Earnings Call Transcript - NEXN Q2 2022

Operator, Operator

Welcome to Tremor International Second Quarter and Six Months Ended June 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 over to Billy Eckert, Director of Investor Relations, for introductions and the safe harbor statement. Please go ahead.

William Eckert, Director of Investor Relations

Thank you, operator. Good morning, everyone and welcome to Tremor International's Second Quarter and six months ended June 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 investor.tremorinternational.com. During today's conference call, we will make forward-looking statements. All statements other than statements of historical fact could be deemed as forward-looking. We advise caution and reliance on forward-looking statements. These statements include, without limitation, statements and projections about our future anticipated financial results, including discussions about our revenue, margin, expenses and guidance for full year 2022 and full year 2023 and future business, anticipated benefits of Tremor's current and future potential strategic transactions, product launches and commercial partnerships. Management believes that Tremor is well positioned to benefit from future anticipated industry growth trends and company-specific catalysts, anticipated continued and accelerated future growth in both U.S. and international markets, expected strengthening of Tremor's products and reach, expected ability to continue repurchasing shares, investing in technology, sales, and marketing and evaluating strategic opportunities to acquire companies. The potential negative impact of inflationary pressures, rising interest rates, geopolitical macroeconomic uncertainties, recession concerns and widespread global supply chain issues, forward-looking industry and economic statements and outlooks, 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 in our most recent annual report on Form 20-F. Tremor does not intend to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information 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 Tremor International. Ofer, please go ahead.

