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Edited Transcript of NET B.ST earnings conference call or presentation 12-Feb-20 9:00am GMT

Q4 2019 NetEnt AB (publ) Earnings Presentation

Stockholm Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of NetEnt AB (publ) earnings conference call or presentation Wednesday, February 12, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lars Johansson

NetEnt AB (publ) - CFO

* Therese Hillman

NetEnt AB (publ) - CEO

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Conference Call Participants

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* Martin Arnell

DNB Markets, Research Division - Analyst

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Presentation

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Martin Arnell, DNB Markets, Research Division - Analyst [1]

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Good morning, everyone, and welcome to this presentation with NetEnt who is going to present Q4 numbers. My name is Martin Arnell, and I'm an analyst with DNB Markets in Stockholm, and I will be hosting the Q&A session after the company's presentation.

So now I would like to hand over to CEO of NetEnt, Therese Hillman.

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Therese Hillman, NetEnt AB (publ) - CEO [2]

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Thank you, Martin. A warm welcome to NetEnt's year-end 2019 presentation to all of you that are here in the NetEnt office and to all of you that are watching this webcast.

Let's now start with the report highlights. My name is Therese Hillman, and I will present this presentation together with our CFO, Lars Johansson. The agenda looks like this. I will start with the business update and then Lars will go into the financials more in detail. Then I will come back and present some product news from ICE as well as our future outlook. At the end, we will end with a Q&A session.

The report highlights. The revenues for the quarter increased with 10% and was all-time high, SEK 512 million. This resulted through the Red Tiger acquisition into growth. We reported year-on-year growth in revenues, EBITDA and EBIT.

If we look at the pro forma numbers for the company in Q4, we had a decrease of 4.8% in the revenues. And if we look into -- until yesterday, for Q1 in 2020, the total gamewin pro forma was up 4.9% for the same period -- compared to the same period last year. The growth was held back in Q4 by the developments in Sweden and Norway. However, we had a solid growth in the U.S.

In the quarter, we also focused on the integration with Red Tiger, mainly from a product and a technical point of view, and we had all-time high player numbers with our Live dealer product. The proposed ordinary cash return to shareholders is SEK 1 per share.

Let's now look into the regional development for the group during the quarter. The U.K. was the largest market for the group, representing 19% compared to 13% last year, and it was growing during the quarter. Sweden is now down from 14% to 7%, and it continued to be challenging for us.

If we analyze the Swedish numbers, the player numbers have been flat during the year. However, the ARPU is down approximately 40%, and this is the result of the responsible gambling measures, but also the increased competition. And we do see alternative suppliers, such as Red Tiger, that are growing in the market.

If we look into Other Nordics, it's down from 16% to 13%. And the group was growing in Finland, had a very small decline in Denmark and had a larger decline in Norway, mostly due to competition but also the regulatory environment in the Norwegian market.

Other Europe is down from 49% to 44%, and the trends in these markets have been very similar to previous quarters. And if we look into these markets, this is where we see the short-term opportunity for the group when Red Tiger will enter some of the key regulated markets and penetrates these markets further, such as Italy and Spain and more.

If we look into Other World, it's now 19% of the revenues of the group. It used to be 9%. And within this section, we have lots of markets. The U.S. is the largest one, representing 5% of the total gamewin. And so far in Q1 2020, it's up to 6% of the group's total gamewin. The rest of the market in this section represent less than 2% each. And we have many, many interesting dot-com markets with high-growth rates within this section.

That was the regional split. So now on the next slide, I will go through how locally regulated and nonlocally regulated market has developed. So looking -- let us look into that.

48% of our total gamewin came from locally regulated markets compared to 37% last year. And as I said, Sweden has continued to be challenging for us. However, it seems like Sweden has now stabilized at this new lower level. And we have to work with this market from here. And with Red Tiger, but also -- that are adding more and more operators to Sweden. But also with the strong brand and the strong position that we have, we are convinced that we will come back and be strong even from these lower levels.

