Earnings call transcript: Raketech Q4 2024 sees revenue dip, strategic shifts

Raketech Group Holding reported a significant decline in revenue for the fourth quarter of 2024, with figures showing a 45.9% organic decrease year-over-year. Despite the downturn, the company emphasized strategic initiatives and operational efficiencies that could pave the way for future growth. The stock price saw a slight decline of 3.48% following the announcement, closing at €3.60. According to InvestingPro data, the stock has experienced a significant 78% decline over the past year, though analysis suggests the company may be undervalued at current levels.

Key Takeaways

• Q4 2024 revenue fell by 45.9% year-over-year.
• Cost reduction efforts led to a 29% decrease in total costs from Q1 2024.
• Strategic partnerships now cover nearly 50% of affiliation marketing revenue.
• The company is developing the Affiliation Cloud platform, with a planned migration in Q1 2025.
• Raketech is cautious about the Brazilian market due to re-regulation concerns.

Company Performance

Raketech’s performance in Q4 2024 was marked by a notable drop in revenue, primarily attributed to a 45.9% organic decrease compared to the same period last year. This decline comes amid a broader industry trend of tightening regulatory environments and shifting market dynamics. Despite the revenue challenges, Raketech maintained a strong position in sports traffic and expanded its strategic partnerships, which now account for nearly half of its affiliation marketing revenue.

Financial Highlights

• Q4 2024 Revenue: €12.3 million (45.9% decrease YoY)
• Full Year 2024 Revenue: €61.2 million
• Q4 Adjusted EBITDA: €3.2 million (46.2% decrease YoY)
• Full Year Adjusted EBITDA: €15.7 million
• Free Cash Flow: €14.7 million

Outlook & Guidance

Raketech is projecting lower revenues in early 2025 due to seasonal factors. The company plans to deliver a comprehensive strategic update in its Q1 2025 report. Future projections include an EPS forecast of 0.05 USD for FY2024 and 0.07 USD for FY2025, with revenue forecasts of 66.3 million USD for FY2024 and 71.1 million USD for FY2025.

Executive Commentary

CEO Johan Svensson remarked on the company’s strategic direction, stating, "We have started to see positive traffic trends from the slos portfolio." He also highlighted the benefits of their strategic partnerships, noting, "Operators get access to multiple affiliates through one agreement."

Risks and Challenges

• Regulatory changes in key markets, particularly Brazil, pose a risk to revenue stability.
• The ongoing strategic review of the U.S. Tipster business may lead to operational shifts.
• Market saturation and increased competition in the affiliation marketing space could pressure margins.

Raketech’s focus on strategic partnerships and cost management appears to be a prudent approach amid challenging market conditions. However, the company will need to navigate regulatory uncertainties and competitive pressures to achieve sustainable growth. With an Altman Z-Score of 14.71 indicating strong financial stability, and comprehensive analysis available in the InvestingPro Research Report, investors can access detailed insights to evaluate the company’s long-term potential amid current market challenges.

Full transcript - Raketech Group Holding (RAKE) Q4 2024:

Conference Moderator: Welcome to the Rakatec Q4 twenty twenty four report presentation. For the first part of the presentation, participants will be in listen only mode. During the questions and answers session, participants are able to ask questions by dialing 5 on their telephone keypad. If you are listening to the presentation via webcast, you can ask written questions using the form below. Now I will hand the conference over to CEO, Johan Svensson, and CFO,

Johan Svensson, CEO, Raektect: Good morning and welcome to Raektect’s Q4 twenty twenty four presentation. My name is Johan Svensson and I’m the CEO of Raektect. Today CFO, Hans Walborn and I are here to present Raektect’s Q4 report and the full numbers of 2024. We will as well share an update regarding your new strategic direction when it comes to our affiliation marketing vertical. But first, we will start with our Q4 financial highlights.

