Adcore Inc.

Good morning, everybody. We're just gonna wait for all the participants to join and we'll start momentarily. So in another two minutes, we should get going.

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We're just going to wait one more moment for the last participants to finish joining in, and then we can get started. okay i think we're ready good morning everyone and welcome to our investors update conference call all callers are in a listen only mode on this call this morning the company's ceo omri brill will provide an update on the company's operations and strategy followed by a financial review by adcore's cfo yatil sadat of the company's q3 2022 financial statements After which we will answer pre-sent questions and take questions from participants. I would like to take a moment to remind participants of the safe harbor statement. This conference call contains certain forward-looking information and forward-looking statements, collectively forward-looking information, including statements about the company. I would give you now a few moments to take a look at the forward-looking information as reflected on the screen. At this time, I'll be turning the call over to Omri Brill, Adcore's CEO, to update you on the operations and strategy of the business.

Thank you very much, Gab, and good morning, everyone. Thank you so much for joining us today. So with no further ado, let me start my overview of the Q3 results.

So let's start with the number of themselves.

Obviously I will see for Yatir Sadot will go over the financials in more details, but for us it was, Finally, a very strong and good quarter, actually record a quarter for us Q3 in terms of a gross profit. Top line revenue grew up in 45% quarter over quarter. So that's a massive a quarter over quarter increase from us from 5.2 in the second quarter to 7.5 million in the third quarter. a gross profit growing 62% quarter over quarter from 2.1 million in the second quarter to 3.4 million in the third quarter. And that's like an impressive increase in all important metrics. And if you look a bit further down the And what we see when we look at the quality gross KPI that the company stated that there's going to be the KPI that we're looking after in 2022, then we can see gross margin actually improved a lot over the last few quarters. If Q3 2021 was 23%, then obviously it grew up to 33% in Q4. And now about 40% in the last three quarters. And this quarter Q3 was already 46%. That represents 100% increase in gross margin, which is a massive increase. And another important quality KPI for us, it's revenue we are able to generate in North America. And that's, again, we see a massive increase to a record of $2 million in revenue. So if you look at Q1 2021, it was a bit less than $400K. And then fast forward less than two years, it's already $2 million in revenue and also a massive increase year over year increase and quarter over quarter increase as well. So well done over there as well. Working capital, which is another important KPI for us, actually grew this quarter in 400K. And this grow is on top of basically, beside the fact that the company did almost 133 or a bit more than 133, in a share buyback during the third quarter and the AFI's investment of over 500K in Q3 as well. So basically we did buy back, we continue to invest in AFI, but still we enable to grow the working capital in almost half a million, which is a strong and important achievement for us as well. If you look about the important developments that the company announced during the third quarter, then I would say maybe one of the important of them is the launch of an all-new app, the Alerta app. Basically, the Alerta app is an all-new monitor app that we launched under the Edco Marketing Cloud. What the app does, it allows us to monitor 24-7 all our digital assets, including websites that we have, landing pages that we have, the data feeds that we might have, all our campaigns and ad accounts as well. And basically the app gonna send us alerts in real time if something went wrong. So if the website is down, for example, we can get an email alert or in-app alert from the app itself If these issue, let's say number of items drop in the data feed, we can get an alert for that as well. So imagine you're a large advertisers that you run multiple campaigns over multiple accounts with many different data feeds and many different website and landing pages. These apps can basically allow you to sleep well at night while the app continue to monitor and see everything that you're doing and basically send you alert if something went wrong. And the app is the fifth actually apps that we have within the Adcore Marketing Cloud offering. And that's another yet important milestone to achieve the, I would say, the ultimate vision of the Adcore Marketing Cloud, which is basically one place that will allow all the essential apps that the marketer need, similar to what Adobe is doing with the Creative Cloud, basically put all the different apps that the designer need. Edco would like to do