If we look into other markets that have regulated in Europe. We will enter Switzerland, and we also have Croatia and Colombia in our plans. Red Tiger will increase its presence in regulated markets during 2020. And already in Q1, they have entered the Slovakian market with the largest sports betting operator in that market.

If we look at the U.S. We see good growth, both in New Jersey and in Pennsylvania, and it's now one of our top 5 markets. We are now expecting more operators to go live in Pennsylvania during Q1 in 2020. And finally, in December 2019, the governor in Michigan approved a bill to legalize slots and table games, and the market is expected to go live in 2021.

That was the update on the regulated markets. So now let's look into our new games and products.

During the quarter, NetEnt released 13 slot games, where Ozzy Osbourne was the most successful slot for us. This is also how we continue to offer a more localized portfolio, 6 of the games during the quarter had Asian themes. Red Tiger released 9 slot games during the quarter, of which Dynamite Riches was the most successful release and also one of the most successful releases ever for Red Tiger. Within Live Casino, we launched our new Auto Roulette Studio, and we continue to release product improvements and we did prepare also for new product launches into 2020.

If we then look into the gamewin by game, it now looks like this including Red Tiger. We have 95 -- 94% of our total Gamewin within slots now since Red Tiger is not offering table games. And within the table games section, representing 6% of our total gamewin, we now find NetEnt RNG table games as well as our Live dealer product.

I will now hand over to our CFO that will walk you through the financials.

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Lars Johansson, NetEnt AB (publ) - CFO [3]

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Thank you very much, Therese. Hello, everybody, and welcome.

Let's start with the fourth quarter, where revenues increased with 10% and amounted to SEK 512 million compared to SEK 465 million for the same period previous year, which is all-time high, as Therese pointed out. And yes, we had some tailwind from the weakening of the SEK. SEK weakened against the pound sterling with 6.3% and against the euro at 3.3%, which gives a positive effect on the top line, gives a somewhat less but still a positive effect on the bottom line and somewhat less due to the fact that we have about 55% of our costs in -- denominated in foreign currencies.

But the large contribution to the result in the quarter is, of course, Red Tiger, acquired in September and now fully included in the full -- in quarter for the group. Red Tiger contributed with SEK 96 million to revenues and SEK 70 million on the EBITDA level, resulting in a group EBITDA of SEK 261 million compared to SEK 204 million previous year, and corresponding to a margin of 51% compared to 43.9%.

However, to make that comparison fair, I think one should adjust for the IFRS 16 effect that came into play in the beginning of 2019, where you basically move rental costs from operational costs down to depreciation. If you make that change, the margin was 47.5%. So that is comparing apples-to-apples, but it's still up.

And then we had an EBIT of SEK 161 million compared to SEK 146 million, which then corresponds to a margin of 31.4%, which is exactly the same margin as the same period previous year.

So moving over to the full year. We had revenues for 2019 amounting to SEK 1.793 billion compared to SEK 1.782 billion for the full year in 2018. And again, Red Tiger contributed with very impressive figures, SEK 126 million to revenues and SEK 93 million to EBITDA for the 4 months they are included in our figures.

So EBITDA amounted to SEK 855 million, corresponding to a margin of 47.7% compared to 45.8% previous year, an EBIT of SEK 529 million compared to SEK 601 million and a margin of 29.5%.

So we keep our -- and it's important to point out, we keep our costs under control. We took action at the beginning of the year which resulted in, for example, lower personnel costs, which, to some extent, offset by higher IT and higher depreciations.

So you see -- and all in all we see a positive development on the EBITDA level, while EBIT is lower than previous year. But worth mentioning in this respect is that, on EBIT level, we had transaction costs from the acquisition of Red Tiger which included, first of all, SEK 25 million, which is nonrecurring, and then amortization of immaterial assets relating to the acquisition of the Red Tiger amounting to SEK 34 million. So SEK 59 million in total on EBITDA level.

