Adcore Inc. (ADCO) Earnings Call Transcript & Summary

On the call this morning, the company's CEO, Omri Brill will provide an update on the company's operations and strategy, followed by a financial review by Adcore's CFO, Yatir Sagdot, of the company's Q1 2023 financial statements. After which, we will answer presents and see questions from participants. I would like to take a moment to remind participants of the state harbor statement. This conference call contains certain forward-looking information and forward-looking statements, collectively forward-looking information, including statements about the company. I will now give you a few moments to take a look at the forward-looking information as reflected on the screen. Okay. At this time, I'll be turning the call over to Omri Brill, Adcore's CEO, to update you on the operations and strategy of the business.

Thank you very much, [indiscernible], and good morning, everyone. Thank you for joining us today for the company Q1 2023 earning call. And for us in the advertising space, Q1 is traditionally the slowest quarter in the year, sorry. So basically, they start very slowly, then it slowly pick up Q2, Q3 and Q4. And actually, when we look at the company quarterly results, and we can see exactly this trend in 2022. So that's a really good example. Q1 2022 was 4.7% in top line revenue. Q2 was $5.2 million and then $7.5 million and Q4 2022 was $8.8 million. So basically, being able to demonstrate such a strong earning report for Q1 2023, give us a lot of confidence regarding what the company will be able to achieve in the time here. So it's definitely a very strong start of the year, and we're very happy and pleased with the report that we're going to demonstrate today or showcase today. And let's dive into the numbers a bit. So Q1 2023 top line revenue was $6.8 million compared to $4.7 million in Q1 2022. That's a massive increase of 45% year-over-year. Gross profit were up by 35% year-over-year to $2.7 million compared to $2 million in the previous year. When we look at quality growth KPIs and the company historically the [indiscernible] report to KPIs, gross profit and gross margin and also revenue coming from North America region for us. But obviously, the topic have many more important KPIs, but this is some of the KPIs we like to call quality KPIs. And yet again, we see a very strong number. So Q1 2023, like I said before, $2.7 million in gross profit, $2 million compared to $2 million in the previous year, a gross profit up 35% and gross margin were 40%, which is actually in the higher range of our original guidance, which were 38% to 40%. So we're very happy with the midline results, obviously. And again, when we look at -- when we look at revenues coming from North America, we see a massive 61% year-over-year growth to more than $1.5 million in Q1 2023 compared to less than $1 million in the previous year. So again, 2 very important KPIs, and most of them are actually moving in the right direction. I want to touch base about [indiscernible] a bit, and these 2 very interesting graphs that I would like to share with you today. Actually, the first graph is down at monthly average [indiscernible] burn rate. And we started this crop in Q1 2022, and the average burn rate [indiscernible] was $120,000 that USD by the way, very -- sorry, monthly average. And then it went down quarter-over-quarter. We can see that, let's say, for example, Q4 2022 was a bit less than $100,000. In Q1 2023 was around $80,000. So this 33% decrease compared to the peaks that we had in Q1 2022. And the company is taking a lot of aggressive measures in order to make sure that the burn rate is going to be reduced to $60,000 average in Q2 and then around $40,000 in Q3 and 33% were estimated in Q4 2023. So that's like, if we need to compare it to $120,000, that's a 75% reduction. And the way we've been able to do so is because a lot of the heavy lifting that were associated with building up a new platform onboarding a lot of new teacher, for example, a lot of tech investment and content creation investment, all of these major [indiscernible] lifting we've been done with. So that's actually good news. We've been able now to reduce, for example, the R&D from 6 people in the peak to 3 people now, content team was reduced for 3 to 4 people in the peak to, I would say, less than one person now working full time on the [indiscernible]. So basically, there's a lot of, let's say, [indiscernible] we can do. And obviously, we expect revenue to increase as well. But in the end of the year, we plan that [indiscernible] burn rate is going to be insignificant to the company ordinary post of business, which is, I think it's a good news for us. It's good news for our investors as well. On the upside, although like having this burn rate also an upside -- but if you look at the [indiscernible], the [indiscernible] report, we can see the monthly average [indiscernible] visitors that we have to half. Like I said, the company invested a lot of creating relevant [indiscernible] for [indiscernible]. And we can see avert a very impressive increase in [indiscernible] visitors over the course of the past quarter. Again, this is monthly average [indiscernible] visitors. And if Q1 2022 was less the [indiscernible] visitor remarks, Q1 2023 was already around 50,000 visitors a month and then we expected Q2 2023 to be at more than 100,000 visitor, and