Tremor International Ltd
Q3 2021 Earnings Call Transcript
Published:
- Operator:
- Welcome to Tremor International's Third Quarter & Nine-Month 2021 Conference Call. At this time, all participants are in a listen-only mode with a question and answer session to follow at the end of the presentation. This 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 the call over to Billy Eckert, Senior Director Investor Relations, for introductions and the reading of the Safe Harbor statement. Please go ahead.
- Billy Eckert:
- Thank you Operator. Good morning everyone and welcome to Tremor International's third quarter & nine-month 2021 earnings call. With us on today's call are Ofer Druker, Tremor's Chief Executive Officer, and Sagi Niri, the Company's Chief Financial Officer. This morning we issued a press release which you can access on our website at investors.tremorinternational.com. During today's conference call, we may make forward-looking statements. All statements other than statements of historical fact could be deemed as forward-looking. We advise caution in reliance on forward-looking statements. These statements include without limitation projections about our future financial results and future business, and statements concerning the expected development, performance and market share or competitive performance relating to products and 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 registration statement on Form F-1. 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:
- Thank you Billy, and welcome to everyone joining us on today third quarter earning webcast. Let me start by saying this quarter has been a significant period of growth for the company. Today we reported our strongest quarter in corporate history and we are encouraged by the momentum we have generated a growth over co-verticals which I will cover in more details on today's call. Afterwards, our Chief Financial Officer, Sagi Niri will review the highlights of our Q3 financial results, following that we will be happy to take your questions. First, I will like to cover some brief performance highlight. For the three months ended September 30 to the 2021, we generated contribution ex-TAC of $76.7 million compared to $49.7 million in Q3, 2020, 54% organic growth. And adjusted EBITDA of $42.3 million compared to $19.6 million in Q3, 2020, which is 2.2 times growth. This reflected our strongest growth reported today, highlighted by September being the strongest single month since the company inception. For the nine-months ended September 30, '21, we generated contribution ex-TAC of $213.4 million compared to $110.3 million in nine-months of 2020, which reflects organic growth of 92% and adjusted EBITDA of $107.2 million compared to $21.4 million during the period last year, which resulted in a five times growth. Our record growth general is in CTV services where our revenues grew 115% in Q3, 2021, versus Q3, 2020, and one added an 88% in the nine-months period ended September 30, 2021, versus same the nine-months period in 2020. We also achieved a 49% EBITDA margin in Q3, 2021, on a reported revenue basis and a 55% margin on net revenue which is the higher than the median of our direct views. I emphasize that core of these performance is the strength of Tremor end-to-end technology and business platform which covers the three pillars of this business
- Sagi Niri:
- Thank you, Ofer. Thank you, everyone, for joining us today. We are encouraged to see another recurring quarter of revenue in strong business momentum as we move into the fourth quarter of 2021. Today, I'll be discussing some of the highlights of our Q3 performance as well some of the key financial and operational drivers during the quarters. Tremor International achieved an outstanding record growth here in Q3. We've revenue and adjusted EBITDA propelled the steady organic revenue growth. Our net revenue grew 54% in Q3 year-over-year and resulted in $76.7 million for Q3, 2021, versus $49.7 million in Q3, 2020, all of which was driven through strong organic growth. Our CTV revenues grew 115% in Q3, 2021, versus Q3, 2020, and we are poised to continue this growth as more business is increasingly being transacted through programmatic platforms. During the same period, our Video net revenues grew 68%. For the nine-months ended September 30, 2021, CTV and Video net revenue grew 188% and 112% respectively. As a result, we achieved adjusted EBITDA of $42.3 million in Q3, 2021, and $107.2 million in the nine-months period of 2021, or adjusted EBITDA margins of 65% and 50% out of net revenue for the same period respectively. For the nine-months ended September 30, 2021, Tremor generated $215.4 million in net revenue which is increased of 93% year-over-year. We continue to generate very strong adjusted EBITDA, we're investing in the critical areas of our business that can drive our future growth. Cost were lower than expected, driven by a proponent of our return to office, lower anticipated marketing events then and reduced travel and entertainment cost. We saw very strong year-over-year growth in Q3 and the nine-months period of 2021 which increased our EBITDA by 2.2 times and 5.0 time respectively compared to the same period in 2020. We are focused on being highly competitive in the CTV space and entered the segment early. With the enhancement we made to our offering during the pandemic, our efforts resulted in 115% year-over-year CTV revenue growth in Q3, 2021. Our Video net revenue increased 58% from $40.1 million in Q3, 2020, to $63.4 million in Q3, 2021, which was driven by our Video capabilities and sharp focus on this segment. We delivered significant growth in the nine-months period of 2021 during we exceeded market expectation and proved once again that our strategy is working. Representing the latest milestone in the evolution of our end-to-end Video first platform, and TV Intelligence