UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

____________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended ~~September~~June 30, ~~2022~~2023


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to

Commission file number 001-40048

____________________________

Innovid Corp.

(Exact name of registrant as specified in its charter)

____________________________


Delaware						87-3769599
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)
30 Irving Place, 12th Floor New York, New York						10003
(Address of Principal Executive Offices)						(Zip Code)

+1 (212) 966-7555

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	CTV	New York Stock Exchange
Warrants to purchase one share of Common stock, each at an exercise price of $11.50 per share	CTVWS	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large, accelerated filer	¨	Accelerated filer	¨x
Non-accelerated filer	x¨	Smaller reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The registrant had outstanding ~~133,650,579~~139,303,254 shares of common stock as of ~~November 10, 2022.~~August 4, 2023.

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TABLE OF CONTENTS

~~Table of Contents~~

~~BASIS OF PRESENTATION~~

~~Unless otherwise stated in this prospectus or the context otherwise requires:~~

~~“Advertising Services” means ad serving, creative and measurement services;~~

~~“APAC” means Asia-Pacific region.~~

~~“Acquisition date” means the completion of the acquisition of TVS on February 28, 2022;~~

~~“CEO” means Chief Executive Officer.~~

~~“CFO” means Chief Financial Officer.~~

~~“Closing” means the closing of the Transaction.~~

~~“Common stock” means Innovid common stock, par value $0.0001 per share;~~

~~“Company,” “we,” “us” and “our” refers to Innovid Corp. and its subsidiaries.~~

~~“COVID-19” means the novel coronavirus which began in 2019;~~

~~“CTV” means connected TV.~~

~~“EMEA” means Europe, the Middle East and Africa region.~~

~~“Forward Purchase Agreements” means the forward purchase agreements entered into, or amended and restated, by ION on January 26, 2021;~~

~~“US GAAP” means accounting principles generally accepted in the United States of America.~~

~~“Innovid” or “Innovid Corp.” means Innovid Corp., a Delaware corporation.~~

~~“Innovid Inc.” or “Legacy Innovid” means Innovid, Inc., a Delaware corporation.~~

~~“ION” means ION Acquisition Corp 2 Ltd. prior to the Transaction.~~

~~“ION IPO” means ION’s initial public offering that was consummated on February 16, 2021.~~

~~“JOBS Act” means the Jumpstart Our Business Startups Act of 2012.~~

~~“LATAM” means Latin American region.~~

~~“Legacy Plan” means Legacy Innovid’s stock option plan.~~

~~“Merger Agreement” means the Agreement and Plan of Merger dated June 24, 2021, by and among ION, Innovid, Inc., Merger Sub 1 and Merger Sub 2;~~

~~“Merger Sub 1” means Inspire Merger Sub 1, Inc., a Delaware corporation and a direct wholly owned subsidiary of ION.~~

~~“Merger Sub 2” means Inspire Merger Sub 2, LLC, a Delaware Limited Liability Company and a direct wholly owned subsidiary of ION.~~

~~“Mergers” mean Merger 1 and Merger 2, collectively, of Merger Sub 1 and Merger Sub 2, respectively.~~

~~“NYSE” means the New York Stock Exchange.~~

“Nielsen Claim” a lawsuit filed in the United States District Court for the Western District of Texas on March 4, 2022, by Nielsen, LLC suit against TVS alleging infringement of US Patent No. 10,063,378.

“PIPE Financing” means the purchase of shares of our common stock pursuant to the Subscription Agreements, and the purchase of shares of our common stock and warrants pursuant to the Forward Purchase Agreements.

~~Table of Contents~~

~~“PIPE Investment” means the issuance and sale of $200,000,000 of common stock in a private placement to the PIPE Investors pursuant to the Subscription Agreements.~~

~~“PIPE Investors” mean those certain investors participating in the PIPE Financing pursuant to the Subscription Agreements and the Forward Purchase Agreements.~~

“Private Placement Warrants” means warrants which were not transferable, assignable or salable until 30 days after the completion of the Transaction and exercisable on a cashless basis and non-redeemable so long as they are held by the initial purchaser or its permitted transferees.

~~“SEC” means the United States Securities and Exchange Commission.~~

~~“SSIG” means the Special Situations Investing Group II, LLC.~~

~~“SSP” means stand-alone selling price.~~

“Subscription Agreements” means the subscription agreements dated June 24, 2021, the “Initial Subscription Agreements” and October 18, 2021 the “Additional Subscription Agreements” pursuant to which (together with the Forward Purchase Agreements) the PIPE Financing will be consummated;

~~“Transaction” means the Mergers and the related transactions contemplated by the Merger Agreement.~~

~~“TVSquared” or “TVS” means TV Squared Limited.~~

~~“US” means United States of America.~~

“warrants” means the redeemable warrants (including those that underlie the units) that were offered and sold by ION in its initial public offering and registered pursuant to the IPO registration statement or the redeemable warrants of Innovid Corp. issued as a matter of law upon the conversion thereof following the Transaction, as context requires.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements include, without limitation, statements relating to expectations for future financial performance, business strategies or expectations for our business. These statements are based on the beliefs and assumptions of the management of Innovid. Although Innovid believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, it cannot assure you that it will achieve or realize these plans, intentions or expectations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Form 10-Q, words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strive,” “target,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

Should one or more of ~~several~~a number of known and unknown risks and uncertainties materialize, or should any of our assumptions prove incorrect, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. ~~You should therefore not place undue reliance on these forward-looking statements.~~ Some factors that could cause actual results to differ include, but are not limited to:

• our public securities’ potential liquidity and ~~trading.~~trading;

• our ability to raise financing in the ~~future.~~future;

• our success in retaining or recruiting, or changes required in, our officers, key employees or ~~directors.~~directors;

• changes in applicable laws or ~~regulations.~~regulations;

• our ability to maintain and expand relationships with ~~advertisers.~~advertisers;

• decreases and/or changes in CTV audience viewership ~~behavior.~~behavior;

• Innovid’s ability to make the right investment decisions and to innovate and develop new ~~solutions.~~solutions;

• the accuracy of Innovid’s estimates of market opportunity, forecasts of market growth and projections of future financial ~~performance.~~performance;

• the extent of investment required in Innovid’s sales and marketing ~~efforts.~~efforts;

• Innovid’s ability to effectively manage its ~~growth.~~growth;

• sustained overall demand for ~~advertising.~~advertising;

• the impact of the COVID-19 ~~related supply chain issues and an increased rate of inflation.~~pandemic;

• the continued acceptance of digital advertising by consumers and the impact of opt-in, opt-out or ad-blocking ~~technologies.~~technologies;

• Innovid’s ability to scale its platform and infrastructure to support anticipated growth and transaction ~~volume.~~volume;

• the impact of increasing competition in the digital advertising space, including with competitors who have significantly more ~~resources.~~resources;

• other risks and uncertainties indicated in this report, including those set forth under the section titled “Risk Factors” and those incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022 (the “2022 Annual Report on Form 10-K”), which was filed with the ~~SEC~~Securities and Exchange Commission (“SEC”) on March ~~18, 2022 (the “2021 Annual Report”) as updated in later SEC filings, including those set forth under the section titled “Risk Factors.”~~3, 2023.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q 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 ~~because~~as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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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.

WHERE TO FIND MORE INFORMATION

Our website address is www.innovid.com. We may use our website as a means of disclosing material non-public information. Such disclosures will be included on our website in the “Investors” section or at investors.innovid.com. We may also use certain social media channels, such as LinkedIn, Facebook or Twitter, as a means of disclosing information about us and our business to our colleagues, customers, investors and the public. While not all of the information that the Company posts to the Innovid website or to social media accounts is of a material nature, some information could be deemed to be material. Accordingly, investors should monitor our website and certain of our social media channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. However, information contained on, or that can be accessed through, these communications channels do not constitute a part of this Quarterly Report and are not incorporated by reference herein. Our SEC filings are available to you on the SEC’s website at http://www.sec.gov. This site contains reports and other information regarding issuers that file electronically with the SEC. The information on that website is not part of this Quarterly Report and is not incorporated by reference herein.

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Part I

Item 1. Financial Statements

INNOVID, CORP. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except stock and per stock data)


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
CURRENT ASSETS:
Cash and cash equivalents	Cash and cash equivalents	$	46,509	$	156,696	Cash and cash equivalents	$	43,384	$	37,541
Trade receivables, net (allowance for doubtful accounts of $69 and $81 at September 30, 2022 and December 31 2021, respectively)		40,223		35,422
Short-term bank deposits						Short-term bank deposits	—		10,000
Trade receivables, net (allowance for credit losses of $330 and $65 at June 30, 2023, and December 31, 2022, respectively)						Trade receivables, net (allowance for credit losses of $330 and $65 at June 30, 2023, and December 31, 2022, respectively)	43,238		43,653
Prepaid expenses and other current assets	Prepaid expenses and other current assets	3,812		3,131		Prepaid expenses and other current assets	4,123		2,640
Total current assets	Total current assets	90,544		195,249		Total current assets	90,745		93,834
NON-CURRENT ASSETS:
Long-term deposit	Long-term deposit	310		310		Long-term deposit	260		277
Long-term restricted deposits	Long-term restricted deposits	406		462		Long-term restricted deposits	396		430
Property and equipment, net	Property and equipment, net	11,719		4,840		Property and equipment, net	18,959		14,322
Goodwill	Goodwill	114,678		4,555		Goodwill	102,473		116,976
Intangible assets, net	Intangible assets, net	34,206		—		Intangible assets, net	27,659		29,918
Operating lease right of use asset	Operating lease right of use asset	3,217		—		Operating lease right of use asset	2,008		2,910
Other non-current assets	Other non-current assets	795		116		Other non-current assets	834		938
Total non-current assets	Total non-current assets	165,331		10,283		Total non-current assets	152,589		165,771
TOTAL ASSETS	TOTAL ASSETS	$	255,875	$	205,532	TOTAL ASSETS	$	243,334	$	259,605

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables	Trade payables	2,950		5,026		Trade payables	4,421		3,361
Employees and payroll accruals	Employees and payroll accruals	10,682		7,742		Employees and payroll accruals	10,969		10,165
Lease liabilities - current portion						Lease liabilities - current portion	1,611		2,186
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	6,573		3,082		Accrued expenses and other current liabilities	5,194		5,474
Current portion of long-term debt		—		6,000
Lease liabilities - current portion		1,904		—
Total current liabilities	Total current liabilities	22,109		21,850		Total current liabilities	22,195		21,186
NON-CURRENT LIABILITIES:
Long-term debt	Long-term debt	15,000		—		Long-term debt	20,000		20,000
Lease liabilities - non-current portion	Lease liabilities - non-current portion	2,279		—		Lease liabilities - non-current portion	1,081		1,636
Other non-current liabilities	Other non-current liabilities	3,918		3,455		Other non-current liabilities	9,461		6,554
Warrants liability	Warrants liability	7,590		18,972		Warrants liability	1,022		4,301
Total non-current liabilities	Total non-current liabilities	28,787		22,427		Total non-current liabilities	31,564		32,491
TOTAL LIABILITIES	TOTAL LIABILITIES	50,896		44,277		TOTAL LIABILITIES	53,759		53,677
COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)	COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)					COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)
STOCKHOLDERS’ EQUITY:
Common stock of $0.0001 par value - Authorized: 500,000,000 at September 30, 2022 and December 31, 2021; Issued and outstanding: 133,492,514 and 119,017,380 at September 30, 2022 and December 31, 2021, respectively		13		12
Common stock: $0.0001 par value - Authorized: 500,000,000 at June 30, 2023, and December 31, 2022; Issued and outstanding: 138,737,104 and 133,882,414 at June 30, 2023, and December 31, 2022, respectively						Common stock: $0.0001 par value - Authorized: 500,000,000 at June 30, 2023, and December 31, 2022; Issued and outstanding: 138,737,104 and 133,882,414 at June 30, 2023, and December 31, 2022, respectively	13		13
Additional paid-in capital	Additional paid-in capital	352,423		293,719		Additional paid-in capital	367,970		356,801
Accumulated deficit	Accumulated deficit	(147,457)		(132,476)		Accumulated deficit	(178,408)		(150,886)
Total stockholders’ equity	Total stockholders’ equity	204,979		161,255		Total stockholders’ equity	189,575		205,928
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	255,875	$	205,532	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	243,334	$	259,605

The accompanying notes are an integral part of the condensed consolidated financial statements.

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INNOVID, CORP. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except stock and per stock data)


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Revenues	Revenues	$	34,469	$	23,469	$	93,419	$	64,324	Revenues	$	34,546	$	33,088	$	65,031	$	58,950
Cost of revenues (1)	Cost of revenues (1)	8,534		4,548		21,811		12,359		Cost of revenues (1)	8,591		7,351		16,856		13,277
Research and development (1)	Research and development (1)	7,312		5,342		24,276		16,698		Research and development (1)	6,876		9,710		13,993		16,964
Sales and marketing (1)	Sales and marketing (1)	13,726		8,689		38,397		23,366		Sales and marketing (1)	11,460		14,320		23,097		24,671
General and administrative (1)	General and administrative (1)	9,046		3,982		30,456		10,561		General and administrative (1)	8,924		9,955		18,574		21,410
Depreciation, amortization and impairment		1,882		156		3,481		487
Operating (loss) profit		(6,031)		752		(25,002)		853
Finance expenses (income), net		4,962		707		(10,655)		3,878
(Loss) profit before taxes		(10,993)		45		(14,347)		(3,025)
Depreciation and amortization										Depreciation and amortization	2,064		926		4,094		1,599
Goodwill impairment										Goodwill impairment	14,503		—		14,503		—
Operating loss										Operating loss	(17,872)		(9,174)		(26,086)		(18,971)
Finance income, net										Finance income, net	(248)		(13,306)		(2,723)		(15,617)
Loss before taxes										Loss before taxes	(17,624)		4,132		(23,363)		(3,354)
Taxes on income	Taxes on income	839		304		634		829		Taxes on income	1,335		(168)		4,159		(205)
Net loss		(11,832)		(259)		(14,981)		(3,854)
Net (loss) income										Net (loss) income	(18,959)		4,300		(27,522)		(3,149)

Accretion of preferred stock to redemption value		—		(8,189)		—		(52,993)
Net loss attributable to common stockholders		$	(11,832)	$	(8,448)	$	(14,981)	$	(56,847)
Net loss per stock attributable to common stockholders (2)
Net (loss) income attributable to common stockholders										Net (loss) income attributable to common stockholders	$	(18,959)	$	4,300	$	(27,522)	$	(3,149)
Net (loss) income per stock attributable to common stockholders										Net (loss) income per stock attributable to common stockholders
Basic	Basic	$	(0.09)	$	(0.45)	$	(0.12)	$	(4.32)	Basic	$	(0.14)	$	0.03	$	(0.20)	$	(0.02)
Diluted	Diluted	$	(0.09)	$	(0.45)	$	(0.12)	$	(4.32)	Diluted	$	(0.14)	$	0.03	$	(0.20)	$	(0.02)
Weighted-average number of stock used in computing net loss per stock attributable to common stockholders (2)
Weighted-average number of stock used in computing net (loss) income per stock attributable to common stockholders										Weighted-average number of stock used in computing net (loss) income per stock attributable to common stockholders
Basic	Basic	132,959,511		18,849,710		129,768,724		13,157,022		Basic	137,643,910		132,152,652		134,296,569		128,220,893
Diluted	Diluted	132,959,511		18,849,710		129,768,724		13,157,022		Diluted	137,643,910		139,988,123		134,296,569		128,220,893

The accompanying notes are an integral part of the condensed consolidated financial statements.

(1) Exclusive of depreciation, amortization and ~~amortization~~goodwill impairment presented separately.

(2) Prior period results have been adjusted to reflect the exchange of Innovid Inc’s common stock for Innovid Corp’s common stock at an exchange ratio of approximately 1.337 because of the Transaction. See Note 3 for further details.

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INNOVID, CORP. AND ITS SUBSIDIARIES CONDENSED STATEMENTS OF CHANGES IN ~~TEMPORARY EQUITY AND~~ STOCKHOLDERS’ EQUITY ~~(DEFICIT)~~

(In thousands, except stock data)


		Temporary equity			Common stock			Treasury stock			Additional paid-in capital				Accumulated deficit				Total stockholders’ equity (deficit)
		Number	Amount		Number	Amount		Number	Amount

Balance as of December 31, 2020,		73,690,340	$	86,997	16,275,609	$	2	1,914,328	$	(1,629)			$	10			$	(48,113)				$	(49,730)
Accretion of preferred stock to redemption value		—	23,728		—	—		—	—		(586)				(23,142)				(23,728)
Stock-based compensation		—	—		—	—		—	—		280				—				280
Stock options exercised		—	—		761,697	—		—	—		306				—				306
Net loss		—	—		—	—		—	—		—				(1,936)				(1,936)
Balance as of March 31, 2021 (unaudited)		73,690,340	110,725		17,037,306	2		1,914,328	(1,629)		10				(73,191)				(74,808)
Accretion of preferred stock to redemption value		—	21,076		—	—		—	—		(1,500)				(19,576)				(21,076)
Stock-based compensation		—	—		—	—		—	—		1,440				—				1,440
Stock options exercised		—	—		1,281,999	—		—	—		61				—				61
Net loss		—	—		—	—		—	—		—				(1,659)				(1,659)
Balance as of June 30, 2021 (unaudited)		73,690,340	131,801		18,319,305	2		1,914,328	(1,629)		11				(94,426)				(96,042)
Accretion of preferred stock to redemption value		—	8,189		—	—		—	—		(1,105)				(7,084)				(8,189)
Stock-based compensation		—	—		—	—		—	—		591								591
Stock options exercised		—	—		766,664	—		—	—		513								513
Net loss		—	—		—	—		—	—						(259)				(259)
Balance as of September 30, 2021 (unaudited)		73,690,340	$	139,990	19,085,969	$	2	1,914,328	$	(1,629)	$	10			$	(101,769)			$	(103,386)

		Temporary equity			Common stock			Treasury stock			Additional paid-in capital				Accumulated deficit				Total stockholders’ equity						Common stock			Additional paid-in capital		Accumulated deficit	Total stockholders’ equity
		Number	Amount		Number	Amount		Number	Amount																Number	Amount
Balance as of December 31, 2021	Balance as of December 31, 2021	—	—		119,017,380	$	12	—	—				$	293,719			$	(132,476)				$	161,255	Balance as of December 31, 2021						119,017,380	$	12					$	293,719	$	(132,476)	$	161,255
Common stock and equity awards issued for acquisition of TVS	Common stock and equity awards issued for acquisition of TVS	—	—		11,549,465	1		—	—		47,151				—				47,152		Common stock and equity awards issued for acquisition of TVS						11,549,465			1					47,151		—		47,152
Stock-based compensation	Stock-based compensation	—	—		—	—		—	—		1,496				—				1,496		Stock-based compensation						—	—					1,496		—		1,496
Stock options exercised	Stock options exercised	—	—		1,521,927	—		—	—		462				—				462		Stock options exercised						1,521,927	—					462		—		462
Net loss	Net loss	—	—		—	—		—	—		—				(7,449)				(7,449)		Net loss						—	—					—		(7,449)		(7,449)
Balance as of March 31, 2022 (unaudited)	Balance as of March 31, 2022 (unaudited)	—	—		132,088,772	13		—	—		342,828				(139,925)				202,916		Balance as of March 31, 2022 (unaudited)						132,088,772	$	13				$	342,828	$	(139,925)	$	202,916
Stock-based compensation	Stock-based compensation	—	—		—	—		—	—		4,628				—				4,628		Stock-based compensation						—	—					4,628		—		4,628
Stock options exercised	Stock options exercised	—	—		322,943	—		—	—		174				—				174		Stock options exercised						322,943	—					174		—		174
Net profit		—	—		—	—		—	—		—				4,300				4,300
Net income																					Net income						—	—					—		4,300		4,300
Balance as of June 30, 2022 (unaudited)	Balance as of June 30, 2022 (unaudited)	—	—		132,411,715	13		—	—		347,630				(135,625)				212,018		Balance as of June 30, 2022 (unaudited)						132,411,715	$	13				$	347,630	$	(135,625)	$	212,018

