Scout24 Se

Welcome everyone to Scout24 third quarter 2022 earnings call. My name is Filip Lindvall and I'm head of strategy and investor relations at Scout24. As you know, this is my first earnings call with Scout24. I've already had the pleasure to meet with most of you over the past months, but for those of you I have not yet met, I'm very much looking forward to meeting and engaging in dialogue. Back to the call now. As usual, we will have Tobias Hartmann, our CEO, and Dirk Schmelzer, our CFO, on this call. Tobi will kick off the presentation and Dirk will dive deeper into our third quarter and nine months financial performance. As always, we will conclude the call with a Q&A session. We would kindly ask you to limit your questions to a maximum of two. You can find today's presentation on our website under financial reports and presentations. There, you can also find our nine months 2022 report. If you're using the web link we provided beforehand, you can follow today's presentation live. This session will be recorded and the replay will be made available as quickly as possible after the event. Please take note of the disclaimer on page two. Tobi, now over to you. Thank you, Philipp, and welcome everyone.

Let's move directly to page three of our presentation. Q3 was one of the strongest quarters ever in the history of Scout24 and it is a testament to the consistent execution of our strategy. Revenues grew by 18% year on year and we saw profits grow in line with revenue. We achieved all of this despite the challenging macro context, i.e. rising inflation, interest rates and energy costs. Proving the resilience of our business model and the structural growth we are able to capitalize on our moving to the next level strategy. The real estate market is currently in a transition phase, moving from a red hot seller's market to more of a buyer's market. As a result, marketing power and maximizing audience and reach is more important than ever for agents. Let me share our perspective on the current market environment. In terms of transactions, Over time, we have seen solid transaction volumes in Germany. Even during the financial crisis of 2008, the decline was on a moderate level. Also, remember that over 50% or possibly close to two-thirds of all transactions happen because of natural reasons, such as establishing a family, inheritance, death, divorce, etc. While sale transactions currently take longer time to close, we don't see any evidence of a malfunctioning real estate market in Germany. Price development. Based on our Wohnbarometer price data, which we, by the way, will make available in English in the near term, we are seeing sellers still holding on to high prices. This is holding back transaction volumes for the time being. We believe that efficient market dynamics will prevail and a new market price level will establish itself over the next quarters as direction on inflation and interest rates become clearer. Mortgage market. Volumes are down as transactions are down, but we believe the market will remain healthy, supported by transactions occurring for natural reasons. Banks are interested in doing business and are adapting its products to the new market with, for instance, lower amortization rates. Rent market. We see enhanced activity as a certain group of potential buyers are out of the market until sale prices come down a bit. We expect the rent market to remain very active due to lack of new supply at affordable rates coming into the market. So, to summarize, we are experiencing a real estate market which is in a transition phase, which we are able to capitalize on. Our professional and private subscription businesses are market leading platforms providing superior lead quality in the German market. We continue to support our agents with attractive seller leads. Given the flexibility of this offering, shifting from lead engine to commission split and vice versa, our exposure to transactional revenues through IV24 remains very low. Growth of our tenant plus product is fueled by the shift from buy to rent. Against this background of our strong growth momentum and our resilience to the macro environment, we are narrowing our fiscal year 2022 guidance towards the upper end. Dirk will provide further details on this, as well as provide you with an early look at fiscal year 2023 guidance. Now, let me move to page four. On group level, Q3 revenue total 114.7 million euros, a 17.7% year-on-year increase. Ordinary operating EBITDA of the group came out at 63.9 million euros, representing a margin of 55.7% and a growth over Q3 2021 of 17.3%. This is one of the strongest quarters ever in the history of Scout24. Our growth trajectory is the result of executing against our moving to the next level strategy. Our teams have worked hard to make this happen. We now have a much more diversified business model in place, which is well positioned to drive growth for multiple levers. A lot of work has gone into our professional membership business to structure memberships, develop dynamic pricing strategies and deploying a loyalty scheme. we have developed our unique tenant plus business, which provides diversification and addresses completely new revenue pools. Our next level business model is unique in European classifieds. Having multiple growth levers now firmly established to access new revenue pools will continue to translate into attractive growth and