Adcore Inc.

Thank you Barrack, and good morning everyone. Let me share my screen.

Okay. So again, good morning everyone, and thank you for joining us for today call.

Today's a special day for me personally for an Adcore, not every day we have a chance to present the company annual results and obviously Q4 result, which is the strong quarter for us. And I hope that people will like what we have to show today and me personally, I'm very happy with the result what we've been able to achieve throughout the year and obviously what we are able to achieve in Q4.

I want to share with the shareholders and investors my overview regarding the result, the way I see and obviously, the CFO, Yatir Sadot will go into more detail on the exact numbers as well. So let me start with the annual result in top-line, obviously, so revenue growing by 57% from a bit less than CAD23 million in 2020 to almost CAD36 million in 2021.

That's a major increase of 57%. Actually, that's the biggest increase the company achieved in its entire history.

So CAD70 million increase year-over-year and this is equal more or less to what the company did in 2018 or 2019 during the entire year. So what we did just the delta that we did this year was equal to what the company did two years ago.

To be exact, and equally important, all the metrics in 2021 move in the right direction. So, revenue grew by 57%, midline gross profit grew by 17%, and adjusted EBITDA grew by 17% as well.

So again, that's exactly the type of report that we would like to see and this exactly the type of resources we would like to see for 2021. We could have asked for a better year as far as the company concerned, and equally important, if you look at the working capital, we started the year with CAD$7.0 million in a working capital and ended the 2021, we certainly working in a working capital.

So again, large increase of 67%, CAD$5.2 million in a total number, and this show that the company in the end of 2021 is much stronger company as we entered 2021. If you look at the quarterly [ph] result, then what we can see that if we compare to Q4 2021 to Q4 2020, actually we had a decrease in revenue of 28%.

But the entire decrease was because we shift media-related budget and we shift clients from a do-it-for-me type of a business model to do-it-yourself type of business model, which is come with the better gross margin for us. So, basically revenue down to 28%, but cost of revenue down even more than 40%, and that's why when we look at the bottom line and the middle lines, we see actually improving the results.

It will vary then, gross profit actually grew by 5% to CAD$3.2 million in Q4 2021 compared to CAD$3 million in 2020. Gross margin, which was a major focus for us during the entire year, grew -- improve by almost 50% from 23% in Q4, 2020 to 33% in Q4 2021.

And we believe that we can continue to see this type of increasing moving forward as well. So, we did some shift in revenue, but again, middle line actually, move in the right direction, obviously.

And if you look at the bottom line, operational profit and adjusted EBITDA, massive increase year-over-year Q4 2021 was 76k -- CAD$76,000 -- sorry and if you compare it to what we did in Q4 2020, then we see an increase of more than 300%. So that's again major increase and that’s demonstrate that the quality parameter of the -- growth quality parameter actually move in the right direction during the quarter.

And when we talk about quality growth, these two factors that I want to keep the close -- I want investors to put a close eye on and let me start by the first one, which is indirect revenue stream. If you remember the company of two main revenue streams, indirect revenue stream which come historically with higher gross margin, and direct revenue streams which come with a lower gross margin.

And what we can clearly see that in Q4 2020, indirect revenue stream was a bit over 200k in revenue. The company quarter-after-quarter been able to increase this important revenue stream to above CAD$0.5 million in Q1 CAD$666,000 in Q2, more than CAD$1 million in Q3 and double up between Q3 to Q4 to CAD$2.2 million in Q4, that's a massive increase in revenue between Q4 to -- Q4 2020 to Q4 2021, almost 1,000% increase.

So this is a big number we're talking about, and this is a very important KPI for us when we see the growth. And if you look at revenue from North America that we identified as a strategic bucket for us as the marketed company would like to grow.

Then again, Q4 2020, less than 200,000 in revenue, and Q4 2021, almost 800,000 in revenues and debts against more than 300% growth year-over-year. And we see that every quarter there is a buildup of this important revenue stream.

So when we look either, it's not only the top line, middle line and their adjusted EBITDA of profit, we also can see how quarter-over-quarter during 2021, the company been able to improve the important KPI of quality growth, that's why we are so happy and pleased on today’s result what we've been able to show during the entirety of 2021, especially in Q4. But – let’s for – excellent for investor we understand obviously, operational results are super important but for us, 2021 was not only about operational results, which was as good as it get, but equally important it was about strategic initiatives that we took during 2021, if you want to go by the timelines and in March 2021, the company graduated in TSX from the TSXV.

