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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, everyone, and a warm welcome to the presentation of Acast report for the first quarter of 2023. Our CEO, Ross Adams; and CFO, Emily Villatte, will present the results and developments for the quarter. You can ask questions throughout the whole presentation by typing them in the text box below on your screen, and we will answer them in the Q&A session after the presentation.
And by that, I would like to hand over to our CEO, Ross Adams.
Thanks very much. Hello, everyone, and thanks for taking the time to listen to our report for the first quarter of 2023. In case you are new to our calls, my name is Ross Adams, CEO of Acast usually based out of New York; and our CFO, Emily Villatte. And I will take you through the numbers and events for the past quarter.
Okay. During the first quarter of 2023, Acast grew by 11%, of which 6% was organic growth. It is a stable development in light of an underlying advertising market that has weakened significantly compared to a year ago.
At that time, the global advertising market still on the horizon, Acast delivered very strong quarter in terms of growth.
During the first quarter of the year, we continued to improve our marketplace to create even better conditions for both advertisers and podcast creators to reach their target audiences and earn more money.
We succeeded in balancing high internal efficiency and cost control with further development of our products and services, and we improved our EBITDA margin by 5 percentage points compared to the same period last year with our gross margin remaining stable at 36%.
Acast is the market-leading independent global infrastructure platform in podcasting. We're uniquely positioned at the center of podcasting value chain, connecting advertisers with podcast creators who want to monetize their content and their highly engaged audiences.
And even though the overall advertising market is currently under macroeconomic pressure, podcasting has proven to be a strong industry. Podcasting is driving audio spend growth and outperforming the ad market and has done so for many years.
It's clear that podcast medium still has room for growth. And to that point, during the quarter, we reached 2 important milestones.
Our platform now boasts more than 100,000 podcasts, and we've exceeded 100 million unique monthly listeners. And with this, we've achieved a good level of reach and scale, allowing our teams to concentrate on maximizing ad sales across all of these diverse shows.
The equation is straightforward. Acast has established a robust network of podcasts that cater to a diverse range of interest and provide engaging, informative and entertaining content to listeners worldwide.
As a key player in the value chain, we facilitate connections between advertisers seeking an engaged audience and podcast creators striving to expand their reach and generate revenue.
As a result, we provide advertisers with access to the listeners, they seek leading to more advertisers joining Acast as the number of connected podcast creators and listeners increases.
In the last quarter of 2022, we launched our self-serve advertising platform to allow any advertiser to start their own podcast ad campaign for as little as $250. This removes the need for humans in the loop as advertisers can plan, book and measure their own campaigns all through our platform, thus increasing more passive revenue opportunities for both Acast and the podcasters on our platform, a truly scalable solution.
Acast cast opens up yet another revenue channel where we're able to monetize even more of our podcast inventory and automate advertising sales even further.
And talking about automation, we see a continued positive trend in terms of our programmatic advertising sales, our fastest-growing sales channel, which strengthens even further the scalability of our business model.
In our Q4 presentation, we promised to come back with some early results from our self-serve platform launch and trials. Without a doubt, we've seen positive results. Revenues increased but from low figures and it's not relevant to talk about growth figures yet. But as I said, it looks promising.
We've noticed that our self-serve platform has been equally preferred by both large and small advertisers. Although the service has only been on the market for a few months, we're happy to share that more than 150 advertisers have run campaigns through the platform and are seeing measurable results from their campaigns. Almost 40% of these have made repeat bookings.
The more we help advertisers automate the process of buying podcast ads, the better conditions we have to increase our revenues.
Acast has pioneered a new method for ad delivery, interchangeable ad slots, which increases the salability of our inventory. This innovative solution for ad delivery automation increases our advertising inventory by more than 10%.
Previously, podcast ad slots were reserved for only 1 type of advertising format. So a sponsor read from a podcast host themselves or a prerecorded ad from a brand.
Interchangeable ad slots allows Acast to automatically detect if a sponsor reads slot has not been sold on a show and instantly override the setting to deliver an ad in its place instead. And this increases the inventory available to advertisers and ensures fewer ad slots go unsold.
We've been testing interchangeable ad slots with a group of creators and will now roll it out across our network. The aim is to create the most valuable podcasting marketplace in a scalable and automated way, benefiting both advertisers and creators.
