Raketech Group Holding PLC

Good morning and welcome to RakeTech's Q4 2024 presentation. My name is Johan Svensson and I'm the CEO of RakeTech. Today, CFO Måns Wahlborn and I are here to present RakeTech's Q4 report and the full numbers of 2024. We will as well share an update regarding your new strategic direction when it comes to our affiliation marketing vertical. But first, we will start with our Q4 financial highlights. We came in at 12.3 million euro in revenues in Q4, an organic decrease of 45.9% year on year and 42.6% adjusted for the divestment of advisory tips to business. Adjusted EBITDA of 3.2 million euro, a decrease of 46.2% year on year with an EBITDA of 3 million euro. Total revenue for the full year of 61.2 million euro with an adjusted EBITDA of 15.7 million euro and an EBITDA of 14.7 million euro. Free cash flow for the full year of 14.7 million euro in line with EBITDA. which provide financial headroom to settle our earn-out commitments, including the €8 million due in H1 and the remaining €20.6 million payable at our discretion until September 2026. But outcome of assessment of our operating model has resulted in further cost savings. In Q4, our costs were 29% lower compared to Q1 2024. Direct publisher costs excluded. Fourth of February, we announced a non-cash impairment of 48.5 million euro relating primarily to reduction in the internal book value of non-core assets acquired pre-IPO. As from this year, we will start and report our quarterly figures earlier than before and we will as such adapt our trading update accordingly. Now let's look at the performance of each business area during the quarter. Starting with affiliation marketing, revenue in Q4 came in at 6.5 million euro, a decline of 32% year on year and 4% lower than Q3. Kazumba assets continue to decline while remaining affiliation marketing portfolio grow with 3% compared to previous quarter. Turning our Kazumba assets from decline to growth is a key focus and we have invested in the team and the products to adapt to the changes in the market and the new competition. We saw a stable traffic performance in Sweden in line with previous quarter. The increased local taxes from 1st of July continued to impact our revenue share contract and the new investment from the operators, which led to a slight decline in revenue from the Swedish market compared to previous quarter. Denmark. Denmark has developed into a growth market for us. It's a relatively small market in relation to other regulated markets in Europe. However, we have a strong position when it comes to sports traffic. And during the last six months, our casino traffic has increased significantly. Our sports assets in total grow with 7% compared to previous quarter. We have had a good momentum for our sports assets and we plan to launch a handful new sports products during the first half of 2025. We have started to see positive traffic trends from the Slots portfolio and the Italian market after we in October entered into a strategic partnership with the founders of these assets. We have recently signed another four strategic partnerships for our affiliation marketing portfolio, which I will speak more about on the next slide. Sub-affiliation. Sub-affiliation revenues amounted to 5.2 million euro, a decrease of 54% compared to the strong Q4 last year and 5% lower compared to the third quarter this year. Sorry, 2024. The gross margin for sub-affiliation was 20% in Q4. The paid revenue at RakeTech Network continued to grow month for month during the quarter after hitting an annual low in September. As we have previously reported, our paid publishers, they have had operational challenges with Google Ads campaigns during the last quarters and we expect this to continue to be volatile. Our relationship with the publishers and operators are strong and we are standby and ready to scale up the business further when the market conditions improve. Affiliation Cloud, our in-house developed sub-affiliation platform, continued to deliver a 74% organic growth compared to Q4 last year. Betting tips and subscription. Following the sale of our land-based tipster business in the US, we have been focused on improving conversion rates and monetization for our digital tipster platforms. While traffic volumes remain strong, we have not yet fully realized our expected outcomes. Given the relatively small size of the US tipster and subscription business and that we did not achieve the results we hoped for, we have now started a strategic review of the remaining tipster business and we aim to take a decision about the future for this vertical before the end of this quarter. Going to the next slide, I will update you on our new strategic partnerships for our affiliation marketing vertical and the background for these partnerships. Given the performance development of the Kazumba portfolio, we have continued to evaluate the entire affiliation marketing portfolio to identify the most promising opportunities for profitability and long-term organic growth. RakeTech completed more than 25 acquisitions between 2015 and 2021. Some of these assets have had very good development, while other assets have had a tough time competing after the assets been migrated and operated fully in-house. We have continued to maintain good relations with many of the founders and entrepreneurs of these assets we previously acquired. These relationships and through our network in the iGaming industry have resulted in four additional strategic partnerships with entrepreneurs who have a successful track record of operating affiliation marketing products. Each partnership is unique, but what is common for all of them is that Rake take care of sales, commercial agreements, finance, reporting, data management, and some tech services. The strategic partner is responsible for day-to-day operations of a product, including SEO, content, and product development. These type of partnerships is not a new thing for Raketech. Since 2015, the company has successfully maintained operating strategic partnerships in the Nordic markets. And in October last year, we entered into a partnership with the founders of the Slot portfolio, focusing on Southern Europe and Latin. The new strategic partnerships include both sport and casino products in several different markets. With these new partners on board, almost 50% of our affiliation marketing revenue will come from products operated in strategic partnerships, which has and will result in continued streamline of our in-house operations. Additionally, centralizing more resources at our headquarters in Malta has created a more efficient organizational structure. Looking ahead, this strategic partnership will ensure a sharper focus and stronger performance while benefiting from retaining ownership. This should result in improved growth and sustained margin performance. Moving on to sub-affiliation and exclusive commercial agreements. The development of Affiliation Cloud continues. We have a clear vision for the product and we are launching new functionality and improvements every month. Until now, we have mostly had publishers with organic products on the platform. But we plan to start migrating paid publishers from RakeTech Network to the platform during the second half of Q1. A strong contributor factor to organic growth is the exclusive commercial agreements with operators where we are the only sub-affiliation platform that can offer a commercial deal with a specific operator. We have now been the exclusive sub-affiliation platform for four operator launches, three of which were in 2024, both for the Swedish and the US market. we believe will often be set up instead of a traditional affiliation model. In the traditional affiliation model, each operator needs to negotiate and agree a deal with each affiliate to secure exposure and distribution. The operator must have its own affiliate team with local expertise for each market to secure compliance. At Affiliation Cloud, the operators get access to multiple affiliates through one agreement. Our publisher team take care of the commercial negotiations and secure the distribution, including compliance. We pay the affiliates their commission on demand to secure good cash flow for our publishers. Now over to Måns and a deeper look into our financials.