																									Common stock			Additional paid-in capital		Accumulated deficit	Total stockholders’ equity
																											Number						Amount
Balance as of December 31, 2022																					Balance as of December 31, 2022						133,882,414	$	13				$	356,801	$	(150,886)	$	205,928
Stock-based compensation	Stock-based compensation	—	—		—	—		—	—		4,612				—				4,612		Stock-based compensation						—	—					4,897		—		4,897
Stock options and RSUs exercised		—	—		1,080,799	—		—	—		181				—				181
Stock options exercised and RSUs vested																					Stock options exercised and RSUs vested						2,734,320	—					250		—		250
Net loss	Net loss	—	—		—	—		—	—		—				(11,832)				(11,832)		Net loss						—	—					—		(8,563)		(8,563)
Balance as of September 30, 2022 (unaudited)		—	—		133,492,514	$	13	—	—		$	352,423			$	(147,457)			$	204,979
Balance as of March 31, 2023 (unaudited)																					Balance as of March 31, 2023 (unaudited)						136,616,734	$	13				$	361,948	$	(159,449)	$	202,512
Stock-based compensation																					Stock-based compensation						—	—					5,658		—		5,658
Stock options exercised and RSUs vested																					Stock options exercised and RSUs vested						2,120,370	—					364		—		364
Net loss																					Net loss						—	—					—		(18,959)		(18,959)
Balance as of June 30, 2023 (unaudited)																					Balance as of June 30, 2023 (unaudited)						138,737,104	$	13				$	367,970	$	(178,408)	$	189,575

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

INNOVID, CORP. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except stock and per stock data)


		Nine months ended September 30,					Six Months Ended June 30, 2023
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:	(Unaudited)		(Unaudited)		Cash flows from operating activities:	(Unaudited)		(Unaudited)
Net loss	Net loss	$	(14,981)	$	(3,854)	Net loss	$	(27,522)	$	(3,149)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairment		3,481		487
Depreciation and amortization						Depreciation and amortization	4,094		1,599
Goodwill impairment						Goodwill impairment	14,503		—
Stock-based compensation	Stock-based compensation	9,956		2,311		Stock-based compensation	9,865		5,634
Change in fair value of warrants	Change in fair value of warrants	(11,382)		3,191		Change in fair value of warrants	(3,279)		(15,946)

Changes in operating assets and liabilities	Changes in operating assets and liabilities					Changes in operating assets and liabilities
(Increase)/ decrease in trade receivables, net		(1,294)		581
(Increase)/ decrease in prepaid expenses and other current assets		514		(1,587)
Increase/ (decrease) in trade payables		(1,032)		710
Decrease / (increase) in trade receivables, net						Decrease / (increase) in trade receivables, net	415		(4,624)
Increase in prepaid expenses and other current assets						Increase in prepaid expenses and other current assets	(1,390)		(747)
Decrease in operating lease right of use assets	Decrease in operating lease right of use assets	1,332		—		Decrease in operating lease right of use assets	902		872
Increase / (decrease) in trade payables						Increase / (decrease) in trade payables	1,060		(321)
Increase in employees and payroll accruals	Increase in employees and payroll accruals	2,227		355		Increase in employees and payroll accruals	804		1,044
Decrease in operating lease liabilities	Decrease in operating lease liabilities	(1,782)		—		Decrease in operating lease liabilities	(1,130)		(1,208)
Increase in accrued expenses and other current liabilities	Increase in accrued expenses and other current liabilities	2,872		852		Increase in accrued expenses and other current liabilities	2,626		945
Net cash (used in)/ provided by operating activities		(10,089)		3,046
Net cash provided by / (used in) operating activities						Net cash provided by / (used in) operating activities	948		(15,901)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisition of business, net of cash acquired	Acquisition of business, net of cash acquired	(99,568)		—		Acquisition of business, net of cash acquired	—		(99,568)
Internal use software capitalization	Internal use software capitalization	(6,975)		(1,049)		Internal use software capitalization	(5,591)		(3,516)
Purchase of property and equipment	Purchase of property and equipment	(282)		(378)		Purchase of property and equipment	(189)		(221)
Founders' note receivable		—		(459)
Decrease (increase) in deposits		38		(58)
Net cash used in investing activities		(106,787)		(1,944)
Withdrawal of short-term bank deposits						Withdrawal of short-term bank deposits	10,000		—
Increase in deposits						Increase in deposits	27		32
Net cash provided by / (used in) investing activities						Net cash provided by / (used in) investing activities	4,247		(103,273)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repayment of acquisition liability		—		(126)
Proceeds from loans	Proceeds from loans	9,000		—		Proceeds from loans	10,000		9,000
Repayment of loans	Repayment of loans	—		(3,033)		Repayment of loans	(10,000)		—
Payment of SPAC merger transaction costs	Payment of SPAC merger transaction costs	(3,185)		—		Payment of SPAC merger transaction costs	—		(3,185)
Proceeds from exercise of options	Proceeds from exercise of options	817		882		Proceeds from exercise of options	614		636
Net cash (used in)/ provided by financing activities		6,632		(2,277)
Decrease in cash, cash equivalents and restricted cash		(110,243)		(1,175)
Cash, cash equivalents and restricted cash at the beginning of the period		157,158		16,092
Cash, cash equivalents and restricted cash at the end of the period		$	46,915	$	14,917
Net cash provided by financing activities						Net cash provided by financing activities	614		6,451
Increase (decrease) in cash, cash equivalents, and restricted cash						Increase (decrease) in cash, cash equivalents, and restricted cash	5,809		(112,723)
Cash, cash equivalents, and restricted cash at the beginning of the period						Cash, cash equivalents, and restricted cash at the beginning of the period	37,971		157,158
Cash, cash equivalents, and restricted cash at the end of the period						Cash, cash equivalents, and restricted cash at the end of the period	$	43,780	$	44,435
Supplemental disclosure of cash flows activities:	Supplemental disclosure of cash flows activities:					Supplemental disclosure of cash flows activities:
(1) Cash paid during the period for:	(1) Cash paid during the period for:					(1) Cash paid during the period for:
Income taxes paid, net of tax refunds	Income taxes paid, net of tax refunds	$	727	$	216	Income taxes paid, net of tax refunds	$	879	$	363
Interest	Interest	$	371	$	189	Interest	$	782	$	137
(2) Non-cash transactions:	(2) Non-cash transactions:					(2) Non-cash transactions:

Business combination consideration paid in stock	Business combination consideration paid in stock	$	47,152	$	—	Business combination consideration paid in stock	$	—	$	47,152
Accretion of preferred stock to redemption value		—		$	52,993
Deferred offering cost included in accrued liabilities		—		$	2,406
Reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets	Reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets					Reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets
Cash and cash equivalents	Cash and cash equivalents	46,509		14,472		Cash and cash equivalents	43,384		44,024
Long-term restricted deposits	Long-term restricted deposits	406		445		Long-term restricted deposits	396		411
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	46,915	$	14,917	Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	43,780	$	44,435

The accompanying notes are an integral part of the condensed consolidated financial statements.

~~Table of Contents~~

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

~~NOTE 1: - OVERVIEW~~1. DESCRIPTION OF BUSINESS

Innovid Corp. together with its consolidated subsidiaries, the “Company” or “Innovid”, is a leading independent software platform that provides an ad serving and creative ~~services~~personalization platform for the creation, delivery, and measurement of TV ads across connected TV (“CTV”), mobile TV and desktop TV environments to advertisers, publishers and media agencies.

Innovid Corp. was originally incorporated as ION Acquisition Corp. 2 Ltd. (“ION”), a special purpose acquisition company, ~~in Cayman Islands~~ on November 23, ~~2020.~~

On2020 and Innovid Corp. was the surviving entity following the completion of its merger with ION on November 30, 2021 ~~ION and Innovid Inc. (“Legacy Innovid”) closed the transaction as described below~~ (the ~~“Transaction”~~“ION Transaction”). ~~Through several merges and name change Innovid Corp. was established and continues Legacy Innovid operating activity.~~

On November 30, 2021, ION consummated a series of merger transactions (the “Mergers”), whereby it acquired the business of Legacy Innovid. Immediately following the Mergers, ION changed its name to “Innovid Corp.” In addition, ION entered into certain subscription agreements (“PIPE Investment”). Further, in connection with the Closing, PIPE investors purchased equity securities of Legacy Innovid Stockholders (the “Secondary Sale Transaction”) for an aggregate purchase price of $68,855 (the “Secondary Sale Amount”). See Note 3 for further details.

On February 28, 2022, the Company completed the acquisition of ~~all outstanding shares~~ TV Squared Limited (“TVS”, together with ION’s Transaction, the “Transactions”) by way of ~~TVSquared~~stock purchase agreement (“~~TVS”~~Stock Purchase Agreement”)~~, an independent global measurement and attribution platform for converged TV and a private company limited by shares incorporated under the laws of the Scotland.~~. The Company acquired all of the equity of TVSquared for an aggregate amount of $100,000 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 ~~option~~options of the Company at a weighted average fair value of $3.49, subject to certain adjustments as defined in the Stock Purchase Agreement. ~~See Note 3 for further details.~~

~~The Company~~Innovid Corp.’s common stock and warrants ~~commenced~~are trading on the NYSE under the symbols “CTV” and ~~“CTVWS,~~“CTV.WS,” respectively, onsince December 1, 2021.

~~Innovid Corp. has subsidiaries in the US, Israel, Argentina, the UK, Germany and Australia.~~

~~NOTE 2: -~~2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~(a)~~Basis of ~~presentation:~~Presentation

The unaudited interim condensed consolidated financial statements have been prepared in accordance with US GAAP. 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”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair ~~presentation have been included.~~presentation. The Company’s interim period results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year.

The condensed consolidated balance sheet onas of December 31, ~~2021,~~2022, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in the Company’s ~~2021~~2022 Annual Report on Form 10-K.

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, ~~2021,~~2022, have been applied consistently in these unaudited interim condensed consolidated financial statements, unless otherwise stated.

~~Table of Contents~~

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

~~(b)Prior period reclassification:~~

During the second quarter of 2022, we presented depreciation and amortization expenses as a separate line item on our condensed consolidated statements of operations and all prior periods have been adjusted. Depreciation and amortization expenses were previously included in cost of sales and other operating expenses depending on the underlying asset’s function. Additionally, we no longer present gross profit as a subtotal on our condensed consolidated statements of operations.

The reclassification is to better reflect the financial performance of transactions with customers as our business has evolved and include our most recent acquisition. The change provides more clarity about changes in cost of revenue and other operating expenses exclusive of depreciation and amortization, and better align with how our peers and competitors present their financial statements.

In accordance with US GAAP, all periods presented below have been retrospectively adjusted to reflect the reclassification of cost of revenue and other operating expenses exclusive of depreciation and amortization. There was no net impact to loss from operations, net loss attributable to common stockholders or net loss per stock for any periods presented. The condensed consolidated balance sheets, condensed statements of changes in temporary equity and stockholders’ equity (deficit), and the condensed consolidated statements of cash flows are not affected by this reclassification. The effect of the change is as follows:

Three months ended September 30, 2022 Three months ended September 30, 2021
Unaudited Unaudited
Under previous classification Effect of change As reported Previously reported Effect of change As adjusted
Cost of revenues $ 9,505 $ (971) $ 8,534 $ 4,569 $ (21) $ 4,548
Operating expenses:
Research and development 7,920 (608) 7,312 5,426 (84) 5,342
Sales and marketing 13,958 (232) 13,726 8,735 (46) 8,689
General and administrative 9,117 (71) 9,046 3,987 (5) 3,982
Depreciation, amortization and impairment $ — $ 1,882 $ 1,882 $ — $ 156 $ 156

Nine months ended September 30, 2022 Nine months ended September 30, 2021
Unaudited Unaudited
Under previous classification Effect of change As reported Previously reported Effect of change As adjusted
Cost of revenues $ 23,782 $ (1,971) $ 21,811 $ 12,418 $ (59) $ 12,359
Operating expenses:
Research and development 25,031 (755) 24,276 16,932 (234) 16,698
Sales and marketing 38,967 (570) 38,397 23,534 (168) 23,366
General and administrative 30,641 (185) 30,456 10,587 (26) 10,561
Depreciation, amortization and impairment $ — $ 3,481 $ 3,481 $ — $ 487 $ 487

~~(c)~~Use of ~~estimates:~~Estimates

The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates, judgments, and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

119

~~Table of Contents~~

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

The COVID-19 pandemic created, and continues to create significant uncertainty in macroeconomic conditions, including supply chain disruptions and labor shortages. Further, other global events such as the war in the Ukraine and the current macro-economic inflationary environment could have an impact on our customers. Based on public reporting and our observations, some advertisers in certain industries decreased and may continue to decrease their short-term advertising spending considering some or all of these factors. This in turn could negatively impact our revenues from such advertisers.Accounting Policies

The Company has considered the impact of COVID-19 and other global events on its estimates and assumptions and determined that there were no material adverse impacts on the unaudited interim condensed consolidated financial statements for the three and nine-month period ended September 30, 2022 (unaudited). As events continue to evolve and additional information becomes available, the Company’s estimates and assumptions may change materially in future periods.

~~(d)~~Software development ~~costs:~~costs

Software development costs, which are included in property and equipment, net, consists of capitalized costs related to the purchase and ~~develop~~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 and ~~nine-month period~~six months ended ~~September~~June 30, 2023 (unaudited), the Company capitalized $2,825 and $6,281, respectively, and during the three and six months ended June 30, 2022 (unaudited), the Company capitalized ~~$3,749~~$2,335 and ~~$7,755,~~$4,006, respectively, related to internal-use software cost. In

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 ~~third quarter~~carrying value of ~~2022,~~an asset may not be recoverable. If there are indications of an impairment, the Company ~~recorded impairment charges~~tests for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of ~~$537 related to an abandonment of certain projects for internal-use software. It is presented within depreciation, amortization and impairment in~~ the condensed consolidated statement of operations. During the three-months period ended September 30, 2021, the Company capitalized $1,049 in internal-use software cost. There were no impairments of capitalized software costs in 2021.

~~(e)Business combinations:~~

~~The Company accounts for business combinations by applying the provisions of ASC 805, “Business Combination” (“ASC 805”) and allocates the fair value of purchase consideration~~asset to the ~~tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. 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 ~~of purchase consideration over~~is recognized as an impairment loss. During the ~~fair values of these identifiable~~three and six months ended June 30, 2023 (unaudited), the Company tested its long-lived assets for recoverability and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

~~Acquisition-related expenses are expensed as incurred.~~

~~(f)Goodwill and intangible assets:~~concluded that no impairment should be recognized.

Goodwill and ~~certain other purchased~~acquired intangible assets

Goodwill and acquired intangible assets have been recorded in the Company's ~~condensed consolidated~~ financial statements ~~because of acquisitions.~~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, but rather 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.

~~Table of Contents~~

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

The Company currently has one 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 itits 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 itits 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. ~~For~~During the three ~~and nine~~ months ended ~~September~~June 30, ~~2022 (unaudited) and September 30, 2021 (unaudited), no impairments~~2023, the Company recorded Goodwill impairment in the amount of ~~goodwill were recorded.~~$14,503. Refer to Note 3 for further details.

Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date.

Intangible assets with a finite useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired. For the three and nine months ended September 30, 2022 (unaudited) and September 30, 2021 (unaudited), no impairments of intangible assets were recorded.

~~Technology~~Customer relationships, acquired technology and trade name are being amortized over the estimated useful life of approximately 11 years, 6 years, and 84 years, respectively, using the straight-line amortization method.

The amortization of ~~trade name,~~ customer relationships, acquired technology and ~~technology~~trade names, is presented within depreciation ~~amortization~~ and ~~impairment~~amortization in the condensed consolidated ~~statement~~statements of operations.

~~(g)~~

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

Fair value of financial ~~instruments:~~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 which are supported by little or no market activity.

The Company’s financial instruments consist of cash and cash equivalents, restricted deposits, trade receivables, net, trade payables, employees, ~~and~~ payroll accruals, accrued expenses and other current liabilities and current portion of long-term debts. Their historical carrying amounts ~~are~~represent the approximate fair ~~values~~value due to the short-term maturities of these instruments.

The ~~Company measures its~~Company’s investments in money market funds are classified as cash equivalents and ~~warrants~~measured at fair value. The Company measures its warrant liability at fair value.

The goodwill impairment recorded in the second quarter of 2023 was estimated using the Company's stock price, a Level 1 input, adjusted for an estimated control premium.

The following ~~table~~tables present information about the Company’s financial instruments that are measured at fair value on a recurring basis:

September 30, 2022
(Unaudited)

Level 1 Level 2 Level 3
Assets:
Money market funds $ 39,250 $ — $ —
Liabilities:
Warrants liability $ 1,518 $ — $ 6,072


	June 30, 2023
	(Unaudited)
	Level 1		Level 2		Level 3
Assets:
Money market funds	$	36,323	$	—	$	—

Liabilities:
Warrants liability	$	1,022	$	—	$	—


	December 31, 2022
	Level 1		Level 2		Level 3
Assets:
Money market funds	$	18,948	$	—	$	—
Certificates of deposit	—		20,000		—
Liabilities:
Warrants liability	$	1,265	$	—	$	3,036

The change in the fair value of the Level 3 warrant liability is summarized below:


	June 30,		December 31,		June 30,
	2023		2022		2022
	(Unaudited)				(Unaudited)
Beginning of the period	$	3,036	$	15,462	$	15,462

Change in fair value	(2,330)		(12,426)		(13,132)

Transfer to level 1	(706)		—		—
End of the period	$	—	$	3,036	$	2,330

1311

~~Table of Contents~~

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

December 31, 2021

Level 1 Level 2 Level 3
Assets:
Money market funds $ 4,515 $ — $ —
Liabilities:
Warrants liability $ 3,510 $ — $ 15,462

~~The change in~~As of June 30, 2023, the ~~fair value of the Level 3~~Company’s warrant liability ~~is summarized below:~~

September 30, December 31, September 30,

2022

2021 2021
(Unaudited) (Unaudited)
Beginning of the period $ 15,462 $ 499 $ 499
Additions* — 18,427 —
Change in fair value (9,390) 1,616 3,191
Conversion of Legacy Innovid Warrants on the Closing of the Transaction — (5,080) —
End of the period $ 6,072 $ 15,462 $ 3,690

* Additions duringincludes the ~~year ended December 31, 2021, represent Company Warrant liability assumed in the Transaction. See~~Warrants (refer to Note ~~5 for further details.~~

~~As of September 30, 2022 (unaudited)~~5), ~~the Company’s warrants liability includes warrants~~ that were originally issued in connection with ION’s initial public offering, the ~~ION~~“ION IPO,” which were transferred to the Company as part of the ~~Closing.~~ION’s Transaction. The ~~Company~~Company’s Warrants are recorded on the balance sheet at fair value with changes in fair value recognized through earnings. This valuation is subject to re-measurement at each balance sheet date. With each re-measurement the valuation will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations.

