Adcore Inc. (ADCO) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us for today's webinar series, where we will cover Adcore Inc. The company is listed on the TSX Venture under -- my apologies. Actually, it's recently graduated to the TSX under symbol ADCO. My name is Babak Pedram of Virtus Advisory. I'm joined today by my colleague, Corey Cohen; and of course, the CEO of Adcore, Mr. Omri Brill; and Marketing Manager of the company, Ilana Avtsin. We will take approximately 10 to 15 minutes to walk through the investor presentation and then open the floor for questions. [Operator Instructions] With that, I will hand over the call to Mr. Omri Brill, the CEO of Adcore to introduce the story and set a baseline to -- for other questions.

Great. Thank you so much, Babak, for the warm introduction and for remember that we are now a TSX company. And thanks, everyone, of course, to join us today and to give us the opportunity to tell the Adcore story. Some of you already heard the story, but it's always good, I guess, to hear it again. We try to make it a bit more unique today, maybe with a sneak preview to some of the Adcore technologies. And obviously, to have an open Q&A session at the end, discuss corporate strategy, the way we see 2021 opportunities, challenges. And basically, we would like to make sure that we communicate the best with our investor base. So without further ado, let's go over the presentation. So obviously, if somebody likes to read the disclaimer, we can share the presentation later, and you can have fun reading the disclaimer. But assuming it's a standard disclaimer, we can move forward. So investment thesis. So I guess I would like to start with a bold segment, but it's not bold, that's the reality for us that e-commerce activity is exploding. So we literally see huge -- a huge, like, uplift of business that is coming our way. COVID obviously had a huge impact. It created a huge wave of a massive digital transformation. And basically, the entire market that Adcore is serving is now like having doubled or even tripled the amount of activity that we had literally 1 year ago. So that's a huge change that we -- the company is seeing right now. And obviously, Adcore is having already a huge market, almost $0.5 trillion of online advertising, and this market is now even further accelerating because of COVID. Adcore also has a very strong customer base, over 500 ad agencies that are using the Adcore platform and technology, over 10,000 different direct advertiser accounts. So a very good base and a lot of data that basically we can train the algorithm to be even better, thanks to this data. A very powerful business model, strong MRR and ARR, all of the company revenues are recurrent revenue, and a very strong scalable technology. So our technology is geared for e-commerce. And basically, that's put Adcore in a very unique position in the market today. Our vision is Effortless Advertising. Adcore believes advertising should be effortless and accessible for everyone. And basically, that's the task the company took on itself. And quite obviously, we do something good because the company is doing quite okay recently. And basically, like I mentioned before, what we are seeing now is unprecedented change in the market. Obviously, COVID changed a lot. Everybody -- all of our lives impact a lot because of COVID. There was the rise of the stay-at-home economy, a massive digital transformation. I just saw an incredible graph the other day that say that what took before in digital transformation of e-commerce in the U.S. 10 years between 2009 and 2019, literally happened in a single quarter in 2020. So just give you the magnitude or the magnitude of change that Adcore is facing. And Adcore is very lucky to be in a very heart of this chain. So all the budgets going online, all the budgets are going to e-commerce and customers look for technology like Adcore in order basically to scale activity and run more successful ad campaign for e-commerce sites. As we mentioned before, Adcore will serve a huge addressable market, almost $0.5 trillion in online digital spend 2020. And this market is expected to grow by 54% according to eMarketer to an astonishing number of nearing $1 trillion in 2024. So a big market now and is even more accelerating as we move along, a lot thanks to COVID. And Adcore is perfectly positioned actually to lead and dominate this segment of ad tech for e-commerce. So the company has the right technology offering. We have a suite of 4 different technologies, basically cover every level and need of e-commerce activity from small size to midsize to large size and also different stages of the online advertisement activity. We have the best talent. More than -- actually, it's almost now 50 employees, because the company is recruiting now, in every outpost that we have, a lot of different people, different languages. And we consider our people as the leader of digital marketing. The company has a very strong global coverage. Maybe it's one of the most global companies that you can find in the TSX. So we have literally offices in 4 different continents. Headquarters are in Tel Aviv, Israel. We have another office in Toronto, Canada, another office in Melbourne, Australia, and relatively new, but not so new office in Hong Kong, China as well. Adcore is also very lucky to have very strategic alliances with all the major ad networks, whether it's Google, Facebook, Microsoft, TikTok, LinkedIn. Basically, we have special partnership with all of these ad networks, and very strong financial we're going to cover in the next slides as well. So Adcore Marketing Cloud. As I mentioned before, Adcore solution is not a single solution. Actually, it's a family of solutions, put in 4 different apps. So the entry level app is effortless marketing. That's an app that we developed to Shopify store owner. There are more than 1 million Shopify store owners that -- basically Shopify did a very good job in making -- open an e-commerce store available and easy for everyone. So that's super easy, but when you open the store and even if you upload your product, it's very nice. But still, this type of store owner is facing very critical problems. They still need to find customers and to sell their goods online. And this is exactly where Adcore technology and the effortless marketing technologies come into play. And maybe you think, like, what we can do? I can show you a quick video on effortless marketing. And basically, what Adcore did with effortless marketing that it took a very complex task of creating online campaign and made it very easy. So in a sense, it's not easy to create something that is easy, but that's exactly what we have managed to accomplish with effortless marketing. So let me switch screen for one sec. [Presentation]

