Welcome to Nexxen's earnings call for the three months ended March 31, 2024. At this time, participants are in a listen-only mode, with a question-and-answer session to follow at the end of the presentation. 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. Good morning, everyone, and welcome to Nexxen's First Quarter Earnings Call. During today's call, we will discuss our financial and operating results for the three months ended March 31, 2024, as well as our forward-looking guidance. With us on today's call are Ofer Druker, Nexxen'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 IR website at investors.nexxen.com. During today's conference call, we will make forward-looking statements. All statements other than statements of historical facts 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, financial outlook, partnerships and anticipated benefits related to those partnerships, 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 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. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in 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 Nexxen. Ofer, please go ahead.

Thank you, Billy, and welcome to everyone joining us today. In 2023, we achieved a significant milestone by completing the integration of our largest acquisition today, Amobee. Through hard work and a steadfast focus on our strategic vision, we successfully merged some of the industry's top talent, tech capabilities, and data assets, resulting in a greatly enhanced technology platform and company. The integration capped off our multiyear strategy to construct a unified end-to-end tech platform focused on video and CTV and empowered by robust data that enable enhanced outcomes and drive success for both sides of the digital advertising ecosystem. We accomplished this major fit while reinforcing our talent base and boosting our sales and marketing efforts, strongly positioning us to drive future growth. With the integration complete, we have shifted our attention, returning to our product innovation roots. This has enabled us to use our strong technology base to continually develop and launch advanced solutions that address our customers' diverse and evolving needs and challenges and grow our relationship with the biggest players in the industry. With our tech and talent combination in place, the next step in our evolution was to consolidate our products and operation under one brand, Nexxen, a process we concluded in Q1. The rebrand has strengthened our messaging in market and deepened the industry understanding of our comprehensive suite of offerings. It also enabled our sales teams to more effectively convey the value and advantages of customers utilizing several tech and data solutions within our full stack. I am pleased to report, all these efforts are beginning to pay off, culminating in our recent success being viewed as the go-to strategic partner to some of the world's largest and most recognizable brands, agencies, and digital publishers. After a long journey, marked by several years…

Thank you, Ofer. In Q1, we generated contribution ex-TAC of $69.7 million, reflecting 4% organic growth from Q1 2023. Programmatic revenue was $65.6 million, a Q1 record, increasing 5% from Q1 2023 and representing 88% of revenue, up from 87% in Q1 2023. Contribution ex-TAC from our nonprogrammatic business line was relatively flat in Q1 2024 versus Q1 2023. We achieved growth in our retail, finance, health, automotive, and government verticals in Q1 2024, as well as in display, mobile, audio, data product, and PMP. Contribution ex-TAC from display increased 49% in Q1 compared to Q1 2023, while contribution ex-TAC from mobile increased 16%, contribution ex-TAC from data products nearly doubled, and contribution ex-TAC from audio increased 88% in Q1 2024 compared to Q1 2023. We also expanded our self-service contribution ex-TAC, a key focus, generating 23% growth from Q1 2023. Encouragingly, we achieved contribution ex-TAC growth in each consecutive month so far in 2024 and expect that trend to continue for at least the remainder of Q2. On the opposite side, we observed weakness in our travel, technology, and education verticals and CTV in Q1 as customers continue to favor our lower-cost programmatic solutions. Our largest, small, and midsized agency customers continue to spend cautiously in the first quarter, which is difficult for Q1. Many of our large customers, however, have significantly increased budgets in Q2 and have indicated they intend to accelerate ad spending later this year given the expectation for further market improvement and increased advertising demand around events like the 2024 U.S. election. As also discussed, we also recently launched several new partnership, which we are confident will aid in driving accelerated growth throughout the remainder of 2024, particularly in H2. CTV revenue for Q1 2024 was $18.8 million, reflecting a decrease of 11% from Q1…

