Adcore (ticker: ADCO), a technology and AI-focused company, reported mixed financial results for the third quarter of 2024. The company saw a slight decrease in total revenue, which came in at CAD$7.8 million, down from CAD$8.2 million in the same quarter the previous year. However, Adcore's gross profit rose by 12% to CAD$3.7 million, and gross margins improved notably from 40% to 47%. Despite the revenue decline, the company's adjusted EBITDA increased to CAD$282,000, up from CAD$240,000 in Q3 2023.
Key Takeaways
- Total (EPA:TTEF) Q3 2024 revenue was CAD$7.8 million, a slight decrease from Q3 2023.
- Gross profit increased by 12% to CAD$3.7 million, with gross margins improving to 47%.
- North American revenue grew by 27% year-over-year, and APAC revenue increased by 26%.
- EMEA region revenue declined by 39% due to geopolitical issues.
- Adcore remains debt-free, with a cash position of CAD$6.7 million as of September 30, 2024.
- A new app aimed at B2B and sales is expected to be launched soon.
- Media Blast app achieved record Monthly Recurring Revenue in October 2024.
Company Outlook
- Adcore plans to enhance client diversification and leverage technology for future growth.
- Recovery in the EMEA region is expected in 2025.
- A significant new application is set to be released, targeting the B2B and sales sectors.
Bearish Highlights
- Total revenue experienced a slight decline compared to the same quarter last year.
- The EMEA region faced a substantial revenue drop due to geopolitical issues.
- Total working capital decreased by 18%, primarily due to reduced cash and increased short-term lease liabilities.
Bullish Highlights
- North American and APAC regions showed strong growth attributed to new client acquisitions.
- Adjusted EBITDA improved, indicating better operational performance.
- Media Blast app's strong performance in October 2024 suggests a growing market impact.
Misses
- Despite the overall flat revenue year-over-year, there was a notable decrease in the company's cash equivalents from CAD$8.1 million at the end of 2023 to CAD$6.7 million as of September 30, 2024.
Q&A Highlights
- CEO Omri Brill (AS:BRIL) emphasized the strategic importance of technology expenses, particularly the ongoing amortization of developed applications.
- Brill expressed optimism for Q4 2024, citing Black Friday and holiday-related spending as opportunities for significant revenue generation.
- Brill highlighted the success of the Media Blast app and the high expectations for the upcoming new app, which has been in development for nearly a year.
Full transcript - None (ADCOF) Q3 2024:
Nick Campbell: Okay. Good morning, and welcome to Adcore's Q3 2024 Earnings Call. Today, we'll be going over the company's Q3 results. On the call today, you have myself, Nick Campbell, I'm Head of IR here at Adcore; you have Omri Brill, CEO and Founder; and you'll hear from Amit Konforty, Adcore's CFO. The agenda for today will begin by going over some forward-looking statements, followed by the CEO opening remarks and then followed by the CFO financial highlights and finally, Q&A. [Operator Instructions]. Before we begin, I would like to remind everyone today that during the call, we will be making forward-looking statements that are somewhat uncertain in nature. These statements are subject to risks and uncertainties, so please bear that in mind while listening to the call. I'll give everyone a minute to review the disclosure before moving on. Okay. Thank you all for your patience. We'll now begin with Omri Brill's portion for the CEO opening remarks. Omri, the floor is yours.
