Adcore Inc.

Good morning, everyone, and welcome to Adcore's Investor Update Conference Call. All attendees are in a listen-only mode for the duration of this conference. On the call today, the company's CEO, Omri Brill, will provide a management declaration. This will be followed by an introduction from Adcore's Director of Finance, Amit Konforti, and subsequently, Adcore's CFO, Yatesa Dot, will present a financial overview of the company's Q3 2023 financial statements. We will then address present questions and time permitting, take questions from participants in the chat below. Before we proceed any further, I want to ensure your attention to the safe harbor statement applicable to our discussion today. It's important that you take a few minutes to read this statement carefully. The statement will also be viewable on our website once the call is finished. As mentioned, the statement will be viewable on our website afterwards, but I will now be turning the call over to Adcore CEO Omri Brill.

Thank you very much, Danny. And welcome everyone. Let me share my screen. Okay.

So again, welcome everyone. And it's my pleasure to discuss at CoWay Q3 2023 financial results with you and give you some context and highlights. But actually, before we can start to get started talking about Q3 results, I would like all of us to take a moment to talk about the overall results terror attacks that Hamas did on Israel on October 7, almost a bit more than one month ago. I would like to obviously say that the hearts of everyone here in Edco goes to the families that lost a loved one during this horrible attack. And obviously we pray with the rest of you for the quick return of all the kidnaps. So it's not an easy time for us now in Israel, but I can say that it's also a very encouraging time for us in Israel. There's a lot of people that are stepping up, whether as individuals, as companies, taking some action, supporting the communities. And basically, I'm always proud to be Israeli, but in times like that, I'm even more proud than ever to be Israeli. And I would like to discuss with you a few very important initiatives that Edco took as a company in order to support the communities. So I don't know if everyone is aware, but due to the war, more than 200,000 children and their families from border towns around Israel, mainly in the south and north of Israel, have to be evacuated. So these communities evacuate to kibbutzes, evacuate to hotels in the center of the country, And basically, there's a lot of needs to support these evacuated communities, and EdCorp took a few initiatives regarding that. The first initiative I would like to cover is what we call IC3. So basically, we open an ice cream booth and go to each community, and we visited more than 10 communities around Israel. with the ice cream booth. So the Icy Treat is one initiative and you can see some familiar faces from Edco taking part of this amazing initiative, obviously including myself and other within the management and the rest of the team here in Tel Aviv. And I want to cover another initiative that we took, which is, I would say, currently the main focus of the company as an initiative and what we call the Keep on Riding project. So under the initiative of the Keep on Riding, we decided that we would like to contribute new or used bikes to children from these evacuated communities. So it started as a need to come from specific communities that we knew that were evacuated, and we decided we can expand it and reach more kids and more communities. And obviously, with your help, we can reach even more. So I would like to share another video from this effort, and then we can discuss this effort a bit further. So, So this specific project is very dear to our heart. Collectively, between what Edco contributed to this project, what management and individuals contributed to this project, we already collected more than 100,000 checkers to this project. And we hope that with your help and the help of others, we can collect even more and reach even more children in need. and so basically we're going to share this presentation but you can donate clicking on this button donate now or you can simply visit our the company website at core.com and find more details about this important project and how can you help and take part of it so i encourage everybody to take involved usually you say that when you give something you get more in returns at what you're actually given and i can tell you that that's that's actually true and helping these communities and helping these kids is is the most important thing we can do right now as individuals and obviously as company it's important and we need your help continue supporting this uh important project And so after we discussed some initiative, obviously following the 7th of October attack, I want to go deeper into the Q3 2023 report and provide some highlights and context to the numbers. And so all in all, yet another strong quarter for the company and this strong quarter go back to back with And not like first strong first quarter results, strong second quarter result, and now a strong third quarter result. So definitely a very positive start of the year. We already collected more than 80 or 86%, if I'm not mistaken, revenue this year than what we did in the entire year of 2022. And bear in mind that Q4 historically is the