Gaming Innovation Group Inc
OSE:GIG
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Okay, we are starting. Hi all, and welcome to this Q2 Earnings Call of Gaming Innovation Group.My name is Robin Reed. I'm the CEO of the company, and I'm delighted to see you all here. The room is packed. We have a large audience on the webcast as well. Some 400 or 500 people usually follow the webcast. Welcome to all of you watching this at home too.I'm here alongside Tore Formo, the group CFO; and Anna-Lena Åström, the Head of Investor Relations.The presentation will be about 30 minutes, followed by a Q&A. You can ask questions in the audience. We will pass a microphone around. Please feel free to ask questions both in Norwegian and English. You can also ask questions through the screen at gig.com.We have a packed agenda, and we will get straight to that. I will take you through a quick overview of the company, the highlights. We will then look into the strategic and business update of Q2 before finally looking at the outlook and the summary and then opening up for the questions and answers.For those who are new, a quick overview of the company. GiG is a technology company providing products and services throughout the entire value chain in iGaming. Founded in 2012, we have a headquarter in Malta, with offices in Spain, Denmark and Gibraltar. We are currently 750 people. And we are listed on the Oslo Stock Exchange with ticker GIG.We are unique in providing a ecosystem to the iGaming industry. We're a full service company providing products and services across the entire value chain in iGaming, typically consisting of 5 main categories: Media Services, Platform Services, Sports Betting Services, Casino Services and finally end-user-facing Gaming Operators. GiG is having a range of products across all of these categories. They are typically sold on revenue share and upfront agreements to business-to-business clients. And the business models facing end users is typically that's minus wins.We'll go straight into the operational highlights of the quarter.Our media division is continuing to perform strongly, quarterly all-time high revenues with a year-over-year growth of 99%. We've done a range of acquisitions to fuel the organic growth, which came in at 32%. New Sport Betting Services was launched, and they are live on Rizk.com. They were offered to clients from July and being sold now in August. Our Gaming Operators has had a stable quarter, somewhat soft. We want to grow fast and profitable. Therefore, we initiated a strategic review, which was concluded in the quarter, the aim being to make the gaming operators long-term profitable and sustainable.We launched the company's platform service GiG Core into the regulated U.S. market of New Jersey, the toughest jurisdiction to get certified. We went live with our partner Hard Rock Casino, and the launch has been successful. We launched a new service called GiG Comply. The future-proof iGaming company takes compliance incredibly seriously, and we've launched a new service which we feel is taking the pulse on the market. We will talk more about it, but it is a very powerful tool, and we are about to sell it to clients soon. Finally, and I will touch on this later, but of course, the listing on NASDAQ Stockholm is proceeding according to plan.Before venturing into the strategic update, a quick summary of the financial highlights: revenues coming in at EUR 36.9 million, a 30% increase over the quarter; EUR 6.4 million in cost of sales, a 36% increase over the quarter. EUR 13.2 million in marketing is an 18% increase, and EUR 15.7 million in other operational expenses is a 77% increase. GiG is investing heavily into new products and services in order to be the #1 full service company in the iGaming industry. We're on a time line. The industry is regulating from 2019. The industry will see the majority of its profits regulated. With the Swedish regulation coming up, we think it will be incredibly difficult to achieve the position GiG is now taking post regulation, and therefore we are investing heavily prior to regulation.The EBITDA coming in at EUR 1.7 million.If you look at the rolling 12 months revenues and EBITDA. There is a continued stable and positive development, revenues being all-time high at EUR 145 million, while EBITDA is stable at EUR 16.9 million.We will then proceed into the strategic update, where I will take you through the individual business areas and look at both some updates and some KPIs.After more than 2 years of development, we finally launched our new B2B Sports Betting Services in this quarter. It is a cutting-edge sportsbook with full flexibility and scalability. The product portfolio consists of 3 products: GiG Sports Connect, an odds aggregation and distribution platform also distributing proprietary odds. GiG Trader, that's intelligent trading tools, state-of-the-art trading tools. And GiG Goal, it is a middleware and front end which we are using to power operators' websites. It is using everything from machine learning algorithms, personalization algorithms. And it is mobile first. We launched these tools at our in-house flagship brand Rizk.com in June, ahead of the FIFA World Cup; and the launch