INNOVID CORP. This Form 10-Q contains forward-looking statements rather than historical facts that involve risks and uncertainties. You can identify these statements by the use of forward- looking words such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. Such forward-looking statements discuss our current expectations of future results of operations or financial condition. However, there may be events in the future that we are unable to accurately predict or control and there may be risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements, which could have a material adverse effect on our business, operating results and financial condition. The forward-looking statements included herein are only made as of the date of the filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Company Overview
We are a leading independent software platform that provides critical technology infrastructure for the creation, delivery, and measurement of TV ads across CTV, mobile TV and desktop TV environments.Innovid's revenue has grown alongside the growth of CTV advertising. We believe our open platform and purpose-built technology for CTV, combined with our position as a media-independent provider, has allowed us to win a large and growing market share, while the growth of CTV combined with our usage-based revenue model has further contributed to our rapid growth. Our acquisition of TVSquared, an independent global measurement and attribution platform for CTV added a real-time, cross-platform service to our offerings, including measurement of outcomes such as frequency and unique unduplicated reach and performance metrics. The combination of ad serving and cross-platform measurement enables the buy- and sell-sides to solve fragmentation by unlocking a complete picture of advertising across the linear TV, CTV and digital video marketplaces and will allow us to capitalize further on the growth of CTV by enabling us to create a new independent currency-grade standard for cross-platform TV measurement, powered by the scale and automation of a global ad server. Our measurement services are now consolidated in InnovidXP, our new global measurement platform built for CTV.Innovid's purpose-built CTV infrastructure platform is comprised of three key offerings: Ad Serving Solutions, Creative Personalization Solutions and InnovidXP. Our software-based platform provides an open technology infrastructure that tightly integrates with the highly fragmented advertising technology and media ecosystem including demand side platforms such as The Trade Desk andAmobee ; supply side platforms such as Magnite andVerizon Media ; publishers such as Hulu and Peacock; and end user devices such as Amazon Fire and Samsung Smart TV. Our offering encompasses independent global ad serving, data-driven personalization, and new forms of measurement designed to connect all channels in a clean, comparable, and privacy-compliant manner. We target clients comprised of the largest global TV advertisers. As ofJune 30, 2022 , our blue-chip advertiser client base included over 50% of the top 200 brands by TV US advertising spend according to Kantar Media and Winmo. In addition we work closely with the top advertising agency holding companies such as WPP, Publicis Groupe, Omnicom, Interpublic Group of Cos., and Dentsu. Our clients are diversified across all major industry verticals, including consumer packaged goods, pharmaceutical and healthcare, financial services, automotive, and technology. We believeInnovid's independence is critical to advertisers seeking an interoperable and open partner that is primarily focused on technology infrastructure. Although we work closely with the vendors who buy and sell media, our platform only facilitates the creation, delivery and measurement of advertisements and campaigns and we do not make purchasing decisions or facilitate the purchasing of advertisement inventory. We are able to maintain our independence and remain free of potential buying conflicts because we do not make ad buying or selling decisions.
Our revenue model is primarily based on impressions volume and the cost per
impression for our various Advertising Services. For our core ad serving
platform, we generate revenue from our advertising customers based on the volume
of advertising impressions delivered, enabling us to grow as our customers
increase their digital ad spend and corresponding ad impressions. Additionally,
we generate revenue from creative services based on flat fee per projects and
measurement solutions based on the volume of advertising impressions measured.
As we introduce new products such as advanced measurement and creative
capabilities including personalization and interactivity, we expect to be able
to charge higher prices per impression volume.
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--------------------------------------------------------------------------------The Transaction
Innovid Corp. was originally incorporated asION Acquisition Corp. 2 Ltd., a special purpose acquisition company, inCayman Islands onNovember 23, 2020 for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization or business combinations. OnNovember 30, 2021 ION andInnovid Inc. closed the transaction as further described in this Form 10-Q. Through several mergers and a name change,Innovid Corp. was formed. ION entered into certain subscription agreements in June andOctober 2021 ("PIPE Investment "). The mergers andPIPE Investment are collectively referred to as "the Transaction".Innovid Corp. is the public company entity which continues Legacy Innovid's operating activity.
The Company common stock and warrants commenced trading on the NYSE under the
symbols "CTV" and "CTVWS," respectively, on
Business Combination
OnFebruary 28, 2022 , we completed the acquisition of TVS. TVS is an independent global measurement and attribution platform for converged TV and a private company limited by shares incorporated under the laws of theScotland . We acquired all of the equity of TVS for an aggregate amount of$100.0 million in cash, 11,549,465 shares of the Company common stock, and the issuance of 949,893 fully vested stock option subject to certain adjustments. Our measurement services are now consolidated in InnovidXP, our new global measurement platform built for CTV.
