Verve Group SE (VRV) Earnings Call Transcript & Summary

Good morning, and welcome to the Media and Games Invest Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to CEO, Mr. Remco Westermann. Please go ahead.

Thank you. Yes, good morning. I would like to welcome our investors, analysts and other stakeholders that are present in this call, and we are going to present MGI - Media and Games Invest SE's Q4 numbers and also the full year 2022 financials and main achievements. After a short introduction, I will present our markets, our mission and our growth drivers. And after that, Paul, our CFO, will present the financials. After that, there is time for Q&A. So we'd like to start with the first page, Page 3, with content on it, yes, presenters' pictures on the left side, but going to the main facts. Company has changed in the last years, and we are a leading or have become a leading ad software platform with strong first-party games content. We did EUR 324 million revenues in 2022 with a EUR 93 million adjusted EBITDA, which represents a 29% overall growth and an 18% organic growth. Strong year of organic growth, and that's what we have proven in the last years that we are able to increase our organic growth at the time. And we have to realize that 2022 was not an easy year, it was a year with a lot of headwinds. We're covering some of that later in the presentation. The company has now over 800 employees. Yes, as said, we have pivoted from a gaming company to an ad software company, with now 80% ad software revenues, 20% consumer games revenues. Over 550 software clients, definition of that is clients with more than $100,000 a year. 97% of customer retention rate, which we're really happy with. That means that large customers have done now 97% of the revenues of the same period before, which is in a market with headwinds and CPMs that are under pressure, a good achievement, we think. And overall, we're talking about 96%, that's over the full customer base. So also there, we have a pretty stable base and growth has come from new customers. Coming to the next page, Page 4. Yes, what are the main events that happened during Q4 2022. First of all, we continued to show revenue growth, also in Q4, largely organically and mostly driven by new customers. Then we had -- and we are really happy with that an integration of Match2One, our SME platform with Shopify, which enables now Shopify users or people that have a shop in Shopify to easily use our advertising services. Then we integrated with Google Open Bidding, which again is another big partner that we added, which enables us to reach more people in the Internet and get also more customer reach, so also very good achievement here. Further, as already mentioned before, there were further macroeconomic headwinds in both our segments, which means the advertising markets, people were hesitant in spending budget still and also CPM spend down, there was less demand and then the prices per ad also go down for the CPMs. And then also on the gaming side, after very strong COVID years, we had really -- yes, there is less demand for gaming. So those markets are under pressure. Nevertheless, we were able to really show good growth. Then we sold our EG7 stake as part of strategic refocus. Yes, we have decided to really focus more on the advertising part, more on selling the shovels than shoveling for the gold itself with the games. Games are still very important. But we cleaned up our portfolio. That's also the second last point on this slide, for games portfolio cleanup. So we really said, let's stop smaller games that are not really future-proof and not really adding that much. So we did a cleanup and as part of that also we sold EG7 stake, which is more focused on kind of the most -- for us now casual games are more value-add, mobile games are more value-add to the advertising story. And that's also the point. And second point in this space, we added 100 new casual games in Q4. Yes, strong retention rate. I mentioned that already before. And then, yes, we completed our relocation to Sweden. It was a long process. But since 2nd of January this year, we are now in Sweden and took a bit of efforts, but we're there. Then a EUR 75 million securitization program was established. Paul will give some more details on that later in the presentation. Then the Extraordinary Meeting approved Deloitte as an auditor, so we have a big 4 auditor, which was a demand of many of our investors starting from 2023, but they already were involved also in our 2022. Yes, and then the appointment of the nomination committee, we have extended the Board and, let's say, are -- also they are working on improving our governance. Coming to the next slide. What happened, talking about governance or ESG. Also here, we have some good achievements, carbon neutrality, yes, very important, but already there since 2020. We're still further working also involving our users, and we have, for example, a water project which we're doing, which is about saving water, but yes, becoming more conscious about water going very well. Then on the social side, yes, in our Board, we have a gender balance now. We're working on more of that also in the rest of the team. Not always easy with a very tech-oriented company, because we have to find also women that are good and really fitting in there. But it's really worth focusing on it. Then in terms of employee training and other focus points, which we are now putting more emphasis on, is training our employees, such as governance and compliance, but also management skills and expertise. And then on the governance side, already mentioned the relocation to Sweden, but also improving our control and compliance management systems. We did a lot of that in 2022 with KPMG and also Big 4 and we are further working on optimizing those processes. We are very happy and proud. Our ESG rating under MSCI improved from a single B to BBB, still room to go, but already really good achievement and showing that the efforts that we're putting in here really are also paying off. Coming to the next slide. We decided in this presentation to give a bit more background on the market that we're in, which is programmatic advertising, because we are realizing that it is a market that not all investors understand as well, and therefore, we decided to put some slides in the presentation here. First of all, why is advertising important? It is important to promote products and services and ideas to potential customers and target groups to enable free content, especially in the Internet and in apps, building brand awareness and generating