illumin Holdings Inc.

Good morning, everyone. Before we begin the official remarks, I will read the cautionary note regarding forward-looking information. Certain information to be discussed during this call contain forward-looking statements within the meaning of applicable security laws, including, among others, statements concerning the company's objectives, the company's strategy to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates and 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 is subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Please refer to the cautionary statements and the risk factors identified in our filings with CDAR and EDGAR for a more detailed explanation of the inherent risks and uncertainties that could affect such forward-looking statements. Following the presentation, we will conduct a Q&A session. I would now like to turn the conference call over to Tal Hayek, the co-founder and Chief Executive Officer.

Good morning, everyone, and welcome to our Q4 slash year-end 2023 investor presentation. My name is Dal Hayek, and I'm the CEO and co-founder of Illumin. I'd like to start by thanking the Illumin community. thanking the Illumin community for delivering a year of transformation. It's not an easy transformation to change the DNA of a company from a man inside of business to self-serve. So I truly, truly thank the community for delivering such a successful year of transformation. In 2022, we had virtually no Illumin self-serve revenue. We had no long-term contracts and no self-serve pipeline. And look where we are today. In 2023, over $20 million in Illumine self-serve revenue. Most is in long-term contracts and a massive self-serve pipeline. This is where the future of our business is, okay? The growth numbers are masked by the decline in our managed business. And we always communicated that we feel that the managed business is going to decline. but the value of Illumin is Illumin self-serve and we're seeing a great, great, great indication for the future. My prediction is that by the end of this year, 2024, our self-serve run rate is going to be higher than managed. And that's one of the main reasons why I personally bought over a million dollars worth of shares recently, because I believe in this company so much. Let's talk about the search for the new CEO. We are well into the search. We're seeing some amazing candidates and having great conversations. We haven't made any specific decisions yet, but I do think that we're making great progress. It's a very, very important decision to make. So we don't take that lightly and we will communicate once we have some news on that. I believe that Illumina is making huge steps on the way to a success. Again, by seeing the success that we're seeing on the self-serve numbers, the self-serve clients that we're bringing in, we're gonna share more into that. Let's look at revenue. Our total revenue for Q4 of 2023 was $37 million. That's down 7.5% from the year before that. Our full year, 2023, 126 million. That's up 4.4%. When you zoom in and look at where we're growing and where we're losing, we're growing in the right places. So we've seen over 271% growth on our self-serve revenue. which is the most important part of our business. We're seeing the client unmanaged, but we're seeing more and more revenue coming out of our self-serve, and we're seeing all the great signs that we're going to be heading that way very, very soon this year. Illumine self-serve revenue, particularly, let's start in Q4 of 2022, when we saw $2.4 million in revenue. Over to Q1 of 23, $2.2 million. Q2, $5.4 million, Q3, $5.1 million, and Q4, $8.9 million. So that's a growth of 75% quarter over quarter from Q4 to Q3, and 271% on an annual basis year over year. Let's talk about the Lumen late stage demo. We are tracking that because that's a great indication to see our future revenue. In Q4 of 22, we've seen 103 demos. Q1 of 23, 140 demos. Then in Q2, we saw 178 demos. In Q3, 162 demos, and in Q4, 229 demos. Again, a great indication for the future. And new logos, so Illumine self-serve logos. Before I share the exact numbers here, I'd just like to let you know that in 23, we were really focused on bringing in a lot of logos. It was just the beginning of the way, and we wanted to bring in a lot of logos in order to get feedback from clients, make improvements to the system, but also to see what type of clients it resonates the most with. And then we're now focusing more and more on the ones that it resonates the most with and seeing the best success. So in Q4 of 22, we've seen 27 new logos. In Q1 of 23, 40 new logos. Q2, 51. And then we started going down in Q3, 33. And in Q4, we saw 33 again. Again, because we're focusing on the right clients for us. Pipeline growth. Again, this is specifically for Illumine Self-Serve. In Q4 of 22, 114. In Q1 of 23, 208. In Q2, 245. Q3, 316. And in Q4, 327. Again, a great indication for future revenue. And my personal favorite, the Lumen self-serve run rate. And this is where you take the last month of the quarter and you multiply it by 12. So that indicates the run rate that we're seeing out of the quarter. I like to speak about the stacking effect that we see even within a quarter, which is you retain your existing clients and you add revenue from your new clients. In Q1 of 23, we had $12 million. In Q2, $22 million. In Q3, $25 million. And in Q4, $44 million exit rate from the quarter. Now let's go to Elliot to share our financial results.

