Acroud AB

STO:ACROUD

Earnings Call Transcript 2022-Q1

[Robert Andersson, executive]

Good morning, everyone, and welcome to our presentation of our Q1 for 2022, where we've had strong growth. And today, we'll go through the presentation, and we're going to end with the Q&A.

My name is Robert Andersson. I'm the CEO. I've been with the company for about 2 years now. First of all, we're going to go through a summary, and then I'm going to describe a crowd a little bit and go over some key markets. Then Roderick, who is with me. He's going to go through the financial details, and we're going to round off with closing comments and open up for questions via the teleconference.

To start with, we had a really good quarter in terms of revenue, first time over EUR 7 million. Our EBITDA amounted to EUR 2.25 million. The profit after tax was almost EUR 1.2 million, and new depositing clients was 33,500 roughly. Cash flow, close to EUR 1.5 million during the quarter. So if we look at some recent activities, we had the first quarter, I would say, with the full effect of our restructuring program, where we have focused on efficiency, keeping costs down as well as increasing the output.

We have done that through optimizing processes, utilizing our in-house software a lot more as well as streamlining operations, basically. I'm also very happy that we have taken the Gambling Cabin from Sweden. The concept of the Gambling Cabin and kind of ported it to the Netherlands, where we have now a new set of characters in front of the camera doing the podcasts, and it really helps us provide rich content in the Dutch market on another level, which positions us really well going forward there.

We have come out with new financial targets. I will go over them a little bit later in this presentation. So -- but looking, as you can see here, we have had really nice consecutive growth overall, where the SaaS segment has continued to grow really well, but we also turned the tide in our iGaming affiliation segment, as you can see. And these 2 things combined has led to a very solid first quarter.

So if we look at the financial targets that we have come out with, first of all, the forecast for this year for 2022 is somewhere between EUR 8 million to EUR 10 million EBITDA. After that, we are going to grow that annually with 20%. And what we are doing -- what we are -- why we say 20% here is that it's organic. So this does not take into consideration any potential acquisitions.

So the 20% is organic growth in EBITDA. And then we are going to decrease the net interest-bearing debt to below 2.5x or lower by 2025.

Moving on. I get this question a lot at the moment, and I understand why; we are in the middle of refinancing our bond that matures in September. At the moment, obviously, as you all know, the market is a bit challenging, but I'm actually very happy as where we are now, and we are working on multiple tracks to resolve the bond.

So I feel actually quite calm regarding this, and I hope to have some news with you in a not-too-short future. Okay. So let's go over and try for any potential new visitors to kind of also describe a little bit in more detail what we do. So we have a diversified and intelligent approach to the business we operate in. One part, I would say, is our innovative SEO, and we are seeing good growth in our affiliate segment again, which is due to the optimization of the way we work. We also have advertising networks where we build networks with other advertisers and allow them to capitalize on our, basically, connections with the operators.

We do have PPC and media in-house, which means we do buy advertisement as well and drive traffic that way. Plus, we also have set up one really big media partnerships in the Netherlands, but we are also working on securing other media partnerships, where we basically provide both content but also business connections to advertisement -- or sorry, to media houses so that they can also work with the affiliate business.

All this is based on our software platforms, which is Voonix, I would say, is a key component. I will talk more about this later. And then CAS, which is our website management tool. So if we look at the affiliates segment, this is where we have, call it, our traditional affiliate business where we have a lot of brands that are consumer-facing.

So for example, in Sweden, one really big brand that we have here is the Gambling Cabin. That has Svenska Spel as its largest customer, for example, and there, you will be able to find a lot of podcast content, streaming content, whether being poker or streaming during football games, et cetera.

We have the festival, which is where brick-and-mortar meets online. It creates a lot of content for online but also drives the conversion between offline to online. And it gives us a quite unique position as well. On top of that, we also have all our other websites, PokerListings, compare casino, casino guide, CT10, top net and all of these normal affiliate sites, if you will.

And then we have the SaaS segment. Key in the SaaS segment is Voonix and software versions of Voonix. So Voonix is BI and that data gathering tool that is used to understand your affiliate business. So we use that ourselves, but it's also sold on a subscription basis to other affiliates that wants to track their revenue streams and understand better their own business.

On top of that, we have Matching Visions. That's also using a version of Voonix. But what we have there is business contracts, basically. So if you are an affiliate, Matching Visions is the affiliates best friend in terms of that if you sign up with Matching Visions, you do get access to all our underlying business terms and contracts with other operators, which means to become an affiliate, you really only need to become a customer or a partner with Matching Visions and you get access to industry-leading software and some of the best deals and terms you can get in the industry.

