Q2 2024: Navigating a Challenging Quarter, In Line with Expectations
Quote from Johan Svensson, CEO “Revenues in Q2 of 2024 totalled EUR 17.0 million (EUR 17.6 million). Strong growth in sub-affiliation were offset by a decline in affiliation marketing. EBITDA was EUR 4.4 million compared to adjusted EBITDA of EUR 5.5 million of last year, in line with expectations. The impact of the Google update was most evident for our Casumba assets in Q2, and we have acted swiftly by mobilizing resources from across the company to strengthen the team. A comprehensive business audit was finalized in connection with the end of the Google update. This has led to several initiatives around enhanced content focused on a broader audience, technical product improvements, SEO optimization and full focus on user experience. We have made progress in stabilizing performance, albeit at a reduced level, and we feel confident that our actions will return the assets to growth.
Q2 2024 FINANCIAL HIGHLIGHTS
- Revenues in Q2 of 2024 totalled EUR 17.0 million (EUR 17.6 million). Growth in sub-affiliation revenue, and betting tips and subscription income gains were offset by a decrease in affiliation marketing revenue.
- EBITDA was EUR 4.4 million compared to adjusted EBITDA of EUR 5.5 million of last year, continuously impacted by lower performance for the Casumba assets, in combination with a modest decline for Swedish casino assets. Meanwhile, other regions and products were stable, with our high traffic sports assets performing well and sub-affiliation delivering another strong quarter in terms of EBITDA contribution.
- Operating profit, adjusted for EUR 10.5 million impairment of assets following the sale of the non-core US advisory business, amounted to EUR 1.6 million (EUR 2.5 million).
- Free cash flow before earnouts decreased to EUR 2.7 million (EUR 5.0 million), somewhat impacted by timing of settlement of trade receivables and payables.
OPERATIONAL HIGHLIGHTS
- Executing on the plan to strengthen the Casumba team to address and mitigate ongoing performance issues.
- We have implemented efficiency measures and cost-cutting initiatives designed to optimize our operations and enhance profitability.
SUBSEQUENT EVENTS AFTER THE END OF THE PERIOD
SALE OF NON-CORE ADVISORY BUSINESS
On July 5, Raketech announced that the Company had reached an agreement to divest its non-core US advisory business. The total sale proceeds amount to USD 2.25 million settled partially on closing and via an ongoing revenue share agreement. The sale resulted in a one-off non-cash impairment charge of EUR 10.5 million for the US assets. The transaction was closed on 31 July.
INCREASE IN SHARES FOLLOWING EARNOUT CONSIDERATION PAYMENT
On July 15, Raketech announced it will issue shares in connection with an earnout consideration payment to the founders of Casumba. The number of shares will increase by 1,437,913 determined by the volume-weighted RAKE share price for the period from 1 March to 31 May 2024, which was 13.34 SEK per share.
CURRENT TRADING
Revenues in July 2024 amounted to EUR 4.6 million (EUR 6.9 million). This primarily reflected weak performance in the lower margin sub-affiliation area, specifically for Raketech Network (paid), compared to a strong comparison period. This followed operational challenges for some of our publishers, but we expect revenue to pick up during the rest of the quarter.
FULL-YEAR OUTLOOK
We further specify the full year guidance of around EUR 20.0 million to a range of EUR 17.0 million to EUR 19.0 million in adjusted EBITDA. Free cash flow before earnouts is estimated to come in just below EBITDA.
CEO COMMENT
Revenues in Q2 of 2024 totalled EUR 17.0 million (EUR 17.6 million). Strong growth in sub-affiliation were offset by a decline in affiliation marketing. EBITDA was EUR 4.4 million compared to adjusted EBITDA of EUR 5.5 million of last year, in line with expectations. The results continue to be affected by lower performance for the Casumba assets due to the significant Google update completed at the end of April.
Performance by business area
Affiliation Marketing: The Casumba earnout was completed at the end of July, and the founders and core team are still in place. The impact of the Google update was most evident for our Casumba assets in Q2, and we have acted swiftly by mobilizing resources from across the company to strengthen the team. A comprehensive business audit was finalized in connection with the end of the Google update. This has led to several initiatives around enhanced content focused on a broader audience, technical product improvements, SEO optimization and full focus on user experience. We have made progress in stabilizing performance, albeit at a reduced level, and we feel confident that our actions will return the assets to growth.
