Q4 2022 AcuityAds Holdings Inc Earnings Call
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 to update you on the operations of the business.
Hello, and welcome to the Q4 Investor presentation.
This is suraj <unk> Chief strategy officer at Illumina and here with me is Tom.
Hello, Tom.
I'm fine. Thank you. Thank you so that we could have this conversation today.
And obviously the most relevant question today is high.
How did illumine due in Q4.
Well.
Much much much better than we ever expected that I can tell you.
Okay.
I'd like to talk about Q4 in general and then to talk about the movement for sure.
I'm very excited about the fact that it's.
The second quarter on the road as we are delivering positive results. As you know we are in an industry that we see a lot of our competitors actually see negative growth.
A lot of it to do with the economical issues out there.
And we delivered positive growth in Q3.
In Q4.
So I'm very excited to be on that side. So we did deliver.
$40 million in revenue versus.
$37 million deliver at the same time last year.
Year over year growth, we'd like to see higher growth and we're working very very.
Part of that.
That's more or less what I can say about the quarter itself, but specifically about aluminum specifically about yourself Sir.
Couldnt be more excited to see how that is growing so its move to a revenue of $2 4 million.
Versus $1 $2 million that we had in Q3.
Doubled yes, and we added 28, new logos that are using that system now and regular basis.
I think about that yes.
So I'm very very happy with the progress and see the continuous progress. This year momentum is fantastic I know it hasn't been really passionate about making the self serve really grow rapidly.
What is driving the recent acceleration in adoption whats.
So unique and different about ILUVIEN.
Commencing in persuading the clients to want to adopt it and use it.
I think the there's two areas of concentrate to answer that question. So area number one is the advertising the customers. What are we what brands are we solving for them and then what did we do internally in order to move into software.
So let's start with.
The advertiser first.
Two big problem that we're solving for us number one when we give the ability to create journey.
Okay.
Very simple, but there is no other system other that is capable of doing that and what do I mean by that.
I would like to create a journey for them.
From a campaign.
Usually is divided into three different segments, the awareness piece that engagement piece and the conversion.
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 the way. It is consumers we always see the same ads to repeat over and over and over again 2030, 50 times a deal we want to throw away by just being another Ed.
And enrollment software that because it gives you a system that you as an advertiser can drag and drop your creators into it.
And decide on the exact journey are consumers going to go through based on the rules based on logic based on AI.
So for example, if I if I set out you watching certain AD I guess set up to be watching it for five times enough to exceed that five times I'm going to move you on to the next video AD and then you're going to see that three times or 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 a different types of it.
And let's say you flip side I'm going to bypass.
Your journey and when it moves to the conversion side.
That point, it's time to give you a whole new set of creative. This is the time you have call to action.
And you've tried to get there.
The customer to convert so.
Everything I just said now is all being able to do from one system called Illumina.
And we're very very excited to be the one that's solving that problem in the second round of are solving is the fact that it's very very hard to use programmatic systems out there you need to be a highly trained experts who use them not to what goes on with.
Aluminum intuitive drag and drop system, we brought it down to the basic that any average person can use them.
Nice and I can tell you Todd that was your vision from the very beginning.
You're the ones done literally paraphrasing, you, which was you want to do Democrats highs programmatic advertising.
And the way you described it by making it 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 the conversion and growing businesses revenue is up.
Phenomenon.
Help achieve everything from a single interface right.
Now.
When you do that.
The ultimate proof planned any advertiser would ask for as Michael Okay, Great I can do all of that.
What's the food.
Can I get real resolves that the driving or outcomes does it really drive better online 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 might look.
As you know because you interact with it emphasizes on regular basis.
Been able to show two major proof point number one you can add scale there.
Anything that you could do before and I think that the number of assuring to up to 60% of our scale too.
Which is very aggressive for advertisers who are trying to achieve more revenue more sales appear.
And then there's talk about ROI, we've been able to show that.
Being able to.
Context, those consumers on the awareness and engagement stage actually increases the ROI, which means.
The conversion and then increases the amount of spend.
That conversion as well.
So the combination of those two things are obviously, increasing ROI for us I think that to the 100 evidence is quite impressive.
To your point.
When people go through that experience our studies actually does show that people tend to end up buying more reaching industry tons as the average order value goes up significantly I think it's logical right.
If I'm getting bombarded with the same ad over and over and over again, it's not going to be as efficient as if I'm, telling your story. So I think this is what the whole points, telling the consumers a story and bring them along that conserving.
Germany in order to get them to convert.
Tom.
It's clearly very impressive but nothing significant at 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 <unk> made to really get where we are now.