strongest quarters of the month for us. So this is like still more good news hopefully to come. And if you look at about the top line numbers and gross profit, so total revenue in Q3 were 8.2 million Canadian. That's representing 10% year-over-year growth compared to the previous period last year. And if you look at the nine months, we're looking at almost 30% year-on-year growth, which is a very strong indicator of how the entire year of 2023 is going to end for us. Gross profit, again, we saw quarter over quarter increase of more than a 10% to 3.3 million. And all in all, both top line numbers and midline numbers looking positive for us. And if you're looking at quality gross KPIs and gross margin was 40%, which is within the norm of what we're likely to be between 40 to 50%. So again, where we would like it to be in North America was remain a flat what we expect to see a very strong growth in North America actually in Q4 and obviously in 2024 in general. So we are very optimistic about what we can achieve in this specific market. If we talk a bit about Amphi results and a few highlights regarding the results, we discussed that we would like to reduce the burn rate in Amphi for the bare minimum. So if the average burn rate in Q1 2023 monthly burn rate was 81,000 Canadian, we already reduced it by 50% to 41%. a Canadian in Q3 2023, and we expect this trend to continue in Q4 2023 to 25,000 Canadians. So again, the bear rate is now going to be in the bear minimum. And there's something that we are definitely seeing very positively about. And from the flip side, when we look at the number of visitors to Amphiblog.com and Amphiblog, you can see definitely positive trend of increasing numbers of visitors. Q1 was 48,000. Q2 was a bit less than 100K. Q average monthly, Q3 was 115K average monthly visitors, and then we expect Q4 to end up in around 130,000 monthly visitors. So again, the two graphs are act exactly the way we want them to act, cost going down, number of visitors going up, which is obviously positive. And so just to sum up, revenue grew 10% year over year. If you look at nine months, it's almost 30% year over year, which is amazing. IMEA, solid growth of 20% year over year. APAC, solid growth of almost 20% year over year. And cash and cash equivalent grew by 21%. This is actually something that we are, it was a focus for the company. And if you remember in previous earning call, we discussed that the company anticipated to have like a stronger balance sheet towards the second part of the year. And actually it came a bit earlier than what we anticipated. So we are very happy with the result. Both in cash flow and cash position for the company, which were improved. significantly in the third quarter of the year. And Yatir will provide a bit more color to these numbers on his presentation as well. Comparables, so again, when we look about the current share price and the company valuation, obviously there's a big gap between what we think the share price should be and where it is. This gap for us at least represent an opportunity. This is why Edco continued to purchase shares within the market. Obviously, every day we buy the maximum allowed amount of shares that we can do under the NCIB plan. And we continue to do so as long as we think the share price don't really represent the true company valuation. So I think, again, for us, this gap represents an opportunity, but every shareholder is obviously smart enough to do his own calculation. And finally, I would like to discussed regarding 2023, the beginning of the year, and see if the company was enabled to meet them or not. So the first goals that we took on ourselves in Q3 was to maintain a strong balance sheet. So obviously now in Q3, both cash position, cash flow were improved, and we are very optimistic about what we can achieve in Q4 as well. Obviously, traditionally, Q4 should be the strongest quarter of the year. So again, Improve the balance sheet, and we expect the balance sheet to improve even further during the last quarter of the year. range again checked on this one achieved double digits growing revenue and gross profit checked the company grew 10% in the third year on the third quarter and grew almost 30% for the nine months of 2023 compared to the same period last year and expand our global footprint in North America. So again, we saw good results coming from all regions, but the company is very optimistic about the goals we can achieve in North America, specifically from Q4 and beyond. And that's something that we definitely will encourage you to keep a closer look on, because that's a big market for us and it presents a massive opportunity for the company. And striking a strategic partnership, check, you know, Microsoft, 3T or RTB, and I can name a few more names like that, that all of them have a very strong partnership with Adcore, obviously Google, and Facebook, or Meta as well, and invest in R&D. So our continued investment in R&D is responsible to some of the fruits that we see now in the Q3, earning a report. So again, all the goals which you took on OCEF in 2023, I can proudly say that we met all of them and hopefully the same positive trend that we saw in, let's say, in the first three quarters of the year will continue into Q4 as well. So I think with that, I concluded my part and I'm going to end it over back to you, Danny.

