Catena Media plc

Hello, and good morning. I'm Pierre Cadena, and I'm joined by our Chief Financial Officer, Mike Giroux. Today, we'll be speaking to our Q1 interim report, related financials, and our strategy and outlook. Q1 was a quarter of underperformance, with revenue from continuing operations totaling 16 million euros, representing a year-on-year decrease of 49%. Contributing factors include lackluster execution in our core operations, stronger competition, tightened marketing spending by operators, recent Google core updates that have adversely impacted the visibility and ranking of some of our sites, and a less favorable state launch rollout. in terms of the state launches in the quarter we did have two states launch online sports betting the first was Vermont on January 11th and the second was in North Carolina on March 11th the launch in Vermont was not materially impactful to our business given the relatively small population size in the state North Carolina however with an adult population of eight and a half million people And, you know, while it did not meet our expectations, it did provide a positive uplift for us, and it was our strongest performing state in Q1. To help position the company for improved results in the second half of this year and beyond, this quarter we announced significant internal and strategic changes. We began our shift from a geocentric operating model to one that will incorporate agile, product-focused teams with defined targets and operational and financial success. We are confident this alignment will help drive accountability and performance on a product by product basis. We've also strengthened our leadership across key functional areas such as technology, organic growth, SEO, and operations to help drive this transformation forward. Lastly, on the product and engineering front, we continue the development of our new technical platform and started to integrate it across our products. We expect a full rollout across our products to be completed in the second quarter of this year. Also in the quarter, I was appointed interim chief executive officer following the departure of Michael Daly in February. We also announced Manuel Stan will be joining us in July as our new chief executive officer. Upon Manuel's arrival, I will then step into the role of chief operating officer. Lastly, I am excited to announce that Mike Giroux was appointed to chief financial officer on April 15th. Mike has been with Katina for four years and is not only deeply familiar with how our business operates, but also aptly equipped to help push Katina Media forward as we transform the company for growth. With that, I will turn it over to Mike to present the financials in more detail.

Thank you, Pierre, and good morning. Moving into our financial analysis from a geographical split perspective, We concluded the quarter at €14.3 million in revenue in North America, down from €28.9 million revenue for the corresponding quarter last year. Adjusted EBITDA decreased to €5.4 million, 72% lower than last year, corresponding to a margin of 37%. Our North America revenue amounted to 90% of group revenue from continuing operations in the quarter. Looking at our segments, sports was down 70% versus last year. This was the main cause of our underperformance was driven by the increased competition, lower CPA rates in sports, and the addition of very difficult comparables with the Ohio and Massachusetts launches from last year. Our North American casino business was also down versus Q1 2023 by 15%. But it is showing signs of a turnaround of the 12% quarter on quarter growth versus Q4 of 2023. This quarter on quarter casino growth is a reflection of our aggressive program and measures currently underway to restore the business to profitable growth in the second half of 2024. Looking at the rest of the world, which mostly contains our LATAM business, esports, and APAC businesses, we saw a revenue of 1.7 million, a decrease of 36% versus last year. Adjusted EBITDA, however, increased by 58%, which can be attributed to streamlining the APAC and the remaining European operations, combined with profitable growth of the esports business. We are seeing profitable growth in the key products in this area, including Slotsia and our esports business. Continuing into our segment performance, we saw a very large decline in our sports revenue from 6.1 million versus 19.2 million in the previous year. Our casino revenue decreased by 20% versus the previous year. However, a sizable portion of that is attributed to historic revenue share players from our APAC and remaining European businesses. While our North American casino revenue decreased by 15% compared to last year, we are pleased to see the previously mentioned 12% growth compared to Q4 2023. With growth in most of our regulated states, this is an early validation of the turnaround strategies that are already underway. we are also continuing to see a positive impact in the casino segment from our broadened social and sweeps casino footprint this burgeoning sub segment is capitalizing on the slower than originally expected regulated casino launches in the various states giving us an opportunity for continued growth continuing on to our cost development technology, AI, sub-affiliation, media partnerships, and paid media. Pierre will touch on this in more detail in his outlook and strategy portion of the presentation. Costs in North America decreased by 7% and accounted for 63% of the total group call space from continuing operations. We had higher direct costs related to media partnerships signed in 2023 that were not active in Q1 of 2023. Not all of these partnerships have been profitable for us and are contributing to our negative sports EBITDA contribution. Prior cost savings initiatives helped offset our investments in AI and technological platforms. Items affecting comparability in the quarter were 1 million euros. We will focus on cost efficiency per product through this transformation initiative. Despite consecutive quarters of poor financial results, the receipts from proceeds of our divested assets through the strategic review continue to put us in a very healthy financial position. Net interest debt decreased by 56% to 10.1 million euro. We have a strong net cash position when including our future proceeds from divested assets. Our focus is to continue reducing debt and investing in strategic investments. Leverage is at 0.99 versus 0.44 last year. Looking at our capital structure, we currently have no outstanding financial commitments relating to prior acquisitions. Our cash balance at the end of the year was 23.4 million euros, and we were reporting a net debt of 10.1 million euro at the end of March. If we include future proceeds from divested assets, we have a net cash position of 11.9 million euros. As announced in January, we successfully completed a written procedure and partial repayment of half of the nominal value of our bonds. The total outstanding nominal value of the bond is 27.5 million euros, of which Katina Media holds 6.15 million. The bonds now have a maturity date of the 9th of June 2025 to be in line with our expected proceeds from divested assets. To date, scheduled payments for assets sold have been received according to plan. And with that, I will now hand back over to Pierre to give us an update on the strategy and outlook.

