Zoomd Technologies Ltd. (ZOMD) Earnings Call Transcript & Summary

Thank you for joining us today for Zoomd's Third Quarter 2022 Update Conference Call. With us on the call representing the company today is Amit Bohensky, Zoomd's Founder and Chairman. At the conclusion of today's prepared remarks, Amit will answer some questions that were sent to us by investors and other questions we think are relevant to investors as well. Before we begin with prepared remarks, just a couple of comments. Today's call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected, and the company undertakes no obligation to update these statements, except as required by law. Information about these risks and uncertainties are included in the company's filings as well as periodic filings with regulators in Canada and the United States, which you can find on SEDAR and Zoomd's website. Today's discussion will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Finally, today's event is being recorded and will be available for replay through the webcast information provided in the press release. With that said, let me turn the call over to Amit Bohensky, Founder and Chairman of Zoomd. Amit, please proceed.

Thank you, Ben, and good morning to all of you and some highlights. Today, I'm going to provide an overview of our achievements for the third quarter of 2022. But more importantly, I'm excited to share with you the multiple revenue and profitability growth opportunities ahead of us. After 6 consecutive quarters of year-over-year revenue growth, the third quarter of 2022 proved to be challenging. The global slowdown in categories that peaked same time last year because of the COVID-19, especially in the areas of e-commerce, fintech, and crypto caused many companies to decrease their marketing budget. Advertising is one of the first areas that companies cut back on when uncertainties arise and when we are not immune to that phenomenon. Despite the macro difficult situation, we're managing our expenses to continue to be cash flow positive on an annual basis and on pace to grow revenue -- as I mentioned, advertising is one of the first areas that companies cut back on when uncertainties arise, but it is also one of the first areas that rebound as a sign of stability set in. I am happy to say that in the recent weeks, we have begun to see signs of stabilization. We are seeing customers slowing the rate of advertising budget cuts and in many cases, beginning to increase spending and once again, we're also seeing new customers join us, which I will touch upon later. While revenue in the fourth quarter of '22 will still be below last year level, we are cautiously optimistic regarding the pace of our business and the return to growth in the near future. We remain optimistic about Zoomd's long-term growth prospects and our focus to remain to increase our market share while strengthening our balance sheet. While the fintech and cryptocurrency sectors are important portions of our revenue base, we're continuing to diversify our businesses by increasing our exposure to sectors such as education, gaming and gaming and D2C e-commerce customers. Our technology and expertise are sector-agnostic and our sales focus is to work with quality companies with strong growth opportunities ahead of them. Despite the macroeconomic challenges, our current clients and are continuing to be pleased with the results that Zoomd brings to their user acquisition efforts. In the fourth quarter, we have been successful in acquiring new clients and our new -- and our pipeline of new customers remains solid. Our user acquisition platform has been integral in enabling our clients to manage their multiply campaigns on a single system, allowing for a greater time savings and efficiency with real-time control. Our platform enables our customers to grow the user acquisition programs with limited additional resources, giving the ability to scale immediately by demand. Our growth objectives have been historically stemmed from 2 fronts. First, securing new clients; and second, increasing our share of user acquisition budget within our existing clients. We are now excited to speak about a third avenue of our growth, and that is our self-serve product. I will touch on in each of these growth engines separately. First, with regards to new clients over the past 2 years, we have focused on diversifying our client base by securing new customers in hyper-growth sectors such as e-commerce, iGaming, gaming, education, and fintech. The list of our top clients includes names such as Sony Entertainment and Shein. During the third quarter, we acquired 3 new customers, all multibillion-dollar companies in the sectors of e-commerce, gaming, and digital market banking. We continue to expand our geographic footprint into barging geographies such as Latin America, Asia, North America, although the emerging markets have been very strong for us, I am excited to say that recent months, the growth in North America, driven by some clients of our acquisitions of performance revenues and others. We have been successful in providing our clients increased channels of distribution for their apps, ultimately driving user acquisition. Our user acquisition platform has been integral in enabling these clients to manage multiple campaigns in one place, allowing for greater time savings, clarity, and efficiency. Our platform, products and services enable our customers to grow their user acquisition with limited additional researchers giving the ability to scale immediately by demand. With regards to our existing customers, up until the recent global economic shutdown, most were increasing their budget with us as they are seeing strong returns on their investment. We had been seeing increasing location of advertising budgets to our platform, products and services. This is a testament to our unique technology and high level of service, which is driven from the key concepts of our platform, multiple media integration. All user acquisition campaigns under one place, saving precious time, testing many channels, considering efficient targeting for all media sources. As I mentioned earlier, in recent weeks, we're beginning to see our customers slow down the spending cuts and, in some cases, increase advertising budget again. And now I'm excited to speak about our third revenue growth driver, and that is our self-serve products. The launch of our self-serve product has been successful and customer adoption has exceeded our expectations. By