Q3 2023 Gambling.com Group Ltd Earnings Call
Greetings and welcome to the gambling Dotcom group third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I'll now turn the.
Conference over to your House, Peter Mcgough, you may begin.
Hello, everyone and welcome to gambling Dot Com group's third quarter 2023 earnings results call.
Peter Mcgough, Vice President of Investor Relations I'm joined by Charles Glasby, Chief Executive Officer, and co founder and Elliott Smart Chief Financial Officer. This call is being webcast live through it through the Investor Relations section of our website at gambling Dot com forward slash corporate forward slash investors and the download.
<unk> version of the presentation is available there as well.
<unk> cast replay will be available on the website. After the conclusion of this call. You may also contact investor relation support by E mailing investors at GTC group Dot com.
I would like to remind you that the information contained in this conference call, including any financial and related guidance to be provided consist of forward looking statements as defined by securities laws. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results performance and <unk>.
As prospects and opportunities to differ materially from those expressed in or implied by these statements.
Forward looking statements speak only as of the date. The statements are made and the company assumes no obligation to update forward looking statements to reflect actual results changes in assumptions or changes in other factors affecting forward looking information.
To the extent required by applicable Securities laws. Please also see our references to forward looking statements and the related presentation and press release.
During the call.
There will also be a discussion of non <unk> financial measures.
A description of these non <unk> financial measures is included in the press release issued earlier.
Today.
And reconciliations of these non <unk> financial measures to their most directly comparable <unk> measures are included in the appendix to the presentation.
In the press release, both of which are available in the investors tab of our website I will now turn the call over to Charles.
Thank you Peter and welcome everyone.
This afternoon, we reported solid third quarter results driven by another quarter of strong organic growth in North America, even with Q3 being a seasonally slow quarter, new deposit customers increased 26% year over year to more than 86000, which contributed to 19% growth.
And revenues of $23 5 million a third quarter record.
Revenue growth was driven by North America and came despite only having three days of revenue from Kentucky's launch of sports betting compared to a full month of revenue from Kansas as sports betting debut in 2022 third quarter. Adjusted EBITDA was $6 1 million and free cash flow was $1 6 million.
September was the coming out party for our strategic media partnerships, both Gannett and Mcclatchy performed ahead of our already high expectations.
<unk> purposely focused on fewer bigger partners that can give us access at scale to each market's premium digital media properties. This relatively new high performance model will help drive continued market share gains that will enhance topline and overall cash flow growth.
The third quarter's performance demonstrates our ability to drive growth in existing regulated markets without the significant benefit of a new market launch while we did have a tremendously strong start in Kentucky. It is a small state and as just mentioned only three days of activity fell in the third quarter.
<unk> given the late September launch.
Turning to our near term growth opportunities the trends from our a great launch in Kentucky on September 28th has continued into the fourth quarter, we still expect North Carolina to launch in the first half of 2024, and we will include the state and our guidance only when there is firm visibility.
<unk> on a launch date, so likely when we report our fourth quarter results in March.
As our Q3 results indicate we continue to achieve strong organic growth in North America. Our performance reflects strength in both sports betting and <unk>, Although I casino remains a much smaller percentage of our north American business compared to our business outside of North America.
Our new category defining brand casinos dotcom was launched during the quarter. While it is still early in its evolution. Our vision for casinos Dot Com is a premier brand for everything casino related is taking hold and we continue to expect a meaningful ramp in contributions from casinos dot com beginning late next year.
Sure.
In our view, we have developed the best technology platform to monetize online gambling traffic.
Every day, we are making improvements to further optimize our search performance, while leveraging data science and AI to perfect. Our algorithms used to monetize the high intent traffic recapture our ongoing return focused investments in our technology and our capabilities continue to help expand our competitive.
Advantage and ensure we continue to deliver industry, leading organic growth.
Confidence in our ability to continue to gain share in our existing regulated markets and our organic growth will be evident again in the fourth quarter as we remain on track to deliver on our full year expectations.
It is important to note that we are still very much in the early stages of what is a long term growth trajectory for the industry and for gambling Dot Com group.
