Nexxen International(US:NEXN)2023-03-07 11:47PART I Item 3: Key Information This section outlines principal risks related to business, market, operations, financial position, data privacy, and Israeli incorporation Risk Factors The company faces significant business, market, operational, financial, and legal risks, including revenue concentration and data privacy challenges - The company has significant revenue concentration from a small number of large buyers, with one buyer accounting for 10.7% of revenue in 2022 and 13.6% in 202153 - The business is exposed to risks from evolving data privacy regulations like GDPR and CCPA, which could limit data collection for targeted advertising62136139 - The company's ability to deliver targeted ads is at risk due to restrictions on third-party cookies and mobile device IDs by major platforms6368134 - Macroeconomic headwinds, including rising inflation, interest rates, and COVID-19 impacts, have negatively affected advertising demand and spending82 - A new credit facility entered in September 2022 to fund the Amobee acquisition contains covenants that may restrict operations, including limitations on debt and investments125127 - As an Israeli-incorporated company, it is subject to political, economic, and military conditions in Israel, which could adversely affect business operations104106 Item 4: Information on the Company Tremor International operates an end-to-end video-first digital advertising platform, focusing on CTV and video History and Development of the Company The company, incorporated in Israel in 2007, underwent several name changes before becoming Tremor International Ltd. in June 2019 - The company was incorporated in Israel in 2007 and has undergone several name changes, becoming Tremor International Ltd. in June 2019194 - The company's American Depositary Shares (ADSs) were listed on the Nasdaq Global Market in June 2021195 Business Overview Tremor International provides an end-to-end technology platform for digital advertising with a focus on video and Connected TV (CTV) - Tremor operates an end-to-end platform featuring a DSP, SSP, and DMP, with a strategic focus on video and CTV advertising198200 Customer and Publisher Base (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Active Customers | ~1,250 | | Active Publishers | ~1,530 | | Unique Users (monthly) | ~20 billion | | Countries Served | 246 | Key Revenue Streams (FY 2022) | Category | Revenue (USD Million) | % of Total Video Revenue | | :--- | :--- | :--- | | Total Video | $243.3 | 100% | | - CTV | $97.2 | 40% | | - Mobile Video | - | 47% | | - Desktop Video | - | 12% | - The company's growth strategy includes focusing on core areas like Video and CTV, introducing new products, strengthening customer relationships, expanding international footprint, and targeting select acquisitions229230233237 - The platform handles significant scale, processing over 135 billion daily ad requests and approximately 1,500 terabytes of daily data224239 Organizational Structure The company operates through a network of wholly-owned subsidiaries across the USA, UK, Japan, Canada, Germany, Singapore, Australia, and Israel Significant Subsidiaries and Ownership | Name of Company | Country of Incorporation | Ownership Percentage | | :--- | :--- | :--- | | Taptica Inc. | USA | 100% | | Tremor Video Inc. | USA | 100% | | Unruly Group US Holding Inc. | USA | 100% | | Unruly Holdings Ltd. | UK | 100% | | SpearAd GmbH | Germany | 100% | | Amobee Inc | USA | 100% | | Amobee Asia Pte Ltd | Singapore | 100% | Property, Plants and Equipment The company's headquarters are in Tel Aviv, Israel, with key international offices supporting global business functions - The company's headquarters are located in Tel Aviv, Israel, with key international offices in the US, UK, Japan, Singapore, Australia, and Germany274 Item 5: Operating and Financial Review and Prospects This section analyzes the company's 2022 financial performance, noting revenue decline, profit decrease, and strong liquidity Operating Results For 2022, revenue decreased by 2.0% to $335.3 million, profit fell 69.0% to $22.7 million, and CTV revenue grew 21% Consolidated Statement of Operations (Year Ended Dec 31) | Metric (in million USD) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $335.25 | $341.95 | (2.0)% | | Gross Profit | $249.14 | $253.69 | (1.8)% | | Operating