Adcore Inc. (ADCOF)
Q3 2022 Earnings Conference Call
November 15, 2022 10:00 AM ET
Company Participants
Omri Brill - Chief Executive Officer
Yatir Sadot - Chief Financial Officer
Conference Call Participants
Presentation
Unidentified Company Representative
Good morning, everyone, and welcome to our Investors Update Conference Call. All callers are in a listen-only mode. On this call this morning, the company's CEO, Omri Brill, will provide an update on the company's operations and strategy, followed by a financial review by Adcore's CFO, Yatir Sadot, of the company's Q2 2022 financial statements, after which we will answer pre-sent questions and take questions from participants.
I would like to take a moment to remind participants of the Safe Harbor statement. This conference call contains certain forward-looking information and forward-looking statements, collectively forward-looking information, including statements about the company. I'll give you now a few moments to take a look at the forward-looking information as reflected on the screen.
Okay. At this time, I’ll be turning the call over to Omri Brill, Adcore's CEO, to update you on the operations and strategy of the business.
Omri Brill
Thank you very much, Gabe [ph], and good morning, everyone. Thank you so much for joining us today. So with no further ado, let me start my overview of the Q3 results. So let's start with the numbers themselves. Obviously, our CFO, Yatir Sadot, will go over the financials in more detail.
But, for us, it was finally, a very strong and good quarter, actually a record quarter for us, Q3, in terms of gross profit. Top line revenue grew up in 45% quarter-over-quarter. So that's a massive quarter-over-quarter increase from us from 5.2% in the second quarter to CAD 7.5 million in the third quarter. Gross profit grew 62% quarter-over-quarter from CAD 2.1 million in the second quarter to CAD 3.4 million in the third quarter, and that's like an impressive increase in all important metrics.
And if you look a bit further down the woods and what we see when we look at the quality growth KPI that the company stated, that that's going to be the KPI that we're looking after in 2022. Then, we can see gross margin actually improved the last -- over the last few quarters.
If Q3, 2021, was 23%, then obviously, it grew up to 33% in Q4. And now above 40% in the last three quarters, and this quarter, Q3 was 46%. That represents 100% year-over-year increase in gross margin, which is a massive increase.
And another important quality KPI for us, its revenue we are able to generate in North America. And this, again, we see a massive increase to a record of CAD 2 million in revenue. So if you look at the Q1, 2021, it was a bit less than CAD 400,000.
And then fast forward, less than two years, it's already CAD 2 million in revenue and also a massive year-over-year increase and quarter-over-quarter increase as well. So well done over there as well.
Working capital, which is another important KPI for us, actually grew this quarter in CAD 400,000, and this growth on top of basically besides the fact that the company did almost CAD 133,000 or a bit more than CAD 133,000 in share buyback during the third quarter and the Amphy’s investment of over CAD 500,000 in Q3 as well. So basically, we did buy back. We continue to invest in Amphy, but still, we're able to grow the working capital in almost CAD 0.5 million, which is a strong and important achievement for us as well.
If you look about the important developments at the company announced during the third quarter, then I would say, maybe one of the important of them is the launch of all new app. The Alerter app, basically the Alerter app is all new monitors apps that we launched under the Adcore marketing cloud, what the app does, it allow us to monitor 24/7 all our digital assets, including website that we have, landing pages that we have, data feeds that we might have, all our campaigns and ad accounts as well. And basically, there -- the app is going to send us a relative real-time if something went wrong. So if the website is down, for example, we can get an email alert in Alerter app from the app itself if this issue, let's say, number of items dropping the data feed, we can get an alert for that as well.
So imagine you're a large advertiser that you run multiple campaigns, over multiple accounts with many different data feeds and many different websites, and landing pages. These apps can basically allow you to sleep well at night, while the app continue to monitor and see everything that you are doing and basically send you alert if something went wrong, and the app is the fifth actually apps that we have within the Adcore marketing cloud offering, and that's another yet important milestone to achieve the, I would say, the ultimate vision of the Adcore marketing cloud, which is basically one place that will allow all the essential apps that the marketer needs, similar to what Adobe is doing with the Creative Cloud, basically put all the different apps that the designer need, Adcore would like to do the same process for online marketers. And the Alerter app is basically a very important step towards materialize this vision of us.
