illumin Holdings Inc

TSX:ILLM

Earnings Call Transcript 2024-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 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. Please refer to the cautionary statement and 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.

I'd like to turn the conference call over to Mr. Simon Cairns, Chief Executive Officer.

[Simon Cairns, executive]

Thank you, Steve. Welcome, everyone, and thank you for joining today's third quarter 2024 earnings call. Today, I'll begin by recapping highlights from the quarter, including our enhanced sales initiatives and how these have started translating into increased revenue throughout our business segments. I'll discuss our illumin Self-Serve business, where we see strong growth year-on-year. Then I'll discuss our Managed Services business, which returned to growth this quarter.

Afterwards, I'll turn the call over to Elliot Muchnik, our Chief Financial Officer, who will walk you through the highlights of our third quarter 2024 financial and operating results. After that, we'll be happy to take your questions.

For the third quarter, we reported record total revenue of $36.3 million, a 23% increase on a year-over-year basis. This included illumin self-service revenue of $8.4 million, a 64% increase compared to Q3 2023. In addition to illumin self-service, we saw an expansion in programmatic revenue and perhaps more importantly, this quarter marked the resumption of growth in Managed Services. Going downwards to the bottom line, adjusted EBITDA rose a substantial 200% compared to the same period in 2023.

Let's start with our illumin self-service business. The third quarter was another period where self-service grew considerably by 64% year-over-year. illumin self-service also represented 23% of total company revenue for the quarter. Similar to recent quarters, illumin self-service growth was mainly derived from new customer relationships. During the quarter, we onboarded 29 new illumin self-service clients. This is due in part to customers finding greater value in our ever-improving support for CTV.

Feedback we received also indicated that customers valued our integration with walled gardens like Meta, enabling customers to see unprecedented levels of detail in real time as to how their campaigns were performing, enabling them to leverage our insights and take action to make smarter connections.

Our customers are also finding great value in our reporting and automation tools such as Pathlight, which instantly highlights the next best move to maximize that specific campaign. We continue to receive excellent customer feedback regarding the visibility that our platform offers our customers in terms of measurement. Customers note that they are able to quickly and easily adjust their execution steps in real time so they can realize greater return on each marketing dollar spent.

In the current macroeconomic environment, making the most of your advertising dollars is not an option. It's a necessity for advertisers and marketers. These results also demonstrate the success of the recent changes we have made to our sales initiatives. We are not just talking about greater quantity here, but about being more strategic and effective in how our outbound sales efforts are conducted. This includes placing a greater emphasis on pursuing higher spend customers as well as simplifying our go-to-market steps.

All of these changes are designed to accelerate our sales process, expand our market share, and to find the most effective and efficient ways to make meaningful connections with potential self-service customers.

Even though we did show growth in our self-service business, both year-over-year and as a percentage of total revenue, we believe self-service is still in the very early stages of its potential. As I've stated before, we see customers utilizing the platform today as early adopters. We are learning a great deal from their feedback as we continue to refine our sales efforts as well as becoming better from a customer service standpoint in order to meet their needs.

This is a large part of how we have been successful at growing so far. At the same time, we continue to execute a strategic shift in our business, transitioning from a transaction-oriented revenue model with no contractual commitments to a more sustainable, recurring self-service model with an emphasis on longer-term contracts.

Over time, we continue to believe this strategy will give us the ability to deliver more consistent revenue growth and profitability. To support longer-term stickiness, we're actively investing to create a better customer experience within self-service, making workflow completion easier and more automated. We are also expanding the types of programmatic deals that advertisers want to use when planning campaigns, such as programmatic guarantee for CTV channels as well as a new forecasting tool that we expect to launch very soon.

Complementing this, we are taking very active measures to improve our inventory and algorithms to deliver on a continuous promise of effective targeting and results. We believe these platform enhancements plus efforts that help us streamline our sales process and our targeting of higher spend customers will yield better customer retention and revenue over time.

