Welcome to the Catena Media Q3 Report 2019. For the first part of this call, all participants are on listen-only mode, there's no need to mute your own individual lines. Afterwards, there'll be a question and answer session. Just to remind you, this call is being recorded. I'll hand the floor to our hosts, CEO, Per Hellberg, and CFO, Erik Edeen. Please begin.
Thank you very much, and good morning, everyone. Can I have the first slide? Yes, please. Welcome to this third quarter presentation of 2019. The next slide, please. The presenters is myself and Erik Edeen, who is our interim CFO. If we go to the 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 look into a bit about the strategy and outlook in order to explain to 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 a Q&A, where you have the possibility to ask your questions, and we will respond accordingly. Next slide, please.
If you look at the quarterly highlights, then the next slide five, please. We are happy to announce that after three consecutive quarters, we have been able to do a turnaround of our business. It's actually the third-best quarter in the history of the company. 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 perform 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 three quarters in order to level that out and start to see some improvement there as well.
In total, that made us grow with 11% from the second quarter, but also do a healthy establishment of a growing profit margin again. Next slide, please. Based on the results, as we have had three quarters of decline in business, it comes as no surprise that still we are tracking below last quarter, the quarter of Q2 2018, that is. We managed to conclude revenue of EUR 26.4 million this quarter, EUR 11.5 million of EBITDA, and we had a healthy improvement of the EPS. That also, as Erik will mention a bit later, is a result also of the revaluation of the bond for this quarter. Next slide, please. Further, one slide, we will take you into the third quarter business details. We have decided to put them in a plus and a minus section here.
Some are actually a bit between. Let me take you through this. The U.S. market is growing very nicely. We have had a good trend. We are actually having a business now that represents 17% of the year-to-date business is generated 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 state 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 first state 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 more or less came in according to our plan, but still, that is still a very good result for us. The market share and the position we're maintaining in New Jersey is very strong. The other news for this year that helped the business to grow as well was that Pennsylvania opened up business a bit before the quarter, but that we could actually have it running full speed here in the quarter in for the NFL kickoff. 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 on our traffic up to optimized levels.
With few operators, we could not maximize pricing, meaning that we came out a bit below our own assumptions for the revenues for the third quarter. Still, considering that is incremental business, we are very satisfied with the quarter. That said, there are obviously more things that we can look forward to in the future. We started to drive casino traffic in Pennsylvania, even though not as large as sports. It also helped us to incrementally grow that market. We have increased our investment in pay-per-click advertising in casino, sorry, in sports, with casino open a bit later that we're also going to be active within. We managed to do a satisfactory margin in that field as well.
Traveling to the other part of the globe and looking to Japan, we had a very nice quarter there as well with all-time high revenues. Strong growth, good margin. 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 a good presence there, especially also, as we mentioned a bit later, that we now are up and running with AskGamblers there as well to make sure that we utilize our efforts there as much as possible. Talking about AskGamblers, we managed to do all-time high in terms of both revenue and generated NDCs in the quarter, and I will come back with a couple more details about that business in our next slide.
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 to try to turn this around by rebuilding the sites, by improving the quality, put more resources to do that, to build a stronger future. We're happy to announce now that the business has leveled out and some key products are now starting to build back traffic and revenues as well. The actions there seems to be working nice. 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 for almost a year and a half ago, it was announced that Italy will apply new marketing bans in Italy based on in July this year. Briefly, it 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. We have, of course, adapted our sites accordingly to make sure that we are in line with their local regulations. 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. Today, we are more or less operating on the levels that we did before the ban was applied. It's growing back.
It had a short-term impact in the third quarter, 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 it due to 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 drive 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 into the operator sites, 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, et cetera. Our sites are working good, but the traffic is so-called old traffic. 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 extra words about our hero product, AskGamblers.
For those who don't know, it's one of the probably the largest and most visited casino affiliation sites in the world. 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 launched it in three new languages, which is Japanese, Portuguese, and Spanish.
