Azerion Group N.V. (AZRN) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Azerion Group N.V. Q2 H1 Earnings Call 2023. [Operator Instructions] I'd now like to turn the call over to Umut Akpinar for welcome remarks.

Thank you very much. Good afternoon, everyone. I am Umut Akpinar, CEO and Co-Founder of Azerion, and I would like you to welcome to Azerion's Q2 and H1 2023 results presentation. In the last quarter, we made significant progress on our strategic goals, and I look forward to sharing more details of these achievements with you. Today, I am joined by other members of our senior leadership team to update you on recent developments of the business in the first half of the year and the exciting prospects we see going forward. Before I move on, let me pause for a moment to acknowledge the disclaimer. Firstly, I would like to introduce the other speakers during today's presentation, Ben Davey, Chief Financial Officer; Sebastiaan Moesman, Chief Revenue Officer. After presenting a brief overview, I would like to provide an update of our strategic delivery, covering how we have progressed with consolidating and integrating previous acquisitions and how we found efficiencies in the way we operate as a company with the resulting impact is ahead on our performance. Afterwards, Sebastiaan will take you through the advertising supply chain to demonstrate how the Azerion platform has grown to cover the entire ad tech value chain for scalable growth. Then, Ben will share with you the recent divestment of our social card games portfolio before presenting the financial performance of our segments and update to our 2023 and midterm guidance. The second quarter of 2023 was about the continued consolidation and integration of previous acquisitions in order to create an efficient and scalable platform in Europe and beyond. We have simplified our organizational structure to streamline reporting lines, upskilled sales teams and roll out Azerion ad formats across current and new geographies and further optimize our technology. I am pleased to report that these efforts continue to be visible in our financial results. In Q2, our revenue grew by 17% compared to the previous year, while Q2 adjusted EBITDA increased by close to 60%. This led to an 18% increase in H1 revenue and a 55% growth of H1 adjusted EBITDA compared to the previous year. Through deeper integration of past acquisitions, we identified further cost-saving opportunities. You may remember that in our Q1 report, we raised our expected annualized savings from EUR 10 million to EUR 15 million. And this quarter, we have further upgraded it to EUR 20 million from the January 2023 baseline. At the beginning of the month, we were proud to announce the sales of our social card games portfolio to Playtika or an initial concentration of approximately EUR 81 million with the transaction closing earlier this week on 28 August. The sale was an important milestone in the development of Azerion and underlines the value of our buy-and-build strategy. Not only as it generated important proceeds for the group, but it also a sizable M&A deal by European gaming standards. This gives us confidence to reconfirm our previously provided guidance for 2023 of adjusted EBITDA of at least EUR 75 million. Our successful integration strategy boosts our faith in growing further in the digital ad market. As we expand the business, we are optimistic about strategic partnerships and our strong M&A pipeline. We believe in our platform solid fundamentals, and its potential to accommodate new integrations and technologies. I will now like to take you through some of the business developments that have supported the growth of the business this quarter. Our primary focus for this quarter has been the continuing integration of some of our past acquisitions, which have increased our geographic footprint, expanded our proposition in ad formats, such as CTV, audio and digital out-of-home and build on the relationships we have with advertisers and publishers. In Q2, we finalized integration of Infinia, Madvertise, and Media and are making significant progress with the remaining acquisitions. The majority of our previous acquisitions have been rebranded as Azerion and operate as one consolidated team. By doing so, we provide advertisers with greater value as we are able to coordinate our digital marketing needs across multiple channels and regions. We have been able to attract larger campaign budgets from bigger brands, which we are able to leverage for greater margins. From financial reporting and legal organization perspective, we are simplifying our company by consolidating past acquisitions into one single business. We have become increasingly efficient in our ability to consolidate and integrate these businesses into our platform and optimize them for value. When we acquire a company, they often operate inefficiently, lacking resources or technology for scale. As a consolidator in the fragmented digital ad market are successful buy-and-build strategy has established a solid business model. Efficiency and scale power in our DNA. As we grow, we enhance margins and a key goal this year was sustaining our focus on value optimization. For these reasons, one of our main objectives for the year was to continue our focus on efficiency. Here we identified 3 main areas: contribution margin, cost management and organizational structure. In the first half of the year, we have been very successful in improving our contribution margin and profitability. We did this through the technological improvements we made in the platform, finding efficiencies in how we operate by simplifying and consolidating teams and processes. In the last 6 months, we have looked critically to our operations and organizational structures with a focus on removing duplicate positions and resources. For example, previously, each of the acquisitions processed their own publisher payments. This meant that different teams are paying publishers in different ways. In Q2, we centralized and automated this publisher billing system, which allows us to capture outstanding amounts more efficiently and track trends more easily. We have also been adept at generating economies of scales, such as we rating all group companies onto the same AWS contract, which has contributed to a reduction in our server cost of around 19%. Thanks to these and many other initiatives, we have improved productivity and maintained a similar cost base to last year, whilst also taking on board operations and infrastructure of 8 acquisitions and integrating them into the platform. This is a great example of our buy-and-build strategy at work. I would like to now hand over to Sebastiaan, who will demonstrate how the Azerion platform has grown to cover the entire ad tech value chain for scalable growth. Sebastiaan?