Thank you, Sagi. In 2023, we focused on integration, platform investments, and rebranding to enhance our standing with the industry's major players and work toward realizing our vision of becoming one of the world's leading strategic ad tech partners. 2024 is shaping up to be the year our vision starts becoming a reality. We have built on our 2023 foundation by growing our TV and data capabilities, offerings, and relationships and landing important new and expanded partnerships. Customers like Stagwell and Tinuiti have realized the benefit of partnering and consolidating spend with a comprehensive platform that can help their clients accomplish their holistic goals. The quality and standing of the leading brands and agencies that are seeking not only to partner with Nexxen, but to highlight those partnerships, paints a clear picture that our capabilities, strategy, and expertise are ready to help us win market share and drive future growth. I'm even more excited about our future. Following our first annual Nexxen Connexxion event we hosted at the end of April in Nashville, we invested in bringing our commercial teams together from around the world to foster a stronger and more unified culture, encourage strategic collaboration, further develop our sales teams, and the invaluable insights from our customers on what they look for in partners and why they love working with Nexxen. It was incredibly apparent, we are winning with them, even against industry giants, thanks to our ability to serve as a genuine strategic partner and advisor through a strong relationship built on trust and transparency. Underpinning our strong relationship is also the ability to deliver superior tech and data products seamlessly across the value chain, through the convenience of a unified platform that offers a wide range of flexible solutions that effectively address our customers' diverse needs and challenges and boost their efficiency and returns. After reading this feedback and seeing the benefit of our teams coming together, I am confident we have built something really special that is ready to serve the evolving needs of the industry, and I'm very proud of the work our teams have put in. Our sales team remain focused on growing our end-to-end and self-service enterprise customers' trust, building new and deeper relationship with industry leaders, and pursuing additional data platform partnership opportunities. We are seeing strong demand and momentum in the pipeline on all aforementioned fronts, as well as new partnership opportunities, and have optimism, based on current visibility, that spending by our major customers will increase throughout 2024, particularly in H2. We remain confident in our strategy and long-term positioning and believe we are in the best spot to continue attracting new partners, increasing spending and product adoption with existing customers, and achieving outsized long-term growth and expanded profitability. Our people and products have never been more connected, unified, and poised to help our customers win, and I'm excited for the opportunities that lie ahead. Operator, we will now take questions.

Thank you. We will now begin the question-and-answer session. [Operator instructions] And your first question comes from the line of Matthew Condon with Citizens JMP. Please go ahead.

Thank you for taking my question. Maybe my first one is just on after following a nice 1Q, especially I think you guys came in above expectations in contribution ex-TAC, but that wasn't followed through to the full year guidance and it seems like you guys are having increased confidence in the back half of the year with an improving macro and some of those partnerships coming in. So, can you just talk about, what are the puts and takes as far as guidance and maybe why aren't you raising it from here?

Hi, Matt. Of course, I will take this answer. I think that, as I mentioned also in the earnings message, we worked very hard in the past few years in order to connect and be -- acquire and connect all these companies and technologies together, and it's coming to fruition in last year, but mostly this year, also with the rebranding taking place and fulfilling also the packaging of all the technology into one platform that we are very proud of. And all these agreements and partnerships that we mentioned, which are really impressive, they will affect us in the mid and long term and they are evidence for the strong technology and product that we built. So, it's hard to evaluate and say, what will be the forecast immediately because it's a -- it's very heavy partnership, but we believe that they will contribute meaningfully in the mid and long term, and that's why we feel very secure in order to reaffirm our results and we feel that we have a lot of opportunities in the future to grow our business in a very substantial way.

Great. Thank you. And then maybe just a follow-up, can you just talk about what the opportunity is around the Nexxen Data Platform? Maybe just how do you expect this to impact financials over the next few years? Thank you so much.

The data management platform has, today, two major advantages. One of them is, of course, we made it ready for the cookie deprecation that was delayed, what was supposed to happen this year. So, we took all the measures in order to be ready in time, and we built in the -- in our data management platform, also our ID graph that is also integrating and connected to a lot of a -- lot of industry ID graphs that are there. And it's basically enabling us to get like a much comprehensive picture and metrics when we are looking at the audiences in order to support the ability to -- basically, to deal with cookie deprecation. That's, of course, apart from the fact that about 30% of our business is CTV that is not, right now, cookie-based, which is also like helping us. It's the fact that we are end-to-end solution means that we have data from both sides that is also lowering our risk from the cookie deprecation. But we didn't want to take any risk, and we launched this program on time in order to be ready for the Google cookie deprecation. That's one point. The second one is about data enrichment. This is a massive thing for us for the last couple of years, and we believe that the data is basically the source or the glue that is connecting all these elements that we basically pull together. So, the DSP, the ad service, the SSP, we placed a very strong layer of data around that, and we have a lot of exclusive and unique databases that we basically signed partnership with. We just announced about PeerLogix. But before that, we had a very strong ACR data, which we see the importance of this type of data,…

Great. Thank you so much.

You're welcome.

Your next question comes from the line of Matthew Swanson with RBC Capital Markets. Please go ahead.