COVID-19 and Other Global Events
The COVID-19 pandemic created, and continues to create significant uncertainty in macroeconomic conditions, including supply chain disruptions and labor shortages. Further, other global events such as the war in theUkraine and the current macro-economic inflationary environment could have an impact our customers. Based on public reporting and our observations, some advertisers in certain industries decreased and may continue to decrease their short-term advertising spending in light of some or all of these factors. This in turn could negatively impact our revenues from such advertisers. We have considered the impact of COVID-19 and of other global events on our estimates and assumptions and determined that there were no material adverse impacts on the interim condensed consolidated financial statements for the three months endedJune 30, 2022 . As events continue to evolve and additional information becomes available, our estimates and assumptions may change materially in future periods. We repaid the PPP Loan, in the amount of$3.0 million inJune 2021 , which was obtained under the CARES Act and the Flexibility Act in 2020. For more detail refer to our unaudited condensed consolidated financial statements presented in Item 1. "Financial Statements and Supplementary Data" and the accompanying notes thereto.
Key Factors Affecting Our Performance
There are a number of factors that have impacted, and we believe will continue to impact, our results of operations and growth. These factors include:
Continued market demand. Our performance is dependent on continued global demand
across the advertising ecosystem for independent third-party ad serving and
measurement of digital ads. Advertisers, programmatic platforms, social media
channels and digital publishers are collectively placing increased emphasis on
the quality and effectiveness of digital ad spend across all channels, formats
and devices.
Our growth is primarily driven by the fastest growing segments of digital ad
spend, mostly CTV, and our results depend on our ability to capture continued
market growth.
Growth of volume of CTV ad impressions of existing customers. Our results also
depend on our ability to retain our existing customers and on our customers'
continued investment in CTV advertising. Customer retention will continue to
impact our results as TV investment continues to shift from linear to CTV and
the volume of CTV impressions grows.
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CTV accounted for 50% of all video impression volume served in the three months
ended June 30, 2022 , up from 46% in the three months ended June 30, 2021 , and
grew 23% year-over-year in impression volume. Mobile impression volume increased
11% year-over-year and in the three months ended June 30, 2022 , accounted for
38% of all video impressions, and desktop decreased 3% year-over-year and
accounted for 12% of all video impressions served by Innovid in the same period.
CTV accounted for 49% of all video impression volume served in the six months
ended June 30, 2022 , up from 46% in the six months ended June 30, 2021 , and grew
29% year-over-year. Mobile increased 16% year-over-year and in the six months
ended June 30, 2022 , accounted for 38% of all video impressions, and desktop
increased 7% year-over-year and accounted for 13% of all video impressions
served by Innovid in the same period.
Cross-selling of additional services. A key part of our overall business
strategy is expanding revenue by cross-selling our full range of Advertising
Services to customers, who, for example, begin using our services with standard
TV ads and then introduce personalized formats over time or who use InnovidXP
and then go on to use our ad server services. The success of these efforts will
impact our results of operations.
Other factors impacting our results
Global expansion: The majority of our clients are global advertisers and operate at a significant scale.Innovid serves customers globally through a delivery footprint covering over 70 countries. We intend to continue to grow our footprint in international markets in order to meet the needs of our global customer base. Our results of operations will be impacted by the success of our geographic expansion, and whether the expected ad spend growth in these markets materializes. New client accounts: We intend to continue targeting new brand, media agency and digital publisher customers who are currently utilizing solutions provided by our competitors or point solutions. Our results of operations will be impacted by our ability to attract new customers. Seasonality: We experience fluctuations in revenues that coincide with seasonal fluctuations in the digital ad spending of our customers, in particular television ad spending patterns. Advertisers often allocate the largest portion of their media budgets to the fourth quarter of the calendar year in order to coincide with increased holiday purchasing. As a result, the fourth quarter of the year typically reflects our highest level of revenues while the first quarter typically reflects our lowest level of revenues. We expect our revenues to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole and for these seasonal fluctuations in ad spend to impact quarter-over-quarter results. We believe that the year-over-year comparison of results more appropriately reflects the overall performance of our business. However, this traditional seasonality may also be impacted by certain external factors or major events that impact traditional television advertising patterns, such as the COVID-19 pandemic or other global events. Public company costs: We are incurring additional legal, accounting and other expenses that we did not previously incur, including costs associated withSEC reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act as well as other rules implemented by theSEC and the NYSE. Our financial statements reflect the impact of these expenses.
Components of Results of Operations
Revenues
We generate revenues from providing Advertising Services to our customers: advertisers, media agencies and publishers. We focus on standard, interactive and data driven digital video advertising. Our major revenue stream is ad serving. We also provide creative and measurement services.
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Ad serving services relate to utilizing Innovid's platform to serve advertising
impressions to various digital publishers across CTV, mobile TV, desktop TV,
display, and other channels. Creative services relate to the design and
development of interactive data-driven and dynamic ad formats by adding data,
interactivity and dynamic features to standard ad units. Measurement services,
which have been augmented by the acquisition of TVS, provide real-time,
cross-platform analysis, including measurement and outcomes such as reach,
frequency and unique unduplicated reach, as well as performance metrics.
