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Edited Transcript of 888.L earnings conference call or presentation 30-Sep-20 9:00am GMT

·46 min read

Half Year 2020 888 Holdings PLC Earnings Presentation Nov 16, 2020 (Thomson StreetEvents) -- Edited Transcript of 888 Holdings PLC earnings conference call or presentation Wednesday, September 30, 2020 at 9:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Aviad Kobrine;CFO & Director * Itai Pazner 888 Holdings plc - CEO & Director * Yariv Dafna;Incoming CFO ================================================================================ Conference Call Participants ================================================================================ * Bridie Anne Barrett Schmidt Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst * David Brohan Goodbody Stockbrokers UC, Research Division - Analyst * Ivor Griffith Rees Jones Peel Hunt LLP, Research Division - Analyst * Richard Paul Stuber Numis Securities Limited, Research Division - Analyst * Simon John Davies Deutsche Bank AG, Research Division - Head of UK Midcap & Online Gaming Research * Bertie Berger;Hudson Sandler;Client Director ================================================================================ Presentation -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [1] -------------------------------------------------------------------------------- Good morning, everyone, and welcome to 888's Half Year Results of 2020. And just before we start today, I'd like to take this opportunity to sincerely thank Aviad Kobrine, who will be presenting his last set of results today after 16 years with the group. Aviad has played a significant part in the group's success over the years, and he will be leaving with a blast set of results. He'll be leaving a very high bar and expectations for Yariv Dafna, who's here with me today. And I would like to congratulate him and welcome him to the team as the new CFO of the group, joining us officially as of November 1. So welcome, Yariv, and good luck. -------------------------------------------------------------------------------- Yariv Dafna;Incoming CFO, [2] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [3] -------------------------------------------------------------------------------- And so I'll now go to our -- some of our highlights for today. So I'm really proud to be here and present this exceptional set of results for H1. We had a record first half of the year in almost all of our products, with our gaming vertical standing out. The effect can be seen in key -- in all key metrics: new customer acquisition, deposits, revenue and player activity. The company made a step change both in terms of its scale and business growth but also in our mode of operations, where we managed to deliver extremely well during the lockdown period and under full remote work conditions. From the very beginning of this period, we realized the sensitivity in the area of consumer protection of -- and responsible gaming. And the fact that some of our customers can be under stress, both financial and personal, and as such, we have significantly enhanced our focus on safe gaming and consumer protection. And I'm happy to see that we managed to deliver growth while putting a huge amount of emphasis on safe gaming. I see our outstanding performance due to a few factors: first and foremost, our professional teams and staff and their dedication in this unprecedented and unexpected time; the structural changes in the market and the consumer behavior, which have -- with the expedition of shifts from off-line retail to online services, which has impacted all the online categories and, within that, online gaming; finally, we entered into this period with a strong operational and product momentum that supported the growth during the period. We are continuing to pursue our strategic agenda as a product- and consumer-centric company with significant investments in our proprietary products and content. 888Casino, backed by the Orbit platform, we're in the process of rolling out an advanced and new sports betting platform, our proprietary platform which we acquired last year. And in Poker, we're in the process of test launching Poker 8, which is our brand-new poker product that we've been developing for the last couple of years. U.S. is the new frontier, and we are significantly ramping up our operations and presence in this market. We have managed to double the business in the first half of this year, and there's still a lot of room to grow in existing and new markets that we're planning to roll out in, in the U.S. We have a robust balance sheet. We remain cash generative and with no leverage. Finally, our current trading continues to be very strong going into Q3. And I'll now hand over to Aviad to give a financial overview. Thank you. -------------------------------------------------------------------------------- Aviad Kobrine;CFO & Director, [4] -------------------------------------------------------------------------------- [So] with revenue up 37%, this growth was led by Casino, which was up 48%; and Poker, which was up 56%. In line with our strategic focus, growth in regulated markets outpaced other markets and increased by 41%. New customers increased 49%. This was again led by Casino, which was up 42% (sic) [72%]; and Poker, which more than doubled. Despite strong new customer recruitment, marketing ratio was reduced to 28%. With such tremendous revenue growth and lower marketing ratio, our margin improved by 230 basis points to 18.5%. Adjusted EBITDA was up 56% to $70 million or $74 million at constant currency. Our balance sheet remains strong as ever with net corporate cash at period end of $77 million. We continue to have no debt and access to an undrawn $50 million revolving credit facility. Adjusted EPS rose 82% to $0.122 per share. And while we did not pay a special dividend in respect to full year 2019, given our strong trading and positive outlook, the Board declared an interim dividend of $0.032 per share plus a one-off dividend of $0.028 per share. This brings the total interim dividend to $0.06 per share, which is double the previous year interim dividend. As Itai touched upon on this -- on his opening slide, the strong current trading has continued into Q3. Let's move to Slide 7, please. Bertie, can you move the slide? -------------------------------------------------------------------------------- Bertie Berger;Hudson Sandler;Client Director, [5] -------------------------------------------------------------------------------- It's moved on to Slide 7. -------------------------------------------------------------------------------- Aviad Kobrine;CFO & Director, [6] -------------------------------------------------------------------------------- Okay. I still don't see it, but I believe you. On the current trading slide, whilst we're on the subject of current trading, please take a look at the left-hand side of Slide 7. Here, you can see that revenue has increased in Q3 so far across all verticals, with group revenue up 56% on last year. This has been led by Casino up 69%, Sport recovering with 40% and Poker up 31% and B2B up 34%. On