We came in at EUR 12,300,000.0 in revenues in Q4, an organic decrease of 45.9% year on year and 42.6% adjusted for the divestment of advisory tipster business. Adjusted EBITDA of EUR 3,200,000.0, a decrease of 46.2% year on year with an EBITDA of EUR 3,000,000. Total (EPA:TTEF) revenue for the full year of EUR 61,200,000.0 with an adjusted EBITDA of EUR 15,700,000.0 and an EBITDA of EUR 14,700,000.0. Free cash flow for the full year of EUR 14,700,000.0 in line with EBITDA, which provide financial headroom to settle our earn out commitments, including the EUR 8,000,000 due in H1 and the remaining EUR 20,600,000.0 payable at our discretion until September 2026. The outcome of assessment of our operating model has resulted in further cost savings.

In Q4, our costs were 29% lower compared to Q1 twenty twenty four, Direct publisher costs excluded. February 4, we announced a non cash impairment of EUR 48,500,000.0 relating primarily to reduction in the annual book value of non core assets acquired pre IPO. As from this year, we will start and report our quarterly figures earlier than before and we will as such adapt our trading update accordingly. Now let’s look at the performance of each business area during the quarter. Starting with affiliation marketing, revenue in Q4 came in at €6,500,000, a decline of 32% year on year and 4% lower than Q3.

Kasumba assets continued to decline, while remaining affiliation marketing portfolio grow with 3% compared to previous quarter. Turning our Kasumba asset from decline to growth is a key focus and we have invested in the team and the product to adapt to the changes in the market and the new competition. We saw a stable traffic performance in Sweden in line with previous quarter. The increased local taxes from July 1 continued to impact our revenue share contract and the new investments from the operators, which led to a slight decline in revenue from the Swedish market compared to previous quarter. Denmark.

Denmark has developed into a growth market for us. It’s a relatively small market in relation to other regulated markets in Europe. However, we have a strong position when it comes to sports traffic and during the last six months, our casino traffic has increased significant. Our sports assets in total grow with 7% compared to previous quarter. We have had a good momentum for our sport assets and we plan to launch a handful new sport products during the first half of twenty twenty five.

We have started to see positive traffic trends from the slos portfolio and the Italian market after we in after we in October entered into a strategic partnership with the founders of these assets. We have recently signed another four strategic partnerships for our affiliation marketing portfolio, which I will speak more about on the next slide. Sub affiliation. Sub affiliation revenues amounted to €5,200,000, a decrease of 54% compared to the strong Q4 last year and 5% lower compared to the third quarter this year sorry, 2024. The gross margin for sub affiliation was 20% in Q4.

The paid revenue at Raiketech Network continued to grow month for month during the quarter after hitting an annual low in September. As we have previously reported, our paid publishers, they have had operational challenges with Google (NASDAQ:GOOGL) Ads campaigns during the last quarters and we expect this to continue to be volatile. Our relationship with the publishers and operators are strong and we are stand by and ready to scale up the business further when the market conditions improve. Affiliation Cloud, our in house developed sub affiliation platform, continued to deliver a 74% organic growth compared to Q4 last year. Bedding tips and subscription.

Following the sale of our land based tips to business in U. S, we have been focused on improving conversion rates and monetization for our digital tipster platforms. While traffic volumes remain strong, we have not yet fully realized our expected outcomes. Given the relatively small size of The U. S.

Tipster subscription business and that we did not achieve the results we hoped for. We have now started a strategic review of the remaining tipster business and we aim to take a decision about the future for this vertical before the end of this quarter. Going to the next slide, I will update you on our new strategic partnerships for our affiliation marketing vertical and the background for these partnerships. Given the performance development of the Kjaasumba portfolio, we have continued to evaluate the entire affiliation marketing portfolio to identify the most promising opportunities for profitability and long term organic growth. Raiktec completed more than 25 acquisitions between 2015 and 2021.

