Innovid Corp. (NYSE:CTV) Q4 2023 Earnings Call Transcript
Innovid Corp. (NYSE:CTV) Q4 2023 Earnings Call Transcript February 27, 2024
Innovid Corp. misses on earnings expectations. Reported EPS is $-0.01178 EPS, expectations were $-0.01. Innovid Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Innovid Q4 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brinlea Johnson, Investor Relations. Thank you, Ms. Johnson. You may begin.
Brinlea Johnson: Thank you, Operator. Before we begin, I remind you that today's call may contain forward-looking statements and that the forward-looking statement disclaimer included in our today's earnings release available on our Investor Relations page also pertains to this call. These forward-looking statements may include without limitation, predictions, expectations, targets or estimates regarding our anticipated financial performance, business plans and objectives, future events and developments. 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 will include non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margins, and free cash flow. We use these non-GAAP measures in managing the business and believe they provide useful information to 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 release available on our website and in our filings with the SEC. Hosting today's call are Zvika Netter, Innovid's Co-Founder and CEO; as well as Anthony Callini, Innovid's CFO, both of whom will participate in our Q&A Session.
I'll now turn the call over to Zvika to begin. Zvika, please go ahead.
Zvika Netter: Thanks, Brinlea. Thank you all for joining the call today. I'm excited to share the progress Innovid has made in the past year. We provided critical technology infrastructure for many of the world's largest brands, agencies, and publishers. We empower them to create, deliver, and measure ad-supported TV experiences that people love, across connected TV, linear TV, and other digital channels. And we continue to push the boundaries of what's possible in the fast-growing CTV industry through constant innovation on our enterprise software platform. We're very proud to close up a transformational year with a strong fourth quarter, beating our guidance for both revenue and adjusted EBITDA, evidence of what we expect to achieve in 2024, and beyond.
Today, I'll review our fourth quarter results and full-year highlights, provide some recent business updates, and share some thoughts on the year ahead. I'll then turn it over to our Chief Financial Officer, Tony Callini, who will provide further details on our Q4 and full-year financials, in addition to our 2024 guidance, followed by Q&A. I am pleased to report fourth quarter revenue of approximately $39 million, reflecting 15% of annual growth and adjusted EBITDA of $8.3 million, which more than doubled year-over-year, resulting in a 21% adjusted EBITDA margin. Our operation profitability continues to increase as we generated $2.2 million in positive free cash flow this quarter. For the full-year, we reported revenue of $140 million, reflecting as reported 10% growth, and adjusted EBITDA of $19.4 million, a 14% adjusted EBITDA margin.
We also generated $1.4 million in positive free cash flow over the full-year, a $23 million improvement from 2022. We're proud of our financial performance in 2023 with improved revenue and adjusted EBITDA which exceeded guidance each quarter throughout the year. 2023 was an important year not only from a financial standpoint but also from an organizational perspective. Given our strong conviction in the business, we strengthened the executive team with the best possible talent to drive and accelerate our growth and market position. We hired Dave Helmreich as Chief Commercial Officer, Anthony Callini as Chief Financial Officer. We also promoted Yuval Pemper to Chief Technology Officer, and Ken Markus, Chief Operating Officer. Most recently, we welcomed Dani Cushion to the team as Chief Marketing Officer.
Dani brings a wealth of experience in leading marketing organizations in both public and private technology growth companies. We are really excited about the new additions to our team, who are already making an impact. Additionally, we reorganized the sales organization to drive accelerated growth in 2024. The commercial team has been focused on increasing wallet share from existing clients, adding new logos, and deepening our relationship with our most strategic clients. In the fourth quarter, we won new customers such as Philips for dynamic creative optimization in ad serving, Rain the Growth Agency for ad serving across their client portfolio, and Nexstar Media for measurement. We also expanded existing customer relationships this quarter.
For example, PetSmart, an ad serving client, added our measurement solution in Q4. In addition to these recent fourth quarter wins, we had a number of top global brands join us as clients throughout 2023, including Mazda U.S., Microsoft, Revlon, and Verizon, to name a few. As a result of our focused execution, we reported accelerating revenue growth and improved operation profitability in 2023, compared to last year. More specifically, Innovid CTV revenue from ad serving and personalization in the fourth quarter grew 14% year-over-year. InnovidXP, our measurement offering, grew 14% in the fourth quarter, and represented 22% of revenue. We are pleased with the ramp up in measurement as we continue to extend usage, and we are optimistic about our growth prospects as we go to market with measurement as a critical piece of our comprehensive ad technology platform.
I am very proud of all the team accomplished this year. Despite the macro and geopolitical challenges, we made significant operational, strategic, and financial improvements to our business. Looking ahead to 2024, we see two key trends, which are meaningful accelerators for CTV adoption and ad spend migration. First, more and more streaming platforms are implementing ad-supported offerings as subscription-only models have proven unsustainable. Just this past month, Amazon Prime Video introduced ads, following other streaming giants such as Netflix, HBO, and Disney Plus. Second, live sports are also increasingly part of CTV programming. The recent news by ESPN, Fox, and Warner Bros. to launch a sports streaming platform in the Fall is another step forward on the journey to 100% digital TV.
