AcuityAds Holdings Inc

TSX:AT

Earnings Call Transcript 2021-Q3

[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 2021 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 SEDAR for a more detailed explanation of the inherent risks and uncertainties that could affect such forward-looking statements. [Operator Instructions] 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, Co]

Happy birthday, illumin. Illumin is so young, but already started changing the world of advertising. It gives the ability for advertisers to plan and execute on a consumer journey just like they always dream they can, but now they can actually do it. So I'd like to thank the Acuity family for designing and creating such an amazing concept. And to all our partners, customers, investors for being along the journey with us. Thank you, everyone. Good morning, everyone, and welcome to Acuity's Q3 investor presentation. Wow! I can't believe it's been a year since we launched illumin. Illumin is changing the world of advertising, and it certainly changed the way Acuity is. I'm so proud of the Acuity family for delivering such an amazing quarter of growth for illumin, which is up 42% sequentially from Q2 to $7.4 million. Again, this is the fourth quarter of illumin, and look at the run rate that we're already seeing it. So thank you from the bottom of my heart to the Acuity family for delivering this amazing growth. Q3, we have seen a modest growth. Yes, it was less than we expected the growth. And I can tell you, there's a few reasons why. One, it's partly due to the legacy clients experiencing some supply chain issues. So needless to say, when clients are experiencing shortage of product, they're pushing advertising less on a temporary basis until they get the supply sources back in play. And we've seen a number of customers -- of existing customers doing that and then a number of potential customers that are excited about future integration are just slowing down their plan. We all know this is a temporary issue and it will come back big time, and that problem is going to be solved. The other thing is we've been focusing since the launch of illumin on Tier 1 brands. Well, Tier 1 brand has a longer sales cycle, and we're happy about the long sales cycle because it means deeper integrations and much, much better relationship with those brands in the long run. And we're going to go into that a little bit more in the future. We are continuing to be super, super focused on illumin, and we're very happy with the progress that we're seeing so far. And I have to say, and I tell to everybody at Acuity, in the last year, in the past 12 months, we've done amazing things, things that we've never done before. Well, we IPO-ed at the Nasdaq, we strengthened our balance sheet and the most important part is we launched illumin. Illumin, not only that is changing the world, it's giving us a differentiator that we've never seen before. It gives us the ability to have the kind of conversations with the type of brands that are in our pipelines that we've never seen before. So I do believe that this company is at its best position it's ever been. And we now have the ability to think long term. I want to share the way we think about the market. Really, there's three segments that we're looking at the market. There's the enterprise met, there's the mid-market and there's the small to medium-sized business market. So let's start with the enterprise. So enterprise is what we've been focusing on since we launched illumin. We're having tons of conversations with the enterprise brands and they're loving it. In fact, we have many of them that are using the system today, mostly testing it for much bigger integrations in the future. We expected the sales cycle to be long, but it's proving to be even longer than we expected. And I do believe it's going to start hitting next year some time. In our pipeline, we have eight auto manufacturers that are talking to us for deeper integration. That's not a big surprise because auto is one of those things that you think consumer journey and you start thinking that way before the purchase happens. So that's a brilliant place. We have a very large insurance there. We have home improvement retailer in there. All those are great, great customers that are in our pipeline. And again, I do believe some of those integrations will happen next year. Mid-market. So mid-market is interesting. Mid-market is what's driving the revenue of Acuity today -- or illumin, I would say, today. So mid-market are still large brands, but not as large as the Fortune 1000 brands. And they're more flexible and they move faster and they tried illumin, and they've seen the success of illumin and they're increasing their spend on illumin. And so we're turning a little bit more attention to them as well. So we can see even bigger growth from that market. I'd like to share some examples of those mid-market companies. So there was an e-commerce company that started using illumin in Q1 of this year. They spent $22,000. They liked it so much that in Q3, they spent $152,000. A clothing retailer that spent only $5,000 in Q1, spent $175,000 in Q3. A large auto manufacturer started with $98,000, and in last quarter, spent $216,000 on this. And a health care company that spent $194,000 in Q1, spent $648,000 in Q3. Purina, which we're vocal about before, spent $49,000 in Q1 and $169,000 in Q3. So as you can see, it's working. They try it. They really like it. They see the ability to control the consumer journey to have the conversation with their consumers. And then they see the insights and the learning they get from it, all that with the fact that it's very easy to use, very intuitive, brings them back for more and spending more and more and more, and we expect that trend to continue. And then there's a small, medium-sized businesses. And let me be a little bit more precise about it. For me, it's more the small businesses, like the pizza stores, the one login, spend $500 a month to target a 5-mile radius around their store. Let me tell you something, this is a complete wide open space when it comes to programmatic. Nobody is doing it well. Why? Because it's extremely complex to run programmatics today. And illumin has the best chance of infiltrating that. Why? Because the illumin is to easy to use, intuitive and it takes only a few minutes to set up a campaign. Adding a few extra tool stores like the creation