Acroud AB

STO:ACROUD

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, and welcome to the Q2 2022 earnings call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Robert Andersson, CEO. Please go ahead.

[Robert Andersson, executive]

Okay. Thank you so much. Good morning, everyone -- to our Q2 2022 presentation, where we have had continued strong growth, and we also secured our refinancing. If we move on -- well, first of all, my name is Robert Andersson. I've been the CEO of the company now for about 2.5 years. And then with me, I have Roderick Attard. He will be doing the financial details later in this call.

But first off, we start off with a summary of this quarter. So if we look at revenue, it amounted to EUR 7.2 million. And if we look at EBITDA, it's EUR 1.8 million and NDC was a solid EUR 35,000. As you can see, we have year-over-year performed nice growth and even quarter-over-quarter to some extent. And we can move on.

If we look at the activities during the quarter, we released new financial targets. We secured the refinancing, and we have an acquisition in progress that we have announced. And I will now give you a little bit more flavor on this. So with regards to the financial targets, we will deliver an EBITDA of EUR 8 million to EUR 10 million this year, and we will grow EBITDA organically with 20% annually during the years '23 to '25, at the same time, as we are decreasing net interest-bearing debt to EUR 2.5 million or lower by December 2025.

And the new bond, this has or was the predominant work during the quarter for management. As you are all aware, it was a challenging time in the world and especially when it came to debt financing. There was pretty much a halt or a standstill in the bond market, which made this a longer process than we had hoped. However, we did manage to secure the fund and placed SEK 225 million in order to redeem the outstanding bond that we have. And now we have another bond running on 3 years. This gives us a solid momentum to developing Acroud with a focus on profitable organic growth and to take the company to the next level. So I'm very pleased with the fact that we did land this in the middle of the turmoil that's going around in the world. It gives -- it's a sign of strength for this company for sure.

If we go to the next slide. We did announce that we are working on an acquisition. This work is still ongoing, and I'm very hopeful that we will soon have this transaction closed. Due diligence has been taking a while, but everything is on track and it's progressing well. The target itself is a company with an affiliation in media. It's predominantly a European business focused in the sportsbook market. So it will be a nice addition to the mix of our revenue, and it's predominantly revenue share. So I'm really looking forward to getting this over the line and bringing it in under the Acroud umbrella.

So as you can see, we have a nice progress with our revenue, the revenue development. As you can see, it's solid. It can always go a little bit faster, obviously. And hopefully, we are churning up the pace here towards the end of the year in revenue growth as well. What's nice to see is that you can see that both the SaaS segment and the iGaming Affiliation segment is growing. And we can continue.

So I'll just give you a little bit of a description of Acroud. So Acroud, I would say -- I'm also part of the naming of the word Acroud, which a group of people, although they have spelled it a little bit more interestingly, is that we have a group of different ways of working. It's a group of different companies. It's basically diversified but still a group.

We work with innovative SEO. We have advertisement networks. We do PPC and media in-house. We are working with media house partnerships, and we do have this based on our own software, which is predominantly Voonix.

Moving on. This leads us to be able to create a lot of brands. In Sweden, for example, TheGamblingCabin is a very strong brand. Other than that, we have a lot of other casino brands. And in the SaaS segment, we have Matching Visions and Voonix being the really predominant brands. Voonix being the software provider, while Matching Visions, I would say, is a super affiliate network based on the Voonix software.

I would like to highlight during this quarter something that I'm very happy about, the progress we are making, which is PokerListings. So this one is a current success story. And in all fairness, this company has its root in this one product many, many years ago. This was -- this company was solely poker listings pretty much during the Poker hayday.

But through the years, PokerListings went towards an evergreen content staffing side, but we have revamped that. Started treating it much more like a sports side, if you will, providing interesting information, stories, coverage of events, there's podcasts, et cetera. And we have seen a really nice uptake in this strategic change, and it just goes to show that content is king in these type of things. So poker and sports is really vital to be able to provide interesting content. But I'm really happy the direction this is -- because poker is not necessarily in this industry seeing as a high-growth vertical, but we are seeing really strong growth in that is because we are reclaiming our position as #1 here.

A little bit of a market update. If you look at Acroud, nowadays, U.K. is our biggest market. And for us, it's also Europe's biggest market. It's also Europe's most competing market. It's quite hard to succeed in the U.K. because the competition is really high. But what we are seeing is our fastest-growing market, and we are outperforming our competitors in U.K., which, again, is proved to our capabilities in a well-functioning market.

If we do go on and look at the Netherlands, this has suddenly not yet turned into a highly functioning marketing. It's developing a lot slower than expected. I have much higher hopes for the Dutch market. And I would say it's going to take a little bit more time. So I will be cautious because we need to have a lot more companies online with their licenses for it to work well for an affiliate. It's coming. I just don't want to have to -- give everybody hopes that it's going to go as quick as I thought it was going to be.

