Adcore Inc.

Good morning everyone and welcome to our investor update conference call. All callers are in a listen only mode. We're going to let everybody join in and we will officially begin in the next few moments. Okay, we can 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 ADCOR's CFO Yatir Sadot of the company's Q1 2023 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. Okay, at this time, I'll be turning the call over to Omri Brill, AdCourse CEO, to update you on the operations and strategy of the business.

Okay, thank you very much, Gab, and good morning, everyone. Thank you for joining us today for the company Q1 2023 earning call. and for us in the advertising space, Q1 is traditionally the slowest quarter in the month, in the year, sorry. So basically they start very slowly, then it slowly pick up Q2, Q3 and Q4. And actually, when we look at the company quarterly results and we can see exactly this trend in 2022. So that's a really good example. Q1 2022 was 4.7 in top line revenue. Q2 was 5.2 and then 7.5. 0.5 million and Q4 2022 was 8.8 million. So basically, being able to demonstrate such a strong earning report for Q1 2023 give us a lot of confidence regarding what the company will be able to achieve in the entire year. So it's definitely a very strong start of the year. We are very happy and pleased with the reports that we're going to demonstrate today or showcase today. Let's dive into the numbers a bit. Just one sec. Q1 2023 top line revenue was 6.8 million compared to 4.7 in Q1 2022. That's a massive increase of 45% year over year. Gross profit were up by 35% year over year to 2.7 compared to 2 million in the previous year. When we look at quality gross KPIs and the company historically, they only call report to KPIs, gross profit and gross margin, and also revenue coming from North America region for us. But obviously the company have many more important KPIs, but this is some of the KPIs we like to call quality KPIs. And yet again, we see a very strong number. So QE1 2023, like I said before, 2.7 in gross profit, compared to 2 million in the previous year. Growth profit up 35% and growth merging were 40%, which is actually in the higher range of our original guidance, which were 38%. to 40%. So we are very happy with the mid-line result, obviously. And again, when we look at revenues coming from North America, we see a massive 61% year-over-year growth to more than $1.5 million in Q1 2023, compared to less than $1 million in the previous year. So again, two very important KPIs, and both of them are actually moving in the right direction. I want to touch base about AMFI numbers a bit, and these two very interesting graphs that I would like to share with you today. Actually, the first graph is the AMFI monthly average band rate. And we started this graph in Q1 2022, and the average band rate over there back then was 120K. That's USD, by the way. It was very, sorry, monthly average. And then it went down Quarter over quarter, we can see that, let's say, for example, Q4 2022 was a bit less than 100K. And Q1 2023 was around 80K. So that's 33% decrease compared to the peak that we had in Q1 2022. And the company is taking a lot of aggressive measure in order to make sure that the ban rate is going to be reduced significantly. to 60K average in Q2, and then around 40K in Q3, and 33 we estimated in Q4 2023. So that's like, if you need to compare it to 120K, that's a 75% reduction. And the way we've been able to do so is because a lot of the heavy liftings that were associated with building up a new platform, onboarding a lot of new teachers, for example, a lot of tech investment and content creation investment, all of this major heavy lifting we've been done with. So that's actually good news. We've been able now to reduce, for example, the R&D team from six people in the peak to three people. Now, content team was reduced for three to four people in the peak to, I would say, less than one person now working full-time on the Anfi content. So basically, there's a lot of, let's say, saving we can do. And obviously, we expect revenue to increase as well. But in the end of the year, we plan that Amphibian Red is going to be insignificant to the company ordinary course of business, which is, I think, it's a good news for us. It's a good news for our investors as well. And on the upside, although like having this, Amphibian Red is also an upside. But if you look at the bottom report, the blue report, we can see the monthly average blog visitors that we have to Anfi. And like I said, the company invested a lot of creating relevant content for Anfi. And we can see over here a very impressive increase in blog visitors over the course of the past quarter. Again, this is monthly average blog visitors. And if Q1 2022 was less than 3K visitor a month, Q1 2023 was already around 50,000 visitors a month, and then we expected Q2 2023 to be at more than 100,000 visitors, and this is based already on visibility that we have with April and almost half of May as well. So basically, very nice growth trend in terms of interest, visitors, and stuff like that. So again, that's something that was