Q4 2020 Neogames SARL Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome cheer and Yogi border and ear and to the.
The earnings conference call.
This time of participants are in a listen only mode.
A question and answer session will follow the formal presentation. Please note that the conference is being reported today marks the 11th 2021.
I will now turn the call over to John Kornreich with ICR.
Yeah.
[music]. Thank you operator, and good morning, everyone.
By now everyone should have access to our fourth quarter and full year 2020 earnings release, which is available on the neo games website at Neo games Dotcom.
And the Investor Relations section.
Before we begin the formal remarks, we remind everyone that the discussion today includes forward looking statements.
These forward looking statements, which are usually identified by the use of words, such as will expect anticipate should or other similar phrases are not guarantees of future performance.
These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect and therefore, you should exercise caution when interpreting and relying on them.
We refer everyone back to our recent FCC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition and.
Encourage investors to review, our regulatory filings, including the form 20-F for the year ended the December 31st 2020, when it is filed with the SEC.
During today's call, we will discuss non I F. R. S financial measures, which we believe can be useful in evaluating the company's financial performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with I FRS the.
The reconciliation of these measures to the most directly comparable I FRS measures is available and our earnings release on the Neo games Dot Com website.
Hosting the call today, we have low team of Louisville, Neo games, Chief Executive Officer, and review the Adler Chief Financial Officer of the company.
They will provide some opening remarks, and then we will open the call to questions with that I'll turn the call over to most of them.
Thank you Jack and good morning, everyone welcome to our first earnings call as the publicly traded company we.
We are proud of the business, we have built over the last few years, establishing ourselves as the technology, driven innovator and the Ilo REIT space.
Over the time, we focused on profitable growth.
And as we grew the top line every year, we carved out of the leadership position and its broking sector.
We view, becoming a public company and at the beginning of the new era for Neo games opening up new opportunities to drive the business forward and creating value for all of our stakeholders.
To that and I want to recognize the and welcome our new shareholders. We sincerely appreciate the support and are grateful to have you join us on this journey.
And I also wanted to take a moment to all the knowledge and thank our amazing team of nail games, who are designing and building marketing and selling the innovative products that enable our customer partners to find growth and drive significant contribution to good causes in their jurisdictions.
We're incredibly proud of the strong results that we delivered throughout this year and are pleased to share highlights from the fourth quarter. We continued to make progress on our vision to unleash our customers full and I lottery potential empowering them with the best technology platforms. The most powerful gaming.
<unk> says and a complete range of expertise experienced services and market leading solution.
This morning, I will highlight some key points about our full year 2020 performance.
Talk about some early trends that we're seeing in 2020, one and then provide our take on the longer term growth opportunity and what we are doing to ensure we maintain our leadership position and I lottery to capture share after which I will turn the call over to reveal of our CFO to run through our financial.
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For the full year revenue was $49 $2 million, which is up 48, 8% over last year. In addition, our share of N. P. I revenues for the year was $9 5 million compared to $1 9 million last year.
Looking at the two components added together, they equate to $58 $7 million for the full year 2020, representing growth of over 67, 7% compared to last year equally.
Equally as important we continued to grow profitability and our adjusted EBITDA grew at the rate more than double the top line.
For the full year, 2020, we generated adjusted EBITDA of $28 $7 million up nearly a 142% from the prior year.
We ended the year strong as fourth quarter results came in better than expected.
The better than expected fourth quarter was the result of four key tailwind.
Several of which were largely one time incremental benefits to our plan.
First result, and Virginia were ahead of our customer and our expectations as we saw a higher and faster conversion of existing draw games subscription of players and other registered players into instant games sooner than we were expecting.
This trend of the earlier than expected adoption is factored into our 2021 revenue guidance.
And revenues in Alberta occur the beat earlier than expected as the solution came online sooner than anticipated as our incredible teams were able to lift off the ground a go live and just five months from contract signing.
Third.
