Q2 2026 Azerion Group NV Earnings Call
Speaker #1: Good afternoon, everyone. I'm Sebastian Mussmann, the Chief Strategy Officer at Zerion, also acting CFO of the group at the moment. And I'd love to welcome you to Zerion's H1 and Q2 earnings call.
Speaker #1: Where I will take you through the highlights of our first half-year, of course, and provide some background on the numbers, developments, as you're used to from us in these calls.
Speaker #1: With me today I have Alexander Cox, our Head of Strategic Finance.
Speaker #2: Hello.
Speaker #1: And Kira States, who's managing our investor relations.
Speaker #3: Hello, everybody.
Speaker #1: As you also used to, I'll do most of the talking, but they will pitch in whenever that's necessary. Before we start, though, I'd like to take a moment to acknowledge that disclaimer: next slide, please.
Speaker #1: And also the forward-looking statements. On the following slide. All right, let's start. With the next slide. All right, before we dive into the real financials, let me start with our view on the current market for a couple of minutes.
Speaker #1: The first half of 2026 has been a half-year where many companies in our industry have been reorganizing themselves based on circumstances, like AI changing the world, certainly also having an impact on the advertising business.
Speaker #1: Economies in general that are in questionable state. Where the growth, if there is any, is actually often generated by very small group of global high-tech companies.
Speaker #1: And so what looks solid from the outside often feels very different on a smaller individual level. And this certainly also true for and has impact on the advertising industry.
Speaker #1: Zerion hasn't so much as had to reorganize itself like that. And because of those conditions. But we have been getting ready, if you want, for almost 3 years now.
Speaker #1: We've seen the need for efficiency, the opportunities of AI, the fragmentation in Europe, and the speed of the giant global tech companies. We've worked hard these years to create a company that flourishes in these conditions.
Speaker #1: That meant cost saving throughout the organization, integrating machine intelligence where possible, divesting from non-core activities, cleaning up the balance sheet, and focusing more and more on the health of the core operating business of advertising.
Speaker #1: We've been cleaning up and improving many aspects of our business one by one, and that gives us currently an excellent position to grab the opportunities in the market, while not being hit too hard by the volatility arrivals.
Speaker #1: I'll explain further in a minute, but let's start with the group's financial results for the first half-year on the next slide. Yes, please, one more slide.
Speaker #1: We are and constantly improving. That, for me, is the bottom line. And a great one at that. EBITDA operating profit, net profit, all the profitability metrics are better than they were last year round, and most of that is due to the very disciplined cost control that we've been running.
Speaker #1: And at the same time, our Q2 revenue in the advertising segment contracted a bit year on year for the first time. I'll explain more around this in the advertising segment overview, but as stated before, market conditions are not easy on most companies, and some of those companies are obviously our clients.
Speaker #1: Next slide, please. When you look at the results over time, this is the picture. As said, all bottom-line metrics improving compared to the first half-year of every previous year, basically.
Speaker #1: We've been focused solely throughout all of this time to create a healthy platform, which would allow us to grow profitably point now. The EBITDA and the adjustments here warrant a bit of a deep dive.
Speaker #1: Adjustments are mostly the cost of integrating previous acquisitions into a Zerion. And as we are doing less acquisitions in recent time and focus more on organic strategic partnerships, we also see the projects of integration slowly coming to an end.
Speaker #1: And that's reduces also the related adjustments every quarter. EBITDA has increased in H1. Even with the revenue at a slightly lower mark. And that means we keep improving our efficiency still.
Speaker #1: But, and this is on the next slide, an important item to call out is FX. If you want to know the underlying improvements of the operation, we should exclude realized and unrealized FX gains and losses, which we've illustrated in this graph here.
Speaker #1: Last year, H1 had a positive contribution of that of 4.5 million almost, while this year it's a negative of 0.9. So if you normalize for those effects, EBITDA would have grown from 11.2 to 18.9, almost 70% improvement in operational performance.
Speaker #1: Not that we want to sort of restate or be proud about it like this. We already grew the EBITDA with 20%, but this gives you a bit of an underlying insight in the real operational improvements and the cost saving that we did.
Speaker #1: Also, on the next slide, we didn't just improve the operational performance. We also made quite a bit of movement in some core balance sheet items.
Speaker #1: That also gets us into a much healthier position. Interest costs went down, amortizations went down, and we used our cash generation to lower the short-term factoring debt as well.