solution, our recent acquisition of Spearad, an exclusive VIDAA partnership, we'll enable more effective TV campaigns going forward for our partners in several important ways. Enhance our TV Intelligence solution not only by providing an exclusive dataset but also by providing an opportunity for real-time targeting capabilities, VIDAA has a global reach of approximately 20 million smart TVs, allowing us to provide our international partners with a scalable TV targeting and measurement solution across the premium supply through spend which we didn’t had before. Spearad is at a purpose-built technology for broadcasters addressing the unique need of delivering a seamless TV like experience for consumer that can benefit our media partners through operational and cost efficiencies, increased buyer power, maximize revenue opportunities, and advanced UI. And our customers with expanded access to three new global CTV and OTT supply and advanced ad port targeting capabilities. We believe we have a competitive advantage with our omnichannel end-to-end platform versus our one dimensional solution. We have developed a profitable business model with high efficiency around operating cost, leading to operating leverage, economies of scale and strong productivity. Among our ad deck peers, Tremor is one of the highest margin in operational profitability resulting in a 49 adjusted EBITDA margin in Q3, 2021, on a reported revenue basis and 55% on a net revenue basis. Turning to our cash flow. We generated net cash from operating activities of $44.6 million for Q3, 2021, versus $4.5 million in Q3, 2020 which is an increase of around 900%. For the nine-months ended September 30, 2021, we generated net cash from operating activities of $121.4 million versus $11.7 million in the nine-months ended September 30, 2020, a 940% increase. As of the fair things of September, we had $333.3 million cash and cash equivalent with no debt. We also experience 99% free cash flow conversion during the quarter. Non-IFRS diluted earnings per ordinary share is $0.21 for Q3, 2021, versus $0.11 in Q3, 2020, and $0.56 for the nine-months ended September 30, 2021, versus $0.07 for the nine-months ended September 30, 2020. Finally, I'll now turn to our outlook. As a reminder, we expect that return to offer marketing and travel cost will add an incremental $1.5 million to $2 million per quarter in operating expenses next year. For the fourth quarter of 2021, we expect net revenue to be at at least $85 million which represents year-over-year growth of approximately 16%. In Q4, '21, adjusted EBITDA to be at least $42 million which represents year-over-year growth of approximately 7%. We also expect annual 2021 adjusted EBITDA to be at least $149 million which represent year-over-year growth of approximately 145% and expected annual 2021 adjusted EBITDA margin or 50% as a percentage of net revenue compared to 33% in 2020. This guidance reflects anticipated full-year organic contribution ex-TAC and adjusted EBITDA growth of approximately 62% and 150% respectively and underscores that our efficient end-to-end model focused on CTV is helping us achieve excellent growth and profitability. We believe that our growth profile efficient end-to-end model, an healthy balance sheet positions Tremor to continue taking advantage of a rapidly growing digital advertising market. With my remarks completed, I'll turn the call back to Ofer.
- Ofer Druker:
- Thank you, Sagi. To summarize, we believe we are well-positioned within the industry thanks to the key advantages we achieve from being completely end-to-end. Our unified platform provide advertisers and media partners with simplicity and better data empowerment, while also accelerating the industry move towards supply type optimization. We will build this platform with a heavy focus on CTV, Video, and Data, we're now customized rely on our deep expertise and actionable insight and which now accounts for 92% of our programmatic net revenue. We continue to believe that advertisers and media partners will rely on and allocate additional spend towards fewer companies we diverse portfolio solution that can service them across all parts of the buying process and across all screens regardless of their service level needs. We will also continue to deliver on our promise to expand and enhance our end-to-end CTV capabilities for customers. Such a growth we achieved through our recent acquisition of Spearad, which further complimented our end-to-end platform offering. We also has taken steps to further our U.S. and international footprint and accelerate our growth in to scale market while depreciating ourselves through global data exclusivity with our partnership with VIDAA. As we look ahead, we will continue to evaluate additional strategic acquisition opportunities while also continue to make investment in our products, R&D, sales and marketing, to propel future growth and increase our market share. Finally, on the investor relationship front, we anticipate being far more active with both U.S. and global investor. Through attending investor conferences, conducting text labels, and participating in non-deal vouchers with the firms discovered Tremor. We would be very busy working towards garnering traditional interest from current and prospective shareholders. We believe that we have a compelling story and value proposition, with strategic differentiation and advantages that more investors and customers will see the benefit of as we move it. We look forward to speaking with current and prospective investors at RBC Global Technology, Internet, Media, and Telecom Virtual Conference on November 17, and Raymond James Technology Investors Conference on December 6, and Needham Growth Conference on January 10. We believe that we have significant proved foothold and remain confident about our future. Operator, we will now open the calls to investor's questions.
