AcuityAds Holdings Inc. (NASDAQ:ATY) Q3 2022 Results Conference Call November 10, 2022 8:30 AM ET
Company Participants
Tal Hayek – Co-Founder and Chief Executive Officer
Elliot Muchnik – Chief Financial Officer
Conference Call Participants
Daniel Medina – Needham & Company
Daniel Rosenberg – Paradigm Capital
Aravinda Galappatthige – Canaccord Genuity
Robert Goff – Echelon Wealth Partners
Dillon Heslin – ROTH Capital Partners
Laura Martin – Needham & Company
Drew McReynolds – RBC Capital Markets
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, 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 SEDAR 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 Hyde, and I’m the Co-Founder and CEO of AcuityAds. I would like to welcome everyone to our Q3 Investor Presentation.
Let’s start by thanking the Acuity family. The Acuity family has delivered, in the past two years, an amazing product to market. It is called illumin. And illumin is changing the world of advertising. And it would not be possible without the passion, commitment, desire to succeed of everybody in this family. So thank you all for making this happen.
The ad industry is changing. We have world guidance. We have privacy issues. We have line items and gross repetition of ads that do not work anymore. Marketers need journey advertising tools.
In fact, marketers think that way. They always did think that way, they just never had the tools to actually produce it that way on the programmatic side. And illumin is the only tool that solves that huge problem. Illumin is a journey advertising platform. And again, it is the only one of its kind.
Imagine you can tailor the message to the consumer depending on where they are on their journey. And you can do it in an intuitive system, drag and drop system, but you don’t need to train for it for hundreds of hours in order to know how to operate it. It saves you time on set up, it saves you time in managing the campaign. So imagine that tool is around and it is around, it is called illumin, and it is changing the world of advertising.
I can tell you, one of my favorite parts of my job is sitting in on demos and when marketers see the illumin demo for the first time, and they cannot sit still in their seat because there is so much excitement because again, this is the way that they like to communicate to consumers. They just didn’t have the tools to do it after now. And with illumin, it is right there.
In Q3, we invested more on a lot. One of the major improvements we have done is we proved the path part. What does it mean? It means that if a marketer would like to set up a more simple campaign, one that is not a complete journey, but has more like a performance base, we have adopted the system that will be very easy for the marketers to do that.
So that opens up a whole new market for us for campaigns. And when they do that, they improve the time to set up a campaign by at least 30% and many times a lot more. So we have seen our own internal team preferring to use that over and over again, obviously, the outside self-serve clients as well.
We have also been very focused on many things to do with self-serve clients, starting with increasing the number of demos that we do on a regular basis. We have seen over a 161% increase in the amount of demos that we do from Q1 to Q3. Our closing rates are higher and the days it takes us to activate clients from signed contracts to spending on the system is sure. So all that shows us a great formula for the future.
We truly believe that illumin is changing the world of advertising and we are so excited to be at the forefront that change. And we just started. There is a lot more to do. The product is adopting and innovating on a regular basis. Our focus now is truly, truly on the self-service pipe from a sales perspective, from a marketing perspective.
And with that, let’s look at some Q3 results. Well, I’m happy to report that this is the first quarter for a while that we are delivering an increase in revenue. We delivered $29 million in revenue, which is up 5.5% year-over-year.
The illumin as a percentage of revenue is growing progressively on a quarterly basis as you can see, it was 36% of revenue last quarter, 46% of revenue this quarter. We are well above what we thought were going to be at this time as we promised, we are going to exit the year at more than 5 0% of the revenue on the illumin side.
We are also increasing clients on regulates. So 94 in clients on a illumin in Q3 versus 77 that we had in Q2 of this year, or 52 that we had in Q3 of 2021. So that is very nice growth that we are seeing.
Revenue, $13.2 million of our revenue in Q3 came from illumin. That is up 78% from the year before that. And what I track very closely and I think that is a very important part of where we are going, is the illumin self-serve revenue.
In Q1, we had $0.5 million; in Q2, $1 million; in Q3, $1.2 million. But don’t let that number fool you. The number of demos are going up, the number of closed customers are going up. In fact, in Q3, we had many close clients that we are going to start seeing the results in Q4.
