CLIQ Digital AG

XETRA:CLIQ

Earnings Call Transcript 2022-Q1

[Ben Bos, executive]

Good morning, ladies and gentlemen, and a warm welcome from my side to CLIQ Digital First Quarter 2022 Result Presentation. For those of you who don't know me, I am Ben Bos, a member of CLIQ's Management Board. As per usual, I shall first present to you the last quarter's financial results and highlights, and then we will open the floor for any questions you might have.

We have some exciting developments to share with you today. So let's jump right in. Ladies and gentlemen, with the Russian invasion into the Ukraine, the world has changed. The geopolitical world order has shifted dramatically, and we are witnessing one of the fastest and largest migrations of refugees in Europe. Global supply chains are significantly under pressure, impacting both food and energy prices. Consumers not only face shortages, but also higher inflations and falling real wages. CLIQ has zero exposure to Russia and Ukraine, but we have seen our total member base increase significantly by over 170,000 to 1.5 million by the end of March and sales were up 75% year-on-year.

As mentioned before, in times of inflationary pressure, lots of consumers will refuel their own spending behavior and seek better value for money, especially families worry about maintaining the standard of living. In Germany, that's currently every second household. CLIQ's products are priced to provide great value for money. We offer families the possibility to better balance their budgets and still be fully entertained, also important aspects during difficult times. And just remember how movies got demoralized nations through the great depression.

In order to engage more members in the first quarter, our content portfolio was further bolstered and our marketing campaigns increased. Consequently, and despite slightly higher advertising prices, we achieved a higher advertising volume and raised our marketing spend by 50% against typically very intensive fourth quarter 2021. Nevertheless, net profit was up by 68% and EPS came in at EUR 0.90 compared to EUR 0.51 in first quarter last year.

An important takeaway regards report. In addition to providing the market with more market standard reporting and KPIs, we will be giving a virtual strategic update on June 15 to showcase CLIQ's digital upskilled German multi-content portal with its many new features and content highlights as well, give an insight into the upcoming brand marketing campaign. Ladies and gentlemen, we at CLIQ are committed to provide more value to its members to continue our competitive advantage. In the first quarter of 2022, we added more than 600 hours of high-quality series and film content from our new partners, Palatin and LEONINE to strengthen our [indiscernible] offering.

In order to rapidly transform our organization to support our further growth plans, we increased our staff numbers in the first quarter by 22. Furthermore, we took important steps forward to increase our accountability and provide market standard information to the market. We further developed our financial reporting in a more transparent and detailed way and are providing more insight into our business and more information on the underlying numbers and more guidance. We shall continue to further develop the transparency in our business and share more information with you in the near future. That's a promise.

As you know, marketing is key to CLIQ's business model and our number one sales driver. Quarter-by-quarter, we have raised our marketing spend and the volume of our campaigns to acquire more members and consequently generate more sales. In the first quarter 2022, our marketing spend reached its highest level ever and totaled EUR 22.5 million, nearly 150% more than in prior year's quarter. And the share of our own media buying, which in the marketing spend reached 88% against 72% last year. We also added more diversified media traffic sources. For example, we started bidding for a terrific on-demand side platform, so-called ESPs, which are marketplaces to buy traffic from different publishers or categorized websites, specifically for sports movies, games, et cetera.

Consequently, we had a time to bid higher for the required ad space and bite a bullet of paying slightly higher prices. This has naturally impacted our customer acquisition cost and brought down as expected and fully reflected in full year 2022 guidance to profitability index.

Just to recap, our expectations on the development of advertising prices in 2022 remain cautious and conservative. And therefore, we forecast profitability index at 1.5 times, reflecting higher customer acquisition costs. Nevertheless, as you can see here on the right-hand side, our marketing strategy is clearly paying off. We registered a notable increase in a number of members and sales grew steadily. The value of our customer base is appreciating impressively which reaffirms our business model.

At the first quarter-end 2022, our paid membership base accounted 1.5 million members and was up 50% year-on-year and 30% against the year-end close. The remaining lifetime value of our customer base at the end of Q1 2022 was EUR 104 million. That's the expected future sales for every paid membership based on our BI department predictive analysis of historical big data.

The quarterly growth. Here, you can see the scalability of our business in the sales and earnings developments over the last 9 quarters. Quarterly sales have grown by more than 160% since 2020 from EUR 20 million to almost EUR 53 million. EBITDA, notably nearly quadrupled. However, the most remarkable development was bottom line and where quarterly EPS has grown by 400% from EUR 0.80 in Q1 2020 to EUR 0.90 in Q1 '22.