has been successful. It is available to operators from August, and the first external client is about to sign.Some further updates on B2B. GiG Comply, the newly scalable compliance tool, is developed and available in September. What it is, it is spiders and crawlers indexing the World Wide Web of online gambling: publishing websites, bonus comparison sites, all kinds of online resources in which operators and suppliers are marketing their services at. We are looking at the content to see that it is compliant with regulations both in gambling, in data and in marketing. We are reporting breaches to operators, who can then accordingly act. So just like Google will have crawlers indexing websites on the net, we have crawlers indexing the gambling ecosystem. It has the widest reach in the market, and it is being sold to operators these days. We have 2 clients in trials, and we're very happy with the launch of this product.In September, we're reaching possibly the largest milestone in the company history, so far, in that we're launching our new casino games to B2B clients. That marks the completion of our horizontal expansion across the entire iGaming value chain. That marks a time where the investment phase will not be over but will reach the point where we are monetizing all products and services which are currently being developed. We will have further 6 games to launch over the next 12 months. GiG Magic, our middleware and front end for casino operators, is live. And we've signed 3 external customers through the platform.An update on B2C, which I think is very important to take notice of in this quarter. In April, I took office as acting CMO in order to ensure the long-term growth and stability of the platform. As mentioned in the introduction, we have completed a strategic review of the gaming operator vertical with the goal of making it profitable and sustainable long term. The first key initiative that we have identified and started implementing is the consolidation of our brand positioning, meaning a clearer brand diversification, fewer brands in key markets. So we're focusing our marketing on fewer brands in specific markets. We are reverting from above-the-line marketing to much more of a focus on performance marketing. Our DNA is with performance marketing. I started as an affiliate. The company started as an affiliate. We need to go back to our roots and excel at what we're the most strong at.GiG has a very strong media division, and there is learnings for that to bridge into the gaming operation. As such, we've scaled up the performance marketing division in Copenhagen, where we acquired Rebel Penguin and have one of the best and most successful display marketing operations in the world. We need to work on our products. Shortly, we're releasing Guts V2.0. Guts was launched in May 2013 and quickly became one of the fastest-growing iGaming operators the industry had seen. We later on diversified our focus into Platform Services and later on into media, sports and games, and left Guts somewhat behind. We have now spent the best part of the last year on working on a new version of Guts, which is going live shortly. We have launched the new sportsbook on Rizk.com. And finally, we're doing a product overhaul of Thrills, a flagship brand of Betit group that we acquired which is being turned into a so-called pay-and-play casino, a no-account casino. We have seen the success of other no-account casinos throughout the industry over the last few quarters, and we think we can do even better than them. Thrills will go live as a completely newly launched site in Sweden, in Finland and in Central Europe shortly.The last pillar of the strategic review is the focus on compliance and responsible gambling. In order to make the revenues sustainable and long term, we are looking at a sort of a v.30 of the iGaming industry. To future-proof our company, we need to be the most compliant company. We've therefore put together what we call a player safety team. These are proactive player safety analysts who looks in realtime at gambling patterns and tries to identify problematic gambling behavior. They will then proactively contact customers and offer them assistance and help. In Thrills new version there is a link on every part of the product, on every single webpage where players can set their own limits. We want every player to set a limit and only play for what they can afford. This is the future of a regulated iGaming industry, and we want to spearhead it.We had decided to close the brand SuperLenny. SuperLenny has ranked high on Swedish search rankings over the last few quarters. We have a strongly performing media division. They identified the potential in turning this website into an affiliate website, into a resource for players. We listened to their advice. And over the next few months, we will work on migrating the players off the site to other operators in our portfolio, and turn it into the best resource for reviews, for bonus comparisons and other information on the casino and sportsbook industry in the markets where it's operating.As you can see, we've taken several measures to improve our B2C vertical. We're expecting to see a continued healthy development in FTDs