Nexxen International Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 22, 2023

There are 10 speakers on the call.

Operator

Welcome to Tremor International's Conference Call for the 3 9 Months Ended September 30, 2023. At this time, participants are in a listen only mode with a question and answer session to follow at the end of the presentation. This conference call is being recorded and a replay of today's call will be made available on the Investor Relations section of Tremor's website. I will now hand the call over to Billy Eckert, Vice President of Investor Relations, for introductions and the reading of the Safe Harbor statement. Billy, please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, welcome to Tremor International's financial and operating results call for the 3 9 months ended September 30, 2023. With us on today's call are Ofer Druker, Tremor's Chief Executive Officer and Faguniry, the Company's Chief Financial Officer. This morning, we issued a press release, which you can access Our IR website at investors. Tremorinternational.com.

Speaker 1

During today's call, we will make forward looking statements. All statements other than statements of historical fact could be deemed as forward looking. We advise caution and reliance on forward looking statements. These statements include, without limitation, statements and projections regarding our anticipated future financial and operating performance, Market opportunities, growth prospects, strategy, financial outlook, partnerships and anticipated benefits related to those partnerships and forward looking views on macroeconomic and industry conditions as well as any other statements concerning the expected development, performance and market share or competitive performance relating to our products or services. All forward looking statements are based on information available to us as of the date of this call.

Speaker 1

These statements involve known and unknown risks, Uncertainties and other factors that may cause our actual results to differ materially from those implied by these forward looking statements, including unexpected changes in our business or unexpected changes in macroeconomic or industry conditions. More detailed information about these risk factors and additional risk factors are set forth in our filings with the U. S. Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled Risk Factors in our most recent annual report on Form 20 F. Tremor does not intend to update or alter its forward looking statements whether as a result of new information, future events or otherwise, except as required by law.

Speaker 1

Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information IFRS and non IFRS terms. We refer you to the company's press release for additional details, including definitions of non IFRS items and reconciliations of IFRS to non IFRS results. At this time, it is my pleasure to introduce Ofer Duker, CEO of Trever International. Ofer, please go ahead.

Speaker 2

Thank you, Billy, and welcome to everyone joining us today. I will begin by providing an overview of our results and Then we'll hand the call over to our CFO, Sagim Yurey, to discuss our financials. We will then open the call for questions. Please note, results for the 3 9 months ended September 30, 2023, reflects the combined performance of Tremont International and Amobi, while results from the same prior year periods include a multi contribution from September 12, 2022 through September 30, 2022. I would like to start today's call by thanking everyone who has reached out and extended their thoughts, prayers and sympathy following the October 7 terrorist attack on Israel, where our company is headquartered and where many of our employees and their families go home.

Speaker 2

Your support means a lot to us and is greatly appreciated. While Tremor International is a global EdTech company, we generate the vast majority of our contribution aspect over 85% in the U. S, which is also where the overwhelmingly largest base of our employees sit. Despite the conflict weighing heavy on our thoughts and despite certain Israel based team members being called to active duty, We are doing our best to keep our business activities and operations relatively unaffected by the situation. We commend the bravery of our active duty employees in service to their country and intend to honor them by working out to continue providing best in class service and solutions to our customers and partners in their absence And supporting them and their families in every way we can.

Speaker 2

With the holistic integration of Amobee, Which emphasizes bringing its valuable employees, customers and technology into our company and the initial returns in Nexen behind us. In Q3, we focused primarily on scaling mid- to long term revenue generating initiatives and increasing engagement and awareness With advertisers and publishers, particularly through a demonstration of our new and recently enhanced capabilities. During the quarter, we deepened relationship with existing customers and emphasized introducing our capabilities of solutions to new potential partners and bolstering our sales and marketing teams to position us for accelerated growth within our core strategic drivers, CTV, video and data. The rebrand to Nexa, while still is in early stages, has improved our By simplifying our story and value proposition for customers and prospects, enabling our sales team to seamlessly package several solutions and create a pathway to extend and sustain revenue per account growth to increase cross selling opportunities. We also believe we have further amplified the power of our rebrand By recently installing a new Chief Marketing Officer with a strong product marketing background, who joined us from one of our closest ad tech peers.

Speaker 2

We feel the experience and expertise in product marketing he brings to our organization is a perfect fit and comes at the right time to expand on our groundwork initially laid by the OIBDA. We believe we have built one of the most comprehensive platforms In all of EdTech for our customers across the ecosystem, which include major advertisers, agencies and media partners. And now, we feel our marketing effort need to generate further momentum with customers and prospects to complement and better highlight the strength of our technology and data product suite. While it's definitely a worse in progress, We believe we are now better positioned to highlight the meaningful holistic value of our unified platform. Our main goal now is to showcase our partners can leverage our platforms, multiply offerings to simplify activation efforts through advanced data driven targeting and measurement solution and achieve their goals through a media platform that enables them to maximize the value of their first All while realizing significant cost benefits only possible through partnering with a holistic platform like ours.

Speaker 2

The next step in enhancing our market position through our rebrand is to change the name of the parent company from Tremont International to Nexon We shareholders will vote on our AGM in December. Assuming the vote passes, Our intent is to trade under the new company name shortly thereafter and to change the stock ticker in both markets from PRMR to NEXN. We do not currently anticipate any changes So our ordinary share or ADR structure in connection with the name or ticker changes. In addition to recently enhancing our marketing efforts and sales positioning, the successful integration of Amobee It significantly boosted our tech and data capabilities, particularly through enhanced DSP and TV Planning features and enable the creation and addition of powerful solutions we believe are pivotal for driving enhanced relevancy, Efficiency and better returns for our customers. We believe Amobee has already added a tremendous amount of value on this front And Uniquely differentiated us, while positioning us strongly for success in the future of TV advertising ecosystem.

Speaker 2

Over the past few months, we have seen dramatic increase in the level and frequency of conversation about linear shifting towards And converging with digital. It's clear to us that the major players in the advertiser industry understand This is an important rapidly evolving trend and reality they need to address. We believe capable technology partners like us, With robust cross platform capabilities, our best position to help them achieve continued success, converting linear budget into digital. It's a long adoption process. However, we believe we have unique product that fulfill the needs of the major players That advertise across linear TV and that already coincide CTV are planned to do so in the near future.

