Good morning, everyone, welcome to the Catena Media Q1 2018 report, the Q1 numbers, and also key events during the quarter and also after the quarter. Over the past quarter and the quarters before that, we have seen where we are and where we're present, so you can see part of our offices as well. Before going into the numbers, we'll show you a short video clip of Catena Media and the history. There we go. Q1, the strongest quarter so far for the company. We're truly proud this morning. We're proud of the Catena Media team who made this possible. Once again, we are proving that we are the market leader for lead generation within the gaming and also the financial vertical. We deliver Q1 revenues of EUR 23.9 million, almost 60% year-over-year growth, and a Q4 to Q1 revenue growth of 19%.
We also deliver our strongest EBITDA margin, or EBITDA number with EUR 12.4 million, a 63% year-over-year growth, and a quarter-on-quarter and we strive to be so also within the financial vertical. We have now presence in everything from the U.S. to Tokyo. We have presence in Australia. We're close to 300 people full-time, only thinking, living, and breathing lead generation. Some of you have seen this before, I think it's truly important to understand our business model and how we work and where we try to be in the value chains. Everything starts with the customer. The customer searches for information, to the left. We are then capturing their interest through search engine optimization, Yahoo, Google. We're also on Facebook, Instagram, Twitch, YouTube, where we then lead them into some of our products. We say products, we don't say sites or affiliate sites.
We work on products. We try to give our users and searchers value, so they can compare what's in the market, so they can compare offers, so they can read up and get information on the market channels. All of these products are connected to something that we call the Catena Core, I will mention a bit more about how we work with that later in the presentation. We have close to 300 products. We focus and most of our revenue comes from 35 to 40 of those. We charge our customers on basically a no cure, no pay business. That's why we can have the margins that we're having. They only pay us once they actually have a customer or an investor that invests or plays for real money. We charge them through revenue share, cost per acquisition, a fixed fee, or a hybrid.
Hybrid is a mix between rev share and a CPA. We work with a diversified portfolio of customers. The rev share is lifetime agreements. It's not a one-time payment. CPA is a one-time payment, the hybrid, again, a mix between rev share and CPA. During the quarter, we have spent a lot of time in growing our management team. You will see three new faces since the last presentation. You would have Per Hellberg, who will be taking over as CEO during June. He's here present in the room, so for everybody who's here, you can grab him afterwards, will also join us for the roadshow after. We have recruited Nigel Frith as a GM for our new financial vertical based out of the London office, where he will be growing that and the team, and also the assets.
We recently hired Michael Daly, who will be heading up our U.S. teams and assets, where we also intend to expand further. We are truly blessed to have such a great team on board, and I feel that the management I think is truly important. That is the key backbone on how we make money. A record in Q1 with 133,000 new depositing clients, quarter-on-quarter, 18%, and almost 70% year-over-year. We grew from Q4 to Q1 almost by 20,000 new depositing clients, which is a record amount. Pia-Lena will now guide you through the other financial slides, and I will come back again soon.
Thank you. Catena Media has an outstanding financial track record, and so also in the first quarter was paid revenue. Looking at our revenue streams, 51% of our total revenues came from rev share, revenue share, and 39% came from cost per acquisition, CPA, and 10% came from flat fees. CPA and fixed fee or flat fees are growing more at this moment than revenue share. This is due to that many of our new acquisitions have purely CPA revenue models, and also that some markets that are growing really fast also have purely CPA models, like the U.S. market, for example. We have never applied to do revenue share. Our run rate is much higher than the revenues were last year. Run rate then is our total revenue times four, and that amounts to EUR 95.4 million compared to last year where we had total revenues of EUR 67.6 million.
We prefer to be on regulated markets. We are here not for short-term profits. We are here for the long term and to secure our profits in the long term. 65% of our total revenues came from regulated or taxed markets. We also are on markets that are soon to be regulated, where Sweden is one of those markets, and they are expected to be regulated in January 2019. We have been growing fast, and we have been growing in a combination of organic growth. From the 1st of January 2018, we have two segments, the iGaming segment and financial segment or finance segment, had total revenues of EUR 22.7 million and an adjusted EBITDA margin of 50% or EUR 11 million. We do not think that 91% is sustainable over time. So we will expect the margins to go down slightly when we have an operational team in place.
