Acroud AB

STO:ACROUD

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, welcome to the Acroud Quarter 2 Report 2020. Today, I'm pleased to present the CFO, Gustav Vadenbring. [Operator Instructions] Speaker, please begin.

[Gustav Vadenbring, CFO & Secretary]

Thank you, Melanie. We switch to the agenda on Slide #2. I'm proud to present the first Acroud interim report today. Unfortunately, our CEO, Robert Andersson, cannot participate at today's presentation as he's stuck in [ Bergen ], Malta with COVID-19. He asked me to let you all know that he's close to recovery and expect to be full back in action as usual within short. Consequently, it will be me Gustav Vadenbring, CFO, who will guide you through a few areas today.We start with some overall reflections about Acroud and the second quarter. Secondly, what is Acroud, some highlights from the quarter, financials for Q2, summary and outlook, and we will round off with some possibility to ask some questions.We move to Slide 4 for some overall reflections, which have characterized the second quarter. First, we moved very fast. The second quarter has been characterized by a high development pace, including name change, refinancing and restructuring to prepare the company for long-term future growth.Secondly, a new operational team has been formed, working to develop key assets of the company, such as Pokerlistings.com, Casinotop10.net and CasinoGuide.com, et cetera. This will be the foundation for our future growth.Third, COVID-19 impacting. We have seen a significant increase in traffic within poker and casino in March to May. Since June, we have seen more normalized traffic levels. Finally, we see an increase in traffic and opportunities in North America in the second quarter. We also see an intensified operational focus on less brands on key markets, which will lead to future growth. All in all, we are pleased to see that we moved very fast in Q2. Slide 5, please. We have several operational initiatives ongoing which is of high priority and will lead to stronger growth and improved efficiency. First, operational efficiency. New key employees have been signed, increased focus on execution and doer mentality where we allocate more resources to a smaller number of focus areas to get stuff done in an entrepreneurial way. Second, rollout in North America. We have strengthened the U.S. team with key employees, accelerated rollout of brands. 7 to 8 licenses in North America is being currently processed. Third, new partners and counting. We have also strengthened the key account team, increased pace on adding new partners and deals, thereby strengthening our product offering to our users.Fourth, the development of Pokerlisting continues. Launch and development of sports betting and casino sections on Pokerlistings, there are 2 upgrades on several focus markets to increase the traffic.Finally, the development of sports betting offering continue. We continue to develop the MaxFreeBets domain and strengthening the overall product offering. All in all, lot is being done in an entrepreneurial highway pace.We flip to Slide 6. In July, we launched a new name, Acroud, which is -- was part of the extensive change work initiated during the spring. The business previously conducted under several names such as Net Gaming Europe and Highlight Media Group, creating a lack of clarity and efficiency, both internally and externally. Hence, it makes sense to change the name and have a real fresh start. In connection with the name change, we also launched a manifesto, being the backbone and the soul of the company and the employees on our coming growth journey. So what is Acroud? And who are we? Slide 7, please. We are a challenger on a quest. We are adapting and we are here to disrupt and claim what hasn't been claimed. We are here for the challenge, for the joy, for the pride of giving people guidance in their everyday life, and people and brands supporting brands building their crowds. We are here for the challenge because that's our motto, on how to enable synergies between people and brands. We are here for the joy because that's our motto, on how to attract and nurture existing and future talent. We are here for the pride because that's our motto on how to build confidence and long lasting relationships. We are a challenger on a quest and our journey has just begun. We are Acroud. Join the ride.Slide 8, please. So we are always -- we've always been proud. We think of ourselves as a proud crowd. We are Acroud. Now we invigorate our brand with an invitation: join the ride. So this is our manifesto and what we stand for on our coming growth journey.We move to Slide 11 and Q2 highlights. Our second quarter was a strong quarter, reaching 2% organic growth and 12% sequential organic growth towards Q1 '20. Visits and leads increased between March and mid-June within poker and casino, mainly driven by COVID-19 situation. The restructuring initiatives were finalized in Q2, impacting the operative cost base by one-off cost of approximately EUR 550,000. Consequently, adjusted EBITDA reached approximately EUR 2.1 million, which was in line with last year. As key milestone was the successful refinancing, which was secured in until September 2022 with unchanged interest. In addition, our cash generation continued to be high, enabling additional repurchase of bonds in the second quarter.Slide 12 and Q2 significant events. As mentioned, we saw intensified change management, including a number of quick and long-term adjustments to generate growth. In connection with this, we published our current trading update in June. We've seen accelerated focus on North America, including setting operational