Adcore Inc.

Good morning, everyone, and welcome to our investor update conference call.

All callers are in a listen-only mode.

On the call this morning, the company's CEO, Omri Bril, will provide an update on the company's operations and strategy, followed by a financial review by AdCourse CFO Yatir Sadot of the company's Q4 and full-year 2021 financial statements. after which we will answer pre-sent questions and take questions from participants. This conference call, I would like to take a moment to remind participants of the Safe Harbor Statement This conference call contains certain forward-looking statements, including statements about the company. Wherever possible, words such as may, will, should, could, expect, plan, intend, anticipate, believe, estimate, predict, or potential, or the negative, or other variations of these words, or similar words or phrases have been used to identify these forward-looking statements. These statements reflect management's current beliefs and are based on information currently available to management as of the date you're off. Forward-looking statements involve significant risks, uncertainties, and assumptions. Many factors could cause actual results, performance, or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and listeners should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this press release, in this conference call, are based upon what management believes to be reasonable assumptions, the company cannot assure listeners that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this call, and the company assumes no obligation to update or advise them to reflect new events or circumstances, except as required by law. I will now turn the call over to Omri Bril, AdCourse CEO, to update you on the operations and strategy of the business.

Omri. Thank you, Barak. And good morning, everyone. Let me share my screen.

