• the impact of increasing competition in the digital advertising space, including with competitors who have significantly more resources; and
• other risks and uncertainties indicated in this report, including those set forth under the section titled “Risk Factors” and those included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”), which was filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024.
These forward-looking statements are based on information available as of the date of this Quarterly Report and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
1. Description of Business
Innovid Corp. together with its consolidated subsidiaries, the “Company” or “Innovid”, is an enterprise software platform for the creation, delivery, measurement, and optimization of advertising across connected TV (“CTV”), mobile TV and desktop environments. We provide critical technology infrastructure for many of the world’s largest brands, agencies, and publishers, and empower them to create ad-supported TV experiences that people love. Our cloud-based platform tightly integrates with the highly fragmented advertising technology and media ecosystems, and includes three key solutions: ad serving, creative personalization, and measurement.
Innovid Corp. was originally incorporated as ION Acquisition Corp. 2 Ltd. (“ION”), a special purpose acquisition company, on November 23, 2020, and Innovid Corp. was the surviving entity following the completion of its merger with ION on November 30, 2021 (the “Transaction”).
On February 28, 2022, the Company completed the acquisition of all the outstanding shares of TV Squared Limited (“TVS”) an independent global measurement and attribution platform for converged TV and a private company limited by shares incorporated under the laws of the Scotland in a combination of cash and stock and stock options issuances.
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. Any reference in these notes to applicable guidance is meant to refer to the authoritative US GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Accordingly, such financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. In management’s opinion, these unaudited condensed consolidated interim financial statements contain all adjustments of a normal recurring nature necessary for a fair presentation of the financial statements for the interim period presented.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2023, as reported in the Company’s 2023 Annual Report on Form 10-K. The Company’s significant accounting policies and practices are as described in the Annual Report.
Use of Estimates
The preparation of the condensed consolidated interim financial statements in conformity with US GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the financial statements. The results for interim periods are not necessarily indicative of results to be expected for the year or for any future periods. In management’s opinion, these unaudited condensed consolidated interim financial statements contain all adjustments of a normal recurring nature necessary for a fair presentation of the financial statements for the interim period presented based upon information available at the time they are made. Actual results could differ from those estimates.
Prior Period Reclassification
Certain amounts in prior year’s condensed consolidated balance sheet have been reclassified to conform to current year’s presentation.
Accounting Policies
Trade receivable, net
The Company records trade receivables for amounts invoiced and yet unbilled. The Company’s expected loss allowance methodology for trade receivables is based upon its assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. The estimated credit loss allowance is recorded as general and administrative expenses on the Company's condensed consolidated statements of operations.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, deposits and trade receivables, net. The majority of the Company’s cash and cash equivalents are invested in deposits with major banks in the US, Israel and the UK. The Company is exposed to credit risk in the event of default by the financial institutions to the extent that amounts recorded on the accompanying consolidated balance sheets exceed insured limits. Generally, these investments may be redeemed upon demand and, therefore, bear minimal risk.
The Company’s trade receivables, net is mainly derived from sales to customers located in the US, APAC, EMEA, and LATAM. The Company mitigates its credit risks by performing ongoing credit evaluations of its customers’ financial conditions. The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
During the three and nine months ended September 30, 2024 and 2023, one customer accounted for more than 10% of the Company’s total revenue as presented below:
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
Customer A
15
%
16
%
16
%
16
%
Software development costs
Software development costs, which are included in property and equipment, net, consists of capitalized costs related to the purchase and development of 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 personnel-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 is presented within depreciation and amortization in the condensed consolidated statements of operations. During the three months ended September 30, 2024 and 2023, the Company capitalized internal-use software cost of $2.0 million and $2.5 million, respectively. During the nine months ended September 30, 2024 and 2023, the Company capitalized internal-use software cost of $6.9 million and $8.8 million, respectively, which represents labor costs including stock based compensation.
Cloud computing arrangements
During nine months ended September 30, 2024, the Company capitalized certain application development phase costs related to hosting arrangements that are service contracts (cloud computing arrangements). Capitalized costs are included in prepaid expenses and other assets in the condensed consolidated balance sheets and will be amortized on a straight-line basis over the estimated useful life, once the modules or components are ready for its intended use. The amount capitalized at September 30, 2024 was immaterial. This amortization will be recorded to software subscription expense within general and administrative expense in the condensed consolidated statements of operations. Cash outflows from cloud computing arrangement implementation costs are classified within operating activities in the consolidated statements of cash flows.
Impairment of long-lived assets
Long-lived assets, including property and equipment and finite-lived intangible assets, are reviewed for impairment whenever facts or circumstances either internally or externally may indicate that the carrying value of an asset may not be recoverable. If there are indications of an impairment, the Company tests for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset to the carrying amount of the asset or asset
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
group. If the asset or asset group is determined to be impaired, any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss.No impairment was recognized during the three or nine months ended September 30, 2024. In September 2023, the Company identified an impairment indicator for its legacy measurement product and recorded an impairment charge of $2.4 million in the three and nine months ended September 30, 2023.
Goodwill and acquired intangible assets
Goodwill and acquired intangible assets have been recorded in the Company's financial statements resulting from various business combinations. 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 as it is estimated to have an indefinite life. As such, goodwill is subject to an annual 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. The Company operates in one operating segment and this segment is the only reporting unit.
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 of October 1 of each year, or more frequently if impairment indicators are present. In the second quarter of 2023, the Company experienced a decline in its stock price resulting in its market capitalization being less than the carrying value of its one reporting unit. Thus, the Company performed quantitative assessments of the Company’s reporting unit. The fair value was determined based on the market approach. The market approach utilizes the Company's market capitalization plus an appropriate control premium. Market capitalization is determined by multiplying the number of common stock outstanding by the market price of its common stock. The control premium is determined by utilizing publicly available data from studies for similar transactions of public companies. As a result of this assessment, the Company recorded a goodwill impairment of $14.5 million during the three months ended June 30, 2023. No impairment was recognized during the three or nine months ended September 30, 2024.
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.
Customer relationships and acquired technology are amortized on a straight-line basis over the estimated useful life of the assets; approximately 11 years and 6 years, respectively. Amortization of customer relationships and acquired technology is presented within depreciation and amortization in the condensed consolidated statements of operations.
Fair value of financial instruments
The Company applies a fair value framework 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.
Level 3 - Unobservable inputs that are supported by little or no market activity.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
The Company’s financial instruments consist of cash and cash equivalents, restricted deposits, trade receivables, net, trade payables, employees, payroll accruals, accrued expenses and other current liabilities. Due to the short-term nature of these instruments, historical carrying amounts approximate fair value.
The Company’s investments in money market funds are classified as cash equivalents and measured at fair value. The Company measures its warrant liability at fair value.
The following tables present information about the Company’s financial instruments that are measured at fair value on a recurring basis:
September 30, 2024
Level 1
Level 2
Level 3
Assets:
Money market funds
$
18,919
$
—
$
—
Liabilities:
Warrants liability
411
—
—
December 31, 2023
Level 1
Level 2
Level 3
Assets:
Money market funds
$
32,264
$
—
$
—
Liabilities:
Warrants liability
307
—
—
As of September 30, 2024, the Company’s warrant liability represents the warrants (refer to Note 4), that were assumed in the Transaction, which were originally issued in connection with ION’s initial public offering. The Company’s warrants are recorded on the balance sheet at fair value with changes in fair value recognized through earnings. The Company’s warrants are within Level 1 of the fair value hierarchy. This valuation is subject to re-measurement at each balance sheet date. The Company determines the fair value of the warrants by using the closing warrant price.
