Zoomd Technologies Ltd

XTSX:ZOMD

Earnings Call Transcript

[Ben Shamsian]

Thank you for joining us today for Zoomd's Fourth Quarter and Year-End 2023 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 the 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 you can find 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 as a substitute for IFRS financial measures.

Finally, today's event is being recorded and will be available for replay through the webcast information provided on 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 fourth quarter and fiscal year 2023 results. Today, I'm going to provide an overview of our achievements for the fourth quarter and full year 2023, but more importantly, I would like to share with you the growth opportunities ahead of us. From a big picture standpoint, 2023 was a challenging year due to many macroeconomic headwinds.

From a segment standpoint, one of the company's top segments in 2021 and 2022 was the cryptocurrency segment. That key area experienced a large decline. In response to these challenges, the company's management team undertook, in the end of the first half of 2023 fiscal year, a series of strategic actions aimed at mitigating the impact of the company's financial health and positioning the company for sustainable growth, including the following actions:

The strategic decision to cease operations in certain business lines and refocus company's efforts and own technology on core user acquisition activities. This decision was informed by the maturation and underperformance of several of company's product development efforts as well as shifts in niche markets, where company's search engine solution for publisher operated.

Implementation of substantial cost reduction measures across various areas of the company aiming to streamline operation and improve efficiency. Initiatives 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.

The financial results of these strategic decisions that have been taken on the second half of 2023 are multifaceted, the refocusing of our business, combined with the broader macroeconomics contraction led to a decrease in revenue of approximately 16% comparing the first half of 2023 fiscal year to the second half. However, when excluding revenues from cryptocurrency clients and operations being nonprofitable, the company saw an approximate 3% increase in revenues compared to 2022.

Moreover, comparing the first half of 2023 to the second half, these strategic decisions enabled the company to reduce operating costs by 32%, contributed to 110% growth in terms of adjusted EBITDA and the company achieved a crucial financial milestone by transitioning the cash burning from operational activities of $0.7 million in the first half of 2023 fiscal year to cash generating from operational activities of $0.5 million in the second half reflecting an improvement of $1.1 million from the first to the second half of the year.

Following these points, this morning, I would like to discuss 3 important areas for Zoomd. These areas are our customers, the development of our product and service offerings and midyear improvements to address market trends.

I want to begin in our customer base. We are now 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 risen in comparison to the corresponding period last year, excluding both cryptocurrency clients and nonprofitable operations clients that have been discontinued.

Now I want to move to our product and service offerings. Our competitive advantage remains our 360 point of view for digital performance, all focused on achieving the goals of our customers. We offer various 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. Our main platform is integrated to hundreds of media sourcing -- media sources, allowing us to promote customers' digital assets in multiple channels under one system, combining all data points into one point of view.

Following the acquisition of Albert AI back in March 2022, we offer full funnel social and search media AI campaign management, leveraging AI to the execution level of budget management, budget allocation and KPIs achievements. We use DSP for programmatic media buying. The DSP is integrated to the biggest 30 mobile media exchanges, which give our customers full range and reach for the mobile web and our performance needs. We saved advertiser resources and maximized their advertising budgets.

There is no dependency on specific media supplier or traffic channel. This not only saves valuable time and resources for our -- for the 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 a crucial layer within the ecosystem, the company stands strongly in the industry beyond the walled gardens of Google and Meta, et cetera, the marketing landscape is very fragmented. Zoomd enable advertisers to leverage a wide range of various types of media channels from social programmatic, OEMs, SDK network 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 extended our services to encompass also standard web and mobile web traffic as well.

Finally, I want to speak on the midyear improvements to address market trends. During the end of the second quarter under Mr. Almany's leadership, the company decided to take actions aimed at improving financial performance and cash flow throughout its operations.

The company announced its plans to implement cost-saving measures consisting primarily of discontinuance of nonprofitable operations, the near-term termination of approximately 40% of its workforce and certain other reductions in ongoing expenses. We already began to see the fruit of our actions in the second half of 2023 fiscal year with massive improvement in the second half of 2023 results. The strategic refocusing and restructuring has not only improved the company's financial standing, but also facilitated better internal alignment of teams and goals. Management is encouraged by early signs of improvement in the sales funnel for the company's offerings.

In conclusion, despite of the headwinds faced in the past year, the decisive actions taken by the management have laid solid foundation for Zoomd's future growth and stability. The company remains committed to adapting its strategies in response to evolving market conditions and opportunities with steadfast focus on delivering value to the company's stakeholders.

Financial results. Now I will review the fourth quarter financial results in detail.

Revenue. Revenues for the year were $32 million and $7.5 million for the fourth quarter, reflecting a 39% and 30% decline, respectively, comparing to the same period in 2022. The decrease in revenues is primarily a result of global macroeconomic conditions that impact client advertising budgets in general and especially cryptocurrency. In addition, the company's decision to discontinue unprofitable operations in the second quarter of 2023 fiscal year also contributed to the decrease in revenues.

Gross margin. Cost of sales for the year were $20 million and $4.9 million for the fourth quarter, reflecting a 45% and 27% decline respectively, comparing the same period in 2022. The decrease in cost of sales in annual terms was higher than the reduction in revenues. This is attributed to the restructuring and the company's successful enhancement of gross profit margin, which increased by 6% for the year.

