AcuityAds Holdings Inc

TSX:AT

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the AcuityAds Holdings' Second Quarter 2020 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 13, 2020. I would now like to turn the conference over to our Chief Financial Officer, Jonathan Pollack. Please go ahead.

[Jonathan Pollack, Chief Financial Officer]

Good morning, everyone. Before we begin, I will read our cautionary note regarding forward-looking information. Certain information to be discussed during this call contain forward-looking statements within the meaning of applicable security laws, including, among others, statements concerning the company's 2020 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 reflect 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. I would now like to turn the conference call over to Tal Hayek, Co-Founder and Chief Executive Officer of AcuityAds to update you on the operations of the business.

[Tal Hayek, Co]

Thank you, Jonathan, and welcome, everyone, to our Q2 investor call. Wow, I'm so pumped about the future of Acuity. This has been the most roller coaster quarter I've ever seen in my life. And as you're going to see very, very soon from our results, you'll see why I'm so pumped about the future. I hope everyone is doing well, as the world opens up and we are starting the journey of returning to the life we used to live. As I say that, I'm happy to report that we have started welcoming back Acuity from around the world into our physical offices where permitted by local governments. We have done that on a voluntary basis with lots of health measurement. I am super excited to see life coming back slowly to our offices. Acuity is a company that was built with family spirit, which is much harder to create while working from remote. And yet, this very spirit continue to shine while we work from home. I would like to thank each and every one of the Acuity's family for pushing hard and delivering such an amazing quarter under the most difficult conditions we have ever seen as a company, industry and humankind. In this quarter, we saw many uncertainties and lots of fears about our future of our health. In this quarter, we also had many difficult moments as we saw many of our great partners losing much of their businesses, and we experienced major revenue drops ourselves as well. We had many moments of uncertainties. We did not know how far it's going to go and whether we'll be able to weather the storm without a major layoff. I would like to thank the management team, who have fought very hard to prevent a major layoff, and took every alternative action to achieve this objective. I am speaking to you for my home in Toronto today as I recently came back from travel and maintaining quarantine. But I'm counting the days and looking forward to being back in our office very soon, back with my extended family of Acuity. I know many Acuityeans are still anxious and most of us are working from home. I would like to let you know that that's okay. You are doing an amazing job from home, and I want you to take your time and come back when you feel it's safe for you to come back. Even under this very, very difficult conditions, we managed to deliver $19.6 million in revenue, which is amazingly only a 24% drop over Q2 of last year. And even more amazingly, we delivered $2.1 million in positive EBITDA, which is about 100% better than we did in Q2 of last year. The other great news is that we're seeing the numbers bouncing back very quickly in April, which was the worst month, we saw a 41% drop in revenue year-over-year. In May, we saw a 21% drop. And in June, just 9% drop. And I'm happy to report that we are seeing this trend increasing into Q3, where we're expecting higher revenue and EBITDA. We were able to deliver these kinds of excellent results while continuing to heavily invest in our technology and in preparation to our upcoming launch of our new game-changing advertising automation platform. According to e-marketers, after COVID-driven drops this year, digital ad spend will resume double-digit growth for the coming 3 years. Programmatic spending trends will remain strong in over 80% of digital display and video spending in the foreseeable future.Advertisers are being way more selective about where they make their investments. They would like to see measurable results on ad spend. And when it comes to ROI, there is no better platform out there than Acuity. Acuity's platform, which was founded on an AI engine and delivers highly measurable, superior ROI all in real time. In fact, in Q2, our AI continues to outperform as we realize major increases to advertisers' ROI and a 4% improvement to our gross margin year-over-year. And at 52% margin for the quarter, we are extremely pleased with the results of the new iteration of the AI that was released in Q3 of 2019, and believe the best is yet to come. Because of the ROI that we deliver, we often just need advertisers to test us and the rest happens naturally after they see the results. I'd like to give you some examples. In 2018, a D2C brand spent $840,000 with us. In 2020, they've already spent close to $10 million, and that's just the middle of the year. A nonprofit organization that spent $93,000 in 2018 with us, already spent $3.6 million in 2020. A larger hotel chain, $122,000 in 2018 and over $746,000 already this year, and that's a hotel chain that's very, very affected by COVID. A home appliance manufacturer that spent $64,000 with us back in 2018, already spent $337,000 with us this year. In 2019, we had a pharma company that spent $344,000 with us, who spent this year already $1.8 million. Another pharma company, $346,000 last year, this year over $1.1 million. An international fast food chain that spent $159,000 last year, already spent $615,000 this year. A mattress company that spent $103,000 last year, already spent close to $600,000 