I'm eagerly anticipating the upcoming year, even with the continued macroeconomic uncertainty. Over the past few years, Acast has solidified its position as the leader in the global podcasting market.
And today, we're well equipped to fulfill advertisers' needs by providing them with a high return and relevant media channel.
Off the end of the first quarter, Acast teamed up with Higher Ground. Higher Ground was founded in 2018 by President Barack Obama; and Mrs. Michelle Obama to tell powerful stories that entertain, inform and inspire while elevating new and diverse voices in entertainment. High Ground continues to deliver among the most engaging and high-caliber audio content in the industry and Acast is proud to become their exclusive partner for managing ad sales and distribution of their premium podcasts.
High Ground produces some of the most popular and iconic podcasts in the industry, including Michelle Obama, the Light Podcast, Renegades: Born in the U.S.A. with President Barack Obama, and Bruce Springsteen and The Michelle Obama Podcast, Tell Them, I am.
The partnership with Higher Ground is another example of how Acast in collaborative -- in collaboration with podcast creators, production companies, networks and advertisers can offer unbeatable content to both advertisers and listeners worldwide.
When publishing our annual report, we also released our first report on environment, social and governance, ESG.
Sustainability has always been a big part of Acast's culture. And in 2022, we put together a team to create a sustainability report. Our ambition in the coming years is to expand our report of sustainability KPIs in order to measure our progress and in order to comply with the new requirements set out in the EU's corporate sustainability reporting directive, CSRD, by 2025.
We believe it's important to act responsibly and make a positive impact on the world, and we're determined to do that through the products and services we provide and the way we conduct our business. You'll see that in the reports laid out by our Chairman, John Harbin, who has previously experienced in this area as the former Chief Marketing Officer of both Amazon-owned Audible and Verizon.
As a fast-growing tech company, we want to make sure that we're doing our part to make a meaningful difference.
So the team did a materiality analysis that helped us understand what sustainability means for our business. We used a dual materiality perspective to analyze Acast's impact on sustainability and sustainability's impact on Acast. We also engaged with our stakeholders, podcast creators, employees, investors and management team through a survey to identify the sustainability aspects they consider important for us to focus on.
And based on the impact analysis and stakeholder dialogues, we identified 12 sustainability aspects and grouped them into 4 strategic sustainability areas. This analysis will help us direct our efforts in these areas.
One of the 4 strategic areas that I am particularly passionate about is diversity, equity and inclusion. It is Acast's mission to identify and support storytellers and give their stories the audience they deserve. We believe that we have an important role in ensuring that the podcast industry reflects the outside world and develops a strategy to find and support underrepresented voices. By elevating voices that are not given space in other traditional media, we aim to build a more just society, generate more revenue for more podcast creators in the industry.
In 2022, Acast promoted underrepresented voices through committing support to many important awareness months, including Black History Month, Hispanic Heritage month, Asian Heritage month, LGBTQIA+ and Pride Month, Disability History month. I do not have time to do it justice here, so please do look through the sustainability report in our annual report.
There are interesting facts and KPIs and key performance indicators that are important to our business and will become even more interesting in the future when we can compare the numbers year-over-year. We believe the company is working towards long-term sustainability. Also have the ability to become long-term profitable.
I'll now hand over to Emily, who's going to talk you through our financial performance for the quarter in more detail. Emily?
Thank you, Ross. Well, let's have a look at the numbers. Starting with the listeners, we grew 2% compared to Q1 in clinical as a result of the business having an increased focus on monetization of existing inventory. So this deliberate strategy did result in ARPU, average revenue per user, growing by 8% and reaching SEK 0.26 compared to Q1 '22.
Of course, our number of shows increased and reached 100,000 with listeners remaining at around 1.2 billion in the quarter.
Our net sales delivered double-digit growth of 11% in the quarter. And I'm sure everyone is aware, but let's recall the growth in Q1 '22 represents the toughest comp of the year for net sales growth. And these comps are easing into Q2 and into H2.
FX still contributed 3% in net sales growth and of course, the acquisition of Podchaser contributed as well to the tune of around 2 percentage points and organic growth was 6% for the quarter.
Looking at our different segments. We did have a strong start in Europe and other markets, whilst Americas are more subdued.
Europe delivered 14% net sales growth in Q1 despite the macroeconomic climate we're in. And the profit contribution or [ season increased ] and the season margin was stable 17%.
