Gaming Innovation Group Inc

OSE:GIG

Earnings Call Transcript 2018-Q4

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Good morning, everyone, and welcome to this year-end report of Gaming Innovation Group. My name is Robin, I'm the CEO of the company and I'm delighted to be here with you in Stockholm, Sweden. We have some 1,700 shareholders in Sweden. It's nice to see so many of you show up today and to join us on the telephone conference as well as online. And I'll go straight to it. So my name is Robin Reed, I'm working as the CEO of the company. The company is GiG, our vision is opening up iGaming to make it fair and fun for all. Today, this is the storyline. I will give you a brief overview of the company. I will proceed into talking about the highlights of the quarter, before giving a strategic and business update whilst timely proceeding into the summary and outlook before opening up the microphone for a Q&A. That's not the whole story though. I want to recap quickly. GiG, founded in 2012. A mere 7 years later, we now reached EUR 150 million in revenues whilst growing profitably. In that period, some 710 staff has been hired. We have offices in 6 locations. And we have gambling licenses in Malta, U.K., New Jersey, Schleswig-Holstein Germany, Sweden whilst we have applied for licenses in Spain. We are a technology company. We provide iGaming solutions across the whole value chain of the industry. Our take on the market. Gambling worldwide, including off-line land-based gambling expected to be about USD 450 billion in 2018; online, expected to be about USD 50 billion. Online growing much faster than online (sic) [ off-line ] at a compound rate of about 6.6% whilst land-based gambling is growing at about 1.9%. As we can see, the big money is still in land-based gambling whilst online is taking an increasing share of wallet. GiG is a company that helps take customers and businesses from off-line to online. We are capitalizing on the #1 growth driver for the online gambling industry being the conversion from off-line to online gambling. Our goal is to pursue digital perfection. We want to learn the best practices online, we want to have the best execution online and we want to turn this into products and services in which we can sell to the wider gambling industry. As such, the below graph shows what we commonly refer to as the digital gambling life cycle, how we are taking land-based casinos who are displaying a digital interest to digital intent to the launch and all the way to digital perfection. We'll talk more about how we do this today and look at some of the results and the case studies as we progress. So this is what we do. GiG is unique in that we're the only company who's providing technology and services throughout the entire value chain in iGaming. We have the technical platform, so the actual back office system, the databases, the infrastructure, the data, the integrations we need to operate and launch a digital gambling business. We have the content and ancillary services such as sports betting and games as well as third-hand party providers such as payment integrations and support CRM software and so on. We are running one of the largest marketing businesses in the digital gambling space. As such, we are selling you Media services. Finally, we're also running our own operations. We are learning how to pursue that digital perfection ourselves, and we're running our own B2C operation. The business model behind these various products and services is mostly revenue share. So all our B2B services are primarily revenue share with an element of upfront payment to cover our costs. On the operator side, it is bets minus wins. We have evolved our strategy, which I will talk shortly about. Our strategic intent in 2020, our aim, the position that we are achieving is to be the global partner for strong brands in iGaming. This is what we do. To revert back to that, GiG has, in a disciplined manner, pursued a very ambitious strategy over the last few years since we went on the stock exchange a few years back. We explained the market how we had an ambition to develop proprietary intellectual property across the whole value chain of iGaming, how we wanted to combine all of the verticals into one seamless technological architectural stack. As such, we wanted to open up the world of iGaming to make it fair and fun for all. We wanted to connect the end users, the companies, the operators, the suppliers with each other. In this day and time, we have evolved this strategy. The market is going towards consolidation in regulated markets. What we are seeing is that we reached the inflection point where the large land-based incumbents who have been tightly regulated for decades are quickly entering the online space, the inflection point being how, market by market, iGaming is opening up for regulation in the U.S., here in Sweden as well as many other markets across Europe and the world. We want to back these big consumer brands, these big casino chains, with our digital experience and take these businesses from digital intent to digital perfection. As such, we have evolved our strategy from connecting the industry to powering the big brands. We're doing that because we now, in Q4, completed the last piece of the puzzle in that we launched our own proprietary games service and we're now covering the entire value chain in iGaming. It's a remarkable milestone for the company. We spent years of hard work in order to get to where we are today. We reached our full year revenue and EBITDA guidance. We did that by producing all-time high revenues in both our B2C Gaming business and in Media. We entered the U.S. market ahead of Super Bowl with a retail solution and with an online solution, over-the-counter betting, terminals, mobile, desktop, GiG has built from scratch ground-up on a modern technological architecture the full range of sports betting, back-office tool and front-end services that you need. We are on the way to list here in Stockholm. We have made an application and we're expecting to be listed in March. As a natural