tool, payment system and a few others more integration and simplification, we'll make it very ready for that market. So I'm very excited about this market. We don't have the right infrastructure in the organization today to execute on it. But on our strategic road map, we are very much including and bringing innovation to the segment to the market. We're also focusing on the business operation as we're enhancing our executive team to make sure we have the right focus and alignment. Two new additions to the family. We brought in a new COO. One, that will help us tie the whole organization together, all the big projects that we're doing and bringing together and help all the departments succeed as well. That's something that's very important as we're preparing for mega growth in the future, and it's something that I believe we are lacking. And the second new addition we brought in is a Chief Empowerment Officer, which I believe is so important in this time. Generally speaking, not Acuity, but in all industries, we've seen many people working from home. We've seen many people disconnect from one another. We've seen global crisis when it comes to labor. We've seen more and more problems with emotional strength of people. And this is something that also happens at Acuity. It's harder and harder to connect the team as a family. I think we're doing it better than most, but there's still a lot of work to be done there. And we brought in a Chief Empowerment Officer strictly for that reason. And it's already proving itself to have a very positive impact. So I'm very proud that Acuity is investing in the emotion of our people, and that will pay back tremendously for the business in the future. So I can tell you that we are now turning our attention to hyper growth starting next year. That's our attention. So we're working on many different elements that are related to it. But obviously, it all has to do with illumin. And I can tell you, the founders of Acuity, the Executives of Acuity and the rest of the family members of Acuity did not create illumin to do $50 million in revenue or $100 million or $200 million. We created illumin to take over the world of advertising and to do a lot more than that. And this is what we're focusing on, and we believe that this is coming in the next few years. Well, let's drill down a little bit more on Q3 results. So we delivered $27.5 million in revenue. That's up 5.4% year-over-year. When you look at it on a constant currency basis, which is important to look at it that way because most of our revenues are in U.S. dollars, most of our cost is in U.S. dollars, but we are reporting in Canadian dollars. So sometimes there's a disconnect. But when you look at that, we're at 11.3% year-over-year growth. Still not where we want to be. But needless to say, we talked about some of the reasons why we're seeing lower growth, and we do believe it's a temporary situation. We've done phenomenal on an EBITDA basis. So we now deliver $22.2 million in LTM EBITDA. Obviously, keep improving the financial situation of the company into the future and add more money in the bank account. We have over $100 million in the bank account. So increases our possibility for investments in different areas. CTV. Another great place to concentrate on because we do believe it's a major growth factor into the future. We've seen 220% growth in Q3 over Q3 of last year. And we predict that CTV is going to continue being a major growth. And illumin revenue, again, 42% up sequentially. Again, another mega growth quarter on a sequential basis to $7.4 million, just to show you how customers really, really loving the product. And the clients that we have in illumin, we now have 49 clients on illumin, at the end of Q3. We had about 40 at the end of Q2. And we have 26 Tier 1 clients versus 17 Tier 1 clients that we had at the end of Q2. So we added more clients. The clients are spending more. Very good recipe for the future. We have completely different segments across the board. We have media, we have politics, we have health care, consumer products, retail, tech electronics manufacturer. And again, illumin is a platform that can work on any type of industry. Naturally, the industries are spending more online is where we're going to see the most strength on, but it could really work on anything. And the majority of the illumin revenue is still coming from new businesses, new logos to Acuity. Again, opened up a lot of doors for us with companies that would never speak to us before, and that's what we're seeing. Next year, sometimes we will start turning our focus on bringing our legacy clients into illumin. At the end of next year, I don't want to have the legacy product in play anymore. And we're continuing to see very strong growth in the pipeline. In fact, we're seeing more and more demos. We're seeing more and more requests -- incoming bounds, requests coming into the system on a regular basis. And our team is very busy on filling those. And Tier 1 clients talk to us all the time about it. We are the experts in the consumer journey today. So we're very happy to be in that state and looking really, really excited about what we see in the future on the illumin side. And just to reiterate, we launched illumin in Q4 of last year. $1.5 million in revenue, and Q1 was $3.2 million. Q2 was $5.2 million. And then Q3, $7.4 million. That's a major achievement, even without the major brands signing like multiyear deals with us, which we do believe that's coming next year. A few weeks ago, we demoed the illumin product to sell-side analysts. They asked for it. We thought it was a great idea. Why? Because our sales team is not using so much PowerPoints anymore when they go in to make a sell. They're demoing the product. And as soon as they demo the product, people get really excited. So we showed it to the analysts, and they got really excited. And they started to understand the difference between the legacy system and the illumin system. And we wanted to show at least a snippet of that to you guys today. I mean, we're not going to take a lot of time. It's going to be a very short and precise demo, but we have the longer version, if you like, to see it on our website, on our YouTube channel. And you're welcome to go and see it more, and we always welcome to request your own demo, we'll be happy to do it for you. Max is going to do the demo for us. Thank you, Max, for joining us. Please take it away.

