Catena Media has reported a drop in group revenue in the third quarter of 2023 as the company transitions some of its North American contracts from cost-per-acquisition contracts to revenue share.
The group has also entered into agreements to sell its Italian online sports betting and casino gaming business, treating these assets as discontinued in its reporting and exiting the Italian market in the process.
CEO Michael Daly added that the streamlining of the business will help Catena Media equip itself for “the next chapter” of its story and that the company is now “a lean and robust organisation” ready to drive further expansion in North America.
During the quarter, the company began shifting from CPA to revenue share with its agreements, encountered stronger competition and lower marketing spending by operators, saw positive signs from North American casino operations, and began investing in artificial intelligence
Publishing its Q3 financials, Catena Media declared a group revenue from continued operations of €15.9m, a decline of 28 per cent year-over-year compared to the €21.9m reported during Q3 2023.
The group attributed the drop in revenue “primarily reflecting a strategic transition of some contracts in North America from CPA to revenue share”.
Per vertical, casino operations brought in €10.1m, a 23 per cent YoY decline (2022: €13.2m), while sports operations came in at €5.7m, down 34 per cent (2022: €8.7m).
North American operations comprised 84 per cent of group revenue during the quarter, while the Rest of world stood at 16 per cent. CPA made up 81 per cent of group revenue in Q3, followed by revenue share at 17 per cent and fixed at two per cent.
Revenue from continued operations in North America stood at €13.3m, down 29 per cent YoY (Q3 2022: €18.6m). Casino operations in the region brought in €8.7m, down 18 per cent (2022: €10.6m), while sports operations earned €4.6m, a 43 per cent drop (2022: €8.1m).
“It is 18 months since we announced our strategic review of the business and embarked on a journey that would streamline Catena Media and equip us for the next chapter in our story.”Catena Media CEO Michael Daly
Rest of world’s continued operations revenue came in at €2.6m, a 21 per cent YoY drop on the previous year (2022: €3.3m). Casino operations in the region earned €1.4m, down 44 per cent (2022: €2.6m), while sports operations recorded €1.1m, up 66 per cent (2022: €676,000).
New depositing customers during Q3 were down as well by 34 per cent YoY to 44,986 (2022: 68,174), with 77 per cent coming from CPA and 23 per cent from revenue share.
North American operations had 41,469 NDCs (2022: 62,766), while rest of world had 3,517 (2022: 5,408).
Adjusted EBITDA at the end of the quarter stood at €3.1m, a 65 per cent YoY decrease (2022: €8.8m).
Per region, North American adjusted EBITDA was down 44 per cent to €5.8m (2022: €10.4m), while rest of world’s adjusted EBITDA fell by 55 per cent to €512,000 (2022: €1.1m).
Net debt stood at €25.4m as of September 30, and after adjustment for a scheduled inflow of €46.6m in divestment proceeds from 2023 to 2025, the group had a net cash position of €21.2m. Cash and cash equivalents were €33.5m (2022: €28.3m).
As part of its strategic review to streamline operations, Catena Media has also agreed to the sale of its Italian online sports betting and casino operations for €19.8m, exiting the Italian market.
The aggregate purchase prices for the sales will be paid in three phases – €12.8m in October and November 2023, €3.5m in Q4 2024, and €3.5m in Q2 2025. Proceeds from the sale will be used to repay debt and it will also give a rise to €2.7m impairment charge.
The company has stated that its strategic review is now complete, with approximately €76m raised from asset sales that will be primarily used to repay debt, an annualised cost savings of €3.8m to €4.2m, a lower presence in unregulated grey markets and a pathway to transition to a “more balanced revenue model”.
“We believe stable, regulated markets offer the best platform to drive sustainable growth in our business over the long term.”Catena Media CEO Michael Daly
Daly commented: “It is 18 months since we announced our strategic review of the business and embarked on a journey that would streamline Catena Media and equip us for the next chapter in our story. That journey, during which we sold assets for €76m, repaid debt and refocused the organisation, has come full circle.
“The divestiture of our Italian businesses completed the review process and finalised our strategic reset. Today, we stand strong as a lean and robust organisation that is net cash positive and geared to invest in future technologies to drive expansion in our core North American market.
“We believe stable, regulated markets offer the best platform to drive sustainable growth in our business over the long term. Predictable regulatory frameworks provide stability for operators and affiliates alike.
“They create a structure that allows Catena Media to respond effectively to market needs and to confront the operating challenges and opportunities we face in North America and beyond.”
Regarding a shift from CPA to revenue share, while it will have an impact financially in the short term, Daly noted that the company expects higher total revenue per NDC and “greater stability of incoming payments under revenue-share arrangements” that will enhance planned investments, growth-oriented projects, and offset some volatility inherent in a CPA-only model.
Examining stronger competition and lower marketing spending, the CEO stated that competition impacted revenue and EBITDA, with a particular hit in sports betting as operators move “to protect margins by reducing the CPA rates they pay to affiliates”.
While CPA rates were 25 per cent lower YoY, the company noted that the shift in CPA rates represents a “greater opportunity to transition more contracts towards stronger revenue share agreements”, but an increased focus on profitability has led to reduced marketing spend, lower user activity and a reduction in NDCs.
“We believe stable, regulated markets offer the best platform to drive sustainable growth in our business over the long term. Predictable regulatory frameworks provide stability for operators and affiliates alike.”Catena Media CEO Michael Daly
Regarding North American casino operations, Daly noted that CPA rates increased during Q3, yet overall revenue in the vertical dropped due to declines in social and sweepstake segments.
Despite the revenue drop, performance was resilient in Catena Media’s mature regulated casino markets. As a result of increased competition in the vertical, the company is focusing on SEO and product development.
Catena Media invested in an AI joint venture with experts in the field following the end of Q3 which will lead to the development of an AI affiliation platform and help the company “compete for new customers in a more competitive and dynamic marketplace”.
Looking ahead to its financial targets for 2023-2025, Catena Media expects North American revenue to reach $125m by 2025, with an adjusted EBITDA margin exceeding 50 per cent, and net interest-bearing debt/adjusted EBITDA to fall within the span of 0-1.75x.
Daly concluded: “With the strategic review behind us, we are ready and focused to invest in our teams to maintain our edge in organic search. We are deepening our work with media partners, an important revenue driver, and growing our paid and social media marketing.
“Greater foreseeability over future revenue will also give us added assurance when we invest in long-term technology-facing research and development projects. With these strategic initiatives, we expect organic revenue growth to resume in the second half of 2024.”