consequence of this change of listing, we have elected a new board and we're happy to be joined by Petter Nylander, our Chairman, here today in the audience. We have also made a reverse stock split of 10:1. Just to look a bit at the long lines. We have a continued stable and positive development on both revenues and EBITDA, the last 12 months revenues being EUR 151 million, the Q4 2018 last 12 months EBITDA coming in at EUR 16.1 million. Very noteworthy is that adjusted for one-offs, it is EUR 18.9 million, which we will revert to shortly. The Q4 financial highlights. EUR 39.9 million in revenues. We matched our all-time high revenues in this quarter. Cost of sales increased to EUR 7.8 million, that is primarily due to the increased betting duties we're experiencing due to our focus on regulated and near-regulated markets. Marketing decreased to EUR 11.6 million while other operational expenses increased to EUR 15.4 million, primarily due to these one-off expenses, which I will explain shortly. As such, EBITDA came in at EUR 5.0 million, which was a decrease over the year, but adjusted for one-offs, meaning the EUR 2 million one-off settlement fee we received in the same quarter last year and the provisions for the regulatory sanction lifted, which we have done in this quarter, it was actually an all-time high. Let's proceed quickly to talk about the strategic update. As mentioned, we're now the global partner for strong brands in iGaming. We are targeting regulated and near-regulated markets. We have now certified the platform for both casino and latest sports betting in New Jersey, U.S.A., the toughest regulation to overcome from a technological perspective. We have also received a license in Sweden. As such, the platform is fully certified and can support the operations here in Sweden. We've launched the online and retail Sportsbook platform. As such, we're complementing the offering we already had in casino where we were one of the few companies in the world and I believe the only one in New Jersey who had made a seamless integration between the land-based casino platform and the online casino platform. In essence, customers can come to a casino in New Jersey, register and at the same time get an account online, start earning loyalty points at both online and off-line and deposit and withdraw and so forth in between their wallets. GiG Comply, our marketing compliance software that we're selling to other operators helping them to meet regulatory requirements in marketing, has now been sold to the second operator. Noteworthy is that albeit we cannot disclose the name of this operator due to the sensitive nature of being compliant by default, this is one of the top 5 companies in the industry. As such, we've managed now to sell software truly to a Tier A existing operator. We've also sold our proprietary games to the first external customer in this quarter. That marks us having sold every single product and service we have ever built on the market. On the negative side, we have terminated the contract with a major customer on Core, the reason being that there were some regulatory issues with this customer that we were servicing on a software-as-a-service basis that made it a bit sensitive for us given the clients that we're now targeting. As mentioned in the report, we're now near signing the second Tier A company to the platform. The future for us is to stay behind big brands operating in regulated markets. This paves the way for that opportunity. Finally, at the B2B update, all-time high revenues in Media whom is now fully focused on accelerating the organic growth. With that, I'll proceed to the B2C update. I often am asked why B2C? So we're a bit into the preliminary wording here with proof of the pudding and dogfooding. Point is that B2C is what is -- allows us to sell this major brand and companies. We will later on, in this presentation, look on the KPIs of B2C and see how we have a proof of concept for driving one of the fastest-growing, most innovative B2C brands in the casino space that is on the market today. Dogfooding being an expression that was invented in the Microsoft community and in Google, essentially meaning that the organization would utilize its own products and services before selling them on the open market. Scale, nonexplanatory. With our B2C business, we can bring volumes and cost-sharing benefits to the B2B proposition. In H1, we initiated a strategic review of the B2C business. That was following a loss of EUR 8.9 million in EBITDA in 2017. While the business grew fast in 2017, we weren't happy with the profitability and the development. I took over as CMO for a few months and initiated some changes. We focused on fewer, but larger brands. We shifted from TV to performance marketing. We now grow in what we call near-regulated markets in order to compete in regulated markets. We have an immense focus on what we call the data-driven user experience, gamification and automatic segmentation of customers and ensuring personalization across our products. And last, but not least, we had decided to grow a major brand in Rizk.com. I believe Rizk.com can be one of the leaders in the category of casino within the industry, in the markets which we choose to enter. This has now led to all-time high revenues in Q4. Where the full year EBITDA in Gaming improved from minus EUR 8.9 million to EUR 0.5 million -- minus EUR 0.5 million. We're happy with this, but of course, it's not enough. We need to do much, much better. And we will going forward. The key focus to achieve much better results being to improve what we call our sustainability model. What we're seeing when entering regulated markets such as Sweden is an increased obligation on us, duty of care, anti-money laundering, various responsible gambling measures. We are fully dedicated to meeting these expectations and to go over and above in improving the regulatory standing and social impact of the industry. We need to do this, whilst taking care of our customers in a user-friendly manner. The combination of adhering to compliance standards while improving