Good morning, everyone, and welcome to AcuityAds' first quarter 2021 financial results conference call for the three months period ended March 31st, 2021. 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 2021 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 reflect management's current beliefs and are based on information currently available to management and are subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated.
Following the presentation, we will conduct a question- and answer session. I would now like to turn the conference call over to Tal Hayek, the Co-Founder and Chief Executive Officer of AcuityAds, to update you on the operations of the business.
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.
I get so excited about illumin. What a game-changer this has been for our company. Good morning, everyone. My name is Tal Hayek, and I'm the Co-Founder and CEO of AcuityAds. I'd like to welcome everyone to our Q1 investor video presentation. I have to start by thanking the Acuity family. Each and every one of you have contributed to the success of this great company that we built. Thank you for an amazing Q1, a quarter of overall growth and a quarter of massive growth when it comes to illumin. As many of you know, we launched illumin in Q4 of last year. illumin over exceeded our expectations many times over. Anywhere from the amount of revenue that we delivered on it, to the adoption that is happening faster than we expected, to just the fact that it's changing the world of advertising one brand at a time.
Big brands, great brands like Purina, Purple Mattress, Weight Watchers, and Mercedes-Benz have already begun using this system. They've already begun to see the power of advertising automation. The beauty of that is that this is the way they plan. This is the way they think. They always plan and think consumer journey. illumin now gives them the ability to execute on it, gives them the ability to plan and execute on it. It's really a dream come true to many marketers out there. The kind of results that they're getting from it and the kind of insights they're seeing from it is something they could never see before and never get before. Needless to say, we're so excited about where illumin is taking us and how it's really changing the company as a whole.
Towards the end of the call, I'm going to share some very exciting news, a little bit about the outlook of Q2 and about what's happening in the Nasdaq. Please stay tuned. What a great Q1. We delivered CAD 27.5 million. We are now officially back in growth mode. On the illumin side, we've seen 107% sequential growth to CAD 3.2 million. Our LTM EBITDA keeps climbing, and it's now at CAD 18.5 million. illumin gave us a great competitive advantage, but it is so important to be able to maintain it. A lot of times I get the question: Is somebody going to copy illumin? Look, my response is probably. Probably eventually somebody will try to copy it. We're so far advanced, and we're advancing so fast all the time that it's going to be very difficult for anybody to be able to be successful in it.
illumin, the idea came to us about four years ago, and two years ago, we started building it, and we're now in the sixth iteration of it, starting at alpha and then beta, and then full release. We get all the feedback from our clients, and our product team is making changes. The engineering team is making changes. We're just making it better and perfecting it all the time. Couple that with all the partnerships that we're adding to it along the way so far and plan for the future. Then the most important part is that in the background of illumin, the part that makes all the decisions is the AI system that was built in-house here and started 11 years ago, and we've been perfecting it ever since. That is something that cannot be duplicated.
I would love to share some illumin numbers with you. We currently have 29 clients on the system. That is 29 clients. We only released the system in Q4 of last year, and we already have 29 clients running on the system. Out of those, 15 of them are tier 1 clients, and the majority of the revenue is coming from new business to us. Our closing rate from leads is substantially higher than our legacy business, and we have 100% renewal rate. All that is a great recipe for just great future growth. In fact, I can share that we're seeing again into Q2, strong growth on the illumin side. I'd like to share a little bit about the different categories. illumin is ready for any category out there.
Far, we've seen a lot in automotive, in food, electronics, pharma, retail, QSR, and we are working and welcoming any other types of industry that would like to take advantage of it. At the end of the day, all major brands think consumer journey and now illumin gave them the ability to plan and execute on it. It's a great time to be in the adtech business. programmatic started about 10 years ago and grew to over CAD 100 billion. That's not the end of it. The growth of the future is going to continue and continue very aggressively. In fact, the prediction is that it's going to grow over CAD 150 billion in the next few years.
That's not a wonder for me because at the end of the day, as an advertiser, I would like to really concentrate my budget on things that make sense and things that are proven to me. Programmatic gives you that. It allows you to measure your ROI all in real time, and generally speaking, get a superior ROI to what you're getting somewhere else. It's no wonder why more and more people are moving into it. Another major driver that's contributing to the growth of programmatic is connected TV. It's not a secret anymore that people are cutting their cords and moving more and more into consuming TV in a digital means. As we do that, we're seeing the ad tech revenue starting to grow in the connected TV space.
In fact, we had 987% growth in Q1 over Q1 of last year just from TV. We're very excited about what's happening in connected TV and do believe it's going to be a major contributor to the future growth. I will now ask Jonathan to share some financial updates with us.
