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

Welcome to the Azerion Group N.V. Q3 Earnings Call 2023. [Operator Instructions] And I'd like to turn the call over to Umut Akpinar, for welcome remarks.

Thank you very much. Good afternoon, everyone. My name is Umut Akpinar, Founder and CEO of Azerion. I am here with my colleagues, Mr. Ben Davey.

Good afternoon, everyone.

Mr Sebastiaan Moesman.

Hello, everyone.

And we would like to welcome you to today's webinar to present Azerion's Q3 2023 results. Before we start, I would like to take a moment to acknowledge the disclaimer and our forward-looking statements. Thank you. Let's please move on to the presentation. In today's presentation, I will review the business for the quarter. Then Ben will give an update on our consolidation integration programs, followed by Seb, who will take you through our publisher and content strategy to follow on from the review of the advertiser side of the platform we presented last quarter. And then we'll return to present our financial update. First, I will present the highlights. We are proud of the strong business and financial performance that we achieved in the quarter and across year. Our focus on efficiency has created a robust business model. It has stayed relatively flat to the market conditions during Q3. We delivered an adjusted EBITDA of EUR 18 million an increase of approximately 48% compared to Q3 2022. Net revenue for the quarter was over EUR 109 million of revenue, an increase of 3% compared to Q3 2022. This was led by our Platform segment. As you know, we focused on our platform, and the platform revenue for the quarter came in at EUR 19.2 million, an improvement of more than 8%, thanks to the integration of past acquisitions, and the performance of our local direct sales teams. They contributed approximately 65% of platform ad revenue in the quarter. This is an increase from around 55% in Q3 2022. Across the organization, we have worked hard to deliver greater efficiencies and are on track to deliver the expected annualized cost savings of at least EUR 20 million as compared to the January 2023 baseline. In August, we successfully completed the sales of our social card game portfolio to Playtika, for initial cash consideration of EUR 81.3 million. Collectively with proceeds of the sale cashed out by the company. And the successful placement of new EUR 165 million senior secured floating rate bonds in September. We subsequently refinanced our previously outstanding bonds successfully at the end of October 2023. The efforts that we have made in Q3 this year have strengthened our position to challenging environments, and we believe this makes us an attractive partner for advertisers, publishers and technology providers. The acquisition of Hawk, a multi-channel DSP with operations in France, U.K., Belgium and Germany is a good example of this. We first partnered with Hawk in 2022, providing direct access to Azerion's engaged audience from their platform, continue to build on this commercial relationship, making acquisition under natural progression and adding attractive features to our platform. With these results from Q2, we are pleased to reconfirm our adjusted EBITDA full year guidance of at least EUR 75 million. Let me also give you some more insights into the business. In the last quarter, we have consolidated and developed our platform, focusing on our advertiser solutions. Our local direct sales teams showed strong growth in the quarter. We won trading agreements with major agencies across the globe, such as [Havas and Dentsu] in APAC and also, [ Dentsu ] in Germany. We continue to make progress with the integration of Targetspot and launch audio advertising in new markets. We merged the U.S. operations from Hybrid Theory, Infinia and Targetspot and created Azerion U.S. On the publisher side, we rolled out the new Azerion full monetization solution, showing 20% uplift on the first Dutch publishers. We partnered with many new publishers such as Dag en Nacht providing audio ads to their 60 different shows and integrated 3 new direct Demand Side Platforms, DSPs. Moving to Premium Games. We completed the divestment of our social card games portfolio, and we continue to focus on content that have strong synergies with our platform. All this is connected by a platform where we continue, add features for the benefit of our customers. For example, partnerships with companies such as Flashtalking and the Hawk demand side platform. I will now give you some more background on this recent acquisition. In April 2022, we launched a global partnership with Hawk, providing their advertiser and brand clients direct access to our audiences through our supply side platform into digital. Over the next 12 months, we collaborated on incentive and [ expiration ] plans, which resulted in increased advertiser spend over this period. This meant that the acquisition of Hawk was the natural progression of a successful partnership, making Azerion the leading European digital advertising provider in the French market. Of course, we're also expanding our presence in U.K. and Germany. We will further integrate the Hawk platform to create a single user interface and creating a self-service model for advertisers on harmonizing the execution of managed campaigns by our delivery teams. I will now hand over to Ben to provide a quick update on our consolidation efforts.

