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

Good morning, and welcome to Acast's Earnings Call for the Year-End Report 2024. As usual, we have our CEO, Ross Adams; and CFO, Emily Villatte, who will present Acast results for the year and important events over the past quarter. You're welcome to submit questions throughout the presentation using the form below the stream and we will then make sure to raise the questions during the Q&A held after the presentation. Let's kick off by handing over to our CEO, Ross Adams. Please, Ross, the floor is yours.

Thank you. Hi all, and thank you for listening in. Hello to those on stream on YouTube. I'm Ross Adams, CEO of Acast, normally operating from New York, where I've been living for the past 3 years. But today, I'm in sunny Stockholm for the presentation with our CFO, Emily Villatte. I'll take you through our Q4 developments and recent business highlights, then Emily is going to take you through the financial performance in more detail. If we have new investors listening in, Acast is, in essence, the market-leading independent global infrastructure platform for podcasts. We're uniquely positioned at the center of the podcasting value chain, matchmaking advertisers with podcast creators who want to monetize their content and their highly engaged audiences. Essentially, we are in an interconnected ecosystem, bringing together creators who produce compelling content to attract listeners using their creativity to build a high loyal audience base. This high-quality content attracts audiences who are eager to consume it. Sizable and engaged audiences are highly attractive, of course, to advertisers seeking and paying for efficient reach and engagement at scale. We underpin this with the widest data set in podcasting through our data company, Podchaser. Podchaser has data on 5.6 million shows, which allows us to drive discovery for podcasts, matchmaking between advertisers and audiences and revenues for both creators and of course, for Acast. Our competitive edge is based on the facts that we true podcasting pioneers being the inventors of the technology behind global podcast advertising as we know it today. We have unmatched scale and exclusivity. Our portfolio consists of more than 140,000 podcasts that generate more than 1 billion listens per quarter. And we connect these to more than 3,300 advertisers per year, a number that's grown by 24% in 2024. And these advertisers consist of the likes of global brands as well as smaller companies. And we are innovation leaders consistently first to market with technologies like AI-driven targeting, contextual targeting and first-party data onboarding. And we offer reliable measurement, providing trusted industry-leading measurement solutions that are required to track performance across the entire marketing funnel. We also go beyond the podcast. We are podcast first, but not podcast only. We have the capabilities needed to deliver broad omnichannel campaigns that span across social media, video, live events and more. And we see a growing demand for these omnichannel campaigns from both advertisers and creators. And I'll come back to give examples of these later in the presentation. So to summarize, Acast empowers podcast creators and advertisers with global reach, strong monetization and cutting-edge technology, all at a scale unmatched in the industry. We foster and grow relationships with podcasters of all audience sizes and types around the world. And our portfolio of podcast creators ranges from some of the biggest personalities, including the likes of Peter Crouch, Marc Maron, Giggly Squad and Peg & Penny to established news publishers such as, The Economist and The Telegraph amongst many, many others. And we have heightened focus -- have a heightened focus on increasing monetizable listens. In the quarter, we were pleased to welcome iconic content from TED Audio Collective, currently bringing 26 hit podcasts to our network, garnering 176 million listens annually and also Casefile, which is one of the world's largest true crime podcast with around 80 million listens annually, too. In the quarter, we also signed the prominent French YouTube creator Squeezie. Acast will serve these with ad sales, hosting and distribution, and we also have the rights to monetize video versions of their podcasts, too. Of course, we also support niche shows of all types who bring with them dedicated communities. Over the last year, we've added about 5,000 shows per quarter. And this diverse range of content allows us to connect advertisers with the creators and audiences