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

Thank you very much. Good afternoon, everyone. I am Umut Akpinar, CEO of Azerion. I am here with my colleagues, Mrs. Julie Duong Ferat, our Chief Financial Officer.

Hello, everyone.

Thank you very much, Julie. And Sebastiaan Moesman, our Chief Strategy Officer.

Hello, everyone. Good afternoon.

We would like to welcome you to today's webinar to present Azerion's Q2 and H1 2025 interim results. Before we start, I would like to take a moment to acknowledge disclaimer and our forward-looking statements. Thank you. Let's please move on to the presentation. This has been a strong quarter for the company. We have continued to execute on our strategy, focusing on our core assets to deliver long-term growth. In Q2, we delivered solid 6% revenue growth for the group, resulting in a total revenue of EUR 147 million. Our Q2 adjusted EBITDA grew 8% to EUR 18.9 million. However, the metric I would like to highlight today is EBITDA, which more than doubled with an impressive 109% growth to EUR 14 million and EUR 22 million for the first semester. This clearly shows the positive effect of last year's consolidation programs and our ongoing investments in AI. A key part of our strategy in recent quarters has been the simplification of our business. As part of that, we successfully completed the sale of Whow Games, the largest part of our Premium Games segment. Julie will give more details later on. This divestment sharpens our focus on our core business, the digital advertising platform. Commercially, our platform had a record-breaking quarter. We secured 34 new agencies and 84 new publishers. We also continued the successful integration of recent acquisitions like Eniro, Captify, Produpress and Goldbach Austria, which are already delivering promising results. I am pleased to report that thanks to these continued efforts, Azerion is leaner, stronger and more focused. I would now like to hand over to Seb for an update on our strategy.

Yes. Thank you, Umut. Okay. As Umut also just referenced, we obviously had a significant project in the last few months where after initial contact early in the year with the DoubleDown Interactive, we progressed into a negotiation and ultimately, the sale of Whow Games. Now Whow Games was a series of games around digital slot machines, no gambling, just a social casino with no payout. But most people there paid to play the game. And as such, advertising wasn't a big factor in the environment. We started to manage this game for value a while back also when we sold the poker portfolio. And so when DoubleDown Interactive approached us, we were certainly interested in that conversation. And ultimately, the valuation we felt was right for Azerion. And yes, this game also had a few risk factors like future legislation on these topics and an aging user demographic that we were happy to be able to address as well with this divestment. Mostly though, by divesting in Whow Games and furthermore discontinuing the entire premium game segment, we are now able to focus on the advertising business completely and in doing so, also clean up and save cost in the structure. The advertising business is more of a scale business than premium games. So when we invest and focus more on growth in advertising, both the profit and the profit margins goes up, while premium games has a more linear profit model where profit would increase but at similar margins. Azerion has grown a lot in recent years, but in advertising, there's still a lot of room for growth and improvement. So with the full focus on the business line, we expect to accelerate faster. That acceleration of the advertising platform, in our minds, will mostly come from AI. As you know, we have been moving more and more into AI and multi-cloud in recent months, and our platform is perfectly positioned to take advantage of that. Digital advertising is run on technology, of course, but the technology still needs an immense amount of human work to develop a media or channel strategy to come up with and create the ads to configure the systems to know what, when and where to buy the media slots to analyze how the campaign is doing and then to optimize the campaign. All of that is currently done by expert operators. These people, of course, need to be paid and their time is limited. Now with our AI investments, we will increasingly automate the whole chain of bringing an advertising campaign to life, lowering the cost to operate them and increasing the quality as the systems can optimize much faster and more often than people can. This will both increase our profitability and the results of those campaigns. At the same time, if you think about the smoothening and simplification of using the technology, it makes our platform also more accessible to customers with smaller and more local advertising budgets because as an advertiser, you no longer need Unilever sized budgets, for instance, to run great effective omnichannel media campaigns, and you're also no longer limited to using only simple ads like on YouTube or Facebook. With Azerion, even out-of-home TV or radio advertising become accessible to every advertiser regardless of budget or expertise. Our AI efforts will therefore drive efficiencies, but also increase our revenues over time as our SaaS platform becomes more and more seamless and used by all types of advertisers. With the divestment of Premium Games, we can focus both our energy and the additional money in the upcoming months in enhancing our products with AI and then bringing those products to market. We will do mostly organic investments where we invest in the efficiencies in our product development teams and our commercial capabilities, but also M&A in case we see opportunities to accelerate in this direction, which brings me to the last slide about our outstanding bond. Obviously, any future investment or growth is linked to financing. And as you know, we have a EUR 265 million bond maturing October next year. Given the recent divestment and the current market conditions, we are now evaluating whether this is a good time to refinance the debt early. Interest rates are favorable, which would decrease our costs significantly if we were to refinance. And we obviously also don't want to refinance too close to the maturity date anyway. Therefore, we have engaged our long-term partners at Pareto Securities and this time also DNB Carnegie to initiate preparations for a potential refinancing. We are expecting them to approach credit investors in the near future to assess whether such a refinancing would be beneficial and feasible for the company in the short term. Healthy Q2 numbers, increasing efficiency and growth through AI, the proceeds of the Whow Games transaction and the potential refinancing at lower interest costs, all combined puts Azerion in a very good position to accelerate both the top and the bottom line in the next 12 to 18 months. And we're really looking forward to making the most out of that, and I will update you, of course, on that topic again in the next few months. That's it from my end at this time. Let me hand over the presentation to Julie, our CFO, to take you through the financials.