Thank you, Tal. We have enjoyed a very strong start to 2021, and I too would like to thank all of our team members for their hard work in making this happen. We're extremely excited about what lies ahead. As Tal discussed, we're seeing incredible traction in the market for our advertising automation platform, illumin, and this success was indeed a significant growth driver in the first quarter. illumin has vastly exceeded our expectations once again, and we believe this bodes very well for the remainder of 2021 and beyond. With that in mind, I'd like to discuss the financial results for our first quarter 2021. Total revenue in the first quarter was CAD 27.5 million, compared to CAD 24.2 million in Q1 2020, an increase of 13.4% year-over-year. Growth would have been approximately 20%, excluding the impact from COVID-19 on certain industries, including travel, leisure, and entertainment.
Revenue from illumin this quarter totaled CAD 3.2 million, compared to CAD 1.55 million in Q4 2020, an increase of 107% sequentially. We continue to see strong demand for illumin and are extremely excited for what the remainder of the year holds. We also saw strength in newer emerging verticals such as pharmaceutical, technology, and direct-to-consumer brands in the quarter. Gross profit or net revenue was CAD 14.4 million in Q1 2021 compared to CAD 12.2 million last year, an increase of close to 18% year-over-year. Our net revenue margin in Q1 2021 was 52.3% compared to 50.3% last year. This year-over-year increase reflects a continued focus on best-in-class AI technology. Total operating expenses for the quarter equal CAD 12.1 million compared to CAD 12.8 million for the same period last year, a decline of 5.2% year-over-year.
We continue to see strong operating leverage in our business resulting from streamlined operations as well as a reduction in travel expenses associated with our sales and marketing teams. This improved operating leverage led to an adjusted EBITDA in Q1 2021 totaling CAD 4.5 million, up 152% from CAD 1.8 million last year. Net income for the same period was CAD 1.4 million, up from net income of CAD 200,000 in Q1 2020, and adjusted net income for the period totaled CAD 4.2 million, or a 318% growth compared to CAD 1 million in the same quarter last year. As a reminder, adjusted net income reflects the add back of non-cash expenses, including depreciation, amortization, foreign exchange, and stock-based compensation.
Finally, operating cash flow for the first quarter of 2021 totaled CAD 5.7 million compared to CAD 4 million for the same period last year, an increase of 43%. On the next slide, our profitability continues to strengthen with each passing quarter as we realize the benefits of the previously mentioned operating leverage inherent in our business. Here you can see the strong, consistent growth and profitability on an adjusted EBITDA trailing 12-month basis over the last seven quarters. As at the end of Q1 2021, Acuity generated CAD 18.5 million in LTM adjusted EBITDA, and we expect to exceed the CAD 20 million hurdle soon. On the balance sheet, you can see here on the left side, our cash on hand as of Q1 2021 has increased again in the first quarter.
As of March 31st, 2021, our cash balance stood at a record CAD 27 million, an increase of CAD 4.4 million from CAD 22.6 million as at December 31st, 2020. On the right side, you can see our working capital position as it has evolved over the past several quarters. Despite Q1 typically being a softer quarter due to seasonality, we are in the best working capital position in our company's history. Working capital ended the quarter at a record CAD 30.4 million. Looking ahead, we see continued strong illumin growth supplemented by continued emerging vertical growth and a rebound in spending from clients and industries that were hit the hardest by COVID-19.
As vaccinations continue to roll out globally and lockdown restrictions lifted, we expect to see many clients that paused their budgets over the course of 2020 begin to resume spending once again. Now, I'd like to send it back to Tal for some closing remarks, followed by Q&A. Thank you very much.
Thank you, Jonathan. Look, with all this exciting news, I have to congratulate the Acuity team once again. Just before we go into Q&A, thank you again to the Acuity family for delivering such an amazing quarter of aggressive growth on the illumin side, of growth overall, of CAD 4.5 million in EBITDA. Thank you, thank you and thank you. As I see more and more brands are adopting illumin, I get more and more excited. At the end of the day, illumin is fixing a huge problem in our industry. The problem that there's a huge disconnect between the way marketers plan and the way marketers think, which is on a consumer journey, and the way that programmatic gets executed, which is generally speaking, tell the whole story in one type of creative.
illumin comes along and now gives the ability for marketers to plan and then to execute on a consumer journey, and then be able to see the insights that they could never see before and get the performance, and that is the recipe for amazing future of Acuity and the company. I feel that the wind is in our back. The pipeline, the amount of meetings that we're having, the types of conversations we're having in those meetings, the RFPs, the demo requests we're getting into the system on a daily basis, and the amount of demos that we are performing are at an all-time high. I'm very happy to report that we're expecting strong growth in Q2 on the illumin revenue numbers and in general.
