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Edited Transcript of CATME.ST earnings conference call or presentation 19-Aug-19 7:00am GMT

Q2 2019 Catena Media PLC Earnings Call

Stockholm Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Catena Media PLC earnings conference call or presentation Monday, August 19, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Erik Edeen

Catena Media plc - Interim Group CFO

* Per Hellberg

Catena Media plc - CEO

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Conference Call Participants

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* Mikael Laséen

Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst

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Presentation

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [1]

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Okay. Good morning, everyone, and welcome to this presentation of Catena Media's Q2 Report. And my name is Mikael Laséen, I am an equity analyst with Carnegie, and I will be the moderator today.

So with that short introduction and without further delay, I will hand over to Per Hellberg, CEO of Catena.

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Per Hellberg, Catena Media plc - CEO [2]

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Thank you very much, Mikael, and for everyone, a warm welcome to Catena Media's Second Quarter 2019 Presentation. Presenting for you today is myself and also Erik Edeen, our Interim CEO -- CFO at Catena Media. And why don't we start to the interim numbers quickly?

This came out to the market just a couple of minutes ago, and what we want to say here is it's, of course, a quarter that turned out a little bit less than we expect of ourselves. We'll come back to the details about that. It's primarily as a result of regulations in Western Europe that are hitting us. But you can see that we are down 9% from last year. We also have to remember that last year in sports was a very, very good quarter with the World Cup football going on, major investments from operators driving traffic that we also benefited from. But even though that seasonality impact, it turned out less than we thought, which we will detail in a short while. We're also down on profitability even more because during the year we have built the cost base. Luckily, we will inform later that we are in very good control of our recurring cost base and we are actually slowing down and actually coming in a bit lower in terms of cost compared with previous quarters. So that's positive. We have an EPS growth, which is primarily coming from the fact that we also revalued the bond and positive impact here.

Before leaving this, I know that a lot of people will ask, so what about -- do you think about second half? We have to remember that we have built a business where it all comes from that we want to prepare for a good second half and going into 2020. I can confirm that, that is exactly what we've been working on and also showing good results. I will come back later, but July start in a completely different matter compared with Q1 and also all this looks very positive from the start here. So we're looking forward and we're geared for a strong second half.

If we then look at the business update as such, the positive things here for the quarter is that we are continuing to working on the nonperforming casino sites as we call them. You remember, last quarter, we mentioned about we have some casino sites that haven't been focused enough for quite some time because we have used a lot of staff to onboard a lot of acquisitions we have made. Hence, we have resourced these sites again with staff in order to basically bring up the quality of them, and I'm coming back in a little bit more details what we have done. But we've done a lot of work here and we'll mention some result of what we come to so far.

We continued to plan geographical expansion. We launched in Romania, which is licensed market here in Europe. We also solid test launched in Latin America to get value data points in order for a larger scale going forward. And of course, U.S., I think everybody following this industry has a very good interest about what's going on in the U.S. And as we have also said in our news, we are on live since the day it started. And as you all know now is that in the beginning of September, we're starting with the NFL kickoff, but the preseason is already ongoing and we see a very nice traffic inflow coming on. And just to mention that in July, we did one -- actually one of the highest months in U.S. so far. So we have had a good start, even in July, even before it really starts in the U.S., also not just due to sports but casinos starting -- continue to perform very good for us.

We're working on cost control, as I mentioned. It was a task from when we came in. Even though we onboarded a lot of new people for looking after the sites, more quality assurance people when it comes to traffic generation, we still have not grown in cost, meaning that we reduced other costs to make that happen, so we are today a much more efficient company. And I think it's interesting to mention that even though results are down, we're actually generating more net cash first half in the business than we did last year. So we're improving that KPI as well. So I think, all in all, cash flow, cost control, things are looking positive.

Then what impacted the quarter negatively compared with history, well, seasonality, which we catered for is, of course, a big issue when it comes to the second quarter, especially when it comes to West and Northern Europe. We know that since history sports leagues are not active, making sports a very low season and also weather-dependent casino, and where you are, casino also tends to be low. That we knew when we catered for in our numbers. However, there were basically 2 regulatory events that happened that actually took us a bit by surprise. The first one was in the U.K. where on the 7th of May was implemented a Know Your Customer ruling, meaning that before you can continue to play or deposit money to play, you needed to conclude more identification process of yourself. You need to put an ID or passport or view where you live, et cetera, in order to get hold of your money or deposit more. The sad thing is that it happens and it delays gaming activities and depositing. The good thing is that is actually for a good cause that you want to control gaming and make this less social problem. But on the other hand, we know once customer been through it, the business starts again. And you need to do this once and then you can continue. Once you've been through that, it's good. So in that case, it's somewhat positive. It happens in a low season, not when the leagues are full going. But it impacted us and we're now working on a couple of things now to make sure that this will not be a problem going forward, which we don't believe it will be.

In France, there has been marketing regulations quite some while and we're trying to adapt to them as soon as possible. We were contacted by the regulatory body there and said that according to our review, you need to change a couple of things on your side. And before that, we don't recommend that you take that much traffic, which we immediately acted on. And what we're doing now is rebuilding the product to make it compliant, which we believe will be up and running for sure in the third quarter. So that's also something that will not impact us going forward, but it did in second quarter. Then we had some -- especially for AskGamblers, we had some quite low margin on revenue share because there were some big player winnings, which is good for the player, of course, but not short term for us. When it comes to AskGamblers, I can also inform that even in July that it is actually all-time high. So they are back full in business and doing good result. But in second quarter, we could not really make that happen in the same way as the Q3 started well. And Sweden, we'll say there is no improvement. What we mean by that is that we have done a lot of work to improve Sweden, but the market, as you know, in June, July is quite low in Sweden. So if even if you do a lot of improvements, you will only see benefit for them going forward.