Our Swedish casino business also saw a modest decline in the quarter while other regions were stable. Our high-traffic in-house sports assets performed well during the quarter, achieving double digit growth driven by ongoing performance improvements, feature enhancements, and a more focused sales effort. The UEFA Euro 2024 attracted interest from operators in our core football assets, and the IPL generated strong sales for our cricket-focused site. Interest has continued into the start of the second half of the year with operators looking to invest in upcoming sporting events.
Sub-affiliation: Following a strong Q1, both Raketech Network and AffiliationCloud continued to deliver year-on-year organic growth. However, the pace of growth for Raketech Network moderated slightly, largely due to operational challenges for some of our publishers.
AffiliationCloud experienced steady, organic growth through Q2. We continued to expand and optimize our partnership with existing publishers. We secured an exclusive deal with Spelklubben, which means that all affiliates who want to promote the brand need to go through AffiliationCloud. We are in discussions with several other operators about similar partnerships. Additionally, we are happy to announce the launch of our Sub-affiliation offering in the US. We see similar potential with operators in this market to manage their affiliates through our platform.
Betting tips and Subscription: In early July, we announced the sale of the non-core and high-touch US Advisory business, which was finalized at the end of the month. This strategic sale represents an important step in streamlining our US operations and concentrating on our core strengths.
We will continue to grow our digital subscription and affiliation revenue streams by leveraging our flagship assets, Winnersandwhiners.com and Statsalt.com, along with picksandparlays.com, which together attract approximately 50 million sessions annually. These efforts continued to pay off during Q2 with continued strong results despite the US sport season slowing down. Performance is anticipated to improve even more in H2 as US sports activity gains momentum throughout the year.
Strategic initiatives
We remain committed to the following strategic initiatives; to grow our sports vertical, increase our customized partnerships, broaden reach and to reducing our SEO dependency. We are increasing our CRM activities by leveraging our high direct traffic products to maximize opportunities through tailored marketing, designed to increase retention and enhance lifetime value. We expect this to be rolled out during Q3. Our in-house sports affiliation assets continue to show growth in both traffic and revenues, showcasing a positive result during the quarter from increased content focus on these assets. Additionally, the recent partnership deal with Spelklubben highlights the value that operators see in our assets and sub-affiliation platform capabilities and validates our strategy. We continue to actively pursue exclusive affiliate partnerships with operators, leveraging our powerful Raketech and AffiliationCloud offering to provide substantial benefits to operators in managing their extensive network of affiliates.
Outlook
Revenues for the month of July were EUR 4.6 million (EUR 6.9 million). This primarily reflected weak performance in the lower margin sub-affiliation area, specifically for Raketech Network (paid), compared to a strong comparison period. This followed operational challenges for some of our publishers, but we expect revenue to pick up during the rest of the quarter.
Considering the first half of the year and current trading for July we can more accurately forecast our outlook for the full year. This means we are now able to further specify the full year guidance of around EUR 20.0 million to a range of EUR 17.0 million to EUR 19.0 million in adjusted EBITDA. Free cash flow before earnouts is estimated to come in just below EBITDA. Our current cash flow gives us financial flexibility to settle the current Casumba earnout and ensure long-term growth and value creation.
Johan Svensson, CEO
LINK TO REPORT
The full Interim Report is available on https://raketech.com/investors/
REPORT PRESENTATION
CEO Johan Svensson and CFO Måns Svalborn will present the report in a conference call on Wednesday, August 14, 2024, at 09:00 CEST.
The presentation can be followed via both a conference call and an online audio cast, including a Q&A session open to all listeners at the end of the presentation.
If you wish to participate via webcast, please use the link below. Via the webcast you are able to ask written questions.
https://ir.financialhearings.com/raketech-q2-report-2024
If you wish to participate via teleconference, please register on the link below. After registration, you will be provided with phone numbers and a conference ID to access the conference. You can ask questions verbally via teleconference.
https://conference.financialhearings.com/teleconference/?id=50049786
