Adcore Inc. (OTCQX:ADCOF) Q3 2023 Earnings Conference Call November 8, 2023 10:00 AM ET
Company Participants
Omri Brill – Chief Executive Officer
Amit Konforty – Director, Finance
Yatir Sadot – Chief Financial Officer
Operator
Good morning, everyone and welcome to Adcore Investor Update Conference Call. All attendees are in a listen-only mode for the duration of this conference. On the call today, the company’s CEO, Omri Brill will provide a management declaration. This will be followed by an introduction from Adcore’s Director of Finance, Amit Konforty, and subsequently Adcore’s CFO, Yatir Sadot will present a financial overview of the company’s Q3 2023 financial statements. We will then address questions and time permitting take questions from participants in the chat below.
Before we proceed any further, I want to ensure your attention to the Safe Harbor statement applicable to our discussion today. It’s important that you take a few minutes to read this statement carefully. The statement will also be viewable on our website once the call is finished. As mentioned, the statement will be viewable on our website afterwards. But I will now be turning the call over to Adcore’s CEO, Omri Brill.
Omri Brill
Thank you very much, Danny and welcome everyone. Let me share my screen. So again, welcome everyone and it’s my pleasure to discuss Adcore Q3 2023 financial results with you and give you some context and highlights. But actually, before we can start to get started talking about Q3 results, I would like all of us to take a moment to talk about the terror attacks that Hamas did on Israel on October 7, almost a bit more than one month ago. I would like to obviously say that the hearts of everyone in Adcore goes to their families that lost their lives, loved ones during this horrible attack. And obviously, we pray with the rest of you for the quick return of all the kidnaps. So it’s not an easy time for us now in Israel, but I can say that it’s also very encouraging time for us in Israel. There is a lot of people that’s stepping up whether it’s individual as companies taking some action supporting the communities and basically, I am always proud to be Israeli, but in times like that, even more proud than ever to be Israeli. And I would like to discuss with you few very important initiatives that Adcore took as a company in order to support the communities.
And so I don’t know if everyone aware, but due to the war, more than 200,000 childrens and the families from border towns around Israel, many in the South and North of Israel, have to be evacuated. So these communities evacuate to – evacuate to hotels in the center of the country. And there basically is a lot of needs to support these evacuate communities and Adcore took few initiatives regarding that. The first initiative I would like to cover is what we call ice citrate. So basically, we opened an ice cream booth and go to each community and we visit more than 10 communities around Israel with the ice cream booth. So the ice citrate is one initiative and you can see some familiar faces from Adcore taking part of this amazing initiative, obviously including myself and other within the management and the rest of the team here in Tel Aviv. And I want to cover another initiative that we took, which is I would say currently the main focus of the company is an initiative and what we call the KEEP ON RIDING project. So under the initiative of KEEP ON RIDING name, we decided that we would like to contribute new or used bikes to children from these evacuated communities. So it started as a need to come from specific communities that we knew that we were evacuated and we decided we can expand it to reach more kids and more communities and obviously, with your help we can reach even more. So I would like to share another video from these efforts and we can discuss this a bit further.
[Video Presentation]
So, this specific project is very dear to our work collectively between what Adcore contributed to this project, what management and individual contributed to this project, we already collected more than 100,000 checkers to this project. And we hope that with your help and the help of others, we can collect even more and reach even more children in needs. And so basically, we are going to share this presentation, but you can donate clicking on this button, Donate Now or you can simply visit the company website adcore.com/relief and find more details about this important project and how can you help and take part of it, so I encourage everybody to get involved. Usually you say that when you give something you get more in return than what you have actually given. And I can tell you that that’s actually true when helping these communities and helping these kids is the most important thing we can do right now as individuals. And obviously as a company, it’s important and we need your help and continue supporting this important project.
So after we talk, we discuss some initiative obviously following the October 7 attack, I want to go deeper into the Q3 2023 report and provide some highlights and context to the numbers. So all in all yet another strong quarter for the company, this strong quarter go back to back with – not like first – strong first quarter results, strong second quarter results and our strong third quarter results. So definitely very positive start of the year, we already collected more than 80% or 86%, if I am not mistaken, revenue of these sales and what we did in the entire year of 2022. And bear in mind that Q4 historically is the stronger quarters of the month for us. So, this is like still more good news hopefully to come.