Things in Q2 are going extremely well, and the overall revenue in Q2, we are now expecting to be at minimum 50% growth on a year-over-year basis. I know a lot of people are anxiously waiting for news about the Nasdaq. I'm personally looking forward to the time that I can go and share the Acuity story with more and more investors, and I'm very happy and very excited to report that our application to the Nasdaq is going very well, and we expect to be listed there in the coming weeks. With all these exciting news, Jonathan and I are now happy to welcome you to our Q&A section.
Our first question comes from Aravinda from Canaccord. Aravinda, if you can turn on your video and audio, you can go ahead.
Hi, guys. Congratulations on the quarter. Hope you're doing well.
Thank you.
A couple of questions from me. I'll start with Tal. With respect to illumin, obviously very encouraging numbers. I was curious to hear from you, I know that sort of the key focus is the brands and the advertisers, but have you had the opportunity to pitch the product in a material way to the agencies as well, and is there any material feedback that you'd care to discuss? The second question, I'm sorry to make you talk about third-party cookies again this quarter, but there was obviously some noise around an update from Google in February that created some disturbance in the market. I wanted to give you an opportunity to sort of get your updated thoughts based on that update and how you feel sort of independent DSPs can fare in a sort of unified ID environment going forward.
Yeah, okay. That's two very good questions. Let's start with the agency side. I was actually surprised how the agencies loved the product because the original intent was for brands and giving them the tools to bring it in-house and create the marketing automation, the advertising automation system. Now, we started pitching it to brands as well, and the response was amazing. Like, they love the product. They love to come back and show innovation to their clients, and show them something different. At the end of the day, what it is, it's a dream come true for every marketer, and if an agency can come and do it for them, it makes them look very good and makes them perform better. Some of our clients are brands through agencies and some are brands direct, and it's all working very well.
That's on the agency side. The third-party cookies, look, at the end of the day, I'll go back to the way that I think about it, is the fact that consumers are getting content from the internet for free, generally for free. I don't believe that consumers are going to start paying for content that they're getting for free today. Therefore, it has to be supported by ads. If that's the case, then there's going to be some kind of mechanism that's going to make it all work. I do believe the universal IDs are the right solutions, and they actually work better than the cookies, and I'm looking forward to, in the next couple of years, to get them replaced. I am not concerned about the industry going away or being able to track going away and all that stuff.
Look, at the end of the day, if that happens, we do have other mechanisms in place to use and other input variables that we can use in order to create performance. Publishers are going to be the ones that suffer the most out of that, as CPMs will go down. Again, if publishers are suffering, then it will provide less content or no content. At the end of the day, somebody has to pay for it, and I think it's very important to zoom out of the situation and think about it that way.
Thanks, Tal. A couple for Jonathan, and I'll pass the line. Obviously, you're seeing really good growth on the managed services front. Any kind of color for the analyst as to when you would start to see that self-serve perhaps re-accelerate ahead of managed services? I know that's the long-term direction, but any kind of update in terms of the timing? As we come out of COVID-19, Jonathan, any sort of restart costs we should think about? Obviously, you did a very good job reducing costs during the pandemic. Could there be blocks of restart costs that we should factor in? Thank you.
Thanks, Aravinda. Your first question with respect to self-serve, we're already seeing some growth in Q2 because illumin, obviously, as that continues to grow, we'll get more growth in that. As Tal has always said, the second half of 2021 is when that self-serve illumin will take off, and we're investing in it now, and we should see that definitely grow. We're also very happy that the growth, as Tal mentioned, the over 50% year-over-year in Q2 will be driven by both managed and self. When it comes to your question about COVID, unfortunately, we've been paying rent through the last 12 months, so there's no startup cost there. What we do believe is there will be some increased travel and entertainment expenses, I don't think it's going to be material.
I think people have learned they don't have to do as much travel and entertainment, but I do believe those costs will increase. When we look at the size of the business today, obviously generating CAD 25 million, CAD 30 million, CAD 30-plus million a quarter in revenue, it's not going to be a material cost for that T&E increase. The only other thing we expect to increase is our commissions because we're going to get more revenue.
Thank you. Congrats, I'll pass the line.
Thanks.
Thank you.
Thanks very much, Aravinda. Our next question is coming in from Suthan from Eight Capital. Suthan, whenever you're ready, go ahead.
