Adcore (TSX:ADCO) Q2 2026 Earnings Call

0:00 All right. Good morning once again, thank you for joining us. Great to see this turn up. Earlier this morning, Adcore released its Q2 twenty twenty six financial results. And today we will be walking you through these results and providing you an update on the ongoing company initiatives. First of all, you might see some familiar faces on the call today. I'm Martijn, Chief Partnership Officer here at ADCORE. Joining me today is Omri Braille, ADCORE's CEO and Founder, and also Amit Conforti, Adcore's CFO, and also Kobi Arbev will be here to present some great insights on our AI studio. For the agenda today, before we begin, we will go over some forward looking statements you should be aware of while listening to this call, followed by the CEO opening remarks, and the latest innovations on our AI studio done by Kobi, and then the CFO financial highlights.

1:00 Finally, we will conclude with a Q and A session. If you have any questions throughout the call, please use the submit a question feature here in Zoom and we'll get to those at the end of the call. Before we begin, I will give everyone a moment to review these statements. Please bear in mind when listening to the call today that the management team may use forward looking statements, which are inherently uncertain in nature. Alright, and with that, I would like to pass the floor to Omri for the CEO's opening remarks. Omriel, the floor is yours. Thank you very much, Martin, and good morning, everyone.

1:48 It's my pleasure to discuss the company financial results for Q2 twenty twenty six. I'm gonna give, let's say, the high level of the results, obviously covering some of the stuffs that we've been doing, innovation and working during the last quarter. Obviously, we have some nice presentation to show you on the back of my remarks, and our CFO Amit Komforti will dive into the numbers in more details after that. So

2:16 let's let's start with it. K. Just the code.

2:40 Yeah. Under view and then full screen, you will be able to start the full screen in the here in the bottom. Yeah. So Yeah. Thank you, Martin. Okay. So all in all, q two was a very strong quarter for us. Top line revenue grew by 10%. Gross profit even doubled up. It's grow by almost 20%. So we see a really positive trend. And when we look at the numbers, also comparable numbers, you will see that this is wasn't the usual quarter for us. So if you look at top line revenue, it's amended to 7,200,000 in q two twenty twenty six compared to 6.5 in the previous year. Again, 10% year on year growth.

3:32 And gross profit, 3,700,000 in q two twenty twenty six compared to 3.1 in the previous year. You can see that the gross profit was almost as strong as q four twenty twenty five. And that's q four, it's, let's say, a robust quarter for us. So basically, in q two, we've been able to achieve almost a strong number as q four, and that's tell you a lot about how unique in that regard this quarter was really was. And if you look at, let's say, quality metrics, what the company considers quality metrics, we can still see that, again, gross profit's 3.7, almost 20% year on year growth. Cash position still solid of 4,000,000 during this quarter. Again, you see see see some seasonality.

4:19 Right? In q four, the company usually acquire more cash, and then the cash position is going down as the quarter move along. But again, that's something that is part of, I would say, the normal course of business for the company. And so to discuss number, eye level, again, 7,200,000 top line revenue, 10% increase. Gross profit's 3.7, almost 20% year on year increase. Email revenue grew by 12%, which is solid. And North America saw really nice rebound. Two grew to 1,500,000,000, almost 30% year on year increase, and that's on the back of, I would say, soft years that we saw in 2025 for this region. So basically, this is exactly what we anticipated.

5:07 We say that we would expect to see some stabilization starting in the beginning of the year, and now a nice rebound move in this last quarter. So that's important for us. If you look at age one, so so again, very strong start of of the entire year. Total revenue almost 16,000,000, 16% year on year growth. That's impressive. Gross profit grew to almost 7,000,000. Again, 10% year on year growing in in, I would say, on year. APAC, 23% year on year growth. That's MAFIB, EMEA, 8% year on year growth. And North America, again, after a softness that we saw in the beginning of, let's say, the year in 2025, 6%. So back in positive trends, so all regions actually are growing in H1 twenty twenty six, and that's exactly how we would like to see it moving forward.

