Adcore Inc.

Good morning, everyone and welcome to our Investor Update Conference Call. I am Barak Frank, Adcore Inc.'

s Corporate Secretary. All callers are in a listen-only mode.

On the call this morning, the company CFO, Yatir Sadot, will provide a financial overview of the company's Q1 2021 financial statements, followed by a management declaration by the company CEO, Omri Brill. After which we will answer resend questions and take questions from participants if we have time.

I would like to take a moment to remind participants of the Safe Harbor statement. This conference call contains certain forward-looking statements, including statements about the company.

Wherever possible, words such as may, will, should, could, expect, plan, intend, anticipate, believe, estimate, predict or potential or the negative or other variations of these words, or similar words or phrases, have been used to identify these forward-looking statements. These statements reflect management’s current beliefs and are based on information currently available to management as at the date hereof.

Forward-looking statements involve significant risk, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements.

These factors should be considered carefully and listeners should not place undue reliance on the forward-looking statements. Although, the forward-looking statements contained in this call and financial results press release are based upon what management believes to be reasonable assumptions, the company cannot assure listeners that actual results will be consistent with these forward-looking statements.

These forward-looking statements are made as of the date of this call, and the company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law. I will now turn the call over to Yatir Sadot, Adcore CFO.

Thank you, Barak 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. I will start with a brief overview of Adcore's balance sheet as of March 31st, 2021.

Our balance sheet remains strong. Total working capital of CAD$8.8 million compared to CAD$7.8 million at December 31st, 2020, an increase of CAD$1 million or 13%.

We also started the year with CAD$11.7 million of cash and cash equivalence. And as of March 31st, 2021, cash and cash equivalence were CAD$11.5 million.

The decrease in cash balances is mainly attributable to exchange rates between the periods. USD balances increased from 8.7 to 9.1, an increase of 5%.

Total warrants liability went down from 867,000 to 75,000 due to warrant exercises that occurred during the first quarter of 2020. We still have a significant low debt.

We don't hold any material debt as of the balance date and the total assets of CAD$16.5 million compared to CAD$17 million in 2020, a slight decrease of 3%. Next, I will discuss profitability.

For the first three months of 2021, we delivered the record first quarter revenues of CAD$8.6 million compared to CAD$3.3 million in the same period of 2020, an increase of CAD$5.3 million or 161%. This was mainly driven by growth in our direct channel and particularly strong growth in APAC region.

Moving to OpEx items. Research and development expenses for the quarter were CAD$449,000 or 5% of revenues compared to CAD$199,000 or 6% of revenues in the prior year, an increase of 126%, which focused on further innovating or on our technological solutions.

Sales and marketing expenses and general administrative expenses for the quarter were CAD$1.5 million or 18% of revenues compared to CAD$1.5 million or 45% of revenue in 2020. The company continuously supporting the global expansion as discussed and disclosed previously, mainly in some high channel.

Our operating profits for the quarter was CAD$36,000 compared to CAD$573,000 in the prior year. During the quarter we reported a slight net loss of CAD$65,000 compared to profit of CAD$328,000.

Next, I will discuss our adjusted EBITDA. Our quarterly non-GAAP results reflect adjustments for the following items: Depreciation and amortization totaled CAD$182,000; share based payments totaled CAD$276,000; global expansion expenses totaled CAD$41,000; and another non-recurring items totaled CAD$49,000.

Total adjustments were CAD$548,000 compared to CAD$270 in 2020. Adjusted EBITDA was CAD$584,000 compared to CAD$843,000 for the quarter ended March 31st, 2020.

With that, I will turn the call over to Barak and then to Omri.

Thank you very much, Yatir. As previously discussed, I will now give the mic -- pass the mic over to our CEO, Omri Brill, who will give a short declaration of management, followed by a Q&A session.

Omri?

Yes. Thank you so much Barak and Yatir for a wonderful presentation and the very clear presentation of the earning report.

For us, it was a phenomenal quarter. Obviously, revenue grew by 161% to record -- quarterly record I would say of CAD$8.6 million.

And for Adcore, now moving forward, is going to be mainly about growth in length grabbing [ph]. So, we want to continue growing.

Top line is the key metrics that the company look at right now. And obviously, the company want to make sure that as it's growing, it's also growing its market share and basically getting more length.

And the main driver for this phenomenal growth, I would say, e-commerce activity remaining very high, we saw the same type of momentum that started in second half of 2020 due to COVID. Of course, COVID basically continue well into Q1, 2021.