Omri Brill: Thank you very much, Nick, and good morning, everyone. It's my pleasure to discuss the company Q3 financial report today, and let's start with the presentation. So all-in-all, it was a very positive quarter for us. All the important metrics that the company consider as key metrics in terms of our financial statement, whether it's gross margin, gross profit and also growth in specific markets that we believe are strategic to the company were quite positive, and let's dive into, let's say, some highlights of these numbers. So top line revenue concluded in Q3 2024 was $7.8 million. It's a slight decrease compared to $8.2 million in Q3 2023. Gross profit, however, grew by 12% from $3.3 million in Q3 2023 to $3.7 million in Q3 2024. So again, we are happy to see that gross profit is growing. If you look at another key or quality growth KPIs that the company is talking about usually every earnings call, and we mentioned specifically two of these KPIs. The first one is gross profit and gross margin. So gross margin improved a lot from 40% in 2023 Q3, to 47% in Q3 2024. That's almost 20% year-on-year improvement. And we also see a very strong growth in North America, which is a strategic market for us and where the company believes a lot of future revenue of the company would come from. So North America today become the second biggest market of the company. And like I mentioned before, that we believe that during 2025, it's expected to become the biggest market of the company. Revenue-wise, we grew by almost 30% year-on-year to $2 million in revenue in Q3 2024 compared to $1.6 million in Q3 2023. So just some highlights of the quarterly results. Again, North America, very strong growth, 30% year-on-year. APAC revenue grew a lot as well, 26% year-on-year, that's impressive. Gross margin, as I mentioned before, improved to 47% compared to 40% in the previous year. Gross profit, nice growth of 12% to $3.7 million compared to $3.3 million. Client diversification actually improved from -- sorry, from 54% to 49%, and you're going to see even a better improvement if you look at the nine months of 2023 and adjusted EBITDA included in almost $300,000 in Q3 2024 compared to $240,000 in the same period last year. If you look at the nine months of 2024 and compare it to the nine months in 2023, bear in mind that we are still missing a very important quarter for 2024. So it's a bit too early to conclude the year. But nine months, it's a good indicator of how the entire year look like. And basically, what we can clearly see is that, let's say, gross profit-wise, it's almost landed at $10 million in the nine months of this year, and that's a 7% year-on-year improvement compared to the previous period in 2023. Gross margin improved from 41% in 2023 and nine months to 45% in 2024. North America revenue grew by 24%, which is impressive. And APAC revenue grew as well in 2-digit growth to 11% year-on-year in the first nine months of 2024 compared to 2023 and nine months. And client diversification, as I mentioned before, improved a lot. So basically from 51% in 2023, it's now down to 31% in 2024, and that's a big improvement. This means we have more clients, more diversification and basically less risk to the company, which is always good. I think my opening remarks, it also gives me a good opportunity to discuss before what we consider as a key strategic pillar of the company. These are specific areas that the company believe a lot of future growth of the company or even current growth should come from. And basically -- so the first and foremost is technology and AI. We already said the company is doubling down on this important area. We're recruiting more engineers, developing new application and also obviously improving the existing line of application, and we are about to announce in the coming weeks a very interesting and exciting new applications that the team was very busy working on over the past, I would say, 10 months or so. So basically, that's going to be big and it's going to be coming our way. And that's by far the biggest and most advanced application the company ever built, and it's going to be very interesting to see how this application is going to go to market. Second strategic pillar is enterprise and aggregators. Again, we would like to focus on bigger clients, larger budget, obviously, for increased profitability, low touch and do-it-yourself, it's also another strategic pillar. Again, less touch, less personnel that help us to be more profitable and efficient, and that's critical. And last but not least is synergy. We want to make sure the companies operate in many different markets offering -- sorry, different technology solutions, marketing technology solutions. And we would like to see that each of them is creating synergy or synergistic to the other activities the company is doing. I think that's critical, and we would like to see that become more and more the case. When we look at the company share price, and we still feel there's a large disconnection where the company is currently traded to where we should be. And this is also when you look at comparable, you can clearly see there's a very big, let's say, potential for the stock price to go up. We see if you look, for example, EV for gross profit, we talk about upside of more than 1,000%. So it's a massive upside. Adcore is currently trading on a multiple of 0.3 compared to multiple -- industry multiple of almost 4, which is, let's say, big gap, and this gap needs to be narrowed. I think that's about it in terms of my remarks. Overall, a positive quarter. And I'm now going to hand it back to you, Nick and to Amit.
Nick Campbell: Thank you, Omri, for the opening remarks. We'll now move on to the CFO financial highlights. Amit, the floor is yours.
