Hello, and welcome to Quickbit year-end report for 2020-2021. Throughout this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Today, I am pleased to present Hammad Abuiseifan, CEO, and Simon Afeworki, Head of Finance. Please go ahead with your meeting.
Thank you, Evelina. Good morning everyone listening in, warmly welcome to this earnings call for Quickbit for the fourth quarter and year-end 2020-2021. My name is Hammad Abuiseifan. I'm the CEO of Quickbit. With me today here on this call, I have Simon Afeworki, Head of Finance. In today's call, we will present the key highlights for the quarter. We will talk to and touch our growth and growth strategy. We'll go through our products, as well as details around our financials. I aim to, in the end, wrap up with some of my key focus areas, the coming months ahead, and a Q&A session. I've been the CEO for Quickbit for about two weeks. I have to say, it's been very encouraging, but also hectic days in the office.
It's in many ways refreshing to engage and to see the commitments, and the company and the teams working, and working focused towards our strategic priorities, which I will talk to in a few minutes. I am very enthusiastic and passionate about the company and am really looking forward and eager to lead our organization into the next phase of our growth journey. With those introductory words, I would like to get going. Operator, please, next slide. We're looking at the Q4 highlights. We are showing a stable revenue of SEK 842 million, on par with the same quarter last year. We did, however, experience a weaker May, which I will talk to later on, which was then followed by a stronger than normal momentum in June. The gradual increase in transaction during June led to a total higher transactions for the month.
In the quarter, we also saw an increased number of onboarded e-merchants. As you know, e-merchants are one of the cornerstones in our growth in the affiliate leg, and we continue to see a high demand in what we consider an unsaturated market. Looking at the gross margin for the quarter, it amounts to 3.6%, generating a gross profit of SEK 30 million, which is in line with our previously communicated ambition at 4% over time. During the quarter, more specifically during the month of April, we announced that we will not move forward with acquisition of DCS, Digital Currency Services . The main purpose and reason for that is that we have been able to build up our own organization in terms of capabilities, which actually allows us to foster and drive these kind of processes in-house.
That's, in many aspects, more cost efficient and efficient overall and something that we're happy about. A token of that is obviously the approved registration from the Swedish FSA, announced a couple of months ago. Next slide, please. This is really our pillars for growth, our strategic priorities that will lead us into the future growth of Quickbit. To the left, we have innovative financial services. This is essentially our Quickbit App. It's our banking service, it's our card service, it's our affiliate service, and it's our coming merchant service. This allows us to go from innovation to creative financial services that adds value to our customers. This is the vehicle for that innovation. During the fourth quarter, we prepared ourselves for launch when it comes to the Quickbit App.
During that period of time, we were in quite intimate dialogues with our customers, which allowed us to enable an intake of great number of feedbacks. This feedback is valuable to us and something we're creating a process for, from going from feedback and ideas into value-creating services. We want to be much faster in going from ideas to revenues in that sense. Sustainable growth. In essence, that means we will stay and continue growing profitably. We do that by making sure that we have the pillars of profitability enabled. A part of that is what we announced a couple of days ago when we announced the partnership with one of the largest acquirers in the industry, Worldpay. Companies like Worldpay enable our growth in the affiliate leg and something that we will continue focusing on going forward. It's also a token of quality.
It's an evidence of Quickbit becoming a company that is qualitative in the perspective of big players such as Worldpay, and something we're extremely happy and proud about. We're entering the consumer business, and with that, we need our customers to feel secure transacting with us. We want people to feel comfortable and secure using Quickbit. In that lies a great lot of work establishing a strong market-leading brand. During the quarter, we onboarded our head of brand, which is actively working on a brand refresh and also looking at targeting certain segments in our App launch, where we will drive adoption using marketing campaigns. The fourth pillar in our growth story is really about people and attracting the best people in the industry.
I personally believe that if we are successful in launching innovative financial services faster and better than anybody else, if we are successful in our strategy and execution of sustainable growth, and if we are successful in creating a market-leading brand, that's the natural platform for people to get attracted by Quickbit, and something that we are very engaged in. During the quarter, we hired our head of people and culture, and we are taking the first structural steps in building our talent acquisition and retention capacity, and something that I'm very excited about. Operator, next slide, please. A few words about our growth and growth strategy. I've been in the company for two weeks, but I do have a very crisp view on how we should grow our business. Believe me, the team has too. I will break this up in B2B and B2C segments.