It has to be acknowledged that North America's net sales did decline by 1 percentage point as growth remains subdued in Q1, which we saw equally in Q4.
The profit contribution margin equally saw a decline to negative 19% compared to negative 8% in the same quarter last year. As some selected investments have continued.
You will recall, of course, that growth rates in North America have moved faster, both up, but also down during last year, and we've seen this current subdued macroeconomic environment impact to the ad market in North America more than in our other segments in this point.
We will note that momentum did pick up during the quarter actually progressed from January through to March for North America, which was a positive sign as we progressed through the quarter. Podchaser margin contributed to Q1 North American assets were [ 5% ]. In our other markets, this is mainly our Australia and New Zealand business. We delivered 24% net sales growth. So this represents the segment with the highest growth in the quarter. We also saw a marginal increase in contribution to profits.
Looking at our gross margin, it was stable at 36% compared to the same period last year. I will note that we had a sequential improvement in the gross margin from Q4 of last year into Q1 and that is explained by the SaaS revenues that Podchaser is contributing. That might seem like a small change, but it's not difficult for us to increase our gross margin in Q1 compared to Q4. So I'm pleased for this development.
Looking at our operating expenses, we focus on efficiency commitments. Our operating expenses increased by 6% to SEK 197 million in the quarter. These increases came from the acquisition of Podchaser as well as increased resources in some markets. However, when we look at the global or central costs, these reduced year-on-year. And that follows the reduction in staffing that we saw over Q3 and Q4 of '22. And there is an ongoing focus on cost efficiencies.
Turning over to EBITDA. We did see an improvement in our EBITDA -- adjusted EBITDA to negative SEK 61 million in the quarter compared to negative SEK 68 million last year. This means that we delivered an EBITDA margin improvement to negative 18% compared to negative 23% in the same quarter last year. In other words, an improvement of 1 percentage point. And there were no adjustment items in the quarter's EBITDA, adjusted EBITDA [indiscernible].
Of course, looking ahead and looking at our development EBITDA, we are following the usual seasonality that we see, and we remain very comfortable that we're on track to reaching our objective of positive EBITDA in 2024.
We ended be the quarter with a strong balance sheet. So cash flow from operating activities improved to negative SEK 2 million compared to negative SEK 88 million as in the same quarter last year as we had some solid debtor selections in the quarter, and that had a positive impact on our working capital.
Looking at the impact on working capital, the positive impact that we had, it's notable that it is much stronger than the prior 4 quarters. And this, of course, contributed to us ending the quarter with a strong cash balance of SEK 851 million. Ross?
Thank you, Emily. Looking at what is coming up, we're continuing to deepen the Acast and Podchaser collaboration, including developing even more effective targeting for advertisers with the help of Podchaser's data capabilities.
And we'll also be introducing further new self-serve advertising capabilities.
As I mentioned, the early results from the self-serve platform launch and the trials look promising. Interesting fact in the study we've ran with 500 marketers and advertisers in the U.S. over half of marketers prefer to book through self-service tools.
Now let's go to the Q&A if you want to post a question, feel free to type them in the box below.
Great. And our first question comes from Dennis Berggren at Carnegie.
First question being, could you explain in detail on the increased focus on existing inventory. What does this mean in practice? What efforts are made to increase sales from existing ad inventory? Should we expect less focus on adding new shows?
For us, we're always going to be growing shows, but for us, it's focusing on being a lot more efficient with the inventory we have. So we have an ability to sell through even more of the content we've got. And interchangeable ad slots helps us along that path.
Great. Second question from Dennis. Could you please remind us of your view on the development in North America in first half of '22. How did sales trend and from what month should comps ease?
All right. I'll pick up on that one. You're asking us about to remind you of the development of North America in 2022 in H1. And you will recall that in Q1 of '22, the North America grew by 107% to be precise. North America was still growing at pace in Q2 of last year at 72%, but then came down and bottomed out at 16% growth in Q3, picking up to 28% in Q4. So from now, we should start to see these comps ease. We have noticed comp in North America and the business overall in Q1 easing into Q2, eases comps in Q3, but H1 overall -- sorry, H2 overall in 2023 should represent these comps when we get to actually work through the year. So this was the toughest comp of all of the quarters, particularly for North America.
Good. Third question, view on overall market development in the quarter. What's your expectations for the market growth in 2023 given that the development during the first 1/3 of the year.
