Zoomd Technologies Ltd.

Good day and welcome to the Zoom Technologies first quarter 2021 update conference call. I would now like to turn the conference over to Ben Shamsian with Life and Partners. Please also note this event is being recorded. Please go ahead.

Thank you for joining us today for Zoom's first quarter 2021 update conference call. With us on the call representing the company today is Amit Bahansky, Zoom's founder and chairman. At the conclusion of today's prepared remarks, Amit will answer some questions that were sent to us by investors and other questions we think are relevant to investors as well. Before we begin with prepared remarks, just a couple of comments. Today's call will contain forward-looking statements that are based on current assumptions and subject to risk and uncertainties that could cause actual results to differ materially from those projected today. and the company undertakes no obligation to update these statements except as required by law. Information about these risks and uncertainties are included in the company's filings, as well as periodic filings with regulators in Canada and the United States, which are found on the CDAR and Zoom's websites. Today's discussion will include adjusted financial measures, which are non-IFRS measures. These should be considered as supplement to and not a substitute for IFRS financial measures. Finally, today's event is being recorded and will be available for replay through the webcast information provided in the press release. With that said, let me turn the call over to Amit Bahansky, founder and chairman of Zoom. Amit, please proceed.

Thank you, Ben, and good morning to all of you. We are excited to speak with you today for our Q1 2021 conference call. Today, I'm going to provide an overview of our achievements for the first quarter and provide you an update on the opportunities that I believe will drive the growth in Zoom going forward. As we embark on the post-COVID recovery, I'm glad to say that Zoom is a stronger company today than it was a year ago. The hard work of our entire team has positioned Zoom well for revenue and profitability growth in 2021. The challenges the COVID pandemic placed on some of our larger verticals, such as sports and travel, pushed us to desertify our client base by securing customers in sectors such as e-commerce, gaming, iGaming, and fintech. In addition, during the period, the company added numerous clients to its platform with smaller initial budgets that the company expects to increase in the coming months. During Q1 2021, the company released self-serve products such as performance version, premium channel version, and DSP. The self-serve product saves Zoom's advertising customers money, time, and resources, and in the ad buying optimizing process and general campaign management. By uniting all of the clients advertising campaigns under a single central dashboard, allocating budget and providing data on user acquisition capabilities across various digital channels. We believe the industry has been waiting for platforms like this and the COVID has only accelerated this need. In February 2021, we announced the acquisition of Performance Revenues, a leading international mobile marketing influencer company. We are excited about the great set of clients that Performance Revenues has, including NASDAQ-traded and private companies, and believe that the company is able to leverage the people and clients acquired through this acquisition to drive growth in the future by executing synergies between the activities. Before I begin with my remarks regarding the first quarter, I wanted to take a step back and provide everyone a bit of an overview on our business. Zoom offers one platform focused on two target audiences as clients. To advertisers, we offer a digital user acquisition platform integrated with the majority of global digital media channels to app owners, advertisers, focused on user acquisitions. to more efficiently manage their ad budgets and acquire for them new paying clients. To publishers, we provide a site search engine that is implemented in the publisher's site and offers internal content search abilities. Our search product provides us with valuable data. We have two main unique selling propositions. First is our search data. coming from our search product for publishers, not the quantity of the data we have, but the quality. Because we also get data via on-site search, queries coming from our users, searching in the publisher site, our queries are intent-based, and that's our power. We are not doing much guessing in that case. Our second unique selling proposition is the concept of our platforms. we act as a layer on the ecosystem, integrated to more than 600 media sources into one unified dashboard, offering advertisers a user acquisition control center for managing all new digital customer acquisition campaigns using a single platform. By unifying all these media sources onto a single platform, Zoom serves advertisers significant resources that would otherwise be spent consolidating data sources, thereby maximizing data collection and data insights while minimizing the resources spent on the exercise. Our superior data platform concept has translated to strong ROI and KPI results for our clients. And now, I will turn your attention to some highlights for the first quarter. In the first quarter, we continued our focus on profitability, achieving gross margins of 35%, the highest since 2018. It's 17% increase comparing to Q1 2020, as well as achieving positive adjusted EBITDA for the first time is a publicly traded company, as a publicly traded company. As part of our emphasis on gross margins and profitability, in the fourth quarter