this year. And a top U.S. insurance company that spent $211,000 with us last year, already spent $431,000 this year. All these companies are spending more year-over-year with us from one reason and one reason only: We are providing the best return on investment on their campaigns, and therefore, that's where they're increasing their spend with us. There's also some new companies that started advertising with us this year. In 2020, there's a health care company that already spent $1.5 million with us. A national beverage company that already spent $604,000. A CPG company, close to $600,000. A storage cabinet company $556,000. And large U.S. brewery, $472,000. A cigar company, $411,000. And a pharma companies that spent $320,000. And the list goes on and on and on. And again, all these companies are using us because we're delivering positive ROI for them. Let's talk about Connected TV, something that we've always been very excited about at Acuity. We predicted that CTV will be a huge driver for the future. And now, though we are seeing CTV is growing even faster than originally projected. Advertisers are now demanding to see measured results from their TV ads, and therefore, moving more and more of traditional TV buyers into CTV. These same advertisers also, in this time, do not like to commit major upfronts, and the ability to buy ads on Connected TV eliminates that need for major upfront. So this puts Acuity is an amazing position for the future as we have access to the majority of households in North America. In fact, we have seen 400% revenue growth in Q2 versus Q1 of this year on CTV. And as important, we are seeing more and more new and existing clients place CTV-only campaigns with us, including some of the world's largest brands. We expect this to be a growing trend as advertisers continue to realize the strength and importance of CTV and measuring results. I'm also very excited about our new partnership with OverActive Media. Esports is becoming very popular, and even faster accelerated by the shortage of live sports. One of the problems for esports companies is that they have limited ways of reaching their fans. Acuity and OverActive partnered up to solve that problem, delivering access -- the access Acuity has to over 500 million consumers and the data that OverActive owns will deliver a complete solution for any advertisers that would like to reach esports fans. And that solution is using the Acuity AI, and it uses our new advertising automation platform. It just delivers a solution for the esports side that was never there before. I would like to address the third-party cookie issue. As an industry, we are working on a few different solutions to replace third-party cookies. We are making great progress, and I'm confident that a new and even better solution will be developed. While Google Chrome has set a deadline of early 2022 to stop third-party support for cookies, Google also said it won't go into effect until Google is ready with a solution that serves the interest of advertisers, publishers and platforms, while also protecting the user privacy. For us, this is a great indicator that this industry is going to continue to operate, and being able to target people based on what they're interested in. We are seeing more and more M&A opportunities. The number of companies contacting us has increased, and we believe that COVID has made many companies realize scale is critical and they can't continue giving their scale and overhead. While there's nothing imminent at the moment, we believe that we may have unique opportunities in the future. Now to my personal favorite, our new advertising automation platform. Everyone who knows me knows how passionate I am about this new platform. Why? Because this product is going to change the way programmatic advertising gets executed, not just at Acuity but industry-wide. This is a real game changer. This is a system that aligns the way that marketers think and plans to the way that programmatic gets executed, which is not the way it today. Today, marketers think and plan in one way, and then generally they deliver to their ad agency and the agency now execute it in a programmatic kind of way, but very different than the way that it was planned. And our new system just closes that gap completely. Now it also allows average users to be able to pay campaigns within minutes. So advertisers will not have to hire very expensive, highly trained talent as they do today in order to run programmatic, which I think is a very important point because a recent study by the IAB states that over 65% of advertisers in the U.S., EU and Lat Am are bringing problematic in-house. This is wonderfully aligned with the launch of our new advertising automation platform. So when we launched beta, we had about 30 different companies who applied to participate in the program. We selected 6. Some of them are very, very large brands who want to be at the forefront of innovation. I am very excited to announce that we are going to be officially releasing the full product into market in October. Our marketing team has been very busy over the past few months with planning the strategic message, naming the product, giving the look and feel, creating a new website and full launch plans leading up to October. Everyone in Acuity is pumped about this transformation. I am so excited about the future of Acuity. Advertisers are rewarding us for delivering superior ROI. Our AI system is getting better and better all the time. We have amazing people on our team, people that were able to deliver an excellent quarter on the most difficult situation. We are seeing the upward trends continue into Q3 and beyond. CTV is exploding. And most exciting is the transformation we're introducing to the market with advertising automation. I would now like to pass the call to Jonathan Pollack, our CFO, to talk about our financials.

