Good afternoon, ladies and gentlemen, and welcome to CLIQ's First Quarter 2024 results presentation. My name is Sebastian McCoskrie; I'm CLIQ's Head of Investor Relations and will host today's earnings call. Our CEO, Luc Voncken, will present the strategic and operational highlights of the quarter, and Ben Bos, member of CLIQ's Management Board, will walk you through the financials. Afterwards, I will be reading out the questions you have kindly sent in via email. Please note the disclaimer shown, and this call is being recorded. The visual, audio, and/or transcription of this call may be published, including any of the data arising therefrom. If you have any objection, please disconnect at this time. Without further ado, I will now hand over to Luc, who will kick off today's presentation. Luc, the floor is yours.
Thank you all for your interest and joining us today for CLIQ's first quarter 2024 earnings call. Ladies and gentlemen, let me be frank: 2024 got off to a difficult and rocky start. But as you can see here, going forward, we expect our strategic initiatives to outweigh our challenges faced in the first quarter and make us a stronger, more efficient business in the future. But let's be clear: Rome wasn't built in a day. We already saw some weaker performance in recent quarters in 2023 and already flagged our approach to the de-risked group by growing our outreach and searching for and diversifying into new sales channels, our so-called Magnificent Seven. Future-proofing our business, I like to call it. In the first quarter, we saw the previously signed-up members churned to a much greater degree than originally anticipated.
96% of our sales are currently paid by credit card, and the credit card organizations have now more rigorous and widespread refund programs in place, which have simplified unsubscribing for members and consequently raised our churn rate. Ben will elaborate on this more in detail later on. With that, we also recorded less new high-value signups, resulting in members with a lower lifetime value. In part, this was also due to us now focusing on acquiring new customers via new traffic sources. As a consequence, we had to cut our customer acquisition costs per new member in order to safeguard our gross margin going forward. Unfortunately, time-wise, the effect from lowering the cost lacks the hit to the lifetime value. In addition, we had numerous special items that impacted the result this year. Again, this difficult backdrop, we posted a quarter of no growth.
This happens especially when you are changing something and you need to transform your setup, your organizational structure, to move forward. That's why we have initiated our group-wide transformation program called Fit for the Future. For me, the glass is always half full rather than half empty. I see this disappointing first quarter as a good starting point, and we can already see that there is plenty of light at the end of the tunnel. Nevertheless, we still need to be careful as we like to deliver and not disappoint. That's why we have decided to exercise a more cautiously optimistic view and revised our full year 2024 outlook. We now expect group sales in 2024 to range between EUR 300 million-EUR 330 million, and an EBITDA is now forecasted to come in between EUR 26 million-EUR 30 million.
Our total customer acquisition costs in 2024 are between EUR 120 million and EUR 140 million, but we still expect to achieve a run rate during the fourth quarter of 2025 to realize an annual revenue of more than EUR 500 million going forward. Ladies and gentlemen, allow me now to present to you some of our operational highlights. Our transformation programs have two defining goals: firstly, make us more efficient, and secondly, more productive. The first, cost efficiencies have already been generated in the first quarter with the closure of our UK office. The UK office was mainly responsible for single content streaming services, which, as you probably know, is a business area that is not in our main focus anymore. In addition, we decided to phase out and close down legacy systems in order to build a new single uniform tech platform to support all our operations and services.
Further cost savings have been actioned with regard to our corporate legal entity structure as well as to our global tech structure. Streamlining in combination with clear focus is key going forward, and this focus will also deliver productivity gains. We will intensify our online traffic and drive innovation-led processes, best supported by a streamlined organizational structure to launch new products and increase our reach and conversions, both in new regions as well as in our existing countries. The advantages from our new tech platform are numerous. We will have a way faster time to market for new streaming services and expanding into new countries as well as digital content warehouse to automate our content ingestion worldwide. At CLIQ, we always ensure that our content is attractive, fresh, and meets local tastes.
In the first quarter, we successfully extended numerous contracts with our content partners for sports and movies series, among others. Furthermore, for operations in the U.S., Latin America, France, and Belgium, we upgraded our libraries to include more well-known and star-studded movies and series. Content, and especially fresh content, is a real sales catalyst as it sparks the interest of the consumer. We are first and foremost marketers, and our focus is always on converting eyeballs into paid and profitable memberships. Let me now hand over to Ben to present the financials.