Speaker 2

Now it's time to market the product and create a solid base of partnership that will fuel our future CTV growth as we become more active in assisting with the conversion between media and digital. We believe NexGen is a critical advantage on this front and is well positioned for this development, specifically through the first two market cross platform planner we launched in April. The cross platform planner Creation was made possible by the linear planning tools we gained through Amobee that were developed for years prior to the acquisition. The solution enable customers to holistically plan campaigns across linear and CTV And also allocate budgets between formats within the push of a button. The planner has already driven Early adoption by major industry partners, including A&E Networks, FOX and Televisa Univision, and we expect others to follow suit over time.

Speaker 2

The solution is providing us a strong foundation for Opening significant partnership discussion, and we believe we experienced strong growth related to this tool over the intermediate and long term. We will continue to work tirelessly on further integration this solution into new and current partnership As we are confident, it reflects a strong potential future growth driver for the business that can deliver significant value by attracting new customers And enticing existing customers to increase spending on our platform. For our customers, success is often a byproduct Of efficiency and effectively ensuring their messaging reaches the widest and most likely to buy audience on the right screens at the right time. However, before a campaign is activated through existing, success begin with customers finding And understanding the audience by having a grasp on what content their targets are consuming, This is a strong indicator of trends they are following, interest they have and future purchasing behavior. Nexon Discovery, our data field BI tool also gained through the Amobi acquisition, optimized these efforts by enhancing audience insights And has been generating immense interest with prospective customers and partners in essentially every demo and across a wide range of use cases.

Speaker 2

Customer leveraging the solution are able to integrate powerful audience consumption data And trends from across web, social media and TV into their planning efforts to then activate in campaigns Through our DSP, providing a seamless and frictionless experience, Customers that previously had to leverage several partners for audience discovery, cross screen planning, activation and measurement Our finding that working with a single partner that can do in all, including offering TV data unavailable anywhere else, reflects an obvious value proposition for the simplicity, efficiency and increased returns it enables. We also believe Nexon Discovery will be instrumental and provide significant value for customers seeking solution in advance of And around the 2024 U. S. Election cycle, thanks to its segmentation capabilities and valuable audience insights, which can provide unique feedback for partners that choose to leverage it. The addition of tools like Nexon Discovery into our platform Also highlights a notable and growing opportunity for us to deepen relationship and expand revenue footprint with customers.

Speaker 2

H and L is a great example for this as agents introduce to adapt more solution with us, including Nexon Discovery, VIDAACR data and our cross channel planning technology after their successful collaboration with Nexon DSP. As our recently added product, rebrand and enhanced marketing efforts continue to gain traction. We anticipate generating Similar success story, we have partners to expand adoption behind the Seagull product to take greater advantage of our broader ecosystem. Overall, the Amobee acquisition added a complementary and highly synergistic features that we believe We're combined with our pre existing capabilities, has resulted in one of the most comprehensive and data rich platform in all of EdTech. FirstNet is built to help customers meet and exceed their video and CTV advertising goals.

Speaker 2

We feel we are now unmatched In our ability to assist customers on both sides of the ecosystem across their entire workflow, from audience discovery through measurement And cross formats, including linear and CTV to 1 unified platform with endless possibilities. We are also incredibly excited to share that we have recently begun the process of accelerating monetization related to our exclusive global access to VIDA ACR data gained through our investment in VIDA. As a reminder, VIDA is a fast growing CTV operating system and subsidiary of Sisense. We have already been monetizing VIDA's ACR data in the U. S.

Speaker 2

For CPD targeting and measurement. However, We very recently also launched the data offering in the U. K, which we believe is unique and offers a significant value proposition for customers in the market given the size and scale of the growing audience reach we have there. The offering launch EVUK is expected to start generating revenues in the current quarter. However, we believe revenue related to the UK launch We'll scale significantly in 2024 and that this offering will continue to generate revenues through the remainder of our suitability period over the next several years.

Speaker 2

We intend to launch the ACR data offering next in Australia during Q1 2024 and are excited for the benefit that we can enable for our customers there, as we also have a significant audience reach in that region. We believe the impending launch in Australia and also generate strong revenues opportunities for us in 2024 and beyond. It is clear to us The VIDAS global APR advertiser is becoming extremely attractive to advertisers, agencies and targeting the measurement partners in major markets. Our sales team has done a great job already generating interest within the industry For this scaled and growing ACR data footprint, and we believe this key differentiator can bring truly significant revenues to the company over time through both new and existing customers. Video Revit Growth It's been fueled by the ongoing expansion of its parent company license, which continues to grow its CTV shipment volume at the world's fastest rate in Q2.

Speaker 2

According to AMIDIA, ISOs continued to rank 2nd globally for TV shipment volume, holding a roughly 14% global shipment volume share, while shipments increased 19.3% year over year. In Q2, ISOs expanded its global market share by 1.6% year over year, also reflecting the fastest expansion rate by any TV brand globally. As demand for ASUS Connected TV powered by Visa operating system continue to grow, Driven by consumers' desire for high quality, low cost smart TV options, we believe our company and its customers will increasingly Benefits from our strategic investments in Visa. The trend of expanding our advertisers and supply partner base, while retaining major customers continued in Q3 and was driven by demand for our newly launched and recently enhanced product, as well as our reference and sales and marketing team improvement. In Q3 2023, The company added 113 new actively expanding first time advertisers customers across retail, Travel, finance, the CPG verticals, as well as others.

Speaker 2

This also included the addition of 11 new enterprise self-service advertiser customers, highlighted by some of the world's largest and most recognizable technology companies and apparel brands. Over the 1st 9 months of 2023, the company added 223 new actively spending first time advertisers customers. Nexon Studios, formerly Truly, continued to generate impressive growth amongst enterprise clients, Leveraging the company creative services, highlighted by 58% 79% increase in demand For the 3 9 months ended September 30, 2023, respectively. The company also added 109 new supply partners, including 100 in the U. S.

