Gambling.com Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 17, 2023

There are 9 speakers on the call.

Operator

Welcome to Gambling.comgroup's 2nd Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Peter Mikkelff, Vice President of Investor Relations, thank you.

Operator

You may begin.

Speaker 1

Hello, everyone, and welcome to gambling.comgroup's 2nd Quarter 2023 Earnings Results Call. I am Peter McGough, Vice President of Investor Relations. I am joined by Charles Gillespie, Chief Executive Officer and Co Founder and Elias Mark, Chief Financial Officer. The call is being webcast live through the Investor Relations section of our website at gamblin.com A webcast replay will be available on the website after the conclusion of this call. You may also contact Investor Relations I would like to remind you that information contained in this Conference call, including any financial and related guidance to be provided, consists of forward looking statements as defined by securities laws.

Speaker 1

These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Some important factors that could cause such differences are discussed in the Risk Factors section of gambling.comgroup's filings with the Securities and Exchange Commission. Forward looking statements speak only as of the date the statements are made, and the company assumes no obligation to update forward looking statements to reflect actual results. Changes in assumptions or changes in other factors affecting forward looking information, except to the extent required by applicable securities laws. Please also see our references to forward looking statements in the related presentation and press release.

Speaker 1

During the call, there will also be a discussion in non IFRS financial measures. The description of these non IFRS Financial measures is included in the press release issued earlier this morning and reconciliations of these non IFRS financial measures 2 of their most directly comparable IFRS measures are included in the appendix to the presentation and press release, both of which are available in the Investors tab of our website. I'll now turn the call over to Charles.

Speaker 2

Thank you, Peter, and welcome, everyone. Today, we reported phenomenal second quarter results, including strong year over year revenue, Adjusted EBITDA and free cash flow growth. These results demonstrate our ability to win with our business model in regulated markets around the world at all stages of their development. The record results are just an early example gambit.combrews bright near and longer term future as we further leverage our excellence in SEO and our proprietary data science systems to deliver consistent growth, healthy margins and great returns for our shareholders. I'll provide a bit more color on our growth But at the outset, I want to highlight that these opportunities reach beyond just new states coming online in North America.

Speaker 2

While North America is already our largest revenue contributor and we are still in the very early stages of realizing our scale and potential in the market, Our near and long term growth profile is not solely dependent on when new states will come online. New state launches will surely be additive to our business, but we also expect to continue to gain market share in existing states, benefit from the development of our new media partnerships and realize the near and longer term benefits from the launch of our new premier brand, casinos.com. I would like to also highlight that as online family markets mature, and need more help. Secondly, operators begin to exhaust the capacity of their lowest cost acquisition channels. Broadly speaking, we expect to have more inventory to sell to operators and for the operators to need our channel more than ever as markets mature.

Speaker 2

You can see that dynamic in the strong growth we continue to generate in the UK and Ireland, markets where we have been regulated, Markets that have been regulated for nearly 20 years. Turning now to some of the highlights for the 2nd quarter results. Revenue rose 63 percent to $26,000,000 reflecting a 115% increase in North American revenue And continued strength in the U. K. And Ireland where revenue rose 25% year over year.

Speaker 2

We generated adjusted EBITDA of 9 point $4,000,000 and we converted a remarkable 91% of our adjusted EBITDA to free cash flow, which totaled $8,500,000 in the quarter. Our ability to consistently generate mid-thirty percent adjusted EBITDA margins and convert a high level Of adjusted EBITDA to free cash flow reinforces our belief that we have the most attractive business model in our industry. At the core of our success is our technology focused approach, which continues to differentiate gamley.comgroup from our publicly traded peers with best We expect to continue to drive strong organic growth for the balance of 2023, resulting in another year of record financial performance, including improved year over year profitability and continued robust free cash flow generation. Since our last call, we now know that Kentucky will launch sports betting on September 28. Therefore, we are now including Kentucky in our guidance.

Speaker 2

We expect that the next state to launch after Kentucky will be North Carolina. While we suspect this will be during Q1 of 2024, we do not yet have any certainty about the launch specifics. And therefore, North Carolina will remain outside of our guidance until we do have such specifics. Elyse will give a full update on our raised guidance later in the call, but I am delighted to say that we now expect to deliver at least $100,000,000 in revenue in 2023. Looking at the 2nd quarter results in more detail, We benefited from unseasonably strong growth in U.

