elumeo SE (ELB) Earnings Call Transcript

Good morning, everybody, and a very warm welcome to our 2024 full year financial earnings call. As always, this call will be recorded and then made available also on our website. Yes. Thank you very much for joining us. We've already had an update call only roughly 1 month ago. So I will go into this straight away. As you all know, 2024 has been a fairly difficult year, characterized by a quite challenging market environment. And we are a little bit reluctant to say this, but we're happy to report that even though we've had a very challenging environment, we've been able to sustain our development in this market, even though that we've had a pretty serious headwind. As we have said in our update call in March, we have not been able to maintain our revenue levels. We've gone down 4.4% in our revenues and the gross profit margin went down even a little bit further. And due to the fact that we have not been able to reduce our cost as fast as we had the margin decline, we've had to revise our guidance for the adjusted EBITDA. Prior, we had thought that we would end up with EUR 0.5 million and positive EBITDA. The revised guidance foresaw a negative EBITDA between EUR 0.5 million and EUR 1 million, and we have ended up right in the middle of this corridor. As you all know, in Q2 2024 and then also in Q1 2025, we have initiated a very substantial cost savings program that now has been fully executed, which will bring down our total cost on a full year basis by EUR 5.9 million, and Florian is later on going to shed some more light on this. By the way, I've forgotten to introduce my colleagues who are here with me in the room, Florian Spatz, our CEO; Riad Nourallah, our CFO; and Boris Kirn, our Chief Operating Officer. After executing the restructuring program, we have had to review our entire planning figures for the coming years, and we've had to go through a new company planning process, in particular, with regards to the impairment test that elumeo has to do every year on the book value of Evelo on its books. And that on top with the pending ESEF certification has led us to postpone the publication of the final audited figures to May 7. Nevertheless, all the financial figures that we are presenting in this presentation are stable. And from our perspective, also final. It is only that the audit has not yet been totally completed. In order to give investors as much transparency about the situation of the company in 2024 as possible, we have made an appendix to this presentation during which we publish or in which we publish all the relevant data, so cash flow statements, balance sheets, P&L, both for the consolidated figures, but also for elumeo in itself. Apart from the positive development of the cost saving programs, we can also report that our Internationalization 2.0 project is continuing to grow rapidly and will start to deliver very substantial impact also to our business already in this year. And Florian is going to shed some more light on this throughout his presentation. Our outlook, which we are going to present in more detail at the end of the presentation, projects for 2025 revenue decrease between 10% to 15%, which is mainly due to the restructuring that we have done, a corresponding slight decrease in gross profit and only very slight decrease in our gross profit margin, which will then result in an adjusted EBITDA between minus EUR 0.5 million or if everything goes very well, breakeven. That, I have to say, comes mostly from the first quarter. So in the first quarter, we expect adjusted EBITDA to be still negative in the following 9 months. So from April to December, we expect the company to have a positive adjusted EBITDA. So this was the summary, and I would now like to hand over to Florian for the presentation of the development of the company in 2024.

Yes. Good morning also from my side. So let me directly jump into the key developments of last year and also take a look at the first 4 weeks in April after our restructuring program that we have executed on the 1st of April this year. On this slide, you can see 2 main factors that impacted our business. The line below in gray shows the consumer sentiment according to the char that after a short recovery in Q3, crashed again in September, causing also our forecast adjustment and declined again and continue to go down also in Q1. Stabilized in April and also from what we can currently read from BFA, stabilized and slightly improved in May 2025. In addition to this low consumer sentiment, the prices for precious metal and especially the price for gold that you can see here dramatically increased throughout the whole year 2024 and also in Q1 2025, putting our margin under a continuous high pressure. In the past 17 years, we have always succeeded in passing on price increases to our customers. It's just that in the context of this low consumer sentiment, it takes some more time, and it cannot be passed on immediately. And here, we see the third factor, the third external factor affecting mainly our TV business, the ending of the so-called [Foreign Language], the cable TV service charge privilege, if we want to translate it into English. It caused a loss of cable TV households of 29% if we compare the data that has been published by Vodafone reporting comparing Q1, more exactly February 2024 and February 2025. And the main negative effect became visible in our business, especially in Q1 of this year, as you can see in the figure on the right side that shows the loss in revenue of our TV business compared to Q1 2024. However, already end of 2024, the massive drop of households affected the Christmas season of our live TV business. Yes, the loss of cable TV households has increased the TV distribution cost per household and led to a review of the contract by three specialized law firms. And I think Wolfgang is going to give you some more details about this.

