Q3 2024 Innovid Corp Earnings Call
Speaker Change: Greetings. Welcome to InnoVID 3rd Quarter 2024 Earnings Call. This time, all participants will be in listen-only mode.
A question and answer session will follow today's formal presentation.
Speaker Change: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: Now my pleasure to introduce Lauren Hartman with Investor Relations. Thank you. You may now begin.
Lauren Hartman: Thank you, Operator. Before we begin, I'll remind you that today's call may contain forward-looking statements and that the forward-looking statement disclaimer included in today's earnings release, available on our Investor Relations page, also pertains to this call.
Lauren Hartman: 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.
Lauren Hartman: 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.
Lauren Hartman: Our historical results are not necessarily indicative of future performance, and as such, we can give no assurance as to the accuracy of our thoroughly looking statements and assume no obligation to update them except as required by law.
Lauren Hartman: In addition, today's call will include non-GAAP financial measures including adjusted EBITDA, adjusted EBITDA margins, free cash flow, and net cash. We use these non-GAAP measures in managing the business and believe they provide useful information to our investors.
Lauren Hartman: These measures should be considered in addition to and not as a substitute for our GAP results.
Lauren Hartman: 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 SEC.
Lauren Hartman: and Anthony Callini, both of whom will participate in the Q&A session.
I'll now turn the call over to Zvika to begin.
Zvika: Thanks, Lauren, and welcome everyone to our 2024 3rd Quarter Earnings Call.
Zvika: Today, a review of third quarter results and provide an update regarding ongoing strategic initiatives and progress in the market.
Zvika: I'll then turn the call over to our Chief Financial Officer Tony Callini, who will provide further details with respect to our Q3 results and full year 2024 outlook, followed by Q&A.
Zvika: Revenue for the third quarter grew 6% year-over-year to $38 million.
Zvika: and I'll explain the drivers momentarily. We continue to focus on driving revenue growth while expanding margins.
Zvika: Adjusted EBITDA grew 29% to $8,000,000 at a 22% adjusted EBITDA margin this quarter.
Zvika: CTV ad serving and personalization revenue led the quarterly growth with a 12% year-over-year improvement and CTV share of total video impressions reached a new record high of 58%.
Zvika: We're encouraged that the CTV numbers continue to increase which gives us confidence in the future growth prospects of connected television
Zvika: The growth we're seeing in CTV is fueled by the continuous shift of our clients' budgets from linear to connected TV, and by more ad-supported platforms, existing and new, gaining scale.
Zvika: While we saw strong CTV growth, this growth was offsetted by lower mobile impressions, which were down by 2%, and desktop video impressions, which were also weaker than expected, up only 5%.
Zvika: Total revenue by the third quarter came in below our expectations as a result of three main factors.
For Today
Zvika: When inflated demand for media in the market, driven by the influx of political ads for the U.S. election, many brands slowed their ad spending during this period, and at a greater than anticipated rate.
Zvika: Since our customers are brands and not political advertisers, brand spending softened after the election due to political dollars crowding out the traditional spend.
Zvika: There were more dollars that were spent in this election cycle than ever before. This pressured our growth this quarter and was the primary reason for the slower revenue growth.
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Zvika: While the election cycle is now behind us, we're anticipating more normalized ad spend moving forward, although we still expect to see some effect on our fourth quarter and full-year revenue.
Zvika: Second, we also saw slower than anticipated growth in the cross-sale of additional products to our clients. While we have driven broader product adoption with a number of large global brands and publishers, this happened at a slower rate than expected.
Zvika: Accordingly, our measurement offering delivered 1% growth this quarter. We remain confident that we are well positioned to drive enhanced value for our clients and have taken concrete steps to address our growth objectives, taking into account these factors and controlling what we can.
Zvika: We are actively realigning the sales organization and overall go-to-market strategy to take better advantage of the cross-sell opportunity, and accordingly, we expect to see an improvement in our cross-sell motion in the coming quarters.
Zvika: Luckily, we have multiple layers of service available on top of our technology, depending on how much support a client needs.
Zvika: As we invest in AI and workflow automation, we're seeing an increase in the number of clients that are leveraging our technology directly without any additional service layer. This software-only model has both favorable unit economics and is a way for us to extend our reach to smaller advertisers, as this lower price option is an attractive alternative.
Zvika: In the third quarter, adoption of this offering accelerated, and impressions from those using our platforms without an additional service layer grew 50% over the same period last year.