Speaker 2

S. Sports betting NDCs. Excluding this Atypical outperformance, our results would have still exceeded consensus estimates. Beyond the strength in U. S.

Speaker 2

Sports, we also profited from continued strength in iCasino revenues in the U. S. And in other markets. We delivered over 91,000 new depositing customers for our online gambling operator clients, an increase of 60% over Q2 2022. Our growth in NDCs is driven by our continuously improving ability to capture high intent traffic and leverage our proprietary technology and data science systems to monetize this traffic through our expanding portfolio of websites.

Speaker 2

We are very pleased to have officially launched casinos.com on July 17th. As a new powerhouse brands, Our long term vision for casinos.com is for it to be the category defining destination for the regulated global casino market. We expect to accomplish in years with casinos.com what we accomplished in a decade with gambling.com. I'll have a bit more to say on casinos.com@theendofthecall. On an operational level, we remain Focused on optimizing the positioning of our websites and leveraging our BI capabilities to widen the execution gap that we have created versus our peers.

Speaker 2

We will continue to prudently invest to improve the performance of our websites and our media partnerships to maintain industry leading organic growth rates. Finally, the Bonus Finder acquisition has Consistently outperformed our expectations since we acquired the business in early 2022. In order to the realization of all potential synergies from this successful acquisition, we negotiated and agreed to a final deferred compensation arrangement in a fixed amount of €18,000,000 in exchange for the early termination of the earn out period. With that, I will hand the call over to our CFO, Elias Mark, for a more detailed review of second quarter results

Speaker 3

Thank you, Charles, and welcome, everyone. As Charles mentioned, we generated another quarter of record financial results. Revenue increased 63% to $26,000,000 compared to prior year or 60% in constant currency. The increase in revenue was driven by Strong growth in NDCs in North America, the U. K.

Speaker 3

And Ireland and the Rest of the World. New depositing customers in the quarter grew 60% to more than 91,000. As Charles stated, 2nd quarter results would have exceeded consensus expectations even without the tailwinds from Seasonally strong MDC generation in U. S. Sports.

Speaker 3

We expect to deliver a strong Q3 in line with market expectations despite not modeling the benefit of the seasonally atypical outperformance from the Q2 to carry over into the Q3. Cost of sales during the Q2 from our media partnerships and the subscription business of road to wire.com amounted to $900,000 versus $500,000 in Q2 of 2022. Total operating expenses were 24 point £3,000,000 an increase of £6,700,000 Total operating expenses included £6,100,000 of fair value movements in contingent consideration related to the BonusBinder acquisition. Adjusted for fair value movements, adjusted operating expenses were $18,300,000 an increase of 23%. The increase was primarily driven by additional headcount across our marketing, product, sales, technology and finance functions.

Speaker 3

Amortization expense decreased to $400,000 as short lived assets from the Rosewire and bonus finder acquisitions are now fully amortized. For the full year 2023, we expect to incur amortization of approximately 1.9 We continue to hire selectively to drive continued organic growth. At the same time, we expect operating leverage from revenue growth for the full year to outpace growth in operating expenses. And we expect to continue generating substantial free cash flow as our business model enables Strong free cash flow conversion, which was approximately 0.90 percent of adjusted EBITDA in the 2nd quarter. Net income totaled $300,000 or 0 point 0 $1 per diluted share.

Speaker 3

Adjusted for fair value movements in contingent and deferred consideration, adjusted net income in the quarter was $6,500,000 and adjusted earnings per share As a result of the early termination of the bonus finder earnout, There will be no related fair value movements in future periods. We generated 2nd quarter adjusted EBITDA $9,400,000 compared to $3,600,000 in Q2 of last year. This 161% growth Represent the leverage we gain as our top line growth outpaces spending growth. Adjusted EBITDA margin was 36% compared to 23% in the Q2 of 2022. Total cash generated from operations of $4,600,000 increased from 3,400,000 Q2 2022, driven by the strong year over year revenue growth, partly offset by the earn out payment for the Bonus Binder acquisition.