[Jonathan Pollack, Chief Financial Officer]

Thank you. As Tal also mentioned, the entire Acuity team deserves a big shout-out for their commitment to the company and our customers during what was a very unique quarter. The whole team around the world performed above expectations, and we thank each and every one of you.Despite the sudden and significant economic impact of the pandemic beginning in the middle of March and continuing into April, client spend subsequently saw a dramatic recovery. In line with trends experienced across the digital advertising industry, certain campaigns that were paused or reduced in April have begun to be reinstated as companies and organizations have adjusted to what has become a new norm. This recovery commenced in earnest in May, continued into June and gained strong momentum as we entered into the third quarter of 2020. We are cautiously optimistic that this broad-based improvement in customer activity will continue for the foreseeable future. Further, we remain committed to fortifying the business through our acute focus on gross margins and strong operating expense controls. These ongoing initiatives have helped place the company in the strongest financial position in its history, allowing us to better navigate current market conditions while continuing to invest in the businesses' market leading technology. Our second quarter financial results reflect the previously mentioned dramatic drop in demand experienced in March, which continued into April, partially offset by the recovery that began in the month of May. Our continued focus on improving gross margins and operating efficiencies led to a gross margin improvement of 400 basis points year-over-year as well as a 100% increase in adjusted EBITDA. The company also posted its fourth consecutive quarter of positive operating cash flow with yet another quarter of positive adjusted net income. Further, we recorded a substantial increase in revenue from Connected TV, with second quarter revenues close to 400% sequentially. While we continue to expect to experience impact from COVID-19 on our financial performance, we are confident that with recovering demand from our customers as well as actions taken in the first and second quarters of 2020, we will be well positioned to weather the economic turbulence associated with the pandemic and emerge even stronger than before. As for the numbers, total revenue for the second quarter of 2020 was $19.6 million compared to Q2 2019 revenue of $25.8 million, a decrease of 24%. Total revenue for the 6 months ended June 30, 2020, was $43.8 million compared to $53.7 million for the same period in 2019, a decrease of 19%. The decrease was attributable to the previously mentioned reduction in client spend due to the COVID-19 pandemic, partially offset by an increase in spend in May and June. To better understand the monthly improvement in revenue throughout the quarter, we achieved $5.2 million in April, over $6.7 million in May, representing close to 30% monthly improvement. And then in June, we achieved $7.6 million in revenue, which is close to a 50% improvement from April. In addition, we expect July revenues to be around the same, and August to be even stronger. Gross profit margin was 52% for Q2 2020 compared to 48% in Q2 2019. Gross margin for the first 6 months of 2020 was 51% compared to 46% for the same 6-month period in 2019. We are seeing this strong gross margin continuing in the third quarter. Operating expenses for the 3 months ended June 30, 2020, reduced 28% to $10.6 million compared to $14.7 million for the same period in 2019. Operating expenses for the 6 months ended June 30, 2020, totaled $23.4 million compared to $29 million for the same period in 2019, a decrease of 19%. As we have discussed over the past 3 quarters, management has been vigilant on costs and making sure we are as efficient as possible. This has proven to be even more important during this pandemic and has been a key variable in the growth in our EBITDA sequentially and year-over-year. It is also important to note that we continue to see a reduction in our overall expenses even with the continued investments we have made and continue to make in our technology and the new Self-Serve platform. It is also worth mentioning that the Canadian government wage subsidies provided support during the quarter, which allowed Acuity to forego mass layoffs during the depth of the pandemic, which would have significantly delayed the improvements in revenue we realized starting in May and continuing through Q3, and the incredible service our team has provided to our customers. Acuity has reported non-GAAP adjusted EBITDA of $2.1 million in Q2 2020 compared to an adjusted EBITDA of $1.1 million in the same quarter last year, an increase of approximately 100%. Adjusted EBITDA for the 6 months ended June 30, 2020, totaled $3.9 million compared to $2.1 million the prior year, an increase of 89%. It's also important to note that our LTM EBITDA is now $11.6 million versus $6.5 million at the same period last year. As Tal mentioned in our press release this morning, we are optimistic that this number will continue to grow in the third quarter. Net loss for the quarter was $1.6 million as compared to a loss of $3.4 million in Q2 2019. Net loss for the first half was $1.3 million compared to $6.1 million for the same period in 2019. More importantly, adjusted net income for the second quarter of 2020 was $1.4 million positive compared to an adjusted net loss of $700,000 for the same period last year. Adjusted net income for the 6-month period ended June 30 was $2.4 million compared to $1.2 million for the same period last year. Adjusted net income excludes noncash charges, including depreciation, amortization, foreign exchange and stock-based compensation, and is an important metric for management as it reflects our ability to generate cash from our operations. We are very pleased that our operating cash flow generated for the 3-month period ended June 30, 2020, increased 233% to $5.3 million compared to an operating cash flow used of $4 million for the same period last year, a swing of over $9 million. Cash flow generated for the 6 months ended June 30, 2020, increased 241% to $9.3 million to cash flow used of $6.6 million for the same period last year. As previously mentioned, this is our fourth consecutive quarter of positive operating cash flow. A significant milestone for Acuity, especially in these unprecedented times. Cash on hand as of June 30 totaled $9.1 million compared to $7.4 million at December 31, 2019. In addition, since December 31, we have paid down close to $7 million of our operating line. And today, we have the strongest working capital balance and the strongest financial position in our company's history. Before I turn the call over for questions, we want to reiterate our continued focus on margins, cost containment, EBITDA growth, operating cash flow and financial strength. This message has been constant over the past year, and we are very pleased that our results continue to show that we are achieving what we said we were going to do and not wavering on this commitment. And with that, I would now like to open the floor for questions.

