Zoomd Technologies Ltd.

Hello and welcome to the Zoom Technologies first quarter second year 2022 update conference call. I would now like to turn the call over to Ben Shamsian with Lithum Partners. Please go ahead, sir.

Thank you, everyone, for joining us today for Zoom's second quarter 2022 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 subjects to risk and uncertainties that could cause actual results to differ materially from those projected, 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 you can find on CDAR and Zoom's website. Today's discussion will include adjusted financial measures, which are not on IFRS measures. These should be considered as a supplement to and not a substitute for IFRS 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 now turn the call over to Amit Bohansky, founder and chairman of Zoomed. Amit, please proceed.

Thank you, Ben, and good morning to all of you. Today, I'm going to provide an overview of our achievement for the second quarter of 2022. But more importantly, I'm excited to share with you the multiply revenue and profitability growth opportunities ahead of us in 2022 and beyond. The year 2022 was another strong quarter for Zoom. We grew revenue 45% year over year on top of the 97% increase we achieved in the second quarter of 2021. The second quarter is the sixth consecutive quarter of growth in revenue on year-over-year basis. While our growth continues to outplace the overall ad tech industry, we are not fully immune to the recent global shutdown, especially in areas of fintech and cryptocurrencies. The fintech and cryptocurrency sectors are an important portion of our revenue base, However, in recent months, we have further diversified our businesses by increasing our exposure to sectors such as education, commerce, and gaming. We also achieved robust positive adjusted EBITDA of $1.5 million in the second quarter, or 9% margin, demonstrating the leverage in our model. Our strong revenue growth continues to steam from two fronts. First, securing new clients, and second, increasing our share of user acquisition budget within our existing clients. I will discuss each of these avenues separately. First, with regards to the new clients, over the past two years, we have focused on diversifying our client base by securing new customers in hyper-growth sectors such as e-commerce, iGaming, gaming, education, and fintech. The list of our top clients includes names such as Sony Entertainment, eToro, Crypto.com, and Chain. For those who are new to the Zoom story, I want to take a step back and speak about the evolution of our client base. During our early years, before 2020, our largest customer sectors were sports and live events. At times, we have referred to those customers as legacy customers. With the onset of the COVID-19 pandemic in 2020 and the shutting down of all outdoor activities, including sports, travel, and live events, the advertising budget of these companies naturally dwindled. We reacted quickly to and decisively to acquire more customers in sectors that were benefiting from the pandemic, including e-commerce, gaming, and fintech. As a result, we have achieved six straight quarters of growth in year-over-year basis. Forecasters are expecting worldwide travel to rebound strongly in 2022 and 2023 due to the pent-up demand of customers. With regards to sports, Forecasters are expecting high growth rates. We are looking forward to the World Cup this year. Typically, the World Cup is held in July. However, this year, given the host country is Qatar and quite hot in July, it will be held in November. As such, we are expecting to see the revenue bump from this category in the fourth year of this year. We have also expanded our geographic footprint into burgeoning geographies such as Latin America, Asia, and North America. Although the emerging markets have been very strong for us, I am excited to say in recent months the growth in North America has accelerated, driven by the fintech and gaming sectors, and our recent acquisitions of performance revenue and Alberts. We have been successful in providing our clients increased channels of distribution for their apps, ultimately driving user acquisition. Our user acquisition platform has been integral in enabling these clients to manage multiple campaigns in one place, allowing for greater time-saving clarity and efficiency. Our platform and products and services enable our clients to grow the user acquisition with limited additional resources, giving the ability to scale immediately by demand. With regards to our existing customers, most are increasing their budget with us as they are seeing strong returns on their investments. We are seeing increasing allocation of advertising budget to our platform, products, and services. This is a testament to our unique technology and high level of service, which is driven from the key concept of our platform, multiple media integration. All user acquisition campaigns under one place, saving precious time, testing many channels, considering efficient targeting for all media sources. Now, I would like to speak a bit regarding privacy issues which is a hot bottom topic at the edtech world. In 2021, Apple released iOS 14 with further strict privacy limitations and ad tracking restrictions. We are seeing minimum effect on us as our platform business logic is built in a model where we are indifferent to which integrated media source we should bid, plus amounts We aren't tied to any leading media giant. As we are a performance-based platform, our clients' budgets are spent where the results are coming from. While we are happy with our current pace of growth, we believe that good opportunity for revenue, margin, additional client audiences is also a self-serve product. Our self-serve products include two different business models. One is a recurring SaaS-based business model which provides transparency that our customers are looking for. Two, by media usage and budget, paying a fee based on the media spent on the relevant product, our self-serve product will unlock our capacity to attract more small and mid-range organizations and customers, offering our products to clients of all sizes. In March, we announced the acquisition of Albert, a US-based artificial intelligence digital marketing platform for advertisers, driving fully autonomous digital campaigns for some of the world's leading brands. I'm happy to say that the integration is going well. I want to take a minute to point out the strong synergies and benefits of this acquisition. At its core is a social media and search platform focused largely on web advertising on Facebook and Google. Zoom is less focused on pure web. We are more app related. Social and search media. As such, Albert allows Zoom to offer wider types of campaigns with wider marketing objectives. Not only performance, but full funnel