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

All right. Hello, everyone. Why don't we go ahead and get started? For those of you who I haven't spoken with before, my name is Andrew Marok, and I cover interactive entertainment, digital media and online advertising here at Raymond James. And we're delighted to welcome Tremor International to the Raymond James Tech Conference. And joining us is Ofer Druker, CEO of the company. And yes, it's great to speak with you today.

Thank you, Andrew.

All right. Before we get into some Q&A with Ofer, we'll have a brief presentation providing an overview of the company and we'll pass it over.

Thank you. Good morning, everyone. My name is Ofer and I'm the CEO of Tremor. And we prepared here like a few slides just to give a little bit about the history and the vision of the company and part of the technology stacks that you will be able to be more familiar with it. Our vision is becoming the leading end-to-end video and CTV digital advertising technology platform powered by unique TV data. And we started this journey in 2017. This is the journey that we made. It's a very informative slide that give all the acquisition that we made, all our basically results in the last few years. So you can see everything in one slide. We started that in 2017. We came into this area. We were like a much older company, but we started in 2017 to get into the video world, and we acquired basically Tremor out of Telaria, if you remember them. We bought basically the -- we basically acquired the demand side, the DSP. Immediately after, we acquired -- in 2019, we acquired the assets of RhythmOne in YuMe because we wanted to build an end-to-end solution. We understood that end-to-end solution will provide to us a lot of advantages that we will discuss in a minute. And basically, RhythmOne in YuMe were strong in their supply side platform. There are a number of publishers and a lot of technology around CTV that came from the YuMe company. Because Jayant was the CEO of -- basically of YuMe was a very big believer already 5, 6, 7 years ago in the CTV platform and he built a lot of technologies that related to that. So already from in 2019, we believed in CTV, and we believed in the end-to-end solution that will give us like a lot of capabilities in the market and that we will discuss in a minute. Later that year, and in the beginning of 2020, we basically announced it, we acquired Unruly in order to add more volume of publishers, more volumes of advertisers, the international activity that basically Unruly was creating and a very strong brand, and we integrated into Tremor. And it's enhanced our capabilities around the same end-to-end solution. 2021, we basically acquired -- we basically acquired Spearad, which is an ad server for CTV, another bidder out of Germany. We basically integrate it into our SSP side in order to be able to provide a full solution for our CTV partners. And we believe that it's a very meaningful element for the future to come, and we see the success and there are basically 3 major platforms like that today that are active and are successful in this market. 2022 was a very big year for us, still does, we are still in 2022. We made 2 major steps. One of them, we invested in VIDAA. VIDAA is the operating system of basically Hisense and Toshiba. To the people that don't know, Hisense acquired Toshiba a few years ago and they basically hold these 2 brands, running them in parallel. Hisense is maybe less familiar a little bit in the U.S., but it's becoming already according to Costco in the beginning of the year, it was 10% of the TVs in the U.S. came from Hisense and Toshiba. And in the second quarter this year, Hisense was second in delivering TVs globally in numbers. They delivered about 20 million TVs until October, and they will, of course, keep delivering TVs until the end of the year. So they are growing very, very fast. And we have exclusivity on all their ACR data, which is a very rare product these days because all the others are keeping it in their walled gardens. So you have VIZIO, Samsung, LG, but we have now a long-term agreement with Hisense in order to use their ACR data for targeting and we can use it also for measurement. The second thing that basically -- that VIDAA gave us is basically media. So we have exclusive reach and media on the platform of Hisense in the U.S., Canada, U.K. and Australia for the next couple of years. If you know the business between OEMs and apps, usually their apps are providing the OEM part of their media for them to monetize. We will do that in the name of basically VIDAA, and we strongly believe in this partnership. The second thing -- the second major step that we've done, we basically concluded the acquisition of Amobee. And since the IPO, we said that we want to grow our side also, but through our acquisitions, not just organic growth, we'll touch the growth in a minute. And we made this acquisition of Amobee. Amobee was a combination of about 5 companies that Singtel acquired. We really believed in their product, in their technology stack because they can add to us very important elements. First of all, it's the planning tool. If you remember the name Videology it was a company that was created and then acquired by Singtel and was integrated into Amobee. The second thing is basically their DSP, their enterprise solution that was built through Turn that was acquired by Singtel, a very powerful DSP and enterprise solution that also incorporated