Adcore (TSE: ADCO), a technology company specializing in advertising solutions, has reported a solid start to the year with its Q1 2024 earnings call. The company disclosed a modest revenue increase of 1% year-over-year, reaching CAD 6.9 million, while gross profit rose by 13% to CAD 3.1 million.
North America emerged as a strong driver of growth with a 30% surge in revenue, attributed to new client acquisitions. Adcore's shift towards enterprise clients and low-touch service offerings, combined with its emphasis on technology and AI, underpin its strategic pillars for 2024. The company also highlighted its commitment to social responsibility and its entry into the Connected TV (CTV) advertising space.
Key Takeaways
- Adcore's revenue increased by 1% to CAD 6.9 million, with North America seeing a 30% rise.
- Gross profit improved by 13% to CAD 3.1 million, with gross margins growing from 40% to 45%.
- Adjusted EBITDA jumped significantly from CAD 68,000 to CAD 201,000.
- The company's cash flow showed improvement, and it remains debt-free with CAD 8 million in cash and cash equivalents.
- Adcore is expanding into the CTV advertising market and has launched new sales and marketing initiatives in North America.
Company Outlook
- Adcore anticipates continued strong growth in North America.
- The company is establishing a new division for CTV advertising and expects to become a major player in this segment.
- Adcore is optimistic about its performance throughout 2024, with no current indicators for caution.
Bearish Highlights
- Revenue growth was modest at 1%.
- A decrease in revenue in the EMEA region was noted, attributed to a slowdown in one client's activity.
Bullish Highlights
- Significant growth in the North American market and a substantial increase in adjusted EBITDA.
- The company's strategic shift towards enterprise clients and low-touch service offerings is expected to create synergies.
- Adcore is debt-free, demonstrating financial stability.
Misses
- Despite overall growth, the company experienced a decline in the EMEA region due to reduced client activity.
Q&A Highlights
- Omri Brill addressed the potential impact of a TikTok ban in the US, suggesting Adcore could benefit from increased market competition.
- Brill expressed optimism for the remainder of the year, based on the strong start in Q1 and positive results in 2023.
- Adcore is actively pursuing growth in the CTV advertising segment, with established industry relationships and targeted marketing efforts in North America.
Adcore's Q1 2024 earnings call presented a picture of a company leveraging strategic initiatives to drive growth, particularly in the North American market. Despite a modest overall revenue increase, the company's significant improvement in gross profit and adjusted EBITDA reflects its financial health. Adcore's proactive approach towards embracing new advertising spaces like CTV and its focus on technology and AI indicate a forward-looking strategy aimed at long-term growth. The company's optimism for the future, backed by its strong Q1 performance, sets a positive tone for its operations in the remainder of the year.
Full transcript - None (ADCOF) Q1 2024:
Nick Campbell: Okay. Thank you all for your patience there. As mentioned, this is Adcore's Q1 2024 earnings call. We have a very exciting update for you today. Today, your host will be myself, Nick Campbell. I'm the Head of the Investor Relations here at Adcore. You'll have Omri Brill, CEO and Founder; and Amit Konforty, CFO. The agenda for today is we'll begin with some forward-looking statements, followed by the CEO opening remarks, and then the CFO financial highlights, and finally, Q&A. If you do have a question that comes up during this call, please feel free to use the Submit a Question feature in Zoom (NASDAQ:ZM), and we will answer those at the end. Before we begin, these are the forward-looking statements you should be aware of when listening to this call. Please note these statements that are made today are forward looking in nature. They may be projections about the business's future performance and plans. But please bear in mind that these statements are inherently uncertain as they are subject to various factors outside the business's control. At this time, I will give you about thirty seconds to a minute to review the statement before I move on. So I'll let you do that now. Okay. And with that, it's time for the call to begin. I will pass the floor to Omri. Omri, the floor is yours.
