Storytel AB (publ)

Hello and good morning everyone. Welcome to Storytel Group's earnings call for the fourth quarter and the year-end report 2024. I am Bodele Eriksson-Tor, the CEO of Storytel Group. Joining me today is our CFO Peter Messner. We have achieved several key milestones that demonstrate the strength of our business and our position as a leader in the audiobook streaming and publishing industry. It is a strong accomplishment and it's a direct result of the team's dedication and commitment to delivering the best storytelling experience to our customers, combined with a prudent way of working for increased cost efficiency. We have achieved outstanding results, exceeding one billion SEK in revenue for the first time in a single quarter. And we are very pleased to share a strong operational and financial performance for the fourth quarter 2024. This confirms that we successfully executed and delivered on our profitable growth strategy. Our increased cost efficiencies, prudent marketing investments in selective markets and constantly sharpening our attractive offerings has gained results. Our total paid subscriber base grew 11% year on year, reaching over 2.4 million average paying subscribers. It's a new record. And not only are we attracting new listeners, but we are also keeping them engaged as evidenced by our all time low paid churn rate. Our ARPU remained at a high level, even if we saw a decrease of .5% due to changes in both the geographical and the customer mix versus last year. Which was fully expected. We are proud of our own content that continues to engage consumers. Strong consumption from our own publishers drive this success, which is also reflected in the strong financial performance of the entire publishing segment. And we are excited to build even stronger IP universes in different formats with our acquisitions of the full rights to the beloved Swedish children's characters, Sunne and Bert. So let's take a look at our group financial highlights for the fourth quarter 2024. Group revenue were up 9% and exceeded 1 billion set, the highest level of revenue for a single quarter so far, which of course is a key milestone. This was driven by a solid development in both streaming and especially in publishing. Our publishing segment had had a strong quarter driven by Christmas sales of both printed books as well as increased sales of digital books. We have also made significant progress in improving our profitability. Our gross profit margin for the entire group reached an all time high of 46.4%. Also here with a remarkable improvement in our publishing segment. Our adjusted EBITDA margin increased to .6% for the quarter and .8% for the full year, reflecting our disciplined approach to cost management and crude investments. For the full year, our adjusted EBITDA more than doubled to 602 million SEC. This demonstrates our commitment to operating efficiently and maximizing the value we create in our offerings. Overall, we are pleased with our Q4 and the full year's results. And we have a strong financial position as reflected by being almost debt free due to the strong cash flow generation in the business. We will wisely use this improved financial position in relation to the fast evolving audiobooks landscape, where we need to be dedicated to move fast and continue to be relevant and deliver the best offering to our customers in all aspects, both in streaming and publishing. So with that said, I will hand over to Peter, who will provide more details on our financial performance.