So that's a quick summary and snapshot about the business here. So I think I just wanted to mention a bit about this nonperforming casino product because what we have done is, as I mentioned also in Q1, we have some 6 to 10 core sites of casino operated from our Maltese office. Those are the ones that have been worked on but have not been upgraded according to the latest Google updates. And when they hit us here in Q3 but also in Q1 and Q4 -- started Q4 actually and Q1, we could see that we needed to put quite some work on that. So the first thing you do is to analyze what is wrong with the sites, so what can be improved. Then you have started at that and you do it in order to make sure that you're stopping a further decline. When that is done, you start to invest in traffic-generating activities, meaning that you should do growth. That's where we're in the middle of now. And of course, when you have set that, at the same time, you start to launch them into new markets because then you know you have a product that works very well and you can scale that without having any problems in doing so.

So what we focused on is that we brought in almost 30 new talents, that's about 8% additional head count in the company, just to focus on these things. We worked with a lot of external agencies to focus on search engine optimization but also in combined to localized content because Google likes when content are localized to redesign and to put more product management positions in to drive these products in a professional manner. So obviously, we also looked at the total infrastructure of the sites and to, at the same time, adapt them to the changed regulatory issues that are and that we foresee will come. So we did that as well. So when future regulatory actions are happening, we are more up to speed, not to be hindered by them, this to secure the highest possible quality. And we have done a lot of work. Just as an example, for -- only for search engine optimization issue, we sorted 24,000 tasks with the sites in Malta during second quarter, so it's been a complete remake. So just based on that, what we can see is that typically on casino, historically, during second quarter, traffic dips compared with first quarter. In this case, for us, it didn't and some sites started to pick up very well. And as I mentioned, we've also done similar work and actions, as you know, for AskGamblers, which are our key sites. And they, in July, had all traffic -- all-time high also in traffic. So the works we have done is starting to bear nice fruit for us. But once again, you do this. Google needs to update a couple of times and then ranking comes back. So this means where it says ongoing on this slide is that this is not a onetime work. This is what you need to work every day to make sure, and now we have definitely the organization in place to make this happen.

So to make this happen, first, we need to go through the financials, so therefore, I would like to make Erik Edeen come up here and present the financials for the quarter. Thank you.

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Erik Edeen, Catena Media plc - Interim Group CFO [3]

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Thank you, Per. Good morning. I will guide you through some of our financials for the second quarter, and to kick off, get right through it. Looking into our revenue for the second quarter, we had EUR 0.7 million in subscription revenue. We had EUR 2.8 million in our paid revenue and EUR 20.2 million in search revenue, giving a total of EUR 23.7 million for the second quarter.

Looking into our growth, as Per mentioned here at the beginning, we had a negative growth of 9% in the quarter then to be compared with the World Cup last year. Looking into our organic growth, year-to-date, we are at negative 2% in organic growth. And when we talk about organic growth within Catena, we mean growth, excluding paid revenue and excluding our acquisitions, if we have not had an acquisition for the past year, 12 months.

If we continue to look into our revenue streams, we had subscription revenue of 3% in the quarter. Our fixed fees came up to 15%, an increase compared to the first quarter; and CPA revenue, cost per acquisition revenue, at 35%; and our revenue share revenue at 47%, an increase compared to the first quarter in revenue share revenue. Looking at the graph on the right side, you can see we are aligned and at the same level as last year when we look at the LTM bars.

I will give you some insight in our costs as well. For the second quarter here, as you can see in the graph on the top, we continued to decline when it comes to our total cost base within the company, not only as a part of our direct costs. For those of you who knows and follow us, that is a correlation to our revenue. So direct costs were lower compared to the first quarter, but we also saw lower numbers in personnel expenses, slightly lower than for the first quarter, even though we increased the head count in the company. And we continued to drive efficiency projects and process improvements in our operations, meaning we also came out lower in other operating expenses for the second quarter. Looking into our margin, this gives us a negative impact as revenue were also lower, meaning we had an impact in our margin coming from 43% down to 40% in the second quarter.

Continuing into our segment performance. In the quarter, quite close to what you saw in the first quarter. Our iGaming business were 94% of our total revenue and Financial Services at 6% of our total revenue. And looking into our iGaming segment, we did a 42% margin in the second quarter. Looking in to our financial segment where you saw a negative margin in the first quarter, we managed to turn that around to a positive margin here in the second quarter of 14%. And as we said as well, I will mention around this picture in this slide, what we did here starting in January 2019 was that we adjusted our cost allocation key for overhead costs, giving a little bit more costs allocated to the Financial Services segment and a little bit less on the iGaming segment.

Looking into our financial costs. During the second quarter, we had some minor nonrecurring items affecting our EBITDA, so adjusted EBITDA at EUR 9.5 million and our EBITDA at EUR 9.4 million for the quarter. Primarily, we had a positive impact of the bond, fair value evaluation of the bond here in the quarter giving us a positive effect of EUR 3 million in the quarter, ending at a profit for the quarter at EUR 6.8 million corresponding to an EPS of EUR 0.12.