Thank you, Tal. Welcome, everyone, and thanks for joining today's fourth quarter and year-end 2023 earnings call. As Tal mentioned earlier, for the full year 2023, our total revenue increased to $126.3 million, largely attributable to our higher Illumine self-service business, which during the fourth quarter surged upward by 75% sequentially and 271% compared to prior year. These results are important, but they only tell a part of the story. During 2023, as we continued to roll out our Lumen platform, a significant part of our efforts also involved getting a deeper understanding of our customer base. Specifically, we analyzed our sales data to identify which customer segments tend to spend more significantly on our platform. And with this insight, we began redirecting our sales focus towards these valuable customer profiles. And this allows us to utilize our resources more effectively and efficiently and to focus on larger and more productive client relationships. We are now starting to see the benefits of these actions and anticipate this will start to generate increased sales traction in 2024 and beyond as macroeconomic conditions steadily improve. And alongside this more targeted sales approach, We remain focused on cost management to ensure we are being efficient while prioritizing our ongoing transformation around cell service. And given this larger macroeconomic backdrop, we think this is only prudent and expect this will remain a priority for us throughout 2024. By doing this, we expect we will remain on a path of stronger financial performance and continued innovation. And with that, I will now move to a more detailed review of our financial results. In Q4, we had total revenue of 37 million compared to 40 million for the same period last year. The reduction in quarterly revenue was primarily due to a drop in managed service revenue, more so in the US than overseas. And this was largely a result of challenging market conditions for advertisers and our core focus on self-service growth. However, we are beginning to observe more positive consumer and advertiser sentiment, which should be beneficial for the industry and improve top-line growth for 2024. For the fourth quarter, managed services revenue was $18.5 million compared to $26.6 million in the same period last year. Self-service revenue grew substantially, up 38% to $18.5 million compared to $13.4 million the same period last year. The increase in self-service revenue was driven both by an increase in new Illumine self-serve customers and higher Illumine self-serve platform utilization. As Tao highlighted earlier, our Lumen self-service component was $8.9 million in the quarter, up 75% from prior Q3 and 271% from Q4 of the prior year. We are encouraged by these results, and it is a clear indicator we are on the right track. Gross profit was $18 million compared to $19.4 million in the comparable prior year period. Operating expenses were 19 million, down from 19.6 million in the prior year period. As a percentage of revenue, operating expenses were 51.4% for the fourth quarter compared to 49% for the same period last year. Adjusted EBITDA was $2.4 million, relatively unchanged from the same period prior year, despite lower revenues. And that loss for the fourth quarter was negative $2.6 million, compared to $0.8 million loss in the same period last year, lower revenues and a foreign exchange loss being the key drivers of the decline. For the full year 2023, As we also noted earlier, total revenue for the 12 months ended December 31st was 126.3 million compared to 121 million of the prior year. Breaking down our revenue results, managed service revenue for the full year 2023 was $72.9 million, a decrease of 10% compared to $81 million the previous year. Total self-service revenue for the full year 2023 rose considerably, up 33% to $53.4 million compared to $40.1 million the previous year. And for the full year, our LumenSouth service revenue was $21.6 million, up almost $16 million from the prior year total of $5.7 million. And turning to gross profit or net revenue, which is defined as total revenue, less media-related costs, was 60.3 million for the full year, compared slightly down from 60.8 million in the prior year. And total operating expenses for 2023 were 71.7 million compared to 66.3 million last year. As a percentage of revenue, operating expenses were 56.8% compared to 54.8% in 2022. And this year over year increase reflects the ongoing investments that I mentioned earlier in our technology and sales activities to support the continued growth and enhancements of our Lumen platform. Adjusted EBITDA for the full year 2023 was 1.3 million, a decrease from 5.8 million in the prior year reflecting those investments that I mentioned earlier in our platform and product roadmap and partially offset by cost management initiatives. Net loss for the year was 11 million approximately, compared to a net loss of 0.8 million in the previous year. This increase in the net loss reflects the factors I described earlier when discussing adjusted EBITDA, as well as reflecting a 2.8 million FX loss versus a 6.3 million FX gain in the prior year. Moving on to the next slide of NASDAQ delisting. As previously announced on September 11th, 2023, the company voluntarily delisted and ceased trading on the NASDAQ capital market. Simultaneously, we initiated the deregistration process from the SEC, eliminating significant cost burdens and reporting requirements, which is consistent with our cost containment initiatives I referenced earlier. And given today's macroeconomic environment, we feel these actions were appropriate and will allow us to utilize our capital more effectively to enhance overall shareholder value. However, we expect a significant portion of these savings will not be realized until 2025. The company shares continue to be listed in the Toronto Stock Exchange in Canada under the trading symbol ILLM. And the company is currently well into the process of moving on to the OTCQB platform in the US to facilitate broader and easier access by investors in the US. We expect this process to complete shortly. Effective November 13, 2023, the company initiated a normal course issuer bid to buy back and cancel up to 4,330,000 shares of its outstanding common stock. As of December 31, 2023, the company has acquired 445,000 common shares under this program with an average purchase price of $1.52 Canadian. And as you can see on the next slide, in 2023, we repurchased over 5.7 million shares for a total consideration of 14.4 million, excluding related SIB expenses. As I noted in the previous slide, our current NCIB initiative has acquired an additional 828,000 shares since January 1st, 2024, for now running total of 1.3 million shares to date. We are committed to this undertaking given the current valuations. And as you heard Tal mention in his earlier remarks, there's also a substantial purchase of shares by insiders of the company. In total, insiders purchased 793,400 shares for consideration of over 1.2 million or $1.51 a share throughout 2023. And this further demonstrates our alignment with our shareholders and shows management's strong belief in Illumina's future prospects. Turning to our balance sheet, as of December 31st, 2023, our cash and cash equivalents stood at 55.5 million compared to 85.9 million as of December 31st prior year. And this decline was attributable to a combination of net loan repayments and share repurchases, which together constituted two thirds of that decline. The balance of the decrease is attributable to lease payments and targeted investments in our Lumen platform, specifically in research and development. and the overall decline is substantially impacted by foreign exchange volatility on our year-end cash position. Looking at our shares outstanding, as of December 31st, 2023, Illumin had 51,350,973 shares outstanding compared to 56,808,921 as of the prior year. Insider ownership increased to over 18%. In closing, we are very pleased with the growing customer adoption of our Illumin self-service platform, which continues to drive our revenue growth. Looking ahead, we will continue to invest in the growth of this unique advertising journey platform. At the same time, we remain focused on driving efficiency and we'll be containing and further rationalizing our costs despite the expected top line growth. This will ensure our financial stability and with our strong balance sheet will give us the flexibility to be able to seize upon any potential market opportunities that may arise, such as attractive acquisitions that can accelerate our growth. All of this is aligned with our commitment to build greater long-term value for our shareholders. And with that, I'd like to turn it back over to Tal for his closing remarks.