Thank you, Pudel, and a warm welcome also from my end for this fourth quarter earnings call. Looking at the operation performance in streaming, which is our largest segment, we're again very pleased with the strong results. The total paid subscriber base grew by 11% year on year or 240,000 subscribers to an average number of subscribers of 2.44 million during the fourth quarter. A strong 40% of that subscriber growth came from our Nordic markets, which showed an 8% growth, while our non Nordics core region grew by 17% year on year and contributed 137,000 new subscribers. As Pudel mentioned, the ARPU remained at a high level and organically decreased by .5% year on year as a result of the expected stronger subscriber intake in our lower price tiers and the changes in the geographical mix due to the stronger growth outside the higher ARPU Nordic region. The way we manage both ARPU and subscriber growth is through a balanced way with having the overall health and therefore profitability of the subscriber base in mind. The key ratio here is customer lifetime value to subscriber acquisition costs, and our success is evidenced by the development of paid churn, which continuously is and remains at an all time low. When taking a closer look at the streaming segments financials, we see that the total net sales were 879 million SEK up 7% year on year or 6% at constant exchange rates. Revenue in the Nordics region increased by 3% based on a subscriber increase of 8% and an ARPU decrease of 5% year over year. Revenue in the non Nordics core region increased by 13% based on a subscriber increase of 17% and an ARPU decrease of 3% year on year. The gross profit for the streaming segment increased by 11% to 377 million SEK reflecting a margin of 42.9%, which is 1.5 percentage points higher than the fourth quarter last year. Total operational expenses significantly decreased, such as the general and administrative expenses, which decreased by 31% year over year as a result of the cost efficiency measures executed since last year. As a result, the adjusted EBITDA contribution from the streaming segment increased by 73% to 129 million SEK, which reflects a margin of 14.7%. And the adjusted operating profit contribution from the streaming segment is increased by 102% to 93 million SEK. Let's then turn to the publishing segment. And as a reminder, our publishing segment reflects the financials of all the publishing houses within the Storytel Group. That is Neustadt's Publishing Group, Linden Company, Gummerus and Peoples, as well as our global digital only audio publisher StorySight. The total net sales in the publishing segment increased by 15% to 332 million SEK, of which the external sales represented 61% of total sales and increased by 17% to 201 million SEK, while the group internal sales that represented 46% of total sales during the fourth quarter increased by 13% to 131 million SEK. As is shown on the bottom left chart, internal sales show a more stable development over time, which is driven by our streaming segment performance, while the increase in external sales over time is subject to certain seasonality patterns, in particular in relation to print sales. The fourth quarter is historically the strongest quarter, with Christmas sales positively impacting the total numbers here. The adjusted gross profit increased by 132% to 112 million SEK, reflecting a gross profit margin of 33.8%. As a result, the adjusted EBITDA contribution from the publishing segment was up 98% to 99 million SEK, which reflects a margin of 29.9%, and the operating profit contribution from the publishing segment was 51 million SEK. Both the gross profit and EBITDA margins follow overall certain seasonality patterns due to the different gross profit margins in print sales as compared to digital sales, but also effects from inventory write downs over time. Overall, the increase in margins is not only the result of higher sales, but also due to the many operational improvements that have been implemented across our publishing houses since 2023. Let's turn to the group's cash flow statements then. The cash flow statement reflects the results of the disciplined strategy execution and the past cost efficiency measures, and led to a record high cash flow in the fourth quarter 2024. The cash flow from operating activities before changes in working capital was 228 million SEK, while the change in working capital was 44 million SEK, and is mainly due to seasonality in accrued expenses, where the comparable period the year before was impacted by changes in the overall business. Cash flow from operating activities after changes in working capital was therefore 272 million SEK in the fourth quarter, which is more than during the entire previous year 2023, where it was 248 million SEK. Cash flow from investing activities comprises our operational investments into content, product and technology, and was minus 99 million SEK, including the initial purchase price consideration for the IP acquisition of the Zune and Beth characters in Sweden that Udell mentioned before. Cash flow from financing activities was minus 9 million SEK, and all in all, total group cash flow for the period was positive 164 million SEK. With that record high cash flow generation, let's move on to the Group's balance sheet. The balance sheet reflects a stable yet improved financial position with total assets at around 3.4 billion SEK, which reflect an equity to asset ratio of 45.8%. Cash and cash equivalents were 623 million SEK at the end of the period, as a result of the aforementioned strong cash flow generation. The only remaining financial debt is a revolving credit facility. During the fourth quarter, we have extended the maturity of that facility until early April 2026. The related liabilities are classified as non-current in the balance sheet, and they were previously classified as current in the previous two quarters due to the extension effect and the maturity. The new facility is 700 million SEK, of which 650 million SEK are currently utilized. So how does this debt translate then into the Group's leverage ratio? Well, firstly, our operational cash flow, which we define as EBITDA excluding any items affecting comparability, less any operational investments and cutbacks, was on a record high level with 153 million SEK, or almost 15% of revenues. The net interest bearing debt was only 27 million SEK at the end of the period and represents a leverage ratio to the last 12 months of adjusted EBITDA of 0.05. As Bude mentioned earlier, this means that Storytel Group essentially is debt free as of now, which is a massive achievement from the transformation of the past three years. With that, I hand back to Bude. Thank

you, Peter, for guiding us through our segment's performance and our financial details. All in all, we are very pleased to report that Storytel Group beat the full year guidance for 2024. An organic revenue growth of 9% with an adjusted EBITDA margin of .8% and an operational cash flow of .1% for 2024 are definitely strong numbers. The performance reflects our disciplined execution of our profitable growth strategy, and we have already reached our midterm targets for 2026. For both adjusted EBITDA margin and also operational cash flow. So let's look forward. The strong momentum out of 2024 is a robust foundation for this year, 2025. We have been working with AI as a toolbox in several teams for quite a long time now, and we will continue to focus on the possibilities of AI that can deliver value for our customers, but also for our increased efficiency. We are using AI to create a more magical experience for our listeners. One example is our voice switcher. When you as a listener don't prefer the narrator, you switch to an alternative AI voice. We're rolling out this feature in more languages and countries in this year, all to increase our, all to increase user satisfaction and engagement. We are also exploring the potential of AI in content creation. For a couple of weeks, we launched an AI-written book called New Horizon. This was a test to find out the relevance of a fully written AI book, or on the other side, the importance of a human factor in combination with AI. We are here. We are dedicated to exploring the full potential of AI. We will continue to invest in original content to expand our audiobook library. We have also acquired the full rights to the popular children's characters, Sunan Bhatt, in 2024, and the majority stake in the Swedish publisher Bokförvulken. We have delivered a strong cash flow during 2024 that creates financial flexibility and headroom for us now. At this time, we are reviewing our strategy and together with the board, we will set the direction for 2028 with an updated strategy and updated business plans. And we will share our new midterm financial targets for 2028 during the spring. For this year, 2025, and subject to our strategic review, we expect continued organic growth with improved profitability. 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.

