Innovid Corp (CTV) 2022 Q1 法說會逐字稿

Greetings. Welcome to the Innovid Q1 2022 Earnings Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Brinlea Johnson, Innovid IR. Thank you. You may begin.

Thank you, operator, and everyone for joining us today. Welcome to Innovid's First Quarter 2022 Conference Call.

Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statement contained in today's earnings release also pertains to this call. If you have not received a copy of the release, please direct yourself to the Investor Relations section of the company's website. Changes in our business, competitive landscape, technological or regulatory environment and other factors could cause actual results to differ materially from those expressed by these forward-looking statements made today. Our historical results are not necessarily indicative of future performance. As such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them, except as required by law.

Today we are joined by Zvika Netter, Innovid's Co-Founder and CEO, who will begin the call with a business update. Then he will turn the call over to Tanya Andreev-Kaspin, Innovid's CFO, who will discuss the financials of the company. During the question-and-answer session, Tal Chalozin, Founder and CTO, will be joining as well.

With that, I'd like to pass the call over to Zvika Netter. Zvika, Please go ahead.

Thank you, Brinlea, and Good morning, everyone. It's been exciting 2.5 months for us at Innovid since our last call, and I'm looking forward to sharing today's update, which expands upon our focus areas to continued growth and innovation.

Before jumping into Innovid's business highlights, I would like to shed the light on some of the tectonic shifts we're seeing in the broader television industry. The past decade in streaming has been marked by rapid expansion in subscription-based market share. Now, the increasingly fragmented and saturated streaming market has driven leading subscription-based services to embrace an ad-supported agenda. Amazon recently doubled down on its ad-supported streaming service, relaunching it under the Freevee brand. And major streaming services such as Disney Plus and even Netflix have been discussing adding advertising models for their services to attract additional subscribers and increase their revenue.

As more dollars shift from linear TV to CTV, we believe advertising support and streaming is on the cusp of even more rapid expansion. The number of ad-supported services and subscribers has soared. According to Insider Intelligence, 129 million people used an ad-supported streaming service by the end of 2021. By 2025, that figure is projected to rise to 165 million users. Since our growth is in line with ad-supported CTV content, the future is bright.

Now on to the business highlights. We achieved strong gains in our business that is driven by the combination of increased CTV advertising and new customer wins, including one of the largest TV advertisers in the U.S., which I'll speak to shortly. Increased adoption of personalized products and the expansion of our measurement business through the strategic acquisition of TVSquared, an independent global measurement and attribution platform for converged TV. We delivered outstanding performance in the first quarter of 2022, surpassing our expectation and our prior guidance. Our team was able to make significant progress against our goals despite the increased volatility in the macroenvironment.

Revenue increased by 44% year-over-year to $25.9 million on an as-reported basis. 9% of the total quarterly revenue, or $2.4 million, was attributed to TVSquared following the acquisition closing on February 28, 2022. Revenue for the quarter, when excluding TVSquared, increased 30% year-over-year to $23.4 million, above our stated expectations of 17% to 22% growth.

Our net loss in the first quarter of 2022 was $7.4 million, and adjusted EBITDA was negative $3 million, exceeding the expected range of negative $3.5 million to negative $4.5 million. According to eMarketer, CTV advertising spending is expected to grow 33% in 2022, and our CTV business outpaced this growth rate in Q1. CTV revenue, excluding the TVSquared, increased nearly 40% year-over-year, accounting to 47% of total quarterly revenue, up from 44% in Q1 of 2021.

Q1 was transformative to Innovid as we completed the strategic acquisition of TVSquared, expanding our measurement infrastructure to address the growing needs of marketers in today's converged TV marketplace. With TVSquared, our regional emphasis on CTV has grown to encompass the broader converged TV landscape, including of linear TV and digital video in addition to connected TV.

I will now expand on the strategic value and opportunity created by the combination of TVSquared. The opportunity for converged TV advertising is enormous. Our clients, the world's largest advertisers have told us they need more robust measurement to both justify investment and optimize for better business outcomes. Through TVSquared, we are unlocking measurement with a comprehensive view of TV advertising and audiences, built on the scale and automation of our independent global ad server and software solution.

Through the combination of Innovid and TVSquared capabilities, we believe that we are in market-leading position to deliver the value across the entire TV ecosystem and give advertisers exactly what they need. Our independence, which has long allowed us to integrate and connect across the advertising ecosystem, will continue to benefit our evolved measurement offering.

