Earnings Call: Q3 2019

Nov 18, 2019

Welcome to the Catella Media Q3 Reports 2019. Just to remind you, this call is being recorded. I now hand the floor to our hosts, CEO, Per Hellberg and CFO, Erik Kuyden. Please, begin. Thank you very much, and good morning, everyone. Can I have the first slide? Yes, please. So welcome to this Q3 presentation of 2019. The next slide, please, to presenters is myself and Erik Kadien, who is our Interim CFO. And if we go to next slide, we're going to show you the agenda for today's call, which is that we will start with the quarterly highlights of this quarter, followed by a business update, followed by the financial. And then we'll be looking to a bit about the strategy and outlook in order to explain you what actions we are taking right now in order to further grow the business going forward. In the end, we will finish off with the Q and A where we have the possibility to ask your questions, and we will respond accordingly. Next slide, please. So if you look at the quarter highlights and then the next slide, Slide 5, please. We are happy to announce that after 3 consecutive quarters, we have been able to do a turnaround of our business. It's actually the 3rd best quarter in the history of the company. And the trend shift is a result of a couple of things, which I'll go through a bit later, but predominantly that we have good trends from U. S, from some casino products, we also performed very well in Asia. On top of that, we have also managed to stop decline in the European casino business that we've been working hard for the past 3 quarters in order to level that out and start to see some improvement there as well. So in total, that made us grow with 11% from the 2nd quarter, but also to a healthy establishment of a growing profit margin again. Next slide, please. Based on the results, as we have had 3 quarters of decline in business, it comes as no surprise that still we are tracking below last quarter, the quarter Q2 2018, that is. We managed to conclude revenue of $26,400,000 this quarter, dollars 11,500,000 of EBITDA, and we had a healthy improvement of the EPS. But that also, as Erik will mention a bit later, will is a result also of the revaluation of the bond for this quarter. Next slide, please. And further one slide, we will take you into the 3rd quarter business details. We have decided to put them in the plus and a minus section here. Some are actually a bit between, so let me take you through this. The U. S. Market is growing very nicely. We had a good trend. We are actually having a business now that represents 17% of the year to date business is regenerated by the U. S. Market. What we could see here is that in the quarter, we had a couple of different activities depending on what states we're looking at. If we start with New Jersey, we had a typical business where we started it very strong last year. It was the 1st day that went online with sports betting. It was in time for the NFL kickoff season, meaning the American football season, and had a massive inflow of customers to drive that. We forecasted it to be a bit below this year as there was such a huge demand and news last year. It's more or less came in according to our plan, but still that is still a very good result for us. And the market share and the position we're maintaining in New Jersey is very, very strong. The other news for this year that helped the business to grow as well was Pennsylvania open up business in a bit before the quarter, but that we could actually have it running full speed here in the quarter and for the NFL kickoff. But the difference here was that there were very few operators online at the time for NFL kickoff. In our case, we need a lot of operators in order to get the bidding volumes and the bidding prices in our traffic up to optimized levels. And with few operators, we could not maximize pricing, meaning that we came out a bit below our own assumptions revenues for the Q3. But still, considering that is incremental business, we're very satisfied with the quarter. So that said, there are obviously more things that we can look forward to in the future. Also, we started to drive casino traffic in Pennsylvania. Even though it's not as large as sports, it also helped us to incrementally grow that market. And also we have increased our investments in pay per click advertising in casino sorry, in sports, with casinos open a bit later that we also want to back to within, and we managed to do a satisfactory margin in that field as well. And traveling to the other part of the globe and looking to Japan, we had a very nice quarter there as well with the all time high revenues. Strong growth, good margin. And as you can see by industry news, there's a lot of focus on the Japanese market now to continue to grow and we're very happy that we have good presence there. Especially also, as I mentioned a bit later that we now are up and running with past gamblers there as well to make sure that we utilize our efforts there as much as possible. Talking about Askandlers, we managed to do an all time high in terms of both revenue and generated indices in the quarter. And I will come back with a couple more details about that business on next slide. But before that, our European casino products that has been struggling for quite some while, as mentioned in the last quarter and the one before that, we have applied a lot of resources, tried to turn this around by rebuilding the sites, by improving the quality, put more resources to do that to build a stronger future. And we're happy to announce now that the business has leveled out and some key personnel starting to grow back traffic and revenues as well. So the actions there seems to be working nice. Then if you look at the maybe not so good, but some of them actually that will be good things, one example is Italy. As some of you may know that almost 1.5 years ago, it was announced that Italy will apply new marketing bans in Italy based on July this year. We're equally was supposed to completely stop any form of advertising. In the end, it came in with some opportunities, of which affiliation is seen as one of them. And we have, of course, adapted our sites accordingly to make sure that we are in line with our local regulations. But when this happened in the beginning, the revenues went down very low, followed by in August where we managed to improve the business and also September growing it back. And today, we are more or less operating on the levels that we did before the ban was applied, so it's going back. But it had a short term impact in the Q3, but we're not foreseeing it to continue. When it comes to France, we also said that we are in the middle of revamping that business, rebuilding in Q2 some regulatory issues presented in Q2. Those are going on and the sites are basically going to be up here a bit later in this quarter. In the meantime, we have shut the sites off, meaning that currently we don't have a lot of revenue to them at all, but we'll do so as soon as we start them up