Earnings Call: Q4 2020

Feb 18, 2021

All right. Good morning, everyone, and welcome to Crowd's Q4 Presentation. So my name is Robert Anderson. I'm the CEO since a year ago. With me here to present the financial details Later, I have Gustavo Aden Brin. And today, we will get a quick overview. Then I will discuss the journey ahead as there's been quite some large changes in the company. And after that, Gustaf will go through the financial details and I will end with some closing comments before we go into question and answers. So to start off with, we will have a quick overview of the company and the quarter. So if we look at the Q4, our revenue amounted to almost €2,500,000 and an EBITDA of almost €1,300,000 Profit after tax was negative almost €700,000 but About 1,000,000 of those negatives is due to foreign exchange And our bond since our bond is in SEK, it's had a negative impact on the net results. The change in new depositing customers is positive. It's up 3% and cash flow from operating activities was almost €1,000,000 Moving ahead, if we look at other key figures and also for the full year, It amounted to slightly above €11,500,000 EBITDA at around €5,500,000 and profit after tax was 1.25. Depositing customers has gone down. This is predominantly due to the changes we had in the Dutch market and adapting to regulations. That market is set to open up during this year again, and we are well positioned for that. Cash flow is also about or above SEK 5,500,000. So you see that the cash flow is our EBITDA very well. We have a diversified product offering in Q4. Casino is not as predominant anymore. Poker has been gaining ground. We're doing a lot of good things in poker. Sports remaining roughly the same in the mix and others is predominantly in the financial vertical. So if we look at some events during and after Q4, we are executing on our growth strategy pretty much spot on, I would say. So what we have been doing is acquisitions, but we also have combined that with focus on organic growth by focusing on fewer sites. We also did a new share issue where we raised approximately €90,000,000 to strengthen our balance sheet. It also reduces The risk in the company, but it also makes us be able to do acquisitions. We did acquisitions and we acquired a sports betting focused company that's focused on emerging markets as well as the UK. We have been granted the licenses in several U. S. States. I will talk more about that later. And then we acquired the assets of Power Media Group. And those assets are VONIX. VONIX is a software as a service product. Matching Visions is, I would say, a business hub in between affiliates and operators. So I would classify this as a business as a service, more on that later, and Traffic Grid is more a traditional advertisement network. I thought it would be interesting to take a little bit look back at the year because it's pretty much a year since I joined the company as well almost on the day. So to sum that up, it's been a really challenging year on many levels. Of course, corona, but also within the company, I came into a company that was quite focused on just its affiliate sites and stuck in details, maybe, if you will. So we have shifted the strategy to being more offensive and we secured the refinancing and raised new capital. We not only changed the company name, but the brand and we're rebuilding the culture in the company and execute some strategic acquisitions. And I think that this year is now we have really laid the foundation for future growth. Me personally, I'm extremely optimistic about the future simply because we have built such a strong team now. The mindset is transformed. We are very entrepreneurial nowadays, which feels great. So now we are finally starting to form this. If this wasn't clear before the name of the company, Crowd, is a play with the word crowd and we'd like to see ourselves as a crowd of brilliant minds. All right. So if we look at the journey ahead and how we get to where we want to go, We can start off with this strategic repositioning that I've been talking about from the old net gaming and traditional affiliate business in casino kind of thing. So we are moving from few markets and a single business model to a much more diversified business model where we now are becoming more and more a software based company with our core. Yes, of course, our main thing is still within affiliation and in iGaming, but it's definitely more revenue streams now and you will understand the kind of strategic journey that we have ahead ourselves. I'll try and explain that a little bit more now. So it's a new crowd. We are at your service. So in the base, we have our traditional affiliate business. We are an affiliate, right, and we do this within poker and sports betting in the casino vertical. We have our flagships such as poker listings and casinospielen, casino guide, casino top 10. So that's the old business. But now since we did acquire the assets in PMG. We are really starting to build out an ecosystem in this industry that can reach well beyond what I would say the traditional affiliate business. Yeah. So we have what I like to call the boss DILERT, which is the business as a service. Matching Vision is an excellent example of this. This is basically a meeting place for other affiliates and operators. So we offer affiliates to join this network, and they will be able to access business with larger operators that's potentially out of reach for them at much better terms than they would if they went at it alone. Traffic Grid, as I said, is and