Playing.com Group Restricted (GAMB) Q2 2022 Earnings Name Transcript

August 30, 2022

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Playing.com Group Restricted (GAMB 0.74%)
Q2 2022 Earnings Name
Aug 29, 2022, 4:30 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Individuals

Ready Remarks:

Operator

Greetings and welcome to Playing.com Group second quarter 2022 earnings outcomes name. At the moment, all members are in a listen-only mode. A short question-and-answer session will observe the formal presentation. [Operator instructions] As a reminder, this convention is being recorded.

It’s now my pleasure to introduce your host, Peter McGough, investor relations for Playing.com. Thanks, Peter. Chances are you’ll start.

Peter McGoughInvestor Relations

Thanks. Hi there, everybody. And welcome to Playing.com Group’s second quarter 2022 earnings outcomes name. I am Peter McGough, vice chairman of investor relations at Playing.com Group.

I am joined by our chief govt officer and co-founder, Charles Gillespie, and our chief monetary officer, Elias Mark. The decision is being webcast dwell inside the investor relations part of our web site at playing.com/company/buyers and a downloadable model of the presentation is out there there as nicely. A webcast replay will probably be accessible on the web site after the conclusion of this name. You may additionally contact investor relations assist by emailing [email protected]

I might prefer to remind you that the knowledge contained on this convention name, together with any monetary and associated steering to be offered, consists of forward-looking statements as outlined by securities legal guidelines. These statements are based mostly on info presently accessible to us and contain dangers and uncertainties that might trigger precise future outcomes, efficiency and enterprise prospects and alternatives to vary materially from these expressed in or implied by these statements. Some necessary components that might trigger such variations are mentioned within the danger components part of Playing.com Group’s filings with the Securities and Alternate Fee. Ahead-looking statements converse solely as of the date the statements are made and the Firm assumes no obligation to replace forward-looking statements to replicate precise future outcomes, adjustments in assumptions, or adjustments in different components affecting forward-looking info, besides to the extent required by relevant securities legal guidelines.

In the course of the name, there can even be a dialogue of non-IFRS monetary measures. An outline of those non-IFRS monetary measures is included within the press launch issued promptly after market shut as we speak. Reconciliations of those non-IFRS monetary measures to their most instantly comparable IFRS measures are included within the appendix to the presentation and press launch, each of which can be found within the Buyers tab of our web site. I will now flip the decision over to Charles.

Charles GillespieCo-Founder and Chief Government Officer

Thanks, Peter, and welcome, everybody. This afternoon we reported file second quarter revenues that confirmed continued sturdy efficiency in each our core enterprise and from our acquisitions from Q1. For these following on the slide deck, I am now on slide 4. Income grew 53% to $15.9 million.

North American income grew greater than 300%, regardless of the seasonally slower nature of the second quarter. We delivered $3.6 million of adjusted EBITDA and $2.9 million of free money movement. Our sturdy profitability continues to distinguish us amongst many on-line sports activities betting and iGaming names, whereas we proceed to spend money on the group to assist our natural progress initiatives. We delivered over 57,000 new depositing prospects, a rise of 119% in comparison with Q2 2021, whereas we delivered 26,000.

The rise in NDCs continues to be pushed by our expanded portfolio of internet sites, in addition to progress in current web sites. Slide 5. We proceed to ship on our strategic goal to develop our North American presence. After rising greater than 500% yr over yr final quarter, North American income grew over 300% yr over yr to $6.2 million within the second quarter.

The rise was supported by our profitable launch in Ontario in April, in addition to continued strong efficiency elsewhere in North America. Given the off-season on this planet of sports activities, progress was primarily pushed by on-line on line casino. We anticipate the return of NFL together with the common fall and winter sporting calendar in North America to drive progress within the second half of the yr. And we imagine further new market launches within the US will proceed to be a key driver of income progress over the approaching years.

