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AcuityAds Holdings Inc
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Good morning, everyone.
Before we begin the official remarks, I will read the cautionary note regarding forward-looking information. Certain information to be discussed during this call contains forward-looking statements within the meaning of applicable security laws, including, among others: statements concerning the company's objectives, the company's strategy to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts.
Such forward-looking statements reflects management's current beliefs and are based on information currently available to management and is subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated.
Please refer to the cautionary statements and the Risk Factors identified in our filings with 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.
Hello. Welcome to the Q4 Investor Presentation. This is Seraj Bharwani, Chief Strategy Officer at illumin, and here with me is Tal Hayek, CEO of illumin. Hello, Tal.
Hello. How are you?
How are you? I'm fine.
Thank you. Thank you.
So glad we could have this conversation today.
Is, am I?
And obviously the most relevant question today is how did illumin do in Q4?
Well, much, much, much better than we ever expected I can tell you so.
Nice.
I like to talk about Q4 in general and then to talk about the illumin first.
Sure.
So I'm very excited about the fact that it's the second quarter in a row that we're delivering positive growth results. As you know, we are in an industry that we see a lot of our competitors actually seeing negative growth, a lot of it to do with the economical issues out there.
Sure.
And we delivered a positive growth in Q3, now delivered positive growth in Q4. And so I'm very, very excited to be on that side. So we did deliver $40 million in revenue versus $37 million that we delivered the same time last year. So it's a nice year-over-year growth.
We like to see higher growth and we're working very, very hard on that. So that's in the end of the -- that's more or less what I can say about the quarter itself. But specifically about illumin -- specifically about illumin self-serve couldn't that be more excited to see how that is growing. So it grew to a revenue of $2.4 million versus $1.2 million that we had in Q3, so doubled.
Yes, of course.
And we added 28 new logos that are using that system now on a regular basis that are very, very exciting about that.
Yes.
So I'm very, very happy about the progress and seeing the continuous progress into this year momentum as well.
Fantastic. I know Tal; you've been really passionate about making the self-serve really grow rapidly. What is driving the recent acceleration in adoption? What's so unique and different about illumin that's convincing and persuading the clients to want to adopt it, use it, and grow with it?
I think it is two areas to concentrate to answer that question. So area number one is the advertiser, the customers, what are we -- what problems are we solving for them? And then what did we do internally in order to move into self-serve?
Yes.
So let's start with the advertiser first. There's two big problems that we're solving for advertiser. Number one, we give the ability to create journey advertising. Okay. So let's -- it sounds very simple, but there's no other system out there that is capable of doing that. And what do I mean by that? It means as an advertiser, I would like to create a journey for my campaign.
Usually, it divides into three different segments. There's the awareness piece, there's the engagement piece, and the conversion piece. The problem is when you want to go and execute something like that; you don't have any system that allows you to do it. So you just can't do it. So that's why as consumers, we always see the same ads repeat over and over and over again, 20, 30, 50 times until we want to throw up by just seeing another ad.
And illumin sauce for that because it gives you a system that you as an advertiser can drag and drop your creatives into it and decide on the exact journey your consumer going to go through based on rules, based on logic, based on AI. So to give you an example, if I set up you watching a certain ad, I can set it up to be watching it for five times and after you've seen that five times, I'm going to move you on to the next video ad, and you're going to see that three times. And after you've seen that, I might move you to the next level, which is maybe the engagement side. So I'm going to show you different types of it. And let's say you clicked on it, I'm going to bypass your journey, and I'm going to move you to the conversion side.
That point, it's time to give you a whole new set of creatives. This is the time you have call to actions created and you try to get the customer to convert. So everything I just said now is all being able to do from one system called illumin, and we're very, very excited to be the one that's solving that problem.
And the second problem that we're solving is the fact that it's very, very hard to use problematic systems out there. You need to be a highly trained expert to use it. Not with illumin, illumin is intuitive drag and drop system. We brought it down to the basic that any average person can use it with very little training.
