Cliq Digital AG (CLIQ) Earnings Call Transcript

Good afternoon, and welcome to the Cliq Group's first quarter 2025 Results Presentation. My name is Sebastian McCoskrie, Head of Cliq's Investor Relations, and I will be hosting today's earnings call. As always, our CEO, Luc Voncken, will present Cliq's strategic and operational highlights in Q1. And afterwards, Ben Bos, our other Management Board member, will walk you through the group's financials. After that, the gentlemen will answer the questions you kindly sent in via e-mail this morning. Ladies and gentlemen, please take note of the disclaimer shown here and that this call is being recorded. The visual audio and/or transcription of this call may be published, including any of the data arising there from. If you have any objection, please disconnect at this time. So without further ado, I will now hand over to our CEO, who will start today's results presentation. Luc, the floor is yours.

Hello, everyone, and thank you for joining today's call. First of all, allow me to talk about the elephant in the room and briefly recap. While no final decision has yet to be made, our ownership structure could be facing significant changes. The potential partial public tender offer from Dill& Media may be forthcoming, giving shareholders an option to sell their shares at a fair offer price. However, we currently have no further information regarding the if, when or what the offer price could be. Following a potential partial public tender offer by Dylan Media, Cliq could, subject to the relevant approval by the general meeting, decide to make a partial public share repurchase offer and redeem the treasury shares acquired in this course. This would reduce our share capital. The Annual General Meeting has yet to be finally determined, but will definitely take place before the end of August, most likely on Thursday, the [ '24 ] 1st of August. In addition, a delisting from all relevant stock exchanges is under serious consideration and an outcome supported in principle by both the Management Board and Supervisory Board, particularly if Dylan Media makes a public tender offer and acquires a substantial shareholding in Cliq. However, the Management Board and Supervisory Board have not yet taken any decision with respect to the delisting. As you can see, there are still many balls up in the air, and we wish we could give you more information at this point in time. But unfortunately, that's currently not the case. But we will, of course, inform our shareholders of any news regarding the possible delisting as well as the potential public tender offer and the potential partial public share repurchase offer. Now moving on to today's main agenda item, the Q1 figures. This has again not been an easy quarter, and today's presentation will reflect the ongoing challenges we face, both in the broader market and within our own transformation efforts. Year-on-year, our customer base per end of March dropped by 30% to EUR 800,000 and sales decreased in line to EUR 50 million. And this top line weakness continued to overshadow our operational progress. EBITDA before special items came in nearly EUR 2 million below the level generated in prior year's first quarter. And although the corresponding EBITDA margin held at over 7%, this reflected our strict cost management rather than a greatly needed top line strength. The improvement in the net cash position to EUR 14 million was welcome and due to our positive cash flow. Ladies and gentlemen, let's now discuss Cliq's operations. All in all, we had hoped our Fit for the Future program would yield more immediate performance improvements. We implemented wide-reaching structural changes. We started merging tech systems and executed a complete overhaul of our external service providers footprint, downsized our selling, general and administrative expenses as well as undertook a full-scale HR review. Cost efficiencies were achieved but at a cost, and we lowered our target CPA and protected our margins in the short term but have yet to deliver meaningful sustained growth. All these measures were designed to create a more agile, cost-efficient Cliq. However, the tangible positive impact on our earnings growth momentum remains limited. On the productivity side, we tapped into new sales channels and launched additional digital products. Yet despite these initiatives, top line growth is lacking. The new sales channels have yet to meaningfully offset the decline in our display revenue source. In short, the transformation from Fit for the Future is now hardwired in our operational framework and DNA. We have laid the groundwork, but productivity gains elusive. And while we have seen some early results from our initiatives, these are in their infancy and not yet material nor reliable growth levers. The Fit for Future program was essentially concluded in the first quarter 2025. However, we do expect to continue optimizing and streamlining our personal structure and IT landscape in the next quarters to become more efficient and more productive. Strategically, we are in a better position quarter-by-quarter. Sales and EBITDA showed minor sequential improvements, but the gains were modest, more reflective of operational tightening than market momentum. Although our affiliate partners providing a strong sales foundation, growth beyond that was minimal. The AVOD model introduced in the U.S. while an encouraging experiment, produce more learnings than revenue. It's too early to say whether this model will scale. We definitely believe and to fully hope so. New accepted payment infrastructure improvements like integrating Apple Pay and Google Play are in the final preparation and could eventually translate into an uplift in customer numbers and sales. Some new products were rolled out alongside our traditional streaming services. Content licensing efforts expanded, as you will see on the next slide, but cost efficiency dominates also in our content supply management. Ultimately, while we had hoped to emerge from this quarter with clearer signs of recovery, the reality was that most of our strategic bets were still in the setup phase. Execution has undoubtfully improved, but external headwinds and internal pricing continue to delay the outcomes we originally targeted. As just mentioned, our content strategy was always active this quarter. We renewed and extended the pan territorial licensing agreement for both North and Latin America, which included telenovelas and films for SVoD as well as alpha monetization models. In addition, we secured a rights deal for the U.S. to launch 10 linear fast sports channels, including live events, recaps, documentaries and niche formats like padel and billiards. Both deals have expanded our content library nicely and bolstered respective verticals. And importantly, we can use the content also for hooking up new customers. Ladies and gentlemen, in an operational nutshell, Q1 did not unfortunately deliver any quantum leaps, but we remain fully committed to our strategy and our action plan, how we can best get Cliq back on a sustainable growth track. On that positive note, let me hand over to Ben for our financials.