So Matching Visions is working with other affiliates. So it's a business-to-business as such. Dream Stream is pretty much Matching Visions, but really targeted towards streaming content because it needs a few other software traits. So that's some of the key brands that we have in our SaaS segment. And this is something that we really see a great future for here.

So moving forward and talking a little bit about our key markets. The Dutch market, still something we have been talking a lot about lately, and it is one of Europe's largest market and 2 years ago, it was this company's largest market as well. However, since we shut down our business there to stay compliant, obviously, that is no longer the biggest market. It's a nonexistent market up until recently because now it has opened, but we still have, of course, really strong presence and local knowledge.

And we have adopted our product offering to the new legal framework. So we are fully compliant. What we have seen, though, and I think a lot of other players in the market has discovered is that it's taking off a little bit slower than expected, the Dutch market. That's due to actually quite a few entrants, if you will, the affiliate business works really well when there is a lot of heavy competition on the market because there is so much choice for the user.

So that means an affiliate has a reason to exist. But if there is only 5 operators to choose from that affiliate model isn't as strong. But as more and more operators are coming online in the Netherlands, we will see this market growing as well. And we will grow with it, and we will grow quicker than it as well.

If we just look at U.S. a little bit of an update as to where we are, we have licenses in a lot of states where we're active. We have applied and filed for more. And then, obviously, there is ongoing regulation talks, especially California is the one that I think a lot of us are keeping a very big eye on because that market in itself is very, very big.

And then U.K., it is Europe's biggest market still. And now it is also our fastest growing market. This is -- has become our biggest market as of the last 6 months because we have seen some tremendous success with one of our brands in the U.K. market, which means that we are growing faster -- the fastest we are growing is in the biggest market and in the heaviest competed market. And I think that speaks volume to the talent that is within our company is that we are managing to outperform all our competitors in the biggest competition in the biggest market in Europe, basically.

So Rod, over to you and some financial details.

[Roderick Attard, executive]

Thank you, Robert, and good morning, everyone. Now we'll be looking at the financial development of the company. Starting off with the revenue. As Robert explained, we have seen consistent growth in our revenue quarter-on-quarter for the past 5 quarters, reaching EUR 7 million in revenue during Q1 2022. This represents a growth -- year-on-year growth of 26%, driven by the acquisition of the Gambling Cabin executed April last year as well as strong organic growth of 15.5%.

If we switch then to the NDC part on the right-hand side, we also see positive NDC development where NDCs have increased by 6% year-on-year. As Robert explained NDC stands for new depositing customers. It basically represents the number of depositing players we have referred to our partners via our different products.

Since Q1 last year, we have been operating with 2 businesses. The iGaming affiliation business is represented by the dark green stacks, whereas the SaaS business is represented by the arrow sticks. We will go into the KPIs and the financial development of each business in a few slides' time. Before that, we delve into more detail about the year-on-year growth in revenue. Here, we're comparing Q1 2021 against Q1 2022. We see that the main or biggest growth drivers were the network model within the SaaS business and sports betting vertical within the affiliation business.

Poker and subscription model also increased by lower amounts year-on-year. Casino, on the other hand, has decreased year-on-year, and that's the effect of the company's adjustments in the Dutch market. Switching then our focus on the cost base here comparing Q4 against Q1 this year, and we see that the cost base has decreased quarter-on-quarter.

Here, we're looking at the main cost items at a high level, starting with the payouts in this network model. This is a direct variable cost, meaning that it will move in parallel with revenue. So in the network model, we have seen a 5% increase in revenue, hence driving the approximately 5% increase in the cost base.

If we then switch to the other external costs and personnel costs quarter-on-quarter, they decreased, and that's the effect mainly of the efficiency plan we have launched in mid-Q4 in mid-November. The growth in revenue as well as operating at a linear cost base have pushed EBITDA up to almost EUR 1.8 million.

The iGaming affiliation operated during Q1 at an EBITDA margin of 50%, whereas the SaaS business has operated at an EBITDA margin of 13%. And then if we take into account the central costs, and all -- both business segments, we have a blended group EBITDA margin of 25%. During Q1, we didn't have any one-off costs. The only one-off item we had was the profit on disposal from the sale of the finance affiliation assets. This is not included in the charts. So if we included the EBITDA would go up from EUR 1.8 million to EUR 2.2 million.