Great. Thanks, Umut. So in the last quarter, we continued the integration and consolidation of our platform business with previously acquired businesses, Takerate, Adplay, Vlyby completing their integration into Azerion's operations, technology and organization. We further consolidated the operations of the existing group and the acquired businesses by merging a number of legal entities to further simplify our operation and businesses, and I'm going to pick up on that initiative on the following Slide. By way of example, we did recently merge, as Umut mentioned, the U.S. operations Hybrid Theory, Infinia andn Targetspot to form a single business entity, Azerion US. That process was actually completed in November, having previously done the same thing for Azerion DACH, which came from the merger of Madvertise Media into HiMedia Deutschland in Germany. So picking up in a little bit more detail and to provide some additional color on our initiatives. Early in the year, as we've discussed in the past, we recognize the need to improve profitability, to create a resilient business that will be well positioned for continued growth. Managed decision to focus on operational efficiencies are actually evident throughout the business and have led to a continued and significant improvement in productivity. And as you can see from the chart on the left-hand side here, we've got around 28% improvement in net revenue per FTE in Q3 2023 as compared to the same period last year. You can see that's heavily driven by a reduction in the number of FTEs across the group, notwithstanding the extensive acquisitions we made at the end of Q4 2022. We've also focused, as I mentioned, the consolidation and simplification of the businesses, the technology and the corporate structure through, for example, the reduction of the number of legal entities, hosting contracts and office leases, which, of course, also helps to create single teams and an integrated platform. Those efforts have been reflected in a reduction of 16 legal entities across the group since the start of the year. 8 hosting contracts being consolidated to AWS in the last 12 months and a reduction of 22 office leases since 1st of January 2023. And we're not yet complete. We'll continue to work hard on all of these efficiency measures as we move into 2024. With that, I'd now like to hand you to Sebastiaan, who's going to walk you through an update on our publisher and content strategy.