Thank you, Luc. As Luc already mentioned, sorry, gentlemen, let me first give you a warm welcome also from my side. Luc already mentioned our performance in Q1 was well below par and disappointing. Sales in the first quarter were down 12% year-over-year and by 30% quarter-over-quarter, as you can see here. The two main reasons for this decline were higher churn and a lower lifetime value. Members churned more in the first quarter than previously expected. This was, amongst others, due to a change in the way the credit card organizations enable refunds. Previously, refunds were less easy to apply for and receive depending on the respective country where the subscription took place. With this change, processing refunds by credit card organization has become easier and more widespread as a result. Our churn rate has increased.
This has impacted both our sales development in Q1 significantly and also the expected average lifetime value of our new members. The expected average lifetime value of a customer, the so-called LTV, was down quarter-on-quarter by 7% to EUR 81 due to the higher churn rate. So consequently, EBITDA in the first quarter fell below the EUR 10 million mark for the first time in eight consecutive quarters and came in at EUR 5 million before special items. The special items we have adjusted for are costs related to the group's transformation program Fit for the Future, which include the closure of the UK office and the hiring of additional contractors for technology integration and optimization, as well as for a group tax optimization program. Our EPS before those special items was down quarter-on-quarter by 62% to EUR 0.40. Let's go to the sales breakdowns.
So the short-term sales development is admittedly disappointing, but versus 2022, we have grown quite significantly as the arrows show. In the first quarter 2024, our bundled content sales totaled EUR 70 million and constituted 96% of our EUR 73 million of revenue. Year-on-year, as you can see here, the focus on bundled content remained strong. The London office, which was closed during the quarter, was mainly responsible for selling single content streaming services, which, as you can see clearly here, have been categorically reduced over time as part of our strategic focus. Geographically, sales in North America and Europe in Q1 2024 declined by 10% and 30% respectively. However, we recorded sales growth in Latin America and 103% growth in the rest of the world, with very strong sales in Asia following our market entry there at the end of last year. Now the income statement.
The income statement in the first quarter reflects the previously mentioned challenges we faced. Both cost of sales and operating expenses decreased or remained stable quarter-on-quarter, so the decrease in earnings is predominantly sales-related. Incidentally, the aforementioned higher churn rate also resulted in an increase in the other cost of sales form: increased refund-related costs. But in total, we were able to manage our cost of sales down. In Q1 2024, EBITDA before those special items we just elaborated on amounted to EUR 5.3 million, resulting in a margin of 7.3% compared to the 14% in the fourth quarter of 2023. The lower EBITDA margin quarter-on-quarter was mainly due to the decrease in sales.
The special items related to the group's transformation program Fit for the Future included the costs for the closure of the UK office and the hiring of additional contract workers for technology integration and optimization, as well as for the group's tax optimization program. On EBITDA level, the special items amounted to EUR 3.5 million and were adjusted mainly in the line items personnel and operating expenses. Bottom line, the profit for the period before special items came in at EUR 2.6 million, and EPS was EUR 0.40. Let's go to the customer acquisition costs. The biggest chunk of our sales are those customer acquisition costs. In the first quarter 2024, we spent EUR 29 million on acquiring new customers. Nearly the whole amount was directly allocable to new subscribers to our subscription service and thus accounted for and capitalized in the balance sheet as contract costs.
However, the main issue we faced in the first quarter was the higher than anticipated number of unsubscribing members. As you know, when a customer unsubscribed, the related total customer acquisition costs, or marketing spend as we call it also, are fully amortized. Therefore, the higher rate of unsubscribing also negatively impacted the customer acquisition costs for the period. Therefore, in percent of total sales, the CAC, the customer acquisition costs for the period, was higher quarter-on-quarter at 43% and reflected the tougher market conditions, which affected the higher than expected churn rate. Now moving on to one of my favorite financials: cash flow.
Due mainly to the lower EBITDA for the period, as well as a timing difference in payment costs by bank holidays at the end of the period, cash flow from operating activities during the first three months of 2024 amounted to -EUR 1.4 million compared to the EUR 6.5 million inflow in the last quarter of 2023. During the first quarter 2024, cash flow outflow from investing activities amounted to EUR 2.3 million compared to the EUR 2.6 million in the fourth quarter of 2023 and was largely related to payments for licensed content, as well as to investments in platform and technical developments. The operating free cash flow was thus negative at EUR 3.7 million against the positive EUR 3.9 million generated in the fourth quarter of 2023.
