Welcome to Nexxen's Second Quarter Earnings Call. At this time, all 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 the Nexxen's Investor Relations website. I will now hand the call over to Billy Eckert, Vice President of Investor Relations, for introductions and the reading of the safe harbor statement. Billy, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Nexxen's second quarter earnings call. During today's call, we will discuss our financial and operating results for the three months and six months ended June 30th, 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 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, 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 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. 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. In the second quarter, we benefited from significantly improved execution while taking important steps to enhance the strength of our platform and advance our sales and marketing strategy to drive further momentum. Our improved ability to execute enable us to generate strong performance across the business, resulting in record Q2 Contribution ex-TAC, resulting in record Q2 contribution ex-TAC, programmatic revenues, and CTV revenue alongside significantly extended adjusted EBITDA. Our rebrand to Nexxen was clearly a catalyst that contributes to our better performance in Q2 and is continuing to position us for new and expanded partnership with industry leaders. The rebrand has driven greater recognition in the market, clarify the holistic value proposition of our full-stack offering, and fueled a better understanding of how Nexxen addresses the industry's biggest challenges, including maximizing the value of data to generate better results and returns to customers. Nexxen is placing data firmly at the center of its strategy. Data has historically given Nexxen an advantage over other AdTech competitors as our full-stack platform has been unified by a robust data management platform that integrates directly with our DSP and SSP to improve activation. Through the integration of Amobee, we were able to improve our data capabilities further by integrating some of Amobee's products into our ecosystem. Today, on top of our data-rich activation elements, we offer other unique data solutions that provide comprehensive audience segmentation, insights, and data enrichment capabilities, as well as an ID graph. Since completing the integration, we have also been able to free up resources to invest more into driving innovation. This innovation has enabled the recent release of many of the data capabilities that have helped Nexxen gain greater recognition and win new partnership with some of the leading forces in the industry. Our data capabilities…

Thank you, Ofer. In Q2, we generated contribution ex-TAC of $83.1 million, achieving 4% growth from Q2 2023 and 19% growth from Q1 2024. Programmatic revenue was $78.6 million in Q2, reflecting 3% growth from Q2 2023 and 20% growth from Q1 2024. While contribution ex-TAC from our non-programmatic business line was up slightly year-over-year in Q2 2024. Growth in Q2 was broad-based driven by enhanced sales execution, scaling partnerships, and improved market conditions. We observed strength in CTV, video, mobile, display, data products, and PMPs and across our finance, health, retail, government, and automotive verticals. On the opposite side, we observed the year-over-year decrease in our travel and technology verticals in Q2. CTV was a bright spot in Q2 as we generated $28.2 million in CTV revenue, reflecting 14% growth from Q2 2023 and 50% growth from Q1 2024. This was the second-best CTV revenue quarter in Nexxen's history, as CTV revenue represented 36% of programmatic revenue in Q2 2024, up from 32% in Q2 2023. CTV revenue growth was driven by a broad customer shift into our premium CTV solution and our partnership with Alphonso and LG Electronics beginning to scale. EMarketer projects U.S. CTV advertising spend will grow at a roughly 14% CAGR over the next several years, fueled by billions of dollars of linear budget, shifting to advanced TV, new advertiser migrating to streaming as consumer and services increasingly embrace ad-supported content, and live sports going digital. We believe our long-standing streaming DNA, TV data capabilities and solution, access to premium supply, and flexible unified platform designed to enhance CTV results for customers across the ecosystem uniquely positions us to capitalize on this long-term growth opportunity and gain market share. Video revenue continued to account for most of our programmatic revenue, expanding to 74% in Q2…

Thank you. Ladies and gentlemen, we will now begin our question-and-answer session. [Operator Instructions] Your first question comes from the line of Matt Swanson from RBC Capital Markets. Please go ahead.

Thanks for taking my questions and congratulations on the quarter. Great to see the rebound in CTV. I know we talked last quarter about some advertisers opting to lower-cost formats. Could you just dive in a little bit deeper on the dynamics that led to the growth? Kind of the mix of the benefit from more adoption of premium solutions versus the increased CTV supply that maybe makes some of these ads more affordable?

