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Subject: ERN

Akazoo Reports Third Quarter 2019 Results


NEW YORK and LONDON, Dec. 9, 2019 /PRNewswire/ -- Akazoo S.A. (NASDAQ: SONG) ("SONG" or "Company"), a leading global music streaming platform and media technology company with a strong international market position focused on emerging markets, today announced improved financial results for the three month and nine month periods ending September 30, 2019. Highlights include:

(PRNewsfoto/Akazoo S.A.)

SUMMARY USER AND FINANCIAL METRICS


 FINANCIALS (?'000)

Q3 2018

Q2 2019

Q3 2019

% change
YoY

9 months
2018

9 months
 2019

% change
YoY









Total Revenue

28,095

33,804

34,959

24%

74,550

99,480

33%

Adjusted Gross Profit

11,362

13,995

14,466

27%

30,317

41,070

35%

Adjusted Gross Margin

40%

41%

41%

-

41%

41%

-

Adjusted EBITDA (1)

2,965

4,220

2,945

-1%

7,696

11,261

46%

Adjusted EBITDA Margin

11%

12%

8%

-

10%

11%

-

USERS (m)








Subscribers (eop)

4.3

5.3

5.5

28%

4.3

5.5

28%

Registered Users (eop)

37.8

43.3

44.4

18%

37.8

44.4

18%


(1):  Transaction related costs of ?0.49 million for Q2 2019, ?0.39 million for Q3 2019 and ?1.26 million for the nine months ended September 2019 have been excluded from operating expenses in calculating Adjusted EBITDA.  Reconciliations of adjusted EBITDA to net income and adjusted gross profit are presented elsewhere in this earnings release.

Third Quarter Financial Highlights:

Revenues increased 24% to ?35.0 compared to ?28.1 million in the third quarter of 2018, driven principally by ongoing user acquisition spending with Eastern European and select LATAM territories leading growth trends. Customer acquisition efforts were tempered early in the quarter prior to receiving the $55 million of gross proceeds from the equity financing in September, a trend that reversed following receipt of the proceeds. Average revenue per user (ARPU) for premium subscribers remained stable at ?2.05, representing a relatively equal growth in subscribers across regions.

Adjusted gross margin of 41.4% in Q3 improved from the 40.4% in Q3 2018. The adjusted gross margin excludes media costs, which are costs incurred to acquire and retain subscribers. Contributing to the increased margin was a deceleration in the growth in media spending prior to the closing of the equity financing. Operating expenses increased as a percentage of revenue in Q3 due to higher costs following the listing in addition to increased content delivery and bandwidth spending. Adjusted EBITDA, which excludes transaction related costs, for the quarter was ?2.9 million bringing nine-month Adjusted EBITDA to ?11.3 million, ahead of full year 2019 guidance of ?11 million.

Balance Sheet Highlights:
Cash and cash equivalents totaled ?45.5 million at September 30, 2019. The balance sheet was strengthened due to the receipt of gross proceeds of $54.9 million generated from the equity financing in September 2019, referred to above. There were no short- or long-term borrowings at the end of Q3.

Management Commentary:
"We are pleased with the solid revenue and subscriber growth in the third quarter and first nine months of the year. Additionally, we are excited about being well capitalised following the closing of the equity financing late in Q3. As we deploy new growth proceeds, our quarter-over-quarter revenue growth has accelerated in the fourth quarter. In 2020, we expect to see the initial benefits from increased user acquisition initiatives and spending and new partnerships such as our recently announced Rakuten Viber global strategic partnership," said Apostolos Zervos, Founder & CEO.

About Akazoo
Akazoo is a global, on-demand music and audio streaming and media and A.I. technology company, founded 2010, with a focus on emerging markets and a presence in 25 countries. Akazoo's premium service provides subscribers with unlimited online and offline high-quality music streaming access to a catalogue of over 45 million songs on an ad-free basis. Akazoo uses patented A.I. for music recommendations and offers online and offline listening. Akazoo's free, ad-supported radio service consists of over 80,000 stations and exists as a separate services and application. As consumers across the globe continue to shift their media consumption to mobile devices, Akazoo is equipped with a world-class mobile application and user experience which works seamlessly across a multitude of mobile devices and provides a high-quality user experience across a range of mobile networks from 2g to 4g LTE and soon 5g.

