| SIGNIFICANT ACCOUNTING POLICIES | NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial
statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) and are denominated in U.S. dollars. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period and accompanying notes. Actual results could differ from those estimates. The Company’s management regularly evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination of revenue reporting as gross versus net in the Company’s revenue
arrangements, (2) allowances for credit losses, (3) operating lease assets and liabilities, including the incremental borrowing rate and terms and provisions of each lease (4) the useful lives of property and equipment and capitalized software
development costs, (5) income taxes, (6) assumptions used in the option pricing models to determine the fair value of share-based compensation (7) the fair value of financial assets and liabilities, including the fair value of marketable
securities, Private Warrants and derivative instruments (8) the fair value of acquired intangible assets and goodwill annual impairment test, and (9) the recognition and disclosure of contingent liabilities. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances; the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from other sources. As of December 31, 2022, the impacts to the Company’s business due to geopolitical developments and macroeconomic factors, such as rising interest rates, inflation and changes in foreign currency exchange rates, continue to
evolve. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods. Functional Currency The Company’s functional currency is the U.S. dollars (“dollars”), as majority of the Company’s revenues and costs of
revenues are denominated in dollars. Accordingly, foreign currency assets and liabilities are remeasured into dollars at the end-of-period exchange rates except for non-monetary assets and liabilities, which are measured at historical exchange
rates. Revenue and expenses are remeasured each day at the exchange rate in effect on the day the transaction occurred or the average exchange rate in the month in accordance with ASC 830, “Foreign Currency Matters”. Gains or losses from foreign
currency exchange rate re-measurement and settlements are included in finance income (expenses), net in the consolidated statements of income (loss). Cash and cash equivalents Cash and cash equivalents consist of cash in banks and highly liquid marketable securities investments, money market account
and funds, commercial paper and corporate debt securities, with an original maturity of three months or less at the date of purchase and are readily convertible to known amounts of cash. Restricted Deposits The Company’s restricted deposits primarily consist of bank deposits collateralizing the Company’s operating leases. Fair Value Measurements Fair value is defined as the exchange price that would be received from the sale of an asset or paid to transfer a liability,
considering the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability, in an orderly transaction between market participants at the measurement date.
The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1 -
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 -
Includes other inputs that are directly or indirectly observable in the marketplace.
Level 3 -
Unobservable inputs which are supported by little or no market activity. Financial instruments consist of cash equivalents, restricted deposits, short-term investments, trade receivables, trade
payables, accrued liabilities and other current liabilities, Warrants liability and derivative financial instruments. Short-term investments, Warrants liability and derivative financial instruments are stated at fair value on a recurring basis.
Cash equivalents, restricted deposits, trade receivables, trade payables, accrued liabilities and other current liabilities, are stated at their carrying value, which approximates their fair value due to the short time to the expected receipt or
payment date. Derivative Financial Instruments The Company enters into foreign currency forward and option
contracts with financial institution s to protect itself against the foreign exchange
risks, mainly exposure to changes in the exchange rate of the New Israeli Shekel (“NIS”) against the U.S. dollar that are associated with forecasted future cash flows related to salary expenses, for up to twelve months, The Company does not enter into derivative transactions for trading or speculative purposes. In accordance with ASC 815 “Derivatives and Hedging”, the Company recognizes all derivatives on the consolidated balance
sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on their intended use and their designation. For derivative instruments that hedge the exposure to variability in expected future cash flows that are designated as cash
flow hedge, changes in the fair value of these derivatives are recorded in accumulated other comprehensive income (loss) as a component of shareholders’ equity in the consolidated balance sheets until the forecasted transaction occurs. Upon
occurrence, the Company reclassifies the related gains or losses on the derivative to the same financial statement line item in the consolidated statements of income (loss) to which the derivative relates. In case the Company discontinues cash
