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

Ladies and gentlemen, thank you for standing by. I am Mena, your Chorus Call operator. Welcome, and thank you for joining the Intralot Conference Call and Live Webcast to present and discuss the 9 months 2024 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nikolaos Nikolakopoulos, Group CEO of Intralot. Mr. Nikolakopoulos, you may now proceed.

Good morning. Good afternoon, everyone. Welcome to our 9 months results presentation. Our CFO, Andreas Chrysos is going to walk you through the results along with some explanations. And after that, we are happy to take any questions that you may have. Thank you, Andreas.

Thank you. Thank you, Nikolaos. First of all, before moving to the presentation that you have in front of you, maybe, I will provide a summary of the 2024 operational performance so far. The financials of the third quarter of 2024 are improved against the first and the second quarter of the year, both in terms of revenue and EBITDA confirming the historical trend that the second half of the year is better than the first, which is already evident from the first quarter of this half. Specifically for the third quarter versus previous two, the main reason for this trend is the organic growth in the markets of Turkey and Argentina, a trend that is expected to continue towards the end of this year as well. Now in terms of the third quarter, year-over-year comparison, we have a deficit of 14.2% and 16.3% in revenues and EBITDA, respectively. The main reasons for this deficit were three and more specifically, the first one is the seasonal effect of the jackpots in the U.S., especially in the third quarter of 2023, there was a big jackpot in U.S.A., which has not occurred in 2024 and affected positively last year's revenues and EBITDA compared to this year. The second is the negative impact of the exchange rates, especially in Argentina and Turkey. And the third one is the lower scope contract in Morocco. These three factors affected year-over-year third quarter negatively by around EUR 15 million in revenues and EUR 9 million in EBITDA counterbalanced in part by the organic growth, especially in the U.S. market. Same reasons for the 9-month year-over-year deficit, which was lower by EUR 16.5 million in revenues and $9.5 million in EBITDA. Only the nonoccurrence of a major jackpot in the U.S. affected top line and EBITDA by around EUR 4.5 million, which has affected the results not only of Intralot but the gaming sector providers overall. Now we are moving to the 9 months 2024 financial presentation and going directly to Page 5. We see the revenue analysis per business activity. Our management contract activity line, including our projects in Turkey and Morocco, performed better by EUR 3.4 million year-over-year. This effect comes from Bilyoner in Turkey triggered by the local market growth in the online sports betting market boosted also by the intense marketing activities required by the intense competition in the market despite the evaluation of the Turkish lira. This positive effect was partly counterbalanced by the lower revenue in Morocco attributed to the lower scale contract that we have now in the country compared to the old contract that was in effect last year. For the last quarter's deficit specifically, it is attributed to the steep devaluation of the Turkish lira in June 2023, which had a negative impact on the second quarter financial of Bilyoner, and subsequently, the normalization of the Turkish lira movement in the third quarter of 2023, which resulted to a third quarter's revenues boost with adverse impact on the comparison with the 2024 third quarter. The license operations were lower by EUR 8.8 million compared to the respective period last year affected by the steep devaluation of peso in December 2023, but with a smaller deficit in the third quarter of 2024 compared to the same quarter last year. It is clear now that the effect of last year's devaluation is smoothing out as expected since the year-on-year impact for the third quarter is lower compared to the first half of the year, a trend that we expect to continue in the last quarter of the year as well. This expected performance will be further boosted by the historical trend where performance in Argentina is picking up in the second half of the year, supporting the results towards the end of 2024. On the technology activity line, the organic growth in Oceania affected revenues positively by 5.5%. On the other hand, for the same reasons mentioned above the Argentinian technology line of business was negative by EUR 0.9 million in the quarter-on-quarter comparison. The remaining quarter-on-quarter variance was attributed firstly to the nonexistence of the major jackpot in the U.S. affected positively last year's quarter by EUR 4.5 million mentioned already, which, in part, was counterbalanced by an organic growth in the market resulting to a lower revenue in the U.S. market by around EUR 3 million. And secondly, to a one-off sale in Taiwan last year that supported the third quarter 2023 results by around EUR 5 million. Turning to Page #6. We see the overall P&L performance for the first half of 2024 compared against 2023 respective period and the third quarter results. For the third quarter, the revenue line was lower by EUR 14.8 million for the reasons analyzed already before. The OpEx line for the third quarter has improved, mitigating in part the effect of the top line with EBITDA being lower by EUR 6.2 million, and the margin was lower by 0.9 percentage points. Turning to Page 7. The upper two graphs have been analyzed in the previous slides. On the bottom left graph, the operating cash flow was lower by EUR 16 million attributed mainly to the lower recorded EBITDA and to a smaller extent to the negative swing of working capital, mainly due to timing variances and impact on inventories, the majority of which coming from the U.S. referring to equipment building that will be installed to clients such as Illinois and Ohio and will start generating incremental revenues. Compared to the previous quarter, this metric is lower by EUR 1 million since this has converted to CapEx already and is expected to move out further in the last quarter of the year. Focusing on CapEx, it is higher by EUR 2.5 million year-over-year mainly due to the increased investment requirements in the U.S. mentioned already previously in the first talk in the equipment I told before. On the bottom right of the slide, we see that the net debt and the leverage ratio, adjusted for the restricted cash referring to debt servicing and repayments remained at the same levels as at the end of 2023 in the order of EUR 330 million and 2.6 to 2.7x, respectively, the leverage ratio. Turning to Page #8. We see the net debt movement bridge from December 2023 through September 2024. So we have the free cash flow generation for the first 9 months of the year of EUR 39.5 million and net interest payments of EUR 28.4 million. Overall, adjusted net debt shaped at EUR 326.2 million, keeping adjusted net leverage ratio at 2.7x. After the successful raise of funds amounting to EUR 237.7 million, requiring EUR 24 million guaranteed deposits and EUR 6.2 million of insurance costs, the company proceeded with a full redemption of its notes due in September 2024, amounting to around EUR 230 million. The company also proceeded with a capital payments of EUR 8.6 million towards the term loan in the U.S. and a capital repayment of EUR 5 million towards the syndicated bond loan in Greece. The decrease of EUR 11.6 million in gross debt has been adversely impacted by the negative FX movement on our U.S.-denominated debt. Lastly, moving to Page #9. We see the contributions by region to our revenues and EBITDA in the 9 months of 2024 versus the respective period of 2023 was better in Europe and in Oceania due to organic growth in -- mainly in the markets of Croatia, Netherlands and Australia. North America was lower due to the lack of a major jackpot this year and South America's deficit is entirely attributed to the FX hit due to the devaluation of peso in Argentina. In the rest of the world, in terms of revenue, the performance of Turkey, managed to counterbalance fully the lower revenues from the business in Morocco, representing an overall growth in these geographies by 7%, but this incremental revenues came with higher marketing spending, therefore, reducing the EBITDA margin, respectively. [Technical Difficulty] the presentation of the results for the 9 months of 2024 [Technical Difficulty] previously, we are at your disposal for any questions you may have. Thank you.