Okay, so again, good morning, everyone, and thank you for joining us for today's call. Today is a special day for me personally, for Edco. Not every day we have a chance to present the company annual results, and obviously Q4 results, which is the strong report that is totally for us. I hope that you're going to like what we have to show today. And me personally, I'm very happy with the result, what we've been able to achieve throughout the year, and obviously what we are able to achieve in Q4. I want to share with the shareholders and investors my overview regarding the result, the way I see it. And obviously, the CFO, Yatir Sadot, will go into more detail on the exact numbers as well. So let me start with the annual result and top line, obviously. So revenue growing by 57% from a bit less than 23 million in 2020 to almost 36 million in 2021. That's a major increase of 57%. Actually, that's the biggest increase the company achieved in its entire history. So 13 million increase. a year over year and this is equal more or less to what the company did in 2018 or 2019 during the entire year so what we did just the delta that we did this year was equal to what the company did two years ago to be a to be exact and equally important all the metrics in 2021 move in the right direction so revenue grew by 57 percent Midline gross profit grew by 17%, and adjusted EBITDA grew by 17% as well. So again, that's exactly the type of report that we would like to see, and that's exactly the type of results that we would like to see for 2021. We could have asked for a better year as far as the company is concerned. And equally important, so if you look at the working capital, we started the year with 7.2 million in working capital and ended the 2021 with 17 million working capital. So again, large increase of 67%, 5.2 million in a total number. And that shows that the company in the end of 2021 is a much stronger company than it entered 2021. If you look at the quarterly result, then what we can see that if you compare Q4 2021 to Q4 2020, actually, we had a decrease in revenue of 28%. But the entire decrease was because we shift media-related budget. And we shift clients from a do-it-for-me type of business model to do-it-yourself type of business model, which comes with better gross margin for us. So basically revenue down in 28%, but cost of revenue down even more in 40%. And that's why when we look at the bottom line and the middle line that we see actually improving the results, year over year, then gross profit actually grew by 5% to 3.2 million in Q4 2021 compared to 3 million in 2020. Gross margin, which was a major focus for us during the entire year, improved by almost 50% from 23% in Q4 2022 33% in Q4 2021. And we believe that we can continue to see this type of increasing moving forward as well. So we did some shift in revenue, but again, middle line actually moving the right direction, obviously. And if you look at the bottom line, operational profit and adjusted EBITDA, massive increase year over year. Q4 2021 was 76K. And if you compare it to what we did in Q4 2020, then we see an increase of more than 300%. So that's, again, a major increase, and that demonstrates that the gross quality parameters actually move in the right direction during the quarter. And when we talk about quality growth, there's two factors that I want to keep a close, I want investor to keep a close eye on. And let me start by the first one, which is indirect revenue stream. If you remember the company of two main revenue stream, indirect revenue stream, which come historically with high gross margin and direct revenue streams that come with a lower gross margin. And what we can clearly see is that if in Q4 2020, indirect revenue stream was beat over 200K in revenue, the company quarter after quarter being able to increase this important revenue stream to above half a million in Q1, 666,000 in Q2, more than 1 million in Q3, and double up between Q3 to Q4 to 2.2 million in Q4. That's a massive increase in revenue between Q4 to Q5. to Q, sorry, Q4 2020 to Q4 2021, almost 1000% decrease. So that's a big number we're talking about, and this is a very important KPI for us when we see the growth. And if you look at revenue from North America that we identified as a strategic market for us as the market the company would like to grow, Then again, Q4 2020, less than 200,000 in revenue. And Q4 2021, almost 800,000 in revenues. And that's, again, more than 300% gross year over year. And we see that every quarter, there's a buildup of this important revenue stream. So when we look under the hood, it's not only the top line, middle line, and the adjusted EBITDA or profit. We also can see how quarter over quarter during 2021, the company being able to improve the important KPI of quality growth. That's why we are so happy and pleased on today's result, what we've been able to show during the entire year of 2021, especially in Q4. But for EDCO and for investor, we understand obviously operational results are super important, but for us, it's 2021 was not only about operational result, which was as good as it's get, but equally important, it was about strategic initiatives that we took during 2021. If you want to go, by the timelines and in March 21, the company graduated the T6 from the T6V. We've been the first Israeli based companies that have been able to achieve that. We opened a new subsidiary in China, again in March 21. We commenced trading on the OTCQS in June 21, which was very much anticipated by our US investor. We did the fundraising of above 4 million in June 21 as well. We officially announced the launching of the Amphi EdTech platform in July 21, launched the Edcore Marketing Cloud on September 21, and open a new subsidiary in the US in September 2021 as well. So that's a lot that we're going on in 2021. And when I was looking back and we were creating the presentation, I was personally amazed how much we've been able to achieve during 2021. And that's, again, parallel to the operational results that we've been able to show. And for us, this important strategic initiative is going to lay the foundation and set the right infrastructure for the future growth of the company in many years to come. So again, very important initiatives that only got started or been able to be set in 2021, but going to make a large impact for the company for many years to come as well. So few numbers regarding AMFI annual and quarterly growth number. Then if you can look at, let's say, the year-over-year growth, and AMFI