Innovid's ability to partner across advertisers, agencies and publishers and MVPDs means we have the opportunity to support an ecosystem where all sides of the trade can win, arming the industry with unbiased cross-platform analysis that drives greater transparency, accountability and trust between buyers and sellers.

We believe Innovid's foundation in ad serving and creative optimization capabilities also gives our measurement solution a huge competitive edge through our ability to measure all impressions served through our platform and to tie the measurement and outcomes directly to creative optimization. One month into the acquisition of TVSquared, we are already seeing positive signals of success. TVSquared's revenue has progressed in line with our expectations.

Our joint go-to-market teams are primed for action. We are pleased to have already consolidated our development teams into a single engineering global organization and integrated our ad-serving data into the TVSquared measurement platform. We are excited to provide our customers with robust, scalable and dependent platform to manage the increasingly complex and critical converged TV landscape.

With our independent currency-grade measurement platform powered by a global ad server and backed by what I believe to be some of the talented teams in the industry, we believe we will make a profound impact on our clients and continue to innovate and grow the CTV broader converged TV market.

I'd now like to build on the update we provided in our last conference call and share more details on the current and future development of our business. Like last time, I will provide these updates within the context of 4 growth drivers, which are: volume growth, product upsell, geographic coverage and client base retention and expansion.

Let's begin with volume growth. Innovid continues to benefit from the movement of eyeballs and spending from linear TV to CTV. Our focus on CTV innovation is what we believe has allowed our CTV video ad serving and personalization impressions to volume growth of 36% year-over-year to surpass the market according to eMarketer data. We have continued to invest in industry-wide partnerships to bolster our CTV leadership position and are pleased to have expanded our long-standing partnerships with NBCUniversal, who name Innovid as certified ad-serving partner in the certified measurement program, in addition to selecting our platform as the enabling infrastructure behind Peacock's new behavior-based sequential storytelling capabilities during Q1 of 2022.

As you may recall, we reported a 30.9% decline in year-over-year volume for the automotive category in Q4 of 2021. I'm very happy to report that we are seeing good signs of recovery in investment by the auto category to a similar level of spending that we saw in Q1 of 2021. As supply chain issues continue to resolve, we remain optimistic about the future growth of automotive category in terms of their TV spend.

Our second growth engine, product upsell, was fueled by growing adoption of personalization, interactive, creative experiences. As we previously mentioned, we also believe measurement will become a core driver of our product upsell strategy as we continue to integrate and expand the TVSquared offering into our platform.

Our third growth engine, geographic expansion. Our international revenue, measured as ads delivered outside of the U.S., grew 56% year-over-year in Q1 of 2022. The addition of TVSquared to our product portfolio is a critical step in expanding our international measurement footprint across 75-plus markets in our purview. TVSquared introduces a host of international clients and partners to our portfolio, while expanding our geographical footprint through the addition of a development center based on Edinburgh, Scotland.

And last but definitely not least, expanding our client base. During Q1 of 2022, we onboarded many advertisers and publishers onto our platforms. I'm extremely excited to share with you that this list also includes General Motors, one of the largest TV advertisers in the U.S., who has chosen Innovid to advance their video advertising efforts. Innovation is a core pillar for General Motors' forward-learning strategy, and we look forward to growing an evergreen partnership to innovate across converged TV opportunities. When asked about the challenges Innovid solves for General Motors, David Spencer, the Manager of Emerging Media and Partnerships at General Motors said, and I quote, "As we began to evaluate our current set of partners, we realize the need for an unbiased independent solutions that don't compromise on scale. Partnering with Innovid allowed us to build a clear path towards innovation within the converged TV space as well as the opportunity to build advanced video solutions." The continued support of our growing and loyal customer base is a strong signal of the strength of our underlying business.

On the identity front, we have not seen a material impact on our business from the ongoing updates around privacy, IRS changes and IDFA and do not anticipate a substantial impact at this point. We continue to help our customers manage identity through Innovid Key, our leading infrastructure approach to identity management.

In summary, the accelerating secular trends driving advertising-supported CTV viewership and Innovid's market-leading infrastructure and personalization capabilities, combined with our reinforced measurement offering in an expanding customer universe are what we believe sets Innovid for our next phase of growth. We are extremely optimistic about the future of Innovid.

I'll now turn it over to Tanya, who will go into greater detail regarding financial performance and expectations. Tanya?

