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spk05: Good morning everybody and welcome to our investor update conference call. All callers are in a listen only mode. I'm going to give a few moments for all participants to join and we'll get started shortly. Okay, we're going to begin now. On the 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 Yatir Sadot of the company's Q4 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 will now give you 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 Omelie Brill, Adcore CEO, to update you on the operations and strategy of the business.
spk04: Thank you very much, Gab, and good morning, everyone. Not every day the company has a chance to present its annual results and for quarter results as well. And for us, that's obviously not a regular day. It's a special day. It's an exciting day. And there's a lot we would like to share with you today. So obviously, we would love or like to summarize the results for the entire year, also what the company has been able to achieve in the fourth quarter. quarter, which is for us the biggest quarter in the year. And equally important, also share some of the company goals, targets, and plan for 2023, because it's not only about what happened in 2022. Equally important, it's what the company is set to achieve in 2023. And I think you will find today a conference call especially interest. So let me share my screen and then let's start with the presentation.
spk01: Okay. So,
spk04: Let's jump right into the numbers. And basically, that's actually a very good slide because it's still in very graphical and visual way how the year was developed for EDCO. So we started the year in Q1 with top line revenue of 4.7. and a gross profit of $2 million. And then Q2 was $5.2 million in revenue and $2.1 million in gross profit. And then a big jump between Q2 to Q3, $7.5 million in revenue and $3.4 million in gross profit. And actually a very strong finish to the year Q4, almost $9 million in revenue and almost $4 million in gross profit. And if you look at just quarterly, over quarter, Q4 over Q3, we see a 17% increase in top line revenue and 12% increase in gross profit revenue as well. So the starting of the year was a bit slow for Edco, but again, we managed to gather momentum, especially in the second part of the year. And basically that's reflect very good in this slide. If you look at gross margin, and if you remember when we just started there, the company says that you want to focus a bit on strategy and focus more on profitability and the quality of growth on the expenses of growth in any cost. So basically, the company set itself a target for the gross margin to be within the range of between... between 40% to 45%. This is exactly what we managed to do. The entire yearly gross managing landed at exactly 43%. So that's right in the middle or a bit in the upper part of the range that we set ourselves to be. And that's a big increase over the 30% gross margin we achieved in 2021. So basically almost 50% increase in gross margin. So that's like for us a very important achievement. And basically that set the company back on the track of, let's say, what historically was the growth. smartening of the company profitability. And another KPI, important KPI for us in 2022 was expanding our footprint in North America, which for us is a key market. And I'm glad to report that we managed to achieve this goal as well. Q4 revenue was almost 2 million. And this is like back to back with 2 million revenue in Q3 as well. And if you look year over year, Q4 compared to 2022, compared to 2021, we can see massive increase of almost 150%. So basically North America is growing and is growing fast and we expect to see this momentum carried into 2023 as well. With regards to AMFI, then actually AMFI can report very, very encouraging result in the entire year of 2022, especially in the fourth quarter of the year. So total revenue for AMFI in 2022, so it was 118,000 compared to 21 or almost 22,000 in 2021. So that's a massive spike of almost 500 percent, and gross profit increased from 81 to 21. Again, a massive spike of almost 300 percent. But equally important, in Q4, Amfi generated revenue of 60 million. That means that 50 percent of the Amfi yearly revenue actually happened in the last quarter of the year. This is following, let's say, a big chance that we did in Amfi, refocusing Amfi on more of a professional side, more enterprise-related courses. And I think that started to bear result. And we are very happy to report, you know, positive result also from the ANFI front as well, especially in the fourth quarter, but I guess in the entire year, especially if we need to compare it to 2021. Another very big achievement of the company in Q4, Edco was nominated the one as Microsoft Channel Partner of the Year in the entire EMEA region. So that's here that we are into this partnership. And over the time, this strategic partnership will improve itself. And the fact that the company has been able to be named as the number one channel partner within the entire EMEA region, that means the strength of this partnership, the value of this partnership, and this is exactly what we would like to see happening in 2023, but with also other channels, not only with Microsoft, and I will touch base about it later down this presentation. So just to wrap up, I would say the key highlights for today's report, if we're talking about early highlights, I would say the following. Gross margin improved from 30% in 2021 to 43% in 2020. in 2022. That's actually a 40% decrease year over year. Client concentration in 2022 went down to 32% compared to 51% in So this means the company is more diversified, there's more client acquisition that happened in 2022, and that means that the company is a stronger, more balanced company in 2022, if you need to compare it to 2021, for example. North America, again, a key market for us, and also the EMEA region. We saw massive growth in these two regions, 25% year-over-year growth in North America and 71% increase in the EMEA region. And even though the company top line revenue went down 2022 compared to 2021, again, if you look under the hood and we start looking at gross profits, and actually we saw an increasing gross profit year over year of $700,000 and 6% decrease year over year. So this means the company... lost revenues that were less quality qualified or less quality revenue with account with lower gross margin and basically not went down in gross profit or gross margin but the other way around we managed to improve in this set two key key factors as well so all in all i would say very positive here and a very strong finishing of the year so if you need to compare the second part of the year to the first part of the year. Just in Q4, we generated revenue like in Q1 and Q2 together. Let's show you