for adjusted EBITDA and achieved our expat gross profit guidance. From a demand perspective, the quarter started off relatively strong in July with year-over-year growth, followed by weakening demand trends in August before a partial recovery in the last weeks of the quarter. The early portion of Q4 has shown a flatter pattern than the seasonal lift we historically see this time of year, which is driven largely by softer demand to start the quarter as macro and geopolitical uncertainties by on ad budgets as well as the impact of the new cycle of certain advertisers' budget usage, as David mentioned. Revenue in Q3 was approximately $230 million, softing a slight increase year-on-year. New media partners in the quarter contributed 5 percentage points or approximately $11 million of revenue growth year-over-year. Net revenue retention of our publishers was 95%, which while up meaningfully from the last several quarters reflects a continued headwind from the impact of the demand environment on pricing and yields, which is the primary factor driving retention to be below 100%. As noted in the last few quarters, churn has remained low by our standards, with logo retention of 96% for all partners that generated only $10,000 and our 5 largest churns amounted to only 3 combined points of year-over-year headwind in Q3, ex-TAC gross profit was $56.8 million, an increase of 8% year-over-year, outpacing revenue growth, driven primarily by improved deal performance on certain media partners and the net impact of revenue mix. As noted, our ongoing focus will continue to be on optimizing deal performance.Moving to expenses. Operating expenses decreased approximately 11% year-over-year to $43.8 million in the quarter as we continue to exercise discipline around spending. The largest component of this is compensation-related expenses, which were down approximately $5 million or 14% year-over-year as we have focused on driving efficiencies in our operations. Non-comp expenses were down slightly year-over-year as we continue to exercise prudence, Notably, bad debt expense go down from H1 remains at elevated levels as compared with our history as the higher number of customers are facing cash flow pressures in this environment.As a result of our cost management and growth of expect gross profit, displaying the leverage in our model, adjusted EBITDA was approximately $10.3 million in Q3, growing meaningfully year-over-year and exceeding the high end of the guidance range. And we believe there continues to be meaningful room for operating leverage in the future. particularly as we drive more and higher-yielding demand through new products like Onyx and our expansion of video and assuming a return to more favourable macro environment in the future.Moving to liquidity. Free cash flow, which as a reminder, we define as cash from operating activities less CapEx and capitalized software costs was approximately $2 million in the quarter. While we are pleased to return to positive free cash flow in the quarter, we still see pressures on working capital, particularly around collections with elevated DSO levels remaining from Q2 into Q3. As a result, we ended the quarter with $214 million of cash, cash equivalents and investments in marketable securities on the balance sheet and $118 million of long-term convertible debt. In December, the company's Board of Directors authorized a $30 million share repurchase program, incremental to the $30 million program fully executed in 2022. Year-to-date through September 30, we have repurchased approximately 2.5 million shares for $12.7 million. We continue to believe it's an attractive way to enhance shareholder value under current market conditions.Now turning to our outlook. Uncertainty from macro and geopolitical events and the typical back half weighted nature of Q4 seasonal uplift are considerations in our decision to present a wider than typical range of guidance for the quarter. In our guidance, we assume the continuation of the softer demand trends we have seen in the first weeks of Q4 and assume that seasonal increases in ad spend will occur at levels below what we've seen historically. With ex context, we have provided the following guidance for Q4. We expect gross profit of $59 million to $64 million, and we expect adjusted EBITDA of $13 million to $17 million.Now I'll turn it back to the operator for Q&A.

[Operator]

Thank you. I'll begin the question-and-answer session. [Operator Instructions] First question will be from Shweta Khajuria, Evercore ISI. Please go ahead.

[Shweta Khajuria, analyst]

Jason, I have a couple for you, please. On the last point that you talked about on the outlook for the fourth quarter, could you please provide a little bit more colour on quantifying the magnitude of the headwind that you are baking in the guidance from macro in Israel? And I believe David said you're also still expecting $10 million to $20 million from Onyx. So how should we think about the tailwinds and headwinds that are accounted for in the fourth quarter guidance? And then for 2024 without any official guidance, how should we, at a high level, think about acceleration in growth rate for ‘24 given the exit rate?