And we didn't talk about Amphy on the previous earnings call and basically people ask us how Amphy is doing? So the short answer is, we do it quite okay. We did like a very every investment in Amphy, literally rebuilt, to rewrite the entire Amphy website and platform from scratch. And I glad to report that this massive investment starting to bear a fruit.
So the idea over is what we decided to do is to look on the most important KPI of Amphy. What is the unit economic of Amphy? Whether it makes sense? Whether it doesn’t make sense? And how can we improve it? And if you look at all the important metrics with Amphy, we need to do over analysis and paying user grew by 15%. That's still not big numbers, because we don't invest in marketing today, paying user ratio actually, that's a massive increase of 86%. So out of -- if in 2021, out of 100 users that is register to Amphy only 9% become paid user then now we see fast forward in 2022, Q3, almost 20% of the user is becoming paying user, which is a massive improvement. Average LTV or lifetime value of paying user grew in almost 35% from CAD 0.36 in 2021 to almost CAD 50 in 2022 numbers. Breakeven paying user that's how much we can afford to pay in order to get the paying user. So the number was a bit less CAD 7 in 2021, and it's now CAD 10 in Q3 2022 numbers and the same logic for how much we can pay for non-paid users just to register user, so it was less than CAD 1 in 2021 numbers, and we are nearing CAD 2 in 2022 numbers. So basically, again, a very, I would say, prudent improvement in all the important KPIs of Amphy and I think a lot of that is thanks to the new platforms that we launched. And we are happy to see that all the works that we did starting to pay off and bear some fruits.
If we talk about the current share price and basically and if we look about like what is the current share price and also comparables. So we put on the right side of this slide, many different AdTech and MarTech care company, brand names that you all know like QTS, for example, so PubMatic and other, I would say, important AdTech company. And what we can see is that the EV for gross profit multiple, the average is 6.4% versus 2.1 that Adcore is currently getting.
And if you look at EV to adjusted EBITDA, the market average multiple is around 24% and Adcore is getting less than 4. So basically, this is a major upside in the company stock price, 200, if you look at gross profit metrics and almost 550%, if you look at the adjusted EBITDA multiples. And basically, that give the company an idea, basically the stock price is currently still undervalued. There's a lot of upside when we look at the current stock price and market valuation.
And in order not just to talk about it and we can put our money we're now massive. Basically during quarter three, we continue to buy back shares as well we bought almost 500,000 shares for cancellation. Average share price that we bought was around CAD 0.28 and all in all, the company invested in buyback during the third quarter, CAD 133,000. So finally, we know that last quarter, we already gave a guidance for what's going to be the -- what we expect to see in the following quarter.
And actually, I'm very happy to see that we beat our even optimistic guidance expectation for Q3. So that's always good. It's a good start, starting in the right foot. And when we talk about Q4, what the company decided to do, because Q4 is such an important a massive quarter for us. And there's a lot that's going on during the holiday day sales that we would like to wait until the at least Black Friday, [indiscernible] holiday sales are over and only then we can be -- feel a bit more comfortable to give guidance because we want to be accurate, and there's a lot of fluctuation about it.
So basically, stay tuned, we're going to release a different PRA in the beginning of December, basically given the company guidance for Q4. But I would say historically, and if you look at the current trends, we expect to see a very strong quarter and a good, I would say, trend and momentum that we saw in Q3, we expect to see it going into Q4, and well into 2023 as well. So I think that's finalized my remark like on a gross – every day, we come to work and work very hard in order to promote the staffing and build something together. And after, I would say, a few challenges quarters, the company did a shift in strategy and did a lot of hard work, focus more on quality of growth and not just us.
