Nexxen International Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 20, 2024

There are 9 speakers on the call.

Operator

Welcome to Nexon's Earnings Call for the 3 Months Ended March 31, 2024. 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 call is being recorded and a replay of today's call will be made available on Nexon's Investor Relations website. I will now hand the call over to Billy Eckert, Vice President of Investor Relations, for introductions and a reading of the Safe Harbor statement. Billy, please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to Nexon's Q1 earnings call. During today's call, we will discuss our financial and operating results for the 3 months ended March 31, 2024, as well as our forward looking guidance. With us on today's call are Ofer Druker, NEX's Chief Executive Officer and Sajid Niri, the company's Chief Financial Officer. This morning, we issued a press release, which you can access on our IR website at investors.

Speaker 1

Nexon.com. During today's conference 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 opportunity, 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.

Speaker 1

All forward looking statements are based on information available to us as of the date of this call. 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 detail 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.

Speaker 1

Nexon 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. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in 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 Druker, CEO of Nexen. Ofer, please go ahead.

Speaker 2

Thank you, Billy, and welcome to everyone joining us today. In 2023, we achieved a significant milestone by completing the integration of our largest acquisition to date, Amobix. Through hard work and a steadfast focus on our strategic vision, we successfully merged some of the industry's top talent, tech capabilities and data assets, resulting in a great enhanced technology platform and company. The integration capped off our multiyear strategy to construct a unified end to end tech platform focused on video and CTV and empowered by robust data that enable enhanced outcome and drive success for both sides of the digital advertising ecosystem. We accomplished these major fits while reinforcing our talent base and boosting our sales and marketing efforts, strongly positioning us to drive future growth.

Speaker 2

With the integration complete, we have shifted our attention returning to our product innovation roots. This has enabled us to use our strong technology base to continually develop and launch advanced solutions that address our customers' diverse and evolving needs and challenges and grow our relationship with the biggest players in the industry. With our tech and talent combination in place, the next step in our evolution was to consolidate our products and operation under one brand, Nexen, a process we concluded in Q1. The rebrand has strengthened our messaging in market and deepened the industry understanding of our comprehensive suite of offerings. It also enabled our sales teams to more effectively convey the value and advantages of customers utilizing several tech and data solutions within our full stack.

Speaker 2

I'm pleased to report all these efforts are beginning to pay off, culminating in our recent success being viewed as a go to strategic partner to some of the world's largest and most recognizable brands, agencies and digital publishers. After a long journey marked by several years of acquisitions and industry leading forward thinking product innovation, we now have the right tech stack in market, the right messaging and the right value proposition to sell it. We are more confident than ever in our ability to execute and accelerate our market share gains. In Q1, we took several steps to strengthen our positioning within the CTV advertising arena. For 1, we resolved a long standing litigation through a favorable settlement agreement and multiyear strategic partnership with LG and Alfonso.

Speaker 2

After years of not working together, we are pleased to be doing business and cooperating with LG, which is an important player in the CTV OEM landscape. Through the partnership, NextGen is able to monetize some of LG's premium CTV inventory and Alfonso, now LGS, will leverage Nexsen data driven discovery and segmentation tools to enhance advertisers' engagement on their media properties. Nexplan also recently partnered with Roku, the number one TV streaming platform in the U. S. By our streams, further expanding our reach and relationship in the CTV and streaming space.

Speaker 2

NetCent has directly integrated with Roku, provided our customers access to premium supply in the Roku channel. We look forward to working closely with Roku, and we seek to expand our relationship with them over time. This partnership now give us strong relationship with all the world's major CTV OEMs, a massive value proposition for our TV advertising customers. We also expanded our partnership with TCL beyond access to CTV and OTT supply in the TCL channel to become the exclusive seller of their native display inventory as their preferred supply platform partners. This partnership combined with our other major CTV OEM relationship provide Nxend the ability to offer significant TV audience switch extension for customers, positioning us as the first call for those looking to enhance TV and streaming advertising outcomes.

Speaker 2

On the streaming data front, we partnered with FieldLogic in Q1 to bolster our TV data solution, TV Intelligence, with premium on the go streaming data for major platforms like Netflix, Hulu and Disney plus This exclusive and differentiating partnership enable us to capture streaming viewership data for audiences on mobile devices outside connectivity, positioning us strongly as consumers seeks flexibility to stream across devices. Advertisers are realizing more and more the importance of holistic audience insights across streaming platforms and devices to achieve optimal results. TV Intelligence stands out as a strong differentiator for Nexen as it provides robust data across devices and formats, including mobile streaming, linear TV and CTV. As a direct byproduct of Vida's global expansion, we recently started offering our TV Intelligence solution outside the U. S.

Speaker 2

To international customers. TV intelligence is an expensive data set that includes access to set up on traditional television, ACR, on the go streaming and cross screen panel data critical for our customers' planning and advertising efforts across the streaming and TV landscape. Access to this robust data often result in our customers achieving greater ROI and efficiency as plans created through our planning tools can be seamlessly activated in campaigns through our DSP, a differentiator for us. Through TV Intelligence, we can also provide powerful TV measurement solution such as tune in lift, reach and frequency, gross device attribution and gross platform measurement. In Q4 2023, we launched TV Intelligence in the UK.