the same concept for online marketers. And the alert app is basically a very important step towards materialize this vision of us. We didn't talk about Amphi on the previous earning call and basically people ask us how Amphi is doing. So the short answer is we're doing quite okay. We did like a very heavy investment in Amphi, literally rebuild to rewrite the entire Amphi website and platform from scratch. And I'm glad to report that this massive investment starting to bear fruit. So the idea of it is what we decided to do is to look on the most important KPI of Amphi, what is the unit economic of Amphi, whether it makes sense, whether it doesn't make sense, and how can we improve it. And if you look at all the important metrics with Amphi, we need to to do year-over-year analysis, then paying user grew by 15%. That's still not big numbers because we don't invest in marketing today. A paying user ratio, actually, that's a massive increase of 86%. So if in 2021, out of 100 users that register to Amfi only 9% become paid user. Then now we see fast forward in 2022 Q3, almost 20% of the users becoming paying user, which is a massive improvement. Average LTV or lifetime value of a paying user grew in almost 35% from $36 in 2021 to almost $50 in 2022 numbers, break even a paying user. That's how much we can afford to pay in order to get the paying user. So the number was a bit less than $7 in 2021, and it's nearly now $10 in Q3 2022 numbers. And the same logic for how much we can pay for non-paid user or just to register user, So it was less than $1 in 2021 numbers, and we are nearing $2 in 2022 numbers. So basically, again, a very, I would say, important improvement in all the important KPIs of Amphi. And I think a lot of that is thanks to the new platforms that we launched. And we're happy to see that all the artworks that we did starting to pay off and bear some fruits. And if we talk about the current share price and basically, and we look about like, what is the current share price and also comparables. So we put on the right side of this slide, many different EdTech and Martech company, brand names that you all know, like QTS for example, so Pubmatic and other companies. I would say important ed tech company. And what we can see is that the EV for gross profit multiple, the average is 6.4 versus 2.1 that Edco is currently getting. And if you look at EV to adjusted EBITDA, the market average multiple is around 24 and Edco is getting less than four. So basically this is a major upside in the company stock price, 200 if you look at gross profit metrics, Almost 550% if you look at the adjusted EBITDA multiples. And basically, that gives the company an idea that basically the stock price is currently still undervalued. There's a lot of upside when we look at the current stock price and market evaluation. And in order, not just to talk about it, and we can put our money where our mouth is, that basically during quarter three, we continue to buy back shares as well. We bought almost 500,000 shares for Constellation. Average share price that we bought was around 28 cents. And all in all, the company invested in buyback during the third quarter, $133,000. So finally, we know that last quarter, we already give a guidance for what's going to be the, you know, what we expect to see in the following quarter. And actually I'm very happy to see that we beat our even optimistic guidance expectation for Q3. So that's always good. It's a good start to starting in the right foot. And when we talk about Q4, what the company decided to do, because Q4 is such an important massive quarter for us, and there's a lot that's going on during the holiday sales, that we would like to wait until at least Black Friday, Cyber Monday, a holiday sales are over and only then we can feel a bit more comfortable to give guidance because we want to be accurate and there's a lot of fluctuation about it. So basically, stay tuned. We're going to release a different PRA in the beginning of December, basically given the company guidance for Q4, but I would say historically, and if you look at the current trend, we expect to see a very strong quarter and a good, I would say, trend and momentum that we saw in Q3. We expect to see it going into Q4 and well into 2023 as well. So I think that's, finalize my remark, you know, like on a personal note, every day we come to work and work very hard in order to promote this company and build something together. And after, I would say, a few challenging challenges, quarters, the company did a shift in strategy and did a lot of hard work, focused more on the quality of growth and not just growth. Finally, all this effort is paying off. And I think Q3 numbers tell exactly this story. And Yatir will tell this story in more detail when we're going to go over for the financial. So I can't be more happy with the Q3 report. Maybe I will be more happy with the Q4 report. But again, that's a strong quarter. And I would like this type of reports and quarter, obviously, carry on into Q4 and well into 2023. So thanks, everyone.

