Boku, Inc. (B04.F) Earnings Call Transcript & Summary

Well, good evening, and welcome to the Boku interim results presentation. if you can just bear with us a few moments while everybody joins, that would be much appreciated. Well, I can see the attendee list has slowed down. I'm sure there'll be one or two late joiners, but it's now 5:31 p.m. so we'll kick off. My name is Tim Metcalfe from IFC Advisory, Boku's Investor Relations adviser. And with us today, we've got Stuart Neal, CEO; and Rob Whittick, CFO of Boku, who are going to run you through the presentation. This is the same presentation that they gave to the analysts this morning and have been giving to various institutional investors during the course of today and the rest of this week. Following the presentation, we will have the opportunity for a question-and-answer session. [Operator Instructions] I'd also like to thank those shareholders who have taken the time to e-mail in questions in advance. That's really appreciated and always helps shape what we do. So without further ado, I'll hand over to Stuart to take you through the presentation. Stuart?

All right. Thank you, Tim, and welcome, everybody, to the Boku interim results presentation. Thank you for tuning in, particularly in the U.K. where it's dinner time. So we're keeping you from your food. I'm Stuart Neal, I'm the CEO of Boku and I am joined to my right by Rob Whittick, our Chief Financial Officer. All right. So let me just give you a brief kind of summary, but we're going to spend most of the time at this session going through our financials for the half, which I'm sure you'll be delighted to hear. But that we are super pleased with where we are after the half year. Our financial performance is very strong, as you will see shortly. We're a growing business that is also simultaneously highly profitable and we are also cash generative. So we think we have got that perfect mix. We are continuing to grow our organization and take share in the market that is expanding rapidly around the world, and we will talk a lot more about that in each sessions. And simultaneously, not only are we growing, but we are continuing to make investments in the business, both in terms of scaling capabilities internally so that we can flow more volume through our platform but also investing in future products and value-added capabilities that will drive revenues and margins in the future. But we'll come back to all of that. In the short term, I'm going to hand you over to Rob, who's going to walk you through our financials for H1. Rob?

