Q3 2022 NeoGames SA Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome to the Neo games third quarter 2022 earnings conference call.
All participants are in a listen only mode.
Question and answer session will follow the formal presentation should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. Please note that this conference is being recorded Tuesday November 10, 2021, 2022, I would now like to turn the call.
Over to Jacques Cornet with ICR.
Thank you operator, and Hello, everyone by now you should have access to our third quarter 2022 earnings release, which is available on the Neo games website at Www Dot Videogames dot com in the Investor Relations section before.
Before we begin our formal remarks I need to remind everyone that the discussion today will include forward looking statements.
These 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 that could cause actual results to differ materially from what we expect and therefore, you should use caution when interpreting and relying on them.
For all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
We encourage investors to review, our regulatory filings, including the form 6K for the quarter ended September 32022, when it is filed with the SEC.
During today's call, we will discuss non FRS 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 Ifr S. You.
A reconciliation of these measures to the most directly comparable <unk> measures is available in our earnings release on the Neo games Dot Com website.
Hosting the call today, we have multimodal neo gains 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 mochi.
Thank you Jack and good morning, everyone.
Last night, we released our third quarter results, which is our first full quarter combined with aspire global since the acquisition.
I will begin by highlighting some key points about the quarter and then provide an update on our current initiatives and the trends we are seeing in the market.
Steve will then run through our financial results.
During the third quarter, we reached a number of significant milestones across our business lines further increasing our conviction in the benefits of our integrated end to end I lottery <unk> gaming and sports betting solution has to offer to the global gaming market.
We saw markets move towards implementing and I lottery solution signed I gaming and sports betting deal.
Both in the U S and internationally and continued integration of <unk> Global business. We are also proud to report record revenue results for the quarter, both on a consolidated basis as well as for our core Idaho dairy business.
While we are far from done working to fully accomplish our goals we see this quarter.
Strong step in the right direction.
First a few financial highlights, which rajiv will expand upon later.
On a consolidated basis, the total of revenues plus share of NPI revenues grew to $73 3 million.
Which includes a full quarter of inspired global.
Looking at the pieces.
Our lottery business posted the highest top line quarterly results ever in our history, I lottery revenues and share of NPI revenues, together or $24 $7 million.
Up 22% compared to last year and up 8% compares to the June quarter.
I gaming revenues were also up nearly 8% on a constant currency basis, with particular strength coming from the games and sports segments of the business.
Taking a closer look at the Idaho dairy segment of our business.
We saw strong performance across our current accounts and positive developments on multiple legislative fronts.
Driven by the July jackpot run all of our major U S customers experienced both year over year and quarter over quarter growth.
While this is very encouraging in its own right. It becomes even more impressive when drilling down to the account level.
Michigan volumes continued their sequential growth, which began in Q4 of last year, demonstrating the parallel growth potential a viola III alongside <unk> gaming as we anticipated would happen based on what we have seen in other markets in the U S and globally.
We believe that these results.
And those from the past few quarters supports our thesis that INO 3000 gaming can and to do grow in the same market.
The Virginia lottery.
<unk> continues to out of outperforming impressively with another strong quarter.
It made us so proud to see that when the global AGR Operator award for 2022.
The lottery operator of the year, a well deserved the win that we are honored to have such a strong partnership with doing our part by powering them with the best technology available and our market leading suite of games for any against do you.
New Hampshire, and North Carolina also showed nice sequential growth leveraging the July jackpot.
And to the rest of the quarter.
Considering the current state of the U S economy, we consider this a very positive sign as the macro outlook grows less and less clear.
Turning to the state authorization front, we saw west Virginia come to market with a much anticipated RFP during the quarter following terrified process.
We view this as an interesting opportunity and look forward to demonstrating our competitive advantage through the states lottery as they choose and I lottery solution that needs to grow and flourish.
In an already existing I gaming and online support bidding environment.
