Morning, everyone, and welcome to AcuityAds' third quarter 2020 financial results conference call for three- and nine-month period, ended September 30th, 2020 . 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 securities laws, including, among others, statements concerning the company's two thousand and twenty objectives, the company's strategy to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. Such forward-looking statements reflects management's current beliefs and are based on information currently available to management, and is subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated.
Should you have any questions, please take advantage of the Q&A function at the bottom of your screen. We will attempt to answer as many questions as time permits at the end of the presentation. I would now like to turn the conference call over to Tal Hayek, the Co-founder and Chief Executive Officer of Acuity Ads, to update you on the operations of the business.
Good morning, everyone, and welcome to our Q3 video conferencing call. I would like to start by thanking the Acuity family. You've done a tremendous job delivering an amazing quarter. I personally thank you, from behalf of myself, the executive team, the management team, the board of directors, and our investors, for delivering such an amazing quarter. What a great comeback from our Q2 challenges! A quarter that we had so much uncertainty within Acuity and in the world. I'm also so excited about the industry bounce back, as advertisers are now demanding more accountability from their ad dollars. And let me tell you something, if you're an advertiser and you would like to see positive ROI, all measured in real time, there's no better company out there, there's no better technology out there, there's no better AI system out there than AcuityAds to deliver that.
We were born ten years ago exactly for that reason, and we keep perfecting it over and over again. We've done all that while launching Illumin, which is a new category in the ad space called advertising automation, and is changing the world of advertising, while taking big parts in industry events, helping shape the future of the industry, and delivered CAD 26 million in revenue and CAD 4 million in EBITDA. This is a quarter that our sales team was able to replace 30% of our revenue with new industries, and to grow CTV by 353%. I am so excited about what's happening in Acuity. I'm personally missing the face-to-face interaction with you, our investors. So we decided to do this as a video versus our normal call. Why?
Because I wanna be able to illustrate better what's happening in Acuity and share why we are so excited about the future. The most exciting part of what we're doing here at Acuity is Illumin. Illumin is a completely new category we call advertising automation, and Illumin is changing the world of advertising. Look, I'm very, very proud of what we've done at Acuity so far. You know, Acuity was started by four people with a big dream many, many years ago in a very small room, and we already achieved and overachieved on all of our dreams, and the dreams just become bigger and bigger, as we go. But let me tell you something: the Acuity story pales in comparison to what we're doing next with Illumin.
Illumin is changing the world of advertising, and we are so, so excited about what's happening in the next few years for that. Now, I'd like to share a little bit of background about how it started. Four years ago, I wanted to run an investor relations campaign, and I wanted to run it in a very, very specific way. At the end of the day, I wanted to reach investors, and I wanted to be able to tell them a story to bring them along the consumer journey to conversion. Simply put, I wanted people to buy more shares of Acuity, but I wanted to be able to educate them along the way. So I asked my team for very, very specific requests.
I asked, "I would like to show banner number 65 seven times, and after that, I would like to show video number 57 three times. But if somebody clicks along the way, I would like to send them to a completely new place in the consumer journey." And the response was, "Well, our system cannot do that," which I was well aware of. And I said, "Well, go find any other system that is capable of doing that." And after doing their research, they came back to me and they said, "Well, there's no other system that can do that." So we decided to build it. Now, unfortunately, four years ago, we couldn't afford to build it here at Acuity. But two years ago, when we reached enough critical mass, we went all in on Illumin.
And now that it's no longer a dream, it's reality. It's already started changing the world. So I'd like to share a short video explaining a little bit more, how it works, and give you an idea, a visual of how it looks like.
For years, media plans have been put in a black box that you didn't have access to.
... Until now. Now, Illumin has reinvented advertising technology. Now you can see everything. The Illumin Journey Canvas lets you plan, buy, and see results on a single platform in real time. Drag and drop your creative to plan the consumer journey on any digital channel and activate it. Track the consumer journey, target the right message at the right time, and get a better return on your advertising spend. Illuminate the consumer journey with unparalleled insights all the way to conversion. Illumin is advertising automation like you've never seen before. Goodbye, black box. Hello, everything.
You might be asking yourself: How is Illumin going to change the world? So let me tell you what problem we're solving here. There's two major problems that we're solving. Number one, there's a huge gap between the way marketers plan and the way that programmatic gets executed. Marketers usually plan in stages, and usually three stages, which is awareness stage, engagement stage, and conversion stage. And they would like to send different messages along the way. But what, what happens next is they take that plan, they send it either to their agency or to their programmatic marketing team, and that team takes it and puts it in a black box. Essentially, what they're doing, they're shredding the plan to pieces. Why? Because the black box does not have the ability to execute on a consumer journey.
It's very good at executing on specific line items and delivering ROIs against those specific line items, but it has no ability to look at the overall picture of the consumer journey. Look, I share something from my personal experience. Many times, I see a video ad that I really like. I really interact, and I think I should check that brand out. And then I see that same ad again, which nothing wrong with that, repetition is great when it comes to marketing, but then I see it again and again and again, and after seeing the exact same ad 20 times, I want nothing to do with that brand anymore. If you are a brand and you are already engaging your consumers, you need to tell them the next reason why.
Especially nowadays, as higher-ticket items are sold online, it is so important to be able to educate consumers and bring them along that consumer journey, so what you're seeing here in front of you is our DSP pre the Illumin system. Now, I think it's very important for you to understand the kind of look and feel and how DSPs work. They work in line items. It's a complicated system to work on. You need to be a highly trained expert to be able to operate it, and I'm gonna show you how Illumin looks next. This is how Illumin looks. As you can see, completely different. It's a drag-and-drop system, highly intuitive, that any average person will be able to operate and set up a consumer journey in minutes.