Speaker 2

During Q3 across several verticals and formats, including CTV, broadcast TV and mobile, With notable recent momentum amongst mobile gaming publishers, over the 1st 9 months of 2023, we added 283 New supply partners, of which 249 were U. S. Based. Our ability to expand revenues relationship and product adoption with customers, attract new partners and generate continued momentum to our rebrand talent enhancement and enhanced suite of tech and data solutions contribute with notable year over year growth in Q3. Despite challenging market conditions driving continued cautiousness In the advertising spending environment, particularly in managed service, we generated contribution ex TAC of 76,600,000 dollars in Q3 2023, which reflects year over year growth of 18% compared to 64,900,000 dollars in Q3, 2022.

Speaker 2

For the 9 months ended September 30, 2023, We generated competition expense of $223,700,000 which reflects 8% year over year growth compared to $206,700,000 in the same prior year period. Contribution ex TEG growth was largely attributable to significant growth in programmatic revenue As our core business benefited from increased demand for our programmatic solution, as well The integration of Amobix, which features strong programmatic footprint. During Q3, We generated programmatic revenues of $74,200,000 which reflects 23% growth from $60,100,000 in Q3, 2022. For the 9 months ended September 30, 2023, we generated programmatic revenues $213,000,000 which reflects 18% growth from $179,900,000 in the same prior year We believe the industry will further embrace programmatic advertising over time to automate the purchase of video and CTV inventory And that we are still in the early innings of this long term trend that we are heavily indexed to and we are strategically prepared for. We also continue to further strengthen our impressive talent base across all major focus area of the company.

Speaker 2

As I mentioned earlier, we have a new Chief Marketing Officer, Ben Kaplan, who we are very excited about And we bring significant and direct ad tech product marketing experience to our organization. Ben As led teams across major tech and media companies such as Meredith, Twitter and most recently, Palmatic And it's already clear that this product marketing expertise will strongly complement our rebrand And be a great asset to our going forward. Additionally, as we scale our enterprise customer base following our recent DSP enhancement, We're excited to add Ariel Bitch as our new VP of Enterprise Sales, who comes to us from Amazon. We also filled several other sales back in queue hiring experienced Apex sales veterans to enhance and expand our team in key metro areas like New York and Los Angeles. We believe we now have the right structure and team members in place To best showcase the value proposition of our comprehensive suite of offerings and that we are well positioned to accelerate long term growth And share gains through the combined strength of our people and platform.

Speaker 2

Finally, I'm pleased to report that our Board intends to approve the launch $20,000,000 ordinary share repurchase program pending approval from the Israeli court, which is expected in the near term. Assuming we obtain court approval, the new potential program would be financed through existing cash resources and would follow 2 previous programs in which we invested a combined $95,000,000 in our ordinary share repurchasing roughly 13% of shares outstanding. Looking ahead, we believe investing in our business to drive growth as well as repurchasing our shares represent the best These term capital allocation priorities to generate long term shareholders value. True shares remain at discount valuation level, And if the company remains cash generated in the future, the Board also indicated it will consider pursuing Additional future share repurchase program after completing the impending potential $20,000,000 ordinary share repurchase program and is willing to seek future approval from the Israeli court as required. The Board is high confident in the company's future growth Prospect and believe repurchasing its shares at current level reflects a strong long term investment opportunity for the company and its shareholders.

Speaker 2

As always, we will also continue to evaluate acquisition opportunities over the intermediate and long term given our total success, Integrating them to create value for our customers, business and shareholders. However, for now, we are confident in the strategic competitive positioning and breadth of our platform's current offering. With that, it's my pleasure to turn the call to Sajid.

Speaker 3

Thank you, Ofer. Today, I will review the highlights and key financial and operational drivers of our performance over the 3 9 months ended September 30, 2023, and we'll also discuss our forward looking guidance. As a reminder, Results for the 3 9 months ended September 30, 2023, reflect the combined performance of Tremor International and Amobee, The results for the 3 9 months ended September 30, 2022 include Amobi contribution only from September 12, 2020 2 through September 30, 2022. For the 3 months ended September 30, 2023, We generated contribution ex TAC of $76,600,000 reflecting 18% growth from $64,900,000 in Q3 2022. For the 9 months ended September 30, 2023, We generated contribution ex TAC of $223,700,000 reflecting an increase of 8% compared to $206,700,000 in the same prior year period.

Speaker 3

Contribution ex TAC growth over both periods was driven largely by a significant increase in programmatic revenue. We experienced strength in shopping and food During Q3 2023 as well as in mobile, desktop, display and PMPs. Conversely, Softness was observed within our CPG vertical and within CTV as challenging market conditions drove reduced advertising demand And softness in managed service, particularly in July, causing customers to temporarily shift Spending from CTV into lower cost option such as desktop and mobile as well as display. While we believe conditions in the CTV advertising market have stabilized compared to July, We expect ongoing market uncertainty and managed service softness to constrain advertising budgets and drive customers to continue to more so leverage our lower cost solution through at least the end of 2023. Programmatic revenue for the 3 months ended September 30, 2023 was $74,200,000 which reflected a significant 23% increase compared to $60,100,000 in Q3 2022.

Speaker 3

For the 9 months ended September 30, 2023, we generated programmatic revenue of $213,000,000 which reflected an 18% increase from $179,900,000 in the same prior year period. Programmatic revenue as a percentage of revenue increased dramatically to 93% in Q3 2023 and 90% for the 9 months ended September 30, 2023 compared to 85% in Q3 2022 and 79% for the 9 months ended September 30, 2022. The increase was driven by our strategic shift of sales resources and focus into this core business as well as the added programmatic footprint gained through Amobi. CTV revenue for Q3 2023 was $19,600,000 which reflected a decrease of 21% from $24,700,000 in Q3 2022. As I mentioned, the year over year decrease in CTV revenue was largely driven by weakness earlier in Q3, particularly in July, as macro uncertainty drove managed service softness, causing customer to temporarily shift spending from higher cost options like CTV into lower cost options like mobile and desktop as well as displayed.

Speaker 3

To highlight this point, contribution ex TAC from mobile increased 20% year over year. Contribution ex TAC from display increased 138 percent year over year and contribution ex TAC from desktop increased 38 Year over year in Q3. While we are seeing our customers focus near term spending in lower cost option, Where we are still able to provide value added solution to assist them, we continue to expect CTV to remain a key center of investment And long term growth driver for the company. We expect our recently enhanced suite of premium CTV solution We'll continue to drive increased long term future industry demand, particularly as macro headwinds and uncertainty Inevitably, ease over time and ad budget and spending expense. For the 9 months ended September 30, 2023, We generated CTV revenue of $65,600,000 which reflected a 2% increase from $64,100,000 in the same prior year period.