So thanks for this demonstration. But I think like the basic idea is that if you are Shopify store owner, you can go to the Shopify App Store, download the app and literally, as the video showed you, with 1 click or few clicks, create your own Google shopping campaign, Facebook campaign or any campaign that you need in order to start acquiring customers and do business online, which is critical, obviously, for this type of store owner. So they don't need to know -- to be an expert on Google, don't need to be an expert in Facebook and then everything is actually done for them by -- from the app itself and by the app itself. So that's the entry-level technology. I would say it's a must-have technology for every Shopify store owner. And then obviously, it can get a bit more complex. So if you're a larger e-commerce site, maybe you would like to advertise in more than one country, in more than one currency, more than one language as well, then you will need maybe an app like Feeditor, which is a more robust app that basically helps you now to take any data feed, edit it, transform it, run any type of action on the feed and create a lot of different version of the feed. Obviously, from these different product feed, we can now take them and submit them to Google Shopping, to Amazon, for example, to Facebook, and basically create multiple campaigns, on multiple languages and multiple currencies. So that's another great thing you can do with the Adcore technology. And maybe the last piece of the puzzle that I would like to show today is basically SEMDOC2. So imagine we already started from -- I would say, from the base, created it with Effortless Marketing, created basic campaign. And then maybe take it to the next level, use Feeditor, create a more complex campaign, maybe in different languages, in different countries. We have also ADCORE Views to do the exact things that Feeditor is doing for shopping, also for sales campaign as well. So we already have a lot of activity, a lot of campaigns, but now we need to understand what's going on and maybe to analyze the data, and this is exactly what SEMDOC2 help us to do. So basically SEMDOC2 is an actionable analytic tool that analyze your account in real time. So the system literally orders more than 100 different reports in real time and analyze it, and it can analyze a lot of data and give you a very good outlook about where your account is standing. So this is a live example of a live account. And we can see the overall score of the system here is 58%, which is not so great. But when we do -- when we have a look at, let's say, on the different categories, and we're seeing some segment like smart campaign usage, this actually -- client is doing great. You get like a perfect score of 100%. But if you look at KPIs, trends or even efficiency, we say like these are mixed results. So we have packet -- pockets of excellency and pockets, you know, when this site is not doing so good. And for example, if you want to drill down, let's say, on efficiency and look at the waste ratio, then we can see the system calculate that this client actually spending more than EUR 30,000 in a year. So that's not a small number by any means. And not only that, the system is smart enough to show us exactly where the spending is happening, maybe overbidding in this example, and not using the [ safety items campaigns ]. So basically, what the client can do is understand exactly where he's doing okay, where you need to fix stuff, but not only that, you can go to the next type of SEMDOC2. And literally, with 1 or 2 clicks, for example, let's say, false low-quality [ score queue up ], then basically can run the fix straight from the system as well. Click the Click To Fix button and basically the magic going to happen. So it's not only telling you what you need to do, but it's also telling you or allow you to do it straight from the system itself. So that's super powerful. Everything is very visualized. You can see exactly what's going on. You can look at it through the account level and also in the campaign level as well. So this is the campaign level. Again, I can see like audience, I'm not doing so great. Maybe quality score I'm doing okay. I can also look in a single campaign level and see how I'm doing. I can click and see the data per campaign. So basically, everything is very well organized and well presented to the customers. So I think let me share a presentation again. So basically, when we talk about the Adcore technology solution, I think, like, it's important to understand we're not talking about the single solution as