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spk00: Thank you for joining us today for Zoom's third 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 subject to risks 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 non-IFRS measures. These should be considered as a 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.
spk01: Thank you, Ben, and good morning to all of you. And some highlights. Today, I'm going to provide an overview of our achievements for the third quarter of 2022. But more importantly, I'm excited to share with you the Multiply revenue and profitability growth opportunities ahead of us. After six consecutive quarters of year-over-year revenue growth, the third quarter of 2022 proved to be challenging. The global slowdown in categories that peaked same time as last year because of the COVID-19, especially in the areas of e-commerce, fintech, and crypto, caused many companies to decrease their marketing budget. Advertising is one of the first areas that companies cut back on when uncertainties arise and when we are not not immune to that phenomenon. Despite the macro-difficult situation, we are managing our expenses to continue to be cash flow positive on an annual basis and on pace to grow revenues by roughly 5% year-over in a full year of 2022. As I mentioned, advertising is one of the first areas that companies cut back on when uncertainties arise. but it is also one of the first areas that rebound as the science of stability set in. I am happy to say that in the recent weeks, we have began to see signs of stabilization. We are seeing customers slowing the rate of advertising budget cuts, and in many cases, beginning to increase spending. And once again, we are also seeing new customers join us, which I will touch upon later. While revenue in the fourth quarter of 2022 will still be below last year's levels, we are cautiously optimistic regarding the pace of our business and the return to growth in the near future. We remain optimistic about Zoom's long-term growth prospects and our focus to remain to increase our market share while strengthening our balance sheets. While the fintech and cryptocurrency sectors are important portions of our revenue base, we are continuing to diversify our businesses by increasing our exposure to sectors such as education, gaming, and D2C e-commerce customers. Our technology and expertise are sector-agnostic experts. and our sales focus is to work with quality companies with strong growth opportunities ahead of them. Despite the macroeconomic challenges, our current clients are continuing to be pleased with the results that Zoom brings to their user acquisition efforts. In the fourth quarter, we have been successful in acquiring new clients, and our pipeline of new customers remains solid. Our user acquisition platform has been integral in enabling our clients to manage their multiply campaigns on a single system, allowing for a greater time saving and efficiency with real-time control. Our platform enables our customers to grow the user acquisition programs with limited additional resources, giving the ability to scale immediately by demand. Our growth objectives have been historically stemmed from two fronts. First, securing new clients, and second, increasing our share of user acquisition budgets within our existing clients. We are now excited to speak about a third avenue of our growth, and that is our self-serve products. I will touch on each of these growth engines separately. First, with regards to 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 and Shane. During the third quarter, we acquired three new customers, all multi-billion dollar companies in the sectors of e-commerce, gaming, and digital market banking. We continue to expand our geographic footprint into bargoing geographies such as Latin America, Asia, North America. Although the emerging markets have been very strong for us, I am excited to say that recent months the growth in North America, driven by some clients of our acquisitions of performance revenues and others. 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 savings, clarity, and efficiency. Our platform, products, and services enable our customers to grow their user acquisition with limited additional resources, giving the ability to scale immediately by demand. With regards to our existing customers, Up until the recent global economic shutdown, most were increasing their budget with us as they are seeing strong return on their investment. We had been 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. Efficient targeting for all media sources. As I mentioned earlier, in recent weeks, we are beginning to see our customers blow down the spending cut, and in some cases, increase advertising budget again. Now, I'm excited to speak about our third revenue growth driver, and that is our self-serve products. The launch of our self-serve products has been successful, and customer adoption has exceeded our expectations. By the end of the year, we estimate that up to $3 million of revenue growth will stem primarily from the self-serve software as a service and media fees for using the platform. That is 50% more than expected. Our self-serve offerings are a great opportunity not only for revenue growth, but also margin expansion, as well as capturing additional client audiences. Our self-product includes two different business models. One, a recurring software-as-a-service-based business model which provides the transparency that our customers are looking for. And second, by media usage and budget, paying a fee based on the media spent on the relevant product. Our self-serve products will unlock our capacity to attract more small and mid-range organizations and customers, offering our products to clients from all sizes. Now, I would like to speak a bit regarding privacy issues, which is the hot bottom topic in the tech world. In 2021, Apple released the iOS 14, with further strict privacy limitations and ad tracking restrictions. We saw minimum effect on us as our platform business logic is built in a model where we are indifferent to each integrated media source. We aren't tied up to any leading media giant. As we are a performance-based platform, our clients' budgets are spent where the results are coming from. Now, I want to speak about Albert AI. In March, we announced the acquisition of Albert, a US-based AI 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 now complete. I want to take a minute to point out the strong synergies and benefits of this acquisition. Albert, at its core, is a social media and search platform focused largely on web, both mobile and desktop advertising, on Facebook, Bing, and Google. Zoom is less focused on pure web. We are more app-focused than 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 the awareness consideration acquisition. Albert is a pure SaaS activity 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. And we are fortunate to have a team members of Albert joined the Zoom family. And most importantly, Albert has several Fortune 500 customers which are now approaching for cross-selling our services. We have provided additional information regarding the acquisition in our financial statements and MD&A filings. Financial reports. Now I will review the third quarter of financial results in detail. Revenue. Revenues in the third quarter are $9.8 million. 