And now back to you, Gav.

All right, thank you. I will now turn the call over to Adcore's CFO, Yatir Sidot, to quickly review the third quarter financials in more detail. Yatir?

Thank you, Gab. Thank you, Omri. 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 presented in Canadian dollars. Let's start. Despite a very challenging macro business conditions, it was a record third quarter for Edco. So kudos to the team. Q3 was characterized by a continued acceleration of the strategy. We started in mid 2021 to focus on higher margin revenues. We continue to focus on the more scalable and durable clients, which we believe in the long run will result in more sustainable and profitable business. Now let's review in more detail. For the three months ended September 30, 2021, we delivered revenue of 7.5 million compared to 10.4 million in the same period of 2021, a decrease of 2.9 million or 28%. Cost of revenue decreased by 49% to a 4.1 million compared to 8 million in the same period of 2021. Gross profit was 3.4 million compared to 2.4 million, an increase of $1 million or 45%. In the three-month period ended September 30, 2022, gross margin was 46% compared to 23% in the same period last year. This is a tremendous progress. Gross margin was also improved from 40% in the second quarter this year to 46% in the third quarter this year. Moving to operational expenses, R&D expenses for the quarter were 0.5 million or 6% of revenues compared to 0.3 million or 3% of revenues in the prior year. Sales and marketing and general and administrative expenses for the quarter were 2.5 million or 34% of revenues compared to 2 million or 90% of revenues in 2021. Main reasons for the increase related to the increase in ad count and related salaries, partnership expenses, and emphasis on investment. Looking at the operating profit, operating profit was 0.4 million compared to an operating profit of 0.1 million. This increase was mainly driven by the increase in more profitable clients in the last three months ended September 30, 2022 compared to the same period last year. Net loss was 0.3 million compared to the same amount last year. As we can see in these three charts, revenue kept growing since the first quarter of 2022. We've been experiencing an ongoing increase in revenues from 4.7 to 5.2, up 10% in the second quarter this year, and from 5.2 million in the second quarter to 7.5 million in the third quarter, up by 45%. As I previously mentioned, the most significant revenue trend we saw during the last three and nine months was the increase in higher margin global sales. This has been a key strategic focus of ours as we look to drive long-term shareholder value. Thus far, we see that this strategy is working and we reported and improved gross profits on an intentionally much lower revenue base. This is why we saw a decrease in revenues and increase in gross profit in the same time. Next slide, I will discuss revenue geo breakdown. As you can see in this slide, increase in revenues in North America by almost 1.3 million and 183% year over year. Another tremendous increase in revenues in EMEA by 1.7 million and 110% year over year. Moving to quarterly revenues, I would like to show a quarter over quarter revenues by regions. You can see each region and its own progress in 2022. Major growing regions, as I mentioned a slide before, are North America and EMEA. This slide reflects exactly the trends that we are talking about since the beginning of this year. We exited Q3 with a strong cash and liquidity position. Cash and cash equivalents of 8.2 million as of September 30, 2022, compared to 14.1 million at December 31st, 2021. The decrease in cash and working capital is mainly attributable to the following reasons. First, purchasing shares through buyback plan. As Omri mentioned before, the company sees this strategic and important investment in the company in order to drive more value to ad course shareholders and investors. Second reason, emphasis investment. And the third one related to media payments allocated to 2021 that were paid in the first quarter of 2022. Total working capital of 10.6 million compared to 12.9 million at December 31st, 2021, a decrease of 2.3 million or 18%. We believe to close this year with a stronger cash position compared to the to the third quarter this year. Total assets of 19.7 million compared to 22 million in 2021, a decrease of 10%. We still have significant low debt. The company continues to hold the balance sheet free of debts, financial debts. Quarterly working capital. As Amri mentioned before, we saw an improvement in working capital by 400,000 since the second quarter to the third quarter this year. Adjusted EBITDA. Our quarterly non-GAAP results reflect adjustment for the following items. Depreciation and amortization totaled 230. Share-based payment totaled 76,000. And for the three months ended September 30, 2022, adjusted EBITDA was 734,000 compared to 585,000 for the same period in 2021, an increase of 25%. or 10% from revenues. Excluding AMFI's expenses from operating profit, ETEC operating profit was 741,000 and the relative adjusted EBITDA was over 1 million Canadian dollars in the three months ended September 30, 2022. Now with that, I will turn the call back to Geb.

Thank you, Yatil. Well, that will turn the call over to questions. So this is the opportunity for participants to join in the Q&A if there are any questions. I will give you a moment to do that now. Okay, we will start with a question regarding the receivable accounts. The first question is why did the accounts receivable increase in Q3?

Okay, maybe Yatir would like to answer this one.

So the main reason for the increase is expanding existing clients' accounts and acquiring new clients. As I mentioned before, we have new clients this quarter, more profitable clients than last year. So this is basically the reason behind that.

Fantastic. We have a question from Francisco asking if there are any major milestones with Amphi. Yeah.

So I think like a very important milestone that we've been able to achieve with Amphi is the releasing of the, what we call Amphi 2.0 platform. So it's revision of the entire Amphi website. We also changing a bit the focus of Amphi to put a bit more focus and emphasis on B2B as well. And focusing on the KPIs, the key metrics that basically making sure that the unit economics Amit Singer- Is there, and we are happy to report that we see major improvement over there as well, so the next step would be. Amit Singer- To be the marketing effort, making sure that everything is working according to plan and if everything going to go according to plan, then I would say 2023 will should be able to look at full marketing here for the for our fee.

Great, we have another question from Alexei asking why there is the reduction of $5 minimum in cash, noting that there is 700K for shares buyback.

Yeah, I think it's 5 million. I don't believe you would ask for $5. It's too little. But maybe, Atil, you would like to answer this one?

So basically, I addressed this question during my review. The decrease in cash and cash equivalents mainly attributed to the, of course, purchasing shares, investments in ANFI and media payments that we paid in the first quarter this year that are related to 2021.

Okay. Another question just came in. Are you seeing any opportunities to acquire another company?