And the company is optimistic that the same level of activity or even stronger level of activity can carry into Q2, 2021, and even beyond moving forward in the quarters in 2021. So, e-commerce is the number one driver, but another very important driver for this phenomenal results were the international expansion of the company, a lot of the growth that we saw came from the APAC region and more particular from the Asia region within say specific region.

So, APAC is a massive region for the company. The company is doubling down on this region.

Just this quarter, we launched a new office in Shanghai, China. So, now we already have two offices in China and another office is in Australia.

So, three out of the five regional offices of the company are in the APAC region. And there's give investors some kind of understanding about the importance of this region for the company.

Moving forward, I would say that in Asia, there's a lot of opportunities for the company. And also the company technology is I would say more essential for customer within this specific region, especially if they're coming for mainland China.

So, a lot of the activity or the technologies, it's very accessible for clients outside of China, are not accessible if you are in mainland China. And Adcore is in a way of a bridge for this type of clients, direct-to-consumer type of clients that look into advertising in the west and getting a market share in the west basically, and they can -- get help by the Adcore technology.

So, again, e-commerce number one, international growth, number two. In APAC and Asia, within APAC is leading the way.

I think like this early cause, it's very easy to get disrupted or -- by number. So, everything is about numbers.

Then everybody wants to see the numbers of the quarter, but actually I want to take this opportunity and talk about the bigger picture and about strategy and about where this company is going moving forward. Because currently Adcore is already CAD$100 million company, but we're not -- we don't have any plans to stop it.

And yes, we want to be a much bigger company. We want to build a billion dollar and even a billion dollar plus company.

And in order for the company to do so, the company need to invest more and the company need to do more innovative stuff as well. So, that's something that's going to be mandatory moving forward.

And when we talk innovation, we're not wanted to talk in technology. So, every day I ask my employees to be innovative in a sense, and come with new initiative.

So, for us, it's not only technology. Obviously, technology is -- a tech company is leading the way, but innovation is about everything that we do.

What market are we going to penetrate? What type of new line of business are we going to open?

And that's type of spirit -- basically that's what Adcore the company for a small company to CAD$100 million public company we are today, and that type of spirit going to build the company moving forward to a billion dollar company. This is exactly what we look into to get.

And I know that some investors might be a bit worried about profitability and the fact that the company -- let's say, if we compare it to quarter-over-quarter, wasn't as profitable. But for me, as the CEO, if you're going to build a billion dollar company, then investors should look and say shouldn't we open the Shanghai office in Q1, 2021?

Shouldn't the company double down on R&D investment in order to build the new generation of the Adcore technology. So, if you think that the answer is no, the company shouldn't invest this and basically be a much more profitable company.

Then, we don't see eye to eye because as far as we consider, the company, if any need to invest more and for us it's okay. Is the company with a strong balance sheet, basically to -- I wouldn't say no profitability, but not too profitability is the focus of our attention and focus more on moving and growing the company in basically length grabbing as well, obviously.

So that's going to be the spirit of Adcore moving forward. And if investors should criticize the company, it should criticize the company why we didn't take more bold moves, why it wasn't as innovative as it should be, and why didn't invest more in open new offices in new regions as well.

So, for us, there's going to be the foundation of the new CAD$1 billion Adcore. And this is what exactly we are trying to build and achieve.

Obviously as some of you know, we already released Base Shelf Prospectus as well. So, that’s going to be important part of the company future growth.

Obviously, this shelf prospectus is going to be good for -- the next two years. So not all the potential subject we put in this prospectus is going to be used in day one.

And I can assure investors that as the biggest, a larger shareholder, we're not going to over raise capital. So, if we're going to raise capital, it is going to be only because we can see -- we can benefit from this capital.

We are going and we use -- good use of proceeds for this capital. So, again, moving forward for Adcore, it's more about top line, more about growth, more about investing and the company should worry about profitability in the later stage, that’s the way we see it.

If investors -- when they look for more maybe profitable company, maybe they are more profitable company, but it’s like most of them who invest so expect Adcore to be more aggressive, building its market and this is exactly what we plan to do. Adcore today is a B small company, but we are very small B company in a sense.

So we have, in general, to grow, and this is exactly where we're going to take this ship moving forward. So, again, thank you Yatir for the presentation and thank you Barak and I think that's a good opportunity maybe to switch to the Q&A session of this earnings call.