R&D and SG&A. The midyear improvement decision that has been taken by the company to address market trends already showing results as total operational expenses before other expenses decreased despite the cost of discontinuance of nonprofitable operations. These expenses were decreased by 29% and 56% for the year and 3 months ended December 31, 2023, respectively, compared to the year and 3 months ended December 31, 2022.

Adjusted EBITDA. Adjusted EBITDA is used as a primary performance measure by the company's management to ensure it has the right structure to support future growth. We define adjusted EBITDA as earnings before interest, tax depreciation, onetime payments and amortization, as adjusted for share-based payments, nonrecurring operation expenses and impairment of intangible assets.

Adjusted EBITDA for the year is $1.7 million and $0.6 million for the fourth quarter, reflecting a 55% decline of the year and 242% increase comparing to Q4 '22. The increase in the quarterly terms is primarily attributable to the company's strategic decision to align its focus and resources towards profitable activities and solutions that fit the recent marketing dynamics. On the one hand, revenues decreased, but on the other hand, the profitability increased significantly. Our reconciliation of adjusted EBITDA is available in our MD&A filing.

Cash. We have $2.6 million in cash on the balance sheet as of December 31, 2023. We believe that the company's recurring revenues in addition to the existing cash and cash equivalents and the fact that the company achieved a crucial financial milestone by transforming from cash burning from operational activities of negative $700,000 in the first half 2023 fiscal year to cash generating from operational activities of $400,000 in the second half, reflecting an improvement of $1.5 million from the first to the second half of the year, will be significant to meet our working capital requirements and future growth plans.

Overview. Now for those who may be unfamiliar with the Zoomd story, I would like to provide an overview of our business. Zoomd has developed and acquired a proprietary patented technology and targets, the needs of various segments of a digital marketing industry. Zoomd 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 its customers. The company's services and technology stack development road map focuses on creating technology solutions that seamlessly integrate with a range of digital major sources.

Through this integration, the company aims to consolidate these sources, allowing its customers 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 activity evaluates the inclusion of novel distribution media channels into its platform. This adaptive approach ensures that the company remains responsive to the evolving needs of the customers contributing to its reputation as 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 their media buying effectiveness, cost -- and cost measurement and maximizing their user acquisition and retention costs, enabling customers to manage their user acquisition campaign, budget on multiple digital channels, screens and platforms, including social networks, ad networks, exchanges, content discovery platforms, influencers, connected TV, CTV, all using data-driven KPI-based technology.

Offering extra tools and features as part of its offering in an attempt to simplify campaign management tasks. Such extra tools and features include creative studio editing capabilities for quick adjustments, extra layers of user data from app stores and unique optimization 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 on 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 with a macroeconomic environment.

Before I move to the questions, I want to thank to all our employees for their hard work and dedication as well to 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, given the notable impact of cryptocurrency market on your revenues during '21 and '22, how is Zoomd currently positioned within the crypto sector? And do you feel the market is more stable now?

[Amit Bohensky, executive]

The years 2021 and 2022 marked significant periods of activity for us in the cryptocurrency sector. During the second half of 2023, we observed the resurgence in the crypto market. As we look ahead, our engagement in the cryptocurrency market continues, all right? with the landscape profoundly transformed by the comprehensive regulation implemented over the course of 2023.

We believe that the introduction of formal cryptocurrency ETFs to the U.S. stock market has enhanced investor confidence, contributing to a perception of increased security of cryptocurrency investments. Currently, the market exhibits greater stability influenced by these regulatory and structural changes.

[Ben Shamsian]

Okay. The third and fourth quarter's financial reports exhibited numerous disparities when compared to the first and second quarter's results. What, in your opinion, represents the primary change that most primarily reflects the midyear improvements to address market trends that took place last year -- the last quarters?

[Amit Bohensky, executive]

Identifying a single indicator proves challenging. There are numerous metrics that exhibit significant shifts when compared to the corresponding quarter. For instance, operating costs were reduced by 32% comparing the first to the second half of 2023 fiscal year, which contributed to a positive operating income for the first time in 5 consecutive quarters.

The profitability increased significantly from first to the second half of 2023 fiscal year, resulting $4.1 million decrease in net loss from $4.4 million in the first half of the year to an almost bottom line in the second half. The company achieved a crucial financial milestone in the mentioned periods by transitioning from cash burning from operational activities in the first half to cash generating mode in the second half of the year.

[Ben Shamsian]

Okay. Following strategic alignments implemented last year across the company's focus areas, personnel and business units, would you elaborate on distinct value propositions your company offers in the current marketplace?

[Amit Bohensky, executive]

The company possesses a comprehensive suite of performance-based marketing solutions designed to facilitate corporate growth for an international expansion, particularly for mid to large-scale enterprise seeking to increase global user engagement without a necessity of establishing a full-scale marketing department.

Our financial reports indicate that nearly half of our revenue originates from Asian-based clients, yet only approximately 1/3 of media expenditure targets Asia. These clients promote predominantly leverage our services to broaden their market presence into Western regions, specifically North America and the European Union.

[Ben Shamsian]

Okay. Well, those are all the questions we have today. My thanks to everyone for participating in today's call. We look forward to hopefully speaking with you all shortly again. Thanks, everybody.