Azerion publishes interim Q2 and H1 2023 results
August 31, 2023
Platform growth and integrations leading to increased revenue and improved margins
Highlights of Q2 2023
- Increased earnings driven by revenue growth and ongoing cost savings
- Net revenue of approximately € 122 million for Q2 2023, up from € 104 million in Q2 2022. Adjusted EBITDA of almost € 19 million, up by approximately 58% compared to Q2 2022.
- Upgraded expected annualized cost savings to at least € 20 million from at least € 15 million, excluding any effects from foreign exchange. The expected savings are compared to the January 2023 baseline. Total operating expenses Q2 2023 of € 38.1 million (including restructuring costs) only € 1.9 million higher than Q2 2022 notwithstanding 8 acquisitions in H2 2022.
- Sale of social card games portfolio completed 28 August 2023 for an initial cash consideration of € 81.3 million, subject to customary adjustments, with an earnout based on the performance of the acquired business that could take the total consideration up to a maximum of € 150 million.
- At completion Azerion received close to € 67 million before income tax and approximately 15 months after the completion date Azerion will receive the remaining proceeds subject to the terms of the asset purchase agreement. Gain on sale estimated at approximately €70 million before income tax.
- Launch of Azerion Smart Bidding, Azerion’s improved AI-integrated bidding system to further enhance Azerion’s pricing in open market auctions.
- Launched Azerion Smart Content, integrating Vlyby technology with Zoomin content, providing publishers with additional contextual content for monetisation
- Launch of Habbo X: Alpha 2, a play to earn metaverse environment which integrates blockchain technology, allowing brands such as EMA, Miffy and Cool Cats to collaborate with audiences and create lifetime engageable collectables, minted as an NFT
- Updated guidance for full year 2023 confirms Adjusted EBITDA still expected to be at least € 75 million
Highlights of H1 2023
- Net revenue of approximately € 235 million for H1 2023, up from € 198 million in H1 2022.
- Adjusted EBITDA of approximately € 27 million, up by approximately 55% compared to H1 2022.
Selected KPIs
Financial results - Azerion Group N.V. - Q2
in millions of €
| Q2 2023 | Q2 2022 | |||||||
| Net revenue | Operating profit / (loss) | Adjusted EBITDA | Net revenue | Operating profit / (loss) | Adjusted EBITDA | Net revenue growth | Adjusted EBITDA growth | |
| Group | 122.0 | (2.9) | 18.5 | 103.9 | (3.1) | 11.7 | 17.4% | 58.1% |
| Platform | 99.6 | (3.2) | 13.3 | 82.1 | (3.0) | 7.9 | 21.3% | 68.4% |
| Premium Games | 22.4 | 0.3 | 5.2 | 21.8 | 0.1 | 3.8 | 2.8% | 36.8% |
| Other | - | - | (0.2) | - | ||||
Financial results - Azerion Group N.V. - H1
in millions of €
| YTD 2023 | YTD 2022 | |||||||
| Net revenue | Operating profit / (loss) | Adjusted EBITDA | Net revenue | Operating profit / (loss) | Adjusted EBITDA | Net revenue growth | Adjusted EBITDA growth | |
| Group | 234.7 | (10.6) | 27.2 | 198.3 | (148.0) | 17.6 | 18.4% | 54.5% |
| Platform | 188.9 | (11.6) | 16.9 | 154.6 | (14.4) | 9.9 | 22.2% | 70.7% |
| Premium Games | 45.8 | 1.0 | 10.3 | 43.7 | (0.6) | 7.7 | 4.8% | 33.8% |
| Other | - | - | (133.0) | - | ||||
Message from the CEO
"The Company has continued to grow in Q2 and H1 2023 and made significant progress in integrating and consolidating previous acquisitions. We are pleased with the progress made in simplifying and optimising our operations and are seeing the benefits of that work reflected in improved margins and profitability. We have also successfully completed the divestment of our social card games portfolio and remain focused on delivering synergies across the platform and premium games segments.
In light of the achievements made in delivering our strategy, I am pleased to be able to confirm that for full year 2023, after excluding the social card games portfolio from completion of the sale, we still expect Adjusted EBITDA to be at least € 75 million."
- Umut Akpinar
Financial overview
Net revenue
Net revenue for the quarter amounted to € 122.0 million an increase of approximately 17%, compared to Q2 2022, mainly due to growth in the Platform segment.
Net revenue for H1 2023 amounted to € 234.7 million an increase of approximately 18%, compared to H1 2022, mainly due to growth in the Platform segment.
Earnings
Adjusted EBITDA was € 18.5 million for the quarter compared to € 11.7 million in Q2 2022, an increase of approximately 58%, due to increased revenue from Platform business at higher margins due to efficiencies from integrations and consolidations.
Adjusted EBITDA was € 27.2 million for H1 2023 compared to € 17.6 million in H1 2022, an increase of approximately 54%, due to increased revenue from Platform business at higher margins due to efficiencies from integrations and consolidations.