Speaker 3

We generated 2nd quarter free cash flow of $8,500,000 and we continue to be positioned to entirely fund Our organic growth initiatives from operating cash flow, while continuing to generate positive free cash flow. Cash as of June 30, 2023 was $31,300,000 a $2,300,000 quarterly sequential decline, primarily reflecting the earn on payment for bonus finders 2022 performance. Turning to outlook. We expect to see typical seasonality in the 3rd quarter, reflecting the lighter sports calendar in July August, followed by the launch of the autumn sports season in September on both sides of the Atlantic. This includes the start of NFL and college football as well as the commencement of European Football Week.

Speaker 3

Our strong second quarter result underscores The fact that demand for performance marketing services in the online gaming industry remains strong and our unique offerings are even more valuable to operators as they progress towards delivering profitability. We continue to monitor consumer behavior closely. And as of now, we have not seen any signs of pullback from consumers. Given these factors and our strong Q2 performance, We're increasing our 2023 full year revenue and adjusted EBITDA guidance. The new ranges are for Revenue expected in the range of €100,000,000 to €104,000,000 compared to the prior range of €95,000,000 to €99,000,000 The new range represents year over year revenue growth of 31% to 36%.

Speaker 3

We now expect adjusted EBITDA to be between 36 And $40,000,000 compared to our earlier expectation of $33,000,000 to $37,000,000 with the new range representing year over year growth of 49% to 6 6%. Assuming the midpoints of our ORR revenue and adjusted EBITDA ranges, implies a full year adjusted EBITDA margin of Our updated 2023 guidance assumes that Kentucky will launch on September 28. Beyond SIMPAPI, our guidance assumes no benefit from additional market launches or acquisitions over the balance of 2023. Our guidance for 2023 now assumes a euro to USD exchange rate of 1.095. We repurchased 77,683 shares at an average price of $9.83 in the 2nd quarter.

Speaker 3

We continue to have $8,900,000 remaining on our $10,000,000 authorization, and we'll continue to opportunistically repurchase shares And finally, following the successful follow on offering of 4,900,000 secondary shares by certain pre IPO shareholders, which of course did not increase the shares outstanding but did increase the free flow. We are pleased to have an expanded shareholder base and include daily trading liquidity. With that, I will turn the call back to John.

Speaker 2

Thank you, Elias. Before opening up the call for your questions, I'd like to review in a bit more detail several of our current growth drivers. Our operating model is expected to continue to drive strong performance with attractive adjusted EBITDA margins and strong free cash flow as we execute on our many growth opportunities. These include continued organic market share growth in North America and the benefit from new states that will come online such as Kentucky in September and our home state of North Carolina, where online sports betting was recently approved. We expect NC to go live in 2024, but do not have any specifics at this time.

Speaker 2

While North America already represents our largest Reporting market. 43 states have yet to regulate iCasino and 21 states have yet to regulate online sports betting. While expansion of regulated online gambling in the U. S. Still grabs the most headlines and the majority of investors' attention, The opportunity for sizable new regulated markets outside of North America and Europe is compelling and remains underappreciated.

Speaker 2

For example, Brazil has issued a provisional measure to regulate sports betting and is nearly at the finish line for complete regulation. We expect Brazil to be a major global sports betting market if the regulations are finalized and enacted. We are also excited about the potential for Japan to become one of the largest regulated online gambling markets in the world should regulatory efforts there break through. We also have a significant longer term opportunity From last month's launch of casinos.com, with more experience buying and selling these superstar gambling domain names than anyone in the world, I consider casinos.com to be the single most desirable domain name in the industry for a performance marketing company such as ours. We will continue to develop casinos.com with our well honed playbook of best in class content and precision digital marketing.

Speaker 2

We remain highly confident that casinos.com can be established alongside gambling.com as another powerhouse international flagship brand. Today, casinos.com is designed for high intent, high casino players. In time, we expect to develop the brand into a best in class recommendation engine for everything casino related. I remain very excited about the significant potential of our relatively new media partnership Initiatives, as previously discussed, we have partnered with 2 of the largest newspaper organizations in North America and recently announced our first international partnership with The Independent, one of the UK's largest digital media publishers with a reach of nearly 21,000,000 unique monthly users. Our U.

