Earnings Call: Q3 2018

Nov 6, 2018

Good morning, everyone, and welcome to Katina Media's Q3 Presentation. We have some people in the room. You're welcome. And also on the webcast and teleconference. I hand over the word to you, Per and Pia Lena, for the presentation of the Q3. Thank you so much. We're delighted to meet you again. We see a lot of familiar faces here in the room, but we also know that a lot of people calling in, and we welcome you especially also. We're here today to go through the Q3 report and how we're going to do that is that, first of all, me and Pia Lena is going to present the report. Then we're coming into the end of this presentation to Q and A. And in that case, we have our U. S. General Manager for Gaming, Michael Dally, in room that will join us by that time to answer a lot of your questions. After, we will also do some mingle that you can ask questions and then we also have our sharewoman, Catherine Baker, here in the room. So now to the report and maybe the most important thing first. What was the overview here? Well, we saw a nice growth from last year, 60% growth bringing up the revenues to EUR 27,700,000. We grow the profit with 43 percent Banking, euros 13,600,000 adjusted EBITDA, which is a margin of 49 point 1%. And exciting news regarding EPS, we grew it by 50% up to €0.15 Before coming into the more details about the finance, I would like to run through a couple of things here. And that is, for those of you who are new to our business a bit, who we are and what we do. The company is a bit north of 6 years old. And what we do is that we generate leads to a lot of people who wants to have paying customers. In that case, people being operators or companies. We have done that successfully with today, employed with more than 350 people and we have offices in these locations as of today. So we are becoming a real global player in this. And I think this presentation today will show you what efforts we do to spread the Catina business across the world. And I know a lot of you are interested in what's happening in the U. S. Market, and we will have a special section for that. But as you see, all from Australia to Japan to Las Vegas, that's where we are today. The business model is in one way very complicated, but in one way very simple. Complicated because there's a lot of things we do to do what we do, and that's why it's not super simple to copy it. But to put it simple, today, everybody knows the traditional media channels is losing efficiency. TV, billboards, that stuff, all of that has turned digital because you want to trace as a marketeer the customer. You want to have performance based marketing. But the competition about that is increasing as well. And everybody, including me every day, are on Google and searching for things, which is great. But on the other hand, you get a lot of feedback from Google when you do a search. So people today have too much information, it's information overflowed, and they want to have the content created. Just take, for example, booking a hotel room. You don't go into each hotel size to find the best deal. You go to a curator here that lists it for you and helps you take the decision. It sorts your problem of finding the best deal. And what we do is that we sort a lot of problems in other verticals. We started with iGaming, meaning casino, poker and sports betting. We have also entered the professional finance. And in the future, of course, being good on what we do, we will also enter more verticals years from now. So once we have connected to a customer that is doing a search on the Internet or on Google, We presented with something that we believe and that we know by historical data is interesting to them. We build up an interest and after a while they want to make a decision to acquire something, we send it on to somebody who sells that. And when they spend money with that operator, we charge for our service. Up until then, everything is free on charge, but we charge once that customer has generated business at the operator, which is a fantastic deal for the operator because no cash out of the door until they have a paying customer. It's a great thing. But we're quite good on charging for what we do. So we earn a lot of money as you can see by this. But on the other hand, we create value for the operators. And the way how we charge is 5 different things. Either we share a part of the revenue the customer generates over lifetime or they pay upfront or a mix of these 2 or it can be a subscription fee if somebody subscribed for information we have or it can be fixed fees. And that's interesting because that's pure advertising. We have an enormous amount of traffic to our sites today. In fact, we probably have one of the largest casino audience to our sites. And people want to show their brands there. And when they want to do that, they can, but it will cost some money for doing that. So therefore, we have a lot of brands, which you see on this side of the room, and we also have a lot of partners that we do currently. We do a bit more than 1,000 different partners out there that we send traffic to each month. The people doing this that has the opportunity to lead this company is the people you see here on board. It's a great team. But on the other hand, I would like to have 357 small pictures here today because these are the heroes that are delivering these numbers each day. But it should be quite massive page if we do like that. So have to settle this. So now the important thing here about the numbers. I hand over to Pielena. Thank you so much. We're very proud to present a strong quarter, not only with high growth in revenues, but also in profits and in earnings per share. Our total revenues grew with 60 percent to €27,700,000 for the 3rd quarter and with 63 percent to EUR 77,600,000 for the 1st 9 months. Looking in total revenues, euros 23,700,000 was search revenues, 3,600,000 was paid revenues and 0,400,000 was subscriptions. And looking at our revenue streams, 50% came from revenue share and 39% from cost for acquisitions or CPAs. And our cost per acquisition deal have been growing since the strong performance in the U. S. Market, which is mainly CPA deals. Flat fees was 10%, and our fairly new revenue stream And we have been growing fast. We're growing both organically and through acquisitions. And our total growth in search was 63 percent to EUR 23,700,000 in the 3rd quarter. Acquisition organic growth, including acquisitions, was 27% and organic growth solely in Catiana Margheria. That is the assets that we've had for 12 months or more, how much have they been growing within Catiana Merja? And that was 17% in the Q3, but also 17% for the 1st 9 months 2018. And we prefer to be on regulated markets. And 75% of our total revenues came from regulated markets in the Q3. And this was spiked, of course, with the good and strong performance in the U. S, where it is regulated. And of course, when Sweden becomes regulated next year, the total portion of regulated will be even higher. Kettinamerja's platforms continue to generate a vast amount of new depositing customers. We reached 138,000 new depositing customers in the Q3. It was slightly below the 2nd quarter, where we had a spike in indices in connection with the FIFA World Cup. But still, we're growing a lot and fast. And but it's not only the numbers of NDCs that's important, but also the value of the NDCs. It is that, that shows the real measure of the profitability going forward. And in the U. S. Market, for example, we get a value that is up to double