CNIC.L Regulatory News (CNIC)

22 November 2022

CENTRALNIC GROUP PLC

("CentralNic" or "the Company" or "the Group")

UNAUDITED FINANCIAL RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2022

Transformational 88% increase in Revenue and 101% rise in Adjusted EBITDA

CentralNic Group Plc (AIM: CNIC), the global internet software company that derives recurring revenue from marketplaces for online presence and online marketing services, announces its unaudited financial results for the nine months ended 30 September 2022. The Company has achieved record revenue and Adjusted EBITDA for the period, driven by sustained organic growth which has been further supplemented with five acquisitions, including one acquisition post the period end.

Financial summary:

● Revenue increased by 88% to USD 526.7m (September 2021 YTD: USD 280.6m)

● Organic revenue growth* for the trailing twelve months ending 30 September 2022 of c.66%

● Net revenue/gross profit increased by 53% to USD 128.3m (September 2021 YTD: USD 84.1m)

● Adjusted EBITDA** doubled to USD 62.0m (September 2021 YTD: USD 30.9m)

● Operating profit of USD 35.1m (September 2021 YTD: USD 6.5m)

● Non-core operating expenses reduced by 8% to USD 6.0m (September 2021 YTD: 6.5m)

● Adjusted operating cash conversion of 105% (September 2021 YTD: 118%)

● Net debt*** reduced by 22% to USD 63.4m as compared to USD 81.4m on 31 December 2021

Operational highlights:

● The Company's organic growth further accelerated during the period, driven by the ongoing market share gains of its proprietary privacy-safe online marketing solutions which are facing a USD 100bn+ opportunity

● The number of visitor sessions increased by 83% from 1.8 billion in September 2021 YTD to 3.3 billion in September 2022 YTD and the revenue per thousand sessions ("RPM") increased by 60% from USD 64.9 to USD 104.1 

● EBITDA as a percentage of Net Revenue has increased from 37% in September 2021 YTD to 48% in September 2022 YTD, demonstrating that CentralNic's operating leverage enables revenue growth to drive increasing profitability

Corporate highlights:

● Leverage**** reduced from 2.2x pro forma EBITDA as of 31 December 2021 to 1.2x due to improved profitability and continued deleverage

● Acquisition of VGL, a leading product review website publisher, in March 2022 for an enterprise value of EUR 60 million (c. USD 65 million)

● Oversubscribed GBP 42 million equity raise on 28 February 2022, EUR 21 million bond placing on 7 March 2022 and fully taken up Open Offer of GBP 3 million on 21 March 2022

● On 18 July 2022, the final deferred consideration payment for the acquisition of KeyDrive SA was settled totalling USD 1.1 million

● Acquisition of M.A Aporia on 13 September 2022 for an initial consideration of USD 11.2 million

● Appointment of Claire MacLellan as Non-Executive Director on 14 September 2022

Post quarter end highlights:

● Acquisition of Intellectual Property Management Company ("IPMC") on 26 October 2022 for an enterprise value of USD 7.3 million

● In October 2022, the EUR 126 million of senior secured bonds were refinanced via a new Senior Facilities Agreement comprising a USD 150 million term loan and a USD 100 million revolving credit facility. These new debt facilities have an initial maturity date of 14 October 2026 with an option to extend by a further year. The borrowing cost will initially be 2.75% above SOFR, a notable reduction compared to the 7% above 3m EURIBOR for the senior secured bonds it replaces

● Between 9 and 21 November 2022, the Company entered into three separate interest rate swap transactions to fix the variable interest component on USD 75 million of the new USD 150 million term loan at a blended fixed rate of 3.92%

Outlook:

● CentralNic's results for the nine months to September 2022 ("September 2022 YTD") demonstrate the continued momentum within the business and significant potential of its strong marketplace model for Online Presence and Online Marketing services

● The Directors remain confident in the Company's outlook, with the business trading comfortably inline with the recently upgraded market expectations[1]. The Company will issue its full year trading update on 30 January 2023

Ben Crawford, CEO of CentralNic, commented: "CentralNic continued to build momentum in the third quarter, despite slower growth in the wider economy, with year-on-year organic revenue growth now reaching a record 66%, EBITDA more than doubling, and operating profit on a completely new level due to CentralNic's operating leverage. This continued strong and consistent financial performance has allowed us to refinance at a notably improved interest rate, with a syndicate of quality banks which have the means to provide ongoing support for CentralNic's growth strategy. With the sustainability of our growth proven in a recessionary environment, and endorsed by leading financial institutions, we look forward to the future with even greater confidence."