demand. So overall, driving business growth. And then why is programmatic advertising so important? What's so special? In the early days, normal advertising was done, which means a company calls the medium, makes a deal to really play ads, buys ad spaces and then target. But the whole publisher site has become so complex with so many apps, with so many channels that it's hardly possible anymore to do that in a manual way and also the manual way is very time-intense and takes -- yes, and takes also time till the ads are there. So that's the reason that programmatic is growing so fast. With programmatic, we can serve many more channels automated, fully automated and doing transactions in under 100 milliseconds. Coming to next page, Page 8. Here, you see also the growth. So it's -- yes, advertising is growing altogether. It's a strong growing market, but the share of programmatic advertising is growing, let's say, makes programmatic advertising grow faster. So we're now in 2022 over 50%, 2021 already passed the 50% and it's further growing as a share of the total base. So even in a period where the total advertising spend is under pressure like we saw in 2022, we see that programmatic is taking larger share and by that still growing. Advertising are shifting their budgets to programmatic. Coming to the next page. Yes, how does programmatic advertising work? It's basically simple. And for those that are in financial markets, it's an auction place. And which means that the advertisers put their demand into the system, the publishers put their supply into the system. So at the moment somebody comes on a page or an app page where there is an ad space, this ad space get auctioned, and the demand and the supply are being matched. And it's very important, of course, that it's not a blind matching, because that would not lead to any efficiency, but that [ data ] are really used to match demand and supply in the best way and to really make sure that also the one that bids most gets the ad, which is the best also for the publisher. So in this sense, that's the system is very easily explained. And then coming to next page, Page 10. How do we make money with programmatic advertising? Basically, every part of the chain is being paid. So the demand side, the advertising is paying part. The supply side, the publisher is paying a part of it and also for the data, which enrich the -- let's say, the matching, there is a payment of that. So that's basically how we do. It's a cut of the dollars or the Euros that go through the platform, and there's also some SaaS business where we get -- receive payments, but that's all in the personnel part of the business. So the majority is really revenue related. Coming to the next page, Page 11. Yes, the world is not perfect and especially ad-tech is not perfect, programmatic advertising is not perfect. There are still hundreds of parties in this chain and often the matching between an ads and a publisher is what we sought for -- sorry, and the demand of the advertiser takes several parties involved, and that makes it very intransparent and very inefficient. And that's one thing that's changing now and where we are also actively participating in. Which brings me to the next chapter, and that's our mission. How do we make advertising better? Coming to Page 13. So what do we do? We want to make advertising better, less complex. So MGI operates a fast-growing, integrated ad software platform that matches global advertising demand with publisher and supply, while improving results via data. The bold terms here, integrated, global and data are important because I'm going to cover them on the next pages. Coming to Page 14. Integrated solution. So instead of having several parties in the chain, we have decided we want to be vertically integrated, which means that we can directly match demand from an advertiser with a supplier of the publisher. So we don't have all the kind of different parties between that. We all do this in-house in one platform. The second is we also do this multichannel. So currently, in the value chain, there's often parties that only do apps or only do web and those things. We have decided and we did that also by our M&A strategy if you want to cover in-app, web, mobile web, connected TV and digital outcome. So we can serve all and we can also use data across channel, very important. Then we optimize effectiveness via data. As said before, that's very important. We have first-party data from our own game studios, third-party data and contextual data, I'll cover more of that later. With a wide range of capabilities, we can do brand marketing, performance marketing and whatever the customer wants. Very important, privacy first. It all needs to be privacy compliant, brand safe and performance-oriented. And we also work on innovation at the Moments.AI, SDKs, Visual Intent, I'll cover some of that later in the presentation. Coming to the next page. Yes, what is changing in the market? There is an 80% problem as we call it. We had before 2022, there is a market where we call it an opt-out market where people had to opt out if they didn't want the data shared. That's changing. Now cookies are disappearing, IDFA from Apple is disappearing and we have come into an opt-in market where people have to give consent to really share the data. Instead of having almost all the data available, which was in the opt-out space, we now have only 20% -- roughly 20% of opt-ins partly, even less, and that makes it much more difficult to identify and to also optimize the targeting. So we need new privacy compliant ways to identify the audience and enable efficient target. Coming to the next page, what are we doing for that? Because this is, of course, also an opportunity to look at this. The market is changing, that gives the possibility for parties that are fast to really react to that. First of all, we have in-house a very big first-party opt-in database, which comes from our games, which gives us still access to the data as before with a high percentage of opt-ins, because we can stimulate them. And then the second part is contextual. We are also very good in finding parts of the Internet or matching, let's say, parts where people are having a certain interest with the demand of an advertiser. And we do this for a Moments.AI and also by via ATOM, which I'll cover later. So this is very important, it gives us an opportunity. Then coming to the third part, which is the global, which is on Page 17. Yes, to scale global makes absolutely sense. More and more advertisers work globally, also want to have global contracts. Also publishers