If you look at about the top line numbers and gross profit, so total revenue in Q3 was CAD8.2 million, that represent an 10% year-over-year growth compared to the previous same period last year. And if you look at the 9 months, we are looking at almost 30% year-on-year growth so which is a very strong indicator of the entire year of 2023 going to end for us. And gross profit again, we saw quarter-over-quarter increase of more than a 10% to $3.3 million and all-in-all top line numbers and midline numbers looking positive for us.
And if you are looking at quality growth KPIs, then gross margin was 40%, which is within the norm of what we will like it to be between 40% to 50%. So again, where we would like it to be and North America was remain flat what we expect to see a very strong growth in North America actually in Q4 and obviously in 2024. So we are very optimistic about what we can achieve in this specific market.
And if we talk a bit about half year results and a few highlights regarding the results, we discuss it – we would like to reduce the burn rate in our fee for the bare minimum. So if the average burn rate in Q1 2023 monthly burn rate was CAD81,000, we already reduced it by 50% to CAD41,000 in Q3 2023 and we expect this trend to continue in Q4 2023 to CAD25,000. So, again, the burn rate is now in the – going to be the bare minimum and is something that we definitely think very positively about.
And from the flipside when we look at the number of visitors to our Amphy.com and Amphy blog, you see definitely positive trend of increasing numbers of visitors. Q1 was 48,000 and Q2 was a bit less than 100,000 Q average monthly Q’s rate was 115,000 average monthly visitors and we expected Q4 to end up in a around 170,000 a monthly visitors. So again, the two graphs aren’t exactly the way we want them to act cost going down, number of visitors going up which is obviously positive.
And so just to sum up, a revenue grew 10% year-over-year, if you look at 9 months, it’s almost 30% year-over-year, which is amazing EMEA solid growth of 20% to over a year APAC solid growth of almost 20% year-over-year. And cash and cash equivalents grew by 21%. This is actually something that we are it’s was the focus for the company. And if you remember in previous thing, [indiscernible] we discussed that the company anticipate to have like a stronger balance sheet towards the second part of the year. And actually, it came a bit earlier than what we dissipated. So we are very happy with the result, both in cash flow and cash position for the company which were improved significantly in the second quarter of the revenue. Yatir will provide a bit more color to this number on his presentation as well.
And comparables. So again, when we look about the Adcore share price and company valuation, obviously there’s a big gap between both we think, the picture price should be aware it is this gap for us at least represents an opportunity. This is why Adcore continue to purchase a shares within a – within the market. Obviously, every day, we buy the maximum allowed amount of shares that we can do under the NCIB plan. And we continue to do so as long as we’ve seen this share price don’t really represent the true company valuation. So I think like, again, for us, this gap represents an opportunity, but every shareholder is obviously smart enough to do his own calculation.
Finally, I would love to go back a bit and reflect on the goals that we discussed regarding a 2023 the beginning of the year and see if the company was in a enable to meet them or not. So the first goals that we took on yourself in Q3 was to maintain a strong balance sheet. So obviously now in Q3, both cash position, cash flow were improved. And we are very optimistic about what we can achieve in Q4 as well obviously, traditionally, Q4 should be the strongest quarter of the year. So again, we improve the balance sheet and we expect the balance sheet to – to improve [indiscernible] during the last quarter of the year. And keep the gross margin within the 40% to 50% range again, checked on this one achieved double digits go in revenue and gross profit checked at the company grew 10% of the sale day, on the third quarter into almost 30% for the 9 months so far 2023 compared to the same period last year, and expand our global footprint in North America. So again, we saw like a – we saw like good results coming from all region. But the company is very optimistic about the costs we can achieve in North America specifically for Q4 and beyond. And it’s something that we definitely will encourage you to keep a closer look , because that’s a bigger market for us. And it presents a massive opportunity for the company.