As I mentioned earlier, in the third quarter, we experienced growth throughout all facets of our business. In addition to self-service revenue, programmatic revenue grew 39% during this period which contributed to managed services revenue experiencing year-over-year growth for the first time in over a year. These results reflect a more customer-centric approach we've been taking to our strategy of building a complementary series of customer-facing options, including self-service and managed services both supported by improvements in reporting and our AI to deliver better insights.

Our results clearly indicate that with this approach, we are being more effective in working with our clients in providing solutions that best fit their needs and strategy. We're finding that these solutions span a wider range of customer segments as well, wider than what we've done in the past. These solutions can be self-service, fully managed campaigns or even in a hybrid approach that appeals to both agencies and brands of a variety of sizes and spend profiles.

With this customer-centric approach, we're finding that more customers are seeing the value in utilizing both our managed service and illumin self-service products. That is what you're now starting to see in our revenue. These results also prove a point I made on prior calls, where I discussed my view on managed services as an area where we could return to growth moving our story from a single growth track to potentially multiple tracks of growth.

The initiatives we've been implementing to refine our sales approach and reorganized our sales and marketing activities include a recommitment to managed services, simplifying our go-to-market steps, testing different market segments as underserviced and listening closely to how the customer wants to be supported in their success.

In addition to the measures above, this quarter, we also added important new team members, including Liz Ritzcovan, our new Chief Revenue Officer; and Bridget Westerholz, our new SVP for Marketing. In conjunction with our product and support leaders, we are taking a customer life cycle approach and optimizing how and where they hear from illumin. What our brand should stand for, what makes us unique and different and how we can streamline and assist the customer and get into their success markers, whether that's via a self or managed service approach or even a combination of the two.

In addition to a focus on growth, we also continue to prioritize improving operational efficiencies throughout our organization. Despite higher expenses due to investments in key areas, our gross margin remained consistent at 47% on a year-over-year basis. Of even greater importance, our adjusted EBITDA increased 200% during the same time frame.

This was mainly driven by our improved sales productivity resulting from the actions I described earlier. I'm extremely proud of what our team has accomplished since I joined the company nearly 7 months ago, and I am grateful to the leadership team for their welcoming support and hard work.

We are still in the early stages of our strategic transformation, but as our third quarter results show, we are making considerable progress. Based on what we've already achieved, our continued growth in illumin self-service revenue and the opportunities still ahead of us, we currently expect solid fourth quarter revenue growth resulting in part from the recent organizational changes we have made.

As we move forward, we will continue to challenge ourselves in part by setting clear achievable targets for ourselves constantly reassessing them and holding ourselves accountable to reaching them. We will also continue to refine our approach to sales, rethinking what we've done in the past and finding ways to make ourselves better. We will also continue to invest in areas that represent the greatest return on investment for us, including improving our sales and customer service activities, building and enhancing our technology and improving the overall experience of the illumin platform users.

We will also continue to identify new opportunities for growth in our managed services business. By doing this, I am confident that we will increase revenues and ensure illumin's long-term growth.

With that, let me turn the call over to Elliot to give a detailed review of our financial results.

[Elliot Muchnik, executive]

Thank you, Simon. Good morning, everyone, and thank you for joining our third quarter 2024 earnings call. And as you heard from Simon earlier, today, we reported third quarter results, which included increases in self-service illumin revenue and programmatic revenue as well as a 200% adjusted EBITDA improvement compared to the same period last year.

Third quarter 2024 revenue was $36.3 million, up 23% compared to $29.6 million in third quarter 2023. The year-over-year increase reflects increases across all revenue segments, including self-service, programmatic and managed service revenue.

