Earnings Call: Q2 2018

Aug 10, 2018

Everyone and welcome to Kietenamedea's Q2 Presentation. My name is Martin Aneel and I'm an analyst with DNB Markets in Stockholm. I will be hosting the Q and A session after management's presentation. So now I'd like to hand over to Per Hellberg, the CEO of Katzena and Pielin the CFO. Thank you so much. Good morning, everyone. It's our pleasure to stand in front of you today to present another exciting quarter for you. And as informed, it's Pia Lianne and I who's going to do this presentation today. So why don't we just dig into the key figures for the quarter so far. We managed to conclude a revenue of €26,100,000 which is a very high growth from last year of 73%. We did also record in NDCs net new depositing clients up to above 140,000 of them, which is over 54%. And in terms of profit, we went to 12,100,000 euros which is a growth of 52%. You can also see a quite astonishing improvement of the net cash in the company of 248%. So yes, as I said right there, it's a really interesting time to join the company in order to proceed now into a nice future growth. So, Catiana, some of you have been here a lot, some of you have not. So I thought I should spend a couple of minutes just to explain what we are, what we do. We what we do in essence is that we help businesses to grow. We do that by providing high quality leads to them after they're doing some search on the Internet. We nurture them in our system and then we send them on to our business partners and they make money from them. And once they do, we get paid. We've been doing this since 2012 and we have a mixture of our growth of coming from both our organic growth internally, but also from acquisitions that we do. We bring them in and we make them grow over time as well. We've been doing this, as I said, from 2012 and now we are about 350 people employed to do that. Back in Q1, we were at 300. So we're growing quite substantially now in order to do this across the world. Just across the world, I think it's important because we're doing that almost everywhere. We're doing it today in U. S, we're doing it in Australia, have offices in Japan, Serbia, U. K, Sweden, Italy and Malta. So we are a true global company and we are planning to expand that going forward as well. Last year, we reached close to €6,000,000 to €8,000,000 in revenues and we are, as you all are aware, listed on the stock exchange here in Stockholm, NASDAQ MidCap. So, this is short, but we'll try to go through now to explain a bit what we do. It all starts up here with potential users. Somebody is sitting and want to do something and acquire something on the Internet. They do a search, typically on goal today. They want to potentially find more about the casino site. They want to put a game on Manchester United, they want to read in about football in France or in horseracing in the U. S. Or whatever it can be or they want to buy the latest Forex trading tool. When they do that search and that search has something to do with the vertical we represent, we have a lot of sites tailored to fit their search. And the Badlands would excel us to be very good and what we do is that we're very good on ranking these sites very high up on Google so that people see them on top of the search list. We have about 1200 brands we work with and we send out there depending on the search. Once we got their interest, once we got them on board to our platform, we have a lot of business partners around 1,000 of them that have offers on these sites. And if they find that interesting, we send them on to their site and we created a lead. And then it's up for that operator to make sure that they do some financial transaction with them and then you have a converted lead. Because of our work actually doing all the work for the operators for free, sending them in a paying customer, they pay us off the end. And we do that either being paid by revenue share, where we get a part of the profit the customer do over their lifetime. So they can do something now. They can do it in 17 years. We will still get a part of their revenues or their profits. We do it either by cost back decision, meaning upfront cost for us sending it there. We do it as a hybrid between these two, where we believe that is better, a little bit upfront and a little bit less in rev share. But then there's a new element in here that we introduced some time ago and that's those are the fixed fees. Fixed fees can be said more or less as advertising. We're having the massive amount of traffic these days that a lot of people want now to advertise on our site just to show their brands and do commercial sites. We have some examples of that later in the presentation. And we increased that revenue nicely here in the Q2. And then subscriptions, quite regular in the finance space where you finance vertical where you subscribe for stock and information etcetera, not so common in sports, but actually in the Q2 we'll launch that in sports as well to get the best detailed sports news you can get. And based on that, we get a lot of our revenues. And once we get revenues, we can become even better on search engine optimization or to buy a decent share of pay per click to get even more customers in. And that's how the Catena wheels spins around. And when they do that good, we are able to generate some nice numbers. And that's why I think that Pialena should be able to present to you soon. Just a quick picture of the management team here. It's a growing team. It's a rather new team. These people have the opportunity to lead a fantastic tribe of people doing what we do every day. The last additions into this are the gentlemen down to the far right, Nigel Firth, operating from our London office, which is heading up and building our finance vertical from there. And then you have Michael Dally, who operates out of Las Vegas, who is now a very busy man, which was going on in the U. S. And he is building up the gaming part of our business in U. S. And we will come back to exactly what these two gentlemen are doing every day. So with this, I would like to hand over to Pielena to go through the more details of our financials. Thank you so much. Per and I are delighted to present another strong quarter with high growth in the Q2 of this year. Our total revenues grew with 73% to EUR 26,100,000 for the quarter. And for the 1st 6 months, we had total revenues of EUR 50,000,000 which was a growth of 65%. And if you look at our total revenues, 22.2% came from search and 3.8% from paid revenue. And also we have a new source of revenue in the second quarter that is subscriptions and they amounted to NOK 1000000 in the quarter. Looking at our revenue streams, we had revenue share that stood for 54% of our total revenues and cost per acquisitions 34% and our flat fees were 12%. And then as I mentioned, we also have the subscriptions that were new for this quarter. And all revenue streams are growing, but flat fees have been growing even more this quarter. They were boosted for the sports betting in relation with the World Cup in June. And we also expect to have some effect of that in July as well. And I just wanted to point out even if Catiana Meria never gives forecasts that we're going really, really fast and that our run rate is much higher than our total revenues for last year. So our total revenues last year was 67 point €6,000,000 and our run rate is over €104,000,000 Our platforms