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Boku Inc. Deliver another year of exceptional growth

Boku Inc. (LON:BOKU), the world’s leading independent carrier commerce company, has today announced its audited results for the year ended 31 December 2019.

Financial Highlights

  • Revenue of $50.1 million up 42% on 2018 (2018: $35.3 million)
  • Adjusted EBITDA* 17% higher at $7.4 million (2018: $6.3 million). Revenue includes $3.3m of non-recurring Payments Revenue; to better reflect underlying performance, this non-recurring revenue is excluded from Adjusted EBITDA
  • Payments division performed well with Revenues increasing to $43.5 million, delivering a 100% increase in Adjusted EBITDA of $12.8 million (2018: $6.3 million)
  • Net Profit after Tax of $0.4 million compared with Net Loss after tax of $4.3 million for 2018
  • Closing cash balances as at 31 December 2019 were $35.6 million – compared with $32.3 million at 31 December 2018
  • Monthly average cash balances in December 2019 were $22.4 million, compared with $22.2 in June 2019 and $24.4 million in December 2018

Operational Highlights

  • Total Payment Volumes (“TPV”)** of $5.0bn for 2019 compares with $3.6bn in 2018. Growth was steady throughout the year with volume in H2 2019 $418 million higher than in H1 2019
  • Monthly Active Users (“MAU”) of the Boku Payments Platform in December 2019 increased to 17.8 million, up 2.6 million from the half year and 4.4 million higher than December 2018
  • During 2019 nearly 19 million end-users made their first transaction through Boku
  • Good progress on building out Mobile Wallets
  • Integration of Identity business which was created following the acquisition of Danal Inc on 1 January 2019, for a total finalised cost of $25.1 million
  • Identity billable transactions up by 45% to 253 million

*Adjusted EBITDA: Earnings before interest, tax, depreciation, amortisation, non-recurring payments revenue adjustment, stock option expense, foreign exchange gains/(losses), and exceptional items

**TPV is the US$ value of transactions processed by the Boku platform

Post-period end Highlights

  • Strong start to the year. In January and February 2020 TPV grew to $966 million, an increase of 30% compared to the same period last year, a slightly larger increase than anticipated
  • In February 2020 daily volumes showed an increase over January 2020 against the background of the increasing prevalence of COVID-19 worldwide. Average TPV per day increased by 2.5% in February 2020 compared to January 2020 and Daily Average Users (“DAU”) were 4% higher in February 2020 than January 2020
  • Trends seen in January and February 2020 have continued into March 2020 with significant increases in new users of the Boku Payments Platform, particularly for streaming video services and gaming in those countries hardest hit by COVID-19

Jon Prideaux, Chief Executive of Boku Inc, commented:

“2019 has proven to be another year of exceptional growth for Boku. The Group has continued to build upon the strength and depth of the Boku Platform, which has allowed the Company to report a maiden profit after tax. There has been a focus on integrating and growing our Identity business which was created following the acquisition of Danal Inc at the beginning of the year and I am pleased with how things are progressing in this division, billable transactions have increased by 45% to 253 million and Identity revenues up 26% on 2018 to of $6.7m. Our state-of-the-art Platform now connects most of the world’s largest digital merchants and more than 190 carriers worldwide and we continue focus on delivering first class products and services to our customers.

“Boku is a business where much of the growth is built in. A lot of groundwork has been done in 2019 to set us up for success in 2020. Volumes and revenues in one year are, barring accidents, largely the result of efforts made in the previous one. Just such a shock, COVID-19, has cast a long shadow over many businesses. Boku however is very well placed: operations are unaffected — our team is used to working remotely. New implementations are mostly proceeding with, at worst, minor delays. New sales and business development are more difficult without face to face contact, though opportunities are being pursued. As our services are delivered digitally, supply has not been disrupted; on the demand-side, the more people stay at home the more they play games, download apps and use streaming services. We have seen definite evidence of recent increased volumes in countries with social distancing measures in place.

