Gambling.com Group Limited (NASDAQ:GAMB) Q4 2023 Earnings Call Transcript
Gambling.com Group Limited (NASDAQ:GAMB) Q4 2023 Earnings Call Transcript March 21, 2024
Gambling.com Group Limited misses on earnings expectations. Reported EPS is $0.16 EPS, expectations were $0.19. Gambling.com Group Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to Gambling.com Group’s Fourth Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Peter McGough, Senior Vice President of Investor Relations. Thank you. You may begin.
Peter McGough: Good morning. And hello, everyone, and welcome to Gambling.com Group's fourth quarter and full year 2023 results call. I am Peter McGough, Senior VP of Investor Relations. I am joined by Charles Gillespie, Gambling.com Group's co-Founder and Chief Executive Officer; and Elias Mark, Chief Financial Officer. This call is being webcast live through the Investor Relations section of our website at gambling.com/corporate/investors, and the downloadable version of the presentation is available there as well. A webcast replay will be available on the website after the conclusion of this call. You may also contact Investor Relations Support by emailing investors@gdcgroup.com. I would like to remind you that the information contained in this conference call, including any financial and related guidance to be provided, consists of forward-looking statements as defined by securities laws.
These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance, and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Some important factors that could cause such differences are discussed in the Risk Factors section of Gambling.com Group's filings with the Securities and Exchange Commission. Forward-looking statements speak only as to the date the statements are made and the company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws.
During the call, there will also be a discussion of non-IFRS financial measures. A description of these non-IFRS financial measures is included in the press release issued earlier this morning, and reconciliations of these non-IFRS financial measures to the most directly comparable IFRS measures are included in the appendix to the presentation and press release, both of which are available in the Investors tab of our website. I'll now turn the call over to Charles.
Charles Gillespie : Thank you, Pete. This time a year ago, I said that we had started 2023 with great momentum and that I was confident we would be able to continue on our growth trajectory. As you can see from the results we reported this morning, our momentum from early 2023 continued at full speed into the end of the year. We reported record fourth quarter and record full year 2023 results. While full year revenue rose 42% year-on-year, revenue in Q4 grew 52% year-on-year. We increased full year adjusted EBITDA by 53%, and we generated 71% more free cash flow than in 2022, all while continuing to invest in the business to drive growth in 2024 and beyond. Gambling.com Group is a founder-led business with a high-performance culture that operates according to clearly defined values.
While our financial performance has been impressive and industry leading for years, it is our culture of execution which should excite our investors most. When we put our collective shoulder into something, we win, and there are a vast number of ways to opportunities in our industry. We have built one of the largest performance marketing businesses in North America over the past four years, having taken revenue from $7 million in 2021 to over $60 million in 2023. While our two acquisitions in early 2022 helped grow our presence in North America, the vast majority of our revenue in the region is produced by assets we have developed ourselves. Fundamentally, we built it in a capital-efficient way instead of buying our way into the market. In North America, revenue topped $20 million for the first time in Q4.
Ohio, Massachusetts, and Kentucky launched in 2023, and we have previously discussed at length how these new state launches drive revenue growth. Excluding these three launches, our North American business grew more than 30% in 2023. I'm going to say that again to make sure nobody missed it. Our North American growth in 2023 was over 30%, even when you exclude the contribution from all of the year's new state launches. This growth is consistent with our previous comments about how online gamblers become more sophisticated as markets bet in after regulation is introduced, and is also consistent with our experience in all of the markets where we have a longer operating history. Total revenue growth in North America in 2023 was driven by three things, the three new state launches, by consumers opening more accounts per individual, and our accelerating media partnership initiatives, which ramped faster than initially expected, demonstrating the efficacy of our performance marketing platform to drive new revenue for the owners of leading legacy media brands.
We expect continued growth from North American region in 2024, driven by increases in market share and the addition of online sports betting in our home state of North Carolina, where we are off to a strong start following the market's launch on March 11th. We expect NC will be one of the strongest sports betting markets in North America. Our co-founder and COO, Kevin McCrystle, and I started the business while at university in Chapel Hill. For us, the North Carolina launch is just the latest highlight of a journey around the world that started in North Carolina and has now brought us all the way back home. We are very well positioned with our portfolio of assets, especially with BetCarolina.com, to lead in driving new customers to online sportsbook operators across the state.