Finally, all this effort is paying up and I think like Q3 numbers tell exactly this story, and Yatir will tell the story in more detail when we're going to go over for the financials. So I can't be more happy with the Q3 report. Maybe I will be more happy with the Q4 report. But again, that's a strong quarter, and I would like – like this type of report in quarter obviously carry on into Q4, and well into 2023.
So thanks, everyone. And now back to you, Gabe.
Unidentified Company Representative
All right. Thank you. I will now turn the call over to Adcore's CFO, Yatir Sadot to quickly review the third quarter financials in more detail. Yatir?
Yatir Sadot
Thank you, Gabe. Thank you, Omri, and good morning, everyone. 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 amounts will be presented in Canadian dollars.
Let's start despite a very challenging macro business conditions. It was a record third quarter for Adcore. So kudos to the team, Q3 was characterized by a continued acceleration of the strategy we started in mid-2021 to focus on higher margin revenues. We continue to focus on the more scalable and durable clients, which we believe in the long run will result in a more sustainable and profitable business.
Now, let's review in more detail. For the three months ended September 30, 2021, we delivered revenue of CAD 7.5 million compared to CAD 10.4 million in the same period of 2021, a decrease of CAD 2.9 million or 28%.
Cost of revenue decreased by 49% to CAD 4.1 million compared to CAD 8 million in the same period of 2021. Gross profit was CAD 3.4 million compared to CAD 2.4 million, an increase of CAD 1 million or 45%. In the three months period ended September 30, 2022, gross margin was 46% compared to 23% in the same period last year. This is a tremendous progress. Gross margin was also improved from 40% in the second quarter this year to 46% in the third quarter this year.
Moving to operational expenses. R&D expenses for the quarter were CAD 0.5 million or 6% of revenues compared to CAD 0.3 million or 3% of revenues in the prior year. Sales and marketing and general and administrative expenses for the quarter were CAD 2.5 million or 34% of revenues compared to CAD 2 million or 19% of revenues in 2021. Main reasons for the increase related to the increase in headcount and related salaries partnership expenses and Amphy’s investment.
Looking at the operating profit. Operating profit was CAD 0.4 million compared to an operating profit of CAD 0.1 million. This increase was mainly driven by the increase in more profitable clients in the last three months ended September 30, 2022, compared to the same period last year. Net loss was CAD0.3 million compared to the same amount last year.
As we can see in this chart, revenue kept growing since the first quarter of 2022. We've been experiencing an ongoing increase in revenues from 4.7% to 5.2%, up 10% in the second quarter this year and from CAD5.2 million in the second quarter to CAD7.5 million in the third quarter, up by 45%.
As I previously mentioned, the most significant revenue trend we saw during the last three and nine months was the increase in higher-margin global sales. This has been a key strategic focus of ours, as we look to drive long-term shareholder value. Thus far, we see that this strategy is working and we reported an improved gross profit on an intentionally much lower revenue base. This is why we saw a decrease in revenues and increase in gross profit in the same time.
Next slide, I will discuss revenue geo breakdown. As you can see in this slide, increase in revenues in North America by almost CAD1.3 million and 183% year-over-year, another tremendous increase in revenues in EMEA by CAD1.7 million and 110% year-over-year.
Moving to quarterly revenues. I would like to show a quarter-over-quarter revenues by regions. You can see each region and its own progress in 2022. Major growing regions, as I mentioned a slide before are North America and EMEA. This slide reflects exactly the trends that we are talking about since the beginning of this year. We exited Q3 with a strong cash and liquidity position.
Cash and cash equivalents of CAD8.2 million as of September 30, 2022, compared to $14.1 million at December 31, 2021. The decrease in cash and working capital is mainly attributable to the following reasons. First, purchasing shares through buyback plan. As Omri mentioned before, the company sees this strategic and important investment in the company in order to drive more value to Adcore's shareholders and investors. Second reason, Amphy's investment. And the third one, related to media payments allocated to 2021 that were paid in the first quarter of 2022.
Total working capital of CAD10.6 million compared to CAD12.9 million at December 31, 2021, a decrease of CAD2.3 million or 18%. We believe to close this year with a stronger cash position compared to the third quarter this year. Total assets of CAD19.7 million compared to CAD22 million in 2021, a decrease of 10%. We still have significant low debt. The company continues to hold the balance sheet of debt, financial debt.
