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

Good afternoon, and welcome to the Azerion Interim Financial Results, Q4 and FY 2023. [Operator Instructions]. And I'd now like to hand over to Umut Akpinar for welcome remarks.

Thank you very much. Good afternoon, everyone. I am Umut Akpinar, Founder and CEO of Azerion. I'm here with my colleagues, Mr. Ben Davey, our Chief Financial Officer.

Hello.

And Mr. Sebastiaan Moesman, our Chief Revenue Officer.

Hello, everyone.

And we would like to welcome you to today's webinar to present Azerion's Q4 and full year 2023 preliminary 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. I'm excited to discuss our strong finish to the year and reflect on the progress we made in 2023. I will also explain our growth prospects in 2024 and beyond. Firstly, I would like to thank all of our employees who have worked very hard to deliver these results. This has been a formative year where we have built on the foundation of a highly-scalable and efficient digital advertising platform. Traditionally, Q4 is our strongest performing quarter as brands and advertisers accelerate spending in October, November to prepare for the holiday season. The platform segment continued to grow strongly, resulting in net revenue of EUR 158 million, up more than 26% compared to last year and an all-time high for the company. This has been helped to drive the total net revenue for the quarter to EUR 172 million and EUR 515 million for the full year 2023, an increase of almost 14% year-on-year. In Q4, we generated adjusted EBITDA of approximately EUR 26 million and EUR 71 million for the full year 2023, up 37% compared to 2022. We have continued to grow despite the challenging macroeconomic environment. I'm pleased to announce that thanks to our focus on consolidation and integration, we delivered on our expected annualized cost savings of at least EUR 20 million compared to January 2023. In October, we completed the acquisition of Hawk, a digital advertising platform, bringing new advertisers and strengthening our Digital Out-of-Home, audio, Connected TV and hyperlocal proposition, to brands and agencies through a single multichannel buying platform. Lastly, we completed the refinancing of our previously outstanding bonds through the issuance and listing of a new EUR 165 million bonds. Let's turn to our business and operational highlights. In the last quarter, our teams have worked hard to deliver advertiser campaigns, improve our monetization capabilities and expand our engaged audiences through new partnerships. We have signed 39 new publishers, expanding our supply footprint across Europe and America. With new CTV, Audio and inApp audiences. We've also added 5 new demand partners, creating new monetization opportunities for our publishers. This includes partners such as Huawei [indiscernible] and JAMC in the last of which we took a minority stake. Our white label fan engagement platform, Fanzone, partnered with EB Sports Group to exclusively promote the platform in the United States and Mexico. On top of this, we have further strengthened our platform by integrating contextual segment data in our SSP. Thanks to the acquisition of Hybrid Theory last year. This provides enhanced audience targeting for advertisers in a cookieless world. We have continued to expand retail formats from acquired companies, such as Audio in the Nordics and rich media on mobile devices. So overall, I am pleased with the progress we have made as an integrated platform. I would like to hand over to Sebastiaan to take us through the digital advertising market, how we see it forming in the coming years and where we see the opportunities presenting themselves.