* Pro forma revenue, adjusted for acquired revenue, constant currency FX impact and non-recurring revenues is estimated at USD 683 million for the trailing 12 months ending 30 September 2022 and at USD 411 million for the trailing 12 months ending 30 September 2021

** Parent, subsidiary and associate earnings before interest, tax, depreciation, amortisation, non-cash charges and non-core operating expenses

*** Includes gross cash, bond and bank debt, prepaid finance costs and the Mark-To-Market (MTM) valuations for the bond hedges (bond debt, bank debt and prepaid finance costs of USD 142.2m, hedging liabilities of USD 5.0m, and cash of USD 83.8m as of 30 September 2022 as compared to bond debt, bank debt and prepaid finance costs of USD 131.1m, hedging liabilities of USD 6.4m, and cash of USD 56.1m as of 31 December 2021) 

**** Includes Net Debt as defined under *** plus (i) lease liabilities, (ii) guarantee obligations, and (iii) the best estimate of any Deferred Consideration payable in cash, all divided by pro forma EBITDA, i.e., last twelve months' EBITDA including acquired entities' EBITDA on a pro forma basis

To the best of our knowledge, these unaudited financial results have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group taken as a whole. In addition, to the best of our knowledge, these unaudited financial results include a fair review of the development and performance of the business and the position of the Group taken as a whole. The principal risks and uncertainties that the business faces remain materially consistent with the risks and uncertainties described in the Risks section of the Group's 2021 annual report.

Ben Crawford - CEO

Michael Riedl - CFO

For further information:

Forward-Looking Statements

This document includes forward-looking statements. Whilst these forward-looking statements are made in good faith, they are based upon the information available to CentralNic at the date of this document and upon current expectations, projections, market conditions and assumptions about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about the Group and should be treated with an appropriate degree of caution. 

About CentralNic Group Plc

CentralNic (AIM: CNIC) is a fast-growing London-based software and managed services company which drives the growth, efficiency, inclusiveness and safety of the global digital economy by developing and managing online marketplaces allowing businesses globally to buy subscriptions to domain names, websites and email, to monetise their websites, and to acquire customers online. It has delivered 78% CAGR since its IPO in 2013 through a combination of organic growth and acquiring and integrating cash-generative businesses in its industry with annuity revenue streams and exposure to growth markets. 

For more information please visit: www.centralnicgroup.com 

MANAGEMENT COMMENTARY ON PERFORMANCE

Introduction

CentralNic's organic growth, combined with its accelerated acquisition strategy, substantially increased the scale and capabilities of the Company. The effect of this is demonstrated in our unaudited September 2022 YTD results which show a transformational increase in revenue and adjusted EBITDA, which have grown by 88% and 101% respectively compared to September 2021 YTD.

Performance Overview

The Company has performed strongly during the period with the key financial metrics listed below:

***** Please refer to note 9

****** Please refer to note 8

Segmental analysis

Organic growth rates quoted below are calculated on a pro forma basis including all the Group's constituents as of the last balance sheet dates and adjusted for non-recurring or non-cash revenues and on a constant currency basis.

Online Marketing segment

The Online Marketing segment has proven to be largely decorrelated from the softer performance reported by some of the major online marketing players, with the Company's Online Marketing segment further accelerating its growth with revenues increasing by USD 245.6 million, or 147%, from USD 167.0 million to USD 412.6 million. Organic revenue doubled, predominantly driven by CentralNic's TONIC media buying platform. Inorganic growth was obtained from the full year impact of the Wando and White & Case acquisitions, as well as the acquisition of VGL and, to a lesser degree, Fireball and Aporia.

The number of visitor sessions also increased by 83% from 1.8 billion in September 2021 YTD to 3.3 billion in September 2022 YTD and the revenue per thousand sessions ("RPM") increased by 60% from USD 64.9 to USD 104.1[2]. 

CentralNic is a leader in online privacy, as none of our marketing platforms make use of third-party cookies and rather rely on contextual data. We therefore expect that restrictions placed on those practices (e.g., the ban of third-party cookies in Google Chrome or App Tracking Transparency in Apple's iOS 14.5) will continue to benefit CentralNic, as we provide an alternative for online marketers that is proven to be highly effective, whilst respecting the privacy of internet users. This puts us at the forefront of companies offering solutions for a more privacy conscious world, a key success factor in winning market share.

Online Presence segment

Organic growth for the Online Presence segment was 4.3% for the trailing twelve months ended 30 September 2022. Reported revenue in the segment increased only marginally though by less than 1%, from USD 113.6 million in September 2021 YTD to USD 114.1 million in September 2022 YTD, as a result of non-USD revenues translating into fewer USD following the devaluation of most global currencies against the dollar.