Revenue recognition
Most of the Company’s revenue is derived from digital ad solutions, where the Company provides an ad serving platform for use by advertisers, media agencies and publishers. Standard, interactive and data driven digital video ads are delivered through this ad serving platform. Advertising impressions are served via the Company’s cloud-based ad serving platform to various digital publishers across CTV, mobile TV, desktop TV, display and other channels.
InnovidXP, the Company’s cloud-based cross-platform TV Ad measurement solution, measures the efficiency of CTV advertising and in-flight optimizations for TV marketers. The customers get insights into the effectiveness of their TV and digital advertising.
The Company also provides creative services for 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 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 standalone selling price (“SSP”). SSP is typically estimated based on observable transactions when these services are sold on a standalone basis.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
Revenue related to ad serving is recognized when impressions are delivered via the Company’s ad serving platform. 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.
Revenue related to the InnovidXP solution is recognized over time, since the customer simultaneously receives and consumes the benefits provided by the Company’s performance. Revenues for this measurement subscription is recognized over the service period.
Revenue related to creative projects is recognized when the Company delivers an ad unit. Creative services projects are usually delivered within a week.
The Company’s accounts receivable consists primarily of receivables related to products and services, for 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 monthly based on actual delivery. Payment terms vary, mainly with terms of 60 days or less.
The typical contract term is twelve months or less for ASC 606 purposes. Most of the Company’s contracts can be cancelled without 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.
Deferred revenue represents mostly unrecognized fees billed or collected for measurement platform services. Deferred revenue is recognized as (or when) the Company performs under the contract. Revenue recognized during the three and nine months ended September 30, 2024, from amounts included in deferred at the beginning of the period were $0.6 million and $1.7 million, respectively.
Revenue from ad serving solutions via Innovid’s ad serving platform was 74.8% and 73.3% of the Company’s revenue for the three months ended September 30, 2024 and 2023, respectively. Revenue from measurement subscriptions was 22.2% and 23.2% for the three months ended September 30, 2024 and 2023, respectively. Creative services were 3.0% and 3.5% of the Company’s revenue for the three months ended September 30, 2024, and 2023, respectively.
Revenue from ad serving solutions via Innovid’s ad serving platform was 75.2% and 73.4% of the Company’s revenue for the nine months ended September 30, 2024 and 2023, respectively. Revenue from measurement subscriptions was 21.8% and 22.9% for the nine months ended September 30, 2024 and 2023, respectively. Creative services were 3.0% and 3.7% of the Company’s revenue for the nine months ended September 30, 2024 and 2023, respectively.
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 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. Most of the Company’s commissions are commensurate. If commissions are not eligible for the practical expedient, the commissions are capitalized and are amortized over three years. As of both September 30, 2024 and December 31, 2023, capitalized commissions were immaterial.
Recently issued accounting pronouncements not yet adopted
As an “emerging growth company,” the JOBS Act allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
Income taxes
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 is intended to improve transparency of income tax disclosure by requiring income tax disclosures to contain consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid, disaggregated by jurisdiction. This standard affects the disclosure of income taxes, not the accounting for income taxes. This standard is effective for the Company for the annual period beginning after December 15, 2025, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2023-09.
Segments
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose information about their reportable segments’ significant expense and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. This standard is effective for the Company for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The Company is evaluating the impact of the adoption of ASU 2023-07.
3. Leases
Innovid's lease portfolio primarily consists of real estate properties. Short-term leases with a term of 12 months or less are not recorded on the balance sheet. Innovid does not separate lease components from non-lease components.
The Company is a lessee in all its lease agreements. The Company records lease liabilities based on the present value of lease payments over the applicable lease term. Innovid generally uses an incremental borrowing rate to discount its lease liabilities, as the rate implicit in the lease is typically not readily determinable. Certain lease agreements include renewal options that are under the Company's control. Optional renewal periods are included in the lease term when it is reasonably certain that the Company will exercise its option. On February 7, 2024, the Company amended its New York lease agreement extending the term to 2035. The lease contains an option to extend the lease for an additional five-year period and early termination, which are not reasonably certain to be exercised.
Variable lease payments are primarily related to payments to lessors for taxes, maintenance, insurance and other operating costs. The Company's lease agreements do not contain any significant residual value guarantees or restrictive covenants.
The Company has the following operating right-of-use (“ROU”) assets and lease liabilities:
September 30, 2024
December 31, 2023
(Unaudited)
ROU assets
Lease liabilities
ROU assets
Lease liabilities
Real estate
$
10,894
$
11,223
$
1,435
$
1,834
Total operating leases
$
10,894
$
11,223
$
1,435
$
1,834
Lease expense components recognized in the interim condensed consolidated statement of operations was as follows:
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
Operating lease cost
$
218
$
458
$
933
$
1,379
Short term lease cost
283
205
911
788
Variable lease cost
58
31
142
77
Total lease cost
$
559
$
694
$
1,986
$
2,244
As of September 30, 2024, the weighted-average remaining lease term and weighted-average discount rate for operating leases were 9.8 years and 7.2%, respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
Supplemental cash flow information regarding the Company's operating leases were as follows:
Nine months ended September 30,
2024
2023
Cash paid for amounts included in the measurement of lease liabilities
$
968
$
1,541
Future minimum commitments under the Company’s operating lease were as follows:
Twelve months ending September 30,
Nine months ended September 30, 2024
2025
$
1,263
2026
1,762
2027
1,001
2028
1,523
2029
1,554
Thereafter
9,114
Total undiscounted lease payments
$
16,217
Less: imputed interest
(4,994)
Total operating lease liabilities
$
11,223
4. Warrants
As of September 30, 2024, the Company had 3,162,453 public warrants and 7,060,000 private warrants outstanding. The majority of the private warrant terms are identical to the public warrants resulting in use of the same price for valuation purposes. The Company's warrants do not meet all the conditions to be classified as equity under ASC 815-40 and therefore are classified as a liability measured at fair value through earnings.
See Note 2, Summary of Significant Accounting Policies, for details regarding the fair value of the warrants and see Note 8, Finance (Income) Expenses, Net for details regarding the gains and losses.
5. Long-term Debt
On August 4, 2022, two wholly-owned subsidiaries of the Company, 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 $15,000 to $50,000 (the “New Revolving Credit Facility”). The 2022 A&R Agreement and the New Revolving Credit Facility were amended by a First Loan Modification Agreement dated August 2, 2023 (the “2023 Modification Agreement”) and by a Second Loan Modification Agreement dated June 26, 2024 (the “2024 Modification Agreement”). The interest for the New Revolving Credit Facility is payable monthly in arrears. The New Revolving Credit Facility bears interest at an annual rate that is the greater of (a) WSJ Prime Rate plus 0.25% or (b) 4.25%, on the aggregate outstanding balance. 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. The maturity date of the 2022 A&R Agreement, as amended, is June 30, 2027. The New Revolving Credit Facility is subject to certain customary conditions precedent to the credit extension as stated in the 2022 A&R Agreement and is secured by substantially all of the Company’s assets and continues to place limitations on indebtedness, liens, distributions, asset sales, transactions with affiliates and acquisitions, all as defined in the agreement.
