Boku, Inc. (BOKU) Earnings Call Transcript & Summary

Okay. Good morning, everybody, and welcome to Boku's 2026 Interim Results Presentation. I'm Stuart Neal, and I'm sure most of you know me already, and I'm joined this morning by my CFO, Rob Whittick. Firstly, apologies for the minor delays, some gremlins in the machine, but hopefully, we're now good to go, and you can see and hear us nice and clearly. Before we get into the numbers, which I'm sure you're dying to do, let me just give you a couple of contextual headlines of the period. Firstly, I would say H1 was a period of significant strategic progress and combined with underlying double-digit revenue growth and 29% EBITDA profit margin. So resilient financials and strong strategic progress. On that note, we are very happy with the strides that we are making towards our channel strategy. We've continued to expand our network and build out the money movement and treasury capabilities that we've talked to you about before. We did note in our trading update in July that there were some minor headwinds in the first half of the year that we do believe were contained to H1 and mostly candidly centered around delays to launches that we are now happy to say have gone live. And in fact, if you take our full year guidance for this year, which is a range and look backwards 3 years, we have delivered a CAGR of somewhere between 18% and 20% on the top line. So again, solid financial performance, good strategic progress. And let me just remind ourselves why we're doing this. The market opportunity, the structural tailwinds behind local payment methods are real. And actually, the market is playing out exactly as we hoped and predicted that it would way back in 2024. Boku has created a broad and deep network, including licenses all around the world that provide a moat to our business that will protect us against the march of AI. And in fact, we see AI, in particular, as an opportunity for our business, and I will talk about that as we go through the presentation. And again, the theme of the strategy is focused around growth. How do we diversify our revenue streams, both from a direct logo acquisition perspective and also through our much discussed channel strategy. So I will come back to all of this. But in the meantime, let me pass you over to Rob, who will walk you through our H1 financials. Rob?