Thank you, Zvika, and good morning, everyone. Let me start with a review of our first quarter results before discussing full year outlook.

In the first quarter of 2022, revenue increased by 44% year-over-year to $25.9 million on an as-reported basis. 9% of total quarterly revenue, $2.4 million, was attributed to TVSquared, following the acquisition closing on February 28, 2022. Revenue, excluding TVSquared, grew 30% year-over-year. CTV contributed 47% of this revenue, up from 44% in Q1 2021, demonstrating nearly 40% year-over-year growth. Mobile contributed 38% and desktop 15% of revenue and grew respectively 23% and 20% year-over-year when excluding TVSquared.

We expected the growth in CTV to continue to be our primary revenue driver and for the CTV segment to account for an increasing share of our revenue mix outside of our expanding converged TV measurement offering. Speaking about video impressions volume, CTV accounted for 49% of all video impression volume served by Innovid in Q1 2022, up from 46% in Q1 2021 and grew 36% year-over-year. Mobile increased 22% year-over-year and accounted for 38%. And desktop increased 20% and accounted for 13% of video impressions served by Innovid.

In terms of geographical breakdown, the U.S. is the main contributor to our revenue, accounting for 90% of total revenue and growing 42% year-over-year on as-reported basis. Our revenue outside of the U.S., including the APAC, EMEA and LATAM regions, currently represent 10% of total revenue, up from 9% in the first quarter of 2021. Our total international revenue grew 56% year-over-year on as-reported basis. As part of our growth strategy, we aim to expand our global presence, focusing on geographies poised for accelerated CTV growth.

Moving to costs. Gross profit in the first quarter was $19.5 million, a 38% year-over-year growth on as-reported basis. After completing the acquisition this quarter, our gross margins remain high at 75%, demonstrating a slight decrease from the gross margins of 79% in the first quarter of 2021.

Cost of revenue in the first quarter of 2022 has included $0.4 million of intangible asset amortization related to TVSquared technology, a primary reason for a slight year-over-year decrease in the gross margins.

Total operating expenses for Q1 were $29.3 million. $2.3 million in operating expenses were attributed to the inclusion of TVSquared operating results in the interim quarterly financials following the acquisition date. Approximately 38% of the increase in operating expenses compared to Q1 of 2021 was driven by stock-based compensation, a one-time acquisition-related and the SPAC transaction-related expenses. As we continue to invest in sales and marketing, R&D and talent to support our long-term growth goals and value creation, our operating expenses, excluding stock-based compensation, the SPAC transaction and acquisition-related expenses increased 66% year-over-year on as-reported basis.

Net loss in the first quarter was $7.4 million or EPS of negative $0.06. From the acquisition date through March 31, 2022, operating losses attributed to TVSquared were $1 million, inclusive of $0.5 million of intangible asset amortization.

The total common stock standing as of March 31, 2022, was 132.1 million.

Adjusted EBITDA for the first quarter was negative $3 million, representing a negative 12% adjusted EBITDA margin. A decrease in adjusted EBITDA from $0.4 million in Q1 2021 was driven by an increase in R&D and sales and marketing operational expenses, as well as G&A expenses addressing the needs of the new public company. Following the acquisition of TVSquared, our core business model remains strong with significant operating leverage and high gross margins.

Moving to our balance sheet. After the acquisition of TVSquared, our cash and cash equivalents ending balance on March 31, 2022, was $45.4 million, down from $156.7 million as of December 31, 2021. The purchase price for the acquisition was $100 million cash from our balance sheet and 11.5 million shares of Innovid and 950,000 fully vested stock options of the company, subject to the certain adjustments as defined in the stock purchase agreement.

Finally, I would like to go over our guidance. While in the first quarter of 2022, our business grew faster than we expected, the broader advertising market outlook in the current macroeconomical environment remains uncertain. And we hope to see improved visibility in the year as the year progresses. For the second quarter of 2022, we expect revenue to be in the range of $33 million to $35 million, reflecting 44% to 53% year-over-year growth on as-reported basis and 18% to 25% year-over-year growth on the pro forma basis.

We expect TVSquared contribution to the quarterly revenue to exceed $6 million. We expect adjusted EBITDA in the range of minus $3.5 million to minus $1.5 million. While we anticipate the ability to realize synergies from the TVSquared acquisition over time, we expect operating expenses to trend higher in the quarters following the acquisition and have reflected this in our second quarter EBITDA guidance.