The Company has determined that the fair value of the Public Warrants and Transferred Private Warrants (refer to Note 5) Warrants, at ~~a specific~~the balance sheet date is determined by the closing price of the Company’s ~~Public Warrants, traded under the symbol “CTVWS”~~warrants, and are within Level 1 of the fair value hierarchy. The closing ~~quoted~~ price of the Public Warrants and Transferred Private Warrants was ~~$0.48 and $1.11~~$0.10 as of ~~September~~June 30, ~~2022 (unaudited) and December 31, 2021, respectively. The fair value of~~2023 the price for Public Warrants was ~~$1,518 and $3,510~~$0.40 as of ~~September 30, 2022 (unaudited) and~~ December 31, ~~2021, respectively.~~ 2022.

The Transferred Private Warrants are no longer classified as Level 3 as of June 30, 2023. Refer to Note 5, Warrants for further discussion.

Gains and losses from the remeasurement of the ~~warrants~~Public and Private Warrants’ liability ~~are~~is recognized in ~~“Finance expenses (income), net”~~finance income, net in the condensed consolidated statements of operations.

The Private Placement Warrants are classified as Level 3 as of September 30, 2022 (unaudited) and continue to be valued using the Black-Scholes option pricing model. The fair value of the Private Placement Warrants was $6,072 and $15,462 as of September 30, 2022 (unaudited) and December 31, 2021, respectively. Gains and losses from the remeasurement of the warrants liability are recognized in “Finance expenses (income), net” in the condensed consolidated statements of operations.

~~The key inputs into the Black-Scholes model for the Private Placement Warrants were as follows:~~

September 30, December 31,

2022 2021
(Unaudited)
Risk-free interest rate 4.10 % 1.24 %
Expected dividends — % — %
Expected term (years) 4.2 4.9
Expected volatility 80 % 55 %

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

~~Table of Contents~~

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

~~(h)~~Concentrations of credit ~~risks:~~risks

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, deposits and trade receivables, net.

Most of the Company’s cash and cash equivalents are invested in deposits with major banks in the US and Israel. The Company is exposed to credit risk in the event of default by the financial institutions to the extent of the amounts recorded on the accompanying consolidated balance sheets exceed federally 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 an 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.

~~Two~~One of the Company’s customers accounted for more than 10% of the Company’s total revenues during the three and six months ended ~~September~~June 30, ~~2022 and one customer during the three months ended September 30, 2021.~~2023.

Three months ended September 30, Nine months ended September 30,

2022

2021 2022

2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Customer A 12 % *) 10 % *)
Customer B 13 % *) *)

*)


	Three months ended June 30,			Six months ended June 30,
	2023		2022	2023		2022
	(Unaudited)		(Unaudited)	(Unaudited)		(Unaudited)
Customer A	16	%	*)	16	%	*)

*) less than 10%

~~(i)Warrants:~~Revenue recognition

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance. The assessment considers whether the warrants are freestanding financial instruments, meet the definition of a liability under ASC 480 and meet all the requirements for equity classification, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outsideMost of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrantsrevenues are ~~outstanding.~~

Warrants that meet all the criteria for equity classification, are required to be recorded as a component of additional paid-in capital. Warrants that do not meet all the criteria for equity classification, are required to be recorded as liabilities at their initial fair value on the date of issuance and remeasured to fair value at each balance sheet date thereafter. The liability-classified warrants are recorded under non-current liabilities. Changes in the estimated fair value of the warrants are recognized in “Financial expenses (income), net” in the condensed consolidated statements of operations.

~~(j)Revenue recognition:~~

~~The Company generates revenues~~derived from providing ~~Advertising Services~~Ad serving solutions to advertisers, ~~publishers,~~media agencies and ~~media agencies.~~publishers. The services focus on standard, interactive and data driven digital video advertising. ~~The Company’s revenue streams are ad serving, creative and measurement services.~~ Ad serving services relate to utilizing Innovid’s platform to serve advertising impressions to various digital publishers across CTV, mobile TV, desktop TV, display and other channels. ~~Creative~~

The Company also provides measurement services ~~relate~~ to advertisers and agencies, streaming platforms and publishers. The measurement service provides analytics and the ability to track performance of advertising campaigns. The measurement service provides insights into the effectiveness of TV and digital advertising.

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

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 also provides measurement services through access to a measurement application in real time or by delivery of a report. Measurement services relate to analytics of advertisements and campaigns.

~~Table of Contents~~

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

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,~~customer; (2) identify the performance obligations in the ~~contract,~~contract; (3) determine the transaction ~~price,~~price; (4) allocate the transaction price to the performance obligations in the ~~contract,~~contract; and (5) recognize revenue when a performance obligation is satisfied.

For arrangements with multiple performance obligations, which represent promises within an arrangement that are capable of being distinct and are separately identifiable, the Company allocates the contract consideration to all distinct performance obligations based on their relative ~~SSP.~~standalone selling price (“SSP”). SSP is typically estimated based on observable transactions when these services are sold on a standalone ~~basis and expected cost plus a margin approach.~~basis.

Revenues related to ad serving services are recognized when impressions are delivered. 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.

Revenues related to ~~creative services are recognized at a point in time when the Company delivers an ad unit. Creative services projects are usually delivered within a week.~~

~~Revenues related to measurement services reports are recognized at a point in time, when the Company delivers the measurement report.~~

~~Revenues related to~~ the measurement services platform are recognized over time, since the customer simultaneously receives and consumes the benefits provided by the Company’s performance. Revenues for these measurement services are recognized over the service period.

Revenues related to creative projects are recognized at a point in time 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 ad serving, ~~creative~~measurement and ~~measurement~~creative 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. The payment terms vary, mainly with terms of 60 days or less.

The typical contract term is 12 months or less for ASC 606 purposes. ~~Some~~Most of the Company’s contracts can be ~~cancelled~~canceled without a cause. The Company has the unconditional right to payment for the services provided as of the date of the termination of the contracts.

The Company applies the practical expedient in ASC 606 and does not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Deferred revenues represent mostly unrecognized fees billed or collected for measurement platform services. Deferred revenues are recognized as (or when) we perform under the contract.

Ad serving ~~and creative~~ services were ~~77.2%~~77.3% and ~~98.8%~~78.4% of the Company’s revenues for the three months ended ~~September~~June 30, ~~2022~~2023 (unaudited) and ~~September 30, 2021~~2022 (unaudited), respectively and were ~~80.9%~~77.2% and ~~98.6%~~83.4% of the Company’s revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (unaudited) and ~~September 30, 2021~~2022 (unaudited). Measurement services were ~~22.5%~~22.7% and ~~1.1%~~21.6% for the three months ended ~~September~~June 30, ~~2022~~2023 (unaudited) and ~~September~~June 30, ~~2021~~2022 (unaudited), respectively and were ~~18.8%~~22.8% and ~~0.9%~~16.6% of the Company’s revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (unaudited) and ~~September 30, 2021~~2022 (unaudited).

Costs to obtain a ~~contract:~~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~~Generally, the commissions are commensurate. The Company elected to apply the practical expedient and recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less. ~~The~~If commissions are not commensurate, the Company ~~did not capitalize any contract~~capitalizes these commissions. Capitalized commission costs ~~during~~were immaterial for the ~~nine~~three and six months ended ~~September~~June 30, 2023 (unaudited) and June 30, 2022 (unaudited) ~~and September 30, 2021 (unaudited), respectively.~~.

1613

~~Table of Contents~~

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

~~(k)Recently Adopted Accounting Pronouncements~~

~~In February 2016, the FASB issued the ASU No. 2016-02,~~ ~~Leases (Topic 842)~~. The standard outlines a comprehensive lease accounting model that supersedes the previous lease guidance and requires lessees to recognize lease liabilities and corresponding right-of-use (“ROU”) assets for all leases with lease terms greater than 12 months. The guidance also changes the definition of a lease and expands the disclosure requirements of lease arrangements. Innovid adopted the standard in the first quarter of 2022 using the modified retrospective method. Results for reporting periods beginning after December 31, 2021, have been presented in accordance with the standard, while results for prior periods have not been adjusted and continue to be reported in accordance with the Company's historical accounting. The cumulative effect of initially applying the new leases standard was recognized as an adjustment to the opening interim condensed consolidated balance sheet as of January 1, 2022 (unaudited).Trade receivable, net

The Company ~~elected a package~~records trade receivable for amounts invoiced and yet unbilled invoices. The Company makes estimates of ~~practical expedients~~expected credit losses for ~~leases~~the allowance for doubtful accounts 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 forecasts of future economic conditions, and other factors that ~~commenced prior~~may affect its ability to ~~January 1, 2022,~~collect from customers. The estimated credit loss allowance is recorded as general and did not reassess historical conclusions on: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs capitalization for any existing leases.

~~This standard has a significant impact on our condensed consolidated balance sheet but did not have a significant impact~~administrative expenses on the ~~Company’s~~Company's condensed consolidated statements of operations. ~~The most significant effects relate to the recognition ROU assets~~

Income taxes and ~~lease liabilities on interim condensed consolidated~~tax contingencies

~~Upon adoption,~~prior years, a deferred tax liability or asset that is recognized for the ~~Company recognized lease~~estimated future tax effects attributable to temporary differences and carryforwards, the measurement of current and deferred tax liabilities and ~~corresponding ROU~~ assets ~~adjusted for~~is based on provisions of the ~~accrued rent and remaining lease incentives received on~~enacted tax law of which the ~~adoption date, as follows:~~

January 1, 2022
(Unaudited)
ROU assets Lease liabilities
Real Estate $ 3,878 $ 5,482
Cars 50 49
Total operating leases $ 3,928 $ 5,531

~~See Note 4 for further details.~~

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The new guidance eliminates certain exceptions related to the approach for intraperiodeffects of future changes in tax ~~allocation, the methodology for calculating income taxes in an interim period~~laws or rates are not anticipated, and the ~~recognition~~measurement of deferred tax ~~liabilities~~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 ~~outside basis differences. It also clarifies~~future realization and ~~simplifies~~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 ~~aspects~~relevant quantitative and qualitative factors. The recoverability of the ~~accounting~~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.

On December 20, 2017, Congress passed the “US Tax Act.” The US Tax Act requires complex computations to be performed that were not previously required by US tax law, significant judgments to be made in interpretation of the provisions of the US Tax Act, significant estimates in calculations and the preparation and analysis of information not previously relevant or regularly produced. The US Tax Act provides that a person who is a US shareholder of any CFC is required to include its GILTI in gross income for the tax year in a manner generally similar to that for Subpart F inclusions. The term “global intangible low taxed income” is defined as the excess (if any) of the US shareholder’s net CFC tested income for that tax year, over the US shareholder’s net deemed tangible income return for that tax year. The Company’s policy is to treat GILTI as a period expense in the provision for income taxes. ~~Innovid adopted the standard in the first quarter of 2022. The adoption of the guidance did not have a material impact on the Company’s condensed consolidated financial statements.~~

~~In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805),~~Recently Adopted Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. This new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting. The Company adopted the standard effective in the first quarter of 2022 on a prospective basis. The adoption of the guidance did not have a material impact on the Company’s condensed consolidated financial statements.

~~(l)Recently issued accounting pronouncements not yet adopted by the Company:~~

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.

~~Table of Contents~~

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The final guidance issued by the FASB for convertible instruments eliminates two of the three models in ASC 470-20 that require separate accounting for embedded conversion features. Separate accounting is still required in certain cases. Additionally, among other changes, the guidance eliminates some of the conditions for equity classification in ASC 815-40-25 for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements.Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 requires enhanced qualitative and quantitative disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. ASU 2016-13 is effective for fiscal years beginning after December 15, ~~2022.~~2022, and interim periods within those fiscal years. The adoption has impacted how the Company ~~is currently evaluating the potential~~assesses its estimates for credit losses but did not have a material impact ~~of this guidance~~ on ~~its~~these unaudited interim condensed consolidated financial statements.

~~Other guidance that has been issued since the end of our previous reporting period is not expected to have an impact on the Company’s condensed consolidated financial statements.~~

~~NOTE 3: - TRANSACTION AND BUSINESS COMBINATION~~

~~Business Combination~~

On February 28, 2022, the Company completed the acquisition of TVS. TVS is an independent global measurement and attribution platform for converged TV and a private company limited by shares incorporated under the laws of Scotland. The Company acquired all the equity of TVS for an aggregate amount of $100,000 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 option of the Company at weighted average fair value of $3.49, subject to certain adjustments as defined in the Stock Purchase Agreement.

The Company, through this acquisition, added a real-time, cross-platform service to its offerings, including measurement outcomes such as frequency and unique unduplicated reach and performance metrics. The combination of ad serving, and cross-platform measurement enables the buy- and sell-sides to solve fragmentation by unlocking a complete picture of advertising across the linear TV, CTV and digital video marketplaces.

The acquisition of TVS has been accounted for as a business combination using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired, and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The valuation of assets acquired, and liabilities assumed, have not yet been finalized as of September 30, 2022 (unaudited). As a result, Innovid recorded preliminary estimates for the fair value of assets acquired and liabilities assumed as of the acquisition date. After the acquisition date, the Company made certain measurement period adjustments to the preliminary purchase price allocation.

Finalization of the valuation during the measurement period could result in a change in the amounts recorded for the acquisition date fair value of intangible assets, goodwill, and income taxes among other items. Refer to Note 9 for disclosure related to measurement period adjustments as it relates to taxes. The completion of the valuation will occur no later than one year from the acquisition date.

1814

~~Table of Contents~~

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

~~The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the acquisition date (unaudited):~~


	~~Total value~~
~~Cash and cash equivalents~~	$	~~5,318~~
~~Accounts receivables~~	~~3,507~~
~~Other current assets~~	~~1,912~~
~~Property and equipment~~	~~154~~
~~Total tangible assets~~	~~10,891~~
~~Technology~~	~~17,075~~
~~Customer relationships~~	~~14,700~~
~~Trade name~~	~~4,600~~
~~Goodwill~~	~~110,123~~
~~Total assets acquired~~	~~157,389~~
~~Less: Deferred tax liabilities~~	~~(1,624)~~
~~Less: Other assumed liabilities~~	~~(3,727)~~
~~Net assets acquired~~	$	~~152,038~~

Intangible assets relate to technology, trade name and customer relationship of $17,075, $4,600, and $14,700, respectively. These are being amortized over the estimated useful life of approximately 6 years, 8 years, and 11 years, respectively. The estimated fair values of identifiable intangible assets were determined using the "income approach", which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of these asset valuations include the estimated net cash flows for each year for the appropriate discount rate necessary to measure the risk inherent in each future cash flow stream, the life cycle of each asset, competitive trends impacting the asset and each cash flow stream, as well as other factors.

Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recognized from the acquisition of TVS represents the value of additional growth potential of the revenue base from the creation of a single combined global organization and synergies related to combined IT efforts for enhancement of the existing and acquired technologies. The goodwill is not deductible for tax purposes.

In addition to the purchase consideration, the Company entered cash compensation arrangements with certain employees, which amounted to $9,700 in aggregate and are subject to certain performance and employment conditions following the acquisition date.

The Company incurred total transaction costs of $5,033 for the acquisition, of which $4,873 was incurred for the nine months ended September 30, 2022 (unaudited). Acquisition related transaction costs include legal, accounting fees and other professional costs directly related to the acquisition and are recognized in “general and administrative” in the condensed consolidated statements of operations.

~~Table of Contents~~

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

~~Pro Forma Financial Informa~~ti~~on (unaudited)~~

The following table presents the unaudited pro forma combined results of Innovid and TVS for the three months and nine months ended September 30, 2022, and 2021 as if the acquisition of TVS had occurred on January 1, 2021:
Three months ended September 30, Nine months ended September 30,
2022

2021 2022

2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues $ 34,469 $ 29,486 $ 97,736 $ 80,044
Net loss (11,832) (1,826) (11,205) (21,330)

3. GOODWILL

The unaudited pro forma interim condensed combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of Innovid and TVS. In order to reflect the occurrence of the acquisition on January 1, 2021, the unaudited pro forma financial information includes adjustments to reflect incremental amortization expense to be incurred based on the current preliminary fair values of the identifiable intangible assets acquired and the reclassification of acquisition-related costs incurred during the three months and nine months ended September 30, 2022 (unaudited) to the three months and nine months ended September 30, 2021 (unaudited). The unaudited pro forma financial information is not necessarily indicative of what the condensed consolidated results of operations would have been had the acquisition been completed on January 1, 2021. In addition, the unaudited pro forma financial information is not a projection of future results of operations of the combined company.

~~Transaction~~

~~As discussed in Note 1, on November 30, 2021, the Transaction was closed.~~

The Transaction was accounted for as a reverse recapitalization in accordance with US GAAP. Under this method of accounting, ION who was the legal acquirer, was treated as the “acquired” company for accounting purposes and the Transaction was treated as the equivalent of Innovid Corp. issuing stock for the net assets of ION, accompanied by a recapitalization. The net assets of ION are stated at historical cost, with no goodwill or other intangible assets recorded.

~~Upon the Closing of the Transaction, among other things:~~

All outstanding shares of Legacy Innovid common stock, Legacy Innovid redeemable convertible preferred stock, Legacy Innovid Warrants, and Secondary Sale Transaction of 6,885,486 shares to PIPE investors, were exchanged for 93,787,278 shares of common stock in Innovid Corp.


			~~Number of shares~~
~~Legacy Innovid common stock of January 1, 2021,~~			~~16,275,609~~
~~Warrant exercised~~			~~132,392~~
~~Stock option exercised~~			~~3,180,943~~
~~Conversion of redeemable convertible preferred stock into common stock~~			~~73,690,340~~
~~Conversion of Legacy Innovid Warrants~~			~~507,994~~
~~Exchanged into Innovid Corp. common stock on November 30, 2021~~			~~93,787,278~~

Holders of 19,585,174 shares of ION’s Class A common stock sold in its initial public offering (the “Initial Shares”) exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from ION IPO, which was approximately $10.00 per share, or $195,888changes in the ~~aggregate. The remaining shares~~carrying amount of ION Class A common stock, including total shares of ION Class B common stock converted to ION Class A common stock immediately prior to the Domestication, were automatically converted to 12,039,826 shares of common stock in Innovid Corp.

After giving effect to the Transaction, the redemption of Initial Shares as described above and the consummation of the PIPE Investment, there were 118,941,618 shares of common stock issued and outstanding after the close of the Transaction.

Innovid Corp received approximately $149,252 in cash proceeds, net of transaction costs paid. The Company has not paid an accrued liability of $3,185 directly related to the Transaction as of December 31, 2021.