the user experience in our B2C sites is what GiG is calling our sustainability model. The competitiveness of this model will be what determines the success of our brands in the future regulated markets across the world. With that, we'll go into a quick business update starting with the headcount. We increased from about 100 staff in 2014 to at peak being 750 people in 2018 whilst we were expanding and developing these products across the whole value chain in iGaming. A number I'm proud of, some of our competitors are having more than 700 people and they're targeting a single vertical. However, as we explained last year, we saw that we had reached the peak in total amount of staff. I'm therefore proud to see now that in the third quarter in a row actually have declined in staff, becoming more efficient. The headcount distribution is also something we're disclosing for the first time. I'm getting a lot of questions from investors as to where our people are employed, what they do, so I just wanted to very quickly run you by. As you can see, some 24% is still employed with Gaming Operators, but we're growing quickly, the proportion of staff working in the more B2B-facing functions; Media Services is 14%; Platform Services; 28%; Sports Betting now up to 11%; Games, 3%. Noteworthy, corporate functions, these being compliance, legal, HR, finances now increasing to 20%. We are investing heavily into compliance and legal and this is the evidence. Let's look quickly at the various segments. All-time high revenues in Media, increased by 3% compared to Q4 2017. All organic growth primarily driven by publishing, so search engine optimization-based publishing sites. Again, noteworthy, in Q4 last year, we were opened in Holland. We closed Holland due to an inquiry from the Dutch regulator, not something we strictly, legally, by EU law had to do. But because we wanted to be in good terms with the regulator, we decided to remove all gambling efforts from the affiliate-based websites, and hopefully shortly, a license will be out in the market and we can apply for that license. There was a monthly run rate of about EUR 200,000 on both top and bottom line that we have lost. However, we're now back to all-time high again without these assets. So we're growing the underlying assets. The paid model, representing 15% of Media revenues, were impacted by lower revenues from key customers. So this is primarily sports betting where our key customers has been in the U.K. They have been under strong regulatory pressure from the U.K. Gambling Commission over the last year. As such, we have seen average revenue per user in U.K. go down where these companies have been very restrictive. Of course, us working on almost purely a revenue share-based model has been affected by this. Importantly is that we're seeing U.K. back to growth again in Q4. We have 29,700 customers referred to our partners whereas 7% was represented by in-house brands and I believe about an equivalent to customers of our various B2B products. 64% of revenues coming from revenue share agreements; 18% from upfront payments, so-called, CPAs; and 18% from listing fees, so companies paying for good shelf space, good advertising space, across our various sites. So EUR 8.7 million in revenues, EUR 4.9 million in EBITDA, very good margin. We're using the income from Media to invest into the future, to develop our technology that will secure our strategic position in the long term. Our Platform Services, so this category now comprises of games, front end and back-end Platform Services, saw 4 new brands going live. Two ceased operation as regulatory pressure were becoming stronger, so very small brands ceased operations. There is a total now 39 brands operating on the platform. And there is increased activity. The database transactions, so that's being the total bets, the total wins, the total deposits, bonuses awarded, all user-related activity in the system, increased to EUR 5.1 billion compared to EUR 4 billion in 2017. Revenues, however, decreased to EUR 7.2 million from EUR 9.6 million in the same quarter last year. That is primarily due to us, last year, receiving a EUR 2 million one-off settlement fee, which wasn't part of sort of the underlying organic business, so that's why it decreased. We are now running at about EUR 1.6 million in EBITDA. Noteworthy is that we made a provision for a settlement with the U.K. gambling authorities and I believe it is about EUR 700,000 that is allocated into the core segment. It was important for us to be in a good standing with them as we know they have had an industry crackdown in 2018. Other companies hit much harder than us. We maintain a good relationship with them and we were -- we had received a sports betting license in Q4 from the Gambling Commission. As mentioned, we have had a termination of a major customer, which impacts revenues and EBITDA in 2019. In this quarter, compared to Q1, the difference will be EUR 2 million on the top line that will drill down to the bottom line. So this is important. Important to note is that contracts coming in and that we've already signed is expected to at large offset this loss of revenues throughout 2019, which also means that we can pave the way for supporting these type of businesses in the markets they prefer to target in the future. Moving on to our Sports Betting Services. As mentioned, we launched the sports betting platform in New Jersey ahead of the Super Bowl. We're now live with Hard Rock, 11.Lv and Rizk.com. We are growing in a disciplined manner. We have still signed with good luck have fun.com (sic) [ GLHF.com ], MetalCasino and Guts. So we have a healthy pipeline of clients already on the sports betting platform. Of course, we launched this ahead of the World Cup last year. It is a young company and we want to ensure that we grow things in a robust and future-proof and scalable manner. So very happy with the client portfolio we have signed so far, it's completely in line with plans. We will now follow closely the launch of Hard Rock in New Jersey, support them. And pending the success of that