AcuityAds Holdings Inc. (ATY) on Q4 2021 Results - Earnings Call Transcript
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 intention 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 uncertainty that could cause actual results to defer materially from those anticipated. Please refer to the cautionary statements and the risk factors identify in our filings with CEDAR and EDGAR for 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 Tal Hayek, the Co-Founder and Chief Executive Officer of AcuityAds to update you on the operations of the business.
Tal Hayek: Good morning, everyone, and welcome to our Q4 and 2021 investor presentation. My name is Tal Hayek, and I'm the Co-Founder and CEO of Acuity. And I'm to be here live from our Toronto office after many quarters that we were not here and the office is alive again, full of energy. And I can't even describe I’m happy to see that. I like to start by thanking the Acuity family for delivering an amazing year. We've seen a year of growth of 16% on a year-over-year basis. We've seen illumin numbers growth by 37% in Q4 alone sequentially and 580% year-over-year growth. Now we can compare it on a year-over-year basis of this quarter and on the illumin side. So look at those numbers grow. Our expectations when we launched illumin we reached about $10 million in the first year and last year alone, we reached $26 million. So illumin went from zero to $27 million in just five quarters, brand new product that was launching Q4 of 2020, $27 million in that five quarters. One of the major achievement to start with. Q4, our overall revenue was up by 5%. Well that was below our expectation. The majority of the reasons are things like the supply chain issue and slower travel and hospitality sector, that it's coming back but still hasn't come back like we expected to come back by now. Overall revenue was $122 million for the year. Well that's a growth of 16%. But when you look at it on a constant currency basis, it's closer to 24% growth. And why is it important to look at it this way, because most of our revenue are in US dollars, and we're reporting in Canadian dollar. So if you really want to know the true growth rate, look at our constant currency numbers. In Q4, we delivered $36.8 million, 5% growth and a constant currency growth of close to 8%. That was below our expectation. And as I said before, some of the reasons our supply chain issues and the travel and hospitality industry that's taking longer than we expected. Supply chain, I think it's pretty self explanatory. We have a whole bunch of clients that are -- simply don't have products or not enough product to ship. So they're slowing down their spend. And we also have potential clients that are on the pipeline that are not moving as fast as we expected, because they don't have the product to ship, so that slows that part as well. Obviously, that's a temporary issue, we expect that to be resolved sometime this year. In addition to that, we have the travel and hospitality business that we were expecting to come back by now big time and we'll share a little bit more information about that in a second. In Q4, 28% of our revenue was already front end loaded. So we're starting to get to a place that illumin is more and more critical mass of our business. And we do expect in the second part of the year is going to be the majority of our business. In Q4, we have 62 clients using our new platform illumin, that 62 clients that are taking advantage of being able to connect the journey of their campaigns and being able to really send the messages that they want to send to their clients as a journey and not send every message on its own. So that is something that's very important that more and more clients are taking advantage of. We see 26 clients, tier one clients running on illumin in Q4. And we’re seeing some specific verticals that did very well. So we talked about the travel as it's coming back. And we've seen 831% growth. But it was only 3% of our revenue. You guys may recall before the pandemic travel and hospitality used to be close to 30% of our revenue. So we do predict that it's coming back and it’s coming back big time this year and we will see that as a big growth driver. Another driver is healthcare. Healthcare has grown 256% in Q4 alone over Q4 of last year. It's now 11.4% of our business in Q4 and we again see healthcare to continue driving forward. Connected TV, Connected TV is an integral part of what we do with illumin. It's easy to tell Connected TV campaigns. But when you can put us on illumin and you can see the effect of seeing an ad on TV through your ROI, that makes it a much more appealing story and we're seeing more and more of our clients resonating with that message. We've seen over 200% growth in CTV sales in this year or 2021 over 2020, and we expect that to be continued to be drive across in the future. And I'd like to share a little bit of the illumin success story. And today, we'll focus a little bit on our legacy client that's move into illumin. So it's a bucket of four clients that use our system, our legacy system in 2020. They spent $2.4 million and they moved to last year. And then they spent $5.2 million, the same client and that's up 180%. I'm telling that story, because I do believe that as we get more and more clients moving from the legacy system into the illumin systems, then we'll see the average spend per clients go on. And this is something we all at Acuity are extremely proud of, the growth rate of