Thank you, Elliot. In closing, there is tremendous reason for optimizing in 2024 with strong cash balance and positive cash flow for operation. Having identified our ideal customer profile, we began to also engage with larger clients while focusing on the growth of self-serve. A newly initiated NCIB in November of 2023 allows us to reinvest in the value of our company. In addition, we keep investing in the product itself, so illumine. is always been about adding more and more items into the consumer journey. Out of home, meta, social integration that happened in 2023 has been a great step for moving it forward and we continue to enhance the product and invested it on regular basis. Also continue to invest in the strength of our team, supporting our corporate objective and strategic direction. The growth of Illumin self-serve was and continues to drive our success. I am still confident that Illumin is the best investment you can make. And therefore, this is why we are buying our shares back on regular basis. And I personally bought over a million dollars worth of shares recently. The market outlook for 2024 is optimism and customer spending is projected to grow in 2024. So all the signs are showing that we're moving in the right direction. For me, the number one indicator is the Lumen self-serve revenue. And we keep seeing that growth, bringing in more customers. Customers are liking the program and the system and spending more on it. And therefore, we're seeing the growth in self-serve revenue. With that, I will now open the floor for questions.

Good morning, everyone. And thank you for joining the presentation of Illumine's fourth quarter and full year 2023 financial and operating results. I would like to begin by reminding our analysts that in order to present your question, you must first click on the I would like to join the stage button at the top of your screen. If you would please limit your time to two questions would be appreciated. Please be patient while we assemble the questions.

Good morning, everyone.

Good morning, everyone. Our first question comes from Rob Gough of Echelon Wealth Partners. Rob, please proceed when you are ready.

And thank you for taking my question.

Hi, Rob. Good morning.

Tal, you need a mug like Elliot's.