Hi, Matt. Of course, thank you for the question. For many years, we are putting a lot of emphasis on CTV, and I think that a few things happened basically, one of them is that the market is in a better condition, so people are willing to spend more on -- or to invest more on CTV channels instead of what we said before, that they were like running through cheaper channels in order to get results. Again, we see movement of budget to CTV, which is good for us. The second thing is the amount of tools and technology that we created for CTV is really unparalleled. And when you're looking at the abilities of our clients to target, to measure, and the major rooster of publishers that we got is giving them a lot of opportunities, basically not that -- not just to target well, but also to reach big audience, thanks to the spread of the publishers that we got. So they are getting much better results than usual when they are using our platform for CTV. And we see that for many -- for a long time. But now it's even enhanced, thanks to the release of our data management platform and to our -- and the enablement of the discovery with the ACR data of VIDAA that is included and enabled to create segments and audiences and to learn more insights about the users. So all of that is coming together. There is still work to do, but we are on the right trend and we see that in the numbers.

Thanks. And then also great to see the margin expansion after all the heavy lifting you've done for the platform integration. So how should we think about margins moving forward as you reap the benefits from those previous investments, but then also highlighting some of the new investments, specifically around GenAI and sales and marketing?

Hey, Matt. I think that we did this quarter 32% of adjusted EBITDA margin out of contribution ex-TAC. I think that this, again, we are weighted as our peers in the industry and as the industry all for H2. And, of course, it's all around a scale game. So as long as our scale will increase, for sure our margins will be better. Having said that, I think we are still reaffirming our guidance of around $100 million of adjusted EBITDA out of, let's take the midpoint of $342.5 million. So it's somewhere around 30%. I think that on a yearly basis, this will represent what we can do now. Of course, going into 2025, I think that we can do better. And again, the weighted margin between the different quarters is reflected and related to the seasonality. So I'm guessing that in Q4, we will do much more than 32%, but on a daily basis, and this is the way you should look at it, I think we should. Now we will settle it around the -- on the 30-ish and going forward, I think that we can do more than that.

Thank you.

Thank you, Matt.

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

Good morning. The first question I have is, could you talk about your GenAI roadmap, please? Where do you think you're going to be focusing first on integrating GenAI into your product portfolio?

Hi, Laura, of course.

Hi.

So our advantage when you look at the GenAI is that we have also a lot of points of data connected to our activation platform, which is giving us a lot of opportunities to integrate GenAI into our work stream and into our platform. The first place that we are going to integrate GenAI will be around our Discovery, which is basically the unit, the data platform that enable advertisers to source their audiences to learn about to get more insights and to get sentiment to their products and services and to create segments that they can operate on our platform. So we believe that this is the first place that we need to invest and integrate GenAI, and it's in the process already. And we believe that -- thanks to the fact that it's all around data that is connected to our activation tools, the GenAI will have like more capabilities and power. And basically, the ability of the -- of users to utilize the service will not just be based on the person that is operating the discovery tool, but from the GenAI and the accumulative knowledge and capabilities of our company.

Okay. And it's built on which cloud? Which cloud -- are you using OpenAI? Are you using Google Cloud? Which one are you using?

Google. We are using also Google and [Technical Difficulty] Cloud, but we are -- it's not, I think, the issue. In general, we are using our own infrastructure for everything, but for -- also for certain purposes, we are using Google and Amazon Cloud.

Okay. And then, my second question is about, you talked about United Airlines, which is pretty exciting, but when you do a partnership with American Airlines, is there revenue in that for you immediately? Or is it more like you do a partnership with United and that then attracts new types of advertisers around e-commerce capability in new categories? How does the revenue work when with things like United Airlines and your partnership?

