CLIQ Digital AG

XETRA:CLIQ

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Sebastian McCoskrie, executive]

Good afternoon, ladies and gentlemen, and welcome to CLIQ's First Quarter 2024 Results Presentation. My name is Sebastian McCoskrie, I'm CLIQ's Head of Investor Relations and will host today's earnings call.Our CEO, Luc Voncken, will present the strategic and operational highlights of the quarter. And Ben Bos, member of CLIQ's Management Board, will walk you through the financials. Afterwards, I will be reading out the questions you have. Kindly send in via e-mail.Please note the disclaimer shown and this call is being recorded. The visual audio and/or transcription of this call may be published, including any of the data arising therefrom. If you have any objection, please disconnect at this time. Without further ado, I will now hand over to Luc, who will kick off today's presentation. Luc, the floor is yours.

[Luc Voncken, executive]

Thank you all for your interest and joining us today for CLIQ's First Quarter 2024 Earnings Call. Ladies and gentlemen, let me be frank, 2024 got off to a difficult and to a rocky start. But as you can see here, going forward, we expect our strategic initiatives to outweigh our challenges faced in the first quarter and make us a stronger, more efficient business in the future.But let's be clear, Rome wasn't built in a day. We already saw some weaker performance in recent quarters in 2023 and already flagged our approach to the derisked group by growing our outreach and searching for and diversifying into new sales channels, our so-called Magnificent Seven, future proving our business, I like to call it.In the first quarter, we saw the previously signed up members churned to a much greater degree than originally anticipated. 96% of our sales are currently paid by credit card. And the credit card organizations have now more rigorous and widespread refund programs in place, which have simplified unsubscribing for members and consequently raised our churn rates. Ben will elaborate on this more in detail later on.With that, we also recorded less new high-value sign-ups resulting in members with a lower lifetime value. In part, this was also due to us now focusing on acquiring new customers via new traffic sources. As a consequence, we had to cut our customer acquisition cost per new member in order to safeguard our gross margin going forward.Unfortunately, time-wise, the effect from lowering the cost lacks the hit to the lifetime value. In addition, we have numerous special items that impacted the result this year. Again, this difficult backdrop, we posted a quarter of no growth. This happens, especially when you are changing something and you need to transform your setup, your organizational structure to move forward. That's why we have initiated our group-wide transformation program called Fit for the Future. For me, the glass is always half full rather than half empty. I see this disappointing first quarter as a good starting point, and we can already see that there is plenty of light at the end of the tunnel. Nonetheless, we still need to be careful as we like to deliver and not disappoint. That's why we have decided to exercise a more cautiously optimistic view and revised our full year 2024 outlook.We now expect group sales in 2024 to range between EUR 300 million and EUR 330 million and an EBITDA is now forecasted to come in between EUR 26 million and EUR 30 million. Our total customer acquisition costs in 2024 are between EUR 120 million and EUR 140 million.But, we still expect to achieve a run rate during the fourth quarter of 2025 to realize an annual revenue of more than EUR 500 million going forward. Ladies and gentlemen, allow me now to present to you some of our operational highlights.Our transformation programs have 2 defining goals: firstly, make us more efficient and secondly, more productive. The first cost efficiencies have already been generated in the first quarter with the closure of our U.K. office. The U.K. office was mainly responsible for single content streaming services, which, as you probably know, is a business area that is not in our main focus anymore.In addition, we decided to phase out and close down legacy systems in order to build a new single uniform tech platform to support all our operations and services. Further cost savings have been actioned with regard to our corporate legal entity structure as well as through our global tax structure.Streamlining in combination with clear focus is key going forward. And this focus will also deliver productivity gains. We will intensify our online traffic and drive innovation-led processes, best supported by a streamlined organizational structure to launch new products and increase our reach and conversions, both in new regions as well in our existing countries. The advantages from our new tech platform are numerous. We will have a way faster time to market for new streaming services and expanding into new countries as well as digital content warehouse to automate our content ingestion worldwide. At Cliq, we always ensure that our content is attractive, fresh and meets local tastes.In the first quarter, we successfully extended numerous contracts with our content partners for sports and movies series, amongst others. Furthermore, for operations in the U.S., Latin America, France and Belgium, we upgraded our libraries to include more well-known and star-studded movies and series.Content and especially fresh content is a real sales catalyst as it sparks the interest of the consumer. We are first and foremost marketeers and our focus is always on converting eyeballs into paid and profitable memberships. Let me now hand over to Ben to present the financials.