Good morning, gents, and congrats on a very strong quarter.
Nice hat.
It's become a necessity here.
It's good.
With the lack of haircuts. Thank you. Guys, the first question for me is more so on, apologies if you guys touched on this in the opening remarks, I wasn't able to capture a lot of it. In terms of the recovery that you're seeing from some of your COVID-impacted customers in the travel and entertainment sectors, what's your sense on the recovery and the trajectory of the recovery over the course of this year as you start to see these broader ads, digital ad spending, Tal, that's going to play out?
Yeah. We're not seeing any recovery from the existing revenue that we have so far. We're seeing signs that it's starting. Our belief is that during this year, it's going to come back more and more. Something interesting that, it's only my thoughts about the travel industry, is right now, there's still not a lot of scheduled flights, commercial flights, and there's a lot of pent-up demand for it. They're kind of filling up without advertising right now. I think as soon as they start adding more and more flights and need to start fighting for passengers, then we will see more and more of that coming back. I do feel that it's slowly coming back, and by this year, it should come back full force.
My personal feeling, that with all the pent-up demand and people are dying to go on vacations, it's going to come back very strong.
We are seeing little bites from a bunch of the travel and entertainment companies, but as Tal said, they're little. The good news is it's better than zero, and the number of brands doing small amounts now is much greater than it was three, four months ago. As Tal said, we do expect that pickup, especially as we get into the summer months.
Okay, perfect. Perfect. Jonathan, I think you can confirm, but I believe in an earlier call, I think you mentioned about 30% of your business pre the pandemic was actually from the travel and hospitality industries. Is that accurate?
I'm not sure if it was Every quarter is different, but we had some very large T&E, travel entertainment companies, and we believe, as Tal and we all believe, that they are going to come back very strong. If you take the base that we have now and just add that revenue we lost, you could see the huge growth potential just from that one source.
Sure. Okay. Okay, great. Guys, my next question is on illumin. Obviously this has been a very important driver for new customer acquisition, and you're seeing really strong momentum there, obviously. When do you plan to start onboarding some of your existing self-serve customers onto illumin? Can you talk a little bit more also about where you're investing in terms of some of the growth areas for the platform over this year?
It's interesting because at the end of the day, we don't want to manage and maintain two platforms, right? We would like to eventually move everything to illumin. However, illumin is not built like a normal DSP, so it's not like you take all the functions of a normal DSP and put it to illumin, it's going to turn into a normal DSP. It's going to turn to be complex. It's going to turn to be something that takes you hours to set up a campaign, and that's the last thing we want to do. We're very, very careful about doing that, even though a lot of times customers are asking us, We want this feature and that feature. A lot of times we say, No, that feature doesn't work with advertising automation.
It works with a DSP if you want to do it manually. There's the legacy clients that are used to using DSPs, and they're professionals at it, and they're using that, and it will take them longer to move. Look, I think that by the end of next year, let's say, we want to sunset the old DSP and move everybody to the new one. How fast that's going to go along the way, right now we're really concentrating on going after the bigger brands and new logos for Acuity. Then probably next year, that's when we're going to start seeing some migrations.
Okay, great. Guys, maybe just one quick one from me on M&A. What are your thoughts on how the current valuation environment looks like, and where are you seeing kind of interesting opportunities as part of your M&A pipeline here? Is it tech? Is it market access? Is it customers?
We're having a lot of conversations. It's like the most we ever had. Anywhere from something similar to what we do, not on the advertising automation side, but on the DSP side, to things that would integrate very nicely into illumin. I personally like marketing automation to be the next add-on to illumin, but there's many things we can add, and we'll add to it. Anything from email marketing to search to social, outdoor sign. There's a whole bunch of things that we want to add to it. We're having many of those discussions. In general, I think that people's expectations are crazy right now, and when it comes to valuations, it's hard to make sense. Also our valuations are aligned. We don't have anything imminent right now.
We keep having the right conversations, but we're really, really, really focused on illumin. As soon as you do something like an M&A deal, which I'm not saying we're not going to do, but if we do that some of the focus goes to that. For us, it's important to, at the moment at least, focus on illumin and at the same time look at other companies that will add value to the illumin journey at the end of the day.
Oh, perfect.
it's going to be interesting over the next few months to see what we find.
Perfect. Great, guys. That's it for me. Thanks for taking my questions.
Thank you.
Thanks for joining.
Thanks very much, Suthan. The next set of questions comes from Laura Martin at Needham Co. Laura, whenever you're ready, please go ahead.
