AcuityAds Holdings Inc. (NASDAQ:ATY) Q2 2022 Earnings Conference Call August 10, 2022 8:30 AM ET
Company Participants
Tal Hayek – Co-Founder and Chief Executive Officer
Elliot Muchnik – Chief Financial Officer
Conference Call Participants
Darren Aftahi – ROTH Capital Partners
Operator
Good morning, everyone. Before we begin the official remarks, I will read the cautionary note regarding forward-looking information. Certain information to be discussed during this call contains forward-looking statements within the meaning of applicable security laws, including, among others, statements concerning the company’s objectives, the company’s strategy to achieve those objectives as well as statements with respect to management’s beliefs, plans, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Such forward-looking statements reflects management’s current beliefs and are based on information currently available to management and is subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Please refer to the cautionary statements and the risk factors identified in our filings with the CEDAR and EDGAR for a more detailed explanation of the inherent risks and uncertainties that could affect such forward-looking statements. Following the presentation, we will conduct a Q&A session.
I would now like to turn the conference call over to Tal Hayek, the Co-Founder and Chief Executive Officer of AcuityAds, to update you on the operations of the business.
Tal Hayek
Good morning, everyone. My name is Tal Hayek and I’m the CEO and Co-Founder of AcuityAds. It is my pleasure to welcome you to today to our Investor Video presentation. Coming to you from our Toronto. I like to start by thanking the Acuity family for delivering a solid Q2.
Changes in the world of advertising is something that’s happening very rapidly, and we’re very happy to be with illumin to be in the forefront of it. We – the one that are changing the world of advertising. Illumin its not just another DSP, it has a lot of differentiation. And I’d like to touch what problem is illumin solving.
While there’s two major problems that illumin is solving. The number one illumin that it’s solving is that there’s a huge gap between the way marketers plan, which is a consumer journey. And the way that programmatic gets delivered, which is a black box completely disregards the consumer journey.
And illumin gives marketers the ability to plan the journey, and then with one click to execute on it. So that is a huge problem that the market has been waiting for a long and illumin solves that.
The second problem that we’re solving is the ease of use. So today, in order to use any other DSP, you need to be a highly trained expert, you probably need to go to hundreds of hours of training, and it takes you many long hours to set up campaigns.
Because illumin is a drag and drop system, very intuitive, you do not need to be a highly trained expert, you can be an average user. And with very, very little training, you can start dragging and dropping things into your journey and campaign and execute on it. And it takes you a fraction of the time that it will take you when you use any other DSP.
So as we see the success of illumin, we’re continuing to invest into it for the rest of 2022. With lots of enhancement, enhancement to the workflow we’re doing, we’re making improvements to improve and reduce the time it takes a person to set up campaign and to maintain a campaign.
Journey management. And so making it easy to maintain those campaigns. So at the end of the day, one person will be able to maintain multiple more campaigns than they can on traditional DSPs. Improving the path the whole concept of the path to support more complex campaign that will not need dozens and dozens of fat [ph] to be created. So this is something that we introduced lately that’s – that we’re seeing great results out of.
So we believe that Acuity and illumin is the best investment we can make. And this is why we keep buying our own shares of the company and the management team keeps buying shares on a personal level too.
Q2 was all about illumin growth. In fact, we saw major illumin growth on self serve as well, which is something that we’re highly focused on. Overall Q2 revenue grew by 18.6% sequentially quarter-over-quarter to $28.3 million and down 6.6% year-over-year.
Percentage of illumin revenue versus overall revenue, we’re seeing improvement ever since we started, so we launched Illumin in Q4 of 2020. It was 4% of revenue. It is now up 36% of revenue. And as we predicted, we do believe that we will exit the year with a run rate of 50% illumin revenue.
The number of clients using illumin against growing significantly when we started, it was nine clients using it Q4 2020, we now have 77 clients using it. And you know, what we do all the time, it’s all about bringing more customers and expanding the spend per client that we’re seeing on illumin.
So when we saw last year, at the same time, Q2 of 2021, we saw $5.2 million revenue from illumin and in Q2 2020 up 96% at $10.2 million in revenue. And the most exciting part of that we’re seeing is self serve. So we’ve communicated in the past that we made some investment in Q1 of this year, we set up a dedicated team, and we’re starting to see great results for it, still early days, but looking in Q3 of 2021, we hardly had any revenue coming from self serve illumin, we now have over a $1 million in q3 and the future is looking rosy for that as well.
From a client growth in Q3 of 2021, we had 10 clients on self-serve illumin, we now have 31 clients on it. Our mission in life is to start adding more and more of those clients into the self serve system.
