Earnings Call: Q3 2021

Oct 19, 2021

Earnings release

Good day, and welcome to the 888 Third Quarter Trading Update Webcast and Conference Call. At this time, I would like to turn the conference over to Itay Posner, CEO. Please go ahead. Thank you, and good morning to everyone, and thanks for dialing in today for this Conference call on our Q3 trading update that we released this morning. I'm Itay Basner, the CEO of Editrate, and I'm joined by our CFO, Yarev Dafna. On today's call, Iari will run through the financial update, and then I'll provide a brief high level update on the business and our strong strategic progress during this quarter, including a quick recap on the exciting William Hill transaction that we announced last month. We'll then open up for some questions. I'll now hand over to Yirif. Jariv, we can't hear you. Thanks, Itay, and good morning, everyone. I'm pleased to report another positive trading update this morning, with revenue growing in Q3 by 7% to €230,000,000 Our B2C revenue were up 7% to to $220,000,000 and our B2B revenue were up 4% to $10,000,000 The performance was in line with Board expectation with a solid performance across There are some specific factors to consider in relation to Q3 performance. Firstly, Q3 2020 was a very strong comparable period. Following the significant step up in volume during 2020 and the fact that sporting calendar was very condensed A sporting event we are catching up in Q3 2020 from the disruption earlier in the year. Secondly, most Our important market have seen significant easing of lockdown restriction with people now spending more time and money on physical retail and leisure rather than just on digital entertainment. And finally, we have consistently flagged That during 2021, we expect $70,000,000 to $100,000,000 of regulatory and compliance headwinds, which was weighted more toward the second half of the year And this obviously impact our year on year growth. While there are a lot of different dynamic here, the underlying performance was good With mid single digit revenue growth on a year on year basis despite the very tough comps. From geographic perspective, our growth was again mainly driven by regulated market with revenue growth of 11%. We saw continued positive year on year growth in the U. K. And Spain, albeit at moderated rates and continued strong progress in Italy, Romania and Portugal. Moving now to the outlook. As I already said, our Q3 performance was in line with Board expectations and consistent with the update we gave with our interim results, which Remind you was mid single digit revenue growth. Looking into Q4, we faced very strong comps with prior year revenue boosted by Both the lockdown and high wind margin. In addition to that, at the end of September, we took a decision to stop operation in the Netherlands, which had contributed around 3% of our revenue. Having said all that, even without Netherlands in Q4, our expectation for the full year to remain positive and unchanged. With that, I will hand it over back to Itay to talk on our strategic progress. Thanks, Yariv. I'll just add a few strategic highlights from a bigger picture perspective, and then we'll go to the questions. I don't think it's an exaggeration to say that the Q3 of 2021 was the most important quarter in 888's History from a strategic perspective. We have a really clear strategy to create long term shareholder value based around 5 pillars, and we made huge progress with these during the quarter. Firstly, regulated market growth. We continue to see strong growth trends in our key regulated markets like the U. K, Italy and Spain, and we're confident that we will continue to grow share in these markets. During the quarter, we announced a transformative acquisition of William Hill's non U. S. Business, which will further boost our position in these key markets. The acquisition will also give us a route towards top 3 position across the most attractive regulated markets. Secondly, our growth plans are underpinned by our product leadership strategy. We are in a really strong product cycle With industry leading casino and poker products and our in house sportsbook platform is rapidly becoming a top tier product. During the quarter, we continued to roll out more casino content, further improve our personalization and promotions and rolled out our in house sportsbook into Germany with the 888 Sport brand and into the U. S. With our SI Sportsbook brand. Thirdly, is our data driven investments, Where we use our in house technology to drive the most effective real time decisions in order to optimize our marketing spend, Delivering superior returns on our investments. As we continue to build out our brand portfolio and execute our product leadership plan. This opens up more routes to deploy our efficient and effective marketing. Fourthly, our expansion into the U. S. During the Q3, we launched SI Sportbook into Colorado. We are looking forward to rolling out across more states in the coming months. The U. S. Presents a great opportunity for us And with our scalable, efficient in house technology and the very powerful STI brand, we have a great combination to compete effectively and profitably in the market. Smith is our M and A strategy, and I was delighted to announce the transformative acquisition of William Hill's non U. S. Assets in the period. Strategically, the acquisition is extremely compelling. It combines several powerful brands and product platforms to create a regulated market leader with top positions across some of the most attractive markets globally. Financially, we expect the acquisition will deliver strong returns and more than 50% enhancements to our earnings per share. Most importantly, we will massively enhance our management and employee capabilities. I'm extremely excited to be welcoming some great Allen from across the William Hill Business. The complementary combination will create a really powerful and large business Across both gaming and sports betting underpinned by its scale, technology, talent and brands, The Enlarge business will be really well placed to deliver a superior customer experience and drive continued growth. So just to summarize, Q3 2021 was a real landmark period for 888. We are really executing against our plan using our assets and capabilities to build a world leading product led online betting and gaming business. The acquisition of William Hill will further enhance our position, giving us a portfolio of incredible brands and further reinforce our plans to provide world class safe and entertainment betting and gaming to customers across