Believe : Transcription (en anglais)

First Half 2022 Results

Presentation

Wednesday, 3rd August 2022

Believe First Half 2022 Results Presentation

Wednesday, 3rd August 2022

Introduction

Denis Ladegaillerie

Founder &CEO, Believe

Well, good afternoon, everyone. We are delighted to have you for this call to cover our H1 2022 performance, which is a very strong performance.

Accelerated Organic Growth, Increased Profitability, Positive Free Cash Flow

As you can see on the first slide, that is a strong accelerated organic growth in Q1 and Q2 and higher H1; increased profitability; as well as positive free cash flow. So overall, very strong first H1 performance.

Key Achievements in Line with Believe's Profitable Growth Strategy to Build the Best Music Company for Artists and Labels in the Digital World

We can move on to slide four. That strong performance essentially illustrates the strength of the model where Believe is, once again, continuing to drive growth by market share gains in all market segments. Entry level artist with TuneCore, mid-level,top-level artists across all artist segments and all artist genres. The first driver of performance is that ability to both sign new artists and labels as well as continue growing, at a very fast pace, our existing portfolio of artists and labels.

This was supported through H1, both in Q1 and Q2, with very strong market growth, both on the subscription side and advertising side. And as illustrated, increased profitability is really resulting from the scale effect. In a number of territories, we have demonstrated, from a sales standpoint, so many successes, that success is attracting success when we develop key artists. That is driving key artists to us and contributing to accelerated growth. And we are seeing these dynamics play in a number of territories and, obviously, where faster growth and continued investment in local sales team happened. We continue investing in the central platform at a lower rate, that is, as in the previous quarter, increasing profitability and operating margin.

Last important element in H1 is the continuation of the roll out of our Shaping Music for Good programme with a focus on a key change, and in a way, that is very consistent with how we operate the core business.

Growth: Strong Organic Growth in H1 2022 with an Acceleration in Q2

Strong growth, moving on to slide five. As you can see there, growth has accelerated pretty much in all quarters since Q3 2021, all the way to Q2 2022, cumulating in Q2 2022, with a 39.4% growth rate in the quarter, a growth rate that is even higher on the digital side. As you know, the digital side is the most significant revenue source for us, with a growth rate of digital revenues up to 40.1%, significantly better than the market, which is an illustration of our ability to continue gaining share, as we have.

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Believe First Half 2022 Results Presentation

Wednesday, 3rd August 2022

New Top Local Artists & Labels Signings Illustrating the Strong Attractivity Of Believe

Moving on to slide six. That gain of market share is happening with the mid-level markets, both on Label and Artist, as well as the top of the market in Artist Services. A couple of illustrations and some of the things that we have seen to illustrate.

In the UK, for example, in Q1 and Q2, we have had more Top 10 billboard charted artists than we have had in the past. One example, Knucks in hip hop, which was previously signed to one of the major record labels, signed to us and we took to number three Billboard charts in the UK. We also had a couple of number 1's during the same period.

And with very strong diversity of artists; of course, Knucks' hip hop in the UK; we could take the example of Tulus, which released an album in Indonesia earlier, that, on the week of release, went to Top 10 most viewed music videos in the world on YouTube; and a number of artists across geographies from Romania to India. And labels that are illustrating the diversity of artist. What you see there is both a mix of regional Mexican artist as well as soundtrack companies like Hitz, for example, in India.

So this is the strength of the model, the diversity, our ability to sign and develop artists and labels across geographies at all levels that is really powering our engine for growth. This is not just about the top. Obviously, the top is contributing more and more, but globally, the diversity, the breadth of signings that we are making across all genres of music and across all geographies.

Profitable Growth Strategy When Developing Our Artist Services Offering Worldwide

Moving on to slide seven, a quick focus. That strategy, as we know, a core part of the strategy has been, as markets develop, more and more signing artists and developing artists to the top of the market, with Artist Services. As a reminder, Artist Services, Believe is deployed on artist services only in 14 countries around the world, where many of these countries where we are still in investment phase, having deployed local teams organically. As you know, with our model, we follow a very standard blueprint of development, of building teams first in one genre of music with four or five people, and then establishing success with signing mid-level and emerging artists that we take to the top. And then once we have demonstrated success, once we have achieved target EBITDA level for these initial teams, we then move onto building additional teams.

And so, as you know, we have significantly invested in Artist Services, building a lot of these teams around the world in 14 countries with a lot of success. In all of the markets that we are operating right now, we have had at least one artist in the Top 100 in each of these geographies. And obviously in geographies like France or Germany or India or Indonesia, just taking as illustration, which will be large Artist Services market. This is not one artist in the Top 100. This is 15 to 20 artists that we are able to take in these markets and competing at the very top of the market.

As you know, in the strategy there is a mix of building up organically as well as making targeted acquisitions to complete when we feel new segments are becoming more digital. And, obviously, as I was illustrating earlier, as the market is getting more digital every day, our target market and addressable markets are enlarging. And this is one of the reason why we are continuing to invest in building local teams as a core part of our strategy.