Yes. Thank you, Ben, and hello, everyone. Great to see you, some of you not for the first time today. As you may remember, last quarter, we provided an overview of our digital ad platform strategy and an overview of the various ad formats that we offer to brands and agencies. Today, I'd like to give you some more color on the supply side platform. Content and the publishers we own and represent because that's -- the supply side is what builds the online audiences that we bring to advertisers and agencies across the globe. And with that content, we attract and amplify the attention of consumers for the brands that advertise through our platform. Across the globe, there are around 5 billion people online, but those people are scattered across markets, publishers and content. A single casual game could have as little as 100 users a day in a market, a single newspaper would have as little as 100,000 users a month and a single Football Club could have as little as 10,000 fans reading news and visiting the stadium every week. So as you all understand, 5 billion people in one place would be an easy target, but bringing them together from all these little corners of the digital world in a way that helps advertisers to easily reach them in an impactful way is anything but easy. Brands will be required to filter through all these publishers and connect with them individually in order to find the right audience, and that's a very costly and time-consuming affair. This is where our platform comes in. Azerion brings all those fragmented pockets of advertising opportunities together in one platform and connects with people through attention-grabbing advertising formats. And as we consolidate fragmented audiences, we also learn what the audience is, and by creating a single entry point to curated brand-safe content, we remove the inefficiencies in the digital advertising supply chain. In that way, we help brands to get people's attention at scale, but in an easy and safe way. This has been our singular focus for the last 3 years. And by now, we work with over 400,000 advertisers, and we connect them with an audience of over more than 500 million monthly active users for digital publishers connected to our platform. And through those efficiencies, we're able to help publishers monetize their content and they partner with us in order to have direct access to all the advertisers connected to our platform. We work out with over 300,000 contracted and 10,000 exclusive publishing partners, which I'll talk about in a second, providing segmented and categorized audiences for advertisers to access. So to build the audiences I was talking about, we partnered with our partners in broadly 4 different ways. First, our often long-standing relationship with digital publishers that give us access to more than 430 million monthly active users who are engaging with all kinds of online content. These publishers are our partners in which we have full visibility into the inventory, providing advertisers with an incredible diverse, local, and engaging content network. By aggregating these publishers into IP industry categories across multiple devices, we create a single gateway to highly engaged in consolidated audiences. And thus, we monetize for the highly creative and impactful advertising formats. Next, for our connected game content, we reached more than 90 million monthly active users by combining thousands of casual games in our portals and games distribution platform as well as hundreds of Premium Games through our e-commerce stores. We achieved this by leveraging partnerships with game creators to continuously expand and update our portfolio, and we produce our own premium and casual games. Last one here, Fanzone, the latest addition to our content solutions. Sports teams around the globe have highly engaged decentralized audiences. And at the end of Q3, more than 20 clubs make use of our white label fan engagement platform. I'll talk about that certainly, a little bit later. [ Shown on ] this page, our premium game titles as they are predominantly driven by in-app purchases and not advertising. Still, they also offer us a diverse audience who, on average, engage with these digital environments for longer than 100 minutes a day. So a little spotlight on these 4 types of publishers. First, the publisher partners, they're crucial to us. In contrast to companies like Netflix, Spotify, YouTube, Azerion is not trying to get consumers to come to a single destination app or website. We believe in the power of partnerships, and we work hard every day to make our publishing partners successful. Our auction technology has been on the market since 2008, and many of our publishing partners have been with us since those early days. We help maximize Publishers revenue, and we help them expand their relationships they have with their users by adding entertainment content and monetization opportunities. And at the same time, we use our decades of experience as publishers and content creators to help our partners solve challenges and grow their business. By now, we work with over 300,000 contracted publishing partners worldwide. We also have about 10,000 publishers who are exclusive with us. The second type of supply is game distribution business. You can think of game distribution at the App Store for the web scheduled gaming. They game creators want to distribute and monetize their games. This is their go-to place on the web. And the spectrum of game creators we work with is very wide. For small game studios, with limited resources, we offer access to large audiences with thousands of game portals, which means that they can start monetizing their games from day one with a revenue share model. Every month, game creators submit hundreds of games, and we select about 250 of them every month to add to our catalog. At the same time, game distribution ad business opens up new opportunities for large game creators. For example, creators of AAA games like Ubisoft chose Azerion as a partner to distribute casual games based on their titles. For the advertisers, we bring together all of these game developers, game plays, portals and destinations in all these markets and we consolidate them into a single offering of highly engaged and well-known audiences that, if you give them the right message convert into prospects and clients. Few words on our e-commerce business then. We have 2 platforms, GENBA and Voidu, where we resell AAA and other large PC game piece, and we generate revenue from the sales of these games titles. This business also gives us access to large game creators, which opens up opportunities for advertising partnerships in game distribution. And it gives us first-hand insight into consumer preferences and the latest trends in game content. Bringing together all these game titles from small to big into our own and white labeled e-commerce environments, again, consolidates individual game buyers of all kinds in all kinds of markets into a single audience to advertise against. Last, a few words on Fanzone. Fanzone is our latest initiative to consolidate audiences, and we are very excited about the growth that it's showing. Over the last 2 years, we've developed a white label fan engagement platform for sports clubs, providing a range of solutions from ticketing, news, player statistics and fan community. This social fan app allows clubs to engage with their fan base and instead of being cost, clubs can generate revenue by monetizing audiences for in-app advertisements. This is an attractive proposition for major brands who want to engage with a specific target group of fans. It's very easy and accurate. And as of Q3 2023, we work with over 20 sports teams, predominantly football clubs within Europe. However, we see strong growth within the segment as we work with more and more teams across markets everywhere. And of course, at the risk of being redundant, individual teams have fans that you can translate into audiences, but all those teams and clubs together in a single fan engagement platform, that really consolidates a very big group of engaged people into a single audience that advertisers love to get in contact with. So just to summarize, we have 4 seemingly, a little bit different publisher and content types in our portfolio, but they all connect the circle around the same logic. We consolidate every fragmented publishing content -- consumption around the internet and the world into valuable audiences that advertisers connect with through our platform in order to grab the attention of those people. And then before I hand over to Ben, a few words on the relationship with our publishers. In the open web, there are millions of digital publishers producing content to engage with audiences. And as said before, we help this, the publishers across the globe to monetize that. But of course, the relationship we have with those publishers and those content providers, they're very in-depth. Deeper the relationship, the better we can help them and the more margin coming together. We're in touch with many publishers that are looking for advertising budgets, of course, and we engage with them to see if they can become part of our offering to our clients. If we approve them and they are interested, we will connect them there, let's say, advertising space to our supply side platform, and that's already to start making money. And as you can see, over 300,000 publishers do so. With some publishers, we take this connection a step further, and we monetize exclusively their entire publishing environment. We sell the right combination of ad formats like video, audio, high-impact, display, others. We categorize the inventory. We promote the publisher with our sales teams and the advertiser. And through all that, the publisher doesn't have to worry about single thing. Currently, we partner with about 10,000 exclusive publishers partners increasing their margin as well as our own compared to simply connecting them to our platform. And then to the right, with yet other publishers, we provide them with both gaming content and monetization services to include it in their offering. So for instance, if you go to Chicago Tribune or MSN, and you click on their entertainments section, you think you're playing a game of Chicago Tribune, but it is actually Azerion's platform inside. As we provide both the content and the monetization, the margin for both the publisher and Azerion is even higher. So you see 3 ways we work with our publishing partners. And of course, in many cases, we do all of them with all of our partners, all of them with those partners. We benefit from strong [ viable ] effects and that the more publishers work with us, the greater we can improve and optimize content monetization. And the greater the margins we can provide, the more attractive it is for publishers to work with us. So there you have it, 4 ways of providing supply and basically 3 ways to connect with us. And with that, I hope you got a little bit more color on our publishing side of the business. And I'll hand over to Ben to take you through our financial performance for the quarter.