Speaker 2

We generated increased adoption during Q1 2024 and which we expect will help drive additional UK advertising budget to our platform for the remainder of 2024 and beyond. Further, we recently launched TV Intelligence in Australia, which we believe will generate strong customers' adoption and momentum this year and beyond, and differentiate our offering from Australian customers, giving our strong and growing reach in the market. We expect to launch TD Intelligence in additional major international markets later in 2024, including Canada. Outside of international expansion, we are about to launch our ACL data segment with some recognizable initial partners. We are also in conversation with several other notable potential FX, agency, brands, measurements, research and TV data partners regarding the licensing of VIDAS global ACR data and are optimistic based on initial demand.

Speaker 2

While we expand our CTV OEM relationship and streaming and TV data footprint, our partners at VIDA, the CTV operating system for iSense and other major smart TV brands, continued growing their global reach as well, further benefiting our investment and partnership. VIDA crossed a reach of over 25,000,000 connected TVs near the end of 2023 and was the fastest growing major smart TV operating system globally in 2023 after growing shipment 23%. NexGen is invested in VIDA and also importantly has global ACI data exclusivity on VIDAS Power TV to at least the end of 2026. This exclusivity is fueling strong global demand for our TV intelligence solution and significant demand for data licensing partnership as Nexen is the sole source to access this desirable scale smart TV data for targeting and measurement. We consider data to be the center and main engine of our platform and one of our key differentiator.

Speaker 2

Over the past few months, we have made tremendous progress further enhancing the strength, uniqueness and usability of our data, culminating the recent launch of Nexon Data Platform, which builds and expands upon our ZMP, Nexen Discovery and TD Invergent assets. The platform brings together data from multiple sources in a secure and privacy compliant manner. Those sources include 1st party data from Nexen Prime, exclusive Nexen data assets such as global ACR data from NVIDIA, 3rd party data sources including Nexen Discovery, which consolidates insights from web, social media, mobile, media, TV and digital. These combined data assets are extremely valuable for customers looking to efficiently and effectively onboard and enrich their own first party data for better planning, more targeted campaigns and expanded reach to then seamlessly activate in campaigns. The ability to launch 1st party data, enrich it and activate it on our end to end platform is unique and is emerging as a major differentiator and attractant for brands and agencies to work closely with Nexa.

Speaker 2

The launch of our data platform also position us to more effectively monetize our suite of data solution through licensing, media network and reseller agreements. Each of these can drive incremental SaaS revenue and exposure in areas of the market where we don't currently have a major presence, reflecting high margin long term growth opportunities for our business. We are also incredibly excited to be launching our proprietary Hexen Unified Identity Graph solution, which will live within our data platform, serving as a centerpiece for us to help our customers combat impending changes in identity and privacy, particularly cookie duplication. The NextGen Unified Graph will combine and de duplicate multiple identifiers into a merge graph. This will enable increased scale, frequency capping and better targeting and attribution at a person and household level.

Speaker 2

We believe that the launch of our data platform and proprietary identity graph will further enhance our already strong ability to address identity and privacy changes, building on our advantages operating an end to end platform, indexing heavily to CTV and holding numerous data partnership. Next end end to end structure prevent data leakage, and we possess access to large amounts of 1st party data on both sides of the ecosystem. We also maintain robust contextual third party data relationship and collaborate with the industry major universal ID solution. Additionally, we have significant exposure to CTB, a cookie less environment and minimal reliance on cookie as a percentage of our contribution ex tech, mitigating our overall risk related to cookie deprecation. For these combined reasons, we view cookie deprecation and broader changes in identity and privacy, not as a challenge, but as a significant opportunity to grow our share.

Speaker 2

As customers shift from buying media to buying against audiences, while navigating identity and privacy challenges, we are confident our data platform offers a granular and flexible solution needed to succeed, and we are very optimistic for the prospects to attract new customers and drive increased spending based on initial demand. All our work to strengthen our platform and improve our messaging and market position is starting to pay off. We are seeing evidence of being better suited to win major multi solution partnership with some of the world's leading agencies, brands, TVP Media companies and broadcasters. This is both a known with a significant value we bring to customers and our improved ability to reach meaningful partners. Our enhanced ability to land and expand with some of the industry key players is pivotal to our sales strategy and is what we have been building towards for several years.

Speaker 2

We feel we are uniquely positioned to serve as a true strategic partner for both sides of our industry. Our ability to offer flexible, advanced, self-service tech and data solutions through the convenience of 1 unified platform, coupled with our best in class service, set us apart. Our recent strategic partnership with Stegler is a testament to this and represents an important opportunity for Nexen. The first growing digital first marketing company sits in the epicenter of typical agency expertise and technology. Nexen earned the privilege of enhancing their capabilities through enabling clients of the Stegwell Marketing Cloud to utilize Nexon data platform, specifically our proprietary identity graph in cooperation with Segment Clean Room capabilities.

