AcuityAds: One-on-One with the CEO – CML

We had our second one-on-one conversation with the CEO of AcuityAds.

On March 5, 2021 we added AcuityAds (ACUIF) as a Top Pick with a “lease to own” premise. We will give the company one-year to hit certain benchmarks, specifically revenue growth and earnings levels.

On 5-12-2021 we did our first earnings review:
AcuityAds Delivers the Goods and Has Promise for More

Analysis
The conversation surrounded four core topics: (1) illumin, (2) the COVID impacted industries, (3) long-term aspirational plans, and (4) the growth of connected TV (CTV).

For background, AcuityAds describes illumin like this:

Our intuitive platform helps you see through the clutter of programmatic advertising.Our simple drag & drop interface allows you to take control of planning and buying across the entire journey. Let illumin find efficiency and provide clarity in the digital marketing space like never before.

And then Acuity describes the benefits as:

* Reduced organizational silos: Over a quarter (26%)1 of marketing budgets for advertising are squandered due to disconnects between the ad placement strategy and creative strategy. illumin enables advertisers to reduce these organizational silos for maximum budget efficiency.

* Decreased setup time and cost: On average, it takes 300 hours to get DSP systems running for one individual2 within the organization. With illumin, this time is significantly decreased.

* Better ad attribution: Advertisers waste $82B in spend every year due to poor attribution3 within the marketplace. illumin offers full visibility and control of real-time advertising performance across channels and types of creative.

Here are some snippets of our conversation with the CEO that we felt were highlight worthy.

When I asked about Q1 results in general, CEO Tal Hayek noted:

I’m very excited about the results that people are getting out [of] illumin, and we’re going to continue to focus on it.

I asked about larger clients that are trying illumin and how that land and expand proposition is going:

The other are the larger clients that are just using it to the tip of the iceberg right now.And the intention is to test it.

And when they get the results that they’re hoping to get out of it, to do a much deeper integration.

And if you remember a while ago, I said that we do believe that the revenue of the illumin is going to come in the peak second part of the year, and we were surprised that it came earlier.

So that will probably, I believe, it’s a six-month process.

This points to the opportunity and the risk. The opportunity is to take very small ‘test’ budgets and turn them into legitimate budgets, going from a few hundred thousand dollars to potentially several million.

The risk is that the test doesn’t go well — the ROI isn’t apparent, and then not only does the ‘expand’ part fail, but the ‘land’ part will go away.

I asked about upfront receptivity of illumin and he was rather transparent noting that in the past large new customers didn’t used to give AcuityAds the time of day but now:

… they’re picking up the phone and talking to us, versus before we were not doing that.

Finally, something about AcuityAds that I wasn’t entirely clear about was the negative impact of COVID , how large it was, and how long lasting it has been.

Fully 30% of Acuity’s revenue in 2019 came from the travel, leisure and entertainment industries and when I asked if those segments had recovered from COVID he said, rather bluntly:

So first of all, we’re not even seeing close to recovery yet.… it used to be 30% of our revenue. And it’s not even, it’s still in single digits.

We also spoke about connected TV (CTV), just broadly, when we asked if he saw the shift to CTV and if it was becoming a larger part of just all ad campaigns in the first five months of 2021, to which he responded:

Yeah. Definitely.

We note that Acuity said that connected TV segment revenue rose for the first quarter of 2021, approximately 987% compared to Q1 2020.

But this is clearly on a small base, so it’s prudent to not get too excited about those numbers, yet.

In all, AcuityAds delivered what we expected, and we still hold the company’s feet to the fire, with rather clear requirements for 2021 — at least 30% revenue growth and guidance to at least 25% growth moving forward while maintaining profitability.

We also note that AcuityAds has announced it will be up listed to the NASDAQ National Market soon, and that could open the firm up to many more investors.

Please enjoy our conversation below.

One-on-One with the CEO of AcuityAds

Ophir Gottlieb:
Congratulations on, what seems to be an imminent up list to NASDAQ National Market. That’s great.

Tal Hayek (CEO AcuityAds):
Thank you.

OG:
All right. I have a few questions for you.

I have a few detailed questions, but before I get that I just want to give you a chance.

Is there any particular message you would like to deliver to investors with respect to Q1 before I get into the questions?

TH
I mean, the focus for me is about the adoption of the illumin.

So, I was very happy to see the growth in Q1, and I was very happy to see how the numbers are looking in Q2, and the conversations that we’re having, the type of RFPs [requests for proposal] that we have and the amount of demo requests, and the incoming leads, all of that has led to this great place.

I’m very excited about the results that people are getting out illumin, and we’re going to continue to focus on it.

OG:
Okay. Good place to start because I have three questions on Illumin.

As you might remember, last time we spoke, I said that, while there are a lot of players trying to get into programmatic DSPs, there’s a reality that it’s not just software with a back end, but software with a front end that can capture users.