The cash outflow from financing activities was EUR 1.5 million and included the EUR 1.1 million cash outflow for the share buyback program. The net cash position at the end of the quarter was EUR 11 million. Now talking about the share buyback program. First and foremost, we will continue to proceed with our share buyback program. During the reporting period, the company repurchased around 65,000 treasury shares at an average share price of EUR 17.50, which equaled 10% of the maximum buyback volume and 1% of the total share capital. For your information, and following common practice, the share buyback program was suspended in the context of an annual general meeting between the 2nd of April until the dividend payment date of the 15th of April.
From the 16th of April onward until the 3rd of May, we repurchased an additional 46,000 treasury shares at an average share price of EUR 15.21. To reiterate, the buyback is effected by the stock exchange in Xetra trading of the Deutsche Börse AG and executed independently and without the influence of CLIQ by an investment bank commissioned by us. The bank makes its decisions on the timing and amount of the individual order placements. The buyback will return capital to CLIQ Digital shareholders of up to EUR 30 million in total. We can repurchase, therefore, nearly 650,000 shares in CLIQ. As part of our capital return strategy, we shall decide on a yearly basis to what extent and how capital will be returned to our shareholders in the coming years. Let's move on to the balance sheet. Have a quick look.
The total assets shrunk marginally to EUR 153 million at the end of the quarter, and our equity ratio remained stable at 67% against the 2023 year-end close. Due to the higher churn rate, we amortized more contract costs than we capitalized in the first quarter. As a result, the balance sheet value was reduced to EUR 47 million. The lifetime value of our customer base, our so-called LTVCB, which represents the future revenue expected to be generated by existing members over their estimated individual remaining lifetime at the reporting date, decreased disproportionately in the same period due to the higher churn rate. By the 31st of March, the LTVCB totaled EUR 136 million, representing our expected future revenue as of balance sheet item.
Compared to the EUR 60 million at the end of December last year, our net cash position at the end of March was EUR 11 million, which was after investing over EUR 1 million in buying back shares. So the cash position was negatively impacted by EUR 4 million of receivable payments, which were only collected in the second quarter. With that, I conclude my presentation of the financials, and I will now hand back to Luc to talk about our future. Luc.
Thank you, Ben. Ladies and gentlemen, allow me to give you some more insight into our strategic transformation and what we are doing to better future-proof our business. Despite recent setbacks, we at CLIQ are dedicated to further grow our company. Our growth comes from more outreach, more conversions, and more countries. Extending our sales channels and tapping into new traffic sources, as well as offering our members the payment method of their choice, are key to reaching our growth targets and paving the way to sustainable growth. Our transformation program Fit for the Future will help us to become more agile, more efficient, and more productive. We are fully engaged and fully committed to deliver profitable growth going forward. Ladies and gentlemen, CLIQ's focus on attracting eyeballs and converting these eyeballs into paid memberships is the core of our business model.
Previously, we relied predominantly on just one eyeball or better traffic source, namely Google Display. Today, we are extending our outreach and tapping into new exciting sales channels, which promise to deliver more eyeballs, high conversion rates, and favorable returns on investment going forward. Our go-to sales channel for many years now has been Google Display, a very successful partnership and one which has driven our multi-year growth strategy. However, in recent times, we have seen that the prices we have to pay in auctions for our display ad spaces have risen and remained elevated, especially in Europe. So we need to spread our wings, to tap into new traffic sources in order to increase our outreach and improve our marketing efficiency and ultimately our profitability, of course. In the past, we used to allocate around 90% of our marketing spend to the display market.
However, already in Q1, we have reduced that share to around one half and thus successfully reduced our dependency on this one single sales channel. The other half was channeled to search and affiliation. This switch comes at an initial cost, as the current lifetime value expected of newly acquired members from these sources is lower because we are still further optimizing the new sales channels. But let me explain a bit more about our traffic source search and affiliation. With search, potential new members are searching for specific content, which we offer like movie streaming. We bid on search keywords and many others, of course, which give the searches a hit to an article about the sought-after content. Incidentally, we also hook up or trigger new sign-ups with video, another one of our Magnificent Seven traffic sources.
Our partnerships with trusted affiliates enable us to further grow our outreach, and we have already gained very promising traction. Accessing portals like MyDealz in Germany via affiliate partners has proven to convert really well and forge win-win partnerships. All in all, we are progressing well with the Magnificent Seven, which is good news from a risk diversification perspective and creates a solid basis for future growth. For email and the other Magnificent Seven, we have laid the foundation to come to conclusive decisions in the next quarters. Our dependency on one sales channel was completely right at the time and delivered an amazing multi-year growth story with the respective setup. However, times have changed, and we need to transform the business into a multi-channel approach.