the strength of momentum that we have in Q4. When we talk about guidance for Q1 2023, you can see that the same momentum is carried well into into 2023 as well. So if we look at quarterly highlights, again, revenue grew quarter over quarter with almost 20%. Gross profit grew in 12%. Again, massive growth quarter over quarter. AFI revenue in the last quarter was 60K, and that's 50% of the entire earlier revenues that was made in a single quarter. So this means AFI is gathering a very nice momentum as well. And I say all in all, very positive quarter, very positive end of the year or second part of the year. And all in all, we can be very happy with what we achieved in 2022. But equally important, very optimistic regarding what can be achieved in 2023. And when we look at the current share price, which is 0.25, then obviously this is not even near where we think it should be. And if you look at comparable and we put all the major company over there, then you see this is a massive upside to the stock price. If you look EV gross profit, average is almost five compared to less than one for ETCO. So that's more than 600% upside. EV to adjusted EBITDA, 28 average compared to around six for ETCO. Again, 400% upside. And according to this metrics, we can look at an upside of anywhere between $1 to even $1.5 for the stock price. So again, deeply undervalued. And if you look, not only the company don't also put the money where our mouth is, then you can see that in Q4, the company continued to purchase shares. We purchased more than 700 million shares in the open market. Every share price was 0.92 and total money invested in this effort was more than $200,000. And we will continue to do it throughout 2023. If you believe, continue to believe that the share price is undervalued, it is like buying opportunity over as well. So we continue to do whatever it takes in order to support our investors and also seize the opportunity if needed. So when we talk, you know, we already discussed what the company has been able to achieve in 2022 and also discussed, you know, the positive momentum the company gathered in the second part of the year. But then when we look at the Q1 2023 guidance, we can see that we expect the same momentum to carry well into 2023. So we expect revenue to land in the Q1 of anywhere between $6 million to $6.5 million, gross profit to be anywhere between $2.25 to $2.6, and gross margin to be anywhere between 38% to 40%. So very strong opening of the year. This represents top-line growth potentially of anywhere between 30% to 40% year-over-year, and mid-line growth of anywhere between 13% or 15% to 30% year-over-year. So like I say, we have a very positive momentum in Q3 and Q4 2022, and a far better start of 2023 if we need to compare it to how the company started 2022, which was post-COVID start, I would say. And so what are the company targets for 2023, where the company is aiming? And equally important, what you as investor should keep an eye on when assessing the company result, quarterly result, and making sure the company is actually moving in the right direction and execute on what he promised to do so i would say six main targets or six main goals for the company for us this year number one is obviously to maintain a strong balance sheet with a focus on increasing our cash reserve so basically we're already two years into the downtrend in the capital market and nobody have a unfortunately crystal airport in order to know where this target gonna finish We can guess that we are more nearing to the end, that we are into the start, but never again. The company needs to be protective, protect the partnership, protect our cash reserves. This is exactly what we would want to see in 2023 as well. So that's, I would say, number one target. So keep an eye on the balance sheet. Number two is keep our gross margin within the 40% to 50% range. Again, we managed to do it very successfully in 2022, and we want to keep this success in 2023 and beyond. Obviously, this is where we want to be. This is where we feel comfortable being. being number three, achieving double-digit growth both in revenue, gross profit, and operation profit. So I think if we need to look at comparable of what we can achieve 2023 compared to 2022, so we expect in 2023 to present results that actually all the key metrics are moving in the right direction. And we see positive trend, top line, middle line, and bottom line as well. So again, high expectation for the company operational result in 2023. And number four, we would like to see continued expansion and global footprint in North America. So again, a very important market for us. We recently added a full-time salesman in this specific market, and we have high expectation about the potential of expansion we can achieve in this specific market. So again, keep a close eye on what the company is doing in this specific market. Number five, I would say, strengthen the strategic partnerships that we have and to drive mutual growth and increase market share. So the same success that we had with Microsoft, we want to copy it and learn from it and basically take it to other networks as well. So we have a successful also partnership with Google, but now we are looking to expand it to other channels, you know, like behind Google and Microsoft as well. So keep a close eye on your partnership announcement and what the company, can do in this front as well. And last but not least is obviously invest in R&D. So this massive opportunity for the company in R&D, especially now when there's a massive AI boom and the company would like to capitalize on it and monetize on it. So we would like to see more innovation coming from the company, more AI integration into our tool and basically better product offering in 2023. So keep a close eye on new product release, new product improvement, move AI to the product. So this is something that I would expect to see if they present in 2023. So just very short Summary, strong balance sheet, keep an eye on the balance sheet. Strong margin of 40% to 50%, keep an eye on our margin. Double digit growth in all front, all KPIs, top line, middle, middle airline, and bottom line, again, We would hope to deliver all of that in 2023, expand our footprint in North America, so keep an eye on the revenue coming from this important region, more partnership and a stronger R&D and new product releases in 2023 as well. A lot on the plate, a lot to achieve, but I'm sure the company now is a far stronger, better company in the starting of this year, 2023, than where we were exactly a year ago. And I think Yatir can explain more in detail about what the company has been able to achieve in 2022, which set actually a very good foundation to what the company is intent to achieve in 2023 as well. So thanks, everyone, and I'll see you again in the Q&A session.