And our focus is the majority of it is on bringing in new clients, new logos into the illumin self-serve. The number of client growth, as you can see, 44 clients using illumin self-serve in Q3 versus 31 in Q2. We will see, again, the results in the revenue side in Q4.
Let’s talk about some verticals. So we have seen a few verticals that are showing some nice growth, 26% growth on tech and software side of things. Pharma health is also about 26% growth and financial side, close to 38% growth. So those are some of the verticals that are doing very well under the current position.
With that, I would like to call on Elliott, our CFO, to share some financial results.
Elliot Muchnik
Good morning, and thank you for joining us today for our Q3 Earnings Call. We are pleased to announce our financial results, which demonstrate the continued and rapid adoption of illumin as shown by the second consecutive quarter of nearly 30% revenue growth for the illumin platform.
Our strong and growing pipeline is a direct result of the focus and investment we are making in building out our sales infrastructure as well as continued product development and marketing presence.
In Q3, we experienced sequential and year-over-year revenue growth, both overall and within the key illumin self-serve category, where we had particular success in attracting new clients to the firm, and we will continue to capitalize on this demand and support this growth into 2023.
It is clear that the current market continues to reflect fears and financial stability as macro uncertainties persist. So while predicting the market or the economy will be even more challenging during this period, that we believe we will see growing revenue investment value and the uniqueness of our illumin platform to advertisers will outweigh the short-term concerns.
Our strong balance sheet and liquidity are key to our ability to execute our strategy and to take advantage of inorganic opportunities to accelerate growth in an environment where sector multiples are at an all-time low. 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.
And on that note, I would like to discuss our financial results for Q3. Our total revenue of 28.9 million an increase of 2.5% over Q2 of this year at 28.2 million, and an increase of 5.5% from prior year Q3 at 27.5 million.
We attribute this growth to our illumin platform especially the self-serve component even as the overall spend by our clients was reflecting the high level of uncertainty about current and future economic conditions.
Managed services revenue was 28.4 million in Q3 of this year compared to 19.3 million in the prior Q3 of 2021, an increase of 5%. Our self-serve revenue totaled 8.5 million for Q3 compared to 8.1 million for the same period in 2021, an increase of 5%.
Revenue from illumin rose over 29% from Q2 this year to 13.2 million and 78% versus prior year Q3. And year-to-date, the illumin revenue is 31.3 million for the nine-month period ending September 30, up over 97% compared to the same period last year at 15.9 million.
Our gross profit or net revenue was 14.8 million in compared to 14.3 million in Q3 of last year, an increase of 3.5%. Our gross margin in this quarter was 51.3% compared to 51.9 in Q3 of last year. Our operating expense for Q3 was 16.3 million compared to 12.5 million for the same period in 2021, an increase of 30%.
And this reflects our strategic focus on increasing our product capability and sales and marketing to help drive increased adoption of illumin. And these targeted investments have begun to show significant traction with client activity and new names and brands, as you heard earlier in Tal’s presentation.
OpEx is 56% of revenue in this quarter compared to 45% for the same period in 2021. And our adjusted EBITDA number in Q3 2022 was 1.6 million compared to 4.4 million for the same period last year. And this decrease in adjusted EBITDA was primarily attributable to our growth initiatives that I just discussed earlier.
Our net income for Q3 2022 was 2.8 million compared to net income of 3.4 million in the prior year. As of September 30, our cash and cash equivalent balance stood at 88.2 million compared to $102.2 million as of the fiscal year end 2021.
And much of this change is related to our share repurchases made during the previous six-months. And even with these repurchases, we ended the quarter with a strong balance sheet and ample liquidity to continue further repurchases and seek targeted M&A opportunities to increase our growth trajectory and further our strategic objectives.
In the quarter, the company purchased and canceled 1.8 million of its common shares at an average price of $3.23 per share for a total consideration of 5.9 million. As of November 4th, we had purchased a total of 4.1 million shares for 13 million in total consideration. And this share repurchase activity demonstrates our confidence in our balance sheet as well as our fundamental belief in the company’s long-term prospects.