The also interesting thing is that even though that we're seeing U.K. as a market that facing some issues, it's worth to mention that when it comes to local dedicated traffic, U.K. is the largest market, followed by Germany. The biggest volume on this side are these [inaudible].com volume, meaning English from around the world. Still England is, and U.K. is doing fairly well on this side and actually showing good trends there. For AskGamblers, this seems to be working nice. Japan, showing good progress since launch. It's a very new market, but on the other hand, we would 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 signs in order to grow it to a large product in the future. Finally, we have ticked off some retention business for AskGamblers, where we're helping operators to turn on some of their old customers, turn them back on again. That can come back to them, and if we do that properly, we will get an extra fee for doing so. By that, I would like to change to the next slide and hand over to our CFO, Erik Edeen.
Good morning. 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 third quarter of 2019. Our search revenue increased by 14% from the second quarter here over to the third quarter. Paid revenue stayed in line, and our subscription revenue went down from 0.7- 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 third quarter. That is primarily driven by the growth that we've seen in the U.S. here during the quarter. As a result of that, our revenue share, percent of total revenue went down to 42% here in the third quarter.
Fixed fees at 13% and subscription revenue at 2% of total revenues here in the third quarter. Slide number 13, please. Looking into our EBITDA movement and our cost development, we have increased our costs in absolute terms slightly here during the third quarter, as expected. Our pay-per-click investments, direct costs increased somewhat here during the third quarter, primarily related to further investments on the U.S. market here. We increased our margin from 40.1%- 44.4% here in the third quarter, an increase of a bit above 4%. Operating expenses increased slightly. Other than that, no major fluctuations here in the third quarter. 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, 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 two, sports betting and casino. Here in this third quarter, our casino segment stood for 62% of total revenues and had a margin of 56%. Our sports betting segment represented 33% of revenue in the third quarter with a margin of 26%. Our financial services represented 5% of our total revenue here in the third quarter, and that corresponds to a margin of 9% in that segment. Ending at an adjusted EBITDA of EUR 11.5 million to a margin of 44%. Slide number 15, please.
If we look into our financial costs here during the quarter, we had the EBITDA of EUR 11.5 million adjusted, corresponding to EUR 11.4 million reported with some minor one-off non-recurring items related to some reorganizational costs during the quarter. Our EBIT at EUR 7.8 million ended this quarter. The financial cost, as you can see here, we have a positive effect, quite substantial from the revaluation of the bond during the third quarter of EUR 6.8 million, helping our EPS developing positively, ending at EUR 0.20 end of the quarter. Page 16, please. When we look down into our New Depositing Customers, 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 second quarter.
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 at increasing the value per NDC here. 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 17, please. If we look down into our balance sheet, we have total assets of EUR 368.5 million here end of September. Our borrowings at EUR 148.3 million 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, relating to EUR 23.4 million end of this quarter, and I will come back to that here in the next page soon.
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 from Q4 2018, where we had EUR 81.9 million, we have decreased those values here over the year. Now end of the third quarter, we are down to EUR 23.4 million in the balance sheet. That is updated with the latest performance estimate end of September, as due to the following the accounting regulations. We have a leverage of 3.4 end of this third quarter. That is partly related to the cash payments that we announced here during the second quarter 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 2.5 and 1.5 in leverage midterm, 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. Of the remaining part, the majority of the remaining part here is related to the U.S. acquisition, where the actual payment settlement date will be here in the first half of 2020. Page number 19, please. Looking into our cash flow and cash generation here during the third quarter. We are a little bit down compared to the second quarter.
We ended with EUR 9.1 million 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 first quarter. It's a result of that primarily. Net cash generated here during the first half of the year, January to September, was 2% down compared to January to September 2018. We utilize currently EUR 12.5 million from our revolver with Swedbank and our bond issue remains the same. We are currently utilizing EUR 150 million on that. Page 20, please. I will hand over again to Per to go into the strategy and outlook.
For sure. Thank you, Erik. Next slide, please. Slide 21, please. We thought we should start with an update about the U.S. market. We mentioned some already, I always know that there's a lot of questions about that. We have decided to divide it in two parts, Q3, but also our review 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 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 up and live with two sports betting operators, and we have been sending them traffic from day one. I talked about the so-called hangover effect from New Jersey this year, which we forecast into our numbers, and I think that interesting to see here is that I don't think this comes as news, but in total, if you look in all these markets here in the U.S. that we are doing record levels this year compared with last. What about Q4? More operators joining up CPA rates.