Thank you, Stuart. Good morning, everyone. Let me start with the key metrics for the first half. This slide sets out our performance both on an underlying and a headline basis. Our underlying growth excludes GBP 3.4 million of launch phase pricing recognized in the first half of 2025, which we flagged at the time would be nonrecurring in nature. Excluding this gives a clearer view of how the business is performing on a like-for-like basis. So I will refer mainly to underlying growth this morning. In terms of the key numbers, we delivered underlying revenue growth of 11% and an adjusted EBITDA margin of 29.4%.At the same time, we remain debt-free and the business continues to generate cash. We closed the first half with GBP 84.6 million of own cash after returning GBP 23.6 million to shareholders through share buybacks. Whilst these results were affected by some isolated factors, it does represent a resilient performance against those headwinds. Looking in more detail at the key operational metrics supporting this performance. Total payment volumes increased by 16% to GBP 8.6 billion. And importantly, that growth was delivered despite a one-off headwind or some one-off headwinds of around GBP 200 million related to some of the isolated factors we have talked to. The biggest drivers of the TPV growth came from bundling and payment connections made in prior periods. As we explained at our CME, payment connections between LPMs and merchants remain the cornerstone of our revenue engine. Each one unlocks the potential for more users and more volume. During the first half, we delivered 47 new connections for 14 new and existing merchants across 24 different markets. Many of these were with LPMs that were already on our network, which in turn drives up the revenue per LPM. We also added 10 new LPMs to our network, further extending our reach to consumers across the world for our merchants. At the same time, our bundling platform helped merchants serve 51 million subscribers during the period, a 21% increase compared to a year ago. Finally, our blended take rate was 77 basis points compared to 81 on an underlying basis in H1 '25. This was driven by growth in the first half being weighted towards lower take rate products, including bundling. With a number of our H2 launches now live in markets that combine large, fast-growing LPM volumes with currency conversion opportunities, we do not expect the take rate to reduce further in the second half. As we set out in our 2025 Capital Markets event, we continue to expect revenue growth to be mainly driven by volume expansion with blended take rates trending down over time. Turning then to revenue, which came in at GBP 66.5 million, up 11% on an underlying basis. As Stuart has mentioned, our growth was impacted by a number of isolated factors, which affected both our DCB and digital wallet and A2A products in different ways. Starting with DCB, where revenue was up 3%. This was delivered despite the suspension of 2 connections by local authorities in 1 country. Importantly, this suspension did not relate to any issues with our platform. We have no remaining exposures in that country, and we're not aware of comparable situations across our portfolio. In terms of how this impacts our future growth, we have assumed that the associated revenue has been permanently removed, hence, lowering the base from which we grow. Excluding those 2 connections, DCB growth was 5%, reflecting steady demand from both existing and new merchants. Moving on to digital wallets and A2A. We saw revenues increase by 15% on an underlying basis. Growth here was primarily impacted by delays to market launches for one of our key merchants. Under that merchant's existing dual sourcing policy, we had anticipated a share of volume in one market would reduce. At the same time, we expected the same dual sourcing policy to result in increased volumes in other markets during the first half. The issue we faced was that those offsetting launches were delayed into H2. In terms of where we are now and how that impacts future growth, we retained a material proportion of the volume in the original market, and it continues to grow in absolute terms. All of the markets that were delayed in the first half have gone live with some yet to complete the testing phase. Importantly, we continue to expect revenue from those markets to more than offset the revenue lost in the original market. So this is quite a different impact when compared to DCB suspensions on the future growth of the business as we expect to be a net beneficiary of this merchant's dual sourcing policy. Finally, I would note the merchant's decision to dual source is unrelated to our service. It was taken some time ago and reflects their own approach to managing single supplier risk. Turning to bundling, which now represents almost 14% of group revenue and was up 39% in the period. This significant growth reflects increasing levels of demand from our merchants as they continue to seek ways to acquire and retain subscribers. More broadly, our non-DCB products now represent 47% of group revenue, up from 43% a year ago on an underlying basis and 35% in 2024. This reflects the clear progress we are making on product diversification. And as Stuart will come on to explain, our channel partnership and direct sales strategies will further support our diversification ambitions. Having invested in our transformation agenda over the last 2 years, we're now seeing the resulting cost efficiencies and productivity gains. Headcount at the end of June was marginally below the year-end, having grown through 2025 as we invested in the team. And it was the annualization of these 2025 hires that primarily drove a 13% increase in adjusted operating expenses. This investment in turn is benefiting our margins. As we saw, our adjusted EBITDA increased 7% on an underlying basis despite the headwinds to revenue described earlier. And this translated to an adjusted EBITDA margin of 29.4%, which is only modestly below our guidance. Turning to the bridge from adjusted EBITDA to operating profit. As in previous years, the largest items are share-based payments in respect to our various staff share schemes and depreciation and amortization charges, which include GBP 3.8 million related to internally generated intangibles, an element of which relates to accelerated amortization following a routine review of useful economic lives. Looking in more detail at cash. We generated free cash flow of just over GBP 11 million in the half. As you can see on the chart, this is after adjustments for our own working capital movements and capitalized investment in software development as we continue to focus on building the platform of the future. Our group cash balance, which includes merchant and issuer balances closed the period at circa GBP 187 million. This represents a reduction of GBP 59 million compared to the year-end and is due to a combination of factors. Firstly, share purchases of GBP 23.6 million in the period; secondly, the unwind of December balances, which are typically higher due to seasonality; and finally, reduced settlement volumes as a result of dual sourcing in one market. Turning then to own cash, which we consider to be more relevant measure of the cash available to the group after excluding merchant and issuer settlement balances. We closed the half with GBP 84.6 million of own cash, a reduction of circa GBP 18 million from the year-end, which is primarily explained by the share repurchases in the period, offset by own cash generation. So this meaningful cash position, coupled with our debt-free balance sheet, continues to give financial strength and flexibility. On capital allocation, our primary focus continues to be organic growth with investment concentrated on our strategic priorities. Alongside that, we will continue to assess opportunities for capital returns where appropriate, including the use of share buybacks. In summary, a first half with real strategic progress and a resilient financial performance despite some isolated headwinds. As announced in July, we expect performance for the year to 31st of December 2026 to comprise revenue of between GBP 135 million and GBP 142 million and adjusted EBITDA of between GBP 38 million and GBP 42 million. Trading since the period end has been in line with those expectations, and we remain confident that we will hit these targets. And with that, I will hand back to Stuart.

