Acroud AB

STO:ACROUD

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to Acroud Q1 Report for 2021. [Operator Instructions] I am now pleased to present CEO, Robert Andersson; and CFO, Gustav Vadenbring. Please begin your meeting.

[Robert Andersson, President & CEO]

All right. Good morning, everybody, and welcome to this Q1 Presentation for 2021. And welcome, again, as I said. Let's start off with introducing myself maybe. My name is Robert Andersson. I am the CEO. And with me, I have Gustav Vadenbring, who is the CFO.And I will start with going over the quarter in an overview, and then I will explain how the journey ahead looks for us. Then Gustav will come into the picture and present all the financial details. And then I will be back for some closing comments, and then we have a joint Q&A.So to start off with, what we are doing is a rapid transformation towards the Media House of the Future. And I will go into more detail later what is Media House of the Future means actually later.But first, let's look at our first quarter in key figures. So we did about almost EUR 5.6 million in revenue, which is sharp increase. Of course, this is in part driven by our acquisitions. EBITDA amounted to EUR 1.4 million and profit about EUR 750,000 before tax. I think noteworthy here is the NDC figures that are 230% increasing and cash flow was EUR 388,000.So looking at some key events during and at the quarter. Well, first of all, in the beginning of the quarter, we acquired the assets of Power Media Group, which is Voonix, Matching Visions and Traffic Grid. Basically the start of our new group of companies with this acquisition. This led to us now having a structure with 2 operational segments, which is iGaming Affiliation and what we like to call As a Service Segment. We also did obtain a license in Pennsylvania. This is really big state and all really opens up for us to enter the U.S. properly with our organic build products. We did provide an update on the U.S. strategy. We actually withdrew from a potential acquisition there. We see larger upsides with focusing on organic growth and spending the money there. U.S. is becoming increasingly expensive for acquisitions. What we did do after the quarter, we did do the acquisition of the TheGamblingCabin, a Swedish-based company that I will also explain more about later.If we look at our group development in terms of revenue, as you can see, we pretty much doubled or more than doubled our revenue. This is, of course, largely driven by our acquisitions. But as you can see the underlying business is also growing quarter-on-quarter from Q3 onwards.Noteworthy here is also the amount of NDCs, which we have been able to produce. As you can see, Q3 was a real low watermark for us. So I think there, we saw -- we started seeing the effects of the initial change work that we did when I joined in February or actually March. So from this point on, we have been able to increase and this is quite significantly. And of course, now we are getting to a point where we are starting to reach critical mass in terms of the numbers of customers that we deliver. So that we actually have a lot better leverage when we negotiate with our partners.Looking at the revenue development in those 2 different segments. We have the Affiliation segment, and it's really nice to see the continuous growth in these segments quarter-on-quarter. Although, the comparison with Q2 is -- or with Q1 2020 is a little bit tougher. And then it's the same as in As a Service. You can say that it continues to grow quarter-on-quarter the whole time, which is also very nice.A little bit about the background of this company or what we are trying to do is connecting people, content creators and businesses. And while our vision is to be the Media House of the Future. And our goal is to create the best ecosystem within Media and the Affiliation industry. And with that, our mind is always business first with fearless thinking, we do leap forward. So this is our approach to things.So now I'll try and explain the Media House of the Future a little bit. So the house for us means that we have different components and it creates an ecosystem of synergies. So we don't -- we have not been after when we are buying to buy more of the same, which happens in this industry a lot to keep on piling in affiliate websites, basically. Our approach has been quite different. We are focusing on synergies in the ecosystem, all right? And the Media House of the Future, this is a mindset where we want to be in the forefront. We don't want to follow. We want to lead. And that's the position that we are taking here.So if you look at yesterday, we were a company, in Acroud with our core business and core business still is web affiliate comparison websites. It generates a lot of revenue, of course. But what we have done now is, of course, we have organically started up live events with the festival. We are very