Adcore Inc.

Good morning, everyone and welcome to our Adcore's Investor Update Conference Call. All callers are in a listen-only mode.

On the call this morning, the company CFO, 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 2021 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 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 of the date hereof. Forward-looking statements involve significant risk, uncertainties and assumptions.

Many factors could cause the 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 would now like to turn the call over to Omri Brill, Adcore's CEO, to update you on the operations and strategy of the business.

Thank you so much, Barak, and welcome everyone to the Q2 earning 2021 conference call. And basically, I would like to start with a short brief about the today call.

So, we had an extraordinary quarter basically for the company, and this is the third quarter in a row that Adcore is able to present triple-digit year-over-year growth. Revenue in Q2 grew by 250% to a record of CAD7 million.

Gross margin in Q2 grew to 46%, and improved from 23% in Q1 2021, and adjusted EBITDA in Q2 grew by almost 190% to CAD1.50. So, basically, in this quarter, all metrics move in the right direction, and whether it was top line, middle-line, or bottom-line, all metrics looks very good this quarter.

And again, third quarter in a row that Adcore is able to present triple-digit year-over-year growth. And if you want to look under the hood and understand better where this growth is coming from, then I would count in few factors.

A, the level of ecommerce activity that we see has continued to be very strong across all regions. So, basically, post-COVID or due to COVID we saw a massive increase in ecommerce activity across the globe, massive digital transformation and search for marketing solutions that are geared for ecommerce such as Adcore have to offer.

So, I would say that's a number one factor. Secondary factor, obviously, is onboarding of new clients.

Some of the names that some of you already know are MySale, a very large Australian ecommerce group, basically a public company that's listed in U.K. actually but they are based in Australia in terms of operation.

And [indiscernible] 365, which is a massive public company from Israel, also a big ecommerce brand in Israel. And this is just two names, but we had much more new brands coming to the Adcore family in Q2.

Also, the company saw tremendous growth across all regions, North America, Australia, Asia, particularly in China and Hong Kong. And basically, doesn't matter where we look, you see strong growth coming from any region.

And direct channels, again, leading the way, and basically more growth coming from this very important revenue stream of the company. Another very exciting innovations in the company announced in Q2 was Amphy.

Amphy is the world's most diverse 24/7 live online learning marketplace. It's a complete new initiative the company started in 2020, and it was publicly announced by the company in Q2, 2021.

We see or believe in [edtech] [Ph], which is a tremendous market and represented tremendous opportunity for the company moving forward. As we grow, Amphy is going to become a significant revenue stream -- we believe Amphy is to come to be a significant revenue stream for the company, but it's still in, let's say, the learning phase, and there is still a lot of construction going on regarding to Amphy.

But it's now publicly announced, and it's already a success. Amphy is seven months old, but we already grew it to a massive marketplace, with more than 200 active teachers, 800 live classes across [several] [Ph] different categories from fitness to wellbeing, art-related, music-related, basically game, chess, you name it we have it on Amphy.

And basically, we already [outpaced] [Ph] our original expectation in terms of how big this marketplace can grow to be; and we're just getting started with Amphy. So, to summary this quarter result, basically I would say the following.

A, the company, although it was a very strong quarter, a record quarter Q2 for the company, we still focus on the long-term. And we see a massive opportunity to grow this company over the next year to become a billion-dollar company.

And we're just, let's say, starting this path. So, Adcore didn't go public or went public to be a $100 million company, we have much higher expectation from the company.

And I think all the different moves that we're doing are moves in the right direction, and we see massive opportunity for the company to continue growing. And as we have a strong balance sheet and a very good, let's say, balance sheet to support it, now we can be even more aggressive and supporting this growth even better.

So, as far as I'm concerned, I couldn't be more happier with, obviously, this quarter result [indiscernible] Yatir, the company CFO, can walk you in more details regarding the numbers. But let's say high-level, midlevel, and low-level, it's almost as best as it can get for the company.

Yatir?

Thank you, Omri, and good morning, everyone. Before beginning, I would like to share my screen with you.

Okay, let me know when you see my screen, Omri. So, again, thank you, Omri, and good morning, everyone.

Before beginning the financial overview, I would like to remind that the following discussion will include GAAP financial measures as well as non-GAAP results. All amounts will be presented in Canadian dollars.

And as usual, I would start with a brief review of Adcore's balance sheet, as of June 30. So, our balance sheet remains strong.

Total working capital of CAD13.1 million, compared to CAD7.8 million at December 31, 2020, an increase of CAD5.3 million or 68%. We started the year with CAD11.7 million of cash and cash equivalents, and as of June 30, 2021, we have CAD13.9 million.

The increase is mainly attributable to the capital raise the company completed in the second quarter, and the ongoing business. Significant low debt, this is another highlight that I want to present today.

The company repaid its loan during the second quarter. And as of June 30, the company doesn't hold any financial debt on the balance sheet.

Total assets of CAD19.4 million compared to CAD17 million in 2020, an increase of 14%. Next, I will discuss the profitability.