And strengthen a strategic partnership check, Microsoft Criteo RTB and I can name few more names like this. It’s all of them a very strong partnership where we spot Adcore obviously Google and Facebook, Omega as well and invest in R&D. So our continued investment in R&D is responsible to some of the [indiscernible] that we see now in the Q3 earning report. So, again, all the costs which we took on yourself on 2023, I can proud to say that we met all of them and hopefully the same positive trend that we saw in let’s say in the first three quarters of [indiscernible] will continue into Q4 as well.
So I think with that, I concluded my path and I’m going to end it over back to you, Danny.
Unidentified Company Representative
Thank you, I am ready for your performance insights. I will now pass the call over to an introduction from Adcore’s Director of Amit Konforty.
Amit Konforty
Thank you, Danny. And good morning, everyone. Allowed me to introduce myself. So my name is Amit Konforty and I am currently serve as the Director of Finance here at Adcore. Starting next week, I will be stepping into the role of CFO. During my time at Adcore, I’ve been deeply involved in all of the financial aspects of the company. And I believe that this experience has prepared me well to transition to the CFO position. A bit about my professional background. I am a CPA with over 10 years of experience in various industries and also in public companies. Lastly, I wanted to say that I’m very excited about the opportunity to continue Adcore success, and also derive its goals and financial stability even further. So thank you.
And with that, I will turn the call back to Danny.
Unidentified Company Representative
Thank you, Amit. We look forward to seeing you start your new role here Adcore. Lastly, we will hear from Adcore CFO Yatir Sadot. He will provide an overview of the Q3 2023 financial statements.
Yatir Sadot
Thank you, Danny and good morning everyone. I would like to present a clear and comprehensive overview of our third quarter financial results, highlighting both GAAP and non-GAAP metrics, all denominated in Canadian dollars. As Omri mentioned before, despite facing a difficult business environment, our team performed well in the third quarter, maintaining the same positive momentum we experienced in the first two quarters of 2023. Since May 2021, we’ve strategically focused on higher margin revenue streams, and building relationships with scalable and resilient clients. This approach has enhanced our business sustainability and improved our long-term profitability.
Now let’s deep dive into details. For the 3 months ended September 30, 2023, we delivered a revenue of CAD8.2 million, compared to CAD7.5 million year-over-year an increase of CAD0.7 million or 10%. In terms of sequential growth between the quarters this year, we are delighted to have achieved a 19% increase in revenues, amounting to an impressive increase of CAD1.3 million when compared to the second quarter revenues this year. Gross profit was CAD3.3 million compared to CAD3.4 million, almost the same level year-over-year. This quarter gross margin was 40% compared to 46% in the same period last year. We kept the target range of gross profit between 40% and 45%. And we feel pretty much confident about that result.
As full operational expenses are in the expenses were CAD0.3 million or 4% of revenues compared to CAD0.5 million or 7% of revenues year-over-year. The main reason for the decrease is primarily attributed to the strategic shift towards operational efficiency and successful reduction of development expenses in Amphy. Sales and marketing, and general and administrative expenses were CAD3 million or 37% of revenues compared to CAD2.5 million or 33% of revenues year-over-year. SG&A expenses increased mainly due to partnership expansion and marketing extensive. Operating loss was CAD0 million compared to an operating profit of CAD0.4 million. And net loss was CAD0.2 million compared to a loss of CAD0.3 million year-over-year.
Total revenue as you can see, on the left wing of this slide, we went up by 10% year-over-year. On the right wing of the slide, you can see the growth for the first 9 months of this year by 28% compared to the same period last year, and another bull effect. Although the first three quarters we’ve secured more than 83% of last year’s total revenues, setting the stage for a robust fourth quarter [indiscernible]. Revenue breakdown, as [indiscernible] revenue breakdown in EMEA and APAC region show the most growth year-over-year. As you can see EMEA grew by 20%, APAC grew by 90% and North America went down by 18%. We continue to observe strong momentum and notable expansion in our [indiscernible] plan.
Net cash using operating activities. In the 3 months ending September 30, 2023, the company provided CAD1.5 million in net cash from operating activities, a significant improvement from the CAD1.7 million used during the same period last year. This positive shift can be attributed to the team’s excellent effort in enhancing our collections for clients, reducing vendor payments and securing improvement terms with existing suppliers. Same trend you can see on there – since the first quarter of this year, the trend of healthy cash flows also reflected consistently across the quarters of 2023. You see from the first quarter of this year, we use the over CAD1 million of cash flow from operating activities on the second flow a CAD429,000 negative cash flow and on the third quarter for the first time, we went up for positive significant cash flows.