Ofer Druker, CEO

Thank you, Billy, and welcome to everyone joining us today. I will begin by providing an overview of our results and strategy, followed by our Chief Financial Officer, Sagi Niri, who will review our Q2 and H1 2022 financials. We will then open the call up for questions. During the second quarter, Tremor experienced increased customer reductions and delivered record profitability alongside achieving impressive industry-leading adjusted EBITDA margins of 55% as a percentage of net revenues. Our durable data-driven end-to-end technology and business platform have continued to drive strong and resilient results, fueling our ability to execute on our long-term strategic vision. Looking at the market environment, the advertising industry faced several global headwinds in Q2 that we are continuing to see drive macroeconomic uncertainty and recession concerns in Q3, which could remain for the duration of the year. The challenge associated with inflation, rising interest rates, and supply chain constraints in certain sectors such as automotive due to continued chip shortages and the ongoing war in Ukraine have been well publicized and are factored into our planning for the remainder of 2022. On a positive note, however, we are seeing additional signs of recovery in sectors that have been so strong for churn, such as entertainment, and continue to believe we will see benefits from the FIFA World Cup and U.S. midterm election cycle later this year. We remain confident that our highly diversified customers and revenue base, coupled with our robust operating model, position us well to successfully navigate these market challenges while continuing to invest to future scale, depreciate, enhance and expand our platform. Since the beginning of 2022, we have achieved several important milestones to drive long-term value for our customers and shareholders and reinforce our acquisition in the market over the coming years. First, we increased our CTV and video reach and significantly strengthened and expanded our platform capabilities through several initiatives, including the completed integration of our CTV ad operations team. Through our strategic investment in VIDAA, we further strengthened our CTV assets by extending our exclusive global ACR data agreements while gaining ad monetization exclusivity in key markets such as the U.S., U.K., Canada, and Australia. In addition to deepening our partnership investment team, we believe that this rapidly growing global operating system will enable powerful additional capabilities and high-quality content opportunities, particularly around exclusive content for our customers. For example, ISM is an official sponsor of this year’s FIFA World Cup and will also sponsor an exclusive daily show throughout the tournament. It was also recently announced that FIFA+ will launch on Toshiba VIDAA-enabled smart TVs. This is the first major example of how having exclusive data monetization and CTV media partnership with an operating system, alongside strong relationships with the major global OEMs, can benefit advertisers, brands, and agencies, as we look to leverage this highly desirable content. Furthermore, we took steps to dramatically scale the business and further diversify our offering and ability to serve customers through our pending acquisition of Amobee. The acquisition is expected to significantly grow our global market share, extend our self-service data and technology capabilities, and add critical new linear TV capabilities. These new linear capabilities will allow us to better serve our customers in a rapidly evolving landscape as we continue to see convergence within the linear and digital worlds. The acquisition will also enable us to offer our specialized CTV product, such as TV intelligence, across a significantly wider customer base, creating additional revenue opportunities. Following the anticipated closing and integration of the proposed acquisition of Amobee, we expect to generate contribution in excess of approximately $500 million and adjusted EBITDA of approximately $200 million on a combined pro forma basis for the full year of 2022. We believe our proven track record of successfully and efficiently integrating acquisitions will enable us to smoothly integrate Amobee and create a strong combined business. Finally, we were also able to repurchase a sizable number of shares at attractive prices under our previously announced share repurchase program. Our ability to achieve these milestones while generating strong results in a challenging operating environment solidifies the conviction we have in our long-term prospects. Our operating model provides several advantages, including simplicity for customers, beneficial positioning for changes in data privacy regulation, better insulation against challenging market conditions, and the ability to maximize revenue streams and profitability. Our ability to service across all screens, regardless of service level requirements, enables us to maximize revenue opportunities and build deep relationships, stickiness, and trust with our customers. Our operating model allows us to generate extremely attractive margins and profit while enabling customers to achieve data-driven return on their balance sheets, particularly when they leverage our platform. Our platform also contains a significant and growing footprint of first and third-party data with minimal exposure to cookies, which ensures we remain well-insulated against privacy changes. Our decision to intentionally scale our end-to-end platform was the correct one as we continue to see competitors attempt to replicate elements of our well-established model. As competitors of newly operating end-to-end platforms focus on the learning nuances of engaging with both sides of the ecosystem, Tremor has well-established expertise and relationships with brands, agencies, media partners, and data providers, and is focusing on its next leg of growth and differentiation. On July 26, we entered into a definitive agreement to acquire Amobee for a total consideration of $239 million, subject to certain customary adjustments. We intend to satisfy the purchase price using a combination of existing cash resources and new debt facilities expected to be available prior to closing the transaction. The acquisition, which we expect to close later in the third quarter, is expected to significantly increase our global market share and