Nexxen International Ltd. Q1 FY2024 Earnings Call

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, 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, empowered by robust data that enables enhanced outcomes and drives success for both sides of the digital advertising ecosystem. We accomplished this major feat 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 operations 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 for some of the world's largest and most recognizable brands, agencies, and digital publishers. After a long journey, marked by several years of acquisitions and industry-leading, forward-thinking product innovation, we now have the right tech stack in markets, the right messaging, and the right value proposition to sell. We are more confident than ever in our ability to execute and accelerate our market share gains. In Q1, we took several steps to strengthen our positioning within the CTV advertising arena. For one, we resolved the long-standing litigation through a favorable settlement agreement and multiyear strategic partnership with LG and Alphonso. After years of not working together, we are pleased to be doing business and cooperating with LG, which is an important player in the CTV OEM landscape. Through the partnership, Nexxen is able to monetize some of LG's premium CTV inventory, and Alphonso, now LG Ads, will leverage Nexxen data-driven discovery and segmentation tools to enhance advertisers' engagement on their media properties. Nexxen also recently partnered with Roku, the number one TV streaming platform in the U.S. by hours streamed, further extending our reach and relationship in the CTV and streaming space. Nexxen has directly integrated with Roku, providing our customers access to premium supply in the Roku Channel. We look forward to working closely with Roku, and we’ll seek to expand our relationship with them over time. These partnerships now give us strong relationships with all the world's major CTV OEMs, a massive value proposition for our TV advertising customers. We also extended our partnership with TCL beyond access to CTV and OTT supply in the TCL Channel to become the exclusive seller of their native display inventory as their preferred supply platform partner. This partnership, combined with our other major CTV OEM relationships, provides Nexxen the ability to offer significant TV audience reach extension for customers, positioning us as the first call for those looking to enhance TV and streaming advertising outcomes. On the streaming data front, we partnered with PeerLogix in Q1 to bolster our TV data solution, TV Intelligence, with premium on-the-go streaming data for major platforms like Netflix, Hulu, and Disney+. This exclusive and differentiating partnership enables us to capture streaming viewership data for audiences on mobile devices outside connected TV, positioning us strongly as consumers seek flexibility to stream across devices. Advertisers are realizing more and more the importance of holistic audience insights across streaming platforms and devices to achieve optimal results. TV Intelligence stands out as a strong differentiator for Nexxen as it provides robust data across devices and formats, including mobile streaming, linear TV, and CTV. As a direct byproduct of VIDAA's global expansion, we recently started offering our TV Intelligence solutions outside the U.S. to international customers. TV Intelligence is an expansive dataset that includes access to traditional television, ACR, on-the-go streaming, and cross-screen panel data, critical for our customers' planning and advertising efforts across the streaming and TV landscape. Access to this robust data often results in our customers achieving greater ROI and efficiency, and plans created through our planning tools can be seamlessly activated in campaigns through our DSP, a differentiator for us. Through TV Intelligence, we can also provide powerful TV measurement solutions such as tune-in lift, reach, and frequency; cross-device attribution; and cross-platform measurement. In Q4 2023, we launched TV Intelligence in the U.K. We generated increased adoption during Q1 2024, in which we expect will help drive additional U.K. advertising budget to our platform for the remainder of 2024 and beyond. Further, we recently launched TV Intelligence in Australia, which we believe will generate strong customer adoption and momentum this year and beyond and differentiate our offering from Australian customers, giving us strong and growing reach in the market. We expect to launch TV Intelligence in additional major international markets later in 2024, including Canada. Outside of international expansion, we are about to launch our ACR data segment with some recognizable initial partners. We are also in conversation with several other notable potential ad tech agency, brands, measurement, research, and TV data partners regarding the licensing of VIDAA's global ACR data and are optimistic based on initial demand. While we extend our CTV OEM relationship and streaming and TV data footprint, our partners at VIDAA, the CTV operating system for Hisense and other major smart TV brands, continue growing their global reach as well, further benefiting our investments and partnership. VIDAA has crossed a reach of over 25 million connected TV near the end of 2023 and was the fastest-growing major smart TV operating system globally in 2023 after growing shipments 23%. Nexxen is invested in VIDAA and also, importantly, has global ACR data exclusivity on VIDAA's powered TV through at least the end of 2026. This exclusivity is fueling strong global demand for our TV Intelligence solution and significant demand for data licensing partnerships as Nexxen is the sole source to access this desirable scaled smart TV data for targeting and measurement. We consider data to be the center and main engine of our platform and one of our key differentiators. Over the past few months, we have made tremendous progress, further enhancing the strength, uniqueness, and usability of our data, culminating in the recent launch of the Nexxen Data Platform, which builds and expands upon our DMP, Nexxen Discovery, and TV Intelligence assets. The platform brings together data from multiple sources in a secure and privacy-compliant manner. Those sources include first-party data from Nexxen clients, exclusive Nexxen data assets such as global ACR data from VIDAA, and third-party data sources, including Nexxen Discovery, which consolidates insights from web, social media, mobile, linear TV, and digital. These combined data assets are extremely valuable for customers looking to efficiently and effectively onboard and enrich their own first-party data for better planning, more targeted campaigns, and expanded reach to then seamlessly activate in campaigns. The ability to launch first-party data, enrich it, and activate it on our end-to-end platform is unique and is emerging as a major