Thanks, Umut. Yes, welcome, everyone. Going over our business case for your advertisers. In our case, those are agencies or direct brands. They want to connect with audiences. That's advertising. And they do so by connecting with publishers that want to monetize their content. However, market is fast growing and still highly inefficient and fragmented. The digital advertising supply chain is full of players who add intermediate layers between an advertiser and the digital publishers. So if an advertiser wants to display digital ad in a publisher's website or app, then they need to basically [ raise ] with many technology providers and intermediates, which makes it hard to validate the entire process. They lack the transparency also a little bit to see how, where and at what cost the ad performance. In addition, the market is also highly fragmented geographically. So the suppliers in the U.K., for example, are not necessarily the same ones as in France, Italy or the U.S. As a result, advertiser are increasingly looking for a one-stop shop with local teams and risk portfolio of creative ad formats where they can have one global partner that offers an easy-to-use, cost-effective and brand safe environment to put their advertising budgets in. At the same time, on the other hand of the spectrum, the publishers, they are looking for a similar simplification and cost effectiveness while they're also seeking to maximize the revenue. And with content becoming increasingly free to use by consumers, publishers need to find revenue streams and ways to stand out from the crowd and engaging and retaining their users. So over the past few years, we have been scaling our digital platform to remove the complexity in the digital advertisement by providing a single solution for both advertisers and publishers. In this slide here, you can see how Azerion's platform covers the entire digital advertising supply chain from technology to ad formats to content. Our local direct sales teams have created long-term relationships with agencies and advertisers, providing them tailored solutions and advice. Our technology provides them the ability to launch and manage their campaigns across the extensive speed of ad formats in a simple way. We've integrated many of the therapies layers between advertisers, publishers and users, which means that we can also be more competitive as we remove the intermediates who each on their own, if you would have to work with them, take their own cuts and margins. Furthermore, our enterprise partnership teams build strategic partnerships with publishers, which provides greater margin dependent on whether they're contracted exclusively or whether it has been produced by ourselves for our gaming content. So let me show you how the theory of our business model has become also reality again in Q2 with the 3 areas of our platform, the ad sales, the ad tech and the curated content part. So starting with the ad sales. We've reorganized and trained sales teams for greater efficiencies and sales opportunities. We created new ad formats and develop new partnerships to offer to clients, new advertising opportunities, and we expanded our owned and operated exclusive and contracted publisher content to improve the publishers monetization margins. This has led to the highest revenue in direct sales for any Q2 period. In the technology, we launched Azerion Smart Bidding, which is the Azerion's improved AI integrated bidding system to further enhance the pricing that we get in open markets. This means we win more options at better rates for our clients. And we further improved our full monetization service with performance by Azerion for semantic segmentation allowing better audience targeting for advertisers. This means that the publishers that we represent can never sell their ad space but enriched with very precise audience data. Additionally, we launched Smart Content, which has been done by integrating Vlyby, one of our acquisitions with Zoomin and other previous acquisitions, content, providing publishers with basically new contextual content. We look at what the website is about. And then we offer a video that is very close to that subject. And of course, if people click and watch the video, there's also the opportunity for an ad and that space can be monetized by the publisher again. And finally, internally, we developed an internal campaign management solution for the ad operation teams, Azerion Marketplace, improving the ad campaign coordination efficiencies and margin contribution along our operators to distribute ad campaigns from one single interface across multiple platforms in the market. We continue to develop our own content in casual and premium games through the accelerated production of puzzle and word web games by Azerion Studios for news and media publishers, resulting in increased revenues at higher margins due to lower licensing fees. Newspapers then basically includes that word and puzzle game into their content. And if people start playing, again, we can leverage those ad opportunities with that. And we launched Habbo X: Alpha 2, a play to earn metaverse environment which integrates blockchain technology, allowing brands such as EMA, Miffy and Cool Cats to collaborate with audiences on their own and create lifetime engageable collectables, minted as an NFT. So as you can see, not only have we integrated 8 acquisitions and created a more efficient platform, we also grew that platform and its offering significantly in Q2. All these results and successes underpin our confidence in both our organic and inorganic growth strategy, and we will continue with this strategy in the future. As a reminder, our growth strategy is underpinned by 4 main pillars: structural market growth, platform growth, platform synergies and to further accelerate this platform growth even further. We have the buy in our buy-and-build strategy. As mentioned, the underlying fundamentals of our business are strong, with the digital advertising market expected to continue growing rapidly and reach a total addressable market of $800 billion in the next few years. We will continue to grow the platform through an increasing number of strategic partnerships that we have with advertisers and publishers as well as expanding our operations geographically, while optimizing the ad spend on our platform through the new formats and the aforementioned AI integrations. And we will continue to develop synergies within the platform and premium games as well as across the two of them. For example, we leverage our e-commerce platform and ad sales teams to create branded loyalty programs by offering game keys based on their purchasing behavior. Similarly, we have worked with brands to create unique gaming experience, integrating advertising opportunities in our metaverse titles and casual games. And through our buy of the buy-and-build strategy, we're able to create immediate inorganic growth while stimulating the long-term organic growth through integration, optimizing -- optimization and consolidation, as Umut already mentioned. So that wraps it all together. I would like to now hand over to Ben, who will take us through the sale of the social card games before covering the details of the financial performance. Ben?

