Believe S.A. (BLV) Earnings Call Transcript & Summary

Good afternoon. This is the conference operator. Welcome and thank you for joining the Believe First Quarter 2024 Revenues Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Denis Ladegaillerie, Chief Executive Officer. Please go ahead, sir.

Thank you very much, operator. Welcome to this first quarter 2024 revenue webcast. If you can turn to Slide 3, please. During today's presentation, I will be seconded by Xavier Dumont, our Chief Financial and Strategy Officer; and Romain Vivien, who heads our Global Head of Music and who's also our Regional Manager for Europe. Romain is responsible with our commercial leadership for the design and execution of Believe's global music strategy. Moving on to Slide 4, please. So we start 2024 with a solid first quarter. Moving on to Slide 5, by delivering an adjusted organic growth of 16.1%, fully in line with the company's 2024 plan. The Q1 organic growth was delivered despite headwinds in Asia, including continued adverse foreign exchange as well as weak ad monetization in the region. We expect organic growth to accelerate progressively starting in Q2 2024. And we are confirming our organic growth guidance for the full year 2024 as well as our adjusted EBITDA margin guidance of circa 6.5%. In Q1, our growth was driven by our continuous efforts to build market positions in a greater diversity of genres of music that Romain will illustrate in a few slides as well as by the implementation of global partnerships with DSPs as well as more tactical partnerships to either create audience development, value for artists or deepen fan engagement. The first on to Slide 5, our growth has been driven by our ability to grow our roster of artists and labels across a wide variety of genre music. That will now be -- sorry, just mixing up one thing. Staying on the, first, on Slide 5. The -- I'm sorry, our growth has been driven by our ability to grow our roster of artists and label partners across a wide variety of genre music across different markets, and that will now be illustrated on Slide 6 by Romain.

Thank you, Denis. So yes, on that slide, we can see some great example of our most recent signings in Q1, which clearly show our capacity to attract established and top artists and labels in many different genres and in various geographies. On one hand, we are continuing to invest in genre. We already enjoy great successes with such as hip-hop in Germany with Hava & Dardan, Punjabi music in India with Ninja or Parmish Verma, or regional Mexican leading genre in Mexico with Montez de Durango. But also, we're successfully attracting artists in new genre for which we see very interesting tractions and opportunities like Gen Z Pop in Germany with Soffie who recently had one of the biggest trends on TikTok with a very powerful engaged song or with Trap Rap in Brazil with G.A or Portugal no Beat. Lastly, I'm very proud that such an emblematic label from the U.K. as Bella Union choose to join us few months ago. So again, this is fully aligned with our -- one of our core priorities to accelerate our top artist signings in various key genres across multiple geographies. We can now move on on Slide 7. Dance and electronic music has always been a key priority genre for us, which we enjoy great successes already with our distribution business in various regions. As we announced in the prior call, we launched b:electronic a year ago, which is a dedicated team spread across various territories with specific knowledge and expertise on that genre starting with creative and marketing people. All Night Long is a new label we launched earlier this month in France to accelerate our development on that genre, but this time focusing on our Artist Services business to generate more margin and to address the top artist segment. To do so, we partner with a senior executive that successfully developed a management, publishing and touring business on that segment who is a professional since 2 decades on that genre. We already signed 7 artists, including 2 top ones. And as you may know, dance and electronic is a fully digital genre and very international as well, both in terms of production geographies, but most of all, in terms of exposure and audiences. So with our digital DNA and our local presences in all key markets, we are convinced that we are very well-positioned to source artists and develop these genres locally and internationally. We start with France, but we're going to expand the brand and develop multiple signings in multiple territories to make it an international and global brand in the year to come. This is fully aligned with our strategy of being concentrated on the strongest digital genre with dedicated teams of experts to best serve artists.