And in addition to that, we have -- in the financial net, we have acquisition-related financing costs of SEK 29 million. But please note that, that is not only interest on the bank loan. The interest in bank loan amounts to approximately SEK 18 million, and the rest is then accounting adjustment of the earnout liability of about SEK 8 million and then the finance-related transaction costs that were paid out in the third quarter but is allocated over the term of the bank loan or the bank loans. So earning per share amounted to SEK 1.79 per share compared to SEK 2.40 for the same period previous year.

Looking at the cash flow. Cash flow from operations before changes in working capital was up. We had SEK 245 million for the fourth quarter and SEK 804 million for the full year. If you look at the cash flow from operations after changes in working capital, it was down, SEK 97 million in the fourth quarter and SEK 575 million for the full year, as you can see in the graph.

And then the conclusion, obviously, here is that we have some large movements in the working capital during the quarter. And there's basically a lot of things behind that, of course. But the 2 major things that should be mentioned is, first of all, we had transaction costs in the third quarter that was incurred in the third quarter result -- accrued, sorry, accrued in the third quarter but was then paid out in the fourth quarter. And then we also introduced a new billing system in December, which led to unusually high receivables at year-end. We were basically somewhat slower when invoicing and also in our collection process. That we believe will be reversed in the first quarter.

As said previously, the objectives with the Red Tiger acquisition was to create shareholder value through increased growth and profitability for the new group. We managed to do this on the basis of a very strong balance sheet, where we went from net cash position to net debt position, which is very clear in this graph. But it's also worth mentioning that it's not only bank loans. There is also the net present value of the earn-out liability of about SEK 230 million and then this capitalized lease obligations resulting from the introduction of IFRS 16.

Our long-term goal is to deliver a balanced capital structure. We believe that, that is the way to create shareholder value. So therefore, the proposed cash return to the shareholder or the dividend, if you so wish, is SEK 1 per share compared to SEK 2.40 for this-- or SEK 2.25 for the previous year. That will reduce our debt and still support the company's cash flow contribution -- or generation. The term of our bank loan, it should be mentioned, is 4 years, during which a substantial part will be repaid beginning this year in 2020.

So going back to the dividend. This payout level is in line with the company dividend policy and also corresponds to a cash return -- sorry, to a dividend yield of 3.6% based on the share price as of closing yesterday.

Thank you very much. And now over -- or back to you, Therese.

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Therese Hillman, NetEnt AB (publ) - CEO [4]

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Thank you for that, Lars.

Last week, both NetEnt and Red Tiger was at the ICE exhibition in London, and we unveiled a number of exciting products for 2020, such as the new jackpot system called Starburst Power Pots as well as our branded games in collaboration with Gordon Ramsay, Street Fighter and Fashion TV.

And from standing in the audience, Street Fighter was very well received and is also underway. And I'm happy to say that we're releasing this game already in May. The original Street Fighter was released already in 1987. And I felt from all the feedback that many of our players and also operators have memories of this brand, and we will now give this brand our own twist. So that was very positive.

Starburst Power Pots is a jack -- a community jackpot system where players will connect -- collect Starburst tokens across an entire family of NetEnt's best-performing games. We're looking forward to this release, and this new product is very exciting for NetEnt.

We're also very pleased with the feedback on the collab game, Piggy Riches Megaways, that Red Tiger in January. This is a good example of the revenue synergies that we knew were possible from day 1 of the acquisition. And this release has so far been the best release ever for Red Tiger, and I was very pleased to receive that feedback.

Let me now present the future outlook of the group. And this is how we will return to organic revenue growth in 2020. It will be supported both by NetEnt and Red Tiger game portfolios. We will have revenue synergies, and we will continue to improve our Live dealer product.

If we look at the 2 game portfolios, the games are complementing each other, and we have to strive for improved game quality and improved games performance for both brands. We're keen to maintain all the brands, and they need to perform on a stand-alone basis and they need to complement each other, and that's something that we -- both brands are working with. We also have a very interesting customer pipeline for both brands, and we have high-profile operators that we will launch during the year.