Thanks, Luc, and good afternoon, ladies and gentlemen. On this slide, you see the development of our strategic KPIs in the first quarter over the last 3 years. In Q1, 2025, total customer acquisition costs were EUR 15 million. Year-on-year, the total customer acquisition costs will just scale back significantly by nearly half to focus, first and foremost, on the group's profitability, not on sale. Sales in comparison with the first quarter of last year were down 32% to EUR 50 million. However, I should point out that this past quarter would lift a small 4% increase in the quarter-on-quarter sales development on the back of sequential increased marketing spend. This quarter-on-quarter sales development is progressing, but as the saying goes, let's not count our chickens before they are hedged. Year-on-year EBITDA before special items fell in line with the sales dropped by 31% to EUR 3.7 million. And our postponing EBITDA margin was flat at 7%, primarily due to reduced cost. The reality is that while EBITDA has been stabilized, we are not yet seeing productivity led expansion and the margin stability is the result of disciplined cost management. Now let's move on to the regional sales breakdown. Compared with last year's first quarter, our regional sales composition shifted notably this quarter with North and Latin American exposure now making up over 80% of the total group sales. Europe underperformed and sales in the region and rest of the world were negligible. 97% of sales came from bundled contact services, which continue to form the backbone of our business model. Our customer base was down to EUR 0.8 million from EUR 1.1 million at the first quarter end 2024. This decrease resulted from the group's stronger focus on profitability whereby the target cost per acquisition in short CPA was brought more in line with the lower expected average lifetime value of our customers, which led to less new customer acquisitions. In addition, churn remained high. As previously mentioned, the car scheme companies change in customer care tools increase our churn rate across all regions. First quarter 2025 -- 2024 apologies, the expected average customer lifetime value or so-called LTV was down 40% to EUR 70, highlighting the difficult market conditions and our reaction by decrease the target CPA. Ladies and gentlemen, here you can see our income statement with the EBITDA development shown before special items. The income statement this quarter tells a story of limited bottom line expansion. Despite the sales and EBITDA drop, the profit or period and EPS grew favorably year-on-year. The special items on EBITDA level in the first quarter of 2025 were 85% less than in prior year's first quarter, reflecting the near end of the Fit for Future program. And these incurred costs only impacted our personnel expenses and included transformation-related costs from Fit for Future as well as certain long-term incentive expenses not directly related to the group's operating performance. Other operating expenses decreased year-on-year. And in total, OpEx operational expansion was managed down by nearly 19%, 1-9. Net profit in Q1 was up from EUR 114,000 to nearly EUR 1 million, and EPS, therefore, rose year-on-year from EUR 0.02 to EUR 0.16. While our efforts to cut costs were effective in containing any possible margin erosion this quarter, we affirm that cost discipline alone will not drive sales recovery. Some more about customer acquisition costs. A headline metric was our near 50% year-on-year reduction in total customer existing cost, but it's important to see this in context. This reduction was driven by a lower target CPA brought in line with a lower LTV and a substantial cutback in paid acquisition spend. While this helped with short-term cash flow, it also showed customer intake and could limit growth potential in future quarters. As you are probably aware, Cliq's main action to count to the higher churn and of course, the subsequent lower lifetime value of our customers has been to align and reduce our target CPA. This decision was taking to put a stronger focus on our profitability, but also led downside to less new and less higher-value customers acquisitions. The customer acquisition cost for a period, those marketing costs related to revenue recognized in the first quarter totaled EUR 17 million. Ladies and gentlemen, we recorded a decent recovery in cash generation this quarter. Cash from operating activities was EUR 2.5 million, reversing a negative trend from Q1 2024 despite comparatively high tax gains made in Q1 2025. Supported by less cash outflows for the vestments operating free cash flow turned positive compared with Q1 last year and came in at over EUR 2 million after minus EUR 4 million in 2024. And also due to a minimal final repurchase for the non-concluded share buyback program, we ended the quarter with a net cash position of EUR 14 million, up from EUR 11 million a year earlier. So always happy to see how we improve the liquidity and stay debt-free. Moving on to the balance sheet. Our balance sheet remained stable but reflected the austerity of the Board. Intangible assets declined due to lesser investments and increase in amortization costs from the merger of our tech platforms. Contract costs and receivables both dropped, reflecting the cutting customer acquisition activities. Our equity ratio improved to 77%. The expected sales from existing customers. We ended the quarter with a lifetime value of customer base so-called LTVCB of EUR 101 million. This represents expected revenue from our current customers over the remaining life cycle. The 26% year-on-year drop is striking as it not only reflects that our customer base is shrinking in size, but also in value. This needs to be right going forward. To conclude today's presentations, a brief word on our outlook. So with today's Q1 results presentation, we reaffirm our full year guidance despite market conditions in 2025 remain unstable. Our sales are projected to come in between EUR 180 million and EUR 220 million. And after spending between EUR 50 million to EUR 75 million in total customer acquisition costs, EBITDA is expected to reach between EUR 10 million and EUR 50 million. Realizing this outlook depends on stabilization continuing our strategic shifts finally gaining traction. Ladies and gentlemen, 2025 is and will remain challenging for us. We have to grow sales sustainably and thereby, keep a close eye on cost efficiencies and cash management. We are confident that we have the right strategy and the right business model in place to realize the myriad business ideas we have. As I've shared before, 2025 will be a year when we do our utmost to stabilize our sales decline and get back on a growth path again. Thank you for your attention, and that concludes our presentation today. We shall now comment on our Q&A session. So Sebastian our first question, please.

