Ladies and gentlemen, welcome to the Net Gaming Europe Q3 Reports 2019. Today, I am pleased to present Marcus Teilman, CEO, and Gustav Vadenbring, CFO. For the first part of the call, all participants will be in listen-only mode, so there's no need to mute your individual lines. And afterwards, there'll be a question and answer session. Speakers, please begin.
Thank you very much. Good morning, everyone. My name is Marcus Teilman, and I'm the Group CEO of Net Gaming. We've met today to present this report for the third quarter of 2019. I have our Group CFO, Gustav Vadenbring. Looking at the agenda, I will start off with Net Gaming in brief and highlight. Then I will hand over to Gustav, and he will go through the financials for the third quarter. I will then go through the summary and outlook, and then I'll hand over to the operator for a Q&A session. Let's start with Net Gaming in brief. Looking at slide number four, Net Gaming, we are a lead generation company. We are in the lead generation industry, just like Booking.com, Hotels.com, Expedia Inc, and TripAdvisor in the travel and hotel business.
So what we are doing is that we are driving traffic to our partners, the iGaming operators, since we are primarily within the iGaming industry at the moment. Our role models are definitely Booking.com and Hotels.com, which we think have a fantastic product, and that's what we try to achieve as well. Let's move on to the next slide, and slide number five. We are a global and scalable company that was founded in 2003. So we have been operating in over 16 years. We're operating in over 30 countries, and we have almost 30 nationalities in our office. During these 16 years, we have built up structured capital and know-how with focus on technology and data, which is kind of hard to copy. Through our newly launched technical platform, we have a scalable platform connected with a business intelligence system, SEO competence, data-driven analysis, and high-quality content.
All these together will generate high-value leads to our partners. That means that it's increasing the gap to our smaller competitors. That is also how we're going to operate the business going forward, to increase the gap all the time to our competitors. We are definitely set for scale with this, and we will continue to develop our know-how and structured capital going forward as well. Let's move on to slide number six and our three growth pillars. First growth pillar is European online casino affiliation. This is our core market, where we have an estimated market share of approximately 1.5%. We have been growing quite rapidly in our core market for the past three years, and we believe that we have significant growth potential going forward, where we would like to, or our ambition is to increase the market share even further.
Especially with our scalable platform, I think that will allow us to do so as well. Second growth pillar is the U.S. iGaming affiliation. We are definitely well positioned for the iGaming regulation with our core assets, such as PokerListings.com, CasinoGuide, and also now this morning launched CasinoGuideNJ.com. This is the first launch of a niche site targeting the state of New Jersey, and this is only the first launch of many planned launches going forward. A nd our third growth pillar is sports betting affiliation in Europe. Sports betting in general, globally within iGaming, is the largest vertical, amounting to over 50% of the total revenues for the iGaming industry globally. For Net Gaming, 8% of our revenues is coming from sports betting. We made an acquisition now in Q3, which has developed better than planned, and our share of total revenues from betting is increasing constantly.
We believe that we feel that we have just scratched the surface here in this betting vertical, and we see great potential to grow further, both in Europe and the U.S. within the sports betting vertical. So we will continue to execute on our three growth pillars going forward. Let's move on to slide seven, which is our direction forward. And I've got some feedback and some questions as well from investors about our direction going forward. So I'd like to clarify our direction going forward. Last year, we launched our financial targets, where we said that we will have a strong focus on organic growth. That remains. However, this year, we have been impacted by regulations in some European markets, and we have also continued our strategic shift from CPA to RevShare, now amounting to 60% of our total revenues, compared to only 12% in Q2 2017.
It's quite a drastic shift that is impacting our both top line and EBITDA level. Therefore, this year, we have also made some acquisitions within sports betting to step by step get a better both geographical mix, but also vertical mix, since we believe that we have fantastic growth potential in the betting vertical. We will focus on less brands, but develop stronger products and concepts. I think that we have a lot of fantastic improvements here to do from a product point of view. Like I said, our role models are Hotels.com and Booking.com, and we think that we can look at them and see how they work with user-friendliness, how they add user values, and so on. We will do the same. Also, when we improve our products, etc., we are confident that we will also improve our conversion rates that have dropped lately.
By developing strong products and concepts, we have a good foundation to continue to make a geographical rollout and continue to build up strong brands. Our main focus is to grow on regulated markets, though. We have stable revenues in low-risk environments, and our main focus, like I said, is to grow on regulated markets, but with revenue share as the main revenue model, and this quite drastic shift from 12% in Q2 2017 to 60% in RevShare now in Q3 2019 is, to some extent, kind of completed this transformation. We are quite happy with the current levels of 60%. It could be that we will be somewhere on 60%-70% in RevShare going forward, but we're happy that we have come this far. Of course, it also impacts our top line and EBITDA levels.