Thank you, Amrit, for your performance insights. I will now pass the call over to an introduction from ADCOR's Director of Finance, Amit Konforti.

Thank you, Danny. And good morning, everyone. Allow me to introduce myself. So my name is Amit Konforti, and I currently serve as the Director of Finance here at ADCOR. Starting next week, I will be stepping into the role of CFO. During my time at Edcore, I've been deeply involved in all of the financial aspects of the company, and I believe that this experience has prepared me well to the transition to the CFO position. A bit about my professional background, I am a CPA with over 10 years of experience in various industries and also in public companies. Lastly, I wanted to say that I am very excited about the opportunity to continue Adcore's success and also drive its growth and financial stability even further. So thank you. And with that, I will turn the call back to Danny.

Thank you, Amit. We look forward to seeing you start your new role here at Adcore. Lastly, we will hear from Adcore CFO, Yatir Sadot, who will provide an overview of the Q3 2023 financial statements.

Thank you, Danny, and good morning, everyone. I would like to present a clear and comprehensive overview of our third quarter financial results, highlighting both gap and un-gap metrics, all denominated in Canadian dollars. As Omri mentioned before, despite facing a difficult business environment, our team performed well in the third quarter, maintaining the same positive momentum we experienced in the first two quarters of 2023. Since mid-2021, we've strategically focused on higher margin revenue streams and building relationships with scalable, resilient clients. This approach has enhanced our business sustainability and improved our long-term profitability. Now let's dive into details. For the three months ended September 30, 2023, we delivered revenue of 8.2 million compared to 7.5 million year over year, an increase of 0.7 million or 10%. In terms of sequential growth between the quarters this year, we are delighted to have achieved a 90% increase in revenues, amounting to an impressive increase of 1.3 million when compared to the second quarter revenues this year. Gross profit was 3.3 million compared to 3.4 million, almost the same level year over year. This quarter gross margin was 40% compared to 46% in the same period last year. We kept the target range of gross profit between 40% and 45%, And we feel pretty much confident about that result. As for operational expenses, R&D expenses were 0.3 million or 4% of revenues compared to 0.5 million or 7% of revenues year over year. The main reason for the decrease is primarily attributed to the strategic shift towards operational efficiency and the successful reduction of development expenses in AMP fee. Sales and marketing and general and administrative expenses were 3 million or 37% of revenues compared to 2.5 million or 33% of revenues year over year. SG&A expenses increased mainly due to partnership expansion and marketing expenses. Operating loss was 0 million compared to an operating profit of 0.4 million. And let loss was 0.2 million compared to a loss of 0.3 million year over year. Total revenue. As you can see on the left wing of the slide, we went up by 10% year over year. On the right wing of the slide, you can see the growth for the first nine months of this year by 28% compared to the same period last year. Another Over the first three quarters, we've secured more than 83% of last year's total revenues, setting the stage for a robust fourth quarter upturn. Revenue breakdown. As of our geo-revenue breakdown, EMEA and APAC regions show the most growth year over year. As you can see, EMEA grew by 20%, APAC grew by 90%, and North America went down by 18%. We continue to observe a strong momentum and notable expansion in our partners' plan. Net cash use in operating activities. In the three months ending September 30, 2023, the company provided 1.5 million in net cash for operating activities, a significant improvement from the 1.7 million used during the same period last year. This positive shift can be attributed to the team's excellent effort in enhancing our collections from clients, reducing vendor payments, and securing improvement terms with existing suppliers. Same trend you can see since the first quarter this year. The trend of healthy cash flows also reflected consistently across the quarters of 2023. You see from the first quarter this year, we used over 1 million of Reza Azard, A cash flow for operating activities on the second floor a 429,000 negative cash flow and on the third quarter for the first time we went up for a positive a significant cash flows. In terms of financial position, we ended Q3 with cash and cash equivalent of 7.6 million as of September 30, 2023, compared to 8.8 million at December 31, 2022. Total working capital of 7.7 million compared to 9.2 million at December 31st, 2022, a decrease of 1.5 million or 16%. The decrease in cash is mainly attributable to the media payments related to the fourth quarter of 2022, purchasing shares through NCIB, as Omri mentioned before. This is a strategic decision that the management took, investment in Amphi and expanding our partnerships plans. We anticipated reducing our cash expenditure in operating activities and increasing our cash and cash equivalents in the latter half of 2023. That was my expectation, Omri's expectation in the first quarter this year and the second quarter. And we did it, as you can see. On the other side of the balance sheet, we still don't have any significant low debt. So it's very healthy for a company like Edco to preserve zero debt in a hyperinflation environment as we have today. In terms of adjusted EBITDA, our quarterly non-GAAP results reflect adjustment for the following items. Depreciation and amortization totaled $208,000. Share-based payment totaled 32,000. And for the three months ended September 30, 2023, adjusted EBITDA was 240,000 compared to 734,000 for the same period in 2022. Excluding AMFI's EBITDA and looking only on the edtech EBITDA, adjusted EBITDA for the edtech activity was 350,000 showing a very strong result for the ATT&CK activity. With that, I will turn the call back to Danny.

Thank you, Yatir. We value your time here at ADCOR, and we wish you all the best in your next challenge.

Thank you, Danny.

We will now move over to our pre-sent questions. The first question, for EMEA and APAC, what drove revenue increases?

I can take this one. I think it's mainly the normal course of business, right? It's client acquisition, the same store growth within the existing client portfolio, and all in all, like a strong activity going from these two specific regions.

Thank you. For our second question, what impact has the war in Israel had on your business, both from customer and human resources standpoints?