active in streaming all with PMG and our dream.stream, that I will be getting into more in detail later, but also within TheGamblingCabin, right?And in SaaS, we have Voonix and we have our traditional sites. So I think here, poker is an extremely good example in explaining our synergies. So if we look at it from the point of view that we bought TheGamblingCabin. They are very strong in poker streaming, and it's owned by a guy nicknamed, Ben Young, which is a Swedish famous poker player. And he owns and runs the company or we own it now, but he runs the company. And of course, there is really large synergies between his company that he now runs, which is the TGC and the live events in the sense that there is a lot of cross-selling and content can be created and promoted across the board.And we also have poker listings, which is one of our strongest brands that will also benefit from this in terms of getting new content, which will help its rankings, which would make it a more interesting site. So already in poker, you have -- you're touching live events, you're touching streaming. you're touching -- but also you're touching BaaS because we have a streaming component in the Business-as-a-Service, similar to Voonix -- or similar to Matching Visions because that's the dream.stream project that I will get back into later.And then we have the Software-as-a-Service, which all this actually runs on, we are actually running all of this on top of Voonix ourselves. And that's our primary data collection tool. So all in all, poker touches in all of these areas. And of course, if you look at our ideal state of tomorrow is that we are getting all the synergies working a lot more together. We are just touching the surface of what we can do with all these components now.Moving on. So to try and explain this and the strategic move that we are doing is the fact that I now have used also the old net gaming just to visualize this a little bit more in data is that we are transitioning from the traditional website comparison to a much more software-based core and services with high barrier markets. So we are moving up the value chain, if you will.So once again, to clarify, because it's really important that you understand. So we have the BaaS business, which is the Traffic Grid and Matching Visions. And then we have the SaaS business, which is Affhut and Voonix. These together creates the Segment as a Service, yes.And then we have the Affiliate business, which is our old core business. which we still have a very solid base in. And that's really important for us. And inside each of these segments, we have, of course, the brands and dream.streams, I will explain more later, but we have Traffic Grid, we have Voonix, we have Matching Visions and Affhut as well as that we have TheGamblingCabin because they have a software tool, which is really fascinating. I will talk more about that soon as well.And if we look at our traditional Affiliate business, we also have some really strong brands within there. I want to highlight Pokerlistings a little bit extra because this is now where we start seeing, across-the-board synergies that are really interesting. And otherwise, you have all of these traditional brands, and we are going to say -- start seeing a lot more synergies in sports, for example, because TheGamblingCabin are really active within sports as well. And there is so many examples of all these good synergies that we can bring, but we only have so much time today.Looking at our strategic work a little bit. Of course, geographical expansion. We are taking our current product into new geographical territories. It's a no-brainer, basically. We are also aiming for diversification of revenue streams, which means that we will reduce risk in the company with not being, let's say, casino, Europe-only.We are going into other verticals. That work has begun. I'm not going to disclose which verticals we are looking at. We will do that in due time. And of course, to be a service company where we focus much more on the Software-as-a-Service and the Business-as-a-Service part of the company as well. This translates into some tactical actions in the near term, is we are focusing on U.S. rollout, but we are also preparing for the Netherlands rollout.We have the rich content streaming, which is a new traffic source for us, although, jacking into our traditional business. It still is another traffic source, which reduces the risk.When it comes to going beyond the core, it's, of course, as you have seen with our acquisitions, it's the systematic M&A that is a part of it. So when we had kind of widened our ecosystem we have done, so weak acquisitions and those being then the PMG acquisition as well as TheGamblingCabin.And then operational excellence is to maintain focus and actually get -- make sure that we take care of all the synergies we are so dearly talking about. So now we have got into place where I feel the