By doing so, we need to transform our group in order to deploy our resources more efficiently and more effectively, as well as be able to react quicker. We need to be Fit for the Future, and this is the name of our main transformation program. To ensure profitable growth, we have launched our Fit for the Future program. A streamlined organizational structure is essential for optimizing efficiency and agility and will ensure faster operational implementation and realization of our goals. A leaner structure and alignment enable faster response times to market changes, facilitate smoother coordination of activities, and promote a more agile but adaptable organization. Another pillar of Fit for the Future is the technical backbone change.
The new single uniform technical platform serves as the backbone of the company's operations, enabling seamless integration of processes, data, and systems across departments and regions, and fuelled currently also with a lot of artificial intelligence technology. A unified platform streamlines workflows, enhances data visibility and accessibility, and facilitates collaboration and knowledge sharing. By standardizing technology infrastructure and tools, the company can achieve economies of scale, reduce complexity, and improve operational efficiency. Last but not least, innovation is key going forward and critical for staying ahead in a rapidly evolving market. Innovation will be better embedded in the company's DNA to drive creativity and entrepreneurship. All in all, we will be more future-proof and return to sustainable, profitable growth with this transformation program in the very near future. And also important, we want to still have lots of fun and job satisfaction doing what we do.
Ladies and gentlemen, as you can see, we have not been idle and have achieved a lot, but operationally and strategically, we have laid down new foundations for future profitable growth and are taking CLIQ to the next level. Allow me now to speak about our company's outlook. As mentioned, we have decided to exercise more caution regarding our full year 2024 outlook and have revised our guidance accordingly. Hence, we expect in 2024 group sales to now come in between EUR 300 million-EUR 330 million. And furthermore, the EBITDA in 2024 is to range between EUR 26 million-EUR 30 million after customer acquisition costs of between EUR 120 million-EUR 140 million. We will continue to increase our content offering and focus steadfastly on conversions, which are key to attracting and acquiring new members. We will also further expand our business into new and exciting geographies.
Our mid-term sales target is unchanged and set to achieve a run rate during the last quarter of 2025 to realize more than EUR 500 million in revenue going forward. Ladies and gentlemen, thank you for your kind attention, and we shall now kick off our Q&A session. Sebastian, our first question, please.
First off, please note that we received many questions in duplicate and triplicate, so we shall only be answering these once. Our first questions today are from Bruno van der Krogt, apologies for my pronunciation, and directed to Ben. Why did you keep buying shares of the company while you must have known that the results were disappointing? When you didn't know that your results were so disappointing, then your financial reporting system is not in order. You seem to be surprised by the results. You didn't give any indication of disappointing results in the annual meeting in the first quarter. What's the reason for that? You gave an indication of the full year results. How can you give an indication of the full year when you have been surprised by the results in such a short time?
Do you keep going on buying your own shares, or do you hold your cash on your bank account because of the hard times you are in at the moment?
Well, thanks for your question, Mr. Bruno. Regarding our share buyback program, the program is being exercised independently and without the influence of CLIQ Digital by an investment bank commissioned by us. So the bank, in line with the applicable legal framework, makes the decisions on timing and amount of the individual order placements. This is the common way of handling share buyback programs in Germany for legal and regulatory reasons. Most importantly, this setup ensures compliance with the European market abuse regulations. Then, coming back to the Annual General Meeting, which we held on the 4th of April, was primarily helps to inform CLIQ shareholders of the results and developments during the year 2023. Information on current trading in 2024 reporting period was not the subject of the Annual General Meeting.
Regarding the surprise factor, as previously mentioned, we already saw some weaker performance in recent quarters in 2023 and reported about it. Nevertheless, the first quarter results were more disappointing than originally expected. The main reason for this was given in our presentation just now. We are confident and committed to realize our revised 2024 guidance and the mid-term target.
The next question was sent in by Joris Dorsman, and it's for Luc. Obviously, you are not happy with the current performance. What are you doing to get back to growth?
Well, thanks, Joris, for your question. We have two main approaches to get back on our multi-year growth path. Firstly, our transformation programs are geared to make CLIQ more future-proof. Secondly, our Magnificent Seven strategic growth drivers will provide new sales channels in order to grow our outreach and deliver more profitable conversions than previously with just one sales channel.
