Nexxen International Ltd. Q3 FY2022 Earnings Call

Welcome to Tremor International's Third Quarter and 9 months ended September 30, 2022 Conference Call. 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 and will remain posted there for the next 30 days. I will now hand it over to Billy Eckert, Senior Director of Investor Relations, for introductions and the reading of the safe harbor statement.

Thank you, operator. Good morning, everyone, and welcome to Tremor International's Third quarter and 9 months ended September 30, 2022 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 investors.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 advise caution and reliance on forward-looking statements. These statements include, without limitation, statements and projections about our anticipated future financial results including discussions about our revenue, margins, expenses and guidance for full year 2022 and full year 2023 as well as future business, anticipated benefits of Tremor's strategic transactions and commercial partnerships, anticipated features and benefits of Tremor's products and service offerings, Tremor's positioning for future growth in both the U.S. and international markets in the fourth quarter of 2022 and beyond, Tremor's implementation of a substantial share repurchase program while also continuing to evaluate strategic opportunities to acquire companies and invest in technology, product sales and marketing to further expand its platform, Tremor's medium- to long-term prospects, management's belief that Tremor's well positioned to benefit from anticipated future industry growth trends and company-specific catalysts, the potential negative impact of inflationary pressures, rising interest rates, geopolitical macroeconomic uncertainty, recession concerns and the widespread global supply chain issues that have limited advertising activity, and the anticipation that these challenges could continue to have an impact for the remainder of 2022 and beyond, the anticipated impact of the FIFA World Cup on Tremor's anticipated performance, the anticipated benefits from the company's investment in VIDAA and its enhanced strategic relationship with Hisense. We anticipated benefits and synergies from the Amobee acquisition and the ability of Tremor to continue to recognize those synergies, Tremor's ability to continue to execute on cross-selling opportunities and its introduction of new technology products to a significantly larger customer base and addressable market, the timing to complete the technology integration of Amobee and 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. 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 and 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 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, Chief Executive Officer of Tremor International. Ofer, please go ahead.