Let's go to the financial highlights and allow me to elaborate on the following financial highlights of the first quarter 2022. Sales grew significantly and purely organically by 75% to nearly EUR 53 million and were mainly driven by the increased performance marketing campaigns promoting our multi-content portals. This remarkable sales growth impressed our gross margin slightly due to higher marketing spend and stronger investments into our content offering to drive member growth. EBITDA increased by 56% to over EUR 8 million with a strong EBITDA margin of 16%, which reflects also higher investments into infrastructure and human capital. And as just touched upon, EPS was strong at EUR 0.90, 76% higher than prior year's first quarter with a net profit at EUR 5.8 million against EUR 3.5 million last Q1.

Let's go to the sales breakdown. Ladies and gentlemen, here you can see exactly where our revenue streams are coming from in Q1 2022. Firstly, sales were predominantly generated from our membership-based services. This clearly reflects our strategy focusing on multi-content product lines. These package solutions target the mass market and are geared to meeting broader entertainment needs like families have in a convenient and simple one-stop shop solution. These multi-content portals accounted for over 80% of total sales in the first quarter versus 66% a year ago. Secondly, our sales growth was driven across all regions, as you can see, and by the greater marketing campaigns, in particular. North America remained our strongest region, with a sales share of 54%. However, European sales growth accelerated further quarter-on-quarter, also from the fundamental shift from media buying via affiliate partners to CLIQ Digital's own in-house media buying team, which originally was started in the US and is now being further rolled out across Europe.

Ladies and gentlemen, given the importance of marketing to CLIQ, allow me a couple of minutes to elaborate on our marketing costs. In the first quarter 2022, our total marketing costs amounted to EUR 17 million, up EUR 8.5 million year-on-year and constituted 32% of total sales, which was fully in line with the prior year's fourth quarter. However, our actual marketing spend, which reflect the cash-out in the first quarter for new membership was ramped up by nearly 150% year-on-year from EUR 9 million to EUR 22.5 million. This spend is one of our main drivers for both sales and our lifetime value of the customer base.

Just to recap, the total marketing cost related to the sales recognized in the border are the sum of the marketing spend, less the capitalized marketing spend plus the amortized contract cost. Part of the marketing spend, which can be directly allocated to the new members is accounted for and capitalized in the balance sheet as contract cost in accordance with IFRS 15. By eliminating the timing difference between immediate cost impact and the deferred revenue recognition, we are able to present the actual marketing spend through and favor as marketing costs.

Let's go to the balance sheet. As at the end of the end of March, our balance sheet remained solid and the total assets grew to EUR 112 million, reflecting the growth of our business. The higher marketing activities also result the increase in both trade receivables and payables as well in other liabilities. The equity ratio at the end of the first quarter amounted to 59%. The quarter-end close, our net cash position remained stable compared to December 31, 2021 and was EUR 2.5 million. We remain debt-free, and we are currently in the process of renegotiating our credit facility. Our operating free cash flow totaled EUR 0.2 million in the first quarter of 2022 and was mainly impacted by the increased marketing spend. The cash outflow from investing activities in Q1 2022 increased mostly due to the newly licensed content and platform development investments.

Let's have a look at our organic growth. Ladies and gentlemen, we still see a lot more growth potential to tap into as we invest significantly in stronger marketing activities and additional attractive content as well as improve our offerings, scale-up our business and expand into new markets.

We are pleased to confirm our full year 2022 and midterm guidance. Organically, we expect our customer base to range between 1.7 million and 1.8 million paid members and we value at more than EUR 110 million by the end of 2022. Sales in 2022 are expected to exceed EUR 210 million on the back of EUR 70 million in marketing spend and EBITDA to exceed EUR 33 million. On the medium term, we expect to grow sales to EUR 0.5 billion and have a customer base ranging between EUR 4 million and EUR 5 million by the end of 2025.

On Wednesday, the 15th of June, we shall update the market in a virtual event with details and impressions of our upscaled German multi-content portal, Cliq [indiscernible] as well and is of the brand marketing campaign flanking the portal, which will make us much more visible and prominent.

Ladies and gentlemen, we shall continue to meet the overall demand by marketing our products, more as well as by improving our content offerings and increased same customer retention rates. We are living in a very challenging and uneasy times. As a streaming provider, CLIQ is committed to entertaining its members in the best possible way. As an employer, CLIQ is extremely proud of its great and dedicated team and is doing it utmost to promote team spirit, foster creativity and above all, protect our staff. As an issuer, we want to explain our business and our strategy and our plans going forward in order for investors to make their best possible investment decision. We are proud about what we have achieved up until now, and we are ready to take our business to the next level, adding brand marketing to our already highly successful performance marketing campaigns. Hit play and let's reach the next level together.