Our new state launch playbook is well honed at this stage, and while NC holds a special place in our hearts, it is very much business as usual. Our growth in North America will be complemented by continued growth in our international markets. While revenues from the UK and Ireland were down modestly in Q4 compared to the year ago period. For the full year these revenues rose 11%, which outpaced the overall market growth. Even considering the challenging comps we have for the first half of this year, we expect to achieve double-digit revenue growth in the UK and Ireland this year, once again outpacing the expected overall market growth. We also expect to achieve strong growth elsewhere in Europe and international markets, where we have tactically invested in localized products for our leading brands for years.
We have been building great consumer-facing products for over a decade, but behind all of the pretty websites is a purpose-built platform where our team translates their culture of execution into real-world processes, which give us a superior capacity to deliver with enhanced efficiency, speed, and quality. I am delighted to announce the addition of some new assets into our portfolio today. We have signed a definitive agreement to acquire complementary assets in a highly accretive transaction, which gives us additional scale. With the addition of Freebets.com and its related European casino assets, we expect to be able to drive additional growth in the UK and Ireland and substantial growth in the rest of Europe. We look forward to welcoming our new team members who will join us in early April when the transaction closes.
We expect the acquisition to be highly accretive to our adjusted EBITDA and free cash flow immediately upon closing. We are confident that over time we will scale the revenue and cash flow-generating capabilities of the acquired assets as we put our operating excellence and technology platform to work, just as we have done with our earlier acquisitions of BonusFinder and RotoWire. We are excited to hit the ground running on day one following the close at the beginning of April. And we are very confident that this investment will deliver a strong return on investment and create substantial shareholder value. This latest transaction is a perfect example of how we can use acquisitions to further leverage our performance marketing platform. We also continue to evaluate other potential acquisitions for complementary return-focused opportunities that would allow us to bring additional value to both our B2B and B2C customers, as well as to our shareholders.
On the B2B side, this includes businesses that create marketing and advertising value for our online gambling operator clients in addition to performance marketing. We see strong opportunities in B2C as consumers are more willing than ever to pay for premium content, as evidenced by the accelerating growth of our RotoWire B2C subscription products as a result of recent product launches. Our expertise and excellence in performance marketing is the engine that has propelled us past $100 million in revenue. And we remain laser-focused on continuing to fuel that growth engine, while simultaneously evaluating opportunities to layer on new channels of accretive growth. We will continue to prudently and efficiently allocate capital to new growth opportunities in newly regulated markets, like in Latin America, and to existing regulated markets where there is a clear case for attractive returns on invested capital.
Our portfolio of big B2C gambling brands stands alone at the top of the industry, and we will continue to invest in all of them – Gambling.com, Casinos.com, Bookies.com, RotoWire.com, BonusFinder.com, and now Freebets.com, to take full advantage of all of the opportunities available to them in this high-growth global industry. Our 2023 results speak for themselves, and I want to thank our entire team for another year of superb execution. The competitive spirit and grit of our team is really unique in our field. Despite our increasing size, I remain confident in our ability to continue to deliver the high-performance growth we are known for. I will now turn it over to Elias to discuss the financial figures in depth.
Elias Mark: Thank you, Charles. As discussed, we saw a very strong finish to the year with all-time quarterly record revenue and record Q4 adjusted EBITDA. Full year 2023 results were ahead of street consensus with both revenue and adjusted EBITDA, and significantly ahead of our initial guidance of $95 million and $34 million, respectively, at the midpoint. Q4 revenue of $32.5 million increased 52% compared to the prior year, or 45% in constant currency. North America led the way with revenue growth of 103% to $20.3 million, driven largely by continued strong growth from our media partnership initiatives. Revenue benefited from the launch of sports betting in Kentucky in late September and the entry of ESPN BET into the market in November.