So basically, when we look at the United Airlines, for us, it's the first step into the retail world, first of all, and commercial world, which is collected data, which is a very important step that they gave us the trust and we, of course, honor them and respect this step. And we do everything to touch their expectation from us and from the market. The idea is to basically enable, it's not that we are going to make you two sources of revenue. One, to operate their activity. Basically, they have their own sales team that is selling media, selling activation based on their data. And the second one is that we will be able to offer this data also to our clients on the programmatic level. So these two levels, these two revenues channels will basically come into flotation in the near future. It's new to us, so it's hard to say how much revenues it will generate for us. But since it's a very interesting data set of more than 100 million travelers, we believe that it will be meaningful in the years to come.

Okay, perfect. Thanks so much. Thank you. Have a great day.

Thank you.

Thank you, Laura.

Your next question comes from the line of Matt Condon from JMP. Please go ahead.

Thank you for taking my questions. My first one is just, you know, following the integration of Amobee, it seems that sales execution has improved. Can you just elaborate on this and maybe how you feel about the sales force and where it sits today?

Of course. Basically, about close to two years ago, we acquired Amobee, which was a bigger company than us. They had like close to 1,000 people. We were 600 people. And when you are combining to sales teams, there is a lot of noise, work, integration, and synchronization that need to happen between the teams. That's one. The second thing is the offering that need to be aligned because we are integrating new products, we are creating new offering into the market. So we need to first of all build the offering. The second thing is basically educate first of all our people about the new offering and adjust them to the market needs. Sometimes you need to, it's a process. It's not that the first time that you are creating an offer, it's like working 100%, so you need to adjust it over time. And what we saw lately is, first of all, the establishment of the team. People know their assignments. They believe they feel confident about the technology and product that we are offering. We package it and tighten the packaging in a way that they can explain it to the other side in a more meaningful and simple manner. And we feel their results, meaning, people understand what we have to offer in the marketplace. They understand what is the value that we -- that our products can bring to them, and they sign in and grow their revenues with us. And it's a process that I think that will just get better over time because basically, we are learning also from the process. As I said, it's an ongoing process. And the advantage that we got is that we basically got a lot of products that we integrated into packaging that is makes really clear advantage to the clients of the other side to use. So when our teams are aligned, educated, trained, and they are coming to the market with organized material and offering, it's working. That's why we're talking about better execution. We are hiring more people, we are basically training them better, and we are able to give them more tools in order to win in the market.

Great, that's helpful. And then maybe my second one is, can you talk about the progress you're making with the Stagwell partnership and just how demand has trended, I guess, relative to your expectations?

Stagwell is an important partner for us. We believe -- they are a great company that is basically also challenging the market in so many ways and forms. And we are in a process now of working together, training as we mentioned, educating, building together products that, they are helping us to improve some of our products because of their better experience working with clients. They are closer to clients. They are an agency, of course, and in some ways, we are helping them on a technology level. So I think it's in process and we believe that it will grow and it's meaningful because we believe that Stagwell is one of the challenges of this industry. And we believe that they will keep growing and we will be able to keep growing our business with them.

Great. Thank you so much.

You're welcome.

Your next question comes from the line of Eric Martinuzzi from Lake Street. Please go ahead.

I wanted to revisit one of the issues that you brought up last quarter, and this was mentioned earlier in the call. But this -- one of the issues for Q1 was, and the CTV revenue was the customers, small and mid-sized agency customers that were opting for the company's lower-cost programmatic display and mobile and desktop video solutions. This recovery that we're seeing in that business is these same customers coming back because their end advertisers have budget, or is this kind of larger brands and agencies moving the needle for you?

Basically, when you're looking at business, business cannot grow so fast, Eric, just based on new money. It's always a mix of better revenues that is coming from your current clients. And we have hundreds of clients, other of partners and clients, advertisers that are buying from us, CTV media. So what we feel that, as I mentioned, better education, better sales processes that we basically brought into the game because of what I answered before about the better integration, alignment of the sales teams, and so on. And of course, something which is very meaningful in CTV is what I mentioned in the first quarter is true, and that's what's happening. And you can see that across the industry is basically when there is, like doubt or uncertainty, people are pulling their budgets more to the side of performance media and less to CTV. And I end inventory. And that's what helped us last year, in the beginning of this year. And we see improvement in the sentiment of the advertisers to invest more. And together with our better capabilities, better organization, and more tight products and offerings, we see the upside and we see the results in the CTV front, which made a very big jump in revenues and in our capability, basically to provide good solutions to partners.

