Awardit AB publ

STO:AWRD

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Erik Grohman, executive]

Good morning, everyone. Welcome to the first quarterly call of Awardit. We'll wait for a couple of minutes to ensure everybody is joining the call. So, please bear with me for a couple of minutes. All right. So, let's start. Good morning, everyone. I hope you had a good morning so far, and welcome to the presentation of the interim report for Awardit first quarter 2024. This presentation will be recorded and published on our website after this call. And if you have any questions, please put them in the chat, and I will answer them in an orderly fashion after the presentation. So, let's begin. My name is Erik Grohman. I'm the CEO of Awardit, and I joined Awardit in March '22. And Awardit, as most of you know, is the market leader in the Nordics with a strong footprint in German-speaking markets of Europe within 2 business segments: loyalty and gift card solutions. And within this, we cater for all client needs. We have a full house of service within these 2 business areas. We develop and work together with clients to bring our solutions to the market. We work with conceptualization, strategy around loyalty solutions and gift cards, design and UX. We cater for SaaS-based platforms. We provide partnership models to our clients. We provide loyalty marketplaces and shop solutions, and customer support logistics solutions, et cetera. So, in principle, whatever the client needs, in gift card solutions and loyalty solutions, we can provide this. And the company was founded in 1999. We have made 12 acquisitions since our IPO, 6.5 years ago, to put us in this position where we are a one-stop shop provider of gift card and loyalty solutions. Today, we have offices in Stockholm, Gothenburg, Copenhagen, Hamburg, Wels in Austria, and Weingarten in Germany. And our vision is to become the leader in the industry on a European level. And on this journey, our mission is to help customers to improve customer satisfaction, retention, and sales. And we have developed our SaaS toolbox that covers all parts of the value chain for loyalty incentive and gift card programs. And today, we run and support more than 250 programs in the Nordics, reaching more than 15 million end users, and we have a very wide reach also in DACH, the German-speaking markets of Europe. Over time, we have seen strong organic growth, a highly scalable business model, and increased profitability over time. And as I mentioned, we have a track record of 12 completed acquisitions since our IPO, and we see the European market remaining fragmented, which gives us the potential to consolidate the European market further. And if you look at our time line of the business, these are our 12 acquisitions across the gift card and loyalty segments. And notably, the last 3 acquisitions that we have made from December '21 of Prämie Direkt, moving on with Connex in February '23. And IPO, IPO in November last year, all the last 3 acquisitions are in DACH and the German-speaking markets of Europe, in Germany and Austria. So, 12 acquisitions, 9 in Nordics and the latest 3 in DACH. If you look at our last years, we are on a growth path, obviously, due to organic growth and acquisitions. Last year, we delivered SEK 1.1 billion in revenues for the full year, and we delivered an EBITDA of SEK 76 million for the full year. And here, we had a negative effect on the EBITDA last year by primarily MBXP audits and movements in our fully-owned subsidiary, MBXP in Denmark. Also, so in total, we had nonrecurring events of around SEK 20 million in 2023. Obviously, you can read more about those details in the annual report. And if you look on the right-hand side here, that shows that the core business of the Awardit, which is the business of Awardit excluding the acquisitions made in 2021 to 2023, which is inspiration company, MBXP, Prämie Direkt, Connex, and IPO. This core business continues still to grow. And last year, we had a growth of 9% in this core business. And if you adjust for sell-the-recurring sales that we had in '22, the growth was 13% in 2023 on the core business. And this comes from existing clients that continue to grow with us despite the challenging market. It comes from adding new clients to our existing platforms and also from some extraordinary events that could, in some cases, trigger additional sales. So, moving on to this year and to the first quarter. We see a growth in revenue in both loyalty and gift cards for the quarter. For the Loyalty business, we had a net revenue growth of 35%. However, the organic growth of loyalty business area was 0%. So, same numbers basically, in terms of revenues as last year. And this is due to -- we have seen a strong development of the Nordics, even though the market is