Now turning to our illumin self-service business. illumin Self-Serve was $8.4 million in the third quarter, up 64% compared to $5.1 million in Q3 2023 and representing 23% of total revenue compared to 17% in the last year's third quarter. This year-over-year growth was driven largely by new customer relationships, and as Simon mentioned earlier, we onboarded 29 net new illumin Self-Serve clients during the quarter, resulting from sales initiatives targeting higher spend customers. Our Self-Serve revenue continues to show the success of our sales initiatives and this platform's increased recognition and adoption in the marketplace.

Now I'll give a more detailed review of our financial results for the quarter. As I mentioned, third quarter revenue $36.3 million compared to $29.6 million in Q3. This included a 64% increase in the illumin Self-Serve revenue, an increase of 39% in programmatic revenue, and a 3% rise in managed service revenue from the same period last year.

This growth was mainly driven by new clients as well as higher platform utilization by existing clients. Importantly, this quarter marked the resumption of managed service revenue growth as more customers see the value in utilizing both our managed service and illumin Self-Serve products. Gross profit for the third quarter of 2024 was $17.2 million compared to $13.9 million in Q3 2023, reflecting higher sales year-over-year. Gross margin was 47%, consistent with the same period in 2023, even though Self-Serve continues to become a larger portion of our revenue mix.

Total operating expenses for the third quarter of 2024 were approximately $18 million compared to $16.8 million during the same period in 2023. The year-over-year increase reflected higher technology costs related to increased consulting expenses and higher variable data costs, and increased general and administrative expenses for higher recruiting and variable compensation.

On a year-to-date basis for the 9 months ending September 30, our expenses are $3.9 million lower or over 7% lower than the same period in 2023. And this is consistent with our commitment at the beginning of this year to curtail growth in OpEx while growing the top line. As I mentioned earlier, we saw a substantial improvement in adjusted EBITDA during the quarter of 200% compared to the same period last year.

For the quarter, adjusted EBITDA was $1.9 million compared to $619,000 in Q3 2023. And this improvement was primarily attributable to our increased revenue which was partially offset by the hiring operating expenses discussed. Net loss for the third quarter of 2024 was $1.1 million compared to a profit of $800,000 in the same period last year. This was mainly due to a net foreign exchange loss versus a gain in the prior year period and lower income taxes.

On November 13, 2023, the company commenced a new normal course issuer bid, or NCIB, to purchase for cancellation up to 4,330,226 of its outstanding common shares. During the 3 and 9 months ended September 30, 2024, the company purchased and canceled 819,698 and 3,310,384 of its common shares under the NCIB at an average price of $1.59 and $1.64 per share totaling $1.3 million for the quarter and $5.4 million to date, respectively.

Since inception and as of September 30, 2024, the company had acquired 3,755,746 shares or 87% of our allotted limit of shares under the program. The NCIB will conclude on November 12, and any further decisions by the Board on the future programs will first require the completion of our planning process for fiscal 2025.

We recognize the importance of a strong balance sheet to the valuation of illumin and remain committed to ensuring that we utilize our substantial cash reserves in a manner that is optimal for the strategy and future of the company. All options, including synergistic acquisition opportunities and share repurchases will only be undertaken under a structure of continued overall revenue growth and strong consistent cash flow from operations.

As of September 30, 2024, our cash and cash equivalents stood at $51.4 million compared to $55.5 million at the end of 2023. This decrease was primarily attributable to the repurchase of the company's shares, investments in our platform and property and equipment and payments on leases. This was partially offset by positive cash flow provided by operating activities before changes in working capital, income taxes paid and interest paid and from a favorable foreign exchange impact.

As of September 30, 2024, the total number of our outstanding common shares stood at 50,826 666 following a series of strategic adjustments to our share structure compared to 51,350,973 as of December 31, 2023, and this figure includes the impact of our recent share repurchases under the NCIB, offset by a modest number of shares issued through the exercise of stock options and other vested equity instruments.

In conclusion, during the third quarter, we continued to see strong illumin Self-Serve revenue growth complemented by growth in programmatic revenue and managed service revenue. This growth reflects the success of our enhanced sales initiatives. And in addition, we realized an adjusted EBITDA improvement of 200% resulting from this higher revenue and a disciplined approach to cost management.

