Good morning, and a warm welcome to the Presentation of Acast Report for the Last Quarter of 2023. Our CEO, Ross Adams, and CFO, Emily Villatte, will present the results and developments for the quarter. You can ask questions throughout the whole presentation by typing them in the text box below on your screen, and we will answer them in the Q&A session after the presentation. Now, I'd like to hand over to our CEO, Ross Adams.
Hi, everyone. Thanks for taking the time to listen to our report for the final quarter of 2023. In case you're new to our calls, I'm Ross Adams, CEO of Acast, and based in New York. But today, I'm in our Stockholm podcast studio with our CFO, Emily Villatte, and we'll take you through the numbers and events for the past quarter, wrap up the year. If this is your first time attending our presentations, I would like to offer a brief overview of how Acast creates value. Acast is the market-leading independent global platform in podcasting, and our vision is to empower anyone, anywhere, to connect through and create value from podcasting.
We're uniquely positioned at the center of the podcasting value chain, where we connect advertisers with highly engaged podcast audiences across the globe, and we share the advertising revenues we generate with the podcast creators on our platform. Through our work on building the world's most valuable podcast marketplace, we have built a solid portfolio of more than 100,000 podcasts, with some 1.2 billion listens per quarter. Around 2,700 advertisers, in the form of global brands and smaller companies, reach these listeners with effective and creative advertising campaigns via Acast's marketplace. So let's move on and look at the developments during the last quarter of 2023. As we conclude this year, we've continued to enhance our competitiveness with various product initiatives, driving increased scalability, as well as maintaining strict cost control.
This approach has paid off, and I'm proud to announce a key milestone. For the first time in our company's history, we're ending the year with a positive adjusted EBITDA. This is not just a number, and it's testament to our team's hard work and commitment. This quarter, our turnover increased by 9%, reaching SEK 494 million, compared to to SEK 454 million in the same quarter last year. Our organic growth rate was, seven percent, and we've seen continued positive development in North America, which has been a key driver of our overall growth. Last quarter, we highlighted Apple's iOS 17 update, and this update implies a change in how podcast episodes are downloaded on mobile devices, which in turn affects the measurement of listens.
As a consequence, the number of counted listens are lowered near term across the industry. As a result, we have made a non-cash flow effect in revaluation of podcast contracts of SEK 76 million . This has impacted our gross margin, which was therefore 24%. This impact is a one-off, and we are not anticipating further iOS 17-related revaluations in the future. Excluding this revaluation, the underlying gross margin was a healthy 39%, showing the positive development of our business. Looking at the full year, the net sales growth is 18%, with a gross margin of 32%, again, impacted by the one-off revaluations. Throughout the year, we've navigated the landscape of continued uncertainty in the macroeconomic environment, which has influenced our net sales growth compared to 2022.
But again, our efforts to balance tight cost control and development of new services and tools that assist advertisers and podcasters, creators, have produced positive outcomes. The recent quarter's development shows that we continue on our path towards full year profitability in 2024. An important strategic focus for us is enhancing Acast's revenue generation through automated sales processes. And this quarter, we've made further enhancements to our self-serve advertising platform by integrating the ability for advertisers to plan campaigns in real time. And this capability provides advertisers with immediate insights into available spots for host-read sponsorships, along with their pricing. The outlook outcome is a more streamlined process, greatly reducing the time it takes for advertisers to put campaigns through Acast, and the manual resources needed from Acast teams.
Also, improving and scaling podcast advertising is Performance+, which was launched in the fourth quarter. The feature is the latest development in our AI-powered product, Collections+, and allows advertisers to pinpoint and recommend the products, podcasts most likely to achieve the best outcomes for their specific performance marketing goals. This is another example of how the synergies between Podchaser, the industry's most comprehensive intelligence engine, and Acast combined, drive innovation and improve opportunities for us and the entire industry. The biggest podcast creators in the world choose Acast as their partner to find and grow their audience and work with advertisers of all sizes to earn revenue.
It is a testament to the value of our platform, the advanced nature of our technology and advertising offering and team's expertise that household names across the world choose and stay with Acast, from former U.S. presidents to the biggest publishers, sports stars, and as well as comedians. When we look at our progress over time, we can see that we have delivered almost a tenfold increase in revenue since 2018. This achievement comes despite periods marked by COVID and uncertain geopolitical situation, a challenging macroeconomic climate, and an advertising market that has slowed down over the last couple of years. In 2022, we updated our financial targets after an intense period of product development and investments, and we pulled forward our focus towards achieving profitability for the full year 2024.
