Cliq Digital AG (CLIQ) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the conference call of CLIQ Digital AG. [Operator Instructions]. May I now hand you over to Ben Bos, Member of the Management Board, who will lead you through this conference. Please go ahead.

Thank you, [ Judith ]. Good afternoon, ladies and gentlemen, and a warm welcome to CLIQ Digital's full year 2021 results presentation. I'm Ben Bos and I'm a member of CLIQ's management board. With me today is Sebastian McCoskrie, our Head of Investor Relations. We have lots to report. So without further ado, I'll kick off with a strategic update and give you some key background information about CLIQ and why our business model is so profitable and quite [ unique ]. I will then walk you through last year's financial results and highlights. Last but not least, I shall present CLIQs outlook both short as well as midterm. And after presentation we will open the telephone lines for any questions you might have. Ladies and gentlemen 2021 was a fantastic year, we beat all our set targets and market expectation as we grew considerably. You registered 1.3 million members at the end of the year within the CLIQ Digital Group an increase of 44% year-on-year. We increased sales organically to EUR 150 million and bottom line. Our profit for the year was over EUR 18 million. We propose to distribute a dividend of EUR 1.10 which gives a very decent yield. We also grew our business internally and increased our staff count to a record 130 employees. And we are confident that we will build on the momentum from 2021 to drive growth further and continue to generate healthy profit margins. However, we are not only growing but we are also becoming more transparent and granular. From now on, we want to give you more insight into our operation, more color on the underlying numbers and more guidance. But we'll come to that all a bit later. Ladies and gentlemen the space we operate in is a big and growing market as you can see here, worldwide nearly $0.5 trillion in digital media revenue is expected in 4 years time. Today sales are still in the EUR 300 billion. Quite a remarkable market outlook. And we are confident that also after the long-awaited Freedom Day from the pandemic streaming entertainment consumption will continue to build and grow. The entertainment categories we have in our offering are all growing steadily and becoming more appealing with every content hike and upgrade we make. But let me take one step back and talk about CLIQ our business model and what makes us very different from other well-known streaming providers. CLIQ Digital is a streaming provider selling entertainment products directly to consumers in over 30 countries worldwide. However, CLIQ has 2 key differentiating factors and unique selling proposition for it is users. Firstly, [indiscernible] below 5 entertainment categories into one simple solution. This is convenient, user friendly and highly appreciated in this day and -- day and age of [ Uber ] choice and oversupply. Secondly, our products are affordable. I think membership fees of several single content profiles with different content offerings together you easily end up paying over [ EUR 50 ] a month. Our dynamic pricing system starting from EUR 15 price point for our multi-content products ensures we always stay far below. We offer value for money for a monthly flat fee. As consumers everywhere are becoming more and more cash [ strapped ] and suffering from declining real wages and affordable all-in-one entertainment solution is a welcome alternative, especially for the mass market. Not only can we entertain our household, but also have managed the household [indiscernible] a whole better. We need to know our roots and our heritage to better understand the way we do business. We started 20 years ago [ some ] very different entertainment products mainly ringtones, wallpapers and jokes of the day. All products which do not separately have a long lifespan. But our core competency our DNA that has always stayed the same is the way we sell our products. We proactively target and address our customers with an appealing product not with a brand not at least yes. We are performance marketer of streaming services. In the beginning, we only advertise for a TV commercials, on MTV, for example, but today, we advertise online for example, on Google or Facebook. This marketing approach is one of our special sources and enables us to directly target and address potential new members. Today, we offer different types of entertainment products depending on different places and different [indiscernible] and certain behavior. Our portfolio ranges all the way from specific single content offerings to broad multi-content bundles. Also, our pricing model is highly dynamic and membership prices can differ depending on the campaign, the country, the timing and the ad platform. Today, we accept many different payment methods and [ Acredo ] is always to make a customer journey, including the payment process as easy and smooth as possible. Going forward, we expect to have a much larger and denser global footprint with more content, more categories, more visibility and overall more customer joy. In 2019, we made 2 pivotal decisions for the company. Firstly, we decided to enlarge our membership-based services to also offer multi-content products bundles in addition to the single content offerings. And secondly, we decided to make ourselves on the whole less dependent on media buying through affiliate partners as we wanted to control this part of our marketing campaigns, workflow better and more efficiently. Both decisions have paid off many times over. Today, our multi-content services are the dominant sales engine of the group and our own media buying teams were responsible and sparked for the U.S. sales jump in 2020, as well as, the accelerated European sales growth in 2021. So coming back to our DNA that I just touched upon. Performance marketing is a name of the game at CLIQ. But what exactly is performing