AcuityAds Holdings Inc.

Transcription

1 10 October 2017 Telecom & New Media AcuityAds Holdings Inc. Confirmed to Q417 Top Pick Portfolio Recent Update On Acquisition Savings, Revenue Synergies, Contract Win Highlight Underlying Momentum. AT-TSXV: $2.21 Speculative Buy $4.25 Target Event: We are returning AcuityAds to our Top Pick Portfolio. Our Top Pick Portfolio tends to favour catalyst rich companies with clear momentum. We look for AT to return to its former positive momentum with evidence that the organic growth of its SST platform remains unchecked and that its recent acquisitions have been successfully integrated and are now supporting cross-selling synergies. We maintain our view that AT s recent downwards guidance revision represented a proactive move by the company to correct an isolated issue and that its 140Proof realignment represented a single unique client where the move inhouse had been more than factored into the acquisition valuation and earn-out provisions. Recent News Supports Underlying Momentum: AcuityAds announced that it has received an order for ~C$700K with an unnamed global technology manufacturer who will be running multiple digital campaigns in Q417 about their new product launch efforts. The win reflected significant incremental sales due to cross-selling of the VM products. AcuityAds remains very positive about the full integration of their sales/marketing efforts and the impact that proprietary data from the acquired products is having across the firm as it gains access to larger clients. The Company confirmed that it is at full run rate savings of $5.5M with the integration complete. We believe Q217 results would have reflected roughly 50%-75% of the run rate quarterly run rate savings of ~$1.35M that should be largely within the Q317 results. Investment Thesis: We look for Q317 and Q417 results to provide evidence of the ongoing strength of momentum behind the Company s SST platform in particular. We maintain our Q317 revenue/ebitda forecasts of $14.1M/-$456K (consensus: $14.4M/-$140K) and Q417 revenue/ebitda at $16.0M/$731K (consensus: $18.6M/$880K). We could see modest upside against our Q317 forecasts (probably more on EBITDA) with potentially greater upside against our Q417 forecasts. We re-iterate our bullish view and our stance that the recent downward forecast revisions following the company s decision to end certain client practices (attributed to a select group of clients) represented a recalibration that pushed forecasts off by 12 months. We continue to believe that industry growth dynamics are strong. While 140 Proof remains a win as a ~$2.3M net acquisition, the recently revised guidance outlook will place future acquisitions under tougher scrutiny although confirmation of synergies and client traction should be well received. Valuation: We previously moved our discount rate to 18% from 16.5%, looking for investor sentiment to rebuild post the recalibration. Our one- and two-year DCF values of $4.28/$5.06 highlight our belief that AT s curated/maturing salesforce will continue driving organic growth while leveraging prospective acquisitions. With execution to forecasts, we have flexibility to return to a less aggressive discount rate where a 1% swing in the discount rate equates to $0.17 per share. We are encouraged that AT has strong access to capital and sufficient scale to make further strategic and accretive deals. There remains a large pool of digital advertising/marketing technology companies that reach a scale where they need to access additional capital, making them attractive targets. Market Data Market Capitalization Net Debt Enterprise Value Basic Shares O/S Fully Diluted Shares O/S Avg. Daily Volume (M) 52 Week Range Dividend Yield Revisions 2017E Revenue 2017E EBITDA 2017E EPS Financial Metrics FYE - Dec 31 Revenue Adj. EBITDA EPS FCF Net Debt:EBITDA FCF Yield Valuation Data DCF - Current/Target EV/EBITDA Current Peers Target P/E Current Peers Target Projected Return: 97.6% $ $ % New Old 58.9 NC 1.1 NC -$0.14 NC 2016A 2017E 2018E ($0.03) ($0.14) ($0.02) (5.4) (6.8) (0.0) 0.5x 12.0x 2.9x (8.7%) (9.6%) (0.0%) $3.80 $ x 