Great. Thanks Seb. So now that you've seen our businesses in more detail, I'd like to remind you how it all fits together in our financial reporting. And so as you see at the foot of the chart, our advertising and e-commerce businesses are reported under our Platform segment, while our Premium Games business is a separate segment. I'd also like to use the graphic on the screen now to explain some of the value drivers of our business model. So starting at the top of the chart, you have our advertisers and media agency clients. In other words, our advertising demand. Now as we move in the top center of the chart towards the left-hand side, we typically see lower volumes but higher margin business. So whilst our automated auction sales is a volume products and serves over 400,000 advertisers worldwide, in Q3, it represented approximately 35% of our platform advertising revenue. At the same time, our direct sales business serves fewer advertisers. But given the direct and often strategic relationships with our clients in this business, typically generates higher margins. Direct sales accounted for around 65% of our platform advertising revenue in Q3. And that, you may remember, is slightly above our expectations for the year. In past calls, I've mentioned that moving towards 60-40, and we indeed beat that in Q3. As Seb has already explained, if you look at the bottom of the chart, which relates to the publisher content, all the supply, as we refer to it. As you move to the right, so from contracted, to exclusive publisher, and then obviously into our own content portals, we grew margins and value. So contracted publishers account for over 300,000 of our publisher websites but a larger proportion of our advertising revenue actually comes from the 10,000 exclusive publishers we serve with the balance, of course, coming from ads placed in our own and operated content. And when we are the publisher, as an ad example, the margins, of course, will be more attractive as the content is fully integrated within our platform. So that means we're able to capture more value and also means that we can share part of that value with advertisers and publishers, and all the more cost efficient solutions for them. So let's see how this is translating into our financial performance for Q3 and year-to-date 2023. Our net revenue for Q3 was EUR 109 million. That's an increase of approximately 3% year-on-year driven by platform growth, particularly, in advertising revenue from direct sales, as I've just mentioned, and the integration of previous acquisitions. Adjusted EBITDA for Q3 was just over EUR 18 million, that's up by approximately 48% compared to Q3 of 2022. As a result, the adjusted EBITDA margin for the period also improved significantly to 16.9% as compared to 11.8% for the same period last year. These movements reflect improved margins due to increasing platform revenue, contribution from direct sales, and the continued integration of previous acquisitions and the ongoing cost optimization. So we are therefore also on track to deliver the previously communicated expected annualized cost savings of at least EUR 20 million excluding any effects from foreign exchange. For those expected annual savings being compared to the January 2023 baseline costs. Turning to the year-to-date 2023, our net revenue came in at approximately EUR 343 million. That's an increase of approximately 13% compared to the same period in 2022, and that again is mainly due to growth in the Platform segment, particularly in the advertising revenue from direct sales and the integration of previous acquisitions. Adjusted EBITDA year-to-date 2023 grew at just under 52% year-on-year. As a result, the adjusted EBITDA margin for the period year-to-date 2023 also improved significantly to 13.3% as compared to 9.9% for the same period last year. And these movements reflect increased revenue from the Platform segments, the increased contribution from direct sales, the continued integration of previous acquisitions and the ongoing cost optimization. So turning now to our Platform segment. That segment recorded net revenue of approximately EUR 91 million in Q3, up by just under 8% compared to Q3 of 2022. Net revenue year-to-date in platform was approximately EUR 280 million, as you can see on the left-hand chart, and that's up by just over 17% year-on-year. Our Platform adjusted EBITDA grew to almost EUR 14 million in Q3, and that's up by approximately 88% as compared to the same quarter last year. And adjusted EBITDA year-to-date was just over EUR 30 million. You can see that in the lighter blue on the chart. That's up by approximately 78% as compared to the same period last year. All of these movements, we believe represent significant progress in the delivery of our Platform strategy and will remain focused on continued improvement as we move into 2024. Turning to the bottom left-hand chart, our operational KPIs try to provide greater color on the performance of the Platform segment. As you can see in the bottom graph, operational performance is relatively seasonal and we can see an improving trend in our efficiency