Storytel AB (publ)

Welcome to Storytel Q3 Report 2025. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the CEO, Bottle Ericsson Torp, and CFO, Stefan Vard. Please go ahead.

Good morning, everyone, and welcome to Storytel Group's Q3 2025 earnings call. We are pleased to report strong financial performance today across both our segments in streaming and publishing, with robust customer intake and record high profitability. This performance reinforced our confidence in achieving our guidance for 2025. which we will talk more about today. So I am Bodil Eriksson-Tor, the CEO of Storytel Group since a year. And also joining us today is our new CFO, Stefan Vård. So welcome to you, Stefan, to our first call from inside Storytel. And I'm sure that you're going to love it. So as we just said, we have delivered another strong quarter with over 2.6 million paying subscribers. Most of them, as you know, are highly engaged book lovers, and we increased our paying subscriber space with over 10% year over year. We continue a strong financial development, reflecting underlying growth in both our segments and we deliver revenue growth of 9% in constant currency. The growth was driven by focus on our customer experience, while we continued operational efficiencies led to our record high profitability and a strong cash flow generation. And regarding the ARPU, it decreased due to a main factor that is the FX effects of 4sec. but also due to our continued growth in markets outside the Nordics, where we are having lower price points, as we have been talking about before. The publishing segment achieved strong sales and growth, and also very improved profitability, partly driven by the successful acquisition of Bokfabriken, But I would also emphasize that the underlying growth excluding acquisition of bokfabriken remained very solid. So combined with continued progress in streaming, this is also highlighting our strength of our business model. We deliver a strong Q3 with an increased profitability of 26% year on year. And by that said, we also raised our 2025 margin guidance to the range of 18.0% to 19.5%. So here is our group financial highlights. Group net sales increased by 6% year-over-year to over 1 billion SEK. And as many other Swedish companies, we have also been affected by the strong currency headwind. In constant currency, our net sales increased by 9%. The solid development was driven by healthy growth in both our segments, as I said before, and gross profit increased by 6%, and the gross profit margin was on par with last year. We reached a record high EBITDA margin of 22.1%. Adjusted EBITDA increased by 26% to 224 million SEK. The net profit for the period increased with 150% to 138 million SEK during the quarter. The significant improvement in profitability was driven by increased operational efficiency. Overall, we are very satisfied with the financial development in Q3. And our financial position provides us a very high flexibility now for expanding our businesses. So it's important for us to continue to improve satisfaction and engagement for our customers. So when we look ahead, we will increase our investments in local relevant content and also the user experience in our services. This will continue to improve both engagement and satisfaction for our current and our future book lovers. So when we're looking into rolling 12, we see a strong development with strong momentum. On an annualized basis, our revenues are now close to 4 billion SEK. With a margin of 18.4%, this confirms our successful business model, as you can see. So let's continue with our two business segments. Over to you, Stefan.

Thank you, Bodil. We'll continue with a brief overview of our streaming performance. During the quarter, we added 56,000 new subs. And over the past 12 months, we have added 236,000 new subscribers. So solid growth, both on a quarterly and annualized level. Especially the Nordics was strong in the most recent quarter with the net ads of 36,000, while we added 58,000 for the full past 12 months. So a relatively strong intake from the Nordics in Q3. Outside the Nordics, we added 20,000 new subs in Q3 and 178,000 over the past four quarters. So relatively softer quarter outside the Nordics in Q3. At the end of the last quarter, our Nordic base was 1.32 million, while our base outside the Nordics was 1.28 for a total customer base of 2.6 million subs. So we're roughly evenly split between the Nordics and outside the Nordics. And it's a reasonable assumption that we soon will pass. The shift will tilt towards our international non-Nordic customer base going forward. As a consequence, we continue to see a decline in ARPU. We have lower average ARPU levels outside the Nordics, but that does not necessarily mean that we have lower profitability on those customers. On the CLV SAC ratio, we remain well above our target level of three. So supporting arguments for continued subscriber growth. Not only do we have a well diversified subscriber base in terms of markets, but we also have a highly engaged and loyal customer base visible in our low churn level, which continued to decline during the quarter to a new all-time low. Looking specifically at the financial performance of the streaming segment, we delivered a reported sales growth of 4% and 7% in constant currencies. Streaming gross margin was unchanged while our EBITDA margin improved 4.3 percentage points to EBITDA margin for the streaming segment of 17.9%. Operating leverage continued, so our growth in operating profit was 43% year on year. In our publishing segment, we delivered, as Bodil said earlier, strong growth, 14% year on year. 39 million of the annual increase for the first nine months. A total increase of 39 million of which Bokfabriken accounted for 22 million. And Bokfabriken has so far since we acquired the unit delivered very good results above our forecast. So we're very happy with that acquisition. It's a good example of how we can continue to grow our publishing business. The development was also driven by strong digital and physical sales with a good performance of new titles. Publishing EBITDA increased by 25% to 108 million for a margin of 33.4% up three percentage points year on year. We can continue to next. Looking at the cash flow generation, we transform or convert over 80% of our EBITDA to operating cash flow before changes in working capital. Cash flow from operation before again, so that cash flow grew by 37% and was 203 million in the quarter and on the trailing 12 month basis, it's at 658 million, corresponding to 90% of our run rate EBTA for the past 12 months. Working capital had a negative impact of 45 million in the quarter. In our view, this is normal variations and we will see a release of working capital in the final quarter. Fair expectations for the full year would be to have a relatively neutral impact from working capital in 2025. During the quarter we also repaid 50 million of our debt and that together with the increase in working capital explains the relatively softer total cash flow for the period compared with last year. Looking at the balance sheet. It's strong as not much to say that we have a cash and equivalence of just over half a billion. That's roughly on par with our interest being that our equity asset ratio continues to improve and it's currently at 50%. Speaking of our net debt, it's tiny, it's 23 million. We will go into net cash during the fourth quarter if we don't do any drastic investments. So we have a very good financial position. In addition to our strong operating profitability, we continue to see improved financing costs. So we will have a better financing situation going forward. We also have a significant amount of deferred tax assets, which are currently off balance sheet. These are primarily related to losses made in our now very profitable Swedish business. So we are quite certain that we will be able to utilize these deferred tax assets going forward, which will mean that we will have a fairly low paid tax rate. And that is also good for our cash flow generation going forward. With that, I'll hand it back to you, Bodie.