79.2x 18.9x 29.2x 19.1x 14.5x 40.5x 141.8x 33.8x NM NM NM 48.5x 35.7x 30.0x NM NM NM Quarterly Data Q1 Q2 Q3 Q4 Revenue EBITDA 2016 (0.1) (0.5) 0.7 EPS 2016 ($0.02) ($0.01) ($0.02) $ ($0.04) ($0.05) ($0.04) ($0.01) Company Description AcuityAds provides Real-Time Bidding (RTB) solutions for the digital advertising space. Its programmatic marketing solution operates as a Demand Side Platform (DSP) allowing large volumes of marketers and advertisers to run automated and fully customizable digital advertising campaigns using both Cost per Click (CPC) and Cost per Mille (CPM) pricing methods. Its solution can perform all types oftargeting for publishing to traditional display, rich and social media, as well as mobile platforms. $5.00 $4.00 $3.00 $2.00 $1.00 $ Peer Perspectives The Trade Desk Enhances Product Offering: Over the last month, consensus expectations for The Trade Desk (TTD-NASDAQ, NR), AcuityAds closest peer, have seen no material changes either for Q317 or for the full year. The company has announced several partnerships/products that serve to significantly enhance its product offering. Among Volume (M) Price Page 1 of 7

2 these enhancements is a connected TV targeting and attribution tool that endeavours to extend digital buying capabilities such as retargeting and audience matching to the OTT marketplace. Of note, CEO Jeff Green commented that TTD has seen a 10x increase in connected TV inventory over the last year, reflecting the immense size and demand for targeted advertising in the OTT space. We highlight that TTD and AT demonstrate a similar focus in their recent moves enhancing their video offerings and improving data analytics and transparency throughout the industry. Of note, TTD shares are currently valued at 25.8x/19.2x 2017/18 EV/EBITDA, relative to AT at 79.2x/18.9x. We continue to view The Trade Desk s moves as the model for AcuityAds to follow, with the key difference being in deal size, where AcuityAds targets the SME market against TTD s larger-deal focus. Exhibit 1 Quarterly Results and Forecasts AcuityAds Holdings Inc Q117 Q217 Q317E Q417E 2017E Comment 2018E 2019E 2020E Consolidated Act. Act. Act. Est. Est. Est. Est. Est. Est. Revenue - Pro Forma 39,601,724 11,526,767 17,265,803 14,051,104 16,017,806 58,861,481 Revised Guidance pushed our 2017 forecasts 77,665,603 89,008, ,573,616 Revenue - Organic 33,291,503 11,526,767 17,265,803 8,501,104 10,217,806 47,511,481 on to Prior reduction for ,430,603 69,975,342 79,551,777 Revenue Proof and VM 6,310,221 5,550,000 5,800,000 11,350,000 attributed to lower EMEA self-service revenues 17,235,000 19,032,975 21,021,839 Growth % 91.4% 121.6% 146.4% 58.4% -13.5% 48.6% ~$10M, reduction at 140 Proof to C$5M run 31.9% 14.6% 13.0% Revenue Consensus 39,095,410 11,038,400 17,810,830 20,067,170 30,610,170 79,542,500 rate from prior US$12M. CAD strength against 104,948, ,764, ,847,670 EBITDA - Pro Forma 2,989, , , , ,381 1,051,316 USD attributed to $3M reduction. Looking for 4,412,111 7,469,908 10,635,799 Growth % - Pro Forma NM NM 201.6% NM NM NM modest negative underlying EBITDA for Q % 69.3% 42.4% Margin % 7.5% 1.6% 3.4% NM 4.6% 1.8% turning positive Q417 with H217 positive on 5.7% 8.4% 10.6% Flow-through % 23.4% 4.2% 3.8% NM 63.3% NM balance. Recent $700K contract win could 17.9% 27.0% 27.4% EBITDA Consensus 2,660, , ,800 1,600,000 3,100,000 5,307,330 potentially support Q417 outperformance. 9,351,000 14,283,670 18,792,330 Capex -1,500, , , , ,659-2,376,776-2,718,296-2,937,274-3,117,782 Lower revenue growth reduces server needs. Intensity % -3.8% -5.5% -3.6% -3.7% -3.7% -4.0% -3.5% -3.3% -3.1% EPS -$0.03 -$0.04 -$0.05 -$0.04 -$0.01 -$0.14 t an EPS stock; EPS moved down with -$0.02 $0.07 $0.13 EPS Consensus $0.02 -$0.02 $0.00 $0.01 $0.00 $0.08 EBITDA. $0.14 $0.00 $0.00 FCF - PF with payment -5,386,495 1,051,047-4,246,017-1,185,102-2,385,579-6,765,651-34,326 2,647,482 9,397,603 Growth % 236.6% % 239.5% -20.3% % % -99.5% % 255.0% AT exited Q217 with cash at $1.9M. Net Debt 1,522,813 5,098,122 8,720,537 9,646,954 12,032,533 12,583,306 12,822,118 10,806,388 2,470,637 Net Debt : EBITDA (LTM) 0.51x 1.56x 2.39x 3.66x 11.45x 