Yeah. Thank you so much for taking my question. I think maybe following up on the last question and focusing on the SMB softness within the CTV space, when we're thinking about kind of what leads to that improvement like we're seeing in Q2, I mean, is it focused on macro and budgets expanding? Is it volume getting --

Absolutely. (ph)

Yeah. I'm so sorry. Yeah, I'm at an airport.

Okay.

Yeah. I'll ask the question in a quicker version. The SMB CTV budget is increasing. Are you focused on, volume bringing CPMs down or something more along the Nexxen Data Platform being able to kind of enhance the ROI of that value proposition?

Okay. So, we just launched this platform. First of all, we are making an effort on all fronts of the CTV, and I think that we made a lot of achievements in the past few months in the -- in Q1, as we mentioned. One of them, of course, is resolving the issue with LG, which enable us to work very closely with one of the leaders of this industry on the OEM of the CTV, LG. The second one, of course, is the agreement that we signed with Roku that enhanced our capability to monetize their media. The third one is the strong partnership with TCL and exclusive managing their native media, basically, that is giving us basically today, since we have already strong relationship with Samsung and, of course, VIDAA, Hisense, is to basically able to offer our clients like very wide reach of OEMs that we can basically monetize for them and run campaigns on them. We believe that the data platform will enhance that because, basically, what we are going to do now is we are going to work very closely with our CTV partners to upload some of their data into our platform in order to be able to enrich it and to offer clients to buy much more precise audiences that they want to buy on our CTV platform in different rates. Meaning, of course, political will be probably much higher than the rest because of its nature, but we are now ready for a lot of activities that we will be able to basically also manage and use our data management platform and enrichment platform in order to reinforce the value of the CTV that we can bring to our clients. I hope that I was clear, if I understood your question correctly.

Yeah, you did. And then I'll try to get this off quick before the announcer goes again, but, Sagi, you got a lot of interesting things going on in the second half. If we think about, Nexxen Discovery position. You're better for political this year. We've obviously spent a lot of time on all the partnerships and the ramping contribution, potentially from the VIDAA data. Can you just talk a little bit about how you're kind of thinking about all these things, as well as kind of a stabilizing macro when you're thinking about guidance?

Yes. Of course. So…

Ofer, you want to take it?

Sorry.

I'll answer Matt. Yeah, I'll answer Matt. So, Matt, I think, as Ofer mentioned, it's probably, our numbers and the guidance going forward is a combination of both, some better macro and less headwind. I don't want to say a lot of tailwind because I'm trying to be cautious and I'm not sure that we are full steam ahead. And second, of course, all the different initiatives and agreements and cooperation that is taking our product to a better offering and better ROI for our customers and, of course, for our publishers. So, I think that all the things that Ofer mentioned, some of them are big partnership, which will take time in order to scale up. Of course, we are, needing to do the APIs, the testing, and then it's scaling cautiously during 2024 and hopefully much scaled into 2025. I think that our guidance is, as any other guidance within our industry, which is somewhere around 45% of the revenue will come in the first half, and 55% will come in the second half. So, for now, we feel very strong with our guidance. And if we will see, the things are going better than we are expected, which is great, we will, change our guidance going forward. But it's not the case right now. And -- but we are still confident in our ability to deliver the current guidance.

Thank you.

I agree. I just want to add one more sentence maybe, Matt, that is related to the quality of our products. I think that one of our challenges was that we have a lot of great products. Some of them we acquire, some of them we build, some of them we created after we basically connected the products. But for after a long time of basically working very closely with our product marketing teams and, of course, the people on the ground, we now know that we basically created a very strong suite of services and products that we are now delivering to the market. It took us time because it's very complicated and you need to build it right. But I think that with the tools and the technology and the products that we got now, we are seeing a lot of wins in so many fronts, and we believe that it will help us to grow our revenues and stability in the future, and that's what we are aiming for. Thank you, Matt.

Your next question comes from the line of Laura Martin with Needham. Please go ahead.

Good morning. My first one is for Sagi. Revenue went up 4% and cost of revenues went down 10%. Usually, those move in the same direction. Can you tell us what is decoupling that is allowing cost of revenue to fall at the same time revenue is growing?

Sagi? Hi, Laura.

Laura, we are reporting on a net revenue basis, so when you are saying that costs went down, you're talking about OpEx, or what exactly you are referring to?

The cost of revenue line went from 16 million to 14 million, so your costs got better. They went down less, in essence. But your revenue grew from 71 million to 74 million. Usually, cost of revenue is directly linked to revenue.