Yes. Thanks, Umut. Almost as you've come to expect from us a little review of the market and our positioning in there. So of course, our markets 2.5 billion people 10 years ago in the Internet by now more than 5 billion. And in the digital advertising space, we also see continued growth towards '26 and beyond. So basically, it means a massive market that we're still active in and that our company has inflated. The industry of digital advertising itself might have -- might be helped by a little let's say, refresher on how it works because advertisers have always for decades, maybe even century place their ads with publishers. But in the digital domain, you need obviously technology to get the ads from the advertiser to the publisher. And this goes through the technology, which we call the demand-side platforms and the supply-side platforms. Before we go into that little technology explanation of our platform, advertisers like Nike or Coca-Cola, they want to spend money to reach audiences. And they could use the technology platforms themselves. It happens also. We call this automated action -- auction platform or open RTB. But most big advertisers use an agency to work for them and to spend their media money. And these agencies then in sequence work with us, manage service offerings to help them spend the money in the best way to get the efficient reach from the audiences that they need. So this has been the way that advertising has been working for decades. And in technology and digital, this means that the demand-side platform and the supply-side platform are the platforms that the companies that you need to execute your business. And we help brands to attract the attention from the audiences around the world. And we do this because there is a massive fragmentation in the market. Audiences are everywhere. They can play a little game. They can go to a news website. They have their app downloaded for the weather. They're everywhere, but not in a single place. So Azerion constantly works with its publishing partners and through the technology to consolidate all that audience activity into one big curated content and audience stream that goes into our company. And on the other hand, we have advertisers, which are also very fragmented around the world. There's very small advertisers like the bakery in the corner, but also the big ones, as I said, Nike, Coca-Cola and Mercedes. They're all trying to find the right people in the right environment online. So we're also using our technology to consolidate all that demand, as we call it, all these advertisers into a single platform that can then connect to these audiences. And this, we do throw a picture, which you might have seen if you joined us a few times before through our platform. So you see here almost a picture I painted the industry. On the top you have the advertisers and the media agencies, the one that we sell directly to with our sales teams in markets, the DSP and the SSPs are the technologies that some advertisers use to self-buy from the system. So without our salespeople, they can still buy through their technology in our platform. On the bottom end, you see the publishers we work with because in contrary to Google, with YouTube or Facebook, we're not necessarily the destination for the users. We work with all of the publishers as an open network. We provide the audiences to the advertisers. So on the bottom hand, you see all the publishers we work with and in the middle, that is our platform. And it consists basically of 4 components on the buy end as we call it, there is the DSP. It is the platform where the advertiser logs in and creates this campaign or sets up the parameters, like I want to reach a 1 million women aged 30 to 45 years old, interested in sports shoes, in the environment of Paris, for instance, all those parameters you set in what is called the DSP. We own a DSP called Hawk. We acquired it recently, Umut just talked about it. But there's many DSPs in the world, about 60 or 70 big ones where all the advertisers and agencies in the world put their campaigns and their parameters in there. So this is where the, let's say, the buying, the campaigns, the advertising campaigns live, but they have to be bought from the sales side. And this is the sell part you see here with improved digital company we acquired, well, almost 7, 8 years ago. The SSP is the company or the technology that aggregates all the supply from the publishers. They have an ad slot on their homepage on their website. They have an ad slot in the sports space in their mobile app. All of these needs to be broadcasted to the market so that the buyers can actually buy from those sellers. So those 2 technologies we have in-house. One is Hawk, the other one is Improve. And we're increasingly consolidating all of our buying and selling technologies into these 2 platforms. Then there's a monetize part because publishers not only need technology, sometimes they also need help to monetize their whole environment. Publisher might be very good at creating fantastic content for users, but they might need a little help to make sure that they maximize the money they make on all those audiences watching their content. And we help them then to implement all of the sales by technology to make the connections with the advertisers so that they make the most money that they get. And on the content side, you can see 4 logos here. On the one hand, we have game distribution, which is our -- the engine basically where we aggregate all of the gameplay and the games that we have and that we can distribute across publishers to help them make money. GENBA and Voidu on the right-hand side, allow us to sell AAA games, which you could play, for instance, on the PlayStation or the Xbox to consumers. And Fanzone is the place where we aggregate all of the, let's say, fans of football clubs into a single app for football club of course. And then in total, we provide all these audiences again to our advertisers. So in a nutshell, that's the platform. We have on the top end, the advertisers that spend either through their agency or through a technology platform in our platform in the middle. And we then work with publishers that allow us to reach those audiences on the bottom end. Few words on how our platform and the games work together. So on the top end, the half of the slide, you see basically what those -- the structure I just painted with the platform. So the advertiser on the left has a budget and he wants to reach a certain audience, he uses in digital a DSP and an SSP to get to the right publisher and thereby to the right audience. And in this publisher supply, we basically cater to the whole universe, you could say. On the left-hand side on the bottom, you see any publisher that we work with can be part of that. So a newspaper, it could be radio station, et cetera. But also our game distribution games are part of that publishing and the Fanzone is part of the publishing and also the whole e-commerce is part of the publishing and also the metaverse and casino games allow us to reach users and show them ads that are appropriate and that the advertiser wants to show them. So whether it's in the full gaming or whether it's totally not gaming on both ends of the publishing spectrum, we help advertisers reach the audiences that they need. So that's the platform itself. And what we're trying to achieve is really to create Europe's largest digital advertising platform and basically also means that we want to become a cornerstone partner in the digital advertising industry. We want people to see us as a go-to, as a necessary almost essential part of their whole marketing mix. And to do that, we're constantly working on these 5 strategic pillars, you could say. We're growing our market. We want to be where it matters. We want to be at the skill that is needed, providing the products that people like, probably Umut and Ben will come back to it a little bit when we talk about our strategy towards M&A. But the growth of that business is instrumental. We see a lot of opportunity there also because the world is changing from cookies to cookieless. We see a lot of movement where a lot of advertisers and companies don't just want to rely on the big American companies anymore. So there's a lot of space there that we can still grow in. Enterprise deals. There is a very specific way of doing these deals. We can, of course, work with publishers and advertisers. But if we make a deal with those kind of companies to become each other's, let's say, friends or better partners, then we strengthen the position every time we do it. A publisher that is exclusive with us, for instance, yes, that means that we are working on the longer term, we're working together to make sure that everybody makes money, but also it means that we strengthen the position that we have in a particular space. So enterprise deals for us is a big necessary and also a high priority way to constantly evolve in the marketplace, but also to solidify the position not just to grow, but also to make us stronger. Of course, if you want be a cornerstone partner for the advertiser, you need to supply the right supply. Advertisers need to love the supply that we offer them. And so we're constantly looking for publishers that really fit the business with the advertiser. That's the first one. The competitive price is super important as we grow, we are generating more and more economies of scale. You can imagine the cost of doing all of these technologies and auctions and hosting everything there needs to be paid for and the bigger you get, the cheaper you get relatively per app that you sell. So as we grow, we create new economies of scale that actually give us also a distinct competitive advantage and allow us to work with our clients in a very competitive way. And lastly, of course, it's a technology platform. So we're constantly consolidating. We're not just partnering up or acquiring companies or developing new features, but we're trying to constantly bring that together in a single platform that also makes it then very easy to use and efficient for advertisers to use. So in combination, if you do these 5 things, then you become increasingly important for all of your partners, whether they're on the supply side or the client side and it really brings us to this point where we say, yes. Europe's largest digital advertising platform and really a cornerstone partner for the digital advertising industry. I think that's the most important thing we can reach. And if we are there, of course, you can imagine that yes, -- it means a very sticky and big part of our business will come from partners that really constantly want to and always will be working with us. So that's the bit of the future, the platform and the future -- and I think now it's time to hand over to know the future with the past. Ben, on the financial side.