[Operator Instructions] The first question is from the line of Russell Pointon with Edison Group.

I've got a couple of questions. First is there may be some repetition here [Technical Difficulty] numbers down quickly enough. In terms of the revenue swing just Q3 last year, it looks [Technical Difficulty] a bit million is from Argentina effects. [Technical Difficulty] EUR 3 million revenue impact and also Taiwan [Technical Difficulty].

Russell, we cannot hear you because the line is interrupting. So we cannot hear you very well. Sorry.

So Andreas, sorry, you may have -- I just want to make sure I'm getting the numbers correct for the EUR 14 million year-on-year revenue decline. Apologies. I think you may have got these numbers -- said these numbers already, but I wasn't quick enough getting the numbers down. In terms of the EUR 14 million revenue swing in the third quarter, looks like there's EUR 2 million or so due to Argentine FX. I think you said the U.S. revenue was at EUR 3 million lower in Q3 versus last year because of the jackpots. Taiwan helped last year by EUR 5 million. So therefore, the difference is Morocco as well as the underlying stuff. Is that correct?

More or less, yes. Regarding the U.S. the jackpot impact was EUR 4.5 million, but there was an organic growth of EUR 1.5 million more or less. So the net impact was EUR 3 million. Correct? Regarding the FX in total, it is EUR 6.4 million because it's not only the Argentina, it was also the Turkish lira in Q3. And last but not least, it's the Moroccan contract, as you correctly stated, with a lower scope, which was EUR 3 million. That was the negatives and the positives, the organic growth that I mentioned already that partly reverse this trend.

Okay. Good. And my second question is, at the start of November, you announced that you would not be the preferred bidder for the existing contract for the Ohio state lottery from 2027, a couple of years out. I was wondering, could you give some more detail on this, please, about why you were not successful in retaining the contract?

Andreas, let me take this. So the -- as you correctly said, there was that announcement. Still officially, we do not have anything that has to do either with a technical evaluation nor with the financial proposals of the other bidders. So we have -- so to have a clear understanding and an official understanding of where we stand. Obviously, there are a lot of discussions and rumors in the market about both the technical and the evaluation part. What we have done based on the formal process, we have requested those information according to the Freedom of Information Act, the FOA process that we have followed legally in order to get all the necessary details about both technical and financial status and happy to discuss as soon as we have the analysis officially, and I get an understanding of where we were lacking, why we were not the preferred bidder, our strengths and our weaknesses and to see also what the others have presented. I presume that this is going to be not within this year, most probably beginning of the next.