of 2020, we began to decrease engagement levels with some major customers that were not profitable, and we have continued this practice in the first quarter. Revenues in the first quarter increased 4% year over year, we are beginning to see that the COVID recovery take from our and our customers and starting to extend their budgets once again. On our previous calls, we noted that we had been successful in attracting new clients in growing sectors as e-commerce, delivery, iGaming, and fintech. In Q1, We added four new names to our 10 customer list. Based on our experience, new clients typically begin their engagement with small budgets, but grow budget as they begin to see the strong ROI. Our new clients in the industries are experiencing robust growth. We expect many of these new customers to increase their budgets in 2021. As such, we are maintaining our 2021 organic revenue growth assumption of $4 million, or 16%. That combined with our current M&A discussions lead us to maintain our 2021 total revenue guidance, $25 to $36 million, or 30% to 40% growth. That's what we expect. I want to remind investors that we are a young company, public traded for less than two years, and in our short life, our technology and platform has been positively recognized by the industry. It is our belief that our growth prospects are vast, and with more time and marketing opportunities, more companies will come to learn about our value proposition. Now, I will review the first quarter financial results in detail. Revenue. We reported revenues of $6.7 million in the first quarter of 2021. It's a 4% increase compared with the same period last year. The increase in revenue is primarily due primary a result of onboarding of new customers in the second half of 2020 and an increase of online media and marketing budgets for some of our top 10 customers. In addition, during the period, the company added numerous clients to its platform with smaller initial budget that the company expects to increase in the coming months. If you recall, in Q4, we chose to increase engagement levels with some major customers that were not profitable and not strategic to our line of business. Gross margin increased roughly by 17% to 35%, compared to 30% for the same period in 2020. As mentioned before, the increase in gross margin was primarily attributable to our decision to disengage from some non-profitable customers. We will continue to focus on profitability and expect to continue to achieve strong growth margin going forward. As for the R&D, research and development expenses for three months ended March 31, 2021, where 1.05% million, it's a 31% decline compared with the same period last year, reflecting the capitalization of software development costs. We expect the R&D cloud infrastructure expenses to continue to decline in 2021. SG&A. Selling, general, and administrative expenses for the quarter were 1.9 million dollars. roughly flat year over year as increased advertising expenses was offset by a decrease in G&A spending. As for our EBITDA, the adjusted EBITDA is used as a primary performance measure by the company's management to ensure it has the right structure to support future growth. We define adjusted EBITDA as net loss less than depreciation and amortization, and share-based payment. We are pleased to have achieved positive adjusted EBITDA of $63,000 versus negative $847,000 in the first year of 2020. The increase in adjusted EBITDA was primarily attributed to solid revenues capitalization of software and the improvement in gross margins, all of which carried the company to positive adjusted EBITDA for the first time since it's becoming publicly traded. We expect to achieve adjusted EBITDA profitability for the balance of 2021. A full reconciliation of adjusted EBITDA is available in our As for the cash flow wrap-up, we have $1.4 million in cash on the balance sheet as of March 31, 2021. Given our expectation to remain adjusted EBITDA positive in 2021, we feel comfortable with current cash balance. And now for some concluding remarks. We are excited about our prospects to revenue growth in 2021, steaming from increased budgets from our current clients, bringing on additional clients, including releasing the self-serve products, performance, premium channels, and DSP. New customers acquired via our recent acquisition of performance revenues, as well as potential for further M&A activities. We also expect to maintain and improve our company's positive EBITDA in 2021 as we continue to increase companies' revenues. I want to thank all our employees for their hard work and dedication, as well as to our investors who have supported us. With that said, I will answer some of our investor questions and some questions that may be of interest to our investors.

Thank you, Amit. We have some questions for you. First, what are you seeing so far with regards to the self-serve products you've launched? What have been the customers' responses?

So first, let's talk about terminology. SaaS, software as a service, is a business model. It can be a yearly flat rate or percent from the budget use or monthly fee. The issue from our point of view is to supply and offer self-serve products, products that customers can operate by themselves without us managing it for them. Our self-serve product includes the SaaS version that is integrated only to premium sources, and it is based in a monthly payment business model as well as performance business model that works on a wider media channel. We see an increasing demand. for self-operating on our DSP by customers themselves. We also see increasing demand in a unified premium channels dashboard and automation and optimization ability for user acquisition activities.