Thank you, Stuart. Good evening, everyone. Pleased to be here to present our 2025 interim financial results. The first six months have been exceptionally strong for Boku with revenue growth of over 30% and adjusted EBITDA increase of over 50%. Our performance that underscores the strength of our business, which gives us confidence in the guidance we have given and supports continuing strategic investment. As you can see, all of our headline numbers continue to trend in the right direction. The Boku network continues to attract more users, and we are processing ever more payment volumes. These metrics, together with a consistent underlying take rate continued to drive growth, both in revenue and adjusted EBITDA. Turning firstly to our key operational metrics. MAUs in June 2025 are up 20% half-on-half with new users added to the Boku platform in the first six months, up 11%. There are two main factors behind this growth. The first is the continuing global shift towards LPMs as many more consumers move away from traditional payment methods. And second is the increasing number of connections between LPMs and our merchants globally launched by Boku with 60 new connections delivered in the first six months of 2025. While this user growth is evident across all of our products, digital wallets and A2A schemes continue to outperform. New users for these products are up 38% and MAUs in June are up 44%. These increased numbers have in turn translated into increased payment volumes, up 28% half-on-half. And our take rate too has increased for the period, although this is largely due to the effect of launch phase pricing and on an underlying basis, the take rate is consistent half on half. These strong operational metrics have driven a 34% growth in revenue. Within this growth is $3 million of launch phase pricing, which we do not expect to repeat in H2 and excluding the impact of this revenue growth would have been 27%. As noted, we continue to see significant growth in digital wallets and A2A schemes with an 89% growth in revenues half-on-half or a 61% underlying basis -- on an underlying basis, excluding the launch phase pricing. As in all periods, we've seen ongoing cumulative growth from our existing connections. As an example, BLIK, which was launched last year, has scaled significantly in the first half of this year. We've also delivered a number of new connections in the period, notably in EMEA and in APAC including multiple connections for a new global design merchant. These products now represent 36% of our total revenues in the period or 32% excluding launch-based pricing up from 25% in H1 2024. At the same time, DCB continues to perform strongly with an increase of 15% half-on-half. As you remember, our DCB product has two parts, which we have split out clearly in the interim report, DCB payments, where consumers make purchases via their mobile network operators and DCB bundling, which we'll come to in more detail shortly. Within the overall growth of 15%, DCB payments has increased 9% with continued geographic expansion of our connections and strong growth in subscription levels for our merchants. In DCB bundling, which has increased by 70% half-on-half, again, underpinned by new connections with our digital and media entertainment merchants being significant users of this product. To pause on bundling. As an example of this is when you would renew your mobile phone contract and offered a subscription, perhaps Spotify or Netflix as examples, free for a trial period. Boku provides the technology to integrate these kinds of promotional offers into the payment flow. TPVs grew at 69% compared to H1 2024. And as noted, revenue growing is growing at 70%. Bundling currently represents over 10% of group revenues. We would note that we do see a meaningful scope for continued expansion in the bundling area, given our significant mobile carrier network and deep merchant relationships. Turning to adjusted EBITDA, where we have seen a 53% increase to $21.8 million in the first six months and an adjusted EBITDA margin of just over 34%. In the period, we have included currency conversion costs within adjusted EBITDA. These currency conversion costs are expenses we incur when we're converting merchant funds into their chosen currency of receipt. This activity is for the first time, a material expense and has been included to match with the associated revenues now in adjusted EBITDA. On an underlying basis, excluding the launch phase pricing, but including these additional costs, the margin remained above 30%, in line with our previously announced guidance. and we do remain confident that we can maintain a greater than 30% adjusted EBITDA margin as we continue to balance growth and investment. Investment in H1 focused on product innovation, currency conversion and money movement capabilities being examples, together with a new innovation hub in Singapore, which is focused on the ideas that will shape the next generation of payments. And in addition, we do continue to invest in operational efficiency, specifically automation and straight-through processing as we continue to build a platform capable of scaling materially. Boku delivered an operating profit of $11.9 million compared to a small loss in H1 2024. The bridge from adjusted EBITDA to operating profit in the period can primarily be explained by charges relating to share-based payments of $5.1 million and depreciation and amortization of $4.2 million. Turning to how Boku's profitability is translating into cash. Our own cash, which we consider to be a fair representation of our true cash position as it excludes merchant and issuer related balances has increased by 9% in the first six months. Excluding buybacks of GBP 12.3 million in the period, this increase would have been 24%. Our group cash, which includes merchant and issuer balances has increased by 8% in the first six months to $192 million. As previously signaled, we do expect our group cash balances to reduce over time as we accelerate settlement times to our merchants. And finally, to note, the group does remain debt-free. At the year-end, we look to improve our balance sheet disclosures and now we're looking in more detail of free cash flow. This analysis shows here, we're seeing free cash flow conversion of approximately 70%. We would expect the seasonality of the business to improve this positively in H2. The bridge from adjusted EBITDA of $22 million to free cash flow of $15 million can primarily be explained by adjusting for normal working capital changes, which do exclude merchant and issuer related balances and capitalized investment in software development as we build the platform to deliver more connections to meet the growing global demand for local payment methods. The free cash flow of $15 million ultimately translates into our own increase in our own cash in the period after adjusting for various inflows and outflows, including share buybacks and interest received, all of which result in an own cash balance of just over $87 million at the end of the period. So in summary, looking at our progress over the last six months. The business continues to grow well. We continue to generate profits and an adjusted EBITDA margin over 30%, and we are generating cash. So I would say a very positive set of results, which supports the guidance we gave in March. And with that, I will hand back to Stuart.

Thank you, Rob. One more slide, please. So let me just summarize the first half in terms of our operational delivery. So we're really pleased with the momentum, as Rob indicated, in the business. Revenue is growing nicely. EBITDA is growing also nicely and an EBITDA positive margin that we are able to maintain going forward. All products growing, which I think is particularly pleasing, particularly our flagship product of direct carrier billing continues to show great resilience. We put 60 more connections live for our customers. So that's helping our merchants to grow. And as they grow, we grow with them, which is exactly how things should be. We continue to look at new product innovations, and starting with our Singapore innovation hub that Rob alluded to. We focused quite a bit over the last year or so on operational efficiency. And what that means in our world is about removing manual processes from the back office, being able to knit bits of our platform together for auto reconciliation to be able to drive new products, new data and insights out and add more value to our customers. So we're delivering financially, but we're also continuing to invest as we grow in new capabilities, both scaling wise and also in new products. What does that look like in terms of going forward? So we're really pleased to say the strong trading momentum in the first half, we expect to continue into the second half, and we reiterate our previously given guidance that we would expect around about 27% growth in revenues for the full year and also continue to beat the 30% EBITDA margin that we previously promised and reiterate our midterm guidance that we'd expect to see a minimum of 20% compound growth on our top line. Growth in this business is never linear. We've had a really, really strong first half of the year. We would expect growth on the average to be north of 20%, but it might be a wavy line. And so we will commit to the compound number in that regard. Our future promise to continue, even though we are continuing to invest in capabilities and invest in scaling, we will continue to maintain margins over and above the 30% as previously promised. Okay. So one thing I will signal, we are holding a capital markets event in around about two weeks' time for our corporate investors. We will be recording this event and that will be made available to everybody to review online post the event. We will be signaling at the event a double-click really on some of these investments that I referred to earlier, reinforcing our belief in the market opportunity that we're facing into, some of the macro trends that are driving this big profound shift in global payment mix and how Boku is positioning ourselves to be able to be a winner in that space. We'll be also looking into the various aspects of growth that will drive that performance, both from existing customers, how we plan to win new customers and grow our merchant base on the platform. And we will be double clicking down into why we believe we will win in the space and why the customers choose us to be their preferred partner in the local payment method space. And with that, I would like to hand it back to you, Tim, and open up the floor to some questions.