And with the resurgence of the stay at home orders.
And most of our customer jurisdictions around the globe, we experienced increased activity from the mere fact people spend more time at home and the fourth quarter.
Lastly, as many investors may be aware of the U S experienced the double jackpot run the beginning in December and extending into January.
On this point it is worth quickly mentioning how the flow through works with jackpot runs and idle III.
Throughout the U S. All of the has experienced growth and sales due to the double jackpots of Mega millions and powerful which started to pick up in December and even stronger into January.
I know there was no exception as we saw meaningful volume growth and.
Across all U S customers, we typically see I lottery benefit from jackpot runs in two ways first during the jackpot runs of themselves with direct revenues due to the volume uptick and second.
As a result of the run and increase of new player sign ups to post the jackpot run creates an opportunity for our customers and our marketing team to.
To further engage and cross promote these players through non jackpot games.
The end of the jackpot running January segways nicely to my next topic.
What we are seeing early in 2021.
And Michigan exactly at the same time, the double jackpot run was ending the I gaming switch was turned on and we saw the launch of more than 10, I gaming and online sports betting site.
With the end of the jackpot run we expected the revenues would return to normal levels and what we have seen during February is that the revenue trends were largely in line with the expectation and run rates, whereas the average of the month prior to the checkpoints.
We see this as a positive early and I do stress early indication that our experienced and Michigan, maybe no different compared to what we have seen and experienced in other jurisdictions.
To remind listeners of what those experiences have been I refer back to our IPO materials.
As we mentioned in our registration statement, we strongly believe based on experience and Europe as well as early cases in the U S. It's I lottery can grow and thrive parallel to introduction of sports betting and other forms of online gaming.
Most recently before Michigan and new.
Hampshire, when sports betting was introduced more than a year ago. The lottery has reported strong parallel growth on both programs.
One of the recent early 'twenty 'twenty, one item I wanted to just to touch on is the announcement of our entry into a new market in Europe. We entered an agreement with the Austrian lotteries to provide them with great content from our market proven library of games developed by our talented team at Neal games studio.
Which we believe will enhance the overall gaming experience offered by the lottery, adding a new level of entertainment to their online lottery players.
From the Neo games perspective, the agreement is further demonstration to one of the growth strategies, we pointed out and our IPO.
It was to leverage the successful content created by our studio and.
And expand into more of lotteries and globally.
We had a really strong finish to 2020.
And we have started off strong and 2021.
So what are we doing to keep up the momentum.
Maintaining our range our edge is important as we believe that the global I lottery market is poised for significant growth.
Especially in the U S where the market is in its infancy not only in terms of the number of unopened states, but also for the states that are already live with I lottery the.
The vast majority of vital three states have only been online for the very short periods and still present, a sizeable organic growth opportunity.
From our view the growth opportunity and the market for both the new States and live States remains tremendous we also expect the external growth opportunities to continue to expand.
We are beginning to see increased activity in some states, including legislation and in some cases gaming expansion committees that are holding public hearings on the matter.
We are deeply engaged in those states, providing data to demonstrate the success and importance of viola III and the impact it can have on state budgets.
Underlying both of the organic and external growth opportunities.
Investors should expect us to keep investing in technology and product innovation and.
And that drives the monetization of advantage, we provide our customers.
Our focus and expertise every day is on technology.
And we never sit back or stay satisfied all of our tech because we know that we have to continue to be the best to gain the market Korea the ability.
We invest roughly $20 million of year in tech to ensure that our leadership and sustainable over the long run.
On the gain side, we believe we already have one of the largest and most successful I look to regain portfolios in the global lottery industry with the gains that have proven to drive significant revenues in both North America as well as Europe, we are working to expand that even for.
Weather.
And the competitive advantage of our exclusive focus on I lottery platforms also extends to our games studio that remains focused on delivering the best games to the Iot market every month.
We believe and having the full stack that includes the games, the technological infrastructure and the operational expertise and experience embedded into our services.