Indiana launched in October, and I think it's six months ahead of what originally said, 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 are working and helping states to take positions to push forward the launch dates, which I think Indiana is a very, very good example. We have sites, we have generating numbers there. We send them also here traffic from the first day they went live. Also interesting is that Colorado has now passed the betting referendum, and we don't know exactly yet when it's supposed to go live.
In terms of contribution, it's a state that is about 60% the size of New Jersey, and we of course are waiting that to go live as well, and by then having sites 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, the coming 6- 24 months ahead. Meaning that we're building content with sites, local sites that will take good benefit from the day that the state goes up. On top of that, it was of course also have 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 we summarize what have happened in this. I think the change from last month or last quarter is mostly highlighted by Indiana, that they 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 they should come live sometimes in second half of 2020.
If you look what we do in business from today and that the list of states about to go live in second half, sometimes maybe 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. 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 where organic growth has been negative, that we have start to level that out and starting to grow back again, and that's the idea 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.
How do we then split that based on the kind of market saturation levels we're seeing out there? If we 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 U.K., 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 should enable us to reduce costs and improve efficiency. The key thing here is that we should improve the margin.
I think this quarter's margin looks very low. We have to remember that we have a team running these sites year round. The revenues in Q3 is rather quite low, especially in the sports segment, where many leagues will start by the middle or end of the quarter. That's why margin is pushed down. Regardless, over time, on both casino and sports from these markets, our key mission is to improve margin by being more cost efficient. 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, et cetera, and language version of that, also Central Europe where we see medium to high growth. Of course, we want to push and invest in our products to take a larger market share.
By using the efficiency improvements we use for mature market also here to have a fast build, but also got good margin. 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, rather low CPA still, but there are things happening. We know Colombia is live. We know that Brazil is coming up. The more states are probably there to follow. We see also a lot of things happening in Asia.
We want to be there, we 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. Complete the vice versa with our investments. We are investing now in order to have a good market share in the future and to have a high margin at that time. This is more about nursing tomorrow's key growth markets. If we move to the next slide, please. How do we follow this strategy into some short-term actions and other activities we 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. The key thing here is to do cost reduction and efficiency improvements, where we're going to revise a lot how we operate, environment we operate, and how we do that.
The people we have on board can generate the most outcome of their presence in order to drive this business to better margins. We see this as a quite big project internally that should take four - six months as we did within Casino 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. Casino 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. In some cases, we have sites as actually we've deemed that it's too much of an effort to build the way the non-benefiting legacy in the product.
Here we are 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. We are talking about how we market these in terms of visible marketing to get more efficient sale than that, but also how we run sales departments. That is things have been ongoing for a while that we see positive benefits from. Worth mentioning that other markets in Europe, like Germany, Italy, et cetera, have quite better momentum forecast for them, which I could come back to on the next slide when we come to that one. Before that, some other actions we are doing. We are intensifying the global launch of new markets for AskGamblers. We will launch new markets here in the fourth quarter. I will not tell you which until we officially announce that.
Also here we are doing the retention business I mentioned before, and we're going to increase that by having more operators on board also as we proceed forward. We foresee some good trends for AskGamblers going forward. If you look at U.S., we are intensifying and increasing our investments there for said reason. There are two things to spending money on. A, on the content creating for new sites to make good positions, but also, as noticed by the market in the beginning of next year as well, we're going to be able to do PPC advertising for our casino. As we'll be 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, the content investments require some time able to secure a dominant position also in the future. In general, in the company, we having started and we're going to continue quite big review of the total overhead in the business in order to rework, so get more efficiency out of the business, i.e., bring in the margin in the right direction. Next slide, please. If you look for the revenue outlook, not being able, of course, to guide on the number going forward, but to give you an idea about what we see as things that have a 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 forecast to be a bit lower compared with September, which always being the peak. In Q3, it's because September being strong, while in Q4 we have three 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 AskGamblers, we're having a good inflow here, and we should be triggered by and buoyed forward by better seasonality, but also that we're doing some other activities to bring up revenue. 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 marketing ban coming in, bringing the business almost down to zero the first month, only to repair itself in the end.