Great. Thank you very much, Sebastiaan. So good afternoon, everyone. Turning now to the financial highlights. Our net revenue for Q4 of 2023 was EUR 172 million, which was an increase of approximately 15% year-on-year driven by platform growth, particularly in advertising revenue from direct sales, e-commerce and our acquisitions, including Hawk. Adjusted EBITDA for the quarter was around EUR 26 million, that's up by approximately 17% compared to Q4 2022. And as a result, adjusted EBITDA margin for the period also improved to 15.1% as compared to 14.9% for the same period last year. Turning to the full year 2023. Our net revenue was approximately EUR 515 million, and that's an increase of nearly 14% compared to the full year 2022. And again, that was mainly driven by Platform growth, particularly in the advertising revenue from direct sales, but also to remind you, notwithstanding the loss of the revenue from the divested social card games portfolio. Adjusted EBITDA for full year 2023 grew by just under 37%, that's year-on-year to EUR 71 million or just over. As a result, adjusted EBITDA margin for the period full year 2023 also improved significantly to 13.9%, and that's compared to 11.5% for the full year 2022. So these movements reflected improved adjusted EBITDA margins, which themselves were due to increased platform revenue and contribution from direct sales as well as platform efficiencies from the ongoing optimization and consolidation effects. And I'm going to come back to those a little bit later on. So turning to the quarter. Q4 is generally the busiest quarter for our sector, as advertisers typically ramp up for the holiday season and the delivery of advertising campaigns is an absolute priority for us and indeed our clients. At the same time, we wanted to continue our ongoing cost optimization projects, which resulted in, for example, by the consolidation in the number of legal entities in the group. We reduced that by 25 as between the first of January and the 31st of December 2023. And we've already pressed on this year. So we've got a further reduction of 12 alone in January and February of this year. We continue to migrate our hosting contracts and additional hosting contract was migrated to our group AWS contract in Q4, and that makes a total of 9 for the year. And we continue to consolidate more of our teams to few offices for higher efficiencies, and that results in a reduction of our leases over 2023 of 22. So really as a result of the combination of improved revenue and the cost optimization program, we've seen our revenue per FTE, which is a metric we've talked about a few times in these calls now. So that metric of revenue per FTE has grown by 61% as compared to Q4 2022, and that's to approximately EUR 155,000 of revenue per FTE. And you can see in the graph sort of continual progress we've made in productivity over 2023. I'll now move on to discuss our platform segment, which recorded its strongest quarter of net revenue at approximately EUR 158 million in Q4 of 2023. That's up by more than 26% compared to the same quarter in 2022. Net revenue for the full year was approximately EUR 437 million on the platform, up by just over 20% year-on-year. And our Platform segment adjusted EBITDA grew to over EUR 22 million in Q4, and that's up by approximately again, 26% compared to the same quarter last year. So adjusted EBITDA for the full year was almost EUR 53 million, as you can see on the chart, which is up by approximately 51% compared to last year. Now we believe that all of these movements represent significant progress in the delivery of our platform strategy and will remain focused on continued improvement as we move into 2024. I'll just take a moment to walk you through our operational KPIs. These are the ones that help hopefully provide greater color on the performance of our Platform segment. So as you can see from the bottom graph, we again saw significant progress in Q4 of 2023 as compared to the same quarter last year, with a clear and improving trend in scale and efficiency. So added together -- so if you add together the blue and the black components of the platform in the bottom graph, you can see that the average digital ads sold per month increased to 12.9 billion in Q4 of 2023, and that's up from 10.7 billion in the full year 2022. So that's an increase of over 20%, that's just summing those black and blue columns. Importantly, the average gross revenue per million processed ad requests also grew to approximately EUR 39.5, also an increase of around 20% year-on-year. So more digital ads being sold, more revenue being generated. I'm going to take one deeper look at the Platform segment, and we're introducing here some additional information for those who have been following us for a little while. So we broadly generate revenue from 2 sources in the Platform segment. Advertising revenue, which consists of direct sales and open RTB or automated auction sales, we use the 2 terms in the same way. And then separately, e-commerce. So in Q4 2023, Azerion's direct sales teams contributed approximately 75% of the Platform advertising net revenue. That's a dark blue shaded portion of the chart here. And that's as compared to approximately 65% in Q4 of 2022, with the balance of our advertising revenue being provided by the Automated auction sales. That's the mid-colored blue in the column here. For the full year, Azerion's direct sales teams contributed approximately 70% of Platform advertising net revenue, and that's as compared to approximately 60% in Q4 of 2022 with again the balance, of course, coming from Automated auction sales. Turning now to e-commerce, which is the top of the various columns. In Q4 of 2023, our e-commerce