6:05 And now I would like to discuss a bit more technology and innovation. In the last earning call, we already discussed that we built and shipped the first AI agent for, purposely, the inbound agent. And basically, you can think of the inbound agent as a receptionist. So that's the guys that are answering the phones that are coming to the companies, that are doing the emails, can sit on the WhatsApp, on the Facebook Messenger, all different channels. And basically, one agent that can do the work of one person, of 10 receptionists, or even a team of 100 receptionists. So that's all done by this agent, but it don't stop in just answering question and give information. It can literally send proposal. You can send payment request, ticket, you know, sell tickets. So this agent can do everything.

6:55 They can do an online. Can start a conversation, send a proposal, and make sure this proposal is signed. And it doesn't matter which channel we're talking about. It can be done by email, it can be done by the phone, it can send you an SMS link with proposal, everything. So that was the first agent was already built and shipped in Q1 twenty twenty six. And then we have we said that we committed to build another two agent during q two twenty twenty six. But guess what? What we believe, we built for. So we build and ship the outreach agent, which is basically like an SDR. This agent can go over or walk over, let's say, old lead, cold lead, and basically makes them warm again and see if there's like a sell opportunity to this database, for example.

7:42 Deal agent taking into, like, he started to play when the proposal already sent. This is like a salesperson. He do the follow-up. He make sure that everything is clear about the proposal. Maybe he offers some kind of discount, but may basically, this agent is responsible for the the get for the deal to get closed. And customer agent taking his responsibility to start when the offer already closed. Basically, make sure that the client is happy, satisfied, gives him update. He can do a collection if need. It can do upsell and cross sell. So everything that is more or less, I would say, post sell type of activity. Again, between the inbound, outreach, deal, and customer agent, you have your entire sales team. And that's not like a slogan. That's what is already up and running and reality on the ground, and we are super happy about it. Actually, the fifth agent is AI Studio Agent, which Kobi gonna cover it in a bit more detail. So I think in proposing, in six months time, we did the complete platform where, I would say, flip over the the platform from a from a workspace document type of platform to agent first, agent first platform, which works best. And basically document are now tools in the agent's toolbox.

9:00 So basically, it's a complete, I would say, upside down for the platform used to be. So it's not like agents are serving the documents now. The agent, basically the document serving the agents. And that's a complete, I would say, a complete evolution of where the platform is today. And that's a big promising moving forward. And we can discuss it a bit more detail if needed during the q and a session as well. And now the next thing is AI Studio. AI Studio already up, running, and generating some early revenues. We have really good traction and good sign for good market fit about this product. Colby will give you a quick demo about the latest and greatest, What we've been able to build and ship during the last quarter in AI studio as well. So I think like stay tuned for Kobe presentation.

9:55 And I think like this cover, I would say, the highlights of the technologies that we've been we built built on working on during the last quarter. And last but not least is comparable. Current share price is 15¢ Canadian dollar. You see a very big up upside, you know, if you look in EV to gross profit compared to comparable, almost 900%. Let's put the target price at around 1.3 Canadian dollar. It's a big gap from where we are today. And ideally, we would like to see the gap is starting to close. So basically, the company have high expectation from the future where this company is going to, this high level of innovation maybe like never before in the history of company. And we are very optimistic of the level of maturity that our product achieve already. And I think it's gonna be an interesting

10:50 time for us, making sure that basically this app are already generating revenue and we can take them to the next level. For with that, I conclude my remarks, and I will add the floor, I guess, now to Kobi. Thank you, Omri. Hi, everybody. I'm Kobi, and I'm leading the go to market of the AI studio app. Basically, charge of generating revenue out of the platform. Now I know in our last earning calls, have seen the app already. You got excited of seeing how cool it is. So it actually became even cooler in the last month. We actually added some really, really cool and really smart features that we can see from our client that are already using it, how excited it is and how it's going to save a lot of time and a lot of resource for our partners.

