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

Thank you for joining us today for Zoomd's Fourth Quarter and Year-End 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 a supplement to and not a substitute for IFRS financial measures. Finally, today's event is being recorded and will be available for replay through the webcast information provided in the press release. With that said, let me now turn the call over to Amit Bohensky, Founder and Chairman of Zoomd. Amit, please proceed.

Thank you, Ben, and good morning to all of you. We are excited to speak with you today regarding the fourth quarter and fiscal year 2022 results. Today, I'm going to provide an overview of our achievements for the fourth quarter and full year 2022, but more importantly, I would like to share with you the growth opportunities ahead of us. From a big picture standpoint, 2022 was a challenging year due to the many macroeconomic headwinds, from which segment standpoint, our top 2 segments, cryptocurrency and e-commerce, experienced the largest decline. With regards to cryptocurrency, the overall market dropped by over 50% in 2022 due to many factors, including the downfall of FDX. With regards to e-commerce, the post-COVID recovery in 2022 diverted much spending away from e-commerce. Despite these headwinds, we were able to generate a slight growth in revenue and gross profit. As we have mentioned in previous calls, the advertising sector is the first area that companies reduce budget in times of uncertainty but also the first area to ramp as companies begin to feel more secure. While we remain optimistic regarding the long-term growth prospects of advertising technology space, especially for the mobile app area, we continue to expect more challenges in the near term and believe the recovery will take longer than anticipated. While we cannot control the macroeconomic environment, our focus is to manage our business effectively. Despite the economic challenges, we executed on our objectives in 2022, including the acquisition and integration of Albert AI, further customer wins and enhancement of our technology and products. This morning, I want to speak about our 3 areas of growth, namely securing new clients, expanding business with current clients and our technology and product strategy and plans. In addition, I will speak about the progress we are making with regards to our Albert acquisition and its integration into the ongoing Zoomd activities and technology. I will touch upon our recent achievements regarding each of these pillars and what we expect going forward. About new clients. In recent months, we have been successful in acquiring new clients, and our pipeline of new clients remained solid. These new clients are, in many cases, blue chips, multibillion-dollar companies in the sectors of e-commerce, gaming, consumer products and digital banking. Some of these new clients include names such as World Poker Tour, BBVA, Samsung, Tipico Games and the Mexican Elektra Group and many more. Our user acquisition technologies has been integral in enabling our clients to manage their multiple campaigns with a single supplier, allowing for greater time saving and efficiency with real-time control. Our products and services enable our customers to grow their user acquisition programs with limited additional resources, giving the ability to scale immediately by demand. As we mentioned before, the cryptocurrency and fintech sectors were largely responsible for our revenue decline in recent months. While the fintech and cryptocurrency sectors are currently an important portion of our revenue base, we are continuing to diversify our business. Our operating model has been proven to be nimble, quickly navigating and adjusting with the growing sectors. In 2022, with the onset of COVID-19, we successfully pivoted away from travel, live events and sports, which were our largest verticals at the time to sectors such as education, e-commerce, delivery and gaming. Our technology and expertise are sector-agnostic, and our sales focus is to work with quality companies with strong growth opportunities ahead of them. As part of the same diversification efforts, we continue to expand our geographic footprint into burgeoning geographies such as Latin America, Asia and North America. Although the emerging markets have been very strong to us, I'm excited to say that recent months, the growth in North America has accelerated driven by some clients and our acquisitions of Performance Revenues and Albert, [ part of our current line ]. With regards to our existing customers, up until recent global economic slowdown, most were increasing their budget with us as they are seeing strong returns on their investment. In 2022, the number of clients that provided us with over $1 million in annual revenue increased to 11 versus 9 in 2021. We have been seeing an increasing allocation 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 concept of our platform, multiple media integration. All user acquisition campaigns is under one place, saving precious time, testing many channels, considering efficient targeting for all media sources. As an example, World Poker Tour, the largest Poker TV channel; and FREE NOW, one of the fastest-growing transportation companies in the EU, has been continuously increasing their budget with us, with more to come. Importantly, while many customers have grown their budget with us, Zoomd's total revenue generated by our top clients declined from 85% in '21 to 76% in 2022, decreasing our customer risk. We have been successful in providing our clients increased channels of distribution for their apps and digital assets, 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, deeper clarity and efficiency. Our platform, products and services enable our customers to grow their businesses with limited additional resources, giving the ability to scale immediately by demand. Product strategy. And now I would like to speak about our third growth driver that is our technology and product strategy. The launch and operation of our products has been satisfactory, and customer adoption has met our expectations. Our offerings are a great opportunity not only for revenue growth but also margin expansion, long-term agreements as well as capturing additional client audiences. Our products include 2 different business models: one, a recurring SaaS-based business model, which provides the transparency that our customers are looking for; and second one, by media usage and budget, paying a fee based on the media spend on the relevant products. Our products will unlock our capacity to attract more clients for all types, including large, mid-range and small organizations. New customers that have onboarded our products include Tipico, Binance, Samsung and BBVA. Now I want to speak about Albert AI. In March of 2022, we announced the acquisition of Albert, a U.S.