Adtraction Group AB

development across Europe. We also think that attractions big clients, both loan providers and brokers actually will get the license that is required. They will get that license and we've already seen that happen. So for example, attractions client Brixo got a banking license just a few weeks ago and we expect other quality companies to go the same path. So we think that loan providers and brokers will adjust. There will be fewer players, but the volumes will probably not go down. That is our basic assessment. And I will also say that we remain committed to this vertical because we can provide great value to brands and partners. And we've done that for many years and we'll keep doing that. We're also convinced that the market will grow over time. And we're also thinking that change leads to innovation. So we're going to see some new setups some new services being deployed in the market and of course attraction is also looking at a new solution to to face the regulatory changes Ecom saw a very challenging 2024, and I think you can see that in this graph. We grew basically every year until the end of 2023. Then in 2024, we've seen a flat development. I think it looks a little bit better now. We see fewer accounts being closed or paused. we have seen some strong account wins that are not reflected in our results yet and we also see a slightly more optimistic outlook from brands that means that they're a little bit more willing to do things but this is still very far from a booming market of course we're still far from a booming macro environment which is also reflected in our numbers if we look at the combined picture here It looks like things have stabilized a little bit. We get the same picture if we look at sales and add rolling 12 months. It looks like things have stabilized. And the same goes for gross profit. So things are not really changing here. I think that before we see a turnaround, we need a stronger market for consumer credits. And we honestly do not know when that will happen. In the meantime, we're doing what we can to find growth where we can find it. What is changing, though, is the Internet. So the Internet is changing. And what I mean by that is that I think that probably everyone in this call is using one or several of these services. Some of us use more than one service. And the reason that we do that, of course, is that they provide a great value and are super useful. And these services are also seeing improvements. great growth in terms of number of users. So what is not clear, though, is exactly what their business model will be. It's not possible to buy ads or traffic from these players yet, at least not at scale when it comes to these specific AI models and AI services. And to me, it's clear that they are facing some interesting challenges. Either they stick to whatever the AI thinks is the best answer, Or they introduce paid results and they risk compromising the quality of service. Sort of what happened to Google. And it's going to be very interesting to follow what it is that they will do. And what we have seen so far is that companies are experimenting with different things. We have read about ChatGPT seeking to get paid for conversions, which, by the way, is a great business model in China. our view we know that perplexity which by the way is not big in europe at all is experimenting with ads and of course it's not it's not far-fetched to think that meta will have many ads based solutions so my personal guess for whatever that is worth is that we'll see different business model emerge here and i think it's sort of important to remember in this context that when google was at its peak, enjoyed the most dominating position, we think that they had around 30% of global ad spend. That's a massive number, but it's still very far from 70%. So we think that there will still be a broad portfolio of advertising solutions going forward. But there are problems with the emergence of AI. And one of the core problems here is that AI is taking content from content sites without really sending any users back. And that puts the content sites in a strange position because they're delivering great content, they're not getting users, and there's fewer ways to monetize their content. This actually is a problem that the industry... needs to solve. We've seen some deals between the AI companies and media houses, but there probably needs to be a more profound solution to solve this problem. This is not Attraction's job, of course, to solve. We are more concerned about our own traffic and what's happening to Attraction's traffic. That's what we like to think about and that's what is important to us. And I think the first thing that we should point out here is that Attraction does not rely on one traffic source. We rely on an innovative network of traffic sources. We rely on an innovative network of partners. And partners are indeed showing up in the AI results. So if you ask ChatGPT certain questions, for sure, the partner sites are there. We have seen partner sites also in Google AI overview. And for us, it's difficult to know to what extent partners actually are getting traffic from Google. from these services, but I think it's very encouraging to see that they are showing up there and it's encouraging to see that partners are following the development. So this makes me sort of