about all the companies together, about 500 clients globally, which is adding to our business and also the growth that they basically generate to us from revenues. One of the issues of these companies that they lost a lot of money for a long time. We basically already announced that it's open. We basically already conducted the change, cut about $50 million of cost in the company, recognized additional [ $15 million ] and we turned around this company. And we believe that this company that we just concluded the acquisition in September will be a major growth engine for us in the future. When we look down, you can see the growth in the last 5 years. So we grew from a company that was generating $91 million in net revenue in 2017. We grew ourselves at least 2020, basically we doubled the revenues. In 2021 was an amazing year for us. We grow 64% organically, no acquisition. 166% on the EBITDA side, we grew to $160 million of EBITDA. And this year, we gave estimates of $310 million and $140 million because we are taking only portion of Amobee in the time frame of this since September. And next year, we are -- we gave a forecast of about $460 million and $180 million. When you look at our EBITDA numbers, you will see that we -- it's not just adjusted EBITDA, it's conversion to cash is very high, and we are basically generating a lot of cash. So when you're looking at our end-to-end platform and capabilities, we are looking at basically 4 pillars that we look at. From the left, we are looking at the planning tools. We have a variety of planning tools that we are using now. We will discuss it a little bit later, but we believe that what's going on now in the streaming business will just basically push more linear advertisers to come to streaming. And they will need these tools that we've got that are linear and cross-platform tools in order to basically play and [ write ] and run. And we have other tools that I will not -- we don't have a lot of time, but we have a lot of platforms that allow us to do cross-platforms, to build segments smartly and so on that were developed by Amobee over the years. Demand activation is basically -- we have 2 DSPs now. We will not keep them. We'll consolidate only to 1. That's what we know how to do basically, to consolidate technologies. So we are taking the best from each one of them, moving the algorithm and the benefits of one of the DSPs to the other one, and we're creating a better product, basically. We did it already a few times in the past, and we are going to do that until the end of the second quarter of 2023. We have the ad serving that we discussed, that is very important. Data, we have a DMP, we have the ACR data. ACR data, again, is a very powerful tool that is rare. It's like -- there are only a few basically OEMs that use it by themselves and it's not a common commodity. On the media side, we are talking about Unruly SSP, which is one of the top 3 SSPs on CTV in the world right now and is growing and the VIDAA, basically data. And I will give only one word about Hisense and give you an example. We are using also the relationship with Hisense in order to do more and more interesting things around content. So for example, FIFA that is now running, it's not maybe, again, so big in the U.S. right now, but I think that it will be in a few years from now. If you will look at that, all the FIFA apps, FIFA sites around the globe on the CTV, basically -- sorry, it's basically monetized by us. And we took a partner, in partnership we got also Android TV to push about 100 million TVs out with FIFA+ in that we are basically monetizing it. So it's just the first [ bird ], but I think this is showing the capabilities that we got because basically through the relationship that we got with VIDAA and with Hisense, we can do a lot of interesting things also in the future. A little bit numbers. Until now, we were more than 80% in video format. I think that if I'm looking at Amobee, will lower it a little bit to around 65% to 70% because Amobee is not so strong in video, they have other formats also, they're running also display. But we will get them there because we believe in video. Video is the most engaging format, we'll talk about it. And I think that it's also basically the bridge between TV advertising and the digital world, and it's very important to be strong in that. I don't think that there is a lot of companies in this level of video because, for us, it's something that we put a lot of emphasis on. 40% of our spend is already on CTV. We are looking at that. We grow even in Q3 this year. We grew by 45% year-over-year on the CTV front because we are putting a lot of emphasis on that, and we believe in the future. So you need to build it now. We just spoke about it outside. You cannot catch CTV. If you're not there, if you're not investing there, you cannot come into the play and catch it up. It's very difficult. So we are there, we are riding this wave already for a long time and we believe that this is a growing engine for us. We know how to grow organically. We grew 64%. We know how to do acquisitions, we made 4 or 5 acquisitions over the last few years, and we know how to integrate them fast. And when you're looking at also on productivity, again, we are not the ones that did this research, but we were second to The Trade Desk in a very small bit while like a few weeks ago by a research that was published by Laura Martin from Needham. And we really believe in that. This was our -- it's funny. But