Operator: Greetings. Welcome to the Innovid's Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host John Williams, Innovid's Investor Relations. Thank you. Please go ahead.
John T. Williams: Thank you, operator. Before we begin, I will remind you that today's call may contain forward-looking statements. And that the Safe Harbor statement in today's earnings release available on our Investor Relations page, also pertains to this call. Changes in our business, competitive landscape, technological or regulatory environment and other factors could cause actual results to differ materially from those expressed by the forward-looking statements made today. Our historical results are not necessarily indicative of future performance. And as such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them, except as required by law. In addition, today's call may include non-GAAP financial measures.
We use these non-GAAP measures in managing the business and believe they provide useful information for our investors. These measures should be considered in addition to and not as a substitute for our GAAP results. Reconciliations of the non-GAAP measures to the corresponding GAAP measures where appropriate can be found in the earnings presentation and earnings release available on our website and in our filings with the SEC. Hosting today's call are Zvika Netter, Innovid's Co-Founder and CEO; Tanya Andreev-Kaspin, Innovid's CFO; and Tal Chalozin, Founder and CTO, who will participate in our Q&A session. I will now turn the call over to Zvika to begin.
Zvika Netter: Thanks, John, and thank you all for joining the call today. I will start with a few comments on the current environment and its impact on Innovid, some high-level thoughts about the fourth quarter, and some recent business highlights. Our CFO Tanya Andreev-Kaspin will then provide details on our performance and initial 2023 guidance, followed by Q&A. I'm excited to share with you an update on Innovid's progress, including our fourth quarter and full year 2022 results. We recently completed our first full year as a public company, and I'm proud of how our team has executed against our strategic objectives in a challenging environment. Innovid remains exceptionally well-positioned as the clear leader in building the critical technology infrastructure for the future of TV advertising.
We believe that the CTV segment is and will continue to be the area of growth in the advertising industry, and this is why it's our primary area of focus here at Innovid. In 2022, we had a number of important accomplishments. Our full year revenue grew 41% year-over-year, we continued our drive towards positive adjusted EBITDA, and our balance sheet remains strong. Measurement became a significant revenue driver for Innovid this year. Following our acquisition of TVSquared and represented 20% of our full year annual revenue. We're excited about the synergies realized through the acquisition, as well as the growth opportunities ahead. We build meaningful client relationships and added a number of exciting wins. Our clients make a strategic decision to invest in our critical and independent infrastructure software, and continue to do so despite headwinds in advertising volume and lighter spend across the overall market.
We remain very focused on the things that we can control, executing against our strategic objectives, leveraging the synergies and accelerating the growth of our spend TVSquared acquisition, cross-selling and deepening our customer connections. The shift from linear to CTV continues to drive our growth as we add more customers and gain more share. In Q4, we reported 13% revenue and 19% impression growth in CTV, compared to the same period in 2021. Our CTV accounted for 49% of revenue, and 52% of total video impressions, excluding TVSquared. For the full year, total revenue grew 41% to $127.1 million. And we delivered $1.2 million in adjusted EBITA. Our results offer a clear evidence that demand continues to grow despite difficult advertising environment.
Let me cover some additional highlights from the quarter. There are three key metrics that we report annually to demonstrate how mission critical our platform is for our customers. Even in a challenging environment, our net revenue retention or NRR, in 2022, was 111% and our core client count in 2022 increased by 60% overall. Equally important, our core client retention rate was 90%. Simply put, our customer base is growing. And the customers we have are not only staying with us, they are using our platform more and more every year. I'm happy to note recent year wins including CMI Media agency, plus one other large player in the pharma and health care vertical. We will also note several recent client cross-selling expansions including Canva and Goodwill Group, as well as several partnerships including Fox, The Trade Desk, Vizio and Kinetic.
We recently announced two very exciting leadership updates, an addition and a promotion that further align our leadership around operational excellence. The addition of David Helmreich as Innovid's new Chief Commercial Officer who leads the commercial alignment across our revenue related functions, including sales, marketing and account management. The promotion of Ken Markus, previously our Chief Client Officer to Chief Operating Officer, who now leads operational alignment across the organization. Both Dave and Ken are up and running in their new roles and are closely partnering to deliver on scale and profitability. I'm very excited to have them both in this new important positions. And finally, in November, we hosted our first ever Investor Day, and the replay is still available on our website.