What's that?

You need a mug like Elliot's.

He happens to have one right there.

All you have to do is ask.

All is complete. Could you perhaps talk a bit more about the contract structures that you're putting in place on the self-serve?

Generally speaking, you're talking about 12 to 24 months contracts. And there's different minimums in those contracts. Sometimes, sorry, sometimes we have a 90 day out clause, but it's an out clause, so the customer has to exercise the out clause. So they use it as a proof of concept.

Okay. And with respect to the managed services, could you talk to where you see a baseline or where you see a baseline being reached in terms of timing?

Do you have an answer for that? Sure. So we've obviously always known that managed service is a highly transactional source of revenue for us. So this predictability is substantially lower than our self-serve. It's critical to understand that. That's why we're emphasizing our self-serve illumine. because we believe it's a much more robust and sustainable source of revenue for us and one that we could see growing. From a managed service perspective, I think we have a fairly stable structure right now in terms of we had some changes that occurred throughout the year, which have, as you can see reflected in our results, have held back and maybe, as Tal said, masked some of the growth that we've seen. We are by no means deprecating managed service. We are focusing on maintaining where we have, but our critical focus is to make sure we have the transformation in place ongoing and moving towards the self-server lumen. So the growth we're going to see in 2024 will come out of this self-server lumen part of our business.

So our agenda is to aggressively grow self-serve and maintain managed service.

Thank you. I'll jump back in queue.

Thank you.

Thank you very much, Rob. Our next question, gentlemen, comes from Aravinda Galapatadji of Canaccord Genuity. Aravinda, please go ahead with your question.

Good morning, Tal. Good morning. Good to see you. I'll start with, I think, where you left off in the prepared remarks. Tal, you talked about sort of an improving outlook, you know, optimism around the backdrop. And I think, Elliot, you referred to that as well. Some of your peers, and I know it's mixed, it's all over the place, but some of the peers that have reported are starting to hint towards, or in some cases even guide towards, pretty strong ad growth on the digital side, in some cases double digits. Can I kind of maybe press you to be a little bit more specific on at least what you're seeing in Q1, given that we're in March?

Yeah. So as we discussed in the past, we're focusing on our self-serve growth and we're seeing really, really good growth in Q1, over Q1 of last year, of course. And so this is where we're seeing the great results. On the other hand, on managed, We're not seeing such great results, so the overall sometimes masks the results that we see on the self-serve.

Okay, okay, thank you. And then my second and last, you know, I'd be remiss if I don't sort of revisit the leadership questions. Tali, do you have any kind of timeline as to when you would hope, I know it's not, it's definitely not something when you'd have a CEO in place and then connected to that, you know, you know, you press released last month that Nadim had left as well. Is that role going to be replaced? What are your plans there?

That's the flow we would like to do. And the search is ongoing. It's a very important decision and we don't take it lightly. And we don't have anything to share at the moment yet, but hopefully there's going to be something soon.

Okay. Thank you. Thank you, Aranda.

Thank you very much, Arvinder. I appreciate the question. Gentlemen, your next question comes from Daniel Rosenberg of Paradigm Capital. Daniel, please proceed with your question when you're ready.

Good morning, Talon Elliott. My first morning was just around the how aggressive you are in terms of selling the managed service clients into Illumine. Is there any processes that you put in place to push these clients towards Illumine? Or are these kind of organic inbound demands?

Yeah, most of our Illumine revenue comes from new clients, the vast majority of it. So we're not really pushing, but there's customers who clearly come to us and say, we're taking it in-house and you can move us to self-serve or we'll go somewhere else, right? So those are the customers that obviously we take and we put them on the self-serve.

Where's the other prepared remarks, Tal? You hinted at some enterprise larger deals. Can you give a little bit of detail of what that pipeline looks like, the successes you had or challenges in getting larger size deals?

I can say that I don't think there's enterprise. It depends on the definition of enterprise, I guess, but it's not. I don't think we have any like Fortune 500. companies in there at the moment. We did change the comp plan for the field team to start going after bigger accounts. So we should see that reflected in the sales this year.

Okay, I appreciate it. I'll pass the line then.

Thank you. Thanks, Daniel.

Thank you very much for the question, Daniel. Much appreciated. As there are no further questions at this time, this will conclude our presentation for this quarter. Thank you to our analysts and shareholders for attending this morning. Please join us the next time as we present our Q1 2024 financial and operating results. Bye for now.

Thank you, everyone.