Gaming Innovation Group Inc

OSE:GIG

Earnings Call Transcript 2022-Q4

[Hjalmar Ahlberg, analyst]

Hi, and welcome to Redeye. Today, we are joined by Gaming Innovation Group and CEO, Richard Brown, who will present the company's Q4 report. This will be followed by a Q&A. And if you have any questions, you can send them in via the web.

With that, I will leave over the word to you, Richard.

[Richard Brown, executive]

Thank you very much, Hjalmar. Always a pleasure to be here, and thank you very much for joining me this morning for Gaming Innovation Group's Q4 and end of year 2022 report and results.

I think 2022 has been an exceptional year for us at Gaming Innovation Group, and we've made significant progress throughout the year in terms of our financials. But also on top of that, the operational performance has continued to improve, something I'm exceptionally proud of and something that teams have worked exceptionally hard towards on a continuing basis. It was the year to cap off with a stellar performance during Q4, and we'll move now over into the Q4 highlights.

GiG has delivered another all-time successive high -- successive all-time high in revenues and EBITDA. Media achieved 91% growth in terms of number of the First Time Depositors that it referred to its operating partners. The Platform & Sportsbook business had a strong quarter, delivering 4 new live launch brands and in addition, signed 6 additional new contracts with clients for launches anticipated throughout this year.

The Media business also signed its first publishing partnership with News Corp in the U.K. to run operations around the gambling content portfolio for The Sun and talkSPORT.

We also signed -- very pleased to announce that we work towards signing the agreement for AskGamblers from a Catena Media and the media assets related to that group. It's a significant step forward strategically and scale-wise for that part of the business.

Moving then on to the financials. Another record quarter, exceptionally pleased. Revenues came in at EUR 26 million, 44% up year-over-year with organic revenues up 35% year-over-year. The EBITDA came in at EUR 10.8 million, up 71% year-over-year. And the EBIT delivered 80% year-over-year growth and EUR 4 million. If we then reflect for the full year, on a pro forma basis, the numbers achieved revenues were EUR 92.5 million, EBITDA came in at EUR 35.5 million and EBIT came in at EUR 11.8 million. If we look on a non pro forma basis, that's up 36% year-over-year in revenues and up 51% year-over-year in EBITDA.

Moving then on to the business updates. Our Media business continued, again, performance. The team has worked exceptionally hard setting new standards, new all-time highs and records throughout the year, and Q4 was no exception.

Revenues came in at EUR 17.8 million for the quarter, up 40% year-over-year and 18% up quarter-over-quarter. The adjusted EBITDA came in at EUR 8.9 million, up 52% year-over-year. And EBITDA margin hit at 50%. This growth was driven both by our Paid and by our Publishing departments within the Media business, up 77% and 25% year-over-year, respectively.

We had strong activities throughout the quarter from the FIFA World Cup, driving acquisition and significant player activity throughout the period.

Reoccurring revenue share, a stable bed and the kind of key element of our earnings quality and the revenue growth drivers in the coming years -- in the coming periods was also 60% during the quarter.

For the full year, an immense performance, up from EUR 45 million to EUR 61.1 million in revenues and up from EUR 21 million in EBITDA to EUR 29.9 million. The EBIT margin for the year was around 48%, an exceptional performance and one that we continue to look to improve on a continual basis.

First Time Depositors, the key underlying KPI of the number of players that we refer to our operating partners ended the quarter another record, 115,000 referred to our partners during the quarter, a 91% increase year-over-year. And so one of the highlights that I mentioned at the beginning of the presentation. 95% of those First Time Depositors also had a revenue share component, meaning that we're continuing to secure future growth for that part of the business. And the full year ended up 78% growth in terms of First Time Depositors comparatively to the previous period.

In terms of the geographical splits within the Media business, we're looking here U.S. traffic also increased to our websites by 76% year-over-year, and revenues from the Americas in general increased 136% year-over-year. And it now represents 23% of the revenues of this segment of the business, and that's up from 13% in the Q4 2021.