Quarterly working capital. As Omri mentioned before, we saw an improvement in working capital by 400,000 since the second quarter to the third quarter this year.
Adjusted EBITDA, our quarterly non-GAAP results reflect adjustments for the following items; depreciation and amortization totaled CAD230 million, share-based payment totaled CAD76,000, and for the three months ended September 30, 2022, adjusted EBITDA was CAD734,000 compared to CAD585,000 in for the same period in 2021, an increase of 25% or 10% from revenues.
Excluding administrative expenses from operating profit, AdTech operating profit was CAD741,000 and the relative adjusted EBITDA was over CAD1 million in the three months ended September 30, 2022.
Now, with that, I will turn the call back to Gabi [ph].
Question-and-Answer Session
A - Unidentified Company Representative
Thank you, Yatir. With that, we'll turn the call over to questions. So, this is the opportunity for participants to join in the Q&A if there are any questions. I will give you a moment to do that now.
Okay. We will start with a question regarding the receivable accounts. The first question is why did the accounts receivable increase in Q3?
Omri Brill
Okay. Maybe Yatir would like to answer this one.
Yatir Sadot
So, the main reason for the increase is expanding existing client accounts and acquiring new clients. As I mentioned before, we have new clients this quarter more profitable clients than last year. So, this is basically the reason behind that.
Unidentified Company Representative
Fantastic. We have a question from Francisco asking if there are any major milestones with Amphy?
Omri Brill
So, I think like a very important milestone that we've been able to achieve with Amphy the releasing of the -- what we call Amphy 2.0 platform. So, it's really visual of the entire Amphy website. We're also changing a bit the focus of Amphy to put a bit more focus and emphasis on B2B as well. And focusing on the KPI is the key metrics basically making sure that the unit economics is there, and we are happy to report that we see major improvement over there as well.
So, the next step would be to be the marketing effort, making sure that everything is working according to plan and if ever going to go according to plan, then I would say 2023, we should be able to look at full marketing for Amphy.
Unidentified Company Representative
Great. We have another question from Alex asking why there is the reduction of CAD5 minimum in cash, noting that there is CAD700,000 for shares buyback.
Omri Brill
I think it's CAD5 million. I don't believe you would ask for CAD5, it's two-liter. But maybe Yatir, you would like to answer this one.
Yatir Sadot
So, basically, I addressed this question during my review. The decrease in cash and cash equivalents, mainly as it relate to the of course,purchasing shares, investments in AFE and media payments that we paid in the first quarter this year that are related to 2021.
Unidentified Company Representative
Okay. Another question just came in. Are you seeing any opportunities to acquire another company?
Omri Brill
So I think like, obviously, there are opportunities in different areas that the business is operated and Adcore is large enough to operate in a couple of areas whether it's AFE related, whether it's articulated, technology related, team related. So, obviously, there are opportunities. Having said that, under the current market condition, the company believes we should took a bit more I would say, a conservative approach about what we're doing with our money. But if the company will continue to present quarters like quarter three, rebuilding our cash position then basically M&A should be on the table, and that's probably going to take place in 2023. So that's the short answer.
Unidentified Company Representative
Great. Online ad spend has slowed post-COVID, is this impacting the business and how?
Omri Brill
Okay. So actually, that's a great question. And we see like the entire, I would say, market is a mix, right? So, obviously, even large companies like Facebook, Twitter, Snapchat are challenging and basically having a more and more difficult time to present solid results, even better companies like Google or Microsoft are slowing down. Having said that, the market is a mix. And the Adcore lucky enough to be in a very unique position within this specific market, and I would say a majority of our clients are performance related clients and for them advertising is bread and butter. So if they're going to stop performance activity, they're going to stop acquiring clients and basically damage their business. So we don't see any stop usually in this type of budget, even on the recession scenario.