Omri Brill: Thank you so much, Nick, and good morning, everyone. It's my pleasure to discuss today the company results for Q1 2024, and let me start by sharing my presentation. So all in all, I don't know if you had a chance to review the results already. We issued the PR and their results are already out there but I would say that the operational efficiency boost the company gross profit and gross margin for this quarter, and we are all in all very happy with the results. We've been able to achieve it during Q1 2024. And just to discuss some key few metrics from today's -- from this quarter report, top-line revenue was CAD6.9 million or almost CAD7 million compared to CAD6.8 million in the previous year. And this represents a 1% increase year on year. Gross profit increased by 13% to CAD3.1 million compared to CAD2.7 million in the previous year. Gross margin improved as well to 45% compared to 40% in the previous year. That represents 13% increase in gross margin as well. This is what -- if you recall, this is one of the important -- like what we call, quality KPI that we are monitoring and other quality KPIs that we are monitoring is revenue coming from North America, which is an important region for us and we are happy to report that nice increase of 13% year on year in this important region. So good results, both in gross margin and in growth, and also in revenue coming from North America region. And all in all, just like to recap and summarize some of the quarter highlights or I would say, say gross profit grew by 13% year on year. We saw a nice increase in gross margin from 40% in the previous year to 45% this year. We saw a strong revenue growth in North America by 30%. We saw a very nice jump in adjusted EBITDA of almost 200%. We had a positive shift in cash flow from a usage of fair almost CAD1 million in cash for operation in Q1 2023. We now Q1 of 2024 for it's been -- it's a big improvement in net cash flow in this quarter compared to the previous year as well. And client concentration also improved to 56% that we had in the previous year to 42% this year. So I think like all in all, a lot of very good metrics across -- I would say, almost across the board. Mid line, bottom line, and balance sheet, all the metrics look very positive for us in this quarter. If you recall in the previous calls that we had to summarize 2024, we discuss what should be the company goals or focus area that we want to focus in 2024. We say retaining a strong balance sheet with a focus on increased cash reserves. So we have period for the cash reserve remained almost the same as compared to the previous quarter. And if you still compare Q1 to Q4, we usually we see a drop in the cash reserves to the fact that we've been able to preserve cash reserves in Q1 compared to Q4 reduction is very strong indicators for us regarding company ability to preserve the cash. We'll discuss keeping the gross margin within the 40% to 50% range. Yet again, another check there with regard to 45% -- like what we have been able to achieve 45% in the this quarter. And as I mentioned, this is 13% year on year and improvement. We discussed achieving double-digit growth in their revenue, gross profit, and operational profit. Again, revenue remained more or less, we saw moderate growth, but both gross profit and operational profit, adjusted EBITDA, we saw a significant improvement and this is very solid results for us and we discuss expanding the company marketing a technology and marketing solution offering, and I encourage everybody to visit the company new website and see all the different days of the technology offerings that we have and the marketing solutions that we have to see that the company is expanding out our offering. So all in all, again, very positive quarter for us and bear in mind, Q1 historically was the slowest quarter for us in the year because of seasonality. So the company ability to present a solid quarter in Q1 is a very good indicator for what we believe that 2024 can look like. And this is also a good opportunity for us to discuss the company -- I would say four strategic pillars. Again, growth we discussed in the previous quarter as well. Just as a quick recap. So the first pillar is technology and AI, is obviously continuing to build up our own proprietary technology and making sure that we are embedded and implementing AI solution throughout all the different technology and application. And obviously, using AI now day to day operations as well. The second strategic pillar that we discussed is to shift the company's focus towards enterprise and aggregate those. So this is a larger type of financing clients at the present began presenting for the company to scale. We discussed, focusing on low touch, do-it-yourself type of activity and service offering, again at scale and efficiency that you know, the main reason behind this strategic decision. And last but not least is focus on synergies. So making sure the company is doing multiple things in multiple areas. We want to make sure that we have seen as investment and therefore, the company is doing. And again, every new, let's say, venture that the company is doing any any new development that the company has announced, you need to know whether it's go hand in hand or going in line with the four strategic pillars. If the answer is yes, that means that you are doing something in the right direction. And if the answer is no, that it means something is wrong. And maybe we should look at again whether we should do it or not. And the things that we discussed in the previous quarter, I would say, some improvement in the stock price. If you look at, let's say, from the patent that we saw in 17% to now, we saw almost 40% increase, three months at a 30% increase or so, also almost 30%, so in six months as well. All in all, we see a positive trend in the stock price, but we still believe it's fairly undervalued and is still a lot of money to be made in there to start basically the company point of view. At this point of view it's also backed up by the comparable data to put peer companies, companies that are within the tech, space like Tesco (OTC:TSCDY). And you see if talk talking about gross profit for investment that you see represents a very high potential of almost more than 700% compared to the period with the potential for the stock to go up. Again, we not only talk about it. We were also doing there is tougher, albeit in the company, both in Q1 2024 more than 80,000 shares for cancellation. Then all in all, in the past two years, we've bought more than 4 million shares for cancellation of investment, almost CAD1 million into it. And we believe that once the market when it when I see likely a more massive uptick within the small-cap industry that Tesco basically can lead this and a trend because again, we put a lot of effort in order to customers of shares and basically that should be able us to grow more aggressively once the market condition will them better. And last but not least, we are discussing about it in the previous earnings call as well. As the company's social responsibility, there is a lot of action that we are taking in order to support the [indiscernible] community. Now also soldiers wounded by the oil spill and all of them are the same related and [indiscernible] And we encourage everyone to visit the company social responsibility page and also, obviously a key keep an eye on the company and keep on leading initiative that's out there among this important. So that concludes my remarks for the quarter. Again, all in all, we believe it's a very strong quarter, a very solid quarter, and a very good start for 2024. And now back to you, Nick, and then to Amit.