[Jason Kiviat, executive]

So yes, maybe I'll just give you a little more colour on the guidance and what's driving it. So we're using our normal forecasting process, which is a seasonality-based model, and it takes down to date trends, what we're seeing in RPMs and pages and running it out. Supply for us is fairly straightforward. It's locked in. It's long term, not very many meaningful changes. Demand remains the harder thing to forecast, especially now as advertisers may be reacting to the macro and geopolitical uncertainties still. So we're considering the trends that we've seen in the first part of Q4, where we saw an impactful step down in demand and applying that forward, we project a softer than typical seasonal lift in Q4.And that does also have an impact on ex-TAC margins. So maybe just to give you colour to kind of what we saw. So we did see the last time we spoke here 3 months ago, we saw positive demand trends a couple of months in around June and July, building strength of demand and yields. --which, along with a typical Q4 seasonal uplift was the basis of our prior forecast and guidance provided last time. And obviously, we've now factored in what we've seen in October, which is, first, we saw a softening of demand trends in August versus those July levels with some recovery in September, but then October started off weaker than expected from a demand perspective relative to what we expected coming out of September.And we saw that softness increase over the course of the month, really correlating with the onset of the war. Maybe a data point that would help would be -- we saw October revenue grow 1% sequentially from September, which is very low. We typically see 6% or more the last many years, 6%, I think, over the last 2 years and more even before that based on our history. So several drivers. It's hard to attribute specific amounts to specific things, but maybe just -- we do see certain budgets paused or delayed due to the macro and geopolitical uncertainties. It's hard to note that slow start, we saw even before October 7, and the attacks was just delays in advertiser setting budgets, which is something we did see a lot of months this year was that the first week might have been slow, but then the month kind of comes together? Or if it was the macro pressure is reducing budgets, right? So hard to know exactly.We also see just headwinds from demand mix as a negative driver. So some of the higher-yielding segments are being more impacted. -- examples, affiliates, out-stream video for us and a couple of our 2 largest geographies seem to be taking a softer trend in U.S. and Germany than some of the other ones. And as David mentioned, certain brands blocking pages with content related to the war at Brent and safety concerns. It is meaningful as it's a significant percentage of our really of our most valuable pages this last month or so.And maybe just a STAT on that would be, if you look at our top 20 publishers, 25% of their paid use related to war-related content following the attack, and it remains around 15% still. We're talking about U.S. and European-based typically higher-yielding pages. And not all of our supply is used based, but it is a meaningful portion. And obviously, the lower RPMs do affect take rates as well. So hopefully, that gives you a little bit more colour. And then I think you also asked about the Onyx. We do still expect that …

[David Kostman, executive]

Yes, I'll take one. So I think you heard from Jason. I can tell you from looking at my career, I mean, it's a huge level of volatility and uncertainty in that, I haven't seen before this generally, which is impacting what Jason said. On Onyx specifically, we launched it in [indiscernible]. We had great feedback. We launched more than 100 campaigns at this point. We're seeing both new advertisers, advertising BC cross-sell to existing performance markets that are leveraging Onyx to also drive awareness. So we're very excited about it. We see the numbers growing significantly month-over-month. I mean we talked about relatively small numbers. So it's exciting. So we stand behind the number even for this year.And looking into '24, generally, we see Onyx and video is significant growth drivers for us as a company to move to become a full final partner on the Open Web has been a big move this year. So we see the fruits of that effort. These efforts will bear fruit and result in growth next year. AI that everyone mentioned also, we see significant potential from that. On our Performance business, the growth of share of wallet that we see through moving some of our segments and large customers to Zemanta is also an important growth driver for next year. And just growing our publisher relationships with innovation and broadening the strategic value with Keystone.So these are the growth drivers. We haven't given any guidance for ‘24. But overall, when we look at all the reports out there, I think the general sort of growth and sort of EBITDA margin levels that we've seen, I think we still believe that we can achieve those. Jason, anything to add?

[Jason Kiviat, executive]

No.

[Operator]

Our next question will be Ronald, JMP Securities.

[Ronald Josey, analyst]

I wanted to touch on new publisher revenue. It slowed to $11 million. I think that's the lowest number you guys have reported as a public company. How are you guys approaching new publisher deals going forward? And how do we think about the process of adding more content.

