Q1 2022 AcuityAds Holdings Inc Earnings Call
[music].
Good morning to 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 strategy to achieve those objectives as well as statements with respect to management's beliefs plans estimates an intention and <unk>.
Other 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 are 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 the Q&A session I would now like to turn the conference call over to Tom <unk> Co founder and Chief Executive Officer of acuity ads to update you on the operations of the business.
Good morning, everyone.
Let me start high and I'm, the co founder and CEO of acuity. It is my pleasure to welcome you all.
Two our Q1 2022 investor video presentation is coming to you live.
<unk> also offers.
I'd like to start by thanking the acuity family.
Q1 was a lot about reorganization.
Working hard to implement the investments that we embark for growth. So thank you for doing such an amazing job with that.
<unk>.
As expected Q1 was down 13% to $43 8 million.
A lot of it was due to customer concentration will drill down into that in a few seconds.
ILUVIEN continues to change the world.
We delivered $7 $9 million in revenue.
100.
45% from Q1 of last year.
Illumina is now 33% of our revenue.
That's starting to be very big chunk of it.
Aluminum salts to huge crops out there.
<unk> for one, but there's a huge gap between the way the marketers.
Two the way that.
Programmatic is executed.
Well marketed thanks consumer journey.
And when they go to execute it they usually executed in a black box, which completely disregards the consumer journey so aluminum it's.
Marketer of wave slamming.
Planting the consumer journey and executed with one click of a button.
And the second problem that we saw is the fact that it is highly highly intuitive and easy to use let me using a programmatic system to date, what do you need to be a highly trained experts you will need to go through hundreds of hours of training in order to only starting.
And then execute on it.
With Illumina all of that goes away you would need barely any trading on it it's highly intuitive and all any average person will be able to execute campaigns off with very little knowledge and training in minute.
So with those two Liza two.
Things are softening.
It has begun.
Very very important tool.
No.
While in Q1, our team was focused on organization nib, our new CFO is doing an amazing job getting the teams work together and being accountable.
Elliot.
CFO is looking at.
Macy's and static job and organizing our backend.
And I believe that this organization is crucial.
Much crucial to take us into the next level.
Our investments in growth are doing very well and the team is very very busy implementing all of this.
We mark for that growth.
And we're expecting at least Bok financial.
We will see the results coming in the second half of the year.
Well knowing all of this.
We believe that Q.
He is the best investments we can make.
And this is why we are starting to buy back our own shares and we're going to do that while still leaving enough cash the bank or M&A discussions.
Yes.
In Q1, 'twenty $3 8 million was delivered from the way of revenue as we expected and as we go into market. This quarter is going to be down year over year.
One of the major reasons that happened in Q1, the year before that we had one client with $5 million concentration.
We lost a client it was not due to performance it was due to that clients changing agencies.
With an agency, we don't have a relationship to that happens in the Manitoba business on that.
That will happen to us in that case and that was the big contributing factor to that.
Sure.
While 33% of our revenue in Q1 came from aluminum.
Well I think it's amazing I mean, just.
Just.
That illumina just came into the market just this quarter.
Quarters ago, and we already have 33% of our revenue coming from that.
We communicated in the past.
Again, I do believe that this year. The majority of revenue is going to come from the alumina side. So that's great news for acuity.
We have also seen some.
Brian's information so last year in Q1, we had 17 clients now up to 61 client.
Tier one client we had eight and now we have 20, so all of our great signs out there.
And we went up from.
There are $3 $2 million in revenue last year to $7 9 million.
That is a 145% both year over year, and we're looking forward to seeing those numbers growth in future quarters as well.
Some of the vertical to watch out for is the lottery and gaming, we're seeing 288% growth.
Technology and software of 180% growth in retail we had 117% growth.
CVV sell off again, not a big surprise, we communicated all the time, though we believe its going to continue to be very much a big book background, we've seen a 131% growth year over year.