-based artificial intelligence digital marketing platform for advertisers. Albert's technology is currently being integrated into our offering. No major customers were lost during the integration, and we are currently onboarding new customers. We are seeing increased interest in Albert solutions, regardless of the macroeconomic challenges affecting the entire advertising industry. 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 media platform focused largely on Web: both mobile and desktop advertising on Facebook, Instagram, Bing, Google and YouTube. Zoomd is less focused on pure Web. We are more app-focused, social and search media, such as Albert allows Zoomd to offer a broader type of campaigns with more diverse marketing objectives, not only performance but also full-funnel campaigns starting at awareness to consideration and acquisition. Albert is a SaaS product, which enhances our efforts immediately with additional offerings that 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 challenging. And we are fortunate to have the team members of Albert join the Zoomd family. And most importantly, Albert has several Fortune 500 customers, which we are now approaching for cross-selling our services. We have provided additional information regarding the acquisition in our financial statement and MD&A filing. Financial results. Now I will review the fourth quarter and full year 2022 financial results in detail. Revenue. Revenues for the fourth quarter were $10.8 million, a 42% decline comparing to the quarter 4 of 2021. We are lapping difficult comparisons from fourth quarter 2021, in which we grew an amazing 183%. As I mentioned earlier, we were negatively affected by the global slowdown, in particular, the area of fintech, crypto and e-commerce. Excluding the effect of revenue from crypto and fintech customers, revenue in the fourth quarter would have declined approximately 6%. Revenues for full year of 2022 were $53 million, a 1% increase versus 2021. Gross margins. Gross margins for the fourth quarter was 38% compared to 30% for the same period in 2021, an increase of 800 basis points, reflecting lower revenues from cryptocurrency segment, which carries lower margin, as well increased revenue from Albert, which carries higher growing gross margins. On a full year basis, gross margins were 31% in 2022, in line with 31% in 2021. R&D. Research and development expenses for the fourth quarter were $2.5 million, a 157% increase year-over-year, primarily reflecting salaries of the new employees who joined the company as well as salaries and retention payments to Albert employees and former shareholders. For the full year 2022, R&D expenses increased 59%, again, largely to the Albert acquisition. SG&A, selling, general and administrative. SG&A expenses for the fourth quarter were $3.2 million, a 24% increase year-over-year, primarily reflecting increase in expenses incurred as a result of new employees joining the company, primarily after the acquisition of Albert. For the full year of 2022, SG&A expenses increased 33%, again largely to the Albert acquisition. EBITDA. Adjusted EBITDA is used as a primary performance measure by the company's management to ensure it has the right structure to support future growth. We define adjusted EBITDA as earnings before interest, tax depreciation, onetime compensation payments in connection with business combination and amortization as adjusted for share-based payments and nonrecurring operating expenses. Adjusted EBITDA on the fourth quarter of 2022 was $163,000 compared to the adjusted EBITDA, $2.7 million, for the same period in 2021. The decrease in adjusted EBITDA was primarily attributed to decrease in revenue growth. On a full year basis, adjusted EBITDA in 2022 was $3.7 million. A full reconciliation of adjusted EBITDA is available in our MD&A filing. Cash. We have $3.8 million in cash on the balance sheet as of December 31, 2022. We continue to feel comfortable with the current cash balance. Now for some concluding remarks. We remain optimistic about Zoomd's long-term growth prospects, including the growth of our product strategy. 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 with my prepared remarks, for those new to the story of Zoomd, I wanted to provide a bit of an overview of our business. Zoomd offers a mobile-first 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 budgets and deliver them paying customers and growing return on investment. In addition, we provide a site search engine to publishers, 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 the unified place, offering advertisers a user acquisition control center for managing all new customer acquisition campaigns. Zoomd saves advertisers significant resources that would otherwise be spent operating multiple advertising systems, consolidating data sources, thereby maximizing data collection and the data insights while minimizing the resource spend on operation. Our data and platform concept has translated to strong ROI and KPI results for our clients. I want to thank all our employees for their hard work and dedication as well as our investors who have supported us. Before I move on to questions, I wanted to share my excitement in welcoming Ido Almany as Zoomd Technologies' new CEO. Ido's appointment is an important step as Zoomd enters its next phase of growth. Ido brings over 10 years of experience in the technology and financial sector with a proven track record of achieving growth targets. Ido's management skills and capital market experience will be crucial in leading Zoomd into the next phase of growth. Ido's focus will be on executing Zoomd's vision and long-term strategy and serving our customers with most relevant solutions. With that said, I will answer some of our investor questions and some questions that may be of interest to our investors. Ben?

