Catena Media plc (CTM) Earnings Call Transcript & Summary

Hello, and welcome to the Catena Media Audiocast Teleconference Q2 2020. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO, Per Hellberg; and CFO, Peter Messner. Please go ahead with your meeting.

Thank you. Good morning, and welcome to Catena Media's second quarter presentation. The presenter today is me and Peter Messner, which you will see on the next slide, please. And during today, we will go through a couple of events. So if you change to next slide, please, to review the agenda, where you will see that we will start with the quarterly highlights in terms of numbers, followed by business update. From that on, I will hand over to Peter Messner, CFO, who will run through all the financial-related information. And in the end, I will come back and talk about the strategy and outlook going forward. And then after that, summarize the meeting and take questions from that on. So next slide, please. Well as we would have sent out some time ago in a trading update, we were able to record a very nice result for this quarter. In fact, we managed to grow quite considerably compared to Q1. We grew the revenues by 4%, but also the adjusted EBITDA by 15%. So a nice trend there quarter-on-quarter. And if you go to the next slide, you will see that, if you break down this compared to the previous year, you will see that revenues grow an all-time high of 17% growth and EUR 27.8 million. Of that, EUR 25.8 million was search-related revenue, meaning only created through search engines; and remaining was by paid revenue, meaning the performance marketing-related revenues. Also, that grew by 28%, actually, so we spend less money on performance marketing by generating more by on search-related traffic, which is very positive. It also was an all-time high price in terms of search revenue and so was also the adjusted EBITDA numbers of EUR 14.8 million, which is a growth of 56% compared to previous year. And if you look at the margin we managed to pull it together was 53% compared with 40% last year. So all in all, a very positive quarter for us. Next slide, please. So what is the underlying factors to achieve that? Well first of all, I would like to start to say that this was a very unusual and challenging quarter, challenging in a way that the pandemic we all experienced made it very hard to predict how we should operate our business and how we should judge the incoming traffic and make sure that we optimize the monetization from that. During the closedown, we saw a lot of traffic increases, but a lot of that increase was not high-value traffic, meaning that we need to be quite instrumental in the way how we make sure that we find the right kind of customers and send them to the right kind of operator in order to maximize their revenues during this time as well. So we took a quite early decision to be quite aggressive in the setup to manage this, to move away from offices and establish home operations that we're still running and plan to do so for quite some while and really use all the data we gathered to make sure that we conduct as [ possible business ] during this time. But of course, each month was different from the other, meaning that we need to change a lot of times, and that's probably what we need to do also going forward considering what the pandemic is playing towards right now. But all in all, we could see -- as sports shut down, we could see a quite dramatic increase of casino opportunities, especially in April and May when most of the world was shut down. We saw a strong -- very strong increase here from U.S., which I'm coming back to a bit later. And in April, May, obviously recorded, but only to start to go down to more normal levels again in the end of the quarter as June also meant that a lot of markets opened up and people went up from lockdown into normal world and prioritized friends, families and other things rather than maybe sometimes sitting at home playing casino. So that meant that we became more of a traditional casino month for us compared with the very peak ones in April and June. We saw also during this time a sports shut down, but we saw a gradual increase still, of course, in terms of event volume. It's still not back to levels we saw. It's also quite different seasonality in sports events compared what we used to. So that means that the revenue buildup is quite different compared with previously. So if you then look at the operational highlights, obviously, as already mentioned, record both in revenues, organic search revenues and profits. Casino segment was the real driver with a majority of our income, 76%, coming from that, which Peter will talk more about later. But not only from U.S., we saw all-time high numbers in AskGamblers. We saw also in the Japanese markets, while the main European ones were also up but not as much as we saw here. The reason is that Japan was a bit -- is always a bit different. We have a continuous growth trajectory there. U.S., I already mentioned, as a lot of casinos shut down [ base ], we saw a lot of increased demand for casino over there. And of course, AskGamblers has a quite global footprint, and we're able to pick up traffic from pretty much anywhere in the world where we saw increased demand. In terms of U.S., I've already mentioned, it was an all-time high, driven by more or less almost casino. We