illumin. Again, we launched it five quarters ago and look at the way it's been grown. We’ve achieved $26 million in revenue in 2021 and product that is brand new and just went to market very recently. So when we see all these signs, it's so encouraging to us that we feel very comfortable that illumin is changing the world, and it's time to invest more and more. So we are investing to meet the growing demands of the future. And the investment is really happening across the org, the majority of the investment is obviously happening in sales and in marketing, but also in research and development, and infrastructure in people, in organization, in general. And to be more specific, we're investing $11 million this year into that. And we do believe the results will happen in the second part of the year. And why did that result? Well, to be simply put, we believe that the top-line growth this year will be 20% to 25%. Again, making those investments, we will see the top-line -- the majority of the top-line growth happening in the second part of the year. I also like to share that when you think about the illumin revenue, I'd like to share that 70% of that revenue came from new business for Acuity, which means brand new logo that's been our focus from day one to bring brand new logos to illumin. And the concept of illumin opened up a lot of new doors and a lot of new customers for us. And many people are asking us, when are you going to start switching more and more of your legacy clients into illumin. We're very close to it. Some of the reasons are it is, one, we've been focused on bringing new business in. But number two, there's a whole bunch of features on the roadmap that are not completed yet, and we're working very hard to complete them. And without them, it doesn't make sense to transfer some of our legacy clients into it. Once we're in that position, which I do believe it's going to be a second quarter of the year, we will be able to move more and more of those legacy clients into the illumin side. And then we expect the average spend per client to go on. I'd like to share that the bulk of illumin revenue is coming from managed service. Why? Well, a few reasons. Number one, it's a brand new product, it's brand new concepts. So people are not using it, they don't always know how to run a fully connected journey. So we're doing it for them. They're learning a lot from it. We're learning a lot from it and make the product better. And we're -- the intent is to move them along and move them to the self-serve side very, very quickly. On top of that, I'm very happy to announce that we've made an investment into a dedicated sales team that only self serve. I do think there's something to be said about focus and I believe that this investment is already starting to pay off big time. So by next investor conference, I do believe we'll be able to share some more specific numbers. And I do believe that people are going to be very happy with the results that we're showing up. With that I'd like to introduce Elliot, our CFO to share some financial results.
Elliot Muchnik: Good morning, and thank you for joining us today. I am pleased to present our Q4 and our full-year results, which are driven by strong illumin growth and continued economic recovery post pandemic. Today, our focus is on 2021 financial results, which we are extremely excited about what lies ahead in the second half of 2022 and beyond as investments we made in Q4 and continue to make in early 2022 will begin to contribute to growth in revenues and profitability. As we move forward, we are dedicated to expanding the reach of our unique and industry leading technology platform to advertisers throughout the world. And on that note, I would like to discuss our financial results for Q4 and fiscal 2021. In Q4, the total revenue is $36.8 million which is compared to $35.1 in Q4 2020, which is up 5% year-over-year. Non-illumin revenue which includes managed service and self serve was $26.6 million in Q4 2021 compared to $27.8 million in Q4 2020, a slight decrease year-over-year. We attribute to this decline to the adoption of illumin by legacy clients as well as select industry verticals that are still recovering from the pandemic, and revenue from our illumin platform totaled $10.2 million, up 37% sequentially compared to $7.4 million in Q3 2021. And it's up considerably from our first quarter of illumin revenue of $1 million at the end of 2020. Gross profit or net revenue was $19.1 million in Q4 2021 compared to $18.3 in Q4 2020, a 4.8% increase year-over-year. Gross profit margin or net profit margin was 52% in Q4 2021, which is in line with our Q4 2020 margin of . Total operating expenses for the quarter totaled $16.3 million compared to $11.7 for the same period in 2020, an increase of 39% and operating expense as a percentage of revenue was 44.2% for quarter compared to 33.3% in the prior year. I would like to discuss the key drivers of this in operating expense. Primarily, increase was driven by a $1 million increase in head count costs driven by higher commissions, tied to higher overall annual revenues, new hires in sales technology and administration, and an increase of $0.5 million for travel and entertainment as we return to pre-pandemic level of sales related activity. In Q4 2020, our costs also benefited from the forgiveness of a pandemic payroll loan of $1.8 million. This onetime benefit was recorded in Q4 2020 and applied against our US payroll costs. This is also material driver of our