Thank you, Rob. Yes, sure, resilient financials indeed. So before we get into Q&A, I just want to cover off a few of the kind of key aspects that are driving our strategic progress that we talked about in the first half. And just as a reminder of the 4 components of our growth strategy. First and foremost is about deepening our merchant partnerships. And put simply, that means doing more with our existing customer base. Diversifying revenues means opening up to new merchants, new opportunities, new geographies and new products. That all requires a certain amount of scalability within our organization, both from a people, a process and a technology perspective. And then finally, capitalizing on the latest technologies, building an innovation agenda across the business. So let me get into each of those in a little bit more detail. Deepening merchant partnerships. So the biggest driver -- single driver of our current revenues is our ongoing relationships with some of the world's largest tech companies. We're fortunate enough to work with these logos. And really, the driver of our business is helping those companies to grow by either connecting them to more local payment methods on our network or by creating new bundling programs and new opportunities for them to add subscribers to their networks. In the first half of this year, we benefited from the connections that we put live in 2025. And you'll recall those that were there that we talked about this cohort concept back at the Capital Markets event in October, and that holds true right to today. And in fact, the 47 brand-new connections that we made for our existing customer base in the first half of this year will continue to grow and add value well into 2027 and beyond. But of course, I referred at the beginning of the presentation to the huge global opportunity that sits within the local payment method space. And we've created a phenomenal network with over 200 payment methods connected already and 10 more added in the first half of this year. So we really want to make that network available to far more merchants globally. And so a big part of our focus going forward will be about expanding our network population, both through our direct sales initiative, which is now up and running and also by working with channel partners all around the world. To help execute on this plan, we've added strength to our leadership group in the form of Peter Klein, who joined us in the summer. And Peter's role, first and foremost, will be to increase the pace and execution around our commercial delivery. I just want to double-click a little bit on channel and why we think channel is so interesting to the business. This diagram is kind of a nice way to lay out the ecosystem from a channel perspective. It's an effective and efficient way for Boku to target thousands and thousands of individual merchants that candidly speaking, we would not be able to onboard directly ourselves, but who already have a relationship with either a payment processor, a card processor, an orchestrator, some third party that is managing that relationship. And the basic principle behind the channel partnership strategy is the channel partner handles the merchant relationships. Everything from know your customer through to AML and sanctions and onboarding is all managed by the channel partner. And Boku's role in this ecosystem is to manage the supply side. Boku does what we do best, which is manage the portfolio of local payment methods that we're already connected to. It's not that we've just -- this has come out of the box. We have had to do quite a bit of work throughout the first half of this year to create a brand-new risk screening and onboarding model so that we can get all of our local payment method partners comfortable with the fact that they can fully rely on the fraud screening and onboarding processes of the channel partner. We did announce that Stripe is the first of what we hope will be a portfolio of channel partners that we will work with. And just to give you a slight sense on the scale of this, Stripe already has 5 million merchants connected to their platform. So this is significant. And hopefully, that illustrates exactly why we are so excited about the channel opportunity. I talked about for the last 2 or 3 years, actually, the importance of building scalability into our platform. And so we've continued to do our work around that. As we move into more regulated waters, certainly in Brazil and in India, where we are plugging directly into the banking network, there is a requirement for automation, for segregation of funds. It's a far more complex environment than direct carrier billing was. And so we've had to build the internal capabilities to be able to handle that complexity. To also support our global expansion and to help our merchants to drive their cross-border commerce agenda, we have continued to expand out our banking and our treasury footprint. We've added more banking and liquidity partners to that network, and we continue to build internal capabilities to help drive our advantage in that space. Slightly less glamorous, but equally important, we have retired a legacy platform that came with an earlier acquisition of the business. And this is all part of an ongoing agenda to make our boat go faster, make ourselves more efficient by having one slick scalable platform. And then finally, and really importantly, we want to build innovation into our products and into the way that we operate as an organization. You would have seen that we established an innovation hub in Singapore back in 2025. That team is looking at pretty exciting technologies, stablecoins for settlement, digital deposits for managing Boku's own funds, they're looking at payouts and dynamic FX products. So very exciting things are coming out of our innovation hub. And we're also looking at AI very seriously. So you would have seen the announcement that we promoted David Oliver to our leadership team. Dave's role is to make sure that everything we do across the organization has an AI native lens over it. And so building AI into everything that we do from product development through to process and internal efficiency gains. And then finally, and really excitingly, we announced this morning that Karim Ahmad will be joining the company as our brand-new Chief Product Officer. Karim comes with a huge amount of experience across the industry and really excited to have him join the team. And that's, again, a signal in our focus around driving innovative and exciting new products. And talking of leadership teams. So it probably hasn't gone unnoticed that we've had a number of new additions to the Boku executive. In fact, all of the faces at the bottom of this chart have joined within the last 6 months. And this really gives me now the leadership team that I'm super excited about that will help us drive this ambitious agenda that we have for the company and take the company forward over the coming years. So very, very excited to have both Peter join us in the summer as Chief Commercial Officer. And as I said, this morning, we announced Karim's appointment. And hopefully, you'll all get to meet those individuals over the coming months. So let me summarize before we open it up to Q&A. Solid double-digit revenue growth on an underlying basis at 29% EBITDA, resilient financial results. significant strategic process, particularly around the go-to-market front and also reinforcing and adding to our strength on the leadership team. The market only gets more exciting. We saw this and predicted it, and it's coming to fruition. And we have a really good position with the network that we've created and the organization that we have and the customers that we have, we have a right to win in this space. So finally, we are reiterating our guidance that we gave back in July of that revenue range and EBITDA numbers that Rob just provided you with a second ago. So thank you again for attending, and I would now like to open it up to some questions.