business, we will then consider taking aboard the next hopefully major customer. So a strong pipeline that we are pursuing in a disciplined manner in sports. We're competing into major tenders worth to mention. So these are companies we are looking strongly at. The current burn rate being about EUR 0.7 million to EUR 0.8 million per month, which we're expecting to remain at that level in 2019, possibly go up to EUR 0.9 million, but that would be the max. So with that, revenues will increase, burn rate will stay on the same level, and as such, we're expecting profitability from H1 2020. Coming back to the Gaming Operators. All-time high revenues with a slight increase over Q4 2017. Noteworthy is Rizk.com is now representing 70% of the B2C revenues and is growing fast as we will see in the subsequent slide. The marketing costs represented 42% of B2C revenue compared to 54% in Q4 2017. So the delta to revenues is going down. The active real money players decreased to 176,000. However, the RPU is increasing significantly. The gross deposits from these players increased with 6%. 96% of the revenues generated from what we deem as core markets, these being markets where we already have a license or where the market is expected to open up shortly or where we're paying local taxes and VAT or where we can operate under the four freedoms of the EU. I would want to add in the end that there is still challenging regulatory and market conditions in the U.K. and Sweden. U.K., as I mentioned, pointing up again, in Q4, also for GiG following a hefty decline after the crackdown on the industry started in January last year. Now we are, alongside many other companies, fully sustainable in that market in the terms of how we are operating. Sweden now have recently introduced a new license. Very important for us to utilize the learnings we had from U.K. and the regulators and what they wanted to achieve there into Sweden. Having a closer look at the Gaming Operators KPIs, starting to look at the graph on the top right. What you'll see is that Rizk has grown from EUR 10.9 million in Q4 2017 to EUR 17.9 million in Q4 '18. That is profitable growth. EBITDA going from EUR 1.5 million to EUR 3.4 million. Other brands, so the remaining 6 brands we had on the platform, has been decreasing from EUR 14.5 million to EUR 7.9 million. So the growth in Rizk has at large been offset by the decline in other brands, which have also lost money, a loss of EUR 2.7 million in Q4 2018. In Q1 2018, I took over as CMO for the company and that was due to a strategic review where we saw how the market was developing in a regulated future. We believed we were too thinly spread. We didn't have enough marketing funds to back up 7 brands and make them the leaders in the category in many markets. So we decided to select the best-performing brand in terms of KPIs, supported by a couple of flank products, other brands who are returning good KPIs, and get our resources behind those. If you pay close attention to Q1 '18 and going forward, you see that we, at this infection point, started investing heavily into Rizk while deprioritizing the other brands. Rizk were profitable, the other brands were loss-making. And if you look at the graph on your left-hand side, you see why. So the average revenue per user on Rizk had seen a good increase in Q1 while the cost to maintain those customers were flat or even declining. This was due to the data-driven approach we have on that brand to the immersive user experience and it continued to increase. So I'm very confident that this was the right choice. Of course, as a consequence of that, we've done a noncash write-off of EUR 13.7 million this quarter, which allows us now to fully focus on this strategy going forward and commit. With that, I'm moving into the last slide, which is the summary and outlook, and we will shortly be opening up for questions in the audience and through web and the telephone conference. So Q4, summarized. GiG now closed the circle of being a full-service provider with the launch of proprietary games. We're now covering all major verticals in the iGaming industry with proprietary products and technology. We have focus evolved from developing new products to now selling, marketing, improving these products. We don't have to add more dimensions, more complexity into the organization. We can now focus on running with it. It is a great spot to be in. We're entering the U.S. market with our off-line and online portfolio of products and services. We will pursue further opportunities on a customer-led basis. With that, I mean that we're now active in one state in the U.S. It is expected to open up on a state-by-state basis, and we will get behind a major brand in that market being Hard Rock International as they pursue other states, of course contingent on them expanding their partnership with us, but we believe we're in a good spot there given that we have broken all records with our launch in New Jersey with them. The Gaming Operators are continuing to grow in what we deem to be near-regulated markets whilst we are developing our sustainability model for the regulated markets. We will grow in these 2 categories and we're confident that we will do so. I'd like to add some notes in the end. 2018 was a great year for GiG. We increased revenues with almost 30% and EBITDA with almost 30% over 2017. That is despite our estimate shows that we invested about EUR 16 million into products and services that will benefit us in the future. The cash flow from operating activities were north of EUR 12 million, only in Q4, in actuality, we increased cash flow with about EUR 6 million of free cash. EUR 4 million of those were spent on securing a license in Spain. We're applying for a license and we put away EUR 4 million in a deposit. We're very happy with how the company have evolved. We're very confident in turn in the organization and I am very confident and happy for having this job and for being in this company and for looking forward to 2019. And with those words, I would like to open up for questions from the audience. Thank you.