As of September 30th, Acuity had 61.8 million common shares outstanding on a fully diluted basis. Our insider ownership is at approximately 15% of this 57.1 million issued in outstanding shares.
In summary, with our investment in our organizational capabilities and our strong balance sheet, we remain focused on scaling our business and growing our team to create more opportunities and build market share. With illumin now representing 46% of our total top-line, it is well on its way to exceeding our stated goal of over half of our top-line by the end of the fiscal year.
Our growth both in sales and new client wins is proof that our innovative Journey advertising platform is changing the game with its amazing simplicity and the deep insights it provides to users.
Our growth trajectory includes a continued focus on targeted M&A strategy. We have seen more aligned valuations in the private market than we have in the past nine-months, and we will explore accretive opportunities that fit our synergistic growth plans and build shareholder value.
And with that, I would like to pass it over back to Tal for his concluding remarks.
Tal Hayek
Thank you, Elliot. Well, I’m excited to say that we are on track, as promised, to exit 2022 with over 50% of our revenue in illumin. In fact, I do believe the number is going to be even higher than that.
We are very focused on our self-serve as far as client growth, as far as the amount of demos that we are doing out there for illumin. The conversion rate from demos to close contracts and the conversion rate in closed contract to activation, all those things are something that we are focused on very heavily. We are also very happy about the progress in general that we see at Acuity.
Look, this year was a major year of reorganization. We have done a lot of work to prepare the company and move it from the start-up mode that we have always been in to being a thriving large organization, and that will show up in the future. I’m very happy about the progress of Acuity. I do believe that Acuity is in the best position it has ever been in.
We have done a lot of work on the reorganization and preparing this company to go to the next level, and we are now in a phase that we have done all this work, and it is all about executing and getting more and more clients to adopt illumin.
About Q4, I’m very happy to report that I’m expecting Q4 to be the second quarter of growth for us. And after a few quarters that we did not see growth and the economical uncertainties out there, I’m very happy about this progress as well. I believe Acutiy is the best investment you can make.
And I would like to thank all of you for joining us today and invite you to our Q&A section.
Question-and-Answer Session
Operator
[Operator Instructions] Tal and Elliot, your first question is going to come from Dan Medina at Needham & Company.
Daniel Medina
My question is on your cost growth strategy going forward. Do you see cost growth, do you see – just kind of what your — do you see growth, do you see decline, how do you see the next a couple of quarters on the cost side?
Tal Hayek
We are actually doing the exercise of the budget for next year. As you know, we invested already a lot this year and we think most of the investment is down. It is probably going to be a little bit more investment happening into next year as well.
We are really, really, really focused on the illumin self-serve, all the metrics that come from the top of the funnel, bringing in more demos getting contracts signed and getting those customers to sign the contract to start betting on system. So that is been our focus.
And it is going to continue being that base. So to make a long story short, I think most of the investment is done. So we will probably see a little bit of expansion on the expenses, but nothing very serious.
Daniel Medina
And then my last question is that in the past, I think you said that you are basically ad vertical-neutral. And I just was curious, just going forward, you still see that as the case. It gives a little bit of a hand as to look into where the strength has been in this current quarter. Just what do you see for the rest of Q4 and into early 2023 in that vertical?
Tal Hayek
We don’t have any vertical concentration that I can speak to. It is really a wide range. So there is no specific concentration that we have, and we don’t have any client concentration like we used to have in the past as well. So there is nothing really to share that.
Daniel Medina
Great. Okay, thank you very much.
Tal Hayek
Thank you.
Operator
Our next question comes from Daniel Rosenberg at Paradigm Capital.
Daniel Rosenberg
Congrats on a good quarter despite the macro backdrop here, My first question was around the self-serve platform. I was curious to hear if you could provide any color on the type of customer that is adopting it. whether it be vertical specific or any targeting that is going on there as well as any first impressions that you may have had as they are ramping up on utilization.
Tal Hayek
Yes, I’m really glad you asked because that is everything that we think about these days, is the illumin self-serve customers. And that is been our focus, as you may have read in the press release, we brought in a new sales leader in Q3 that comes with a lot of experience.
