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

Good afternoon, everyone. I'm Umut Akpinar, CEO of Azerion. I am here with my colleagues, Ms. Julie Duong Ferat, our Chief Financial Officer.

Hello, everyone.

And Sebastiaan Moesman, Chief Strategy Officer.

Yes. Hello, everyone. Welcome.

We would like to welcome you to today's webinar to present Azerion's Q3 and year-to-date 2025 interim 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. Today, I want to take you through our Q3 update around 3 strategic achievements that define where Azerion is right now and where we are going to. First focus, we completed the divestment of Whow Games, generating EUR 55 million initial cash and another potential EUR 10 million in earn-outs. With that, we removed the complexity in our business to focus 100% on our core advertising platform. Second, stability. We successfully refinanced our bonds. This transaction reduced our debt by EUR 40 million and secured our funding for the next 4 years. Along with ongoing cost savings, we now have a stronger position and balance sheet. Third, the future. With a sharper focus and a stronger balance sheet, we are now investing more strategically in AI and multi-cloud. This is the engine that will drive our efficiency and growth. While preparing for the next phase of Azerion, we also had a solid Q3 in our operational business, which Julie will elaborate on shortly. But first, to give you more insight into our technology, how this AI strategy will deliver significant efficiencies and how it will unlock new revenue opportunities, I will now hand over to Sebastiaan for our strategic update.

Yes. Thank you very much, Umut. Indeed, let's focus on our path forward. As you can see this time line, and maybe it sounds a bit redundant if you've been in these calls over the last 16 or so quarters that we presented this, our strategy over the last few years has been a deliberate and focused shift of moving away from the premium games to concentrate our capital and energy on a real core business, which is the digital advertising and increasingly digital intelligence. This is, as I explained also in our last Q2 release because although the premium games provide a good and stable revenue and EBITDA, they don't scale like digital advertising does. So the divestments of Governor of Poker in '23 and more recently, Whow Games in '25 were not just portfolio optimizations, they were key strategic decisions to sharpen the focus and to fund the future of the company, which lies in the advertising and the cloud and AI services in that space. Given the immense volumes our platform already processes every second, you can imagine that machine learning, predictive algorithms and then recently, generative AI have always been a core part of our business and it's been so for over a decade. And so when we are focusing on our own future, of course, a core part of our strategy is then how we build our technology in that space. And instead of relying on a single specific vendor for intelligent cloud and AI services, we have actually been steadily building our own infrastructure. That gives us 3 critical advantages. It means we're independent of any single provider. It means we are maximally efficient by optimizing across services and managing pricing, and our platform is incredibly robust and scalable. So on multi-cloud, this is where you see our infrastructure in action, basically. We process over 500,000 auctions every second across multiple cloud providers. And this gives this astronomical 30 billion data points every minute that we need to process, predict, analyze, et cetera. Now everyone knows that the big tech and cloud companies like Amazon, AWS, Google Cloud Services or Huawei and those -- many companies are building their own business on top of those cloud providers. But you have to realize, and I think everybody does, all of those -- none of those cloud providers are flawless. They're not cheap. And no one of them is really best in everything. And so what we do is hedge. We run on several cloud instances and providers. And so we can better control cost and guarantee service to ourselves and to our clients. And once you have a stable infrastructure, you can build on top of that. Our AI platform is one of these examples, offering a single entry point to many different AI models and workflow tools. We have effectively created an engine that can be used for many different purposes, and we are doing so today and every day. I think there's a lot of talk in the market about using AI and where this usage of AI is actually helping businesses, but we're really putting it center in our whole workflow, and it's already showing. So on the publisher side, for instance, AI is a massive time saver for onboarding new clients and for optimizing ad slots. As you can imagine, we have hundreds of thousands of web pages and apps in our ecosystem and all of them have these ad slots and you need to optimize configure the pricing, the sizing and manage them really. And it's a massive job manually, but we automated it with a lot of AI. Our sales and delivery teams also, it cuts their time to build a quality media plan. Normally, people are busy with that from days, maybe hours and days. And now it's really minutes to really have the AI assist in a great advice. And also it supports the teams to do the implementation and the optimization of those plans in mere minutes instead of hours. And that improves not just the efficiency in our company, but also the quality and the output of the advertising campaigns for the clients. And across all of the departments from HR to finance, it is already reducing overhead and assisting our developers. Just imagine agents that are listening to e-mails and already pre-categorizing support requests, invoices, et cetera. So it's all there. And obviously, if you think about developing software, which, of course, we do every day, you can imagine that it's already, let's say, almost core business there to have the AI assist with coding, optimizing the UI, ticketing, bug tracing, testing and optimization. So this is really how we drive operational leverage already today, every day with AI. It's not just a big turn, but it's there. And this powerful platform is not just for our internal use. We provide this whole stack, our multi-cloud infrastructure and our AI platform as a service to our partners. We launched this comprehensive platform earlier this year. And already, we see a lot of traction in our ecosystem and many partners are signing up to our platform and joining us as we help them activate their own multi-cloud and AI instances. And this basically comes back to our core consolidation strategy over the last few years because by aggregating volumes and applications, we build critical scale, just as we successfully demonstrated this already with our acquisitions across Europe in the last few years with business units like Game Distribution, AAA distribution, Fanzone and our SSP, all consolidating Europe's fragmented landscape. And so we leverage that deep understanding of Europe to deliver a unified platform with real economies of scale, and it empowers local businesses with the enterprise-grade capabilities that they need to compete in a world that is dominated by global tech. So all of the effort we have put into building our internal capabilities also generates new external opportunities in this way. And this brings me to what we see as another really big opportunity. The more seamless and scaled our platform becomes, the easier it is to use. And of course, several peers in our industry are actively pursuing AI as well in their workflows to increase efficiency. But we see a very specific opportunity in the SME market because all the seamless automation allows us to serve the smallest of advertisers and publishers out there, a market that was previously locked out by complexity and high cost. And we're building technologies to serve exactly that kind of customer. And it makes high-performance omnichannel campaigns, including digital out-of-home, as you see here, accessible to everyone, everywhere and at every size. All it takes is a simple, simple chat like you see here with our platform and even a florist on the corner of the street can have advertising at a level that was previously reserved for big global advertisers like Nike, Unilever or Vodafone. It really is like you see on the screen here, you chat with our assistant say, hey, I want to be famous. This is my shop. please help me, and it will come back not just with an advice. But if you say yes, it will actually execute, create the ads and make you famous in your neighborhood, outdoor, radio, news, all within a hyper-local environment. So that will create a big opportunity for customers that are currently using, for instance, Facebook ads or Google ads. So to summarize, our multi-cloud and AI platform drives smoother processes and optimizations, meaning higher margins and EBITDA for a more efficient business. At the same time, more and more partners use our platform to grow the footprint and relevance in the market and increase with us the economies of scale. And finally, the seamless operations improve accessibility for the SME market, creating a powerful new long-tail revenue stream. So this is the engine of our future platform growth and our focus for the next 12 to 18 months. I will hand over to Julie for the financial part of the update.