So even as we deliver consistent impressive near term year over year growth against more challenging comps for our existing markets. We are confident that we have the right strategies and operating model in place to extend our revenue growth strong margins and free cash flow conversion for many years, which will help continue to drive gray.
Returns for our shareholders with that I will hand, the call over to our CFO Elliott Smart for a more detailed review of the third quarter results and our guidance.
Thank you Tom and welcome everyone.
Josh mentioned, we generated another quarter of strong financial results.
Revenue increased 19% in 'twenty, three and a half million compared to the prior year ahead of expectations.
Constant currency revenue grew 11%.
North American revenue rose, 42% to $12 9 million, reflecting growth from our owned websites and a terrific contribution from our U S media partnerships.
Oh.
After seven quarters of growth of an average of 28% in the UK and Ireland went that appear in a more challenging year over year comparison, our revenue from the UK and Ireland of $6 $9 million was similar to the year ago period.
Revenue from other Europe declined by 465000, or 17% because of compliance driven product changes implemented for the German market.
Elsewhere in Europe and in the rest of the World, We continue to see strong growth.
Yeah.
New depositing customers grew 26% year over year to more than 86000.
As a result of the strength in our EMEA partnership business cost of sales during the third quarter amounted to $2 1 million compared to 600.
Oh, yes.
Total operating expenses in the third quarter grew 9% or 2% in constant currency to $16 6 million excluding the adjustments.
Adjustments from the first quarter of 2022.
There was no fair value adjustments operating expenses in Q3 2023.
Determination of the earn out related to the bonus binder acquisition.
But with substantially moderated the pace of hiring the operating expense increase was primarily driven by higher head count.
Amortization expense decreased from $1 7 million to 432000.
Short lived assets from the reservoir and bonus line drug decisions are now fully amortized.
For the full year, we expect to incur amortization expense of approximately $1 8 million.
Net income totaled $5 million or <unk> <unk> per diluted share adjusted for the unwinding of the third consideration adjust.
Adjusted net income in the quarter was $5 4 million and adjusted earnings per share was <unk> 14.
Sure.
Adjusted EBITDA was $6 1 million in line with expectations.
It includes the impact of six 712000 in.
In allowance for bad debt as compared to an average of 204 to one of the previous four quarters.
Adjusted EBITDA margin was 26% in the third quarter, reflecting the higher revenue contribution from our media partnerships, which drove higher cost of sales as compared to our own site.
Our media partnership revenues continued to scale in the fourth quarter.
Okay.
Exclusive of $2 $9 million related to deferred payments for the acquisition of bonus under cash generated from operations. In Q3, 2023 was $2 2 million.
Cash receipts from the three weakest revenue months of the year June July and August.
Fall into the third quarter, resulting in seasonally weaker operating cash flow.
We expect strong cash flow from operations in the fourth quarter.
Free cash flow was $1 6 million.
We remain able to entirely fund our organic growth initiatives from operating cash flow, while continuing to generate positive free cash flow.
Our cash balances as of September 30th 2023 was $26 9 million or $4 1 million quarterly sequential decline.
Reflecting the $5 4 million in total payments for the acquisition of them to sign up.
Our very strong balance sheet with significant cash balances and no interest bearing debt continues to provide us with the financial flexibility to pursue value enhancing transactions.
Turning to our outlet.
We expect to see typical positive seasonality in the fourth quarter as activity picks up during the <unk> on both sides of the accounting.
Our third quarter results reinforce the fact that demand for performance marketing services 40 online gaming industry remains very strong.
Our unique offerings will become more valuable operators as it reached profitability.
We continue to monitor our consumer behavior closely on ethanol consumer appear to be pursuing entertainment from online gambling unabated.
As we enter the fourth quarter, we were monetizing and Dcs in the U S with revenue charter arrangements more frequently than before.
Meaning that revenue from these entities will be recognized over a longer period of time.
As a reminder, we remain agnostic on the inherent attractiveness of the revenue chart commercial model versus the CPA model.