create one of the most comprehensive CPG and video end-to-end platforms in the market. The acquisition also significantly enhances our technology and business footprint across self-service, programmatic, CTV, and data, while adding new linear TV capabilities. The transaction also greatly expands Tremor's U.S. and international market presence and customer switch. Amobee’s 500-plus global customers include Fortune 500 brands and multinational agencies, and the company maintains strong relationships with some of the world’s leading media partners. For the 12 months ended June 30, 2022, Amobee generated preliminary unaudited contributions in the vicinity of approximately $150 million, which will have a meaningful impact on Tremor's financial scale. We also expect to benefit post-integration from significant operating cost synergies, initially estimating annual run rate operating cost synergies of approximately $50 million on a combined pro forma basis post-closing and completion of the integration. Following the anticipated closing and integration of the proposed acquisition of Amobee, we expect to generate contribution in excess of approximately $500 million and adjusted EBITDA of approximately $200 million for the full year of 2023 on a combined pro forma basis. Amobee represents our largest acquisition to date and delivers on our commitment to execute meaningful and strategic M&A in a market where valuations have decreased. We remain confident that we have the expertise necessary to quickly integrate the company into our business and generate significant benefits for our customers and shareholders. In June, we also deepened our relationship with VIDAA through a strategic agreement to invest $25 million in VIDAA. The investment offers several key advantages to Tremor. This investment, extended for multiple years, includes the exclusive agreement to share VIDAA’s global ACR data for global measurement and targeting purposes across our end-to-end platform. It also allows us to offer additional data sets and advertising opportunities to our customers. As we have leveraged the investment to support our plan to increase distribution across additional OEMs, we expect that asset to become even more desirable, and for Tremor to benefit further through this increased reach as well. Additionally, after initially being designated as VIDAA’s global monetization platform in January, VIDAA has granted Unruly and Spearad exclusivity for monetization in the U.S., U.K., Canada, and Australia. This unique combination of exclusivity to share global ACR data and the exclusive ability to enable ad monetization in several key markets will have powerful future growth implications for Tremor. VIDAA, for which we serve as their operating system, is an official sponsor of the FIFA World Cup, set to take place in Qatar in November and December this year, and we expect to achieve a substantial increase in global awareness during the event. FIFA+ will also launch on Hisense-enabled devices. Additionally, VIDAA is also the lead sponsor for an exclusive daily show throughout the World Cup, featuring highlights, promotions, and live reactions. VIDAA's exclusive monetization platform in key markets allows brands and agencies to utilize and advertise on this desirable and exclusive content, which provides strong potential revenue benefits and leverage for Tremor, as Hisense and VIDAA pursue future sports sponsorships and exclusive content opportunities. Outside of our company-specific catalysts, Tremor remains well positioned to capitalize on expected industry tailwinds as well. CTV and video continue to grow at the fastest rates within digital advertising and the vast majority of our platform’s distribution ex-TAC is derived from these formats. Additionally, we continue to expect meaningful growth within AVOD over the next several years as evidenced by several streaming services currently launching ad-supported channels and others showing interest in doing so. This further reinforces the viability and long-term health of the CTV market. We believe our strong foothold in the fast-emerging subsegment of digital advertising positions us well for future growth and market share gains. We believe the fourth quarter will be further enhanced by the FIFA World Cup and that Tremor will experience added benefits from ISO-sufficient autonomic sponsorship. We also expect industry tailwinds to translate this year from the U.S. midterm election package, which typically brings heightened levels of CTV and video ad spending from candidates due to the election. Since our last earnings call, we have continued to generate further business along with increased industry recognition. Our platform added 63 new supply partners during Q2 2022, including 35 in the U.S., and 150 new supply partners during H1 2022 across critical broad verticals, including OTT from leading broadcast businesses. We also continue to generate strong adoption within our self-service platform for publishers, which experienced a 560% increase in PEP spend during Q2 2022 versus Q2 2021 and a 750% increase in H1 '22 versus H1 2021. Additionally, Tremor video added 60 new advertising clients during Q2 2022 and 135 new advertisers signed during H1 2022 across travel, CPG, retail, and other verticals. Our in-house creative solutions continue to impress, creating over 13 times more unique video ads in Q2 2022 than in Q2 2021 and over 15 times more creative releases in H1 2022 than in H1 2021. We are continuing to see strong customer adoption across our creative products, robust international growth, and a significant increase in demand for our creative services across travel and retail verticals. Finally, during the second quarter of 2022, we repurchased 5,716,960 ordinary shares at an average price of 452.6p for a total Q2 repurchase investment of approximately GBP 29.9 million or $32.5 million. From March 2022, when we launched the repurchase program through June 30, 2022, we repurchased 7,401,470 ordinary shares at an average price of 479.98p, reflecting a total investment of approximately GBP 35.6 million or $45.3 million. Our ability to repurchase shares at what we believe are discounted levels drives long-term shareholder value in addition to our ongoing growth initiatives, demonstrating our continued balance sheet strength and cash-generating capabilities. It is now my pleasure to turn the call to Sagi to review the financial results.