the amount of what we get in the European market. And looking at our adjusted EBITDA, it has increased from 46.4% in the second quarter to 49.1% in the 3rd quarter. We have been using less pay per click, which has improved our margin. We also have some economies of scale regarding personnel cost. But then we have higher operating expenses, and that is due to the investments that we do in the U. S. Market, but also for the financial service segment. Then in the Q3, we also had one effect of the annual company event that is also affecting comparability with the second quarter. And we made an agreement with Optimizer. We looked over the whole cost structure, and we agreed upon that they should repay EUR 500,000 in the quarter for recharges that has been made during the first and second quarter this year. And that, of course, have a positive effect on the EBIT margin in the 3rd quarter. And without that repayment, our adjusted EBIT margin would have been 47.2% in the Q3. Looking at the adjusted EBITDA for the 1st 9 months compared to the same amount in the same period the previous year. We had an EBITDA margin of 52 point 6% in the 1st 9 months 2017, and now we have 49.1%. And of course, our lower PPC spend is affecting the margin positively. And we have economies of scale. Clearly, we see that. But then we have higher operating expenses. And that is due to the investments that I told you before about the investments that we do for the U. S. Market but also for the financial service segment, but also costs that we have for GDPR and compliance. Our main asset is our intangible assets. That is from our acquisitions. This quarter, we have acquired one asset, which is leap rate. That is a new site for FX that has increased our intangibles somewhat. Per will talk a little bit more about our acquisition strategy going forward later on in this presentation. Looking on the liability side, we have equity of EUR 126,800,000. We have amounts committed to acquisitions of EUR 65,800,000 and of which 50% up to 50% can be paid in shares if we choose to do so, but the decision is ours. So we decide if we will be paid with cash or with shares. And then the borrowing is the SEK 150,000,000 unsecured bond that we have in the market at fair value. When we're talking about funding, we had a carve out in the senior unsecured bond that we have in the market to be able to do bank finance with the highest of €30,000,000 or 75% of adjusted EBITDA. And we now, in this quarter, have this in place. It's a EUR 30,000,000 credit facility that we have with Swedbank, and it has a floating rate of over year over year, 3 months plus 2.5 percent, and it matures the 15th January 2021. And it's we have not used anything of this facility during the Q3. Then we have our senior unsecured bond with a total framework of EUR 250,000,000 of which we have issued EUR 150,000,000 Looking at our 2 segments, iGaming and Financial Services. IGaming is still by far the largest with 94% of total revenues. Of total revenues, 57% came from casinos and 37% from sports betting and then 6% from the financial service segment. The financial service segment is affected in the Q3 of seasonality with low volumes during summer months. They're also affected of the ban on binary and also that have been lower volumes on cryptocurrency. However, they are building up a successful ecosystem in regards to trade, trade with shares, with CFDs and FX. And this has a great potential to grow substantially going forward. And the investments that we make here is, of course, affecting the margin in the quarter. And the margin for the financial service segment was 32% in the quarter. And for iGaming, it was 50%. We had an EBITDA of €13,400,000 for the 3rd quarter. We had a non recurring cost in relation to setting up the credit facility with Swedbank of €200,000, giving us an adjusted EBITDA of EUR 13,600,000. We had a depreciation and amortization of SEK 2,300,000. And then we had interest paid those on borrowings, and that is purely related to the bond that we have on the market. As I said before, we don't we didn't haven't used the credit facility at Sberbank yet. Then we had a fair value movement on the bond on SEK0.7. And then we have other finance costs, and that is mostly notional interest rates on our earn out commitments that we have in the balance sheet, and that has no cash flow effect at all. Giving us a profit for the quarter for SEK 1,100,000 for the 3rd quarter and a really strong growth in EPS €0.15 with 50% growth. Over to you, Per. Thank you. So we have got a lot of questions recently about our review on the legislations going on and regulation impact. And I think the markets we're talking about is Sweden, U. K, Germany and Italy and then, of course, U. S. If you start here, our view on this is that when it comes to Sweden, we all know that it's going to happen things here in this market in January, where it's going to be an 18% tax applied by the government. How we see this is that typically historically we see them when regulation starts, we tend to benefit in one way. Regulations bring a lot of guidelines and rules what can and can't do in terms of marketing. Meaning that as an affiliate that sends out a lot of marketing messages, you not only need to be compliant on your web pages, but you need to work together with the operators to make sure that their advertising communication is following the law. We've seen the same in U. K. We've seen the same in other markets. And once we have control of that, we tend to actually get more business from operators because they don't want to risk breaching the laws and regulations in the market by sending false market message out, typically visible in the U. K. So when this happens, we see that smaller affiliates tends to get more problem being compliant and larger affiliates get benefits of that. So that's one thing. There's tend to be market grab and potential market share increase once market regulates. I think more important that I mentioned before, the market landscape is changing. And especially in Sweden, you cannot buy more TV. You cannot send more TV advertising in Sweden because it's full. We see that. So where can you increase your presence? Well, it's digital. And when you want to increase presence in digital, price goes up on search words, etcetera, which we see across the globe now in all marketing channels. But especially, we believe that will happen in Sweden as well. And that means that being an affiliate here would be a very good complement to your digital business because we deliver efficient traffic to them. So all in all, we believe that we can take a market grab from competition. We believe that we can reach over time a larger part of the market considering the monopoly having a quite big stake in the market as of today. But also the fact that we believe the cost increase in general for marketing channels will be beneficial for our product. So there will always be impacts when things happen. Will it impact the company as a whole? No. Because as you know from other markets, we have a very, very bright future coming as this. We don't foresee Sweden being something that we are treating considerably different from what we do today. That's our viewpoint. When it comes to Germany, a lot of talks. They're finally getting closer to sort of government there. And when they do, we'll see what happens. But in the meantime, we have business as usual. U. K, a lot of laws has been applied recently tightening the laws and especially the proof of wealth consent, meaning that you need to prove