39% decline comparing to Q3 of 2021. We are lapping difficult comparisons from third quarter of 21, in which we grew an amazing 141%. As I mentioned earlier, we were negatively affected by the global slowdown, in particular in the areas of fintech and cryptocurrencies. Gross margins. Gross profit margins for the third quarter was 31%. compared to 29% for the same period in 2021, reflecting lower social media advertising portion that is typically has lower profit margins. R&D. Research and development, R&D, expenses for the three months ended September 30, 2022, were $1.4 million, a 21 increase year over year, preliminarily reflecting salaries to new 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 the three months ended September 30th 2022, were $3 million, a 25% increase year-over-year, preliminary, reflecting increase in expenses incurred as a result of new employees joining the company, primarily after acquisition of Albert. EBITDA. Adjusted EBITDA is used as a primary performed measure by the company's management to ensure it has the right structure to support future growth. We define adjusted EBITDA as earnings before interest, tax depreciation, one-time comparison payments in connection with business combination and amortization, and adjusted for the share-based payments and non-recurring operating expenses. Adjusted EBITDA of $15,000 compared to adjusted EBITDA of $1.6 million, the same period in 2021. The decrease in adjusted EBITDA is primarily a tribute to the decrease in revenue growth. A full reconciliation of the adjusted EBITDA is available in our MD&A and filing. Cash. We have $3.4 million in cash in our balance sheet, as September 30, 2022. Given our expectation to remain adjusted EBITDA profits in 2022, we feel comfortable with the current cash balance. And now for some concluding remarks. We remain optimistic about Zoom's long-term growth prospects, including the growth of our self-sale products. Our focus continues to be on healthy top-line growth and market share expansion, all while managing our balance sheet properly. We view this strategy as an important way to build shareholder value. Before I conclude my prepared remark, for those new to the Zoom story, I wanted to provide a bit of an overview of our business. Zoom offers a mobile-first user acquisition platform integrated with a majority of global digital media channels to app owners, focused on user acquisition to more efficiently manage their ad budget and deliver them paying customers and growing return of investment. In addition, we provide a site search engine to 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 unified 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 multiply advertising system, consolidating data sources, thereby maximizing data collection and data insights while minimizing the resources spent on operation. Our data and platform concept has translated to strong return of investment and KPI results for our clients. I want to thank to 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 in some questions that may be of interest to our investors. Ben?
spk00: All right. Thank you, Amit. We have some questions for you. First, you mentioned briefly in your remarks regarding the recent economic slowdown in general. and more specifically within the fintech and crypto spaces. Can you please elaborate on that a bit?
spk01: This time, last year, the world was still deep in the COVID quarter three of 2021 was our highest and third quarter ever. A lot of people were still at home. E-commerce companies were in their highs, the fintech and mainly crypto categories are suffering major declines as we all know.
spk00: Okay, thank you. You talked about the better than expected customer acquisition of your self-serve products. Can you provide some more details there?
spk01: We are seeing more than expected demand to our customers. self-serve products in both software-as-a-service or media-based models. Our activity with Albert's clients is growing as the growing demand for our programmatic and social products. As the activity on our product grows, we are fine-tuning and tailoring them for exact current and future product market fit.
spk00: Okay, thank you. You've been generating positive adjusted EBITDA and cash flows. Can you speak about your capital requirements going forward and if you will need to raise any further capital?
spk01: In the plans for the near future, we do not see any need to raise capital. We have over $3 million in the bank without long debt. The company has been generating cash from operating activities for the first nine-month period of the year. Since the beginning of 2022, for example, the company has already generated close to $2 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 of raising capital.
spk00: Okay. Now that the integration of Albert is done, you have begun the process of cross-selling. What have you seen so far and what are your expectations going forward?
spk01: With Albert being part of our product offering to the market, we can... and are offering our existing non-Albert clients a wider solution for their needs. Albert takes care of all social and search activity for desktop, mobile, web, and mobile apps marketing campaigns. It makes internal marketing teams and agencies better, automates and optimizes in scale that most of the DevOps and optimization teams just can achieve. With Albert, we are targeting a wider market, with a wider solution.
spk00: Thanks, everyone, for participating in today's call. We look forward to hopefully speaking with you shortly. Thank you, everybody.
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