That's actually the second problem that we're solving, the fact that today you need to be a highly paid expert in order to operate any of those systems. With Illumin, any average person will be able to do it. That's really the second problem. Now, once you execute Illumin, it's. You can see the kind of insights, like you can see on the screen here, is something that you could never, ever see before in any other systems. Here, specifically, you can see that the amount of people that we were targeting, condo owners, 265,000 people were targeted, a 135 started the path. You can see exactly how many reached the first creative and the second creative, and how many went along the consumer journey.
So all those things are the kind of insights that you can never get from any other system out there. So that's why we're so excited about Illumin. The entire company is so excited about Illumin, but let me tell you something, that's not enough. As a DSP, competing with other DSPs, it's very hard to differentiate yourself. And the fact is that the sales team many times had problems even setting up meetings with the Fortune 500 brands. When we went looking for partners, for the beta partners for Illumin, there was no issue anymore. We had over 30 major brands apply to be a part of the beta program. We ended up selecting these six beta partners, which were absolutely instrumental in helping us bring it to market.
So again, I would like to say a special thank you for The Home Depot, MassMutual, Lamark, Purple, WMG, and AM for really being there and helping us shape the product. It was anywhere from helping us fix the bugs as we were working on them, the usability flow, and being vocal in the market, helping us get it out there. So we really, really appreciate that. Now, next, I would like to share a video. It's more like a demo of the system that really shows you how you use the drag-and-drop system, how you set up a campaign within minutes.
This is Illumin. The canvas is meant to help marketers plan omni-channel advertising programs.
You can select your audiences and drag and drop any digital creative you'd like: CTV, video, audio, display, native, and in the future, social, search, and other digital assets. You can specify every aspect of your consumer's journey, including how many times you want the consumer to see the creative and in what sequence. Just like you were telling a story, you can guide the consumer based on the action that they take at every step of the way. Once you have built your journey, you simply hit Publish, and your campaign is live. The algorithm is working in the background to illuminate the most efficient path to conversion. You can see this through unparalleled insights that you cannot get anywhere else. Insights like an audience engagement map that shows you in real time how consumers are moving through the journey, so you can make informative decisions.
Insights like a conversion propensity report, which shows you how the AI scores the audiences in order to deliver a superior return on investment. This is a level of transparency in advertising that you have never seen before.
So now you can see why we're so excited about Illumin and how easy it is to use that. Really, anybody will be able to use it. So what, you know, what we're thinking is that Illumin is democratizing the programmatic advertising space. Similar to Shopify that democratized the e-commerce side, Robinhood democratized the financial side. If you remember years ago, when you wanted to book a airline ticket, you needed to call a highly paid expert, and today, the systems are so easy, so intuitive, that anybody could use it from home. I believe this is where Illumin is going.
Now, we always thought and communicated that the majority of revenue is going to start mid-next year. Why? Because we're going after the bigger brands with Illumin, and we believe the sales cycle is six to nine months. And so told everyone, and everyone's very, very prepared that the majority of revenue for Illumin is gonna come in mid-next year. But our sales team surprised us already, and we will have revenue for Illumin in Q4. In fact, we're in the middle of running revenue for Illumin as we speak. So we believe it's gonna be approximately CAD 1 million in revenue running in Q4, and that every quarter this number is going to aggressively grow. And I believe, personally, there's gonna be a massive growth next year for the Illumin revenue and therefore for the entire company.
So needless to say, we're so excited about Illumin, and we're really, really ready to take the whole market to the next level. So I'd like to share a little bit about the industry events that we've been participating in. So in the past, we were not so vocal in the industry, and that all is changing because Illumin is really shaping the future of the industry. So it started with an introduction, the launch of Illumin. That was just happened about a month ago. I highly, highly recommend that you guys go watch it. It's on our YouTube channels. It's on our website. It really gives you a good understanding about the product and what problems it's solving. Then it went on to Advertising Week, where our great partner, Purple Mattress, shared the experiences with Illumin.
And then we went to GDS, and where we had other partners, the CMO of DSE, Michele, shared their experiences with Acuity. And then to 4 A's, and then just yesterday, we've done the IAB summit, which really is a certification program for people who wanna use Illumin. So all that has been absolutely great. Game changers, we're being you know, the industry is really, really excited about it. And we have a short video showing some of the highlights of the industry events that we've done.
Honestly, we've tried to work on hacking together these type of solutions in other ways. I remember, you know, on YouTube, when somebody views this video, we send them into another audience, and we try and take that audience and send it into another audience based on the view behavior. But we always would seem to break something, and we wouldn't get the scale that we were looking for. And so I think, you know, it's exciting for us to see the direction of Illumin and probably the rest of the market to follow suit, where it does build these sequences as kind of an intrinsic part of the journey.
In-housing has certainly been a hot topic recently. Our next speaker is going to take a very different look at this trend, with a focus on agency's own approach to in-housing. To offer unique insights, planning and execution capabilities, many are partnering with technology platforms that enable the ability to layer on rapid response, high-margin agency services to deliver consistent results and ROI for their clients. Please welcome AcuityAds Chief Strategy Officer, Seraj Bharwani.
What consumers really want is the journey the way they plan, and the way they want to execute is flawlessly in a frictionless way. In talking about what makes a true partner. Hello, Seraj and Michele!
We had to find another revenue source for growth, and that we were looking to digital for that. So we were at the beginning, and we needed a partner and an ecosystem that would help us understand really, you know, what marketplaces were we gonna play on? How do we come to market as a digital brand, which is different from the brick-and-mortar that we were used to? And how are consumers gonna find us now? We were used to traditional problem solution advertising through broadcast media, and that, as an, place to play in media was also shrinking. So we needed a partner that was going to help us overcome those challenges, as well as take us into the digital realm successfully.
And so he had a lot of deep expertise in digital, in media, and also now at Acuity, a very tech-savvy shop with media expertise in our categories.
Let's talk about the market opportunity. So today, the overall ad industry is $614 billion. Out of that, $127 billion is programmatic. Remember, programmatic started about 10 years ago and grew very aggressively to get to the $127 billion. More importantly, in the next few years, the overall advertising space is going to be a $1 trillion business, and most of it is going to be transacted programmatically. So as you can see, the size of the market, size of the opportunity here is absolutely huge. We are very, very excited about the fact that it's, it's growing so much and that we're in the right space for that. Now, I want to address one of the issues that the industry is a little concerned about, and that's the third-party cookie.