[Unknown Executive]

Hey, guys. Let's take a look here at the illumin journey canvas, which is designed to mimic the whiteboard that lives in your branch conference rooms, where we have a problem in the ecosystem where it takes a vast amount of machines/vendors and human talent to really get a clear picture into what's happening along the consumer journey. Brands need a DMP, a DSP, a multitouch attribution platform, consumer data platform, and illumin is designed to be the control center to really help you understand the consumer journey through a singular screen of understanding. So we're going to look at an example for F-150 And what you'll notice here is we are audience-agnostic. So if I were to click here, we have a library of audiences that you can buy, just like The Trade Desk, MediaMath, Amobee. We all have the same third-party audiences and exchanges and SSPs in terms of inventory for the most part. That's table stakes.So the idea is you've spent thousands of dollars as a brand or agency to figure out who is the right target for your audience and you want to be able to reach those users. Our machine allows you to take that control of how you message these users in a unified way across the entire consumer journey versus building your campaign on a whiteboard, sending it to all these different partners for execution, then actually trying to judge performance in silos and using machines to tie it all back together. And what I always ask prospects is, wouldn't it make more sense that it was connected from the start? And the answer, of course, is, of course, it would, right? We've got a true cross funnel journey. We've got awareness. Then, we go over here to engagements. And then we've got conversion. What you'll also notice is, we have the ability to customize the marketing goal at each stage of the funnel. So once again, I'll zoom in. So here, for F-150, the actual goal is awareness. So the machine is going to go after users who we think could be good life stage targets for F-150, but don't have a tremendous amount of brand equity yet. So we're trying to build brand equity by serving media here. Now as the same user continues to have increased brand equity from the media we're serving, they would then transition over here to engagement where we've changed the goal to a cost per click goal. So here, now we're looking at how likely is this consumer to engage with the competitive differentiators, exclusive features or the driving comfort of the F-150 versus the Silverado. As we continue to build engagement and equity with this user, the user then transitions into the conversion stage. And as a marketer, I can again change the goal. So here we have a CPA or a ROAS goal. So now how likely is this consumer after bringing them through the rest of the funnel, how likely are they now to sign up for a test drive or build out F-150 on the website or research financing or some sort of low-funnel action. So the point is, we can hit your lower funnel goal, your mid-funnel goal and then your awareness goal. But now we can go back to F-150 and say, hey, by the way, it costs x to drive this audience of NFL fans from unaware of a need to scheduling a test drive with F-150 versus your DIY target versus your power sports target versus your contractor target, right? So this is something that would be extremely difficult to figure out if you didn't have a connected journey. So big picture, we're valuing the user, matching them to a path and then dynamically inserting them into the journey with the ultimate goal of fast tracking users who don't need loaded communication and getting better at nurturing users who need equity built. This is what we do, and this is the illumin journey campus.

[Tal Hayek, Co]

As you can see, uniqueness of illumin is self-explanatory. Thank you, Max, for sharing this with us. And we will now go to Tatiana, our Interim CFO, to share some Q3 financials.

[Tatiana Kresling, Interim CFO & Executive VP of Finance]

