Q1 2021 Neogames SARL Earnings Call
Okay.
Good day, ladies and gentlemen, thank you for standing by welcome to Neo games first quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today May 14, 2021 I want.
I'll turn the call over to Joe <unk> with ICR.
Yeah.
Thank you operator, and Hello, everyone.
By now everyone should have access to our first quarter 2021 earnings release, which is available on the neo games website.
At Www Dot Neo games Dot com.
On the Investor Relations section.
Before we begin the formal remarks remind everyone that the discussion today will include forward looking statements.
Forward looking statements, which are usually identified by 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.
Cause actual results to differ materially from what we expect.
Therefore, you should exercise caution when interpreting and relying on them.
For all of you to our recent SEC filings for them on more detailed discussion of the risks that could impact on future operating results and financial condition.
We encourage investors to review on our regulatory filings, including the form 6K for the quarter ended March 31, 2021, when it's filed with the SEC.
During today's call, we will discuss non-GAAP Rs.
<unk> 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 financial results prepared in accordance with higher for US. Your reconciliation of these measures to the most directly comparable I S. R. S measures is available in your earnings release on the New York Games Dot Com website.
Hosting the call today.
We have moody among all your games Chief Executive Officer.
In reviewing on.
Chief Financial Officer for the company.
He will provide some opening remarks, and then we will open the call to questions.
I'll turn the call over to moving.
Okay.
Thank you Jack and good morning, everyone welcome to our first quarter earnings call.
As you can see from our announcement, we're off to a strong start in 2021, we.
We continue to execute ahead of expectations for our customers' unleashing their full on lottery potential empowering them with the best technology platforms. The most entertaining game experiences and a complete range of expertise services and market leading solutions.
The strong start to the year was driven by a few factors, including continued strong performance in the recently launched jurisdictions of Virginia in Alberta, and the double jackpots running the U S. During January I'll touch on these in a moment.
This morning, I will highlight some key points about our first quarter 2021 performance and discuss the trends we're seeing thus far during 2021.
Afterwards.
I will turn the call over to reveal our CFO to run through our financials and business performance.
For the first quarter revenues were $13 $3 million, which is up 46, 5% compared to the first quarter last year.
In addition.
Our share of NPI revenues for the quarter was $8 $2 million compared to $1 million during the first quarter of 2020.
Looking at the two components added together.
That equates to 21 $5 million for the first quarter of 2021.
Representing growth for approximately 114% year over year.
Equally important is that we're growing profitably.
Our adjusted EBITDA growth outpaced revenue growth for the first quarter of 2021, we generated adjusted EBITDA of $9 $7 million.
Up about 148% compared to the same period last year.
As I touched on briefly earlier in my remarks, the better than expected results for the quarter were due to a combination of a few factors.
First for Virginia continues to operate ahead of expectations.
We're seeing get higher and accelerated adoption rate compared to what we experienced in other jurisdictions.
As we said in our Q4 call we revised our expectations higher after we saw a faster pace of player conversion into instant games sooner than expected.
These trends continued through the first quarter and we're even amplified with a double jackpot, which brought a significant increase in new players and enable the lottery to introduced them to non jackpot games, and especially instance.
Interestingly as many of you know online sports betting and launched in Virginia.
During January.
Simply put the launch of online sports betting has not slowed down and I lottery in anyway, I lottery sales continued to grow during the quarter breaking records simultaneously with the introduction of online sports betting in the state.
Second outside of the U S <unk>.
Revenues in Alberta exceeded our original expectations. After only two full quarters of operations for the provinces only regulated I gaming and lottery website play Alberta.
Results are growing and we continue to introduce new gaming vertical this quarter, we introduced live dealer.
And we are beginning to implement the much anticipated druggings vertical with a wide range of games.
Third.
Results in Michigan continued to perform well.
Side by side with introduction of online sports betting and I gaming there.
There is there's been a lot of market focused in Michigan as the more than 10, I gaming and online sports betting sites launched and aggressively advertised during the quarter.
Along with what we are seeing in Virginia, and what we have been experiencing in new Hampshire.