And we predict that the PUC.
<unk> one of our growth out on the CPD side in the future.
Continue to invest in ILUVIEN growth.
We're spending more and more money into marketing and sales, but also specifically in specific verticals.
And our people on the product side from a technology side as well.
To get better and better on that system.
Let's talk about our share buyback program.
This is something we took a long time to decide.
We looked at many companies on the M&A side, and obviously seeing the share price.
Being where it is.
We decided to execute on.
We do believe that the acuity of the best investments, we can make so therefore over the next few days, we're starting the buyback program and I'm happy to also say that it will not affect our ability to execute both from M&A side.
So with all of that.
Great update I would like to call on Eliot sure its on financial updates for us.
Good morning, and thank you for joining us today, while favorable focus on Q1 results were extremely excited about what lies ahead in 2022 as we realize the benefits of our actions to expand our reach and capabilities.
Once we started making last year continuing to enhance our limit platform through broader features and functionality that will prove each user's individual experience.
This is extremely important as our aluminum platform as a foundation for deeper broader and more consistent relationships with our clients.
While we are all experiencing one or more trying to clients for the global economy and managing through the related headwinds. We continue to believe the right path for us to keep investing for the future.
Improving our platform.
Ensure that we have the right team in place to support its growth as well as improving our overall organizational capabilities.
On that note I'd like to discuss our Q1 financial results.
In Q1, our revenue was $23 8 million compared to $27 five the same quarter of 2021.
A decrease of 13, 5% as disclosed in our financial statements under Sigma that information.
This year over year change is attributable to a large one off campaign that we benefited from Q1 2021. This campaign generated $5 million in revenue.
See you again in 2022 and.
This campaign was driven by legislative changes during the height of the pandemic.
Well to a large degree we have successfully pivoted away from verticals initially impacted by COVID-19, and the supply chain issues. We have seen a number of clients affected by more recent developments in Ukraine, as well as growing recessionary fears, which have impacted consumer confidence.
Revenue from our managed services in Q1.
$15 8 million.
Compared with $22 three in Q1, 2021 a decrease of 29% year over year.
In addition to the impact of the large concentrated campaign. The decline was driven by our increased focus on self serve revenue, which at $8 $1 million increased 56% year over year from $5 2 million Q1 2021.
Our self serve component represented 34% of total revenues in Q1 2022 versus only 19 Q1 'twenty one.
Lumen Q1, this year was $7 9 million or 33% of our total revenue versus $3 2 million or 12% from the comparable 2021 period.
Our target is still to have 50% of our revenues derived from the lumi platform.
Year.
Our gross profit or net revenue was $11 9 million in Q1 compared to $14. Four in Q1 2021. This decrease of 17, 4% was the result of the lower overall revenues and lower gross profit margin.
<unk> percent in Q1 2022 versus $52 four from the prior year quarter.
This is directly related to the increase in our self serve component.
Our total operating expenses for quarter totaled $14 5 million compared to $12 same period in 2021 and increased 19, 8%.
As a percentage of revenue our operating expenses of 61% versus 44, 2% Q1 2021.
I'd like to discuss the key drivers of this increase which include.
Previously noted investment sales and our marketing capabilities, while silver download it and we are encouraged by the progress being made by our recent hires and expect that they will.
The second half 2022.
And the majority of the increase in cost was driven by general and admin expenses, which increased $1 6 million.
Or 106% over Q1 2021, this was driven almost entirely by the increase in cost related to our NASDAQ listing including insurance.
Listing fees and legal costs.
And finally share based compensation expense increased 71% through the issuance of restricted share units that better aligns senior leadership and management compensation with the interests of our stockholders.
Our EBITDA decline year over year to 0.2 million from Q1 2021 of $4 5 million as a result of the factors I just described.
And as a result of that loss of the $4 5 million.
This quarter compared to net income of $1 4 million in Q1 of 2021 key.
