Adcore Inc. (ADCO) Earnings Call Transcript & Summary

Hello, everyone. Good morning and welcome to Adcore's investor update conference call. [Operator Instructions] On today's call, the company CEO Omri Brill, who will provide a management declaration. Subsequently Adcore CFO Amit Konforty will present a financial overview of the company's Q4 2023 and a full year 2023 financial statement. We will then address pre-sent questions and time permitting, take questions from participants. Before we proceed further, I want to ensure your attention to the safe harbor statement applicable to our discussion. It is important that you take a few minutes to read the statement carefully. The statement will also be viewable on our website, once the call is finished. Please take a moment to review the statement on your screen. I will now turn the call over to Adcore's, CEO, Omri Brill.

Thank you very much, [ Athara ] and welcome, everyone for today earning call. It's my pleasure to present our Q4 2023 numbers and the full year 2023 numbers. And obviously discuss, the strategic initiatives the company will take, or already taken in 2024. So let me share my presentation, please. So Q4 2023 and the entire year of 2023 was a period of strong performance for Adcore, marked by significant achievement and positive growth. So all-in-all, we are very pleased and happy with the results we achieved in Q4, and obviously for the full year of 2023. And let's dive into some numbers. So if we look at the Q4 top line revenue, it was CAD 9 million compared to CAD 8.8 million in the previous year. And total gross profit was CAD 3.7 million for the said quarter. So all-in-all quarterly, which is 3% year-on-year growth and a full year, which is a significant 17% year-on-year growth in top line revenue. And when we talk about quality growth KPI and we mentioned historically over 2023 2 main KPIs, we talk about gross margin and we talk about North America revenue. If we talk about gross margin, ideally we want them to be 40%, or higher. And we can definitely see that during the entire year, both Q1, Q2, Q3, Q4 was 40% or higher. So 40% in Q1, Q2, was 43%, Q3, was 40%, and Q4 was 41% as well. So this is exactly where we wanted to be. And this is a positive indication for the company. Basically, we have quality growth, not only growing, but also growing in terms of the quality of the growth. And if you talk about North America revenue, which is a strategic market for the company, then we can definitely see that we achieved a very nice growth in top line revenue over there as well. Q1 was -- sorry Q4 2023 was CAD 2.1 million and we saw a nice increase quarter-over-quarter growth, between Q4 and Q3 as well. So again, we're very pleased with the result in this important market of us. And if we talk in Amphy, then we can clearly see that the investment in Amphy is declining. This is according to the strategic decision, the company is taking. So, if the peak of this investment was Q2 and Q3 2022, which was around CAD 100,000 monthly, it was down to CAD 27,000 or CAD 25,000 in Q4 2023. And all of the heavy R&D and the heavy investment in Amphy, I can clearly say that, we completed it. So basically moving forward to 2024, we estimate it to be a very, I would say, low maintenance investment of around [ 10K ]. It's not going to be significant to the company anymore. So basically most of the investments that we put in Amphy is already behind us, and that's the positive news. So Amphy investment is not going to be any longer a burden on the company's financial result, which is positive as far as the company is concerned. Just to sum up some of the report highlights, and yearly, we're talking again, 17% year-on-year growth, which is impressive. APAC revenue, grew by 14% year-on-year. EMEA revenue grew by 20% year-on-year and North America revenue grew by 18%. So we can see that, we have a positive growth, across all region in 2023, which is a very positive sign, as far as the company is concerned. Gross profit increased by CAD 1.2 million. And again, gross profit and gross margin is a very important KPI for the company in 2023. Quarterly numbers revenue grew, by 3% year-on-year. North America revenue grew by 11% year-on-year. Operating profit grew by 22%. And I think this was the first quarter in a long time that, we also was net profit as well. Amit can discuss it in more detail in his section of this earning call. And cash and cash equivalent grew as well, sorry 7% quarter-over-quarter. So also the balance sheet looked positive for the company. And so, throughout any quarter in 2023, we mentioned that, we have a few targets in 2023 that, we want to achieve. And I'm glad to report to our shareholders, we achieved all of them. So we maintained a strong balance sheet, again, a cash position, is strong and basically the balance sheet, look very positive. Second KPI was keep the gross margin above 40%, which we managed to do. So the target was to achieve double-digit gross revenue, gross profit and operating profit as well we achieved all of that in 2023. Top line grew, middle line grew and bottom line grew as well. All of them are double-digit growth. Number 4, expand our global footprint in North America as well, we saw a nice year-on-year growth in this important region. Number 5 was setting the strategic partnership to drive mutual growth and market share. So we solidified a few important strategic partnerships in 2023, with key players like Criteo and others, beside the existing partnerships that, we already have and basically managed to maintain with Google and Microsoft advertising. And number 6 is invest