Nice. And I can tell you Tal that was your vision from the very beginning, right? You are the ones that I'm literally paraphrasing you, which was you wanted to democratize programmatic advertising.
Exactly.
And the way you described it by making it very intuitive and be able to cover the full range of the entire journey from the very upstream end of it, driving awareness all the way down to really conversion and growing businesses revenue is a phenomenal way to help achieve everything from a single interface, right?
Exactly.
Yes. Now, when you do that, the ultimate proof point that any advertiser will ask for is like, okay, great, I can do all of that, but what's the proof? Can I get real results? Does it drive better outcomes? Does it really drive better ROI? And I think those are some of the things that I'm sure investors would want to know, what it is that the advertisers are benefiting ultimately by running illumin?
Well, as you know, as you interact with the advertisers on a regular basis, we've been able to show two major proof point. Number one, you can add scale to your campaign. Beyond anything that you could do before and I think that the numbers are showing to up to 60% more scale to your campaign, which is very impressive for advertisers who are trying to achieve more revenue, more sales at the end.
And then let's talk about ROI. We've been able to show that being able to contact those consumers on the awareness and the engagement stage actually increases the ROI, which means increases the conversion and then increases the amount spent for that conversion as well. So though the combination of those two things are obviously increasing ROI for customers.
I think that latter evidence is quite impressive. Because to your point, when people go through that experience, our studies actually do show that people tend to end up buying more, which in industry terms is the average order value goes up significantly.
I think it's logical, right? If you're a -- if I'm getting bombarded the same ads over and over and over again, it's not going to be as efficient as if I'm telling you a story. So I think this is what the whole point is there, telling the consumers a story and bring them along that concerning journey in order to get them to conversion.
So Tal is clearly very impressive, but nothing significant of this level of transformation and change gets achieved without some fundamental changes happening to the way you run the company. What are some of those changes that you've actually made to really get where we are now?
That is an excellent question, because that's been a struggle as you know. We launched illumin two years ago, and our natural thought is, okay, we're going to go and sell self-serve now. But coming from a company that used to selling manage for all these years it was tough. And we had to make a lot of changes. It started by making a lot of changes on our executive side bringing in new executives, organizing, that was a year that we invested a lot and that was really 2022.
Closer to the second part of the year, we brought in a new Head of Sales, Nadeem from Salesforce.
Right.
And that was a strategic move that we made. Not to bring in somebody from the industry, but bring in somebody that is used to selling maybe more long-term contracts with guarantees. So things that are not -- we're not used to in our industry and start affect the change internally to start focusing now on the pipelines. So what's in your pipelines? How do we convert into demos? How do we convert the demos into contracts? And how do we convert the contract into paying customers or using customers using the system?
Yes.
So we're bringing it down to clients. We've seen a lot of lines on our pipes. We've seen a lot of demos happening on a regular basis. We're seeing those conversions as you see in the queue for numbers 28 new logos in one quarter. That's massive amount of improvement over the previous quarters in what was it, Q3, we did 17 new logos, in Q2, we did eight new logos last year. So we're improving tremendously every quarter, and we're bringing that down to clients. We still have a long way to go until we figure out the exact formula, but it's looking, looking really, really good.
It's a tough thing. I totally agree with you, Tal. I think me experiencing directly what's happening in the field, I can vouch for that in that not only have we as a company with your leadership brought about the transformation on the advertising and the industry side, but the changes that have happened internally to be able to support that level of transformation is absolutely miraculous, very impressive.
Let me ask you a question.
Yes.
I get a glimpse of the reaction of customers when they see a moment for the first time.
Yes.
But do you see it all the time?
Yes.
Tell me about that.
Well, so the first reaction people get is, it's just unbelievable. I can't believe that something like this actually exists, which is a clear validation that what we went on to do was truly differentiated, truly unique. And it's one of those needs that you don't recognize until you see it. It's like the first time, it's like you could have done as much research as you wanted to, to say, does anybody want an iPhone? But nobody would know until they saw it, that that's something they had a need. And I think that's the kind of stuff illumin is.
Exactly.
