Bally's Intralot S.A. (BYLOT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Intralot conference call and live webcast to present and discuss the full year 2021 financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Chrysostomos Sfatos, Deputy Group CEO of Intralot. Mr. Sfatos, you may now proceed.

Thank you. Thank you, everyone, for joining us in this financial year 2021 results call. I'm joined here by my colleagues, Mr. Nikolakopoulos and Mr. Fotis Konstantellos and the entire financial team. And I will pass the mic to Group's CFO, Mr. Andreas Chrysos so for his presentation.

Good afternoon, ladies and gentlemen. The financial results of previous year confirmed that Intralot delivered successfully on all important targets that were set by the management. Having said that our efforts for the last 3 years that picked during 2021, placed our group in a new, stable course, allowing us to be confident for the future. The successful implementation of our capital structure optimization task not only provided a significant deleverage and a relief on the debt servicing cost but also a runway of at least 3 more years that will allow us to focus on strategic opportunities that will create value for all its stakeholders, shareholders and lenders. An important side effect of the improved capital structure and position of the group was the upgrade of our corporate family rating, allowing the group to take advantage of new opportunities and focusing on its strategy to place emphasis on developed markets. Apart from the optimization on the capital structure front, we saw a rebound on the operational end as depicted from the operational metrics performance of the year. This was supported both from the top line and the bottom line. The top line was positively affected by the rebound from the effects of COVID-19 that hit our financials in 2020. This was clearly evidenced in all markets we operate and was a result of the lifting of restriction measures and the return of the sports betting event schedules back to normal as well as a trend towards more traditional lottery products that supported the top line performance, especially in the U.S. Bottom line, on the other hand, also assisted in the operational metrics improvement since we continue to adjust our cost base at lower levels, primarily at headquarters and worldwide and therefore that started from 12, 2019 onwards. Following the developments, we have to focus on the strengthening of our EBITDA to restore the lost profitability apart from the top line focus on developed markets through targeted actions on the expenses front via development of synergies and continued tranche of cost adjustment on all expenses lines. Both these targets should be accompanied by a strong liquidity position of the group, to the extent possible. The group not only succeeded in the targets it has set, but also strengthened its cash position versus a year ago. The performance metrics and achievements of 2021 are indicative. Number one, EBITDA for 2021 landed at EUR 110 million, substantially better compared to the EUR 100 million trajectory we were targeting at the beginning of the year, fueled by the strong top line rebound globally and in the U.S. performance. OpEx, excluding the depreciation that's referring to the new license in Bilyoner at EUR 94 million, in line with the target levels we have set, supporting EBITDA as well. Net CapEx also in line with our expectations, landing at EUR 23 million, lower by 36% versus last year and EUR 32 million lower compared to 2019 as a result of the maturity of our products as well as the optimum handling of our project renewals. Fourth, the operating cash flow generation for the year up EUR 108 million, indicating a healthy operational performance. And fifth, the leverage ratio rationalization as a result of an improvement on all metrics affecting it. Net debt better by EUR 154 million, resulting from a better gross debt by EUR 146 million, impacted by the deleveraging project, cash position better by EUR 7.4 million, affected positively by the reasons mentioned above and a much better EBITDA, leading to a leverage ratio of 4.5x for the group. Now moving on to the 2021 financial presentation. Our results on the revenue line presented in detail in Slide 5 to 7 of the presentation show an upward trend in all activity lines compared to the respective period of 2020 and fueled mainly by the strong recovery of the pandemic impact as well as strong momentum in the U.S. in the lottery segment and the gradual uptake of our sports betting projects in the country. More specifically, in the licensed operations presented in Slide #5, we see an increase of EUR 33 million coming from both markets in this activity line. The rebound of the market in both geographies. after the strong hit last year, mainly in the second quarter due to lockdowns and restriction was the main contributor. Turning to Page #6. We see the revenue results in the technology contracts increasing by EUR 22 million. Major highlights here are the strong performance of the U.S. operation throughout the year. The negative variance in the last quarter is attributed to a merchandise sale and one-off revenue referring to our Canadian contract, which was EUR 9 million in 2020. But with the performance of the service revenue in the fourth quarter of 2021 being 10% higher in dollar terms year-over-year, counterbalancing this one-off effect to a large extent. Australia, although we continue to experience some turbulence from COVID-19 as a result of a new wave of the pandemic, which hit this part of the world in the wintertime, was certainly affected less than the previous year and lockdown restrictions were at a lower scale, therefore, managing to reduce the impact to the largest extent. The successful go live of our contract in Croatia added a new revenue stream in the top line and is gradually growing. Lastly, in the rest of the world, lower merchandise sale in current year compared to 2020, resulted to a negative variance of EUR 1.8 million. In the last page of the revenue analysis, Page #7. We see the performance of our game management activity line with Q4 indicating stabilization of performance in Turkey and Morocco, landing at the same levels where it was in 2020, respective quarter, where the pandemic impact in these markets have been contained to a large extent. Finally, the U.S. Sports Betting market also added a new revenue stream and is expected to grow in the future as well. Turning to Page #8. We see the overall P&L performance metrics for the full year of 2021 and the fourth quarter versus a year ago. Highlights on the operational front are the growth in the revenue line year-over-year being overall higher by 20% and 9.5% quarter-on-quarter and has been analyzed in the previous slides in detail. Secondly, the GGR line following the same trend as revenue was higher by 17.5% year-over-year and 8.6% quarter-on-quarter. Third, the gross profit line was higher by 63% year-over-year and 37% quarter-on-quarter, equivalently important, that the gross profit margin was higher by 7.6 percentage points and 6 percentage points year-over-year and quarter-on-quarter, respectively, since a large part of our activity, mainly in technology and management lines does not incur proportionally increased costs with the revenue increase resulting to a higher gross profit margin that goes straight down to the EBITDA. Fourth is the OpEx line performance, which excluding the Bilyoner’s was slightly higher by EUR 2.4 million year-over-year, supporting the increase in the top line, indicating efficiency as a result of the efforts undertaken by the management in the last few years and in 2021 as well for a streamlined business and a lower cost base, especially at headquarters level, that also supported the EBITDA line increase. All the above were reflected to the higher EBITDA margin over sales by 7.5 percentage points and almost 10 percentage points over GGR, which indicates a much more efficient operation, better operating performance as described above, in accordance to the benefit of the capital structure optimization exercise of EUR 88.5 million, hitting positively the income statement resulted to a positive trajectory performance at EBITDA and net income after tax in minority interest level, showing a profit of EUR 26.6 million versus loss of EUR 103 million in 2020. Turning to Page #9. The upper graphs have already been analyzed in detail in the previous slides. Now focusing on the bottom left of the slide, we see the mirroring of the operational performance analyzed in detail already being reflected also on the operating cash flow, which reached EUR 108 million in 2021 versus EUR 44 million in 2020. Net CapEx, on the other hand, has been substantially reduced and has landed at EUR 23 million for the year, materially lower compared to 2020 and in line with our commitment for a substantially reduced CapEx following optimization of our spending, post investments and important renewals, especially in the U.S. On the bottom right of the slide, we see the results of our capital structure optimization exercise with the net debt materially reduced to less than EUR 500 million after the deleveraging effect of EUR 163 million in nominal value, but also the cash balance increase. The reduction of the net debt in combination with the operational improvement reflected in the EBITDA has led to leverage ratio of 4.5x, showcasing the success of the group in the actions it has undertaken in the last 2 years to adapt its capital structure to the new reality that has been shaped for the group in the last few years. Now turning to Page #11. We see that the contribution per region in our revenue and was 80% of our revenues and 85% of our EBITDA are produced in the more developed parts of the world, mainly it's North America, Europe and Oceania as part of our strategy in the last few years to shift the activity towards more developed markets. At this point, let me remind you that for more details, you may also refer to the management and discussion analysis which is available in our website. And with this final comment, the presentation of 2021 result is finished, and the Intralot executive team is at your disposal for any questions you may have.

