Q3 2024: Challenging Environment Continues, Solid Free Cash Flow
Quote from Johan Svensson, CEO "Revenues in Q3 2024 totalled EUR 12.9 million, down 39.9% compared to a very strong Q3 2023 (EUR 21.5 million, of which EUR 0.4 million from the divested advisory business), with adjusted EBITDA of EUR 3.1 million (EUR 5.6 million) and EBITDA of EUR 3.0 million (EUR 5.6 million) reflecting lower sales in all business areas. We have continued our evaluation of all products and business areas to better position ourselves for sustainable, long-term growth and operational efficiency. These initiatives have resulted in the successful sale of ATS Advisory on July 31st and the formation of two strategic partnerships within Affiliation Marketing, as well as realizing cost savings following the review of our operating model."
Q3 2024 FINANCIAL HIGHLIGHTS
- Revenues in Q3 2024 totalled EUR 12.9 million (EUR 21.5 million, of which EUR 0.4 million from the divested advisory business), with adjusted EBITDA of EUR 3.1 million (EUR 5.6 million) and EBITDA of EUR 3.0 million (EUR 5.6 million).
- Our previously communicated review of our operating model that started during the first quarter of this year has led to realized cost savings, excluding publisher costs, of 18% compared to Q1 2024.
- Despite a challenging environment for the sector in general, we see a sequential improvement into November, and we forecast Q4 2024 adjusted EBITDA to be slightly ahead of Q3 2024.
- Free cash flow before earnouts increased to EUR 3.8 million (EUR 3.2 million), positively impacted by timing of settlement of trade receivables and payables, allowing us to meet our upcoming earnout commitment of EUR 9.9 million, payable up until the first half of next year. The remaining earnout obligation of EUR 20.6 million can be settled at any point in time, at our discretion, up until September 2026.
OPERATIONAL HIGHLIGHTS
- During the quarter we closed a new partnership agreement with a large US operator, through AffiliationCloud, overseeing their tier 2 and tier 3 affiliates, providing a strong reference point for our future ambitions in the US market and SubAffiliation.
- July 31st, we completed the sale of the land-based betting tips advisory business. This divestment is part of our strategy for our US business and allows us to concentrate on our core digital subscription and affiliation offerings.
- After the quarter, as one of our initiatives to optimize our operating model, we entered a strategic partnership with the founders of our Slots portfolio, which has a presence in Southern Europe and Latin America. This move aligns with our initiative to expand strategic partnerships and enhance growth potential in these markets.
SUBSEQUENT EVENTS AFTER THE END OF THE PERIOD
INCREASE IN SHARES FOLLOWING EARNOUT CONSIDERATION PAYMENT
On October 16, 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 1,071,00 determined by the volume-weighted RAKE share price for the period from 1 June to 31 August 2024, which was 8.89 SEK per share.
CURRENT TRADING AND OUTLOOK
October revenues reached EUR 4.0 million (EUR 7.7 million, of which EUR 0.4 million from the divested advisory business). Despite a challenging environment for the sector in general, we see a sequential improvement into November, and we forecast Q4 2024 adjusted EBITDA to be slightly ahead of Q3 2024. This indicates that reaching the lower end of our full-year guidance of EUR 17 to 19 million in adjusted EBITDA will be difficult. Visibility is limited due to the ongoing operational challenges for our publishers within Raketech Network, and around the expectation of a usually stronger second half of Q4 for both casino and US Sports.
CEO COMMENT
Revenues in Q3 2024 totalled EUR 12.9 million, down 39.9% compared to a very strong Q3 2023 (EUR 21.5 million, of which EUR 0.4 million from the divested advisory business), with adjusted EBITDA of EUR 3.1 million (EUR 5.6 million) and EBITDA of EUR 3.0 million (EUR 5.6 million) reflecting lower sales in all business areas.
Affiliation marketing revenues declined 28%, with Casumba assets particularly affected by the Google core update earlier this year. Additionally, Swedish casino assets were affected by increased gaming taxes from July. Despite the substantial decline year on year, Affiliation Marketing revenues were stable between the months during Q3 and into October.
SubAffiliation revenues declined by 51% impacted by the operational challenges within Raketech Network, which has been consistent for the entire industry throughout the quarter. Raketech Network began to stabilize after the quarter in October. AffiliationCloud continued to grow sequentially.