you just saw. We're talking about a family of solutions. And basically, that's one of Adcore biggest strength, the fact that we have different app and different solutions for different needs covering every size of advertisers. So a bit about the -- the next slide is the management team, myself, Founder, CEO. In the top management is Roy Nevo as well, COO; Yatir Sadot, CFO; Vadim Malkin as the company's CTO; and we have GMs for Greater China, Gal; Ronit for Australia; and Martijn for North America; and obviously, Jason Saltzman is the Legal Counsel and Director of the Board. And a bit about the revenue model and how Adcore is making money. So basically, we have a very straightforward and a robust revenue model. We take a percentage for every ad spend that is going through one of the Adcore platform. And Adcore have 2 revenue streams, main revenue stream. The first 1 is indirect client. That's ad agencies that use the Adcore technology to run campaigns for their own customers. And the average platform tax that we take from this type of client is around 4% from their ad spend. And the other revenue streams that we have is direct clients. So that's direct-to-consumer type of businesses that work with Adcore directly without a middleman, without an agency. And if you look at -- on the split for the first 9 months in 2020, we see that the split is quite even actually. So indirect and direct activity was almost 50-50%. What I can say now and what we can see, because of COVID, there is a huge acceleration in direct clients activity. And if you're going to look at the early numbers, so even 2021, then the company expects the direct revenue stream going to grow much quicker now because of COVID and the massive digital transformation. So very strong financial model. Company was able to grow year-over-year and quarter-over-quarter. Q2 2020 was a big challenged because of COVID. But then we saw a massive rebound in Q3, 2020, literally growing 100% quarter-over-quarter. And obviously, we didn't release the annual numbers, but I can tell you that the level of momentum is even growing stronger in Q4 2020 and well into 2021. And a bit drilled down to the quarterly numbers. So Q3, 2020, which was the last reported quarter, $4 million plus in revenue, almost $1 million in adjusted EBITDA, 60% gross margin and $7 million working capital. So yet again, a massive quarter for us and a huge rebound from Q2 just a quarter ago. Very strong balance sheet as well. We have well over $11 million in total assets. Significant cash pile of $6 million and literally no debt. So the company has a lot of, like, capital basically we can work with, and there's no debt on the company whatsoever. Robust cash flow as well. So we can see on the early numbers that the cash flow was growing in $1 million rate 2017, 2018, and a huge jump in 2019. And basically, we see it increase also well into 2020. The only negative quarter was in Q3 2019, which was an -- the IPO quarter. So just to summarize everything. So, a, the company is seeing a huge digital transformation and Adcore is right in the middle of this digital transformation. So we have a very good, strong product offering and basically, it's put us in a very strategic position to benefit from this massive wave of transformation -- digital transformation. Obviously, we had a huge market before, but now this market has accelerated because of COVID. So it's not only a big market, but it's also accelerated very quickly. Literally, a lot of off-line budgets are now going online and basically, they will remain online. There's a lot of businesses now understand that all the business should be stay online or will be mainly online, and we don't expect activity to go offline or to go down from the level it is today. Adcore is a super agile company. The company proved itself to be very agile time after time. The fact that the company has been able to grow from Q2 2020 to Q3 2020 more than 100%, I think, speaks for itself. Obviously, the right product offering, a variety of technology offering and a proven business model. So that's what makes Adcore story such a great story to tell. And obviously, we have an IR contact that you can further discuss the Adcore opportunity with, whether Martijn, the GM of Adcore in North America; Yatir Sadot, Adcore's CFO; [ John ] doing IR for us in the USA; and Babak for Canada as well. So I think this covers the baseline of the Adcore story. Obviously, there's much more into it, but I think maybe that's a good opportunity actually to listen to what you guys have to say, to ask and try to do some Q&A session.