advertisement network. And in the SaaS business, we have something called VONIX, which is a data collection tool, which is probably industry leading in the sense of being able to provide larger affiliates with data so that they can steer their business in a very solid way. And then we have f hat, which is, if you will, a software that allows you to create your own matching vision. So if you want to build out a meeting place for other affiliates and connect other businesses to that. Affhub is your go to software. This one has now been also expanded to be able to and the streaming affiliates really well. And this is something that we are launching currently and we are in an alpha phase with this and doing some trials, which is for us a really interesting proposition that we are creating basically a matching visions, but for streamers and this can easily then reach into other verticals within streaming such as e boards. So this is something that we are really excited about going forward. There's a lot of things in the pipeline. So The new Acrowd is at your service based on these three pillars. So if we look at the strategic initiatives that we have a little bit, we have the geographical expansion. We are expanding into U. S, about 20% of our revenue is coming from the U. S. Obviously, we want more coming from there. We want to expand beyond the iGaming vertical. We have some in the financial sector. With Vornix, we have an excellent unity to move into other verticals as well to provide basically intelligence and data for affiliates in other industries. So that's 1. We are going into rich content and streaming. As I just explained we are launching basically a matching vision for streamers, which is going to be hopefully really successful going forward. I have personally very high hopes for this. And it also goes really hand in hand with the letter of intent and the possible acquisitions that we are trying to do going forward, which is based on also streaming, but they are also actually a software as a service company, if you read the press release from yesterday, where they have a tipster service that helps you create better bets. So all of this goes well into the fact that we want to be a software based company that has a much stronger strategic structural capital inside the group and just the traditional affiliate sites with casino top lists and how to play poker and all of this. So we are building more value into the company, I would say, with this. If we look how this plays out on a tactical level, this means that focus less is more on the traditional side of things. This means that we are focusing on fewer sites that will get more love and attention and also work harder on its rankings and reach. We still have our M and A, which, well, you could see yesterday, we like to do M and As that sits right into our strategy. Diversification of revenue streams, this is again something where we are came into our M and A activities and our own organic activities, how can we build up more revenue streams to not be so sensitive to one revenue stream. And then, of course, we have the U. S. Rollout in terms of the geographical diversification. U. S. Is focused and we have the luxury of having organic traction now. Actually, one of the acquisitions we did We did have almost unexpectedly started to gain traction with 1 of its sites in the U. S, which we are now seeing that we are going to put a lot more internal focus on growing. So but looking at the regulations, We say that more and more are regulating and now we've been talking about U. S. In particular. So if we look at U. S. In particular, what's happening there? So let's start off with here In these states, you have some sort of already regulated betting industry or have passed bills. So then the natural question becomes, of course, where are a crowd? As you can see, we have licenses or business certificates in 9 states where we can operate. That's why we also now have 20% of our revenue coming from the U. S. So in the future then, how is it looking? Well, we have another 3 applications filed that are pending. So we are likely going to get these in March. And then if we look in general on the immediate future and the big upsides. Well, of course, if we get these through, New York and California, we don't know When, but when they happen, there are some tremendous upsides here. But we continue our push in the U. S. Both organically, but we are also well, I will get more back to that soon. This is then our brands that we have. Some of them are then in the different pillars and some of them, They are in the different pillars. So we have Onex, Adfap Matching Visions, but these are really our focus at the moment. If we go over to M and A and then related to U. S, as I was just talking about, we have assigned LOI with something we call product vertical. We did focus in the end of the year a lot on getting the PMG closed and to be able to integrate that as soon as possible. This is taking longer than planned. We are actively working on this, but taking longer than planned and due diligence in the States is a little bit more cumbersome and then we are used to simply because we all the background checks needs to be done, so there are nothing that affect our current portfolio of licenses, but we are moving on that. And then we have Project Santa Claus, like we like to call it, and this is what we actually announced yesterday. It is a large streaming and betting tips provider. It's predominantly a software based tips to service. This generates most revenue and they have in