important for us to share with our shareholders. And so just to recap some of the highlights of Q1 2023 report, again, revenue grew by 45%. That's an impressive number. Gross profit grew by 35%. Again, a very nice growth. E-mail revenue grew by more than 80%. Very fast growth coming from this region. North America revenue grew by more than 60%. year over year as well. And even APACs, and we saw a massive decline in this region in 2022, resume its positive growth trend and grow in 30%. And we believe we will be able to demonstrate or show more growth coming from this region in this coming year as well. And when we look at the comparable, the company still believe that the share is still very deeply undervalued. Current share price is 23 cents. As of yesterday, closing a number. We believe there's a very big upside for the company. And that's why the company is buying shares in the market. So we have the NCIP plan going on. And we also bought in market. and off-market total shares that we bought since starting this plan exactly one year ago was accumulated to almost 4 million shares that were bought and canceled and almost 1 million Canadian dollars that was invested in this process. And actually, the company still believes the stock is undervalued. plan to resume the NCIB for additional year and once it's going to be a gut clearance for the exchange, we can announce it and basically that's the company intention and the company is in and the shareholders continue to buy shares, both from the company level and I myself on the personal level as well. Everybody is committed. Everybody understands it's like a value that basically in the current stock price. So if you remember in the last earning call, when it was the summary of Q4, we talked about the company goal and targets for 2023. And I want to go over each of the six goals that we announced in the last earning call and see if the company has been able to meet them or not. So, the first goals that we set is that we want to maintain a strong balance sheet with a focus on increasing cash reserve. So, obviously, we had some drop in the cash reserve quarter over quarter. But again, Q4 compared to Q1, that's something that the company expects. And for the long run, the company... Still believe it can actually increase its cash reserve in 2023. And basically, the company remains very much committed to maintaining a strong balance sheet. So I would say after check over here. Second target is keeping the gross margin within the 40 to 50%. 50% credit. Again, 40%, that's what we did, and that's a check. Achieve a double-digit growth in revenue, growth profit, and operation profit. So that's a full check over here. 45% year-over-year growth in revenue. 35% year-over-year growth in revenue. in gross profit and operation profit improve or the loss in operation profits improve in almost 100%. And we want a number four goal is to expand our global footprint in North America. Yet again, we demonstrate a very strong 60% year-over-year growth, so that's a big check. Number five, strengthen the strategic partnership to drive mutual growth and market share. The company recently announced being selected as the number one Microsoft advertising partner in the entire EMEA region, so that's a big accomplishment. And there's also other exciting news we can't reveal yet regarding this partnership. And we are working very hard and signing new partnership as well. So we're going to announce some exciting partnership coming in the next coming months. So I think, again, a big check over here. The company is in the right track, and every partnership that we sign increases the network effect of the company and the value proposition. And also, it's a good signal to other platforms to say, yeah, this is probably a good company to team up with, to make it a partner, to make it an official reseller. And in some cases, we're also talking about exclusivity in specific markets. And then number six is invest in research and development and driving, obviously, innovation. So yet again, a big check. The company is working on a very exciting, I would say, addition to the company app pipeline. Both a new feature and new apps that are going to release this quarter in Q2. So there's a lot of exciting news coming our way. And I say in the end of the day, like if you need to look of what the company says, it's going to be the company goal. So target for 2023, I'm happy to report the company being able to meet maybe 90% of the goals and targets it's put to itself. So I can be very pleased. why the company has been able to showcase such a strong report in Q1. And we are very bullish and optimistic about what we can still achieve in the next coming year. I know that you're still waiting for guidance for the the second quarter, but we would like to supply them in the beginning of June when we have a bit more clarity about this quarter. But again, we see what I can show that we see the same trend that we saw in Q1 carried into Q2 as well, which is obviously a positive signal. So that's it from my end for the company remarks, and I'm going to add it back to you, Gab, and I guess to our CFO as well.