that perfectly match their needs. And the common thread among these creators is that they all choose Acast to help them find and grow their audience and earn revenue from advertisers of all sizes. Okay. Looking at our development in the fourth quarter of 2024, we delivered 17% net sales growth, of which 15% was organic growth. The growth was again primarily driven by North America, where revenues grew by 33%. The gross margin remained high at 40%. And the EBITDA profit amounted to SEK 34 million, corresponding to a 6% margin. When summarizing the full year, we delivered 19% net sales growth, of which 18% was organic. The full year gross margin amounted to 39%, where the improvements in 2023 are explained by a favorable product mix, efficient yield management and positive effects from Podchaser. We have maintained good cost discipline and a measured investment approach, which ultimately has allowed us to deliver additional large profitable improvements. And our full year EBITDA amounted to SEK 24 million, reflecting that we successfully have delivered on our profitability target of positive EBITDA in 2024. An increasingly important focus for us throughout the year has been to meet the growing demand for broad omnichannel campaigns and the fourth quarter has not been any different. Significant event in the quarter was our announcement of the acquisition of Wonder Media Network, which will expand our audio capabilities and ability to deliver large omnichannel campaigns. Wonder Media Network is a female-founded creative audio studio based in New York, highly experienced in innovative campaign delivery and podcast production, producing highly awarded branded and original content. This historically worked with a number of large established brands such as Pfizer, or Nike and Microsoft to name a few to assist them with their audio strategies. And Wonder Media brings a team of 25 employees that will join Acast's existing creative team to form Acast Creative Studios. And together, we will offer advertisers integrated campaigns and branded content solutions from ideation through to production and campaign delivery, allowing these advertisers to reach engaged audiences across audio, video, social, live events and more. And the acquisition is expected to open up new revenue streams for Acast and our creators whilst also fostering deeper relationships with advertisers to bring bigger and bolder ideas to life. In the fourth quarter, we executed one of our largest omnichannel campaigns to date in partnership with Google, featuring several of the largest podcasts and personalities in the U.K., including Katherine Ryan, Help I Sexted My Boss, Private Parts, Rio Ferdinand and Giovanna Fletcher, all making use of Gemini Live on Pixel 9, captured in branded segments across both audio and video. With currently over 22 million players across social, this integrated campaign demonstrates our capability to deliver high-impact, wide-reaching initiatives and highlights the increasing demand for omnichannel campaigns. We believe that these campaigns will play a significant role in the evolving media landscape and that Acast is well positioned to capitalize on this opportunity. During the quarter, we officially opened our new London hub, Acast Studios London. The entire floor of the new office is dedicated to supporting our creators through investment in state-of-the-art facilities. And this includes 4 studios equipped for both audio and video production, which will be available to our extensive network of established U.K. creators. One of the studios was launched in partnership with Amazon Music, dedicated to providing new creators with the professional resources and equipment needed to start and grow their podcasts. And the investment demonstrates our strong commitment to supporting our creators across both audio and video and taking on a key role in fostering a vibrant podcasting community. Before handing over to Emily, I am very pleased to look back at our long-term financial development. We have continued to grow despite varying market conditions and saw higher growth rate compared to the previous year. Over the past 6 years, we have grown our revenue base more than tenfold to reach revenues just short of SEK 2 billion in 2024. And I'm especially pleased in reaching the milestone of positive EBITDA, thereby delivering on our profitability target, which has been a steadfast focus over the last 2 years, especially cementing our transition into a profitable growth company. With that, Emily, perhaps maybe you could take us through some of the developments in more detail.