hopeful for the future. But what's important right now is attractions traffic. Did we, like Wikipedia and some other sites, lose a lot of traffic or what's going on? And the answer is that no, we didn't lose traffic. So this shows an index number of clicks. We're starting in the beginning of 2021 and then we're seeing what's happening with our clicks. And it turns out that They're more than stable. Traffic is growing. And this data set is not perfect. There's always going to be some bot clicks in the data set that it's impossible to clean things up entirely. But I think what's important here is the general trend that we're growing. So the number of clicks is growing and our model is still working out from that point of view. What also is growing is the number of conversions. And here we're looking at conversions both in terms of leads and sales. So those are the two types of conversions that you see in our platform. And we actually see a very nice increase here also. To summarize, we have not seen a drop in traffic or conversions. The traffic is there and tracking obviously works. So by this data, you can obviously draw some implicit conclusion. And one important conclusion is that the average commission per transaction has decreased because both the number of transactions and the number of clicks have increased. Then it sort of follows that the commission has decreased because cross-profit has decreased a little bit. And our view is that this is a reflection of the macro environment and this will change over time. let's talk a little bit about tracking and how that is working out we said something about that in the in the last report and we just want to clarify perhaps what we mean and what it is that we're doing so first i want to say a few basics about our model so obviously it makes sense for a brand to pay for conversions obviously it makes sense for a brand to to pay for conversions that's the cornerstone of our business model and yes if a brand pays for conversions that will get even more conversions so let's say as let's say that a partner sends traffic to meds and meds is paying for conversions of course the partner will continue to send traffic um to meds and they will continue to get paid so it's sort of a self-reinforcing model that's great and and working out exactly as it should. And yes, tracking can be automatically updated when something needs to be fixed. Tracking can be automatically updated. And there's also a number of other nice features with tracking. So there's an opportunity for brands to validate sales. There's an automated return handling and all sorts of good stuff that makes the model work. But the world is not perfect. So here are some challenges that we see with tracking and that we're trying to address. The first problem is not a huge one, but it's something that pops up maybe once a month or so. And this is about the different realities presented by GA4, Google's analytics tool, and Attraction and other networks. The problem in a nutshell is this. We send an invoice to a brand of X transactions and then the brand will take a look in their GA4 and they will see, well, there's only Y transactions here. And why are you sending an invoice with X when you should send an invoice with Y? That's the question to us. that that that that question has a really simple answer we are of course not basing our invoicing on what's happening in j4 they are measuring a different thing we are measuring or basing our invoicing on what's happening in our platform because this is also what it says in our agreement so what we do is we simply explain this to the brands and typically they understand and um we may need to spend a little bit of time explaining why there is a difference between J4 and what we measure. So I will not dig into the details here, but if you're interested in that, you can read an article, you can scan the QR code, maybe click the link. You should be able to click the link when it's posted on the site, or you can Google it if, of course, anyone is still Googling things. So let's go to a slightly more challenging problem, and that's what we call tracking gaps. And tracking gaps occur because the tracking code is not executed for one reason or another. So, you know, it doesn't help that we can automatically update the tracking code under certain circumstances. if the code is not executed. And of course, the code should not decide itself whether it's executed or not. That's really up to the brand. The brand should decide if and when the code is executed. And under certain conditions, actually, the code is not executed the way that it should be. And the first one is when the brand is making certain consent settings and certain GTM settings. then our code may not be executed. We're also seeing examples of aggressive deduplication. So our agreement says that under certain conditions, our code should be executed. And perhaps the brand thinks that, well, hey, this user came from Facebook or whatever. So let's deduplicate and let's not execute attractions code, even though it should be executed according to the agreement. And the third problem is perhaps probably the smallest one out of this, and that is redirect to apps. Some e-commerce companies prefer to send their users to apps, and it's well known that tracking works a lot worse in apps for different reasons. I would also say that