Kahoot ASA

OSE:KAHOT

Earnings Call Transcript 2020-Q3

[Eilert Giertsen Hanoa, Chief Executive Officer]

Welcome to the Q3 presentation of Kahoot! results, and thank you for joining this webcast. Today, I have our CFO, Ken Ostreng; and myself, CEO, Eilert Hanoa, here to present. Kahoot!'s vision is to build the leading learning platform in the world. And our goal is to continue to build out both the technology platform and the content platform with the Kahoot! brand. We had a fantastic quarter in the third quarter, where we reached 7 million teachers last 12 months using Kahoot! to truly create excitement in the classroom for hundreds of millions of participating students around the world in the same period. We have millions of individuals as parents and families and, of course, in all kinds of social settings, using Kahoot! to make learning awesome. And also, we have over 100,000 paying business subscribers by the end of the third quarter, using Kahoot! for all kinds of training and learning and providing and sharing knowledge in organizations.So Kahoot! today has over 21 million active accounts, where 1/3 are teachers, over 360,000 paying subscribers, which is almost a doubling from the year, started on 170,000 subscribers. And we have over 100 million Kahoot!'s created on the platform from our users, which has been played by over 1 billion participating players last 12 months. And we have a net dollar retention above 100% for larger organizations, but in the range of 90% to 100% for all paying subscribers across the segments.If we look at the highlights for the third quarter, we see that the growth in usage has continued on the platform, reaching 21 million active accounts last 12 months, which is a strong 45% growth year-on-year. We have had a solid growth in paid subscriptions, as mentioned. And we have had a very good growth in invoice revenue with over 240% in this quarter and also 20% over last quarter, the second quarter of '20. We also had positive cash flow from operations over $5 million in the third quarter, representing also 45% cash conversion from the invoice revenue level, which is a solid improvement both from the second quarter of 40% and also according -- versus third quarter last year, where we had a negative cash flow from operations. We have a solid cash position by the end of quarter, over $70 million and also no debt in the company. And we've had, for the first time, solid EBITDA result with over $1 million from the trading, which is a good show of the scalability from a financial perspective of the operation. And we also announced the acquisition of Actimo, which was closed now in October 5, and that is, of course, a great acquisition for us of Actimo to extend and broaden the employee engagement offerings that we have towards employees in all kinds of organizations in our ecosystem. So all in all, a strong quarter for Kahoot!, both on the top line growth on the financial scalability, and increased usage of the platform across all segments. We also see this materialize, both on the active accounts side, last 8 quarters, as you can see here and how that is correlated to growth in paid subscriptions and also in the level of invoiced revenue. And of course, these are correlated as the usage, the number of premium features that we offer in paid subscriptions. And also our ability to scale our revenue both in the current regions that we have been coming from in the sense that Western Europe and U.S. has been the strongholds of Kahoot! historically. But also into our new regions where Asia, for the first time, reached $1 million in trading in the third quarter. We also see that Kahoot! is used more and more structurally, both in larger organizations, in universities, in school districts and in all kinds of organizations, whether they are nonprofit, Fortune 500 or local and national institutions. And we're very happy to see that the value we can provide in making learning awesome for all these organizations is being clarified and also appreciated across the organization from the presenter and teacher to the employee learner in these different use cases. So with that, I'm happy to hand over to Ken for a walk-through of the Q3 numbers.

[Ken Werner Ostreng, Chief Financial Officer]