business generated net revenue of EUR 31.7 million, as compared to EUR 22.1 million in Q4 of 2022. So that's an increase of approximately 43.4% and that's a year-on-year metric. For the full year 2023, our e-commerce business generated net revenue of EUR 88.8 million as compared to EUR 68.3 million for the full year in 2022. That's an increase of approximately 30% year-on-year. So that hopefully gives you a lot more color on the Platform segment, and we'll look forward to bringing more information to you in future quarterly discussions. I'm now going to turn to Premium Games. So what we've done here is we've noted for completeness for you all, the financial performance of our Premium Games segment, including the social cards portfolio that we sold on the 28th of August 2023. So that's the top left chart. At the same time, I think it's right now to focus on the trends and I believe that to be quite encouraging adjusted EBITDA performance of the go-forward Premium Games business post that sale, which is the middle of the chart on the left-hand side. And that's, of course, relating to the social casino and metaverse portfolios. When we look at that chart, you can see that for Q4 of 2023, the net revenue of those remaining portfolios increased slightly to EUR 14 million as compared to EUR 13.9 million in Q4 of 2022. For the full year, the net revenue of those remaining portfolios was EUR 49.3 million as compared to EUR 52 million for the full year 2022 with the small increase mainly due to slightly lower revenue in the metaverse environments. At the same time, the adjusted EBITDA for the social casino and metaverse portfolios doubled to EUR 3.6 million in Q4 of 2023, up from EUR 1.8 million in the same quarter of the previous year. And perhaps most encouragingly, for the full year 2023, the adjusted EBITDA for the social casino and metaverse portfolios increased by 61.7% (sic) [ 60.7% ] to EUR 9 million as compared to EUR 5.6 million for the full year 2022. So if you take a step back, overall, the improved performance for the remaining portfolios has largely been driven by strong performance in social casino, revenue growth from Habbo Hotel due to environment improvements, higher engagement with players as well as continued progress in our cost optimization right across the segment. And so if we turn to our operational KPIs for the premium gaming segment, the average timing gain per day increased by 19% in Q4 to 94 minutes per day as compared to the same quarter last year. That's mainly due to the divestment of the social cards portfolio where the users tended to have shorter periods of timing game, but it also tells you how much time and engagement we're getting from our retained customer base. Average daily active users decreased by 52% in Q4 compared to the previous quarter in 2022. And again, that's due to the loss of the active players from the sale of the social cards portfolio. So absolutely as expected. And then when you look at what has been retained as our active base, the average revenue per daily active user has increased slightly in Q4, as compared to the same quarter last year, reflecting improvements in the playing environments and engagement with higher spending players. So hopefully, that gives you a good feel for how we see the Premium Games portfolio evolving at the end of 2023 and into 2024, and some great work being done by the team there. So I'll now turn to our financial framework, which again continued to show resilient performance in Q4 and for the full year 2023. We demonstrated continued progress in the delivery of our platform strategy including steadily improving contribution from our direct sales teams, growth in our e-commerce business as well as further progress in the ongoing consolidation and integration of previous acquisitions and cost optimization more generally. The benefits of those strategies are being implemented can be seen in the improvement in adjusted EBITDA is on the left-hand side and the adjusted EBITDA margin for the group now standing at 15.1% for Q4 2023 as compared to 14.9% in the same period last year. With that improvement being delivered without any contribution, of course, from the sale of the social cards games portfolio in September and Q4 of 2023. Similarly, our adjusted EBITDA margin for the full year now stands at 13.9% as compared to 11.5% for the same period last year. We also continue to see positive cash flow from operating activities in Q4 with an inflow of EUR 35.5 million. For the full year 2023, cash flow from operating activities again grew to over EUR 54 million, up by more than 21% compared to the full year 2022. And on the far right-hand side, as you can see, we're also pleased to have reduced our overall long-term debt position with the refinancing of our previous bonds. And as you can see, that's resulted in a reduction of approximately 18% in the net interest-bearing debt at the end of the year as compared to the end of year 2022. So taking all of our updates and the market context into account, we're now also updating our guidance for 2024 and the medium term. So starting on the left-hand side, in 2024, we therefore expect our full year revenue to be in the range of approximately EUR 540 million to EUR 560 million. And we also expect our adjusted EBITDA to be in the range of approximately EUR 75 million to EUR 80 million. In the medium term, we expect annual top line growth to be around 10%. And our adjusted EBITDA margins to be in the range of approximately 14% to 16%. So overall, an encouraging quarter to end the year. And we believe our platform is well positioned to continue its growth in 2024. I'd now like to hand back to Umut to close out and to open up the call to Q&A.

