Ladies and gentlemen, welcome to the Net Gaming Europe Q2 report 2019. Today, I'm pleased to present CEO Marcus Teilman and CFO Gustav Vadenbring. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there'll be a question-and-answer session. Speakers, please begin.
Thank you very much, Operator. Good morning, everyone, and welcome to this presentation of the second quarter for NetGaming and the first half of 2019. My name is Marcus Teilman, and I'm the CEO of the company. Looking at the agenda, I will first start off with some highlights for the second quarter. Then I will talk a little bit about NetGaming in brief. After that, I will hand over to our CFO, Gustav Vadenbring, and then I will round off this presentation with a summary and outlook, and then, of course, we will have a Q&A session in the end. So let's move on to the highlights and slide four in the presentation. As we have earlier communicated and also expected, there's been a challenging quarter where we have been affected by continuing regulation effects in the European markets, where our revenues declined by 24% year- on- year.
Our revenue share portion of the total revenues increased to 47% from 30% last year, or from 12% two years ago. The shift will give us a more stable and predictable revenue base, which will be beneficial to us in the long- term. In addition to this, we also see increased competition in the North American market, as earlier communicated. However, we're still positive about the potential over time. During the second quarter, we have launched several important product updates in the region, and we will continue to do so during Q3. I will come back to that later on in the presentation. However, all in all, I'd like to reiterate that we see great opportunities in the region, and we will continue to focus and invest for the long run. I'm not satisfied with the second quarter, h owever, I note that our cash conversion is still strong.
Cash conversion is 91%. Our operating margin is still good. We had an EBITDA margin of 58%, and we still have a solid cash position. That means that our business model is still good. Also, I'd like to mention that we have upgraded our proprietary technical platform and made some upgrades to our important brands. We will continue to do so during Q3 and we have also strengthened our betting vertical. I'll get back to that later on in the presentation also. So with that, let's move on to NetGaming in brief and slide number 6. For those listeners that are new and maybe haven't heard anything about NetGaming before, we are an affiliate company. We work in the affiliate industry. So what is an affiliate company and affiliate marketing? Well, it's pretty similar to Booking.com, Hotels.com, Expedia Inc., TripAdvisor, PriceRunner, etc. However, we operate in the iGaming industry.
We operate different guides and tools to compare different bonuses or operators and so on. So we direct end users to our customers, and our customers are the iGaming operators. So we run comparison websites. Let's move on to the next slide, slide seven. I'd like to talk about our growth pillars. Like I mentioned, we have a strong cash conversion. We have the resources to continue to expand our business organically in line with our growth strategy a nd we have three main growth pillars. The first one is European online casino affiliation, where we have already made relaunches and upgrades within our casino vertical, especially within the U.K. and the German markets, but also in the U.S., of course. We will continue to do so in several markets now during Q3. We have improved page speeds, conversion rates, and also our design and usability.
U.S. iGaming affiliation is the second growth pillar, where we have a fantastic position in that region. We have our flagship brand, PokerListings.com, which is our most important brand. We will continue to make several upgrades to PokerListings now in Q3, and we will continue to focus and invest in this very important region to us. Although we see some increased competition now in Q2, we remain positive about the potential in the long run. And also, our third growth pillar is the sports betting affiliation. Now, during the second quarter, we made one acquisition, which was BettingGuide.se in the regulated Swedish betting market. And in the beginning, now in Q3, we also made another acquisition, which is MaxFreeBets.co.uk for the regulated U.K. betting market. Both acquisitions where we see good growth potential over time, and we are also strengthening our betting offering.
We will continue to look at acquisitions going forward as well, but I will get back to that also in the outlook going forward. Like I said, I'm not satisfied with the second quarter. However, I still remain hopeful that we will show improved EBITDA levels in the future, and also now, with the upgraded proprietary technical platform, I think that we can scale up the business pretty good. Also, important to mention is that our traffic underlying KPIs when it comes to traffic and so on has remained stable, so we really have been impacted by regulations in Europe now during this quarter. With that, I hand over to our CFO, Gustav Vadenbring, who will go through the financials for the second quarter.
Thank you. We will move to page nine in the financial section. As Marcus mentioned, Q2 has been a challenging quarter, and seasonality-wise, the second quarter is normally the weakest quarter of the year. As you see in the graph, we had a year-on-year revenue decline of 24% to EUR 3.5 million. The decline is mainly driven by the NDC development on the regulation on the European market. It's also impacted by phase-out of paid media, which we also discussed in the Q1 report, and some increased competition in North America.
We also have a strategy shift from CPA to revenue share, which we talked about the last quarters, also impacting Q2 2019 levels, as we have 47% of our revenues in revenue share compared to 30% last year. In the second graph in the middle, you can see that our EBITDA remains strong. Our margin is still top of the class and one of the highest on the market, amounting to 58%. We proceed to page 10. We see our revenue mix. Casino remains our largest vertical, amounting to 84% in Q2.