I mean for us, it's still low for visibility. And obviously, there is that continued uncertainty around the advertising market. We did see momentum pick up throughout Q1. But again, it's still fairly low visibility, and it's obviously an uncertain ad market.
Could you give any indications on the development you're seeing on ad prices, both from the overall market perspective and your own product mix versus your sell-through rates?
I think with unique targeting capabilities that allows us to actually increase pricing. But in a market of uncertainty, this is when -- time when people are trading and you will naturally see slight fluctuations in CPM prices as deals are being done and to pitch for that business. But again, I don't think you'll see huge fluctuations in the CPMs.
Great. Our next couple of questions comes from Richard Kramer.
What are you seeing in terms of time spent per listener among the 100 million listener figure you mentioned? What portion of spend is buying your cohorts target audiences across multiple titles versus advertisers buying single shows. Do you see a material opportunity in representing or selling ads into shows that some competitors are now moving off of exclusive terms.
Yes. So 3 parts to that question. Can you just remind me the first part of the question, please.
Yes. What you're seeing in terms of time spent per listener among the 100 million listener figure we mentioned. What portion of spend is buying through your cohorts target audiences across multiple titles versus advertisers buying single shows.
Yes. I think it's a good question about more time spent. I don't have any stats to hand, unfortunately, for the first part of your question. We see different trends in different quarters about short-form content, long-form content, time spent with content. I can come back, I think, on that question actually, Richard.
I think when it comes to buying across our entire portfolio, audience buying has been a trend in Europe for the past few years. Audience buying is relatively new in the U.S. I think if you look at the top 500 podcasts, they represent roughly almost half of all spend in podcasting in North America. Roughly 12% of the audience sits in that top 500 shows. So you can see there's a huge opportunity to reach audiences outside of that. And that is throughout the heart, throughout the long tail of podcasts out there.
So Acast we've always done audience selling. Audience buying is becoming a trend in the U.S. And we have huge reach now over 100 million uniques. So We have the ability to reach audiences that other networks can't who are buying and selling single shows.
And I think the next question was around exclusives. I think, yes, there are going to be opportunities for content that starts to fall out exclusive periods. We obviously saw a huge kind of golden period of content, where content was very expensive through the last few years. I think now is a period where actually it's becoming a lot more of an even playing field and when you see the likes of audience buying becoming a trend, creators want to go to the platforms that deliver revenue, and we continue to deliver revenue. We've delivered over $0.25 billion worth of revenue back to creators to date. So we are the platform that creators want to be on and having the likes of High Ground join us highlights exactly that.
Great. And next question is actually regarding Higher Ground. Did you have to make any upfront commitments to higher ground in terms of minimum guarantees? Do you have any limitations on ad sales depending on the platform, the content is distributed on?
So we don't comment on individual contracts, naturally. But in general, I would say that we haven't signed any new U.S. space minimum guarantees this year. So I think that will answer the question.
Yes. And I think when it comes to restrictions, we have the exclusive sales rights to their content, and we can monetize that on every platform. So that's the beauty of being the central position that Acast takes. We can monetize all listeners on all platforms.
Our next question comes from Emily Johnson.
Anything you can say on current trading as we finish lapping through the toughest comps? What was the exit rate at the end of Q1 for the group and for North America, which you mentioned had improving momentum.
We saw improved momentum throughout the quarter. But again, we still see or still have low visibility as to where the ad market is going. Obviously, the macroeconomic is really affecting the ad market. So I can't give you any more clarity in that. Emily, do you have any points?
Within North America, we ended the quarter still in negative growth but with improved momentum. So what's the name of the game for North America. A., get to pass that growth rate and then we can do growth during the year, and that is still our plan. But it's too early to call as to any timings and we are subject to the macroeconomic developments.
Yes. And Emily actually has a follow-up on North America. What's happening there? What is the organic growth rate in North America for Q1, something like minus 10%, minus 15%, excluding Podchaser and foreign exchange effects, should we expect that growth rate to improve over the course of the year? Are there any podcast account losses to be aware of impacting this? Or do you think that it is what the market is growing?
You shouldn't expect any material account of losses to be impacting this. We see this as macro impact on North America. And you're right that North America did have double-digit negative growth at that the start of the quarter, including February and March absolutely. And there was a positive contribution from both Podchaser and FX.
