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spk00: update conference call. With us on the call representing a company today is Amit Bohansky, 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, 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 now turn the call over to Amit Bohensky, founder and chairman of Zoom. Amit, please proceed.
spk01: Thank you, Ben, and good morning to all of you. Today, I am going to provide an overview of our recent achievements and update you on the opportunities for 2023 and beyond. During the third quarter, we made tremendous strides in improving our margins and bottom line, growing our adjusted EBITDA to $575,000 versus $15,000 in last year's period. The acceleration in profitability is the direct result of the implication of our restructuring and cost-saving initiatives, which we initially disclosed in June 2023. We keep our initial estimates expecting financial performance and cash flow improvement plans to result in $4 million in cost savings on an annual basis. These improvements led the company to achieve a positive cash flow from operating activities for the first time in five quarters. We also expanded our growth margins by approximately 900 basis points during the third quarter. The strong expansion in our growth margin was largely the result of our ability to diversify our business to higher growth margin areas and transitioning away from cryptocurrency customers which carried lower margin. In addition, we discontinued some non-profitable businesses as previously disclosed. While these items contributed to the revenue decline of 27% in the quarter, gross profit dollars only declined 8%. We remain cautious, yet optimistic regarding our sector, understanding that the advertising technology space, like in any other sector, is subject to the broader economic climate. Following these points, this morning I would like to discuss three important areas of OZoom. These areas are our clients, the development of our product, and service offerings, organizational restructuring initiatives along with our cost-cutting measures. I want to begin with our customer base. Over the last quarter, we have transitioned away from the cryptocurrency sector. Currently, the cryptocurrency sector constitutes less than 10% of our sales, while it was roughly 60% during some periods last year. We are now focusing on growth sectors such as e-commerce, iGaming, transportation, and customer product goods, sector known for the stable growth patterns and elevated profit margins. We have depend in our activity with customers such as WPT, Global, and FreeNow. Consequently, our revenues have risen in comparison to the corresponding period last year, excluding both cryptocurrency clients, and non-profitable operations clients that have been discontinued. Now, I would like to move on to our product and service offering. Our competitive advantage remains our 360 points of view for digital performance. Combined products and services all focused on achieving the goals for our clients. We hold various products and services all focused on digital and mainly mobile performance. We have the ability to provide our customers a holistic range of products and services for achieving the digital performance KPIs. Our main platform is integrated to hundreds of media sources, allowing us to promote customers' digital assets in multiple channels under one system, combining all data points into one activity. Following the acquisition of Albert AI back in March 2022, we offer full-funnel social in search media AI campaign management, leveraging AI to the execution level of budget management, budget allocation, and KPIs achievements. We hold the DSP for programmatic media buying. Our DSP is integrated to the biggest 30 mobile media exchanges which give our customer full range and reach for the mobile web and app performance needs. We save the advertiser resources and maximizing their advertising budget. There is no dependency on any specific media supplier or traffic channel. This not only saves valuable time and resources for the advertisers, but also provides enhanced clarity, consolidated insights. Additionally, Our platform and products are designed for user-friendly operation, eliminating the need for software development kit SDK implementation. In our perspective, positioned as a crucial layer within the ecosystem, the company stands strongly in the industry. Behind walled gardens as Google and Meta and etc., the marketing landscape is very fragmented. Zoom enables advertisers to leverage a wide range of various types of media channels, from social to programmatic, OEMs, SDK networks, and more. Their KPIs are achieved on all channels together, all as a mix. From our inception, our user acquisition services were exclusively tailored for apps. We have extended our services to encompass also standard web and mobile web traffic as well. Finally, I want to speak on our restructuring initiative and cost-saving measures. During the end of the second quarter, under Mr. Almeny's leadership, the company decided to take actions aimed at improving financial performance and cash flow throughout its operations. The company announced its plans to implement cost-saving measures consisting primarily of discontinuance of non-profitable operations, the near term termination of approximately 40% of its workforce, and certain other reductions in ongoing expenses. Management estimates that the annualized net cost saving of these measures will be approximately $4 million in annual terms. We are beginning to see the fruits of our actions in the third quarter, as total operating expenses decreased by 36%. By redirecting our resources toward activities and solutions that have demonstrated profitability, enabling us to better position ourselves competitively in the current market. As we move forward, our commitment lies in maintaining a vigilant approach, consistently evaluating our decisions and making necessary adjustments. Through this ongoing process, we have confidence in our capability to navigate the dynamic business landscape and securing prosperous future. Financial results. Now I will review the third quarter financial results in detail. Revenues. Revenues for the third quarter were $7.2 million, a $27 percent decline compared to Q3 2022. Revenues continue to be negatively affected by the global slowdown, in particular the areas of cryptocurrencies. We continue to diversify our business by increasing our exposure to sectors such as e-commerce, iGaming, transportation and customer product goods. offering a wider range of performance-based products and services, serving more and wider needs for our customers. Furthermore, our decision to discontinue unprofitable areas, including our publishers' monetization business, led to a decline in revenue. However, excluding both cryptocurrency clients and non-profitable operations clients that have been discontinued, revenue in Q3 of 2023 have risen in comparison to the corresponding period last year. Gross margins. Gross margins for the third quarter was 40%, compared to 31% for the same period in 2022, an increase of approximately 900 basis points. We had lower revenues from our cryptocurrency customers. We generally have lower gross margin. In addition, we exited certain businesses which were non-profitable and with lower margin. R&D and SG&A. Research and development expenses were $700,000, representing a 49% decrease compared to Q3 2022. Selling, general, and administrative SG&A expenses were $2.2 million, a 30% decrease year-over-year. This decline in expenses was mainly the result of our cost-saving restructuring initiatives. These reductions mainly reflect the impact of cost-saving initiatives, which include a 40% reduction in headcount. 