The next question comes from Joakim Gunel from DNB Markets. Please go ahead.

Thank you and good morning. So can you just help us unpack here why you did not commit to affirm 2025 guidance at this stage? I fully understand that the strategic review that's ongoing here, but just help us understand the comment of continued organic growth, whether that should be seen as in line with 2024 growth levels or say lower.

Good morning Joakim. I almost expected actually your question here. Well, I mean, the reason why we are not firmer on that is simply because what we stated, we are in the process of a strategic review. And that may change how much we, for instance, want to invest now in certain markets and push even further. So what I can indicate is that we already committed internally to use more marketing investments where we see the benefit of doing that during this year. How this will ultimately then translate into the overall growth rate for the year that is to be seen and that we will answer during the springtime when we are talking about the outcome of our strategic review and the new midterm targets for 2028.

Understood. So on the gross margin, so once again, stellar progress here. Could you dig in a bit to the drivers of this progress, just in light of what different buckets is driving this, whether it's still internal share of content, that's the main bucket, and then ultimately understand the trajectory of further gross margin gains for 2025.

Yeah, I also take that Joakim. It's not very different or it's not at all different to what we said in previous quarters. The massive improvement in the gross profit margin, I would say over the last two years, was of course a combined effort of several initiatives that we have taken. It's on the one hand side of course the result of our strength in our markets and that puts us into a certain position where we can of course work differently with content cost. And then is, as you also asked, it is the internal share of content. We are in that very favorable position, I would say, that we have strong publishing houses creating strong content that is really captivating users' interest and therefore engagement is increasing in relation to that content. And that has a huge impact on the overall gross profit margin. I believe I mentioned in last quarter's call as well, how much more potential is there? Well, we have done a lot now in the last two years, so if you compare the two low-hanging fruits, I think we have picked all the low-hanging fruit. If we want to do more on gross profit margin, that is a very strategic question because ultimately somebody has to pay for that. Either it is on the side of consumers having to pay a higher price that will ultimately increase our profit or you would have to do things that ultimately will hurt publishing houses and the authors on the other end and their royalties. So it's a very strategic question, but you shouldn't expect massive movements on the gross profit for this year going forward.

That's very helpful. Thank you, Peter. Could you also just expand a bit on the competitive dynamics here, both in the Nordics and your top five non-Nordic markets here, where subscriber growth was evidently very strong. So are you seeing any signs of competitors being more or less aggressive, say, than three years ago? I noted that the gross margin in Nordic streaming was actually slightly down year over year, but I would assume that relates to tiers mix shift.

Yeah, it is actually more related to your last question in relation to the consumption patterns and how different markets have evolved. What I can indicate, which was a very strong growth in the Nordics now during the fourth quarter again on the subscriber intake, there was a great share that came from Finland, which is in line with what we said in the third quarter as well. We had very good momentum since the summer in terms of overall subscriber intake in Finland, but Finland is a little bit different when it comes to the publisher setup and therefore from a content cost perspective, impacting the margins. So it has to be seen in the broader scheme of things. Other than that, I cannot comment too much on the situation as compared to three years ago in terms of competition, but audiobooks is a growing market, right? So there is strong competition and that has not changed. I wouldn't say that it has particularly intensified, definitely not particularly intensified during the fourth quarter. It's in line with what we expected and what we have been prepared for. And as you see, we have tackled that in a pretty good way with these strong financial results in the fourth quarter.

Absolutely. And just finally, five years ago, there was some preparations for a main market list with regards to the whole accounting shift towards IFRS. Can you say anything, whether that's within your plan here to move to the main market?

It is not a plan as of now, but it is an item that of course every now and then is discussed together with our board of directors when there would be a right time or if there would be a right time to do that. So it's definitely not off the table, but there is no plan as of now that we would do that within a very short period of time. But it is always a topic that we will review, of course.

