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Boku Inc.

Boku, Inc. A successful H1 with Total Payment Volume up 153%

Boku Inc (LON:BOKU), the world’s leading independent direct carrier billing company, today announced its unaudited interim results for the period ended 30 June 2018.

Financial Highlights

· Positive Adjusted EBITDA* for the Period of $2.5 million (compared with $2.8 million loss in H1 2017)

· Revenues increased 66% to $16.9 million (H1 2017: $10.2 million)

· Gross Profit Margin increased to 92.4% from 90.7% (average for 2017)

· Net Loss for H1 2018 of $0.7 million vs Net Loss of $6.6 million for H1 2017

· The Company held $30.7 million in cash at the end of Period (2017: $20 million). The average daily cash balance in June 2018 – a measure which smooths out the effect of carrier and merchant payments – was $23.1 million (December 2017: $19.2 million)

Operational Highlights

· Total Payment Volume (“TPV”) grew 153% reaching $1.5 billion (H1 2017: $0.6 billion).

· Increase in Monthly Active Users (“MAUs”) to 10.3 million in June, an increase of 117% vs June 2017

TPV to August 2018 reached $2.2 billion while MAU reached 11.3 million.

· Boku Account connections, for major customers such as Apple, Microsoft and Spotify, now total 127

*Adjusted EBITDA: Earnings before interest, tax, depreciation, amortisation, share-based payment, foreign exchange gains/(losses) and exceptional items (which includes IPO costs).

Jon Prideaux, Chief Executive of Boku Inc, commented: “By any measure the first half of 2018 has been a successful one for Boku. Total Payment Volume is up 153% to $1.5 billion and the number of Monthly Active Users on our platform is up by 117% on a year earlier at 10.3 million. This has driven improved financial results with revenues up 66%. Impressively, this growth has been achieved with the cost of regular operations staying stable and the only cost increases coming from new investment in growth areas, especially Mobile Identity. For the first time we can report positive Adjusted EBITDA of $2.5m. Current trading is also encouraging with TPV reaching $2.2 billion and MAU increasing to 11.3 million to the end of August 2018.”

Chief Executive Officer’s Report

Highlights from H1 2018

By any measure the first half of 2018 has been a successful one for Boku. TPV is up 153% to $1.6 billion and the number of MAUs on our platform is up by 117% on a year earlier at 10.3 million. This has driven improved business results with revenues up 66%. Impressively, this growth has been achieved with the cost of regular operations staying stable and the only cost increases coming from new investment in growth areas, especially Mobile Identity. For the first time we can report positive Adjusted EBITDA of $2.5m.

These significant volumes and strong growth have allowed us to cement our position as the scale player in our industry. Scale allows us to invest in our platform whilst still having the lowest unit cost. We see high function and low cost as a killer combination.

Strategy

There are more than five billion mobile phones in the world, making up potentially the world’s largest community. Whilst it’s easy to make a call or send a text to any mobile anywhere, accessing other operator facilities has been nigh on impossible; billing and identity capabilities sit fragmented behind any number of unstandardised network operator back office systems. Boku took on the challenge of providing a simple interface to these systems. We assembled the largest team of engineers working on connecting mobile network operators and have delivered a high quality, super high capacity (now more than 600 transactions / second) network reaching most of the big ones. Together with our merchants we have started to unlock this network’s potential.

If we’ve had any success at Boku it is because we’ve really listened to our customers. I mean really listened. Superficially the function that we perform is that of moving money, but, dig beneath the surface and you can see that the real job that our merchants hire us to do is to help them recruit and retain the right users.

This is a big problem for merchants. Reportedly, it costs Netflix $40-$45 to acquire a new user outside the US. Boku’s super simple one-tap-to-register technology helps our merchants to maximise the number of paying users they yield for any given marketing spend by removing attrition during the enrolment process.

Acquiring and retaining more high-quality users is what drives our product development efforts. In our Mobile Billing business, we’re building new products that not only reduce Customer Acquisition Costs (“CAC”), but also increase Life Time Value (“LTV”), for our merchants. With our scale, we can see which strategies work and which don’t and use it to increase the average spend per user for our merchants. It’s the same in our Mobile Identity business: there’s no benefit to acquiring new users if they’re free riders looking to abuse an introductory offer or commit fraud. Whereas our Mobile Billing offering works best with digital content (and is used by the world’s largest digital companies such as Apple, Google, Facebook, Microsoft, Netflix, Sony and Spotify), the Mobile Identity offering can address an even wider customer set, including merchants where payment uses more conventional means such as cards or bank transfers.

Current trading and outlook

We’re delighted with the growth we’ve achieved: there is real momentum in our business, as investments from previous years continue to feed through. Having really pushed on in the second half of last year the momentum has been maintained in the first half of 2018. Current trading to the end of August 2018 is also encouraging with TPV reaching $2.2 billion (+140% vs August 2017) and MAU increasing to 11.3 million (+105% vs August 2017). Tougher comparables and the law of large numbers will inevitably mean that some of the percentage growth figures will attenuate somewhat, but the momentum behind our business is strong and sustained. We expect to meet recently upgraded full year market expectations.

Jon Prideaux

Chief Executive Officer

03 September 2018

 

Chief Financial Officer’s Report

Our first set of interim financials demonstrate continued growth in leading metrics which are reflected in improved profitability.