You can also see that we continue to work with our revenue diversification and US or North America market, amounting to 18% in Q2. At the same time, we're also working with our revenue diversification regarding revenue split, revenue share , and CPA, leading to our percentage of 47% of revenue share . We proceed to page 11. As you can see, our NDC levels have decreased over time, and it's mainly related to the regulation on the European market, where the operators are facing some challenges. As Marcus said, the traffic in such has been more or less constant or favorable, but the NDC levels are going down due to conversion.
We move to page 12. You'll see the full P&L, as you also can see in the interim report. A few areas that I would like to highlight regarding the P&L. The top line we talked about, but you can see that our cost base, our operating cost base, we are still very close to our cost base, and adjusted for the divestment of Battle Malta in 2018, our operating cost base during the first half year is more or less flat, and our margin is also strong, amounting to 58%, so the reason why the margin is going down is not related to the cost base. It's related to the top line, and that has to do with the scalable model we are operating. Also, to highlight is the financial net, which has decreased somewhat from last year.
Last year, it was a little bit higher due to that we have convertibles impacting the financial net. We move to the next page, page 13. We have a business model which is deleveraging very fast. We are operating the last quarters around 2.1-2.2 in leverage. Due to the business model with a cash conversion of 91%, we can deleverage fast. I also want to highlight that the deleveraging pace will be dependent on both the trading development, but also the amount of acquisitions and the pace of acquisitions that we will execute. Move to page 14. We'll see our cash flow. As you can see in the cash flow statement, we build cash fast, amounting to EUR 12.8 million in Q2. We have a very high cash conversion. As we earlier communicated, in general level around 85%-90% in our operating model. We're amounting to 91% in Q2 2019.
To highlight the cash flow from investments in 2018, they were very high due to the acquisition of Webwiser and also the settlement of the final additional consideration for HLM Malta Ltd. Move to page 15. Our balance sheet is relatively lean and simple. So we operate with an asset-light balance sheet without large movements in Q2. Our net working capital is relatively stable in Q2 compared to Q1, and our equity ratio is continuing to get stronger, amounting to 40% in Q2. Then I hand over to Marcus for the summary and outlook.
Thank you, Gustav. And let's move on to slide number 17 on our financial targets. I'd like to reiterate that our financial targets should be seen on midterm and long-term basis. We know that political changes and regulatory changes in this landscape have affected us short-term. However, that's why these financial targets should be seen long-term-wise. Also important to mention is that even that we see an increased focus in M&A activity, what I see going forward is that we will use more portion for acquisitions using our cash so that it's not impacting the growth in earnings per share. I think that will, over time, give more value to the shareholders. So let's move on to slide 18 and summarize this second quarter.
Overall, the top line development has been impacted by the regulatory effects in Europe. We have seen an accelerated revenue share diversification from 30% last year now to 47% revenue share of the total revenues. And it has actually went up to 47% from 12% two years. So it's been quite a dramatic shift over two years' time. And also now, in the second quarter, we have seen increased competition in North America. But again, we see great opportunities in North America over time and a fantastic potential over there. Also, our underlying margin and cash conversion remains good. And our capital structure and equity ratio is 40%, so it has increased since last quarter. We have upgraded our proprietary technical platform, which means that we have improved site speeds and design and usability and so on.
And on that technical platform, we have made several upgrades and relaunches of core brands. We will continue to do so going forward in several markets, and especially North America. We have strengthened our betting vertical with the acquisition of BettingGuide.se. Also, during the second quarter, Christian Käfling, our new head of M&A, started, and we see quite a good pipeline with interesting opportunities going forward. Let's talk about our opportunities on the next slide, which is the outlook on slide 19. Like I said, we will continue to execute on our growth plan within all three areas, meaning betting, U.S., and casino in Europe. We will continue to make several launches in several markets as well. We have increased our focus on M&A activities. We acquired MaxFreeBets.co.uk in July. We see attractive business opportunities at the moment in a highly fragmented market.
And we will continue to be disciplined when we make the acquisitions and only make acquisitions when these prospects meet our investment criteria and there's a reasonable valuation, of course. And again, I'd like to reiterate that we see great long-term opportunities in North America and in Europe. And I'm hopeful that we will show improved EBITDA levels in the future. And I'm really looking forward to see the upgrades of PokerListings now in Q3, which is our flagship brand and most important brand for the North American market, but also for Europe, of course. With that, I'd like to hand over to the operator for the Q&A session.
Thank you. Ladies and gentlemen, if you would like to ask an audio question, please press zero one on your telephone keypad and your entry key. After you're announced, please ask your question. Our first question comes from Erik Moberg. Please go ahead. Your line is now open.