Thank you, Tal. Good morning, and thank you for joining us today. I want to first mention that I look forward to working with Tal and the rest of the team in the interim CFO role. During the third quarter, we continued to see rapid adoption of our illumin platform, helping to drive year-over-year total company revenue and EBITDA growth. Illumin revenue and pipeline growth exceeded our internal expectations again for the quarter. This growth continued to be driven in large part by substantial inbound interest in the platform from Tier 1 brands. We remain very excited about illumin growth prospects and believe it's still in the early stage of realizing its full and long-term potential. With this backdrop, I will now review our third quarter financial results on the next slide. Total revenue in the third quarter was $27.5 million, a 5.4% increase compared to $26.1 million in Q3 2020. As a reminder, with close to 70% of our revenue derived in the U.S., a stronger Canadian dollar understates our true growth. On a constant currency basis, revenue increased 11.3% year-over-year. Illumin revenue in the quarter totaled $7.4 million, a 42% sequential increase compared to $5.2 million in Q2 2021. I think it's quite telling that we continue to see such strong sequential growth from illumin despite supply chain-related headwinds from some of our legacy customers who have delayed advertising spend related to this issue. Gross profit on net revenue was $14.3 million in Q3 2021 compared to $13.5 million in Q3 2020, an increase of 5.4% year-over-year. Our gross profit margin was 51.9% in Q3 2021, which was in line with Q3 2020. Operating expenses in third quarter 2021 totaled $12.5 million compared to $12 million in the same period in 2020. Operating expenses as a percentage of revenue was 45.5%, down from 46.2% in the same period last year. This sales growth and strong operating leverage led to adjusted EBITDA of $4.4 million in Q3 2021, up 9.5% from $4 million in Q3 2020. For the third quarter of 2021, we reported net income of $3.4 million compared to $0.9 million for the same period in 2020, an increase of 265%. Turning to our 9 months results on the next slide. Total revenue was $85.2 million for the 9 months ended September 30, 2021, a 22% year-over-year increase compared to $69.8 million during the related period in 2020. It's important to note, during the first 9 months of 2021, revenue from illumin totaled $15.8 million, which is well ahead of what our initial expectations were at the beginning of the year. Gross profit or net revenue for the 9 months ended September 30, 2021, was $44.4 million, a 24% increase compared to $35.8 million during the prior year period. Our gross margin for the first 9 months of 2021 was 52.1% compared to 51.3% for the same period last year. Operating expenses for the 9 months ended September 30, 2021, totaled $37.9 million compared to $55.4 million for the same period in 2020. Operating expenses as a percentage of revenue for the first 9 months of this year was 44.5%, down from 50.7% for the same period last year. Adjusted EBITDA totaled $14.4 million for the first 9 months of 2021, an 8.5% increase from $8 million during the same period in 2020. This considerable year-over-year increase was primarily due to our higher net revenue, including illumin revenue and the strong operating leverage I previously mentioned. Net income in the first 9 months of 2021 totaled $8.1 million compared to the net loss of $0.5 million for the same period last year. Again, this year-over-year increase was due to the factors I discussed earlier. Turning to our balance sheet. You can see our cash balance stood at $100.3 million, a sharp increase from $22.6 million at December 31, 2020. This reflects both our strong cash flow generation during the first 9 months of 2021 and proceeds from our USD 57.5 million cross-border public offering in the United States and Canada during second quarter, including our uplifting for the Nasdaq Capital Market. In line with our growth strategy and strong operating leverage we've been able to achieve, we continue to generate solid adjusted EBITDA growth. As you can see here, on a trailing 12-month basis as of September 30, 2021, I'm pleased to report that we generated adjusted EBITDA of $22.2 million, an increase of 58.8% over the same period in 2020. Lastly, I will provide a quick update on our capital structure. As of September 30, 2021, Acuity had 60.6 million common shares outstanding and 63.7 million fully diluted shares outstanding. With that, I will pass it back over to Tal for concluding remarks.

[Tal Hayek, Co]

Thank you, Tatiana. Well, just as we're closing and before we go to Q&A, I'd like to reiterate some of the things we started with. I'm so proud of the Acuity team for delivering such another great quarter of illumin growth, 42% up in revenue to $7.4 million. In the past year, we IPO on the Nasdaq, we strengthened our balance sheet to the point that we have over $100 million in bank account, and most importantly, we launched illumin, which is the big differentiator we get in the market today. And we continue to be super focused on the illumin side, very happy with the progress and I do believe that the company has its best position it's ever been. And we have the ability to think long term, something we couldn't do before. We had to sometimes think about the short-term implication. Now we have the larger and the ability to think long term. And with three segments that we talked about, the enterprise side, the mid-market side and the small to medium-sized market, all those things that we'll be focusing on the future as well. And that we're focusing on the business operation and how to strengthen and enhance the business operation, we brought in a few new C levels that we're totally excited about, our COO and Chief Empowerment Officer, already creating a big impact within the org, and we're very excited about the future of that as well. I can honestly say we are now turning our attention to hyper growth starting next year. We do believe we're going to see that and we're implementing a number of strategic plan in place in order to achieve it. Mostly organic growth, but we're still working on the M&A side. We still want to do an M&A deal. We're looking at many deals across the board on a regular basis, and I do believe that there's something that will come along that we're going to like and execute on. And I'll say it again, we did not create illumin to be $30 million or $40 million or $50 million or $100 million or $200 million in revenue. Our aspiration is much, much higher than that. I want to say again, happy birthday to illumin. With the first year in business and a run rate of close to $30 million, we can all just imagine what you're going to do next. Thank you, everyone. Now let's go to Q&A.

[Operator]

[Operator Instructions] Our first question comes from Aravinda at Canaccord.