are generating increasingly more new depositing customers to the operators. And in the Q4, we had all time high in regards to NDCs. We delivered over 140,000 NDCs to the operators. And for the 1st 6 months, over 273,000 NDCs and also 700 subscriptions. And we prefer to be on regulated markets. We are here for the long run. We have to ensure our long term profits instead of having short term profits. So we enjoy having being on regulated markets. And then in the second quarter, 72% came from regulated markets. And this is increasing due to, of course, organic growth in regulated markets, but also we have in the second quarter made some acquisitions. We have made acquisitions in France and Italy and also we have made acquisitions for the financial service segment and they are all regulated. And as you know, Sweden is not regulated at this point. We expect that to be regulated in January 2019. And of course, then the portion that is regulated will be even higher. If we look at search and the growth in search, we have had a massive growth. It's been growing 93% from 11,500,000 in last year to 22.2 this quarter and the organic growth was 30% in the second quarter. Our margin, our adjusted EBITD margin has decreased in the second quarter and why is that? Why has it decreased from 51.9% to 46.4 percent? Well, we see huge potential in the U. S. Market and also in the financial segment and we want to make investments in order to take advantage of the opportunities that we see. So the main reason why our margin has decreased is that we have higher other operating expenses. We have used this to buy professional fees and also general expenses to build up the functions in the U. S. And also for the finance segment. Just one example of that, we have changed our group structure and we have new entities in different countries in order to obtain licenses for the financial sector. And of course, that costs money. We also have higher personnel cost. That is recruitment cost and also wages for these functions. That also is making our margin in the short term lower. But in the long term, it will strengthen our margins going forward. And in the Q2, we also have a slightly higher direct cost due to higher spend on PPC in relation to the World Cup, but also as cash backs costs that we have from the financial sector. Looking at the adjusted EBT margin for the 1st 6 months, the picture is a little bit different. You can see that our direct cost is lower than in the first half year last year. We have lower PPC spent and we want to improve our margins by using this tool wisely. So we have during the first half year have less in PPC spend. We also have economies of scale in personnel, which you can see, but then we have higher costs in other operating expenses. As I mentioned before, it's due to the investments that we are doing in the U. S. Market and for the financial service segment. But also in the Q1, we invested in compliance and GDPR. That's also having effect. Looking at our balance sheet, we have total assets of €351,000,000,000 at the end of June. Our cash position is lower than in the Q1. We have been using this money to acquire new assets and build us even stronger company. On the liability side, equity is amounting to EUR140,000,000 and amounts committed to acquisitions EUR 75,000,000 and we can if we choose to do so, settle up to 50% of them in shares and thus they become equity as well. And the borrowings is the EUR 150,000,000 senior unsecured bond that we have on the market at the moment. And as I said, our cash position has been lower in this quarter and this is due to the acquisitions that we make. We have a really, really strong cash flow and solid cash conversion in the underlying business is going really, really well. And our net cash generated from operating activities, it grew with 2 48%. So from 2,500,000 up to 8,700,000 in 1 year. And we have a cash conversion rate of 84% in the 1st 6 months. Looking at our 2 segments, iGaming and Financial Services. IGaming is still the dominant part here with 95% of our total revenue. When we look at revenue, 57% came from casinos, 38% from sports betting and 5% from the financial vertical. And adjusted EBITDA for the iGaming segment was €11,500,000 with an EBT margin of 46%. And we had 137 1,000 NDCs. On the financial service sector, we had an adjusted EBITDA of 600,000 for the quarter and an adjusted EBITDA margin of 49%. And they delivered 3,000 new to Boston customers and 700 subscriptions. And we see huge potential in the iGaming segment, especially in the U. S. Market. The U. S. Market is opening up much faster and wider pace than we have anticipated. And we see very high growth already. And if that continues, it is likely that the U. S. Could be our largest market already 2019. And we can say also already from after the Supreme Court ruling regarding sports betting, we already see revenues from sports betting from New Jersey. And Par will go through more details regarding the U. S. Market and its potential very, very soon. So stay tuned. And then we have very large potential, of course, in the financial segment as well. Here, we are building up an ecosystem regarding trade. So trading in FX or currencies, shares and CFDs. And we're doing this ecosystem, 1st of all, in English speaking countries. So, main focus is on the U. S, the U. K. And Australia. And the acquisitions that we have made during this quarter is completely in line with that strategy. So over to you, Baader. Thank you. So if you then go in and look a little bit more in details about the different segments we're working on and to give you some updates of what we're doing right now. We did a lot of acquisitions, as we said. In the Q2, we did 7 of them. Before entering into the quarter, we said that our strategy is to predominantly increase the sports part of our business, but also invest in acquiring financial assets. And that's exactly what we've been doing. We did 4 acquisitions within the financial area and 3 within sports. And after the period, we added another acquisition in here, which was Leap Rate, which is another financial acquisition. So we're actually following, as we communicated, our strategy exactly what we will aim to do. We'll continue to follow in this path to grow these verticals even more. I would like to address a bit more details about the financials because I want you to understand how we look and how we build this. On the right hand side, you see the acquisitions we have made. It's a matrix of different kind of products. Is anything from products that send out pure information that you subscribe to or that you get that you learn how to do things or that you can buy tools from here. That's the brands and specialized brands we have done. But we should not forget the knowledge we have brought into us so far from the gaming part of our business. We have a very, very successful brand with the Ask Gamblers product operated from Serbia. And the success there has not only been to send good traffic, but it's also been successful because it helps a lot of customers in Serbia to sorry, from Serbia out in the world to have a forum to discuss different products, to discuss different operators and especially to claim back money that they have not been given by operators. In fact, that gambling product have so far generated 17,000,000 euros of claim back from operators to gamblers. So we're starting to build a forum and a Q