become more and more global and also the efficiency, of course, gains. The more volume we run over the platform, the better it is. So we have now over 20 offices worldwide. We reach over 2 billion end consumers on a monthly basis, and we have 1.7 billion ad impressions that we serve daily. Coming to the next page. Who are we working for. Yes, we're working for very big advertisers. We have a good share of the top advertisers of this world, some of the logos you see here. But we're also working for a lot of small advertisers. And the same counts for the publisher side where we work for, let's say, most of the top publishers, but also for a lot of small publishers. It's good that we have such a diverse customer base, because it drives, of course, innovation and also we have the ability to scale with our customers. Coming to the next slide. Yes, strong in mobile. Mobile is where we, let's say, have a real core position, part of that via our own games, the AxesInMotion games, for example, with yes, let's say, 800 million downloads altogether and also a lot of third-party games where our SDK is integrated, so where we are in the app and where we are serving -- are able to serve ads. Coming to the next slide, here some examples by the way. Yes, what has -- did we accomplish? I mean, it really showing that being integrated, being strong in an -- let's say, in an contextual data environment and also being global, really helps us. We have been able to build one of the larger players in the open Internet in the last 4 years. We have become a top 5 worldwide exchange for mobile in-app ads. We have one of the largest SDK bases in the world to being integrated in the top apps in the world, top 15. And we really have a good score on quality, on trust index, which is the result of emphasizing quality, privacy, brand safety and transparency. So the company has really -- yes, had a great development in the last 4 years in becoming a very strong player in the programmatic advertising. How are we further growing, coming to the next page, our next chapter actually, and I will go immediately to Page 22. How are we growing, adding customers? We added 130,000 -- over $100,000 customers in the last year. We want to further do that. There is still customers around there and also scaling customers, scaling smaller customers to become large customers is, of course, very important. Then strategic partnerships, Google, I mentioned already before. We have also a partnership with Getty Images. Some partnerships are important to further also build our position. Then cost efficiency is super important because, of course, the more cost efficient we can do this in our integrated way, the more we can also pass on to advertisers and publishers. So integrations of the platforms that we acquired, but also working on low-cost structures. Then innovation. I'll cover innovation on the next page and accretive acquisitions. We acquired Dataseat and AxesInMotion emotion in 2022. We are a bit slower, a bit more careful with M&A now, but I'll also say a few words on that, and a few slides further in the presentation. Coming to the next page. Here are some examples of our innovation. ATOM, already mentioned a few times. It's an extension of our SDK, so the software development kit that we integrate in apps. It allows us to generate profiles on the mobile device of a user without privacy data leaving the device, and it allows us to target the user in a privacy and contextual way. Then CTV retargeting. Yes, here, we see the multichannel aspect of our platform. We are able to reengage users that are playing on consoles, for example, either for getting new users but also for customer retention, where we do the reengagement or, let's say, the advertising via CTV and targeting exacting those profiles. Very good results and really showing it's unique in the market, and I'm really happy that we were able to prove this, and we work on further multichannel things. Then Moments.AI. Yes, it's the next-generation contextual AI-empowered advertising solutions. Yes, AI is everywhere at the moment since we have ChatGPT, but we are using AI already for quite a while. It's, of course, the only way to cover all that we have. And especially if you go contextual, we have crawlers that crawl the Internet all the time and then also define via AI routines the best contextual places to place ads and match them with the advertiser demand. Visual Intent is continuation of that. It's a partnership with Getty Images. Getty is one of the largest photo database in the world. Getty images are all around the Internet they are shown. And in the -- how to say, cooperation with Getty, we are able to show ads next to the Getty Images. So we have contextual, how to say, spaces where we can show the ads. And this is, yes, very well accepted by advertisers and we're rolling it out at the moment into the market. Going to the next page. Yes, growth, what's our growth strategy? It's basically buy, integrate, build and improve. In 2022 and also currently, we are putting more emphasis or most emphasis on integrate, build and improve. Integrate means further. We did a lot of acquisitions. We acquired over 30 companies in the last 10 years. There's still work to do especially on the programmatic advertising space to indicate platform better. They are all connected, but of course, we are now looking at getting unified modules and in the end working towards one platform. That's not a [ fresh ] and do a direct approach because that would be, let's say, getting too much focus internally and not externally, where we also need focus to grow, but we're doing this in a step-by-step way. And then build and improve -- yes, build, improvements, innovate, as shown before, generate more users and internationalization. A few words about M&A. We haven't done M&A in the last period. Our leverage was on the high side, where we've said when -- even if we do M&A, we want to stick with our leverage between 2 and 3. Also, prices, especially companies were much too high. I mean they had to come down in line with also public valuations. We see that happening now. So we are carefully looking into M&A. But as said, keeping an eye at our leverage. Brings me to the next page, Page 25. Our fly wheel, yes, it's very simple, bringing all these ingredients together, our games, our SDKs, our data and our vertical platform means more access to data, more advertisers, more publishers, more critical mass that drives our revenue growth and also our profitability. So there it, I would like to hand over to Paul to go through the next part, the financials. Paul?