For the full year of 2022, we are pleased to show that we are increasing our total expected revenue to be in the range of $135 million to $140 million, including TVSquared revenue. This guide reflects 50% to 55% year-over-year growth on as-reported basis and 24% to 29% year-over-year growth on a pro forma basis. We expect TVSquared contribution to our annual revenue to exceed $25 million. We remain confident in the previously provided guidance and continue to expect adjusted EBITDA for the full year, excluding TVSquared, to remain positive.

With that, I would like to hand the call back over to Zvika to take your questions.

Thank you, Tanya. Before we open the line for questions, I would like to take this opportunity to thank you all for joining us on this call. We started the year strong, energized and with solid performance, despite uncertain macrodynamics, and plan to continue to push forward, growing the Innovid business to the benefit of our customers and all TV viewers around the world. We are confident in our expansion into the broader converged TV measurement market through the acquisition of TVSquared, and we expect it to further propel our growth. Again, thank you for your time. And with that, we will open the line for questions. Operator, please go ahead.

(Operator Instructions) Our first question comes from the line of Andrew Boone with JMP Securities.

Just to start off, in terms of guidance, can you talk about the linearity within the quarter? Did you guys see any impact from the invasion of Ukraine that some of your other digital advertising peers have highlighted? And then secondly, as we think about the reopening and just consumption of CTV overall, can you talk about impressions per user? Are you seeing any change on the consumer side in terms of either watching less CTV and consuming less digital video? Anything there to help us try to understand whether there's any impact in terms of the reopening and consumption overall as it relates to impressions?

Thanks, Andrew. And again, thank you, everybody. So to the first quarter -- sorry, to the first question in terms of what we're seeing within the quarter, we're very excited that we started the year strong and above our expectations, actually. A lot of this has to do with the recovery in the auto industry and even the CPG. If you recall, we saw a drop in Q4, and just for the auto alone of about 39% -- sorry, 30.9% drop. And now as we reported, it's about flat year-over-year. So it's equal to Q1 of 2021, which while it's flat, it's a lot after the drop. So we're absolutely seeing recovery also in the CPG area, and we believe that to stay consistent. We cannot predict exactly how it evolves, but that causes us to be optimistic. And at the same time, there's still, as you alluded to, a lot of uncertainties coming from different macrodynamics. One is back to work and people are spending more time at work and outside of home from one side. Other economical and geopolitical forces.

So there's no -- just to explain, there's no specific -- the way the Innovid revenue is driven is by the volume of ads, right? So it's not necessarily directly connected to people spending more time or less time in general. For example, somebody spends more time or less time with Netflix, you will not see an impact on the advertising industry. So if anything, we're seeing more and more services like Disney Plus, even Netflix themselves talking about opening it up. So it's the availability of inventory of the amount of ads that are available for advertisers to buy. And for that, we have a certain -- pretty significant portion for our clients. So the more inventory they buy, the more volume we generate and the more revenue. So I would say that the main thing that can impact -- that impacts our revenue for up or down is the level of spend within CTV. And as everybody on this call know, that trend for moving budgets from linear to CTV is constantly going up into the right. It's not shrinking. And we expect this to continue for at least 5 to 10 years until all the TV dollars will move into CTV.

And if I can sneak one more in. Tal, I know you were at the NewFronts this last week. Can you just talk about your conversations with advertisers and how they've kind of developed, I guess, over the last few years and whether there is any change in terms of how advertisers are viewing CTV?

Thank you so much, Andrew. Thanks for the question. Yes. So we were -- first of all, we're very excited to take part in the IAB NewFronts for the first time. We're not selling media, but we're obviously taking a bigger and bigger part in the CTV market and specifically in the measurement side of it. So that was our participation. To your question about what do we hear from marketers, I feel like the main thing is that for many years, CTV was the emerging platform. And we're no longer in the place where CTV is an emerging one. It truly emerged. And marketers now look more than anything into a cross-media measurement platform. How do I look at everything holistically in order to quantify their spend. This is clearly the talk of the town, and we're, again, very excited with the TVSquared acquisition that we have a good answer for it.

Our next question comes from the line of Shweta Khajuria with Evercore ISI.

Two for me, please. First one is, could you perhaps talk about the opportunity in measurement that you called that out as one of your growth drivers? Help us with where you are today, what will accelerate that launch and the adoption of your measurement offerings and how you compare with perhaps the competition that there is out there? And the second one is fairly quick. You did address gross margin coming in light. Can you please repeat what drove that?