I think it's very important to look at it from a little bit zoomed out a little bit, and to look about the industry and the ad industry in general as it comes to digital. We all know who pays for content online, on TV. It's generally speaking not the consumers who are paying for content. It's the advertisers that are doing that. I personally don't believe that that will change. I think content is still going to be paid for mostly by advertisers. If that assumption is correct and true, then we will be able to continue use targeted ads to people, and we'll be able to use all the data that we have, or most of the data that we have today, in the future, and even get better at it.
Now, the third-party cookie in the next few years is going away. I mean, we know that, you know, it's something that the industry has been talking about for years, but there was no necessity to make a change. Now, the third-party cookies were never built to do what it's doing today. It was really not built for that kind of tracking. So I am actually very excited that we're moving to a new way of tracking, and, you know, for us, we believe it's the unified ID. We partnered with LiveRamp for that, and we believe that that will replace the third-party cookie, but not only replace, it's going to be better than the third-party cookie, so we are, you know, in the midst of changing to that and really looking forward to see how everybody adapts.
Connected TV is one of the big things that are fueling the growth of programmatic in the future. Now, we've been talking about the growth of Connected TV for years now, but now it's actually happening big time. Now, except for the fact that it's natural that everything is moving to Connected TV, the COVID situation is actually accelerating that. Why? For two main reasons. Reason number one, advertisers are now demanding to see ROI, even from their TV ads, and CTV offers that, and the second issue is that with linear TV, most of the times you have to commit to major upfronts, and with CTV, none of that is required. It's very, very flexible, so that's why we're seeing more and more of the advertisers are moving into that.
So we are very, very excited to be in that game, and looking forward to see that developing as well. Let's talk about COVID. So I'll make a statement. I believe that programmatic is the engine for recovery and growth, and it's already starting to prove itself. I can say personally, at Acuity, we had a very tough end of Q1, mid-March, when advertisers started to just cancel campaigns, out of pure panic, and then it went into April, but then something happened in May. In May, we've seen a major comeback, and then again in June, even more. And every month since, we're seeing more and more revenue coming back, and every month is aggressively growing from the previous month. Why?
Because advertisers are now, more than ever, demanding to see results, so they're demanding to see ROI from their investment and their campaigns. I'm going to repeat this because I said it before, but there's no better company out there, there's no better technology, there's no better AI engine that delivers the positive ROI, all measured in real time, than AcuityAds. So we are very, very happy to be out there and help companies recover and grow. Now, obviously, it's an industry that we've seen major growth for the last 10 years. This year, more or less flat, and we believe that next year we're going to go back into aggressive growth.
So that's, again, exciting time to be in the space and, looking forward to some of the industry that completely went away, that I will share in just a minute, coming back as well. From a financial performance of Q3, like I said, absolutely fantastic, performance. Again, thank you to the, to the Acuity team. Look, we delivered CAD 26 million in revenue, almost flat as, the same as, as last year. Major comeback from our Q2 numbers, and we're seeing that trend continue. We're continuing to grow, our revenue very, very aggressively... Now, net revenue was higher than, than the year before because margins were higher. Our EBITDA was CAD 4 million versus 1.6 at same time last year. Our adjusted net income, 3.7 versus 700,000 at the same time last year.
And I think very important, this is the fifth quarter in a row that we brought in positive cash flow. So every quarter, we're improving the situation, the financial situation of the company, paying down debt and improving the balance sheet. You can kind of see from this, this is the trailing 12 EBITDA, and we've been very, very focused on that, and you can see that we're growing it every quarter. And we intend to continue that trend moving forward. Now, I want to give you some examples from from customers, because like I said before, Acuity is not that company that went out and raised hundreds of millions of dollars to to execute on our marketing and sales and and relationships and all that. Not at all. We invested all in our technology.
We invested it all in the AI system, and it was very important for us to be able to deliver a positive ROI to to clients. And this is how we built our business. So I have four examples here that are self-explanatory. I'm gonna go into one, but I can tell you that there's dozens and dozens of those types of examples in the system. We're the company that go out, ask for brands to test us, and once they see the results, they start spending more with us. So in the first example, there's a D2C mattress company that spent CAD 840,000 with us back in 2018. They spent CAD 4.5 million last year, and they spent over CAD 10 million this year. Why? Because they're getting that superior ROI, and they're spending more and more with us.
So as you make companies more money, they want to spend more with you because it just makes sense. So we are kind of looking forward to continuing, expanding the existing relationship we have and bringing in, obviously, a lot of new relationship, mostly with the Illumin platform. Now, again, I think I'm very, very proud of the sales team. They were so resilient. You know, we lost close to 30% of our business as it comes to travel, entertainment, automotive. That was a huge loss, but the sales team was so resilient. They went and started replacing that business very, very quickly. So we've seen direct to consumers, we've seen e-commerce, we've seen pharma, we've seen healthcare.
All those things started to rise up and still rising up as it relates to COVID. But we are very hopeful that very soon, travel is gonna go back, entertainment, automotive, all the other related industries are gonna start going back. And when that happens, all these companies need to reach their consumers. More than ever, they need to go back to their consumers and start getting them to spend again. And we are ready, and we are there for them to help them connect with the consumers. So with that, we're going to go to Jonathan Pollock, our CFO, for a remark on finance.
Thank you, Tal. The extraordinary dedication of the Acuity team once again came shining through and helped us deliver outstanding third quarter results. We thank all of our teammates for their efforts. As we mentioned on our last earnings conference call, we were cautiously optimistic that the broad-based improvement in customer activity that began in May would carry over into the third quarter. Indeed, we saw sequential revenue growth in each month of the third quarter, which led to strong sequential revenue increase in the quarter versus our prior quarter. In addition, we expect the sequential growth to continue throughout the fourth quarter. Of note, we are also pleased that our connected TV revenues continued their rapid growth, increasing 353% year- over- year and 50% sequentially.