the end of the year, we estimate that up to $3 million of revenue growth will stem primarily from the self-service software as a service and media fees for using the platform. That is 50% more than expected. Our self-serve offering are a great opportunity, not only for revenue growth but also margin expansion as well as capturing additional client audiences. Our self-serve product includes 2 different business models: one, a recurring Software-as-a-Service-based business model, which provides the transparency that our customers are looking for. And second, by media, usage and budget, paying a fee based on the media spend on the relevant product. Our self-serve products will unlock our capacity to attract more small and midrange organization and customers, offering our products to clients from all sides. Now I would like to speak a bit regarding privacy issues, which is the 4th bottom topic in the tech world. In 2021, Apple released the iOS 14 with further tricked privacy limitations and ad tracking restrictions. We saw minimum effect as our platform business logic is built in a model where we are indifferent to each integrated media source. We aren't tied up to any leading media giant. As we are a performance-based platform, our clients' budgets are spent where the results are coming from. Now I want to speak about Albert AI. In March, we announced the acquisition of Albert, a U.S.-based AI, artificial intelligence digital marketing platform for advertisers, driving fully autonomous digital campaigns for some of the world's leading brands. I'm happy to say that the integration is now complete. I want to take a minute to point out the strong synergies and benefits of this acquisition. Albert, at its core, is a social media and search platform, focused largely on web, both mobile and desktop advertising on Facebook, Bing, and Google. Zoomd is less focused on pure web. We are more at folk and social and search media. As such, Albert allows Zoomd to offer wider type of campaigns with wider marketing objectives, not only performance, but full-funnel campaigns starting at the awareness consideration acquisition. Albert is a pure SaaS activity, which enhances our efforts immediately with additional offerings the cover branding and awareness needs. Furthermore, Albert comes with a great team of talented professionals. As you may know, the market for qualified talent, especially in the West is quite difficult. And we are fortunate to have a team members of Albert joined the Zoomd family. And most importantly, Albert has several Fortune 500 customers, which are now approaching for cross-selling our services. We have provided additional information regarding the acquisition in our financial statements and MD&A filings. Financial reports. Now I will review the third quarter of financial results in detail. Revenue. Revenues in the third quarter are $9.8 million, 39% decline comparing to Q3 of 2021. We are lapping difficult comparisons from third quarter of '21, in which we grew an amazing 141%. As I mentioned earlier, we were negatively affected by the global slowdown, in particular, in the areas of fintech and cryptocurrencies. Gross margin. Gross profit margin for the third quarter was 31% compared to 29% for the same period in 2021, reflecting lower social media advertising portion that is typically has lower profit margins. R&D. Research and development, R&D, expenses for the 3 months ended September 30, 2022, were $1.4 million, a 21% increase year-over-year, preliminarily reflecting salaries to new employees who joined the company as well as salaries and retention payments to Albert employees and former shareholders. SG&A, selling, general and administrative. SG&A expenses for the 3 months ended September 30, 2022, were $3 million, a 25% increase year-over-year preliminary, reflecting increase in expenses incurred as a result of new employees joining the company primary after acquisition of Albert. EBITDA. Adjusted EBITDA is used as a primary performed measure by the company's management to ensure it has the right structure to support future growth. We define adjusted EBITDA as earnings before interest, tax depreciation, onetime combination payments in connection with business combination and amortization and adjusted for the share-based payments and nonrecurring operating expenses. Adjusted EBITDA of $15,000 compared to adjusted EBITDA of $1.6 million, the same period in 2021. The decrease in adjusted EBITDA is primarily attributed to the decrease in revenue growth. A full reconciliation of the adjusted EBITDA is available in our MD&A and filings. Cash. We have $3.4 million in cash in our balance sheet as of September 30, 2022. Given our expectation to remain adjusted EBITDA profit in 2022, we feel comfortable with the current cash balance. And now for some concluding remarks. We remain optimistic about Zoom's long-term growth prospects, including the growth of our self-serve products. Our focus continues to be on healthy top-line growth and market share expansion, all while managing our balance sheet properly. We view this strategy as an important way to build shareholder value. Before I conclude my prepared remarks, for those new to the Zoomd story, I wanted to provide a bit of an overview of our business. Zoomd offer a mobile served user acquisition platform, integrated with the majority of global digital media channels to app owners, focused on user acquisition to more efficiently manage their ad budget and deliver them paying customer and growing return of investment. In addition, we provide the site search engine to publisher, which also provides us valuable data. Our main unique selling proposition is that we act as a layer on the mobile media ecosystem, integrating and unifying hundreds of media sources into one unified place, offering advertisers a user acquisition control center for managing all new customer acquisition campaigns. Zoomd saves advertiser significant resources that would otherwise be spent operating multiply advertising system, consolidating data sources, thereby maximizing data collection and data insights while minimizing the resources spent on operations. Our data and platform concept has translated to strong return of investment and KPI results for our clients. I want to thank to all our employees for their hard work and dedication as well as to our investors who have supported us. With that said, I will answer some of our investor questions in some questions that may be of interest to our investors. Ben.

