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

All right, it's now 11:30 a.m. So why don't we get started. My name is Andrew Marok, and I cover Online Advertising and Digital Media here at Raymond James. And we are thrilled to welcome the Tremor International team to the Raymond James Technology Investors Conference. With us today are Ofer Druker, CEO; and Sagi Niri, CFO. We have some questions lined up for the Tremor team, and we'll leave some time open for Q&A at the end of the session. [Operator Instructions] So thank you, Ofer, and Sagi. Before we get into some of the company's recent results and initiatives, can you give us a quick overview of the Tremor story and financial profile and where it fits into the ad tech ecosystem for those who aren't as familiar?

Thank you, Andrew, for hosting us. And of course, hello, everybody. So Tremor is operating in fastest-growing segments of programmatic advertising with ecosystem highlighted by video, CTV, and data. Core performance is the strength of Tremor end-to-end technology and business platform, which covers all the 3 pillars of the business; which is DSP, which is the demand site platform; the DMP, which is the data management platform; and the SSP, which is the supply side platform. Our end-to-end technology and business platform provides simplicity for our customers, better data environment for advertisers and publishers, and it's supportive of the industry trends toward supply path optimization. Video represents 80% of our business and is growing. It's the most engaging format and this is the bridge between TV advertising, basically digital and programmatic, and CTV represents already more than 25% of our business. From a financial profile, we have just reported a month ago -- less than a month ago, our third quarter results. We basically got now $330 million on the balance sheet and no debt. And a few words just about Q3 and the first 9 months of the year. So the first 9 months were very strong for us. We generated a growth of 93% year-over-year organic growth. And basically, in the Q4, we've generated 54% growth. And the company has also enjoyed from a very unique profitability and high profitability. We generated in the first 9 months, $107 million in EBITDA. And we basically provided some guidance to the market that we will generate about $150 million -- around $150 million of EBITDA for the full year, which is about 150% higher than last year.

Great. Thank you. And we'll dive into the financials, I think, a little bit later in the presentation. But you mentioned earlier that Tremor operates an end-to-end platform. So how does that provide the company an advantage versus competitors that focus either only on the supply or the demand side? And would it surprise you to see other firms integrate horizontally to create their own end-to-end platforms?

So basically, I think that the advantage of the end-to-end platform is really clear. I think that simplicity for customers is a core issue for people to be able to know how they can interact with a partner like us. Better data empowerment for advertisers and media partners. We basically can provide strong data segments to the advertiser side, but also to the publisher side. They can cover their media and start sending audiences to their clients, their advertisers, and we are accelerating the already present trend towards supply path optimization. So I think that these are the 3 elements that basically provide like a lot of advantages to the market. And I think that also advertisers want to be closed in a better way to achieve partnering with platform companies like us in order to be able to know that basically, they are working with 1 partner that provides them all the full scale of solutions. And from our benefit, I think that our growth and the second thing is our ability to take higher take rates are allowing us to basically investing more in technology in order to offer the best solution for our clients from the publisher and advertiser side. I think that we are seeing a lot of events lately from a lot of our peers in the market to follow these steps. I think that when you listen to a lot of the conversation, you see that people are building and basically describing their service as end-to-end. And I think that the market at the end of the day will, in some way, force a lot of these players to becoming end-to-end players because it's coming like a request from the market. And of course, when we look that it's happening in the market, it's, of course, reinforcing our vision and give us more conviction that we are on the right path basically in what we are doing right now. And I would like to share just 1 thing, when we are talking in end-to-end, we are not forcing anyone to use all our tech seg, but we are enabling people to basically use any SSP when they are connected to our DSP. And of course, on the other side, we are basically connected to every DSP when you are using our SSP. So basically, we are enabling it to happen. And we are also creating like a whole garden, but we see more and more partners that are basically preferring to use our full stack solution in order to run their campaigns because of the results and because of pricing and so on.

Understood. The company has a clear video focus, as you mentioned, with over 80% of your revenue coming from video formats. So how did Tremor come to be so strong in video? And what are some of the technological capabilities on the platform that can drive continued success in video formats?