~~Table of Contents~~

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

The following table reconciles the elements of the Transaction to the condensed consolidated statement of cash flows and the condensed consolidated statement of changes in temporary equity and stockholders’ equity for the year ended December 31, 2021.goodwill:


Goodwill	Total value
~~Cash - ION trust account and cash, net~~Balance as of ~~redemptions~~January 1, 2023	$	~~55,466~~116,976
~~Cash - PIPE Investment, net of Secondary Sale Amount of $68,855~~Goodwill impairment	~~131,145~~
~~Less: Transaction costs paid~~	~~(31,160)~~(14,503)
~~Less: Deferred underwriting fee paid~~	~~(6,199)~~
~~Proceeds from reverse recapitalization, net~~	~~149,252~~
~~Less: Accrued transaction costs not yet paid~~	~~(3,185)~~
~~Less: Company Warrant assumed~~Balance as ~~part~~ of ~~the Transaction~~	~~(22,791)~~June 30, 2023
~~Plus: Transaction costs allocated to Company Warrant~~	~~2,750~~
~~Reverse recapitalization, net~~	$	~~126,026~~102,473

~~During~~The Company periodically analyzes whether any indicators of goodwill impairment have occurred. In the ~~six-month period ended June 30, 2022,~~second quarter of 2023, the Company ~~fully paid~~experienced a decline in its stock price resulting in its market capitalization being less than the ~~accrued transaction costs~~carrying value of ~~$3,185.~~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 the Transaction, each share of Legacy Innovid redeemable convertible preferred stock and common stock was converted into the right to receive approximately 1.337 shares of the common stock of the Company.

~~Public Warrants and Private Placement Warrants~~

~~As a result of the Transaction,~~this assessment, the Company ~~assumed the outstanding Public Warrants to purchase 3,162,500 shares~~recorded a goodwill impairment of ~~the Company’s common stock and the outstanding Private Placement Warrants to purchase 7,060,000 shares~~$14,503 as of ~~the Company’s common stock. Each whole Warrant entitles the registered holder to purchase one share of the Company’s common stock at a price of $11.50 per share, at any time commencing~~June 30, ~~days after the Closing. The warrants expire five years after the completion of the Transaction.~~2023.

~~NOTE 4: -~~4. LEASES

Innovid's lease portfolio primarily consists of real estate ~~properties and cars.~~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 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. Innovid includes optional renewal periods in the lease term only when it is reasonably certain that Innovid will exercise its option.

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 ROU assets and lease liabilities:

September 30, 2022
(Unaudited)
ROU assets Lease liabilities
Real Estate $ 3,187 $ 4,156
Cars 30 27
Total operating leases $ 3,217 $ 4,183


	June 30, 2023				December 31, 2022
	(Unaudited)
	ROU assets		Lease liabilities		ROU assets		Lease liabilities
Real Estate	$	2,008	$	2,692	$	2,886	$	3,801
Cars	—		—		24		21
Total operating leases	$	2,008	$	2,692	$	2,910	$	3,822

2115

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)


	~~September 30, 2022~~
	~~(Unaudited)~~
	~~Lease liabilities~~
~~Current lease liabilities~~	$	~~1,904~~
~~Non-current lease liabilities~~	~~2,279~~
~~Total lease liabilities~~	$	~~4,183~~

The following table summarizes the lease costs recognized in the interim condensed consolidated statement of operations:

Three months ended September 30, 2022 Nine months ended September 30, 2022
(Unaudited) (Unaudited)
Operating lease cost $ 466 $ 1,413
Short term lease cost 126 334
Variable lease cost 10 20
Total lease cost $ 602 $ 1,767


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Operating lease cost	$	458	$	472	$	921	$	947
Short term lease cost	320		126		583		208
Variable lease cost	25		6		46		10
Total lease cost	$	803	$	604	$	1,550	$	1,165

As of ~~September~~June 30, ~~2022,~~2023 (unaudited), the weighted-average remaining lease term and weighted-average discount rate for operating leases are ~~2.4~~1.8 years and ~~3.1%~~2.5%, respectively.

The following table presents supplementary cash flow information regarding the ~~company's~~Company's operating leases:


	~~Nine months ended September 30, 2022~~
	~~(Unaudited)~~
~~Cash paid for amounts included in the measurement of lease liabilities~~	$	~~1,688~~
~~Right of use assets obtained in exchange for new operating lease liabilities~~	$	—
~~Right of use assets obtained in exchange for operating lease liabilities upon lease modification~~	$	~~610~~


	Six months ended June 30, 2023		Six months ended June 30, 2022
	(Unaudited)		(Unaudited)
Cash paid for amounts included in the measurement of lease liabilities	$	1,035	$	1,133

The following table summarizes the future payments of Innovid for its operating lease liabilities:


		September 30, 2022			Six months ended June 30, 2023
		(Unaudited)			(Unaudited)
2022 Remaining		$	471
2023		2,160
2023 Remaining				2023 Remaining	$	1,124
2024	2024	1,035		2024	972
2025	2025	695		2025	636
Total undiscounted lease payments	Total undiscounted lease payments	$	4,361	Total undiscounted lease payments	$	2,732
Less: Interest	Less: Interest	(178)		Less: Interest	(40)
Total lease liabilities - operating		$	4,183
Total lease liabilities				Total lease liabilities	$	2,692

~~NOTE 5: -~~5. WARRANTS ~~LIABILITY~~

~~Company Warrants~~

As of ~~September~~June 30, ~~2022 (unaudited),~~2023, the Company had 3,162,500 Public Warrants and 7,060,000 Private Warrants outstanding. As of June 30, 2023, the majority of the Private Warrants (the “Transferred Private Warrants”) had been transferred from their initial holder to other transferees. The Transferred Private Warrants terms are now identical to the Public Warrants resulting in use of the same price for valuation purposes.

The Company’s Warrants’ fair value as of June 30, 2023 (unaudited), and December 31, 2022, was $1,022 and $4,301, respectively. Gains and losses related to the Company’s Warrants are recognized in “Finance income, net.” See Note 9 for further details.

2216

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

~~Public Warrants~~

Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of the Transaction and (b) one year from the closing of the Initial Public Offering. The Public Warrants will expire five years from the completion of the Transaction or earlier upon redemption or liquidation.

~~Redemption of warrants when the price per Innovid Corp. ordinary share equals or exceeds $18.00.~~

~~Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described with respect to the Private Placement Warrants):~~

•~~in whole and not in part.~~

•~~at a price of $0.01 per warrant.~~

•~~upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and~~

•if, and only if, the closing price of the Innovid Corp. ordinary shares equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.

When the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

The Company has established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and the Company issues a notice of redemption of the warrants, each warrant holder will be entitled to exercise the warrant prior to the scheduled redemption date. However, the price of the Company’s common shares may fall below the $18.00 redemption trigger price (as adjusted for share sub-divisions, share capitalization, reorganization, recapitalization and the like) as well as the $11.50 warrant exercise price after the redemption notice is issued.

~~Redemption of warrants when the price per Innovid Corp.ordinary share equals or exceeds $10.00~~.

~~Once the warrants become exercisable, the Company may redeem the outstanding warrants:~~

•~~in whole and not in part.~~

•~~at a price of $0.10 per warrant.~~

•upon a minimum of 30 days’ prior written notice of redemption; if holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined based on the redemption date and the fair market value of the Innovid Corp. ordinary shares; and

•if, and only if, the closing price of the Innovid Corp. ordinary shares equals or exceeds $10.00 per share (as adjusted) for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders.

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

If the Company calls these Public Warrants for redemption, as described above, its management will have the option to require any holder that wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger, or consolidation. However, except as described below, the Public Warrants will not be adjusted for issuances of ordinary shares at a price below their exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants.

~~Private Placement Warrants~~

The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the Innovid Corp. ordinary shares issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of the Transaction subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchaser or its permitted transferees.

The Company evaluated the Company Warrants (Public Warrants and Private Placement Warrants) in accordance with ASC 480, “Distinguishing Liabilities from Equity” and ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity” and concluded that a provision in the Warrant Agreement related to certain tender or exchange offers, as well as provisions that provided for potential changes to the settlement amounts dependent upon the characteristics of the holder of the warrant, preclude the Company Warrants from being accounted for as components of equity. As the warrants do not meet all the requirements for equity classification, the Company Warrants are recorded as liabilities on the Balance Sheets and measured at fair value at inception and at each reporting date in accordance with ASC 820, “Fair Value Measurement” with changes in fair value recognized in the Statements of Operations in the period of change.

The Company Warrants’ fair value as of September 30, 2022 (unaudited) and December 31, 2021 was $7,590 and $18,972, respectively. Gains and losses related to the Company’s Warrants are recognized in “Finance expenses (income), net”. See Note 9 for further details.

~~NOTE 6: - CREDIT LINE AND OTHER BORROWINGS~~

~~Credit Line:~~6. LONG-TERM DEBT

On August 4, 2022, two wholly owned subsidiaries of the Company, Innovid LLC and TV Squared Inc, entered 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”). The interest for the New Revolving Credit Facility is payable monthly in arrears. The New Revolving Credit Facility bears interest at an annual rate ~~equal to~~which is the greater of ~~4.25% and prime rate~~(a) WSJ Prime Rate plus ~~0.75%~~0.25% or (b) 4.25%, on the aggregate outstanding ~~principal of each credit extension.~~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 Company will also pay non-refundable commitment fees of $40 and $75 at inception and first anniversary date, ~~respectively.~~respectively, together with a modification fee of $20 payable on the date of the 2023 Modification Agreement. The maturity date of the 2022 A&R Agreement, as amended by the 2023 Modification Agreement, is June 30, ~~2024.~~2025. The New Revolving Credit Facility is subject to certain customary conditions precedent to the credit extension as stated in the 2022 A&R Agreement.

The New Revolving Credit Facility requires 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 by the 2023 Modification Agreement, if the Company does not maintain the quarterly adjusted quick ratio of at least 1.50 to 1.00.

As of ~~September~~June 30, 2023 (unaudited), and December 31, 2022, the Company utilized $20,000 of the $50,000 credit line. In January 2023, the Company repaid $5,000 under the credit line and $5,000 was subsequently drawn in March 2023. In May 2023, the Company repaid $5,000 under the credit line and $5,000 was subsequently drawn in June 2023.

As of June 30, 2023 (unaudited), the Company is in compliance with all the covenants.

AsPrior to the 2022 A&R Agreement, the credit installments bore US dollar denominated interest at an annual rate equal to 0.75%-1% plus the prime rate on the outstanding principal of ~~September 30, 2022 (unaudited),~~each credit installment and prior to the ~~Company utilized $15,000 of~~2023 Modification Agreement the ~~$50,000 credit line, $6,000 of~~New Revolving Credit Facility bore interest at an annual rate which was ~~drawn during 2020 and $9,000 was drawn during~~ the ~~second quarter~~greater of ~~2022. Interest expenses are recognized in “Finance expenses (income), net”~~(a) WSJ Prime Rate plus 0.75% or (b) 4.25%. ~~See Note 9 for further details.~~

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

~~NOTE 7: -~~7. COMMITMENTS AND CONTINGENT LIABILITIES

~~(a)~~Pledges and bank ~~guarantees:~~guarantees

1.In conjunction with the ~~credit agreement and its amendments~~2022 A&R Agreement (see Note 6)6, Long-term Debt), Innovid LLC pledged 65,000 common ~~stock~~stocks of its Israeli Subsidiary, NIS 0.01 par value each.

2.The ~~Company’s subsidiaries~~Israeli Subsidiary pledged bank deposits in an aggregate amount of ~~$862~~$601 in connection with an office rent agreement and credit cards.

3.Innovid Inc. obtained bank guarantees in an aggregate amount of $231 in connection with its office lease agreements.

~~(b)~~

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

Legal ~~contingencies:~~contingencies

On March 4, 2022, a lawsuit was filed in the United States District Court for the Western District of Texas by the Nielsen, ~~Claim was filed by Nielsen,~~Company (US) LLC against ~~TVS.~~ TVS ~~has filed its answer to the complaint and has also filed an opposed motion~~alleging infringement of US Patent No.10,063,378. On June 1, 2022, TVS moved to transfer ~~venue~~the case to the Southern District of New York. On February 24, 2023, the case was transferred to the Southern District of New York. On March 23, 2023, the parties jointly filed their proposed case management plan and scheduling order, which the Court entered and thereafter opened discovery. That ~~motion is scheduled to be heard on November 14, 2022~~order sets the close of fact discovery for October 23, 2023, and ~~if unsuccessful~~ the ~~following hearing in the current venue would be scheduled~~close of expert discovery for January ~~2023.~~23, 2024, but does not set a date for trial. On the same day, TV Squared filed a motion for judgment on the pleadings under Federal Rule 12(c) arguing invalidity of all asserted patent claims. Briefing concluded on April 24, 2023, and the motion remains pending. 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 June 30, 2023, the Company did not record a loss contingency.

~~NOTE 8: -~~8. STOCK-BASED COMPENSATION

Stock-based compensation expense is ~~principally~~ related to awards issued ~~to employees~~ pursuant to the Legacy Innovid Stock Option Plan (“Legacy Plan”) and 2021 Innovid Corp. Incentive Plan (“2021 Plan”) and is summarized as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Cost of goods sold	Cost of goods sold	$	307	$	14	$	795	$	34	Cost of goods sold	$	435	$	383	$	876	$	488
Research and development	Research and development	1,039		90		2,438		319		Research and development	1,229		920		2,403		1,399
Sales and marketing	Sales and marketing	1,391		128		3,500		400		Sales and marketing	1,690		1,529		3,269		2,109
General and administrative	General and administrative	1,546		145		3,095		1,285		General and administrative	1,980		1,306		3,410		1,734
Total	Total	$	4,283	$	377	$	9,828	$	2,038	Total	$	5,334	$	4,138	$	9,958	$	5,730

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

In connection with the awards granted to service providers and non-employee consultants, the ~~Company recorded stock compensation expenses~~Company’s expense is immaterial in the amount of $40 and $214 during the three months ended September 30, 2022 (unaudited) and 2021 (unaudited), respectively, and in the amount of $225 and $273, during the nine months ended September 30, 2022 (unaudited) and 2021 (unaudited), respectively. The majority of these expenses in 2022 were recorded in research and development and sales and marketing. The majority of these expenses in 2021 were recorded in general and administrative expenses. periods presented.

During the three and ~~nine-month period~~six months ended ~~September~~June 30, ~~2022~~2023 (unaudited), the Company capitalized stock-based compensation expense of ~~$290~~$325 and ~~$780,~~$690 of internal-use software costs, respectively.

During the three and six months ended June 30, 2022, the Company capitalized stock-based compensation expense of $490, respectively, in internal-use software cost. ~~The Company stock-based compensation expense related to internal-use software cost for the same period in 2021 were immaterial.~~

Stock Options

Stock options may be granted to officers, directors, employees and non-employee consultants of the Company. Each option granted under the Plan expires no later than 10 years from the date of grant. The options vest usually over four years from commencement of employment or ~~services.~~service start date. Any options ~~which are~~ forfeited or not exercised before expiration become available for future grants.

In connection with the TVS acquisition, Innovid issued 949,893 stock options to holders of TVS options for replacement options. These options were fully vested upon issuance due to acceleration upon acquisition and therefore do not require future service for vesting. The Company attributed a total amount of $152 to post acquisition service and recorded it as stock compensation expenses immediately after the acquisition closed. See Note 3 for further details.

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~

A summary of the employees’ stock option activity ~~under the Legacy Plan and 2021 Plan~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (unaudited), is as follows:


		Amount of options	Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value (in thousands)			Amount of options	Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value (in thousands)
Outstanding at beginning of period	Outstanding at beginning of period	11,122,648	$	0.82	6.87	$	64,818	Outstanding at beginning of period	10,658,085	$	1.15	6.85	$	5,923
Transfer between employee and consultant		40,118	0.64
Granted	Granted	2,041,956	2.09					Granted	832,232	1.55
Granted in acquisition		949,893	0.31
Forfeited	Forfeited	(118,837)	1.10					Forfeited	(207,449)	1.89
Expired	Expired	(18,653)	0.90					Expired	(163,640)	1.65
Exercised	Exercised	(2,845,702)	0.28					Exercised	(1,376,572)	0.45
Outstanding at end of period	Outstanding at end of period	11,171,423	$	1.14	7.62	$	17,515	Outstanding at end of period	9,742,656	$	1.26	7.08	$	14,232
Exercisable options at end of period	Exercisable options at end of period	6,587,903	$	0.71	6.76	$	13,202	Exercisable options at end of period	6,563,845	$	0.99	6.37	$	11,356

A summary of the consultants’ stock option activity ~~under the Legacy Plan~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (unaudited), is as follows:


		Amount of options	Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value (in thousands)			Amount of options	Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value (in thousands)
Outstanding at beginning of period	Outstanding at beginning of period	179,627	$	0.31	2.34	$	1,139	Outstanding at beginning of period	69,542	$	0.47	4.21	$	86
Transfer between employee and consultant		(40,118)	0.64

Forfeited	Forfeited	(460)	2.81					Forfeited	—	—
Exercised	Exercised	(69,298)	0.30					Exercised	—	—
Outstanding at end of period	Outstanding at end of period	69,751	$	0.48	4.45	$	156	Outstanding at end of period	69,542	$	0.47	3.72	$	156
Exercisable options at end of period	Exercisable options at end of period	62,227	$	0.46	4.12	$	144	Exercisable options at end of period	66,196	$	0.46	3.53	$	149

As of ~~September~~June 30, ~~2022~~2023 (unaudited), the Company had approximately ~~$5,401~~$3,945 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of ~~2.02~~1.92 years.

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

Restricted Stock Units

~~In connection with the Company’s transition to its next life-cycle stage post Transaction,~~ Restricted Stock Units (“RSUs”) may be granted to officers, directors, employees and non-employee consultants of the Company, and generally vest over a three- or four-year period.

A summary of the employees’ RSU activity under the 2021 Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (unaudited), is as follows:

Number of share units
Weighted
average
grant date
fair value
Outstanding at beginning of period
— —
Granted 8,446,838 5.98
Released (10,669) 6.60
Forfeited (778,388) 6.46
Outstanding at end of period
7,657,781 $ 5.93

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~


	Number of share units	Weighted average grant date fair value
Outstanding at beginning of period	7,989,825	$	5.60
Granted	12,096,238	1.28
Vested	(3,424,868)	5.27
Forfeited	(1,113,878)	4.88
Outstanding at end of period	15,547,317	$	2.36

A summary of the consultants’ RSU activity under the 2021 Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (unaudited), is as follows:


		Number of share units	Weighted average grant date fair value			Number of share units	Weighted average grant date fair value
Outstanding at beginning of period	Outstanding at beginning of period	—	—		Outstanding at beginning of period	130,268	$	6.60
Granted	Granted	176,151	6.52		Granted	107,343	1.18
Vested					Vested	(53,250)	6.60
Forfeited	Forfeited	(5,387)	6.60		Forfeited	(8,226)	6.60

Outstanding at end of period	Outstanding at end of period	170,764	$	6.51	Outstanding at end of period	176,135	$	3.30

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.