year-over-year comparison. And finally, balance of the increase in operating expenses was driven by our return to our offices and related costs plus decreases in year-over-year run rates related to our NASDAQ listing earlier in the year, including, but not limited to insurance, listing fees, and professional and advisory fees. Our adjusted EBITDA in Q4 2021 totaled $5.9 million compared to $7.8 million in Q4 2020, a 24.9% decrease quarter-over-quarter. This decline is related to our strategic investments to drive illumin’s future growth that we discussed earlier, as well as the factors that I mentioned impacting our overall OpEx. Specifically, the loan forgiveness of 1.8 million. Net income for Q4 was $2.5 million compared to $4.2 million in Q4 2020. For overall fiscal 2021 results, total revenue was $122 million which is up 16.3% compared to $149 million in 2020. This includes $26 million in illumin revenue for the full year, which considerably surpassed our own internal target of $10 million. We are very proud to have achieved this rapid growth in 2021 despite the supply chain and COVID related headwinds encountered -- gross profit or revenue in 2021 plus $63.6 million compared to $54.1 million -- prior year or up 17.5%. Gross margin was $52.1 million for the year compared to $51.6 million in the prior year. And our total operating expenses for the full 2021 year totaled $54.2 million compared to $47.1 million in 2020, an increase of 15%. This increase related in part to the investments I mentioned earlier that will support our future growth and the variances discussed during the Q4 overview, but to a larger degree specifically for travel entertainment, insurance and our listing fees. Operating expenses as a percentage of revenue in 2021 were 44.4% compared to 44.9% in 2020. We generated adjusted EBITDA of $20.3 million for the full year up 28.3% from the 15.8% we generated in 2020. And net income for the full year 2021 totaled $10.6 million, which is an increase of 186% compared to the net income of 3.7 in 2020. Moving on to the balance sheet. As you can see on this slide, our cash balance as of December 31, 2021 stood at $102.2 million, a considerable increase from $22.6 million as of December 31, 2020. And this increase is largely due to the proceeds from our successful cross border public offering in June, as well as additional cash flow we generated during the fourth quarter. Despite increased spending in the latter part of the year to further capitalize on our unique consumer journey platform. I'm very happy to report that Acuity balance sheet is now at the strongest level in the company's history. For some additional corporate data points, as of December 31, 2021, Acuity had 60.7 million common shares outstanding or 64.4 million on a fully diluted basis, translating into a market cap of just under 200 million. Insider ownership is at approximately 12% of issued and outstanding shares. In summary, while we saw lingering effects of the pandemic we're extremely proud of our strong revenue growth in the fourth quarter and for the full year. Given our performance and the continued sales momentum driven by illumin, we're comfortable with reiterating the previous guidance we provided for fiscal 2022. Our top line growth is expected to grow organically by 20% to 25% for the next year. We're taking a conservative approach as we not only see severe effects of COVID-19 on declined segments, uncertainty around the macroeconomic outlook and inflation, as well as overall geopolitical uncertainty. Supply chain issues are likely to be exacerbated given the tragic events in Ukraine. On a more granular level, we expect revenue growth be more weighted toward the second half of the year. And based on our current pipeline, we expect modestly lower Q1 revenues on a year-over-year basis. This is reflective of both a return to more normal pre-COVID seasonality, continued headwinds from supply chain and the surge of the Omicron and delta variants in the Q4. And also in Q1 2020, we benefited from the concentrated spend from a one off large campaign around legislative change around too many tax files. And as we move through the course of 2022, we will continue to invest into our platform and capabilities. 70% of that investment will be directed towards sales growth by increasing our presence in key markets. And the balance of the investment is focused on research and development growth to enhance the illumin to product support new client relationships, and increase data throughput capacity. And these investments will impact 2022 by approximately $11 million. Again, the majority of which is driven by new hires and investing in our brand, presence and reach. We expect to hire almost 90% of our hiring target by the end of Q2, and this upfront investment will temporarily exacerbate the impact of our initially lower revenues or EBITDA. So despite these short-term effects this upfront investment will also reset the stage for both delivering and supporting the increased level of activity and market demand that we have experienced over the previous quarters. And overall, we expect 2022 EBITDA to increase by 10% over the prior year. Furthermore, we remain steadfast in our acquisition strategy and hope to add to the Acuity platform during the course of the year. We are currently evaluating several accretive opportunities and look forward to providing you with updates on our progress. And with that, I would like to pass it over back to Tal for his concluding remarks. Thank you.
