Acast AB (publ)

Good morning and welcome to ACoS's earning call for the second quarter of 2024. As usual, we have our CEO, Ross Adams, and CFO, Emilie Wellatt, that will present the results and the developments for the quarter. You're welcome to submit questions throughout the session using the form below, and we'll make sure to answer them in the Q&A session that will be held after the presentation. I would like to kick off the call by handing over to our CEO, Ross Adams.

Hi, and thank you for everyone for dialing in. My name is Ross Adams. I'm the CEO originally based out of London, where I am actually today, but now living in New York, where I've been for the past two years. We'll take you through the Q2 numbers and recent events. And our CFO, Emmy Villette, is also on and will take you through our financials. If you're new to ACAST, we are the market-leading, independent, global infrastructure platform, uniquely positioned at the center of the podcasting value chain. And we connect advertisers with podcast creators who want to monetize their content and their highly engaged audiences. Essentially, we are an internet connected ecosystem bringing together creators who produce compelling content to attract listeners using their creativity to build a loyal audience base. And this high quality content attracts audiences who are eager to consume it. sizeable and engaged audiences are highly attractive of course to advertisers seeking and paying for efficient reach at scale so we are in the middle of this value chain helping advertisers to access highly engaged podcast audiences across the globe and we share the advertising revenue we generate with the podcast creators on our platform In building the world's most valuable podcasting marketplace, we've established a portfolio of over 125,000 podcasts, generating more than 1 billion listens per quarter. And we work with around 2,700 advertisers consisting of both global brands and smaller companies too. We allow them to reach these listeners with effective and creative advertising campaigns via Acast's marketplace. We take great pride in fostering and growing our relationships with podcasters of all audience sizes and types from around the world. Our state of podcasts ranges from some of the biggest podcasters in the world, like Marc Maron, to news publisher shows, as well as emerging creators. The common thread is that they all choose ACAST as their partner to find and grow their audience and earn revenue through partnering with advertisers of all sizes. So let's look at our development during the second quarter of 2024. And another good quarter with sustained healthy levels of growth. Group sales grew by 24% to reach 478 million SEC in the quarter. When adjusting for currency changes, organic growth was at 22%. Importantly, we have maintained a good growth in North America at 26%. When looking at the growth level in North America, I want to remind you that we had easier comps in the previous quarter. And I'm also glad to show that Europe grew by 25%, reflecting a higher pace compared to the first quarter. Our gross margin was steady at 39%, which is in line with the previous quarter, but reflects a three percentage point increase compared to the level a year ago. Another sign of healthy development of our business. And together with continued cost control, progress has allowed us to make additional EBITDA improvements in Q2. Our EBITDA loss in the quarter amounted to negative 11 million sec, corresponding to a negative 2% EBITDA margin. And this reflects a nine percentage point improvement year over year. And this, of course, shows that we've taken another step closer towards profitability. In June, we announced the results of a comprehensive study we ran together with the media agency OMD. Using data from the Swedish market, the study reveals that podcasting advertising not only surpasses other media in brand building, but also in generating sales. The results show that podcast advertising provides the highest long-term return on ad spend, ROAS, with ROAS of 4.9, meaning that every SEC invested in podcasts generates 4.9 SEC in long-term sales. And this surpasses, for example, social media, which has a ROAS of 4.6 and radio with a ROAS of 4.3. It also shows the podcast advertising is 34 percent more cost effective and driving brand awareness compared to other media. Adding podcasts to a mix of TV and online video can increase a campaign's short term ROAS by up to 18 percent. Synergy between different media channels enhances the value of podcasting and underscores why advertisers need to integrate podcast advertising into broader media strategies. And the study clearly illustrates the attractiveness of podcast or the podcast markets and the large opportunity for both advertisers and creators, as well as the ones providing the infrastructure needed to realize this potential us. An important market trend is that video and social media components are becoming increasingly critical in podcasting, enhancing engagement, expanding reach, and improving monetization opportunities for creators. More and more multi-channel creators are choosing Acast as their home. And some recent relevant signings and renewals in this space include Have a Word, Shits and Gigs, The Fellow Studio, and Kayla, it seems, among many others. ACAST has been at the forefront of this evolution. In fact, we launched our first multichannel campaign more than six years ago. And recently, we have refined our multichannel offering due to increased demand from advertisers recognizing the value of such campaigns. and we see more podcasters keen to extend their brand campaigns across all their channels. Furthermore, our innovative work in this space is being recognized across the industry. In June, our multi-channel work was celebrated at the Campaign Audio Advertising Awards by winning in four categories, including Best Branded Podcast Episode, Best Social Strategy, Best Sustainable Green Campaign, and Best Advert. is testament to our commitment to creative excellence, versatility, and pioneering integrated marketing that so many of these types of creators choose ACAST and so many advertisers trust us with these valuable campaigns. On our pass over to Emily, who's going to take you through our Q2 financials in more detail. Emily.