Speaker 2

This empowers Segment customers to maximize campaign effectiveness with unified and comprehensive audience views across touch points and devices in a privacy compliant manner, which can be accessed through Nexon end to end platform, utilizing Nexon DSP and SSP. This partnership is expected to enhance Techwell clients' results and has the potential to yield significant contribution aspect for Nexen over time. It also paves the way for similar future collaboration with other major industry players and opens additional doors with Tagwell and its customers. Singularity, the largest independent full funnel performance marketing agency in the U. S, has been a self-service DSP customer for over 5 years, beginning with Bliss Point Media.

Speaker 2

This has recently shifted spend for other DSPs and SSPs to run campaigns through Nexans on both sides, leveraging the full benefits of transacting through our end to end platform. We believe also also significantly reducing their budget with us in 2023 through substantially increasing their 2024 budget and becoming one of our largest enterprise accounts. In Q1, a major specialty retailer advertising customer expanded its relationship with Nexen beyond our enterprise DSP, selecting us as a preferred SSP partner. This provide them with cost and data benefits and enhanced efficiency, while driving significantly more contribution aspect to our platform. It also underscore our success in securing larger end to end deals and expanding our multi solution customer base, which have been key focuses since acquiring Amobel.

Speaker 2

Additionally, a leading alcoholic beverage company customer consolidated spend with us and now utilize essentially every offering they can within our portfolio of solutions. We expect these customers will invest more with us in 2024 than they ever have, reflecting trust in our solution and service and improving market condition. In Q1, we onboarded 88 new actively spending first time advertiser customers across various verticals like travel and transportation, food and beverage, finance and government. These figures included the addition of 7 new enterprise self-service advertising customers and 2 new independent agencies utilizing our self-service platform. We also added 64 new supply partners, including 47 in the U.

Speaker 2

S. Across various formats and devices, including CTV, mobile app and gaming, display and online video. Additionally, Pixel 8 ranked ZECL SSP in the top 5 SSPs across all major OEMs in Q1 2024 Global CTV SSP market share report. We were also honored to recently win a Digiday's Content Marketing Award for the best interactive content. PG Day recognized NexGen Studios' groundbreaking interactive voice to action offering for the Troy Bilt Low, Slow and Moe campaign.

Speaker 2

The first of its kind voice to action offering was made possible through our partnership with SAIT NOW, and the campaign demonstrated significant uplift in awareness, head recall and message association across creative and targeting tactics. These recent customers and partner wins and our increased industry recognition underscore the value of the strategic groundwork we laid in recent years, and I remain confident in our positioning to drive continued growth and execution. With that, I'm happy to turn the call to Sajid to discuss our financial results and outlook.

Speaker 3

Thank you, Ofer. In Q1, we generated contribution ex TAC of $69,700,000 reflecting 4% organic growth from Q1 2023. Programmatic revenue was $65,600,000 a Q1 record, increasing 5% from Q1 2023 and representing 88% of revenue, up from 87% in Q1 2023. Contribution ex TAC from our non programmatic business lines was relatively flat in Q1 2024 versus Q1 2023. We achieved growth in our retail, finance, health, automotive and government verticals in Q1 2024 as well as in display, mobile, audio, data products and TMPs.

Speaker 3

Contribution ex TAC from display increased 49 percent in Q1 compared to Q1 2023, while contribution ex tax from mobile increased 16%, contribution ex TAC from data products nearly doubled and contribution ex TAC from audio increased 88% in Q1 2024 compared to Q1 2023. We also expanded our self-service contribution ex TAC, a key focus generating 23% growth from Q1 2023. Encouragingly, we achieved contribution ex TAC growth in each consecutive month so far in 2024 and expect that trend to continue for at least the remainder of Q2. On the opposite side, we observed weakness in our travel, technology and education vertical and CTV in Q1 as customers continue to favor our lower cost programmatic solutions. Our largest small and mid sized agency customers continue to stand cautiously in the Q1, which is typical for Q1.

Speaker 3

Many of our large customers, however, have significantly increased budget in Q2 and have indicated they intend to accelerate ad spending later this year given expectation for further market improvement and increased advertising demand around events like the 2024 U. S. Election. As Ofer discussed, we also recently launched several new partnerships, which we are confident will aid in driving accelerated growth throughout the remainder of 2024, particularly in H2. CTV revenue for Q1 2024 was $18,800,000 reflecting a decrease of 11% from Q1 2023.

Speaker 3

We believe CTV revenue weakness in Q1 and in prior quarters reflected a short term transition by some of our customers into our lower cost solution like display and mobile video due to cost saving efforts as well as the evolution of streaming preferences with audiences increasingly streaming content on mobile devices in addition to on connected TVs. While this transition impacted CTV revenue, we believe our platform's ability to flexibly provide a myriad of solutions across formats and devices is a tremendous strength and advantage, which enables us to retain our customers and adapt to their diverse and evolving needs. Being able to accommodate customers across all major formats and devices allows us to serve a larger total addressable market and provide the flexibility needed for major agencies with diverse customer bases. That said, I'm pleased to report we are observing sequential CTV revenue growth to this point in Q2 compared to this point in Q1 and increasing momentum driven by an improving macro environment as well as our partnership with Alfonso and LG starting to bear fruit. We believe as market conditions continue to improve, budgets expand and our partnership with LG continue to ramp up, customers will increasingly migrate towards our programmatic CTV solution and we expect CTV revenue growth will further accelerate in H2 2024.