Can you hear me okay? There you are. How you doing?
Hello, Laura.
Good morning. I guess my first one, I am interested in you comparing and contrasting, we had both The Trade Desk and Magnite report sort of 35% revenue growth yesterday, and the stocks corrected hard because people were sort of underwhelmed with the growth rate. Can you talk about your growth rate's quite a bit slower than that. Why the juxtaposition between your growth rate and theirs?
Yeah. Look, I think that for us, a lot of our revenue before COVID was travel entertainment, I'd say it was close to 30%. We obviously felt the loss of revenue and had to make it up and recover out of that. That was great to see that we're back to growth. Yes, 13% growth rate is not as much as we want to be, but the great news, in Q2, we're seeing over 50% growth already, and we have the possibility to overachieve that a lot. What we are concentrating on is not our overall growth. We're concentrating on the illumin growth. We feel that this is our edge, this is where we're changing the world, and you can see the type of growth that we're seeing, over 100% growth on a quarter-over-quarter basis. Q2, very strong growth again.
We're very happy about where this is going.
Okay. You may recall, you probably read the transcript for The Trade Desk yesterday. They're introducing Solimar, which to me, it sounds a lot like they sort of took illumin and copied it, but I haven't seen it yet. It hasn't been introduced. On that point precisely, if The Trade Desk is successful at replicating some of the aspects of illumin, does that slow your growth rate and lower your competitive advantage as they roll out Solimar later this year?
Yeah. No, I haven't seen it, so it's hard for me to comment on it. I'll go back to the fact that the idea came to us about four years ago. We've been working on this over two years. We're on our sixth iteration right now, and we're becoming expert in the field, and we're getting better and better all the time. Anybody new comes along right now, they're way behind us, it will take them a long time to catch up. In the background of everything that we do at illumin is the algorithm that we perfected over the last 11 years, and that is what making the decision, that's at the end of the day, what delivers the ROI to customers. That cannot be duplicated. I'm not worried about anybody catching up to us on that.
Okay. My final question is just can you remind us about international expansion and how you see international as a growth driver going forward?
We are focusing mostly in the U.S. because we have a lot of work still to do in the U.S. We have some LATAM business. It's not huge, but it's there, and it's easy for us to expand on that, so we're doing a little bit of that. We can definitely expand more in Europe than we have today. You think about areas like Asia and so forth, which I don't think we're ready for it right now. It's not something you want to do on your own. You want to do it with a local partner. We had some conversations in the past, and we'll probably have more in the future, but there's so much to do in North America and Europe, and that's really our focus now. Let's get illumin adopted by the major brands out there. That's the first step.
The second step is illumin is going to be ready sometimes next year for the small to medium-sized market. We can start concentrating on any pizza store that wants to spend CAD 500 a month by logging into illumin and drive business within a five-mile radius around their store. It's going to be so easy for them to log in, create their campaign within a few minutes without being an expert, and then illumin will go and execute for them. I think we still have tons of work with the places that haven't been touched yet.
Okay.
I just want to add one thing, Laura, that despite our Spanish and Latin American business being relatively small, it's never been stronger, and it is growing very nicely as part of the overall business. As Tal said, illumin is the focus, and illumin is going to be integrated with our Spanish and Latin American business.
I'll just throw in one last one. Do you agree with the notion that COVID accelerated the convergence between performance advertising and brand advertising?
In principle, yes, it's logical, and I believe we see more and more brand advertisers now who would like to have more control over their spend, not just having more control, being able to measure it in real time. Even though it's branding, there's ways to measure it, also being able to pivot very quickly without needing to make major upfront commitments and making changes as things happen out there. I think that's important. Obviously with CTV, that's clearly going that way as well. As you know, CTV numbers in general, the absolute numbers are still low compared to the industry, they're growing very, very quickly. We're definitely looking forward to see a major number coming out there, that will be driven by that.
Thanks very much, guys.
Thank you.
Thanks, Laura.
Thank you so much, Laura. The next question we have coming in is from Eric from Lake Street Capital Markets. Eric, whenever you're ready, please go ahead.
Okay.
Eric.
Hey, gentlemen. A couple of questions for me. I want to focus first on illumin. I've heard you say in the past, Tal, that you would be disappointed with less than CAD 10 million in 2021. Given the CAD 3.2 million that you just reported for Q1, would you care to revise that?
I do believe it's going to be a lot more than CAD 10 million at this point. Again, it's early days and it's over exceeded on our expectations multiple times over. I do believe now it's going to be way more than CAD 10.
Okay, we're still talking about sequential growth throughout the year?