The next question is from the line of Osman Memisoglu with Ambrosia Capital.

A couple on new developments. First one, the win in British Columbia, could you talk about potential opportunities out of this as it's an online platform or could there be new areas you could branch out in the country? That's the first one. And then in general, you have mentioned in the past opportunities in the U.S., Australia, some other areas, if you could give us an update on how those are going, that would be helpful.

Sure. In British Columbia, I cannot give specific numbers because we do not have the clearance with the lottery, but what I can tell you is that after the contract that we won -- we went live, sorry, for the central lottery system, the retail part in May. We went live with the retail sports book in late August, early September. And then we signed the contract for iLottery, the digital part of the lottery in British Columbia, which, again, is an exclusive operation by the British Columbia lottery. The difference that this contract has with the retail contract is that there is a minimum revenue guarantee. But also, there is a revenue share model. So give or take 10% -- 9% to 10% of the business of British Columbia now is going through digital. Obviously, we expect that to significantly change and grow in the future. And thus, to take advantage of the opportunity that we have in a win-win scenario as we are investing also and have this revenue share model. So this is -- and we are having also some other discussions. I consider the partnership we have in British Columbia strategic one because we are in multiple parts of their business. Recently, they have announced that our platform practically represents the infrastructure that they are building a board on this -- all they are offering. So we are very happy that we have a customer that provides us with trust, more contracts. And I think that we are going to grow together healthy there. This is the first thing. The second thing is that still there are no significant development in other projects, evaluation process in Australia is still ongoing. I presume that we are going to have an outcome by the first quarter of 2025. I know that there is going to be a proposal from the management to the Board and the Board is going to evaluate on the meeting that they're going to have on the Q1. Still other projects that RFPs that we have participated, we are waiting either results or the process to move, for example, in Missouri, all the vendors that participate they have -- we have performed early this month, all the demonstrations and the Q&A sessions that were part of the process. In Illinois VLT, we have submitted again. I presume this is going to be announced who is the winner is going to be. The competition is strong there, but we follow that. Again, we have submitted in Maryland, and there are no specific news apart from the fact that in the Nebraska VLT monitoring project according to the announcement of the lottery, the [indiscernible] Department of Administrative Services that has the RFP. It seems that we are the preferred bidder. We have not signed anything yet. We are discussing, but it looks like this project is going on the right direction for Intralot.

[Operator Instructions] We have a follow-up question from the line of Osman Memisoglu with Ambrosia Capital.

Just now shifting to the underlying business. It looks like sequentially the business has improved. Should we expect a further improvement in Q4? And would you be able to give any soft guidance on EBITDA for full year?

Nikolaos, shall I take this one?

Please, yes, Andreas.

I think I already mentioned that historically, the second half of the year is always better compared to the first one. This is something that in the third quarter is already evident and confirmed. The final outcome of the year will largely depend on whether -- because I think I said it many times, whether there will be any jackpot in the U.S. to be accumulated. If there is a jackpot that accumulates for the remaining of the year, then this will further support the results, which as confirmed by the trend, seem to -- not seem, they will be better compared to the first one.

[Operator Instructions] We have a follow-up question from the line of Pointon Russell with Edison Group.

Just a quick question on Turkey because -- you've indicated profitability was good in the third quarter. But at the start of the year, obviously, you went through this investment phase in marketing, and that's come through in terms of good market share and good revenue growth. So -- and I think when we've asked about this previously, you were hoping that the market would become less competitive and help profitability. Could you just give some insight into what you're seeing is the market becoming less competitive? And do you foresee that profitability can improve in Turkey?

Andreas, let me start on that. And -- in the last months, we have seen -- not only in the 9 months, but also in the last couple of months, we have seen that the profitability is ramping up. So we believe that as the market is becoming, as we speak, normalize as we have expected. But we also witnessed, I could say, stabilization in the growth. So the market still is growing really, really well, but not with the rate -- the run rate that was used to growing in the beginning of the year. We are also increasing our product portfolio as we have started also to offer the product of Jockey Club through an online. So we expect that in the next mid- to long-term period, this is going also to have a contribution in the growth of the market. So all in all, the signs that we have seen in the last 2, 3 months in Turkey are encouraging in terms of profitability and also our ability to maintain and grow our market share.

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 so much for joining us on the presentation of our 9-month results. I will also refer to our Chairman, Mr. Kokkalis and his statements that says that the performance of the 9-month period has been impacted by seasonality effects in the United States, as Andreas also explained and by foreign exchange movements. But the company maintains the key metrics of profitability and leverage ratio within the targeted range. And on the same time, we are extending existing contracts, and we participate through tender processes in a large number of projects around the world. So with that statement, I would like again to thank you and close this call. Thank you very much.

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