Enterprise within the UK and Eire was additionally sturdy within the quarter and elevated 24% in comparison with final yr, regardless of materials foreign money headwinds. Our media partnership with McClatchy introduced in January, noticed one other encouraging quarter. The just lately acquired BonusFinder.com carried out forward of plan within the quarter and delivered very sturdy NDC numbers, offering an important platform to proceed to increase within the Canadian market and past. Work on making use of our efficiency advertising platform to RotoWire.com can be progressing nicely with encouraging early indicators forward of the NFL common season, such because the RotoWire Fantasy Soccer Draft Package occupying the No.

1 spot within the Apple App Retailer for paid apps over this previous weekend. Now, on slide six. Our progress in North America, together with sturdy income in our extra mature markets through the first half of the yr, is demonstrating the breadth and high quality of our portfolio of internet sites and expertise platform. We’ve made substantial investments over the previous few quarters to diversify and strengthen our portfolio to make sure we’re nicely positioned to serve a rising and numerous viewers of gamers all over the world.

Along with our established money producing web sites, we personal and function quite a few further web sites, that are able to be monetized as quickly as further states launch, comparable to BetMaryland.com and BetMassachusetts.com. These websites on these premium domains have been developed in-house on our expertise platform, which can maximize the ROI for these capital investments over time. On the slide seven, as introduced final week, the launch date of on-line sports activities betting in Kansas is on Thursday and we’re nicely positioned with BetKansas.com, in addition to main in-market media shops, because of our partnership with McClatchy. We’re prepared with BetOhio.com when Ohio launches on January 1, 2023.

Maryland and Massachusetts have already legislated sports activities betting however haven’t but launched their regulated markets. We anticipate these states to launch throughout 2023. Now, I might like to show the decision over to our CFO, Elias Mark, to debate our second quarter and first half monetary efficiency in larger element.

Elias MarkChief Monetary Officer

Thanks, Charles, and welcome, everybody. We’re on slide eight now. As Charles talked about, we noticed one other sturdy quarter of monetary outcomes through the seasonally slower Q2. Income of $15.9 million elevated 53% in comparison with the prior yr or 74% on a continuing foreign money foundation.

This foreign money headwind negatively affected income by $1.2 million within the quarter. The rise in income was pushed by sturdy progress in NDCs, primarily in North America. We additionally noticed strong progress within the UK and Eire that was partly offset by the weakening pound and euro in opposition to the US greenback. As a reminder, we started recognizing value of gross sales through the previous quarter because of our new media partnership and the subscription enterprise of RotoWire.com, within the second quarter of being lower of $0.5 million.Complete working bills had been $17.7 million, a rise of $10.4 million.

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The overall working bills had been affected by truthful worth actions in contingent consideration of $2.8 million associated to the BonusFinder.com acquisition. Adjusted for truthful worth actions, adjusted working bills had been $14.8 million, a rise of $7.6 million. On a continuing foreign money foundation, adjusted working bills elevated by $8.4 million, a distinction of $1.2 million. The rise was pushed primarily by further headcounts throughout advertising, product, gross sales and expertise features, in addition to elevated amortization associated to our Q1 acquisitions.

Throughout 2022 we anticipate to incur amortization of roughly $4.5 million associated to the Q1 acquisitions. We’ve additionally elevated administrative bills related to working as a public firm. We’ve continued to take a position organically by scaling our group as we search to solidify our portfolio of manufacturers, web sites and applied sciences for future state launches within the US We’ll proceed to rent to drive future progress however we’re slowing the tempo of hiring within the second half of the yr to consolidate our enlarged group. We’re in a privileged place as a extremely worthwhile firm to have the ability to make investments closely whereas sustaining excessive margin and producing constructive free money movement.

Whereas we proceed to see some inflationary pressures, we’re working to mitigate these headwinds by growing the proportion of our working bills for extra cost-efficient jurisdictions as we increase. Internet earnings totaled $0.05 million, which is an immaterial quantity per diluted share, in comparison with web earnings of $2.4 million or $0.08 per diluted share within the prior yr. Adjusted for truthful worth actions in contingent and most well-liked consideration, adjusted web earnings within the quarter was $3.1 million and adjusted earnings per share of $0.09 per diluted share. Internet earnings and adjusted web earnings had been positively affected by web foreign exchange good points of $2.8 million.