In addition, we continue to see the positive impacts from our intense focus on increasing gross margins and controlling operating expenses. We had yet another quarter where we generated strong operating cash flow, enabling us to further pay down our line of credit and grow our cash position. This puts the company in an even stronger position to handle any pandemic-related issues, should they rise again. As importantly, it enabled us to maintain our investment in our technology and dramatically improve our competitive differentiation, as we have demonstrated with the October first launch of our revolutionary new platform, Illumin. Now, I will take a closer look at our third quarter results on the next slide, which Tal summarized briefly a few minutes ago. Total revenue in the quarter jumped 33% sequentially to CAD 26.1 million, and declined by 3% compared to Q3 2019.
Revenue from our managed service business was CAD 18.8 million in Q3 2020, up 28.2 sequentially, and down 6.9% compared to CAD 20.2 million for the same period in 2019. Revenue from our self-serve business totaled CAD 7.3 million in Q3 2020, up 48.4% sequentially and up 8.8% compared to the third quarter of last year. Gross profit or net revenue was CAD 13.5 million in Q3 2020, compared to CAD 13 million in Q3 last year, a 3.9% increase year- over- year. More importantly, our gross margin increased 3.4% in Q3 2020 to 51%, compared to 48.5% last year. This is due to our focus on improving gross margins through our superior AI technology.
SG&A expenses for the quarter totaled CAD 9.8 million, compared to CAD 12.1 million for the same period in 2019, a decline of 18.8%. SG&A as a percent of revenue was 37.7%, down almost 5% sequentially, and a drop of 7.3% compared to 45% in Q3 2019. Our continued focus on cost control, which began last year, has paid significant dividends in this regard, additionally contributing to the improved operating leverage we now see in the business. This improved operating leverage led to an adjusted EBITDA in Q3 2020, totaling CAD 4 million, up 90.5% sequentially, and up 150% compared to CAD 1.6 million last year.
Net income for the current quarter was CAD 900,000, up 156% sequentially and 164% compared to a net loss of CAD 1.4 million last year. This is another important milestone for Acuity as we focus on generating positive GAAP net income. Adjusted net income for the quarter also increased dramatically to CAD 3.7 million in Q3 2020, up 167% sequentially and over 400% compared to CAD 700,000 in the same quarter last year. As a reminder, adjusted net income reflects the add-back of non-cash charges, including depreciation, amortization, foreign exchange, and stock-based compensation.
Finally, operating cash flow for the third quarter of 2020 totaled CAD 6.7 million, compared to CAD 1.6 million for the same period last year, an increase of over 325% and up 26.4% sequentially. The next slide highlights our performance for the year-to-date period ending September 30th, 2020. Total revenue for the nine months was CAD 69.8 million, compared to CAD 80.6 million for the same period last year, a decrease of 13.4%. This decrease was a direct result of a reduction in client spend due to the COVID-19 pandemic that was most evident in the first two quarters of this year. We remain cautiously optimistic that conditions are continuing to improve as we have moved into the fourth quarter.
Gross profit or net revenue for the first nine months of 2020 totaled CAD 35.8 million, compared to CAD 37.9 million for the same period last year, a decrease of 5.4%. This reflects a gross profit margin of 51.3% for the period, compared to 47% for the same period last year, an increase of 4.3 percentage points, as our efforts to improve gross margin continue to bear fruit. SG&A expenses year to date totaled CAD 28.8 million, compared to CAD 36.1 million for the same period last year, a decrease of 20.4% year- over- year. As a percentage of revenue, SG&A expenses totaled 41% for the first nine months of this year, compared to 44.9% for the same period last year.
As I mentioned earlier, strict cost controls help reduce our expense level and expense ratio. We reported non-GAAP adjusted EBITDA of CAD 8 million for the first nine months of 2020, compared to an adjusted EBITDA of CAD 3.7 million for the same period last year, an increase of 115.5%. Net loss year to date was CAD 500,000, a significant improvement from the CAD 7.6 million dollar loss last year. Adjusted net income for the nine months ended September 30th, 2020, was CAD 6.1 million, compared to a loss of CAD 400,000 for the same period last year, another significant improvement.
Lastly, operating cash flow generated for the nine months ended September thirtieth, 2020, was CAD 16 million, compared to operating cash flow use of CAD 5 million for the same period of last year, an improvement of over CAD 20 million. We continue to see improving profitability as we reap the benefits from the increased operating leverage now in the business. Adjusted EBITDA for the most recent 12-month period totaled CAD 14 million, which is the highest in the company's history and is a direct by-product of both the focus on improving gross margins and carefully managing costs. Strong cash flow generation will continue to be a key area of focus of management moving forward. The next slide shows that this strong cash flow has been used in part to pay down our revolving line of credit.
The balance on our line of credit over the past six quarters is shown on the left-hand side of this slide. As of Q3 2020, the outstanding balance of our revolving line of credit fell to CAD 2.2 million, compared to CAD 16.8 million as of September 30, 2019. And today, we're pleased to note that that balance is now zero as we maintain our ability to generate positive operating free cash flow. We still have access to our operating line and can draw it down as needed, affording us added financial flexibility for the future. On the right side of the chart, you can see that cash on hand as of Q3 2020 has increased at the same time as our debt has decreased. As of September 30, our cash balance stood at CAD 9.5 million.
With positive working capital and sharply reduced debt levels, our balance sheet has never been in better shape, and we see this improving even further in the future. An important note, subsequent to the quarter end and is disclosed this morning in our financial statements, we are pleased that our great relationship with Silicon Valley Bank has continued to bear fruit, as they have allowed us to early exercise a third tranche of our term debt and further increase our cash balance by another CAD 3 million. This provides further financial flexibility and strength for Acuity to continue its growth trajectory. Given a recovering programmatic industry, strong secular tailwinds, and the launch of our new revolutionary new platform, Illumin, we look forward to continuing to grow revenue and being able to generate even higher levels of cash flow in the coming quarters.
