Welcome to Tremor International's First Quarter ended March 31, 2023 Conference Call. [Operator Instructions] This conference call is being recorded, and a replay of today's call will be made available on the Investor Relations section of Tremor's website. I will now hand it over to Billy Eckert, Vice President of Investor Relations, for introductions and the reading of the safe harbor statement. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Tremor International's first quarter ended March 31, 2023 earnings call. With us on today's call are Ofer Druker, Tremor's Chief Executive Officer; and Sagi Niri, the company's Chief Financial Officer. This morning, we issued a press release, which you can access on our website at investor.tremorinternational.com. 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've asked caution and reliance on forward-looking statements. These statements include, without limitations, statements and projections regarding our anticipated future financial performance, market opportunity, growth prospects, strategy and financial outlook, and 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 or 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 or unexpected changes in macroeconomic or industry conditions. More detail 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. Tremor 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. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information, IFRS, and non-IFRS terms. We refer you to the company's press release for additional details, including definitions of non-IFRS items and reconciliations of IFRS to non-IFRS results. At this time, it is my pleasure to introduce Ofer Druker, CEO of Tremor International. Ofer, please go ahead.

Thank you, Billy, and welcome to everyone joining us today. I will begin by providing an overview on the progress of our key initiatives as well as on our results and strategy then we'll end the call over to our CFO, Sagi Niri, to discuss our financials. We will then open the call for questions. As a reminder, Q1 2023 results reflect the combined performance of Tremor International and Amobee, while Q1 2022 figures do not include results from Amobee. During the first quarter, with excellent progress executing on our strategic vision to combine Tremor International and Amobee to create a horizontally integrative CTV and video focused ad tech platform, fueled by unique and exclusive data that offers a unified comprehensive solution for advertisers and agencies as well as publishers and broadcasters. We believe once the integration is completed, our platform will feature some of the most robust, effective, and differentiated capabilities for both sides of the ecosystem. As you may recall, shortly after closing the acquisition, we quickly executed an initial efficiency plan over Q3 and Q4 2022 to consolidate our team into one, achieving roughly $60 million total in annualized operating cost savings. In Q1, after evaluating both the Tremor Video and Amobee DSPs, we made a strategic decision to move travel video CTV and video algorithms and capabilities to the Amobee DSP, given its stronger enterprise self-service capabilities and will sunset Tremor Video DSP. We also successfully moved the majority of the managed business over to the Amobee DSP during Q1, giving us enhanced confidence that our plan to largely conclude the technology integration of Amobee by the end of H1 2023 remains on track. We continue to expect total annualized operating cost synergies of approximately $65 million related to the integration, including the previous $50 million…

Thank you, Ofer. Today, I will review highlights and key financial and operational drivers of our Q1 2023 performance, and we'll also discuss our forward-looking guidance. As a reminder, Q1 results reflect the combined performance of Amobee Tremor International while Q1 2022 results do not include results from Amobee. For the three months ended March 31, 2023, we generated a contribution ex-TAC of $66.9 million compared to $71 million in Q1 2022. Alongside, Q1 adjusted EBITDA of $8.9 million compared to $38.7 million in Q1 2022. As a result, we generated an adjusted margin of 12% on a revenue basis and 13% on a contribution ex-TAC basis, during Q1 2023, which compared to an adjusted EBITDA margin of 48% on a revenue basis and 54% on a contribution ex-TAC basis during Q1 2023. We observed significant weakness in the advertising environment during Q1 with the most severe weakness occurring in January and February. This weakness was driven by well-known challenging market conditions that drove uncertainty in advertising demand, with particular softness observed in the food business, personal finance and entertainment vertical, and performance-related activities as expected as well as in mobile advertising. However, since early March, advertisers have been more active on our platform, particularly in CPG, and we've seen encouraging signs of stability, better visibility, and momentum as April was stronger than March and as May have been stronger than April. We are also cautiously optimistic that momentum will continue into the second half of 2023 based on our current visibility. During the first quarter, adjusted EBITDA and adjusted EBITDA margin were significantly lower than the historical level, which was driven by the weak environment early in the quarter, our ongoing integration of Amobee, and the nature of our end-to-end infrastructure. Once we nearly complete the integration of Amobee…