We rely on our internal data science to identify the monetization options, which maximize revenues in each circumstance.
Our 2023 guidance continues to assume no benefit from additional market launches or acquisition over the balance of the year.
And now assumes a euro to USD exchange rate of one seven for the fourth quarter.
Given these factors and our Q3 performance.
We are reiterating our 2023 full year revenue guidance of $100 million to $104 million, even as we now expect a higher proportion of our mdc's to monetize some revenue CAGR than was forecasted by the rate guidance in August.
Likewise, we're also reiterating our 2023 full year adjusted EBITDA guidance of 36% to $40 million, even though the strength in our media partnership business.
Hi.
Yeah.
With that I'll turn the call back to Tom.
Thank you Elliot.
Before opening up the call for your questions I'd like to quickly review several of our other growth drivers.
While North America is already our largest market 43 states have yet to legislate casino in 20 states have yet to approve online sports betting, which implies a long runway of growth for gambling Dot Com group just in the U S.
Our home state of North Carolina is expected to launch online sports betting in the first half of 2024 and.
In the 2024 legislative season will kick off in January.
We are expecting to see a push for sports betting in Minnesota, Mississippi, and Missouri and for I Gaming and New York, Illinois, Indiana.
We expect a ballot initiative in Maryland in 2024.
As we've highlighted today, our third quarter results provide confirmation of the benefits of our media partnership strategy. We believe our focus on securing fewer agreements with the most prominent news media players such as getting at Mcclatchy and the U K is independent and then forging deeper relationships with them, we will optimize the <unk>.
<unk> to our business and our partners as businesses and ensure the sustainability of these lucrative partnerships.
While we are always busy evaluating M&A opportunities the quality of the companies in our pipeline is better and the tone from sellers is more positive than at any time since we closed the acquisitions of roto wire and bonus finer in Q1 of 2022.
Our balance sheet remains very strong, providing the flexibility and liquidity to pursue acquisitions of various sizes.
As we have proven with road of wire and bonus finer acquisitions, we have the discipline to act on transactions that are accretive to our results.
And we maintain the same discipline as we evaluate potential additional acquisitions.
Given our strong balance sheet and the cash flow. We generate we are confident that if we were to pursue a larger transaction that we would have access to capital at an attractive cost.
We are still in the early stages of executing our near and long term growth opportunities to generate consistent top line adjusted EBITDA and free cash flow growth.
Again to our brilliant team for their exemplary efforts in executing and delivering on a solid third quarter and for their efforts to position gambling Dot Com group as the leading performance marketing company for the online gambling industry with that we'd be happy to open up the line for questions operator.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.
The Star Keys.
And our first question comes from the line of Barry join US with <unk> Securities. Please proceed with your question.
Hey, guys.
Maybe you could start by giving a little bit more color on the Kentucky launch and how trends are looking into Q4.
It sounds like Kentucky was really helped by your media partnerships and I guess I'm wondering to what extent that playbook and scalable into other new launches starting with North Carolina.
Hey, Barry.
So Kentucky was a was very strong our playbook for these new state launches has been really.
Refined and we seem to be winning these new state launches with some real consistency now.
It's hard to say you know what the exact market share was but what I can say is that several of our partners told US we were there.
Largest affiliate in Kentucky by some measure.
We've got all of our owned assets, so gamma dot com bookies dot com that Kentucky Dot com Roto wired dot com.
Those all did well, but with the media partnerships. We also had.
Kentucky Dot com, which is an asset from Mcclatchy and then USA today Dot com.
So we really had.
All angles.
Hubbard in Kentucky in.
The media partnerships contributed and they will also contribute in North Carolina with Mcclatchy, We've got the Charlotte Observer.
And we've got the news and Observer. So you know we've got the two main newspapers in North Carolina is well covered.
With that media partnership.
That's really great and then just as a follow up I wanted to maybe ask for a little more.
More color on the comment about higher mix of Rev share that you guys cited in the opening remarks are really curious what's driving that the operators. We cover seems to be more focused on profitability. So I'm curious if youre seeing.