[Christian Hellman, Director of Small and Mid Cap]

All right. Christian Hellman here from Nordea Markets. A couple of questions, the first one on the termination of the contract within GiG Core. You said that you have hopefully a couple of new contracts coming that were going to offset the loss of that contract during the year. But could you give us a bit of a time line how that would sort of pan out during the year? From when is this contract, the termination, effective? Is that immediately? How is this going to look if we look into Q1, Q2 and beyond?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Yes, good question. So the customer has been migrated off the platform. The last paying month is January 2019. We have already signed several new clients in which we are expecting to see growth with. And we are also in the process of signing the next major operator. So I believe that when we reach the end of this year, then most, if not all, of these revenues would have been sort of recovered by the current client pipeline. Nevertheless, we can also sign more clients. So of course, in the long term we expect to overachieve the loss of that client.

[Christian Hellman, Director of Small and Mid Cap]

Okay, that's loud and clear. But basically, what you're saying is that this will be a net positive long term because the termination of that contract will help you sign new ones because you'll be in a more safe regulatory environment.

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Indeed. We didn't share their vision on how to expand in the marketplace, which is fair. And therefore, we've decided to, in a friendly manner, part ways whilst going with brands that we share the vision with.

[Christian Hellman, Director of Small and Mid Cap]

Perfect. And the future of the other brands, obviously, you're putting all your efforts into Rizk and that is going very well. But the other ones that are declining, what is sort of the future for these? Are they up for sale? Or what will be sort of the endgame for those brands?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

We had about EUR 7.9 million in revenues from these brands in Q4. I personally believe that it won't fall further down than about EUR 5 million, at which point, I believe they also will be profitable. We're now incurring a loss, if I remember correctly, of about EUR 2.9 million on these brands or EUR 2.7 million. Now what happens from there, we need to see. Whether we sell some brands, whether we grow them, we would need to see how the market develops. There's quite a change now with the regulatory conditions in Sweden and across Europe and I think it is safe and sound to contract a bit the amount of brands we're having, to keep some of the best-performing brands in maintenance mode meaning that we make them more profitable, that we don't lose revenues, whilst ensuring that we take at least one brand and aim for being a leader in the category. So that's the current strategy.

[Christian Hellman, Director of Small and Mid Cap]

Great. And just a question on the headcount, which has been declining for a couple of quarters. What do you see going forward in terms of the cost structure and the headcount? Will it -- when will it sort of bottom out? And how should we look upon that going forward?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

There's no exact science, but I believe that we are very happy with the headcount level we are at now. Whether there would be a plus/minus 50 staff throughout various projects and times remains to be seen, but we won't grow much for sure in 2019 and possibly even decline a bit in staff, I believe. I'd also like to note that there is an additional sort of line in the P&L under sort of OpEx, which is the other expenses so offices, software, health services and I believe we can be even more effective there. We're moving into a new office in Q1 in Malta, GiG Sky, complementing our main headquarter, GiG Beach. So we made some payments for that now in Q4 and in Q1. But from there, I believe the sort of the cost base won't expand. But on software and on health services, I believe we can become way more efficient than what we are now. As mentioned in the Capital Markets Day, we are about to sign a deal with Microsoft. They are having engineers in our offices now. We're working closely with them in a strategic partnership. They're helping us design sort of the best possible cloud architecture for our whole stack. And what we've identified so far is that throughout 2019, we believe we can significantly reduce quite a large post of sort of software-as-a-service in the cloud that we're buying from them.

