eEducation Albert AB (publ) (ALBERT) Earnings Call Transcript & Summary

Thank you very much. And good morning, everyone, and thank you for joining our conference call for our Q3 reporting, which also is our first report as a publicly listed company. We are excited to walk you through our performance and initiatives during this period. And if we go to the next slide, I will walk you through the following agenda. Having in mind that we've just been listed and have more than 6,500 new shareholders, we will start with giving a short introduction to Albert as a company and very shortly on us presenting here today as well. Thereafter, we will begin to the Q3 highlights and events or initiatives that we have been taking during the period before we dig into the Q3 financials, and we will end this presentation with a concluding remarks and summary and end it with a Q&A session. Next slide, please. The 3 of us presenting here today are all part of the management team. My name is Arta Mandegari, and I am 1 of 2 co-founders. I'm an engineer originally with the entrepreneurial background and have been starting a couple of companies before in my career. In all roles, I've been focusing on sales, marketing and brand building in consumer-heavy companies, which has also been my focus here in Albert. And then we have my co-founder, Salman Eskandari here, the other founder of Albert, similar educational background as Arta, but professionally, I spent 6 years in management consulting before starting Albert. During my studies, I was in the 4 years involved in a nonprofit organization, helping children in outside neighborhoods of Gothenburg with mathematics. And as a result, I have been mainly focusing on products, technology and content at Albert.

Good morning, everybody. My name is Martin Dahlgren, and I am the Head of Finance at Albert. Before I joined Albert, I worked in audit at Deloitte for about 6 years. We can move on to the next slide, please. Like I mentioned before, having in mind that this is our first report as a publicly listed company and that we have many new shareholders in the company, we believe it's a good idea to reiterate our vision and why we started Albert. And our vision is to give every child in Europe a custom learning experience throughout our apps and services. And in essence, what we're doing is basically democratizing learning by eliminating the human elemental factor in their learning experience. So this enables us to price us in a matter that makes digital learning affordable for the many for the bold mass. And here, we would like to highlight Europe. We have a very strong European focus where we have a clear goal of taking the position as the #1 direct-to-consumer subscription company in Europe. We also see great opportunity in being one of the consolidators in a very fragmented European market, which has also been one of the main reasons for us listing the company. Next slide, please. We started the company back in 2015, '16 with the product within mathematics for children aged 13 to 16. Here, we actually launched the company and in a B2B environment where we're selling directly to schools. However, mid-2017, we switched to a direct-to-consumer model, and we made our business model back in 2019. And since then, we have been basically only been focusing on scaling the company, and we acquired a company back in 2018, which enabled us to broaden our target audience a little bit more. And now we have moved more from a one-app or one-subject company to a one-stop-shop for kids’ learning. Now we teach children not only mathematics but also geography with Albert Geo, reading with Albert ABC, programming or coding with Albert Code, and we also recently announced the partnership with the Ling App to offer language learning to both our current customers but also our future customers. Since our foundation, we've been also increasing our geographical footprint, and we are now active in 5 core markets, which are Sweden, Norway, Denmark, Poland and the U.K., which we recently announced. Since then we have also helped more than 275,000 families who together have sold more than 23 million exercises. We are the leading edtech direct-to-consumer actor in the Nordics with approximately 67,000 paying subscribers and annual recurring revenue of SEK 81 million as per Q3 closing. We have approximately 40 full-time employees and are active in 5 markets, like I just mentioned.

