Storytel AB (publ) (STORYB) Earnings Call Transcript

Welcome to Storytel Q3 Report 2026. [Operator Instructions] Now I will hand the conference over to the CEO, Bodil Torp. Please go ahead.

Good morning, and welcome to Storytel Group's Earnings Call for the Third Quarter 2020 I'm Bodil Torp, CEO. And with me today is our CFO, Stefan Ward. I will start with the highlights for the quarter. Stefan will take you through the financials, and we will then open up for your questions. We are pleased to report a strong quarter. Net sales grew 16.5% in constant currency, of which 11.7% was organic. And we added 80,000 paying subscribers. This is actually our highest net additions in the quarter since the third quarter of 2023. Adjusted EBITDA increased 16% to SEK 268 million. Excluding LTIP costs, which are driven by our share price, adjusted EBITDA increased 25%. With 9 strong months behind us with we confirm our full year 2026 guidance of adjusted EBITDA of SEK 900 million. So let's take a look on the highlights. Net sales grew 16.4% to SEK 1.179 billion as reported and 16.5% in constant currency. Adjusted EBITDA increased 16% to SEK 268 million with a margin of 22.7%. Excluding LTIP costs, adjusted EBITDA was up 25% to SEK 279 million, which equals a margin of 23.7% compared to 22.1% year-on-year. Net profit, SEK 151 million, up from SEK 138 million. And earnings per share after dilution were SEK 1.83. In the quarter, we added 80,000 paying subscribers, up from 64,000 a year ago, and reached 2.83 million paying subscribers. This is up 7.6% year-on-year. In Europe, we added 39,000 subscribers and in the Nordics, 33,000. Publishing continued a strong development with external net sales up almost 54% in constant currency, of which close to 27% was organic, and the adjusted EBITDA margin expanded to 36.2%. Overamstel was a part of the group for the first full quarter. And we confirm our full year 2026 guidance of adjusted EBITDA of SEK 900 million. The Board decided in August on a share buyback program up to SEK 300 million to secure the delivery of shares under our long-term incentive programs. So we acquired shares for SEK 91 million during the quarter. After the quarter, we launched storytelbooks.com, our new book line our new online bookstore for physical books in Sweden. This makes it seamless for our readers to move between formats, offering subscribers an exclusive discount on physical books while helping authors to reach their audience across all formats. Net sales grew 16.5% in constant currency, of which 11.7% was organic growth. Streaming up 7.8% and Publishing external sales up 53.8%, both in constant currency. The gross margin was broadly unchanged at 45.3%. Adjusted EBITDA increased 15.7% percent to SEK 268 million with a margin of 22.7%. The increase was driven by Publishing, partly offset by higher marketing investments in Streaming and higher share-based compensation following the share price development. So excluding LTIP impact, the adjusted EBITDA grew almost 25% to SEK 279 million. This is a margin of 23.7% compared to 22.1% last year. Our pretax profit grew by [ 19% ] to SEK 172 million, driven by the higher operating profit and also improved net financial result. Cash flow from operations before working capital increased 21% to SEK 246 million. So let's take a look at the rolling 12. Our rolling 12-month development shows continued margin expansion over the past 10 quarters. On our rolling 12-month basis, net sales reached SEK 4.3 billion. and adjusted EBITDA SEK 860 million. This is up 20% year-on-year. The rolling 12 adjusted EBITDA margin was 19.9%, up from 18.2% a year ago and from 11% in the second quarter of 2024. We remain well on track to deliver on 2028 targets. Average annual net sales grew above 10% in constant currency, the growth and adjusted EBITDA margin above 20%. So let's take a look on each segment. Over to you, Stefan.