[Christian Hellman, Director of Small and Mid Cap]

And just a final question. As you mentioned in the presentation, you now have all the verticals basically in terms of B2B, games and sports and the platform, et cetera. How important is that in the tenders that you currently have on offer? What are the clients -- the potential operators telling you? Are they looking to buy everything? Is that the uniqueness of GiG now when you have everything? Or how should we look upon that going forward?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Yes, it's a great question. I see it as a major advantage. With that being said, we also have a modular technology, so we don't necessarily to sell the entire stack. We can sell single products if people are interested in complementing them with where we are strong. With that being said, we're participating in various tenders now and we have been -- taking the Hard Rock case, for example, we won in competition with entire industry both in casino and in sports betting. And I believe the fact that we could offer the whole stack was a deciding point for them. We're seeing in a new tender now that we believe we will release shortly. That was also a key decision point. What we have to keep in mind is that in a regulated future, there is margin pressure. There is increased volumes, increased market share for the large players but there is margin pressure. So when you look at how we're splitting the euro or the dollar per se and large -- increasingly large percentage is going to regulators. If they can bundle all services from one provider, competitive services, they can get faster to market. There is a decreased complexity in their contractual formation and there is a decreased cost for us in servicing them. You don't have to make integrations with various parties. So in essence, you can improve their bottom line with possibly a few percent, which means a lot, because after all the regulatory expenses, marketing and all the typical expenses associated with an operator, in a regulated market maybe there's 10% or 15% left, if you then can go up 2%, 3% that matters. So they are thinking long term and are seeing this as a clear advantage.

[Oscar Erixon, Financial Analyst]

Oscar Erixon from Carnegie. A few questions for me. Start off with the lost customer first. Just wanted to know if you can say anything about what markets are sensitive and perhaps also what customer you lost?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Unfortunately, I don't think it would be prudent to comment on that. I can't do that.

[Oscar Erixon, Financial Analyst]

Okay. And when it comes to B2C then, obviously there are a few brands that you are sort of winding down a bit. Can you speak about the other brands such as Kaboo, Highroller and Guts, how are they doing in comparison?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Yes. I would say that all the brands that you're talking about now is remaining more or less flat with the exception of maybe one, being Kaboo, where we have lost a fair bit of revenues after deprioritizing marketing on that brand throughout the year. Guts has been performing good, strong KPIs behind it. Highroller is okay. I believe we made a strategic error in launching a seventh brand. The product in itself, performing good, but we simply didn't have enough marketing firepower to get behind a new brand as sort of the regulatory complexity was increasing throughout 2018. So we have maintained that at more or -- at a flat run rate as well.

[Oscar Erixon, Financial Analyst]

Okay, great. And just going back to what you said about revenues coming down to perhaps EUR 5 million as a stable level, how can you sort of improve profitability based on EUR 5 million in revenues? Is that lower marketing or other costs or just a little bit...

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Yes, I think you're touching it, Oscar. I think lower marketing is the key here. Even in Q4, we invested quite a bit into upfront marketing in some of these brands and have now decided that, for sure, the best marketing return on invest we get is from Rizk. So in the short to midterm, I believe that these brands should be mainly backed by performance marketing and affiliate marketing and good CRM. And we can maintain those revenues. And I think we then will see profitability once these sort of more above-the-line marketing-oriented expenses is decreased.