Thank you very much, Romain. And building on Slide 8. As you know, we are -- part of our growth is being driven by continuously expanding and deepening our partnerships with our global digital partners. It is also driven by our ability to strike more tactical, shorter-term partnerships or drive innovation either to drive audience development or fan engagement with a few examples here that were executed upon in the last quarter with one partnership with BeReal in France. As you know, social networks with YouTube, TikTok, have been -- Instagram have been key drivers of audience development. BeReal in certain geographies has significant influence, and we've started expanding partnerships there in France and beyond in France. Believe was the first company to sign a partnership with BeReal. We're also working on deepening the fan engagement experience with -- for our artists across geographies. Here, we have one example with The Girliverse the -- which is allowing Girli, one of our Gen Z Pop U.K. artists to engage, to feature our own universe, and engage at deeper level with our fan audiences. And on the TuneCore side, a partnership with Presonus StudioOne. As you know, Presonus is one of the most popular digital audio workstations for artists to create music. And we have -- are now offering them through a partnership with TuneCore the ability to go directly from content creation to making that content available across digital music platforms, and we expect that will drive more engagement and engage artists to make their music available. Our ability across all these partnerships, as Romain was saying, our ability to go deeper and increase our market share acquisition in segments where we are already powerful at attracting artists with the add-up of entering new market segments and the ability to develop audiences with our global partnerships and tactical partnerships is what has driven the growth in the Q1 2024. And the numbers that Xavier will now take you through Xavier?

Thank you, Denis. So let's turn to Slide #9. As presented by Denis at the beginning and as expected and announcing our financial year '23 presentation, our Q1 organic growth has been soft, impacted by currency headwinds in Asia market slowdown. Currency headwinds come from the euro appreciation versus almost all currencies. The revenue we get from DSPs, the digital service providers we have are paid in euros mostly, but they are translated from local currencies. That led to a negative impact of circa 4% on Premium Solutions digital revenue and minus 3.6% at group level. Our digital organic growth is 12.5% in Q1, on par with the Q4 '23. Organic growth, organic growth adjusted for market embedded FX would be 16.1% at group level, above Q3 '23, but lower than Q4 '23 that benefited from strong non-digital sales, mostly in live music in France. Our market share continued to grow during the quarter, but the various stores monetization performance have been impacted in certain markets, especially due to economic conditions, and we will revert to that later on. Subscriptions by digital partners continue to be strong but could not compensate the lower slower ad supported revenue that affected all regions, but more predominantly in the countries where digital penetration is the weaker. Digital revenue represents 90% of our revenue in the quarter, same as in financial year '23. The non-digital sales, as a reminder, include notably publishing with the Sentric that we acquired last year, live music, and the physical merchandising that we are currently curbing specifically in Germany. Let's now have a look to our growth by segment in the Slide 10. So we have growth in all segments, Premium and Automated, which represent the appeal of our model based on digital innovation and a differentiated positioning. Automated Solutions that is targeting music creators have a total growth of 18.2%, including 10.8% organic, a negative FX impact of 2.6%, and the rest being the Sentric integration on new publishing platform. Organic growth reflects the price increases and the adoption of the TuneCore Accelerator program as a paid services, a powerhouse marketing program designed to drive discovery on music, expand audiences, and promote deeper fan engagement. Premium Solutions targeting labels and emerging to top artists show a 15.8% growth versus last year, which is a 16.5% organic restated from embedded FX. We have been taking market share during the quarter, but at a slower pace than in Q4 '23 and despite negative FX effects and a weak ad-supported monetization that affects markets where digital penetration is lower, specifically like Asia. We benefited from DSP price increase that, as you know, happened end of Q3, beginning of Q4, and ad-supported easier comp like we did at the end of last year. But as expected, we have not seen a significant ramp-up of ad supported monetization. The adjusted premium organic growth rate is 16.5% and include a 3.9% negative estimated FX market embedded impact, a negative 1.6% currency rate impact in total revenue, mostly related to the depreciation of the Turkish lira, and a 4.8% positive perimeter effect, especially from Sentric. Let's move now in Slide 11, regarding our performance by our main geographies. Even if we gain market share at group level, the FX embedded impact and the lower level of ad-supported monetization are changing the growth pattern of the group for the quarter. Our main growth area this quarter is Europe, excluding France and Germany, with strong growth in Southern Europe, Eastern Europe, and Turkey. This area benefits also from the Sentric integration, which is accounting for in the U.K., but the majority of the growth is still organic. In France, we have a 20% growth, which is driven by strong non-digital sales, but we are still gaining digital market share during the quarter, a strong performance given our top ranking in the country of local acts. Americas is up 11.2% in Q1 with strong activity in Latin music and a solid level of activity at TuneCore. APAC and Africa performance is at plus 0.5%, reflecting the strong FX headwinds in the still weak ad-supported monetization in the quarter. The market growth in the region has been during the quarter at low single digit with some key markets even being negative in terms of digital markets, specifically in Southeast Asia. Germany, we have been negative in the quarter by almost 2.5%. The digital sales are growing, but not enough to compensate for the drop in physical sales following our physical heavy contract curbing. Our digital focus based on the mix of technology solutions in music allows for better quality of services, higher appeal to artists and labels as demonstrated and illustrated by Romain before, leading to a steady operating leverage. Let's move now to Page 13 on the guidance. So as an introduction for that part, as you know, Believe is the object of an ongoing process around a change of control of the group. At this stage, the company is not in a position to assess the potential impact on its business and financial condition linked to the uncertainties created by the current situation. To be clear, the guidance provided does not take into account any of those potential impacts. We have been trading as expected, and we confirm that we are expecting an organic revenue growth of around 18% for the year and an FX embedded revenue growth adjusted of 20%. We assume resilient paid streaming and uplift from future DSP price increases in H2 '24. We also assume a recovery of ad-funded growth in H2 '24. We are anticipating a higher EBITDA margin of around 6.5% as Central Platform costs will be decreasing as a percentage of revenue. As we are demonstrating quarter-after-quarter how powerful our model is to drive growth, gain market share, and increase profitability, we will maintain our focus on investments in local sales teams and Central Platform tech and solutions while managing actively our investment cycles to further improve profitability. The group operating leverage will continue to come mostly from the Central Platform costs as it has been since 2020. We expect a slightly positive free cash flow generation, assuming a stable level of terms and conditions on our contracts. Let's go now to Page 14. We confirm that we are on track to deliver our mid-term objectives, an organic revenue growth of 22% to 25% for the period of '21 to '25, and adjusted EBITDA margin from 5% to 7% by 2025. This operating leverage will be based mostly under better amortization of the Central Platform cost. And as you can see, we should be above the lower bracket target in -- we have been above -- sorry, the lower bracket target in '23, and we are almost at the higher bracket for '24 in our guidance. The long-term EBITDA margin for the group of 15% after a hyper growth phase is also unchanged. Now, I conclude the presentation, and maybe we can have some Q&A.