Thank you very much, Omri, for the great presentation. So we'll start with the Q&A session right now. We have multiple questions, so let's dive in. The first question I would like to congratulate you for the TSX uplist. This is a huge achievement for Adcore. So how does it feel to become the first Israeli company to graduate from the TSXV to the TSX?

So first of all, thanks for the comment. And obviously, I have to agree, it's a big achievement and Adcore is proud to be actually the first Israeli company to got listed or to uplist to the TSX. And I hope that's going to mark the way of the path to other Israeli or foreign companies to follow as well. I think that achievement basically speaks for itself. That means that Adcore, in less than 2 years that we've been listed to the TSXV, have been able to prove itself, to hold market capital and basically make it to the big board. And I think that's a very important and exciting milestone to the company actually, Ilana.

It is. What is the company expecting to gain from the upgrade?

So that's a fair question, I guess, as well. Obviously, the exchange asked us to do this, because the one is a shock as Adcore as the success story, technology success story, Israeli technology success story. But I think for us, the way we see it, we see it in a few ways. Obviously, that gives us -- going to give us better access to different type of investors, investors that maybe cannot invest or don't like to invest in the TSXV. So that's one thing. Obviously, I think, the company, like, corporate governance is going to be stronger because of the TSX regulations. It's good for the company. Also going to look -- it's going to be good for our investors to know that it's like stronger corporate governance in the company. So I think like -- and there's many other opportunities to be honest.

Okay. Thank you. Does the company plan to list on other exchanges?

So I think, like, obviously, the company already announced around the month ago that we are on the way to do a dual listing on the OTCQX. So that's already in motion. And hopefully, I think in the next couple of months, we're going to have exciting news to share. I think it's super important. We know there's a lot of U.S.-based investors that are already involved with the company. And I think it's important for them to be able to buy and sell the stock more freely in the U.S. market as well. So it's something that we're definitely looking to do. I think another potential listing that we can do actually that is linked to the TSX upgrade that after 1 year, the TSX company, if the company would like to -- we can do also a listing in the Tel Aviv Stock Exchange. So that can be done as part of the agreement between the Tel Aviv Stock Exchange and the TSX Stock Exchange. And I think it's not the time yet, but further down the road, obviously, Adcore would like to see itself as a Nasdaq listing company as well.

Hopefully. Okay. Next question is, diving into the business, COVID has substantially accelerated e-commerce and initiated many changes. How has these changes affected Adcore?

So actually, we discussed it a bit on the presentation, but basically, people like -- I don't think people quite understand the level of effects that COVID had on the entire industry and e-commerce activity. So literally, the level of activity that we see today, if I need to compare it to one year ago, I would say it least doubled up, if not tripled up. And we have clients, as you know, like in the beginning of 2021, start to discuss with us about what should be the budget for 2021. All of them say, we would like to double up, but now they're saying maybe we're going to triple up as well. So basically, it's not only -- has a big impact now, but it's also, like, the level of impact is going well into 2021. And I think, like, if you ask me, before COVID if that's going to be possible, then I would tell you, no, we're seeing now numbers that the company expects to see maybe like 2, 3 years down the road.

Okay. Thank you very much. Do you think the accelerated digital transformation will continue into 2021?

So I think, like, in a sense, we already covered it. So we see the same level of activity going well into 2021. We see clients that are speaking with us, increasing their original budget and spend [ as of the end ] for 2021. So the company is actually very bullish regarding the level of activity we can achieve in 2021.

Okay. So next question is regarding the Hong Kong office. In the midst of the COVID crisis, the company decided to open a new branch in Hong Kong. Can you share what was the rationale behind the unusual move?