A key driver attributes of this decline was an FX loss of $1 8 million Q1 of this year versus a loss of <unk>.
6 million Q1 prior year.
Note that following the quarter this loss was largely reversed.
For the balance sheet, we generated positive Q1 cash flow from operations of $1 8 million. However, due to the impact of the FX conversion.
Our overall cash balance declined slightly to $99 6 million from $102 million at the end of last year.
Year over year, our cash position increased substantially by $72 6 million due to the proceeds from our public offering in June of 2021, as well a strong subsequent operating cash flow.
Some of the corporate information to share with you is as of March 31, 2022, acuity had $60 9 million common shares outstanding.
Fully diluted basis 64 formats.
Our insider ownership is split approximately 12% and our market cap at the end of Q1 was approximately $240.
This concludes my financial review and in summary, despite a challenging economic environment, we believe that through our actions, we're putting in place a strong foundation for future growth, especially for a game changing platform.
Spending efficiency, managing operating expenses and maximizing cash flow remain key objectives, but the overarching priority is building a platform for growth.
Half of 2022 and in subsequent periods.
And before I hand, it back to Tom I'd like to say, a little bit more about our share buyback plan.
As you know we have recently announced and have received <unk> approval to commence normal course, issuer bid, which will launch on May 16.
In 2022.
Due to the next 12 months and subject to DSS rules and guidelines, we will be purchasing up to five 5 million shares market.
And during blackout periods, we will engage with our agents toward automated stock purchase plan, which of course is subject to further TSS approval with our solid balance sheet history of strong operating cash flow and believe that our current market value does not fully reflect the future value of our company. We believe this is appropriate and effective use of our capital at this time.
And owing to our strong balance sheet, we remain committed to exploring acquisition opportunities as we continue to make progress on that front.
We are seeing multiple potential opportunities given the current economic landscape. We believe the multiples for potential targets, we will start to move lower in the near term.
It is important to note. This normal course issuer bid, it's not a hurdle to this focused strategy.
I will now hand, it over to Hal for his concluding remarks.
Thank you.
Just before we go into Q&A, we're going to go over a few closing remarks Q1 was all about implementing some of the investments earmarked into and into growth.
Which we're busy doing that and also about reorganizing the team and getting us ready for the next level of growth.
If I may remind you $11 million this year's worth.
Earmark for growth, 70% of that was for marketing and sales and we're well on the way to making all those investments.
As we shared last time, we believe that we're going to see 20% to 25% top line growth. This year and the majority of it is going to come in the second half.
So with all that I'd like to thank all of you joining us today and again to the acuity family for delivering this quarter.
And we're going to go into Q&A now.
Thank you Tao and Elliot a reminder to our analysts to use the zoom right hand function. If you intend to ask a question I would also ask to please limit yourself to two questions per analyst. Please wait a moment, while we assemble the roster.
Your first question comes from Eric <unk> at Canaccord Genuity.
Okay.
Okay.
And then Deb. Please go ahead when you're ready.
Hi, Good morning, Tao Elliot good to see you guys.
Good.
So I'll jump straight into it <unk> at the end you talked about.
Four.
For 2022.
I know that.
Additionally, tough I mean, it's not just about supply chain, we've seen recessionary fears and so forth.
If the conditions remain tough.
Would you, perhaps reconsider the spend or given that you likely hired most of the team right now that is probably going to go through regardless wanted to get your thoughts on that you're talking about the investment yes.
Look I think.
The investment is very important.
In order to.
Two growing to get more and more of the.
Illumina adoption out there so.
But what I'm, saying is we're also doing it in stages. So we did not spend everything we aramark for and if we for some reason see that so we're not expecting the same result, we have the ability to scale back and not to spend the whole thing.
Yes.
Excellent and then maybe connected to that my second question.
I know that youll, probably getting because of the latter stages of the SaaS the ramping up the top of the sales team.