We are very pleased with our results this quarter and are on track for a strong fourth quarter. We believe the best is yet to come for the business and our shareholders. We also wanna echo once again our ongoing commitment to focus on margins, cost containment, generating operating cash flow, and continuing to improve our financial strength. Looking ahead to the fourth quarter, as previously mentioned a few minutes ago, we continue to see increasing monthly revenues, which should allow us to show another quarter of strong sequential revenue growth. This should also translate into another quarter of increasing EBITDA and adjusted net income, allowing Acuity to end 2020 very strong from a financial, operating, and market perspective.
I'd now like to touch upon a topic many investors have been asking us about: When are we going to list on the Nasdaq, where most of our closest comparables are trading? As a management team, we are very focused on what is in the best interest of our shareholders, and part of this mandate includes acting on opportunities to provide additional visibility and liquidity for new and existing investors in the Acuity story. We have recently crossed the threshold to uplist onto a U.S. exchange, and we believe there is significant value for Acuity and for our shareholders in doing so. We continue to work with our auditors and lawyers, as well as several U.S. investment banks interested in the Acuity story. While still early in our evaluation, we continue to assess this opportunity, and we'll keep our shareholders updated on any developments going forward.
Now, I'd like to open up the floor for questions. Thank you.
Thank you, Jonathan. Our first question comes from Suthan at Eight Capital.
Good, guys. I just wanna say, congrats on a, on another strong quarter.
Thank you.
Really good to see.
I wanted to dive a little bit into some of the recovery trends that you're seeing here. You called out some pretty notable client examples earlier, and it looks like you're seeing strength in specific sectors, which is pretty consistent with last quarter. Have you noticed any differences in your demand profile recently? Is it just existing clients spending more, or are there new clients, or are there more new clients coming to the table now? Are they spending more than average? Yeah, just kind of curious if you're seeing anything notable there to call out.
Yeah. So in general, I think the shift started happening when COVID hit us, and we lost about 30% of our revenue to industries like travel, hospitality, and related industry. Our sales team was so, so resilient, and they went and started looking for replacement. Naturally, it happened in e-commerce, it happened in direct-to-consumer brands, pharma, healthcare, all those things started really, really coming up. So we're still seeing that, those sectors that are very, very strong and believe they're going to continue being strong. But I think the exciting part is that all the sectors that are not doing well today, as we come back to normal life, the programmatic is what's going to be fueling their growth and the growth of the economy.
I believe from all these sectors that are non-kind of related to the things of COVID, as they're coming back, we're gonna be there to help them fuel their growth and talk to their consumer. I think they're gonna need that more than ever.
And just to add to that, Suthan, travel was over CAD 1 million a month in revenue. That has now basically gone down to, you know, negligible numbers. So, you know, we replaced that, obviously, as Tal said, with some very good clients and some new sectors, but that will come back. You know, Monday's announcement was also very helpful. So we do expect travel to come back. We expect auto, entertainment, them to come back. We're not exactly putting those in our growth numbers, but it's just something that we know will happen.
Great. No, thank you. That's helpful. On Illumin, it was very encouraging to hear about the strong early progress and expectations for revenue in Q4. How has your client pipeline expanded since the launch? And what's the overlap now between existing versus net new clients looking to use the new platform?
So our goal is to start to bring new clients to use Illumin and maintain more or less our existing business intact. Now, that's our goal. It's never going to actually work that way, because so many of our existing clients are excited about Illumin as well, and there's no reason why not to let them use it. So far what we've seen, it's either new clients or incremental dollars from existing clients. So for me, it's all new revenue. And the pipelines are building up like crazy. Like, I didn't expect the pipelines to be so full at this point of the game. I really thought that we're gonna see most of it at mid next year.
And again, I still believe that the major, major clients are gonna come in mid next year because it is a longer sales cycle. But, you know, so, like, the sales team is so excited by it, the customers are so excited about it. We have people coming to us. That's something that we've never seen before. We've always had to go out and close business. Now, the people are coming, the companies, big companies, they're coming to us, wanting to see the demos, you know, interested in running the program. And look, it's a new platform, and every time we add another customer on it, we learn from it as well, and we improve it, and we perfect it very, very quickly.
It's gonna be like, by this time next year, it's gonna be probably about three or four iterations of that system as our tech team is, and our product team is working around the clock to perfect it, so imagine something completely new nobody's ever tried before. There's going to be some assumptions we made wrong. We caught most of them in alpha and in beta, but there's things that are happening that we're running it now, but I can tell you that the results are absolutely amazing out of the customers who are using it. And it's just a matter of adapting even the way that we think about it, the way that customers are thinking about it, because up to now, they're just used to, you know, showing repetition, repetition, repetition, and trying to really convert clients.
Now, it's all about getting the clients through a consumer journey, educating them and bring them along that journey in order to, and so you, you can actually go after a much, much bigger crowd when you're prospecting.
Okay, great. And you know, during the opening remarks, you touched on your expectations for growth in Illumin fiscal 2021. What does that imply for your existing self-serve business? Will that continue to be additive today, or do you see opportunity to kind of migrate clients over to Illumin and maybe drive higher engagement, higher deal sizes, that sort of thing?
I'll start with the end. Deal sizes, for sure. Like, the deal sizes we see from Illumin, it's much, much bigger than we see on our normal product. Now, we don't have the intention to keep two products in the long run. Over the next, call it 12 months, let's say 12+ months, we're going to be migrating all the features we have on our regular DSP into Illumin, and then sunsetting the self-serve that you know today. I think that eventually the Illumin revenue is gonna just take over all the self-serve revenue, but even in the long run, it's gonna take over anything. I believe that Illumin is going to be the company in a few years.