Thank you, Seb. Hello again, everyone. Let me present you Q2 and H1 '25 numbers, starting with the group performance. Okay. So as both Umut and Sebastiaan mentioned, we are happy with the performance across the first half year, driven by a particularly strong second quarter. For Q2, revenue grew by 6% to EUR 147 million. For the first half, revenue increased by 7% to EUR 275 million. You can see here the split of the group between continuing and discontinued operations. The discontinued operations correspond to the segment Premium Games. This reclassification is a key part of our strategy to simplify our structure, as largely explained by Sebastiaan. Following the announcement of the sales of Whow Games, which represented the lion's share of Premium Games and our intention to sell the remaining part of the segment, the PG segment has been reclassified as discontinued operation. Thus, on the other side, continuing operations of the group correspond to the combination of Advertising platform and AAA game distribution, both part of the Platform segment. This is definitely our core business, and let's see it now more in detail. As said, our continuing operation consists of 2 things: Advertising platform and AAA game distribution business. This is the engine of our growth. This segment generates revenue mainly by displaying digital ads and by selling and distributing AAA games. In Q2 '25, the total revenue for our continuing operation was EUR 136 million, an increase of 9% compared to Q2 last year. Total adjusted EBITDA for our continuing operations reached EUR 16 million, a strong increase of 20%. This was driven by the revenue growth combined with cost efficiency efforts. But as Umut highlighted, our focus on profitability is even most evident in our EBITDA results. In Q2, EBITDA has more than tripled for our core continuing business, growing from EUR 2 million to EUR 11 million. As mentioned in -- on the previous slide, the platform is the engine of our growth. This slide shows why as it demonstrates consistent and regular growth quarter-on-quarter for the last 4 years, adding 66% to the top line in that time. This is driven by solid management of our direct sales channel, fueling higher margin sales. Now if you combine it with the integration of acquired companies and the subsequent consolidation initiative, this has led to enhanced profitability reflected by 20% Q2 year-on-year growth in adjusted EBITDA as shown before. You may also know that our disciplined focus on profitability has been a key theme. Specifically, we have seen the benefit of controlling personnel costs, while revenue is growing year-on-year. In the light blue line, you can see the FTE and in the dark blue line, revenue per FTE that also follows the seasonality of our business. Revenue per FTE increased to EUR 147,000. The increased profitability this quarter is a direct result of the integration and consolidation effort that we have undertaken. So to summarize, a strong quarter that reflects our successful strategic realignment. We are disciplined continuing our work to demonstrate our capacity to deliver sustainable growth. We divested Whow Games in order to focus on the platform, which we consider to be more scalable with more production growth. Our Premium Games segment came with stronger margins, which contributed both to the growth to the group and the investment in the platform, and this was the right time to shift completely to our platform strategy. Now we are concentrating our resources, and we clarified our positioning as an advertising-led platform with a strong omnichannel offer supported by expertise in emerging formats such as CTV, DOOH and Audio. Given the performance of our advertising business and our sharpened strategic focus, we are confident in our outlook. Thus for our continuing operation, we maintain our guidance for the full year '25 adjusted for the divestment of the discontinued operation. Now I would like to hand over to our Head of Investor Relations, Andrew Buckman, for the Q&A session.

Thank you, Julie. So operator, can you please repeat the instructions for Q&A and we can get started.

[Operator Instructions] I will now hand over to Andrew Buckman for written questions.

Great. Thank you. So we've had a number of questions. The first one is up for Seb. So we'd like to hear more about the relevance of AI to the current business and the new AI business.