differentiator and attractive for brands and agencies to work closely with Nexxen. The launch of our data platform also positions us to more effectively monetize our suite of data solutions to licensing, media network, and reseller agreements. Each of these can drive incremental SaaS revenue and exposure in areas of the markets where we don't currently have a major presence, reflecting high-margin, long-term growth opportunities for our business. We are also incredibly excited to be launching our proprietary Nexxen unified identity graph solution, which will live within our data platform, serving as a centerpiece for us to help our customers combat impending changes in identity and privacy, particularly cookie deprecation. The Nexxen unified graph will combine and deduplicate multiple identifiers into a merged graph. This will enable increased scale, frequency capping, and better targeting and attribution at the person and household level. We believe that the launch of our data platform and proprietary identity graph will further enhance our already strong ability to address identity and privacy changes, building on our advantages operating an end-to-end platform, indexing heavily to CTV, and all the numerous data partnerships. Nexxen's end-to-end structure prevents data leakage, and we possess access to large amounts of first-party data on both sides of the ecosystem. We also maintain robust, contextual third-party data relationships and collaborate with the industry's major universal ID solution. Additionally, we have significant exposure to CTV, a cookie-less environment, and minimal reliance on cookies as a percentage of our contribution ex-TAC, mitigating our overall risk related to cookie deprecation. For these combined reasons, we view cookie deprecation and broader changes in identity and privacy not as a challenge but as a significant opportunity to grow our share. As customers shift from buying media to buying against audiences while navigating identity and privacy challenges, we are confident our data platform offers the granular and flexible solution needed to succeed, and we are very optimistic about the prospects to attract new customers and drive increased spending based on initial demand. All our work to strengthen our platform and improve our messaging and market position is starting to pay off. We are seeing evidence of being better suited to win major multi-solution partnerships with some of the world's leading agencies, brands, CTV media companies, and broadcasters. This is both a nod to the significant value we bring to customers and our improved ability to reach meaningful partners. Our enhanced ability to land and expand with some of the industry's key players is pivotal to our sales strategy and is what we have been building toward for several years. We feel we are uniquely positioned to serve as a true strategic partner for both sides of our industry. Our ability to offer flexible, advanced, self-service tech and data solutions through the convenience of one unified platform, coupled with our best-in-class service, set us apart. Our recent strategic partnership with Stagwell is a testament to this and represents an important opportunity for Nexxen. The fast-growing digital-first marketing company sits in the epicenter of typical agency expertise and technology. Nexxen has the privilege of enhancing their capabilities through enabling clients of the Stagwell Marketing Cloud to utilize Nexxen Data Platform, specifically our proprietary identity graph, in cooperation with Stagwell clean room capabilities. This empowers Stagwell customers to maximize campaign effectiveness, with unified and comprehensive audience views across touchpoints and devices in a privacy-compliant manner, which can be accessed through Nexxen's end-to-end platform, utilizing Nexxen DSP and SSP. This partnership is expected to enhance Stagwell clients' results and has the potential to yield significant contributions ex-TAC for Nexxen over time. It also paves the way for similar future collaboration with other major industry players and opens additional doors with Stagwell and its customers. Tinuiti, the largest independent full-funnel performance marketing agency in the U.S., has been a self-service DSP customer for over five years, beginning with this point in media. This has recently shifted spend for other DSPs and SSPs to run campaigns through Nexxen on both sides, leveraging the full benefits of transacting through our end-to-end platform. We believe after significantly reducing their budget with us in 2023 due to challenging market conditions, they are on a path to substantially increase their 2024 budget and become one of our largest enterprise accounts. In Q1, a major specialty retailer advertising customer expanded its relationship with Nexxen beyond our enterprise DSP, selecting us as a preferred SSP partner. This provides them with cost and data benefits and enhanced efficiency while driving significantly more contributions ex-TAC to our platform. It also underscores our success in securing larger end-to-end deals and expanding our multi-solution customer base, which have been key focuses since acquiring Amobee. Additionally, a leading alcoholic beverage company customer consolidated spend with us and now utilizes essentially every offering they can within our portfolio of solutions. We expect these customers will invest more with us in 2024 than they ever have, reflecting trust in our solution and service and improving market conditions. In Q1, we onboarded 88 new actively spending first-time advertiser customers across various verticals like travel and transportation, food and beverage, finance, and government. This figure included the addition of seven new enterprise self-service advertising customers and two new independent agencies utilizing our self-service platform. We also added 64 new supply partners, including 47 in the U.S., across various formats and devices, including CTV, mobile app and gaming, display, and online video. Additionally, Pixalate ranked Nexxen SSP in the top 5 SSP across all major OEMs in its Q1 2024 Global CTV SSP Market Share Report. We were also honored to recently win Digiday's Content Marketing Award for the best interactive content piece. Digiday recognized Nexxen Studio's groundbreaking interactive Voice-to-Action offering for the Troy-Bilt's Low, Slow, & Mow campaign. The first-of-its-kind Voice-to-Action offering was made possible through our partnership with Say It Now, and the campaign demonstrated significant uplift in awareness, ad recall, and message association across creatives and targeting tactics. This recent customer and partner wins and our increased industry recognition underscore the value of the strategic groundwork we laid in recent years, and I remain confident in our positioning to drive continued growth and execution. With that, I'm happy to turn the call to Sagi to discuss our financial results and outlook.