Okay. And then revisiting the free cash flow expectation for 2024. Sagi, I think you've said this, roughly $100 million of adjusted EBITDA. You expected that to translate into around $60 million free cash flow. Is that still the expectation for 2024?

Yes. I think it still -- it's like the, you know, the low range of what we are anticipating. It can go up to 65%. But yes, this is like the -- you know, the range that we anticipate that we can generate through 2024. Of course, we are still utilizing a lot of the cash through our buyback plans, the one that we already ended in Q1 of the $20 million that we announced already at the end of 2023 and issued a new one in April, May of $50 million. So, yes, as long as, the Board and Management will think that the undervalue of the company is worth spending our money and buy back our shares, we will continue to do that as well.

Thank you.

Thank you, Eric.

Your next question comes from the line of Mauricio Munoz from Raymond James. Please go ahead.

Yes, thank you for taking my question. This is Mauricio Munoz for Andrew today. Yes, I just wanted to go back to the questions on margins. So, Sagi, obviously, margins were quite strong in the quarter, and just trying to understand the sources of upside and how sustainable these are. So you talked about your ability to capture cost efficiencies, and I'm assuming some headcount rationalization and maybe capability integrations now that Amobee has been fully integrated for over a quarter. But just wondering about any positive margin contributions from the revenue mix, particularly any margin upside from data licensing revenue or as VIDAA license revenues ramp with the platform scaling. So any color around that would be helpful.

Sure. So I think you touched all of the right points we announced yesterday on our the -- on Nexxen and The Trade Desk partnership around ACR data in the U.S., Canada, U.K., and Australia. I think that this is like the -- our foray into the -- into this vertical or line of business where we are generating money out of the data that we have exclusively. And probably over time we will have more partnerships on that front and the revenue that will generate from that will grow up as the partners will use it and utilize it more and more as they will see the benefit from that. And as VIDAA and plus Hisense will sell more TV sets. So I think that this line of business is contributing direct to the EBITDA line. We don't have any cost or any extra incremental cost around that. I think that's what I said. You know, everything in our industry is the right seasonality. So we can have, you know, a better quarter or a much better quarter. And the margin, and the adjusted EBITDA line will be better at that quarter specifically. But again, I think we should look on our margins on a yearly basis. And for that, I think that in 2024 we are going to generate something around the 30%-ish. And going forward, as you said and as Ofer mentioned, the Amobee integration that is already been fulfilled. I don't want to say long time ago, but it's already there. I think that now, as we said in the call before, we are back on the offense and we are going to more and more efficiency and more cost leverage on our cost base. And I think that in the last, I don't know, four quarters at least, we are seeing like the numbers of the total headcount of the companies decreasing revenue quarter-over-quarter. And of course, this is helping to increase our margin and it will be the same as we will move forward.

Great, thank you. Very helpful. And then on capital allocation, maybe you can give us an update on your plans. Obviously, the retired $100 million in debt, now have $152 million in cash. So I'm assuming that following the acquisition of Amobee, you're probably going to pause on your M&A plans. But how should we think about the pace of the outgoing -- ongoing share buyback program and any plans to simplify your share structure? Thank you.