and A for people in this thing. That we're bringing into the finance as well. So we're creating 2 brands Ask Brokers, which is a brand where we help and enlight people how the trading work works, expert tips, learn how to do a lot of things in here. And then we do ask traders that is the Q and A and forum where people can go in and communicate with each other. That we see the successful mass cameras applied here. So we're using the assets we have internally to create a very interesting future also in new verticals. To do this, we have started investing in the team. I talked about Nigel first before, but also we have product owner and operations manager plus that we have a lot of consultancy working for us right now. And that's you see some of the investment in the margin you can see is hitting us to here. So it's an interesting thing what we're trying to build up. And what we need to remember, this information we're planning to share on all the sites we have financially across the world because this is international usable content that we can use very efficiently. Now if you look at the sales update, a couple of points that describes a bit why we are focusing on things. In May, we saw a good boost for casinos. The reason for that is that pre World Cup a lot of casinos do a lot of competitions where you can win tickets etcetera go to the World Cup. So we boosted a lot of these activities on our side. So casino business even though weather was fantastic up north, which tend to impact casino business tough, we saw a good boost and we outperformed in casino in May, which was very, very good. Another interesting part is what's starting to happen. I mentioned before that our casino audience is probably one of the largest in the world, depending on all the sites we have. And that a lot of people starting to get use of. So for example, when NetEnt were supposed to launch a new game, casino game Jumanji, they choose our site for doing that because of the immense amount of traffic. So they're starting to use our sites now to promote themselves and their products, not just for affiliation, but also because of the size of volume we have on traffic. And you can also see another impact on that, that was on the fixed fees during the World Cup that when TV is sold out expensive and you're out of potential ways to market yourself, why don't you go and advertise where your traffic is being a Catena and that's what we see more demand of going forward. Last but not least, important, it's been talk on town now during the spring here how different companies have managed to apply to GDPR and other legislations. I would say that's what we like to do. Why would you like administration you would say? Well, because if you do it good, it becomes an advantage for you in terms of competition. If I sit as an operator in a market like the U. K. Or in another market that is full of legislations, would I like to have a traffic from an operator or an affiliate that really have full of legislation or compliant over somebody that is not. That's why investing a lot in compliance and teams to make sure that we follow the because over time most of the world will be regulated and the one that know how to operate there will be the winning party there and that's us as we believe. So we spend a lot of time, effort and resources to make sure that we are compliant all the time. Now in terms of product development, normally you have a lot of projects, but I just want to bring it back a bit. Our key function is to make good SEO. That's what we do, to rank good on the Internet. To do that, we need to spend most of our time improving ourselves all the time because the world is changing. Google is changing the algorithm every day and so does we have to do. So we're spending a lot of time internally to improve. We're spending a lot of time to improve our mobile sites to also work with that. We're doing a lot of testing between the sites to make sure that we can cope with all the changes. But also we invested a lot of time in infrastructure part where we can onboard acquisitions quicker. First, we check if the acquisition target has a good structure on the building site, so we don't buy anything that is bad. Once we get them on board, we need to make sure that it's flowed them into our core so that we can get better efficiency over time. And when we take them over off full after the earnout, we want to run more efficient than they did before. I'm investing a lot in tools and programming to make sure that that can be done very, very good. Just to make sure that we can onboard a lot of acquisition and not go down in efficiency to grow the organic growth we want to do. Of course, then GDPR was a big issue to go through, but we managed to do it very, very good. Preparation, some examples. I think interesting here is that how we're starting out to use the brands, we have to go into more markets like we just launched Jan Slots into Spain or Yost in the end of June. That we're taking our big brands and starting to spread them into Spain, for example, in the new markets. We're also working a lot of updates, big change that will happen soon. It's the net and new casino sites. We're always updating our sites as well. I think the last point is very important. We found out that one big part of SEO is to make sure that you have strong brand names because not only that you rank, but good brands also tend that a lot of people follow tends to rank good in SEO. That's why we also be focusing to bring these big brands into more markets because the more markets they are in, the larger we are, the better we will rank. So it is a part not only to create a good brand awareness for these brands, but also to make sure that we get on top of all the search we do. Another focus we do, as I mentioned, is that we try to make sure that not only we onboard very good an acquisition we do, but after that, we should continue to grow the business at least as fast as they have done because why otherwise acquire them. And we're now starting to become very good at that. And the last one we did was for new casinos onboarded and we see a very, very good trend from them after the earn up was completed. So that is a nice proof also that all the investments we do in infrastructure is starting to work very, very good. So normally we would summarize here, but there are more slides to come focusing U. S. But I will just say that, Karyana, we have a strong competitive edge. I talked a lot about improvements we do, but in technical platform, I have to say that I'm really impressed about the platform we have and what we're Culture is good. We Culture is good. We're in an industry where we're super small in market share still, but still are the largest company doing this. It means that we have a lot of growth ahead of us, which we see we have a strong track record and that also guarantees that we should foresee the strong growth also going forward. We are diversifying our customer base, but also by entering new verticals, we get more legs to stand on. And I think going forward in the long run, we will always see ways that we can grow the business in these, but also in potential new categories in the long run. Solitary Order base, of course, and as you show and I think the figure also says that we have a fantastic team and a very, very good management team. Using all this should bring us forward. And something that we cannot neglect is what's