[Yaron Galai, executive]

So obviously, we had pretty big numbers for the last 4 or 5 quarters in double digits and it was 12% growth from new publishers last quarter. There were a lot of large wins. We talked about them last year in 2022. We're obviously focused on the premium side of the market, premium publishers and full funnel advertisers. Before that 12% and so on for a few quarters, 7% was really our average for a long time. It's not a linear thing now. Obviously, some partners are larger than others, and it's really not something we expected to stay at that level going into H2 as we really focus on calibrating supply and demand, improving the performance on current deals in this demand environment. I think 7% is probably a good average over time to continue to think about.

[Jason Kiviat, executive]

And we feel pretty good about competitive position there. I mean also these deals, they're not linear sometimes, in certain quarters, and you have many of these potential new deals. I mentioned in my prepared remarks, we're excited about what is in the pipeline. I think the differentiators of focusing on the premium side of the market are helping us on Onyx is exciting for publishers, Keystone, the vision and the value that it brings also. So we feel good about that. And I think that number will continue to fluctuate also depending on market situation. When we look at new deals, we look at sort of the total economics of the deal, the impact to advertisers, the margin but also the total dollar value that we can generate. So we feel good about competitive position and outlook for new business, but it will fluctuate.

[Ronald Josey, analyst]

I also wanted to ask about MFAs. There's just new concern in the industry that feels like it came up this last quarter in terms of made for advertising sites. Is there any impact that you guys are seeing? Or how does that relate back to Outbrain?

[David Kostman, executive]

So there's been a lot of coverage around this topic. I think the topic has been further clarified First, just on the general statement, it's very difficult to classify what is the many publishers sort of the objective is to drive advertising. I think it's difficult to put all of them in one bucket the different types of MFAs, I think many of them generate real value for advertisers, having will people go to content and advertisers reach audiences that they want to reach at an effective cost. So that's generally for us specifically, we said previously and 5% of our ex-TAC revenues. So it's not that significant in terms of driving traffic to MFAs, I think you probably saw the John's report, 80% to 90% of the traffic that's driven to them is generated by social and search. So again, as long as they meet our strict content guidelines and all the other requested time on security and fraud, et cetera, I think there's a great category of advertisers that we have. Generally, our focus as a company has been also on helping and supporting quality journalism, premium journalism around the world. So we provide vital revenue to them. So it’s again, part of our overall business and combined with our premium publisher business, too.

[Operator]

And the next question will be from Dan Day B.Riley.

[Daniel Paul Day, analyst]

I appreciate the update on the algorithm AI bidding strategies there. Just maybe if you have any data points or anything you could share just on the subset of advertisers that you think are using these kind of AI tools better than others and whether there's been an uplift in spend in performance for them and then what you need to do to get those that aren't using them to start using these AI tools and maybe that helps increase spend per advertiser for those. So any thoughts there would be great.

[Yaron Galai, executive]

So AI, first, as I mentioned in the comment splits for us into 2 big buckets. One is the algorithmic AI, which we've been building in-house for almost a decade now. And the other is the generative AI. The algorithm AI are technologies that we deploy across the board. And so, they apply to all publishers, all advertisers within our system. We don't update on the results there all the time, but we did mention last quarter for the first half. I think we've seen an increase through those algorithm AI changes of potential click-through-rate of 4%. And I did mention in this call that we've seen in the past couple of months that have been among the 3-year record highs in terms of CTRs. And that, again, is attributed a lot to all these AI changes or technologies that we've deployed.On the couple that I mentioned on the call, those are [indiscernible]. As I said, we are live with them on a few advertisers. What we're doing with generative AI is really trying to attack a variety from all directions. So I mentioned this in the previous call, an advertiser might upload a campaign or even on ad and through generative AI through our Chat GPT integrations will expand that and offer them 200 other variations, which they can decide whether the acceptance as to the campaign automatically or not.So those tools were embedding into the product itself. They are available to ultimately to all advertisers. But it's really up to them to choose which add varieties they want to implement and choose. Many of them have been doing it, especially as it relates to creative and headlines. The newer stuff of event upsizing all that, that is still available to a limited number of testers.

[Daniel Paul Day, analyst]

Just to turn it quickly to gross revenue and take rates. If we look beyond 2023, like I know there were some pressures from minimum guarantee deals that you did on the take rate year-over-year. As we look to ‘24 and put our model together, just to make it easy, if we were to assume gross revenue is flat, is there any reason we think that take rate would expand just from whether it's minimum guarantees rolling off or anything other puts and takes there on take rate for '24 relative to '23?