On the SaaS side, actually a sales leader of Salesforce for many years and all that, in order to kind of change the DNA of the organization from managed to self-serve. So as you know, we have been trying to do it for a while, but boy partner than I thought it is going to be, and now we are seeing that it is actually happening.
The focus on demos, the conversion from demo to contracts from clients who are spending on the system. Generally speaking, it is either the midsized agencies that we are going after for brands direct that would like to take control of their ad even but this is what we are seeing success. This is what the product is designed for at the moment.
And I think that even more importantly, people really, really get excited when they see the net. And the feedback, now that we have active users, like hands on keyboard using it on their own. The feedback is tremendous. People are really, really loving it. It has good feedback and also giving us things to fix, which we always do.
So all that is as the signal that we are going to start seeing the compounded effect of revenue. To me, it is not exactly a traditional SaaS model. It is I would say, more predictable consumption model, but the basis of it is that you don’t really lose customers that we do on managed. So therefore, every month, you have the revenue that you had the monthly for.
On top of that, you get the revenue of the new clients to sign up, particularly the quarter before because it takes a little bit of time on the system. So that gives us the component that we are going to see the self-serve numbers.
So we will see that from a number of clients we see from the revenue on it. And I can tell you, not all revenue is rated as equal. This revenue for us is the most value, and we are right in the middle of that shift. We are seeing that it is happening. We are very, very excited about where it is going.
Daniel Rosenberg
And just one question on capital allocation. Nice to see you guys put the NCIB to use with shares as they are trading here. I’m wondering if you would consider expansion of the NCIB. Obviously, it is a Board decision. But just given the way things are, it is the best use of capital for you guys given you have a nice a nice cash balance on the balance sheet.
Tal Hayek
Yes. Do you want to take that?
Elliot Muchnik
Well, thanks for that, Dan. For us, this is an important aspect of where we are today. We do want to announce our – cash with first of all, cash preservation, building, also for inorganic opportunities.
But yes, I think I believe that we – from the current conditions of the marketplace, this is certainly an attractive opportunity for us to continue with the NCIB. Whether that is going to be expanded beyond our current approved limits, I can’t speak to that at this point, but we are certainly continuing to be active.
Daniel Rosenberg
Thanks for taking my questions.
Elliot Muchnik
Thank you.
Operator
Your next question comes from Aravinda Galappatthige at Canaccord Genuity.
Aravinda Galappatthige
I wanted to pick up on the comments you made, Tal, about the improvements or the added features to illumin in terms of sort of the path and sort of the most simplified feature set. Is that aimed at the mid-market more. I mean, does that really open up the mid-market a little bit more to you than maybe originally you would have been looking for enterprise. I want to make sure I understood that correctly. And if so, what kind of feedback are you getting from the largest enterprise level are they kind of asking for more features, asking for more capabilities. What is that conversation like?
Tal Hayek
Yes. So definitely, it is more go to anybody who is doing running a campaign that is not a full consumer journey, or that. So there is many people out there that are using programmatic today to run line item stuff, and they simply want to use the algorithm to get the results.
Well, we have the best algorithm out there, but it was very complicated. So we came up with a way that illumin kind of assists you are doing it. And so first of all, the results are – from an ROI perspective is the same as the artisan using the same outlook. So amazing ROI.
Second, it saves you a lot of time of setting on the campaign, with minimum 30% savings in setting up your campaigns. And then maintaining the plans being able to see report on me things like that, lots of added value. So we are getting a really good feedback about it from our clients and also from our internal team that are using it more and more.
In the beginning, it was hard to get it to use it because it was more complicated to build. Now it is there a choice to you that they want to use it because they save a lot of time on it and it is easier for them to manage it as well. So I would say really good feedback.
Regarding the enterprise, it is still early days in that side of de fence. So the large enterprise clients, it is early days. We are not ahead enough to make conclusions about what is needed. We are seeing the success in the mid-market right now, and this is our focus, while we are starting to develop our enterprise strategy properly with the team that has a lot of experience.