Nick Campbell: Thank you for your comments, Omri. We'll now move to the CFO financial highlights. Amit, the floor is yours.
Amit Konforty: Thank you, Nick, and good morning, everyone. Just one moment. Okay. 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. In the first quarter of 2024, we achieved 45% gross margin and have kept on generating positive cash flows, showing our financial resilience and operational strength. Now let's review in more detail. For the three months ended March 31, 2024, we delivered revenues of CAD6.9 million compared to CAD6.8 million in the same period of 2023, an increase of CAD0.1 million or 1%. Gross profit was CAD3.1 million compared to CAD2.7 million, an increase of CAD0.4 million or 13%. Gross margins for the three months ended March 31, 2024 were 45% compared to 40% in the same period last year. As for operational expenses, R&D expenses for the quarter were CAD0.6 million compared to CAD0.4 million in the prior year. The main reason for this increase is we started a more design addition and intangible assets in the three months ended March 31, 2024. SG&A expenses for the quarter were CAD2.7 million compared to CAD2.6 million in the prior year. Operating loss for the three months ended March 31, 2024, was CAD0.2 million compared to CAD0.3 million in the same period last year, a decrease of CAD0.1 million or 31%. Net loss for the three months ended March 31, 2024, it was CAD0.4 million compared to CAD0.6 million in the same period last year, a decrease of CAD0.2 million or 39%. Moving on to total revenues and gross profit. As you can see on the left side of the slide, in Q1, there was a moderate increase in revenues. However, we see a significant 13% increase in gross profit, accompanied by a significant rise in gross margins from 40% to 45%. As for geographical revenue breakdown for Q1 2024, we see a significant growth of 30% year-over-year in North America, which is mainly due to acquiring new clients. APAC revenue saw an 8% year-over-year increase, which is similarly driven by acquiring of new clients. In May revenue experienced an 18% decrease, mainly because one client significantly reducing its activity. Despite this a setback, we were able to increase revenue level and even enhance gross profitability. Now let's discuss about net cash flow from operating activities. In the three months ended March 31, 2024, we kept on generating cash from operating activity in the amount of $13,000. This is a significant improvement from over $1 million used for operational activity in the same period in 2023 this improvement in cash flow is mainly caused by improved profits and improved collection from clients. In terms of financial position, we had cash and cash equivalents of CAD8 million as of March 31, 2024 compared to CAD8.1 million at December 31, 2023. Total working capital amounted to CAD7.5 million compared to CAD7.6 million at December 31, 2023, a decrease of CAD0.1 million or 1%. As for the liability side of the financial position, we can see that the company is still debt free. Regarding adjusted EBITDA, the quarterly non-GAAP results reflect adjustments for the following items, depreciation and amortization and share-based payments. For the three months ended March 31, 2024, adjusted EBITDA was CAD201,000 compared to CAD68,000 for the same period in 2023, showing the significant increase of CAD173,000 or 196%. We did. I will turn the call back to Nick.
A - Nick Campbell: Thank you, Amit, for those comments. We'll now move on to the Q&A session. We have had a number of questions submitted, so let me just see here. We'll begin with the first one. This question is from Ryan. He says cost of revenue has dropped year over year on the same amount of revenue. What is driving the cost savings?