[Operator Instructions] The first question is from Permalloo Jemma with JPMorgan.

I just have 2 questions. First of all, on your notes, your bonds to 2025 that are currently callable. And I know you've mentioned potential developments in the U.S. business as well in the past. Can we have an update on this, please? And then secondly, I know this is a presentation for numbers. But given that you've probably had some color on your Q1 for March 2022. Can you give us a bit of color on what was the performance of the business line?

Excuse me, can you repeat the second question, please?

The second question was if we can have some color on the performance of the business, recent performance.

Okay. So for the first question, we don't have anything definitive to announce at this point. It's certainly something that we are examining. And on the second question, you are referring to the first quarter?

Yes.

In performance. The performance in the first quarter reflects pretty much the trends that we have seen in 2021. And we more or less expect a similar performance as in 2021.

When you say 2021, just to be clear, are you referring to first quarter of 2021 or your recent run rate for the 2021 numbers?

No, no. I'm referring to quarter-on-quarter.

The next question is from the line of Felix Wolfgang with Sarria Asset Management.

Yes, just trying to remember, I think you -- so -- and I missed the first start of the presentation, perhaps you've discussed a bit, but I think you were looking forward to making a major investment in the prolongation of Malta and Australia somewhere. What are the plans there? And what's the timing of that?

Malta, there was a tender last year. And we didn't participate. There is a preferred bidder who bid with an extraordinary high bid, probably twice what the market expected. So we're not going to run the same business in Malta as in the past. But we are still evaluating our future in the country because we were operating some licenses in addition to the ones that were tendered, which were the exclusive. So far, our contract expires in June, but maybe there will be extension, maybe not, we don't know yet.

Okay. And yes, the multi-tenant numbers. I remember now. All wonderful. Thank you. Good luck.

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

Thank you very much. I'd like to thank all of you for your participation. And I would like also to thank all my colleagues and everyone in the company who has contributed to the outcome of last year's results. Thank you very much.

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.