Thank you, Sebastiaan. Good afternoon, everyone. So I'm going to start with a quick overview of our recently completed sale of our social card games portfolio. So the social card games division of Azerion has been in the group very close to the beginning and has contributed well to our revenue and EBITDA over the years. At the same time, in the last couple of years, Azerion has increased its focus on our scalable digital advertising platform. Of all the premium games was the portfolio of social card games that had the lowest alignment and synergies with our advertising platform. So with that in mind, turning to the commercials. The sale of our social card games portfolio completed on the 28th of August for an initial cash consideration of EUR 81.3 million, subject to some customary adjustments, in particular, net working capital adjustments with an earnout based on the performance of the acquired business that could take the total consideration up to a maximum of EUR 150 million, obviously subject to performance. At completion, Azerion received close to EUR 67 million before -- of cash before income tax and approximately 15 months after the completion date, we should receive the remaining proceeds subject to the terms of the asset purchase agreement itself. The gain on service currently estimated at approximately EUR 70 million before income tax. The consideration received opens up opportunities to accelerate the company's growth. They're likely to be used to finance organic and inorganic investments in the platform to manage our balance sheet, including net debt and more general corporate purposes. If you take a step back, the sale of the social card game portfolio is a good example of Azerion building and scaling valuable technology assets, this is then validated by a sale to a commercial third party. I'll now turn to provide more color on the financial performance of the group. Turning first to Q2. Our net revenue for the Q2 2023 was EUR 122 million. That's an increase of approximately 17% year-on-year and mainly driven, as you will have seen by platform performance. We've continued to focus this quarter on driving the integration and consolidation of previous acquisitions and finding efficiencies across the business. This is continuing to show in our numbers with an increase in adjusted EBITDA in Q2 of '23 to approximately EUR 18.5 million, which is more than a 58% increase year-on-year. As discussed last quarter, we've been executing a series of initiatives, which were expected to result in an annualized savings of at least EUR 15 million as compared to a January 2023 baseline. As a result of the progress made in executing those programs, we're today upgrading our expected annualized savings to be at least EUR 20 million compared to the January 2023 baseline, excluding any effects from foreign exchange. The reason I look to January 2023 in particular is because that's, of course, the first month where all of our acquisitions in 2022 fully contributed to the cost base. So it's a very useful starting point to look at the benefits of the cost and efficiency program. Turning now to H1. Our net revenue came in at approximately EUR 235 million. That's an increase of approximately 18% over the same period in 2022 and again, mainly driven by the performance of our platform. Adjusted EBITDA for H1 grew more than 55% year-on-year, largely due to revenue growth and, of course, efficiency savings from our consolidation and integration work. Turning directly to the platform. Our platform segment recorded net revenue of almost EUR 100 million in Q2 of this year, up by just over 21% compared to the same quarter in 2022. Our half 1 net revenue was in the platform, EUR 189 million, which is up by just over 22% year-on-year. Our platform adjusted EBITDA grew by approximately 68% in Q2 of 2023 year-on-year. And that's to a number just over EUR 13 million. And in H1 2023, year-on-year adjusted EBITDA growth was around 71%, coming in at just under EUR 17 million. Our operational KPIs try to provide greater color on the performance of our advertising business. With the number of acquisitions made at the end of the past year, these KPIs are continuously being reviewed. But due to 2023, we've reported our previous nonfinancial KPIs with the addition of information from newly acquired businesses, something we mentioned we were going to do in the last quarter for you. So these numbers now include the average number of digital ads sold per month and the gross revenue per million processed ad requests. These figures actually help demonstrate the growth of the platform and our continued focus on making our platform more efficient. So let me explain what it measures. Essentially, every time we receive an ad request in our advertising auction