If we look at the B2B segment, which today is constituted by our affiliate offering, we are going short term to grow that business by nurturing our existing merchants. I call that adoption. Adoption, meaning that we want more from everybody. We need to nurture them, foster them, and continue staying relevant. From a market perspective, we intend to grow by increasing number of merchants. We call that uptake. For our B2B segment, in the short term, it's really about driving adoption by staying relevant and close to our customers, driving uptake by increasing and making it easy for merchants to onboard using Quickbit Affiliate. In the long term, it's all about launching new capabilities or services. We will do that using our merchant platform. The merchant platform is, once again, the vehicle where we innovate, going from idea to services for our B2B customers.
In the long term, we are looking at expanding into new territories, new markets. From a B2C segment and perspective, the short term is really about creating new services. We have launched our app, and we need to make sure to become much faster and more focused in launching services that our consumer wants. We have a pipeline, and I'll talk to that in a slide or two, and that work is extremely, I would say, it's very much ongoing and something we are very happy to continue working with, hoping to come back to the market with some good news later on. In the short term, we drive adoption by creating new services.
When it comes to the Quickbit App and the banking that is ongoing and the card facility, the long term is really about entering new markets and finding synergies with the B2B work that we are ongoing. With that, I would like to move on to the next slide, please. Thank you. Yeah, we launched the Quickbit App. It was, in many aspects, a very successful launch. We were actually, during the first period of time, top five in App Store as a financial service app, which is also a token of how appreciated our product was. I personally have gone through most of the feedback, and the feedback is overall very encouraging and positive. It's also feedback that we foster and furnish into making us better and more successful.
That means that we're taking the feedback, harmonizing it with our own plans, and creating a series of services that we intend to launch to the market. That includes new coins, that includes the banking capability, and of course, the card capability. Before we do that, we have to ensure that we are ready to scale, not only from a services perspective, but also from a technical perspective. Once we start scaling with new capabilities and also geographically, we have to, as a company, be fully prepared for that. Next slide, please. We are looking at the Quickbit Affiliate, and I mentioned that we saw an uptake in transactions during June. I want to say that during the month of May, we targeted a technical update, which really, in essence, we're focusing on increasing the conversion rate.
The conversion rate is very important to us as a company and something that allows us going from initiating a transaction with Quickbit to finalizing it. That's a part of our adoption strategy. Now, the return of that investment showed and resulted in a better June and something we are very happy and proud about. I did mention the merchants. The merchant is one of the cornerstones in growing the affiliate business. As you can see, we've had a very good uptake in number of merchants the last period of time. If we compare ourselves a year ago, we have more than 250% increase. Just looking at the previous quarter, we're at a 10% increase. We really do have the platform and the baseline for growing this business and something I am very optimistic and passionate about.
Together with adding acquiring partners and adding merchants, driving adoption, I believe we have the good foundation for future growth within the affiliate segment. With those last words, I would like to hand over to Simon.
Thank you, Hammad, and hi to everyone listening in. Let's go through the financials for the fourth quarter or April to June 2021. I am on slide seven. On the left-hand side, we see our revenue development for the last few quarters. Our revenue in the fourth quarter amounted to SEK 842 million, unchanged versus Q4 last year, adjusted for constant exchange rates. We are displaying stability in our revenue base after, as the graph shows, a fiscal year of large fluctuations. Just to pick up on Hammad's revenue comments, we did experience a relatively weaker May, driven by improvements that we've made to our Quickbit Affiliate offering, the effects of which we've reaped already now in June, with, on the one hand, improved security and visibility in our revenue streams, but secondly, and very encouragingly, steadily increasing transaction volumes in June.
I want to spend a few words on how we measure our momentum to have a common view on the progress of Quickbit. We look at our daily transaction volumes internally, or we call it average daily volumes, whose long-term trend we track internally to measure our momentum, to measure our progress, and to make decisions. Not the day-to-day or even month-to-month fluctuations such as in May. By that measure, we conclude that we are seeing higher than normal average daily volumes in June, suggesting that the improvements we made in May, not only positive but also lasting. Had a positive and lasting effect. When we look at our average daily volumes, we are seeing an upward trend since the turn of the year, which is further encouraging.