Thank you, Billy, and welcome to everyone joining us today. I will begin by providing an overview of our results, recent achievements, and strategy. Then we'll hand the call to our Chief Financial Officer, Sagi Niri, to discuss our financials. Q3 was one of the most strategically important quarters in the history of our company. We accomplished several goals we have been working towards since late 2021 that further enhanced our strength within CTV and data. We also gained new strategic linear TV capabilities, which we believe will enable several growth opportunities across a large addressable market while positioning us strongly for the future as CTV and linear continue to converge. First, we closed our acquisition of Amobee, which was the largest in our history. I'm pleased to report that we successfully fulfilled significant cost-cutting measures and already realized the entire $50 million in total annualized operating cost synergies we initially expected. Within the first 18 days of closing the acquisition, we were able to generate a positive adjusted EBITDA from Amobee. This is a major testament to our ability to successfully integrate companies and quickly realize benefits for our shareholders as Amobee was a loss-making business when we acquired it. The acquisition significantly expands our financial scale, reach, customer base, and talent footprint, and enables strong cross-selling opportunities. Tremor has a robust footprint in CTV and video, while Amobee's DSP has a strong omnichannel position, including across display, mobile, and performance. We believe the complementary nature of the two DSPs will enable Amobee customers to allocate more of their overall advertising budget to CTV and video and offer Tremor customers self-service DSP tools and the added omnichannel and data capabilities. Additionally, a very minimal amount of advertising dollar spend across Amobee DSP were purchasing ad inventory from the annual SSP prior to the transition. Over time, we will work together with Amobee's customers to enable them to realize the data advantages of our platform and the cost benefit of transacting end-to-end, which we believe can also drive added revenues and profitability to Tremor. Amobee also enhanced our technology footprints across enterprise self-serve DSP, performance media buying, CTV and advanced data for different stages of planning while adding very important new linear TV capabilities. As CTV and linear continue to converge, this new capability strongly and uniquely positions us for future success within the industry as I will elaborate on. Amobee advanced TV planner, or ATV, gives us a new ability to work and cooperate with traditional TV broadcasters. ATV assists broadcasters by providing planning technology that they can offer to advertising partners to better understand how to optimally run campaigns on their inventory to reach their target audience. Our pre-existing strength in CTV and having an in-house SSP enables strategic cross-planning capabilities between digital and linear. We believe this capability will open several new facilities and capabilities for Tremor and its partners because we can now work with them to utilize reach and plan campaigns across both media platforms. In August, we also closed our $25 million investment in VIDAA, a smart TV operating system and subsidiary of Hisense. We believe Hisense is one of the leading innovative growth brands in the CTV manufacturer market. They also acquired the Toshiba TV subsidiary several years ago, which further expanded their reach. Our investment in VIDAA extended for multiple years the exclusive global agreement to share VIDAA's ACR data for global targeting and measurement across our platform. VIDAA also granted ad monetization exclusivity in the U.S., U.K., Canada, and Australia to our Unruly SSP and Spearad ad server for the next couple of years. The ACR agreement enables us to offer additional data sets and advertising opportunities to our customers and is expected to enhance our TV intelligence solutions. We also believe that data exclusivity creates new potential revenue opportunities for Tremor, SSPs, advertisers, and streaming providers seeking this data for targeting and measurement. ACR, or automatic content recognition data, is viewership data collected from the Smart TV, which enables us to understand what content and commercials consumers are exposed to. With increasing market share, we anticipate growing our ACR agreement with VIDAA and positions us to take advantage of increased customer data for targeting and measurement purposes, which is critical within CTV. The data is also quite unique in the ecosystem as many other major smart TV OEMs monetize ACR data in-house. Tremor now, through the agreement, becomes a major enabler of smart TV ACR data to the open Internet—a key differentiator and potential growth driver. According to Comscore, earlier in 2022, Hisense and Toshiba accounted for approximately 10% of the U.S. smart TV OEM markets. Market research agency or media also reported that for the first time, Hisense in Q2 2022 ranked second in the worldwide volume share of shipments. As Hisense works towards further penetrating the U.S. and global smart TV market, Tremor should further benefit from its investment in VIDAA. If VIDAA and Hisense continue to expand their market share, this anticipated increase in TV distribution will make the ACR data even more desirable for advertisers seeking targeting and measurement capabilities. Tremor is also utilizing its end-to-end platform and leveraging its close relationship with VIDAA and its partners to exclusively monetize ad inventory shown within the FIFA+ app across connected TVs. VIDAA's partners will distribute the FIFA+ app globally across their smart TV devices as well. Between the combined reach of VIDAA and its partners, we believe Tremor will have ad monetization exclusivity on FIFA+ across more than 100 million smart TVs globally during the FIFA World Cup. As part of this exciting large-scale project, FIFA also granted Tremor the global rights to monetize ads on its FIFA+ website and mobile inventory during the tournament. This project reflects a sizable revenue opportunity for us. We also anticipate additional sport-related opportunities in the future, as Hisense has made sports sponsorship and exclusive sports content opportunities a key part of its growth and marketing strategy. In addition to all these milestones, we achieved in Q3, which position us strongly for the future. We also continue to expand our market share within CTV. CTV spend across our platform during Q3 was $73 million, which reflects an increase of 45% compared to Q3 2021. This $73 million also includes 18 days of results from Amobee. CTV is the fastest-growing segment within digital advertising, and we are incredibly pleased with our progress in growing and expanding our capabilities on this front. We also generated continued margin strength, achieving an adjusted EBITDA margin of 46% as a percentage of contribution ex-TAC during Q3, which also includes 18 days of results from Amobee. This highlights the efficiency and resiliency of our technology platform and business model, which enables us to generate robust profitability and cash flow despite a continued challenging macroeconomic environment. Spending by advertisers in Q3 remained constrained by rising inflation, rising interest rates, supply chain constraints, the ongoing war in Ukraine, macroeconomic uncertainty, and recession concerns. We continue to expect these headwinds to persist for at least the remainder of 2022 and likely into 2023. July and August were particularly challenging months for advertising demand. That said, we saw our results improve throughout the quarter and ended Q3 with a strong September. We have also seen some initial evidence of advertising demand from our customers increasing as a result of the U.S. midterm election cycle and fourth quarter seasonality. This has been encouraging as we also believe we will experience added benefit related to several upcoming catalysts, which can help offset some of the expected negative macro headwinds. During the quarter, we also completed our previous $75 million share repurchase program and announced an additional $20 million share repurchase program that began on October 1. In the quarter, we purchased approximately 6.4 million ordinary shares for a total investment of approximately GBP 24.9 million or $29.7 million. For the entire program, we repurchased around 13.8 million ordinary shares, which reflects roughly 9% of shares outstanding. Our ability to have repurchased a sizable amount of shares at what we believe are discounted levels while making a significant strategic acquisition and investment is a testament to our modest cash-generating ability and profitability. Finally, we continue to generate robust momentum across Tremor Video and Unruly, adding a significant number of supply-side partners and new advertiser customers. During Q3, Unruly added 82 new supply partners, including 33 in the U.S. For the first 9 months of 2022, Unruly added 232 new supply partners, including 104 in the U.S. Supply partners were added across sports, news, and entertainment verticals and several formats, including online video, mobile, CTV, and over-the-top apps from leading broadcasters and virtual multichannel video programming distributor businesses. Tremor Video during Q3 added 56 new advertiser customers and 191 for the 9 months ended September 30, 2022, across retail, automotive, political verticals, and others. Despite the challenging macro backdrop, we continue to generate strong results and adoptions across our technology ecosystem and reinforce our strategic positioning within the industry, which we believe positions us well for future growth. It's now my pleasure to turn the call over to Sagi to review our financial results.