And so even though we hold The Trade Desk in very high regard, it’s virtually still impossible to use, to even get started, that you have to have a considerable amount of training to start, and they’re working on a new product, that’s fine. But as of today, it’s still very, very difficult.

So, I love the approach that you’ve introduced with illumin that Acuity is going after.

So, okay. So, the first question, what are the types of conversations you’re having, that we’re talking about, with these new customers, are these sort of… Like test the water RFPs ad buys, with room to grow depending on ROI?

And if so, how long in time, are these initial purchases or how would you characterize them?

TH
I would say there’s really two major clients.

One, of let’s say midsize clients that are just using it and joining it and renewing it and happy with the way it operates.

The other are the larger clients that are just using it to the tip of the iceberg right now.

And the intention is to test it.

And when they get the results that they’re hoping to get out of it, to do a much deeper integration.

And if you remember a while ago, I said that we do believe that the revenue of the illumin is going to come in the peak second part of the year, and we were surprised that it came earlier.

That’s the types of revenue that I was referring to that I’m expecting to come in, and still expecting that because we’re having quite a few conversations with a bigger bank for deeper integrations.

OG:
For the larger enterprises that are doing a test for ROI, do they tell you how long their test is? Do they say, we’re going to look at it for three months or do you get any color from them?

TH
What we’re seeing is, some of them, what they’re doing is they’re doing the tests.

So, they spend a few hundred thousand dollars on it, at the same time, they’re going through the process of making us an approved vendor or partner.

So, we’re going through details our fees with them, and details with the patient and ideas of integration into internal systems and everything that goes with that.

So that will probably, I believe, it’s a six-month process.

OG:
Okay. That was helpful.

My second question is sticking with Illumin.

It seems like there’s substantial cross-sell opportunity for illumin to the current AcuityAds’ customer base.

Is that how we should look at it or should I focus more on new customer acquisition?

TH
We’re now focusing more on new customer acquisition.

In other words, we don’t, I mean, we like the fact that the existing business is paying the bills and we’re growing the other one like crazy, and we’re doing that by having new globals that haven’t used us before.

So, that’s good, and we can do that because they’re picking up the phone and talking to us, versus before we were not doing that.

So that’s our big focus. For all the Acuity customers that moved into Illumin, they’re spending more money for, the average order size on Illumin is much higher to the [inaudible].

So eventually it will happen, but our big focus right now is on new ones.

OG:
Okay. And then my last question for Illumin before we get to other subjects, it’s about the share of total revenue.

It’s outperforming, I think everyone’s expectations.

I believe Acuity delivered 27 and a half million. I’m talking Canadian dollars, 27 and a half million dollars.

And Illumin was 3.2 million in Q1. So that’s about 12% already.

Where should we be looking for this longer-term?

You have a bunch of enterprises that are testing.

Let’s say three years from now, do you have a vision of like how much of revenue will be based on Illumin? I don’t know, aspirationally in a few years, or have you not looked out that far?

TH
It’s hard for me to give you a number, but I do think all of it is going to be Illumin.

So, I think within two years, we will want to sense that the old system, there’s no real reason for us to operate two technologies.

OG:
Okay, that’s helpful too. All right.

On the call, it might’ve been in the letter to shareholders, Acuity said that connected TV segment revenue rose for the first quarter of 21, approximately 987% compared to Q1 2020.

So, that’s a big number, but it probably has a small denominator.

Can you put some guardrails on that business with respect to size? Like what percentage of revenue is from CTV and what percentage of Illumin ad buys are going to CTV?

TH
Yeah, so we’re not sharing numbers yet just because absolute numbers are low, and I think you can see that all the other players are not sharing absolute numbers, but I can tell you that CTV is a big focus what we’re doing with Illumin.

First of all, that’s an integral part of the campaigns that people are learning. And second of all, we’ve seen that customers looking at doing CTV with us as a great advantage because they can see the results of CTV as it relates to the rest of their funnel. Right?

So, imagine you’ve created a container of Illumin, and in the first part, the awareness part, you’re putting a CTV Campaign launch, and as you’re moving people through the funnel, you’re getting them, more two different [inaudible], display and all that.

So, you could do it in a way that you’re doing some of them with CTV, some without CTV.

And now you see the results on performance as it relates to CTV. Something that’s impossible to do it when you’re running CTV on any other platforms, so people are seeing it as great opportunities to measure.

OG:
Since we’re on CTV, just have a broad question, illumin aside.

What do you see in the first five months, almost first half of 2021? Do you continue to see this just shift just in entirety, the shift to CTV, it’s becoming a bigger, bigger part of just all ad campaigns?

TH
Yeah. Definitely.

OG:
Okay. That’s what we’re hearing too.

Guidance for Q2 was for at least 29.4 million Canadian dollars, which was ahead of the consensus, rather ahead actually, so two questions on that. First, is the strength of that number primarily due to the early success of Illumin?