Our first quarter results provide additional data points supporting our view that I lottery can grow and thrive in parallel with introduction of sports betting and other forms of online gaming given the unique proposition debt lotteries have to their audiences.
We've seen similar dynamics in other jurisdictions in Europe and in the U S.
Lastly, as we mentioned in our Q4 call we benefited from a double jackpots run from Mega millions and tolerable debt.
Carried into the early part of first quarter.
Wiley we initially enjoyed the benefits of increased traffic from these new players we have been able to continue to develop deeper relationships with them, which will continue to benefit us over time.
Looking further out at the landscape, we remain confident that the momentum we have generated over the past year has put us in a strong position to continue growing in our existing markets and to be well positioned.
To take our success model on our successful model to new markets.
We continue to believe that the global lottery market is poised for growth and especially in the U S, where we carry a market leading position and the market is still very new and the opportunity for growth from both new States and life States is tremendous.
When we look at how the U S market evolves. Many states continue to have internal conversations and make inquiries into I lottery.
Especially as they see the strong results coming out of existing live jurisdictions, particularly those where we operate.
We remain deeply engaged in providing data and insights to demonstrate the success and importance of I lottery and the material impact it is having on good causes and state budgets.
One of the main reasons for our success is the superiority of our technology and content.
As always it is important to mention that investors should expect us to keep investing in technology and product innovation.
As that drives the monetization advantage, we provide our customers and provides the foundation for both internal and external growth.
The success, we have achieved is clearly tied to the investments that we're making in the business.
Which will total roughly $20 million in this calendar year.
Together with our technology, our content is a significant driver of growth for our business. The superb games developed by Neo game studio play a central role in driving the growth of our full turnkey accounts.
We also see growing interest in our content by lotteries with existing Guy lottery programs.
One such deal hasn't been announced with the launch with Austrian lotteries this quarter.
And we see similar interest in a growing pipeline.
We're proud that our results continued to strengthen as we execute on our internal and external growth strategies.
In terms of execution on internal growth.
On other way to demonstrate our leadership in the U S market is by the fact that the top three U S States for I lottery in per capita sales.
Our our markets, Michigan, New Hampshire, and Virginia.
This demonstrates the value added to all our stakeholders, including our shareholders and customers.
As well as serve to highlight the value we present to prospective customers.
With that I'll now turn the call over to Aviv.
Thanks Marty.
Before I get into the results as a reminder, when we discuss our results I would point out that all of our lottery business in North America operates through our 50 50 joint venture Neapolitan interactive or NPI, except in Michigan, which is reflected in our topline revenues.
To be more precise on a contract in Virginia, and new home share North Dakota in the province of Alberta run through NPI.
Except for the NPR contracts will conduct all of our business through new games.
As a result from an accounting standpoint, as many of you know we generate revenue and earnings.
Through our only owned operation and throw equity interest in NPI.
Revenue as reported on the income statement, which excludes our share of NPI revenues was $13 3 million during the first quarter of 2021 up for up 46, 5% over the same period last year.
Our share of NPI revenue was $8 2 million during the first quarter of 2021, compared with $1 million last year.
The sum total of these two numbers was 91 5 million during the first quarter, representing an increase over 113% year over year.
For the for the quarter, our adjusted EBITDA was $9 7 million up 147 per cent compared with $3 9 million last year as we continued to demonstrate our ability to grow profitability alongside with revenues.
We started off 2021 strong which puts us in a great position to continue to execute during the remainder of 2021.
Favorable results in Virginia, and Alberta added to its strong performance in our existing customer, we're starting to see greater diversification.
Our revenues across a broader number of key accounts.
Turning to our balance sheet, we ended up this quarter with about $63 3 million worth of cash and cash equivalents.
Our outstanding debt at quarter end was approximately 13, $5 6 million at a weighted average interest rate.
One percentage point 17, leaving us in a net cash position of $27 7 million.
Moving into guidance as Monty mentioned first quarter results were ahead for our expectations.
As we've mentioned with several tailwind, including higher volumes in Michigan for junior in Alberta, and as a result of in part of ongoing application of state on policies and most of our jurisdictions as well as benefits from the U S. Jeff book from the.