The New Revolving Credit Facility requires the Company 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” are determined as the Company’s unrestricted cash plus accounts receivable, net, and is determined according to US GAAP. The Company is also required to maintain the minimum quarterly adjusted EBITDA as defined in the 2022 A&R Agreement, as amended, if the Company does not maintain the quarterly adjusted quick ratio of at least 1.50 to 1.00.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
At September 30, 2024, there were no amounts outstanding under the New Revolving Credit Facility and the Company was in compliance with all the covenants.
The Company utilizes the credit line on an as needed basis. See Note 8, Finance Income, Net for interest expense.
6. Commitments and Contingent Liabilities
Pledges and bank guarantees
1.Innovid LLC pledged 65,000 shares of common stock of its Israeli Subsidiary, NIS 0.01 par value each, in connection with the line of credit (see Note 5, Long-term Debt).
2.The Israeli Subsidiary pledged bank deposits in an aggregate amount of $0.6 million in connection with an office rent agreement and credit cards.
Legal contingencies
On March 4, 2022, a lawsuit was filed in the United States District Court for the Western District of Texas by the Nielsen Company (US) LLC against TV Squared, alleging infringement of US Patent No. 10.063.078. On June 1, 2022, TV Squared moved to transfer the case to the Southern District of New York, which was granted on January 18, 2023. On March 23, 2023, TV Squared moved for judgment on the pleadings that the asserted claims of the Nielsen patent are invalid because they are patent ineligible under 35 U.S.C. 101. The Court has not yet ruled on TV Squared’s motion. While the motion has remained pending, discovery commenced. The Court also conducted a hearing to construe the patent claims on January 10, 2024, but has not issued a ruling.
On April 15, 2024, the Court issued an order to stay the case for ninety (90) days and to extend various deadlines as set out below, to allow the parties to continue settlement negotiations without incurring the substantial costs associated with the impending close of fact discovery and deadlines for expert reports. The parties agreed that the stay will apply to all interim deadlines, including the service of and responses and objections to written discovery. On July 2, 2024 the Court issued an order to extend the stay for an extra one hundred and twenty (120) days, and on October 23, 2024, the Court extended the stay for an additional eighty (80) days.
In the October 23, 2024 order, the Court set the date for the close of fact discovery as May 2, 2025 and the date for close of expert discovery as September 9, 2025.
No trial date has yet been set and the plaintiff has not specified the amount sought in the litigation. Given the uncertainty of litigation and the preliminary stage of the lawsuit, the Company is unable at this time to give an estimate of the amount or range of potential loss, if any, which might result to the Company if the outcome in such litigation was unfavorable. As of September 30, 2024, the Company has not recorded a loss contingency.
7. Stock-Based Compensation
Stock-based compensation expense under all plans was as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
Stock Options
Stock option activity under all plans was as follows:
Nine months ended September 30, 2024
Number
of
options
Weighted
average
exercise
price
Weighted
average
remaining contractual term
(in years)
Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2023
9,526,883
$
1.27
Granted
—
$
—
Exercised
(532,089)
$
0.59
Forfeited
(573,537)
$
1.81
Expired
(364,341)
$
1.98
Outstanding at September 30, 2024
8,056,916
$
1.24
5.4
$
6,031
Exercisable options at September 30, 2024
7,030,893
$
1.20
5.0
$
5,545
The aggregate intrinsic value of exercised options in the nine months ended September 30, 2024, was $0.8 million.
As of September 30, 2024, the Company had approximately $0.8 million of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 2.0 years.
Restricted Stock Units
RSU activity under the 2021 Plan was as follows:
Nine months ended September 30, 2024
Number of units
Weighted
average
grant date
fair value
Weighted
average
remaining contractual term
(in years)
Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2023
13,270,592
$
2.07
Granted
9,837,142
$
2.32
Vested
(6,047,383)
$
2.29
Forfeited
(2,887,385)
$
2.05
Outstanding at September 30, 2024
14,172,966
$
2.15
1.1
$
25,499
The weighted-average grant-date fair value of RSUs generally is determined based on the number of units granted and the quoted price of Innovid’s common stock on the date of grant. The fair value of shares vested during the nine months ended September 30, 2024, was $11.9 million.
As of September 30, 2024, $25.1 million of unrecognized compensation cost related to RSUs is expected to be recognized as expense over the weighted average period of 2.0 years.
8. Finance Income, Net
The Company recognizes the gains and losses from the remeasurement of its warrants liability in “finance income, net” in the condensed consolidated statements of operations. The unrealized (loss)/gain from changes in the fair value of the Company warrants for the three months ended September 30, 2024 and 2023, were gains of $0.3 million and $0.4 million, respectively. The unrealized (loss)/gain from changes in the fair value of the Company warrants for the nine months ended September 30, 2024 and 2023, were gains of $0.1 million and $3.7 million, respectively.
The Company recognizes interest expense and interest income in “finance income, net” in the condensed consolidated statements of operations. Interest expense for the three months ended September 30, 2024 and 2023, was immaterial and $0.4 million, respectively. Interest income for the three months ended September 30, 2024 and 2023, was $0.4 million and
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
$0.4 million, respectively. Interest expense for the nine months ended September 30, 2024 and 2023, was $0.2 million and $1.1 million, respectively. Interest income for the nine months ended September 30, 2024 and 2023, was $1.1 million and $1.0 million, respectively.
9. Income Tax
The Company recorded net benefits for incomes taxes of $5.8 million and $1.3 million for the three months ended September 30, 2024 and 2023, respectively, representing effective tax rates of 502.8% and 32.3%, respectively. The decrease in the third quarter of 2024 tax expense was from a change in the Company’s full year forecast and the effects of using the interim tax reporting methodology provided under ASC 740-270 where the Company uses a forecasted effective tax rate against current year-to-date results.
The Company recorded net provisions for incomes taxes of $5.2 million and $2.9 million for the nine months ended September 30, 2024 and 2023, respectively, representing effective tax rates of (74.7)% and (10.4)%, respectively. The increase in year-to-date 2024 tax expense was from growing profitability of the global business and associated higher current tax expense, non-deductibility of stock compensation expenses in the US and Israel, the recognition of uncertain tax positions that previously offset against unrecognized deferred tax assets, and as discussed above, the effects of using the interim tax reporting methodology provided under ASC 740-270.
10. Segment Reporting
The Company operates and manages its business as one segment, which primarily focuses on the software platform for ad serving, measurement, and creative. Our CEO is the chief operating decision-maker and manages and allocates resources to the operations of the Company on an entity-wide basis.