Thank you, Ross. So let's step into the details of our numbers. Per usual, we start by having a look at the listens. And just as in Q1, we have a decline in listens due to the iOS 17 update that has changed how podcast listens are measured. And in Q2, our listens decline was minus 15%. But our average revenue per listen, RPOL, which is the best indication of monetization that every listener has, has at the same time developed favorably, growing by 45% to 0.43 SEKs in the quarter. So, the decline in our on-platform listeners has not limited our ability to continue to monetize our portfolio. And actually, I'll add some nuance here, because we're not only limited to sell what we are hosting on our platform, but we also have access to some inventory of platform via technologies such as VAST, which are not included in our reported lessons. So, our work to assist creators in monetizing their content outside RSS Also helping them in other media channel or multi-channel work, as Ross just mentioned, is gaining traction. And this means that in practice, we can sell more than the capacity stipulated by the reported number of listens. All right. Our net sales growth amounted to 24% in the second quarter. Apologies, my... My light has gone out. The solid growth development was the one. So it was 22% organic growth after adjusting for FX. So this development was driven by another good quarter for North America, as well as a good quarter for Europe. But I will get into discussing the segments shortly. Moving on to gross margin, we have maintained the gross margin level at 39% in the second quarter, which is the same as in Q1. But when it comes to absolute gross profits, this increase represents an increase of 35% compared to the last year and a three percentage point high gross margin. So as mentioned on previous calls, this positive gross margin development has been driven by the contribution from our friends at Podchaser, their products, whilst we also have had favourable product mix effects. Moving on the development of our geographical segments. Again, we've had North America taking the lead on sales growth, growing by some 26% year on year this quarter. And those of you who have followed us for some time, as Ros mentioned, you might recall that we had easier comps in the previous quarter, explaining the difference in growth between Q1 and Q2, specifically in North America this year. In addition, we saw good growth in Europe at 25% Growth in our other market segments was more stable and increased by 10%. So growth across the board. Also glad to see that we continue to see improvements, not just to the top line, but to the local profitability expressed as contribution profits in all our segments. So once our gross profits grew by 48 million SEKs or 35%, our other operating expenses increased increased by 21 million SEKs, or 11%. So this OPEX increase is explained by our continued measured investments, primarily in North America, but costs were also affected by FX, as well as small cost increase from incentive program costs linked to the recent share price development. So we close the quarter with total staff and consultants of 378 persons, which is actually slightly lower than the 386 staff we had at the same time last year. I'm including consultants here as well. Now turning to EBITDA again, thanks to the combination of our growth, improved gross margin and continued cost control, Q2 was another quarter with tangible EBITDA improvements compared to last year. So the EBITDA loss of minus 11 million FDKs corresponds to a minus 2% EBITDA margin in Q2 of 2024, which compares favorably to the negative 42 million FDKs that we had last year. And on EBITDA margin, this represents a nine percentage point improvement year on year. On the right hand side, you can see the EBITDA development on the last 12 month basis, showing the gradual progress we continue to make. And by Q2, Our LTM EBITDA margin was also negative 2%. So Q2 2024 marks another important step towards profitability, reflecting that we remain firmly on track to deliver on our profitability target of a positive EBITDA in the fall year of 2024. Moving on to cash flows. The operating cash flows improved and amounted to minus 1 million SEKs. in the second quarter. As highlighted in the previous quarter, we usually have some working capital fluctuations, but we've clearly over time become better at driving down our DSO, so day sales outstanding, whilst maintaining our DPO, day payables outstanding, at a steady level. From a last 12 months perspective, it's clear that we've made large cash flow improvements, thanks to the profitability and working capital improvements. So by Q2 2024, so in this quarter, operating cash over the last 12 months amounted to a positive 14 million SEKs. Recall that positive impact we had in Q4 of last year. By the end of the second quarter, 2024, we held 712 million SEKs in cash, reflecting that our financial position remains very strong. Back to you, Ross.