in marketing. Basically, we run underlying marketing campaigns, which are used specifically to drive up CLIQ's and ultimately, converse us into paid memberships on the platforms we advertise on. However, performance marketing is not [indiscernible] and requires a lot of know-how as well as the use of multiple categorized product marketing campaigns to ensure that the different offers are being placed with the right publishers/audience. This is CLIQ's DNA since the inception of the company, which we will maintain in order to secure our growth parts. So on this next slide, you can see some examples of the content ports of CLIQ, with CLIQ's offers. As previously mentioned, the multi-content offering is our one-stop shop for consumers who are interested in different types of streaming entertainment. We combine content categories into one product, which offers movies and series, music, audiobooks, sports as well as games, vimovigo.com is an example of a multi-content portal. In 2021, we conducted -- we conducted a lot of consumer research and developed a brand value for money portal. Our CLIQ branded all-in-one portal in Germany was previously not heavily promoted. In the second half of Q2 2022, this portal with 30 new additional features will be made available under CLIQ.DE. Our DACH, German, Switzerland and Austria offering will be one of the largest content offerings available from Hollywood blockbusters and famous [ DF-Series ] to fixed and foxy cartoons and Live Italian football matches and available as a Web App and TV application to. Screen stream is an example for a single contract portal originally launched in the States. The idea came from analysis regarding huge consumer demand of nearly 7 million hard fans in the U.S. only for a dedicated horror film subscription channel. So we created and built the portal. Additionally, our partnership with Blacknut, the French cloud gaming specialist enables us to offer a new single content portal for pure-play cloud [ bets ]. A brief word on cloud gaming, in addition to classic gaming devices such as consoles, PCs and above all smartphones, one technology, in particular, is growing rapidly in the gaming industry, namely cloud gaming. This offers the possibility of bringing a wide variety of games on different devices. This market served 23.7 million customers in 2021 and generated revenues of EUR 1.6 billion. For 2024, predictions indicate a review of EUR 6.5 billion, which would be 3% of the total gaming market. We see our single content portals catering for specific taste and special demand, whereas the multi-content portal offerings are targeting the mass market and geared to meeting broader entertainment needs like family needs. Overall, most product lines and membership-based marketed by performance marketing and price dynamically, which supports our profitability. One important thing to remember about CLIQ and one that sets us clearly apart from many other streaming providers is our profitability. We generate significant profits and significant cash flow. And we are debt-free, but more about that later. CLIQ's proprietary business intelligence gives us a clear competitive advantage, namely with [ radical analysis and for such ]. We can reliably estimate, we are talking here at an estimation success rate of around 97%, the outcome of our marketing activities. From past experience, which is manifested in our large VI database, we scored the success of past marketing campaigns and to build new ones that will always guarantee minimum return on the marketing spend our customer acquisition costs. Our profitability index shown here and previously as you know -- most of you know as the CLIQ Factor represents the profitability of new members in the first 6 months of the customer life cycle, and this measures reliably the profitability of our marketing campaigns. Profitability index value above 1.4x roughly equals to a 30% marketing efficiency margin. The 2021 decrease in profitability index was in line with our outlook for the year and was related mainly to our increased volume and due to a general increase in acquisition costs across all regions. As said before, performance marketing gains comes into play across all services and [indiscernible]. This is also a further step we have taken to become more transparent and show the market where we do business. And here, you can see exactly where our revenue streams are coming from. Firstly, by service, our membership-based service includes both multi and single content product lines previously discussed. Our non-membership-based services is based on advertising income currently available in the U.S. and run by our subsidiary Netafim, because of its advertising income, we are able to offer the service for free to consumers. Due to our success, we are confronted with illegal copycats on this surface misusing our well-established names. Of course, we are taking necessary steps to prevent this with the advertising platforms. But all in all, these services totaled just around 7% of the group's revenue in 2021. Now, our second revenue stream is by region. Our growth is driven across all regions. As you can see and in particular, by the fundamental shift from the media buying via affiliate partners to CLIQ Digital's own in-house media buying team, which starts in the U.S. and is being further rolled out across Europe. In Europe, our 5 top-selling countries were Italy, Spain, France, Ireland and Belgium. Sales in the rest of the world were driven by more effective marketing campaigns in the Middle East, in particular. And we should see new market entries in this region later this year. Ladies and gentlemen, this slide is a great summary of what makes us different and set us apart from other streaming profiles. Our business model is highly scalable, and we clearly focus on profitable growth. And of course, conversions, basically, we attract [ eyeballs ] and convert them profitably. Many of these differentiators here have just talked about, but let me touch on the remaining