Well, thank you very much, Rob, and thanks for who have been typing in questions, much appreciated. There were a number on -- and I'm looking across to another screen with the questions. There are a number on similar topics, so I'll try and group those. The first one is about seasonality in the business. The question says, "I recognize that H2 is always higher than H1, but that may be just because you're growing. If all else was equal, is there a natural seasonality between the halves?" And the second question that says that free cash flow has always been much stronger in H2 than H1. What causes this? And do you expect the same sort of seasonality this year?

So seasonality, to give you a few examples in our business, games start launching in September. So we've already seen some launches from some of our merchants in September. And then as the year progresses, we have Black Friday, Cyber Monday, Singles Day and then, of course, we have the holiday season. So yes, you're right. We are growing. So we'd expect half-on-half to be up, but we do actually have those events that occur in the second half of the year that will drive more business -- more revenue through the business. And so similarly, as we -- as more revenue goes through, we would expect to generate more cash. So I think yes to both the questions.

Thank you, Rob. The next one is on launch phase pricing. Is this truly an exceptional thing? Or might we see it again a few times in the coming years?

Yes. It's -- look, we -- effectively, what we did here is we entered a brand-new market, both for us and for our customer. And it was a market where there's some potential for currency volatility, and we didn't quite know how to price it. So we priced it relatively high to account for any potential risk in that currency volatility, which never transpired, frankly, and we watched it for six months to see how it would behave and we were able to go back to that client and say, "Look, we can now bring this pricing down to a more normalized level". Would we do that again? Maybe, but I wouldn't bake it into your forward-looking forecast. It's something we did at the time. It worked in that particular instance. We flagged it because we don't believe it will recur, particularly not in this particular market, but it's possible, but we're not planning on it, to put it that way.

Okay. Talk about new users. What is the definition of a new user? And what sort of percentage of new users do you generally convert into regular monthly users?

So for us, new users, we obviously can see people using our platform. And so for us, new users is people that are first on to the platform. And then we will watch whether they will use the platform each month. So monthly active users is the new users and old users that use the platform on a regular basis. Why would they use the platform on a regular basis. Some of our -- or a good proportion of our business is digital subscriptions. So we would expect those to repeat. Those revenue flows are tokenized, so a token that we issue ourselves so that, that encourages what creates the stickiness of the revenue because it's a token that we operate. So that helps us. And yes, that's what I'd say, new users and then monthly active users, do they use the system again. So we can identify people, not by name, but through identified identification code because obviously, we don't store personal information.

It's really a reflection of our merchant base, right? So some of our merchants offer recurring monthly subscriptions, as Rob says, some of them might offer a sort of app store style where you might leave -- register your credentials, but you might not make a purchase every month. You might come back every three months or it might be sporadic and some of our merchants, it's a one-off purchase. And so that kind of in the mix means sometimes we see someone for the first time, which is a new user and then the people that are active in the month is per the definition of a monthly active user, someone making a transaction on one of our merchants connected to our platform.

Thank you. One thing that was highlighted in the presentation was bundling. The question says, "do you see anything unique or something unique in Boku's offering there that will encourage more merchants to use bundling as part of their strategy? Or is it Boku looking to take market share from a market that's already there and mature?"

It's not -- a lot of the things we've done in bundling, we've done with the customer for the first time, not in every instance, I must say. When you boil it down, what bundling really is, is about distribution. And so what we try to do for our merchants is to help them grow, whether that's by connecting them into payment methods that have millions of users or whether that's helping them distribute their apps or their subscriptions to captured user bases, whether that be a user base at the telco side or a cable TV company. And in the future, that may well include also the wallets themselves where we can put advertising space actually inside the wallet. So bundling has become increasingly popular because there is still a war raging out there for subscriptions people want more eyeballs and more paying customers, and we can help them do that by connecting their subscription engine to whatever that particular captured customer base is.

Okay. That's helpful. I had a number of questions on cash. Obviously, Boku has a growing cash balance. The questions are basically saying what's the Board's intention with this cash? I've had a number of people asked whether the share buyback program is likely to be expanded and indeed whether you're looking at M&A in the future.

So in terms of the share buyback, we obviously used that in the first six months. There was a point where we felt that buying our shares was helpful to what was going on in the market with Boku shares at the time. So we did purchase shares in that first half. I do think at this current time, we have good demand for the shares and therefore, there is no need for us to use that instrument at this stage. So I think then that becomes or comes to the question which we are discussing with the Board around what do we do to accelerate the organic strategy. I don't think we want to change it or drive it through any means such as M&A, but it is a discussion we have commenced with the Board.