And as already have been mentioned, we have the joint products that we're working on, and we will release more of them during the year. NetEnt Connect was launched in December, and this is how we can use our platform to launch Red Tiger games and other suppliers' games to the market.

And we will continue to roll out new markets for both brands, as previously mentioned. And when it comes to Live dealer, we have been working hard during 2019. We have improved many, many details. And the feedback from December and onwards has been very, very positive. And we truly believe in our Live dealer product and the feedback has changed dramatically during the year. So also from ICE and the exciting releases that we have in front of us this year looks promising for the group. And we are expanding the studio in Malta at the moment, and we will soon, very soon, be offering physical tables as a complement to the blue screen technology that we have had so far.

As Lars mentioned, we also need to continue to focus on cost. We have done so during 2019. And we have reduced the number of employees within NetEnt. And at the same time, we have acquired Red Tiger and continue to invest in our Live dealer product.

Cost control and efficiency becomes more and more important. And in today's market climate, it's very obvious is that we have to be very, very good at this. The integration of Red Tiger will continue to serve as the catalyst for this process, and we will continue to focus on it for the rest of the year.

So that was all from us. And now it's time for the Q&A.

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Questions and Answers

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Martin Arnell, DNB Markets, Research Division - Analyst [1]

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Thank you, Therese. So I will be starting off the Q&A session and then we'll let the telephone conference in. And my first question is on the trading statement for Q1. You mentioned that you were up 5% pro forma compared with negative 5% pro forma in Q4. Can you just explain the drivers behind that? And could we also have a figure sort of without Red Tiger in the base last year?

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Therese Hillman, NetEnt AB (publ) - CEO [2]

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Okay. So let's start with the first question, what has changed compared to Q4. I think Sweden is the first answer. We have Easter comparable numbers since Sweden was down a lot last year. And I think it's the geographical mix that we see. However, we have worked a lot with the NetEnt offering and we have improved the game's quality and much more, and we have been pushing, also from a commercial perspective, much harder so far in Q1 compared to 2019. So I would say it's the geographical mix that has changed. And also, the fantastic development that we have seen in the U.S. so far. It has boosted the revenues compared to Q4.

And we will not go into NetEnt versus Red Tiger because now it becomes more as a group and we start to work closer to each other. But of course, the success of Piggy Riches -- the success has boosted their numbers as well, and they have over-delivered from what we were expecting in 2020.

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Martin Arnell, DNB Markets, Research Division - Analyst [3]

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Okay. I understand completely with this. But it's also key for us to understand the organic development. The integration of Red Tiger is quite early. And is it fair to see that this pro forma plus 5% in Q1, that implies more stability in the organic revenue. Can you confirm that?

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Therese Hillman, NetEnt AB (publ) - CEO [4]

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Absolutely. So we see smaller headwinds for old NetEnt, if we choose to call it that, and then we see a strong development for Red Tiger.

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Martin Arnell, DNB Markets, Research Division - Analyst [5]

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And on the -- you mentioned Sweden, it's a much easier comparable now in Q1, definitely. And you mentioned that ARPU in the country was down around 40%. And I noticed that you said that competition was intense in Sweden. But isn't the fact that it's a regulated market now, shouldn't that mean that competition should be a bit easier in the new environment, so to say?

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Therese Hillman, NetEnt AB (publ) - CEO [6]

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We don't have a regulated market with B2B licenses. So that's why I think the competition is what it is. And there is, of course, price pressure and everyone is looking at their costs. So that's why we see this increased competition. And it's -- but this is the new lower level that we're working with and I'm convinced that we can come back.

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Martin Arnell, DNB Markets, Research Division - Analyst [7]

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And on your new games that you have presented at ICE, for example. Is it fair to say that the daily jackpot games that you're going to do with Red Tiger, you're going to do more than the Piggy Riches going forward?