If we go down and look into our new depositing customers, we are very happy with that. We continued to drive growth when it comes to average value per NDC. Looking at revenue per NDC, increasing here in the quarter to above EUR 230 per NDC, meaning we mainly saw a drop here in the quarter from low-value NDCs. We also see that we continued to deliver strong value per NDC from the United States and Asia primarily in the quarter. If we look into the number of NDCs, we had a decline in the quarter, and as Per explained here at the beginning, primarily affected by seasonality impact as well as KYC regulations in the U.K. and regulatory changes in France.

Looking into our balance sheet for the quarter. We had assets of EUR 375.5 million in total, and out of that, EUR 15.1 million in cash end of June. On the debt side, our borrowings is a large portion totaling to EUR 145.5 million, and out of those, EUR 3 million were related to our revolving credit facility that we utilized here during the second quarter. And I will go soon go down to details there. When we look into our asset commitments doing acquisitions, we ended with EUR 53.5 million and approximately 50% of those can be settled in shares.

And I will dig down a little bit further into the asset purchase commitments to give you a view on that. For those of you who follows us, I see that we've announced some settlements and some renegotiations here at the beginning of the third quarter. And as you can see in the graph here on the left side, our commitments to -- in acquisitions has decreased from EUR 68.5 million in the first quarter now down to EUR 53.5 million in the second quarter. And that value is related to the latest assessment on the underlying performance in those assets as well as we've included a new renegotiated terms with BayBets in that number. And as announced, we've announced that we did a renegotiation with BayBets here in the press release beginning of July and that acquisition will amount to -- the final payment of that acquisition will amount to approximately EUR 13 million as a cash payment, not diluting the shareholders further in that deal. We've also announced that we did a final -- part of the final payment of the U.S. assets and the acquisition related to those here in July, amounting to approximately EUR 30 million (sic) [$13 million]. Those 2 settlements and -- the settlement and the renegotiation in total gives EUR 25 million -- approximately EUR 25 million in total of things that have happened since we left the second quarter and the more you can see here on the left side. The remaining assets and the remaining asset purchase commitments we have now in our balance sheet is primarily related to the final payment of the U.S. acquisition as well as the Italian acquisition.

Looking into our cash flow for the quarter. We had a strong operating cash flow here in the second quarter, ending at EUR 10.4 million in operating cash flow, giving us a 10% increase in cash for the first half this year compared to the first half last year. So operating cash flow were strong, and we continued with a strong cash conversion here in the quarter of 111%. As we mentioned before, from a financing point of view, we had the revolving credit facility in place with a framework of EUR 30 million and the unsecured bond where we currently utilize EUR 150 million out of the framework of EUR 250 million.

So with that, I will leave over to you, Per, to continue with the strategy and outlook.

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Per Hellberg, Catena Media plc - CEO [4]

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Thank you very much. As we announced back in the Capital Markets Day in autumn last year, our core focus to drive the business was when it comes to drive revenue was organic growth where we want to implement a plan to secure 10% organic growth at minimum. That is something that we're still working on and that's what we're basing all our decisions we're taking around now to improve sites, to go strongly into U.S., to launch into new markets, et cetera, to ensure that. It's also, as I mentioned, to improve the lower-performing sites, which we have done a lot of work but is still ongoing, as I mentioned, in order to secure a good second half and a good start of 2020. This, of course, also when it comes to expand geographically. But we're also doing other things to the site, which I will come back to, not just to sort historical things but also try to add new things that we believe will help building revenues. We are working with the fact that we focus on less brands. We mentioned before that we have around 1,200 brands active in our portfolio. We believe that in the end of this year, some 22, 25 brands will represent about 80% of our revenue. And the idea is to keep it that way and focus on those brands that are either delivering and maintain the other ones, not to lose traffic from them in any way or form, but to focus the investments to the larger sites and scale that across the world. I think Erik showed a good graph that we are in control of our costs and that we are doing whatever we can not to build them significantly. We want to add more staff to dedicate them to new markets, but the idea is that it should not come at a significant cost increase.

So when it comes to growth initiatives, there are 2 basic things. One is how we can make sure to keep revenues high in existing markets. We mentioned that you can do it by improving the sites and get better ranking, but also, for example, in markets that regulate a lot like U.K. where they regulate and put bans on doing certain marketing activities like bonuses, et cetera, it's actually harder for the operator today to maintain the customer for a long time. The tools that we used before to make that happen is not there anymore, so how do you keep the customer coming back and spending money with you and not the operator -- or your competitor? Well, we have a significant amount of traffic on our sites, traffic that some of them we generated as customers many years ago to our affiliates -- or to our operators or that our affiliate in competition has also generated. But on our site, that we agreed information that decide based on our sites what bet to place and that actually gives us a huge volume that we every day send at operator, and us and operators have worked on a couple of product improvements that means that we both believe we can do better revenues if we work together and also make sure that we source that traffic in an efficient manner and continue that they always come back to the sites for which we're going to take a certain fee from, but it's good for us and it's good for the operator because we maintain a long retention at the operator side. So this is something we're going to launch here in the third quarter, to go live and start to win through a lot of products here. So that's an exciting thing, what we do in order to maintain good business in markets that are being heavily regulated or any other market that are in the peak of the life cycle.