Thank you very much, Ben. The Platform segment continued to grow strongly, resulting in net revenue for the quarter from -- or platform of EUR 158 million, an all-time high for the company. This has helped drive total net revenue per quarter to EUR 172 million and EUR 515 million for the full year 2023. In Q4, we generated adjusted EBITDA of approximately EUR 26 million and EUR 71 million for the full year 2023, up 37% compared to 2022. We delivered on our expected annualized cost savings of at least EUR 20 million compared to 2023. We completed the acquisition of Hawk in October. And lastly, we completed the refinancing of our previously outstanding bonds. Just a reminder to the headlines of 2023. Now I would like to open up the line to Q&A. Operator, go ahead.

[Operator Instructions] To start, we'll take our first question from Thomas Singlehurst from Citi.

I've got a handful of questions actually, so I'll just maybe run through them one by one if that's okay. Just -- I mean, I know it's backwards looking, but I'd just love to -- and I know we're talking about fairly small numbers in reality with -- but I am interested in what drove the difference in the 4Q relative to your initial guidance, obviously, it's a touch light. So is that a function of more investment? Is it -- I mean, I suppose it's the revenue came in maybe a bit [ late ] as well. So maybe it's just simply just the old campaign not coming through that you had anticipated, but a bit more detail and granularity on that would be great as the starting point?

Yes. Sure Thomas. Thank you. Ben?

Sure, I kick off on that one. Thank you, Thomas. So look, I think, as you said, put it in the context of guidance of around EUR 520 million. So on revenue, we're talking about 1% [indiscernible]. So we would argue we're actually exactly where we thought we were going to be lead. Let's take the question and let's run through it. In Q4, I think there are 2 things that happened in the market. The first is we saw some pressure in particular on open RTB. And so that was across the market. And obviously, we're part of that market dynamic. At the same time, for our business, that was quite -- that pressure is quite significantly offset by some very strong performance in our e-commerce business. But what you've got as a result of that was a near replacement of the revenue that was not ultimately delivered by open RTB, but at a slightly lower margin because of the nature of the e-commerce business. So if you put those 2 together, you get a combination of the answer for your revenue outcome and also a contribution as a result of the adjusted EBITDA. The second thing that I think contributes then to the full result is we really pressed on at speed with a whole number of our cost optimization and consolidation programs. But at the same time, there comes a point during Q4 where you just have to get the business focused on the business that is going to be so important for us given how essential it is to our clients to deliver for the rest of Q4. So we do have a number of projects that either slowed towards the back end of Q4 or we've rolled into the start of Q1, which is also reflected in my updated guidance on restructuring charge in Q1 and Q2, where essentially we took very little actually in Q4 in terms of utilization, and there will be therefore a little bit more in Q1 and Q2. So if you put those 2 together, you've got a mix change in terms of the revenue in Q4 versus original expectations at the start of the quarter, reflecting a little bit lower revenue, but also importantly, slightly lower margin -- and then some of the optimization on the cost side, it's just been pushed a little bit into Q1, put those 2 together and you get a result that actually as a team, we believe was actually strong and resilient in the market as we saw it. And that's the answer that, Tom, I think really drills those 2 points that you raised. Thomas?

Very clear. And then maybe linking to that, I mean, on the KPIs, clearly, the direct sales trajectory is very encouraging. And that's something that's been sort of talked about and is well understood. So that's great. On the e-commerce side, can you just maybe give us a bit more sort of color and granularity on what -- how -- what those revenues are and what are the dynamics that's driving, what looks like a very encouraging development in terms of sort of overall growth and penetration of your overall revenue base?

Sebastiaan?

Yes, sure. So the e-commerce business basically means we have a -- yes, I have to say web shop where we help Sony and Microsoft sell their games that people play on the Xbox or the PlayStation, you used to buy the CD in the store, at least I did. But nowadays, you go to the shop, you download the code in exchange for money, of course, and then you can download the game on your PlayStation. So the total revenue in the e-commerce space is the sales of these games. And we have basically 2 companies in there. One is the actual shop selling the games. And one is the distributor, GENBA, who's selling the game keys to other web shops that are also selling games. So that's the business for you. And because the -- it's a pretty -- yes, to [indiscernible] business, the margins there, as Ben said, are smaller than we find in the rest of the platform. And that's the shift from revenue to -- from advertising open RTB to e-commerce, therefore, came with a little bit lower margin.

If I can maybe just add one comment, which I always found very interesting in relation to this part of the business. You have a service that you're providing to the world's AAA publishers but, of course, at the same time, they also represent a very important part of the digital advertising market. They themselves are very present as clients. And so working with them as publishers to help distribute and promote their games whilst at the same time, working with them on digital advertising campaigns, we believe, over time, generates real extra value. And so Tom, just to finish off your question with an understanding of the business, what we did through the team, who did incredibly well during 2023 is add a number of additional publishers to that network. And so by definition, we've got more relationships, bigger relationships, more to distribute on their behalf, more advertising campaigns to attach to that service. And so we're very encouraged by the way that business performed, noting, as we've discussed, the slight mix change that it brings to margin.

Very clear. I've got 2 final quick ones. I do apologize. On the third question, on the long-term growth, I mean, you've pulled that back to 10% from 15%. I'm just interested in why you've chosen to do that now. Is that just -- is it -- I mean, is there something specific that's triggered it? Or is it just a more sort of cautious assessment of the long-term growth profile? And the final question -- so long-term growth profile for the industry. And then the final question is on working capital and cash flow, very strong, obviously, but particularly helped by that working capital performance. I'm just interested in how we should anticipate working capital to evolve from here?