Some of these assets have had very good development while other assets have had a tough time competing after the assets been migrated and operated fully in house. We have continued to maintain good relations with many of the founders and entrepreneurs of these assets we previously acquired. These relationships and through our network in the iGaming industry have resulted in four additional strategic partnerships with entrepreneurs who have a successful track record of operating affiliation marketing products. Each partnership is unique, but what is common for all of them is that Graktor take care of sales, commercial agreements, finance, reporting, data management and some tech services. The strategic partner is responsible for day to day operations of a product, including SEO, content and product development.

These type of partnerships is not a new thing for Rakuten. Since 2015, the company has successfully maintained operating strategic partnerships in the Nordic markets. And in October, we entered into a partnership with the founders of the slot portfolio, focusing on Southern Europe and Latin. The new strategic partnerships include both sport and casino products in several different markets. With these new partners on board, almost 50% of our affiliation marketing revenue will come from products operated in strategic partnerships, which has and will result in continued streamline of our in house operations.

Additionally, centralizing more resources at our headquarters in Malta has created a more efficient organizational structure. Looking ahead, this strategic partnership will ensure a sharp focus and stronger performance while benefiting from retaining ownership. This should result in improved growth and sustained margin performance. Moving on to sub affiliation and exclusive commercial agreements. The development of affiliation cloud continues.

We have a clear vision for the product and we are launching new functionality and improvements every month. Until now, we have mostly had publishers with organic products on the platform. But we plan to start migrating paid publishers from Rakitic Network to the platform during the second half of Q1. A strong contributor factor to organic growth is the exclusive commercial agreements with operators where we are the only sub affiliation platform that can offer a commercial deal with a specific operator. We have now been the exclusive sub affiliation platform for four operator launches, three of which were in 2024, both of the Swedish and The US market.

We believe a lot of new setup instead of a traditional affiliation model. In the traditional affiliation model, each operator needs to negotiate and agree a deal with each affiliate to secure exposure and distribution. The operator must have its own affiliate team with local expertise for each market to secure compliance. At Affiliation Cloud, operators get access to multiple affiliates through one agreement. Our publisher team take care of a commercial negotiations and secure the distribution including compliance.

We pay the affiliates their commission on demand to secure good cash flow for our publishers. Now over to Mans and a deeper look into our financials.

Hans Walborn, CFO, Raektect: Thank you, Joanne. We saw total revenues of 12,300,000.0 in Q4, which represent a slight decrease for both affiliation marketing and sub affiliation from Q3. On your left hand side, we have total revenues split on our three business areas, and on the right side, total revenues distributed on cluster of regions. Starting with affiliation marketing, which constitutes 53% of total revenue, Although this area is down somewhat from last quarter, the decline is primarily due to our assumed assets, and excluding these assets, the remaining portfolio of assets increased with 3%. We saw some improvements for primarily our major sites in The Nordics through better performance, but also an effect of the expected positive seasonality effects.

Sub affiliation represents approximately 42% of total revenues. As we highlighted in Q3, activity slowed down quite significantly and hit a low point at the end of that quarter. But as we indicated, activity picked up in Q4 and increased month over month throughout the quarter. Not at the same levels we saw during the first half of the year, but still positive to see. This slide shows revenue mix and vertical split.

Just a couple of quick points on this slide. First, the variations in CBA is largely driven by the lower activity in sub affiliation. This area is predominantly CBA heavy, driving a decline from a very strong Q4 of last year. And secondly, the flat fees compared to previous quarter saw a slight decline, again, relating primarily to lower traffic for the Xoom assets while other assets are stable to growing. As highlighted in the previous quarter, we had continuing a review of all products and business areas to ensure that we are operationally efficient.