Use of Non-IFRS Measures
We define EBITDA as Net Income before Net finance costs, Income tax expense and Depreciation and amortization. We define adjusted EBITDA as EBITDA excluding one-off transaction costs of ?0.49 million for Q2 2019, ?0.39 million for Q3 2019 and ?1.26 million for the nine-months ended September 2019 incurred in connection with our equity financing and business combination transaction in 2019.  We believe Adjusted EBITDA is useful to our management and investors as a measure of comparative operating performance from period to period and among companies as it is reflective of changes in pricing decisions, cost controls, and other factors that affect operating performance, and it removes the effect of items not directly resulting from our core operations. We believe that Adjusted EBITDA also is useful to investors because this metric is frequently used by securities analysts, investors, and other interested parties in their evaluation of the operating performance of companies in the technology industry and other industries similar to ours. Our management also uses Adjusted EBITDA for planning purposes, including the preparation of our annual operating budget and financial projections. Adjusted EBITDA has limitations as an analytical tool. Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Additionally, Adjusted EBITDA is not intended to be a measure of discretionary cash to invest in the growth of our business, as it does not reflect tax payments, debt service requirements, capital expenditures, and certain other cash costs that may recur in the future. Management compensates for these limitations by relying on our results reported under IFRS as issued by IASB in addition to using Adjusted EBITDA supplementally.

We define "Free Cash Flow" as net cash from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments. Free Cash Flow is not a measure of our liquidity under IFRS and should not be considered as an alternative to net cash from operating activities.

Akazoo defines Adjusted Gross Profit as Gross Profit plus Media Costs added back, which are costs incurred to acquire customers, consistent with reporting of public peers.

Adjusted EBITDA, Adjusted Gross Profit and Free Cash Flow are non-IFRS measures and are not a substitute for IFRS measures in assessing our overall financial performance. Because Adjusted EBITDA, Adjusted Gross Profit and Free Cash Flow are not measurements determined in accordance with IFRS, and are susceptible to varying calculations, it may not be comparable to other similarly titled measures presented by other companies. You should not consider Adjusted EBITDA, Adjusted Gross Profit and Free Cash Flow in isolation, or as a substitute for an analysis of our results as reported on our consolidated financial statements appearing elsewhere in this proxy statement/prospectus.

Forward Looking Statements
This release contains certain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on the current expectations, estimates and projections of the Company about its operations, industry, financial condition, performance, results of operations, and liquidity. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Statements containing words such as "may," "could," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," "guidance," "estimate," or similar expressions constitute forward-looking statements. Forward-looking statements represent management's current expectations or predictions of future conditions, events or results. These forward-looking statements include, but are not limited to, statements about, or are based upon assumptions regarding, the Company's strategies and future financial performance; expectations or estimates about future business plans or objectives, prospective performance and opportunities and competitors, including revenues; customer acquisition and retention; operating expenses; market trends, including those in the markets in which the Company competes; liquidity; cash flows and uses of cash; capital expenditures; the Company's ability to invest in growth initiatives and pursue acquisition opportunities; the Company's products and services; pricing; marketing plans; the sources and uses of cash; and the continued listing of the Companies' securities on the Nasdaq Capital Market. You are cautioned not to place undue reliance on these forward-looking statements, which reflect management's good faith beliefs, assumptions and expectations only as of the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and results to differ materially from those predicted, many of which are beyond the Company's control. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation to publicly release the results of any revision or update to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Financial Statements
The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full fiscal year. These statements do not include all information or the footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with IFRS. These statements should be read in conjunction with the Company's consolidated financial statements for the fiscal year ended December 31, 2019, incorporated by reference in the Company's Shell Company Report on Form 20-F filed on September 17, 2019 with the U.S. Securities and Exchange Commission.

