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25 September 2017

Albert Technologies Ltd.

("Albert Technologies" or the "Company")

Interim results for the six months ended 30 June 2017

Albert Technologies (AIM: ALB) today announces half year results for the six months ended 30 June 2017. The Company continues to execute its core development strategy, with revenue from its pioneering AI-based SaaS marketing platform on a good growth trajectory.

Operational highlights

·      Good progress deploying SaaS artificial intelligence marketing platform

o  Increase of 240% in monthly recurring revenues, 180% in average monthly revenue per customer, and growing number of paying customers, during the period December 2016 to June 2017

o  12-month rolling contract with global nutrition company announced in March 2017

o  Strategic partnership with leading business services group in Australia and NZ 

o  Expansion of sales, marketing and R&D activity to support future growth

o  Industry recognition for Albert technology- International Business Award for "Best New Product"

·      As expected, continued market challenges significantly impacted revenues and margins of Indirect and Performance Sales channels, which operate through the Company's wholly owned subsidiary, All Aspect

o  Net loss from this business during the first half of the year

o  The Board is currently reviewing the quality of earnings of this business and its prospects and is considering a disposal of All Aspect. It is expected that a disposal of All Aspect will result in a fundamental change of business of the Company under Rule 15 of the AIM Rules and would therefore be conditional on the approval of shareholders. It is anticipated that a nominal value would be attributed to All Aspect given its reliance the Company's technology, which would remain proprietary to the Company.

Financial summary

·      Overall performance reflects continuing challenges in Indirect Sales and Performance Sales channels, combined with rapid revenue growth in SaaS

o  Revenues lower at $4.4m (H1 2016: $8.7m)

o  Adjusted EBITDA loss of $(6.2m) (H1 2016: $(2.7m))  

o  SaaS revenues for the period represent 10% of total revenues

o  SaaS gross profit represents 45% of total gross profit

·      Continued close cash control - net cash balance, including short-term bank deposits of $16.9m (30 June 2016: $28.1m), representing $0.27 cash per share.

Current trading

·      Continued growth in SaaS monthly recurring revenues post period-end

·      Number of customers, as well as average monthly revenue per customer, continued to grow post period-end

·      SaaS gross profit currently tracking at more than 50% of total gross profit

Or Shani, Chief Executive Officer of Albert Technologies, commented:

"The first half of 2017 marked an important transition for Albert Technologies.  The rollout of Albert 2.0 - our AI-based market platform - was highly successful and has delivered significant contract wins and partnerships.  This reflects the long-term structural demand for the automated, efficient marketing solutions we offer. 

As expected, our Indirect and Performance Sales businesses continued to be impacted by market challenges and showed weak results in the first half of the year. Our strategic focus is on developing the high-quality earnings SaaS platform and therefore, the Board is currently reviewing the quality of earnings, as well as the prospects of the Indirect and Performance Sales businesses."

"We have developed AI-based marketing technology which is attracting growing market recognition and we continue to develop Albert's customer base with an increasing number of SaaS pilots now underway with leading global brands. We therefore expect to further expand Albert's customer base during the remainder of the financial year and the Board is focused on delivering growth and building shareholder value."

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OPERATIONAL REVIEW

INTRODUCTION

The first half of 2017 was an important period in the transition and evolution of Albert Technologies.  We continued our rollout of our SaaS marketing platform, Albert, which is our core driver of future growth. 

Initial deployment of Albert 2.0 has been successful.  Having launched the new product in 2016 and established our sales and marketing office in New York, in the first half of 2017 we secured significant contract wins, as well as strategic partnerships.  This reflects the long-term structural demand for the automated, efficient marketing solutions we offer.  We will seek further partnerships as an effective way of accelerating market penetration while maintaining good cost control.

To ensure the scalability of our business model and support further growth, we have continued to increase investment in Sales and Marketing and R&D activity.  During the period, we doubled our sales team in the United States, as well as increased our R&D efforts to enhance the scalability and performance of our SaaS solution.

As previously announced, the ecosystem in which the Indirect business operates experienced severe disruption commencing in late 2015. Advertising exchanges purged a significant portion of media running through their platforms in order to seek to reduce the amount of fraudulent inventory. Many exchanges consolidated or merged. In parallel, the market started to shift from using open exchanges to private and self-serve exchanges, mainly being the relatively "walled" platforms of Google and Facebook. This disruption resulted in loss of supply for major online advertising exchanges and a loss of demand from major media buyers, the result of which was a dramatic decrease in transaction volumes and significant pressure on margins in the industry.

As a result, the Company continues to witness a decline in its revenues from the Indirect and Performance Sales businesses, accompanied by a continued decline in margins, which resulted in losses from these businesses for the first half of 2017.