From a high point in Q1 with regards to cost, we initiated a review and cost cutting initiative and similar to last quarter, we are now seeing these initiatives realizing with an overall decrease in total cost excluding publisher cost of about 29% from Q1. And as we move along, we will continue to tweak and fine tune our operating model in line with overall strategy. Adjusted EBITDA was 3.2 slightly ahead of last quarter positively impact from the realized cost saving that I mentioned on the previous slide. On the right hand side and free cash flow before earnouts, as I’ve noted before, there will be timing effects between EBITDA and free cash flow between the quarters. However, looking over longer period time, they will correlate and for the full year of 2024, free cash flow is very much in line with EBITDA.

With regards to outstanding earnouts and up until the first year of this year, 2025, we will settle 8,000,000. This will be settled in cash using our current net cash position, expected free cash flow, and the existing facility we have in place. One point to make here is that we already settled 3,000,000 out of 8,000,000 now in January 2025. And as Joan pointed out in the beginning, the remaining 20.6 as we have communicated previously can be settled at any point in time up until September 26 at our discretion. And we also have at our discretion the possibility to set up part of this in shares.

And post September 2026, there are no other outstanding commitments related to any other acquisitions. That’s me. And over to you, Johan.

Johan Svensson, CEO, Raektect: Thank you, Maals. To summarize before we open up for Q and A, revenues in Q4 of EUR 12,300,000.0, EBITDA of EUR 3,200,000.0 and sorry, adjusted EBITDA of EUR 3,000,000 and EBITDA of EUR 3,000,000. Total revenue for the full year EUR 61,200,000.0 with an adjusted EBITDA of €15,700,000 and an EBITDA of €14,700,000. Free cash flow for the full year of €14,700,000 in line with EBITDA, which provide financial headroom to settle our earn out commitments, including the EUR 8,000,000 due in H1 twenty twenty five and the remaining EUR 20,600,000.0 payable at our discretion until September 2026. Affiliation marketing.

Today, we are pleased to announce the four new strategic partnerships for our affiliation marketing product Vertica. While Kasumba recovery remains an in house priority, with the founders still dedicated to the business and much involved in the daily operations. Sub affiliation. Affiliation Cloud delivered a 74% organic growth year on year. Raektek Network, our paid sub affiliation business, show month to month improvement during the quarter after the annual low in September.

And we will start and migrate to the first publishers from Raektek Network to Affiliation Cloud during Q1. U. S. Tipster and subscription. We have started a strategic review of the remaining U.

S. Tipster business and we aim to take a decision about the future for this vertical before the end of this quarter. Outlook. As mentioned at the beginning of this call, we will start a report earlier this year. The Q1 report will be published May 7 and the Q2 report July 23.

We will as such adopt our trading updates accordingly. Looking at the start of 2025, affiliation marketing performance is in line with Q4, but with somewhat overall lower revenues due to seasonality and lower marketing budgets from the operators. Sub affiliation had a slow start in January compared to the end of the fourth quarter, but is gradually picking up in February. Today, we talked about our new strategic partnerships within affiliation marketing, which is a part of a transformation that is currently underway within RaikTek. In connection with the Q1 report in May, we will present a more comprehensive strategic update and give you a financial outlook for the rest of the year.

With this word we open up for Q and

Conference Moderator: If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from

Amar, Analyst: Thanks for taking my questions. Maybe just a question on Kasunga parts here. You still work on trying to recover traffic and revenue from the asset. Do you think any feeling that it has bottomed out here or do you feel risk of a decline or if you can give some flavor of that?

Johan Svensson, CEO, Raektect: Hi, Amar. What we see is that we see stable traffic at these lower levels, but our old Revsha databases are still declining since we are sending not that many players as we used to do. But traffic is stable at lower levels for the most important keywords in the market.

Amar, Analyst: All right. And looking at this new focus on strategic partnership within the population, you first talked about this last quarter with the stock portfolio. And it sounded like this has performed good. Has it worked as planned? Or can you give some updates on that this far?

I guess, early days, but can you have some information on that?