The finance segment delivered 5,000 NDCs in the first quarter. Just looking how our EBITDA model margin has been doing, we grew our EBT margin from 49.6% the first quarter 2017 to 52% in the first quarter 2018. The improvements was that we have spent less money on PPC in regards to revenue. In real money, we have been spending more, but in relation to our total revenues, we have been spending less and thus improving our margin. We also have economies of scale on personnel costs, and that of course is adding to our positive margin. We have however, had higher spend on other operating costs, especially professional fees for work with GDPR and also with the applications for the U.S. markets. Just to give you a bridge between our reported EBITDA and our adjusted EBITDA.
Our reported EBITDA was EUR 10.4 million, our adjusted EBITDA was EUR 12.4 million. The difference is our non-recurring cost, where most of it is related to the new bond. That was EUR 1.9 million. Then we have also reorganizations cost of EUR 0.1 million. Then we have an early redemption fee that is affecting our interest on borrowings on EUR 3.4 million. Also we have a reversal of previously recognized fair value movements on the old bond. I just want to highlight that, of course, these non-recurring costs are affecting our earnings and also our earnings per share during this quarter. Looking at the balance sheet, our main asset is our intangible assets. That is from our successful acquisitions. Also the new bond has made our cash a larger portion, which we believe will be lowered with new acquisitions going forward.
Looking on the liability side, our equity amounted to EUR 105.8 million. Then we have amounts committed to acquisitions. That was EUR 68 million. That is our best estimate on how much earnouts we will pay. It is important to stress that they have to perform very well to get this money. If they don't, then also the earnouts will be reduced accordingly. The maximum amount of earnouts that we can pay is EUR 124 million. Also important to stress is that up to 50% of these earnouts can be paid in own shares if we choose to do so. Thus that will become equity. Then the borrowings is the new bond, the new unsecured bond that we have on the market. That is EUR 150 million. Catena Media has a really strong operating cash flow and a really solid cash conversion in its underlying business.
Our net cash generated from operating activities grew with 158% to EUR 10.3 million, our cash conversion was 99%. Out of EUR 100 that we made in EBITDA, 99 became cash. That is really strong. Over to you, Henrik.
Thank you. Hello. Thank you, Pia-Lena. Back, back to funding. During Q1, we did a very successful bond. We did a new framework of EUR 250 million, together with Danske Bank and Carnegie. We raised EUR 150 million in less than 10 days. We used EUR 100 million of those to refinance the old one. An unsecured structure, an interest rate of 5.5%. We also have a carve-out for a potential EUR 30 million bank credit or 75% of adjusted EBITDA, we are currently working on that solution, on the EUR 30 million credit line. We believe we have the funding in place, together with our cash conversion and very nice cash flow, we believe that for the target for the EUR 100 million EBITDA for 2020, we have solid financing in place. Together with our strong organic growth, we are optimistic.
Let's talk about a few improvement things that we are working in internally besides actually working on making our products better. During Q1, we have made a big effort in our BI team to get better insight on what and how to convert traffic. It was a big exercise that is now finalized, where we can better target the users and how they actually convert and what makes them convert. We made a huge investment into the London Affiliate Conference, where we sent a big team to build better relations with our customers and grow our customer base. We've also made an effort when it comes to PPC with Google AdWords and Facebook out of the U.K. office, where we have a dedicated team now, so we potentially can see better returns or even better returns on our PPC spend. Competitive edge.
I've mentioned it before, but I think it's vital for the group and investors to understand the broad range of customer base we have. I think there's very few companies out there that has invoiced 750 different customers on a quarterly basis and works with over 1,200 brands. We are truly diversified, both in terms of nationalities, regions, and products. We still enjoy very low market shares in the industry with strong underlying growth. We have advanced and made our technical platform better. That's a constant work, and it can always get better. We worked a lot with our culture, made the investment in our new offices, increased our C-level management and operational management team. We've shown strong record, and we have increased and had a solid shareholder base that we're proud of. Product development, key to our organic growth and what we do there.
During the quarter, we launched a strategic initiative called slotfighter.com, which is an entertainment product on Twitch where two casino players can battle against each other for prizes. You should truly go in and watch that and try it. It's state-of-the-art. No one has done it before. It's to get interaction between the casino players in an entertainment show, where there are actually a host for every single battle. We are also using our Tokyo office to expand with our other products. The Slotsia brand is now rolled out in Japan, and we're also doing the same with radcasino.com. During the quarter, BettingPro has launched a new website design. We have continued to work with Squawka, the big sports betting community and forum that we bought in the U.K., to also prepare it for the World Cup coming up here, June, July.