Naturally with the midterm elections, having just taken place Q3 did not seen much progress on the legislative front in the US However, we do believe that <unk> will regain momentum in various states in 2023, following the elections and in light of preparation of a macro.
The economic environment.
That may suggest pressure on state budgets.
On the gaming front, we made significant process progress both in the U S and internationally with particular strength coming from our parents play content aggregation business in.
In the U S.
Perry play was licensed in both Pennsylvania and Connecticut.
Platform and gains are now certified in five out of six regulated U S States.
Boeing has to bring content from both our Wizard game studio and third parties to players across the country.
We further bolstered its apparently position in the U S by signing additional content providers to the aggregator platform with a few interesting ones signing exclusive deals with parents late to enter the U S market demonstrating the strength of our offering.
Finally, we expanded our relationship with bet MGM through the launch of content from Wizard games on the bet MGM Casino platform in Michigan.
Launch gives us three states, including New Jersey, and West, Virginia, which our content is live with.
With a market leading bet MGM platform.
Internationally, we signed the content distribution deal.
Perry play in Atg.
In Sweden to further enhance our content aggregation platform its market leading position in Europe .
Under the terms of the agreement Sweden's largest operator will gain access to reserves gains and select third party content through Perry plate, while giving us access to <unk> customer base of over $1 3 million users.
As of the end of 2021.
Additionally.
We established a partnership between as far as global and it's being Germany to provide a complete turnkey technology and gaming solution to one of Germany's largest gaming operators and expanding the existing sports agreement between the parties.
It will be ready to go live once licenses are granted to our partner.
Why the regulator in the country have been slower than expected in reviewing and issuing licenses for local operators. These contract puts us in a great position to benefit from the shift when it does eventually takes place.
At the same time it is worth pointing out the top line trends and aspire core.
Which is focused on providing turnkey I gaming solutions, including Pam managed services and all approved the gaming vertical was in regulated markets.
In addition to the currency impact, which Rajiv will touch upon further in his part we are experiencing a more conservative peso markets opening and granting of licenses to applicants operators in certain regulated markets in Europe , such as Germany, and Holland, which had a modest impact on our Q.
Three results.
Yeah.
In <unk>, our sports betting business, we saw strong growth across our accounts leading to quarter over quarter growth of over 25% and year over year growth of over 100% for the business line.
We maintained this momentum by extending an agreement with our largest customer for an additional five years, demonstrating the strong partnership and successful cooperation between us as customers live in over 20 markets in Africa and this extended partnerships continues our dominant position in.
In the region.
Along with these developments in <unk> III I gaming and sports betting. We also continued the integration of the the near games and aspire platforms.
Apparently has been integrated with the Neo games platform in Alberta, launching strong titles from Wizard game studio that have captured significant share of wallet in that account and we have also started to rollout.
[laughter] rollout content from third parties with plans to rollout many more in the future.
In that regard we have also integrated new game studio I lottery content into perfectly with plans to rollout that content into certain customers of perfectly in the quarters to come while also introducing fusion aggregation platform to our lottery customers.
In anticipation of our launch in Brazil in the first half of 2023.
The beat to the sports betting platform has been integrated with the Neo games I lottery solution. This collaboration of business units.
It was key in our ability to win the Brazil opportunity.
And we expect it to be equally important in similar opportunities going forward.
Finally, before turning the call over to Rajiv to walk through our financials in detail.
I wanted to provide an update on the impact of the overall economy on our business, which is a natural area of interest to our investor base in this time.
Historically as we've highlighted on previous calls the lottery industry has been fairly resilient to macroeconomic changes.
We are seeing the strength currently continue as we have yet to see any degradation in clear value or playing behaviors across across both I lottery and gaming.
Spike the uncertain economic landscape however.
This is a trend we will continue to monitor going forward as the economic uncertainty continues.
With that I'll now turn the call over to Rajiv.
Thanks motive before.
Before I get into the results as a reminder, when we discuss our results.
