Azerion publishes interim Q1 2023 results
Consolidation and integration leading to resilient revenue growth and increased profitability
Highlights of Q1 2023
- Resilient growth in the Platform and Premium Games segments, with Net revenue of almost 113 million, up from 94 million in Q1 2022. Adjusted EBITDA of almost 9 million up by 48% compared to Q1 2022, reflecting improved margins due to accelerated integration of previous acquisitions, as well as cost optimisation.
- Upgraded expected annualised cost savings to at least 15 million from at least 10 million, excluding any effects from foreign exchange. The expected savings are compared to the January 2023 baseline.
- Launch of Performance by Azerion, enriching campaigns across all features and platforms, driving increased performance across the full advertisement funnel.
- Roll out of proprietary ad format Oneskin, an integrated rich media native product that creates a highly scalable feature on the Azerion Platform.
- Expanded brand licensing partnerships with SmileyWorld, Mattel and L.O.L. Surprise! O.M.G. Fashion House to create engaging in game branded advertising content in metaverse social games Habbo, Hotel Hideaway and Woozworld.
- Successfully completed the legal merger between Azerion Holding B.V. and Azerion Group N.V. to simplify financial reporting.
Selected Financial KPIs
Financial results - Azerion Group N.V.
in millions of
| Q1 | Q1 | |
| 2023 | 2022 | |
| Net revenue | 112.7 | 94.4 |
| Gross profit | 42.0 | 32.8 |
| Operating profit / (loss) | (7.7) | (144.9) |
| Adjusted EBITDA | 8.7 | 5.9 |
| Net revenue growth % | 19.4% | |
| Gross profit margin % | 37.3% | 34.7% |
| Adjusted EBITDA growth % | 47.5% | |
| Adjusted EBITDA margin % | 7.7% | 6.3% |
Message from the CEO
"I am pleased with our continued growth in underlying profitability in Q1 2023. We made significant progress integrating previous acquisitions and further optimising our operations, whilst releasing new products and services to our current and new advertising and publisher partners. We are working hard to make our platform more efficient, better serving our clients, increasing our resilience and positioning us to capture exciting market opportunities. We expect to continue improving our underlying profitability in Q2 2023, which provides us confidence in achieving our strategic and financial objectives for 2023 and beyond." - Umut Akpinar
Financial overview
Net revenue
Net revenue for the quarter amounted to 113 million an increase of approximately 19%, compared to Q1 2022, mainly due to growth in the Platform segment.
Earnings
Adjusted EBITDA was 8.7 million for the quarter compared to 5.9 million in Q1 2022, an increase of approximately 48%, reflecting improved margins due to accelerated integration of previous acquisitions as well as cost optimisation.
The operating loss for the quarter amounted to (7.7) million, compared to a loss of (144.9) million in Q1 2022 mainly explained by 141.6 million of one-off De-SPAC related expenses incurred in Q1 2022.
Cash flow
Cash flow from operating activities in Q1 2023 was an inflow of 27.4 million, Cash flow from investing activities was an outflow of (24.9) million, mainly due to acquisitions. Cash flow from financing activities totalled an outflow of (3.1) million.
Capex
Azerion capitalizes development costs related to asset development, 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 Q1 2023 Azerion capitalized 4.6 million, equivalent to 15.9% of gross personnel costs, which is broadly in line with previous quarters.
Financial position and financing
Our net interest-bearing debt*) amounted to 177.4 million as of 31 March 2023, mainly comprising our outstanding bond loan with a nominal value of 200 million (part of a total 300 million framework) and lease liabilities with a balance of 19.9 million less the cash and cash equivalents position of 50.3 million.
*) 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
| Q1 | Q1 | |
| 2023 | 2022 | |
| Net revenue | 89.3 | 72.5 |
| Gross profit | 30.0 | 22.4 |
| Operating profit / (loss) | (8.4) | (11.4) |
| Adjusted EBITDA | 3.6 | 2.0 |
| Net revenue growth % | 23.2% | |
| Gross profit margin % | 33.6% | 30.9% |
| Adjusted EBITDA growth % | 80.0% | |
| Adjusted EBITDA margin % | 4.0% | 2.8% |
Platform Net revenue of 89.3 million in Q1 2023, an increase of 23.2% compared to Q1 2022, driven by increases in product offerings to advertisers across the globe, primarily due to previous acquisitions.
Adjusted EBITDA was 3.6 million in Q1 2023, increasing by 80% compared to Q1 2022, mainly reflecting growth in revenue as well as lower operating expenses resulting from integration of previous acquisitions and related efficiencies.
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 Q1 2023, adding approximately 437 new games and 50 new publishers partners.
