Storytel AB (publ) (STORYB) Earnings Call Transcript & Summary

Storytel Q1 Report 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Bodil Eriksson Torp; and Head of Finance, Jonas Olson. Please go ahead.

Good morning, everyone, and welcome to Storytel Group's Q1 2024 (sic) [ Q1 2025 ] Earnings Call. We are pleased to report solid financial results, demonstrating strong momentum for the start of this year across both Streaming and Publishing. I am Bodil Eriksson Torp, the CEO of Storytel Group. Joining me today filling in for Peter Messner is our Head of Finance, Jonas Olson. As we celebrate 20 years of leading innovation in storytelling, I'm pleased that we have entered 2025 with strong momentum for our first quarter based upon over 2.5 million paying subscribers. This first quarter delivered robust financial results, reflecting strong progress across both our Streaming and Publishing segments. The Publishing segment achieved remarkable sales growth driven by strong performance in both external and internal channels. Combined with continued advancements in streaming, this highlights the strength of our business model and reinforces our positive outlook for the rest of the year. The acquisition of Bokfabriken further strengthened our content offering with a proven catalog of commercially successful titles that resonates well with our streaming audience. Here are our group financial highlights for the first quarter this year. Group net sales increased by 7.4% year-over-year to SEK 953 million, especially our Publishing segment and the non-Nordics core region with the streaming segment making a particularly strong contribution to the sales increase. Gross profit margin improved by 2 percentage points, supported by a higher share of high-quality and cost-efficient content. Adjusted EBITDA increased by over 40% to SEK 150 million year-over-year, reaching a margin of 15.7%. The significant year-over-year improvement from 11.7% is driven by increased gross margin, further realization of our cost synergies and a continued cost discipline. We have had a substantial part of adjustment items recent quarters, and we strive to reduce those to present reported figures. However, our LTIP will be a part of adjusted items even going forward and amounted to SEK 15 million in the quarter. Overall, we are pleased with our Q1 figures. We have a strong financial position, and we could also conclude an improved cash flow from operations before change of working capital of SEK 88 million compared to SEK 28 million Q1 last year. We will wisely use this improved financial position in relation to the fast-evolving audiobooks landscape where we need to be dedicated to move fast and continue to be relevant and deliver the best offering to our customers in all aspects, both in streaming and in publishing. As you can see in the graph down to the right, the adjusted EBITDA margin has been a bit volatile during the recent quarters. mainly due to seasonal patterns, both in the Streaming and Publishing businesses. However, looking into rolling 12 months, we are satisfied with this momentum over time. Looking at the performance in Streaming, which is our largest segment, we are again pleased with the development. Our total paid subscriber base increased by 11% year-on-year or 245,000 subscribers to an average number of 2.5 million paying subscribers during the quarter, surpassing a milestone. Over 1/3 of the subscriber intake came from our Nordic markets and amounted to 7% growth, while our non-Nordic core region increased by 16% year-on-year and contributed with 143,000 new subs. Strong releases in the Nordics, together with expansion in the non-Nordics core markets contributed to the growth. And we also achieved stronger personalization capabilities through the quarter, resulting in improvements to the relevance of content recommendations for our customers across the platform. Our robust editorial curation has enabled us to deliver the most effective content discovery experience ever. The ARPU remained at a high level and organically decreased around 3% year-on-year as expected, explained by lower price tiers and changes in the geographical mix due to stronger growth outside the Nordic region. We have also successfully lowered our Subscriber Acquisition Cost, SAC compared to the same period last year, mainly due to increased marketing efficiency. We have focused on balancing both ARPU and healthy subscriber growth. The key ratio here is customer lifetime value to subscriber acquisition costs. And our success is evidenced by the development of paid churn, which continuously remains at a low level. Let's take a closer look here. The net sales for the segment increased by 6% from the comparative quarter to SEK 862 million. The growth was mainly driven by 11% increase of the subscriber base. Non-Nordics core contributed with especially strong growth, where revenues increased by 18% and subs with 16%. Nordics grew 3% in the quarter and with a robust subscriber growth of 7%. Gross profit development was solid and increased 9% to SEK 369 million. Gross margin increased 1.2 percentage points. EBITDA increased 89% in the quarter to SEK 94 million, equaling a margin of 10.9%. The improvement was driven by higher gross profit and lower operating expenses and operating profit increased over 200% to SEK 61 million in the quarter. Now over to our Publishing segment. The Publishing segment had a very strong start this year with 16% year-over-year revenue growth, reaching a total of SEK 283 million in the first quarter. Additionally, strong backlist sales from the February bookstore sales in Sweden, particularly increased revenues for the quarter. EBITDA in the quarter improved 24% to SEK 66 million, a margin of over 23%, driven by higher gross profit. Operating profit doubled in the quarter to SEK 22 million. Looking forward, we are confident in our strategic investments in premium content. Later this year, for example, Norstedts forlag will publish Fredrik Backman's forthcoming book, Mina vanner. Backman's international success with translations into over 40 languages and film adaptions demonstrates the potential of this authorship. And now over to Jonas, who will tell us a bit more about the finance.