Zvika: While we expect some near-term revenue pressure from this ongoing mix shift, a software-only offering inherently has a better margin is one of the reasons why our profitability was strong this past quarter.
Zvika: We believe having flexibility in our offerings that meet the various needs of the market is a strategic differentiator, especially considering Google's antitrust lawsuit and the uncertainty it brings to its customers. We are pleased to have a suite of offerings that can support a broad range of clients.
Zvika: We expect each of these three revenue headwinds to persist in the fourth quarter, and therefore, we have brought down our four-year revenue guidance accordingly, but we remain encouraged by our long-term opportunities and the growth of our core CTV product.
Zvika: The overall CTV market has significant room for expansion, and we have strategically positioned Innovate to capitalize on its expected growth.
Zvika: As mentioned earlier, CTV video impressions have now reached 58% of all video impressions, and we expect that number to continue to increase.
Zvika: Additionally, there are strong industry trends that are working in our favor, including the increasing number of ad-supported streaming platforms, growing viewership, and the expected shift of live sports from linear to CTV.
Zvika: Not to mention the increased number of partners in our Harmony initiative, as I'll discuss momentarily. We fully expect that revenue growth will re-accelerate in 2025 as we execute on several key initiatives, including cross-sell go-to-market enhancement, Harmony adoption, and continued development of strategic partnerships.
Zvika: These initiatives should drive more normalized top-line growth and set the stage for stronger performance. In addition to the CTV growth this quarter, I am proud of our improved operational profitability.
Zvika: adjusted EBITDA to 29% hitting the higher end of our guidance and adjusted EBITDA margin expanded to 22% up from 18% in the prior year. As we shared previously
Zvika: Our business model is scalable and efficient at its core. Importantly, the team has delivered margin expansion even in a lower growth environment.
Zvika: As market conditions improve and our revenue growth re-accelerates, we expect to see a continued increase in profitability and remain committed to our long-term goal of surpassing 30% adjusted EBITDA margin.
Zvika: As part of our continued drive for operational efficiency, we are expanding the implementation of AI into innovative platforms.
Zvika: Over the last couple of quarters, AI has been implemented into our workflow, supporting faster and more seamless ways to create, monitor, and ensure quality of campaigns. The implementation of AI is already starting to pay off, and it's having a positive effect on operational efficiency.
Zvika: Now I'd like to share some additional highlights from the quarter. First, we signed new clients and expanded our relationship with leading brands such as Toyota, Dollar General, ITV, American Signature, AbbVie, among others.
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Zvika: We also launched and expanded our partnership with Netflix, one of the world's largest streaming services.
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Zvika: As Netflix rolled out its ad-supported tier, Innovate was selected as one of the two partners for impression verification within Netflix's ad-supported platform.
Zvika: This allows our clients to activate their Netflix campaign while leveraging the InnoViz platform. We look forward to continuing to work closely with Netflix as they grow their ad-supported business and build their technology further to benefit advertisers.
Zvika: This new partnership with Netflix is a testimony to the strong industry position Innovate holds and to the critical infrastructure we provide to key players in the market.
Zvika: This collaboration not only amplifies our visibility, it also increases the number of ads we can serve as major ad-supported platforms like Netflix gain scale.
Zvika: Additionally, last quarter we announced our planned strategic collaboration with Nielsen, a global leader in audience measurement.
Speaker Change: Nielsen is integrating innovative workflow solutions in Nielsen One with the aim of providing seamless workflow and holistic view of the cross-media ads universe.
Speaker Change: We're working together on defining and building the optimal path to provide the industry with a complete, comprehensive measurement offering and are pleased with the progress underway.
Speaker Change: Early this year, we launched our Strategic Harmony Initiative with a goal to optimize CTV advertising at the infrastructure level. We've been focused on expanding Harmony's adoption and launching new capabilities under the Harmony umbrella.
Speaker Change: We recently announced that LG AdSolutions is the latest partner to join the Harmony Initiative.
Speaker Change: joining other top CTV platforms such as Roku and Vizio. The agency PMG, an early adopter of Harmony, is also rolling out our Harmony Direct solution across its full portfolio of clients. In July, we launched our Harmony Frequency solution in beta, and we have already seen clear evidence of its effectiveness.