campaigns starting at awareness to consideration and acquisition. While we are also releasing our product onto self-serve mode and SaaS business models, Albert is a pure SaaS company, which enhances our efforts immediately with additional offerings that cover branding and awareness needs. Furthermore, Albert comes with a great team of talented professionals. As you may know, the market for qualified talent, especially in the West, is quite difficult. We are fortunate to have the team members of Albert joined the Zoom family. And finally, Albert has several Fortune 500 customers that will now be able to use our products and services. We have provided additional information regarding the acquisition in our financial statements and MD&A filings. Before I begin with my remarks regarding the details for the second quarter, I wanted to provide everyone a bit of an overview of our business. Zoom offers a mobile-first user acquisition platform integrated with majority of global digital media channels to app owners, focused on user acquisition to more efficiently manage their budget and deliver them paying customers and growing return of investment. In addition, we provide a site search engine for two publishers, which also provides us valuable data. Our main unique selling proposition is that we act as a layer on the mobile media ecosystem, integrating and unifying hundreds of media sources into one unlimited place, offering advertisers a user acquisition control center for managing all new customer acquisition campaigns. Zoom saves advertisers significant resources that would otherwise be spent operating multiple advertising systems, consolidating data sources, thereby maximizing data collection and data insights while minimizing the resources spent on operations. Our data and platform concept has translated to strong ROI and KPI results for our clients. Financial results. Now I will review the second quarter financial results in details. Revenue. Revenues in the second quarter increased 45% year over year to $16.2 million. Our growth in the second quarter is impressive given the difficult comparison from second Q of 21, in which we grew to 97%. The increase in revenue continues to be a result of onboarding of new clients in recent months, growing existing accounts, and companies' expansion into gross geographies such as Latin America, Asia, and North America. In addition, Deployment of new services and features combined with the integration of our latest acquisitions has contributed strong revenue growth during the quarter. While we are continuing to take share in the industry, we are seeing a pullback of budgets among our crypto and fintech clients amid the worldwide shutdown. The fintech and cryptocurrency sectors are an important portion of our revenue base. However, in recent months, We have further diversified our business by increasing our exposure to sectors such as education, e-commerce, and gaming. Our recent engagements demonstrate the value and high returns of user acquisition investments that we provide for our clients. While we are enthusiastic about our ability to recruit these clients, our goal is to expand and grow these relationships which are currently in infancy levels. Our new clients are in industries that are experiencing growth. And now about the gross margins. Gross profit margins for the second quarter was 29% compared to 33% for the same period in 2021, reflecting more social media advertising portion that is known to be with lower profit margins. R&D. Research and development expenses for the three months ended June 30, 2022, were $1,541,000 at 53% increase year-over-year, reflecting salaries to new development employees who joined the company, as well as salaries and retention payments to Albert employees and former shareholders. SG&A. Selling General and administrative SG&A expenses for three months ended in June 30, 2022, were $3,079,000, a 52% increase year-over-year, primarily reflecting increase in sales department bonuses as the result of the increased revenue and the expenses incurred as a result of new employees joining to the company mainly after the acquisition of Albert. EBITDA. 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 earning before interest tax depreciation on time compensation payments in connection with business combination and amortization. As adjusted for share-based payments, and non-recurring operation expenses. We are pleased to have achieved a positive adjusted EBITDA of $1.5 million, or 9% of revenues for the second quarter comparing adjusted EBITDA of $1.3 million for the same period of 2021. The increase in adjusted EBITDA was primarily attributed to significant increase in revenue growth. We expect to continue achieve adjusted EBITDA strong profitability going forward. A full reconciliation of the adjusted EBITDA is available in our MD&A filing. Cash flow. We have $5 million in cash on the balance sheet as June 30, 2022. Given our expectation to remain in adjusted EBITDA profits in 2022, we feel comfortable with the current cash balance. Now, for some concluding remarks. We remain excited about our prospects in 2022. Our clients are continuing to increase their budget with us, and we have a strong pipeline of new customers. In addition, the acquisition of Albert, which adding strength and versatility to our product offerings. While we have achieved tremendous growth from emerging industries such as fintech and e-commerce in recent quarters, we are excited to see our business continue to grow from the legacy customers. We remain optimistic about Zoom's long-term growth prospects. However, given the recent shutdown in global markets, we believe it is prudent to take conservative stance to our near-term expectations. As such, we are revising our 2022 revenue guidance to be in the range of $66 million to $72 million. Our focus remains to increase our market share while strengthening our balance sheet. Before I conclude with my prepared remarks, I want to take the opportunity to thank Ofer Eitan, my partner, my friend, and our ongoing CEO, two months ago, Ofer gave notice that he decided to step down as company CEO. Ofer, as the co-founder of Moblin that merged with Zoom, has been leading Zoom from its merge and founding in 2017. Ofer led and accelerated the company to its highest record from going public to its ongoing growth. Ofer will remain part of the board, so we will continue to benefit from his insight and experience. We are currently searching externally for a new CEO and have many qualified candidates. Our focus is someone with public company experience within the ad tech space. I want to thank all of our employees for their hard work and dedication, as well as our investors who have supported us. With that said, I will answer some of our investors' questions in some questions that may be of interest to all of our investors. Ben?

