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

Welcome to Nexxen's call discussing its proposed stock exchange and trading structure changes. [Operator Instructions] This call is being recorded, and a replay of today's call will be made available on Nexxen'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.

Thank you, operator. Hello, everyone, and welcome to our call discussing proposed resolutions we brought forth to be voted on by our shareholders at our upcoming AGM on December 20 to change our stock exchange and trading structure. With us on the line today for prepared remarks is Nexxen's Chief Financial Officer, Sagi Niri. And following the prepared remarks, Sagi will also be joined by the company's Chief Executive Officer, Ofer Druker; and Chief Legal Officer, Amy Rothstein, to answer questions. 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, anticipated benefits related to the changes in the company's trading security structure and timing thereof. 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 and services. 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, shareholders not approving the proposed resolutions or unexpected changes in macroeconomic or industry conditions. More detailed information about these risk factors and additional risk factors are set forth in our filings with the U.S. Securities and Exchange Commission including, but not limited to, those risks and uncertainties listed in the section entitled Risk Factors in our most recent annual report on Form 20-F. Nexxen does not intend to update or alter forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. At this time, it is my pleasure to introduce Sagi Niri, CFO of Nexxen. Sagi, please go ahead.

Thanks, Billy. As we announced, our Board approved submission of several changes to our stock exchange and trading structure for shareholders to vote on at our upcoming AGM on December 20, which we believe will benefit Nexxen and its investors over the long term. As such, we wanted to hold today's call to explain our rationale as well as the process and timing for potentially changing our company's trading structure and to answer questions. Over the last several quarters, we significantly advanced our tech, data and CPG capabilities. We branded to clarify our platform's value proposition and bolstered our sales team and effort, the combination of which drove record Q3 results and we believe has positioned us for strong and sustainable long-term growth. After achieving this milestone, our business performance and industry spending has taken a massive leap forward, and now we believe it is the time for our market and trading structure to do the same. If shareholders approve the proposed resolution, the intended changes include exchanging our NASDAQ-listed ADRs for NASDAQ-listed ordinary shares and terminating the ADR facility, conducting a reverse stock trade of our ordinary shares at a 2:1 ratio, which will allow for a 1:1 exchange from ADRs to ordinary shares and delisting from the AIM to trade solely on the NASDAQ in the U.S. under the ticker symbol, NEXN. With respect to ADR holders, contingent upon shareholders' approval of the proposed resolution, such holders would receive a 30-day notice, setting forth the proposed rationale to the ADR program and related deposit agreements. These changes would include a mandatory exchange feature upon termination of the ADR facility and notice that ADR holders would receive ordinary shares upon termination. During the period between now and the potential exchange to ordinary shares, ADR holders could continue to hold and trade our ADRs on NASDAQ and ordinary shareholders could continue to hold, trade or sell our ordinary shares through depository interest on the AIM or exchange them into ADR and participate in the mandatory exchange. Following the conclusion of the ADR notice period and related ACT review, it is intended that on or around February 14, 2025, the deposit agreement would be amended for these changes, the reverse fleet would become effective, such that every 2 ordinary shares would be consolidated into 1 ordinary share. Our NASDAQ-listed ADRs would then the exchange for NASDAQ-listed ordinary shares on a 1:1 basis, and the ADR facility would be terminated. Additionally, as a final step to the process, on or around February 14, 2025, the company will delist from AIM. Thereafter, holders of depository interest formally trading on AIM or ordinary shares would work with their brokers to position their securities to be tradable on NASDAQ. By executing this specific approach strategy in the aforementioned order, we have minimized liquidity risk for the shareholders and reduce or eliminate U.K. tax complications, including the stamp duty tax. Any shareholders who do not provide instruction to their brokers prior to the delisting will then own illiquid depository interest until such time that they can work with their brokers to reposition their ordinary shares, underlying the depository interest to be tradable on the NASDAQ. Assuming our shareholders approve the proposed resolution at the upcoming AGM, we believe this initiative and strategy will benefit Nexxen's long-term capital appreciation potential and shareholders for several key reasons. So one, we believe these changes position us far more strongly to attract U.S. investors into our stock. Shifting our focus towards attracting U.S. investors create more opportunity for Nexxen. Over 60% of the world's equity assets under management are held by U.S. investors and roughly 50% of global equity market value trade on U.S. exchanges, making it the world's largest and most liquid equity market by far. We believe our ADR structure has precluded a significant amount of U.S. investors from buying and holding our ADRs due to their investment mandate, which prevents ADR ownership, so exchanging our NASDAQ-listed ADRs to NASDAQ-listed ordinary shares open Nexxen up to an additional base of potential new U.S. investors. Additionally, our depository interest trading in the U.K. and ADRs trading in the U.S., which each represent 200 shares per ADR has created added complexity for U.S. investors and sell-side analysts, which we believe has deterred many from investing the time needed to research the company regardless of how strong our business performs, and we believe these changes can help alleviate that issue. We also believe consolidating our trading into a sole U.S. ordinary share listing will attract new U.S. investors who may have viewed our limited liquidity as a barrier to entry, with fulfillment we commonly receive. Additionally, we believe the single listing will help better align our stock with other U.S.-listed asset companies currently trading at higher multiples than Nexxen and reduce price volatility that can result from a dual listing. Index inclusion potential is another reason we believe this trading structure changes benefit Nexxen and shareholders over the long term. Because of non-U.S. demo file, ADR structure and depository interest trading in the U.K., our eligibility for and inclusion in indices has been very limited, especially compared to other U.S.-listed asset companies. If shareholders approve the proposed resolution, we believe we would become eligible for acceptance into some well-known indices, which in turn could attract interest from large passive investors as well as others that track major indices and purchasing activity from index funds. Many other small cap U.S.-listed tech and asset companies have indexed investor ownership that represent a notable percentage of their share outstanding, while Nexxen currently has minimal index investor ownership making future index inclusion a potential catalyst for our stock. Finally, because of our dual listing, we delivered high consuming and duplicative employee efforts, ensuring reporting and regulatory compliance in the U.S. and U.K., and expand internal and external resources on listing, exchange, regulatory, consulting, legal, compliance and other fields across 2 markets. We believe the proposed changes will eliminate these costs and duplicative efforts and streamline some of our internal operations. From our perspective, we believe the answer is clear, and that these proposed changes can help advance Nexxen's positioning in the capital market, reduce previous barriers for entry to U.S. investors and better position us for future potential stock price appreciation, the combination of which could benefit the company and its shareholders tremendously. We hope our shareholders and those on the line with us today agree with our perspective and rationale. And with that, we're happy to take questions.