When it comes to geographical expansion, I think this is the interesting part. As we said, we're doing a lot of work in terms of doing geographical expansion, but we need to do it in a couple of different matters. In some case, we can launch immediately. But in some case, we need to test launch to get market data. For example, if you take Latin America, it's easy to go up and launch, easy to get traffic, but it's difficult for people to deposit money due to the payment solutions down there. We need to understand how that works and who we can work with before we launch in a big scale. And that's what work we've been starting to do in second quarter, hence we launched business in, for example, Latin America and Mexico and we tried to launch also in Brazil to see traffic views here. But where we launched and where we can make full benefit of the launches, we launched sports in Japan, exciting market, where we've only been active so far with the casino. And we have a license to do business in Romania, so we utilize that one as well. This is also for casino. AskGamblers that you know is one of the largest casino sites globally, we're now preparing to launch it in Spanish, Portuguese and Japanese as well. Spanish and Portuguese, yes for Spain and Portugal, but of course, also for Latin America and other markets. We're also going to launch an English version of AskGamblers in India, which is coming up. And based on those data points, we will also then consider whether we'll launch it in a local language base later, but only when we have the data points coming in from that.

And also, finally, we're bringing our Squawka, sports news site, into Spanish as well to utilize the Spanish and the Latin markets because that's, we believe, how we build up traffic. So when the market over there regulates, we can immediately start sending traffic there as well. So a lot of activities, and these are examples. We're cooking a lot of more things, but these are examples we wanted to communicate with you today so you understand that we haven't been on holiday in second quarter.

U.S. then, which I think is very important to us. As I mentioned, it's very, very positive. I think nobody has escaped that, but the question is how positive and positive by when. We started, as you remember, our U.S. journey back in 2016 by acquiring a lot of sites and casino, which only by itself, we believe, was a good deal. And casino is growing steadily in the states we're in. By every day, it's growing. It doesn't slow down. It's provided good result for us also in second quarter. Sports is more seasonality and it's heavily driven by NFL. And it's also some basketball in markets, et cetera, but predominantly NFL that is driving this so far. And the long term, it's most likely going to be more sports than that like baseball, like hockey, like everything. But now, it's definitely NFL. And as you know, during the spring and summer, there's no NFL going on. But the good thing was that, in second quarter, we had opportunity to go live as soon as Pennsylvania started to allow sports betting and we're up and running the first day. And the other positive thing was that big issue that was in this industry with the Department of Justice about the Wire Act that was out there and trying to mitigate gaming was struck down, so it's not there anymore. And we also got confirmed that more states are trying to speed up the launch in the U.S. because they now have a good reference from New Jersey and it will have soon from Pennsylvania about what this gives in terms of tax and also control of gambling. So this is good. We can see good development on the rollout of states going on.

But one thing we want to mention as well is that in U.S., there's a big part of so-called social casinos, which is a casino you can play for free for gold coins, what it's called. And it's actually to make a good retention with the customers, so when later on that states open up, you can immediately switch in to become regular casino players. And because you can actually pay with money there to buy gold coins and also there's a lot of advertising on these sites, there's a benefit from those running these sites to get traffic. And we started to send traffic, and it's a positive outcome from that. And this is available in basic -- more or less every state in U.S. So that we utilize as well to get revenue now but also prepare for the future.

So how we then see Q3, which is where we're in the middle of now? Well, we launched casino as well, up and running also there. We, of course, expect the highest numbers to come. Now we have the preseason up and running before the NFL kicks off for eve on the 6th of September. We had a very, very good July boosted by good casino, boosted by sports starting to build up, but of course, it's now it happens. And people always ask me what do you think, and I think we live by the previous states when we're done. We believe that the market is giving us to potentially double our business compared with last year in the U.S.

We will continue also in states where we do not have regulatory business, continue to even more into social casino because it turned out well for us. The small state in West Virginia, we'll relaunch. For those of you, it went up and then went down because some operators, and it's going to come up. And then we are in big preparations for Indiana, Tennessee and additional states to go, but also that Nevada will become more like a normal state and doesn't require in-casino registration that you have had so far.

So if we go to the next slide here is what do we see? We use this now for the third time basically. And without going through all the details, you have it in here, as you can read, our view of what we believe. But what we can say that everything improves to the better. Everything coming out is that more states want to regulate and also more states want to regulate sooner. But then combination of politics, money and legal issues in U.S. is a nice soup to cook, but the good thing now is that, that soup starts to flavor quite well because they find a way now to launch states sooner. So if we look at this, what we believe we can have for, for the full second half but also for 2020, but also what it builds up to become a very, very aggressive nice market opportunity for us going forward after 2020 is good. And I have no reason to doubt that some of these states will progress even better next time I stand in front of you to present. So we're very happy with the outcome over there as I'm sure you'll understand.

So looking forward then, yes, and of course, it doesn't hurt also to be the second year in a row to be named the Affiliate of the Year over there. So we have a good reputation. We're trying to build on it. But rest assured that everyone is investing heavily as well as competition. But as well as the market is growing very, very fast, we believe we can continue very good position over there for a long time to go.

All right. So to start to build into what we believe going forward now. So what are we doing and how do we think that we can build a second half that is progressing much better than the first half, which was the key of the CEO comment in the report? Let me go through these things as we evaluate. We have the seasonality impact, that's for sure. It's long known in this business. When sports kicks off in second half, it's a big difference. And just as an example, for some of our core sites, the first week in August showed a 300% increase on traffic compared with the first week in July. That what happens when Premier League starts. That gives you a flavor about the seasonality uphill going forward. Add that also that with more money going in, in sports, also more money enters then into casino.

When it comes to U.S., as we mentioned, we're up and running and prepared now for the states to go up. It looks very positive with the deals we have secured for -- in Pennsylvania. But also we know that more operators are up and running in New Jersey compared with last year, so more money into marketing activities, meaning that the search volume is likely to go up, hence, we should also see increase in business for us there. And also, of course, sports up and running.

