Q1 2021 Golden Nugget Online Gaming Inc Earnings Call
[music].
Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Okay.
Good day and thank you for standing by welcome to the Golden Nugget online gaming first quarter 2021 earnings call. At this time all participants are all this multi mode.
After the speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
Got you had the conference over to your Speaker today, Bumble Lyft Investor Relations. Thank you. Please go ahead.
Good afternoon, everyone and thank you for joining us today to discuss our first quarter results for 2021 with me today are chairman and Chief Executive Officer children for Cheetah, and our President Thomas Winter and our Chief Financial Officer, Mike Harwell before we begin I'd like to remind all participants that our comments today will include forward.
Looking statements within the meaning of the federal Securities laws forward looking statements are not statements of historical facts and a number of factors and uncertainties could cause our actual results in future periods to differ materially from what we talked about today.
We assume no responsibility for updating any forward looking statements and therefore, you should exercise caution in interpreting and relying on them for a complete discussion of these risks we encourage you to read the company's earnings release as well as our filings with the SEC.
When we refer to non-GAAP measures during the call. Please refer to our earnings release for a full reconciliation of net income or loss to EBITDA and adjusted EBITDA and for the definitions of our non-GAAP measures and with that let me turn the call over to Tillman for his opening remarks Tillman.
Thank you Sloan and thank you to all the investors and analysts on the call.
Before I turn the call over to Thomas and Mike I'll begin with a few high level points from the quarter first as you can see by our revenue growth in the quarter, we feel increasingly confident about what golden Nugget online gaming can be as we expand into new geographic areas and continue to build our scale.
I mentioned, the significant and growing addressable market for I gaming last quarter, but seeing what our team has accomplished to start 2021 really emphasizes how well positioned we are with the right assets people and of course execution.
Second as you will hear from Thomas our state expansion plans are going extremely well and we're now on to agreements and geographies that represent nearly a third of the U S population, but very simply we have a very strong play book to run from based on our experience in New Jersey, and it's our aim to weak.
Create that same success in more and more states across the country in Michigan. Our results have exceeded our own expectations in April alone. We grew our casino revenues, they're about 14%.
Also I believe our results in Michigan next year will equal our 2019, New Jersey revenues and that will turn profitable there sometimes in the latter part of 2022 way ahead of our expectations I really can't help it but my DNA requires that we operate our business.
It makes money.
I've got to generate EBITDA and we're so happy about it in Michigan next year Lastly, I'll close by reiterating how powerful the Golden Nugget brand is combined with our broader businesses a lot of our competitors had given up lots of equity or paid significant dollars to enhanced media.
Chips from our customer connectivity and loyalty standpoint ours is so strong we already are able to go into markets and people know who we are we definitely have it all on strategic advantage. It is land bridge massive customer base across land brings over 500 restaurants five.
Knows and many other entertainment venues across 40 U S States, we have access to tens of millions of customers and we're just in our infancy of unlocking the value there.
I don't think the market really understands the power per relationship that exists and it's available to jinan through landry's.
With that let me end by again, highlighting our excitement for the future and the great results Golden Nugget online gaming team is produced to begin 2021 with that I'll turn it over to our President Thomas Winter.
Thank you gentlemen, and welcome everyone.
I'd like to begin by echoing <unk> comments.
We are truly excited devices stops of 2021 and have a lot of promising results.
Both our long term view about the sizable growth opportunities.
I will start with a quick review of our west successful quarter.
In Q1, we generated $26 $7 million on revenues.
54% increase from a year ago.
Our largest quarter on revenue Unwrinkle.
We are especially pleased with this growth of 60% came organically from New Jersey.
40% came from Michigan.
Our first of many planned expansions across North America.
Our growth was driven by continued strong player acquisition and retention.
While operating in the competitive markets of New Jersey and Michigan.
As you will see in the women's jails.
The growth is broad based and.
<unk> continues to expand beyond the COVID-19 related tail wins, we experienced early last year.