resilience. In our professional segment, Subscription revenue increased by 12% to 66.3 million euros in Q3. This is the result of strong core membership growth, a dynamic seller leads business and solid professional customer growth of more than 3% year on year. Customer growth has accelerated quarter on quarter to 21,234 customers in tandem with an 8.4% increase in ARPU. More than 300 customers signed up for a new IS24 membership in Q3 as they want to access the market-leading power of the IS24 platform. The corresponding subscription revenue growth has accelerated from 8.6% to 12%, complemented by a healthy growth in professional PPA. In our private segment, including Vermietet.de, subscription revenue increased by 58.2% to 15.4 million euros. This was fueled in particular by significant new customer wins, especially for the Tenant Plus product, growing our number of private customers by 43.1% to almost 316,000. Private ARPU increased by 10.5% to 16.3 euros. The blended estimated customer lifetime value increased sequentially from Q2 by 2.7% to 115 euros. Given the scarcity of rental objects in Germany and the value add this product offers, it continues to drive new customer wins. We are very proud of what our teams continue to deliver in this business. Turning to page five, let us now take a look at where we stand on our targets for the five value drivers on the basis of the Q3 financials. Our performance is a strong testament to the growth momentum even in the volatile market environment. Professional membership revenue has increased by 11.1% in Q3 year on year, a notable acceleration from Q2 2022 and significantly above our midterm 2026 target range of 4% to 6% CAGR. Our agent membership products are in high demand as they generate superior return on investment for real estate agents. We grew seller leads revenue by 17.5% compared to Q3 2021. While this is below our communicated target, it is still a healthy growth rate in this changed market environment. This business is of course somewhat impacted as agents are less willing to spend money on winning new mandates as their current pipeline might already be quite full. The benefit of our diversified business model, however, allows us to shift an increasing amount of high-quality leads to IV24 and executed via commission shares. We can also proactively scale back marketing spend on inorganic lead acquisition. IV24's mandate pipeline remains healthy. However, it is likely that average time to close a mandate will increase in the near term. Our mortgage business related revenue increased by 5.6%, reflecting a solid performance in an overall challenging quarter. The industry is in the process of adapting to the new market environment. And as you know, some market participants reported contracting volumes in Q3. In addition to selling leads, we continue to very selectively build mortgage advisory capabilities in an asset-light way, as we believe there will be continued demand for high-quality services in the future as well. As you would expect in the changing market environment from sale to rent and the sellers to a buyer's market, our private segment has once again delivered above expectations. Private subscription revenue, including Vermietet.de, grew by 58.2% with a healthy margin and again significantly above mid-term guidance of 26 to 28% average growth per annum. Our tenant plus products experienced strong demand as the rent market in Germany has become even more relevant as some potential buyers are temporary out of the market and switching to renting. Also, The software solution for landlords from Vermieter.de is gaining relevance. We grew the number of registered units on the platform by 103.1%, reaching almost 900,000 units. On track to reach our goal of 4.5 million registered units by the end of 2026. Now turning to page six. I would like to further elaborate on the positioning of Scout24 in a challenging macro context. While the real estate market is in a transition phase, our business is very well placed to generate sustained growth in this new normal. Why is that? Our resilience is based on the following pillars. First, our professional membership business is essential for agents. marketing power becomes more crucial to achieve good prices in these markets. Therefore, we are also seeing accelerated growth in number of agents joining our platform. Second, diversification. Our private consumer subscriptions are largely insulated from the state of the sale market as the focus is on the rental business. In terms of demand, there's a clear shift from buy to rent. Third, Our revenue exposure to transactions is less than 3% of 9-month 2022 revenues, as most of our revenue is recurring subscription revenue either from agents or plus subscribers. We are certainly not dependent on short-term transaction volumes. Fourth, selling mortgage leads is temporarily softer, but we can channel an increasing number of leads to our mortgage brokers. As we are currently only addressing a very small chunk of the market, we see room to grow. Fifth, lastly, advertising revenues are accounting for a minimal share of our total revenues. To conclude, housing remains to be one of the dominant issues for residents and households in Germany. And we are the leading household brand when it comes to helping find and manage a home. Dirk will now provide more detail on our financial performance on group level and for each of the segments.