Great. No, that's good color. I also wanted to touch on the CTV. I mean, you guys saw obviously impressive CTV growth again this quarter. Can you touch on what your typical customer profile is that you're seeing here in CTV? You know, are these existing clients that are increasing spend, or are you drawing in net new customers? And lastly, you know, how do you think you're competitively positioned for CTV, given your assets that you have today?
Yeah. So the type of clients, first of all, it's a mix between new and existing. And also within that, some of them are purely CTV revenue, and some of them are part of the consumer journey, which we believe that works best, right? So we believe that if you're, if you're an advertiser, you wanna, you wanna focus on the consumer, and you want it, you want to send them the right messages along the way, doesn't matter really what device they're on, right? So we believe that it should be a part of your, of your plan and your program. So it is a mix of the two. And from a competitive advantage, look, what is it?
2017, we bought a company called Visible Measures that was born and lived for video advertising at the time, which is what it is, moving into CTV today. So the technology that we have is second to none. It's doing an amazing job, together with the AI system that we have developed here, that making all the decisions to deliver that ROI to clients, and now with Illumin, that works as a package, all centered around the consumer. I believe we're positioned for great success on CTV.
Okay. Great. Hey, guys, and maybe just one last one for me. I just want to touch on from an industry perspective. You know, in your commentary, you talked about Unified ID.
Mm-hmm.
You know, I know Acuity has, you know, your own proprietary data platform for audience targeting. So it sounds like, but it sounds like Unified ID is something you guys can work with or at least coexist with. Is there any benefit to your business model either way by going down the path of Unified ID or even to leverage your existing platform as part of that solution?
Absolutely. So today our system is all about being able to identify who the users are and figure out what they would be interested in, right? So that's today, we have to use third-party cookies, device IDs, when it comes to mobile phones. When it comes to TVs, it's also device IDs. So today it's our job, and we start mapping them and figure out who the same users are. Remember, the third-party cookies was never actually meant to be used that way... So I'm actually very excited about Unified ID. That will take the industry to the next level, and so I believe it's gonna be much, much better for our system. It's not going to change our system dramatically. It's just gonna change the way that we figure out who the users are.
Right.
We already have that mechanism today, so from a technical perspective, it's not a big change. The big change is, as the industry start adopting it, you know, we're already signed up for it, and we're along the rest of the industry on that Unified ID.
Okay. Okay, great. I appreciate the color, guys. Thanks for taking my questions. I'll pass along.
Thank you, then.
Thank you very much.
Thanks, Suthan. Our next question is from Aravinda at Canaccord.
Aravinda is logging in. There he is. Aravinda, I think you're muted. There we go.
Hi, Aravinda.
How you doing?
Good. Congrats on the quarter, guys.
Thank you.
Questions from me. I actually wanted to pick up on the Connected TV on side, Tal. Obviously, you're pretty well set up. You talked about Visible Measures acquisition. Obviously, Illumin worked pretty well. Is there anything else in terms of making sure that Acuity gets their fair share of the Connected TV growth wave, and maybe more than that, more than your fair share, perhaps? What else you need to do to kind of make sure that you are well positioned there? Specifically, you know, are you satisfied with sort of your access to premium inventory and things like that? Do you need more partnerships? I'll maybe start there.
No, so we believe that in an efficient market, and the market is very efficient, and as you know, all the programmatic space, you know, all the supply gets deposited into the programmatic market, and we are connected to pretty much all the suppliers out there, all the SSPs, all the ad exchanges out there, and we have lots of access to Connected TVs. You know, the Connected TV space is very different than the rest of the internet, as there's nobody really that controls it. So it is all, I'd say, mostly available on the programmatic side of things, and it's the job of the AI engine to select the right placement for the CTV for advertisers.
And look, as being on the demand side, we can be more picky because there's so much supply out there. And when we represent the demand side, the advertisers, we are gonna be thinking about where to, where to place your ads, where you're gonna get that positive ROI. So I think we're very, very well positioned. We keep, you know, investing in the technology side, and look, there's gonna be some partnership along the way. Yeah, I'm sure we, we're gonna create some more partnerships along the way, but at the end of the day, I believe the market is going to be very efficient.
Great. Thanks for that, Tal. Just one more for you on the international revenues. Any sort of color on how you sort of see that tracking? Maybe I know that the international markets recover a little bit slower than the U.S. What are your expectations there? And I'll just maybe get both questions for Jonathan in as well. The ability to kind of maintain the very strong discipline that you've exercised on SG&A, you know, as growth accelerates in 2021 , I mean, how do you see that playing out as well? Thank you.
On the international revenue side, we've actually seen a nice recovery in certain markets, including Spain and Mexico. However, as Tal said, as a percent of revenue, given the growth of Illumin, we're firstly focused on North America. As a percent, I expect the international to come down, but we have seen a nice recovery in the latter part of Q3, already in October and likely November in our international markets. But again, Illumin will drive, and Illumin will be likely mostly North American in the foreseeable future. When it comes to SG&A, we continue that discipline. You know, we had a board meeting yesterday, and we talked a lot about SG&A and making investments in the team. As we've always said, we are very diligent to this. We look at every expense on a weekly and certain larger expenses even quicker than that.
Are we going to increase our sales team? Likely, just because of Illumin, and spend money on that, but our margin is a big focus, and getting that leverage that we have talked about for the last eight, nine quarters is gonna be of paramount importance. So I don't expect a massive increase in our SG&A. Obviously, the variable costs of commissions and sales bonuses will increase it, but I don't see, you know, all of a sudden our tech expense going up or anything substantial.
Great. Thanks, guys.
Thank you.
Thank you. Our next question is from Daniel at Paradigm.
Hi, Daniel.
Hi, Daniel.
Hi, guys. Can you hear me okay?
We can.
We hear you.
Okay, thanks. Congrats on the strong quarter, and congrats on the early success of Illumin. Along those lines of Illumin, I was curious to hear,
... how you anticipate 2021 looking like in terms of revenue mix, is there a base case expectation that you feel Illumin will represent X percent of total revenue? You know, conservatively speaking, what are the goals or targets for Illumin and it being part of total revenue?