Our first questions today are from [ Eva Adam ] and directed to Luc. Eva asks -- sorry, we'll come back to that question. Let me just give you -- in addition, Eva has a second question, which states the decision to delist the company follows a significant share price decline from approximately EUR 35 to around EUR 5. This development may effectively force some investors to exit their positions at a substantial loss, nearing 90%. How does the company view this outcome in the context of its responsibility toward protecting shareholder value.

Well, Eva, sorry, to be clear, no decision has been taken yet the potential decision to delist the company is currently still under careful consideration and in connection with the potential transaction announced on March 6. As a company, we view our responsibility, of course, to the shareholders through the lens of long-term value creation. And while the market valuation has declined sharply, we believe this reflects a disconnect between our business fundamentals as well as our long-term growth potential and how these are currently perceived in the capital market, of course. We are fully aware of the significant decline in our share price and the corresponding impact on shareholder value. Considering delisting as part of broader long-term strategic review, and it would allow us to reduce the short-term pressures associated with being publicly traded, such as freeing up management time, meeting strict reporting requirements and conducting ER related presentations and saving analyst coverage costs. Our focus more decisively in unsustainable long-term initiatives that could drive shareholder value over time. We understand the weight of this consideration, and our goal is to ensure that any course of action ultimately supports the future health and performance of the company.