Looking ahead, we expect solid fourth quarter revenue growth resulting in part from the recent organizational changes we have made in the leadership and sales team. For the long term, we remain focused on generating overall strong, sustainable revenue growth and a prudent approach to cost management. And with that, I'd like to turn the call back to Simon for his closing remarks.

[Simon Cairns, executive]

Thank you, Elliot. In closing, we are happy with our third quarter performance and are cautiously optimistic about our future. Once again, we saw strong growth in illumin self-service revenue, which rose 64% year-over-year for the quarter. Our growth continues to be driven primarily by new customers to illumin showing the effectiveness of our enhanced sales initiatives and the growing recognition of our Journey platform Canvas. At the same time, we are balancing our emphasis on maximizing revenue opportunities by maintaining a focus on optimizing operational efficiencies and managing our cost structure. We remain excited about the future and look forward to building greater long-term value for our shareholders. Thank you all for your time today. This concludes our formal remarks. We look forward to answering any questions you may have.

[Operator]

[Operator Instructions] Gentlemen, your first question this morning comes from Tanvi Gabriel at Ventum Financial.

[Tanvi Gabriel, analyst]

Congratulations on the quarter. So just wanted to ask in terms of the question, which is you've been seeing positive traction for your hybrid service model. But I just wanted to elaborate on any strategies you're employing to retain as well as expand relationships with existing clients?

[Simon Cairns, executive]

I can answer this in a few ways. So first and foremost, we are really essentially revisiting our entire sort of marketing and sales go-to-market strategy. And we spent this past quarter testing out different marketing reach messages we spent this quarter, focusing on slightly different customer segments. And yes, we did present the customer with options, including a self-service product, our guided service, [ AKA ] hybrid product, and also our managed services. And this sort of customer-centric approach did come back to us and was a contributor in terms of the good results we did see in Q3. And so we're going to continue down this path of essentially really listening quite closely to the customer, finding a way of -- different ways that we can support them. We're finding that we have a wide array of customers who have both similar, but also competing interests and priorities.

We believe that we have the right product road map in self. We believe that we have the ability to help customers who maybe want self, but want some help getting started, and that would be our hybrid service. And we also definitively have customers who want our managed services product as well. And so we're going to continue down this path for the next few quarters. I do like what the hybrid product did contribute in the quarter to our overall business, but our top priority still remains self and -- but you will see us evolve how we market and sell it.

[Tanvi Gabriel, analyst]

Okay. Perfect. And for the second question is, in your product service road map, you've mentioned previously about social media integration. Just wanted to get if there's any updates or insights in terms of that.

[Simon Cairns, executive]

We have sort of 2 -- there are 2 sort of leading aspects inside our product portfolio that are definitively creating good attachment with customers, getting good visibility, good response, and good spend. They're getting very good value out of it. One is we've seen very solid growth in CTV. Again, it's sort of in line or often beating the market. CTV for us is still small but growing rapidly. We really like what we see.

And the other, you're absolutely right, is in integrations with walled gardens. That side of the business is attracting customers. They like the fact that they can essentially deploy their marketing spend in an open web format and in walled gardens. They can get reporting that is both segmented and united. They can get much better performance insights on how their campaigns are running. And because they can see more than just the last click with the illumin self platform, for example, they can see up the funnel on how customers are actually either acting or reacting, they can see more than the last click. They are finding those extra knots of boat speed that they're really looking for to unlock that 1% or 2% extra conversion in landing that next customer. And so we believe we are adding good value with integrations like that, and we will continue down this path.

[Operator]

Gentlemen, I don't see any other questions in the queue. So that will conclude our presentation for this quarter. A special thank you to our analysts and shareholders for attending this morning. Please join us the next time as we present our Q4 2024 and year-end financial and operating results. Thank you all for joining. Have a great day.