Sagi Niri, CFO

Thank you, Ofer. We are excited to see another record second quarter and H1 of profitability, expanded margins, resilient revenue, and excellent business momentum. Today, I will review highlights of our Q2 and H1 2022 performance as well as some of the key financial and operational drivers for the quarter and first half. For the three months ended June 30, 2022, we generated contribution ex TAC of $70.8 million compared to $73.7 million in Q2 2021, alongside record Q2 adjusted EBITDA of $39.1 million compared to $37.3 million in Q2 2021, reflecting 5% year-over-year growth. This performance was particularly impressive given the well-known macro pressures that challenged advertisers' spending during the quarter and first half. We believe CTV and video remain core future growth drivers for Tremor, and CTV spend on our platform was $64.7 million during Q2 2022 compared to $49.8 million during Q2 2021, which represented a record for Q2 and strong year-over-year growth of 30%. We believe we are well positioned to achieve future growth in these segments as more business is increasingly being transacted through our programmatic platform, as we expect performance budgets to continue to move towards CTV and programmatic in the future. We also believe the pending acquisition of Amobee, the agreement to strategically invest in VIDAA, and the recent integration of Spearad will help accelerate our growth and footprint within CTV. During Q2 2022 and for H1 2022 as well, video, including CTV, continued to reflect an overwhelming majority of our total contribution ex TAC at approximately 80%. We also generated a record Q2 adjusted EBITDA margin of 52% on a reported revenue basis and 55% on a net revenue basis, which we believe further expanded our margin lead within the industry. Our continued ability to achieve strong profitability highlights the durability, efficiency, and sustainability of our end-to-end model. We were able to generate this expanded margin while continuing to invest in critical initiatives to drive future growth, scale, and differentiation within our platform. For the six months ended June 30, 2022, we generated contribution ex TAC of $141.8 million compared to $136.7 million over the same prior year period. Over the same period, CTV spend was $110.9 million compared to $88 million during H1 2021, which reflected an H1 record and a 26% year-over-year increase. During H1 2022, CTV spend reflected 36% of total spend and 41% of programmatic spend. We also generated record adjusted EBITDA of $72.7 million during H1 2022, representing a 12% growth from the $64.8 million adjusted EBITDA generated in the same prior year period. We generated a record H1 adjusted EBITDA margin of 46% on a reported revenue basis and 51% on a net revenue basis over the first six months of 2022, which we believe represents best-in-class across tech. Turning to our cash flow, we generated net cash from operating activities of $30.4 million for Q2 2022 versus $57.5 million in Q2 2021. For the six months ended June 30, 2022, we generated net cash from operating activities of $46.5 million versus $76.8 million in the same period in 2021. As of June 30, we had $361.4 million in cash and cash equivalents with no debt. However, we expect to obtain new $150 million debt facilities comprised of a secured term loan and a revolving credit facility to partially fund our acquisition of Amobee and support future strategic investments and initiatives alongside our existing surplus cash resources. We also experienced 98% free cash flow conversion during Q2 2022 and 99% free cash flow conversion for H1 2022. Non-IFRS diluted earnings per ordinary share were $0.16 for Q2 2022 versus $0.23 in Q2 2021 and $0.31 for the six months ended June 30, 2022, versus $0.35 for the six months ended June 30, 2021. Finally, I'll turn now to our outlook. For the full year 2022, we expect contribution ex TAC of approximately $290 million and full year 2022 adjusted EBITDA of approximately $155 million, excluding any impact from our pending acquisition of Amobee, which we expect to close later in Q3. This guidance considers challenging market conditions that limited advertiser activity in Q2, including inflationary pressures, rising interest rates, geopolitical and macroeconomic uncertainty, recession concerns, and global supply chain issues, with the expectation that these challenges could continue to impact the advertising demand environment for the remainder of 2022 and beyond. For Q3, we feel various macroeconomic headwinds will continue to impact our contribution ex TAC. However, we believe our recent achievements, such as our pending acquisition of Amobee and our proposed investment in VIDAA, alongside expected benefits from the upcoming FIFA World Cup, will begin to positively impact the business and our results during the fourth quarter and beyond. Through a more efficient end-to-end operating model, we are able to maintain strong fundamentals, and our continued focus and emphasis on generating strong profitability gives us confidence that we can continue to generate high profitability and adjusted EBITDA margins for the remainder of the year, even amidst a challenged growth environment. We believe this critical emphasis on generating strong profitability is even more important in the current market environment as it drives our ability to continue innovating and growing the business organically while having the necessary capital to evaluate value-added future potential acquisition and investment opportunities. Looking ahead, we will also be working hard to quickly integrate Amobee upon the close of the acquisition to enhance and expand our platform's capabilities for customers and expand our reach and scale while seeking to achieve meaningful operating cost synergies for Tremor and its shareholders. Following the anticipated closing and integration of the proposed acquisition of Amobee, we expect to generate contribution in excess of approximately $500 million and adjusted EBITDA of approximately $200 million on a combined pro forma basis for full year 2023. We believe the strength and efficiency of our model, the recent investments we've made to enhance, differentiate and scale the business, our focus on CTV, video, and data, along with our consistent ability to generate high levels of cash and profitability, position us well to take advantage of future growth catalysts and succeed in current market conditions.