that you can afford gamble before doing so. These rules are in the basis very good because it protects the customers from doing bad things with their economy and their self. This also means same thing here that if you help the operators to then come up with alternative market message to make sure that we don't hit the person that have a potential problem but hit the people that doesn't and work together there, we also, same thing here, tend to make our business over that. The U. K. Market will be impacted by this for sure. And also, it was recently informed that tax rates for casino will increase from 15% to 21% by October 2019. It will have an impact, and it will impact us in some way or form. But on the other hand, we increase in market share by every day. So over time, we don't foresee that being a long term issue for us either. Italy, we commented on that in the Q2. We see. We continue to do business as normal, and we see how this ban is going to be applied next June. So I guess that's our view on it. We don't do any specific things in our numbers now based on this. We adapt accordingly, improve our business, become more efficient to mitigate. Then growth focus. All right. A lot of questions. SEK 100,000,000, how will you get there? What is your plan? Well, you can do a lot of things, but I think I'm going to cover a couple of things here. And historically, Katina has been built by acquisitions. Basically, every brand we have has been acquired in some way or form. And obviously, we've done quite good. Do we need more brands now? My simple question to that is no, we don't. I think it's more about finding the brands that are strong and grow them globally. You saw that we have more than 1200 brands. Our belief is that with 30 of those, we can conquer the world. And it's quite simple just for you to understand. If you run a 3 50 people organization and you need to update 1200 brands, maybe 200 times a day, it becomes quite a big operation to do so. If you need to update 30 brands and you have a common platform that you just one point of computer updates everything you do, you become efficient and you can grow profitability. And I think that's the case, and that's what we show now in this quarter where we managed to grow. The majority of the growth comes from own organic growth, not by acquisitions. Also, in fact, that the acquisitions targets out there are getting less and less because we bought most of them and our competitors bought most of them. So today, there's not a lot of top ranking sites you can buy anymore. And there are a lot of sites that are big clusters that are really, really difficult to look after efficiently, but the top spots are taken by us and our competitors. And in the U. S, there are hardly nothing to buy because and I will show you later how dominant we are there. So for us, it's more about thinking about different things. We want to do fewer acquisitions for a good cause because we're also considering EPS. We want to do even strategic acquisitions in the fact that it can be a low amount value acquisition, but it strengthened the core. It can be a product. It can be something that improves the entire company to be able to grow. So not that much revenue focus in that case. But it can also be large acquisitions. And the beauty with large acquisitions is the fact that you can find synergies. When we find when we buy a 3 man band in the garage doing affiliate business, you find no synergies because they have no salary, they just leave on earn out coming up. But if you buy larger companies, you will have many roles that are duplicated. And if you cut them off, you will improve profitability. So we'd rather now take it easy with acquisitions, build cash to, a, make sure that we pay as much as possible of the upcoming earn out with cash, not shares in order to protect EPS because that will also over time preferably increase valuations. So once we want to pay with share, we have a good share price to look into. So we will you will see much less frequency from acquisitions, but you will not see a less increase of growth. That's the beauty. So that's what we're looking at. So if you consider then that part of the strategy, what more can we do? Well, we see for sure that we will continue to do a double digit organic growth internally, for sure. That's from what we have today. Then add U. S. Opportunity. And with U. S, we mean order today, we only plan about what we know. And what we know today is the states that are up. We know that West Virginia will start and we know that Pennsylvania will start. That's what has been confirmed. And with that, only we feel quite confident about this. Then adding the other states coming up on this just as incremental and things will happen before the end of 2020 for sure. Then we will take those brands we have and start growing them global as well, As Gamblers, Bonus Seeker, Forex Trade, all these kind of things we will grow in much more markets also continue to grow organically. And then, of course, the beauty with this is that if I have a team running a site already, the cost for me of introducing new market is translation and maybe some local content. So very, very small additional cost for incremental revenue, and that's how we build profitability. And that's what with these together, we get cost efficiency, and that will bring us to the SEK100 1,000,000 So our message today as a company today that we feel still confident we can deliver this. But the difference from last time, we don't foresee that we need to do a lot of acquisitions, meaning that not only EBITDA should grow, but EPS should as well. That's our plan. Then, suddenly, a picture from U. S. So let's switch over that for a while. This is an interesting picture. It shows that, in fact, the red dots is actually what this hype is about today. It's hardly nothing, but this is still hype in U. S. And I think that's the beauty thing because all that by the revenue numbers reported from New Jersey as a state coming out of September, we understand that this will be big. To be big, you need to be in the front being in the pole position, which we are. In 2016, we did acquisitions, taking the top brands in Google ranking and has grown them since then. And what this shows is this next chart shows us about our position. In the red colored states here, we have business sites monetizing today because that's where we can monetize legally. So, we don't do anything else. But if you take the blue color state, these are the states representing a big part of the population. That's where we have sites generating high ranking on Google, but we don't translate that to money because we're not allowed. But the second they go live, we send traffic. So we have a lot of sites top ranking, a lot of activity, but we cannot add affiliation links because that is against the law. But for example, when New Jersey went up, the very minute they opened up, we started to send traffic towards those stairs. We are geared. We are just waiting. And the beauty thing is, especially for West Virginia and Pennsylvania, we don't foresee any more cost to be invested to drive that business. We have what it needs. So, we don't need to invest anything. It will just be pure margin coming in from those markets. That's the beauty. So, consider that going forward. Then we have the yellow colored ones. Those actually includes some states that we have live, but we're building up that currently. We're setting the domains and we're preparing that. And this mostly covers sites that are locally adapted because a lot of people