[Ben Bos, executive]

Thank you, Luc. As Luc already mentioned, sorry, gentlemen, let me first give you a warm welcome also from my side. Luc already mentioned, our performance in Q1 was well below par and disappointing.Sales in the first quarter were down 12% year-on-year and by 30% quarter-on-quarter, as you can see here. The 2 main reasons for this decline were higher churn and a lower lifetime value. Members turned more in the first quarter than previously expected. This was, amongst others, due to a change in the way the credit card organizations enable refunds.And previously, refunds were less easy to apply for and receive depending on the respective country where the subscription took place. With this change, processing refunds by credit card organization has become easier and more widespread as a result our churn rate has increased. This has impacted both our sales development in Q1 significantly and also the expected average lifetime value of our new members.The expected average lifetime value of our other customer, the so-called LTV was down quarter-on-quarter by 7% to EUR 81 due to the higher churn rate. So, consequently, EBITDA in the first quarter well below the EUR 10 million mark for the first time in 8 consecutive quarters and came in at EUR 5 million before special items.The special items we have adjusted for are costs related to the group's transformation program Fit for the Future, which include the closure of the U.K. office and the hiring of additional contractors for technology integration and optimization as well as for a group tax optimization program. Our EPS before those special items was down quarter-on-quarter by 62% to EUR 0.40. Let's go to the sales breakdown. So, the short-term sales development is admittedly disappointing. But versus 2022, we have grown quite significantly as the arrow show. In the first quarter, 2024, our bundled content sales totaled EUR 70 million and constituted 96% of our EUR 73 million of revenue.Year-on-year, as you can see here, the focus on bundled content remains strong. The London office, which was closed during the quarter was mainly responsible for selling single content streaming services, which, as you can see clearly here, have been categorial reduced over time as part of our strategic focus. And geographically, sales in North America and Europe in Q1 2024 declined by 10% and 30%, respectively.However, we recorded sales growth in Latin American and 103% growth in the rest of the world with very strong sales in Asia following on our market entry there at the end of last year. Now, the income statement. The income statement in the first quarter reflects the previously mentioned challenges we faced. Both cost of sales and operating expenses decreased or remained stable quarter-on-quarter.So, the decrease in earnings is predominantly sales-related. Incidentally, the aforementioned higher churn rate also resulted in an increase in the other cost of sales from increased refund related costs. But in total, we were able to manage our cost of sales down.In Q1, 2024, EBITDA before those special items, we just elaborated on amounted to EUR 5.3 million, resulting in a margin of 7.3% compared to the 14% in the fourth quarter of 2023. The lower EBITDA margin quarter-on-quarter was mainly due to the decrease in sales.The special items related to the group's transformation program Fit for the Future, included the cost for the closure of the U.K. office and the hiring of additional contract workers for technology integration and optimization as well as for the group's tax optimization program. On EBITDA level, the special items amounted to EUR 3.5 million and were adjusted mainly in line items, personnel and operating expenses. Bottom line, the profit for the period before special items came in at EUR 2.6 million and EPA and that was EUR 0.40.Let's go to the customer acquisition cost. The biggest chunk of our sales are those customer acquisition costs. And in the first quarter 2024, we spent EUR 29 million on acquiring new customers. Nearly, the hall amount was directly allocable to new subscribers to our subscription seats accounted for and capitalized in the balance sheet as contract costs.However, the main issue we faced in the first quarter was a higher than anticipated number of unsubscribing members. And as you know, when a customer unsubscribed, the related total customer acquisition costs or marketing spend, as we call it also, are fully amortized. Therefore, the higher rate of unsubscribing also negatively impacted the customer acquisition cost for the period.Therefore, in percent of total sales, the CAC, the customer acquisition cost for the period was higher quarter-on-quarter at 43% and reflected the tougher market conditions, which affected the higher-than-expected churn rate.Now, moving on to one of my favorite financials, cash flow. Due mainly to the lower EBITDA for the period as well as a timing difference in payment caused by bank holidays at the end of the period, cash flow from operating activities during the first 3 months of 2024 amounted to EUR 1.4 million compared to the EUR 6.5 million inflow in the last quarter of 2023.During the first quarter 2024, cash outflow from investing activities amounted to EUR 2.3 million compared to the EUR 2.6 million in the fourth quarter of 2023 and was largely related to payments for licensed content as well as to investments in platform and technical developments. The operating free cash flow was just negative at EUR 3.7 million against the positive EUR 3.9 million generated in the fourth quarter of 2023. The cash outflow from financing activities was EUR 1.5 million and included the EUR 1.1 million cash outflow for the share buyback program. The net cash position at the end of the quarter was EUR 11 million.Now, talking about the share buyback program. And first and foremost, we will continue to proceed with our share buyback program. During the reporting period, the company repurchased around 65,000 treasury shares at an average share price of EUR 17.50, which equaled 10% of the maximum buyback volume and 1% of the total share capital.For your information, and following income and practice, the share buyback program was suspended in the context of Annual General Meeting between the 2nd of April until the dividend payment date of the 15th of April.From the 16th of April onwards until the 3rd of May, we repurchased an additional 46,000 treasury shares at an average share price of EUR 15.21. To reiterate, the buyback is affected by the stock exchange in extra trading of the [Indiscernible] and exercised independently and without the influence of Cliq by an investment bank commission buyers.The bank makes its decisions on the timing and amount of the individual order placements. The buyback will return capital to CLIQ Digital shareholders of up EUR 30 million in total, we can repurchase, therefore, nearly 650,000 shares in Cliq.As part of our capital return strategy, we shall decide on a yearly basis to what extent and how capital will be returned to our shareholders in the coming years. And let's move on to the balance sheet. Have a quick look. The total assets shrank marginally to EUR 153 million at the end of the quarter. And our equity ratio remained stable at 67% against the 2023 year end close.Due to a higher churn rate, we amortized more contract cost than we capitalized in the first quarter. As a result, the balance sheet value was reduced to EUR 47 million. The lifetime value of our customer base, our so-called LTV-CB, which represents the future revenue expected to be generated by existing members over their estimated individual remaining lifetime at the reporting date, decreased disproportionately in the same period due to the higher churn rate.For the 31st of March, the LTV-CB totaled EUR 136 million, representing our expected future revenue as of balance sheet items. Compared to the EUR 60 million at the end of December last year, our net cash position at the end of March was EUR 11 million, which was after investing over EUR 1 million in buying back shares. So, the cash position was negatively impacted by EUR 4 million of receivable payments, which were only collected in the second quarter.With that, I conclude my presentation of the financials, and I'll now hand back to Luc to talk about our future. Luc?