[Operator Instructions]. Our first question comes from Tom Li from Canaccord.

Three for me, if that's okay. Firstly, you mentioned improving the density and economics of the network. Just any more color would be helpful here. So do most wallets only have a handful of merchants connected? Or are there some older connections where you've scaled to most of your merchants? Secondly, the new CCO has obviously been in the seat for a couple of months. He came from Mastercard. Are you able to share any sort of learnings observations that he's provided being in that seat for 2 months? And then the third one, just on bundling, now becoming obviously a bigger part of the P&L. Can you give any more color on number of merchants utilizing bundling and how that offering might evolve over time?

Do you want to take the first one, Rob, you take the second 2?

So network, Tom, your observations are right. We have over 200 LPMs and we've talked historically about how we maximize the merchants reach. Obviously, doing that by putting more and more of them on to multiple LPMs is an obvious route for us and an obvious route for them. So that when we talk to network density, and I mentioned earlier, we have more revenue per LPM. That is because we're increasing the number of connections from merchants into each of the LPMs that perform well.

Okay. I think the second question was around Peter. And obviously, Peter is not here to talk for himself, but I guess I will give you my take on it, and I hope Peter will get to speak to everybody at some point in the future. So Peter came from Mastercard. I mean he has a very broad set of experiences across banking and money movement and his role at Mastercard was candidly trying to build a non-card rail within a card network. So not one for taking on easy challenges. And the reason Peter came to Boku is that he can create a global noncard rail but from outside of one of the card networks. And Peter's observation from the outside looking in was that we had this incredible set of assets and a unique opportunity, particularly with our customer base to really win in this space. And maybe we needed to believe it a bit more ourselves. And we needed to tell our story a bit more broadly. And so whereas we are excited about this, and we know exactly what we're sitting on in terms of incredible assets, we haven't necessarily told the world about it enough. And so Peter's initial observation is we need to shout a bit louder in the market. And so that's really useful insights from him. And then the final question, I think, Tom, was around bundling. Bundling is really taking off. And maybe it's linked to the sort of unbundling, if you excuse the pun of the whole subscription economy. We've now got whereas everything might have been historically bundled inside Netflix, it's exploded into a much greater number of subscription services, and they're all looking for growth and they're all looking for distribution. And so whilst historically, Boku has been running half a dozen big global bundling programs with global merchants, we are getting a lot more inbound of people coming to us looking for help with distribution. And the simple model as it stands today is we work with suppliers, so mobile operators, digital wallets, who are sitting on populations of tens of millions of consumers who are all potential customers for the subscription services businesses. And so our merchants who are the subscription businesses are just looking for us to hook them up with our issuing partners and also provide that platform that this type of service can sit upon. And so it's becoming increasingly popular, and you can see that in our numbers.

