Innovid Corp. (CTV) Q3 2024 Earnings Call Transcript

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Overview

The company's financial performance shows strong growth in adjusted EBITDA and net income, indicating operational efficiency. The strategic partnership with Nielsen and the stock repurchase program are positive catalysts. The guidance is optimistic, with a focus on long-term revenue and margin targets. Despite some uncertainties in political ad spend and the competitive environment, the overall sentiment is positive, suggesting a stock price increase in the short term.

Key Financial Performance

Revenue $38 million, up 6% year-over-year. Growth was driven by CTV ad serving and personalization revenue, which grew 12% year-over-year.

Adjusted EBITDA $8 million, up 29% year-over-year. Adjusted EBITDA margin expanded to 22%, up from 18% in the prior year.

Measurement Revenue Grew 1% year-over-year, but slower than anticipated growth in cross-sell of additional products to clients.

Mobile Impressions Down 2% year-over-year.

Desktop Video Impressions Up 5% year-over-year.

Net Cash $34.6 million, a 25% improvement compared to $27.7 million at the end of Q3 2023.

Free Cash Flow $3.7 million, down from $4.1 million in Q3 2023.

Net Income $4.7 million, compared to a net loss of $2.7 million in Q3 2023.

Pre-tax Operating Loss $1.2 million, improved 71% from a loss of $4 million in the same period last year.

Operating Expenses $27.9 million, an increase of 2% from $27.4 million in Q3 2023.

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Operating Highlights

Software-only offering: Adoption of the software-only model accelerated, with impressions from clients using the platform without an additional service layer increasing by 50% year-over-year.

Harmony Initiative: Expanded partnerships under the Harmony initiative, including LG Ad Solutions, enhancing CTV advertising capabilities.

Partnership with Netflix: Selected as one of two partners for impression verification within Netflix's ad-supported platform, allowing clients to activate campaigns on Netflix.

CTV Market Growth: CTV ad serving and personalization revenue grew 12% year-over-year, with CTV share of total video impressions reaching a record high of 58%.

International CTV Opportunity: Significant growth potential in international CTV markets as major platforms like Netflix and Amazon expand ad-supported offerings.

Adjusted EBITDA: Adjusted EBITDA grew 29% to $8 million, with a margin of 22%, up from 18% in the prior year.

AI Implementation: Expansion of AI in workflows is improving operational efficiency and supporting faster campaign management.

Sales Organization Realignment: Realigning the sales organization to enhance cross-sell opportunities and improve go-to-market strategy.

Stock Repurchase Program: Announced a stock repurchase program of up to $20 million to enhance shareholder value.

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Risk or Challenges

Political Ad Spending Impact: The influx of political ads for the U.S. election led to a significant drop in brand ad spending, crowding out traditional advertising budgets. This resulted in slower revenue growth for Innovid, particularly affecting brands that do not engage in political advertising.

Cross-Sell Growth Challenges: Slower than anticipated growth in cross-selling additional products to clients has been identified as a challenge. The sales organization is being realigned to better facilitate cross-selling opportunities.

Shift to Software-Only Model: An increase in clients utilizing the software-only model, which has favorable unit economics but lower revenue per client, is expected to create near-term revenue pressure.

Economic Environment: The overall economic environment remains challenging, with inconsistent growth in mobile and desktop impressions, which continue to lag behind CTV impressions.

Regulatory Uncertainty: The ongoing antitrust lawsuit against Google introduces uncertainty in the market, which could impact customer behavior and competitive dynamics.

Market Competition: While there were no significant changes in the competitive environment, the political ad spending created a temporary shift in ad spending dynamics, affecting brand advertisers.

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Guidance & Outlook

Revenue Growth: Revenue for Q3 grew 6% year-over-year to $38 million, driven by CTV ad serving and personalization revenue, which increased by 12%.