Our overall financial performance reflects these pressures, accompanied by the rapid growth in SaaS, with total revenues lower at $4.4m (H1 2016: $8.7m), and adjusted gross margin of 19%, compared to 26% in H1 2016.

The challenging market conditions in Indirect Sales, as well as investment for long-term growth in our SaaS business, resulted in a loss before interest, tax, depreciation and amortization of $6.2m (H1 2016: $2.7m loss).  Adjusted R&D investment increased to $3.0m (H1 2016: $2.2m), and Adjusted Sales and Marketing expenses increased to $2.9m (H1 2016: $1.5m).

We continued to maintain close cash control, with a net cash balance of $16.9m (30 June 2016: $28.1m).  We believe we have sufficient resources to continue our investment in growth of our SaaS business.

In July 2017, the Directors of the Company changed the name of the Company from Adgorithms Ltd.  to Albert Technologies Ltd.. The Directors believe this better reflects the Company's core business of developing and promoting the Albert technology behind its Software as a Service product.  It also comes as a result of increasing recognition for Albert, both in terms of his growing customer base and recent awards.

The management team was strengthened with the appointment of Yoram Freund as Chief Financial Officer in April 2017.  Mr Freund comes with significant financial leadership experience within the technology industry, having held senior finance positions within Radware Ltd. (a large NASDAQ listed company).

Adjusted* Financial Review 

* Non-IFRS and unaudited, excludes share based compensation expenses of $221K (COGS-$5K, R&D-$72K, S&M-$115K and G&A-$29K), $774K (COGS-$13K, R&D-$430K, S&M-$127K and G&A-$204K) and $1,064K (COGS-$20K, R&D-$519K, S&M-$366K and G&A-$159K) for the six months ended 30 June 2017 and 30 June 2016 and for the year 2016, respectively, depreciation expenses of $47K (R&D-$34K, S&M-$11K and G&A-$2K), $37K (COGS-$1K, R&D-$26K, S&M-$6K and G&A-$4K) and $85K (COGS-$1K, R&D-$45K, S&M-$9K and G&A-$30K) for the six months ended 30 June 2017 and 30 June 2016 and for the year 2016, respectively.

PROGRESS WITH GROWTH STRATEGY

Albert's recent SaaS contract wins underlines our confidence and belief in this pioneering platform, and has translated into meaningful SaaS revenues and momentum.

Central to Albert's strategy has been the adoption of its "Land and Expand" approach, supported by an extended sales team.  Brands benefit from the opportunity to test Albert in a relatively small, controllable setting such as a trial in one channel (e.g. Facebook) or one sub-brand or geographical market.  Brand managers have been able to access Albert's dashboard and trial its effectiveness in terms of speed and cost.  A key advantage of Albert, as opposed to the more established "marketing clouds" for example, is its ease of implementation.  Whereas a brand would need to invest significant time and financial resource to implement an established marketing cloud, Albert can be connected in days, with no external set up costs to the brand.

BUSINESS SUMMARY

SaaS channel

The Board is highly encouraged by the progress in the SaaS business. Monthly recurring revenues have more than tripled in the period, and SaaS revenues now represent 10% of total revenues for the six months to 30 June 2017.   

Recent business wins underline the success of the Company's SaaS rollout, and validates the significant value the platform can generate. 

In March 2017, we secured a 12-month rolling contract with one of the world's largest nutrition, health and wellness companies.  As part of this agreement, Albert Technologies will deploy Albert across all this customer's online advertising campaigns, focusing on its leading brand within its largest South American market.  Management expects this contract to generate a minimum of $0.3m of annual SaaS fees.  This contract win followed a four-month pilot in which Albert was compared with the customer's existing advertising agency, which is a subsidiary of a leading global network.  During the pilot, Albert consistently delivered superior return on investment metrics when compared to previous campaigns managed by the incumbent agency. In addition, Albert provided greater transparency, control and valuable marketing insight during the pilot. 

After the period end, in July 2017, the Company announced a strategic partnership with a leading business services group in Australia and New Zealand.  Under the agreement, the business services group has the right to distribute Albert to brands direct and to agencies.  This guarantees minimum SaaS revenues during the first year of $0.8m, and carries the potential to become a significant revenue opportunity in the second and third years of activity.  As with the contract win outlined above, this partnership was agreed following a successful trial period.  Within 24 hours of deployment, Albert identified and executed thousands of marketing actions, which could have taken a human marketing expert up to a year. Furthermore, the partner's customer acquisition costs were reduced by more than a quarter within 30 days. 

SaaS revenues are becoming increasingly meaningful, supported by these recent contract wins and ongoing sales and marketing activity.  As a result of the rapid market acceptance to Albert, during the first half of the year we've changed some of our sales policies and client minimal thresholds. This is in order to focus on bigger clients that represent higher revenue per client. Such changes resulted in increase of 180% in the average monthly revenue per customer and 25% in the number of paying customers, during the period December 2016 to June 2017.  