We've been the first Israeli-based companies have been able to achieve that. We opened a new subsidiary in China, again in March 2021.

We commenced trading on the OTCQX in June 2021, which was a very much anticipated, while US investors, we did the fundraising of above CAD 4 million in June 2021 as well. We officially announced the launching of the Amphy ASIC platform in July 2021.

Launch the Adcore Marketing Cloud on September 2021 and opened a new subsidiary in the US in September 2021 as well. So that's a lot that we’re going on in 2021 and when I was moved back and we were creating the presentation, I was personally amazed how much we've been able to achieve during 2021.

And that's again, parallel to the – parallel to the operational resources, we've been able to show and for us this important strategic initiatives going to lay the foundation and set the right infrastructure for the future growth of the company many years to come. So again, very important initiatives that only got started.

We’ve able to been set in 2021 but going to make a large impact for the company for many years to come as well. So a few numbers regarding a Amphy annual and a quarterly growth numbers.

And if you can look at let's say, the year-over-year growth and Amphy actually just started in December – around December 2020 at a better stage. When we can see the classes number, we grew up more than 3,000% and adjusted growth delta was more than 1,300 new classes in EBITDA to Amphy during the past year.

Visitor, now they are growing more than 7,000% to by almost 200,000 visitors, sign ups grew by 8,000, total 8.13,000% [ph], transaction again 8,000% a gross, so these are big numbers we are talking about, but again, Amphy was just like, not even a baby in the beginning of 2021. And – but if you look at the Q4 2021 – there’s a mistake, it's Q4, 2021 compared to Q3 2021 than classes numbers grew by 53% and by delta was almost 500 classes just in the last quarter as it were added to the platform.

Visitors numbers grew by, 52% to 80,000 visitor total. Sign ups grew by 100% to almost 500 new Sign ups into the platform during last quarter.

And Transactions again grew by almost 50%. And this is quarter-over-quarter gross this is not year-over-year gross.

So we can clearly see that in the last quarter in Q4 for Amphy was equal to 50% for the entire year. And as [indiscernible] say like Amphy is definitely moving in the right direction.

Amphy is still in a states that [indiscernible] said to be pre-revenue almost pre-revenue or pre-marketing, but we are laying the foundation. And we can see like a good organic growth quarter-over-quarter and of course year-over-year as well over there.

And now [indiscernible] would like to say regarding the current stock price. And I know investors -- especially investors that bought stock pricing at higher prices and what it is he is reading today every lot of concern and other stuff like what's going on and what's the company plan regarding the stock prices few remarks regarding that.

Exactly one year ago in the end of February 2021, the stock price was CAD$2.7 in the market cap of the company was over 150%. And today, in the end of February 2022 stock price is almost CAD$0.50 and market cap is CAD$32 million, so obviously it's well done a lot.

I want to mention a few things regarding that. And since February 2021, we saw a very big decrease in all the market caps take up across the board.

And even from the beginning of let's say for the last six months even mid cap companies when done a lot. Companies are done much bigger than ever and bigger market cap.

OTCQX Trading on the Nasdaq which better liquidity obviously. Again, weeks for example, when by 75% over the last 12 months Shopify which is a brand name in Canada and maybe the Canada based Tech Company went down by 65%.

Fiverr, almost 70%, AcuityAds by more than 82%, Adcore by 69% and the Average drop in the past 12 months was around 72%. And this again, all these names a Buffet for it was much larger solely market cap in the biggest brand names and OTCQX trading on the Nasdaq.

So we can clearly see, it's not just an OTCQX thing unfortunately, we saw a very soft market overhauling deck and even we take a brand names Facebook, Netflix even Tech stock are now went down more than 50% in the last even quarter. So again, the market is obviously soft.

We see overselling across the board. And we believe actually that the current price is a buying opportunity.

And we don't see this as something that is negative against the company deployment for me. To emphasize, it's exactly one year ago the company was trading the stock was CAD$2.7 and the market cap was CAD$152.

We've been presenting half of the revenues that we are presented today. We've been maybe off of the talent team or the accounts that we are in today.

And basically that was like maybe the company grew a lot in the past year. So if we got this evaluation one year ago, I would say that, maybe Adcore should be traded at CAD$300 million market cap.

And this is where I truly believe we want to see -- we're going to see it again. So, again, this is deep in the stock price.

It's not an Adcore thing. It's in the overall marketing and the taxing, but the company's focusing and what's important for us is growing the market share, growing to numbers.