Thank you, Johan. We saw total revenues of 12.3 million in Q4, which represent a slight decrease for both affiliation marketing and sub-affiliation from Q3. On your left hand side, we have total revenues split on our three business areas, and on the right side, total revenues distributed on cluster obedience. Starting with affiliation marketing, which constitutes 53% of total revenue, Although this area is down somewhat from last quarter, the decline is primarily due to our consumed assets and excluding these assets, the remaining portfolio of assets increased with 3%. We saw some improvements for primarily our major sites in the Nordics through better performance, but also an effect of the expected positive seasonality effects. Sub-affiliation represents approximately 42%. of total revenues, as we highlighted in Q3, activity slowed down quite significantly and hit a low point at the end of that quarter. But as we indicated, activity picked up in Q4 and increased month over months throughout the quarter. Not at the same levels we saw during the first half of the year, but still positive to see. This slide shows revenue mix and vertical split. Just a couple of quick points on this slide. First, the variations in CBA is largely driven by the lower activity in sub affiliation. This area is predominantly CBA heavy, driving the decline from a very strong Q4 of last year. And secondly, the flat fees compared to previous quarter. So a slight decline again relating primarily to lower traffic for the XUMBA assets, while As highlighted in the previous quarter, we had continuing review of all products and business areas to ensure that we are operationally efficient. From a high point in Q1 with regards to cost, we initiated a review and cost cutting initiative. And similar to last quarter, we are now seeing these initiatives realizing with an overall decrease in total cost, excluding publisher cost of about 29% from Q1. And as we move along, we will continue to tweak and fine tune our operating model in line with overall strategy. Adjusted EBITDA was 3.2 slightly ahead of last quarter, positively impact from the realized cost saving that I mentioned on the previous slide. On the right hand side and free cash flow before earnouts, as I've noted before, there will be timing effects between EBITDA and free cash flow between the quarters. However, looking over a longer period of time, they will correlate. And for the full year of 2024, free cash flow is very much in line with EBITDA. With regards to outstanding earners, up until the first year of this year, 2025, we will settle 8 million. This will be settled in cash. using our current net cash position, expected free cash flow and the existing facility we have in place. One point to make here is that we already settled 3 million out of 8 million now in January 2025. And as Johan pointed out in the beginning, the remaining 20.6, as we have communicated previously, can be settled at any point in time up until September 2076 at our discretion. And we also have at our discretion the possibility to settle part of this in shares. And post-September 2026 there are no other outstanding commitments related to any other acquisitions.