Happy to, Ross. For those of you who have followed us for some time, you would recognize our revenue buildup which you see here on the slide, and this explains how our advertising revenues are being generated. The foundation of our ad-based revenues is our inventory, which is a product of the number of listens and the number of ad breaks available in each show. Our success in selling our inventory is reflected in the sell-through rate and the product of the sell-through rate and the inventory provides the number of delivered impressions, i.e., the number of delivered ads. Ads, of course, are priced in cost per min CPM, which is the price for 1,000 impressions often expressed in U.S. dollars. So together, this shows the dynamic behind our ad sales buildup. And let's look at our 2024 progress. Our listens declined by 13% in 2024, primarily due to the iOS 17 effect. And we estimate impact from iOS 17 for the full year to have been 17%. So underlying growth is, therefore, around 4% positive underlying growth, excluding the iOS 17 effects. The number of ad slots have increased to 6.8 from 6.2 in 2023, resulting in an inventory just short of last year's level. We've also delivered a significant improvement in the sell-through rates. And pricing has been fairly stable throughout the year, and our CPM in 2024 on average was USD 13. And here, I want to highlight that we've had a slight shift in product mix in favor of more ads, which generally are priced at a lower CPM compared to sponsorships. And this buildup reflects that there are different levers to drive our ad sales revenues despite the decline in listens. Having said that, we're committed to growing our base of monetizable listens moving forward whilst also seeing room for further sell-through rate expansion. So in short, there's ample room for future growth. Looking at the financial development in the quarter, starting with listens and ARPL, our listens declined by 8% in the quarter, primarily due to the BBC leaving Acast and to a smaller extent, by effects from iOS 17. And I want to stress that this drop in listens has not had any impact on our revenues as we have been successful in allocating demand towards other suitable shows. In addition, we onboarded new shows like TED and Casefile, and these have already replaced the commercial value of the BBC. So we look forward to leaving the iOS effects behind us as we progress through the first half of 2025 and remain increasingly focused on growing our inventory of monetizable listens. In fact, we have also increased our unique reach year-on-year, which I want to point out, and we currently reach over 100 million uniques on a monthly basis. ARPL or average revenue per listens continued to grow also in Q4 to reach a record high of SEK 0.54 in the quarter, reflecting 28% year-on-year growth. Our net sales grew by 17% in the quarter to reach SEK 578 million, and the organic growth amounted to 15%. And Q4 was the strongest sales quarter, consistent with historical trends and seasonality. Our gross margin remained high in the quarter at 40%, and our gross profits grew by 18% year-over-year when excluding the impact we had from podcast contract revaluations in Q4 of 2023. As in previous quarters this year, this growth primarily reflects a favorable product mix with a higher proportion of ad sales compared to sponsorships alongside yield management efforts and contributions from Podchaser. And our gross margin has remained stable at a healthy level throughout 2024, as shown on the right. Our other operating expenses amounted to SEK 215 million in the fourth quarter, slightly increased by FX as well as including expenses related to the acquisition of Wonder Media Network. And the total number of staff at the end of the year was 395 person slightly higher than last year, but notably, it's the exact same level as we ended 2022, reflecting our ability to scale. Now let's turn to our performance by segment. Europe delivered 12% year-on-year growth in the fourth quarter. And similar to previous quarters, we've seen strong development in Continental Europe, whereas performance in the U.K., which is our largest market has been moderate due to a challenging end market. The segment's contribution profit has continued to improve and the contribution margin has increased to 23%. North America has remained a key driver of revenue growth at 33% in the quarter, reflecting maintaining consistent momentum. This has also been followed by a large improvement in the contribution margin amounting to 12% in the quarter. Other markets were largely flat in the fourth quarter, but still managed to achieve a minor uplift in the contribution margin. So overall, we are very pleased to present another quarter with profitability improvements across all our segments. In this year-end report, we also disclosed our annual revenue and contribution profit for our top 3 markets. And as you can see, the U.K. has had a softer year 2024, affected by a more challenging ad market, leading up to a year-on-year growth of 2%. Despite the more challenging ad market, U.K. has still seen a significant contribution profit improvement with a margin of 24% in the full year of 2024. Consistent strong performance in the U.S. market resulted in 37% growth in 2024, confirming that our strategy is working. And the strong revenue growth has also been followed by profitability improvements in the U.S. with a contribution margin now amounting to 11% in 2024. And this ultimately reflects that the U.S. has also started to have a meaningful impact on the group's profitability. Sweden's performance rebounded strongly in 2024 after a more challenging 2023, with a 28% sales increase for the full year. Sweden has also seen a substantial profitability improvement, operating at a contribution margin exceeding 30% in 2024. So this highlights the varying growth rates of our top markets and our ability to still achieve substantial profitability gains compared to the prior year. And this has, of course, been crucial in achieving our EBITDA profitability target for the full year. In Q4, our EBITDA profit amounted to SEK 34 million, reflecting a 6% margin. We've also had costs related to the Wonder Media Network transaction in Q4 and adjusted for these, the EBITDA was SEK 36 million. The EBITDA margin improved by 3 percentage points versus Q4 of the prior year, thanks to up-scaling against a higher level of sales and the gross margin improvement. On the right-hand side, you will see that we've continued to achieve consistent profitability improvements on a last 12-month basis over the past 2 years. And positive cash flows have followed. The operating cash flow was positive SEK 55 million in the fourth quarter, and the free cash flow was also positive at plus SEK 28 million. And on a last 12-month basis, the operating cash flow was SEK 34 million, and we closed the year with a robust balance sheet. And I would now like to hand back to Ross for final remarks and then some Q&A.