Japan growing nicely. Month-on-month, it's always delivering for us all-time high and now also adding sports into that. We believe that will also show a very good trend going forward.

And then the geographical expansion that I mentioned here. We're doing a lot of work for us, in general, but also for AskGamblers. And just to let you know that even though I said that July is a tough month traditionally for casino, AskGamblers came out with an all-time high in July for us, both in traffic, both in all kind of revenue-generation parameters in there, so showing a very, very good trend for us now building for the second half. And of course, we're now also entering with sports into Japan which is a big business over there as well.

I talked a lot about the last points here, which is the improvement of the nonperforming casino sites where we, even though second quarter is low, didn't see a decline on traffic. We stayed on the same level and started to build, which, for me, is still a result that the improvements we have made is starting to show good progress but still work to be done.

Okay. So if we believe that we have a mix of events here that we can improve the business from today quite good, what can we then do also to ensure that we have a good profitability coming out from that business? The first thing is to control costs. As I mentioned that we don't believe that we need to have a lot of personnel expenses because we have a lot of people onboard and we've done actions actually to make sure that even though onboarding a lot of people, we don't grow that cost. We don't foresee a big cost increase going forward either.

Other operational expenses, we're doing a lot of efficiency work to keep them on the same level still. Of course, there'd be quarter-to-quarter variations, but it's not in our strategy to roll these 2 cost elements, if we put it like that. We will require more staff once the business takes off in other part of the world, but on the other hand, those costs will not at all be in the level as to revenue has progressed you see, but that comes later and that will -- should then build good margin, but that's much later.

The thing that can vary is the direct costs. We have said that within the level of 10% to 15%, and this might for you look as a cost increase. But we have to remember that we only invest here if we believe we can have a profit on that investment. Direct costs, for you who doesn't know, are investments that have been paid advertising, typical pay-per-click advertising at Google. So if we can have an investment where we can generate margin on that investment, we will increase that cost. If not, we will hold it back. Remember, we were doing quite low in Q4 in the U.K., which an opportunity to do a little bit more now in Q3, even though that the actual value was less, but the revenue wasn't that high either so the percentage here was quite high. But we're not planning to change anything here. We don't want to be dependent on pay-per-click, but we want to invest where we can build revenue from it.

The uncertainty in this business, as always, is revenue share where we had issues in the second quarter from AskGamblers with quite big payouts in revenue -- or winnings to the customers, hence, the revenue share were low. But we also know that a week after, that can change to our favor. That is the name of the game. And the larger portion of revenue share we have, the more swings we can have. That's what we're trying to have it run half with our 40% to 50% of our revenue, not more.

And also, of course, regulations. So what is our view on there now? Are there any significant regulatory impacts we foresee for Q3? I would say no. We believe we have find a way how to operate in Italy. We will settle the French thing. U.K., we didn't see the latest one coming on May 7. Will it come up more? Possibly, possibly not. But those are out of control. But what we can control is everything about that point and that's what we're focusing on. The key thing now is to launch the business into more markets because if you have an issue in nontraditional markets may it be, the larger weight it has to our total business, the less the impact it will be. So we'll kind of risk mitigate that point. But we don't foresee anything big that are known to us that should happen.

So to summarize, key takeaways. We're not happy with the second quarter revenue. We're happy with what we're doing internally to build for the future, but that didn't help as much in second quarter when this happens. That's why a rather low revenue and so on. But on the other hand, we're building a more efficient company. We generate more net cash than last year. We're negotiating to the benefit of the shareholders when it comes to debt leverage, and we're doing a lot of good things for the outcome. So our view is that we foresee a quite positive Q3. I cannot, of course, guide on the numbers and even Q4 should be positive. And what makes me happy with that comment is that we now have July with us and it started according to plan or actually a bit better than our original plan.

So that put us into the end of the official presentation. So looking forward to 18th of November when we can release the third quarter and hopefully 10%, a very positive number compared with this. Okay. Yes.

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Questions and Answers

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [1]

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Great. So we'll now we start the Q&A part. I will start with a few questions and then I will take questions from the floor and then we have questions probably from the conference call.

So maybe we can start with Page 7 here, what happened in the quarter, if we start there. I noticed that sports declined sequentially quarter-on-quarter. That was the main reason for this sort of sequential decrease. Can you explain more what happened in sports? So can you elaborate on the reasons behind that and why casino increased?

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Per Hellberg, Catena Media plc - CEO [2]

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Well, 2 things basically. The -- in U.K., our larger weight of income is actually coming from sports. So when that regulatory impact happened, it was predominantly a sport impact for us, not as much as for casino. So -- and when it comes to casino going, it's when the business goes down but U.S. keep on performing well. That's the answer.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [3]

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Okay. And can you elaborate on Italy, what happened there? You mentioned in the report that you had a negative impact, hopefully temporary but...

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Per Hellberg, Catena Media plc - CEO [4]

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Yes. I think the negative impact is the fact that we have -- building up the business there. And I think the operators now were starting to find a way to work for based on new regulations. So we foresee it as a very positive thing for us as everybody know that we were scared that it could be not growing that much based on new regulations. So now when the leagues are starting up again and we're starting to grow, we have, I think, a business model in place with the operators to secure quite good business going forward. But once again, Italy was more or less dead also in the second quarter this year.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [5]

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Okay. How much is stemming from Italy? How much of your revenues are coming from...

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Per Hellberg, Catena Media plc - CEO [6]

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We haven't guided on that, but it's below 10%.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [7]

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Okay. And can you also talk about France and what changes you have made and when we can expect any improvements there?