As of ~~September~~June 30, ~~2022~~2023 (unaudited), ~~$37,341~~$33,727 of unrecognized compensation cost related to RSUs is expected to be recognized as expense over the weighted average period of ~~2.20~~2.3 years.

~~NOTE 9: -~~9. FINANCE ~~EXPENSES (INCOME),~~INCOME, NET

The Company recognizes the gains and losses from the remeasurement of the warrants liability related to the Public Warrants and Private Placement Warrants, as defined in Note 5, Warrants,in “Finance ~~expenses (income),~~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 ~~and nine months period~~ ended ~~September~~June 30, 2023 (unaudited) and 2022 (unaudited) ~~was ($4,564)~~, were $565 and ~~$11,382,~~$13,159, respectively. The unrealized gain from changes in the fair value of the Company Warrants for the six months ended June 30, 2023 (unaudited) and 2022 (unaudited), were $3,279 and $15,946, respectively.

The Company also recognized interest expenses in “Finance ~~expenses (income),~~income, net” in the condensed consolidated statements of operations. Interest expenses for the three months ended ~~September~~June 30, ~~2022~~2023 (unaudited) and ~~2021~~2022 (unaudited), were ~~$234~~$420 and ~~$63,~~$76, respectively. Interest expenses for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, were $782 and ~~2021 were $371 and $197,~~$137, respectively.

~~NOTE 10: -~~

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

10. INCOME TAX

The Company recorded a provision for ~~income~~incomes taxes of ~~$839~~$1,335 and ~~$304~~a net tax benefit of $168 for the three months ended ~~September~~June 30, 2023 (unaudited) and 2022 (unaudited), respectively, and ~~2021,~~a net expense of $4,159 and a net tax benefit of $205 for the six months ended June 30, 2023 and 2022, respectively.

The ~~calculation of income taxes is based upon the estimated annual~~Company’s effective tax rates were (7.6)% and (4.1)% for the ~~year applied to~~three months ended June 30, 2023 and 2022, respectively, and (17.8)% and 6.1% for the ~~current period loss before tax plus~~six months ended June 30, 2023 and 2022, respectively.

For the ~~tax~~three months ended June 30, 2023 (unaudited), the net effect of ~~any significant unusual~~discrete items increased the effective tax rate by 0.2%. Excluding these items, the Company’s effective tax rate would have been (7.4)%. For the six months ended June 30, 2023, the net effect of discrete ~~events or changes~~items increased the effective tax rate by 1.1%. Excluding these items, the Company’s effective tax rate would have been (18.9)%.

For the three months ended June 30, 2022 (unaudited), the net effect of discrete items increased the effective tax rate by 3.3%. Excluding these items, the Company’s effective tax rate would have been (7.4)%. For the six months ended June 30, 2022, the net effect of discrete items decreased the effective tax rate by 4.6%. Excluding these items, the Company’s effective tax rate would have been 10.7%.

The increase in year-to-date tax ~~law. The majority of~~expense primarily results from a shift in the ~~expense is related to “discrete” items related to the expected~~Company’s foreign earnings, resulting in higher profitability and current tax expense, ~~(federal,~~with no offsetting deferred tax benefit as a result of an overall valuation allowance.

In addition, certain temporary differences associated with the capitalization of research and development under IRC Section 174 and deductibility of stock compensation that would normally not impact the effective tax rate or overall tax expense, could cause the US to generate current state tax expense with no corresponding deferred tax benefit. Unless the US tax rules around research and ~~withholding tax)~~development (Section 174) are modified, there will continue to be an adverse impact on our effective rates for ~~loss companies which are excluded from~~income taxes paid.

Lastly, the ~~forecasted~~current tax ~~rate.~~expense is increased as compared to prior years, in both the foreign jurisdictions and the US, because of decreased net operating losses available due to prior year utilization.

~~NOTE 11: -~~11. SEGMENT REPORTING

The Company operates as one operating segment, which primarily focuses on the software platform for advertising, measurement, and ~~creative services.~~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. Managing and allocating resources on an entity-wide basis enables the CEO to assess the overall level of resources available and how to best deploy these resources across functions and R&D projects based on needs and,

Revenue by geographical location are as ~~necessary, reallocate resources among the Company’s internal priorities and external opportunities to best support the long-term growth of the business.~~follows:


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
US	$	31,567	$	29,569	$	59,214	$	52,952
Canada	465		302		853		490
APAC	734		1,025		1,549		1,956
EMEA	1,595		1,914		3,038		3,043
LATAM	185		278		377		509
Total revenues	$	34,546	$	33,088	$	65,031	$	58,950

2721

INNOVID, CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except stock and per stock data)

~~Revenue by geographical location are as follows:~~

Three months ended September 30, Nine months ended September 30,

2022

2021 2022

2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
US $ 31,579 $ 21,324 $ 84,531 $ 58,270
Canada 390 345 880 799
APAC 1,013 790 2,969 2,182
EMEA 1,280 619 4,323 1,842
LATAM 207 391 716 1,231
Total revenues
$ 34,469 $ 23,469 $ 93,419 $ 64,324

The Company’s ~~long-lived tangible~~property and equipment, net and ROU assets by geographical location is as follows:


		September 30,		December 31,			June 30,		December 31,
		2022		2021			2023		2022
		(Unaudited)					(Unaudited)
Israel	Israel	$	2,823	$	1,495	Israel	$	2,388	$	2,707
US	US	11,542		3,051		US	18,212		14,065
Rest of the World	Rest of the World	571		294		Rest of the World	367		460
Total	Total	$	14,936	$	4,840	Total	$	20,967	$	17,232

~~NOTE 12: -~~12. BASIC AND DILUTED NET ~~LOSS~~(LOSS) INCOME PER SHARE

Basic and diluted net ~~loss~~(loss) income per share attributable to common stockholders was calculated as follows:

Three months ended September 30, Nine months ended September 30,
2022

2021 2022

2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Numerator:
Net profit (loss) (11,832) (259) (14,981) (3,854)
Accretion of preferred stock to redemption value — (8,189) — (52,993)
Net profit (loss) attributable to common stockholders - basic and diluted
$ (11,832) $ (8,448) $ (14,981) $ (56,847)
Denominator:
Weighted-average number of stock used in computing net loss per stock attributable to common stockholders –
Basic weighted average number of shares outstanding 132,959,511 18,849,710 129,768,724 13,157,022
Diluted weighted average number of shares outstanding 132,959,511 18,849,710 129,768,724 13,157,022
Net profit (loss) per stock attributable to common stockholders –
Basic $ (0.09) $ (0.45) $ (0.12) $ (4.32)
Diluted $ (0.09) $ (0.45) $ (0.12) $ (4.32)

Net loss per share calculations and potentially dilutive security amounts for all periods prior to the Transaction have been retrospectively adjusted to the equivalent number of shares outstanding immediately after the Transaction to affect the reverse recapitalization.

~~INNOVID, CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except stock and per stock data)~~


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Numerator:
Net (loss) income	$	(18,959)	$	4,300	$	(27,522)	$	(3,149)
Net (loss) income attributable to common stockholders basic and diluted	$	(18,959)	$	4,300	$	(27,522)	$	(3,149)
Denominator:
Weighted-average number of stock used in computing net (loss) income per stock attributable to common stockholders			`
Basic weighted average number of shares outstanding	137,643,910		132,152,652		134,296,569		128,220,893
Effect of dilutive securities options and RSU (share equivalent)	—		7,835,471		—		—
Diluted weighted average number of shares outstanding	137,643,910		139,988,123		134,296,569		128,220,893
Net profit (loss) per stock attributable to common stockholders
Basic	$	(0.14)	$	0.03	$	(0.20)	$	(0.02)
Diluted	$	(0.14)	$	0.03	$	(0.20)	$	(0.02)

The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net ~~profit (loss)~~loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:


		Three months ended September 30,		0	Nine months ended September 30,			Three months ended June 30,		Six months ended June 30,
		2022	2021		2022	2021		2023	2022	2023	2022
		(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Preferred stock		—	73,690,340		—	73,690,340
Unvested RSU outstanding	Unvested RSU outstanding	7,827,545	—		7,827,545	—	Unvested RSU outstanding	15,723,452	7,991,829	15,723,452	8,002,502
Options outstanding	Options outstanding	11,241,174	11,774,686		11,241,174	11,774,686	Options outstanding	9,812,198	3,533,772	9,812,198	12,363,179
Warrants outstanding	Warrants outstanding	10,222,500	680,271		10,222,500	680,271	Warrants outstanding	10,222,500	10,222,500	10,222,500	10,222,500

13. SUBSEQUENT EVENTS

On August 2, 2023, two wholly owned subsidiaries of the Company, Innovid LLC and TV Squared Inc, entered the 2023 Modification Agreement with Silicon Valley Bank, a division of First-Citizen Bank & Trust Company. Refer to Note 6 for further details.

2922

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~This~~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-Q~~10-K for the year ended December 31, 2022 (our “2022 Annual Report on Form 10-K”). In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements ~~rather than historical facts~~ that ~~involve risks~~reflect our plans, estimates, and uncertainties. You can identify these statements using forward- looking words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue” or other similar words. Such forward-looking statements discuss our current expectations of future results of operations or financial condition. However, there may be events in the future that we are unable to accurately predict or control and there may be risks, uncertainties and events that may cause ourbeliefs. Our actual results tocould differ materially from those discussed in the ~~expectations we describe~~forward-looking statements. Factors that could cause or contribute to these differences include those discussed in our ~~forward-looking statements, which could have a material adverse effect~~2022 Annual Report on Form 10-K as such factors may be updated from time to time in our ~~business, operating results, and financial condition. The forward-looking statements included herein are only made as of~~other filings with the ~~date of~~SEC, including elsewhere in this Quarterly Report, including under the ~~filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.~~heading “Cautionary Statements Regarding Forward-Looking Statements.”

Company Overview

~~We are a leading independent~~Innovid is an enterprise cloud software platform that provides critical technology infrastructure for the creation, delivery, and measurement of advertising across connected TV ~~ads across CTV,~~(CTV), mobile TV, and desktop TV environments. ~~Innovid’s revenue has grown alongside~~As of June 30, 2023, according to Kantar Media, over 50% of the ~~growth of CTV advertising. We believe~~top 200 TV advertisers by US advertising spend are utilizing our ~~open~~ platform ~~and purpose-built~~in their advertising delivery infrastructure. Our technology, purposely built for CTV, combined with our position as a ~~media-independent~~media-agnostic provider, has allowed us to win ~~a large~~top TV advertisers and ~~growing~~grow market ~~share,~~share; while the growth of CTV combined with our usage-based revenue model ~~has further contributed~~continues to contribute to our ~~rapid~~overall growth. Our acquisition of TVSquared, an independent global measurement and attribution platform for CTV added a real-time, cross-platform service to our offerings, including measurement of outcomes such as frequency and unique unduplicated reach and performance metrics. The combination of ad serving, and cross-platform measurement enables the buy- and sell-sides to solve fragmentation by unlocking a complete picture of advertising across the linear TV, CTV and digital video marketplaces and will allow us to capitalize further on the growth of CTV by enabling us to create a new independent currency-grade standard for cross-platform TV measurement, powered by the scale and automation of a global ad server. Our measurement services are now consolidated in InnovidXP, our new global measurement platform built for CTV.

Innovid’s purpose-built CTV infrastructure platform is comprised of three key offerings: Ad Serving Solutions, Creative Personalization Solutions and InnovidXP. Our software-based platform provides an open technology infrastructure that tightly integrates with the highly fragmented advertising technology and media ecosystem including demand side platforms such as The Trade Desk and Amobee; supply side platforms such as Magnite and Verizon Media; publishers such as Hulu and Peacock; and end user devices such as Amazon Fire and Samsung Smart TV. Our offering encompasses independent global ad serving, data-driven personalization, and new forms of measurement designed to connect all channels in a clean, comparable, and privacy-compliant manner.

We serve advertisers across multiple verticals, including Anheuser-Busch InBev, Verizon, CVS, Kellogg's, Mercedes-Benz, Target, and Sanofi, and target ~~clients comprised of~~ the largest global TV ~~advertisers. As~~advertisers globally, including in the US, Germany, UK, Mexico, Argentina, Colombia, Israel, Singapore, Japan, and Australia. During the second quarter of ~~September 30, 2022,~~2023, approximately 9% of Innovid's revenue was generated by our ~~blue-chip advertiser client base included over 50%~~customers outside of the ~~top 200 brands by TV US advertising spend according to Kantar Media~~US. As part of our measurement solutions go-to-market strategy, we partner with the largest streaming platform providers in the world, including Disney, Hulu, ESPN, and ~~Winmo.~~NBCU. In addition, we work closely with ~~the top advertising~~ agency holding companies such as WPP, Publicis Groupe, Omnicom Group Inc, Interpublic Group of Cos., and ~~Dentsu.~~Dentsu Inc. Our clients ~~are diversified across~~span all major industry verticals, including consumer packaged goods, pharmaceutical and healthcare, retail, financial services, automotive, and technology. ~~We believe Innovid’s independence is critical to advertisers seeking an interoperable and open partner that is primarily focused on technology infrastructure. Although we work~~

Innovid's revenue growth closely correlates with the ~~vendors who buy~~growth of CTV advertising. CTV accounted for 51% and ~~sell media, our platform only facilitates the creation, delivery and measurement~~50% of advertisements and campaigns and we do not make purchasing decisions or facilitate the purchasing of advertisement inventory. We are able to maintain our independence and remain free of potential buying conflicts because we do not make ad buying or selling decisions.

all video impressions served by Innovid ~~serves customers globally through a delivery footprint covering over 70 countries. In~~during the three months ~~ended September~~ending June 30, ~~2021,~~2023, and June 30, 2022, respectively. During the three months ending June 30, 2023, this represented a year-over-year increase of 11% in CTV video impressions served by Innovid. Video impressions served by Innovid during the second quarters of 2023 and 2022 ~~non-US customers generated approximately 9%~~attributed to mobile were 36% and ~~8% of the Company’s total revenue,~~38%, respectively, and for desktop TV were 13% and 12%, respectively. In the ~~nine months ended September 30, 2021,~~second quarter of 2023, video impressions increase 1% for mobile TV and ~~2022, respectively, non-US customers generated approximately 9% and 10% of total revenue~~17% for desktop TV compared to the same period in ~~both periods.~~

~~Our revenue model is primarily based on impressions volume and~~ the cost per impression for our various Advertising Services. For our core ad serving platform, we generate revenue from our advertising customers based on the volume of advertising impressions delivered, enabling us to grow as our customers increase their digital ad spend and corresponding ad impressions. Additionally, we generate revenue from creative services based on flat fee per projects and measurement solutions based on the volume of advertising impressions measured. As we introduce new products such as advanced measurement and creative capabilities including personalization and interactivity, we expect to be able to charge higher prices per impression volume.prior year.

~~The Transaction~~Transactions

Innovid Corp. was originally incorporated as ION Acquisition Corp. 2 Ltd. (“ION”), a special purpose acquisition company, ~~in Cayman Islands~~ on November 23, 2020 ~~for~~and Innovid Corp. was the ~~purpose~~surviving entity following the completion of ~~entering into a~~its merger ~~share exchange, asset acquisition, stock purchase, recapitalization or business combinations.~~

Onwith ION on November 30, 2021 ION and Innovid Inc. closed the transaction as further described in this Form 10-Q. Through several mergers and a name change, Innovid Corp. was formed. ION entered into certain subscription agreements in June and October 2021 (“PIPE Investment”(the “ION Transaction”). ~~The mergers and PIPE Investment are collectively referred to as “the Transaction”. Innovid Corp. is the public company entity which continues Legacy Innovid’s operating activity.~~

~~The Company common stock and warrants commenced trading on the NYSE under the symbols “CTV” and “CTVWS,” respectively, on December 1, 2021.~~

~~Business Combination~~

On February 28, 2022, wethe Company completed the acquisition of ~~TVS. TVS is an independent global measurement and attribution platform for converged~~ TV ~~and a private company limited~~Squared Limited (“TVS”, together with ION’s Transaction, the “Transactions”) by ~~shares incorporated under the laws~~way of ~~Scotland. We~~stock purchase agreement (“Stock Purchase Agreement”). The Company acquired all the equity of TVS for an aggregate amount of ~~approximately $100.0~~100.0 million in cash, 11,549,465 shares of the Company common stock at fair value of $3.80 per share, and other conditions as defined in the ~~issuance of 949,893 fully vested stock option subject to certain adjustments. Our measurement services are now consolidated in InnovidXP, our new global measurement platform built for CTV.~~Stock Purchase Agreement.

~~COVID-19 and Other Global Events~~

Use of Estimates

The ~~COVID-19 pandemic created, and continues to create, significant uncertainty in macroeconomic conditions, including supply chain disruptions and labor shortages. Further, other global events such as~~preparation of the war in the Ukraine and the current macro-economic inflationary environment could have an impact our customers. Based on public reporting and our observations, some advertisers in certain industries decreased and may continue to decrease their short-term advertising spending considering some or all of these factors. This in turn could negatively impact our revenues from such advertisers.

~~We have considered the impact of COVID-19 and of other global events on our estimates and assumptions and determined that there were no material adverse impacts on the interim~~ condensed consolidated financial statements ~~for~~in conformity with US GAAP requires us to make estimates, judgments and assumptions. We believe that the ~~three and nine months ended September 30, 2022. As events continue to evolve and additional information becomes available, our~~ estimates, judgments and assumptions ~~may change materially in future periods.~~used are 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Key Factors Affecting Our Performance

There are several factors that have impacted, and we believe, ~~will~~may continue to impact our results of operations and growth.

These factors include:

Continued market demand. Our performance ~~is dependent~~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 ~~segments~~segment of digital ad spend, ~~mostly CTV,~~ and our results depend on our ability to ~~capture~~monetize continued market ~~growth.~~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.

CTV accounted for 54% of all video impression volume served in the three months ended September 30, 2022, up from 46% in the three months ended September 30, 2021. CTV impressions grew 36% year-over-year. Mobile impression volume decreased 1% year-over-year and in the three months ended September 30, 2022, accounted for 33% of all video impressions. Desktop increased 6% year-over-year and accounted for 13% of all video impressions served by Innovid in the same period.CTV accounted for 51% of all video impression volume served in the nine months ended September 30, 2022, up from 46% in the nine months ended September 30, 2021, and grew 32% year-over-year. Mobile increased 10% year-over-year and in the nine months ended September 30, 2022, accounted for 36% of all video impressions, and desktop increased 7% year-over-year and accounted for 13% of all video impressions served by Innovid in the same period.

~~Cross-selling~~Upsell of additional services. ~~A key part of~~An additional contributor to our ~~overall business strategy is~~efforts in expanding revenue generated by ~~cross selling~~ our ~~full range of Advertising Services~~customers is our investment in cross-selling our solutions. We cross-sell our personalized creative solutions to primary ad serving customers, who, for example, begin using our services with standard TVdigital video ads and then introduce personalized formats over ~~time or who use InnovidXP and then go on~~time. We also cross-sell our advanced measurement solutions, which provide real-time metrics to ~~use our ad server services.~~inform optimization of TV campaigns while in market. The success of these efforts will impact our results of operations.