In other words, or put simply, our average daily volumes in June exceed the levels we saw in our third quarter, which by every measure was a very strong one. On the right-hand side, we are showing the development of our gross margin, and we report a gross margin of 3.6% in the fourth quarter compared to last year's 3.8%. This is in line with our ambition to, over time, average 4%. Our strong cash position and our clear priority and focus on growth allows us to go below 4% in gross margin from time to time if we deem it to be supportive or conducive to our growth over the long term. Given the development of the gross margin, I think it's useful here to talk about what can affect the margin from time to time. There are a number of factors in play in any given quarter.
For example, we have a differentiated fee structure across our acquiring banks, illustrating how important it is to have more acquiring banks and to continuously hold a dialogue with our existing ones to achieve attractive terms. We also have a differentiated pricing structure too, depending on the geographical location or depending on the merchants. Next slide, please. We are looking at our income statement for the fourth quarter, and let's take a moment to walk through our cost base and what can be expected going forward. More specifically, let's look at our cost item, other external costs, or in Swedish, [Non-English content] , which includes mainly non-employed staff or consultants, some transaction costs, legal, and financial costs. In the fourth quarter, it amounted to SEK 23 million, up from SEK 20 million in the third quarter or last quarter.
First, some of this SEK 23 million in other external expenses are one-offs or extraordinary costs of SEK 3 million, mainly related to non-cash legal or due diligence expenses that we incurred in conjunction with obtaining the option to acquire DCS. These have, up until a decision was made regarding DCS, been reported in our balance sheet as prepaid expenses. Further, some nine and a half million SEK compared to eight and a half million SEK last quarter are transaction or volume-based cost and commission to introducers to acquiring banks that we've talked about before. When we talk about our costs, when we have done so or before, we have indicated basically two underlying and sometimes divergent trends in our cost base. On the one hand, we have our underlying expenses that are driven by our larger organizations and growth or growth investments.
As we said before, because we prioritize growth, Quickbit App and Quickbit Card and future products will demand gradually increasing investments in these areas. We obviously continuously evaluate our costs, but I want to reiterate that we believe these investments are vital in a competitive, young, and developing segment like ours to gain ground now to achieve long-term value in the future. On the other hand, we also have what we call reducible costs. Those are variable transaction costs or introducer fees. We are, for example, hard at work to establish our own relationships with acquiring banks and with more acquiring banks, which would gradually over time, reduce and/or remove introducer fees. The other day, we communicated that we've entered a partnership with Worldpay, demonstrating our efforts towards that end. Worldpay is a leader in the payment segment, our partnership is a milestone for Quickbit.
We are in dialogue with a series of new acquiring banks that we have in our pipeline, and we have been for a while. We've really been prioritizing those efforts. It is important for us to have several acquiring partners. That is how we decrease dependencies towards any given partner. That is how we reduce our transaction cost, and that is how we reduce our introducer fees gradually and over time. I think with those words, that sort of highlight what we focus on from a cost perspective, I want to hand over back to Hammad for some closing remarks. Next slide, please.
Thank you, Simon. Just a few words and reflections on the coming week as I settle into the new role, assessing our strengths and capabilities, and where we have to improve. We are going to assess ourselves both technically as well as organizationally, making sure that we are ready and fit for growth, both in terms of expanding ourselves into new markets as well as expanding our services offerings. We're going to continue focusing on driving revenues in our affiliate leg by nurturing our merchants and our customers and driving a higher uptake by onboarding more of them. We're going to continue focusing on stimulating this business by accelerating the dialogue with partners such as Worldpay, which enables us to grow. I'm very happy and eager to host an investor event, and we will come back to you with that during the first quarter.
With those words, I would like to now start the Q&A session starting with questions from Equity Research Analyst Magnus Skoog from Erik Penser. Thank you very much.
Thank you. Ladies and gentlemen, if you do wish to ask a question, press zero one on your telephone keypad now. I have a question from the line of Magnus Skoog from Erik Penser Bank. Please go ahead.