In fact, we grew significantly in the quarter across both U.
And returning active dip as adults.
Most encouraging our first time deposit also grew by 386%, although a year ago, mainly driven by our new market expansion.
Which I will elaborate on in a minute.
Well returning active deposit though.
Growth of 49% is just as exciting and was driven by continued strength in retention.
Overall.
Average monthly active depose adults.
126% over last year and.
And 62% sequentially.
Which really shows how rapidly we can grow even early on in your markets.
Looking at New Jersey.
So markets well.
Monthly net average revenue per user for the quarter was 550 day it off.
Sales to 613 in the first quarter of 2020.
Which was boosted in the early stages a day.
These 19 pandemic.
Still our Q1 2021 there's a few shows an increase of 6% over the first well in 2019.
Which we believe is a more meaningful comparison.
And Michigan early a few numbers have been encouraging too.
While median household income is 30% lower at Michigan that it is in New Jersey.
Gross gaming revenue of Michigan's first most deposit dose has been 98% short of new Jersey's, although there are three malls.
Which makes us confident in the long term value we can create in Michigan.
Although all well nationwide cause you know net off Q4.
430 fold at all in the first quarter on this year.
Temporarily dampened by the record number and share of first time deposit off.
We're currently at 457% of our total active tip with adults.
You will recall that new players both spend less initially.
And there's a few is also low well by virtue of welcome bonuses that on there.
Net it against revenue.
We expect as you know and there's a few to progressively ramp up.
To a historic low levels.
As new gaming markets May true.
Overall, we'd remind you on.
The major growth drivers, we outlined in our last call.
First I gave me is experiencing tremendous growth.
Still in its early innings.
Single.
Our players are loyal.
And tend to increase their spend over time.
And third we continue to grow our footprint.
Enter new states.
In summary, Ah well revenue trajectory continues to progress nicely in line with the 50% compounded average growth rate, we have exhibited over the past four years.
Building on our last earnings call.
We are continuing to see immense potential in the size of the gaming market in the U S.
In key states, where I gaming is already regulated.
Hi, gaming revenues were more than twice that of phone line sports betting revenues in Q1 this year.
Together, New Jersey, Michigan and Pennsylvania.
Already generate around $300 million in gross gaming revenue build moats.
While representing just 10 per cent of the U S population.
We expect more states to consider all I gaming legislation.
The tax revenue potential.
Will become harder to ignore.
We have seen several states discussing I gaming legislation in the last few months, including Indiana.
No.
More recently, Nevada.
That's no speak to our expansion and give some updates for key market build over the next number of quarters.
We have been aggressively working to expand our footprint across North America.
No secure potential market access across 12.
<unk>.
Which represents 29%.
Of the U S population.
We are especially pleased to announce our most recent market exits agreements.
<unk> with Zika as you know.
And in Iowa, with a wad rules because he knows.
Well agreements go about both I gaming and online sports betting.
Legislation and regulatory approvals permitting.
In addition to Colorado and Iowa.
Okay.
Negotiated market access for online sports betting and online casino in West, Virginia, Virginia, Pennsylvania, Illinois, New York.
And through our affiliation with a golden they get because who knows.
Sienna.
Nevada and Mississippi.
Some of these states are still spending legislation and regulation.
We anticipate going live in 40 shuttle stage issue.
Next quarter, we are getting ready to launch online casino and sports in West Virginia.
On the online sports in Virginia.
The fourth quarter, we plan to launch on line because you know in Pennsylvania.
And online sports indeed annoying.
Early next year, we look forward to launching in Colorado, Iowa.
Louisiana.
We are currently in discussions for market access and several other U S States.
<unk> to the Canadian Province of Ontario.
Which we believe could open the I gaming market as soon as next year.
As we ramp up our expansion into new markets.
We'll continue to make significant strategic investments in player acquisition.
Each new jurisdiction will be slightly different.
But in general.
We expect our investments to result in negative EBITDA in the first two years of operation.