Yes. Maybe the first question, Thomas, and then Ben can go into more of the details, but it's mainly because of the macroeconomics and the expectation, and we want to be a little bit more, let's say, on safe side for 2024. And the other question maybe Ben, you can go into more detail.

Yes. Just if I may add one point to your outlook question. I mean I think, Thomas, you have quite an interesting range of views across the industry. You've got people who think it could be 0%, you've got people who think it could be 20%. And in 2024 in terms of top line growth. And I think a lot of this is going to be a timing question. We see, for sure, green shoots. I mean the anecdotally, the conversations that we're having with both publishers and advertisers as we were talking to them strategically about the year ahead, I think, are very encouraging, and we've had really positive feedback on the Hawk integration and the acquisition of what it does for our position with those clients. So there are some green shoots there for sure. But at the same time, to Umut's point, if you take a more negative view on the macroeconomic environment, then those green shoots will just take a little bit longer to come through in the market. And so we've decided to just ease back a little bit on our expectations to the market. We'll keep it under review. Whilst we have this discussion, we hope we do every quarter. And if our view changes, we'll update. We thought that was a sensible position to adopt at the start of another very important year. On the working capital question, as you say, some real progress in Q4 and to some extent, partly an unwind of the position in Q3. There are a number of interesting things to think about here. Obviously, as we know, Q4 is our busiest period, but then that would have been the case this time last year as well. So it's the revenue growth between those 2 quarters that is key, and that's about 17% or so. So ordinarily, you would have seen perhaps receivables expected to increase by a similar sort of amount. Once you take into account a combination of the way that we work in the market, the collection processes that we're constantly trying to improve, the factoring that we use, the introduction of Hawk, which brought in about [ 30 million ] or so of AR, there's a whole series of things that go into the mix. And actually, what we ended up seeing was an improvement in our collections, actually a reduction ultimately of about [ 1.5 billion ], we think. And that really points to a shortening of our days collecting as a result of us ultimately bringing our policies and approach right across our acquisition framework. And so to your question about what might we see in the future? And clearly, there's not an endless amount of improvement that you can do on working capital. But with Hawk still relatively fresh in our portfolio, we're still on the path of making sure that we've worked through all of their relationships to really introduce our policies and approaches on both the collections and payables side or the working capital equation. So putting that all together, we've made good progress. We're pleased with what happened in Q4. We are -- we believe not yet fully done. And there's more improvement that we can bring in Q1. But obviously, it's not going to be endlessly improving. We get into a point where we can sort of see a normalization happening. But we do believe that there's some low-hanging fruits still left as we work through the Hawk acquisition and the integration in particular.

Our next question is from Wim Gille of ABN AMRO.

Wim, are you there? Okay. Perhaps, operator, I'm sure Wim is trying to unmute. So perhaps if we go into the next set of questions and then we can always come back to Wim just very shortly.

Yes, we have no further questions on the line, and I'll hand back to Ben Davey for written questions.

Okay. And Wim if you stood out there, please do reconnect and we can pick up on your question.

Can you hear me now?

Oh, we can.

I was dialing up via phone but apparently I needed to unmute on the zoom thing as well. So a few questions from my end. First of all, what I noticed is that normally, there's a bit of a seasonal uptick in your personnel cost in the fourth quarter compared to the first 3 quarters. And apparently, that did not happen this quarter. So that's why I think you had a positive beat on cost this quarter. So can you explain to me a little bit what the normal dynamics should be on personnel costs in Q4 versus the first 3 quarters. The second, and you -- question is about the gross margin and you already partially answered that question, I think. But the gross margin was relatively weak in Q4 when I look at the historical performance, despite the fact that direct sales did better than RTB and also, at least according to my, let's say, estimates, Premium Gaming also did a bit better than what I initially expected. So can you give a bit of a feeling on what the dynamics here are? Is this purely related to the strength in e-commerce? Or are there other...

Okay. Two questions. Wim?

Yes, Yes. Yes. I think he's still there. Okay. So first of all, personnel costs. Thank you for the question. Yes. So starting with the sort of dynamics that you see in Q4, I think there are a few things that we need to step you through that explain your Q4 '23 versus your Q4 '22 comparator. So if you start with Q4 of 2022, you'll see that we report a personnel expense number of EUR 23.9 million. But of course, what you need to remember is, as I'm sure you do, we made a number of acquisitions in Q4 of 2022. So you don't see the fully-loaded cost in that reported number for Q4 2022. So the first thing you need to do is effectively add that into Q4 of 2022 to give you a sort of baseline to then compare this year's equivalent too. In addition, of course, we acquired Hawk in Q4 of 2023. And in order of magnitude, that brought with it over EUR 3 million of additional costs that are reported in our personnel expense line. So you've got 2 things that sort of move you from something that looks like it's reasonably close to suddenly show you that it had a gap and the savings have really come with. And so as a result, if you add back those costs that we saw from the acquisition of in particular Targetspot and Hybrid Theory, November, December '22 and then you take into account the extra cost that we acquired in the whole, then you can see the GAAP and therefore, the implied saving that comes through the reported numbers, which then comes back to this annualized savings that we've identified as compared to the January 2023 baseline of over EUR 20 million particularly once you include, of course, the OpEx savings that are visible in the reporting, which I think [indiscernible] the numbers are over EUR 2 million on the year. So that, I think, hopefully addresses for you the number of considerations you have to take into account to give you a more like-for-like comparison of those 2 quarters for personnel expenses.