[Operator]

[Operator Instructions] Your first question comes from Suthan Sukumar from Eight Capital.

[Suthan Sukumar, Principal]

And congrats on a very strong quarter.

[Tal Hayek, Co]

Thank you.

[Suthan Sukumar, Principal]

The first question from me, just on the strength that you guys are seeing. I'm curious what types of changes are you guys seeing with respect to client spend behavior post the [Technical Difficulty] and now any changes to the level of spend? And more broadly, are you seeing any changes in the profile of new clients that are coming to you guys now?

[Tal Hayek, Co]

Yes. So I think naturally, I shared it before that it brought it up to a few different groups. But when the crisis started, so back in March, we saw a significant drop from our travel customers and hospitality, which was -- obviously had the most amount of impact from it. Then there was a general panic in the market of customers pausing. So that's what we saw originally. And then we almost, right away, saw the general panic reverses and customers coming back and unpausing their campaigns. Then we actually started seeing some travel customers coming back, not to the same levels, but they realize that they still need to be in touch with their customers and come back, so they did come back. But I have to tell you, the sales team was very resilient. They went out. They looked for a lot of new business. D2C, which is a trend that started even before that, is becoming more and more these days, and we're getting more of that business in. So generally speaking, that's how I would do that. And then regarding your question of the size of campaigns and things like that. I think it's probably a little smaller, but we're seeing that it's starting to trend up again. So we're starting to see the big RFPs and the big IOs and all those are coming back into our system on regular basis now. So the indication is that everything is going back to the way it used to. And that's with -- and that's even without travel being fully back. So I can just imagine what happens when travel is fully back. And we have all these replacement campaigns and customers that we didn't have before, I think that will create magic.

[Suthan Sukumar, Principal]

Great. That's encouraging. And kind of looking at it historically, the back half of the year, H2 tends to be a more seasonally stronger period. Do you guys expect those trends to continue this year despite everything that's happened?

[Tal Hayek, Co]

So we definitely expect Q3 to be better than Q2, and Q4 to be better than Q3. Absolutely. I mean we don't know to what levels it's going to come back at, as Q4 is the seasonally strongest quarter. It's too early to tell, but the indicators are showing -- I'm really, really happy with what I'm seeing about the indicators of the -- for the rest of the year.