Achieving breakeven in year three in <unk> states.
Still on my notes here.
Excited to build each of these new markets in the same way with rone and achieve profitability.
In New Jersey.
I'd like to take a minute to discuss our progress in Michigan to date.
First after many months of planning we were thrilled to launch with a first wave of operators in Michigan at the end of January.
We are pleased with the aesthetic rules, we have achieved in a market with some of our competitors are flow.
Large homegrown database.
Spending incredible amounts on promotions and marketing.
Well sales full months of operation we.
We generated $3 9 million and gross gaming revenue.
Which took us more than four years to achieve in New Jersey.
In April.
Golden Nugget was one of only two operates all to increase its gaming G. L. A 14% most of our malls.
Contributed to more than doubling our market share over the last three months and we look forward to continuing that force twin.
Finally, before I turn the corner from <unk> to review our financials.
I'd like to give an update on our product roadmap of 'twenty one.
Since launching in 2013.
<unk> has always emphasized product quality and innovation a school to each business.
We were the first operator in the U S to launch life, you're left with one studio.
We were the first to launch a branded slots game Golden Nugget video floods.
And we've been successful launching new floods categories like steppers Mega ways.
The results of our focus on product and innovation speak for themselves with the success, we've seen to date in New Jersey.
We were recently Shortlisted by.
By E Gaming review full day of 2021 north American on walls in five skeptical as well.
More than any other operator.
I think we will dominate it full.
As you know operates all mobile operates all customer service operates all marketing campaign.
Also operates all of the year.
We have already won four years in a row.
In 'twenty, one we have a series of initiatives underway to.
To build upon on what products success in Michigan. We are excited by the upcoming launch of life data, which we expect to happen in the coming weeks.
We also plan to expand our content offering by launching over 100, new games from several content providers, including evolution gaming IGT Ags inspired gaming and spin games in the next couple of thoughts.
Content is a key driver of player activity and spend.
These additions should be instrumental to our revenue growth in the states.
In New Jersey, we are thrilled to announce that we will be significantly expanding our lives tita studio.
The expansion will add an additional 1800 square feet on the studio space.
And it will increase its capacity from 18 to 33 tables.
We expect to complete the projects in the third quarter on this year.
We also plan to launch a 24 seven auto roulette.
Which will be a next day and complements to our existing studio when cash flow really tables.
And our focus on life day level does it mean, we forget about slots.
In the first quarter, we launched no less than 40, new games on an exclusive basis.
Our on track to do the same in Q2.
We are working with our technology partner scientific games on delivering annuity design, because you do bolt on and we expect our first deployment of this will be in West Virginia.
This new design will come with user interface improvements.
Quickly on litigation and will allow us to release New features first though.
Eventually this newport or should be deployed across all states we operate in.
We are also making solid progress on mobile applications.
We deployed our first new native iOS App last quarter.
I have submitted our Android apps to the Google play store in Michigan.
New Jersey.
The last thing I would like to note is that we are investing in the.
Development of a new centralized data warehouse and business intelligence solution.
The first phase to be completed in Q3.
This will build further on that.
And then it takes capabilities.
As we move into more jurisdictions.
So to summarize as Tim and began the call. We are very excited not only by organic growth in New Jersey, a promising start in Michigan.
But also by by the growing list of New States, we plan to launch in the coming months and years.
With that let me turn on the call over to Mike Tour flow our financials for Q1.
Thank you Thomas good afternoon, everyone.
Revenues reported for the first quarter of 2021 totaled $26 7 million, representing a 54% increase on a year over year basis, when compared to revenue of $17 3 million reported in the first quarter of 2020.
Net income for the quarter totaled $69 6 million, which includes a number of non cash for screed items, including a noncash gain on warrant derivatives of $81 1 million and a noncash gain on our tax receivable agreement liability of $1 3 million.
Most of which were based on a change in the fair value of these liabilities during the quarter.