Can I -- one addition I have, Ben because I think -- what is also in your question is that what in a normal case, without any acquisition or project to clean up our cost, would it be logical to assume that the personnel cost is seasonal. And that's not necessarily the case. We're a Platform business. We have a sales team. In the fourth quarter, they sell much more than in other quarters. Yes. but we're not hiring extra people normally in the fourth quarter, to then let them go again in Q1. So all the effects that Ben was talking about are all related to either a cost saving project or an acquisition that we did in the past. It's not because the advertising business has seasonal personnel costs. I think that's an important thing to understand.

And maybe the second question to Ben about, let's say, the gross margin difference. Yes, it's mainly -- of course, Governor of Poker sales, which is done...

Yes, that's right. That was exactly the extra point I was going to me. So as you said, largely answered with the previous question. So big picture, this change of revenue mix and the margin difference that you see reflected in gross margin. And as I think about you touched on yourself. The other thing is obviously the change in the Premium Games portfolio, we're very pleased to be clear with the performance of social casino and metaverse, but we obviously lost a relatively high contribution historically from the social cards. You've got to sort of back that out to then give you that mix. We're going to continue to work on this, of course. And note, our previous conversations around gross profit. We do see that longer term is something that we really want to optimize and work on and it's certainly going to be part of our focus for 2024. Does this answer your question.

And then -- yes, it does. And then moving on to the outlook. Basically 2 questions. First of all, you lowered your sales growth guidance for the midterm from 15% to 10%. And I think it makes sense because it brings you closer to kind of the expected growth in the midterm on the digital advertising space. But is there anything in particular we should read into this? Or is it for you to just give a more realistic attainable metric for the market to look at? And the second thing is if I look at 2024, obviously, you have a pretty clear guidance on adjusted EBITDA. What kind of adjustments should we take into account in 2024 that you can already see coming such as restructuring and what have you? And also, can you give us a bit of color what we should expect, if any, on the line items below. So if I look at the numbers there, CapEx was about EUR 25 million. Can we assume it to be around stable-ish. Payments for leases was about EUR 8 million. Is that also going to be stable? Or do you see room to improve there, given that you are consolidating your real estate. And lastly, interest was EUR 17 million, I think, in 2023, you refinanced at a lower amount. So can we also see some savings there?

Okay. That is a lot of questions. When let's start with the first one. Let me give that a highlight. And then you can go over to more of the details. Look, the revenue expectation is based on what we think is more realistic in the macroeconomics. And if that changes, then, of course, we will give an update. The second part where we see lots of opportunities, it's what we call the enterprise deals, but that's a little bit more difficult to predict. Therefore, that's the reason why we gave this guidance. And then in general, what you are saying is one of many different topics, how is it going with, let's say, the cost saving program? Will that continue also in 2024? Of course, it will continue because that's what we are doing integrating and simplifying the platform. Maybe point by point, you can go through it. Ben?

Yes. Absolutely. And so -- well just one remark on the outlook. I mean, again, it obviously depends who you talk to and which surveys you read, but it feels like the sort of high-level market-based surveys looking at medium-term growth of sort of 5%, 6%, maybe 7%, is that sort of order of magnitude. So I think our view is, we still expect to outgrow the market, but we then take into account all of the factors that Umut has taken. And we will then take a view as we work through the quarters, whether those green shoots that we see now are arriving quicker or later than the current expectation. On your second question, which was really well about 2024 and adjusted EBITDA. And in particular, what types of adjustments do we see coming. Look, clearly, we have been through quite a significant restructure consolidation integration. And we're very pleased with the progress that we've made. You can see that in the productivity statistics. So adjustments that relates to all of that work, we would anticipate being significantly lower in 2024. We still have work to do, to be clear, on integration and consolidation and the Hawk work although we're progressing well, still has some to do. And so we would expect it to be significantly lower overall in '24, that is slightly subject to any strategic partnerships, minority investments and so forth that may or may not happen during the course of the year. But our starting point is an assumption of lower adjustments that we had in 2023. CapEx is a great question. We are -- I think, seeing some real improvements in our management of CapEx. And obviously, with the sale of the social cards portfolio, one part of our operation that did often take a lot of CapEx has been divested out in the portfolio. And you started to see that trend in Q4, and I think it was noted by one of the other questioners. So -- what we're starting to see now is we've been relatively stable for quite a long time now. CapEx at maybe about 5%, 6% of revenue. I think over time, we're now expecting that as a percentage of revenue to come down over the next 2 to 3 years. So on CapEx, we wouldn't expect to be going up as a percentage. We've been very stable for a while, but I think we're now starting to move into a trajectory where as an overall percentage, we would start to see that easing down year by year. You then ask questions about sort of further down the line. And in particular, I think a question around interest. So I think the point just to remind you on the interest is there is a floating rate note, and that is based on EURIBOR plus 3 months. So the actual interest rate during the year would itself be determined by those movements. So for the time being, I would say we've got a baseline now where you have got a lower long-term debt, but with the margin on top of the interest rate, there actually isn't a huge saving on the interest rate, and it slightly depends on where that goes next. Now clearly, if you talk to lots of economists, they'll say we think floating rate may come down middle of the year, possibly Q3 you people think it might be even earlier. But for the time being, I wouldn't be writing in significant savings on interest yet. But obviously, we'll update as of when we see it. And we obviously, if you have any follow-up questions on that, we can, and, of course, pick them up with you. So I think I covered your questions Wim.