Well, thank you for your kind attention, and we now will begin with our question-and-answer session. [Operator Instructions]

[Ben Bos, executive]

Our first question today comes from Antoine Lensel.

[Antoine Lensel, analyst]

Ben, do you hear me?

[Ben Bos, executive]

Yes, I can hear you loud and clear.

[Antoine Lensel, analyst]

Perfect. So first, well done for the results. My first question is related to the other cost of sales that reached more than EUR 11 million over the quarter because you increased and improved your content. Is this amount the new run rate for the coming quarters or should we expect it to decrease going forward?

[Ben Bos, executive]

Well, we did some -- thank you for that question, Antoine. We did some additional investments to bolster our infrastructure going forward, which is also reflected in this amount. So in general, we expect at least to flatten depending on our growth rate going forward.

[Antoine Lensel, analyst]

Okay. And as a follow-up question regarding your guidance for the marketing spend, given that the cost of acquisition increased over the quarter and the marketing spend already reached EUR 22 million in Q1, can we expect that it will be significantly above EUR 70 million for the full year?

[Ben Bos, executive]

Well, we remain confident at the current guidance, which we guide the market with, so to say. But yes, you can see if you quadruple our current results that we are good to go, so to say, for our -- to reach our guidance this year. But that will be conservative than over enthusiastic, I would say.

So the next question comes -- goes to Felix, Felix Ellmann.

[Felix Ellmann, analyst]

Thank you for the good numbers. I have 2 questions. One with regards to the demand side platforms you mentioned. Is there a new trend starting to buy media over those platforms? How will it be in the midterm? And how is it compared to the cost of your own media buying? And why did you decide to move towards that direction? That's the first question.

The second is, you still have your old CLIQ factor, which more or less anticipates customer lifetime of 7 to 8 months. But on the other hand, I see you talking about families and talking about enhancing your content portfolio, which could lead to the question whether you might change the will to have a longer customer lifetime and longer duration of customers in your portfolio. Will this change or will you still being focused on marketing and winning customers rather than retaining them?

[Ben Bos, executive]

Well, actually, thanks for the question, Felix. I think it's both. First of all, of course, with bolstering our content portfolio, we are confident that we can further increase retention rates and also further increase, as you can see with our multi-content offering also increase the lifetime value of each customer, which of course, if you look to the famous -- well, in the past, we called it the CLIQ factor, but the profitability index was only for the first 6 months. So there might be also a shift from our side and how we look at this CLIQ factor going or the profitability index going forward for the first 6 months because you see that they stay on longer also after the 6 months, which is not reflected in this CLIQ factor. So we concentrate on both actually.

Going back to the first question, it's about diversification. And we'll always try to further increase the way we do our marketing. And currently, it's still very small portion of our total marketing costs.

[Felix Ellmann, analyst]

What is the company working with on that side?

[Ben Bos, executive]

We do not release that kind of information, Felix, for competitive reasons. I hope you understand that.

Then I hand over to Marie-Therese.

[Marie-Therese Gruebner, analyst]

Also from me, congrats on this very strong first quarter. A couple of questions from my side. Just to piggyback on what my colleague was asking at the beginning. The marketing spend, right? If you annualize, we are around about EUR 88 million for the whole year and you're guiding more than EUR 70 million. So should we rather plan with EUR 88 million at this point? And how much of that is really going to go through your P&L? I mean there was -- out of the EUR 22 million, EUR 17.5 million was going through the P&L in the first quarter. So if you give us maybe some color on that. And then I will ask my next question.

[Ben Bos, executive]

Yes, indeed. Well, the EUR 22.5 million is indeed the overall investment, which we did to acquire new customers. We think that we can maintain our guidance of at least EUR 70 million at this moment. But again, we like to be conservative going forward for the remaining part of the year. We all know that more marketing means more sales because it means also more members. You see also that the difference between the media spend itself, which is one of our KPIs in relation to the costs which we account for in our P&L, of course, differentiate because that is completely depreciated according to the lifetime value of those customers and came in by at EUR 70 million. So I think that pace will continue and will stay around the 30% of our sales. It was at this moment, 32%. So it can be 32%, 31%, 33%. This is around the percentage which we always have seen in the past as well.

[Marie-Therese Gruebner, analyst]

And the second question, repetitive, the number of people. I mean I think this has been a bit of an acceleration and the headcount growth in the first quarter, 6 people added, I think -- sorry, maybe no, 22 people added in the first quarter. So how many people will you add for the whole year? Is there a sense of how much you're expanding your staff?