a tough one, our clients somewhat face difficult market circumstances, we continue to grow in the market. Obviously, we believe we could see even stronger growth in the Nordic market with other market circumstances. But in Q1, we continue to grow in the Nordic market in the Loyalty segment. However, the DACH market remained challenging in the first quarter. And both Connex and Prämie Direkt showed negative organic growth for the quarter, which makes the total organic growth 0. And here, in the quarter, Connex adds SEK 9.5 million of nonorganic, so noncomparable revenues for January as we acquired Connex in February last year. And IPO, our latest acquisition adds SEK 49 million to the quarterly revenue of the loyalty business area as it was not part of Q1 last year. If we look at the gift card business area, we had a growth of 9% in the quarter. And here, the organic growth is negative by 2.2%. So, we are adding here Connex for January, which is adding SEK 6.4 million of growth, which is not comparable to last year, again, because we acquired Connex 1st of February last year. And here, in the gift card business area, we see an organic growth from new customers within our Swedish gift card business. We see a year-on-year net revenue growth at MBXP, which is very positive to us. However, also in the gift card business area, Connex shows negative organic growth for the quarter for the 2 months of February and March. And this is mainly both for the Connex loyalty business and the Connex gift card business. The reason for a slower first quarter is mainly because of a slowdown in our campaigns-based business. And here, we have campaign business in both Connex and Prämie on the loyalty side, but also on the gift card side. We are running campaigns with large clients where we see that part of these campaigns have been delayed and pushed. And we see that we have not had the number of campaigns that we ran last year in the first quarter. So, a decline, and we see that we will -- we have a potential, obviously, to deliver better revenues comparable to last year in the coming quarters, but might not recoup all of the campaigns that have been postponed from Q1. So, moving on to the total revenues. In the quarter, we delivered SEK 286 million of revenues for the group, and it's a 29% increase. So, again, it's a negative -- a slight negative organic growth. But adding Connex and IPO, which contributes on a total level, 64.9% of nonorganic net revenue brings us to the 29% growth in revenues on a total level for the group. And here, as I mentioned, we see an organic growth also in the Nordic business, but a decline in DACH, and therefore, a slightly negative organic growth on a total level. And also, the super gift net revenues included in the total revenues are at par with last year's numbers. So, roughly SEK 26 million of sales in super gift, which is a good number. We were rather happy with that last year, and we believe we have the potential to continue the success of super gift cause of this year. On the EBITDA level, we saw a growth of 25% of EBITDA compared to last year, delivering SEK 8.9 million in the first quarter compared to SEK 7.1 million last year. And if we adjust the EBITDA for the costs that we have incurred related to the public bid, which is SEK 4.9 million, the adjusted EBITDA is 13.8 million, and that can be compared to 11.5 million last year adjusted for the acquisition costs of Connex. And the costs incurred from the public bid comes from legal and financial advisory fees, and it's customary that these fees, while evaluating a public bid lie on the company side. Obviously, there are also costs on the bidder side that we are not taking as a company. And it's worth mentioning that in the EBITDA numbers, we have a nonorganic contribution from Connex in January, again, to compare assets and apples where Connex delivered a negative SEK 0.2 million for January and IPO delivered SEK 5.5 positive million for the quarter. So, the organic EBITDA comparable to last year's Q1 is SEK 3.6 million. And in those also is included SEK 1.5 million of breakage from super gift. And the super gift breakage has increased due to higher sales basically last year. And as you know, breakage is unredeemed values with Super gifts. And moving on, if we look at the core business again for the first quarter, it continues to stand strong. We continue to see stability in the core business. We have, in the quarter, delivered 8.5% of growth in the first quarter, delivering SEK 119 million from the business, excluding inspiration company, MBXP, Prämie, Connex, and IPO. And in the new business, so everything else that we add on here shown in blue, we have also, again, nonorganic addition from Connex, SEK 16 million for the quarter and IPO, SEK 49 million for the quarter, which is then