Interim Condensed Consolidated Statement of Operations


(Unaudited)


(in ? thousands, except share and per share data)




Three months ended


Nine months ended

September 30,

September 30,



2019


2018


2019


2018

Revenues


34,959


28,095



99,480



74,550

Cost of revenues


-26,716


-21,842



-75,548



-57,865

Media costs


-6,223


-5,109



-17,138



-13,632

Other direct costs


-20,493


-16,733



-58,41



-44,233

Gross profit


8,243


6,253



23,932



16,685

Operating expenses


-5,497


-3,288



-12,869



-8,989

Transaction costs


-394


0



-1,257



0

Other Operating Income


198


0



198



0

Depreciation and amortisation


-2,144


-1,786



-5,984



-3,677

Operating profit


407


1,179



4,020



4,019

Finance income


1,293


12



790



12

Finance costs


-53


-187



-53



-199

Finance income/(costs) - net


1,240


-175



737



-187

Profit before income tax


1,647


1,004



4,757



3,832

Income tax(expense)/benefit


-2


7



-2



-13

Net Income


1,645


1,011



4,755



3,819

Profit/(loss) attributable to non-controlling interest


0


0



0



0

Net income attributable to owners of the parent


1,645


1,011



4,755



3,819

Weighted-average ordinary shares outstanding











Basic and Diluted


49,735,210


49,735,210



49,735,210



49,735,210

Income per share attributable to owners of the parent











Basic and Diluted


0.03


0.02



0.10



0.07

 

Interim Condensed Consolidated Statement of Comprehensive Income


(Unaudited)


(in ? thousands)






Three months ended
September 30,



Nine months ended
September 30,






2019



2018



2019



2018


Net income attributable to owners of the parent





1,645




1,011




4,755




3,819


Other comprehensive (loss)/income:



















Items that may be subsequently reclassified to condensed consolidated statement of operations (net of tax):





0




0




0




0


Translation differences





-5




248




18




1


Items not to be subsequently reclassified to condensed consolidated statement of operations (net of tax):





0




0




0




0


Income tax relating to items that will not be reclassified to profit or loss





0




0




0




0


Other comprehensive (loss)/income for the period (net of tax)





0




0




0




0


Total comprehensive (loss)/income for the period attributable to owners of the parent





1,640




1,259




4,773




3,820


 

Interim Condensed Consolidated Statement of Financial Position


(9 months September, 2019, Unaudited)


(in ? thousands)







9 months
September,



12 months
December,







2019



2018


ASSETS













Non-Current Assets













Intangible assets







34,496




27,582


Property, plant and equipment







1,021




1,266


Trade and other receivables







30




30


Deferred tax







0




4


Total Non-Current Assets







35,547




28,882


Current Assets













Trade and other receivables







48,562




34,683


Cash and cash equivalents







45,481




501


Total Current Assets







94,043




35,184


Total Assets







129,590




64,066


Equity and Liabilities













Equity













Share capital







497




58


Share premium







95,653




46,765


Other reserve







-1,395




-1,413


Retained earnings







5,067




312


Total Stockholders' Equity







99,822




45,722


Non-controlling interests







-9




-9


Total Equity







99,813




45,713


LIABILITIES













Non-Current Liabilities













Pension liability







31




31


Current Liabilities













Trade and other payables







29,746




16,005


Interest bearing loans and borrowings







0




2,317


Total Current Liabilities







29,746




18,322


Total Liabilities







29,777




18,353


Total Equity and Liabilities







129,590




64,066


 

Interim Condensed Consolidated Statement of Changes in Equity


(Unaudited)


(in ? thousands) 




