Innovid Corp. Q1 2023 Earnings Call
Okay.
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Greetings and welcome to the innovate Q1 2023 earnings conference call.
This time, all participants are in a listen only mode.
Question and answer session will follow the presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
Now I'll turn the conference over to your host John Williams, you may begin.
Thank you operator before we begin I'll remind you that today's call may contain forward looking statements and 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.
As 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, todays call may include non-GAAP financial measures. We use these non-GAAP measures and managing the biz.
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 todays call are as Veeco netter individually co founder and CEO , Tania, Andrew Cashman, and if its CFO and Tulsa loosen co founder and CTO, who will participate in our Q&A session.
Now I'll turn the call over to speak up to begin.
Thanks, John and thank you all for joining the call today.
I'll begin with some thoughts about the fourth quarter and some recent business updates.
Both Andy and Jeff Gaston 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 had even more thrilled to share our full Q1 results update on our progress to date.
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 accordingly environment will be both.
Both our guidance and consensus.
Looking ahead of what we hoped would be when we last spoke back in February .
Q1 revenue grew 18% year over year.
Posted year over year, adjusted EBITDA improvements that exceeded our guidance.
We remain very focused on profitable growth in our Q1 results demonstrate that we're executing on our plan.
And if it benefits us linear shift to CTV.
This is of course, a part of our story even in a down market for advertising, we can still grow because of the favorable secular trends.
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 10% on a pro forma basis year over year.
But when does the AD market bounces back, we'll see a growth multiplier.
Our larger customer base, one spoke up and we deepen our relationships if they can activate more product.
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 at spending due to macro concerns.
Specifically looking at verticals, we've seen strength in telecom, CPG and auto and weakness in financial.
Financial and insurance and consumer of jobs.
Accordingly.
I think very cost tend to move in cyclical fashion. So we expect the slower growth areas to pick up as macro trends improve.
Now for a few additional quarter highlights.
We continue to see success in adding new logos to our platforms.
Starting with recent wins at <unk>.
Pensions includes Petsmart U P S apartment dot com and Brooklyn.
We also announced several new partnerships, most notably with Beaumont DSP.
Looking ahead to the rest of 2020 spring, we're focused on cross selling for additional upside.
I'm thrilled to report that were renewed and expanded our relationship with Verizon.
And our partnership with video AD, serving M. D C O and I think it'll be an XD measurement.
We also very recently expanded our relationship with Disney building on our multiyear Hulu relationship to enhanced measurement for more than 60 advertisers in key verticals, including travel telco in e-commerce across Disney addressable, Switzerland. We're excited that this thing and others are adapting innovate measurement solutions to further enhance the spa.
The new strategies for.
Core innovate scaling up further and measurement is a key long term components of our strategy more than ever Brian 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.
With our value proposition across that 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 affirming.
We exited Q1 still cautious, but 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 , Danielle Jones casting to discuss our first quarter results and updated guidance Tanya.
Thank you and good morning, everyone. We're happy to report our Q1 results and I'm pleased with our outperformance we beat the top range of the initial revenue guidance by 5% and delivered positive adjusted EBITDA.
Q1 revenue grew 18% year over here this 30.5, new ones on as reported basis.
1% on a pro forma basis.
Imagine grew 1% on a pro forma basis, and then presented many takers.
Already in Q1.
And serving and personalization services were up 1% year over here and this presented 77% of total rather than get in Q1.
In a survey and personalization readiness closely correlated with AD impressions formulas serves to our platform.
Q1 volume.
17% year over year and represented 54% of all lead impressions up from 14, 9% in the third quarter of 2022.
Malo volume decreased by 9% and represented 34% of all the impressions well, that's the formula decreased by 10% and four 7% of all the hidden passion.
So you get an unsafe and generated gross well desktop and mobile most susceptible to the challenging macro backdrop declines in the first quarter.
We expect the growth of the CPE business to continue to outpace other channels gain even more share of total media impressions.
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 two point say Neil N here over here in Q1.