We have now seen in Q3 2019 a stabilization in both revenue and EBITDA levels compared to the previous quarter. This is the level where we will be set now for future growth. We believe that this is the best way to build the company long-term sustainably, to operate the company in regulated markets, but also on high share of our revenues coming from the RevShare model. We are still a profit-generating company with strong cash generation, and we are month-by-month and also quarter-by-quarter, of course, increasing our cash position, which we will use to lower our debt. Our balance sheet is important, has always been important, and will be important going forward as well. However, we are continuing to evaluate strategic partnerships and acquisitions, although it's not our main focus. We continue to screen the market to see what is out there.
And if there is a strategic fit and the structure for the deal is right, then we might do acquisitions, but it's not our main focus, and that's important to point out as well. Let's move on to highlights and slide nine. So during the third quarter, we are, as expected, affected by indirect regulatory changes and continued shift to RevShare. On a year-on-year basis, on a high-level assessment, the two main reasons for this year-on-year drop is, of course, the transition to RevShare, an increased proportion of RevShare, but also from regulatory stakes. And these are split more or less equally, the year-on-year impact, so to speak. Q3 is in line with the previous quarter, Q2. And normally, both Q2 and Q3 are the weakest quarters during the year. So we see a stabilization in both revenue and EBITDA levels to grow from.
And keep in mind also that in Q2 this year, so the previous quarter, we had 47% RevShare, and now we have 60% RevShare. So it has stabilized these levels. We continue to accumulate cash every month, thanks to the high operating margin and strong cash generation. So we have a strong financial position, which we will use to continue with our organic growth focus. Let's move on to the next slide, please, slide 10, which is significant events. During the third quarter, we made an acquisition of MaxFreeBets for the UK sports betting market, which is a regulated market. We have the acquisition itself has developed better than planned. We're very happy with that acquisition so far, and we can also use this acquisition going forward for other growth initiatives as well.
We have also migrated and upgraded some of our core brands, two of them being CasinoSpielen and CasinoGuide. We migrated them to our new technical platform, and we upgraded the two products as well. After the quarter, we have now launched PokerListings, which is our highest traffic-generating brand that was launched on our new technical platform, where we have added a casino section. So we can use this casino section to monetize more on casino traffic. And we plan to also launch a betting section on PokerListings later on. This morning, we also launched a niche casino website in New Jersey, which is CasinoGuideNJ.com, which is the first of many planned launches for the US market going forward. After the quarter, we also repurchased some of our bonds at a nominal amount of SEK 37 million.
So we used that in order to lower our interest and financial net going forward. With that, I'd like to hand over to our Group CFO, Gustav Vadenbring, who will go through the financials for the third quarter.
Thank you, Marcus. We move to page 12, please. As you can see on our revenue development, as Marcus said as well, we have stabilized the revenue development in Q2 2019 and Q3 2019 around EUR 3.5 million quarterly. Q2, Q3 is usually also the low season quarters. And we have had a shift of CPA to RevShare up to around 60% between the quarters. So that means that the revenues have remained stable even though we had the shift. So you could potentially see that they should have increased between the quarters in case the RevShare should have remained at the same level.
Also, see that our EBITDA margins remain very strong, around + 50% in Q2 and Q3. So we are still operating with a very high margin. Please change to page 13. During the last year, 12 months, we have been working continuously with revenue diversification. We see a big step in the sports betting vertical, where we increased to around 8% of the revenues. That's the left circle, which is pink on the sheet, which shows 10% for other revenues. But sports betting is included there and amounts to 8% of those 10. As Marcus said as well, we see a quite significant shift during the last three years in RevShare and CPA. So we increased from 17% in Q3 2017 up to 60% in Q3 2019 between CPA and RevShare. And that has impacted our revenues, like Marcus said, around we would estimate on a year-on-year basis around 50%.
We switch to page 14. We also see that our industry development has a sequential increase in Q3 2019 compared to Q2 2019, which is very positive for us. This could also be translated to that it could generate potential growth in the coming quarters, as we also now have switched to 60% RevShare. We move to page 15. We continue to have a strong P&L. You can see that our revenue levels have stabilized in Q2 and Q3, and we are operating around EUR 3.5 million in revenues. Our cost base has been stable between the quarters, and we also see the rest of the cost items are relatively stable. So we continue to operate with a strict cost control, and it will also help us with the scalability for the future when revenues increase. Switch to page 16.
Through the business model, we are operating with a very strong cash conversion and also very high margins. It enables us to deleverage very fast. Thanks to this, we have had a very strong cash position the last quarters, and that has led to that we had decided to repurchase some of our bonds after the quarter. So that is not included in the Q3 figures, and that was handled in October after the closing of Q3. It will not impact our net financial debt position in such as it's a repurchase of bonds. We move to page 17. We yield a high cash conversion around 82%-85% on a year-to-date basis, both 2018 and 2019. You can see we have a decrease in Q3 2019 to 73%, and that is mainly based on our debtors that increased somewhat, and it's only a timing effect.