Definitely. Thank you very much, Omri.

So, before diving into the questions, I just wanted to take the opportunity to thank everyone for sending in their great and varied questions ahead of time and during the call. We had some questions that were a bit repeated, so they've been consolidated into one.

And -- but still if someone feels their question -- and we'll try to address as many as possible, but if someone feels that their question wasn't addressed, please reach out to any of our IR contacts or investoradcore.com and we would be happy to address them separately. So, I'm going to go into the questions right now that we have all of them here.

Okay. So, Omri, what is the largest challenge Adcore is facing given its current triple digit revenue growth?

So, obviously, running a multinational tech company, come with a lot of challenges attached to it. So that's almost goes without saying.

Having said that I would think like number one challenge, if I need to pick one, would say like talent, making sure that we can raise the right talent, to basically onboard the right talent to the team. And doesn't matter if it's talent needs to be joined our team in Melbourne, our team in Canada, our team in Tel Aviv, or Shanghai China.

So, talent is always the challenge. Obviously as the people first company that Adcore, I would say is always need to make sure that basically we have the best people working for us.

That's for me would be probably the number one challenge. And so that's, I would say, number one.

And number two, obviously, in order to continue growing triple digit, then the company need to be more innovative and do new initiatives as well. So, it's not going to be -- if you're going to continue doing what we're doing today, that's going to be good, but not good enough in a sense to continue grow triple digits.

So, the company need to be more innovative and also start new initiatives as well. This I can expect to be the main driver for where the future growth of the company.

Okay. Thank you very much, Omri.

That question was from Lindsay Leads [ph]. So, thank you very much on that.

Another question from Peter. Are you able to provide gross margin guidance for direct customers during the next 12 months?

Will direct customer gross margins ever exceed 50%?

Okay. So, thank you Peter, for the question.

I would stay the following, A, the company, as of today, don't give guidance -- revenue guidance or gross margin guidance. But I can comment the following.

For the long run, the comfort zone of the gross margin of the company should be 50% or around 50%. And that should be a doable task for the company.

I would say it's my takedown with the level of direct client activity and e-commerce activity going on, but what investors should look at is the company is moving in the right direction. Its gross margins are improving and going in the right direction, I think that can be a very positive indicator for the investors that the company's sensitive for the gross margin.

And basically, it's building its way in order to be back at around 50% gross margin norm. So, this would be my first comment.

And my second comment would be that if we move along, a lot of clients now obviously come to the company and say, do it for me type of business. So, Adcore going to be the principal.

Adcore going to do the media buying for me. Adcore going to do everything for me, but this time, as the client get more comfortable with everything -- with the technology and everything, we can slowly switch them into good, safe business model.

And then obviously come with a much better gross margin as well. So, it's going to take time, but I think with the level activity of direct client and with the time it's going to be converting at least some of them to do it yourself type of business model, then I'm convinced that the company can go back to around 50% of the gross margin norm.

Thanks Omri. A question from Rob Goff from Echelon Partners.

Could you discuss your end client mix? Is it still 90% e-commerce?

Yeah. So, thank you Rob for your question.

As an ethic for e-commerce client, it wouldn't come to anyone as a surprise. It’s actually more than 90% of the company business as of today our e-commerce business.

And this is exactly where we want to be. This is exactly where we want to build the technology -- for what we build the technology for.

And we will continue building out the technology for. And the company is, I would say, not a typical generic ethic company, but more of an industry specific e-commerce related the company.

And this is good. Adcore in a very interesting space, actually.

Okay. And following up, another question from Rob Goff.

Could you provide an update on the regional agreement with the large ad network that ended as global agreement in Q4 2020 current usage versus peak?

Okay. So, Adcore was lucky to maintain a regional agreement with this ad network.

So, if I need to compare the earning for this specific agreement in Q1 2020, it was around US$1 million. So, it was a big chunk of the company gross profit and overall revenue.

As of today as thinking Q1 -- in Q1 2021, it's around $100,000. So, obviously, it's 10% than what it used to be and we stayed there.

The company proves that it can be very agile and composite more than -- I would say more than we lost already for this specific agreement. Not only that the company now is much better their past, is less customer concentration for the company.

There's obviously less risk to the company moving forward. And also the company core value offering actually was improved because the discontinuation of this agreement.

So, I'd say, all-in-all, it was good earning to the company, but I think for the long run, it was probably a good for the company actually.