- Operator:
- Our first question comes from Matt Swanson with RBC Capital. Your line is open.
- Matt Swanson:
- Alright. Thank you, and congratulations on the results this quarter. Ofer, you mentioned SPO as kind of a growing theme and it certainly seems like there is no better way for customers to take advantage of that than going with the full satellite Tremor. Can you talk about just kind of what sort of tailwind this has been for you during the quarter during the year. Do you think there is a chance that that team accelerates in 2022?
- Ofer Druker:
- Thank you, Matt. Good morning. Yes, we started this process about 3.5 years ago when we acquired in April 2019 when we acquired RhythmOne and connected RhythmOne basically to Tremor and created an end-to-end solution platform that include DSP and SSP. And we believe that this way it's creating a few elements which are really both in for from advertisers but also for the publisher. The first one is simplicity for them to buy the traffic to want their company to go into their objectives and so on. The second one is run data that is also and emphasize for us. And the third one is this supply path optimization meaning yours and mediators between basically the DSP and the buyers to the media in reaching their clients. Mostly what we see in the market that many companies and of course advertisers and publishers are adopting that. And this will become standard in the near future. So, we believe that it will grow in 2022 and it will support our growth also going forward.
- Matt Swanson:
- Thank you. And then for Sagi, the profitable growth you're achieving this year is really noteworthy, and when we think about the strength particularly in adjusted EBITDA, it was great to get that additional color on the returning expenses next year. I mean, how are you thinking about balancing investments in growth for the opportunities in front of you compared to profitability when we're looking out to 2022?
- Sagi Niri:
- Hey Matt, thank you. I think we are all aware that we want to grow the business organically and keep growing it into 2022 and going forward. We understand that in order to do that we need to invest more in marketing, R&D, sale, and product. Having said that and expecting the growth to come in 2022 and going forward. I think we still can maintain somewhere around the 45% adjusted EBITDA margins out of net revenue.
- Matt Swanson:
- Good, awesome. Thank you for the time.
- Sagi Niri:
- Thank you.
- Ofer Druker:
- Thank you.
- Operator:
- Our next question comes from Laura Martin with Needham & Company. Your line is open.
- Laura Martin:
- Good morning. I have three. The first is on these margins, just following-up on the prior question. They are quite a bit higher structurally, you're 55% in the quarter you strip that structurally you can stay at 45% Jeff Green sort of from -- over Trade Desk, did 41% in the quarter but really all they commits in 30% launches. So, the first question I have for you is what is it about your business with structurally at so much more profitable than all the other object firms, that's my first one. My second one is on your Slide 14, I love this slide. So, basically if I look at your CTV grew a 115% year-over-year. And doing the math, it looks like online video grew 40%. My question is cannibalization or additive, wired online video growing so much slower than CTV. And then, my third is again referencing reference in Trade Desk again, Jeff Green said that he believes that CTV crates competitive advantage for the open internet to take share back from the big walled gardens. And I'm interested in whether you agree with that and if so what your thinking would be supporting that thesis, could -- that would be wonderful for investors, it's true. Thank you.
- Ofer Druker:
- Thank you, Laura. It's Ofer. I would take maybe the third question that you ask about CTV and that is giving an option for the open market to basically to grow compared to the walled garden.
- Laura Martin:
- Okay.
- Ofer Druker:
- So, agree with this statement and with Jeff that's saying that. I think that the CTV is an open market first-of-all, other companies also to grow their business and it's not controlled by the walled garden basically. And there is a lot of optimism growing elements in independent companies that can basically grow the business in parallel to that. And there's also the reason that we sign just this agreement important agreement with VIDAA which is a license company. They basically is the operational system of this platform that allow us now to get ACR data from all their TV and CTV basically around the globe in an exclusive basis. And we believe that this competition we just in us and it was related to the walled garden and all further advertisers we like to reach more and more users through different channels and not just a basically the legacy one.
