# Boku Inc performed strongly in 2020, Adjusted EBITDA more than doubled

- Link: https://www.directorstalkinterviews.com/boku-inc-performed-strongly-in-2020-adjusted-ebitda-more-than-doubled/412968602
- Published: 2021-03-16T07:21:34+00:00
- Author: Giles

**Boku Inc** (LON:BOKU), the world’s leading independent carrier commerce company,
is pleased to announce its audited results for the year ended 31 December 2020.

**Group Financial Highlights**

·   Adjusted EBITDA* increased 107% to $15.3 million (2019: $7.4 million)

·   Group revenues increased 20% to $56.4 million (2019: $46.8 million**)

·   Net loss before tax of $17.3 million (2019: $1.3 million loss) primarily due
to the goodwill impairment for Identity division of $20.8 million. This total includes
a net Profit before tax from the Payments Division of $9.2 million

·   Cash generated from Operations before working capital changes during the year
was $11.5 million (2019: $6.1 million)

·   Closing cash balances increased to $62.7 million at 31 December 2020 up from
$35.6 million at 31 December 2019

**Boku Payments Division**

·   Acquisition of carrier billing company Fortumo Holdings Inc. for a maximum enterprise
value of $41.0 million completed on 1 July 2020

·   Payments division revenue of $51.2 million, an increase of 27% on 2019’s underlying
figure of $40.2 million**

·   Payments division Adjusted EBITDA of $19.2 million (2019: $12.7 million) including
$1.5 million from Fortumo

·   Monthly Active Users (MAU) up 48% to 28.8m (2019: 17.8m) includes 4.6m MAUs 
from Fortumo

·   Total Payment Volume (TPV) of $6.9 billion in 2020 compared to $5.0 billion 
in 2019

·   eWallet transactions processed from 13 accounts across 11 wallets in 7 countries
in 2020.  Further investment in 2021 to capture the significant eWallet opportunity

**Boku Identity Division**

·   Identity revenue of $5.2 million (2019: $6.7 million) – impacted by COVID-19
and local US supply headwinds resulting in carrying value of asset reappraised

·   Identity reduced Adjusted EBITDA loss of $3.9 million (2019: $5.3 million EBITDA
loss)

·   Identity carrier network expanded and now reaching more than 200 carriers in
60 countries

·   Contract wins include GDC, LexisNexis and FIS (owners of Worldpay)

*Adjusted EBITDA: Earnings before interest, tax, depreciation and amortisation, 
impairment of goodwill, non-recurring payment revenue, stock option expenses, forex
gains/losses and exceptional items

** 2019 comparative revenue excludes $3.3m of non-recurring payments revenue to 
better reflect underlying performance

*** TPV is the $ value of transactions processed by the Boku and Fortumo platforms

> **Jon Prideaux, Chief Executive of Boku Inc, commented, “**Boku performed strongly
> in 2020 with revenues up and Adjusted EBITDA more than doubled compared to 2019,
> driven by the performance of Boku Payments but the central fact of 2020 was COVID-
> 19.
> “It has changed the way that we work and live and had an adverse impact on our
> Identity business, requiring its value to be re-assessed. Restrictions have affected
> the way that we travel, communicate and get entertained. Coronavirus has depressed
> spending, but that spikey ball of RNA has also changed the things we buy and the
> way we pay.
> “Industries dependent on face-to-face contact have been decimated. Some – hospitality,
> for example – will bounce back when restrictions are released, but for others,
> the pandemic has accelerated pre-existing trends. It turns out that many people
> didn’t really like driving into town to go shopping and for many types of goods
> the switch to online will be permanent.
> “The way we entertain ourselves has been changing for a while. CDs have been cleared
> from the shelves and DVDs sent to the car boot sale, as we switch to digital consumption.
> Games, especially mobile games, were already growing rapidly pre-COVID-19.
> “The COVID-19 related lockdowns have accelerated these trends and Boku’s customers
> have benefited, but since the transition was already well developed, what we’ve
> seen is a boost, not a transformation of our business. Boku has long benefited
> from the tailwinds of mobile adoption and digital disruption and 2020 was no different.
> “Boku can look to 2021 and beyond with a great deal of confidence. Boku Identity
> looks poised to grow as new customers are connected with unrivalled levels of 
> supply. For our Payments division, we expect to cross sell wallets into more of
> our existing customers. With each launch, revenue will start to build, more materially
> in 2022. We will invest in our platform so as to be in a position to capture non
> digital revenues. All this is underpinned by a DCB business which is poised to
> continue its multi-year record of strong growth with exceptional operational gearing.
> “We have made a flying start to 2021, with trading in line with our aggressive
> plans and I am confident in our ability to meet expectations.”

**CHAIRMAN’S STATEMENT**

For many organisations 2020 was a challenging year. Externally events were dominated
by a global pandemic, but  Boku was able to execute on its plan. At a Group level,
revenues exceeded $56 million and Adjusted EBITDA* more than doubled to $15.3 million,
up from last year’s figures of $46.8 million** and $7.4 million respectively. The
heart of our business is the Boku platform. This year we processed record numbers
of transactions – peaking at more than 400 each second. The platform connects more
than 220 mobile wallets and network operators for both payment and identity services
to Boku’s customers, including many of the world’s largest companies.

