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

Good afternoon, ladies and gentlemen, and welcome to the Nexxen International Ltd. Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However the company can review all questions submitted today and will publish their responses where it is appropriate to do so. And before we begin, we would just like to submit the following poll, which will just appear on your screens now. And I would now like to hand you over to the team from Nexxen International. Good afternoon.

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 in 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 potential changes in the company's trading securities 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 its 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've significantly advanced our tech, data and CTV capabilities, rebranded to clarify our platform's value proposition and bolstered our sales team and efforts, the combination of which drove record Q3 results, and we believe have positioned us for strong and sustainable long-term growth. After achieving this milestone, our business performance and industry standing 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 split of our ordinary shares at a 2:1 ratio, which will allow for a one-to-one 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 changes to the ADR program and related deposit agreement. 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 split would become effective such that every 2 ordinary shares would be consolidated into 1 ordinary share. Our NASDAQ-listed ADRs would then be exchanged for NASDAQ-listed ordinary shares on a one-for-one basis and the ADR facility would be terminated. Additionally, as a final step to the process on or around February 14, 2025, the company would delist from AIM. Thereafter, holders of depository interest formerly 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 and strategy in the aforementioned order, we help minimize 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 hold illiquid depository interest until such time that they can work with their brokers to reposition the 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 new U.S. investors into our stock. Shifting our focus towards attracting U.S. investors creates 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 trades 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 prevent 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 ADR trading in the U.S., which each represent 2 ordinary shares per ADR has created added complexity for U.S. investors and sell-side analysts which we believe have 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, which was feedback we commonly received. 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 these trading structure changes benefit Nexxen and shareholders over the long term. Because of our non-U.S. democile, 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 index 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 divert time-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 fees 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 markets, reduce previous barriers to entry for 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.

Perfect. Sagi, if I may just jump back in there. Thank you very much indeed for your presentation this afternoon. [Operator Instructions] But Jeremy, at this point, sir, if I may hand over to you to chair the Q&A with the team. And if I pick up from you at the end, that would be great.

Thank you. We've had a number of questions submitted for the call, so I'll run through them now with management best placed to answer them. So first question, as a U.K. holder, how do I convert my ordinary shares to ADRs upon or ahead of the delisting? And are there any tax implications?

Thanks for the question, Jeremy. Amy, do you want to take the answer?

Yes, I can take that one. So while you can exchange your ADRs at any time similar to what you can do today in your ordinary course, and can continue to do so before the delisting. It may result, however, in adverse tax consequences and you should consult your tax advisers. In general, if a U.K. shareholder wants to hold our securities after the delisting, we suggest that you provide your instructions to your broker to reposition the securities in our new depository interest facility at the time the delisting occurs versus exchanging your ADRs prior to that time. As we noted, that may result in some adverse tax implications, and we encourage everyone to reach out again to your tax adviser. Whether you give your instructions prior to the delisting or for any reason you're unable to and have to do it after the delisting, we have put in place a process that we believe will allow for a smooth and efficient transfer. Once you reposition them into our new DI facility, any transactions, whether it's a sale or acquiring new shares in the company, should occur pretty smoothly and very timely. We have been provided a high level of comfort from all of the -- all of our partners that we've engaged in this process.

Okay. Next question. How much index demand do you expect in 2025 related to this move?

Okay. Good question. I think that we can't really guarantee that we will get admitted to the index. And if we are admitted, we can't guarantee the level of demand. However, we've been advised and we did a couple of analysis, and we believe that as part of being a solely traded company on NASDAQ with ordinary shares, we should expect around tens of millions of demand from different indices.

Fine. Okay. Next question. How much do you believe liquidity will increase? And do you think it will be enough? Or will you need to do a tender offer or something similar? Will you leverage the share buyback to support shares if many are traded back into the market?