Amit Konforty: Okay. So 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. Despite a slight revenue decline of 5%, we achieved a 12% increase in gross profit and a notable improvement in gross margins. Additionally, we saw strong performance in North America and APAC with revenue growing by 27% and 26%, respectively, demonstrating solid growth in these key regions. Now let's review in more details. For the three months ended September 30, 2024, we delivered revenues of CAD$7.8 million compared to CAD$8.2 million in the same period of 2023, a decrease of CAD$0.4 million or 5%. Gross profit was CAD$3.7 million compared to CAD$3.3 million, an increase of CAD$0.4 million or 12%. Gross margins for the 3 months ended September 30, 2024, were 47% compared to 40% in the same period last year. As for operational expenses, R&D expenses for the quarter were CAD$0.6 million compared to CAD$0.3 million in the prior year. The main reason for this increase is we amortized additional intangible assets in the three months ended September 30, 2024. SG&A expenses for the quarter were CAD$3.2 million compared to CAD$3 million in the prior year. The increase is primarily driven by higher sales and marketing costs, including added headcount and increased referral payments. Operating loss for the three months ended September 30, 2024, was CAD$0.1 million compared to nil in the same period last year. The increase in operating loss was mainly caused by the increase in R&D amortization expenses and the increase in sales and marketing expenses. Net loss for the three months ended September 30, 2024 was CAD$0.2 million compared to CAD$0.2 million in the same period last year. Moving on to gross profitability. As shown on the left side of the slide, Q3 gross profitability increased by 12%, accompanied by an improvement in gross margin rising from 40% to 47%. Looking at the nine months results, we observed a similar trend with a 7% increase in gross profitability and gross margin improving from 41% to 45%. This is consistent with the full year trend on the right, which highlights ongoing annual growth in profitability. As for geographical revenue breakdown for Q3 2024. In North America, revenue grew by 27% year-over-year, primarily driven by new client acquisition. APAC revenue also saw a strong year-over-year increase of 26%, primarily due to new client acquisition also. EMEA revenue declined by 39% year-over-year, mainly due to reduced advertising budget and suspended activities in this region. We expect this to be a temporary setback with the recovery anticipated in 2025. In terms of financial position, we had cash and cash equivalents of CAD$6.7 million as of September 30, 2024, compared to CAD$8.1 million at December 31, 2023. Total working capital amounted to CAD$6.2 million compared to CAD$7.6 million at December 31, 2023, a decrease of CAD$1.4 million or 18%. This decrease is mainly due to the decrease in cash and cash equivalents and increase in short-term lease liabilities. As for the liability side of the financial position, we can see the company is still debt free. Adjusted EBITDA. The quarterly non-GAAP results reflect adjustments for the following items: depreciation and amortization, share-based payments and other nonoperational items. For the three months ended September 30, 2024, adjusted EBITDA was CAD$282,000 compared to CAD$240,000 for the same period in 2023, reflecting an increase of CAD$42,000 or 18% and indicating an improved operational performance. With that, I will turn the call back to Nick.
A - Nick Campbell: Thank you, Amit. At this time, we'll move on to the Q&A portion of the call, where we have a number of questions submitted in advance. We'll start with Ryan, who asked the company was able to achieve high gross margins for the quarter. Can you just elaborate on what's driving that improvement?
Omri Brill: So it's a good question. I would say this is a trend that we see for the past 8 to 10 quarters already. The company identified in 2022 that basically we would like to focus more on profitability, efficiency and focus on the type of, let's say, activity and clients that generate or come with higher gross margin and better gross profit. And that's something that we started to see bearing fruit in 2023 and for now, for sure, in 2024. A lot of focus on technology, as I mentioned before, is do-it-yourself, low-touch type of activity. And I think Q3 is a good demonstration that we're doing something right in that regard.
Nick Campbell: Very good. Another question from Ryan is both North America and APAC showed impressive growth this quarter. Can you just give us a bit more information on what's driving the growth in those regions?
Omri Brill: Absolutely. So as Amit already mentioned in his report, a lot of this growth is coming from new client acquisition. But I think generally saying, North America, for example, was a focus of us for the past two years already. We see -- we are continuing to expand our team over there. To date, it is the second largest team that we have outside of Tel Aviv. And basically, we see, let's say, this specific area is growing very nice. New clients, good market fit for Adcore in this specific region. And the same story goes for APAC. Actually, APAC is building a very nice momentum after a down trend that we saw post-COVID. And I think a lot of the growth that we see in the APAC region is coming also from technology-related products like Media Blast and other air products.
Nick Campbell: Thank you, Omri. And one more question from Ryan is EMEA revenue decreased quite significantly. What's the reason for this?