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Therese Hillman, NetEnt AB (publ) - CEO [8]

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So just to make it clear, this is very different from the daily jackpot product because it's important that we don't compete with something we now have within the group. So this is a community jackpot system which works in a little bit different way and it's also more gamification into it.

So just to answer your question, we will continue to work with different types of games and we will go into more different markets. So of course, we will have, what I hope, more collabs in our pipeline. But we need to do this strategically and we need to have an improved combined commercial offering to all the customers, and that's very exciting to be part of that and work on that. And I think Piggy Riches is not the strongest IP that the group has, but we see with that IP what we can do, and that's combining 2 different teams' strengths, which is exciting.

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Martin Arnell, DNB Markets, Research Division - Analyst [9]

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But you could do similar with an even stronger IP?

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Therese Hillman, NetEnt AB (publ) - CEO [10]

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Absolutely. Absolutely, yes.

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Martin Arnell, DNB Markets, Research Division - Analyst [11]

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And talking about IP, the Starburst game, which is the brand on these tokens as well. How important has that game been for you? And how important is it still? Why didn't you go with Starburst in these tokens?

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Therese Hillman, NetEnt AB (publ) - CEO [12]

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That game, I think it serves as the foundation for NetEnt. NetEnt in itself is a strong brand, but Starburst is even stronger for the players. So if you look it from a player perspective, the Starburst brand is so strong and it's very, very popular. So the aim with this product was to add a lot of liquidity into the jackpot. And that's also why we named it Starburst Power Pots and added our most successful games into this pot. And I think it's a clear statement that we use this brand because we think it's a strong product. And Starburst itself stands for liquidity and the high jackpot -- or potential high jackpot payout.

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Martin Arnell, DNB Markets, Research Division - Analyst [13]

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When will that be rolled out, the system?

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Therese Hillman, NetEnt AB (publ) - CEO [14]

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We haven't confirmed the dates yet, and we will launch with some of our top customers as bit clients, but we hope during the first half of the year.

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Martin Arnell, DNB Markets, Research Division - Analyst [15]

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I noticed that the Piggy Riches game, the new game from Red Tiger had this Megaways functionality, and a lot of their games have that but your games does not have it. Will you have Megaways in your new games? And can you just explain what it is?

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Therese Hillman, NetEnt AB (publ) - CEO [16]

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Absolutely. It's a mechanic that you add to the game. And we have been missing out on this trend and this was why -- referring back to what I said about why our game portfolios need to complement each other. Red Tiger is very strong when it comes to Megaways games. So that was also what we acquired and I think that they have the expertise of building these kind of games. So we will definitely see more of this during the year. I think we will see more. I think we'll see different types. And it has become very popular among players.

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Martin Arnell, DNB Markets, Research Division - Analyst [17]

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Is it relevant? I mean how many games you have planned to launch this year compared to last year.

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Therese Hillman, NetEnt AB (publ) - CEO [18]

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It's relevant, as I said, for the local market that we have a high number of games serving the local preferences. But it's not quantity over quality. So we also have to enhance the game's quality for both brands and reach out to more players and become stickier than we have been. So we need to have a quality strategy as well as a quantity strategy in order to serve the different markets because the preferences are very, very different. So the number of games, I think that will tell you, and also the localized games will tell you where we are investing a little bit more, but it's about the quality that will drive revenue for sure.

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Martin Arnell, DNB Markets, Research Division - Analyst [19]

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Could you confirm how many games there is in the plan for this year?

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Therese Hillman, NetEnt AB (publ) - CEO [20]

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For the group, and as we just presented, 13 plus 9 in the quarter. That's the capacity that we're at. So we haven't communicated because we're in this alignment phase now. But I do think that's what the market can expect.

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Martin Arnell, DNB Markets, Research Division - Analyst [21]

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And moving on to your Live Casino product, a new product. How has the reception been from clients so far? And what do you think about rolling it out further during the year?