Ofer Druker, CEO

Thank you, Sagi. Our team has done an exceptional job managing the business through current challenges while continuing to execute on our long-term strategic vision. Since the beginning of 2022, we took several important steps to enhance and expand the reach and capabilities of our platform to position ourselves strongly for the future. Our end-to-end model continues to allow us to best serve our customers' holistic needs. It has also provided the necessary capital to drive significant scale in our business through our pending acquisition of Amobee and significantly differentiates our offering through our strategic investment in VIDAA. We believe the increased sales and added capabilities that Amobee will provide position us well to continue increasing our global market share and presence in the digital advertising space and open the doors to access new customers as well as cross-selling and partnership opportunities. Our strategic investment in VIDAA and relationship with Hisense is a potential game changer that could be significantly impactful for our business. They are uniquely aligned with rapidly growing global partners, expanding in the industry operating system and smart TV OEMs ecosystem, representing a powerful differentiator. However, when you couple that with our exclusive global access to VIDAA ACR data to share across our platform, exclusivity in key markets to monetize advertising on its content, including sports content, and strong partnerships with major global OEMs, we feel that this is a very special potential growth opportunity. Tremor's company-specific and industry-related catalysts, end-to-end technology and business model, robust profitability, best-in-class margins, and strong liquidity position the company well to succeed in the current environment and for future growth and market share expansion. We continue to remain excited about our growth prospects and positioning within the industry and to drive continuous value for our customers and shareholders. Operator, we will now open the call to investors for questions.

Operator, Operator

Your first question is from Laura Martin with Needham.

Laura Martin, Analyst

Yes. I have a couple of questions. The first one I’m very interested in is – so your results in Q2 were pretty much in line with other DSPs, other than, of course, Trade Desk which was much higher. My question is, excluding acquisitions, what do you think the long-term secular growth rate is of your top line, excluding acquisitions?

Ofer Druker, CEO

Sagi, you want to take this one?

Sagi Niri, CFO

Laura, thanks for the question. Yes, I will take it. So I think that it really depends on where the macroeconomic environment will go. We've proven in the past that we know how to grow our business very fast and at a large scale, even with macroeconomic parameters in place. However, having said that, I should mention that we are not anticipating anything specific going forward due to the existing macroeconomic parameters. I think that it will be in the double digits, somewhere between 12% to 16%. This is what we are anticipating in a normalized environment.

Laura Martin, Analyst

Okay, we are anticipating top line growth of 12% to 16%, excluding acquisitions and assuming a normalized environment. The 50% EBITDA rate represents our normalized figure, which is helpful for valuing the company. You mentioned adding a significant amount of sell-side capacity during this period, and I'm curious how that impacts things given the current soft demand. If we're adding a lot of sell-side capacity while demand is weak, doesn't that create downward pressure on pricing in the auction and result in lower average prices?

Ofer Druker, CEO

I didn't understand what you asked for. What did we add? Can you repeat it? Maybe the line wasn't good.

Laura Martin, Analyst

Yes. I thought you said you added a lot of sell-side capacity in the quarter.

Ofer Druker, CEO

Yes. Yes.

Laura Martin, Analyst

So doesn’t that hurt your auctions more because you have soft demand? So if you add a lot of sell-side, that adds a lot of units available for sale, doesn’t that put even more pressure downwards on your average price or no?

Ofer Druker, CEO

No. No, because I will explain. First of all, what we usually do is enhance and grow our media side all the time in order to provide the advertisers, our partners, options to reach different audiences. This is the capability that we can offer them through the data and the usage of our platform. So, and we are not offering any commitment to publish. It's connected to our platform and we are enabling our clients to basically reach bigger audiences and more diverse audiences through this growth of our sell-side partners, fundamentally. But it's not putting pressure on pricing and it's not putting more pressure on ourselves, of course. I hope that was clear.

Laura Martin, Analyst

Okay. Yes. Perfectly.

Operator, Operator

Your next question is from the line of Matt Swanson with RBC Capital Markets.

Matt Swanson, Analyst

Yes. Sagi, maybe picking up where you left off on your prepared remarks and thinking about guidance. You noted all the headwinds that we see pretty much in the news on a daily basis. We also have the company-specific tailwinds in the second half with VIDAA and Spearad, World Cup, political. Could you just give us a little more color on maybe how you're thinking about balancing the tailwinds and headwinds? And then where you may be building some conservatism into that guidance for the second half?

Sagi Niri, CFO

I think it's a great question. Ofer, do you want to take it?

Ofer Druker, CEO

Again, I didn't understand the question. So I will ask you to repeat it.

Matt Swanson, Analyst

Yes. I was just saying that there's obviously a lot of macro headwinds coming in the second half of the year, but there's company-specific tailwinds that we've been discussing with VIDAA, Spearad, the World Cup, and political factors. Can you talk about how you're balancing those against each other? And maybe just give us a sense of the level of conservatism that you guys are building into guidance considering the macro uncertainty?