Adjusted EBITDA: Adjusted EBITDA grew 29% to $8 million, with a 22% adjusted EBITDA margin.

Cross-Sell Strategy: The company is realigning its sales organization to enhance cross-sell opportunities, expecting improvements in the coming quarters.

Harmony Initiative: The Harmony initiative aims to optimize CTV advertising, with new partnerships and capabilities being developed.

AI Implementation: Innovid is expanding AI integration into its platforms to improve operational efficiency.

Stock Repurchase Program: A stock repurchase program of up to $20 million has been authorized to enhance shareholder value.

Q4 Revenue Guidance: For Q4 2024, total revenue is expected to be between $37.5 million and $39.5 million.

Full Year Revenue Guidance: For the full year 2024, total revenue is now expected to be between $150.5 million and $152.5 million.

Adjusted EBITDA Guidance: Q4 adjusted EBITDA is expected to be between $8 million and $10 million, with full year adjusted EBITDA between $26.7 million and $28.7 million.

Long-term Growth Targets: The company aims for 20% annual revenue growth and over 30% adjusted EBITDA margin in the long term.

2025 Outlook: Revenue growth is expected to re-accelerate in 2025, driven by CTV market trends and improved cross-sell opportunities.

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Shareholder Return Plan

Stock Repurchase Program: The Board of Directors has authorized a stock repurchase program of up to $20 million, aimed at enhancing shareholder value. The program is subject to market conditions and may be modified or terminated at the discretion of the Board.

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Key Q&A

Q: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 were particularly weak?

A:In terms of competitive environment, there was no change. The investment in TV advertising for political grew 500%, which pushed large brands out. We specifically saw a drop in CPG and financial services.

Q:Can you just talk about specifically what’s changing in the salesforce reorganization? What went wrong before and what gives you confidence that that can accelerate the future?

A:We haven’t seen the momentum we wanted in cross-sell. The sales organization was structured in a way that didn’t yield desired results. We believe in the strategy and have made changes to improve execution.

Q:How much of an uplift in quarter-on-quarter growth should we expect to see as we exit this political cycle fully the beginning of next year?

A:It’s premature to say what normalization looks like. We’ve seen a bounce back, but it’s early to tell the ultimate impact.

Q:Where are you prioritizing investment right now versus where are you looking for savings?

A:We’re focused on being mindful stewards of the business, looking for efficiencies across the organization without prioritizing one area over another.

Q:Wouldn’t all of the largest advertisers be incentivized to take a lower cost product and just do it themselves through self-service?

A:We believe self-service is a scalable model. Some large brands are looking for efficiency and control, which is driving this trend.

Q:How does the money work in your partnership with Nielsen?

A:We haven’t shared the financial arrangement yet, but we expect to have a structure in place for revenue generation once the joint product is developed.

Q:If Google is forced to sell off their ad tech business, is that better for you or worse for you?

A:We believe the focus on unbiased platforms is beneficial regardless of the outcome of the lawsuit.

Q:Can you refresh us on how you’re thinking about the international CTV opportunity?

A:We see a massive growth opportunity in international CTV as platforms like Netflix and Amazon scale. We’re already delivering ads globally.

Q:How would you say that you’re tracking against the long-term target of 30% EBITDA margins?

A:We’re tracking well, with 9 straight quarters of margin expansion. We expect to reach 30% in the reasonably near-term, depending on market conditions.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer regarding the specific financial arrangements with Nielsen, stating that it is still early days to say how they will generate revenue from the partnership.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call reveals strong financial performance, with revenue and EBITDA growth, improved cash flow, and a net cash position. Despite uncertainties in the ad market, the company has strategic collaborations, like with Nielsen, and a focus on CTV, which is driving growth. The Q&A indicates confidence in guidance and highlights new customer wins. However, management's vague responses about partnership impacts and Harmony details slightly temper enthusiasm. Overall, the positive financials and strategic initiatives suggest a stock price increase in the short term.

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