Yes. So actually, you may find it funny or interesting, but actually opening the Hong Kong branch maybe was one of the smartest decisions that Adcore did in 2020. Because this branch, in a very little time, proved to serve to be a very successful branch for the company. We see a massive activity coming from China to the company. And the company is planning to double down on the Chinese market in 2021. And I think like literally, if we need to see where we stand today with the Hong Kong operation, so we are maybe at least one year ahead of the original schedule. So the level of activity over there is literally amazing.

So yes, another question regarding that is how the branch performing since its launch. Can you elaborate a bit more?

Yes. So again, we can't disclose the exact number, because we didn't release the annual financial statement yet. But I can share with the audience that the branch is doing very good. The company actually is planning to open another branch in Mainland China. So we hope to share exciting news about that as well soon with our investor base. Again, that's going to show you the level of activity that's coming from this region and the level of commitment that Adcore have for this specific region. So Adcore is doing very good in APAC, but if we need to take China. So China is a story by itself in a sense.

Interesting. Another related question is how, if any, is the political tension between China and the U.S.A. affecting the company's ability to operate in this region?

Okay. So obviously, Adcore is a business company. We're not a political entity. Having said that, in a sense, the fact that there is a tension between China and the West actually is serving Adcore. Because Adcore is not big enough. We're not Google or Facebook to be on the radar, so we can do businesses in China fairly easily and smoothly and we can be a bridge between Chinese manufacturers and e-commerce, like a client from China that would like to sell goods in the West, and they're going to need a company like Adcore to help them do so. So whatever is considered to be super easy and almost can be done literally with few clicks in the West, it's super difficult and almost impossible in China. For a simple task like open a Facebook account could be super difficult for Chinese manufacturer. So they need an entity like Adcore to bridge this gap, and this is exactly what Adcore is doing very successfully.

Thank you, Omri. Next question is, in just a few sentences, what is the advantage of Adcore's technology and what it brings to your customers?

So that's actually a very good and interesting question, because I think it's difficult, obviously, to cover 4 different technologies and all the different advantages that they bring to our client base. Having said that, if I need to summarize, I would say the following. A, Adcore technology are tailored for e-commerce. So it's not just a generic ad tech solution that e-commerce clients can use it. It's an ad tech solution that was built for e-commerce. So that makes our technology offering very, very valuable if you're an e-commerce client, for example. And I would say the second thing is, like I mentioned before, it's a family of solutions, which fit any level or size of e-commerce website from entry level website, to very large e-commerce businesses. And I think like that's, I think, the combination between the 2 make the Adcore offering so unique and valuable.

Thank you. Just recently, Adcore launched the Effortless Marketing app on Shopify. Can you elaborate about Effortless Marketing and its success since its launch?

Yes. So actually, Effortless Marketing was the latest addition to our Marketing Cloud, so the latest story app that we developed. And what we can see, and this is just the beginning, that it's getting very good traction. The level of engagement that we are getting, the level of feedback that we are getting is great. I think like the average score approval rate is around 5 plus -- 5 out of 5 stars. So it does mean that people like the technology, they like the value that it's giving. But I think in a sense, it's still in a very early sense of what it can achieve as a potential. Bear in mind, like I mentioned before, there's well over 1 million online stores in Shopify. So the potential is huge.

Thank you. What is the company's tech road map for 2021? Good question.

So the -- I like actually technology question. Yes, I like technology. So I would say if you look at the technology road map, what we would like to see in 2021 is, A, to broaden the access. So if you have like the Effortless Marketing, we have to have the Effortless Marketing app offering, not only to Shopify. We want to see it on WordPress, for WooCommerce as well, we want to see it on platform like Wix. So obviously, expand the audience and expand it to other platforms as well. So that's one very interesting thing that we like to see in 2021. And I think the next biggest effort is officially launch the Adcore Marketing Cloud with a robust UI and UX and make our app even more user-friendly and accessible. Because we believe in the end of the day, the company's vision is Effortless Marketing (sic) [ Effortless Advertising ] or Effortless Marketing. So we would like to work this out as we can in order to make this vision a reality.

Okay. Thank you. Next question is regarding the Google's decision to stop using cookies. Maybe you can elaborate about a bit to those who don't know. So how does it affect Adcore, if any?