search for can I play in New Jersey with the state name? Then we need to start picking up that. But we also have a lot of other brands where we do nationwide. So in one way, we can say we cover all states today because Legal Sports Report, we cover Online Porky Report, Bonus Seeker and then the Play Brands we have for every state more or less. So, we can do that and Play USA go for all that we think. Plus, add to that, we're bringing some of our most successful brands into the States as well. And these are some examples. We're probably going to bring a couple of more where we once again can run from the basic teams just with local adaptation and run that very efficiently. So, that feels very promising. And therefore, just for you to get an idea how it looks today, This is an example from the 23rd October where we put in New Jersey sports betting, a search word. It's a very common search word to put in. And if you look at all the red mark thing here on the first page on Google, that's us. So, we have a quite dominant position. It's hard not to click on a link coming from Katina Media today. You will be really good on actually missing that. So, that's how dominant we are. And this is also how it looks if you put in in states that are not regulated. We're sitting there with our sites just waiting. And when you're allowed to do it, you can then find affiliation links here. If you do a search, for example, you do any of these search words on Google, Play USA comes ranked as clear number 1. If you do any of these over here, those search words, legal sports report, as ranked as number 1, clear number 1 and then all the other sites as well. So, at this stage, I would say that Catrienne is by far the best positioned affiliate in the U. S. It's by far the largest. And today, there are no clear number 2. That's how we see today in the legal markets over there. So, obviously, we're quite happy. This is why we invested in 2016 to acquire business. This is why we invested last quarter to build a team. We have 18 people on-site now, running there, doing a good job to do this. And the good thing is we have a team that can bring up revenues for a long time without having to add a lot of cost. So margin outlook looks very promising from the U. S. Market. So, that's important. And final slide before conclusion. Another thing that is important is this. You tend to forget that. But on the Swedish Stock Exchange here at NASDAQ, since 2011, this Albright Foundation has been looking into the companies to see that we not build a company, but we build a company that really carries about equal to between general, etcetera. And we entered the list. There are only 47 people we're just 7 companies that are qualified to be on that list. We just entered and we took number position 24 already because we have an exact same split of gender in the management team and we expand plan to expand that because we don't care. For us, it's important. The people in the company do this and we need to make sure that we have a good mix. And we take the people and we really care about this very much and we have a good 34% average in the entire business and it's growing very quickly. And this becomes very important, especially for funds investing together with the CSR initiatives and we really care about this a lot. So, we are very proud of that. So, Q and A coming closer. I know that you're eager to answer ask questions that we should answer, but before that, let me summarize. Key takeaways. EPS, 50% increase which is very good. We have a double digit organic growth. What we generate by ourselves for the assets we had 12 months ago is 17%. Add acquisitions and they come up to 27%. We will do fewer. We will do larger and strategically more important acquisitions, meaning that we will build and reduce build cash and reduce our leverage debt leverage in the company. We do that also by, of course, focusing on cost efficiency and you will see improvement of cost efficiency order in Q4 continued. And of course, U. S, even with what we know, it looks promising, adding what we don't know and it looks even more promising. Okay. So, that summarizes our presentation. So, can I ask kindly ask Michael Dalle to join so that we have the team here? And I think we will start off with some questions about the report in general and then move into the U. S. Session. Yes, that's correct. And my name is Stefan Knutson. I'm an equity analyst from AVG Sundal Collier. And first of all, Per, can you give us some more flavor on the growth in the different segments here in the quarter? It's after World Cup and how was it? Sure. I think if we go through the quarter, in July, we did a good month. It was still World Cup. A lot of actions dominated there. And as you know, in the leagues are quite slow. There are fewer events. And I think the operators we behaved like the operators did as well. August, however, when the quarter or when the World Cup was over, a lot of operators had spent most of their money into World Cup, so there was less investments in affiliation in August. So August came in below our expectation. However, then it kicked off a lot in September, not only in general business, both in sports and casino, but especially due to U. S. Market. You see a quite nice increase in Casino in general. We're happy with that both in Europe and U. S. Because Casino is triggered also by the everything goes on in the U. S. But of course, we see a nice income of sports betting coming in. What is interesting also here is the high levels of CP we talked about, and Mike will mention the levels later what we see, but that also helps, of course, to drive the U. S. Part of the business, both casino and sports betting. So we're happy with the segment. When it comes to Financials, we have to remember that Financial segment is what Catriena was in March 2012. That's where they are today. So, the best is yet to come. I'll be building something to become very good. That has been the plan. That's why we invest in margin, etcetera, but we have a very good plan what's going to accomplish there. So overall, we don't see any downsides. We're quite happy what we performed. We saw a lot of the European operators report high sportsbook margins. Did you see a positive effect on that in your numbers? Yes, I think we do. It depends on how we're charging them, of course, because we have some rev share and we also have CPA businesses. So, when we look at how they operate and for the ones we have rev share business, of course, our business doing well as well. And for the finals vertical, once it gets to a more mature state, do you still see the like both? I think it's both. The interesting thing with subscription is that even though we think that it's just $300 a month, we typically see lifetime value is about $10,000 for 1 single customer there. And if you can do that with plus 50%, 60% margin is an interesting thing. Depends how many of those you can get, but we for sure have too few in the U. S. But then of course, the basic kind of affiliation where you learn how to trade ForEx and then need an account and you need a tool, That's different lifetime values, but there's also a lot more people doing that. So, I think regardless subscription, whatever we do, we have a very good idea how to monetize that a lot going forward. And coming back, you mentioned a bit about political risk here in Europe, especially. Last quarter, it was the announcement of the Italy situation and now we had raised taxes in the U. K. Coming in 'nineteen. Like, do you only see negative effects like