Speaker #1: So outside of the operational performance on a group level, also a lot of cleaning up on the balance sheet. Next slide. A slight you'll recognize if you've been with us for a while.
Speaker #1: We use this for many quarters. To show the visualizer to show the efficiencies in the operation, and yeah, we now report to basically an all-time low on the OPEX as a percentage of revenues.
Speaker #1: Even as the revenue contracted a bit on the LTM basis. The next slide actually hides that highlights that effect even better. The revenue per FTE in Q2 is now highest it's ever been.
Speaker #1: The number of people needed for this level of revenues has decreased tremendously since 2022. If you look at all the way back, we were close to 1,500 people doing almost, let's say, not half, but two-thirds of that revenue.
Speaker #1: So even with the contractions on the revenues, we are in a super healthy position now. Growing from this position will not need excessive investments in OPEX, and therefore most additional revenue has a higher net margin than we are currently reporting.
Speaker #1: And that's why. Stage. Mid-term guidance on adjusted EBITDA percentages is still solid. So all in all, a very positive quarter where we kept improving the bottom line of the group, even while markets are under pressure and our revenue was slightly lower than last year.
Speaker #1: So then on the next slide, to the segment reporting. We previously reported the premium game segment next to the advertising, but as you will know, we divested from most all entities in the premium game segment and also discontinued that business.
Speaker #1: Until now, we tracked the discontinued part in our reporting, but we moved the results of the discontinued out of the reporting into the net result of the discontinued operations in the P&L.
Speaker #1: As we're winding down and selling the last pieces of that business. Subsequently, we will report the AAA game distribution now as a separate segment, in which I will dive a little bit deeper after we talked about the advertising.
Speaker #1: But coming up for sure at the end of this presentation. So let's start with the financial highlights of the advertising platform in the next slide.
Speaker #1: The advertising platform results yeah, they really show two different angles today. On the one hand, our bottom-line metrics are really positive and promising. We adjust less because we're doing less acquisitions and the previous acquisition integration costs are coming down as we roll off this projects.
Speaker #1: EBITDA and operating profit are improving significantly for the half year because we keep reducing OPEX. And we keep simplifying the organization. And as you can see in the next slide, just as with the group results, of course, our EBITDA grew 20%, but that was still including the FX effects.
Speaker #1: So if you were to normalize it just as I did a couple of slides before on the group level, the operational performance in the advertising actually went up with 56% year on year.
Speaker #1: All in all, that means that we are extracting more and more from the same revenues. And when we grow this revenue, we will do it at a very healthy margin.
Speaker #1: That we have guided to as a mid-term margins. On the other hand, if you look at the next slide, revenue in the segment contracted with 10 million, and this is the other side of the segment.
Speaker #1: We see this as a consequence of the current market conditions. I've tried to set out, let's say, the reasoning behind it in the next couple of slides.
Speaker #1: First, although advertising in general grows at a healthy rate, and it will do this for a long time since marketing is increasingly about the fee of promotion, the growth rate is not equally spread around all types of advertising.
Speaker #1: And also not nicely linear through quarters or months. Big brands feel the effects of the economy, wars changing consumer behavior towards content, AI and advertising in general.
Speaker #1: They are looking for ways to optimize their spend. Pay less, do less, get more. And this is what the big tech companies are promising them, and the market feels the power of that tool towards these big global walled gardens.
Speaker #1: AI is also dominated by the same few companies. And so publishers feel their visitors leaving, and agencies feel the pressure of AI creating the ads, building the plans, and operating the campaigns.
Speaker #1: At the same time, we see the pull for local and authenticity. Consumers trust proximity. They trust authenticity. And more and more budgets will move towards local.
Speaker #1: We put, by the way, some public statements from, let's say, colleagues in our industry along the bottom here. Just so you get a feel of not just what I'm telling you here as, I don't know, advertising oracle, but that you can see that many more in our industry are saying similar things.
Speaker #1: These market conditions in the next slide also mean that our primary partners in markets are looking for the next step, for solutions, for alternatives, they are redefining how to add value to their customers in the AI era.
Speaker #1: We see big giants like WPP reorganizing and centralizing activities. We see big agencies like OMG and IPG merging to create skill and to find synergies.
Speaker #1: We also see smaller agencies struggling to remain relevant. While also trying to make a living, of course. And again, our peers confirming these observations in their own client bases at the top.