Yes. So I think I covered most of it already in the presentation. But first, we made sure that we have an AI platform that we can work off and we announced this in the last few months. And with that platform, we are now able to both support our own and our clients' business. So starting with our own business, it means, as I said, we are using the AI more and more to streamline and optimize the products that we have. Also, of course, we use the AI internally to streamline and optimize the, let's say, the supporting and the back-office services, the finance and the operations. So doing a lot of work to make sure that the AI increasingly makes the running of our tools cheaper and more efficient. As I said also, that will open up opportunities for new types of clients that normally would cost a lot of money and energy from us to operate. But now with the AI, they can sort of self-serve more easily. So our SaaS platform will continue to grow and tune towards these clients. So that's on the client side. And of course, the platform itself is at such a scale and level that we're also helping suppliers and clients in our ecosystem to onboard on the platform. So for instance, for hosting or for using generic AI compute power, publishers and advertisers can use our platform to automate their own business and their own work on top of it. So quite a few topics there, efficiency, more easy client work. We have the internal departments which we optimize and we sell platform to our clients and suppliers.

Great. So second question is coming. You've answered some of this already, but there's a couple of extensions. But -- so the business growth strategy. So in simplest terms, where do you see the growth going forward? For example, if we look at what products or features of it, will you scale the bidding platform business essentially? Or will you expand with other revenue streams?

Yes. So I think it's -- importantly, we think the business that we offer as omnichannel means that we include in that offering certain channels like digital out-of-home and digital audio, which are not as simple as a banner or a video on Facebook or YouTube because if you think about it, if you walk through the train station and you see ads on a digital out-of-home display, it is hard for that display to know how many people walked past, how many people watched the ad, how many people then executed or did something with it. So these are channels that are not essentially simple. We as a, let's say, one-stop shop are already trying to help the big clients to make sense and to operate these kind of campaigns in a simple way. So that's our core business already, and that's where we are also a little bit different from the others. We are in those cities where the advertisers are, we are local, and we're helping them to make this work. And then with the AI on top of it, as this gets more and more easy to execute, smaller and smaller clients will also be able to use this for very local omnichannel campaigns. So I think that's where a lot of growth is on the combination of more clients on our SaaS platform and using more of the channels that we are really good at with the digital audio, digital out-of-home and connected TV.

Lgreat. And then whilst you were asking that, another question came in sort of do you think we'll see some cost reductions as a result of the AI strategy?

Absolutely, absolutely. So if you -- so let me give that as an example. So if you think about buying media in the past, you could say I'm buying from these 20 newspapers. And then if you make an Excel out of that, you have like 20 lines saying, I'm going to spend 10,000 with the Guardian, 5,000 with the Financial Times, et cetera. So this -- if you think about this Excel list, then in the digital advertising, this Excel list translates into a platform. So the platform has the same 20 lines that says, okay, I want 10,000 to be spent on banners on the Financial Times, 10,000 on the Guardian, et cetera. This -- someone needs to type in these lines. And then after a day, for instance, you got -- you start checking, are people watching the ad? Are people clicking on it? They might, they might not, and you might want to change the mix a little bit. Now this is all human work right now, so expensive. That means that if we can automate that more in an intelligent way, the cost of operating these products goes down, that means that our profit goes up. And also at the same time, if you're a client and our people need to optimize your product -- your campaign, we probably do it every day or every week. But the AI will probably do it every minute or every second. So the quality and the performance of the campaigns themselves will also go up. So you have a cost reduction in the operations of the platform while actually improving the quality of the product.

Great. Thank you. So we also have a couple of finance questions coming, Julie, specifically for you. So first one is, do the Q2 accounts already include the Whow Games gain on sale?

Yes. Good question. No, indeed, the gain of sales will be taken into account in our Q3 results as the sale was effective during the month of July. The result will be shown in our P&L in a dedicated line, income from discontinued operations at the bottom of the P&L. And the gain offset will be the difference between the cash consideration and the carrying amount.

Great. Thank you. And then next up, a question really about the EBITDA. So how did you manage to more than double EBITDA in continuing operations this quarter?

Yes. As also explained in the presentation, basically through disciplined control costs and also, as Sebastiaan mentioned, AI-driven automation and also, obviously, the integration of the acquisition. So yes, EBITDA rose 200% in H1 for the continuing operation. And yes, this clearly demonstrates operational leverage and scalability in our business.

So maybe to add to that because we report for years already on the adjusted EBITDA. And so what you often -- what you want basically is that the adjustments in the EBITDA turn into real EBITDA in the period after. And I think this is what we're also seeing. We haven't done many acquisitions in the last year. So what you see now is that the adjustments that we did last year come back also as a true result in the year after. So I think that's also an important point.

Then I think we've got one more question that's come in. I think this is more of a strategy question. So I'll put this one towards Umut. So what is the key reason why investors should back Azerion today?

That's a really good question. I think if you look to the changing market, changing positions, then you could say we are one of the biggest in Europe, concentrating on Europe, being local, AI-driven, probably we are the only one in Europe who has a full AI platform using -- making use of all the different, let's say, models which are available in the market. And of course, if you also listen to Sebastiaan and Julie, the improvement in the performance of the, let's say, profitability of the company.

Great. All right. Thanks very much. I think that's all the questions that we've got that we can answer today. So operator, I'll hand back to you.