Thank you, Amit. We have some questions for you. First, you've spoken about diversifying away from the current cryptocurrency space. Can you speak in more detail on the sectors that you are becoming more active in?

We are true believers in crypto. But as we all know, crypto and fintech, in general, had a tough year in 2022. In the last 2 months, the sector is growing again. As a business, we are always after the high revenue and the high potential segments. In the last few months, we have been growing in other segments, such as gaming, consumer products, transportation and delivery. Consumer product companies are fairly new segments for us as we are pushing our acquired Albert AI solution as its ideal for their needs.

Thank you. You have said that you were satisfied with the customer acquisition of your products. Can you provide some more detail here?

We are satisfied by our acquisition of customers to our products. Our products include our search console for publishers; our demand side platform, DSP; and the acquired Albert AI platform. We are gaining traction with our DSP solution, and the huge hype of AI following the success of ChatGPT helps build awareness for AI tools. Like Alberta AI, we have renewed existing agreements and acquired new customers as well.

And with regards to Albert, you mentioned that no major customers were lost during the integration and that you're seeing increased interest from customers for Albert's products regardless of the macroeconomic challenges. Can you elaborate on that?

Albert was acquired during March 2022. As every acquisition brings challenges for implementation into the acquiring company, our case was no different. During 2022, and since the acquisition, we were busy in embedding Albert into Zoomd brand-wise, tech-wise, employees-wise and mainly customer- and agreement-wise, seeing to it that customers' churn will be low. And I'm happy to say that we succeeded in that. Starting quarter 4 2022, we began adding Alberta into our product suite offering. Customer interest in high potential is big. While Albert can now offer our customers more, we can offer a solution for the full marketing funnel needs and not only to the last milestones of performance marketing.

All right. Thank you, Amit. It looks like we are out of time. Many thanks to everyone for participating on today's call. We look forward to hopefully speaking with you all shortly again. Thank you.