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Believe First Half 2022 Results Presentation

Wednesday, 3rd August 2022

Fuelling TuneCore growth: 'Unlimited Pricing' Programme Launch

Moving on to slide eight, another segment where we have seen strong growth in the first half of the year is the segment of new artist, where, with the launch of a new pricing model, we have been able to see the early signs of accelerated growth. We launched new pricing in those territories for a couple of reasons.

One was to enlarge our addressable market with four tiers, starting with the free tier for the new generation of new music creators that is very large in terms of numbers, with some of these creators making it progressively to a mid-level and the top, that we are then upselling to Believe Artist Services or Label and Artist solutions.

The re-launch of that new pricing has received very strong positive feedback from the artists' community. This is very aligned with how, one, the increase of the number of music creators. The fact that as we analyse the market, that segment of music creators is capturing every year, year after year, more and more dollar value and streaming value. In many markets now, that segment is capturing between 55% to 25% of the volume of streams in the market. And this is why this remains a core area of investments for us.

And launching with the new pricing, with artists releasing tracks on a very regular basis, is really in sync with what artists in that market segments are requesting. And where we are also seeing there, the benefit of some of the especially traditional players playing in that market that recently decided to pull out of the market, creating more opportunities for us.

So really strong H1 2022 growth, which we expect to play through the rest of the year.

Reinforcing Global Attractivity of Believe for Our Two Hearts, Our Artists and Our People

Last area of focus for us has been on slide nine, continuing to build our CSR strategy. As you know, our CSR strategy, and as is illustrated on the right-hand side of the slide, has really been thought to be fully aligned with the essence of our model so that it actually supports our economic model. Two initiatives to point in the first half of the year, Believe and TuneCore funded the expansion of US organisation of Keychange, which is a global non-profit organisation that is fighting for gender equity and supporting underrepresented artists. We are monitoring some KPIs, especially around diversity under the number of women artists, female artists, which we have seen grow significantly due to a number of efforts that we have done in this area.

And the publication of the MIDiA Research, Be the Change: Women in Music, which is a study meant to be able to measure the progress in the industry, both in the industry as well on the creators side, so that we can contribute as a company to progressively help the industry generally. And us alleviate these barriers and make for a better, more diverse, more balanced industry. And once again, that remains a core priority for us.

So, in summary, and I will be brief and let Xavier take you through the financials, great performance in H1 2022, very in line with what we communicated at the time of the IPO. And with what we have indicated would be the core model and where the growth would be coming from.

Xavier, do you want to jump into the numbers to illustrate this?

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Believe First Half 2022 Results Presentation

Wednesday, 3rd August 2022

H1 2022 Financial Review

Xavier Dumont

CFO, Believe

Delivering Strong Growth with Q2 Acceleration While Demonstrating Operating Leverage and Generating Positive Free Cash Flow

Thank you, Denis, and thank you all for connecting to our call. So the H1 2022 demonstrates, as Denis illustrated, the performance of our model. We are driving profitable organic growth, quarter after quarter, at a faster rate than the market and we leverage our model to increase the digital monetisation for our labels and artists.

That translates into, of course, a very strong digital focus. Digital represent 92% of our revenue, and very strong digital revenue growth, which is at almost 38% for this semester. That leads to a very strong organic growth at 35.6%, and that organic growth comes from the fact that we are investing very consistently in a very profitable and controlled way. We deploy new solutions and new teams that leverage these solutions. And these solutions are a mix of technology and services to help artists and labels to grow.

During the semester, we increased again our EBITDA margin by almost 50 bps while continuing the investment. And we have a positive free cash flow of €10.8 million in H1 2022. That is driven by a positive working cap and improved profitability. And we will get back to that in a moment.

Strong Growth in All Segments in H1

So going to the next page, page 12. So, as Denis said, the Q2 growth was stronger than Q1. Organic growth in Q2 was 39.4% versus 31.4% in Q1. Premium Solutions accelerated its growth to 40.2% in Q2, despite a slowdown during the month of June in ad-supported monetisation. And that performance was achieved thanks to very strong market share gains in all major DSPs and also positive non-digital sales in Q2 versus Q1.

That performance was also achieved while Russia and Ukraine revenue growth slowdown activities have been more limited than expected due mainly to the strength of the rouble during the semester.

Automated Solutions grew by 28.1% organic, which is the same growth in Q2 as in Q1 if we exclude the Russian and the Ukraine impact. As presented by Denis, TuneCore benefited from the rollout of several new commercial offers that allowed TuneCore to enlarge its addressable market and fuel the future growth of this business unit.

Growth in All Geographies Thanks To an Efficient Organic and External Development Strategy

Going now to page 13. So what we see in page 13 is a demonstration of the way our model works, which is that we focus on the geographies that have the stronger market growth, and we deploy our model to be very strong market share, as indicated by Denis. In each of these geographies, we are piggybacking on the fact that the digital market are enlarging. So our key geographies are Asia and Europe because those two geographies would be the two largest music markets in a few years.

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