[Jonathan Pollack, Chief Financial Officer]

So that even with the revenues, as Tal mentioned, as we talked about before, our margins continue to improve and is above last year, and our cost structure is much more efficient. So we can make more money on the same or even less revenues than we did last year.

[Tal Hayek, Co]

But I think even if you look at the studies that are being done out there, everything is pointing out that after the dip that we've seen this year, digital is going to go back, and specifically programmatic, to double-digit growth. Which makes a lot of sense because advertisers are now way more picky about where to make their investments and they're doing it where they're seeing proven ROIs. And Acuity is the best system out there for proven ROIs. So therefore, I believe that we will see more and more. And after all this is over, I believe we'll be even in a better position than when we came into it.

[Suthan Sukumar, Principal]

Okay. Okay, good. And on Connected TV, I mean, you guys touched on seeing, call it, an acceleration in trends here, especially on back of the pandemic. Can you speak on how well you guys are positioned in Connected TV, obviously, given your Visible Measures asset? And where do you see opportunities to enhance your position? Is it potentially investing in tech? Go to market?

[Tal Hayek, Co]

So yes. So I mean to anybody who doesn't know about our purchase of Visible. So Visible Measures is a company we purchased at the end 2016, which the specialty was 100% video advertising, which is essentially what TV advertising is today. That gave us a lot of expertise and a lot of tools for video advertising and positioned us very well to digital TV as we know it today and as it's going to be in the future. So I think we're very, very strong position. We already have access to most of the households in North America. And therefore, it's a matter of bringing in more and more of the demand into it. And we already have the customers. They're coming to us. The customers that have been using us and trusting us for many years, they've coming -- more and more are coming to us and asking us to fund their Connected TV campaigns for them. And as we're showing them success in ROI, they're spending more and more with us. So it's something that's naturally going to continue occurring over the next few quarters.

[Suthan Sukumar, Principal]

Okay. Okay, good. And just on the new Self-Serve platform, can you speak to how you're measuring success and performance during the beta? And what types of specific feedback are you getting from your trial users today?

[Tal Hayek, Co]

Okay. So we're getting so much exciting and great feedback, and also some feedback about what we need to fix. But I tell you that it's not easy to excite -- tell people about a new product. And -- when they have already a product that they've been selling for years and they're doing it successfully. But it started very, very slowly. When we started doing some demos to beta customers and the reaction that the salespeople saw from the customers, the reaction that I saw when I was on those meetings, is people could not stay in their seats, okay? The reaction is, "Oh my god, I can actually see my campaign in front of me on the board here. I can see exactly my creative. I see how it's going to be communicated to the customers. I can see the conditions. I can see exactly, and I have full control over this."And the reaction is, "This is exactly how we plan as marketers. And now you're giving us a tool that we can plan on and just click on go, and it actually goes and execute." People were amazed. So I can tell you that the reaction that we're getting about the system is amazing, and it's opening up a lot of doors for us that that we couldn't open before. And from how do we measure the success of the beta? Well, there's a number of things to it. First of all, the usability is one of the most important things. And so this system was created so any moms and pop shop, any pizza store will be able to go ahead and set up the campaigns within minutes. They won't need the experts to do it. So that's why it's so important for us to see that people without experience can set up those campaigns very quickly and intuitively and all that. So that's one of the important part of the beta. The second part is the concept of the system is absolutely amazing. Now does it deliver results, does deliver ROI, does it measure throughout the different sections of the campaign and does it deliver the right insights? So, so far, the indicators are great. And we're seeing great results from an ROI perspective, great results from the type of insight that the system delivers. And we're discovering a lot of other big benefits to brands as we go along and we talk to them. And we're fixing all the usability issues as we find them. So we're very, very excited about launching it in just a few months. And in the next few weeks, we're going to be starting a drip campaign so people will get excited and will give a little bit more exposure into the product itself as well.

[Suthan Sukumar, Principal]

Great. And if I recall correctly, you guys mentioned October is the planned launch, right?

[Tal Hayek, Co]

That's correct.

[Suthan Sukumar, Principal]

Perfect. Perfect. And I guess -- and then maybe last question from me here. With the overall spend and the demand backdrop improving here, where do you guys see potential for growth investments? Is it doubling down on your core markets? Is it net new markets? Or is M&A really a key part of that? I'm just kind of curious how you guys are thinking about that going forward.