Do comment on the leasing part.

Leasing -- Sorry. Thank you. That's final, that leasing. Yes, good question. So we've cracked on, as you say, in 2023 and reduced the number of leases by 22. We do have some more left that we would like to consolidate out. Obviously, that's a combination of opportunities in the market to find new tenants versus also landlord negotiations. And we're obviously keeping a keen eye on what commercially makes sense, but there's not as significant as in 2023, I would say, but there is still a handful of leases left that we would like to optimize out during the course of 2024. So not a significant contribution this time around in terms of cost reduction, but still some work to do for '24. Okay. Operator, do we have any more questions on the line.

There are no further questions. I will hand back for written questions.

Thank you. And yes, thank you for that. I now see we have a written question from Thomas at [indiscernible]. Thomas. I'll just read the question out so everyone has it, of course. How to interpret the full year EBITDA of EUR 71 million. I think you answered this. Yes, I think just so Thomas knows it we'll elaborate it. Versus previous guidance, what part of the business came in Q4 outside your expectation? So just very quickly refresh, it was really that mix that we've talked about and a change in mix between open RTB and e-commerce. We got close to be clear. And I do think when you look at the natural results in the context of the market, it really was a very resilient result. But nevertheless, it's that change of mix that contributed and we look forward, hopefully, to taking the benefit of the platform integration work we've done to really drive that growth for the rest of 2024. Okay. So it covers that one. Thank you. I got a few more written questions. So let me just see what we've got here. And some things we may have already covered. So I think we've got a question. Are there any updates regarding the [ AFM ] to which answer is no. Of course, if there are any updates, we will obviously make sure that they're announced in the appropriate way. And then I think we had a question which is related to just more industry dynamics. We're obviously seeing a number of technology companies who are working through their own restructuring plans. And how do we think about that in the context of the wider market. So I wonder whether perhaps someone or Sebastiaan you'd like to pick that up?

Yes. Yes. I think particularly, companies like Sony recently announced quite a significant reduction in stock because they are in the gaming, especially in the AAA market since the pandemic, the recovery of the gaming industry has been slow. So they are adjusting their workforce to the current environment, also meaning that they will have less big releases this year. I think this is more in line with what we have seen as well. Last year, we have been adjusting our workforce and our structure also to the current situation side. I think this is specific to just the gaming environment or ad tech environment. But whether it was last year or this year, I think the companies will keep adjusting to the situation and looking ahead as to when and why, as Ben said, it could be soon, it could be later in the year. And you need to be adjusting your whole cost base to the situation that you're at. So I think it's just a symptom of the wider economy rather than a specific gaming or industry-specific development.

And then there are, I think, 2 more questions.

Two more final questions. Yes.

I think you asked them. Maybe you'll ask them again Ben?

Yes. I mean, look, I think the first question is really all about the outlook for 2024. And I think, hopefully, in the context of now everything that we've described, we did a lot of work in 2023 to rightsize the business, integrate technologies, put the right people in the right place to do the job that a good technology company should be doing. And hopefully, you can see in our productivity metrics as well as the growth in our platform, the success of the direct sales teams, we really believe that we have created a platform to really take advantage of the market opportunity as we see it in 2024. And so whilst we are aware, of course, of market conditions that are outside of our control. I think we go into this year, I'm pretty optimistic about how we think we can address the needs of our clients. So that addresses that one. And then a final question, probably one for you is, what can we expect in terms of M&A in 2024?

Yes, that's exactly what I said. The enterprise deals, the M&A, the strategic investments, we expect quite a lot from it, but it's very difficult to predict, especially in this, let's say, macro dynamics. But also in previous, let's say, presentations, I told you our pipeline on the enterprise deals is never has been that big. So we are really working very hard on it. But yes, it's more difficult to predict than, let's say, the organic ones.

I guess the market, as we are at the one hand, saying people are adjusting and being agile, nimble to that also means that the market is also very ready for and interesting for these kind of deals. Everybody is looking for better, tighter relationships that make the -- their own situation more stable. And yes, we're certainly also looking there constantly to see who we can work with and how to maximize that. Yes.

Yes. And of course, the big M&A deals are not included in the guidance, of course. That's there.

All right. Well, that's it on our written questions as well. So thank you very much, everyone, for joining us. We really appreciate it. We know you've got lots of things, and today, it's great to have you with us. So thank you, and have a good afternoon.

Thank you very much.