Only when it was created that people recognize, oh my God, I always needed something like this. And they finally, they see they have it and they want to figure out how they can use it. It does take a little bit of learning. It requires a change in the way they run programs and the way they run the advertising and so forth. But once they get the hang of it, which of course is much easier because of the intuitive nature of the platform, there is a lot of resonance in the market.
Yes. I love those moments when I see the reaction of new marketers and advertisers that they see the demo for the first time.
Without a doubt, it's consistently positive.
Yes. So thank you, Seraj for doing this. We're obviously doing a new format and we want make it more interesting.
It's fun.
So thank you for coming.
Yes. Yes. Really enjoyed it. Really enjoyed it. Yes.
And I'd like to call on Elliot to give us some financial update, please.
Thank you, Tal, and thank you to those joining us today on our fourth quarter and fiscal year 2022 earnings call.
We reported record total revenue for Q4 2022 of $40 million, which was driven by strong annualized and sequential sales growth from illumin of 121% and 70% respectively. We are excited by the continued momentum of the illumin platform in Q4 in terms of increased revenue, customer growth, and especially the growing self-serve component of our unique journey advertising platform.
These strong fourth quarter results were accomplished in a very challenging macroeconomic environment. The growing self-serve demo pipeline we've been seeing as of late clearly speaks to the value that our prospective clients are seeing in illumin. Our targeted investments in the illumin platform and our sales efforts throughout 2022 are now being reflected in our financial results, and we believe these foundational investments will produce further benefits in 2023, as we continue to enhance and expand the breadth of the capabilities of our platform.
We expect to achieve positive total company revenue growth driven by illumin in 2023, as it continues to become an even larger percentage of our overall revenue. While not immune to the continuing recessionary pressures on ad spend into 2023, we believe our unique platform offering will be the differentiating driving force behind our continued growth.
And on that note, I'll now review our financial results for the fourth quarter and the full-year of 2022. Total revenue for the fourth quarter of 2022 was $40 million, as I previously mentioned, up 9% from Q4 2021 of $37 million, and up 38% sequentially compared to $29 million in Q3 of this year. Revenue growth in the quarter was driven largely by higher spend from our existing illumin clients, including illumin self-serve clients, which rose dramatically by 100% on a sequential basis compared to Q3. For the fiscal year 2022, total revenue was $121 million, mostly flat with $122 million of the prior year. This slight decrease was mainly a result of lower client spending stemming from macroeconomic headwinds such as high inflation, the anticipation of lower inventory, persisting supply chain challenges and recession concerns. And having said that, these full-year results do not represent the recent momentum we've been seeing for our illumin self-served, which has continued into 2023.
Revenue from managed services during the fourth quarter was $26.6 million unchanged from Q4 of last year, and a 30% increase sequentially from Q3 of this year of $20.4 million. For the fiscal year 2022, revenue from managed services was $81 million, compared to $91.8 million in 2021.
Self-service revenue for Q4 2022 was $13.4 million, an increase of 31% compared to $10.2 million in the prior year, and a 57% increase sequentially compared to the $8.5 million in Q3 2022. For the fiscal year 2022, self-service revenue was $40.1 million, a 33% increase compared to the $30.2 million in 2021.
And for the 3 months and 12 months ended December 31, 2022, illumin revenue was $22.5 million and $53.7 million respectively, compared to $10.2 million and $26 million in revenue in the comparable 2021 periods. And this represents continued and significant growth in the illumin platform as we reached the target customer base and begin to realize illumin significant growth potential.
Our gross profit or net revenue, which is defined as the total revenue less media-related costs was $19.4 million in Q4 2022, an increase of 1% compared to $19.1 million in Q4 2021. Sequentially gross profit increased 30% compared to the $14.8 million of Q3 2022. Gross profit or net revenue for the fiscal year 2022 was $60.8 million, compared to $63.6 million in 2021.
Our gross profit margin for Q4 2022 was 48.4% compared to 52% in Q4 2021 and 51.3% in Q3 2022. For the full-year, gross profit margin was 50.2% compared to the 52.1% in 2021. This decrease was mainly attributable to a strong shift in product mix during the quarter as self-service revenue, which carries a lower gross margin continued to increase as a percentage of overall revenue during both the 3 months and 12 months period.