Aravinda Galappatthige
Okay. And just a quick question for Elliott. The free cash flow number obviously kind of bounces around a little bit. That is the nature of it. Recognizing that top-line is hard to call going forward, given the macro, how would you look to kind of manage cost and from a free cash flow perspective, do you do you want to maybe – is one part of the thought process to sort of maybe reduce the burn and keep that burn at kind of breakeven level, and wherever you have flexibility, to spend that on growth or is that given the cash balance, that is not much of a consideration? I just wanted to see how you kind of rank that as you consider.
Tal Hayek
I will answer it in my way, then you will answer it your way. I want to say like in general, we have invested something that is going to change the world of. So we are not interested in optimizing expenses in order to produce a certain amount of EBITDA in order to get the right multiple for it. We are not interested in that.
We are interested in really getting the adoption out there, and that is really our folks. While we do that, yes, we don’t want to burn cash. And that is part of our mission, to go without burning cash. But the focus in this company is about changing the world. It is not about what is going to happen in the next few quarters from a cash burn perspective or from an EBITDA perspective.
I would say we are more sensitive to cash burn, but EBITDA is less important for us for the next few quarters because we are really, really the adoption of illumin self-serve, and that is what we are focusing on that and we are making investments in that.
Now you can answer your way.
Elliot Muchnik
And completely aligned. We are not using the cash on our balance sheet as a shield or as a safety net and what we are trying to do is make sure that we are feeding into – while we did a lot of investment this year. Going forward, we want to be exceptionally targeted, and I mean sales and marketing and feeding into that advantage that we believe we have in the marketplace.
And elsewhere, we will look to make sure that we are very prudent and it is more about reallocating towards those things that we believe will drive future growth as opposed to just all systems go.
We are very cognizant of the marketplace. You see the macro. You are absolutely right. It is going to be very challenging, predicting revenues going forward with these kind of the signals that are coming out of left it right, but we feel very confident that we have something special.
Our revenue, as Tal said earlier, the question is not the same revenue we are replacing it with more consistency and at the same time, we want to be sure we don’t lose that competitive advantage. So that is why the investment will continue in a measured way, but we are very, very focused on making sure we are being effective and that is a ongoing effort for sure.
Aravinda Galappatthige
Excellent, thank you. All the best.
Elliot Muchnik
Thank you.
Tal Hayek
Thank you.
Operator
Our next question comes from Rob Goff at Echelon Wealth Partners.
Robert Goff
My question would be on mix. Actually, a two part question there. Can you talk to the mix of illumin versus non-illumin revenues exiting next year or H2 next year and you are talking a lot about this growth of self-serve. Can you talk about what part – or what portion of revenues you see self-serve represent next year?
Tal Hayek
Okay. So next year, self-serve, we don’t have it down. I can tell you that we are going to aggressively grow self-serve sequentially every quarter, and I’m talking about the illumin self-serve. That is the focus of the company today.
Again, like bringing in new clients, activating them, getting them to the system and making sure they don’t leave. So it is going to be aggressive growth. We are not locked on the numbers just yet. So that answers that question.
And the mix of revenue on the illumin next year, we are ahead of schedule. I mean, we told everyone that we will be at a run rate of 50%. We are very close to it already by the end of the year, we are very close to.
So I think we are going to be in a high run rate. And the managed stuff is moving, like all the new campaigns on sole new campaigns that are spending to run on illumin. So it will be fast, and we will sunset it next year. Sunset the old system next year.
Robert Goff
And can I ask for perhaps a bit of an update on what you are seeing in the CTV marketplace itself.
Tal Hayek
We are seeing – still an integral part of all the run campaigns, especially if you are running journey campaigns, it is usually the first part, the awareness piece has been done well with CTV, and we are seeing consistent growth in those numbers.
We just don’t focus on it because we don’t believe that this should be the focus of us. Where our focus is on the journey and the algorithm of the mix decision where it is going to get the best ROI. And actually, we see CTV numbers going up.
Robert Goff
Thank you. Good luck.
Tal Hayek
Thanks Robert.
Operator
The next question is going to come from Dillon Heslin at ROTH Capital Partners.
Dillon Heslin
I wanted to start with the client mix, like with the self-serve 4% sequential growth, how much of that are net new customers to your company versus someone you might have converted from a legacy software?