Thank you, Ofer. In Q1, we generated a 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 products, 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, education verticals, and CTV in Q1 as customers continued to favor our lower-cost programmatic solutions. Our largest small and mid-sized 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 upcoming events like the 2024 U.S. election. As also discussed, we also recently launched several new partnerships 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 2023. We believe CTV revenue weakness in Q1 and in prior quarters reflected the short-term transition by some of our customers into our lower-cost solutions like display and mobile video due to cost-saving efforts, as well as the evolution of streaming preferences, with audiences increasingly streaming content on mobile devices in addition to connected TV. While this transition impacted CTV revenue, we believe our platform's ability to flexibly provide a myriad of solutions across formats and devices is a tremendous strength and advantage, which enables us to retain our customers and adapt to their diverse and evolving needs. Being able to accommodate customers across all major formats and devices allows us to serve a larger total addressable market and provide the flexibility needed for major agencies with diverse customer bases. That said, I'm pleased to report we were observing sequential CTV revenue growth to this point in Q2 compared to this point in Q1 and increasing momentum, driven by an improving macro environment and our partnership with Alphonso and LG starting to bear fruit. We believe, as market conditions continue to improve and expand and our partnership with LG continue to ramp up, customers will increasingly migrate toward our programmatic CTV solution, and we expect CTV revenue growth will further accelerate in H2 2024. We strongly believe in our long-term positioning within CTV, giving our heavy indexing, as evidenced by CTV representing 29% of our programmatic revenue in Q1 2024. We are confident, as conditions continue to improve, new major advertisers migrate to CTV, and linear dollar shifts more aggressively to streaming, that CTV pricing dynamics will improve and demand will further increase. We feel we are strongly and uniquely positioned through our numerous CTV partnerships and differentiated solutions such as TV Intelligence and global ACR data exclusivity with VIDAA to capitalize on a growing long-term opportunity within CTV and to achieve outsized share gain. Video revenue continues to account for most of our programmatic revenue at 66% in Q1 2024. Although this percentage fell year-over-year, we believe it continues to remain well above the industry average. The year-over-year decrease in Q1 was driven by a combination of increased demand for programmatic display solution, a decline in CTV revenue, and an increase in programmatic revenue. As demand for our premium CTV solution accelerates, as we expect, we believe the shift toward display we've seen in recent quarters will reverse. And when this happens, we expect to achieve outsized video revenue growth because of our high exposure and positioning and capabilities within video. In Q1 2024, we generated $11.9 million of adjusted EBITDA, reflecting a 34% increase from Q1 2023. As we generate higher levels of contribution ex-TAC, the majority will translate to adjusted EBITDA given our end-to-end operating model, which provides a strong and increasing degree of operating leverage, which is why we are confident in our ability to expand our adjusted EBITDA margins over time. In Q1 2024, we generated an adjusted EBITDA margin of 16% on a revenue basis and 17% on a contribution ex-TAC basis, compared to 12% on a revenue basis and 13% on a contribution ex-TAC basis in Q1 2023. In Q1, we generated $37.7 million in net cash from operating activities, after using $7.9 million in Q1 2023. And as of March 31, we had $144.9 million in net cash. We also reported non-IFRS diluted earnings per ordinary share of $0.01, compared to a $0.03 loss in Q1 2023. In April, we repaid the outstanding $100 million balance on our credit agreement. As a result, we are now debt-free and have $90 million undrawn on our revolving credit facility, up from $80 million, which we continue to have at our disposal. Repaying our debt will lower our interest expense in 2024 and beyond, strengthen our balance sheet, and provide greater flexibility for strategic investment and initiatives. We have no plans for major near-term acquisitions and will prioritize capital allocation toward share repurchases, investment in internal growth, innovation initiatives, and ongoing business needs. During Q1, we repurchased roughly 6.2 million ordinary shares, reflecting an investment of approximately 12.7 million pounds or $16.1 million. We also recently completed our $20 million ordinary share repurchase program, in which we purchased a total of approximately 7.6 million ordinary shares. On May 7, we launched our new $50 million ordinary share repurchase program, which will run until November 1 or until completed. Assuming we complete the program, we will have invested approximately $165 million in our share repurchase program from March 1, 2022, through November 1, 2024, underscoring our commitment to shareholders. From March 1, 2022, through April 25, 2024, we repurchased approximately 27.1 million ordinary shares or 17.5% of shares outstanding. If shares remain at levels the board believes continue to reflect discounted valuation levels and the company remains cash-generative, we will consider launching an additional share repurchase program, even after completing the current program. Finally, I'll now turn to our outlook. For the full year 2024, we reaffirm our prior guidance for contribution ex-TAC in a range of approximately $340 million to $345 million, adjusted EBITDA of approximately $100 million, and for programmatic revenue to reflect approximately 90% of full year 2024 revenue. We also continue to anticipate data licensing, audio, and CTV revenue growth in 2024 compared to 2023 and believe our adjusted EBITDA and adjusted EBITDA margin in the full year 2024 will be higher than in the full year 2023, with growth expected to accelerate on these aforementioned fronts in H2. While some of our largest customers spend cautiously in Q1, we've seen indications budgets will likely increase throughout the remainder of 2024, particularly in H2 around the U.S. election, which we believe will garner increased ad spending in Q3 and Q4. We also have increased confidence in our guidance following our recent partnership wins. Partnerships like Stagwell and LG are in early days. While they are contributing to contribution ex-TAC in Q2, they will take time to scale and start to more significantly impact results. While it will take time to ramp up these partnerships, in addition to the others we've mentioned on today's call, we reaffirm our confidence in our growth prospects for H2 2024 and beyond and put us in an excellent position to drive sustainable growth and extended profitability. Our debt-free balance sheet, robust operating model, and cash-generating abilities also enable the flexibility to invest aggressively in innovation and share repurchases to drive value for our customers and shareholders. These combined factors are a recipe for success, and I believe our future looks bright. With my remarks completed, I'll turn the call back over to Ofer.