In terms of financial position, we ended Q3 with cash and cash equivalent of CAD7.6 million as of September 30, 2023, compared to CAD8.8 million at December 31, 2022. Total working capital of CAD7.7 million compared to CAD9.2 million at December 31, 2022, a decrease of CAD1.5 million or 16%. The decrease in cash is mainly attributable to the media payments related to the fourth quarter of 2022 purchasing shares through NCIB as we mentioned before, this is a strategic decision that the management took investment in Amphy and expanding our partnerships plan. We anticipated reducing our cash expenditure in operating activities, and increasing our cash and cash equivalents in the latter half of 2023. That was my expectation, Omri’s expectation in the first quarter as the CEO and the second quarter. And we did it as you can see.
On the other side of the balance sheet, we still don’t have any significant low debt. So it’s very healthy for a company like Adcore to preserve zero debt in a hyperinflation environment as we have today. In terms of adjusted EBITDA, our quarterly non-GAAP results reflect adjustment for the following items, depreciation and amortization, total CAD208,000. Share based payment total CAD32,000. And for the 3 months ended September 30, 2023, adjusted EBITDA was CAD240,000 compared to CAD734,000 for the same period in 2022. Excluding Amphy’s EBITDA and looking only on the AdTech EBITDA, adjusted EBITDA for the AdTech activity was CAD350,000 a showing a very strong result for the AdTech activity.
With that, I will turn the call back to Danny.
Unidentified Company Representative
Thank you, Yatir. We value your time here Adcore. And we wish you all the best in your next challenge.
Yatir Sadot
Thank you, Danny.
Question-and-Answer Session
A – Unidentified Company Representative
We will now move over to our present questions. The first question for EMEA and APAC, what drove revenue increases?
Amit Konforty
I can take this one. I think it’s a mainly the normal course of business, right? It’s client acquisition, the same store growth within the existing client portfolio. And all-in-all like a strong activity growth for these two specific regions.
Unidentified Company Representative
Thank you. Our second question, what impact has the war in Israel had on your business, both from customer and human resources standpoint?
OmriBrill
Okay. So, that’s a fair question. We did address this question in PRs that we released earlier this month. But I will say the following. A, the company’s first and foremost priority is the safety and well-being of our staff. So, when everything started, we switched immediately to work remotely. Thanks to COVID, I know you could says, thanks to COVID. But the company already used to work remotely if needed and operations were going smoothly and are going as usual, when we switch to work remotely. And now I am happy to report that we are gradually going back to work from the office, at least hybrid working remotely and from the office as well, which is obviously a good sign of things that are getting back a bit sense of normality, which is important. And I would say with regards to client activity, so Adcore lucky enough as a global company. And our specific operation within Israel is relatively not so big in terms of the overall activity. So, even if the entire operations that we had in Israel was shut down to zero, still, impact wasn’t so great. Yatir said that that’s definitely not – wasn’t the case. So, I think that a lot of ecommerce clients, actually what we saw in the beginning to stop some activity, but then resume immediately. And now, we can see that actually, is getting better numbers than usual, maybe it’s November related, maybe it’s a bit like COVID, the fact that people staying at home and prefer to buy online, even during time like that. So, I think ecommerce is running as usual, even a bit stronger. We saw some stopping in a travel-related activity. But on the flip side, since COVID-1, the largest standard of online advertising for the Israel advertising agency, so we got a lot of budgets that is I would say war related. So, I think like all-in-all, we don’t see a decrease if anything increases. I don’t know if it’s make too much sense, but that’s the reality on the ground.
Unidentified Company Representative
Thank you. Our third question is, are you still expected to be net income positive in Q4?
OmriBrill
And maybe Yatir, you want to answer this…?
Yatir Sadot
Yes, I will take it. Thank you, Danny. Yes, we anticipate to be profitable and generate positive cash in the fourth quarter, which is historically the strongest quarter for the company. So, yes, the short question.