We’ll proceed to regulate working revenue and web earnings on this method till the top of the earn-out interval for BonusFinder.com within the first quarter of 2024. We generated adjusted EBITDA of $3.6 million, in comparison with $5.5 million within the prior yr. This represents an modify EBITDA margin of 23% in comparison with 53% in 2021. The decrease margin was pushed by elevated working bills from our investments within the group to drive natural progress and the decrease margin profile of the acquired core enterprise of RotoWire.com.

Complete money generated from operations of $3.5 million decreased from $4.7 million in 2021 because of the decrease adjusted EBITDA. We generated free money movement of $2.9 million as capital bills had been scaled again as deliberate after having invested in our portfolio of US centered area during the last quarters. We stay capable of fully fund our natural progress initiatives from working money movement and stay free money movement constructive. New depositing prospects within the quarter grew 119% to greater than 57,000, in comparison with 26,000 in Q2, the prior yr.

Progress was pushed primarily by on-line on line casino, given the off-season for sports activities. Money as of June 30, 2022, totaled $31.1 million. The quarter-on-quarter lower of $1.9 million is primarily a results of the settlement of acquired working capital associated to the Q1 acquisition of BonusFinder.com and fee for area acquisitions acquired in earlier quarters, which was partly offset by our working money movement. Onto slide 9.

Turning to our first half outcomes. Income grew 62% to$35.5 million. On a continuing foreign money foundation, income elevated 79%. The foreign money headwinds negatively affected income by $2.1 million within the first six months.

Our value of gross sales within the first half yr totaled $1.7 million. Working bills elevated by $18.2 million to $31.8 million. Adjusted working bills had been $28.9 million, a rise of $15.4 million. On a continuing foreign money foundation, adjusted working bills elevated by $16.7 million, a distinction of $1.3 million.

We recorded web earnings of $4.5 million or $0.13 per diluted share, in comparison with $6.9 million or $0.22 per diluted share in 2021; adjusted web earnings of $7.6 million and adjusted earnings per diluted share of $0.21. Internet earnings and adjusted web earnings had been positively affected by web ForEx good points of $3.6 million. Adjusted EBITDA declined by 15% to $10.7 million, reflecting an adjusted EBITDA margin of 30%. The decrease adjusted EBITDA is once more the results of our larger working bills related to rising our workforce, investing in merchandise, advertising and expertise, public firm overhead and the decrease margin profile of the acquired core enterprise of RotoWire.com.

Our free money movement within the first six months was $4.2 million, in comparison with $9.5 million in 2021. The lower was primarily a results of investments in our portfolio of domains and for the US market. Lastly, we delivered our 124,000 new depositing prospects representing progress of a 100% in comparison with the primary half of 2021. Our first half monetary outcomes had been in step with our strategic goals and expectations.

These first half outcomes set us up for one more yr of file monetary efficiency for the group pushed by sturdy efficiency in each, our core enterprise and our acquisition. Transferring on to slip 10. Turning to our outlook. Given our rising publicity to the North American sports activities calendar, we’re topic to deeper pure seasonality patterns than we’ve got skilled traditionally.

The third quarter began slowing because it’s initially affected by the identical seasonality patterns of Q2. That is adopted by a seasonally stronger interval, beginning with the launch of the NFL season and persevering with by way of the top of the yr. Our progress expectations are additionally affected by the timing and high quality of recent market launches. The Ohio market launch, which we had anticipated for September, in our preliminary steering, is now confirmed to launch on January 1, 2023.

As Charles mentioned, Kansas is confirmed to launch this Thursday and is included in our steering. The weakening of the pound and euro in opposition to US greenback negatively affected reported income by $2.1 million and positively affected working bills by $1.3 million in fixed foreign money phrases within the first six months. In comparison with a euro to USD fee of 1.15 implied in our preliminary steering, income was negatively affected by $1.8 million and adjusted working bills had been positively impacted by $1.5 million within the first six months. Our steering assumes a euro to USD parity for the second half of the yr.