Thank you, Ofer. Today, I will review highlights and key financials and operational drivers of our Q3 and first 9 months of 2022 performance, which include 18 days of results from our completed acquisition of Amobee. For the 3 months ended September 30, 2022, we generated contribution ex-TAC of $64.9 million compared to $76.7 million in Q3 2021, alongside Q3 adjusted EBITDA of $30.1 million compared to $42.3 million in Q3 2021. Our Q3 2022 figures include 18 days of results from our completed acquisition of Amobee. During July and August, we experienced pressure on our contribution ex-TAC due to a variety of macroeconomic challenges, which impacted advertising demand across several verticals and formats. However, we are encouraged by the results we generated in September and have seen initial evidence of potential recovering advertiser demand across our customer base to this point in the fourth quarter. We also continue to expand our share within CTV as CTV spend on our platform, including 18 days of results from Amobee, was $73 million during Q3 2022, which was a record for us and reflected year-over-year growth of 45% compared to CTV spend of $50.4 million during Q3 2021. We believe we are well positioned for future growth within CTV and video as programmatic transactions continue to increase in popularity across the advertising ecosystem as AVOD continues to grow and as we expect performance budgets to move towards CTV and programmatic in the future. Amobee also creates more CTV advertising cross-selling opportunities within a newly acquired customer base and we expect the integration of Spirit as well as our investment in VIDAA to provide us ample opportunities to continue growing share within CTV and video. Including Amobee, video, including CTV, continues to reflect the overwhelming majority of total Q3 and 9 months 2022 contribution ex-TAC at approximately 87% and 81%, respectively. Our profitability remained strong as we generated a Q3 2022 adjusted EBITDA margin of 43% on a reported revenue basis and 46% on a net revenue basis, which includes 18 days of results from Amobee. For the 9 months ended September 30, 2022, we generated contribution ex-TAC of $206.7 million, including 18 days of results from Amobee compared to $213.4 million over the same prior year period. Over the same period, CTV spend, including 18 days of results from Amobee, was $183.9 million compared to $138.4 million during the first 9 months of 2021, which reflected a record for us and a 33% year-over-year increase. During the first 9 months of 2022, CTV spend, including 18 days of results from Amobee, reflected 39% of total spend and 44% of programmatic spend. We also generated adjusted EBITDA of $102.9 million during the first 9 months of 2022, including 18 days of results from Amobee compared to $107.2 million adjusted EBITDA in the same prior year period. We generated an adjusted EBITDA margin of 45% on a reported revenue basis and 50% on a net revenue basis over the first 9 months of 2022, including 18 days of results from Amobee. Turning to our cash flow, we generated net cash from operating activities of $12.6 million for Q3 2022 versus $44.6 million in Q3 2021. For the September 12 through September 30 period, Amobee contributed negative $13.8 million in net cash from operating activities to Tremor's Q3 2022 results. For the 9 months ended September 30, 2022, we generated net cash from operating activities of $59.1 million including 18 days of results from Amobee versus $121.4 million in the 9 months ended September 30, 2021. As of September 30, we add $109.1 million net cash following the closing of our VIDAA investment and Amobee acquisition as well as the completion of our $75 million share repurchase program. As we mentioned in the past, we secured a new $180 million credit facility in relation to the Amobee acquisition, under which we utilized $100 million in addition to existing cash resources to satisfy the purchase price. Within the new credit facility, we drew at closing $90 million from a secured term loan as well as $10 million from a revolving credit facility. The remaining $80 million on the revolving credit facility, alongside our existing cash resources provide us ample liquidity for future potential strategic investments and initiatives. We experienced 99% free cash flow conversion for both the 3 and 9 months ended September 30, 2022, including 18 days of results from Amobee. Non-IFRS diluted earnings per ordinary share was $0.11 for Q3 2022, including 18 days of results from Amobee versus $0.21 in Q3 2021 and $0.42 for the 9 months ended September 30, 2022, including 18 days of results from Amobee versus $0.56 for the 9 months ended September 30, 2021. As Ofer mentioned, we're very pleased to report that the Amobee integration is ahead of schedule and that we've already realized our initially anticipated $50 million in total annualized operating cost synergies on a combined pro forma basis. We fulfilled significant cost-cutting measures, successfully generating positive adjusted EBITDA from Amobee within the first 18 days of closing the acquisition. Most of the synergies to this point have come from the consolidation of human capital into one combined team, and we've reorganized Amobee employee base to focus efforts on the highest growth opportunities. We focused on retaining key talent from Amobee in