Thank you, Remco. So yes, starting here now with Q4 and full year '22 financial highlights. And as Remco mentioned in the beginning already, in the fourth quarter we saw a very strong organic growth of 13% with overall growth of 16% year-on-year. And what we see here as well is that we have limited growth from M&A and therefore, the overall growth is largely driven by organic revenue growth. While on the full year 2022 side, on the right side, we see that we have grown with a CAGR of 64% now since 2018, and that always included quite a lot of M&A. And therefore, yes, that I think puts the 16% well in perspective of the -- to the 64%. And we are actually very happy with the underlying organic growth. And looking at the year-on-year, we had a 29% revenue growth and 18% organic and therefore, the company is in very good shape to also further grow organically. That brings us to the fourth quarter financial highlights. So we're making a deep dive now also below the revenues. And here, we see that next to the 16% revenue growth, we've also been able to increase the EBITDA from EUR 23 million to EUR 32 million, which is a 35% EBITDA growth, so much faster than the revenues, also by realizing more synergies and cost efficiencies. And we have also been able to increase the adjusted EBITDA from EUR 19 million to EUR 28 million, so 45%, even outgrowing the EBITDA growth. Overall, a very solid EBITDA margins was 34%, which increased year-on-year from 29% to 34% and also a very solid EBIT margin of 30%. While we also see that the cash flow has increased in the fourth quarter to EUR 74 million, where we have a EUR 48 million receivable financing effect which also supported the very strong cash conversion of 229% in the fourth quarter. And we will make a deep dive in a few minutes on how that worked and how that looks in the balance sheet and P&L. Looking now first into the long-term financial development. And here, we see that we have really strong, very consistent long-term profitable growth now over many, many years and have also been able in 2022, despite several headwinds, to further increase our EBITDA margin from 28% to 29%. As well as further increasing also profitability for the overall growth and therefore, we are actually being very pleased with these numbers, where we also will see in a few minutes where all this growth is actually coming from. But overall, a very strong achievement from a net financial performance perspective. Looking now into the segment performance. And here, you see on the left side that the demand side has grown 3x as fast as supply side, which is also in line with the investments which we have done. And at the same point in time, we have also been able to increase the EBITDA margin from 24% to 36% on the demand side. So overall, a very strong quarter on the DSP side. While on the supply side, we also have been able to further grow the revenues by 13%, which was also largely done by organic revenue growth. And that was despite several headwinds, especially by decreasing CPMs in the overall advertising market. But as we could also see earlier in our net dollar expansion rates that we -- despite decreases in CPMs of 20% to 40% across the mobile games industry, we were actually able to keep our wallet share or even increase it. And therefore, the net dollar expansion rate was rather stable, while we had several headwinds here, and therefore, also a very strong organic growth of the supply-side segment. Looking now on Slide 31 and to the customer growth and what is really driving the overall growth behind the revenues. And on the left upper side, you see that we have increased our software revenues now 80% and the direct-to-consumer revenues were sitting at 20%. The 80% also includes placing ads and own games, so fully software-driven revenues, fully automated. And on the ad impression side, we see that we have also shown a very sustainable growth during the last 4 quarters despite several headwinds in the market and therefore, have really been able to further grow the company organically. And the main growth driver for 2022 was in the end, adding many, many new software clients. So taking any M&A effects out, we added more than 130 new software clients to the group and therefore, ended up by end of the year with 551. And that was, in the end, the main growth driver, while the existing customers, and that's reflected in the net dollar expansion rate remained rather stable at 96%. And as mentioned already, there's also a very strong number, taking the big CPM decreases into account. And therefore, we expect -- or we assume that we have actually increased our wallet share considerably here in 2022. And then also on top, the very strong customer retention rate of 97% also shows the customers stay on the platform. On top, we're adding a lot of new customers on a constant basis every quarter, every month, and therefore, growing very nicely organically despite several headwinds in the market. Coming now to the operating cash flow and cash conversion. And here on the left side, we see the operating cash flow has more than doubled in 2022, where we also had the EUR 48 million receivable financing effect, which is a bit more explained on the right side. By deducting the interest expenses from the operating cash flow, we come to a very strong free cash flow of EUR 102 million, which also has helped us to further delever the company in the previous quarter. And looking at the cash conversion, because I think it's always important to show also some transparency here, we're actually also taking out the receivable financing effect. We're able to increase our cash conversion to 83% and constantly growing that as well over the previous years, while taking also the set off from the receivables into account, we actually were looking at 135% cash conversion in the fourth quarter. So overall, very high free cash flow, very strong cash conversion, which is driven by strong operations, but then also supported by a receivable securitization program, which we, in the end, see here on Page 33, a bit more in detail. So our net working capital development since we started the business was -- in the beginning until the end of 2019, always negative, very similar to every other games company. And