Unidentified Company Representative
Thank you. And there are four questions, do you plan on continuing to participate in the NCIB, and are there any other plans for cash?
OmriBrill
Yes. So, I will say, it’s two questions, but obviously, there are related because the cash related. And NCIB, we are participating and see the current plan going to run until May, if I am not mistaking 2024. And obviously, we are still seeing this gap in opportunity for us to purchase more shares for consideration, we continue to do so. Bear in mind that we are restricted by the plan. So, it’s not like we can use everything that we have in order to pressure the plan there is limitation. But within the limitation of the plan, we are doing everything we can, let me put it this way. And in terms of reserving cash, Adcore put efficiency. Operational efficiency is number one priority for the company. We talk about the time and again, our importance for us to be operation – net-net positive in operation as well. And I think also improving the balance sheet. So, we already proved that we can do it in the safe water and I think like Yatir said, we anticipate this positive momentum going to carry well into the fourth quarter as well.
Unidentified Company Representative
Thank you. Our fifth question, which region – which regions do you expect to see strong growth in over the next 12 months to 24 months?
OmriBrill
Yes. So, [indiscernible], you know like I need to everything I would say is something the company anticipate to say. I don’t have a crystal ball that’s going to tell me the future. But like I mentioned during my CEO remarks, and we think that North America is the potential to become a very strong and important region for us in Q4 and definitely 2024, the entire year. So, if I need to bet, I would put my chips [ph] on North America, which is by the way goes in line with the company’s strategic decision to focus more and more in this important market.
Unidentified Company Representative
Thank you. For our next question, are interest rates and a fear of recession impacting the business?
OmriBrill
Good question. Yatir, what do you think?
Yatir Sadot
Basically, we had witnessed the recession in the last 2 years. So far the recession has not affected the company’s results, and we do not – I don’t foresee any harm or impact in the foreseeable future. Regarding the high interest rates, since we are not a leverage company with that, the interest rate allow us to enjoy good conditions under the short-term investments, like the deposits, we have like effective rate of 6%, which is very high.
OmriBrill
It’s not bad, right?
Yatir Sadot
So, keep it up. So, it’s advantage, not disadvantage.
OmriBrill
So, you don’t want to see the Fed starting there – they are decreasing rates, Yatir?
Yatir Sadot
Okay.
OmriBrill
Okay.
Unidentified Company Representative
Thank you. And how is Q4 going, and do you think it will be in line with any prior expectation?
OmriBrill
It’s a fair question. I would say, it’s a bit too early, because you need to bear in mind that most of the spend in Q4 is actually happening in the last week of November, which is Black Friday, and then obviously in December. So, I think like we didn’t really see the beginning of 3 years or 4 years. So, I think like, it will be a bit more safe to whoever remarks, or some type of outlook regarding Q4, post at least in November, post Black Friday sales. Having said that we don’t have any negative indication, so up until now, all the indications are positive. And we are in line with the positive trends that we saw during Q1, Q2 and Q3 as well.
Unidentified Company Representative
Okay. And four our penultimate question, can you provide an update on Amphy. For instance, what are your plans for this business, as we have not heard much in it for some time?
OmriBrill
Yes. So, I think like it’s not entirely true, because we do talk about Amphy, almost every earlier call. And we showed some numbers, I think like with Amphy. And I would say a few things. Around six months ago, we did like a shift of focus and decided to focus more on a business related educational materials, and the tire, let’s say scale of the website change and everything changed and focus of the different thing in materials that we have. And we put a lot of effort to transit Amphy from B2C, to a more B2B2C type of business. And so that’s one thing. I think the main priority with Amphy is, reduce the burn rate to the minimum or when I think we can definitely prove that we know how to do it, we expected the burn rate to be very minimal CAD25,000 not even dollars in a – mostly in Q4 2023. And I think all-in-all, if we can maintain the same positive trends at the cost of going down, and basically we see some improvement in momentum in the business activity, then I think that we can be on the right track. Obviously, things take time. You can be build, unfortunately, business overnight. Also another important things to consider that Q4 traditionally also for us is a very strong quarter.
Unidentified Company Representative
Thank you. And for our final question, can you provide any update on earlier learnings from Media Blast app?
