Catena Media plc

Good morning, everyone. Welcome to Catena Media's Q2 report. I am Manuel Stan, and today I am joined by our Chief Financial Officer, Mike Giroux. Today, we will be speaking to our Q2 interim report, related financials, and our strategy and outlook. For the first part of the presentation, participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing in. We will start today's presentation with a Q2 high level overview. Q2 revenue was 12.8 million euros, down 14% from the previous year. Adjusted EBITDA was 0.7 million, down 67% from previous year. These were both in line with the Q2 earnings update issued in June. I would like to thank the previous management team and CEO and the former board and chairman as well as Pierre Cadena for standing in as interim CEO during Q2 and driving a number of key initiatives that we are now working together to implement. Q2 represented an important reset for Catena Media from key personnel and operating structure perspective. Since April 1st, Catena saw the appointment of four new members of the executive team. Ed Mitalo was appointed CTO on April 1st, Mike Giroux was appointed CFO on April 15. Pierre Cadena was appointed COO on July 1. And I assumed the CEO position on July 1. The makeover will be complete by year end with the appointment of the fifth and final executive team member, a new general counsel. Another key part of the reset is the implementation of a new product-focused operating model, replacing the old geographical structure This will allow us to better focus on our key products and priorities. During Q2, we soft-launched our new sub-affiliation platform, Marketplace. This is a first step towards our goal to build a leading marketplace for the gaming industry. Towards the end of the quarter, we launched the Spanish version of Bonus.com. This represents our first initiative to target the Hispanic market in North America, a massively underserved demographic with great potential. During May, Google started the implementation of the site reputation abuse policy, which has impacted the effectiveness of our strategic partnerships. This led to evaluation and renegotiation of such partnerships, including terminating agreements where the results have been suboptimal. This will have a significant positive impact on the call space going forward, as Mike will go into further details later in the presentation. While having a negative impact on the effectiveness of media partnerships, Google's updates had a positive impact on our owned and operating products, which saw an improvement in rankings throughout the quarter. We will give more details about the ranking improvement on the next slide. Starting this quarter, we will begin sharing the performance of a very important internal KPI, the average ranking score of our top keywords. While we rank and meter thousands of keywords, our primary focus is now on a subset of 70 plus keywords. The actual keywords will not be disclosed for competitive reasons, and the composition of focus keywords may have small variations over time, depending on the strategy and seasonality. During Q2, we have seen a good improvement as our average ranking score across the top keywords has improved from an average position 5 to below position 4, where position 1 is the best. This KPI only measures Katina's owned and operated product. The positive trend in rankings has continued into Q3. I will now hand off to Mike to give an in-depth update on our financial performance.

Thank you, Manu, and good morning. Moving into our financial analysis from a geographic split perspective, we concluded the quarter at 11.2 million euro in revenue in North America, down from 12.5 million for the corresponding quarter last year. Adjusted EBITDA in North America decreased to 4 million, 24% lower than last year, corresponding to a margin of 36%. North America amounted to 88% of group revenue from continuing operations in the quarter, an increase of 4 percentage points from last year. Looking at our North America segments, sports was down 53% versus last year. This poor performance was driven by increased competition and the impact of the May Google Site Reputation Abuse Policy on our media partnerships. As previously mentioned by Manu, we have re-evaluated and exited multiple low-performing media partnership agreements. Q2 2024 will be the last quarter where direct costs of €1.4 million associated with these minimum guarantees will affect our North American sports business. Our North American casino business, however, increased by 13% versus Q2 2023 and a 4% increase on Q1 2024. We are pleased with this growth rate considering the period of search engine fluctuations following the May policy update. This year-on-year and quarter-on-quarter casino growth is a reflection of our aggressive program of measures, including the soft launch of our sub-affiliation platform, expansion of social sweepstakes, and recovery of our owned and operated sites following the May Google update policy. Looking at the rest of the world, Accounting for 12% of revenue, which contains our esports, APAC, and Latin American businesses, we saw revenue of 1.6 million euros, a decrease of 33% versus last year. Adjusted EBITDA, however, increased by 216%, which can be attributed to streamline the APAC and remaining European operations. Continuing into our full company segment performance, we saw a very large decline in our sports revenue to €2.8 million versus €5.2 million for Q2 2024. NDCs also decreased by 46%. Our casino revenue increased by 3% versus the previous year, while NDCs increased by 5%. The variance between this and our 13% North America casino growth is attributed to decreases from historic revenue share players in our APAC and remaining European business. As mentioned earlier, our North American casino revenue increased by 13% versus Q2 2023 and 4% versus Q1 2024. We are pleased to see growth in most of our regulated casino states, as well as sizable growth from our social sweepstakes casino operators, which now account for over one third of casino revenue. Continuing on to our cost developments. We continue to invest in our technology platforms, AI, sub-affiliation and paid media. Manu will touch on this a bit more detail in his outlook and strategy portion of this presentation. Overall, our cost base decreased by 5% versus Q2 2023 and 14% versus Q1 2024, which is largely expected with regular seasonality. Returning to the previously mentioned media partnership changes, we incurred costs of €1.6 million in Q2 associated with mediaship partnerships, which will not continue into Q3 or subsequent quarters. These costs were primarily minimum guarantees to our partners that did not yield positive margins for us in Q2. The red sections of the Q2 2024 bar chart on the right contain just our direct costs. In Q2 2024, direct costs totaled 3.5 million euros. 2.1 million of these direct costs include PPC, sub-affiliate commissions, and media partnerships that are continuing and expected to grow through Q3 2024 and beyond. The 1.4 million in light red have expired and are not continuing in Q3 and beyond. Items expecting comparability in the quarter were 1.3 million euros. We will continue focusing on cost efficiency per product through this transformation into a new operating model. Despite consecutive quarters of poor 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 46% to 12.4 million euros. We have a strong net cash position, including our future proceeds from divested assets. Our extraordinary general meeting in July authorized the company to undertake share buybacks. We do not intend to initiate a program at this time. Our focus remains to continue reducing debt and investing on internal strategic initiatives. Our leverage ratio increased to 1.53 as a reflection of recent quarters of poor performance, but should improve with more profitable quarters to come. Looking at our capital structure, we currently have no outstanding financial commitments relating to prior acquisitions. Upcoming proceeds are listed on the right-hand side of this slide. To date, scheduled payments for assets sold have been received according to plan. Our cash balance at the end of the year was 18.9 million euros, reported net debt of 12.4 million euro at the end of June. If we include future proceeds from divested assets, we have a net cash position of 9.6 million euros. The 18th and final period for warrant holders to subscribe for shares in the company commences tomorrow, 15th of August, and will run until run until and up to including August 24th. I will now hand back over to Manu to give us an update on the strategy and outlook.