We have also worked on two new football and racing products that we aim to launch here mid-May, but still haven't released what the names are of those. Acquisitions during and after the quarter. During the quarter Q1, we expanded our offering in the U.S. through bonusseeker.com acquisition. We felt that we wanted to add a bonus product into the U.S. market to complement our already existing news-driven products. We bought into Germany, both for sports and the financial sector, through an acquisition of the assets in Dreamworx. After the quarter, we have acquired gg.co.uk, which is one of the bigger horse racing products on the U.K. market. We haven't been very active in horse racing before, but it's growing both in the U.K. and in Australia, where we aim to use this platform to expand into that vertical within sports.
We also tapped into the French market for the first time, the regulated French market for sports and poker through Paris Sportifs. Which we're proud of having, specifically for the World Cup, but also long-term. As we have stated, we want to be for the financial sector, which is BrokerDeal.de. We talk a lot about the U.S. have in the market. Pooled poker liquidity, first time in U.S. history, from May 1st, WSOP began sharing online poker liquidity. Delaware, New Jersey, and Nevada, these players can now play against each other, increasing the pool for poker and also increasing the potential gameplay. We have submitted our rev share license in New Jersey, as we've discussed before. We have been getting initial feedback, and we're responding to that. Nothing that we see would potentially stop us from having a rev share license.
Pennsylvania license, we intend to send in our application very soon, and aim to be the first lead generator to get the Pennsylvania license. Product development. We launched a new product for sport. Key takeaways for 2018, or the first quarter 2018, we have the financial platform to continue our aggressive pace forward. We have recruited the company's new CEO, Per Hellberg. We see very good underlying growth in our traffic. We are preparing for the World Cup. That is happening soon. I think we have a very overall strong management in place. We're delivering the strongest quarter that we have done in pretty much all parameters. Everything from organic growth, revenue, EBITDA, and traffic. It's hard to leave this room today not being pleased about what the team has achieved, and we are looking forward to the Q2, Q3, and onwards report.
I now open up to Christian Hellman for potential questions, both from him and from the floor, or from the video.
Thank you, Henrik. Yes, Christian Hellman with Nordea Markets. I'll be moderating. I'll start off with a couple of questions, and then I'll open up the floor. Just the first question, a bit of a highlight question. If you could walk us through the development of the quarter. It was a very strong quarter, a lot of growth. If you could talk a little bit about January, February, March, just to sort of give us a picture of how the quarter developed.
Normally, January, people are just getting back from holidays. It's a bit slower. February's a shorter month, naturally, comparison, the revenues will be lower because it's only 28 days. It was a strong quarter, ending at the high, as we have also stated in our report.
All right. Strong end to the quarter, then. Perfect. Another question. You spoke about the finance segment that you're trying to expand, and you were talking about that you expect that part of the business to grow faster than your old business, so to speak.
Yeah.
Is that in terms of acquisitions, or are you also talking about organic growth? If you could just clarify that.
I think we are coming from very small numbers yet. We now have the GM in place to run with our existing products, but also new products, and build the organization. We shouldn't really forget we only tapped into financials in Q4, which takes companies years to build up in other sectors. What we have done in a very short period of time, I think is tremendous. We will continue to focus on that, and percentage-wise, yes, we will probably see that growth go quicker because it comes from smaller numbers. Yes, we will do acquisitions in that space going forward.
In terms of market growth, iGaming versus finance, is there?
I think overall market growth.
Just to.
I think both are still seeing very good growth numbers, both on the iGaming space and the financial vertical.
Okay. It's more of a base issue than in terms of.
Yeah.
Fine. Also on the margin, you were touching upon the EBITDA margin there for the finance business, 90%. Obviously, that's not sustainable. Long-term, what should we sort of think there in terms of margins between iGaming, finance? Should it be roughly the same, or anything that is structurally different long-term?
I think long-term, both these products are potential high-margin products. We will see high margins in these. Still, 90% is not sustainable because we are now building up the team, so that will go down as the team grows bigger. We will see high margins. I think that's the guide we can give now.