Speaker 3

Video revenue continued to account for a majority of our programmatic revenue at 66 in Q3 2023 and 70% for the 9 months ended September 30, 2023. Video revenue as a percentage of programmatic revenue was 93% for the 3 9 months ended September 30, 2022. Year over year decreases in Q3 were attributable To the addition of Amobee, which had a historically stronger display revenue base, year over year decline In CTV revenue, driven by challenging market conditions and significant year over year increases in programmatic revenue. Despite the short term customer spending focus on lower cost option outside of CTV, which we expect to shift over time As demand for our CTV solution increases and as market conditions improve, our impressive ability to increase contribution ex TAC in Q3 Over the 1st 9 months of 2023, despite a lack of significant growth in CTV, highlights the Strength and durability our diversified revenue model provides. It also further supports our belief that As market condition improve and customers shift more aggressively into CTV advertising in the future that we are very well positioned for outsized Long term market share gain, given our robust capabilities and footprint and how heavily indexed we are to CTV.

Speaker 3

The new customer base added through Amobee, which has historically largely leveraged display solution, provide a significant long term growth runway to cross sell our video and CTV capabilities and grow our overall video revenue footprint. We strongly believe that our pre existing and newly launched solution will enable us to expand the base of customers gained through the Amobee acquisition that leverage us for multiple video centric solution in the future and also attract new video customers to our platform over time. During the 3 9 months ended September 30, 2020 We generated $21,300,000 $51,200,000 of adjusted EBITDA, respectively, which compared to $30,100,000 $108,000,000 in the same prior year period. The year over year decrease in adjusted EBITDA were driven by the acquisition and integration of Amobee, which was generating significant losses when we first acquired the company as well as a weaker comparative advertising demand environment Earlier in 2023. We will continue to work towards further optimizing our cost structure and improving efficiencies to improve profitability.

Speaker 3

We believe as we generate higher level of contribution ex TAC That the majority of increased contribution ex TAC will flow through to adjusted EBITDA, given the strength of our operating model, which provides strong and increasing degree of operating leverage. For Q3 2023, We generated an adjusted EBITDA margin of 27% on a revenue basis and 28% on a contribution ex TAC basis, which compares to 43% 46%, respectively, during Q3 2022. For the 9 months ended September 30, 2023, we generated an adjusted EBITDA margin of 22% on a revenue basis and 23% on a contribution ex TAC basis, which compares to 47% 52%, respectively, in the same prior year period. Turning to our cash flow. We generated $13,100,000 in net cash from operating activities during Q3 2023 and $17,100,000 For the 9 months ended September 30, 2023, after generating net cash from operating activities of $12,600,000 during Q3, 2022 $59,100,000 for the 9 months ended September 30, 2022.

Speaker 3

During the 9 months ended September 30, 2023, we incurred approximately $6,000,000 In severance and retention bonus related costs associated with the reorganization of Amobee employees into the Tremor International Day. As of September 30, we had $98,900,000 in net cash as well as $80,000,000 undrawn on our revolving credit facility. We intend to leverage our considerable cash reserves With the ongoing needs of the business, investments in internal growth initiatives and future potential share repurchase program in the near to intermediate term and to support our future potential intermediate and long term strategic investments, initiatives and acquisitions. We also generated non IFRS diluted earnings per ordinary share of $0.09 in Q3 2023 and $0.12 for the 9 months ended September 30, 2023 versus non IFRS diluted earnings per ordinary share of $0.11 in Q3 2022 and $0.44 for the 9 months ended September 30, 2022. Finally, I'll now turn to our outlook.

Speaker 3

While we've seen evidence of end market stabilization, particularly since July, We are also seeing signs that the recovery will remain uneven and that ongoing macroeconomic headwinds and uncertainty We limit advertising demand and budget, drive continued managed service softness and cause our customers to continue to focus Near term spending on our lower cost solution such as display through at least the remainder of 2023. As a result, for full year 2023, we now expect contribution ex TAC in the range of approximately $310,000,000 to $315,000,000 and adjusted EBITDA in a range of approximately $80,000,000 to $85,000,000 and continue to anticipate that programmatic revenue will reflect approximately 90% of our full year 2023 revenue. We continue to believe that the combination of our durable business model and diversified revenue stream Focus on core strategic growth drivers, enhanced ability to drive multi solution enterprise deal, Greater stability following the completed integration of Amobee and growing demand for our programmatic solution and recently added product We'll strongly position the company for outside future market share gains, contribution ex TAC growth and improved profitability, particularly as CTV advertising demand conditions improve and as our rebrand and recently strengthened sales and marketing team continues to gain favorable traction.

Speaker 3

With my remarks completed, I'll turn the call back to Ofer.

Speaker 2

Thank you, Saghi. With Amobee's team members and technology successfully integrated into our business, We believe we have developed and now boast one of the most comprehensive TV and video focused platforms in the market, differentiated by unmatched data power solution that enabled better outcomes and greater efficiency for customers across the entire advertising value chain. The integration of Amobee further accelerated our product innovation leadership role and enable us to launch sought after and desperately needed solutions that we believe will deepen our relationship with customers, Attract new customers and further position us as a trusted industry partner and leaders in the combined future CTV and TV advertising ecosystem. Moving forward, the core focus will now be to build On the initial success and momentum generated through our rebrand by ensuring our marketing and sales efforts strongly complement And best emphasize the strength of our platform. We have confidence we made important steps on this front This will better position us for 2024 and beyond.

Speaker 2

We believe the combination of our rebrand alongside our strengthened Sales and marketing organization positions us much more strongly to showcase how our current and future customers can best leverage OneData's huge platform to meet and exceed their advertising goals in KPN. We also believe We will be able to achieve outside future share gains, grow contribution ex TAC and improve profitability Over time, particularly as market condition improved and as customers continue to embrace and grow spending within our data driven suite of programmatic CTV and video solutions. We have many reasons to be excited and look forward to continuing to provide best in class service and solutions to our customers and partners. I would like to thank all of our employees and shareholders for their continued support. And operator, we will now take questions.

