CentralNic Group Plc (LON:CNIC), the global internet platform that derives revenue from the worldwide sales of internet domain names and related services, has announce its half year results for the six months ended 30 June 2020. Both revenue and Adjusted EBITDA have increased year-on-year, driven by a combination of acquisitions and underlying organic growth.
Financial Summary:
· Revenue increased by 124% to USD 111.3m (H1 2019: USD 49.7m)
· Gross profit increased by 78% to USD 35.2m (H1 2019: USD 19.7m)
· Adjusted EBITDA* increased by 64% to USD 15.1m (H1 2019: USD 9.2m)
· Operating profit increased by 12% to USD 3.2m (H1 2019: operating profit of USD 2.9m)
· Net debt** stood at USD 76.4m (gross debt of USD 104.0m, cash of USD 27.6m) as compared to USD 6.0m (gross debt of USD 23.9m, cash of USD 17.9m) in the prior year due to the bond issuances in July and December 2019 to fund highly accretive acquisitions
*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
As CentralNic made four acquisitions in H2 2019, the Company also prepared a pro forma comparable financial summary including all businesses currently controlled by CentralNic, a definition of which is provided in a footnote on p.2, to effectively isolate organic growth.
Financial Organic Summary on a pro forma basis***:
· Revenue increased by 18% to USD 111.5m (pro forma H1 2019: USD 94.7m)
· Gross profit increased by 14% to USD 35.5m (pro forma H1 2019: USD 31.1m)
· Adjusted EBITDA* increased by 16% to USD 14.9m (pro forma H1 2019: USD 12.8m)
Operational Highlights:
· Record organic growth in the face of the COVID 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
- Q2 cash conversion improved to c.138%, higher than historical average of 100%
· Restructuring and investment in new management to drive growth to scale
- During H1 2020, the focus has been on integration
- Commercial leaders appointed to all divisions, replacing the former centralised structure
- New leadership in shared services (HR, IT, Finance), ensuring ability to scale
· Completion of earn-out for the Team Internet acquisition, with a EUR 2.7 million payment in Q2
Post half year end highlights:
· New heads of customer service and integration appointed
· 2020 tranche of the deferred consideration for SK-NIC of EUR 1.3m settled on 17 July 2020
· Deferred consideration for the acquisition of the Hexonet group of EUR 3.0m settled by issuing 3.2m new shares on 6 August 2020
· Capital reduction as resolved by the AGM has been completed effective 14 August 2020
Outlook
· The past half year of strong organic growth demonstrates the Company’s resilience despite the economic crisis, and ability to execute on its accelerated buy and build strategy
· Solid cash generation from operations is expected to continue, leading to decreased net debt over time
· New product launches and further integration activities will support and potentially improve revenue growth and margins
· Confident in our successful consolidation strategy, we continue to assess a number of opportunities in what is a large, globally fragmented and growing market
· Having achieved strong results in the first half of 2020, management is confident that the full year results should be in line with management expectations
Ben Crawford, CEO of CentralNic, commented: “In the first half of 2020 CentralNic’s revenue exceeded our full year performance in 2019. These outstanding results not only demonstrate that CentralNic can source and complete transformative acquisitions, but that it can also integrate them successfully while delivering record 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, while our net debt level remains comfortable particularly given the profitability of the existing CentralNic Group and the expected contribution from recent acquisitions. 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
Introduction
CentralNic’s organic growth, combined with its 2019 acquisitions substantially increased the scale and capabilities of the Company. The effect of this is fully demonstrated in our H1 2020 results which show a transformational increase in revenues and adjusted EBITDA, both of which have grown by 124% and 64% respectively against the comparative period for 2019.
Performance Overview
The Company has performed strongly during the period with the key financial metrics listed below:
| 30 June2020 | 30 June2019 | Change | |
| USD’000 | USD’000 | % | |
| Revenue | 111,251 | 49,693 | 124% |
| Gross profit | 35,199 | 19,731 | 78% |
| Adjusted EBITDA1 | 15,096 | 9,230 | 64% |
| Operating profit | 3,237 | 2,885 | 12% |
| Profit/(loss) after tax | (2,731) | (2,510) | 9% |
| EPS – Basic (cents) | (1.48) | (1.44) | 3% |
| EPS – Adjusted earnings – Basic (cents) 2 | 4.44 | 3.91 | 14% |
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 the footnote on p.2, the Company grew by 18% organically in H1 2020, as compared to H1 2019 performance on a pro forma basis from USD 94.7m to USD 111.5m.
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 business blend as a result of the 2019 acquisitions, with each individual business maintaining its margins.
Segmental Analysis
As the 2019 transformative acquisitions have altered the business mix of the Group, the Directors reconsidered the segments in which the Company is operating. Starting with this Interim Report, the segments in which the group will be reporting are (a) Indirect, being materially consistent with the former Reseller segment, (b) Direct, combining the former Small Business and Corporate segment, but excluding Monetisation, and (c) Monetisation, which due to its materially enlarged weight warranted its own segment. A reconciliation of the segments is included in note 5 of this Interim Report.
Indirect segment
We achieved significant scale in our Indirect segment, with revenues increasing by USD 15.7m or 62%, from USD 25.5m to USD 41.2m, 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 3.6m or 9% from USD 38.5m to USD 42.1m.
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 eight of the top ten customer accounts having increased their spend compared to H1 2019, in one instance by 58%.
Direct segment
Revenue in the Direct segment decreased by USD 2.6m or 11%, from USD 24.2m to USD 21.6m. 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 decreased by USD 0.3m or 1% from USD 21.2m to USD 20.9m.
Management is positive that the segment will return to growth in H2 2020 with further client wins, and a healthy pipeline of prospective clients.
Monetisation
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 13.4m or 38% from USD 35.0m to USD 48.5m.
Revenue growth has been driven mostly by an increase in the average yield (“RPM”) by 33%. 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 4%, explaining the remainder of the outstanding performance.
Outlook
In the first half of 2020 CentralNic delivered higher revenue than for the whole of 2019 and reported a record 18% growth on a pro forma basis. Having achieved strong results in the first half of 2020, management is confident that the full year result 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, while 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.
Ben Crawford
Chief Executive