The operating loss for the quarter amounted to € (2.9) million, compared to a loss of € (3.1) million in Q2 2022 mainly explained by higher gross profit offset by higher amortization and restructuring costs in Q2 2023.
The operating loss for H1 2023 amounted to € (10.6) million, compared to a loss of € (148.0) million in H1 2022 mainly explained by € 144.7 million of De-SPAC related expenses incurred in H1 2022.
Cash flow
Cash flow from operating activities in Q2 2023 was an inflow of € 7.5 million. Cash flow from investing activities was an outflow of € (12.7) million, mainly due to earnouts paid related to acquired companies. Cash flow from financing activities totalled an outflow of € (2.9) million.
Cash flow from operating activities in H1 2023 was an inflow of € 34.7 million. Cash flow from investing activities was an outflow of € (37.6) million, mainly due to earnouts paid related to acquired companies. Cash flow from financing activities totalled an outflow of € (6.0) million.
Capex
Azerion capitalizes development costs related to internal development of assets, a core activity to support innovation in its platform. These costs primarily relate to developers’ time devoted to the development of games, platforms, and other new features. In Q2 2023 Azerion capitalized € 5.6 million, equivalent to 20.4% of gross personnel costs. In H1 2023 Azerion capitalized € 10.2 million, equivalent to 16.2% of gross personnel costs.
Financial position and financing
Net interest bearing debt*) amounted to € 182.5 million as of 30 June 2023, mainly comprising outstanding bond loan with a nominal value of € 200 million (part of a total € 300 million framework), which became a current borrowing at April 2023 and lease liabilities with a balance of € 17.8 million less the cash and cash equivalents position of € 42.2 million.
Applying the information above at 30 June 2023 and the full year 2023 guidance of expected Adjusted EBITDA of at least € 75 million, implies an illustrative Net interest bearing debt / Adjusted EBITDA ratio of approximately 2.4.
*) As defined in section 1.1 of the Terms & Conditions of the Senior Secured Callable Fixed Rate Bonds ISIN: SE0015837794. Please also refer to the Definitions section and the notes of this Interim Report for more information.
Segment Platform
Our Platform segment includes our digital advertising activities and e-Commerce, which are fully integrated through our technology. It generates Net revenue mainly by displaying digital advertisements in both game and non-game content, as well as selling and distributing AAA games through our e-commerce channels. Platform is also integrated with parts of our Premium Games segment, leveraging inter-segment synergies.
Platform – Selected Financial KPIs
Financial results - Platform
in millions of €
| Q2 | Q2 | YTD | YTD | |
| 2023 | 2022 | 2023 | 2022 | |
| Net revenue | 99.6 | 82.1 | 188.9 | 154.6 |
| Gross profit | 35.1 | 30.7 | 65.1 | 53.1 |
| Operating profit / (loss) | (3.2) | (3.0) | (11.6) | (14.4) |
| Adjusted EBITDA | 13.3 | 7.9 | 16.9 | 9.9 |
| Net revenue growth % | 21.3% | 22.2% | ||
| Gross profit margin % | 35.2% | 37.4% | 34.5% | 34.3% |
| Adjusted EBITDA growth % | 68.4% | 70.7% | ||
| Adjusted EBITDA margin % | 13.4% | 9.6% | 8.9% | 6.4% |
Platform Net revenue of € 99.6 million in Q2 2023, an increase of 21.3% compared to Q2 2022, driven by integration of past acquisitions and global sales teams, combined with the roll out of new ad formats on the platform. Platform Net revenue of € 188.9 million in H1 2023, an increase of 22.2% compared to H1 2022, driven by integration and consolidation of previously acquired businesses.
Adjusted EBITDA was € 13.3 million in Q2 2023, increasing by 68.4% compared to Q2 2022 due to growth in higher margin direct sales teams performance, lower personnel costs due to efficiency efforts as well as developments of platform technology resulting in lower operating costs. Adjusted EBITDA was € 16.9 million in H1 2023, increasing by 70.7% compared to H1 2022, as a result of platform development and efficiency efforts.
A legal dispute related settlement resulted in a cash outflow of € 0.4 million, of which € 0.2 million was paid in Q2 2023 with an expected € 0.2 million due in Q3 2023 and net release of provision gain of about € 0.6 million.
Initiatives in Q2 and H1 2023 include:
- Launch of Azerion Smart Bidding, Azerion’s improved AI-integrated bidding system to further enhance Azerion’s pricing in open market auctions.
- Improved our Full Monetization Services, or FMS solution with Performance by Azerion for semantic segmentation allowing for better audience targeting.
- Launched Smart Content, integrating Vlyby technology with Zoomin content, providing publishers with additional contextual content for monetisation.
- Developed an internal campaign management solution for Azerion ad ops teams, Azerion Marketplace, improving ad campaign coordination efficiencies and margin contribution.
- Accelerated the production of puzzle and word web games by Azerion Studio’s for news and media publishers resulting in increased revenues at higher margins due to lower licensing fees.