actually just started in December, around December 2020, is a better stage. Then we can see that classes number We grew up more than 3,000%. Just the growth data was more than 1,300 new classes been added to Amphi during the past year. Visitor number growing more than 7,000% by almost 200,000 visitors sign up. grew by 8,000 total ad quant, 17,000%. Transaction, again, 8,000% growth. So these are big numbers we're talking about. But again, Amphib was just like not even a baby in the beginning of 2021. But if you look at the Q4 21, that's a mistake. It's Q4 21 compared to Q3 21. Then classes numbers grew by 53% and by Delta was almost 500 classes just in the last quarters that were added to the platform. Visitors numbers grew by 52% or 80,000 visitors total. Sign-ups grew by 100% to almost 500 new sign-ups to the platform during COVID. during the last quarter and transaction, again, grew by almost 50%. And this is quarter over quarter growth, this is not year over year growth. So we can clearly see that in the last quarter and Q4 for Amfi, was equal to 50% for the entire year. And as we consider like AFI is definitely moving in the right direction, AFI is still in a stage that we consider to be pre-revenue, almost pre-revenue and pre-marketing, but we are landing the foundation and we can see like a good organic growth quarter over quarter and for sure year over year as well over there. Another remarks that I would like to say is regarding the current stock price and I know investors, especially investors that bought the stock price in higher prices than what it is trading today, have a lot of concern and ask themselves like what's going on and what's the company plan regarding the current stock price. So few remarks regarding that. exactly one year ago in the end of February, 2021, the stock price was $2.7 and the markup of the company was over 150%. And today in the end of February, 2022, stock price is almost 0.50 cents and market cap 32 million. So obviously it's been done a lot. And I want to mention a few things regarding that. Since February 2021, we saw a very big decrease in all the microcops, tech company across the board. And even from the beginning of, let's say, for the last six months, even mid-cap companies went down a lot. Companies that are much bigger than Edco have Bigger markup, trading on the Nasdaq, which better liquidity, obviously. Again, Wix, for example, went by 75% over the last 12 months. Shopify, which is a brand name in Canada, and maybe the Canada-based tech company, went down by 65%. Fiverr. Almost 70%, Acuity by more than 82%, EDCO by 69%. And the average drop in the past 12 years was around 72%. And this, again, all these names above EDCO with much larger, sorry, market cap and bigger brand names and ethical trading on the Nasdaq. So we can clearly see it's not just an ethical thing. Unfortunately, we saw a very soft market overall in tech and even big tech brand name, Facebook, Netflix, even Tesla are now went down more than 50% in the last even quarter or so. So again, the market is, obviously soft, we see overselling across the board. And we believe actually that the current price is a buying opportunity. And we don't see it as something that is negative against the company. The point for me to emphasize that exactly one year ago that the company was trading, the stock was 2.7 and the markup was 152. We've been... presenting half of the revenues that we are presenting today. We've been maybe half of the talent team or the ad cons that we are here today. And basically that was like, maybe, you know, the company grew a lot in the past year. So if we got this evaluation one year ago, I would say that maybe Adco should be traded at $300 million market cap. And this is where I truly believe we're going to see it again. So again, this is a deep in the stock price. It's not an ethical thing. It's an overall marketing and a tech thing, but the company is focusing is what important for us is growing the market share, growing the numbers. Obviously we have very strong balance sheet to support even more than a downtrend, like one or two year if needed. And I think is ethical is actually in a good position. And I think like now, that the market is oversold and maybe it's representing a buying opportunity. That's my personal belief. I bought Edco share throughout the deep and I will continue to do so because I believe their share price is undervalued. A few remarks regarding 2022 roadmap and the company focus and plan for 2022. So for us, 2022 going to be in American here. We are planning to open a physical office in US in the second part of 2022. We are considering a NASDAQ listing as well. Obviously, the market now is soft, but that should be played hopefully by 2022 or 2023. And so that's one focus for the company. Put more emphasis on North America. We believe there is a lot of opportunity for the company to continue growing in this important region. Another focus area going to be the quality of the growth. So we're looking to continue improving our gross margin. Ideally, for the low ground, the company want to be at around 50% gross margin, which was the historical gross margin of the company pre-COVID. And we believe that 2022, the goal should be to achieve at least 40% gross margin. Increase indirect revenue stream, which again, are more quality, more scalable, and come with better margins. Expand our tech offering, which again, will contribute to all the rest of params and M&As. We are putting more and more emphasis on M&A, whether it's going to be tactical M&As to support geo-expansion or talent recruiting, or strategic M&A to expanding the offering of AMC and ANFI as well. So basically, these big plans for us for 2022, and I truly hope that we can achieve even more than what we've been able to achieve in 2021 in terms of strategic initiative as well, and obviously being able, from the other end to continue to show very strong results as well. So that's concluded my remarks. I hope that's helped to give a bit more context regarding the result, regarding the way management see this current stock price, regarding what's the company plan moving forward as well. But again, It was traded exactly one year ago at the 2.7 stock price. It's actually, to date, much stronger, much better companies than it was there 12 months ago. And not like by small numbers, but almost double up the numbers that we did exactly one year ago. And that's my personal belief. And again, I see the current stock price, if any, as a binary opportunity. So thank you very much.