Thank you and congrats on strong numbers.

Thank you Joachim.

The next question comes from Derek Laliberté from ABG Sundal Kalje. Please go ahead.

Thank you and good morning. I wondered, you mentioned here Bulgaria and Poland as particularly strong markets in the non-Nordic geographical area. So what's driving the strong performance here, if you could share some color on that?

It's our great work that drives the great performance in these markets. To be clear, in the non-Nordic core markets in Europe, so not only Bulgaria and Poland, but also Turkey and Netherlands, we are very pleased with the overall development during the fourth quarter. We have highlighted these two markets in particular because of their growth rate and the traction that we had. And there is nothing in particular now that I would pinpoint, also from a competitive point of view, that I would like to say, rather than that we had extremely good traction operationally with what we did in terms of marketing campaigns and the overall business development. So these markets, you need to keep in mind that overall audiobook penetration in these markets is still comparably low as compared to the more mature markets that we have here in the Nordics. Poland in particular, I always highlight in terms of think of the entire population of Poland, which is more than the entire five countries of the Nordics. And then if you think of Turkey, which is more than double the size of Poland. So there is a great momentum in these markets and in particular Poland from an economic perspective. And of course, we are monetizing on that.

Sounds great. Appreciate the flavor there. And finally, from my side, things are moving quite rapidly. I'm wondering if you could provide an update on what you're experiencing in your markets where Spotify has launched its audiobooks offering like the Netherlands and the US. Thank you.

Yeah, we have not. We have not seen anything that we would be as the question usually relates to that we would be concerned or anything else. It's rather the opposite. What is always healthy is, of course, to have big players that are also promoting and by that lifting the audio, the overall audiobook category. I think I mentioned it before in the US when when Spotify launched in the final quarter of 2023, market growth essentially doubled by them having managed to convert their own listeners to also start listening to audiobooks. And that is great news because the more listeners or readers, if you want, can be created through engagement, or the more everybody, in particular the publishers, will benefit in that market. And it's rather storytelling than Spotify that will serve as the platform for those who love to read or listen to many, many books. And that's the same in in the Netherlands as well. It is probably a little bit too early to really conclude on many things, given the start only during the fourth quarter. But we haven't seen anything that we would not have expected or that we would be concerned at this point in time. So it's a very positive development. And again, all the core markets that we are talking about, we are very pleased with the strong performance in all of them.

OK, great there. Thank you. Thank you,

Derek.

The next question comes from Stefan from Ward. Please go ahead.

Hello, congratulations on a very solid number. I would also like to elaborate a little bit on what to expect. It would have been helpful with some sort of guidance for 2025. And so if you could help. I mean, do you say that the gross margin expansion and the EBTA margin expansion for the second half, would you say that that is sustainable for 2025 or should we expect that you pull back some if you are going to be more aggressive on the top line or any sort of input on these two parameters would be helpful?

Thanks. Yeah, I mean, I could repeat, Stefan. Good morning. What I said before, but we don't want to hypothesize now at this point before we really go out with our updated strategy or the results of the of the strategy review. It's not going to be a totally new strategy. It will be an update. And in that update, we will answer these questions. We will take a look at the core markets independently, which we started now in January already and see, do we have opportunities to invest more in particular in marketing where we see. But that's the normal business how we have developed this anyway. What we stated in the report is exactly what you referred to in terms of, well, we expect that we will have healthy organic growth during this year and dependent on the outcome of that strategy review, we will adjust this. Overall, our profitability will increase. That is that is quite clear because that's on the back of all the cost efficiency measures and the overall measures that we have been taking during the year. But I ask for a little bit more patience. It's not too far away during the springtime when we will update on the outcome of that review and update the targets for twenty twenty eight and implicitly then, of course, for twenty twenty five as well.

It's a little bit difficult to find the seasonality patterns. Way back, we usually talked about a strong third quarter due to holiday season and so forth. But over the past few years, it seems like it's an allergy has diminished somewhat. But then again, there's been a lot of impact on one of them in certain quarters, especially the historical Q force. It seems like this Q4 is pretty free of any at least any negative one of in this quarter. If you could confirm that, then if you could describe a little bit on how to think about seasonality issues, at least for the first half of twenty twenty five.