So I think that the major thing is that a little bit more than 4 years ago, we put our emphasis basically on video because we felt that this is the most engaging format in the industry. As I mentioned before, it's some sort of a bridge between TV advertising and programmatic and so on. So we believe in video. And all the acquisitions that we've done in the past few years, and we acquired several companies that I was paying very, very quickly, but we acquired Tremor basically out of Telaria in 2017. We acquired RhythmOne in 2019, and RhythmOne including underneath it, like a few major assets of record video like YuMe and [indiscernible] and RhythmOne itself that basically give us a lot of knowledge. And then in 2020, we acquired also Unruly. So basically, what we did, we acquired a lot of companies that we were, I think -- look at it from a -- but today, we basically did the right move in order to integrate a lot of knowledge, a lot of capabilities, a lot of relationship of people that were like focusing on video for so many years. So other companies that we acquired were basically doing video from almost day 1, and that's what they basically keep doing. So when we acquired them, we basically got all this knowledge and reputation in the market. Our technology is based on video. So if you compare it to a lot of other DSPs and SSPs that started from display and basically adjusted to video, we started from video. So it's giving us like a lot of advantages in the algorithm of how to bid for media, how to optimize and campaigns when they are running from both sides, and I think this is giving us like a lot of advantages. And we will keep doing that by adding -- as we mentioned in the past, we will add like more capabilities that will enable us to develop it through agreements that we did in the last few months, 1 of them is Spearad, that will give us basically also ability to connect better to broadcaster and drive video. And the second 1 is with VIDAA that is a subsidiary of Hisense that will give us basically the data in order to drive additional video campaigns into CTV.

Got it. And kind of a question that we got from the audience and you touched on part of this. The question is, how is Tremor's end-to-end platform, how well integrated is, one, the platform; and two, the customer experience?

Okay. I don't understand the question. Can you repeat it for a second?

So given that Tremor's end-to-end platform was built through acquisitions, how integrated is the platform and the customer experience?

So we integrated all these companies that we acquired into 1 platform. So basically, it's fully integrated. It's not that you need to drive from platform to platform. It's 1 engine, 1 finance; basically, teams that are running the platforms are connected, of course. And it's seriously connected between the parties. We named the DSP as Tremor and we name our SSP as Unruly, but basically, they are fully integrated as a technology platform. And also the data sync between this platform is always sitting on the same data servers and so on. So also much better sync of cookies between the platforms and so on. So from an operational perspective, from a technology perspective, it's 1 platform. From customer perspective, we have 2 entry points to the platform; 1 of them for advertisers, of course, because they are connected to the DSP, and the other 1 is from the SSP side, which is, as I said, named Unruly, and the DSP is basically Tremor. I hope that answers the question.

Thank you. And while we're on the topic of video formats, on CTV specifically, the company is growing well in excess of the market. So what is enabling share gains? Where is that share being taken from? And how do you envision Tremor's path in CTV over the next several years?

First of all, we basically prepared for this moment of CTV for several years. As I just indicated, we acquired a lot of knowledge during 2019 through the acquisition of YuMe and RhythmOne basically. And we believe that CTV is here to stay for the coming years. I have 24 years in this industry and I see for the first time like very clear evidence that CTV is representing basically the interest of all the participants, meaning the audience are coming to CTV in order to consume content and really enjoy the experience from that. We look at the advertisers that basically are saying, okay, here where the users are going, we will basically serve them and we will move also our budget and attention to that. Media companies are also looking at the usage basically of CTV that basically jumped a lot in 2020 and also 2021. And they are basically building more and more platforms in order to serve the need of CTV and the willingness of users to use it. And I think that this is like a connecting point. I think that what we did basically, our full end-to-end solution basically enabled a lot of clients, as I mentioned, to enjoy from this, and we see growth of CTV, which is growing very, very rapidly. We grew, in the first 9 months, 150% compared to last year on an organic basis. And when you're asking me where we are taking the share, I think that the market is growing so fast that basically what I think that is happening, this is the open web and we are able to enjoy from basically capturing more and more market share from the market, basically, to our growth and to our basically a full stack of technology that is we are enabling the market to use. And we reinforced it in the last few months with additional things. First of all, we also created what we call TV marketplace that allows advertisers to basically target according to genre and according to shows that they want to do, and this is giving them like a very huge advantage. As I mentioned, Spearad, that is basically CTV header bidder, and every broadcaster also to keep their business model of having their sales team sell, but also integrating programmatic buy into their platform, which is very important with a lot of unique technology regarding full monetization of the system. And the last thing is basically video, as I mentioned, which is data, which is clearly something that grew up in the last few months after a lot -- sorry, not few months but 2 years, because of the COVID, people want to control their spend. They want to know where they are targeting and to reach their audiences and ACR, as we saw it in the last 5 years is a major thing for that. So we believe that CTV is here to stay. We keep developing our platform towards that, and we believe that it will bring much more opportunities to us.