Thank you, Em. Notwithstanding varying ad market conditions, we have made significant strides this year. And notably, we have strengthened our position in the U.S. as reflected by the 37% annual growth in 2024. And thanks to effective cost control and our measured investment approach, we've improved profitability across all segments, which has enabled us to achieve a critical milestone in the company's history. I want to take this opportunity to express my gratitude to all Acasters for their hard work during the year, enabling us to conclude the year as a profitable growth company with a stronger position than ever. I'm pleased to inform you that we will hold a Capital Markets Day on the 7th of April, where we will provide an update on our strategic vision, market analysis and outlook. And I would like to note that the Board is evaluating the potential for a NASDAQ main market Stockholm listing later in 2025, and we have initiated a preliminary assessment of the requirements for such uplisting. More information on that is to come later this year. And as highlighted throughout the year, we will see the opportunity in the growing demand for omnichannel campaigns, which will be key and a key theme also in 2025.

[Operator Instructions] The first question we have from Andreas Joelsson is. The omnichannel campaigns, how do you monetize these? Is it a different model versus the one Emily showed for the ad revenue?

Yes. I think in the omnichannel campaigns, these are kind of a lot of briefs we're starting to receive now, and this is where a brand wants to have a deeper engagement with creators and their wider communities. Creators community spreads across the likes of YouTube, Instagram, TikTok, et cetera, loads of different platforms. And for us, it's about taking the brand's brief and how can we integrate that into a bigger proposition that spreads across more than just the podcast audio audience and into the likes of Instagram, YouTube, TikTok, et cetera. So these are kind of multi-platform all-round deals. These are very kind of high-touch deals, but high-value deals as well.

And when we look at the revenue and business model for these campaigns, we see that they have a similar gross margin profile as the rest of our business. So we're pleased with that.

Another question from Andreas. Very strong sell-through rate performance in the year. How much is related to improved demand, perhaps driven by the U.S.? And how much is your own work to sort of optimize the operations? Emily highlighted that there is a further potential to improve. Can you explain this further on how you can realize this potential?

You're absolutely right. Sell-through rate has improved from 27% in 2023 to 41% in 2024. But we, of course, have more room to grow. And the sell-through rate increase has been driven by increased demand where we have seen sales grow across our business. There's been a slight reduction in [ CTLs, ] but also we have increased our ad load. So we've still increased the sell-through rates driven by higher demand and good work across the business to make sure that we have monetizable listens that add commercial value that are easy to sell, and that has been a focus across all of our markets during the year. So we're pleased with that progress. But there's more room to grow, and we will continue to increase sell-through rate and monetize our portfolio to its full potential over the coming years.

Another question from Andreas. No doubt continuous good cost control. Given that you will likely continue to try to expand more into the U.S. and try to turn listens into growth, how do you see overall OpEx to develop ahead?

In terms of our OpEx growth, you will have seen, of course, that we've had stringent cost discipline looking back at a number of quarters and years. But there is opportunity to continue to expand. There is a focus on growing our monetizable listens this year. And I think we're very excited about taking on that opportunity, and there will be investments that go along with those opportunities. But of course, the cost control and staying close to our cost line, we've evidenced that over the last few years, and that is a skill and it's part of our DNA. So that does not go away, of course. We will continue to control our costs.

Our next question is from Derek Laliberte at ABG. What are you expecting for 2025? Wouldn't now be a good time to update your financial targets?

Absolutely. And we have just delivered on our profitability target for 2024. And we, of course, want to continue to make progress both on revenue growth as well as profitability improvements in 2025. Now Ross has just announced that we will come back to the market with a Capital Markets update on the 7th of April, and we look forward to providing a holistic update on our strategic vision, key initiatives and outlook for short, medium and long-term opportunities.

Next question is from Bernd Klanten. Guidance for '25 and the mid-term, you've now achieved '24 EBITDA profitability. What's the next step? Can we get any color on your outlook for revenue, gross margin and EBITDA for 2025?

Similar question. Thank you very much, Bernd. So we will, of course -- we, of course, have an ambition to continue to increase our growth and to improve on our profitability. So if we look at our current financial guidance, we do have revenue goals between an average of 40% to 45% growth between 2020 to 2025. So that goal spans those 5 years. And if we look back historically, the average has been 40% over the last years, it was lower in 2024. But off the back of historical higher growth rates, we are still within that range. So we're optimistic about the prospects for 2025, but we will come back to the market on the 7th of April with more nuance, both on short-term, medium and longer-term opportunities holistically.

The second part to this question is from Bernd is, if I'm not mistaken, the latest mid-term guidance you provided was in August 2022, where you guided to an average annual sales growth of 40% to 45% between 2020 and 2025. Reaching the bottom end of that guidance would require a significant acceleration into '25 to 30% revenue growth, which I assume is not what you're guiding to. Any color on 2025 and mid-term thoughts appreciated.

You're absolutely correct that we would need more tailwinds from the ad market to fully hit our revenue guidance based on the financial targets that we put to the market. That's correct. If I look at our other financial targets, we've guided to a gross margin of 35% to 38%. So we've been just above that in the last quarters on a consistent basis, and we have just delivered on our full year EBITDA profitability target. But you're absolutely right, we would need more tailwinds from the ad market to hit that revenue growth. And I repeat, we are, of course, aiming to continue to make progress on revenue growth and on our profitability in 2025. We'll get back on the 7th of April.

Next question from Bernd. Losing BBC versus winning TED and Casefile. TED had 176 million listeners annually. Casefile, 80 million, combined almost 6% of your annual listens. How does that compare to the last listeners from BBC? Emily, you said the 2 have commercially offset the BBC impact. Should we think of it in terms of BBC listeners outside of the U.K. since they were not monetized in the U.K. So presumably, no impact on U.K. revenues. Can you also provide some color on the BBC's decision, please?