All right. Thank you, Eilert. So the user growth on the Kahoot! platform in the last 12 months continued, reaching more than 21 million accounts, representing a 45% year-on-year growth. And as you can see, the number of hosted games the last 12 months was 224 million, with more than 1.3 billion participants. And the stronger growth in active accounts compared to participating players is due to more people playing with fewer participants, and that's a shift in a user pattern we've seen over the past few quarters. The growth in paid subscriptions continued in the quarter, and Kahoot! reached more than 360,000 by the end of the third quarter. That's an increase of 90,000 paid subscriptions from the second quarter this year. The year-on-year growth in paid subscriptions for the third quarter was 160% over what we can see in the third quarter a year ago. For the end of the third quarter, we had approximately 105,000 paid subscriptions in work category, 180,000 paid subscriptions in the school category and then 75,000 paid subscriptions in the home asset category, including DragonBox school.Looking at the invoice revenue development. As you can see, Kahoot! had its commercial launch in the first quarter 2018. And 11 quarters following the commercial launch, Kahoot! has now reached $11.6 million in invoice revenue in the third quarter this year, representing more than 240% growth compared to the corresponding quarter in 2019. The quarter-over-quarter invoice revenue growth from the second quarter was 21%. As Eilert alluded to, Kahoot! has true global reach with paying subscribers in more than 150 countries. U.S. and Canada represented approximately 49% of invoice revenue in the third quarter, and Europe, approximately 35%. We have growth in all regions, and we have now exceeded invoiced revenue of $5 million in U.S.-Canada. We have exceeded $1 million in APAC, and we have Europe at approximately $4 million in the quarter. So from the development of the key financial figures, we can see that both invoiced and recognized revenue continued to grow quarter-over-quarter. Over the past 12 months, invoiced revenue has grown from $3.4 million, reaching $11.6 million in the third quarter this year. And the lower growth in operating expenses, combined with strong cash collection of invoiced revenue drive positive cash flow from operations over the quarters. As you can see, EBITDA continued to improve from minus $1.7 million in the third quarter a year ago to positive $1 million in EBITDA in the third quarter this year, representing 13% EBITDA margin. And the cash position remains very solid. Moving on to the profit and loss statement. So here is the interim condensed consolidated P&L statement for the third quarter. Invoiced revenue at S11.6 million, representing 241% growth compared to the third quarter in 2019. Looking at the accumulated year-to-date invoiced revenue, we reached $27.7 million, representing a $20 million increase, that's 259% growth, compared to the corresponding 9 months in 2019. Recognized revenue for the third quarter was $7.6 million. That's an increase of $5.4 million or 245% growth compared to Q3 a year ago. And total operating expenses in the third quarter was $6.6 million, leaving an EBITDA positive with $1 million. Moving on to the balance sheet on the next slide. We'll see that cash and cash equivalents for Q3 were $72.5 million, and that's a pretty stable cash position compared with where we were by the end of the second quarter. We have had some payments related to the equity proceeds in June. That has kind of reduced the cash from investments, but we had strong cash flow from operations. Deferred revenue reached $16.3 million for Q3 compared to $5.3 million for the third quarter of 2019. That is an increase of $11 million in deferred revenue. We have no long-term debt in the company, and we have an equity ratio of more than 80%. So cash flow. We had positive cash flow from operations in Q3 with more than $5 million, a huge improvement compared to the third quarter in 2019, where we had negative of minus $0.6 million. Accumulated cash flow from operations is now like $10 million compared to minus $4 million for the first 9 months in 2019. We can see that the FX in dollar exchange rate impacts translation differences on cash held. All right. So let's have a look at the forward-looking statement. In Q4, the Kahoot! Group expects invoiced revenue to reach $14 million, that is a 20% quarter-on-quarter growth, where Actimo will contribute with approximately 10%. The for the full year 2020, the Kahoot! Group expects invoiced revenue to reach between $41 million and $42 million, including the contribution from Actimo in Q4. That's representing a 220% growth year-on-year compared to the $13 million reported for 2019. We expect continued solid cash flow from operations in the fourth quarter, and paid subscriptions, not including Actimo, are expected to exceed 400,000 by the end of 2020, and active accounts expected to exceed 22 million. And as previously communicated, the company is preparing for a main listing at the Oslo Stock Exchange during the first quarter next year. So let's have a look at our ambitions. We are still in the early phase of the commercial transition. And I just want to recap our ambitions. We can see significant scale in our subscription-based business with a growing user base and a clear path to increase commercialization by targeting $100 million in ARR by the end of 2022. Our extended product offering will enable upgrade paths for our clients driving 100% plus net dollar retention in the business segment, and our ambition is to continue to increase engagement and add net 3 million plus active accounts annually. From a commercial perspective, we target to add 250,000 subscriptions annually, and that's not including at home and study. And our ambition is to have significant operating leverage with 40% plus EBITDA margin and cash flow from operations exceeding EBITDA. And just to comment on CapEx. I just want to remind everyone that we expense all R&D cost in the income statement as they occur. So CapEx for operations is very limited in Kahoot!.