Tal Hayek: Thank you, Elliot. As you can see, we are super excited about the illumin adoption. We believe that we will see 20% to 25% top-line growth this year and the majority will happen in the second part of the year. I want to reemphasize that illumin over exceeded our expectations after we launched it and we're ready for it to over exceed our expectations again. And it leaves us very comfortable in making investments in the future, investments in growth. The majority of our investment is happening in sales and marketing. I want to share something. In the past, it was very hard for Acuity to come into a huge geographical market and hire the best of the best people in that market. So what we did as we went and we hire amazing people and together we developed them to be superstars. And today, the situation is a little better, we can come into a market and hire existing superstars. Why? For two main reasons. Number one, we have the budget. But that's a small part of it. The big part is we have illumin. And I tell you, as soon as we demo illumin to that sales people that thinking about joining illumin and if they had any doubts in their minds, that's the moment that they changed their mind, because illumin is the one that tells everything. It shows them the future of advertising and they want to be a part of it. So we're so glad to report that we have quite a few sales people that we’ve made hire to that are the best of the best in the field. And when you do those kinds of things, there's always a lag. We're very happy that those people are taking a chance of us, because they are taking a chance, leaving a very successful job with a huge book of business and coming to a new business is always a risk. But they're taking that risk, because they see the future and they see the very bright future of illumin. The lag that I'm talking about, I do believe is going to be smaller than normal because of the level of people that we’re getting in and therefore, we will see major results in the second part of the year. From the $11 million investment we're making, 70% of it will go into marketing and sales. With that, I would like to thank you all for joining us today, and Elliot and I would like to you to our Q&A section.
Operator: Our first question comes from Aravinda at Canaccord. Aravinda, you're on mute. You may go ahead when you're ready.
Aravinda Galappatthige: Thanks for taking my question, and congrats on a robust quarter under difficult conditions I suspect. Two for me, I'll stick to the limit. The first is where Tal actually left off on the development of the sales team. Can you just give us a sense of what proportion of the expanded sales team you've hired so far? And a little bit more about sort of the makeup of the sales people that you've hired, of these individuals with existing enterprise relationships that they can kind of bring into to Acuity, or is it will they sort of -- would these be accounts be sort of relatively new to them, but with obviously a lot of sales background, that's my first question. And my second question is for both Tal and Elliot, given where the share price is, given the cash is and given the very specific guidance you've given. Is there a temptation to maybe consider share buybacks? I know that you've raised and you're looking to grow maybe some M&A. But given the variance of what I think most pedigrees of intrinsic value of the stock and where it is, is that a discussion that you're having at this point?
Tal Hayek: So regarding the sales org, we've done a lot of changes to sales org, from reorganizing it to splitting it up and having a self serve team now. And after we've done that, we started going and hiring people with books of business. So to answer your question, everybody that we're hiring now, they have a book of business. They're very experienced people. They have deep relationships. And that's why we expect the normal lag that you have for salespeople to be much, much shorter. And obviously, payback is faster. And as I said before, it was tough for us to hire these types of people in beginning because budget issues, but mostly because we didn't really have something to wow them with. And when illumin it's something that everybody wants to come and join the -- what we're doing because they see what it's doing for the future. So that's what it's from a sales perspective. Now you asked about the share buyback. And you and I talked about it before and we were generally against it because we want to use our cash for growth. But when we talked about the share price was an different place, and now it's becoming to a place that it's starting to be very hard not to do it. So I'm going to say that we're now in very, very serious discussions with our board and strongly considering it. And we will share the news, obviously, when we make a final decision but I can't see an anything more attractive to buy right now than Acuity.
Elliot Muchnik: From a percentage perspective, about two thirds of our target to the sales account higher, despite challenging market conditions we’ll be very successful in attracting those professionals.
Aravinda Galappatthige: Was some of that already in the Q4 numbers as well, some of that spend or not really?
Elliot Muchnik: Very little people joined this late in Q4 so the impact was minimized on Q4 for the majority was next year…
Operator: Our next question comes from Laura Martin at Needham.
Tal Hayek: And while we wait for Laura to come on, I'd like to share with everyone that we are live from the Toronto office, very, very exciting time here in Acuity to see the office full of energy and live again. So a good indicator that the world is back to life, and hi Laura.
Laura Martin: So I have a couple, I'll just ask two, I have 10 but I'll ask two, because that’s the rule. So the first one is, we saw total revenue for the year about 16, it went to 5% growth year-over-year in revenue in the fourth quarter, you're going to go negative revenue according to Elliot just comments. So my question becomes what gives you confidence you can hit your full year number given the decel we've actually seen in the P&L near-term? Let's start there.