Obviously, we have a very strong balance sheet to support even a more than a downtrend like one or two year, if needed, and I think that Adcore is actually in a good position and it seems like now the market is oversold and maybe it's representing a better opportunity. This is my personal belief.

I wanted to share it throughout the deep and I will continue to do so, because I believe their share price is undervalued. And few remarks regarding 2022 road map and the company focus and plan for 2022.

So for us 2022 going to be in America and we are planning to open a physical office in US in the second part of 2022. We are considering a NASDAQ listing as well.

Obviously, the market now is soft, but that should be played hopefully by 2022, 2023. And so, that's one focus for the company, with more emphasis on North America.

We believe there’s a lot of opportunity for the company to continue growing in this important region. Another focus area going to be the quality of the growth, so we look into continue improving our gross margin.

Ideally for the long run, the company want to be at around 50% gross margin, which was the historical gross margin of the company pre-COVID And we believe that 2022, the goal should be to achieve at least 40% gross margin. Increase indirect revenue stream, which again, more quality and more scalable income with better margins; extend our tech offering, which again will contribute to all the rest of programs.

And M&As, we are putting more and more emphasis on M&A, whether it's going to be practical M&As to support geo expansion of talent recruiting or strategic M&A to expanding the offering of AMC and our fee as well. So basically there’s big plans for our Q4 2022 and I truly hope that we can achieve even more than what we've been able to achieve in 2021 in terms of strategic initiative as well and obviously, been able, from the other end, to continue show very strong results as well.

So that concluded my remarks. I obviously going to be there to give a bit more context regarding the results, regarding the way management see this current stock price, regarding what's the company plan moving forward as well.

But again, Adcore that was traded exactly one year ago at a 2.7 stock price, is actually today much stronger, much better company that it was there at 12 months ago and not like by small numbers, by almost double up the numbers that we did exactly one year ago. And that's my personal belief and again, I see the current stock price, if any, there’s a better opportunity.

So, thank you very much. Barak, back to you.

Thank you very much, Omri. I will now turn the call over to Yatir Sadot, Adcore CFO, to quickly review the fourth quarter and full year financials in more detail.

Yatir?

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 included in Canadian dollars. As you have seen in our results, 2021 was a very strong year, revenue of CAD$35.7 million, was up 57% compared to last year.

During the year, we benefited from the continued significant shift to ecommerce in the digital advertising ecosystem, which resulted in continued strength from our indirect revenue stream across North America and APAC regions. With our strong top line performance throughout 2021, we achieved adjusted EBITDA of CAD3.9 million compared to CAD3.3 million for the same period in 2020, an increase of 17%.

Now let's discuss Comprehensive Income. For the year ended December 31, 2021, we delivered record revenue of CAD35.7 million compared to CAD22.8 million in 2020 an increase of CAD12.9 million or 57%.

Gross profit increased 17% to CAD10.8 million in 2021 from CAD9.2 million in 2020. The increase in revenue and gross profit were mainly driven growth in our direct channel mainly with strong growth in APAC and North America.

Focusing on the fourth quarter of 2021. For the three months ended December 31, 2021 we delivered revenue of CAD9.7 million compared to CAD13.4 million in 2020 a decrease of CAD3.7 million or 28%.

Cost of revenue decreased by CAD3.9 million or 38% to CAD6.5 million compared to CAD10.4 million in the fourth quarter of 2020. Gross profit was CAD3.2 million compared to CAD3 million, an increase of CAD 200,000 or 7%.

Although the company experienced a decrease in revenue, we saw an increase in gross profit as we switch direct lines to the Do-It-Yourself model making them indirect clients. We started this trend during 2021 and its momentum increased especially during the fourth quarter.

With higher profit margins from a growing number of indirect clients compared to direct clients, we saw increases in both growth profit and operating profit compared to Q4, 2020. Moving to operational expenses.

Research and development expenses for the quarter was CAD700,000 or 7% of revenues compared to CAD400,000 or 3% of revenues in the prior year. The increase was mainly due to hiring more engineers in the three months ended December 31 2021 compared to the same period in 2020.

Sales and marketing expenses and general and administrative expenses for the quarter were CAD1.8 million or 18% of revenues compared to CAD2.4 million or 18% of revenues in 2020. The decrease was attributable mainly to the share based compensation.

Operating profit was CAD700,000 compared to CAD200,000 and in case of CAD500,000 or 356%. This increase was mainly driven by the client shifting from direct to indirect model as mentioned before.