Thank you, Shweta. So obviously, as you can see, we made a big bet on measurement. And not -- we started 2 years ago investing in CTV measurement and insights. We hired a large team from Nielsen to do that. A year ago, we came to the realization to our customers that what they're looking for is not just the future of television, but all of television, what people refer to as converged TV measurement. Which means not just looking at how CTV performed, but actually, as I said earlier to Andrew's question, the money is moving from linear to CTV.

And that's going to take 5, 10 years, whatever, nobody knows exactly, but it's going to take a while. But for a very long time, people -- people, our customers, the largest brands and advertisers in the world are going to spend at the same time on linear and CTV, which is physically the same device on the same household, same audience, a lot of times same content, but through different infrastructure. So the gamble was we have to go in a way backwards and provide a solution both for linear and CTV into one single platform, and it was clear we cannot do this through our own development and we had to go out and acquire a company.

That process started more than a year ago, and actually going public was part of financing. And we did it literally 2 days after the IPO. We signed a friendship with TVSquared, and 2.5, 3 months later we closed. And now we're almost fully integrated also.

So the opportunity obviously is immense. And as you mentioned, I would say in the first quarter of the year, if we add our acquisition of TVSquared, there's probably more than $0.5 billion that went into investment or acquisition in the future of TV measurement. So we're not the only one that thinks there's a massive opportunity. I'm sure everybody here is aware of the kind of takeover of over Nielsen by PE.

So the concept of digitally delivering TV is dramatically disrupting how TV is being measured and I believe how TV will be paid for in the future. So obviously, we're not the only one that's seeing this. There's a lot of money flowing in that space. What's unique, why we believe we're set to succeed and win is because we're not just coming at it from a measurement perspective. We also have the ad server, which is an extremely sticky product that actually provides the exhaust, all the data sets for CTV measurement. And we have 100% control over that, and that's ours. We don't need to buy it from anybody else. We don't need to get it. We already have it.

And with TVSquared, where we acquired the linear data sets, we're putting this together now, and we believe we'll be in a full position, if not to be the #1. I don't think there will be a #1. I think there will be several players. Definitely to be one of the leading TV measurement past and future companies in the world. So that's on the first one. Tanya, you may want to take the gross margin questions.

Absolutely. I can address it, Zvika. Thank you. First of all, as you could see, I did address the marked change in the gross margin previously. What it's -- in Q1, our gross margin on a GAAP basis, so 75%. Following the acquisition, important to keep in mind that our profitability profile and gross margins remain strong. We do see impact in Q1 specifically, perhaps you will see down the road impact on certain accounting are measures on the gross margin. Specifically what I mentioned is that the gross margin in Q1 following the acquisition included $400,000 of intangible asset amortization related to TVSquared technology, and that the primary reason for the decline that you're seeing in Q1.

Our next question comes from the line of Daniel Salmon with BMO Capital.

Okay. Great. I have 2 questions. First, Zvika, in your comments, you said IDFA restrictions, other privacy headwinds not impacting you. I'm sorry if I missed it if it was in there, but does that include the loss of IP address as we see that moving out of the ecosystem more and more? Maybe just broadly, maybe expand a little bit on how IP address does or doesn't matter to Innovid and CTV advertising broadly. And then second, you closed on the TVSquared deal during the quarter. You laid out the opportunity. You're pursuing that very clearly already. And as you said, many people pursuing measurements. Not to be a bummer, but I think it was the day following that that Nielsen filed a lawsuit against TVSquared for patent infringement. As always, we know with active litigation, limited amount that you can comment specifically regarding it. But could you tell us a little bit more about whether that was expected, whether it was a surprise? Anything you could add would be great.

Yes. Tal, do you want to take the -- Tal's, my Co-Founder and our CTO is definitely the right person to talk about the IP addresses and anything else related to the infrastructure, and I'll take the patent question. Tal?

Sure. Thanks, Zvika. Thank you, Dan, for the question. So as Zvika noted in his prepared remarks, we don't see impact of IDFA in cooperation and other identity changes that is happening or privacy changes that are happening right now, or at least we don't see any headwinds because of that. To your question about IP address, we definitely use IP address in our products specifically around measurement, less around the ad server offering. However, A, we're in the early days of any changes that happened on IP address. And we don't think that Innovid is unique on that side, on the IT side. We're heavily working already together with many companies in the industry, the Trade Desk, LiveRamp and others on an alternative solution. And we're -- we think that we're leading the pack on a lot of the investment on alternative identifiers.