Finance, Business, Office
Photo by Austin Distel on Unsplash
It was a great event with members of our senior leadership team highlighting our strategic initiatives and the significant opportunity ahead of us. Innovid's approach since day one has always been neutrality. We don't buy or sell media at all. And we firmly believe the advertising industry needs to separate critical infrastructure and measurement technology for advertisers from media buying and selling. That's how we built and run our business since day one. Focus on advertisers is very clear desire and need for transparency and alignment of interest with their tech providers. The recent antitrust suit filed by the Department of Justice against Google for monopolizing multiple digital advertising technology products, reinforces our view that neutrality in this industry is critical to our customers and to the industry at large.
We'd encourage everyone looking to understand the current state of competition and the total addressable market opportunity in the advertising and advertising technology sectors to read the complaint. We're glad to see that the industry is becoming more aware of the risk of mixing both business models under one umbrella. And we're looking forward to showing our existing and potential customers just why our approach is better for them and better for the industry. As the industry evolves, Innovid is in the leading position. Let me focus on how we are directly addressing the current macro environment and why Innovid is positioned for success in 2023. First, I'm confident we will continue to take market share from Google campaign manager. When the economy and the ad market bounces back, we believe we are well-positioned to see growth multiplier effect as our growing customer base ramps back up and our clients activate more features of Innovid capabilities.
Our platform remains mission critical for our customers, and our ad server personalization and measurement capabilities remain highly differentiated. Second, we remain laser-focused on profitable growth. We expect positive adjusted EBITDA for the full year of 2023, which Tanya will discuss later. And we read that our long-term target of 30% plus adjusted EBITDA margin over the long run. And finally, we are maintaining a strong balance sheet focused on a maximum capital flexibility, and optionality. We believe our quarter end cash position provides more than enough runway to comfortably fund the business as we shift from burning to building cash. I'm proud of what Innovid and its team has accomplished in 2022. And I'm even more excited about the future.
With that, I'll hand it over to our CFO, Tanya Andreev-Kaspin to discuss our fourth quarter results and the 2023 financial outlook. Tanya?
Tanya Andreev-Kaspin: Thank you, Zvika, and good morning, everyone. We are pleased with our Q4 and full year results, particularly given the challenging macroeconomic backdrop in 2022 and the fourth quarter specifically. Q4 revenue grew 30% year-over-year to $33.7 million on a reported basis, or 5% on a pro forma basis. Measurement, which has become a significant revenue driver following our TVSquared acquisition grew 16% on a pro forma basis, and represented 22% of total revenue in Q4 and 20% of full year revenue. Ad serving and personalization services were up a combined 2% year-over-year and represented 78% of total revenue in Q4 and 80% of full year revenue. As a reminder, our ad serving and personalization revenue closely correlates with ad impressions volume search through the Innovid platform.
Q4 CTV volume grew 19% year-over-year, and represented 52% of all video impressions. This is up from 46% in the previous year. Mobile volume decreased by 6% and accounted for 35% of all video impressions, while desktop volume decreased by 8% and represented 13% of all video impressions. As the overall ad environment bounces back, we expected growth in our core CTV business will continue to outpace other channels and continue to grow as a percentage of overall video impressions. Additionally, our unique combination of CTV ad serving personalization and measurement solutions will further boost our growth over time. On to our geographic breakdown. In Q4, U.S revenue grew 27% on a reported basis and represented 89% of our total revenue in the quarter and 90% for full year 2022.
The U.S remains the global center of CTV innovation and adoption and as deploys most of its investment. International revenue grew 57% year-over-year and represented 11% of quarterly revenue, up from 9% in Q4 last year. As you know, our target clients are composed of the largest Global TV advertisers. We defined a core client as an advertiser or publisher that generates at least $100,000 of annual revenue. Innovid prior to acquiring TVSquared, we only included their advertisers in that definition. In 2022, our core clients generated approximately 88% of our annual revenue versus 91% last year. At year-end 2022, we had 174 total core clients, which includes 41 from TVSquared versus 109 at the year-end of 2021. Excluding TVSquared contribution Innovid core clients growth exceeded 20% in 2022.
