Acast AB (publ)

STO:ACAST

Earnings Call Transcript

[Operator]

Good morning, and welcome to Acast earnings call for the interim report covering the period January to March 2025. Today, we have our CFO and Deputy CEO, Emily Villatte, who will present Acast results for the quarter. [Operator Instructions]. I'd now like to start the presentation by handing over to Emily. Please, Emily, the floor is yours.

[Emily Villatte, executive]

Hi, and thank you to everyone for listening in. I'm Emily Villatte, CFO and Deputy CEO of Acast operating from our Stockholm office. Unfortunately, our CEO, Ross Adams, was not able to make it today due to illness. And I will take you through our highlights and financial performance in the first quarter before we open up for Q&A. Now for all new investors listening in, Acast is, in essence, the leading independent podcast network globally, and we're uniquely positioned at the center of the podcasting value chain, matchmaking advertisers with podcast creators who want to monetize their content and their highly engaged audiences.

So essentially, we bring together creators who produce compelling content to attract listeners using their creativity to build a loyal audience base. And this high-quality content attracts sizable and engaged audiences, who are highly attractive to advertisers seeking and paying for efficient reach and engagement at scale. And we underpin this with the widest data set in podcasting through our data company, Podchaser, allowing us to drive discovery for podcasts, matchmaking between advertisers and audiences and creating revenues for both creators and Acast.

Our competitive edge is based on the fact that we are true podcasting pioneers, being the inventors of the technology behind global podcast advertising as we know it today. And we have unmatched scale and exclusivity. Our portfolio, in fact, consists of more than 140,000 podcasts that generate more than 1 billion listens each quarter. And we connect to more than 3,300 advertisers, spanning global brands and smaller companies. And we have now paid out more than $470 million to creators to date. We are innovation leaders, consistently first to market with technologies like AI-driven targeting, real-time podcast campaign planning and first-party data onboarding. And we also go beyond the podcast.

We are podcast first, but not podcast only. We have the capabilities needed to deliver broad omnichannel campaigns that span across social media, video, live events and more. And in essence, Acast empowers podcast creators and advertisers with global reach, strong monetization and cutting-edge technology. And we foster and grow relationships with podcasters of all audience sizes and types around the world. Our portfolio of creators ranges from the biggest personalities like Peter Crouch and Giggly Squad to established networks like TED Audio Collective and news publishers like The Economist, The Guardian and CNN. We have heightened focus on increasing monetizable listens, and after -- and at the end of the first quarter, we announced an exclusive ad sales deal with The Athletic.

Now, The Athletic is a New York Times company covering daily sports stories and the world's biggest sports moments. It's a network with a portfolio of more than 35 high-quality podcasts covering every major sports, including the NFL. The network is home to some of the most trusted voices in sports media and their worldwide audiences is an ideal match for Acast international reach. And this partnership will bring over 100 million annual global listens to Acast network.

And Acast will have the exclusive rights to audio ads and sponsorships, pod video and branded content across their podcast portfolio. But we also support niche shows of all types, who bring with them dedicated communities. And this diverse range of content allows us to connect advertisers with the creators and audiences that perfectly match their needs. And the common thread among these creators is that they all choose Acast to help them find and grow their audiences and earn revenue from advertisers of all sizes.

So let's have a quick look at the highlights in the first quarter of 2025. We started the year with strong growth, delivering 30% net sales growth, of which 26% was organic growth. In Q1, we did not see any impact on our campaign deliveries from the global macro uncertainties. Our gross margin amounted to 37% in the quarter, down slightly from prior quarters, impacted by a lower gross margin in the U.S. And we also continue to deliver profitability improvements and closed the quarter with an adjusted EBITDA margin of minus 1% versus minus 4% a year ago. With a proven track record of navigating economic downturns, we're confident in our ability to adapt investment levels quickly and effectively, if needed, to ensure sustained profitable growth.

In early April, we presented new financial targets ahead of our Capital Markets Day, and we provided 2 short-term targets related to 2025 and 1 midterm growth target extending through to 2028. And our financial targets are as follows: For the period 2025 to 2028, we target an organic net sales compound annual growth rate of 15%. In 2025, we target an adjusted EBITDA margin of between 3% and 5%, as we focus on continuous profitability improvement. And we are, of course, committed to generating a positive cash flow from operating activities in 2025.