Revenue by geographic location was as follows:
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
US
$
35,295
$
33,238
$
103,417
$
92,452
Canada
549
531
1,740
1,385
APAC
706
723
2,656
2,271
EMEA
1,569
1,542
4,613
4,580
LATAM
132
200
514
577
Total revenue
$
38,251
$
36,234
$
112,940
$
101,265
Property and equipment, net and ROU assets by geographic location was as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
11. Net Income (Loss) Per Share
The following presents a reconciliation of the denominator used in the calculation of diluted net income per share (in thousands, except share and per share data):
Three months ended September 30,
2024
Diluted denominator:
Weighted average common shares outstanding
146,822,073
Options
3,242,758
Unvested restricted stock units
2,439,409
Weighted average common shares outstanding - diluted
152,504,240
The following potential shares of common stock, presented based on amounts outstanding at each period end, have been excluded from the computation of diluted net loss per share attributable to common stockholders for the periods indicated their effect would have been anti-dilutive effect:
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
Options
3,396,038
9,402,442
6,986,540
9,402,442
Unvested restricted stock units
9,179,898
14,115,573
10,654,256
14,115,573
Warrants
10,222,453
10,222,500
10,222,453
10,222,500
12. Subsequent Event
On November 6, 2024, our board of directors authorized the Company to implement a stock repurchase program to purchase up to $20.0 million of our common stock. Subject to the final terms of the program, it is expected that repurchases would be made in the open market, in privately negotiated transactions, or otherwise, with the amount and timing of repurchases determined at the Company’s discretion, depending on market conditions and corporate needs. Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including the pricing and volume requirements of Rule 10b-18 or Rule10b-5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 and the Company may decline to move forward with the implementation of any repurchase plan.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and our audited financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2023 (our “2023 Annual Report on Form 10-K”). This discussion contains forward-looking statements reflecting current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in our 2023 Annual Report on Form 10-K, which may be updated from time to time in our other filings with the SEC, including elsewhere in this Quarterly Report, including under the heading “Cautionary Statements Regarding Forward-Looking Statements.”
Company Overview
We are an enterprise cloud software platform for the creation, delivery, measurement, and optimization of advertising across connected TV (“CTV”), mobile and desktop environments. We provide critical technology infrastructure for many
of the world’s largest brands, agencies, and publishers, and empower them to create ad-supported TV experiences people love. Our vision, that television should be open for everyone, and controlled by no one, is at the heart of how we operate our business as an independent platform, and as a strategic, trusted partner for our clients.
Our technology is purpose-built for CTV, with a comprehensive view of the full ecosystem, including linear TV, mobile, and desktop channels. Our cloud-based platform tightly integrates with the highly fragmented advertising technology and media ecosystem, and includes three key solutions: Ad Serving, Creative Personalization, and Measurement. We count many of the world’s largest brand advertisers as customers, including Anheuser-Busch InBev, CVS Pharmacy, Kellogg’s, Mercedes-Benz, Target, Sanofi, and more. As of September 30, 2024, over 50% of the top 200 large advertisers, by TV US advertising spend according to MediaRadar leverage our platform. We are also trusted partners of the largest streaming platform providers in the world, including Disney, Hulu, ESPN, NBCU, and Paramount, and we work closely with top advertising agencies and agency holding companies such as WPP, Publicis Groupe, Omnicom Group, Interpublic Group of Cos., Dentsu Inc., Havas Group, Horizon Media, and The Stagwell Group. Our clients are diversified across all major industry verticals, including consumer packaged goods, pharmaceutical and healthcare, retail, financial services, automotive and technology. We serve customers globally across over 50 countries, with most of our customers located in the US.
Our revenue growth closely correlates with the growth of CTV advertising. CTV accounted for 58% and 55% of all video impressions served by Innovid during the three months ended September 30, 2024, and 2023, respectively. During the three months ended September 30, 2024, this represented a year-over-year increase of 13% in CTV video impressions served by Innovid. The balance of video impressions served by Innovid during the third quarter of 2024 and 2023 was attributed to mobile, 32% and 35%, respectively, and PC, 11% and 10%, respectively. In the third quarter of 2024, video impressions volume decreased by 2% for mobile and increased by 5% for desktop as compared to the same period in the prior year.
Transactions
Innovid Corp. was originally incorporated as ION Acquisition Corp. 2 Ltd. (“ION”), a special purpose acquisition company, on November 23, 2020, and Innovid Corp. was the surviving entity following the completion of its merger with ION on November 30, 2021 (the “Transaction”).
On February 28, 2022, the Company completed the acquisition of TV Squared Limited by way of stock purchase agreement (“Stock Purchase Agreement”). The Company acquired all the equity of TVS for an aggregate amount of $100.0 million in cash, 11,549,465 shares of the Company common stock at fair value of $3.80 per share, and the issuance of 949,893 fully vested stock options of the Company at a weighted average fair value of $3.49, subject to certain adjustments as defined in the Stock Purchase Agreement.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires us to make estimates, judgments and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such management estimates and assumptions used are related, but not limited to, income tax uncertainties, deferred taxes, and stock-based compensation, as well as the fair value of assets acquired, and liabilities assumed in business combinations. The Company’s management believes that the estimates, judgments and assumptions used as reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Global Events
A number of our employees, including some senior employees and two of our directors are residents of Israel. As of today, the Company’s business operations have not been disrupted to any significant extent and the Company does not anticipate any material impact to operations going forward amidst the war in Israel. All of our infrastructure and internal networks are cloud-based and are located outside of Israel. Key systems and IT functions are distributed globally, and our customer care and sales teams are situated mainly in the US, the UK and Argentina. Our office in Israel is primarily a research and development facility and is one of three of our worldwide research and development facilities.
There are several factors that have impacted, and we believe, may continue to impact our results of operations and growth.
These factors include:
Continued market demand. Our performance depends on continued global demand across the advertising ecosystem for independent third-party ad serving, personalization, 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 CTV, the fastest growing segment of digital ad spend, and our results depend on our ability to monetize continued market growth of CTV ad spend.
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.
Upsell of additional services. An additional contributor to our efforts in expanding revenue generated by our customers is our investment in cross-selling our solutions. We cross-sell our personalized creative solutions to primarily ad serving customers, who, for example, begin using our services with standard digital video ads and then introduce personalized formats over time. We also cross-sell our advanced measurement solutions, which provide real-time metrics to inform optimization of TV campaigns while in the market. The success of these efforts will impact our results of operations.
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 revenue that coincide with seasonal fluctuations in the digital ad spending of our customers, in particular television ad spending patterns. Advertisers typically allocate the largest portion of their media budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing. As a result, the fourth quarter of the year typically reflects our highest level of revenue while the first quarter typically reflects our lowest level of revenue. However, this traditional seasonality may also be impacted by certain external factors or major events that also impact traditional television advertising patterns, such as supply chain disruptions and silicon/chip shortages. We expect our revenue 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.
Global Markets
The majority of our clients operate at a significant scale. Innovid serves customers globally through a delivery footprint including the US, APAC, EMEA, and LATAM. During the third quarter and the nine months ended September 30, 2024, approximately 8%, respectively, of Innovid's revenue was generated by our customers outside of the US.
We continue to service international markets to meet the needs of our global customer base and to accelerate new customer acquisition in key geographies outside of the US. We believe our continuing ability to service international markets will impact our results of operations.
Components of Results of Operations
Revenue
We generate most of our revenue from digital ad solutions via our cloud-based ad serving platform to advertisers, media agencies and publishers. We focus on standard, interactive and data driven digital video advertising. Ad serving services relate to utilizing our platform to serve advertising impressions to various digital publishers across CTV, mobile, and desktop.
InnovidXP, our cloud based cross-platform TV Ad measurement solution measures the efficiency of CTV advertising and in-flight optimizations for TV marketers. We will continue to invest in advanced measurement capability and provide solutions to advertisers, streaming platforms and agencies as their needs evolve in the highly fragmented CTV ecosystem.
We provide creative services for the design and development of interactive data-driven and dynamic ad formats by adding data, interactivity and dynamic features to standard ad units.
We generate the majority of our revenue from the sale and delivery of our products within the US. For information with respect to sales by geographic markets, refer to Note 10, Segment Reporting to the condensed consolidated financial statements included under Item 1, Financial Statements.