We foresee good numbers helped by seasonality also coming up 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 will 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. We should be helped by outcome there as well. Japan, typically it's a bit forecast, a bit slow in Q4 due to seasonality history we see there.
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 rebuilding a lot of sites. We're basically looking at slightly improved business here. In sports betting in U.K., we have seasonality impact we know, 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 fourth quarter from that. Lastly financial services, rather stable because we are moving away from the business we have seen in Europe that is declining. We're routing it to other parts of the world.
We're balancing the declining revenues from Europe in other markets, but at the same time, we're working quite hard on reducing cost there as well. Even though that revenue is going down, we are doing what we can to cut cost in order to improve margin. That is also an action that will take a couple of quarters until we're fully optimized. If you stay in the slide, to summarize. What we can say is that we have definitely stopped the declining trends in casino. We have good drivers out there. We have AskGamblers, we have U.S., we have Japan. We also have some of the European markets, as I mentioned, coming back on track.
We also using some of those benefits of increased revenue and profitability into the company to invest so that we also have a great future in tomorrow. All in all, I think we're 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 depending on the revenue share. For sure, we have taken a lot of actions in order to continue this trend shift in the right direction. By that, we would like to summarize if you just go to the last slide, please. We are then ready for questions.
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's announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. 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 Christian Hellman of Nordea. Please go ahead. Your line is open.
Hi. Thanks. Good morning, Per. 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 what is the reason why you choose to give a year to date figure on U.S., just to understand that better?
Because the business is fluctuating very much quarter to quarter, and we know that. The reason why we're saying that is the year to date number.
Okay, it was less than that in Q3 then, I suppose.
No, or vice versa. The thing is that it so suddenly changes, so we expect it to move up and down quite much in the coming quarters as we put on business. That's why we decided to move down the number. What we want to show, of course, is that it's becoming a substantial part of our business.
Okay. All right. 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 up a little bit, perhaps, but they could also be flat, you say. I'm just trying to understand that because I just had a quick look at, I mean, we don't have that much number from the U.S. from last year, but at least we have New Jersey. 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.
Yeah.
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 what we do. When we get paid the first month when the customer is active, that customer continues to bet for quite some while, and they're obviously with more customers coming in all the time and more customers, historic customer bets, they build up a handle that is much faster growing than the affiliation business. As we only do CPA and don't have rev share, we will not follow much the handling for the sales. That's why you will see quite big difference from the CPA-based business comparable what, for example, the revenue share business would look like.
Right. I understand that. You do 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. you're not doing rev share anywhere in the U.S., basically?
No, that's correct.
Okay. All right. Then just to understand further on more on the U.S., you also mentioned Indiana, which are up and running, Colorado next year, et cetera. What's your thinking about the U.S. in terms of cost? 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.?
There are two ways you 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. As far as 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. Our strategy is to break into these states with very much local sites, coupled by also the nationwide sites. The more states being launched, the more power the nationwide sites will have. I think the combination of the both is very, very strong.
First what we need to do is to take the, for example, Play brand, where we have PlayPennsylvania, et cetera, make a Play in whatever states, PlayIndiana also, but whatever sites we're looking at to do, for example, that, and that means local content contributors. That you would need anyway for doing content for a nationwide site. I think the combination we do here, and what we predominantly see increase, is keep on 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. I would say, I would call the investment as very efficient going forward. We don't need as much as we have this good foundation already in place. I would say that the investment won't be as high as the revenue potential we have. We should see continued good margin from the U.S. market.
Okay. Speaking of margins, if you look at the finance vertical, EBITDA margin of 9%, it's barely making any contributions to profit. In terms of revenues, it's also quite low for the group. What's your thinking about the finance vertical? Is it worthwhile keeping it around given the low profit contribution and it obviously takes up some management time?
When the investments was made into this category, the idea was not to have that margin. We have these assets now, and 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 reprogram to become something else is a decision we will communicate, if any, at some time. 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. You're right, it's not the largest part of the business, and we also need to do drastic measures, how we make sure that that continues to be a margin contributor in any way or form.
If you are going to keep it around or sort of what type of margin would you be satisfied with the finance vertical producing?
That we cannot comment.