this is based already on visibility that we have with April and almost half of May as well. So basically, very nice growth plan in terms of interested visitors and stuff like that. So again, that's something that was important for us to share with our shareholders. So just to -- to recap some of the highlights of the Q1 2023 report. Again, revenue grew by 45%. That's an aggressive number. Gross profit grew by 35%, again, a very nice growth. [indiscernible] revenue grew by more than 80%, very fast grow from coming from the region. North America revenue grew by more than 60% year-over-year as well. And even APAC, then we saw a massive decline in this region in 2022, resumes positive growth trend and growing 30%, and we believe we will be able to demonstrate or show more growth coming from this region in this coming year as well. When we look at the comparable, the company still believes the shares still very deeply at their value. Current share price is $0.23 as of yesterday closing number. We believe this is a very big upside for the company. And that's why the company is buying shares in the market. So we have the NCIB plan going on. And we also bought in market and off-market total shares that we bought since the -- since starting this plan exactly 1 year ago was accumulated to almost 4 million shares that were bought and canceled and almost CAD 1 million that was invested in this process. And actually, the company still believe the stock is undervalued. We plan to resume the NCIB for additional in once it's going to be a got clearance production, we can announce it and basically [indiscernible] intention. And the company is intent to continue to support the stock and the shareholders continue to buy shares, both from the company level and I myself on the personal level as well. Everybody is committed. Everybody understands is like a value that basically in the [indiscernible] price -- if you remember in the last earnings call, there was the summary of Q4, we talked about the company goal and target for 2023. And I want to go over each of the 6 calls that we announced in the last earning call and see if the company been able to meet them or not. So first, the first quarter that we said that we want to maintain a strong balance sheet with a focus on increased cash reserve. So obviously, we had some drop in the cash reserve quarter-over-quarter. But again, Q4 compared to Q1, that's something that the company expects. And to deload the company still believe it can actually increase its cash reserve in 2023. And basically, the company remain very much committed to maintaining a strong balance sheet. So I would say after check over here. Second target is keeping the gross margin within the 40% to 50% range, again, 40%. That's what we did, and that's a check, achieved a double digit in revenue, gross profit and operational profit. So that's a full check of the year, 45% year-over-year growth in revenue, 35% year-over-year was in gross profit and operational profit improved what the [indiscernible] profits improved in almost 100%. And we are now going to expand our global footprint in North America. Yet again, we've demonstrated a very strong 60% year-over-year growth. So that's a big check. Number 5, strengthened the strategic partnership to drive major growth and market share. The company recently announced been selected as the #1 Microsoft advertising partner in the area region. So that's a big accomplishment. And there's also other exciting news we can remain yet regarding this partnership. And we are working very hard and signing new partnerships as well. So we're going to announce some exciting partnership coming in the next coming months. So I think, again, a big check over here, the company is in the right track and every partnership that we signed increase the network effect of the company have the value proposition and also it's a good signal to other platform to say, yes, this is probably a good company to team up with, to make it a partner, to make it an official reseller. And in some cases, we are also talking about exclusivity in specific markets. And then number 6 is investing in research and development and driving, obviously, innovation. So yes, again, a big check. The company is working on very exciting, I would say, addition to the company up a pipeline, both in new [indiscernible] and new apps that are going to release this quarter in Q2. So there's a lot of exciting news coming our way. And I say at the end of the day, like if you need to look at what the company says, it's going to be the company goal and target for 2023, I'm happy to report that the company being able to meet maybe 90% of the [indiscernible] target is put to itself. So I can be very pleased. And I think that's also one of the reason why the company been able to showcase such a stronger report in Q1. And we are very [indiscernible] and optimistic about what we can still achieve in the next coming year. I know that you're still waiting for guidance for the second quarter, but we would like to supply them in the beginning of June when we have a bit more clarity about this quarter. But can we see what they can share that we see the same trend that we saw in Q1 carried into Q2 as well, which is obviously a positive signal. So that's it from my end for the company remarks, and I'm going to hand it back to you, [indiscernible] and I guess, to our CFO as well.