organization is in a really, really strong place. We have a strong management team in place, and we're really starting to see that our work is -- the positioning we are taking is quite unique, and our work is going to pay off, and that feels really good.An update on the U.S. legislation map. We have 9 licenses and business certificates in the U.S., currently. We have also applications filed, which are pending. And then we are, of course, waiting for regulations in, for example, California, which will be a really big deal when it opens up. A little bit on the Dutch market as well. What is looking like now is that it should reopen based on authority's statement in October 2021. And historically, we have been a really big player in the Netherlands before the regulation started to happen. We are, of course, fully compliant with the current rules and regulators. But we do own 5 trusted brands that are basically waiting for it to open up, and it's still ranking really well. So once the Dutch market opens up, we see really good opportunities for us there.And if you look at the Dutch markets, it's forecasted to grow almost 20% year-on-year. And we are geared up for this launch like we can't wait. This will be quite a good market for us. And at the meanwhile, we are adding a sports brand to our portfolio for the Dutch market as well.Now to talk about these examples and dream.stream is a really good example on how fast we can move into new revenue streams. dream.stream is based on Matching Visions software, but it needed tweaks in order to handle the demands that streamers do instead of just static affiliate sites. And we already -- by launching this and the deals we have generated over 1,000 NDCs in March. And that's just in March. And of course, now we have streaming content, and we reached a new generation of players. They are on Twitch and YouTube and necessarily do not go on to a comparison engine site to find the best bonds or to find the best casino, but rather to watch someone play and then they will follow them on to whichever casino it is. And this took us not very long time from idea to execution. So I like the power behind this that we can see in the organization from idea to actual revenues. And this, of course, has a little bit lower margin. It has about 7% to 10% margin for us. But to try and explain it, we have the streamer we will get its commission. We take the commission from the operator, and then we pay commission to the streamer and in between, basically, which is let us call it the fee for our work and our software. We take about 7% to 10% of that.The nice thing here is that we actually can add as many streamers as we want, and we really don't have any work on top in the sense that this spend becomes a hockey stick that takes off by itself.TheGamblingCabin, it has strong streaming content. I really recommend you if you are Swedish to go on to that site and what some of their streams, not only does it make me crack up, but it's really well and solid produced. They also have a very good business with Telia Sverige who is the largest operator in Sweden. They also have something called the reduction tool, which is a software based. It will help you make better bets. So you should also, if you're into sports betting, probably check that too out actually. Their revenue model is very diverse. They charge for creating content and podcasts directly. But also they have an affiliate revenue model and, of course, the revenue model for their software. Fast-growing company, we are also coming into Euro Cup season. So we have some really strong ops during the summer.The festival, this is our land-based live component that we have started up organically during the spring. The festival concept is a sports betting casino and poker experience, primarily, I would say, at the moment, it is poker focused, but the idea here is that it will be like triathon within iGaming. It's going to generate a lot of content and that can be utilized across the board, also for TheGamblingCabin, but also on Pokerlistings, and it can also go up in Matching Visions as content for other poker affiliates, for example. We have the direct synergies that I talked about before. And we have -- we are seeing that this is also bringing some indirect synergies with people that want to be associated with something like this, but it's actually not into gambling itself. This is not -- it wasn't really expected to open that many new doors, but it's clear for us that it's doing that now.So just to sum up my part of this, we have our 3 growth pillars, its Affiliates, its Software-as-a-Service and it's Business-as-a-service. And although a little bit cliche, but we are moving up and to the right, which means that we are going towards being software-based with the core and services. And we are going for markets that has high barriers to entry.And now, we'll hand over to Gustav to start going through the finances.