Our total operating expenses for the fourth quarter of 2022 were $19.6 million, compared to the $16.1 million in the same period last year, and $16 million in Q3 of this year. Our total operating expenses for fiscal 2022 were $66.3 million, compared to the $53 million in 2021. As a percentage of revenue, operating expenses were 49% in the fourth quarter, compared to 44% for the same period in 2021, and compared to 55% in Q3 of this year. For the fiscal year 2022, operating expenses as a percentage of revenue were 55% compared to 43% for 2021. This increase in operating expenses was consistent with our expectations as it reflects our strategic investments in 2022 in sales and marketing and technology development to enhance the illumin platform and to drive its success in the marketplace.
And as a result, we've generated EBITDA in Q4 2022 of $2.4 million, compared to $5.9 million during the same period in 2021, and $1.6 million in Q3 of this year. For the full-year 2022, adjusted EBITDA was $5.8 million, compared to $20.3 million in 2021. This year-over-year decrease is mainly due to the strategic investments I mentioned previously to grow illumin revenue and to implement further platform enhancements.
The net loss for Q4 2022 was $0.8 million compared to net income of $2.7 million to the same quarter last year, and $3.2 million in Q3 2022. For the full fiscal year 2022, our net loss was again $0.8 million compared to net income of $11.8 million in 2021 due to the factors I described earlier.
And now onto the balance sheet. Turning to our balance sheet, as of December 31, 2022, our cash and cash equivalents balance stood at $85.9 million, compared to $102.2 million as of December 31, 2021. The lower cash balance compared to last year was mainly related to the share repurchases we made throughout the year under our share buyback program, reflecting the belief of our management and Board that the current price of our common shares does not reflect their inherent value and potential. Along those lines, during the 12 months, we repurchased 4.7 million common shares via normal course issuer bid at an average price of $3.08, totaling $14.5 million.
Before moving on, I'd like to comment on our capital deployment strategy. We continue to invest capital in a targeted and strategic manner to support illumin's and Acuity's future growth. And given our latest financial results, we remain confident, our investments are focused on producing strong returns for our shareholders and our strategic focus, as well as our share repurchases are all aligned towards this goal.
Looking at the shares outstanding, as of December 31, Acuity had 56.8 million shares outstanding, compared to 60.7 million at the same time last year.
And in conclusion, we remain focused on growing our illumin platform with emphasis on the self-serve component, which we expect will be a main driver of our Acuity's overall growth in 2023. And to support this growth, we will continue to make strategic investments to support illumin's development and market growth. With our balance sheet and cash position, we are in a solid place to continue on this course. And at the same time, our considerable cash balance also enables us to cautiously continue exploring targeted M&A opportunities to accelerate our growth even further. This remains a key focus for us and an important part of the company's long-term strategic plans.
And with that, I would like to pass it over back to Tal and Seraj.
Thank you, Elliot.
So Tal, would you like to summarize in your own words Q4 overall and how it performed, and with the backdrop of where the economy is and where the conditions are right now, how you expect illumin to perform this year?
Yes, definitely. Start with Q4; we delivered $40 million in revenue in Q4 over $37 million at the same time last year. I'm excited to go back to growth. It's the second quarter in a row that we're showing growth and we're seeing a lot of our competitors showing negative growth during the same period. So I'm very, very excited that we're showing growth.
And I think the reason that we're showing growth is because we have this product that is totally unique and we're going out there to the market. And it was a really good question about the economical situation, and it's hard for me to exactly answer it because we're doing well, but maybe in normal times we would be doing even extendedly better. But we're still going into a market -- programmatic market, which is over $150 million, and we're going after the customers who are already using it. So it's not so much a function of how much is the market growing. It's a function of our -- we are going into a market with a unique product and displacing our competitors, okay?