That's me and over to you Leon. Thank you Måns. To summarize before we open up for Q&A. Revenues in Q4 of 12.3 million euro, EBITDA of 3.2 million euro and sorry adjusted EBITDA of 3.2 million euro and EBITDA of 3 million euro. Total revenue for the full year, 61.2 million euro with an adjusted EBITDA of 15.7 million euro and an EBITDA of 14.7 million euro. Free cash flow for the full year of 14.7 million euro in line with EBITDA, which provide financial headroom to settle our earn-out commitments, including the 8 million euro due in H1 2025 and the remaining 20.6 million euro payable at our discretion until September 2026. Affiliation marketing. Today we are pleased to announce the four new strategic partnerships for our affiliation marketing product Vertical. While Kazumba Recovery remains an in-house priority with the founders still dedicated to the business and much involved in the daily operations. Sub-affiliation. Affiliation Cloud delivered a 74% organic growth year on year. RakeTech Network, our paid sub-affiliation business, show month-to-month improvement during the quarter after the annual low in September. And we will start and migrate to the first publishers from RakeTech Network to Affiliation Cloud during Q1. US tipster and subscription. We have started a strategic review of the remaining US tipster business, and we aim to take a decision about the future for this vertical before the end of this quarter. Outlook. As mentioned at the beginning of this call, we will start a report earlier this year. The Q1 report will be published 7th of May and the Q2 report 23rd of July. We will as such adapt our trading update accordingly. Looking at the start of 2025, the affiliation marketing performance is in line with Q4, but with somewhat overall lower revenues due to seasonality and lower marketing budgets from the operators. Sub affiliation had a slow start in January compared to the end of the fourth quarter, but it's gradually picking up in February. Today we talked about our new strategic partnerships within affiliation marketing, which is a part of a transformation that is currently underway within Raketech. In connection with the Q1 report in May, we will present a more comprehensive strategic update and give you a financial outlook for the rest of the year. With this word, we open up for Q&A.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Hjalmar Ahlberg from ReadEye. Please go ahead.

Hi. Thanks for taking my question. Maybe just a question on Casumba first here. You still work on trying to recover traffic and revenue from the asset. Do you think any feeling that it has bottomed out here, or do you feel risk for decline, or can you give some flavor of that?

What we see is that we see stable traffic at these lower levels, but our old Revsha databases are still declining since we are sending not that many players as we used to do. But traffic is stable at lower levels for the most important keywords in the market.

All right, and I look at this new focus on strategic partnership within Alipay population. You first talked about this last quarter with the stock portfolio and it sounded like this have performed good. Has it worked as planned or can you give some updates on that this far? I guess it's early days, but give me some information on that.

Yes, the Slot Portfolio Partnership, we entered into that in early October and we have started to see positive traffic trends, especially in the Italian market for these assets. But it is still too early to fully assess that partnership. We have had similar strategic partnerships all the way back to 2015, which are for the Nordic markets, which have worked out very well over the years. So we are confident for the new strategic partnerships here.

Right. And coming to profitability of this partnership, I guess you said historically that it's similar to affiliation. Is that what you believe for this new partnership as well?

Could you please repeat?

Regarding the kind of profitability and business model for the partnerships, I think you said in Q3 that the profitability should be similar as you do it in-house. Is that the same for these new partnerships that you've signed?

Yeah, they have the same structure. So we are targeted to have a similar margin in all the products, just simply because we're internally the operation will be less. So we're realizing cost savings there as well on that same time.

Right and I mean if these partnerships are successful I'll be making sure that these the guys that are kind of operating the assets that they remain there or I mean can't they just do it themselves then so can you explain a bit how that works?

Yes, first we have long contracts with them and we also sit on all commercial agreements with the operators. And many of these entrepreneurs, they are good on product development, SEO, but they appreciate to have a partner who take care of sales, commercial agreements, finance, reporting, data, hosting services. So it's a good win-win situation.

Right. And regarding US, I mean, you have the subscription business there and it is under review and if you decide that this is non-core and divested or closed down, will you still have exposure to the US market?

We will, through sub-affiliation. In Q3, we signed an exclusive sub-affiliation platform agreement with a large US operator. So we are the only sub-affiliation platform who could offer deals for that specific operator. So US is an important market for an Asian cloud.