Tal Hayek
The majority of it is new logos – so we added in Q3, we added 13 new customers in the illumin self-serve system. And that is the majority of growth you are seeing from that. We may have converted one or two from, but it wasn’t anything significant.
Dillon Heslin
But then, I mean, like with your comment that you are going to sunset the legacy platform, is that still an opportunity to convert those over?
Tal Hayek
Of course, we are going to be convert it all of them before we sunset.
Dillon Heslin
And then as a follow-up, when you talk about 4Q still growing, what are some of the puts and takes between the clients you signed in 3Q that didn’t maybe fully sort of produce revenue in 3Q that we are going to pull into 4Q versus some of the seasonal strength that typically happens in 4Q and then just the broader ad market softness in certain verticals?
Tal Hayek
No. I mean, in general, Q3, our existing current clients in general, all – I mean, overall revenue growth should be higher, which it is. And specifically on illumin self-serve, we signed up 13 appliances in Q3. All those clients that we signed in Q3 are going to spend in Q4.
And so again, the component effect that we are seeing from that is going to be big. And all the clients we signed up in Q4 are going to be spending. It is about a quarter delay, I would say. So it is a combination of seasonality of course and the new sign-up of new clients.
Dillon Heslin
Great, thank you.
Tal Hayek
Thank you.
Operator
Your next question comes from Eric Martinuzzi at Lake Street.
Eric Martinuzzi
Question has to do with the growth rate of the company. You posted a 5.5% growth in Q3. I assume the language is intentionally vague, but I just wanted to get better feel for it. Are you assuming a similar growth rate in Q4 kind of a mid-single-digit growth rate?
Elliot Muchnik
So Eric, that is where we don’t want to be too exact because we are ourselves not 100%. And as you know, we were very bullish on the second part of this year, and we didn’t deliver those results like we thought we were going to do.
And it is a combination of – for me, it is mostly the issue of the investments we make are taking a little bit longer to hit, and the reorganization took a little bit longer, especially the latest part of bring in Nadeem to run the sales team and forint run market.
Now we have the full team in place to deliver what we said we are going to deliver in the second part of the year. But at the same time, we don’t know for sure, we are in the middle of the quarter. It is looking good, but I think it is much better for us to wait and see until we have more certainty rather than promising that may not deliver.
So we will be the first ones to say we did deliver what we promised for the second part of this year. We have made a lot of adjustment to the way that we think about it. We learned from it. We have the right executive team in place in order to do better for the future and it is our job to start the delivery now. So sorry, I’m not giving you an answer, but just…
Eric Martinuzzi
You don’t know, you don’t know. I’m just curious to know if we shift over to the adjusted EBITDA for the business, we did have revenue growth in Q3, but adjusted EBITDA was down year-on-year. Should we assume the same thing for Q4 if you hit the revenue that you are talking about, would we expect adjusted EBITDA to be…
Elliot Muchnik
Yes, definitely yes. We increased our cost base for the investments we made and that hasn’t changed. So we will see a lower EBITDA.
Eric Martinuzzi
But up sequentially?
Elliot Muchnik
Sequentially, we expect that to be increasing quarter-over-quarter. But year-over-year, we are going to see a decline for sure because we did put it those investments this time.
Eric Martinuzzi
Okay, thank you.
Tal Hayek
Thank you Eric.
Operator
Your next question comes from Laura Martin at Needham & Company.
Laura Martin
Maybe just following up on Eric’s question a little bit. Are you still running two sales forces, one for illumin and one for the other and could we rationalize those over 2023, do you think?
Tal Hayek
Whatever running to sales forces. Illumine is not being solved – sorry, the old system is not being sold later because we sell today is illumin. And the separation is maybe between management and self-serve, but it is still the same team that are selling both. Just the focus now is really, really moving and – we are really moving the DNA, it is a organization to the self-serve, which is something that we have been trying to do for a while and is finally happening.
But we do find that it is the same team, with a higher focus on self-serve, is getting us to result. We had six new clients in Q2 for illumin self-serve, 13 new clients in Q3 for self-serve. The number is higher for even than the first half Q4, and the revenue will start showing up very quickly.
Laura Martin
Okay. What is my percent of self-serve now at the end of the third quarter of total revenue?