Theoretically, is it feasible that it should have the same margin as the rest of the group, or are there any structural sort of differences in finance?
No, that is nothing we can comment on right now.
Okay. Just a final question then from me. In terms of revenue per NDC, which I have a graph on slide 16 in the slide deck. It's gone through the roof basically, if you follow it for the last several quarters. Started off at EUR 180 and it's now at EUR 260. Could you talk a little bit about that? What's your thinking going forward? Obviously it's being inflated by the U.S. and you say Asia as well, I guess that's just Japan. 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, up or where it's sort of a more normalized level?
I think it's a valid question. 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. Predict exactly where it's going to be, of course, we cannot be that specific. 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.
The more U.S. goes, that's a driver to bring it up, even though it might not be as steep as before as the U.S. will probably have the highest CPAs of all. Japan also the player value is still not the largest, but we don't foresee that player value to decrease. The more of that kind of businesses surrounding markets over there we're landing 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 as more market deregulates. In general, my view is like this that we internal 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 CPAs are lower than U.S. I'm happy to remain at this level, but have the NDC amount numbers going up and stuff together increase revenue.
Okay. Just final question from me on terms of the absolute number of NDCs. It was flat now in Q3 versus Q2 at 100. What should sort of be the thinking from here going forward? It's been coming down for a number of quarters, obviously on the back of Europe, now it seems to be leveling out a bit. When do you think we could see growth in this KPI?
Well, let's break it down. If we look back what was said in the presentation is that, if you look at the European market as also being the reason for the decline in NDCs, the largest driver there has been the casino business, which is now leveling out. In the quarter we had obviously an intro due to the marketing ban happening helped it reduces the NDCs quite a bit. As I said, that is now repairing.
Germany is very low, a big part of this, part because the league there is on shutdown until the very end of the quarter. We also had France where we had to stop, shut down the site. I think without these, we'd of course seen an increase in NDCs. That's why we believe that going forward now start to repair these things and we should hopefully see an increased level of NDCs going forward, taking everything else into consideration.
Okay, great. Thanks, Per. That was it for me.
Okay.
Thank you. Next question comes from the line of Mikael Laséen of Carnegie. Please go ahead. Your line is open.
Hi, good morning. I also had a question regarding the U.S. Can you talk about the quarterly variations, maybe in more detail to help us a bit there? Was Q3 better than Q2, or was it sort of in line?
No, Q3 was better than Q2.
Yeah. Okay.
If you look at the casino business, this is pretty much stable performance normally for New Jersey, which is where we had the predominant numbers coming in from casino. We know that we could have casino in Pennsylvania started off quite slow due to the number of operators there as well, and it has lower CPA levels by player there due to taxation for casino especially. All in all, it helped to drive the business up. The big change, of course, is sports where New Jersey was not as high in that sense as last year, so we had a big bit of a hangover there. Combined with Pennsylvania, we could do better numbers than previous years. Pennsylvania compensated for 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 customer activity? On broad base it is, and if you think that you will see similar type of customer activity as you have seen in Pennsylvania and have expected previously.
Yeah, it's a bit early to see exactly how the consumer looks like because there's not been live that much. 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 they haven't before, you will have that as a major acquisition period because obviously all operators online will put marketing to people to know that, and it's a big thing and people normally in U.S. bet a lot on that, but this way it's on through legal channels. This most likely means that the revenues will be built up under the second year. Of the launch year, you could see a bit of this what we call hangover. On the other hand, it repairs itself rather quickly.
From that level, we start to grow with the average business going forward. Have a big boost normally when they launch the first year, the NFL, they reduce a bit, from that on we start to grow. We have to remember that we've been online now with sports for U.S. for a year in one and a half 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. We learn by every day. So far in Pennsylvania, the patterns from the players seems rather similar to what we've experienced in New Jersey.
Okay. 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 direct traffic?
We see like it's 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. 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. As long as that happens without terminating the total or reducing total margin in the company, we will invest there. 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. I just want to clarify one thing. On page 25, the summary of all those comments and areas seems to be more or less flat to up slightly sequentially from Q3. Is that the correct summary of the slide, or have I missed something?