We reviewed our organization and reduced our workforce, reaching a bottom-line inflection point in 2022. Since then, we have enhanced our competitiveness with various products initiatives, driving increased scalability and improved sales efficiency, all while maintaining strict cost control. Reflecting on our journey, we are proud of what we've achieved and continue to build on this foundation as we move forward. I'll now hand over to Emily, who's going to talk you through our financial performance for the quarter in more detail.
Thank you so much, Ross. It is really nice to look back at the big picture at times. But now let's step into the detail of the quarterly numbers, starting off with listens. Here, we can see that the listens did decline in the quarter by 12% due to the iOS 17 update, which of course affects the entire podcasting industry. Monetization of listens however increased resulting in ARPU or Average Revenue Per Listen growth of 24%. Net sales growth in Q4 was 9%, and organic net sales growth was 7%, adjusted for currency effects. Our growth in the quarter was impacted by a weakened economy, and I'll note that we also had a tougher comp in Q4 versus the comp we had in Q3 when looking back at the growth achieved in the same quarter last year.
We'll look at market by market growth shortly. But first, I'd like to walk through the mechanics of our net sales build-up, and then I'll show you some of the figures for the year. Here we start by multiplying the number of listens on Acast shows with the number of available ad slots in each show, and this gives us our available ad inventory. The sell-through rate represents the percentage of inventory sold, and multiplying the number of sold ads with the average price or CPM, gives us our net sales from ads. Finally, we add other non-ad revenue lines, which takes us to the total revenues for the year. So looking at the numbers, in 2023, our listens did decrease slightly due to the Apple iOS 17 update, but the overall available inventory still grew due to an increase in available ad slots.
You might recall that we announced an initiative right at the start of 2023, which in essence increased our available ad slots through some clever product development work. Our sell-through rate ended up at a level of 27 for the full year, which is a small reduction compared to 2022. So with this sell-through rate and a fairly soft ad market, we have allowed ourselves some flexibility in pricing CPM that you can see here, which reflects the current market conditions, which has been helpful in growing our overall revenues. So it's good to be able to have some flexibility there. Our average revenue per listen increased in the year compared to the prior year and reached SEK 0.33 . So as you can see, this gives us multiple levers for growing sales and average revenue per listens for the future.
In addition to growing our listens, continuing to sell more of our available inventory to increase the sell-through rate, upping our ad load, which I will note, is still low compared to the industry, particularly when looking in the U.S. So we do have the opportunity to open new ad slots in the future as and when we need to. So lots of opportunity continue to grow. Moving back to the review quarter, I'd like to have a look at our underlying gross margin, which was 39% in the quarter. And Ross flagged that we have made a non-cash flow affecting revaluation of podcast contracts of SEK 76 million in Q4. This revaluation impacts the U.S. operation by SEK 60 million and the U.K. operation by SEK 16 million, and therefore, our reported gross margin was 24% in the quarter.
This impact is one-off, and we're not anticipating any further iOS 17 related revaluations in the future. Now, it was North America that took the lead with 19% net sales growth in Q4. Europe saw a steady growth of 5%, but was more affected by the challenging ad market environment in this location. Other markets grew by 8%, and excluding the one-off podcast contract revaluations, we also saw an increase in profit contribution margins across the board. Now, at the year-end, we like to share the results of our largest markets, where the U.K. and Sweden really illustrate our margin potential. The U.K. posted 16% net sales growth year-on-year in 2023, and a contribution profit margin of 20%, excluding the one-off podcast revaluations. U.S. delivered 20% net sales growth and a contribution margin of +7%, excluding the one-offs.
Sweden saw a 1% revenue decline in the year, which still beats the local podcasting ad market, which is experiencing a steeper decline, and still shows a strong contribution profit margin improvement in the year, reaching 28%. So we have continued focus on cost efficiencies, of course, both in our fixed cost line and our discretionary spend, and this ongoing focus has delivered a year-on-year cost reduction of 9%. Total staffing as at the end of Q4 of 2023 was 374 full-time employees and consultants, and this represents a further reduction of 19 staff since the end of 2022. Our cost discipline has been key in delivering a positive adjusted EBITDA for the first time in this quarter. I'll note here, per usual, that our adjusted EBITDA development is, of course, subject to quarterly seasonality.
We're excluding our podcast contract revaluation in our adjusted results, and I'll repeat, these did not have a cash flow impact in the period, and they are not expected to recur. When it comes to cash flows, it's pretty clear that we had strong operating cash flows in the quarter of some SEK +50 million . We tend to look at a twelve-month rolling basis to smooth out some of the working capital fluctuations, but here it's still clear that we've had a notable improvement since the end of 2022, representing a 90% reduction in our operating cash burn. So we end the year with strong cash flows and a strong cash position totaling SEK 759 million . Ross, back to you.