Combined with our operational and marketing expertise.
Is the key to success and Idaho, III and the Ilo three industry over the long run.
We think it's the principal reason, we have had success with our current customers.
We wanted to provide a.
A bit more data and color on our success with customers around the globe.
Since we launched and Michigan during 2014, I lottery has accounted for a growing percentage of gross sales.
During the state's fiscal year ended September 2020, I lottery penetration of instance was nearly 44% and I lottery penetration of the entire portfolio was 39%.
In Europe, we are proud to take part of the continued success for SUNS GAAP in the Czech Republic.
Sales guys mentioned that the online channel has grown to represent more than 30% of total G Jr.
In 'twenty, and 'twenty, where draw games sales online mitigated a drop of retail lottery sales during COVID-19.
The strong partnership with <unk> has led to a six year extension of our agreement with them until end of 2025.
We're also seeing accelerating trends in new Hampshire, as we continue to improve our product and gain more market and operating knowledge in new Hampshire.
We have been live for just the beat over two years. We also continued to drive volumes higher of for our customer. According to E. N. K gaming research U S. Idle III track of report for Q4, New Hampshire, I lottery sales were up 168% year over year to 44 million.
During the fourth quarter. This represented a 12% increase sequentially from Q3.
And the pace of getting to hire I lottery turnover rates has demonstrated itself very well and Virginia.
For instance, according to NK and Virginia during the fourth quarter.
She is only the second full quarter, we are alive with the full I Lottery program I lottery sales increased 31% sequentially to approximately $160 million by the way. The initial results significantly the significantly exceeded the state's projections and represented nearly <unk>.
<unk>, 5% of the state's authorized the gross sales during that quarter.
And most recently.
Bertha Canada, we went from signing the contract to going live within five months.
Which is the record breaking and the Canadian market.
We will continue to rollout additional gaming vertical to that customer during 2021.
As you can see we are very invested and success of our of our customers and our teams are working day and night to ensure our solutions continued to be the best in market.
It is all well summarized in the fact that according to the latest Q4, Idaho to retract are reported for me and K R. U S accounts are driving 70% of vial of three gross sales in the entire U S market.
With that I'll now turn the call over to Rajiv to discuss the financials.
Thank you Martin.
And as Monty mentioned during the fourth quarter and on November 24th we have completed our IPO.
The transaction provided us with the approximate of net of $43 million of incremental cash net of deduction of officials expenses on our balance sheet and put us in a strong financial position as we continue to execute our growth strategy into 2021 and beyond.
Before I get into results and as a reminder, when did the when we discuss our results I would point out that the lottery business in North America operates through a 50 50 joint venture Neil Bullock interactive or.
Or MPI, except for the Michigan contract.
To be more precise of contracting in Virginia, and New Hampshire, and North Carolina, and the province of Alberta run through NPI and except for the and for the NPI contracts with conduct with conduct all of our business through new games.
And then and as a result from an accounting standpoint, as probably many of you already know we generate revenues and earnings throughout all of the whole operation and through our equity interest in NPI.
With that the will jump into numbers revenues as reported for the fourth quarter of 2021 of our income statements, which excludes our share of NPI revenues was $14 million.
Up over 56% over the same period last year.
Our share of NPI revenues was $4 $5 million compared with 900000 and last year the <unk>.
Some of the total of these two numbers was $18 5 million during the fourth quarter, representing an increase of over 87% year over year.
For the fourth quarter, our adjusted EBITDA was $9 million up over 160% compared with $3 5 million last year.
As we continue to demonstrate our ability to grow the profit alongside with the topline revenues.
For the full year Neo games and reported revenues of 40, $49 $2 million up over 48% over last year.
In addition, our share of NPI revenues for the year was $9 5 million compared with the $1 nine last year.
Looking into two components together, the equal to $58 7 million for the full year of 2020, which is over and up over 67% compared with 22019.
