Storytel AB (publ)

Hi and good morning everyone and welcome to Storytel Group's earnings call for the third quarter of 2024. I am Bodil Eriksson Torp and I've been here as the CEO of Storytel Group since October 1st. Joining me today is Titi Messner, our CFO. I'm really glad to be here today. I've been working at Storytel now for four weeks and it has been really exciting. I've spent my time on meeting our brilliant team and getting to know our business. And I would say that I'm really eager to get an even deeper understanding, especially when it comes to our customers and users in the different markets, as well as our products. I've spent over 25 years in the media industry, working with media groups like Bonnier and Aller, And mainly, during all those years, I've been focused on driving growth for strong consumer brands with an emphasis on subscription-based models, combining content with excellent tech. And this is actually where I have my big passion. So someone called me a subscriber hunter, and that's actually spot on. So one of my big goals here is to capture everyone entering our amazing Storytel world. and never ever let them go. Sales and marketing are also in my DNA, so I'm really excited to continue our success to deliver even greater value to our customers and all our stakeholders. Thanks to the hard work done by our team here, the group has delivered the best quarterly financial performance ever with record high revenues of 954 million SEK, with an adjusted EBITDA margin of 18.7%. We are so proud to present these results. And with that, I will hand over to Peter to talk about the details of our quarter performance. So let's move on, Peter.