Given the macroeconomic headlines from Europe and North America, we really feel it is prudent to say that we’ve got seen no deterioration of shopper demand for on-line playing year-to-date. We’re monitoring and we are going to proceed to observe shopper conduct intently in Europe and North America as the autumn and winter sports activities seasons develop. From our perspective, demand for efficiency advertising providers for the net playing trade stays sturdy. As US operators strive their companies towards profitability, efficiency advertising turns into much more necessary.

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Together with our enhance in scale, our pricing energy in respect of our US NDCs improves. With all that being stated and regardless of the adversarial foreign money actions, we’re reiterating our steering for 2022 of income within the vary of $71 million to $76 million, representing progress of 68% to 80%, and adjusted EBITDA between $22 million and $27 million, representing progress of 20% to 47%. With that I will flip the decision again to Charles.

Charles GillespieCo-Founder and Chief Government Officer

Thanks Elias. Earlier than we wrap up for questions, I wish to present some further perspective available on the market as we speak and going ahead. The workforce is nicely positioned and absolutely ready to monetize the autumn sports activities season within the state of Kansas, when the market launches Thursday. Likewise, we’re positioning ourselves for a profitable launch in Ohio in January.

The launch dates in Maryland and Massachusetts stay unsaved presently, however we anticipate each to launch throughout 2023, including significantly to our market alternative in North America. We’ll proceed to concentrate on potential market developments elsewhere such because the California poll initiative to legalize sports activities betting. And we proceed to anticipate a broad-based growth of on-line playing in america with the remaining states with out sports activities betting embracing regulation, states which have regulated retail sports activities betting contemplating on-line, and states which have on-line sports activities betting contemplating iGaming. Our power in efficiency advertising presents on-line gaming operators excessive ROI and a path to long-term profitability.

Going ahead, we anticipate on-line gaming operators to proceed to spend money on the efficiency advertising channel as they’ve at all times carried out, given the clear return and low danger the channel gives. I’ll finish by as soon as once more thanking the good Playing.com workforce for his or her exemplary efforts in delivering one more sturdy quarter. With that, we might be very completely satisfied to take just a few questions.

Questions & Solutions:

Operator

[Operator instructions] Our first query is from David Katz with Jefferies. Please proceed along with your query.

David KatzJefferies — Analyst

Hello. Good afternoon, everybody, or good day, everybody, relying on the place we’re sitting. The query we needed to pose is, we had made a be aware across the portion of 2Q income relative to the complete yr probably being about 18% to twenty%, which suggests variety of a better full yr income based mostly on what you simply reported. And we’re questioning the diploma to which you is likely to be going at this a little bit bit conservatively.

Elias, I do know you made a few feedback about what the steering assumes and candidly, I did not catch all of them, so might you simply revisit that matter about the remainder of the yr and the income and the income information and assist us unpack all that?

Elias MarkChief Monetary Officer

Yeah. I suppose, it is a mixture of headwinds and tailwinds, all of which leads us to reiterate our steering. So we positively have headwinds by way of foreign money. And we have seen continued weak point within the euro in July and August.

However, we’re nicely positioned for the second half of the yr with our sports activities merchandise. We look ahead to the Kansas market opening. I feel in Q2, we noticed sturdy buying and selling in our on line casino enterprise, each in North America and in UK and Eire, which might be why outcomes got here in barely above your expectations. I feel wanting ahead, we’re constructive concerning the second half of the yr, however we’re cautious about having to make up the loss income from the foreign money headwinds.

On steadiness, we’re reiterating our steering.

David KatzJefferies — Analyst

Would you contemplate that to be the most important form of impression or headwind is the foreign money?

Elias MarkChief Monetary Officer

Yeah, I’d say so. As you realize and as I touched upon as nicely, we had initially anticipated Ohio to launch in September, it is now confirmed for January. However that is no new information at this stage. That was communicated, after we introduced final quarter.

David KatzJefferies — Analyst

Proper. Yet one more, if I’ll rapidly. We hear so many various views and/or guesses about California. I might love to listen to, I am positive everybody would profit from listening to yours, and whether or not it passes and what kind?