and revenues in H2, as we have seen it in July and in the start of August.I will continue to speak a bit about Hard Rock and the launch into New Jersey. We signed Hard Rock International by winning a highly competitive tender a while back. When signing the contract, we knew we were undertaking a very large op. New Jersey is, as mentioned, the toughest jurisdiction to get licensed. And Hard Rock has very ambitious plans of becoming the leading operator in the market. We therefore agreed with Hard Rock to only focus on their launch in the period. Hence, we slowed down the pace of signing new clients over the 6 months period that this integration has been specifically hard. We've now successfully launch the product from the 3rd of July. Hard Rock is getting ready to gear up their marketing. Therefore, the majority of the heavy lifting is behind us. We can start signing up new clients. However, we will obviously remain committed to support the development of Hard Rock and their ambitious product road map.GiG is then well positioned for the U.S. market. The U.S. Supreme Court recently repealed the federal ban on sports betting, allowing individual member states to open up for their regulation. It is being expected that some half of the states by the end of 2020 will have introduced sports betting regulation in one way, shape or form. With our position as a regulated entity in the New Jersey market, we have a strong fitting to also get regulated in other states as they are ready. U.S. sports betting is very important for GiG. We are working on our sales pipeline. We're working with our product portfolio to get it certified in the U.S. markets where it's currently available. And we hope to release positive news as we go away -- along the way.Let's look at some KPIs.We start with the media category. So the revenues reached EUR 8.7 million, with profits coming in at EUR 4.7 million EBITDA. It was a quarterly all-time high up 99% from the quarter last year; 31,500 FTDs referred in Q2, an increase from 21,000 over the quarter last year. 12% of the FTDs were referred to the operators in GiG ecosystem. 70% of the revenues came from recurring revenue share agreements. So that's perpetual revenue share being paid on the players as they play with the partnering operators.If we look at our Platform Services, the product GiG Core, EUR 6.3 million in revenues and EUR 1.1 million in EBITDA. There was a continued underlying growth in NGR from the client base. It was up 5% quarter-on-quarters. The revenues increased 80% from Q2 2017, all organic. The EBITDA went slightly down. And there is primarily 2 reasons for this: one, the heavy investments into the U.S. market and into the launch of Hard Rock Casino. And two, as we launched the new product portfolio in the Sports Betting Services category, some revenues that were inside the core segment was reclassified to Sports Betting Services, a few hundred thousand.If we look at that segment. We have developed for more than 2 years the new products, currently with a burn rate of about EUR 700,000. We have started generating revenues on the vertical. And we had some EUR 600,000 in the quarter, meaning the EBITDA came in at about EUR 1.4 million. We think we are able to create some of the best products in the vertical at a very low burn rate compared to competitors. It, in our opinion, evidences how we're able to effectively produce the products at a low cost and scale them. We are now ready to sell the products on the open market. And we have interest in the products, and we are hoping to sign contracts soon.Finally, the Gaming Operators, revenues of EUR 24.2 million in the quarter, and minus EUR 2.8 million in EBITDA. The EBITDA in Q1 was EUR 0.1 million, and primarily the difference is related to an increase in upfront marketing in context with the FIFA World Cup. Therefore, the marketing costs increased to about 54% of GiG Gaming's revenue compared to 46% in Q1 2018. Albeit revenues being up 33% adjusted for closed markets, I'm not satisfied with the delta we have on marketing to revenues. I think we can do better, and I'm taking charge to ensure we will do better. We have a very strong team. They're very committed and passionate. And they're ready to improve these results, and I hope to come back with better results in Q3.The active real-money players increased to 173,000 -- or decreased to 173,000. That was as a part of the continued focus on quality. Deposit per player continues to go up, so we're happy building a more sustainable and loyal player base. 95% of the revenues was generated from our core markets, meaning North Europe, Central Europe and Western Europe.So finally, a look at the outlook of the company.GiG set out an ambition to expand across the whole iGaming value chain when we launched in 2012. The vision is almost complete. Over the last year especially, we've been scaling up our operational expenses, our investments into the development of this ecosystem. Our focus going forward can now be on improving our products and services in order to claim market share. With all products live from September, the goal should be to increase revenue, reduce operational expenses compared to the revenues.We have provided guidance