Operator

Thank you. At this time, we will open the line for questions. Our first question comes from Matt Swanson with RBC Capital Markets. Please go ahead.

Speaker 4

Yes. Thank you for taking the questions. And I, of course, would like to extend my thoughts and prayers to you and your employees impacted by the war in Israel. But maybe starting with you, Siggi, and kind of where you left off on the comments looking at the guidance. Thinking about The macro environment you've seen in October and then November to date, can you just kind of help us think about what your guidance applies to the end of November December.

Speaker 4

And basically, like are you thinking of the macro getting better, stabilizing kind of like you've seen or getting worse In that context.

Speaker 3

Thank you, Matt. Yes, I think as I said, we are seeing like in October, November, September is already coming. We are seeing stabilization in the macro. Of course, it's not as it's been before. Before the macro challenges and headwinds hit all of us.

Speaker 3

I think the guidance that we gave is like Cautious and conservative. We have a lot of different deals that are being ended as we are talking. But since we are not sure Everything is going to hit our revenues by the end of the year and maybe some will move into 2024. We are trying to be cautious as we can.

Speaker 4

Yes, that's helpful color. And then maybe this is for Ofer and Siggi. The strategic gains we've been talking about with especially the cross platform planner and then NEX and Discovery sounds exciting and Seeing some more traction from the APR data, it's obviously kind of getting offset a little bit by the macro currently. So could you just maybe give us a little more color on the CTV market specifically about what's kind of giving you confidence that you are making those strategic gains Even though the macro is kind of impacting some of the top line results from that?

Speaker 2

Of course. Thank you, Matt, and thank you also for your support. When we are looking at the CTV market in general, we are in this business for all in already for 5 years. And We invested 2 years ago in VIDA in order to create the ACR. Now it's operational in the U.

Speaker 2

S. And also in U. K. Next quarter, we are going to push it also to Australia, and then we will probably announce more markets that we are going To launch our ACL solution. And I think this is like a of course, all our initiatives Including the Cross platform is being shed a little bit by the macroeconomic situation because people are spending less on CTV, which is more Fancy format as they are, as again indicated, people are moving most their attention to more performance oriented formats like display, mobile and so on.

Speaker 2

But in general, when you look at the ecosystem and we have some luck that we are the last that are basically reporting, so we can hear The rest of the peers talking about it, but many people spoke about the conversion between linear and Digital CTV basically. And we are, I think, the most ready around that. Why? Because basically, Through the acquisition of Amobee that we made a year ago, a little bit more than a year ago, we basically acquired Videology that has like a very strong Linear planning tools, one of a kind in the industry. And we added to that the cost platform solution that we basically launched in April It was already integrated and used by a few of the biggest broadcasters and now we are moving the attention also to the demand side For that, and I think that linear advertisers in general, they understand now that in order to reach their audience, they need to also to And to reach digital and CTV in order to reach their audiences, because linear shrink basically and it will Continue to shrink probably in the next couple of years, so they need to do that.

Speaker 2

The only platform that is ready as a cross platform platform is ours today in the market. And I believe that when the macroeconomics will change, the adoption of this platform, the usage of the platform will grow Together with our readiness that early next year to offer it to demand side partners that will be able basically to use it And also to use basically our CTV marketplaces in order to use to create a user extension as they need it. So I totally agree with you. I think that macroeconomic conditions are not great for the flourishing of CTV basically, But I think that when you're looking at mid term and long term, we did the capabilities around targeting and measurement through the ACR data that we got. We got the cost planning solution and we have all the tools that we developed before that.

Speaker 2

And in general, I think that we are Able to offer a very comprehensive solution to people that are using CTV or linear Advertising that wants to expand or need to expand to CTV, I think that we are there. And hopefully, when the market condition will be better, People will be able to see that in full scale, our capabilities and we will enjoy from the growth that is associated with that. I hope that I answered your question.

Speaker 4

Yes, that was great. Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from Laura Martin with Needham. Please go ahead.

Speaker 5

Hi. Can you hear me okay, you guys?

Speaker 2

Always. Hi, Laura.

Speaker 5

Great. Hi there. Okay. So I want to focus on partnerships. You brought up partnerships a Couple of times, Ofer, but I noticed you're petitioning the Israeli courts to buy another $20,000,000 of shares and you just finished by $95,000,000 of shares.

Speaker 5

So Typically partnerships bring money with them, which obviously you don't need or you wouldn't be buying shares. So can you talk about what you're looking for From the partnerships you're talking about?

Speaker 2

I don't think that we are talking about partnership that's supposed to bring us the money. Are looking at partnership that can give us capabilities or reach to market and stuff like that. We are, of course, cash generated company and we have cash net cash Of close to $100,000,000 So we are not looking for partnerships that will give us the we are not looking for investment. We are generating cash and we are cash positive. We are buying shares because for two reasons.

Speaker 2

First of all, we already fulfill a lot of our ambitions around acquisitions in the past few years. The last acquisition was last year that we acquired Amobi, a massive company with a lot of capabilities that are added into our stack now And all the companies basically integrated into our company. It was a huge effort and it came after additional 3 acquisitions that we've done in the last 4 years. So we are not looking now for additional acquisition in the near future in general. And when you have cash like we do and we generate cash, we think According to the share price that we are witnessing now, it makes sense for us to repurchase our shares in order to Basically, support the shareholders and potential investors that will come to the company.

Speaker 2

And this is the best usage of cash as you see that right now.

Speaker 3

Yes, it's the best investment we are seeing outside now.

Speaker 5

Okay. But the capabilities you're looking for in partnerships are more New products or add on platforms or like what you did with VIDA?

Speaker 2

So it's typical We have a, of course, the partnership is a wide definition, but we are, for example, the partnership with VIDA gave us the ACR data, gave us media on CTV, Giving us a lot of access to data that we need in several in different markets and so on. But we have a lot of partnership that we are holding With measurement companies, with target, with data companies, with media companies. So it's a very wide definition. Usually, we are doing that in order to create win win And with partnerships that are adding on complementary to our capability or they can use our technology in order to gain their target, but That's it, gentlemen. And we always look for good partners that can grow together our business.