platform, similar to a fiscal auction, we incurred costs just to participate in that auction. However, we only generate revenue if we win the auction and display digital ad from one of our advertising clients. Unlike some peers that report total number of impressions which is a number of requests, we like to report on the number of ads sold, how much revenue we're generating on the ad requests we accept and process. This shows how the auctions that we win, remunerate all the auctions in which we participate. As you can see in the bottom graph, this KPI is relatively seasonal. We can also see an improving trend in our efficiency and profitability. Average digital ads sold per month increased to EUR 13 billion in Q2 2023, from approximately EUR 9.5 billion in the same quarter in 2022. That's an increase of approximately 37%. Average gross revenue per million processed at requests grew to approximately EUR 36.3 which is an increase of around 59% year-on-year. So we remain excited about the growth potential of this business and the value that we can generate from economies of sales and the efficiencies that are driven by that platform. Let's now turn to the premium games part of our segment. So moving to premium games. In Q2 of 2023, our net revenue was approximately EUR 22 million. That's an increase of around 3% compared to Q2 of '22. The premium games net revenue in the half -- first half 2023 was close to EUR 46 million. That's an increase of almost 5% compared to half year 2022. Adjusted EBITDA for Q2 2023 was approximately EUR 5 million, an increase of close to 37% as compared to Q2 2022, mainly due to the benefits of ongoing efficiency programs. So turning to our operating metrics. Daily active users in Q2 were relatively stable compared to the same quarter last year. Our main focus has been and has remained delivering growth and profitability, resulting in an increase in the revenue per daily active user to EUR 0.42, up about 5% year-on-year. We continue to integrate and identify cross-segment strategies. For example, by increasing integration of brand advertising into our gaming and social environment. And as Sebastiaan has mentioned, innovating in our Habbo X: Alpha 2 environment, allowing brands to collaborate with audiences and create engaging digital collectibles. Looking at the financial framework slide. As previously discussed, our business is relatively seasonal in line with the industry, with Q4, usually the strongest quarter for the industry, mainly because advertisers, of course, tend to invest more in the run up to the end of year festive season. You can see that trend in our last 5-quarter rolling performance. We continue to generate positive cash flow from operating activities with CFFO of approximately EUR 7.5 million for Q2 2023. If we turn to net interest-bearing debt for Q2 2023, we remain relatively in line with Q4 of 2022. Applying that information as at 30th of June 2023 and the full year 2023 guidance of expected adjusted EBITDA of at least EUR 75 million implies an illustrative net interest-bearing debt over adjusted EBITDA ratio of approximately 2.4x. If we include into that illustrative analysis, some portion of the initial consideration from the sale of social card gains and the pro forma ratios, of course, reduce. As previously discussed, the management team has been fully engaged in evaluating our options available to refinance the bonds. And today have announced mandating a banking adviser to conduct a series of fixed income investor meetings and subject to, amongst other things, market conditions, a bond issue may follow. I'd like to now provide a quick update on our guidance for 2023 and midterm growth, taking into account the sale of our social card games portfolio as from the 28th of August 2023. As you may well recall, we previously guided towards a full year 2023 revenue of around EUR 560 million. We're updating us to reflect the sale of our social card game portfolio, of course, with that gone, that business will no longer be providing revenue for the remainder of the year, so that's September and Q4, and that results in an estimated group revenue of around EUR 540 million for the full year 2023. We expect annual net revenue growth to be around 15% in the medium term. For adjusted EBITDA for the full year 2023, we maintain our guidance of at least EUR 75 million. This guidance is informed by the progress that we've made in integrating past acquisitions and the benefits of our ongoing cost program, combined with the overall benefits of our scaling platform. Furthermore, we continue, as a result, to expect our adjusted EBITDA margin to be in the range of 14% to 16% in the medium term. I'd like to now hand back to Umut to close out today's presentation before the Q&A part of the discussion.

