CentralNic Group Plc (LON:CNIC), the global internet platform that derives revenue from the worldwide sales of internet domain names and related web services, has announced its results for the nine months ended 30 September 2020. Both revenue and Adjusted EBITDA have increased year-on-year, driven by a combination of acquisitions and underlying organic growth.
Nine months Financial Summary:
· Revenue increased by 118% to USD 168.5m (Sep 2019 YTD: USD 77.1m)
· Net revenue/Gross profit increased by 74% to USD 53.3m (Sep 2019 YTD: USD 30.6m)
· Adjusted EBITDA* increased by 68% to USD 22.1m (Sep 2019 YTD: USD 13.1m)
· Operating profit increased to USD 1.9m (Sep 2019 YTD: USD 0.1m)
· Cashflow from operations up to USD 13.5m (Sep 2019 YTD: USD (0.3)m) with adjusted operating cash conversion of 93%
· Net debt** as at 30 September 2020 stood at USD 44.9m (gross debt of USD 108.6m, cash of USD 63.6m including USD 37.3m raised in September to acquire the assets of Codewise but not yet deployed) versus USD 35.9m in the prior year (gross debt of USD 54.9m, cash of USD 19.0m)
*Excludes impact of share-based payments expense for options, foreign exchange charges, and non-core operating costs
** Includes gross cash, debt and prepaid finance costs.
CentralNic made four acquisitions in H2 2019, and the Company has prepared a pro forma comparable financial summary including all businesses currently controlled by CentralNic, a definition of which is provided in footnote *** below, to enable effective comparison of 2020 with 2019 and show more clearly the organic growth within CentralNic’s businesses.
Financial Organic Summary on a pro forma basis***:
· Revenue increased by 17% to USD 169.9m (pro forma YTD Sep 2019: USD 145.1m)
· Gross profit increased by 10% to USD 55.2m (pro forma YTD Sep 2019: USD 50.0m)
· Adjusted EBITDA* increased by 4% to USD 22.2m (pro forma YTD Sep 2019: USD 21.4m) notwithstanding notable investment in scalability and future organic growth
· Record organic growth of 17% on a pro forma*** basis despite the COVID-19 crisis.
· All staff and systems remained fully operational with no interruption to the supply chains
· Healthy demand for our two largest service lines, Wholesale domains and most importantly Monetisation – the latter also driven by the rollout of a patented SSL monetisation solution
· Completion of earn-out for the Team Internet acquisition, with a EUR 2.7 million payment in June 2020
· In July 2020, EUR 1.3m of deferred consideration for SK-NIC was settled with a maximum of EUR 1.7m still to be paid
· Conversion of the share premium account into a distributable reserve in August 2020
· The final deferred consideration payment of EUR 2.7m for Hexonet was made in August 2020 by issuing 3.2m new ordinary shares
· The final deferred consideration payment of EUR 0.45m for GlobeHosting was paid in August 2020
· Successful placing of 40 million shares at a price of GBP 0.75 per share for total net proceeds of approximately USD 37.3m
Post half nine months period highlights:
· Completion of acquisition of Zeropark and Voluum businesses for USD 36 million
· Settlement of KeyDrive 2019 earnout for USD 2.2m, paid 15% in cash and 85% by issuing 1.7m consideration shares. A further earn out of up to USD 1.4m of may still be earned.
· The first nine months of strong organic growth demonstrates the Company’s resilience despite the economic crisis, and the ability to drive value by executing an accelerated buy and build strategy
· New product launches and further integration activities will support and potentially improve revenue growth and margins in future periods
· We continue to assess a number of opportunities to continue our successful consolidation strategy, in what is a large, globally fragmented and growing market
· Having achieved strong results in the first nine months of 2020, management is confident that the full year results should be in line with management expectations
Ben Crawford, CEO of CentralNic Group, commented: “In the first nine months of 2020 CentralNic’s reported revenue exceeded our cumulative reported revenue for financial years 2018 and 2019 combined. These outstanding results not only demonstrate that CentralNic can source and complete transformative acquisitions, but that it can also integrate them successfully while delivering double digit organic growth. Moreover, as we scale up rapidly, the underlying CentralNic qualities of high recurring revenues and excellent cash conversion become increasingly meaningful.
“Our pipeline of future deals remains strong and we consider our net debt level to be comfortable given the profitability of the existing CentralNic Group and the expected contribution from recent acquisitions, which together will lead to a reduction over time, absent further acquisition activity. We have also brought a number of new senior managers onboard to drive our organic growth and we are confident in continuing our trajectory towards joining the ranks of the global leaders in our industry.”
