Raketech Group Holding PLC

Good morning and welcome. My name is Johan Svensson and I'm the CEO of Raketech. Today, CFO Måns Svalborn and I are here to present Raketech's Q2 2024 report. We will start with our Q2 financials. Raketech delivered 17 million euro in revenues in Q2, an organic decrease of 3.7%. EBITDA of €4.4 million, a decrease with 20.3% year-on-year, resulting in €9.4 million in adjusted EBITDA for the first half of the year. Revenues for the month of July were €4.6 million, mainly impacted by weak performance from the lower margin sub-affiliation business. Some of our larger publishers had operational challenges in July, but we expect the revenue to pick up during the rest of the quarter. Considering the first half of the year and the current trading for July, we can now more accurately forecast our outlook for the full year. This means we are now able to further specify the full year guidance of around 20 million euro into a range of 17 million euro to 19 million euro in adjusted EBITDA. Free cash flow before earn out is estimated to come in just below EBITDA. Our cash flow, our current cash flow gives us the financial flexibility to settle the current Casumba earn out and ensure long term growth and value creation. Now let's look at how our different business areas performed during the second quarter and we will start with affiliation marketing. Affiliation marketing, our in-house operated assets, had a slower quarter with revenues of 7.6 million euro, a decline with 25.9% compared to Q2 last year. Mainly impact weak performance from our Casumba assets and softer Sweden casino performance. The traffic situation for Casumba has stabilized in the end of the second quarter, but at lower level compared to the start of the year. We saw a softer performance from our Swedish casino assets by our affiliates promoting non-regulated operators towards the Swedish end users. Our sport assets with high portion of returning users performed well during the quarter resulting in double-digit growth. Sub-affiliation. Sub-affiliation revenues amounted to 8.2 million euro An increase with 29.7% compared to Q2 last year, but the decline in total revenues compared to previous quarter. For the second time, we are now reporting gross profit, and we had a 21.3% gross profit margin in Q2. Our US tipster Sates delivered 1.1 million euro in revenue during Q2, a 15.9% increase compared to Q2 last year. We have during July divested the manual advisory business. Later on in this presentation, I will give you more details around the divest of advisory business and our remaining betting tips and subscription business. Now I will give you a more detailed update about each business area. Starting with affiliation marketing, our in-house owned and operated assets. The last part of the Kazumba burnout was completed in July. Måns will share an update on his section about the final amount of the Kazumba burnout. The core Kazumba team, including the founders, are intact. Following the Google Core update, which affected the Kazumba assets, we quickly mobilized internal resources and made a large business audit of all affected assets. The audit led to several actions of improved content, focused on a broader audience, tech improvements, on-page and off-page SEO, and overall a better user experience. The traffic performance at the end of the quarter, but at lower levels than before. A strategic important focus for us is to lower our SEO dependency by increasing CRM activities. We are collecting data from our users when they visit our websites and products. We then use this data by sending them customized offers. An example of this is when a new operator is launched. The purpose of these activities is to increase the value of users and to be able to convert them to our partners when they are not actively visiting our products. Our internal support assets had a strong quarter with double-digit growth driven by performance improvements, new content and additional features. plus new types of campaigns. The FA Euro was a good event for our sports sales, and we have continued to create similar sport packages for upcoming sports events as Premier League and the local Nordic leagues. Moving on to our affiliation. Our sub affiliations saw year on year organic growth in the second quarter for both RegTech Network and Affiliation Cloud. Some of our top publishers had operational challenges, which led to a small decrease compared to the previous quarter. We went through a first full exclusive partnership. The new Swedish operator, Spelklubben, gave us the trust to run their entire affiliate acquisition. This means that all affiliates who want to promote the brand need to sign up on Affiliation Cloud, where we have a markup on all referred players to the brand. We have made similar partnerships in the past, including the deal with Svenska Spel and their casino Momag. But this deal with Spelklubben was the first time that an operator appointed us to run their full affiliation acquisition. These types of partnerships are strategically important for us. We have more operators to establish similar exclusive agreements. In March, we successfully launched our sub-affiliation business in the US when North Carolina opened up for sports betting. During the second quarter, we have developed the processes and added more operators to our offering. We expect to see an increase in revenues for the upcoming football season. Betting tips and subscription. In Q2, we finalized the strategic review of a U.S. business, which resulted in a decision to divest our non-core manual high-touch tipster advisory operations. The advisory business was not aligned with our strategic vision, and its operations demands outweighed its performance. In July, we successfully sold the tipster advisory business for 2.25 USD. And we also secured an exclusive lead generation deal valued 250K over the next 12 months. This transaction also included a one-time non-cash impairment charge of 10 million euro. With this divestment, we are fully focused on enhancing our US flagship assets to drive online conversions of paid picks and predictions, and to increase our affiliation revenue on these assets. We are confident that this strategic focus will deliver positive outcomes. Our US flagship assets, Winners and Winers, StatsAlt and Picks and Parlays, continue to rank strongly, generating more than 50 million sessions annually, with users spending several minutes on each website per visit. Maximizing the growth opportunity on this platform is paramount. And now over to CFO Måns Svalborg.