spk01: Thank you so much, Omri.
spk05: I will now turn the call over to Adcore's CFO, Yatir Sadot, to quickly review the fourth quarter financials in more detail. Yatir?
spk03: Thank you, Gab, and good morning, everyone. I would like to provide a straightforward and comprehensive overview of our fourth quarter financial results, keeping in mind that we'll discuss both GAAP and non-GAAP measures, all presented in Canadian dollars. In the face of challenging business conditions, our team has done an outstanding job in the fourth quarter. We've been focusing on higher margin revenues and more scalable, durable clients since mid 2021, which has contributed the most sustainable and profitable business in the long run. Now let's dive into details. Over the three months ended December 31st, 2022, we delivered revenue of 8.8 million compared to 9.7 million in the same period of 21, a decrease of 900,000 or 9%. Cost of revenue decreased by 23% to 5 million compared to 6.5 million in the same period of 2021. Gross profit was 3.8 million compared to 3.2 million, an increase of $600,000 or 19%. In the three month period ended December 31st, 2022, gross margin was 43% compared to 33% in the same period last year. Gross margin also improved on a yearly basis, moving up from 30% in 21 to 43% in 2020. As for operational expenses, R&D expenses for the quarter were 0.5, sorry, 0.4 million or 5% of revenues compared to 0.7 million or 7% of revenues in the prior year. Sales and marketing and general administrative expenses for the quarter were 3.3 million or 37.5% of revenues compared to 1.8 million or 19% of revenues in 2021. SG&A expenses increased mainly due to headcounting increase, salaries related expenses, partnership expansion expenses, and investments in ANFI. Operating profit was 0.1 million compared to an operating profit of 0.7 million in the same period last year. This decrease was mainly driven by the increase in sales and marketing and general administrative expenses mentioned before. Net loss was 0.5 million compared to a profit of 0.7 million in the same period last year.
spk00: Now let's see the quarterly revenue growth.
spk03: As we can see in these four charts, our revenue has been steadily growing since the first quarter of 2022, accompanied by consistent gross profitability above 40%. This growth indicates that our strategic focus on improving gross margin is working. We've been experiencing an ongoing increase in revenue from 4.7 million in first quarter 2020 to 5.2 million in the second quarter 2020, up by 10%. An increase, another increase to 7.5 million in the third quarter of 2020, up by 45% compared to the second quarter of 2022. And another 8.8 million of revenues in the fourth quarter, up by 17% compared to the third quarter of 2022. We can see two significant trends. First, a substantial increase in quarterly revenues. Second, the sustained achievement, of course, profitability exceeding 40%.
spk00: Now let's discuss the geo breakdown.