Speaker 2

K. Websites have been delivering NDCs at record levels, and we see this new partnership with The is a great way to further that performance in what remains the world's largest single regulated online gambling market. At present, we are very focused on being ready for the launch of the fall sports season in the U. S. And I am most excited about ramping up our flagship media partner Our continued strong growth in the UK and Ireland is an often overlooked Dynamic of our business, an important part of our growth in established markets is due to the simple fact that these markets But as these markets mature, end users of online gambling services become more sophisticated, picky and promiscuous, resulting in increasing amounts of demand for new online gambling accounts.

Speaker 2

In parallel, Performance marketing partners become increasingly critical to operators and their ability to attract new players. For example, while we estimate The NDCs referred through performance marketing channels account for less than 10% of U. S. Operators' customer databases. In the U.

Speaker 2

K, that percentage is 20% to 40%. We are confident that over time, North American market will mirror Hopefully, this review of our many growth Drivers provide you with more perspective on why I started the call today, noting that our phenomenal second quarter results are just the start of what we expect gamley.comgroup can ultimately achieve. We have never been more excited for our near and long term prospects and look forward to continuing to review our successes with you. I will end by once again thanking the brilliant team at At the following conferences in New York in September: the Citibank Global Technology Conference on September 6 7 The BTIG Game Day Conference on September 13th and the B. Riley Consumer Conference on September 14th.

Speaker 2

With that, we'd be happy to open up the line for questions. Over to Sherry, the operator.

Operator

Thank Our first question is from David Bain with B. Riley Securities. Please proceed.

Speaker 4

Awesome. Thank you and congratulations on the 2Q results. First, I guess, Elyse, you touched on seasonality a little bit, but can you remind us in a typical year Extracting state expansions or big website launch or whatever. On a per quarter basis, how do you Seasonally weight or what do

Speaker 5

you see typically?

Speaker 3

Yes. So if The Q1 and the Q4 are always the seasonally strongest. In a normal year, The second quarter and the third quarter should be of roughly similar size. This Quarter, we as we touched upon, we saw outperformance in U. S.

Speaker 3

Sports, which is seasonally untypical. So if you look towards the Q3, we believe that Street consensus expectations are reasonable, and the balance Within our full year guidance, we'll fall into Q4.

Speaker 4

Okay. And then have the amounts Paid per either online sports or iCasino NDC has been changing at all and have the preferences by books for Either CPA or hybrid or recur, has that moved at all? Or can you mostly, at your scale, kind of create that mix on your own?

Speaker 2

Hey, David. Very broadly speaking, I'd say rates are Roughly stable. There's been no meaningful increase or decrease. We've been kind of at scale in most of our main markets for some time now. There's increasingly the capability from U.

Speaker 2

S. Operators to do more than pure CPA deals. So that gives us Simply more options than we have in the past. So I think we'll gravitate somewhat in that direction. But we have a very strong views on those three models, and that is that any one of them can be the best.

Speaker 2

It all depends on the details, which operator, which market, which product. Are they good at retaining the customers? What's the confidence in the counterparty that they're going to remain in business, etcetera? There's a lot of things that go into these, especially the estimates of player lifetime value over time. So you can arrive At a conclusion which says that that's a great idea or a conclusion which says you should take the CPA.

Speaker 2

And We do the math, and we pick the one which is, in our view, going to put the most money in the company's pocket.

Operator

Our next question is from Jeff Santel with Stifel. Please proceed.

Speaker 6

Great. Thanks. Good morning, guys. Next quarter. Starting off here on the North America market, there's been a good deal of news flow these last couple of months, the most recent one being the partnership announced between Japan and ESPN, just curious how you see the level of competition between the various operators trending So we kind of head into NFL season and into 2024 and sort of what are the immediate P and L implications for the affiliate model?

Speaker 2

Yes. I think, look, I mean, it's a huge deal, right? Everybody's been waiting on ESPN to do something since 2018, and finally, they have. I think in general, it's really positive because it's the worldwide leader. It's the biggest name of sports in the United States.