The good news so far is that the retention rates for new players are in line with past strength, which favorable for 2021 outlook.
As we look forward, we try to balance the aspect of what we can fully control an estimate versus what we cannot control.
With this in mind looking ahead, we estimate that the full year 2021 revenues plus our share of NPI revenues will be between $73 million and 77 $777 million.
The midpoint guidance represents year over year growth of 28%.
The revenue guidance does not include launching any new turnkey contracts.
That I will turn the call back to Marty.
Thanks Aviv.
I mentioned earlier, we're seeing success across the board in our markets.
We ended the quarter as the clear market leader in every K P. I.
The growing USA lottery market. According to an E N K gaming USA Lottery tracker report for the first quarter of 2021.
Our results continue to demonstrate the strength of our model and generating significant value for our customers and thus for neo games and our shareholders.
We remain excited by the momentum we are generating and we believe now games remained well positioned to continue to capitalize on.
On the current landscape as the leader in the rapidly expanding global I lottery market.
With that we thank you for joining us this morning, and we're happy to answer any questions operator.
Thank you if you ask a question at this time. Please press Star then one on your touch on telephone. Thank for your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated.
Our first question comes from the line of Joseph <unk> with Stifel. Your line is open. Please go ahead.
Great. Thanks, operator, good morning, Mark good morning.
Good day here for me this morning, and thanks for taking our question.
Hey, Jeff.
<unk>.
Hey, good morning, multi last time, we spoke during Q4 earnings you'd mentioned a bit of an educational period playing out early in the year just given some turnover amongst the decision makers for lottery lottery expansion and you've touched on this a bit in the prepared remarks, but just curious if you could talk a bit further on how those are going at a high level do you find most our journey.
Really receptive to the idea of adding an online channel are you hitting any sticking points and these discussions just any color there would be helpful.
Yes of course, if great question of course, yes, we do continue those discussions and I would want to point out maybe two or three things that come up in these.
First of all.
As more and more states launched online sports betting and <unk> are.
<unk> are looking at what are what tax rates and on what direct Texas are actually collected into state budgets are there is a growing interest that we see on on I lottery in debt and how it compares to the others. It's not that one is on the expense of the other but it helps us promote the cause.
Largely because I lottery contributes much more on a dollar spend than taxes collected through online sports betting awry gaming in the majority of the state structured so thats definitely a key point of the discussions that we have with.
With regulators, we've also seen debt in quite a number of states. There has been bills introduced.
For different types and shapes or violent Tory mentioned within them.
In Massachusetts in Missouri in Maryland, I think in Arkansas on quite a few others in other states that do not require bills.
You guys have passed a bill as you guys know in a in a trend that we have noted in the past, which is looking at the comprehensive approach and gaming expansion in the states and discussing guy lottery in the context of what other gaming expansion looks like for sports betting and.
Gaming so that's a that's a good sign for what I would say the third thing debt that we are.
We have experienced in Q1 was simply the fact that mindset.
Mindset and attention of legislators has been largely to get to deal with COVID-19.
So available bandwidth to discuss the other issues were relatively limited than we have done our best to promote debt and we do expect to debt when.
When states.
Looking into the rest of the year.
The voice of what we had to say, we'll will turn itself into actions.
Okay. Great. Thanks, that's helpful on an encouraging as well switching gears a bit I wanted to touch on content specifically the trend of platform providers also including third party content on their offering and you talk to this a little bit in the prepared remarks assets stands how much for your various USD contracts on.
Also offer access to third party instant game content and Conversely, how many states are you involved with on the content side without necessarily holding the platform contract and how do you see this evolving as the market matures.
Sure specifically in the U S.
Until recently, we have taken a strategy that we wanted to focus the entire attention over from testy game studio to drive the growth of our turnkey accounts. However, as I said, both in North America as well as in Europe. We're now Recalibrating those efforts to also introduce future deals that we'll see our content offered across.
Yes.
Lottery programs that exist with other providers. So we did we did take note to that one such was launched during the quarter in Austria, and we are working on a pipeline of additional deals across our across the world.