Thank you, Sagi. While 2023 has not been without challenges, it has been an exciting year for us so far, and we are pleased to have continued growing our CTV market share during Q1 while positioning ourselves for continued expansion within CTV for the remainder of the year and beyond. We are also treated to see early signs of advertisers, increasingly expanding again and have cautious optimism, this momentum will continue during the back half of 2023. The investments we made to enhance our CTV capabilities and sales organization, we believe have already begun paying off since the end of Q1. We also believe our cross-platform plane is a game-changing technology that will continue to gain further tractions with major broadcasters and agencies. Having this unique ability to plan linear and growth platform campaigns, put us at a center of a major conversion in the U.S. TV advertising market. We believe we are now better able to capitalize on these conversions with enhanced scale and depreciated planning capabilities that benefit our customers. We also believe that operating horizontal platform put us at the center of the high and sales side of the ecosystem with a significant data that provide advantages for customers with data-driven solutions that optimize returns on ad spending and help them reach desired audiences. As we finalize the integration of Amobee, we are also excited to launch our new unified brand. And for VIDAA and Hisense to continue growing their footprint and distribution all at a time when the advertising market is building renewed momentum. This combination of factors gives us optimism. We are well positioned to become leaders in the new era of CTV and continue growing CTV market share, accelerating contribution exit growth, and achieving strong profitability for the remainder of 2023. I want to thank our shareholders for their continued support and our employees for their hard work. I look forward to continue working together to realize the company's growth prospects. Operator, we will now take questions.

[Operator Instructions]. And your first question comes from the line of Matt Swanson from RBC Capital Markets. Your line is open.

Yes. Thanks, guys. So, congratulations, I guess, first on the integration of Amobee. Could you maybe touch on left to do from an integration standpoint in Q2 and maybe what the cost associated with it are roughly on a completion percentage. And then it was also really good to hear the initial kind of cross-sell success of seeing Amobee customers start to move more towards video. Could you just maybe elaborate a little too on what gives you the confidence that, that continues in the second half of the year?

Sure. I would take this one. So, from the integration perspective, we basically, as we said, we choose already to use the Amobee DSP because of his depth of details around enterprise solutions, which is a very important of course, for our future. And what we've done in TRMR, we basically moved a lot the algorithm or all the algorithms that were involved in our DSP and all the capabilities that were related to CTV and video from our DSP to the Amobee DSP in order to sunset the Tremor DSP in order to have 1 DSP that is very powerful and basically enjoy from all the capabilities around CTV and video but also enjoy from all capabilities around the enterprise solution that Amobee worked so hard in order to build over so many years. So now we believe that we have a very strong and capable omnichannel of DSP that we are able to use, which is also, of course, enterprise solution. What is left until the end of the quarter as we said in the PR and in our message, we basically moved already most of our managed activity. And now we are well in the activity of moving the rest of the activity, which is basically the third-party clients that are using our DSP to the new DSP, and then by the end of this quarter, and then we'll be able to sense basically the rem Apart from that, this is the massive lift off that we did over the last few months. The next thing is also to integrate our Amobee’s that will happen until the end of the year, but this is a minor compared to the DSP that we already integrated. The second point that you asked us about basically the cross platform. So,…

Yes. That was a great answer. Super helpful. One other thing you mentioned, and obviously, we're all kind of seeing -- well, not full stack, there's certainly more momentum towards companies. Like I think you kind of used the word the gray area between the DSP and the SSP is blurring with people creating more end-to-end solutions. And does this market momentum, do you think that makes it easier for you to explain your value proposition to new customers just with it being a little bit more prevalent across the ad tech space?

Of course. So, we are -- we started this process already in 2019. We believe that to have an end-to-end solution, which include from end to end, all the solution that the advertisers, the brands, and the publishers basically need, meaning the DSP -- the DMP, meaning the data elements and segments that they can create and also the SSP, which has enabled them to reach the right audiences is very important, not just for the clients on both sides, but also for us, of course, in order to keep healthy margins that will enable us to keep investing in technology and innovation. So, what we see lately after many, many years, of people basically saying that they like to specialize in the demand side or supply side, which, of course, we respect, we see now people that are basically moving and crossing the line and enabling their clients and publishers to do both like we do. The big advantage that we got is that we are doing it already for almost more than four years. And the second thing is that basically from what we saw in the market until now, most of the solutions that are being offered from the SSP solution are not fully functional DSPs like ours. So, I think that from a technology perspective, we have an advantage and from the fact that we are basically using this solution for so many years, already incorporated all the technologies altogether. I think that is bringing us a lot of advantages in the market. The next step that we've done is what you touched before. We added these tools of planning tools that are very important because better planning, better results, which is massive, especially this year that you want to get your money into play in…

And your next question comes from the line of Laura Martin from Needham. Your line is open.