for the full year in the report. We are expecting revenues to come in between EUR 155 million and EUR 162 million for the full year. We're expecting an EBITDA of between EUR 16 million and EUR 20 million. As a comparison, we had EUR 12 million last year, which also included a onetime fee of EUR 2 million. If you achieve the upper of the range, we will have nearly doubled our result, which we are happy with.So a quick summary.What we have talked about today is the company's plans for the gaming operator, how we had performed a strategic review to make it profitable and sustainable for the long term. We have launched our new Sports Betting Services. Following 2 years of development, we're now monetizing this investment. GiG Games, launching its first game in September. GiG Comply, a new revenue stream, has been launched. And we have 2 clients in trial, hoping to sign permanent contracts soon. Finally, we're live in the New Jersey market with HardRockCasino.com. It is now up to them, but we will do our uttermost to power their aim of being the largest operator in the New Jersey market.With that, we're opening up the session for questions. And as mentioned, we have a microphone in the audience which Anna-Lena will pass around. You can also ask questions on the web, and Tore here will help me with that. We will leave the microphone open for a few minutes, so feel free to ask questions.Thank you.
Any questions from the web, Tore?
Yes, we have some questions for the web: Can Robin elaborate a bit more on how GiG Sports Connect will function? How will we get revenues if the operators will choose another odds feed than GiG's internal Sports Connect feed?
So well, I'll just repeat the question. So the question revolved around how GiG Sports Connect, the product of the GiG Sports Betting Services category, will work. So in essence, GiG Sports Connect, it's a distribution platform for odds. So we are integrating data feeds and third-party odds provider to the platform, which we're then converting to a format that we're integrating with the operators' trading systems and sort of -- and their wallet. So our idea is that, rather than making an integration to a single third-hand-party odds provider, it would be better to make an integration to an aggregator who can provide odds from multiple sources. That'd be in order for you to select the best odds for each individual market, sports competition and so forth. No odds provider can be the best at every single sporting event in the world. Therefore, we think it is better to have a selection. We have integrated the first major provider, being Sportradar, and have a very good partnership with them. They have also integrated some proprietary odds and are looking to scale-out a full range of proprietary odds now and in context with the new season starting, meaning we will have the 2 first providers live on the platform now in this quarter. We will continue to integrate further providers. Now what we do is that we aggregate then volumes from operators. It is a similar model as we've done through GiG Core. We believe this service will be so attractive that we can sign up a range of operators to this product, and by such aggregating their volumes, providing scale advantages to the suppliers, and therefore being able to negotiate a cheaper price point so that we can add a slight markup on the services and sell them to B2B operators. So that's the business model of GiG Sports Connect. Thank you.
Okay, I'll continue with some more questions. You touched it briefly now, but can you say something about the sales pipeline for GiG Core and GiG Sports going forward and the focus on Tier 1 and 2 clients?
Yes. So as mentioned, we had committed to not taking on new clients, apart from those that were already in the pipeline which we had committed to, once we signed the Hard Rock agreement, which was the right priority for the company. We need to focus on quality and deliverability and keep our clients happy. Now the majority of the heavy lifting is over, and we can at our discretion select clients again. So we're talking with a number of parties, and I believe we will sign some good clients going forward.
And there are some questions about risk. First, are we happy with the new front end for risk? Has it operated according to expectations? And also, have we considered to have a scheme for risk in the U.S.?
We had a vision with GiG Goal, the middleware and front-end service in our sportsbook portfolio. We wanted to simply provide the most simple and fast sportsbook for any end user. There is a lot of fluff, a lot of features across a range of sportsbooks. We believe that, these days, most people are betting through their mobile. They're at the stadium. They're on the go. We simply wanted to make it as fast as possible to find an odds and place a bet. So that was the simple vision of going live with Rizk.com. We had small teething problems the first 2, 3 days. Afterwards, nearly flawless. Very happy with the performance. And albeit that it's still small numbers for us, being primarily a casino company only recently having started to promote sports betting, we see a good increase in turnover. So yes, we're very happy with the launch of GiG Goal.