and our profitability. Average digital ads sold per month increased to EUR 12.2 billion in Q3 2023, and that's up from EUR 9.6 billion in Q3 2022. So that's an increase of approximately 27%. Importantly, the average gross revenue per million processed ad requests grew to approximately EUR 30.4, and coincidentally, that's also an increase of 27% year-on-year. So we're pleased -- very pleased actually with the way that the platform segment is diverse. So let's turn now to the Premium Games segment. Premium Games as a segment delivered net revenue of EUR 17.7 million in Q3 2023 as compared to EUR 21.3 million in Q3 of last year. That's a decrease of 16.9%. But remember that, that reduction is mainly due to the revenue lost in September, resulting from the sale of our social card games portfolio that completed at the end of August. Net revenue was EUR 63.5 million year-to-date in Q3 as compared to EUR 65 million for the same period last year. That's a decrease of 2.3%, and again, predominantly, that was due to the loss of the revenue in September from the sale of our social card games portfolio and some element for lower revenue in the metaverse environment. Importantly, in Q3, and excluding the sold social games portfolio, the adjusted EBITDA for the remaining Premium Games titles across our social casino and Metaverse portfolios increased by approximately 80% to EUR 2.7 million as compared to approximately EUR 1.5 million for the same period last year. These improvements reflect encouraging performance in social casino and ongoing cost optimization across the remaining Premium Games segment. Turning now to the bottom left hand of the screen and in particular, our operational KPIs for the Premium Games segment. The average time in game per day remained relatively flat in Q3 of 2023 as compared to the same period last year at about 79 minutes per day. Just imagine that's a period of time where you have audiences engaged in your content environments. The average daily active users decreased by 18% in Q3 as compared to the same period last year. And again, that's mainly due to the loss of active players in September from the sale of our social card games portfolio. However, the average revenue per daily active user continued to increase this time by almost 5% in Q3 of 2023, again, as compared to the same period last year, and that's mainly due to a stable loyal user base spending more in game. Turning now to our financial framework. We continue to show relatively resilient performance in Q3 and year-to-date 2023. We saw continued progress in the delivery of our platform strategy, including the steadily improving contribution from our direct sales teams, as well as further progress in the ongoing consolidation and integration of previous acquisitions and our cost optimization programs. The benefits of those strategies that are being implemented can be seen, as I mentioned, in the significant improvement in adjusted EBITDA margin for the group, which now stands at 16.9%. Similarly, adjusted EBITDA margin for year-to-date now stands at 13.3%, and that's an improvement from 9.9% for the same period last year. We also continue to be cash generative from operating activities for year-to-date 2023 with an inflow of EUR 18.9 million, and that's the balance after an outflow in Q3 of approximately EUR 15.8 million. The outflow in Q3 was mainly due to movements in net working capital, partly reflecting elements of seasonality and activity between Q2 and Q3. The current market conditions, at the same time, by presenting increasingly attractive opportunities to further grow our business through partnerships and strategic investments as we move into 2024. And these are factors we've taken into account in considering our updates to our outlook and guidance. So let's now turn to look at that. So in relation to outlook, adjusted EBITDA for the full year of 2023 is still expected to be at least EUR 75 million. That's supported in particular by the continued progress in the integration of previous acquisitions and ongoing cost optimization. Net revenue for the full year 2023 is now expected to be around EUR 520 million. And that's up, of course, from EUR 453 million for the full year last year, but as compared to previous expectations of around EUR 540 million. So the reduction in the net revenue expectations for the full year reflects recent market conditions, leading in particular to lower anticipated growth in automated auction sales than originally envisaged for H2 of '23. As previously mentioned, having focused on integration and cost optimization for the first 3 quarters of the year, the market conditions are presenting, we believe, increasingly attractive opportunities to further grow our business through partnerships and strategic investments. And so, as a result, the previously communicated medium-term guidance is retained, therefore expected annual net revenue growth of around 15% and annual adjusted EBITDA margin is expected to be in the range of 14% to 16%. So with that, I'd now like to hand over to Umut to close out the presentation before, of course, heading to Q&A.