in research and development. And I'm glad to report that just in 2023, we launched 3 new apps to the Adcore marketing cloud. So again, big investment in R&D as well, from the company point of view. So again, check, check, check, across all the 6 important KPIs. And in other things that, I'm glad to report that, if you were to look at the company share price lately, then you can definitely see, we had a nice rebound in the share price. So from the dips that we have, which was around CAD 0.17, just a few months ago, now we see a nice uptick in the stock price to CAD 0.255 currently, as of yesterday numbers. If you look at 3 months as a stock price, it's grew by 40%, almost 40% -- 38% sorry, 6 months, 16% increase. And even 12 months we already flattened. So basically, finally, we see some very positive momentum within the stock price. But as far as the company percent, this is just the very, very early beginning. So trust me, there's a lot of upside to see within the Adcore stock price. And the following number will tell the exact same story. So if you look at comparables, and we make a comparable with all, let's say, leading adtech or martech companies trading, both on the Toronto Stock Exchange, and in the U.S. stock exchanges. Then we can see an upside opportunity of 200%, or even 1000%, if we talk about gross profit EV to gross profit. And again, we definitely believe that CAD 0.25, even 50% to CAD 1, still not going to represent the true valuation of the company. So like I say, don't cry that you didn't bought it at CAD 0.70, they still have money to be making in even in CAD 0.25 and CAD 0.50. So price is the way the company believe. And if you look that we put our money where our mouth is, basically the company continue in Q4, to buy -- purchase shares for cancellation. We purchased 70,000 shares for cancellation in Q4 2023. And all-in-all in the past 1.5 year or 2 years, we purchased and canceled more than 4 million shares. Obviously, once we're going to have a positive momentum in stock price and now we're starting to see one. Then obviously, the fact that the company canceled more than 4 million shares, will definitely contribute to a more aggressive upside. That's the way the company believe at least. And so, we discussed 2023, we discussed Q4 2023 the full year 2023. And we are very happy with the result, we've been able to secure in this year. But equally important is what is ahead of us in 2024 and behind. And I want to talk about what the company identified as 4 strategic pillars for the company in 2024, and obviously behind 2024. So the first pillar is what we call technology and AI. And by technology and AI, we're not only talking about the proprietary technologies, we are developing in-house or AI implementation within our tools. But we're also talking about third-party technologies we can work with in the different Adcore departments. So I would say usage of technology, whether we develop it ourself and usage of AI, is critical for the company ability, to grow in the future. And in 2024, we're going to put even more emphasis on this important metrics. And second one is focusing on enterprise and aggregator. By aggregator we mean, for example, 8 agencies that manage multiple advertisers and not only single advertiser. The way we see it, if we have relationship with this type of client, basically the LTV and the overall, let's say, partnership that we can get from this type of client, is much more beneficial for Adcore, than if we have a, let's say, relationship with smaller mid-sized clients. So for us, focusing on this type of clients is critical as well. The third pillar, strategic pillar is basically self-service, or what we call a do-it-yourself, or low-touch type of offering. And the way we see it, this type of, let's say, offerings that we have, which are self-service, will allow us to scale faster, and basically be more efficient as a company. So basically the fact that we can offer all of our services, and all of our technology self-service as well, it's critical for the company to be able to be more efficient and basically grow faster. And last but not least, is synergy between the different initiatives, the different offering, the different solutions that we have. Obviously, if we have some client, for example, start to use, let's say, Adcore technology, and then we can scale him up, across some other solutions that Adcore have, obviously creating a synergy by that. So we increase the LTV, we increase the value of each client, and that's critical for what the company is doing as well. So technology and AI, enterprise and large aggregators, low-touch, do-it-yourself type of offering and synergy, these are all 4 very key and strategic pillars for us in 2024. And just to give you an example, so let's say, now we're going to develop a new app to the Adcore marketing cloud, and this app is going to target, let's say, an enterprise type of client and going to offer, let's say, self-service type of operation, then we already touched 4 -- 3 out of the 4 strategic pillars. So we touch the technology and AI, because we develop a new technology. We touch enterprise because, let's say, this app, for example -- and a good example is one of the last apps that we developed is Feeditor Plus that, was designed for enterprise clients that have a very large feed. So obviously, the audience is large enterprise clients, so over there checked as well and obviously, it's a self-service, so self-service first as a solution offering, then we touch low-touch and do-it-yourself as well. So I think that's a good example of, let's say, an initiative that the company