And it's a huge step, because sports is one of the last Linear TV men's days. While ad spending has been suppressed in the past few quarters, we believe that ad spend reacceleration on CTV is inevitable. As viewership continues to shift to CTV, ad dollars will follow to reach and engage consumers where they are. And as the TV market becomes more digital and more fragmented, we believe the need for our technology also expands. These market dynamics, technology capabilities, and unique partnerships will continue to drive growth in 2024 and beyond. Next, I'm happy to share updates related to the Innovid platform and our focus on innovation. From the early days when we founded Innovid, we've used our technology to push the boundaries of what's possible.
We've always been focused on setting the bar for what the future of TV should look like. And we continue to work closely with our clients to understand the issues they face, both big and small. This insight informs where we focus, and we are actively solving for some of the biggest challenges facing CTV today. Executing on our multiyear plan, we have continued to integrate our solutions on one powerful platform, with creative, delivery, and measurement capabilities working together to provide exceptional client value. And as a data-rich business with a unique CTV-first-gloss-platform dataset, we have the opportunity to provide even further value through the use of AI, with a focus on optimization across our full suite of products and solutions.
An exciting point of how we're helping clients optimize was on display at Disney's Global Tech & Data Showcase event at CES last month. Powered by Innovid Technology, Disney Advertising introduced the dashboard for real-time creative optimization. The dashboard helps Disney's advertisers use real-time consumer insights, such as web or app conversion data to find which of the creative are most effective. This allows them to automatically shift more investments to the winning creatives, improving performance in real-time. While this is just one example, in 2024 we'll continue to invest in and release exciting new optimization capabilities, which we believe will solve challenges in the CTV ecosystem. We're currently engaging closely with several major brands, agencies and publishers to test these new solutions and believe that what we offer will vastly improve efficiency, enhance transparency and control and maximize ROI for our customers and partners.
From Day 1 at Innovid, we have focused on innovation and we will continue to invest to bring new solutions to the market that provide meaningful value to brands, publishers, TV viewers and the ecosystem as a whole. In summary, we remain committed to expanding our margins and positioning ourselves for accelerated growth. As I reflect on where we were when we entered 2023, our team's hard work and dedication in navigating this uncertain macro environment is commendable. We have made a consistent progress each quarter in strengthening operational execution and improving financial performance, operational profitability and cash flow. I'm excited about our ability to make a meaningful difference in this industry and to generate value for our shareholders.
With that, I'll ask Tony to take us through the numbers and provide some insights into 2024 expectations. Tony?
Anthony Callini: Thank you, Zvika, and good morning, everyone. As you just heard, our focus on driving profitable growth is evident in both the fourth quarter and full-year results. We're pleased to report record revenues in both Q4 and 2023, double-digit growth, our third straight quarter of adjusted EBITDA margin expansion and positive free cash flow for both the second consecutive quarter and full-year. It's been a year of hard work and transformation and it's exciting to exit 2023 and enter 2024 with the kind of momentum that we demonstrated over the last few quarters. Now, let me dig a little more into the numbers. Q4 revenue grew 15% year-over-year to $38.6 million. If we break that down further, ad serving and personalization revenues were up 15% year-over-year, while measurement revenues grew 14%.
As a percentage of revenues in Q4, ad serving and personalization made up 78%, while measurement accounted for 22%. The growth in ad serving and personalization reflects the emerging stabilization of advertising spend and continued shift to CTV. In fact, CTV revenue from ad serving and personalization grew 14% over last Q4. While it's too early to tell if we are completely back to sustained traditional spend levels, we certainly experience a meaningful year-over-year improvement. As a reminder, Innovid's ad serving, and personalization revenue closely correlates with ad impression volume served through our platform. Within this category, CTV impression volume increased 16% as more impressions continued to transition to connected television, and represented 52% of all video impressions.
Mobile video volume grew by 21% and represented 36% of all video impressions, while desktop volume increased by 5% and reflected 12% of all video impressions. Both mobile and desktop have been inconsistent in the first three quarters of 2023, and we were pleased to see healthy growth within mobile and return to more modest growth in desktop. All three of these devices represent consumers watching streaming applications, so it's also helpful to look at the total video impressions, which grew 16% overall in the fourth quarter. Growth in measurement revenue reflects the continued enhancement of our measurement capabilities to take full advantage of the valuable data set generated from the ad serving side of the business and the continued strength of the Innovid XP platform in the market.