And on the -- by the way, it's not a bummer, Dan, your question about the --. It's called life. And we got dealing with life, and we'll get very at least continuing dealing with life and definitely with competition. I believe -- let me stick to the script first. We are at a very early stage in the process. Just so everybody knows, as you're right; somebody -- Nielsen waited for the closing. And it was literally a day after the closing; not after the announcement.

And to your question, no, to the best of our knowledge, this something was brand new both to the TVSquared team and definitely to the Innovid team. We're very early stage in the process, and we do not believe that Nielsen actually will be successful. And we have been advised -- I'm literally reading, right? We have several good grounds of challenging the validity of Nielsen's complaint and its alleged patent. Let's look at this as -- back to the is Innovid a significant contender on the measurement -- on the future of TV measurement? I think that's part of the answer.

Not -- what they did. They think the combination of the leading ad server for CTV plus the TV data set, the measurement combined together will very fast, and I'm talking months, few months, we'll bring to market what I believe is the only converged measurement system connected with the ad server, creative optimization. All that can fit to each other is a very unique combination that I'm not aware at this point exist in the industry in a single stack.

Maybe just one quick follow-up on that. Would you...

By the way, we finished the fact with our talk. So we'd love to take questions.

So just on that, would it be that you would see the new converged solution that you're able to roll out as something that would be directly competitive with Nielsen ONE?

We're not -- while they may be focusing on us, we're not focusing on them. We are focusing on our customers, right? We have some of the largest TV spenders in the world. Now GM, General Motors, one of the largest TV spender in the U.S., which I believe by the way was one of the -- if not the largest one on the Google DoubleClick platform, switching to Innovid. So there was a reason for that even before measurement.

And I think that's where the opportunity comes in. We have more and more large -- some I can name, some not, but 40% and growing from the top 200 advertisers that are in charge of 75% of the spend. So if we do the math and fast forward, it's going to be a very significant part of the TV spend in the U.S. is going to flow through the CTV side of things through our platform. That's a massive amount of data. That is a function that does not exist in either any of the contenders or measurement companies. They measure what happens over the air. They don't have the accuracy of delivering every single impression of TV advertising at this scale for our clients.

So when you connect the 2 data sets, you're creating something that's very unique. And our focus, we were first on interactive video and a lot of things for CTV. So it's less about replacing anything that somebody else has in market or plans to have in the market, and it's more creating products that our customers are literally designing it for us. They're telling us, "This is what I need to get. Go and get it for me." So we raise the money. We got it to them. We're putting it together. We'll put it in their hands, and if they like it, they'll buy more. We're not focusing on this or any other player. We want to lead the way ourselves.

Our next question comes from the line of Laura Martin with Needham.

I'd like to first follow up on an answer to give to Shweta's measurement question. So what you said is you bought TVSquared to get the database for linear because your clients for the next 5 to 10 years were going to be integrating CTV with linear. But you also said that over time, you think that all linear comes to digital. So by implication, does the acquisition you made at TVSquared become irrelevant over the 7- to 10-year frame because really we're moving to an all-digital world?

So, A, I'm not a person to -- all the smart people on this call probably have better thesis than I do on the future of how fast it will take. I would hope -- when we started Innovid, these past 5 years, we're 15 years later and it's probably 10%, 15%. So it's going to take a long time, which is good. 5, 10, 15, 20 years. So I definitely believe linear television, broadcast television is here to stay for a long time.

But technically, yes, at some point in the future, like almost all voice calls over the world right now are transitioning to over IP. Most of text is moving over IP. There's no reason in the world why any piece of video, including theatrical, will stay in an analog format like it is today. It will move to digital. So from a theoretical and actual perspective, absolutely it will all move to digital. And I guess that's why some of the companies that have been built on -- that have most of their revenue in the legacy world are very worried about the future. And that is going to take a long, long time.

So the idea was that it's almost think about it as a bridge. We're meeting our customers in the future in CTV and saying, guys, we still have 90% of our budget on the other side. We need you to provide a solution to that to help us make this transition and make smart decisions. What should we move, how we should move, what's the impact of what we're moving? And so that's the purpose of the acquisition.