Early days, but is there anything that you can provide in terms of feedback with respect to the incoming talent I know they were coming in with books and maybe some of the initial conversations youre having at that.
Tier one clients.
That stands out.
If you can share.
So first of all I know that everybody is aware how hard it is to get out there right. So.
Salespeople good salespeople it was always hard and now it's even harder, but we have something very unique right now something that we never had before we have we have alumina. So we're getting people that we would normally not be able to get and they are very excited.
And so far.
By the numbers, we increased our sales team by 26%.
So I would say, we're doing very well, we're very happy with the results and the type of people we're putting in.
Like I've shared before our people are coming in wood.
It's not only that they are coming in with a book of business, that's coming in with all the excitement on Illumina.
And they wanted to be a part of it so I'm very very happy with the progress.
So that's why we're so excited about the future and the growth as we know not every time you make investments in those sorts of things Theres, a little bit delay and then its feedback.
Excellent. Thank you all the best I'll stick to the two question limit.
Thank you. Thank you.
Thank you Aaron and then there are next.
<unk> question comes from Laura Martin of Needham and company.
Laura go ahead, when you're ready.
Hi, Good morning effect, Dan Medina, calling in for Laura Hi, guys Hope, you're well and thanks for taking the question my.
My question at the two questions are that in the last quarter, you had called out some slowness in a couple of your verticals, particularly in travel and hospitality and so before I ask my question I would say that some of your verticals are showing great potential and so congratulations on that but my question is is that going back to your calling out traveling.
The Calgary last quarter.
What are you seeing certain for this quarter and what.
And what are you seeing per se the rest of the year. That's question one and then question two.
Is that on the.
On the tenet absolute spend side.
It does it.
So really looking at that level of spend going forward for the rest of 2022 and thank you for taking the question.
No Brian So I'll take the first one you will take the second okay.
So travel and entertainment.
One of those things that you see everybody is traveling now and still.
That sector is not spending a lot of money.
Mike again, it's just I guess my guess is that they are filling up the seats without needing to add as you know I'm trying to book tickets.
For flights and everything is all the time and prices are way more aggressive than we're used to so.
That's my assumption that it takes a little longer until they are going to have to start fighting for customers again.
But obviously, it's going to have been a matter of time, we still see more growth.
In Q1.
On the on the travel side of things and we expect it to continue growing more aggressively in the futures.
A minder it used to be 30% of our business and it's nowhere near that.
Thank.
Thank you Dan and the short answer to your question is that as a consistent level of spend for us in the general and the majority of that is fairly steady through the year because it is pertaining to listing insurance and other things that are smoothed out over the years for proper accounting, we did have more professional fees in the beginning of the year of course because of some of them.
The year end audit and other things, but for the most part that is a consistent rate of spend.
Great. Thanks for taking my questions. Thank.
Thank you Dan Thank you.
Yeah.
Thank you Dan.
Our next question comes from Rob Goff of echelon wealth partners.
Rob. Please go ahead.
Rob Thanks for joining us on the camera to thank you and good morning, starting with the camera and better we appreciate it.
Good morning Rod.
Good morning.
With respect to.
Your revenue guidance. It was very nice to hear you are continuing to look for 20% to 25% on the year could you, perhaps give us a little bit of visibility into what you're seeing in the second quarter and building through the year.
Generally speaking the whole idea was of making those investments that we started doing in.
In Q4, the end of Q4, and then into Q1 and there is a ramp up period, usually it's a longer ramp up period, but in this case.
Because we brought in very seasoned people the ramp shorter, but we do expect the majority of it to hit the second part of the year.
And not only that.
Our existing sales team is also doing a phenomenal job getting more contracts out there longer contracts bigger contracts and.
So everything is really going into the right direction.
Thank you and if I may.
Ask with respect to 11.
Could you talk to what you were seeing.
Youre seeing greater traction with tier one accounts.
To the extent you are seeing traction with <unk>.