We also recorded debt extinguishment costs of $2 2 million, including <unk> 6 million in noncash expense recorded as interest expense associated with the accelerated amortization of debt discounts and deferred debt issuance cost in connection with the repayment of $10 $6 million of our term loan indebtedness.
<unk>.
When net income as adjusted for these non cash discrete items, we recorded a net loss of $10 5 million during the first quarter of 2021 compared to net income of $4 2 million in the prior year period.
Adjusted EBITDA for the quarter was negative $3 5 million.
<unk> to $5 9 million from the first quarter of 2020.
Looking further at adjusted EBITDA.
At the state level adjusted EBITDA for the quarter was negative $1 4 million.
<unk> to $6 2 million in the prior year quarter.
Corporate adjusted EBITDA was negative $2 1 million compared to negative.
$3 million in the first quarter of 2020.
Cost of revenue from the quarter was $12 1 million or 45% of revenue compared to $6 7 million in the.
First quarter of 2020.
Advertising and promotion expense totaled $14 4 million for the quarter compared to $3 million during the first quarter of last year.
General and administrative expenses for the quarter were $6 1 million or $3 8 million net of stock based compensation.
<unk> to $1 7 million for the first quarter of 2020.
Advertising and promotion expenses for the quarter at 54% of revenue.
The incremental spend associated with our launch in Michigan.
We expect to keep investing significantly in advertising this year.
Unlikely increase when we launch in Pennsylvania, and Illinois later during the fourth quarter.
General and administrative expenses for the quarter reflect her first quarter of noncash stock based compensation expense, which amounted to $2 3 million.
In our first full quarter of incremental cost associated with operating as a public company.
Stock based compensation expense is currently expected to be approximately $3 million for the second quarter and $3 1 million in the third and fourth quarters of 2021.
Corporate general and administrative expenses, excluding stock based compensation are expected to remain relatively flat throughout the year.
While state level general and administrative expenses are expected to increase linearly with the increase in revenues as we launch new markets.
Interest expense net for the first quarter total $5 7 million, which included <unk> 6 million of noncash expense associated with the accelerated amortization of debt.
Net discounts and deferred debt issuance costs.
Interest expense net for the remaining three quarters of the year is currently expected to approximate $5 $2 million per quarter.
Gain on warrant derivatives from the first quarter were $81 1 million, which.
Which included gains on the public warrants through the day, they were exercised or redeemed.
As previously discussed all of the $10 5 million public warrants were exercised or redeemed during the first quarter for cash proceeds of $110 2 million.
No additional gains or losses will be recorded from the changes in the fair value of these warrants from future periods.
However, it should be noted that all $5 9 million private warrants remain outstanding and we will record non cash gains and losses related to the change in the fair value of these warrants in future quarters.
We finished the first quarter of 2021 with cash and cash equivalents per $153 6 million.
You heard from Tillman Thomas we're very excited about our planned state expansion over the next year and we believe our current capitalization is more than sufficient to fund those plants.
I'd like to take a second to provide some additional detail on our outlook for 2021.
First as you saw in our release, we have reiterated our full year revenue expectation of $130 million to $145 million.
In addition to that and in an effort to help answer questions. We have received from investors and analysts we acknowledge the challenge in modeling the pace of startup and advertising costs as we enter new markets.
As you saw on the first quarter results, our EBITDA as a percentage of revenue was negative 13%.
Based on our current state expansion plans for the year, we would expect our EBITDA to trend in that same range in the next two quarters and that our loss percentage will be higher in the fourth quarter, primarily driven by our launch in Pennsylvania, given the size of that market.
For the full year EBITDA should trend in a range of negative 15% to 20% of revenues.
Finally, I'll point out two other dynamics for your forecasting.
First on Echo Toms comments that we would expect EBITDA to breakeven in each of our expansion I gaming markets on average three years.
Second as you considered the initial expansion of new states and will likely be an inverse relationship between our revenue growth on our EBITDA margin simple because of the initial cost to build a player database.