~~Other factors impacting our results~~

~~Global expansion:~~ ~~Most of our clients are global advertisers and operate at a significant scale. Innovid serves customers globally through a delivery footprint covering over 70 countries.~~

We intend to continue to grow our footprint in international markets to meet the needs of our global customer base. Our results of operations will be impacted by the success of our geographic expansion, and whether the expected ad spend growth in these markets materializes.

New client accounts: We intend to continue targeting new brand, media agency and digital publisher customers who are currently utilizing solutions provided by our competitors or point solutions. Our results of operations will be impacted by our ability to attract new customers.

Seasonality: We experience revenue fluctuations ~~in revenues~~ that coincide with seasonal ~~fluctuations~~changes in the digital ad spending of our customers, in particular television ad spending patterns. Advertisers ~~often~~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 revenues while the first quarter typically reflects our lowest level of revenues. However, this traditional revenue 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 revenues to continue to fluctuate based on seasonal factors that affect the advertising industry as a whole and for these seasonal fluctuations in ad spend to impact quarter-over-quarter results. We believe that the year-over-year comparison of results more appropriately reflects the overall performance of our business. However, this traditional seasonality may also be impacted by certain external factors or major events that impact traditional television advertising patterns, such as the COVID-19 pandemic or other global events.

~~Public company costs:~~ We are incurring additional legal, accounting, and other expenses that we did not previously incur, including costs associated with SEC reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act as well as other rules implemented by the SEC and the NYSE. Our financial statements reflect the impact of these expenses.

Global Markets

The majority of our clients are global advertisers and operate at a significant scale. Innovid serves customers globally through a delivery footprint including the US, APAC, EMEA, and LATAM. During the second quarter of 2023, approximately 9% of Innovid’s revenue was generated outside 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

Revenues

We generate the majority of our revenues from providing ~~Advertising Services~~Ad serving solutions to ~~our customers:~~ advertisers, media agencies and publishers. We focus on standard, interactive and data driven digital video advertising. ~~Our major revenue stream is ad serving. We also provide creative and measurement services.~~

Ad serving services relate to utilizing Innovid’s platform to serve advertising impressions to various digital publishers primarily across CTV, mobile TV, and desktop TV.

InnovidXP, our cross-platform TV ~~display,~~Ad measurement solution, launched last year, measures the efficiency of CTV advertising and ~~other channels. Creative~~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 ~~relate to~~for the design and development of interactive data-driven and dynamic ad formats by adding data, interactivity and dynamic features to standard ad units. ~~Measurement services, which have been augmented by the acquisition of TVS, provide real-time, cross-platform analysis, including measurement and outcomes such as reach, frequency and unique~~ ~~unduplicated~~ ~~reach, as well as performance metrics.~~

We generate ~~most~~the majority of our revenues from the sale and delivery of our products within the US. For information with respect to sales by geographic markets, refer to Note 11, Segment Reporting to the Condensed Consolidated Financial Statements included under Item 1, Financial Statements and Supplementary Data. Our CEO is the chief operating decision-maker, and manages and allocates resources to the operations of the Company on an entity-wide basis.

We anticipate that revenues from our US sales will continue to constitute a ~~substantial portion~~majority of our revenues in future periods. For information with respect to sales by geographic markets, see Note 10, “Segment Reporting” to our unaudited condensed consolidated financial statements presented in Item 1. “Financial Statements and Supplementary Data”.~~Our chief operating decision maker (our CEO) does not evaluate the profit or loss from any separate geography.~~

Cost of revenues

Cost of revenues consists primarily of costs to run our ad serving, creative and measurement ~~services.~~solutions. 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. We expect research and development expenses to increase in future periods to support our growth, including continuing to invest in optimization, accuracy and reliability of our platform and other technology improvements to support and drive efficiency in our operations. These expenses may vary from period to period as a percentage of revenue, depending primarily upon when we choose to make more significant investments.

~~Product~~Research and development ~~expenses~~costs are ~~expensed as incurred, except~~charged to the extent that such costs are associated with software development that qualifies for capitalization, which are then recorded as capitalized software development costs included in property, plant, and equipment on our condensed consolidated ~~balance sheet. We amortize capitalized~~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 ~~development costs to depreciation and amortization.~~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, for executive management, finance, accounting, human capital, legal and other administrative functions as well as professional services costs and facility related costs. We allocate overhead, including rent and other facility related costs, and communication costs based on headcount.

~~Prior period reclassification~~

Beginning in the second quarter 2022, we present depreciation and amortization expenses as a separate line item on our condensed consolidated statements of operations. All prior periods have been adjusted. Depreciation and amortization expenses were previously included in cost of sales and other operating expenses depending on the underlying asset’s function. Additionally, we no longer present gross profit as a subtotal on our condensed consolidated statements of operations. In accordance with generally accepted accounting principles, all periods presented below have been retrospectively adjusted to reflect the reclassification of cost of revenue and other operating expenses exclusive of depreciation and amortization. The period-to-period comparisons of our results of operations have been prepared using the historical periods included in our condensed consolidated financial statements, adjusted for this reclassification. Refer to “~~Part I - Item 1. Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies” for further information on prior period reclassification.~~

3325

Results of Operations

Three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022


		Three months ended September 30,								Nine months ended September 30,									Three months ended June 30,								Six months ended June 30,
		2022				2021				2022				2021					2023				2022				2023				2022
		(in thousands)		% of Revenue		(in thousands)		% of Revenue		(in thousands)		% of Revenue		(in thousands)		% of Revenue			(in thousands)		% of Revenue		(in thousands)		% of Revenue		(in thousands)		% of Revenue		(in thousands)		% of Revenue
Revenues	Revenues	$	34,469	100	%	$	23,469	100	%	$	93,419	100	%	$	64,324	100	%	Revenues	$	34,546	100	%	$	33,088	100	%	$	65,031	100	%	$	58,950	100	%
Cost of revenues	Cost of revenues	8,534		25	%	4,548		19	%	21,811		23	%	12,359		19	%	Cost of revenues	8,591		25	%	7,351		22	%	16,856		26	%	13,277		23	%
Research and development	Research and development	7,312		21	%	5,342		23	%	24,276		26	%	16,698		26	%	Research and development	6,876		20	%	9,710		29	%	13,993		22	%	16,964		29	%
Sales and marketing	Sales and marketing	13,726		40	%	8,689		37	%	38,397		41	%	23,366		36	%	Sales and marketing	11,460		33	%	14,320		43	%	23,097		36	%	24,671		42	%
General and administrative	General and administrative	9,046		26	%	3,982		17	%	30,456		33	%	10,561		16	%	General and administrative	8,924		26	%	9,955		30	%	18,574		29	%	21,410		36	%
Depreciation, amortization and impairment		1,882		5	%	156		1	%	3,481		4	%	487		1	%
Operating (loss) profit		(6,031)		(17)	%	752		3	%	(25,002)		(27)	%	853		1	%
Finance expenses (income), net		4,962		14	%	707		3	%	(10,655)		(11)	%	3,878		6	%
(Loss) profit before taxes		(10,993)		—		45		—	%	(14,347)		(15)	%	(3,025)		(5)	%
Depreciation and amortization																		Depreciation and amortization	2,064		6	%	926		3	%	4,094		6	%	1,599		3	%
Goodwill impairment																		Goodwill impairment	14,503		42	%	—		—	%	14,503		22	%	—		—	%
Operating loss																		Operating loss	(17,872)		(52)	%	(9,174)		(28)	%	(26,086)		(40)	%	(18,971)		(32)	%
Finance income, net																		Finance income, net	(248)		(1)	%	(13,306)		(40)	%	(2,723)		(4)	%	(15,617)		(26)	%
(Loss) income before taxes																		(Loss) income before taxes	(17,624)		(51)	%	4,132		12	%	(23,363)		(36)	%	(3,354)		(6)	%
Taxes on income	Taxes on income	839		2	%	304		1	%	634		1	%	829		1	%	Taxes on income	1,335		4	%	(168)		(1)	%	4,159		6	%	(205)		—	%
Net loss		$	(11,832)	(34)	%	$	(259)	(1)	%	$	(14,981)	(16)	%	$	(3,854)	(6)	%

Net (loss) income																		Net (loss) income	$	(18,959)	(55)	%	$	4,300	13	%	$	(27,522)	(42)	%	$	(3,149)	(5)	%

Revenues

The growth and scaling of CTV was the key driver of Innovid’s revenue ~~growth.~~growth in the second quarter of 2023. As TV ad spend continues to shift from linear to CTV, we continue to benefit from the natural volume growth of CTV impressions we delivered for our existing and new customers.

Total revenue increased by ~~47% year-over-year,~~$1.5 million, or 4%, from ~~$23.5~~$33.1 million in the three months ended ~~September~~June 30, ~~2021~~2022 to $34.5 million in the three months ended ~~September~~June 30, ~~2022. 21% of total quarterly revenue, $7.2 million, was~~2023. The increase is attributed to ~~TVS.~~ the ad serving volume growth and the growth of the measurement offering. Cross-selling of the measurement solution to our core clients contributed to the overall increase in the measurement revenue.

Total revenue increased by ~~45% year-over-year,~~$6.0 million, or 10%, from ~~$64.3~~$59.0 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to ~~$93.4~~$65.0 million in the ~~nine~~six months ended ~~September~~June 30, ~~2022. 18%~~2023. Four months of ~~total nine months revenue, $16.5 million,~~TVS activity was ~~attributed to TVS.~~

~~Revenue excluding TVS was $27.3 million~~included in our operations in the ~~three months ended September 30,~~same period in 2022 ~~an increase~~due to the timing of ~~16% from~~ the ~~three months ended September 30, 2021. Revenue excluding TVS was $76.9 million in the nine months ended September 30, 2022, an increase of 20% from the nine months ended September 30, 2021. The increases are~~ ~~driven primarily by growth in ad impressions delivered on our platform for both existing and new clients.~~acquisition.

There was no meaningful impact of changes in average cost per impression on total revenue.

Cost of revenues (exclusive of depreciation, amortization and ~~amortization~~goodwill impairment shown below)

Three months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Cost of revenues $ 8,534 25 % $ 4,548 19 % $ 3,986 88 %


	Three months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Cost of revenues	$	8,591	25	%	$	7,351	22	%	$	1,240	17	%

Cost of revenue increased by ~~$4.0~~$1.2 million, or ~~88%~~17%, from ~~$4.5~~$7.4 million in the three months ended ~~September~~June 30, ~~2021,~~2022, to ~~$8.5~~$8.6 million in the three months ended ~~September~~June 30, ~~2022,~~2023, primarily driven by a ~~$2.3~~$1.8 million increase ~~in serving~~related to hosting and ~~hosting fees and~~data costs associated with our integrated measurement solution. This was partially offset by a ~~$1.3 million increase~~decrease in personnel related costs ~~due to a higher~~resulted from our operating efficiency measures including headcount ~~both to support our increased volumes and reflecting our business following the TVS acquisition.~~reduction.

Nine months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Cost of revenues $ 21,811

23 % $ 12,359 19 % $ 9,452 76 %


	Six months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Cost of revenues	$	16,856	26	%	$	13,277	23	%	$	3,579	27	%

Cost of revenue increased by ~~$9.5~~$3.6 million, or ~~76%~~27%, from ~~$12.4~~$13.3 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, to ~~$21.8~~$16.9 million in the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, primarily driven by a ~~$4.3~~$3.6 million increase in ~~serving~~hosting and ~~hosting fees and a $3.7 million increase~~data costs associated with our measurement solution included in ~~personnel costs due to a higher headcount, both to support~~ our ~~increased volumes and reflecting our business~~operations following the TVS acquisition. This was partially offset by a decrease in personnel related costs resulted from our operating efficiency measures including headcount reduction.

Research and development (exclusive of depreciation, amortization and ~~amortization~~goodwill impairment shown below)

Three months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Research and development $ 7,312 21 % $ 5,342 23 % $ 1,970 37 %


	Three months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Research and development	$	6,876	20	%	$	9,710	29	%	$	(2,834)	(29)	%

Research and development expenses ~~increased~~decreased by ~~$2.0~~$(2.8) million, or ~~37%~~(29)%, from ~~$5.3~~$9.7 million in the three months ended ~~September~~June 30, ~~2021,~~2022, to ~~$7.3~~$6.9 million in the three months ended ~~September~~June 30, ~~2022. The increase was~~2023, primarily ~~due to an increase~~driven by a decrease of ~~$2.6 million~~$1.9 million in personnel costs, ~~following the TVS acquisition~~ ~~to support~~a decrease of $0.5 million in technology infrastructure and hosting fees, and a decrease of $0.4 million in consulting fees resulted from our ~~platform maintenance work as well as our product research efforts. In addition, t~~operating efficiency measures including headcount reduction.


	Six months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Research and development	$	13,993	22	%	$	16,964	29	%	$	(2,971)	(18)	%

~~here was a $1.3 million increase in share-based compensation mostly due to Restricted Stock Units (“RSUs”) that were granted to employees.~~ ~~The increases were partially offset by an increase of $2.6 million capitalization of research and development expenses related to our development of new products and our platform enhancements.~~

Nine months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Research and development $ 24,276

26 % $ 16,698 26 % $ 7,578 45 %

Research and development expenses ~~increased~~decreased by ~~$7.6~~$(3.0) million, or ~~45%~~(18)%, from ~~$16.7~~$17.0 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, to ~~$24.3~~$14.0 million in the ~~nine~~six months ended ~~September~~June 30, ~~2022. The increase was~~2023, primarily ~~due to an increase~~driven by a decrease of ~~$8.2 million~~$1.9 million in personnel costs, ~~following the TVS acquisition and~~ ~~an increase~~a decrease of $0.6 million in technology infrastructure and hosting fees, ~~both to support~~and a decrease of $0.5 millions in consulting fees resulted from our ~~platform maintenance work as well as our product research efforts. In addition, there was~~ ~~a $3.0~~ ~~million increase in share-based compensation mostly due to RSUs that were granted to employees.~~ ~~The increases were partially offset by an increase of $6.5 million for capitalization of research and development expenses related to our development of new products and our platform enhancements.~~operating efficiency measures including headcount reduction.

Sales and marketing (exclusive of depreciation, amortization and ~~amortization~~goodwill impairment shown below)

Three months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Sales and marketing $ 13,726 40 % $ 8,689 37 % $ 5,037 58 %


	Three months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Sales and marketing	$	11,460	33	%	$	14,320	43	%	$	(2,860)	(20)	%

Sales and marketing expenses ~~increased~~decreased by ~~$5.0~~$(2.9) million, or ~~58%~~(20)%, from ~~$8.7~~$14.3 million in the three months ended ~~September~~June 30, ~~2021,~~2022, to ~~$13.7~~$11.5 million in the three months ended ~~September~~June 30, ~~2022. The increase was~~2023, primarily driven ~~primarily~~ by ~~an increase~~a decrease in personnel costs of ~~$3.1~~$1.9 million ~~following the TVS acquisition~~due to ~~support our long-term growth strategy.~~lower headcount. In addition, t~~here~~there was a ~~$1.2~~$0.6 million ~~increase~~decrease in ~~share-based compensation due to increase in headcount and RSUs that were granted to employees.~~

marketing expenses and other cost efficiency.

3527

Nine months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Sales and marketing $ 38,397

41 % $ 23,366 36 % $ 15,031 64 %


	Six months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Sales and marketing	$	23,097	36	%	$	24,671	42	%	$	(1,574)	(6)	%

Sales and marketing expenses ~~increased~~decreased by ~~$15.0~~$(1.6) million, or ~~64%~~(6)%, from ~~$23.4~~$24.7 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, to ~~$38.4~~$23.1 million in the ~~nine~~six months ended ~~September~~June 30, ~~2022. The increase was~~2023, primarily driven ~~primarily~~ by ~~an increase~~a decrease in personnel costs of ~~$8.0~~$0.5 million ~~following the TVS acquisition and an increase~~due to lower headcount. In addition, there was a decrease in marketing costs of ~~$1.1~~$0.8 million ~~both to support our long-term growth strategy. In addition, there was a $3.2 million increase in share-based compensation due to increase in headcount~~ and ~~RSUs that were granted to employees and a $1.2 million increase in commissions due to higher revenues.~~other cost efficiency.

General and administrative (exclusive of depreciation, amortization and ~~amortization~~goodwill impairment shown below)

Three months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
General and administrative $ 9,046 26 % $ 3,982 17 % $ 5,064 127 %


	Three months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
General and administrative	$	8,924	26	%	$	9,955	30	%	$	(1,031)	(10)	%

General and administrative expenses ~~increased~~decreased by ~~$5.1~~$(1.0) million, or ~~127%~~(10)%, from ~~$4.0~~$10.0 million in the three months ended ~~September~~June 30, ~~2021,~~2022, to ~~$9.0~~$8.9 million in the three months ended ~~September~~June 30, ~~2022. The increase was~~2023, primarily ~~due an increase~~driven by a decrease in ~~personnel costs~~professional fees of ~~$2.1~~$1.3 million and legal fees of $0.5 million related to the ~~expansion~~TVS acquisition in the 2022 period. This was partially offset by an increase in executive bonuses of ~~our operations following~~$0.7 million.


	Six months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
General and administrative	$	18,574	29	%	$	21,410	36	%	$	(2,836)	(13)	%

General and administrative expenses decreased by $(2.8) million, or (13)%, from $21.4 million in the six months ended June 30, 2022, to $18.6 million in the six months ended June 30, 2023, primarily driven by a decrease in professional fees of $3.4 million and a decrease of $1.8 million in legal fees both related to the TVS ~~acquisition and~~acquisition. In addition, there was a ~~$1.0~~decrease of $1.1 million ~~increase~~ in Directors and Officers insurance expense during the period. ~~There~~This was ~~also~~partially offset by an increase in ~~legal fees~~stock compensation of ~~$0.7~~ $1.8 million ~~in connection with litigation. In addition, there was~~ ~~a $1.2 million increase in share-based compensation mostly due to RSUs that were granted to employees~~ and an increase in ~~headcount.~~executive bonuses and other personnel costs of $1.7 million.

Nine months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
General and administrative $ 30,456

33 % $ 10,561 16 % $ 19,895 188 %
Depreciation and amortization

~~General~~


	Three months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Depreciation and amortization	$	2,064	6	%	$	926	3	%	$	1,138	123	%

Depreciation and ~~administrative~~amortization expenses increased by ~~$19.9~~$1.1 million, or ~~188%~~123%, from ~~$10.6~~$0.9 million in the ~~nine~~three months ended ~~September~~June 30, ~~2021,~~2022, to ~~$30.5~~$2.1 million in the ~~nine~~three months ended ~~September~~June 30, ~~2022.~~2023. The increase was ~~primarily due an increase in personnel costs~~mostly driven by $0.7 million amortization expense of ~~$5.3 million related to the expansion of our operations following the TVS acquisition and a~~ ~~$2.9 million increase in Directors and Officers insurance expense~~internal-use software projects during the period. ~~There was also~~ an increase in professional fees primarily consisting of $4.9 million related to the TVS Acquisition, $1.1 million for legal fees in connection with the litigation, $0.8 million for legal services related to SEC reporting, $0.8 million for audit fees and $0.6 million for accounting services related to company matters. In addition, there was a $1.6 million increase in ~~share-based compensation mostly due to RSUs that were granted to employees, an increase in headcount and acceleration of stock options.~~


	Six months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Depreciation and amortization	$	4,094	6	%	$	1,599	3	%	$	2,495	156	%

Depreciation ~~amortization~~ and ~~impairment~~

Three months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Depreciation, amortization and impairment $ 1,882 5 % $ 156 1 % $ 1,726 1106 %

~~Depreciation,~~ amortization ~~and impairment~~ expenses increased by ~~$1.7~~$2.5 million, or ~~1106%~~156%, from ~~$0.2~~$1.6 million in the ~~three~~six months ended ~~September~~June 30, ~~2021,~~2022, to ~~$1.8~~$4.1 million in the ~~three~~six months ended ~~September~~ June 30, ~~2022.~~2023. The increase was driven ~~primarily~~ by additional amortization expense of $1.0 million for TVS intangible assets during the period as well as ~~$0.5~~$1.5 million ~~impairment charge related~~ ~~to the abandonment~~amortization expense of ~~certain projects related to our internal~~internal-use software ~~development.~~

projects.