Thank you, Ben. It has been an exciting first half year of the year for Azerion. We have made significant progress in establishing a robust platform that has been designed for scale. We have achieved this through the accelerated integration of previously acquired businesses, developing our tech stack and partnering with new publishers and advertisers. We strategically divested the social card games portfolio as we transition our focus towards platform segment as we see greater growth in this line of business. We upgraded our anticipated annualized savings due to our cost efficiency program, which gives us confidence to achieve our full year guidance of around EUR 75 million. With that, let me open the call for questions.

[Operator Instructions] To start, we'd like to take our first question from Thomas Singlehurst at Citi.

Hopefully, you can hear me.

All good, Tom.

Perfect. Exciting when the technology works. Yes. So first question on the market outlook, if that's possible. I suppose there's a broad expectation that the sort of outlook for digital advertising will see an acceleration across the back half of the year, in particular, into the fourth quarter. I was wondering whether you have any line of sight on sort of similar profile in your views on the market outlook before we consider the ability for you to take share. That was the first question. The second question -- or should we do one at a time. We can do one at a time.

If you could, yes. So Umut, perhaps you'd like to pick that one up. So outlook for the rest of the year. How do you see the market, so it's not as this market.

To be honest the market in our sector was especially the first half of the year, not that easy. And you saw it from all kinds of trends in H2 from our perspective for Azerion, we expect a quite good outlook for H2. Maybe if you want, Sebastiaan, you can also add.

Yes. I think. In general, of course, the advertising business is pretty seasonal. So you will see the market picking up towards the end of the year. As Ben also said, based on the lead into the festive season. At the same time, if you look around all of the messaging on advertising post-COVID and Ukraine, it's still not massively growing this year and some people have been pretty much hurt by it as well. So it's -- in the short term, it's the usual increase towards the end of the year, multiyear or next year. Yes, there's -- it's interesting to see also what the rest thinks, but it's not going to be easy to grow very fast.

Okay. Thank you, both of you. Do you have a second question?

Yes, yes, I've got a couple more. Second one, high level. Obviously, maybe real sort of angst about this is subsiding a little bit now. But over the summer, obviously, a lot of questions about sort of generative AI, AI more broadly automation and the risks and opportunities in the ad tech sector, I would love to get some sort of high-level comments from you on how you perceive the opportunity and risks from generative AI, in particular, in AI more broadly for your operations, that would be very useful.

Great. So look, I think what we'll do on that one again, I think it'd be interesting to start with Umut, who will give you a perspective. And then likewise, then hear one from Sebastiaan, and that also help you see how the management team sort of brainstorm this stuff.

Of course, of course, of course. I mean there's continuously -- yes, we are working on a technology environment where there are continuous improvements and technologies. And of course, with our research and the facility, we are reviewing them. We are adding them. We are testing them and that's what we have to do what we have been doing, let's say, for the last 10 years. So -- and that doesn't change, of course.

Yes. I think to -- you said that there's a bit of hype there, like the metaverse not that long ago. And of course, within that, there is the fundamental future of it and a little bit of the, let's say, the story around it, I think, on the AI, but also machine learning. It's been imperative basically in our platform already that we have the machines help us to understand what works and what doesn't because we're talking about hundreds of millions, if not billions of auctions every hour, so it's very useful to have the machine learn from that and also advise basically on which direction to go. So the optimization that we are also discussing in this call about our smart bidding process, yes, a lot of that is based on machine learning and AI, if you want, therefore. So tuning the platform to perform optimally is always going to be computer informed, and therefore, AI is part of it. Also in our premium games division, you can imagine that people like social gaming more than just individual, on -- in general. So a lot of our platforms have communities in there and the ability for generative AI to play a role in the experience of the people is immense. Sometimes you have the real person on the other side, but to make sure that the environment, for instance, if you're in a virtual hotel and the receptionist there behaves in a very credible manner, let's say, or friendly manner, is, of course, enhancing the experience that people have that come into the hotel. So generative AI as in making sure that the environment and the gameplay is as immersive and interesting as possible is also a very important part of our existing business already. So on those 2 items, I think you can see a little bit, are we already doing it and what the future is.

Great. Thank you. Tom, I think you have one more question then we better move on.

Yes. One more, sorry. I mean you've made progress with -- on the refinancing side or a lease you've delevered quite substantially with the social card game sale, big progress on the integration. I presume, though, going forward, as you mentioned, the M&A is still going to be part of the sort of growth strategy. Can you just talk about where there are gaps in terms of capability and geography? Just so we can understand what -- where you're going to be putting emphasis in terms of future M&A?

So perhaps, Umut, do you want to take that one?

Yes. Good questions. Of course, there is still a huge amount of opportunities in Europe and also during the presentation of -- Sebastiaan explained it a little bit. So yes, there are many opportunities. And of course, we are also now looking at more and more to North America where we have now our own, let's say, company. And yes, we are growing quite good there. If you look at it from the -- let's say, the position, I think on the technology remains a huge progress. We are now, I would say, almost complete in our platform way of picking. The new investments probably will be looking for new demand opportunities and for, let's say, entertaining publishers. Okay. That's great. So we take up to Sebastiaan, maybe you can add, or Ben?

No, I think that makes total sense. So geographies we weren't in yet, content and supply that we think is interesting, especially because we're a multi-market. It's also very local and geographically diverse. So yes, it's [indiscernible].