the right-hand side of the slide, you can see several important operational metrics, all of which show strong momentum and support for the Board's positive outlook for the business. Let's move on to the next slide, please. On Slide 8, group revenue. Group revenue reached an all-time high for half a year at $379 million, up 37% or up 40% at constant currency. This was in part a result of strong momentum in Q1 even before the lockdowns, which in turn was driven by strong customer acquisition in the second half of 2019. In addition, the group has benefited from broader structural consumer shifts towards increased online spending over recent months. If you take Sport at constant currency, growth was achieved across all product verticals. Our B2B returned to growth of 21% revenue increase driven by our Bingo network and strong performance by our U.S. partners. Interestingly, I checked my record and found that we delivered similar results of revenue of $376 million and EBITDA of $67 million back in 2012, but that was for the entire year. A summary of our P&L, balance sheet and cash flow statements are in the appendix of the presentation, which will be -- you will be able to access on our corporate website after this call. Bertie, let's move to Slide 9, group revenue, please. On the right-hand side of the slide, you can see our strong track record for consistent growth with long-term half yearly CAGR of 11%. On the left-hand side, you can see that H1 performance was driven by strong recreational customer acquisition levels. In Sport, customer recruitment was almost flat on last year despite the severe disruption to sport events in Q2, which is a testament to the strong Q1 performance and recovery in June. Next slide, please. In terms of geographical segmentation, on this slide, you can see that the long-term growth trend towards regulated markets continued. 73% of revenue was generated from regulated and taxed markets. Revenue from locally regulated markets increased 41% and customer recruitment up by 56% in these markets. Finally, continuing a multiyear trend in Germany, revenue from that turbulent market continued to reduce its share of group revenue and represented just 4.6% of total in H1. Next slide, please. On this slide, you show -- we show the Casino B2C revenue. Yet again, Casino was a star performer with 48% revenue increase or 51% increase at constant currency. Our largest vertical has delivered long-term, 16% half yearly CAGR. Underlying metrics include 72% increase in new customers and 81% increase in deposits. Next slide, please. Sport revenue was down 1% in reported currency but was actually up 2% at constant currency, a pleasing result given the severe disruptions to sport events in Q2. In fact, overall revenue from sport players, once you include cross-sell into other products or verticals, increased 6%. This was a result of strong growth in Q1 prior to the disruptions and strong recovery in June enhanced by improved margin, which continued into Q3. You can see on the left-hand side of the slide that our revenue in April 2020, at the peak of the lockdowns and sport disruptions, was down 59% on last year. In June, revenue was up 61% compared to June last year. Next slide, please. After several years of stagnation, Poker returned to growth with stellar 56% revenue increase and 103% increase in new customers. This was driven in part by high recreational value of this vertical especially during the lockdowns and in part by healthy player base acquired in 2019. Growth threats had moderated since the relaxation of restrictions, but as I showed a few slides back, current trading remains strong and 31% above Q3 last year. Next slide, please. Our Bingo business delivered 8% revenue growth and 12% at constant currency. This was flat pro forma for the acquisition of a portfolio of brands last year. New customers showed strong growth of 43% or 26% on a pro forma basis. Next slide. For the first time in 888's history, more than 0.75 million in new customers were recruited in the first half. I want to point out that the positive trajectory from H2 2012 was accelerated into Q1, as you can see, and Q2 in this year. Conversely, as the light blue line demonstrates, cost per acquisition was reduced as a result of marketing efficiencies. Next slide. On this slide, you could see that during H1, partially driven by strong consumer demand, marketing investment increased by 25% to $105 million. And in turn, this delivered 49% increase in new customers. At the same time, economies of scale and efficiencies delivered a lower marketing ratio of 27.8% compared to 30.4% last year. Next slide, please. On this slide, I wanted to show you that operational gearing improved across our cost base with the exception of gaming duties. The higher ratio of gaming duties is a result of delivering on our growth strategy in regulated markets, where gaming duties increased with volume. Next slide, please. As a result of the strong revenue growth, marketing efficiencies and despite higher gaming duties, our adjusted EBITDA increased 56% to a record $70 million or $74 million at constant currency. The margin also expanded to 18.5%. Next slide, please. Last but not least, 888 has been consistently cash generative and paid healthy dividends over the years. While the Board did not declare a special dividend in 2019, given strong momentum during the year-to-date and positive outlook, the Board has declared an interim dividend of $0.032 per share plus a one-off dividend of $0.028 per share. This brings the total dividend to $0.06 per share. And on this positive note, I shall now hand you over to Itai, who will tell you how we delivered these stellar results and about some of our future plans. -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [7] -------------------------------------------------------------------------------- Thank you, Aviad. I've changed the position and settings. I hope that you'll be able to hear me and see me better now. So as Aviad said, we're seeing a very strong continuation in our business momentum going into the second half of this year. And this is, first and foremost, reflected by our consumer deposits. If -- Bertie, if you can switch slides. We hear more and more about the global shift to digital service expediting. Some claim the world's digitalization has increased to a pace of 5 years into 5 months, and we can definitely feel that in some of our products specifically in Poker and Casino in the first half of the year did make a significant change within 5 -- within a 5-month period. If we were unsure in the second quarter of this year if this was a one-off peak event, it definitely looks like an ongoing trend and a step change for us as a company. Our growth is comprised from a well-diversified mix of products and markets with a clear focus on regulated and taxed markets, which now represent 73% of our revenue and a strong tendency towards the recreational gaming players. Next slide, please. So our stellar growth products in this period were clearly Casino and Poker. Casino, you can see, benefited from an unprecedented growth rate of new customers over our Orbit platform in all markets, which