Barak, back to you. Thank you very much, Omri.

I will now turn the call over to Yatir, AdWords CFO, to quickly review the fourth quarter and full-year financials in more detail. Yatir?

Thank you, Barak, and good morning, everyone. Before beginning the financial overview, I would like to remind you that the following discussion will include GAAP financial measures as well as non-GAAP results. All amounts will be included in Canadian dollars. As you have seen in our results, 2021 was a very strong year. Revenue of 35.7 million was up 57% compared to last year. During the year, we benefited from the continued significant shift to e-commerce in the digital advertising ecosystem, which resulted in continued strength from our indirect revenue stream across North America and APAC regions. With our strong top-line performance throughout 2021, we achieved adjusted EBITDA of 3.9 million compared to 3.3 million for the same period in 2020, an increase of 17%. Now let's discuss comprehensive income. For the year ended December 31st, 2021, we deliver the record revenue of 35.7 million compared to 22.8 million in 2020. An increase of 12.9 million or 57%. Gross profit increased 17% to 10.8 million in 2021 from 9.2 million in 2020. The increase in revenue and gross profit were mainly driven by growth in our direct China channel, mainly with strong growth in APAC and North America. Focusing on the fourth quarter of 2021, For the three months ended December 31st, 2021, we delivered revenue of 9.7 million compared to 13.4 million in 2020, a decrease of 3.7 million or 28%. Cost of revenue decreased by 3.9 million or 38% to 6.5 million compared to 10.4 million in the fourth quarter of 2020. Gross profit was 3.2 million compared to 3 million, an increase of 200,000 or 7%. Although the company experienced a decrease in revenue, we saw an increase in gross profit as we switched direct clients to the do-it-yourself model, making them indirect clients. We started this trend during 2021 and its momentum increased, especially during the fourth quarter. With higher profit margins from a growing number of indirect clients compared to direct clients, we saw increases in both gross profit and operating profit compared to Q4 2020. Moving to operational expenses, research and development expenses for the quarter were 700,000 or 7% of revenues compared to 400,000 or 3% of revenues in the prior year. The increase was mainly due to hiring more engineers in the three months ended December 31st, 2021 compared to the same period in 2020. Sales and marketing expenses and general and administrative expenses for the quarter were 1.8 million or 18% of revenues compared to 2.4 million or 18% of revenues in 2020. The decrease was attributable mainly to the share-based compensation. Operating profit was 700,000 compared to 200,000, an increase of 500,000 or 356%. This increase was mainly driven by the client shifting from direct to indirect model as mentioned before. Net profit for the quarter was 700,000 compared to a loss of 100,000, an increase of 800,000 or 800%. All right, now let's move on to the balance sheet. We exceeded Q4 with a strong cash and liquidity position. Total working capital of 13 million compared to 7.8 million as of December 31st, 2020. An increase of 5.2 million or 67%. Cash and cash equivalents. of 14.1 million as of December 31st, 2021, compared to 11.7 million at December 31st, 2020. The increase is mainly attributable to the capital raise the company completed in the second quarter of 2021 and the ongoing business Looking at the liabilities side, significantly low debt. The company repaid its loan from government during the second quarter of 2021. And as of December 31st, 2021, the company doesn't hold any financial debt on the balance sheet. Total assets of 22 million compared to 17 million in 2020, an increase of 29%. Now, the next slide, you can see the revenue breakdown by GEO. And the most significant revenue trend is the increase in indirect sales to 2.3 million in the three months ended December 31st, 2021, compared to 238,000 in the same period in 2020. The growing number of indirect clients with higher profit margins compared to direct is what we refer to as a quality growth, as Omri mentioned before. Now, I made a special slide and called it adjusted comprehensive income. This is not adjusted debita, but I wanted to give you a look how the comprehensive income of the Maltec activity only is reflected. So excluding ENFIS loss and excluding the fundraising and his loss total loss in 2021 was 1.2 million. The fundraising related expenses were 1 million excluding those items and looking only on the market multi-care activity operating profit was 3.3 million compared to 1.7 million in 2020. And in case of 1.6 million or 95% net profit for the Martech activity alone in 2021 was 1.8 million compared to 800,000 in 2020. As you can see, Martech activity grew rapidly both in volume and profitability in 2021 compared to 2020. Now let's move on to the adjusted EBITDA. Our quarterly non-GAAP results reflect adjustments for the following items. Depreciation and amortization totaled $248,000. Share-based payment totaled $158,000. For the three months ended December 31, 2021, adjusted EBITDA was $1.1 million compared to $996,000 for the same period in 2020, an increase of 17%. Excluding Amphi from the Maltec activity, adjusted EBITDA was 1.8 million compared to 996,000 for the same period in 2020, an increase of 80%, as you can see. Now with that, I will turn the call back to Barak.

Thank you, Atir.

With that, we will turn the call over to questions that were pre-sent and also some that were sent over during this call. We'll try to get to all of them. So Omri, how should we think about your gross margins going forward?

So I mentioned it before in my opening remarks. Again, historically, the gross margin numbers for the company was around 50%. The change during COVID, because of shift or big increase in direct revenue streams that come with low gross margin, and the company plan to move back to these numbers. Again, I will be happy if we're going to land it around 40% or maybe even higher in 2022.

Given your growth in North America, does that impact your thinking around timing of a potential NASDAQ listing, something you kind of addressed during the call, but still?

It's a good question, actually. Obviously, it's setting a better foundation for us to do a move in a graduate to do NASDAQ listing. Having said that, obviously, the markets are extremely soft right now, and we will need to wait for better momentum in the market or better market condition before we're going to make such a move. Having said that, the fact that the company is growing strong in North America is setting the right foundation for this type of move later down the road.

A few questions about Amfi.

What were Amfi's revenue in this quarter?

Yeah, so Yatir will be able to answer this question in more accurate, but I would say non-GAAP revenue was around 50K, maybe a bit less, and GAAP revenue, it's 19% of that, so it's around 10K, maybe a bit less. But again, Yatir will be able to answer this question better than I am. Omri, your numbers are correct.

Thank you so much. Another AMFI-related question.

You invested in AMFI. What do you plan to invest in AMFI in 2022?

The company up until now been able to maintain a reasonable cost to investing in Amphibia. We can clearly see it in 2021 numbers. So with the investments that we did in Amphibia, the company has still been able to show very positive report, strong middle line, strong bottom line as well. And we are planning to keep an AFI cost and investment in the same lines that were in around Q4, which is around 650K quarterly. So that's going to be more or less the AFI budget moving forward. That's the current plan. So it's still under control and very well managed.

You had previously expressed that the company would increase its focus on M&A.