Yes. obviously, kind of the distribution of our signal in cable networks is fairly important. It accounts -- amounts to roughly 40% of our total revenue for our live television business. Each cable net operator in Germany operates a local monopoly because within one cable net, there is no competition. There is only one operator for that, and that is something that has been established by both German and also European antitrust authorities for quite some time. After us seeing this situation with the reduced households, in particular, in Q1 2025, we have put a substantial emphasis on checking on whether the fee structure that is given to us is conformant with antitrust law, in particular in Germany. And we have sought expert opinions on the legality of this fee structure. And the conclusion of each of the three expert opinions that we sought was that the current fee structure of these monopolies as it has been charged to television shopping operators is not conformed with antitrust law in Germany and that we are both entitled to a reduction in fees, which is pretty substantial, but also for a compensation for too high fees that we have paid in the past because these entitlements remain active as long as the infringement of the antitrust law continues. So as long as we do pay too high fees, also there is no lapse of the claims in the past. So we can claim too high fees that have been paid in the past for quite some time. And this results in a pretty substantial double-digit damages claim that we have. We have finally decided to appoint one of the law firms that have written these expert opinions as our representatives, and we have started to write to some of these cable net operators in order to inform them about our legal position and also from our claim. And this is now ongoing and the law firm has also been appointed to, if this will become necessary, which we hope not, to claim these damages in court.