Okay, then a question to GiG Gaming. For the last 6 quarters, GiG Gaming has generated losses of around EUR 11 million at the same time as the revenue has merely increased from EUR 18.5 million to EUR 24.2 million in the period. What is the action going forward? Many peers are able to generate some growth but with positive EBITDA. Are you sure GiG Gaming will perform the best going forward? Any plans to spin off or sell the B2C or part of it?
I'm tempted to answer with a single-word answer yes, but let me add some flavor. And first of all -- in their growth of some EUR 7 million, EUR 8 million in revenue, I think it is a decent growth but not good enough compared to the marketing we have spent. I would have liked to see it grow higher [ through earnest ] on that. We have products that have performed excellent in the period, and I think the major mistake we've done is to not consolidate our revenue according to the KPIs of the products. We're doing that now, and we're seeing a healthy development throughout both July and the start of August. So I can't guarantee the EBITDA goal, but I can guarantee that we're seeing a good development now. And I will personally ensure that this vertical is developing as good as possible; or best, as it was put in the question.
Okay, thank you. And one question also for licenses in Sweden. Have you applied for licenses? And how -- for which brands?
Yes. We applied for 2 licenses in Sweden, and we were part of the first batch of applicants. We have scaled up our compliance team. We've scaled up our legal team in context with the work in New Jersey. We are gaining significant experience in these applications. A lot of the work we have done in New Jersey is recyclable, and we were therefore able to be amongst the first applicants to apply for brands in Sweden. We have applied at the company level. And in order to sort of not give away anything to competition, we do not really want to discuss exactly what we're going to do in Sweden at this stage, but we have applied for 2 licenses.
Okay, do we have any questions from the audience? And we can take some more from the web afterward if we have time.
[Foreign Language]
So to repeat the question in English, first. In the report, we are mentioning that the listing on the NASDAQ Stockholm exchange is going according to plan, and we are asked whether we can elaborate somewhat on the process. I think we have to return to that question in Q3. And we have a clear road map for what needs to be done in order to list or to change the listing. There is a lot of details in which we need to take careful consideration to, and we are approaching them meticulously one by one. I guess you can reasonably expect a certain time frame once we communicate the last quarter that we would go on the Swedish stock exchange. And of course, we have to combine -- come back to the exact timing as it is getting even closer, but I will return to the question in Q3.
Okay. Then we'll take...
One more here.
One more question here, please.
Quick question. The purchase of intangible assets in the cash flow statement, will that be investment in R&D? And if so, what the number should be -- or capitalized R&D? And if so, what should we expect for the full year?
If you can pass the microphone to our group CFO, Tore Formo, please.
I have the microphone here. So you asked for the expected capitalized expenses for the full year. We are -- we will continue, more or less, on the same level as we had in Q1 and Q2. And that's around EUR 1.3 million per quarter, so there will not be a big difference in the coming quarters. Perhaps a small decline in Q3 and in Q4, but it will be more or less on the same level.
Thank you. Was there any more questions from the audience? Or should we take the final questions from the web?
Okay, so a couple of questions more. First, on the staff: We have a growth in our staff. And do we have any views on how the staff will develop, and operating expenses going forward?
Yes. We've currently staffed up to about 750 people. That will not increase much. There is some capitalized expenses coming into the P&L in the next quarter. There is also the annual salary review in Q4, but we do not expect the amount of staff to grow much further. Thank you.
And then final question. Can Robin say something about cooperation with Catena in general and especially on their website [ gd.co.uk ]?
We have a good cooperation with Catena Media. They are promoting our operators, and they're doing so in a very professional and good manner. Therefore, we are happy with them. That's one of the sites that we are collaborating on. We're collaborating across a variety of their sites, and we will continue to contribute to that partnership and to develop it as much as we can.That will be all then. Thank you all for the attention and for showing up. It is great to see you all here. See you again in a few months time. Thank you.