And these targets reflect our dedication to deliver continued profitability improvements alongside strong revenue growth. So let's have a look at the financial developments in more detail, starting by having a look at our listens and the average revenue per listen. Now listens were down marginally at minus 1% compared to Q1 last year, but the listens increased sequentially and are now back at the highest level since Q1 of 2024. And this points to a stabilization of the previous iOS 17 related decline. It's worth pointing out as well that this was our first full quarter without the BBC, while we've had positive contributions from the likes of TED Audio Collective and Casefile that we signed in Q4.

And we've also continued to increase our unique reach year-over-year, which means that we reach more unique listeners. We have continued to see a positive momentum in monetization with the average revenue per listen increasing by 31% in the first quarter. And this is another our full record high for Q1, which seasonally is our lowest revenue quarter. And the development reflects that we have maintained the positive trend and increasing our efficiency in monetizing our portfolio. We had a strong start to the year, growing net sales by 30% in the first quarter, and the organic growth was 26% when adjusting for FX and also the acquisition of Wonder Media Network that was completed on the 2nd of January 2025.

Our growth was heavily influenced by an impressive performance in performance in North America, which I will come to discuss shortly. Our gross profit saw an increase of 26% year-over-year, and our gross margin amounted to 37% in the quarter. And it is worth noting that this margin reflects the impact of a lower margin in our rapidly expanding North American segment. Looking at the long-term performance, we are pleased to maintain our trend of consistent gross profit growth. Now let's turn to our performance by segment.

Europe had a solid quarter, growing sales by 17%, of which 16% was organic growth. And in the quarter, we've seen solid growth performance in France, Sweden and also improvements in the U.K. The contribution profit was up slightly to SEK 62 million, and the contribution margin was 21%. North America delivered strong growth at 65% versus last year and 55% of this growth was organic. At the same time, we have continued to see an improved contribution profit stemming from the higher sales levels. And we see that our efforts in this segment continue to pay off, and we've also continued to allocate resources to the region. In our smallest segment, other markets, we saw a minor revenue decline of minus 1% versus last year, whilst the organic growth was actually plus 1%.

And the contribution profit in that segment was the same as last year. Our EBITDA was negative SEK 8 million, including transaction costs of SEK 0.6 million related to the acquisition of Wonder Media Network and some SEK 4.1 million of costs incurred related to preparations for a main market listing. If we adjust for these items, our EBITDA was minus SEK 3 million, reflecting a minus 1 percentage EBITDA margin. So this reflects an improvement of 3 percentage points versus last year. And I will make a note that we expect higher costs related to our listing work in the second quarter, and we will provide you with an update on the listing status at a later stage.

Our operating expenses increased by 19% in the quarter versus last year, primarily explained by initiatives in our high-growth markets where we see the greatest ROI. And to reiterate my previous comments, we are aware of the ongoing macroeconomic uncertainty and will maintain a strong focus on cost control. On the right-hand side, you will see that we have continued to deliver consistent profitability improvements with the EBITDA margin amounting to 2% on a last 12-month basis.

The operating cash flow amounted to a positive SEK 29 million in the quarter, including SEK 17 million from positive working capital changes. And that means that our operating cash flow on a last 12-month perspective now amounts to SEK 79 million and that it continues to track ahead of our EBITDA. This quarter, we also had investments related to the acquisition of Wonder Media Network, resulting in a total cash outflow of SEK 36 million for the quarter. And this left us with a cash position of SEK 652 million, reflecting a robust capitalization.

So to summarize, we've had a strong start to the year with 30% net sales growth. We're glad to see that our efforts in North America are paying off, and this was again a quarter where the region led the way with an impressive 65% net sales growth. Our focus on profitability, of course, continues, and it continues to deliver results, and we're pleased to report another improvement in our adjusted EBITDA margin. We did not see any impact from the macroeconomic uncertainty on our campaign deliveries in the quarter, but we are proactively monitoring the economic situation, of course. We are firmly dedicated to delivering against our updated financial targets with solid growth, profitability improvements and positive operating cash flows.

[Operator]

We are now moving into the Q&A portion of our session. Please use the message box below, and I'll make sure to read them out. So first question comes from Andreas at Carnegie. Significant growth in the U.S. Have you seen any macro impact post Q1, i.e., in April?

[Emily Villatte, executive]

Thank you for the question, Andreas. Whilst I will not be providing any specific commentary or forecast on Q2, I can reiterate that in Q1, we did not see any impact on our campaign deliveries. And in fact, we had a strong ending to the quarter. We started the quarter a little bit softer, and we had a strong ending in March. So that was positive. But when we look to the future, of course, the uncertainty and likelihood of a broader downturn has increased, and we will continue to monitor that as we move forward.

[Operator]

And we have another question from Andreas. It seems you have been able to take large accounts. What kind of visibility do you have when it comes to their budgets?