For the first three months of 2021, we delivered a record second quarter revenue of CAD7 million compared to CAD2 million in the same period of 2020, an increase of CAD5 million or 250%, that was incredible quarter. And this was mainly driven by growth, direct channel, particularly strong growth in APAC region, but not only.

Second quarter gross margin saw a significant increase sequentially to 46% from a gross margin of 23% in the first quarter of 2021. Moving to OpEx, research and development expenses for the quarter were CAD340,000 or 5% of revenues compared to CAD232,000 or 15% of revenues in the prior year, an increase of 47%, which focused on further innovating our technological solutions.

Sales and marketing expenses and general administrative expenses for the quarter were CAD2.6 million or 38% of revenues compared to CAD920,000 or 58% of revenues in 2020. The increase was driven mainly by the expenses related to the capital raise; the listing on the TSX and the commencement of trading on the OTCQX in the U.S.

Our operating profit of the quarter was CAD254,000 compared to CAD201,000 in the prior year. During the quarter, we reported a net loss of CAD1.3 million compared to profit of CAD152,000.

The loss was mainly attributed to finance expenses from reevaluation and translation differences. Now I'd like to discuss about the segments.

that was the first time we presented a segment disclosure on the financials. so during the second quarter, the company started to report and measure Amphy as a separate line of business.

Amphy I'm not sure if everyone is aware, but is a marketplace of live classes connecting and reaching humanity through knowledge. Amphy's revenues in the second quarter amounted to CAD5,000 compared to zero on previous year.

Amphy's total expenses in the second quarter were CAD455,000 and after excluding Amphy's expenses, the operating profit was CAD708,000 in the three months ended June 30 2021. Next I'll discuss our adjusted EBITDA.

Our quarterly non-GAAP results reflect adjustments for the following items. Depreciation and amortization totaled CAD211,000.

Share based payment totaled CAD267,000, offering listing and global expansion expenses totaled CAD780,000 and other non-recurring items amounted to a CAD32,000. Total adjustment were CAD1.3 million compared to CAD270 million in 2020.

Adjusted EBITDA was CAD1.5 million compared to CAD534,000 for the quarter ended June 30. With that, I will turn the call over to Barak and Omri.

Thank you, everyone.

Thank you, Yatir. With that, we will turn the call over to questions.

First question, why did you raise money, and why CAD4 million?

Well, there was few reason why we thought we should raise money. And I would say the main reason was to support the Amphy project.

The company have high expectation from this project, and we want to make sure that we have the right budget for it, and we can support it, let's say, moving forward at least six to 12 months as a separate project of the company. And that, I would say, was the number one reason.

Obviously, there is still like other reason, like potential M&A, and support the global expansion of the company, that I would say are the secondary reasons. And the CAD4 million we raised because that's how much exactly we needed.

We didn't want to over-dilute our investors -- existing investors, and thought this is the right amount, and this is what we're going to raise. Obviously, if we're going to need more money we would raise it in the future, but that's not in the table currently.

Thank you, Omri. Moving on to the next question, do you plan to become a filing U.S.

company and list in the U.S.?

So, I said it before that we have high expectation for Adcore. We plan to become a billion-dollar company.

And obviously as a billion-dollar company I would say U.S. listing is in order.

I wouldn't say it's something that's going to take place in 2021, but I say, potentially, in 2022 and beyond, that's something that the company will be looking into.

Next question, from [Paul Emberty] [Ph], please discuss your competitive advantage with Amphy, and why this venture is superior to investing in and growing your core business?

Okay, so it's good question. I would say the following, a, with COVID a new market was born, and it's a massive market.

We estimate to be [CAD500 billion] [Ph] market for live online learning. I mean it was [indiscernible] up until COVID was [indiscernible].

If you want to go online it was prerecorded in YouTube, maybe MasterClass, Skillshare, these types of businesses, and nobody did live. If you did live views to go to your yoga studio, to your private [kid] [Ph] teacher, that was live, but in COVID.

And then COVID taught everybody that whatever we did offline we could easily do it online, maybe even more easy, and a new market was born. So, one of the company's -- Amphy's biggest advantage is that we are the first movers.

We're currently the most diverse marketplace for live online learning, so that I would say one advantage, and a massive advantage that we have. Obviously, Adcore, as the parent company, have a lot of marketing experience maybe.

So, we are well equipped in order to promote this business and grow is as we are the marketing expert and we have the right technology. And, obviously, as a technology company we have the know-how and the understanding how to build a successful web business.

So, I would say that three factors together create a very powerful offering for Amphy. And why Amphy, why we think Amphy is a superior business model?

We don't believe that Amphy is a superior business model; we believe Amphy is a great business model, maybe one of the best out there. But for us it's not a zero-sum game, it's not either we do edtech with a name with Adcore B2B or we do Amphy, we can do both.

And this is exactly what we are doing with Amphy.

Next question, why did you breakout Amphy is your financials when it is still a small part of your overall business?

Good question. I would say, and maybe Yatir, you want to touch it, (a) we'd like to do it because it's a different -- it's a different type of revenue stream and the company need to report it.

