Nexxen International Ltd. (NEXN) Earnings Call Transcript & Summary

All right. Good afternoon, everyone, and welcome back to day 2 of the RBC TIMT Conference. My name is Matt Swanson, an analyst here at RBC. Super excited to welcome Ofer Druker, Chief Executive Officer of Tremor. Good afternoon, and thank you so much for joining us.

Thank you very much, Matt, for having us. I'm delighted to be here.

All right. So before we get started, I just want to remind the audience, feel free to ask questions either via my e-mail or through the chat, and we'll try to get to them when we can.

But to start things off on my side, the pandemic obviously, turbulent time for all industries. But it -- like it showed up in real time in ad tech, right, because of the transactional nature of the business. So it feels like we're moving towards a recovery, hopefully, but there's definitely some impacted vertical still. But more importantly, we've seen a lot of change in consumer habits. So what do you see as kind of a long-term durable trends that are going to be emerging from the pandemic?

Okay. It's a great question, Matt. I think that it's a question that is above us all the time and people are asking themselves, what we stay from this period. And I think that -- from our experience and what our thoughts are is the CTV got basically a boost in the last 18 months, a major boost because people were basically staying in home and consuming content through CTV. There was an uptick of 44% in consuming content from CTV in 2020. We show that it's become like the most popular platform for consuming content on the Internet and in general. And I think that's when you're having like this amount of movement of users to a platform, we see other people going after that. So media companies supported that and moved a lot of their content to CTV. So now it's available more on CTV. You see now even movies, and movies that are in cinema, a week after, they're already streaming on CTV, which is amazing. And of course, advertisers, they like to be where their targeted audience can be -- they can find their audiences. So also the advertisers moved their attention very closely to -- basically, to the CTV world and testing it and moving more and more sources into that. Apart from CTV, I think that the thing that was basically growing in the industry, not from just consumer, but from our industry is targeting. So Tremor, by the way, is like all -- like for a few years already, he's dealing a lot with targeting. We used a lot of, what we call, data cocktails, which are exclusive to us that we built with different partners. And basically, when you look at their targeting became much more effective now in the pandemic and people put more attention to that. And this is one of the things that I think is here to stay. And another thing that we felt is more sensitivity and attention from advertisers to their messages and creative. So I think that people in this troubled and challenging period of time, they wanted to be more sensitive to content that they are sharing to their messaging -- advertising messaging, creative and so on. And that's why we also created a launch basically, Tr.ly that is a merger between Tremor and Unruly. It was borne by this combination, which is nice. And I think that's also Unruly plays into our business is something that can never been more relevant, which is EQ, which is basically a motion of targeting that basically check what user feels about your message and so on. So I think it's become much more relevant in the last 18 months because of the pandemic, but also because of the social unrest that was in the U.S., basically, that was during the pandemic also. So these three elements, we felt that are growing one. We were ready for that because CTV was basically on our map already for 3 years, and it just accelerated the ability for us to monetize it.

Yes. And that's a great macro overview. But I guess, looking specifically at Tremor, right, you're combining for growth in margins this year on an ex-TAC basis of 62%, 50%. Both numbers are best-in-class across all of ad tech and on an organic basis. So when you look at your company individually, what do you think the main drivers of the success in 2021 were? And what are you planning to do to build on that in 2022?