Speaker 3

We strongly believe in our long term positioning within CTV, giving our heavy indexing as evidenced by CTV representing 29% of our programmatic revenue in Q1 2024. We are confident as conditions continue to improve, new major advertisers migrate to CTV and linear dollars shift more aggressively to streaming that CTV pricing dynamics will improve and demand will further increase. We feel we are strongly and uniquely positioned through our numerous CTV partnerships and differentiated solutions such as TV Intelligence and Global ACR Data Exclusivity with VIDA to capitalize on a growing long term opportunity within CTV and to achieve outside share gain. Video revenue continued to account for most of our programmatic revenue at 66% in Q1 2024. Although this percentage fell year over year, we believe it continues to remain well above the industry average.

Speaker 3

The year over year decrease in Q1 was driven by a combination of increased demand for programmatic display solution, a decline in CTV revenue and an increase in programmatic revenue. As demand for our premium CCV solution accelerates, as we expect, we believe the shift to display we've seen in recent quarters will reverse and when this happens, we expect to achieve outside video revenue growth because of our high exposure to and positioning and capabilities within video. In Q1 2024, we generated $11,900,000 of adjusted EBITDA, reflecting a 34% increase from Q1 2023. As we generate higher level of contribution ex TAC, the majority will translate to adjusted EBITDA given our end to end operating model, which provides strong and increasing degree of operating leverage, which is why we are confident in our ability to expand our adjusted EBITDA margins over time. In Q1 2024, we generated an adjusted EBITDA margin 16% on a revenue basis and 17% on a contribution ex TAC basis compared to 12% on a revenue basis and 13% on a contribution ex TAC basis in Q1 2023.

Speaker 3

In Q1, we generated 37 point $7,000,000 in net cash from operating activities after using $7,900,000 in Q1 2023, and as of March 31, we had $144,900,000 in net cash. We also reported non IFRS diluted earnings per ordinary share of $0.01 compared to a $0.03 loss in Q1 2023. In April, we repaid the outstanding $100,000,000 balance on our credit agreement. As a result, we are now debt free and have $90,000,000 undrawn on our revolving credit facility, up from $80,000,000 which we continue to have at our disposal. Repaying our debt will lower our interest expense in 2024 and beyond, strengthen our balance sheet and provide greater flexibility for strategic investments and initiatives.

Speaker 3

We have no plans for major near term acquisition and will prioritize capital allocation towards share repurchases, investment in internal growth and innovation initiatives and ongoing business needs. During Q1, we repurchased roughly 6,200,000 ordinary shares, reflecting an investment of approximately £12,700,000 or $16,100,000 We also recently completed our $20,000,000 ordinary share repurchase program in which we purchased a total of approximately 7,600,000 ordinary shares. On May 7, we launched our new $50,000,000 ordinary share repurchase program, which will run until November 1 or until completed. Assuming we complete the program, we will have invested approximately 100 and $65,000,000 in our share repurchase program for March 1, 2022 through November 1, 2024, underscoring our commitment to shareholders. From March 1, 2022 through April 25, 2024, we repurchased approximately 27,100,000 ordinary shares or 17.5 percent of shares outstanding.

Speaker 3

If shares remain at levels the Board believes continue to reflect discounted valuation levels and the company remains cash generative, we will consider launching additional share repurchase program even after completing the current program. Finally, I'll now turn to our outlook. For full year 2024, we reaffirm our prior guidance for contribution ex TAC in a range of approximately $340,000,000 to $345,000,000 adjusted EBITDA of approximately $100,000,000 and for programmatic revenue to reflect approximately 90% of full year 2024 revenue. We also continue to anticipate data licensing, audio and CCV revenue growth in 2024 compared to 2023 and believe our adjusted EBITDA and adjusted EBITDA margin in full year 2024 will be higher than full year 2023 with growth expected to accelerate on this aforementioned front in H2. While some of our largest customers stand cautiously in Q1, we've seen indication budgets will likely increase throughout the remainder of 2024, particularly in H2 around the U.

Speaker 3

S. Election, which we believe will garner increased ad spending in Q3 and Q4. We also have increased confidence in our guidance following our recent partnership wins. Partnerships like Stedwell and LG are in early days, and while they are contributing to contribution ex TAC in Q2, they will take time to scale and start more significantly as

Speaker 2

a result.

Speaker 3

While they will take time to ramp up, these partnerships in addition to the others we've mentioned on today's call reinforce our confidence in our growth prospects for H2 2024 and beyond and put us in an excellent position to drive sustainable growth and expanded profitability. Our debt free balance sheet, robust operating model and cash generating abilities also enable the flexibility to invest aggressively in innovation and share repurchases to drive value for our customers and shareholders. These combined factors are a recipe for success, and I believe our future looks bright. With my remarks completed, I'll turn the call back over to Ofer.

Speaker 2

Thank you, Sagi. In 2023, we focused on integration, platform investment and rebranding to enhance our spending with the industry's major players and workloads, realizing our vision of becoming one of the world's leading strategic EdTech partners. 2024 is shaping up to be the year our vision starts becoming a reality. We have built on our 2023 foundation by growing our TV and data capabilities, offerings and relationships and lending important new and expanded partnership. Customers like Sequel and Tenuity have realized the benefit of partnering and consolidating spend with a comprehensive platform that can help their clients accomplish their holistic goals.