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, paint 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 gain 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 our 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 remains focused on growing our end-to-end and self-service enterprise customers' trust, building new and deeper relationships 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. 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 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 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 currently has two key advantages. First, we prepared for the cookie deprecation that was delayed this year by implementing necessary measures in advance, integrating our ID graph with various industry ID graphs. This approach allows us to gain a more comprehensive understanding of audiences, which is essential for navigating cookie deprecation. Additionally, about 30% of our business is connected TV, which is not reliant on cookies, further reducing our risk. We launched this initiative on time to address the Google cookie deprecation effectively. The second advantage is data enrichment, which has been crucial for us recently. We view data as the essential link connecting all components of our platform. We have established a strong data layer around our demand-side platform, ad services, and supply-side platform, partnering with exclusive databases like PeerLogix. Our strong ACR data is also vital. We aim to empower clients, publishers, and advertisers to leverage their first-party data alongside ours, offering deeper insights and enhanced targeting capabilities. Our partnership with Stagwell will also bring significant value, allowing them to leverage our platform to better serve their clients. In summary, our data management platform focuses on two main areas: addressing cookie deprecation, which we see as an opportunity due to our existing structure and revenue reliance on non-cookie-dependent sources, and enhancing data capabilities, recognizing that clients prefer to buy audiences rather than just media. We enable them to gain a clearer understanding of their clients and reach them effectively across multiple touchpoints.