Speaker 2

So now that they've done something, it Kind of further destigmatizes the industry. The stigma had already more or less totally washed off, but this is another Very meaningful step in the right direction for the industry kind of going fully mainstream. ESPN with Penn, they're going to have to spend a lot of money acquiring customers as any new operator would, especially an operator that's Set such high expectations for themselves. So clearly, this means more demand for affiliate services. The implications with Parcel are also pretty fascinating, but they have essentially kind of come off of the map.

Speaker 2

They're not supposed to take any revenue in from gambling companies. So they're not really they're not going to be competition. So we see it as pretty universally positive and exciting.

Speaker 6

Great. That's really helpful. Thanks, Charles. And then Moving to guidance, looks like the midpoint of full year EBITDA guidance assumes a slight step down second half versus first half. Just to be clear, is that Mostly reflecting some of the state launches in Q1, Ohio and Massachusetts specifically, is this more seasonality driven, A bit of both.

Speaker 6

Then Elias, can you just help us understand how much Kentucky is contributing to the revenue and the EBITDA guidance raise that you announced? Thanks.

Speaker 3

Yes. So it's a combination of 2 things. As you mentioned, in Q1, we had Two major launches. And the second component is the Unseasonably, on typical outperformance that we saw in U. S.

Speaker 3

Sports in the second quarter. The raising of our guidance is partly on the back of that performance that we saw in Q2 and partly on the back And if we are to quantify the outperformance that we saw that was Outside of our normal expectations, that's roughly $2,500,000 in the second quarter.

Speaker 2

And Kentucky is going to launch at the very end of September. So virtually all the benefit from Kentucky will fall into Q4.

Operator

Our next question is from Barry Jonas with Trove Securities. Please proceed.

Speaker 2

Hey, guys. Ohio just raised its gaming tax. Curious if that has had any indirect Effect on you guys so far or if you would expect anything there? Thanks. It's definitely not helpful.

Speaker 2

Obviously, When the states raise the tax rates, it directly impacts the operators and essentially how much it players worth to them. That doesn't get directly passed on to us, but it's not a helpful dynamic either. But at the same time, our rates and relationships and everything else in Ohio remain extremely healthy. It's not having any sort of material impact. Great.

Speaker 2

That's helpful. And then I guess just sort of a high level Question on the M and A environment, just curious how you characterize the pipeline here and your appetite at the moment? Pipeline is very good. We've got lots of conversations Happening at the moment, there's been a few New things, which have entered the scope of what we are considering. So as ever, really busy, We'll be able to announce something not imminently, but Assuming these conversations go well over the next 6, 9 months, we obviously have the balance sheet to do something, and That's the purpose of our cash is to enable us to take on the right M and A opportunity when the stars line up.

Speaker 2

But as ever, we are super picky. We're not going to do a deal just to do a deal. We'll walk away from A great deal for a number of reasons. We can grow this business without M and A as we are demonstrating every single quarter. So for us to pull the trigger, it's got to really pass all the tests.

Speaker 2

Great. Thanks for that. A nice quarter.

Operator

Our next question is from Ryan Segal with Craig Hallum Capital Group. Please proceed.

Speaker 7

Hey, Charles, Ellie, it's Pete. Nice job, guys. Curious how the media pipeline Looks like internationally, you have the independent. But as you look at whether it's the top 10 or whatever the right number is, but what type of opportunity is there there?

Speaker 2

I think there's a lot of opportunities there. I mean, obviously, there's a lot of markets around the world that have regulated online gambling. If you think about the U. S, We're in a good place, right? We've done 2 of the biggest new partnerships that have ever been done in the U.

Speaker 2

S. So We're not really looking for a third. In the U. K, we're now in a very good place. So to the extent we did anything else, it would probably be in a 3rd market, but at the same time, having announced so many important media partnerships, we are now very, very focused on simply delivering for our partners.

Speaker 2

So there's really no rush to do another one, and internal teams are very focused on simply executing on the partnerships that we've got.

Speaker 7

And then you mentioned Kentucky, North Carolina, but Vermont, Maine also coming here, you have the best state domains in both of those states. Curious, are those included in guidance and how you think about those, albeit relatively smaller market opportunities?