ones. We license our content, which makes us independent of protection pipelines, agile in choice and time to market and keeps costs well under control. The content supply market is very large with wide-ranging and highly attractive catalogs. Our content strategy can literally pick and choose the right additions for both our local market libraries, as well as, for the bigger group-wide library. And the important mention here is the customer retention. We are very well accustomed to shorter membership duration, thanks to the heritage of selling products with limited shelf time. In 2021, thanks to our content increases and upgrades, we registered longer retention rates. I'm not talking about more months, rather more weeks, but this is great news this shows that we are on the right track to hold member attention for longer and that our strategy is paying off. Ladies and gentlemen, our growth drivers are twofold. Externally, the market itself has grown technology upgrades are playing to our advantage and consumer demand is growing everywhere, especially value-orientated consumers, families are looking for convenient affordable solutions. Internally, our solutions are becoming bigger, more appealing and reaching the right target volumes is better than in the past. We are driving our multi-content product lines and enlarging our footprint in existing countries. At the same time, we are looking at entering new countries organically. We have identified some new and very interesting high-potential target geographies in both Latin America and Asia Pacific. Furthermore, nonorganic growth is still on the cards. We're always on the lookout for smaller interesting players who could add value to CLIQ. Our capital structure is flexible enough to [ collect ] acquisition opportunities. From the beginning on, our magazine and top priority has always been to attract and entertain our members with compelling and comprehensive service and product. We come a long way, but our real journey has only just begun. Watch this space for new and exciting developments at CLIQ to come. So ladies and gentlemen, let's now move on to our 2021 financials. Here you can see in numbers the different revenue streams, I spoke about earlier. Overall, sales growth was 40% in the full year, which even speeded up in the last quarter of the year to 55% against the backdrop of an increased advertising volume albeit at slightly higher advertising prices. [ Both the content ] for us grew fast in 2021 and made up nearly 3/4 of the group sales. This growth was supported by increased marketing campaigns both in the U.S. and Europe. European sales growth accelerated over the course of 2021, thanks also to the rollout of our own media buying activities across the region, as well as, a significant increase in the content offering across nearly all categories. Please note that in the fourth quarter, European sales growth overtook American sales growth for the first time in many years. Bottom line, our growth story continues. The 2021 EBITDA margin expanded to 18% from 15% in 2020 despite higher content costs from improving the membership-based portal offerings. The profit for the year was [ 75% ] higher than in prior year and came in at over EUR 18 million. That's an amazing CAGR of over 50% since 2014. EPS was EUR 2.74 and 163% higher than in 2020, also thanks to the reduction in non-controlling interests. So here, we show the sales and earnings, the developments of the last 12 quarters and the scalability of our business. Quarterly sales have more than tripled, whilst EBITDA has increased over sevenfold and the margin has expanded from 3% to 80% since the beginning of 2019. The EPS and subsequent DPS development in the last 3 years is equally impressive. In line with our consistent different policy of a 40% payout ratio, management proposes a dividend per share of EUR 1.10 to the first Annual General Meeting to be held on April 14, an increase of nearly 140% compared to 2020, but even nearly quadrupled since 2019. The dividend yield was 4.5% on the 2021 closing share price and 85%, 5.5% on our current share price. So let's go to our cash position and cash flow. Ladies and gentlemen, we are debt-free and our net cash position as at the end of 2021 was EUR 2.3 million. The net cash position improved against prior year due to the strong cost of operating free cash flow generated during 2021. Our operating free cash flow totaled EUR 17.5 million in 2021, and we just generated EUR 3.4 million more than in 2020. The cash outflow from financing activities in 2021 also included nearly EUR 9 million cash consideration for the minority buyouts and a EUR 3.3 million different distribution for the full year 2020. We are currently in the process of renegotiating new terms for a flexible financing facility for the next 3 to 5 years. So let's go to the balance sheet. Our balance sheet is solid and total assets have grown to EUR 96 million, reflecting the growth of our business, especially with regard to the content offering, platform development and workspace. The steep increase in numbers during 2021 resulted from substantially greater marketing activities, which subsequently [ incurred ] higher marketing spend. This led to increased trade payables and other liabilities as well as to the hike in contract costs, especially in the fourth quarter. The equity ratio at the end of 2021 was 62%. All in all, a strong and solid set of financials, which paved the way for further profitable growth in the years to come. So ladies and gentlemen, let's go to the marketing costs. Allow me to spend couple of minutes on our main growth driver and key performance indicators, marketing. The marketing spend -- the capitalized marketing spend and the advertised contract cost altogether represents the total marketing cost related to the revenue recognized in the period. In 2021, our total marketing costs amounted to EUR 45 million, up EUR 12.5 million year-on-year, but as a percentage of revenue, the marketing costs remained stable at 30% of