Acast AB (publ)

Hi and welcome to ACoS earnings call for the third quarter of 2024. Today we have our CEO Ross Adams and CFO Emily Villat who will present the results and development for the quarter. You're welcome to submit questions during the session using the form below and we will make sure to answer them in the Q&A session that will be held after the presentation. I would now like to kick off the call by handing over to our CEO Ross Adams.

Hi, and thank you to everyone for listening in. My name is Ross Adams and I'm the CEO of ACAST, now based out of New York, where I've been living the past two years and actually where we both are today. I'll take you through our Q3 development and recent events and our CFO, Emily Villette, who is also on the call, will take you through our financial performance in more detail. For those of you who are new to ACAST, we are the market leading independent global infrastructure platform for podcasts, 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. So essentially, we are the interconnected ecosystem bringing together creators who produce compelling content to attract listeners using their creativity to build a loyal audience base. This high quality content attracts audiences who are eager to consume it. Sizable and engaged audiences are highly attractive to advertisers seeking and paying for efficient reach and engagement at scale. And we underpin this with the widest data set and podcasting through our data company, Podchaser. Its data on 4 million shows allows us to drive discovery for podcasts amongst advertisers, matchmaking between advertisers and audiences and revenue for both creators and Acast. And we're in the middle of this value chain, helping advertisers to access these highly engaged podcast audiences across the globe. And we share the advertising revenue we generate with the podcast creators on our platform. And in building the world's most valuable podcasting marketplace, we have established a portfolio of over 135,000 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. And we allow them to reach these listeners with effective and creative advertising campaigns via Acast's marketplace. We foster and grow relationships with podcasters of all audience sizes and types around the world. And our portfolio of podcast creators ranges from some of the biggest personalities, including Pernilla Walgren and Sofia Vistam and Peg and Penny Parnevik, to established news publishers like The Economist and CNN. And this quarter, we've welcomed Pioneer Network featuring shows like The Burt Show, which is a top 50 comedy show here in the US, along with Tony and Ryan, which is an Australian show with over 3 million monthly listens. We were also joined by former Westlife pop star Nikki Byrne in Ireland, which launched straight into the top 10. And in the UK, we've also resigned valuable partners such as the High Performance Network. Of course, we also support niche shows of all types who bring them their dedicated communities. This diverse range of content allows us to connect advertisers with the creators and audiences that perfectly match their needs. So what is the common thread across this content? Well, these creators all choose Acast to help them find and grow audience and earn revenue from advertisers of all sizes. But how do we differ from other companies operating within the podcast ecosystem? Well, we are the podcast pioneers. We created the commercial podcast market, as we know it today, when we invented dynamic ad insertion back in 2014, which has been the foundation of the entire podcast advertising industry globally. With over a decade of experience, we continue to lead the industry with technology, content and data. And we have unmatched scale and exclusivity. Our network boasts more than 135,000 exclusive shows reaching diverse audiences across 200 plus advertising markets. And this unparalleled reach, combined with sales teams on the ground in 16 markets, provides advertisers with a unique advantage. With this large supply of podcast shows to match the advertiser demand, we have established a formidable moat. And we're the innovation leaders, and we're consistently first to market with groundbreaking technologies like contextual targeting, AI-driven targeting, and first-party data onboarding, offering advertisers the industry's most comprehensive toolkit. And we offer reliable measurement. We provide trusted industry-leading measurement solutions to track results across the entire marketing funnel. Our data set is the best in podcasting, boosted by owning the podcast industry's most comprehensive database, Podchaser. And we go beyond the podcast. We're podcast first, but not podcast only. We have the capabilities to deliver effective 360 omnichannel campaigns, incorporating social media, video, live events, and so much more. And this enables us to deliver greater audience reach and scale beyond just our podcasting marketplace. So simply put, ACAST empowers podcast creators with global reach, strong monetization, and cutting edge technology all at a scale unmatched in the industry. Looking at our development during the third quarter of 2024, we grew by 12% to reach revenues of 475 million sec in the quarter. Organic growth was 14%. The growth was primarily driven by North America. We managed to grow revenues by 29% despite a tough comparison quarter last year, showing that our investments in the region continue to pay off. And the gross margin was a record 40%, which is 5% percentage points higher than the same quarter last year, positively affected by product mix and efficient yield management. And together with maintained cost discipline, the development has allowed us to continue delivering large profitability improvements. In Q3, we generated