Next slide, please. So Arta and I will walk you through a summary of Q3 and some key events before handing over to Martin for the financials. Next slide, please. Q3 has been a stable quarter with continued focus on growing the ARR and also broadening the product offering and portfolio. Net sales in the period summed up to SEK 17.5 million, growing 84% compared to Q3 of last year, all of which has been organic growth. Given that our net sales is purely subscription-based, ARR has grown as well to SEK 81 million in the end of the period, corresponding to a 73% growth rate from Q3 2020. One thing that we would like to highlight here is that in Q2 and Q3 of last year, we had a campaign with a prolonged free trial period. So all new subscribers that came in during that period converted to paying one in Q3. Martin will show it later on, but it means that the comparative numbers for Q3 has been significantly higher than the comparative numbers for Q2. And taking that into consideration, we consider these growth numbers to be stable. As the focus is on growth, we increased our marketing investments in the period to further fuel that growth and also create long-term brand awareness. As a result of that, EBITDA for the period landed on negative SEK 17.9 million. Average revenue per paying user end of quarter was SEK 101, up 19% to the same period last year, and we will detail a bit more on that in the next slide, linking it also to our strategy to expand our product offering. We launched Albert Code in July, teaching children in the age range 3 to 9 basics of programming or preprogramming it's today offered to customers on all our markets, and it's in line with our ambition to be a one-stop-shop for European parents when it comes to their children's educational needs. The quarter ended with the listing on First North, which was a key milestone for the company, partly to fuel or further continued organic growth, but also to give the company better prerequisites when it comes to driving the communicated M&A agenda moving forward. Next slide, please. When it comes to the product expansion. As we mentioned, we launched Albert Code in July. After the period, we also entered into a collaborations with Simya Solutions, having an app teaching older children language app used by millions of users mainly outside of Europe and highly rated by their users. Through that collaboration, we will offer language learning for the age segment 10 to 16 in our platform. We mentioned briefly the ARPPU increase in the period, and we'd like to elaborate a bit more on that. When it comes to the subscription packages that we have today, before launching Albert Code, we only had BAS and PLUS subscriptions with the main difference being the number of children we can add. So it was basically BAS subscription for 1 child and a PLUS subscription for up to 4 children. And going into 2021, 75% of new subscribers chose BAS as their preferred option. What we have seen and as we also outlined in the prospectus is that as we have launched more products and new subscription types, the distribution amongst new subscribers has changed. And today, a majority of the new subscribers choose one of the more expensive subscription packages. We made a clear distinction between the 3 where BAS is one child one product, standard is one child all products, and Plus is up to 4 children and all products, which has had a positive effect on the average revenue per paying user. Broadening the product offering for all age categories in all markets, it's a path we will continue on exploring opportunities, both when it comes to in-house development or where it makes sense, collaborations and also potential acquisitions. Next slide, please.

Following an evaluation or experiment phase carried out in Q2 to Q3, where we analyze the U.K. market, we recently announced that we are launching in U.K. fully. The evaluation or experiment phase is mainly driven as a separate project by an expansion team in the organization, and this team acts outside of the regional normal line organization. And what we're mainly looking at in this kind of experiment is basically what prices we could acquire a lot of traffic to our site at and what behavior do they have both on the sites but also in app in consuming the exercises we are having in that and what is the purchasing power and purchasing will with -- which translates to conversion rates on the website. So what we really want to see here is numbers, which are in line with our more mature markets, mainly from volume and customer acquisition cost perspective. And having this in mind, we have decided to move the U.K. into the normal line organization and treat it as a core market going forward. We are both very excited and optimistic in increasing our offering to the U.K. population, which is a very important milestone for us in our journey of becoming the #1 direct-to-consumer company in Europe.

Next slide, please. Thank you. We will now walk through the financials as of Q3 2021 in relation to comparative figures, which we have presented in our interim report. Next slide, please. If we initially look at our ARR at the end of the quarter, we have continued to see strong growth. Our ARR has increased from SEK 47 million to SEK 81 million. The growth is both in paying subscribers as well as average revenue per paying user. And this is driven by our introduction of new subscription plans, Plus, which was introduced in Q3 2020 and standard, which was introduced in Q3 2021, which Salman mentioned in previous slides. The comparative figures for the quarters were quite tough since we had a large intake of paying subscribers during the third quarter of 2020 due to our trial campaign ending in that quarter. This is also clearly seen in the graph where you can see a large intake between Q2 2020 and Q3 2020. Next slide, please. If we then look at our net sales for the quarter, we continue to see strong growth during the year. Our net sales grew from SEK 9.5 million to SEK 17.5 million from Q3 2020 to Q3 2021. This is a year-over-year increase of 84%. As I mentioned, the comparative figures for the quarter were quite tough since we had the large intake of paying subscribers during the third quarter of 2020 due to the trial campaign ending. But despite of the tough comparative figures, we are quite pleased to continue to grow our net sales with the amount. The growth were primarily outside of Sweden, which we will further see in the presentation. Next slide, please. If we look at our other financial metrics, there are some I want to highlight for the quarter. The adjusted gross margin is slightly above 91%. It has decreased since Q3 2020 due to platform fees to Apple and Google as well as royalty payments, but we continue to have a high adjusted gross margin due to the in-house development of our products where Albert is responsible for the development of new products. Our EBITDA for the period was minus SEK 17.9 million in Q3 2021 and minus SEK 3.4 million in Q3 2020. This is due to our key focus on growth, and our marketing expense is by far the largest expense item that we have in our P&L statement. We also have a one-off item of SEK 1.9 million in third quarter of 2021, which is related to the IPO. As I mentioned earlier, we have grown on all markets in Q3 and 2021, but market outside of Sweden have been the strongest. Year-to-date, Sweden stands for 62% of our net sales, but if we look at Q3 isolated, Sweden was 58% of net sales. This shows that our dependency of Sweden is decreasing when we move further into 2021 and that our products are requested in markets other than Sweden. Next slide, please. Lastly, I just wanted to go through our capitalized R&D expenses. Our capitalized R&D expenses contains personnel expenses, expenses for consultants as well as other expenses tied to the development of our products. During Q3 2021, we capitalized R&D expenses of SEK 1.2 million, which is recorded as revenue but not included in the net sales. It has decreased in absolute values compared to prior quarters in 2021, and this is due to the vacation in the quarter. It has also decreased in relation to net sales, 6.9% in Q3 2021 and 14.7% in Q3 2020. This shows the economies of scales in our business where the investment in our products -- product development decreases in relation to net sales. To wrap things up, I just wanted to highlight that as of Q3 2021 had SEK 6.5 million in capitalized R&D expenses in total on our balance sheet. Our self-developed intangible assets are amortized during 3 years, which is estimated due to life. All of these items in our P&L are also included in our EBITDA metric. Next slide, please. Moving into the summary part. If we go to the next slide, please. We think it's a good idea to reiterate the financial targets. We have a target to grow the net sales to SEK 500 million for the full year of 2025, where the majority should come from organic growth. This translates to a cumulative annual growth rate of at least 50% per year, and we believe we are on the right path of achieving this goal. And until 2025 closing, we will always prioritize growth over profitability, optimizing on growing our ARR, which we believe is the best decision for the company and for other shareholders, especially when we're experiencing the strong LTV to CAC ratio that we're experiencing right now. And in the long term, we're aiming at a 40% EBITDA margin.