It’s my pleasure to report the following unaudited financials for the first half of 2018:

· Positive Adjusted EBITDA* for the Period of $2.5 million (compared with $2.8 million loss in H1 2017)

· Revenues increased 66% to $16.9 million (H1 2017: $10.2 million)

· Gross Profit Margin up to 92.4% from 90.7% (average for 2017)

· Net Loss for H1 2018 $0.7 million vs Net Loss of $6.6 million for H1 2017

· Closing cash balances of $30.7 million** as at 30 June 2018, while average daily cash balances grew to $23.1 million in June 2018 from $19.2 million in December 2017

· Total debt remained low at $2.2 million

· Active Users of the Boku platform increased to more than 10.3 million in June 2018 from 4.7 million one year ago

· Total Processed Volume (TPV) rose to $1.5 billion from $0.6 billion in H1 2017 (+153%)

*Adjusted EBITDA (Earnings before interest, taxation, depreciation and amortization): adjusted, stock option expenses, forex gains/losses and exceptional items (which include IPO Costs).

** Cash balances include $1.1 million restricted cash

EBITDA turning into cash

We are able to report positive Adjusted EBITDA of $2.5 million for the first half of 2018, continuing the trend of improving financial performance seen in 2017 ($2.8 million negative EBITDA in H1 2017, $0.5 million positive in H2 2017). Interest charges of $0.5 million are the only notable cash expense below Adjusted EBITDA. EBITDA less interest expense is therefore a good indicator for cash generation in the business – which in H1 2018 was $2.0 million.

Leading Indicators

We are proud to report that over the first half of 2018 we have introduced over 2.3 million new paying users to our customers. These new users, combined with 8 million returning users, have helped to generate +153% growth in the value of transactions (in $ terms) processed over the Boku platform (TPV). In fact, TPV of $1.5 billion in H1 2018 was 91% of the TPV reported for the whole of 2017. Another illustration of the growth we have been able to deliver.

Revenue and Gross Margin

One direct benefit of having a mixed portfolio of customers is that blended average take rates have remained buoyant across H1 2018. Our higher margin Settlement business (whereby Boku is directly involved in the settlement of funds, including currency conversion) has had a strong H1, thus slowing the mix effect of lower average take rates being created by rapidly growing (App Store) Transaction model business. Average take rates were expected to decline, however the mix impact of the above has now largely washed through. Take rates for H1 2018 averaged out at 1.1% compared with 1.7% for the same period in 2017; also marginally better than we had expected. The reported 66% growth in H1 2018 Revenue (compared with the same period in 2017) is flattered a little by the comparable period in 2017 which excludes the benefits of some key contract renegotiations.

Operating Expenditure

Adjusted Operating Expenditure of $13.1 million for H1 2018 is 10% higher than the same period in 2017 as we have begun to invest in new products and services that are expected to deliver revenues from 2019 and beyond.

The underlying costs for the Direct Carrier Billing business are just $0.6 million (5%) higher than H1 2017, the increase in spend being driven by investment in optimization of data storage and processing on the platform. We have now successfully tested the platform at volumes of up to 600 transactions per second, providing us with plenty of room for growth over the coming years. $0.6 million has been invested over the Period in Boku Labs and our first new business line, Boku Mobile Identity. Just $0.1 million of development expenditure was capitalized in H1 2018.

Operating Performance

Reported operating losses were reduced to $0.6 million in H1 2018, down from $6.6 million in H1 2017, this improvement can be broken down as follows:

· Adjusted EBITDA improved strongly in H1 2018 to $2.5 million, reversing a $2.8 million EBITDA loss in H1 2017

· Depreciation & Amortisation were broadly flat ($1.4 million compared with $1.5 million).

· Foreign Exchange (FX) movements during the Period created a charge of $0.3 million (equivalent to 0.02% of TPV). The Company operates forward FX contracts to hedge foreign currency exposure and also factors the costs of currency conversion into fees (booked through Revenue).

· Exceptional costs of $0.2 million, down from $0.7 million in H1 2017 (H1 2017 costs included costs relating to the IPO).

· Share Option expenses of $0.7 million were up on $0.5 million in H1 2017

Financing Expenses

Financing costs of $0.5 million for H1 2018 include the cost of an early exit from a factoring facility within Boku AG. Removing this facility will be cost-effective for the Company going forward.

The Company reduced the draw down on its working capital facility from $2.4 million to $2.2 million within the Period. Combined with the exit from the previously mentioned factoring arrangements, total Debt has therefore been reduced from c$25 million*** to $2.2 million since the IPO.

*** includes convertible notes, working capital loan and factoring facility

Balance Sheet and Cashflow

Cash balances remained strong throughout H1 2018 as the Company was cash generative. Closing cash balances of $30.7 million are flattered by the timing of payment cycles within the Settlement business – more Receivables turned into cash at the end of the Period. A fairer representation of underlying cash is the average daily cash balance which was $23.1 million in June 2018, up from $19.2 million in December 2017.

MNO Receivables and Merchant Payables fell in the Period, however, as previously mentioned, these are also impacted by the cut off timing of month end receipts and payments. The value of Intangible Assets reduced on our balance sheet by $1.7 million between December 2017 and June 2018 through amortisation.

Looking Ahead

The Company expects to continue its strong growth rate in H2 2018, albeit in percentage terms this will slow a little as comparatives increase. The mix of business will lean more towards the transaction model following the industry trend towards concentrated distribution of digital content via App Stores. We will continue to make sensible investments in both our existing product lines and in developing entirely new revenue opportunities, without sacrificing meeting our EBITDA targets for the year.

Stuart Neal

Chief Financial Officer

3 September 2018