We anticipate that revenue from our US sales will continue to constitute a substantial portion of our revenue in future periods.
Cost of revenue
Cost of revenue consists primarily of costs to run the ad serving and measurement platform and provide creative services. These costs include hosting and ad serving fees, data costs, 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. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments.
Research and development costs are charged to the condensed consolidated statements of operations as incurred. ASC 350-40, Internal-Use Software (“ASC 350-40”), requires the capitalization of certain costs incurred during the application development stage. Any costs incurred for upgrades and functionality enhancements of the software are also capitalized.
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, and 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, 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.
The following table sets forth items in the condensed consolidated quarterly statements of operations as a percentage of sales for the periods indicated:
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
Revenue
100
%
100
%
100
%
100
%
Cost of revenue
23
%
23
%
24
%
25
%
Research and development
18
%
18
%
18
%
20
%
Sales and marketing
31
%
31
%
31
%
34
%
General and administrative
25
%
27
%
26
%
28
%
Depreciation, amortization and long-lived assets impairment
7
%
13
%
7
%
9
%
Goodwill impairment
—
%
—
%
—
%
14
%
Operating loss
(4)
%
(12)
%
(6)
%
(30)
%
Finance income, net
(1)
%
(1)
%
—
%
(3)
%
Loss before taxes
(3)
%
(11)
%
(6)
%
(27)
%
Taxes on income
(15)
%
(3)
%
5
%
3
%
Net income (loss)
12
%
(8)
%
(11)
%
(30)
%
Three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023
Three months ended September 30,
Nine months ended September 30,
(In thousands)
Increase (decrease)
(In thousands)
Increase (decrease)
2024
2023
Amount
%
2024
2023
Amount
%
Revenue
$
38,251
$
36,234
$
2,017
6
%
$
112,940
$
101,265
$
11,675
12
%
Cost of revenue
8,917
8,428
489
6
%
26,746
25,284
1,462
6
%
Research and development
7,021
6,486
535
8
%
20,646
20,479
167
1
%
Sales and marketing
11,682
11,175
507
5
%
35,523
34,272
1,251
4
%
General and administrative
9,238
9,753
(515)
(5)
%
29,070
28,327
743
3
%
Depreciation, amortization and long-lived assets impairment
2,836
4,714
(1,878)
(40)
%
8,291
8,808
(517)
(6)
%
Goodwill impairment
—
—
—
—
%
—
14,503
(14,503)
(100)
%
Operating loss
(1,443)
(4,322)
2,879
(67)
%
(7,336)
(30,408)
23,072
(76)
%
Finance income, net
(285)
(290)
5
(2)
%
(405)
(3,013)
2,608
(87)
%
Loss before taxes
(1,158)
(4,032)
2,874
(71)
%
(6,931)
(27,395)
20,464
(75)
%
Taxes on income
(5,823)
(1,301)
(4,522)
348
%
5,180
2,858
2,322
81
%
Net income (loss)
$
4,665
$
(2,731)
$
7,396
(271)
%
$
(12,111)
$
(30,253)
$
18,142
(60)
%
Revenue
The overall growth and scaling of CTV was the key driver of Innovid’s revenue growth in the third quarter and nine months ended September 30, 2024. As TV ad spend continues to shift from linear to CTV, we continue to benefit from the natural volume growth of CTV impressions we deliver for our existing and new customers. We have driven consistent positive net revenue retention of our core client base, largely through increased CTV advertising volume, as legacy TV budgets migrate from linear TV to CTV.
Revenue in the three months ended September 30, 2024, as compared to the same period in 2023, increased primarily due to ad serving volume growth.
Revenue in the nine months ended September 30, 2024, as compared to the same period in 2023, increased mainly due to ad serving volume growth and the growth of our measurement solution. Cross-selling of the measurement solution to our core clients contributed to the overall increase in the measurement revenue.
There was no meaningful impact of changes in average cost per impression on revenue.
Cost of revenue (exclusive of depreciation, amortization, long-lived asset and goodwill impairments shown below)
Three months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Cost of revenue
$
8,917
$
8,428
$
489
6
%
The increase in cost of revenue in the three months ended September 30, 2024, as compared to the same period in 2023, was mainly due to an increase of $0.4 million related to hosting and data costs.
Nine months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Cost of revenue
$
26,746
$
25,284
$
1,462
6
%
Cost of revenue increase in the nine months ended September 30, 2024, as compared to the same period in 2023, was primarily due to an increase of $1.5 million related to hosting and data costs.
Research and development (exclusive of depreciation, amortization, long-lived asset and goodwill impairments shown below)
Three months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Research and development
$
7,021
$
6,486
$
535
8
%
The increase in research and development expense in the three months ended September 30, 2024, was mainly due to an increase of $0.4 million in personnel and related costs and $0.1 million in recruitment costs, as compared to the same period in 2023.
Nine months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Research and development
$
20,646
$
20,479
$
167
1
%
The increase in research and development expense in the nine months ended September 30, 2024, as compared to the first nine months of 2023, was mainly due to $0.4 million increase in professional fees, $0.2 million in recruitment expense for key roles, and $0.1 million in hosting and data costs. This increase was partially offset by a decrease of $0.6 million in personnel and related costs resulting from our operating efficiency measures including headcount reduction.
Sales and marketing (exclusive of depreciation, amortization, long-lived asset and goodwill impairments shown below)
Three months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Sales and marketing
$
11,682
$
11,175
$
507
5
%
The increase in sales and marketing expense was primarily driven by an increase of $1.5 million in personnel and related costs in the three months ended September 30, 2024, as compared to the same period in 2023. This increase was partially offset by a decrease in commissions of $0.9 million.
Nine months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Sales and marketing
$
35,523
$
34,272
$
1,251
4
%
Sales and marketing expense increase was primarily due to an increase of $1.2 million in personnel and related costs in the nine months ended September 30, 2024, as compared to the same period in 2023.
General and administrative (exclusive of depreciation, amortization, long-lived asset and goodwill impairments shown below)
Three months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
General and administrative
$
9,238
$
9,753
$
(515)
(5)
%
General and administrative expense decrease in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, was mainly due to a decrease in personnel and related costs of $0.5 million.
Nine months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
General and administrative
$
29,070
$
28,327
$
743
3
%
General and administrative expense in the nine months ended September 30, 2024, as compared to the same period in 2023, increased mainly a result of higher legal expenses totaling $0.7 million in connection with litigation and other legal matters and $0.4 million in expense in connection with an ERP implementation. This increase was partially offset by a decrease in personnel and related costs of $0.5 million.
Depreciation, amortization and long-lived assets impairment
Three months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Depreciation, amortization and long-lived assets impairment
$
2,836
$
4,714
$
(1,878)
(40)
%
Depreciation and amortization expense decrease period over period was mostly due to impairment of approximately $2.4 million related to our legacy measurement product in 2023. This decrease was partially offset by an increase of $0.6 million in amortization expense of internal-use software projects during the 2024 period.
Depreciation, amortization and long-lived assets impairment
$
8,291
$
8,808
$
(517)
(6)
%
The decrease in depreciation and amortization expense was primarily due to impairment of $2.4 million related to our legacy measurement product in 2023 and a decrease of $0.3 million of TVS intangible assets during the 2024 period. This was partially offset by an increase of $2.3 million in amortization expense of internal-use software projects in the nine months ended September 30, 2024, as compared to the first nine months of 2023.