Well -- and again, a great question. I think that in the last 4 years, we worked very hard in order to bring together a lot of what we call video-related companies. So we acquired Tremor. We acquired other that -- after that RhythmOne in 2019, that was basically on the foundation of YuMe, to the people that remember this name. Then in the beginning of 2020, we acquired Unruly, that was all video end-to-end platform also, and we connected them together. So I think that what happened in 2020, and that's what's driving also to 2021, is that in the middle of 2020, we managed to basically combine all these acquisition together, including Unruly, and everything started to play very nicely together. And we saw the growth for a few quarters quarter-after-quarter, amazing organic growth that is coming from two elements. First of all, is the team, meaning we are really focused on video. 82% of our business is video. I don't think that you see a lot of companies with 82% of video in their business. And the second thing is that the data is really a major thing for us, which is coming into play also with this pandemic and so on. And the third element is CTV. We were prepared for that. We were working on this for 2.5 years basically. And I think that it's come exactly on time for us to leverage on that. The second thing, which is now the platform that we are working with, which is the end-to-end platform. So Matt, like 2.5 years ago when we did it, and we connected, we took Tremor and we connected them to RhythmOne, it was like swimming to the other direction of the river because everybody was dismantling and trying to be specializing, and we basically connected and created the end-to-end solution. I think that our end-to-end solution is proving itself. And if you look at the growth, you mentioned the growth and the margin, look also on the profitability. On the EBITDA side, it's unbelievable for us. And it's beautiful to see that all the plans came together and played around very nicely. So we are not just growing. We are not just keeping a nice margin, but we're also very profitable. And I think that in the -- day, when you look at that is this combination of the things that you are putting your focus on, which is video, data and CTV and how you do that with a full end-to-end technology and business platform that enable us basically to demonstrate these numbers.

Yes. No, absolutely. And the M&A stories have been extremely successful. I joke sometimes with investors that it was like being able to take the test after you already have the answers, where now you have so much leverage the fastest-growing segments of the market. You mentioned the end-to-end platform. And for me, I come from 9 years covering software and end-to-end has always been a very positive thing. But within ad tech, there's -- and I don't know if you want to call it confusion or concern, around how an end-to-end platform can operate. Can you just talk about how your customers feel about it? And essentially addressing the idea of potential bias that comes up with some of your other public competitors have brought up about now being on both sides.

Of course. First of all, as you know, Matt, today, there is no exclusivity. People, publishers are not providing almost no exclusivity to SSPs. Advertisers are working with a few DSPs. They're not working only with one. So I think that in this case, in the programmatic world also, people can test everything very quickly. So they are connected to us, they check us, comparing to us other services that they are working with. And we see that we are growing, as you mentioned, faster than most of our peers basically. And it shows that basically the people like it. So I think that people are advertisers, let's talk first on advertisers, if you don't mind. We can look at that and see that advertisers look for simplicity. They want to get simplicity from their partner. They don't want to connect to too many companies. They don't want to -- to do that. They want simplicity to work with one company that we generate for them, basically the KPIs that they are looking for. They are looking together also what we call -- they can also get data enrichment from us in a very quick way because we have also a DMP in our stack, which is very unique and very good, and they can use it very smartly. And we also offer to them basically, following supply path issues that everybody is talking about it. But when you are entering solutions, you have less mediators in the beginning, in the middle because you have these two platforms together, and people basically can be assured that they are running their campaigns in most efficiency. And we are also adding to that a lot of other things, like I mentioned, creativity. Creative, we are not charging for that. We are basically allowing that -- we are helping the advertisers to adjust or build smarter and more engaging formats in order to run on us and so on. And we saw a big uptick in the QR for CTV, for example, mainly because of that and so on. So I think that advertisers are getting simplicity, data empowerment and also supply path optimization, which they really, of course, like. And publishers see the same. Publishers supply path optimization. They can use our data in order not to say just media, but audiences, which is really important for them. And they are getting something which is even more superior to that because we are not just connecting them to other DSP. We connect them also to our DSP basically. And we have sellers on the Street, basically on the ground, in the U.S., internationally that bring unique demand into the platform. We are basically offering a self-serve DSP to agencies that are using our platform and pushing their demand to our platform. So in general, we see that the publishers are getting a lot of advantages and also the advertisers, too. But even above that and above what I said about choice, every advertisers that want not to use our DSP and wants to use their DSP and run on us, he can. He can buy from a DMP or open -- or through open marketplaces. Every publishers -- every basically -- so every DSP -- we can connect to every DSP. And a DSP that is buying from us can connect, of course, to -- or every client that is using our DSP can connect to any other SSP. We are connected to the most of the leading ones, and we can do that. But most of our revenue is passing end-to-end, meaning people prefer to work with our full stack. And I think that it will become the trend in the coming years.

Yes. And I think at the end of the day, that really is the best answer, right, that customers spoke with their wallets and the majority of revenue is full stack.

Yes. Yes.

