Acast AB (publ) (ACAST) Earnings Call Transcript & Summary

Good morning, and welcome to Acast Earnings Call for the Second Quarter of 2024. As usual, we have our CEO, Ross Adams; and CFO, Emily Villatte, that will present the results and the developments for the quarter. You're welcome to submit questions throughout the session using the form below, and we'll make sure to answer them in the Q&A session that will be held after the presentation. I would like to kick off the call by handing over to our CEO, Ross Adams.

Hi, and thank you for everyone for dialing in. My name is Ross Adams. I'm the CEO originally based out of London, where I am actually today, but now living in New York, where I've been for the past 2 years. We'll take you through the Q2 numbers and recent events. And our CFO, Emily Villatte, is also on and will take you through our financials. If you're new to Acast, we are the market-leading independent global infrastructure platform, uniquely positioned at the center of the podcasting value chain. And we connect advertisers with podcast creators who want to monetize their content and their highly engaged audiences. Essentially, we are an Internet connected ecosystem, bringing together creators who produce compelling content to attract listeners using their creativity to build a loyal audience base. And this high-quality content attracts audiences who are eager consume it. Sizable and engaged audiences are highly attractive, of course, to advertisers seeking and paying for efficient reach at scale. So we are in the middle of this value chain, helping advertisers to access highly engaged podcast audiences across the globe, and we share the advertising revenue we generate with the podcast creators on our platform. In building the world's most valuable podcasting marketplace, we've established a portfolio of over 125,000 podcasts, generating more than 1 billion listens per quarter. And we work with around 2,700 advertisers, consisting of both global brands and smaller companies, too. We allow them to reach these listeners with effective and creative advertising campaigns via Acast's marketplace. We take great pride in fostering and growing our relationships with podcasters of all audience sizes and types from around the world. Our slate of podcasts ranges from some of the biggest podcasters in the world like Marc Maron to news publisher shows as well as emerging creators. The common thread is that they all choose Acast as their partner to find and grow their audience and earn revenue through partnering with advertisers of all sizes. So let's look at our development during the second quarter of 2024, and another good quarter with sustained healthy levels of growth. Group sales grew by 24% to reach SEK 478 million in the quarter. When adjusting for currency changes, organic growth was at 22%. Importantly, we have maintained a good growth in North America at 26%. When looking at the growth level in North America, I want to remind you that we had easier comps in the previous quarter. And I'm also glad to show that Europe grew by 25%, reflecting a higher pace compared to the first quarter. Our gross margin was steady at 39%, which is in line with the previous quarter, but reflects a 3 percentage point increase compared to the level a year ago, another sign of healthy development of our business. And together with continued cost control, the progress has allowed us to make an additional EBITDA improvements in Q2. Our EBITDA loss in the quarter amounted to negative SEK 11 million corresponding to a negative 2% EBITDA margin, and this reflects a 9 percentage point improvement year-over-year. And this, of course, shows that we have taken another step closer towards profitability. In June, we announced the results of a comprehensive study we ran together with the media agency OMD. Using data from the Swedish market, the study reveals that podcasting advertising not only surpasses other media in brand building but also in generating sales. The results show podcast advertising provides the highest long-term return on ad spend ROAS, with ROAS of 4.9x, meaning that every SEK invested in podcast generates SEK 4.9 in long-term sales. And this surpasses, for example, social media, which has a ROAS of 4.6x and radio with a ROAS of 4.3x. It also shows that podcast advertising is 34% more cost effective in driving brand awareness compared to other media. Adding podcast to a mix of TV and online video can increase the campaign's short-term ROAS by up to 18%. The synergy between different media channels enhances the value of podcasting and underscores why advertisers need to integrate podcast advertising into broader media strategies. And the study clearly illustrates the attractiveness of podcast -- or the podcast market and the large opportunity for both advertisers and creators as well as the ones providing the infrastructure needed to realize this potential for us. The important market trend is that video and social media components are becoming increasingly critical in podcasting, enhancing engagement, expanding reach and improving monetization opportunities for creators. More and more multichannel creators are choosing Acast as their home. And some recent relevant signings and renewals in this space include Have A Word, ShxtsNGigs, The Fellas Studios and Kayla Itsines, among many others. Acast has been at the forefront of this evolution. In fact, we launched our first multichannel campaign more than 6 years ago. And recently, we have refined our multichannel offering due to increased demand from advertisers recognizing the value of such campaigns, and we see more podcasters keen to extend their brand campaigns across all their channels. Furthermore, our innovative work in this space is being recognized across the industry. In June, our multichannel work was celebrated at the Campaign Audio Advertising Awards by winning in 4 categories, including Best Branded Podcast Episode, Best Social Strategy, Best Sustainable/Green Campaign and Best Advert. This is testament to our commitment to creative excellence, versatility and pioneering integrated marketing that so many of these types of creators choose Acast, and so many advertisers trust us with these valuable campaigns. I'll now pass over to Emily, who is going to take you through our Q2 financials in more detail. Emily?