[Eilert Giertsen Hanoa, Chief Executive Officer]

Thank you, Ken. So I think to continue on the Kahoot! presentation, what's truly interesting is that we have this opportunity to distribute Kahoot! without spending any budget money on marketing. Every month, we have over 1 million accounts created on the platform and over $2 million on the app store without spending any money on marketing. And we have a fantastic value proposition, which means that Kahoot! is promoted through the use of Kahoot!. And that is, of course, a very strong way to both reach out to teachers, for teachers to reach students, for students to influence and communicate with parents and also parents and teachers bringing this value proposition to corporations.And we also now see the first groups of students who comes out from universities or higher education using Kahoot! and bringing those tools with them into the professional life. So with these enormous amount of new customers and users coming into our ecosystem and with our offerings around Kahoot! at home, where we have over millions and millions of users using Kahoot! for free, but we also have premium plans from $5 and up. We have a very strong value proposition for family, for social use and for all kinds of individuals. We have Kahoot! at school with over 180,000 teachers with a premium subscription by the end of the third quarter, and also a free forever value proposition for teachers in addition to the premium subscriptions starting at $3 per teacher per month. And then we have Kahoot! at work with over 100,000 business subscribers, which is truly our professional tool for all kinds of training in all kinds of organizations starting at $10 per user per month.And last but not least, we have Kahoot! Academy, which is our new initiative around providing premium content, including today's announcement of the Disney Halloween package of our collection in both English, Spanish and Norwegian, which is a good showcase on how those collections on Academy will be populated and also valuable in the future. So let's spend a few minutes on Kahoot! at home. Kahoot! started out as a fairly simple to use quiz game, which instantly called the attention of both teachers but also of individuals for use for all kind of social settings. Today, we have over 10 million users that are registered hosting Kahoot! in our social setting. That's everything from parents, from students, sports clubs, for self study, for creating engagement in the group and for all kinds of making learning awesome in an informal setting.As a part of this, we are building out our value proposition for both the free users of Kahoot! at home, but also for paying users. And now in November, we will launch our Kahoot!+ family subscription, which will be our new initiative, combining the DragonBox value proposition, the Poio learn to read value reposition with the Kahoot! app, including the new tools for self study, for study leagues and for premium content that will be available on our platform. And we really look forward to announce this and make it available for everyone in November. And we will also continue to expand on the teachers side with more language learning features. This will be rolled out throughout the winter and also been available for existing users to make it more interesting and more engaging steady language in the future. In educational institutions, we have a very good uptake of using Kahoot!, not only the individual teacher, but also on an educational institution level. Today, we have close to 90% of the top 500 universities are using Kahoot!. And as we go, we continue to both develop the products, the Kahoot! at school family of products and services, including the 7 million teachers that are using Kahoot! for free. But also the Kahoot! EDU, which is our new initiative, including both features for making administration of Kahoot! in any institution more efficient, making sure that teacher can share their resources and results; and also making the teaching and learning experience for students more interesting by using Kahoot! EDU.And we have already started the launch of Kahoot! EDU, and we see a very interesting feedback and uptake from larger groups of schools from school districts and from teachers who really want to use this functionality to make sure that learning is awesome in their institution. And our upcoming launch of the integration with Bitmoji, which is a very cool way to make this engagement both from a student side, but also from a teacher side, even better with a combination of Kahoot! and Bitmoji, which is also something we really look forward to provide during November to all users around the world.On the business side, we already have a massive usage of Kahoot! around the world. And 97% of the Fortune 500 companies are using Kahoot!. Of course, they're not all of them using the premium addition of Kahoot!, and we are definitely working on that. But we see both on the uptake of new customers, existing customers and the use cases that this is really making a difference in the way larger organizations are using Kahoot! for training, for engagement and for corporate culture building. And especially these days, where new employees haven't even met their colleagues where teams are separated from remote work or from not being able to meet in any kind of event. We believe that creating this engagement and making sure that it's easy to communicate in order to build corporate culture to make the presentations and meetings more interesting and making sure that all learners, all employees that needs either consistent training over time or mandatory documentation of knowledge can be all managed on Kahoot! at work platform in a better way. And we believe that with the upcoming launches that we do, both now in the fourth quarter and into 2021, we will continue to build out a better value proposition for all organizations, whether they are small, large, local or distributed around the world, including, of course, the largest organization that needs more of an enterprise scale of functionality. We are very happy that we're able to build out the next-generation of Kahoot! 