sales, marketing, product and technology to enhance our product and fuel our future growth. Employee efficiency is a pivotal part of our operating model's long-term strategy as well as our integration strategy. This efficiency has also been a key enabler of our historically strong profitability and highlights our proficiency at managing the business, maximizing return on assets and maximizing return on invested capital. We expect this efficiency will continue to be a strong future growth driver for us while also positioning us well during challenging advertising demand environments. Laura Martin at Needham recently released a report stating that from Q4 2020 and through Q2 2022, Tremor improved its trailing 12 months revenue per employee by approximately $297,000, which was the largest increase of any company within our ad tech coverage universe over that time period. According to Laura, our Q2 2022 productivity of around $623,000 per employee was second only to the Trade Desk at around $642,000 with our ad tech coverage universe and well above the mode value of $300,000 to $400,000. In our opinion, this proves that the largest companies in this space aren't necessarily the most productive in maximizing and improving employee utilization and maximizing their asset efficiency for their business and shareholders. We also believe our historically strong employee utilization serves as a strong barometer for the success we expect to achieve with our newly integrated Amobee team members. Additionally, we've also made progress in consolidating duplicate spend on vendor contracts and technology fees and services. As we work towards fully completing the integration, we believe we've identified an additional approximately $15 million in operating cost synergies and now believe we will realize approximately $65 million in total annualized operating cost synergies on a combined pro forma basis upon the completion of the integration. We also believe the integration will now be fully completed by the end of 2023, with the vast majority expected to be completed by the end of Q2 2023. Moving forward, our sales team will continue to focus on introducing and demonstrating Tremor Video's platform capabilities to newly acquired Amobee customers towards capturing additional CTV and video budget while also introducing Tremor Video customers to our new Amobee DSP to offer opportunities to boost self-service stands across our ecosystem as well as additional omnichannel capabilities. We will also introduce the end-to-end benefits of leveraging Unruly to advertisers running campaigns through Amobee. Very minimal amounts of advertisers' dollar spend on Amobee DSP have purchased ad inventory through Unruly in the past. However, as we work towards migrating some of the spend to Unruly, we believe we can capture take rates and profitability on both DSP and SSP sides while providing efficiency, data, and cost advantages for customers. We will also be working to expand our relationship and revenue footprint with linear TV broadcasters through our newly acquired ATV technology and position ourselves even more strongly as budgets are deployed across both linear and CTV. The new data-driven tools we gained through the acquisition also enabled us to provide desirable added benefits for current customers to expand their revenue relationship with us while offering opportunities to also introduce these benefits to land and expand within a newly acquired customer base. They also further expand our technology ecosystem and product offering for advertisers, linear TV broadcasters, and CTV media customers, where we can now assist them even more with planning and executing campaigns across CTV and linear TV, eliminating the need to leverage several partners or technology solutions to accomplish this goal. Finally, I'll now turn to our outlook. For full year 2022, we now expect contribution ex-TAC of approximately $310 million and adjusted EBITDA of approximately $140 million, including results from Amobee. This lowered guidance factors in continued challenging market conditions, which we cited that have impacted advertiser demand. We continue to believe these challenges will impact results for the remainder of 2022 and into 2023 as well. However, we believe we will experience positive tailwinds in the fourth quarter related to anticipated increased advertiser spend associated with the FIFA World Cup, where we have a number of catalysts and important exclusivity. For full year 2023, we now expect combined contribution ex-TAC of approximately $460 million and combined adjusted EBITDA of approximately $180 million, including results from Amobee. Despite ongoing market headwinds, the efficiency and benefits of our end-to-end operating model, continued focus on CTV, video and data, strong fundamentals, powerful partnerships and differentiators, and recent milestones position us incredibly well to capitalize on future growth opportunities while continuing to generate high levels of cash and profitability. Our newly enhanced suite of product solutions allows us to holistically serve advertisers and media customers across linear and CTV in ways we believe no other single technology company can. I’m very excited for Tremor International’s near- and long-term future and positioning within the industry. With my remarks completed, I'll turn the call back to Ofer.