going on in the U. S. So we have a very good potential in the U. S. Going on. And everybody says it's opened up now. For us, it's not open up. For us, it opened up more than a year ago because sports betting is opening up now, but casino and pork has been around for a while in the States and we could see the movement going there. So we started to do acquisitions some time ago. We started to build teams over there. We started to rank on products over there and prepare a lot of sites to be ready for this to happen. So otherwise, if we started right now, we cannot have been awarded being the Affiliate of the Year in the U. S. Already. So based on the work and based on what we have done, we have already seen in the industry as the affiliate to work with. And with all the things happening now, this is a fantastic thing for us to go out with. So how do we see the U. S. Market? PLENA mentioned something. But you all know in May, the Supreme Court decided to stop the ban on sports betting. And it didn't take long. Some states that are really fast, they decided to start offline betting very quickly, of those specifically New Jersey and Delaware. And the good thing if we start on offline is that together demand also do it online. So if people start with offline quickly, we know that after time online will come as well. And because of their fast speed forward, we know that more states will follow. And I will share you where we are today on that pace. And we thought right because this Monday, Monday 6th, New Year's event up as the 1st state sending online gambling and we were there for second number 1 generating leads. So yes, we have order today and this is in U. S. From online gambling and it was the same day as open up. And that's why we do these investments to make sure that that can happen. So we're very proud of that. It worked perfectly. And we're really proud to be able to do that because not many could. We see that we will benefit from this positioning based on what we've done. We have based on all sites we have in investments we do to bring this forward. So if we look a bit, Pennsylvania we know already that they are working with online gambling. We started the applications for licensing and we expect that to go up in the end of 2018 and we're in the process and preparing for all of that. What we do in the meantime is to make sure that we have lot of sites ready, that we rank a lot of sites, that we prepare. So from the second it's up, we add affiliation links and then we go. But we have a lot of sites with traffic already that's waiting to be commercialized on. Pennsylvania online lottery is all up and running and we've been there since day 1 as well to generate traffic. And we also started to send horse racing traffic into those sites. So today in the U. S. Where you can do online traffic, we are there and we've been there and we are the one of the few actually doing that today in all these sites. But then looking what's about to happen. We talked about New Jersey. I think it's important. They show the way for a lot of states. It's like in Europe, Denmark regulated, Swedish regulated look what happened in Denmark and take the best of that cake, the big veggie cake here in Sweden. It's the same thing here. You can see a lot of movements. So if I redo this slide next week, it will be different. But what we know today and it's advancing, it's moving forward, it's faster. I think that's a good thing. But if you look at that especially that we see now that a lot of states like Delaware, Mississippi, Oregon, Pennsylvania, West Virginia, all of them are now working to launch sports betting. And they typically do that offline, meaning land based and then wait for online or some do it directly both of them. And those that are planning to do it directly is Delaware, Pennsylvania and West Virginia. So we will see soon also more states coming up doing that. And these states also Delaware, Mississippi, West Virginia already launched land based betting in Q2. So they were very fast now and that's why we also believe that the online will come up very soon. So all this sends a message to the other states. We also want that part of that tax. And later, we can see movements in California, which we thought a month ago should take a long, long time. We can see movements there much rapidly moving forward. And California is the state you want to have a part of this. And at Illinois, Michigan, New York, etcetera, and we see good trends. So what we see today is that things are advancing very fast, but in all these states, we have traffic waiting. So the day goes up, we're there. I think that's a very strong message. So what does this mean if you move a map, if you build a map of this? Well, we sent out this that is consultants we use in the U. S. To get this for us because they're happening so much and you need to be able to talk to the politicians to understand what's going on. And when you do that, you get this map. And that map will be different next week, as I said. But currently, we see that live this year, we see the states that I already mentioned. We see the blue ones are the ones that would say more or less assure we're opening up, but there's a lot of movements in the yellow, but even in the orange space. But if you put some example here, the blue ones sorry, the green ones represent about 6% of the U. S. Adult population. Adding the blue, you come up to about 17%. Adding the yellow, you come up to about 57%. So within 3 years, as we know today, we will cover about 50% of the U. S. Adult population with 50% to come after that, after the magic year 2020. So there's a lot of interesting growth on the way for us. But this is most likely to happen faster than here once people know what this is all about. So we're quite positive about this as you can understand, because we saw it coming and we were prepared in time. So to summarize on this, well, I'm here. I'm having the pleasure of doing this report today and to continue to benefit of these market movements and to make sure that we give our shareholders the best value for their investments. Obviously, not focusing on the U. S. Would probably mean that I wouldn't stay in this position that long. Growing financial services is very, very important as it's a huge market, high lifetime values and something we want to get into. We did what we believe a good capitalization on the World Cup on sports, but also to make sure that casino were in a good float during the Q2. We tend to forget, but even those extraordinary investments we are by far outperforming everyone related to gaming on the stock on stock exchange. And the most but lastly, even though we have 72% of our revenues regulated, we can generate those margins. Regulated margin normally provide less margins and requires more people to manage and still will come out like this. So we are aimed, as we say on the sign here, to continue our growth journey for 2020. We will invest accordingly to hit those numbers and sometimes we take that from the profit, but we need to do it because we want to do $100,000,000 in 2020. That's it. Thank you very much. Okay. Thank you, Farren Pielen. I'll start off with a couple of questions before I let the floor and the conference call in. So you just recently joined Catena. So my first question is sort of what's your key impressions and sort of anything that you are surprised with when coming in? I think I mentioned that