I would point out that all of our luxury business in North America operates through a 50 50 joint venture new quality interactive or NPI, except in Michigan, which is reflected in our main company revenues.
Our contracts in Virginia, and New Hampshire, and North Carolina in the province of Alberta run through NPI.
Except for the MPI contracts to 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 MPLX.
Now turning to the results.
That's one continues to perform well on multiple fronts.
We have grown the business, both organically and Inorganically over recent months, both both our core local business as well as the businesses were added through our acquisition of <unk> Global.
We're proud to report record revenue results for the quarter, both on a consolidated basis as well as for the core lottery business.
In terms of this fire integration as we have always said, we believe that the real value of the combination was from a revenue perspective.
As we have progress with the integration process, we have identified cost synergies in the range of $3 million to $5 million, we expect to achieve these cost synergies on a run rate basis by the end of the first anniversary of our acquisition of <unk> Global.
During the third quarter of 2022, our revenue is reported on the income statement, which excludes our share of NPI revenues was $62 2 million of which $48 5 million.
Is attributable to revenues from the <unk> global business.
Excluding expired global contribution are results of $13 7 million represents year over year growth of 14, 1%.
Our share of NPI revenue reached $11 one.
During the third quarter of 2022 up 34, 4% compared to the same period last year.
The sum total of these numbers was $73 3 million.
For the quarter, our adjusted EBITDA was $17 6 million compared with seven 5 million in the same period last year, representing 135% increase.
When considering the new games lottery business, we saw adjusted EBITDA increased to $9 9 million and margin expand to over 40%.
Before reviewing the balance sheet I want to highlight a couple of notes relevant to the results.
As a reminder, as far as global has historically recognize its revenues on a gross gross basis, while new games lottery business recognize revenues on a net basis.
This results in higher revenue, but lower margin for the spark global business.
As discussed on our last quarter call, we have been working with despite global partners to adjust contracts to more closely align with our outlook for the business.
Encouraged by the preliminary results.
Additionally, we wanted to flag again, the impact of exchange rate fluctuation on the performance of this business.
With much of the business revenues dominated in U S. A British firms recent FX moves as muted revenue growth when converted to us dollars.
To provide better transparency on the strengths of the business independent of currency moves. We've included a presentation of the business revenues growth rates on a constant currency basis in our earnings release.
State of disparate global revenue of $48 5 million for the third quarter reflects 8% growth when measured on a constant currency basis.
This growth however was offset by $15 five decrease caused by the impact of the foreign currency exchange rates.
Turning to our balance sheet, we entered this quarter with $63 million discretionary cash equivalents.
At quarter end, our outstanding debt was approximately 192.
$8 million.
Or exchange on a euro basis of $200 8 million at a weighted average interest rate of 625 with 33 5 million shares outstanding.
Additionally, with an outstanding balance of $24 1 million for the short term liability labeled deferred payment on business combination.
As noted last quarter. This represents cash consideration to be paid to former <unk> shareholders as part of the transaction.
For analytical purposes is the balance should be netted against the guess.
With respect to guidance, we're encouraged by the trends in the business and this allows us to provide a revised and tightened range that includes increases the midpoint.
As a result, we expect revenues and our share of NPI revenues for the full year of 2022 to.
To be in the range of 197% to 208 million moving from the previous range of $194 million to $208 million.
As a reminder, this value includes contribution from aspire global starting on the date of the tender offer closed June 16, 2022 through the remainder of the year.
That I will turn the call back to Monty.
Thanks, Rajiv we are very pleased with the developments and financial results of this past quarter.
As our first full quarter following the acquisition of its part of global.
We viewed it as crucial in proving the thesis behind the transaction.
And believe that we made significant progress in accomplishing this goal.
We saw progress across all business lines and expect this momentum to continue as we fully integrate our businesses.
We thank you for joining us to hear about this progress and look forward to providing updates in the future.
With that operator, please open the line for questions.
We will now begin the question and answer session.
Ask any question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Cassandra Lee with Jefferies. Please go ahead.