Tal Hayek: Yes, there's a few things. So let's talk about Q1. So in Q1 2020, we had one very large seasonal client that did not renew due to agency -- switching agencies and so forth. That was a very large client. We actually isolate that number, we're actually would have seen growth. But putting that aside, we're fairly happy with what's happened Q1, just because what I just mentioned. But on top of that when we talk about the $11 million of investment that we made, and remember 70% of it went into marketing and sales, we haven't made investments in that type of growth. For many, many years, we were really focusing on the EBITDA part. And now that we, number one, we proven that the illumin story resonates with the market. So we're very comfortable making those types of investments in the future. So all that money pouring into marketing and sales is going to accelerate our growth. And because there's a lag time every time you make those types of investments, we see that happening in the second part of the year. So that's now. We’re already seen great results. Number one, from our hiring, we hire great people. And looking at our pipelines and looking at our closed sales, our annual closed sales are -- all the indicators are that we will have that 20% to 25% top line growth this year.
Laura Martin: And then, Elliot, on your comments, I just -- maybe a couple for you. Actually, I'm going to try to cram them onto my second question. I thought what I heard you say, Elliot, is that illumin lowers your year-over-year margin, and I would have guessed that illumin would have increased your margins. Did I misunderstand that about when you said the transition to illumin lowered your net revenue margin?
Elliot Muchnik: I don't believe it actually did, even if that's what I have it came across. But I don't believe you said that, maybe that was a misunderstanding. But illumin has not. We still see this very similar margins across the board. Very confident the underpinnings of our ability to buy media well, and so that hasn't happened yet. We do expect that as we move more into what's outside of a self service that we’ll see a decline in op margins. So you'll see that as a proportion of self serve illumin growth for sure.
Laura Martin: And then what’s the CTV, just a housekeeping. Thanks for you. How much CTV -- in your slide, it was up 251% for CTV for 2021. What was CTV revenue in '20, in the fourth quarter or '21, whichever one you have off the top of your head or both?
Elliot Muchnik: I think we're comfortable with saying that we believe that this year is going to be about 10% of our revenue. So that should give you a good indicator of the numbers.
Laura Martin: But you're not going to get us last year, right?
Elliot Muchnik: We don't last year.
Operator: Our next dialing in by phone from Drew McReynolds at RBC.
Tal Hayek: I know, this is something we've been trying for the last few quarters. And we're getting really good feedback for that. So I know we appreciate all the analysts coming on and cooperating with video. It's a little bit outside the box. But we love seeing your faces.
Drew McReynolds: A couple for me, maybe first, Tal, just on the M&A side, just need to provide an update on just the environment out there, things that would be of interest to Acuity and just within the context of a quickly changing market and all aspects out there? Secondly, just on illumin and I'm obviously the new kid on the block here from the analyst perspective. In terms of modeling the revenue contribution from illumin. Is there kind of a target percentage of revenues, I think in your remarks you spoke to maybe the majority of revenues coming in the back half of 2022? But I may have missed that. So just trying to kind of level set expectations on the revenue trajectory for illumin? And then third and final in terms of the reinvestment. I think, Elliot, kind of widely communicated that ramp up, if you get the success that you're anticipating the back half of 2022. Should we expect another kind of ramp up in reinvesting in the business to go and capture incremental growth looking into 2023?
Tal Hayek: Let's start with M&A one. So we've seen a lot of activities in the last few weeks from the M&A side. Some of it is due to our efforts. So we set up our own team here and we hired a consultant in Europe that is actively going out and looking for targets for us. So we're also looking at many targets in North America as well. So we're looking at many, we're having many conversations, there's nothing imminent at the moment. But what I would say is I do think it's a better time now. The valuation expectations definitely came down. And there's some great companies out there that we can do a lot together with them and add a lot of value, strategic value and financial value to us. So I'm very encouraged with the science of what we're seeing. And the pipeline's on the M&A side is just getting full and fuller all the time. So obviously it's something that we really want to do this year. But we're always very cautious not to make a mistake there because the there is -- it could be a big mistake. So we've done four acquisitions to date. All of them were successful. We have a lot of experience with it by now with the integration and everything, and we know exactly what we're looking for. Illumin, you asked about the illumin dollars, so 28% of the revenue in Q4 was illumin. We're seeing that continue to grow. So the percent of revenue illumin will grow every -- I believe every quarter. By the second half of the year, I believe its going to -- the majority. So over 50% of it is going to be illumin, and our intent is to start transferring people from the legacy system into the illumin system later on this year. And at some point to turn off the legacy system. We don't know exactly when that's going to be, again, the intent is hopefully by the end of the year or there's going to be a small amount of people left on the legacy system. We do expect the customers that we move to illumin that we’re going to see an increase in average spend. So there's an upside there. And obviously we're keep adding more and more new deals, new logos, new companies into illumin. On top of that, we're making all those investments and new salespeople that has new relationships, that's making a new introductions and we're investing in the marketing and the brand. So more leads are coming internally. So all that is a great recipe for success. And then, you asked an interesting question. You asked if the pays-off. I hate that word if, I would say, when this investment pays off, because we thought very hard and long before we did it, and we are very confident that it's going to pay off. We're only going to see a fraction of it happening in 2022. The majority of the payback from that is going to happen in 2023, without any further investment, we could make a decision to invest more and to hire more people on the sales side, and that could be a very logical decision. But because of the lag time, most of what -- like it's going to affect some of this year, but the majority of the payback is happening in 2023. So 2023 is going to be even more aggressive growth. I hope that answers the question.