Okay, so that's a fair question. We did address this question in a PR that we released early on this month, but I would say the following. A, the company first and foremost priority is the safety and well-being of our staff. So when everything started, we switched immediately to work remotely. to COVID, I don't know if you can say sex to COVID, but the company already used to work remotely if needed, and the operation were going smoothly and ongoing as usual when we switched to work remotely. And now I'm happy to report that we are gradually going back to work from the office, or at least hybrid working remotely and from the office as well, which is obviously a good sign that things are getting back a bit sense of normality, which is important. And I would say with regards to client activity, so Edcore, lucky enough, is a global company and our specific operation within Israel is relatively not so big in terms of the overall activity. So even if the entire operations that we had in Israel were shut down to zero, still Edcore impact wasn't so great. Having said that, that definitely wasn't the case. So I think like a lot of e-commerce client, actually what we saw in the beginning, they stop some activity, but then resume immediately. And now we can see that actually they're getting better numbers than usual. Maybe it's November related. Maybe it's a bit like COVID effect that people staying at home and prefer to buy online. even during time like that and so I think e-commerce running as usual are even a bit stronger we saw some stopping in a travel related activity but on the flip side since since Edco won the largest standard of online advertising for the Israel advertising agency so we got a lot of budget that is I would say war related so I think like all in all we don't see an a I don't know if it makes too much sense, but that's the reality on the ground.

Thank you. Our third question is, are you still expected to be net income positive in Q4?

And maybe Yatir, you want to answer this?

Yeah, I will take it. Thank you, Danny. Yes, we anticipate to be profitable and generate positive cash in the fourth quarter, which is historically the strongest quarter for the company. So yes, the short question.

Thank you. And for our fourth question, do you plan on continuing to participate in the NCIB? And are there any other plans for cash?

Yeah, so I would say it's two questions, but obviously they're related because they're cash related. I think A, NCIB, we are participating. I see the current plan going to run until May, if I'm not mistaken, in 2024. And obviously, we still see this gap in opportunity for us to purchase more shares for cancellation. We continue to do so. Bear in mind that we are restricted by the plan. So it's not like we can use... Everything that we have in order to purchase the plan is limitation. But within the limitation of the plan, we are doing everything we can. Let me put it this way. And in terms of reserving cash, Edco put efficiency, operation efficiency is number one priority for the company. We talk about it time and again, our importance for us, you know, to be operation net, net, positive in operation as well. And I think also improving the balance sheet. So we already proved that we can do it in the third quarter. And I think like Atil said, we anticipate this positive momentum going to carry well into the fourth quarter as well.

Thank you. For our fifth question, which regions do you expect to see strong growth in over the next 12 to 24 months?

Yeah.

So from one end, you know, like I need to, everything is, I would say, something the company anticipated to say. I don't have a crystal ball that's going to tell me the future, but like I mentioned during my CEO remarks, and we think that North America has the potential to become a very strong and important region for us Q4 and definitely 2024 as in the entire year. So if I need to bet, I would put my chips on North America, which is, by the way, goes in line with the company's strategic decision to focus more and more in this important market.

Thank you. For our next question, are interest rates and a fear of recession impacting the business? It's a good question. Yatir, what do you think?

Basically, we have witnessed a recession in the last two years. So far, the recession has not affected the company's result and we do not, I don't foresee any harm or impact in the foreseeable future. Regarding the high interest rates, since we are not a leveraged company with that, the interest rate allow us to enjoy good conditions under the short-term investments, like the deposits, we have like an effective rate of 6%, which is very high. It's not bad, right? So keep it up. So it's an advantage, not a disadvantage.

So you don't want to see the Fed starting the decrease in rates? Not yet.

Okay. Thank you. And How is Q4 going and do you think it will be in line with any prior expectations?

It's a fair question. I would say it's a bit too early because you need to bear in mind that most of the spend in Q4 is actually happening in the last week of November, which is Black Friday. And then obviously in December. So I think like we didn't really see the beginning of Q4 yet. So I think like, it will be a bit more safe to have remarks or some type of outlook regarding Q4 post at least November, post Black Friday sales. Having said that, we don't have any negative indications. So up until now, all the indications are positive and we are in line with the positive trends that we saw during Q1, Q2, and Q3 as well.

And for our penultimate question, can you provide an update on Amfi? For instance, what are your plans for this business? As we have not heard much on it for some time.