All right. Thank you, Amit. We have some questions for you. First, you mentioned in your remarks regarding the recent economic slowdown in general and more specifically within the fintech and crypto spaces. Can you please elaborate on that a bit?

This time last year, the world was still deep in the COVID quarter 3 of 2021 was our highest and third quarter ever. A lot of people who are still at home, e-commerce companies were in their highs, the fintech and mainly create categories are suffering major declines as we all know.

Okay. You talked about the better-than-expected customer acquisition of your self-serve products. Can you provide some more details there?

We are seeing more than expected demand to our self-serve products in both Software-as-a-Service or media-based models. Our activity with Albert clients is growing as the growing demand for our programmatic and social products. As the activity on our product goals, we are fine-tuning and tailoring them for exact current and future product market fee.

Okay. You've been generating positive adjusted EBITDA and cash flows. Can you speak about your capital requirements going forward and if you will need to raise any further capital?

In the plans for the near future, we do not see any need to raise capital. We have over $3 million in the bank without long debt. The company has been generating cash from operating activities for the first 9 months period of the year. Since the beginning of 2022, for example, the company has already generated close to $2 million from operating activities. The company also has an additional line of credit to use at the bank if necessary. I remind you that our last 2 acquisitions were made with a significant stock component and with payment according to agreed milestones and targets. We feel comfortable with our current cash balance and don't see any need operating capital.

Okay. Now with the integration of -- now that the integration of Albert is done, you have begun the process of cross-selling. What have you seen so far? And what are your expectations going forward?

With Albert being part of our product offering to the market, we can and are offering our existing non-Albert clients, a wider solution for their needs. Albert takes care of all social and search activity for desktop, mobile web, and mobile app marketing campaign. It makes internal marketing teams and agencies better, automates and optimizes in scale that most of the ad ops and optimization teams just can achieve. With Albert, we are targeting a wider market with a wider solution.

Thanks, everyone, for participating in today's call. We look forward to hopefully speaking with you shortly. Thank you, everybody.