Thank you, Em. So to summarize the second quarter, we have continued to build on the strong start we had to the year. We've maintained a high growth rate, not only in North America, but also in Europe. We proudly remain market leader in an industry that carries significant potential for advertisers, thanks to podcasts being a highly effective media in driving sales and building brand awareness. We are also well positioned to support our creators and advertisers beyond podcasts, as evidenced by our leadership in integrated marketing campaigns and our ability to attract multi-channel creators to ACAST. And it's clear that we've continued to improve our position throughout the quarter. Our financial development and improved EBITDA shows that we are on track to deliver against this year's profitability target. That concludes our comments on the Q2 results. Let's start the Q&A. So if you want to post a question, feel free to type them in the text box below.

Thank you, Ross. We'll start with some questions from Andreas at Carnegie. So first of all, I guess we should assume price levels are fairly stable, which would imply that it is the sell-through rate that is the main growth driver. Can you explain a bit more about how you have accomplished this? And also, if you could say anything on what is more to be done, anything on seasonality we should be aware of for the remainder of the year?

When it comes to our CPMs, Andreas, thank you for the question. they were actually a little bit softer in Q2 compared to Q1. So this means and implies that our sell-through rate has taken a good step forward. There has been a little bit of softness in market, so this is not unusual when we look at us and other big advertising players focusing on the brand spend side. But we have the available inventory to continue to grow our top line. When it comes to seasonality, you might recall that we had tougher top line comes in Q2, so this quarter compared to Q1. But Q3 of this year represents the toughest comp when it comes to growth rates. So I just wanted to make that

Another question from Andreas. Could you give some indication on the seasonality of the cost side? You have increased efforts in sales and marketing, and given the effect you get from this, I guess we should continue to expect these levels to be sustained.

When it comes to the cost line, there was an increase in the quarter, of course, but I'll recall as well that, you know, with our gross profits increasing by 35%, our off-base increasing by 11% still has given us a good level of level of operating leverage. The cost, as mentioned previously, have increased due to our measured investments in the U.S., but they've also, not quite half of the cost increase, but close to half, has been driven by ethics impacts. U.S. and GDP, for example, fluctuations versus the SEK, so our cost base, our OPEX cost base that we have in foreign currency has increased. And we've also had an increase from share-related incentive schemes as a result of the share price increase that we saw during the second quarter of this year. When it comes to seasonality, we do have more staff going on holidays in Q3, so that can have a small impact on our staff costing line and holiday crew. I wouldn't guide to any sort of radical changes in our cost line. We will, of course, continue to make measured investments where we see fit and where we expect a return.

Another from Andreas. Given that you have no debt and a strong cash position, is there any reason to expect the Q2 financial net should be materially different coming quarters?

Q2 Financial, sorry, I'm just reading the question again. So there are, as you have seen, when it comes to net profit and loss and the impacts that we have in the financial items line, blowing the dawn and then coming down to net loss, as you can see in prior quarters, we have had some quite significant impact from FX there. In Q1 in particular, there was impact from unrealized FX gains. We have a goodwill in the balance sheet in USD and that is revalued as USD moves one quarter. When it comes to the financial items in Q2, they're smaller and the impact is smaller than in Q1. And these relate mainly to gains from interest on our cash position. So the financial items line will continue to be impacted by, for example, FX moving forward.

Another question from Andreas. How dependent are you on certain podcasts or certain industries when looking at your revenue? Are there any podcast platform or is there a podcast platform that stands out as more important than others?

For us, all podcast platforms are important. Listeners are primarily split between two to three platforms. But for us, having the open ecosystem and RSS as a distribution system is important to distribute content to anywhere that a listener actually wants to listen to it. When it comes to how dependent we are on certain podcasts or certain industries, when we're looking at our revenue standpoint, we have no advertiser that is a material part of our overall revenue and we have no podcaster that stands out as material and material being over 10% part of our overall reach. So, you know, the beauty of having 125,000 or over 125,000 podcasts allows us to spread that audience and reach out and spread that risk across, you know, the entirety of the network that we represent.