Before we look more in detail on the development of our TV business and our web business and the international channels, here's a quick summary of the full year 2024 data. Revenue decreased to EUR 43.4 million, gross margin down to EUR 20.4 million and the SG&A expenses decreased in 2024 year-over-year by 8%. And regarding the cost efficiency program launched in Q2 2024, the main effect in the reduction of the expenses will be seen in 2025, together with the effect of our further restructuring program that we have executed four weeks ago. On this slide, you can see our guidance, our revised guidance and our actual full year 2024 results. The actual revenue and gross profit margin are at the low end of our guidance, while as Wolfgang already said also, the adjusted EBITDA is with minus EUR 0.8 million, below forecast due to the temporary burdens that our business had to face. Let's take a look at our TV business in 2024. The TV business was particularly affected by the external factors and recorded a revenue decline of 6%, bringing revenue down to EUR 28.9 million from EUR 30.8 million in 2023. At the same time, we can already see the first effects of our cost performance program and on our efficiency program. The average revenue per piece increased by 5%, in line with our strategy of focusing on more profitable and higher-priced items. And also the revenue per customer started to improve mainly in Q4, but for the whole year by 2% per customer. Throughout 2025, we expect these KPIs to further increase in line with our strategy of more quality than quantity, more profitable, high price points, and an increased airtime share for premium jewelry collections. In our web business, throughout 2024, we have continuously optimized our marketing campaigns, allowing us to keep a stable revenue of EUR 14.5 million and at the same time, reducing the marketing expenses by more than 1/3 from EUR 3.3 million to EUR 2.2 million in 2024. And in line with our strategy of higher price points and more profitable customers, here, we have increased the average revenue per piece by 12% from EUR 91 to EUR 102 and improved the revenue per customer significantly by 24% from EUR 224 to EUR 278. So our web business is currently working with a smaller number of customers, a smaller number of pieces, but much more profitable customers and much more profitable pieces. And some of these KPI developments that we can see in the web business are also at the core of our restructuring program that we executed on 1st April this year. The program that we have also presented 4 weeks ago is based on 3 main pillars. And the first 2 pillars, as you can see, can be grouped under the strategy of our transition towards automated and AI-based shows and AI-based platform. We reduced the live hours from 15 hours per day to 10 hours per day, and we successfully switched the 5 hours per day to our fully automated video shows run by our Game Reward platform. The second pillar in the middle shows that thanks to the development and digitalization and the increased use of artificial intelligence in all areas of our company, less overhead functions and positions in different departments are needed, and this increased efficiency and allowed us to reduce overhead costs significantly. And finally, on the right side, the third pillar describes our product strategy, focusing on more profitable price points above EUR 50, allowing us to increase the profit per airtime minute and to reduce the number of pieces sold and accordingly, all pieces-related costs by 40% on a yearly basis versus 2024. So in summary, this program lays the basis for an accelerated and profitable growth of our digital nonlinear AI translated and automated shows in Germany and internationally. And now we would like to give some lights on the first results, the first 4 weeks after the execution of this restructuring program compared with the time before 1st April. And here, we see in the chart on the left side, the development of the average revenue per piece. As planned, the revenue per piece is increasing and is quite dramatically increasing in April 2025 to EUR 94. We decreased the number of pieces sold with a price point below EUR 50, as you can see on the right side, by 57%, and as calculated and planned, the effect on the gross margin of this decrease was only minus 16%. So we see that we have successfully reduced prices and pieces-related costs with only a limited impact on the gross margin for below EUR 50 product. Thanks to the release of automation features for our platform and in general, the impressive speed and development of artificial intelligence, we have been able to bring us in a position to increase the platform efficiency in a significant way. And on this slide, we would like to give you some examples of automations and implementations of AI. For example, within the marketing material, newsletters that get generated automatically, article text, product pictures, but also in our technical departments, QA processes, data checks, code checks, the pricing, the product planning, the product strategy. Of course, our fully automated game robot shows that we use on our multi-language platform, but that we also use in Germany to play and use already existing video material, automatically AI-generated video trailer, et cetera. And to visualize this and to give you an idea about AI, we've included an example, beauty shots on the input side, you see the ring with a white background. That is the original image and the only input for AI from which AI has generated the 4 beauty shots you can see on the right side, showing the ring from different perspectives in different ways, also run on the hand. And I think it's quite impressive to see what AI can do. The reduction of live hours