Hi, good morning, everybody.
Good afternoon.
And maybe a bit too early to think about 'twenty three guidance, but if we were just to start thinking about next year and without new jurisdictions or new contract. How should we think about the growth rate across different channels.
Thanks Cassandra.
Good good morning, Yeah, you're right that we are not disappointed we are providing guidance for 2023.
I would generally.
Make three comments relative to that number one we are expecting to start to see revenues, even if at the beginning there will be modest from Brazil.
Number two.
Theres a few of our accounts that we feel haven't yet reached maturity and we are still expecting them to grow nicely.
And number three.
The new segments, we've added to our business and some of them did present the impressive growth in the last quarter are expected to continue to grow.
Into into next year, so even on.
You are right to say that on the lottery segment beyond the Brazil, we haven't baked in the revenues from dealers in 2023 of course, we are hopeful to achieve this but not necessarily significant revenues from new deal, but that is not the case on the other segments of.
All of our business is that does that answer your question.
Yes that is helpful.
And if I may have one follow up.
Thank you for laying out some cost synergies from that as far as she is action.
If you are thinking about more high level and I know, it's hard to quantify kind of revenue opportunities or synergies.
I think we generally understand how having I gaming capabilities help you win I lottery contract.
So we are kind of wondering how this.
A lot of capabilities today help you win on the icon in front.
Yes. Thank you.
Excellent question I think there's a couple of.
Obvious areas, where our I lottery business and deployment helps us win business on the <unk> side that the most obvious example.
Is the U S, where our significant deployment of systems.
Laos us to be I would say number one or top three in the market for sure. Among the beat will be operators with systems live operating regulated and certified in markets. We are in the combination of our lottery business and our support of Caesars. We are live today in 17 markets in the U S. I believe Ohio is the 18th.
One if I, if I counted appropriately which is in our opinion far greater than any other b to b platform provider in the market and if you layer on top of that.
The <unk> business, which represents our I gaming gains side of the market or content side that is certified live and running in in five states than.
And then I believe that that is there is an immediate.
Boost to the aspire global market entry of gaining into the U S market.
Regulatory landscape would require them to take a year or two before they can get to the point that we brought in with ambitious one <unk>.
Typical a typical example.
Other parts is that.
In other places around the world again in areas for example, take Brazil, where we are now deploying.
The first ever brand or a customer that will go live in the regulated markets. According to local regulation.
<unk> is gaining parts of regulation are expected to follow the timeline is a little bit unclear, but they are in progress sports betting in particular, maybe gaining a little bit later.
The fact that we will be deployed live and running with a sports betting solution in.
In each one next year will be serving and of course with our Pam which is the same time that serves our I gaming business would put us in a great position to win additional deal on the gaming side when sports betting regulation becomes in affecting that market. So if I zoom out in every geography.
One of our segments runs faster than the other because of how regulation progresses and opens the door for others to follow by being the first to invest in infrastructure and technology, and regulation and certification and allowing others to be way more cost efficient and time to market when they come into those regions.
Great. Thank you for taking my questions.
The next question comes from Barry Jonas with Truest Securities. Please go ahead.
Hi, guys. This is remains so bonnie on behalf of Barry Thanks for taking our question.
Congrats on signing the Georgia lottery contract can you provide any additional color on the ramp.
Did you see their contract there.
Any expectations on the size of the opportunity.
Do you have any visibility on on kind of similar opportunities there as well.
Where are you where you arent that platform provider.
Yes. Thank you for the question, it's definitely a good one as you said that up until recently, we kept our really market leading gains from yoga studio serving in the U S. Only on our full turnkey accounts, we have always seeing demands for those gains which are known to be <unk>.
Great performers across <unk>.
Lottery customers in the U S, which do not have the turnkey solution from us.
The first one that we have signed such a deal in the U S. By the way we have done so in Canada already.
Last year, and we've announced the deal that we've done with Atlantic Lottery that is also not a turnkey customer for us.