from my perspective represents a very clear shift from online to online, the superior Orbit product and its attraction to recreational gambling customers. We have a combination of more mature markets like the U.K., Italy and Spain, which also grew very strongly; and emerging markets like Romania, Portugal and New Jersey, which grew triple-digit growth in New Jersey in the U.S., which we're particularly happy with, which is one of our key growth markets for the future. Next slide, please, Poker. So Poker was definitely the surprising vertical of the period with many players shifting from physical poker games to online and a product that has a strong recreational nature and represents very good value for time spent on it. This vertical was extremely successful in this period when many people are seeking for online entertainment products that they can consume from home and do it in a safe and secure way. We saw an overwhelming increase in new players and activity in Poker which caught us slightly unprepared and required us to upgrade and expand our poker servers in order to deal with increased level of activity, which we managed to do in a fast and efficient way. We're now seeing a back to what we call a higher normal level in Poker. So it's not as high as it was in the peak, but it's definitely higher than what it was before the lockdown period. And we think that there is a future potential in growth in Poker, which I will speak about in a few minutes. Next is a -- next slide is safer gaming, which is an integral part of our strategy and the way that we operate. We believe it's not only the right way to operate, but it's sustainable and profitable way going forward. We took a few important measures in this period to emphasize responsible gaming, monitor it in a tighter way and an intuitive and more -- and an intuitive way where we need to intervene more often if needed. As a result, we have increased our safer gaming team by 25%, our prompted interactions increased significantly by threefold and the usage of our responsible gaming tools also tripled full growth. We continue to invest more in this area, and we put it as integral part of our product centricity agenda. We're about to launch a new member Control Centre, which is the next evolution of responsible gaming tools that are made all available in one central place, easy to access and intuitive for customers to use, just like we expect all of our products to be. Next slide is around our product, our product-centricity approach. And for us, it's not just a slogan. Our newly established product division is showing great results in the last year. We believe that superior products and content are the way to differentiate ourselves in a crowded marketplace, improve our player acquisition metrics, reduce CPAs while increasing player loyalty and value. This is probably the best and most effective investment that we can make in our business. We are at the beginning of 4 -- basically 4 new product life cycle in all of our categories, in Casino, Poker, Sports and Bingo. But the 4 pillars, the product excellence pillars that we believe in, that work across all of our products are: simplicity and coherency across all the products; seamless and friction-free onboarding process in consumer journeys and funnels; AI-based personalization in all verticals; and as a true multiproduct operator, real-time in-product communications, allowing effective communications with players, cross-sell opportunities that are done in a safe and responsible manner. I'm going to go over the different product categories and share some of the things that we have been doing and we're going to work on in the future, starting with Poker, Poker 8 - Made to Play. They say timing is everything in life. And on the back of the surge in online poker popularity, we've completed a 2-year development project of a product that's called Poker 8, which was launched in test mode in July this year, just after the lockdown. As you can see on the slide, we're receiving great customer feedback on the new product through the test groups and through spontaneous customers that are contacting us and giving us very, very encouraging feedback about the product. Poker 8 is our answer to the changing consumer demands in the mobile world. It's portrait mode. You can play poker in one hand in poker -- in portrait mode. You can swipe between tables. You have cool gaming-type avatars and emojis. Basically, it's everything that a millennial recreational poker player would be looking for and expecting from a leading online poker product. Last time we made such a major uplift in our Poker product was in 2010 when we released Poker6. That's when we started the move from 16th place in the poker market to a top 3 place in the online poker sector, which is a position that we're planning to maintain. Initial indications of the new product that went out in test mode are very encouraging, both in terms of conversion of players into real players and many of the activity KPIs. These are the kinds of trends that we saw when we released the Orbit Casino platform. So Poker isn't Casino, and it still has some structural challenges in the category such as split liquidity pools in different markets, and it hasn't been very attractive for the newcomers into poker. But we believe that this new product can bring Poker back to growth pattern in our core markets but also in the U.S., which is the land of poker that just started opening up. The full rollout of Poker in Europe is planned before the end of the year. So basically, all of our core markets in Europe will get the new Poker 8, and it will be accompanied by a hyper-cool, new look and feel and marketing campaign branded Made to Play. Our next product, Sport. So we've set ourselves a strategic goal, to be a top-tier sports book. And with our recent successful launch of the 888 proprietary sports product, we've taken another big step towards that vision. We see strong trends in our Sport business post the first lockdown and the halts that we saw in sports globally. We see that every month post-lockdown was higher in terms of bets and NGR than the previous year. And basically, the summer compensated for the downturn that we saw in sports in Q2. We are continuing to develop our proprietary prediction game, which is called up for 8. It has become extremely popular with our customers. And the newest evolvement of that product is that you can play the prediction game for free and win real money, but you can also automatically generate an accumulator bet based on your prediction fix and place a bet on that prediction. So our new 888sport product, which we acquired last year from BetBright, was launched in Sweden earlier this year. And I'm happy to say that it's been successful and getting positive feedback by local customers. We're on track to launch the new product in the U.K. and other European markets before the end of this year. And this will move over 70% of our sports volume to our new platform, which further markets including the U.S. to be rolled out over next year. And we're continuing to enhance our product further with a similar product vision to our