when we started to enter the advertising business, we were building up positive net working capital as advertisers pay within 60 to 90 days, so that's the collection times and the payouts to publishers being between 30 to 45 days. And therefore, we have invested in recent years a lot of capital actually into our working capital, which then we're sitting at EUR 50 million positive net working capital by end of 2021, which is 20% of the revenues. And we have been able now, through a state-of-the-art securitization program, to bring down our net working capital to a balance profile again. So EUR 2 million which is then 1% of net revenues. And the program is in the end, up to EUR 75 million, which allows us the true sale of receivables on a non-recourse basis at very favorable cost which is cost of funds, which is similar 2 or 3 months Euribor plus 1.55%. And that is in the end achieved as we have an investment-grade rating on the receivables as the customers, mainly being Fortune 500 companies. And therefore, it's in the end, yes, the perfect fit for a company like us. Very profitable, strong receivable portfolio and in the end to further also diversify -- to further diversify financing sources. And by end of 2022, out of the program EUR 48 million were used and have, therefore, decreased the net working capital by end of 2022. That brings us now into the CapEx and which has led to strong organic growth in previous years. So we see the maintenance CapEx and ad software and games licenses the investments have been decreased slightly here. On the games content from EUR 10 million to EUR 9 million and on the ad software side from EUR 24 million to EUR 23 million. So we kept actually these CapEx rather stable to also enable further organic growth in the future. While on the M&A side, as communicated to the market, there was not a strong focus in the last 12 months. And therefore, we actually decreased here our CapEx massively by roughly 40%, which was driven by the M&A part. And the end, therefore, have also followed the strategy as communicated and reduced overall CapEx. That brings us now to the net leverage and interest coverage ratio. And here, we see now on the left side, what we have been achieved over the last quarters. So we constantly delevered since we peaked in the second quarter of '22 at 3.7x net leverage and have now achieved 2.9x by end of 2022. And also taking into account the sale of the EG7 shares, we actually have already, on a pro-forma basis, achieved a net leverage of 2.7x and therefore, reduced overall our leverage to our target range of 2x to 3x. And also looking at the interest coverage ratio, it remains very stable at 4x. And therefore, we also have very good interest bearing capabilities. That brings us now to the MGI balance sheet. And here, on the left side, we see the intangibles, which makes a big chunk of our total assets, which is very usual for an advertising and games company. The impairment test is done on a regular basis by EY. Previously, it was actually done by Deloitte for many years. And due to the effect that we have moved to Deloitte as an auditor now, we have also moved advisers on that side. As Remco mentioned already, due to the streamlining of the business, we proactively took a onetime amortization of EUR 23.6 million, which is 2% of our total assets. And therefore, our goal was a very clean balance sheet now into the future. Looking at the cash position, that remains very strong, with EUR 150 million and therefore also provides us certain flexibility for several bond-buybacks as well as also the reduction of total indebtedness. And on the right side, looking at the total liabilities and equity, we see that the long-term liabilities mainly consisting of 2 bonds outstanding, EUR 235 million and EUR 175 million, while we also have several earn-out payments, which I think it's important to mention that they're actually being highly conditional. And if they would come into effect, that would mean that we roughly have EUR 25 million additional EBITDA for the group. And out of the EUR 112 million, EUR 26 million can also be paid in shares in a few years' time and the remaining part, EUR 86 million, which could come in cash. But looking at current developments of certain key KPIs, like, for example, also the eCPMs, which are also driving certain performances for these companies, we could also expect rather EUR 30 billion cash out over the next 3 years. So therefore, we have also a very good natural hedge here looking at the earn-out payments and the current market developments. Overall, a very strong cash position and net interest bearing debt at EUR 274 million and a very strong equity ratio even after the onetime amortization, which we have recognized now in the fourth quarter. That brings us to the revenues and EBITDA guidance. And we have increased the guidance during the year due to the overall strong performance and the strong organic growth, which we have achieved, especially on the back of all the new software clients, which we have added to the portfolio. And therefore, we have been able to end up in terms of the revenues at the top end of the guidance with EUR 324 million in revenues. While on the EBITDA side, we actually were slightly above the guidance with EUR 93 million and therefore, ended the year very successful at the top end. Looking now into the mid-term financial targets. And here, we have been able to now tick the box again on all of these targets, also on the leverage, which was one of the key focus areas over the previous quarters. We've also been very confident that we can further grow the company over the next 3 to 5 years with these targets. Even 2023 is a bit difficult to predict. And here, we expect that after the first quarter, when we have more visibility on the achievements that we then also provide another guidance for 2023. But we also remain very confident and positive about this year and that we can further grow organically also by adding many new software clients in the portfolio. And then also all the innovations, which Remco has just mentioned, certainly will also support further organic growth in the future. That brings us to the end of the financial part, and I would like to hand over again to Remco.