Thanks, Mike. The number of state and provincial launches in North America has decreased in each of the past three years with only four launches in 2023 and two launches in the first quarter of this year. Additionally, each of the six aforementioned launches have been for sports and none for casino. As previously reported, our business has historically been focused on launches and although North Carolina did present itself as a sizable opportunity, based on the adult population it is still smaller than that of ohio and massachusetts which launched in the first quarter of last year despite the activity of state launches in recent years there is still an exciting opportunity ahead as it fuels as it relates to future legislation i should say in fact the sports betting and casino opportunities are only 50 and 16 penetrated respectively representing additional upside in our total addressable market. This being said, we do not anticipate any further market launches in 2024, which is to be expected to some degree, particularly given legislative activity is typically slower in election years in the U.S., with activity regaining momentum thereafter. As such, we cannot rely on state launches to be the only driver of our growth in the upcoming quarters. We, you know, will be focusing our efforts to get more out of our existing products. Product development. I am confident our shift to a product-first, success-metrics-driven and outcome-oriented operating model, which I touched on earlier, will position us well to drive revenue organically, both at the top of the funnel with increased traffic and at the bottom of the funnel through optimized conversion. Additionally, we have seen recent success in turning around and optimizing some of our casino products, which Mike mentioned, and we will take our learnings and findings from these bodies of work and extend them to some of our core sports brands to drive results. Management changes. Earlier I spoke to how we are continuing to strengthen our leadership in key functional areas. This focus must go beyond the executive leadership team. We must have leaders and operators across our extended management team that have the passion, knowledge, and capabilities to execute and thrive in our product-led operating. Embedded at the center of this model will be a best-in-class data reporting and business intelligence function that will enable our product teams to be metrics-driven with clearly defined targets and definitions of success as their North Stars. Supporting these efforts will be our technology. In Q1, we started integrating a new in-house developed platform into our owned and operated sites. And we expect the rollout will be completed in Q2. Once so, we'll be able to efficiently serve ads and other monetization features and deploy call to action across our sites via a single platform. Thereafter, in subsequent quarters, the platform will continue to evolve as our product and engineering teams introduce additional features and functionality. We previously reported momentum with our AI joint venture, which was established in Q4 last year. We successfully launched the MVP version of our AI platform in Q1, and we are now in the eighth week of our go-to-market plan. The platform is currently integrated into two of our sites, assisting our content teams and reducing the time it takes to produce, edit, and publish domain authoritative content. It's still early, of course, but we are seeing healthy leading indicators for site sustainability, content creation efficiency, and SEO metrics. We are also on track to launch in the second quarter a new platform that will help accelerate our efforts to reach a new cohort of sports bettors and casino players through sub-affiliation. Once complete, our operator partners will also see utility benefits in the form of more robust and automated compliance, reporting, invoicing, and payment workflows. Lastly, media partnerships. We will continue to grow, optimize, and expand our media partnerships this year. We have the luxury of bringing deep content and SEO expertise in addition to our learnings from existing and previous partnerships to maximize value for Katina Media and our media partners. Key takeaways. We experienced lower revenue in North America due partly to increased competition and lower marketing spending by operators. The revenue impact was strongest in our sports segment, and we have measures underway to address this underperformance and return to growth. We've seen initial signs of improvement in our casino segment, which generated a 12% increase in revenue quarter on quarter. Organic growth is expected to resume in the second half of this year with full year adjusted EBITDA still expected to be in the range of 20 to 30 million euros. This is expected to be driven by continued growth in our casino products, more profitable media partnership operations, the rollout of our technology platforms and a turnaround of our flagship sports products significant ongoing technology product and ai investments are ongoing and the launch of a new technical platform will be fully integrated into all of our sites in q2 which will drive operational efficiencies and help pave the way for new products like ai sub-affiliation and paid media we'll now open it up for questions