[Luc Voncken, executive]

Thank you, Ben. Ladies and gentlemen, allow me to give you some more insights into our strategic transformation and what we are doing to better future proof our business.Despite recent setbacks we at Cliq are dedicated to further grow our company, our growth comes from more outreach, more conversions at more countries, extending our sales channels and tapping into new traffic sources as well as offering our members the payment method of their choice, are key to reaching our growth targets and paving the way to sustainable growth.Our transformation program Fit for the Future will help us to become more agile, more efficient and more productive. We are fully engaged and fully committed to deliver profitable growth going forward.Ladies and gentlemen, CLIQ's focus on attracting eyeballs and converting these eyeballs into paid memberships is the core of our business model. Previously, we relied predominantly on just one eyeball or better traffic source, namely Google Display. Today, we are extending our outreach and tapping into new exciting sales channels, which promise to deliver more eyeballs, high conversion rates and favorable returns on investment going forward.Our go-to sales channel for many years now has been Google Display, a very successful partnership and one which has driven our multiyear growth strategy. However, in recent times, we have seen that the prices we have to pay in auctions for our display ad spaces have risen and remained elevated, especially in Europe.So, we need to spread our wings to tap into new traffic sources in order to increase our outreach and improve our marketing efficiency and ultimately, our profitability, of course. In the past, we used to allocate around 90% of our marketing spend through the display market. However, already in Q1, we have reduced that share to around 1/2 and thus successfully reduced our dependency on this one single sales channel. The outer half was channeled to Search and Affiliation. This chance, this switch comes in an initial cost as the current lifetime value expected of newly acquired members from these sources is lower because we are still further optimizing the new sales channels.But let me explain it a bit more about our traffic source Search and Affiliation. With Search, potential new members are serving for specific content, which we offer like movie streaming. We bid on such gear words and many others, of course, which give the surgeons a hit to an article about the sort after content.Incidentally, we also hook up or trigger new sign-ups with video, another one of our Magnificent Seven traffic sources. Our partnerships with trusted affiliates enable us to further grow our outreach, and we have already gained very promising traction.Accessing partners like My deals in Germany, Fire Affiliate partners has proven to convert really well and forged win-win partnerships. All in all, we are progressing well with the Magnificent Seven, which is good news from a risk diversification perspective and creates a solid basis for future growth.For e-mail and the order Magnificent Seven, we have laid the foundation to conclusive decisions in the next quarters. Our dependency on one sales channel was completely right at the time and delivered an amazing multiyear growth story with a respective setup.However, times have changed, and we need to transform the business into a multichannel approach. And by doing so, we need to transform our group in order to deploy our resources more efficiently and more effectively as well as be able to react quicker. We need to be fit for the future, and this is the name of our main transformation program.To ensure profitable growth, we have launched our Fit for the Future program. A streamlined organizational structure is essential for optimizing efficiency and agility and will ensure faster operational implementation and realization of our goals. A leaner structure and life enable faster response times to market changes, facilitate smoother coordination of activities and promotes a more adaptable organization.And another pillar of Fit for the Future is the technical backbone change. The new single uniform technical platform serves as the backbone of the company's operations, enabling seamless integration of processes, data and systems across departments and regions and fuels currently also with a lot of artificial intelligence technology.A unified platform streamlines workflows enhances data visibility and accessibility and facilitates collaboration and knowledge share. By standardizing technology infrastructure and tools, the company can achieve economies of scale, reduce complexity and improve operational efficiency.Last but not least, innovation is key going forward and critical for staying ahead in a rapidly evolving market. Innovation will be better embedded in the company's DNA to drive creativity and entrepreneurship. All in all, we will be more future-proof and return to sustainable profitable growth with this transformation program in the very near future.And also important, we want to still have lots of fun and job satisfaction doing what we do. Ladies and gentlemen, as you can see, we have not been idle and have achieved a lot, but operationally and strategically, we have laid down new foundations for future profitable growth and are taking Cliq to the next level.Allow me now to speak about our company's outlook. As mentioned, we have decided to exercise more caution regarding our full year 2024 outlook and have revised our guidance accordingly. Hence, we expect in 2024, group sales to now come in between EUR 300 million and EUR 330 million. And furthermore, the EBITDA in 2024 is to range between EUR 26 million and EUR 30 million after customer acquisition costs of between EUR 120 million and EUR 140 million.We will continue to increase our content offering and focus steadfastly on conversions, which are key to attracting and acquiring new members. We will also further expand our business into new and exciting geographies. Our midterm sales target is unchanged and set to achieve a run rate during the last quarter of 2025 to realize more than EUR 500 million in revenue going forward.Ladies and gentlemen, thank you for your kind attention, and we shall now kick off our Q&A session. Sebastian, our first question, please.