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, one-time payments, and amortization, as adjusted for share-based payments, non-recurring operating expenses, and impairment of intangible assets. Adjusted EBITDA in Q3 2023 was $575,000 compared to adjusted EBITDA of $15,000 for the same period of 2022, reflecting the cost-saving initiatives. A full reconciliation adjusted EBITDA is available in our MD&A filing. Cash. We have $1.5 million in cash on the balance sheet as of September 30, 2023. We believe that the company's recurring revenues, in addition for the existing cash and cash equivalent, and the positive clash for operations achieved in Q3 with the implementation of cost-saving measures will be sufficient to meet our working capital requirements and future growth plan. Overview. Now for those who may be unfamiliar with the Zoom story, I would like to provide an overview of our business. Zoom has developed and acquired a proprietary patented technology and targets the needs for various segments of the digital marketing industry. Zoomed offers its services globally through its agents and other business partners all over the globe. As such, the company operates in collaboration with hundreds of publishers and global advertisers. The company aims to consistently provide significant added value to its customers. the company's services and technology stack development roadmap focuses on creating technology solutions that seamlessly integrate with a range of digital media sources. Through this integration, the company aims to consolidate these sources, allowing its customers to achieve optimal value for their investment. The primary focus of this effort is directed towards enhancing user acquisition and retention strategies, tailoring them to the unique requirements of each media source on any screen or platform. Furthermore, the company maintains an ongoing commitment to staying attuned to the market dynamics and the changing demands of its customers. The company actively evaluates the inclusion of novel distribution media channels into its platform. This adaptive approach ensures that the company remains responsive to the involving needs of its clients, contributing to its reputation, a forward-thinking and customer-centric company. The company is focusing its efforts, which are based on long-term trends within the online advertising industry in line its strategic strategies of providing customers digital, mobile-focused performance technologies, products and services for improving the media buying effectiveness, cost measurements and results achieved by digital media, enabling customers to manage their user acquisition campaign budgets on multiple digital channels, screens, and platforms, including social networks, ad networks, exchanges, content discovery platforms, influencers, and connected TV, all using data-driven KPI-based technology. Managing all campaigns-related key information paramasters based on each advertiser's measurement KPIs, including, if requested, the cost of media, cost of acquisition, lifetime value, return of an ad spent, and other key metrics, while working towards integrating full automation, AI-based algorithms into the platform. Offering extra tools and features as part of its product to simplify campaign management tasks, Such extra tools and features include creative studio editing capabilities for quick ad adjustments, extra layers of user data from app stores, and unique optimization abilities for saving time resources on campaign management tasks. And now for some concluding remarks. We remain optimistic about Zoom's long-term growth prospects. Our focus in the short term will be on healthy bottom line growth and improving cash flow, all while managing our balance sheet properly. We view this strategy as an important way to build shareholder value and the weather of microeconomics environment. Before I move to the questions, I want to thank all our employees for their hard work and dedication, as well 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. Ben.
spk00: Thank you, Amit. We have some questions for you. Firstly, given your new expense structure, what level of annual revenues do you need to hit cash flow from operating activities break-even?
spk01: We can see in Q3 23, that with quarterly revenues of approximately $7 million, we were able to generate a positive cash flow from operating activities. If we continue with the current expenses structure, together with the current profit margin, upon reaching an annual revenue of approximately $30 million, we hit cash flow from operating activities break-even.
spk00: Great, thank you. You've now extended your services beyond mobile apps and now to web assets as well. Can you walk us through that decision and how will you go about getting client base?
spk01: Our products and services have the ability to operate also on standard web and not only apps. For example, our DSP is fully integrated to more than 30 mobile exchanges for mobile apps and mobile web. With the acquisition of Albert AI, we can manage all search and social media for mobile apps, mobile web, and desktop initiatives. Most of our activity and revenues come from mobile app industry, but we are going wider and expanding from the app industry only. We have been getting customer demand to help them out not only for their app activity, but for all their digital performer needs.
spk00: Okay, the Q3 23 financial reports exhibit numerous disparities when compared to the correspondent quarterly results. What, in your opinion, represents the primary changes that most reflect the restructuring initiatives and the cost-saving measures implemented in the last quarter?
spk01: Identifying a single indicator proves challenging. There are numerous metrics that exhibit significance shifts when compared to the corresponding quarter. For instance, adjusted EBITDA witnessed an impressive growth of 300,700% in growth, a positive cash flow from operating activities for the first time in five consecutive quarters, substantial reduction in operating loss from $1.5 million operating loss to nearly achieving a balanced state.
spk00: Okay, that's great. Well, thank you for that. That's all the questions we have today. Many thanks for everyone participating on today's call, and we look forward to hopefully speaking with everyone shortly. Have a good day.
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