other new suites of products. It will be extremely fast loading and responsible, which we know is very important for sports punters, easy to use and navigate and AI-enhanced with personalization features. We're looking to innovate and bring a fresh look at Sport and not just copy what's out there. Overall, we're very excited of the progress we've made over the past year and about the future prospects for 888sports in Europe and in the U.S. market. Next slide, Bingo. So in Bingo, both B2C and B2B brands have shown very strong performance in the first half of the year, and we see this trend continuing into Q3. And like in the other verticals, Bingo platform launched a new front-end product that was rolled out over -- on over 200 brands that operate on the Dragonfish platform and the response from customers has been very positive, and we see a good trend in the Bingo product as well. Moving on to the next slide, Casino. So 888Casino over the Orbit platform is continuing to thrive and outpace the market in this competitive, global casino landscape. Orbit was launched just over 2 years ago and is now on version 30 of the product, which shows the amount of investment and evolvement this product has. These developments and updates were achievable due to the modern and flexible technical architecture that the product was built on and our data-driven and AI personalization (sic) [data-driven AI and personalization] approach. Next slide, please, with Casino. So some of the latest achievements and developments on the Orbit casino are AI features that are accompanying our players through their life cycle from their very first day into their life cycle as an 888Casino player with a personalized and relevant experience in their different stages of play. 8 out of the top 20 games are in-house developed by our amazingly talented Section8 Studio, competing head-to-head with all the legal -- leading global providers. And this is a clear testament to the quality and attraction of our proprietary games portfolio and our unique content that is served to our casino players. We have several variants of jackpot games, including Daily Jackpots, Mega Jackpots that are catering to the different segments. These features are proving to be extremely popular with our players. We've also launched a brand-new Live Casino Lounge offering now 4 different Live Casino third-party product providers with hundreds of live tables available at every point of time. And we continue our quest to cement our position as the world's leading online casino brand. Next slide is the U.S. So I'm particularly excited about our opportunity in the U.S. We believe that this is still the biggest opportunity for the next 5 years for the group and possibly for the industry. And as such, we're shifting more focus, more resource and investment towards the U.S., which is on the top list of our strategic agenda as a group. In H1, we managed to double our business. And going into Q4, which is the peak sporting season in America, we're significantly ramping up our marketing in New Jersey for Casino and the Sports product. Next slide, please. The WSOP poker network, which is owned by Caesars but powered by our poker platform, ran its first, online-only WSOP during the lockdown period in Nevada and New Jersey, which was the biggest, regulated online poker tournament in the U.S. We're currently the leading U.S. poker platform in the market. We are planning to (technical difficulty) in the future. We're bringing our best, latest versions of our proprietary content within all of our products in H1 next year. This will allow us to scale faster with the best-of-breed products, with the Orbit Casino, with our new sports products, Poker 8, all going to be available in H1 next year in the U.S. We're also exploring several opportunities to partner with local brands in the market that can enhance our brand position and consumer reach. And as more and more states regulate and expand into gaming, we believe that there's a significant opportunity for us in the years to come to create a strong and balanced EU-U.S. online gaming business. So final slide, so just to summarize what we spoke about today. We have a record growth across key regulated markets and products in H1. Our product-centric strategy and operational discipline delivered results across all the 4 verticals that we operate in. Safe gaming and compliance embedded across the company technology, practices, culture and global sites is key for us going forward. COVID-19 environment is set to remain, and we have demonstrated our resilience and our ability to operate effectively under these circumstances. We're well positioned to capture U.S. opportunities and appraise new states. We have record customer recruitment levels that will fuel the future growth of the business. And we have an opportunity to leverage our strong balance sheet and to pursue nonorganic expansion both in terms of M&A and bolt-on deals. And probably most important, momentum has continued into the second half of the year with a very strong current trading. We'll now open up for Q&As. Thank you very much. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Bertie Berger;Hudson Sandler;Client Director, [1] -------------------------------------------------------------------------------- (Operator Instructions) We have a question from Richard Stuber. -------------------------------------------------------------------------------- Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [2] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [3] -------------------------------------------------------------------------------- Yes, we can hear you. -------------------------------------------------------------------------------- Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [4] -------------------------------------------------------------------------------- Two questions from me, please. The first one is you've said that in the U.S., you've doubled revenues. Can you say what that is in absolute terms in terms of dollars and also what losses you've made within U.S. given the investments and what your guidance is with losses in the U.S. for this year? And the second question is onto M&A. You talked about strong balance sheet. Obviously, potentially, there might be some William Hill non-U.S. assets up for sale. Can you just remind us what sort of M&A opportunities you are looking at in terms of products and drop-through? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [5] -------------------------------------------------------------------------------- Yes. So in terms of U.S. numbers, doubling of the U.S. numbers, we actually don't split out the U.S. Obviously, it's from a relatively small base compared to our other businesses, but yet, it is starting to be -- become a meaningful number, and we see continuous growth trends. And as we're planning to open up in new markets next year, we think there's still a lot of upside in the U.S. And the growth has been seen across the B2C side of the business, which is basically 888Casino, Poker and Sports in New Jersey and B2B, which is WSOP and Harrah's Casino in New Jersey and Nevada. And we also have a deal with the Delaware Lottery. So basically, we saw this growth across all the parts of the business. So that's in terms of the U.S. And in terms of our balance sheet and opportunities, so we are looking at different kinds of opportunities. Some of them are bolt-on opportunities that complete things like geographical or product enhancements that we think can be relevant for us. But we're also looking at doing more kind of strategic deals. Obviously, they're a bit more rare, they're more complex, but we think that we have a very strong position in terms of the fact that we own all of the proprietary technology and content that we have, which is quite a unique asset to have. And we have the licenses and the ability to work both in Europe and the U.S. So I think we're very well positioned to take part in a kind of significant M&A process. We just need to find the right kind of combination for us. -------------------------------------------------------------------------------- Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [6] -------------------------------------------------------------------------------- Just a quick follow-up. Does that mean that you don't want to increase your exposure to the U.K. at the moment? Or you're still happy with where you are? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [7] -------------------------------------------------------------------------------- Sorry, I missed the question. -------------------------------------------------------------------------------- Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [8] -------------------------------------------------------------------------------- Sorry, just a follow-up on the M&A side. In terms of your geographical diversification, should we read into it that you don't want to increase your exposure to the U.K. any more than you are? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [9] -------------------------------------------------------------------------------- No, I wouldn't say that we don't want to increase our exposure in the U.K. U.K. is a key market for us. We are a believer in diversification, and that's not something new. We have a lot of markets that we operate in, in Europe. If it's -- and we have significant positions in them, if it's Spain, if it's Italy, Romania, Sweden, Portugal and other markets. So we've been investing a huge amount of money on diversification. I would say the next big area for diversification for us and for growth is the U.S. But we have been growing in a, I would say, sustainable manner in the U.K. with our -- what we call our leading recreational acquisition strategy and recreational player management methodologies that we've put into place. And we still think it's the biggest market in Europe by far, and we still think there's a place for us to grow in that market. -------------------------------------------------------------------------------- Bertie Berger;Hudson Sandler;Client Director, [10] -------------------------------------------------------------------------------- We have a question from Bridie Barrett. -------------------------------------------------------------------------------- Bridie Anne Barrett Schmidt, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [11] -------------------------------------------------------------------------------- Congratulations on a stupendous first half. A couple of questions, if I could. Just coming back to the U.S., I mean, obviously, you said that you're planning on reinvesting some of the windfall that you've had this year back into New Jersey and doing that against the background of growth. I'm just wondering, should we be changing our overall estimates on net investment into that business as well as growth investments? That's sort of the first question on the U.S. I wondered as well if you could just talk a little bit about the prospects of your relationship with Caesars in the U.S. given the transaction with William Hill. And then just sort of turning kind of slightly more general in relation to the business as a whole, obviously, there's an awful lot going on at the moment, and you said that you think some of the benefits of the online migration will stick. But looking into next year, I mean presumably a fair amount of it will start to normalize, do you think next year you can sort of match the performance that we've seen in the first half of the year? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [12] -------------------------------------------------------------------------------- So I'll let Aviad answer the first question, if that's okay, and then I'll take the other 2. So the investments, Aviad, in the U.S. and the effect that it will have on our P&L next year. -------------------------------------------------------------------------------- Aviad Kobrine;CFO & Director, [13] -------------------------------------------------------------------------------- Bridie, we said at the beginning of this year that we anticipated that U.S. B2C losses this year will be between $8 million and $12 million. And my current numbers suggest that we're going to be about negative $7 million to the EBITDA line in the U.S. B2C. Next year, as Itai mentioned, we are going to invest a lot more both in terms of marketing, product technology, staff, et cetera, and refocus our efforts in the U.S. And I anticipate that negative loss to be somewhere around double what we have lost -- we're going to lose this year. I hope that answers your question. -------------------------------------------------------------------------------- Bridie Anne Barrett Schmidt, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [14] -------------------------------------------------------------------------------- Yes. That's very clear. -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [15] -------------------------------------------------------------------------------- And I'll answer the other 2 questions. Regarding Caesars, so we have a very good relationship with them, an ongoing relationship with them. Like I said, we support their poker and one of their gaming brands in the U.S. We are in continuous conversations with them. Obviously, they're in a major transaction at this moment, which is occupying them. But I'm -- I can't say that this will not have an effect on the relationship with us, but we are looking to continue a successful relationship with them. Like I said, poker is -- and our poker platform currently is leading in the market, and I hope we can continue supporting them in the long term at least with their poker product in the U.S. And in terms of normalization of the business, so again, this is one of the things that we were very occupied with. Again, is it a one-off peak? Is it something sustainable? We are seeing the business kind of normalizing at a new level. So from my perspective, there's been a step change in the business in the last 6 months, and we're looking to maintain this level next year. I can't say that we'll manage to grow substantially after this huge surge this year, specifically the lockdown period, which brought a huge amount of FTDs in a very short period, but we are seeing a significantly