before the macroeconomic issues when we tried to be very profitable and to balance the growth by profitability, it was one of our problems. But I think that now investors and the world basically recognize that it's important to be profitable, it's important to keep your margin, and this is something that we are doing already for many years. People ask us why end-to-end. So I think that, as I said, we chose this path in 2019. Until today, I remember the moment that we announced the acquisition of RhythmOne and I sat in the office and the guys from AdExchanger came to me to the office. The editors said to me, "Are you crazy? Everybody is specialized, why you're going back end-to-end?" And I think that the answer is very simple. If you want to make money, sorry for if it's a bad word. But if you want to make decent margins, you want to provide simplicity to your partners, you want to deal also with data issues, because data, when you have 2 different platforms, the sync between these 2 platforms, you lose about 40%, 50% of your reach when you are sitting on one platform, it's not there. And also cookieless world, it's a threat already, but it's moving always forward. It's less risking us because we are sitting on both sides. So cookie is not a major issue for us also on that front. And it's very important for us to look at that. Pricing, we can compete with pricing because we are basically offering the clients better pricing. Now all the -- many people in the industry are like debating this model. But when you look at that nobody's giving basically exclusivity to no one, and they are testing it on a daily basis. So if they see that the results are better, they keep with you, running with you. If not, they are leaving you. And we see only growth in the last few years. And the last point is SPO that started in the industry like a year ago, it's a big trend. We are doing that from 2019. Basically, we almost have no mediators between our DSP and SSP. We are running it on our platform. We are bringing the publishers in and we control the pricing, we control the quality and everything that is involved. And I want to share with you something. I'm 25 years in this industry. Before that, I dealt with other systems. But when you're looking at this -- advertiser, agencies that want to deal with it, it's like a very complex puzzle for them. How many partners, how many people they need to combine in order to run one simple campaign in order to touch their targets. It's very complex. Ask them yourself. They need to bring very big teams in order to do that. They need to bring a lot of people that are specialized. And at the end of the day, they have the responsibility to combine all these efforts into one. What we are doing, we are organizing it for them in one set. So from planning to activation to data to media, they have everything on one platform. They can replace any [ port ] point that they want with their own, but we see more and more that are adopting all the solution because they want to get it simplified. They want to get better pricing. They want to get control. They want to have what we spoke about, the data elements and so on. So this is our basically pitch to the market, and we believe that we've shown we are providing very good results that are basically supporting that. Last slide about what we look as our differentiator. So we are talking about this is our focus from 2017, almost 5 years, CTV, video and data. The ACR data we used already in 2017. We know how to use it. We know how to basically consume it and how to offer it to clients. And we are doing it very successfully. End-to-end, we discussed. The VIDAA investment, we believe in that very strongly because we believe that in the end of the day, the fight will be on the big screen. This will -- that's where will be the fight between everybody. They want to be there. And even if you are pushing your application to a TV, try to find it. Good luck. It's very hard, okay? So if you are not pushing it to the first channel and you are watching it when you're opening your screen, the chances that someone will look at it and consume your content is very low. Hisense, we just spoke about it, they are now, for example, the official sponsor of the FIFA and they are going to do more and more events like that. They are doing that, and that's their bread and butter. The rise of AVOD is helping us. As I said before, the people are looking at streaming as a more and more important element in their spend and all the American big advertisers that are spending $200 million -- $200 billion on linear basically here, 10x more than CTV, if they want to move now to -- they will now look at streaming because of all the services that are open as more as an opportunity for them. And they will move more and more spend also to there, or not move but increase, maybe not today because of the macroeconomic situation, but we should look at 2 or 3 years from now. And I think this is giving us a lot of opportunities with our planning tools, with our cross-media activities and so on. And that's where we are operating. As I explained lastly on Amobee, we just acquired that company. We just reorganized it. And we believe that this is one of the growth engines in the future because of the planning tool, because of the enterprise solution which is omnichannel and we need it and because of the size of the company, the reputation that are already serving about 500 clients globally. That's it in a very high level. Thank you.