So actually, that's a good question, and I've been asked this question lately by other investors. And I think like what investors need to realize is the following: A, what Adcore does, it allows e-commerce businesses to advertise directly on Google, Facebook and platforms like that. So Adcore don't use any third-party cookies or anything like that. So what we use, we use Google-owned data. So in that regard, Adcore clients or customers don't -- doesn't affect at all from Google decision. If any, platform maybe like AcuityAds, platform like Trade Desk that use third party cookies can be affected. But what we believe is going to happen is that, hey, maybe we're going to see less competition coming outside of Google. So that's going to make the Google offering maybe stronger and better for our clients. So that's one thing we expect to see. Or B, we're going to see no change for our clients at all, because, like I said, we're using first -- first-level data cookies and not like third-party cookies at all. So for us, it's business as usual. If any, we expect to have positive impact of this decision and not a negative impact.

Thank you very much Okay. So we're running out of time. Another question is our world experienced a very unusual year due to COVID. How can you summarize this year and what are your main takeaways?

That's an interesting question actually, because, A, obviously, like, 2020 was anything but a normal or a usual year for everyone. It was like a roller coaster for everyone. It started like the entire world literally stopped and then people started to adopt and stuff like that. And also for the company, or a CEO of the company, there's not like an handbook how to manage our company during a pandemic. And so I think like -- but if we need to look backward, I think, A, we're not -- it's not over yet. So we're not totally out of the woods yet. Obviously, we are in a far better position today than we were, let's say, in Q2 2020. But I think, like, if I need to reflect, my biggest takeaway would be, A, that we can change everything all the time. So in a sense, like, if things are changing, the company must change as well with the change. So if things are changing and we keep on knocking on closed door or keep on doing what we're doing and expect to get the same result, but when everything has changed, that is not going to happen. So one takeaway that we took, that we need to change everything all the time, or we can change everything, if we want to, all the time. And I think another important takeaway is that the time to act is now. So in a sense, things change fast, we need to act fast as well. So there's no time to waste. There's no time to reflect to stuff like that. If things change, you need to change as well and you need to do it fast and react fast. So -- and I think, like, for your next question, like, what was the other question, Ilana?

How can you summarize and what are your main takeaways?

Okay. Yes. I mean -- so Adcore actually did exactly that. So we changed a lot because of COVID. We're much more focused on e-commerce now. We're much more focused on technology now. The level of innovation the company did in 2020 is unparalleled. So we did a lot of excitement, new features as well, a lot of it is like new technology. There's some initiatives that we didn't even reveal with the investor base yet, and we hope we can start revealing them soon. These initiatives actually start due to COVID or because of COVID. And if I need to look backward and reflect, and I think, like, it's not a nice thing maybe to say, but actually, COVID did really good to the company. Adcore is a far better, far stronger, far more innovative company today than we were just one year ago.

Thank you very much. Yes. So actually, here's is our last question. How are these insights are being transformed to action for Adcore? Unfortunately, we don't have time for other questions. So this is going to be the last one.

So as I mentioned before, the company understood we need to react fast, to be first mover. If things are changing, the company would like to change as well. The company is much more innovative now. So we know we can do stuff that we didn't did before and going to markets that we didn't penetrate before. And basically, we take much bigger moves, much bolder move now, thanks to COVID and because of the takeaways that we learned from COVID. And also, we learned that we need to stay home and stay safe. That's also important.

That's the most important thing. Thank you very much, Omri. Unfortunately, we are running out of time, as I said. So I'm giving you the mic for closing remarks. Thank you, everyone, for your questions.

So thank you, Ilana. And obviously, thank you, everybody, to attend today your webinar. Like I said, our purpose for this webinar is to communicate some of the stuff that Adcore is undergoing now, like the level of business that we are seeing, some of the company plans for 2021. It's super important for us to communicate with our investors. And I urge you guys that even if you submit or asked a question and it wasn't answered because the time was a bit short, then do communicate then to our IR contact or to the company directly and we'll be more than happy to answer any questions that you may have.