11:42 So I'm going to show you today, I'm going to focus on how we generated a special flow that allows users to create any kind of creative format from a single static banner. It could be a banner that you created on our platform. It could be a banner that you created by yourself, but in a single static banner, you will be able to generate all the way to motion banners, moving on to a UGC, user generated content, like influencers and TikTok videos, and all the way to a TV production, CTV production commercial, only in a single click. Sounds a bit like magic, but it is, it's already here, it's already working on our platform. Let me share my screen to show you the full on example. So actually I started putting in a brief, a very simple one line brief saying, generate me static burner for a sploop of promotion sale, 30% off on Sunny Sunny, it's cosmetic sunscreen brand, giving a bit of glow, attracting women.

12:43 The platform generated four different design concepts. By the way, that itself, if someone knows a bit about how advertising studios work, takes about five, six hours work, that took me less than a minute to generate. So they generated those four different creative static. Let's say I'm in love with this one. This one is my favorite. So I'm just clicking here and with that single click I can create a motion banner, a UGC, user generated content video, or a full on commercial. Let's see how it actually looks like. So I'm clicking the motion banner. Let's see the end result. I'm getting this. Kubi, maybe you need to share again with Sam. I'm sorry. One second.

13:32 Yeah. Let's

13:38 wait. Let's try it again. Sorry about this. So interesting fact about motion banners. Actually, we know from research and our own experience that motion banner are able to double the conversion rate of a campaign, reduce dramatically the cost per conversion and generate just much better result. Again, there's no need to produce, there's no need for an AI motion designer to generate those things. Clicking a button, anyone can do that really. I'm not a designer and I've done it myself. So take this motion banner, I want to even challenge it even more. I want now to go live on TikTok for example, with influencers talking about this amazing product. I click user generated content and I get this amazing thing. What it actually did, it took the person, the girl from the banner, generated her as an avatar and was able to generate a UGC, a full influencer video in a click of a button. I always forgot to reapply sunscreen, honestly.

14:51 Now this sunny SPF 50 stick lives in my tote. Twist, swipe over makeup every two hours. I always We're talking here about a video that usually cost a few thousands of dollars to produce, takes days, and finding the creators and everything. And come on, for me, it's magic. I don't know what about you guys. Moving on, I wanna challenge it even more. I wanna go live now on a CTV campaign, YouTube campaign with a commercial, full on commercial addressing general audience. That is possible as well in a single click. Bag, palms, sunlight, swipe it on in seconds. SPF 50, glow still going. Looks amazing. I don't know.

15:37 Now let's put it this way. Using the platform, it's super, super easy, but this month it became even easier for our users to use it. We added our AI agent, which is embedded within the Adcore AI Studio app. You can just ask whatever you want, generate a banner, generate a commercial, generate a picture, whatever you want you can use the AI agent to do it for you without saying too much, just say what you want to be in the banner and the AI take it from there. You know what? You're even more lazy than we think. You don't have any strengths. You don't even want to leave your own AI agent, the AI program that you are using. I'm using Cloud, some people using ChatGPT, and you want to use our platform through that AI platform.

16:24 Simple it is with our new MCP connector, you can just go in, connect it to ChatGPT, connect it to Cloud, whatever AI you're working on saying, create a banner with Adcore App Studio,

16:37 just add the brand name, what is the discount, and it's automatically generating, in a click of a button you get a full set of banners and of course from that again you can create a UTC, a commercial and so on. So obviously bottom line, we've dramatically improved the platform, continue working, there's a lot of things, sorry I'm going to stop the share, There's a lot of things coming in this month and already in development, but as you can see, every single day this app is improving. There are already active paying clients for the app and a lot of people are just on the step of joining in. So more to come, stay tuned. Thank you. Thanks so much, Kobi. It's amazing to see how much it developed since the last time we met at the Q1 twenty twenty six earnings call. So it's amazing progress, and love to learn more in the next update.