And from specific vertical. Before I talk about the specific vertical group, I do like to mention that we are a platform and as such, we can deal with any vertical out there. And it’s very easy for us to adopt from one vertical to another when economic condition changes as well. But the three we’re going to – I like to highlight right now is we’ve seen 26% growth in the tech space, we seen 180% growth in the professional services space, and 236% growth in financial and insurance space. Elliot will now talk about Q2 financials.
Elliot Muchnik
Thank you, Tal. Good morning. And thank you for joining us today. We are pleased to announce our Q2 2022 financial results which demonstrate strong progress within our pipeline and illumin plan expansion, factors that we believe position us well for the balance of the year.
We continue to focus on creating a strong foundation for delivering illumin for our clients around the world, while expanding the reach and capability of our unique industry leading technology to advertisers.
The economic challenges we all face are creating greater uncertainty and volatility. This impacts the predictability of our revenues and we continue to closely monitor and listen to our clients about their concerns and the challenges they may be anticipating in the future within the current environment.
We strongly believe that our best path forward is to invest in our future, invest in our people, product and platform and in our organizational strength. So despite these economic headwinds, we saw sequential growth in Q2 over Q1 both in overall revenue and in the illumin’s proportion of that revenue. We expect to build on that momentum and we do expect strong year-over-year growth in the second half of 2022.
And on that note, I would like to discuss our financial results for Q2. Our total revenue was $28.million, an increase of 19% over Q1 at $23.8 and a decline of 7% from the Q2 of last year to $30.3.
Our managed services component of that revenue was $18.2 million in the second quarter of this year, compared to $23.6 in Q2 2021, a decrease of 23%. We attribute the decline to the impact of economic headwinds that are impacting certain industry segments and the growth of our self serve component of our business.
Our self serve revenue was $10.1 million or 36% overall, and an increased 52% over Q2 2021. This growth is driven by increased adoption of illumin by a number of major global brands, reflecting the ease of use design substantially lends itself to self serve usage.
Our focus and efforts here are showing great traction. Our revenue from illumin overall was 96% in Q2 to $10.2 million compared to $5.2 million in Q2 of 2021. Year-to-date illumin revenue is $18.1 million for the six months ending June 30, up over 118% for the same period last year.
Gross profit or net revenue was $14.7 million in Q2 compared to $15.8 million in the Q2 of our year, a decrease of 7%. Our gross margin in Q2 of this year was 51.9% in line with prior quarters and the 52.2% we achieved in the second quarter of 2021. We continue to benefit from our system and execution strength on generating strong margins but expect the percentage to decline slowly as the proportion of sales serve revenue continues to increase.
Our operating expense for Q2 equals $16.7 million, compared to $13.3 million for the same period in 2021, an increase of 26%. And as we discussed in the prior calls, the increase reflects our strategy to expand our capability and reach within the North American market, as well as Europe and Latin America to build stronger brand presence and recognition and to continue to enhance and build on the functionality of our product.
We are seeing the impact of these efforts in our pipeline and in the opportunities that are being created for our product. We strongly believe that we have the right foundation to build on for the second half of this year and for the future, and a significant part of the OpEx increase are almost one third, our costs directly related to our NASDAQ listing, increases in insurance, listing fees, legal costs that are the most material aspects.
Operating expenses as a percentage of revenue totaled 59.1% in Q2 compared to 43.9% in the same period of 2021. Adjusted EBITDA this quarter was $1.5 million compared to $5.4 million for the same period in 2021. This decrease of $3.9 million was primarily attributable to our growth initiatives already discussed along with the lower revenues. Our net income for Q2 was $0.9 million, which is down from an income of $3.4 million in Q2 last year.
As we mentioned earlier, we are actively repurchasing shares under our normal course issuer bid during the second quarter of this year. And in this quarter, the company purchased and canceled 2.3 million of its common shares at an average price of $3.15 for the total consideration $7.1 million. We are allowed under the regulatory rules to purchase up to a maximum of 5.5 million shares and as of this week, we have purchased in total 3.5 million shares for a total of $11.1 million in consideration. And this share purchase actively demonstrates our confidence in our balance sheet, as well as our fundamental belief in the company’s long term prospect.
As of June 30 2022, our cash and cash equivalents balance stood at $92.5 million compared $102.2 at the end of December of last year, and much of this change is related to our share repurchase during this quarter that I just discussed.
As of this, as of the end of the Q2 Acuity had 59 point 1 million common shares outstanding, on a fully diluted basis 63.7. Our insider ownership is approximately 13% and in Q2 in addition to purchases and cancellation of shares under our NCIB, inside as the company purchased 3160,000 [ph] shares in the open market.
Our first half of the year was about making a number of reported changes in investments to support future growth. Given the progress we have seen and the continued success and growth of illumin, we are bullish in our growth prospects for the second half of the year.