The next question is from Mehmet Bilgin Ezer. He asks two questions for Ben. The speculation following the company's announcement yesterday is very unfortunate. Previously, the company had announced that it would not pay dividends and would buy back shares to protect its investors. Yesterday, I guess you did not make any buybacks after this irresponsible announcement. Moreover, I learned that a broker had shorted about 1.5% of the shares. As an investor, I would like to ask, if not today, when do you plan to repurchase? Could this short transaction be an inside business?
Well, thanks, Mehmet, for your questions. But first of all, as just mentioned, we have commissioned the share buybacks to be conducted by an independent investment bank. And repurchases have been made daily since the dividend payment date of April 15th. The short interest in our shares is public information and reported in the Bundesanzeiger. In order to prevent insider information from leaking out, we have numerous measures in place aimed at safeguarding sensitive information, controlling access to confidential data, and fostering a culture of confidentiality and compliance within the organization. We limit access to sensitive information on a need-to-know basis and implement strict controls and user permissions to ensure that only authorized individuals have access to confidential data, such as financial results, strategic plans, or pending mergers and acquisitions.
All employees, contractors, and other relevant parties sign confidentiality agreements or non-disclosure agreements, so-called NDAs, that legally bind them to maintain the confidentiality of sensitive information.
Our next question is from Paolo Costanzo for Luc. How do you plan to increase subscribers and make them stay longer? Finally, how do you plan to create value for shareholders in the long term?
Thank you, Paul, for the question. Our growth plans were outlined, I think, in our presentation just now, which are expected to create value also for shareholders. With regard to your question regarding subscriber retention, we are not a streaming provider in the classical sense, and our main focus is on customer acquisitions and not on customer retention.
Another one for you, Luc, from Bruno Zahner. How much longer will your super company be around?
Well, Bruno, we have been around for over 20 years. If I look to myself, almost 23 years, successfully selling D2C products and services around the world with the help of performance marketing. And we fully intend to stay and grow this great company back to former strength and be joint.
Luc, Thomas Pieper asked a question relating to the cancellation of 0.1 million customers within one quarter. Is the refund program a glitch that allows customers to continue using the service free of charge, or are these really cancellations by customers who then no longer use the service? Is a fluctuation of approximately 8% per quarter a normal rate? Do other streaming service providers have similar problems?
Well, thank you, Thomas, for your question. I can, of course, only answer for my own company and not for other companies. But unfortunately, we have faced a higher churn rate of existing members. As mentioned during the presentation, this had to do with actual cancellations by members who are no longer using the service. The fluctuation in member numbers is the direct result of the unsubscriptions and the addition of newly acquired customers. Other companies using credit cards should also have been affected by these new programs, which makes it easier for consumers to ask for a refund. As we are direct marketers and used to relative high churn, the impact on our business is higher than previously anticipated.
A couple of questions for Ben from Carsten Thullner. Ben, due to the sharply reduced EBITDA in full year 2024, will this be accompanied by a higher burden on depreciation and amortization? And will you launch another share buyback program, or will the management board buy more shares?
Well, thank you, Carsten, for your question about the expected level of depreciation and amortization. We do see a slight increase in our amortization. The depreciation and amortization charges in the profit and loss account are EUR 0.4 million higher than in Q1 2024 compared to the first quarter 2023. This is mainly due to investments made in 2023 and in the first quarter of 2024. As mentioned in the presentation, we continue the share buyback program, which was resolved by the AGM of 2022. For an additional share buyback program, we need approval from the AGM. We cannot comment on management in general, but I personally bought end of February 3,000 shares and today even 1,000 shares again.
Benjamin Rademacher asks, what exactly led to credit card companies refunding customers more frequently than expected? Is this only affecting one subsidiary or the entire group? Was this a one-off event related to a specific CLIQ activity or the new normal? What steps is CLIQ taking to grow faster in Asia and Latin America? And what proportion of the Treasury shares purchased will be canceled, or when will a decision be made? Ben?
Well, credit card networks implemented programs of refunding some time ago in general. Previously, refunds were less easy to apply for and receive depending on the respective country where the subscription took place. With the current change, processing refunds by credit card organizations has become easier and more widespread. The implementation of these refund programs worldwide takes time. Only now, the full effects of these refund programs have become clearly tangible to the group's payment ecosystem. This affected clearly the LTV, the lifetime value, as a consequence of each member. As a consequence, we had to cut our customer acquisition costs per new member in order to safeguard our growth margin going forward. But unfortunately, time-wise, this effect from lowering the cost lacks the hit to the LTV.