Got it. With the changes in identity in the open web landscape, can you talk about how Tremor is positioned for a post-cookie world? How do factors like the company's DMP and the ability to see both the supply and the demand sides of the equation factor into Tremor's ability to compete post cookie?

Thank you for this question. So first of all, a big majority of our revenues is running on CTV and mobile, which are less affected by the cookies, so it's just for last. And so our, relatively, exposure to cookie-less world is very limited to the display that is running on our exchange, which is not major, as I just mentioned. The second thing, the fact that we are sitting on both sides is giving us like a lot to cover and to close a lot of the gaps that are basically interpreting this cookie and cookie sync between 2 systems. And we see that when you are sitting on both sides, you are able to achieve much better results. And the last point is participating in a lot of the efforts of the industry to basically close the gap between what Google is offering and what will happen after Google will stop offering that in 2023. So I think that when you look at it, then I think that we are well positioned for that. Of course, we follow their brands and we are preparing ourselves to the solution. But I think that in general, we are much less affected relative to the market because of our position around mobile and CTV and less around other features and the fact that we are sitting on both sides of the equation, helps us a lot with cookie sync and with the ability to target even in the cookie-less world.

Got it. Over the last quarter, you've announced some interesting investments, which you touched on earlier, the acquisition of Spearad, the partnership with VIDAA. I guess, one, how do they enhance the Tremor offering? And two, with those in place, how full do you see your CTV capabilities on the platform? Are there other tech or capabilities that you think that could be additive?

So when we did do a listing also, we said that we will use the cash of the bus in order to enhance our capabilities and technology. We have a platform, but you can always enhance its capabilities by acquiring like strategic elements that can enhance it, and that's exactly what we did with Spearad. Spearad is basically the last mile between Unruly and the CTV platform, which is giving us like a very strong CTV head server and header bidder that can serve the CTV partners. And we believe that this capability is closing the loop basically and giving us a full end-to-end solution to offer to our CTV partners, so they can integrate to our CTV head server, they can enjoy from better than video, they can connect to our SSP and get like a unique demand. So I believe that it will bring us a lot of capabilities in the future and strengthen our relationship with the publishers. And also from international perspective, we believe that what we see now in the market through Spearad, that is a German company, it will give us a lot of advantages in Europe and in Asia and other markets because the CTV is growing there. And basically, there is now an open opportunity in this market that we can use. From the bigger perspective, again, I'm coming back to the fact that people like to use unique and enabling the unique targeting capabilities. VIDAA is a subsidiary of Hisense, one of the strongest and biggest TV manufacturers in the world in the top 5. And I think that when you look at that partnering with them, it will give us access to a lot of ACR data, which means all the data of usage of the people on their TVs in order to send it to us for targeting. And it's a global deal. So it can cover the U.S. and all the major markets like Canada, UK, Germany, Australia and Japan, where they are very strong. And their system is becoming now the -- VIDAA is becoming the major source of the operation system, the main operation system of Hisense and Toshiba in the world, which is, of course, very powerful in some of the markets including the U.S., and will enable us to offer these capabilities to our clients, which is very powerful in the CTV plan. So I think that these two, one, acquisition and the addition; and the second one is the strategic partnership, basically enabled us to strengthen our position in the CTV universe.

Got it. And Tremor does have a history of being pretty acquisitive. As you look at the platform today and the landscape of potential partners or targets, are there any other areas maybe even outside of CTV that you're taking a closer look at?

Yes. First of all, as we mentioned, we conducted a few major acquisitions in the last few years. The last major 1 was in January 2020. And I think that it was interesting and good for us also to prove that we can grow organically, as I mentioned. So in 2021, we grew 100% compared to Q1 2020, organically, 150% in the second quarter, 54% in the third quarter. And generally, during this year, we will grow more than 60% year-over-year organically, which is really impressive. But we have also the M&A capabilities. And what enabled us to do that is the fact that basically we know how to identify. We identified very well until now the target that we want to buy and how to integrate. Then going back to your question about if we have 1 system, yes, we are 1 system and we are fully integrated. And the second point is our strong balance sheet. As I mentioned, no debt, $330 million in cash in our bank in the end of the third quarter, which is giving us a lot of opportunities to make more acquisitions. And we stated before and we are sticking to our strategy to keep doing that going forward. We are looking in order to buy more demand sources, meaning relationship with advertisers, agencies and so on that can connect us to small revenues through the demand side, and this is what we are putting emphasis on also in the coming future. And we are looking for teams, as you mentioned, that the companies can basically, what we saw for Unruly is that basically when you have a relationship with advertisers, you can basically direct them to formats and to areas that can serve both sides.