and pieces sold and the implementation of AI in many areas of our business allowed us to execute a cost-saving program with a volume of EUR 5.9 million on a full-year basis versus 2024. And more than half of the EUR 5.9 million comes from reduction in personnel cost. On April 1, as presented four weeks ago, we reduced the number of full-time employees by nearly 50 FTEs. The personnel cost savings can be split into two main parts. Part 1 is personnel cost reductions related to platform efficiency improvements. So for example, the switch of 5 hours per day from the live TV program to our game robot or what I just presented, everything related AI. Part 2 is personnel cost reduction that was directly related to the number of pieces sold, for example, in the warehouse, where many tasks are simply pieces related in the merchandise, in the QC department, in customer service, et cetera. So we have many departments that have pieces-related cost. Also, we reduced costs in sales and marketing, of course, with the reduced amount of below EUR 50 product, we will also have less marketing costs for these products. And we have cost reductions in other fields such as payment expenses, telephone platform costs, et cetera. So in total, a very substantial cost saving program that has been successfully executed on 1st April 2025. In terms of SG&A expenses in percent of the revenue, we can see here on this slide, the development from 2023 to 2024 and the accelerated improvement after our further restructuring program in April 2025. In '23, the share of the SG&A of our revenue was 56%. It decreased to 52% in 2024. And on a full year basis, we expect the cost decrease -- the share of the cost of only 46%. So here's an overview on the main KPIs regarding the performance of the first weeks of our restructuring program, comparing our planning and assumptions that we presented to you 1st of April with the actual data of the first four weeks in April. And as you can see, the decrease in pieces is exactly in line with what we have planned. The target was a decrease of 40% and currently, we are at 41% decrease. For the revenue, we planned with a decrease of 14% and currently, we are even slightly better with revenue decreasing only by 13%. Regarding the gross margin, the high price points for gold and silver are still putting pressure on our prices. So here, we are a bit below our planning, but we expect to be able to pass on the price increases to the customers throughout 2025. As for the cost measures, we have been able to execute everything in time and exactly as planned. And overall, we are relieved that our strategy is working, that our assumptions have been confirmed by actual figures and that with this restructuring program, we have successfully paved the way for a return to profitability in 2025. And for the upcoming months, we are planning with a positive adjusted EBITDA. Now I would like to give you an update on our AI-based internationalization platform. So the multi-language platform that records existing German live TV shows and then translates it and adapt the show to all foreign languages and finally, distributes the local language shows internationally via our game robot. We are happy that despite all the challenges in the market and also the limited financial resources we can invest in this major Juwelo 100 project, we continue to be on a good track. The growth rate of our international channels in Spain and Italy improved from 11% Q3 2024 to Q4 to 18% from Q4 to Q1 2025. And in Q1, as you can see, we reached a 12-month run rate of about EUR 1 million. Also, it's important to say that this number does not include France. Here, we decided to terminate the TV reach in France as we expect to get a better return on investment with new additional reach in Italy and Spain. And in fact, in April, we launched a 24-hour TV reach in Italy on satellite. And of course, we have to wait some weeks to get meaningful figures, but first data looks already promising. The next new country will be Poland. Thanks to the multicurrency back end coming from Jooli, we are now able to process also foreign currencies such as zlotys, and we will implement this with the launch in Poland. And also, we are planning to start distribution in the Netherlands in 2025. We are happy to report that the customer lifetime value, so the accumulated gross profit per new customer over the time of our international customers is growing very nicely, as you can see in this chart. In the first month, the international new customers makes an average gross profit per customer of EUR 94. After only 6 months, thanks to continuous purchases of the customers, their customer lifetime value tripled to EUR 294 gross profit per customer. So this means that we have a great customer retention. Customers like our international AI shows, they are loyal and they come back on a regular basis. Moreover, to show you the relevance of this data point, if we compare the development of customer lifetime value of our international customers with the lifetime value of the German TV new customers, after six months, the international customers are outperforming the German live TV customers. So this gives us a great basis to grow revenue and gross profit, not only with new customers, but also with our existing customer cohorts. With our international channels, we are currently reaching only 24% of European households. So the growth potential continues to be very high. Of course, our financial resources are currently limited. So we have to be careful with our investments. And as we have also announced, the #Juwelo100 target will be postponed by up to three years. However, the strategy of #Juwelo100 remains the same and the internationalization remains a core pillar of the strategy.