Our next question is from Matthew Walker at Credit Suisse.

Matthew, are you there? Okay. We'll come back to Matthew.

I think -- can you hear me all right?

yeah, now.

Okay. Perfect. Just a couple of questions, please. The first one is on the medium-term guidance. You said something like 15% growth. Obviously, I'm going to ignore the deconsolidation of the social card portfolio, but organic growth this year is going to be something like between 5% and 10%. Next year, you won't have much in the way of M&A contribution. So how are you going to get to the 15% for the -- let's just take the platform games for next year on organic growth? And then the second question was, how are you going to use the proceeds from the social card sale? How much of that is going to go to deleveraging and how much is going to be used for M&A or other organic investments?

Ben, can you take this one?

Yes. Great. Thank you for that, Matt. So I'll probably take both of those actually. So the first question was how do we think about driving organic growth in line with the medium-term guidance. Look, I think from a sort of finance perspective, obviously informed by Umut and Sebastiaan and the team. The way that we have thought about it is we've sort of gone through the last 6 months where we've been relatively introspective in our focus. It's been all about bringing together the businesses, bringing together and integrating the platform. And obviously, once you're doing that, you will mind your resources, your people are focused on a lot of technical and internal work. And obviously, there's an element of internal disruption calls as you move people around and you reorganized. We do feel that we are significantly complete on that work, although there is a bit more to following Q3 but what that allows us to do, if you like, as a business is reset. And then the team resets focused on that organic growth. And I think coming back a little bit to the question on macroeconomic environment, what we do think is a theme is particularly in the advertising market, a concentration or a movement of market towards the larger scaling players. And with obvious exceptions, we feel that there's a lot more pressure on the smaller players in the market, and that gives us a huge opportunity to leverage the platform that we've created to drive strategic dialogue and commercial deals with our advertisers and publisher partners and take advantage of that really interesting market for us to ultimately win market share. And that, I think, is how we, as a team, have thought about it in informing our judgment on the medium term. On your second question, which is how do we allocate the proceeds from the sale? Well, I think you identified the bucket as well. And as ever with these things, we haven't yet made a formal decision on an allocation between the various buckets. But it is likely to pick up all 3 of the areas that I think you've talked about. Clearly, there is an opportunity to take some of those proceeds and invest in both organic and selectively, if appropriate, inorganic opportunities but we'll do that in a considered way, really looking and thinking about what makes the biggest impact for our business and for shareholders. The second piece, of course, we've announced the mandating of our banking adviser to help with some market sounding on the refinancing itself. Clearly, the feedback that we get from that lube and the discussions and thinking will inform our decisions as to how much of our proceeds we should be using the sub-element to buy the net debt reduction or indeed deleveraging more generally. Then the third bucket is what I would call sort of general corporate purposes, and there's a lot we can do to continue to invest in the business, to day-to-day business and people around those business lines. And we will be obviously making sure that we get that allocation right, but no formal allocation yet, but all of those are very much at the heart of the conversation that we're currently having.

Our next question is from Wim Gille at ABN AMRO.

Wim, just checking if you are there?

Yes. Can you hear me now?

Yes, we can.

Very good. The first one is for Ben. My question is about organic growth, as you can imagine. So if I back out the 8 acquisitions that you've done since the second quarter of last year, I see about more or less stable revenues year-over-year in the platform business. So can you, let's say, give us a bit of a feeling about the dynamics that take place here. So what market growth, what is related to basically pruning unprofitable revenue in historical acquisitions, and what is this market share gain? So can you talk a little bit about how that organic growth is built up and also give a bit of a sneak preview into the second half of this year where basically, there will be much less still wind from M&A in terms of growth year-over-year. So how should we think about it as the organic components going to pick up in the second half or should we be putting a deceleration of growth here? Second...

How about you take another question [indiscernible]?

Yes, you can take that one first about the organic growth.