360 or main products for these segments, with more tools for creating corporate culture and even better learning in all kinds of organizations, whether they are on-premise or retail or based on more knowledge-based workers. Having this ability to bring out new knowledge with our Kahoot! 360 platform will be a main difference for a large group of workers around the world in '21. We also have a very strong relationship with content partners that are using Kahoot! as a platform to distribute their own IP and great content. We see both how we work with Disney related to also today's announcement, with Unicef, UN on the 75th anniversary day last week. And also how we can provide new services for our partners like Cambridge University Press on providing quality content for both teachers and professionals in the Kahoot! Academy environment. But we also see that these partners really need and want to have the opportunity to use Kahoot! as a distribution platform in their own ecosystem, on their own website or in their own mechanisms. Therefore, we are very happy to continue to invest in Kahoot! as a vehicle for these partners to also provide content and create engagement outside of the kahoot.com and Kahoot! Academy ecosystem. And we will talk more about that in 2021. And then last but not least, we have Kahoot! Academy that we announced in the mid-June that has been instantly extremely popular among teachers who want to provide their own content on our platform with our partners or Kahoot! Academy premium partners of content and, of course, by users. And we had in September, over 6 million players on the Kahoot! Academy platform, and we expect that to increase with our approximately 50% in October and continue to increase in the future. And going forward, we will continue to build out Kahoot! Academy, both with a great feature set for the 7 million teachers to be able to better communicate and share knowledge, share resources on the platform to introduce better knowledge portals and better views and search opportunities and collection opportunities on the platform. And last but not least, we are also very happy to say that we will build out a marketplace in 2021, where it will be possible for both publishing partners and teachers to provide free and commercially available material on Kahoot! Academy. And this is really marking a next step for Kahoot! into bringing a new dimension on our business setup. For providing third-party content with our commercial model around their assets in a safe environment for all users around the world in 2021. Finally, I just want to reiterate our great acquisition of Actimo. Actimo is truly showing the way when it comes to creating engagement in enterprise organizations through using their employee optimized application, basically a learner focused application to making sure that knowledge is shared, creating inspiration, and also really making a difference on how to communicate with our distributed organization. For us, it's very important to work with Actimo and the Kahoot! team to build out the next-generation of services, both improving and extending the Actimo offering that we have today and similarly, build out the Kahoot! 360 offering with more assets and more values so that we can hand-in-hand share our opportunity in the marketplace with the different solutions that is best fit for each of the customers we have. And we will have a special event in mid-November around Kahoot! work, which is called Kahoot! WorkSummit, where we will go more in-depth on how Kahoot! and Actimo will work both together, but also side-by-side in the market going forward. So all in all, we have a fantastic ecosystem around the Kahoot! platform, both with the core functionality with the content from Kahoot! Academy, the ability to provide our services for school, home and work. And the great partnerships we have, both on the content side, as already outlined, but also on the technology side, where we have Zoom, Bitmoji, Microsoft, Disney, of course, Slack and Google and Apple as the core partners in extending our solution for all users around the world using the Kahoot!'s services. So in summary, we have a great global recognized brand where we believe there is a huge opportunity to continue to both build and acquire and partner with new services to reach this audience. We have a scalable platform that's supported by this viral business model, which means that we are getting a lot of momentum on our platform. We have our experience organization with a great track record from the industry. And we have shown this financial scalability of the platform by the Q3 and the rest of 2020 numbers, so basically, the first 9 months. We're continuously improving all services for all segments and user groups going forward, including, of course, the free users of our services. And last but not least, and especially after the announcement of the equity increase that we did with SoftBank now in October, we have a very solid funding for both strategic partnerships and nonorganic growth going forward. So with that, I urge you all to join the Kahoot! journey, whether you are using it as a tool or just want more information or want to see great content. And for those interested, we have a fireside Q&A chat on Monday, 2nd of November, that would be open to -- for registration to both get more discussion around Kahoot! and also you can provide your questions to either us or to the analysts that will be participating. So with that, I wish you all a great day. And thank you very much for watching. Thank you.