[Sebastian McCoskrie, executive]

First off, please note that we've received many questions in duplicate and triplicate, so we shall only be answering these once.Our first questions today are from Mr. Brand and apologies for my pronunciation, and directed to Ben. Why did you keep buying shares of the company, while you must have known that the results were disappointing? When you didn't know that your results were so disappointing, then your financial reporting system is not in order.You seem to be surprised by the results. You didn't give any indication of disappointing results in the annual meeting, in the first quarter. What's the reason for that? You gave an indication of the full year results. How can you give an indication of the full year when you have been surprised by the results in such a short time?Do you keep going on buying your own shares? Or do you hold your cash on your bank account because of the hard times you are in at the moment?

[Ben Bos, executive]

Well, thanks for your question, Mr. Brand. Regarding our share buyback program. The program is being exercised independently and without the influence of CLIQ Digital by an investment bank commission by us. So, the bank in line with the applicable legal framework makes the decisions on timing and amount of the individual order placements.This is the common way of handling share buyback programs in Germany for legal and regulatory reasons. Most importantly, this setup ensures compliance with the European market abuse regulations.Then coming back to the Annual General Meeting, which we held on the 4th of April was primarily helps to inform Cliq shareholders of the results and developments during the year 2023. Information on current trading in 2024 reporting period was not a subject of the Annual General Meeting. But regarding the surprise structure, as previously mentioned, we already saw some weaker performance in recent quarters in 2023 and reported about it.Nevertheless, the first quarter results were more disappointing than originally expected. The main reason for this were given in our presentation just now, we are confident and committed to realize our revised 2024 guidance and the midterm target.

[Sebastian McCoskrie, executive]

The next question was sent in by Joris Dorsman and is for Luc. Obviously, you are not happy with the current performance. What are you doing to get back to growth?

[Luc Voncken, executive]

Well, thanks, Joris, for your question. We have 2 main approaches to get back on our multiyear growth far. Firstly, our transformation programs are geared to make Cliq more huge proof. And secondly, our Magnificent Seven strategic growth drivers will provide new sales channels in order to grow our outreach and deliver more profitable conversions than previously with just on sales channel.

[Sebastian McCoskrie, executive]

The next question is from Emmet Bilge. He asked 2 questions for Ben. The speculation following the company's announcement yesterday is very unfortunate. Previously, the company had announced that it would not pay dividends and would buy back shares to protect its investors.Yesterday, I guess, you did not make any buybacks after this irresponsible announcement. Moreover, I learned that a broker had shorted about 1.5% of the shares. As an investor, I would like to ask, if not today, when do you plan to repurchase? Could this short transaction be an inside business?

[Ben Bos, executive]

Thanks, Emmet, for your questions. But first of all, as just mentioned, we have commissioned the share buybacks to be conducted by an independent investment bank. And repurchases have been made daily since the different payment date of the April 15.The short interest in our shares is public information and reported in the [Indiscernible]. In order to prevent insider information from leaking out, we have numerous measures in place aimed at safeguarding sensitive information, controlling access to confidential data and fostering a culture of confidentiality and compliance within the organization.We limit access to sensitive information on a need to know basis and implement strict controls and user permissions to ensure that only authorized individuals have access to confidential data, such as financial results, strategic plans or pending mergers and acquisitions.All employees, contractors and other relevant parties sign confidentiality agreements or nondisclosure agreements, so called NDAs that legally bind them to maintain the confidentiality of sensitive information.