The average revenue per domain year decreased by 6% from USD 9.50 in September 2021 YTD to USD 8.90 in September 2022 YTD, while the number of processed domain registrations increased 7% from 9.1 million in September 2021 YTD to 9.7 million in September 2022 YTD. The share of Value-Added Service revenue for the period ended 30 September 2022 remained stable at 8%[3].

Outlook

CentralNic has enjoyed a very strong 2022, particularly in our Online Marketing segment. In September 2022 YTD, we reported 66% organic revenue growth on a pro forma basis for the trailing twelve months ended 30 September 2022[4].

Whilst the Directors continue to monitor the global macro-economic environment closely, they are confident that the Group will trade comfortably inline with the recently upgraded market expectations for the current financial year. Targeted investment in people and our market-leading products, in particular our suite of privacy-safe online marketing technologies, position us to succeed even in a challenging global environment.

The pipeline of future acquisition targets also remains strong, while our net leverage has substantially reduced and is now only 1.2x trailing 12-month EBITDA[5] - compared to 2.2x as of 31 December 2021. CentralNic is therefore comfortably positioned, particularly given the Group's high cash generation and the expected contribution from the recently completed acquisitions. With USD 100m of committed finance facilities, CentralNic now has additional capacity to continue its disciplined capital allocation to highly earnings accretive M&A opportunities.

These outstanding results further demonstrate that CentralNic can source and complete transformative acquisitions, but more importantly, that it can also integrate them successfully into marketplaces while continuing to deliver strong organic growth. Moreover, as the Company rapidly scales up, the underlying qualities of high recurring revenues and excellent cash conversion become increasingly meaningful, demonstrated by EBITDA as a percentage of Net Revenue increasing from 37% in September 2021 YTD to 48% in September 2022 YTD.

As a virtually pure-play recurring revenue business with high inherent cash conversion consistently above 100%, the Company continues to improve its key financial metrics as it grows, including its cash position, interest coverage and net debt to EBITDA ratio.

CentralNic continued to build momentum in the third quarter, despite slower growth in the wider economy, with year-on-year organic revenue growth now reaching a record 66%, EBITDA more than doubling, and operating profit on a completely new level due to CentralNic's operating leverage. This continued strong and consistent financial performance has allowed us to refinance at a notably improved interest rate, with a syndicate of quality banks which have the means to provide ongoing support for CentralNic's growth strategy. With the sustainability of our growth proven in a recessionary environment, and endorsed by leading financial institutions, we look forward to the future with even greater confidence.

Ben Crawford

Chief Executive Officer

All amounts relate to continuing activities.

(a) The consolidated statement of comprehensive income for the nine months ended 30 September 2021 has been restated as follows:

(i) Revenue has reduced by USD 1.4 million due to the recognition of liabilities for prior period credit notes

(ii) Amortisation of intangible assets has increased by USD 1.0 million due to a restatement of intangible assets

(b) Parent, subsidiary and associate earnings before interest, tax, depreciation, amortisation, non-cash charges and non-core operating expenses.

I  Non-core operating expenses include items related primarily to acquisition, integration and other related costs, which are not incurred as part of the underlying trading performance of the Group, and which are therefore adjusted for, in line with Group policy

(d)  The USD 30.5 million Exchange difference on translation of foreign operations is the result of lower USD revaluations of non-current assets denominated in EUR, as EUR deteriorated against USD during the year. These non-current assets are primarily Goodwill and Intangible Assets arising from acquisitions and as such this loss has no impact on reported cash flow or future cash flow

* The consolidated statement of financial position as at 30 September 2021 has been restated as follows (please refer to the Annual Report for the year ended 31 December 2021 for further disclosure): (i) Trade and other payables and accruals have increased by USD 3.4 million due to the recognition of liabilities for prior period credit notes. USD 1.4 million relates to the nine month period ended 30 September 2021, USD 1.2 million relates to the year ended 31 December 2020, and USD 0.8 million relates to the year ended 31 December 2019; (ii) Intangible assets have decreased by USD 2.2 million due to increased amortisation charges. USD 1.2 million relates to the year ended 31 December 2020 and USD 1.0 million relates to the nine month period ended 30 September 2021

● Share capital represents the nominal value of the company's cumulative issued share capital.

● Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions.

● Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable shares issue costs and other permitted reductions.

● Retained earnings represent the cumulative value of the profits not distributed to shareholders but retained to finance the future capital requirements of the CentralNic Group.

● Share-based payments reserve represents the cumulative value of share-based payments recognised through equity and deferred tax assets arising thereon, net of exercised and lapsed options. 