Excellent question, because thats been a struggle as you know.
We launched the lumina two years ago.
Natural thought is okay, we're going to go and sell to observe them but.
Coming from a company that used to selling manage for all these years.
It was tough and we have to make a lot of changes it started by making a lot of changes.
That is the China aside.
Bring in new executives organizing that was a year that we invested a lot.
2022.
Closer to the.
The second part of the year, we brought in.
Our new head of sales.
We are seeing from Salesforce right and that was a strategic move that we made not to bring in somebody from the industry, but bringing somebody that is used to selling.
Maybe more long term contracts.
Guarantees so things are not we're not used to in our industry and started to affect the change internally too.
So focusing now on the on the pipelines.
What's the new pipelines, how do we converted that to them or how do we convert the demos into contracts and other than that the contract into paying customers.
Customers using the system.
So where we are.
<unk> announced the science, we've seen a lot of them.
A lot of lines on our side. So we've seen a lot of them is happening on a regular basis.
Just as you see in the Q4 numbers 28, new logos.
In one quarter, that's a massive amount of improvement over the previous quarter.
And.
Further in Q3 with its 17, new logos in Q2, we did eight new logos last year. So.
Moving tremendously every quarter and we're bringing that down to science, we still have a long way to go until we figure out the exact formula but its looking looking really really good.
It's a tough thing.
Totally agree with Utah, letting me experiencing directly what's happening in the field.
I can't vouch for that I think that not only have.
We as a company here with your leadership brought about the transformation on the advertising industry side.
But the changes that have happened internally to be able to support that level of transformation is absolutely the ranking us very impressive let me answer your question yes.
Get a glimpse of.
The reaction of customers what they see for the.
First of all yes, but do you see it all the time, yes, Silvia well so the first reaction people get is.
It's just unbelievable.
Can't I can't believe that something like this actually exists.
Which is a clear validation that what do we went on to do whats truly differentiate it truly unique and it's one of the needs that you don't recognize until you see it.
The first time, it's like you could have done as much research as you one or two of the state 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 a little bit.
Only when it was created that people recognize Oh, my God and always need if something like that and then finally, they see the habit and they wanted to figure out how they can use it it does take a little bit of learning.
Why is the change in the way they run programs the way they run the advertising and so forth, but once they get at the end of it which of course, it's much easier because of the intuitive nature of the platform.
There isn't a lot of residents in the market.
Love those loans, what I see.
The reaction of new marketing and advertising.
Without a doubt it's consistently positive.
Thank you.
We're doing this we're obviously doing a new format and we want to make it more interesting its final value broke up yes.
I enjoyed it really just a guess and I'd like to call on Elliott to give us some financial updates.
Yes.
Thank you Tom 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.
$40 million, which was driven by strong annualized in sequential sales growth from our lumen of 121% and 70% respectively. We are excited by the continued momentum of the aluminum 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 have been seeing as of late clearly speaks to the value that our prospective clients are seeing in alumina, our targeted investments in the aluminum platform and our sales efforts throughout 2022 are now being reflected.
Our financial results and we believe these foundational investments will produce further benefits in 2023, as we continued to enhance and expand the breadth of the capabilities of our platform.
We expect to achieve positive total company revenue growth driven by alumina 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 alumina clients, including aluminum 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 over the prior year. This slight decrease was mainly a result of lower client spend 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 alumina self serve 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 $24 million for the fiscal year 2022 revenue for managed services was $81 million compared to 91.
$8 million in 2021.
So 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 <unk>.
$41 million at 33% increase compared to the $30 2 million in 2021.
And for the three and 12 months ended December 31, 2022 aluminum 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.
Aluminum platform as we reached the target customer base and begin to realize aluminum significant growth potential.
Our gross profit or net revenue, which is defined as total revenue less media related costs was $19 4 million in Q4, 2022, an increase of 1% compared to $19 1 million in Q4 of 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 $68 million compared to $63 six in 2021.
Our gross profit margin for Q4 2000.
<unk> was 48, 4% compared to 52% in Q4 of 2021 and 51, 3% in Q3 2022 for the full year gross profit margin was 52% compared to the 52, 1% in 2021.
This decrease was mainly attributable to strong shifts in product mix during the quarter, our self service revenue, which carries a lower gross margin continued to increase as a percentage of overall revenue during both the three 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 was $66 3 million compared to the $53 million in 2020.
One.
As a percentage of revenue operating expenses were 49% in our 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 and <unk>.
Sales and marketing and technology development to enhance the lumen platform and to drive its success in the marketplace.