17:31 With that, we'd like to pass it on to Amit Conforti, CFO of the company for some CFO highlights and financial highlights. Thank you. Dan, one second. Okay. So 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. The second quarter of twenty twenty six showed continued momentum with revenue growing 10% year over year and gross margins improving to 51%.

18:16 This is in line with the overall first half performance, which also reflects higher revenue and gross profitability. Let's review in more detail. For the three months ended 06/30/2026, we delivered revenue of $7,200,000 compared to $6,500,000 in the same period of 2025, an increase of $700,000 or 10%. Gross profit for the three months ended 06/30/2026, was $3,700,000 compared to $3,100,000 in the prior year, an increase of 600,000 or 19%. Gross margins for the three months ended 06/30/2026 were 51% compared to 47% in the same period last year.

19:06 The increase in margin is due to the increase in revenue and the change in client mix. As for operational expenses, R and D expenses for the quarter were $600,000 compared to $500,000 in the prior year. The slight increase in expenses was primarily driven by increased use of AI related tools. SG and A expenses for the quarter were $3,700,000 compared to $3,000,000 in the prior year, an increase of $700,000 or 22%. The increase was mainly driven by payroll related expenses and was partially impacted by foreign exchange rate fluctuations. Operating loss for the three months ended 06/30/2026 was $600,000 compared to $500,000 in the same period last year.

19:56 Net loss for the three months ended 06/30/2026 was 800,000 compared to $400,000 in the same period last year, an increase of $400,000 Revenues and gross profits. As shown on the left side of the slide, Q2 revenue grew 10% year over year to $7,200,000 with gross profit increasing 19% and gross margin improving from 47% to 51%. This is driven again by changes in client mix. Looking at the first half results in the middle, we observe a similar trend with revenue growing 16% to $15,700,000 and gross profit increasing 10% to 6,800,000 This is consistent with the full year trend on the right, which highlights ongoing annual growth in both revenue and profitability.

20:58 As for the geographical revenue breakdown for q two twenty twenty six, APAC revenue continued to grow year over year. EMEA revenue grew 12% year over year, primarily due to new client acquisition and expanded activity from existing clients. North America revenue rebounded after a slower prior year, delivering a 27% year over year increase.

21:27 In terms of financial position, we had cash and cash equivalents of $4,000,000 as of 06/30/2026, compared to 10,300,000 at 12/31/2025. Total working capital amounted to $3,100,000 compared to $5,100,000 at 12/31/2025.

21:49 As for the liability side of the financial position, we can see that the company is still debt free. Adjusted EBITDA The quarterly non GAAP results reflect adjustments for the following items: depreciation and amortization, share based payment and other unusual and non recurring items. For the three months ended 06/30/2026, adjusted EBITDA was $41,000 compared to 155,000 for the same period in 2025. The decrease in adjusted EBITDA was mainly driven by the increase in operating loss. With that, I will turn the call back to Martin.

22:36 Thank you so much, Amit. With that, we arrive at the Q and A portion of this call. We got a couple of questions in. The first one I direct to you, Omri, it's about the gross margin expansion. The question is gross margin expanded nicely to 51% from 47% year over year, with gross profit growing almost twice as fast as revenue. Could you walk us through what's driving that mix shift and how much more room you see keep expanding the margin? It's a good question. Would say, A, first of all, I would say it's go end in end, right? If you see top line revenue growing, gross margin improving, so one can expect gross profit will follow, and actually it follow quite nicely, almost double the growth that the rate that we saw for top line revenue.