sales. However, the actual marketing spends, which reflects the cost in the period for acquiring new members were higher and amounted to EUR 54 million in 2021. Part of the marketing spend, which can be directly allocated to new members to our membership services is accounted for and capitalized in the balance sheet as contract costs. We often get asked why we capitalized the lion's share of our marketing spend and not expense all of it? The answer is simply matching. The capitalizing is done in order to better match the timing of the cost to the revenue streams and is done in accordance with IFRS 15. By eliminating the timing difference between the immediate cost impact and the deferred revenue recognition, we can present the actual marketing spend through a various marketing costs. Don't hesitate to reach out to get more clarification on this subject. But outlook. Let me now move on to our outlook. More marketing, more members, more revenue, as you know, [ in the December month ]. As you know, efficient marketing is paramount to us. It impacts 2 of the most important performance indicators of the CLIQ Group being the marketing spend and the profitability index. This year, in 2022, we expect to further ramp up our marketing activities and spent more than EUR 17 million. However, our expectations of the development of advertising prices in 2022 remain cautious and conservative, and therefore, we forecast a slightly lower profitability index, formerly known as CLIQ Factor at 1.5x, reflecting higher customer acquisition costs. The share of own media buying within the marketing spend reached 79% in 2021, and we expect this will increase further going forward. But please keep in mind that we shall continue to work closely with affiliate partners, who we will trust and respect, especially for marketing ad spaces that are new to us. As I mentioned at the beginning, we have disclosed for the first time our members -- our member numbers. At the end of 2021, CLIQ registered 1.3 million paying members, which was up 44% year-on-year. At the year-end 2022, our paid membership base is expected to range between 1.7 million and 1.8 million members, an estimate hike of up 39%. But as we always have said, absolute member numbers don't give the full picture. We need to put a value on those memberships. The remaining lifetime value of our customer base at the year-end 2021 was EUR 87 million. And to be clear, this value gives us the expected future sales for every paid membership based on our predictive analysis of historical data. At the end of 2022, we expect a higher value of EUR 110 million for the base. Ladies and gentlemen, our growth story continues also in marketing. We shall continue our highly successful performance marketing. We've been effectively practicing for many years now. We shall continue to push and promote all our services, but with an even greater emphasis on multi-content portals. In addition, we shall market the brand CLIQ for the first time ever. Our great multi-content products is now so advanced that it merits bearing our company name. The brand marketing will mark a new strategic step for CLIQ and break new grounds for our visibility. This year, we will start promotion on television and so-called out-of-home campaigns for our CLIQ.DE brands in Germany. So going back to how we start the advertising. The brand marketing campaign is due to launch in Germany in the second quarter and will be flanked by a number of significant additional new features added to the cliqdigital.com website, which will be made affable as I said, under CLIQ.DE. We will continue to add new content. But hey, what's new to that. We have moved the go-live of some content launches to coincide with new site upgrade. And we shall update the market very soon in a separate event with all the facts and figures as well as impressions and the look and feel of the new campaigns. Ladies and gentlemen, in 2021, we grew sales and earnings to new record-breaking levels. And clearly, without any support from the pandemic or lockdowns as we are still asked about frequently. We saw more overall demand whilst improving our content offering and the first signs of higher customer retention rates are there. 2021 was a fantastic year, and 2022 will even be better. We see a lot of more -- a lot more growth potential to tap into as we fine-tune our offerings, scale of our business and expand to new markets. Organically, we expect to count many more entertained members by the end of 2022. Our customer base is expected to range between 1.7 million and 1.8 million paid members and valued at more than EUR 110 million. Furthermore, we expect to start offering our service in more countries in Europe and on other continents. We, therefore, expect to exceed EUR 210 million in sales in 2022, raise our marketing spend to over EUR 70 million and generate at least EUR 33 million of EBITDA. Underlying our significant investment into additional attractive content, as well as, stronger marketing activities in current markets such as Germany, U.S.A., Italy, France and Spain. Our medium-term outlook foresees further strong profitability and significant market growth across all geographies and across all areas of its business. Also thanks to our future brand marketing campaigns. We expect to grow revenue every year on average by 35% during the next 3 years and reach EUR 500 million by the end of 2025. We expect the underlying number of paid members to range between EUR 4 million and EUR 5 million by the end of 2025. Ladies and gentlemen, we deliver what we promise, not only a great performance with strong profitability, significant cash flow and an attractive dividend but also change. We are evolving and improving, becoming more transparent with more reporting and granularity. We are ready to enter the next-gen growth phase, and we hope you will join us on this exciting journey ahead. I would like to thank you for your kind attention. And in a few seconds, we will -- and we shall open the floor for questions.