[Aravinda Suranimala Galappatthige, Managing Director]

Congrats on the traction on illumin so far. A few questions from me, Tal. I wanted to, first of all, flush out the global supply chain impact. Obviously, it's impacted large number of companies in the broader space. Can you sort of frame that impact for us a little bit when you think about Q3 and going into Q4. Is it predominantly focused on the auto sector? Or are you seeing that sort of splattered across a few spaces? And maybe just touch on your exposure to those sectors?

[Tal Hayek, Co]

Yes. Look, I think it's across the board. We have one client that scaled back spend of $1 million just in Q3 alone, not because they're not happy, not because they can't sell the products. They have a supply chain issue. And auto has been affected by it and a number of others. And I also believe that number of the ones in the pipelines that are just waiting to have product in order to convert because we all know it's a temporary solution or situation, we don't know. I personally don't know how long is the situation. I got on last, but I imagine it's going to get resolved sooner rather than later.

[Aravinda Suranimala Galappatthige, Managing Director]

Excellent. And then I know this is sort of a headline issue in the space. Some of the initiatives by Apple, alongside the iOS 15 release, all the new components from private related to mail, privacy protection. Different levels of impact going on in different companies. I wanted to hear your thoughts on how do you think it affects the programmatic space at large and then obviously, more specifically Acuity?

[Tal Hayek, Co]

I think it mostly affect the programmatic space when it comes to companies who are doing in-app advertising. And we do some of that, but we don't do a lot of that. It's a very, very small part of what we do. So it's not really going to affect Acuity in a big way. I also think in-app advertising is something that we can develop in the future, too. So it's also an opportunity for us to go into that as well. Yes, clearly, we're seeing companies who are depending on the in-app advertising, mostly using the device information that comes from there are affected by it. But I want to say that at the end of the day, it's the advertiser -- if the advertiser are not going to be paying for the content, we're going to have an issue. So one way or another, the advertiser is going to have to find a way to pay for the content, even when it comes to in-app advertising. And I think it's an evolution that's going to happen very quickly back into, let's say.

[Aravinda Suranimala Galappatthige, Managing Director]

Excellent. Last question for me. In terms of Q4 tracking, I know that the supply chain issues are still a factor, but I know you've alluded to, in the press release that you started to see more traction on the the pandemic affected sectors, the travel, the leisure, retail, et cetera. How material is that traction? And how can it kind of -- can it potentially to offset some of the headwinds we're talking about?

[Tal Hayek, Co]

Yes. So first of all, our focus is still illumin, and illumin, I believe we're going to get great traction on. We're having great traction in Q4 and beyond, of course. So you have to understand, that's the focus of the company. Almost everyone is selling illumin. And the tech team and the product team and the strategy team and marketing, everybody's doing illumin, right? So that's our focus, and we're very happy about where that is going. The managed old legacy business, we always knew we're going to start reducing it. It's going to be -- like we're going to make it disappear by the end of next year anyway. So our focus is really to increase the illumin side, but doing it in a way that the revenue of illumin is strong enough and bigger than the legacy business before we let that go. So therefore, there's not going to be any effect on revenue. Yes, the travel industry is kind of starting to come back. We're seeing more revenue coming out of there. Still not close to where we've seen it before the pandemic. Great signs. And as we move forward, more and more, I believe, is going to come back. We're still going to -- probably going to have some supply chain issue in Q4. And generally speaking, I would say this, we're going to see growth from last year Q4 to this year Q4, okay? I don't think it's going to be the growth that we want to see, but we might surprise, but there's going to be growth. and there's going to be a major growth on the illumin side. And we're really, really focusing all our attention on mega growth next year. So we're investing a lot. So up to now, we were all about EBITDA and doing everything we're doing with the same expenses. Next year -- we're starting now into next year to invest a lot in marketing and sales. So more salespeople, more marketing, more support people, more people on the -- obviously, on the product side as well so we can move faster on that. We have the luxury to think long term. And we think, okay, how do we bring this to take over the world of advertising like we want to, and we're making that investment into it. So we will probably give up some of the EBITDA numbers that we've seen out now in order to achieve that level of growth next year and beyond.

[Operator]

Our next question comes from Laura Martin at Needham.

[Laura Anne Martin, Senior Research Analyst]

So a couple from me. So of your self-service line item this year, I think you said that illumin was $7.4 million out of the $8.2 million in the most recent quarter. My question is, in the prior year, you were showing $7.3 million of self-service that since illumin didn't exist last year, I was wondering why -- like can you remind us what is that -- last year, basically, went to $600,000, this year?