We have continued our evaluation of all products and business areas to better position ourselves for sustainable, long-term growth and operational efficiency. These initiatives have resulted in the successful sale of ATS Advisory on July 31st and the formation of two strategic partnerships within Affiliation Marketing, as well as realizing cost savings following the review of our operating model.
Performance by business area
Affiliation Marketing: We have not yet seen any sustained recovery for the Casumba assets, although the assets have sporadically increased traffic during the quarter from improved Google rankings. We have further strengthened the organization working with the Casumba assets where the founders remain in strategic roles. Our Swedish casino assets saw some decline during the quarter, following the tax increase on July 1st as operators’ investment willingness softened. Other Nordic casino markets remained stable or growing during the quarter. Our Sports assets declined sequentially compared to a strong comparative period including the UEFA Euro and IPL in Q2 but mainly in-line with performance of last year.
After the quarter, as one of our initiatives to optimize our operating model we entered a strategic partnership with the founders of our Slots portfolio, which has a presence in Southern Europe and Latin America. This move aligns with our initiative to expand strategic partnerships and enhance growth potential in these markets. With this strengthened collaboration, we are optimistic about expanding this product group and realizing its full potential in 2025. We will continue to assess strategic partnership opportunities within our current portfolio to drive growth and unlock additional value.
SubAffiliation: Google related operational challenges for publishers within our paid SubAffiliation, Raketech Network, deepened in Q3. Following the initial difficulties observed in Q2, activity and revenue levels hit a low point by the end of the quarter. The revenue decline observed in Q3 is largely due to external factors beyond our immediate control. Our relationships with operators and publishers remain strong and mutually beneficial, with both parties continuing to value our services and post-quarter revenue trends indicate some improvement in Q4.
Our proprietary SubAffiliation platform, AffiliationCloud, continued to grow during Q3, demonstrating the platform’s increasing importance in our overall strategy. A significant factor in its expansion has been the strong relationships we have built through exclusive partnerships, where operators trust our team to manage their affiliation marketing comprehensively, covering distribution, compliance, and commercial aspects. During Q3 we closed a new partnership agreement with a large US operator overseeing their tier 2 and tier 3 affiliates, providing a strong reference point for our future ambitions in the US market and SubAffiliation. Our dedicated team has now secured partnerships with four different brands and to capitalise on this momentum we will continue to invest in the development and scalability of AffiliationCloud to enhance the platform’s position in the market. Part of this strategy includes continued investment in AffiliationCloud to migrate our entire SubAffiliation business to our own platform, to give us control and drive efficiency across all methods of lead generation, both for the operators and publishers.
Betting tips and Subscription: In Q3, we completed the sale of the land-based betting tips advisory business. This divestment is part of our strategy for our US business and allows us to concentrate on our core digital subscription and affiliation offerings. The divestment results in a year-over-year decrease for our U.S. operations from August 1 and has a revenue effect of EUR 0.4 million during the quarter compared to previous year.
Our flagship sites, Winnersandwhiners.com and Picksandparlays.net, continued to attract strong traffic, demonstrating high user engagement. We also saw an increase in digital subscription and affiliation revenue, building on prior low levels. With consistently high session volumes, we’re actively exploring monetization options to turn this business area EBITDA positive. We are furthermore evaluating other strategic alternatives to preserve and potentially realize the full value of these assets within our US portfolio.
Outlook
October revenues reached EUR 4.0 million (EUR 7.7 million, of which EUR 0.4 million from the divested advisory business). Despite a challenging environment for the sector in general, we see a sequential improvement into November, and we forecast Q4 2024 adjusted EBITDA to be slightly ahead of Q3 2024. This indicates that reaching the lower end of our full-year guidance of EUR 17 to 19 million in adjusted EBITDA will be difficult. Visibility is limited due to the ongoing operational challenges for our publishers within Raketech Network, and around the expectation of a usually stronger second half of Q4 for both casino and US Sports. Free cash flow before earnouts is projected to be at least on par with EBITDA, allowing us to meet our upcoming earnout commitment of EUR 9.9 million, payable up until the first half of next year. The remaining earnout obligation of EUR 20.6 million can be settled at any point in time, at our discretion, up until September 2026.
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 Thursday, November 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-q3-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=50049787