We have seen a significant and promising growth in Latin America, in particular, but we've also seen continued growth in what we would consider our legacy or more traditional markets in Central and Northern Europe, with those markets growing 23% year-over-year, respectively.

GiG Comply, our marketing compliance software, also had an exceptionally good quarter with 2 new clients signed and 3 current clients extending the contracts.

I touched on it in the highlight, for me, this was a fantastic one. I remember this asset for a significant period of time as being one of the most reputable and largest brands within the affiliate marketing space and gambling. We're extremely pleased to acquire the assets and some related domains from Catena Media. In December, we signed the agreement. We see significant growth opportunities of the assets by attaching and utilizing our proprietary marketing technology. We've utilized Media immediate a great deal of success and also in a lot of our operating practices and principles, enhancing the product and the brand in conjunction with the excellent team at AskGamblers.

It adds a further geographical reach, scale and diversity to our Media business, and we are anticipating a significant increase in revenues over the years to come and the optimization of the cost within this particular asset unit. The acquisition was completed on the 31st of January, and we're very happy with how the first weeks of the post-merger integration program are progressing.

Moving then on to the business update for the Platform & Sportsbook. Again, all-time high in revenues for the segment here with a 54% increase year-over-year at EUR 8.2 million. If we adjust for the premium fees that we've had from the divestiture of our historical B2C businesses, organic growth was at 37% for this particular unit. And then the adjusted EBITDA came in at EUR 1.8 million, an increase of 309% year-over-year. We saw, as I mentioned, one of the highlights, a very strong quarter commercially, where we signed an initial 6 contracts that we anticipate to go live during this year.

For the year, again, a fantastic step forward for this particular part of the business unit. The Platform & Sportsbook delivered EUR 28.3 million in revenues, up 33% year-over-year. And adjusting for those premium fees, the organic growth delivered 18% year-over-year. The adjusted EBITDA increased 163% to EUR 4.6 million.

We also took technical and strategic steps forward. We completed the acquisition of Sportnco in April. We completed the technical integration of the products into our portfolio and are eagerly anticipating our first launches during the early part of 2023. We have a total of 23 new agreements, continually securing future revenue streams for this part of the business.

Just to touch on the integration pipeline. Four brands went live during the quarter. Five projects were completed, which are just now awaiting client go-lives. And brands live at the end of the quarter increased 22% year-over-year. We now have 17 brands awaiting go-lives in development programs across the delivery program, and approximately 30% of our current contracts are still in what we consider prematurity.

I wanted to just touch on this now with the end of the year because we've transformed the software service and platform business over the last 3 years from one that was predominantly supporting a B2C business in conjunction with a white label model. We discontinued that white label model and since then have been focused entirely on Software as a Service and managed services provisions. That underlying SaaS revenue has performed exceptionally well. We've seen it transform from this white label structure to a SaaS model successfully.

In 2019, the SaaS model only created EUR 5.7 million in revenue. And in 2022, that's to EUR 25.5 million. That's a compound annual growth of 65% for that segment over those -- for that time period. And if we adjust for Sportnco, that particular segment is -- that compound annual growth is actually still up 45%. And this underlying growth dynamics are one of the reasons we believe significantly in the future potential of this particular business unit.

To touch now on some of the events after the quarter and summarize. Already this year, we started off commercially strong, 3 new platform agreements signed in January, including the group's first move into the regulated Swiss casino market. We completed the -- our team did a fantastic job in a short time frame there as well to complete on the AskGamblers acquisition at the end of January. And again, the team are well prepared and are in the midst and very deep into -- already into the post-merger integration plan.

The Media's strong trend in our FTD acquisition continued positively with up 39% year-over-year, and January has developed positively with revenues up 29% year-over-year in the same -- comparatively to the same period.

Just to touch on as well our long-term financial targets for the group. We have a strong belief in target, therefore, of achieving in the region of 20% organic growth year-over-year and to achieve an adjusted EBITDA margin in excess of 50% during 2024. And we believe we'll make strong progress towards that throughout this year. We also see the leverage ratio structure improving on a continual basis as we generate cash from the operations. And we will also, of course, consider the various different opportunities to pursue growth within the industry.