Thank you, Bodil. In the first quarter, we generated a solid cash flow from operating activities before changes in working capital amounting to SEK 88 million compared to SEK 28 million in the first quarter for the previous year. This improvement is primarily driven by a stronger operating result where EBIT came in SEK 78 million higher in Q1 this year compared to last year. Changes in working capital were negative for the quarter, mainly due to seasonality effects in accrued expenses and royalty costs, where higher royalty payments are a direct result of our improved profitability. Cash flow from operating activities totaled SEK 29 million compared to SEK 1 million for the same period in 2024. Cash flow from investing activities amounted to minus SEK 93 million compared to minus SEK 38 million last year, mainly impacted by the acquisition of Bokfabriken during the quarter. Operational CapEx, including investments into content, product and technology remained stable year-over-year at around SEK 31 million. All in all, the total group cash flow for the period was minus SEK 73 million. But as mentioned, this includes the acquisition of Bokfabriken. Looking at the group's balance sheet, we maintain a stable financial position with total assets of SEK 3.3 billion and an equity-to-asset ratio of 47%. The slight decrease in both equity and total assets compared to year-end is primarily due to currency effects as the Swedish krona strengthened towards the end of the first quarter. However, compared to the first quarter of 2024, equity, total assets and cash and cash equivalents have increased, reflecting strong cash flows and positive results over the recent quarters. This leads up to the leverage ratio, where we see a significant improvement. Compared to the first quarter of 2024, the leverage ratio has substantially improved, driven by both a decrease in debt and an increase in cash and cash equivalents as a result of strong cash flow and a positive cash conversion. The leverage ratio now stands at 0.18, down from 1.0 at the end of Q1 2024. The slight increase compared to year-end 2024 is mainly related to the acquisition of Bokfabriken. And with that, I hand back to Bodil.

Thank you, Jonas. We are proud of the footprint we have built over the past 20 years in Storytel. Storytel Group has a unique position in the Storytel ecosystem, connecting stories with a broad range of readers across print, audiobooks and e-books. For the past 10 years, we celebrated the heart of our business, our authors and narratives through Storytel Awards. This year, we hosted ceremonies in Stockholm, Helsinki, Copenhagen, Oslo, Reykjavik and Amsterdam, honoring the most loved storytellers by our audience. Innovation has always been a part of our DNA. We see AI as a powerful tool to enhance our service and customer experience while also improving efficiency and strengthening our financial development. Voice Switcher has been especially well received, and we have continued to scale it across our markets. AI will remain a key focus area for us moving forward, ensuring we make the most out of our resources to keep innovating and enhancing both our streaming and services products, also in order to ensure continued growth with improved profitability. As you know, we have been reviewing our strategy going forward, and you are all welcome to join our Capital Markets Day on the May 15 here at headquarters on Riddarholmen, Stockholm or you could also join remotely. And now we are ready to open up for your questions.

[Operator Instructions] The next question comes from Derek Laliberte from ABG Sundal Collier.

Looking at the strong performance of the non-Nordics core region here, which would you say were the key market drivers of this strong growth?

Yes, this is a good question. And the key here is actually that we have a really good -- I would say we have a strong consumer offer, of course, since we have our local knowledge in the local catalogs at the streaming side. And that's a very strong strength in the markets. We know what our users, customers would like to read or listen to. And so we see that we are having this strong know-how of actually meeting the individual demand in the local markets as well as we are good, I would say, when we're talking about efficiency regarding the marketing investments. Storytel has an amazing market function that has been built up for the last 2 years, I would say. And we see that this -- we have a good leverage on our investments in those markets. But the key will definitely be that we have the local competencies in the catalogs, and that it's extremely important for us.

I appreciate the color. Could you also say a bit on a country level, whether it was -- I mean, whether it was Poland or the Netherlands, Bulgaria or which were the strongest contributors to the region?

Yes. And as you know, Derek, we don't disclose so much numbers in the individual countries. You have heard that before. But I would say that we have a strong momentum in the countries. And as we have said before, we have a really good market situation in Poland. And we have a strong -- I would say, I mean, we are the market leader here except Poland, actually in the non-Nordic cores region. So yes, we are satisfied with the different investments that we have done in those different countries, and we see very good opportunities there.