Now we're going to switch our focus on the segments, starting with the iGaming affiliation. Revenue has increased by 5% year-on-year and 10% quarter-on-quarter, driven mainly by the sports betting and also by poker to extent.

Casino, as we have already covered, has been impacted by the adjustments in the Dutch market. NDCs growing now to 18,700, NDCs registering the highest number of NDCs delivered by this business.

In terms of revenue split, if we start with the split by model or contract type, we see that almost half of our affiliation revenues come from revenue share, representing sticky revenues. By sticky revenues, what we mean is that the NDCs we have delivered during Q1 via revenue share deals have generated revenue during Q1, but they will also continue generating revenues in coming quarters throughout the lifetime of each player.

In terms of geo split, we see that 17% of our revenue came from North America, whereas Europe remains our biggest market, registering 66% of the affiliation revenues. Europe is now a more mature market where we have many big countries now have regulated markets, hence ensuring more sustainable revenues in the future.

In terms of EBITDA, the business -- the iGaming affiliation business delivered almost EUR 1.5 million in EBITDA during Q1 and that represents a 47% increase quarter-on-quarter. EBITDA margin has increased from 37% in Q4 to 50% in Q1, which gets us more in line with the Q1 last year. This is driven, of course, by the increase in revenue as seen in previous slide, but we also see on the right-hand side, the decrease in cost base. Quarter-on-quarter, the cost in the affiliation business has decreased by 12%.

Now moving to the second business, which is SaaS. In terms of revenue, we see continued positive momentum -- growth momentum in the SaaS business, where revenue has now reached EUR 4 million. And the growth has been driven by both verticals. The network model has grown by 48% year-on-year, whereas the subscription model increased by 25% year-on-year. NDCs within the SaaS segment are delivered by just the network model. So as Robert explained, the subscription model only offer subscription solutions, whereas the network model offers subscription. And on top of that, there's the business arrangements, business agreements via which we deliver NDCs to our partners. NDCs year-on-year has increased by 7%.

However, we see a decline quarter-on-quarter during the past 2 quarters. However, that decline has not had any effect on revenue. In terms of EBITDA, the SaaS business has contributed with just over EUR 0.5 million in EBITDA during Q1, and that's driven by growth in the both verticals. EBITDA margin has increased from an average of 8% during 2021 to 13% in Q1 2022. RGUs or revenue-generating units represent the number of legal entities serviced by this business line. RGUs kept increasing quarter-on-quarter, which is -- shows the same trend, same chart, more or less of the revenue chart we have seen in previous slide.

Now switching our focus on the financing. Our gross debt has continued to decrease quarter-on-quarter now reaching EUR 19.2 million or EUR 19.3 million in -- by the end of Q1. During 2020, we have repurchased our bonds. And in 2021-2022, we continue to amortize our bond, thus decreasing our gross debt and interest costs. We operate a high cash conversion business model, thus allowing us to decrease our gross debt at a fast pace. The net debt-to-EBITDA ratio has decreased to 3 in Q1 2022, and that's driven by the improved EBITDA as well as maintaining high cash conversion, which leads me then to the next and final slide, cash flow development.

Here, we see that the cash flow from operating activities amounted to just under EUR 1.5 million. Cash conversion remained high at 89%. Cash flow from investing activities represents our continued investments in our products. However, in Q1 was set off against proceeds coming or cash inflow coming from the sale of our finance affiliation assets. The profit on disposal also explained why we have a high noncash item in the operating cash flow section. Cash flow from financing activities as previous quarters mainly represent the payment of amortization and interest costs relating to our bond.

And with that, I hand over to Robert for his concluding remarks.

[Robert Andersson, executive]

Okay. So just to repeat some closing comments. I'd say that the main message is that refinance work is underway, and we're confident that this is going to be resolved shortly. Secondly, we are, I'd say, back on track. It's taken us a little bit longer or at least a little bit longer than I would have liked to get back to proper growth after this period of change, but we're finally seeing the results of all our hard work.

All the acquisitions we have made are firing on all cylinders. So we feel really confident and happy about the position we are in at the moment as a company. So I'm looking really brightly on the future here. And with that, I'd say we open up for Q&A if there's anyone with us online or in the telephone conference that'd like to ask a question.

[Operator]

[Operator Instructions] We do not have any audio questions at this moment.

[Robert Andersson, executive]

Okay. Thank you so much for taking the time and listening, and we will be with you at next report then. Thank you so much.