[Tal Hayek, Co]

Yes. Last year, when we look at our Self-Serv revenue, it was the legacy Self-Serve system that we have. And -- but one is being phased off in order for illumin to grow. We also had some clients on that system that were related to the affected industry. So -- but in general, most of the illumin revenue that we're seeing, Self-Serve or not, are, I think, over 67% from completely new logo to the company.

[Laura Anne Martin, Senior Research Analyst]

Okay. And then one of the things you've talked about in the past is you're hoping to convert some of your managed service revenue down into the self-service line. Is that happening?

[Tal Hayek, Co]

Well, we're not doing it yet. We're going to do that next year. Even when it comes to managed services and on the illumin side, it's not exactly completely managed service. It's almost like Self-Serve with a lot of support. So we have our team -- our enterprise team supporting in the back end and helping customers achieve what they're doing. So we're not pushing a lot of the buttons for them. But then within 6 months or so, we are expecting them to move into Self-Serve. Not all of them will. Some of them still want to stay and manage, but that's the idea next year.

[Laura Anne Martin, Senior Research Analyst]

Okay. And then CTV, you said it grew 220%. Could you just give us the number that CTV achieved in the quarter? And is it sitting in managed service or self-service, the CTV?

[Tal Hayek, Co]

It's both. So I don't have the breakdown between the two. I would say it's starting to approach just under 10% at this point. So it's becoming a more meaningful number.

[Laura Anne Martin, Senior Research Analyst]

So out of the gross profit number 14, you think it's...

[Tal Hayek, Co]

Out of the gross revenues.

[Laura Anne Martin, Senior Research Analyst]

Yes.

[Tal Hayek, Co]

It's not 10% yet, but it's starting to approach 10%.

[Operator]

Our next question will come from Darren at ROTH.Darren, are you on the line here?

[Darren Aftahi, MD & Senior Research Analyst]

I am. Can you hear me?

[Operator]

Yes, we can.

[Tal Hayek, Co]

We can't see you, but go ahead with the voice.

[Darren Aftahi, MD & Senior Research Analyst]

Okay. I guess I'm a black box. That's fine. Anyways, so three questions. First, can you -- the clients you talked about that grew from 1Q to 3Q, were those mostly mid-market or any of those Tier 1?

[Tal Hayek, Co]

Mostly mid-market. There's two of them that are Tier 1, but most of them are mid-markets.

[Darren Aftahi, MD & Senior Research Analyst]

So as a generality, are you seeing that trend of customers that have come on in Q1, increasing spend in aggregate to Q3?

[Tal Hayek, Co]

Yes, definitely. That's why I showed the examples of quite a few of them. But yes, that's what we're seeing. People are liking what they're seeing, and they're spending more and more every quarter. And that's the trend that we expect to continue. And also that's one of the reasons why we're refocusing the sales team more on the mid-market side because we're seeing immediate results there. Obviously, we're going to still spend time on the enterprise side and work on converting the bigger deals that will pay us in the long run. But in the meanwhile, we still want to bring in that mega growth.

[Darren Aftahi, MD & Senior Research Analyst]

Got it. That's helpful. And then on the supply chain, you talked about legacy customers, but I'd be remiss not to ask, like, is supply chain having any impact in the sales cycle with some of your bigger illumin clients, maybe some that are in e-commerce? Or you talked about kind of a home goods retailer? Just kind of curious if that's pushing out kind of -- any kind of revenue potential into 2022?

[Tal Hayek, Co]

So I mean, auto is a big part of the pipeline. Very serious conversation. Very tight conversation with the big automakers. And yes, obviously, they have supply chain issues. And we do believe it's going to push the decision to next year. I think it's pretty clear that if they don't have the product to sell, they're going to advertise less. But when they do, they will come back and advertise big time.

[Darren Aftahi, MD & Senior Research Analyst]

And then on your Twitter chat, I noticed yesterday, you had a tweet talking about potential integration with Shopify in the fourth quarter. I'm just kind of curious if you could expand more on that?

[Tal Hayek, Co]

Well, we're -- so we're talking about the small, medium-sized businesses. We're talking about multiple types of one too many types of integrations. That could be one of them. I'm not going to speak specifically about that one, but there's a multiple type of these kind of relationships that we can create in order to achieve that because selling to the small businesses to medium business is not a sales force selling it out. It's more like either one too many or e-commerce types of offers that people come to the site and sign on their own, and it's obviously a very small amount of money per month, but it's many, many of them. I'm excited about that side of the market. But I can say, we don't really have a proper strategy into that yet because we're working on it. So we will share it once we have a better idea.

[Operator]

Our next question comes from Vince Valentini at TD.

[Vince Valentini, Analyst]

Can you hear me now?

[Tal Hayek, Co]

No, we can't hear you.

[Vince Valentini, Analyst]

There we go. Is that better?