this is not a huge problem because there's some self-adjusting mechanism in our platform. So if a brand is not converting good enough, then partners will simply send their traffic elsewhere. So the model is still working out. There are self-adjusting mechanism in the platform. But of course, some brands are simply great brands and they get traffic anyway. And then we need to make sure that things are right. I also think there are some consequences of a tracking environment that's less than perfect. So, for example, short-term sales may be underestimated, which means that partners and attraction may not be fairly compensated. Of course, we need to fix this. Longer term, of course, the brand may perceive the channel as less valuable. If the brand thinks that we are sending fewer conversions than we actually are sending, that is a problem long-term when you're comparing different channels. But fortunately, there are some beautiful solutions. I think the GA4 problem is fairly straightforward. We already have a solution in place where we can provide additional data for GA4 if that is requested by brands. In most cases, they don't need that. But if they want it, we can provide some more data for GA4. And also, we will introduce a lot more transparency regarding tracking data for each track transaction. So the... the brand will know a lot more about the tracking for each transaction. So this will be implemented within a couple of months. And then for the other problems, the tracking gaps, we have two options. So the first option is to always fire attractions code no matter what happens. And then we can do our job. And of course, we should do that in a consent friendly manner and make sure that we follow GDPR in every way. And if the brand for some reason is not firing the code, then there needs to be different ways to compensate. And this is a fairly big project that we're working on. And we will not finalize this project in Q3, but we will for sure start in Q3. We think that these things together will have a positive impact on gross profit and sales, but this is not something that happens overnight. This is sort of a long-term project because some of these things need to be implemented manually. But it's important that tracking is working out for the reasons that I have mentioned. So we go back to the question about how will we grow, and you will recognize these slides if you have watched our presentations before. The main objective for us is to grow with our existing base of brands and partners. That is the most important thing to us. And we do that by providing a great service and providing great value to partners and brands. This is the core business idea of attraction. Of course, we also want to increase market share. We have been trying to grow in Europe for many years. We have seen some growth, but we want to achieve a lot more and probably we will need to do more M&A in Europe to speed things up a little bit. But we're also going to keep working to grow organically. We want to grab the Google budget. I have talked about that many times before. It doesn't make sense for a brand to spend too much on Google, especially now. I would argue that in many ways, Google's model is under threat. So you cannot be certain that Google will be able to deliver what they have delivered before with all the changes going on. We want to do M&A in new markets. And one thing that we have understood now is that Our business is becoming more complex. Maintaining and developing a platform is a lot more complex. Historically, when we've acquired a company, the reason has been that the founder perhaps wanted to do an exit or partial exit or wanted to be part of a bigger team and saw other synergies and it was exciting to do a deal like that. Now we see opportunities where where smaller companies have platforms that are simply not performing in this market. They don't have the resources to update the platform and they really need to update the platform or they will be left behind. So we think there are some opportunities there. We will see what happens. So we normally talk about the number of employees and the big picture here is this. The chart looks almost a little bit random, I think, but it's not. So what happened was that we did the IPO towards the end of 21 and we started hiring a lot of people. Then we acquired ad service. The number of employees increased. We faced a more difficult market and the number of employees was reduced. Until last year when we started growing again, we added a few people through acquisitions. And then all of a sudden we see a drop in Q2. I think that this drop is more or less random. A lot of things happen at the same time. We have already hired a lot of new people. So actually, I would expect some continued growth here going forward. Not a massive growth, but we will continue to add a few employees here and there. The cost base per quarter is something that we, of course, follow closely. We need to know what the cost base is and we need to know what the gross profit is so that we know that we make an operating profit each month. And we're trying to keep the control over the cost so that we always make a profit. And what we're facing now is a situation where the cost is... about 1 million lower than the same quarter last year. So with that, I will turn the mic to Andreas for a couple of slides.