All right. Okay. Then a question on Norway. That was a big topic in the industry last week, with some news coming out of Norway in terms of IP blocking or whatnot. Could you just clarify what your stance is sort of in terms of your exposure and what you believe will happen there potentially?
Yeah. I think it was initially over-exaggerated. However, there is a discussion in Norway, potentially something could happen. We never been very active in Norway. We have taken decision to be in markets that is regulated or soon to be regulated, Norway is not one of those countries. Our exposure to Norway is very limited, as we also stated officially last week to the market, just to be clear that in the event that something would happen there, that would not have an effect of our potential growth forward or our existing revenues.
Okay. Great. Loud and clear. A final question, also, touching upon LeoVegas report, which came out, I believe, two days ago. There were some comments in that report on breaches in the U.K., and that a lot of those breaches were related to affiliates, and that they had closed down a part of their affiliate base. If you could just sort of touch upon that. I assume that LeoVegas is one of your partners, and yes, just what you see in the market in terms of political changes and regulation and that sort of thing.
I think for the U.K., affiliates is one of the areas. I think most of the operators has pressure on all sides of their business on being compliant. We have worked and we work with all the big ones in the U.K. We've been working closely with them, both with our compliance team, which I think is quite unique, because we have an internal compliance team. We have not been affected by eventual fees or penalties from our end, and we make sure to be compliant. We get instructions from our bigger customers on what can and cannot be done. Some are more advanced in their instructions to us, and we try to apply that on all our customers, not to get any swings on potential revenues going forward. I think we try to be careful.
We wouldn't be the company going out there and trying something that potentially could be questioned. For us, it's more being very close with our customers and making sure that we can also assist them. I think most of what those fees are pretty much the smaller affiliates that might not have their compliance team in place. Through what we do internally now, we have a big legal team and a compliance team internally to make sure that we follow the rules and guidelines there is in the market.
Great. I will open up the floor for some questions if there are any.
Good morning. Rikard Engberg, Erik Penser Bank. I have one question regarding the World Cup. We have seen the CPA share of revenue increase during the quarter. I think you said in the last quarter that you see during big events such as the World Cup, it will continue to increase. Am I correct? My question is therefore, will you get a lot of new deposit customers in the start of the World Cup and when you believe it will decline towards the end of-
Hybrid. We would do a CPA and a rev share, not to lose out on future revenues on these clients, because it is going to be a big driver of new clients, and we want to make sure that we can tap into their future revenues as well. It will most likely or will be a hybrid form of deals that we would do with the operators.
Okay. You have a guide for-
Q2 event revenue for 2018.
Yeah.
Any other questions from the floor?
Hi. Mikael Lassén, Carnegie. I just want to follow up on Christian's last question around the U.K. market. Can you explain the difference between affiliates not doing the right sort of marketing work and the larger affiliates? What is really the problem for the U.K. Gambling Commission and the operators? What are sort of smaller affiliates not doing right?
I think the pressing issue there is normally when it comes to wording of the campaigns. What you actually can promote, how the bonuses can be structured, how you word the offerings, how we also use the brand, how we actually position it in connection to a bonus number. It's more on actually how to structure their offering that they're really tracking down to. It comes down to a lot of these Facebook groups on how you promote bets, how aggressively and how you can word that they're quite strict on. The compliance and the instructions for it is quite clear, and there is guidance for it, that it comes from the U.K. Gambling Commission. It's very easy if you have it to read and just follow it.
Okay. What about the overall market in the U.K., the affiliate market? How has that developed in the second half and in the first quarter this year? Has this been sort of an issue for the total market?
We haven't seen it at least. Not what we can see so far.
Okay. My final question is regarding sports betting. How large part of your revenues was that area in Q1?
Actually, we have a picture on that.
Okay. I came in later.
Yeah. Yeah. There.
29
29% of our total revenues came from sports betting.
Hello. Great report.
Thank you.
I have a question regarding paid media. It doesn't seem to grow that much. Can you explain?
I think we do paid media when we see an opportunity in the market, as we're quite picky about our margins. We don't want to go into a bidding war and just to buy traffic because of the sake of we could potentially buy them at a high price. We see that we're also getting better, specifically for sports, for paid, with our dedicated team in the U.K. and London doing that. It is an art form, and it's always going to be bidding. We have said that we're going to interact when we see that there's value to be made.
A follow-up question on that one.
Yeah.
Do you see paid media decrease when market's getting regulated in the sense that the operators will do it themselves?