To continue our growth in Asia and Latin America, CLIQ is searching and adding for more local content to be added to the service portals and used in our performance marketing campaigns to attract new members. The other subject, the shares bought back, shall be used to subsequently reduce CLIQ Digital's capital through cancellation and/or to meet CLIQ's dilution obligation arising from stock option plans. It should be noted that Treasury shares are excluded from the earnings per share and different distributions.
Billy Ho has two questions regarding the management board statements on the Q1 report. Firstly, you see the business recovering at present. Does this statement mean our 2024 Q2 fundamentals will be better or even very much better than Q1 2024? And based on what constructive measures that the revised 2024 guidance will be realized or even exceed the guided numbers? Luc?
Well, Billy, we still have quite some trading to go in the second quarter, as today is just the 8th of May. Our Q2 results presentation is currently scheduled for August 8th. We only just revised our full year 2024 guidance on Monday, so this is what we currently forecast and expect to be realised. Whether we can in the end exceed the guidance, we shall see. But rest assured, we will do our very best to try to.
Thanks. Andreas Masek asks a question for Ben. Against the background of a foreseeable much weaker cash flow this year, should the buyback program be continued as planned?
Hello, Andreas. While the operating free cash flow for the period is under pressure due to a lower EBITDA of the period, unfortunately, there is a delay in the effect from lowering our customer acquisition costs per member as well as other cost savings measures in order to safeguard our profit margin and operating free cash flow. We have evaluated the weaker cash flow, and based on current trading, we will continue the buyback program as planned.
Nils Jacobsen has the following questions, Luc. At the annual general meeting on the 4th of April, the board knew already how the first quarter will turn out. Why were the investors not informed about the high cancellation rates? Why were the goals not adjusted at this time?
Well, Nils, during the AGM, we reflected on the performance of the prior financial year and not on the current trading. And it's important to acknowledge the challenges with the higher level of unsubscriptions we have encountered in the first quarter of 2024 and the impact on the remainder of the year and the adjustments we have to make. While we initially anticipated a swifter recovery for our business, to be honest, it became evident that the path to normalization would take longer than expected, and therefore, we had to adapt our guidance for the year 2024 earlier this week.
Nils asked furthermore, knowing already in April that CLIQ is facing difficult times, why did CLIQ double the remuneration of the supervisory board and topped current benchmarks? Is the supervisory board willing to cut the remuneration to show investors that they understand that this was a mistake?
Well, dear Nils, as you know, the supervisory board remuneration is approved by the shareholders during the AGM. During the AGM, reasons were given for the increase of the remuneration of the supervisory board. Unlike the management board, the supervisory board is tasked with overseeing management and safeguarding the interests of shareholders. Therefore, we as board members cannot comment on the level of the remuneration of the supervisory board.
The contracts of the Management Board were renewed after the company got into financial trouble. To what extent was this considered when the remuneration was fixed? Was the remuneration lowered, or was the variable part of the remuneration enhanced? If not, is the board ready to make adjustments?
Well, first of all, Nils, the company is not in financial trouble. However, we are not happy with the current performance. Let's be clear about that. It's very clear that we face challenges in this transitional year. As mentioned already during the call, the remuneration schedule of the management board is not lowered as a result of the current trading. Management remuneration is typically structured to incentivize long-term performance rather than reacting to short-term fluctuations. The remuneration is based on fixed and variable targets, like the remuneration of the prior years.
Are you considering to start a customer retention program, for example, a cashback partner program, where the potential savings for the customer would surpass the subscription fees they have to pay?
Well, as direct marketer of streaming services, we focus first on conversions and earnings on our investments back in a very short timeframe. Increasing our lifetime value will allow us to increase the customer acquisition costs per member to further increase the volume. We are considering multiple opportunities to increase our lifetime value.
The next question is for Ben from Fernando Alonso Lamberti. Ben, do business forecasts deteriorate? How can business forecasts deteriorate in such a short period?
Well, dear Alonso, we have a temporary setback, yes, correct, and we initially anticipated a swifter recovery for our business. However, it became evident that the path to normalization would take longer than expected. We are, unfortunately, depending on the card schemes setting the rules, which we cannot change as a small company, but be assured, we are adapting to recover our growth path.