spk03: As for our geo-revenue breakdown, North America and EMEA regions showed the most growth year-over-year. As you can see in the slide, I split it to two, the quarterly revenue breakdown and the annual revenue breakdown. On a quarterly basis, you can see EMEA region grew by 27%, and North America region grew by 144%. almost 800,000 of revenue in the fourth quarter of 2021 to $1.9 million in the fourth quarter of 2022. On an annual revenue breakdown, you can see the same trends with the larger numbers. So for EMEA, we went up from 6.5 to 11.1, reflecting an increase of $4.6 million. or 71% of increase. In North America, we went up from 2.6 to a $5.9 million, reflecting an increase of $3.3 million or 125% of growth. In this slide, you can see the illustrations of quarter over quarter revenues by regions. You can see that both quarters, Q3 and Q4, on both regions, EMEA and North America, grew dramatically in the last two quarters of 2022. And we can see the same trend. We keep growing on those key strategic regions. In terms of financial positions, We ended the Q4 with cash and cash equivalents of 8.8 million as of December 31st, 2022, compared to 14.1 million at December 31st, 2021. The decrease in cash and working capital is mainly attributable to purchasing shares to buy back plan. The company sees this strategic and important investment in the company in order to drive more value to headquarters shareholders and investors. Another reason for the decline was related to investment in ENFI. And another one is payments to media partners in order to expand our global network, mainly in the North America region. Total working capital of 9.2 million compared to 13 million at December 31st, 2021, a decrease of 3.7 million or 29%. We believe to generate more cash and cash equivalents in 2023 compared to 2022 due to increased demand on the company's products and improved profitability. Total assets of 19.7 million compared to 22 million in 2021, a decrease of 10%. Significant low debt. The company continues to be a debt-free, which is good, mainly in this very challenging business conditions nowadays. Now let's discuss the adjusted EBITDA. Our quarterly non-GAAP results reflects adjustment for the following items. Depreciation and amortization totaled 234,000. Share-based payments totaled 93,000. And other non-operational items totaled 191,000. Altogether, the total adjustment amounted to 518,000 and the adjusted EBITDA for the last three months ended December 31st, 2022 was 605. Excluding ENFIs expenses from operating profit, ATEX operating profit was 621,000 for 2022. And the adjusted EBITDA for the ETIC activity, it was 2.6 million in 2022. Now with that, I will turn the call back to Gab.
spk05: Thank you, Yatir. And with that, we will turn the call over to questions. At this point, participants are able to post their questions in the Q&A portion, so I will give you a moment to do that. Okay, we will start with the first question. if you can further elaborate on the decline in revenues would you like to answer this one uh sorry gab can you repeat the question absolutely uh the first question is if you can further elaborate on the decline in revenues
spk03: Yeah, for sure. So like I said, we've been focusing on higher margin revenues and more scalable, durable clients since mid-2021. This is the main reason for the decline in revenues. We discontinued the activities. with clients that were low margin profitability. And I think this is the main reason that the company hasn't had the desire to retain low margin clients.
spk05: Thank you. We have another question that came in. Why do you have recurring finance costs when you have no debt?
spk00: Sifo?
spk03: This is basically related to the global operations behind that call. We have like... seven different companies in five different continents, and it's basically currency translations. I mean, we have the Australian dollar market, we have the US dollar market clients, we have exposure to different foreign currencies, and this is mainly the reason for the finance cost. fluctuations between like the foreign currencies and the US dollar.
spk05: Thank you, Yetiel. Another question that came in is what was the impact on the bottom line of Amfi and how does that compare to the impact in 2021?
spk04: I'll repeat again and we'll see how... No, I understand the English, I can understand. I don't really understand the meaning of the question. So if whoever wrote this can better elaborate about exactly what does it mean by the impact on the bottom line.
spk05: In the meantime, we'll move on to another question that came in. Please explain the loss of client C revenue. how is Chinese market fairs based on the China opening its market again after COVID?
spk04: Okay, so actually that's two separate questions, but obviously related because they're coming regarding the same region. So I would say, yeah, client C is part of the, I would say the company overall strategy to focus on clients that have better merging. And client C generated a lot of revenue, but was a very low merging. And strategically, the company decided, that we don't want to continue working with this type of clients. And client C, big as it was, was part of this pile of clients that the company decided not to continue working with. With regard to the Chinese market opening, I would say the following. I recently visited our offices in Hong Kong and I also had the opportunity to travel to Shenzhen and met with our Google partner over there and with clients that we had over there. And that's the first time that I was able actually to visit this region since COVID. So we opened... open these two offices during COVID and I didn't have a chance to meet in person, even the staff that we had over there. So yeah, markets are opening. We see massive opportunity for us in this specific care region and we see tremendous momentum. And we're recruiting people in this region, both in mainland China and in Hong Kong. And we believe that after COVID is finished, that now that we have much better understanding what's working for us and what is not working for us in this specific region, the company actually is very well positioned in 2023 to properly expand this region and make the most out of the investment we did in 2021 and 2022.
spk05: Thank you so much. I think we have a rephrasing of the previous question. They asked how much of a financial loss for you in 2022 compared to the loss in 2021 and the expectations for 2023.
spk04: So maybe you can help with this one.