before. I was CEO in a gaming company a couple of years ago and used a lot of affiliates. After that, I went away from gaming, but were involved in digital marketing and used a lot of affiliates. So I'm used to working with a lot of affiliates, and I don't really see Catena as affiliate. I see Catena as a very professional company because they are running a very professional business. A lot of affiliates out there sometimes are quite small. They cannot operate and follow all the legislations, but here they really focus a lot on that. Not only that, but also on the tools we use internally and the technical platforms and anything from HR tools to onboarding acquisitions. They spend a lot of time and money and efforts to build for the future, and that will benefit us. I'm really impressed about that. And if you look at revenue growth in the quarter, to start with, there was a World Cup quarter. And I mean, is it possible to comment anything about the effect from that and how your sports betting product performed? I'm thinking maybe about the French new, for example. Well, I think in general, we saw good performance. We have to remember that, as you can see from a lot of gaming operators that a lot of money is spent in marketing in that quarter to boost the World Cup, which impacts their margin, but it does really impact our margin because we don't spend that much money. You saw a slight increase in PPC because we want to be there. But in general, we can control our margin during World Cup better, except for the outcome of the games, etcetera. But we have a better opportunity to have a more stable business over this time, meaning that we can also plan in front of the campaigns better what we want to achieve. If you look at the intra group margin we get from our assets in before we do payments for cost and investment, etcetera, we're very happy with the margin we saw. So we have a strong quarter and we're happy with the outcome how we planned World Cup. I think it's also important to mention that casino normally this time of year is tough, but we managed to also run a good casino business in this time of the year. So we're happy. And you mentioned that this I mean the World Cup continued into Q3, so you have a positive effect from that as well in the start of Q3, I guess. Any comments about how the quarter has started? Normally, we don't comment on the quarter. We are solely depending, of course, some part there how the operators are doing. On the other hand, we're not only doing World Cup, so we're doing a lot of other stuff as well. So as we said, we're continuing for a nice growth towards big targets forward and we have no reason to change in that trend based on what we see so far. And in this quarter, you had 30% organic growth, which is the same number you had in Q1. Is that the sort of level you're comfortable with going forward or? I think it decides to us a bit how we want to design that. It depends a lot where we put our efforts, but if our core function is to build good sites and make them rank, we must show that we can do organic growth. So of course, we want to be able to grow our assets continuously as we do this because of why otherwise should we exist. So yes, we want to be if it's that level above or below some quarters, we have to see, but definitely organic growth is so lessened for us. And you're happy with the mix currently between acquisitions and organic growth? Yes. Okay. And when we look at your underlying EBITDA, it's not growing in line with your revenues. And you have explained these investments in the U. S. Opportunity and the finance vertical. But how should we look at these investments in the coming quarters? Is that something that you will sort of have with you into 2019 even? Or just to give us a view of the underlying EBITDA outlook going forward? I think it's as you can see, it's depending on the investments we do, as we say. What we go now to guided for is one guidance net €200,000,000 to €100,000,000 profit. To do that, we need to do investments. But part of that was to launch the finance sector, which need to be capitalized in the beginning, build that ecosystem up. Once it's done, we will start doing our revenues. If an opportunity like yours comes up, would we sit and protect margin rather than a grasp opportunity? It's quite simple what we would do. So when things happen, we will take a decision do we invest or not. And if we invest, margin will be impacted. But it's with the long vision to make sure that we hit that long term growth. And I think that's how we're going to continue to cooperate. So if it means that we sacrifice margin in the quarter, yes, we will. We will not protect margin and in that case, all coming from long term growth. But I mean, you just recently started with the U. S. Or you have been there quite a while, but you're ramping up the investment. So I guess it's fair to assume that these other OpEx increase will continue for a couple of quarters. On the other hand also, the good thing is as we invest there, business is also opening up, so we also see revenue coming in. I think you will see that a bit faster than the finance because finance, we're building a product first before we get revenue from it, while in U. S, you also see revenue coming in at the same time. And just to add to that, in the Q1 numbers in the report, you stated that you expect economies of scale to improve even further, especially in the Q4, I think you said. Is that still your view? Yes. Okay. Thanks. And then on the U. S, so there's a lot of things happening, but what would you say is the next key data point for you that you're looking for? I think for us, of course, as we've been what I want to see now is that we can have good business coming in from Pennsylvania as we've been working a lot there with the licensing to get that going. Each state need to be licensed and that's the mix up licensing that we're into. So having New York and Pennsylvania, it's quite 2 good states and we're prepared and everything is done to make that happen. So that's what we're working on right now. So it's one part is the licensing we do. As soon as it's possible, we'll seek for it. In the meantime, we're building up the product portfolio, so we already have the traffic ready, that's what we're preparing for. So we cannot send traffic before we have license, but once we can apply for it, we do it very quickly and then we prepare for launch. So Pennsylvania is next up. And when do you expect any news from the authorities in New Jersey about the rev share application? I don't have a date for that. Okay. And just moving on to the U. K. Market and the changes there with the U. K. Gaming Commission going a bit more harsh into the operators. And are you still not seeing any impact of that in your numbers? I think you will always see impacts, but I think also you will see possibilities. The impacts are hitting those who cannot really control the messages sent out depending on the legislations that are in place. We're working very hard to make sure that as soon as there's an update or as soon as there is a law, we're following it. Therefore, we say no to some market message that they want to send to our sites because we see that they are not legal to do so. And with this happening now with less windows to market on from an operator, I think there will be more of a sequence to us because they know that at Catena Media sites, it works good. So