Hi, good morning, you guys. I've got a couple. So, let's just build on the last point about data over. I love the data deal. But my question to you is, how do you think about what data you use to make your ad products and add units more valuable? And then how do you think about selling your data to others in like a package so you have a data revenue stream? How do you balance those two uses of the exclusive data rights you have with Hisense and VIDAA?

Okay. So first of all, as we know, ACR data is one of the most effective data set in order to target users it's giving you another layer of knowledge, another layer of information about your potential audiences that you want to read. And the fact that we are -- the only basically open web partners that has an agreement like that is, of course, enabling us to do a lot, will enable us to do a lot in the coming years, meaning most of the other teams that are out there, most of the other smart TV, like LG and Samsung, of course, that are in the market are more like wall garden we are acting like more Open Web in this matter of data. So, it gives us, I think, like uniqueness and of course, the ability to do a lot of interesting things on our platform. The second thing -- the second question that you asked about utilizing the data on other platforms. We are able to do that. We will be able to do to provide the data in order to price measurements and even targeting, but we will tie it in some way to our platform, meaning if we are providing it to other DSPs, we will welcome them to basically buy media on our SSP or use our other tools in order to make it interesting also from us from a commercial perspective. And if we are offering measurement, of course, it's the same. But I think that what we are building here is an ecosystem that enable people to use the data, but also to engage with our platform. And I think that this is very meaningful in this essence because as I said, I think that our peers are doing an amazing job with ACR data, meaning Samsung and LG, and other people that are basically enable to use their data in order to target and measure and we want to join these capabilities and enable targeting and measurement also on our platforms.

Okay. That's very helpful. I didn't realize it was going to tie back to your platform. And then I wanted to talk about cash usage. So, you have round numbers, $90 million of cash. You lost round numbers, around $8 million and you bought in a bunch of shares. My question is, why buy shares at a time when you're also losing money? Why not pour cash until you're sure that you're back to free cash flow positive?

First of all, Sagi, if you want to comment on that, but we stopped buying of [indiscernible] yes.

Yes, I will take that question. Thanks, Laura. First of all, we issued like $95 million of repurchase plan back in 2022. We concluded it through Q1. So, it's ended now, and we are not investing any money in repurchasing our shares anymore. And as you said, we are considering that going forward, but we will do so and we will be cash generative again very soon. And of course, if we will find some other users for the money, we will consider that as well. So, for now, it's ended, and we are keeping our cash -- and soon in Q2, we will be cash generated again.

Thanks, so much guys. Thank you.

And your next question comes from the line of Mark Kelley from Stifel. Your line is open.

Great. Thank you, very much. Can you help us bridge the gap a little bit on the programmatic segment just a little bit more? How do we get from the 6% growth you just put up in Q1 to get to 38% growth for the full year? I guess you've got a tougher comp in Q4 given Amobee was baked in there. I guess any help in just in terms of how the programmatic line should play out would be helpful. Thank you.

Okay. Thanks, Mark. I'm not sure exactly what is the 38% you are referring to. What we said is that in Q1, our programmatic revenue went up by 6%. It was unfortunately offset by a programmatic -- by a performance decline. We are assuming that until the end of the year, around 90% of our revenues will be generated through programmatic activities, which we disclosed a long time ago that this is our main focus. This is where we are putting our main effort. That's the 38%. I'm not sure exactly what you are referring to.

Sorry, 31%, if I'm going to use your -- so $360 million for the year for programmatic on the net -- for net revenue, that would be like 31% growth. I misheard you, I thought it was 95% of net revenue would be programmatic.

Yes. So, 90% out of the $400 million, yes, $360 million will be programmatic, 90% exactly.

Then I guess, how do we get from 6% growth in Q1 to 31% for the year -- on the programmatic side?

Again, as we are our -- maintaining our guidance at $400 million of net revenue and $140 million to $145 million adjusted EBITDA, we are a company that uses a lot of economy of scale. So, we are expecting that the next quarters revenue generation will be much higher. And from that revenue generation, most of it will come through programmatic activities. So, this is the way we are reaching this gap of increasing our programmatic revenues to 90%.

Okay. Got it. And then just quickly, you talked about better visibility, and I know a lot of that comes from your conversations with advertisers and agencies. But I'm just curious about -- you've made some changes. You've got the linear planning tool in-house now. You've got the sales reorg you did. I guess, are there other changes that you made that are maybe also helping you gain more visibility than you had in the past?