With our investment in our organizational capabilities and our strong balance sheet, we remain focused on scaling the business and growing our team to create more opportunities and to build market share. That growth trajectory also includes continued efforts on our targeted M&A strategy, we are seeing more aligned valuations in the private market than we had in the past six months. And we will continue to explore accretive opportunities that fit our synergistic growth plans, and to continue to build shareholder value.
And although we expect macroeconomic challenges to persist in the near term, we remain very optimistic about our growth opportunities this year and beyond 2022, especially with the long term value generation for our shareholders, our view is supported by our active and impressive efforts on our normal course issuer bid over the last quarter in material open market purchases by insiders in the company.
And with that, I would like to pass it over to Tal for concluding remarks.
Tal Hayek
Thank you, Elliot. So for closing, I’d like to highlight that in Q2, we saw a tremendous improvement in growth in self-serve illumin, which is something that we’re very excited about, and we’re very focused on and we’re going to work very hard to increase those numbers into the future.
We are very, very happy about the progress of all the investments we’ve been making. As you know, we made a lot of investments in the long term health and structure of the business, and we see things are moving forward very, very healthy. In fact, into Q3, we’re already showing solid growth in overall revenue number, including illumin as well.
And we believe that illumin and Acuity is the best investment that we can make, and this is why we’re buying back our shares on a regular basis again, because we believe that this is the best investment we can make. In fact, management is buying shares as well personally, we bought 361,000 shares and the majority of those shares were bought by me personally.
So as we’re watching the global situation carefully, again, I’m happy to report that in Q3, we’re seeing very positive numbers. It’s hard to predict how Q4 is going to look like, but the early indicators are showing great signs and we’re looking forward to the future.
So with that, I like to thank everyone for joining us today. Thank you to the Acuity family for delivering. Thank you for the investors for being our supporters could never do it without you guys. So again, thank you, thank you, thank you. And I would like to now go to Q&A.
Question-and-Answer Session
Operator
Thank you. Tal and Elliot. Just a reminder to our analysts and if you would like to ask a question to use the raise hand function in the top left quarter of your video screen. We would also ask you for you to keep it to two questions per analyst. Please wait a moment while we assemble the roster. Our first question is coming from Darren Aftahi of ROTH Capital Partners.
Darren Aftahi
Hey, guys. Can you hear me? I can barely hear you Tal and Elliot. But anyways. Good to see you guys. If you can hear me. Can you hear me now?
Tal Hayek
I can.
Darren Aftahi
Okay. Perfect. Just two things. One, sales force productivity, can you talk about any kind of metrics? I know you guys hired a lot of people earlier in the year. Just trying to understand any kind of metrics to understand the kind of efficiency of those new sales hires. And then obviously, there’s a lot of macro uncertainty. We’ve heard a lot of ad tech companies report.
I’m just kind of curious some of the puts and takes. What verticals are you seeing some softness? What are some verticals where you guys are seeing some strength? And then kind of what gives you confidence that you can get to 50% of revenue or better with illumin by Q4? Thanks.
Tal Hayek
So, let’s start with the sales force is that something we’re obviously focusing a lot on. Whenever you make an investment into our sales force, there’s a lag period before we start seeing the results we made, a lot the investments early on in the year. And we’re starting to see great results.
We also have as hired different types of salaries, some that are way more experienced with more or less to see if it shorten the lifetime. And, we are seeing better results on that as well and faster adoption. So don’t forget that the – even though we’re going to see the results this year, imagine the type of results you’re seeing next year with those new sellers.
So we’re very happy, but what we’re seeing from the sales force, and that, you know, like I said in the – earlier on, we’re back to solid growth in Q3. And that’s a huge part of it. And regarding the macros and the economics, and the vertical, you know, the one thing that I like to point out is we’re a platform, we can handle any vertical out there.
So when there’s an issue with one vertical, it’s very easy to move to others. With a – you know, the example is what happened when the pandemic started and travel, entertainment went to zero where we lost 30% of our revenue. And very, very quickly, we were able to move to other verticals that were doing very well.
I’d say that most of the top verticals that we have are not really related to or at risk by recession. And then there’s many, many verticals that – that we can bring in. In case others are suffering.
Darren Aftahi
Great, appreciate it. Thanks.
Tal Hayek
Thank you.
Operator
Currently, we are not showing any other questions. I will just remind everybody if you would like to ask a question to please use the raise hand function in the top left corner of your video screen. Meanwhile, we can share that we are here in the Toronto office, which is very happy to see how it’s coming back to life and the energy and people are back in the office. It’s really, really great to see that.
I’m showing no further questions Tal. So I will hand it back over to you for any final remarks.
Tal Hayek
Sounds good. I’d like to thank again, everyone for joining us this morning. Happy to report the Q2 numbers and very, very excited about what’s happening in Q3 and beyond. illumin is changing the world of advertising, like we said, and we’re very excited about the future. So thank you, everyone.
Elliot Muchnik
Thanks very much.
Be the first to comment