Yeah, so I guess and infer from a question that you're primarily now relating to the seasonality on the bottom line, I can confirm, as we mentioned in the report, there are no major one offs that affected the adjusted numbers. There are other one offs that affected the overall operating profit in a very positive way, which are the items affecting comparability that are described in the report. The seasonality on on revenues has, however, a certain impact on the bottom line as well. And in particular in the fourth quarter, if you think of the strong publishing segment, the fourth quarter is the strongest quarter. Historically has been always the strongest quarter in our publishing houses simply to the Christmas sale. But then also because there are certain campaigns happening. If you think of the summer, what you mentioned in terms of summer campaigns on streaming, you also have with the campaigns happening on the streaming side there. But in in particular, print sales have a different positive margin impact on the overall business as compared to the digital sales. If you think of the unit economics here, so that that goes all the way down through gross profit and to to the bottom line when it comes to twenty twenty five. Yes, we had certain changes in the business that, of course, were implemented in the beginning of last year. So Q1 was not fully a run rate perspective, if you recall that. And it was not fully a run rate perspective with all cost efficiency measures last year either. So that will be factored in now in this year in the first half. Other than that, we will likewise update during the springtime or during our Q1 call, of course, how that development has looked like.

Is that the correct perception? Is there room for price improvements in on the continental side in Europe, would you say?

It is a very difficult connection. Are you referring to price increases? Did I understand that correctly, Stefan?

Yes, yes, room for price increases outside the Nordic.

Well, I mean, price increases are overall the are poor if you if you want to refer that to a higher level and to a bigger topic. That is always something that any business, I think, needs to look into. I'm not making here any promises or disclosing any plans that we would do that. But we are adjusting and reviewing our press prices every now and then from a pure operational point of view anyway. So that is nothing strange. That's just part of the of the normal operational business and the business development. Then, as you see in our non Nordics core market, yes, APO has changed a little bit more so than in the Nordics, but that is totally expected. It's based on the development of new subscriber intake and the overall situation there when it comes to, for instance, also the introduction of new pricing tiers that we did in the Netherlands as compared to the unlimited only pricing tier that we had prior to the third quarter last year. So it's always the dynamics and how we see in particular on the competitive side, the market to to evolve when we would then make decisions about is there any need to change anything in the pricing and in the packaging? But that's normal operational business.

OK, perfect. I'd also like two more questions if possible. One is on the shurn data, which is very good that you show in this graph, but it looks like how should I interpret it? Have you decreased the shurn by roughly 25 percent or how should we view it for Q4 last year compared to early 2022? Seems like a very big move.

I mean, churn has has decreased for a long time. Yes, from an index perspective, where it was at index 100 in the beginning of Q1 in the chart that you referred to, to where we landed now at roughly a level of 75 in relation to that index. So that is indeed that you need to keep in mind that from Q1 2022, there also has been an impact during 2022 because of the discontinuation of the former expansion markets, which had a positive impact on the churn development during that period of time. However, then in 2023 and 2024, that is a non-impact because we didn't make any major changes and left these former expansion markets essentially rest in their situation where we are. There are very small investments in these markets. There are positive developments in some of these markets more than in others when it comes to subscriber contribution. And you see it in the in the streaming KPIs, the overall development in that rest of world region as well. But overall, it is it is the loyal customer base, the high engagement in the product that we are very actively, of course, work with with our product offering that makes the churn rate slow down over time. You've seen that the that the curve has been flattening out a little bit during 2024. It has remained and kept decreasing. So it is at an all time low, but it's not going down so massively any longer. And that you also should not expect. We are very happy with that churn where we are right now.

So I understand. Thank you. And then just a final question on the on content investment. Do you see any other any is this a normal rate that you are spending right now? And how are you sort of accounting for it in terms of capbacks and what's taken on the on the gross money? Will there be any changes basically to how you invest in content going forward?

Yeah, it's an excellent question because it also relates, of course, to our strategy review and our forward looking investments in several markets. But for the time being and subject to our update during the springtime, you should think of that as a good indication for a run rate. The capbacks overall is the majority of the capbacks. 80 plus percent is in relation to content. It's our investment into audiobook productions. And it is therefore the key item in terms of the catalog that we offer to our consumers. The other 15 to 20 percent is in relation to product and technology developments on the platform. So huge focus is on content that will not disappear because content is the key thing that we are offering to our consumers. And whether we will change this and do a different level of investment that is subject to the strategic review, which we will talk about during the springtime.

OK, thank you very much. And again, really good numbers. So happy to read the report. Thanks.

Thank you, Stefan.

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

So so thank you for being with us today. We are dedicated now with a team here at Storytel and our board of directors to drive these forces to continue our success. And I'm looking forward to the next chapter. So thanks for joining us today. And we look forward to meeting you soon again.