Johan Svensson, CEO, Raektect: Yes. The Salt Portfolio Partnership, we entered into that in early October and we have started to see positive traffic trends, especially in the Italian market for these assets, but it is still too early to full assess that partnerships. But we have had or and have similar strategic partnerships all the way back to 2015, which are for for the Nordic markets, which have worked out very well over the years. So we are confident for the new strategic partnerships here.

Amar, Analyst: Right. And then coming to profitability of this partnership, I guess you said historically that it’s similar to affiliation, if that’s what you believe for this new partnership as well?

Johan Svensson, CEO, Raektect: Could you please repeat?

Amar, Analyst: Regarding the kind of profitability and business model for the partnerships, I think you said in Q3 that profitability should be similar as you do it in house. Is that the same for these new partnerships that you’ve signed?

Hans Walborn, CFO, Raektect: Yes. Hi, Alman. They have the same structure. So

Amar, Analyst: we

Hans Walborn, CFO, Raektect: are targeting to have a similar margin on the products just simply because we’re getting internally the operational. We’re realizing cost savings there as well on that same time.

Amar, Analyst: Right. And I mean, if these partnerships are successful, how do we make sure that this the guys that are kind of operating the assets that they remain there? Or I mean, can’t they just do it themselves then? So can you explain a bit how that works?

Johan Svensson, CEO, Raektect: Yes. First, we have long contracts with them. And we also sit on more commercial agreements with the operators. Many of these entrepreneurs, they are good on product development, SEO, but they, they appreciate to have a partner who take care of of sales, commercial agreements, finance, reporting, data, hosting services. So it’s, it’s a good win win situation.

Amar, Analyst: Right. And regarding U. S, I mean, you have the subscription business there and it is under review. I mean, if you decide that this is non core and divest it or close it down, will you still have exposure to The U. S.

Markets?

Johan Svensson, CEO, Raektect: We will, we will through sub affiliation. We in in q three, we we signed an exclusive, sub affiliation platform agreement with a large US operator, so we are the only sub affiliation platform who could offer deals for that specific operator. So U. S. Is an important market for Asian Cloud.

Amar, Analyst: Right. And coming back to affiliation cloud, I mean, you saw really strong growth there, but we don’t have any numbers. But do you think you will reveal more details on that or is it more that you will have this as included in the subaffation in total?

Johan Svensson, CEO, Raektect: Yes, we’re working on developing the platform and as mentioned, it’s that we were now in Q1 start and migrate RateTech network sub affiliation publishers from a third party platform to our own platform. So the target is to have all sub affiliation revenue on affiliation cloud at some point. We’re not there yet, but we’re working towards that target.

Amar, Analyst: All right. And then coming to the outlook for 2025, I guess you will come back to that in Q1 as you stated. We’ll get some more information on the partnerships among other. But could you give some flavor and perhaps on the regional outlook if do you see any regions that have tailwinds or potential in any headwinds? I mean, for example, some other affiliates have a Brazil where the regulation seems to hit a bit tougher than expected maybe.

So if you can give some flavor on the regional outlook in 2025?

Johan Svensson, CEO, Raektect: Yes. Yes. Like I said, Bassett is still declining. We’ve seen some lower revenue from the Swedish market here, in H2, as a consequence of the tax increase from July 1. We Italy is growing.

Denmark, as mentioned, is is growing and we also have seen good growth in US from affiliation cloud. So we, yeah, but we will come and give you a more of a detailed financial outlook in relation to the Q1 report, May 7.

Amar, Analyst: All right. And then just a final question on your R and A payments from here. I guess, SEK 8,000,000 coming up this year. And then looking at the SEK 20,000,000 remaining $2,026,000,000, is there any headroom on the timing of that? Could that be renegotiated?

Or is that a very, very firm lost date of payment in September 2026?

Hans Walborn, CFO, Raektect: We can get back to you around that a little bit later on. What we feel at the moment is that we have a lot of alternatives around the burnout and how we deal to settle it or find other alternatives. But let us get back to you guys with that later on when we get closer to it.

Amar, Analyst: All right. Thank you.