[Sebastian McCoskrie, executive]

Our next question is from Paolo Costanzo for Luc. How do you plan to increase subscribers and make them stay longer? Finally, how do you plan to create value for shareholders in the long term?

[Luc Voncken, executive]

Thank you, Paul, for the question. Our growth plans were outlined, I think, in our presentation just now, which are expected to create value also for shareholders.With regard to your question regarding subscriber retention, we are not a streaming provider in the classical sets, and our main focus is on customer acquisitions and not on customer retention.

[Sebastian McCoskrie, executive]

Another one for you, Luc, from Bruno Sanna how much longer will your super company be around?

[Luc Voncken, executive]

Well, Bruno, we have been around for over 20 years. If I look to myself almost 23 years successfully selling D2C products and services around the world with the help of performance marketing. And we fully intend to stay and grow this great company back to former strength and be joined.

[Sebastian McCoskrie, executive]

Luc, Thomas Peper asked a question relating to the cancellation of 0.1 million customers within 1 quarter. Is the refund program a glitch that allows customers to continue using the service free of charge? Or are there these really cancellations by customers who then no longer use the service? It's a fluctuation of a portion of approximately 8% per quarter a normal rate? Do other streaming service providers have similar problems?

[Luc Voncken, executive]

Well, thank you, Thomas, for your question. I can, of course, only answer for my own company and not for other companies. But unfortunately, we have faced a higher churn rate of existing members. As mentioned during the presentation, this had to do with actual cancellations by members when we are no longer using the service.The fluctuation in member numbers are the direct result of the unsubscriptions and the addition of newly acquired customers. Other companies using credit cards should also have been affected by these new programs, which makes it easier for consumers to ask for a refund. As we are direct marketeers and used to relative high churn, the impact on our business is higher than previously anticipated.

[Sebastian McCoskrie, executive]

A couple of questions of Ben from Carsten Tuna. Ben, due to the sharply reduced EBITDA in full year 2024, will this be accompanied by a higher burden on depreciation and amortization? And will you launch another share buyback program? Or will the management Board buy more shares?

[Ben Bos, executive]

Well, thank you Carsten for your question about expected level of depreciation and amortization. We do see a slight increase in our amortization. The depreciation and amortization charge in the profit and loss account is EUR 0.4 million higher than in Q1 2024 compared to the first quarter of 2023. This is mainly due to investments made in 2023 and in the first quarter of 2024.As mentioned in the presentation, we continue the share buyback program, which was resolved by the AGM of 2022. For an additional share buyback program, we need approval from the AGM. We cannot comment on management in general, but I personally bought end of Feb 3K shares and today even 1,000 shares again.

[Sebastian McCoskrie, executive]

Benyamin Radar asks what exactly led to credit card companies refunding customers more frequently than expected? Is this only affecting one subsidiary or the entire group? Was this a one-off event related to a specific Cliq activity or the new normal? What steps is Cliq taking to grow faster in Asia and Latin America? And what proportion of the treasury shares purchased will be canceled or when will a decision be made? Ben?

[Ben Bos, executive]

Well, credit card networks implemented programs of refunding some time ago in general. Previously, refunds were less easy to apply for and receive depending on the respective country where the subscription took place.With the current change, processing refunds by credit card organizations has become easier and more widespread. The implementation of these recent programs worldwide takes time. Only now the full effects of these recent programs have become clearly tangible to the group's payment ecosystem. This affected clearly the LTV, the lifetime value of each member.As a consequence, we had to cut our customer acquisition cost per new member in order to safeguard our gross margin going forward. But unfortunately, time-wise, this effect from lowering the cost lags the hit to the LTV.To continue our growth in Asia and Latin America, Cliq is searching and adding for more local content to be added to the service portals and use in our performance marketing campaign to attract new members.The other subject to shares bought back shall be used to subsequently reduce CLIQ Digital's capital through cancellation and/or to meet CLIQ Digital obligation arising from stock option plans. It should be noted that treasury shares are excluded from the earnings per share and different distributions.

[Sebastian McCoskrie, executive]

Billy Jo has 2 questions regarding the Management Board's statements on the Q1 report. Firstly, you see the business recovering at present. Does this statement mean our 2024 Q2 fundamentals will be better or even very much better than Q1 2024? And based on what constructive measures that the revised 2024 guidance will be realized or even exceed the guided numbers. Luc?

[Luc Voncken, executive]

Well, Billy, we still have quite some trading to go in the second quarter as today is just the 8th of May. Our Q2 results presentation is currently scheduled for August 8. We only just revised our full year 2024 guidance on Monday. So, this is what we currently forecast and expect to be realized. Whether we can, in the end, exceed the guidance, we shall see. But the rest assured, we will do our very best to try to.