Yes. Hello, Hammad and Simon. I have a question regarding the technical changes in May that lowered the revenues. Is that a one-off thing, or do you expect something similar will occur in the future?
Hi, Magnus. This is Hammad here. We will continue always driving performance in everything we do. A part of that is identifying improvements and technology improvements that drives business output, such as conversion rates. As we see now, we don't see or foresee any of those changes coming in, but it has been one of those highly prioritized changes which enables us to increase our efficiencies. With that, as of now, I don't see that, but this is something in our ambition to continue driving performance.
I understand. Thank you. Regarding the gross margin, do you think for the affiliate that it will average around the level this quarter, 3.6%, or will it average more around the 4% in the future?
Hi, Magnus. Well, we've communicated an ambition to, over time, report a gross margin of 4%. The quarter before this one, we had 4.4%, and the quarter before that one, I think we had some 5.5%. In this fourth quarter, we record 3.6%. Our ambition is not that we every single quarter record 4%, but it is that we, over time, average 4%, and we stand by that ambition and obviously working very hard to uphold that ambition. We don't currently foresee any reason to change that ambition. Quite opposite, we are optimistic about upholding that ambition to, over time, average 4%.
Super, thanks. Other receivables increased compared to the last quarter. What was the reason behind the increase?
We talked about the items on our balance sheet quite extensively before. On the one hand, we have rolling reserves related to previous deposits we made to previous acquiring banks of about SEK 55 million. They are unchanged from last quarter. On the other hand, we have what we explained, obviously a approximately three-day difference between when we record revenue and when we actually get paid. In the same way, when we record cost and when we actually disburse money out to merchants. What we are seeing is the effects of that three-day lag between when we record and when we get paid for a transaction. We have tried to extensively elaborate on that in our quarterly report. You're seeing the same effect on the other side of the balance sheet on the liability side. Those two together also have an impact on our net working capital.
What we are essentially doing is not in necessarily an opportunistic way, but we are maximizing our cash management to make sure that we are using that time difference to our advantage to the highest extent possible. That obviously means trying to collect money from our transactions as soon as possible and to have flexibility of when we can make payments out. Essentially, what that means is that would result in either one, two, or three day free of charge, free of interest financing for the company.
Yeah. The rolling reserve, do you expect it to decrease in the future or stay at the same level as this quarter?
A few quarters back, the rolling reserve amounted to approximately SEK 120 million. Since we communicated our efforts to have those deposits repaid, and when we ended a partnership with our previous acquiring partners, we've been able to gradually, if not regularly, gradually get it down to SEK 55 million. I think we've shown a track record of redeeming back our funds, and we are constantly in dialogue with our acquiring partners. We are absolutely positive that the remaining funds in those deposits will move from our receivables to our cash position.
Super. Thanks. Other external costs, how do you expect it to evolve in the future? I understand it's hard to get into details, but will it be around this level in the future or decrease in the future?
Well-
Or higher?
As I mentioned in the call, there are two underlying or divergent trends in our cost base. One is, as Hammad has pointed out, we're in a growth phase and an expansionary phase, and we are obviously making those investments that we deem to be necessary to, in this time, in this segment, ensure that we gain the ground in a very competitive market to achieve long-term value for our shareholders. Not only shareholders, our users. Those entail, for example, investments in branding and investments in staffing and customer acquisition cost. On the other hand, we have what we call volume-based or transaction-related costs. Those can be to our acquiring banks or those can be to our introducer fees and so on.
We are hard at work, and I think we demonstrated that by announcing our partnership with Worldpay, that we have a laser focus on getting our transaction cost and our introducer fees reduced or removed gradually over time. I know that doesn't answer in what direction our other external costs would head, but I think if we break it down, I can give you a more nuanced sense around what's happening underneath the hood.
Yeah, I understand. In the report, you touch upon the list transfer to the exchange NGM Main Regulated. Do you still expect that to happen sometime in the future? In that case, in which timeframe approximately?
Quickbit has since, I would say almost a year or 1.5 years back, not only gone through a pivot, but in every measure, governance wise, financial wise, operationally, Quickbit is a much more stable and mature company than it was 1.5 years back. We today have a completely independent board. We have and are continuously working on setting up processes and routines that are behoove to us for being a listed company. Even though we interrupted the process to move to NGM Main Regulated, our ambition still stands to move Quickbit's stock to a regulated market exchange. Now, regarding timeframe, and where is, I'll leave that to the board to decide. We have dialogues with the board on those matters, but I can't come back with a timeframe.