We generate the majority of our revenues from the sale and delivery of our
products within the US. We anticipate that revenues from our US sales will
continue to constitute a substantial portion of our revenues in future periods.
For information with respect to sales by geographic markets, refer to Note 10,
"Segment Reporting" to our unaudited condensed consolidated financial statements
presented in Item 1. "Financial Statements and Supplementary Data". Our chief
operating decision maker (our CEO) does not evaluate the profit or loss from any
separate geography.
Cost of revenues
Cost of revenues consists primarily of costs to run our ad serving, creative and
measurement services. These costs include hosting fees, personnel costs
including stock-based compensation, professional services costs and facility
related costs. We allocate overhead, including rent and other facility related
costs and communication costs based on headcount.
Research and development
Research and development expenses consist primarily of personnel costs, including stock-based compensation, professional services costs, hosting and facility related costs. We allocate overhead including rent and other facility related costs and communication costs based on headcount. We expect research and development expenses to increase in future periods to support our growth, including continuing to invest in optimization, accuracy and reliability of our platform and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments. Product development expenses are expensed as incurred, except to the extent that such costs are associated with software development that qualifies for capitalization, which are then recorded as capitalized software development costs included in property, plant and equipment on our condensed consolidated balance sheet. We amortize capitalized software development costs to depreciation and amortization.
Sales and marketing
Sales and marketing expenses consist primarily of personnel costs, including
commissions, stock-based compensation, professional services costs and facility
related costs, as well as costs related to advertising, promotional materials,
public relations, other sales and marketing programs. We allocate overhead,
including rent and other facility related costs and communication costs based on
headcount.
General and administrative
General and administrative expenses consist primarily of personnel costs,
including stock-based compensation, for executive management, finance,
accounting, human capital, legal and other administrative functions as well as
professional services costs and facility related costs. We allocate overhead,
including rent and other facility related costs and communication costs based on
headcount.
Prior period reclassification
During the second quarter of 2022, we presented depreciation and amortization
expenses as a separate line item on our condensed consolidated statements of
operations and all prior periods have been adjusted. Depreciation and
amortization expenses were previously included in cost of sales and other
operating expenses depending on the underlying asset's function. Additionally,
we no longer present gross profit as a subtotal on our condensed consolidated
statements of operations. In accordance with generally accepted accounting
principles, all periods presented below have been retrospectively adjusted to
reflect the reclassification of cost of revenue and other operating expenses
exclusive of depreciation and amortization. The period to period comparisons of
our results of operations have been prepared using the historical periods
included in our condensed consolidated financial statements, adjusted for this
reclassification. Refer to "Part I - Item 1. Financial Statements and
Supplementary Data - Note 2. Summary of Significant Accounting Policies" for
further information on prior period reclassification.
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--------------------------------------------------------------------------------Results of Operations
Three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 2021 Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 (in thousands) % of Revenue (in thousands) % of Revenue (in thousands) % of Revenue (in thousands) % of Revenue Revenues$ 33,088 100 %$ 22,842 100 %$ 58,950 100 %$ 40,855 100 % Cost of revenues 7,351 22 % 3,968 17 % 13,277 23 % 7,811 19 % Research and development 9,710 29 % 6,131 27 % 16,964 29 % 11,356 28 % Sales and marketing 14,320 43 % 8,105 35 % 24,671 42 % 14,677 36 % General and administrative 9,955 30 % 4,200 18 % 21,410 36 % 6,579 16 % Depreciation and amortization 926 3 % 149 1 % 1,599 3 % 331 1 % Operating (loss) profit (9,174) (28) % 289 1 % (18,971) (32) % 101 - % Finance expenses (income), net (13,306) (40) % 1,602 7 % (15,617) (26) % 3,171 8 % Profit (loss) before taxes 4,132 12 % (1,313) (6) % (3,354) (6) % (3,070) (8) % Taxes on income (tax benefit) (168) (1) % 346 2 % (205) - % 525 1 % Net profit (loss)$ 4,300 13 %$ (1,659) (7) %$ (3,149) (5) %$ (3,595) (9) % Revenues The growth and scaling of CTV was the key driver ofInnovid's revenue growth. As TV ad spend continues to shift from linear to CTV, we continue to benefit from the natural volume growth of CTV impressions we delivered for our existing and new customers. Total revenue increased by 45% year-over-year, from$22.8 million in the three months endedJune 30, 2021 to$33.1 million in the three months endedJune 30, 2022 . 21% of total quarterly revenue,$6.8 million , was attributed to TVS. Total revenue increased by 44% year-over-year, from$40.8 million in the six months endedJune 30, 2021 to$59.0 million in the six months endedJune 30, 2022 . 16% of total half-year revenue,$9.2 million , was attributed to TVS. Revenue excluding TVS was$26.3 million in the three months endedJune 30, 2022 , an increase of 15% from the three months endedJune 30, 2021 . Revenue excluding TVS was$49.8 million in the six months endedJune 30, 2022 , an increase of 22% from the six months endedJune 30, 2021 . The increases are driven primarily by growth in ad impressions delivered on our platform for both existing and new clients.