Legacy clients migrating onto the amendment just aluminum profiling there the momentum we appreciate it yeah. So we haven't concentrated on legacy moving legacy clients over I mean, there are some that are doing it naturally.
But.
That's not our focus so the majority of the revenue we're seeing on aluminum is still some people that came into the system because of alumina.
And.
And we did realize that our sweet spot and people using it.
Mid size.
Agencies and brands and they are the ones that are adopting faster they're using it faster.
And to be completely honest I think we have to do work on the on the sales side when it comes to enterprise selling is not something that.
As it is.
In the DNA and we're working on getting it into the DNA.
And I believe we have a great opportunity there.
Yes.
Okay. Thank you guys.
Thank you Rob Thank you.
Thank you Rob Our next question comes from Eric Martin Newsy of Lake Street capital markets.
Eric go ahead, when you're ready.
Gentlemen.
Hey.
Just had a question regarding the gross margins I understand its a mix issue, but could you remind us again, the gross margin differences between the two sides of the business.
Yes, self serve and managed.
Self serve is around.
<unk> 55, plus and.
Sorry, the other way around manages about 55, plus and self service around third.
Okay.
Do you expect those to change at all or is it really just the revenue mix throughout the year.
In other words your media costs any change in media costs.
I don't expect any huge changes I mean at the end of the day.
We signed a huge contract on the self serve side there might be some pressure on the.
On the margin so it could happen.
But then the revenue that would come with it will be.
Very big as well.
Okay, and then I wanted to get a little bit more granular on the revenue forecast I understand youre reiterating the 20% to 25% that is a big step up I know you are making investments to support that big step up.
How should we think about the second quarter or is this.
Are we growing in the second quarter year on year is it single digits double digits.
Well, obviously, we're growing in this sector.
And the second part of the year.
Talking about second quarter, sorry, second quarter, Yes second quarter.
I wouldn't say, we have a clear direction on that yet so I would focus on the second part of the year. So that's Q3 and Q4.
And this is where we're seeing.
Yeah.
The growth.
Coming in.
Okay. Thanks for taking my questions.
Thank you.
Thank you Eric.
Our next question comes from Dillon Heslin from Roth Capital Partners.
<unk>. Please go ahead when you're ready.
Hey, guys. Thanks for taking my questions.
First on Illumina like talk about that being the majority of revenue by the end of the year.
In <unk>, what sort of dollar run rate do you think that.
In line.
Well I think it is going to be over 50% and I hope it is going to be more than that.
But that's the way it looks like it spending you can see even every quarter we are increasing.
The percentage of Illumina over over the entire revenue and so I believe it is going to be.
More than 50%, but we're hoping that way more than 50% I mean the whole.
Ideas.
To doing the things that we're building within the lumen to be able to start.
Moving more and more of our existing clients into enrolment and eventually we want to eliminate to eliminate the old system.
Got it.
If I can just sort of follow up on that like the 20% growth is gets you sort of like $1 45 and so.
50%, 50%.
For the year right, it's like exiting <unk>.
The run rate that Q4 should be over 50% got it okay, and then I mean to get there like how much visibility do you have with those alumina sales like how much needs to come from from new customers and new products versus majority have.
Well the majority of what we're seeing in alumina is that we're bringing in new clients onto it all the time so.
And the entire company today sells it nobody really sell the old product so.
It's a combination combination of increasing clients spend a good one.
I would say also legacy customers that are moving into alumina and then spending more because we can do that and bringing in new clients on board, which happens on a regular basis.
Okay. Thank you.
Thank you.
Yes.
Okay.
Thank you Dylan I am seeing no more questions in the roster, so tau and Elliot I will hand, it back over to you for final remarks.
Alright, Thank you Danielle and thanks.
To all the bankers analysts joining us today and all of our investors for all your support.
Everybody is looking for the forward to the second half of the year.
And.
Again, thank you for joining us this morning.
Thank you.
Okay.