Thank you, Stefan. Super good. And thank you for highlighting our strong financials and our position. So we summarized this quarter and we are satisfied with our operational performance and our solid subscriber growth. And it's also that our highly engaged book lovers has led to an all time low churn rate again. That's really good. So our substantial cash generation provides us a very strong financial position. And we will continue to expand into new and existing markets in a prudent way. We have launched our services into Estonia during the quarter while also new partnership in Chile will Chile will be supported growth over time. So this is to continue the path that we are doing. Our strategic focus is super clear for us. We continue to strengthen our leading position in the Nordics, and we will also accelerate our growth in our core non-Nordics markets. That's super important for us and expanding to new adjacent markets. So this strong momentum coupled with our high degree of financial flexibility supported by an active mna agenda position us now very well for the future so we will continue to to hopefully end also with a really good year here so now over to your questions

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 Derek Laliberte from ABG Sundahl Collier. Please go ahead.

Thank you. And great to have Stefan on board as well there. I was wondering, you delivered obviously a really strong margin here in Q3 driven by lower costs, looks like mainly lower OPEX. What were the key components of that and is this level, so to speak, sustainable into Q4?

Thank you, Derek. Stefan here. Yes, so the primary reason on an annualized basis, we had some costs last year in Q3 that related to headcount reductions that are not apparent this year. Other than that, we just continue to work with improving our efficiencies, as Bodil mentioned earlier, during the first half we trimmed the OPEC space. So part of it will be sustainable and we definitely see a higher profitability level going forward, hence our raised full year guidance. I hope that answers your question.

Okay, great. Yeah, very clear. And I was also wondering on the summer months here, a strong performance in terms of intake. Can you say something about what you've experienced in the Nordics here with regards to sort of how efficient your conversion of customers has been and what you've seen on the competition front as well? Thank you.

Yes, I think we... Always. And we have also increased our efficiency in our MarTech function. And that is also what we are seeing from the figures while our growth is increasing in the Nordics in a good way. So the competition is what it is. it's the same as it has been before. So I think we've done a good job during this quarter to also have the increase in the Nordics when it comes to the subscriber base. And that goes to the efficiency and the good function that we have for the MarTech, I would say. And also monitor and be agile in doing the right things in the tactical marketing is also important.

Great. And looking at non-Nordic core markets here, which, I mean, can you, I think you said that Poland and the Netherlands continue to be strong, but is there anything else to highlight in terms of particular tail or headwinds that have had any meaningful impact in any of these countries?

I would say we have a strong, good momentum in Poland and Netherlands, and that is what we're also telling in the report today. So we, of course, we are in a good path and we're taking market shares there. So I won't say that we have any different headwinds that we see. It's more about gaining shares and increase the momentum that we have in those markets. It's important for us to continue to grow there. And also, as Stefan mentioned in the call that this will, going forward, change a little bit regarding the balance where we see the growth and the customer base in the pay base regarding Nordic and the growth non-Nordic course. So this is of course super important for us and we have a good momentum there.