No, I think it's no, would be the fast answer. It is not an easy thing to do, and it's very easy to spend too much money. The risk of when it gets regulated is that it gets very crowded, prices go up, and people don't keep track of their margins, and they actually lose money on doing PPC.
Great report as well. I was wondering, you talked about AskTraders, I think two quarters ago. How's the development going for that?
We decided during this that we would, at this point in time, not mention it due to competition risk, but we are working a lot with it internally.
The second question is AskGamblers, U.S., do you have to have license to open up AskGamblers in U.S., or is it
What we do when we want to introduce a new asset to New Jersey or Pennsylvania in the future, it would be an addendum to the existing license and it would have to go through and be accepted. For some of our bigger asset, it would make sense to roll them out in more states in the U.S.
Yeah.
Hi. Stefan Knutsson from Remium. Just to follow up on the PPC. I don't have the number here, but I think it was EUR 2.7 million in cost, this quarter, which makes the margin roughly 20%. Has that been affected somehow by the World Cup already this quarter?
No.
That's like the level that you see going forward.
I think to do PPC, it should be between 20 and 25. That's normally where it should be.
Okay. A follow-up question on the acquisition costs, especially on the acquisition in France, you seem to pay a bit higher price. Do you see that trend coming, or was it just that it was a really interesting acquisition for you?
I think it was still very cheap, when it comes to regulated in these newer markets, there isn't a lot of bigger acquisitions to be made. There's still a lot of small ones. ParisSportifs.com was the leading one. We really wanted to be a part of France. France is one of those countries where it was regulated 2010, so quite early in Europe. Very high taxes, you're talking 9.3% on turnover for sports, 2% on poker rake. Casino is still not regulated, but there's a very, very big .com casino market, which we believe that the French government will regulate. We also believe that in the future, tax levels will get harmonized.
It might not happen next year, in two years, in three years, when that happen in France is already a massive market, and it's growing quickly, will be an even bigger one, then we want to be there. That's why we really wanted ParisSportifs.com as part of our product portfolio.
Thank you.
Hi. Per Forsberg at Veranda. Can you describe how big your biggest customers are in terms of percentage of revenue or something like that?
We normally state that no customers of ours is above 10% of our total revenue.
Then maybe top 10?
We haven't stated.
Okay, thank you.
To say that, as I've said in the presentation, we are truly diversified. We work with so many different brands. We are so globally. The ones that is very strong in the U.S. might not be as strong in Europe, and the European ones might not be as very strong in Japan or Australia. The blend is very, very good, we believe, and we worked a lot on becoming that diversified over the years. Not to have as big of a risk if something happens with one operator.
Okay. Thank you.
Any other questions from the floor? If not, I can just add one more question. On the acquisitions that you've done year to date, done a number of different acquisitions, in the U.S., in Europe, in sports and so on, so forth. Could you just, if you look at what is the optimal acquisition for you? Are you more looking into sports, regulated markets, I assume, U.S. finance? If you just could sort of rank in order of importance for you strategically, what type of acquisitions-
What we're looking at now?
Looking at, looking for, yes.
Yeah. What we're looking for in the future now, we're looking continued in the U.S. We want to tap into financial in the U.S. We also want to do continued sports, and we also want to do casino in countries where we might not be present, that is regulated or to be regulated. Prime targets, Spain, Portugal, Italy. We're still not very large in France. Where regulation is clear and is becoming clear, that's where we want to be. Financial is different because it's highly regulated already. It's more where we see the potential of faster growth and where there is established product already. Those will be both European and American.
Do you think that those types of acquisitions will be more expensive than the ones you've done in the past? We touched upon it earlier with the French one being a bit more expensive than historically-
Yeah
because it was a regulated market and so forth. What do you think?
It all depends. It all depends on the seller, timing of the purchase. I still believe that we acquire at very, very good multiples. We wouldn't go into an acquisition if we didn't see the great potential in the product. It's hard to guide if price is going to go up or it's going to go down. They've been between 2-6 EBITDA multiple over the years. They will fluctuate between there.
Fair enough. That was it for me. If there's not any more questions from the floor, then I'll hand the word over to you.
Yep. Thank you once again for coming. Sunny day in Stockholm. We're looking forward to continue having you on board and potential new shareholders as well. Thank you. Reach out if you have more questions during the day or afterwards. Okay, thank you