flow hedges, it records the related amount in finance income (expenses), net, on the consolidated statements of income (loss). The Company accounts for its derivative financial instruments as either prepaid expenses and other current assets or accrued
expenses and other current liabilities in the consolidated balance sheets at their fair value. Short-term investments The Company’s short-term investments consist of marketable securities. The Company classifies its marketable securities as
available-for-sale at the time of purchase and reevaluates such classification at each balance sheet date. The Company may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result,
the Company classifies its marketable securities, including those with maturities beyond 12 months, as current assets in the consolidated balance sheets. The Company carries these securities at fair value and records unrealized gains and losses, net of taxes, in accumulated
other comprehensive income (loss) as a component of shareholders’ equity, except for changes in allowance for expected credit losses, which are recorded in finance income (expenses), net. The Company periodically evaluates its available-for-sale debt securities for impairment. If the amortized cost of an
individual security exceeds its fair value, the Company considers its intent to sell the security or whether it is more likely than not that it will be required to sell the security before recovery of its amortized basis. If either of these
criteria are met, the Company writes down the security to its fair value and records the impairment charge in finance income (expenses), net, in the consolidated statements of income (loss). If neither of these criteria are met, the Company determines whether credit loss exists. Credit loss is estimated by
considering changes to the rating of the security by a rating agency, any adverse conditions specifically related to the security, as well as other factors. Realized gains and losses on available-for-sale marketable securities are included in the consolidated statements of income
(loss). Trade Receivables and Allowance for Credit Losses Trade receivables are recorded at the invoiced amount and amounts for which revenue has been recognized but not invoiced, net
of allowance for credit losses. Payment terms and conditions vary by contract type, although terms generally include a requirement to pay within 30 days of the invoice. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience
and current and future economics and market conditions. The estimate of the amount that may not be collected is based on the geographic location, aging and customer financial
condition. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company writes-off receivables when they are deemed uncollectible, having exhausted
all collection efforts. Concentrations of Credit Risks Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash
equivalents, restricted deposits, short-term investments, trade receivables, and derivative instruments. The Company’s cash, cash equivalents and restricted deposits are invested in major banks mostly in Israel, United States and
United Kingdom. The Company maintains cash and cash equivalents with diverse financial institutions and monitors the amount of credit exposure to each financial institution. In the United States and United Kingdom, the Company deposits are
maintained with commercial banks, which are insured by the U.S. Federal Deposit Insurance Corporation (“FDIC”) and Financial Services Compensation Scheme (“FSCS”), which is authorized by the Bank of England (acting in its capacity as the Prudential
Regulation Authority), respectively. At various times the Company has deposits in excess of the maximum amounts insured by the FDIC and FSCS. In Israel, commercial banks do not have government-sponsored deposit insurance. As of December 31, 2022,
the Company has not experienced credit losses related to these balances. As of December 31, 2022 and 2021, the Company maintained balances of approximately $32,764 and $162,301, respectively, with U.S. banks in excess of
the amounts insured by the FDIC and $41,834 and $35,814, respectively, with United Kingdom banks in excess of the amounts insured by the FSCS. (See Note 21). The Company’s short-term investments are investments in marketable securities with high credit ratings as required by the
Company’s investment policy and are not insured or guaranteed. The Company’s trade receivables are geographically diversified and derived mainly from sales in the United States.
Concentration of credit risk with respect to trade receivables is limited by credit limits, ongoing credit evaluation and account monitoring procedures. The Company performs ongoing credit evaluations of its accounts receivables and establishes an
allowance for expected losses as necessary. As of December 31, 2022 and 2021, no single customer represented 10% or more of accounts receivable. No single customer accounted for more than 10%
of total revenue for the periods presented. The Company’s derivatives expose it to credit risk to the extent that the counterparties may be unable to meet the terms of
the agreement. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading the risk across a number of major financial institutions. Deferred Offering Costs Deferred offering costs consist primarily of accounting, legal, and other fees related to the Company’s Merger agreement.