And as a result, we generated EBITDA in Q4, 2020 to $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 2000.
'twenty one.
This year over year decrease was mainly due to the strategic investments I mentioned previously to grow alumina 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 for the same quarter last year and $3 2 million in Q3 2012.
Two for the full fiscal year 2022, our net loss was against <unk> 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 and turning to our balance sheet as of December 31, 2022, our cash and cash equivalent 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've made throughout the year.
Under our share buyback program, reflecting the belief of our management and board with the current price of our common shares does not reflect the inherent value and potential.
Along those lines during the 12 months, we've repurchased four 7 million common shares via our normal course issuer bid at an average price of $3 eight.
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 a lumens and acuity 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 repurchase.
Those 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 the same time last year.
And in conclusion, we remain focused on growing our aluminum platform with emphasis on the self serve component, which we expect will be a main driver of our acuity as overall growth in 2023 and to support this growth. We will continue to make strategic investments to support <unk> development and market growth with our balance sheet.
<unk> 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. So accelerated 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 will.
Like to pass it over back to talent and Suraj.
Thank you Elliot.
So Todd.
Would you like to summarize in their 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 illumina to perform.
This year, yes.
Start with Q4, we delivered $40 million in revenue in Q4 or $37 million at the same time last year.
I am excited to go back to growth into the second quarter, although we're showing growth.
And we're seeing a lot of our competitors showing negative growth during the same period. So I'm very excited that we're showing growth.
And I think the reason our showing growth is because we have this product 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 may be in normal times, we would be doing even.
Better.
But we're still going into a market, where nomadic market, which is over $150 million.
We're going after the customers were already using it so.
Not so much a function of how much is the market growing it's a function of we are going into a market with a new product in displacing our competitors. Okay. So it's a huge market for displacement.
And Illumina is something that nobody else has and that's where we're seeing success, there and I'm Super proud about the fact that we're doing it themselves.
We were able to double revenue in Q4 over Q3 on the self serve.
Illumina side.
But more importantly, just starting to bring us more about the science and I think one of the other things that I would like to share is worth testing something.
Is pretty hard to do in our industry, we're assessing the long term committed contracts.
So our normal way of doing business in the ASIC space.
On the managed side of things and even ourselves there is usually no commitments from guarantee or short term.
We are addressing long term coincidence between one and three year contracts with minimum guarantee means the customers are guaranteed.
Other 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.
We will when we have the proper solid feedback.
But there's only two other companies that can do within our space and we're seeing that customers are willing to.
Fine.
So those things so.
That's a great sign and the reason they're doing that is just because there are parts of the portfolio. So.
So thats the way I see it thats the way I look at Q4.
And looking at this year.
My My my strong belief that we're going to see another growth year.
It's going to be more and more of adoption of illumina.
And.
Q1 is already looking good and we're happy about what we're seeing there with Vmware in the middle of the quarter, but so far early signs are really really good.
I'm very excited about.
Let's hear to come.
We get a chance yet to think the acuity team for delivering such an amazing quarter by the way Q4 to $40 million.
A record quarter for acuity so.
We're very very thankful for granted 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're going to now go to Q&A.
Okay.
Thank you Tao and Elliot.
Just a reminder to our participants that if you would like to ask a question to please use the raise hand function located on the top left corner of your video screen also just a reminder to our analysts if you could please limit yourself to two questions two per analysts to save time for everyone.
Please wait a moment, while I assemble the roster.
Yeah.
Your first question will come from Darrin ft at Roth Capital partners.
Dairy guys can you hear me.
I think you guys are on mute.
Okay.
Great Good morning.
Good morning.
Hey, guys congratulations nice work so.
Two for me.
The 28 logo number.
The inflection point, if I'll use that word I'm just kind of curious what are you seeing.
But like.
Is it inflection and then I guess second.
Secondarily like has.
Has something changed where you feel like adoption is kind of mainstream now that's my first question second one.
Every body for the most part we've heard from in this space.
He 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 question.
So inflection points 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 had 28.
Is that on a segment I think we can raise that number.
Okay.
Okay.
A lot.
And the question is what changed.
A lot of change internally. So we spent last year really organizing the company and part of it was moving our kind of DNA from selling managed to selling more SaaS, which.
We consider.
Our self serve platform.
Selling contracts versus insertion orders, which are short term orders so.
That takes time and.
Our big focus has started.
Around midyear when we brought in a new head of sales Nadeem.
It has lots of experience from his previous lesson that salesforce.
Running salespeople with with.
With southern contract, so I think that.