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Per Hellberg, Catena Media plc - CEO [8]

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So basically, in France, we are delivering 2 kind of products. One is lead -- traditional lead generation affiliation. The other thing is subscription model of professional tips and ideas for betters that they purchase from us. The regulatory body said that you cannot have this on the same site, so you need to divide the site structure. We're building a new site and dividing these 2 in order to operate. And until it was done, operators said that we will limit the investments within France until it's sorted. And that's what we're doing. That would be resolved now in this quarter.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [9]

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Okay. So in summary here, I think the market expected more or less sort of flat sales compared with Q1. So what are the main reasons for this setback, so the magnitude of these negative things: Sweden, revenue share and winnings; France, seasonality, what can you say?

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Per Hellberg, Catena Media plc - CEO [10]

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Well, I think you're right. I think it was a quite logical expectation to be more or less around Q1. And now, we're not. So I think if you put that together, we will not go in and comment what each of these do, but a big delay for weeks in U.K. where we have. It's one of our larger markets and sports is a key revenue. It unfortunately creates a quite big hole for us in revenue there. So that's the largest impact for sure, the KYC in the U.K.

France, you can see -- based on what we can see, we can see what we bought it for and we have been doing better numbers than the acquisition revenue when we bought it, and that more or less stopped during this period. So these 2 by themselves are creating the biggest shortfall here.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [11]

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And the development during the quarter, April, May, June, what was the pattern?

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Per Hellberg, Catena Media plc - CEO [12]

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The pattern was that France came out lower in the end of the quarter. U.K. started from May 7 really tough and started to improve by the very end of the quarter. So it's one going down and one going up. And France will remain until we sorted it. That's why we've worked very hard on doing that. And U.K. are up and running in good speed already by now.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [13]

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And finally, when it comes to this slide here for me. The U.S., how much of revenues is that part generating? And did the experience grows quarter-on-quarter? I assume so.

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Per Hellberg, Catena Media plc - CEO [14]

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Yes. Because last year, we were up and running by U.S. at this time. It was launched around this time last year, but the big peak came in September when NFL started. So U.S. are, for sure, up compared with last year. We mentioned in Q1 that U.S. is representing more than 10% of our revenue already by then. And of course, we'd maintained good flow there. And while the other one goes down, it hasn't reduced the weight in our business. It's improving.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [15]

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And the final one, initially, for me. On Page 15, you have a growth on NDC development, if we can talk about that a minute or so. So can you elaborate on the drop here sequentially to 100,000? Still a good figure, of course, compared with competitors, but -- and also, of course, the value per NDC increased.

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Per Hellberg, Catena Media plc - CEO [16]

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Yes. I think, of course, we are not happy with the trend and that's what we said so far that we thought we will be more up to Q1 level of NDCs approximately. The majority here is that because it's a low season, there's very few people that tend to -- again, with a lot of money that comes in, there's more recreational players. And you could typically see that for us coming in from the U.K. that when the stop was there, it was quite good volumes of NDCs coming in but low-value ones. So now when that stopped and also we had in France the same thing in terms of value there, but the generics is another downwards. The good thing though is that, typically, you see that the values in the U.S. are not declining what we get paid. So for casino, it's still the same high amounts that we've seen before and still generated a lot of nice customer for us.

So we managed to balance that shortfall. But as we mentioned before already was to do more NDCs than that, but unfortunately, this impact created it. So what do we think about second half? Well, obviously, that we will do better again. We will not foresee that incremental drop going on.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [17]

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And the NDC value, excluding the U.S., how is that developing?

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Per Hellberg, Catena Media plc - CEO [18]

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It's still developing to the positive manner.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [19]

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So even without the U.S., you have a positive?

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Per Hellberg, Catena Media plc - CEO [20]

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Yes.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [21]

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Good. Okay. Do we have any questions from the floor? Yes?

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Unidentified Analyst, [22]

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I know that...

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [23]

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You have to wait for the mic.

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Unidentified Analyst, [24]

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I know from own experience from Spain and Latin America, there are bigger games there and they like some sports very much. And is it difficult to come in, in that kind of market? And what kind of problem is it with that? Because it's huge people, for example, football games and so on?

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Per Hellberg, Catena Media plc - CEO [25]

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Typically, it depends a bit different which market you look at. Some are regulated that you cannot do anything. Some works like Colombia, it's regulated that it's okay. So regulatory thing is the first you will need to look at. Then depending if it's casino, for example, that's easier to launch because it doesn't include that much content. It's more like a traditional writing content for casino. It's easier. So what you then need to do is to make sure that you have a close connection with operators over there. That sometimes differs compared with operators you see in Europe. That is not so high barrier. But the biggest problem we've had so far in Latin America is that the regular customers have problem to deposit money efficiently into use for gambling, and credit card usage in Latin America has been a big problem. You can deposit through mobile phone operators, but not all of them like to transfer that into gaming companies. That is changing now and I think the regulatory winds blowing will help that. But yet again, the test launches, we have said that when we launch this, we'll get very good traffic and conversions into leads that we send on, but the operators are probably making all of them depositing money.

So when it comes to sports, it's more than you need to start to write about the local sports, which creates local talent to drive that. So that comes with a higher cost, but it definitely, on long term, is worthwhile the investments. So our state is to go in and learn and analyze the traffic, so we know what kind of localization we need to do to the products at launch there as well as we're doing for India or Japan or whatever instead of us launching full thing and then have to rebuild immediately because we launched the wrong product.