Right and coming back to affiliation cloud I mean you saw really strong growth there but we don't have any numbers but do you think you will reveal more details on that or is it more that you will have this as a included in the sub affiliation in total?

We're working on developing the platform. And as mentioned, it's that we we will now in Q1 start and migrate rate tech network sub affiliation publishers from a third party platform to our own platform. So the target is to have all sub affiliation revenue on affiliation cloud at some point. We're not there yet, but we're working towards that target.

All right and coming to the outlook for 2025 I guess you will come back to that in Q1 as you stated with some more information on the partnerships among other but could you give some flavor and perhaps on the regional outlook do you see any regions that have tailwinds or potentially any headwinds I mean, for example, some other affiliates have a Brazil where the regulation seems to hit a bit tougher than expected maybe. So if you can give some flavor on the original outlook in 2025.

Yes, the Kassel Basit is still declining. We've seen some low revenue from the Swedish market here in H2 as a consequence of the tax increase from 1st of July. Italy is growing. Denmark, as mentioned, is growing. And we also have seen good growth in the US from affiliation cloud. But we will come and give you more of a detailed financial outlook in relation to the Q1 report, 7th of May.

Alright, and then just a final question on your earn-out payments from here. I guess you had 8 million coming up this year and then looking at the 20 million remaining in 2026. Is there any headroom on the timing of that? Could that be renegotiated or is that a very firm last date of payment in September 2026?

We can get back to you around that a little bit later on. What we feel at the moment is that we have a lot of alternatives around the urn out and how we deal to settle it or find other alternatives. But let us get back to you guys with that later on when we get closer to it.

All right. Thank you. Thank you.

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

Good morning, guys. Good morning, Ricard. Yeah, so I have one question about sub-affiliation and affiliation cloud. Given that you're going to migrate customers to affiliation cloud, Would that indicate that the gross margin for sub-infiltration might go up once the migration is done?

No, that wouldn't really impact unless I'm misunderstanding your question. Are you thinking about something specifically?

Yeah, but basically since that you don't have to use a third party software.

No, not not materially. That's in relation quite a small cost for us.

Okay, thank you. That was basically my question.

Thank you, Richard.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

Yes, let's start to look at the written questions.

Yes, so we have one question here around the relating to the disposal of the tipster business and if all money have been paid. and if not how much will remain and when will the remaining part be settled so this we indicated in the press release when we sold it that there's one part up front and then there's one part which is on web share and that web share is ongoing still and the current assessment we have is that that will be settled as a current receivables it will be settled within the next nine to twelve months is the current assessment Here's one around market conditions that are hurting sub affiliation. I think we talked about this previous quarter, but we want to.

And if it's Google related and yes, it is. These paid publishers, they have challenges to to operate their campaigns through Google Ads platform, which has been going on for since mid Q2 last year.

And then there's another question around sub-affiliation and if there were any plans to expand sub-affiliation to new fast-growing markets such as some African countries.

For Affiliation Cloud and on what we've seen is that the paid is a bit volatile. So we focus a lot on the organic side and regulated market is the prime target. But we don't close any doors for regulated African markets.

Yeah, then there's a question on the slot Java products, seen any improvements? I believe Hjalmar touched upon this and you answered this, but if there's anything you want to add Johan, please go ahead.

Now that we have since the founders in this strategic partnership took over assets in early October, we have started to see traffic and ranking improvements, especially in the Italian market. So there are improvements, definitely.

Then there's a question around an increase. What's the reasons for an increase with regards to receivables as a percentage of revenue and if there's a problem to get paid from customers? And the short answer is no, we haven't seen a difference in trends of settlement. It's always a bit of work in this sector and that will continue, but we haven't seen any. negative trends in getting paid. And it's a question about... Yeah, there's a couple of questions under earn out payments that are very similar to the question from Hjalmar. So I think those have been replied to. Then there's a question on any guidance on revenues EBITDA for 2025 and as Johan pointed out, we will get back to this in connection with the Q1 with a more overview on the financial outlook.

A question about the Brazilian market being forexed for the start of 2025. The re-regulation started first of January and it's still too early to draw any conclusions on the outcome of the re-regulation. But we can come back to that in the Q1 report. Okay, that was all for today. Thank you all for listening in and thank you for all questions. We hope to see you again in May. Thank you.