Our adjusted EBITDA was $28 7 million, which is over 140% compared with 11 nine reported on 2019.
Turning to our balance sheet, we ended up this quarter with the both with the beat to below $60 million worth of cash and cash equivalents or death of the quarter and was approximately $35 million at the weighted average interest rate of 1.1%, leaving us with the net cash position of a bit below $25 million.
At the end of the quarter post our IPO with approximately 25 million shares of outstanding.
Few few words before we dive into the guidance of 2021 and as multi mentioned fourth quarter of results were ahead of our plan.
With several tailwind, including high volumes, and Virginia revenues coming online faster than we've anticipated emailed Buda.
The impact of of homeless of.
Stay at home restrictions due to Covid and benefits from the U S Jetblue Trump.
As we look forward and try to balance the aspect of what we can fully control and estimate and those that we cannot.
With that looking ahead, we estimate that the full year for 2020, one revenues plus our share of NPI revenues will range between 65 minutes to $69 million.
The revenue guidance does not include launching any new turnkey contracts.
With that I will turn the call back to Marty.
Thank you Ravi.
So as I've mentioned earlier, we see success across the board with our global customer base. We are entering 2021 with a 70% market share and the growing U S. I lottery industry. According to eat and K Gaming's U S. I lottery tracker for the fourth quarter of 2020.
We have a proven model generating tangible success for our customers and thus for neo games and our shareholders.
The model is highly scalable to continue to be able to grow as the industry grows.
We think we have plenty of runway ahead of us with many exciting paths for growth.
Looking forward to sharing our progress in the quarters and years to come.
I'll close by reiterating how excited we are about the momentum.
We have across the board.
And there is a lot of work ahead, but we are very optimistic with that.
Thank you for joining us this morning, and we're happy to answer any questions operator.
Please open the line for questions.
As a reminder, ladies and gentlemen ask the question you will need to press star one I understand the phone and to withdraw your question press the pound key lease form violently composite kunaev awesome.
Yeah.
My first question and I'll come from the line of Jeff.
Stan show substantial Jess <unk> from Stifel you may begin.
Hey, great. Thanks, good morning, everyone.
I just wanted to start on the and the legislative front instead of a slow start to the year, thus far but I wanted to see what you are hearing for potential new states opening up the Kobe.
Expect to hear about new contract opportunities in the coming week bonds, just anything there would be helpful. If you kind.
Possibly some ground.
Sure Hey, good morning to you and thanks for joining us.
A couple of things first of all of it does seem like the slow start however, it in line with the with what we have said and what we have expected because as we have mentioned quite a few of the different legislative the governing commission the committees that oversee the lotteries and in different shapes and forms across the U S.
<unk> are now in the process of reforming changing members within them that that have taken the the majority of Q1 and started right. After the new year of post the elections, and we do see that phenomena happening as does the those things settle down and we do see the they are now settling down and we are expecting.
And that there will be the beginning of the let's call it an educational process to those newcomers.
And to give them in line with the the decisions that the lotteries and we'd like them to take and putting the front of them.
We're very active in the space.
We believe that we are mapped very well we are constantly being asked to provide such information of.
You know impact Directionally, the lack of impact on retail sales is the growth of <unk>, three and what it contributes to state budgets and what can the different states expect from it and so on and.
And in some states, we already see even the formation of legislation maybe you have noticed but we've seen the bill suggested and Massachusetts, where I lottery that will maybe be a part of the broader discussion around sports betting over there with the number of additional deals. We are similarly, seeing see obscene of Bill and Connecticut, That's mentioned certain <unk>.
Pensions of violence to the side by side with potential other expansions and those dates and these are just the name states that may even need the other state as I remind you guys do not necessarily need the meals, but they do need.
The the approval of the over those of the governing of different bodies, which we are helping them educate.
So time wise things are picking up are we do expect that they will accelerate across the the other parts over the years.
And that's what we see as of now.
Okay, great. Thanks.