Tal Hayek
The entire self-serve or Illumin self-serve.
Laura Martin
No, entire. Total.
Elliot Muchnik
We are about a third. And the reason it is not even just we had some seasonality in self-service as we have in other ones in Q2 when they had on the travel side -.
Laura Martin
But I’m going to push you Tal then, somebody else asked this, but I’m going to push you on this. We are third now, you are saying everything they are doing is self-serve. So by year-end, are you happy with half of the revenue coming from self-serve or like should we still expect a third?
Tal Hayek
I’m focusing on illumin self-serve. So what I’m happy with is aggressive growth for illumin self-serve from one quarter to the next. This is what I’m focused and throughout next year as well. And then as we start converting, so we don’t really convert the old system, the Its customers self-serve includes illumin.
It is harder. It is why because people are used to a self-serve system, and they don’t like changes. It is really great from a retention point of view because once you get people on it, it is hard to change them. But it is also us to move our own kind of clients into it, it is a tougher sell.
So we are really, really focusing in, bringing new logos, activating them and getting them to spend on illumin self-serve number that we are looking at. Although sometimes next year, yes, we will see all those open to the illumin self-serve.
Laura Martin
So when we started illumin, I want to say, 1.5 years ago, 1 of your big goals was to shut down one of the two parallel platforms and save the money. But from your comments just now, what you are saying is sort of for all of next year, we are still going to be running those two same platforms. How much money would it be saving you?
Tal Hayek
A next year. I mean I think sometimes next year, we will shut it down probably around mid next year, it will be – will show a sunset in the [old] (Ph) system. You are going to ask about, I think, expenses that is related to it where every single expenses go away, we are going to reallocate the resources of old system into the new system. I mean, we are hiring more on the tech side to begin with.
And as you know, it is a higher, I know those things are about to change now, but it is still like down to the tech side is still tough, especially the talent that can do problematic the amount of transactions that we do and all that, it is a different type of talent you need to get to. And the people that we have are amazing, so we are going to keep them and reallocate them kind of remove the time that they spend on the old system.
Laura Martin
Okay. So it doesn’t sound – I mean it is taken a lot longer to shut down that old platform than we thought, like years longer. And so it is sort of -.
Tal Hayek
Absolutely our expectations was that we will be able to shut it down sooner. As you and I talked about, our expectation was that we can move the DNA of the org from managed to self-serve to a faster – as we talked about, it is proven to be more difficult, but it is happening now.
It is happening now when you have a sales leader that comes from the SaaS side of things that worked for Salesforce for leading sales team but that is the kind of the inning change that we needed, and I’m very happy that we finally have it. And we will see over the next few quarters that those things are happening.
Laura Martin
Okay. And then my second question is on mix. So I think of illumin as a full service like, from actual awareness all the way down to performance and conversion. So my question to you is, we are hearing in the marketplace from some of your competitors that there is been a strong shift away from branding into performance advertising as consumers demand has weakened. Are you seeing that in your illumin product, too this shift towards performance and away from sort of brand upper funnel?
Tal Hayek
I would say half of the campaigns we run in illumin are performance, because we are used to using programmatical performance and obviously, these are some of our existing clients. And the other half are the ones that are looking at moralisticly and understand that we need to take care of the top of the funnel to in order to get your leads into the system, engage them and then convert them at the bottom of the funnel.
We have seen recessions before. People are more focused on saving money on their marketing, and then they see the decline in the revenue and they start focusing on doing that again. And the best way of doing it is on systems that give you positive ROI.
So illumin, the focus of illumin is on mostly customers that will do the complete journey. But the new feature that we launched this year recently is allowing us to go after that market that is doing just the performance – it is providing way value for them. So we have both. But I haven’t seen like a major shift in Acuity more towards the performance side.
Laura Martin
Okay. My last question is on Trade Desk. So they grew revenue 31% and there is – what would you say to an investor who says trade Desk is just eating the world. Are you seeing them take your clients, do you they have such an outsized growth here and they are so big to start with. Can you talk about industry design and whether you think Trade Desk just basically eats all the other DSPs, which would include yourself?