Goodwill impairment
Three months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Goodwill impairment
$
—
$
—
$
—
—
%
There was no goodwill impairment in the three months ended September 30, 2024 and 2023.
Nine months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Goodwill impairment
$
—
$
14,503
$
(14,503)
(100)
%
In the nine months ended September 30, 2023, the Company recorded a goodwill impairment charge stemming from a continued decline in its stock price. An assessment was performed, and it was determined that the fair value of the reporting unit exceeded its carrying value resulting in the impairment charge. There was no goodwill impairment in the nine months ended September 30, 2024.
Finance Income, Net
Three months ended September 30,
(In thousands)
Decrease (increase)
2024
2023
Amount
%
Finance income, net
$
(285)
$
(290)
$
5
(2)
%
Finance income, net was consistent period over period.
Nine months ended September 30,
(In thousands)
Decrease (increase)
2024
2023
Amount
%
Finance income, net
$
(405)
$
(3,013)
$
2,608
(87)
%
Finance income, net decreased in the nine months ended September 30, 2024, as compared to the same period in 2023, mainly due to the $3.7 million fair value gain recognized in 2023, as a result of the decline in value of the Company’s warrants, partially offset by a loss on foreign exchange in the current period. The warrant fair value was impacted by the decline in the Company’s common stock price.
The Company recorded net benefits for incomes taxes of $5.8 million and $1.3 million for the three months ended September 30, 2024 and 2023, respectively, representing effective tax rates of 502.8% and 32.3%, respectively. The benefit increase in the third quarter of 2024 results from a change in the Company’s full year forecast and the effects of using the interim tax reporting methodology provided under ASC 740-270 where the Company uses a forecasted effective tax rate against current year-to-date results.
Nine months ended September 30,
(In thousands)
Increase (decrease)
2024
2023
Amount
%
Taxes on income
$
5,180
$
2,858
$
2,322
81
%
The Company recorded net provisions for incomes taxes of $5.2 million and $2.9 million for the nine months ended September 30, 2024 and 2023, respectively, representing effective tax rates of (74.7)% and (10.4)%, respectively. The increase in year-to-date 2024 tax expense results from growing profitability of the global business and associated higher current tax expense, non-deductibility of stock compensation expenses in the US and Israel, the recognition of uncertain tax positions that previously offset against unrecognized deferred tax assets, and as discussed above, the effects of using the interim tax reporting methodology provided under ASC 740-270.
Liquidity and Capital Resources
We have financed our operations and capital expenditures primarily through utilization of cash generated from operations, as well as borrowings under our credit facilities.
As of September 30, 2024, we had cash and cash equivalents of $35.0 million and net working capital, consisting of current assets less current liabilities, of $59.7 million. As of September 30, 2024, we had an accumulated deficit of $194.9 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, together with available borrowings under our credit facility, will be sufficient to meet our cash needs and working capital requirements for at least the next twelve months. However, if our operating performance during the next twelve 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 war in Israel has 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.
On November 6, 2024, our board of directors authorized the Company to implement a stock repurchase program to purchase up to $20.0 million of our common stock. Subject to the final terms of the program, it is expected that repurchases would be made in the open market, in privately negotiated transactions, or otherwise, with the amount and timing of repurchases determined at the Company’s discretion, depending on market conditions and corporate needs. Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including the pricing and volume requirements of Rule 10b-18 or Rule10b-5-1 under the Exchange Act. 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 and the Company may decline to move forward with the implementation of any repurchase plan.
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 2022 A&R Agreement and the New Revolving Credit Facility were amended by a First Loan Modification Agreement dated August 2, 2023 (the “2023 Modification Agreement”) and a Second Loan Modification Agreement dated June 26, 2024 (the “2024 Modification Agreement”). The interest for the New Revolving Credit Facility is payable monthly in arrears. The New Revolving Credit Facility bears interest at an annual rate that is the greater of (a) WSJ Prime Rate plus 0.25% or (b) 4.25%, on the aggregate outstanding balance. Additional fees include 0.20% per annum of the average unused portion of the New Revolving Credit Facility to be paid quarterly in arrears. The maturity date of the 2022 A&R Agreement, as amended, is June 30, 2027. The New Revolving Credit Facility is subject to certain customary conditions precedent to the credit extension as stated in the 2022 A&R Agreement and is secured by substantially all of the Company’s assets and continues to place limitations on indebtedness, liens, distributions, asset sales, transactions with affiliates and acquisitions, all as defined in the agreement.
The New Revolving Credit Facility requires the Company 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” are calculated as unrestricted cash plus accounts receivable, net, and is determined according to US GAAP. We are also required to maintain the minimum quarterly adjusted EBITDA as defined in the 2022 A&R Agreement, as amended, if the Company does not maintain the quarterly adjusted quick ratio of at least 1.50 to 1.00.
As of September 30, 2024, we were in compliance with all applicable covenants.
The Company utilizes the credit line on an as needed basis. In January 2024, the Company repaid $20.0 million under the credit line and has not subsequently drawn from it.
We recognize interest expense in finance income, net in the condensed consolidated statements of operations. Interest expense for the three months ended September 30, 2024 and 2023 was immaterial and $0.4 million, respectively. Interest income for the three months ended September 30, 2024 and 2023, was $0.4 million and $0.4 million, respectively. Interest expense for the nine months ended September 30, 2024 and 2023 was $0.2 million and $1.1 million, respectively. Interest income for the nine months ended September 30, 2024 and 2023, was $1.1 million and $1.0 million, respectively.
Cash Flows
Nine months ended September 30, 2024, compared to the nine months ended September 30, 2023
The following table summarizes our cash flows for the periods presented (in thousands):
Nine months ended September 30,
2024
2023
Net cash provided by operating activities
$
11,915
$
7,437
Net cash (used in) provided by investing activities
(6,916)
1,887
Net cash (used in) provided by financing activities
(19,688)
772
Effect of exchange rates on cash, cash equivalents and restricted cash
(321)
—
(Decrease) increase in cash, cash equivalents, and restricted cash
$
(15,010)
$
10,096
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 our business. The timing of cash receipts from customers and payments to vendors and providers can significantly impact our cash flows from operating activities. Seasonality is expected to impact cash flows from operating activities quarterly.
Cash provided by operating activities is calculated by adjusting our net loss for changes in working capital, excluding non-cash items such as depreciation and amortization, stock-based compensation and change in fair value of warrants.
For the nine months ended September 30, 2024, net cash provided by operating activities was $11.9 million. The non-cash charges, primarily stock based compensation and depreciation and amortization, offset the net loss and provided $10.7 million in cash. Collections on our trade receivables, the timing of prepaid software subscriptions, other accrued expenses and vendor payments together provided $5.8 million in cash. The timing of payments to employees used $4.9 million in cash.
For the nine months ended September 30, 2023, net cash provided by operating activities was $7.4 million. Net loss, adjusted for non-cash charges used $4.8 million in cash. The timing of other accrued expense, vendor and employee payments provided $4.0 million in cash. Decreases in prepaid software subscriptions used $1.2 million in cash.
Investing Activities
Cash used in investing activities for the nine months ended September 30, 2024, was $6.9 million, primarily the result of an investment in internal software development projects and purchases of property and equipment. Cash provided by investing activities for the nine months ended September 30, 2023, was $1.9 million, which consisted of cash from short-term deposits of $10.0 million partially offset by $8.2 million of investment in internal software development projects and purchases of property and equipment.