Thank you so much, Omri. And with that, Yatir, I will turn this call over to Yatir Sadot, AdCourse CFO, to review the first quarter financials in more detail. Yatir?

Thank you, Gab. And good morning, everyone. I would like to provide a straightforward and compressible overview of our first quarter financial results, keeping in mind that we'll discuss both GAAP and NAMGAP measures, all presented in Canadian dollars. Despite the challenging business landscape, our team has excelled in the first quarter. Our strategic focus since mid-2021 has been on generating higher margin revenues and cultivating relationships with scalable and resilient clients. This approach has not only fostered a more sustainable business, but also enhanced our long-term profitability. Now let's dive in into details. For the three months ended March 31st, 2023, we delivered revenue of 6.8 million compared to 4.7 million in the same period of 2022. An increase of 2.1 million or 45%. Yes, an increase of 45% year over year. Post-profit was 2.7 million compared to 2 million, an increase of $700,000 or 35%. Gross margin for the three months ended March 31st, 2023 was 40% compared to 43% in the same period last year. We kept the target range of gross profit between 40% and 45%. As for operational expenses, R&D expenses for the quarter were 0.4 million or 6% of revenues compared to 0.4 million or 8.5% of revenues in the prior year. The decrease is mainly due to the reduction of the development team in the Amphis project. Sales and marketing and general administrative expenses for the quarter were 2.5 million or 37% of revenues compared to 2 million or 43% of revenues in the same period in 2022. SG&A expenses increased mainly due to partnerships expansion expenses. Erez Agmoni- operating expenses operating loss was point 2 million compared to an operating loss of point 4 million this decrease in loss was mainly driving by the increase in revenues. Erez Agmoni- net loss was point 6 million compared to a loss of point 8 million in the same period last year. Erez Agmoni- revenue breakdown. As for a geo revenue breakdown, North America and EMEA regions showed the most growth year over year, as you can see this slide. Year over year revenues by regions, North America and EMEA grew with hyper growth, as you can see in the charts. EMEA grew by 81% year over year from 1.8 million to 3.3 million. North America grew by 61% year over year from almost 1 million to 1.5 million. APAC region grew by 3% year over year. Now let's discuss net cash used in operating activities. One of our targets to a 2023 that we communicate in the last earnings call in fourth quarter 2022 was to preserve a more cashflow in 2023 and to be more efficient. The company used 1 million net cash in operating activities in the last three months ended March 31st, 2023 compared to 2.4 million in the same period last year. This improvement is the result of the team's effort to be more efficient. In terms of financial position, we ended the first quarter with cash and cash equivalents of 7.3 million as of March 31st, 2023, compared to 8.8 million at December 31st, 2022. Total working capital of 8.6 million compared to 9.2 million. at December 31st, 2022, a decrease of 0.6 million or 6.5%. The decrease in cash is mainly attributable to media payments related to the fourth quarter of 2022, purchasing shares through NCIB plan, investment in Amphi, and payments to media partners. We believe to generate more cash and cash equivalents 2023 compared to last year due to increased demand on the company's products and improved profitability. The company continues to show a debt-free financial position, as you can see. In terms of adjusted EBITDA, our quarterly non-GAAP results reflect adjustments for the following items. Depreciation and amortization total 229,000. Share-based payment total 84,000. For the three months ended March 31st, 2023, adjusted EBITDA was 68,000 compared to 85,000 for the same period in 2022. excluding amphis expenses from operating profit, ethics operating profit was 30,000 for the three months ended March 31st, 2023, and adjusted EBITDA for the ethic activity was 343,000 in the same period. With that, I will turn the call back to Gab.

Thank you so much, Atil. At this point, we will turn the call over to questions. You are welcome to put in any questions you have in the Zoom webinar chat. But we will start with a few of our preset questions. The first being from Kari, who says congratulations on returning to the growth on the ad tech side. My question relates to the Amphibusiness. What are your long term goals for Amphibusiness? And as part of your commitment to prudent cash management, what specific steps are you taking to ensure the survival of the business given Amphibusiness' slow growth?

So thank you for the question. I believe actually we have said this issue quite well in the in the slides that we we presented been able to cut it by 33% year over year already, and we have aggressively planned to cut it in additional 33%, or even more, to a total of 75% reduction. So by the end of, I would say, the second part of 2023, AFI shouldn't be no longer a burden on the company cash or... If it's going to be a burden, it's going to be a very minimal one. That's from one end. And from the other end, we expect to start seeing the fruit of our investments starting to bear fruit. And we would like to see some more revenues coming from the AFRI project as well. But again, the company is very committed to maintain a very strong balance sheet. And we will do whatever it takes in order for that to be the case.

Okay, wonderful. We have another question. Given the cash burn rate over the last year and the statements made by the CEO about fiscal responsibility, will management end up taking a pay cut in order to restore the balance sheet?

Okay. So again, the company is committed to maintain a strong balance sheet. We communicated a phase that in this call as well. During COVID, for example, management took a significant cut in salaries for almost 20% or more than 20%. And even post COVID, we just resumed to the pre-COVID, I would say, It's salary. So I think like we do whatever we take and that's mean everything. So if we believe that's going to be necessary, we can obviously have a look at it. But currently we believe 2023 is supposed to be positive year and the cash of the company should be increasing this year. That's at least the company focus and objection and what we are aiming to see in this year.

Cora Bennett , Excellent, this is not a question but comment that says first glance on your results, it looks like a continuation of the buildup of the business good work and hope amphi makes significant progress that comes from Mike would you like to comment on that.

So first of all, it's always encouraging to hear nice comments from shareholders, somebody we respect a lot, like Mike Lipkin. And again, with regards to Amphi, there's a lot of progress being made, both in the reduction of ban rate, in the increasing of the amount of visitors and activities we see in the website. So we remain positive regarding the long-term future of Amphi.

Excellent. It doesn't look like there's any more questions coming in, but I'll give everybody just a moment in case there's a last minute question. If not, with that we will conclude the Q&A portion of this call. Thank you for joining us today and have a great day everyone.

Yeah, thanks everyone. I guess the report speaks for itself. That's why everybody made quite this earning call. But again, thank you for everyone that joined today's call. And hopefully you are happy about this report like we are and positive about this deal like we are. And that's a very strong beginning of 2023 as far as the company is concerned.