Core clients annual retention was 90% on a pro forma basis, down from 97% retention of core Innovid platform clients in 2021 prior to the acquisition. Annual core clients net revenue retention was 111% compared to 127% in 2021. 2022 retention metrics were impacted by the expansion of our core client definition, and the inclusion of a different client mix, following the TVSquared integration. Both metrics, however, are showing strong healthy trends in a year with particular challenging macro trends impacting advertiser spend. Moving on to expenses. Cost of revenues increased by $3 million in Q4 2022 as compared to Q4 2021. The increase is primarily attributable to the TVSquared acquisition. Revenue less cost of revenues were 75% of revenue in Q4 2022, down from 79% in Q4 2021, again, due to the TVSquared acquisition and the subscale nature of TVSquared as a standalone entity.
We believe the fully integrated business will eventually operate at or close to our pre-acquisition margin. We expect this metric to improve over time as revenue bounces back, the business scales and the cross-selling accelerates. Total Q4 operating expenses excluding depreciation, amortization and impairment costs were $35.8 million, up 3.3 million or 10% year-over-year. Most of the increased $3 million is due to an increase in stock-based compensation. The remaining increase is due to our acquisition of TVSquared, which was largely offset by a reduction in one-time expenses, particularly IPO-related expenses incurred in Q4 of last year. We ended this year with 531 employees, an increase of 1% year-over-year on a pro forma basis. And this is before the headcount reduction that is taking place in the first quarter of 2023.
Net loss in the fourth quarter was $3.4 million, or per share loss of $0.03. Adjusted EBITDA in Q4 was $3 million representing 9% adjusted EBITDA margin, up from 7% last year. We are very comfortable with our cash position and liquidity given our margin profile and our expectation for positive full year 2023 adjusted EBITDA. We ended the year with $47.5 million in cash and cash equivalents and short-term bank deposits on our balance sheet and $20 million in debt. We also have available an additional $30 million revolving line of credit at favorable terms, if needed. Year-end share count was 133.9 million shares. Finally, I would like to discuss our outlook. While the macro environment has reduced visibility, we remain confident in the resilience and strong strategic positioning of our business and are committed to profitable growth in 2023.
For the first quarter of 2023, we expect total revenue in the range of $27 million to $29 million, representing 4% to 12% year-over-year growth and as reported basis. We expect Q1 adjusted EBITDA in the range of negative $3 million to negative $1 million. As typical, we expect Q1 will be the lowest point in the year for adjusted EBITDA margin. By the end of Q1, we expect to complete our recently announced 10% headcount reduction. And our outlook today includes the impact of those cost savings actions on our operating model. We will also remind you that when the TVSquared acquisition took place in Q1 of 2022, there were $4.4 million in the one-time acquisition and IPO-related expenses reflected in those quarterly results that will not repeat in Q1 of 2023.
Also beginning in Q2 we will no longer distinguish between pro forma and as reported basis, since it will be lapping a full year since the TVSquared acquisition. We have seen some encouraging early indicators in 2023. But today, given the current advertising market, we suggest modeling flat revenue year-over-year as a starting point, with a return to more normal quarterly revenue seasonality than we saw in 2022. We are carefully managing operating expenses and expect full year 2023 adjusted EBITDA margin will improve on a year-over-year basis. To be clear, even if revenue is flat year-over-year, we expect improved profitability versus 2022. Given our focus on cost management and operational efficiency, we expect to be even more profitable if the environment improves.
In conclusion, Innovid is very well-positioned to emerge from the current market downturn strategically and financially stronger, with a unique and fully integrated platform that is absolutely critical for our customers. We are taking actions today to ensure our future success. Thanks again for joining the call. Zvika, Tal and I are now ready to answer your questions. Operator, please begin the Q&A session.