higher normal -- new normal level of business. And I'm a believer that many of the consumer trends that are happening of shifts -- people shifting to online services and not going back to the way that they consumed before will stay and stay not only for online gaming, it will stay for other kinds of e-commerce and digital services. And that's why I think next year will be a very strong year for us as we continue and push with the access of cash that we've generated, continuing to deliver on our product vision. Like I said in the presentation, we're at the beginning of a life cycle of basically all of our products. So we have a brand-new poker which is great -- getting great response from players. We have a brand-new -- Orbit Casino is just continuing and continuing to outperform the market. Sports, we're going to have our new sports platform launched almost fully at the end of this year. So I don't see any reason for us to slow down next year. -------------------------------------------------------------------------------- Bertie Berger;Hudson Sandler;Client Director, [16] -------------------------------------------------------------------------------- We have a question from David Brohan. -------------------------------------------------------------------------------- David Brohan, Goodbody Stockbrokers UC, Research Division - Analyst [17] -------------------------------------------------------------------------------- Just 2 questions from me. First is in -- on your B2B division, can you give any kind of sense of the performance breakdown of U.K. casino customers versus your World Series of Poker? And then just on the other one in Germany, not sure how much of a headwind is kind of adverse regulation in Germany for FY '21. -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [18] -------------------------------------------------------------------------------- Yes, I'll let Aviad answer those questions. -------------------------------------------------------------------------------- Aviad Kobrine;CFO & Director, [19] -------------------------------------------------------------------------------- Yes. In terms of the B2B performance, I'm going to say that it's very similar -- it's about half and half, our Bingo performance or our Bingo B2B performance, and the other half is the U.S. B2B performance. So about the same size, and they performed -- well, clearly, the activities in the U.S. actually outpaced the activities in the Bingo. I would like to say that Bingo is probably the product that benefited the least compared to the other products. It has benefited from the last 6 months and it is currently growing but at a slower pace compared to the other strong performers. In terms of Germany, we spoke about the fact that from a market which a few years ago represented 12% of the business and then went down to 8%, and this half to 4.6%. This has not been a focus market for us. And therefore, on a relative basis, that market, the impact declined. There are a few analyst reports issued this morning which take into consideration potential headwinds from the new regulatory regime in Germany: first, the interim from the middle of October; and then from the permanent from July next year. I think the estimates are realistic. So if you like, our numbers which are out there in the public domain already reflect the impact on revenue and EBITDA of the issues in Germany. Of course, it's still very difficult to know exactly how it's going to pan out. There's still some uncertainties about some elements of this regulation. And of course, you never know consumer behavior. Once you put a restriction, occasionally, consumers change their behavior, so the compensating effect is difficult to focus. But the bottom line is it's in the numbers. -------------------------------------------------------------------------------- Bertie Berger;Hudson Sandler;Client Director, [20] -------------------------------------------------------------------------------- We have a question from Ivor Jones. -------------------------------------------------------------------------------- Ivor Griffith Rees Jones, Peel Hunt LLP, Research Division - Analyst [21] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [22] -------------------------------------------------------------------------------- Yes, clear line. -------------------------------------------------------------------------------- Ivor Griffith Rees Jones, Peel Hunt LLP, Research Division - Analyst [23] -------------------------------------------------------------------------------- In relation to Sports, did you learn anything during the spike in recent activity about the performance of Spectate versus Kambi? And has that changed the development path for Spectate at all? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [24] -------------------------------------------------------------------------------- Do you have any other questions or just that one? -------------------------------------------------------------------------------- Ivor Griffith Rees Jones, Peel Hunt LLP, Research Division - Analyst [25] -------------------------------------------------------------------------------- On Slide -- I think it was Slide 15, I haven't downloaded the presentation yet, there's no access on the graph, but it shows CPA falling almost to 0. I'm sure that's not the case. But the trend in CPA doesn't really make sense in a very competitive world. So what's the other moving part? Could you talk generally about marketing cost? And competition in particular, are you benefiting from soft competition somewhere that's helping your revenue to grow? Third thing I wanted to ask was you've aspired to having U.S. market access for some time or having U.S. [deals] for some time. Are there deals you hope to do conditional on the product changes that you're planning to make and the marketing that Aviad has just said you're planning to spend next year? So do you have to prove that you can deliver something as a partner before you can get people to sign up with you? And then the last thing was you've talked about responsible gambling but didn't include, I think, in this slide pack your graph that shows the change in VIP mix. So if people challenged 888 about this very strong growth particularly in quarter 3, how will you talk about the fact that this remains a recreational business and you're not particularly exposed to your highest-spending players? Those are the things I wanted to ask. -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [26] -------------------------------------------------------------------------------- Okay. So I'll start, and I hope I can answer anything. And Aviad, feel free to jump in if I miss something out because there are quite a few questions here. So first of all, in Sports, Kambi versus Spectate performance. So we've launched Spectate in Sweden, okay, which is, I'd say, Kambi's home turf. That's where we decided to do the first test market. So on one hand, it gives us a kind of good comparison to a market where Kambi is very strong. On the other hand, it's a relatively small market for us. And our main market is actually -- our biggest market is