In summary, GiG has delivered an all-time high in revenues and EBITDA once again for the quarter, and 2022 is an exceptional year for the business unit, both financially but also operationally. GiG is an extremely strong, diverse -- and diverse geographical footprint, supporting the growth across both the Media business and the Sportsbook and Platform business. We continue the enhancement of the business' operational capacity and focus and dedicate ourselves through 2023 to continue improving that.

It is off the back of the strength of the performance, not only last year, but then in preceding years, that has enabled us to then now look forward again. That has led us to initiate a strategic review with the purpose of separating the group into 2 separate listed entities. The planning for this will begin now in Q1 and will continue throughout 2023. And the proposed split, we believe, will enable each business unit to further optimize itself for growth and pursue the various different strategic growth drivers, the distinctive business models derived.

With that, I am very pleased to pass over to Hjalmar now for the Q&A. Thank you very much for your time today.

[Hjalmar Ahlberg, analyst]

Thank you. Very exciting quarter. I'm going to start out a bit with trading up to GiG for January, some question coming in from the audience here as well. I guess some -- we're seeing that it might be a bit soft. I guess it depends on which market you are within some other affiliates maybe being active in the U.S. like Ohio with a start there. I guess that might be a small work for you today. So that could be something that explains the comparison between others. And maybe if you also can discuss if there's any sports margin impact in January compared to the last year?

[Richard Brown, executive]

Yes, I think, I mean, you rightly point it out, we're not particularly heavily prominent in the U.S. I think we had a really, really strong Q4. And coming out of that, we also see that some of the activities and the season that normal seasonality impacts kind of returning in our core markets as well where you would anticipate Q1 to kind of pull back a little bit from the Q4 levels. But overall, we're pleased with the progress of the business, and we sort of think kind of 30% growth year-over-year is still something that we're pretty pleased with.

[Hjalmar Ahlberg, analyst]

Right. And you mentioned in your presentation here a bit about the strong FTD intake in Media, which looks really, really strong. Was there any specific market or was -- maybe the forward cap that drove that miss mostly? Or...

[Richard Brown, executive]

I mean, we saw -- I mean, I think when we stood here back in November for the Q3 report, we talked about how we were leading up to the World Cup. We've been quite aggressive with how our marketing spend and deployment was going. We saw that the value and are -- what we determine as early indicators for ROI was very strong, so we continued that very aggressive push. But also a lot of our publishing assets have been performing very well during the quarter. A lot of the new launches that we'd done kind of in the preceding 12 or 18 months, it started to pick up momentum. And then, of course, the fee for workup will help. It's always a good FTD driver given the activity. And our presence in Latin America is strong. Overall, Latin America had an active filled World Cup period as well, which will also enable us.

[Hjalmar Ahlberg, analyst]

Right. And what does it potentially see keeping up the strong growth in FTDs? I guess this was an exceptional quarter. But what do you think you can continue to grow?

[Richard Brown, executive]

I mean we see -- I mean it's not just an exceptional quarter. Like if you look back again over the trend of the FTD generation, it's been on a continually build. This isn't just a one-off quarter. This is a very, very good quarter, but the trend has been fundamental. And that is based on the fact that the work that the teams are putting in, the quality of the products that they're delivering, the quality, that reflects in how the users interact with our products. And we continue to build that forward. So I don't think that if we continue to focus on those perspectives, the geographical expansion, the quality of the product, that will continue to drive our FTD intake as well.

[Hjalmar Ahlberg, analyst]

And also interested to see that you had a pretty big bump in the revenue from your publishing units. Any specific there that drove that growth?

[Richard Brown, executive]

Yes. I think -- I mean, this also predominantly -- I mean, there's an element there that we've been working very hard on driving that. And sometimes you have a seasonality lag. We've been driving FTDs, et cetera. But that really pushed through. I think there was some good margins as well potentially for us in the casino side of things. But I would say that the teams have been working fantastically well to derive the position for that publishing department. And as we've talked about before, that's a slower moving structure. So a lot of the work that we did in the previous kind of 6 months structures are starting to pay off. So we're really pleased with the performance there.