I think that the Amobee programmatic cross-sales moving more activity into in-house, basically also when we are looking at connecting all their platforms altogether or the infrastructure of the sales, as we mentioned also in the PR and on the RNS that we issued was a very heavy lifting effort in order to connect the both sales teams, all the processes, procedures and to move all the activity to one platform. So, we feel that now we have a better understanding and a better control. The first thing. The second thing is, of course, after moving the attention of management from all this integration to growth now, and improvement that we feel in the market is giving us a better understanding of where we are standing and what we are going for. And we feel, as we say, in the PR that basically, we are going to eat our numbers that we mentioned that we gave to the market.

Okay. Thanks, very much.

And your next question comes from the line of Andrew Boone from JMP Securities. Your line is open.

Good morning, and thanks for taking my questions. I wanted to start just on the operating leverage that Sagi, you mentioned in your prepared remarks on the business. If I go back to pre-COVID, you guys were more or less in kind of the mid-30s in terms of EBITDA margins. That clearly accelerated through COVID and now we're probably troughing here. Can you just talk about maybe in a more normalized macro environment where we should expect EBITDA margins to kind of pencil out? Understood the business is bigger with Amobee. But how do we think about a more normalized kind of EBITDA margin environment as we get through this cycle?

Great question, Andrew. So, we have like 13% adjusted EBITDA margin in Q1. And of course, as you said, everything interim or in other companies, this economy of scale. So, we are anticipating adjusted EBITDA margin to increase dramatically through Q2 -- through Q4. And of course, it's supposed to reach in Q4, somewhere around the 50% adjusted EBITDA margin where we were in the past. Of course, we need to take in consideration that the new cost structure with Amobee is a little bit different, and we need to reach a level of revenue in order to get back that on a yearly basis. So, if I'm looking on our guidance, we are somewhere around the 35% adjusted EBITDA margin on a yearly basis. And if I need to go forward, probably in 2024, we can reach somewhere around the 40%. To go back on a yearly basis to 50% will take us more time. But at the end, we will get there. And of course, we are refining our cost structure all the time. We build the $65 million of efficiencies and synergies that we did with the acquisition of Amobee, which we already completed around 90%. And of course, on top of that, we are refining our cost structure all the time. So, these are the numbers.

And then I wanted to ask something that -- I guess, it's more of an industry question. As we think about ID offerings that are in the marketplace and as we think about Google deprecating cookies in the back half of next year, understood that doesn't relate to CTV and kind of video more broadly. But can you just talk about how you guys view cross-platform measurement. What ideas are you guys adopting? And how do you think about the measurement attribution side as you think about connecting users across platforms?

No problem. I will take this one, Sagi. So basically, we build a platform on our DMP that is enabled to use and connect to all the identity tools that are basically developing the market since the moment that Google announced that they are going to remove the cookie basically, and we are working very closely with all the market leaders on that front. So, I think that on that front, we from -- we are very advanced in our solution, and we are able to basically use and extend how we reach to all these providers and companies that develop solutions and so on. The second inherited advantage that we get is that we have a full end-to-end solution. So basically, we didn't -- less we can use our end-to-end solution in order to bypass the usage of cookies when we are running some of the campaigns. So, the effect of this move, if it will happen, will be a very minimal compared to the market. And that's basically how we build the platform and the setting of our technology which can enable us. So, if I -- to summarize, first of all, we built a platform that is integrated and working and consume all the data from all the leading platforms in the market. The second one is the end-to-end solution. which basically lowering the need in cookie because we are entering solution, and we are sitting on both sides.

And your next question comes from the line of Andrew Marok from Raymond James. Your line is open.

Thanks, for taking my question. On the Amobee cross-selling tool, you talked about getting traction with buyers that tend to be more on the linear side, but is there an education process or maybe like a longer "sales cycle that you have to embark on with these more traditional linear buyers that makes the ramp-up process longer for them as they start to get into CTV.