Yes. Thank you, Paul. Yes, this is the end of the presentation and also may be summarizing it in a few words. I think we had a pretty good result in 2022. We really were able to strengthen the company further to invest a lot in future growth and also to show growth during the year 2022. Of course, it was a year with headwinds. Looking forward, the headwinds are not yet over. People are becoming a bit more positive, but still, we know that consumers have a lot more cost for their energy. Let's say, it might not be over yet. The outlook is a bit more positive, but we don't see, let's say, huge improvements yet on the advertiser side. Also the CPMs are still low. Let's say, lower than they normally are also corrected on seasonality. But also in this marketplace, we can grow, we will further grow. And yes, at the moment, CPMs go up, advertisers are spending more. We will, of course, see that also then tailwinds instead of the headwinds which we see now. So we look through confidence into the future and we'd like to thank all investors, all our stakeholders, also the team very much, of course, for, yes, making this possible and also would like to get your support also for 2023. Now from Sweden, so handing back to the moderator. Thanks.

[Operator Instructions] Your first question comes from Philipp Frey from Warburg.

While probably you've partly answered my first question, are you seeing any signs of a pickup in CPM prices? Any pockets of the market where -- or differences in publishers or context where the market is already improving? It would be my first question with some follow-up thereafter.

I can. Sorry, I was fighting with my [indiscernible]. Philipp, thanks for the question. Do we see any improvement? I would say I would differentiate it a bit. There are some sectors that are really, let's say, in long term damaged, I would say, as advertising spenders, which is hypercasual as one. There was -- let's say, hypercasual games were very strong in the charge in the -- apps store charge. But due to CPMs, but also high competition level it looks like hypercasual is really, yes, not out of the market, but really has had a long-term damage in that. Also, venture capital-funded company, not in the blockchain area, those kind of things, we see that there's less spend. So those are more, I would say, strategic categories or strategic parts that do less. If you look at the more classic advertisers, be digital advertisers or more digital companies or more classic companies, there is a bit of hesitance. Nobody exactly knows where the markets are going. Everybody is looking at its costs, also driven by the shareholders, of course. So there is still hesitance on spend and with less spend, there are lower CPMs. So to your question, and I said it before, we don't see improvements now. I mean, of course, even the first quarter is always even weaker on the media side because then in general, less budget on [ ad ]. But if you look at seasonality or corrected for seasonality, we don't see improvements yet. We hope that it will happen during the year. But as said, we can also work very well in this market environment. Good thing is we also don't see further worsening of the numbers, so worsening of the CPMs. So I think we are in an environment where everybody is a little bit wait and see. And yes, in the end, we know that advertising spend was lower again.

And may be to add on that very briefly. On the positive side, as Remco mentioned, we are able actually also to work with these headwinds. But on top, there's also an opportunity if the market, obviously, recovers that our revenues also see a very nice appreciation in terms of organic growth from that CPM increase. And that -- then also the overall efficiency of the MGI Group, also looking at infrastructure costs and revenues per ad and these kind of things would increase. So there is actually also an opportunity going forward. The question is when is it coming, right? That's the million-dollar question, I would say. But, overall, I think that's also very positive to takeaway.

And mathematically Q4 is basically the quarter where you had a really easy comparisons for the start? Or how would you see it before '23, I mean?

Sorry, I don't fully understand your question. Can you please repeat it?

Yes. I mean, Q4 was already a quarter where we had a substantial double-digit decline in the comparison base. So I mean, as of Q4 2023, it should get much easier for you. That's was my idea.

Yes, that's correct. I mean we have now a year of, let's say, lower CPMs. Yes, let's say, Q1 last year was still okay-ish and after it, it started declining. So basically from Q2 onwards, you should have on like-for-like. But at the moment, we are still comparing with stronger quarters from last year.

And then a bit on the M&A and cash side. First of all, can you update us a bit on how much of the synergies or the synergy potential of the recent acquisitions you've already recognized? And my understanding was that the AxesInMotion synergy is pushed for much growth. It's probably -- they are pushed out further in the timescale. And then related to that, while you've touched on your cash pile of EUR 150 million, and you're reluctant to cautious regarding M&A. How much cash do you actually want to retain for -- while speculative M&A? I mean, in terms of opportunities? And what level of cash do you consider necessary as a minimum for your underlying business?