Thank you, Sagi. Over the last several months, despite ongoing challenging market conditions, we managed to execute on our long-term strategy, which we believe will help further enhance our position in video and data and further boost our already robust strength within the CTV and TV ecosystem. We believe our efficient end-to-end operating model and continued focus on generating strong profitability, high margin, and a significant level of cash flow, enable critical flexibility for our business. This flexibility is even more important and a tremendous advantage during uncertain economic periods and uncertain advertising demand environments. We expect all of these recent wins alongside the pre-existing strength of our end-to-end model to create a strong flywheel effect that will empower our future growth through expanded relationships with both current and new customers. We are excited to continue executing on our long-term strategic vision and remain accurately focused on generating value for our customers and shareholders. Operator, we will now open the call to investors' questions.

Your first question comes from the line of Matt Swanson from RBC Capital Markets.

All right. Thanks for giving that data point from Laura. I think it really highlights the efficient way that you've been able to grow this company. To that point, could you just talk a little bit more about the early cost synergies from Amobee? And any updates around thoughts around the integration that you've made or discovered in the last couple of months? And then any updates or comments on what you've seen from early customer reactions on both sides from Tremor's and in the Amobee DSP or Amobee customers taking the full stack? That would be great.

Thank you, Matt. I will begin by discussing what Amobee offers us and the rationale behind our acquisition, as it's crucial to this conversation. Firstly, the ATV platform, which is Amobee's TV planning tool, is very effective during this time. We notice that CTV and linear TV are increasingly converging, compelling advertisers to strategize their budgets for both platforms simultaneously. With the influx of advertisers from entities like Netflix entering the advertising video and streaming space, we expect an uptick in spending across CTV and streaming solutions. Advertisers will need to consider their linear TV expenditures when allocating cross-platform funds. This is a critical aspect for us. Amobee, due to their previous limitations without an SSP like ours, struggled to engage with CTV effectively. With our SSP, we can align it with linear TV and provide advertisers with a superior overview of their planning and activation capabilities. Consequently, we're already observing a positive response from Amobee's previous partners and those interested in adapting our tools for future progress. Secondly, Amobee's enterprise DSP, developed over many years, has established robust partnerships that we believe will facilitate the integration of our activities. This will enhance our capabilities in omnichannel and performance, which are highly sought after in the market. There is a clear demand for this as we discuss cross-selling between teams, enabling us to offer more substantial product capabilities around CTV. The third component involves the effective collaboration of the strong managed sales teams from both companies, which we are currently merging. The integration will enhance our offerings, particularly in CTV, performance, and omnichannel aspects, adding considerable value. Lastly, our focus will be on reallocating budgets and working closely with Amobee's advertisers and partners to educate and inform them about the benefits of transitioning to the comprehensive solutions we provide and the accompanying cost advantages. We aim to shift more budgets from Amobee to the Unruly platform, which could significantly boost our future revenues and profits. All of this is already in motion, and we sense a favorable market reaction. The Amobee platform enhances our credibility and connects us with about 500 clients globally, whom we are now integrating into our systems. We are moving quickly in this integration process, aiming to complete the technological integration by the end of 2023, with major developments anticipated by the end of the second quarter of 2023 when we will merge the DSPs and platforms.

Yes, no, that was everything I was looking for and more. I guess a second, and this is for Sagi, thinking about the macro, I mean the headwinds are all pretty apparent that we've seen from peers this being a challenging environment. But you also have some secular tailwinds, I think, particularly around CTV, and you kind of mentioned there are some catalysts amongst this more challenging macro picture. So how are you balancing those two things when you're thinking about guidance, especially for next year?