Yeah, so I think like it's not entirely true because we do talk about Amfi in almost every earning call and we saw some numbers. I think like with Amfi, I would say a few things. Around six months ago, we did like a shift of focus and decided to focus more on a business business-related educational materials, and the entire, let's say, skill of the website changed, and everything changed, the entire focus of the different materials that we have, and we put a lot of effort, you know, to transit AFI from more to a more B2B to C type of a business. And so that's one thing. I think the main priority with Amphi is reduce the ban rate to the bare minimum. And I think we can definitely prove that we know how to do it. We expect the ban rate to be very minimal, 25,000 Canadian dollar, not even dollars in a monthly in Q4, 2023. And I think all in all, if we can maintain the same positive trends at the cost of going down and basically we see some improvement in momentum in the business activity, then I think that we can be on the right track. Obviously, things take time. You can build, unfortunately, business overnight. Also, another important thing to consider is that Q4 traditionally also for Amfi is a very strong quarter.

Thank you. And for our final precinct question, can you provide any update on earlier learnings from Media Blaster app?

Obviously, it's a bit early, right? It's still, it's recently launched. We launched it on the Google version and we are now, every week now, I think like next day, next week even, we can release the Microsoft version of the app so the app can support both Google's Google ads and Microsoft advertising as well. I think so far we see a very positive trend. There's a lot of, let's say, demand for this app. And actually in terms of, let's say, how much revenue this app has generated in a very short period of time, then I think it's definitely a success story.

Thank you. And we have two questions here from people in the chat. Do we have time for this?

Yeah, why not? Of course.

Okay. Do you have anything better to do, Danny? No, no. This is where I would love to be.

Okay.

So our first question is from Alexi Edelman, who would like you to elaborate on why you feel North America's sales have declined in this past quarter.

Okay, so I think like A, obviously these few factors that can impact a decline, a decline in this type of activity, some of it can be a seasonality or let's say transition of earning between one quarter to another quarter. So that can have some impact on the result. But I think that in the long run, 2024 and even Q4 2023, we are very bullish regarding North America. So I think that's a plateau, but this plateau will turn into a spike that we're going to see in earnings coming from this specific region. So again, I'm very bullish regarding this specific region and it's a strategic region for the company in general.

Thank you. And our second and final question from the chat. is from Matthew Charon, who would like to know what you have to say regarding the share price and its continuation in falling.

Yeah, so I would say the following. A, obviously we have little control about the share price, unfortunately. So we do everything we can do under our power, whether it's NCIB and also purchasing shares as individual or management as well. But I think like, again, the way I see it, the current share price, It's more market-related than Edco-related, and if any, it represents a real buy opportunity. But again, you shouldn't listen to me. You should do your own analysis and decide whether you want to take position, increase your current position, and everybody should know better what to do with his own money. Edco is a company, and I'm his individual. Definitely all in and buying shares when possible.

Thank you, Omri. I will now hand it back over to you for any closing comments.

Okay. Thank you, Daniel.

Can we stop sharing? So thanks, everyone. I want to take this opportunity to thank Yatir for the four years in Edco. Yatir joined the company when we just started our journey as a public company, helped us build the financial reports that we see, helped us build the infrastructure. When Yatir joined the company, I think it was like We had one, like two, maybe two companies, right? We had Ed Korink and Podium, which is the Israeli entity. And to date, how many entities we have?

Yatir, you're muted.

We have six entities.

and counting. And so a lot of the structures that we have today, a lot of the, you know, like the different, it's not easy to have a global organization. A lot of these are done thanks to Yatir, the team he helped to build, the finance team he helped to build here in Tel Aviv and for Edco. So best of luck, Yatir, in your new role as well, in your new venture.

thank you very much Omri first of all thank you for the opportunity and the trust that you gave me throughout the last four years I couldn't ask for a better CEO you're not only a CEO you're also a friend and I'm going to be like I'm going to be here around for Edco, for you guys, as much as you need. And I'm always, you know, this is my family. So...

Thank you for everything. The feeling of mutual and I want to obviously take this opportunity as well and say best of luck to Amit with the new world as the new company CFO. And we know Amit for a while now and everybody in the company learned to like Amit because he's a likable person, he's a very solid guy, come with a lot of experience. A lot of the financial statements that the company released in the last one and a half years have been done mainly through the hard work that Amit did. So Amit is a detailed guy. He knows everything that you need to know about the company, about the company financial structures. And I'm sure, Amit, that you're going to do, as you did an excellent job as the company director of finance, I'm sure that you're going to do even a better job as the company's CFO. So best of luck in your new role as well, Amit.

Thank you very much.

Cool, cool. Guys, so thanks everyone is joining us today and obviously stay in touch with the company PR, get involved in the company initiative. We need you guys to be involved and hopefully we can report even a stronger quarter in the next quarter in Q4.