Good morning to everybody. Let us come to the financials and take their look. So overall, we have a decrease in revenue by 4.4%, mainly driven by the low consumer sentiment. We also have a decrease in gross profit margin by minus 9%, which is mainly driven by the higher and increasing gold and silver prices. So overall, gross profit went down by 10.1%, driven by the lower consumer sentiment and the increased cost. The SG&A expenses, they went down by 7.8%, mainly driven by marketing cost optimizations and lower reach COGS. Overall, this resulted in a decrease in adjusted EBITDA to minus EUR 113,000. Let us take a look at the bridge from EBIT to adjusted EBITDA. We start with an EBIT of minus EUR 3.2 million. We have depreciation of roughly EUR 700,000, which results in an EBITDA of minus EUR 2.5 million. Overall, the currency effects are at EUR 23,000, the stock options program at EUR 62,000. Research and development of Jooli amounted to EUR 1.4 million and adjustments of legal and consulting fees driven to legacy result in an adjusted EBITDA of minus EUR 813,000.

Okay. So let's come to the outlook for 2025. As we have said in our call only 4 weeks ago, elumeo has in April 2025, gone through the most substantial restructuring that we've had in the history of the company. And if we look at the financial results change that this has produced, this has also been the most drastic and most fast company turnaround that we've had so far because essentially, after a still negative Q1 2025, we are looking towards more or less adjusted EBITDA breakeven, slightly negative Q2. And then going into Q3 and Q4, we will see that these quarters will produce again, positive adjusted EBITDA. I have to note that there will be no further adjustments for our project Jooli because Jooli has now been fully integrated into the platform of Juwelo, and therefore, there is no basis for an adjustment anymore. What we are going to adjust in 2025 is the restructuring cost of the program that we have initiated in April so that investors will have a good perspective on how the company is doing throughout 2025 and also what the perspective for elumeo is going to be going into 2026 when we will see the full effect of all of the cost measures in Q4 2025 and then going forward in 2026 as a whole. So as I said in the beginning, it's hard to say in a situation like this that we are happy to report anything because the environment in which we are currently operating, in particular, for somebody who's selling a luxury product like jewelry is really quite challenging. I have been doing this business now for 20 years, and I cannot recall any time during which we have had such harsh market conditions. You may note that slightly after we launched our business in 2006 and 2007 and 2008, there was the financial crisis, which also had an impact on our business, but that impact at that time didn't come anywhere close to the impact that we have seen throughout this time. I have to say that I am really, really thankful for the entire team at elumeo, which has done a tremendous job, in particular, in this restructuring, both the people that have left the company, but also the people that have stayed that have been very loyal to the business and have been really working very hard throughout April to deliver the results that we have seen so far with this level of workforce. And just one other thing that might show you how loyal our employees are we have terminated 62 people throughout the cost reduction program. And out of these 62 people, only 15 so far have brought this case to court and said that they would like to challenge this legally. The time in order to challenge this in court has lapsed. So we assume that these 15 cases are going to be the final cases. So this is less than 25%. And this shows that even the people who have lost their jobs and who are unhappy about this fact have been loyal to the company and have said, okay, we would not want to put an additional burden on the company and we would like to do whatever we can in order to help Juwelo move forward, which is obviously also going to help us with the cost of restructuring because we will have to pay less severance payments. So this was the total presentation that we wanted to show you. We are now open to take any of your questions. And as always, my colleague, Boris will open your microphones once you raise your hands. Mr. Frey.

Good morning, gentlemen. I can see you. Sorry, you can't see me. Well, probably we'll start with Mr. Boye comment on, can you hear me?

Yes, I can perfectly hear you.

Just the light on my mic was not on, so that irritated me. Well, the 15 employees, which only challenged the termination of their contracts, that's certainly a positive. And can you give us a flavor on what level of restructuring costs you are calculating for the overall program? And how much, how would you rate the certainty of the expense level?

Yes. In the very beginning, when we launched this program, we calculated with EUR 850,000 in total restructuring cost. That is something that we published also in March when we said this. At the moment, we believe that we are going to stay below this. There is 2 aspects to this that I would like to point out. There is one legally unchallengeable cost, which is the cost that we have to continue to pay to the employees that have notice periods. The longest notice period that we have ends only in October. And obviously, this is a contractual obligation that we're going to honor. So we're going to pay these salaries. That is something that we cannot work with. And then there is the other half, which is severance payments, which in general, legally are not an obligation in Germany. That is something that you can agree upon with the employee that has left the company, and that is the other half of the calculated restructuring cost. And on that front, at the moment, we are hopeful to stay somewhat below our total expectation. So we're very confident that the initial expectation that we have set to be in the region of EUR 800,000 to EUR 900,000 is something that we are going to be able to meet.

Sounds good. And another aspect, obviously, of your restructuring program, the change to automatically generated shows. You didn't show now a slide how that impacted your revenues, but I guess you're only able to measure that in terms of overall revenue performance. So I assume this minus 13% revenue you showed for April amulgates everything in terms of changes.

Correct.

Is it fair to say then that the loss from the automatically generated shows is substantially below this. I think you said a maximum exposure, something like 19% of your time. So how...

Yes. There's actually 2 effects. There's the effect of the automated show and then there's the effect of the changed product portfolio. And the change of the changed product portfolio is more significant than the loss of revenue based on the automated shows.

Yes. moderators that they still outperform the automatically generated shows.

Well, they would have to outperform themselves, which is easy because one time, it's their first time and then it's the rerun. So if they don't outperform themselves, then I think that would be really tricky. But we take the hint. It's not long until we are going to report on the Q1 numbers, and then we can try to shed some more light on that so that you have a better understanding of what this effect is.

Right. And regarding the margin impact you mentioned of the changed price structure. Is that calculated based on the absolute loss of gross profit of these pieces? Or have you put everything together in that number? I think Page 14. Yes, one. I guess Page 18 is everything and Page 14, where you just give the 57% decline, that's only for these.

Exactly.