Next slide, please. Summarizing Q3, we see that we are having a clear focus on growth, and we are in line with our targets and our financial goals, something we are very proud of, especially when we're growing at a high pace after the so-called COVID effect in Q1 to Q3 2020, where the comparative numbers are a bit more challenging than before. We are also having a high execution pace in the operations, both in the expansion team and in the product development team, where we both entered the new market, the U.K., and we launched a new product, Albert Code, which Salman just mentioned. Also, we like -- or previously mentioned, we have also closed a deal with a language app used by more than 5 million users today, which we are very excited about. We are expecting to continue with high spend in marketing to grow our ARR going forward and also to strengthen our current positions in the market we are active in. We could state that we also had a successful IPO, where we now have more than 6,000 new shareholders, something we're very proud of, and we're looking forward to create value for everyone joining our journey. And one of the main purposes with the IPO was also to improve our ability to act as one of the consolidators in a fragmented European market, something that excites us and something we're looking forward on over to deliver on our continued journey as a publicly listed company. Next slide, please. And now we're heading into the Q&A session. Everyone is welcome to ask your questions. Thank you very much.

[Operator Instructions] Our first question is from Ramil Koria of SEB.

A bunch of questions from my side. Maybe if we start on Q3 isolated here. Could you talk a little bit about the other external expenses line item? How much of that pertains to the U.K. launch, classic other external expenses, rents, et cetera? And how much is marketing isolated?

Thank you, Ramil, and good morning. Regarding the Q3 isolated, marketing expense is roughly what we historically had as marketing expense. So roughly 70% to 80% closer to -- yes, closer to the 80%, I would say, for the quarter isolated.

Okay. And how much is the U.K.? Have you said anything? Or maybe it's an ongoing investment that you've taken in the last few quarters.

Yes. It's part -- we don't break out U.K. specifically, so that's part. So we cannot give specific -- it's ongoing expense [indiscernible]

Okay. Okay. And based on that, if you just calculate backwards, it seems like the customer acquisition cost is fairly high. I think you, in connection with IPO, said something about quarter-to-date. Was it 2 months into Q3 that you had a customer acquisition cost of SEK 400? Could you elaborate a bit on sort of where you ended up in relation to that number and maybe even to the Q2 number and maybe how we should sort of reason around the customer acquisition costs moving forward?

I think not giving the specific number, we could give some color on it that compared to Q2. I mean, the Q3 started really, really strong in July and August, which are in line or even actually improved compared to Q2 customer acquisition costs. However, we experimented with a special offer with the headphones campaign end of Q3, which more drove the acquisition cost than drove the volume, so to say. So it's an experiment that we probably will not continue with going forward. But I think expectations going forward, we are assuming that we will continue performing like early Q3 numbers.

Okay. Okay. That's great. And any more experiments in the pipe similar to the one with the headphones or...

I mean not with headphones because I mean in the retro, we see -- I mean, the hypothesis with that kind of experiment was, okay, could we take a little bit more -- a little bit higher acquisition cost end of the campaign period with the hypothesis of driving more volumes. However, we saw that it contributed more to the cost side than to the volume side. So that kind of experiment, we are not having. However, going forward in Q4, we are looking at having a black week campaign actually. And it's the first time in the history of the company that we will have a black week and we are very much looking forward to it and are excited to that campaign.

Okay. And what will that entail from a customer acquisition point of view? Will you give away anything? Or is it simply a discount of the services?