3628

Goodwill impairment


	Three months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Goodwill impairment	$	14,503	42	%	$	—	—	%	$	14,503	100	%

Nine months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Depreciation, amortization and impairment $ 3,481 4 % $ 487 1 % $ 2,994 615 %

~~Depreciation and amortization expenses~~Goodwill impairment increased by ~~$2.5~~$14.5 million, or ~~505%~~100%, from ~~$0.5~~$0.0 million in the ~~nine~~three months ended ~~September~~June 30, ~~2021,~~2022, to ~~$2.9~~$14.5 million in the ~~nine~~three months ended ~~September~~ June 30, ~~2022.~~2023. The ~~increase was driven primarily by additional amortization expense for TVS intangible assets~~continued decline in the Company’s stock price during the ~~period~~second quarter of 2023 was viewed as ~~well~~a triggering event, which required an assessment for possible goodwill impairment as ~~$0.5 million~~of June 30, 2023. We performed this assessment during the six months ended June 30, 2023 and determined that the fair value of the reporting unit exceed its carrying value during the three months ended June 30, 2023. The fair value was determined based on the market approach. As a result of this assessment, the Company recorded a goodwill impairment ~~charge related~~ toin the ~~abandonment~~amount of ~~certain projects related to our internal software development.~~$14.5 million.

~~Finance expenses (income), net~~


	Six months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Goodwill impairment	$	14,503	22	%	$	—	—	%	$	14,503	100	%

Three months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Finance expenses, net $ 4,962 14 % $ 707 3 % $ 4,255 602 %

~~Finance expenses~~ ~~(income)~~Goodwill impairment increased by ~~$4.3~~$14.5 million, or ~~602%~~100%, from ~~$0.7~~$0.0 million in the six months ended June 30, 2022, to $14.5 million in the six months ended June 30, 2023 for the reasons described above.

Finance income, net


	Three months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Finance income, net	$	(248)	(1)	%	$	(13,306)	(40)	%	$	13,058	(98)	%

Finance income decreased by $13.1 million, or (98)%, from $(13.3) million in the three months ended ~~September~~June 30, ~~2021,~~2022, to ~~$5.0~~$(0.2) million in the three months ended ~~September~~ June 30, ~~2022. The increase~~2023. This was predominantly driven ~~primarily~~ by ~~an increase related to Public and Private Warrants, which were issued as~~ a ~~part~~decrease of the ~~Transaction. Their valuation~~fair value of our warrants. The fair value of the warrants is influenced by market volatility impacting Company’s share price which is an underlying input for the valuation.


	Six months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Finance income, net	$	(2,723)	(4)	%	$	(15,617)	(26)	%	$	12,894	(83)	%

Nine months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Finance expenses (income), net $ (10,655)

(11) % $ 3,878 6 % $ (14,533) (375) %

Finance ~~expenses~~ ~~(income)~~income decreased by ~~$14.5~~$12.9 million, or ~~375%~~(83)%, from ~~$3.9~~$(15.6) million in the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, to ~~$(10.7)~~$(2.7) million in the ~~nine~~six months ended ~~September~~ June 30, ~~2022. The decrease~~2023. This was predominantly driven ~~primarily~~ by a decrease ~~related to Public and Private Warrants, which were issued as a part~~ of the ~~Transaction. Their valuation~~fair value of our warrants. The fair value of the warrants is influenced by market volatility impacting Company’s share price which is an underlying input for the valuation.

Taxes on income

Three months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Taxes on income $ 839 2 % $ 304 1 % $ 535 176 %

~~Tax expense increased by $0.5 million, or 176%, from $0.3 million in the three months ended September 30, 2021, to~~ ~~$0.8 million i~~n the three months ended September 30, 2022. Most of the increase in expense results from the discrete impact related to the expected current tax expense for loss companies which are excluded from the forecasted tax rate.


	Three months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Taxes on income	$	1,335	4	%	$	(168)	(1)	%	$	1,503	(895)	%

3729

The Company’s effective tax rates were (7.6)% and (4.1)% for the three months ended June 30, 2023 and 2022, respectively.

Nine months ended September 30,
2022 2021
(in thousands) % of Revenue (in thousands) % of Revenue $ Variance % Variance
Taxes on income $ 634

1 % $ 829 1 % $ (195) (24) %


	Six months ended June 30,
	2023				2022
	(in thousands)		% of Revenue		(in thousands)		% of Revenue		$ Variance		% Variance
Taxes on income	$	4,159	6	%	$	(205)	—	%	$	4,364	(2129)	%

Tax expense ~~decreased~~ increased by ~~$0.2~~$4.4 million ~~or 24%,~~ from ~~$0.8~~$(0.2) million in the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 to ~~$0.6~~$4.2 million in the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. The ~~decrease~~Company’s effective tax rates were (17.8)% and 6.1% for the six months ended June 30, 2023 and 2022, respectively.

The increase in year-to-date tax expense ~~results~~primarily resulted from ~~the~~a shift in the ~~geographic mix~~Company’s foreign earnings, resulting in higher profitability and current tax expense, with no offsetting deferred tax benefit as a result of an overall valuation allowance.

In addition, certain temporary differences associated with the capitalization of research and development under IRC Section 174 and deductibility of stock compensation that would normally not impact the effective tax rate or overall tax expense, cause the US to generate current state tax expense with no corresponding deferred tax benefit. Unless the US tax rules around research and development (Section 174) are modified, there will continue to be an adverse impact on our effective rates for income taxes paid.

Lastly, the current tax expense is increased as ~~related~~compared to prior years, in both the foreign jurisdictions and the US, because of decreased net operating losses available due to prior year ~~as well as the impact of loss companies which are excluded from the forecasted tax rate.~~utilization.

Liquidity and Capital Resources

We have financed our operations, business acquisition and capital expenditures primarily through utilization of cash generated from operations and cash proceeds from the ~~Transaction,~~ION’s transaction, as well as borrowings under our credit facilities.

As of ~~September~~June 30, ~~2022,~~2023, we had cash, cash equivalents and restricted cash of ~~$46.9~~$43.8 million and net working capital, consisting of current assets less current liabilities, of ~~$68.4~~$68.6 million. ~~We paid net cash consideration of approximately $99.6 million for the acquisition of TVS.~~ As of ~~September~~June 30, ~~2022,~~2023, we had an accumulated deficit of ~~$147.5~~$178.4 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.~~ION’s transaction.

We believe our existing cash and cash equivalents and anticipated net cash provided by operating activities, together with ~~anticipated net cash provided by operating activities and~~ available borrowings under our credit facility, will be sufficient to meet our cash needs and working capital requirements for at least the next 12 months. However, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. We are closely monitoring the effect that current economic conditions may have on our working capital requirements. To date, the ~~COVID-19 pandemic and other~~ global events have not had a material negative impact on our cash flow or liquidity. Our future capital requirements and the adequacy of available funds will depend on many factors.

In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that are unfavorable to equity investors. We cannot guarantee that we will be able to raise additional capital in the future on favorable terms, or at all. Any inability to raise capital could adversely affect our ability to achieve our business objectives.

3830

Sources of Liquidity

Revolving Line of Credit

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”). The interest for the New Revolving Credit Facility is payable monthly in arrears. The New Revolving Credit Facility bears interest at an annual rate ~~equal to~~which is the greater of ~~4.25% and prime rate~~(a) WSJ Prime Rate plus ~~0.75%~~0.25% or (b) 4.25%, on the aggregate outstanding ~~principal of each credit extension.~~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. ~~We will also pay non-refundable commitment fees of $0.0 million and $0.1 million at inception and the first anniversary date, respectively.~~ The maturity date of the 2022 A&R Agreement, as amended by the 2023 Modification Agreement, is June 30, ~~2024.~~2025. The New Revolving Credit Facility is subject to certain customary conditions precedent to the credit extension as stated in the 2022 A&R Agreement.

The New Revolving Credit Facility requires usthe 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” ~~determines~~are determined as ~~our~~the Company’s unrestricted cash plus accounts receivable, net, and is determined according to US GAAP. ~~We are~~The Company is also required to maintain the minimum quarterly adjusted EBITDA as defined in the 2022 A&R Agreement, as amended by the 2023 Modification Agreement, if ~~we do~~the Company does not maintain the quarterly adjusted quick ratio of at least 1.50 to 1.00.

As of ~~September~~June 30, 2023, we were in compliance with all covenants.

As of June 30, 2023 and December 31, 2022, wethe Company utilized ~~$15.0~~$20.0 million of the $50.0 million credit line. In January 2023, the Company repaid $5.0 million under the credit line ~~$6.0 million of which was drawn during 2020~~ and ~~$9.0~~$5.0 million was subsequently drawn ~~during~~in March 2023. In May 2023, the ~~second quarter of 2022.~~Company repaid $5.0 million under the credit line and $5.0 million was subsequently drawn in June 2023.

Interest expenses for the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022 ~~and 2021~~ were ~~$0.4~~$0.8 million and ~~$0.2~~$0.1 million, respectively. They were recorded in the “Finance ~~expenses (income),~~income, net” in the ~~unaudited interim~~ condensed consolidated statements of operations.

Cash Flows

~~Nine~~Six months ended ~~September~~June 30, ~~2022,~~2023, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022

The following table summarizes our cash flows for the periods presented:

Nine months ended September 30,
2022 2021
Net cash (used in)/ provided by operating activities $ (10,089) $ 3,046
Net cash used in investing activities (106,787) (1,944)
Net cash provided by/ (used in) financing activities 6,632 (2,277)
Decrease in cash, cash equivalents and restricted cash
$ (110,243) $ (1,175)


	Six months ended June 30,
	2023		2022
Net cash provided by / (used in) operating activities	$	948	$	(15,901)
Net cash provided by / (used in) investing activities	4,247		(103,273)
Net cash provided by financing activities	614		6,451
Increase (decrease) in cash, cash equivalents and restricted cash	$	5,809	$	(112,723)

Operating Activities

Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our customers and payments to our vendors, as well as increases in personnel related expenses as we scale up our business. The timing of cash receipts from customers and payments to vendors and providers can significantly impact our cash flows from operating activities. In addition, we expect seasonality to impact quarterly cash flows from operating activities.

Cash provided by/(used inin) operating activities is calculated by adjusting our net loss for changes in working capital, as well as by excluding non-cash items such as depreciation and amortization, goodwill impairment, stock-based compensation and ~~changes~~change in fair value of warrants.

For the ~~nine-month~~six month period ended ~~September~~June 30, 2023, net cash provided by operating activities was $0.9 million, attributable to net loss of $(27.5), adjusted for non-cash charges of $25.2 and $3.3 cash provided by changes in working capital. Our non-cash charges primarily consisted of goodwill impairment and stock based compensation.

For the six month period ended June 30, 2022, net cash used in operating activities was ~~$10.1~~$(15.9) million, ~~compared~~attributable to net loss of $(3.1), adjusted for non-cash charges of $(8.7) and $(4.0) use of cash ~~provided by operating activities of $3.0 million for the nine month period ended September 30, 2021. The increase~~from changes in ~~net cash used in operating activities was primarily attributable to increase in account receivable because of the expansion of our operations and non-cash adjustments.~~working capital. Our non-cash ~~adjustments decreased by $3.9 million mostly driven by decrease~~charges primarily consisted of change in valuation of warrants due to changes in our stock market price, offset by an increase in stock-based compensation as a result of RSUs granted in 2022 and amortization of intangible assets related to TVS acquisition.

fair value warrants.

The changes in our working capital compared to the prior period in the amount of ~~$3.9~~$7.3 million were ~~the~~a result of ~~an increase~~a decrease in trade receivables due to ~~increased revenue and operating activities.~~a shorter collection period. This decrease was partially off-set by an increase in prepaid expenses due to the timing of payments for some of our subscriptions. The changes in working capital were also related to an increase in accrued expense, other current liabilities and trade payables due to accrual and the timing of payments for personnel costs, prepaid software subscription fees and changes due to the acquisition of TVS.

Investing Activities

For the ~~nine-month~~six month period ended ~~September~~June 30, ~~2022, we used $106.8~~2023, $4.2 million of net cash was provided by investing activities compared to net cash used in investing activities of $103.3 million for the six month period ended June 30, 2022, was primarily driven by net cash consideration paid of $99.6 million to acquire TVS in 2022. Further, the decrease of $10.0 million in short-term deposit, which was terminated in March, 2023, increased cash provided by investing activity. This impact was offset by ~~cash acquired~~an increase of ~~$99.6~~$2.1 million ~~and the~~of investment in internal software development ~~work of $7.0 million.~~

For the nine-month period ended September 30, 2021, we used $1.9 million of net cash in investing activities, primarily driven by the investment in internal software development work of $1.0 million and the loan in the amount of $0.5 million issued to our founder.work.

Financing Activities

For the ~~nine-month~~six month period ended ~~September~~June 30, ~~2022,~~2023, $0.6 million of net cash was provided by financing activities ~~of $6.6~~compared to $6.5 million for the six month period ended June 30, 2022. This decrease in cash provided was primarily due to a drawdown of our credit facility of $9.0 million ~~and proceeds received for exercises of options~~in the prior period, offset by a decrease in the amount of ~~$0.8 million, partially offset by payment of SPAC merger~~ transaction costs of $3.2 ~~million.~~

For the nine-month period ended September 30, 2021, net cash used in financing activities of $2.3 million was primarily due to repayment of Paycheck Protection Program Loan in the amount of $3.0 million partially offset by proceeds received for exercises of options in the amount of $0.9 million.

Contractual Obligations and Known Future Cash Requirements

Lease Commitments

We rent our facilities under operating lease agreements that expire on various dates, the latest of which is in 2025 excluding any options for renewal. The minimum rental payments under operating leases for rental of premises as of June 30, 2023 for the next five years totaled $2.7 million, which is comprised of $1.6 million and $1.1 million in the next 12 months and more than 12 months, respectively.

Pledges and Bank Guarantees

In connection with the ~~credit agreement and its amendments,~~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 ~~$0.9~~$0.6 million of pledged bank deposits as of ~~September~~June 30, ~~2022,~~2023, related to office leases and credit cards.

We obtained bank guarantees in an aggregate amount of $0.2 million in connection with our office lease ~~agreements in the US as of September 30, 2022.~~

~~Legal contingencies~~agreements.

~~Cash compensation arrangements~~

~~In addition~~ 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 ~~purchase consideration for~~Company if the ~~acquisition~~outcome in such litigation was unfavorable. As of ~~TVS, we entered cash compensation arrangements with certain employees, which amounted to $9.7 million in aggregate and are subject to certain performance and employment conditions following~~June 30, 2023, the ~~closing of the Acquisition.~~Company did not record a loss contingency.

4032

Key Metrics and Non-GAAP Financial Measures

Adjusted EBITDA

In addition to our results determined in accordance with US GAAP, we believe that certain non-GAAP financial measures, including Adjusted ~~EBITDA~~earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA Margin are useful in evaluating our business. ~~We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenue.~~ The following table presents a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to the most directly comparable financial measure prepared in accordance with US GAAP.

Three months ended September 30, Nine months ended September 30,
(in thousands) 2022 2021 2022 2021
Net loss $ (11,832) $ (259) $ (14,981) $ (3,854)
Net loss margin (34) % (1) % (16) % (6) %
Depreciation, amortization and impairment (a) 1,882 156 3,481 487
Stock-based compensation 4,322 591 10,052 2,311
Finance expense (income), net (b) 4,962 707 (10,655) 3,878
Transaction related expenses (c) — — 392 —
Acquisition related expenses (d) — — 4,971 —
Retention bonus expenses (e) 1,290 — 2,290 —
Legal claims 664 — 1,099 —
Other (f) 739 — 915 —
Taxes on income 839 304 634 829
Adjusted EBITDA
$ 2,866 $ 1,499 $ (1,802) $ 3,651
Adjusted EBITDA margin
8 % 6 % (2) % 6 %


	Three months ended June 30,						Six months ended June 30,
(in thousands)	2023			2022			2023			2022
Net (loss) income	$	(18,959)		$	4,300		$	(27,522)		$	(3,149)
Net (loss) income margin	(55)		%	13		%	(42)		%	(5)		%
Depreciation and amortization	2,064			926			4,094			1,599
Goodwill impairment	14,503			—			14,503			—
Stock-based compensation	5,334			4,138			9,958			5,730
Finance income, net (a)	(248)			(13,306)			(2,723)			(15,617)
Transaction related expenses (b)	—			164			—			392
Acquisition related expenses (c)	—			768			—			4,971
Retention bonus expenses (d)	148			1,000			445			1,000
Legal claims	342			435			656			435
Severance cost (e)	—			—			845			—
Other	23			83			272			175
Taxes on income	1,335			(168)			4,159			(205)
Adjusted EBITDA	$	4,542		$	(1,660)		$	4,687		$	(4,669)
Adjusted EBITDA margin	13.1		%	(5.0)		%	7.2		%	(7.9)		%

(a) ~~In third quarter, 2022, the Company recorded impairment charges~~Finance income, net consists mostly of ~~$0.5 million~~remeasurement related to ~~the abandonment~~revaluation of ~~certain projects related to~~ our ~~internal software development.~~

~~(b) Finance expense (income), net consists primary~~warrants, remeasurement of ~~remeasurement expense related to~~ our foreign ~~subsidiaries’~~subsidiary’s monetary

assets, liabilities and operating results, and our interest expense and revaluation of our warrants. The unrealized loss from changes in the fair value of our warrants for the three months period ended September 30, 2022, was $4.6 million. The unrealized gain from changes in the fair value of our warrants for the nine months period ended September 30, 2022, was $11.4 million. The unrealized loss from changes in the fair value of our warrants for the three months and nine months period ended September 30, 2021, was $0.5 million and $3.2 million, respectively.expense.

~~(c)~~(b) Transaction related expenses consist of ~~professional fees associated with~~cost related to the SPAC merger ~~transaction and PIPE related SEC filings.~~transaction.

~~(d)~~(c) Acquisition related expenses consists of professional fees associated with the acquisition of TVS.

~~(e)~~(d) Retention bonus expenses consists of retention ~~bonus~~bonuses for TVS employees.