Pressure, there for either lower cpas or else that shift to to Rev share.
As ever it's on a case for a case basis.
You know even with.
One client will have a variety of different deals for different types of traffic.
Yeah, there isn't some sort of wholesale shifts towards revenue share.
What we're trying to communicate here is that it's incrementally more than it was previously.
And that has a small effect on the overall business.
But there certainly isn't any.
Major change in the way that we're.
Invoicing our clients in the U S.
Great alright, thanks, so much.
Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
Hi, good afternoon, everyone. Thanks for taking my question.
Okay.
I would what I would love just a little kind of longer term, maybe qualitative perspective.
Guidance necessarily on how EBITDA margins evolve.
Hey.
One two or three years out.
Given that you're obviously, adding new resources and deploying resources and margins tend to move around but is there. Some notional range. We can keep our eye on the horizon, four or something like that.
Yes. Thanks.
<unk> said that that.
In the short and midterm, we intend to operate this business within the 35% to 40% range and wildly wildly come in.
On a quarter within a year within that range depends on the proportion of our of.
Our revenue would have come through EMEA partnership channel.
The that proportion has increased as expected in the second half of the year, but the strength in our media partnership business.
<unk> our expectations.
Which means that.
Revenues, a little bit higher than previously expected, but margins a little bit lower on setting.
Turning to next.
Next quarter and for the full year 'twenty four.
We now expect.
On the margin number to be closer to the 35% to 40%.
Further out than that it will depend a little bit on that on.
How much all of our revenue comes from media partnerships, whether we extend to meet our partnership business.
On the U S and <unk>.
Okay.
But that 35% to 40%.
The Mark we're working towards.
Understood I appreciate it Charles as my follow up I know you touched on potentially new states et cetera.
Can we maybe step up to 30000 feet.
Look at the U S Tam and it's obviously prevalent given one of the operators talk about some updated us this week.
Okay.
Can you just concur that the Tam continues to grow in the United States.
What are your sort of thoughts or perspective about where you know where it goes or are we just talking about penetration.
Approach now.
I mean, we think this is the point we tried to make on all of these calls is that we're still super early and all of this.
Look at New Jersey, which has had I gaming for 10 years. It is still growing and it's growing meaningfully.
If you just look at the whole U S market year on year, it's grown.
The GTR number for the first nine months is 70 odd percent.
Yeah, ESPN bed launched yesterday.
I mean.
This idea that this.
This is somehow peaks or all of the players have been acquired as just.
Categorically untrue.
We know.
We've been to the future, we've hopped into Delore, and we know what the future of online gambling in America. It looks like it looks like the U K and that's the market we had the longest operating history in.
<unk>.
And we remain.
Maximally bullish about the future of online gambling in the United States.
I'll take that thank you.
Our next question comes from the line of Jeff substantial with Stifel. Please proceed with your question.
Hey, great. Good afternoon, thanks for taking our questions.
Starting off the year performance in UK and Ireland during the quarter, Charles you talked to a bit of a deceleration. After I think it was seven consecutive healthy quarters. It seems to me as you mentioned, it's mostly just a function of tough comps, but just to be crystal clear is there anything else worth coming commenting on driving this deceleration whether that's impact.
From some of the regulatory headwinds your customers have called out mean reversion at market share trend in.
Anything else or just purely top down any thoughts there would be.
I appreciate it.
Yes.
Specific to our business in some of our individual products, our search performance and.
In the in the last couple of months has been merely great, but not phenomenal or excellent.
As it had been.
There's been a kind of a continuous stream of Google updates, which has put a little bit of volatility into the search engine results pages.
I'm happy to report however that.
The last check and we had.
Today with the search teams is that.
We are back to kind of peak performance and expect to.
Being a good place for Q4 so.
As you look at our Q3 U K and Ireland performance it was.
I know theres been some signals from some of the other operators that that market has been a bit we can turn out in terms of like sports betting results, but as a reminder, our business in the UK and Ireland is predominantly driven by casino.
And it was a.
Very marginal.