There was no meaningful impact of changes in average cost per impression on total revenue.
Cost of revenues (exclusive of depreciation and amortization shown below)
Three months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % VarianceCost of revenues$ 7,351 22 %$ 3,968 17 %$ 3,383 85 %
Cost of revenue increased by
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Six months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Cost of revenues $ 13,277 23 % $ 7,811 19 % $ 5,466 70 %
Cost of revenue increased by $5.5 million , or 70%, from $7.8 million in the six
months ended June 30, 2021 to $13.3 million in the six months ended June 30,
2022 , primarily driven by a $2.5 million increase in serving and hosting fees
and a $2.4 million increase in personnel costs due to a higher headcount, both
to support our increased volumes and reflecting our business following the TVS
acquisition.
Research and development (exclusive of depreciation and amortization shown
below)
Three months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Research and development $ 9,710 29 % $ 6,131 27 % $ 3,579 58 %
Research and development expenses increased by $3.6 million , or 58%, from $6.1
million in the three months ended June 30, 2021 to $9.7 million in the three
months ended June 30, 2022 . The increase was primarily due to an increase of
$3.1 million in personnel costs following the TVS acquisition and an increase of
$0.3 million in technology infrastructure and hosting fees, both to support our
platform maintenance work as well as our product research efforts. In addition,
there was a $0.9 million increase in share-based compensation mostly due to
Restricted Stock Units ("RSUs") that were granted to employees in March 2022 .
The increases were partially offset by a $2.3 million capitalization of research
and development expenses related to our development of new products and our
platform enhancements.
Six months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Research and development $ 16,964 29 % $ 11,356 28 % $ 5,608 49 %
Research and development expenses increased by $5.6 million , or 49%, from $11.4
million in the six months ended June 30, 2021 to $17.0 million in the six months
ended June 30, 2022 . The increase was primarily due to an increase of $5.7
million in personnel costs following the TVS acquisition and an increase of $0.9
million in technology infrastructure and hosting fees, both to support our
platform maintenance work as well as our product research efforts. In addition,
there was a $1.2 million increase in share-based compensation due to an increase
in headcount and RSUs that were granted to employees. The increases were
partially offset by a $4.0 million capitalization of research and development
expenses related to our development of new products and our platform
enhancements.
Sales and marketing (exclusive of depreciation and amortization shown below)
Three months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Sales and marketing $ 14,320 43 % $ 8,105 35 % $ 6,215 77 %
Sales and marketing expenses increased by $6.2 million , or 77%, from $8.1
million in the three months ended June 30, 2021 to $14.3 million in the three
months ended June 30, 2022 . The increase was driven primarily by an increase in
personnel costs of $3.1 million following the TVS acquisition and an increase in
marketing costs of $0.7 million , both to support our long-term growth strategy.
In addition, there was a $1.4 million increase in share-based compensation due
to increase in headcount and RSUs that were granted to employees.
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Six months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Sales and marketing $ 24,671 42 % $ 14,677 36 % $ 9,994 68 %
Sales and marketing expenses increased by $10.0 million , or 68%, from $14.7
million in the six months ended June 30, 2021 to $24.7 million in the six months
ended June 30, 2022 . The increase was driven primarily by an increase in
personnel costs of $5.0 million following the TVS acquisition and an increase in
marketing costs of $1.0 million , both to support our long-term growth strategy.
In addition, there was a $1.9 million increase in share-based compensation due
to increase in headcount and RSUs that were granted to employees.
General and administrative (exclusive of depreciation and amortization shown
below)
Three months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
General and administrative $ 9,955 30 % $ 4,200 18 % $ 5,755 137 %
General and administrative expenses increased by $5.8 million , or 137%, from
$4.2 million in the three months ended June 30, 2021 to $10.0 million in the
three months ended June 30, 2022 . The increase was primarily due an increase in
personnel costs of $1.8 million related to the expansion of our operations
following the TVS acquisition and a $1.0 million increase in Directors and
Officers insurance expense during the period. There was also an increase in
professional fees primarily consisting of $0.5 million related to the TVS
Acquisition, $0.4 million for legal fees in connection with the Nielsen Claim,
$0.4 million for legal services related to SEC reporting and $0.3 million for
accounting services related to public company matters.
Six months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
General and administrative $ 21,410 36 % $ 6,579 16 % $ 14,831 225 %
General and administrative expenses increased by $14.8 million , or 225%, from
$6.6 million in the six months ended June 30, 2021 to $21.4 million in the six
months ended June 30, 2022 . The increase was primarily due an increase in
personnel costs of $3.2 million related to the expansion of our operations
following the TVS acquisition and a $1.9 million increase in Directors and
Officers insurance expense during the period. There was also an increase in
professional fees primarily consisting of $4.7 million related to the TVS
Acquisition, $0.4 million for legal fees in connection with the Nielsen Claim,
$0.7 million for legal services related to SEC reporting, $0.6 for audit fees
and $0.6 million for accounting services related to company matters.
