Zoomd Technologies Ltd

XTSX:ZOMD

Earnings Call Transcript

[Ben Shamsian]

Thank you for joining us today for Zoomd's Second Quarter 2024 Update Conference Call. With us on the call representing the company today is Amit Bohensky, Zoomd's Founder and Chairman. At the conclusion of today's prepared remarks, Amit will answer some questions that were sent to us by investors and other questions we think are relevant to investors as well.

Before we begin with prepared remarks, just a couple of comments. Today's call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected, and the company undertakes no obligation to update these statements, except as required by law.

Information about these risks and uncertainties are included in the company's filings as well as periodic filings with regulators in Canada and the United States, which can be found on SEDAR and Zoomd's website. Today's discussion will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures.

Finally, today's event is being recorded and will be available for replay through the webcast information provided in the press release.

With that said, let me now turn the call over to Amit Bohensky, Founder and Chairman of Zoomd. Amit, please proceed.

[Amit Bohensky, executive]

Thank you, Ben, and good morning to all of you. We are excited to speak with you today regarding our second quarter 2024 results. Today, I am going to provide an overview of our achievements for the second quarter 2024, where I would like to share with you the strong performance we demonstrated.

From a big picture standpoint, as discussed in our last conference call, in the course of the last few years, the company is encountering a challenging economic environment, primarily driven by significant macroeconomic changes.

These changes had a profound impact on the global business landscape, particularly within the advertising sector, which is the company's primary domain of operation. In response to these challenges, our management team undertook a series of strategic actions aimed to mitigating the impact on the company's financial health and positioning Zoomd for sustainable growth.

To begin with, we made the strategic decision to seize operations in certain business lines and refocused company's efforts and technology on core user acquisition activities. This decision was informed by the maturation and underperformance of several company's product development efforts as well as shifts in niche markets where company's search engine solution for publishers operated.

We implemented substantial cost-reduction measures across various areas of the company, aiming to streamline operations and improve efficiency. We made strong effort to diversify the company's customer portfolio, both in terms of operational segments and geographic reach to build a more resilient and robust business model.

Today, I can inform you that the financial outcomes of these strategic decisions have led to significant improvements in our financial results. Although we discontinued several operations that are no longer aligned with our vision. We succeeded in increasing revenues by 58% in Q2 '24 compared to Q2 '23. Since the implementation of these strategic changes, revenues have grown exponentially each quarter compared to the previous quarter, a 6% increase in Q4 '23, a 16% in Q1 '24 and 60% increase in Q2 '24.

Furthermore, despite this exponential increase in revenues, we managed to reduce operations, operating costs by 21% from $3.7 million in Q2 '23 to $2.9 million in Q2 '24. The increase in revenues combined with the decrease in operating costs has led to a consistent improvement in the company's financial results. In Q3, '23, operating loss was reduced by approximately 90% compared to the previous quarter.

In Q4 '23, we transitioned from an operating loss to an operating profit. In Q1 '24, the operating profit continued to increase and in Q2 '24, the operating profit increased by approximately 300% compared to the previous quarter, totaling a $2.5 million. These measures have contributed to a $2.6 million growth in terms of adjusted EBITDA from $0.4 million in Q2 '23 to $3 million in Q2 '24. Additionally, the company achieved a net profit of $2.2 million in Q2 '24, reflecting the fifth consecutive quarter of net profit growth.

In terms of cash flow from operating activities, the company transitioned from net cash used in operating activities in Q2 '23 to net cash generated from operating activities in Q2 '24, totaling $2.3 million. This strategic refocus has not only improved the company's financial standing but also facilitated better internal alignment of teams and goals. Management is encouraged by the improvement in the sales funnel for the company's offering. The decisive actions taken by the management has laid a solid foundation for Zoomd's future growth and stability.

The company remains committed to adopting its strategies in response to evolving market conditions and opportunities with a steadfast focus on delivering value to the company's stakeholders. Following these points this morning, I would like to discuss 3 important areas for Zoomd. These are our customers, the development of our product and service offering and lastly improvements to address market trends. I want to begin with our customer base. We are focusing on growth sectors, such as e-commerce, iGaming, transportation and customer product goods sectors known for their stable growth patterns and elevated profit margins. We have deepened our activity with current customers as well as expanding to new customers.