SaaS gross profit represents 45% of total gross profit for the 6 months to 30 June 2017.

Indirect channel

As previously set out, the ecosystem in which the Indirect business operates experienced severe disruption commencing in late 2015. This disruption resulted in a dramatic decrease in transaction volumes and significant pressure on margins in the industry.

The decline in revenues from the Indirect and Performance Sales business, , which operate through the Company's wholly owned subsidiary (All Aspect), accompanied by continued decline in margins, resulted in losses from this business for the first half of 2017.

The Board is currently reviewing the quality of earnings of this business and its prospects and is considering a disposal of All Aspect. It is expected that a disposal of All Aspect will result in a fundamental change of business of the Company under Rule 15 of the AIM Rules and would therefore be conditional on the approval of shareholders. It is anticipated that a nominal value would be attributed to All Aspect given its reliance the Company's technology, which would remain proprietary to the Company.

SUMMARY AND OUTLOOK

Albert Technologies achieved some important milestones in the first half of 2017 in the rollout of Albert - our AI-based SaaS market platform. We believe the significant contract wins and partnership agreements secured during the period reflects the long-term structural demand for the technology-led simple and efficient marketing solutions we offer. 

We have invested for long-term growth, and as we continue to develop Albert's customer base and conduct pilots with leading global brands, we expect to report further progress in the rollout of the SaaS product second half of the year.  The Board is focussed on building shareholder value and remains confident in the overall long-term growth prospects of the Company.

About Albert Technologies Ltd.

Albert (AIM: ALB.L) is the first-ever fully autonomous artificial intelligence marketing platform, driving digital marketing campaigns from start to finish for some of the world's leading brands. Albert's mission is to liberate businesses from the complexities of digital marketing-not just by replicating their existing efforts, but by executing them at a pace and scale not previously possible. He serves as a highly intelligent and sophisticated member of brands' marketing teams, wading through mass amounts of data, converting this data into insights, and autonomously acting on these insights, across channels, devices and formats, in real time. This eliminates the manual and time-consuming tasks that currently limit the effectiveness and results of modern digital advertising and marketing. Brands such as Harley Davidson, EVISU, The Big Red Group, and Dole Asia credit Albert with significantly increased sales, an accelerated path to revenue, the ability to make more informed investment decisions, and reduced operational costs.

The Company operates an Indirect Sales Channel, where its technology is deployed in advertising exchanges to match undervalued inventory with suitable demand as well as the strategically significant SaaS Sales Channel, which offers its artificial intelligence-based software, Albert, to brands using a SaaS model. Albert Technologies Ltd. listed in 2015 to accelerate both investment into and commercialisation of Albert.

The Company and Albert have received many awards in its short existence, including two platinum MarCom awards and silver in the Best in Biz awards 2016 for best new product of the year. Albert was also named AI Application of the Year by The Global Annual Achievement Awards for Artificial Intelligence.

About Albert

Albert replaces the human campaign manager in managing a brand's online advertising campaigns. A brand provides Albert with access to its Google, Facebook, Bing, Twitter and other online marketing channels. When a brand manager wishes to launch a new online advertising campaign, she simply logs into Albert and deploys that new campaign, which is usually no more than a 15 minute task.

Albert autonomously creates hundreds of micro campaigns across all relevant online marketing channels (Google, Facebook, Bing, Twitter, Instagram, Display, Email, etc), then reviews these hundreds of micro campaigns every few minutes and optimises each of them as needed. Albert works in very much the same way that a human campaign manager would, making correlation and cost/benefit based decisions.

Where an experienced campaign manager could possibly make circa 100 decisions per day, Albert can make thousands per minute. Albert's ability to launch hundreds of micro strategies and review and amend them all every few minutes typically brings about a significant increase in ROI. In addition, all learnings from the decisions made remain in house, so the brand has full and instant transparency and can easily scale up marketing activity through larger budgets or application to new brands and new geographies without hiring new expert campaign managers.

FORWARD LOOKING STATEMENT

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". By their nature, forward-looking statements involve risk and uncertainty since they relate to future events and circumstances. Actual results may, and often do, differ materially from any forward-looking statements. Any forward-looking statements in this announcement reflect Albert Technologies' view with respect to future events as at the date of this announcement. Save as required by law or by the AIM Rules for Companies, Albert Technologies undertakes no obligation to publicly revise any forward-looking statements in this announcement following any change in its expectations or to reflect events or circumstances after the date of this announcement.

U.S. dollars in thousands

The accompanying notes are an integral part of the interim consolidated financial statements.

U.S. dollars in thousands

The accompanying notes are an integral part of the interim consolidated financial statements.

U.S. dollars in thousands (except per share data)