[Hjalmar Ahlberg, analyst]

All right. And the partnership with News U.K., some questions from the audience here as well. Can you give some more flavor on the kind of deal structure from this and how the big -- the potential is on this contract compared to the whole Media service business?

[Richard Brown, executive]

We're really pleased. I mean this is our first partnership. So the execution has so far been really, really strong as well, given considering it's our first. So we're really pleased with how the progress has been made. It's only been live for a couple of months, but really pleased with how things are progressing.

I think in terms of the deal structure, which is kind of revenue share split between the 2 partners where they're providing the publishing platform essentially, and we're providing technology content expertise and know-how. So of course, there will be a referral, our normal revenue and then a feedback backwards into them as well.

[Hjalmar Ahlberg, analyst]

Yes, yes. And also very exciting with the acquisition of AskGamblers, which is, as you say, kind of iconic brand in this business, I would say. Maybe first question that was also from the audience. You gave us some figures for 2022 or the rolling until Q3, I think. Can you talk a bit kind of historic performance of AskGamblers, historic long-term growth and then how it's performed in the recent years?

[Richard Brown, executive]

It's a little bit difficult, I think, because we're a competitor who has to disclose, so I'm not going to go in too much into the historical performance there in structures. I will say that the brand and the assets have always been a very powerful force within the affiliate marketing space. One of the -- definitely one of the largest single sites in the gambling affiliation space.

One of the things, obviously, that has affected all of the industry but not necessarily just that site has, in fact, some of the regulatory changes that have occurred. But those have passed now. So for us, it's a looking-forward aspect. And I'm not too concerned about what the historical elements were. I'm concerned about what I believe that our very strong team will be able to go out and execute against that will really drive both the growth that we see, the potential we see, a lot of opportunity. We have a strong belief in our own marketing technology and operating principles that we think that we can take assets. And as we've demonstrated on our own asset portfolio to really grow them and drive them forward. So we have a really strong confidence in that.

[Hjalmar Ahlberg, analyst]

Yes, yes. And I mean, very strong profitability in these assets. And then you mentioned you want to see some improved growth going forward. Have you identified some kind of low-hanging fruit here? Or is it more a long-term progress?

[Richard Brown, executive]

It's a combination of both. I think in any post-merger integration plan, you're going to be identifying both the short, mid- and long-term ones. I think as with all, we're not going to rush anything. We're going to execute correctly and effectively for the long-term strength of the website portfolio. There are -- we see opportunities short term, but our focus is always going to be on making sure that these -- the asset group continues to perform not only now, but it improves its performance over the next 1, 2, 3, 4, 5 years.

[Hjalmar Ahlberg, analyst]

Yes, yes. And maybe you touched a bit upon this during the presentation, but could you say anything about the market mix for AskGamblers and these assets, how it maybe complements you? And if you can say in a specific market, if it's the largest markets in those.

[Richard Brown, executive]

Yes. I'm not going to say which specific markets are the largest, but I will say that we touched on it, it's actually improving our own diversification and geographical mix. Some markets like the U.K., for instance, where outside of the agreement we have with News Corp now were not huge in the U.K. And this is still probably one of the largest markets in the world or it is one of the largest markets in the world. So they had a good footprint there. So we see some opportunities there, and there were some others as well that we felt that were complementary to our structures.

[Hjalmar Ahlberg, analyst]

Right. And moving over to the platform segment. You've signed quite a lot of new clients, and you mentioned that you have a big bunch in the kind of integration platform. Is this -- can it be -- going to be a core driver for growth during the next year? Or is it more going to be growth from existing clients? If you could...

[Richard Brown, executive]

The way -- I mean, this is a kind of perpetual machine movement, if you will, that you will have growth derived by some of our existing clients, some that went live last year that are kind of starting to take into a maturity -- a higher level of maturity. It's not a linear bar of growth that most experience. Whereas we have more maturity coming through, the revenue growth tends to follow. And then there will be some new clients that come in and go quite quickly. And then, of course, when they go live, there's minimum guarantees, et cetera, like that. So they start to build through. So it's not one or the other, it's a combination and a blend that will continually evolve through in terms of driving growth.