No, we will not give away anything. So we're looking at giving discount to the product and not on all the plans but mainly focusing on the Plus plan. So -- and we give you a discount for a certain period of time. So it doesn't affect our ARPPU going forward.

Okay. That's very clear. Okay. And on the IPO cost side, SEK 1.9 million in the quarter, should we expect the IPO costs to occur in Q4 as well? Or is that it?

Yes. Thank you. So regarding the IPO costs, since we IPO-ed the 1st of October, most of the IPO costs will be seen in the following quarter. But since our transaction was mostly primary, most of the IPO costs will be booked directly to the equity, so to speak. So we estimate, which you've seen in the prospectus as well, that roughly SEK 1 million will be in the P&L in the following quarter and the rest of the IPO costs will be directly towards the equity, so to speak. So you won't see it in the P&L.

Okay. That's clear. And then maybe talking about the LTV side of things as well. [indiscernible] fairly driven. How should we think about it in the coming few quarters here, given the positive mix from the new price plans?

Yes. So I mean the 2 factors affecting LTV is ARPPU where we have seen a good growth. And given the distribution of the new subscriber intake, we also see potential for future growth in ARPPU and the other parameter being churn, where churn is a high-priority item for us and one of the key reasons going down the path of offering more products to our customers. We see that the parents ask for and wish to use more products within their subscription. Mathematic was not always relevant. When we added reading, we saw a positive effect on both user engagement and also retention. And that's on the path, we will continue working down to bring down the churn and increase the customer lifetime.

That's clear. And I guess it's still early days, but from the new price plans here, are you seeing any differences in churn between PLUS standard and basic?

We have early numbers, but since it's launched fairly recently, we want to give it some more time to measure not only first 30-day churn or 45-day churn, but also to see a bit more of the long-term effect when it comes to those subscriptions.

Okay. Okay. That's clear. And then maybe on the Simya deal, could you talk a little bit about how you ended up partnering with them instead of potentially acquiring them, your buy versus partner strategy in general and how we should think about it moving forward?

Yes, absolutely. We mentioned it in the prospectus as well. When it comes to B2C acquisitions where we mainly look for additional products, we always end up in the situation where we need to evaluate what's the value for the company in terms of an acquisition compared to other alternatives being basically to develop ourselves or going into our partnerships. And we are experimental driven. We want to validate or reject our hypothesis before taking on major investments, and that's the strategy we will continue with. So in this pilot agreement with Simya, it will be a good evaluation for us to partly to see do our customers value language learning, what impact does it have on user engagement and churn? It will give us a better data also to evaluate Simya, the company to see if it's relevant to enter into other types of discussions with them.

Okay. Okay. That's clear. And maybe take us through the journey from today, i.e., a sign of the agreement with Simya to the actual launch in Q2 2022. What will you do, how much will you reconfigure their offering and change the user experience, et cetera, do you think interface?

So we -- what we can guide on there is looking at Albert Geo and Albert Code, Ling App or Simya, we'll follow the same type of path. We will incorporate the content into our platform, offer it under the Albert brand within the platform for children aged 10 to 16. So that's the work we will start doing next year with the aim to launch in Q2 2022.

Okay. And then the penultimate question in regards to M&A in general, how is the pipe looking? I guess we know that you wanted to go public to have a currency, among other things, of course. But now with the deal with Simya, are you sort of -- are you focused on that shorter term? Or how are you thinking about M&A here in the short to midterm?

No, I would say we will continue both tracks in parallel. So with Simya, it's handed over to the product organization. They will not start with that integration immediately. It will start during next year, but we have some more interesting projects in pipe. M&A runs in parallel. We still see a lot of opportunities in Europe. It's fragmented, and we are continuing on all our M&A dialogues. So it's not an either/or. We will continue exploring M&A.

Okay. Okay. And then finally, iOS 14.5 was pushed tangibly by. I guess, Apple, mid-summer this year and iOS 15 was just launched with the corresponding changes to the IDFA. Are you seeing any impact on your ability to target customers? Have you changed your marketing budget in any way to become more ad-based through the web? Or how do you work in this environment?

I mean in general, comparing Q2 to Q3, our operation and marketing activities, we see that performance has improved in the -- both from a volume point of view, but also from a acquisition cost point of view. So I mean, in general, we would say we are not as affected as many app first or app-only companies because we drive majority of the traffic to the web and not driving in-app conversions or in-app purchases like many other companies. So we don't see any significant effects or negative impacts in our business.

There are no further questions at this time. So I'll hand back over to our speakers.

Thank you very much, and thank you for the questions. Thank you, everyone, for joining this call. We're looking forward for the next call when we report the Q4 numbers. Thank you very much.

Thank you.

Thank you.