Tal Hayek
Well, I think that we are in a different market today. We are going after the midsized agencies and the brands there, we have a product that nobody else has. If you wanted the journey, you can add with an system. You have to take a room.
So for us, it is all about the Illumin adoption going out. And we have so many marketers that we didn’t even hear of Illumin yet, which is frustrating in a so it is a huge opportunity for us to get to the market properly.
So this focus is on Illumin. It completely depends than anybody else that is out there. Some of the bigger companies or the bigger DSPs out there, they are focusing on the top tier and on the big agencies.
Not exactly our focus. So we don’t exactly compete head to head at this point. And we see other companies in the programmatic space are reporting the clients. We are happy that we are still increasing revenue. But as we are moving towards more and more the predictable revenue model on self-serve, I believe we are going to see much higher growth in the future.
Laura Martin
Okay, thank you very much.
Elliot Muchnik
Thank you Laura.
Tal Hayek
Thank you.
Operator
Our final two questions come from Drew McReynolds at RBC Capital Markets.
Drew McReynolds
just two final ones for me. First, on the M&A side, it does sound like you are incrementally a little bit more optimistic on maybe the opportunities out there. So just remind us thematically some of the pieces that would fit with the AcuityAds in terms of the strategic areas you are looking at.
And then the last one just gets back to the adoption of illumin and conversion rates. So I guess I’m under the assumption your sales and marketing team is fully ramped up and are almost fully ramped up in full run rate mode. Like what – I know you are not going to probably commit to a conversion rate here, but like what is the untapped base of advertisers and agencies you still haven’t hit, do you get 50% conversion 75%, 25%. Like we are just trying to kind of see under the hood on exactly what your hit rate would be as you sit down with new folks.
Tal Hayek
I would say the amount of advertisers and marketers and agencies that we didn’t even talk to tens of thousands, so it is a huge market, only in the U.S. itself. So we have a lot to do. I don’t think we are fully ramped on the sales side, but we are pretty good, ramping up a little more there. And what do you mean by conversion rate?
Drew McReynolds
Well, just you talked about how exciting advertisers are when they get the demo -.
Tal Hayek
So the metrics that we are starting to work on and we don’t have enough theoretical consistency, are the number of demos that we have, conversions from demo to contract, conversion from contracts to active clients on the system.
So those are the things that we are tracking. It is just the numbers are so low to begin with, the baseline, and that it is hard to share them yet because they might have inconsistency because it is so early
Drew McReynolds
And just on the M&A side.
Tal Hayek
The M& A side, what are we looking for strategically. The main part that we want to add to illumin is to complete more of the consumer journey, and it is not – the consumer journey doesn’t just happen on the programmatic side that we have in illumin today.
So we want to add social to it. We want to search with it. We want to add e-mail marketing to it, influencer marketing to it. a whole bunch of other things that we don’t have it today that is not programmatic, and it is not going to work exactly the same, but it is going to be a great part.
You imagine you are an advertiser, now you have to log into Facebook and into YouTube and Adwords words and to illumin to do programmatic. You have it all in all from one system, it is going to add so much more efficiencies for you.
And so that is strategically what we want to add to, and we don’t really have the expertise in-house to do it. We could build it, but we prefer going up and getting a company that already had all those things that are established and just plug into it. So that is the major focus.
Of course, we can also focus on companies who are in the same space as us, the product is not as strong, and you can remove tons of expenses by amalgamating the product. So that is always something we can do a focus on size.
But for me, it is more exciting to focus on what this company can produce on the organic side, on the self-serve side, on the illumin side. And for that, the strategic growth is more important than the M&A side.
Drew McReynolds
Got it. Okay, thanks very much. Good luck.
Tal Hayek
Thank you.
Elliot Muchnik
Thank you.
Operator
There are no other questions. So Tal, I will hand it back over to you for any final remarks.
Tal Hayek
Thank you. So thank you, everyone, for joining us. I would like to again thank our investors and the Acuit family and everyone that is involved that made this journey possible. We are really, really, really excited about what we are doing with illumin and specifically illumin self-serve. And we believe that the best is yet to come. And thank you, everyone, and have a great day.
Operator
This now concludes AcuityAds Q3 Financial Results Video Conference Call. You may now disconnect.
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