Yes. Let me take that one first. So I think you started in the right place in terms of if you look at it in the round, you start with a sort of implicit assumption of around stable revenues. I think the second point that you made was also right that as we started to integrate or have now integrated substantially the acquisitions. We've worked through and quite ruthlessly worked out revenue that we didn't want to keep was not at the right margin was not by type of revenue. As a follow-up to our discussion in the last quarter's call, I think is a very, very round outline for you. I see that reduction, that give away of revenue being for acquisitions in the order of around 20% or so. It's relatively meaningful in terms of how we work through it could be also depending on the acquisition a bit higher. It could be depending on the acquisition a bit lower. And so to the point you're making, if you sort of see relative flat, you're thinking about that sort of element of contribution being taken out from the acquisitions. And then it's our job to speech mark organically build back up from there. And I think at least at a very high level, the way I see it is in line, I think, with Matthew's comments that, that points to sort of mid-single digit or possibly a bit higher organic growth using that sort of methodology reminding you of the obvious caveats that I made last time around that the more we integrate the less visible it is. So that is very much a very high level and not terribly precise approach that I've just played back to you. But hopefully, I think it aligns probably the way you're thinking about it. On H2, your second part of the question. Well, I think, to some extent, I've just answered that with Matt's question. We really feel that we've come through a pretty intense but productive half year of consolidation and integration. We feel that we can very much train our focus and, in particular, some of our commercial and technology leads back on the outside market. We're obviously, as Sebastiaan has mentioned, hitting the most interesting and dynamic part of the year for our industry. And we do believe, to answer your question, that, that should help drive growth through the interactions that we've already obviously are very much engaged in but continue to see hopefully accelerating between now and the end of the year.

So to summarize the growth part underlying, we are looking at roughly mid-single-digit growth. And for the second half of this year, you hope to accelerate on that mid-single digit growth given the fact that most of the internal [ leukin ] stuff is more or less behind us now. And...

Yes. We see very much -- we very like to see an opportunity ahead of us, absolutely.

And then moving to cost side. Based on the chart that you showed in the presentation, your headcount is down roughly speaking, 20% since January, that's a sizable achievement obviously. First of all, payers sent us the actual historical data because it will be quite helpful in modeling but far more important, do you see further room to cut here, i.e. is there more room to optimize on the FTE number? And in relation to that, if we look at the EUR 20 million in cost savings that you have, I can only assume that most of it is FTE related, just getting the head count. But can you also give us a bit of a feeling a split between FTE cost and out-of-pocket expenses that you've been able to spend in that EUR 20 million number? And then I have a follow-up question. Last question on the earnout. But let's move to the first one first.

I'd say your line is not perfect, Wim, but I think I got all of those. But if I mis-answer just correct me on the question. So the first part, I think, was -- you're seeing, obviously, in the graphic that we provided a significant reduction in FTE, which is absolutely correct. Just as a sort of measure, which I think is quite interesting actually, the FTE count as at the end of Q2 was actually lower than the equivalent FTE count for Q2 of 2022. So if you just take a step back for a moment, the amount of efficiency that we've brought to the platform in that year, we've gone back to more or less where we were in Q2 of 2022, notwithstanding 8 acquisitions made in the meantime. So it's quite interesting if you just think about that for a moment. In terms of opportunity for the future, well, look, we do believe that we are significantly complete. Having said that, I did mention in the press release today that we do expect a restructuring charge for Q3 of around EUR 1 million or so. And so if you look at the progression, we had a restructuring charge in Q1 of EUR 3.3 million in Q2 of EUR 4 million. And so whilst we're not done in answer to your question, you can see order of magnitude that we envisage that coming down very significantly with just some final work to be done in Q3, which obviously we're moving on with. So that's sort of how we see the shape on the first part of your question. On the second part, which was the split of rough high-level split of the contribution to the annualized savings that I've talked about and guided to. And answer to your question, very significant majority is driven by headcount. There are some OpEx savings or other OpEx savings in addition, but it's sort of very high sort of 80%-plus coming from headcount, if not a little bit higher. So that's a principal driver, but there are other synergies that I talked about in the presentation, Office lease has been closed out migration to single cloud contracts and so forth, all of which contribute to that annualized saving.

And then the last question about the earnout that you can potentially earn on the divestment of Eurogames. Do I understand correctly that we look at the incremental EBITDA over EUR 13.5 million and put a multiple of between 6 and 7x on that incremental EBITDA for the year, i.e. if the portfolio makes EUR 18.5 million in EBITDA , i.e., EUR 5 million more than the baseline in the coming 12 months. Is my understanding correct that I should look for an earn-out between EUR 30 million and EUR 35 million if the EBITDA goes up by EUR 5 million? Is that the way to read it?

In short, correct. The reference period starts 1st of October. And as you say, there are sort of 2 components to it. One is the multiplier, which as you rightly point out, is 6 to 7x or both inclusive, so 6 to 7, and that is itself dependent on the revenue growth. And there's also a methodology that we and our partners have agreed for the purposes of attracting that and then again, correctly, we've got a methodology for what we call the carve-out adjusted EBITDA for one of a better prescription, which is EUR 13.5 million that you've referenced and we talked about in the press release and it is any increment to that, which is then the base against which the multiplier is applied. So your example was correct.

Perfect. The immediate follow-up question, obviously, is that the remaining premium gaming portfolio has become quite small. It's now -- you basically sold half of the business. So we end up with a business which is less than 10% of group results. So how core is the remaining gaming portfolio to the business? And is the divestment of Eurogames are going to impact your reporting and if so, how?