“In Payments, our existing merchants and connections will continue to perform strongly for as long as lockdown measures are in place. There is a strong pipeline of new deployments, especially from higher margin settlement model merchants to be implemented. As yet, our DCB deployment plans have not been materially affected. There is also potential material upside from Mobile Wallets.

“On Identity, our focus in 2020 is continuing to build out our international carrier connections to create a truly global offering. Demand remains strong, including from global customers. Transaction processing on existing customers is continuing unaffected. Identity has a greater dependence on new business to hit full year expectations and so is unlikely to perform as strongly as Payments, with its larger installed base.

“There will be a time when we can look back at the COVID-19 pandemic and take stock of its impact. For now, it’s too soon to tell. We know not how long it will last nor how it will end, but at least for Boku, its employees, customers and suppliers we are able to say with confidence that Boku is well positioned in difficult times.”

Chief Executive Officer’s Report

2019 has been another year of significant growth.

At the Group level, revenues increased by 42% to $50.1 million and Adjusted EBITDA was up by 17% to $7.4 million. This Adjusted EBITDA number excludes $3.3 million of non-recurring Payment revenue relating to a change in the estimate of a transaction price related to a performance obligation satisfied in a prior period. As a non-recurring item we excluded it from our EBITDA presentation to better show the underlying performance of the business. Our Payments division delivered a very solid performance with revenues growing to $43.5 million and Adjusted EBITDA growing by over 100% to $12.7 million (once again, excluding the impact of the $3.3 million non-recurring item). Within our Identity division, which we acquired on 1st January 2019, revenues grew by 26% to stand at $6.7 million and Adjusted EBITDA improved to a $5.3 million loss, down from an unaudited $6.4 million loss in the year prior to Boku acquiring the company.

We have built an incredible asset in the Boku Platform. It has taken 10 years and cost us more than $100 million, and it is very difficult for anyone else to replicate. It now connects 190 mobile network operators around the world to most of the world’s largest digital merchants in app stores, streaming music, streaming video and games. The Platform is extremely reliable and can support high volumes of transactions (volumes have peaked at more than 400 transactions per second) and is capable of supporting many more.

The primary product run through the Platform is Boku’s Direct Carrier Billing (DCB) Payments business. Users of this service are many of the world’s largest digital companies, including Apple, Sony, Spotify, Netflix, Facebook, Google and Microsoft who come to Boku for a simple reason – we help them to acquire new paying users. Underpinning Boku’s products is a key capability that only mobile network operators possess: they know your telephone number without having to ask. With Boku Payments we convert this knowledge into one-tap-to-pay technology, or better yet, one-tap-to-register, removing friction not only from the time of the transaction, but also from the registration process.

This technology helped nearly 18 million people made their very first Boku payment transaction in 2019 – around one and a half million new paying users a month, helping to drive the growth of our customers as more people play games and watch movies on their phones and listen to music on the move.

In December 2019 alone, 17.8 million users bought a product through the Platform – 4.3 million more than in the same period last year – generating more than $500 million in transaction value. Over the course of the whole year more than $5 billion was spent through the Boku Platform, 40% up from last year’s figure of $3.6 billion.

We convert this processed value into revenue for Boku by taking a percentage based fee. We operate two models: the settlement model – a full service offering where we provide technical processing services and are involved in the flow of funds and the transaction model where we only provide the technical connectivity. The former attracts higher fees than the latter which has more volume.

This growth has mostly been driven by connecting our merchants to carriers within our network. Each new connection reaches maturity over a two-year period. Meaning that much of our growth is baked in. A big effort this year has been to improve network quality, to get more carriers able to support Boku’s one-tap-to-register offering, Boku Account. These new connections have been to transaction model merchants at lower margins – in 2020 and beyond these connections can be reused by higher settlement model customers.

Growth is underpinned by the growth in popularity of the services that our merchants offer as digital services displace physical products in the music, film and games industries. We also get a boost from cross selling into other divisions of our customers, for example, being used for Office 365 subscriptions by Microsoft as well as Xbox.

2019 has also been a year in which we laid a lot of groundwork for future growth with Mobile Wallets which are a second distinct payment network available to our merchants through their existing Boku connection.