Following consummation of the Merger and related Transactions, the deferred offering costs were reclassified to shareholders’ equity and recorded against the proceeds from the Transaction. The Company capitalized $2,096 of deferred offering costs within the long-term prepaid expenses in the consolidated balance sheets as of December 31, 2020. These costs
were paid during the year ended December 31, 2021. Leases The Company accounts for its leases under ASU 2016-02, “Leases”. The Company determines if an arrangement is or contains a
lease at inception. The Company has elected not to recognize short-term leases on the balance sheet, nor separate lease and non-lease components and currently does not have any finance leases. The right of use assets, or ROU assets, and related lease liability are initially measured at the present value of the lease
payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present
value of the lease payments. The Company’s incremental borrowing rate is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located. Some of the Company’s leases contain one or more options to extend. The exercise of lease renewal options is typically at the Company’s sole discretion. The Company considers various factors such as market conditions
and the terms of any renewal options that may exist to determine whether it is reasonably certain to exercise the options to extend the lease. Some of the real estate leases contain
variable lease payments, including payments based on a Consumer Price Index (“CPI”). Variable lease payments based on a CPI are initially measured using the index in effect at lease adoption, and will not be subsequently adjusted, unless the
liability is reassessed for other reasons. Additional payments based on the change in a CPI are recorded as a period expense when incurred. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets at the following annual rates:
Years
Computer equipment and software 3 - 4
Internal-use software 3
Office furniture and equipment
3 - 7
Leasehold improvements
Over the shorter of expected lease term or estimated useful life Internal-Use Software Development Costs According to ASC 350-40 the Company capitalizes certain internal-use software development costs associated with creating and enhancing
internal-use software related to its platform and technology infrastructure. These costs include personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software projects, and
services consumed in developing or obtaining the software. Capitalized internal-use software is included in property and equipment, net in the consolidated balance sheets. Software development costs that
do not meet the criteria for capitalization are expensed as incurred and recorded in research and development expenses in the consolidated statements of income (loss). Software development activities generally consist of three stages, (i) the planning stage, (ii) the application and infrastructure development
stage, and (iii) the post implementation stage. Costs incurred in the planning and post implementation stages of software development, including costs associated with the post configuration training and repairs and maintenance of the developed
technologies, are expensed as incurred. Costs incurred in the application and infrastructure development stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete, and
the software and technologies are ready for their intended purpose. Internal-use software development costs are amortized using a straight-line method over the estimated useful life of three years, commencing when the software is ready for its intended use. Business Combinations The Company records acquisitions based on the fair value of the consideration transferred and then allocates the purchase
price to the identifiable assets acquired and liabilities assumed based on their respective fair values as of the acquisition date. The excess of the value of consideration
transferred over the aggregate fair value of those net assets is recorded as goodwill. Any identified definite lived intangible assets will be amortized over their estimated useful lives and any identified intangible assets with indefinite
useful lives and goodwill will not be amortized but will be tested for impairment at least annually. When determining the fair value of assets acquired and liabilities assumed, management makes significant estimates and assumptions,
including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets
include, but are not limited to, future expected cash flows from customer relationships, merchant/network affiliate relationships, publisher relationships, technology, tradenames and discount rates. The Company estimates fair value based upon
assumptions that are believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Upon the conclusion of the measurement period or final
determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of income (loss). Intangible Assets Intangible assets consist of identifiable intangible assets that the Company has acquired from previous business combinations. Intangible assets
are recorded at fair value, net of accumulated amortization. The Company amortizes its intangible assets reflecting the pattern in which the economic benefits of the intangible assets are consumed. When a pattern cannot be reliably determined,
the Company uses a straight-line amortization method. Each period the Company evaluates the estimated remaining useful lives of its intangible assets and whether events or changes in circumstances require a revision to the remaining period of
amortization. The estimated useful lives of the Company’s intangible assets are as follows:
Years
Marchant/Network affiliate relationships
4.5
Publisher relationships
4
Tradenames
2 - 3
Technology
4 - 5
Customer relationships
5 - 9 Impairment of Long-Lived Assets The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360 “Property, Plant and Equipment”,
whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets (or asset group) to be held and used is measured by a comparison of the carrying amount of
an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. There was no impairment of long-lived assets in the years ended December 31, 2022, 2021 and 2020. Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable
intangible assets acquired in business combinations. The Company’s annual impairment assessment of a single reporting unit is performed as of December 31, of each year.