Thank you very much, Bodil, and welcome to this third quarter earnings call also from my end. Let's start with some operational highlights. Foremost, the profitability improvements we continuously see and report are the result of the disciplined strategy execution balancing growth and profitability. During this third quarter, our paying subscriber base grew by 10% to above 2.3 million paying subscribers, and 40% of that growth was driven by our core Nordic markets. The size and therefore the growth of our subscriber base is, however, not the only focus. It's also the health of the subscriber base, and that is evidenced by the paid churn development, which continues to be on an all-time low. From a content cost perspective, the increased consumption of our own high-quality content from internal publishers again contributed to the improvements on gross margin level. Following the introduction of new pricing plans and differentiated promotions in the Nordics in the second quarter, I'd like to particularly highlight our Finnish market, where we saw an outstanding success with our Premium for Life campaign, which also heavily contributed to the low churn. In total, we saw our subscriber base in Finland growing by 30% year-on-year during this quarter. Our publishing houses continued to release bestseller lists and consumption-topping titles during the quarter, including another Storytel original from the Red Revenge series of Danish author Nis Jacob, and Emilie Schepp's thriller 100 Days in July, published by Neustadt in Sweden, to name just two of the highlights during this quarter. In September, Swedish crime author Sami Cheridi signed a multi-book deal with Neustadt and Storytel, showcasing again the dynamic synergies between our streaming platform and the publishing houses within the group. Let's turn to the financial highlights then. As Budil mentioned earlier, Storytel Group again delivered the strongest ever financial results during this quarter. Group net sales increased by 7% or 8% at constant exchange rates to 954 million SEK. The adjusted gross profit margin improved by 4.6 percentage points year-on-year to 45.7%. Our EBITDA performance was particularly strong, with adjusted EBITDA reaching 178 million SIG, which is up 76% year-on-year. The record high margin of 18.7% during the third quarter also reflects positive seasonality effects in the personnel cost base due to reversals of vacation accruals, as it is the main vacation period during the year. Else, however, the significant year-over-year improvement is driven by the increase in revenues and gross profit and also by the cost efficiency measures that the group has been taking since last year. All these operational and financial improvements are reflected in our operational cash flow, which was 146 million SEK, and in our adjusted operating profit, which improved to 105 million SEK, which is a margin of 11%. Let us turn to our segment performance then. Looking first at the operational performance in streaming, which is our largest segment, we are again pleased with the very strong results. The total subscriber base grew by 10% year-on-year, or 222,000 subscribers, up to an average number of subscribers of 2.36 million during the third quarter. More than 40% of that subscriber growth came from the Nordic markets, which contributed with an 8% growth. while the non-Nodix core region grew 16% year-on-year and contributed 129,000 new subscribers year-on-year. The ARPU, the average revenue per user, remained at a high level and organically decreased by 2% year-on-year or 4.4% when including the adverse currency exchange effects as a result of the expected stronger subscriber intake in our lower-priced tiers. As mentioned earlier, we focus not only on the size, but also on the health and therefore the profitability of the subscriber base, which means all-time balancing of subscriber growth and our pool. We manage this through the ratio of customer lifetime value to our subscriber acquisition costs, and our success is evidenced by the development of paid churn, which continuously is at an all-time low. When taking a closer look at the streaming segment's financials then, we see that total net sales were up to 852 million SEK, which is a 5% increase year-on-year, or 8% at constant exchange rates. Revenue in the Nordics region increased by 3%, based on a subscriber increase of 8%, and an upward decrease of 5%, which is also impacted by adverse currency effects. Revenue in the non-Nordics core region increased by 16%, based on a subscriber increase of 16%, and a slight upward decrease a little bit below 1%. Adjusted gross profit for the streaming segment increased by 11% to 354 million SIG, with a margin of 41.6%, which is two percentage points higher than in the third quarter last year. The total operational expenses significantly decreased, such as the general and administrative expenses, which decreased by 59%, again, including a positive seasonality effect on personnel expenses due to the reversal of vacation accruals during the summer. As a result, the adjusted EBITDA contribution from the streaming segment increased by 56% to 121 million SIG and reflects a margin of 14.2%. And the adjusted operating profit contribution from the streaming segment increased by 142% to 90 million SEK. Let's then turn to the publishing segment. The publishing segment reflects the financials of all the publishing houses within the Storytel group. This is Neustadt's publishing group, Linden Company, Gumoros, and Peoples, as well as our global digital audio publisher, StorySight. The total net sales in the publishing segment increased by 13% to 285 million SEK, out of which the external sales, which account for 54% of total sales, increased by 11% to 154 million SEK, and the group internal sales increased by 15% to 131 million SEK. As you can see in the bottom left chart on this slide, the internal sales show a more stable and increasing development while the increase in the external sales over time is subject to certain seasonality patterns also defined by the print sales. Adjusted gross profit increased by 52% to 98 million SIG, with a margin of 34.5%, which is 8.8 percentage points higher than in the third quarter last year. Adjusted EBITDA contribution from the publishing segment was up 48% to 87 million SIG and reflects a margin of 30.5%. And the adjusted operating profit contribution from the publishing segment was 47 million SIG and increased by 141% year-on-year. Both the gross profit and the EBITDA margins follow certain seasonality patterns due to different gross profit margins in print sales versus digital sales and also effects from inventory write-downs. Overall, the increase in margins is not only the result of higher revenues, but in particular also due to the many operational improvements that have been implemented since last year. Let's take a look then at the group's cash flow statement, which shows really the results of the discipline strategy execution and the past cost efficiency measures now. The cash flow from operating activities before changes in working capital increased by 88% to 148 million SIG, where the change in working capital was 45 million SIG and explained by the seasonality on accrued expenses, including royalty payments. The cash flow from investing activities reflects our investments into content, product, and technology and was minus 44 million SIG. And the cash flow from financing activities was minus 9 million SIG. All in all, Total group cash flow for the period was a positive 140 million SIG. With that record high cash flow generation, let's have a brief look at the group's balance sheet. There are overall no major movements on very much all of the asset lines in the balance sheet, with total assets at roughly 3 billion SIG and reflecting an equity to asset ratio of 43.9%. Cash and cash equivalents at the end of the period was at $448 million. The only remaining financial debt is a revolving credit facility. Only after the end of the period, we have extended the maturity of this revolving credit facility until April 2026, for which the related liabilities were still classified as current in the balance sheet as at the end of September. The new revolving credit facility is 700 million SIG, of which 650 million SIG are currently utilized. How does this then translate into the group's leverage? Well, firstly, our operational cash flow, defined as EBITDA, excluding any items affecting comparability, less any operational capital expenditures. was on a record high level with 146 million SIG or 15.3% of revenues. The net interest-bearing debt was 202 million SIG at the end of the period and represents a leverage ratio to the last 12 months of adjusted EBITDA of 0.4. As you can see, the Storytel Group has significantly deleveraged during the past 12 months, down from a leverage ratio of 1.3 at the end of September last year. Finally, so where do we stand regarding our financial guidance for this year based on this strong performance? As a recap, our previous strategic shift towards an increased focus on efficiencies and profitable growth, which was initiated in 2022 and reinforced this year, has led to significantly higher profitability while still maintaining solid growth. With the continued strong competition, particularly in our core Nordic markets, we have applied a fairly disciplined approach to marketing spend, and therefore we have chosen to revise our 2024 full-year revenue growth guidance to around 8%. At the same time, we now expect to be close or reach the previously outlined 2026 mid-term targets of both adjusted EBITDA margin above 15% and operational cash flow above 10% of revenues already this year, which is more than two years ahead of plan.

Thanks, Peter. This performance is a clear statement of the group's strong financial position, and I would say it also opens up for many strategic opportunities. I will work closely with our team to review our business plans and evaluate the different possibilities that we foresee. And with that we conclude this presentation and open up for your questions.