Okay. A few loaded questions there. So let me pick that a little bit. Is it going to change our reporting? I guess you're saying, are we going to remove a segment. Now we will obviously continue to talk about both platform and premium games. But at the same time, I think all of this in different ways have sort of made the point that the premium games team and offering that remains is much more closely aligned with our platform. We see opportunities to drive cross-segment revenue. We see opportunities to engage with our advertising clients and indeed bigger brands in and around both the types of product that we have, the metaverse environment, but also the social casinos, there was a big overlap with some of the publishers that we work with. So there really is a proximity of relationships there. At the same time, as we've always said on premium games, we are looking to manage that full value and we'll continue to do so. So it's a combination of further integration, leveraging the synergies and the relationships that come with the remaining premium games, just continuing to drive efficiency and value in that part of the portfolio.

That is all the questions here. I'm just going to pass back over to you, Ben, for the written portion of the Q&A.

Right. Thank you very much. Let me just check. Yes, we do have, I think, a couple of questions that have come in. So let me just read those out for everyone. So Leon Lincoln has kindly submitted a question, if the total cost savings will be around EUR 20 million, an increase in -- EBITDA increases due to cost savings only. Is that true? No. It is a combination, I think, of the top line contribution supported by those savings that I've talked about. Hopefully, as part of some of the other questions, you've obviously got a feel for that. We do see opportunity to grow the top line, particularly as we move towards the very productive second half of the year. And we do feel that our teams and our resources can really train their focus on that opportunity. But at the same time, the adjusted EBITDA increase will also be contributed to by the EUR 20 million and just as a little detail, it may be what you have in mind, the EUR 20 million is an annualized results. So what I look at is a month-to-month progression against that starting point in January. It's not, of course, the full amount that we will necessarily realize in the year. And so that's how the balance, I think, hopefully becomes clearer to you if we do see an increased top line contribution but also the segments coming through, which then become fuller and fuller run rate into next year on an annualized basis. But thank you very much for your question. Okay. I've got another question, I think. One that relates to our integration approach. How does Azerion approach harmonizing the diverse technological infrastructures of acquired companies that feels like a good one for Umut, I think, to start with. So, Umut. Or do you want to take this one?

Yes, it's okay. Okay. So harmonizing technology infrastructure is basically it's 2 ways before we acquire a company, of course, we're already looking for alignment. So the company has a, let's say, wildly different infrastructure than we are using. And we know upfront and we can either make the decision to actually integrate that into our own stack or not to do the acquisition. So harmonizing is something not that suddenly come in our way that we do with a very set mind before. So once we do the acquisition, very likely there's already a plan and the company is close to our own, you could say, architectural philosophy. So that means that, we then move the cloud contracts to our AWS. We put the developers on the same development environment. Also, what we're doing -- increasingly doing, which has been part of the integration has been that we are building, let's say, platforms to centrally manage the billing and invoicing of publishers or clients. So that means that we then any acquisition put on this new platform. So it's all about moving, let's say, in a similar direction, but adding it to where we are already at. So that's hopefully helped before the acquisition we are looking at whether they are already a nice fit. And once we are integrating, we put them on our stack basically.

Okay. Great. Thanks, Sebas. Just looking to see if we've got any further questions. So I think we've got one more question by the looks of it, which is what do you think will be the key drivers for Azerion in the next 12 months? So, Umut, perhaps if you could pick that up for us.

Of course, Ben. I think -- and I will also wrap up the discussion about buy-build strategy, but it's really important. I see a lot of questions around this, let's say, topic. I mean, we have been executing the buy-and-build strategy for the last, let's say, successfully for the last 7, 8 years. And yes, what I have learned is never change a winning strategy, and that's what we will do. But by and build doesn't mean we continuously buy, or we continuously build and sometimes that the company chooses to have a focus period and especially in H1 after a huge amount of, let's say, acquisitions we have chosen the first half year to put the focus on builds. But if you look to the market circumstances, then we see lots of opportunities in Europe especially also on the pie side because the market is not going, trending very well, and that gives a huge amount of opportunities on, let's say, the buy part of our strategy. And I can also say our, let's say, M&A pipeline has never been that big as we have now. So that will be, I think, also one of the focus areas looking to the different companies around us and mainly, of course, in Europe.

Okay. That's great. Thank you, Umut and Sebastiaan, and indeed, operator. Thank you very much. I think on that basis, we've now come to the end. I see no further questions. So thank you very much, everyone, for joining us. Always appreciated that you give us your time. So have a good rest of the day. And again, we look forward to catching up with you at the next call.