Speaker 5

Okay, super helpful. And then can you I think Google is finally going to deprecate cookies after pushing it on 4 times. Can you remind us how much of your ad targeting comes from cookies? And how you guys are positioned over 2021 as Google finally Deprecating cookies started in Q1 of 'twenty four.

Speaker 2

'twenty four. So we have, of course, our graph. We have, of course, the fact that we are end to end solution is reducing our The dependency on the usage of cookies, of course, the fact that we are heavy on CTV Also reduce this cookie dependency. So I think that in general, we are getting ready for that. And I think that in general, the fact that we have an end to end solution will give us even advantage if it will happen because of The fact that we are sitting on both sides and we can basically create a match even without a cookie in most cases.

Speaker 2

So I think that we are in a very good position on that front. Okay.

Speaker 5

And you're calling following up on Matt's question earlier, you're falling for a dramatic deceleration in Q4 and we're already sitting here 6 weeks into the quarter And your ex TAC revenue has been accelerating in every quarter to date, like really nice growth in the Q3. So congratulations on that. But you're showing negative year over year growth in your guidance for Q4. So I just wanted to push on that a little bit and find out what you've seen in the last 6 Sorry, the 1st 6 weeks of this quarter that is so decelerated, like what vertical specifically is so decelerated From that wonderful Q3 18% revenue growth rate?

Speaker 2

So I think that, Laura, again, The fact that we are coming late with our notice is helping us to look at other people and what they are seeing and thinking. I think that there is a lot of instability in the market. So people are feeling that people the advertisers are more cautious about the spending. Sometimes they are like creating orders and then delaying them or minimizing them and so on. So I think that The macro is still affecting us and we want to be on the conservative side on that matter.

Speaker 2

The second thing, we have a lot of Partnership and agreements as we are doing with companies that are supposed to use our services that we feel that we are taking The opportunity we are taking into account the opportunity that will slip into Q1 instead of happening this quarter. So we are trying to be cautious around our guidance, but I think that the major thing is the macroeconomic that It's a little bit better than the beginning or the middle of the year, but it's still not great in Q4. And you see the essence of the advertisers And their cautiousness about investing the money right now in advertising basically.

Speaker 5

Okay. Thank you very much.

Speaker 2

Thank you.

Operator

Our next question comes from Andrew Maroc with Raymond James. Please go ahead.

Speaker 6

Great. Thanks for taking my questions. I wanted to dig in a little bit on your recent leadership hires In the sales and marketing organization, just any color you can provide there on any potential changes in strategy, how your incoming leadership Tends to think about the overall sales and marketing strategy if that differs from what you have now.

Speaker 2

Of course. Thank you for this question. So I will start with marketing, if you don't mind. So when we're looking at what we when we are looking at what we did in the past year or so, we basically took A very big company like Amobee and we integrated it into Tremo just for to give you a little bit of scale. Amovi was 1.5 times in size than Tremont in general with a lot of technology that was developed and acquired over like 10 years or so.

Speaker 2

So when we connected everything together, we took the best of every solution and we sunset some of our solutions and so on. And we had a lot of brands that we were using, like we were using Tremlo and Wooly and Amobi and so on. So We basically rebranded, but it's not enough to rebrand. You need to do a lot of work about your offering in the market to make it more simple to the Salespeople and to the market to understand what you're offering. So we look for a CMO that will have a very strong product marketing That will be able to help us to connect the dots, explain it in a meaningful manner to the market.

Speaker 2

So it will make the story simple And also for the sales people to compare and understand it very easier and to be offered without confusing their clients We're using so many names like we used before. So that's a massive change that we've done. The rebrand hiring this CMO then that is coming with a lot of experience in product marketing, because I think that the rest of the marketing we are doing very well. But on the product and sales enablement side, we wanted to bring someone that can take us to the next level. And I think that We found the right person to do that and we are of course trusting to lead us to this path.

Speaker 2

On the sales side, when we are looking at the sales side, one of the reasons that we acquired Amobee Was the strong enterprise solution that was there. They developed it over many, many years. And to build an enterprise solution sounds easy, We it's not because you have a lot of layers to that, which is also coming sorry, with a lot of professional people that knows how to support How to explain to him how to use it, to guide him, to train him, to give them a lot of ecosystem around the DSP itself in order to support Basically to offer this enterprise solution is a different sale than to sell managed solution. And We wanted to take this we took basically the DSP of Amobee integrated as our main DSP with our capabilities, but we wanted to The enterprise solution, of course, alive and kicking, and we're hiring now people that will be able to sell it in the market. That's why we are bringing New people also to the enterprise side that will be able to offer this to new clients, to agencies, to dependent agencies, To a branch that are looking for a solution like that.

Speaker 2

And I feel that it's important because the sale of an enterprise solution,

Speaker 1

It's a

Speaker 2

little bit different from selling basically managed solution or PMP and so on. It's a longer process. It's a different you are talking to different people in the organization and you need people that has an experience in doing that and this is exactly what we are doing now.

Speaker 6

Got it. Thank you for that. And then one more on the macro, I'm afraid. So in terms of Customers seeking kind of lower price formats, like one thing that we've heard kind of across the space this quarter is that CPMs on Non CTV video are coming down. And so if there is a flight to like discounted inventory or lower priced inventory, I may have expected non CTV video to be a little bit stronger for you guys.

Speaker 6

Is there anything else at play there or is it really just customers are seeking The lowest CPMs on an absolute basis, which is driving more strength in mobile and desktop? Thank you.

Speaker 2

I think it's a combination of 2 things. First of all, it's what you said is to buy cheaper CPM basically, But the second thing is also performance metrics. And I think that still we spoke about it in several of our earning calls in the past That we believe that CTV will become a performance also oriented platform, oriented format, but it will take some time. So I think that right now when people are looking for performance in this macroeconomic situation, they are basically looking for mostly for different Solution in different formats than CTV, which is they have more proof like track record of proving that generates performance, which is display, OLV, mobile and so on and less CTV. But we feel that, of course, when the macroeconomics We'll improve again.

Speaker 2

I think that people will shift again their attention to CTV, that's why. And I think that this is important also to remember that some of the The key verticals that we're dealing with CTV like automotive, entertainment and so on, We're not in great shape in the last 6 months, some of them with strikes and slowdowns. So we feel that it also influences a little bit the market of the city in general, Even for the people that are willing to pay ICPN in order to reach their target audiences.