And another question from Andreas, can you explain your multi-channel offering to customers? What exactly are you doing in this area and how does the business model look?

Yeah, we have, you know, video right now. If you look at kind of social and more general, podcasting is really part of that social ecosystem and as a social influencer, a medium. But podcasters obviously have video assets. Video assets might be there to broadcast. promote the show and they might become in short form. They might also come in long form an offering as well. They might simulcast their content as well. But again, distributing your content on as many platforms as possible is key to reaching as wider audience as possible. And for us, it's about how we monetize that audience across the entirety of wherever people are listening or watching your podcast, short or long form. So the offering that we offer to customers there, of course, is very similar to doing just audio. More integrated campaigns happen across video as well as audio, whereas our ad model distributes mainly around the audio offering. But multichannel is becoming a more popular buy and a more popular request from advertisers now. They're very keen to associate themselves and have a creator endorse their product, regardless of where people are listening and watching, regardless of the short-long form. So, you know, we then offer ad formats that answer that and operate in those different mediums.

And some questions from Bernd at Barclays. How much of the strong continued growth in North America was driven by underlying market growth versus you taking share? And roughly, where do you see North America organic for the rest of the year?

Bernd, welcome to the team. It's great to have you on board as new analyst for Barclays. So we're delighted to have you. Now, moving on to your question. How much of North America growth was driven by market growth versus taking market share. Now the market data on podcasting is not perfect. It's still a medium that is in its early stages of development, I would say, even in North America when it comes to the ad potential. So there isn't perfect data. The market, the general ad market in the US is very well documented and it is growing. I would hazard a guess that podcasting is growing faster than the overall ad market. But I would also say that ACAST is continuing to take market share. When it comes to growth for North America for the rest of the year, we typically don't give a specific guidance. But what I would expect is that what we've seen in the first half of the year, in other words, North America growing faster than the ACAST group, I would expect that to be reflected in the full year numbers as well, overall. But of course, we had our easiest comp in North America and Q1, so that's important to remember.

Another question from Berndt. Can you give us a sense of Q3 ad trends so far in the UK, US, Sweden and other markets, please?

Of course. So, well, it's hard to predict the specifics of of Q3. I'll give you some reflections on what we have seen in Q2 so far when it comes to the different markets. Clearly strong growth in North America, but Europe saw a step up in growth compared to Q1. Now, it's a similar picture, similar to the one that we reported on Q1 within Europe, and that is that the UK has had a tougher macroeconomic climate when I look at the portfolio markets that constitute our european segment however we have been fortunate enough to see strong growth from some of the smaller medium-sized markets in continental europe so here i'd highlight france and germany so that has been wonderful to see and also our swedish um Swedish market, which it was a tough market in Sweden last year, you will recall, for the whole year when we split out those numbers. Sweden has been a good step forward this year as well. So overall in Europe, UK has had the toughest macroeconomic climate and we in our markets have seen stronger growth in continental Europe and in Sweden and Europe. it comes to other markets these are mainly made up by australian museum and then our our international statement and they grew by 10 in this quarter it contributes a small smaller overall revenue line um but that uh that blended performance has been somewhat slower than the growth in north america and

Another question from Bernd. Listens declined 15% due to the measurement changes from iOS 17. Can we get a sense of what underlying growth of Listens X iOS 17 was?

It was stable.

And also from Bernd. Finally, what steps are you taking to increase your sell-through rate?

You know, this is multifaceted in the answer here. I think, you know, it depends by market and market maturity. I think, you know, the mature markets we're in, we continue to lead from the front, attracting new brands to the space and thus increasing sell-through as podcasting becomes more and more popular. I think studies like the ROA study we did with OMD out of Sweden really helped signify that and brings new advertisers into the space as well as increasing spend from existing advertisers And then I think also, if you look at our progress we're making in markets, we're investing like America. You know, we're becoming more and more prevalent on the ground there and more and more mature. And that, again, helps our sell-through rates. You know, I think trading deals, we have a large number of trading deals with major agencies as well. That also increases and helps our sell-through rates. So it's kind of multifaceted in the answer there. But very impressed with our sell-through rate.

And we move on to some questions from Derek at ABG. So firstly, what were the main drivers of the strong growth in Europe, UK versus Nordics and other European markets?