Profit | $44.75 | $74.46 | (39.9)% | | Profit for the year | $22.74 | $73.22 | (69.0)% | | Total comprehensive income | $16.24 | $70.59 | (77.0)% | Key Performance Indicators (Year Ended Dec 31) | Metric (in million USD) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | CTV Revenue | $97.16 | $80.30 | 21.0% | | Video Revenue | $243.31 | $242.72 | 0.2% | | Contribution ex-TAC | $309.73 | $301.98 | 2.6% | | Adjusted EBITDA | $144.89 | $161.24 | (10.1)% | - The decrease in revenue was primarily driven by challenging macroeconomic conditions, offset by a $36.8 million revenue contribution from the newly acquired Amobee317 - Research and development expenses increased by 82.7% to $33.7 million, driven by increased investment and Amobee's R&D costs319 - The Contribution ex-TAC retention rate was 80% for 2022, a significant decrease from 150% in 2021, attributed to macroeconomic uncertainty and reduced ad spend295296349 Liquidity and Capital Resources As of December 31, 2022, the company maintained a strong liquidity position with $115.5 million in net cash Key Liquidity Metrics (as of Dec 31, 2022) | Metric (in million USD) | Value | | :--- | :--- | | Cash and cash equivalents | $217.5 | | Net Cash | $115.5 | | Working Capital | $179.6 | Summary of Cash Flows (Year Ended Dec 31) | Cash Flow Activity (in million USD) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $83.01 | $170.09 | | Net cash used in investing activities | ($233.0) | ($16.49) | | Net cash from financing activities | $3.06 | $116.86 | - The company secured a new $180 million credit facility in September 2022 to partially fund the Amobee acquisition, consisting of a $90 million term loan and a $90 million revolving credit facility366 Research and Development, Patents and Licenses The company is committed to R&D investment to enhance its platform and protect proprietary technology through patents and trade secrets R&D Expenses | Year | R&D Expense (USD Million) | % of Operating Expenses | | :--- | :--- | :--- | | 2022 | $33.7 | 14.7% | | 2021 | $18.4 | 9.4% | | 2020 | $13.3 | 8.4% | - The company protects its intellectual property through copyrights, trade secrets, and owns more than 50 patents373 Trend Information The company expects to benefit from long-term trends in digital media and programmatic advertising, despite ongoing macroeconomic challenges - The company is positioned to benefit from the proliferation of digital media, adoption of programmatic advertising, and the growth of Video and CTV374 - Macroeconomic challenges including rising interest rates, inflation, and geopolitical uncertainty negatively impacted advertising spend in 2022 and are expected to persist into 2023375 Item 6: Directors, Senior Management and Employees This section details the company's leadership, compensation practices, board structure, and global employee base Directors and Senior Management The company is led by an experienced executive team and a Board of Directors with diverse industry expertise - The executive leadership team includes Ofer Druker (CEO), Sagi Niri (CFO), and Yaniv Carmi (COO)379388389390 Compensation Aggregate compensation for executive officers and directors in 2022 was approximately $30.7 million, with equity-based compensation being a significant component - Aggregate compensation for executive officers and directors for the year ended December 31, 2022, was approximately $30.7 million392 2022 Compensation for Top 5 Executives | Name and Principal Position | Base Salary (USD) | Variable Comp (USD) | Equity-Based Comp (USD) | Total (USD) | | :--- | :--- | :--- | :--- | :--- | | Ofer Druker, CEO | 720,000 | 540,000 | 15,187,086 | 16,664,913 | | Yaniv Carmi, COO | 600,000 | 360,000 | 6,693,867 | 7,784,770 | | Sagi Niri, CFO | 383,855 | 225,000 | 5,649,299 | 6,299,390 | | Tal Mor, CTO | 303,245 | 262,500 | 1,837,099 | 2,438,961 | | Amy Rothstein, CLO | 400,000 | 150,000 | 1,546,177 | 2,158,140 | Board Practices Tremor follows a mix of Israeli and U.S. corporate governance practices, with independent board committees - The company has elected to "opt out" of Israeli Companies Law requirements to appoint external directors, instead complying with Nasdaq director independence requirements417 - The Board has established an Audit Committee, a Compensation Committee, and a Sustainability, Nominating and Governance Committee429433442 - As a foreign