Yeah. So I think like, obviously there are opportunities in a different area that the business is operated. And Edco is large enough to operate in a couple of areas, whether it's AFI related, whether it's, you know, tech related, technology related, or even team related. So obviously there are opportunities. Having said that, under the current market condition, the company believe we should talk a bit more I would say conservative approach about what we're doing with our money. But if the company will continue to present strong quarters like quarter three, rebuilding our cash positions, then basically M&A should be on the table. And that's probably going to take place in 2023. So that's the short answer.

Great. Online ad spend has slowed post-COVID. Is this impacting the business and how?

Okay, so actually that's a great question. And we see like the entire, I would say market is a mix, right? So obviously even large companies like Facebook, Twitter, Snapchat are challenging and basically having a more and more difficult time to present solid results. Even better companies like Google or Microsoft are slowing down, having said that, the market is a mix. And Edcoop is lucky enough to be in a very unique position within this specific market. I would say majority of our clients are performance-related clients, and for them, advertising is bread and butter. So if they're going to stop performance activity, they're going to stop acquiring clients and basically damage their business. So we don't see any stop, usually in this type of budget, even under recession scenarios. So this is one answer. And B, Edco is still... small enough in order to not to be impacted too much from the current market condition. So we can still grow within the market because there's no glass ceiling for us. And I see Q3 telling that exactly story. So we've been able to present far better report than our big companies like Google, for example, or Facebook, because we are still much smaller and it's more easy for us to continue growing even under more challenging market conditions.

Okay, and then we have two questions regarding the buybacks. The first is, will you extend share buybacks after May of 2023, and do you expect to make more share buybacks next year?

Okay, so that's actually a great question. I would say with regards to May 2023, we still have enough time to take a decision. So there's no point. Currently six months, there's still like six good months to go to make a decision what exactly we're gonna do in May 2023. We don't know what's gonna be the company cash position by then. And we don't know what's gonna be the share price. So I think it's a bit too early for that. And with regards to like what we're gonna do within 2023, Then again, it's all depending in the stock price. So if you believe the stock price is still under value and we have enough cash to support it, then we're gonna continue the buyback. We still have enough ammunition to do so. And that's probably gonna be the plan. But again, that's depend on the stock price and other marketing condition, but basically this ability and this willingness to continue to support the stock.

Okay, we have another question that came in. With the share repurchase program, do you have a target for the share price in the short and medium term?

Yeah, so if it was up to me, I would say $3. But again, that's like, obviously, it's not up to me. Like, that's the stock market. And there's a lot of different factors that can happen. influence what should be the stock price or share price. Some of them are ethical related, and some of them, unfortunately, are not really even ethical related. So as long as the company believes it's undervalued and there's an opportunity to buy the shares, we're going to continue buying shares. Ideally, for us and for shareholders, we would like to see a stock price that is dollar and up. But again, it's not up to us, and that's not something that the company wants. unfortunately can influence at this point of time, but we can do whatever we can do in order to, you know, like to take, to, to, you know, take use of opportunity and buy shares if we believe that are undervalued.

All right, and I think our last question, you announced significant client wins for Q3. Did this impact the quarter or is most of this going to impact future quarters?

So that's actually a very good question. So I'm glad to report in the sense that that's a very little impact on Q3. So actually, all the good results that we've been able to present in Q3 almost didn't in fact from this recent client win. Obviously, we will see much bigger impact in Q4 and moving forward into 2023 as well.

Okay, and another question just came in regarding the investor relations efforts and if you're speaking to institutional investors or any updates on analyst coverage.

Yeah, so actually I just recently came back from a trip to Canada, obviously visiting our partners in Canaccord and other firms and other investor related meetings that they did both in Toronto and Vancouver. I can say the following, obviously everybody are encouraged You know that Tedco is doing very good under this difficult market condition. We believe that now that the company started to give guidance, it also should be easier for analysts to start getting analysis for the company. But still, again, we are acting under a very difficult market condition and that's not easy for company now to engage. And we smart enough to know that. So we continue to build the relationship. We continue to support existing partnership. And I think once the market gonna start then you will see that Edco will be one of the first movers and rightly so because it's a great company. and being able to present great numbers.

Okay. And any commentary on the pipeline for new accounts regarding how many, size, timing, things to note?

I'm not quite sure that I fully understand the question. Having said that, everything that we could have disclosed was already disclosed within the PR that we recently released.

Okay. And if there are no more incoming questions, I think that will conclude the Q&A portion of this call.

Okay. So...

Thanks again, everyone, for joining us today. It was our pleasure to present the Q3 result and obviously answer the different questions. Everyone in the team, you know, both myself, Martin, Yatir, are literally an email away. So if you have any follow-up question or anything that you would like to discuss with us, you know, feel free to do so. And let us focus now on Q4, making sure that it's going to be even better than Q3. And we'll touch base again once we can... release the Q4 numbers as well.