Stine Ellegaard has the following questions. Why was Europe much weaker than the other regions? Revenues in Europe are almost halved on a yearly basis in Q1. Free cash flow generation in Q1 was negative. Is there any outlook or guidance concerning the free cash flow generation for 2024? And the new transformation program, can we expect additional non-recurring costs in the coming quarters? Will there be a positive impact of this program on EBITDA? Can you give your assumptions, which leads to the current full year guidance? And group tax optimization program, what will be the impact on the group tax level? Ben?
A couple of questions indeed. So, Stein, for the answers on the widespread refund program, we, of course, refer to the answers provided earlier. I think that does the job and gives enough information. The European region is more complex than the other regions concerning the region and comprises multiple countries and jurisdictions, each with its own unique challenges such as, of course, language, culture, and economic conditions. Although the company is always closely monitoring the cash flows and predictions, we do not guide on this. So the transformation program, to come back to that, we launched resulted in additional special costs. We believe that with this transformation program, we'll make the company Fit for the Future and support the company mid-term outlook for further sustainable growth. Going forward, we do foresee some additional non-recurring costs in relation to this program, but to a lesser extent.
Based on the current trading, we see first positive effects from the actions taken, like lowering our customer acquisition costs per new member in order to safeguard our growth margin going forward, which forms the basis for the revised outlook. Coming back to our tax optimization program, of course, this impact is aimed at ensuring that our global tax structure is optimized to align with regulatory requirements and structured in a manner that ensures tax compliance while minimizing tax burdens in a fair and responsible manner.
Luc, Christopher Otto is interested in what other reasons, apart from the refund programs, the management board assumes were why the customers are not re-registering after canceling?
Yeah. Well, dear Otto, we are foremost a global performance marketing company and focused on acquiring new customers by online advertising, and meaning our business model is not aimed at getting customers to re-register to our services.
Luc, Peter Wensky has the following question. How do you expect the further development of the chargeback practice and its impact on CLIQ, and how is the actual situation now?
Thank you, Peter, for that question. To the best of our knowledge, we have informed the market about the financial impact for this year's results by updating our guidance this Monday. However, we also confirmed our mid-term guidance, which we did not change at all.
Ralf from Quirin asked the following questions, Ben. Following the weak performance in the first quarter, are your positions, goodwill, and other intangible assets in danger?
Hi, Ralph. Good question. Looking back to the previous years with lower results than the current guidance, we always passed the year-permanent test. I assume we don't have any issue here.
Ralph also asks or says, you explained that the higher churn was because of a more widespread refund program of the credit card companies, which resulted in a lower than expected lifetime value. Can you explain in more detail why credit card companies had such a negative impact on the churn rate?
Well, as explained earlier, the credit card companies made it easier for consumers to ask for a refund and unsubscribe to the services. As direct marketeers, we anticipate an impulse buying of consumers, which made consumers subscribe to our services. This is, of course, also the other way around.
What does it mean for the future regarding collection of your clients' payments?
Currently, 96% of our revenue is generated via credit card billing. This revenue stream is now affected by the higher unsubscription rates. In the revised guidance, we have already included the forecasted impact of this change.
Adjusted EBITDA came in at EUR 5 million, with special items of approximately EUR 3 million in the first quarter. Do we have to expect further adjustments or one-off costs over the next quarters?
Well, as previously said, the group-wide transformation program continues in the second quarter to a significantly lesser extent.
EBITDA for the full year is thereby expected to range between EUR 26 million and EUR 30 million. Is this guidance an adjusted EBITDA or reported?
The guidance is based on the reported figures.
Our next questions are from Damian Schmitz. Firstly, you refer to a group-wide transformation and tax optimization program. You only mentioned the tax optimization program at the AGM in connection with the extension of the executive board contracts. Does it mean that CLIQ has taken over the management board's taxes to date and will do so in the future? Secondly, if this is a different tax optimization program, I would ask for more clarity as different tax rules apply in each country. What specifically is optimized in which country and how? Ben?
Thank you. CLIQ has not taken over the management taxes due. The group tax optimization program is aimed at ensuring that our global tax structure is optimized to align with regulatory requirements and structured in a manner that ensures tax compliance while minimizing tax burdens in a fair and responsible manner. The tax optimization program is related to all countries where our subsidiaries are located.
One for you, Luc. After all, the U.K. has delivered good sales for CLIQ so far. What were the main reasons for closing the U.K. office, and when was the decision made?
Well, the main focus of our U.K. office was single content services, and as part of the Fit for the Future program, we have decided to concentrate operations as much as possible in the Netherlands by offering bundled services globally. And therefore, we decided to close our U.K. office in London. And the decision was made early this year.