we're using regulation and legislations to our advantage in this case. Okay. And when it comes to your acquisition story, you're stepping up after the new financing this year. And I mean, when you look at the targets out there, are there enough targets for you sort of to be able to have this big swing up to your 2020 target? There are always targets, but the thing is that you should not acquire just for the sake of it. As we grow larger, we also have different views on what kind of acquisitions we want to do. Lately, we've been doing a lot in the finance sector because we want to build that product portfolio of different services and put that together and send it all over the world. When it comes to acquisition for gaming, we will do that to complement markets if we find something. In most markets we're in, we are already quite good covered. So it's also going to be a tool to enter new markets in combination when starting ranking our own sites. And in those areas, there are definitely things to do. Are a lot of markets out there which were not on boarded yet. And it's still Portugal, Spain that sort of is the main interest in the Vernet? Yes, there are other markets as well. Okay. Thanks. Okay, I think it's time to let the floor in. Any questions in the room? You said that you had cashback some expenses and also spent a bit more on Yes. That's true. We have slightly margin squeeze in the second quarter due to that. And PPC spend was in relation the World Cup. It was more expensive. And also we have cash backs cost from broker deal in the financial sector? Can you explain what they are? Yeah. So if we drive traffic to operator in the financial sector, they give us a fee for that and then we give the end year's cash back for that. So there are 3 parties and that's why it is accounted in that way. So is that recurring, it will look like this or is it just a one off? No, no, no. It will be recurring. For that specific as brokers it will, that account. Yes. Okay. And the return on investment on PPC, is that unusually low right now or so obviously just a delay that we will that we can expect in coming back in Q3, Q4? Can you explain the dynamics, please? Yes. I just want to say that you can't count the margin in PPC because indirect cost, we have other costs than PPC costs, just to make that clear. But I mean we have a small margin squeeze. It was more expensive with PPC during the Q2. No margin. Okay. Job. And if you can also talk about the different markets where you are active, so what happened in the U. K. In the quarter, in Germany, the Nordic region, Japan, what is going on there? Would be great to hear a bit more color on it. Yes. I think in general, in terms of numbers, we don't go after that. But if you start with the last one you mentioned, Japan, I think it's interesting. We see a good trend over there. We see also demand for more markets in there to connect with us and do business in Asia. Some of them we say no to because they're not regulated, but also we issued more brands in Japan with the Slottsia brand and do a very, very good job with that. So we see good trends. They're a good team and they can build up a good business for us there. In Sweden, of course, we're waiting for the regulation to happen here and preparing for that. We know that what will happen. We also know that we can reach more of the operators here with Sainska Spiel as well, being able to try to get affiliation from them. So that's what we're working on right now. In terms of the other markets, we see no impact of the basic regulations impact we've seen in U. K. And in Germany, they are performing well for us. We are happy with this quarter. We don't have any problems we'd like to alert the market on. Okay. And can you also explain the Italian situation, of your position there and what you think about or expect? We have during this acquisition, we have a long term strategy for Italy, of course. We have a legal situation now where there's going to be an advertising ban applied in June 2019. Up until then, we can continue business as usual, which we will do and we will see how this develops. I think we can see from the market in general that all operators are continuing as normal in Italy. So we expect and we are watching that to see what will happen in the future. But for time being, business as usual. Okay. Any other questions in the room? Hello. Thank you. Great report. I was wondering about U. S. You said that U. S. Might be our biggest market 2019. And 2019, you said 17% will be regulated, which means that it's like a large European country. What is the key drivers for us for Cateno Media to actually be that United States would be the biggest market for us? Like are they gambling more? Can we pay can we get more money from customers or do we have good assets? Yes. In general, you can see on the business we've done so far for typical casino customers, we see that the income or lifetime value receipt pay are higher than in Europe, which is good. We can also see our growth depends very much on the operators. First, you need to take the state needs to take a decision to allow it, then an operator needs to be in place to run the business And when they do that, we can send traffic. Without those first two things to happen, we cannot benefit from our business. There are some things. U. S. People are not as used to gambling as we are here in attributed to North Europe and U. K. And those markets. But on the other hand, there are sports fanatics and gladly happened and followed the team in order to do. I think that combination will actually and the amount of margin we'll win now will help that thing to boost. We also have to remember that a lot of Americans do play online, but not from U. S, huge turnover going on. And it's that revenue also we hope that will transfer from Costa Rica, dodgy sites into U. S. Regulated so that we can do that. So it depends on a lot of outside factors, but as I mentioned, we are if that would happen tomorrow morning, we could do the traffic. So we are ready. We're just waiting for the outside parties to do what they need to do in order for us to get revenue. So we are geared up. But it's quite hard to see the sign to do a forecast for that is quite tricky right now with all the movements happening. Hello. Glad to be here and listen to you about this quarter. I have a couple of questions. If you use Google tools and you see that Ask Gamblers is a very popular site to search in the U. S. What's the plan for AskGamblers? And is the plan to open it up for Q3 or Q4? I think, as we mentioned, we are definitely looking at our strong brands to internationalize them. It's a part of that's why we're spending time on them. That's why we're building those sites and those operations to use them there. When they come up, we cannot say, but definitely we're looking into use our existing brands in new markets for sure. And if you look at start of Q3, every sports book has said that it's been a great second part of the World Cup, especially by a lot of upsets. And if you put 2 and 2 together, you have the good start of the World Cup. You have income from online New Jersey, and we have a lot of acquisitions in Q2. Is it safe to say that Q3 is trending towards a very good quarter? Well, it's just begun. And of course, we will do whatever we can to make it happen, but we don't normally guide on advance. But we will do it to make sure that we maximize the