Okay, sounds promising and I was also wondering, you've talked for quite some time about further differentiating your product from competitors' offerings. Where would you say you are on this journey and what benefits are you experiencing from what you've achieved so far and what should we expect in the future?

We increase our efforts to deliver the best streaming service to our customers, of course. We have also launched different features during this quarter that goes into seamless reading and listening function, for example, and also the audio around Dolby. So we are on a good way of increase our deliveries to our customers to actually make it more to increase the customer experience in the app. And that is also important since I mean, we had the big launch of voice switcher. And then it was a time where we didn't really release any features, but we are into that momentum now that we have actually launched some features and we will continue to do that. So we have a good progress in product and tech and also new setup there with organizational setup that are also more focused on getting delivering in the product features to the market to increase our strength in the app of course.

Got it and finally on you announced yesterday this Klarna partnership can you talk about the potential you see in this deal in terms of what it could mean for distribution and conversion?

I would say, I mean, we launched it yesterday, so it's very in the very beginning. But this is, I mean, Klarna's network is reaching over 100 million consumers worldwide. And this goes into different tiers models across 14 markets. So, of course, we are very hopeful that this will be a really good partnership for us. I mean, also when it comes to Klarna's customers, we know that they are really tech savvy and they also want to have new services regarding streaming. So there's a good collaboration and it's a good fit with Klarna's customer. So we will come back to this, but we are very happy and have a good forecast that we will have some good business values out of this partnership.

Great. And I also like to ask, I think you mentioned before about adding, I mean, this additional expansion or additional markets. I'm not sure if it was six to eight in total. over the years and we've clearly had your announcements on Estonia here and also the partnership in Chile. What should we expect going forward here and what type of approach will you take with these two launches, so to speak, that you've, I mean,

gone for sort of a partnership model to to sort of quicker get the unattractive catalog up and running in the service well i think you should expect that we continue to add markets to our footprint and we can both reignite existing markets where we've been active in the past and already have a catalog we can go into new markets completely new markets as in estonia for example We can go in organically or we can go in through acquisitions and we can also go in via partnerships. And these are just two examples that we're executing on that strategy. But it's a fair assumption to continue that we will continue to do so. That's the best answer I can give you there.

Okay, perfect. That was all for me.

The next question comes from Joachim Gunnell from DNB Carnegie. Please go ahead.

Joachim Gunnell, DNB Carnegie, Thank you, and good morning. So on this raised margin ambitions for 2025, since we're only one quarter to go, and on a trailing 12-month basis, we're already delivering 18.4% adjusted EBITDA. So how should we just think about more conceptually about this still fairly broad interval in that it's only Q4 to go and then essentially what scenarios do you play with here in order to hit either the high end or the low end of the trench?

Well, as you state Joakim, we're already delivering within our range, so we felt that we needed to revise, to lift our communicated range and notch upwards, and that is what we have done. Other than that, I don't think you should read too much into it. We're confident that we will deliver on our targets for the full year and expect to finish the year in a good way.

Great. And since there's been a lot of industry chatter about both Spotify launching, but also potential relaunch of Audible in the Nordics over the coming quarters. You discussed a bit about the steps you are taking to differentiate the service and then improve the listening and reading experience, right? But just remind us what you see as Storytel's deepest competitive modes, whether it's, of course, the local content, UI, UX, brand, price, et cetera, and how durable these are.

I can start. Yes. So our deepest motives are existing customer base that is not churning and very loyal and have a very high activity. of our content. So the content that we build over a long time, that's its core strategy and it's a very good mode for us. Then hopefully if new entrants come in, we hope that they will help evolve the entire cake. But we're used to intense competition and this will be nothing new for us. we we have our our content-based strategy and think that is what has helped us win so far

Yeah, and we should also remind ourselves, this is really a local game. So it's also about having the right competencies and know-how regarding the local game in the different markets. Since we know that over 80% is consumed in a local language, it's super important to have relevant local content and we are very good on that. So there's a long history of knowledge in that area in the company. And also that, like Stefan said, it's also about our customer base that are really engaged book lovers. that have been with us for a long time and the churn is all-time low. They actually having a really good and high engagement and loyalty to Storytel. This is also a mode where we know that our customers want to have their bookshelf in our app. That is the main mode, I would say.

We can also add that Audible has been in the market in the past, as you mentioned, and we face competition from Spotify in, for example, the Netherlands, and we're still able to grow our subscriber base very strongly in that market.

Great. When it comes to providing tools for creators to manage, promote and grow their audiobook, business? I mean, where are storytelling in relation to your ambition when it comes to visualizing different types of data statistics on listeners and those kinds of things to your authors and publishers?