Underperformance for a couple of months, which which held it back which we think is is behind us.
Okay. That's great. Thanks, and then.
For my follow up I wanted to drill into one of my comments.
You made towards the end of the prepared remarks.
I think you mentioned, having access to capital should you opt to pursue a larger transaction can you frame out for us.
What that landscape looks like it seems to me there are few acquisitions within your core business model potentially out there that would necessitate a capital raise but curious if you could just expand upon that landscape that opportunity what you see as the addressable set that.
That could require.
Incremental capital Thanks.
Yeah, you know, obviously can't talk about any specific.
M&A situation, but.
The message Elliot and I want to get out to everybody is that we remain very busy evaluating these opportunities just because we haven't announced anything in two years doesn't mean, we're not tirelessly working in the background on some fairly interesting stuff.
And that we're not afraid of pursuing a transaction.
That would require a little bit of additional capital or maybe a medium amount of additional capital you know kind of all things are on the table and <unk>.
And those conversations are going.
We're having more and more interesting conversations than we were six months ago.
We remain.
Very busy with all of that.
Okay.
Thanks, Jonathan Great quarter guys.
Our next question comes from the line of Clark Lampion with BTG. Please proceed with your question.
Thanks, a lot good evening.
Charles I, just want to make sure I heard I guess some of the comments.
You know in response to the last question sort of properly it sounds like I guess some of the deceleration is was more transient than anything and I think the way you framed it was great, but maybe not phenomenal performance as a result of adjusting to algo changes is that was that I guess sort of the primary factor I heard right in sort of the.
<unk> performance in that it's kind of maybe we should expect it to rebound in <unk> and going forward.
That's right Clark.
Even if it.
Even as the search performance moves back up into the <unk>.
Phenomenal category.
The comps are nevertheless.
More and more difficult as of course, we've grown substantially in the UK and Ireland over the past seven quarters. So.
That effect is still there but.
We do Youre right.
The slight underperformance, we view as transitory not anything to do with the market at large.
And we are positive we have a positive perspective moving forward.
Okay.
That's helpful. If we were to think maybe I guess about the sort of market at large in the U S. Have you guys seen any sort of bifurcation in either a trend or performance. If we were to think about it sort of broken down between say casino versus sports or between maybe has a different way of looking at it the two sort of big operator.
Versus the rest of the market is either sort of vertical or cohort of customers exhibits.
Exhibiting greater strength or outperforming the other in terms of acquisition behavior at the moment.
I don't think theres any kind of broad.
Trends across those segments to be picked up on but what we have seen with this business over many years is.
If you bucket the operators off into kind of tier one tier two tier three.
Fanjul draft Kings in the U S in tier one.
Caesars that MGM tier two tier three everybody else.
As the tier two and tier three guys that want to be tier one and tier two that are our best customers by definition, they're fighting to take market share and they want a they want to move up the ladder. So they need as much help as they can get in they know.
Performance marketing is.
Sure thing and in terms of moving up that ladder.
Thanks very much.
Yeah.
And our next question comes from the line of Chad Beynon with.
Macquarie. Please proceed with your question.
Good evening, Thanks for taking my question.
I just wanted to drill back into the media partnership success that you outlined for the third quarter and more importantly for the fourth quarter and beyond is this just kind of a factor of higher conversion rates or anything else and can you just talk about you know how this.
This product can can kind of evolve given given that it's pretty early and maybe the seasonality of it if a lot of it comes at the very beginning of the NFL season, or if it can continue as you continue to publish content. Thanks.
Hey, Chad.
The media partnerships will vary according to the seasons.
When when you know at the beginning of NFL.
It's the engines firing on all cylinders, there, we're going to do well theyre going to do very well.
Deeper.
Into the kind of slow months of the summer.
We won't be known in the industry will be doing as well and they will be doing less well as well so in terms of proportion.
The proportion coming from media partnerships will will peak.
And kind of.
Because of the U S sports calendar kind of.
Q3, Q4, Q1, and the bottom row.