Speaker Change: Initial Harmony Frequency campaigns that were launched with DSP partners and some of the world's largest advertisers revealed a reduction of over 50% in audiences who were overexposed to the same ads.
These initial results have several market-defining implications.
Speaker Change: First, the ability to manage frequency over different publishers and media execution types can meaningfully reduce media waste for advertisers.
Speaker Change: Second, limiting the number of times that a viewer sees the same ad creates a better viewer experience for streaming services subscribers. We're delighted to lead the charge in shaping the future of TV advertising and to be recognized for it.
Speaker Change: During the quarter, Innovid won 2024 AdExchanger Award of Most Innovative TV Advertising Technology for the Harmony Initiative.
Speaker Change: I want to thank our partners, clients, and team for their innovation and efforts to make TV better. In summary, I am proud of the team for delivering another quarter of growth while expanding margins.
Speaker Change: despite a more challenging environment. Our team is continuing to develop strategic partnerships and products to create an open and thriving CTD market while expanding operational profitability and increasing margins.
Speaker Change: We anticipate continued CTV growth, and as we exit the U.S. election cycle and focus on more effective cross-sell go-to-market motions, we expect to see revenue growth improvement and continued expansion in our business.
Finally...
Speaker Change: Our executive team and board of directors remain confident in Innovit's long-term strategy and growth potential.
Speaker Change: and today we are announcing a stock repurchase program reinforcing our commitment to delivering both short and long-term shareholder value. We do not believe our current stock price reflects the value of our business today or its long-term prospects.
Speaker Change: highly differentiated product offering, market expertise, and strategic investments will allow us to enhance shareholder value in the quarters and years ahead.
Speaker Change: With that, I'll ask Tony to take us through the numbers and provide some insights into Q4 and full year expectations.
Tony
Tony Callini: Thank you, Zvika, and good morning, everyone. In addition to the operational progress, revenue growth, and notable partnerships that Zvika just shared, we're also pleased to report another quarter of solid bottom-line performance.
Tony Callini: Our focus on profitable cash-generating growth resulted in the ninth straight quarter of adjusted EBITDA margin expansion and seventh consecutive quarter of generating cash from operating activities.
Tony Callini: As we've highlighted, InnoVID's business has a highly leverageable operating model, giving us the ability to deliver healthy free cash flow and expanding margins.
Tony Callini: And during these times where we experience weaker ad spending, our ability to continue to grow the bottom line at a significantly faster rate than the top line remains strong.
Now, let's dig into the numbers.
Tony Callini: Third quarter revenue grew 6% year-over-year to $38.3 million. Breaking that down further, ad serving and personalization revenue was up 7% while measurement revenue grew 1%.
Tony Callini: As a percentage of revenue, ad serving and personalization made up 78% of the total, while measurement accounted for 22%.
Tony Callini: Ad serving and personalization is heavily influenced by continued healthy growth and our core growth driver, CTV video impressions.
Tony Callini: CTV revenue from ad serving and personalization grew 12% over the third quarter of 2023, while impressions grew 13%.
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Tony Callini: As a percentage of total video impressions, CTV continues to represent a bigger piece of the pie at 58% as compared to 55% in the third quarter of 2023.
Tony Callini: In fact, 58% is the largest share to date for CTV video impressions of total video impressions.
Tony Callini: As we see the CTV share grow, we expect our results to represent more of a convergence of CTV growth and overall top-line growth.
Tony Callini: As we've seen in the past number of quarters, inconsistent growth in mobile and desktop impressions continue to mute our overall growth as they typically lag CTV impressions.
Tony Callini: In Q3, mobile video volume declined by 2% and represented 32% of all video impressions.
Tony Callini: while desktop volume increased by 5% and reflected 11% of all video impressions.
Tony Callini: Going forward, we'd expect to see similar trends, with CTV growing consistently and ultimately accelerating, and mobile and desktop being less predictable.
Speaker Change: As Zvika mentioned, one additional positive trend we're seeing is expanded interest in our software-only offering.
Speaker Change: We provide this alternative for customers to utilize our ad-serving platform while managing the campaigns themselves.
Speaker Change: While naturally we charge a lower fee for platform-only access, our unit economics improve, which supports further margin expansion.
Speaker Change: Currently, about a quarter of our ad-serving revenue is on the service-free model, and we've seen that increase by about 30% since the beginning of the year, which is a more rapid transition than we anticipated.