Great. Another question from Lindsay Leads.

Can you give us any indication of how many of the customers in China we are converting from other platforms versus bringing them for the first time into the e-commerce space to target the markets of Western countries?

Okay. So, that's a great question actually.

I would say the following. Probably 100% of the Chinese customer already have some type of activity in the Amazon.

So, that's going to be the first go-to-market or the first Adcore to choice for a Chinese direct-to-consumer type of business. And then some of them it's going to start to work with Adcore at only Amazon.

So, in a sense, Adcore is the first gateway for them to start working on Facebook and Google and a similar platform. And some of them might have some kind of a past experience working on Google and Facebook, but probably it wasn't a significant or at least not in significant amounts.

I'd say all of them already, probably working on Amazon. Some of them did some activity on Google and Facebook, but for many of them, it's going to be the first time working with Adcore.

They're going to do Google and Facebook and similar ad networks.

Great. Thanks, Omri.

And another question, can you give us an update on the OTC listing process? What are we currently waiting on?

So, thank you for the question. So, the good news that last week, I think, we already got the approval for our application for FINRA.

So that's the first stage, but that's the most critical stage and this stage -- it usually take the longest time. So that's already been achieved.

And it seem like the next step now is basically finalized application and get the dual listing up and running. This can take anything in a normal times between three to six weeks.

Having said that, and the feedbacks that we are getting from the lawyers, and basically there's a backlog for application now. There's a lot of public company trying to get the dual listing on the OTC and that can take a bit longer than usual.

So, I would say that the good news, the first step is beyond us and then the other news, I would say it's might take a bit longer, but we're moving in the right direction. And that's the best I can say currently.

And another question from Rob Goff. Could you update us on the regional strengths and contributions of APAC within the direct revenues?

Okay. So, I would say for overall revenue in the direct -- obviously, a large portion of the overall revenue, the APAC region was around 85% of the total revenue.

So that's by far currently the largest region. And this is also the region that we have the most amount of offices operating.

So, we have the Shanghai office, we have the Hong Kong regional headquarter office, and we have the Melbourne, Australia office as well.

And another question that we got in this call, could you provide a breakdown of revenues via region?

Yeah. So, we already stated that the 85% of the revenue come in this quarter from the APAC region.

And I think the next big quarter was the EMEA, big -- sorry -- region was the EMEA region after that.

Perfect. And moving onto some finance related questions.

Are you planning on raising capital in the near term? What are you possibly planning on raising capital when you have -- why sorry -- why are you possibly planning on raising capital when you have a strong balance sheet and should be able to return to profitability soon as business scales?

So, again, if Adcore would want to build instead of $100 million company, $150 million company, or maybe $200 million company and then the right answer, maybe yes, you're right. We don't need to raise capital.

And that's still the case. Having said that the question should be if the company can benefit from raising capital.

And if the answer is yes, what the company's planning to do with capital. So, I think again, to build a $1 billion company the company needs to take bigger moves and bigger steps and raising additional capital is going to be one of them for potential M&As to supporting new initiatives that company is planning to take or already has taken.

So, if you're going to do it, we're going to do it because we think it's in the company's best interest to do it. And this is part of the company long-term to build a bigger company.

And again, I don't see profitability should be their main concern right now. As long as the company can grow and maintain a normal level of profitability, that should be good enough for us.

If any, investors should stop be worried if the company is not growing as fast anymore.

And another following and connection -- connecting question on that topic from Rob Goff. You recently filed a shelf offering.

Could you talk to your potential acquisitions, priorities, tech, sales clients, thoughts on availability and valuations of targets?

So, that's a broad question, but I would say the following. Obviously, when we look at potential M&As, there's one type of potential M&As can be an acquire type of M&As.

Or if the company, for example, want to invest more in R&D, so maybe we can acquire some kind of a tech companies that can help us scale the activity and basically achieve more. Maybe it's already part of the company working with, and we know it can contribute to us more if you're going to onboard them and want to make them a part of the team.

So that's one example. Another example of potential acquire type of deal can be if the company would like now to expand internationally and open a new office, and maybe instead of it organically, we can acquire a local operator one and just in this specific region and use it as the spirit for their regionally activity.

So that's another type of potential acquisition. And then obviously on top of that, whether there be more strategic acquisitions?