Speaker #1: At the bottom here of the slide, sorry. This is not new per se. I mean, AI is there now for quite a couple of years.
Speaker #1: We saw it also. And at this area, this is why we said end of last year that although volatile markets are a threat in a sense, they also come with lots of opportunities.
Speaker #1: In our Q1 earnings call, we discussed our strategy to reach out to four specific partner types. To see if we could work closer with them and provide them with the backbone to run their companies more efficiently on our platform.
Speaker #1: And in the next slide, we see that supporting smaller agencies and specialists is really a great opportunity because these companies are struggling and they're looking for partners that can help them clean their organization from expensive tech overhead.
Speaker #1: We also see the opportunity to provide our products for an SME market where we broaden the product and the service from, on the one hand, the biggest agencies, but now also all the way to the other end to very small agencies and even SME companies.
Speaker #1: And that, in total, hedges the effect a little bit of one client group like big agencies affecting us much. And on the publisher side, we see the opportunity to bring similar efficiencies and technology and hosting to them as well, of course, as they see the traffic to their publications reduce because of AI.
Speaker #1: In all four areas, we're making good progress. We've contracted candid and fanatics on the agency and specialist verticals. We've already prepared our in-ear participation through Flavus to support the SME.
Speaker #1: And our multi-cloud offering has been steadily growing, adding more and more publishers to our infrastructure. Fanatis is a specialist in gaming advertising. They will build their entire business on the Azeri platform going forward.
Speaker #1: And similarly, together with candid, which is a touch-based media agency, we will expand and grow their hyper-local and trading offering to the markets. Both companies can now focus on their core business of selling their product to advertisers.
Speaker #1: And we take care of all the technology and clearing. These partnerships are not acquisitions. They're basically new customers, albeit significant ones, as they move their entire annual revenues through our platform and start building their business on it.
Speaker #1: This is the way that we anticipate significant growth we'll be achieved in the next 12 months. There really is a lot of interest from the market in our solutions.
Speaker #1: And we are keen on partnering with those kind of companies to make both our businesses better. And on the next slide, in the meantime, we also see that momentum is coming back with the current client base.
Speaker #1: We've improved our product launching more AI-integrated tools. We partnered with the likes of Spotify and Westfield Malls. We struck exclusive deals with suppliers in the digital outbound space.
Speaker #1: We're increasingly recognized as a solid partner in digital advertising. And the new release of our AI-enabled SME tools are getting traction on France and big publishers find their way to us to integrate our advertising and gaming solutions in their publications.
Speaker #1: We see the agencies coming back to us in Q3 as well with renewed interest and our direct client offering is also picking up. All in all, we believe Q3 is recovering and Q4 will be very positive.
Speaker #1: And we'll make up for the revenue shortfall in the second quarter. While the previous cost savings in the end still will boost the full year bottom line.
Speaker #1: So even though we are a little bit more careful on the revenue side, the same revenue will generate a much higher bottom line for us than it did in 2025.
Speaker #1: So that's on the advertising. Then next slide, we move on to our new segment, AAA game distribution. It has been with Azerian for many years.
Speaker #1: And so as an investor, you will very likely know what it is all about. But let me take this opportunity to summarize again what business this is and how it works.
Speaker #1: So AAA game distribution is the business of selling PC game keys to resellers and consumers. That means we acquire the right to sell a key for a big game from, for instance, Sony, Microsoft.
Speaker #1: And then our platform allows the distribution of those keys to resellers in markets that sell to consumers. Such as Amazon or PlayStation or App Bar or our own Voodoo store.
Speaker #1: Consumer goes to a shop like that. They buy a game key. And without them knowing it's Azerian powering that transaction, by the way. But then they activate the key on their PC through a platform like Steam.
Speaker #1: We make sure the keys are safe from fraud and the publishers and the retailers can enjoy the transaction as a service rather than that they have to go strike deals one-to-one between a game developer and an online retailer.
Speaker #1: This is the core business of our Gemba platform. And then as I said, we also own one of these retailers that's our Voodoo business.
Speaker #1: So that's the actual store that you go to to buy the game keys. And together with Gemba, they form our AAA game distribution segment.
Speaker #1: Revenue in this segment is largely reported net, by the way, as we pass through the margin as revenue. And therefore, you can imagine the significant volume we're representing in the game key market as Azerian.