*** Given that the Group has made a number of key strategic acquisitions in 2019, we have estimated unaudited pro forma information to provide period to period comparison of performance. In doing so, we have made the following assumptions (a) figures are provided for the entire comparative period, irrespective of when the acquisition by the Group arose (b) adjustments have been made to the currency rates used for the comparative period to the most recent balance sheet date to harmonise the impact of currency fluctuations (c) the impact of unwinding the deferred revenues relating to the period prior to 1 November 2018 arising from change of the terms of conditions, as well as identified material non-cash or one-off revenues, have been excluded to ensure period to period comparability (d) adjustments have been made, as appropriate, to ensure GAAP comparability between periods. Differences to reported figures result.
CHIEF EXECUTIVE OFFICER’S STATEMENT
CentralNic’s organic growth, combined with its 2019 and 2020 acquisitions substantially increased the scale and capabilities of the Company. The effect of this is fully demonstrated in our first nine months’ 2020 results which show a transformational increase in revenues and adjusted EBITDA, both of which have grown by 118% and 68% respectively against the comparative period for 2019. This is before the impact of the acquisition of the Zeropark and Voluum businesses, which completed after the balance sheet date of this report.
The Company has performed strongly during the nine months period with the key financial metrics listed below:
|30 September2020||30 September2019||Change|
|Profit/(loss) after tax||(6,185)||(6,064)||(2.0)%|
|EPS – Basic (cents)||(3.33)||(3.36)||(1.0)%|
|EPS – Adjusted earnings – Basic (cents) 2||6.71||5.47||22.7%|
1 Excludes impact of share-based payments expense for options, foreign exchange charges, and non-core operating costs
2 Please refer to note 10
On a pro forma basis, as defined in footnote *** above, the Company grew revenue by 17% organically during the nine months period ended 30 September 2020, as compared with the nine months period ended 30 September 2019 performance on a pro forma basis from USD 142.8m to USD 170.8m.
Team Internet represented a significant proportion of the strong performance in the period. The acquired businesses have similar patterns of recurring revenue and cash conversion as CentralNic’s prior business, and hence recurring revenue and cash conversion are expected to remain in line with the long-term trend. This underpins the Company’s financial stability and visibility of earnings. The decrease in average gross margin from 40% to 32% reflects the change in the revenue mix as a result of the 2019 acquisitions. Each individual business maintained its margins, and the marginal drop of gross margin on a proforma basis from 34.4% to 32.5% is explained by the Monetisation business growing faster than the remainder of the Group.
We achieved significant scale in our Indirect segment, with revenues increasing by USD 21.5m or 51%, from USD 41.9m to USD 63.5m, chiefly driven by the acquisition of TPP Wholesale in July 2019 and Hexonet Group in August 2019. On a pro forma*** basis, revenue increased by USD 4.9m or 8% from USD 60.3m to USD 65.2m.
During the period, the Company successfully completed a number of key integration tasks within its Indirect segment, most notably the migration of all .au domain names from the Webcentral (formerly Arq group) platform to CentralNic’s central domain procurement engine, leading to estimated future annualised savings of USD 350,000 on cost of sales.
At the same time, CentralNic continued to develop its reseller key accounts with six of the top ten customer accounts having increased their spend compared with the first nine months of 2019, in one instance by 63%.
Revenue in the Direct segment decreased by 9%, from USD 35.1m to USD 32.1m. The decrease was largely due to the diminishing impact of the November 2018 change in terms and conditions, the reallocation of the data center business to the Indirect business and the reallocation of the monetisation activities to the Monetisation segment. The acquisition of Ideegeo contributed favorably to growth. On a pro forma basis, revenue declined by USD 0.6m or 2% from USD 32.5m to USD 31.8m.
Management is positive that the segment will return to growth with further client wins, and a healthy pipeline of prospective clients.
The fastest growing segment of CentralNic’s business was Monetisation, which is for the first time presented as a separate segment. On a pro forma basis, revenue increased strongly by USD 20.5m or 39% from USD 52.4m to USD 72.9m.
Revenue growth has been driven mostly by an increase in the average yield (“RPM”) by 36%. This is a result of both superior traffic quality subsequent to pruning of the publisher base as well as the rollout of Team Internet’s patented SSL monetisation technology. At the same time, the number of page visits increased by 2%, explaining the remainder of the outstanding performance.
In the first nine months of 2020 CentralNic delivered higher revenue than for the whole of 2018 and 2019 combined and reported a 17% growth on a pro forma*** basis. Having achieved strong results in the first nine months of 2020, management is confident that the full year results should be in line with management expectations.
These outstanding results demonstrate that CentralNic can source and complete transformative acquisitions, but more importantly that it can also integrate them successfully while continuing to deliver organic growth. Moreover, as we scale up rapidly, the underlying qualities of high recurring revenues and excellent cash conversion become increasingly meaningful.
Our pipeline of future deals remains strong and our net debt level remains comfortable, particularly given the profitability of the existing CentralNic Group and the expected contribution from recent acquisitions. We are confident in continuing our trajectory towards joining the ranks of the global leaders in our industry.