23:24 So I think that the company, like we have different revenue streams and we're focusing on the revenue streams that are more profitable for the company coming with better margins. And I think this type of strategy strategy is proving itself. So you see like in

23:39 NICE, I would say improving the company gross margin, and we could we expect to see this trend carry on onward. I would say with some exception, obviously q four can have this lower gross margin traditionally because of the spike in cost of revenues that related to holiday related spending. So I say, the trend, as a trend I would say, is definitely looking more positive, and we expect gross margin to remain solid. Thank you, Omri. Following question is regarding North America. It's encouraging to see North America bounce back with 27% growth after a softer 2025. What's behind that turnaround? And do you feel good about that momentum carrying into the second half of this year?

24:26 So I think maybe Amit can shed a bit more light, but I think most of the growth that we saw in North America is coming from actually existing client activity. So in improving this activity, I would say. That's something that is very encouraging for us to see, let's say, the momentum is shifting. These clients are now growing again, growing the spend, and basically there's always a positive sign. I think this is one thing. Also bear in mind that moving towards and seeing

24:57 like H2, we still have better numbers to present. Because the comparable should be working in our favor, soft in 2020, 2025. I think, yeah, we are more positive regarding North America, and we expected to see this type of behavior. We expected to see it stabilize, and then to see it going back into, I would say, growing trends. And I'm happy that we've been able to achieve it in Q2, and we are hoping to preserve this type of momentum carry into the second part of the year as well. Great, thank you, Omri. The next question is about our AI development and development in general. You committed to three autonomous agents by Q2 and actually delivered five, which is a nice execution story.

25:42 What kind of early customer feedback or usage signals are you seeing from proposed lease agents and also the creative agent on the AI studio?

25:51 Okay. So first of all, if we miss, we might as well miss, you know, like a over deliver than under deliver, I guess. But I would say, like, if we're talking about Portly, obviously, have four different agent now running live. Inbound agent, outreach agent, deal agent, and customer agent. And we see like a good, I would say, market fit from early beta clients. So they are excited about what these agent capabilities are, what type of issues they can solve for their organization. And I think in general, we see, okay, there's definitely a place for the solution like ADCO is building in the market. And actually, it's quite a unique solution in the market because maybe every party more or less can can, I would say, build an AI agent nowadays. But let's say AI agent that is integrated to the different workspace and platform and document, and can generate revenue from a to z just from visitor. That's quite a unique sales stories that only Adcore possess. And I think that's

26:53 put us in a very different, I would say, position from other vendors in the market today. So AI like proposal, I'm definitely happy from the early reactions that we are getting. And maybe Kobi can elaborate a bit more about the reaction that you see from from early user of AI studio with regards to the agent. Of course. As far as the AI platform in general, we have a lot we have already started the go to market. We have some few we actually have a few, quite a few working partners already. The feedback, of course, it's about saving time, saving resources. And I just finished the call actually with one of our partners who are using the connector to Claude actually with our agent. And she's saying that it's never been easier for her to generate creative. She doesn't need to count on our agency anymore to send her deliverables. They don't need designers. They don't need to pay extra. And what they're actually paying is less than a day work of a designer than they're getting a full stack of creative that can take a full month to work on.

27:59 Obviously no complaints, only really just compliments on how good the platform is right now.

28:05 So that's the best type of stories, right? Client success story that are happy with it using the agent. Think like like like that's exactly why we are working so hard, building this type of solution for the client to give us this type of feedback. So that's amazing. Thank you for sharing, Kobi. Thank you. Amazing. Thank you, guys. The next question is probably more for Amit, as it's a financial question. The question is, you mentioned the cash flow and working capital decline is largely seasonal and should reverse in H2. Could you please give us a bit more color on the expected timeline for that recovery? Yeah, definitely. So basically, historically, Q4 is like the strongest quarter of the year for the company. So we do expect to see a recovery.

28:54 And the decrease that we see now in h one is partially payments for q four of last year.

