Big Time Gaming Corporation (EVO) Earnings Call Transcript & Summary

Welcome to the Evolution Gaming Group Press Conference April 2021. [Operator Instructions] Today, I am pleased to present CEO, Martin Carlesund; and CFO, Jacob Kaplan. Please begin your meeting.

Thank you, operator. Good afternoon, everyone. My name is Martin Carlesund, and I'm CEO of Evolution. The structure of this call will be that I start presenting today's announcement. We will then move to some questions that we received during today, and I'll -- we'll answer those. Those questions will be read of IR from Evolution, Carl Linton. All materials will also be available on our website after this call, so you can look at it there. We'll keep this call relatively brief, and I will not comment on anything besides today's announcement. We are presenting our interim report on our first quarter 2021 in a couple of weeks. It's on 27th of April. So we will speak soon again. And at that time, I will also have our usual open Q&A session. So let's begin. Operator, let's go to the next slide. I'm very happy to announce that today we have entered into an agreement to acquire Big Time Gaming. Big Time Gaming is one of the truly innovative companies in the online casino space, and we have followed their development for some time. We are very excited to join forces, continue our journey to create a global market leader in online casino games. Big Time Gaming brings a very strong catalog of great games that players love, titles like Bonanza, Extra Chilli, Monopoly Megaways have an audience worldwide. In addition, Big Time Gaming are the creator of Megaways game mechanic, which is featured in many of their own games, but also licensed to over 200 games from many different providers, including also NetEnt and Red Tiger brands. We won in -- in late last year closed a deal with NetEnt, and by that we added Slots, installed live casino playing. It was a significant step forward towards the ambition to become the world-leading provider of online casino games. The acquisition of Big Time Gaming is as well an important step for us on that journey. With Big Time Gaming on board, we will increase the speed of that development towards the #1 in online casino. Big Time Gaming is focused on innovation and developing new player experiences for players in -- is a perfect thing with our focus as Evolution. I'm very excited about future development of the BTG brand, but also what we can do together. Operator, let's go to the next slide, please. This is a short summary of the transaction. Evolution acquired Big Time Gaming for a total consideration up to a maximum of EUR 450 million, payable in cash and Evolution shares. Upfront consideration is EUR 220 million, consisting out of EUR 80 million of cash and the remainder in newly issued Evolution shares. In addition, an earn-out will be paid in 2 tranches, 2023 and 2024. Maximum earn-out is EUR 230 million, giving a total consideration of EUR 450 million. The earn-out consideration will be payable in 70% cash and 30% newly issued Evolution shares. BTG revenue for calendar year 2020 is over EUR 30 million with an EBITDA of EUR 29 million, and we expect the deal to be accretive to EPS already 2021. The transaction is conditioned upon receipt of regulatory approvals and completion is expected during Q2. But naturally, we put efforts to an as early closure as possible. This is the main pain -- points of our message today. To complement this message, we have prepared some additional questions, which we have -- which we'll now answer. We'll not open up for a general Q&A today. But as I mentioned, we will report on the 27th of April, so we can, of course, come back to Big Time Gaming at this time. Now next slide for some additional questions.

This is Carl Linton, and I'm the Head of IR at Evolution. We have received a few questions during the day about the acquisition of Big Time Gaming, and I have chosen a few of them to ask Martin. So, Martin, we start out with the strategic rationale behind the acquisition.

As I mentioned already, our long-term ambition is to become the world-leading provider on online casino. And with BTG, we have most innovative -- we have the most innovative Slots creator of the past 5 years to our team. We're further strengthening our position as a worldwide provider -- world leading provider in both Live, Slots, Game Shows and the mix between Slots and Live. We need to push boundaries and create the best games with the highest player entertainment value for the future. We need to inspire our current as well as future players, and BTG enables us to create new fantastic games. Acquisition of BTG is financially attractive, but most importantly, we add the fantastic team of -- to the Evolution family. We also add very strong IT with top-class titles, as I mentioned, Bonanza and Extra Chilli and Monopoly Megaways. But in addition to that, we also own -- have the ownership of Megaways game mechanic, which is the most desired game mechanic among players and other slot providers licensed to over 200 games throughout the world.