Speaker Change: While this migration put pressure on our revenue growth this quarter, it's also one of the drivers behind our ability to deliver improved profitability, as well as expanding our potential customer base going forward.
Speaker Change: We expect that trend to continue into 2025, as we see this as a continued opportunity to meet our clients where they are and drive margin expansion along the way.
Speaker Change: Moving to measurement. Measurement revenue growth has decelerated throughout 2024, and while our measurement capabilities are a key part of the InnoVID platform, we're not achieving the same cross-sale execution that we believe is achievable.
Speaker Change: Zvika touched on the steps we are taking as measurement continues to be a key part of our growth thesis.
Speaker Change: With the benefit of a revised and focused strategy, we expect our unique ability to combine creative, delivery, and measurement solutions to be a catalyst for re-accelerating revenue growth.
Speaker Change: Stepping back and looking at overall performance in Q3, while revenues fell short of expectations, the underlying fundamentals of the business remain strong.
Speaker Change: We remain focused on expanding profitability and driving free cash flow while we manage through a challenging macro environment.
Speaker Change: We continue to have conviction in the inevitability of outsized growth once more brands shift spend to CTV, driven by all the factors Zvika referenced earlier.
Now, moving on to costs and expenses.
Speaker Change: Revenue, less cost of revenue, calculated out to 78% of revenue, which was consistent with Q3 last year.
Speaker Change: As we include more automation and AI into our offerings, and experience growth in our software-only model, we expect to see incremental margin expansion.
Speaker Change: Q3 total operating expenses, excluding depreciation, amortization, and impairment, totaled $27.9 million, an increase of 2% from $27.4 million in the same quarter last year.
Speaker Change: Employee count at the end of September was 461 as compared with 460 at the end of Q3 2023.
Speaker Change: We remain committed to managing our cost base effectively to drive improved growth and profitability and generate long-term value for our shareholders.
Speaker Change: Pre-tax operating loss of $1.2 million in Q3 improved 71% as compared to a pre-tax operating loss of $4 million in the same period last year.
Speaker Change: This improvement was driven by a larger percentage of revenue growth converting to earnings, as well as lower depreciation and amortization expense.
Speaker Change: We recorded a tax benefit in the quarter of $5.8 million primarily related to truing up our full-year effective tax rate for the revised full-year outlook.
Speaker Change: Our effective tax rate continues to be volatile as we are still reserving tax assets in a valuation allowance, and our pre-tax income is relatively low. That said, cash taxes in the quarter were about $500,000.
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Speaker Change: Q3 net income increased to $4.7 million, or per share earnings of $0.03.
Speaker Change: This compares with a net loss of $2.7 million and a per share loss of $0.02 in Q3 2023.
Speaker Change: The outstanding common share count at September 30th was 147.8 million shares.
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Speaker Change: Adjusted EBITDA in the third quarter was $8.4 million, a $1.9 million improvement or 29% increase as compared to $6.5 million in Q3 last year.
Speaker Change: As I mentioned earlier, this is the ninth consecutive quarter of year-over-year adjusted EBITDA margin expansion, as our margin improved to 22% this past quarter as compared to 18% last year.
Speaker Change: 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 prior year, demonstrating the leverage inherent in our operating model.
Speaker Change: I will now turn to the balance sheet and cash flow. We ended Q3 in a solid financial position, and our balance sheet has never been stronger.
Speaker Change: At September 30th, we had $34.6 million in cash and cash equivalents on hand, with no outstanding balance on our evolving debt facility.
Speaker Change: As a reminder, we have 50 million available on that facility.
Speaker Change: On a net cash basis, or, to say it another way, cash and cash equivalents less outstanding revolver balance.
Speaker Change: The $34.6 million on hand at the end of Q3 2024 is a 25% improvement as compared to the $27.7 million of net cash at the end of Q3 2023.
Speaker Change: During the quarter, net cash provided by operating activities was $6 million, and free cash flow was $3.7 million, as compared to $4.1 million of free cash flow generated in Q3 2023.
Speaker Change: If we look at free cash flow on a trailing 12-month basis, we have seen an improvement of $12.1 million as compared to the same 12-month period ended September 30, 2023.
Speaker Change: I'll now touch on our outlook for the fourth quarter and provide an update for full year 2024 expectations.
Speaker Change: We are proud of our ability to continue to execute in an uncertain environment and are confident in the underlying strength of our business and in our ability to grow revenue profitably.