Luckily, I would say that we have had so much success in other functioning markets that it has mitigated the fact that the Dutch market hasn't developed as we saw. We saw -- actually, if you look at it a year ago, we were sitting here believing that the Dutch market was going to be our real source of explosive growth during 2022.

It didn't turn out like that, but we still managed to deliver good growth during 2022 so far. So I'm very happy. It's a sign for that we work well in working markets. We can move on. So now over to you, Rod.

[Roderick Attard, executive]

Thank you, Robert. Let's jump straight into the financial figures. So since January 2021, key growth has been on 2 businesses. In parallel, we have the iGaming affiliation business, here represented by the green stacks; and the SaaS business represented by the yellow stacks. This means that with the strategic move, Acroud has diversified its business, introducing new revenue streams. So we're no longer dependent on just iGaming Affiliation revenues, but we're able to produce this SaaS revenues in our portfolio.

We will be looking at the performance of each segment -- of each business later in this presentation. Group revenues, as Robert said, have continued to increase now for the seventh quarter in a row, reaching EUR 7.2 million in Q2. This represents an increase -- a year-on-year increase of 16%. Out of the 16%, 15% represents pure organic growth. So we're excluding any effects coming from foreign exchange, acquisitions or divestments. More information about our organic growth calculation can be found in our interim report.

Out of the Q2 revenues, iGaming Affiliation represented 44%, whereas the SaaS business contributed with 66%. Looking at NDCs, we see positive strength. NDC stands for new depositing customers, which represents the amount of new depositing players we have referred to our partners. We see a nice growth, reaching over 35,000 NDCs in Q2. This represents a 19% increase year-on-year in NDCs and 5% quarter-on-quarter, and such growth is mainly coming from the iGaming Affiliation business, where we have seen NDCs growing year-on-year by 68%.

In previous slides, we have seen that revenue year-on-year has increased by EUR 1 million or 16%. In this slide, we're breaking this growth down by our different products, and we still see that the growth driver is coming mainly from 3 main products: the network product within the SaaS business, the subscription product within the SaaS business and the poker product within the iGaming Affiliation business.

Casino revenues have decreased year-on-year and the direct effect of the company's adjustment in the Dutch market. However, comparing this decrease, we're pleased to have had in previous quarters [indiscernible] such decreases are decreasing or smoothing, and that's the effect of the organic growth we are seeing in other casino assets, for example, U.K., just like Robert mentioned earlier.

Moving on to the cost base. Here, we're comparing Q2 cost base versus Q1, and we can see that quarter-on-quarter, our cost base has increased and we're disclosing here the main cost line items, starting off with the network, more details. This is a direct variable cost meaning that we move up and down according to revenue, particularly within the Matching Visions brands hence explaining the quarter-on-quarter increase.

Other expenditures have increased quarter-on-quarter, and that's coming from increased investment in growth initiatives. In quarter 1, those were very limited. In Q2, we have invested more. And here, what we're trying to do is drive the right balance between investment and future growth, but not helping too much short-term profitability. Other net operating costs have increased quarter-on-quarter. That's coming from unstable movement in foreign exchange. So can be considered as a one-off. The move from an FX gain in Q1 to one FX loss in Q2 due to the global situation we are all aware of. Having said that, we have taken the necessary measures to mitigate any FX risks.

Such increase in costs have been partly set off by a decrease in personnel costs amounting to $46. We will continue to focus on costs and cost controls in order to run operations with high margin, which leads me to the next slide. Group EBITDA. In Q2, it amounted to EUR 1.8 million, representing a growth of 20% year-on-year. During Q2, our iGaming Affiliation business operated at an EBITDA margin of 47%, whereas the SaaS business operated at an EBITDA margin of 14%. Thus giving a blended group EBITDA margin rate of 25%.

During Q2, we didn't have any one-off income or one-off cost. In the next few slides, we're going to focus just on the iGaming Affiliation business, starting off with revenue. During Q2, Affiliation revenue amounted to just under EUR 3.2 million, representing a growth of 8% quarter-on-quarter and 8% year-on-year. This year-on-year growth is driven mainly by poker vertical as we have seen in previous slides. We see that Casino historically has been on declining trends, as such that declining trend is coming from the company's adjustment in the Dutch market. And such a declining trend has, let's say, been stopped, let's say, towards Q3, Q4 in 2021. And in Q2, we can see that Casino is returning to growth. We see a sequential growth in Q2.

Sports Betting quarter-on-quarter has decreased and that's the direct result of seasonality in football and sports calendar in January. NDCs on the right-hand side, showing positive trends. The amount of new depositing players referred to our partners amounted to just over 20,700. That represents an all-time high figure for the iGaming Affiliation throughout the company's history and growth rates for future revenues.