[Oscar Erixon, Financial Analyst]

Okay. And Sweden, I think we have to talk about a little bit as well. I think you wrote in the report that can expect some initial pressure perhaps on both revenues and margins. What does that consist of, lower player activity and how, please?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

In Sweden, they've introduced an incredibly important principle called duty of care, which is something we're applauding the regulator for. In essence, it means that you, as a company, are responsible to ensuring the affordability, the safeguarding of your customers. What we have seen is that in an unregulated marketplace, there has been very few restrictions on how one are targeting customers. It has been throughout the industry. So whilst we're now doing affordability check, and forcing every single customer to set their own limit of how much they can play every single day, every week, every month, that, of course, is causing some immediate downturn in revenues. That being said, we absolutely believe in this regulation and wanted the government to introduce it in Sweden as in other markets. We believe that the future of gaming is for people to have a healthy relationship with gambling. Our vision is making gaming fair and fun for all. That having a healthy relationship to gambling, making people enjoy gambling will lead to sustainable revenues. Rather than having high revenues in a quarter or 2, we can maintain lifelong relationships with customers whom is using it as a hobby and as fun -- as an entertainment proposition. So while there will be an immediate impact, I believe, seen by the entire industry, I think, in general, it will help develop a more healthy and long-term sustainable market as a whole.

[Oscar Erixon, Financial Analyst]

Great. And obviously, you got the license quite late in the quarter, in Q4. How has everything gone with integration of suppliers and so on? Is everything perfect at the start of Q1? Or do you have some initial issues?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Yes, so the technical integration was done well. We haven't had any issues. We didn't have to pull any functions or features or brands from the market as we've seen with other operators, we're happy. Of course, some hiccups. There's a lot of new processes and procedures that needs to be in place. We can only get better, but we're very satisfied with overall launch in the Swedish market and they went good.

[Unknown Attendee]

[ Hesi ], a private investor. I have a couple of questions going forward. Everybody's talking -- everybody's asking how is GiG able to maintain the focus when they have 4 or 5 big moving parts if you compare it to maybe Kambi, Red Tiger, Unibet, what's your answer for that?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

We only have one focus, and that is to be the global partner for strong brands in iGaming. At a more detailed level, what we have to understand is that there is an underlying target architecture supporting the various business verticals. A bit nitty-gritty for an investor presentation of this format, but in essence, whether you're building Kambi or whether you're building Playtech or whether you're building a platforming in GiG, a sports betting in GiG, you'll need an authentication service in tech. You need a logging service in tech. You'll need an audit service in tech. These are items we can duplicate in GiG to a large extent. It's a cost synergy. So in essence, from a technological perspective, which is the basic building block, it's a pure synergy. From an execution perspective, it's closely related. After all, it's iGaming. It's sports betting or casino, it's operations, it's iGaming. We are knowing this field very well. We're having so many people onboard who are experts in this area. So for them, it is business as usual. Of course, for, possibly, investors and other people new to the industry, it's an ongoing onboarding. But for us, it is business as usual.

[Unknown Attendee]

Okay. And you're in a process of signing new land-based casino that is going online. Is it Hard Rock size? Or is it like...

[Robin Eirik Reed, Founder, CEO & Interim CTO]

We're incredibly happy with this client. It is not as large as Hard Rock International, the company as a whole. And I can't give too much details of this, we will come back with it once everything is signed and ready and we can make a joint public statement. But it is an active project with plenty of people already working with it within the company and we haven't a need to disclose it, but we're very happy with that customer.

[Unknown Attendee]

And in Q3, in the Capital Markets Day, you were mentioning Veikkaus a lot and in this presentation we're not talking about Veikkaus. Are we still interested in Veikkaus? Or have they chosen another partner or...

[Robin Eirik Reed, Founder, CEO & Interim CTO]

There is an open tender process that we are a part of and that's all I can comment on.

[Unknown Attendee]

You mentioned about the loyalty program that you built that is so unique for Hard Rock from the online to off-line. Is it just in U.S. or could you -- if you go to a casino in Atlantic City and play on Super Bowl and you get loyalty points, can you use them in Ibiza on the hotel? Or could you use them in Barcelona? Or how does the loyalty program work? Is it worldwide or is it just U.S.?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

It's a great question. From a commercial perspective, I'll let the operator answer to their sort of CRM and retention strategy as a whole. From a technical perspective, us being the provider, of course, this is an integration we made and functionality and features that we made that can be used not only with one client and one market, but as a whole pending some dependencies on providers and so forth for land-based. But yes, definitely a unique feature that distinguishes us as a platform that we are selling and it was also key, I think, to signing or be close to sign the new customer.