Great. Thank you, Ofer. So we do have a little bit of Q&A prepared and happy to take questions from the audience, maybe a touch later when we get into that. But thank you for the presentation and for outlining the business. Obviously, a lot to get into. So can you just discuss how the current collection of assets in the company benefit Tremor in the current environment given trends in things like supply path optimization and increasing shift toward ad-supported CTV and the overall boost and focus on CTV in general?

Of course. First I will start again, sorry for doing that, but on the end-to-end solution, because it's giving us so much advantages, and I feel that the market is moving to this direction, even if it's not calling it that name, it's calling it different things. But that's what people are doing in order to build themselves. If we are looking at SPO, as I mentioned now, we are doing it already for a few years. So we strongly believe in that, that you don't need sometimes mediators between. Unless someone gave exclusivity to someone to represent them, you can reach almost everyone and run on them so why not curating like a direct relationship with the publishers that can connect to basically to our SSP? And then you are curating a full SPO to your clients and you basically can adjust and optimize their pricing for them and provide them a very solution. On the AVOD, as we discussed, I believe that, first of all, we built a very big set of tools for people to target on streaming. We've built TV intelligence that basically provide people the opportunity to target according to genre, according to ACR data usage, behavioral and so on, which is very successful. Already we reach about 40 million households in the U.S. through partnerships. But we believe that the ACR data that we are getting will provide us 2 elements. First of all, exclusive data that we can use for targeting, which is very important. And the second thing is for measurement. We didn't use it yet. It's something that we never used until now, but we are looking for the right partners in order to build it with them. And we believe that this data can be very beneficial because it's also global, it's not just the U.S., and people are looking for a global solution. Regarding the growth of the CTV, we are there. Like I said before, I think that we believe in that since 2019. We put a lot of effort on that even before the corona basically was the first wave that created this movement to CTV. I think that the second wave is now, meaning a lot of media companies that were running still on different channels like linear and other services that they provided like channels and TVs and so on, they moved their focus now to CTV app because they see the value in that. They think that it's a commodity that they can make more money from that in other platforms and so on. So we believed in that already a long time ago, and I believe that this is the second wave of CTV, and we are part of that. We can offer these guys all the tools that they need in order to be successful. And I think that we see the growth in that. As I mentioned, in Q3, even that was not an easy quarter, we grow 45% year-over-year just on CTV.

Great. And kind of extending on that thought, I'm looking a bit beyond the current environment. Can you talk about how your emphasis on video formats positions you long term given the spend flows we've seen in the broader to video formats, including especially CTV?

Yes. So In the end of the day, you need a glue that is connecting everything. And I think that when you're looking at this world of digital, for many, many years, as I mentioned, I'm 25 years in that, everybody said, let's wait for the TV guys to move some of their budget to digital. So I think that at the end of the day, when you look at that, video is the format that they are used to use, that's what they are using, that's what -- and it's the most engaging format. In the past, we did a test. We let people remember what banner they saw on the site. I'm not undermining the banner. But people, what they saw what -- which banner they remember when they read the news in the morning. Nobody remembered their banners. If you look at videos, video is something that you memorize and you remember, it's at least the brand and a few slides from that. So I think that the most engaging format. It's the bridge for between TV and digital. And it's something that is also helping us on CTV -- the knowledge because to buy and to run a successful video campaign is totally different from running a display or other formats. And when you are strong in that, you win accounts. And I think this is the benefit that we are looking for the long term. And the other assets that we acquired now provide us basically to create an ecosystem that will enable us to provide full solution to advertisers and agencies that want to run cross-platforms on video, on TV and digital.