Speaker 3

Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from Andrew Boone with JMP Securities. Please go ahead.

Speaker 7

Good morning and thanks so much for taking my I'd also like to just say, hey, we're thinking about you guys as Israel conflict continues to progress. Going back to kind of Laura's question on thinking through the 4Q 'twenty three guide, the run rate now implies something that's It's fairly negative into 2024.

Speaker 8

Is there any way that you

Speaker 7

can help us understand organic growth maybe for 3Q or any thoughts on 2024 as we We can really fine tune our estimates for next year.

Speaker 3

Yes, Andrew. Thanks. So we are not guiding the market regarding like giving a formal guidance regarding 2024. I think that when as Ofer mentioned, we are seeing all the opportunities That are laying in front of us the different capabilities, the different Product that we can enable different players within the industry and the deals that we are now In trying to facilitate through Q4 and maybe Q1, I think that to say that we will be on the lower Double digit growth is something that we can stand behind.

Speaker 7

That's very helpful. And then, Saghi, another one for you. In your prepared comments, you said Tremor will work towards Further optimizing our cost structure. Can you talk about what's left in the business to optimize? Where may be areas That there can be additional efficiencies run out?

Speaker 3

Yes. I think we did a lot in during 2024 2023, sorry. And we optimized our cost structure all over the year. We are doing it from time to time Or on an ongoing basis regardless of any acquisition or any restructuring. I think that we are seeing some of the Products that we inherent through the Amobi acquisition and some other acquisition that we can optimize the structure of the R and D teams over there Because now we are more familiar with the tools and we tweak them so we can be more efficient over there.

Speaker 3

Of course, some of it is part of Implementing different AI solutions in order to make our work better, faster and cheaper. Other than that, I think sales and marketing, we will continue to invest in. The other supporting departments, we are Optimizing as we are moving. So most of the optimization will come from R and D probably and taking our resources And taking more out of that with probably lower staff.

Speaker 7

And then the last one for me Is Ofer historically Tremor Nexen has been kind of built by M and A. Our Mobi is now fully integrated. How do you think about M and A going forward as you guys have kind of a new streamlined run rate business?

Speaker 2

So we just finished the integration of Amobee. I think that we mentioned it in the previous calls that would also slow us down a little Because we needed to work very hard on the integration. I think that we need to give the company some space now To get together like we do and to start performing on the assets that we got. When we are looking at our technological assets, I think that We have everything that we need. We can always enhance something, but I think that we have everything that we need.

Speaker 2

We have a very strong DSP that It's basically a result of a lot of DSPs that we integrated into one technology and we build it best of breed Technology around the DSP, we have a DMT, we have an SSD, we have an edge server for CTV, we have planning tools, we have discovery tools, we have All the technology that we can really dream around. I think that if we will make a new additional acquisition, as always, we are looking at We call it for capabilities, for clients or for additional territories Or geographies that we want to include in our growth. But I think that in the as we say in the near future, it's less of an issue. And I think that like we Indicated the best investment that we see now is to repurchase for now our shares whenever we can in order To support our growth and the value return for our shareholders. Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from Eric Martinuzzi with Lake Street. Please go ahead.

Speaker 8

I wanted to better understand the Q4 guide. Your contribution ex TAC Is based on the outlook expected to be up about 15% quarter on quarter. Wondering how you would Compare that with normal seasonality.

Speaker 3

Yes. So I think the numbers that you Exracted from our guidance, of course, are the right numbers. I think that we as we said, we had a lot of deals going on in Q4, which All of us understand macro or not macro are supposed to be the strongest quarter within the year And seasonality is eating over there. I think that we wanted or we assumed that we are going to do better in Q4, but then because We have now a lot of new revenue stream, which are, as Ofer mentioned, the sales cycles over there are much longer And it needs to take more time for us to educate the clients about exactly what we are buying and how they're operating it. So some of the deals that we assume that will happen in Q4 will go and sign in Q1.

Speaker 3

And again, I think as Ofer mentioned as well, the macro is putting a little bit of shade over here. Companies does not want To sign a new contract for a new product tool in Q4 and we prefer to do it at the beginning of a new year. So this is like the color behind why we are growing 15% and of course Q4 is the strongest.

Speaker 8

Okay. And then a layer deeper on CTV. CTV revenue declined from Q2 to Q3 essentially went from in round numbers $25,000,000 in Q2 to $20,000,000 in Q3. What is implied in the Q4 outlook? Does CTV increase?

Speaker 8

And if so, what's the expectation?

Speaker 2

I think that there are a few reasons for the pressure on the CTV as we indicated. I think that it didn't start at this quarter. It started little bit earlier, we are talking about macroeconomics. So as we mentioned, people are looking for lower CPM, pressure on CPM. So even if they are buying, they are buying Lower CPM and they are basically saving some of their costs, so it's less revenues for companies like us in the air tech.

Speaker 2

The second thing is Also verticals that in the last year that were like very strong on CTV like entertainment and automotive They suffered from internal issue for them of the verticals that basically affected also their buying metrics and affected The size of the industry. And as we said, shifting of budget basically from CTV to performance. So even if people Are willing to buy CTV and because of the macroeconomic and because of them being cautious, they prefer to go some of them, the newcomers to think that they are More familiar with and they are moving their spend to areas like display, mobile and OLV, which is online video, Instead of CTV, which is much more lucrative, expensive, but it's, let's say, less performance driven in this stage. So I think that all of that together showing weakness in CTV like we see across the board, not just with us, but I think that we have the tools, as I mentioned, Like the ACL that we are now expanding into new territories with success and the cross platform that we are Initiated to the publisher side and we are moving it now to the demand side early next year.

Speaker 2

This will be elements that will help us To grow the demand on CTV and to offer like something unique in the market that is able to capture the attention of the advertisers and

Speaker 8

Certainly. But do you expect it to grow sequentially?

Speaker 2

We expect it to grow, but We don't know. We are we believe that in general, if the market if the macroeconomic will improve, we will see A much bigger opportunity for us, but if the macroeconomic will keep pushing the market down, it will be more limited. But in general, we believe that it will, of course, will keep growing. Thank you. Thank you.