Now in terms of -- it's not -- we didn't just buy data. Actually, some of the data is also licensed in the market. So it's not the data as much as the analysis of data and being able to put data sets together, understanding household data. We talked about IP, household IDs, connecting other data sets like demographics. And the third piece, which is extremely important, is outcomes.

So the core business of TVSquared without Innovid was understanding television, but then understanding outcomes and saying this was effective and this was not effective. We have customers like GoDaddy and Peloton, which are very performance-driven TV advertisers. Which eventually I think most -- a lot of television will be a question about VROI.

So we're getting that, plus we're getting the outcome components that we're now implementing across linear and CTV. So if you put this full picture in your mind, this will allow our customers to make smart decisions about how fast to move the budget, what to buy, where, when, which demographics, and to see what creative works, what creative doesn't work. Considering what's in market today, that's pretty futuristic. So I believe -- I'm very confident on the ROI we're going to get on this acquisition.

Okay. Great. That's helpful. Could you just remind us of the political impact on your P&L in the second half of the year? How does political affect your revenue upside?

Historically for Innovid, we're not focused on the political -- actually, I wouldn't say that the last election, we pulled back slightly from that even from the little we had. So it's not a huge area of focus for us. We're focusing the largest TV advertisers that are always on, and political is on and off. We may see some revenue through the TVSquared acquisition, because obviously it's related to performance, tracking website visitation, social stuff, app downloads and all that. So I expect to see some revenue through the measurement piece, but I would not say it's significant or that we're counting or banking on it.

(Operator Instructions) Our next question comes from the line of Shyam Patil with Susquehanna.

I had a couple of questions. First one, on the supply chain issues that you guys had talked about in your first -- or 4Q call, you guys sounded like in your prepared remarks that you kind of saw maybe less of a headwind from auto and CTV. I'm just curious if you could elaborate on kind of what you're seeing there. Was that a comps issue? Was it something else? Are you seeing recovery there? I'm just kind of curious what you're assuming for 2Q and the rest of the year. And then second question, on measurement, you guys have talked about this quite a bit already on the call. But do you think that you can move upmarket with TVSquared? How quickly do you think that can happen? And kind of combining kind of what you said, Zvika, already several times on the call, do you think combining their measurement with kind of your other data sets, given that you do ad serving, do you think that gives you kind of unique advantages to move upmarket and take share from some of the larger players?

Thanks, Shyam. So on the supply chain, this is obviously -- and since we -- as you can see, we surpassed the guidance. So the progress that we saw in Q1 is faster than we anticipated in terms of recovery. As we shared in Q4, it's not something that we have close control of it. This is the very senior executive decision to spend more or less on TV advertising within the brand marketers, our largest clients in the auto industry. So yes, we saw a significant year-over-year drop in Q4, almost 31%.

So moving back to -- from that to flat. So the level of volume that we saw from the other category in Q1 was similar to Q1 2021, which was, quote-unquote, pre-supply chain issues, if you remember that time. That's still COVID time. So this is a very interesting kind of environment we're operating in the last 2.5 years. So that definitely communicates optimism in terms of the side of the auto manufacturers that are coming back to spend on a similar levels of last year Q1. If you look at this as a trend, you can take that line and continue it.

At the same time, we want to continue to be cautious, given the macroenvironment. Putting aside for a second supply chain, we actually have a different environment that we all live in right now, and it's hard to predict how the rest of the year will evolve from that perspective. So if you put the 2 things together, that's why we kept our guidance, and we'll continue to monitor this closely. Specifically for auto category, the trend is very, very positive. So that's on the supply chain, similar to CPG, but CPG was more scattered.

We had some large CPGs that continued to spend, slightly less but continuing some drop dramatically in Q4. So we're definitely seeing recovery there, but it's almost more of a brand-by-brand basis. Auto was across the board. Whether you're an Innovid customer or not, we saw this everywhere. And also you saw it with other companies, of course.

And then in terms of the measurement component, we're now in the integration. Maybe I lost it, but when you said -- just to clarify, when you say upmarket, like what do you mean -- in what perspective? In terms of the type of clients, the type of product?

Yes. So the way I understood it was that TVSquared is more focused on kind of SMB-type advertisers. And your larger competitors get a lot of press. There's focus on seems like the largest advertisers and the larger publishers. And I was just curious if the combination now would -- if it's part of your strategy to move upmarket...