the U.K. But overall, the performance indicators are good. I would say they're as well as Kambi's. It's slightly difficult to measure because we did the change in the middle -- sorry, just as the lockdown started. So kind of the whole world changed, all kind of sports changed, so it's quite difficult to compare. But overall, we're happy with the performance. We're getting good feedback from customers. And as a result, we're willing and ready to relaunch the new platform in the U.K. If we wouldn't feel that the product was good enough comparable to the existing product, we would not take that huge leap and launch it over 50% of our business now. So I think the fact that we're going on with this and not delaying it in any way, it shows that we're confident in the new product. And again, when we launch a new product, just like we launched Orbit over 2 years ago and we're just launching Poker 8 now, the emphasis that we're putting on the new products is their flexibility and agility to be able to change, adapt and evolve as kind of modern platforms. So the product that we will launch in the U.K. and in other countries in Europe in December this year is, I would say, kind of Stage 1 of the product. The product still has a long list of road map developments that we're planning to do on it in order to enhance it further and to make it a true, top-tier sports book with some unique features that you can only find on 888sports. So it's following a similar product approach to the ones that we have on the other products. That's in terms of Sports and Kambi. Aviad, I'll let you answer the CPA trend slide and the sustainability of the CPA trends. -------------------------------------------------------------------------------- Aviad Kobrine;CFO & Director, [27] -------------------------------------------------------------------------------- Sure, sure. Ivor, indeed, it was Slide 15. And the reason we didn't put an axis on the left-hand side is because CPA, as you know, is something of -- has some sensitivity versus the competition. Clearly, CPA did not go down to 0. This just shows you a decline in trend. I'm sure you listened to my script carefully, and I said if we recruited more than 0.75 million FTDs in H1, you have our marketing spend in H1 of $105 million. You can divide 1 with the 2, and you'll get to 137, which is kind of a blended rate of CPA. And that has been consistently going down as a -- that was the point in that graph. We have managed to increase considerably the volume or the number of new customers but actually managed to take down the CPA, and this is through marketing efficiencies, innovation and many other tricks or techniques, if you like, that we have deployed. Is it sustainable? Absolutely. Is it going to continue that down trajectory? I kind of doubt it, but I think it will stabilize and hover around these levels. I hope that answers your question, Ivor. -------------------------------------------------------------------------------- Ivor Griffith Rees Jones, Peel Hunt LLP, Research Division - Analyst [28] -------------------------------------------------------------------------------- It answers the first part, but could you also talk about competition? Not necessarily -- obviously, I'm trying to get you to talk about every market. But all the companies that talk to us tell us it's a highly competitive market, and yet you are achieving a lower -- a declining CPA rather than increasing CPA. Is media getting cheaper? Is Google getting cheaper because of competition? Or is it something about the efficiency of your marketing that would make it more plausible versus sustainable? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [29] -------------------------------------------------------------------------------- I'll answer that, if that's okay. Yes, I think it's a combination of efficiency in marketing. First of all, in -- again, we operate in different categories. And the different categories are -- their competitive level and spend are different in different periods of time, so it's difficult to give one answer for all. But if I want to kind of generalize, I would say it's a combination of marketing efficiency, so us operating -- and more specifically, performance marketing channels more effectively through different means or techniques like Aviad mentioned. If it's better usage in targeting of social networks, if it's more efficient way of targeting and tracking PPC advertisement, if it's our SEO capabilities which actually increase our, what's called, free traffic, so there's a lot of work that we've done. And we have 300 kind of marketing professionals in our B2C division all the time thinking about ways to make our marketing more efficient, and that's something that's ongoing. I think the huge emphasis that we've put on product and product development -- and a big part of the product is not just the interface that you play, but it's the consumer, it's a funnel -- the onboarding and funnel process that you go through. And every little step that you can change and optimize there improves your conversion rates and eventually reduces CPA. That's something that we also put a lot of focus on and we're also investing a lot in. So I would say it's a combination of those 2 that's driving it down. In terms of competition, obviously, competition and sports went down, but everyone stops advertising sports including us. But I would say that actually, competition in gaming has increased because some of the sports players obviously weren't spending on sports and shifting budgets into gaming. So I don't think this is a fact of -- a result of lower competition. I really believe it's more efficiency, higher consumer demand. Obviously, we know that there was a lot of increase in demand, which is PPC queries on Google, which increased our marketing cost and demand. And our -- if our conversion rate is better on those channels, then obviously, that results in a better CPA and more effective marketing performance. So that's the second answer to the CPA. And I'll move on to the U.S. and access and marketing. So there are 2 things. One is market access. And like I mentioned, we are in the very final stages of securing a few licensing deals that will service next year. So we are going to launch into 3 or 4 more markets next year based on access deals that we are in the very final stages of securing. And we are already working on a pipeline of further states to roll out towards, let's say, end of next year or the following year, in 2022, because we need an ongoing pipeline of states that we want to launch into until we reach the capacity that we're targeting in the U.S. in terms of states that we're launching into. Our preference is always states that have gaming in them but not necessarily. We're also going to go after states that have started with sports betting. And we're hearing some of the states that have started with sports betting only are now starting to think or introduce gaming as well, and that's a very positive development in the market for us. And in terms of the deals, like the deals with third parties, if it's brands, if it's operators, they're not waiting for our new products, and