Yes. No, I think that's exactly right. We see M&A is an accelerator of strategy. It's not a replacement of strategy. And so where it makes sense either because we're filling gaps in our proposition or we are able to access a new territory or do something that can create value adds for our customers. And M&A is a faster route to get to that, then we would consider it. But it's not the first place we would go. And I guess whilst $80 million, it seems like a lot of money in the fintech world, it doesn't go that far and we do need some for working capital. So it's not all free cash.

Completely understood. And that leads me on to a question about the forecast revenue growth and the targets. Presumably, that's without any M&A contribution? That's purely organic?

Yes. We -- in giving the guidance, we were very careful to say it was organic revenue growth.

Okay. And the question also says, "Can you talk about how much of this is down to increased Boku market penetration and how much is really down to the underlying growth in the markets in which you operate?"

Do you talk about cohorts briefly?

Yes. We've been working on building a data team, a small data team in-house. And one of the first things they've delivered is a very detailed data cube about the business over the last 5 or 6 years. What that has enabled us to do is see by annual cohort of connections launched how that -- those connections perform over the following 4 or 5 years. So what we can see is in years 2, 3 and 4, we do see meaningful growth and it actually continues after that at a slightly slower rate, but it still continues. So what is good about that is it shows that the business every year has got an element of recurring revenue, in essence, all of the subscription revenue and repeat revenue continues into the following years. We've drawn that back to 2021 specifically, and then we've done prior years as an aggregate. And even the prior years, although I doubt the customer transaction level is going up because of inflation and price increases by our merchants, but even the pre-2021 cohort continues to grow. But then the '21, '22, '23 and then future '25 are growing meaningfully. So that's a helpful piece of analysis, and that shows that, as I say, the revenue, to some extent, is thus recurring. And it shows that we're maintaining market share. Hard -- the market is vast across a number of geographies, a number of merchants. It's quite hard to say if I was honest, quite where our percentage of that market share is.

Yes, it's fairly nascent as well to that point. Part of what we're doing to grow is continue to roll out with existing merchants where we would say we have a relatively high share. But adding to that brand new merchant who are brand new to LPMs. And so a lot of that is kind of greenfield space.

Yes. And continuing on the guidance you provided, the question says, "You've committed to maintain the EBITDA margin above 30%. Does this constrain you in any way and compromise some of the investments you'd really like to do"?

I think it's good discipline. We want to make sure that we do continue to add value both to our merchants and our shareholders. And so we are -- we commit to something we're prepared to deliver on. Our growth does allow us to invest, and we have invested, as we've talked about this year and indeed last year. particularly in the innovation and the efficiency. So it's something we're happy to commit to. And clearly, both the obvious answer as well as if we spend all of our profits on things, then we might be able to go a bit quicker. But I think the discipline is important, and we're happy with that discipline.

Excellent. It certainly makes sense to me. Next question is a little bit more specific and focused on A2A connections. It's fantastic H1 results. Can you provide some further details around your current A2A connections? e.g. are you deriving any revenues yet from UPI or PICs and when would you expect volumes in the A2A segment to really pick up and grow?

Yes, it's a good question. I mean there are A2A revenues, but from -- not from UPI and PICs as yet. There is a small amount from UPI. I think on the PIC side, we're due to launch early part of April next year with a fully regulated solution. There's been quite a bit of shifting of tides on the regulatory front in Brazil following several security incidents on PIC specifically. And so the fact that we're going with a fully regulated version of the model with our customers in early part of Q2 next year, I think is a good thing, and you'll start to see some meaningful volumes thereafter. UPI in India has been a bit of a sort of shifting sands, again, with the sort of requirements of the state bank and what they are asking us to do in order to be able to operate there, certainly domestically. I think our focus for UPI has turned more towards cross-border transacting. And so that's, again, a bit of a work in progress. There are other A2A schemes out there that we are connected to, Thailand and Philippines and Singapore and Malaysia. So this is kind of a growing thing and it's not just restricted to PICs and UPI, I think PICs and UPI are clearly big and they're the ones that get most talked about in the market.

Okay. Well, thank you very much for that, Stuart. Well, that's got to the end of the list of questions that people have been rapidly typing in. And we're just over the half hour mark. So thank you very much for everybody who's attended today. If you do have any further questions, please do not hesitate to get in touch Boku at investor-focus.co.uk, and we will endeavor to answer any questions you may have. But thank you very much for your time this evening. And thank you very much, Rob and Stuart, for the presentation.

Thank you. Thanks for the questions.

Thank you, Tim. Thanks for the time. Thanks everyone.

Thank you.