Speaker Change: We remain committed to our long-term financial target of 20-plus percent annual revenue growth and 30-plus percent adjusted EBITDA margin.
Speaker Change: That said, due to the specific factors that Zvika shared, primarily pressure in Q3 and early Q4 from political ad spending and muted cross-sell activity, as well as the trend towards software-only offerings, we are lowering our full-year revenue expectations.
Speaker Change: At the same time, given the strong profitability performance in Q3 and continued focus on operational efficiency, we are reaffirming the top end of our adjusted EBITDA guidance, and raising the lower end of the range, thus materially increasing the expectation around adjusted EBITDA margin.
Speaker Change: As a result, in the fourth quarter of 2024, we expect total revenue in a range of $37.5 to $39.5 million, which would be flat with Q4 2023 at the midpoint.
Speaker Change: We expect Q4 adjusted EBITDA in a range of $8 to $10 million, as compared to $8.3 million in the fourth quarter of 2023.
Speaker Change: For the full year, we now expect total revenue in a range of $150.5 to $152.5 million, representing 8% year-over-year growth at the midpoint, and adjusted EBITDA between $26.7 and $28.7 million.
Speaker Change: While it's a bit too early to get into specifics on 2025 guidance, we see a resumption of more normalized growth next year after a slower second half of 2024.
Speaker Change: As Zvika mentioned, there are several secular industry trends that we expect to work in our favor, pushing brands towards a CTV-first ad strategy, as well as expected improvements in our cross-sale opportunities, partially fueled by market adoption of our Harmony Suite.
Speaker Change: And as these growth drivers don't require incremental investments, we expect a continuation of margin and cash flow improvement throughout 2025.
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Finally, a word on capital allocation.
Speaker Change: As Zvika mentioned, our board of directors has authorized the company to implement a stock repurchase program of up to $20 million.
Speaker Change: Subject to the final terms of the program, it's expected that repurchases will be dependent on market conditions, regulatory requirements, and other considerations.
Speaker Change: This program is not expected to obligate us to acquire any particular amount of common stock and may be modified, suspended, or terminated at any time at the discretion of our Board of Directors.
Speaker Change: and the company may decline to move forward with the implementation of any repurchase plan.
Speaker Change: We are focused on generating value for our shareholders and we and our board currently believe a share repurchase program both effectively returns capital to our shareholders and demonstrates our conviction that the current share price does not reflect its true value today or over the long term.
Speaker Change: We will continue to deploy our capital in ways that we believe will result in the best return on investment and creation of long-term value for our shareholders.
Speaker Change: We remain confident in Innovid's underlying business fundamentals and the long-term secular market dynamics that we expect will drive outsized CTV growth.
Speaker Change: In the meantime, we are focused on providing exceptional product offerings to our clients, expanding operating margins, and driving free cash flow generation, putting us another step closer to achieving our long-term targets.
Speaker Change: We will continue to mindfully invest in long-term sustainable growth while efficiently managing our cost structure and strengthening our financial condition.
Speaker Change: This concludes our prepared remarks. Zvika and I are now happy to take your questions. Operator, please begin the Q&A session.
Speaker Change: Thank you. We will now be conducting the question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please while we poll for questions.
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Speaker Change: Thank you and our first question is from the line of Matt Condon with Citizens JMP. Please proceed with your questions.
Matt Condon: Thank you for taking my questions. My first one's just on, you know, understood the crowding out due to political spend in the quarter. Was there any change in the competitive environment or any change in customer behavior that you noticed or any verticals that you would call out that are particularly weak?
Speaker Change: The investment in TV advertising and CTV advertising, specifically in CTV advertising for political, grew 500%. We definitely saw a heavy investment from political advertisers and since Innovid worked with large brands and not, you know, we don't run political ads.
Speaker Change: that pushed some of the large brands, the very large brands, out. They kind of, they waited out this.
Specifically, we saw a drop in CPG.
Financial Services
Speaker Change: from that perspective, but I would say argue that most brands pulled back during this time.
And in terms of the competitive environment, no.
Speaker Change: There was nothing, there was no specific changes either to product in market, pricing, no significant churn out of the order, nothing of that, it's pure volume shift due to the political.
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Speaker Change: That's very helpful. And then my second one was just on, you know, obviously the slower than anticipated cross-sell and the subsequent Salesforce reorganization. Can you just talk about specifically what's changing there? I guess what went wrong before and what's the difference and what gives you confidence that that can accelerate in the future? Thank you so much.