Mobile Wallets have emerged as the mainstream payment mechanism in most mobile first markets. In Asia, for example, companies like Alipay, Wechatpay and Paytm account for 58% of electronic spending and have around 2.5 billion customers. For wallets which have a strong domestic presence, Boku is a valuable partner- as we are connected to an unrivalled portfolio of global digital merchants. By the same token, global merchants value the benefit of using their existing connection to the Boku Platform to provide their users with a new way to pay.

To date, Boku Inc. has contracted with 10 wallets in 9 countries reaching approximately 1.4 billion customers. We are now live with three wallets and during 2020 we will activate more, building, in effect, a second payment network connected to the Boku Platform. This can be achieved without significant extra cost. Connecting the Boku payments platform to wallets is similar to connecting to carriers and the cost of an incremental transaction is close to zero. Therefore any extra gross margin generated from wallets will largely flow through to Adjusted EBITDA. It’s early days for wallets, and 2020 revenues are not expected to be material, but they clearly have significant potential.

While wallets are an example of growth by exploiting the Boku Platform and our existing merchant base, our efforts in Identity are a demonstration of how we can exploit our carrier network to launch new products reaching new customers.

To kick start the Identity business, we bought Danal Inc., for $25.1m on 1st January 2019. The plan was to strengthen sales in its US domestic market and use the funds generated to help build out a global carrier identity network, building on our existing global carrier billing network.

Progress in the US can best be described as respectable rather than spectacular and certainly less than we would have liked. Volumes of billable transactions were up by 45% to 253 million and revenues increased by 26% to $6.7 million compared to 2018’s unaudited figure (the year prior to Boku acquiring the company). We were affected by supply side issues in the US, in particular, the loss of a carrier.

Despite results falling below our expectations, I retain a strong conviction about the Identity business. We didn’t buy Danal for it to continue be a US focused company, we have ambitions for it to be global. Building out the supply side through our international carrier network is in progress but takes time

Our key Identity product offering uses the same core technology as payments, the fact that the carrier knows your phone number without having to ask. In Identity this manifests as silent authentication – checking your phone number matches the one on file without the user having to do anything. To verify your phone number today, people are put through the ordeal of receiving a 6-digit code by text message. It’s not a fun experience. Text messages get lost and transactions don’t get completed. Worse, far from being a secure system, the SMS message itself can act as a source of fraud when the genuine user is induced by a fraudster to give away the code.

Demand for a better solution, a silent validation, is strong. Our challenge is to build the supply network internationally. While it was disappointing to make slower progress than we wanted in the US during 2019, the milestones marking progress on this business are about internationalisation, activating more carriers outside the US. In this regard, it is good to be able to report that we have activated new connections in India and Indonesia, but there is still further work for us to do.

Outlook

Boku is a business where much of the growth is built in. A lot of groundwork has been done in 2019 to set us up for success in 2020. Volumes and revenues in one year are, barring accidents, largely the result of efforts made in the previous one. Just such a shock, the Coronavirus, has cast a long shadow over many businesses. Boku however is very well placed: operations are unaffected — our team is used to working remotely. New implementations are mostly proceeding with, at worst, minor delays. New sales and business development are more difficult without face to face contact, though opportunities are being pursued. As our services are delivered digitally, supply has not been disrupted; on the demand-side, the more people stay at home the more they play games, download apps and use streaming services. We have seen definite evidence of increased volumes in countries with social distancing measures in place.

In Payments, our existing merchants and connections will continue to perform strongly for as long as lockdown measures are in place. There is a strong pipeline of new deployments, especially from higher margin settlement model merchants to be implemented. As yet, our DCB deployment plans have not been materially affected. There is also potential material upside from mobile wallets.

On Identity, our focus in 2020 is continuing to build out our international carrier connections to create a truly global offering. Demand remains strong, including from global customers. Transaction processing on existing customers is continuing unaffected. Identity has a greater dependence on new business to hit full year expectations and so is unlikely to perform as strongly as Payments, with its larger installed base.

We remain confident that Boku is well positioned in difficult times.

Jon Prideaux

Chief Executive Officer

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