Really helpful color moving over to your content all of the contracts you recently added and the partnership you highlighted with the Austria and National Lottery.
Meaningful could this partnership the longer term to kind of overall profitability.
And how meaningful could could content partnerships the more broadly and should we continue to see more partnerships announced as the year progresses.
Yes sure of course, so yes, we did indicate and and I remind that back to our to our IPO and materials that in recent years.
We have been completely dedicating the attention and focus of our talented game studio to provided the gains to our turnkey customers in order to focus on accelerating the growth over there.
We have felt already last year that now and the time for us to <unk>.
Recalibrate the attention of our studio to also provide the content into customers that don't necessarily have full turnkey solutions from us.
And we're very happy that so early in the process, we have already seen that.
The manifesting itself into an actual deal and the go lives. We are working diligently on a on the more opportunities in the space and different parts.
And we definitely expect of that as lotteries and see.
Content being something more and more important in their ability to success to drive revenues that we should have the room for growth and that segment.
Okay, Great and then just one more quick one for me if you don't mind, you we think of new.
The slow recently around.
Lottery career apps, which.
And almost look and feel like Uber eats for retail of lottery tickets one of your thoughts here do you see this as the viable long term business model and if so would you consider introducing of similar product.
Yes.
We've also obviously looked at that the.
And the trend or or space.
Some lotteries and see that to be supportive of and early stage phenomena before the take decisions into a broader I lottery program.
Without being the 100%.
Accurate the majority of the states, we have seen that happening in are not states that has full idle trade programs.
And then we're following that space.
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But there are quite of few additional things we need to factor.
And if and when we think the decision too.
To look at that space more more seriously we feel that the business model. We currently have being of B to b to G provider and book necessarily a b to C provider of serves us well.
Well and we will of course always look at the additional opportunities within the space.
Okay, Great. That's very helpful. Thanks for all of the color and congrats on a really strong first quarter out of the gate.
Okay.
Thank you very much.
Our next question comes from the line of Chad Beynon.
Matthew you may begin.
Hi, good morning, multi Ravi I appreciate it congrats on coming public and and more importantly, the strong a fourth quarter that you are presented here.
Thank you Chad and with the with respect to your guidance and.
And you noted that you're not including any new turnkey contracts. So a few questions on that one how should we think about seasonality for <unk> for the for the business, mainly the turnkey contracts given.
There's a lot of moving parts markets of ramping the COVID-19 impact and if that's too difficult should we just assume that it's back half weighted and then related to that if there are turnkey contracts that are awarded kind of.
Highlighting what you just talked about given the legislative progress how fast based on your history can you be up and running particularly with what you highlighted and Alberta. Thanks.
Hey, Thanks, again, Chad for for joining us much appreciated.
First of all I don't believe seasonality is connected.
And those types of contracts and the reason we haven't included those are within our projection of the simply because they have a very different shapes and forms relative to the scope of that they may have had within the scope of local deployment the scope of integrations of based on the specific cases and.
And because.
We don't.
Yet have the ability to be specific about what we have decided to do.
Do not include the revenues from such long term the turnkey contract.
In our projections.
We and <unk>.
Going back to what you mentioned earlier about about the ability to go live fast.
We have the track record of growing much faster than competition in the U S market, Canada was the and interesting unique case that I hope at some point and time will replicate itself into the U S market, because we were allowed to deploy of cloud based solution.
And as long as of course, it was Canadian cloud, but that's fine and that allows us to shave off significant portions related to deploying multiple data centers in state and everything related to ordering of hardware commissioning and commissioning it et cetera et cetera.
<unk>.
And I point you back for example to New Hampshire, where we have the stated that.
From the signing of the contract to go live we took about seven months, we signed the contract in February and we went live.
In September so even with the deploying in state data centers, we feel that we can be fast about pizza, but it really depends on.
Primarily on the on the scope.
Okay, Great. That's perfect and then lastly, just on the the margins in the fourth quarter and how we should think about the puts and the takes.