[Operator Instructions]. And the first question is from Henrik Markmann, Montega AG.

Actually, 2 questions regarding your midterm guidance. First one would be, how much of the EUR 500 million midterm guidance is due to planned M&A activities? And the second one also regarding your midterm guidance. Maybe you can give us a little bit more color on what margins we can expect in that time.

Yes, the midterm guidance, EUR 500 million. Generally, what we see is that we have the ambition to reach the EUR 500 million level by 2025 organically. However, of course, which we cannot foresee at this moment yet. Maybe it will be flagged by some small acquisitions. But basically, the EUR 500 million level will be done organically. So that was your first question. And your second question about the margins, which you can expect is on the long end -- at this moment, hard to foresee. But you know that we have been improving our margins over the last years, starting, well actually over the last 12 quarters, starting from 3% EBITDA margin to a margin of 18%, 19% over the last year in some quarters, but a little over 18% last year. We have a guidance out there this year for just over 15% as we do expect that due to the higher volume, prices can go up a little bit in marketing. And of course, we will do some further investments in content. But on the long run, -- of course, we are [ DACH ], and you have seen that we always are in for the business to make a profit. So we will do our utmost best to maintain the levels which we have seen so far. Maybe it comes down a bit as predicted for this year. But again, as I said, we will do it utmost best to maintain around this level.

The next question is from Felix Ellmann, Warburg Research.

Congratulations again to the numbers and to the presentation. I actually have 2 questions. One is again to the midterm guidance. Do you have a clue how the CLIQ Factor will be in the midterm guidance? Will this be the levels you have today? Or will you, let's say, pay for higher revenues with the lower CLIQ Factor? And the other question was considering the role of Russia, Ukraine, Belarus and the actual crisis. With regards to your revenue split, you mentioned it is negligible. But is there another role which this might play like being a source of content or other roles this region could play here? These are my 2 questions.

Thanks, Felix, and thanks for the compliment. Regarding the CLIQ Factor, of course, there is a correlation between the CLIQ Factor. And at the end, our margins all over. So we've seen due to higher volume and some racing advertising prices, that the CLIQ Factor came down already in Q4 2021. And you've seen also that the volume has been rising enormously from about EUR 8 million marketing spend in the Q4 2020 to almost EUR 20 million in Q4. So in accordance with this volume, you see, of course, that we buy at slightly higher prices. And that can also continue going forward that this will happen. And therefore, we already guided for this year, a CLIQ Factor is still very healthy at 1.5, 1.51 for 2022. For the midterm guidance, I just said and also answered in the question to Henrik. It's, of course, hard to predict as we like to further increase our volume. We will, of course, do our utmost best to find the right spaces at the Internet to buy at affordable prices also for us. Then to your second question, according to about Russia and the Ukraine. No, we do not have any [ ties ] to Russia in respect of content or any selling opportunities. We stay far away from that. And of course, unfortunately, but that's economically, it can hedge the whole world, which is more set is the people which are currently under. Yes, I don't have any words for it, to be honest with you, what's happening at -- within Ukraine at the moment. And I really feel sorry what's going on there. More I can't say to this actually. Sorry about that.