themes, social gaming and license applications.The refinancing was secured until September 2022 with a retained interest rate of 7.25%. We also saw a continued improvement of capital structure where additional repurchase of bonds to strengthen capital structure was executed. We flip to Page 13 and events after the quarter. We launched the new name, Acroud, which we just presented, and this was part of the extensive change work initiated. In addition, we adapted and took measures to create a strong long-term position on the Dutch market when opening Q1 2021. We made an adjustment of the product offering to ensure comparability with rules of -- on the Dutch market. The adjustment will have a negative impact on revenue in the short term. However, the measures is our long-term investment to ensure a strong and sustainable position over time on the soon to be regulated Dutch market. We proceed to Page 15 to give you a flavor of the financial development. We see that revenue and EBITDA development have been stable last quarters, increasing in Q2 '20, which is driven by poker and Casino verticals. We also clearly see that the strategic shift from CPA to Webshare has -- as previously communicated, stabilized around 55% to 60%, reaching 55 -- 57% revshare share in Q2 '20. We go to Page 16, revenue mix and NDC. It is positive to see that poker is picking up and gaining ground, reaching 21% of revenues in Q2, driven by intensified focus on Pokerlistings.com, World Series of Poker and also impacted to some extent by COVID-19. Betting is showing somewhat slower recovery, comprising 4% of revenues in Q2. We see great opportunities within sports betting recovering, as main sports events and league starts again over time. We also see great opportunities in North America now reaching 15% of total revenues.The NDC development is increasing with 8%, somewhat more than revenues, revenues also driven by poker and Casino vertical.We proceed to Slide 17, showing our P&L. Revenue and EBITDA development have been stable last quarters, increasing in Q2 '20. The P&L has been impacted by the restructuring initiatives and the refinancing resulting in items affecting comparability or one-off items in Q2 '20. Notable is that the restructuring initiatives is deemed to be completed in the Q2 '20. We can see that our cost base in Q2 '20 is in line with same period last year. The employee costs have decreased due to less headcount. Other external cost has increased due to somewhat higher bad debt provisions and consultancy costs for site development.We switch to Slide '18 for some information about the items impacting comparability during the period. The operating cost base has been impacted by restructuring cost of approximately EUR 550,000 in Q2 '20. The depreciation and amortization has been impacted by EUR 503,000 due to write-down of the poker local brand, which was previously communicated. And the financial net Q2 '20 has been negatively impacted by EUR 240,000 related to the consent fee in connection with the refinancing and approximately EUR 1.1 million due to translation effects related to the revaluation of the bond. You will find details about the financial impact of items affecting comparability in the Note 8 in the interim report. With that said, we proceed to cash flow section on Slide 19. We have a continued strong operative cash flow last quarters where Q2 '20 reaching approximately EUR 2.4 million. The cash conversion continued to be high, enabling deleveraging. Simultaneously, the working capital has shown a positive in the development through the successful cash management initiatives. Cash flow from financing activities is mainly affected by refinancing costs and interest payments in Q2 '20. Page 20, please, net debt and EBITDA. As our business model enables fast deleveraging through strong margins and high cash conversion exceeding 80% in general, we deleveraged relatively fast, decreasing our gross debt, which can be seen in the table to the lower right. The continued repurchase of bonds in first half year '20 has decreased gross debt and any interest costs over time. We proceed to our financial targets on Page 21, please. It should be noted that the financial targets should be reflected upon over time, meaning 2 to 3 years' time span. We will continue to work towards long-term growth and increase EPS levels for our shareholders. We advance to the final Page 23, with final remarks and outlook. We will likely see a somewhat more challenging second half year '20 as we see short-term regulative impacts back to normalized traffic levels. In addition, we see somewhat slower recovery within sports betting.We conclude and summarize 3 key growth initiatives. We have -- first, we have U.S. growth focus, 7 to 8 licenses coming months, U.S. team strengthened, and we are developing key brands. We dig deeper. We will increase market share on existing markets and existing brands. Less is more. We increased focus on the key brands, the new operative organization we have.Sports betting focus. We continue to develop the sports betting concept, strengthening the organization and the key brands.And finally, we continue to optimize their capital structure to decrease our gross debt and release capital for our operations.With that, I leave the floor open for any potential questions, and we switch to Page 24.

[Operator]

[Operator Instructions] We have no question for the moment.

[Gustav Vadenbring, CFO & Secretary]

Okay. Then we thank you very much for dialing in, and we look forward to be in touch on our coming meeting in -- for the third quarter '20 within short.Thank you very much.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.