With that I'll turn the call back to the operator for your questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw.
Sorry, your question press the pound key.
Please standby, while we compile the Q&A roster.
Your first question comes from David Katz from Jefferies.
Hi afternoon, everyone.
Thanks for all the detail.
I just wanted to.
Talk about the state Rollouts so far.
And the degree to which you are finding landscape to be as you expected right from a competitive and ultimately a cost perspective and second I wanted to ask about incremental state access where you've added a couple in the quarter.
Or are the economics around those.
Staying the same or how would you characterize whether they are or are not becoming just a bit more expensive.
Hey, David Thank you.
Yes.
This is Thomas I will start with we just took on one on the on.
On new market access so yes, so we are.
These two new states.
In terms of market access code of leather on AOR and we.
We are hopeful to announce more states in the coming weeks on loans, we are working.
Of course on that in terms of the economics of new states.
The first thing is that you really need to look at gaming state versus.
Sports on Easter.
Hey, its differently one because.
When you Ofer on esports.
It's extremely difficult to do.
To get to profitability.
The real force stability comes when you add I gaming to debt.
So.
When we when we have the opportunity to to operating on the high gaming state as it is.
Really where we want to focus on.
Our marketing investments because this is ware.
When we get the high yield return on investment.
In states that Alex ring.
The schools at least that staff, because we definitely believe that eventually.
Most if not all on sports betting states will feel I gave me.
It's more for us a way to.
To get to pre.
Presented as a state to stop.
Increasing our brand awareness to build.
As a player database.
But thats really ahead of unexpected.
Hi gaming loans.
Later on so.
If we refocus on on <unk>.
We believe that in all states, we should see the same type stuff.
Economics and return on investment as we saw in New Jersey.
The main difference from the state's windows.
It could be the tax rate of growth.
So FX rates, you should expect a higher profit margin and Conversely.
Other than that.
We think we'll see at the same time on type of retail.
And what was your.
Wish it again.
I was asking about the rollout into new states and the degree to which you are finding them competitively to be as expected.
Plus or minus or any surprises there.
So if we look at.
At Michigan get of course this is really early.
The early stage of a debt buckets, one would be LIFO or just three or four months.
But I would say I haven't seen any.
Any any big surprise and if anything I think the the kpis that we've seen where are slightly better than what we would have.
We would have expected so the first seeing debt, whether it's kind of a <unk>.
Price tool to us, but I believe to everyone else was how quickly that market revenues ramped up. So you had a lot of pent up demand and.
<unk>.
And the fact that in most cases already above 90 million debt and gross gaming revenue for online gaming.
After four months, it's just unbelievable and that we think that it's going to be the case in pretty much every new why gaming states moving four wall.
We saw that in Pennsylvania, we saw that.
In Michigander of course, COVID-19 played its role in it.
But we believe that he would say true detailed on debt so.
That was really the first stopes have actually the simple way on a is when we look at the average revenue per user.
Interesting point because of strength when you you want to assess the total addressable market. If all states were to regulate basically you have kind of to make sure that if you take in new Jersey as a proxy. The first day 30 to say New Jersey accounts of all X percentage of the population of the U S.
And then are you.
You apply your formula on the other way to look at it is to say.
Median household income in new Jersey as a <unk>.
A is that much higher than the average of the U S and that gives you and if I Miss it.
And when we would either well, but yet our forecast for Michigan.
Say michigander.
Is <unk> by like 23% in population and then New Jersey, but the median household income is 30% lower than in New Jersey.
And we saw that that should have an impact on the average revenue per user net to the extent of 30% speakers and we are.
We're going after.
<unk> with a higher disposable income, but lets say about 15% was I think a well Samsung and what we've seen so far.
Especially on first time deposit sales in their first small is add back gross spend is about 8% of the world on what we see today.
In New Jersey.
And that I'm seeing is a is pretty encouraging.
In terms of churn rates of new player, we are seeing lower churn rates and.
In Michigan than we've seen in New Jersey.