Yes.
Yes.
Okay. Given those, you talked about 29 clients using the platform, and by the way, that's terrific traction for a product that only launched in October. I think one of the ways I would characterize it as incremental to your overall business, as opposed to a shift between managed service and self-service, is if you were to tell me that those 29 clients grew faster than the 13% that the overall company grew. Is that a correct statement?
Yes. First of all, the majority of them are new to the company.
Oh, those clients are new to the company.
Yes. The majority of them.
Oh, okay.
We're tracking a lot of different metrics to be able to share in the future. What we're seeing is the average spent on illumin is way higher than the spent on the traditional DSP and we'll be able to share more numbers as we have more experience with it. Generally speaking, we're definitely seeing higher spend per client on illumin.
Got you. Jonathan, final question is regarding the Nasdaq. This is the greatest clarity you've given thus far. It's always been this amorphous time somewhere in the future. It's a little bit less amorphous now when you talk about you hope to complete the process in the next few weeks. What is the last one or two gating items here?
It's been a process because Nasdaq has never been busier. I'm sure you've read about that over and over again. We are continuing to push this forward. I think it's the coming weeks, not the next few weeks, just to be clear. Give us a little bit more hedge there. As I said to people, it will be likely before the end of Q2 and full team on deck. It's just unfortunately, the Nasdaq has never been busier, and it takes a little bit of time to navigate it, but we're very pleased where we are today, and we'll have more of an update coming.
Okay. We're looking forward to it. Thanks for taking my questions.
Thanks, Eric.
Thanks very much, Eric. The next question is coming from Vince at TD Securities.
Hi, can you guys hear me okay?
Yeah.
Yeah.
Perfect. A couple questions. First, is there anything regionally that you're seeing, in terms of the recovery and demand and the growth you saw this quarter? Anything in certain regions of the U.S. that may be opening faster or any big differences between your U.S. and Canadian clients and how much they're spending?
Jonathan, maybe you have those numbers?
Well, let's talk about Q2 growth because Q2 growth is, I think, coming from all parts, both Canada and the U.S., driven by, as Tal mentioned before, the direct-to-consumer, the pharmaceuticals, even some of these financial firms. At the end of the day, what we're still waiting for is a lot of the travel and entertainment clients to come back in full force as they have before. We expect to see that as we roll through Q2 and into Q3.
Okay. I guess that's part of the reason I asked the question, Jonathan, is the airport volumes in the U.S. are significantly higher than Canada, where it's still almost an entire lockdown in Canada. You're not seeing any notable difference in the pickup from travel and hospitality advertisers in the U.S. versus Canada?
No. Well, I'd say most of our business, as you know, Vince, is in the U.S. We are seeing, as I said, some bites in the U.S. from the travel and entertainment companies. I would tell you that a lot of the airport traffic has gone up in the U.S., but it's still a very low bar compared to what it used to be. We are excited by some of what we're hearing from our sales team in the pitches they're doing, in the meetings they're having with their clients in these industries that took a pause over the last 12 months. As I said, they are very excited, our sales team. We hear it every week on our sales call, and we expect that to be generated into revenues relatively soon.
Excellent. Second question on illumin. I want to make sure we don't get ahead of our skis here and hopefully you can level set expectations. With all these new clients coming on and more people using it, and you say you're going to have significant sequential growth, should we be thinking that in terms of another sort of CAD 1.7 million quarter-over-quarter lift, or should we be looking more at the percentage growth and expecting another basic double from Q1 to Q2 to get you up to the CAD 6 million range?
I think we're still not close to the end of the quarter. It's a little early to comment on that. We are seeing the indication for another strong sequential growth. We're just not ready to share the numbers yet. We will as soon as we're more comfortable.
On that, is there any reason why the April 13th release had a lower number than the number today?
Yeah, I'd say it's a combination of a few things. One, it takes time for our team to close the books every quarter. We do a preliminary close, and then with the close of a quarter and our auditors coming in to do a review, we obviously spend more time and do some more diligence on it. We usually see the preliminary close and then the final close. We want to get that number out early in April, and then we finish the closing of the books a few weeks later.
Good. Let me just say, I appreciate the fact that the number is higher today and not lower, that your initial estimate, you're not trying to be overly ambitious with it. Kudos on that, and I'll leave it there. Thanks for the answers.
Thank you.
Thank you. It's always about underpromise, overdeliver, right?
Thanks so much. The next question is coming in from Kevin from Desjardins. Kevin, whenever you're ready, please go ahead.
Hi, can you hear me?
Yep.
Hi, Kevin.