Thank you, Emily. We will continue to deliver our plan with profitability as our focus, which we achieve through building scalability into our operations, having a streamlined organization, and continuing to deliver revenue growth. I'd also like to flag that we'll be expanding our investor relations activities, moving forward with Dennis Berggren joining Emily's team, focusing on investor relations and corporate development from April onwards. Dennis was previously an analyst at Carnegie and knows Acast very well. With that, I'd also like to thank our IR consultants, Annika Billberg and Patrick Elo, who have been immensely helpful in building our IR activities to date. To sum things up, Acast concludes the year with strength, and we step into 2024 with early indications of an improved momentum in the market.
The solid underlying development in our final quarter of the year sets the path to achieving positive EBITDA in 2024. Our ongoing commitment in the coming year is clear to carefully balance cost control while developing services and tools that aid advertisers and podcast creators in reaching wider audiences. Despite the economic challenges facing the global advertising markets, Acast's position as the leading player in podcasting is now even more substantial than it was a year ago. And that concludes our comments on the results. Now let's go to the Q&A. If you'd like to post a question, feel free to type them in the text box below.
Thanks, Ross. First, we have some questions from Derek Laliberte at ABG. First of all, can you say something about how the number of listens developed on an underlying basis, excluding the iOS 17 effect?
So on an underlying basis, listens developed fairly well. The reduction of 12% in the quarter is related to the iOS update. I'll also note here that we'll see the full quarter effect of the iOS update in Q1, so we should expect to see a few more percentage points decline in listens in the upcoming quarter. But I'm not expecting any impact on revenues. I'm not expecting any negative impact on average revenue per listen, but underlying listens are developing fairly well.
Another question from Derek at ABG: "Can you comment on the contributions from your recently signed monetization partnerships, such as the ones with Warner Brothers, and Luminary, and Amazon?
I mean, no comment on specific contracts, but of course, these high level, high level and high profile and well-known names add value to our content portfolio and, and obviously help us improve our offering further.
Another question from Derek, can you comment on the development of host-read sales on the self-serve platform?
Yeah, I mean, in general, we've, you know, had a very positive development on our self-serve platform. Nearly 40% of podcasters requested for sponsorship campaigns via our self-serve ad platform had never worked with an advertiser before. So these are very positive signs that we're opening up, you know, new revenue and more revenue to more podcasters.
And also from Derek, you mentioned signs of an improved market. How does this look depending on region?
I mean, it differs by region, of course. But I think, you know, the early signs we see in the ad market as we entered 2024 were very optimistic. So I think it's just the results that we're starting to see in- ... do you want to say more?
Of course, and by geography, we have, if we look back, a year, we saw Europe entering into this slowdown ahead of North America, and I think right now we're seeing North America getting out of the slowdown faster than Europe. So those are positive signs for our North American business, and we anticipate that they will continue to take the lead on growth in the near term.
And also from Derek, how has Q1 started in general?
We're cautiously optimistic about Q1, and we see some improved momentum across our markets. So, we're positive about our prospects for the year.
Also from Derek, h ow have CPM rates developed from your perspective?
CPMs, as you saw in the year-by-year write-up on one of the slides, have been a little bit softer in 2023 compared to 2022, but there has not been a radical change. So, the CPMs will follow the ad market cycle as well. So, we're happy that the value that the podcast advertising format brings also holds up in this type of ad market environment when it comes to maintaining quite stable CPMs.
Finally, from Derek, h ow have things developed relating to competition? Have some of the smaller competitors disappeared, given the tougher market environment?
Hey, while we don't, you know, comment on our competitors, I think, you know, if you look at how we've progressed in each of those markets, you know, not only have we maintained our position, but we've grown our position in those markets. You know, you look at North America in particular, which is probably the most competitive market, growing 19% highlights how we are performing against competitors there in particular. So I'm very pleased with our developments last year.
A question from Andreas at Carnegie. The EBITDA targets, can you explain the dependency to reach this target on both organic growth, gross margin development, and further OpEx reductions?
So when it comes to achieving our EBITDA profitability target for next year, we are anticipating that our revenue growth will not be in the same vicinity that we've had in this quarter. So clearly we are betting on some uptick in revenue growth, and we are a growth company. We have seen a positive development of our underlying gross margin in the last two quarters. Our underlying gross margin in Q3 was 40%, and the underlying gross margin in Q4 was 39%.