[Gustav Vadenbring, Deputy CEO, CFO & Secretary]

Thank you, Robert. I will give you a flavor of the financial development in Q1. And to start with, on a group level, since we're now a new company, which comprising 2 different segments. We'll start with the group, and then we'll go to As a Service Segment and also the iGaming Affiliation. And we'll end up with a financing position and cash flow. But we can clearly see that our revenue development, we have increased our revenues with almost 123% sequentially. And that is, of course, mainly driven by the acquisition of the Power Media Group, as you can see in the graph to the left.We also see that the growth is coming from the iGaming Affiliation segment sequentially as well. So there, both segments are showing growth. The NDC development has also developed strongly compared to the Q4.If we switch to see the revenue bridge on this page, we can see, compared to Q1 2020, there being quite a lot of changes. So if we compare to revenues we had in Q1 2020, you can see that the As a Service Segment, which is mainly comprising the acquisition of Power Media Group, have generated big piece of the revenue increase. But also the increase comes from what Robert told you about the Pokerlistings, which is doing really well, specifically in U.S. So there's an increase in poker revenues and also in the sports betting revenues. And the delta then with the decrease is coming from the casino in Europe and also mainly related to the product offering adjustment we did in July regarding the Dutch market. And that is mainly within casino.Now we turn to the cost base as now have a different company with different kind of cost base and different kind of revenues as we have 2 different business models more or less together. I will try to explain that from the cost bridge and that's if we compare sequentially to Q4 2020. You can see that the cost base actually hasn't moved that much in the underlying iGaming Affiliation business. The cost -- the increase in the cost base comes mainly from the asset service segment. That means that it's Power Media Group, which is coming into our full group that is comprising the main part of the cost. The personnel cost has, in fact, decreased somewhat and they increased within the iGaming Affiliation segment within the cost base is mainly related to marketing costs and other operating costs. We can also see that more in detail in the interim report.The EBITDA development on a group level as well, is increasing quarter-by-quarter. You see in Q3 '20. We had our lowest level, and that was mainly related to also that we adapted to the Dutch market, which was important for us that is now going to reopen in October 2021, which Robert told you about. We, step-by-step, increasing the EBITDA, reaching EUR 1.6 million in Q1 '21.If we switch to the iGaming Affiliation segment to look at that separately. We see that revenue development is -- we show a growth in Q1, around 13% in total, and that is driven by poker and sports betting, which have been mentioned earlier. But what is primarily satisfying for us is to see that our NDC development is increasing quite significantly in both Q4 and then trending up even more in Q1 '21.And how our revenue split. We have, as I mentioned, seen growth in poker, and that is also driving then the growth in North America. We see increased traffic on those sites and mainly the Pokerlistings.com. And that we will see also onwards that it's going to be a favorable through TheGamblingCabin and all the festival and all the different thesis we are putting together within the poker.So increase in poker, increase in North America. And what we then see is that our revenue model, if you followed our split between fixed fees, revenue share and also CPA. Historically, we have -- historically, went over to more and more revenue share, up to around 55% to 60%. In Q1, we have a lower part of revshare. And the simple reason for that is that our fixed fees has been higher than previously, but also that we've been growing a little bit more in poker, which has somewhat more CPA.EBITDA development in iGaming Affiliation is also trending up, mainly driven by poker and sports betting. What is important to keep in mind is that we -- in the iGaming Affiliation segment where we run the news and comparison sites, we have a different kind of EBITDA margin, which is somewhat higher. So we're operating with a margin of around 45% to 55% on EBITDA. In Q1, we reached 53%.The cost base, as I mentioned earlier, in the iGaming Affiliation has been relatively stable, increased slightly in Q1 '21 compared to Q4 '20. And that is related to the marketing costs.Switching to our new segment As a Service, which is mainly comprising of SaaS and BaaS solutions also showing growth. So the figures Q1 '20 to Q4 '20 is -- was not included in our group, naturally in 2020, but we show them for pro forma basis comparability to install to trading. We see our revenue growth mainly in the BaaS segment, and that is the comprising Matching Visions primarily. The SaaS segment is mainly comprising Voonix. And we will see onwards that we'll have more focus on Voonix to generate more growth since Voonix as a software solution is also operating with a higher margin on the market.The NDC development is also showing growth for the BaaS segment. EBITDA also increasing, mainly driven by Matching Visions and the new YouTube and the Twitch setups that we have set up via dream.streams. You also see that our new development, and that's what we call revenue generating units, that's our customers. So it's our main affiliate customers over a certain threshold, but it's also the customers we have that are actually having our subscription setup with -- for the software like Affhut or for Voonix.If we switch to group level, again, we were looking on the financing and cash flow. We are step-by-step decreasing our gross debt from around EUR 24 million then in Q2 '20 to EUR 22 million in Q1 '21. We will continue to decrease our gross debt. It's mainly the amortization. And earlier, we have also bought back some bonds. So mainly the amortizations in Q1 '21. And our net debt towards EBITDA, our leverage is around 27% and 29% in the last quarters. And our model is -- business model is generating high EBITDA with higher margins and the cash conversion is high, which you will also -- you have seen in previous reports.What you might have seen in our report this time is that we have a lower cash conversion, around 57% than we usually have. It will, in the coming quarters, bounce back to around 80%. And the reason that we have a lower cash conversion this quarter is explained by the acquisition we have done. So we have temporary effects in the working capital related to those. That will be faced time-wise out over the coming quarters. So that's why our operating cash flow is somewhat lower, and we also had tax payments related to the acquisition of PMG.Regarding the cash flow from the investments mainly related to the acquisitions of our Media Group and the cash flow from the finance activities is the interest payments, which is around EUR 400,000, quarterly for our bond and then we have the amortization bond as well. So that's how cash flow looks like.And I was going to leave over to Robert now.