Thanks, Matt. I think we are trying to be conservative on our guidance since the macroeconomic and geopolitical issues are out there. We are trying to be cautious. And of course, also bright for the good and the other way. We are experiencing a very nice growth in our CTV market share, which we assure that we will continue that. But on the other hand, we have, as Ofer mentioned, some CTV clients which are seeing, because of inflation and recession, some headwinds to their businesses. And of course, it's affecting their ability or their advertising budget that they are taking into the market. So I think we are taking all of the different parameters anticipated in front of us, and we are trying to give the conservative and cautious guidance that we think we can handle through Q4 2022 and into 2023.

Your next question comes from the line of Laura Martin from Needham & Company.

I have a couple of questions. Let's start with the revenue. Our IFRS reported revenue decreased by 7%, and we had 18 days in that quarter. Now, we're projecting 18% growth for the fourth quarter. If I exclude Amobee, what is the organic growth? My concern is why you are confident in reporting such a significant slowdown in revenue while still expecting positive organic growth in the fourth quarter.

No. So I think the guidance that we gave for Q4, and of course, for full year 2023 is with Amobee on a consolidated basis. So we are not seeing a huge organic growth with our solo business. But as we said in the past, the minute we completed the acquisition of Amobee, we are looking at assets as one company, one platform. Everything has been consolidated into one sales team, one marketing team, one product and research and development team. So we are not looking at it on a solo basis. We are looking at it in a group, and on a group level, this is the guidance that we gave. We will not, by the way, in the future, like will give an Amobee number or Tremor International number.

Right. So you're saying all of the growth in Q4 is because of Amobee. You are projecting negative same-store growth in Q4. That's what you're saying?

I'm not saying this strictly, but we are not experiencing significant organic growth on our own. However, we believe that everything becomes organic once we consolidate the two companies into one.

Okay. My other question is about your press release that states you have achieved all $50 million of projected synergies within the first eight weeks since the acquisition, which was initially expected to take 12 months. Now, you're projecting $65 million in synergies. How did you manage to achieve $50 million in synergies in just eight weeks of owning this company?

We are actively working on several initiatives. First, we are analyzing growth synergies and restructuring the company by integrating managers from Amobee into the Tremor management team. We are proactively building the teams we want to move forward with and making changes quickly after the acquisition to ensure that employees feel secure in their positions. Once we established the new organization, we implemented changes throughout management and the teams. We have the experience to make these transitions efficiently. Additionally, we are focused on maintaining effectiveness and efficiency within the company to avoid uncertainty among staff. Our strategy involves reorganization, rapid action after the acquisition, and having a clear vision of our goals with Amobee at Tremor. We aim to create a strong and capable company that offers unique services and solutions to partners both in the U.S. and globally. We believe this acquisition and the swift organizational changes we made, which required significant effort in Q3, will be beneficial as we pivoted our strategic investments. Notably, before shifting our focus to Amobee, we were exploring other opportunities in the market to enhance our capabilities by acquiring another demand-side platform and connecting it to our operations. Alongside this, we also completed our investment in VIDAA.

Yes, you will see it as a restructuring line.

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

Would help if I took myself off mute. I was hoping you could talk about Amobee a little bit more just in terms of how much of having Amobee in-house and being able to look under the hood a bit more has impacted your outlook for 2023. I totally get the macro stuff, but it also sounds like after July and August, maybe things have stabilized and maybe even started to improve there. So just more color on the Amobee side would be great. And second, can you talk about how much visibility you get into the World Cup spend? Is that something that you have visibility to upfront? Or is it more scatter and programmatically bought stuff?

So maybe I will start with FIFA and then I will move to Amobee. Regarding FIFA, I think that we have a very unique opportunity that in a regular year or a regular period of time, not under this pressure of the macroeconomics inflation and so on, we can expect to generate much more revenues because we are talking here about being distributed on more than 100 million TVs globally. This is a major achievement. This is the first time that an event this size and importance is taking place on CTV. I think it's a major success of us connecting all the points of bringing FIFA, partnering with VIDAA, and securing distribution. We have people already placing orders into the book to buy advertising around that. We believe a lot will come programmatically because more than 100 million TVs will drive high adoption of the FIFA+ app. People engage with this content, and it matters to them. Not being from the U.S., I know people like me enjoy following these games closely. For us, as foreigners, there is immense interest in FIFA, and we believe in the U.S. market there will be a growing adoption as well. One significant issue that clouds this is the macroeconomic situation and the timing of the games, but generally, we believe in our content distribution that is unique, exclusive, and powerful. We are excited for the FIFA event which starts on November 19. Regarding Amobee, after evaluating many companies, we see Amobee as a key to our success on various levels: advertising planning, discovery, and activation are essential for us. Additionally, working closely with major broadcasters that Amobee engages with globally will open many new markets that were previously unattainable. There is a strong demand for cross-selling capabilities between our existing clients and the new clients we can attract from Amobee.