[Unknown Attendee]

And Kresimir at the Capital Markets Day mentioned that they are going to open up in every spot on earth that Hard Rock has a brand recognition, which is pretty large. What's the time frame for expanding Hard Rock to other cities or states in the U.S.? Is it -- are we talking 6 months, 1 week, 3 weeks?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

So I would have loved to comment further on Hard Rock, but I can't comment on their commercial road map. We were very fortunate to see Kresimir himself come and present their plans in the Capital Markets Day. And for those who're particularly interested, I urge you to go and see that presentation, available at our homepage, but I can't unfortunately comment on it.

[Unknown Attendee]

Yes, but how long -- what's the time frame if you want to expand it to, let's say, Swedish market where you have licenses today?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

From a technical perspective, it is now not a big job. We made a significant investment when we onboarded Hard Rock in developing their platform, in developing their system. So from a technical perspective, for GiG, it is not a big overhead to take them out in other markets. But of course, sort of their market plan and their ambition needs to be designed and controlled and communicated from there and then we will be ready and support them all the way. Good. So is there any question from the phone conference?

[Operator]

[Operator Instructions] As there are no questions at this time, I will hand back to the speakers.

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Okay. So we need to wrap it up in not too long, but if there are some more questions in the audience and a few questions online? Thank you. Oscar?

[Oscar Erixon, Financial Analyst]

Yes, 1 or 2 questions for me. Just different markets as well, I want to follow up on. I think Germany has shown quite strong growth both for the market and also for your brands. Can you talk a little bit more about the development there and also perhaps the regulatory outlook?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

The Deutsch marketplace is something that is very interesting for us as we're seeing strong growth and there is movement across -- in these markets in various directions. So going from Switzerland having sort of embraced online gambling then a public referendum and so forth was dragged on a bit the other direction and it seems to be that Germany is also, to our informal and where it is sort of hearsay-based input, might be going towards a license in 2021. There is nothing confirmed. There is nothing from the German government suggesting so. But I believe I should say that the market is growing really fast and it would be in their interest to regulate it and I've heard that there has been meetings and discussions in order to move the regulatory framework going forward. But I believe there will be a lot more information coming out in this year. As we mentioned, it is a target market for many larger brands now. I believe, for instance, when Stars acquired Sky Bet, they put in their key bullet points the growth in Germany was motivating the acquisition. And yes, we are operating fully compliant with the regulation we can have in Germany, being Schleswig-Holstein. We have been getting customers that way and we're happy with the market. And of course, we will closely monitor it, the regulatory development, and ensure that we're doing everything we should in order to continue adhering to the market and growing the market.

[Oscar Erixon, Financial Analyst]

Great. One final quick question, update on the Denmark license.

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Yes. I shall not go into further details now. What we've seen is that we need to focus now on U.S. and on Sweden. And I would need to revert back on Denmark, no immediate plans to enter Denmark as of now.

[Unknown Executive]

Just one question from the web as well. I think most of the questions from the web has been answered already. Can you mention some of the assets for GiG Media in the U.S. and the strategy there?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

Yes, I urge you all to go in and look at wsn.com, it's a proprietary product that we've developed from scratch on a very good domain with a very good domain legacy. For the U.S. market, the product is out, it's live. We've received a license to market on a revenue-share basis in New Jersey. So we're now an active competitor in that market and we're significantly gaining traffic on that domain. Of course, still relatively small in New Jersey because the domain is gathering traffic from the whole U.S. whilst we only can, of course, monetize New Jersey, being the place we have the license. But we are preparing for other states opening up. It's a proprietary product developed at a cheap rate compared to what an acquisition would have been and it is developing very well in terms of traffic.

[Unknown Executive]

You mentioned that you lost customers due to conflict of interest with the new customer you signed. Is it because of the new customer that you won't be able to operate with different kind of B2Cs in that particular market? Or what's the issue between?

[Robin Eirik Reed, Founder, CEO & Interim CTO]

It's a two-pronged issue. In the one hand, I believe in Q1 2018, I communicated our ambition also from a B2B perspective to, in the endgame of this industry maturing, be 100% regulated. So there is a long-term vision of where we want to be. And I'm not here to preach ethics or moral. It is a business decision. We believe that it is better for us to be focusing on these regulated markets, but that client had another view. And then I think it is fair game to shake hands and part as friends. Now that also meant that clients who share the same philosophy as us, in general, will find it more attractive to onboard our platform and be part of us is just a sort of supplementary positive to that decision in general. Okay. So with that, we're running out of time. I would like to thank you all for watching this webcast, for attending here in Stockholm and see you again soon. Thank you.