thank you joanne we saw total revenues of 17 million which was as joanne highlighted a marginal decrease of around four percent from last year sub affiliation was up from last year but the increase decline in affiliation marketing sub affiliation represents approximately 45 percent of total revenues in q2 and increased with 30 from last year We did, however, see a sequential decrease from Q1 of this year, which has drawn operational limitations for specifically our network publishers. But we expect these revenues to pick up through H2. Affiliation marketing decreased from last year, driven primarily by a weaker result from the consumer assets, as we highlighted already in Q1. We have seen a stabilization of performance, but they are at the lower levels compared to last year and previous quarter. Sweden saw a modest decline, and our other larger assets in other markets show stable to positive performance. Worth highlighting again was the positive effects of our high traffic force assets, driven by a dedicated push for these assets, but also EFA, Euro and IPL. On the right-hand side, and a quick note on our revenue mix for revenue share, CPA, and flat fees, the development large overall revenue development. For clarity, I will mention that sub-affiliation is dominantly CPA-driven, and it's the main reason for any variations between quarters. We are, however, seeing an increasing amount of rev share within sub-affiliation, which is positive to see. As for the regional split and starting with the Nordics, as I mentioned on the previous slides, Sweden saw a modest decline in Q2 versus Q1 of this year. It's to some extent performance-related, but also through increased competition. Importantly, Q2 reflects a reasonably low quarter, and specifically for the Nordics. Other regions in the Nordics are stable to growing. Similar to previous quarters, the main variations within the rest of the world relates to Kazumba and sub-affiliation. The decrease compared to last year is a reflection of the lower performance in Kazumba. US saw a slight increase from last year, positively impacted by the launch of the sub-affiliation in the US, but also positive effects from affiliation revenues from our tipster assets, as well as increased revenues from our online digital subscription platform on these assets. The vertical split on the right-hand side, I will make one point. As highlighted before, we did see improved performance from a high-traffic sports site during the quarter, an effect of the dedicated efforts, but also again driven by increased sports activity. This positive development was to some extent offset by lower sports revenues within sub-affiliation compared to last year. These variations are to be expected within sub affiliation as it depends on which region and vertical our publishers focuses their efforts. EBITDA amounted to 4.4 million, mainly impacted by the lower performance for Kazumba compared to last year. This was somewhat positively offset by continued strong contribution to EBITDA for sub-affiliation and with a gross profit margin within this area very much in line with the last quarter at around 23%. Additionally, we see somewhat of a positive impact from the initiated cost-saving efforts we highlighted in the Q1 report. These initiatives will continue as we progress in the year. On the right hand side, free cash flow is lower than reported EBITDA. This relates to timing effects and is expected between quarters. And it's an effect of when we settle payments to publishers within sub-affiliation, but also related to timing of settlements from operators. And we expect this to catch up during H2. As Johan mentioned, the last part of the KASUM burnout was finalized at the end of July, meaning the final amount is now essentially fully fixed. For the next 12 months, we have upcoming earnouts to be settled of about 12 million in cash. The remaining 20 million, and I mentioned this the previous quarter as well, can be settled at any point in time up until September 2026, meaning there is a lot of financial flexibility for us. Another point to make here is that the option to settle part of the earn-out in shares is also at our own full discretion, adding even more flexibility. So in conclusion, given our current cash flow estimate for the year, our free cash flow is well above upcoming earn-out settlements. Thank you, and back to Johan.

Thank you, Måns, to conclude. Affiliation marketing, I would like to emphasize our dedication to turning around the assets that lost rankings and traffic in the latest Google Core updates. These assets have now stabilized, but on lower levels compared to before. During the quarter, we have proven that parts of our product portfolio especially showed good organic growth. Even if the increase from each product is not on par with the larger products that lost traffic and revenue from the latest Google updates. Sub-affiliation was mentioned before. First full exclusive operator deal was signed and launched during the quarter with a brand, Swedish brand, Spelklubben. And these type of partnerships is something we will continue to expand. Betting tips and subscription. Strategic review done, and we have now divested the non-core ATS advisory business to be able to focus and grow on our USD where we see good potential outlook looking at july the revenues came in at 4.6 million euro impacted by weak performance within sub affiliation which we expect to recover during the rest of the quarter guidance for 2024 we have now also spec come in in the range of 17 to 90 million euro in adjusted ebitda free cash flow before earn out is estimated to come in just below EBITDA, which gives us financial flexibility to settle the current Kazumba earnout. With this work, we now open up for Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Jalma Ahlberg from Redeye. Please go ahead.