again. Finally, U. K, we have done a lot of improvements there as well and the team have worked very hard for that. We're driving more traffic in the operator sides, but so far we have seen a lot of that traffic has come from customers already having an account, which means that we cannot charge for them again. We are revising that a bit in order to improve, etcetera. So our sites are working good, but the traffic is so called old traffic. So we're doing what we can to maximize that, but also have a lot of other actions that we will apply for those markets, which I'll come back to a bit later in the presentation. Next slide, please. Before we leave in the business update, I would like to mention a couple of extra words about our hero product, Ask Gamblers. For those of you who don't know, it's one of the probably the largest and most visited placina affiliation sites in the world. And we're very happy to see that the efforts we've done here, both in improving technology and other measures to make it even better during the summer has made us grow it quite quickly and came in with an all time high both in revenue and NDCs. We have also, during this time, made sure that not only that we can run the full site including all the features for existing markets in Europe, but also launch it in 3 new languages, which is Japanese, Portuguese and Spanish. The also interesting thing is that even though that is followed by Germany. But the biggest volume on this site are visible.comvolumemeaninginnglishfromaroundtheworld. But still, England is and UK is doing fairly well on this site and actually showing good trends there. So for Canada, it seems to be working nice. Japan, showing good progress since launch. It's a very new market, but on the other hand, we like to see how it index itself in the search volumes and rankings, and it's progressing very good. Still a small traffic though, but it shows the right size in order to grow into a large product in the future. And finally, we have ticked off some retention business for Ask Ambros where we're helping operators to turn on some of their old customers, turn them back on again, so that can come back to them. And if we do that properly, we will get an extra fee for doing so. And by that, I would like to change with the next slide and hand over to our CFO, Erik Kiderer. Good morning, and thank you, Per. Move over to Slide 11, please. As you can see here in our revenue growth, we have a trend shift here in the Q3 of 2019. Our search revenue increased by 14% from the Q2 here over to the Q3. Paid revenue stayed in line and our subscription revenue went down from 0.7% to 0.5%, primarily related to the French market and the changes Per just mentioned there. Slide 12, please. If we look down into our revenue streams, we increased our cost per acquisition here during the Q3. That is primarily driven by the growth that we've seen in the U. S. Here during the quarter. And as a result of that, our revenue share, percent of total revenue went down 42% here in the Q3. Fixed fees at 13% and subscription revenue at 2% of total revenue during the Q3. Slide number 13, please. So looking into our EBITDA movement and our cost development, we have increased our costs in absolute terms slightly here during the Q3 as expected. Our pay per click investments, direct costs increased somewhat here during the Q3, primarily related to further investments on the U. S. Market here. We increased our margin from 40.1% to 44.4% here in the 3rd quarter, an increase of a bit above 4%. Operating expenses increased slightly. Other than that, no major fluctuations here in the Q3 other than that we're strengthening up the margin costs were in line with expectations from our view. Page number 14, please. Looking into our segment performance. And as you can see here on this page, we have decided to increase our transparency in terms of how we report the business, now breaking down our iGaming segment into 2, sports betting and casino. And here in this Q3, our casino segment stood for 62% of total revenues and had a margin of 56%. Our sports betting segment represented 30 3% of revenue in the 3rd quarter with a margin of 26%. And our Financial Services represented 5% of our total revenue here in the 3rd quarter, and that corresponds to a margin of 9% in that segment, ending at an adjusted EBITDA of €11,500,000 to a margin of 44 percent. Slide number 15, please. So if we look into our financial costs here during the quarter, we had the EBITDA of SEK11,500,000 adjusted, corresponding to €11,400,000 reported with some minor one off nonrecurring items related to some reorganizational costs during the quarter. Our EBIT at €7,800,000 ended this quarter. And the financial cost, as you can see here, we have a positive effect, quite substantial from the revaluation of the bond during the Q3 of €6,800,000 helping our EPS developing positively ending at €0.20 end of the quarter. Page 16, please. When we look down into our new depositing customers and as you can see here on the graph down on the left hand side, we continued to increase our revenue per NDC here during the quarter as revenue increased compared to the Q2, and we stayed pretty much in line when it comes to NDCs during the quarter, meaning that we've stopped the declining trend and we continue to focus on increasing the value per NDC here. And we also can see that the U. S. Values and the values we see in average over there and also in Asia is higher compared to Europe, in line with the growth we also see in the U. S. Market. Page number 17, please. If we look down into our balance sheet, we have total assets of EUR 368,500,000 here end of September. Our borrowings at EUR148,300,000 end of the quarter, of course, including the fair value of the bond here in the balance sheet. We have amounts committed to in acquisition, raising to 23,400,000 end of this quarter and I will come back to that here in the next page. We have an option to set up to approximately 60% of the assets committed to in acquisitions with shares. Next slide, please. Going further down into our asset purchase commitments. As you can see, the trend and from Q4 2018 where we had SEK 81,900,000, we have decreased those values here over the year. Now end of the Q3, we are down to SEK23,400,000 in the balance sheet. That is updated with the latest performance estimate end of September as due to the following the accounting regulations. We had a leverage of 3.4 end of this Q3. That is partly related to the cash payments that we announced here during the Q2 and the renegotiations we did with the Baybets related to the Baybets acquisition. This is in line with our expectations and we continue to be compliant towards our maintenance covenants. We have our midterm financial target of being between 2.5percent1.5percent in leverage mid term and that is our target and we continue to work against that. Remaining asset purchase commitment, as I said here on the past slide, we can set approximately up to 60% in shares of those. And of the remaining part the majority of the