Is this still the case?

Yes, more than ever, I would say. So we think it's a good timing for the company to do some interesting M&As. Obviously, the company now actively looking on more than one opportunity. And we have plenty to look for with these AFI-related M&As that we can do, these EDCO direct-related M&As that we can do, these more tactical M&As that we potentially would like to do, then I would say. M&A is something that is now definitely one of the company's biggest focus areas.

Question. This one's from Daniel.

I would like you to please give some color regarding the management fee to CEO and controlling shareholder in Note 18 of the CDAR-filed financial statements.

Okay. Few remarks, obviously, everything is noted in Note 18. I would state the following. During COVID, in the beginning of COVID in 2019, me personally, the CEO, was given away two months of salary. And then after this, we cut our salary by 10%. And that's meant to be the case today. So our base salary, both myself and the CEO, obviously remain even lower than where we used to be in 2018 before COVID. So that's one remark that investor would need to take into consideration. And I think another thing that regarding note 18 of this yield is at least 100K that belong to 2020, but was reflected in 2021 report the number. So actually, if you look at 2021 compared to 2020, the overall compensation decrease and not increase if you look at exactly on the relay metrics. And I would say, overall, the compensation didn't go anywhere. It stayed the same flat 2019, 2020, and 2021. Maybe I should ask for a raise.

What do you think, Barak? You're well-connected, maybe. I mean, I don't know.

Yeah, I mean, that was a strong result, you know?

Another question. This is from the Q&A portion. Well, Marie, could you please provide an update on any discussions about analyst coverage for your Q3 update?

So that's actually a very important question. I would say the following. A, towards the end of 2021, kind of called the... did around the corner report on ETCOR. So that was a very positive report that Canaccord doing, and usually around the corner report by Canaccord, that's a preparation for a full analyst coverage by Canaccord. And we hope that after the release of Q4 numbers, we can see like a full coverage starting from Canaccord analyst. So that's one remark. And I think like, obviously now, because the stock went down a lot, then analysts are a bit more hesitated. They want to see the Q4 numbers, which is historically a very strong quarter for us. And I think now, once the results are out there, I'm a bit more optimistic of the company starting to get proper analyst coverage, both by Canaccord, potentially by Asheron as well, and maybe by other independent analysts as well.

And another question from Daniel from the Q&A. Looking forward to the company providing guidance for Q1 2022 and for the full year.

OK. So historically, the company didn't give guidance. Obviously, this is still a very volatile market. But during COVID or post-COVID, and the company don't give revenue guidance, we do However, give some context regarding, for example, gross margin, where we would like them to be, or the company focus. And I think that can give investors more or less, let's say, reassurance where the company is aiming and where this bot is selling to.

Thank you, Omri.

A question from the QA about Amphi from Nancy Gortzen. What is the market differentiator for Amphi compared to Thinkific?

Yeah, so unfortunately, I don't know where Thinkific is.

you think too good. So that's maybe something that the Amphi GM would need to answer. Having said that, I would say Amphi, it's all about live learning and live streaming. So that's very much different from, let's say, big company like Udemy and other company, even like master classes that basically are about asynchronous content, pre-recorded classes that basically you can watch. In Amphi, it's all about live and that's a big differentiator for Amphi. The entire, let's say, live learning scene wasn't even there two years ago. So that's a new and a blue ocean that Amphi is now tapping into.

And I'm gonna ask you a question now, Omri, that's kind of a consolidation of a few questions, something that we've been getting feedback also sent in from the pre-sent questions and also from the QA here. Given the current low valuation and multiples for AdCore shares, are there any plans this year for a share buyback or repurchase program?

So obviously, the short answer is yes. That's something that we can definitely, we are definitely considering. And that's part of, let's say, the overall consideration of capital allocation of the company. Obviously, the more the share price gonna continue to go down, the bigger the incentive gonna be for the company to announce a buyback plan. So we have enough money. We have the will and the ability to do it. And if you believe that's the right capital usage of the company, that's something that we definitely do. In the end of the day, we're building the company for the long run. So if you believe, for example, M&A going to do better usage with the company capital, then we're going to now say M&A, for example. But it can be combination of both. The company have more than 40 million in cash. And that's something that we are definitely considering. The company is committed, you know, to bring strong result, but also to support the stock price. You know, I'm the largest shareholder in the company. And like anyone else that ever had a share, I would like to see the share price much higher than what it is right now.

Okay. So...

I think that with that, we'll conclude the Q&A portion and finish up with this call. So I'd like to thank you, everyone, for joining us on this call. Thank you, Omri. Thank you, Yatir. And have a great day, everyone.