Assessments are performed at other times if events or circumstances indicate it is more likely than not that the asset is impaired. Events or changes in circumstances which could trigger an impairment review include a significant adverse change
in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company’s use of the acquired assets, or the strategy for
the Company’s overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations. If the Company determines that it is more likely than not Segment Information The Company operates in one
operating and reportable segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, who is the Company’s CEO, in deciding how to
allocate resources and assessing performance. The Company’s chief operating decision maker allocates resources and assesses performance based upon discrete financial information at the consolidated level. Revenue Recognition Under ASC 606, “Revenues from Contracts with Customers”, the Company recognizes revenue when its customer obtains control of
promised goods or services in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for contracts that are within the scope of the standard, the
Company perform the following five steps:
(i)
Identify the contract with a customer;
(ii)
Identify the performance obligations in the contract, including whether they are distinct in the context of the contract;
(iii)
Determine the transaction price, including the constraint on variable consideration;
(iv)
Allocate the transaction price to the performance obligations in the contract;
(v)
Recognize revenue as the Company satisfies the performance obligations. The Company generates revenues when people click on, purchase from or, in some cases, view the ads that appear within its recommendation platform.
The Company’s customers are the advertisers, merchants and affiliate networks that advertise on the Company’s platform (collectively, “Advertisers”). Advertisers pay Taboola for those clicks, purchases or impressions and Taboola generally shares
the resulting revenue with the digital properties who display those ads. Advertisers accept the Company’s terms of service upon signature on an IO (insertion order) or any applicable form and registration to the
platform.
- For campaigns priced on a cost-per-click (“CPC”) basis, the Company bills the customers and recognizes revenues when a user clicks on an advertisement displayed.
- For campaigns priced on a cost-per-thousand impression basis (“CPM”), the Company bills the customers and recognizes revenues based on the number of times an advertisement is displayed to
a user.
- For campaigns priced on a performance-based cost-per-action (“CPA”) basis, the Company bills the customers and recognizes revenues when a user makes an acquisition. The determination of whether revenue should be reported gross of amounts billed to Advertisers (gross basis) or net of
payments to digital properties partners (net basis) requires significant judgment and is based on management assessment of whether the Company is acting as the principal or an agent in the transaction. The Company has determined that in certain
arrangements it acts as principal because it has the ability to direct the services to its customers, while in others it does not. On revenues presented on a gross basis the Company has contracts with its digital properties that provide exclusivity and cover multiple years at inception. These
agreements typically require that the Company’s code be integrated on the digital property web page. Thus, in the vast majority of the Company’s business, it does not bid for an ad placement, but rather it controls the specified pages before
they are transferred to the customer, sees all users that visit the respective pages and is able to run a predictive auction and direct the ad placement to the relevant customer. The Company further concluded that (i) the Company is primarily
responsible for fulfilling the promise to provide the service in the arrangement and controls what recommendations to place; (ii) the Company has latitude in establishing the contract price with the advertisers, and (iii) the Company has
inventory risk on a portion of its multi-year agreement with digital properties. Therefore, based on these and other factors, the Company reports revenue earned on a gross basis. For those revenue arrangements where the Company does not control the advertising inventory before it is transferred to its Advertisers, does not have inventory risks as the Company does not purchase the advertising
inventory upfront or has limited discretion in establishing prices, the Company believes it acts as an agent and recognizes revenue and related costs incurred on a net basis. Trade receivables are
recorded at the amount of gross billings the Company is responsible to collect, trade payables, representing liabilities towards digital properties, are recorded at the amount payable to publishers. Practical Expedients The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original
expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed. The Company generally expenses sales commissions when incurred because the amortization period would have been one year
or less. These costs are recorded within sales and marketing expenses. Cost of Revenues The Company’s cost of revenue primarily includes Traffic acquisition costs and other cost of revenue. Traffic acquisition cost Tr The second model includes guarantees. Other cost of revenue . Research and Development Research and development expenses consist primarily of personnel costs, including