Thank you, Tobi, and welcome everyone. On slide seven, you can see the Q2 year-on-year revenue growth in our three segments and respective EBITDA margins. The 13% revenue growth in the professional segment is based, as Tobi has already mentioned, on a strong core membership business and dynamic seller leads business. As the professional PPA business is gaining momentum in the current market environment, these revenues add to the segment growth. Consequently, the ordinary operating EBITDA margin of the professional segment came in relatively strong at 60.2% despite this year's additional growth investments. The private segment showed a revenue growth of 34.2% in Q3, strongly backed by private subscription revenue, which grew by 58.2%, including Vermieter.de. In private, we also experienced continued strong growth in our PPA business, creating additional tailwinds. The ordinary operating EBITDA margin of the private segment has significantly increased to 51.3% in Q3 2022. This has mainly to do with the lower penetration of credit checks as part of a longer subscription term, whilst also accelerating the PPA business with longer standing times for listings. The media and other segment revenue increased by 7.5% in Q3 2022. This includes the ImmoScout24 Austria business, which grew strongly by 16.4%. In our CRM businesses, we observe a shift from FlowFact to PropStack, reflecting our sales approach to focus on standardized and integrated product and feature sets. The ordinary operating EBITDA margin of the media and other segment grew by 1.9 percentage points to 33.3%. Let's turn to page 8 to dive a bit deeper into the professional segment. As already mentioned, with a strong core business and seller leads growth, Subscription revenue increased by 12%. We managed to increase our number of customers again. Q3 Professional APU increased 8.4% year-on-year from €959 to €1040, reflecting dynamic pricing and mixed effect of new customers. In these times, our highly diversified revenue composition comes at a big advantage. With a stronger core business and in the context of the current market developments, we deliberately scaled down on lead acquisitions. Hence, the seller leads growth was at 17.5%. This, in addition to the revival of paper at demand, added momentum to the professional segments EBITDA growth. Hence, despite additional growth investments, the ordinary operating EBITDA came in at 44.8 million euros, a 6.9% increase compared to Q3 last year. This results in a margin of 60.2%. On page 9, let's take a closer look at the private segment. I already elaborated on the year-on-year increase of the private subscription revenue by 58.2% and the significant new customer additions in the third quarter of 2022. Revenue growth and net new customer wins continue to be fueled by the hot rental market. Speaking of important milestones, The PPA business exceeded again the €10 million revenue mark in Q3, increasing by 35.8% year on year. We reduced the business with third-party credit checks, leading to a decrease of 13.1% of the other revenue line. This, amongst others, had a positive effect on the ordinary operating EBITDA margin of the private segment. In absolute terms, the ordinary operating EBITDA grew strongly by 61.8% to 16.2 million euros in Q3 2022. This is mainly due to a more efficient plus product business, the revival of the high margin PPA business and lower expenses for credit checks. The ordinary operating EBITDA margin came in at 51.3%, which is more than 8.8 percentage points higher than in Q3 2021. Turning to page 10, let us go through the main ordinary operating items. Own work capitalized increased by 1% to 7.3 million euros in Q3 2022. This translates into a capitalization ratio of 6.3%, which is 1.1 percentage point lower than last year and brings us close to our Q4 target of around 6%. Personal cost increased by 15.9%, mainly due to the integration of Farmita DE employees and regular increases in wages. Marketing costs increased more slowly in Q3 than in Q2. Reason being that we spend less than planned on the acquisition of leads due to rising lead prices and the changing market conditions. This has an impact on the amount of growth investments we had planned for the value drivers this year. Over the year, these investments slowed down adapting to the