Thank you, Xavier.

Operator, I think you can open the section, the Q&A session.

[Operator Instructions] The first question is from Nicolas Cote-Colisson with HSBC.

I've got 2 questions. Not sure what you can say about the first one. Can you be a bit more precise about the timetable regarding the offer to minorities now that the Board has moved forward? And the second question is about the reviewed organization. You mentioned in the press release that you are implementing it for consistency of strategy delivery. Now my question is the following: so on France, Germany, and U.K., I was assuming it was run at arm length. And therefore, the strategy was delivered exactly how you wanted. For Asia Pacific, you are not introducing any changes. So it's essentially for rest of Europe, Middle East, and Africa, that there is a step change. So if you can help us understanding what was not consistent there. And with the change of organization, how do you see the change impacting financials? Is it about more revenues? Is it about a better management of the cash? Just to better understand what is at stake there.

I will take the first one, and Denis can take the second one. So on the first one, is that, as you know, the Believe Board of Directors issued a positive recommendation on the offer last week. And the consortium is now in a position to proceed with the acquisition of the block, which should give them 72% of the Believe capital. We were in a quiet period. So we -- it's probable that it's going to happen in the very next few days. And then -- sorry, of course, this is going to be reviewed by the market authority, the IMF before following the rest of the process.

And then on your second question, Nicolas, I think, the organizational changes that we made was to operate as we acquired Sentric last year and that we're now deploying publishing as we are now operating all of our 3 business lines around the recorded music side, Artist Services and LAS and Premium Solutions and as well DIY across more and more territories, we wanted -- the target goal is now to become more integrated across all businesses. So we're extremely happy. We're very happy about the fact that the strategy -- the local strategy has been delivered across the territories in the ways that we wanted. So it's not about addressing -- correcting this. It's really about getting the full benefits of having an integrated model, making sure that we supercharge and accelerate the upsell and cross-sell of artists from one tier of service to the next. The experience has shown us that in France, in Germany, other territories, that a number of artists were first signed as mid-level artists or as TuneCore artists and then went on to become top artists as we provided them more services. So we want to increase the efficiency of those funnels. And as we are now cross-selling publishing services to our client base, which wasn't the case before, something we want to ensure that this is being done in a way that's consistent across. So -- and this is the reason why that led to the appointment of Romain as Global Head of Music to ensure that the strategy is fully integrated and aligned across the territories. So what we do expect there as a result is stronger efficiency and stronger upsell and cross-sell in the medium term.