did, a recent initiative the company did, for example, develop the Feeditor AI app, is basically touching technology and AI, touching enterprise and touching low-touch, do-it-yourself type of offering as well. And every single, let's say, solution, or technology of the company is developed or offered, basically, we want to make sure that we have a very flexible offering around it. So basically, it can be either self-service, the client can go log into the app, and do everything itself. It can be many service, so we can have Adcore expert help the client to set up, let's say, the feed, for example, and optimize the feeds, if needed. And this can be hybrid as well, so some of the activity maybe can be done by Adcore expert and some of the activity can be done by the client themself. The part that we offer this flexible service packages, basically give us more ability to win more clients and it's critical for the company. I don't know if you guys, visited the Adcore website recently, but in the last 2 months or so, we put a lot of effort rebuilding the company website. We launched a lot of new pages within this website to redo, some of the webpages, and did a good restructuring of the company website. And the way the company now, the website is structured, is similar to the way the company is structured, basically. So from one end, we have the Adcore marketing cloud. Under this cloud, we have all the different apps that the company developed, whether it's Feeditor Plus, Feeditor Effortless Feed, Alerter, Media Blast, Semdoc, and Adcore Views as well. And basically, new apps that we're going to develop, are going to be sit under this section, which is the Adcore marketing cloud. And under Adcore marketing solution, currently, we offer 4 different solutions, marketing solutions. The first one is brand awareness. That's a new activity the company entered into, which is programmatic advertising, CTV, outdoor advertising as well. And we already had some very successful campaigns and case study around that. You can find it online in our website. The second one is performance marketing, more low-info type of an activity. Then data and analytics, that's again a new initiative, a new solution, marketing solution the company is offering. And last, but not least, is the studio -- and creative offering as well. So much more technology, let's say apps and offerings that we offer now 2024 compared to what we had, let's say, early in the same period in the last year, in 2023. And the same applies for marketing solutions as well. When we talk what should be the key metrics for the company in 2024? So, every time we report an earning result, or earning call, we do an earning call for 2024. So do look on the following KPIs in order, to see if the company is moving in the right direction. The first one which was the same one as we have in 2023 as well is still maintaining a strong balance sheet with focus on increased cash reserves. So this remains to be a focus for the company. Keeping the gross margin above 40%, is yet another KPIs that we basically continue from 2023 to 2024, achieved double-digits gross revenue wise, top line, middle line, middle -- sorry, line, and a bottom line as well. That's something we would like to achieve in 2024 as well. We are very optimistic in the company ability to do so. So we had a very successful year in 2023. And the company is equally optimistic, about what we can achieve in 2024 in that regard. And a new KPIs expand our marketing technology, and marketing solution offering, the more solution we have, the more technology we have, the higher, let's say, the sales that we can do and the revenue we can generate. So a good quarterly earnings report should have, let's say, a strong balance sheet, should have gross margin 40% or higher, should have a double-digit growth top line, middle line and a bottom line as well. And should have, let's say, an expansion in the technology offering and the marketing solution offering of the company. So let's say, hopefully, we can achieve all of that in 2023, compared to the same achievements that we did in 2020, sorry, 2024, compared to the same achievement that we did in 2023, or even better. And last, but not least, I want to talk a bit about the company's social responsibility. KEEP ON RIDING, it's a very nice initiative the company took following the October 7 events in Israel. And basically, we decided to keep to start an initiative basically, to donate and repair bicycles for evacuated communities and kids, especially within these communities. I'm already glad to report that we managed to deliver more than 800 pairs of bicycles to the different communities and we managed to raise more than 500 NIS. And under this initiative, some of this money comes from the company, and from managers and directors within the company, but we had literally donors from all over the world. And 2 new initiatives that we did recently, under this very important project is we delivered the 105 new pairs of bikes to kibbutz Mefalsim kids. That was literally done one month ago. And we delivered 2 months ago, 110 new bikes to Kibbutz Re'im. And again, very, in a very nice event, both of them. And I encourage everyone to visit the company, KEEP ON RIDING webpage, or the social media pages, related to this initiative, take part contribute. This is a very important initiative the company is taking. It's very dear to our heart as well. So we want to thank everybody that contributed, to this initiative, and we encourage you, if you didn't do so, to do so now. It's never too late. So thanks everyone. I'm going to hand it now to Amit.