Our next question comes from Tintin Stalmann from Deutsche Numis.

Can you hear me? Sorry, 3 questions for me. Three questions for me as well. First one, how should we think about the opportunity with Stripe in terms of TPV? So if you give us a bit more color in terms of the geographies you're in with them, the number of merchants and your kind of line of sight in terms of the TPV related to that and maybe how this can grow into next year? And then secondly, in terms of the geographies that have recently launched, you talked about confidence that this can offset the volumes you're losing in the other geography. Are you able to give us more color in terms of the initial observations you're seeing in terms of volume development in those new geographies? And lastly, just in terms of dual sourcing as a general risk with any other merchants in any other geographies, if you could make any sort of comment around that?

Do a sandwich, I'll do the first one and the third one and you do the middle one. Yes. So on the Stripe, I guess the first thing I would say is we have a channel strategy. We don't have a Stripe strategy. And so Stripe happens to be the first channel partner that we have formally signed up with of a global scale, I should say. And yes, we're super excited about it. We don't want it to become the only game in town for Boku because there are lots of other opportunities, including within channel. But we are excited about Stripe. They are a tech-first, incredibly impressive organization, 5 million merchants spanning the globe. And so who wouldn't be excited by that. But we're being cautious, right? So we're still in the testing phase. So we've got 1 country live with 3 that are sort of, I guess, technology tested that are due to be switched on a bit later in the year, a handful of merchants with test volumes. So it's really, really early to be trying to predict what kind of volumes we might expect to come through this. So I would say we are cautiously optimistic and excited about the partnership. But in the near term, we're not making any assumptions in our numbers that this is going to be transformative in the next sort of 12 to 18 months. But we will -- as it becomes more obvious to us, then we will do what we can to update you. But at this point in time, I would just assume it's kind of low-level testing until we know otherwise.

In terms of connections, Tintin, obviously, Stuart has just talked to the Stripe connections. The other connections that I've mentioned have gone live were obviously the connections that were delayed from H1. We are pleased -- cautiously pleased with volumes to date. We do need to finish testing in a couple of those markets. But at this stage, we are happy with where we are, and we look forward to concluding testing and making sure that we progress through the end of the year in a positive manner.

Thanks, Rob. And then finally, on the dual sourcing point, let me just categorize this slightly differently. So every merchant dual sources. And at the most basic level, a merchant might dual source between cards and local payment methods. And so that's one type of dual sourcing. Within local payment methods, they might dual source on a country-by-country basis. So Boku does not have the broadest coverage in certain geographies, and therefore, it would be impossible for us to do LPMs in those territories, and therefore, the merchant might decide to dual source. I think what was different about this specific case is that because of the nature of that merchant's activities, they were able to dual source on a specific connection. So the technology was thus that they could run the first transaction of the day over Boku and the second transaction of the day over a different partner. It's really about risk management on behalf of the -- and candidly, a little bit of supplier management on behalf of the merchant. And as Robert has indicated, we believe firmly that we will be net recipients and beneficiaries of this strategy. So we don't worry about dual sourcing. We don't see it as existential. It just means we have to make sure that we are super competitive and that we provide the best products and services in the market. I hope that answers the questions, Tintin.