- Successfully rolled out new Fanzone platform technology across current clients in the Netherlands, Belgium and Turkey, allowing sport clubs to manage fan engagement, communication and monetisation through advertisement.
Results also benefited from increased user engagement levels, with users spending more time playing casual games, as well as strong performance in e-Commerce. In addition, we have grown our casual games distribution portfolio during Q2 2023, adding approximately 472 new games and 61 new publisher partners.
Advertising - Selected Operational KPIs
Advertising - Operational KPIs
| Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 | Q2 2023 | |
| Avg. Digital Ads Sold per Month (bn) | 9.5 | 9.6 | 10.7 | 12.2 | 13.0 |
| Advertising auction platform (bn) | 4.3 | 4.3 | 5.4 | 5.1 | 6.1 |
| Publisher monetisation services (bn) | 5.2 | 5.3 | 5.3 | 7.1 | 6.9 |
| Avg. Gross Revenue per Million Processed Ad Requests from advertising auction platform (€) | 22.7 | 23.9 | 32.8 | 30.0 | 36.3 |
| Previous reported figures (€) | 9.1 | 11.2 | 16.7 | 11.2 | 15.6 |
| Additional formats (€) | 13.6 | 12.7 | 16.1 | 18.8 | 20.8 |
The Average Digital Ads sold per Month (bn) increased to 13.0 billion from 9.5 billion in Q2 2022, reflecting the growth of the platform business through the integration of previous acquisitions and increased ad format offering. As of Q1 2023 the reported number of average digital ads sold per month include the following previous acquisitions: Adplay, Adverline, Monolith, Hybrid Theory, MMedia, Takerate, Targetspot and Vlyby.
The Average gross revenue per million processed ad requests was € 36.3 in Q2 2023, compared to € 22.7 in Q2 2022, demonstrating our ability to grow and manage the advertising auction platform efficiently and profitably whilst providing an attractive proposition for advertisers and publishers. New ad formats integrated into the platform have also contributed to higher margins.
Previously reported figures of Avg. Gross Revenue per Million Processed Ad Requests (€) were of advertising auction platform Improve Digital. Additional ad formats: Headerlift, Pubgalaxy, Sublime, Inskin, Strossle, Keymobile, Delta Projects, Admoove and Quantum have been included from Q1 2022, Infinia was included in figures as of Q2 2022 and Madvertise as of Q3 2022. Additional new ad formats have been included as of Q1 2023, these include: Adplay, Adverline, Monolith, Hybrid Theory, MMedia, Takerate, Targetspot and Vlyby. In Q4 2022, Average gross revenue per million ad requests was revised to exclude ad requests that are rejected before entering our advertising auction platform. As a result this KPI was renamed as Average gross revenue per million processed ad requests.
Segment Premium Games
Our Premium Games segment includes social card and casino games and metaverse, comprising nine premium game titles. The segment generates revenue mainly by offering users the ability to make in-game purchases for extra features and virtual goods to enhance their gameplay experience. The aim of this segment is to stimulate social interaction among players and build communities, offering an extended value proposition to advertisers and generating cross-selling opportunities with the Platform segment.
Premium Games – Selected Financial KPIs
Financial results - Premium Games
in millions of €
| Q2 | Q2 | YTD | YTD | |
| 2023 | 2022 | 2023 | 2022 | |
| Net revenue | 22.4 | 21.8 | 45.8 | 43.7 |
| Gross profit | 10.9 | 11.2 | 22.9 | 21.7 |
| Operating profit / (loss) | 0.3 | 0.1 | 1.0 | (0.6) |
| Adjusted EBITDA | 5.2 | 3.8 | 10.3 | 7.7 |
| Net revenue growth % | 2.8% | 4.8% | ||
| Gross profit margin % | 48.7% | 51.4% | 50.0% | 49.7% |
| Adjusted EBITDA growth % | 36.8% | 33.8% | ||
| Adjusted EBITDA margin % | 23.2% | 17.4% | 22.5% | 17.6% |
Premium Games Net revenue was € 22.4 million in Q2 2023, an increase of 2.8% compared to Q2 2022. Premium Games Net revenue was € 45.8 million in H1 2023, an increase of 4.8% compared to H1 2022, with both Q2 and H1 2023 results reflecting growth in social card and social casino games, offset in part by metaverse.
Adjusted EBITDA was € 5.2 million in Q2 2023, an increase of 36.8% compared to Q2 2022, due to higher top line performance combined with efficiency programmes reducing costs. Adjusted EBITDA was € 10.3 million in H1 2023, an increase of 33.8% compared to H1 2022, due to higher top line performance combined with lower costs due to efficiency programmes.
On August 1 2023, we announced that we entered into a definitive agreement with Playtika for the sale of our social card games portfolio. This transaction was completed on August 28 2023, further information can be found in the section Sale of social card games portfolio.
Premium Games – Selected Operational KPIs
Premium Games - Operational KPIs