Speaker 2

So our view is that we talked about and we enter these States where we think there will be a viable market, where there's multiple operators, reasonable taxes, etcetera. At this point, we don't think Those states will have any meaningful impact on our North American business. And if that changes in the future, we'll talk about it some more.

Speaker 6

Great. Thanks, guys. Good luck.

Operator

Our next question is from Clark Lampkin with BTIG. Please proceed.

Speaker 8

Thanks. Good morning. I wanted to start with the North American iGaming commentary that was in the presentation deck. It sounds like performance has been improving and you guys are capturing some share. Could you share a little bit more around what's sort of driving that And how you're thinking about momentum for that business in the back half of the year?

Speaker 2

Sure. Yes. So in our heart of hearts, we're casino people. We like to pursue the online casino Performance marketing business before the sports betting performance marketing business. But of course, in the U.

Speaker 2

S, you've had Many more states regulate sports betting than casino. Somewhat kind of ironically for us, when we broke through in the U. S, we broke through with sports betting. We created a very nice sports betting business for ourselves before casino really gained momentum. And finally, this year, both in Q1 and Q2, we've kind of broken through on the casino side.

Speaker 2

So that's really New Jersey, Pennsylvania and Michigan. And what's changed is we've simply been able to capture this high intent traffic Better than we did in prior quarters. So that means better search rankings, better conversion rates, better engagement, More inventory, if you will, to sell to the operators.

Speaker 8

That's super helpful. And I guess as we think about sort of the drivers of improved guidance over the balance of the year, Charles, in your prepared remarks, You sort of talked about share and media partnerships as important sort of contributors alongside new launches. Could you help us think about Maybe what sort of embedded or contemplated for the back half from a directional standpoint, maybe As it pertains to share and operator spend, is it expected to be stable, increasing? Any color there you could provide would be useful.

Speaker 2

Yes. I think it's fair to say that the overall proportion of revenue That is coming from media partnerships, we would expect to increase the second half of the year. We're at this kind of funny point in the year now where you're pretty close to football season, but football season hasn't started. You've done all this work to prepare for football season, and you think it's going to work. You don't have any Concerns about anything, but it's not done until it's done.

Speaker 2

So we kind of joke that this is the point Of maximum uncertainty as you've done all this work, and that's really true of media partnerships. We've done a lot of work with USA TODAY And the rest of the Gannett properties and of course, our valued partners at McClatchy. And we think we're in a Really great position for the start of NFL, but we'll only rest once we Seeing the numbers come through.

Speaker 3

Thank you.

Operator

Our next Question is from David Katz with Jefferies. Please proceed.

Speaker 5

So What I'm wondering about is, as we look at the U. S. And the growth in sports betting here, What have we learned so far about how that correlates with your specific growth in the U. S? Is there a calculus that we can understand a little bit better and track as we see that grow and how that ties into you?

Speaker 2

I think if you're going to try to draw some lines between us and the operators, it'd be far easier to do it on the revenue side, of course. There's a lot of things that affect each individual operator's profitability, which have nothing to do with us. Yes. But broadly speaking, if the operators are doing well and growing, I think you should expect the affiliates from at least a revenue perspective We expect the affiliate proportion The overall sales and marketing expense from the operators to increase over time. And therefore, if the overall online gambling market in North America is growing at X, we expect our Essentially, North American TAM to be growing at something faster than next.

Speaker 5

Right, X plus. Got it. Thanks, Claus. And my other question is, when we look at the population of players, And again, I'm a bit more U. S.

Speaker 5

Focused. And we think about the mix of operators out there, Conventional wisdom for any business would suggest that the smaller players Our smaller scale and you get to charge them more, whereas the bigger players tend to bring scale and get more of an efficiency discount. Is that the case with you? And is that something we should be thinking about given the sort of ins and outs That we've discussed today over the recent past?

Speaker 2

It is, and that's fair. It is our experience that If you bucket the operators off into kind of Tier 1, Tier 2, Tier 3 based on market share, It's the Tier 2 and Tier 3 operators, which are most keen to work with us. They're the ones that are willing to invest not only the money, but the time to put campaigns together that perform That have high conversion rates. They've got more incentive to Make the affiliate channel work than the big guys who are already market leaders.