The growth is coming mainly from the Casino vertical, but we also see year-on-year growth in Sports Betting. One point which I would like also to highlight when it comes to iGaming Affiliation revenue is the drive to diversify our traffic sources and help our revenue sources. Up until Q1 2021, our traffic sources and revenue sources purely were 100% coming from SEO affiliate websites. But with the acquisition of TheGamblingCabin executed in Q2 2021, we have diversified our traffic sources and start doing affiliation through social media platforms.

With -- during Q2 2022, 85% of the iGaming Affiliation revenues came from SEO traditional affiliate websites, while the 15% came from the social media platforms. With the revenue diversification in mind, we see we have more information about our revenue diversification within the IT [ movement solution ] business.

We see that 41% of our revenue is coming from revenue share deals, up sales and new marketing initiatives contributed to 27% of Q2 affiliation revenues. In terms of geo split, North America represented 15% of our revenues, whereas Europe continued at strong levels at 71%. The good news about Europe is that many countries are -- have now regulations in place, granting more stable revenues and more stable growth in the future.

Switching our focus to costs and EBITDA. The iGaming Affiliation generated just under the EUR 1.5 million during Q2 in terms of EBITDA, representing a growth margin growth of 2% year-on-year and 1% quarter-on-quarter. This means that from the 8% revenue growth we have seen in previous slides, only part of it has trickled down to EBITDA. And the reason for that is also reflected in the cost chart. And as we have covered earlier, it's driven by increased investment in growth initiatives. However, as we said, we're trying to find the right balance between investing in future growth, but not hurting too much short-term profitability. And we have also been hit by the adverse effects from FX fluctuations, which we have now at this and look forward but not to have that again in the future. IGaming affiliation, as we said, operated at an EBITDA margin of 47% during Q2. This compares to 43% in Q2 last year and 60% Q1 this year.

Now we're going to focus just on the second business, the SaaS. We see that revenue during Q2 amounted to just over EUR 4 million. It's approximately in line with Q1 and represent a growth of 24% year-on-year. Such growth is driven by both products, the subscription products growing by 57% year-on-year and the network product growing by 21% year-on-year.

On the right-hand side, we see the NDCs development. NDCs are delivered to our partners from the SaaS business via the network model only. During Q2, it amounted just over 4,400 NDCs, representing a drop of 16% year-on-year and 3% quarter-on-quarter. Although we see that such decline did not have an effect on revenue, we're working towards reversing this trend.

Moving on to EBITDA. During Q2, SaaS generated an EBITDA of EUR 540,000, thus maintaining EBITDA at high levels. This represents an increase of 88% year-on-year and 6% quarter-on-quarter, which, of course, is nice to see. The growth in EBITDA is driven by the -- by both products, particularly from revenue, while it was a remaining at constant levels.

Revenue generating units, or RGUs, stands -- or represent a number of client service by this business line. It continues to grow quarter-on-quarter, reaching 422 clients during Q2 this August for future revenues. It also means that we have high retention rates in this business.

With that, we closed the income statement chapter and we focus now on financing and cash flow. On the left-hand side, we see that our gross debt continues to decrease quarter-on-quarter, reaching EUR 18.3 million by the end of Q2. Our net debt-to-EBITDA ratio also decreasing to EUR 2.9 million by the end of Q2. We operate a business with high EBITDA margins and high cash conversion thus allowing us to continue decreasing our debt.

As Robert mentioned, in July, the old bond, which was due to mature in September was within [indiscernible] and was paid in full during July. And now from July onwards, we're under the new financing [indiscernible] bond.

Moving to the last finance slide where we see the cash flow development. We see that cash flow from operating activities amounted to just under EUR 1.5 million. Cash conversion decreased to 74%, which is lower than Q1 and lower than our targets. It's driven by negative -- statutory negative working capital, which we are working to address now already in Q3.

Cash flow from investing activities comprise mainly the continued investments in our products. Cash flow from financing activities that can be grouped into 2. There's the cash outflow coming from the bond payments, mainly the quarterly amortization and quarterly interest payments. Then we have advanced along to a third party. The settlement of which have been either via the part settlement of the acquisition we have announced in June and which Robert referred to; or if transactions canceled, it will repay back within a maximum of 30 days. And with that, we close the finance section, and I hand over back to vet to Robert.

[Robert Andersson, executive]

All right. So with all of this said, I'm happy with Q2, but you can always be happier, and I'm really looking forward to Q3 and Q4 this year. I feel very confident about our financial targets going forward. So with that, I will now open up for questions.

[Operator]

Gentlemen, there are no questions at this time.

[Robert Andersson, executive]

Okay. With that, then thank you so much, and I look forward to presenting and seeing you at our Q3 presentation.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.