Speaker 2

The quality and standing of the leading brands and agencies that are seeking not only to partner with Nexon, but to highlight those partnerships paints a clear picture that our capabilities, strategy and expertise are ready to help us with market share and drive future growth. I'm even more excited about our future following our first annual Nexon Connection event we hosted at the end of April in Nashville. We invested in bringing our commercial teams together from around the world to foster a stronger and more unified culture, encourage strategic collaboration, further develop our sales team and invaluable insights from our customers on what they look for in partners and why they love working with Nexen. It was incredibly apparent we are willing with them even against industry giants, thanks to our ability to serve as a genuine strategic partner and advisor through strong relationship built on trust and transparency. Underpinning our strong relationship is also the ability to deliver superior tech and data products seamlessly across the value chain through the convenience of a unified platform that offers a wide range of flexible solutions that effectively address our customers' diverse needs and challenges and boost their efficiency and returns.

Speaker 2

After reading this feedback and seeing the benefit of our teams coming together, I'm confident we have built something really special that is ready to serve the evolving needs of the industry, and I'm very proud of the work our teams have put in. Our sales team remains focused on growing our end to end and self-service enterprise customer structure, building new and deeper relationship with industry leaders and pursuing additional data platform partnership opportunities. We are seeing strong demand and momentum in the pipeline on all aforementioned fronts as well as new partnership opportunities and have optimism based on Corning's visibility that spending by our major customers will increase throughout 2024, particularly in H2. We remain confident in our strategy and long term positioning and believe we are in a great spot to continue attracting new partners, increasing spending and product adoption with existing customers and achieving outsized long term growth and expanded profitability. Our people and products have never been more connected, unified and poised to help our customers win, and I'm excited for the opportunities that lie ahead.

Speaker 2

Operator, we will now take questions.

Operator

Thank you. We will now begin the question and answer session. And your first question comes from the line of Matthew Condon with Citizens JMP. Please go ahead.

Speaker 4

Thank you for taking my question. Maybe my first one is just on after following a nice 1Q, especially I think you guys came in above expectations on contribution ex tech, but that wasn't followed through to the full year guidance. And it seems like you guys are having increased confidence in the back half of the year with an improving macro and some of those partnerships coming in. So can you just talk about what are the puts and takes as far as guidance and maybe why aren't you raising it from here?

Speaker 2

Hi, Matt. Of course, I will take this answer. I think that as I mentioned also in the earning message, we worked very hard in the past few years in order to connect and build, acquire and connect all these companies and technologies together. And it's come into flotation in last year, but mostly this year also with the rebranding taking place and fulfilling also the packaging of all the technology into one platform that we are very proud of. And all these agreements and partnership that we mentioned, which are really impressive, they will affect us in the mid and long term and they are evidence for the strong technology and product that we build.

Speaker 2

So it's hard to evaluate and say, what will be the forecast immediately because it's very heavy partnership, but we believe that they will contribute meaningfully in the mid and long term. And that's why we feel very secure in order to reaffirm our results. And we feel that we have a lot of opportunities in the future to grow our business in a very substantial way.

Speaker 4

Great. Thank you. And then maybe just a follow-up. Can you just talk about what the opportunity is around the Nexon data platform? Maybe just how do you expect this to impact financially over the next few years?

Speaker 4

Thank you so much.

Speaker 2

The Veta Managers platform has today 2 major advantages. One of them is, of course, we made it ready for the cookie duplication that was delayed but was supposed to happen this year. So we took all the measures in order to be ready in time and we built in our data management platform also our ID graph that is also integrating and connected to a lot of industry ID graphs that are there, and it's basically enabling us to get like a much comprehensive picture and match rate when we are looking at audiences in order to support the ability to basically to deal with cookie duplication. That's, of course, apart from the fact that about 30% of our business is CTV, that is not right now cookie based, which is also like helping us. And the fact that we are end to end solution means that we have data from both sides that is also lowering our risk from the cookie deprecation.

Speaker 2

But we didn't want to take any risk and we launched this program on time in order to be ready for the Google cookie duplication. That's one point. The second one is about data enrichment. This is a massive thing for us for the last couple of years. And we believe that the data is basically the source of the glue that is connecting all these elements that we basically put together, so the DSP, the edge server, the SSP.

Speaker 2

We placed a very strong layer of data around that, And we have a lot of exclusive and unique databases that we basically signed partnership with. We just announced about P logic, but before that we had a very strong ACR data, which we see the importance of this type of data and I can elaborate if you want. But in general, what we are adding through this platform is the ability for clients or even publishers and advertisers to launch their 1st party data on the platform, basically enrich it with our data, other data in order to give the clients more insights and more capabilities, abilities to target their audiences in a very smart manner in the places and the context that they want. And this is a lot about also the partnership that we signed with Stegwell that we believe that they will be able to bring to us a lot of their clients and will make also bring a lot of value to their clients through this partnership because it's a meaningful way basically to enhance your capabilities to target, to measure and to learn insights about your customers. So if I'm summarizing, I'm looking at that on our data management platform in 2 areas.