Omri Brill: Good question. And as I mentioned before, the company starting 2023, put a lot of emphasis on our operation efficiency and the cost of revenue like other type of cost or steel cost. And so the company ability to save on costs to be lean on a on cost because the bold and a lot of revenue are no exception in that regard.
Nick Campbell: Thank you, Omri. And another one from Ryan here is the North American region has shown strong growth this quarter. Is this expected to continue?
Omri Brill: The short answer is yes. We put a lot of shift of emphasis on this important market. We recently put another salesperson within this market that come with a lot of experience. So literally, the sales force in this specific region grew by 100%. And there we continue to put their focus and emphasis on this the market in a year, we have high expectation and what we can achieve and we believe we still didn't even I'm going to get started in this market. So we feel far more potential for the company with what we see right now.
Nick Campbell: And conversely, another question from Ryan, he says that EMEA revenue decreased by about 20%. What's the reason for that? And is that expected to continue?
Omri Brill: So, Amit actually have a not regarding this decrease in the remarks. Mainly due slowdown in one of the client activity -- client activity in this specific region. And so we might see some charges it will be a specific region but I would say all in all, we don't see any I would say is that red flag in EMEA or in any other region. In the end of the day, even if we have some fluctuation that can be seasonality or maybe some large client, you know, shifting some activity in the end of the day, I would say in my eyes is a positive for us as well and obviously the rest of the region as well. And we have the similar incident in APAC. If you remember in 2022, and we saw a nice rebound in 2023. So the company is resilient enough. And we know, you know, like even if one client, let's say it's getting down. Obviously, the other clients on the planet can scale up as well.
Nick Campbell: Very good. A question from Robert, what are the steps that Adcore is taking to attract institutional investors?
Omri Brill: It's very good question. I would say we recently onboard Nick as a full-time IR manager for the company and of the companies, obviously, looking at the investment initiatives have been, you know, it is a focus area for us in 2024 and one of the makeup of the world is obviously reducing their cost, so it can move away from more of these institutional investors as well. Obviously, it's going to be conduct by in person meeting, as well as contracts that the company can attend live events through the stats for this and other means as well. But I would say, yeah, Investor Relations in general is a focus area for the company in 2024 because we believe the market conditions actually selling better. And now it's time to be a bit more aggressive again, and obviously institutional investors are critical for us as well. And we understand that.
Nick Campbell: Very good. Another question from Robert. What is Adcore doing specifically to increase value for investors? And is a $1 billion market cap still a realistic goal for the company?
Omri Brill: It's a good question, and I will take these multiple efforts of the company is doing on a daily basis, obviously to increase the company attractiveness, I would say. I can't count some of them. Obviously, we discuss about the operational efficiency and be able to present, you know, positive cash flow, positive operation profit as well is something that we believe we've been able to achieve in the previous quarter. This quarter as well. So that remains a focus area for the company as well. We are entering into introducing a lot of new initiative as well. We mentioned some of them, you know, in the previous calls as well. We are now becoming more and more aggressive in terms of sales -- sales capability and marketing capability. So obviously that will take time to see the full effect of it. But we literally almost doubled up our sales force, you know, not only North America, but it was the goal and obviously marketing is yet another focus area for us and we mentioned they are, you know, everything you make of the full-time employee will only focus the buyout of the Ascopiave as well. So things like I mentioned before, multi you put the company in good stead. With regard to $1 billion market cap I know it may sound a bit, you know, like out of plastics right now, but trust me, that was the market condition, but it is better for us. You can see a very nice uptick in the ADCO stock. ADCO trading and we know is 200 million to 250 million million market cap, I would say three years ago when we would not have made a good company that we have today. And also we see the potential of our mark-to-market position when it does better. And obviously, we can have a new access to capital, then you can see the company can scale up quite, quite fast. And that's the important thing.
Nick Campbell: Very good. A question from Amit. Top line revenue was relatively flat this quarter. Can you give us information as to the reason for the lack of growth?