Omri Brill: So I think like I mentioned also in my previous quarter, we see, I would say, general weakness in this specific region. I think a lot of this is got -- is connected to, let's say, geopolitical challenges we see both in Europe because of the war over there and obviously, the war in Israel as well. So that's not exactly helping. Having said that, we believe it's a temporary setback, and we believe 2025 will put the EMEA region also to back to positive growth trend as well.
Nick Campbell: Thank you, Omri. A question from Mohammed. Revenue on the top line is relatively flat year-over-year. Can you give a bit more information on the lack of growth?
Omri Brill: So I think like -- I would say, two remarks. EMEA is probably an important part of the story, like you can definitely see it. If you're growing 20% or almost 30% in North America revenue top line growth, quarterly and you grow by 26% in APAC, and you're still down in overall revenue. This means that, let's say, some region, which is EMEA is going down. And I think that's the main story the way we see it. Having said that, for a company like Adcore, we strongly believe that a far better indicator is gross profit and gross margin, and we're happy to see a very positive trend over there. So even with a slight decrease in top line revenue, we still saw 12% year-on-year growth in gross profit. And even in the nine months, the company is 7% year-on-year growth, which is positive. So I think as long as we can grow midline, I think I will take it in any given day on the expenses of, let's say, even top line growth. In an ideal quarter, obviously, you want to see all metrics moving in the right direction. But if I need to choose one, I would go for a gross profit in any given day.
Nick Campbell: Very good. Thank you, Omri. A question from Dan. R&D costs were relatively high for the quarter. Can you give us some information on where the money is going?
Omri Brill: So Amit mentioned it before. It's got to do a lot of assets we started to amortize. And I think that's part of the things, right, apps that we already developed and now we need to start to amortize, that's part of the story, and we're going to continue to see it. Having said that, like we are proud in technology expenses. We believe technology is a key strategic differentiator for Adcore. And I think like if these expenses are product in our book, it is definitely technology expenses related expenses.
Nick Campbell: Thank you, Omri. Question again from Dan is, can you share an outlook on Q4 of 2024?
Omri Brill: I wish I could. I would say the following, a, bear in mind that most of the spending in Q4 didn't really happen yet, right? So we're talking about Black Friday-related spending in the end of November and then obviously, holidays-related spending early December until even Christmas itself. So I think like most of the spending didn't really happen. So in a sense, yes, we are maybe 1.5, almost months into the quarter, but let's say, in terms of revenue, we are still not there yet. So it's a bit too early to say. Having said that, when we look at, let's say, key budget, key clients, and we need to compare what the budget map look like, let's say, 2024 compared to 2023, then I'm happy to report that most of these clients are growing a lot year-on-year, which is a very strong indicator for us. And basically, we still have a positive trend, and we still have a very high expectation for 2024, for Q4, sorry, 2024.
Nick Campbell: Thank you, Omri. A question from Nick. It said last quarter, you provided an update on Media Blast. Is there any update on how the app is performing?
Omri Brill: Yes. So we continue to see a very positive trend in Media Blast. Actually, I can report that October 2024 was the strongest quarter in terms of MRR to date that we achieved also in terms of overall, let's say, revenue budget was going through the system. So I think it looked very positive. Number of clients is a record high. So I think like, again, Media Blast is something that we see that, let's say, it's almost a wildfire effect in terms of the market react to this application, which we love to see.
Nick Campbell: Thank you, Omri. One question -- one last question from Nick is, are you working on any other apps?
Omri Brill: Yes. So I mentioned before, we are about to officially release or announce the release of a new app, that's going to be massive. That's an app that we've been working on for almost one year now. You know a lot of people, a lot of R&D time -- team has been involved with this specific app is going to be expanded also behind marketing. So it's going to be more about B2B and sales in general. It's going to be very interesting. So stay tuned. And hopefully, the market will like this app as much as we like it and believe it. I think it can be massive for Adcore for the years to come.
Nick Campbell: Thank you very much, Omri. That concludes the Q&A session for the call. Thank you, Omri, Amit, for your time and giving us your remarks. We appreciate your continued interest and support in Adcore. If you do have any remaining questions, please feel free to reach out to myself. Thank you all for joining, and have a great day.
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