Maybe I'll start with the numbers and then I'll hand over to you on the commercial nuances, Ross. You're absolutely right. There was no impact neither on U.K. revenues as we do not -- have not historically monetized the U.K. -- BBC in the U.K. due to it being tax funded in the U.K. But it also had no revenue impact on our other operations internationally because we were effectively able to replace the commercial value of the BBC through other shows. And as we just discussed, our sell-through rate at 41% still leaves us with opportunity to reallocate campaigns that are in the pipeline to other valuable shows. So we're pleased with having navigated this shift. And specifically, the TED and Casefile are very commercial shows with a slightly higher available ad load than the BBC. So that is one reason why we're able to replace the BBC's commercial value having higher listens, lower ad load with the shows that have good listens and a higher ad load than BBC. So we were able to effectively navigate this transition.

Great. I can add to that as well. I think, yes, you're right. BBC, the monetization piece was outside of the U.K., so it has no impact for the U.K. providing some color around this, BBC essentially wanted to manage some of their own sales in-house. So for us, it was a transition to a platform where they could do that with their other ad tech. But we're still in conversation with them in multiple countries about representation. So we have a very good relationship with BBC. But not all listen is made equal in terms of value. We've got to think about is that advertisers are increasingly after reach and scale and our uniques actually increased towards the end of Q4. So you can see that, yes, whilst we can replace the inventory in terms of commercial value, we've replaced and added some in terms of our unique reach globally, which is super important, because it is very global spread out content across the globe.

Another question from Bernd. KPIs 1. What drove the significantly higher sell-through this year? And how do you expect this to evolve? What are your expectations for CPMs?

Higher sell-through was driven by higher sales, that's the long and short of it. And when it comes to CPMs, CPMs can be cyclical as well. The ad market is cyclical. I think it's too early to call exactly what CPMs will do during this year, but we've had relatively stable CPMs over the last number of years. And the slight drop in CPMs, effective CPMs year-on-year is also due to a shift -- a slightly larger share of ads being sold on our portfolio of content compared to sponsorships. And ads have lower CPMs than sponsorships. So that's also a driver.

Also from Bernd, KPIs 2, ARPL. The average revenue per listen increased 28% to SEK 0.54, how much of that increase was organic versus driven by BBC loss, lower listeners that were largely unmonetized, driving higher ARPL? How should we think about ARPL going forward?

You're absolutely correct that when listeners drop and we're still able to grow our sales, ARPL goes up, that's part of the equation. And how should we think about ARPL going forward? It will continue to increase. There is room to grow, as you saw on our slide, illustrating our revenue buildup. So the rate is 41%. We can grow that. And by no means do we have the highest ad load in the market. So we're in a good position to utilize for both the different levers that we have for growth within our portfolio as well as increasing our monetizable listens, but ARPL should go up in the future.

Also from Bernd, U.S. The U.S. has been growing strongly and is now 25% of sales. Where can it go from here? Are you already benefiting from higher CPMs in the region? Much appreciated.

Well I think if you look at the -- I'll answer the kind of last one first, higher CPMs, higher CPMs are available, especially when you look at the talent integration, you look at the stuff we're doing around omnichannel. The higher CPMs can be achieved in every market. So I wouldn't say it's necessarily just in that region. However, if you look at the U.S. market as a whole, the podcast market is the biggest market globally is in the U.S. at roughly $2 billion from a [ TAM ] perspective. So there is huge room for growth and opportunity there. So I do see that obviously increasing over time.

Next question is from Ray. The improving ARPL you had in the quarter, if you were to explain it using 3 categories of drivers, how much is it due to, one, improving pricing on the market; two, more ads per listen; and three, new products.

All right. So number one, pricing on the market did not have a significant impact on ARPL in the quarter. We did increase our ad loads during the year, and we still managed to increase ARPL, which was driven by higher sales. New products did not have a material impact on ARPL, but we're really keen to see how our omnichannel campaigns can continue to provide support in the future as well.

We have no more questions. So that concludes the Q&A. I will now hand over to Ross for his final remarks.

Thank you, Erin. Thanks, everyone, who has tuned in. Make sure not to miss our upcoming Capital Markets Day on the 7th of April. Our Q1 report will be released on the 6th of May. You're welcome to join us for that presentation as well. Don't forget to follow us at investors.acast.com or our Acast blog or listen to our financial results, of course, as a podcast. Thank you, and goodbye.