Speaker 2

1 of them is the cookie duplication that I mentioned, which is helping us to resolve and to deal with this challenge, which we look at that currently as an opportunity, by the way, as I mentioned, because of our structure, because of our ID Graph that is already launched and because of the fact that a lot of big portion of our revenue is going to a place that is without cookie or not dependent on cookies. The second side is revenue is data enrichment, that we believe that this is the future. Basically, people want to buy audiences. They are not looking to buy media. And we are able we are enabled them to learn much more about their clients, much more about their audiences and to be able to reach them in very smart and efficient manner on many, many more touch points that they go today.

Speaker 2

So these are the 2 elements that we play.

Speaker 4

Great. Thank you so much.

Speaker 2

You're welcome.

Operator

Your next question comes from the line of Matthew Swanson with RBC Capital Markets. Please go ahead.

Speaker 5

Yes. Thank you so much for taking my question. I think maybe following up on the last question and focusing on the SMB softness within the CTV space. When we're thinking about kind of what leads to that improvement like we're seeing in Q2, I mean is it focused on macro and budget expanding? Is it volume getting

Speaker 3

I'm so sorry.

Speaker 5

Yes, I'm at an airport. Yes. I'll ask the question in a quicker version. The SMB CTV budget is increasing. Are you focused on volume bringing CPMs down or something more along the Nexon data platform being able to kind of enhance the ROI of that value proposition?

Speaker 5

Okay.

Speaker 2

So we just launched this platform. First of all, we are making an effort on all fronts of the CTV, and I think that we made a lot of achievements in the past few months in Q1, as we mentioned. One of them, of course, is resolving the issue with LGA, which enabled us to work very closely with one of the leaders of this industry on the OEM of the CTV LG. The second one, of course, is the agreement that we signed with Roku that enhance our capability to monetize their media. The third one is the strong partnership with TCL and exclusive managing their native media basically that is giving us basically today since we have already strong relationship with Samsung and of course, VIDA, ISense, is to basically able to offer our clients like very wide reach of OEMs that we can monetize for them and one campaign from them.

Speaker 2

We believe that the data platform will invest that because basically what we are going to do now is we are going to work very closely with our CTV partners to upload some of their data into our platform in order to be able to enrich it and to offer clients to buy much more precise audiences that they want to buy on our CTV platform in different rates, meaning, of course, political will be probably much higher than the rest because of its nature, but we are now ready for a lot of activities that we will be able to basically also manage and use our data management platform and enrichment platform in order to reinforce the value of the CTV that we can bring to our clients. I hope that I was clear, if I understood your question correctly.

Speaker 5

Yes, you did. And then I'll try to get this off quick before the announcer goes again. But, Siggi, you got a lot of interesting things going on in the second half. If we think about NEX and Discovery position you better for political this year, we've obviously spent a lot of time on all the partnerships and the ramping contribution potentially from the VIDA data. Can you just talk a little bit about how you're kind of thinking about all these things as well as kind of a stabilizing macro when you're thinking about guidance?

Speaker 2

Yes, of course.

Speaker 3

So, Ofer, you want to take it? Sorry? I'll answer, Matt. Yes, I'll answer, Matt. So, Matt, I think as Ofer mentioned, it's probably our numbers and the guidance going forward is a combination of both, some better macro and less headwind.

Speaker 3

I don't want to say a lot of tailwinds because I'm trying to be cautious, and I'm not sure that we are full steam ahead. And second, of course, all the different initiative and agreements and cooperation that is taking our product to a better offering and better ROI for our customers and of course for our publishers. So

Speaker 2

I think that all the things

Speaker 3

that Ofer mentioned, some of them are big partnership, which will take time in order to scale up. Of course, we are needing to do the API, the testing and then it's scaling cautiously during 2024 and hopefully much scaled into 2025. I think that our guidance is as any other guidance within our industry, which is somewhere around 45% of the revenue will come in the first half and fifty 5% will come in the second half. So for now, we feel very strong with our guidance. And if we will see that things are going better than we are expected, which is great, we will change our guidance going forward.

Speaker 3

But it's not the case right now, and but we're still confident in our ability to deliver the current guidance.

Speaker 5

Thank you.

Speaker 2

I agree. I just want to add one more sentence maybe, Matt, that is related to the quality of our products. I think that one of our challenges was that we have a lot of great products, some of them we acquire, some of them we build, some of them we created after we basically connected the products. But for after a long time of basically working very closely with our product marketing, product marketing teams and of course the people on the ground. We now know that we basically created a very strong suite of services and products that we are now delivering to the market.

Speaker 2

It took us time because it's very complicated and you need to build it right. But I think that with the tools and the technology and the product stack that we got now, we are seeing a lot of wins in Solvency, France, and we believe that it will help us to grow our revenues and stability in the future, and that's what we are aiming for. Thank you.

Operator

Your next question comes from the line of Laura Martin with Needham. Please go ahead.

Speaker 6

Good morning. My first one is for Sajid. The revenue went up 4% and cost of revenues went down 10%. Usually those move in the same direction. Can you tell us what is decoupling that is allowing cost of revenue to fall at the same time revenue is growing?

Speaker 2

Agree?