[Yaron Galai, executive]

So I don't have a specific number for you or anything like that. Obviously, kind of always when the take rates come up. I mentioned that we focus on ex-TAC dollars and not really the take rate percentage, especially of the total portfolio. But there's certainly -- obviously, as the rates kind of come up, these last couple of quarters, we've been focused on some of the things we talked about actually when it was coming down in the quarters before that, which are optimizing deal performance and scaling some of our new supply and existing supply to drive higher rates and we've had some success there. We continue to focus on that. It's one of the main things we do, both manually optimizing and/or AI optimizing learning the audience of our partners and serving them better.So the kind of thing that we do feel gets better in time and typically takes several quarters. But mix is always a factor as well. It could be a positive or a negative factor to even appoint in a given quarter. So it's hard to say, obviously, it depends also on the demand environment and some of the things that we're doing with Onyx and the expansion of video we see as margin listers going forward as well. So obviously, our goal is to drive it back up.

[Operator]

[Operation Instructions]. Next question will be from Ygal Arounian of Citigroup.

[Ygal Arounian, analyst]

Just maybe on Onyx, if you could expand on that a little bit. It looks ramping well. And I know that one specifically is geared more towards brand budgets and what the impact you're seeing on brand feels that maybe you're not seeing it on Onyx, but maybe it's doing better than expected. Just some of the puts and takes around as that launch is in the current macro would be helpful to understand.

[David Kostman, executive]

So Onyx launched in [indiscernible] I said, it's been a successful launch. So it helped us position the company, out branding dialogues with the big 6 hold companies in a very different way where we can broaden the value proposition and really offer a full funnel offering that we think is quite unique in the open web. So we work with brands from performance up to consideration and awareness. The formats are different than our traditional native format. So it's really focused on primarily video, and it ties to the acquisition of video intelligence and pushing us more into in-stream video that is more relevant for next brands campaigns.We have high impact display that relies a lot on our brand studio, where we take existing creatives and help the brands work on them to generate better levels of attention and impact from those end. Number wise, remaining Q4, when we launched in Q3, I mean, these budgets are normally determined ahead of time. So we were relatively what we think conservative in our assumptions of the $10 million to $20 million was a broad range. We still spend behind that. We feel very comfortable about what we're tracking its pipeline, month-over-month growth, it's very strong. Current environment is not very helpful as Jason mentioned, part of the impact we see generally on the on Q4 is the brand budgets pulling back from, for example, use related pages and general macro environment is very volatile. So we're taking that into account when we're talking about the guidance for Q4. But we're very excited about it. When we look at it strategically, it really changes the whole value proposition for us to our advertisers, our positioning in the market and for us a significant growth driver on next video that sort of go together in 2024.

[Ygal Arounian, analyst]

And for Jason, given the challenges in the macro, the outlook in terms of EBITDA and profitability essentially unchanged from where it was last quarter. So feel like you're maybe tracking ahead there, making a little bit more progress. Just give us an update on your thoughts around EBITDA and free cash flow as we kind of work our way through the rest of this year and how you're expecting human cost management for 2024.

[Jason Kiviat, executive]

Obviously, we've been very focused this year on a lot of what we can control, which is operating more efficiently, more effectively having a team and just more automation and all of that. And so we've been improving over the course of the year, even our outlook and actuals on the expenses with driving to positive cash even in this environment as the goal. We did return to positive cash flow in the quarter and expect to stay positive and grow on it in Q4. Obviously, the headwinds on top line are limiting to what's going to happen in the short term there, but we do expect to generate positive cash flow in Q4. And obviously, as we get to 2024, nothing to share now, but that's still the mentality we have, as we make our plans for next year, which is generating cash and obviously continuing to run as efficient and effectively as we can.

[Operator]

This concludes our question-and-answer session. I'd like to turn the call back over to management for closing remarks.

[Yaron Galai, executive]

Thanks, operator. We appreciate your time with us today, and we look forward to updating you again in the next quarter. Until then, we wish our colleagues and friends in Israel speedy end to the war, a return of the hospitals and piece to all people in the region.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.