Omri Brill: So I would say the [indiscernible]. If I need to choose between let's say, almost split the top-line revenue and a nice increase in both profit like we saw this quarter and vice versa, let's say nice increase in top-line revenue, but the gross profit will delay will remain flat. And I will choose the first option any given day. Bear in mind that with media companies like ADCO, you know, some billion revenue of media buying associated basically. So gross profit is a more accurate indicator regarding the company's ability to generate real growth, and we've been able to do it during Q1 2024. Some of the, I would say, top-line revenues that were cut off are part of the cost of revenue as well. So the media related revenue and the fact that we do have them, it's not a big deal for the company. Again in [indiscernible] I would say what they would like to see double-digit growth across the board do not. But again, if we need to show them these scenarios far better than the other scenario was mentioned.
Nick Campbell: A question from David is with Adcore's operating cash flow positive or close to it, the need for a large cash reserve on the balance sheet is less critical. What is the plan for the cash that Adcore has?
Omri Brill: It's a good question. I would say the following A, we achieved, let's say, this type of operational efficiency in the last two quarters or so. So let's wait and see that we can maintain it for, let's say, another one or two quarters before we can become more interesting. But also, you know, it very much depends on the market condition will once we see the market is very open and we can have better access to capital if needed. But with the stock price were to be much higher then the company can say, okay, maybe time, you know, to drop the defensive there more than become a bit more aggressive. But I think like we need to wait a bit before we say okay. Spring already and we can and you know, and we can enjoy the sun again.
Nick Campbell: Very good. A question from Kieren Industry related here. Can you comment on the potential TikTok ban in the United States and if or how this could impact Adcore and more broadly the advertising market?
Omri Brill: It's an interesting question. I would say the future is you have to, you know, we still need to see the future as we prepare for it to happen. But I would say the following it's not necessarily a bad thing for Adcore, A, because we might have some of our existing partners. You know, part of let's say, the new US TikTok move. So this is one. We can utilize existing. Let's say, existing initiatives that we have under the new boom, this is one. And B, I guess it will be it will make because the Asian or the entire market a bit more competitive and put to the market to know between the different channels is actually good news for the company like ADCO have a seat in the media and can enjoy this type of competition.
Nick Campbell: Very good. A question from Natalie. As some of the leading players in the industry, such as double verify, Shopify (NYSE:SHOP), have really tempered their expectations for the remainder of the year. Is this the same for Adcore?
Omri Brill: Not necessarily, we don't see any indicators will say to date that say that 2024, we need to be a bit more cautious about it. Obviously, 2023 was very positive for us. If you look at, let's say, the numbers we've been able to present and currently, especially after the strong start of Q1 2024, we are still optimistic about what we can achieve in 2024. And we said that we still have a good three quarters seeing today is. So it's still a bit too early to returns of say. If you ask me today from positive about when it's meaningful and I believe that we can we can list a copy the results that we achieved in 2023 then the answer would be, yes.
Nick Campbell: Very good. Another one from Natalie is CTV is becoming a dominant trend in the digital advertising space. How is Adcore establishing themselves in this area?
Omri Brill: Actually, that's a very good question, and we recently announced that they're on all new division with ADCO, which report brand awareness and division. And under this division, we've got to offer CTV, one of your programmatic advertising, digital outdoor advertising as well. So all of that become a focus area for ADCO. We already have in their, let's say, established relationship with leading players within the industry. Some of them could be, let's say Microsoft (NASDAQ:MSFT) investments, will be done inventory of, let's say, CTV for Netflix (NASDAQ:NFLX), for example, other could be if they have like DB360 owned by Google (NASDAQ:GOOGL). So we understand the importance of this, let's say, segment within online advertising. We understand the potential of M&A. We are very active in making sure that we are going to be a big player in a fast-growing segment of advertising.
Nick Campbell: Just one final question here is what marketing initiatives are you taking in North America to help with new client acquisition?
Omri Brill: So that's a good question, and we discussed it a bit. We discussed the onboarding a new salesperson within North America market that come with a lot of experience in this specific market kind of a specific but local within North America and then in a broader view. And so this one initiative that companies do. And another initiative is double down on marketing. It will be related to this specific region and quarterback. And as you know, the sales initiatives that we are taking. So marketing, let's say, lead the way to or quarterbacking, you know, the sales person and then obviously that gives a salesperson, you know, take it from there.
Nick Campbell: Very good. Thank you, Omri. That concludes the questions we have for today. If you do have any questions, please feel free to send an e-mail to investors@adcore. We thank you for your time in joining joining the call today. Have a great day and thank you.
Omri Brill: Thank you very much.
Amit Konforty: Thank you.
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