Readly International AB (publ)

STO:READ

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, and welcome to the Q4 2022 Earnings Conference Call. [Operator Instructions]I would now like to turn the conference over to Mats Brandt, CEO. Please go ahead, sir.

[Mats Brandt, executive]

Thank you. Good morning and welcome, everyone. My name is Mats Bandt, and I'm CEO. And with me here today, I have Johan Adalberth, our CFO.The fourth quarter was quite [ eventfulness ] every ways. We saw a fast changing environment with uncertainty about consumers' behavior in general and their affordability going forward. We also noticed that a lot of publishers were under increasing cost pressure and that some took quite strong measures to reduce costs and to further accelerate the shift to digital reading. This has continued in '23. It really has an important role in facilitating this transition and to help publishers develop digital revenues faster.Given the challenging market situation, we are very satisfied with how the last quarter turned out for us. We delivered strong revenue growth, record high margins and show that we are well on our way to profitability. Despite lower investments in marketing, we also delivered a quarter in which really again showed growth in the number of full paying subscribers, FPS, and this was profitable growth.We're humble that there may be further challenges ahead in the current macroeconomic climate, but our financial goals remain and we are in a good position to continue implementing our strategy and to reach profitability at the very latest in 2025.Now, let's look at the numbers for Q4 in some detail. And with that, I'd like to hand over to Johan, please. Next slide as well, please.

[Johan Adalberth, executive]

Thank you, Mats. So then we are on Slide #2. Let's turn to the left on subscriber growth. The year ended at 452,000 FPS, full paying subscribers, and this is the first time since Q4 2021, where we saw subscriber growth in absolute terms. And this was despite significant price increases across markets and also significant lower marketing investments compared to 2021.The middle chart captures our revenue development for the past quarters. And you can see that during the first 3 quarters in 2022 stayed fairly flat at around SEK 145 million. But now in Q4, we saw a significant uplift to SEK 157 million, and this is up 16% compared to Q4 2021. This was partly affected by currency, but now we are seeing a true impact from our price increases, which have brought up our ARPU, average revenue per user, to a record high SEK 109. I will come back to this later. Revenue growth for the full year 2022 was 27%, which means we hit our financial target of 25%.On the chart to the right, we see our positive trend towards profitability. Adjusted EBITDA was minus SEK 12.1 million, which equals a margin of minus 7.7%. This is also a record high number, and we have now shown 7 consecutive quarters with improved profitability on adjusted EBITDA level. We stand by our financial targets on reaching profitability latest 2025, and this may come sooner than anticipated.Next slide, please, Slide #3. Let's start looking at the top right corner, where we see net sales by core markets and rest of world combined. Our sales growth in Germany was strong in Q4 with a 26% year-on-year improvement, and Germany now stands for more than 38% of total sales. Austria and Switzerland also saw strong growth in Q4, meaning the entire DACH region looks very promising ahead and surpassed the 200,000 full paying subscriber mark in Q4. This is very exciting.The U.K. also saw good revenue growth of 16% year-on-year and the U.K. continues to be our most important market alongside Germany. Sweden was our last market to see price increases, which did not come into effect in the fourth quarter. This means we expect a revenue uplift from Q1. Revenue development in France was stable and amounted to SEK 17.7 million in Q4.On the bottom right, we see our ARPU development. 1 year ago, ARPU was SEK 95. Now, in Q4 2022, we were at SEK 109 and this is a significant increase by more than 15% and will help us grow revenues also in 2023.Next slide, please, Slide #4. Starting at the top, we see our gross profit and gross margin development during the 6 past quarters. As you can see, gross profit saw a significant uplift to SEK 57.5 million in Q4, which is up 27% compared to Q4 2021. Our long-term financial target for gross margin is 35%. In Q4, gross margin was a record high 36.7%, meaning we have already managed to reach our long-term financial targets, and this also adds to our lifetime values and strengthen the sustainability of our business model.At the bottom chart, we see gross contribution and contribution margin. Also here, we saw record high numbers with SEK 32.9 million left after we paid for all the published remuneration and for all the marketing expenses. This was equivalent to a contribution margin of 21%.And before handing over to you, Mats, I would just like to conclude that we, in the fourth quarter saw rapid high revenues, thanks to record high ARPU, record high gross margin, record high gross contribution and record high adjusted EBITDA. Now back to you, Mats.