Thank you, Mike. We will now have a look into the strategy and outlook for the next quarters. The speed of regulation and launches in North America has decreased significantly since 2022, as only six states regulated and launched mobile sports betting during the last two years. In the two years, 2021 and 2022, the new addressable market was 89.6 million, compared to 2023 and 2024, which is likely to close at 28.5 million, which is over three times lower. More importantly, we did not have any major online casino launches in North America since Ontario in Q2 2022. The market penetration in the US is 50% for sports betting, while a whooping 84% is yet to regulate mobile casino. Catena's strategy saw major reliance on new state launches, and the regulation slowdown had a negative impact on its performance over the last few quarters. A current priority is to diversify the product portfolio and revenue streams to reduce the reliance on market launches. In practice, that means focusing on a few things, such as building our brands, databases, and CRM capabilities to better serve and monetize our customers. position ourselves for future casino market launches by building our brands and databases in the social sweepstakes casino vertical, and reach new demographics by launching dedicated products in languages such as Spanish. By doing this, we will create a sustainable revenue model independent on new state launches. Our new strategy is based on three key pillars, people, product, and profitability. During Q2, we have made extremely good progress in implementing a new product-led organizational structure and installing a brand new management team to support it. Over the next few months, we will finalize building the senior leadership team with the hiring of the general counsel and VP commercial. I am a strong believer that the success of a business is predicated by having a strong team with high energy levels and great motivation. And this is exactly what we're trying to achieve at Katina. The second pillar in our strategy is the product. We have put in place a clear prioritization framework that allows all teams to align their goals and objectives. Furthermore, the prioritization framework allows us to do a thorough cleanup of the products and areas that are not generating upside for the business and have a high opportunity cost. This will also allow us to focus on the products with the best ROI, particularly in the North American casino vertical. Some of the initiatives above mentioned, like sub-affiliation, Spanish language products, leveraged first-party data, or AI, are key priorities for Catena to build strong products going forward. The third and final pillar of our strategy is profitability. our focus is twofold. Optimize revenues by focusing on core products and strategic investments, such as social sweepstakes casinos. And secondly, revisit all cost-defining efficiencies, such as the terminated media partnerships. Lastly, let us recap the key takeaways from our report. We have a new leadership team in place, bringing fresh perspectives and strategic focus to drive the company forward. The new product-based operating model is being implemented, allowing us to be better aligned behind our top priorities and focused on efficiency. The North America casino revenue continues to grow, registering a 13% year-on-year growth. Revenue was impacted by seasonality and decreased efficiency for media partnerships following Google's main policy changes. That, however, leads to significant cost reductions of 1.6 million euros per quarter from discontinued media partnerships. Tech wins with new launches such as technical platform or sub-affiliate platform help us build first-party data capabilities and diversify revenues. From financial perspective, we target a double-digit organic growth in both revenue and adjusted EBITDA for both 2025 and 2026 at the group level. The net interest bearing debt to adjusted EBITDA target ratio is 0 to 1.75. Thank you very much for listening. I will now hand over to Mike to move into the Q&A session of our report and open up for questions.