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Keywords Studios reports strong profits growth, more acquisitions
Acquisitions in Paris, Mexico City, Seattle and Madrid saw Keywords Studios increase revenues and adjusted profits 57% last year and express optimism about further growth in 2018, with three new purchases unveiled.
The AIM-listed group, which provides technical services to the global video games industry, snapped up 11 companies in the past calendar year, including acquisitions to extend geographical and language reach and to enable the formation of a new engineering services line to the various processes that games companies can wholly outsource to it.
Two deals in the year were the largest Keywords has completed to date: VMC acquired in October for $66.4m to add functional testing services in North America, player support services, embedded technical services and the Global Beta Test Network, while Sperasoft was bought in December for $27m to strengthen co-development, extend engineering and art capabilities, and providing a new presence in Eastern Europe.
Revenue of 151.4m was up 57%, and adjusted earnings before interest, tax, depreciation and amortisation likewise up 57% to 26.3m.
Cross-selling of clients is a key gain to be made from acquisitions, with the number of clients using three or more services from the group rising to 93 from 64 in the period.
Gross margin in the period declined by 1.6%, with the company citing the dilutive effect of the VMC acquisition, although EBITDA margin was broadly flat at 17.4%. Excluding acquisitions, on a like-for-like basis, revenues rose 15%. Adjusted profit before tax rose 55% to 23.0m in the year.
While operating cash flow of 13.6m was down 1.4m from the prior year, adjusted operating cash flow of 21.9m was 14.8m more year-on-year. A final dividend of 0.98p per share made for a total dividend of 1.46p per share, up 10% compared to the previous year.
There was 30m cash in the bank at the year end, with net cash standing at 11m, before three acquisitions were announced on Monday. Keywords has also agreed a new revolving credit facility of up to 105m, noting that its pipeline of potential acquisitions was "healthy".
The three new acquisitions include Cord Worldwide and Laced Music bought for £4.5m from Cutting Edge Group. Laced is a music services company and record label specialising within the video games industry, while Cord provides music focused branding and strategic consulting services to large businesses including Shell, Lego and BT. Together they generated £6.5m of sales and £675k of EBITDA in the year ended June 2017.
The third acquisition is Sao Paulo-based Maximal Studio, an audio studio offering voice over services to the videogames and e-learning industries, adding scale in South America. The consideration is 0.3m plus 0.2m deferred subject to performance.
CEO Andrew Day said the new year began with a better balanced business with an expanded range of services and locations, all part of the aim of becoming a key strategic partner to the major games companies.
"We entered 2018 with pro forma revenues of 225m, across seven service lines and 42 studios in four continents, compared to just over 16m derived from four service lines and five studios in 2013 - the year of our IPO.
"We expect to make continued strong progress as we realise the full benefits of our enhanced services platform and with the financing in place to support further organic and acquisitive growth in 2018."
VIDEO: KEYWORDS RESULTS ANALYST PRESENTATION