We expect to go live with Georgia again.
Q1, Q2 next year really depending yet on customer projects, which are not necessarily completely into into our control.
A long time the lottery there is growing to be.
The bigger.
Bigger and bigger and its I lottery business and I think that with our good games, we have the chance to capture.
Interesting parts of their wallet share if you look at the other opportunities currently in the U S market where were similar opportunities exist then the bigger one of those is for example, Pennsylvania of course, Kentucky, and there are smaller opportunities as well.
With with the lotteries.
D. C. For example that is also.
Live and running with a lot I look very program. So generally speaking I would say, yes. It is our intent.
Into next year to continue looking to get into contracts hopefully with with those customers in the market, which are operating I lottery programs, but do not yet have content from us.
Got it great. Thanks, Thanks for that color.
And I guess, just as a quick follow up on a different.
On the on your jackpot comments.
Given the.
Really nice Ron we're just seeing.
That just ended.
How should we think about quantifying the upside there maybe.
Maybe you can relate it to how the previous run.
In Q3 went any.
Any additional color there would be it would be helpful.
Careful providing guidance into Q4, but two things first of all yes.
You could definitely expect as always.
Windows of jackpot run, especially when it happens at the beginning of a quarter. It pushes numbers in that specific month, but also allows a follow through to the following.
Months.
I would say again I'll try to remain general year that while this jackpot has been.
Has been fantastic.
And its size.
The market as a whole and not only on our customers.
Have have seen a trend where the pickup rates of players into the jackpot were later.
In time into the jackpot than what's happened in in July there is a number of potential explanations to this one of them is simply that's T media coverage of the U S elections.
It did not allow for the jackpot until it reached very significant.
Number two plus through the cluster of media and others.
Numbers were impressive and significant for sure, but the only color I could give at this point of time is that it took a little bit longer to pick up public public momentum.
But Jeff puts are never bad for our business that that's something that is a known fact I.
I hope it's helpful.
Thank you very helpful and I appreciate you taking our questions.
Thank you.
The next question comes from Jeff substantial with Stifel.
Please go ahead.
Hey, great. Thanks, Good morning, most of your reviews, thanks for taking our questions.
Starting off on guidance maybe.
A follow up to that.
The prior question I was just hoping you could kind of walk through some of the puts and takes on raising the low end of guidance.
Hand, you do have the powerball jackpot in Q4, which should help but it sounds like sort of a leader.
Tailwind from that and you would normally expect on the other hand, the strong USD continues to impact the aspire business is there anything else.
Relative to prior guidance, we should be contemplating for kind of thinking through the raise to the low end.
Yeah, Jeff good morning, and thanks.
You view basically touched.
The vast majority of the points.
The Powerball jackpot.
Months.
Would certainly be a positive.
Trent tour to our revenues in the quarter.
That would to some extent be set off against.
FX.
Headwinds and other factors.
We reported on the.
On the aspire core segment in our quarter results in both two factors are the main reasons for us.
Increasing our lower end of the of the guidance.
Okay, great understood that that's.
That's helpful. Thank you and then for my follow up you talked to some really impressive results.
The acquired Bto bad assets para play continuing to execute on new market opportunities.
The third piece of that business the core platform business. It looks like revenues were down about 6% year on year in constant currency can you just talk a bit more about what's driving that contraction and kind of how you see run rate growth moving forward. Thanks.
Yes, I think it's I.
I think the nature of of the core business of <unk>, it's mainly.
We call it a timing issue.
We're on the on the comparable periods.
On the revenue side on the core you've seen markets.
Such as Netherlands for example, who has been transitioning into regulated.
Regulated market.
Region and licenses.
<unk> has not yet been granted two operators that are having signed contracts with this far so didn't get go life.
Same goes for the regulation in Germany, and some slowdown in the face of fishing licenses in all those two facts those both two factors are.
Or something which is which is to some extent delaying.
The launch of the new regulated markets on the core.