nonorganic. The gross margin remains stable and somewhat growing. We have a contribution -- a positive contribution comparable to last year from Connex as they are part of the full quarter this year. Also, Prämie Direkt, even though they showed slower net revenue compared to last year. The gross margin is strengthened year-on-year and contributes positively to the gross margin on a group level. So, the gross margin moves from last year's 32.0 on the group level to 32.7 million this year. Also affecting gross margin, as always, is super gift sales and channel mix affecting the gross margin of primarily rewarded CL's where super gift sales is recognized. Then looking at the P&L for the quarter. To summarize, the net revenue, SEK 286 million compared to SEK 222 million last year. The commodities -- cost of commodities increasing due to primarily higher turnover, the product mix, et cetera. And as I mentioned, gross margin is slightly higher than last year. The other external expenses increased by SEK 8.1 million in the quarter compared to last year. And here, most of this is related to the addition of Connex and IPO for the full quarter. And also, we have costs, again related to the public offer of SEK 4.9 million included here, and that compares to 4.1 -- 4.4%, sorry, in Q1 last year related to the acquisition of Connex. And the increase in personnel expenses are related primarily to the addition of IPO and Connex, which brings us then to the EBITDA of SEK 8.9 million compared to last year's SEK 7.1 million. And moving on to the cash flow. As some might remember, we had a negative cash flow from operating business in the fourth quarter of last year, and that has now been caught up in the first quarter, which we also indicated would happen after the fourth quarter. So, we had a positive cash movement from the operating business of SEK 27.1 million for the first quarter. Within the investing activities, the lion's share of the difference between opening balance and closing balance for the quarter is that we have invested in short-term financial assets of roughly SEK 49 million. And also, in terms of financing activities, we have closed the term loan of SEK 90 million within our existing revolving credit facility. And this is to balance our cash position in a better way than when we entered into the quarter. So, comparably, if you want to look at a comparable cash and cash light position in the end of the year, we can take the 170.2 million and add the 90 million that we have paid back and the 48.7 million that we have placed in short-term assets, which makes the comparable cash position around SEK 309 million. So, to summarize, we see continued organic growth of our core business, and that lays the foundation for higher revenues and improved results this year and beyond. I believe we have a strong position in DACH through the 3 acquisitions that we have made, and we have the potential to grow in the region, getting these free in place to combine in a very strong way, and also benefiting from synergies of scale that would also already can see in the profitability levels that we can deliver from IPO in the first quarter. We are realizing procurement savings. We are realizing cost savings that we have identified across the group of around SEK 15 million to SEK 20 million that we have talked about last year. And then I would like to point out that partly these cost savings are balanced by other investments and partly also balanced by inflation driving costs up in part of the business. We see a continued potential to launch super gift. We have launched super gift in DACH through the Connex's channels. We also have other products and other brands that we could launch in additional variants and in new markets, such as our very successful hotel box product at Connex. We do still have a steady flow of new customers. We have added customers in the first quarter, primarily in the gift card business area, but also in the campaign-based loyalty business. And we have a continued strong pipeline of new prospective customers that we are in dialogue with. We also have additional value-creating acquisitions that we have identified. We have a strong position of cash and cash-like items, which provide a buying power, and we believe that we can continue to consolidate the European market. And we believe there are opportunities also still in the Nordics and in the DACH region as well. Also, I want to bring up that we have completed the internal audit of MBXP, and that the business is on track to be back to profitability on a full year level this year. And our vision remains to become the leader on the European market for full-scale loyalty and gift card solutions. So, with that, I will open up for questions in the chat, and I will try to pick them in order here. Let me see.