Net profit for the quarter was CAD700,000 compared to a loss of CAD100,000 an increase of CAD800,000 or 800%. All right.

Now let's move on to the balance sheet. We exited Q4 with a strong cash and liquidity position.

Total working capital of CAD13 million compared to CAD7.8 million as of December 31, 2020, an increase of CAD5.2 million or 67%. Cash and cash equivalents of CAD14.1 million as of December 31, 2021 compared to CAD11.7 million at December 31, 2020.

The increase is mainly attributable to the capital raise the company completed in the second quarter of 2021 and the ongoing business. Looking at the liabilities side, significantly low debt, the company repaid its loan from government during the second quarter of 2021 and as of December 31st, 2021, the company doesn't hold any financial debt on the balance sheet.

Total assets of CAD22 million compared to CAD17 million in 2020, an increase of 29%. Now, the next slide, you can see the revenue breakdown by geo and the most significant revenue trend is the increase in indirect sales to CAD2.3 million in the three months ended December 31st, 2021 compared to CAD238,000 in the same period in 2020.

The growing number of indirect clients with higher profit margins compared to direct is what we refer to as equality growth, as Omri mentioned before. Now, I made a special slide and called it adjusted comprehensive income.

This is not adjusted EBITDA, but I wanted to give you a look how the comprehensive income of the MarTech activity only is reflected. So, excluding MT's loss and excluding the fundraising, MT's loss -- total loss in 2021 was CAD1.2 million.

the fundraising related expenses were CAD1 million. Excluding those items and looking only on the MarTech activity, operating profit was CAD3.3 million compared to CAD1.7 million in 2020, an increase of CAD1.6 million or 95%.

Net profit for the MarTech activity alone in 2021 was CAD1.8 million compared to CAD800,000 in 2020. As you can see, MarTech activity grew rapidly both in volume and profitability in 2021 compared to 2020.

Now, let's move on to the adjusted EBITDA. Our quarterly non-GAAP results reflect adjustment for the following items.

Depreciation and amortization totaled CAD248,000, Share-based payment totaled CAD158,000. For the three months ended December 31st, 2021, adjusted EBITDA was CAD1.1 million compared to CAD996,000 for the same period in 2020, an increase of 17%.

Excluding Amphy of the MarTech activity, adjusted EBITDA was CAD1.8 million compared to CAD996,000 for the same period in 2020, an increase of 80% as you can see. Now with that, I will turn the call back to Barak.

Thank you, Yatir. With that, we will turn the call over to questions that were a pre-sent and also some that were sent over during this call.

We'll try to get to all of them. So, Omri, how should we think about your gross margins going forward?

So, I mentioned it before in my opening remarks again, historically, the gross margin numbers for the company was around 50%. The change during COVID because the shift of big increase in direct revenue streams comes with lower gross margin and the company plan to move back to this numbers.

Again, I'll be happy, if you're going to lend it around 40% or maybe even higher in 2022.

Give your growth in North America, does that impact your thinking around timing of potential NASDAQ listing, something you have addressed during the call, but still?

It's a good question. Actually, obviously, it's setting a better foundation for us to do a move and gradual to do NASDAQ Listing.

Having said that, obviously the markets are extremely soft right now. And we will need to wait for better momentum in the market or better market position because before we're going to make such a move.

Having said that, the fact that the company is growing strong in North America setting the right foundation for this type of move later down the road.

A few questions about Amphy. What were Amphy's revenue in this quarter?

Yeah. So Yatir will be able to answer this question in more accurate, but I would say, non-GAAP revenue was around 50,000, maybe a bit less and GAAP revenue, it's 19% of that, so it's around 10,000, maybe a bit less.

But again, Yatir will be able to answer this question better than I.

Omri, your numbers of correct.

Thank you so much.

Another Amphy related question. You invested in Amphy, where do you plan to invest in Amphy in 2022?

So the company up until now been able to maintain reasonable costs while investing in Amphy, we can clearly see it in a 2021 numbers. So with the investments that we did in Amphy, the company is still being able to show very positive report, strong middle line, strong bottom line as well and we are planning to keep Amphy cost and investment in the same lines that we're in around Q4, which is around 650,000 quarterly.

That's going to be more or less now for budget moving forward. Obviously, that's the current plan.

So it's still under control and very well managed.

You have previously expressed that the company would increase its focus on M&A. Is this still the case?

Yes. More than ever, I would say.