So this is one answer, and B, it still small enough in order to not to be impacted too much from the COVID market conditions. So we can still grow within the market because there is no glass ceiling for us. And I think Q3 telling that exactly story. So we've been able to present far better report than our bigger companies like Google, for example, or Facebook because we are still much smaller, and it's more easy for us to continue growing even after under more challenging market conditions.
Unidentified Company Representative
Okay. And then we have two questions regarding the buybacks. The first is will you extend share buybacks after May of 2023? And do you expect to make more share buybacks next year?
Omri Brill
Okay. So that's actually a great question. I would say with regards to May 2023, we still have enough time to take a decision, so there's no point. Currently six months, there is still like six good months to go to make a decision what exactly we're going to do in May 2023. We don't know what's going to be the company cash position by them, and this -- we don't know what's going to be the share price. So I think it's a bit too early for that.
And with regards to what we're going to do within 2023, then again, it's all depend in the stock price. So if you believe the stock price is still under value, and we have enough cash to support it then we're going to continue the buyback. We still have enough ammunition to do so. And that's probably going to be the plan. But again, that depends on the stock price and other marketing condition, but basically visibility and this willingness to continue to support the store.
Unidentified Company Representative
Okay. We have another question that came in. With the share repurchase program, do you have a target for the share price in the short and medium term?
Omri Brill
So if it was up to me, I would say $3, but again, that's like -- obviously, it's not up to me. Like that's the stock market, and there's a lot of different factors that can influence what should be the stock price or share price, some of them are as correlated, then some of them, unfortunately, are not really even as correlated, so as long as the company believes it's under value and there's an opportunity buying the shares we're going to continue buying shares.
Ideally, for us and for shareholders, we would like to see a stock price that is dollar enough. But again, it's not up to us, and that's not something that the company unfortunately, can influence at this point of time, but we can do whatever we can do in order to like to take – to take use of utility and buy shares if we believe that are undervalued.
Unidentified Company Representative
All right. And I think our last question, you announced significant client wins for Q3. Did this impact the quarter, or is most of this going to impact future quarters?
Omri Brill
So that's actually a very good question. So I'm glad to report yourself that that's a very little impact on Q3. So actually, all the good results that we've been able to present in Q3 almost didn't effect from this recent client win. Obviously, we will see much bigger impact in Q4 and moving forward into 2023 as well.
Unidentified Company Representative
Okay. And another question just came in regarding the Investor Relations efforts. And if you're speaking to institutional investors or any updates on analysts coverage?
Omri Brill
Yes. So actually, I just recently came back from a trip to Canada, obviously visiting our partners in Canaccord and other firms and other investor related meetings that they did both in Toronto and Vancouver. I can say the following. Obviously, everybody are encouraged -- you know that Adcore is doing very good under this difficult market condition. We believe that now that the company started to give guidance, it also should be easier for analyze -- to start getting analysis, sorry, for the company. But still, again, we are acting under a very difficult market condition, and that's not easy for a company now to engage, and we're smart enough to know that.
So we continue to build the relationship, we continue to support existing partnership. And I think once the market is going to start then you will see that Adcore will be one of the first movers and rightly so because it's a great company and they have been able to present great numbers.
Unidentified Company Representative
Okay. And any commentary on the pipeline for new accounts regarding how many size, timing, things to note?
Omri Brill
I'm not quite sure that I fully understand the question. Having said that, everything that we could have disclosed was already disclosed within the PR that we recently released.
Operator
Okay. And if there are no more incoming questions, I think that will conclude the Q&A portion of this call.
Omri Brill
Okay. So thanks again, everyone for joining us today. It was our pleasure to present the Q3 results and obviously answer the different question. Everyone in the team, both myself, Martijn, Yatir are literally an email away. So if you have any follow-up question or anything that you would like to discuss with us, you know, feel free to do so. And let us focus now on Q4, making sure that it's going to be even better than Q3 and we'll touch best again once we can release the Q4 numbers as well.
Okay, guys. Thank you.
For further details see:
Adcore Inc. (ADCOF) Q3 2022 Earnings Call Transcript