most on these events that are happening. And last question about the EPS. Was it flat? Yes, it was. Yes. I mean we are making these investments, of course, and they are affecting the EPS. And also for the 6 months, we had the early redemptions be from the old bond and also that we launched the new bond. So that is taking cost and that is affecting the EPS. Jan Rolberg, Kepler Cheuvreux. A question again on ASAP Italia. I mean, what's the worst case scenario if 1 year on we have the full ad ban? Can you continue to get revenue share from existing customers? Will it fully close down? Will you do it illegally? No, we will never breach any law. The reason why we say that we're watching the thing is that historically you've seen it a lot of change in 1 year. And we will need to see the what's happening in the Parliament there until that day happen. We cannot say more than that, but we adapt the rules as it is now. We will never breach any laws and we'll see what happens after the June 2019. Okay. Another question on the other operating expenses, which was up quite a lot. I think you said it will continue to grow of the year. Do you mean quarter by quarter or is it more year over year growth? I mean should we see it stabilizing from the step up we saw Q1 to Q2 and other operating expenses? I think a lot of the investments we've done so far in building up these things and building the structure in the U. S, now it's more investments into licensing continue with more states, which is good because that opens up revenue, it's also for more staff, but some of the larger investments we've made we have taken by now. So but as we said, if something happens, open up a big opportunity, we will jump on it. So we need to see what happens state by state in that case. Okay. And just last one on the NDCG delivered this quarter. Can you say anything about the is it a similar spectrum revenue share as your existing revenues or is it more CPA this quarter on the NDCs you delivered? I mean looking at the future revenue from those. Yes. Actually, if you see the movement in there, you have some how much that is CPA versus rev share here in the report. Typically in the Q2, we should normally see quite low amount of CPA deals because of what's going on in the market. World Cup helped us to increase that a bit or the downfall. Even though it was less than the Q1, the management team that in a good way by the actions we did. Looking at the account base we get in, NDCs is one important thing. The quality on the NDCs is a different thing. And we're starting with all these investments in infrastructure and things we do to make sure that we're trying to only send as good qualitative leads as possible to the operators. And that also means that we will not always strive for the highest possible NDC. We'll have the combination between revenue and NDC coming in as important for us. So that's why you will see some fluctuation in that one as well, but we're making sure that we earn more by the customers coming in and they convert quicker normally. So in general, we see that we're striving to a better quality base going forward all the time. Okay. Thank you. Okay. Do we have any questions from the conference call? The first question is from the line of Christian Hellman from Nordea. Most of my questions have already been answered, but I have one and that is just to get some clarification on the fact that you're saying that you're going to get leverage on your investments during the second half of the year. And just to sort of understand where the margins are heading because now we've seen the margin the EBITDA margin come down quite a bit quarter over quarter, both in Q1 and particularly in Q2, down to 46%. What exactly are you guiding for? Because you had previously said that you expect to see leverage effects on the margin in the second half of the year. Yes. I mean, we do see economies of scale going forward. And of course, that is offset with the investments that we do. We don't guide on exactly what kind of margins that we will have going forward. But absolutely, as you also could see in the 6 months adjusted EBITDA bridge, you could see that we had economies of scale in personnel cost and we see that that will also increase going forward. So it's depending on what the investments that we do, how the margin will evolve over time. Okay. But the statement that you had in the Q1 report about getting economies of scale in the second half of the year, you're not sticking to that fully at the moment or? Yes. I mean, we see economies of scale, but that is offset also with the investments that we do. And we have made more investments due to the advantages we see and the possibilities that we see in the U. S. Market and financial sector. So that is why the margins are lower this quarter. All right. And you expect to continue to invest quite heavily in the U. S. Land also in the finance vertical over the coming months, quarters? I mean, we are building this company on the long term. So if that would affect short term profits, then we would do that. Of course, we want to deliver and that is good. But if we see a long term profit being higher, if we do investments today, then we will make those investments. Yes. Okay, clear. And then a question on the net financials. You had other finance costs of €1,700,000 in the quarter. Could you explain what those were? For the quarter, for the half year, we had for or for the quarter? For the full quarter, it was €1687,000,000 other finance costs? Yes, I mean that is the nominal interest rates that we have. So that is the cause for that. What exactly you mean? Is that on the bond or Yes, it's on the bond. But isn't that the SEK 2,100,000 that you have interest payable on borrowings? Yes, that is the interest, absolutely. Let me just check. Adjustments of our amounts committed to acquisitions. All right. Okay. So it's not a cash flow effect? No, it has no cash flow effect. All right. Thank you. That was it for me. And next question is from the line of Victor Hooper from Pareto Securities. Please go ahead. Your line is open. Could you talk a bit about the financial vertical? It barely grew over Q1. Was that due to the chargeback effect? Or could you elaborate on the growth in the financial vertical given the latest acquisitions as well? Sorry, I lost you a bit there. Can you repeat the question, please? Yes. The financial vertical, if we look at the revenues in Q2 over Q1, it barely grew. Could you elaborate on the reasons for that if it were due to charge back or something else? It's a combination of charge back, but also the fact that what we're doing now is restructuring this business to fit into our ecosystem. I mean that some of the business we don't drive that much until we have incorporated that in new structure we want to run them. So, the sites operate as we want them to do, but we have a little bit different plans for them. Okay. I see. And if you could elaborate a bit about the 2020 EBITDA target, what do you see as the biggest driver to reach it? Will it be M and A? Will it be the U. S? Or organic growth excluding the U. S? What do you see as the biggest driver? A bit of yes to all these questions. I think it's a combination. We as a company want to make sure that we do the best of all these things you mentioned, so we always have to be focused on organic growth. Because at some part, we come to a situation where we maybe don't want to