Okay. Let me answer the first question that you asked on synergies. Synergies are not just in, let's say, you switch a button and they are there. Especially revenue synergies just develop over time. And what we have done with the M&A on, for example, about the programmatic side, we connected the platforms immediately. So let's say, demand side platform, buying on supply, et cetera. And we are all the time improving those pipes, but also we're getting more and more customers using those pipes. So that synergy, for example, is developing over time. We have some synergies that are more, let's say, one-offs in the sense of duplicating platforms. We bought, for example, liquids, this CTV platform a year ago, roughly, I would say. And the platform is technically not in a great shape. We wanted to migrate the customers to the smarter platform that we also acquired, but that takes time. First of all, you have to build the features or the same features that the customers are used to on the liquid side on the smarter platform and then you have to start migrating. We are at the moment in the phase of migrating those customers. The first customers that have been migrated are really happy with even having now also new features, but also the old features. And that's a platform that is planned to be shut down by the end of Q1 this year. So you can see that's more than a year actually since the acquisition that we take to really get rid of a platform and then immediately have a cost saving. On the personnel side, we have had cost savings much faster. But I would say there is, yes, not a lot of potential there anymore unless we duplicate platform because then also people that were working on both platforms can now concentrate on one platform. So I hope this gives you a bit of background on the synergies. And to give an exact percentage is difficult, but we still have a lot of room for further synergies to come out.

Yes. But it would be -- would say it's fair to assume that the realization of synergies still gives you additional organic growth potential at the current stage?

Absolutely.

Yes, absolutely. Also between gaming and media, but also within the media side on the advertiser side. Paul, do you take -- Paul should add.

Yes. I can start and if you have anything to add, just fill in, I would say. In regards to the cash position, yes, very strong, sitting at EUR 150 million by the end of the year. And therefore, we have also announced in the press release that we are potentially buy back some bonds and also reduce the overall indebtedness of the group also looking at saving some interest expenses due to the overall increased interest rates. And there is no concrete number where we say, okay, we want EUR 150 million -- EUR 100 million on the balance sheet. I mean for the business, we would need, from a working capital perspective, EUR 30 million to EUR 50 million, while and I think that's what you're also asking for. There's also a certain flexibility, which we would like to keep as a group as there's also opportunities out there, which you cannot always plan for and therefore, a certain cash position is always helpful to take advantage of them. Let's say also net leverage is one of our key focus areas, so we plan to make sure to really stay within our 2x to 3x net leverage target also in the coming periods.

Your next question is from Sven Sauer from Kepler Cheuvreux.

The first one is regarding the divestment in EG7. Could you maybe elaborate on the rationale behind selling your stake if you can? And are there any company-specific issues that led to the sale of your stake? Or was it more that you required some cash? Because I mean, as far as I can tell, you did make a slight loss on this investment. So I was just wondering what the reason was for divesting at this stage.

Yes, I can answer that. Thanks, Sven, for your question. Let me go back a bit further in time. I mean, the question was also why did we buy the stake? And I can release that now. When we bought it, we were really very strongly focused on gaming, and we were just starting to build our assets back or, let's say, we had first results, but it was absolutely not as strong as it now. And at that time, we also were looking at, let's say, having equality between gaming and media and also further building on our MMOs. As part of that, we quite, let's say, a minority stake of 8% that we had with the idea to have the optionality to buy the whole company and to just strengthen our MMO part. EG7 has brought some MMOs, where we were also in the process to buy those companies or those company parts in the early phase and they're really -- yes, really nice assets. So to your question also that we now sold the stake, has nothing to do with EG7 being a good or bad company. We are actually convinced it's a very good company. They have great games, and they are really doing well and also the financial is probably been nice picture. So the company is good, but we have changed our strategy. We have decided you cannot do everything and you can also not invest your money in everything. And so we are now investing our money in the ad-tech side, where we grow faster and where we really have been able to build a strong position and where we're convinced that we can build an even stronger position. And as part of that, we have said, we focused less on the MMO side, and we'll certainly not invest much more money on the MMO side, which means also not buying an EG7. And as such, it doesn't make sense to hold an 8% minority stake because we're not a financial investor and decided then to sell the stake. Yes, we took a small loss on it. But if you look how the market altogether went down, I think the loss is acutely acceptable and not that high. And it gives us the extra cash, which we can employ in, for example, other M&A or also internal growth. So I hope that answers your question.

Yes. Then a follow-up question regarding the EUR 23 million write-off. Is it possible to disclose which games this resolves around? And also on that topic, I mean, when reading the report in the press release, it reads like this was an intentional move of writing this off due to the change of focus of the company. And I was just wondering, I mean, was -- this was an official write-off due to impairment testing? So you had to do this write-off? Or was this write off something that you didn't have to do?

Paul, do you want to take it first? And then I take it or I can...