[Sebastian McCoskrie, executive]

Andreas Mastek asks a question for Ben. Against the background of a foreseeable much weaker cash flow this year, should the buyback program be continued as planned?

[Ben Bos, executive]

Hello, Andreas. While the operational free cash flow for the period is under pressure due to a lower EBITDA of the period. Unfortunately, there is a delay in the effect from lowering our customer acquisition cost per member as well as other cost savings measure in order to safeguard our profit margin and operating free cash flow.We have evaluated a weaker cash flow and based on current training, we will continue the buyback program as planned.

[Sebastian McCoskrie, executive]

Nils Accobsen has the following questions, Luc. At the Annual General Meeting on the 4th of April, the Board knew already how the first quarter will turn out. Why were the investors not informed about the high cancellation rates? Why were the goals not adjusted at this time?

[Luc Voncken, executive]

Well, Nils, during the AGM, we reflected on the performance of the prior financial year and not on the current trading. And it's important to acknowledge the challenges with the higher level of unsubscriptions we have encountered in the first quarter of 2024 and the impact on the remainder of the year and the adjustments we have had to make.While we initially anticipated a swift or recovery for our business, to be honest, to claim evident that the part to normalization would take longer than expected. And therefore, we had to adapt our guidance for the year 2024 earlier this week.

[Sebastian McCoskrie, executive]

Nils asked furthermore, knowing already in April that Cliq is facing difficult times. Why did Cliq double the remuneration of the Supervisory Board and topped current benchmarks? Is the Supervisory Board willing to cut the remuneration to show investors that they understand that this was a mistake?

[Luc Voncken, executive]

Well, Nils, as you know, the Supervisory Board remuneration is approved by the shareholders during the AGM. During the AGM reasons were given for the increase of the remuneration of the Supervisory Board. And I like the Management Board or Supervisory Board is tasked with overseeing management and safeguarding the interests of shareholders. Therefore, we, as Board members cannot comment on the level of the remuneration of the Supervisory Board.

[Sebastian McCoskrie, executive]

The contracts of the Management Board were renewed after the company got into financial trouble. To what extent was this considered when the remuneration was fixed? Was the remuneration lowered? Or was the variable part of the remuneration enhanced? If not, is the Board ready to make adjustments?

[Luc Voncken, executive]

Well, first of all, Nils, the company is not in financial trouble. However, we are not happy with the current performance. Let's be clear about it. It's very clear that we face challenges in this transitional year, as mentioned already during the call.The remuneration schedule of the Management Board is not lowered as a result of the current trading. Management remuneration is typically structured to incentivize long-term performance rather than reacting to short-term fluctuations. The remuneration is based on fixed and variable targets like the remuneration of the prior years.

[Sebastian McCoskrie, executive]

Are you considering to start a customer retention program, for example, the cashback partner program, where the potential savings for the customer would surpass the subscription fees they have to pay?

[Luc Voncken, executive]

Well, as direct marketeer of streaming services, we focus first on conversions and earnings on our investments back in a very short time frame. Increasing our lifetime value will allow us to increase the customer acquisition cost per member to further increase the volume. We are considering multiple opportunities to increase our lifetime value.

[Sebastian McCoskrie, executive]

The next question is Ben from Fernando Alonso Lamberti. How, Ben, do business forecasts deteriorate? And how can business forecasts deteriorate in such a short period?

[Ben Bos, executive]

Well, there Alonso, we have a temporary setback, yes, correct. And we initially anticipated a swifter recovery for our business. However, it became evident that the path to normalization would take longer than expected.We are, unfortunately, depending on the card schemes setting the rules which we cannot change as a small company, but be assured, we are adapting to recover our growth path.

[Sebastian McCoskrie, executive]

Stein Elebat has the following questions. Why was Europe much weaker than the other regions? Revenues in Europe are almost halved on a yearly basis in Q1. Free cash flow generation in Q1 was negative. Is there any outlook or guidance concerning the free cash flow generation for 2024? And the new transformation program, can we expect additional nonrecurring costs in the coming quarters?Will there be a positive impact of this program on EBITDA? Can you give your assumptions, which leads to the current full year guidance and group tax optimization program? What will be the impact on the group tax level? Ben?