Sure, and you're asking about the cross, though?
Thank you. Thank you. Thank you.
Speaker Change: Yeah, this is a Salesforce reorganization just to facilitate greater cross-sell. Yep. Yep. Yep. Yep, absolutely so as we as we
Shared.
Speaker Change: We're not seeing, we haven't seen the momentum we wanted to see.
in the cross cell.
We believe, you know, we're making...
Speaker Change: as I think we, you know, we shared earlier in the year.
Speaker Change: That's one of the number one goals in the sales organization and realignment is to move the company from selling mostly the ad server to selling a platform sale that includes several products including measurement, creative optimization, and recently Harmony. That motion...
Speaker Change: The organization was structured in a certain way, as we saw, you know, we're not seeing the results we aimed to see. We believe in the strategy, we believe in the go-to-market. The way we're structured and incentivized did not yield the desired results, and for that reason...
We learned from that and made changes.
Speaker Change: We believe we have a great suite of products that work very well together and we believe in this strategy. So it's more about how do we execute it and we made some necessary changes and believe that we will see the results coming in next year.
Great, thank you so much.
David Helmreich, David Helmreich,
Thank you.
Speaker Change: Our next question is from the line of Matthew Kost with Morgan Stanley. Please just use your questions.
Speaker Change: Good morning, thanks for taking the question. I guess just mechanically when we think about
the impact.
Speaker Change: of political rolling off from 4Q to 1Q, if we just sort of isolate that. How much of an uplift, you know, in quarter-on-quarter growth or year-on-year growth should we expect to see as we sort of exit this political cycle, you know, fully the beginning of next year?
Speaker Change: and see the big brands re-engage, that's question one. And then the second question is just, obviously, you know, you raised the midpoint of EBITDA guidance, so, you know, showing a lot of discipline on the cost side, which is great to see, I guess, where are you prioritizing investment right now versus where are you looking for savings? Thank you.
Tony Callini: Hey Matt, this is Tony. I think I can take that one.
Speaker Change: So, on the political ad side, I mean, this is definitely uncharted waters in terms of just the volume.
Speaker Change: You know, we're a week out from it now. You know, we're happy to see there's been a little bounce back. I don't know. It's probably premature to say, like, what normalization from this looks like. I think we'll have to go to the rest of the quarter.
Speaker Change: But, you know, we certainly have not seen this level of spend before and pull back from the brands. And again, the brands are our customers and not the political advertisers. So I think, you know, it's one piece of...
Speaker Change: You know, essentially a number of drivers as we think about 2025 and Zvika touched on a lot of those between Harmony Nielsen being able to, you know, effectively cross sell a bit better than we have.
Speaker Change: And so those are all headwinds. And then, you know, one other thing I'd call out is, as Zvika had mentioned, an increase that we've seen in essentially our software-only service offering, or software-only offering without a service layer on it. And that, you know, that's something that we think is going to drive growth in the long term.
Speaker Change: So it's a combination of things, and again, I think we're pleased that we've seen a bit of a bounce back in the first week.
Speaker Change: after the election, but it's very, you know, it's very early to tell, you know, what the ultimate impact of it is. You know, that said, I think we continue to believe strongly in the ability to grow double digits.
Speaker Change: Our long-term target still remains 20%. All the growth drivers, all the fundamentals that we've talked about before are the same. And as you mentioned, you know, in the meantime...
The End
We're focusing on driving profitability.
until we get some more momentum on the revenue side.
Speaker Change: In terms of priorities on that profitability, I mean, we've said all along, I mean, this is just an inherently...
Leverageable Operating Model.
Speaker Change: you know, every incremental dollar comes in, the economics are really strong. And so, you know, we look, always look throughout the organizations of ways to be, you know, ways to be more efficient.
Speaker Change: and I think that's showing up in the numbers right now. So we're pleased to see that and we'll continue to focus on that. So I don't know that there's one area that we're prioritizing over another, just trying to be mindful stewards of the business and making sure that we invest in the things that are going to drive value and not spend money on the things that are not.
Great, thank you.
Speaker Change: Our next question is from the line of Laura Martin with Needham and Company. Pleased to see you with your question.