Depreciation and amortization
Three months ended June 30,
2022 2021
(in
thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Depreciation and amortization $ 926 3 % $ 149 1 % $ 777 521 %
Depreciation and amortization expenses increased by
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Six months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Depreciation and amortization $ 1,599 3 % $ 331 1 % $ 1,268 383 %
Depreciation and amortization expenses increased by $1.3 million , or 383%, from
$0.3 million in the six months ended June 30, 2021 to $1.6 million in the six
months ended June 30, 2022 . The increase was driven primarily by additional
amortization expense for TVS intangible assets during the period.
Finance expenses, net
Three months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Finance expenses (income),
net $ (13,306) (40) % $ 1,602 7 % $ (14,908) (931) %
Finance expenses decreased by $14.9 million , or 931%, from $1.6 million in the
three months ended June 30, 2021 to $(13.3) million in the three months ended
June 30, 2022 . The decrease was driven primarily by a decrease of $13.2 million
in warrants valuation as a result of market volatility impacting Company's share
price which is an underlying input for the valuation.
Six months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Finance expenses (income),
net $ (15,617) (26) % $ 3,171 8 % $ (18,788) (592) %
Finance expenses decreased by $18.8 million , or 592%, from $3.2 million in the
six months ended June 30, 2021 to $(15.6) million in the six months ended
June 30, 2022 . The decrease was driven primarily by a decrease of $15.9 million
in warrants valuation as a result of market volatility impacting Company's share
price which is an underlying input for the valuation.
Taxes on income (tax benefit)
Three months ended June 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Taxes on income (tax benefit) $ (168) (1) % $ 346 2 % $ (514) (149) %
Tax expense decreased by$0.5 million , or 149%, from$0.3 million in the three months endedJune 30, 2021 to$(0.2) million in the three months endedJune 30, 2022 . The decrease is primarily due to changes in pre-tax book income, changes in uncertain tax positions and tax benefit related to the acquisition of TVS. Six months ended June 30, 2022 2021 (in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance Taxes on income$ (205) - % $ 525 1 %$ (730) (139) % 37
-------------------------------------------------------------------------------- Tax expense decreased by$0.7 million , or 139%, from$0.5 million in the six months endedJune 30, 2021 to$(0.2) million in the six months endedJune 30, 2022 . The decrease is primarily due to changes in pre-tax book income, changes in uncertain tax positions and tax benefit related to the acquisition of TVS.
Liquidity and Capital Resources
We have financed our operations, business acquisition and capital expenditures primarily through utilization of cash generated from operations and cash proceeds from the Transaction, as well as borrowings under our credit facilities.
As ofJune 30, 2022 , we had cash, cash equivalents and restricted cash of$44.4 million and net working capital, consisting of current assets less current liabilities, of$58.3 million . We paid net cash consideration of approximately$99.6 million for the acquisition of TVS. As ofJune 30, 2022 , we had an accumulated deficit of$135.6 million ,$76.0 million thereof results from the cumulative accretion of preferred stock to redemption value prior to the conversion of all preferred stock into our common stock upon the closing of the Transaction. We believe our existing cash and cash equivalents and anticipated net cash provided by operating activities, will be sufficient to meet our cash needs and working capital requirements for at least the next 12 months. However, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. We are closely monitoring the effect that current economic conditions may have on our working capital requirements. To date, the COVID-19 pandemic and other global events have not had a material negative impact on our cash flow or liquidity. Our future capital requirements and the adequacy of available funds will depend on many factors. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that are unfavorable to equity investors. We cannot guarantee that we will be able to raise additional capital in the future on favorable terms, or at all. Any inability to raise capital could adversely affect our ability to achieve our business objectives. Revolving Line of Credit We have a line of credit of$15.0 million withSilicon Valley Bank pursuant to an amended and restated Agreement datedDecember 26 2018 as amended by an agreement dateDecember 29, 2020 ( the "A&R Agreement"). As ofJune 30, 2022 , the outstanding balance of the credit line was in the amount of$15.0 million . The maturity date of A&R Agreement isDecember 29, 2022 . The credit installments bear US dollar denominated interest at an annual rate equal to 0.75% to 1% plus a prime rate on the outstanding principal of each credit installment. We were in compliance with all the covenants, including by maintaining an adjusted quick ratio of at least 1.20:1.00. As defined in the A&R Agreement "adjusted quick ratio" is the ratio of (a) quick assets to (b) current liabilities minus the current portion of deferred revenue. "Quick assets" is our unrestricted cash plus accounts receivable, net, determined according to US GAAP.