affecting that or do you also see markets opening up to become regulated? I think I really do hope that more market become regulated because that's our specialty. It's a to be quite honest, it's a quite painstaking process to become good on being good at regulations because you need compliance, you need lawyers, you need to be very precise and have a good operations doing that. Once you're there, you are among a team that are quite selected. And you we see that every time regulation becomes more difficult, we get more inquiries from the operators to get more of the business. So, it impacts once it happens, but over time, we gain back that impact by getting larger market share. So, we are pro regulations, A, because it's good for the consumer. And considering these amounts are not for the government's benefit tax wise, I think it will happen at some point. And then you need to make a choice, will you go down with it or will you benefit? We took the secondary choice and doing very well from that. Perfect. And going in a bit more about the margin, we saw some economies of scales here in the quarter. I assume that we can still expect higher other operating expenses because of the finance vertical. But you also mentioned some onetime income, I think, from Optimizer. How should we treat that 1? That is a one off. We looked at the whole cost structure that we had with Optimizer, and we made this agreement for a one off payment of EUR 500,000 that is affecting the quarter, but only the quarter. So we will not have more of that going forward. Okay. And coming back to you also had mentioned that you had a company event in this quarter, whereas in the previous year, it was in Q4. Can that somehow offset the income from Optimizer or Yes, yes. Large part of it, but not all of it, no. Okay. Perfect. And digging into the balance sheet a bit more on the cash flow. We saw that accounts receivable continue to grow here. The cash generation was not as good as we have seen before. How should we view this? We did have a spike in accounts receivable in the Q3. We have seen in October that we have large cash flow coming in. And we also strengthened the team to improve our collection going forward as well. So I believe that we will have a better collection going forward. Perfect. And another news after the quarter was that you changed U. S. Earn out? Can you give us some more update on Sure. Back in 2016, the agreement made and after that there have been some changes of that was that it was there to benefit from the poker and casino business. Nobody could foresee that would be sports betting coming in. So therefore, we had, call it, 2 buckets. 1, the first bucket that was really acquired was the Casino and the Portland Casino business. All the other things in new states and etcetera was in the secondary asset. The secondary asset was in that way that it was an agreement because at that time, we had no people in the U. S. So we said that if something happens there, we need somebody to operate that for us. We said you guys that run that business, what about you run that for us? We do a profit share. And if one day we want to buy it from you, here are the deal terms for that. We acquired it. Of course, that changed quite dramatically when sports started because sports was not defined as a main business, it was secondary. In that case, we had to see that we have first to share the profits and then we need to pay quite high multiple to buy that business out. And of course, we're quite long term, meaning that if this happens, the amount of that we need to pay to get hold of that total asset will be very, very high. So when we discuss with the counterparties, we send out for them, it's important to, of course, secure money and take opportunity of the growing thing. But for us, it's also important to have the asset before U. S. Really kicks off. So, all in all, what we can say is that we shorten the time where we can take control, which is good. We have Michael and the 18 people in place to make sure that we can operate the business even if the seller will leave. That is quite unusual. Normally, we do that change once the is over. Now we have already started with us. They report to Merkel today, and they run the business together in a very good manner. But I think the most important thing is also that in total, if I simulate this deal, the total deal term is actually that by this, we're coming out in lower cost for the total lead for us, and we have lower multiples for the entire deal than we had before. So all in all, more cash before, but on the other hand, also more cash will be generated into us because it's based on profits and we get the own business before it really clicks off and can benefit 100% from that business. So for us, it's a very good thing to do. Has it affected the business model that you currently use in U. S? Or is it just that the rev share license is not in place yet? No, it has nothing to do with that. I mean, you can say like this, we have rev share licenses we applied for in Pennsylvania when it opens up. But on the other hand, with the levels of CPA we do, we want to do CPA for time being, but we're geared to do rev share for sure. And what is the status on the license that you have applied for? Well, it will be up and running when we when the business starts in Pennsylvania. Okay. Perfect. Going a bit more into the U. S. In general then, Mikael. Can you describe the market outlooks, which are the big players? The big players in terms of Operator. Yes, operators. So the U. S. Has a series of operators for both casino Golden Nugget, MGM, Eldorado now owner of the Tropicana, which had been independent until recently. So we're seeing some of them also be prepping for Pennsylvania and West Virginia. And then we're seeing some new operators that are probably unique to the U. S. DraftKings, FanDuel, on the sports betting side who have been fantasy players, but are actually some of the largest, originally the largest sports betting in New Jersey. So those are some of the players and Catena works with all of them in some capacity, some more than others because those that are willing to work with us on the pricing that we charge in order to deliver them to high value customers. Do you expect others to emerge like in other states? Will it be state specific or? Absolutely. Based on the way the regulations in the U. S. Are looking, Pennsylvania determined, West Virginia determined, the operators have to have a casino presence already in order to get a license for online casino or online sports. So, some of those I mentioned, Caesars, MGM, they'll have multi state presence in some of the states that will regulate. But then there'll be unique operators like in Pennsylvania, the largest casino operator is Parks. We're already in discussions with them for when that goes live, along with all the other operators in Pennsylvania, like Penn, which is another multi state operator, but they're not in New Jersey. So they'll be unique to Pennsylvania originally, but then we'll see some of those grow in other states. And how does, for example, DraftKings fit into this description? So DraftKings is, as I said, a fantasy platform that also then built a regulated gambling platform. They were actually the first to go live in New Jersey with sports betting and have been the lead player so far. Catana obviously works with lead players in most markets. And so we work with DraftKings along with their competitors, driving good traffic to them. And DraftKings has made it clear that they're going to be in many states. So