Thank you, Ross. So let's step into the details of our numbers. Per usual, we start by having a look at the listens. And just as in Q1, we have a decline in Listens due to the iOS 17 update that has changed how podcast listens are measured. And in Q2, our Listens decline was minus 15%. But our average revenue per listen, ARPL, which is the best indication of monetization every listen has, has at the same time developed favorably, growing by 45% to SEK 0.43 in the quarter. So the decline in our own platform listens has not limited our ability to continue to monetize our portfolio. And actually, I'll add some nuance here because we're not only limited to sell what we are hosting on our platform. But we also have access to some inventory off platform via technologies such as [ Vast ], which are not included in our reported listens. So our work to assist creators in monetizing their content outside RSS also helping them in other media channel or multichannel work, as Ross just mentioned, is gaining traction. And this means that in practice, we can sell more than the capacity stipulated by the reported number of listens. All right. Our net sales growth amounted to 24% in the second quarter. Apologies, my light has gone out. The solid growth development was also -- it was 22% organic growth after adjusting for FX. So this development was driven by another good quarter for North America as well as a good quarter for Europe. But I will get into discussing the segments shortly. Moving on to gross margin. We have maintained the gross margin level at 39% in the second quarter, which is the same as in Q1. But when it comes to absolute gross profit, this increase represents an increase of 35% compared to the last year and a 3 percentage point higher gross margin. So as mentioned on previous calls, this positive gross margin development has been driven by the contribution from our friends at Podchaser and their products, whilst we also have had favorable product mix effects. Moving on to the development of our geographical segments. Again, we've had North America taking the lead on sales growth, growing by some 26% year-on-year this quarter. And those of you who have followed us for some time, as Ross mentioned, you might recall that we had easier comps in the previous quarter, explaining the difference in growth between Q1 and Q2, specifically in North America this year. In addition, we saw good growth in Europe at 25%, and I'm happy with that. Growth in our other market segments was more stable and increased by 10%. So growth across the board. Also glad to see that we continue to see improvements, not just at the top line, but to the local profitability expressed as contribution profits in all our segments. So whilst our gross profits grew by SEK 48 million or 35%, our other operating expenses increased by SEK 21 million or 11%. So this OpEx increase is explained by our continued measured investments, primarily in North America. The costs were also affected by FX as well as a small cost increase from incentive program cost linked to the recent share price development. So we closed the quarter with total staff and consultants of 378 persons, which is actually slightly lower than the 386 staff we had at the same time last year, including consultants as well. Now turning to EBITDA. Again, thanks to the combination of our growth, improved gross margin and continued cost control, Q2 was another quarter with tangible EBITDA improvements compared to last year. The EBITDA loss of minus SEK 11 million corresponds to a minus 2% EBITDA margin in Q2 of 2024, which compares favorably to the negative SEK 42 million that we had last year. And on EBITDA margin, this represents a 9 percentage point improvement year-on-year. On the right-hand side, you can see the EBITDA development on the last 12-month basis, showing the gradual progress we continue to make. And by Q2, our LTM EBITDA margin was also negative 2%. So Q2 2024 marks another important step towards profitability, reflecting that we remain firmly on track to deliver on our profitability target of positive EBITDA in full year of 2024. Moving on to cash flows. The operating cash flow improved and amounted to minus SEK 1 million in the second quarter. As highlighted in the previous quarter, we usually have some working capital fluctuations. But we've clearly over time become better at driving down our DSO, so days sales outstanding, whilst maintaining our DPO, days payables outstanding, at a steady level. From a last 12-month perspective, it's clear that we've made large cash flow improvements, thanks to the profitability and working capital improvements. So by Q2 2024, so in this quarter, operating cash over the last 12 months amounted to a positive SEK 14 million. Recall those -- that positive impact we had in Q4 of last year. By the end of the second quarter, 2024, we held SEK 712 million in cash, reflecting that our financial position remains very strong. Back to you, Ross.