[Erik Grohman, executive]

First one, non-verified, the cost of SEK 4.9 million related to the bid in Q1 as comparison to the EBITDA of SEK 8.9 million. What cost services did we buy externally, that amount to SEK 4.9 million? Well, that cost comes from legal and advisory fees, and the fairness opinion delivered in relation to the bid. So, that's where these costs come from. And we have taken the costs as they have appeared in the books. I mean, there might be continued costs in relation to the process, depending on where the process ends up basically. But we have not seen the last cost in this process on the company side. I suppose the SEK 4.9 million was spent after March 25, correct. If it was spent before 25, why did the shareholders not know on the bid before? So, I mean, the costs incurred in relation to an example of the fairness opinion is occurring before the bid is made public. So, the cost -- I mean, first, there is an offer. The Board needs to look at the offer to make a fairness opinion on the offer before coming out with any kind of recommendation, and before there is an offer that is made public. So, therefore, costs can incur before. And what more costs related to the public offer could affect the company going forward? So, partly, and I believe that most of the sort of legal fees are taken and fairness opinion fees has been taken already, but there are potential additional financial and legal advisory fees and potential potentially fees such as delisting costs, depending again on where the process ends up and what happens with the bid. But this is not -- I mean, it's a bit premature, of course, to comment on what will happen with the bid as the acceptance period is not ending yet. All right. Sorry, Erik, but we need more color on this topic than the answer we've already given. The cost related to the external bid of almost SEK 5 million looks fraudulent and shady. How can you as a CEO accept 50% of the quarterly EBITDA in external bid costs for a fairness opinion? We need detailed step-by-step comments and split of this cost. I cannot provide that in this call. I mean, in my view, the process has been fair, and we have followed, I mean, a process. As you know, Marlon, I am not part of any consortium and not part of the bid. I work for all shareholders. I believe that we have taken the steps as a company necessary to evaluate the bid, and the working has been directed by the independent building committee led by Peter Borsos of the Board. So that is not me that has led that. Obviously, the cost is rather high. I agree. And it's the legal fees, the financial advisor fees, and finance opinion fees that all come together for the SEK 4.9 million that we have taken as part of this process. What date did the Board get the information of the bid? The bid was made official March 25. So, I don't have any other information to share around the process, about around the bid than has been shared publicly already by the Board and by the bid consortium. So, I believe all information that I can share around the process of the bid is publicly available as we speak. So, I have no further comments then other than that. So, obviously, if you read through everything publicly available, if you still have questions, please don't hesitate to reach out to me directly during the day or afterwards, but I don't have any other comments related to the process than that. So, next question, how to understand that you still have the SEK 80 million credit facility loan for IPO given that you have a cash position of SEK 170 million and net receivables of SEK 165 million. Is the credit loan also with Nordea? Yes, it's with Nordea within the revolving credit facility, and there is no specific loan for IPO. What we have taken out in total from the revolving credit facility. The loan for IPO was repaid in January. But how can the cost Q1 isolated be SEK 4.9 million if the bid did come official 25th of March, SEK 1 million per day? So, it's costs that we have occurred in the evaluation of the bid, also prior to going public with the bid from the consortium side. And again, the time lines, I believe, are clear in the publicly available material, which has been published by the bid committee, the Board, and the consortium. Okay. Any other questions, please? I can add that, obviously, I mean, again, I'm not part of the consortium placing the bid. My focus is obviously, to build a strong and healthy company. So, that has been -- I mean, if you have any more questions around that and the business as it stands, of course, that's appreciated. In Q4, you talked about the great pipeline of new bigger customers in Nordea segment, how has it progressed? So, we have progressed in discussions. We a have strong pipeline still. We have no new large signatures yet. So, it's still a strong pipeline of some smaller potential clients and some larger potential clients that we have good dialogues with. So, I'm still hopeful we will close, of course, some of these this year. Okay. So, great. Thanks, everyone, for joining. And again, if you do have questions that you don't feel is answered in the publicly available material in relation to the bid and the process, please don't hesitate to reach out to me or the Board, the independent bid committee, or the consortium that is placing the bid. So, thank you very much for joining. Have a great day. I hope to see you soon again. Bye-bye.