we expect to work with them in West Virginia potentially, in Pennsylvania. They have to get their licensing and approval and relationships with casinos so that they can then be offered there. And if we just compare Europeans to Americans, do you think that Americans will embrace online gaming as fast as Europe has? In terms of the players, yes. In terms of the states, consider each state like its own European country, I think is how it's been referenced. So each one will have their own speed of approval and processes. So New Jersey may have been faster to get from approval to go live than we may see in other states. But I think we will start to see things move along in the next few years with more states going, especially as Pennsylvania and West Virginia come online behind New Jersey, we'll start to see momentum. And the good thing for us is, Catena or anyone working in the U. S. Is, if you consider today, 3% of the U. S. Population can be touched between New Jersey, Delaware, and Nevada for online. Pennsylvania itself doubles the size of that population and then more so. So just one state doubles the size of our business or anybody's business in the U. S. And then a couple more states behind that. You've got a long way to grow where you could be doubling year on year potentially. Not just saying that about Tana, just the U. S. In general. Yes. And from what I've read, like the launch in New Jersey has been so successful, so that the market probably a glass half full kind of guy. So, I'm probably a glass half full kind of guy. I think we are but I'm very optimistic about the U. S. It is starting to move in ways that my pessimistic views would have been where it's too fast for our typical regulatory processes. But we are seeing just so many bills come up in so many states that just the momentum says that just even if just a few of those of the 14 states that had bills that didn't make it through this legislature, If they go up next year again, there'll be 5 more states along with that probably. Just a few of those will pass. Again, doubling, tripling the size of the U. S. Markets with just a few states going each year. So very optimistic on the speed all of a sudden. Okay. Thank you. I think it's time to let the floor in to have some questions. Christian Hammer with Nordea. Just a question on sorry, your EBITDA target, EUR 100,000,000. You were sort of alluding to that you don't need acquisitions to meet the target. Is that sort of the way we should see that? We need acquisitions, but we don't need the same frequencies I've had before. And our view is to different acquisitions that do also both short term but also longer term profit improvements by synergies. So we will reach a long way, but also remember what Michael is saying here. We only plan our business or what business we know today. If additional states comes up, and what we know is that West Virginia and Pennsylvania will go live at some certain time. That's what we include in our simulations. Add until the M220 a couple of more states and will be even less dependent on acquisitions to the numbers. But the thing is that you do not need to expect the same kind of level acquisitions you've seen historically for us to hit the target. All right. Fair enough. And on the U. What is sort of the drop through on incremental revenues from here? You were sort of talking a bit about that also in your presentation that when you get additional revenues from here on, it's pretty much going to drop through all the way because you've taken all the costs. Yes, that's the plan. You see, it's when it comes to the states close to New York, and you can add more things here. We have a team in place and we gear because we build the factory because we know. So the investments we made prepared because we know that West Virginia and Pennsylvania will start. California, we haven't planned because we don't know when that will happen. But if, for example, California happens, as you see, we have the brands for it, the platforms are there. We don't need to do any work with SEO and design to get them running. What we need to do is fulfill it with local sport information. That is made by a couple of freelancers. So, that cost compared with the potential revenue, you can then translate that to an enormous nice profitability from that. So, that's how we build it out. That means and the beauty with U. S. Is that there will be a selected amount of operators running all the states, some local, but a lot of them having the biggest states like the big guys over there. And we have relationship with them already. So, we don't need a lot of more people doing key account and negotiating deals. If DraftKings open up in another state, we already have an agreement with them. We don't need more people for that. So, therefore, we see profitability coming from U. S. Will be higher than the CATVIN average sure. And a question to Michael. You were also talking in the presentation about player value being much higher in the U. S. Compared to the markets in Europe. Could you just elaborate a bit on that just to give us sort of sense of flavor for what we're talking about? Sure. So I would say on a grand scale, we're probably looking at 2x what you see in Europe. We see CPAs on the casino side in the range in New Jersey. And again, each state will be different because of tax rates, etcetera. But New Jersey, you could safely say we're in the $700 to $1200 CPA range for per player in New Jersey that's delivered by Catena. We're at the top of the market. As Per noted, we are pretty much the dominant player there. As more players enter, those things may shift around a bit, but I think we're in a full position. And so sports on the other side, sports probably is still higher than Europe, but not nearly as high as casino. So it's more of a volume play there and New Jersey is showing that already to be the case. But prices are pretty much double compared to Europe. As I understand the prices here, yes. And that's the reason also why we stay away at this point while we're licensed to do rev share in New Jersey. It just doesn't make sense financially at this point to offer that model. My name is Asa, and I work IR for Catina Media. We have a number of questions as from the Telkom. And this one is from Henrik at Naxo for Warting. He says Q3 has a slowdown of NDCs by 1.4% versus Q2 2018 and only up 3.7% versus Q1 2018. What are your thoughts on how this will affect revenues and earnings growth going into Q4 2018 and forward? My view on that, it's quite simple. As you just heard, there's a great difference between NDCs. And in fact, NDCs is not an ideal tool measuring a business because do you want a €200 CPA casino player, do you want a €12.50 casino player? It's the same NDC, but it's 5 times or 4 times the value in some case. So, one thing is what we get paid for. Then the other thing I think in terms of NDC is also what lifetime value we are able to do. And what we want to do each day is to improve our funneling to make sure that not only the fact that we earn more money by each NDC we send, but also that our operators earn more money. And then, suddenly, the number of indices is not important. It's what total money we generate to this industry and how much of that we can get. So, we're actually looking less and less at the indices. We, to be frank, hardly look at indices internally, but it's something this company has reported during a long time. That's why I have it there. We look more at average revenue we can generate and the flows of NDCs by markets and how we send different