Laura, so when you're talking about cost of revenue, our cost of revenue is a little bit different than average because some of our activity is connected to our legacy performance activity, which we are reporting on a gross revenue. So, over there, we saw like an increase in the profitability, which is, revenue went up and the cost of revenue didn't went up as much. The other thing is data and hosting cost, which we optimized very, very heavily during 2023, and we negotiated a lot of our partnerships. So, now, we are seeing the fruits of that.

Okay. And then my second one is on CTV. Ofer, you have this fabulous VIDAA deal. I would have guessed that having the ACR data from VIDAA would have helped you with connected television. But yet, connected television revenue fell 11%. So, I guess those aren't linked, but I don't understand why. So, I guess I'm asking, can you give us more insights into why connected television fell 11%, which is not the industry experience other than you guys, and why it isn't aided by the VIDAA deal, which has this fabulous data from ACR?

No problem. So, the ACR is a -- you need to get to a critical mass in order to be more meaningful, and we did it in the past couple of months, and we are now signing in negotiation with a lot of meaningful partners. Some of them will be announced in the next couple of months. And we believe that it will contribute to the growth not just of CTV, but in total revenues because you basically can use this ACR in order to target also on other platforms. And the second thing is that we were very strong in the past on the CTV front. We lost some of the momentum because of macroeconomics last year and the year before. But we see now, in Q1, it was a little bit soft again. But in Q2, we see strength on CTV spend and we see the -- our partners, moving their budget back to CTV also, which is good news for us because we have to remember that most of the people that you are talking about, most of their revenues is, in some ways or form, connected to performance and we are -- most of our business is branding. So, it's different pricing and different objectives. But we see now the growth also because the momentum and sentiment in the market is changing, and we believe that we have an advantage. I believe that in the next few months, we will see growth and increase growth because of the ACR coming into play. It took us a long time to basically build it, launch it, educate our teams, educate our clients, get to critical mass that is making interesting-make it interesting also for the big players in the recent -- in this industry to basically participate in that. And I think that we are getting to this point that it's becoming meaningful. And I see that it will -- I think that it will bring us a lot of value in the near and the long term because it's unique, as you stated, and it's very powerful data, which, in so many ways, it's even strategic -- I will call it strategic because in the open web, there is not a lot of companies that's basically all these capabilities and can enable their partners to basically use it in a smart manner. And we have long-term experience with that because we started using ACR data in 2016, basically, the company, even before we joined. So, I feel strongly about the ACR, I feel strongly about the CTV, and I think that we are in a point -- turning point now that the data became more massive, more incremental. It's a -- it's reached a number that is making a difference. And we are now basically in agreement and building it that it will affect us in the near and long term.

Thank you.

Yes. And just to add to what Ofer said, I think that we are seeing, the turning point that Ofer mentioned already through Q2. So, we are in a different trend now.

Yes.

Your next question comes from the line of Andrew Marok with Raymond James. Please go ahead.

Hi. Thanks for taking my question. Wanted to talk about the non-CTV portion of the video business. We're hearing some pretty downbeat commentary maybe on it across the industry as it relates to oversupply and pricing and things like that. But you guys seem to have done a little bit better this quarter, I guess. What do you see as the industry drivers that are allowing you to do better than peers here and how do you see that playing out over '24?

So, I think that there are two major things that are making us play much better in 2024 than the year before. We have to remember that last year was the year of integration and consolidation, basically, of two major platforms that it's taking a lot of the attention of the people, of the product people, of the technology. And in this -- beginning of this year, we basically were able to raise our heads and basically do more business and not just focus most of our resources and time on the consolidation and integration. That's one. And wrapping the product in a much more meaningful manner that it makes sense for partners to basically engage and use our platforms. In the past, if I just want to remind you, we had like several names, several platforms, and so on. And now, we're -- basically, everything is under Nexxen. It's organized in a much better way, and it's making it easier for clients and partners to understand the value that they can gain by working closely with us, and we see the effect of that. So, that's one. The second thing is macroeconomic. As I just mentioned to Laura and I mentioned it to you, I think that most of the companies that we see that our peers, they have a big portion of display, they have a big portion of what we call semi-performance or performance, which is basically also working very well in -- when the macroeconomic situation is not great. Our revenues mostly in the past was branding. So, we will be affected when the market will pick up much higher than them, usually. But we also suffer in days that, the macroeconomic is still it. I think that, this year, we feel a better sentiment. We…

Understood. Thank you. If I could maybe squeeze one more in. Just any comments on the recent outline of the Google AI overview and any potential impact that could have on open web traffic and ad pricing. Obviously, not an impact to CTV, but just how you're kind of baking that into your expectations for the remainder of the year on the online video and display portions of the business. Thank you.