Great. Thank you so much.

You're welcome.

Thank you for taking my question. Following up on the last inquiry and focusing on the softness in the SMB segment within the CTV space, when considering what might lead to the improvement we're observing in Q2, is it related to macro factors and expanding budgets? Or is it about volume?

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 Q1, as we mentioned. One of them, of course, is resolving the issue with LG, which enables 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 a strong relationship with Samsung and, of course, VIDAA, Hisense, to basically be able to offer our clients a 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 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 respond to Matt. As Ofer mentioned, it seems to be a mix of improved macro conditions and reduced headwinds. I want to be careful not to suggest there is a significant tailwind, as I'm not certain we're operating at full capacity. Additionally, the various initiatives, agreements, and collaborations are enhancing our product and providing better returns on investment for both our customers and publishers. The partnerships Ofer mentioned are substantial and will require time to develop. We still need to implement APIs, conduct testing, and scale cautiously throughout 2024, with hopes for greater scaling in 2025. Our guidance, like that of our industry peers, indicates that around 45% of our revenue is expected in the first half and 55% in the second half. Currently, we are confident in our guidance. If we observe better-than-expected results, we will adjust our guidance accordingly, but that is not the situation at this moment. Nonetheless, we remain confident in our ability to meet our 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 go 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. The ACR requires reaching a critical mass to become more impactful, and we've achieved that in the past few months. We are now engaging with several significant partners, some of whom will be announced shortly. We believe this will boost not only CTV growth but also overall revenue, as ACR can be utilized for targeting on other platforms as well. Historically, we've performed well in the CTV space, but we did lose some momentum due to macroeconomic factors last year and the year prior. Q1 showed a slight softness again, but in Q2, CTV spending has strengthened, and we're seeing our partners reallocating their budgets back to CTV, which is positive for us. It's important to recognize that most of the companies we deal with have their revenues tied to performance, while our business focuses primarily on branding. This means different pricing strategies and objectives. Currently, we are witnessing growth as the market sentiment shifts, and we believe we have a competitive advantage. In the coming months, we expect to see growth accelerate thanks to the ACR's implementation. Building, launching, and educating our teams and clients about this took considerable time, but we are now reaching a point where it is becoming significant. I foresee that this will provide us substantial value in both the short and long term, given its uniqueness and the powerful data it offers. There aren't many companies in the open web with such capabilities to help their partners leverage this data effectively. We have substantial experience with ACR data, having utilized it since 2016, even before our current involvement. I'm confident about the potential of ACR and CTV, and I believe we are at a pivotal moment where the data's scale and incremental nature are starting to make a noticeable difference. We are aligning our efforts to ensure this will have a positive impact now and into the future.