During the six months ended
Interest expenses for the six months ended
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On August 4, 2022 , two of our wholly owned subsidiaries, Innovid LLC and TV
Squared Inc , entered into an amended and restated loan and security agreement
with Silicon Valley Bank (the "2022 A&R Agreement"), to increase the revolving
line of credit from $15.0 million to $50.0 million (the "New Revolving Credit
Facility"). The interest for the New Revolving Credit Facility is payable
monthly in arrears. The New Revolving Credit Facility bears interest at an
annual rate equal to the greater of 4.25% and prime rate plus 0.75% on the
outstanding principal of each credit extension. Additional fees include fees in
an amount of 0.20% per annum of the average unused portion of the New Revolving
Credit Facility to be paid quarterly in arrears. We will also pay non-refundable
commitment fees of $0.0 million and $0.1 million at inception and first
anniversary date, respectively. The maturity date of the 2022 A&R Agreement is
June 30, 2024 . The New Revolving Credit Facility is subject to certain customary
conditions precedent to the credit extension as stated in the 2022 A&R
Agreement.
The New Revolving Credit Facility requires us to comply with all covenants,
primarily maintaining an adjusted quick ratio of at least 1.30 to 1.00. As
defined in the 2022 A&R Agreement "adjusted quick ratio" is the ratio of (a)
quick assets to (b) current liabilities minus the current portion of deferred
revenue. "Quick assets" determines as our unrestricted cash plus accounts
receivable, net, determined according to US GAAP. We are also required to
maintain the minimum quarterly adjusted EBITDA as defined in the 2022 A&R
Agreement if we do not maintain the quarterly adjusted quick ratio of at least
1.50 to 1.00.
Cash Flows
Six months ended
The following table summarizes our cash flows for the periods presented:
Six
months ended
2022 2021
Net cash (used in)/ provided by operating activities $ (15,901) $ 4,347
Net cash used in investing activities (103,273) (767)
Net cash provided by/ (used in) financing activities 6,451 (2,792)
Increase in cash, cash equivalents and restricted cash
Operating Activities Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our customers and payments to our vendors, as well as increases in personnel related expenses as we scale up our business. The timing of cash receipts from customers and payments to vendors and providers can significantly impact our cash flows from operating activities. In addition, we expect seasonality to impact quarterly cash flows from operating activities.
Cash used in operating activities is calculated by adjusting our net loss for changes in working capital, as well as by excluding non-cash items such as depreciation and amortization, stock-based compensation and changes in fair value of warrants.
For the six month period endedJune 30, 2022 , net cash used in operating activities was$15.9 million compared to net cash provided by operating activities of$4.3 million for the six month period endedJune 30, 2021 . The increase in net cash used in operating activities was primarily attributable to increase in account receivable as a result of the expansion of our operations and non-cash adjustments. Our non-cash adjustments decreased by$13.5 million mostly driven by decrease in valuation of warrants due to changes in our stock market price, offset by an increase in stock based compensation as a result of RSUs granted in 2022 and amortization of intangible assets related to TVS acquisition. The changes in our working capital compared to the prior period in the amount of$7.2 million were primarily the result of an increase in trade receivables due to increased revenue and operating activities. The changes in working capital were also related to an increase in accrued liabilities due to accrual and the timing of payments for personnel costs, prepaid software subscription fees and changes due to the acquisition of TVS.
Investing Activities
For the six month period endedJune 30, 2022 , we used$103.3 million of net cash in investing activities, primarily driven by cash consideration paid to acquire TVS offset by cash acquired of$99.6 million and the investment in internal software development work of$3.5 million . 39 --------------------------------------------------------------------------------
For the six month period ended
Financing Activities
For the six month period endedJune 30, 2022 , net cash provided by financing activities of$6.5 million was due to drawdown of credit facility of$9.0 million and proceeds received for exercises of options in the amount of$0.6 million , partially offset by payment of SPAC merger transaction costs of$3.2 million . For the six month period endedJune 30, 2021 , net cash used in financing activities of$2.8 million was primarily due to repayment of PPP loan in the amount of$3.0 million partially offset by proceeds received for exercises of options in the amount of$0.4 million .
Contractual Obligations and Known Future Cash Requirements
Pledges and Bank Guarantees
In connection with the Agreement, we pledged 65,000 shares of common stock of
our Israeli subsidiary,
We have a total of$0.9 million of pledged bank deposits as ofJune 30, 2022 . We obtained bank guarantees in an aggregate amount of$0.2 million in connection with our office lease agreements in the US as ofJune 30, 2022 .
Legal contingencies
OnMarch 4, 2022 , the Nielsen Claim was filed byNielsen, LLC against TVS. TVS has filed its answer to the complaint and has also filed an opposed motion to transfer venue to theSouthern District ofNew York . TheTexas Court has made a scheduling order and, in the event that TVS's motion to transfer venue is not successful, the case is scheduled to go to trial inDecember 2023 . The plaintiff has not specified the amount sought in the litigation.