Well, I don't think that we feel right now. There is many movements in the industry like increased volume of media that is coming to the industry. The AI, which is, of course, another thing that is making a difference. But right now, in the day to day and so on, we don't feel it so much. We don't feel that it's like affecting our business terms and way of doing business. And I think that we'll have to wait and see how it will affect basically the market in the next few quarters.

Okay. Thank you.

Your next question comes from the line of Mark Kelley with Stifel. Please go ahead.

Great. Thank you. I had two quick ones. The first one is, when we look at the political spending environment this year, I guess, was there any part of your portfolio that you think, will be the most important? Is it the linear TV planning tool, is it more on the CTV side, or is it just mostly on video? Anything there would be helpful, and particularly as it relates to the last election cycle. And the second question, I had was…

You have some interruptions on your line. So, can you repeat that at the beginning of your question because it's like, I don't know, you have like a dead line.

Yeah. Apologies. Let me try that again. Political spending this year, what part of the portfolio are you most excited about that you think will differentiate yourself? Second question, in CTV, it seems like more inventory is becoming available to third parties. But usually, the third parties are the, biggest, most scaled platforms. I guess, how do you try to set yourself apart from those folks and gain access to that inventory? Thank you.

Okay. So, first of all, regarding political, I think that we have a very strong suite of services that is getting into play. The massive one is the discovery tool that basically enable us to create very good segmentation and learn about your audiences and reach them in a smart manner. So, we see a lot of good reaction in the market, agreements, and basically planning around using our discovery tool, which is basically aggregating a lot of our data and enable the client basically to build segmentation, get insights about their own audiences, and very seamlessly basically operate it across our DSP and SSP. I think this is the most -- this is a very interesting platform. And through that, they can basically get to the entry point. They can use the other services that they get like the cross-planning tools, which is 50 -- which is digital and linear, which is we are seeing very nice success, even not related just to political, but we see great success in this business model that we basically enable clients that are heavily invested in linear to expand into digital and people that are historically was mostly digital to basically start buying, also, linear. And we see great success in that. And it's, of course, serving also the digital world. The last point is the CTV. The -- and it's also answering, in some way or form, also your second question, which I think that we don't feel any lack of media, meaning we have great relationship and business relationship and business partnership with all the big OEM, with the other biggest CTV players like Roku and so on. We are missing some of the broadcasters that you mentioned, but we don't affect -- we don't feel that it's affecting our capability to reach the audience in the market or to have like lack of media on our platforms. On the contrary, we just grew it through, as I mentioned, the agreement that we had with LG, with the agreement with TCL, with the agreement with Roku, and with signing more and more clients -- more and more partners that's basically joining our platform in order to enjoy from self-serving tools and the demand that we can bring to their platform and other capabilities that we are basically able to provide them, and we see great success from that. So, in general, even that there are a lot of movements in the CTV world, I think that we build ourselves a very strong platform, a very strong relationship with a lot of strong players that are making it enough for us to be very successful with our clients and advertisers that are running with us in order to achieve their goals.

All right. Thank you very much.

That concludes our Q&A session. I will now turn the conference back over to Ofer Druker for closing remarks.

Thank you, everyone. Thank you for joining us this morning. I must say that I'm really excited. We worked in the last two years very, very, very, very hard in order to build a strategy and also connect the new DSP and capabilities that we acquired with Amobee into one platform. We rebranded our platform. We made a lot of adjustments to our products in order to make it more easier for clients and partners and potential partners to understand the offering that we got and the added value that we can offer them. And I feel that there is a huge movement now of clients and partners to adapt and use our technology in a great manner, which is, of course, proving again that our strategy and our product line are in the right place to serve them in the years to come with the services and opportunities that they are facing. And we are proud to be part of their strategy. And we believe that as a company, we achieved the point that, now, it's time to execute. So, we built everything. We acquired the companies. We connected them. We rebranded them. We packaged them smartly. And now, it's time to execute. And I feel very good about it for the next future because we feel that the markets start to realize what we got to offer, and we are able to explain much better what we have on our end in order to assist them in basically executing their strategies. So, thank you very much and hope to see you soon again with great results. Thank you.

And gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.