Charles GillespieCo-Founder and Chief Government Officer

Effectively, we’re digital entrepreneurs, not pollsters or campaigners for poll initiatives. However clearly, it is the most costly poll initiative ever. I feel what we’ve got going in opposition to us is the truth that there’s two competing proposals, statistically talking, that makes it more durable to get both of them by way of. However I am positively hopeful that logic and sense will prevail right here.

The enchantment of on-line sports activities betting is fairly clear. It is not a nasty factor for the buyer. Lots of people in California like sports activities, so we’re doing our little bit to get the phrase out with BetCalifornia.com and we’ll be watching very, very intently in November. However I haven’t got, sadly, any inside observe on it, David.

David KatzJefferies — Analyst

Yeah. No, your guess is all people — nearly as good as anyone’s else’s I’d assume. Thanks very a lot.

Operator

Our subsequent query is from Barry Jonas with Truist Securities. Please proceed along with your query.

Barry JonasTruist Securities — Analyst

Hey, guys. Simply had a pair. I seen you latterly filed a shelf. Questioning if there’s any coloration you could possibly present in your intent there.

Charles GillespieCo-Founder and Chief Government Officer

Yeah. No downside. We did. The rationale we filed it after we did was purely a operate of the one yr anniversary of the IPO.

We could not do it till then. And the rationale behind doing it was merely to offer ourselves most optionality, within the occasion that we have to increase some further sources for M&A. We proceed to guage continuously the entire alternatives that we discover fascinating and likewise prioritize these alternatives to ensure we’re spending time on those which are most fascinating. And having this shelf in place will doubtlessly be very helpful, if one of many bigger transactions had been to truly get critical.

However at this stage, there’s nothing speedy, there is no particular plans. It is really there ahead optionality sooner or later.

Barry JonasTruist Securities — Analyst

Obtained it. And I feel we’re all excited concerning the potential within the US, however I used to be curious to get perhaps some extra ideas on Europe. Some opponents have famous challenges throughout Europe and a few are even exploring strategic alternatives there. So with that, are you able to perhaps speak about A, your total view, broadly talking throughout Europe, and should you’re evaluating any M&A there?

Charles GillespieCo-Founder and Chief Government Officer

We nonetheless have a choice for US M&A, however we would not be doing our job if we did not additionally contemplate the enticing European M&A targets which are on the market. If you happen to have a look at us and a few of our friends and also you evaluate these companies in Europe, we’re not — Europe’s a giant place. We’re not all in the identical markets. We’ve a fairly wholesome enterprise, a giant enterprise within the UK and Eire, and quite a lot of our friends have — their European companies are frankly elsewhere, so what drives our outcomes is actually — in Europe is actually UK and Eire, and we needed to place into script as we speak that from our perspective, every part’s nice.

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You see these headlines and also you positively begin to marvel is the buyer going to come back below strain in Europe with vitality costs and price of dwelling and every part else. However we’ve not seen it but. However, after all, we’re eyes extensive open, like everybody else.

Barry JonasTruist Securities — Analyst

And if I might sneak in another, I feel it is clear, many operators feeling strain to hit profitability. I feel you guys make a robust case how the affiliate mannequin is extra useful than hurtful there, however I am curious should you’re seeing any strain on CAC economics or actually something the place the operators are type of attempting to impression your economics?

Charles GillespieCo-Founder and Chief Government Officer

Truthfully, Barry, it is the alternative. Now, that we have got a thriving enterprise in america with actual momentum, we will have pushier conversations with our shoppers about what we need to cost them per NDC. That scale is essential from a pricing perspective. If you happen to’re an operator and you’ll go to affiliate A and purchase a 100 gamers, you go to affiliate B and purchase 10,000 gamers, it is the identical quantity of labor, and you are going to get affiliate C and purchase extra gamers.

Naturally, they themselves prioritize associates which have the site visitors, and more and more that — we’re a part of that dialog.