So, Daniel, we're going to be in the process of building our, you know, our predictions for next year, but as you know, we don't really share it with the market. But all I can tell you is right now, it's way above our expectations, and I do believe it's gonna be a material part of our next year's revenue. It's, again, my prediction is that the heavy revenue is gonna come out towards the second part of the year, but early indicators are showing that we're already gonna have very, very strong beginning of the year as well.
Okay, thank you for that. And maybe, you know, the quarter saw a strong strength with the gross profit margin. So as you think about the early success of Illumin, how does that affect your outlook on a gross profit basis? Does it change as the mix of revenue ends up shifting more towards a self-serve product?
Naturally, yes. So overall, as we grow that side of the business, our average margin will go down, but also our expenses, in relation to the revenue, should go down as well. Because as you know, self-serve leans on the technology, and there's virtually no expenses that it generates with. So, I believe it's going to help the profit numbers, but going to lower the margin.
When we talk about margin, Dan, just to be confirmed, it's our gross margin, it's not our overall margin. So self-service, as we always said, has a lower gross margin, but a higher, net profit, just because, as Tal said, the expenses below the line are a lot less.
But also one more thing to consider is that the fact that when somebody adopts Illumin, the share of wallet that we get from it, the share of spending, is much, much higher than if we're just running a normal DSP campaign for it. So the net revenue at the end of the day should be higher.
Okay, so in terms of EBITDA margin, it's a positive effect for you guys?
Definitely.
Okay, great. Okay, next, so you guys made some initiatives on the debt facility, which is nice to see the strength in the balance sheet. I was curious if your thoughts about deploying capital have changed now that you're seeing more momentum in the overall ad space, as well as with Illumin. So, will you be looking to invest or how will you be looking to invest incremental cash flow?
So-
I guess, is that your way of asking about M&A or about investing in the internal investing in the company?
Sure. Maybe you could talk about priorities, whether it be external M&A or internal R&D and sales.
Okay. So let's start with M&A. So we, as probably you guys know, we've done some M&A in the past. We are open to M&A, but we are very, very picky about it now. So it has to make a lot of sense. We've said no to a lot of companies in the last few months. Companies are coming to us, we get those things, and we're very picky. And we're very picky for a number of reasons. One of them is that we're really, really focused on our organic growth and Illumin. And if we're going to lose some of that focus for an M&A deal, it needs to be big enough, it needs to make sense, it needs to be to add value to Illumin.
So all that is making it harder to find the right M&A target, but we still have active discussions with companies all the time, and potentially we'll find one, and it will make sense. We will all do it, and on the other hand, investing more, I'm not sure if there's a need to. Maybe a little bit more, but I'm not sure if there's a huge need to invest more. Because, you know, all our tech team is focused already on Illumin and is working very hard on Illumin. You know, the sales team is mostly focused on Illumin as well. It's really, everybody's already like, it's a part of our cost structure today.
So we will have to make a decision whether we wanna accelerate some of the technical side of things and maybe some of the marketing and sales side of things. I think it probably would make sense to accelerate some of them, but we haven't made that decision yet.
Okay, great. I'll pass the line. Thanks, again, and congrats on a strong quarter.
Thank you, Daniel.
Thank you, Daniel.
Thank you, Daniel. Our next question is from Rob at Echelon.
Hi, Rob.
Hi, guys. And let me join in-
What do you think about the format, Rob?
I think it's a great format. Visualizing-
Yeah
... really gives a greater resonance or attraction with the audience, and we can actually see and hear the excitement in your voice when you're talking about the prospects looking forward.
Okay.
I commend you with this move. I look forward to other companies doing the same.
... Thank you, Rob.
Good. You're clearly in a growth mode. Could you talk to the profitability impact that you might see there in terms of margins? Or perhaps putting it another way, what revenues could your existing infrastructure support as we're looking forward?
So look, our system today, you know, handles about 110 billion transactions a day, even more than that, and we can dial it up if we need to. That is very comparable to our bigger competitors out of the space. So thinking about that, the way the expenses that we have today, we can have 5-6x more revenue with virtually the same expenses. So obviously, the leaning on this technology is great, and the leverage on this model is very high. So as we grow our revenue and most of our expenses are fixed, I think 8% to 10% of our expenses are variable, then you see a much, much higher leverage on this model.
Thank you. Even though it's early days, you've talked to further advancements in the Illumin platform in terms of integrating with social. Could you perhaps give us a preview of what that may look like?
Yeah. As a lot of you know, we have some walled gardens in the space that... But they're very important for advertisers. Things like Facebook and YouTube and all. And we do have the ability to connect Illumin to them. It's a more limited ability. It's going to be a one-way communication when it comes to the results and the ROI, so that's unfortunate. But we will be able to look at a consumer journey and say, "Okay, when a consumer does this, or it's in this part of the journey, we wanna also show them ads on Facebook, on Instagram, and so forth." That is a part of our plan.
It's going to be exciting to add those things, but that's not the only thing that's going to be added to it. Marketing automation softwares, which are mostly dealing with email marketing, is going to be a part of it. Search could be a part of it. Outdoor digital signs could be a part of it. Anything digital really can be a part of this of the future here. Influencer marketing is another one that we're looking at. But there's a lot to do it for Illumin. There's a lot of things to add to it, but we're, you know, perfecting the core of it before we're gonna jump in and add some more things to it.
Okay, congrats, and I'll pass along here. Cheers.
Thanks, Rob. Thank you so much.
Our next question is from Neil at Haywood.
Hi, Neil.
Hi, can you hear me?
We can hear and see you.
There we go, yeah, yeah.
Now, both of you.
Oh, it's just, it's funny, you got to get used to all of a sudden, like, my Zoom disappeared, and then it reappeared. So it's like a little bit of an adjustment there. Anyways, good morning and congrats on the quarter. A number of the questions have been asked, but one thing that I wanted to touch on really was with respect to the Illumin product and sort of you went through that beta. You talked about that you're gonna have some revenues in Q4 ahead of your expectations. You know, I guess from my perspective, I'm just thinking that some of those beta customers would transition right onto the Illumin product and go forward from there.