So it's a huge market to displace in, and illumin is something that nobody else has and that's why we're seeing the success there. And I'm super pumped about the fact that we're doing it on self-serve. We're able to double revenue in Q4 over Q3 on the self-serve illumin side. But more importantly, just starting to bring it more back to science.
And I think one of the other things that I would like to share is we're testing something that is pretty hard to do in our industry. We're testing long-term committed contracts. So our normal way of doing business in the attic space on the managed side of things, and even on self-serve is usually no commitments from guarantees or short-term commitments. We are testing long-term commitments between one and three-year contracts with minimum guarantees, means the customers are guaranteeing that the contracts as well. And we're starting to see some early results. It's too early to really call it and to provide feedback on it. Believe me, we will when we have proper and solid feedback, but there's only other two other companies that can do it in our space. And we're seeing that customers are willing to sign for those things. So that's a great sign.
And the reason they're doing that is just because they love the concept of illumin. So that's the way I see, that's the way I look at Q4. And looking at this year my strong belief that we're going to see another growth year and it's going to be more and more of adoption of illumin. And Q1 is already looking good and we're happy about what we're seeing there. Obviously, we're in the middle of the quarter, but so far early signs are really, really good.
And I'm very excited about what's here to come. I didn't get a chance yet to thank the Acuity team for delivering such an amazing quarter. By the way, Q4, the $40 million was a record quarter for Acuity. So we're very, very thankful and full of gratitude for that as well. And for our investors and all our other partners that made this possible, so I'd like to thank everyone and we are going to now go to Q&A.
Thank you, Tal and Elliot. [Operator Instructions].
Your first question will come from Darren Aftahi at ROTH Capital Partners. Darren, please go ahead.
Hey, guys. Can you hear me? I think you guys are on mute.
How is it now?
Great.
Good morning, Darren.
Good morning, Darren.
Good morning. Good to see you guys. Congratulations. Nice work. So two for me, the 28 logo number, sort of a inflection point, if I'll use that word. I'm just kind of curious, what do you think like is it an inflection? And then, I guess secondarily like is -- has something changed where you feel like adoption is kind of mainstream now? That's my first question. Second one, everybody for the most part we've heard from in this space has just talked about how Q1 to-date is not great. But yet Tal, I heard you at the end of your prepared remarks talking about how Q1 look good. I'm just sort of curious if you can kind of speak to that context. Thanks.
Yes, absolutely. Great questions. So inflection point, well, let's -- let's share the numbers of new logos throughout the year in Q1, five new logos, in Q2 eight, in Q3 18, and in Q4 we have 28. Is that an effect? No, I think we're going to -- we can raise that number up -- by a lot.
And the question is what changed? A lot changed internally. So we spent last year really organizing the company, and part of it was moving our kind of DNA from selling manage to selling more SaaS, which we consider that our self-serve platform, selling contracts versus insertion orders, which are short-term orders. So that takes time and a big focus started around mid-year when we brought in our new Head of Sales, Nadeem, that has lots of experience from previous life in Salesforce running salespeople with selling contracts. So I think that's the main thing that changed in our company. The product of course got better as well, and we're adding new and new things to it all the time. But that's what changed from the sales focus.
And I think indicators are showing that we're doing great in Q1 from the self-serve illumin perspective, but also we're going to be -- we believe we're going to see growth in Q1 as well over Q1 of last year as well. So I would say yes, I -- like I did say before, it's hard to say how it would've been in good economic times but we're doing well under this circumstances, and I think the reason is because we have a product that is very unique and we're creating a lot of excitement for advertisers.
Your next question will come from Laura Martin at Needham & Company. Laura, please go ahead when you're ready.
Okay. Hi, Tal. Hi, Elliot,
Hi, Laura. Did you like the new form?
I'll ask my two questions also simultaneously. One is really great revenue growth and great illumin mix, but tell me about costs. Costs are rising a little faster than we thought in the quarter, and you said you're going to have growth into 2023. Can you talk about what you think is going to happen to cost growth compared to the revenue growth in 2023 as we think about modeling that? Thank you. That's my first. Yes, go ahead with that one, I guess.