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Therese Hillman, NetEnt AB (publ) - CEO [22]

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We have been holding it back during 2019 because we wanted to go out and sell something that we believe this is a very, very strong product and it's something that we can be competitive with. So after the releases in December and January, from here now, now is when we can expect more operators to take our product.

So the commercial push started late Q4. And the perception and the overall buzz in the market has changed from being very negative to hopeful, I would say. And it feels good now. And the operations are run in a very different way at a much lower cost base compared to before. And the all-time player numbers and the activity at our tables is all-time high, but we have -- actually, now we have fewer tables than we used to have, and they're full. And I think that's a sign of that's working. And the players are coming back. So we have -- from now and onwards, we have ambitious goals for our Live dealer product. But it has taken us 12 months, and we're humble about where we are, for sure.

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Martin Arnell, DNB Markets, Research Division - Analyst [23]

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Can you just simplify really, say, what's changed for the better in the new product do you think?

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Therese Hillman, NetEnt AB (publ) - CEO [24]

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I think Live dealer, this is -- I think everyone comes back to the millions of details. So -- and it's a 24/7, 365 days a year kind of product. So we need -- the operations need to be run perfectly all day, all night and the tech as well. And I would say that everything is improving, and -- but the competition is very, very strong and they are not standing still. So it's just to catch up and continue to do what we do right now.

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Martin Arnell, DNB Markets, Research Division - Analyst [25]

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And where are you on capacity in the Live studio? Will there be expansion to a new studio later this year? Or is that for next year? How do you think about that?

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Therese Hillman, NetEnt AB (publ) - CEO [26]

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So right now, as I said, we're expanding the Malta studio, and we will add a number of more tables. Those tables are physical tables, so that's not as scalable as the blue screen tables that we have. So we have a lot of capacity in the existing studio. But I see if we make decision and announce that we're opening a new studio or starting to build a new studio this year, that's a positive sign. But we will need another studio when the revenues continue to grow like they do today.

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Martin Arnell, DNB Markets, Research Division - Analyst [27]

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And finally, one question before I let the conference in. On the U.S., what's the drivers now behind your performance? Has it accelerated lately? And just can you comment on the outlook for the U.S., the 2 states that you're in now.

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Therese Hillman, NetEnt AB (publ) - CEO [28]

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It's mainly sports betting that's fueling the market right now and also the increased marketing investments in that market. And I think the more operators that enter New Jersey and Pennsylvania, the more the market grows because the people will find out that now the market is legal. And I think the spillover effect from New Jersey being successful, and then with the 2 biggest casinos launching a success online business in Pennsylvania and now Michigan, I think it has just started. It's still very slow. But I think those are the reasons. And more operators coming into the market that will drive the market, of course. And then the competition is not as tough as in the rest of the world.

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Martin Arnell, DNB Markets, Research Division - Analyst [29]

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Okay. I think it's time to let in the telephone conference or e-mail.

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Unidentified Company Representative, [30]

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We have received a question from Carnegie's analyst, Mikael Laséen. Can you elaborate on Red Tiger's revenue development in the fourth quarter and how much the company grew year-over-year?

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Therese Hillman, NetEnt AB (publ) - CEO [31]

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Very high-growth numbers. I can come back to that. Again, we don't go into explicit details on how much they grow, but they have very high and satisfying growth levels. And as I said, they have over-delivered on our expectations that we had from September and onwards.

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Lars Johansson, NetEnt AB (publ) - CFO [32]

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But I just would like to add as well that -- and I think it's -- we gave quite a few numbers in the Q4 report. But going forward, I think it will be less and less meaningful to look at Red Tiger and NetEnt separately due to the integration that we emphasize in the report.

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Unidentified Company Representative, [33]

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We have one more question from Mikael Laséen at Carnegie. You comment in the report that you continue to focus on cost and efficiency. Can you elaborate on what initiatives you have implemented and what you can do in 2020?