Thank you, Em. So to summarize the second quarter, we have continued to build on the strong start we had to the year. We've maintained a high growth rate, not only in North America, but also in Europe. We proudly remain market leader in an industry that carries significant potential for advertisers, thanks to podcast being a highly effective media in driving sales and building brand awareness. We are also well positioned to support our creators and advertisers beyond podcasts, as evidenced by our leadership in integrated marketing campaigns and our ability to attract multichannel creators to Acast. And it's clear that we have continued to improve our position throughout the quarter. Our financial development and improved EBITDA shows that we are on track to deliver against this year's profitability targets. That concludes our comments on the Q2 results. Let's start the Q&A. So if you want to post a question, feel free to type them in the text box below.

Thank you, Ross. We'll start with some questions from Andreas at Carnegie. So first of all, I guess we should assume price levels are fairly stable, which would imply that it is the sell-through rates that is the main growth driver. Can you explain a bit more about how you've accomplished this? And also if you could say anything on what is more to be done. Anything on seasonality we should be aware of for the remainder of the year?

When it comes to our CPMs, Andreas, thank you for the question, they were actually a little bit softer in Q2 compared to Q1. So this means and implies that our sell-through rate has taken a good step forward. There has been a little bit of softness in market, so this is not unusual when we look at us and the other big advertising players focusing on the brand spend side. So -- but we have the available inventory to continue to grow our top line. When it comes to seasonality, you might recall that we had tougher top line comps in Q2, so this quarter compared to Q1, but Q3 of this year represents the toughest comp when it comes to growth rates. So I just wanted to make that known as well.

Another question from Andreas. Could you give some indication on the seasonality of the cost side? You have increased efforts in sales and marketing. And given the effect you get from this, I guess we should continue to expect these levels to be sustained.

When it comes to the cost line, there was an increase in the quarter, of course, but I'll recall as well that with our gross profits increasing by 35%, our OpEx increasing by 11% still gives -- has given us a good level of operating leverage. The cost, as mentioned previously, have increased due to our measured investments in the U.S. But they're also not quite half of the cost increase but close to half and has been driven by FX impacts, U.S. and GDP, for example, fluctuations versus the SEK. So our cost base, our OpEx cost base that we have in foreign currency has increased. And we've also had an increase from share-related incentive schemes as a result of the share price increase that we saw during the second quarter of this year. When it comes to seasonality, we do have more staff going on holidays in Q3, so that can have a small impact on our staff costing line and holiday accruals. But I wouldn't see -- I wouldn't guide to any sort of radical changes in our cost line. We will, of course, continue to make measured investments where we see fit and where we expect a return.

Another from Andreas. Given that you have no debt and a strong cash position, is there any reason to expect the Q2 financial net should be materially different coming quarters?

Q2 financial actually -- sorry, I'm just reading the question again. But it's how -- there are -- as you have seen, when it comes to net profit and loss and the impact that we have in the financial items line below EBITDA and then coming down to net loss, as you can see in prior quarters, we have had some quite significant impact from FX there. In Q1, in particular, there was an impact from unrealized FX gains. We have a goodwill on the balance sheet in USD, and that is revalued as USD this quarter, one quarter. When it comes to the financial items in Q2, they're smaller than -- the impact is smaller than in Q1, and these relate mainly to the gains from interest on our cash position. So the financial items line will continue to be impacted by, for example, FX moving forward.