I think revenue are relatively small, but we have some investment going into Amphy already. So we believe that, a, we need to do it, and b, I think it's going to give the investor a better overview about the two business [tax] [Ph] and what to expect.

And I think like moving forward, investors should look at these businesses as two separate businesses, obviously, under one reporting roof of Adcore Inc.

Okay, so connecting to that what you just said, what are Amphy's potential margins like?

So, currently, the platform take is 19%, so we take 19% from each transactions that happen on each class that happen on the platform. Having said that, if you look to our peer marketplaces, marketplaces like [Fiverr's] [Ph] and other, then we know that the platform take averages can be anywhere between 25% to 30%.

So, we believe that as Amphy grow, we can grow the value we can bring to the [Fiverr], obviously the platform take or the margin can improve as well to around 25% to 30% even.

Okay. Well, moving on to some questions of participants before we run out of time.

Do you see a continuing trend in adding new customers? How good is the retention rate of current customers?

[Indiscernible] asked this question.

Okay. So, obviously client acquisition, it was always going to be on the company focus in order to grow, and this is exactly what the company is oriented to do a focus doing.

We need to onboard new clients. So, it's -- you know, growing extensive growth, but acquiring the new client, this is something that we continue doing it, and we're doing it very successful now across the globe, in all regions, EMEA, Australia, China, North America as well.

So, that's something that is on the company focus.

And another question from [indiscernible], will the gross profit margin stay above 30% going forward?

So, it's a good question. We originally said it a few times before that the companies aimed to be at around 50% gross margin.

And we also estimated it may take few quarters for us to reach this point, because we saw a massive increase in direct channel activities, and company's relatively lower gross margin. So, originally, we anticipate to be in the 50% range, let's say, somewhere in the beginning, maybe of 2022, middle 2022, but this quarter even caught up in surprise, the numbers look even better than we expected.

So, we believe moving forward, we could see some fluctuation, but we are moving in the right direction, and again, the long-term goal for the company should be around 50% gross margin.

Okay. So, next question from David [Colver] [Ph], why did margins increase?

So, I would say, there is few reason for that, (a) we saw relatively increase in the indirect activity as well, so that's gone with better margin as well. But I think it's mainly for the company being able to switch some of the do-it-yourself clients to -- sorry, do-it-for-me clients to do-it-yourself clients, which come with better emerging.

So, in a sense, we babysit the client, put them on the path to success and basically let them stop managing or use the technology themselves, and basically we can improve our gross margin by doing that. And this is exactly what we plan to do as we're moving forward with some of these clients that we believe we can do it with them.

Two questions from [Lindsay Leads] [Ph], it is nice to see substantial revenue from North America in Q2. Is it primarily one customer?

No, it's not just one customer. We have at least I would say three or four significant customers in North America, but I think moving forward in 2021, North America is going to become even a more important and strategic market for us.

The company has big plans for North America as we move forward, but for now we are happy with results. We're happy to see growth in this region as well, but we're not even scrapping the surface over there.

There is much more business for us to be made in this specific region.

And another question from Lindsay, should we expect revenues to increase in Q3?

I wish to know that as well. I mean, up to -- jokes aside up until now the 2021 was nothing but amazing.

We have a record Q1 earning result, record Q2 earnings result and we have no reason to believe that the rest of the quarters going to slowdown, bear in mind that -- as we progress with [indiscernible] the quarter seasonality is in our favor. So, we have a tailwind now in Q3, and for sure in Q4, and basically again, 2021 [indiscernible] was the best year for the company ever and we don't see any reason to believe that the Q3 and Q4 going to look different.

Our last question, there is so much competition for Amphy, some of it free, how do you differentiate?

So, again, there is a big gap or big difference between synchronic and non-synchronic learning. So, non-synchronic is everything that is pre-recorded.

You can go to YouTube for example, and watch a yoga -- yoga video, for example, but you are not going to become a yoga master student from watching the YouTube video. And it's not big in the sense.

So yes, you can have a really quarter materials for free event. And this is something that Amphy is playing to do as well.

But if you're talking about life, if you're talking about life teacher and talking about the life learning magic, then this is not something you can do for free. And this is something that basically I'm feeling getting to introduce it very good.

So, this is competition, but it's not the same type of business exactly that Amphy is offering.

Thank you, Omri. It looks like those are all the questions at this point, right at the end of the time we have.

So, I will hand it over to you for some concluding comments.

Okay. So, thanks everyone for joining us today.

This is such an early time in the morning. Thank you both Barak and Yatir.

For me, as the CEO of Adcore, it's always nice to speak with our investors, but it's always nice to report good results, and I put it last quarter for a better result in Q2 2021, and as I stated before the entire year look amazing. We've seen no reason to slowdown, and actually the company is accelerating.

We have very exciting initiatives, such an Amphy. We're going to release the new initiative, the only new version of Adcore hopefully this quarter as well Q3 2021.

So, investors should expect more big news coming the race. And again, the sky is blue for Adcore and we see a massive opportunity for us to continue growing in a much faster rate than what we used to see before.

Thank you, Omri, and thank you everyone for coming out. And have a great day.

Bye everyone.

Bye everyone.