The core Direct Carrier Billing (“DCB”) business performed strongly during the year.
As more people stayed at home during the pandemic, demand for home entertainment
increased and Boku benefited, pushing up the value processed through the system 
in 2020 to just under $7 billion, 38% up on 2019. New users recruited in 2020 reached
a new record as well at 25.9 million across our payments and bundling programmes.
Adjusted EBITDA for the Payments division increased to over $19.2 million. 

In 2020, Boku acquired Fortumo, the second most profitable DCB company behind Boku,
which sells on a global scale. The transaction was well received by the market and
has performed in line with expectations, contributing $4.5 million of revenue and
$1.5 million of Adjusted EBITDA in the six months to 31st December, from which their
figures were consolidated.

Boku Identity was not able to deliver the level of progress we had previously expected
but despite negative impacts from the pandemic and supply issues in the US, was 
able to make some progress at a profitability level with Adjusted EBITDA losses 
reduced to $3.9 million.

We were pleased to welcome Charlotta Ginman to the Board as a Non-Executive Director
during the year.  She is an experienced Non-Executive Director, with executive experience
at Nokia. She is already contributing to the Board and has joined the Audit and 
Remuneration Committees, allowing me to step back, in line with best corporate governance
practices. I also wish to thank the other Non-Executive Directors, Stewart Roberts,
who chairs the Audit Committee and Richard Hargreaves who chairs the Remuneration
committee, for their service on the Board and contribution to the Company during
the year.

In 2021, a key focus of the Company’s management is to operationalise and scale 
our mobile wallet business. We have made a promising start with some big wins with
important customers. Boku is well positioned to leverage these early successes as
we build Boku into a mainstream, fintech payment platform specialising in next-generation
payments.

Mark Britto

Non-Executive Chairman

15 March 2021

_*__Adjusted EBITDA: Earnings before interest, tax, depreciation and amortisation,
impairment of goodwill, __non-recurring payment revenue,__ stock option expenses,
forex gains/losses and exceptional items. See Consolidated Statement of Comprehensive
Income._

_** 2019 comparative revenue excludes __$3.3m of non-recurring payments revenue 
to better reflect underlying performance_

**CHIEF EXECUTIVE OFFICER’S REPORT**

**Group Performance**

Boku performed strongly in 2020 with revenues up to $56.4 million and Adjusted EBITDA
more than doubled compared to 2019, driven by the performance of Boku payments but
the central fact of 2020 was COVID-19. It has changed the way that we work and live
and had an adverse impact on our Identity business, requiring its value to be re-
assessed. Restrictions have affected the way that we travel, communicate and get
entertained. Coronavirus has depressed spending, but that spikey ball of RNA has
also changed the things we buy and the way we pay.

Industries dependent on face-to-face contact have been decimated. Some – hospitality,
for example – will bounce back when restrictions are released, but for others, the
pandemic has accelerated pre-existing trends. It turns out that many people didn’t
really like driving into town to go shopping and for many types of goods the switch
to online will be permanent.

The way we entertain ourselves has been changing for a while. CDs have been cleared
from the shelves and DVDs sent to the car boot sale, as we switch to digital consumption.
Games, especially mobile games, were already growing rapidly pre-COVID-19. The lockdowns
have accelerated these trends and Boku’s customers have benefited, but since the
transition was already well developed, what we’ve seen is a boost, not a transformation
of our business. Boku has long benefited from the tailwinds of mobile adoption and
digital disruption and 2020 was no different.

**Strong Organic Performance in Payments**

In 2020, we have been able to help our customers acquire more than 25.9 million 
new users across payment and bundling programmes; more payment users are repeat 
users too, with that figure hitting a high of 91% averaged throughout the year. 
Value processed through our system increased to $6.9 billion, a 38.3% increase since
last year. We exited the year on a run rate which exceeded $8.5 billion. Truly the
lines on the charts are going up and to the right!

Our growth did not just come from existing connections in in a particular geography–
new launches have been made for Apple, Sony, Spotify, Netflix, Tencent, Microsoft,
Google and many other smaller merchants.

Boku takes a percentage of the value processed through its systems as revenue. We
charge different prices depending on whether we provide a technical connection only
or additionally handle the settlement of the funds. Over recent years the lower 
priced technical service has been growing faster than the higher priced settlement
service, leading to lower reported take rates, despite stable pricing.  This year,
those trends stabilised as more settlement model business was processed through 
connections developed in prior years.

**Acquisition of Fortumo**

Scale is important in platform businesses. By being the largest, Boku is able to
offer the most robust and feature-rich platform at the lowest unit cost in the industry.
Most of our growth has been organic: quality inorganic opportunities are few and
far between. In July 2020, we were delighted to acquire Fortumo, the second most
profitable company in the DCB business, behind Boku. The enterprise value associated
with the acquisition was a maximum of $41 million, with $5.4 million being dependent
on the achievement of a demanding Adjusted EBITDA target in the 12 months ending
June 2021. Since acquisition, the business has performed in line with our expectations,
which will mean that the full earnout is unlikely to be payable.