[Hjalmar Ahlberg, analyst]

All right. And if you look at new client signings in markets and type of clients, you've signed both, I mean, I guess, smaller online, pure online brands, but also larger maybe legacy groups that want to go online. Do you see any specific market or segment that you see increased interest from? Where do you see most growth potential in terms of new clients?

[Richard Brown, executive]

It's very market specific. So there's some -- the regulatory dictates how those markets go through. I mean -- so for this year, for instance, we've signed land-based Casino Group in Switzerland. Then at the end of year, we also signed land-based businesses for Ontario. So there's a blend there with kind of new challenges and such. And each project comes with different levels of complexity as well, different time lines, et cetera. So we're happy to have a blend there as well of different kind of operational performance structures, time line, speed, potential, et cetera.

So we're quite happy to have a blend. I think for us, always we're going to try and focus on trying to achieve wins with contracts that we think will provide fundamental value, particularly those with omnichannel structures that work well with our product portfolio in that sense or existing client base, whether that be retail or online.

[Hjalmar Ahlberg, analyst]

Right, right. And there was also one question from the audience here regarding active brands. I think it was that you had 4 new brands, but total brands were flat or something like that. Is that correct?

[Richard Brown, executive]

Yes, that's true. There's one group that was operating a couple of brands on our platform. It has failed to secure future funding due to the kind of macro environment, one of the smaller ones, and therefore, has decided to wind down some of the operations of those brands as well and focused entirely only one 1 thing, I think, it is out and so forth.

[Hjalmar Ahlberg, analyst]

Right. And look at the Platform business and maybe the Sportsbook product, do you see any growth potential from adding new features on that product? Or is it more like client is the main growth there?

[Richard Brown, executive]

No. I think in both cases, not only in the Sportsbook, but also in the Platform. The Platform dictates also the user experience and the quality of it. And that's one of the things we pride ourselves on is the quality of that product enables people much better KPIs, better conversion, better retention of their customers. So we're continually looking to advance our product, whether that be in casino or in sports betting because, fundamentally, if we improve the product, we improve the player experience, we improve the revenue share of our partners and therefore, the revenue of ours. So we're continually advancing in those different regions.

And a lot of it is also to do with the localization of the product as well. So there's certain enhancements that we need to do for certain markets. Currently, we're enhancing our Sportsbook to be U.S. focused because we have a launch coming up later this year for the U.S. in order to do that. But that also has added benefits to some things that will also enhance the overall Sportsbook because of the improvements there. It will also enable us to take our Sportsbook product into Ontario. So there's multiple upsides as well.

[Hjalmar Ahlberg, analyst]

Yes. Yes. Right. And looking at your cost development there, it looks like -- I mean, marketing was up a bit quarter-over-quarter, but you had a FIFA World Cup and then you saw strong growth in Media, so that makes total sense. And the OpEx actually look to be coming down a bit. Is this kind of synergies being realized in the platform segment?

[Richard Brown, executive]

Yes. I mean, we were obviously -- explicitly, we have an objective to continually start bringing down both OpEx and CapEx structures and the savings that we have or are focused around cash savings. And those have been progressing throughout the year. Of course, there are some areas we still want to invest in. So we're going to go for those. But on an overall basis, we can start seeing it come down. And the program was structured in a kind of long-term way. And we start -- but we start to see that coming through. We didn't do just one clean and then go. We start to bring it through as we drive the operational efficiencies from both the post-merger integration with Sportnco, but also the technological advancements that we make in the platform and such as well.

[Hjalmar Ahlberg, analyst]

Right. And is the legacy GiG Sportsbook fully wounded down now? Or...