remaining part is related to the U. S. Acquisition, where the actual payment settlement date will be here in the first half of twenty twenty. Page number 19, please. Looking into our cash flow and cash generation here during the Q3. We are a little bit down compared to the 2nd quarter. We ended with €9,100,000 in operating cash flow and a cash conversion of 77%. Of course, partly driven by the Q2 and that Q2 came out a little bit weaker now than we performed during the Q1. So it's a result of that primarily. Net cash generated here during the first half of the year, January to September, was 2 percent down compared to January, September 2018. We utilize currently EUR 12,500,000 from our revolver with Swedbank and our bond issue remains the same. We are currently utilizing €150,000,000 on that. Page 20, please. And I will hand over again to Ilkka to go into the strategy and outlook. Thank you, Erik. Next slide, please. Slide 21, please. We thought we should start with an update about the U. S. Market. We have mentioned some already, but I always know that there's a lot of questions about that. So we have decided to divide it in 2 parts, Q3, but also our view a bit on Q4. I mentioned about Pennsylvania already that it started quite slow with a few operators, but you can also see here that by what about the end of the quarter, we had more available, meaning that we can send traffic to more, meaning that we can charge more for the traffic. It's also interesting that West Virginia that launched a long time ago only to go back and then relaunch are upper line with 2 sports betting operators and we haven't sent them traffic from day 1. I talked about the so called hangover effect from New Jersey this year, which we forecast the entire numbers. And I think that the interesting to see here is that I don't think it's come as news, but in total, if you look in all these markets here in U. S. That we are doing record levels this year compared with fast. So what about Q4? More operators driving up sea Bay rates in the Analhaut on October 6 sorry, in October, and I think it's 6 months ahead of what we've been saying, meaning that it's a trend we can see in some states today that the evidence from the states that are live, what that means in terms of generated revenues, in terms of tax income and also in order to try to terminate the previously illegal traffic in the states of working and helping states to take positions to push forward the launch dates, which I think Indiana is a very, very good example. And we have sites. We have been generating, I understand we'll send them also here traffic from the first day they went live. Also interesting is that Colorado has now passed the vetting referendum, and we don't know exactly yet when it's supposed to go live. But in terms of contribution, it's a state that is about 60% the size of New Jersey. And we are, of course, waiting that to go live as well and by then having a site that will generate traffic there as well. The also important thing is that we are expanding our sites and footprint into states that are going to regulate according to our estimation, becoming 6 to 24 months ahead, meaning that we're building content, which sites, local sites that will take could benefit from the day that the sales goes up. And on top of that, it was, of course, also our nationwide brands that we're going to run as well. But especially now, we're investing quite heavily in creating content on the very local based sports and where possible, casino sites as well. Next slide, please. To give a bit of overview here on Page 22, we are looking at the rollout and this is more as a guide for you when you potentially look at this afterwards where you summarize what had happened. In this, I think the change from last month or last quarter is mostly highlighted that Indiana that we come across or went live much earlier, but also that Colorado is now on the list of states confirmed that they will launch. We believe based on the trends we see in the regulatory process over there that it should come live sometimes in second half twenty twenty. But if you look what we're doing business from today and that the list of states about to go live in the second half, sometimes it may be in the first half next year, We are quite confident that we will have a continued very good year from sports and betting and casino in U. S. Next year as well. Next slide, please. So when looking at the strategy, it's remained unchanged. What we said for quite some time now is to focus on organic growth. I think we're showing that we're doing that and that's where organic growth has been negative that we have started to level that out and starting to grow back again and that's ready to continue. We have mentioned that we should focus on geographical expansion with existing products, which remains our focus, and that we should continuously work with cost efficiency improvements. So how do we then split that based on the kind of market saturation levels we're seeing out there? If you first of all look at so called mature markets in our case, meaning markets been around for a while, but it's not growing that fast anymore. Take UK, Sweden, for example, where we have regulatory impact and a lower than average growth rate year on year. Our focus here is, as we said before, to focus on a couple of core products, which have enabled us to reduce costs and improve efficiency. And the key thing here is that we should improve the margin. I think this quarter's margin looks very low, but we have to remember that we have a team running these sites year round. But the revenues in Q3 is rather quite low, especially in the sports segment where many leagues just start by the middle or end of the quarter. That's why margin is pushed down. But regardless, over time, on both casino and sports, all these markets, our key mission is to improve margin by being more cost efficient. Then if you look at markets that are growing, that are there today that are growing very fast, like existing business in U. S. And Japan, Germany, some Southern European markets, etcetera, and language version of that, but also Central Europe, where we see medium to high growth. And of course, we want to push and invest in our products to take a larger market share. And by using the efficiency improvements we use for mature market, also here to have a fast growth, but also got good margin. But then there's also the day tomorrow, and we see that there's a lot of things going on around the world. We just went through it, but in the U. S, we see a lot of new states about to open up. We know that things are cooking in Latin America. There's still business, although low CPA is still, but there are things happening. We know Colombia is large, we know that Brazil is coming up and more states are probably there to follow. And then we see also a lot happening in Asia. We want to be there, and we're already in some of these markets to build up our position to invest in that, meaning that the business is quite low now, but we expect it to be