That could happen between quarters, but on average, our cash conversion is around 80%-85%. We will move to page 18. As we mentioned earlier sessions as well, our balance sheet is strong. It's quite a light balance sheet, and in Q3, our equity ratio has reached 41% and is still growing or improving, and we operate with our net working capital level around 8%-10%. And this is what is enabling our strong cash conversion as well. Move to page 19. We have financial targets that we work after. As you can see, we have deviations this year, which is based on the explanations Marcus has been telling you about. What is important to take with you is that our financial targets should be reflected upon over two to three years' time.
These are the financial targets we work after that we're going to deliver the coming year, and they will remain unchanged for the next year.
Thank you, Gustav. Let's move on to summary and outlook. Summary Q3 2019 and slide 21, please. Like I said, on a year-on-year basis, we have been mainly impacted by regulatory changes in Europe, but also an accelerated revenue share diversification from 30%-60% from RevShare agreements. These are the two main factors for the year-on-year drop that are, on a high-level assessment, split equally. However, Q3 compared to previous quarter Q2 is in line with our expectations, and we have seen a stabilization of both revenue and EBITDA levels for future growth. We have a new operational organization in place in order to improve our products and also our conversion rates to grow further.
With the relaunches of our core brands on the new technical platform, we can scale our business and be more efficient. And we're coming back to that regarding PokerListings on the next slide. We have also seen a major step within betting reaching 8% of our total revenues, which is a good step. Like I said, betting is more than 50% of the iGaming revenues globally. So we're confident that we'll continue to grow within betting because it's a very strategic focus for us going forward as well. Let's move on to outlook and slide 22. Like I said, we will continue to execute on our growth plans within betting, U.S., and casino in Europe. We will prioritize organic growth on existing markets and use the revenue share model as well, now amounting to 60%.
We are happy with the current levels, although it could fluctuate a little bit between 60%-70% going forward. Our core market, casino affiliation in Europe, where we have 1.5% market share, has seen quite a rapid growth for the past three years, although now, short-term-wise, we have been impacted by regulatory changes, of course. We're confident that we will grow in this core market as well going forward. Especially now with increased focus on our strongest brands and product improvements, I think we can turn the trend around when it comes to our conversion rates and improve our conversion rates further. Especially with the new launch of PokerListings on the new technical platform, where we have added a casino section. Keep in mind that PokerListings is a very strong domain name itself and a strong brand. It was launched in 2003.
So it has a lot of great SEO potential to drive traffic to the casino section. And later on, also, we will add a betting section. So this initiative, launching PokerListings.com on the new technical platform, I'm confident that we can get some casino numbers on PokerListings as well, even short-term. CasinoGuideNJ.com is a more long-term initiative, which is the first of many planned niche websites for our rollout in our U.S. expansion plan. And going forward, we will continue to operate the company with high margin and strong cash generation that we will use for these organic growth initiatives and to lower our debt. And with that, I'd like to hand over to the operator for the Q&A session.
Thank you, ladies and gentlemen. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name has been announced, you can ask a question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. So once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Jens Black at Strategic Investments. Please go ahead. Your line is open.
Hello, Marcus, and hello, Gustav. Can you tell me how many clients or how many percentage of your clients are you sending to unregulated sites?
I don't really get your question. We don't divide our clients into unregulated markets in that aspect, but I assume you understand that you're asking about the share of our revenues coming from regulated markets. Correct, I assume?
Yeah.
We haven't disclosed that figure publicly, so I can't do that in this call either.
Okay, because main focus should be on the regulated markets, as I think, because otherwise, you won't be complying with responsible gambling.
Yes. Like I said, in our direction going forward, our main focus is to grow on regulated markets. So that's correct.
Okay. Are you having a page on your homepage where it says how you are acting to responsible gambling and what kind of initiatives you're taking?
Yes. We have a responsible gaming focus on our product, and we are continuously going through our responsible gaming sections on our brand. And we have an initiative now also to improve that responsible gaming section going forward as well with even more self-assessment tests, etc., to make sure that the users can test their patterns and so on so that they won't be likely to come into gambling addiction. So it will be a focus going forward as well for responsible gaming, and we will improve that.
Okay. Thank you.
Thank you.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. Okay. There seems to be no further questions at this time, so I'll hand back to our speakers for the closing comments.
Thank you very much for that. I'd like to thank everyone for listening in both on the web and also on the phone, and see you in February when we will present the year-end report for 2019. Thank you.
Thank you.