NDCs to different operators depending how much money they can generate for themselves and for us. So, I don't see any impact at all of that. I think our number shows that a decline in NDCs has actually, in this case, a positive impact to our numbers. Okay. Thank you. We have some more questions. And then the next three ones are from Martin Annel at DNB Markets. You mentioned that the value of the U. S. Net deposit customers is up to double the amount in Europe. How do you expect that to develop next year? So next year, New Jersey will probably remain relatively stable on casino. It's been growing and going up in the last 5 years since the market launched. At some point, it has to plateau. When that happens, I can't say. But we will continue as we see new operators enter the market. We've heard people like Bet365 say they're coming across. So the more entrants, the more marketing dollars they need to spend. Playtech has also made interest of coming to the U. S. So if they've straightened out their other issues and they come across, more players in market mean more people needing affiliates and lead generation and we'll see values go up. Pennsylvania, Pennsylvania is because of a much higher tax rate. Probably we're lower in the CPAs. Maybe that's 30% lower. I don't know yet. Those aren't established. But it will probably start in every state even with higher tax rates. They'll probably start relatively high because of the competition at the initial market to gain traction and to gain players, which many of the casino groups, which have paid in Pennsylvania's case, dollars 20,000,000 U. S. In order to have a license, they will want players. They will not expect to make money their 1st year. And so they will be paying for advertising and marketing and lead generation. So will be good for Catena. And then when those start to stabilize and potentially come down, well, probably be in other states as well by then. So the next couple of years look very healthy for CPAs to me in the U. S. Okay. Thank you. There is another question from Martin and I know as well. When do you expect a breakeven result in the U. S. Market? Well, we're not too far away. All right. We'll get that answer. I think we also talked to Louise Vandell, who is our General Counsel here, and I will say a few words in terms of licensing in the States while we are in that. Yes. I just want to say you asked before about the rev share license, when we're actually going to get it. And at the moment, the application procedure in New Jersey is it can take years before we get to actual license. But we can actually already today do rev share in New Jersey. And the same will probably be the case for Pennsylvania. But as Per said before, we are choosing to do CPA at the moment because it's more beneficial. But we want to have the possibility to choose. We have questions down here also from Just a question about how competitive are the offerings for the sports betting in U. S. Compared with offshore? And what kind of channeling effects do they expect? So the offshore has the advantage, obviously of not having the tax rates that exist in the U. S. States. The states have operators have the advantage that they are regular and they are supported by the states in marketing and billboards and all the traditional media spend that they do as well can only be done by those that are offering legal gaming. The state of New Jersey put out a letter to all of their operators and said, if there are any affiliates working that you work with, that work with anyone who is an offshore operator, stop or risk losing your license. So the states are starting to crack down. As more states come along, that will probably snowball where we'll see multiple states. And maybe even if those states work well enough together, we might see some action by even our federal government against some of the offshore operators. Right now, the federal government is sort of staying out of the online business, but we'll see as they especially as sports groups and others come more into play, there'll be more and more interest groups in the U. S. That are upset by the offshore operators. But today, they can't operate in the U. S. They'll compete for some players, but the new player, which is the majority of the people coming into the ecosystem, are going to gravitate towards those casino groups and the like that they know, which are the U. S. Operators. Okay. Do we have some yes? Yes. Mikael Azzin, Carnegie. A couple of quick ones. Just curious about the NDC development overall in Europe, your current market and the U. S. In Q3. I think what we see here is that we're doing a healthy business in the U. S, but the amount of NDCs we see here, considering the amount, is not as high per earned dollar, if you say, that we have in Europe because the amounts are very high. When it comes to NDC development, as we said, we have also in some sites decided to look at different commercial levels from the search words because we see that we have first it's important to send an NDC to an operator that can make money from it, not just to send an NDC because that's how you have a long term sustainable relationship. So, we are also considering that we send NDCs that are high quality rather than us to send NDCs. In some cases, we probably don't take a decision where we're actually going to lower the amount of NDCs even though that we have the right search warrant volume comes in because we will make more money that way and operator will do it. So, we're not concerned about the amount that's coming in from the market. What we're looking at is to make sure that those are the best value NDCs we can have. I cannot be precise by market, etcetera, by the NDC C build up, but we are confident about what we're doing is obviously paying a nice way going forward. Okay. Yes, I understand. But can you say something about the U. S. Side, how that's developed? I mean, now sports betting took off in Europe. We can see the official figures, what happened there, what type of operator Yes. What we can say in general that we are for sure having by far the highest market share in terms of inflation, really dominant. We in some operators, we are one of the few ones actually sending traffic into them. So we have almost 100% market share in some of the operators in terms of affiliation. Of course, that will change over time. But now, because we also have a market that is growing very quickly and more people search for this, we take a big market share of that search volume coming in. And there is a huge demand of traffic. As we said, if you spend US20 $1,000,000 to get a license, you want to take a good position in that market. You don't want just to pay it and sit having no traffic. So, there's at some point high demand that we can supply at this stage. And that's why we have the price picture as well. So, we are really happy with what we see now. But once again, we open for competition. But today, there is very little competition. And you can see the reason for that is what we explained here with the how the search word on Google comes up, etcetera. We are quite dominant there today. Okay. And finally one regarding U. K. Can you say something about that market, how that developed in the quarter? I think in general, we see a business in U. K. That is very profitable for us. But of course, it has some challenges. There are more regulations what it can and cannot do. There are more tax about to come up for sure. But on the other hand, it's a total market that still has been growing. And our review is that we take