And this is the reasons why you see in the comparable period.
To some extent the drop of the 6% that you were touching.
Yes.
Great. That's helpful. Thank you Bob.
The next question comes from Chad Beynon with Macquarie.
Please go ahead.
Hi, good morning, Thanks for taking my question.
No, Steve or Dave I wanted to start with with margins I guess, specifically focusing in on on the distribution expenses. Obviously this is the first full quarter with aspire. So we're kind of learning how are the margins flow through.
Currently with with how you guys are reporting but anything to highlight just in terms of maybe inflationary pressure tech costs.
Regarding the distribution expenses and until you.
You recognize the synergies in the back half of 'twenty three.
Any change in terms of how we should think about.
Margins in the near term thanks.
Yes.
Okay.
Good morning.
So the reason the reason of the of the trends that you see on the distribution line item on the on our P&L is basically by the vast majorities.
The way revenues are being presented.
In the P&L.
And as we've we've touched both on our commentary on the quarter and last quarter we are.
Running running a process with a partner so for spar to try in.
And move the presentation methods for next year in <unk> that would cause that has.
The potential of expanding the margins, especially on the spot business.
We haven't been.
Haven't completed that process, yet and but the results so far are encouraging.
We haven't seen any any other trends relative to the macroeconomic environment impacted distribution expenses.
And the reason they have been impacting the margin.
Again due to the gross presentation of revenues.
Perfect. Thanks, Okay, so youre not seeing any any.
Inflationary pressure on on that on that employee side, it's just kind of about as expected really just kind of flowing it flowing in.
Exactly.
Okay. Thanks, and then on the balance sheet.
I know, it's very early right now and Theres a lot of things out to you.
That you're kind of focused on but how are you thinking about where you want to run this company from a net leverage standpoint, if there are opportunities for more tuck in acquisitions.
When and how big could could this fall.
According to your offerings. Thank you.
So from from a net leverage perspective, we have quite strict and clear guidance by our board.
<unk>, which which suggests that the net leverage or.
The net leverage of the business would run around $3.
Fully down during 2023.
And I'll, let multi touch the tuck in acquisition.
Yes.
As we shared we do have in mind, a couple of areas that we would benefit strategically from certain the tuck in acquisitions, but it is tied to.
Net leverage as well.
We do not necessarily wish to grow significantly beyond where we are now plus in.
In an environment where interest rates.
Could then maybe are expected to still grow, especially in Europe , where they havent reached areas, where the USPS and our debt is tied to that.
We would need to be mindful of making sure that we are.
Going into such tucking acquisitions connected with where the business is from from the ability to reduce its net leverage profile.
Great. Thank you best of luck I appreciate it.
Thank you Chad as always.
This concludes our question and answer session I would like to turn the conference back over to multimodal Mcgee for any closing remarks.
Thank you thank.
Thank you guys for joining US again, I would say that the only additional perspective I want to give beyond the good questions. We were asked this morning, and hopefully the materials that we provided.
In the opening.
Comments is that our business now is not made of one segment, but actually for and we believe it's very impressive that three out of those four showed significant.
Revenue increase and performance and it's natural when you have four verticals or four segments to your to your business that timing perspective, not all of them would grow at the same timing and in the same pace and Thats why for example, as part of core that we were asked about.
Is experiencing something that they have experienced many times in the past where they are in line of business when they have transitioned from.
Each into fully regulated market and that happened when they transitioned into the UK has happened where they've transitioned into Denmark and certain other markets.
And then this transition period always comes with the level of uncertainty of how long it would take which is controlled by by regulators, but when a zoom out from management perspective, I think that we are very encouraged by the fact that we have four growth pillars to our business that allows us to grow on most of them if not always on.
All of them. So thats the only additional perspective I want to provide to everyone on our call and as always we are extremely appreciative for the interest that you are taking in our company and we will continue to do our best to meet your expectations. Thank you everyone and good morning.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Yeah.
Yes.
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