Your next question comes from the line of Andrew Boone from JMP Securities.

I want to discuss a couple of smaller line items that seem to be affected by the macro environment. Can you clarify the difference in performance regarding gross revenue and the 41% decline we experienced in Q3? Also, regarding non-video programmatic revenue, I’m trying to figure out the numbers, and it appears that display or similar categories are also down about 40%. Is there anything noteworthy in those two areas? Lastly, concerning the World Cup, when media rights are purchased with exclusivity, is there anything we should consider about TAC or required payments in light of the current macro softness for Q4? I'll stop there.

Okay. Andrew, I'll answer the first question. I'm not sure I got 100% right, but I'll try. I think that our performance activity is not something that we are trying to focus on. Of course, it's been helping us, and we can help customers, advertisers, and agencies with gross activity. The first month of 2022, performance activity did well. We showed some softness on the performance side, which relates primarily to our DTC clients decreasing their advertising budgets due to inflation and recession. Regarding your video question, we're heavily invested in video format, which is the fastest growing and most engaging. Amobee has a robust omnichannel DSP, which conducts most of the advertising budgets, primarily using display. This gives us great opportunities in the future to take Amobee's features and integrate them into our clients while cross-selling and vice-versa. I hope that addresses your query. About your second question— Just one thing to note regarding the investment in VIDAA, it gave us an amazing relationship with this company, which is the operating system of Hisense. Hisense is heavily invested into sports sponsorships. As part of that, VIDAA benefits from having exclusive content. We're benefiting from this relationship with VIDAA and do not have any minimum guarantees that impact our earnings; we’re just benefiting from this relationship.

Your next question comes from the line of Andrew Marok from Raymond James.

Could you provide insight on how Amobee is performing compared to the core Tremor business in light of recent macro trends during the first 18 days? Additionally, as we look ahead to 2023, could you elaborate on your assumptions regarding the macro environment and the expected trajectory of the recovery?

Regarding Amobee risk sensitivity, I think that we run on the same risks; the overlap of the clients is minimal since we have a different focus in some areas. The overall sentiment between our platforms is relatively similar. With respect to macroeconomic forecasts, it's tough. As a company, we need to be cautious; predictions about the macro environment are challenging. However, we did see some uptick in the fourth quarter, which typically happens, and we also believe the midterm elections will provide additional tailwinds. We need to stay alert and make careful decisions based on market trends but we will also proceed cautiously.

Your final question comes from the line of Daniel Kang from Toscafund.

You've asserted on many occasions and including today, the strength of your business model. But if we look at the evidence of Q2 and Q3 in terms of net revenue, we see negative trends at Tremor and much better performance coming from your U.S. listed peers. I was wondering if you could give me some perspective around that. What do you think is happening at your peers compared with your own business?

Daniel. First of all, you know our numbers from the last year. Last year, we grew 64% compared to 2020, which was massive. We were recognized as the fastest-growing company in 2021 due to our robust capabilities. I think the mix of advertisers is putting pressure on our results, particularly on B2C. We are producing profits and celebrating strategic events despite challenging conditions. This investment and integration will help us in the future. While the competition is strong at the moment, we are committed to a sustained, long-term growth vision.

There are no further questions at this time. Mr. Ofer Druker, I turn the call back over to you.

Thank you, everyone. Again, I want to say a few sentences just to conclude and summarize this call. These are challenging days now because of what's going on in the market that we are not controlling, which are macroeconomic forces affecting our clients, and us in general. Reflecting on 2022, we worked hard on our long-term strategy, which is ultimately how companies should be measured. We have achieved two major successes: the acquisition of Amobee at an attractive price and achieving integration quickly, alongside our VIDAA investment that creates many new opportunities including the FIFA+ monetization and ACR exclusivity on CTV media in the U.S., Canada, Australia, and the U.K. We are proud of our progress and remain focused on generating substantial profits while strengthening our market position.

This concludes today's conference call. You may now disconnect.