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Unidentified Analyst, [26]

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I have a couple of questions. When you're talking about going to new markets, can you tell us more about the markets you're screening? How many markets are there? What's the time frame before you can rank up on Google? And when can we expect that we can monetize on the traffic that we get? What's the time frame from, a, going into Spain to we getting money? Because it's easy to say that we're going to Mexico, to Tanzania. But when are we getting -- when are we monetizing on that?

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Per Hellberg, Catena Media plc - CEO [27]

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It's very much different from market and what product you launch. So...

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Unidentified Analyst, [28]

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If we go by casino and...

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Per Hellberg, Catena Media plc - CEO [29]

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Okay. Let me put it like this. So we've done a screening where we went through most of the markets that are of interest where you have a GDP that is okay, where you have spending pattern and digital knowledge and credit card possibilities, et cetera, those are quite many. Then the next step is, is it legally okay to be there. For sports, might be, for casino not. And what in casino, what are you not allowed to do, yes or no. That gives you idea where you need to be. That matrix gives a quite good flavor. So we have quite big amount of products, more than 20 we are definitely looking into now to a good opportunity going forward.

But then this question what markets when and how do you do it? Typically, we see that if we launch an existing brand and doing good business in the markets we have, that will rank quicker than if we launched something completely new because it gets acknowledgment from Google that it's a good brand and generating good things in other markets. On the other, we cannot launch exactly the same site because if you just cope with the same site into a local language, Google bans you. They don't want to do that. So you need to create a local version of it as well. So when we do that is what is best using one brand and launch it all over the world or using that one phrase or that one, that's the kind of work we do. We're, of course, trying to launch a brand that has acknowledgment. That's why we focus on these core brands. And for example, if I launch a brand in Spain tomorrow, I will have NDCs quickly. But it takes some iterations from Google until this picks up and compare with other sites we do. So therefore, you cannot set a time frame. It depends all what kind of site we launch, how much local content we have and how soon we can build that up. So it's a little bit difficult. But of course, what we say is that we have guided for long-term targets where we need new sites from. But the site can be quite successful within 3 months. It can take 9 months for another. That's why I cannot be really precise about the answer, but I can be precise about the process how we think to launch sites.

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Unidentified Analyst, [30]

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And if we look at U.S. right now, if you compare Q2 and Q1 to Q3 going forward, we have approximately 30% more operators going live with both casino and sports just in New Jersey. So what's your take on that? And are you hopefully seeing larger numbers coming in Q3 -- Q over Q?

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Per Hellberg, Catena Media plc - CEO [31]

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Definitely. I think just to build up, as I mentioned, with U.S. coming into one of the highest months already in July tells you a bit what's starting to build up. On the other hand, there are more competitors there, for sure. But on the other hand, also those competitors -- and operators coming in do not have a lot of database with them coming in, which was the case last year. So when New Jersey started off, it was quite a small part of the business were affiliation-based. It came most from the databases. Now the ones coming in don't have that. So we not only expect that more states are open, that the traffic that we'll generate in this by the marketing is going to increase but also the fact that affiliation will take a larger part of the revenue.

So I think we're coming back with the same kind of statements to do that with what's going on building up in Pennsylvania now with operators there, if you have enough of them and up and running and you have the system, we should basically be able to double our business compared with previous. So...

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Unidentified Analyst, [32]

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And the last question. If we look at your traffic that you're having from different sites, if you look at different programs, we see that you have ramped up the traffic in the biggest brands. What's the biggest reason behind that? Is it Catena core press? Or is it more recruitments in the SEO or...

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Per Hellberg, Catena Media plc - CEO [33]

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I think it's a combination of both. So you are not -- Catena press is basically what we call a multi-tenant system, meaning that the sites we want to run, we connect them to one core system. So when we want to do an update, we do it at one time and adapt it to all our sites. Otherwise, we need to build a complete new site for every country, everything we do and that will require a lot of people. It's been a project going for long time. That helps us to do quick updates and find things, when we grind the site for SEO, et cetera, it helps us to update that in many markets at the same time. But at the same time, Google is, of course, changing all the time. And everybody in this industry had a quite nervous time in both May and June because Google did some dramatic changes to their algorithm. So a bit lucky that we find these issues all in Q3 because we were not that much hit by those changes. On the other hand, we could shorten quickly due to the systems we have. And once we sorted, and Google re-upped it, from that point, we started to grow some sites. While some did not grow, but it stopped to lose. So I think that what we've done by putting more attention here is like our colleagues says also out here and competitors say that it's the work we've done in a year ago that we benefit from now. It's the same thing with us. I just wish that we have started this project now -- 2 years ago, but we didn't. So we're quite hopeful that the work we have done will bear good fruit because quality will normally sort of win in the end.

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Unidentified Analyst, [34]

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And last question. We talked about the sports segment. I mentioned -- I've seen that you don't have that big brand that we have in casinos like with the AskGamblers. Are we planning on building a site or buying a sports site or to be global brand? Or what's the plan for the sports? Because every year, we know that seasonality, we know that the NFL doesn't in April. We know that the Premier League will end. It's not a news factor. So what's our plan for keeping up the tempo in Q2 and early Q3 going forward with our big brands? Do we have a plan?

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Per Hellberg, Catena Media plc - CEO [35]

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Yes. We have a plan. I think we mentioned before as well is that we are very happy by the assets of AskGamblers and the success it does. Keeping -- not depending on event, but more about the community there and talking, creating revenue and traffic for us. We're, of course, looking and trying to do something similar in the sports. When, I cannot tell, but that's a part of our strategy.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [36]

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Great. Maybe we -- yes, there's one more.