Speaker 5

Got it. So the best outcome is a mix of operators and a distribution?

Speaker 2

Definitely. And we haven't we're not really seeing this at the moment in North America, but you've had a couple of new operators enter the fray. So you've got Fanatics coming. You got ESPN back coming. It is our view that there will be many, many more Operator that enter the fray in the U.

Speaker 2

S, especially as more states regulate casino. On the casino side, it's not so difficult to Set up an online casino. You need a brand, a bit of software, customer service. You don't have it doesn't have to be this enormously expensive capital expenditure exercise. We've seen, for years, operators in Europe stand up online casino brands without crazy amounts of investment and very sharp precision digital marketing and therefore succeed and have nicely profitable businesses.

Speaker 2

So there will be a point in time in the U. S. Market where We finally see this kind of next wave of operators entering, Which have which are bringing more kind of experience on the digital marketing side versus Unlimited amounts of capital, and they will have reasonable market share and profitable And again, that's really an online casino kind of opportunity more so than sports betting. Sports betting, Of course, lower margin and kind of more expensive to run properly. But we are, of course, still of the opinion that we will get many more Online casino states in the U.

Speaker 2

S.

Speaker 5

Perfect. Thank you very much.

Operator

Our final question is from Chad Beynon with Macquarie. Please proceed.

Speaker 2

Hi, good morning. Nice quarter. Thanks for taking my question, Charles, Elias and Pete. I wanted to ask first just on the $18,000,000 pound termination fee that you talked about. And I believe also you might have The final payment for RotoWire.

Speaker 2

So as we think about some of these cash outflows, How does this kind of shape how you guys are thinking about share repurchases, leverage, Anything else on the capital allocation? Thanks.

Speaker 3

So with the early termination of the bonus binder earnouts, That uncertainty of future cash outflow from investing activities It has been replaced with a certainty. What will be paid is €18,000,000 Final consideration, of which $5,000,000 was paid in July. So there is a further $30,000,000 that Will be payable at the end of April next year, and we are able to settle up to 50% of that in ordinary shares. So that kind of gives you certainty on the cash outflow side. We continue to generate very strong Free cash flow, and we have over €30,000,000 in the bank.

Speaker 3

So there is Excess capitalization that can be used for either M and A or share repurchases, and we remain Opportunistic and pragmatic about both, and we'll carefully consider capital allocation depending on the M and A pipeline and other things.

Speaker 2

Okay. Thank you. And then just as we're now in kind of the post white paper world in the UK, You continue to show very strong growth. I think most of your partners over there had already adjusted Their websites and kind of all the affordability checks ahead of this. So it doesn't seem like there was A major change, and you obviously talked about gaining market share as a goal as the market growth has slowed.

Speaker 2

But can you talk about anything else that you're seeing kind of near term in the market post white paper, maybe with some of these Tier 2, Tier 3 operators? At what point will the UK Ireland growth start to look more, I don't know, More normal instead of kind of hyper growth that you're publishing? Thank you.

Speaker 3

I can take that one. I think you're right in that the operators in the U. K. Have adjusted their Processes and procedures say it's very much business as usual and any negative impact had been pricing pre Issuance of the white paper. You're right that we've been driving outsized growth in the U.

Speaker 3

K. In Ireland,

Speaker 6

in the

Speaker 3

past 6 quarters now, that pace Can't continue forever as we're entering into harder comps in the 3rd and particularly the 4th Quarter, so we do expect that growth rate to slow down, but we expect the strength and the momentum in the UK in our

Speaker 2

And the media partnership with The Independent will be a big part of how we continue to drive

Operator

We have reached the end of our question and answer session. I would like to I'll turn the conference back over to management for closing comments.

Speaker 2

Thank you again to everybody for joining us today. We appreciate your Support and interest in gamma.comgroup. We've had a strong start to the year and expect more of the same solid performance for 2023. We look forward to updating everyone again when we report our Q3 results in November. And hopefully, we can see many of you at G2E in early October.

Speaker 2

Goodbye.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your

Powered by Quartr
Earnings Conference Call
Gambling.com Group Q2 2023
00:00 / 00:00