And which geographic markets are BTG, particularly, strong in?

They have a very good distribution in both Europe and U.S., and we will work to continue developing those distribution channels as well as expand beyond those relationships that are already present. We will, over time, increase the reach of BTG products through Evolution, which is becoming the largest online casino network in the world. And we'll continuously work with that.

With BTG on board now, how much would Slot amount for -- of total revenue for Evolution?

BTG had revenues of EUR 33 million, 2020. I mentioned earlier about EUR 30 million. NetEnt is about EUR 200 million revenue in 2020. So it adds about 15% of our Slots business, give or take. In comparison to Evolution, which had just over EUR 540 million in 2020.

And how will the acquisition affect the margin of Evolution? Are there any synergies?

BTG, as you understand, has a high profitability. EBITDA is EUR 29 million in 2020. So margin is above 85% or about 85%. Adding BTG will, therefore, not weight negatively on the Evolution group margin. There are no direct cost synergies, maybe even some negative synergies as we need to invest and -- to align BTG with operations in a larger group.

Do you see any revenue synergies?

BTG has a good distribution already, worth mentioning. Over time, we will, of course, work to support the continued growth, but we have not announced any specific revenue synergies. BTG is growing healthily on its own merits. And this is also reflected in the earn-out structure for the deal.

Can you explain the pay-out -- payment structure? Why earn-out?

Yes, we paid EUR 220 million today, EUR 80 million in cash, remaining -- remainder part in shares. There is an earn-out expecting to 2023 and 2024, as I mentioned before. And the total additional earn-out is EUR 230 million, giving a total consolidation of EUR 450 million, maximum. The earn-out portion in itself is between 70% cash and 30% shares. Earn-out is depending on BTG performance, of course, during the coming years. While paying a maximum earn-out, the deal multiples is lower than on the upfront payment alone. So that, of course, better for us that they reach maximum earn-out. BTG is very interesting. It's in a very interesting phase where they have proven themselves to create groundbreaking innovative games. I think that is most important. We look to support them in really scaling that up and introducing the games to wider audience.

What is the BTG's EBITDA for 2020? And what does the EBITDA need to be for '22/'23 and '23/'24 in order for Evolution to pay out the full earn-out payment of EUR 230 million?

I will not go into details of the earn-out or give any top line forecast. But BTG has a very good growth today in the 30%, 40% range. And we expect to continue the strong growth and high profitability.

And how will the deal affect EPS? How much?

The deal would be accretive to EPS already 2021. In the context of the whole group, it's naturally a smaller effect, but still contributes.

What advantage does the new acquisition add to the NetEnt that NetEnt doesn't have?

Like NetEnt and Red Tiger, BTG has a focus on high quality and innovative playing experiences. The Megaways game mechanic is, of course, very interesting to own as well as some other IP that can be used by all brands in the world.

And so which date will BTG be fully consolidated with Evolution?

We have said during Q2, but we will naturally work to close as early as possible. That's about it.

Will you continue to sell Megaways to other competitors?

It's a strong IP, and it's caught a lot of attraction by players. We're already using it on several NetEnt games, and we'll continue to license it also to others.

Will you continue to acquire Slot companies?

I had this question a lot, of course, and organic growth is always #1 for us. We need to be better every single day, grow each part of the company organically at a high pace. Creating the best games is our focus in all parts of the business. Having that said, we look carefully for the right pieces that we need to move closer to our ambition to become the #1 in online casino.

And last question now, do you need to clear the deal with any competition authorities?

The short answer is no. This is a much small transaction than the NetEnt transaction. So competition issues are not expected.

And that was all the questions I was going to ask Martin. Thank you all of you who have called in. And now over to Martin for last words.

Okay. Thank you very much for listening. I hope this was giving some additional information to you all. And I look forward to come back to you all in the -- on the 27th of April. Thank you very much, and goodbye.