Advertising - Selected Operational KPIs
Advertising - Operational KPIs1)
| Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 | |
| Avg. Gross Revenue per Million Processed Ad Requests from advertising auction platform () | 8.6 | 9.1 | 11.2 | 16.7 | 11.2 |
1) The reporting of average digital ads sold per month has been temporarily discontinued due to ongoing integration of operational reporting data from acquisitions completed in the second half of 2022.
The Average gross revenue per million processed ad requests was 11.2 in Q1 2023, compared to 8.6 in Q1 2022, demonstrating our ability to manage the advertising auction platform efficiently and profitably.
This measure excludes ad requests that are rejected before entering our advertising auction platform Improve Digital.
Segment Premium Games
Our Premium Games segment includes social 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
| Q1 | Q1 | |
| Net revenue | 23.5 | 21.9 |
| Gross profit | 12.0 | 10.5 |
| Operating profit / (loss) | 0.6 | (0.7) |
| Adjusted EBITDA | 5.1 | 3.9 |
| Net revenue growth % | 7.3% | |
| Gross profit margin % | 51.1% | 47.9% |
| Adjusted EBITDA growth % | 30.8% | |
| Adjusted EBITDA margin % | 21.7% | 17.8% |
Premium Games Net revenue in Q1 2023 benefited from strong growth in Social Card games, in particular Governor of Poker 3 and Monopoly Poker, expanding new features and content for users to further grow and monetise the games communities. Net revenue grew to 23.5 million in Q1 2023, an increase of 7.3% compared to Q1 2022.
Adjusted EBITDA was 5.1 million in Q1 2023, an increase of 30.8% compared to Q1 2022, reflecting our focus on managing for value.
Premium Games Selected Operational KPIs
Premium Games - Operational KPIs
| Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 | |
| Avg. Time in Game per Day (min) | 81 | 80 | 80 | 79 | 84 |
| Avg. DAUs (thousands) | 607 | 569 | 556 | 559 | 601 |
| Avg. ARPDAU () | 0.38 | 0.4 | 0.42 | 0.45 | 0.42 |
- The Average time in game per day from our Premium Games players increased in Q1 2023 compared to Q1 2022 due to increased audience engagement with our Social Card game titles.
- The Average daily active users (DAUs) remained at a similar level as in Q1 2022.
- The Average revenue per daily active user (ARPDAU) increased by more than 10% compared to Q1 2022, primarily driven by new features and events that enhance user gameplay experience and monetisation of players.
Outlook
Previously provided guidance remains unchanged:
- Adjusted EBITDA for 2023 is expected to be at least EUR 75 million, with annual Adjusted EBITDA margin thereafter expected to grow and be in the range of 14% to 16% in the medium term. The expected improvement in Adjusted EBITDA margin is expected to be primarily driven by gross profit margin optimisation, cost efficiencies and overall benefits of scale as the Azerion platform grows. This outlook does not include the impact of any material acquisitions or divestments.
- Net revenue for 2023 is expected to be around EUR 560 million, with expected annual growth thereafter of around 15% in the medium term. This outlook does not include the impact of any material acquisitions or divestments.
Other information
Interest Bearing Debt
in millions of
| 31 March 2023 | 31 December 2022 | |
| Total non-current indebtedness | 215.7 | 215.8 |
| Total current indebtedness | 12.0 | 12.8 |
| Total financial indebtedness | 227.7 | 228.6 |
| Deduct Zero interest bearing loans | - | (0.1) |
| Interest Bearing Debt | 227.7 | 228.5 |
| Less: Cash and cash equivalents | (50.3) | (50.9) |
| Net Interest Bearing Debt (Bond terms) | 177.4 | 177.6 |
References to the bond terms in the table above refer to the terms as defined in the senior secured callable fixed rate bond ISIN: SE0015837794
Reconciliation of net income to Adjusted EBITDA
in millions of
| Q1 | ||||||||
| 2023 | 2022 | |||||||
| Azerion Group | Premium Games | Platform | Other | Azerion Group | Premium Games | Platform | Other | |
| Profit / (loss) for the period | (12.4) | (134.8) | ||||||
| Income Tax expense | 0.9 | 0.7 | ||||||
| Profit / (loss) before tax | (11.5) | (134.1) | ||||||
| Net finance costs | 3.8 | (10.8) | ||||||
| Share in profit/(loss) of joint venture | - | - | ||||||
| Operating profit / (loss) | (7.7) | 0.6 | (8.4) | 0.1 | (144.9) | (0.7) | (11.4) | (132.8) |
| Depreciation & Amortization | 10.3 | 3.1 | 7.2 | - | 8.1 | 3.1 | 5.0 | - |
| De-SPAC related expenses | - | - | - | - | 141.6 | 1.3 | 7.5 | 132.8 |
| Other | - | 0.1 | - | (0.1) | 1.1 | 0.2 | 0.9 | - |
| Acquisition expenses | 2.8 | - | 2.8 | - | - | - | - | - |
| Restructuring | 3.3 | 1.3 | 2.0 | - | - | - | - | - |
| Adjusted EBITDA | 8.7 | 5.1 | 3.6 | - | 5.9 | 3.9 | 2.0 | 0.0 |
Operating expenses
Breakdown of operating expenses
in millions of
| Q1 | ||
| 2023 | 2022 | |
| Personnel costs | (27.8) | (39.5) |
| Includes: | ||
| Azerion Founder Warrants, reported as share-based payment expense | - | (9.9) |
| De-SPAC early exercized share-based payment expense | - | (10.3) |
| Other expenses | (11.6) | (129.5) |
| Includes: | ||
| De-SPAC transaction related expenses | (121.4) | |
| Operating expenses | (39.4) | (169) |
| Of which: | ||
| Platform | (31.2) | (28.2) |
| Premium Games | (8.2) | (8.1) |
Restructuring
In relation to ongoing consolidation and integration, restructuring charges in Q2 2023 are expected to be in the range of 4 million to 5 million. These costs impact the reported operating profit / loss, but are removed from Adjusted EBITDA.