The main thing that change in our company or the product of course that better as well and we're adding new things to it all the time.
But.
Yes.
Yeah.
That's what's changed from the sales focus and I think.
Indicators are showing that we are doing great in Q1 from the self served Illumina perspective, but also we're going to be we believe we're going to see growth in Q1 as well for Q1 of last year as well so.
I would say yes.
I did say before it's hard to say how it would have been in good economic times.
But we're doing well under the circumstances and I think the reason is because we have a product that is very unique and where we.
We're creating a lot of excitement for our advertisers.
Great. Thank you.
Thank you Dan.
Thank you.
Your next question will come from Laura Martin at Needham and company.
Laura Please go ahead when you're ready.
Hi, Joe.
Okay.
Okay.
Thank you Paul.
Well I'll ask my two questions also simultaneously.
One is.
Really great revenue growth and great Illumined mix, but tell me about cash costs are rising at a little faster than we thought in the quarter and you said youre going to have growth into 'twenty. Three can you talk about what you think is going to happen to cost growth compared to the revenue growth in 'twenty three as we think about modeling. Thank you. That's my first yes go ahead with that.
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 and the organization.
And the sales and marketing side so.
That is the cost base that we had increased.
Increased last year's carrying us into this year as well.
And.
We're definitely seeing the results from that.
And if you'd like to add.
Okay.
Thank you.
Definitely we are continuing our program of building into the advantage that we have so.
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 not.
As much as we could have in the past. So there is but we are quite cautious about and we have really direct costs from other areas that we think are less strategic so it is more of an allocation between the two.
And then my second question is about.
I know you used to have a lot of mattress work is that back end.
More specifically stepping up a level is aluminum, particularly well suited for certain types of products that you find yourself like in the 28 when logo wins in Q4 or the 18 in Q3 or the <unk> are they coming in certain verticals typically these logo wins.
Nice job with the platform as the work on any vertical and Thats, what <unk> always adapts to.
A lot of times, we would see 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.
Two anything so it's really not due to any specific verticals.
So that would be.
My My answer I mean, we do see.
Every quarter, we see certain verticals doing better in certain verticals, we work with them.
For example.
Definitely not doing anywhere close to what it used to do.
But it's.
It's a function of the times.
Okay. Thank you.
Thank you Laura.
Thank you Laura our next question comes from Daniel Rosenberg at paradigm capital Dan.
Daniel Please go ahead when you're ready.
Okay.
Hi, Good morning, It's Alan Elliot My first question was around.
I just wanted to understand as you went through this year of investment.
The way to think about next year.
All of that investment that was sort of one time in setting the alumina, that's going back into sales and marketing.
Sure.
Okay.
Okay. So the investments that we make most people right. So all of those people that we made investments on are not one time investment those investments to increase the capacity of our sales force to increase the capacity of.
The tech people building the product.
The product people.
So it really was all around and don't forget on the.
On the executive side, we've done a lot of work as well in order to.
You get us ready for the next phase of growth.
Okay.
So.
Those are things that will stay with us from an expense point of view.
Daniel This is a choice that we can make and unmake at any time, but we don't see it and making 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.
And that creates that component.
On the revenue where you have your existing clients address dupont's students. So every month, we're seeing the revenue and the number of clients on the system growth.
So this is really what we're focusing on so it went in the past we used to focus on different things today, we really really focus on the on the pipeline.
I will sell through.
And then on the conversion to demos conversion from demo signed contracts and then to activation. So that has been our focus and.
We're starting to bring it down to a science.
We still have a 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.
Pipeline of being self serve customers.
Eric your eyes 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 I'll ask Brian .
Yes.
<unk> target market is the mid U.
Medium advertisers on medium agencies that that's what we get most amount of business for them.
But at the same time, we are getting a lot of interest from the bigger.
Entities out there.
We are working on.
On those as well, but the majority of it.
On the mid sized romance.
Matt.
Okay.
So simplifies the whole process, so sometimes people that would never axis programmatic because it's so complicated now it gives them the ability to do it so.
Thanks, Mike.
Big market for us as well.
Thanks for that and congrats on the quarter.
Nice to see you back in the office.
Yes.
Okay.
Thank you Daniel I will give a minute to see if there are any other questions from our analysts.
It would seem that we have no more questions Tao I will hand, it back over to you for any final remarks.
Thank you. Thank you so again I'd like to think.
Uh huh.
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 of those hard movements.
These are the self serve world.
And.
And that's it for today. Thank you.
Thank you very much.
This concludes our Q4 2020 22022 and full year results you may now disconnect.
Okay.
Okay.