So, great question. I think that the -- first of all, there is an education process that we need to make to conduct, and we are already in this process for several months. The other issue is that this unit is not -- it's not coming in order to -- out of nowhere. I think that all the broadcasters, all the customers, all the companies that are basically dealing with what we call linear advertisers. They are already aware of the need to expand their campaigns into what we call streaming and CTV. So, it's a need that is coming from both sides. It's coming from us trying to develop this solution, but also from the actual broadcasters and brands and other service providers that understand that they need the solution in order to provide better solutions and better service their clients. So I think that the process of educating the client, the providers, the companies, the broadcasters will be shorter than expected because we are not trying to basically deliver a new technology that is coming out of Norway, but it's coming out to cover a very rationale and existing needs of all these brands, agencies, broadcasters and other providers that understand that they need a tool that will enable them to extend into streaming and CTV and reduced duplication of exposure to the same user. So, I think that it's -- of course, it's need education, it's longer to work with these types of companies, which are broadcasters, which have longer cycles of initiating and getting into new technologies usually because of the heavy-duty platforms, and so on. It's taking a little bit longer than programmatic. But we feel that we are in the right points that people are looking for this solution. And the education is minimal. It's more about integration and about how to create mutual work processes in order to take this advantage of these tools.

And your next question comes from the line of Eric Martinuzzi from Lake Street. Your line is open.

Yes. I know you didn't give direct guidance on Q2, but I wanted to dive into that. Right now, we've got a consensus number of $92.4 million on the contribution ex-TAC and an adjusted EBITDA number of $27.6 million, understanding that you expect to have sequentially in Q2, are those numbers realistic? Or are you trying to tell us that maybe given the macroeconomic conditions that we are going to be -- those would be more of a stretch?

Yes. So, as you said, we are not giving guidance or didn't give guidance to Q2. And yes, the analyst consensus is around $92 million in contribution ad tec. Again, it's an aggregation of different numbers that different analysts are assuming that we will achieve. I think that's what we said in the earnings call itself and answering the question, we are seeing good momentum. We are seeing some bounce back from advertisers and clients. And we think -- we assume that we will do much better numbers than we did in Q1.

Okay. Well, let me ask it another way. The loading of the year, I think you've historically -- or at least for 2023, you talked about a 40%, 60%, are you stepping away from that front half, back half?

No, I think we are in the line of those numbers. I think that historically, it was somewhere between 55 to 60 and 40 to 45 between the different tasks. No, we are not stepping down from here. I think we took into consideration that Q1 will be a little bit lower because of the long integration and consolidation, mainly on the sales team. unifying our offering, unify the product, taking care of all the marketing materials, et cetera. So, I think we are in a good place. We managed to end this process and we are ready to work in more and we are seeing the first signs of the fruits of all of that hard work in the last six months.

Okay. And then for on the branding effort, do we have any clarity? I know you don't have anything to announce today, but have we narrowed it down to whether it will be creation of a new brand or doubling down on one of the existing brands?

So, we are -- it's a nice question. We are going to announce the new brands until the end of the quarter. I think that it will help us in three levels. One of them is internally to create like more connection between all the teams that we feel that they are creating and part of something bigger that we created now. The second thing, which is very important, of course, is to the market that it will be easier for the people to understand what we are offering and how we are offering that. And the third one is also, of course, to the financial markets to understand -- to better understand what we are doing and how we are basically connecting all these acquisitions and innovation that we created in the past few years.

Okay. But then with that involve the creation of a new corporate entity, a new stock ticker.

It's too early to talk about it. And of course, when we will announce it, you will be, of course, you'll know.

Okay. Thanks, for taking my question.

And there are no further questions at this time. I will now turn the call back over to CEO, Ofer Druker for some final closing remarks.

Thank you, everyone, for your questions. So, I think that your question basically covered all the points that I wanted to -- maybe to share and so on. And I think that what we see here is the growth of CTV in our activity across the board. We feel very solid about our solution, our position in the market. We feel very good about the things that we basically created and worked on in the past more than 1.5 years -- like more than 1.5 years like the agreement with VIDAA, the last acquisition of Amobee that basically enable us to integrate also this planning growth platform planning tool that we believe that will drive more activity to our CTV ecosystem, and we believe that the future is in the horizontal integration, end-to-end solution like we see that is coming also from our peers, and we feel recognition to our strategy that we launched in 2019. So, we are very glad about that because usually, a lot of the questions were around why you choose, why you guys choose to where can to end, and how we see that all the industry or majority of the meaningful industries moving to this direction, which is giving us, of course, recognition to our strategy. And we feel that we have advantage around it because we already practice like that for several years, and our technology is set, is built, and is fully functional for all these capabilities around end-to-end solution and horizontal integration. So -- it was -- it's a challenging year from a lot of aspects of integration, macroeconomics, and so on. But as you can see, I think that we made a lot of achievements in the past few months, and we are really glad for all the actions that we've done and for the direction that we choose, and we feel excited for the future. So, thank you very much, everyone.

This concludes today's conference call. Thank you for your participation. You may now disconnect.