It looks like there was probably some type of of benefit because of the flow through on the IP rights.
Which which were strong and the fourth quarter, but then also some of the items that you talked about with with.
With the double jackpot, Ron and and Virginia.
So should we assume that the margins kind of come back down to more of a historical range kind of in the and the thirties or you know.
As you continue to invest and and tech, which is probably the most important or you know just given the higher revenues can you start to see margin slightly above that that's all for me. Thank you.
Thank you Chad I'll handle of Veeva answer that question.
Hi, John Good morning.
<unk>.
So first time I assume that the that you've that you've noticed it.
We didn't we didn't provided any any any EBITDA guidance for FY 2021.
And for various reasons, mainly due to the fact that.
And where were running and are extremely dynamic digital market the business.
And with some with some macroeconomic impacts of such and you've mentioned the Covid and.
And the Jetblue drones D, the competition and Michigan et cetera.
And in high level.
The assumption or right relative to the to the IP rights.
EBITDA margin is doing during Q4.
This contract is running more or less on the.
And kind of the fixed fixed cost base. So it kind of cut it can be.
And projected to have the similar EBITDA margin effect of over 2021 numbers.
But without the Wil.
Rather stop and providing any any further EBITDA guidance and margins for 2021.
Okay I appreciate it thanks, guys congrats on everything.
Thank you Jud.
Okay.
Thank you once again.
The star one for questions Taiwan.
Next question will come from the line of Barry Jonas from two of Securities you may begin.
Great. Thank you.
I wanted to start with the Ohio RFP can you just give us and update on next steps and any thoughts on timing there.
Good morning, Barry.
Yeah.
The interest of very lottery in that state is picking up from from a number of directions, we have seen a lottery being discussed the.
In certain relevant the budget committees and Theres also a specific committee that was recently appointed in the Senate to look at the gaming expansion of the whole that have said that they will also look into into a lottery.
We have been close with all of those the discussions and and hearings.
But we have nothing to report relative to tangible the timeline because that is still within the handle the state.
Got it got it and then how are you thinking about M&A here are there any areas that potentially could interest you either on the tech side or on the verticals.
Obviously, you know now that the that we have become public.
We're constantly approached with the opportunities that we keep.
Looking at.
We are we definitely have not yet the.
Made the distinct decision on any of them, but we keep the.
Screening the market to see if there are opportunities that we believe will accelerate to the gross that we have in the core business lines and it falls in line with what we have in front of us, but nothing that we can specifically point to a discipline of times.
Got it and then just one more for me can you talk about the relationship with Pollard I don't.
And thank the JV agreement has been further formalized at this point of view of both recently announced some developments in Europe. Thanks.
Yeah.
The agreement with or without partners part of the banknote has all of the has always been for the North American market both of US head of established businesses and.
Swear I remind you that the nail games and more than five or six customers even prior to having the relationship for the North American market, which is working.
Great while we have not.
Made steps are on the legal front the eighties, I remind you and actual company, but he is one of the 50 50 by the partners I would also point your attention to the fact that the agreement between us and these adjustments due to serving the contract and in Michigan that has been recently.
Extended until the middle of the 2026.
That's the that's all I can report at this point of time, and we definitely think that.
We will seek the opportunities outside of North America is of the one that we have mentioned about the Austria.
Great. Thanks, so much and congrats.
Thank you Barry Thank you.
Thank you and there are no for the questions in the queue I'd like to turn the call back over to Monty and for any closing remarks.
Thank you.
I would really like to thank our.
Thank everyone to that of taking the time to join US. This morning, It's a we have a lot of respect and appreciation to the fact that we are new in this market.
And we are we definitely take things a step.
Step at the time, but we are so much excited about the opportunities ahead of us and the ability that we have already shown to two.
To capitalize on them and we truly look forward to host you guys and the.
Cause in the next quarters and years, Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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[music] zone.
Okay.