Share


Retained


Share


Other


Total


Minority


Total

Capital

Earnings

Premium

Reserves

Interest

Equity 

Balance at January 1, 2018


58



-4,555


46,765



-1,413



40,855



-10


40,845

Changes in Equity



















Total Comprehensive Income


0



1,446


0



-123



1,323



0


1,323

Balance at March 31, 2018


58



-3,109


46,765



-1,536



42,178



-10


42,168

Changes in Equity



















Total Comprehensive Income


0



1,362


0



-124



1,238



0


1,238

Balance at June 30, 2018


58



-1,747


46,765



-1,660



43,416



-10


43,406

Changes in Equity



















Total Comprehensive Income


0



1,011


0



248



1,259



0


1,259

Balance at September 30, 2018


58



-736


46,765



-1,412



44,675



-10


44,665

Balance at December 31, 2018


58



312


46,765



-1,413



45,722



-9


45,713

Balance at January 1, 2019


58



312


46,765



-1,413



45,722



-9


45,713

Changes in Equity



















Total Comprehensive Income


0



1,801


0



-63



1,738





1,738

Balance at March 31, 2019


58



2,113


46,765



-1,476



47,46



-9


47,451

Changes in Equity



















Total Comprehensive Income


0



1,308


0



86



1,394



0


1,394

Balance at June 30, 2019


58



3,421


46,765



-1,390



48,854



-9


48,845

Changes in Equity



















Total Comprehensive Income


0



1,646


0



-5



1,641



0


1,641

Additional Paid Capital


439



0


48,888



0



49,327



0


49,327

Balance at September 30, 2019


497



5,067


95,653



-1,395



99,822



-9


99,813

 

Interim Condensed Consolidated Statement of Cash Flows


(Unaudited)


(in ? thousands) 



9 months ended September 30,


2019


2018

Cash Flows from Operating Activities






Profit before income tax


4,757



3,832

Adjustment to reconcile net income (loss) to net cash used in operating activities






Depreciation


5,984



3,677

Provisions


9,705



7,119

Finance (income)/expenses net


-736



187

Changes in operating assets and liabilities






Decrease / (increase) in trade and other receivables


-13,738



-15,335

(Decrease) / increase in trade and other payables


-4,126



6,467

Net cash used in operating activities


1,846



5,947

Cash Flows from Investing Activities






Purchase of intangible and tangible fixed assets


-4,647



-8,535

Net cash used in investing activities


-4,647



-8,535

Cash Flows from Financing Activities






Net proceeds from share capital increase


47,717



0

New loans in the period


0



2,012

Net cash used from financing activities


47,717



2,012

Net Change in Cash


44,915



-576

Cash and cash equivalents at beginning of the period


501



2,107

Effect of foreign exchange rate changes


65



-3

Cash at the end of the period


45,481



1,528

 

Supplemental Information

Set forth below are reconciliations of EBITDA to net income and Free Cash Flow and adjusted gross profit to gross profit (in thousands ?).




Three months ended
 September 30,



Nine months ended
 September 30,




2019



2018



2019



2018


EBITDA:













Net Income



1,645




1,011




4,755




3,819


Finance costs/(income)-net



-1,240




175




-737




187


Income tax expenses /(benefit)



2




-7




2




13


Depreciation and amortization



2,144




1,786




5,984




3,677


EBITDA (1)



2,551




2,965




10,004




7,696


Revenues



34,959




28,095




99,480




74,550


EBITDA Margin



7%




11%




10%




10%


Gross Profit



8,243




6,253




23,932




16,685


Gross Margin



24%




22%




24%




22%


add back: Media Costs



6,223




5,109




17,138




13,632


Adjusted Gross Profit



14,466




11,362




41,070




30,317


Adjusted Gross Margin



41%




40%




41%




41%



(1):  Transaction related costs of ?0.39 million are included in operating expenses for Q3 2019 and ?1.26 million for the nine month period ended September 2019.

 



Nine months ended
September 30,




2019



2018


Free Cash Flow:









Net cash from operating activities



1,846




5,947


Capital expenditures



-4,647




-8,535


Free Cash Flow



-2,801




-2,588


 

SOURCE Akazoo S.A.


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