[Mats Brandt, executive]

Thank you, Johan. So next slide, please, #5. A key theme within our product development is to create stronger user habits. This is essential to retain users and to grow lifetime values. Our unparalleled [ career ] of leading global content and user data from 50 plus markets gives us a unique possibility to develop a more personal user experience, whether it will be in audio, single article format or reading a full issue. Our wide geographical reach also enabled us to benefit from the positive impact from new product upgrades in an ever increasing pace.In Q4, we continued to focus on improving mobile reading, which is essential for frequent and shorter reading moments when users are on the go. We are accelerating our development of automated or article recommendations to further personalize the user experience and to make it easier to discover new content from our rich catalog.Looking at e-mail pushes sent in Q4, over 80% of the recipients read the full article once they clicked on it. This proves that readers find the recommendations very relevant. In December, we launched improvements of our mobile reading functionality. Data so far show a 50% increase in the number of users using this functionality, which is very promising.Next slide, please, #6. Today, we offer 7,600 titles, making up a total of 290,000 issues. Of those, we now have about 3.3 million articles in the mobile-friendly format. These articles allow users to enjoy the vast portfolio in a better way and on smaller screens. And there are further opportunities that we aim to unlock to increase mobile reading and reading frequency. By rebuilding parts of the core platform, we will be able to also unbundle selected magazines into single articles.With the new recommendation engine, we will improve the relevance of suggested articles based on user behavior and also better the continuous reading experience. This will also enable further audio capabilities such as text to speech, which we plan to launch later this year. Altogether, we're confident that these initiatives will lead to a better user experience that will generate higher readership numbers and increased engagement time.Next slide, please, #7. Globally, during the quarter, we welcomed 25 new publishers and more than 250 new titles. We have added new scientists, one of the world's most populous science and technology publications to the portfolio. The title has been very sought after among our subscribers.Public key titles we have added this quarter are the U.S. addition of Marie Claire, Italian addition of Harper's Bazaar and Readly exclusive addition of one of the most read magazines on Readly Germany, streaming by TV digital.Our Disney portfolio of English language content has shown a promising start during the quarter. We have seen particularly strong initial leadership in Germany, but also in the U.K. and in Sweden. We see several interesting opportunities to expand our offering with business vast content and licensee partners also in other languages.We're also happy to see rapid growth of our French portfolio. During the full year of '22, Readly has welcomed about 160 new publishers and over 1,200 new magazines and 22 newspapers. We expect significant content addition also near term, which we look forward to announce in due time.Next slide, please, #8. With our vast insight into her users consume content in quite some detail, we have extracted some key observations on a high level in our reading trends report for '22. As you can see here, we offered over 0.25 million issues, and in '22, almost 150 million issues were read. Single article reading, which is not included in the total number of issues read increased by 16% in '22 compared to '21.We also note the high rate of international leadership. More than every fifth magazine is read by a subscriber outside the publication country. This enables publishers to reach new audiences in a very cost-effective manner. Our publishers can excite vast amounts of user behavior data to understand and make informed decisions on how to develop the content further to maximize reading and revenues.Next slide, please, #8, sorry, 9. Partners is a key acquisition channel. Looking at the full year, we have launched over 100 new partnership campaigns with new and existing partners, and they have contributed with a bit over fifth of total trialist intake. In Q4, we launched 10 new partnership activations, including a campaign with the Italian high-speed rail operator Italo Treno, with Budbee in Sweden and Freenet in Germany.In Q3, we launched the McDonald's monopoly campaign in the U.K. and Ireland, and it continued into Q4. It is a great example of how we develop new channels and formats such as in-store activations. The campaign included over 1,400 restaurants and over 200 million pieces of packaging with Readly messaging. All in all, we currently have 150 active partnerships and the list is growing.Next slide, please, #10. At the end of November, we launched Readly France with our full offering of international magazines and newspapers. The consumer launch included a mix of online and online customer touch points in several different formats, as you can see on this slide. We also collaborate with different local and global partners such as HelloFresh, N26, Huawei and Groupon. The launch is still in its early stages and we look forward to expand our marketing efforts as the content portfolio continues to grow.During Q4, we added 76 titles from 19 publishers and start off the year with the addition of 21 newspapers. By the end of '22, we had a total of 460 titles in the French language. This content also has a global appeal to French-speaking readers in all our markets.Next slide, please, #11. So in summary, our FPS development is stable with a 1.3% increase in Q4 compared to previous quarter, while we maintain a substantially lower marketing spend compared to last year. This is due to a combination of factors such as strengthen content, improved marketing and a better user experience.We report strong year-on-year revenue growth of 16%. Price increases has worked well with ARPU increasing 15% year-on-year to SEK 109. During the last 7 quarters, we have shown improved adjusted EBITDA margin, and we expect to become profitable at the very latest 2025, in line with our financial targets. And it's worth noting that so far, we are progressing slightly faster than anticipated towards profitability.Thank you for listening. And now we open up for questions. So next slide, please.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] Gentlemen, so far there are no questions from the phone.

[Mats Brandt, executive]

Okay. So, as there are no questions at this moment, we'll conclude this conference for now. So, thank you very much again for listening.