the world. With that, we'll be now happy to take some of your questions. Thank you. We will now take a question from David Brogan from Goodbody. Please go ahead. Good morning, guys, and thanks for taking my questions. I have 3, if that's okay. Firstly, on betting and kind of win margins in the quarter. Can you give any kind of sense either in absolute terms or the kind of year on year comparisons, what was margin like in the quarter? Secondly, on the Netherlands, how quickly do you see revenue rebuilding post relaunch there? And is there any risk that it drags into FY 'twenty three numbers? The update you can give either on kind of timing of the Woody Mail deal or timing of the replacing. Thank you. And Sam, can you repeat that, just the third question? It's the William Hill progress. Okay. So I will start with regard to the Win Margin. So the Win Margin was similar This Q3 versus last year, so this is not really coming from margin. It's really a matter of the volume. But again, we need to consider that Q3 last year was very abnormal. There was a lot of sporting events moving from H1 into to Q3 and therefore the right way to look at that is the 9 months. So 9 months over 9 months, we are still 40% up on the spot. And even if you look at the quarter as a standalone versus Q3 2019, for instance, you will see that the spot was 21% up. With regard to the Netherlands, so we are expecting to launch next year after getting the license. And obviously, there will be some process to ramp up again in this market. And we are suggesting that there will be an impact on our performance next year With regard to Netherland, but it's almost a one time because we don't expect impact on 2023 as this was already in the forecast under the regulated assumption. With regard to William Hill, we just Only comment that process is going well as expected and we are nothing has changed in terms For the schedule, we cannot comment on the trading of William Hill, but in terms of all the processes to bring this transaction to closing, Everything is on track. That's great guys. Thanks very much. We will now take our next question from Simon Davies from Deutsche Bank. Please go ahead. Yes. Good morning, guys. Just a few from me. Can you give us an update on Germany and what you're seeing in the German market And your expectations in terms of the speed of recovery in your business there. Secondly, you talked about this range of $100,000,000 to $100,000,000 of regulatory headwinds. Where do you think you're going to end up at the end of the year? And presumably, given the Netherlands hit, You're more likely to be at the upper end of that range. And obviously, you talked in terms of the Netherlands of certain mitigations bringing down The cost impact of the regulatory changes there, can you give us some color around what those mitigations are and how much they might amount to? So Itay, do you want to start maybe in Germany and then I take the regulatory headwind in Netherlands? Yes, sure. So thanks, Simon. So in Germany, basically the way that we saw the business there is almost Through the relaunch of the new regulatory product is almost kind of a reset of the market. We reported on the impact That the new regulations had on gaming. There was further impact after we relaunched the sports betting business, But we see this as a very attractive market going forward because simply because it's going to be You know, a large scale regulated sports betting led market that also provides gaming. So, this is more about a medium to long term opportunity rather than the short term one. And we're now working on building our presence Okay. So Simon, with regard to the EUR 70,000,000 to EUR 100,000,000, so we will be in this Netherlands, of course, would be absorbed into this €70,000,000 to €100,000,000 So the Q4 impact is within this range. There is a good chance that we will be more on the higher end of the range rather than on the lower side. And just Maybe to complete what Itay just mentioned, Germany was also considered as part of this €70,000,000 to €100,000,000 regulatory headwinds. Now with regard to the Netherlands, so basically, we will launch next year and The direct EBITDA impact is slightly higher. However, when we are talking about mitigation, we are looking on our Current trading on how we see the next year with Netherlands under the new regime and this suggests that We are short with $10,000,000 So there are a few other markets that compensating some of the impact of the Netherland, the direct impact. Well, so you're going to review your marketing budgets in other markets to see where You can reduce the overall impact on group profits. Correct. Thank you. We will now take our next question from Richard Stover from Numis Securities. Hi, good morning. Just one question for me, please. I guess since you announced the William Hill acquisition in September, have you made any sort of tactical changes Then you'll complete the deal early next year. So for example, sort of less focus on pushing ahead with your sports betting platform. Is there anything else that could be tactical changes between September now. Thank you. Thanks, Richard. We haven't made any We are working on intensively on integration plan that will start next year. Our focus is for from our perspective and also from William Hill's perspective to continue business as usual, Forming on both sides and delivering further strong results like we both delivered this year. Right. I see. Okay. So you haven't sort of overemphasized any particular brands in any markets at the moment, knowing you'll have the William Hill and to Green Brands. So as you say, it's just business as usual so far? Business absolutely as usual. Okay. Thank you. As there are no further questions over the phone, I'd like to turn the call back to Scott for questions over the WebEx. Thanks for that, Cecilia. And we've got one question from the webcast. To sorry, it's actually already covered. My apologies. And we've got no further questions from the webcast. So if I could pass it back to you, Itay for closing remarks. Yes. So thank you very much everyone for joining us today. As we said earlier, we're really pleased with the continued progress that we made in Q3 And we are on track for full for our full year plans. We look forward to the future and our combination with William Hill next year We'll transform our business and accelerate our plans to create a global leader and we look forward to sharing more on this early next year. In the meantime, if you have any further questions, please do get in touch with us. Thank you very much, everyone.