Another question from Andreas. How dependent are you on certain podcasts or certain industries when looking at your revenue? Are there any podcast platform -- or is there a podcast platform that stands out as more important than others?

For us, all podcast platforms are important. Listens are primarily split between 2 to 3 platforms. But for us, having the open ecosystem and RSS as a distribution system is important to distribute content to anywhere that a listener actually wants to listen to it. When it comes to how dependent we are on certain podcasts or certain industries when looking at our revenue standpoint, we have no advertiser that is a material part of our overall revenue, and we have no podcaster that stands out as material, and material being over 10% part of our overall reach. So the beauty of having 125,000 -- or over 125,000 podcasts allows us to spread that audience and reach out and spread that risk across the entirety of the network that we represent.

And another question from Andreas. Can you explain your multichannel offering to customers? What exactly are you doing in this area? And how does the business model look?

Yes. We have video right now. If you look at kind of social and more general podcasting, it is really part of that social ecosystem and as a social influence, a medium. But podcasters obviously have video assets. Video assets might be there to promote the show, and they might come in short form. They might also come in long form, an offering as well. They might simulcast content as well. But again, distributing your content on as many platforms as possible is key to reaching as wider audience as possible. And for us, it's about how we monetize our audience across those -- the entirety of wherever people are listening or watching your podcast, short or long form. So the offering that we offer to customers there, of course, is very similar to what we do in just audio. And more integrated campaigns happen across video as well as audio, whereas our ad model distributes mainly around the audio offering. But multichannel is becoming a more popular buyer and a more popular request from advertisers now. They're very keen to associate themselves and have a creator endorse their product, regardless of where our people are listening and watching, regardless if it's short or long form. So we then offer ad formats that answer that and operate in those different mediums.

And some questions from Bernd at Barclays. How much of the strong continued growth in North America was driven by underlying market growth versus you taking share? And roughly, where do you see North America organic for the rest of the year?

Bernd, welcome to the team. It's great to have you on board as a new analyst for Barclays. So we're delighted to have you. Now moving on to your question, how much of North America growth was driven by market growth versus taking market share? Now the market data on podcasting is not perfect. It's still a medium that is in its early stages of development, I would say, even in North America when it comes to the potential. So there isn't perfect data. The market -- the general ad market in the U.S. is very well documented, and it is growing. I would hazard a guess that podcasting is growing faster than the overall ad market. But I would also say that Acast is continuing to take market share. When it comes to growth for North America for the rest of the year, we typically don't give a specific guidance. But what I would expect is that what we've seen in the first half of the year, in other words, North America growing faster than the Acast Group. I would expect that to be reflected in the full year numbers as well overall. But of course, we had our easiest comp in North America in Q1, so that's important to know.

Another question from Bernd. Can you give us a sense of Q3 ad trends so far in the U.K., U.S., Sweden and other markets, please?

Of course. So whilst it's hard to predict the specifics of Q3, I'll give you some reflections on what we have seen in Q2 so far when it comes to the different markets. Clearly, strong growth in North America, but Europe saw a step-up in growth compared to Q1. Now it's a similar picture, similar to the one that we reported on Q1 within Europe, and that is that the U.K. has had a tougher macroeconomic climate when I look at the portfolio of markets that constitute our European segment. However, we have been fortunate enough to see strong growth from some of the smaller and medium-sized markets in Continental Europe. So here, I'd highlight France and Germany. So that has been wonderful to see. And also our Swedish market, which -- it was a tough market in Sweden last year, you will recall, for the full year when we split out those numbers. Sweden has been a good step forward this year as well. So overall, in Europe, U.K. has had the toughest macroeconomic climate, and we in our markets have seen stronger growth in Continental Europe and in Sweden and the Nordics. When it comes to other markets, these are mainly made up by Australia and New Zealand and then our international segment. And they grew by 10% in this quarter. It contributes a smaller overall revenue line, but that blended performance has been somewhat slower than the growth in North America and Europe.

Another question from Bernd. Listens declined 15% due to the measurement changes from iOS 17. Can we get a sense of what underlying growth of listens ex iOS 17 was?

It was stable.