do that many acquisitions and then we need to excel in organic growth. So that needs to be the key. But if you look at the what's going on now, if you look at the growth trends we currently see, add on top of that investments we've done in the financial vertical now to get benefit from that plus U. S, put that together with the growth trend we see today, we are tracking towards that result, meaning that we need to be a bit doing a bit of all. And if something happens, for example, next year Asia opens up, we need to be there as well. So that's the strategy to run organic and be very good on that, to be the best on that, but also acquire ourselves, nurture that kind of investments and make sure that they continue to do organic growth going forward. So it actually has to be all of them. Okay. And when you talk about organic, that's not excluding the U. S, you include the U. S. And can I expect you I believe that you expect that to be one of the biggest drivers, right? Yes. I think with the volumes open up there over time, we have to take that seriously, of course. Then it's timing for it, as I said, is hard to judge, but definitely we need to go in there. And some brands we bring from our home market into the U. S, meaning that it's a pure organic growth. Some brands we had acquired some time ago. And once that earn out is over, we need organic growth in those as well. So definitely, it's a combination there as well. Okay. Great. So regarding further M and A, at the moment, you're a bit exhausted on the regarding the gearing level. You expect it to come down to below 2.50x or 2.5x EBITDA by the end of Q3. Is that run rate by end of Q3 or for the full quarter or how should we interpret that? It's run rate at the end of Q3. Okay. So would it be a stretch to assume that you will be taking it pretty slow with further acquisitions here in Q3 and beginning of Q4 then? Yes and no. We are, of course, looking at acquisitions depending on how we do how we pay for them and what we plan for. We don't stress in acquisitions. We want to show put them in once we believe we have a good case and we can pay a good price for them. And we all go and have discussions. And if we come up with something, we do it. But also we need to make sure that the ones we have acquired onboard properly and drive up sales very quickly. This combined with what we do in the U. S, etcetera. So, I think we have enough to do. But yes, we will continue to do acquisitions as well, tactical ones. Okay, okay. So regarding how to pay for acquisitions, printing new shares, That's why I want to hear you elaborate a bit about the balance between EPS growth and acquisitions. The revenue and EBITDA are growing nicely, but net income is lagging a bit. Could you elaborate on how investors should look on that? I think in general, we will try to do what is best also here for the future. We've been very strong to say that we have a plan for going forward a couple of years ago a couple of years ahead. And based on that, we will choose in each acquisition part the best negotiation we can do. If it's some part is only cash, if it's and we'll benefit from that some part or more part in shares, we will do that. But we will make sure that we do that for the long term benefit of our shareholders, of course. Okay, great. That's it. Thank you. Okay. Thanks. And next question is from the line of Sherish Aziz from Danske Bank. Please go ahead. Your line is open. Thank you, operator. My question is related to the investment phase you guys are mentioning. Would you want to elaborate on exactly for how many quarters we'll see higher cost? Is it only for Q3? Or should we think of Q3, Q4? Or is it going to continue into 2019 as well? Because I guess looking at where EBITDA margins are currently on consensus and what was reported in the Q2 report, is this just more a specific guidance on how long these investments are going to, yes, ongoing? Yes. I think coming back to that, we saw and we plan big investments in Q2. We've done a lot of initial investments as we said for the finance vertical to build that up now. We also done a lot of extraordinary investments into U. S. We predominantly don't see that extraordinary investments going on forever, of course. From now on, it will be more licensing focused things and would be to build up those operations with local staff. But we do that once revenue is up. So in the long run, we should not we don't want to say that we're going to continue this high level of investments. But then yet again, if something happens and we have a nice thing to grab, we will go for it as we said. But of course, our idea is to continue to drive as high margin as possible, but not sacrifice potential long term growth in doing so. And just a follow-up. Just for Q3, Q4 in terms of total OpEx, should we model that to the same extent as it was in the second quarter? Or is it I guess, you're mentioning that there aren't any further extraordinary investments. But I guess, just for the modeling of the OpEx going forward? I don't think we have a comment on that. Okay. Thank you so much for taking my questions. Thank you. And there are currently no time is flying here, but we have one question on the e mail I want to ask you. It's from Simmer Schellstrom at Carnegie. He's asking, you had €16,000,000 of cash on the balance sheet at the end of the quarter and you made investments in excess of €40,000,000 Does this mean that acquisition activity will slow down during the second half? If not, how do you intend to fund new investments and earn out payments? Want to take that? Yes. I mean, that depends on how we do investments. We could do investments with our own shares. But I mean, we are constantly evaluating different alternatives. And if we see something interesting, then we would try to do an acquisition and buying with their own shares if we don't have the cash available upfront. As you know, we have a really good and solid cash conversion and cash flow in the underlying business. So of course, I mean, our leverage levels will come down quite soon. As we stated also in the report that we expect to be within the tolerance leverance within the end of Q3. Okay. Thanks. And final question on the e mail. It's from Niklas Wilber at Purityat Finance. He's asking why is the EPS flat year over year when EBITDA is growing so fast? And I answered that before also. It's due to the investments that we are doing this quarter in the U. S. That the EPS is flat. We have more number of shares and we have taken these investments. And we choose to do this short term to have a lower profit in the short term, but in the long term have higher profits. So it's safe to say that EPS will grow to Q3 because we don't have any movements right now in Q3 in America. So and I don't think it's going to be that much investments going forward right now in U. S. By staffing up. Pennsylvania is probably due to Q4. I mean, we don't give forecasts, but we will do what we can. Okay. I think maybe it's time to stop there. And I think I'll hand the word over to you, Perren Pjelljena, for some closing remarks. Thank you so much. Well, thanks again for joining here today. As we said, we are growing very fast. We believe we're doing the investments we need to secure you a very nice future. And we still have the Navigator set on the SEK 100,000,000 target for 2020 and we'll do what we need to get there. So thank you very much. See you soon again.