SOLID Q3/24 RESULTS
THE TD COWEN INSIGHT
We expected better managed-services revenue in our preview note, and ILLM delivered on that, plus continued good growth in self-serve. For a small-cap name with a volatile history, we likely need to see another quarter of good progress like this for the stock to move meaningfully higher, but our estimates and PT have increased.
Event: Q3/24 results.
Impact: SLIGHTLY POSITIVE
Our forecasts assume that ILLM will build on its strong Q3/24 performance (Figure 1 shows the beat versus our estimates) in Q4/24 and through 2025 and 2026. We forecast revenue growth of 15% in 2025, which management pegs as growth for the overall digital advertising market where it operates.
We have increased our target multiple to 6.75x 2025E EBITDA (previously 6.0x), and reiterate that 8x-10x could be justified in the future if revenue growth is sustained at or near the Q3/24 pace. We stay at a HOLD because we believe near-term privatization catalysts are now off the table (the company will likely want to demonstrate organic growth first), and because we think investors will need to see more quarters of good growth before pushing the stock meaningfully higher, given the somewhat volatile history for both revenue and the share price.
Management delivered on its promise to return to growth in the managed-service business, and it is seeing that more customers are utilizing both managed services and Illumin self- service products. We expect a more continued focus on customer retention and a shift
to more recurring revenues overtime, which we would view positively, and we think is something that would be appreciated by investors.
Looking ahead, our forecast assumes EBITDA will not trend directly with revenue growth, as we expect continued investment in areas including sales and customer service activities, and technology used to improve the AI platform. However, we have raised our revenue and EBITDA estimates through FY26, as can be seen in Figure 3.
To date, ILLM has repurchased ~3.8M common shares under its NCIB program since its initiation. This equates to 87% of its allotted limit under the NCIB thus far. The company's liquidity position remains healthy, considering it held over $50M in cash and cash equivalents at period end.
In terms of priority of growth levers, we expect ILLM's focus to be on organic growth for the foreseeable future. After ILLM has moved into consistent positive FCF territory, management intends to consider using its balance sheet for acquisitions to drive the next leg in growth.