In the turnkey accounts that we have in North America, whether it's in Alberta in Canada and also on the U S. There are are in quite a few of them are third parties offering counting content as well and integrated arm into our platforms in order to be offered to the market.
Okay. Great. Thanks, that's very helpful. That's all for me I appreciate all the color and congrats on another really strong quarter here.
Thank you Jeff.
Thank you and our next question comes from the line of Barry Jonas What's your Securities. Your line is open. Please go ahead.
Hi, gentlemen, it's actually Matt colon for Berry today.
It's just kind of a high level wanted to kick it off.
Are you guys thinking about you know the positive results, we've seen around COVID-19 for I lottery and how that influences.
The market, whether or not that's permanent lingering or how are you thinking about the impact of COVID-19 in general on the business.
Well of course, COVID-19 has impacted positively any type of business that dealt with we don't line in the last year and I lottery in debt perspective was no exception.
The book on on post COVID-19 has not been written as I said, a few times, we may anticipate debt that some of that will turn into additional entertainment options that the players will start to reengage with however, we're confident that the player base that joined during this more than a year of close to you on a half process.
Will allow us to create longer term relationships with them and Reengage and we are definitely happy with the retention rates that we're a debt.
Debt we're seeing.
So it's a it's still an unknown question I would say carefully on how much of that remains but our view and what we are.
I would say anticipating is that we should be able to retain a major portion of debt through marketing efforts.
Got it and then you've talked a lot about Michigan and Guy how successful that marketing spend as we think about additional states potentially rolling out on lottery.
Just curious to get your thoughts on why that state has been so successful.
There are things that other states, you should or should not follow.
As we said quite a few times in the in the past, Michigan was a tremendous success and steely as they're trying to success debt have shown the way forward for so many others. However is definitely not an exception and as you can see we have two other customers occupying the top three player.
<unk> of per capita sales in the U S, New Hampshire, performing fantastically, well and in many patterns. Even ahead of what Michigan has done in relatively speaking to the timelines that they are live.
Virginia that has been phenomenal and breaking records since they went live when we have reported debt more specifically Q4 and end of year and we are seeing continued strength into into Q1.
And I.
I would say that day.
The learning from what Michigan is done properly and correctly has been adopted.
By other customers and there is a lot of sharing between them.
North Carolina as an account is also interesting dimension, while it still doesn't have the ability to offer instant and we're working with the lottery to try and improve debt into the future, but even on a draw games only.
Offering since we have transitioned and launched with our solution late 2019 to be more executive at the beginning on November 2019 about a year and a half.
<unk> has passed since and we have seen that the revenues on the similar portfolio that was available before transitioning to our solution are now coming close to three times, what the lottery have experienced in the past. So we definitely are working very close with our customers to show success.
Hum.
Even if only draw games are allowed.
Perfect and if you don't mind me sneaking one more on here.
Just looking for maybe an update on process on Ohio, our understanding.
What's the process in 2019 Pops up on the news from time to time.
Neil Pollard become ultimately selected the winner on.
There's still some uncertainty there.
Do you expect the process to call out from here.
Theres been a number of different committees that have discussed a broader approach to gaming expansion in the state since the beginning of this year.
We've been engaged with all of those committees to explain the potential to explain our position and as I mentioned earlier to train and educate for the calls on the importance of approving <unk> III to go live in debt stayed those processes have not yet completed themselves.
And we will remain closely connected with them to do our very best to ensure that.
The day cause for the lottery, primarily and also for us.
End up positively.
Perfect very helpful and congrats on a great quarter.
Thank you.
Thank you and our next question comes from the line of Chad the non with Macquarie. Your line is open. Please go ahead.
Hi, <unk> Hi, Rajeev.
Thanks for thanks for taking my question Nice first quarter.
Thank you morning, I wanted to start with.
With EBITDA understanding that youre, not giving EBITDA guidance for 2021, you did give revenue guidance, which implies roughly $18 million of revenue per quarter for the next three quarters. You also mentioned that you're continuing to invest.