[Robert Andersson, President & CEO]

All right. So I'm back. So some closing comments then. Well, we are moving towards being a service company. I think this is really important to understand that strategic journey that we are trying to do, we are adding new revenue streams to lower our risk profile. We have had some really strong quarters when it comes to M&A. We are now moving into a state where I would like to call opportunistic M&A. So we are still continuing to kind of invest all the -- a lot of targets to see what's interesting. But now we have a large piece of the puzzle, and we also need to focus on taking care of the acquisitions and the values that we are creating. So we are not really seeing ourselves on a spree going forward, but there are some interesting aspects and prospects out there.But what we can count on is that we will always have shareholder value in focus to create that. So with that, I think we will go over to Q&A. But the one thing that I want to repeat because this is something that I have a bit as a mantra in life is that the only constant in life is change. So you can expect things to continue happening and changing. We are as far from a static company, as you can find.So with that, thank you, and now we open up for Q&A.

[Operator]

[Operator Instructions] We have a question from the line of Jens Black from Strategic Investments.

[Jens Black, Chief Executive Officer]

This is Jens. Can you give us some -- on the NDCs, how did it grow organically without the acquisitions of the Affiliate?

[Robert Andersson, President & CEO]

Yes, I think that is stated in the report, you have separated the new additional numbers. If you go -- well, I don't want to flip back through the report. But they are separated when you look at NDCs there.

[Jens Black, Chief Executive Officer]

Okay. I was just looking at the e-mails you sent. There was no specific -- there was an organic growth of the revenue, but it didn't -- I don't see if it was also in the indices.

[Robert Andersson, President & CEO]

Gustav, is there something you want to jump in and clarify?

[Gustav Vadenbring, Deputy CEO, CFO & Secretary]

Gustav here. But I think it shows in the report as well that there is organic growth in the indices. And it's increasing both to last year, but quarter-by-quarter as well. And that is generated to a big part also through both the sports betting and the poker -- and the Pokerlistings. So that are the main drivers from the NDC increase. Did that answer the question?

[Jens Black, Chief Executive Officer]

Another question I have regarding the Netherlands. You expect it to open up in '20 -- in October. How much do you expect for revenue this year?

[Robert Andersson, President & CEO]

Of course, this is something that we can't disclose. I mean first of all, it's very dependent whether they do launch on time or not, which is completely beyond our control. But what I can say is that it's been our largest market before. And that's why you saw us take a big hit during last year when we to shut down to be compliant. And now we are just waiting and maintaining a lot of good ranking. So as soon as this opens up, which is estimated to be in October at the moment. Of course, this can change and has slightly changed a few times already, but it should then be able to quite quickly generate quite some good cash. I'm not going to give you a forecast.

[Operator]

[Operator Instructions] There are no further audio questions registered. So I hand back to the speakers.

[Robert Andersson, President & CEO]

All right. Well, then that's it for us. So thank you so much for listening wherever you have listened from, and we will publish this presentation on our website in a little bit. So if you do want to view it again and go through, please do. That's it for us. Thank you very much.