Speaker #1: Financially, on the next page, the segment has grown both in the second quarter and the first half year with a steady 7-ish percent port increase.
Speaker #1: Growth and volumes in AAA are very dependent on big game publisher releasing titles, of course. You can imagine if a big game comes out for the PC, that that drives sales.
Speaker #1: So quarter on quarter or year on year comparisons are a little bit less constant than they are in advertising. On the next slide, we do again the bottom line Tabita and operating profit display here.
Speaker #1: It goes down a little bit, but it's in this case almost all related to the effects that we described twice now. So especially in this AAA game distribution, the 1.4 drop in EBITDA of that actually 1.3 was attributable to that effects balance.
Speaker #1: So the underlying business actually performed almost identical year over year if you normalize for that effect. Just to show that steady performance over time this is the multi-year revenue and EBITDA.
Speaker #1: Then on the next slide, advertising, maybe you think now after this little AAA conversation, advertising and AAA game distribution, are they not very disconnected?
Speaker #1: But they're not. Game developers have significant advertising budgets, which they deploy also with Azerian to promote those new titles. And on the rebound, many games nowadays feature advertising in them.
Speaker #1: So if you think about a Formula One or a soccer game, the ads that you see around the tracks and the pitches are displayed and sold with the same technology that Azerian uses to distribute other digital advertising.
Speaker #1: So we are each other's clients, you could say. The game developers and the advertising business. And therefore, as a reseller platform, we are even more interesting to those partners than just delivering the infrastructure to distribute the keys.
Speaker #1: So there you have it, increasing bottom line for the group and even more so if you normalize for FX effects. But at the same time, a decrease in Q2 revenues in the advertising segment, which we are confident we can make up for in H2.
Speaker #1: But at the same time, we're careful not to overestimate our top line in the current markets. So that brings us to the next slide, the outlook and the last slide.
Speaker #1: And it's why we are a little bit more careful for the second half of the year in the guidance. We see momentum returning. We see the strategic deals picking up.
Speaker #1: But we still need to make up for Q2's shortfall first in a market that's still very volatile. And therefore, we reduced our guidance on revenue from the 10% that we communicated at the beginning of the year to stable versus 2025 now.
Speaker #1: And as said before, our cost saving programs will still improve the bottom line results even if the revenue is stable. It will be a significant improvement at that.
Speaker #1: Yeah. So with that, I think this was the last slide. I hope the presentation has helped you understand the numbers a little bit better.
Speaker #1: And we will now open it up for questions. We will now move into our Q&A session if you would like to send a question through, please type it in the ask a question tab at the right-hand side of the player I will now hand over to Sebastian Moseman for written questions.
Speaker #2: Yes. So let's dive into that. Right. So we got a couple of questions. One is that Meta just reported a 28% ad revenue growth driven entirely by massive AI investments.
Speaker #2: So yeah, how can Azerian possibly compete with big tech's AI war chest? It's a good question. I think the big Americans, as we said, they have four quite a couple of years now invested heavily in the performance game, if you want.
Speaker #2: So you can see also that they're PR states that they're conversion of the ads has increased by 15%, meaning more people click on the ads that they show.
Speaker #2: That is all in a performance phase. Azerian is not really in the performance marketing business. We are more in the branding business. And I think there is a big opportunity and future there because if you think about it, big brands will have to be known in the market by consumers for them to buy it.
Speaker #2: AI will increasingly provide, let's say, also the procurement for individuals. So I don't think if you. The agent that runs your procurement, if you let the agent buy, let's say, your sports shoes or your groceries, then AI will not click on performance ads.
Speaker #2: So I think in the future, this whole focus on cost per click and conversion is will move slowly back into branding. And branding is more about audio advertising.
Speaker #2: It's more about out-of-home advertising. And this is where we are strong and also improving and growing. The outdoor ads that are increasingly digital and we represent more and more of that space.
Speaker #2: That's why we are very proud with this Westfield Balls partnership that we struck in France, where we exclusively represent all of the shopping malls, the physical shopping malls, screen and audio inventory for sales.
Speaker #2: Because that's where I think in the future, a lot of the opportunity lies local and branding. So we're not trying to compete with Meta on that space.
Speaker #2: Let's see. What's driving the accelerated factoring paid on? And is it discretionary or vendor driven? I think we had when we published our annual accounts, we found that at the end of the year and also the auditor came into that point that we had a significant I think it was close to 50 million short-term borrowing there.