[Tal Hayek, Co]

Look, it's all -- my opinion is that we're doubling down on the new advertising automation platform. And this is where we're going to see our growth. It's not necessarily from new geographical areas, but from existing geographical areas. But just getting more and more of the bigger brands on that system and getting more and more of their spend, and that will increase our Self-Serve revenue tremendously. So that's where I think the growth is going to come from. Now talking about M&A. It's just a faster way of accelerating because, look, we already built the engine, the technical engine. If we buy another company that has a technical engine and most likely not as good as ours, and we can eliminate theirs, put all the customers on ours. Now you created a highly leveraged model that we bring in more revenue into the system and removing about 60%, 70% of SG&A -- of expenses or SG&A expenses that are related to the technology of the target company. So that is -- that could create magic, but we are extremely picky. Like we've gone through -- in the last 1.5 years, we saw a lot of companies that we passed on because it needs to be something that makes sense for everyone.

[Operator]

The next question comes from Rob Goff from Echelon Wealth Partners.

[Robert Goff, MD & Head of Research]

And let me echo the congrats on the results and the work that went behind it. Thank you for giving the trend in revenues, could you also perhaps talk to the regional trends in that the U.S. was particularly resilient, just speaking more towards the Canadian and other revenues? How are you seeing them in the recovery?

[Jonathan Pollack, Chief Financial Officer]

I think that…

[Tal Hayek, Co]

Jonathan, go ahead.

[Jonathan Pollack, Chief Financial Officer]

The U.S. has definitely shown a very strong comeback in revenues. That's where a lot of the growth that Tal had mentioned is coming from. We are, though, seeing Canada pick up nicely recent. We could tell because we get, I think e-mails of all new contracts that come in and we can see that the Canadian team both here in Toronto, in Québec and out west is picking up. And we're seeing some of our Spanish/Latin American business, August is typically quite slow for them just because of the holidays and how things work in Spain and Latin America. But we -- July was stronger than we expected. August will likely be down, but that's as expected. And then there is belief and momentum for September.

[Robert Goff, MD & Head of Research]

And could you perhaps talk a bit more on the CTV? To what extent is that bringing you new clients? Are you selling it as part of a bundle?

[Tal Hayek, Co]

So these specific -- I actually looked at the revenue and -- in Q2 for CTV, and it's mostly existing clients that are spending on CTV with us. And mostly -- most of those were CTV-only type of campaigns. So it wasn't part of a mix. And so, okay, $1 million and then some of it goes to CTV? No. These specific ones that we're seeing is more and more we're getting specific orders just for CTV.

[Robert Goff, MD & Head of Research]

Perfect. And one more, if I may, and it's with respect to your new advertising platform. You've mentioned on the topic -- could you talk to the target market as it would extend from mom-and-pop up to larger brands?

[Tal Hayek, Co]

I said any mom-and-pops would be able to use it, but this is definitely not our target market to begin with. I do think that, eventually, that would be a great target market but this is not where we're starting. We're starting -- the target market for this is Fortune 500 brands. So that is the -- that is where we're starting. That's what we're gearing out for. We're setting up dedicated teams in our company to be able to service those. So that's the target.

[Operator]

The next question comes from Daniel Rosenberg of Paradigm Capital.

[Daniel Rosenberg, Analyst]

Congrats on a good quarter and nice to see strong indications of the new product launch having potentially good traction to come. I was wondering what the go-to-market strategy is on that front? And when do you think it will start having a meaningful impact? I get that you're taking small steps honing the product in its early days, but is this a mid next year kind of impact or a late next year kind of impact? Any color would be helpful.

[Tal Hayek, Co]

So I can't go too much into the launch plan because we've put a lot of effort and invested a lot of money into it. But I can tell you it's not going to be slow. I can tell you that in October when we're launching it, it's -- we're putting a lot of advertising dollars into it, marketing dollars into, PR and all that. So everything is coming to life around industry events that are happening that month. So we will start sharing that very, very soon. I suspect that we will see immediate impact from the pipelines getting filled. And I think that also some of the -- our beta customers are naturally going to become normal customers as well. So I believe that we're already going to see some impact in Q4, but also don't forget our target market are the Fortune 500 brands are -- will take a longer sales cycle. So the major impact is going to happen next year probably, I would say, mid next year, where we're going to see good -- like great numbers coming into it.