Consequently, our revenues have experienced substantial growth. I would like now to focus on our product and service offerings. Our competitive advantage lies in our comprehensive 360-degree approach to digital performance, all focused on achieving the goals of our customers. We provide a diverse array of products and services, all focused on digital and mainly mobile performance. We have the ability to provide our customers a holistic range of products and services for achieving their digital performance KPIs.

To that end, the company uses a combination of research, development and acquisitions to improve its offerings. Our main platform is integrated to hundreds of media sources, allowing us to promote customers' digital assets in multiple channels under the one system. Combining all data points to one point of view. We use a DSP for programmatic media buying. The DSP is integrated to approximately the biggest 30 mobile media exchanges, which give our customers full range and reach for their mobile web and our performance needs.

We saved the advertiser resources and maximize their advertising budget and efficiency. There is no dependency on any specific media supplier or traffic channel. This not only saves valuable time and resources for advertisers, but also provides enhanced clarity and consolidated insights. Additionally, our platform and products are designed for user-friendly operations, eliminating the need for a Software Development Kit, SDK implementation.

In our perspective, positioned as crucial layer, the ecosystem, the company stands strongly in the industry. Beyond the walled gardens as Google and Meta and et cetera, the marketing landscape is very fragmented. Zoomd enables advertisers to leverage a wide range and various types of media channels from social to programmatics, OEMs, SDK networks and more. Their KPIs are achieved on all channels together or as a mix.

From our inception, our user acquisition services were exclusively tailored for apps. We have since extended our services to include also traditional web and mobile web traffic as well. Finally, I want to discuss the results of Zoomd's management actions that occurred over the past year. Zoomd Q2 '24 financials include significant improvements across many financial indicators. The strategic refocusing has not only improved the company's financial standing, but also facilitated a better internal alignment of the teams and goals.

In conclusion, despite the headwinds faced in the past years, the decisive actions taken by management have already shown consistent improvements in recent quarters, laying a solid foundation for future growth and stability. The company remains committed to adapting its strategies in response to evolving market conditions and opportunities with a steadfast focus on delivering value to the company's stakeholders.

Financial results. Now I will review the second quarter financial results in detail. Revenue. Revenues for the quarter were $14 million, reflecting a 58% increase comparing the same period in 2023. Although the company discontinued several operations start, no longer aligned with the company's vision. The company succeeded to increasing revenues in Q2 '24 compared to Q2 '23 during the recent quarters. We have observed that revenues have increased from one quarter to the next.

Gross margins. Cost of sales for the second quarter were $8.6 million, reflecting a 53% increase comparing the same period in 2023. This increase is lower than the increase in revenues, which resulted in over 2% increase in the gross profit rate from 36% in Q2 '23 to 38% in Q2 '24.

Operating costs. Our refocusing efforts are continuing to show results. As total operating costs decreased in Q2 '24 by $0.8 million compared to Q2 '23, reflecting 21% decrease. Operating cost as a percentage of revenues decreased to 21%, reflecting 50% decrease compared to Q2 '23.

Adjusted EBITDA. Adjusted EBITDA is used as a primary performance measure by the company's measurement to ensure it has the right structure to support future growth. We define adjusted EBITDA as earnings before interest, tax, depreciation, onetime payment and amortization as adjusted for share-based payments, nonrecurring operating expenses and impairment of intangible assets. Adjusted EBITDA in Q2 '24 was $3 million compared to an adjusted EBITDA of $0.4 million in Q2 '23. The successful implementation of the restructuring together with the revenues growth caused this 700% improvement in terms of adjusted EBITDA. A full reconciliation of adjusted EBITDA is available in our MD&A filing.

Cash. We have $4.4 million in cash on the balance sheet as of June 30, 2024. Q2 '24 was the fourth consecutive quarter of generated cash from operating activities. We believe that Zoomd's recurring revenues in addition to its existing cash equivalents and cash flow from operations activity will be sufficient to meet the company's working capital requirements and future growth plans.