Speaker #2: And they there was just a lot of focus on it. And it was the result of, let's say, the operational and also very manual relationship between us and the bank on the non-recourse factoring.
Speaker #2: So we just simply said, okay, let's pay attention to this and clean it up, basically. So over the course of the next couple of months, we simply reduced that number heavily by paying a lot of attention to it.
Speaker #2: And we used the money that we generated in the first half year to finance that paydown. So it was a I think it's good.
Speaker #2: It's healthy. And we should. So now it's back down to a very reasonable number. What's your view on the Q2 advertising market softness? And is it temporary or a real dynamic that will continue?
Speaker #2: Yeah. So this is exactly why we are a little bit careful right now. I think on the one hand, we see temporary elements of it where we see that everybody sort of adjusting to the situation, but it also means that once adjusted, they come back and start spending and working again.
Speaker #2: So that's the temporary side. There's also maybe a longer-term side where as Meta said, if we're talking about performance marketing and AI, they get better and better at it.
Speaker #2: And that means that those kind of budgets might be for, let's say, for a real dynamic that is out of play for a longer time.
Speaker #2: We're not in a particular space, but there's parts in there which are structurally affected by AI. And there's parts that are not. For us, it's not that we are affected.
Speaker #2: We are using the AI to really get more efficient. But if you think about an agency that earns its money by selling hours to create the media advice for a big client, yeah, you can imagine just as within lawyers, etc., that those advice hours are going to be worth less when the AI are capable of bringing in similarly good advice.
Speaker #2: So it's a mix. AI will disrupt every industry and all markets. But some more than others. I think our business itself is not really hit, but helped.
Speaker #2: But our clients are really finding a new way into that whole area. Someone is asking if we can say anything about Q3, but of course we cannot.
Speaker #2: But we do, as I said in the presentations, we do see the big agencies coming back to us for, let's say, the rally towards the end of the year.
Speaker #2: It's pending. And we also see these strategic deals that we struck with Fanatis and Candid. They start now. And so we did not enjoy any effect of that in Q2.
Speaker #2: But for sure, these revenues and margins on those deals will come into effect in the second half of the year. So we're looking really forward to that.
Speaker #1: Let's see.
Speaker #2: Right. Then what's the commercial rationale for holding a 35% stake in Blavis? Well, maybe do you want to take it, Alex?
Speaker #3: Yeah. So here we still fundamentally believe in the value proposition and strategic alignments of being involved in SME publishers. Such as in Europe. However, direct ownership no longer aligns with our current corporate structure.
Speaker #3: You can see we're cleaning up quite recently. So with the Flavis transaction, we can still remain involved with agreements to provide technology, AI, and advertising solutions to their portfolio in future.
Speaker #3: And then obviously, as we work with Flavis, it's our hope that they grow from strength to strength. And as their portfolio expands, so too does our associate benefit, both through providing the services, advertising, and AI, as well as through our ownership stake.
Speaker #3: So it's a restructuring and still maintaining the benefits.
Speaker #2: Good. Thank you. Thank you. Then I think Daniel posted a question on AAAK distribution margin. Can management provide the FX adjusted apples to apples?
Speaker #2: I think that's what we did in the slides, if I'm not mistaken. The question on the delayed completion of premium games disposal. So I mean, we discontinued it within the last 12 months.
Speaker #2: And we are actually so close to completing that that we also find, and that's what's in the numbers, that we also find that we needed to impair the current book value with 3.4, 3.6.
Speaker #3: 3.6.
Speaker #2: 3.6 million. Because we are so close to divesting from the rest that we are more and more clear on the valuation of that. So it is happening, but it was slower than expected because last year we had a very clear buyer lined up, but the ultimately couldn't complete the transaction.
Speaker #2: So we had to find a new buyer, but we did. So yeah, it should be close, but it's between not being signed. So it's not sure.
Speaker #2: On the other hand, we do see the valuation in the market going down, and therefore we impaired the book value on that bit. Let's see.
Speaker #2: Others here. I think most of the other ones are duplicated. So I think with that, we covered most of it. So yeah, I think that's it then.
Speaker #2: Thanks, everybody. Very much for taking the time. And again, we'll probably see you in another quarter. And then I can present to you how we moved from the shortfall in Q2.
Speaker #2: And how we're doing in recovering that revenue. So looking forward to talking to you then. And in the meantime, I wish you all a very good afternoon.