Thank you very much, Ben, that's a lot of figures. Let's turn back to our key messages for the quarter. We are pleased with the relative to size of our business model to the market positions during Q3 and in particular, the growth in our platform revenue and increased contribution from our direct sales teams. We continue to see the benefits of our ongoing consolidation and integration projects reflected in our improved adjusted EBITDA margins. And the recent acquisition of Hawk will help us to integrate and consolidate even further while expanding our services in channels such as audio, digital out-of-home, drive to store and connected TV. Having focused on the integration and cost optimization for the first 3 quarters of the year, the market conditions are presenting increasingly attractive opportunities to further grow our business through partnerships and strategic investments. I would like to now open up the line to Q&A.

[Operator Instructions] Our first question is from Thomas Singlehurst at Citi.

It's Tom here from Citi. Hopefully, you can hear me? Firstly, I mean, obviously, the progress on the direct sales is very notable year-on-year and as it progressed through this year. Could you just give us a little bit of an insight into whether there's any sort of different sort of seasonality on that direct revenue and therefore, how we might expect it to trend 3Q to 4Q? Because you need a fairly significant absolute pickup, I suppose, in revenue in the fourth quarter to make the full year numbers?

Yes, yes, of course, the direct advertisement as though, not to be, this of course, also affecting in different seasons. And of course, Q4 is the best. Maybe you can also add something to this Sebastiaan?

Yes, especially in the direct, as you can imagine, it's all about our people contacting other people at the advertisers and agencies office to do business. And that means that the seasonality also comes from, let's say, the holiday season. So if everybody is on a big summer holiday, then activity is low. And Q3, obviously, but always it is, from a direct point of view, I'd say the low point in the year, while Q4 with all of the festive days from Black Friday and Christmas, et cetera, is actually the peak of the year. So you can expect that seasonality also in our annual view.

Perfect. The next question was on the sort of enterprise, sort of scale deals, which are obviously very exciting. I'm just interested in 2 aspects of that, one of which is the pipeline? I mean, how much line of sight do you have on sort of deals that are in the winds but not yet formally announced. And then secondly, what are the -- what's the gating factor there? Is there a significant sort of cost associated with setting them up and getting them ready and sort of starting the flywheel of monetization? Or are they pretty plug and play?

Okay. That's a good question and lots of questions in one question. I will try to answer them one by one. First of all, that's also already explained in our presentation. Our pipeline for deals, strategic investment has never been that big as now. And that is also due to what we think -- but due to the market circumstances. Of course, there are, let's say, deals that goes much faster where we have a deal with a big publisher network or where we make a deal with a media agency. And there are deals, which needs a little bit more attention and what needs to be also discussed much in detail. You want to add something to this Ben?

Yes. I mean, look, I think we see the outlook very positively, Tom, as you say. I mean, obviously, in an environment which is getting a little bit tougher from an economic perspective, it really encourages people to sign to consolidate their relationships, work for those who can provide scale, more cost efficiency, better value back. And we definitely think that we're playing in that space. We announced quite an interesting distribution deal working with [ Huawei ] recently where they took our game distribution portfolio and effectively are now distributing that across their user base across Europe, and I think it's about 16.5 million monthly active users. And there are publisher relationships to your question that we are working on hard which will bring, as Sebastiaan's mentioned, some really exciting and interesting new audiences for the advertiser side of our network. So we do see the economic environment producing for us some really interesting opportunities to partner. And then it's really a question of timing, that we think actually those partnerships may well becoming more attractive next year. So there's an element of timing and judgment around those. What we are doing is trying to put a number in place now and then really following through early into next year with a whole number of the current conversations.

Maybe one last thing on the pipeline, you were asking for Tom. So if you think back about the slide that we had on the Hawk acquisition, we actually started about a year ago, connecting them basically to our ecosystem, if you want. And then you can start seeing what kind of partner it is, how much they can do, what they bring, what they're looking for and they will progressively start to expand that conversation, which ultimately ended up in this case in an acquisition. So our pipeline is basically also, you could say, our ecosystem. And that also gives us a very good insight in which partners to start talking to more in that than others.

That's very clear. One final one. And I do apologize. You're right. I say one question, then it's multiple questions. But the final one is on pro forma revenue for next year. If we start with EUR 520 million, I presume we've still got to take out EUR 20 million from the social games and then add in a figure for the for Hawk and the remaining deals. Does that mean that the sort of pro forma figure that we should think of as a sort of rough base from this year based on your guidance is about EUR 550 million. Is that roughly where we should be starting?

Good question, Tom, First of all, I'm not a big fan of things like pro forma. So it is open for loss of identification, but I think that you did have a proper calculation. Maybe hand over to Ben to...

Yes, looking round numbers, I think that's a reasonable starting point, Tom. As you say, we previously disclosed for you and obviously, the market more generally the numbers that we're lining up against the sold portfolio. We did, in our announcement of the whole transaction, I give you a reference point of revenue for last year. And so I think putting those 2 together on the maps that you've just talked about, you get very close, I think, to the type of baseline and then you sort of grow off the back of that, depending on the types of things we've been talking about underlying growth, the enterprise deals, we sit alongside that. And then obviously, we've got a history of bolt-ons periodically as well.

Our next question is from Wim Gille at ABN AMRO.