current market environment from 6.5 million euros in Q1, 3.7 million euros in Q2, going down to 3.4 million euros in Q3. This is mainly to do with the flexibility we now have given our diversified business model and the current market environment. One important takeaway for you is that in the light of changing German real estate markets, we will be very focused on return on invested marketing spend, which may result in mix and channel shifts. The year-on-year growth in IT costs of 13.8% to 5.3 million euros results from the integration of Vermieter.de and increased AWS costs, which have been impacted by the Euro-US dollar exchange rate. Selling costs increased under proportionately to the plus product revenues, mainly due to a lower amount of credit checks sold with the plus subscriptions. Putting all together, we get to a 17.3% higher ordinary operating EBITDA of 63.9 million euros in Q3 2022. The resulting margin is 55.7%. Let's turn to slide 11. Combining our ability to strategically steer investments and increase efficiencies within our operations, we were able to close the gap over the year between revenue growth to ordinary operating EBITDA growth, as both are now at 17 to 18% growth level in Q3. As we have completed most of the growth investments for our moving to the next level strategy, you can also see at the bottom of the page that the gap to our 2021 margin has now closed. Importantly, we now have the platform in place to generate meaningful operating leverage. That is, increasing our EBITDA margin and cash generation via revenues, growing significantly stronger than our fixed cost base. Let's turn to page 12, where you see the items below the ordinary operating EBITDA. Non-operating costs increased to €10.2 million in Q3 2022. The increase is mainly due to provisions for higher share-based compensation. Therefore, the reported EBITDA increased at a lower rate than the ordinary operating EBITDA, coming out at 53.8 million euros in Q3 2022. 3.2% higher than in Q3 2021. Depreciation and amortization decreased by 44.1% to 8.3 million euros. due to the termination of the purchase price allocation amortization of the ImmoScout24 customer base. The financial result, however, is not impacted anymore by the performance of the managed liquidity. For Q3 2022, the financial result turned positive to €0.3 million. With these developments, the reported net income increased by 36.6% to €32.7 million in Q3. Due to the ongoing share buybacks, the basic EPS increased by 47.7%, testament to our highly accretive capital allocation strategy. The adjusted EPS increased at a slightly lower pace with 31.5%. Let's turn to page 13, where I want to give you an update on the capital allocation. Since the carve-out of AutoScout, we returned 1.9 billion euros to our shareholders, which is 67% of the proceeds. Taking our debt repayment into account, we already reallocated about 90% of the 2.8 billion euros. Via share buybacks, we redeemed in total about 25.5 million shares. In the currently ongoing share buyback program, we have bought back shares in the amount of 213 million euros as end of September 2022. Now turning to page 14 and full year 2022 guidance. Based on the strong performance for the first nine months and the momentum we are seeing in the business, we are pleased to narrow our guidance for the full year 2022 on revenue to 14 to 15% growth and 11 to 12% for ordinary operating EBITDA growth. Furthermore, I would like to reiterate that we are 100% committed to our capital markets date targets from December 2021. also going into full year 2023. Specifically, based on what we are seeing today, this means we are confirming at least 12% revenue growth and 13% ordinary operating EBITDA growth for next year. Given our outperformance in the current fiscal year versus the 2021 CMD targets, growth rates for the next year will come in on a higher nominal base. As such, we are currently running ahead of the CMD CAGRs which reflects focused execution of our strategy. Early confirmation of financial year 2023 growth rates represents the confidence we have in our ability to navigate the new market environment with our diversified business model. With that, let's open the line for questions. We would appreciate if you could limit your questions to two per speaker. Operator, over to you.