Thank you. Maybe first a question on Kazumbe here. You say that traffic is stabilizing under the quarter and you're confident that you can return to growth. Do you have some kind of concrete indications or how do you feel about that?

Hi, Jalma. We are confident that we are doing the right things and that we practice to return to growth. But we can't comment on when we expect that to happen.

And also interesting to see sub-inflation launch here in the US. How quick do you think you can ramp up revenue and what is the potential of this market and can you say if there's any differences between maybe Europe and doing this in the U.S.?

Yes. Now we got a kickstart with North Carolina here in launching in March. But U.S. is more as acquisition driven during the season and especially the football season, U.S. football season. We expect to grow during the football season, which kicks off here in end of August, beginning of September. We do, definitely.

You mentioned North Carolina. Does it take a lot of time to enter a new state or do you think you could be able to add more states quickly or will that come gradually?

In our current offering, we have more states already ready on top of North Carolina.

Right and regarding the Euro 2024 can you give some flavor on I mean did you see the big kind of positive impact from that in June and less impact in July maybe?

We saw a good traffic increase games played in June than July but overall it was yeah positive traffic trend and we had good sales reports related to the event.

And you mentioned for sub-affiliation that some operators saw operational challenges. Can you comment anything more on that and do you expect that to improve in the coming corporates?

We've seen it before that our publishers have had operational challenges, especially on the RakeTech Network side, paid traffic. We've seen it. We have had a fantastic year for RakeTech Network and some affiliation with HyGrowth. And now, when they have these challenges, larger impact on the top line. But yeah, we've seen it before and we've seen that they've been recovering before as well.

And regarding your guidance here and the revenue you gave for July, can you give some flavor on the ramp up? I mean, I guess you said that you expect to recover some upside for the rest of Q3 but then I guess I mean Q4 will kind of be the seasonal strong quarter if you can give any additional favor on that.

We came in on 9.4 million in adjusted EBITDA for the first six months and we expect to land between 17 and 19. for the rest of the year. And as you said, Q4 is historically a strong quarter for us.

Okay, thank you. That was all the questions from me.

Thank you, Hjalmar.

The next question comes from Rickard Engberg from Carnegie Investment Bank. Please go ahead.

Morning guys.

Morning.

So I have a question regarding the development of gross margin in the quarter. We saw a strong Q1 given gross margin and now in Q2 as well. Have you seen a higher gross margin on the subaffirmation in this quarter than usually?

Yeah, the levels this quarter were similar to Q1 as well, and I think we indicated in Q1 that it was on the higher end, and then we managed to maintain that in Q2. To some extent, it relates a little bit on the relative share of web share within sub-affiliation, and particularly for web share, we can see some variation. We don't really necessarily have a target for the gross margin within sub-affiliation. The most important point for us is to try to grow profitability within that area. It does depend on rev share, as I pointed out, so we might see variations as we go along, but it's not a target sort of gross margin we have to keep it at this level.

Okay, so is it possible to say that the Q1 and Q2 numbers were quite high for gross margin compared to historical numbers? Compared to historical numbers, they are at the higher end, yes. Okay, good. That was all for me.

Thank you, Rickard.

There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

Good. Let's go to the written questions. I think you can start, Måns.

Yes, so we have a question around the guidance. I think we covered that to the most extent from Hjalmar's question. I don't know if you want to add something additional to that one, Johan?

No, nothing more to add.

Then there's a couple of questions on the approved share buyback and when and how this will be executed on. a decision by the board so we can't really comment on this at this point there's another question if it's because if it's possible to repurchase own stocks over the market and use this repurchase stock as payment for the consumer now and this is possible but again it's a decision if and when that's an alternative for the board

Yeah, it's also one question about on what basis do you... In sub-affiliation, just like to highlight here that we have very strong relations with these publishers who have had operational challenges during July here. So, yeah, historically, we've seen them recovering, but we base it on that.

And then there's a question around the decision that we did actually issue just under 1.1 million new shares to pay part of their earn out now in July for the consumer earn out. And this made financial sense to do it now, given the current share price development. was a good opportunity, the board and management felt at this point in time, so that was the reason for that. Yeah, and I think that was actually all of the written questions.

And yeah, we have each word. Thank you for listening in and we see you again in November. Thank you.