So I guess moving back to the topic of CTV. Obviously, it's something that everybody always loves talking about within the space. Could you talk a little bit -- and we were talking before this call started about how the market is really emerging right now. So can you talk a little about the ecosystem as you see it today compared to what you think it might look like in 5 years? And really focusing, too, on the mix between direct, private and reserve marketplaces and open exchanges and kind of how you're positioning yourselves to play regardless of kind of how that transition happens?

Okay. So I think that when you see that there is like a win, win, win, meaning the clients like it, it's serving their needs, they can consume content whenever they want, media companies are making suddenly much more money because they are pushing their content to a platform that is a CTV and people watch it and consume it and it's easy for them relatively to monetize it. And advertisers are there because what we found out also about that, which is interesting that people are more engaged with advertising that are appearing on CTV than linear TV and so on. So -- and it's not just about young people. It's all ages that according to the service that we saw from all ages. People are more engaged, they are more using referrals to each other of things that they saw on the CTV and so on. So I think the CTV is here to stay. And what we see now is just at the beginning. I think that will become more mature, there will be more variations of CTV content company, more people that will be able to build their own basically, like streaming services that they want to get. So they want to get the sports from these guys or nature or films and so on from others that they will be able to adjust it in a much better way. So I think the CTV is here to stay for the next couple of years, for sure, 3 to 5 years and even more. I don't see anything in the horizon that can basically imitate this success right now. And from your other question about what will be the winner, basically, how to monetize it, if I may call it. I think that, again -- sorry for going back to our platform, but what you look at our platform, we can basically serve clients on all fields, meaning if they want like a white blood service and they want to get someone to manage their campaigns, we offer the service. If they want to license our technology and run on CTV by themselves, they can through our platform. If they don't want our DSP and they' just want to buy PMPs, they can. If they want to connect to OMP, they can. So I think that -- I believe that's what will happen. We see a lot of movements to self-serve and to programmatic activity. And I think that also on that front, we are looking at that, and we understand that some of these CTV companies will build their own sales team. They're already doing that. And we are, of course, appreciating it. And for example, spearhead the technology that we acquired allowing very easily to CTV players to CTV companies to manage their own sales team and to connect to programmatic with rules that will not get their sales team into conflicts and so on. So I think that the future is bright for CTV. I think that's what we see now is just the acceleration and the beginning of that. And we are excited about it because I think that we have also the -- how to make it even more interesting for advertisers basically through our innovation and data.

Yes. And you mentioned a few different things that I kind of want to touch on. One is the amount of streaming services coming out right now, but then also that mix of direct and programmatic that right now feels like, especially the idea of CTV companies taking some in-house, it might be a result of more demand than supply. So as we see all these streaming services come on, it feels like we might be hitting a price threshold on SVOD, right? So the majority of it seems like they're going to be ad supported. So how do you see this playing out in '22 and beyond? And basically, what would the impact of an increased supply be on the CTV ecosystem?

Okay. Again another great question. And I think that maybe my advantage is my age in this case because I'm 24 years in this industry. Next year, in February, I will celebrate 25 years. So I saw a lot of things like that already happened. I think that if you will check 25 years ago, people talk about it -- about display also. So they said what will happen, there will be so much demand. Now you can monetize it. I believe, first of all, that not on the advertisers still playing all there -- they are not putting all their eggs still on the CTV or they are not monetizing it to the best way. So I think that there's a lot of room to grow from advertisers coming -- going forward. And we build our future on that because we see more and more advertisers that are testing it. We discussed it a little bit before. They are putting some money there, but they are checking, they are working, they are learning, and I think that they are not fully in a lot of them, and they will come in. So I think that they will cover some of the media. I personally believe that there will be also performance CTV, meaning like in television, that you will have advertisers that will basically try to get more direct-to-consumer or some performance element into their CTV advertising, which makes sense, and it will grow like gaming and a lot of other fields that make sense to do that with CTV. And I think that this will fill also big volumes. I think that there will not -- there is always like a issue that people think that there will be pressure on price, and there will also be differentiation and so on. I believe in that. But I think that there is so much still to happen, meaning so many advertisers will still move from linear, from other type of advertising to CTV and -- that I think that there is still a lot of room to grow without too much innovation, if you know what I mean.