market share in that market. We could see, especially after there were changes now coming in early autumn where they were tightening up rules and regulations there and that we know that in this industry, there were funds issued for Martin Messergen. After that, we could see our market share improving in general, how we're feeling because there's no official, but we kept more demand from our services there. So it's a market that is going to be impacted by additional taxation and tougher bans. It's a market we're in and we will also be affected, but we also believe we will increase our market share going forward. Okay. Do we have some questions from the conference call? Yes, we do. From a Jason Webster, do you expect the ESMA restrictions to be permanent? Yes, it's hard to say. Permanent is forever in one way. But I mean, there are restrictions there and we need to apply accordingly. So we cannot do more than that. We also have some questions from Victor Hoeghbai at Equity Research, Rieto. What does it mean to focus on fewer brands, closing down a large number of brands, implications on balance sheet? No. Focusing and closing down are 2 different things. What we have done is that we invested a lot. I mean, we have a tech department more than 100 people. And what we've been building is a kind of control tower that controls all the sites we have. I mean, it's very simple for us to update all the offers we have on the more than 1,000 sites we have. We will continue to do that. But when we will put in especially focus on improving SEO and branding and restructuring and growing in different markets, that's where we put our operational power in terms of staff to grow those. Doesn't mean that we will shut down the other ones. They will generate, but we will put more efforts to scale those top brands in existing and new markets. Okay. Is it still true that no market accounts for more than 10% of revenues? I think what we said is that is our aim that we want to do because we have to remember that when this business started, there was a few markets dominating that one. Every day we go, we reduce the amount that the market represents. U. S. Is causing a bit of problem to that because it's growing very quick. So, I think that we cannot be all true that maybe U. S. Will be below that leverage point. But, the idea is why we want to have that is that there's a lot of things happening in this market. There are tax rates in U. S. Coming up, etcetera. And what we don't want to do is to have too much revenue in one market that if something happens, it impacts us. So, as we do for operators, we also try to have a good mix of the revenue by markets. So, we are not impacted if we have taxation changes, etcetera. The next question is in line with that. What will the U. S. Margins be long term? Well, good. Is the financial segment always going to be margin dilutive? It depends what you do in there because finance sectors can be very much professional finance, traditional high margins personal finance, traditional lower margins, but much larger revenues. So, I think in this case, we need to look at what profitability we want to do this for our shareholders. And I think in many areas like hotel business, etcetera, we do operate or they do operate with less margins. The question is how much EPS we want to grow there. So, if we enter more different verticals, we could see lower margins, but that doesn't mean in that case that we will hit profitability negatively. But from time on, we will see that we can maintain the profitability we have in these levels currently. Okay. Thank you. There was another one just coming in and it's from a gentleman called Lars. Why do you not adjust for the positive €1,500,000 that goes into the adjusted EBITDA in Q3? Well, it's because we have taken the cost in the adjusted EBITDA already in Q1 and Q2. So we get a repayment of a cost that we've already taken in the 1st and second quarter, and that's why it's in that cost mine. Okay. Thank you. No more questions as of now. No more questions from the conference callers. Any last questions from the floor? Okay. Is there any questions on the telephone conference? Thank you. We have one question coming through so far. That's from the line of Victor Hochberg of Fereto Securities. So yes, I have a follow-up on the question of on the markets and the exposure. The U. S, yes, sure, in some time, it might be more than 10% for revenues, but what about the U. K, Germany and Italy? You mean the size of them or Yes, exactly. The current exposure to those markets with the regulatory changes. Italy is a very small business to us because we, as you know, we acquired assets there in Q2. So that's not a large market for us. When it comes to U. K, Germany, we have said before that U. K, Germany and Sweden together represent the largest markets of us. But also, of course, now with U. S. Growing, etcetera, we are reducing that weight of the total business. But those are the 3 core markets for us. And we have one further question coming through. That's from the line of Simon Jjellstrom of Carnegie. I have a question regarding leverage. You're still slightly above your leverage target range. And with I think you have been pretty clear that you will focus a bit less on acquisitions in the future. And do you does this mean you aim to operate with a slightly lower leverage in the future? And where do you see you will be in this 1.5 to 2.5x leverage range? Yes, it was correct. We were slightly over our target of max 2.5x adjusted EBITDA. We're at 2.56 at the end of the 3rd quarter. And of course, we have a really strong cash flow in the underlying business, and we see that our leverage is coming down. But we haven't said that we're not going to do acquisitions. On the other hand, we're going to do acquisitions, but fewer and larger ones. So yes, we can still do acquisition. And of course, that would the leverage would go up. But as long as we don't do it, then leverage will go down quite fast. All right. But I mean, the leverage range is pretty wide. I mean, it's 1.5x to 2.5x. Do you feel comfortable with operating at the high end of that range over time? Or do you want to be in the middle or in the low end of that range? I think it's quite difficult to plan. What we need to plan is the ROI on the investments we do and how that translate to shareholder value. If we are on top of leverage, but the same time can create a lot of profitability for our owners, I think that is acceptable. If we're below and do bad business, I don't think people will like that. Our review is, of course, to make sure that we do something and what we when we use our cash that we get the maximum return on that because every time we use cash, we also prevent of using cash in the near future. I think that's why we want to be a bit more selective of what we do and how we plan that going forward. Okay. Thank you. Yes. Okay. I think that summarizes the day. I will leave the word over to you Per for any concluding remarks. Well, thank you for attending. As we see in front of us here on the screen, we have a couple of dates that we want you to remember. If you feel like coming to Stockholm, listen a bit more details about the company, we have the Capital Markets Day on the 20th November. If you don't want to travel there, you want to be in U. K. Instead, we are there on the 21st. And then, of course, we'll do a couple of more reports, of course, going forward 7th February year end and then May, where we will do the Q1. So I hope to see you then and have a good continued day. Thank you.