Overview. Now for those of you who may be unfamiliar with the Zoomd's story, I would like to provide an overview of our business. Zoomd has developed and acquired proprietary patented technology and targets the needs of various segments of the digital marketing industry. Zoomed offers its services globally through its agents and other business partners all over the globe. As such, the company operates in collaboration with hundreds of publishers and global advertisers. The company aims to consistently provide significant added value to each customers. The company's services and technology stack development road map focuses on creating technology solutions that seamlessly integrate with a range of digital media sources. Through this integration, the company aims to consolidate these sources, allowing its customer to achieve optimal value for their investments. The primary focus of this effort is directed towards enhancing user acquisition and retention strategies, tailoring them to the unique requirements of each media source on any screen or platform.

Furthermore, the company maintains an ongoing commitment to staying attuned to the market dynamics and the changing demands of its customers. The company actively evaluate the inclusion of novel distribution media channels into its platform. This adaptive approach ensures that the company remains responsive to the evolving needs of its customers, contributing to its reputation, a forward-thinking and customer-centric company.

The company is focusing its efforts which are based on long-term trends, within the online advertising industry, in line with its basic strategies of providing customers with digital, mobile-focused advertising technologies, products and services for improving the media buying effectiveness, cost and measurement and maximizing their user acquisition and retention costs. Enabling customers to manage their user acquisition, campaign budgets on multiple digital channels, screens and platforms, including social networks, ad networks, exchanges, content discovery platform, influencers, connected TV, CTV, all using data-driven KPI-based technology, providing extra tools and features as part of its offering in its attempt to simplify campaign management tasks.

Such extra tools and features include creative studio editing capabilities for quick ad adjustments extra layers of data from app stores and unique optimizations abilities for saving time and resources on campaign management tasks.

Now for some concluding remarks. We remain optimistic about Zoomd's long-term growth prospects. Our focus in the short term will be to continue with the healthy bottom-line growth and improving cash flow, all while managing our balance sheet properly. We view this strategy as an important way to build shareholder value and whether the macroeconomics environment.

Before I move to the questions, I want to thank all our employees for their hard work and dedication as well as our investors who have supported us.

With that said, I will answer some of our investor questions and some questions that may be of interest to our investors. Ben?

[Ben Shamsian]

Thank you, Amit. We have some questions for you. First, what are the main drivers for the bottom-line improvement? Is it more a result of your cost reductions or the revenue growth that you're seeing?

[Amit Bohensky, executive]

The actions taken by the management were not driven by short-term cost-saving considerations, but rather by focus -- by a focus on building a foundation that would streamline processes and support future growth. For example, the operating profit in Q2 '24 increased by $3 million compared to the corresponding quarter to cost reductions accounted for about 25% of that profit improvement, while the remaining was driven by growth and enhanced profitability.

[Ben Shamsian]

Okay. How do you perceive the current trends in the ad tech market? And what are the possible implications for Zoomd?

[Amit Bohensky, executive]

We see two major trends that we don't believe will weaken. The first is mobile usage, as we know and feel a vast majority of consumer attention and usage is done through mobile these years. And the other trend is that advertisers are ever more focused on ensuring their ad spend translates into measurable results. So we believe mobile where we specialize is a growing destination for consumers enhanced destination for advertisers. And advertisers will have to continue investing in performance -- driven advertising where results are measurable, pushing them to constantly explore and adopt new advertising channels that can help them meet their performance objectives efficiency. The combination of the two trends is our productivity, mobile user acquisition primarily outside of the Google and Meta walled gardens.

[Ben Shamsian]

Okay. That's helpful. Given the existing cash balance and the current global economic conditions, how do you plan to manage Zoomd's working capital and support future growth?

[Amit Bohensky, executive]

Our revenue growth combined with a decrease in operating costs led to consistent improvement in our cash balance. Q2 '24 was the fourth consecutive quarter of generating cash flow from operating activities. In Q2 '24 alone, we generated $2.3 million from operating activities, contributing a cash balance of $4.4 million at the end of the quarter. Management believes that these sufficient to meet the working capital requirements and future growth plans.

[Ben Shamsian]

Okay. Those are all the questions we have today. Many thanks to everyone for participating on today's call. We look forward to hopefully speaking with everyone again shortly. Thank you, everyone.

[Amit Bohensky, executive]

Thank you.