Thank you, Seb. Hello again, everyone. Happy that you can see the slides. I'm going to focus today on our continuing operations, the true measure of our performance. As a reminder, these continuing operations, our growth engine include the advertising platform and AAA game distribution. Basically, Q3 was the continuity of our transformation, and I'm going to highlight the 3 main pillars that are supporting this. First, the sharpened focus on the platform. Then secondly, the reduction of our indebtedness and finally, the solid operational performance of Q3. As Umut mentioned, the first milestone supporting our transformation is the sharpened focus on the platform. So this was further enabled this quarter by the successful divestment of the lion's shares of our Premium Games segment. On July 14, we completed the sale of Whow Games. Basically, the deal consists of an upfront payment of EUR 55 million and an earnout of up to EUR 10 million, subject to customary adjustments. This transformation is -- transaction, sorry, is transformative for 2 reasons. First, we have now full focus on our core platform business and frees up resources to extend our cloud and AI solution, as Sebast mentioned. Secondly, the proceeds strengthened our cash position, which was also instrumental in reducing our bond refinancement. And last but not least, the gain of sale of this operation brings positive results in our P&L for approximately EUR 22 million. The second major item of Q3 was our bond refinancing. We have now a new EUR 225 million under a larger framework of EUR 350 million, which increases our financial flexibility. We use these proceeds plus our existing cash to fully redeem our previous EUR 265 million bonds. This strategic transaction achieved 2 main goals that we have. First, it reduces our nominal bond debt by EUR 40 million. Then it secures highly favorable terms, including a lower interest rate of 3 months EURIBOR plus 5.5% instead of previously 6.75% and it's a 4-year framework instead of 3. The redemption was formally completed on October 10. Now with a sharpened focus on our platform and a strengthened balance sheet, we have built a solid foundation, and we are continuing to deliver. On Q3, our revenue grew by 8% to EUR 120 million. And this growth was driven by strong commercial execution and especially in our high-growth pillars, digital out-of-home and connected TV. Our Q3 adjusted EBITDA grew even faster than the revenue, up 13% to over EUR 14 million. And this consistent strength is also clear on a year-to-date basis. Here, revenue is up by 8% to EUR 371 million. And regarding adjusted EBITDA, it's up by 14% to EUR 38 million. Now if we look at the EBITDA, it almost doubled compared from approximately EUR 12 million to EUR 24 million on a year-to-date basis. This 90% growth clearly shows the real positive effect of our ongoing consolidation programs and our investments in AI-driven efficiency. Discipline, I would say, is also a key role in Azerion. Basically, we are continuing our disciplined focus on operations. As a clear demonstration, you can see in this chart, the revenue per FTE that is still increasing year-on-year. In Q3, the revenue per FTE is up to EUR 135,000 from EUR 126,000 last year, which is the highest for the third quarter ever. I'm pleased to report that Azerion is leaner, more focused and better positioned than ever to deliver sustainable long-term value. I will now hand it back to Umut for the conclusion and the wrap-up.