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Lars Johansson, NetEnt AB (publ) - CFO [34]

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Well, as we announced in the beginning of 2019, we made some changes here, particularly in the Stockholm office. We reduced the personnel with about 50-plus, 55 positions, mostly within the staff functions in order to sort of create room for additional resources within the game production part of the business. And also as a result of that, I think we managed the sublet basically half the Stockholm office, which created some substantial savings. And obviously, there's a lot of measures that we have carried out during the year.

And looking forward, I guess, our cost efficiency measures, and efficiency measures in general going forward, basically spells integration, integration with Red Tiger. We see -- as we've stated previously, we see huge synergies with the Red Tiger acquisition, mostly on the revenue side but also on the cost side going forward.

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Therese Hillman, NetEnt AB (publ) - CEO [35]

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And just to add to that. I think some of the cost measures that we put in during last year, they will have more of an effect going into this year. And if you work with software development and when you automize things, you can see that the cost efficiencies will improve over time. And I think the acquisition of a company that has new technology, that is working more as a smaller company, that is exactly what NetEnt needed as an injection. And we were already on this transformational journey. And for me, this catalyst effect that they have had on us, that's super positive.

And also, I think, to have that energy and power and positive development within the group, now also from NetEnt Live and from Red Tiger, it's very good for NetEnt as a whole. And we continue to strive to come back with what we now named old NetEnt.

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Martin Arnell, DNB Markets, Research Division - Analyst [36]

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Okay. Are there any other questions from the web? No? Okay. Then I'll continue with a couple of more from me. The NetEnt Connect, how important do you think that will be for you in the future? And is it correct that many of your competitors are already doing a similar thing?

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Therese Hillman, NetEnt AB (publ) - CEO [37]

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Yes. I think with NetEnt Connect, we can benefit on the reach and all the regulated markets that we have invested in. It will be very important for the integration with Red Tiger. They are integrating very, very fast and more and more operators. But if this can give Red Tiger a shortcut into some markets or to some key operators, NetEnt Connect will be very, very important. And if we will look into more acquisitions, NetEnt Connect will be very, very useful. And we've also added some suppliers that are complementing both us and Red Tiger, so we can offer our customers something that they ask for. So it's a competitive market for an aggregation business, but we also use it to support the core business that we have.

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Martin Arnell, DNB Markets, Research Division - Analyst [38]

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And when was this up and running, the Connect system?

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Therese Hillman, NetEnt AB (publ) - CEO [39]

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We always had a plan to launch it at ICE. But then after the acquisition, we have been running very fast because we -- suddenly, we had lots of revenue opportunities with Red Tiger. So we have been -- as I said, the integration phase has mainly been from a product and technical point of view, and NetEnt Connect was that. And when you're that close, when you're part of the same group, it's a lot easier, of course, to get going. So in December, we launched them.

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Martin Arnell, DNB Markets, Research Division - Analyst [40]

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Okay. And you mentioned 2 new markets there in your presentation, Croatia and Colombia. Why did you just -- why did you go with these 2 markets? And can you explain the investment case of expanding into these markets?

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Therese Hillman, NetEnt AB (publ) - CEO [41]

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We see good growth in Eastern Europe and also other countries that are very similar to Croatia. We know that it's a strong land-based casino market. And we have lots of operators, that are interesting, launching with us. So that's an interesting market. Colombia, it's -- in Spanish, a lot of our existing customers are already in Colombia. And we have been waiting for technical requirements now for a long time. But that investment case, if you look at it from a technical perspective, it wasn't that complicated. So that was why. And also, if we look at the Americas, it's part of that. So that's why we chose it.

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Martin Arnell, DNB Markets, Research Division - Analyst [42]

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Okay. And about the timing for expansion into those markets, what can you say about that?

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Therese Hillman, NetEnt AB (publ) - CEO [43]

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Croatia is during H1. And Colombia, as it looks like right now, in the summer, some time. But again, I do think Red Tiger entering regulated markets, Switzerland will be key for us. So I think that Switzerland, Slovakia, Italy and Spain will contribute more than Colombia and Croatia.