So whilst we maintain our gross margin guidance of between 35% to 38%, there is room for us to improve on our gross margin in 2024, compared to the reported gross margin that we've seen in 2023. When it comes to cost, we are anticipating to maintain cost discipline, but there's definitely a path for us to achieve positive EBITDA without radical changes to our cost line. Of course, we're adapting to the market and whatever changes the market throws at us this year. But we're laser-focused on both driving growth, maintaining a healthy underlying gross margin, and being disciplined when it comes to managing our cost line.
Okay, and another question from Andreas at Carnegie. A minute, please. Sorry, actually, we'll move on to Emily from Barclays. What do you expect the podcast ad market growth to be in 2024?
The podcasting ad market has, depending by geography, is growing between 10, 15, 20, or even 25%, depending on the market that we look at. So, during 2023, we saw revisions downwards of the podcasting ad market at the start of the year, and some revisions upwards towards the second half of the year, particularly in North America. So we're monitoring this development in good order, and we have had a track record, I note, of course, of the podcasting market outpacing the regular ad markets and Acast outpacing the podcasting ad markets growth.
Also for Emily, what range of top-line growth expectations do you have for 2024 to get to EBITDA positive?
We don't guide on specific years or periods, but we're expecting growth to pick up compared to Q4 this quarter, definitely.
And also for Emily, y ou noted that ad load was low. Can you talk about what that number is at the current sell-through rate?
The ad load currently, the available ad slots are 6.2 per show. So that means that on average in our shows or in our listens, we have the ability to serve 6.2 ads. In reality, we serve less than that because we have a sell-through rate of 27%. So out of those 6.2 ads, we on average serve 27% of those. If we look at the U.S. and some of the top shows, there can easily be an ad load of 9 or even 12, depending on the ad format and the length of the show. And that is why I noted earlier that we still have the ability to increase our ad load as and when we feel it's relevant.
But we're very happy to be able to provide good returns to our podcasters and drive good revenue growth with the portfolio that we have, and we're also very conscious of how we place ad markers and how we coach our podcasters to create the best ad environment and listening experience for the audience.
Thank you. Another question from Andreas at Carnegie, on the gross margin, what can you say about the mix of ad revenue versus non-ad revenue?
The mix between ad revenue and non-ad revenue still skews heavily towards, ad revenue. So around 90, a bit over 90% of our revenues are related to the, ad activities. I would also make a note that as the ad market hopefully picks up a little bit of pace in the years to come, it may be harder for some of the SaaS or recurring revenue streams to keep up with that revenue growth. So we will see what the mix of products will be in the future. But, I mean, we can note we have a really healthy underlying gross margin. We've seen the contribution from Podchaser and the collaborations between Podchaser and Acast. That has definitely been a key driver in improving our underlying gross margin during this year.
Of course, the biggest driver of gross margin is the mix between how many ads we sell and how many sponsorship slots we sell, given the typical differential in splits, where ads carry a higher gross margin and spons carries a lower gross margin.
Another question from Andreas Joelsson at Carnegie, c an you explain how you can improve the sell-through rate going forward?
Sell more ads, right, Ross?
That's right. I also think about, you know, our technology as well, and you know, how we're opening up, you know, more podcasters and the ability for new marketers and new brands to come through, particularly in our self-serve platform. We'll naturally see growth in all of our markets, but I think for us, you know, it's a way of being even more efficient, to help improve the results for this year.
Which actually leads me on to the question from Dimi, which is, what can we do to improve the results for next year?
It's all of the above.
Yeah.
Continue to grow the top line, maintain that healthy underlying gross margin, and manage our cost line. And we're comfortable that we can do that.
Yep.
Then, finally, I think a question from Christina, n ow that you are going into profitability and presumably you have a lot of unused tax assets, what is the amount, and how will you make use of them?
You're correct. We have accumulated losses since the start of the company, which this year will actually be 10 years. We haven't realized any tax assets at this point, but we have just short of SEK 250 million sitting off balance sheet. That is not going away. So, as and when appropriate, we'll be realizing parts and then those tax assets in full, and that will materialize as we approach our goal of profitability.
Great. That ends the Q&A. I'll hand back to you, Ross.
Great. Thanks, everyone. As we look ahead to the coming months, we're energized and fully committed to continuing our journey in this positive direction. Thank you all for joining us today and for your interest in our company. We eagerly anticipate our next opportunity to speak with you. I'd like to remind you that our Q1 report will be released on the seventh of May, and we warmly invite you to join us, of course, for that presentation. On April the seventeenth, we will publish our annual report for 2023. Please don't forget to follow us on investors.acast.com, our Acast blog, or listen to our financial results, of course, as a podcast. If you want to receive company data continuously into your inbox, please subscribe to press releases, news, and financial reports on our investor relations web.
Thanks again, and goodbye.