very large in the future. And completely vice versa with our investments, we're investing now in order to have a good market share in the future and to have a high margin at that time. So this is more about nursing tomorrow's key growth markets. So if we then move to next slide, please. How do we then follow this strategy into some short term actions and other activities to do that will impact the quarters to come. When it comes to sports betting in Europe, as we said, we are scaling down the focus and this is predominantly products that are available in the U. K. And some other markets. We are scaling down the focus here to have more attention to less products. We have, as mentioned, also started to transfer our focus more from pay per click advertising that comes with quite low margin in the own generated traffic by quality SEO improvements. We are pushing to increase our subscription based business because that's a different business model, but also can be sold in markets that there are regulations against sports betting because this is not sports betting advertising. We have retention business, of course, that we're pushing and starting to push more as time goes by. But the key thing here is to do cost reductions and efficiency improvements, where we're going to revise a lot how to operate and where we operate and how we do that. So the people we have on board can generate the most outcome of the presence in order to drive this business to better margins. We see this as a quite big project internally that should take 4 to 6 months as we did within casino in Europe as well in order to come down to these new higher margin levels. In the meantime, of course, we should benefit from the seasonality in this business in order to drive results in the right direction. Just in Europe, as we mentioned, we have a lot of ongoing work there. We can see the trend shift, but we haven't stopped there. We continue to invest in this. And in some cases, perhaps Saix has actually deemed that as too much of an effort to build away the non benefiting legacy in the product. So here we're rebuilding the product from scratch, which is an ongoing work we do. We are also restructuring our organization, supporting these products to make it more efficient. So we're talking about how we market these in terms of digital marketing to get more efficient sales than that, but also how we run sales departments. And that is things that we've been ongoing for a while that we see positive benefits from. Worth mentioning that other markets in Europe like Germany, Italy, etcetera, has quite better momentum forecast for them, which I can come back to on the next slide when we come to that one. But before that, some other actions we're doing. We are intensifying the global launch of new markets for Ask Anders. We will launch new markets here in the Q4. I will not tell you which until we officially announce that. But also here, we are doing the retention business I mentioned before, and we're going to increase that by having more operators on boarded also as we proceed forward. So we foresee some good trends for increasing our investments there for said reason. There are 2 things to spending money on: a, on the content creating for new sites to make good decisions, but also as noticed by the markets in the beginning of next year as well, we're going to be able to do PPC advertising for casino. So we're doing it for sports. We'll do that as well because we believe that combined with our position in the market will help the business to grow in the way we want. On top of that, as I said, we've got an investment for quite some time ago to secure a dominant position also in the future. And then in general, the company, we're having started and we're going to continue quite a big review of the total overhead in the business in order to rework so get more efficiency out of the business, I. E, bringing the margin in the right direction. Next slide, please. So if you look for the revenue outlook, not being able to, of course, guide on the number going forward, But to give an idea about what we see as things that have the potential to bring us forward and also where we believe that we should look a little bit careful about development until we can improve also internally or that the market is the same. Let's start from the top, U. S. As I mentioned, the monthly revenue numbers are forecasted to be a bit lower compared with September, which always been the peak. But in Q3, it's because September being strong, while in Q4, we have 3 months that are relatively strong, meaning that the quarter in general should be on par or a bit better than the previous quarter. If you look at Ask Gamblers, we're having a good inflow here, and we should be triggered by and going forward by better seasonality. Also that we're doing some other activities to bring up revenue, so we have high hopes for a good quarter there as well. Italy, as I mentioned, we had a very slow start in Q3 because we had the Martin Bank coming in and bringing the business almost down to 0 the 1st month only to repair itself in the end. We foresee good numbers, helped by seasonality also coming out from Italy. Of course, we have a lot of rev share in these markets as well, which can go up and down. But in general, the trend should be improving. France, we're going to relaunch the sites later during this quarter, meaning that we don't really foresee basic growth in the market, but we will come back and working ourselves to back previous history. Germany, it's performing well. I think it's following the seasonality curves we're seeing and also here the team are doing as always an excellent job to benefit from that. So we should be helped by outcome there as well. Japan, typically, it's a bit forecasted a bit slow in Q4 due to seasonality history we see there. But obviously, it's been growing quite nice from last year, and we expect also this quarter, next quarter to be improvement from last year. Casino Europe, steadily improving. We see some sites turning around, but also we're rebooting a lot of sites. So we're basically looking at slightly improved business here. While in sports betting in U. K, we have seasonality impact for Novo. But as I mentioned, we're doing a lot of rework here. How soon we can have an impact, I have to say, but we're not forecasting a major improvement in the Q4 from that. And lastly, financial services, rather stable because we are moving away from the business we have seen in Europe that is declining. We're are looking into other parts of the world. So we're balancing the declining revenues from Europe and other markets, but at the same time, we're working quite hard on reducing costs there as well. So even though that revenue is going down, we are doing what we can to cut cost in order to improve margin. That's also an action that will take a couple of quarters until we're fully optimized. So all in all, we have positive momentum in the business. And if you stay in the slides to summarize, what we can say is that we have definitely