The work is ongoing internally to make sure that the Quickbit is prepared to be on a regulated market exchange. I also want to point out while I'm at it, there are synergies in ensuring, in setting up those routines and processes that are required to go to a regulated market exchange. Not only to go to a market exchange of that kind, but also from other aspects, whether they are security-wise, whether it is from a regulatory aspect or from an operational aspect. What we are trying to do is to make sure that those synergies converge so that we get the most out of those efforts and investments that we are making to set up those routines and processes internally.
Super. Got it. A more general question. Since the last report, how do you view the regulatory landscape for cryptocurrency in general? Do you see any major changes that will affect Quickbit? There has been some changes in China, but I expect that it will not affect you in particular.
Obviously, there has been focus around the crosshairs of cryptocurrencies and the compliance landscape, not only from a geographical perspective, but also a number of actors in our space that have felt the regulatory pressure. Now, it would probably be best to have our head of compliance or chief compliance officer here, who is, in my view, the sharpest compliance mind in our segment in the Nordics. We are functioning in a evolving space, where many times the regulatory framework is not set, and even less so across different geographies. As the adoption of cryptocurrencies is increasing over the last 12 months-18 months, regulators and legislators are trying to catch up, in the same way that they tried to catch up when it came to privacy questions or when it came to large tech companies.
Sometimes that gets rushed, and sometimes, at worst, it might get sloppy. We have seen a Fifth AML Directive, [Non-English Content] , which sort of stipulates a minimum level for the European Union. Each and every country will have to interpret that or, if they wish, put additional layers on top of it. What we are seeing is obviously a regulatory landscape that is evolving. The regulators and legislators are catching up, and so are we. We have deployed a large amount of resources into our regulatory capacity because we are absolutely convinced that the regulatory pressure will only increase with time. Our ambition is to stay ahead of that curve. We believe that it will be a competitive edge in the future. We will continue to deploy resources and make investments into our regulatory capacity.
Whether the recent changes have affected us, I can't comment on.
I understand. Thanks. You answered my other questions in your presentation. Thank you for your time, Simon and Hammad.
Thank you, Magnus.
I remind you that if you want to ask a question, you will have to press zero one on your telephone keypad now. We have a question from the line of Thomas Carlson, private investor. Please go ahead.
Hello. Thomas. Yes. We have some questions from the Stock Platoon Discord regarding institutional investors. You mentioned last quarter that you were going to up your efforts on that front. Any words?
We are obviously continuously working on strengthening our investor relations, both in terms of holding a fruitful dialogue with our retail investors, but also reaching out, making sure that we are establishing dialogues with institutional investors. Those efforts can manifest themselves in different ways. Everything from participating in conferences as we did in New York a few months back, to, as Hammad mentioned, holding an investor update, which we aim to do in the first quarter. We will continuously try to strengthen those capacities. Obviously, we are continually holding dialogues with investors between the quarters. We also sort of update on our website when we have events that are occurring and when we have participated in events. I find that to be ordinary course of our work, or at least my work, and now also Hammad's work.
We look forward to, I think, upping our efforts in that sense very much. Good. Obviously, we believe we have a very strong case.
Sorry to interrupt. This is operator speaking.
Yeah.
Please could you move a bit closer to the microphone?
Yeah. Is that good?
Yes.
We're not only reaching out to both institutional and retail investors and intensifying our dialogues, but also making sure that we build and work on our case and communicate it very clearly. We believe we have a compelling case, and we need to make sure that we relay our view on that case in a good fashion.
Okay. A question regarding the app. How are your plans for introducing new coins in the near future?
As I somehow outlined throughout the presentation, we have work in progress enabling additional coins. That's definitely something which is coming. As I mentioned, we strive to have a quite intimate relationship with our consumers, making sure that we have the relevant coins, which our consumers then later on will transact using. The short answer to the question is, yes, we are announcing new coins. We will continue driving new coins based on what and how our consumers act and adopt to.