Thank you, Bodil. In Publishing, we delivered another strong quarter. Our net sales grew by 31% in constant currencies to SEK 423 million. Our external net sales grew 54% to SEK 280 million, of which 27% is organic, Growth is driven by the acquisition of Overamstel, which is consolidated for the full quarter for the first time. We acquired Overamstel late in May last quarter. It is also driven by higher digital external sales and growth in our existing publishers. The gross margin improved to 36.6% versus 35.5% a year ago, supported by the higher digital external sales and improved profitability. Adjusted EBITDA increased by 42% to SEK 153 million with a margin expansion to 36.2%, up from 33.4% a year ago. Overamstel, as we said, is included for the first time this quarter and contributed around SEK 49 million to net sales in constant currencies. In the Streaming segment, we added 80,000 net new subscribers during the quarter compared to 64,000 in the same quarter last year. This is our highest net add level since Q3 2023. In percentage terms, the subscriber growth year-on-year was 7.6%, and the total base at the end of the period was SEK 2.83 million. And year-to-date, we have added 163,000 customers. And on a rolling 12-month basis, the level is 200,000. Europe continues to lead this strong growth, adding 39,000 subs during the quarter for a growth of 12.7% and net sales growing by 18.6% in constant currencies. In the Nordics, we added 33,000 subs in the quarter versus 29,000 in Q3 last year. for a net sales growth of 5.6%. Subs growth is the primary driver, but we also had some help from ARPU in the quarter, which rose by 3.4% year-on-year. Churn remains stable across our base at a low level. It is lower in the Nordics than in other areas. But the profile is similar with a very low churn in the cohorts that have been with us for more than 12 months, while the churn is higher in the net -- most recent intake. Price increases primarily in Nordics and Europe, partially offset by regional mix in some other areas. In America, the ARPU is coming down. It was SEK 131 in the quarter, down 5.7% year-on-year due to primarily geographical mix and a higher share of partnership subs. We continue to target full year net addition in line with 2025, which will require a solid performance in the fourth quarter. Streaming P&L net sales growth of 8.4% reported and 7.8% in constant currencies to SEK 1 billion flat, driven by the subs intake, but also helped by a rising ARPU. Europe reported sales growth of 18.6% and the Nordics of 5.6%, while APAC growth, 3.7%, and we had a slight decline in the Americas. Gross margin improved to 40.5%, up from 39.9% with higher margins in Nordics and Americas, partially offset by Europe and APAC. The adjusted EBITDA was SEK 153 million for a margin of 15.3%. The decrease reflects the increased marketing investment, but it's also together with higher personnel and IT-related costs. Operating profit was SEK 119 million. Moving over to our cash flow statement, we delivered a strong cash flow from operations before working capital of SEK 246 million, up 21% year-on-year. We had a positive impact from working capital of SEK 40 million in the quarter compared to a headwind in the same quarter last year of SEK 45 million. This enabled a really strong growth in the cash flow from operating activities after working capital of 81% to SEK 285 million. The cash flow year-to-date is SEK 570 million, an increase of SEK 228 million compared to the same period last year. Cash flow from investment activities was SEK 44 million -- minus SEK 44 million, mainly explained by investments in intangible assets of SEK 48 million. Cash flow from financing activities, negative with SEK 102 million, of which buybacks accounts for SEK 91 million. Cash flow for the period was SEK 140 million. We have added a new slide to the deck showing our free cash flow development over several quarters starting in Q1 2023. On a rolling 12-month basis, our free cash flow, that is cash flow from operations after CapEx, both tangible and tallies; is at the level of SEK 587 million. This is an increase of 57% year-on-year from SEK 373 million annualized free cash flow in Q3 2025, and it's up 245% from Q3 2024. So it's been a very strong improvement in the cash flow generation. Looking over the past 8 quarters, the average annualized free cash flow is around SEK 419 million. And over the past 4 quarters, it's SEK 474 million. This equals free cash flow per share of SEK 5.4 and SEK 6 per share, respectively, over these periods. The dramatic improvement in free cash flow generation provides us with a lot of flexibility to further drive value creation for our shareholders, primarily from investing in growth opportunities but also in the form of distributions. Moving over to the balance sheet, we see that we have total assets of SEK 3.9 billion, equity increased to SEK 2.1 billion with an equity to assets ratio of 53.5%, up from 49.7% a year ago. We ended Q3 with a net cash position of SEK 132 million versus a net debt of SEK 23 million in the same quarter last year. During Q3, as we have mentioned, we did buybacks of SEK 91 million. In Q2, we distributed SEK 140 million to shareholders in the form of dividends and we acquired Overamstel for SEK 175 million. Together with our unused credit facility, we have a total liquidity on our books of SEK 1.2 billion. Our gearing is negative 0.15 versus our max target of 1.5, which provides even more room for growth initiatives. So we are well prepared to continue develop our solid offering and our business model. And with that, I'll hand it back to you, Bodil.

Thank you, Stefan. Before summarizing, we also would like to highlight our strength of bringing out the best user experience and the best user experience across our entire store telling universe. Storytel Genie combines our most exciting features to date and marks the beginning of a new intelligent layer across the user experience. The uplift for Genie is strong and is bring the best discovery to our listeners. Genie is like having a book loving best friend in your pocket, who knows your taste perfectly and at the same time, have knowledge of all the world's books. Our recently launched Storytel Pulse for authors empowers authors with real-time data insights about their audience. Together, these innovations deepen engagement, strength and loyalty and ensure that Storytel remains the premier universe where all book lovers and creators want to stay for lifetime. And we will continue to elevate our services in all dimensions. So to sum up this, this is a strong third quarter with 16.5% growth in constant currency, our highest net additions in the quarter since 2023 and continued strong development in Publishing. We continue to develop our offering. After the quarter, we launched Storytel Books, our online bookstore for physical books in Sweden, which make it easier for book lovers to move between different formats with an exclusive discount for start users. Our strong financial position supports an active M&A agenda going forward. and we continue to strengthen our capabilities for both acquisitions and integration. We confirm our full year 2016 guidance of adjusted EBITDA of SEK 900 million and we will remain well on track for our 2028 midterm targets. So with that, over to your questions.

[Operator Instructions] The next question comes from Joachim Gunell from DNB Carnegie.

So I have three quick questions. So on the balance of growth versus margins here, so the incremental margin adjusting for LTIP, remains quite impressive despite the growth initiatives here. So just how do you think about keeping that incremental margin to [ '27 ]?