EBITDA profits of 16 million SEC, reflecting a 3% margin. And the financial performance is a clear testament of our commitment to profitable growth. Let's have a look at some of our innovation in ad targeting. We leverage Podchase's comprehensive podcast database to ensure advertisers' ads reach their perfect audience. Here are three examples of how we do this. Our AI-powered targeting capability, Collections Plus, which uses AI to categorize podcasts into even more precise sales verticals based on the widest data set in podcasting. It has more than doubled the number of verticals the average show appears in, adding over 4,000 shows to new targeting categories. As a result, since the launch of Collections Plus in September 2023, it has enabled 24% more Acast creators to earn ad revenue. And by ensuring ads reach the right audience more effectively, Collections Plus delivers better value for advertisers and creates more revenue opportunities for podcasters. Collections Plus has rapidly gained traction and now deployed in over half of Acast's advertising buyers. And this success demonstrates our commitment to audience-first buying behaviors and has significantly improved our gross margin through increased use of our in-house targeting solutions. Another use case is predictive demographics. This uses AI to analyze the actual language used in a podcast and predicts the age, gender, parental status, and education level of its listener based on the actual content. And this again helps advertisers target their campaigns more effectively by identifying podcasts that reach their desired audience demographics. It offers a valuable solution in a world increasingly concerned with data privacy and the potential demise of cookies. And finally, we have conversational targeting, which revolutionizes podcast advertising by using AI to analyze and tag individual conversations, not just entire shows. And this allows for more relevant ad insertions based on the actual content being discussed. So, for example, if a car-focused podcast has an episode with a segment that discusses food, the system identifies and tags this, enabling the likes of a restaurant ad to play after that segment. And this dynamic approach expands advertisers' reach without ads feeling out of place and boosting revenue for both podcasters and advertisers and enhances the listener experience with more relevant ads, all while respecting their data, their privacy by focusing on using the content rather than personal data. And all of these capabilities underscore the strategic value of our 2022 acquisition of the company Podchaser. In Q3, we enhanced our ad product offering even further to drive revenue growth for both Acast and our podcast creators. A key initiative was the rollout of an additional mid-roll ad slot. And this strategic addition allows us to increase inventory, particularly on popular shows that often sell out, providing more opportunities for advertisers to reach our engaged audiences. It also allows podcasters to maximize their earnings by making more inventory available in our marketplace. And this fourth ad slot has been deployed thoughtfully. So using our proprietary AI technology, creators can automatically identify the optimal place for the new ad marker to minimize disruption to the listener experience. This update aligns us with industry standards on quantity of ad slots while maintaining our commitment to responsible ad frequency and a positive listener experience. Podcasts offer a clean and uncluttered ad environment compared to other media channels such as radio. And we believe there is still room for creators to increase ad placements without compromising that listener satisfaction. Podcasters are evolving into versatile content creators, extending their reach beyond just audio to channels like video, social media, and live events. This expands their monetization opportunities while further fragmenting their audience across platforms. And this trend is inherent. This trend mirrors the inherent fragmentation of podcasting itself, which continues to intensify as the medium expands. And ACAST is uniquely positioned to capitalize on this fragmentation, as unlike competitors, we are not tied to one particular consumption platform or format. We can operate and drive revenue across all platforms and channels, and we do not operate in walled gardens like many players. Simultaneously, advertisers are increasingly demanding omnichannel campaigns and solutions that enable audience targeting across multiple platforms. In response, we've evolved our offerings beyond audio, successfully delivering a growing number of omnichannel campaigns across multiple channels this quarter. Notable examples include in France, our campaign for L'Oreal spanned branded episodes, YouTube, Instagram stories and reels in addition to sponsorship and audio ads. In the UK, our campaign for Pranceton Beans with podcasts staying relevant spanned audio and social. We also launched a branded podcast across audio and video for EuroMillions called Rich Beyond My Wildest Dreams. And in Singapore, our campaign for Volkswagen with the podcast, The Daily Ketchup, comprised of YouTube content, branded podcast episodes and Instagram posts. Our ability to support creators beyond traditional RSS demonstrates our strong position in this emerging sector and our right to expand cross-platform. And this development aligns with our focus on enhancing our ability to manage complex brand briefs, which unlocks bigger budgets and revenues. And we anticipate continued growth and demand from the channel campaigns as we expect this area to be significant focus for our company moving forward. I'll now pass over to Emily, who's going to take you through our Q3 financial results in more detail.