29:03 So it's something pretty usual in the company. All right, thanks for elaborating on that. The next question either for Yomit or Omri, it's about the efficiency plan rollout. Omri mentioned there's plans for 15 to 20% OpEx reduction plan. Question is, could you share more on the expected timeline, if there's any one time implementation costs, and which areas of spend will primarily be targeted? So I think the biggest, I would say, line item of expense for the company is obviously employee cost, right? So this would be the first place that we need to tackle. I think we saw some headwind with regard, and Amit mentioned it, the currency exchange fluctuations, and basically didn't work in our favor during H1 twenty twenty six, and that's something we need to take we need to take actions. So I think we are planning some employee cutoff for reduce the numbers of employees.

30:06 That's one. Looking at other lines of expenses the company having, whether it's AI token and other things that basically consuming a large budget for the company is spending right now. And I think all in all, in terms of timelines, we wanna do the majority of, let's say,

30:26 cut effort or saving effort during Q3 twenty twenty six. So basically, we might have some carry ons, but the idea is to enter Q4 twenty twenty six as far leaner and slimmer company, with, I would say, ideally, SG and A cost drop by 20%. That's the goal for the company. Great. Thank you, Henri. I think we have room for one or two more questions. The next question is about balancing growth and profitability. Henri, you mentioned to keep adjusted EBITDA positive while simultaneously investing in a fairly ambitious agent build out. How are you thinking about that balance between funding innovation and protecting profitability as you head into the second half of twenty twenty six?

31:18 That's actually a very good question because obviously there's like race almost now between different AI companies, right? Developing the AI agent, making sure that to grab as much land as you can. And I think that's not the time to slow down or to stop. That's definitely. So I think definitely definitely we need to move, and we are moving fast. We already proved it, right? We thought we are gonna ship, bid and ship three agent by the end of q two. We bid and ship five different agent, you know. And so we definitely approve already that we know to execute and execute fast, which is great. I think like but that's one one side of the story. The other side is that, like you said, we need to be, you know, like monetize, you know, the company financially, Financial position, making sure that we are not overspending.

32:07 And basically, keep another eye open to that front. So I think there should be a balance between the two. And the company already proved historically that we know how to do it, and we know how to do it quite good. So I think I'm pretty confident, I would say, that we can be able to continue to balance between these two, I would say, conflicted sometimes efforts. Great. Thank you, Omri. That brings us to the last question for today, which is the first half revenue grew 16% and the gross profit grew 10%. So strong first half overall. How much of that momentum do you expect to carry through the second half, which you reflect as seasonally your strongest?

32:53 So that's another good question. Would say, A, definitely very strong start of 2026, right? Top line revenue, midline revenue, all of them move in the right direction. We definitely see some tailwind. For that regard, like I mentioned before, we had some headwind regarding currency exchanges, which reflected an increase of cost. I would say the plan is to go into Q4, which is the most important quarter for us, in a slimmer company, but maintain the same momentum. So if we can balance the two, if we can achieve the two, continue growing top line and mid line revenue, but reducing the SG and A cost, then I think that should be like a a story to tell, right? And and put the company in a better position moving forward.

33:45 Absolutely. Thanks so much, Henri. We covered a lot, both on the slides, the presentation by Kobi and also the Q and A session. Do you have any final closing remarks for the audience today, Henri? No. So I think like all in all, the company being able to present a robust quarter. Let's say again, as robust almost as q four twenty twenty five, and that's telling you a lot. A lot of innovation going on. Also, level of maturity of both of the flagship app, which is proposing AI Studio is far better. AI Studio already generating real revenue, and basically, we have a very strong and robust GTM regarding this app, proposed the early beta user, but again, reach a level of maturity which all the AI agents are active and ready to go to market. So I see like we are definitely entering H2 far stronger than we are started H1, which is obviously a good place to be, right?

34:46 Amazing. Thanks so much, Henri. Thanks, Amit. Thanks, Kobi, for your contributions today. And most of all, thanks for everyone joining this call. With that, we conclude the earnings call today. Looking forward to see you next time. Thanks so much, and have a great day. Thank you, everyone. Thank you.