Thank you so much Omri. And with that, Yatir, I will turn this call over to Yatir Sadot, Adcore's CFO, to review the first quarter financials in more detail.

Thank you, [indiscernible], and good morning, everyone. I would like to provide a straightforward and compatible overview of our first quarter financial results. Keeping in mind that we'll discuss both GAAP and non-GAAP measures all presented in Canadian dollars. Despite the challenging business landscape, our team has excelled in the first quarter, our strategic focus since mid-2021 has been on generating higher margin revenues and cultivating relationships with scalable and resilient clients. This approach has not only fostered a more sustainable business, but also enhanced our long-term profitability. Now let's dive in into details. For the 3 months ended March 31, 2023, we delivered revenue of $6.8 million compared to $4.7 million in the same period of 2022, an increase of $2.1 million or 45%. Yes, an increase of 45% year-over-year. Gross profit was $2.7 million compared to $2 million, an increase of $700,000 or 35%. Gross margin for the 3 months ended March 31, 2023, was 40% compared to 43% in the same period last year. We kept the target range of gross profit between 40% and 45%. And -- as for operational expenses, R&D expenses for the quarter were $0.4 million or 6% of revenues compared to $0.4 million or 8.5% of revenues in the prior year. The decrease is mainly due to the reduction of the development team in the [indiscernible] project. Sales and marketing and general and administrative expenses for the quarter were $2.5 million or 37% of revenues compared to $2 million or 43% of revenues in the same period in 2022. SG&A expenses increased mainly due to partnership expansion expenses. Operating expenses, operating loss was $0.2 million compared to an operating loss of $0.4 million. This decrease in loss was mainly driven by the increase in revenues. Net loss was $0.6 million compared to a loss of $0.8 million in the same period last year. Revenue breakdown. As for GO revenue breakdown, North America and EMEA regions showed the most growth year-over-year, as you can see in this slide. Year-over-year revenues by regions, North America and EMEA grew with hyper growth, as you can see in the chart, EMEA grew by 81% year-over-year from $1.8 million to $3.3 million. North America grew by 61% year-over-year from almost $1 million to $1.5 million. APAC region grew by 3% year-over-year. Now let's discuss net cash used in operating activities. One of our targets to 2023 that we communicated in the last earnings call in fourth quarter 2022 was to preserve more cash flow in 2023 and to be more efficient. The company used $1 million net cash in operating activities in the last 3 months ended March 31, 2023, compared to $2.4 million in the same period last year. This improvement is the result of the team's effort to be more efficient -- in terms of financial position, we ended the first quarter with cash and cash equivalents of $7.3 million as of March 31, 2023 compared to $8.8 million at December 31, 2022. The total working capital of $8.6 million compared to $9.2 million at December 31, 2022, a decrease of $0.6 million or 6.5%. The decrease in cash is mainly attributable to [indiscernible] payments related to the fourth quarter of 2022, purchasing shares through NCIB plan, investment in empty and payments to media partners. We believe to generate more cash and cash equivalents in 2023 compared to last year due to increased demand on the company's products and improved profitability. The company continues to show a debt-free financial position as you can see. In terms of adjusted EBITDA, our quarterly non-GAAP results reflect adjustments for the following items: Depreciation and amortization totaled $229,000, share-base payment totaled $84,000. For the 3 months ended March 31, 2023, adjusted EBITDA was $68,000 compared to $85,000 for the same period in 2022. Excluding [indiscernible] expenses from operating profit, operating profit were $30,000 for the 3 months ended March 31, 2023. And adjusted EBITDA for the asset activity was $343,000 in the same period. With that, I will turn the call back to [indiscernible].

Thank you so much, Yatir. At this point, we will turn the call over to questions. You are welcome to put in any questions you have in the zoom [indiscernible] chat, but we will start with a few of our preset questions. The first being from [indiscernible], who says, congratulations on returning to the growth on the AdTech side. My question relates to the [indiscernible] business. What are your long-term goals for [indiscernible]? And as part of your commitment to prudent cash management, what specific steps are you taking to ensure the survival of the business given [indiscernible] slow growth?

So thank you for the question. I believe actually we have violates issue quite well in the slide that we presented regarding the expected [indiscernible] bandwidth. So with the company being able to cut it by 33% year-over-year already. And we have aggressive plan to [indiscernible] additional 33% or even more to a total of 75% reduction. So by the end of, I would say, the second part of 2023, office shouldn't be no longer burden on the company cash or if it's going to be burden, it's going to be very minimal one, that's from one end. And on the other hand, we expect to start seeing the fruit of our investment starting our investments so starting to bear fruit, and we would like to see some more revenues coming from the after project as well. But again, the company is very committed to maintain a very strong balance sheet, and we will do whatever it takes in order for that to be the case.

We have another question. Given the cash burn rate over the last year and the statements made by the CEO about fiscal responsibility, will management end up taking a pay cut in order to restore the balance sheet.

Okay. So again, the company is committed to maintain a strong balance sheet. We communicated it in the early article, we phase in this call as well. During [indiscernible], for example, management took a significant [indiscernible] in salaries for almost 20% or more than 20%. And even postponed, we just resumed to pre-COVID, I would say, salaries. So I think like we do whatever it takes and this means everything. So if you believe that's going to be necessary, we can obviously look at it. But currently, we believe 2023 is supposed to be positive here and the cash of the company should be increasing the [indiscernible] at least the company forecast and injection and what we are aiming to see in this year.

Excellent. This is not a question, but a comment that says first glance on your results, it looks like a continuation of the buildup of the business, good work and hope [indiscernible] make significant progress. That comes from Mike. Would you like to comment on that?

No. So first of all, it's always encouraging to you a nice comments from the shareholders somebody we expect it like Mike [indiscernible]. And again, with regards to [indiscernible], there's a lot of progress being made both in the reduction of burn rate in the increasing of the amount of visitors and activities we see in the website. So we remain positive regarding the long-term future of [indiscernible]

It doesn't look like there is any more questions coming in, but I'll give everybody just a moment in case there's a last-minute question -- if not, with that, we will conclude the Q&A portion of this call. Thank you for joining us today, and have a great day, everyone.

Thanks, everyone. I guess the report speak for itself. That's why everybody remains quite this earning call. But again, thank you for everyone that joined today's call. And hopefully, you are happy about this report like we are positive about this year, like we are -- and that's a very strong beginning of 2023 as far as the company concerned...

Thank you.