- Sagi Niri:
- Thank you, Ofer. Laura, hey good morning. I will answer the first two questions. So, regarding profitability, yes, probably we are the highest profitability margin in our industry. I think that it's come from capital power makers, of course the main one is our end-to-end platform and our end-to-end business model where we are catering both sides of our partners, the media partners and the advertisers and agencies. The second one is our infrastructure tech and product infrastructure where we are running very efficiently and it's allowing to maintain a low core base. So, both of that are contributing to our amazing adjusted EBITDA margins. So, your first question regarding CTV growth versus Video growth. So, there is no cannibalism around that because CTV of course is the device that we are running on and Video is the format. So, we are very eagerly generating revenue through Video. It's more than 80% of our revenue is coming from Video. So, the growth over there can be as high as we are doing in CTV where we started of course is over. We're doing around 26% through it of our revenues for CTV and probably it will grow till higher than our increase in Video going forward.
- Ofer Druker:
- Just to add one point to about the EBITDA margin and so on. We are talking about we grow our cost investment in basically all the related engines by around 30% but our income grow by 100%. And of course they this extra income went down to EBITDA, that's why we see this growth in EBITDA compared to the market into our focus basically.
- Laura Martin:
- Thank you, very much. Great results, again.
- Ofer Druker:
- Thank you.
- Sagi Niri:
- Thank you.
- Operator:
- Our next question comes from Andrew Boone with JMP Securities. Your line is open.
- Andrew Boone:
- Good morning, guys. And thanks for taking the question. Two please. So, firstly it's highlighted strength in the accretive offering. Can you just talk about the value that Tr.ly offers and how customers are leaning into it and then just how does that, that relate in terms of speaking through your relationships with advertisers as well their agencies and truly. And then question number two is on VIDAA, the international component the global nature of that agreement was kind of highlighted multiple times. Going back to when we started our relationship with you guys, our understanding is like we suppose more U.S. based. So, can you just step back and review kind of how you guys are thinking about international and any potential there. Thank you, so much.
- Ofer Druker:
- Of course, good morning. So, I will start with the second question if you don’t mind, regarding VIDAA. So, first of all our main focus is U.S. and of course close to a 90% of our revenues are coming from the U.S. but we still add like very nice infrastructure in the international markets like in U.K. Germany, in Singapore, Australia, and Japan, that is there. And it's you know it was suffering because of COVID and the non-ability to move the people here in order to train or to go there and it's more a need more knowledge between the companies. But we feel that there is a big potential also internationally. And one of the things that we learn now to do in the last five years is surrounding ACR targeting in the U.S. And we feel that there is a use potential so-so in international market. So, we think that it will be a differentiator for us in some of this market. It seems VIDAA is a very major player in some of them, like in Japan, Australia, and also the U.K. So, we believe that it's important to mention it because we believe it will give us an edge and the differentiator on this market and we'll be able to grow our revenue in from middle of '22 going forward. And regarding your first question about Tr.ly. So, basically the agencies and the advertisers are looking for unique and creative ways to basically enrich the offering, it's not the Video tale it's behind, it's around the Video that is like enabling to get more information on their product or their service. The rate of contact to predominately show to scan a QR and get more information or to download the product into their mobile phone and so on. And we are able to do that through Tr.ly. That is growing very fast in the demand. And also we need to remember that the agency has conducted a few changes that lower the resources around that. The advertisers are looking for that and is giving them simplicity again. When they're running with us to get all the services when they're running with us on the platform. And another point is that the Creative is now connected to our DMP and it'll allow us basically to take decisions and to change the Creative according to the data and according to the user that is basically watching the Creative in order to adapt it to the goal and the KPI of the clients which is very meaningful.
- Andrew Boone:
- Can I just talk a little up really quickly on that last point?
- Ofer Druker:
- Sure.
- Andrew Boone:
- This does do you accelerate that at all in terms of now having an ad server as well as then the Creative elements, and can you just talk about how those two things are intertwined?
- Ofer Druker:
- Well, of course it will accelerated with the ad server and let it be there and then most heads are very in there. First it's sophisticated ad server at Spearad into the platform, it will enhance our capabilities of course. Together we pay also even with VIDAA that is creating well providing us data. So, all these elements together of course including increasing the effectiveness of the ad that we are showing to the user according to different parameters indicate the eye of the advertiser. And I think that in general, we didn’t spoke a lot yet about Spearad but we're going to do that in the near future. It's one of the most advanced platform the Tr.ly, so that is incorporating and CTV ad server and it'll be there in the platform that was built by very experienced intelligence veterans that basically built this platform and created it and sold the company like that in the past of ad serving to AOL a few years ago. Basically what do we get is what is -- what basically what we will be able to offer one stop shop for all the data Creative, serving capabilities regarding CTV. That's what we are what we announced basically in the last few months through the large or Tr.ly, the acquisition of Spearad and the deal that regard we'd read that sort of deal, so then it's couple of shares.