Thank you, Simon. And then looking at the numbers from the second quarter, starting with the net sales, we have 263.8 million. That's a negative growth of 5%. And we will also comment a little bit on FX in this presentation as it's been quite volatile. And we've received a few questions from investors lately. So we can see that it's slight negative effects on the growth rates. And we would have a negative growth rate of 2% if we would have had fixed rates. Looking at gross profit, we have 51.5 million. That's a negative growth of 3%. You can assume the same thing regarding FX here. It would have been slightly less with fixed rates. I will also comment a little bit on acquired versus organic growth when we get to the verticals. And the profitability and EBITDA at 9.4 million, that's a decrease with 4%. We have maintained the same margin as last year, 3.6%. And that we have been able to do through lowering the total cost base, despite having acquired ad record and added to the total cost base by doing so. We also limit the FX exposure on our profitability. And we do that by getting paid and paying partners in local currencies and also paying our operating expenses on the local markets with local currencies. Thereby, we have a little bit of a shield towards fluctuations on the currency market, and you should expect the fluctuations on the currencies to have limited effects on the profitability in attraction. The adjusted net result per share is at 0.43 kronor. That's a decrease by 7%, a little bit more in the EBITDA. And the reason for that is being differences in the financial items between the quarters. In the verticals, starting with e-commerce, we have 31.4 million in gross profit. That's an 8% growth. We can see growth on most markets. We have previously said that it's hard to say an exact number on organic versus acquired growth when we have migrated the customer base. That is true. But we can say that we would have had a slight positive organic growth in e-commerce, excluding acquisition. And then the rest of the growth is acquired. The finance vertical, 19.4 million in gross profit. That's a negative growth of 18%. We can see a general negative growth across markets with a couple of exceptions on smaller markets. And then the vertical other, everything that is not in the attraction platform, we have 0.7 million in gross profit. Comes to yoga fees, starting with Nordics, we have 38.6 million in gross profit. It's a 1% negative growth. And this is also where you see the effects of the acquisition of ad record. I can also say that the trends within e-commerce and finance are similar between Nordics and Europe. They're positive in e-commerce and negative for finance. In Europe, we have 12.9 million in gross profit, and that is a negative growth of 7%. And then when it comes to cash flow, we can see that we had three consecutive quarters with amazing cash flow, looking at the operating cash flow, followed by the second quarter in 25. And the reason for this is that we've worked really hard on improving processes when it comes to invoicing and getting paid. And that has... given very good results. And the reason for it being negative in the second quarter here is seasonality effects and that the partner payments from this process enhancements are bigger. You can instead look at the operating cash flow from a rolling 12 perspective to see the effects on these process enhancements are actually at a historical high when it comes to operating cash flow. Then breaking down the cash flow to its difference in components, starting with the operating cash flow at minus 13 million. That is due to previously stated bigger partner payments and the seasonality effects. We have investing activities of minus 0.2 million, finance activities of 16.6 million. That is the first tranche of dividend payment. That gives us a total cash flow of minus 29.7 million in the quarter. And we can see that the net cash position has grown from 93 to 100 million in the last 12 months, despite having acquired at record and made to tranches of dividend payments. And thereby, I give the mic back to you, Simon.

Thank you, Andreas. I just want to reiterate some of the goals that we have and what we're working towards. So obviously, we're about growth, profitability, and cash flow. I think we've done a decent job when it comes to profitability and cash flow, not so much when it comes to growth. I also think that we need to be a European network. So the next step for us is to strengthen our presence in Europe and continue to do things in Europe. We also want to serve a wider range of clients. We have talked about that before. We are building great solutions for smaller clients, and we will talk more about that going forward. We also want to be a leading consolidator. I think that Attraction has been involved in you know, most of the transactions that have happened in our space. So we have made four, we've bought four companies. There's been one recently that we did not acquire and that's Bell Boom. And that was actually a German company that was in a very unsound financial position. And we perceive that as a little bit too risky so we did look at it but we didn't choose to move forward with it because we felt that the transaction structure was a little bit too risky so what's happening now is that again we're focusing to get back to growth we're implementing that new CRM system and the new playbook we're implementing the new tracking opportunities sorry the new tracking solutions and we are looking at M&A again. And of course, I want