Thank you. Can you talk about the performance revenues acquisition? What benefits have you seen so far and what are some expectations for the future?

Okay, so performance revenues came with a rollerback of substantial good clients, some of them NASDAQ and some of them private, both very AAA known names and companies that are joining immediately our user acquisition without almost any effort. And this allows us to have future planning of increased revenues and profitability from those clients And this is what made that M&A such an easy joining to our company.

Great. Thank you. What are you seeing so far from your clients regarding the post-COVID recovery?

So during the COVID itself, we had big industries that were either closing, collapsing, or going through some type of an hibernation. You could have seen that in travel. You could have seen that in sports and other industries as well. And other budgets were also tight and a little bit more self-maintained. What happened is that after the COVID, we see that there is a new atmosphere between the clients. We see that more budgets are being released. We see the need for all the industries to come back and spend substantial amounts of budget for user acquisition, and it's giving a very good, strong effect in our abilities.

Thank you. You've talked about more M&A. What kind of companies are you looking at, and what parameters are you interested to see?

When we discuss about M&A, our strategy was always growing organically, but also seek for unorganic growth as well by joining companies that have complementary solution to what we do. Zoom is in the field of user acquisition. Zoom is in the field of managing and joining budgets in order to do better media and better planning for the budget spent for our clients. And therefore, we will always seek for clients that are playing in that area or that are playing in the area of publishers, which allows us to increase our data gathering domain that allows us to understand more what's happening on the publisher side. So when it comes to M&A, we are seeking for companies that have a roller deck of clients that we can join immediately to our portfolio as we did with performance revenues easily. And we also seek for companies that might have some components that we can join and recognize their revenues as well. Those companies will usually be in the field of publishers and advertising and in the field of the budget spent and budget spent management.

Thank you. Let's talk about the guidance. Guidance for 2021 is revenue growth of 30% to 40%. Help us understand how you expect to achieve that guidance.

So we will use two strategies. One is organic growth, and the other is M&A, measures and acquisitions. On the organic growth, management estimates that at least $4 million of the revenue growth caused primarily from existing business models where the key drivers are new customers already acquired, new products such as self-serve products, performance, premium channels, and DSP, post-COVID online advertising, demand search, and geographical expansion. As for the other category, mergers and acquisitions, Management estimates that up to $6 million of the revenue growth of the year to be caused primarily as a result of acquisition of certainly selected target companies that are in line with the company's business strategy and vision. The company's acquisition of performance revenues, which was announced in February, has been factored into the above and in addition, the company is engaged in a series of discussions for potential acquisitions during 2021.

Great, thank you. From your experience, where is the market heading? Can you talk about some trends from a privacy standpoint and how is Zoom well-equipped for the future?

That's a good question. With Apple rolling out the iOS 14 ATT, that stands for Apple Tracking Transparency, the market got a hit in regard to privacy and ad targeting. Google is planning to roll out its own plans that will also include the end of third-party cookers. Privacy is here to stay, and we are very happy about it. We are only in the beginning of this wave. As our platform doesn't hold its own media anymore, but is integrated to the media sources as a layer on top, we aren't planned to be hurt by those changes. Our platform fits its integration based on each media source. We are fully fit for the future changes to come in regards to privacy. We are seeing media transparency also as a big trend, knowing when your ads are running and at what cost. Our new self-serve products were built based on these important needs of advertisers. All media sources and costs are 100% transparent to the advertiser, our client. Self-serve, more and more advertisers are implementing in-house media buying part, the user acquisition part, and the performance part of the budget. They still work with agencies, but mainly on classic service of branding, creative, and art. Not like in the past that the agency ran 100% of the media budget. Zoom's products are fit both agencies and advertisers that wish to manage and operate their digital or performance budgets by themselves.

Great. Thank you. Many thanks to everyone for participating on today's call. We look forward to hopefully speaking to you soon, shortly.

The conference is now concluded. Thank you for attending today's presentation.