Settlement
In May 2023 a claim was settled resulting in a cash outflow of about 0.4 million and in a gain of about 0.7 million due to a release of a provision in segment Platform in Q2 2023.
Bond Refinancing
On 8 April 2021, the Group issued senior secured callable fixed rate bonds for a total of 200 million, within a total framework amount of 300 million. The maturity date of the bonds is 28 April 2024 and the bonds carry a fixed interest rate of 7.25% per annum. The management team are fully engaged in evaluating the options available to refinance the bonds. Those options include, but are not limited to, pursuing a similar repeat bond issuance, the implementation of alternative external third-party financing solutions and/or utilisation of other internally available financial resources. The refinancing strategy and execution planning will continue and be finalised in an appropriate timeframe taking into account considerations relating to business performance, strategic and operational requirements, internal cash generation, any implied deleveraging and applicable market conditions.
Merger and Updated comparative figures
Azerion became listed on 1 February 2022 through a De-SPAC Transaction and from that point onwards Azerion Group N.V. results were reported alongside those of Azerion Holding B.V. As at 1 January 2023, Azerion Group N.V. and Azerion Holding B.V. merged, with Azerion Group N. V. the surviving company. As a consequence, Azerion will now report in the quarters of 2023, and for the comparative results of the quarters of 2022, only the consolidated results of Azerion Group N.V.
Next to this important change for the company, the following comparative figure changes have been and will be reflected in our quarterly press releases:
- The quarterly reporting of 2022 for the quarters of Q1 and Q3 only reflected the results of Azerion Holding B.V. This report shares the results for these quarters of Azerion Group N.V.
- Headquarter costs allocation towards the segments Platform and Premium Games have been updated to reflect Gross profit as preferred allocation methodology
- The accounting for the Azerion Founder Warrants has been updated to reflect the Annual Report 2022 accounting treatment change towards Share based payment
- The results of the full year 2022 income tax calculation finalised post Q4 2022 press release
- Listing expenses and share based payment expenses have been updated to reflect the Annual Report 2022 applied reclassification from Other gains and losses towards Other expenses and Personnel costs respectively.
- Certain statement of financial position classifications have been updated to reflect the changes applied in Annual Report 2022
Condensed consolidated statement of profit or loss and other comprehensive income
in millions of
| Q1 | ||
| 2023 | 2022 | |
| Net revenue | 112.7 | 94.4 |
| Costs of services and materials | (70.7) | (61.6) |
| Gross profit | 42.0 | 32.8 |
| Personnel costs | (27.8) | (39.5) |
| Depreciation | (1.9) | (1.6) |
| Amortization | (8.4) | (6.5) |
| Impairment of non-current assets | - | - |
| Other gains and losses | - | (0.6) |
| Other expenses | (11.6) | (129.5) |
| Operating profit / (loss) | (7.7) | (144.9) |
| Finance income | 2.9 | 16.7 |
| Finance costs | (6.7) | (5.9) |
| Net Finance costs | (3.8) | 10.8 |
| Share in profit/(loss) of joint venture and associate | - | - |
| Profit / (loss) before tax | (11.5) | (134.1) |
| Income tax expense | (0.9) | (0.7) |
| Profit / (loss) for the period | (12.4) | (134.8) |
| Attributable to: | ||
| Owners of the company | (12.5) | (134.6) |
| Non-controlling interest | 0.1 | (0.2) |
| Items that may be reclassified to profit and loss, net of tax | ||
| Exchange difference on translation of foreign operations | 0.1 | (0.6) |
| Total other comprehensive income | (12.3) | (135.4) |
| Attributable to: | ||
| Owners of the company | (12.2) | (135.1) |
| Non-controlling interest | (0.1) | (0.3) |
Condensed consolidated statement of financial position
in millions of
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