But you know as as we did as I described it at the beginning of the prepared remarks. This is kind of the coming out party for these media partnerships. You know this is the first.
NFL launch we've had with Gannett.
They have some of the most authoritative and powerful assets in the U S digital media.
Land escape.
So we obviously made are our estimates for all of this in.
As we do we're somewhat.
The conservative and it is.
Come together better than better than we expected. So clearly this model has got a ways to go.
And I think it'll be.
We'll be it'll be some time before we're exploring the limits of of what's possible with these media partnerships, it's still pretty pretty early with this stuff.
Okay. Thanks Charles.
And then segue in terms of exploring as you think about Latin American opportunities I know, there's a handful of markets that have come up and kind of.
Expectations have been reduced but.
Still should be a very large market over the next 510 15 years.
Anything interesting down there.
Anything kind of worth talking about is that a market that could be.
A meaningful contributor or is the focus still just kind of North America for the next five to 10 years. Thanks.
The focus at the moment is certainly North America and in a handful of European markets.
You know over the next five to 10 years anything is possible.
In time, but.
But we also think that there is no meaningful first mover advantage, we think about the UK market and how we entered the U K in 2009 2010.
With zero percent market share and when you think about the business, we have today, which is probably the leading business in certain respects.
Latin America would be much more similar to the U K than it would be to the U S.
When you think about these kind of gray market going fully regulated it's all the same operators and in many cases the player accounts.
Carryover and there isn't this kind of big Bang effect when the when the state launches.
Whereas in the U S. When you have a new state. It's it's all new operators all new player accounts, it's gone from totally black to totally white and you have this kind of a big Bang moment.
Thats.
A key part of our U S strategy.
There is a first mover advantage for these U S states.
But we that's a U S specific phenomenon and as a result, we are.
Taking a little bit of a wait and see approach on Latin America, you know to the extent that that gets serious and we see some big numbers coming out of Latin America, we can.
Easily move our premier assets like Gammon, Dot com and casinos dot com into those markets, but today we've got.
An incredible amount of opportunity just here in the United States and.
And still in Europe. So there is no.
Strategic push at this moment into Latin America.
Great. Thank you very much guys nice quarter.
Our next question comes from the line of Ryan <unk> with Craig Hallum Capital Group. Please proceed with your question. Your line is now live.
Hey, good afternoon, Charles Elliott.
I want to start with ESPN bet I know it just launched yesterday, but is prominently displayed on your sites.
Safe to say I guess, the theory paying customer, but can you confirm that and then aggressive UA spend for them should be a nice positive for you guys correct.
Thanks, Ryan I was worried where are we going to get through this whole call without anyone asking anything about ESPN, but.
Yes their lives launched yesterday, they are working with affiliates, but they're only working with a handful of affiliates we are one of them.
I've got some numbers this morning on the performance yesterday and it was.
Extremely strong.
It was a very impressive day one now it's just one day, so we're not reading too much into that but.
We are very pleased with the first 24 hours.
Great and then just on guidance Capex assumption you guys are using modestly worse than I guess, what the USD strengthened.
Bad for USD reporting but.
That combined with a little more Rev share in the U S. I guess it implies the underlying fundamentals.
Performance to offset those impacts or I guess should we assume that shifts towards the lower end of our guidance range.
In terms of <unk>.
Top line.
Yes.
At the.
The higher proportion of our upright Shire has a slight dampening effect on revenue, but the underlying business is performing very strong and in particular, our media partnership businesses strong that unexpected.
Say you showed at <unk>.
Yes.
Thing.
About Baltimore range from that.
We're performing strongly.
FX is also a little bit of a headwind but that again.
We see with <unk>.
Our strength.
Typically in that media partnership business.
Very good thanks, guys.
And we have reached the end of the question and answer session I will now turn the call back over to Tara collapsing for closing remarks.
Thank you again to everyone for joining us today, we appreciate your support and interest in gambling Dot Com group, we look forward to updating everyone again, when we report our full year 2023 results in March.
And this concludes today's conference you may disconnect. Your line at this time. Thank you for your participation.
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