The next question is from Marie-Therese Gruebner, Hauck & Aufhauser.

Great to see that you're coming up with a midterm guidance. My 2 questions are regarding the marketing spend. I observed now in the slides you show that in 2021, the delta between the capitalized spend and the amortized spend is significantly higher, roughly EUR 10 million, whereas in 2020, we had a delta of what, EUR 1.8 million. Can you explain why you seem to be capitalizing more than you amortizing on the marketing spend? The second question is you mentioned a 18-month amortization time line for the marketing spend, which you say is in line with the revenue life cycle of -- I'm assuming of a subscriber. However, you -- in another slide, you mentioned a 7 to 8 months sort of average retention. So how come you're amortizing over such a longer period than the average revenue lifetime? And last but not least, marketing spend in excess of EUR 70 million in 2022. How much is capitalized? How much is amortized? And how much is really going into brand marketing. You mentioned the portal launch in Germany and the TV advertising campaign in particular.

So talk about capitalized marketing spend. Actually, there are -- because, yes, there is a strong increase. First of all, we performed quite an significant amount of our marketing spend in Q4 2021. So much more than we did in the previous quarter, the year before -- in the quarter the year before, which means that due to the life cycle of the customers, more marketing spend has been capitalized. So it has to do about the volume as well. Next to that, and I think that's positive. It has to do also with the stickiness of our customers. So if we are talking about this 18 months period where we amortize in this period, we amortize our total marketing spends of sort customer group. You'll see that we -- it's not a straight line from day 1 till month 18. So depending on the expected revenue which comes in during that period. So most of our revenue comes in, in the first half year, then most of the marketing spend will also be amortized in that period. Now I understand the longer they stay in, the more spread we have. So it means that if they stay in for the 18 months period and we have an equal revenue line with this customer, then, of course, it is a straight line over the 18-months period. Stickiness that they stay in longer. You see that we leave a little bit more also sitting on our balance sheet. So to your next question, on the 18 months, it is a maximum period. So of course, we have also consumers, which still are with us after the 18-month period. So those are not anymore being burned with any marketing spend or amortization on marketing spend anymore. The 7 to 8 months you are referring to is an average. So after that, we also have 50% of customers who stays in longer and also after the 18 months. But again, we said to ourselves, let's maximize the amortization over a period of 18 months and not stress too much. I can tell you even our auditor is asking us question whether we should lengthen that period? Yes or no. But we decided to stay at the 18 months.

I would -- sorry, Ben, I would be more in favor to shorten it to amortize it more aggressively because -- well, from my standpoint, and my experience with former companies I've covered, it's much more transparent to kind of expense those costs as quickly and as fast as possible. I would be more for a shortened because the 18 months, especially in 2021, where you have such a big delta between the capitalized level and the amortized level. Could make it look that your EBITDA margin is a bit overstated. You know, what I mean? In previous years, there was no issue. I mean it was almost letting out, okay? It was very close. But this particular year, it's a bit higher, much more -- much higher. So I wonder how we should treat this going forward?

Well, as said, I imagine that most of the marketing spend is done in, let's say, in the last few weeks of the year, then those customers or those consumers or members are not realizing any revenue with us. So then we would have an expense in our P&L, which doesn't give the reality of our P&L. So just coming back to the 18 months period. As said, it's not a straight line. So if we have an expectation of revenue, let's say, of 100 over this 18-month period. And we realized with this group of consumers already 50% in the first 6 months of the 18 month period, so 1/3rd that is still already amortized 50%, of the cost. I really agree with you if it would have been a straight line.

Yes, okay. I hear your point. Okay, yes.

If they have more being realized and we amortized more. And that's -- because it's a fair point what you say, but we like to treat the margin also in a fair way.