private issuer, the company relies on an exemption for shareholder meeting quorum requirements, setting it at 25% of voting power instead of the Nasdaq-required 33.3%420 Employees As of December 31, 2022, Tremor International had 1,087 employees globally, primarily located in the US - The company had 1,087 employees as of December 31, 2022, with the majority (682) located in the US476 Item 7: Major Shareholders and Related Party Transactions This section details the company's ownership structure, with four principal shareholders holding 55.1% of ordinary shares Major Shareholders As of February 28, 2023, the company's ownership is concentrated among four major shareholders who collectively hold 55.1% of ordinary shares Principal Shareholders (as of Feb 28, 2023) | Name of Beneficial Owner | Voting Power % | | :--- | :--- | | Mithaq Capital SPC | 24.1% | | Toscafund Asset Management LLP | 15.1% | | Schroder Investment Management Limited | 10.0% | | News Corporation | 5.9% | | All executive officers and directors as a group | 4.8% | - In 2022, the company repurchased 16.9 million ordinary shares for approximately $86.3 million through two publicly announced share repurchase programs487488605 Item 8: Financial Information This section references audited consolidated financial statements, discloses ongoing legal proceedings, and states the company's dividend policy - The company is involved in ongoing legal disputes with Alphonso, Inc. concerning breach of contract, tortious interference, and misappropriation of trade secrets499500 - The company does not anticipate paying dividends in the foreseeable future, intending to retain earnings for operations and business expansion501 Item 10: Additional Information This section provides details on the company's share capital, material contracts, and tax considerations for Israeli and U.S. holders - As an Israeli company, it is subject to a 23% corporate tax rate but may benefit from reduced rates (as low as 12%) under the "Preferred Technological Enterprise" regime521542 - For U.S. Holders of ADSs, dividends are generally treated as foreign source income and may be eligible for qualified dividend income tax rates, subject to PFIC rules and holding period requirements550553 - The company does not expect to be treated as a Passive Foreign Investment Company (PFIC) for the current taxable year, but this is a factual determination made annually558 Item 11: Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are related to foreign currency exchange rates and interest rates, with hedging instruments used to mitigate some risk - The company is exposed to foreign currency exchange risk from transactions denominated in currencies other than the U.S. dollar, such as the British Pound, New Israeli Shekel, and Euro574922 - Interest rate risk exposure is considered low but exists due to variable-rate debt instruments573924 PART II Item 15: Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures, as well as its internal control over financial reporting, were effective as of December 31, 2022591592 Item 16: Other Information This section covers governance topics, including audit committee expertise, code of ethics, accountant fees, and significant share repurchase programs Principal Accountant Fees (KPMG) | Fee Category (in million USD) | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $0.84 | $0.55 | | Audit-related fees | $0.13 | $0.13 | | Tax fees | $0.29 | $0.21 | | Total | $1.26 | $0.89 | - In 2022, the company executed two share repurchase programs, buying back a total of 16,906,795 ordinary shares for approximately $86.3 million603604605 PART III Item 18: Financial Statements This section contains the audited consolidated financial statements for the fiscal year ended December 31, 2022, prepared under IFRS Consolidated Balance Sheet Highlights (as of Dec 31) | Metric (in million USD) | 2022 | 2021 | | :--- | :--- | :--- | | Total Assets | $956.16 | $802.74 | | Total Liabilities | $404.55 | $230.36 | | Total Shareholders' Equity | $551.62 | $572.38 | - The acquisition of Amobee on September 12, 2022, for a total consideration of $211.8 million, was a significant event impacting the financial statements, adding $92.2 million in goodwill656936950 - The company's revenue is primarily generated from the Americas, which accounted for $303.1 million (90.4%) of total revenue in 2022957