[Operator Instructions] Your first question comes from the line of Andrew Marok of Raymond James.

Maybe 2 quick ones. You mentioned near the end of your remarks some potential cost savings and duplicative efforts that can be reduced. Can you give a sense of scale of those cost savings? And then maybe separately, on kind of the structure of the process, assuming passage at the AGM, how certain is that February 14 date? Are there any factors that could maybe move that into the future in any material way?

Thank you, Andrew. I will talk about the cost savings, and I will let Amy to answer your question regarding the timing. So cost savings, we mentioned it, it's not going to be something material that will really affect our numbers and our 2025 performance. Having said that, I think that the upsell, the duplicative processes, regulation, reporting and everything that we are doing in the current days will go away. And I think this is much, much human cost savings and then really money that we are saving. Having said that, it's somewhere around -- it's less than $1 million. That's the number. Amy, can you respond to the timing, please?

Yes. As you can see, there's multiple steps that we have to take in this process, but we believe that we've built a very manageable time line. There's always unexpected issues that can arise when you're filing -- making SEC filings. So there may be some delays that could arise. Of course, we will notify investors and the public as soon as those occur, if they occur. But we do feel confident that the February 14 time line is achievable.

Your next question comes from the line of Matt Swanson with RBC.

All right. Yes. And thank you guys for hosting this call this morning. I guess 2 for me. The first would be, I know this is kind of a unique situation, but have you seen other companies go through this? And just any color that you can kind of give us on the impact? And then the second is, I know we hear from investors, too, but if you could go a little deeper on kind of the feedback that you've gotten from investors that leads you to think that this is going to make it a more attractive offering?

Yes, sure. Amy, do you want to take the first question of Matt? And I will the second question.