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.

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 took 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 do more business and not just focus most of our resources and time on consolidation and integration. That's one. And wrapping the product in a much more meaningful manner that makes sense for partners to engage and use our platforms. In the past, if I just want to remind you, we had 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 as our peers, they have a big portion of display, they have a big portion of what we call semi-performance or performance, which is working very well when the macroeconomic situation is not great. Our revenues mostly in the past were branding. So, we will be affected when the market picks up much higher than them, usually. But we also suffer in days that the macroeconomic is still in. I think that this year, we feel a better sentiment. We feel a better optimism from our clients and partners that they can spend or invest their money in a way that will support their brands and grow their brands, and they are doing that in a more meaningful manner. That is, of course, helping us to grow our revenues. And I feel that we also built through the acquisition of Amobee, which was also dealing heavily with display, we strengthened our capabilities around the optic channel, and we built also display capabilities that are helping us to grow their revenues that will help us also to stabilize it in the future if the market will suffer again from macroeconomic situations. So, I think that the last year was very important to basically set the base, connect the technologies, and rebrand. Now, we feel that we are in a place that we have better products, better offerings, much clearer value to the market on one side. And also, the market is supporting us better because the macroeconomic issues are releasing and we feel that there is more confidence among the clients and advertisers and partners to invest their resources in order to support their growth.

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 are many movements in the industry like increased volume of media that is coming to the industry and AI, which is, of course, 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 the way of doing business. And I think that we'll have to wait and see how it will affect the market in the next few quarters.

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 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.

First of all, when it comes to our political offerings, we have a strong suite of services making an impact. The highlight is our discovery tool, which allows for effective audience segmentation and smart engagement. We're observing positive market reactions, agreements, and plans for utilizing this tool, which integrates a lot of our data and helps clients build audience insights seamlessly across our DSP and SSP. This platform is quite compelling. It provides an entry point for clients to use other services, such as cross-planning tools that bridge digital and linear media. We're seeing great success not just in political strategies but across various business models, enabling clients invested in linear to venture into digital, and those primarily in digital to explore linear options, yielding significant success. Regarding CTV, I believe this also addresses your second question. We don't perceive any media shortages as we maintain strong relationships with major OEMs and key CTV players like Roku. While we may lack some broadcasters mentioned, it hasn’t hindered our ability to reach audiences or our media availability. In fact, we've expanded through agreements with industry players such as LG, TCL, and Roku, inviting more clients to our platform to leverage our self-service tools and the demand we can generate for their offerings. Overall, despite the fluctuations in the CTV landscape, we’ve established a robust platform backed by strong partnerships, positioning us well to succeed alongside our clients and advertisers in achieving their objectives.

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 hard 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 to make it 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. We are proud to be part of their strategy, and we believe that as a company, we have 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 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.