Program really in part because it's a new market. So the early adopters are probably the most motivated players.
But definitely no bad surprise here.
Either an in depth of course book when you show on that side something that debt that we disclose but what I can say that today, our Costco acquisition of <unk> is lower in Michigan that it is in the <unk>.
In a new geography, even if the market has grown.
So fast so.
Overall, we're really really positive about that and then the Michigan book, Fiji and we've seen of the states.
But I think globally Youll yoy clinics are going to be pretty pretty similar in terms of retail non investment I mean the time.
It takes for your gross gaming revenue to recoup fuel.
Your your cost per equity share for instance, I think should be fairly steep at average churn rates should be fairly cheap at all and.
A gradual increase in the average whether you'd probably use a lifetime value we hope.
It should be similar.
Understood helpful. On interesting if I can ask just one more if you don't mongo.
Around pardon.
Pardon me.
The live dealer studio expansion.
We're a.
A fair portion of it is for Golden Nugget and in other cases, if I'm correct I think other operators are using that studio on a BBB.
Basis.
How do you what is your vision for.
That product specifically overtime.
Is are those other operators just.
Sort of building a beachhead so they can do it themselves.
How unique and proprietary.
Is what you have in defensible ultimately is.
What you have with it which obviously is going going pretty well so far.
Yeah sure. So I mean, if we go go.
Go back to the Genesis of.
That project for us.
At that time back in 2015.
We really believe that lives.
A big missing faults in the offering of all on line because he knows in New Jersey, and we went to talk to a number of.
Oh for.
<unk> supplier, who usually set up is to you and so pretty much on branded the market.
And all of the big guys that basically you didn't want to come to New Jersey, because they're so the market was too small and it would be too harmful than two.
To make money.
We decided to do it on our own then.
And did this partnership with.
Bogie and and that's really the reason why we did it in the <unk>.
First place to be on it so.
The situation right now is a bit different because.
The likes of evolution gaming today, and Playtech to more billings should use in our <unk>.
States are in the U S. So we don't have the need to build a suit you. We'd all day are tuned to affect lives you know still a force.
For us it's.
It's good because we are controlling the operation is on.
Our staff.
And our own studio also we have some cost savings because of that and also because as you mentioned we all.
Im seeing here are the <unk> supplier as well we have our six brands.
Using debt to do today.
And the combination of all these brands mean that the activity is accrual and tremendous ski especially last year.
And today, we are close to reaching capacity net will in no way existing studios. So we will increase our capacity from eight into two.
233 tables and out of the.
15, additional tables I think we will have probably around 10 or 12 of them pre books already.
By some brands using the studio.
And in short order also.
It said, it's really a good S add these all up also tactical revenues.
For us at all that are good too.
Good to have.
And in those states, we will use them.
It's Jude you off of.
Of beach will be provided at all so thats going to be evolution gaming for us in Michigan and Pennsylvania.
Stopped right now.
All these states.
<unk> asked that the life years for you.
<unk>.
Serving the local residents.
Is located in the state.
But it might change because I think debt and you.
You used to have some uncertainty around on the way on like for like gaming.
You don't have that.
Any more so if it did any point in time, we authorized by our regulators to use our own studio in the states.
Of course, we will do that and that would be a that would be a positive.
Perfect. Thank you very much.
Okay.
That was our last question at this time I will turn the call back over to Tim on forgive for closing remarks.
Well, thank you very much.
<unk>.
Much feel great about the future and it's.
It's a great industry to be in and we look forward to continue.
Continuing to build this out and we're always available Thomas or Mike or any of us even myself. If we can ever help you all are answer more questions then.
We're so excited about Michigan like I said, it kind of validates our strategy.
Our conviction to how future, Brian how bright the future is and that we can get to positive EBITDA in just 24 months now on a major state like Michigan. So thank you all very much and everybody have a great week.
This concludes today's conference call. Thank you for participating you may now disconnect.
Now moving.
[music].