Has CLIQ Digital completely withdrawn from the UK, or are there plans to do so?
As explained previously, we have closed the office in London and now run the remaining business from our office in Amsterdam. We didn't close the UK. We still generate revenue from the members subscribed to single content services. Please note that the UK legal entities are still active as the revenue is collected via those entities. The closure of the UK office does not mean that CLIQ is no longer active in the UK market. In fact, we can run business globally from one operational office.
What have you done to prevent or stop the refund program?
Well, unfortunately, we can only accept this and take actions to mitigate the risk. The actions have been taken by, for example, Visa and Mastercard. We are just a small player without any influence impact on those big companies. One of the actions we have taken is to test lower price points to make it more attractive for consumers to subscribe and to remain subscribed for a longer period, for example.
As of the 31st of the 12th, 2023, the management board owned approximately 9% of the shares of CLIQ Digital. Has the situation changed to date? If so, please provide details of the number of shares and trading days, Ben.
Well, the situation did not change materially as far as I know. I personally purchased almost 3,000 shares at the end of February against a stock price of around EUR 18. Today, I also purchased another 1,000 shares.
Milo from Edison asks, Luc, have you seen more competitive pricing when purchasing new content? What additional sales channels are you trialing, and what are the early takeaways?
Well, Milo, we have not seen more competitive pricing when purchasing content. Affordable content is available in the market. That's not the problem. For the sales channels, we refer to our presentation in which we elaborated on the development of search, affiliation, and our initiatives towards video and email.
Our next question is from Roland Konen. He asks, Ben, please explain in detail how the costs for the transformation and tax optimization program amounting to EUR 3.5 million are broken down and for which measures they are intended.
Well, the majority of these special items related to Group's transformation program Fit for the Future, which includes the closure of the UK office and the hiring of additional contractors for technology integration and optimization. The purpose of the Fit for the Future program has been explained in our presentation and the previous questions.
Ben, Nils from Montega asks, the executive board contracts were not reorganized until comparatively late. Both contracts now have a term of five years, which we believe is rather unusual. What is the background to this?
Well, besides most of the questions you had earlier, Nils, sorry, besides the one of the prolongation of the management board contracts, those have been extended by 5 years, which is consistent with actually the previous executive board agreements. So this has been done already 2 times previously, as of 2012 and 2014, respectively.
Luc, our next questions are from Danny Van Liedekerke from VFB. He asks, what is the impact on CapEx from the closing of the UK office? And can you give us some color on what you mean by tougher marketing conditions in the press release? When I compare with, for example, Netflix or Disney+ , where trends are more favorable, does this mean that customers are moving to the high-end content?
Well, the closure of the UK office has a limited impact on the CapEx as our UK office was not CapEx intensive. However, the closure will result in cost savings on a monthly basis on the payroll and, to a smaller extent, operational expenses. We are a global performance marketing company and don't compare ourselves to Netflix or Disney+. We are foremost online performance marketer of streaming services, of digital content.
Our last questions today are from Andreas Blom from Medium Invest. What specific non-macroeconomic, non-external factors affected the top-line growth in this and recent quarters? Luc?
Well, as said already, the top-line revenue is negatively impacted by the higher churn, resulting in a lower lifetime value. As a result, we have lowered our customer acquisition costs to safeguard our margin going forward. This, of course, puts pressure on the volume of newly acquired members.
Can you please outline 2-3 strategic initiatives you are considering to implement in order to mitigate this quarter's negative top-line and bottom-line development?
Yes. Well, the main strategic initiatives are, of course, the diversifications of our sales channels, combined with the lower cost per acquisition to safeguard our bottom-line results going forward. Furthermore, the group-wide transformation programs will have significant positive impact going forward.
The current share price essentially implies very limited value creation going forward. How do you interpret the current market sentiment as reflected by the low valuation multiples relative to operating income? Ben?
Well, as a management board, we still believe in the company and are convinced to bring back the profitable growth to the company. The company is, in our opinion, already undervalued for a long time.
Last but not least, what steps are you taking to address these investor concerns regarding the business model and management? Ben?
We keep on telling our story to the market and explain our business model. We attend investment conferences and roadshows. We keep on informing and communicating with the investor community.
Well, ladies and gentlemen, that was our last question for this afternoon. Should you have any further questions, feel free to get in touch with us. Thank you for joining our first quarter 2024 video webcast today. Have a great day and all the best.