[Tal Hayek, Co]

Yes, it's a little bit echoey, but let's try.

[Operator]

Why don't we come back to Vince. We'll ask our next question in the meantime. So Vince, I'm going to remove you here, and we will try you again momentarily.Our next question comes from Kevin at Desjardins.

[Kevin Krishnaratne, Research Analyst]

You can hear me now, right?

[Tal Hayek, Co]

Yes.

[Kevin Krishnaratne, Research Analyst]

I just have a couple of questions. Just can you -- I don't want to go back to the supply chain impact that you saw in the quarter. You alluded to one client at least had $1 million in Q3 alone. Is there a way to think about what -- you grew 11% constant currency in the quarter. Is there a way to think about what you would have grown excluding some of these impacts? And then number two, related to that, the supply chain issues, I think, started creeping up more towards the end of Q3. And so how much more dramatic might the impact be in Q4? I guess what I'm trying to get at is your thoughts on -- or guess as to where -- what the magnitude of the shifted, I think we know it's all shifting in revenue into future quarters, but just trying to get a handle on what the impacts might be to quantify them?

[Tal Hayek, Co]

It's really hard to say what the exact impact from -- I mean, it's a combination of existing business and business that was about to sign and didn't sign yet, so it's going into future revenue. But I would say, I'm sure it was probably a few million dollars for the -- in Q3. And in Q4 again, it's hard to guess at this point. I think it's better just to kind of say, okay, how's things going to do in Q4. They've got fantastic from an illumin standpoint. And they're going good from an overall revenue standpoint. We're still going to see growth, but we would have liked to see much higher growth in Q4. And we do believe that the mega growth is going to happen next year.

[Kevin Krishnaratne, Research Analyst]

And on that mega growth, enterprise will be a focus. Thanks for the description on the three different buckets. I know -- I'm trying my notes here, enterprise illumin, having a lot of conversations, lots of testing going on. There, you talked about supply chain also being an issue here. But I think on top of that, are you seeing -- you talked about there being a little bit longer of a cycle. Is there something else that's driving the lengthening in that cycle? Or is that strictly based on supply chain impacts?

[Tal Hayek, Co]

No. I would say that we also learned through the process that selling to enterprise is a completely different animal than selling to what we're used to selling on the media side. When you sell to enterprise, you need different type of a sales department, people who are used to selling SaaS and they're selling to dozens of people within an organization in order to get the deal done. It could take a year. It could take more than a year to do it. And you have to have more integration with internal systems and a whole bunch of other things that we're learning throughout the time. So it's all that -- and yes, some of them will sign up without any of that, but there's definitely needs to be more expertise from our side when it comes to doing that. And we're bringing those expertise aboard. That's part of what we're investing in, as I said before, into the org. And we will have more of that -- more of the integration into internal systems that they're asking for. And at the same time, bringing in the quick revenues from the mid-market. So all that is a part of what we're doing.

[Kevin Krishnaratne, Research Analyst]

And so you talked about some of that sales cycle lengthening has resulted in a pushing out of some of that enterprise sale in the next year. Is that -- are you talking stuff coming from -- going from Q4 into Q1 or to Q2? Or how do we think about where you're seeing those deals that you thought might have been coming sooner sort of landing next year?

[Tal Hayek, Co]

I would say that, again, this is something new for us, and I don't -- I really prefer not to speculate, and we will share the information when we have it. I think some will happen hopefully in the first half of the year. But again, it's going through the cycle, understanding it, bring them in, sometimes building some components for them that they would like us to build, sometimes doing more testing for a longer period of time. So I think it's best not to speculate on that until such time that we bring some of those in. And once we do, we will share it. We will learn from it. We will bring more in. In the meantime, a huge market on the midsized market that we're helping customers get into this game and they're very happy and they're spending more and more every quarter. And we're adding more and more of them as reported to so.

[Kevin Krishnaratne, Research Analyst]

Okay. No, I can appreciate that. Maybe just to switch gears then on to maybe that, the more mid-market. Self-service growth reported was 12%. Maybe on a constant currency basis, closer to 17%. I wanted to go back to the thoughts around illumin. It was my understanding that those illumin numbers that they're not Self-Serve. I mean, there's many -- is it not that the illumin number is still predominantly a managed service? Or is it -- or am I not correct there, i.e., the $7 million, was that all self-service?

[Tal Hayek, Co]

So, no. So the illumin dollars are not all Self-Serve. It's split. I don't have the exact number of split between them. But you're right, the majority of it is still what we call it hybrid, call it white club service, when we're helping the customers push some of the button. Some of it is Self-Serve as well. So -- but the Self-Serve number we're reporting is an aggregate of all Self-Serve, illumin and legacy.