Great. And third question from Emily. Do you still think you can outgrow the podcast ad market growth of 15% this year? What range of profitability do you think you can reach if you achieve 15% growth? Is there a potential that Q4 could be positive EBITDA?
I mean we don't give guidance on individual quarters. But clearly we have guided overall that's ignoring the quarter-by-quarter development. Overall, we are expecting to outperform podcast ad market growing around 15% that remains our ambition for the coming years, and that is in line with our financial guidance. But then, of course, we will have to stay close to development and quarterly losses or profits will naturally be impacted by seasonality, and Q4 is the strongest quarter. So it would be possible in 2024, for example, to start the year with a loss-making quarter but make that up through the year and still deliver a positive EBITDA for the full year of 2024.
Great. Last question for now from Emily. Quiet a large slowdown in podcast listening in Q1. What do you think is driving that? Is that just the market? Or should we expect the same for the rest of the year?
I don't believe it's necessarily a slowdown in listening. For us, we haven't necessarily focused purely on growth. We still grew shows. We still grew listeners. We've been focused on growing, obviously, listeners for our creators as well. But for us, it's been about efficiencies. And I think you look at the great work we're doing with our self-serve platform and introducing new advertisers to buy new inventory, the ability to do interchangeable ad slots. That's another kind of innovation that we've done to help make us even more efficient. That's been a focus for us. So those numbers isn't something that we are worried about at all.
Okay. We then have a few questions from Derek Laliberte, ABG. Is a meaningful macro recovery required for you to reach your financial targets? Or are you confident that structural tailwinds and strong performance will get you there?
I would say that we are dependent on the macroeconomic environment not to deteriorate further in a meaningful way over a long point period. That would hinder our ability to reach our target if we saw a material deterioration of the macroeconomic environment.
Another question from Derek. How has Americas developed in Q2 so far? Any signs of recovery in demand?
As we mentioned, we saw the momentum pick up slightly through Q1. We don't comment on obviously how we're trading in Q2. But it is a late market. There is low visibility, and we still have the macro around us. So you need to take that into consideration.
Good. And last question from Derek for now. Could you specify growth rate in programmatic. Where in percentage of total sales?
We're not commenting on programmatic each quarter, but we can deduct from where we ended last year with programmatic being more than 10% of our overall revenues and programmatic being the boss in the sales channel where it is taking share of our overall revenue. So it's increasing in the double digits.
We also have a follow-up from Richard Kramer.
Can you give us a realistic long-term target for self-serve platform? One of the largest campaigns and spend still mostly comes via direct sales. Are margins via self-serve much better when it matures?
When we look at self-serve, it is early days. It has been very encouraging. We had a very encouraging start. We look at self-serve over the long term. We see wonderful potential in serving these clients who haven't perhaps been able to buy podcasting from a self-serve platform previously. It might even be able to increase the target addressable market and growing for one of these advertisers have historically used different channels to access their audience.
So we're opening up a new way of reaching highly engaged audience for them. But I think it's too early to call. But clearly, that channel is more scalable and therefore, more profitable given the lower touch solution and technology-driven and product-led innovation that we're trying through that channel. So absolutely, the more our self-serve channel or programmatic channels should support us in delivering operating leverage and profitability over time.
Great.We also have 1 question from [ Sven Thorin ].
It seems like growth is weaker than expected, and you're still indicating that you're following the plan for positive EBITDA in 2024. Have you identified further savings in order to reach the target. Admin cost is still increasing sequentially. Is it just phasing? That is when should we expect lower admin expenses?
Wonderful. We're always looking at our cost line, and you've made a correct observation around admin expenses in the Q1. There was an element of a slight pacing related to us exiting a couple of offices which created an element of realizing some acquisitions However, that that's not a material element. But to your point, over time, we should see conservative -- we are taking a conservative view on our admin expenses, and we are continuing reviewing our cost efficiencies.
Okay. Let me see. I don't think we have any further questions in the webcast now. No, we don't. So yes I think that's it. And Ross, if you want to say a few last words.
Great. Thank you, everyone, for that. Don't forget to follow us on investors.acast.com, our Acast blog or listen into our financial results as, of course, a podcast. If you want to receive company data to your inbox, please subscribe to press releases, news and financial reports on our Investor Relations website. See you next time. Thank you.