Operator

Our last question comes from Mark Kelley with Stifel. Please go ahead.

Speaker 9

Great. Thank you. 2 quick ones. Sorry to go back to the macro. But I guess how would you frame The visibility into next year at this point, I know obviously, last year budgets really didn't Come to fruition or people didn't really have visibility till February or March.

Speaker 9

Is it better this year? I guess that's the first thing. And then the second thing, just back on CTV, with more inventory coming online, CPMs and CTV have come down as well. So I guess what's the bigger factor in your eyes in terms of the cautiousness in CTV? Is it the absolute CPM Of the inventory that is out there or is it the services component of CTV and folks are just not willing to pay the markup for your services.

Speaker 9

I guess, how would you kind of parse those two dynamics out? Thank you.

Speaker 2

Okay. I will start with the focusing that you mentioned about next year. Usually only in the middle of Q4, you start seeing we see that already earlier, but the push for So next year is starting in the second half of Q4. Basically, people are shifting gears and basically starting to look at the next year, 2024, it's too early to say, of course. As we mentioned, last year only in February or March, people were able to give like a better picture about the year.

Speaker 2

I think that especially when you have like a situation and macroeconomic situation like we are experiencing now, it's very hard So basically predict now what will happen in the end of 2024. But in general, we have like 2 streams of revenue. One of them, which is more Infrastructure and selling platforms and so on that we can we see the interest. We have new platforms that we are sharing with the market that Marketing like the ACR, like the cross platform, like the discovery tools that we see that as we said that Seems to happen in the next 6 to maybe slipping a little bit into Q1, but will serve us next year. And the second thing is basically booking of business That is coming and we believe that in the next 6 weeks we will start seeing like an acceleration of that and we will be able to know more In the areas of time that you mentioned, which is the middle of Q1, usually you can get like a better feeling on the planning, on the size Budget of advertisers for the full next year.

Speaker 2

So I think it's too early now, but we are Since we have much more products, much more capabilities, we feel that we will be able to get more traction on this path and to grow our revenues Around that next year. Around the second question, it's about CTV that you asked. So I think that As always in life, it's not one metrics and it's not just one thing that is basically influencing something. I think it's a mix and everything is like Different from each other, but in general, there are a few factors here that are pushing the CTV down. As we mentioned, I can repeat it.

Speaker 2

It's like Moving more to performance because of microeconomics, lower CPM because of microeconomic, some internal issues in some of the verticals that are Usually supporting the growth in CTV and so on that are being affected and in general cautious about the market that is slowing down the industry. So It's very hard to put the weight on what is the and also the point that you mentioned, like a lot of inventory and in this period of time when macroeconomics eat And you don't have a lot of demands to cover that. It's of course lowering the CPM, slowing the traction and so on. But In general, when you look at that, it's very hard to put the finger on one element that caused this slowdown. I think that CTV for sure It's something that is here to stay.

Speaker 2

It's the most engaging and interesting format in the market. People believe in that. The growth will come also not just from digital advertisers that found this format and Using it in full extent, but also from linear advertisers that as I mentioned before, they need it in order to reach their target audience in different markets And they will use digital and CTV in order to do that, which will drive a lot of budgets into CTV in the years to come. So I strongly believe in that. I think that we are on the right direction with choosing CPV and investing in that.

Speaker 2

But In this period of time, it's a little bit more down because of all the effects that we just said, but it doesn't lower from this importance, from its center And from the future of this format that I'm sure that also when you hear the rest of the peers talking about it, this is the main effect In the years to come, and we are very strongly invested in that. We believe in that, and we have the capabilities to serve clients and publishers around CTV.

Speaker 9

Understood. Thanks very much.

Speaker 2

Thank you.

Operator

There are no further questions at this time. I will now turn the call back to Ofer for any closing remarks.

Speaker 2

Thank you. I will I have a short summary That I would like to share with you today, basically people are asking us about the situation in Israel all the time and how we affected. It's important to me to say that, well, every human being should be affected when terrorist organization enter into a civilian cities Villages, massacring, torturing, kidnapping kids, women, older people and full families, and all the civilized world should be affected by that, For sure. We are doing our best to keep our duties and lives aligned. And I want to use this opportunity to thank our employees in Israel and all over the world For the extra effort, I hope that the people that were kidnapped will return in peace on, our wounded will recover, And I give my condolences to the families that lost their loved ones.

Speaker 2

I want to make a few comments about what we discussed about the macro. So we all heard about from our peers also that there is a pressure from macroeconomics on the Performance of the advertising industry, for sure, we believe that after the acquisition, after the massive acquisition of Amobee, We build our teams and we are ready for the future. And hopefully, with better economy that will encourage growth, you will see the results of what we created and built In the last few years. About CTV, I think that there are two points that I would like to indicate here. First of all, linear to CTV.

Speaker 2

So When we hired all the discussions and conversation that are happening in the industry lately about this conversion between Linear and CTV, I think that as I mentioned also in this call, we got the technology and which is According to what we see is the best in the market now for cost platform. Linear advertisers need additional reach in order to reach their audience, And we can basically offer them that in confidence and with much lower duplication in order for them to save money, in order to reach their audiences. And this is a massive thing that will happen in the industry in the next 3 to 5 years, and we are ready for that. It's very important to understand. On the second thing, which is the CTV in general, there is, as all the questions touched almost about the weakness or softness of CTV, We all, I think, agree in the industry, the CTV, as I mentioned, is something that is very big, very important, Very effective in general because when you're looking at people that want to advertise and to move To create attention and engagement, they need to use the CTV in order to do that.

Speaker 2

And I think that after 5 years that we have this business, putting all in In order to create the best technology to collaborate a lot of our technologies in order to serve the best CTV, building partnerships like The partnership with VIDA and investing in VIDA in order to be able to offer ACR for targeting and also in the future to partners with for measurement, I think that we are ready for that. We believe in that. And the acquisition of Amobi just added to us too that will enable us To lead in this market and to be one of the innovators and the first to offer technologies and services that are needed in order for people advertisers to achieve Basically, they are targeted KPIs. So I think that we are well situated. We are ramping up now Our capabilities with the acquisition of Amobee, and we are ready for 2024.

Speaker 2

So thank you very much.

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Earnings Conference Call
Nexxen International Q3 2023
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