Yes. I can -- and I also provide some back on. So it's especially older, smaller MMO games from a longer time ago, looking at the area games acquisition, for example, which we did one on ProSieben, but also some games, which were already launched in the year 2000, early on in the gamigo times and where we had certain values on the balance sheet also from these times where in the end, we now decided due to the refocus of the company, to not further invest into these IPs, even there were still revenues and customers. But the outlook of the games would have been, from our perspective, without large investments rather than negative from a free cash flow perspective. And therefore, we also said, okay, let's really streamline the business, focus on the organic growth part and therefore rather reduce the workforce by 50 people and then also disconnecting these games and proactively writing off the assets. So there were no auditors or anyone forcing us to do so. So it was a proactive decision. There's still certain possibilities to use the IPs or to maybe also sell them off at a certain point in time. But we rather -- I wanted to have a very clean approach here going forward and therefore, did this proactively. And it's also in line together with the sale of the EG7 shares, which you have mentioned before got in the end, both things go into the same direction. Let's focus on the MMO games and rather really focusing on the infrastructure software side, advertising business and then having accretive games in the portfolio, which also provide a lot of first-party data to target the audiences. And therefore, I think it concludes in the end, all the developments and transformations, which we have executed over the last years.

Yes. And I can give some game names. It was Grand Fantasia, Shaiya, Aura Kingdom, Last Chaos, for example, and some even smaller games. And we are looking at also the yield of a dollar invested, and those games have become quite small -- small user bases. And then to invest on new DLCs to really keep the game alive or also keep it growing, has a much lower yield on the dollar than basically if you do that in larger games. So that's the reason that we said let's invest those dollars really on the larger games and let them grow. And also, let's say, we look at technology, some of the games have pretty outdated engines where it's a pretty high investment to really update also that one. So we have really done clean sweep basically of the games portfolio to really make sure that the games that stay in the portfolio are really future-proof and that we get those out where the focus would not have really made a lot of sense for the next 3 to 5 years. We could have keep them running, but it would not have added. So I hope that answers your question.

Yes. Very clear. I have one follow-up question, and I'll go back in the line. Regarding the earn-outs on the one slide you mentioned where you showed that you're in your balance sheet, expecting EUR 112 million in earn-outs of which EUR 26 million can be paid in shares. I was wondering, is this for -- I mean, is this referring to the current earn-outs for 2023 or for the next 2, 3 years? And could you elaborate the split of these earn-outs for which goes -- how much which goes -- how much goes to which company?

Yes, I can provide some high-level numbers on it. So, Sven, you mentioned, there's potential EUR 112 million earnout liability as of the 31st of December 2022. Thereof, we have EUR 26 million, which can be paid in shares over the coming 3 years. And that's the full discretion of the MGI Group and obviously, also depending on further key performance indicators on how the company -- how the company is performing with regards to revenues and also EBITDA. That includes, for example, the acquisition of PubNative in 2019, but as well also the Dataseat acquisition, which we have done in 2022. And then we also have cash considerations of up to EUR 86 million which also being fully based on EBITDA performance of the acquired companies. And here, obviously, also, we have a pretty nice natural hedge if the CPMs stay as they are, that also means lower revenues, and that is then also reducing the potential earnout payments. And based on a very rough kind of estimate, and that's really hard to predict because there's always a lot of different input factors and economic implications, but they could also be reduced to EUR 30 million, which would be split over 3 years horizon, which would obviously minimize the potential earn-out payments looking at the overall size sitting on the balance sheet. And therefore, and I think that's also what we have communicated on the Capital Markets already, we have a very nice natural hedge across our key purchase price liabilities. And I think that we can see that also the strategy of MGI always really being rather risk averse, sharing the same risk with the sellers of these assets. And thus, in the end works quite well. Well, obviously, it's in the benefit of both parties to make that work. But some things, I would say, rather take a bit longer due to the current market conditions, while in the long run, the investments have a very positive outlook. And also maybe to fill in on the AxesInMotion acquisition, there we constantly adding millions and millions of users and downloads to the overall game but also there, obviously, lower CPMs, which we saw across and the mobile games industry is impacting certain revenues. And that can also change rather fast in a 6 to 12 months' time, which would also be a benefit for us. But also here, lower CPMs, obviously have a certain impact on potential earn-out payments in the future. So it's a very balanced risk profile, I would say, between the sellers and us.

There are no further questions at this time. I would now like to turn the conference back over to Mr. Westermann for any closing remarks.

Thank you very much. Yes, I would like to thank everybody for listening into this. We are, of course, available, as always, for further questions and for comments and presentations. And yes, we're looking forward to 2023. We are really very well [ positioned ] in, let's say, in the market with a bit of headwinds to further build our business, really grow our business. And we're looking forward to periods where we'll get [ called ] into this kind of headwind. Thank you all, and looking forward to our next meeting, and I hand it back to the moderator. Thanks.

Thank you.