- Andrew Boone:
- Great, thank you.
- Ofer Druker:
- You're welcome.
- Operator:
- And next question comes from Jonathan Beard with Panya . Your line is open.
- Unidentified Analyst:
- Thank you. Can you hear me, guys?
- Ofer Druker:
- Yes.
- Unidentified Analyst:
- Great. And just and obviously you changed your -- the Company show where they go. I just wondered if you could first of all could give just an update on that the size of the billings that you are now empowered with. Just to give us a sense of what scale what the annualized run rate is and first of all. And then, second, I wondered if you could give us a breakdown of your net revenue so that we can understand how you're getting paid by clients now, what elements you're getting paid for the most and or how your earnings, some of your revenues from at least your findings earnings guide. And just so we can get an understanding if that mixed income and perhaps you can talk about how that mix is evolving as well or what we might expect going forward? And then thirdly, just on our processes and it's on Unruly but I guess it's -- it is a wider group as well. It's just what you're seeing in terms of the demands for putting up guarantees on better quality maybe I guess financial commitments now like yes just perhaps talk around that subject matter if you can.
- Ofer Druker:
- Okay. I'll take the first two questions. So, we changed like in 2020 all our reporting basis instead of reporting all the other growth basis, we changed it where we are reporting now programmatic on the net basis and performance on a growth basis. So, where you are seeing our reported revenue it's a mix of growth and net. And it is the reason we are emphasizing our contribution ex-TAC, in order that we will be we can report on an effort to every one of our peers. And every other company of course billing and investors are going on a growth bases and this is how we are collecting the money and then paying to the -- our media partners. We are not disclosing the growth revenue. And answer your question what is coming out of programmatic and what is coming out of performance. I think we highlighted that in our press release. In Q3, we didn’t programmatic revenues which our net basis almost 69%. So, the GAAP to the total of 76.7 is of course performance. On then the nine-months, we generated $192 million in programmatic which again the GAAP to our $215.4 million of contribution ex-TAC is performance. Regarding the module for you want to take --.
- Sagi Niri:
- Yes. I must say we usually companies are not providing exclusivity in this world anymore like publishers are not providing exclusivity. We saw a very big advantage to get exclusivity from News Corp which is one of the biggest publishers in the world, most respected one. So, part of the deal of acquiring Unruly also provided an MRG to manage the media three years after the acquisition basically. Usually when we are providing MRG is only for key media partners that we feel that is can be a differentiator or very interesting for advertisers to get a hold off and to run their companies again. But usually it's not a practice anymore that is available so much in the industry and most of the deals are done as we mention programmatically.
- Unidentified Analyst:
- Okay. So, I have one more follow-up question, okay?
- Ofer Druker:
- Of course.
- Unidentified Analyst:
- Yes. So, just we heard from our team yesterday. And in the U.K about that is all there to control the transaction process and avoids we do men. How does that sit with where the Video irreversible view, I mean do you think it's credible for them throughout a variety platform and actually it's direct to the deposits or -- in case doing that? How do you think that resolve?
- Ofer Druker:
- I think that this is exactly what I discussed when basically Matt asked his questions about the supply path optimization. Meaning, that you are managing everything on one platform, meaning you're managing your this pay which is the demand side which is where the advertiser are basically running their company. So, we are running them for them and through basically the SSP, the disconnected or to direct publishers. In the case of the publishers that you are talking about, we can basically manage all this media. There are all these broadcaster under this platform. So, it's exactly what is done as we mentioned this is a phenomena that is now growing. It's growing in two elements, one of them is that corporations from corporation between this piece and SSP to create supply path optimization but we see it that they're more advanced on what we created which is one platform. Basically everything could be managed on one platform and basically you're avoiding or minimizing the usage of either men. So, this is a pattern, this is the vision that we created a few years ago and that's what we are following now. So, totally they understand what they're trying and where they want to go and it makes sense. And we are doing it already for a couple of years.
- Unidentified Analyst:
- Thank you.
- Operator:
- There are no further questions. I'd like to turn the call back over to Ofer for any closing remarks.
- Ofer Druker:
- Thank you, very much. We are as we said in the beginning, we're very excited about the results and the progress as a company. And we are looking forward to keep talking and making the progress with the company going forward. Thank you, very much.
- Operator:
- This concludes the program. You may now disconnect. Everyone, have a great day.
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