to say something about Bundler. Bundler is a subsidiary, still very small, but it's doing great and exciting deals. And like I said in the report, we expect to talk more about that in the next year, actually. So with that said, we have received a number of questions. So we'll... We'll get started with that. First, what is the name of the new CMS? I'm guessing that we mean CRM, and that is Salesforce, which is, of course, a huge company, and we're implementing some great solutions, we think. Can you share some examples of previous periods when you faced challenges in terms of the finance vertical? Yeah. The biggest thing was clearly COVID. So when that happened, we saw a huge drop initially, and then the recovery was a little bit quicker than we've seen now. Now it's been prolonged, but I also think that we're facing a very special situation in the world. Other than that, we've seen shorter drops throughout the years, but nothing like the one that we're currently experiencing. So... another question is you've reduced staff by seven employees what roles have been cut and was this a deliberate strategic decision so this is a mix of things so some people left us and we wish that they hadn't that's going to happen for for any company of our size and in other cases we we made agreements with people to leave if something is not working out we tried to to fix that. And I would say that it's more or less a coincidence that a lot of things happen in the same quarter. We already have hired a lot of new people and we expect to get back to growth. Most of the people who left us, if I remember correctly, were account managers and partner managers. Do you see the M&A market starting to be more active or is it still as cold as in previous quarter? Well, I think it's a little bit more active. There are know we're constantly probing people and asking if they want to talk to us and now it turns out that some people want to talk to us so we'll go ahead and do that and we'll see what that leads to uh you've previously used a fair amount of shares and acquisitions now that you have uh 100 million in cash and no debt how do you view optimal finance structure for future acquisitions well please remember that that in the ad record thing which we did last year, that was 100% cash transaction. Connects was cash transaction, and then we borrowed a little bit for... We have made small loans that we have actually very fast amortized after the acquisition. Yeah. And the only transaction where we used shares was ad service because ad service was sizable. It depends on the size of the company that we're acquiring. We prefer to use cash. So I think our first priority would be our own cash position. Our second priority would be debt. And if we have to, we'll use shares. But that is a little bit less likely, I would say. Can you comment on the performance of the finance vertical at the beginning of Q3 and whether there are any indications that the sequential incline is nearing a bottom? Well, you know, this is, of course, the key question here. So what I did say was that we saw a small negative growth in Q3, the start of Q3. And, of course, what's going on there is that we're growing e-commerce and we're not growing finance. But we're seeing a better development than we saw in... In April, of course, April was super, super bad. And maybe April was the bottom and maybe we're recovering. I honestly don't know. I don't want to speculate here, but I'm fairly confident that this will not go on forever. My personal feeling is perhaps that this is some sort of boring that we're seeing now and we have seen, but I honestly don't know. So here's a question about ECOM. ECOM stable at the beginning of Q3, stable as zero or stable as in growing at the same rate as in Q2? Well, it's the same situation as in Q2. We're seeing growth for ECOM. So we have a few more questions. Here's a question about... Google AI overview and how that is impacting traffic. I think we have answered that to some extent, obviously not in a perfect way, but my sense is that Google AI overview is not impacting things a lot. And like I've shown, our traffic is still there. We have a question about the effect of the law that we've seen in Sweden and what impact we will see on the gross profit. And like I said before, we are not doing well in the finance vertical in Sweden, but I don't think that is primarily related to the new legislation because, of course, we've seen an interest rate cap, but companies seem to be adjusting to that. uh and the question is what will happen next year next summer when you need the banking license now and our assumption is that all our big customers will get that license. And I think that some of the big brokers have actually publicly confirmed that they will go ahead and get the license and it would not make sense for them to not get the license. So probably they can pay a few million, strengthen their organization and get the license. So we think that the market will keep going, of course, even even after the new legislation has been fully introduced. Here's a question about the number of employees again is is the current number of employees sustainable or should we expect the growth? Well, we should actually expect the growth. Like I've said before, we already hired a lot of new people. Uh, are there any seasonal effects, uh, within the finance, uh, segment? And if so, why? Well, uh, the big trends are that typically January is a good month. Then we see a drop, uh, during the spring. And, uh, we see a, um, uh, a little bit better performance