The increase was primarily attributed to the team to spend acquisition and stock based compensation.
Revenue less cost of revenues was 73% of revenue in Q1 down from 77% in Q1 of the items I need to.
Again impacted mainly by to start.
We extended the legacy T. The skirt business to eventually operate at or close to our pre acquisition margin level.
Q1 operating expenses, excluding depreciation and amortization were $36 7 million.
Most of the increase is due to the increase in stock based compensation and the team is currently positioned.
Primarily offset by a reduction in one time expenses, particularly at the 4.4 mainland acquisition and IPO related expenses 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 per share loss of success.
Q1, adjusted EBITDA was positive point 1 million, representing a half percent of positive adjusted EBITDA margin versus a negative 12% in the first quarter last year.
Now onto cash and capital allocation.
We are comfortable with our cash position and liquidity and expect our focus on profitable growth in plenty plenty of straight to reduce our already modest cash there and support our overall liquidity position.
We ended the quarter with $45 million in cash and cash equivalents and sentiment alone in that.
With an additional 13 million available on our revolver.
Quarter end common stock outstanding was 136.6, Neil N shares.
Finally, I would like to discuss our outlook.
We're encouraged by our Q1 performance and are projecting a modest theme tunes outlook for the full year.
Yes.
Two additional reminders first our outlook includes the full expense benefit.
Our recent 10% head count reduction completed in Q1.
Second beginning in Q2, well they'll no longer be breaking out as reported there's this pro forma as they look to lapping a full year since mid two this first 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 flip here over here.
We expect 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 even the economic environment improves we believe we could exceed the profitability expectations that we have already factored into our guidance.
In conclusion.
We're pleased with our first quarter results and remain focused on driving profitable growth.
Innovate Isabel positioned strategically and financially to continue building the critical technology infrastructure for the future of television advertising and driving value for our customers and shareholders. Thank you again for joining the call. So you can tell and I are now ready to answer.
So your questions operator, please begin the Q&A session.
Thank you at this time, we'll be conducting a question and answer session if.
If you'd like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for questions.
Yeah.
Yeah.
Our first question comes from the line of.
Laura Martin with Needham.
Please proceed with your question.
Great. Good morning, you guys. Thanks for taking the question.
I have a couple I guess I'm most interested.
As we think out and general debate.
That's all the rage right now I'm very interested in how you think.
Generative AI affects your business.
In terms of the cost side, but also how you think it.
Revenue growth in productivity over the next several years.
Sure Hi, Laura Thanks for the question.
Generally the value as you remember I think you also attended our investor deck.
Market Street Investor Day, I believe in November where we already presented before generally the drag was all the rage.
It fits into our platform.
Oh, it's actually already in production proven results, what's unique about innovate AI operates on data data data.
Dave optimization accretive we can change the accretive as.
As we survey and then of course measurement you see how many households will be checked what frequency and most importantly, the outcome. What's exciting is when you can actually three pieces of the system.
Great.
See what's going on and based on the customers.
Goals can optimize.
Targeting which is the media part, but actually optimizing decretive.
Optimizing Richard So this is something that's already in the system, obviously generate EBITDA in terms of the next generation, but we're seeing now can help with the creative.
Great its rationing creative generating both text and images.
For our D C O N N Gen and there's some exciting ideas that we're looking at right now on the measurement.
So overall, it's an excellent thing.
That's going to push it further.
And makes the job of our customers much more efficient.
Yeah.
Fantastic and then I heard you talk about the Verizon went on measure of imagine excuse me comments on measurement could you talk about what you are learning now in terms of companies that are adopting your measurement solution. What what are they like what do they need you know what kinds of things you have to change them can you tell us just bring us.
Up to date on what you're learning about measurements and where you have to go from here in terms of integrating measurements in theater, our go to market strategy.
Sure. So basically what drove our T V squared acquisition a few months. After we went public was years of working together with our largest customers the largest strength out there in horizon is definitely a great example.
And what they told US back then as one big Love, our CTV insight the data that we generate.