~~(f) For~~(e) Severance cost is related to the ~~three months and nine months ended September 30, 2022, “other” consists predominantly~~personnel reductions that occurred during the first quarter of ~~exit costs for a former TVS employee. In previous quarters, retention bonus and legal claims were included in “other”.~~2023.

We use Adjusted EBITDA and Adjusted EBITDA Margin as measures of operational efficiency to understand and evaluate our core business operations. We believe that these non-GAAP financial measures are also useful to investors for ~~period-to-period~~period to period comparisons of our core ~~business and for~~business. Additionally, these figures provide an understanding and ~~evaluating~~evaluation of our trends inwhen comparing our operating results, on a consistent basis, by excluding items that we do not believe are indicative of our core operating performance.

These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under US GAAP. Some of the limitations of these measures are:

•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.~~commitments;

•they do not reflect costs of acquiring and integrating businesses, which will continue to be a part of our growth ~~strategy.~~strategy;

•they do not reflect one-time, non-recurring, bonus costs and third party costs associated with the SPAC merger transaction and regulatory ~~filings.~~filings;

•they do not reflect goodwill impairment;

•they do not reflect severance costs;

•they do not reflect income tax ~~expense.~~

•~~they do not reflect impairments.~~expense or the cash requirements to pay income taxes;

•they do not reflect our interest ~~expense;~~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.

~~In addition, other~~Other companies in our industry may calculate these non-GAAP financial measures differently than we do, limiting their usefulness as a comparative measure. You should compensate for these limitations by relying primarily on our US GAAP results and using the non-GAAP financial measures only supplementally. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by total revenue.

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. These metrics are reported annually. Prior to our acquisition of TVS in 2022, our definition of a core client included only advertisers that generated at least $100,000 revenue in a twelfth-months period. Following our acquisition of TVS, we have included publishers as core clients.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2022,~~2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our ~~audited~~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, including the ongoing and potential impacts of the COVID-19 pandemic and other global events.~~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 of our unaudited interim condensed consolidated financial statements included in Item 1. “Financial Statements and Supplementary Data”, we believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our interim condensed consolidated financial statements.

Revenue Recognition

~~The Company generates~~Most of the Company’s revenues are derived from providing ~~Advertising Services~~Ad serving solutions to advertisers, ~~publishers,~~media agencies and ~~media agencies.~~publishers. The services focus on standard, interactive and data driven digital video advertising. ~~The Company’s revenue streams are ad serving, creative and measurement services.~~ Ad serving services relate to utilizing Innovid’s platform to serve advertising impressions to various digital publishers across CTV, mobile TV, desktop TV, display and other channels. ~~Creative~~

Revenues related to ad serving services are recognized ~~at a point in time.~~when impressions are delivered. 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.

Revenues related to the measurement services platform are recognized over time, since the customer simultaneously receives and consumes the benefits provided by the Company’s performance. Revenues for these measurement services are recognized over the service period.

Revenues related to creative ~~services~~projects are recognized at a point in time when the Company delivers an ad unit. Creative services projects are usually delivered within a week.

Revenues related to measurement services are recognized over time or at a point in time. If the customer simultaneously receives and consumes the benefits provided by the Company’s performance, revenues for these measurement services are recognized over the period during which the performance obligations are satisfied, and control of the service is transferred to the customer. This is the case when the customer has access to the measurement application in real time. The performance obligation is satisfied over the contract period on a straight-line basis. If the Company delivers the measurement report, the revenues are recognized at the point in time the report is delivered.

The Company’s accounts receivable, ~~consists~~consist primarily of receivables related to providing ad serving, measurement and creative ~~and measurement~~ services, infor 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 ~~net~~ 60 days or less.

~~Costs to obtain a contract~~

~~Contract costs include commission programs to compensate sales employees~~Deferred revenues represent mostly unrecognized fees billed or collected for generating sales orders with new customers or for new services with existing customers. The commissions are commensurate. The Company elected to apply the practical expedient and recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less.

~~Warrants~~

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance. The assessment considers whether the warrants are freestanding financial instruments, meet the definition of a liability under ASC 480, and meet all of the requirements for equity classification, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrants are outstanding.

Warrants that meet all the criteria for equity classification, are required to be recorded as a component of additional paid-in capital. Warrants that do not meet all the criteria for equity classification, are required to be recorded as liabilities at their initial fair value on the date of issuance and remeasured to fair value at each balance sheet date thereafter. The liability-classified warrants are recorded under non-current liabilities. Changes in the estimated fair value of the warrantsmeasurement platform services. Deferred revenues are recognized ~~in “Financial expenses, net” in~~as (or when) we perform under the ~~condensed consolidated statements of operations.~~

contract.

Fair value of financial instruments

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 which are supported by little or no market activity.

The Company’s financial instruments consist of cash and cash equivalents, restricted deposits, trade receivables, net, trade payables, employees, ~~and~~ payroll accruals, accrued expenses and other current liabilities and current portion of ~~long term~~long-term debts. Their historical carrying amounts ~~are~~represent the approximate fair ~~values~~value due to the short-term maturities of these instruments.

The ~~Private Placement~~goodwill impairment recorded in the second quarter of 2023 was estimated using the Company's stock price, a Level 1 input, adjusted for an estimated control premium.

As of June 30, 2023, the Company’s warrant liability includes the Warrants, that were originally issued in connection with ION’s initial public offering, the “ION IPO,” which were transferred to the Company as part of the ION’s Transaction. The Company’s Warrants are recorded on the balance sheet at fair value with changes in fair value recognized through earnings. This valuation is subject to re-measurement at each balance sheet date. With each re-measurement the valuation will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations.

The Company has determined that the fair value of the Public Warrants and Transferred Private Warrants, at the balance sheet date is determined by the closing price of the Company’s warrants, and are within Level 1 of the fair value hierarchy.

The Transferred Private Warrants are no longer classified as Level 3 ~~in the fair value hierarchy and continue to be valued using the Black-Scholes option pricing model.~~ as of June 30, 2023.

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 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. During the three month period and six months ended June 30, 2023 (unaudited), the Company tested its long-lived assets for recoverability and concluded that no impairment should be recognized.

Goodwill and intangible assets

Goodwill and ~~certain other purchased~~acquired intangible assets have been recorded in the ~~Company’s condensed consolidated~~Company's financial statements ~~because of the acquisitions.~~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, but rather 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 iswould be reassigned using a relative fair value allocation approach. The Company currently has one 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 itits 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 itits 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. During the three months ended June 30, 2023, the Company recorded Goodwill impairment in the amount of $14,503.

~~Intangible assets with a finite useful life are amortized over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired.~~

The amortization of ~~our~~customer relationships, acquired technology and trade name ~~customer relationships and technology will be~~is presented within depreciation and amortization in the condensed consolidated ~~statement~~statements of operations.

~~Software~~

Capitalized software development costs

Software development costs, which are included in property and equipment, net, consists of capitalized costs related to the purchase and ~~develop~~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 ~~related~~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.

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 of 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.

Recent Accounting Pronouncements

For information on recent accounting standards, see “Part I - Item 1. Financial Statements and Supplementary Data - Note 2.2. 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 Securities Exchange Act of 1934, as amended, 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 Securities Exchange Act of 1934, as amended as of ~~September~~June 30, ~~2022.~~2023. 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 has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

4538

Part II

Item 1. Legal Proceedings

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, ~~the Nielsen Claim~~a lawsuit was filed in the United States District Court for the Western District of Texas by The Nielsen, Company (US) LLC against ~~TVS.~~ TVS ~~has filed its answer to the complaint and has also filed an opposed motion~~alleging infringement of US Patent No.10,063,378. On June 1, 2022, TVS moved to transfer ~~venue~~the case to the Southern District of New York. On February 24, 2023, the case was transferred to the Southern District of New York. On March 23, 2023, the parties jointly filed their proposed case management plan and scheduling order, which the Court entered and thereafter opened discovery. That ~~motion is scheduled to be heard on November 14, 2022~~order sets the close of fact discovery for October 23, 2023, and ~~if unsuccessful~~ the ~~following hearing in the current venue would be scheduled~~close of expert discovery for January ~~2023.~~23, 2024, but does not set a date for trial. On the same day, TV Squared filed a motion for judgment on the pleadings under Federal Rule 12(c) arguing invalidity of all asserted patent claims. Briefing concluded on April 24, 2023, and the motion remains pending. 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 June 30, 2023, the Company did not record a loss contingency.

Item 1A. Risk Factors

~~Our business, financial condition and operating results can be affected by a number~~Except as described in Item 1A of ~~factors, whether currently known or unknown, including but not limited~~Part II of our Form 10-Q filed for the quarterly period ended March 31 2023, there have been no material changes to ~~the~~our risk factors as previously disclosed in Item 1A of Part I of our ~~2021~~2022 Annual ~~Report and as updated in~~ ~~Item 1A of Part II of our Quarterly~~ Report on Form ~~10-Q~~ for the first quarter 2022 and in item 1A of Part II of our Quarterly Report on Form 10-Q for the second quarter 2022, which are incorporated herein by reference. Other than such updates, there have been no material changes to the Company’s risk factors since the 2021 Annual Report.

If the use of digital advertising is rejected by consumers, through opt-in or opt-out means, or made more difficult through ad-blocking technologies or other means, it could have an adverse effect on Innovid’s business, results of operations, and financial condition.

Consumers can, with increasing ease, implement technologies that limit Innovid’s ability to collect and use data to deliver advertisements, or otherwise limit the effectiveness of its platform. Cookies may be deleted or blocked by consumers. Cookies have not been available on iPhone, nor across Safari or Firefox browsers for several years and we anticipate that other browsers, including Google Chrome and others will follow suit. While such limitations have not, to date, materially impacted Innovid’s business as a result of Innovid’s cross-channel, cross-device dynamic creative campaigns, which are not solely reliant on cookies or device IDs, Innovid’s ability to continue to respond to changes in ad-blocking technologies will have an impact on its business, results of operations, and financial condition.

To the extent cookies remain relevant to Innovid’s business, most commonly used internet browsers allow consumers to modify their browser settings to block first-party cookies (placed directly by the publisher or website owner that the consumer intends to interact with) or third-party cookies (placed by parties, like us, that have no direct relationship with the consumer), and some browsers block third-party cookies by default. For example, Apple’s privacy relay was released in late 2021 and Apple has announced its intention to move to “opt-in” privacy models, requiring users to voluntarily choose to receive targeted ads, which may reduce the value of ad impressions on its iOS mobile application platform. Privacy relay is is not enabled in all geographies, and Apple may enable/disable the feature on specific devices using criteria not stated. These changes may adversely affect our ability to measure advertising through the Safari browser. Many applications and other devices allow consumers to avoid receiving advertisements by paying for subscriptions or other downloads. Mobile devices using Android and iOS operating systems limit the ability of cookies to track consumers while they are using applications other than their web browser on the device. As a consequence, fewer of Innovid’s cookies or publishers’ cookies may be set in browsers or be accessible in mobile devices, which may adversely affect Innovid’s business. Some consumers also download free or paid “ad blocking” software on their computers or mobile devices, not only for privacy reasons, but also to counteract the adverse effect advertisements can have on the consumer experience, including increased load times, data consumption, and screen overcrowding. Ad-blocking technologies and other global privacy controls may prevent some third-party cookies, or other tracking technologies, from being stored on a consumer’s computer or mobile device. If more consumers adopt these measures, and Innovid’s alternative approaches prove unsuccessful, Innovid’s business, results of operations, and financial condition could be adversely affected. Ad-blocking technologies could have an adverse effect on Innovid’s business, results of operations, and financial condition if they reduce the volume, effectiveness or value of advertising. In addition, some ad blocking technologies block only ads that are targeted through use of third-party data, while allowing ads based on first party data (i.e., data owned by the publisher). Even if ad blockers do not ultimately have an adverse effect on Innovid’s business, investor concerns about ad blockers could cause Innovid’s stock price to decline.

If the ability to collect, use, and disclose data is limited by consumer tools, regulatory restrictions or technology limitations such as those imposed by mobile operating system or browser providers, certain advertising offerings could be impacted and Innovid’s business may be adversely affected.

As Innovid processes transactions through its platform, it collects large amounts of data about advertisements and where they are placed, such as advertiser preferences for media and advertising content. Innovid collects data on consumers that does not identify the individual, including browser, device location and characteristics, online browsing behavior, exposure to and interaction with advertisements, and inferential data about purchase intentions, and preferences. Innovid collects this data through various means, including from its own platform and measurement tracking capabilities. Innovid’s advertisers, publishers, and data providers may choose to provide Innovid with their proprietary data about consumers. Innovid aggregates this data and analyzes it in order to enhance its services, including the pricing, placement, and scheduling of advertisements.

As part of Innovid’s real-time analytics service offering, it also shares the data, or analyses based on it, with its advertisers. There are many technical challenges relating to Innovid’s ability to collect, aggregate and associate the data, and Innovid cannot assure that it will be able to do so effectively. In addition, system and browser providers, such as Apple and Google, have implemented product changes to limit the ability of websites and application developers to collect and use data to target and measure advertising and such product changes may continue to evolve. Evolving regulatory standards could also place restrictions on the collection, management, aggregation and use of information, which could result in a material increase in the cost of collecting or otherwise obtaining certain kinds of data and could limit the ways in which Innovid may use or disclose information. Internet users can, with increasing ease, implement practices or technologies that may limit Innovid’s ability to collect and use data to deliver advertisements, or otherwise inhibit the effectiveness of its platform. Although Innovid’s advertisers generally permit it to aggregate and use data from advertising placements, subject to certain restrictions, advertisers might decide to restrict Innovid’s collection or use of their data. Any limitations on this ability could impair Innovid’s ability to deliver certain advertising offerings, which could adversely affect its business, results of operations, and financial condition.10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

~~Use of Proceeds~~

On November 30, 2021, Innovid, Inc. consummated the Merger Agreement dated June 24, 2021, with Innovid surviving the merger. Approximately $149.3 million in cash proceeds were received net of transaction costs paid. On February 28, 2022, the Company completed the acquisition of TVS. 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, and the issuance of 949,893 fully vested stock option of the Company, subject to certain adjustments as defined in the Stock Purchase Agreement. For greater detail, see ~~Note 3, “Transaction and Business Combination" to our unaudited interim condensed consolidated financial statements included under~~ ~~Item 1~~, ~~" Financial Statements and Supplementary Data.”~~

~~The remainder of the proceeds from the Transaction is being used to fund our operations.~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

N/A.

Item 6. Exhibits

4739

Incorporated by Reference
Exhibit Number Description Form File No. Exhibit Filing date Filed furnished herewith
2.1
Agreement and Plan of Merger, dated June 24, 2021, by and among ION, Merger Sub 1, Merger Sub 2, and Innovid.
8-K 001-40048 2.1 06/29/21
3.1
Certificate of Incorporation of Innovid.
10-K 001-40048 3.1 03/18/22
3.2
Bylaws of Innovid Corp.
8-K 001-40048 3.2 12/06/21
4.1
Specimen Common Stock Certificate of Innovid Corp.
8-K 001-40048 4.1 12/06/21
4.2
Specimen Warrant Certificate of Innovid Corp.
8-K 001-40048 4.2 12/06/21
4.3
Warrant Agreement, dated February 10, 2021, by and between ION and Continental Stock Transfer & Trust Company, as warrant agent.
8-K 001-40048 4.1 02/18/21
10.1
Amended and Restated Loan and Security Agreement, by and among Silicon Valley Bank and each of the Borrowers, dated August 4, 2022.
10-Q 001-40048 10.1 08/10/22
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
*
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
*
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
**
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
**
* Filed herewith.
** Furnished herewith.

Incorporated by Reference

Exhibit Number

Description

Form

File No.

Exhibit

Filing date

Filed furnished herewith

2.1

Agreement and Plan of Merger, dated June 24, 2021, by and among ION, Merger Sub 1, Merger Sub 2, and Innovid.

8-K

001-40048

2.1

06/29/21

3.1

Certificate of Incorporation of Innovid.

10-K

001-40048

3.1

03/18/22

3.2

Bylaws of Innovid Corp.

8-K

001-40048

3.2

12/06/21

4.1

Specimen Common Stock Certificate of Innovid Corp.

8-K

001-40048

4.1

12/06/21

4.2

Specimen Warrant Certificate of Innovid Corp.

8-K

001-40048

4.2

12/06/21

4.3

Warrant Agreement, dated February 10, 2021, by and between ION and Continental Stock Transfer & Trust Company, as warrant agent.

8-K

001-40048

4.1

02/18/21

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

10.1

Amended and Restated Non-Employee Director Compensation Program

10.2

Amended and Restated Loan and Security Agreement, by and among Silicon Valley Bank, and each of the Borrowers set forth therein, dated August 4, 2022

10-Q

001-40048

10.1

08/10/22

10.3

First Loan Modification Agreement, by and among Silicon Valley Bank, A Division of First-Citizens Bank & Trust Company, and each of the Borrowers set forth therein, dated August 2, 2023

Filed herewith.

Furnished herewith.

4840

SIGNATURES

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.


	INNOVID CORP.

Date: ~~November 14, 2022~~August 8, 2023	By:	/s/ Zvika Netter
		Zvika Netter
		Chief Executive Officer

Date: ~~November 14, 2022~~August 8, 2023	By:	/s/ Tanya Andreev-Kaspin
		Tanya Andreev-Kaspin
		Chief Financial Officer

4941


			Page
Part I
Item 1. Financial Statements ~~and Supplementary Data~~			65
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			3023
Item 3. Quantitative and Qualitative Disclosures About Market Risk			4538
Item 4. Controls and Procedures			4538

Part II
Item 1. Legal Proceedings			4639
Item 1A. Risk Factors			4639
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4739
Item 3. Defaults Upon Senior Securities			4739
Item 4. Mine Safety Disclosures			4739
Item 5. Other Information			4739
Item 6. Exhibits			4739
Signatures			4941


	Three months ended September 30, 2022						Three months ended September 30, 2021
	Unaudited						Unaudited
	Under previous classification		Effect of change		As reported		Previously reported		Effect of change		As adjusted
Cost of revenues	$	9,505	$	(971)	$	8,534	$	4,569	$	(21)	$	4,548
Operating expenses:
Research and development	7,920		(608)		7,312		5,426		(84)		5,342
Sales and marketing	13,958		(232)		13,726		8,735		(46)		8,689
General and administrative	9,117		(71)		9,046		3,987		(5)		3,982
Depreciation, amortization and impairment	$	—	$	1,882	$	1,882	$	—	$	156	$	156


	Nine months ended September 30, 2022						Nine months ended September 30, 2021
	Unaudited						Unaudited
	Under previous classification		Effect of change		As reported		Previously reported		Effect of change		As adjusted
Cost of revenues	$	23,782	$	(1,971)	$	21,811	$	12,418	$	(59)	$	12,359
Operating expenses:
Research and development	25,031		(755)		24,276		16,932		(234)		16,698
Sales and marketing	38,967		(570)		38,397		23,534		(168)		23,366
General and administrative	30,641		(185)		30,456		10,587		(26)		10,561
Depreciation, amortization and impairment	$	—	$	3,481	$	3,481	$	—	$	487	$	487


	January 1, 2022
	(Unaudited)
	ROU assets		Lease liabilities
Real Estate	$	3,878	$	5,482
Cars	50		49
Total operating leases	$	3,928	$	5,531