[Kevin Krishnaratne, Research Analyst]

Got it. So that's some -- I think on a constant currency basis, that's, like I said, 17%, maybe a bit higher than that organic growth. How -- what's driving that then? Bigger deal size? More customers coming on board, broadening out? Is it all of the above? Just -- I think that was a good number in the quarter.

[Tal Hayek, Co]

Yes. I mean it's all illumin Self-Serve coming in. They're spending it -- so the illumin dollars spending on Self-Serve are naturally higher spend per client and they're seeing great results of spending now.

[Operator]

Our final question will come from Rob Goff at Echelon.

[Robert Goff, MD & Head of Research]

Can you hear me, Tal?

[Tal Hayek, Co]

Yes, and we can see.

[Robert Goff, MD & Head of Research]

You've talked to the growth of illumin. You talked about the growth of CTV. Could you perhaps talk through the overlapping growth, i.e., what is illumin doing to drive the CTV business as well?

[Tal Hayek, Co]

Very good question. So CTV is an integral part of the illumin campaigns in general. The majority of illumin campaigns have a component of CTV in them. Now there's a big advantage of using CTV on illumin versus on any other DSP. When you run other DSP, you usually run a stand-alone and you evaluate on its own, and it's hard to evaluate the results of CTV. When you run up it in illumin, you have the ability and most people love that part to run two paths. One with CTV. One without the CTV. And you see the effect of running that type of upper funnel campaign on CTV on the lower funnel on the conversion side, by just comparing those two and looking at the insights of those two. So most advertisers are electing to do CTV campaign as a part of their journey. I personally think if you're going to do a journey, if it's going to be a proper journey with awareness, engagement and conversion, the awareness piece should be heavily concentrated on video. So part of it is going to be CTV. Very big bonus that you can actually evaluate how it's working.

[Robert Goff, MD & Head of Research]

Good. And you talked within the enterprise that you were in discussions with eight automotive companies, a health care company. When you look at the enterprise bucket, are these typically like $1 million annual budgets? Or how should we look at it in terms of financial prospects?

[Tal Hayek, Co]

We're looking at the Fortune 1000 brands.

[Robert Goff, MD & Head of Research]

Okay. And how would you see the prevalence of million-dollar accounts looking ahead when you're seeing the enterprise bucket?

[Tal Hayek, Co]

So for me, every time we will convert one of those enterprise to be what I call like a proper integration, it's -- for me, it's my number, in my mind, is at least $10 million a year in revenue. So that's what we're trying to achieve when we're going after those enterprise accounts. Millions of dollars of accounts, we have many already. This is -- it doesn't have to be an enterprise client for that. And we have some enterprise clients that are over $1 million. I mean, we have many enterprise and non-enterprise clients over $1 million a year, accounts.

[Robert Goff, MD & Head of Research]

Okay. And if I could, when you're sitting on $100 million of cash and growing every day, could you talk to the cadence of acquisitions and whether or not you might consider share repurchase as a really attractive use of funds given where your share price is, in particular?

[Tal Hayek, Co]

So the share -- I was actually starting to think about it recently. And the question is, well, what's more valuable to bring in more -- and other organizations into us and develop the illumin side faster, add more components to it than more revenue to this financial model that is beautiful and accretive. And at this point, I think it makes more sense to save the money for the acquisitions because I think we can do so much with it. And so yes, that's what we're thinking about from an acquisition standpoint. Look, we're talking to multiple companies, almost every week. I would say valuation expectations are fairly still high, but they're coming down. And we're seeing some companies who we think we can do -- work with or we can combine with and do a good job. But we're very picky about what we're going to bring in. It has to be something that add value to illumin, accretive from a financial standpoint, and we're going to stay disciplined on it. But I believe we're going to do it. We're going to do it. Eventually, it's going to happen.

[Operator]

Thank you, Rob. Thank you, Tal. Tal, it is now 9:30. So that's all the time we have allocated for today. So if you'd like to provide any last remarks, we can close up shop here.

[Tal Hayek, Co]

Thank you, Corey, and thanks, everyone, for joining us today. We really appreciate your support. For some of the retail investors, there has been some frustrations. Our stock price used to be higher, then went down. And I want to say that, first of all, we absolutely do not control the stock price. We have no desire to control the stock price. What we are here is to execute on the business plan. And I believe the investment of Acuity is not somebody who wants to invest in 1 quarter or 2 quarters or 3 quarters. Acuity is the kind of company that launched the illumin is going to change in the world. And over the medium to long run, I do believe that there's going to be a big payback. So I appreciate all the support throughout the years and to the new shareholders, of course, a big thank you to the Acuity family for delivering yet another big quarter. So thank you, everyone. Have a great day.

[Operator]

Thank you.