[Ben Bos, executive]

Yes. Well, you see, if you already quadrupled the first quarter revenue, you see that we are ramping up and that we do need to bolster, of course, also our staff. There is much to do. We see a lot of traction. And we will always try to keep this in line, of course, with our revenue so that we do stay on the scalability, as we always say that we are scalable with more people. Of course, we can do much more in revenue. But yes, we will further scale-up in the coming quarters as we do expect to reach the EUR 0.5 billion in revenue by 2025. So we need more people. That's quite clear.

[Marie-Therese Gruebner, analyst]

Okay. And my third question has to do with the multi-content, single-content breakdown. 80% is multi-content portals, I would say, in the first quarter. What is that breakdown looking like by year-end? And where do you see it in 2 to 3 years' time?

[Ben Bos, executive]

Well, our key focus is on our multi-content portal. That's clear because that brought also our success over the last quarters. But also going forward, we have -- our expectation is that the greater part of our revenue will be in the multi-content portal. However, occasionally, we can run into nice offerings and nice product lines, which we maybe can country by country or maybe even worldwide or globally can exploit and help those content licenses bolster their revenues in the specific category. But at the same time, use this category or use this content also in our multi-content portal. But again, the focus will be our multi-content portal.

[Marie-Therese Gruebner, analyst]

Great. Okay. And then final question is regarding your content. Can you give us a flavor of what's coming more? I mean you've posted certainly the series and film side this quarter. Can you give us a sense of what's coming in terms of more the categories or the type of content we can expect? And also what it means in terms of the prices you are paying to license this better content?

[Ben Bos, executive]

Well, first of all, I would like to invite you also Marie for the 15th of June, where we will inform the market on those strategic topics. Specific license source, we do not share only occasionally like we did now for the first quarter on Palatin and LEONINE. Pricing is of course also a very competitive thing. So allow me not to elaborate on that, please.

[Marie-Therese Gruebner, analyst]

And last but not least, Ben, you were highlighting what value for money play you are in current inflationary times and this was really a very important statement that you made at the beginning. So can you give us your view on how you're seeing high inflation, dampening consumer sentiment having an effect on the appetite for your products and are you really seeing that above and beyond your dynamic growth, which is marketing driven?

[Ben Bos, executive]

Yes. No. I'm not sure if we have talked about that. But if you look back to the roaring 20s with the great depression going on, the best marketplace, the best business to be in was actually the entertainment business back then because people wanted to still entertain themselves for little money because they didn't have any money to do huge investments. But of course, they wanted to be entertained and went into the cinema. So that was the best ever time for, I think, relatively speaking, for that industry. So also if I make the comparison to us, I think that we are well positioned with our affordable offering for a lot of consumers.

Well, ladies and gentlemen, that was our last question. And I would like to -- sorry, I see one question coming in [indiscernible].

[Unknown Analyst]

Can you hear me clearly?

[Ben Bos, executive]

I can hear you clearly.

[Unknown Analyst]

Just one on the currency side. Having in mind your exposure in North America, we saved more 50% of your group sales and a very strong movement in the US dollar and euro exchange rates. Is this current movement in favor of you or do we have more or less a natural hedging because your sales and your costs are more or less in the same currency.

[Ben Bos, executive]

Yes. For a greater part, you're right. We have a natural hedge because a lot of media buy and spend -- marketing spend is done and on content costs are being paid in dollars. For the remaining part for the margin, we do have hedges in place to make sure that we have not that much impact on fluctuations in currencies. But of course, on the long term, I cannot foresee that. I don't know how the market will go. I'm not in currency trends, so to say.

[Unknown Analyst]

Okay. And one additional question on the topic of marketing spend and marketing costs. If I'm right, the main reason for your lower cash flow in the first quarter than in the prior year was the difference between the marketing spend and the marketing costs. What is the best guess for the full year? Will this change or will you have also in the next quarters, this huge difference between the spend and the costs.

[Ben Bos, executive]

Well, we had more-than-expected marketing expense in the first quarter. So this hits indeed a bit of our cash flow. If I look to the guidance out there, the EUR 70 million, I do expect that it will stabilize going forward. However, if we continue ramping up our marketing spend, of course, then it will stay under pressure.

If there are no more questions, then ladies and gentlemen, I think this was the last one. Thank you for attending our video call today. If you have any further questions, please get in touch with Sebastian or Julian. And have a great day, and hopefully, see you soon. Thank you so much.