[Richard Brown, executive]

No, it's still there. So we -- obviously, we said as well that we were going to wait until after the World Cup to do any migrations because we appreciate our clients don't want to do migrations just ahead of the curve. But the actual technical products are integrated, and we're anticipating the wind-down to come through in the coming months actually. So we kind of -- we said we would aim to do that after the World Cup, and we're on track to do so.

[Hjalmar Ahlberg, analyst]

Yes. And then maybe some question on your news about investigation of a potential split-up of your businesses. I guess you've been looking at this for a while, maybe, but do you see limited synergies between the business? And I mean today, are they working very much separately already? Or...

[Richard Brown, executive]

So I would say that from an operational standpoint, they operate separately. They are 2 different business units in terms of their operating principles and practices. They have to be, therefore, treated as such. So we make sure that the businesses -- the group has been supporting the 2 entities working in their own independent manner. So from that sense, they kind of operate. They internally operate in their own P&Ls, as you can see through into the group presentations and structures.

But I would say that the decision is not about not realizing any synergies or looking for diminution. It's about what the opportunities for each businesses are as a group and or independently. And we feel, again, really strong performance and strong momentum that the long term -- I mean, we're not saying that this is going to happen very immediately, we will continue to evaluate. There's a process involved in this as well. But we're really confident, and we wouldn't be doing it otherwise that -- actually, long term both for the business but then also for shareholder value, that the 2 separate entities will be able to drive forward.

I mean just as a really simple like capital allocation principle, like things like that. We want to be able to have a focus and dedication in each part of the business as we have real confidence in the projection and trajectory of those over the coming years will be better suited in separate structures.

[Hjalmar Ahlberg, analyst]

And I mean you did mention that this will run over 2023. But do you have any kind of big time line on what you expect there?

[Richard Brown, executive]

No. I mean as I said, we're -- like the businesses are performing exceptionally well. We're really happy with the group structure in terms of the near term. So we're not in any rush. There's no problems that we're addressing here with it. What we're trying to address is the long-term ability for the businesses to perform and therefore, ultimately drive shareholder value.

So we will work throughout this throughout 2023, both from a kind of legal process structure, ensuring all those, but also operationally. So businesses are ready and then the market is ready as well because there's also an element of timing there. So we're not going to give any particular concrete structure. And we will always just do whatever is right, both for the businesses and for the shareholders in that sense. But we want to kick it off in earnest, and therefore we made the announcement today.

[Hjalmar Ahlberg, analyst]

Yes. And also maybe some technical question coming from audience that you might not be able to answer, but partly, I mean, do you have any list in mind? Will it be, I mean, continued to Oslo or Stockholm? And also if you talk about -- look about the balance sheet, have you thought about how will you structure the debt between the 2 companies?

[Richard Brown, executive]

Yes. I think they're very, very good questions, very valid questions. And they're not questions that we're ignoring, and we're considering. But this is the purpose of kicking off the review now is to be able to come back and actually answer those questions with really thoroughly thought through executable plan as part of that. I think in terms of the listing venue, I mean that's a real part of what we will identify over the next period. In terms of the balance sheet, debt structure, again, probably work through over the coming periods now to identify, but yes.

[Hjalmar Ahlberg, analyst]

Right. And a question we got kind of regulatory environment right now, it's always changing in this market, I guess. Anything that has made your regulatory change in this quarter that impact you and something that you see risks or upside potential in 2023?

[Richard Brown, executive]

Not necessarily in 2023. I think a lot of the regulatory change that we've moved through as we've kind of ridden through and we've then positioned ourselves, I think there's -- one of the elements that we're quite excited about as well is the regulation of Finland from a platform sports betting perspective as well and given our ability to operate so well and professionally. And historically, also in Scandinavian markets, but regulated markets as well. Finland is kind of -- the sentiment there seems to be the regulation will happen within the next 2 years, let's say, like that. So that, I think, is a good opportunity for us given the product suitability for the region as well as the regulation moving forward there and providing some more clarity in that structure.

[Hjalmar Ahlberg, analyst]

Okay. Great. That was all the questions we have here for today. Thank you very much, Richard.

[Richard Brown, executive]

Thank you very much, Hjalmar. Thank you, everyone.