I think what we're trying to say here is that if you consider the pieces that are saying we're not necessarily going to grow, if those are flatlining, 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. We don't foresee anything that dramatically reduce the business that we've been seeing in the previous quarters, rather more than flatlining and help it up a bit like European casino, et cetera. If you take AskGamblers' strong growth, the rebuild of Italy, et cetera, we believe that we should be able to, well, program the business to become up better than we have done in Q3.
Yeah. Okay. A couple of more questions, if I may. 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 fine.
I think what you look at, because if you put them together with AskGamblers in Japan, et cetera, that is an assumption that you are rather correct in. Of course in this, when you do the change program, you always have some sites that are performing quite effectively better than some that needs more work. 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. In general, for the casino business, we can say that for the total group, we are generating better business today in casino than actually we did same period last year.
That is then blended in with U.S., et cetera. For the legacy business, as I mentioned, we're 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. 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?
Our idea is that we want to improve cost percentage more than revenue.
Unsafe cost basically going forward? That's what you mean?
Improving, basically be more efficient and cut costs where we can while not impacting the revenue goals.
All right. Cool.
Thank you. Our next question comes from the line of Erik Moberg of ABG. Please go ahead. Your line is open.
Hi, guys.
Hi.
Just going back to the U.S. again. In your remarks, you say 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, Pennsylvania is opening up, and you now have three stronger months in New Jersey. How should we perceive it? New Jersey will be growing, and then we're adding two states with better traction than in Q3. Does this mean that revenue will grow by, say, EUR 500,000 Q- on- Q, or is more up towards, say, EUR 1.5 million-EUR 2 million Q- on- Q?
Those details we cannot give.
All right. If we say you grow, how do you think about the margins Q- on- Q from the U.S.?
I foresee margins just build, develop positive. 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 the business there that comes out with similar margin for us percent-wise that in Q3. As I mentioned, with these things, we have the potential to continue to build that business in the quarter.
Yet again, it all depends how Indiana now starting to play out, because bear in mind that they also went live a bit after the NFL kickoff. We need to see how that state develops after the other ones that actually go live at that stage. It's a bit uncertain as for us exactly how it will play out. In general, I think that we should be able to continue a nice quarter in Q4 as well.
Okay, fair enough. Regarding your guidance regarding the U.S., you communicated that it constitutes 17% year to date. Both Q1 and Q2, does this mean that U.S. in Q3 was above 20% of revenue?
That we cannot answer, as we said to Christian.
Okay, Oh, sorry. My bad. Say that in Q1, U.S. was roughly like, what, 10%-12%, and then in Q2 it was sort of flattish Q and Q. This should mean then that U.S. is above 20%, I assume, right?
Yeah, you're done on this.
Fair enough. If we assume that U.S. contributed roughly 20% of top line, and then we divide the business into three parts. You have the legacy business in Europe, you have AskGamblers, and then you have the U.S. In that case, it means that the legacy business saw another decline Q&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 some parts, as we said, they did not increase a lot. Also you need to see the different parts of the things we have. I think that when you look at this, you are assuming now that U.S. is 20 something, and that has to be your decision, right?
Yeah.
The thing we can say is that we are now starting to change the sites here that have declined a lot and starting to level them out. 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. More or less, legacy business is more or less flatlining in that sense.
Okay. Looking seasonality said Q3, Q4, if we exclude U.S. completely, how much sort of seasonality give the legacy business theoretically from Q3- Q4, given all things equal, all the changes and all plus and minus, et cetera, including that.
Yeah. We cannot give you a precise number there as we don't dive that detail, because you can also have variations, of course, in manufacturers here. 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're too much different from that.
All right. Fair enough. Thank you, guys. That's all from me.
Thank you. All right.
Thank you. Once again, if there are any final questions, please dial zero one on your telephone keypads now. We have one further question coming through. Bear with us just as we register this question. The question comes from the line of [inaudible] of Kia Capital. Please go ahead. Your line is open.
Thank you. I have two questions, if I may. Could you walk us through the reason behind the postponement of the U.S. earn-out and sort of why it changed? I also assume that there were some changes to the terms of the earn-out payment.
Well, the U.S. earn-out hasn't changed. We are taking over the business and integrating it here end of October, it still remains the same. We haven't earlier announced the payment date when that actually will be settled, now we say that it will be during the first half of 2020. It's just us that haven't told the contract parties before. No changes.