Elias MarkChief Monetary Officer

And the affiliate channel itself tends to extend as a result of we offer kind of assured ROI. So should you go to spend on buyer acquisition — essentially the most environment friendly means of doing so, and it is assured to generate income.

Barry JonasTruist Securities — Analyst

That is extraordinarily useful. All proper. Thanks a lot, guys. Respect it.

Operator

Our subsequent query is from Jeff Stantial with Stifel. Please proceed along with your query.

Jeff StantialStifel Monetary Corp. — Analyst

Hey, afternoon, guys. Thanks for taking the questions and congrats on a pleasant quarter right here. I needed to begin and observe up on one in every of Barry’s questions and a few of your ready remarks on the finish, Charles, particularly on M&A. Simply curious, like, are you seeing fascinating property being marketed on the market on the market proper now? And as a follow-up, are you beginning to see the sell-off in public equities and within the on-line playing sector start to impression non-public market valuations and asking costs? Simply curious your ideas there.

Thanks.

Charles GillespieCo-Founder and Chief Government Officer

By way of the smaller targets on the market, that are clearly non-public and utterly disconnected from the general public markets, there’s a little bit of training concerned to elucidate to them that these corporations which may have purchased them had been now buying and selling on very completely different valuations than they had been six months in the past. And I feel that course of is nicely underway by way of the form of non-public corporations come to phrases with the brand new local weather. By way of different alternatives, it is sophisticated. Folks have listings in several international locations and that drives completely different — what influences share costs in a single place could not have the identical impact somewhere else.

And there’s a lot of affiliate property on the market and I feel there’s lots of people prepared to have discussions. However we’re going to be very, very cautious and make completely positive that the subsequent deal is sweet on the final two that we have carried out, which we predict had been incredible.

Jeff StantialStifel Monetary Corp. — Analyst

Nice. That is useful. Thanks. After which, for my follow-up, I respect the feedback earlier.

I needed to form of drill in and take your pulse additional on the sentiment round iGaming laws. In the mean time, there are a handful of states entertaining the notion of including iGaming, however simply curious to listen to your perspective on potential growth within the close to to longer-term future. And if it appears like total that there’s urge for food from policymakers for iGaming form of the best way we have seen with sports activities betting? Thanks.

Charles GillespieCo-Founder and Chief Government Officer

Yeah. I imply, it’s a larger app, however Illinois and Indiana are going to have a critical give it some thought subsequent yr. There’s chatter popping out of New York that they may contemplate it as nicely. In fact, that may be a complete sport changer if New York got here on-line for less than on line casino.

The feedback as we speak on the decision weren’t meant to be directed at any particular state. However with a possible recession, with states below strain on their budgets, it is simply such a logical and simple approach to increase state tax income. And if state’s already gotten snug with on-line sports activities betting, it is not that huge of a leap so as to add on iGaming. So we having watched this trade develop from nothing 20 years in the past to being regulated in just about each single European nation, that path of regulation is hardwired into our manufacturers.

And that is how we have a look at the world and we do not suppose the US will probably be any completely different. Clearly, it is a little bit slower, however we’ll get there. There will probably be extra states with iGaming and it is going to be at scale an important, enormous a part of the general market.

Jeff StantialStifel Monetary Corp. — Analyst

Nice. That is useful. Thanks, each.

Operator

Thanks. There are not any additional questions presently. I might like at hand the ground again over to Charles for any closing feedback.

Charles GillespieCo-Founder and Chief Government Officer

Thanks once more to everybody for becoming a member of us as we speak. We respect your assist and curiosity in Playing.com Group. We have had the strongest first six months by way of yr within the group’s historical past, and we anticipate extra of the identical strong efficiency within the second half of the yr. We look ahead to updating everybody once more, after we report Q3 ends in November.

Operator

[Operator signoff]

Length: 0 minutes

Name members:

Peter McGoughInvestor Relations

Charles GillespieCo-Founder and Chief Government Officer

Elias MarkChief Monetary Officer

David KatzJefferies — Analyst

Barry JonasTruist Securities — Analyst

Jeff StantialStifel Monetary Corp. — Analyst

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