11.97x 2.91x 1.45x 0.23x AcuityAds Holdings Inc Q117 Q217 Q317E Q417E 2017E Comment 2018E 2019E 2020E Segmented - Business Line Act. Act. Act. Est. Est. Est. Est. Est. Est. MSR Proof & VM 20,941,944 5,219,015 11,336,237 9,383,015 10,410,772 36,349,039 Forward organic MSR growth given at modest 43,109,006 45,812,571 48,738,721 % of Total 52.9% 45.3% 65.7% 35.8% 37.2% 61.8% 55.5% 51.5% 48.5% 3.5%. We previously recalibrated 140 Proof to Growth y/y % 55.2% 105.3% 197.4% 75.9% 12.5% 73.6% 18.6% 6.3% 6.4% $5M run rate business. CAD strength negative MSR - as reported 14,631,723 5,219,015 11,336,237 3,833,015 4,610,772 24,999,039 25,874,006 26,779,596 27,716,882 % of Total 36.9% 45.3% 65.7% 27.3% 28.8% 42.5% $3M impact on reduced Visible 33.3% 30.1% 27.6% Growth y/y % 8.4% 105.3% 197.4% 2.0% 2.0% 70.9% Measures to reflect the FX impact together 3.5% 3.5% 3.5% 140 Proof Revenue 6,310,221 1,200,000 1,350,000 2,550,000 with reduced cross-selling. We are optimistic 5,355,000 6,024,375 6,777,422 % of Total 15.9% 8.5% 8.4% 4.3% that our forecast could prove low within the 6.9% 6.8% 6.7% Growth y/y % NA -23.9% -71.5% -59.6% category. However, category revenues are 110.0% 12.5% 12.5% Visible Measures Revenue 4,350,000 4,450,000 8,800,000 11,880,000 13,008,600 14,244,417 increasingly challenged as the growth of % of Total 31.0% 27.8% 15.0% 15.3% 14.6% 14.2% Growth y/y % NA NA NA hybrid MSR/SST blurs the distinction. 35.0% 9.5% 9.5% Self Service Technology Revenue 18,659,941 6,307,752 5,929,566 4,668,089 5,607,034 22,512,441 34,556,597 43,195,746 51,834,896 We recalibrated previously but maintain % of Total 47.1% 54.7% 34.3% 33.2% 35.0% 38.2% 44.5% 48.5% 51.5% aggressive growth forecasts for this segment. Growth y/y % 159.2% 137.1% 85.6% 32.0% -39.5% 20.6% 53.5% 25.0% 20.0% Segmented - Geography (M) Canadian Revenue 11,142,587 2,222,751 2,734,794 2,970,400 2,715,281 10,643,226 While our models are driven by MSR and SST, 10,802,874 11,018,932 11,239,310 % of Total 28.1% 19.3% 15.8% 21.1% 17.0% 18.1% we include geographic breakdown to see 13.9% 12.4% 11.2% Growth y/y % 2.7% -13.8% -5.7% -1.0% 2.0% -4.5% impact of lower growth (~2%) in Canada. 1.5% 2.0% 2.0% US Revenue 15,926,375 4,749,485 10,655,260 10,074,250 11,435,075 36,914,069 51,262,953 56,929,688 61,324,908 % of Total 40.2% 41.2% 61.7% 71.7% 71.4% 62.7% US reduction reflects on FX $3M plus lower 66.0% 64.0% 61.0% Growth y/y % 132.7% 275.5% 341.4% 161.1% 36.3% 131.8% 140 Proof revenues. 38.9% 11.1% 7.7% International Revenue 12,532,762 4,554,531 3,875,749 1,006,455 1,867,451 11,304,186 15,599,776 21,059,698 28,009,398 Previously pulled in our 2017 International by % of Total 31.6% 39.5% 22.4% 7.2% 11.7% 19.2% 20.1% 23.7% 27.8% $10.4M - consistent with guidance. Growth y/y % 318.1% 235.4% 129.1% -50.0% -75.0% -9.8% 38.0% 35.0% 33.0% Costs Media Costs 19,635,674 5,873,204 8,675,761 7,234,550 7,844,104 29,627,618 Y/y growth tapers beyond 2017 w/synergies 40,034,024 46,237,536 52,699, % 126.9% 162.2% 61.7% -15.3% 50.9% realized with acquisitions and as Acuity 35.1% 15.5% 14.0% MC Growth % y/y increases scale. Source: Consensus Data - CapitalIQ, Historical Data Company Filings, Forecasts/Estimates Echelon Wealth Partners. Page 2 of 7

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5 Important Information and Legal Disclaimers Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via as the timely receipt of messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. 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U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States. The firm that prepared this report may not be subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. U.K. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. ECHELON WEALTH PARTNERS INC. IS NOT SUBJECT TO U.K. RULES WITH REGARD TO THE PREPARATION OF RESEARCH REPORTS AND THE INDEPENDENCE OF ANALYSTS. The contents hereof are intended solely for the use of, and may only be issued or passed onto persons described in part VI of the Financial Services and Markets Act 2000 (Financial Promotion) Order This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Copyright: This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of Echelon Wealth Partners. ANALYST CERTIFICATION Company: AcuityAds Holding Inc. AT:TSXV I, Rob Goff, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report. IMPORTANT DISCLOSURES Is this an issuer related or industry related publication? Does the Analyst or any member of the Analyst s household have a financial interest in the securities of the subject issuer? If Yes: 1) Is it a long or short position? position; and, 2) What type of security is it? ne Does the Analyst or household member serve as a Director or Officer or Advisory Board Member of the issuer? Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer? During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer? During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? Has the Analyst had an onsite visit with the Issuer within the last 12 months? Q217 Head Office, Toronto Analyst Product Demo Has the Analyst or any Partner, Director or Officer been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months? Has the Analyst received any compensation from the subject company in the past 12 months? Is Echelon Wealth Partners Inc. a market maker in the issuer s securities at the date of this report? Issuer Yes Yes Yes Page 5 of 7

6 RATING DEFINITIONS Buy Speculative Buy Hold Sell Under Review Tender Dropped Coverage The security represents attractive relative value and is expected to appreciate significantly from the current price over the next 12 month time horizon. The security is considered a BUY but in the analyst s opinion possesses certain operational and/or financial risks that are higher than average. The security represents fair value and no material appreciation is expected over the next month time horizon. The security represents poor value and is expected to depreciate over the next 12 month time horizon. While not a rating, this designates the existing rating and/or forecasts are subject to specific review usually due to a material event or share price move. Echelon Wealth Partners recommends that investors tender to an existing public offer for the securities in the absence of a superior competing offer. Applies to former coverage names where a current analyst has dropped coverage. Echelon Wealth Partners will provide notice to investors whenever coverage of an issuer is dropped. RATINGS DISTRIBUTION Recommendation Hierarchy Buy Speculative Buy Hold Sell Under Review Restricted Tender Number of recommendations % of Total (excluding Restricted) 42% 45% 11% 0% 2% Number of investment banking relationships % of Total (excluding Restricted) 34% 66% 0% 0% 0% PRICE CHART, RATING & PRICE TARGET HISTORY AcuityAds Holdings Inc. (TSXV:AT) $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Sep 14 Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Price Price Target Revisions Date Target (C$) Rating 10 Aug 2016 $2.25 Spec Buy 12 Aug 2016 $2.70 Spec Buy 10 v 2016 $2.80 Spec Buy 17 Jan 2017 $3.90 Spec Buy 26 Jan 2017 $4.40 Spec Buy 8 Mar 2017 $4.80 Spec Buy 3 Apr 2017 $6.00 Spec Buy 10 Jul 2017 $6.20 Spec Buy 8 Aug 2017 $6.40 Spec Buy 11 Sep 2017 $4.25 Spec Buy Coverage Initiated: Jan 27, 2016 Data sourced from: Capital IQ Page 6 of 7

7 Toronto Wealth Management 1 Adelaide Street East, Suite 2000 Toronto, ON M5C 2V Ottawa Wealth Management 360 Albert Street, Suite 800 Ottawa, ON K1R 7X Toronto Capital Markets 130 King Street West, Suite 2500 Toronto, Ontario M5X 2A Calgary Wealth Management 350-7th Avenue SW, 19th Floor Calgary, AB T2P 3N Montreal Wealth Management and Capital Markets 1000 De La Gauchetière St. W., Suite 1130 Montréal, QC H3B 4W Vancouver Wealth Management and Capital Markets 1055 Dunsmuir St. Suite 3424; P.O Box Vancouver, BC V7X 1K Victoria Wealth Management 730 View Street, Suite 210 Victoria, BC V8W 3Y Saskatoon Wealth Management First Avenue rth Saskatoon, SK S7K 1X Oakville Wealth Management 1275 rth Service Road, Suite 612 Oakville, ON L6M 3G Tokyo Capital Markets Holland Hills Mori Tower; RoP # Toranomon, Minato-Ku, Tokyo, , Japan London Wealth Management 495 Richmond St., Suite 830 London, ON N6A 5A9 V8W 3Y Page 7 of 7