Ofer Druker, CEO

Of course. Thank you for repeating the question. So we have worked very hard in the past, even close to a year now on all these initiatives like VIDAA, which is the ACR data expected to be effective in the second half of the year. We have taken it even further and enhanced our capabilities we offer to the market by collaborating deeply with VIDAA and Hisense on unique and high-quality content, such as FIFA+, that is being distributed exclusively on VIDAA and Hisense TVs. We feel encouraged by the fact that the World Cup is a major sporting event with billions of fans waiting for these games to start. Therefore, with all these ad streams in the market, we have strong tailwinds, primarily from the ACR data, which we find to be beneficial. We are also encouraged by our partnership with VIDAA around FIFA+ and the World Cup, which we consider to be a great revenue-generating opportunity for us in Q4. Additionally, we are conservative because we feel there is considerable uncertainty and numerous headwinds in the market, and we take this into account. We aim to provide a complete picture about the current state of the business, to remove uncertainty and give clarity. Hence, we have left room for conservatism in our guidance due to prevailing uncertainties.

Matt Swanson, Analyst

Yes. No, that's really helpful. And then flipping to maybe a more positive macro. And Ofer, you mentioned all the companies that are switching to AVOD right now. Thinking about what your expectations are in the next year or two as this flood of premium content comes to CTV, what do you think the impact will be on the market, advertisers, and publishers when we suddenly see 2x, 3x the amount of content come to streaming?

Ofer Druker, CEO

Okay. I think that it just shows that CTV is here to stay and is growing, becoming a main channel for online advertisers. It reflects the increasing recognition and importance of CTV in the market. As you can see in our results, we are constantly growing our capabilities. We have high-quality products we are implementing in the market, and we are adding that quality content. The first test and the POCs with FIFA+ showcased our ability to work together effectively with VIDAA and Hisense to monetize this opportunity. I believe that these opportunities will drive curiosity and increased activities among advertisers wishing to run campaigns on CTV, allowing them to effectively reach their clients and potential clients. This, in turn, will grow the market and advance its efficiency in the future. I perceive this as a positive trend and while the initial influx of supply may cause challenges on pricing and sales, the overall shift toward AVOD and growth in premium content is beneficial for companies like us.

Operator, Operator

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

Mark Kelley, Analyst

I want to ask you about the '23 guide you put out there. Should we assume that Amobee revenue is roughly $150 million? In the past, you had indicated that it was flattish year-over-year. Is that the right way to think about it for '23? And if so, that would imply the core Tremor business, excluding Amobee, would be growing a little over 20%. Is that the right thinking or should we be more conservative and consider the 12% to 16% growth you talked about? What's the right way to think about Amobee's impact in '23?

Ofer Druker, CEO

I will take this question. So first of all, when we are acquiring a company, we are committed to integrating it seamlessly into our business. We are not keeping it as a silo, and that's part of our approach. After we complete the acquisition, we aim to merge and connect the businesses effectively. So we will not measure them separately. That said, we stated approximately $500 million because we anticipate organic growth between 12% to 16%. Amobee last year was about $150 million, and we have kept it conservative, which is a major achievement to reach $500 million in net revenues and $200 million in EBITDA, which is a big statement in this ad tech industry.

Mark Kelley, Analyst

Okay. And then structurally, should we think that the Amobee business will also grow in line with that, low to mid-teens growth that you suggested for the core Tremor business?

Ofer Druker, CEO

We are not discussing the businesses as separate entities. The intention is to generate a single ecosystem post-acquisition. We have done this previously with Unruly, and we plan to do the same with Amobee.

Sagi Niri, CFO

Just to add to that, Mark, Amobee is typically less profitable than Tremor. First, it will take time to get them to the right operating levels after we integrate them. Secondly, keep in mind that they are primarily one-sided. We will work to incorporate them into our ecosystem so they can enjoy the benefits of our end-to-end solutions. As Ofer mentioned, we will no longer measure Amobee and Tremor separately post-integration; it will be a unified reporting structure.

Mark Kelley, Analyst

Okay. Makes sense. And then maybe one quick note on where you're seeing the softness. You did a nice job talking about the macro elements, but are you seeing more softness on the supply side versus the demand side? When accessing your technology, is any one type of customer softer than the others?