Hey, good morning, gentlemen. Nice to see you. A couple maybe modeling questions first. Just can you clarify on the Q2 guidance, you called for 50% growth? I think you did mention balanced managed service, self-service. Is that fair, or do we see one of them outpace the other in terms of the revenue growth?
I would say that the approximate 50% growth we expect to achieve year-over-year in Q2 may will be a higher percent versus the self-serve, but I don't think it's going to be two to one.
Okay. On the quarter, your gross margin continues to tick higher at 52%. Can you talk about the drivers there? Are you delivering better ROI on the managed service, or is that a function of illumin, maybe making the self-serve margin? I think typically, has that been at 30%, 35%? Are you seeing any benefits there, just the drivers on the gross margin?
It's really a function of the AI always getting better and always improving. As that is improving, then you deliver better ROI to clients, and sometimes you could take a little bit more for yourself, as long as you give most of it to clients. That's a function across the board. As you know, one of our major focus has always been AI, and it's continue and always will be AI. Dr. Nathan McAoon and his team are always working on that, improving it. It's something that we will never stop doing.
To level set, I think the margins in Q1 were higher than even we expected, which was great. I would say as illumin continues to grow, the margins will level set around that 50% level throughout the year.
Okay. Very helpful. Two questions on illumin. First, really good to see the 29 clients, and a majority of them are new. Are these competitive displays? How would you characterize them? Are they coming from kind of greenfield? Are these new brands? Are they new agencies that maybe are getting into digital, or are you actually winning business away from a Trade Desk or someone else?
These would be people that we would try to pitch them in the past, and they would never even see us. Okay. That's what we're seeing. As being a DSP, a smaller DSP, and competing in a world of everybody's doing more or less the same thing, it was very hard to even get meetings with these guys. Now, with illumin, first of all, people are coming to us. Second of all, when our sales team goes out there, they're taking the calls. Whenever we have meetings and doing a demo for illumin, that seals the deal. Imagine you're a marketer, and all your life, you're trying to plan a consumer journey, and then you're trying to translate it into a black box. Now, illumin comes along and lets you plan it and then execute it all from one platform.
That's really something that they really get excited about. That's why we're seeing more and more new clients coming into the illumin system.
In terms of the wins then, how much is inbound versus outbound? Are you seeing more momentum just coming in, or is there still more outreach? Do you plan to put more marketing out there to advertise the awareness, and how do you see things kind of building over time? It's still very early, and these are impressive numbers for starting early.
Yeah, I would say that we, as a company in general, Acuity never invested a lot in marketing. It's something new for us. We started last year. We didn't do a lot. We've done a lot around the launch event. We have recently brought in a VP of Marketing that is already doing an excellent job. I do believe that more and more of the revenue is going to come in from marketing. Today, already, some of the revenue is coming from marketing. In the past, it was always sales-driven. Today, it's marketing and sales. In the future, I do believe that we have the opportunity to get it very much into the marketing side of things. That will create much more ability to scale much faster.
Yep, absolutely agreed. Excited for that.
Yeah.
One more maybe thought for you, then, just more on the numbers. illumin, just correct me if I am wrong, just for clarity, the illumin, it is all self-serve, or are you driving any of that on the managed service? Are you running any campaigns for clients, or is it purely self-serve?
We're selling it as self-serve. Some of the clients that needed help, we do a little bit of a hybrid for them as they learn the system, and we help them out. We would tell it to self-serve, and then we would charge them to manage if they want us to do it. The overall future of illumin is all self-serve.
Okay, when I look at the CAD 3.2 million reported versus the CAD 5.2 million self-serve, that's a big number. It's 60%. It was only 20% last quarter, so it's a big step up. Am I looking at it the correct way in terms of the mix?
No. In Q1, as Tal said, most of the illumin revenue was swayed toward the managed, because that's how they start.
Oh, they start-
They start through the concierge model, and then they transition over to self-serve. Over the period of time, the percent of illumin revenue that is self versus managed will flip.
Okay. Can you help us with, in that CAD 5.2, though, on the self-serve, how much in there was related to illumin? Is it like CAD 1 million or?
Less than CAD 1 million.
It's less than CAD 1 million. Okay. That's helpful. That helps, I was looking at the year-over-year comps, 4.9 versus Now it all makes sense. Okay. Thanks so much. Congrats on a good quarter, guys. I'll pass the line.
Thanks, Kevin.
Thank you.
Thanks very much, Kevin. The next question we have coming in is from Daniel Rosenberg at Paradigm Capital. Daniel, when you're ready, please go ahead. Thank you.