during July and August. Now, these patterns are not as clear in a weak market like that, but somehow they're still around. Then there are local effects. So for example, in the Swedish market, tax returns in April and June, I think, will impact the need for borrowing. So there are some seasonal effects, but they're a little bit less pronounced in a weak market like that. In the small uptick in gross profit in other segments, an outlier, or should we expect that segment to continue to grow? Well, I would expect that segment to continue to grow, and I'm sure we'll talk more about that going forward. I would actually be surprised if that segment is not growing, but not at a super rapid pace, but we should see continuous growth there. So here's a good question. A couple of years ago, Attraction made greenfield expansions into Italy and France. How are those expansions developed? Are they profitable? No, they're not profitable. I think that we've seen some good development there. We have great teams, but things are a little bit slower than we hoped. And I think it's a little bit more difficult to start these things in a weak market like like we did. We are long-term, though, and we are convinced that we will be successful in those markets going forward. So the teams are fairly small. It's just a handful of people, but I will say that we're not comfortable launching new markets until we're profitable in our current markets. Here's a tricky one. How far away would you say that attraction is from making the next acquisition? Well, if it were up to us, we'd do one... if very soon but it's not always up to us people need to understand that it's a good idea to sell to us but you know within a year i think that we've made more m a when it comes to the finance vertical vertical is the decline primarily driven by less revenues from a handful of significant clients or more broad-based So I would say that it's broad-based. So this is basically across the client base that we're seeing drops. Of course, there are exceptions. Some clients are performing very nicely, but I would say that it's a broad-based drop. It would also be interesting to hear how different subcategories and markets within the vertical are performing. And I guess that goes for e-comm because e-comm, there are a lot of different categories and The performance greatly varies. And I actually agree that that would be good to report a little bit on that to give an extra flavor of what's going on in e-commerce. And we just need to find a good way of doing it. We will not do it in this report, but the question is noted. Then we have a final question here, I think. are we looking at any new vertical and we're constantly looking at new verticals so so this is this is how we look at things at attraction so we report two verticals one is finance and one is one is e-commerce e-commerce is basically everything that is not a finance product and And we're excited to start new verticals and new things at all times. And a good way to get a sense for that is actually to look in our platform and see what types of brands we have and what types of brands we're adding. There's constantly happening stuff. Then this person is saying that it's not fun to see the finance vertical shrink quarter after quarter. Well, I couldn't agree more. This is something that we're working on and that we're trying to fix. And the same person saying that it's ethically questionable to sell expensive loans to people in financial distress. I strongly disagree with that comment. Because here we're making an assumption that everyone who's getting a loan is in financial distress, and that's not how the market works. So in Western Europe, we have a loan-based economy. And then the market needs to supply those loans. And every single loan provider is reporting to different regulatory bodies and so on. So this is just some consumers demand loans. And then there's going to be companies who sell those loans and we help consumers make better choices. So I have a very different view of the finance market here. All right. Let's see if there are any more questions. Yeah. How is the finance vertical distributed across countries? Are certain markets significantly larger than others? And if so, how large are the biggest geographic markets? So, yeah, we're not doing finance in certain markets, whereas finance is very important in other markets. So the general picture is that in all Nordic countries, finance is fairly... important to us or very important, not in all countries, but we have big finance gross profit in all Nordic countries. Finance is also very important in Spain. So the Nordic countries and Spain are the markets that have the biggest impact on our finance performance. Then we also have strong finance offering in the Netherlands and Germany. We're doing some things in Italy and France and Poland. And actually in the UK and Switzerland, we do not have any finance offering to speak of because the market structure is different there. So these are the questions that we had for today. I think to summarize things, I would like to say that Attraction is profitable. We're seeing a better development in e-commerce. Finance is still challenging, and that needs to turn before we see a better development. My view is that this is a market thing, that everyone who's trying to sell new credits is impacted by this. very active in trying to find good solutions for our partners and brands. And long term, we know that this strategy works. So that's it for today. Thank you very much. See you next quarter.