that, they have a percentage of turnover from the betting providers. So yet again, it's a new business model because if you have rev share, you are sensitive on the revenue share, which is based on net profit from the player, then you are sensitive on the player losing or winning, especially in sports, you are sensitive to if all the favorites wins or loses. Here, it's a percentage based on turnover. So you actually are not sensitive to wins and losses, which is, you know, another diversification of the revenue model, which is great. Then their streaming services brings in also NDCs, so the traditional affiliate revenue. But in the streaming channels, there's also traditionally paid media that makes money. We see large synergies going forward. This also since we are launching software to help improve streamers to track their revenue and to create more business. So we find this to be not only a perfect match in our SaaS model, but also within our push in streaming. Yeah. So with this, I hand over now to Gustaf Todd to actually go over the financial details. Yes. Thank you, Robert. I'll give you a flavor of the financial development in 2020 and also the Q4 in 2020. 2020 has been a relatively challenging year for us financially. At the same time, we have we built the company fully and transform it and also adapted it for future growth, which we will see in the future. What we can note also is that we also have a total different risk profile with all the diversification we do, and you'll see that on the next coming slides. During the year, we also have adjusted our product offering in Holland, like Robert mentioned, that was impacting our revenues in the Q3 and Q4, as you can see. What we can see also is that In Q4, we are increasing revenues and also our NDC levels are increasing significantly, driven by poker and Debting. If we look on our revenue diversification, we've been working with that quite significantly the last year, we can see that the poker vertical is gaining ground, as forward said. And we also see that sports betting is increasing quarter by quarter. We will see that The sports betting will increase further on as well in line with our strategy. We also see that the North American market is growing. We increased our traffic there and also We increased the revenues within poker. In last years, we've been working with revenue diversification of the company. 1 of these the tracks we've been working with this has been to increase the amount of revenue share to create sticky revenues. And during This year, we in 2020, we are around 60% to 65% rev share, which we think is quite a good mix for the future. We also have been working quite a lot with implementing new revenue streams. So from Q3 this year, we have started with the upselling and selling fixed fees, etcetera, and they comprise now almost 10% to 12% of our revenues, which you can see in the upper right corner. The cost base of Aquaad is relatively simple as a business model, mainly comprising personal costs and employee costs. The personal costs have been somewhat decreasing the last 2 quarters as we have a little bit less full time employees and our other external costs have increased a little bit. But the cost level for 2020 has been in total quite flat for the full year. What we're doing as well is that we're allocating costs from more sites to less sites for the first. And the other one is that we are allocating costs more to revenue related areas where we invest more in marketing and direct sales. The business model of a crowd is also enabling a high EBITDA margin. We're operating with margin plus 40% during the year, you can see. And we We also is scalable. So when the revenues has decreased in Q3, we also it impacts the morning, so to say. Now we go to our financing in our debt structure. During the year, also the business model enables us to deleverage very fast As we are operating with around 80% cash conversion, at the same time, CapEx is quite limited in this kind of business. So that means that a lot of the EBITDA converts to cash, which is very good. And During the year, then we have decreased our gross debt. It's been partly the new share issue That was done, which has enabled us to do repurchase of the bonds. This has also led to that we decreased our interest costs in which you can see in the PML. We'll go to the cash flow development of the company. We can see in 2020 that our operating cash flow remains strong. We are already around EUR 5,800,000 in operating cash flow. And the items that are impacting below the operating cash flow, cash flow from investments, that's mainly related to Robert told you about earlier, but also earn outs from previous acquisitions of Max Re Bets last year. The other item was the cash flow from financing activities is the group widget, it's mainly related to Cash in from the new share issue, which was done in November 2020. And that has been then counterbalanced by where we purchased bonds of around EUR 6,200,000 during 2020. At the same time, we had transaction costs from refinancing a new share issue around EUR 1.6 and we have also amortized our bond up to EUR 1,200,000. What is notable as well is that we decreased our interest payments almost by 20% during 2020. I will leave over to Robert for some closing comments. All right. Then Let's try and summarize this. We are moving towards being a service company. We have a lot of new revenue streams in our new company. We have a lower risk profile. Our balance sheet is better, more revenue streams, as I said. A strong M and A, I think we