[Daniel Rosenberg, Analyst]

Okay. Okay. Great to hear. And in terms of -- you mentioned some of the government support programs that helped you out in the quarter and helped overall operations. I was wondering if you could quantify any impact it had specifically in the quarter. Should we expect any next quarter?

[Jonathan Pollack, Chief Financial Officer]

So as I said on the prepared notes, we -- there was impact from the subsidies. There's a bunch of them. The U.S. subsidy does not hit the income statement just because it is a loan that gets waived and we will be applying for that by the end of Q3. The Canadian one, if you add them up is about $800,000. However, as I said, if you actually look at what it is net, meaning we didn't reduce any of the headcount, we didn't take mass layoffs, I think the effect may be a couple of hundred thousand dollars net in the quarter. For Q3, we are definitely not expecting any -- or anything material. And as we said before, even without it, we are expecting sequential growth in EBITDA. So our perspective was it just allowed us not to have to do mass layoffs and -- which is exactly what the program was meant to do.

[Daniel Rosenberg, Analyst]

Great. Okay. And turning to the margins of particular strength this quarter. Was there any specific driver behind that? I've seen some currency support with -- in other areas that the market, sometimes that helps. Do you expect that to continue going forward? Or are you already seeing any changes in how you view the margin profile going forward?

[Tal Hayek, Co]

So when you look at that, the first thing that we always want to do is deliver a positive ROI to our clients. And once we do a great job on that, if we do an exceptional job, we can allow ourselves to take a little bit more to Acuity. So that's essentially, when you're seeing the margins are getting better, it means that the algorithm is getting better. So as you recall in -- we went wide with a new algorithm in late 2019. And then every quarter, we saw an improvement. And I can tell you, the algorithm gets improved all the time. Dr. Nathan Mekuz and his team are doing a phenomenal job, and that's what they live with. They live to make the algorithm better. And all the time, there's new features and new things that are going to the algorithm to make it better. And that's a direct result of why we're seeing better margins.

[Daniel Rosenberg, Analyst]

Okay. Great. And then also with the news release around exploring gaming partnerships, I was just curious -- I mean, it's very interesting and I haven't really seen anything in the market quite like that. So I was wondering if you could just give a little bit more color on that partnership, where it's going, what you envision.

[Tal Hayek, Co]

Yes, absolutely. So look, I spoke to a number of esports companies out there. Obviously, it's very exciting. The investors are very excited by it and giving in multiples and investing in it. But one of the problems that they have is they need to start showing revenue and material revenue. And the problem is that it takes them a long time to start collecting all their fans and being able to reach those fans. Now we already have all their fans, right, all we need to do is identify them. So we take our AI engine, we take the 500 million user profile that we have on people. We couple it with a partnership, with an esport company that has the data, and we start extrapolating and finding the esports fan, then now we can start reaching those fans and advertisers can come to us in order to reach those fans. And those are very desirable type of demographics as well. So it's just in the beginning of its way. Starting to get the salespeople to talk about it and to sell it. I predict this is going to be very successful. And for us, it's a pilot program right now. But if it works very well for both sides, it's -- it could be extended into something bigger and really across the world.

[Daniel Rosenberg, Analyst]

Okay. Great to hear. Excited to see the new product this fall. And congrats again on a good quarter.

[Jonathan Pollack, Chief Financial Officer]

Thank you, David.

[Tal Hayek, Co]

Thank you.

[Operator]

[Operator Instructions] There are no further questions. You may proceed.

[Tal Hayek, Co]

Well, I'd like to thank everyone for joining us on the call today. As I already said, I'm very, very excited about the future of Acuity. This quarter was a roller coaster. We had very, very tough time, and the management team did an amazing job in preserving jobs and preserving, obviously, cash for the company and coming out in a profitable way. So I'm very, very thankful for everybody in the management team for doing that. I cannot say how excited I am about the new advertising automation platform that we're bringing to market. I really think it's going to be a big game changer and really looking forward to showing everyone as we're launching it into market. So all in all, I'd like to also thank all the support from the investment community. And I'd like to thank you for joining us and looking forward to the next time. Thank you, everyone.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.