I also know that you had to cut back your beta customers from a number of the people that wanted to come into it. I understand the six to nine-month sales cycle for net new customers, but is that sort of what you're getting that contribution in Q4 from these existing, or you're actually getting net new customers onto the Acuity and therefore Illumin platform in Q4?
Both. So some of the revenue we're getting are from the beta partners, and some of the revenue is coming from net new customers, and some of the revenue is coming from existing clients that did not touch Illumin, but now are giving us additional major budget for Illumin and still keeping their old budget on the, on the Acuity system.
Okay, thanks. Your comment with respect to you'll see sequential revenue improvement in Q4 again. Now, from my perspective, I think that Q4 is has always been your seasonality, sort of the strongest quarter. What sort of trends are you seeing? Are you seeing any weaknesses, or are you seeing, you know, that seasonality continue to be strong? I guess from, you know, taking a look at some of those sectors where you have seen those declines, like the travel sector, I, you know, I guess from my perspective, I'm not sure how much of that seasonality in Q4 that came from travel and so forth. So just trying to get a feel for, you know, what the year- over- year might look like. You were just down 3% only in Q3 on a year-over-year basis.
Any sort of perspective on what Q4 will look like?
So it's too early to call it yet, so it's hard to comment on it. All I can tell you is that it's very, very strong seasonal quarter, and we don't see any reason why it's gonna be different this year. We're already seeing the signs and the revenues and strong pipelines that are doing a really, really strong quarter on all aspects. But again, it's still early to call it at this point.
But Neil, to your point, we are seeing growth in a bunch of clients, obviously DTC, e-commerce, but travel and entertainment does have a big Q4. So that will affect your year-over-year revenues slightly, in some respects, but we are very focused.
... on growing our EBITDA both sequentially and year-over-year, and that's gonna be a big driving point for us. So even if, you know, revenues might not be exactly where they were last year, I expect us to achieve higher profits.
That's great. Okay, thanks very much, guys.
Thank you.
Thank you, Neil. Our next question is from Gavin at Cormark. Please go ahead.
Hey, can you hear me now?
Yeah, Gavin.
Okay, great. Just one for me. I guess curious for your take on where the market is in terms of in-housing. Obviously a key trend to watch with Illumin here. So maybe from an industry level and what you're hearing from your full-serve customers, you know, what proportion are kind of open to in-housing today? How many are thinking about it, and what are the steps that you're taking to break down the barriers and make the adoption with your clients higher?
Yeah, so we've seen, like. So from all the studies that we're seeing, it's over 65% of them are ready to bring in-house and has the desire to bring in-house. So naturally, when you develop a tool that's easy to adopt and specifically designed for it, I believe that's going to help those people adopt. Now, we've seen this kind of trend and the desire in the industry for a while, but people didn't have the tools to do it. So they left it with the experts and the agencies and so forth. Now, they may still leave it with the agencies, but ask them to use Illumin. We see that all the time. But I can tell you, the case study that I'm looking at is the D2C companies.
Most of the D2C companies who are really succeeding in competing with major brands are having their digital marketing done in-house. And when that happens, they have full control over it, and they achieve better results. So the case studies are there. We're already seeing a bunch of them signing up to Illumin in-house as well. So I think all the signs are showing that we're ready for a massive adoption, and that will happen. I think next year, we will see a lot of that happen.
Okay, that's it for me. Thanks. Congrats on the quarter.
Thank you.
Thank you.
Thanks, Gavin. That concludes the Q&A portion of our call. I'll hand it over to you, Tal, for closing remarks.
Thank you, Corey. So you can see why I'm so proud of the Acuity family for delivering such an amazing quarter. I you know couldn't ask for any better quarter, especially after what happened in Q2 and with pandemic. You know, what a major comeback after a 30% revenue loss of major industries, and coming back and replacing that industry. And just you know, as the industry bounced back, and we are going to be fueling the economy coming back because all these companies who need to connect back to their consumers, they're gonna need to invest a lot in marketing, and there's no better place to do it other than programmatic.
So I am super excited to see the world come back to normal, and as it comes back to normal, Acuity even skyrocketing in revenue more than we have so far, just because we are going to be out there helping any company fuel their growth. I'm also was so excited to see CTV growth by 353% in the quarter. But look, most exciting for me, by far, is what we're doing with Illumin. Every day, I come to the office, and we make more advances on Illumin, and we get more clients on it. I get more and more and more excited, and I'm excited about the fact that we are shaping the future of the industry.
You know, that's something that, you know, we're always a part of this industry, and we're always shaping the AI point of things, but now really shaping the entire way that marketers think, plan, and then all the way to execution, and giving them the tools to do it in a way that they don't need to be expert on it. I think that's, you know, that, that's obviously huge. I'm excited when I look at the pipelines of Illumin, that is way above our expectations. So I do expect massive adoption of Illumin next year. And like I said, Q4 is trending great, and more importantly, 2021 is already shaping out to be an incredible year. So, you know, it's early. It's very, very early for that to happen, and it's already happening here at Acuity.
We're seeing great, great movement over there. And I think I'm gonna close on the fact that as we are preparing for our potential uplisting to the Nasdaq, and we're doing all our research, and we're excited the fact that we are now meeting all the requirements for it, you know, it's, it, it's really, really an exciting time to be at Acuity, and, you know, we're, we're still in the exploratory stages. We will do what is going to be best for Acuity and for the shareholders, and we're getting advice from our major shareholders. We're building our relationship with the, with the U.S. banks. And we believe, it's, it's going to be time sometimes next year, but it remains to be seen.
So again, thank you very much, everyone in the Acuity family, our amazing executive team, management team, investors, obviously our board of directors. All of that great success could not be done without you guys, and we truly appreciate it. Thank you very much, everyone. Have a good day.