Speaker Change: Hey, good morning. The first one I wanted to drill down on this, I'll call it the self-service product, what you guys are calling a software-only offering. Since you only work with the largest advertisers, wouldn't all of them be incented to take a cost, a lower-cost product and just do it themselves through self-service so that this will actually be a headwind to growth for all of 2025, please?
Thank you.
So we've seen, hey Laura, we've seen...
Speaker Change: We're definitely encouraged by this, I have to say. It's an area we invested heavily in.
Speaker Change: You know, we talked a lot in the past calls and meetings about AI. We're happy to see that, you know, so we invest, we believe that the future is.
Speaker Change: what you call self-service. It's a much more efficient model and we believe also scalable in terms of growth potential in the mid and long tail in terms of account size and also from a global perspective.
Speaker Change: And if we look at the situation with Google and the antitrust, we believe it's a great timing. We didn't anticipate it would grow so fast.
Speaker Change: But it's a great timing to have that product ready in market and to see the adoption.
Speaker Change: To your question, some of the large brands, when they look for efficiency, it doesn't have to do with us as much as with the agencies, it's the in-housing, their in-housing services.
Speaker Change: and hiring employees to use the system. And in that case, and you saw the large growth, you are right that this is a trend. I wish we saw more of it, I have to say. What happened here is it grew faster than we planned.
Speaker Change: So in the short term, it hit the top line, but overall we believe it can actually scale the top line while definitely scaling the bottom line.
So, this is something.
Speaker Change: that we're seeing, and I wouldn't put all the large brands in a single bucket. Some of them are still using outdated systems, not by Innovate, but other companies. So they're not all acting the same, but those who are looking for additional efficiency and control, I think the key here is the control and the data that they want to have put their own hands on keyboard, rather than the agency's.
Speaker Change: We expect to see expansion of that. We don't provide guidance yet. I have to say we need to monitor this, how fast this will grow, but definitely this year we saw an increase in usage and overall it's a positive trend.
Speaker Change: Okay, helpful. And then on Nielsen, that was interesting, your partnership with Nielsen, how does the money work there? How do you make money from your deal with helping Nielsen make a better product for them, actually? So how do you make money from that?
Yeah, so we haven't shared yet.
Speaker Change: you know, the financial arrangements since, you know, what we announced is, you know, our intent to partner on a, let's call it a...
Speaker Change: joint product or basically us you know empowering their product with our technology and something that we're still exploring.
how exactly to make this work.
Speaker Change: I don't believe this is something that will generate revenue in Q4 this year.
Speaker Change: But basically, you know, clearly, when we're assuming this will, you know, develop into a product in market, you can imagine that we have a structure in place which we already negotiated.
Speaker Change: It's not going to be something that we hope to see, but something that's contractual and is part of the revenue and the growth of the joint product, but still early days to say, you know, in terms of actually hitting the market and generating revenue.
Speaker Change: Okay. And my last one is on Google. You know, now that we have a new president, maybe this is moot. But two weeks ago, I would have asked, if Google is forced to sell off their ad tech business, is that better for you or worse for you, if their ad tech business is separate and standalone from their YouTube and search first-party business?
Speaker Change: We believe that regardless of where this goes and who's the president, I mean, we know who's going to be the president.
Speaker Change: Overall, the amount of focus that this case has brought, you know, you can read it in the Wall Street Journal, New York Times, and things that we've been saying for 10 years about the importance of having an unbiased platform that is, you know, pure tech and not skewed by media bias.
Speaker Change: It's something we've been saying from day one and we're very happy that it got all the way to the DOJ and to the press.
Speaker Change: that marketers who are the decision makers and agencies, agencies I believe knew more about this than marketers, but marketers are now way better educated about the challenges and risks.
Speaker Change: that it has for them and overall the market. So I believe the benefit is going to stay regardless if it's going to split or not. I think even if it would split, that is something that would take many, many, many years.
Speaker Change: So I don't think it's anything that, you know, can happen.
even under a different administration anytime soon.
Speaker Change: Overall, I think it's a good thing that there's attention to the ad server and the importance of the data and how the data could be used to potentially manipulate the outcomes.
Speaker Change: And we believe it's something that more and more brands should understand the benefit of switching to innovate to an unbiased vendor to make sure that their data is in safe hands and it's not being used in a way against them, against their bottom line.
Super helpful, thanks very much, thanks Zvika. Thank you.
Thank you.
Speaker Change: The next question is from the line of Shayan Patel with Susquehanna. Please see if there are questions.