If you wish to ask a question, please dial £5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial £6 on your telephone keypad. If you are listening via webcast, use the message board to ask a written question. The next question comes from Oscar Ronkvist from ABG. Please go ahead.

Good morning all and thanks for taking my questions. So my first one would just be on the reiterated full-year guidance of 20 to 30 million euros in EBITDA. So, I mean, obviously the Q1 numbers came in at just below 2 million. And as you mentioned in the presentation as well, This is the only quarter where we have state launches, which is, I mean, obviously supporting a little bit. I guess that it's a bit more revenue share tilted than previous state launches. But still, I mean, it came in at 19% of, I mean, NDCs that were sent on revenue share contracts. So it doesn't really seem to be like a steep increase. So could you just talk a little bit more about the trajectory of the year to reach 20 million when you have 2 million now in Q1, which is a pretty, you know, seasonally strong quarter. So is it like a major impact from the Euros, the Copa America, anything else that we should be aware of that you think will, I mean, make you reach the target of at least 20 million Euros? Thanks.

Hey, Oscar. Thank you. What I would say is we have a number of exciting opportunities and initiatives that we are currently executing. This includes looking deeply at our core organic SEO business and making the requisite strategic management and operational adjustments to allow us, frankly, to get more out of our existing products and drive organic growth. I spoke a little bit about the bottom funnel. uh optimizations that i that i think we can do and we've got to get better at making sure that we're getting the most out of our products and even when there are new no new state launches or uh traffic is even going down there's still a revenue opportunity that we can grab by optimizing our products through conversion rates so that will be you know in part um something that we will be focused on in the second half I will say, as I mentioned about the opportunities and initiatives, they each have various different starting points, resource requirements, and levels of effort to complete. As a result, the endpoints may impact and vary across the portfolio from timing and financial contributions perspectives. And so just given the timing of some of these initiatives, they are starting to complete in Q2 and come online in the second half of this year. And so we'll start to see some impacts here in Q2, but we'll We'll see even more impact, including a return to growth in the second half of this year when several projects complete, new businesses come online, and the product operating model alignment, which I mentioned earlier, when that starts to bear fruit as well. I clearly have to ensure that the teams execute at its highest levels, at their highest levels to get there, but we are progressing well as we head into the second half of this year.