Thank you, Ross. All right. Let's get into the details of our quarterly performance. And we start by having a look at listens. The total number of listens was just short of 1.1 billion in the quarter, reflecting an annual decrease of some 15%, which is fully explained by iOS 17. Our data shows that monthly uniques, however, have increased during the same period, reflecting that underlying activity remains healthy. And our average revenue per listen reached 0.43 SEKs in Q3, reflecting a 31% growth year on year. So this reflects that the decline in listens has actually not limited our ability to continue to monetize our portfolio and grow revenues. And you can see that in our double digit net sales growth. So net sales growth amounted to 12% in the third quarter, which is the quarter where we face the toughest comps from last year, as Ross mentioned. The organic growth was a healthy 14% when adjusting for FX impacts. And revenue growth was driven by another good quarter for our North American business and with a solid contribution from our other market segments. And I'll discuss these segment details in more detail in a minute. Our revenue through the programmatic channel, I'll also note, continues to increase and was at a record high in Q3 at about 15% of total sales. And the growth of revenue from automated channels is encouraging as it enables sales at lower operational costs and thus greater scalability, which ultimately paves the way for continued profit improvements. We've continued to see a positive gross margin development in the quarter and in Q3 the gross margin amounted to a record 40% and gross profits increased by 31% compared to the same quarter last year. The positive gross margin development in Q3 2024 was driven by a favorable product mix and efficient yield management. You might recall that we also had a negative gross margin impact from iOS 17 in Q3 of last year, which affects the margin comparison year on year somewhat. But ultimately, we're glad to present another quarter with solid gross margins. Now, looking into our geographical segments in more detail, Europe saw a more moderate growth in Q3, as you can see here, coming in at 3% growth year on year. And this development reflects varying market conditions. Our performance in the UK, our largest market, has been affected by tougher market conditions, whereas we've continued to see strong performances in the Nordics and in continental Europe, similar to our comments in that we made in Q2. Importantly, we see that Europe has taken a big step forward when it comes to local profitability, as you can see with a contribution margin of 24% compared to 14% a year ago. North America remains the main driver of growth here at 29% this quarter, or 34% when adjusting for FX, so 34% organic growth, which also has been followed by a growing contribution profits. With a 20% revenue increase year over year, our other market segment further fuel the group's overall growth whilst also having a positive impact on profits. And looking at this development year to date, we can see that we have almost doubled the total contribution profits year on year from our markets segment, whilst at the same time our global costs are down 3% compared to the same year-to-date period last year. So overall, our cost discipline clearly remains, which is also reflected in the OPEX development. Operating expenses reached 199 million SEKs in the quarter, reflecting a 5% increase compared to last year. And we do continue our measured investments primarily in our North American segment, where we keep seeing good traction. We close the quarter with total staff and consultants of 387 persons versus 374 in the same period last year. Heading over to profitability, we managed to reach another profitability milestone in Q3, and we reached a positive EBITDA of 16 million SEKs and a 3% EBITDA margin, reflecting a 9 percentage point margin improvement year on year. The positive development stems from our higher levels of sales, the increased gross margin, whilst we have maintained our cost discipline. On the right hand side, we see that EBITDA development on a last 12 months basis and looking at our current last 12 months EBITDA result, it was also positive at SEK 6 millions. So Q3 of 2024 is another quarter showing that we continue to follow our profitability trajectory and we do remain fully committed to our full year EBITDA profitability target for 2024. Moving on to operating cash flows. The operating cash flow amounted to negative 4 million SEKs in the third quarter, adversely affected by some 30 million SEKs in working capital changes. And we have previously highlighted that we usually have some working capital fluctuations between quarters. From a last 12 months perspective, we continue to see large improvements thanks to our profitability development. It also shows that our operating cash flows is actually tracking ahead of our EBITDA development. By the end of the third quarter, our cash balance stood at 676 million SEKs, reflecting a very solid financial position. Back to you, Ross.