Operator: Our next question is going to come from Eric Martinuzzi from Lake Street.
Eric Martinuzzi: I'm trying to get a better view for the seasonality of the revenue during the year. Obviously, you've given us a full-year number of about $150 million and you've given us a Q1 that's down slightly year-on-year, but if I could look at it maybe on a first have second half, and this is for either Tal or Elliott. It is kind of a 40/60, 35/65, help me with the seasonality of the revenue during the year based on what you see now?
Elliot Muchnik: We're not really breaking our guidance into those kind of numbers. But if you look at our historicals and historical and the , in general, again, I'm not giving you exact numbers, but I think the number is usually 40/60. Maybe it's just slightly under 40 for the first half and slightly over 60 for the second half. But again, I am not looking at numbers. But I think that that's what he will find if you look at historical.
Eric Martinuzzi: And I fully acknowledge the large seasonal customer you had in the year ago comp, so little bit more difficult to maybe in a normal year. And then second question for me on the adjusted EBITDA, you talked about revenues down potentially in Q1 here, a year ago, we had adjusted EBITDA of -- I've got to a 4.5 million here on revenue of 27 for. Should we assume the same kind of -- if are down here in Q1 of '22 slightly that the adjusted EBITDA will be down slightly as well. And then can you tie that, can you put a number on it or is it just too difficult?
Elliot Muchnik: So you’re referring to Q1…
Eric Martinuzzi: Yes…
Elliot Muchnik: So for Q1 we expected to be lower than the prior year from a relative perspective, because of the investment that we're making and the lower revenues that we've guided to. So for Q1, our EBITDA will be substantially lower than the prior year, but by the end of the year, which is important, we expect overall EBITDA to grow year-over-year by 10%.
Eric Martinuzzi: Still positive in Q1 of '22?
Elliot Muchnik: We believe very close, yes. We believe that it will be lower EBITDA but it should be positive.
Tal Hayek: And Eric, just to add to that, remember, we were not on the NASDAQ in the Q1 the year before, the NASDAQ itself adds naturally a lot of expenses mostly from insurance perspective.
Operator: Our next question is comes from Dillon Heslin at ROTH.
Dillon Heslin: The first on illumin. How much of that growth is coming from moving some of your legacy customers on to illumin during the second half of the year? Like what's organic from new pipeline versus customers that you're switching over? And then I think you mentioned in 2020 versus 2021, those that you did switch their spend was up 100% or 118% -- the dollar terms, is that a realistic expectation for what you see going forward?
Elliot Muchnik: So the percentage of -- 70% of our revenue for illumin so far came from brand new business to . So that would leave about 30% that move over. So that's your first question. The second was, yes, we saw when we look at the group of four customers that switched from 2020 to 2021 from the legacy systems to illumin we saw 118% increase in spend. Is it realistic to see it for every customer? Probably not. Is it realistic to see it for some clients? Absolutely yes. Remember when you run in a campaign on illumin, you're running a full final campaign, which is very different than just the lower funnel that people normally do on . So therefore your investment in the campaign is usually larger. Now there are customers who are going to use illumin just for the lower funnel part, which is -- for us it's a shame, because it's not using it to the full potential, but there's still customers who have used to doing it that way. And those customer will see more or less the same results. So I do believe the average spend per client will go up. And it potentially will go up to 118% but probably the average is going to be lower, the average increase will be lower than that.
Operator: Our next question is going to come from Rob Goff at Echelon. Rob, you may go ahead, when you're ready.
Rob Goff : Congratulations on a very solid quarter. Great to see the revenues, great to see the margins. With respect to your revenue guidance of 20% to 25%. Just mathematically, if you're starting off lower on the first quarter, would it be fair to say that you look to exit the year pushing 30% revenue growth, that would make sense?