Yes. We think that there is scope for further margin improvement, but the rate of the improvement will slow down. But -- I mean, what we have communicated is that we're going to be above 20% in 2028. We're close to that level already. So it's fair to assume that we will reach that target and deliver continued margin improvement.

Okay. On the just gross margin side in Publishing, so it's continuously a significant improvement year-over-year. You commented that there's higher external details within the margins that is a strengthening factor here. So can you just perhaps talk a bit about what's driving this, if it's the spot possessing agreement or just mix, royalty terms or scale?

The agreements that we have signed or have on the books. I mean, they have been improving the gross margin for a few quarters now. So it's the same answer as in the previous quarters. We have some new deals that have helped us expand the gross margin. Other than that, there is no really material changes in the offering for this segment. So that's the primary reason.

Okay. And just finally, of course, perhaps a bit too early to speculate, but some high-level reflections on this would be interesting to hear from you. So there's been this trend of consumer inertia fading with the take off of, call it, agentic AI and assistance. And I know it's still early days. But if we look at your CMD material from '25, you said that roughly 40% of paying subscribers are active payers. So I mean, do you think this could move the needle like structurally for the attrition profile in the business?

I don't understand the question really. Can you formulate...

Yes. If only 40% of paying subscribers are active daily users, do you see a risk that the 60% that perhaps not used to service on a daily basis, would opt out or if it were easier to cancel the service with the takeoff of AI assistance such as Meta, et cetera?

Not really. I think that we see from our -- I mean, what we see is that we get an increasing share of our base that stays with us longer and longer. And the engagement from these people are very solid and improving. So we don't have any signals of the scenario that you described here. .

No. And we have like 70% that actually are on -- listening in our streaming every week. So...

So we would -- we saw that as high [indiscernible] in .

Exactly.

The next question comes from Derek Laliberte from ABG Sundal Collier.

I also have three questions. First one, you mentioned here, Q3 delivering the strongest subs intake since 2023. About the 80,000 net adds you saw here, would you describe that as structurally longer or underlying intake, a stronger one versus seasonality campaigns or trial versions, conversions basically where the main part of the subs intake came from?

It's a combination. It's normal grind to get the subs in. It's -- parts of it are campaigns and part are normal inflow.

And partnerships as well.

Okay. Very clear. And on the Nordics, specifically, improved quite meaningfully at 33,000 net adds here in the quarter and a solid revenue growth as well. What would you say has changed here versus the first half of the year? And also wondering, how sort of broad-based, the improvement was across the Nordic markets here, Sweden, Finland, Denmark, in Norway?

Now we had a strong start to the year the Nordics than soft second quarter and now again a strong third quarter. So what we can say is that for our Nordic segment, the development year-to-date is solid. We're happy with that development. It's a good net intake. We have some challenges in the Finnish market. We are positively surprised of the resilience in our Swedish customer base and the way that we are able to expand our business in Sweden. Also Denmark and Norway are stable to positive. But I would highlight, I mean, now we've been -- it's a year since Spotify entered the Nordics and the Swedish market, and we are very satisfied with how we have performed during that period.

Perfect. And just a follow-up there on the overall subs intake. I believe you mentioned before that, you had an ambition to have your 2026 net adds to be at least in line with 2025. So what gives you sort of confidence here that Q4 can remain strong enough to meet that ambition?

Yes. Well, the momentum we had in Q3 is encouraging. Our marketing campaigns are successful and demand is there. On an annualized level, we are at 200,000 intake on -- over the past 12 months. So we need to have a slightly stronger Q4 than we had last year. It's not a given, but we feel like we have a good probability to deliver on that. .

And finally, on Europe here, sort of the main growth engine within the Streaming right now, can you say something here about which of these markets are sort of doing the heavy lifting today or here in Q3 and where you should sort of best incremental growth opportunity into next year?

Well, it's moving in the right direction across the European footprint, we would say. Poland is the most important market for us. We crossed the 300,000 mark there during the quarter, which is encouraging, and it continues to develop well in Poland. Turkey is another market that can contribute with a lot of customers for us. We -- I would say the biggest surprise for us this year is how well we are performing in the German market. It's been a pleasant surprise. While our performance in the Netherlands is solid, it's not a standout. It's solid. But -- yes, so overall, we -- we're happy with our performance in Europe. It moves in the right direction across the footprint. But yes, there is some color on the performance.

The next question comes from Georg Attling from Pareto Securities.

Just a couple of questions. So on the step-up here in sales and marketing in Streaming, can you just give some more color on where you would allocate this incremental cost increase in which markets? And also how you view that trend in Q4 and into next year? Will it relatively sort of growth level sales and marketing, investments?

Yes. We do have very high for our marketing investments, and we could see that we also had a really good momentum in Q3, where we also pushed a little bit more into the European markets, as just Stefan described in the different markets where Poland, of course, is heavily important for us. So we -- I mean, we kind of monitor and reallocate daily -- on a daily basis where we see we have a good opportunity for growth and also return on investment. That's the core thing.

Okay. And just a follow-up on that. The obviously quite good sub intake here in this quarter, I mean -- and that happened with the step-change in sales and marketing, do you think you have a spillover effect in Q4 also benefiting from the Q3 sales and marketing investments to new subs?