So we think it's a good timing for the company to do some interesting M&A. Obviously, the company now actively looking on more than one opportunity and we have plenty to look for with these Amphy related M&A, what we can do with this ethical direct related M&A, what we can do with this more tactical M&A is potentially would like to do that I would say M&A is something that now is definitely one of the company's biggest focus area.

Question. This one's from Daniel.

I would like you to please give some color regarding the management fee to CEO and controlling shareholder in Note 18 of the SEDAR filed financial statements?

Okay. So few remarks, obviously everything is noted in Note 18.

I would state the following a, during COVID in the beginning of COVID in 2019, me personally as a CEO was given away two months of salary and then after this, we cut salary by 10% that remains to be the case today. So base salary both myself and the CEO obviously remain even lower than where we used to be in 2018 before COVID.

So that's one remarks that investor would need to take into consideration. And I think another things that regarding note 18 of this year is at least 100k that belongs to 2020, but was reflected in 2021 reported number.

So actually, if you look at 2021 compared to 2020, the overall compensation decreased than and not increase. If you look exactly on the real metrics and I would say overall the composition didn't go anywhere.

It stayed the same flat 2019, 2020, 2021. Maybe I should ask for a raise, what do you think?

You're well connected. Maybe I don't know.

Yeah. I mean, this was a strong result.

Another question. This is from the Q&A portion.

Omri, could you please provide an update on any discussions about analyst coverage for your Q3 update?

So that's actually a very important question. I would say the following; A, towards the end of 2021, Canaccord did around corner report on Adcore.

This was a very positive report that Canaccord has done and usually around the corner report by Canaccord that's a preparation for a full analyst coverage by Canaccord. And we hope that after the release of few phone numbers, we can see like a full coverage starting from Canaccord analyst.

So that's one remark. And I think obviously now because the stock went down a lot, then analysts are a bit more hesitated, they will receive the Q4 numbers, which is totally very strong quarter for us in the Sigma now as the results are out there, I'm a bit more optimistic of the company starting to get corporate analyst coverage both by Canaccord potentially by [indiscernible] as well and maybe by other independent analysts as well.

And another question from Daniel from the Q&A. Looking forward to the company providing guidance for Q1 2022 and for the full year?

Okay. So historically, the company didn't give a guidance.

Obviously, this is still a very volatile market. But during COVID or post COVID and the company don't give revenue guidance.

We do however, give some context regarding for example, gross margin, where we would like them to be for the company focus. And I think that can give investors more or less, let's say reassurance where the company is aiming and where this boat is sailing to.

Thank you, Omri. A question for the QA about Amphy from Nancy Goertzen [ph].

What is the market differentiator for Amphy compared to Thinkific?

Yes. Unfortunately, I don't know Thinkific too good.

So that's maybe something that the Amphy GM would need to answer. Having said that, I would say Amphy, it's all about live learning and live streaming.

So that's very much different from, let's say, big company like Udemy and other companies even like MasterClass that basically are about asking chronic content, pre-recorded classes that basically you can watch. And Amphy, it's all about live and that's a big differentiator for Amphy.

They tell us in live learning, things wasn't that even there two years ago. So that's a new and a blue ocean that Amphy is now tapping into.

And I'm going to ask you a question, Omri, that's kind of a consolidation of a few questions, something that we've been getting feedback also from sent-in -- from pre-sent questions and also from other QA here. Given the current low valuation and multiples for Adcore shares, are there any plans this year for a share buyback or repurchase program?

So, obviously, the short answer is yes, that's something that we can definitely are -- we are definitely considering and that's part of, let's say, the overall consideration of capital allocation of the company. Obviously, the more the share price is going to continue to go down, the bigger the incentive going to be for the company to announce a buyback plan.

So we’ll have enough money. We have the wheel and the ability to do it.

We should believe that's the right capital usage of the company that's something that we definitely do. In the end of the day, we've been in the company for the long run.

So if you believe, for example, M&A going to do better usage with the company capital then we're going to now say, M&A for example. But it can be combination of the -- of both the company more than CAD40 million in cash and that's something that we are definitely considering.

If companies committed to bring strong reserve, but also to support their stock price. I'm the largest shareholder in the company.

And like anyone else everybody's concern, I would like to see the share price much higher than what it is right now.

Okay. So I think with that, we'll conclude the Q&A portion.

And finish up with this call. So I'd like to thank you everyone for joining us on this call.

Thank you, Omri. Thank you, Yatir.

And have a great day everyone.

Thanks.