Innovid Corp. (NYSE:CTV) Q1 2023 Earnings Call Transcript May 14, 2023

Operator: Greetings. Welcome to the Innovid Q1 2023 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, John Williams. You may begin.

John Williams: Thank you, operator. Before we begin, I’ll remind you that today’s call may contain forward-looking statements and that the safe harbor statement in today’s earnings release available on our Investor Relations page also pertains to this call. Changes in our business, competitive landscape, technological or regulatory environment and other factors could cause actual results to differ materially from those expressed by the forward-looking statements made today. Our historical results are not necessarily indicative of future performance. And as such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them, except as required by law. In addition, today’s call may include non-GAAP financial measures.

We use these non-GAAP measures in managing the business and believe they provide useful information for our investors. These measures should be considered in addition to and not as a substitute for our GAAP results. Reconciliations of the non-GAAP measures to their corresponding GAAP measures, where appropriate, can be found in the earnings presentation and earnings release available on our website and in our filings with the SEC. Hosting today’s call is Zvika Netter, Innovid’s Co-Founder and CEO; Tanya Andreev-Kaspin, Innovid’s CFO; and Tal Chalozin, Co-Founder and CTO, who will participate in our Q&A session. I’ll now turn the call over to Zvika to begin.

Zvika Netter: Thanks, John, and thank you all for joining the call today. I’ll begin with some thoughts about the first quarter and some recent business updates and highlights. Our CFO, Tanya Andreev-Kaspin, will provide details on our Q1 performance and updated guidance followed by Q&A. We were excited to share our preliminary results a few weeks ago and are even more thrilled to share our full Q1 results and update on our progress today. I’m proud of our team for winning new business and remaining focused on execution. So to start, let’s talk a bit about our quarter and the current environment. We beat both our guidance and consensus and are tracking ahead of where we hoped it would be when we last spoke back in February. Our Q1 revenue grew 18% year-over-year, and we posted year-over-year adjusted EBITDA improvement that exceeded our guidance.

We remain very focused on profitable growth, and our Q1 results demonstrate that we’re executing on our plan. Innovid benefits a linear shift to CTV. This is a crucial part of our story. Even in a down market for advertising, we can still grow because of our favorable secular trends in CTV and the critical nature of what we provide for our customers. We continue to have a great deal of success adding new customers. Our core client growth exceeded 12% on a pro forma basis year-over-year. We expect that when the ad market bounces back, we’ll see a growth multiplier effect as our larger customer base runs back up, and we deepen our relationships as they can activate more products and our cross-sell efforts pay off. To be clear, the overall advertising market is still challenged.

While we saw some indications of modest firming in Q1, our visibility is still limited, and some of our existing customers have pulled back ad spending due to macro concerns. Specifically, looking at verticals, we’ve seen strength in telecom, CPG and auto, and weakness in tech, financial and insurance and consumer electronics. Importantly, advertising verticals tend to move in cyclical fashion. So we expect the slower growth areas to pick up as a macro trend improved. Now for a few additional quarter highlights. We continue to see success in adding new logos to our platforms. Exciting recent wins and expansions include PadSquad, [indiscernible]. We also announced several new partnerships, most notably with Walmart DSP. Looking ahead through the rest of 2023, we’re focused on cross-selling for additional upside.

I’m thrilled to report that we renewed and expanded our relationship with Verizon, continuing our partnership with video ad-serving, and DCO and adding InnovidXP measurement. We also recently expanded our relationship with Disney, building on our multiyear Hulu relationship to enhance measurement for more than 60 advertisers and [indiscernible] including travel, telco and e-commerce across Disney addressable footprint. We’re excited that Disney and others are adopting Innovid measurement solutions to further enhance their streaming strategies. For Innovid, scaling up further in measurement is a key long-term component of our strategy. More than a brand advertisers need a centralized platform and measurement capabilities to help them navigate this complex environment and its lack of standardization.

For us, this is fantastic. It is aligned with our value proposition across ad-serving, measurement and personalization. And our continued growth in core clients shows just how much customers value what we bring to the table. In summary, we had a solid quarter, including some key client wins and expansions and experienced some ad industry firming. We exited Q1 still cautious but are a bit more optimistic about the remainder of 2023. We remain confident in our position as the clear leader in building the critical technology infrastructure for the future of TV advertising and specifically CTV. I’ll now hand the call over to our CFO, Tanya Andreev-Kaspin, to discuss our first quarter results and updated guidance. Tanya?