Speaker 3

P. Vijay Kumar:] We are reporting on a net revenue basis. So when you are saying that cost went down, you're talking about OpEx or what exactly you are referring to?

Speaker 6

The cost of revenue line went from $16,000,000 to $14,000,000 So your costs got better. They went down less in a sense, but your revenue grew from $71,000,000 to $74,000,000 dollars Usually cost of revenue is directly linked to revenue?

Speaker 3

Yes. So when you're talking about cost of revenue, our cost of revenue is a little bit different than others because some of our activity is connected to our legacy free performance activity,

Speaker 2

which we are reporting on

Speaker 3

a gross revenue. So over there, we saw like an increase in the profitability, which is revenue went up and the cost of revenue didn't went up as much. The other thing is data and hosting cost, which we optimized very, very heavily during 2023 and renegotiated a lot of our partnerships. So now we are seeing the fruits of that.

Speaker 6

Okay. And then my second one is on CTV. Ofer, you have this fabulous Vida deal. I would have guessed that having the ACR data from Vida would have helped you with connected television, but yet connected television revenue fell 11%. So I guess those aren't linked, but I don't understand why.

Speaker 6

So I guess I'm asking, can you give us more insights into why connected television fell 11%, which is not the industry experience other than you guys and why it isn't aided by the VIDA deal, which has this fabulous data from ACR?

Speaker 2

No problem. So the ACR is you need to get to a critical mass in order to be more meaningful and we did it in the past couple of months and we are now signing in negotiation with a lot of meaningful partners. Some of them will be announced in the next couple of months. And we believe that it will contribute to the growth, not just of CTP, but in total revenues because you basically can use this ACR in order to target also on other platforms. The second thing is that we were very strong in the past on the CTV front.

Speaker 2

We lost some of the momentum because of microeconomics last year and the year before. But we see now in Q1, it was a little bit soft again. But in Q2, we see strength on CTV spend and we see that our partners moving their budget back to CTV also, which is a good news for us because we have to remember that most of the people that you are talking about, most of the revenues is in some ways of phone connected to performance and we are most of our business is branding. So it's different pricing and different objectives, but we see now the growth also because the momentum and sentiment in the market is changing and we believe that we have an advantage. I believe that in the next few months, we'll see growth and increased growth because of the ACR coming into play.

Speaker 2

It took us long time to basically build it, launch it, educate our teams, educate our clients, get to critical mass that is making interesting also for the big players in this industry to basically participate in that. And I think that we are getting to this point that is becoming meaningful. And I see that it will I think that it will bring us a lot of value in the near and the long term, because it's unique as you stated, and it's very powerful data, which in so many ways, it's even strategic, I will call it strategic, because in the open web, there is not a lot of companies that basically hold these capabilities and can enable their partners to basically use it in a smart manner. And we have long term experience with that because we started using ACR data in 2016, the company, even before June. So I feel strongly about the ACR.

Speaker 2

I feel strongly about the CTV. And I think that we are in a point of turning point now that the data became more massive, more incremental. It's reached a number that is making the difference, and we are now basically in agreement and building it that it will affect us in the near and long term.

Speaker 6

Thank you.

Speaker 3

Yes. And just to add to what Ofer said, I think that we are seeing the turn point that Ofer mentioned already through Q2. So we are in a different trend now.

Speaker 2

Yes.

Operator

Your next question comes from the line of Andrew Merck with Raymond James. Please go ahead.

Speaker 7

Hi, thanks for taking my question. Wanted to talk about the non CTV portion of the video business. We're hearing some pretty downbeat commentary maybe on and across the industry as it relates to oversupply and pricing and things like that. But you guys seem to have done a little bit better this quarter. I guess, what do you see as the industry drivers that are allowing you to do better than peers here?

Speaker 7

And how do you see that playing out over 24?

Speaker 2

So I think that the 2 major things are making us play much better in 2024 than the year before. We have to remember that last year was the year of integration and consolidation basically of 2 major platforms that it's taking a lot of the attention of the people, of the product people, of the technology. And in this beginning of this year, we basically were able to raise our heads and basically do more business and not just focus most of our resources and time on the consolidation and integration, that's 1. And wrapping the product in a much more meaningful manner that makes sense for partners to basically engage and use our platforms. In the past, if I just want to remind you, we had like several names, several platforms and so on.

Speaker 2

And now, we have basically everything is under Nexen. It's organized in a much better way and it's making easier for clients and partners to understand the value that they can gain by working closely with us and we see the effect of that. So that's one. The second thing is macroeconomic. As I just mentioned to Laura and I mentioned it to you, I think that most of the companies that we see that our peers, they have a big portion of display, they have a big portion of what we call semi performance of performance, which is basically also working very well in when the macroeconomic situation is not great.

Speaker 2

Our revenues mostly in the past was branding. So we will be affected when the market will pick up much higher than them usually, but we also suffer in days that the macroeconomic still is. I think that this year, we feel a better sentiment. We feel a better optimism from our clients and partners that they can spend or invest their money in a way that will support their brands and will grow their brands, and they are doing that in a more meaningful manner that is of course helping us to grow our revenues. And I feel that we also basically what we did, we built through the acquisition of Amobi that was also building heavily with display.