had quite low business in the U.S. for sports, as we know, as very few leagues we're running. But nevertheless, we continue to invest quite much in driving our business. We already said many times that regardless of this and the strategies we have put in place, we continue to run investments into core future growth markets like U.S., like Asia, Latin America. And in the quarter, we launched our Bettingpro product, sports product into Latin America to prepare that for the future and also continued investments in staff, predominantly in U.S., to look out the new states open up within 12 to 18 months from now. Also something that was picked up and also we saw in our numbers that was in May, we saw it quite -- in this industry quite big, Google update, which, in some cases, didn't impact any sites at all. In some cases had a positive impact, but in some case also had a negative impact. That went for us as well. And when that happens, you need to realize that not all traffic that is being impacted is a negative. It can be traffic, but it has [ low ] value. We, however, had some sites that were impacted. And those who need to start to repair work on are now going back up again because of that. But some sites like, for example, AskGamblers had a traffic drop of 30%. After this, it's combination of Google update, but also the fact that markets start to open up, so that the peak was getting a bit less active from -- after the peak of COVID. But it didn't have a lot of impact to revenues as we managed to conduct all-time high for AskGamblers in the quarter, and since then is continuing on a good trend. So all in all, I think it was an extremely challenging, but we managed it in style. And I'm really happy about what the team were able to deliver. I will come back a bit more later about some details about U.S. and then also about the outlook going forward. But before that, I'm here -- I hand over to Peter Messner, who will run through the financial update.

Thank you very much, Per, and good morning from my end as well. We can switch to the next slide and then to the next slide in order to show our revenue growth and go a little bit into the details of what Per already started to explain. So what you see in the second quarter is, as mentioned, an all-time high in our search revenue, which translated into an overall all-time high of our revenue growth, primarily driven by casino. And that is a phenomenon that you see on the right-hand side in our new depositing customers chart with a decline in comparison to the first quarter of this year, whereas there's still a year-over-year growth of 4%. And the main reason for that is, of course, that the sports segment, which you will then later on see, has not really had a chance to get a lot of new deposit customers into, given the lack of sports. Casino, on the other hand, was very much able to deliver these high-value customers and the monetary value of the casino customer is much, much higher than that of a sports customer. So a combination of the lack of sports, the shift during the quarter to casino and the higher-value casino is, in its totality, explaining why we have record revenues in that quarter while we still have a decline of the new depositing customers in comparison to the first quarter. That, of course, was an expected trend, again, particularly because of the sports development and the lack of sports. If we can switch to the next slide. On the segment performance, you see exactly the same result. So casino had, during this second quarter, a share of total revenues of 76%. I mean it was, in the previous year, 56%. Sports had a share of 18%, which was particularly low, naturally as a result of the lack of sports. During the last year, it had a share of 38%. Now our Financial Services segment has been stable and has total setup of a revenue share -- or share in total revenues of 6%. When you take a look at the lower part of that chart, the way how we generate revenues based on the deal setup with our customers, the operators, and we have revenue share deals where we get paid for acquiring new customers or lease, the cost per acquisition or a hybrid of that, we have certain fixed fees income as well and subscription revenue, which is only in the Financial Services segment. What you see in comparison to the previous year, the numbers are in brackets, is the revenue share as an overall share has decreased, and in the same way, the CPA, the cost per acquisition, share of total revenues has increased. And again, that is the result of the casino business having been extremely strong. And also the impact of the U.S., as a result of what Per explained before, all the 900-plus land-based casinos have been closed at one point during this quarter. And the interest for online casino has been extremely high. Our U.S. business is primarily a [ superior-based ] business, so that impact was naturally reflected at the end -- in the total numbers. If we can switch to the next slide then. When we take a look at the cost development resulting then in our EBITDA or adjusted EBITDA numbers, and then you saw a few items. So on the first-hand side, as Per already mentioned, we increased our margin to 53% during this quarter in comparison to 40% during the last year. And the main drivers, as you see in that bridge on the right-hand side, has been our decreased spending in direct costs, which