And they can see a lot of insight around the CTV portion, where they really wanted to see is a cross platform looking both linear because linear television broadcast TV ads are here to stay for at least another 510 15 years.
As people migrate to CTV, so the big Big view that they wanted to see is a combined view of both the linear TV connected TV and that's what drove the acquisition.
It was more than a year ago has changed and we integrated the teams integrated the product and launched with Ixia, which is in a single platform that you can see.
Reach frequency, how can really household eureka what frequency.
And of course, the more important part is the outcome what I'll come back for it so.
That's the problem, even if it <unk> and this is exactly what stage are rising.
But what if you recall he disclosed where the company that was focusing more on direct to consumer smaller type person would innovate we cater and refocus on the largest television advertisers out there and it gives horizon is a good example.
That took some time in terms of introducing the product to the testing and now it's fully production. So you know.
That's the conviction was there years ago and now we're deliberate win back partners.
<unk> and Verizon using not just our absolute zero, but also.
Adding the measurement component.
Holy Grail. This is what we would love to see from all of our customers and this is by the way Verizon direct AR.
Deals with the Horizon business is another Great example, on the sales side. So Disney it's actually a publisher what are the largest media companies in the world.
Looking to do the same thing.
I'll cross platform plus outcome, because they relate to integration because it's always on.
And it's connected to their first party data that is very unique and I'll pause there because there's still a long but both of these are very I would say from innovate perspective very iconic.
Large deals and we expect to see more like you see throughout the year.
Super helpful. Thank you very much.
Thank you.
Yeah.
Our next question comes from the line of Andrew Boone with JMP Securities. Please proceed with your question.
Hi, guys, Matt on for Andrew Thanks for taking my question, maybe first just taking a step back can you guys. Just talk long term about your philosophy around pricing and then also great to see positive adjusted EBITDA Q1guide, calling for expanding margins into Q could you guys just talk about cost controls and how youre thinking about it.
The remainder of the year. Thank you.
Sure Andrew.
So on the on pricing, we definitely feel that.
There is room.
For us to explore.
Unique and different in the kidney further expand.
Our pricing are currently from the history of the AD server pieces, where we started it's a very I would say your rigid fixed price that was actually set by ERC by Google. Many many years ago, that's kind of almost a standard that are at the lowest level possible.
So we started from there as we get more and more market share, but as we're now CTV becomes a bigger part of the company as we're investing in innovation in D. C O and measurement, we definitely feel we can see it presented more flexible.
Pricing structure, and then getting them in some cases also rewarding a minimum commitments and committed deal and and things like that definitely in the mindset of you know you mentioned the.
<unk>, the free cash flow and all that stuff. So we believe it or not our deals with large brands become you know her entering the millions good multi millions a year, we definitely as we transact more and more work with the brands directly. We believe is a more models that come from the enterprise software world that we can introduce that are somewhat different.
Then the models.
Media companies is with agency. So that's that's the on the pricing.
On the EBITDA, we're very proud of this I mean, we always said that even though we have a long term goal to get to 30%, 35% EBITDA within a couple of years you know obviously the acquisition in the down market last year, you know what.
It made it more challenging to see.
Our focus on EBIT on the EBITDA and we're very happy though in Q1, and we would expect to see it in Q2, and we expect to see it improving throughout the year.
It's constantly.
Controlling our cost and giving a very clear kpis in terms of how we progressed on both EBITDA and free cash flow.
Ideally the topline grows what you should see is that a lot of that growth is going to go all the way to the bottom line and improve EBITDA as Tania mentioned.
We made about a 10% head count reduction in earlier in the year.
This was supposed to acquisition so it was the right.
Right thing to do anyway.
And what we're making sure as the control you know control continues to control the cost we already have three products. They were in market and production, we're focusing more on existing customers and upsell like Disney and Verizon both of them are existing at all of these things will ideally allow us to grow the top line, but.
And maintain that growth on the bottom line.
Okay.
Great. Thank you.
Thanks, Matt.