Yes. Can you hear me?

Yes, Wim. Yes.

Got a few questions. First on the direct sales side, obviously, you had quite a successful quarter on that angle in Q3. You are now doing about 65% of the platform revenues in direct sales versus 35% for programmatic advertising. And if I'm not mistaken, you had a bit of a midterm target to be more at around 60-40. So should we think about the split in the coming quarters? Should we go back to the 60%? Or given the weakness in programmatic advertising currently, we should stay at about 65% for a few quarters before we move back to the midterm target of 60%. Also, if we look at direct sales, you mentioned in the slide show that you have about 10,000 advertisers that you work with. But can you give us a bit more feeling on the split between kind of the, let's say, advertisers versus agencies or is it -- or am I looking at it the wrong way? And are agencies actually more towards the programmatic advertising? Okay. And then lastly, on the -- yes, go ahead.

Shall I start answering or do you have additional questions?

Let's answer first and then move on to the next question.

Okay. Let's start with the first one because let's say, the great achievement in growing the direct sales. Of course, we are extremely happy with this. That's also our approach, our strategy, sitting closer to the advertising. That's also the whole approach about this European, let's say, strategy that demonstrates in whole Europe. We are extremely happy with that. And they delivered a great, let's say, performance. Even in Q3, where the season is as Sebastiaan explained, is low. Then looking to the open RTB. That didn't well -- that's good as we explained. And that's more depending on, let's say, what we think on the global economical market. Okay. One is performing better. The other one is less. But the combination, I think -- of course, we want to grow the company more towards direct sales. The combination looks like 60-40, 70-30, That's, I think, the best, let's say, average what we want to achieve. You want to add something to this Sebastiaan?

Yes, because you can think of it from a percentage point of view, but of course, the absolutes are ultimately what is in the bottom line. So the direct is just as much influence, you could say, it could be by the economic circumstances. Advertising is very early in the cycle of people saving costs and therefore, reducing marketing budget, for instance, but if they -- if this advertiser normally books those budgets through a platform, which we are not controlling, then it's very easy for them to say, okay, I'll stop this. I move the money somewhere else or I don't spend it at all. But in direct -- they're in direct contact also with our account managers. And there, we try to make sure that even if they reduce their revenues that they don't reduce it with us and that they keep spending and we're trying to help them as best we can. So I think the service that we deliver there makes up for the potential downfall. So I think that's why currently, the direct is also doing really well. It's easier there to maintain the -- to keep budgets under control, let's say. But then the percentages are not necessarily that connected. So if the direct sales keeps growing and the programmatic or the automated sales has a little -- declined, then yes, the percentages immediately start to let's say, widen, but it's not because direct is over performing in a certain direction. It is doing really well, and it's growing fast.

Faster than the...

Faster than we expected, but yes, we also see very big opportunities for the automated sales to also bounce back, once the markets have new buckets of advertising money.

Yes. So just to finish up, we may knowing sort of what you'll have in mind in terms of modeling. I think what you're hearing from us is, look, we're very pleased with the direct percentage. We think it's probably not a structural change in the market. And so we would expect it to migrate back to around 60-40 as a medium-term assumption, but we'll keep an eye on the market as it develops. Okay. So that was your first question. Second question was an interesting one, and that relates to the split between the agencies and advertisers and how we should think about that.

So maybe it's good to at least to -- especially in the direct, we're talking about the bigger advertisers in markets. Most of those advertisers are connected to an agency because they are so big that they are outsourcing their all-media buying to one of these experts. So you see that the bulk of all of the serious media spend in any market is handled by the top [ seniors ] of these media agencies. So very quickly, you get to a Pareto 80-20 rule of 80% coming from agencies and 20% coming from real direct. And then within the agencies, you always have like 80% comes from the really big ones and then 20% from the rest. So it's a very repetitive program. But in general, the bigger advertisers that we are working with on the direct side, are part of a agency structure. So yes, direct advertisers are there, but there are -- you can say, they're a little bit off the normal track. They're looking for a different way. They're in-housing media buying. Some of them are trying that. So then we are connecting with those -- and if an advertiser moves from one agency to the other, we do have the relationship and the contacts with those agency -- over with those advertisers. So if they move from an agency often, we get the spend from the new agency as well because it's just an intermediary and not necessarily the one that is making a totally different plan or media spend with us.

And you had another question, Wim?

[Operator Instructions]

We might have lost, Wim?

Yes. Can you hear me now?

You're back. There was another question...