stopped the declining trends in casinos. We are having good drivers out there. We have Ask Anders, we have U. S, have Japan. We also have some of the European markets, as I mentioned, coming back on track. We also use some of those benefits of increased revenue and profitability into the company to invest so that we also have a great future in tomorrow. So all in all, I think are showing the momentum we want to know. We only know by the end of the quarter how far it takes us because once again, we are very much dependent on the revenue share. But for sure, we have taken a lot of actions in order to continue this trend shift in the right direction. So by that, we would like to summarize if you just go to the last slide, please. And we are then ready for questions. Our first question comes from the line of Christian Hellman of Nordea. Just a question on the U. S, if we can start there. You mentioned in the quarter that it's 17% of revenues year to date. Is it possible to give a number for Q3? Or why is the reason why you should give a year to date figure on the U. S? Just to understand that better? Well, because the business is fluctuating very much quarter to quarter, and we know that. So the reason why we're saying that is the year to date number. Okay. So it was less than that in Q3 then, I suppose? No or vice versa. But the thing is that it's so sudden changes. So we expect it to move up and down quite much in the coming quarters as we put on business. And that's why we decided to move down the number. But what we want to show, of course, is that we it's becoming a substantial part of our business. Okay. All right. And on the U. S, also mentioned here in the customer remarks that looking at Q4 versus Q3, you're saying that revenues from the U. S. Could potentially be they could be up a little bit perhaps, but it could also be flat, you say. And I'm just trying to understand that because I just had a quick look at the I mean, we don't have that much number from the U. S. From last year, but I think we have New Jersey. And looking at New Jersey last year, I think revenues were up 30% or something like that. If you look at both sports and casino, Q4 versus Q3. So what's your thinking there? I think it's important to mention here that the revenues and the handle in U. S. Have a completely different kind of game compared to what we do. Because while we get paid the first month when the customer is active, that customer continues to bet for quite some while and there obviously with more customers coming in all the time and more customers, historical customer, that's a build up a handle that is much faster going than the affiliation business. As we only do CPA and not have rev share, we will not follow much the handling for the net sales. So that's why you'll see a quite big difference from the CPA based business compared to what, for the revenue share business would look like. Right. I understand that. But do you have a rev share license in New Jersey, don't you? We do, but we don't do rev share so far because basically the operators don't want to do rev share there so far. Okay. So you're not doing rev share anywhere in the U. S. Basically? No, that's correct. Okay. All right. And then just to understand further more on the U. S, you just mentioned Indiana, which are up and running, Colorado next year, etcetera. What's your thinking about the U. S. In terms of cost? What's your the current cost structure that you have, the team that you have in place? Can they move from state to state? Or will you have to build more cost given what you know now about sort of the rollout in new states in the U. S? The cost predominantly comes there are 2 ways we can run product in the U. S. Either you have a nationwide site and then you put local content onto that or you have local based sites. And as far to our knowledge, Google tends to prefer sites that are very much localized. That's why we've been able to have a good position over there so far. So our strategy is to break into these states with very much local sites, coupled by also the nationwide sites. And the more states being launched, the more power the nationwide sites will have. I think the combination of the both is very, very strong. So for us, what we need to do is to take the, for example, Play brand, where we have Play Pennsylvania, etcetera, make it Play whatever states Play Indiana, but whatever start looking at to do, for example, that and that means local content contributors. That you would need anyway for doing content for a nationwide size. So I think the combination we do here and what we predominantly see increase is people doing quality content into this. You will have to have some more account managers as well as there's always a couple of local accounts or accounts in the States you go into. But I would say I would call that the investment is very efficient going forward. We don't need that much as we have this foundation already in place. So I would say that the investment will not won't be as high as the revenue potential will. End. So we should see continued good margin from the U. S. Market. Okay. And speaking of margins, if you look at the finance vertical, EBITDA margin of 9%. It's barely making any contributions to profit. And in terms of revenues, it's also quite low for the group. And what's your thinking about the finance vertical? Is it worthwhile keeping it around given the low profit contribution? And obviously takes up some management time and thinking also. Of course, when the investments was made into this category, the idea was not to have that margin. We have these assets now. What we've done here is that we are revitalizing their strategy in order to become much better, Whether we keep some or whether what we do with them and reprograms becomes something else is a decision we will communicate, if any, at some time. But in the meantime, what we do is that we are working hard to improve the margin and also making sure that we get traffic from the part of the world where we can get that in order to improve that business. But you're right, it's not the largest part of the business. Hence, we also need to do that by drastic measures, how we make sure that, that continues to be a margin contributor in any way of form. And if you are going keep it around or sort of what type of margin would you be satisfied with the final vertical, please? That's a big comment. But theoretically, is it feasible that it should have the same margin as the rest of the group? Or are there any structural sort of No, that is not enough to comment on right now. Okay. Just final question then for me. In terms of revenue per MVC, which I have a graph on Slide 16 in the slide deck. Could you just I mean, it's going to come through the roof basically, if you follow it for the last couple of quarters. Start off at 180 and now it's now at 260. Could you talk a little bit about that? What's your thinking going forward? I mean, obviously, it's being inflated by the U. S. And, say, Asia as well, I guess, that's just Japan. I