Our next question comes from the line of short or did you work with Evercore.
Proceed with your question.
Hi, This is Jonathan I'm asking a question for sure all country area could you.
Elaborate a little bit more on how old. It every time he meant trend.
During the quarter and then what are you hearing from advertisers.
Think about the recipe.
Can you repeat the question, he said advertise or something through the quarter like I couldn't hear.
And then kind of demand trends.
You mentioned through the close of the quarter and the second question.
And then just wondering what are you hearing from advertisers when you think about what.
What's your expectation.
Sure so.
This is what we're seeing is definitely and as you can see also from our results and.
We're now more optimistic than we were a couple of months ago I mean, we're definitely in an economical.
Okay.
Challenging economical environment that we see that the innovate in other companies at the same time, we're definitely seeing improvement throughout the quarter and we're seeing that improvement going into Q2. So it's definitely not going back to normal. So that's why we're being cautious with our guidance because you know situation could change but.
But we're definitely feeling a more were slightly more optimistic based on what we're seeing.
The customer demand. So this is just this is specifically on spend.
The actual demand for our products has never stopped as you heard we closed on the AD server new customers like.
U P S. Another existing customers buy more products from us and overall a people spend more on C. P V. So while the overall media spend is shrinking because of the growth of C. T V that even in this difficult environment grew 13% in Q1 and now it's more than for the first time, it's more than half of the company. So.
For 54% of all the ads, we deliver delivered in Q1 were on CTV is so CTV continues to grow customers continuing to buy AD servers or additional products from us. So from that perspective, we're very optimistic I would say to your question about advertising in general like any other business. You know people are companies are.
And our spending you know.
Very diligently and where they actually see a return and we believe that's a great thing.
For adopting a platform.
Okay.
Thank you.
Our next question comes from the line of shows.
G M <unk> with Susquehanna. Please proceed with your question.
Hey, guys. This is Jared on for Sean Thanks for taking the question.
Thanks for all the color on how youre thinking about profitability for the year and managing the cost base towards the end of the prepared remarks, Tom you mentioned that we could see a potential acceleration in growth in the second half flowing through to EBITDA margin expansion. How are you thinking through the tradeoff there.
Tween margin expansion and areas of potential stepped up investment expense areas that you might want to lean back into the.
To the extent that we do see an improving environment.
And thank you for the questions are great questions, so well prepared.
Plan for 2020 one.
We set a very clear financial goal for the year to be focused on profitable growth.
In the economy.
In an uncertain macro situation as we are all experiencing right now we believe we need to focus on what we can control.
And thus our our investments.
Our.
Vestments R&D our investments in <unk>.
Sales and marketing, but we have to make it the most efficient way and that's what we are saying no ready to go live in Q1, which is profitable and we indicated to the market that we will be improving our profitability for the year.
5% at least our adjusted EBITDA margin.
And that's what we absolutely stay focused on right now we don't want to be distracted by the economic downturn and as such we think that that's what's important for us and as you could see our opinion P&L, we still invest quite quite substantially in R&D and new technology.
Great and then one more if I may I was hoping that we could just dig in a bit further on how you guys are thinking about the retail media opportunity broadly at this point and then the recently announced Walmart partnership how you're thinking through the various Ella.
<unk> from personalization to add surveying and anything else that you might call out there.
Sure.
L. A C T O I think that yeah, we're definitely seeing a really great progress on that front.
Yeah.
Sure. Thanks.
Thanks Jared.
So yeah, we definitely see retail media is a massive opportunity I think in general if you follow me.
The industry and I'm sure you do.
Connected TV is the is the main focus and then the main growth driver along with retail media is a.
The tremendous opportunity, we think that a couple of ways that we play in the retail media.
Space, a lot around around AD, serving and allowing marketers to really buy media everywhere across all places have leverage data and the second one is using our creative.
Created personalization, which plays a massive role when you when you talk to a consumer packaged goods or other type of Oh bandwidth is those that have multiple products in their portfolio and can leverage our recent media networks.