[Ben Bos, executive]

A couple of questions indeed. So, Stein for the answers on the widespread refund program, we, of course, referred to the answers provided earlier. I think that does the job and gives enough information.The European region is more complex than the other regions, concerning the region encompasses in multiple countries and jurisdictions, each with its own unique challenges, such as, of course, language, culture and economic conditions.Although the company is always closely monitoring the cash flows and predictions, we do not guide on this. So, the transformation program to come back to that, we launched resulted in additional special costs. We believe that with this transformation program will make the company fit for the future and support the company's midterm outlook for further sustainable growth.Going forward, we do foresee some additional nonrecurring costs in relation to this program, but to a lesser extent. Based on the current trading, we see first positive effects from the actions taken, like lowering our customer acquisition cost per new member in order to safeguard our gross margin going forward, which forms the basis for the revised outlook.Coming back to our tax optimization program. Of course, this impact is aimed at ensuring that our global tax structure is optimized to align with regulatory requirements and structured in a manner that ensures tax compliance while minimizing tax burdens in a fair and responsible manner.

[Sebastian McCoskrie, executive]

Luc, Christopher Auto is interested in what other reasons apart from the refund programs, the Management Board assumes worth why the customers are not reregistering after canceling.

[Luc Voncken, executive]

Yes. Well, Auto we are foremost a global performance marketeer company and focused on acquiring new customers by online advertising and meaning our business model is not aimed at getting customers to reregister to our services.

[Sebastian McCoskrie, executive]

Luc, Peter Vensky has the following question. How do you expect the further development of the chargeback practice and its impact on Cliq? And how is the actual situation now?

[Luc Voncken, executive]

Thank you, Peter, for that question. For the best of our knowledge, we informed the market about the financial impact for this year results by updating our guidance this Monday. However, we also committed our midterm guidance, which we did not change at all.

[Sebastian McCoskrie, executive]

Ralf from Quirin ask the following questions, Ben. Following the weak performance in the first quarter, are your positions, goodwill and other intangible assets in danger?

[Ben Bos, executive]

Hi Ralf, good question. And looking back to the previous years with lower results than the current guidance, we always pass year permit tests. So, I assume we don't have any issue here.

[Sebastian McCoskrie, executive]

Ralf also asks or says, you explained that the higher churn was because of a more widespread refund program of the credit card companies, which resulted in a lower than expected lifetime value. Can you explain in more detail why credit card companies had such a negative impact on the churn rate?

[Ben Bos, executive]

Well, as I explained earlier, the credit card companies made it easier for consumers to ask for a refund and unsubscribe to the services. As direct marketeers, we anticipate an impulse buying of consumers, which make consumers subscribe to our services. This is, of course, also the other way around.

[Sebastian McCoskrie, executive]

What does it mean for the future regarding collection of your clients' payments?

[Ben Bos, executive]

Currently, 96% of our revenue is generated by credit card billing. This revenue stream is now affected by the higher unsubscription rates. In the refinance guidance, we have already included the forecasted impact of this change.

[Sebastian McCoskrie, executive]

Adjusted EBITDA came in at EUR 5 million, with special items of approximately GBP 3 million in the first quarter. Do we have to expect further adjustments or one-off costs over the next quarters?

[Ben Bos, executive]

Well, as previously said, the group wide transformation program continues in the second quarter, but to a significantly lesser extent.

[Sebastian McCoskrie, executive]

EBITDA for the full year is thereby expected to range between EUR 26 million and EUR 30 million. Is this guidance in adjusted EBITDA or reported?

[Ben Bos, executive]

The guidance is based on the reported figures.

[Sebastian McCoskrie, executive]

Our next questions are from Damian. Firstly, you referred to a group-wide transformation and tax optimization program. You only mentioned the tax optimization program at the AGM in connection with the extension of the executive board contracts. Does it mean that Cliq has taken over the Management Board's taxes job and will do so in the future?Secondly, if this is a different tax optimization program, I would ask for more clarity as different tax rules apply in each country. What specifically is optimized in which country and how? Ben?

[Ben Bos, executive]

Cliq has not taken over the management taxes job. The group tax optimization program is aimed at ensuring that our global tax structure is optimized to align with regulatory requirements and structured in a manner that ensures tax compliance while minimizing tax burdens in a fair and responsible matter. The tax optimization program is related to all countries where our subsidiaries are located.

[Sebastian McCoskrie, executive]

One for you, Luc. After all, the U.K. has delivered good sales for Cliq so far. What were the main reasons for closing the U.K. office and when was the decision made?

[Luc Voncken, executive]

Well, the main focus of our U.K. office was single content services. And as part of the Fit for the Future program, we have decided to concentrate operations as much as possible in Netherlands by offering bundled services globally. And therefore, we decided to close our U.K. offers in London, and the decision was made early this year.

[Sebastian McCoskrie, executive]

Has CLIQ Digital completely withdrawn from the U.K.? Or are there plans to do so?

[Luc Voncken, executive]

As explained previously, we have closed the office in London and now run the remaining business from our office in Amsterdam. So we didn't close the U.K. We still generate revenue from the members subscribed to single content services. And please note that the U.K. legal entities are still active as the revenue is collected via those entities. The closure of the U.K. office does not mean that Cliq is no longer active in the U.K. market. In fact, we can run business globally from one operational office.