New depositing customers in the quarter grew 95% compared to the prior year, to more than 159,000. NDC growth was faster than revenue growth as sports betting made up the highest percentage of our quarterly NDCs yet. Q4 cost of sales were $5.1 million, which, as we have previously discussed, reflects a significant ramp in our media partnership revenue. Total operating expenses were $19.3 million, down $1.8 million from the year-ago period. Fourth quarter 2022 operating expense included $4.3 million of fair value movements on contingent consideration. Adjusted for this fair value movement, operating expenses grew 15% year-over-year, or 10% in constant currency, even as revenue rose 52%, reflecting the operating leverage from our platform of technologies and brands.
Net income in the quarter adjusted for unwinding of deferred consideration was $6.8 million, or $0.18 per diluted share, compared to adjusted net income of $600,000, or $0.02 per diluted share in the prior year. Adjusted EBITDA rose 54% to $10.6 million, compared to $6.9 million in the prior year. Adjusted EBITDA margin in the quarter was 32%. We continued to invest in our portfolio in the fourth quarter with a purchase of some casino domains and websites for $6.4 million, which will enable us to accelerate growth for Casinos.com in our Other Europe segment. We also tactically deployed cash to repurchase shares that we are confident represent excellent value to our shareholders. During the fourth quarter, we repurchased approximately 206,000 ordinary shares at an average price of $9.70 for total consideration of approximately $2 million.
Cash at December 31 totaled $25.4 million, a $1.5 million quarter-on-quarter decrease, as strong operating cash flow of $6.9 million was offset by the capital expenditures and share buybacks in the fourth quarter. Turning to the financial results for the full year, revenue grew 42% or 38% in constant currency to $108.7 million. Adjusted net income was $26.3 million and adjusted earnings per diluted share was $0.68 compared to $0.37 in 2022. Adjusted EBITDA increased by 53% to $36.7 million, reflecting an adjusted EBITDA margin of 34%. Free cash flow grew 71% to $16.2 million. 2023 free cash flow includes $9.2 million in CapEx compared to $9.3 million in 2022. We keep prudently investing in our products and technologies with a firm focus on return of investments.
Although we have significantly eased the pace of our hiring. We remain able to entirely fund our organic growth initiatives solely from operating cash flow while also continuing to generate significant positive free cash flow. This flexibility enables us to be opportunistic and pursue acquisitions and share buybacks to enhance shareholder value. Our recently announced $50 million credit facility with Wells Fargo gives us additional liquidity and financial flexibility. We continue to see strong consumer demand to sign up for new player accounts and operate the demand for performance marketing services. We expect to drive organic growth across all our geographical segments in 2024, including in North America, despite starting with a higher base of revenue than ever and with only one new state launch versus three in 2023.
This will be complemented by incremental contribution from the acquisition of Freebets.com and related assets announced today and expected to close in the beginning of April. This morning, we introduced our 2024 guidance for revenue in the range of $129 million to $133 million, with a midpoint representing growth of 21% over 2023, and adjusted EBITDA of between $44 million and $48 million with a midpoint representing growth of 25% over 2023. The guidance assumes an average Euro to USD exchange rate of 1.09 throughout 2024. It also assumes no additional U.S. state launches beyond the recent launch in North Carolina. We expect cost of sales related to our media partnerships to be approximately $10 million with the distribution falling primarily in the first, third, and fourth quarter in alignment with sports seasonality.
The guidance includes expected revenue from the acquisition of Freebets.com and related assets of approximately $10 million and incremental adjusted EBITDA of approximately $5 million for the nine-month period from April to December. Our guidance does not include contributions from any other acquisitions. With that, I will turn back to Charles.
Charles Gillespie : Thank you, Elias. We are delighted to announce all the positive news today, including our record fourth quarter and full-year results, a highly accretive acquisition, and guidance for the full year, which continues our high-growth trajectory. We are tracking toward a strong Q1 that will show year-on-year growth and set us up to deliver on our full-year guidance, all while taking incremental market share from our peers. Operator, please open up the line for questions.
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