Ofer Druker, CEO

Everything starts with demand. The demand side is weakening, impacting the entire ecosystem. Therefore, when demand is low, it negatively affects all revenues generated by the business.

Operator, Operator

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

Andrew Marok, Analyst

I wanted to drill down a little bit more quantitatively on that second half guidance and try to get a sense of the scale of your assumptions for contributions from the inorganic events like the World Cup and political advertising in the back half of the year. And then I have a follow-up after.

Sagi Niri, CFO

So I'm not sure we can specify exactly what the FIFA World Cup revenue will be generating, considering we do not measure it as separate or inorganic. Events like these become organic over time, and every year there’s a major tournament. Further, Hisense and VIDAA are heavily investing in exclusive sports content that we will monetize in the future as well.

Ofer Druker, CEO

I think that it’s clear that our partnerships and investments with VIDAA and Hisense are aimed at maximizing the benefits of exclusive content. We're excited to monetize this chance and are looking forward to the significant revenue opportunities it presents.

Andrew Marok, Analyst

Okay. And then in the second quarter, can you point to anything specific as to why EBITDA margins were higher than expected? Was there anything in any specific expense lines that was worth calling out?

Ofer Druker, CEO

I think that – sorry. Take it – you will take it. Sorry.

Sagi Niri, CFO

Yes. I think it's a combination of different initiatives we took during, at the end of Q1. We recognized existing pressures in the macroeconomic environment. Consequently, we closed some open positions, limited indirect expenses that correlated with revenue that went down, made adjustments on data and hosting costs, renegotiated with some vendors, and placed holds on travel and expense professional services. All these efforts contributed to the unusually high EBITDA margin in Q2.

Operator, Operator

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

Andrew Boone, Analyst

Can we start with just helping to better understand 3Q? Is there a way that you can help us understand kind of the first half of what you've seen, so July and August to date, as we think about this quarter?

Ofer Druker, CEO

When we give guidance that is below consensus, it’s not aligned with our plans. If it was, we wouldn't have issued those assessments and forecasted those numbers. We feel weakness in the market arises from a range of advertisers and partners, leading us to adjust our forecast accordingly.

Andrew Boone, Analyst

Okay, and then could you talk about the impact of FX on the model? Were there any top-line headwinds that you can point out there?

Sagi Niri, CFO

Most of our revenues come from the U.S., so we don't see any FX effects there, neither benefits nor losses. On the cost side, yes, with the dollar strengthening worldwide over the last month, we have seen some cost savings due to FX effects. It's not material but we did notice some savings.

Andrew Boone, Analyst

Okay. And then just my last question focuses on the creative side of the business with Truly. Can you discuss the drivers of increased use of Truly for video ads? Help us understand what that brings to the rest of the model?

Ofer Druker, CEO

When we talk about creative, we recognize that it encompasses several vital components. Firstly, it boosts engagement. However, beyond that, it enhances efficiency when connecting creative elements with data usage. The progress made with Truly in the last one-and-a-half to two years is impressive since we launched the product after acquiring Unruly. Advertisers find this beneficial because it serves two of their main objectives: reaching the right audience with the correct message and increasing audience engagement. This ultimately leads to us gaining more attention, receiving budgets, and obtaining positive responses from advertisers. Overall, it serves as a catalyst for our growth when we present these capabilities compared to companies that lack such comprehensive offerings.

Operator, Operator

Thank you. I'll now hand today's call back over to Ofer for any closing remarks.

Ofer Druker, CEO

Thank you, everyone. As we noted, we are building a strong foundation for the company and looking ahead, we view a lot of upcoming potential in both the months and years to come based on our pending deals, investments, and acquisitions, and we are confident that it will be finalized in the third quarter. While we are mindful of the market headwinds, we recognize we are building a company for the future, not just for the next quarter. We believe we have instilled the right foundations and talent necessary to grow our business and advance forward. We are excited about it. We have demonstrated our ability to fulfill our strategy, notably increasing our CTV engagement through agreements with VIDAA, gaining exclusivity in major markets, and developing strong partnerships with significant global OEMs. Our recent acquisition of Amobee aligns with our strategy expressed following our dual listing last June, leveraging our profits and cash to make acquisitions that strengthen our footprint in the ad tech space. Thank you for your engagement today.

Operator, Operator

This concludes today's call. Thank you for joining. You may now disconnect.