Absolutely. Absolutely. That's 100% of the move. I would say 2 things. First of all, the existing customer base is generating with TVSquared a segment, customer segment. And to share with the rest of the team who is maybe less in the details on TVSquared's core business, existing business, it's, as you said, in both SMBs, but also performance, very known brands that are more TV performance type advertisers.

They are looking for immediate clear ROI, less on the branding side, which created a very, very advanced self-service measurement platform. Because if you think about it, the performance customers are not like I'm going to run my head over the year and if someone will help. They're like, every cent needs to be accounted for. So from that perspective, we found the most advanced system in the market with self-service capabilities from a strategic -- so that's going to continue, and that's growing faster with Innovid. To be clear, it continues to grow faster to Innovid, and I expect to continue to see that with the existing customer base.

By the way, there's also a sell-side, customers like a Spectrum and Effectv and Sky. So there are very large MVPDs and publishers on the platform also using it to measure the performance of the campaigns for their customers. That all stuff, everything we're sharing, also the own non-organic stuff we shared, this is all coming from the TVSquared as-is business. To your point, 100%, that's the move. What we're doing now is we're training the, quote-unquote, legacy Innovid sales team, which is 100% focused on the top 200 advertisers and our account management team to take the converged product.

We already have all of our customers CTV data for the last 3, 4, 5 years. Linear is public information, so we have all the linear data of the same customers. So you can imagine putting this together and taking it to market, this could be a very compelling offering. That space, to your question, was the TV, advanced TV measurement of that space was -- we were not a player in there. Obviously, what we are doing right now, and I believe everybody else understanding, including people who file lawsuits, that's the play, right? That's exactly what we're doing as we speak.

Got it. I had one more, if I could sneak it in. Netflix, their announcement on -- or ambitions with AVOD, can you just talk about what are your -- I mean, you guys see a lot of different things. You guys have seen many, many walled gardens in CTV and kind of evolutions. And from your vantage point, what do you think this means for the industry? What do you think it means for you guys? Just would love to get your overall thoughts.

A, I would -- Tal, I'm sure you would love to take this one as a known rockstar speaker on the topic of AVOD and SVOD and everything in between.

Thank you very much, Zvika, and thank you very much. In regards to Netflix -- and I think I can combine a bunch of other announcements that were recently about big streaming platforms that are introducing an ad-supported package like Disney Plus and HBO are well on their way on doing that and Hulu and others. We think -- first of all, we think that this is the way of the future. Same way that television used to be a dual revenue model, streaming will be the same. And the second part is, it's obviously very much aligned with the strategy of Innovid is that tremendous media and good content will be ad-supported. And our job is to create a platform that allows marketers to enjoy that and essentially use technology to battle fragmentation. So more players are inevitable. This is very much aligned with our offering.

Just going to add one more thing, specifically with Disney Plus and maybe Netflix coming out with advertising. We think with those players, we will see much more investment in better ad products as those companies historically really invested in user experience and innovating on what are the viewers -- the viewing experience part. This is very much aligned with what we have been doing in echoing for many years with our personalization and advanced creative products invested in better user experience around that. And we think that this would be a great tailwind for all of that.

Ladies and gentlemen, we've reached the end of the question-and-answer session. I will now turn the call over to CEO and Co-Founder, Zvika Netter for closing remarks.

Thanks, Alex. Thank you, everybody. Before we sign off, I'd like to take a moment and thank, first of all, for all of you for your time and great question. And a personal note, I have to say that this is -- from all the 3 months, this is the part I'm waiting for the most. Not the recording as much as the live Q&A and looking forward to continue to talk with many of you in the next coming months. Huge thank you also to our customers, our partners.

We heard about a lot of them and their trust and support in Innovid, but most of all to our really phenomenal teams. I believe we have some of the best teams in the world, in the business, in our business in the advertising tech. The relentless drive and commitment to excellence is kind of what got us here through ups and downs. And as you can see now a really strong and great quarter, we started the year strong.

I believe as far as it comes to Innovid internal KPIs, new logos, new product innovation announcement, partnerships, upselling, retention, I expect to see a very strong year. No matter -- from the internal KPIs obviously will be affected like everybody else from macroeconomic situation. But extremely passionate and bullish and more to come there. 5, 10 years, 20 years, there's a lot more that's coming ahead of us. This is practically day 1 or day 2 of the journey here. So thank you so much. Have a lovely day and a great weekend, and see you soon. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.