So, to add technology component to the inventory -- the technology inventories, we believe can add more value to our e-commerce clients. It can be a good example for a more strategic relationship and other more strategic relationships is maybe going into a more specific segment that the company believe can grow fast in the next coming year and basically maybe diversify for just e-commerce to other segments as well.

So that’s another type of potential M&A, but that's going to be the company direction. In terms of evaluation, obviously, if it's an acquire type of deal, then obviously evaluation should be quite reasonable.

If it's more strategic type of M&A, then probably we want to look in or willing to pay a bit evaluation as well, if needed.

Thank you. Okay.

We're running a bit short on time, so we'll try to put in some questions that were sent during the call. Can you provide some color on the increase in R&D expense?

Yeah, I think that -- so that's a fair question and that's basically go hand-in-hand with the company and new policy to invest more and be more innovative. And I think that's exactly what the company is doing in Q1 2021.

I think the biggest efforts for us in Q1 2021 was working on Adcore NG. So, it's an all new generation of the Adcore platform.

We're talking about three out of the four platform. So, it's going to be FEEDITOR, Adcore VIEWS, and SEMDOC as well.

And there's going to be part of a bigger investments that we're going to launch do this, which is the Adcore Marketing Cloud. So I think like investors should expect this to be a big announcement that the big move -- big let's say ups and move in terms of the company tech offering.

Thank you, Omri. What is driving customers to purchase ads through the Adcore platform versus elsewhere?

So, that's actually an excellent question, because it will help me better explain what is the Adcore value to our customer. So I would say the number one factor, probably going to be the fact that Adcore technology is built first and foremost on e-commerce or store.

So the fact that the technology is integrated to the platform, whether it's Shopify platform or other platforms as well, and basically with one or two few clicks can build Facebook campaigns. It can build a Google campaign from the technology and basically continue obviously to do more advanced business rule using that technology.

I would say that's the number one reason. So basically instead of going to a very generic, I would say ethic solution and say, maybe it's going to fit, or maybe it's not going to fit my e-commerce store, then with Adcore it's 100% fitted.

And basically that I would say one of the biggest advantage. I think another big advantage that Adcore has, is the fact that it's only -- not only single solution, but actually it's a family of solution.

So we have effortless marketing as interest an essential app I would say for any Shopify store. So there's going to be, let's say the ground with the best technology.

And obviously on top of that as the business grow, if we have more advanced business rules, basically it's going to add more ops. So it's going to be FEEDITOR, it’s going to be Adcore VIEWS, and it could be SEMDOC as well.

So I think that the fact that it's a family of solutions that fit any business size and any marketing need of the specific business. It's another key component.

Why costumer come to Adcore as I would say today, prefer solution for e-commerce marketing.

Great. And how price sensitive is this marketing technology sector.

If you raised prices by 10%, would you lose a lot of customers?

That's a good question. I would guesstimate that probably the answer is going to be no.

We're not going to expect to lose a lot of customers, but I don't think it's -- the company don't have any, let's say new templates to raise the pricing. I think it's just like unnecessarily.

So I think like the number one focus should be actually length grabbing. So to get more market share, to get more customer, then I think it's a better strategy than try to squeeze more value from each customer.

This is number one. And I think what we see as well that as the customer or the client scale, we can scale with them and pricing on a touch to some kind of ad spent activity anyway.

So, it says we don't need to raise price, price raise as the customer spend more and basically doing more stuff with the technology, for instance. It's better to focus on acquisition and any way as the customer scale, we scale with him.

So, I wouldn't be worried about that at all, to be honest.

Okay. Great.

And the last question for today. Could you please discuss the renewal process around the Israeli government advertising agency contract?

How should we see it across the year?

Okay. So, as I think most of the investors already know that massive standards that the Adcore actually won't -- around three years ago, and this is going into is false term currently, and it's need to be renewed every year.

So obviously the government agency can decide not to renew it. Obviously, the fact it's already been renewed for the false deal.

Now give some kind of indication about the values that sync Adcore can bring to them. And obviously what the company expect that in the second half of 2021, we're going to see a slow, but steady return of tourism activity.

And that also should take impact on this specific tender as well.

Okay. Well, thank you very much, Omri.

I think we are concluded with the Q&A portion of the call. So, we'd like to thank everyone again for waking up and joining this call and sending over all the great questions.

I'd like to thank Yatir for his great presentation of the financials. And Omri for talking about the company strategy and where we're going and want to wish everyone have a great day.

And thanks again.