Yes. I would say cost is increasing exactly how we designed it to increase. We communicated very well to the market that we're investing last year in the organization and in the sales and marketing side. So that that is the cost base that we had increased last year's carrying us into this year as well. And we're definitely seeing the results from that. Anything you'd like to add?
Yes. I think -- definitely we are continuing our program of building into the advantage that we have. So the focus has shifted to more of even more technology and product evolution. So into 2023, we are working hard to create additional capabilities, so there'll be definitely additional focus there and on our marketing -- and our market presence, which I think we've kind of not invested as much as we could have in the past. So there is -- but we are quite cautious about, and we have redirected costs from other areas that we think are less strategic, so it's more of an allocation between the two.
Okay. And then my second question is about does illumin, I know you used to have a lot of mattress work. Is that back and more specifically stepping up a level is illumin particularly well suited for certain types of products that you find yourself like in the 28 win -- logo wins in Q4 or the 18 in Q3 or the eight in Q2. Are they coming in certain verticals typically these logo wins?
Right. The job of a platform is to work on any vertical, and that's what the AI always adopts to. A lot of times we would see what's -- what the big spenders are spending online at a certain time. Then naturally we will see more revenue coming from that way, but it can literally work on anything and adapt to anything. So it's really not geared to any specific verticals. So that would be my answer. I mean, we do see every quarter we see certain verticals doing better and certain verticals doing work like the mattress, for example definitely not doing anywhere close to what it used to do, but it's a function of the times.
Thank you, Laura. Our next question comes from Daniel Rosenberg at Paradigm Capital. Daniel, please go ahead when you're ready.
Hi, good morning, Tal and Elliot. My first question was around the expenses. I just wanted to understand as you went through this year of investment, is the way to think about next year all that investment that was sort of one-time in setting illumin up that’s going back into sales and marketing?
Okay. So the investments that we make mostly in people, right? So all those people that we made in investments on are not a one-time investment. Those are investment to increase the capacity of the sales force, to increase the capacity of the tech people building the product, of the product people. So it really was all around. And don't forget on the executive side, we've done a lot of work as well in order to get us ready for the next phase of growth. So those are things that will stay with us from an expense point of view. Again, Daniel, this is a choice that we can make and unmake at any time, but we don't see us unmaking that choice because we're seeing the results from all those investments. And the main thing for us is we're seeing the addition of the self-serve clients month-over-month. And that creates a component effect on the revenue where you have your existing clients and you add new clients to it. So every month we're seeing the revenue and the number of clients on the system grow. So this is really what we're focusing on.
So when in the past, we used to focus on different things, today we really, really focus on the pipeline of self-serve. And then, on the conversion to demos, the conversion from demo to sign contract, and then to activation. So that has been our focus and we're starting to bring it down to science. We still have very short time data, but it's looking good so far and making adjustments to it all the time.
Thanks for that. And then on the sales pipeline of the self-serve customers, could you characterize in terms of any trends you're seeing on size or spend, are you able to target a different type of customer versus what you had done in the past? And then I'll pass the line. Thanks.
Yes. So our main target market is the medium advertisers and medium agencies. That's what we get the most amount of business form. But at the same time, we are getting a lot of interest from the bigger entities out there. And we are working on those as well.
But the majority of it is on the mid-size. Remember [indiscernible] also simplifies the whole process. So sometimes people that would never access programmatic because it's so complicated, now it gives them the ability to do it. So it opens up a big market for us as well.
Thanks for that and congrats on the quarter.
Nice to see you. Nice to see you back in the office.
Thank you, Daniel.
I will give a minute to see if there are any other questions from our analyst. It would seem that we have no more questions. Tal, I will hand it back over to you for any final remarks.
Thank you. Thank you. So again, I'd like to thank our investors. Without our partners, we would not be where we are today. So big thank you to all our partners, to the Acuity family for delivering a record quarter and for doing all those hard movements to move us into the self-serve world and that's it for today. Thank you.
Thank you very much.
This concludes our Q4 2022 and full-year results. You may now disconnect.