Yes. I think, as I said before, we are generating money on a regular basis. Our net cash after we fully repaid our $100 million of loan that we took in order to finance some of the Amobee acquisition already was fully repaid. And we will keep generating money. This is our DNA and this is our plan. And as long as Management and Board will think that the value of the company or the -- is undervalued in the market, we will keep on buying back our shares. And according to your first part of the question, yes, I think that now after the full integration of Amobee, we don't think that we are missing like any critical part and any important part. Of course, we may go into something that can add a critical piece that we may need, but again, it will be a small acquisition or an IP acquisition in order to make a fast progress instead of develop it by ourselves. But again, we are not actively engaged in any M&A, and we are not looking actively for any M&A, where we think that we have all the parts we need and it's now only about going to offense, execute, and scaling our numbers up.

Great. Thank you.

You're welcome.

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

Great. Thank you. Good morning, everyone. I want to ask you about just CTV bigger picture. Are you seeing more biddable open programmatic transactions or is it still primarily private marketplace deals? And then second, can you maybe expand a bit on the commerce media strategy over the long term? Do you see that more as like a data strategy, or is it going to be data paired with your ability to buy across disparate commerce media and retail media networks? Any help there would be great. Thank you.

I will start with your second question about the usage of data with retail media and in general. So we are not trying to become like traders in data in general, but we are utilizing data in two elements. One of them is on the DSP side in order to enable better targeting for advertisers in order to reach better results. And usually what we do is, we tie our ability to provide data to people spend moving to our platforms and to our platform from technology perspective and our platform from media perspective, which of course contributes to us meaningfully. So this is something that we are putting in place for a long time on the advertiser side. Also for publishers. Publishers started to use data in a very meaningful manner in order to upgrade their capabilities to sell, not media, but audiences. And we see this trend growing and we want, of course, to be part of that because we believe in the ability to generate meaningful revenues from the combination of data and media. So that's one thing that we are doing. In some cases, we can sell also just data, but it will not be the majority of the revenues that we will generate from that activity. And we believe that the major thing will come when we will basically merge it or connect it to media. On the question of CTV, if you can refine your question, it will be great just for me to understand what you are trying -- me to answer about.

Yes, of course. Sure. Yes, I guess in terms of how CTV inventory is bought today, are you seeing a shift towards more biddable and kind of open programmatic, or is it still private marketplace direct deals that you're seeing primarily today? Thank you.

I think it's a mix. I think that advertisers are closing deals with publishers and they want to run one-to-one, as they call it, which is they need the pipes in order to do that. And they can use our technology in order to do that in a very good manner. Or sometimes they want to buy it programmatically. We are -- of course, we are enabling -- we are able to do both. And we can enable our partners to buy one on one or to buy programmatically. In general, I think that there are -- it's a -- the market is opening up. You see a lot of new publishers coming into the market, increasing their inventory and opportunities from one side. On the other side, you see more and more advertisers that are interested to create one on one deals with certain publishers in order to buy their media. And of course, we respect both. It's hard for me to say which one is bigger right now because I think that even that we are in -- a major player in CTV, it's very hard to say the full picture because right now we see that -- we see growth. We see a lot of programmatic, of course, activity, but we start to see growth on one on one when people are basically using our technology in order to serve campaigns on publishers that they -- one, they can ask to buy just these specific publishers or they have a deal with these publishers that they can utilize through our technology.

Great. Thank you, Ofer.

You're welcome.

As there are no further questions at this time, I would now like to turn the call over back to Mr. Ofer Druker for closing remarks.

Thank you. So as we indicated also in our PR and our message, after a long period of time of working very hard in order to integrate the companies that -- the company that we acquired, Amobee, into our company to match the sales teams like was mentioned here in our conversation, to build a unified offering and messaging and basically to be able to package better. And after the rebranding process that we did last year, that helped us a lot and help people to understand better what we are offering. We see very good improvement in the parameters and the performance of the company from almost every aspect that we can look at. And we are happy about it, of course, because we worked for a long time, very hard in order to create this situation, and we are really excited and we believe in what we are doing. We still hold our strategy, which is around CTV video and enhanced data that is basically unifying our platform and touching every point of the journey. And I think that we are equipped with the right tools and partnership in order to be a major player in this industry around the elements that I just mentioned, which is video CTV and data. So thank you, everyone, and hope to see you soon again. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.