Cash compensation arrangements
In addition to the purchase consideration for the acquisition of TVS, we entered into cash compensation arrangements with certain employees, which amounted to$9.7 million in aggregate and are subject to certain performance and employment conditions following the closing of the Acquisition. 40 --------------------------------------------------------------------------------
Key Metrics and Non-GAAP Financial Measures
Adjusted EBITDA
In addition to our results determined in accordance with US GAAP, we believe
that certain non-GAAP financial measures, including Adjusted EBITDA and Adjusted
EBITDA Margin, are useful in evaluating our business. We calculate Adjusted
EBITDA Margin as Adjusted EBITDA divided by total revenue. The following table
presents a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to
the most directly comparable financial measure prepared in accordance with US
GAAP.
Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Net profit (loss) $ 4,300 $ (1,659) $ (3,149) $ (3,595)
Net profit (loss) margin 13 % (7) % (5) % (9) %
Depreciation and amortization 926 149 1,599 331
Stock-based compensation 4,138 1,440 5,730 1,720
Finance expense (income), net (a) (13,306) 1,602 (15,617) 3,171
Transaction related expenses (b) 164 - 392 -
Acquisition related expenses (c) 768 - 4,971 -
Other (d) 1,518 - 1,610 -
Taxes on income (168) 346 (205) 525
Adjusted EBITDA $ (1,660) $ 1,878 $ (4,669) $ 2,152
Adjusted EBITDA margin (5) % 8 % (8) % 5 %
(a) Finance expense (income), net consists primary of remeasurement expense
related to our foreign subsidiaries' monetary assets, liabilities and operating
results, our interest expense and revaluation of our warrants. The unrealized
gain from changes in the fair value of our warrants for the three months and six
months period ended June 30, 2022 was $13.2 million and $15.9 million ,
respectively. The unrealized loss from changes in the fair value of our warrants
for the three months and six months period ended June 30, 2021 was $1.4 million
and $2.7 million , respectively.
(b) Transaction related expenses consist of professional fees associated with
the SPAC merger transaction and PIPE related
(c) Acquisition related expenses consists of professional fees associated with the acquisition of TVS.
(d) For the three months and six months endedJune 30, 2022 , "other" consists of exit costs for a former TVS employee, retention bonus expense for TVS employees and legal costs related to the Nielsen Claim. We use Adjusted EBITDA and Adjusted EBITDA Margin as measures of operational efficiency to understand and evaluate our core business operations. We believe that these non-GAAP financial measures are useful to investors for period to period comparisons of our core business and for understanding and evaluating trends in our operating results on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under US GAAP. Some of the limitations of these measures are:
•Adjusted EBITDA does not reflect our capital expenditures or future requirements for capital expenditures or contractual commitments;
•they do not reflect costs of acquiring and integrating businesses, which will continue to be a part of our growth strategy;
•they do not reflect one-time, non-recurring costs associated with the SPAC merger transaction and regulatory filings;
•they do not reflect income tax expense;
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--------------------------------------------------------------------------------•they do not reflect our interest expense; and
•although depreciation and amortization are non-cash charges related mainly to intangible assets, certain assets being depreciated and amortized will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements. In addition, other companies in our industry may calculate these non-GAAP financial measures differently than we do, limiting their usefulness as a comparative measure. You should compensate for these limitations by relying primarily on our US GAAP results and using the non-GAAP financial measures only supplementally. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenue.
Off-Balance Sheet Arrangements
As ofJune 30, 2022 , we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported in our condensed consolidated financial statements and the accompanying notes to condensed consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, including the ongoing and potential impacts of the COVID-19 pandemic and other global events. Actual results may differ from these estimates. While our significant accounting policies are described in more detail in Note 2 of our unaudited interim condensed consolidated financial statements included in Item 1. "Financial Statements and Supplementary Data", we believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our interim condensed consolidated financial statements.
Revenue Recognition
The Company generates revenues from providing Advertising Services to advertisers, publishers and media agencies. The services focus on standard, interactive and data driven digital video advertising. The Company's revenue streams are ad serving, creative and measurement services. Ad serving services relate to utilizingInnovid's platform to serve advertising impressions to various digital publishers across CTV, mobile TV, desktop TV, display, and other channels. Creative services relate to the design and development of interactive data-driven and dynamic ad formats by adding data, interactivity and dynamic features to standard ad units. The Company also provides measurement services through access to a measurement application in real time or by delivery of a report. Measurement services relate to analytics of advertisements and campaigns. The Company recognizes revenue when its customer obtains control of promised services in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company recognizes revenue in accordance with ASC Topic 606, Revenue from contracts with customers ("ASC 606") and determines revenue recognition through the following steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. For arrangements with multiple performance obligations, which represent promises within an arrangement that are capable of being distinct and are separately identifiable, the Company allocates the contract consideration to all distinct performance obligations based on their relative SSP. SSP is typically estimated based on observable transactions when these services are sold on a standalone basis and expected cost plus a margin approach.
Revenues related to ad serving services are recognized at a point in time. The Company recognizes revenue from the display of impression-based ads in the contracted period in which the impressions are delivered. Impressions are considered delivered when an ad is displayed to users.