Thank you, Omri, for your performance insight. I will now pass over the call to Adcore's CFO, Amit Konforty, who will provide an overview of the Q4 2023, and a full year 2023 financial statements. Amit?

Thank you, Athara, and good morning, everyone. So before beginning the financial overview, I would like to remind you that the following discussion will include GAAP financial measures as well as non-GAAP results. All amount will be presented in Canadian dollars. In 2023, Adcore had a successful year characterized by a significant revenue growth and significant increase in both profitability and cash flows. And now let's review in more detail. For the 3 months ended December 31, 2023, we delivered revenues of CAD 9 million compared to CAD 8.8 million in the same period of 2022, an increase of CAD 0.2 million or 3%. Gross profit was CAD 3.7 million, compared to CAD 3.8 million, a decrease of CAD 0.1 million or 3%. Regarding gross margins, for the 3 months ended December 31, 2023, they were 41% compared to 43% in the same period last year. As for operational expenses, R&D expenses for the quarter were CAD 0.6 million compared to CAD 0.4 million in the prior year. The main reason for the increase is we started amortizing Amphy's intangible assets at the fourth quarter of 2023. SG&A expenses for the quarter were CAD 3 million compared to CAD 3.2 million in the prior year. Operating profit remained steady at CAD 0.1 million, similar to prior year. Net profit was CAD 0.1 million, which is a significant improvement from a net loss of CAD 0.5 million last year. Moving on to total revenues and gross profits. On the left side of the slide, we can see a steady increase in profits in each of the quarters of 2023. We can also see that gross margin are staying in the target range, of above 40%. On the right side of the slide, looking at the full year, we can see that revenue grew by 17% compared to the previous year. There is also a consistent growth in profits over the years, with a significant CAD 1.2 million increase in 2023. Revenue breakdown. As for the geographical revenue breakdown, for the full year, we grew significantly in each of our regions. APAC grew by 14% year-over-year, EMEA grew by 20% year-over-year, and North America grew by 18% year-over-year. Now let's discuss about net cash from operating activities. In 2023, the company generated CAD 1.1 million in net cash from operating activity. This is a major improvement from the CAD 3.2 million used for operating activities in 2022. This improvement in cash flow is mainly caused by improving collections from clients and securing better terms with suppliers. In terms of financial position, we had a cash and cash equivalent of CAD 8.1 million, as of December 31, 2023, compared to CAD 8.8 million on December 31, 2022. Total working capital amounted to CAD 7.6 million, compared to CAD 9.2 million at December 31, 2022, a decrease of CAD 1.6 million or 18%. The decrease in cash and working capital, is mainly caused by the investment in Amphy, and by the purchasing of shares through the NCIB plan. As for the liabilities side of the financial position, we can see that the company is still debt free. Regarding the adjusted EBITDA, the quarterly non-GAAP results reflect adjustments for the following items. Depreciation and amortization, share-based payment, and other non-operational items. For the 3 months ended December 31, 2023, adjusted EBITDA was CAD 483,000, compared to CAD 605,000 for the same period in 2022. Adjusted EBITDA only for the AdTech activity was CAD 580,000 for the same period. With that, I will turn the call back to Athara.

Thank you Amit for your informative overview. We will now move over to our pre-sent questions. The first question that was submitted was, what are your capital strategies with the best use of the CAD 8 million? Omri, would you like to answer?

Yes, that's a fair question. I think we are still a bit conservative regarding the use of capital within the company. So obviously the company, is all the time investing in a future initiative whether it's proprietary technology that we are developing, recruiting new personnel in different offices that we have around the globe. But I think in terms of M&A, we don't want to do M&As, before we know the markets are open again for a company like Adcore, and we can raise capital in the market as well. So I think, for now, we are still a bit conservative, but I believe that 2023, so we will see a shift in that regard as well, and the company can start taking, a bit more let's say aggressive moves including the use of capital. So for now, conservative, but we'll see later down the road in 2024, as they develop.

The next question, can you comment on what drove the 17% Y-o-Y growth in 2023?

So obviously, we saw a very nice growth across all regions. So APAC was growing for us for the first time and let's say if we need to compare 2022, compared to 2021. So APAC were growing, EMEA grew quite nicely, North America grew. So A) all regions were growing, which obviously was an important factor in the company overall ability, to growing 70%. But I saw that's combined, with new initiative and new technology, the company launched in 2023, basically set us on the right path, to this growth and success.

All right, next question. What were the key factors in the GM drop by 2 points between 2022 and 2023?