OmriBrill
Obviously, it’s a bit early, right. It’s still – it’s recently launched. We launched it on the Google version. And we are now every week now I think like next day, next week even, we can release the Microsoft version of the app, so the app can support both Google ads and Microsoft advertising as well. I think so far we see a very positive trend, there is a lot of, let’s say, demand for this app. And actually in terms of let’s say, how much revenue this app has generated in a very short period of time, I think it’s definitely a success story.
Unidentified Company Representative
Thank you. And we have two questions here from people in the chat. Do we have time for this?
OmriBrill
Yes, why not, of course…
Unidentified Company Representative
Okay. So – no, no, this is what I would love to do.
OmriBrill
Go ahead.
Unidentified Company Representative
So, our first question is from Alex Edelman [ph], who would like you to elaborate on why you feel North America sales have declined in this past quarter.
OmriBrill
Okay. So, I think like, a, obviously these few factors that can impact the decline, different routes, I would say decline in this type of activity. Some of it can be a seasonality or let’s say transition of earnings between one quarter to another quarter. So, this can have me some impact on the result. But I would say I think that in the long run, 2024, and even Q4 2023, we are very bullish regarding North America. So, I think that’s a plateau, but this plateau will turn into a spike that we are going to see in earnings coming from this specific region. So, again, I am very bullish regarding this specific region, and it’s a strategic region for the company in general.
Unidentified Company Representative
Thank you. And our second and final question from the chat is from Matthew Cheran [ph], who would like to know, what you have to say regarding the share price and its continuation in falling?
OmriBrill
Yes. So, I would say the following, a, obviously we have little control about the share price, unfortunately. So, we do everything we can do and develop, we know that whether it’s NCIB and also purchasing shares as individual or management as well. But they think like again, the way I see the current share price, it’s more market-related than Adcore-related and if any is represented we will buy opportunity. But again, you shouldn’t listen to me, you should do your analysis and decide whether you want to take position, increase your current position, and everybody should know better what to do with his own money. Adcore was a company and I am as individual definitely owning and buying shares when possible.
Unidentified Company Representative
Thank you, Omri. And I will now hand it back over to you for any closing comments.
Omri Brill
Okay. Thank you, Danny. And can we stop sharing. So, thanks everyone. I want to take this opportunity to thank CFO, Yatir, for the 4 years in Adcore. Yatir joined the company when we just started our journey as a public company, helped us build the financial reports that we see, help us build the infrastructure. When Yatir joined the company, I think it was like with one like two – maybe two companies, right, where Adcore and [indiscernible] which is the Israeli entity and to-date it’s how many entities we had [Technical Difficulty] Yatir, you may tell?
Yatir Sadot
We have six entities.
Omri Brill
In counting. And so a lot of the structures that we have today, a lot of there like the different, it’s not easy to have a global organization, a lot of these are done, thanks to Yatir and the team to build the finest team here to build in Tel Aviv and for Adcore. So, best of luck, Yatir in your new role as well in the new venture.
Yatir Sadot
Thank you very much, Omri. First of all, thank you for the opportunity and the trust that you gave me throughout the last 4 years. And I couldn’t ask for a better CEO, I mean you are not only a CEO, you are also a friend. And I am going to be like – going to be here around for Adcore, for you guys as much as you need and always this is my family. So, thank you for everything.
Omri Brill
The feeling mutual and I want to obviously take this opportunity as well and say best of luck to Amit with the new role as the new company CFO. And we know Amit for a while now and everybody in the company led to like Amit, because his is likable person, he is a very solid guy, comes with a lot of experience. A lot of the financial statements of the company releasing the last 1.5 years have been done mainly through the outbox that Amit is the detailed guy, you know everything that he need to know about the company, about the company financial structures. And I am sure Amit, that you are going to be do – as you did an excellent job with the Company Director of Finance, I am sure that you will go and do even a better job as the Company’s CFO. So, best of luck in your new role as well, Amit.
Amit Konforty
Thank you very much.
Omri Brill
Cool guys, so thanks everyone who has joined us today and obviously stay in touch with the company PR, get involved in the company initiative. We need you guys to be involved and hopefully we can report even a stronger quarter in the next quarter in Q4.
Read the full article here