Okay. Great. And then looking at the Nordics, I know you can maybe give details about the specific markets and Q1 here, we usually see a bit slower sort of seasonal intake, but can you give some flavor on why the subscribers were down by 5,000 subscribers sequentially here versus Q4?

I didn't hear the last -- that was for -- could you please repeat?

Yes, yes, for the Nordic markets. I note that the subscribers were down by 5,000 compared to Q4. So just if you could give some flavor on what's going on in the market.

There are some seasonalities. And if you compare year-on-year, it's plus 11% on the subscription base. No, it's 7% in the Nordics, I'm sorry, it's total 11%. So in the Nordics, it's 7%. And that we actually -- I mean, we will try to increase, so we don't see the seasonality effects, but it's important to actually also compare year-on-year. So at this time, it's 7% increase in the subscriber base compared to Q1 last year. But I would say that we could always be better.

Got it. Yes. So it's nothing to do with sort of general market weakness or tougher competition or something like that. It's more of a seasonal. Okay. Great. And looking at the cost side, I note the gross margin, I mean, clearly improved again year-over-year here, but still a bit lower compared to the prior 3 quarters. While if I look at the sort of individual segments, it still looks like there were improvements. So what's driving this sort of small downtick in the gross margin Q-on-Q?

This, I would say, is an effect of seasonality as well. So we always see that the gross margin goes down a little bit in the Q1.

All right. And on the sales and marketing costs, though were, I think, clearly higher here than what you had in any single quarter last year. So what's driving that, please?

Yes, that's also expected and according to plan, of course. That goes into how we interact and accelerate our different markets in the marketing investment in, of course, in searching of new subscribers and higher intakes. So it goes -- yes, we have planned for these investments, and it's important to actually also gain market shares in the markets where we are growing.

And one additional -- sorry, one additional thing that we could add is that the Q4 Publishing sales were high, and that also leads to a higher gross margin that we have in Q4.

Yes.

All right. No, that sounds good, and I'm sure you will get -- continue to have good returns on the marketing investments. On a more general basis here, Spotify has clearly increased their investments in audiobooks in the European market pretty broadly, it seems. Are you experiencing any effects from this in the markets that you operate in?

Not for the moment. We don't do that. So we are just monitoring. And as always, we are following and monitoring all the competitors that we have in the different markets, even though it's global competitors or it's local. So we're quite used to have a lot of competitors on the different markets. But the short answer is actually no.

Perfect. And finally, I noticed this global company also RB Media is sort of increasing its presence in Sweden. Do you have any thoughts about how that potentially could affect the local market long term?

Not for the moment.

Okay.

I will also add that we have -- I mean, we have this really strong local presence with our local catalogs and that it's also important to remember when we compete with global players.

The next question comes from Joachim Gunell from DNB Markets.

So I have 3 questions. If we just start off a bit here that you don't provide a full year 2025 outlook yet. And I would assume that we will have to wait 2 more weeks before we get some more firm commentary there. But when you commented in the Q4 report that we should see continued good growth, do you think that the Q1 growth rate is representative for what is good... [Technical Difficulty] Can you hear me? Bodil, Jonas, I don't know if you are on mute or if the conference got disconnected, but I'm still here.

The conference call will continue shortly.

Yes. I can still hear you. I don't know if I'm still in the lobby here. I had a question. I don't know if you got that one.

No, we didn't. So please go ahead again.

Okay. Perfect. So okay, starting off then I have 3 questions. The first one is essentially which refers to growth rates for 2025. You haven't really committed to a firm guidance yet. I would assume that we will have to wait for 2 more weeks on the CMD before you provide that. But in the Q4 outlook, you essentially said that expect continued good growth at good profitable growth. And then do you think the 7% growth rate we saw here in Q1 is representative for what you envision as good growth rate for the remainder of the year?

I would say it's in the line with the year -- with the start of the year.

Okay. And if we call it, raise the line of sight a bit here. So it seems like the music streaming industry at least have entered more of a, call it, price inflationary market where labels want to even more frequent price increases. I mean, they call it streaming 2.0 to focus on more monetization here. Do you think that we could see a similar push from publishing houses in your industry to raise prices to increase the remuneration to content creators and so forth also for you to capitalize on the breadth of content and feature leadership?

That's a really good and relevant question, I would say. And I mean, the price strategy and the price and the product packaging is, of course, strategical, extremely important for us. And we're monitoring of everything that is happening within the Streaming industry and the Publishing industry. So we will come back to that at Capital Markets Day. And there are, of course, different ways to go forward, and there are definitely opportunities that you also had mentioned here. But it's too early to say today what we will do. So we will be back on the price and product strategy the May 15.