Speaker 2

We basically strengthened our capabilities around the optichannel and we built also display capabilities that is helping us to grow the revenues and stuff, it will help us also to stabilize it in the future if the market will suffer again from macroeconomic situation. So I think that the last year was very important to basically set the base, connect the technologies, packages, rebrand it and now we feel that we are in another place that we have better products, better offering, much more clear value to the market on one side, and also the market is supporting us better because the macroeconomic issues are released and we feel that there is more confidence amongst the clients and advertisers and partners to invest the resources in order to support their brand.

Speaker 7

Understood. Thank you. And if I can maybe squeeze one more in. Just any comments on the recent outline of the Google AI overview and any potential impact that could have on open web traffic and ad pricing, obviously not an impact to CTV, but just how you're kind of baking that into your expectations for the remainder of the year on the online video and display portions of the business? Thank you.

Speaker 2

Well, I don't think that we feel right now, there is many movements in the industry like increased volume of media that is coming to the industry. The AI is which is of course, another thing that is making a difference. But right now, in the day to day and so on, we don't feel it so much. We don't feel that it's like affecting our business terms and way of doing business. And I think that we'll have to wait and see how it will affect basically the market in the next few quarters.

Speaker 2

Okay. Thank you.

Operator

Your next question comes from the line of Mark Kelley with Stifel. Please go ahead.

Speaker 8

Great. Thank you. I had two quick ones. The first one is, when we look at the political spending environment this year, I guess, is there any part of your portfolio that you think will be the most important, is it the linear TV planning tool? Is it more on the CTV side?

Speaker 8

Or is it just mostly on video? Anything there would be helpful, particularly as it relates to the last election cycle.

Speaker 1

The second question I had was

Speaker 2

You have some interruptions on your line. So can you repeat at the beginning of your question, because it's like, I don't know, you have like a deadline.

Speaker 8

Yes, apologies. Let me try that again. Political spending this year, what part of the portfolio are you most excited about that you think will differentiate yourself? 2nd question, in CTV, it seems like more inventory is becoming available to 3rd parties, but usually the 3rd parties are the biggest, most scaled platforms. I guess, how do you try to set yourself apart from those folks and gain access to that inventory?

Speaker 8

Thank you.

Speaker 2

Okay. So first of all, regarding political, I think that we have a very strong suite of services that is getting into play. The massive one is the discovery tool that basically enable us to create a very good segmentation and learn about your audiences and reach them in a smart manner. So we see a lot of good reaction in the market agreements and basically planning around using our discovery tool, which is basically aggregating a lot of our data and enable the client basically to build segmentation, get insights about their audiences and very seamlessly basically operate it across our DSP and SSD. I think this is the most this is a very interesting platform.

Speaker 2

And through that, they can basically get the entry point. They can use the other services that they got like the cross planning tools, which is digital and linear, which is we are seeing very nice success even not related just to political, but we see great success in this business model that we basically enable clients that are heavily invested in linear to expand into digital and people that are historically was mostly digital to basically start buying also linear and we see great success in that and it's of course serving also the digital world. The last point is the CTV and it's also answering in some way or form also your second question, which I think that we don't feel any lack of media, meaning we have great relationship and business relationship and business partnership with all the big OEMs, with the other city biggest CTV players like Roku and phone. We are missing some of the broadcasters that you mentioned, but we don't affect we don't feel that it's affecting our capability to reach the audience in the market or to have like lack of media on our platforms. On the contrary, we just grew it through, as I mentioned, the agreements that we have with LG, with the agreement with TCL, with the agreement with Roku, and we're signing more and more clients more and more partners that basically joining our platform in order to enjoy from self serving tools and the demand that we can bring to their platform and other capabilities that we are basically able to provide them and we see great success on that.

Speaker 2

So in general, even that there are a lot of movements in the CTV world, I think that we build ourselves a very strong platform, a very strong relationship with a lot of strong players that are backing it enough for us to be very successful with our clients and advertisers that are running with us in order to achieve their growth.

Operator

Goal. That concludes our Q and A session. I will now turn the conference back over to Ofer Druker for closing remarks.

Speaker 2

Thank you, everyone. Thank you for joining us this morning. I must say that I'm really excited. We worked in the last 2 years very, very, very hard in order to build the strategy and also connect the new DSP and capabilities that we acquired with a mobile into one platform. We rebranded our platform.

Speaker 2

We made a lot of adjustments to our products in order to make it more easier for clients and partners and potential partners to understand the offering that we got and the added value that we can offer them. And I feel that there is a huge movement now of clients and partners to adapt and use our technology in a great manner, which is, of course, proving again that our strategy and our product line are in the right place in order serve them in years to come with the services and opportunities that they are facing, and we are proud to be part of their strategy. And we believe that as a company, we achieved the point that now it's time to execute. So we build everything, we acquired the companies, we connected them, we rebranded them, we packaged them smartly and now it's the time to execute and I feel very good about it for the next future because we feel as the market starts to realize what we got to offer and we are able to expand much better what we have in our hands in order to assist them in basically executing their strategies. So thank you very much and hope to see you soon again with great results.

Speaker 2

Thank you.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Nexxen International Q1 2024
00:00 / 00:00