Allow me now to state Eva's first question. Eva asks, it appears that some members of both the Management Board and Supervisory Board are simultaneously involved with Dylan Media. Could you please explain how Cliq Digital assesses and manages potential conflicts of interest in such overlapping roles?

Well, Eva, on the German corporate law and our internal compliance framework, Ben and I are bound by strict fit duties. This includes a duty to act in the best interest of the company and its stakeholders, and these principles guide all decisions and actions taken by the Management Board. And in the event of conflicts of interest relating to a public offer Supervisory Board would be involved to ensure that actions are made in the best interest of Cliq and a compliance with legal requirements. Our role at Cliq is to focus on actions that can align our operational performance and long-term value. And that includes a serious explanation of our strategic options ensuring we are not combined by short-term pressure but instead are positioned to rebuild value through consistent execution, innovation and operational discipline. Our priority is to maintain the integrity of the corporate governance and all actions, especially at Board level are aligned with the long-term interest of Cliq and its stakeholders.

Our next question is from Fernando Alonso Lamberti. Ben, after repeatedly failing to meet the forecast set by the company's management, we are now being presented with an action plan called Fit to the Future. Under this plan, if Cliq Digital is delisted, shareholders are left with the choice of either selling at a significant loss or remaining invested in an illiquid company. which would make it extremely difficult to recover our lost investment. For this reason, we strongly oppose any move to delist the company. Who really benefits if Cliq is taken off the market, certainly not those of us who invested in recent years?

Well, thanks, Fernando for a straightforward question. But first of all, Fit for Future was already launched at the beginning of last year and is a transformation program to increase Cliq's cost efficiency and productivity gains. It was introduced way before our delisting consideration. And that's actually nothing to do with it. As Luc already said, the decision to explore a delisting is primarily driven by the low investor demand for the Cliq shares alongside the reporting obligation as well as cost and time associated with being a publicly listed company. The lapse of these obligations will financially benefit Cliq. In addition, already for a while, capital markets are no longer being the most valuable findings and options for Cliq, and any turnaround in this respect is not foreseeing in the near future. If possible delisting would also enhance our operational flexibility and decision-making results short-term mine pressure, we're sure I understand. But at the present, Cliq is still only carefully considering applying for a delisting connection with a potential transaction announced on March 6. No decision regarding this hasn't made yet.

Our next questions are from Billy Howe. Billy asks, Luc, since you mentioned in your Q1 2025 earnings report that the group's transformation is foreseen to deliver the first tangible positive sign. Then why do you want to give up your transformation program and sell our company to Dylan Media?

Well, Billy, we haven't given up on Fit for the Future, we have just essentially concluded the program. And the transformation from Fit for Future is now firmly embedded in our company's DNA. And in the mindset of our teams and the change is important and a good thing. By experimenting with and introducing new sales channels, new digital products and new monetization models, we are changing Cliq's commercial outlook and aiming to generate higher productivity gains and ultimately achieving our sales growth potential. At the same time, by executing a comprehensive cost control and management, we are able to improve our efficiencies and become leaner and meaner. Please note that we have still identified further efficiencies from our staffing and IT structures, which we expect to leverage in the coming quarters. So as you can see, Billy, we haven't at all giving up on our transformation, rather we live it. We live our transformation. And whether Dylan Media buys up Cliq, well, that's depending on several circumstances outside our influence. If there is any news, we will inform you in compliance with our legal obligations.

Is Dylan Media's tender offer to all our shareholders so lucrative that you have to give up your grand turnover -- turnaround strategy boldly illustrated on the 20th of February this year during the earnings call presentation.

Well, as previously mentioned, Dylan Media is currently considering a partial public tender offer in connection with the potential transaction announced on sixth of March. We will provide details of the potential offer from Dylan Media as soon as they are available. There is currently no updates, and we need to wait and see what comes.

Ben, by now, the management should know whether or not Dylan Media has raised enough fund to make the tender offer to Cliq's shareholders, since management is also funding the takeover shares of Cliq shareholders. Then, when will this tender offer be probably happened? Will the tender offer be processed during the upcoming AGM? And how is the process be? If not, when will the tender offer be set officially in written form to shareholders?