Thank you, Julie. As we have presented today, we have successfully transformed our business in 2025. Our core platform is delivering strong profitable growth. We have focused our company through the divestment of Premium Games, and we are getting ready for a future where AI is playing an increasingly important role. This gives us strong momentum and clear visibility as we enter Q4, which is historically our strongest quarter of the year. Therefore, based on the solid year-to-date performance, we are reaffirming our full year 2020 guidance. And now I would like to hand over to Seb for the Q&A.

Yes. Thank you, Umut. Operator, can you please repeat the instructions for Q&A and then we can get started.

[Operator Instructions] I will now hand back over to Sebastiaan Moesman for written questions.

Yes. Thank you, operator. All right. So we have a few questions already in the queue. One of them is, do you have initiatives to increase trading volumes in your shares? They are priced under the value right now and the ability to buy and sell may be a significant reason. So yes, let me answer that. I think regarding share liquidity and valuation, we agree that our strategic progress, simplifying the business, reducing the debt, growing the profitability is not currently reflected in the share price as we would like to see it. But our primary focus is to continue delivering strong profitable results. And that's according to us, at least, the best way to create long-term shareholder value. We're also committed to improving our investor relationship and the engagement there and the transparency such as the clear reporting split of continuing operations right now to help the market fully understand our focused high-growth story. So yes, I think over the next few months, we'll just keep on trying to perform like we do. And ultimately, I think that both the share price and the volumes will follow the developments that we do internally. Then there was a question, your peers like Meta and Google are in AI arms race spending tens of billions. How does Azerion's AI strategy compete? Well, let me take that one as well. Obviously -- and maybe, yes, sadly, we are not able to spend tens of billions in our own investments there. But we're also not in the same space. We are using the infrastructure that is available in the world. If you think about data centers or cloud providers like AWS, we're using AI models, whether that's Google's VL3 or Mistral or Yama we're using the existing models on existing infrastructure. We're just hedging it. And it also means that we're not part of this massive CapEx investment war that's going on right now. Everybody knows that the big tech in America is spending close to 1 trillion a year on data centers right now. And this is not what we do. We use what they build. And therefore, we're not part of this AI arms race in that particular sense. There was a question about the bond redemption and how the interest payments went. All I can say on that point is that we have fully and completely closed the last bond, repaid everything that was due there. And then we, of course, stepped into the next bond. So if there's any question about payments there, there shouldn't be because, yes, this is a very regulated and strict and official process that we obviously follow. Let's see -- then we have a question about the continuing operation where we mentioned stranded cost. Maybe Julie, do you want to explain the stranded cost?

So basically, we have a cost at holding level that we used to allocate to our both segments, Premium Games and the platform. And basically, we still have certain costs that obviously will remain and are remaining after the operation and the sale of Whow that we are working on to reduce those costs. So basically, you have different costs at the holding that we have centrally to manage, let's say, the both segment and that we have now fully in the continuing operations. And this is what we call stranded cost that we are now able only to, let's say, allocate to only one segment. This is what we're working on actively to reduce...

Yes. And I think -- so the costs that were basically linked to Premium Games, but part of the holding is also what we said during our refinancing of the bonds. We are always actively looking for efficiencies and cost savings. And of course, costs that are no longer necessary because they were previously meant to support a segment that we have divested from. We'll try to get rid of those costs basically as soon as we can. All right. And then the last one is here. Trade Desk is putting pressure on SSPs like Magnite with its OpenPath initiative. Are you feeling similar pressure in your programmatic automated auction business? Well, I think the benefit of us -- so we are not -- if you want, an SSP, Azerion is a platform with both DSP, SSP. We have our own supply, but also we have our local sales teams. So we are not basically waiting for the DSPs to either give us or not give us their money. We have procured deals with big advertisers and agencies locally, and we make sure that they are being executed through their respective DSPs. But it still means that most of the money, and that's what we call direct is actually given to us directly, and that's why the word direct. And we're not really relying just on the DSP like The Trade Desk to decide on that budget. So we don't feel the same pressure as other SSPs might in our business. All right. Then one more question about cash flow. Basically, the question is how can we expect your cash generation to evolve in the fourth quarter and the next year? I think what we have done in the last 2, 3 years maybe even, and this is the picture that Julie also showed on the operational efficiency, we are constantly, let's say, improving the bottom line profitability of the company. And so we will see a, let's say, increasingly, yes, profit, obviously, ultimately talks about the cash generation. So the more efficient we are and the better we have our cost under control and the better the cash generation will also be. Of course, fourth quarter is specific because it's the best quarter. So it also means that we have the biggest campaigns and the biggest revenues in the last quarter. So that will obviously help with the cash generation on a, let's say, seasonal level. All right. I think those were all the questions. So with that, I think we can close the meeting. Thanks, everyone, for attending, and we see each other in probably a few months.

Thank you.

Thank you very much.