I would say we are in the moment where we are digging deep into this. So we will actually come back on that because we also need to see how we will be better on delivering that kind of data and services to all the authors. So that is a project that is ongoing as we speak.

Understood. And just the final one from me. How are your AI initiatives like the AI narration and then voice switching tracking versus expectations? So I think there was like some, of course, initial traction of this, but can you say anything about user engagement trends suggesting if these are preferred new features or does your loyal book lovers prefer the classic experience?

I think, I mean, there are good, there's a, I mean, there's a good, user experience in voice switches we know that there's a lot of uh users that actually want to switch the voice when they don't like the voice so it's nine out of ten and there's a high engagement in using the voice switches so we are actually uh increasing our voice switch to more titles and more languages as we speak to scale it in a bigger way than we have done. It's attractive and it's a really good feature in the app that are highly engaging, I would say. It's in a good traction.

And we have an intense agenda currently ongoing within the company, both from efficiency, but also from product enhancement perspectives.

That goes group wide in the whole company. And that is an intense agenda also regarding education.

That's helpful. Bodil, Stefan, thank you very much and have a great day.

Thank you.

The next question comes from Georg Atling from Pareto Securities. Please go ahead.

Good morning, Bodil and Stefan. I have a couple of questions, if I may, just also starting on the margin guidance here for this year and looking at the financial target in 2028 of about 20% margin that looks quite conservative considering you're almost there in the higher end of this year's range. I'm just wondering if this is a reflection of you just staying conservative or are you seeing areas where you would like to accelerate cost growth

Well, regarding the current year, I think the high end of our updated guidance, it's not conservative. It's a stretch to reach that. We're at 18.4 on an annualized level and the updated high end is 19.5. So I think we have a balanced guidance for the rest of the year that is not too conservative. Regarding our midterm targets, we say that we're going to be above 20%. that could always be specified but i think our progress just shows that that is a reasonable expectations to be above 20 in in 2028 then exactly where we will end up there will be plenty of of of time to to to see to be more specific about that yeah that's clear uh

Also wondering about the Netherlands, you pointed out as one of the markets in the Nordic Core that's the strongest, which is interesting considering Spotify's entrance there a year or so ago. So I'm just wondering if you can give us some more color to how the market has developed since Spotify entered, because it seems like, if anything, it's been positive for you.

Well, yes. So it looks to our best understanding that we do not exactly compete on the same customers in that market and that they are actually helping to evolve the entire market. And that would be a very positive scenario for the audiobook format. That's our view. The Netherlands is still in a relatively early phase compared to the Nordics. So there's still a lot of growth in the total market to be done. So when we do strategic marketing in the Netherlands, it pays off in a nice way. So we're able to grow our own subscriber base. I hope that helps.

Yeah, that's helpful. And then just a final question from me. There were some comments in... in some local media here a couple of months ago that you are in talks with Spotify of licensing your content to Spotify then in the Nordics, if I understand it. Could you give some more color on where you stand with regards to this?

Yeah. And I mean, we don't comment on rumors. So so it's more about, we are open to discuss different business agreements when it's having a good opportunities. And that goes into to all the players in the market. That is all I can say.

Okay. That's all I have. Thank you very much.

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.

We have a couple of written questions here and the first one concerns AI. If we see a case where AI becomes a threat to our business model and how we use AI to improve our business. Any comments there, Boden?

I would say that we are actually using AI in a wide range in the company. Every team is now in both educational mode, but also we have been using AI for a very long time when it comes to, for example, product and tech. Also back in days with all the machine learning. So I would say that we are in the front line when it comes to the AI capabilities. And we are searching, of course, of efficiency, increase them and also getting the best out of it to our customers when it comes to customer value. So there's a

big scope for this and we are uh we're having a strong focus on ai in the company what was the question more uh the other one was on whether ai will become a threat to our business model and that could be bundled into if we think that ai can help large international competitors challenge us in our home market I can give a short answer to that, that we do not see as a threat to our business model, nor do we see it as an enabler for international competitors to threaten us in our home market since having a good offering is based on what content you can access. And that is regardless of whether the technique that we use to to to produce or distribute the content. But we are certain that we need to work a lot with the new AI based technologies to stay competitive with our offering. Definitely. Okay, and we have a final question if we have any plans to reintroduce our Storytel Reader to enhance the customer experience for e-books.

Yes, we are looking into that, I can tell. So hopefully we will have some happy customers in the future. in the future so so we are looking into it we know there's a lot of customers that really want to to us to restart that product thank you yeah okay then it's no more further questions no so thank you everyone for joining us today in the call and we are looking forward to our next quarter and we are looking forward to meet you soon again and as you know we are confident in achieving our updated 2025 guidance so thank you and have a good day