As Zvika mentioned, we expect our unique ability to combine creative, delivery, and measurement solutions to provide differentiated client value and be a catalyst for continued revenue growth. Now, moving on to costs and expenses, revenue, less cost of revenue, calculated out to 78% of revenue, improving from 75% in Q4 last year. These margins continue to improve as the business scales, reflecting the operating leverage embedded in our business model. Q4 total operating expenses, excluding depreciation, amortization, and impairment, totaled $37 million, an increase of 3% from $35.8 million last year, but supporting 15% more revenue than in 2022; employee count at the end of December was 466, which was 12% lower than where we finished in 2022.
We remain committed to managing our cost base while protecting investments in high growth areas to drive improved profitability and long-term value creation for our shareholders. Q4 net loss was 1.7 million or a per share loss of $0.1. The outstanding common share count at the end of the year was 141.2 million shares. Adjusted EBITDA in the fourth quarter was $8.3 million representing a 21% adjusted EBITDA margin, as compared to just 9% in Q4 last year and 18% in Q3. In fact, each quarter in 2023 was an improvement over its equivalent quarter in 2022, and adjusted EBITDA margin grew sequentially throughout 2023. These improvements reflect the impact of sustained revenue growth, lower cost of revenues as a percentage of revenue, and operating costs that grew nominally over the period, demonstrating the leverage inherent in the operating model.
For the full-year 2023, we reported revenue of $140 million, a 10% increase over 2022 on an as-reported basis, and a 6.5% increase on a proforma basis including the results of TV squared for all of '22. Because our target clients are the largest global brands, ad agencies, and publisher platforms, one of the metrics we talk about on an annual basis is core clients, which we define as an advertiser or publisher that generates at least $100,000 of revenue over the course of a year. As you can imagine, there can be active clients who may be over or under that $100,000 line in any given year, so we feel it's important to look at each year's group as its own cohort. During 2023, 177 clients met this definition as compared with 174 during 2022. With the macro pullback in ad spend during 2023, we experienced a number of core clients who dropped just below the $100,000 line but remain active and valuable clients.
On a revenue basis, net revenue retention in 2023 from net 2022 cohort was 101%, and client retention improved to 91% this year. Full-year revenue, less cost of revenue, calculated out to 76% of revenue, consistent with 2022. Total operating expenses, excluding depreciation, amortization, and impairment, totaled $145.3 million, a decrease of 4% from $150.7 million last year. This reduction is a result of efficiency efforts throughout 2023 and the completion of the TVSquared integration. 2023 net loss was $31.9 million, or a per share loss of $0.23 cents. Approximately half of this loss was related to a non-cash, intangible asset impairment recorded in Q2. If you look at the two halves of 2023, we recorded a net loss of $27.5 million in the first-half of the year as compared to $4.4 million in the second-half of the year.
Adjusted EBITDA for the full-year 2023 was $19.4 million, representing an improvement of $18.2 million as compared to the $1.2 million of adjusted EBITDA we reported in 2022. As a percentage of revenues, adjusted EBITDA margin was 14% this year as compared to just 1% in 2022 and 6% in 2021. While we acknowledge that there is still work to do, we are proud to have delivered both double-digit adjusted EBITDA growth and double-digit adjusted EBITDA margin in 2023. Turning to the balance sheet and cash flow, we ended the year in a strong financial position with $50 million in cash and cash equivalents and $20 million drawn on a revolving debt facility, with an additional $30 million available on that line. During the quarter, operating cash flow was $4.3 million and free cash flow was $2.2 million, an improvement of $6.9 million over the $4.7 million of free cash flow used in Q4 2022.
For the full-year, operating cash flow was $12.4 million and free cash flow was $1.4 million as compared to a use of cash of $22 million of free cash flow in 2022, an improvement of $23.4 million. Finally, let me touch on our outlook for the first quarter and the first look at the full-year 2024. We are encouraged by the strong finish to 2023 and remain committed to our long-term financial target of 20 plus percent annual revenue growth and 30 plus percent adjusted EBITDA margin. We are confident in the underlying strength of our business, opportunities for disruption in the market, and our ability to grow revenue in a profitable way and see 2024 as a meaningful step towards those longer-term targets. In the first quarter of 2024, we expect total revenue in a range of 34 million to 36 million, representing 11% to 18% year-over-year growth.
We expect Q1 adjusted EBITDA in a range of $3 million to $4 million as compared to $0.1 million in the first quarter last year. For the full-year, we expect revenue of $154 million to $162 million, reflecting 10% to 16% annual growth and adjusted EBITDA between $22 million and $28 million. We are proud of our accomplishments this year and exit 2023 with strategic, operational, and financial momentum. The team is focused on the significant opportunity in front of us to accelerate growth and continue to further expand our profitability margins in 2024. We believe we are well-positioned to become the essential technology infrastructure for the future of TV advertising and to experience outsized growth as ad spend returns to more historic levels.
We remain committed to innovation and value creation for our customers and our shareholders. This concludes our prepared remarks. Zvika and I are now happy to take some questions. Operator, please begin the Q&A session.
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