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Martin Arnell, DNB Markets, Research Division - Analyst [44]

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And on the U.K. market, it's an important market for you still. Can you say anything about how the progress is going when it comes to further penetrating your existing Tier 1 clients there?

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Therese Hillman, NetEnt AB (publ) - CEO [45]

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It was always the strategy to penetrate U.K. much, much more with NetEnt before Red Tiger since we knew that our market share was very low. Now when we have Red Tiger and with their very, very strong U.K. presence, there are lots of upsides for the group. And we don't want to compete with them, we would like to complement them, and they have great relationships with Tier 1 operators. So thanks to that, I think that NetEnt can also grow, but we need to do it in a strategic way now. So I'm super happy about the growth that we had in Q4 in that market because it's still a challenging market. But we used to have that together with Sweden and Norway. And now we do have growth for the group in that market.

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Martin Arnell, DNB Markets, Research Division - Analyst [46]

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Because you're growing in the U.K. for the -- in the group, yes.

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Therese Hillman, NetEnt AB (publ) - CEO [47]

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Yes, for the group. The group did.

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Martin Arnell, DNB Markets, Research Division - Analyst [48]

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But there -- is there anything in the U.K. that also explains your improvement in Q1?

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Therese Hillman, NetEnt AB (publ) - CEO [49]

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Yes, it's the total. But we're not that far with the U.K. development for NetEnt right now, but we have good opportunities.

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Martin Arnell, DNB Markets, Research Division - Analyst [50]

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Okay. And you -- on the question on Red Tiger growth in Q1, you didn't want to comment on exactly how it looks. But can you say if it has changed compared to how it looked in Q3? Or is it similar trends when it comes to Red Tiger growth?

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Therese Hillman, NetEnt AB (publ) - CEO [51]

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Since they have added a lot of operators, there are actually close to 100 operators soon, they have the boost both of -- lots of new operators and big ones, and also now the performance of Piggy Riches. So it has grown in Q1 over Q4.

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Martin Arnell, DNB Markets, Research Division - Analyst [52]

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So Red Tiger's growth has accelerated?

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Therese Hillman, NetEnt AB (publ) - CEO [53]

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Yes.

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Martin Arnell, DNB Markets, Research Division - Analyst [54]

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Okay. Okay. And just the final question from me is really on how you view the full year. I know it's really early, but...

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Therese Hillman, NetEnt AB (publ) - CEO [55]

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I was thinking you meant 2019.

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Martin Arnell, DNB Markets, Research Division - Analyst [56]

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I could say that -- I mean, obviously, you've had a tough couple of years behind you organically. And given where you are now, what you see going forward, I mean, do you have any hopes of returning to more stable organic revenue trends this year?

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Therese Hillman, NetEnt AB (publ) - CEO [57]

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Absolutely. We have high ambitions, and we do have a plan and we're delivering on that plan. We can't control the political environment. In some of the top markets, we don't really know how they will develop. We have Norway and Netherlands, and we can't really control that. But we're focusing on improving NetEnt, Red Tiger and the Live dealer products, and we have very high ambitions. And with cost control and gearing up for a much tougher environment at a higher base, I think we're ready for that. And we -- that's, of course, our ambition. And for me, it's very, very important that we deliver on the plan that we have.

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Martin Arnell, DNB Markets, Research Division - Analyst [58]

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Okay. Any final remarks?

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Therese Hillman, NetEnt AB (publ) - CEO [59]

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No, I think we have said it all for today.

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Martin Arnell, DNB Markets, Research Division - Analyst [60]

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Thank you very much.

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Lars Johansson, NetEnt AB (publ) - CFO [61]

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Thank you. Thank you very much.

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Therese Hillman, NetEnt AB (publ) - CEO [62]

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And thank you, everyone, for watching our webcast today. Thank you and goodbye.

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Martin Arnell, DNB Markets, Research Division - Analyst [63]

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Goodbye.