● Cash flow hedging reserve represents the effective portion of changes in the fair value of derivatives.

● Foreign exchange translation reserve represents the cumulative exchange differences arising on Group consolidation.

* Please refer to the consolidated statement of comprehensive income and the consolidated statement of financial position for details of the prior period restatements

* Please refer to the consolidated statement of comprehensive income and the consolidated statement of financial position for details of the prior period restatements

NOTES TO THE UNAUDITED FINANCIAL RESULTS

1. General information

CentralNic Group Plc is the UK holding company of a group of companies which are engaged in the provision of online presence and online marketing services. The Company is registered in England and Wales. Its registered office and principal place of business is 4th Floor, Saddlers House, 44 Gutter Lane, London EC2V 6BR.

2. Basis of preparation

The financial results for the nine months ended 30 September 2022 are unaudited and have been prepared on the basis of the accounting policies set out in the Group's 2021 statutory accounts and, for all periods presented, in line with the principal disclosure requirements of IAS 34: Interim Financial Reporting.

The unaudited financial results are condensed and do not represent statutory accounts within the meaning of section 435 of the Companies Act 2016. The statutory accounts for the year ended 31 December 2021, upon which the auditors issued an unqualified opinion, are available on the Group's website and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

As a profitable provider of online recurring revenue services with high cash conversion and solid organic growth, de-centrally organised and catering to solid customers distributed over the entire globe, CentralNic has not been, and is not expected to be, severely affected by recessionary external factors. The Directors have taken the necessary precautions to preserve the Group's cash and review the acquisition pipeline and financing plans to ensure stability and optimisation of the business strategies in the current global climate.

3. Change of functional currency

On 1 January 2022, CentralNic Group Plc, the parent company of the Group, changed its functional currency from EUR to USD. The change was made to reflect that - when taking into account the impact of derivative financial instruments - USD has become the predominant currency in the company, accounting for a significant part of the company's foreign currency borrowings. The change has been implemented with prospective effect only and comparatives have not been restated. The financial impact of the change is that the revaluation of the euro-denominated debt (USD 21.6 million reduction in borrowings) is processed through the profit and loss account rather than through other comprehensive income. The change in functional currency also has necessitated a review of the hedge accounting treatment of the forward foreign exchange contracts with HSBC Bank Plc and Global Reach Partners Ltd. Following the change in functional currency, these forward foreign exchange contracts are no longer considered to be effective and the cumulative cash flow hedging reserve as at 31 December 2021 has been recycled through the profit and loss account for the nine month period ended 30 September 2022.

4. Segment analysis

CentralNic is an independent global service provider building and managing platforms that sell Online Presence and Online Marketing services. Operating segments are organised around the products and services of the business and are prepared in a manner consistent with the internal reporting used by the chief operating decision maker to determine allocation of resources to segments and to assess segmental performance. The Directors do not rely on analyses of segment assets and liabilities, nor on segmental cash flows arising from the operating, investing and financing activities for each reportable segment, for their decision making and therefore have not included them.

The Online Presence segment conducts business as a global distributor of domain names through a network of channel partners as well as selling domain names and ancillary services to end users, monitoring services to protect brands online, technical and consultancy services to corporate clients, and licensing the Group's in-house developed registry management platform on a global basis. The Online Marketing segment uses privacy-safe AI based data analytics and automation tools to provide advertising placement services to match websites that have traffic with online marketers who want qualified traffic that translates into new customers.

NOTES TO THE UNAUDITED FINANCIAL RESULTS (continued)

4. Segment analysis (continued)

Management reviews the activities of the CentralNic Group in the segments disclosed below up to a gross profit level only:

5. Revenue

The Group's revenue is generated from the following geographical areas:

* End customers may be located in different territories as notable parts of the business are conducted through channel partners

NOTES TO THE UNAUDITED FINANCIAL RESULTS (continued)

6. Non-core operating expenses

(1) Other costs include items related primarily to business reviews and restructuring expenses.

7. Finance income and costs

8. Earnings per share

Earnings per share has been calculated by dividing the consolidated profit/(loss) after taxation attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share has been calculated on the same basis as above, except that the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares as calculated using the treasury stock method (arising from the Group's share option scheme and warrants) into ordinary shares has been added to the denominator. There are no changes to the profit (numerator) as a result of the dilutive calculation. Due to the loss made in the year ended 31 December 2021, the impact of the potential shares to be issued on exercise of share options and warrants would be anti-dilutive and therefore diluted earnings per share is reported on the same basis on earnings per share.

NOTES TO THE UNAUDITED FINANCIAL RESULTS (continued)

8. Earnings per share (continued)