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Unidentified Analyst, [37]

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Just a short question on subscription revenue, which was down quarter-over-quarter. Is that due to France or anything else...

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Per Hellberg, Catena Media plc - CEO [38]

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Yes.

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Unidentified Analyst, [39]

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Okay. And then just on the other revenue streams from casino still retaining business. What are operators saying here? And do you believe this will have a significant impact if you're successful or it will just a small add-on your existing business?

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Per Hellberg, Catena Media plc - CEO [40]

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I think I cannot express operators for you. I can express our view. As historically I've been in the operator side, I know how much money is spent approximately as an operator to retain the business by offering bonuses and that kind of thing and various CRM activities you do. If that goes away from you, it's a nightmare because you invest a lot of money to get the customer in and that should be profitable for a long time. So anything I can share with anyone by maybe Google to do pay-per-click advertising or anything to make them come back and put a bet with me, I would invest to. And if I can provide that service to a lesser cost than I have previously, there are interests and the interest is given to us. So I think it can be a quite nice incremental business for us but also good business for operator because they can continue doing good retention at a cost that is not higher than before. That's the plan. But it's, once again, it's a product we work on. We're test launching it now and we will see. But it seems to be the right thing for the environment that a lot of operators are in right now.

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Unidentified Analyst, [41]

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And just last one, balance sheet. I mean you have EUR 53 million left on settlements and you did some settlements on the U.S. and BayBets. What's left after these 2 in Q3, Q4?

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Erik Edeen, Catena Media plc - Interim Group CFO [42]

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You can -- let's see if this one is on. Thank you. We can't really guide on that as the underlying performance in the assets might change this commitment amount. So every quarter, we do a revaluation based on some parameters on what we've agreed with the assets we've purchased. So that value might vary. But what we can say is, and as you can see on the slide, if you add up these 2 settlements, the settlement with U.S. and the renegotiation of BayBets, is approximately EUR 25 million, meaning the value goes down. But I can't really give you any number on that as it might change over time in the future depending on the underlying performance, in this case, mainly in the U.S. That is the largest part of the remainder in the amount.

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Per Hellberg, Catena Media plc - CEO [43]

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What we can say is that the sites and assets are performing according to plan. So we are quite -- we're feeling quite good of how we estimate and then what comes out short and long of that amount. And also the fact that we did a quite healthy renegotiation for the shareholders and the company in the acquisition of BayBets where we negotiated it to be a full cash payment but at a lower value than it should be.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [44]

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Okay. Are there any questions from the conference call? Nothing today. Okay.

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Unidentified Analyst, [45]

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Okay. What about the realistic -- the realism of reaching EBITDA EUR 100 million, 2021?

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Per Hellberg, Catena Media plc - CEO [46]

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It's a long way to go. As we mentioned before, what we need to do that is to make our sites available in the markets we want to be to make that happen and grow organically. I think you can see that we're working on that. But also, as we said, it all depends on how U.S. is going to perform. And as you can see now is that when the launch timing for U.S. is progressing to the positive, the ingredients there to make that happen in terms of revenue increases is there, then it's a question of how much cost we will bring to the business by doing all this. But the cost will not at all be in the proportion as to projected revenues, so we believe that we can drive the revenue up to those levels long term, at the same time maintaining a healthy margin to secure that number. We have no reason to change that as of today. Because what happens in Q2 is basically 2 regulatory issues that once sorted will not be there anymore. That's the core plus adding the other things we do and the benefit in the U.S. That's why we believe we have this nice time ahead of us.

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Unidentified Analyst, [47]

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Yes. There's another question from the mail here. What about this weaker Q2, do you have anything that surprised you during this quarter?

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Per Hellberg, Catena Media plc - CEO [48]

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Well, I think it's quite clear. When we woke up on the 7th of May, we didn't expect that to happen nor did the operators because they were not ready at all either. If you look at the onboarding procedures that they apply now in how they bring customers on in the program of that, it's completely different because they had to put something out quickly. Now it's much more invested in making that easy and to make it not that much of an issue anymore. So that was definitely the thing.

We mentioned so many times that we believe it's good to be in a regulated market is because regulation happens for a reason, control gambling, prevent gambling addiction and tax it so that just the non-so-serious operators are not there anymore. When it happens, it's a short-term problem. Once regulated, you will have a lot of smaller operators not there anymore, so big operators will increase. Same thing with affiliation. That's why we believe our choice to remain in a bigger part of our business in regulatory is still the right way to go. But it will, like in this quarter, have short-term impacts. But we still believe it definitely will have long-term benefits.

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Unidentified Analyst, [49]

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And last question. Could you please provide some insight into how much the FIFA World Cup generated of revenue in Q2?

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Per Hellberg, Catena Media plc - CEO [50]

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No, I can't.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [51]

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Okay. More questions here in the room?

Okay. With that, I think I will conclude this presentation, and I'll leave over to you to wrap it up.

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Per Hellberg, Catena Media plc - CEO [52]

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Well, thank you very much for attending today. To summarize, we will have -- like to present a better revenue number. We're happy with a lot of other data in the company, and I hope we managed to present that we have built a lot of things to generate a positive second half. And once again, I cannot tell too much more and guide you what those guidance numbers would be because I'm not allowed to do so. But on the other hand, we can just say that the plans we had for you lined at the start, we have met them, performing very well again. So we're very happy with the start of Q3, and we will do whatever we can to maintain that to grow this to a very good second half. Thank you.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division - Head of Software & Services and Financial Analyst [53]

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Thank you.