As data to optimize the creative and align the message to specific users. So we think that so far we've seen a lot of progress on retail media.
In the industry around targeting and we think that the next generation of lots that we would see right now and this is where we put a lot of effort is around creative messaging and personalization. We're very excited about our partnership with Walmart DSP that we announced this quarter.
And we think that that again as I said with the media networks is a recent media in general is a massive opportunity for our for our industry and for us to capitalize on.
Okay.
Great. Thanks, guys.
And our next question comes from the line of Matthew cost with Morgan Stanley . Please proceed with your question.
Hi, everybody. Thanks for taking the questions. When we look at the first quarter and just the topline beat you mentioned the macro situation firming up but theres still real uncertainty into the into the rest of the year is was the outperformance versus your guidance in the first quarter a function of kind of that firming up macro or were there some.
Key products, it outperformed or some wins that you would call out as kind of the driver of the beat and then just secondly, thinking out to the rest of the year and the full year guidance. When we think about the competitive landscape.
Do you does your does your guidance for the year as you see market growth for this year imply you know maintaining share gaining share or maybe seeding some share. Thank you.
Sure.
So in terms of driving the outperformance.
Definitely the performance of the company, the Kpis and and what you.
What basically brought it to the level. It is its kind of the the the softness in the market, but we're definitely adding more if you think about it just you know and I'll give you kind of a high level overview almost all of the Kpis that drive our business that are CTV related are up into the right right. So it's like bigger part of the company's CTV and less smaller part of the.
These mobile and desktop video we have there are more there's more content out there that is at the base of people are watching more AD based content. So overall day.
Fly the impressions out there are constantly increasing.
Brand spend more wild brains are cutting overall budgets in many cases, they spend more money on CTV because more people. So you have you have two factors one is maybe cooling down but the other one is increasing fast and that's C. T V. So that's that's causing the CTV to grow 13% all of it if it was 100% CPP youll see a much.
Faster growth.
And this will happen over time on top of it as we added today, where we added we were gaining share so, especially around the etcetera, where we gained share out of Google from Google campaign manager that for the last five years did not change. It all goes mostly in one direction. We gained share overall, we gained share constantly and it's usually out of the platform.
Google So theres no reason that in the foreseeable future from our perspective, we don't expect to see a dramatic change in trend. So you should expect every quarter to hear about more and more customers that joined our platform and more and more customers that are using more than one product and innovate. So all of this the motto was fixed volume base. So.
All of this Oh. This is joy you should you know create a much faster growth on the top line, what's calling that is the overall macroeconomic environment then spend or.
Our cautious about here because that's the one thing we don't control we control all the other factors and we're very bullish.
Bullish on them and we keep investing in them. The what we're looking for is once the market starts to recover much steeper growth on the topline that pushed flowed to the bottom line. So that's that's basically what we're looking for but in terms of share expansion in and selling more products to more customers.
<unk> not changed and continues to.
To grow in terms of the competitive landscape can you repeat the question I wrote it up here, but I'm not sure I got the full question.
The question was when you really kind of answered it on.
Sure Yeah, Yeah, yes, yeah. So that's that's a from a platform perspective, we don't see a reason why.
We will see a change in trend in a way actually difficult environments. Like this encourage customers brands to look at every dollar they spend and try and look to optimize it and if I can connect it to the question Laura asked about the AI generated by we're just using technology technology is a great way to understand the outcomes.
What are you getting when you are spending $100 million on a campaign on TV, how many household at what frequency.
What type of actually created and constantly optimize so in an environment like this.
It is actually good for closing new business and absolutely new product.
It's it's less good in terms of overall spend but we all know that this is a temporary you think so.
It will go I think you dramatically. Thank you.
Okay.
And as a reminder, if anyone has any questions you May press star one to join the question and here. Thank you.
And it looks like we have reached the end of the question and answer session and we have Austin. This also concludes today's conference and.
You may disconnect your lines at this time thank.
Thank you for your participation.
Okay.
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