spk03: Yeah, so I'll give you I'll give you the numbers and I will leave you like to provide the expectation for 2023. So in regards to M fees lost in 2022, that loss amounted to 900 US dollars, 900,000 US dollars. And in 2021, M fees loss amounted to 1.2 millions of US dollars.
spk04: Yeah, and I would say with regards to the company plan of investment in AFI in 2023, I would say the following. A, we have a plan already executing on a plan to save at least 70% in AFI costs if we need to compare 2023 to 2022. So that's already, by definition, 300K less in investment if we need to compare these two years. And hopefully our revenue will continue to grow in 2023 as well. So I would expect our investment to land of anywhere between, I would say, 700, 750 to 900, 950 in 2023, but still a bit of early days into the year to talk about the exact number, but this is high-level estimation. Okay, excellent.
spk05: We have a few more questions here. The first one is, do you believe that the general social unrest in Israel, the government versus Supreme Court, impacts the government's, excuse me, impacts the company's business?
spk04: Yeah. It's an interesting question. I would say the following. Edco by nature is a very global company. So most of the company revenue are generated outside of Tel Aviv, Israel. Yeah, it's true that the headquarters are in Tel Aviv, Israel. So I wouldn't see any... big threat to the company's stability or anything like that. And hopefully things will calm down a bit in Israel and democracy will prevail. So I'm not too worried about what's going on. If any, I need to be worried more as a father of four kids or an husband or a son than a CEO of a company. But again, I'm not worried as a father and I'm not worried as a CEO as well.
spk05: okay excellent um another question is how many shares did you repurchase in 2022 and how many do you expect to purchase in 2023 do you want to answer the first part of the question yeah um can you repeat it uh gab i didn't tell you well So the question is, how many shares did Adcore repurchase in 2022? And how many do we expect to purchase in 2023?
spk03: Oh, Omri covered it in his part. So we purchased... In 2022, we purchased... We purchased over 700,000 shares. This is the number.
spk04: That's just the quarterly numbers.
spk03: I don't have the full year number right away, but I can check it for it.
spk04: Okay, so I think like just on the top of mind, we're talking about around, I think, overall in-market and off-market more than 3 million. Purchase, I think, in 2022. And if you look at 2023, it's still a bit early to determine what will be the final number for few good reason. It's very early today. Nobody knows what's going to be the stock price or the share price. So obviously, if we continue to see opportunity, we continue to buy and vice versa. The stock price is going to go up and there's no need to continue to buy. We don't believe there's going to be good opportunity that we can take a rest a bit. And I say, in general, the company has the buyback plan until May this year. We are planning to resume it for additional year as well. So the company is planning to continue to be involved and continue to deliver support to shareholders as long as it's going to take and as long as we believe there's going to be an opportunity for us in the market.
spk05: OK, great. I have another question coming in. That is, are you moving away from APAC as a strategic sales region?
spk04: Not at all. So I already touched on what's going on in APAC and what's going on over there. I know if you need to compare APAC 2022 revenue to 2021 revenues, then obviously we saw a massive decrease. But if you were going to look at the gross profit, then you will see it's probably remained flat or not declined almost at all. So I think All in all, Epoch remain a very important region for us. Three of the company offices are actually located in this important region. Obviously, we have a massive operation and activity in Australia. Two very successful branches also in Hong Kong and mainly China and Shanghai. and we remain very committed to this region. We also see a better collaboration between the different branches now in APAC, so better cooperation between the Chinese entities and the Australian entity as well. And I think if you need to compare 2023 in APAC compared to 2023, then you're actually going to see growth in this region versus the decline that you saw in 2022.
spk03: Okay. I want to provide the numbers behind the buyback plan for the full year. So we are talking about 3.6 million of shares in the whole year of 2022.
spk04: I'm at 3.6.
spk03: Yes, a million.
spk04: Yes, so I wasn't so far away. There's also a question by Alexey that why we only bought in the NCIB only 1.25 million, if we can... buys 3.1 million. So actually, there is a gap between how much we can buy on paper and how much we can buy on a daily basis. So basically, if you look at the daily basis, there's a limitation on how much the company can buy. Then usually, let's say throughout 2022, the company bought the maximum allowed amount, and this is what it came down to. Also, the company in 2022 a purchase off-market, a very large sum of the former CTO of the company as well. Then I think that's another investment the company did. Like I said, the companies continue to supporting the stock and we continue to do it throughout 2023. We expect all shareholders to do the same, including market makers. Okay?
spk05: Fantastic. um okay if there are no more incoming questions uh we will conclude the q a portion of this call thank you for joining us today and have a great rest of your day thank you thank you guys
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