And technology $20 million for the year are there any other items that we should be mindful of when we think about either flow through or how EBITDA could come into a clearer picture for the next the next three quarters. Thank you.
Spot on Jud, Thanks for the question.
Without as you rightfully mentioned without entering into into our EBITDA guidance.
Or or or economics of particular accounts.
We would just would like to point out you know your attention to the market's attention to the fact that.
And we've touched on also on our commentary.
Relative to the diversification of our portfolio.
There is a there is a difference in the in the accounts that we serve and the type of the offering that we offer in each jurisdiction.
Which which drives obviously you know different different <unk>.
EBITDA margins from the traditional I would say.
Three program that we offer that we offer in the U S.
Which you're familiar on the bronchus familiar with given given our previous previous filings.
That being said.
We're extremely happy with the margin that we managed to produce alongside with a with a with a revenues growth.
And we do and we do hope to see the very same positive EBITDA EBITDA trends.
Going going forward into the year.
Okay, great. Thank you and I appreciate it.
In light of Youre, not giving guidance thats helpful.
And then with respect to the Williams sales William Hill, Caesars transaction closing I know that's been a nice contribution from a use of IP rights historically.
Caesars recently talked about rolling out new markets I'd envision that you guys will be certainly helping them given your success with William Hill.
Is there any update just in terms of how we should think about the current business and then I'm guessing it's too early to tell.
How we should think about the long term.
Value of that relationship given the exploration I believe which is at the end of next year. Thanks.
Thanks Todd.
We're very happy with the relationship that we have with William Hill and now with the with these are as you have correctly said the day of even amplified their ambitions.
On market access looking.
Looking now also at <unk>.
Converting certain sees their brands.
To the platform on which we take a significant portion in the in the U S market. The way that this has meant to us and I believe we've touched it already in the queue for an end of last year. A report is simply that the type of services that we are providing to caesars in.
And William Hill have been asked to be extended with additional additional teams and.
And additional efforts in order to support support the accelerated.
Expected pace of opening new States and also now looking at additional brands and content types into debt. So while these are this is not a revenue share deal as youll recall. This these additional services that we have been asked to amplify will most probably meet this week.
A certain portion of growth in debt and debt account. The revenues you are correct to assume that the longer term, it's something that we haven't yet.
Discussed.
With teasers, but for the moment and for the foreseeable future teams on both sides are focused on an accelerated.
Opening of new markets and adding over this either to seize our websites on Brent.
Thank you.
Then lastly, just wanted to ask about any M&A opportunities I know.
You know last quarter, you mentioned that there was nothing kind of on the table and everything.
But you kind of plan to rollout would be in house, but just given your cash position and the for.
We're off of the M&A market and the valuation of your stock.
Do you do you envision other M&A kind of tuck in opportunities that could that could fit into your strategy and what you offer from a comprehensive standpoint.
Yeah, Great question, and a very valid one chart I would say that.
As always when we when we work.
As newcomers to the market, we prefer to take a crawl walk run approach.
Ill now.
We've built in concentrated with the learning how to be a member of the financial market. We've been only listed just a bit less than six months and we were mainly concentrated on internal growth and managing our infrastructure and are working with with a market in and with you guys.
But we are now entering a strategic process to review what the M&A should look like and what type of contribution we would want to see that play into the future of nail games.
And I assume that the result of such a process that we would be taking with the board.
We'll be.
Further.
Definitions of the focus of those type of opportunities that we should be looking at.
Thanks, a lot.
That's on the quarter.
Thank you Chad Thanks, a lot.
Thank you and I'm showing no further questions at this time on I would like to turn the conference back over to <unk> for any further remarks.
Thank you. Thank you.
We first and foremost thank you guys for joining us as the newcomers into the market, we have such a high appreciation for the interest of the market. He has joined in.
In our company and our performance and the analysts that are taking the time to speak with US. We are we are greatly greatly.
Appreciative of everyone's support both our customers and our employees that have been working for more than a year in a COVID-19.
<unk> on helping the business moving forward.
And that's it. Thank you guys have a fantastic weekend ahead of you.
Uh huh.
Good day.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Okay.
[music].
Yes.