Thank you, Amit. We have some questions for you. You mentioned briefly in your remarks regarding the recent economic slowdown in general, and more specifically within the fintech and crypto space. Can you please elaborate a bit?

Sure. Since the beginning of the year, the world is suffering from an economic slowdown. When global slowdown happens, advertising budgets are the first to get cut. If we take segments like crypto, so this was one of the first industries getting hurt by the slowdown. For our part, we continue to provide the best service to our clients and continue to diversify our client base, both in terms of sectors and geography.

Okay. Thank you. Can you please talk about the integration of Albert and anything you may have learned from it?

Sure. With the acquisition of Albert, Zoom can now offer a wider solution to its customers, a wider solution both in media channels, as Albert is focused on web and less on apps, and mainly in campaign objectives. Zoom is a pure performance platform. As Albert's algorithms manage automatically all campaign aspects, they do also for full funnel campaigns. That means also branding, awareness, consideration, and of course, user acquisition campaigns. With Albert, our customers can get more from Zoom.

Okay, thank you. You've been generating positive EBITDA and cash flow in recent quarters. Can you speak about your capital requirements going forward and if you will need to raise further capital?

In the plans for the near future, we do not see any need to raise capital. We have over $5 million in the bank without long debt. The company has been generating cash from operating activities for the last quarter due to the massive growth. Since the beginning of 2022, for example, the company has already generated close to $3 million from operating activities. The company also has an additional line of credit to use at the bank if necessary. I remind you that our last two acquisitions were made with a significant stock component and with payment according to agreed milestones and targets. We feel comfortable with our current cash balance and don't see any need to raise capital at the moment.

Okay, thank you. Given the revenue growth that you achieved, it's clear that Zoom is taking share. Can you speak about where the share is coming from? Is it from direct competitors or indirect competitors?

Growth is coming from a few areas. Our platform business logics, hundreds of integration with no dependency on any specific media channel. When performance goes down on a specific channel, budgets are allocated to different ones and types. That leaves the budget resumed instead of the advertising seeing for other channels and competitors. He can get those channels resumed. Another positive parameter regarding growth and our platform's business logic is us being able to grow following Apple's privacy changes. which was the first enrolled in 2021, being able to offer less affected channels under Zoom, allocating campaign budgets to them from the less performing ones. Looking forward with the acquisition of Albert AI, we will be able to answer more of our clients' advertising needs, offering them not only app-focused performance, but also executing their web-based campaigns.

Alright, it looks like we are out of time. Many thanks to everyone for participating on today's call. We look forward to hopefully speaking with you shortly.

This conference is now concluded. Thank you for attending today's event.