mean, how should an external sort of observer look at that graph and try to understand how it's going to sort of be in the future. Is it going to go up or up or where is sort of a more normalized The reason for that journey is that there's a lot of impacting factors here. A, as we know, we have had a declining business of the legacy markets in Europe. And when that goes down, you will have a mix of higher CPAs because you're having much higher CPAs in U. S. And Japan, as you rightfully say. And predict exactly where it's going to be, of course, we cannot be that specific. But if you only look like this, we believe that we will continue to see a higher than average CPA in U. S. We know that CPAs in Pennsylvania will be a bit less as the tax is quite heavy and quite large there compared with other markets, but still above Europe, I would say. So the more U. S. Goes, that's a driver to bring it up even though it might not be as steep as before as New York has probably had the highest CPA as of all. Japan, also the player value, still not the largest, but we don't foresee the player value to decrease. So the more of that kind of business and surrounding markets over there we're blending in, that will also help the CPA levels goes up. In Europe, we don't foresee CPA levels to go up in the Mainland, traditional market. While we if we travel a bit more eastbound in Europe, we can see a good journey there at the more market that regulates. So in general, my view is like this that we in turn forecast a massive increase of this because we want to grow back business elsewhere in Europe in some part and otherwise other places as well where the SAPs are lower than U. S. So I'm happy to remain at this level, but have the NDC numbers going up instead of getting increased revenue. Okay. Okay. And then just final question for me. In terms of the absolute number of MVCs, it was flat now in Q3 versus Q2 at 100,000,000. What should sort of be the fitting from here going forward? I mean, it's been coming down for a number of quarters, obviously, on the back of Europe. But now it seems to be leveling out a bit. But when do you think we could see growth in this KPI? Well, let's break it down. And if we looking back what we said in the presentation is that if you look at the European markets, obviously, being the reason for the decline in NDCs, the largest driver there has been the casino business, which is now leveling out. But in the quarter, we had obviously, NII due to the margin ban happening. It reduces the MDCs quite a bit, but as I said, that is now repairing. Germany is a very long, a big part of this, part because the league there is shut down until the very end of the story. And then we also had France where we had to stop and shut down the site. So I think these without these, we've, of course, seen an increase in NDCs. So that's why we believe that going forward, now starting to repair these things, and we should hopefully see an increased level of NDCs going forward, taking our accounts in consideration. Okay, great. Thanks, Paradigm. That was it for me. Okay. Thank you. Our next question comes from the line of Mikael Lafin of Carnegie. Please go ahead. Your line is open. Hi, good morning. Yes, I also had a question regarding the U. S. Can you talk about the quarterly variations, maybe in more detail, help us a bit there? Was Q3 better than Q2? Or was it sort of in line? So Q3 was better than Q2. Yes, okay. If you look at the casino business, it's pretty much stable performance for normally for New Jersey, which is where we had the predominantly number of numbers coming in from casino. We know that we could then have casino in Pennsylvania started off quite slow due to the number of operators there as well, and it has lower CPA levels by payer there due to taxation for casino especially. But all in all, it helped to drive the business up. The big change, of course, is sports where, a, New Jersey was not as high in that sense as last year. So we had a bit of a hangover there. But combined with Pennsylvania, we could have better numbers than previous years. So Pennsylvania compensated for the a bit of the decline in New Jersey to give us a high number in total for the quarter. Okay. Got it. I thought so. Can you also talk about Pennsylvania and the customer activity? What broad based risk? And do you think that you will see similar type of customer activity as you have seen in Pennsylvania and have expected previously? Yes. It's a bit early to see exactly the how the consumer looks like because it's not been reliant that much. But I think we will be able to see also in any state going forward that if you launch in time for the NFL kickoff or when it happens in the state if it hadn't before, you will have that as a major acquisition period because obviously all operators online will put marketing to people to know that. It's a big thing and people normally in U. S. Bet a lot on that, but it's going through legal channels. And this most likely means that the revenues will be built up. And the 2nd year of the launch year, you could see a bit of this what we call hangover. But on the other hand, it repairs itself really quickly. And from that level, we then start to grow with average business going forward. So I have a big boost normally when they launch the 1st year of the NFL, it then reduce a bit and from that, it will start to grow. We have to remember that we've been online now with Sport for U. S. For a year in 1, 1.5 states more or less. It's quite early still based on that to see something that we believe is the future for all states going in, but we learn by every day. But so far in Pennsylvania, the patterns from the players seems rather similar to what we experienced in New York City. Okay. And the direct costs also, if you can comment on that in the U. S. I don't think the U. S. Margins, is this an activity that you will continue to do? Or was it just temporary boost to drive traffic? No, we see like this like in everything. In every market, we do investments in PPC, we set a typical margin leverage where we don't want to go below because PPC traditionally comes with a bit less. But we also see that based on our sites we have, we understand what search words that people search into our site and that help us normally to make bidding on those in an early and efficient manner so we can get decent margin out there. And as long as that happens without terminating the total or reducing total margin in the company, we will invest there. So we will continue with that strategy, but we also want to make sure that we don't invest too heavily in that because the key thing for us is still to build a good presence through traditional search engines, but supported by PPC to this level going forward. Okay. And I just want to clarify one thing on Page 25. The summary of all those comments and areas seems to be, I mean, more or less flat to up slightly sequentially from Q3. Is it is that a correct summary of the slide? Or have I missed something? I think what we're trying to say here