Financing Activities
Cash used in financing activities for the nine months ended September 30, 2024, was $19.7 million due to a payment on our revolving credit facility partially offset by proceeds from the exercise of options. Cash provided by financing activities for the nine months ended September 30, 2023, was $0.8 million mainly due to proceeds from the exercise of options.
Free Cash Flow (non-GAAP measure)
The following table reconciles Free Cash Flow, which is a non-GAAP measure, to net cash provided by operating activities (in thousands):
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
Net cash provided by operating activities
$
6,029
$
6,489
$
11,915
$
7,437
Loss on foreign exchange, net
(70)
—
(321)
—
Capital expenditures
(2,214)
(2,410)
(7,081)
(8,190)
Free Cash Flow
$
3,745
$
4,079
$
4,513
$
(753)
We generated Free Cash Flow of $3.7 million during the three months ended September 30, 2024, compared to $4.1 million in the same period in the prior year primarily due to a decline in cash from operations in the current period.
We generated $4.5 million in Free Cash Flow during the nine months ended September 30, 2024, compared to an outlay of Free Cash Flow of $0.8 million in the same period in the prior year primarily due to improved cash from operations.
See Key Metrics and Non-GAAP Financial Measures below for details regarding management’s use of this non-GAAP measure.
Contractual Obligations and Known Future Cash Requirements
Lease Commitments
Our lease commitments predominantly relate to rented office space. We rent facilities under operating lease agreements that expire on various dates through 2035, excluding any options for renewal. Minimum rental payments under operating leases at September 30, 2024 was $1.4 million in the next twelve months and $9.8 million thereafter, for a total of $11.2 million. Other lease arrangements were immaterial. On February 7, 2024, we amended our New York lease agreement, extending the term to 2035. The lease contains an option to extend the lease for an additional five-year period
and early termination, which are not reasonably certain to be exercised. We expect to pay approximately $15.9 million in rent over the lease term.
Pledges and Bank Guarantees
In connection with the 2022 A&R Agreement, we pledged 65,000 shares of common stock of our Israeli subsidiary, NIS 0.01 par value each.
We have a total of $0.6 million of pledged bank deposits as of September 30, 2024, in connection with office leases and credit cards.
Key Metrics and Non-GAAP Financial Measures
In addition to our results determined in accordance with US GAAP, we believe that certain non-GAAP financial measures, including Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), Adjusted EBITDA margin percent and Free Cash Flow are useful in evaluating our business. We use Adjusted EBITDA, Adjusted EBITDA margin percent and Free Cash Flow as measures of operational efficiency to understand and evaluate our core business operations. We believe that these non-GAAP financial measures are also useful to investors for period-to-period comparisons of our core business as well as comparisons to peers as similar measures are frequently used by securities analysts, investors, ratings agencies and other interested parties to evaluate businesses in our industry. Additionally, these figures provide an understanding and evaluation of our trends when comparing our operating results, on a consistent basis, by excluding items that we do not believe are indicative of our core operating performance. However, these non-GAAP financial measures should not take the place of GAAP financial measures in evaluating our business.
Adjusted EBITDA and Adjusted EBITDA Margin Percent
Adjusted EBITDA and Adjusted EBITDA margin percent are useful in evaluating our business. We calculate Adjusted EBITDA as consolidated net income (loss) before depreciation and amortization and any long-lived asset impairment, any goodwill impairment, stock-based compensation expense, finance (income) expenses, retention bonus expenses, legal claims, severance costs, other and taxes on income. We calculate Adjusted EBITDA margin percent as Adjusted EBITDA divided by total revenue. We believe that Adjusted EBITDA and Adjusted EBITDA margin percent permit a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while isolating the effects of charges that may vary from period-to-period without direct correlation to underlying operating performance. The following table presents a reconciliation from net income (loss), which is the most directly comparable GAAP financial measure, to Adjusted EBITDA and Adjusted EBITDA margin percent, non-GAAP financial measures as used by management (in thousands):
Three months ended September 30,
Nine months ended September 30,
2024
2023
2024
2023
Net income (loss)
$
4,665
$
(2,731)
$
(12,111)
$
(30,253)
Net income (loss) margin percent
12
%
(8)
%
(11)
%
(30)
%
Depreciation, amortization and long-lived assets impairment
(a) Finance income, net consists mostly of remeasurement related to revaluation of our warrants, remeasurement of our foreign subsidiary’s monetary assets, liabilities and operating results, interest expense and interest income.
(b) Retention bonus expenses consists of retention bonuses for certain TVS employees.
Other companies in our industry may calculate the above-described non-GAAP financial measures differently than we do, limiting their usefulness as a comparative measure.
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 GAAP. Some of the limitations of these measures are:
•they do not reflect changes in, or cash requirements for, our working capital needs;
•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 severance costs;
•they do not reflect income tax expense or the cash requirements to pay income taxes;
•they do not reflect our interest expense or the cash requirements necessary to service interest or principal payments on our debt; 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.
You should compensate for these limitations by relying primarily on our US GAAP results and using the non-GAAP financial measures supplementary.
Free Cash Flow
We define Free Cash Flow as net cash provided by operating activities less capital expenditures and the impact of foreign exchange on cash. For further discussion of Free Cash Flow, including a reconciliation to cash flows provided by operating activities, refer to Liquidity and Capital Resources section of this document.
We believe Free Cash Flow is a helpful supplemental measure to assist us and investors in evaluating our liquidity. Further, we believe Free Cash Flow is useful to provide additional information to assess our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow has limitations as an analytical tool, including that it does not include capital expenditures and excludes the impact of foreign exchange on cash.
Other companies in our industry may calculate the above-described 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.
Operational Metrics
In addition, Innovid’s management considers the number of core clients, annual core clients retention and annual core clients net revenue retention in evaluating the performance of the business. We define core clients as advertisers or publishers that generated at least $100,000 of annual revenue. These metrics are reported annually.
Off-Balance Sheet Arrangements
As of September 30, 2024, 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.
Our discussion and analysis of our financial condition and results of operations are based on our unaudited interim condensed 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. Actual results may differ from these estimates.
While our significant accounting policies are described in more detail in Note 2, Summary of Significant Accounting Policies included in Item 1. “Financial Statements”, 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
Most of the Company’s revenue is derived from digital ad solutions, where the Company provides a cloud-based ad serving platform for use by advertisers, media agencies and publishers. Standard, interactive and data driven digital video ads are delivered through this ad serving platform. Advertising impressions are served via the Company’s cloud-based ad serving platform to various digital publishers across CTV, mobile TV, desktop TV, display and other channels.
InnovidXP, the Company’s cloud-based cross-platform for TV ad measurement solution, measures the efficiency of CTV advertising and in-flight optimizations for TV marketers. The customers get insights into the effectiveness of their TV and digital advertising.
The Company also provides creative services for 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 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 standalone selling price (“SSP”). SSP is typically estimated based on observable transactions when these services are sold on a standalone basis.
Revenue related to ad serving is recognized when impressions are delivered via the Company’s ad serving platform. 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.
Revenue related to the InnovidXP solution is recognized over time, since the customer simultaneously receives and consumes the benefits provided by the Company’s performance. Revenue for this measurement subscription is recognized over the service period.
Revenue related to creative projects is recognized when the Company delivers an ad unit. Creative services projects are usually delivered within a week.