All right, thank you. I mean, as you mentioned, I think, I mean, obviously you're targeting organic growth in H2 as comps are easing a little bit as well. So just, I mean, looking sequentially, I think you're still at, you know, Q3 2023 levels. So is it to be interpreted that, you know, sort of sequentially from the new sort of starting point that we'll expect to see a gradual improvement from these efforts during I mean, H2, and it's not just driven by comps because, I mean, obviously you have to, I guess that, you know, the cost base should be starting to flatten out a little bit after the AI investments and so on. And that, I mean, the trajectory towards the 20 million euros in EBITDA for the full year should be, you know, revenue growth driven. Is that how to interpret it?

Yeah, I don't think you're far off, Oscar. I think I would sort of segment it in a few ways. The product operating model focus, again, with clear success, definitions of success will allow us on a product by product basis to really understand the profitability of these products going forward and where perhaps the cost base is not aligned for our expectations of future growth. And clearly we'll have to make some adjustments there. I would say secondly, you're right. We do have favorable comparables coming up later this year. So that will certainly help. That being said, I don't think that is at all the reason for optimism. It was more to do with many of the initiatives and the opportunities that we've been executing since I joined the business. will have taken time to develop come online and uh frankly they will just be live and operational uh in the second half of this year and so just by the nature of those business coming online that we will have uh more i guess shots on goal uh so to speak to uh to make sure that we are driving revenue growth in the second half of this year all right got it thank you um

Just the next question, just on the revenue share transition, you're at 19% of NDCs sent on revenue share contracts. I think it was 16% in Q4, so a little bit of an improvement, maybe driven by North Carolina. But it was, I mean, still, I think it was like 23% in Q3. So could you just talk a little bit about the shift towards revenue share and sort of the pace of that? Do you expect that to increase and weigh further, or is this sort of a stabilized level of around 20%?

yeah um i mean first i'll iterate what has been mentioned reiterate i should say what has been mentioned in previous quarters i mean strategically we believe the right and sort of air quotes around right the right revenue share agreements provide long-term value that better aligns our upside with high player value, right? As mentioned previously, the quality and the value of our referrals has long been one of Catena's competitive advantages. That being said, you know, we're continuously evaluating the financial and strategic trade-off between CPA revenue, which, as you know, provides a near-term financial impact, and revenue share agreements, which comes at a higher aggregate value but will take longer to manifest just given the nature of those agreements. We'll continue to move in the direction, frankly, that maximizes our business at that particular point in time. And again, when I say the right revenue share agreements, it not only means the right deal terms, but also aligning with the right operators upon which to build that long-term relationship. But I mean, you hit the nail on the head, right? Which is sort of state openings. That's the other factor. And so... I think that was, in part, a driver of an increased level of revenue share NDCs in this quarter, given North Carolina. But all of those are factors contributing to the evolution of our revenue share-based NDCs over time. We don't necessarily have a target, and it will sort of continue to ebb and flow based on oftentimes factors outside of our control as well, which I've just mentioned.

Perfect, thank you. I think I just have one more question, maybe two, just a quick one on, maybe to Michael. I think we've seen a pretty sharp shift towards shared central operations in adjusted EBITDA losses. So, I mean, obviously the cost base. So, can we just talk a little bit about, I mean, how representative the sort of shared central costs are at the moment when we just look at the 37% EBITDA margin in in North America, what is the main driver behind the shift that you're rapidly increasing the cost base in shared central operations instead of the divisions?

Hi, Oscar. Thanks for the question. So as part of our move towards the product focused approach, we've had some success already in reducing some of our North American costs. So that is what you're seeing there. Obviously, the direct cost has increased. This includes we did a 10% reduction in internal content team headcount in February of 2024, which was not realized across the entirety of the quarter, obviously, but it does have an impact. We've also invested in our centers of excellence in areas that include technology and a few other areas. This means that our shared central teams are now more actively supporting the North America business needs, and they have increased slightly for sure. It's also important to note that when we look at the comparables in Q1 2023, that we had accounting treatments of discontinued operations, bad debt reversals, incentive plan reversals. And so And that was all based on the EBITDA contributions of the divested businesses. So I'd say that referencing our Q4 2023 and the development from that to Q1 2024 is more of a useful comparison, to be honest, than going year over year from that perspective.