Fortumo has brought impressive new capabilities into the Group: customer relationships
with Amazon, Epic Games and more than 400 other, mostly settlement model, merchants,
a platform with semi-automated onboarding capabilities, new carrier connections,
especially in some emerging markets, and the best bundling platform in the market.
Going forward we will concentrate new DCB and bundling investment in Fortumo’s EU
platform, whilst the original Boku US platform will focus on strategic merchants
and new local payment methods, including wallets.

**Strong Financial Performance in Payments**

Taking Boku and Fortumo revenues together, revenue from the Payments division grew
to $51.2 million up 27% from 2019’s figure of $40.2 million*. Fortumo contributed
$4.5 million, in line with expectations. Adjusted EBITDA leverage in the payments
business is impressive with payments Adjusted EBITDA up 54% to $19.2 million (including
$1.5 million contribution from Fortumo).

**Progress on Identity**

Boku Identity was able to post a narrower adjusted EBITDA loss of $3.9 million. 
Revenues at $5.2 million was lower than the previous year due to carrier supply 
issues and the impact of COVID-19. The business is still poised to grow but from
a lower base and at a lower rate, meaning that the path to break even is longer 
than previously thought, resulting in an impairment to the carrying value of goodwill
of $20.8 million.

Turning to non financial measures, the global carrier network now reaches more than
200 carriers in 60 countries. Contracts have been signed with customers like GDC,
LexisNexis and FIS. The focus for 2021 is to connect these merchants to international
markets and thus increase revenues.

**Promise of Wallets**

For Boku, DCB is the starter, the main course is local payments. We’re using the
connections that we have to all the world’s leading digital merchants as a beachhead
from which we can cross sell other payment methods. The first of these is mobile
wallets. They are the payment phenomenon of the last five years. Popular with consumers,
in demand from merchants.

Just like DCB, mobile wallets are highly fragmented, with multiple wallets in individual
countries, battling for consumers, just like mobile operators. For our merchants,
Boku has harmonised this complex, global infrastructure into a single payments network.
The market is in need of a similar approach for mobile wallets; the value that Boku
can deliver to merchants through a single mobile payments network is immense.

In 2020 we processed transactions from 13 accounts across 11 wallets in 7 countries.
Pleasingly amongst these were major merchants in console games and streaming music.
These accounts were won in competition with mainstream cards-first payment processors.
We expect to be able to announce further progress during 2021. The significance 
is two-fold: firstly, with wallets we can process a larger share of our customers
sales and, secondly, go outside digital and serve the general ecommerce market which
is 20 times as big. That is the main course.

Actual experience has also been encouraging: volume growth has been material, albeit
off a small base. Where wallets and DCB are connected to the same merchant in the
same country we can see faster adoption, higher average transaction values and more
users.

**Helping Out Others during the Pandemic**

At Boku we recognise that with our good fortune, comes responsibility. We have tried
to do our bit to help those less fortunate than ourselves. We have claimed no Government
money in any of the countries in which we operate (and have returned it in one instance
where it was automatically credited to us), and we have continued to employ our 
office support staff and contractors despite offices being closed. Now is the time
to support the support workers. We have used some of the savings that we have made
from reduced travel on a “We Not Me” programme of donations to local causes nominated
by employees.

Companies are not just collections of assets and intellectual property; technology
companies like Boku are groups of people working towards a common aim, with belief
and conviction. Without our people, without the right people, we are nothing. We
are careful when we hire and we ensure that all, every single one of our employees
wheresoever located and however senior or junior, gets the chance to be a shareholder
in our company.

Through the crisis, our employees have repaid that trust in spades. They have been
magnificent. The flexible working practices that we had in place before restrictions
hit meant that we could adapt rapidly and continue to deliver for our customers.
In 2020, we’ve been able to deliver a record number of new high quality connections:(
69 vs. 42 in 2019). I want to place on record my sincere appreciation for the exceptional
contribution that our people have made to our results.

**Outlook**

Boku can look into 2021 with a great deal of confidence. Boku Identity looks poised
to grow as new customers are connected with unrivalled levels of supply. For our
Payments division, we expect to cross sell wallets into more of our existing customers.
With each launch, revenue will start to build, more materially in 2022. We will 
invest in our platform so as to be in a position to capture non digital revenues.
We expect to board our first wallet-only, non-DCB payments customers in 2021. This
will be an important signal of our ability to gain traction in this important segment.
All this is underpinned by a DCB business which is poised to continue its multi-
year record of strong growth with exceptional operational gearing. We have made 
a flying start to 2021, with trading in line with our aggressive plans — I am confident
in our ability to meet expectations.

Jon Prideaux

Chief Executive Officer

15 March 2021

* Adjusted for the impact of $3.3 million  of non-recurring revenue

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