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--------------------------------------------------------------------------------Revenues related to creative services are recognized at a point in time, when the Company delivers an ad unit. Creative services projects are usually delivered within a week.
Revenues related to measurement services are recognized over time or at a point in time. If the customer simultaneously receives and consumes the benefits provided by the Company's performance, revenues for these measurement services are recognized over the period during which the performance obligations are satisfied and control of the service is transferred to the customer. This is the case when the customer has access to the measurement application in real time. The performance obligation is satisfied over the contract period on a straight-line basis. If the Company delivers the measurement report, the revenues are recognized at the point in time the report is delivered. The Company's accounts receivable consist primarily of receivables related to providing ad serving, creative and measurement services, in which the Company's contracted performance obligations have been satisfied, the amount has been billed and the Company has an unconditional right to payment. The Company typically bills customers on a monthly basis based on actual delivery. The payment terms vary, mainly with terms of net 60 days or less. The typical contract term is 12 months or less for ASC 606 purposes. Some of the Company's contracts can be cancelled without a cause. The Company has the unconditional right to payment for the services provided as of the date of the termination of the contracts. The Company applies the practical expedient in ASC 606 and does not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Costs to obtain a contract
Contract costs include commission programs to compensate sales employees for generating sales orders with new customers or for new services with existing customers. The commissions are commensurate. The Company elected to apply the practical expedient and recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance. The assessment considers whether the warrants are freestanding financial instruments, meet the definition of a liability under ASC 480, and meet all of the requirements for equity classification, including whether the warrants are indexed to the Company's own common stock and whether the warrant holders could potentially require "net cash settlement" in a circumstance outside of the Company's control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrants are outstanding. Warrants that meet all the criteria for equity classification, are required to be recorded as a component of additional paid-in capital. Warrants that do not meet all the criteria for equity classification, are required to be recorded as liabilities at their initial fair value on the date of issuance and remeasured to fair value at each balance sheet date thereafter. The liability-classified warrants are recorded under non-current liabilities. Changes in the estimated fair value of the warrants are recognized in "Financial expenses, net" in the condensed consolidated statements of operations.
Fair value of financial instruments
The Company applies a fair value framework in order to measure and disclose its financial assets and liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Includes other inputs that are directly or indirectly observable in the marketplace.
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--------------------------------------------------------------------------------Level 3 - Unobservable inputs which are supported by little or no market activity.
The Company's financial instruments consist of cash and cash equivalents, restricted deposits, trade receivables, net, trade payables, employees and payroll accruals, accrued expenses and other current liabilities and current portion of long term debts. . Their historical carrying amounts are approximate fair values due to the short-term maturities of these instruments.
The Company measures its investments in money market funds classified as cash equivalents and warrants liability at fair value.
The Private Placement Warrants are classified as Level 3 in the fair value hierarchy and continue to be valued using the Black-Scholes option pricing model. Gains and losses from the remeasurement of the warrants liability are recognized in "Finance expenses, net" in the condensed consolidated statements of operations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates.
Goodwill and certain other purchased intangible assets have been recorded in the Company's condensed consolidated financial statements as a result of the acquisitions.Goodwill represents the excess of the purchase price in a business combination over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed.Goodwill is not amortized, but rather is subject to an impairment test. The Company allocates goodwill to reporting units based on the expected benefit from the business combination. Reporting units are evaluated when changes in the Company's operating structure occur, and if necessary, goodwill is reassigned using a relative fair value allocation approach. ASC 350, Intangibles-Goodwill and other ("ASC 350") requires goodwill to be tested for impairment at least annually and, in certain circumstances, between annual tests. The accounting guidance gives the option to perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative assessment considers events and circumstances that might indicate that a reporting unit's fair value is less than its carrying amount. If it is determined, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative test is performed. The Company elects to perform an annual impairment test of goodwill as ofOctober 1 of each year, or more frequently if impairment indicators are present.
Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date.
Intangible assets with a finite useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired.
Technology and trade name are being amortized over the estimated useful life of approximately 6 and 8 years, respectively, using straight-line amortization method.
The amortization of our trade name, customer relationships and technology will
be presented within depreciation and amortization in the condensed consolidated
statement of operations.
Software development costs
Software development costs, which are included in property and equipment, net,
consists of capitalized costs related to purchase and develop internal-use
software. The Company uses such software to provide services to its customers.
The costs to purchase and develop internal-use software are capitalized from the
time that the preliminary project stage is completed, and it is considered
probable that the software will be used to perform the function intended. These
costs include personnel and related employee benefits for employees directly
associated with the software development and external costs of the materials or
services consumed in developing or obtaining the software. Any costs incurred
for upgrades and functionality enhancements of the software are also
capitalized. Once this software is ready for use in providing the Company's
services, these costs are amortized on a straight-line basis over the estimated
useful life of the software, which is three years. The amortization will be
presented within depreciation and amortization in the condensed consolidated
statements of operations.
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Recent Accounting Pronouncements
For information on recent accounting standards, see "Part I - Item 1. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies".
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