is that we if you consider the pieces that are, say, we're not suggesting we want to grow, if those are flat lining, but then that we have something else that's going to be able to move up a bit, we have the potential to grow the business, we believe, in Q4. And because we don't foresee anything that dramatically reduce the business that we've been seeing in the previous quarters rather more than flat lining and help it up a bit like European casino, etcetera. Then if you take ASCAM with strong growth through the Vinta, Italy, etcetera, we believe that we should be able to work program the business to become up better than we have done in Q3. Okay. And a couple of more questions, if I may. So you've talked for quite a long time about improving the classic websites. Can you share some numbers on that, how they are developing? It looks like revenue outside of the U. S. Grew sequentially in Q3. I guess that could be a sign. I think what you look at because if you put them together with Ask Anders and Japan, etcetera, that is an assumption that you're already correct in. Then of course, in this, when you do the change program, you always have some sites that are performing quite quickly to the battery, some that needs more work. And in this presentation, we're saying that we're not done yet. We continue to work because we still have some sites where we're not happy with the traffic. But in general, for the casino business, we can say that for the total group, we are regenerating better business today in casino. But actually we did same period last year, but that is then blended in with U. S, etcetera. But for the legacy business, as I mentioned, we are seeing a trend shift. This haven't improved anything much so far, but the signs are there to keep on working on. We should be able to do so. But yes, we don't see the same negative impact by the traditional business anymore in the blend. Okay. Great. Final question. On Slide 24, you talk a lot about cost improvement. Do you mean a reduction in cost or just to scale and capitalize on what you have? What do you mean with Our idea is that we want to improve cost percentage more than revenue. So unshares cost basically going forward, that's what you mean? Or I mean, improving, basically be more efficient and cut costs where we can, while not impacting the revenue growth. Our next question comes from the line of Erik Moberg of ABG. Please go ahead. Your line is open. Hi guys. Just going back to the U. S. Again. In your remarks, you said that the U. S. Will be up in Q4. Could you sort of help us with the magnitude as it is one of the most crucial drivers Given that Indiana and Pennsylvania is opening up and you now have 3 stronger months in New Jersey. So how should we perceive it? New Jersey will be growing and then we're adding 2 states with better traction than in Q3. So does this mean that revenue will grow by, say, €500,000 Q on Q? Or it's more up towards, say, €1,500,000 to €2,000,000 Q on Q? That those details we cannot give. All right. But if we say you grow, how do you think about the margins Q on Q from the U. S? Firstly, margins just still develop positive. We have of course, the thing that can change that is either whether we add a lot of cost in terms of staff, if you look at how much we do in PPC. I think we should be able to run a business there that comes out with similar margin for us percent wise that in Q3. And as I mentioned, with these things, we have the potential to continue to grow that business in the quarter. But yet again, it all depends how Indiana now is starting to play out because bear in mind that it also went live a bit after the NPL kickoff. So we need to see how that state develops after the other ones that actually go live at that stage. So it's a bit of uncertainty for us exactly how it will play out. But in general, I think that we should be able to continue a nice quarter in Q4 as well. Okay. Fair enough. And then regarding your guidance regarding the U. S, you communicated that it constitutes 17% year to date. But looking back to both Q1 and Q2, then does this mean that U. S. In Q3 was above 20% of revenue? That we cannot answer as we said to Christian. But if Say like sorry, my bad. But say that in Q1, U. S. Was roughly like, what, 10% to 12% and then in Q2, it was sort of flattish Q on Q. This should mean then that U. S. Is above 20%, I assume, right? Yes. We already understand this. Fair enough. But then again, if we assume that you have contributed roughly 20% on top line and then we divide the business into 3 parts. You have the leadership business in Europe, you have Ask Amblerich and then you have the U. S. In that case, it means that the leadership business saw another decline in Q on Q. Is that a fair assumption? Not really. I think you need to divide it in a couple of things here what you look at because in some parts, as we said, did not increase a lot, but also you need to see the different parts of the things we have because I think that when you look at this, you're assuming now that U. S. Is 20 something and that has to be your decision, right? The thing we can say is that we are now starting to change the sites here that have the China and starting to level them up. Some products are not leveling out yet. As I said, that's why we're doing revisions, while some are coming back quite nicely to start to rebuild again. So more or less legacy business, more or less flat planning in that sense. Okay. But looking at seasonality effects Q3, Q4, if we exclude U. S. Completely, how much should sort of seasonality give the legacy business theoretically from Q3 to Q4, given all the changes and all plus and minus, etcetera, including that? Yes. We cannot give you a precise number there as we don't guide that detail because you can also have variations, of course, manufacturers here. But I think you just need to look at the normal operator business here. In that part of the world, we have more blend of, obviously, revenue share. And you know quite well what the operators' seasonality difference could be in a quarter like Q4 Q3, and I wouldn't say that we'd do much different from that. All right. Fair enough. Thank you, guys. That's all for me. Thank you. All right. Thank you. And we have one further question coming from you. That was just as we register this question. And the question comes from the line of Bilette Dhan of Keyur Capital. So I have two questions, if I may. Could you walk us through the reason behind the postponement of the U. S. Earnout and sort of why it changed? And I also assume that there were some changes to the terms of the earnout payment. Well, the U. S. Earnout hasn't changed. We are taking over the business and integrating it here end of October. So it still remains the same, but we haven't earlier announced the payment date when those when that actually will be settled. And now we say that it will be during the first half of twenty twenty. It's just us that haven't told the contract details before. So no changes. I think because I think the previous press