Speaker Change: Good morning, this is Aaron Samuels on Forcham. Thank you for taking our questions. Maybe starting off, Zvika, with ad-supported CTV offerings like Prime Video and Netflix scaling quickly internationally, can you refresh us on how you're thinking about the international CTV opportunity and what Innovate is doing to make sure it's well-positioned in markets outside the U.S.?
Speaker Change: Absolutely, and thanks for bringing this, you know, massive growth opportunity to the front lines. We kind of put this on the back burner, you know, a year or two years ago with the economy slowing down, definitely, and CTV not being a major trend outside of the U.S.
Speaker Change: It's clear that platforms like Netflix, Amazon, and Disney, I would say also, Disney Plus, all, you know, with premium content, all of them now offer an option to be...
ad-based.
Speaker Change: basically generate, create markets in markets where, you know, CTV did not
have the
You know, the Netflix quote-unquote.
Phenomena to push people to use their smart TVs
Speaker Change: Not through broadcast, but actually connect them. It's literally that moment when you connect your TV to the Internet through the Wi-Fi and put in the password. Once you do that and you enter the App Store to install Netflix, you'll install also other applications, maybe local applications.
Speaker Change: global brands that are U.S. based. So they're large auto, large pharmas, etc. We believe it's a massive opportunity.
Speaker Change: We're not, you know, giving guidance. It would be interesting to debate not on this call. It's 2025, the year that...
the trends you mentioned with Amazon and Netflix pushing
Speaker Change: They're really going to create a massive market outside of the U.S. for CTV.
Speaker Change: It's yet to be seen. From an infrastructure perspective, we're already delivering.
Speaker Change: In every corner of the world except China, we're streaming ads in every country, every corner across thousands of publishers already. The key is about really adopting the tools and the platforms by brands that operate outside of the U.S. The key will be having significant scale, enough scale to justify, to move to innovate.
Great, thank you.
Speaker Change: Tony, maybe one for you on the margin trajectory. Obviously, the business is showing really nice operating leverage.
Speaker Change: In terms of the long-term target of 30% EBITDA margins, how would you say that you're tracking against that?
Speaker Change: Any kind of color in terms of timeline here? Is this something that we could see in the next one or two years or is it maybe a longer term target?
Speaker Change: Yeah, no, great question. I mean, we're tracking well against them. I think we've seen, you know, I'll call the stat out again because we do feel good about, you know, nine straight quarters of margin expansion, you know, a year over year margin expansion, you know, 22% in Q3. And I think, you know, in terms of the
Speaker Change: the timing to how we get to 30, a lot of it's gonna be based on the market. And I think what we're trying to do is...
Speaker Change: manage the business the best we can in a market where the growth hasn't been consistent. And what we've always said is that as we see growth, we'll be investing behind it.
Speaker Change: And so that'll continue in the future. And if we, look, if we see an opportunity to kind of, you know, invest behind some growth and accelerate it, we'll do that. And there might be some, you know, near-term, you know, margins won't expand as fast. And in quarters like this, where we've seen, you know, slower growth, you know, that's where we can really lean in. So I think, you know, it's, I'm not trying to avoid the question. It's really, we're gonna see
Speaker Change: the successes that we've had and the market adoption of CTV in general.
Speaker Change: and kind of invest behind that. So, you know, certainly this is something that we could see ourselves getting to in the, you know, reasonably near term, you know, somewhere over the next couple of years. And if you just kind of take the trajectory of where we've been and how we've grown EBITDA as a margin percentage over the last, you know, year or so, you know, we'd expect that to happen. I mean, I know, you know, we said 2025, we'll give guidance when we do our Q4 results, but, you know, we certainly see the opportunity to expand margins again in 2025.
one step closer to that 30%.
That's really helpful, thank you.
Speaker Change: Thank you. At this time, we've reached the end of our question and answer session. I'll hand the floor back to Zvika Netter for closing remarks.
Zvika Netter: Thank you. We are very proud to deliver another quarter of profitable growth.
despite the underlying challenges.
Zvika Netter: These results maintain our path and trajectory towards our long-term targets. Today, we remain well-positioned to the exciting opportunity of CTV growth, and we're taking the necessary steps to re-accelerate our top-line growth. I look forward to keeping all of you updated about our progress. Thank you very much and have a wonderful day.
Goodbye.
Speaker Change: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.