It is -- there was. But I think Google hates me. The other question was on the organic growth in the third quarter. Without delving into kind of the details on how we get to organic growth and what definition we use. I think it's fair to say that there was, let's say, a deceleration in Q3 compared to the previous 2 quarters driven by difficult end markets. What are you baking into the outlook for full year for the fourth quarter. Would you expect an acceleration in the organic growth again year-over-year? Or are we more looking at a similar pace going forward? And the second question on the organic part is. If you kind of give a bit of a feeling, one of the main drivers here, is it -- if you talk about volumes versus pricing, is pricing the issue? Or are the volumes the issue?

Okay. Good questions. I think we gave the guideline for the full year, which includes Q4. If necessary, I will turn to Ben for -- yes, to repeat again. But I think for the long term, for the midterm, we also gave a guideline. Maybe you can take this, Ben?

Yes. So look, I think the first part of your question, how do we think about Q4 moving into 2024. We've done a lot of work, obviously, on the platform this year, and we've talked about the cost and optimization. So as we move into or have moved into obviously, Q4, which for the industry is the busiest quarter, we really feel like we've got a machine that is ready to focus on that growth opportunity as we see it. And that is a combination of everyday business and the strategic partnerships that we've talked about. So we would expect us to really be running hard into Q4 against those opportunities. In terms of the outlook for 2024, again, we really do see a positive opportunity created ironically by the economic conditions to do these deals and have these strategic partnerships. And so it's in that context that we repeated our medium-term guidance. We do see top line growth in the medium term of around 15%, and the contributors to that will be, as they are for our model, a combination of underlying growth, enterprise deals and smallish bolt-ons, utilizing those relationships that we have across the ecosystem. One other part to your question then was sort of volume versus pricing. Well, it's a little bit of both. You can obviously see some volume coming out of the market on the programmatic side, which we've talked about, but that is a lower margin, typically. And so it really depends on which part of the charts that we talk to now we're focusing on. We see good growth on the direct side, lower volume in its own as compared to programmatic, but higher margin. We're also seeing higher flows into our exclusive publisher and owned content. And that, again, is helping to drive margin. And what we're looking to do is an open architecture model is to balance that constantly, to try and make sure we're doing the best for the clients, driving good volume across the business but making sure it's an increasingly attractive margin. So that's how we think about the end of the year and certainly how we think about 2024.

Yes, as you can see...

There are no further questions at this time. I will now hand back to Ben Davey for written questions.

Okay. Thank you. We -- I think we've got a couple of questions on the screen. So I'll just read those out. So we'll pick those up for you. So firstly, how do you expect Q4 to perform compared to the rest of the year? What are your expectations for next year? Yes. So and I think broadly, we've covered that. But just to sort of reiterate, I think we have given, I think, an update to our guidance for the full year. And obviously, we're now looking at revenue of EUR 520 million and adjusted EBITDA of at least EUR 75 million. And so we see that, in particular, building into what we hope to be a busy Q4 following sort of seasonal trends in the past. And a final question here. In terms of margin, you've done well on improving adjusted EBITDA in a slower market. Have margins more or less bottomed out? Or do you expect these to grow in the near future? Perhaps, Umut, you want to start on that one?

Yes, yes, very good question. So first of all, our volume is increasing and margins also depend, let's say, on the volumes. Secondly, I think if you look to the organic growth, mainly then you have to look from a different perspective because we have different stakeholders, advertisers and publishers, especially in this economic market. The publishers are choosing us mainly because of the revenue that we can bring to them and also for, let's say, the way we entertain their users from advertisers. It's also very important. As in this circumstances, they look also for volume and for, let's say, a partner who can deliver the full solution, which we, of course, can in their own country, but also globally and in Europe. Maybe you want to add something to this, Sebastiaan?

Well, basically, just the answer that the margins for me have not bottomed out because as you say, if you increase the volume, then although your costs go up, they're certainly not going to go up as fast as the margin will be. So as we grow, that would be a great, let's say, segue into better margins. Of course, you need to manage multiple factors there, but the logic of a digital platform is that as you scale, you get more and more efficient and more profitable. So that's, of course, what we are showing this year. And yes, I think there's a -- there's a future there as well.

Yes, maybe just one final thought on that. I mean we haven't finished on our cost optimization program. There's more legal entities to go after. There are more leases to terminate and there are software contracts that we can consolidate. So we're making good progress, but we've got more to do. So I think that will be another pattern as we go into 2024. Okay. Look, I think that is all of the written questions as well. So thank you very much, everyone, for joining us. We really do appreciate it, of course. But if anyone would like a further deeper discussion, please do just reach out to the IR team here, and we'll make sure that we follow up for you. But otherwise, have a very good afternoon.

Thank you very much.