Okay, perfect. That's very helpful. Just a final one, if you can say anything. I mean, I think the positive item in the report is the sequential casino revenue. I think you mentioned or highlighted that as well in your presentation. So could you just talk a little bit, I mean, do you have any sort of anything to say about the trend going into April and notice that you didn't put out an April revenue figure, but just anything on the sort of underlying momentum there?

Yeah, unfortunately, I mean, it's a positive and a negative. We are now reporting much earlier. And so unfortunately, at that point, this early into the end of the month, we can't provide that update at this point.

Got it. That was all for me. Thank you very much, guys.

Thank you, Oscar.

Thanks, Oscar.

So with that, I believe that's the last of our call-in questions people have provided to us. So I will ask a few of the written questions that have come in, and I'll ask those to Pierre right now. So Pierre, one of the questions is, what are your thoughts about the recent changes in management?

Underlying the recent management changes has been our belief in shifting to an agile product-focused operating model where our product teams will have defined targets for operational and financial success. I am confident this will help position Katina Media for future growth. In preparation for this shift, we have strengthen the management team and we have commenced this rollout. But as I've mentioned earlier in the presentation, we also have to strengthen our extended management team to ensure we have the appropriate personnel capabilities and mindsets required to execute successfully in this new manner and in this new operating model.

Thank you, Pierre. The next question is, you previously stated that Katina Media expects to return to organic growth in H2 2024. With five months of the year passed, how are you progressing towards this goal? It's kind of building on what Oscar just asked.

Yeah, very similar, I would say, and I'll sort of, you know, use my answer as the jumping off point. I mean, the short answer is I believe we are progressing quite well. As I've mentioned, we do have a number of opportunities and initiatives that we're currently executing. You can categorize that, you know, some are certainly at the corporate level, and we've talked a little bit about some of our technology projects along the way. But there's quite a few compelling sort of business vertical opportunities that sort of get into our business segments, casino, sports, media partnerships, business, some of which I and Mike use well highlighted earlier is taking some of those. learnings from our success on the casino side and now starting to implement and roll those out into some products on the sports side that ultimately do need some optimization. But yeah, it's a similar sort of answer to what I mentioned to Oscar is that these opportunities all have different starting points. They have different resource requirements and levels of effort to complete some will start to roll off more immediately than others but I would say that our bullishness in in the second half of this year is largely in part due to The factors that I've mentioned, you know before in terms of our alignment from an operating model perspective, but also the fact that we have We will see many of these initiatives and opportunities start to come online in the second half of this year.

Thank you, Pierre. Another follow-up question, which is, will you mainly leverage on your presence in the U.S. when it comes to the sub-affiliation growth, or will you expand to geos where you've been present before or sold assets in?

Yeah, I don't necessarily think our sub affiliation businesses is going to sort of operate outside our core markets of focus. You know, we are obviously very focused on the North American market and regulate and emerging regulated markets like Latin America. And this is where I do see the opportunity for the sub affiliation business as well. You know, the thesis for our vision for sub affiliation, both from a market opportunity, I've given a product is very much about, you know, our conversations with operators, but also our hypothesis about operators need to reach a different type of cohort, right? That is a little bit more top of funnel, a little bit more harder to reach is what I would say in sort of the classic affiliation sense of our business. And so we believe the sub-affiliation allows us to expand our total addressable market by reaching a cohort of casino player and sports betting sports better that perhaps was previously inaccessible by leveraging things like or entities like content creators, streamers, personalities that have really engaged audiences and perhaps affiliates that wouldn't consider them to be classic affiliates today. And so we're excited about that opportunity and it's very much North American focused, but we do believe that it also has some applicability into the other emerging regulated markets that we will operate as well.