Tal Hayek: We didn't run the exact numbers. But obviously, it's going to be more investment growth at the end of the year, in order to achieve those numbers.
Rob Goff: And looking at the composition exiting the year, you indicated more than half of the revenues exiting would be from illumin. You've also indicated that CTV could be roughly 10%. And I know there's some overlapping CTV illumin. Could you talk to the reasonableness of illumin plus CTV exiting the year being more than 60% of revenues?
Tal Hayek: Again, it's hard to tell, because it's a little bit far away. But my best guess is that absolutely, like we're going to be in a run rate of more than 60% in the last quarter.
Rob Goff: And then just one last, if I may. With respect to the revenue guidance there, what sort of recovery would it be reflecting in the COVID sensitive areas? And would it reflect any very significant illumin contracts? I know the sales cycles there are longer, but if you could address that would be very much appreciated.
Tal Hayek: So I would say that when we’re thinking about the one sector is the travel and entertainment. We see that -- that's coming back. Now we're not thinking it’s going to be 30% of our revenue this year but it's going to be a more significant part. And so that's a great upside. And at the same time, there's this other industry that we share like the health care that is something that always well. So it does well and more and more of the budget is going online and more and more of the budget is going programmatic. So I don't think we're so dependent on specific industries coming up. Also our sales team is very agile, even when the pandemic started and we lost 30% of our revenue, more than 30% -- 30 on the travel entertainment right away, they started shifting into health, into retail, into all these other things that recovered us very fast from that downturn. So in general, I would say that we have a very good team, a very good product. And if things change to more pandemic or more issues with war issues, or anything else that would lead for specific verticals not to do well, we are very well equipped to move to other verticals that will do well.
Elliot Muchnik: And Rob, we did not assume any large wins. We've taken a very conservative perspective there. We think we're making terrific progress, but we also know that that is like you mentioned a longer sales cycle. So in our assumptions, we did not assume that, although, we would be very pleased to see that occur, but we aren't just basing it on a more kind of historically and more of a conservative approach to our forecast.
Operator: Our next question will come from Daniel Rosenberg at Paradigm. Daniel, you can go ahead when you're ready. You are on mute.
Daniel Rosenberg: I have a question around privacy regulation. I was just wondering if you can provide some commentary on any changes on how you view the impacts of big tech privacy changes on your business since we last spoke?
Tal Hayek: I always like to go back to the way that the open Internet operates. So we can go going to details and how to do things and how it's going to get done and all that. But I think, the better way to approach it is how does it work? And how does it work today is all the content is being provided free for consumers and it's being paid for by advertisers. My personal belief is that consumers are not going to start to pay for this content that they're getting for free today. And therefore, it has to be continue to be subsidized by advertisers. And therefore, the advertisers and we will have relevant ads to the consumers. So having said that, we will be able to find the mechanism to do it. Today, there's no issues like we can fully do that. There's always been talk about either the cookies or IDFA and all that other stuff. At the end of the day, we're not dependent on IDFA. The cookies have not -- are not going away as we know for about two years. And then it's very doubtful if they're ever going to go away. But even when and if they go away, we will switch to either the universal device idea or any of the other partnership that we're doing in developing with our suppliers, our customers, the vendors, even our competitors, we're working on a regular basis to build those systems. And there's going to be a replacement. So that's where I believe it's going to take us. The cookie has been tried. The third party cookie has tried to be taken away for over 20 years unsuccessfully, because the Internet needs it at the moment. So if we are making changes to that we also have to make changes in other ways that we will be able to deliver ads even in a better way.
Daniel Rosenberg: So I mean, certainly agree that the risks are manageable, and our solution will come. But in terms of actual expectations around exposure to any immediate changes if, whether it'd be on Android phone tracking or if in two years from now cookie to come, any commentary you could give around how dependent are you on these things and the preliminary tests maybe you're running with other alternatives?
Tal Hayek: So I think that's, look, for example, when Google made their change, and people were really dependent on the traffic on their apps, they were hurt. We don't do any, there is less than 1% of our traffic is on the apps. So we're not really dependent on it and it didn't really affect us. So the biggest impact that could happen to us is a cookie issue. So that's what we really, really are working towards to solve. And we're doing that by replacing it with some type of Universal IDs. We're working with many companies to do it. And we have our own universal idea, the back end that matches them all together, so we can figure out who the people are. And in fact, the Universal ID for me is a better solution than the cookies, because now we don't have to get to the same person on your mobile device, on your computer, on your Connected TV, you all going to have one Universal ID that connects you. So in my opinion that's where we're going. And therefore, I don't believe there's a revenue impact on Acuity.