Good morning, guys. Congrats on a good quarter. I just had a couple quick questions around illumin. I was wondering if you could provide any color around customer feedback, and how they're evolving their usage in these early days. Maybe, what % of revenue growth is coming from more campaign usage versus bigger campaign usage? Just any color around on their usage, please.
Yeah. We're tracking metrics, but we only have two quarters, so it's very, very hard to decide what's going to be a long-term metrics, and we don't want to do it sporadically. We don't have exact numbers to share. What we can tell you is that customers, first of all, need to change the way they think even before they start with illumin. Because in the past, they are used to send all their messages in one specific creative, and then kind of rotate between creative. They have to tell a story in many creatives and think about the sequence and divide it into different parts of the journey. They have to think about their campaign more. They have to come up with a creative in a different way. They love the ability to plan that and then to execute on it.
What they love, I'd say equally as much, is the insight that they're seeing when they're looking at the reports. They're looking at the insight, and they're seeing, where do people start? How do they go through the funnel? How do they get transferred from the different stages of it, anything from awareness to engagement to conversion? How much did it cost them to translate every consumer from 1 stage to the other? How much does it cost them to actually convert the users? This is data that they could not see before. Being able to also work on the upper funnel, the mid funnel, and the lower funnel, all from one specific platform, is also a great advantage for them. They love that. They learn from it, and then they come back for more. Like you said, the renewal rate is at 100%.
We're seeing increased spend on it as well. At this point, I would say that there's clients who are using now illumin as part of their campaign, which is the smaller clients. Then we have bigger clients that are still testing it and figuring out how to accelerate on that, how to become closer to us. That's why I always say closer to the end of the year, this is where we're going to see the majority of revenue coming into this system.
Thanks for that. Maybe just on the pricing model, as it's early days and it's new, any thoughts around your pricing strategy with illumin and any feedback you're getting from clients around that?
This year, the pricing model is very similar to what we're doing on the other DSPs. We're toying up with the idea of charging more platform fees and more SaaS types fees, something that hasn't succeeded in this industry ever. The other part is, we're starting to introduce long-term contracts with minimum guarantees. Again, something we're testing in the early days. It's an industry that's not used to it. Ultimately, you want to be able to deliver the results to clients and not make them spend money with you, and that's the ultimate success for illumin. It's also very nice to have commitments from clients as well. By the end of the year, we'll have more and more information about how that's going.
Thanks for taking my questions. I'll pass the line.
Thank you.
Thanks very much, Daniel. We're just going to have time for one more question that is coming in from Rob Goff at Echelon. Thanks, Rob. Please go ahead.
There we go. Thank you for taking my questions. Two simple questions. There's been a lot of discussion about the external demand for illumin. Could you discuss the internal capabilities and expansion to support that demand? The second question, perhaps for Jonathan, would be on the CTV. Can you talk to the growth expectations sequentially in that market?
Can you clarify? What did you say, the external?
We've talked about the external demand for illumin. Could you talk to your internal capabilities to match that demand? Are your internal resources a gating factor in any way?
No. Not anymore. Obviously, in Q4, we were really surprised by the amount of activities we had on, and we had quite a small team. We set up an enterprise team, and anywhere from the sales side, sales engineering side, and also the support side. We quickly had to expand on that and bring more people in and train them, and we've done that, and we're in good shape now. I believe we're going to keep on expanding that team over time and probably not need as big of a team on the other side, and that will all balance itself.
Rob, on your other question, we expect sequential growth in CTV every quarter. Already in Q2, we did announce, I believe a month or a month a half ago, that we got a illumin CTV contract exclusively. That bodes quite well for Q2 CTV revenue, and when we release, obviously, our Q2 results in August, you'll see that continued sequential growth.
Rob, something that's interesting, actually, about CTV as it relates to illumin, is that brands love running CTV on illumin because they see the impact that running the entire funnel and how it relates to CTV. They can actually see the impact on display, the impact on mobile, the impact on video when they're running CTV campaigns on the same journey, and they can see how that flows and helps them convert better. That's actually something that they're very excited about, and that's why a lot of the illumin campaigns come with CTV parts in them.
Awesome. Thank you very much.
Sure. Thank you.
You're welcome.
Okay, great. This concludes our Q1 conference. Thanks, everyone, for participating, and have a great day.
Thank you, everyone. We appreciate all your support. Congratulate to the illumin team once again for delivering such an amazing quarter. Very excited about what's happening today in Q2 and beyond. Again, much appreciate all the support of our great shareholders. Thank you, everyone.