salaries, bonuses, share-based compensation and employee benefits costs, allocated facilities costs, professional services and depreciation. Warrants Liability The Company evaluated the Public Warrants and Private Warrants (collectively: “Warrants”) in accordance with ASC 815-40,
‘‘Derivatives and Hedging — Contracts in Entity’s Own Equity’’, and concluded that a provision in the Warrants Agreement related to certain tender or exchange offers, as well as provisions that provided for potential changes to the settlement
amounts dependent upon the characteristics of the holder of the warrant, preclude the Warrants from being accounted for as components of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815 and are not eligible for an exception from
derivative accounting, the Warrants are recorded as derivative liabilities in the consolidated balance sheets and measured at fair value at inception (on June 29, 2021, the date of the Business Combination) and at each reporting period in
accordance with ASC 820, ‘‘Fair Value Measurement’’, with changes in fair value presented within finance income (expense), net in the consolidated statements of income (loss) in the period of change. The Company established the initial fair value for the Warrants as of June 29, 2021, the date of the Business Combination,
using a quoted price for the Public Warrants and a Black-Scholes simulation model for the Private Warrants. The Private Warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs. The key inputs into the Black-Scholes model for the Private Warrants as of December 31, 2022 and 2021, were as follows:
Input December 31,
2022 2021
Risk-free interest rate
4.08% - 4.18
%
1.07% - 1.18
%
Expected term (years)
2.75 - 3.50
3.75 - 4.50
Expected volatility
67.5% - 69.3
%
66.1% - 68.6
%
Exercise price
$
11.50
$
11.50
Underlying stock price
$
3.08
$
7.78 The Company’s use of a Black-Scholes model required the use of subjective assumptions:
●
The risk-free interest rate assumption was interpolated based on constant maturity U.S. Treasury rates over a term commensurate with the expected term of the Private Warrants.
●
The expected term was based on the maturity of the Private Warrants of five years following
June 29, 2021, the Business Combination date, and for certain Private Warrants the maturity was determined to be five years from
the date of the October 1, 2020, ION initial public offering effective date.
●
The expected share volatility assumption was based on the implied volatility from a set of comparable publicly-traded companies as determined based on size and proximity. Share-Based Compensation Share-based compensation expense related to share-based awards is recognized based on the fair value of the awards granted and
recognized as an expense over the requisite service period for share options and RSUs. The Company elects the straight-line recognition method for awards subject to graded vesting based only on a service condition and implements the accelerated
method for awards that are subject to a performance condition. The compensation expense associated with performance based RSUs is adjusted based on the probability of achieving performance targets. Forfeitures are accounted for as they occur. The fair value of each option award is estimated on the grant date using the Black-Scholes option pricing model. The
Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying ordinary shares, the expected term of the award, the expected volatility of the price of the Company’s ordinary
shares, risk-free interest rates, and the expected dividend yield of ordinary shares. The fair value of each RSU award is based on the fair value of the underlying ordinary shares on the grant date. The assumptions used to determine the fair value
of the share awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. The fair value of each option award is estimated using the following assumptions:
Year ended December 31,
2022
2021
2020
Volatility
66.0% - 66.9%
51.5% - 65.6%
50.0% - 54.0%
Risk-free interest rate
1.86% - 3.78%
0.61% - 1.36%
0.38% - 0.67%
Dividend yield
0%
0%
0%
Expected term (in years)
5.49 - 6.1
5 - 6.86 6.25 These assumptions and estimates were determined as follows: Fair
Value of Ordinary Shares. For periods after the Company’s shares began trading on June 30, 2021, the fair value of the shares is determined by the closing price of the Company’s
Ordinary Shares as reported on the date of grant. For periods prior to the public listing, the fair value was determined by the Company’s board of directors, with input from management and valuation reports prepared by independent third-party
valuation specialists. Risk-Free Interest Rate. The risk-free rate for the expected term of the options is based on the yields of the U.S. Treasury securities with maturities appropriate for the expected term of employee share option awards. Expected
Term. The expected term represents the period that options are expected to be outstanding. The Company determines the expected term using the simplified method. The simplified method
deems the term to be the average of the time-to-vesting and the contractual life of the options. Expected Volatility. Since the Company has a limited trading history of its Ordinary Shares, the expected volatility is derived from the average historical share volatilities based on peer group public companies that the
Company considers to be comparable to its own business over a period equivalent to the option’s expected term. Expected
Dividend Yield. The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. As a resul |