I will hold my breath for 2 more weeks. And just finally then, there's...

Yes. I will also emphasize that it's really interesting to also see how the price in the markets in the industry is actually evolving.

Great. So finally then, there's a lot going on, on the user experience side that you highlighted Bodil at Storytel. But from a more, say, philosophical standpoint here, in a world with increasingly, call it, shorter and shorter attention span amongst the consumers. I think, I mean, audiobooks and e-books favor more longer duration rewards center, right? So how do you think about product development to tap into that, call it, more quick fix attention opportunity in your industry?

I think that the product development is a core and key question also going forward for us since our company has been in kind of transformation phase for the last 2 or 3 years having focus on our profitable growth in a very, very good way. And then we need to maybe take some step further now to see how we can increase and enhance our customer -- the customer value. And one thing is actually regarding the features, the products and still lead this game that will be very important for us.

Okay. See you on May 15.

Yes, you're welcome. Thank you.

The next question comes from Stefan Ward from Pareto Securities.

I'd like to have some clarifications on the sort of one-off related items, both on the operating level, but especially on the financial level, seems to be FX relating to Audiobooks.com and then a little bit around the net financials with you being almost in net cash now. How should we think about the net financial line ordinary? And will this -- the FX relating to Audiobooks.com, can you clarify that and how we should keep track of it going forward? And then on the [ ERC ] on the operating level, what to expect for the remaining 9 months of 2025?

Thank you for the question. As you said, the onetime item that we have in the finance net is driven by FX, primarily USD -- U.S. dollar rate. And there is an -- without going into too much details, this is related to the financing of the ABC as we would not expect -- depending, of course, of the FX rate, we would not expect this going forward at the same level.

Okay. And in terms of how much are you paying cost of the remaining debt on the balance sheet, what's the sort of interest rate? And will you amortize that if the cash flow is good? Or what should we expect when calculating the net financials?

Here, we have to wait to the Capital Markets Day given the strategy going forward. The quarterly run rate for the interest is around SEK 8 million.

Okay. So the quarterly cost for the debt is around SEK 8 million.

Yes, that's correct.

Okay. And this long-term incentive program, how -- can you clarify a little bit around that?

This is primarily driven by our stock value. So that is why we have it as a onetime item because that is something that's more or less out of our control.

Okay. Then some questions on the content catalog. If we could get an update on how many titles -- your own titles, for instance. And also, I would like to ask, I'm not sure if you will give me an answer, but the Sune catalog, how much of the listening is does that account for? And what are the sort of implications on profitability from having acquired the entire Sune catalog?

Yes. Stefan, I think that we don't really disclose the figures regarding the return on investment of just Sune. But I would say -- do you hear me? Yes. Yes, good. We have in plan for this year, 5 new Sune audiobooks actually in Sweden. And that will be -- 3 of them will have [indiscernible] from -- I just wanted to be cool as a deputy narrator for drive attention. So we are actually exploring and making a lot of plans regarding Sune and that investment, of course. And Bokfabriken will also have a movie in December. And we will follow up the premiere with Bokfabriken audiobooks as well. So we have a lot of different products going on, and we will elaborate a little bit more about that also going further. And then I would say we are -- I mean, we are really well positioned to actually produce what our subscribers and customers want to listen and read. And that we will, of course, increase, and that's also important going further on to increase the competence around that. Then it's not really relevant how many titles there are, but it's more relevant to say that we have the relevant content, and we are good in producing audiobooks that are also exclusive from our Storyside department. So that's -- I mean, that's a success factor for us, and I think it will be for the future as well. That's a content differentiator.

Yes. I understand. Well, a lot of my other questions were answered by the previous analysts on the call. So thank you and it looks like a solid set of numbers even though these one-offs caused a minor deviation.

[Operator Instructions] No questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.

Hello, everyone, and thank you for very good questions. Looking ahead, we are well positioned to meet growing demand for local language content, as we talked about Stefan with. And we have a strong credentials in our 10 core markets and a growing local catalog. So our financial strength creates a great position for both organic growth and acquisitions across publishing and streaming. I just get a signal now that we have one more question. Is that correct?

Yes, we have a late question from [ Henrik Larsen. ]

Okay.

Could you elaborate about other operating items in the quarter and income group total of SEK 20-plus million.

Yes. This is mainly related to our investments in ElevenLabs that has been sold during the quarter.

Was that the last question? Yes, it is. So thank you for the last question. The opportunities ahead really energize our team at Storytel Group, and I'm thankful for everyone who is joining us on our journey forward. So thank you for your participation today, and very welcome on the May 15 when we have our Capital Markets Day. Have a nice day. Thank you.