[Emily Villatte, executive]

I think it's been a consistent trend even since COVID that the decision cycles for marketeers have become shorter, which means that we have a shorter visibility when it comes to the outlook. It -- but we have good visibility in the near term, and we monitor our bookings, of course, moving forward. But I think since COVID, there's been a -- marketeers out there are more agile, and they are able to make quicker decisions. And in this type of scenario, it's great to have a tech platform like ours that can deploy big campaigns at scale, underpinned by great targeting and technology. So we're well positioned to operate in this environment.

[Operator]

And we have another question from Andreas. Can you say something on the trends in sell-through rates, ad load and prices and if possible, in the various regions?

[Emily Villatte, executive]

Of course, that's another good question. So the main reason why our average revenue per listen has gone up by 31%, which we're very pleased with, is that we have achieved a higher sell-through rate. There's not been a material change in our ad load, but we have been able to sell -- on average, sell more ads per show, and that has driven our ARPU. The pricing has been relatively stable, but what could also be said is that we have been able to sell good sponsorship deals in North America in the quarter, which comes at higher CPMs, but slightly lower gross margins.

[Operator]

Thank you. We now have a question from Derek at ABG. Considering the IAC in the quarter, what is the expected timing of the planned NASDAQ main market listing?

[Emily Villatte, executive]

When we have anything more to report regarding the main listing preparations and execution, we'll get back to you. But I don't have anything further to report at this stage.

[Operator]

Okay. A further question from Derek at ABG. Given the growth improvement in Europe, have you experienced a significant pickup in U.K. demand in Q1?

[Emily Villatte, executive]

Yes, we did. The U.K., in fact, had a solid quarter. You will recall that they had a tougher journey in 2024, flat to slightly down, but we've seen improved momentum in the U.K. in the start of the year, which is very encouraging. It is still our biggest market, when it comes to local market operations.

[Operator]

Okay. Thank you. And a further question from Derek. Looking at the strong 55% organic growth in the U.S., how much of the improvement would you say is driven by improving market conditions? And how much is because of your own efforts?

[Emily Villatte, executive]

I mean we've seen positive results from our general initiatives in the region, dating back a number of years. We've had record-breaking bookings. We've executed larger campaigns. And this trend and momentum has continued into Q1 to your note. We wouldn't say that the strong performance is attributable to any specific events or so forth, but it's consistent efforts over time.

But in short, we are operating in a market subject to both. We have a really beneficial position and the right strategy in place, and we have strong execution, and that is enabling us to deliver this solid growth consistently in North America.

[Operator]

And a further question from Derek. From your perspective, why are you outgrowing the U.S. market apart from your successful offering? Is it because of your small market share, 2% to 3%, in combination with a few very large players growing at a slower pace?

[Emily Villatte, executive]

You're correct that we have a smaller market share in the U.S. compared to, for example, the U.K. And it is -- when you have a good position and your brand and proposition resonates with the market, it is easier to take market share when you're coming from a position of having lower single-digit market share.

In the U.K., we have a much higher market share, and we're more exposed to the macroeconomic environment. So it's -- I would say it's a combination of our momentum, our positioning, execution of our strategy and the fact that we -- that there is so much market share to take.

[Operator]

Okay. We have a question here from Peter. Could you please increase our understanding of the increased sales and marketing costs to better understand your operational leverage?

[Emily Villatte, executive]

Absolutely. It's a very good question. And we did deliver operating -- operational leverage in the quarter, to your point. And we have continued to allocate resources towards the markets that we deem strategically important and provide the best ROI, for example, markets in North America. And in Q1, these have mainly been channeled through our sales and marketing expenses, as you can see. Of course, we're keeping an ear to the ground, and we're managing our OpEx closely, especially in the light of ongoing macro uncertainty.

[Operator]

And a question from Derek at Barclays. How are you thinking about gross margin development going forward given higher contribution from North America?

[Emily Villatte, executive]

It's a good point. The main reason for the lower gross margin in the first quarter is that North America had a lower gross margin compared to Europe. And this is explained by some more competitive negotiations with key podcasters in the market and sponsorship sales on some of these high-value contracts. So as North America continues to grow, we're delighted with the growth and it may have an impact on our gross margin.

But we should also note that there's an element of product mix in here. When we have strong sponsorship sales, they come at a lower gross margin, and that has been part of why our margin in Q1 particularly skews towards these high-value contracts with sponsorship sales. So that's just a nuance that I would take into account as well.

[Operator]

And we have a further question from Derek. What drove the significant organic growth in North America?