The Company’s accounts receivable, consist primarily of receivables related to providing products and services described above, for 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 monthly based on actual delivery. The payment terms vary, mainly with terms of 60 days or less.
The typical contract term is twelve months or less for ASC 606 purposes. Most of the Company’s contracts can be cancelled without 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.
Deferred revenue represents mostly unrecognized fees billed or collected for measurement platform services. Deferred revenue is recognized as (or when) we perform under the contract.
Fair value of financial instruments
We apply a fair value framework 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.
Level 3 - Unobservable inputs that are supported by little or no market activity.
Our financial instruments consist of cash and cash equivalents, restricted deposits, trade receivables, net, trade payables, employees, payroll accruals, accrued expenses and other current liabilities. Historical carrying amounts represent the approximate fair value due to the short-term maturities of these instruments.
We measure our investments in money market funds classified as cash equivalents and warrant liability at fair value. We determine the fair value of the warrants by using the closing price of our public warrants. Gains and losses from the remeasurement of the warrants liability is recognized in finance (income) expense, net in the condensed consolidated statements of operations.
Impairment of long-lived assets
Long-lived assets, including property and equipment and finite-lived intangible assets, are reviewed for impairment whenever facts or circumstances either internally or externally may indicate that the carrying value of an asset may not be recoverable. If there are indications of an impairment, we test for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset to the carrying amount of the asset or asset group. If the asset or asset group is determined to be impaired, any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss. No impairment was recognized during the three or nine months ended September 30, 2024. In September 2023, the Company identified an impairment indicator for its legacy measurement product and recorded an impairment charge of $2.4 million in the three and nine months ended September 30, 2023.
Goodwill and intangible assets
Goodwill and acquired intangible assets have been recorded in the Company's financial statements resulting from various business combinations. 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 as it is estimated to have an indefinite life. As such, goodwill is subject to an annual impairment test.
The Company allocates goodwill to reporting units based on the expected benefit from the applicable 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. The Company operates in one operating segment and this segment is the only reporting unit.
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 of October 1 of each year, or more frequently if impairment indicators are present. In the second quarter of 2023, the Company experienced a decline in its stock price resulting in its market capitalization being less than the carrying value of its one reporting unit. Thus, the Company performed quantitative assessments of the Company’s reporting unit. The fair value was determined based on the market approach. The market approach utilizes the Company's market capitalization plus an appropriate control premium. Market capitalization is determined by multiplying the number of common stock outstanding by the market price of its common stock. The control premium is determined by utilizing publicly available data from studies for similar transactions of public companies. During the three months ended June 30, 2023, the Company recorded a goodwill impairment of $14.5 million. No impairment was recognized during the three or nine months ended September 30, 2024.
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.
Customer relationships and acquired technology are amortized on a straight-line basis over the estimated useful life of assets; approximately 11 years and 6 years, respectively. Amortization of customer relationships and acquired technology is presented within depreciation and amortization in the condensed consolidated statements of operations.
Capitalized software development costs
Software development costs, which are included in property and equipment, net, consists of capitalized costs related to the purchase and development of internal-use software. We use such software to provide services to our customers. The cost to purchase and develop internal-use software is 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 personnel-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 our services, these costs are amortized on a straight-line basis over the three-year estimated useful life. Amortization is presented within depreciation and amortization in the condensed consolidated statements of operations.
Cloud computing arrangements
During the nine months ended September 30, 2024, the Company capitalized certain application development phase costs related to hosting arrangements that are service contracts (cloud computing arrangements). Capitalized costs are included in prepaid expenses and other assets in the condensed consolidated balance sheets and will be amortized on a straight-line basis over the estimated useful life, once the modules or components are ready for its intended use. This amortization will be recorded to software subscription expense in the condensed consolidated statements of operations. Cash outflows from cloud computing arrangement implementation costs are classified within operating activities in the consolidated statements of cash flows.
Income taxes and tax contingencies
Income taxes are computed using a balance sheet approach reflecting both current and deferred taxes. Current and deferred taxes reflect the tax impact of all the events included in the financial statements. The basic principles employed in the balance sheet approach are to reflect a current tax liability or asset that is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years, a deferred tax liability or asset that is recognized for the estimated future tax effects attributable to temporary differences and carryforwards, the measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law of which the effects of future changes in tax laws or rates are not anticipated, and the measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. There are certain situations in which deferred taxes are not provided. Some basis differences are not temporary differences because their reversals are not expected to result in taxable or deductible amounts.
The Company regularly evaluates deferred tax assets for future realization and establishes a valuation allowance to the extent that a portion is not more likely than not to be realized. The Company considers whether it is more likely than not that the deferred tax assets will be realized, including existing cumulative losses in recent years, expectations of future taxable income, carryforward periods and other relevant quantitative and qualitative factors. The recoverability of the deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely on estimates.
ASC 740, Income Taxes (“ASC 740”) contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement. The Company classifies interest related to unrecognized tax benefits in taxes on income.
Recent Accounting Pronouncements
For information on recent accounting standards, see “Part I - Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies”.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, we are not required to provide this information.
Item 4. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Management’s Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our CEO and CFO, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended as of September 30, 2024. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during and as of the fiscal quarter ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II
Item 1. Legal Proceedings
Other than described below, we are not presently party to any legal proceedings or aware of any claims which we believe would have, individually or in the aggregate, a material adverse effect on our consolidated business prospects, financial condition, liquidity, results of operation, cash flows, or capital levels. We may from time-to-time be party to litigation and subject to claims incident to the ordinary course of business.
On March 4, 2022, a lawsuit was filed in the United States District Court for the Western District of Texas by the Nielsen Company (US) LLC against TV Squared, alleging infringement of US Patent No. 10.063.078. On June 1, 2022, TV Squared moved to transfer the case to the Southern District of New York, which was granted on January 18, 2023. On March 23, 2023, TV Squared moved for judgment on the pleadings that the asserted claims of the Nielsen patent are invalid because they are patent ineligible under 35 U.S.C. 101. The Court has not yet ruled on TV Squared’s motion. While the motion has remained pending, discovery commenced. The Court also conducted a hearing to construe the patent claims on January 10, 2024, but has not issued a ruling.
On April 15, 2024 the Court issued an order to stay the case for ninety (90) days and to extend various deadlines as set out below, to allow the parties to continue settlement negotiations without incurring the substantial costs associated with the impending close of fact discovery and deadlines for expert reports. The parties agreed that the stay will apply to all interim deadlines, including the service of and responses and objections to written discovery. On July 2, 2024 the Court issued an order to extend the stay for an extra one hundred and twenty (120) days, and on October 23, 2024, the Court extended the stay for an additional eighty (80) days.
In the October 23, 2024 order, the Court set the date for the close of fact discovery as May 2, 2025 and the date for close of expert discovery as September 9, 2025.
No trial date has yet been set and the plaintiff has not specified the amount sought in the litigation. Given the uncertainty of litigation and the preliminary stage of the lawsuit, the Company is unable at this time to give an estimate of the amount or range of potential loss, if any, which might result to the Company if the outcome in such litigation was unfavorable. As of September 30, 2024, the Company has not recorded a loss contingency.
Item 1A. Risk Factors
There are no material changes in our risk factors from those disclosed in Part I, Item 1A of 2023 Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
N/A.
Item 5. Other Information
(a) None.
(b) None.
(c) Insider Trading Arrangements and Policies
During the three months ended September 30, 2024, no director or “officer” (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.