All right. And then there's a couple of questions that came in focused in my area of the business, so I'll ask those and then answer them myself. So it's, you have a possibility to buy back the hybrid bonds after next quarter. Do you intend to do that to an increase in cost? or use the money elsewhere? So my response to that is we have a focus on our debt and equity instruments, and we are continuously evaluating the best way to use our capital. That includes both focus on our senior bonds that mature in June 2025 and our hybrid capital securities. Currently, we are also investing in the business for future growth. And then there's a second question that's kind of a follow-up to that that I'll answer now, which is regarding the hybrid securities that mature next year, Do you believe that you will extend the maturity of the securities and by doing so, will you reclassify them as a liability rather than equity? The hybrid capital securities are classified as an equity according to IFRS standards, a classification that will remain unchanged. The securities will not mature next year as they are perpetual, meaning that they do not mature. But there is the possibility for a significant step up in the interest regarding that instrument. So we will, of course, evaluate the best capital structure for the business with that in mind. And then there's one final question that's coming that's actually going to go back to Pierre now, and that's how are Catena Media affected by the recent Google update? And does your future AI platform conflict heavily with Google's no AI content focus?

Yeah, I'll speak a little bit more generally. There were several, well, I would say, well, I'll speak a little bit more generally, but several times a year, you know, Google makes significant broad changes to its search algorithms and systems, and these changes form the core updates, which are sort of underlying the question. These core updates are designed to ensure Google is presenting the most helpful and reliable search results to its users. As a result, Google may change its preference criteria, and in doing so, new sites could be placed in top positions for keywords, while other sites could fall in terms of visibility and rankings. And so I'm not sure exactly which update the question was referring to, but the updates from November of last year and March of this year were, I would say, particularly hard-hitting for our sites. Our SEO and content teams have been working hard to recover and reset. And some products recover faster than others. The update in March was accompanied by an announcement from Google around a few things I'll mention too, which was scaled content abuse, which is meant to deal with low quality, unoriginal and automated or automatically generated content. So I'll put that to the side for one second, because I know there was AI that was part of the question. But the other was that I'll highlight was future enforcement of site reputation abuse, which actually started on May today, on May 6th, or sorry, on May 7th, which could have some impact on our media partnerships and other types of editorial collaboration across the industry. And so obviously, yes, we have to consistently monitor what is Google's impact on our sites. I mean, in terms of the AI platform, I think know for for us um and and you know how our rollout has been i mean this is uh sort of how we have structured our uh our go-to-market around that um and so we are you know consistently um looking at uh and evaluating our uh rollout across things like uh site well output efficiency um and um and SEO metrics and other things. But I would say that, yeah, sort of site sustainability. But so far, we've seen generally improvement across those metrics broadly week on week, and we've been pleased with that. That said, it's still very early in our deployment, and there's much more work and enhancement across our product roadmap to do, particularly making sure that the underlying model can use a variety of content across different sports and output formats. So we'll continue to monitor that along the way. And we're, you know, given the fact that we've been in the business of affiliation, we're sort of, you know, very accustomed to dealing with these Google updates along the way.

All right. Thank you, Pierre. That concludes the questions that we have both in written and from people on the line. So with that, I think we can call it a day.

Thanks, Mike. Just some closing remarks for me, if I can. Q1 was a disappointing quarter, and we recognize this. We have our work cut out for us. However, we also have a number of exciting opportunities and initiatives that i alluded to that we are currently executing that fuels our optimism for growth in the second half of this year our recent management changes which we will continue to build on and our shift to an agile product focused operating model where our product teams will have defined targets for operational and financial success collectively underpin what will be a hyper focus on execution, accountability, and profitable revenue growth in the coming quarters. We will keep you updated, and we will have more to share in Q2 across each of our focus areas, which again include product development, our people, technology and AI investments, and our media partnerships. We thank you for your time today, and we look forward to speaking again soon.