[Emily Villatte, executive]

The organic growth in North America is a continuation of good momentum that we have, but I will also link it to the prior question related to gross margin. When we sell more host-read sponsorships, and this was an ad product that saw a strong significant growth in Q1, those campaigns come at higher CPMs, which help us drive up our net sales growth, but they come at a slightly lower gross margin. So that's just a nuance.

But the organic growth in North America is a continuation of our solid momentum that we have built. And I will also note here that we did close the acquisition of Wonder Media in the quarter. And whilst their stand-alone revenues do not contribute to the organic growth, this acquisition we've also made because of the great synergies that we can see between our Acast U.S. team and the new Acast Creative Studios team that we have rebranded the Wonder Media sales team.

And you might recall in our Capital Markets Day, one of the new great signings and new deals that we've done was highlighted there, whereby Acast Creative Studios will help one of our key clients better help on a big branded series related to mental health. So we're already seeing these synergies flow through and are building a good pipeline that will also support the U.S. Acast growth.

[Operator]

And a further question from Derek. How are you thinking about FCF for 2025?

[Emily Villatte, executive]

Free cash flows? We love free cash flows. We've guided to having positive operating cash flows -- positive cash flows from operating activities for the full year. We started Q1 with positive SEK 29 million in positive operating cash flows. It was interesting to see actually that we were almost able to finance the outgoing cash flow related to Wonder Media Network, which were negative SEK 36 million. So we almost balance the acquisition outflows with the cash flows from operating activities.

So we feel we're in a good position to continue to make progress, both when it comes to our operating cash flows and our free cash flows.

[Operator]

And now we have a question from Richard Kramer. Can you talk about the competitive intensity of ad spend? Do you see some rivals retreating or pausing efforts? And how do you anticipate the move to video podcasts?

[Emily Villatte, executive]

Thank you, Richard. Great to have you on the call. When it comes to the competitive intensity of ad spend, we've seen a good start to the year as have other players in digital and audio, but there's been a great spread. I'll not comment on what our competitors are doing. I think as Acast, we have a good strategy, good position and we're executing on our strategy in good order, and that is helping us drive growth.

We didn't see any impact on sort of retreating or people pulling their ad spend in Q1 so that was great to see. Of course, we're monitoring this very closely moving forward. When it comes to the move to video podcast, this is something that Ross and the team elaborated at length at our Capital Markets Day. And we see this as a great addition to the market and our stakeholders. We have the capabilities to deploy and run campaigns that span audio first, of course, but not only. We have great creators that operate in many different channels, and we're able to work with advertisers, who want to reach these creators engaged audiences across a different platform. So that's part of our positioning. We are the friendly independent. We're here to support our creators in their journey for growth and monetization. And the wonderful thing is that as we follow them into these different channels, we can also generate revenues and share those revenues with creators. So we think this is a great addition to podcasting.

[Operator]

And another question from Richard. Is access to inventory from top 50 -- sorry, top 20 or top 50 shows, which are now no longer exclusive, giving you a larger TAM to sell into?

[Emily Villatte, executive]

The inventory on our top shows has changed a little bit over the last quarter. You will recall that the BBC stepped out. And actually in Q1, it was the first full quarter when the BBC was not part of our listens portfolio. But we have brought in very commercial content such as TED Audio Collective and Casefile, and this is a very highly commercial content with good ad load and great opportunities for both ads and sponsorships.

So we see a bigger TAM arising both within our portfolio as we continue to monetize our shows to a greater degree, but we also see the TAM expanding from structural growth and continued increased listening to audio podcasts and then the TAM is further expanding into video and beyond.

[Operator]

And another question from Richard. Do the top-down industry forecast saying that podcast ads are worth $2.4 billion in the U.S. seem correct to you? It is hard to come to these figures, bottom up from yourselves and competitors.

[Emily Villatte, executive]

I agree that the data that we have within podcasting, I think, reflects the fact that this industry is still at an early stage and growing. It's not an exact science, and I agree, it's not entirely easy to understand all of the assumptions that have been made. But roughly, those figures seem reasonable. And I guess the way that I would think about it is that the U.S. represents a significant share of the global market, possibly half of the global ad market.

And comparing that U.S. figure to global market figures, it looks like this relation is reasonable. We could argue about the exact number, but the relationship between the U.S. podcasting ad market and the global ad market seems reasonable.

[Operator]

Okay. We have a question from Max. What's the reason behind the relisting?

[Emily Villatte, executive]

Thank you, Max. Great to have you on the call. It is part of our company journey, and this will strengthen our credibility and enables for a broader investor base. And we'll get back when we have something more to report.