Good morning, gents. To start off, if we compare this year to last year and assume a similar split of revenue share agreements and CPA, could you elaborate a bit on the underlying growth rate on a year-over-year basis? Because right now, it is a tad misrepresenting to compare 2019 versus 2018 due to the increase in revenue share .
Thank you, Erik, for your question. I understand your question, of course. And we don't disclose the information about the financial impact in full. What we can say is that we get more stable revenues over time, and revenues accumulate over time. And you can also see that the NDCs decrease with 29%, and you have revenues declining with 24%. So that's a kind of correlation which is related to the revenue share compared to CPA. And that will most likely increase as revenue share is increasing as well. But we don't issue the exact financial impacts.
Of course, we do this shift also because we think that over time it will benefit us in the long run. So that's why we have done this shift as well.
Oh, yeah, fair enough. Yeah, yeah, naturally. Obviously, it's a higher quality revenue stream now with a higher degree of revenue share , of course, and then if we look at the U.S., could you just elaborate a bit more on this? I mean, the marketing itself in New Jersey, especially the casino vertical, has been growing tremendously well the past couple of months. You mentioned an uptick in competition. Could you give us some more flavor on what actors you're facing most pressure from?
Yeah, there are quite some big actors in the U.S. and in the North American market in general. And of course, that's impacting us and, I mean, rankings and so on. But also, we have had some conversion issues in North America as well. And that's why we are launching now upgrades to our websites. And it's been quite massive work that has been done now for the first half of 2019 that we haven't actually gotten to see any results from because the results are likely to happen now in the second half of 2019 with the upgrades. But in general, we see a tougher competition. And also, last year, both in Q2 and Q3 for North America were quite strong quarters from our end. T he comparisons are quite comparison figures were quite tough now b ut we see an increased competition, and that's what I can say.
Are you confident that growth in North America will improve sequentially here in the second half of the year from Q2 levels, so to speak?
W e don't give exact figure on exactly when we will see growth. What we say is that we remain confident that we will see growth and that we see continuous potential for the North American market. Also now, with our core brand PokerListings for North America, that will get some upgrades now in Q3. I'm confident that that will give us the boost over time for North America. It's hard to say exactly when that will happen, but I mean, we work hard to get back to the levels where we think that we should be and so on.
Fair enough. And just as a base case for the remainder of the year, is it fair to use the regular seasonality pattern?
I think so far this year for Q1 and Q2, seasonality patterns have been somewhat in line with what we said before. It's hard to really comment now on Q3, Q4, but in general, I would say so, yes. But also, the regulatory effects, it's hard to predict now because now we are on a higher portion of revenue share revenues and with lower lifetime values in general, I would say now, short-term-wise in some markets. So that's my comment I'd like to mention. And also, one more thing to mention is that Q3 last year was quite a strong quarter for us. So that's important to keep in mind when you look at the comparison figures.
Got you. And just in general, I think we all can agree that 2019, in many ways, last year, I mean, the industry in itself is under a lot of pressure. And while you are investing a lot in your own offering and also changing focus towards the revenue share model while phasing out paid media, all this naturally results in very tough comparables versus 2018. But if you look into 2020 and beyond, could you give us some more flavor on the growth prospects you see ahead and, yeah, sort of like the initiatives you're doing to get back to growth in 2020 and beyond? And you mentioned the financial objectives there briefly, but you don't see any reason to make any changes to those. And are you still confident that you can achieve a 20% average EPS growth per year in the medium- term?
So let's start off with the outlook for the coming years. I mean, that's why we've done these investments now in our proprietary technical platform. We have increased the number of staff within our design team and so on and the conversion specialist and everything. We work more with data and so on. And why have we done that? Because we do this for the long run. So, I mean, we are positive if we look at our future over time. But I can't give you any kind of indication in growth rates and so on for 2020 or 2021.
I mean, these quite heavy investments that we have done now, I mean, we have done these investments in order to grow. That's for sure. And also, yes, and your second question regarding the financial targets, if I'm not mistaken, Erik, I mean, the financial targets should still be seen at midterm and long- term. And I think we can all agree that 2019 is a tough year and has been a challenging year so far for us b ut I don't think that we should be stressed for short-term political and regulatory changes. I mean, I think that can harm us, actually, for the long- term.
So those financial targets should be seen over time. And that's when we launched these financial targets. Also, when we launched the financial targets, we said that the targets should be seen if the regulatory landscape would be unchanged. And as you know, there have been quite some changes now in several markets that have been affecting us and our customers, the operators, short-term-wise. So again, the financial targets are still there. They should be seen over time, mid- to long- term.
Fair enough. That's a good answer. Thank you very much, guys.
Thank you, Erik.
Thank you.
Thank you. And as another reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Okay. It appears there are no further audio questions. I'll return the conference to you.
Thank you, Operator. I'd like to thank everyone for listening into our presentation, and see you again in November when we present our interim report for the third quarter. Thank you.
Thank you.
Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.