So, I think 2-point drop, it's not a very significant drop, right? It was I think drop, between 43% to 41% and as the company mentioned multiple times, as long as we are 40% or above, we're quite happy with this result. There's always a balance for a company net growth size, between how aggressive do we want to grow as a company, and how -- let's say, what should be the quality of this growth. So, we need to maintain this balance, and as long as we are able to maintain this balance, and have quality growth on one end, which is represented, by let's say 40% or higher gross margin, and ability to grow let's say almost 20% top line, like we did in 2023, compared to 2022, then we are very happy with this results.

Thank you. Next question. Which regions do you expect to grow more in 2024?

It's an interesting question. If I need to, obviously I'm not, like -- we don't bet, but if I need to bet I would say that probably, we should see nice growth coming from North America. We put a lot of emphasis in this specific region, and obviously it was already growing quite nicely for us in 2023, compared to 2022 and also 2022, compared to 2021, and we expect to see this positive trend, to continue in 2024 as well.

What would you say is your biggest competitive edge over the competition?

That's a good question actually. I would say Adcore all the multiple competitive edges, I would say first and foremost we are quite a global company, so we have offices literally across the globe. Headquarters are in Tel Aviv, Israel, but we have offices in Toronto, Canada, in the U.S., Melbourne, Australia, 2 offices in China, 1 in Hong Kong and 1 in Shanghai. So if somebody want to work with the global companies, basically speak multiple languages and can work literally around the clock for you then Adcore, can be a good candidate to do so. So this is one edge. The propriety technology that the company have, it's another edge, and the fact that we are a full funnel marketing solution company. I would say it's another edge. So basically global propriety technology, and basically cover all aspects within the marketing funnel.

All right the last question in terms of pre-sent questions. Can you please elaborate on your utilization of AI, for both your business and your application for customer usage?

So literally we use AI wherever we can, and that's not a slogan it's something that we do on a daily basis, and hourly basis, if we're talking about technologies. Just one second. So we use AI in multiple touch points for example, we can use AI in order to enrich a client product feed. So AI can help us, let's say take an existing title and enrich it, and basically make it more compelling in terms of marketing wise. It's one example, we can use AI for example, to categorize product within a product feed, or we can use AI to analyze communication, of user and understand if there's something that's flagged out, we need to put more attention into it. So literally every almost in every aspect, or every job that we do whether it's technology or office wise we use AI nowadays in order, to do it better faster smarter.

Great. So I see we have 2 Q&As in the comment section. The first question, is do you think you will be able to increase your margins this year into the higher part of your range?

That's a good question, like I mentioned before there's a balance for company and Adcore, like in Adcore size, between how aggressive do we want to grow top line, and how -- let's say how important is the quality of the growth for us. And for us between 40% to 50% should be let's say the norm and something that we should be let's say happy with. So it's not a top priority for us, to increase the let's say the gross margin, because that can come on the expenses of top line growth as well. So, I would say if it's happened great, but it should happen as long as we can grow top line and basically be aggressive, and continue growing double-digit. So it's not a major priority as long as it's above 40%.

All right next question, what are your plans for share repurchase in the next year?

It's a good question, I would say a few things. A) because of the relatively low volume we are very much limited on how many shares, we can purchase within the market. And that's something you already started to see in the second part of 2024. So I think we continue, to be probably as long as the share price, is going to be at least I would say below what the company think is a fair evaluation of the company. We'll probably continue to purchase shares within the market, but our ability to do it in a very large scale is limited by that, because of the exchange limitations. So we continue to do it as long as we believe there's opportunity to do so.

All right. We're going to take one final question from the Q&A. Can you speak as to Amphy and its overall contribution to the company at the present time?

So as I mentioned before, we finished all the major development and investment within Amphy. So that part is behind us, so in 2024, we shouldn't expect any large development or investment in Amphy. Currently, it's running on a, I would say, on a minimum maintenance mode, and we are looking on a way we can monetize and do better use of whatever we have with Amphy, whether through partnerships, we can establish, or other initiative we can take, but currently it's not a focus area for the company, and it's not going to require any more resources from the company at this point.

All right. And with that, we are going to conclude. Thank you very much everyone for joining us here today. Omri, would you like to make a concluding statement?

Yes, absolutely. So we want to again, thank everyone that joined this call today. I want to congratulate Amit for his first report, and it's a job well done. Amit, you took the responsibility, and we already net profit. So you'll start definitely in the right foot, but seriously Amit did a tremendous job together, with his team to put this report together. So thank you Amit for that. And I also want to thank Athara for being the host today and do a good job as well today, representing the Adcore case. So thank you everybody, and we'll see you again in the next earning call of the company.

Thank you everyone for your participation. If there are any other questions you're welcome to reach out to us personally. Thank you.