Johan Svensson, CEO, Raektect: Thank you.

Conference Moderator: The next question comes from Ricard Engberg from Carnegie Investment Bank. Please go ahead.

Richard Engberg, Analyst, Carnegie Investment Bank: Good morning, guys.

Johan Svensson, CEO, Raektect: Good morning, Richard.

Richard Engberg, Analyst, Carnegie Investment Bank: Yes. So I have one question about sub affiliation and affiliation cloud. Given that you’re going to migrate customers to affiliation cloud, would that indicate that the gross margin for sub affiliation might go up once the migration is done?

Hans Walborn, CFO, Raektect: No, that wouldn’t really impact unless I’m misunderstanding your question. Are we thinking about something specifically?

Richard Engberg, Analyst, Carnegie Investment Bank: Yeah. But basically, since that you don’t have to use a third party

Hans Walborn, CFO, Raektect: Okay. Okay. Yeah. No. Not not materially.

That’s in relation quite a small cost for us.

Richard Engberg, Analyst, Carnegie Investment Bank: Okay. Thank you. That was basically my question.

Johan Svensson, CEO, Raektect: Thank you,

Hans Walborn, CFO, Raektect: There

Conference Moderator: are no more phone questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

Johan Svensson, CEO, Raektect: Yes, let’s start a look at the written questions.

Hans Walborn, CFO, Raektect: Yes, we have one questionnaire around the, relating to the disposal of the tipster business and if all money have been paid and if not, how much will remain and when will the remaining part be settled. So this we indicated in the press release when we sold it that there’s one part up front and then there’s one part which is on web share and that web share is ongoing still and the current assessment we have is that that will be settled as a current receivable, so it will be settled within the next nine to twelve months is the current assessment. Here’s one around market conditions that are hurting sub affiliation. I think we talked about this previous quarter, but you want

Johan Svensson, CEO, Raektect: to and if it’s Google related and yes, it is, these paid publishers, they have challenges to to operate their campaigns through Google Ads platform, which has been going on for since mid Q2 last year.

Hans Walborn, CFO, Raektect: And there’s another question around sub affiliation and if there were any plans to expand sub affiliation to new fast growing markets such as some African countries.

Johan Svensson, CEO, Raektect: Yeah. For affiliation cloud and on what we’ve seen is that the paid is a bit volatile. So we focus a lot on organic side and regulated market is the prime target, but we don’t close any doors for regulated African markets.

Hans Walborn, CFO, Raektect: Yeah. Then there’s a question on the slot. Java products seen any improvements. I believe Jelmar touched upon this and I answered this, but if there’s anything you want to add, Johan, please go ahead.

Johan Svensson, CEO, Raektect: Now we have since the founders in the strategic partnership took over assets in early October, we have started to see traffic and ranking improvements, especially in the Italian market. So there are improvements definitely.

Hans Walborn, CFO, Raektect: Then there’s a question around an increase. What’s the reason for an increase with regards to receivables as a percentage of revenue and if there’s a problem to get paid from customers? And the short answer is no, we haven’t seen a difference in trade of in trends of settlements. It’s always a bit of work in this sector and that will continue, but we haven’t seen any negative trends in getting paid.

Johan Svensson, CEO, Raektect: And it’s a question about

Hans Walborn, CFO, Raektect: Yep. There’s a couple of questions on the earn out payments that are very similar to the question from Yalmar. So I think those have been replied to. Then there’s a question on any guidance on revenues EBITDA for 2025 and as Johan pointed out we will get back to this in connection with the Q1 with a more overview on the financial outlook.

Johan Svensson, CEO, Raektect: Question about the Brazilian market being for Ectech for the start of 2025. The reregulation started January 1 and it’s still too early to draw any conclusions on on the outcome of reregulation. But we can come back to that in the q one report. Okay, that was all for for today. Thank you all for listening in and thank you for all questions.

We hope to see you again in May. Thank you.

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