When it comes to Europe, we just mentioned that the contribution, the strong contribution from continental Europe, so France and Germany and Sweden or Nordics and a tougher climate in the UK this year. But I think if we have some nuance, then feel free to chip in if there's something to add. I think in some of our markets that have been smaller, it's nice to get to the point of having some critical mass in the likes of France and Germany and steady delivery, optimism and positive ambition from those teams as we have across the board. But critical mass. helps, of course, the growth in the Nordics. We have a strong market position and are well regarded. And here we are also getting some tailwinds from market growth, looking at the easier comps that we had from last year. If there's anything that adds up, feel free. Absolutely.

Very good. Also from Derek, he'd like to know about trends in the other region.

But the other region, it's mainly Australia, New Zealand, and we've seen the macroeconomic climate affect this part of the world in a different way compared to Europe and North America. But it also includes our international team, which is seeing good progress and that operates on a global basis to support our markets where we do not have boats on the ground.

And another question from Derek, you haven't talked much about M&A of late. Is this something you're exploring much currently and what types of targets are you potentially considering?

Thanks, Derek, for that question. Maybe always looking at M&A and also always keeping our ear close to the ground. We have a strong balance sheet and we have the opportunity to do M&A should we want to. Of course, it depends on on the size of any target. So this is business as usual for us when it comes to reviewing the market and seeing if there are any potential M&A targets out there. As you've seen in the past, we've done a few acquisitions. The most recent one, Podchaser, that we did almost exactly two years ago, and the first of August of 2020. and we've been delighted with their contribution and the synergies that we've realised so far.

Also from Derek, regarding the OPEX increase in Q2, how much of this do you expect will follow through to H2?

I mean, OPEX, there is much that we control in OPEX. So much of the OPEX is related to stock cost, but there are also some areas that we do not have full control over. For example, I mentioned OPEX increase related to the share price movement that we saw in Q2. We also have OPEX movements on a consolidated basis that are impacted by our foreign currency OPEX, such as USD and pounds. So at a consolidated level, we don't control the totality of our OPEX. But those things that we do control, we have the same message to the market as we've had previously, which is We are firmly committed to deliver on our profitability target, but we will also continue to make measured investments where we see the opportunity and where we are expecting a return on those investments.

We have a question from Max Philip Stenberg. How does the ad market look compared to previous quarters?

I think, you know, if you look at the macroeconomic, you know, we see certain positive signals in some markets, but it's kind of too early to tell on the whole. But, you know, between Q2 and Q1, we've seen some positive signs of recovery in certain areas. But like I said, too early to tell as a whole.

Additionally, from Max, could you explain what a favourable product mix means?

When we talk about a favourable product mix in the context of how it impacts our gross margin, it means the ad products that we sell. And you might recall that when we sell host-read sponsorship, so those are the ad products for the podcast host themselves, will read and deliver the ad message. They typically have a split that is more favourable to the podcaster compared to a pre-recorded brand ad where the podcaster is not themselves involved in the production. So when we sell more brand ads that have higher splits, typically 50-50, compared to host-read sponsorships, which typically have a split of 70-30 in the favor of the podcaster, that impacts our gross margins.

And we have a question from Johannes. Apologies if I mispronounced that. Sales and marketing costs appear to increase in tandem with the revenues. Is it reasonable to assume that there is a scalability here, i.e. that the sales and marketing costs as a percentage of revenues will decrease as you increase revenues?

I'm expecting all parts of our organisation to be able to scale and deliver scalability as we move towards our path to or as we are on our path to profitability and beyond. But I would also recall looking back holistically over the last five or six quarters, our total OPEX has been largely flat in the five quarters preceding this Q2. So the increase overall that we're seeing now of 11%, the total OPEX follows a time where OPEX has been relatively flat, whilst we have revenues revenues but to recap your question yes we're expecting kids capability from as we are from other areas as well and that concludes the q a back to you ross

Great. Thanks to everyone who's listened in. The report for the third quarter will be released on 5th of November. You're welcome to join us for that presentation as well. Don't forget to follow us on investors.acast.com, our ACAST blog, or listen to our financial results, of course, as a podcast. You can also visit our investor relations website to sign up for press releases, news and financial reports. Thank you.