Okay. What about the expansion plans beyond Sweden and Norway for the app? Can you elaborate anything on that?
Yeah, sure. The highest priority right now is to make sure we complete some of our services capabilities, as I mentioned. We need to drive a few more services. The banking I mentioned, the new coins, as well as the card. After doing that or in parallel in conjunction and something I am doing right now together with the team is assessing our elasticity to scale up, both from an organizational perspective as well as technical. I think I was clear that we have a strategy to grow both in terms of adding new services as well as adding and entering new markets. Something we will come back to, which market it is.
Okay. As for the beta phase of the merchant, any words there? Are we on track time-wise, et cetera?
I've been here for two weeks. Right now we're assessing the platform in the sense, and I mentioned that there's ongoing work with the merchants and plans on nurturing existing business legs, such as the affiliates, which is growing extensively. We're also looking at the synergies between the platforms and how we evolve the services. We are definitely in the midst of working with the merchant platform, and in parallel to that, also aligning that with the new capabilities and new services we are launching in the app platform.
The general view for the merchant is that the legal landscape is much less complicated compared to the app. Would you say that's a correct view?
I think Simon briefly spoke about the different maturity of various countries and how they see cryptocurrencies and how certain countries are adopting faster than others. We are, as a company, looking at synergies where we want to be. We are not looking individually then, in terms of Quickbit App versus Quickbit B2B segments. It is somehow a moving landscape, but it's very much higher in pace of adoption than it was a year ago. The maturity that countries are showing is encouraging and the adoption from society in general. We read as well as you do every day that there's new companies opening up for transacting through cryptocurrencies. The landscape is slowly moving in the right direction. We as a company are very well positioned and focused on growing that part of the organization, building strength and trying to pioneer in many aspects.
I would say that you would see in general maturity adopting faster the coming year than we have seen before. I would say that's our prediction.
Okay. The partnership with Worldpay, do you think that will expand or stay where it is right now?
Could you just elaborate on what do you mean with expand? It's a partnership and it's an onboarded partner of ours. What do you refer to as expanding?
Worldpay is a huge company with lots of services, so I'm just curious if you will work in other areas as well with Worldpay?
Well, our partnership with Worldpay mainly relates to acquiring services, which is where we find common ground. Meaning, where we have a demand for services, and they have a supply of that. That's where our partnership currently encompasses. You are correct in the fact that it's obviously a conglomerate that has numerous lines of business. Our current partnership encompasses the services which we need, which is acquiring services. Now, towards that end, Worldpay is, as anyone can read, one of the more prominent actors in the space. Not only that, but has extensive and deep knowledge about our crypto space. We're obviously very happy about entering the partnership with Worldpay.
Not only because it's a prominent actor in the space, but because of their experience of working with crypto companies, their conscious initiatives and conscious focus to reach out to crypto space and collaborate with them. I believe, as they say themselves, they work with five of the top 10 crypto companies in the world. Now Quickbit has been added to the list. Our job now is to make sure that we are one of those top 10 now in the coming years.
Okay. Thank you. Last question. How will the Quickbit board be in the future?
Hammad obviously also serves on the board. I answer this question to make sure that he's not [Non-English content] or to have some arm length distance to the question. Obviously, that will be up to the board to decide on what kind of composition they choose to have in the board going forward. Obviously, any board will have many things to take into consideration. One is that Hammad is our new CEO. Second is that we still have our ambition to move to a regulated market exchange. Third and fourth is to make sure that we have the competencies that Quickbit needs to support the leadership and the management of the company from various points of view.
Without speaking on behalf of the board, there are a number of considerations that a board has to make, but we will leave it to the board to make those considerations.
Okay. Good answers. That's it with questions from my side. Thank you.
There are no further questions registered, so I hand back to the speakers for any closing remarks.
Thank you very much, Evelina. I do want to iterate the work in terms of the execution we're undergoing now, preparing ourselves for growing the company. Both in terms of adding new services as well as entering new markets. Our focus on growing our affiliate business and making sure that we foster that in the right way. With those final words and the fact that I'm extremely happy and eager to lead this company and this new journey, I would like to thank everybody on this call and looking forward to have this dialogue again in a few months. Thank you very much.
Thank you.