have done some really good and smart acquisitions and I think we are about to do them as We announced with the letter of intent as well. So I'm really happy where we are at the moment. I feel that last year in 20 20 has been a lot about, you know, call it spring cleaning or what you want, but kind of shaping up the company and building the foundations that we are going to jump into the future from here. I feel really good about now 2021 and 2022. It's well, what can I say? The job is starting to be a lot of fun now. So we also have, of course, strong cash conversion from operating activities. And as always, we are focused on building shareholder value, it's a given. So with that said, A lot of pieces of the puzzle are falling into place and we are really developing the media house of the future and we are preparing ourselves for growth, and you can expect us to keep this very high pace as we have had during the year because The only constant in life is change. So with that said, I say Thank you. And now we are ready for questions and answers. Thank you. Our first question comes from the line of Erik Moburg of ABG. Please go ahead. Your line is now open. Morning, gents, and thanks for taking my questions. So to start off, in regards to the European business, Although it improved Q on Q, performance is still lacking year over year and also when we compare it to H1 2020. Could you perhaps give us some more color on the previous issues as well as what you have done to address this? And also, when we assess that we will That we will start to see growth on a year over year basis again from Europe. I'll try and answer that as clearly as I can. The drop you have seen from Q3 and Q4 is Predominantly, almost fully related to our shutdown of business activities that was in relation to the Dutch market due to the upcoming regulations. It's as simple as that. It was a really big market for us. That what we're seeing now, there are some slight delays in opening up the market. I think they just announced a month delay where They will start taking applications now in April, which means that we believe business will be up and running sometime Q3, for this year, and we are well positioned to regain our revenue quickly. We are now in dialogues already with a lot of operators that are planning to apply for licenses so that we can be there helping them drive business from day 1. Is that clear? Otherwise, I also think that Europe is back to growth without the Dutch market this year, so to say. That's a good color. And just a follow-up on the Dutch market there. Given that you operated there before, and I guess that was against the cooling off route, so to speak, you think that this will have any sort of make it harder for you to obtain a license once that market I've actually seen that. Yes. It's not us that needs to obtain a license. And we have had a good dialogue with KSA and we have cleared all matters. So there is nothing that could potentially, stop us there, so to say. And as I said, since I came in, we have picked up a very good dialogue with KSA and there should be no issues. Got it. Great. And just a follow-up here on Europe and outlook for 2021. Aside from Germany, which I assume will face headwinds. Are there any other regions that you perceive any headwinds on a year over year basis? Or would you say that Demand has increased. I say that what's happened What could happen to us has happened to us, if you will, right, which was the Dutch market. Sweden is becoming a much or interesting place because all the tough regulations, I would feel, is in place. So there I don't see any more downsides, for example. So to answer that, no, Germany for us was a very small part of our market for good and bad. So that has had a completely insignificant impact on us. Okay, great. And then on the U. S, I mean, obviously, you witnessed some improvements here both Q on Q as well as year over year, but it's still below both 2018 2019 levels. And this is a region where iGaming, which is quite an explosive growth ever since. Could you perhaps elaborate a bit on why that is the case? Well, it's simply because the tension wasn't there before as it should have been and with the big changes we have done within the organization and the focus, I can't answer for how it was run before, but we are putting since more than half a year ago now some proper focus with launching also organically competitive products. I think there was a case before maybe there was not enough reinvestment of growth. And since revenues were going down, there was A whole team investing enough to keep the competitors at bay, so we lost ground. So we now have some regaining to do and that's been part of our strategy for quite some time now, but we need to be better than our competitors. So we are working hard on it. I think that's the honest answer there. Got it. And then just follow-up, You now have a license in both PA and Michigan. Could you sort of give us some color on when you expect these expansions to come through on the top line? I can't give any comments to that now, obviously. So that's as we go along, we will report it. We don't give any forecast there. Got it. Thank you very much, guys. That's all for me. Thank you. And we currently have no further audio questions. I will hand back to the speakers. All right. So then that was it for Q4 and that puts 2020 behind us. As I said before, I'm really excited about 2021 and I'm actually already now really looking forward to present the Q1 figures. But I guess that will happen in May. So see you in May. Thank you.