TH
I would say it’s related to Illumin and in general, we’re seeing more [inaudible].

OG:
Okay. And second, I’m going to throw out 2020, so Q2 of 2019 saw 25.8 million and guidance for for Q2 2021 relative to Q2 of 2019, would it be about 14% growth.

So, 2019 to 2021, throw out 2020, because it’s a weird year.

Global Programmatic advertising is forecast to grow from 2019 to 2021 throughout 2020, about 37%.

And I know Acuity’s goal is to get to the industry trend and then above the industry trend.

So, let’s talk about these multi-year aspirations, so beyond 2021, how is Acuity going to get to performing with Programmatic and then outperforming the Programmatic trend?

TH
I think our big focus is in Illumin. And with Illumin I think we’re always going to keep on over performing the Programmatic. Not always, but within several years we’re going to over-perform by a lot, right?

We were over 100% sequential growth. In Q1, we’ll do our best to get another aggressive quarter over quarter growth in Q2. And all the indications show that we’re going to get there.

And we’re focusing on that and maintaining the other side of our business.

So, I do, the way I look at the growth, it will be Illumin growth, and I guess it’s going to overtake the Acuity business fairly soon. So, at that point we will see overall growth in an aggressive way as well.

OG:
So. if I’m going to model Acuity, so I may, when Acuity gets up listed to the NASDAQ National Market, I might add Acuity as an official covering analyst with Refinitiv IBES.

I’m actually trying to also just gather some information in case I have to do these forecasts.

Shall I look at the, obviously, if I’m looking at 2019, that’s all, that’s ex-illumin, there was no Illumin.

Should I look at sort of a stability of 2019 revenue versus non Illumin revenue in 2021? And then look at Illumin separately as a way to sort of judge the progress?

TH
Yeah, I think that’ll be good because eventually we’re going to probably not see any growth on the Acuity side and only see growth on the Illumin side, to the point that we move everybody over.

So, I think that’s a good way of looking at it.

OG:
Okay.

Let’s talk about recovery from COVID.

So, we know, so travel, leisure and entertainment were hit particularly hard for all advertisers, Acuity too, but it was pretty devastating.

I think there should be tailwinds for 2021 compared to 2020, but it’s not, I imagine it’s not fully recovered.

TH
So first of all, we’re not even seeing close to recovery yet. I know that people are traveling but the way I look at it, there’s so much pent-up demand that, and there’s limited flights right now, are travel entertainment are starting to advertise but we haven’t [seen a recovery].

OG:
All right. Those industries, like you said, we’re seeing in the news that people are flying and traveling, but the advertising business is nowhere near having recovered?

TH
Well, we’re seeing a hint of travel starting to spend, but it’s, it used to be 30% of our revenue. And it’s not even, it’s still in single digits.

OG:
Okay. So that, I mean, assuming that the travel and entertainment and leisure industries don’t go away and they return to advertising, it’s actually a pretty big tailwind.

It’s actually a headwind when we’re comparing year over year numbers.

So, if I’m comparing 2021 Acuity revenue to 2019 Acuity revenue, just in total, then I still have to take into account that something that was 30% of your business has been decimated. Okay.

That’s really good color. I appreciate that.

I see that there’s a shelf offering. What is the size of the shelf?

TH
The limit of it? It’s pretty high, but that’s just a number that you put in when you do those things to give you flexibility. I don’t remember if it was 100 or 200 [million] or something around that.

OG:
Is there anything else that you wanted to share with investors beyond the questions we just went through?

This color around Illumin, for sure. Those are very transparent.

There’s really good color, which I didn’t know, and I think it’s very important for investors to understand that 2019 had 30% of revenue from a group of industries, which are single digits right now, due to COVID, which are assuming they do come back, that should be a boost, even just a return.

This speaks to why I’m seeing that difference between what Acuity is doing and Programmatic in general.

Is there anything else that you wanted to share beyond the things we talked about?

TH
No, I think we got the… That’s our focus and I think it’s, the fact that we’re working on the NASDAQ and we’re working on the adoption of the illumin, that’s pretty much the focus.

OG:
That’s really all I have. I appreciate the time, I look forward to speaking with you as the years go on and probably with Jonathan [Pollack, AcuityAds CFO].

And I appreciate you taking the time to speak to us. See you next quarter.

Conclusion
It takes cognition from the outside world, after CML Pro, for these companies to become great investments.

We add AcuityAds as a Top Pick leaning on the potential more than conviction, at this point, which makes it a perfect fit for Top Picks and also perfectly unfit for a Spotlight designation.

Risk is here — as is potential for high reward.

AcuityAds has specific benchmarks it must meet to remain a Top Pick, and we’ll see that play out, one way or the pother, throughout 2021.

The author has no position in AcuityAds.

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