I think the previous press release you sent out last year suggested that you could pay up to 70% of the earn-out in cash, but sorry, in shares. What you're saying now is 60%, right?
Yeah, we also say that the majority of that amount relates to U.S. assets, and U.S. assets includes BonusSeeker as well, not just Legal. That we said in the press release could be paid up to 70%. I think we said something else in the BonusSeeker press release. There is also some other minor acquisitions in that amount of EUR 23.4 million. That all together gives approximately 60%.
Okay. Also, I noticed that you made an adjustment of EUR 50 million in Q3 versus Q2 besides the sort of actual payout to BayBets. Could you elaborate a little bit more what those adjustments were?
Correct. We've been down into the details in the disclosures of the report where you can see approximately, I think, EUR 14 million in change in estimates, as we call it. That is, of course, partly or large part of it is related to the BayBets 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. In some cases and in some of the agreements, it could be quite some fluctuations with minor performance adjustments. Therefore, we have some fluctuations in those numbers.
One is, of course, related to the U.S. 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 a change in estimate on that asset, for instance, and there are others as well. A lot of different aspects to put into that number and the change in estimates.
Okay. Thank you. One final question. The bond matures in early 2021, right? Considering that you will have the final U.S. earn-out payment in first half of 2020, when can we expect you to present a new financing alternative 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.
Okay. Thank you.
Thank you. We've had one final question come through. That's from the line of Mikael Laséen of Carnegie. Please go ahead. Your line is open.
Hi. Just was curious about the working capital increase you had in Q3. Was this related, I assume, from the U.S. increase late in the quarter? Should we expect that to reverse in Q4?
Very good question. We don't guide on those numbers going forward, as it's very difficult to predict the cash flow. You're making an assumption. There are several bits and pieces being part of that positive effect that you can see there, and the U.S. is, of course, one part of it.
Nothing else has happened, really, to the business. Just normal changes on a monthly basis, I guess.
Normal changes, as you can see, of course, growing the business from the second quarter to the third quarter gives a positive [inaudible] effect. That is partly what we can see here.
Got it. Thanks.
Thank you. 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 write-down from smaller acquired sites and assets that now essentially does not have financial benefit and future expectations they had before? Per.
I think what we decided to do when folks are 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 had and update them. The idea is that we will maintain the revenue as long as we can and profitability from them. If at some point in the future, we will decide to not have them on board and shut them down, we need to discuss that with our auditors at that time. For now on, we don't have any, as in form of this one, in the right terms currently going on.
From the same questioner is, how is the situation on the personnel side? Are you less dependent on key persons now with the acquisitions in the past, or is it the same?
I think it's a very good question. Always we need to elaborate a bit. When you acquire a site, you're extremely dependent on these key people, because typically we have brought them in on an earn-out scheme, meaning that they come in with their product, with their programming, with their customer relations to run the business and we take it over. In many cases, we need to bring that site from their technology platform into ours. When that has happened, the seller's technical skills on running the platform as such is no longer valid because of different platform. We also then try to bring in the sales pattern into our key account management, where we tend to go to operations as well, and sometimes on more sites than one.
Of course, where there is a good account that they used to have special focus, we're trying to maintain that. Otherwise, we sell also in a different way. With the sales scheme and the technical scheme change, it's a way where we then start to operate them more in terms of a content portfolio rather than the old one. In that case, we decide whether we believe that the key persons from the seller side, if they want to continue, and 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. Worked very hard always to have a good second in command , and also shift around so we can operate it more on a central base rather than being dependent on some persons. 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 many sports book products like SkandiBet, but for sport a couple of quarters, how does that going and when can the product hit the market?
Well, that will be released. You 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 are of course working on tomorrow, meaning what market space should we go into and what kind of product we should launch there. When and what, we won't release, so nothing we can comment on right now.
Okay. When can we expect new markets for SkandiBet?
Coming back to the same thing, we will inform. As I mentioned, we're planning to potentially roll out something in the Q4 already.
Okay. Thank you. Okay, I think that was it with questions from the webcast, and thank you for today.
Thank you very much.
Thank you.