Operator: Our final question comes from Kevin Krishnaratne at Desjardins.
Kevin Krishnaratne: I had a question for you on illumin, the illumin wins, maybe the conversations you're having with the clients that are spending on illumin. Any sense of how you're being viewed from a competitive point of view? Where is this budget coming from in your view? Is it are clients simply expanding their budget? Or do you think you might be winning some share from a company like The Trade Desk, for example? Any commentary on essentially how you're stacking up now that it's been 1 year with the product against some of the bigger guys out there?
Tal Hayek: Yes, I would say both. So some of it, the budgets are coming from the general spend, and they're just allocating it to illumin. They're seeing what are the results. They're seeing the insights they're getting from it. They're spending more on it and they're liking it. Some of it -- budget is coming from innovation. So it's all about trying new things and learning new things. And an increase in budget in general as it comes to the -- to what you spend on the Internet. So -- and don't forget that ROI is also very important to them at the end of the day. So when you deliver that ROI, then you get more and more of their budget. So it's a combination of all of it. We're definitely taking some business from other companies. We're definitely capturing some of the incremental spend that people are spending and the things that we're trying to do for innovations.
Kevin Krishnaratne: Well, it's good to hear that there's some -- potentially some competitive displacements there. Sort of a part B on this question is just I'm trying to understand illumin. I would think the consumer journey and the way the product is designed that there should be -- how to think about the amount of CTV that you're driving on an illumin win? Is it one third of a client budget spend on a campaign coming from CTV? Is it more -- you should be getting a bigger portion of CTV when you're winning in illumin. Any thoughts there?
Tal Hayek: Kevin, I'm not sure if we can see what's happening behind us, but there's a room that's full of journey. And there are 3 sections to it. It starts with awareness, then it goes to engagement and then it goes to conversion. So -- but awareness is usually the piece that you would see the CTV on and awareness is usually the biggest investment of the campaign because once you move people from the awareness, you may have a million people on the awareness side. And then you decide which ones are moving into the next stage. And it's substantially a lower amount of people, let's say, 20,000 people that now are aware of you, and now you want to engage them more. And then you start engaging them, that could still be with videos, but it could be a combination of many things. And then once they're fully engaged, all you want to do is bring them back to the website to convert them, right? So -- and that's even a smaller amount of people. So it could be more than 30% of the budget between, let's say, video, online video and CTV. But every campaign, a lot of it is about the algorithm, making decision and seeing what works best for that specific campaign. So I'm sorry, I can't give you a general rule of how much CTV per campaign. I can tell you that it's very effective. It's easy to see that it's effective when you're using illumin. If you're just running CTV, it's very hard to see. So that's why people really, really like it as a part of the campaign.
Kevin Krishnaratne: So look forward to hopefully pushing much higher than 10% CTV growth over the coming back half of the year. Just a last question. As you think about -- a lot of people have asked about the guidance forming for 2022 and maybe just more Q1 and Q2. Can you talk about anything on Europe, I think Europe is maybe 10%, maybe a little higher than your revenue. Any just thoughts on client discussions there, given what's happening in the region right now would be helpful.
Tal Hayek: So Europe, as you know, we have a location in Barcelona. It's doing well. It's growing. It's delivering its numbers. We're actually seeing more and more Self-Serve clients coming out of that region. We don't really see so far any effect as for what's happening in the region. So it's really hard to say. Nobody knows what's going to happen next. So far, we haven't seen any serious effect on revenue.
Kevin Krishnaratne: So the client -- the discussions with clients, they're spending, it's just as expected?
Tal Hayek: Yes, absolutely, absolutely. Yes.
Operator: Tal, Elliot, that's all we have for questions today. I'll hand it back to you to close up shop.
Tal Hayek: Thank you, Corey, and thanks, everyone, for joining us today. We would like to thank all our shareholders for being our partners and for allowing us to do what we're doing and to create the successful company that we've created. And of course, illumin, we're super excited about what we're doing with illumin and just can't wait to what happens next this year. And I would like to welcome Elliot for joining the team. Just here for a little bit and already showing a lot of great progress with the organization of Acuity. So I like -- and thank you for joining us and for all our viewers. We're looking forward to the future.
Operator: Thank you, Tal. Thank you, everyone.