[Operator]

And a question from Jonathan Gross. Could you explain why Acast has some seasonality in its results? And if we can expect the past seasonality to continue going forward, Q1 being the lowest and Q4, the highest revenue?

[Emily Villatte, executive]

Of course. Yes, ads business is a seasonal business where advertisers will spend -- in the year, they will spend the most amount of money in Q4, and this is to follow the consumer. In Q4 and -- leading up to Q4 and Q3, we have Black Friday coming up and then the holiday season. So it's a natural season for higher consumer spend. Then once that spend is up and we enter into January, it's not the time of year when consumers are the most forward leaning in their consumption.

So this is a typical seasonal pattern within advertising. And it's entirely natural that our Q1 revenues are lower than our Q4 revenues, which also then are reflected in our bottom line results. But all things equal, the same seasonality would be expected this year.

[Operator]

We have a question from Peter. Rest of World is unchanged year-on-year. Higher impact from BBC or same as we saw in Q4 and any new initiatives to improve momentum?

[Emily Villatte, executive]

You're absolutely correct that the BBC has a great global following, and it's great for international reach. But in our other markets, the main impact there has been from our international team. And just a change in a few larger campaigns phasing between quarters can impact this growth rate, since it is our smallest segment. So that is the underlying reason. And this team is a great and very capable team. Other market segments also houses Australia, New Zealand, and we believe that we have good prospects for good momentum moving forward. But of course, this is -- we're operating in a backdrop of global macroeconomic uncertainty so we're continuing to monitor that. But you're absolutely right that the BBC was a great asset for international reach and monetization.

[Operator]

And another question from Peter. Strong performance in Europe. Any other market that you would like to highlight?

[Emily Villatte, executive]

I mean, of course, we've spoken about North America, where U.S. is the largest market. And within Europe, we spoke about improved momentum in the U.K., which is fantastic to see, but also good momentum in the likes of Sweden and France.

[Operator]

And a question from Ramil. How do you recognize Wonder Media Network margins across the P&L? What kind of gross margins do they have?

[Emily Villatte, executive]

The Wonder Media Network margins stand-alone are slightly lower than the Acast gross margins. And this is a team that works with production efforts. So production-related costs also go in the cost of sales element of the P&L for Wonder Media Network. But when it comes to their overall profitability, there is some variation among the quarters depending on project deliveries, of course. And last year, Wonder Media's strongest quarter was Q4, so also a seasonal business. And overall, when we look at bottom line, we do expect a positive profit contribution from Wonder Media Network in the full year of 2025, which we now call Acast Creative Studios.

[Operator]

Further question from Ramil. Contingent liabilities were down quite significantly quarter-over-quarter, would constitute a bit more than 10% of revenues in Q1, if my math is correct. What kind of margins did you have on these MGs in Q1?

[Emily Villatte, executive]

The margins on MGs, without going into any specific contracts, are typically a little bit lower than the average margins of the group. These relate to big high-value contracts that Acast work with, and we are delighted to work with, with some of these premium publishers and independents. But on average, those margins are slightly lower than the Acast average.

[Operator]

And another question from Andreas. The consumption of podcasts exceeds the ad spending on podcasts. Can you remind us of the various shares of consumption versus spending?

[Emily Villatte, executive]

Great question. So when we look at the difference between how much time people spend listening to podcasts and other media and how many ad dollars are spent in that media, ad spend allocated to podcasts would need to increase by around 4 to 5x to align with the share of consumption. So that is the current state of how podcast consumption relates to ad spend. So an under-indexing of 4 to 5x when it comes to time spent versus ad spent in media.

[Operator]

And a further question from Richard. Are there any publishers you can identify in the pipeline, which have the potential to offset the loss of the BBC?

[Emily Villatte, executive]

I mean in Q1, we were delighted that both TED Audio Collective and Casefile that were signed in Q4 stepped into the portfolio in Q1. And now we've also signed The Athletic, and we're delighted to have them come on board in April. So they will contribute to our network from April onwards. It's a great slate of shows, and I recommend you to listen.

[Operator]

And that concludes the Q&A. So back over to you, Emily.

[Emily Villatte, executive]

Thank you to everyone who's listened in. Now the next upcoming event that we have is the AGM that we are hosting in Stockholm on the 20th of May. Our Q2 report will be released on the 25th of July, and you're welcome to join us for that presentation as well. And don't forget to follow us on investors.acast.com, our Acast blog or listen to our financial results as a podcast. You can also visit our Investor Relations website to sign up for press releases, news and financial reports. And this concludes Q1 2025 earnings call. Thank you.