release you sent out last year suggested that you could pay up to 70% of the earnout in cash sorry, in shares and the what you're saying now is 60%, right? But we also say that the majority of that amount relates to U. S. Assets, and U. S. Assets includes BoneSeeker as well, not just Eagle that we said in the press release could be paid up to 70%. I think we said something else in the BoneSeeker press release. And there is also some other minor acquisitions in that amount of €23,400,000 So that altogether gives approximately 60%. Okay. And also, I noticed that you made an adjustment of €50,000,000 in Q3 versus Q2 besides the sort of actual payout to paybacks. Could you elaborate a little bit more what those adjustments were? Correct. So we've been down the details in the disclosures of the report where you can see approximately, I think, EUR 14,000,000 in the change in estimates, as we call it. That is, of course, partly or a large part of it is related to the Bebas renegotiation that came out very positive for us. The other part is change in estimates and change in estimates we do continuously dependent on the underlying performance of the assets and what we believe at a certain point, and that is updated on a quarterly basis. And in some cases and in some of the agreements, it could be quite some fluctuations with minor performance adjustments. So therefore, we have some fluctuations in those numbers. One is, of course, related to the U. S. And as Per mentioned here earlier, we expected Pennsylvania to open up earlier, and we expected high revenues from Pennsylvania compared to where we are at today. That gives us a change in estimate on that assets, for instance, and there are others as well. So a lot of different aspects to put into that number and the change in estimates. Okay. And then one final question. So the bond matures in early 2021, right? And considering that you will have the final U. S. Earn out payment in first half of twenty twenty, when can we expect you to present the new financing and turn it to the bond? That we do not comment to the market. No, not at this stage, but we will come back and update on that later. Thank you. And we have one final question come through, and that's from the line of Michael Essien of Carnegie. Please go ahead. Your line is open. Hi. Just curious about the working capital increase you had in Q3. Was this related, I assume, from the U. S. Increase late in the quarter? And should we expect that to reverse in Q4? Very good question. I mean we don't guide on those numbers going forward as it's very difficult to predict the cash flow. But yes, you're making an assumption. There are several bits and pieces being part of that positive effect that you can see there. And U. S. Is, of course, one part of it. But nothing else has happened really to the business. It's just normal changes on a monthly basis, I guess. Normal changes. And as you can see, I mean, of course, growing the business from the Q2 to the Q3 gives a positive VC effect, and that is partly what we can see here. And as there are no further questions on the line, I'll hand back to our speakers for the closing comments. Yes. We do have a number of questions from the webcast, and we'll start with one coming in related to larger sites and assets. How do you see on the risk to write downs on smaller acquired sites and assets that now essentially does not have so much benefit of future expectations they had before? Yes. I think the what we decided to do when we focus on the core is have a focus on investing in growing core sites for the future. That's not predominantly mean that the other ones will lose in revenue or in profitability because what we do with the remaining ones, we put them in what's called long tail portfolio where we can run them very efficiently with less staff than we originally have and update them. So the idea is that we will maintain the revenue as long as we can and profitability for them. If at some point in the future, we will decide to not have enough volume shut and down, we need to discuss that with our orders at that time. But from now on, we don't have any as informative from the right answer. I think going on. And from the same questioner, it's how is the situation on the personnel side? Are you less dependent on key personnel now with the acquisitions in the past? Or is it the same? I think it's a very good question. Wojt, we need to elaborate a bit. When you acquire a site, you're extremely dependent on this key people because typically we have brought them in on their own out scheme, meaning that they come in with their product, with their programming, with their customer relations to run the business and then they take it over. In many cases, we need to bring that side from their technology platform into ours. And when that have happened, the seller's technical skills are running the platform as such as Long Island Long Island because of different platform. They also then tried to bring in the sales pattern into our key account management where we tend to go to operations and sell campaigns on more sites than 1. And of course, whether it's a good account that they used to have special focus, we're trying to maintain that. But otherwise, we sell those in a different way. And with the sell scheme and the technical scheme change, it's a way where we then start to operate them more in terms of the container portfolio rather than the old one. And in that case, we decide whether we believe that key persons from the seller side, if they want to continue, we believe they have a good match. We try to do so. Otherwise, we depart from each other and do that. In general, we're trying to make less depending on less people going forward. History, we had too much dependence on certain key roles in the company. We worked very hard on us to have a good second income on. And also shift around so we can operate it more on a kind of central base rather than being dependent on some person. So yes, we are trying to reduce that dependency over time. Okay. Now there is a question related to product development and new products. You have mentioned in sports book products like Ascaniverse, but for sport, a couple of quarters, how that's going? And what can we see? When can the product hit the market? Well, that will be released. We will not see it for a while still, but the reason why is that with the things that we have explained here that we have a lot of things to improve in the company currently. And doing those adjustments and improving the margin in these is our key priority. At the same time, we markets we should go into and what kind of products which are launched there. But when and what we want to release, so nothing we can comment on right now. Okay. And when can we expect new markets for our campers? Coming back to the same thing, we will inform. And as I mentioned here, we're planning to potentially roll out something in Q4 already. Okay. I think that was it Good questions from the webcast and thank you for today. Thank you very much. Thank you.