Tanya Andreev-Kaspin: Thank you, Zvika, and good morning, everyone. We are happy to report our Q1 results and are pleased with our outperformance. We beat the top range of the initial revenue guide by 5% and delivered positive adjusted EBITDA. Q1 revenue grew 18% year-over-year to $30.5 million on a reported basis or 1% on a pro forma basis. Measurement grew 1% on a pro forma basis and represented 23% of total revenue in Q1. Ad-serving and personalization services were up 1% year-over-year and represented 77% of total revenue in Q1. Innovid ad-serving and personalization revenue closely relates with ad impressions volume served through our platform. Q1 CTV volume grew 13% year-over-year and represented 54% of all video impressions, up from 49% in the first quarter of 2022.

Mobile volume decreased by 9% and represented 34% of all video impressions, while desktop volume decreased by 10% and was 12% of all video impressions. CTV demonstrated resilience and generated growth, while desktop and mobile, most acceptable to the challenging macro backdrop declined in the first quarter. We expect the growth of the CTV business to continue to outpace other channels, gaining even more share of total video impressions. On to our geographic breakdown. In Q1, U.S. revenue grew 18% on a reported basis and represented 91% of the total revenue. International revenue grew 14% year-over-year and represented 9% of quarterly revenue compared to 10% in Q1 last year. Now moving on to expenses. Cost of revenues increased by $2.3 million year-over-year in Q1.

The increase is primarily attributed to the TVSquared acquisition and stock-based compensation. Revenue less cost of revenues was 73% of revenue in Q1, down from 77% in Q1 of 2022, again, impacted mainly by TVSquared. We expect the legacy TVSquared business to eventually operate at or close to our pre-acquisition margin level. Q1 operating expenses, excluding depreciation and amortization, were $36.7 million, up $1.7 million or 5% year-over-year. Most of the increase is due to the increase in stock-based compensation and the TVSquared acquisition, primarily offset by a reduction in onetime expenses, particularly the $4.4 million acquisition and IPO-related expenses we incurred in Q1 last year. Employee count at quarter end after Q1 reduction in force was 465, a 16% decrease compared to the previous year on a pro forma basis.

Q1 net loss was $8.6 million or a per share loss of $0.06. Q1 adjusted EBITDA was positive $0.1 million, representing 0.5% of positive adjusted EBITDA margin versus a negative 12% in the first quarter last year. Now on to cash and capital allocation. We are comfortable with our cash position and liquidity and expect our focus on profitable growth in 2023 to reduce our already modest cash burn and support our overall liquidity position. We ended the quarter with $45 million in cash and cash equivalents and $20 million in debt with an additional $30 million available on our revolver. Quarter-end common stock outstanding was 136.6 million shares. Finally, I would like to discuss our outlook. We are encouraged by our Q1 performance and are projecting a modestly improved outlook for the full year.

For the second quarter of 2023, we expect total revenue in the range of $31 million to $33 million, representing negative 6% to 0% year-over-year growth. We expect Q2 adjusted EBITDA in the range of 0 to positive $2 million. Two additional reminders. First, our outlook includes the full expense benefit of our recent 10% headcount reduction completed in Q1. Second, beginning in Q2, we will no longer be breaking out as reported versus pro forma as we will be letting a full year since the TVSquared acquisition. Full year outlook. We are increasing our revenue guidance for the full year to slightly higher than year-over-year versus our previous guidance of flat year-over-year. We expect a full year adjusted EBITDA margin of at least 5%, an improvement versus our previous full year guidance.

We’re encouraged by the current business momentum and in the economic environment improves, we believe we could exceed the profitability expectations we have already factored into our guidance. In conclusion, we are pleased with our first quarter results and remain focused on driving profitable growth. Innovid is well positioned strategically and financially to continue building the critical technology infrastructure for the future of TV advertising and driving value for our customers and shareholders. Thank you again for joining the call. Zvika, Tal and I are now ready to answer your questions. Operator, please begin the Q&A session.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Laura Martin with Needham.

Operator: Our next question comes from the line of Andrew Boone with JMP Securities.

Operator: Our next question comes from the line of Shweta Khajuria with Evercore.

Operator: Our next question comes from the line of Shyam Patil with Susquehanna.

Operator: And our next question comes from the line of Matthew Cost with Morgan Stanley.

Operator: [Operator Instructions] And it looks like we have reached the end of the question-and-answer session. And this also concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.