[Sebastian McCoskrie, executive]

What have you done to prevent or stop the refund program?

[Luc Voncken, executive]

Well, unfortunately, we can only accept this and take actions to mitigate the risk. The actions have been taken by, for example, Visa and MasterCard. And we are just a small player without any influence impact on those big companies. One of the actions we have taken is to test lower price points to make it more attractive for consumers to subscribe and to remain subscribed for a longer period, for example.

[Sebastian McCoskrie, executive]

As of the 31st of the 12, 2023, the Management Board owned approximately 9% of the shares of CLIQ Digital. Has the situation changed to date? If so, please provide details of the number of shares and trading days, Ben.

[Ben Bos, executive]

Well, the situation did not change materially as far as I know and personally purchased almost 3K of shares at the end of February against the stock price of around EUR 18. Today, I also purchased another 1,000 shares.

[Sebastian McCoskrie, executive]

Milo from Edison asks, Luc, have you seen more competitive pricing when purchasing new content? What additional sales channels are you trying? And what are the early takeaways?

[Luc Voncken, executive]

Well, Milo, we have not seen more competitive pricing when purchasing content. Affordable content is available in the market. That's not the problem. For the sales channels, we refer to our presentation in which we elaborated on the development of search, affiliation and our initiatives towards video and e-mail.

[Sebastian McCoskrie, executive]

Our next question is from Roland Konen and he asks Ben. Please explain in detail how the costs for the transformation and tax optimization program amounting to EUR 3.5 million are broken down and for which measures they are intended.

[Ben Bos, executive]

Well, the majority of these special items related to group's transformation program Fit for the Future, which includes the closure of the U.K. office and the hiring of additional contractors for technology integration and optimization. The purpose of the Fit for the Future program has been explained in our presentation and the previous questions.

[Sebastian McCoskrie, executive]

Ben, Nils from Montega asks, the Executive Board contracts were not reorganized until comparatively late. Both contracts now have a term of 5 years, which we believe is rather unusual. What is the background to this?

[Ben Bos, executive]

Well, besides most of the questions, you had earlier Nils, sorry, besides the one of the prolongation of the Management Board contracts. Those have been extended by 5 years, which is consistent with actually the previous Executive Board agreements. So, this has been done already 2 times previously, as of 2012 and 2014, respectively.

[Sebastian McCoskrie, executive]

Luc, our next questions are from Danny Feneler from VFB. He asks, what is the impact on CapEx from the closing of the U.K. office? And can you give us some color on what you mean by tougher market conditions in the press release. When I compare with, for example, Netflix or DisneyPlus, where trends are more favorable, does this mean that customers are moving to the high-end of content?

[Luc Voncken, executive]

Well, the closure of the U.K. office has a limited impact on the CapEx as our U.K. office was not CapEx-intensive. However, the closure will result in cost savings on a monthly basis on the payroll and to a smaller extent, operational expenses. We are a global performance marketing company and don't compare ourselves to Netflix or Disney Plus. We are foremost online performance marketeer of streaming services of digital content.

[Sebastian McCoskrie, executive]

And our last questions today are from Andreas Blom from Medium Invest. What specific non macroeconomic nonexternal factors affected the top line growth in this and recent quarters? Luc?

[Luc Voncken, executive]

Well, as I said already, the top line revenue is negatively impacted by the higher churn, resulting in a lower lifetime value. And as a result, we have lowered our customer acquisition costs to safeguard our margin going forward. But this, of course, puts pressure on the volume of newly acquired members.

[Sebastian McCoskrie, executive]

Can you please outline 2 to 3 strategic initiatives you are considering to implement in order to mitigate this quarter's negative top line and bottom line development?

[Luc Voncken, executive]

Yes. Well, the main strategic initiatives are, of course, the diversification of our sales channels, combined with the lower cost per acquisition to safeguard our bottom line results going forward. And furthermore, the group-wide transformation programs will have significant positive impact going forward.

[Sebastian McCoskrie, executive]

The current share price essentially implies very limited value creation going forward. How do you interpret the current market sentiment as reflected by the low valuation multiples relative to operating income? Ben?

[Ben Bos, executive]

Well, as a Management Board, we still believe in the company and are convinced to bring back the profitable growth to the company. The company is, in our opinion, already undervalued for a long time.

[Sebastian McCoskrie, executive]

And last but not least, what steps are you taking to address these investor concerns regarding the business model and management? Ben?

[Ben Bos, executive]

We keep on telling our story to the market and explain our business model. We attend number on conferences and road shows. So, we keep on informing and communicating with the investor community.

[Luc Voncken, executive]

Well, ladies and gentlemen, that was our last question for this afternoon. And should you have any further questions, feel free to get in touch with us. Thank you for joining our first quarter 2024 video webcast today. Have a great day and all the best.