we're not waiting for performance on those new products to do deals. We're bringing the new products and our new platform in the -- into the U.S. in order to align our product quality in the U.S. with the quality that we have everywhere else in the world. We know that our products are extremely competitive. You can see their performance in markets like the U.K., which is by far more competitive than any U.S. market, and they're performing very well here. So obviously, this is part of our growth strategy in the U.S. It will obviously help us to do deals in the market when people realize the power of the 888 products. But it's definitely not kind of standing in the way of doing any deal. What's standing in the way or why we haven't done any deal is just because we haven't found the right deal to do. We feel very comfortable in approaching the U.S. market ourselves. We have the cash to do it. We have the products and the technology to do it. We definitely have the know-how of how to operate marketing and online marketing specifically. And we will do a partnership if we think that a partnership can significantly increase the size of the opportunity for us in the U.S. market either through brand or through exposure of that brand through media or through access or a combination of all of them. So essentially, we need to find the right and good deal for us. And if not, we have a very solid organic strategy that we're rolling out into the market. Did that answer -- sorry, VIPs. We didn't put the slide of the VIPs, but the trend definitely didn't change. Aviad, correct me if I'm wrong. We just try to refresh the slides. -------------------------------------------------------------------------------- Aviad Kobrine;CFO & Director, [30] -------------------------------------------------------------------------------- Itai, you're always right. The reason we didn't put it in, there's no news. It's very similar to what it was. So there's no news to say here. -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [31] -------------------------------------------------------------------------------- Yes. And in terms of mix, I think the players that we've brought during COVID are clearly recreational players. They're a mass market type of players. Our products are already built and designed to cater to those. Our CRM activity is designed to actually create a longer life cycle of player that spends less. That's the kind of life cycle that we're looking for. We obviously have a lot of new plans and things that we're doing in order to enhance that. But by no means did we increase -- definitely not our focus on VIPs. We might get some VIPs through the mass acquisition of players. But in large -- it's a very large group of recreational players both on the casino front and definitely on the poker front. -------------------------------------------------------------------------------- Bertie Berger;Hudson Sandler;Client Director, [32] -------------------------------------------------------------------------------- We have a question from Simon Davies. -------------------------------------------------------------------------------- Simon John Davies, Deutsche Bank AG, Research Division - Head of UK Midcap & Online Gaming Research [33] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [34] -------------------------------------------------------------------------------- Yes, Simon. -------------------------------------------------------------------------------- Simon John Davies, Deutsche Bank AG, Research Division - Head of UK Midcap & Online Gaming Research [35] -------------------------------------------------------------------------------- Perfect. Just a couple from me. Firstly, big step-up in investments in platforms over the last year. Can you give us a sense of where you think CapEx go (technical difficulty) [2020]. And secondly, a follow-on on Ivor's sort of question about -- question around VIPs. Could you tell me the lifetime -- average lifetime values of customers that you're bringing in given the increased focus on recreational? Are you seeing those LTVs come down proportionately with CPAs? -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [36] -------------------------------------------------------------------------------- Yes. I heard -- I hope I heard it well. Aviad, do you want to answer those questions, CapEx and lifetime value? -------------------------------------------------------------------------------- Aviad Kobrine;CFO & Director, [37] -------------------------------------------------------------------------------- Sure. Simon, I think the kind of slight increase in CapEx is a result of our investment in the integration and launch of the Spectate proprietary Sports platform. And I expect the level of H1 to continue into H2. There will be potentially increase next year when we invest more into the United States -- into more states in the United States. In fact, we're already starting there, but I said next year, there will be more of that. Having said that, we always said launching into a new state in the United States is not a matter of $20 million, it's a matter of a single-digit million dollars, so I don't think you're going to see a step change next year. Your other question, I did not really hear. I have a very bad line. I think it was about VIPs, but I'm not sure I understood it. -------------------------------------------------------------------------------- Simon John Davies, Deutsche Bank AG, Research Division - Head of UK Midcap & Online Gaming Research [38] -------------------------------------------------------------------------------- Yes. So it's about average lifetime values. Do you think that these are coming down as you shift your focus towards recreational customers? And are they going to come down proportionately with your CPAs? -------------------------------------------------------------------------------- Aviad Kobrine;CFO & Director, [39] -------------------------------------------------------------------------------- I think lifetime value is broadly stable. And while CPAs are going down, you could see that our marketing ratio went down as well. So it's not because we are -- it is recreational players, and recreation players by definition has a lower lifetime value. But for each different segmentation, I don't see lifetime value going down. In other words, a recreational player 6 months ago is similar to a recreational player now, but we just have a lot more of them now. -------------------------------------------------------------------------------- Bertie Berger;Hudson Sandler;Client Director, [40] -------------------------------------------------------------------------------- (Operator Instructions) We have no more questions at this time. I'll hand back to Itai to end the presentation. -------------------------------------------------------------------------------- Itai Pazner, 888 Holdings plc - CEO & Director [41] -------------------------------------------------------------------------------- Okay. Thank you, everyone, for your time, and we're looking forward to see you in very strong full year results in March next year. Thank you very much.