also was a result of the lack of sports. There is quite a lot of pay-per-click investments usually in the sports area when it comes to acquiring specific keywords and to the general situation in the second quarter that investment naturally wouldn't have paid off, so we didn't do that. On the other hand, we have the general strategic trend that's also already explained in previous quarters from a quite heavy PPC and, therefore, direct cost-related business that we still hedged during the last few years to a more organic-based, revenue-generating business. We still do and evaluate, of course, direct cost investments and PPC investments, but not in the same extent as it has been before. So that's attributed to the overall EBITDA growth. On the personnel side, we had a slight increase in personnel in comparison to the last year, which is also not surprising, given that we are an increasing and growing business and particularly taking a look at those areas where we reach to further strengthen our staffing, which is primarily in the U.S. market. On the other operating expenses, that part of our total cost base was also positively, in that respect, impacted by the situation in the second quarter. There was a lot of spending that was heavily reduced in relation to marketing, again, driven also by the lack of sports events. SEO and other preempting and outsourcing costs and recruitment costs. They have been fairly low during the first half year on that side when it comes to the personnel, given the uncertainty in the market, but you can expect that we will go back to low certainty we now have in the second quarter to continue our investments, as Per previously mentioned, in those areas where we see the growing market potential. That is primarily in the U.S. It is also in Japan, and it is generally in technical product areas where we see we can further innovate in our products. On the chart up there on the right-hand side, on the cost development, the total cost ratio, where the total cost here is the summary of our other operating expenses, personnel expenses and direct costs has been going down to a level of 47% of total revenues. It has been 60% during the last year, which was exceptionally high. I think in the first quarter, we had around 52%. We can expect this overall percentage to go up now, again, in the second quarter again -- in the second half of the year. Again, the second quarter was primarily low on the explained reasons of the impact of pandemic and selected sports. But of course, we will manage that in line with our increase in business and the revenue trends that we see. If we can switch to the next slide. So the profit for the quarter, putting all of this together, and I'm sure there are certain questions out there why we report a negative EPS earnings per share, so let me explain that. Coming from an adjusted EBITDA that we reported of EUR 14.8 million, we had roughly $1.7 million in adjustments to arrive at the EBITDA number of EUR 13 million. The adjustments related to credit facilities but in particular to the refinancing-related costs, those are cost items that were not directly related to the issuance of our new hybrid capital securities. Therefore, they are running through the P&L, but are nonrecurring in nature. Depreciation and amortization has been on a similar or same level as in previous quarters as well. And then from EBIT to our profit. So apart from the interest payable on our borrowings, which has been the existing bonds of EUR 150 million, the main item that you see here on the right-hand side, the EUR 14.9 million, are other losses on the financial liability at fair value. So this is a fair market value movement, primarily driven EUR 14.4 million out of this EUR 14.9 million on the revaluation of our existing bonds. So let me explain that a little bit because during the first quarter, we reported a profit on that fair market value movement, and that was the result of, at the end of the first quarter, due to the uncertainty in the market, the market value, the market price of our bonds has considerably decreased. So we consider the fair market profit during that time, but I believe I already mentioned that, but you could expect exactly the opposite during this quarter, especially because the certainty in the market, to a certain extent, came back. On the other hand, there was more certainty around our refinancing as we now concluded that. So the result has been a revaluation of the fair market value where the market price went up again, translating into [ future ] confirming a loss unrealized. I have to say, in our books, this is an accounting item. Taking that all the way down to our profit, that meant the profit has been a loss for the quarter of minus EUR 7.8 million and then translating into negative EPS. If you take the EUR 14.4 million just as a calculation exercise out of that equation, then that profit turns into roughly a similar less -- almost a similar amount on the positive side. So again, this is an unrealized loss. It is due to IFRS reporting standards related to fair market valuation rules, and you should not expect such a swing anymore, given that we have uncertainty with the refinancing now in our books. Can we go to the next slide now? All right. When it comes to our statement of financial position or our balance sheet, we have total assets amounting to EUR 406.3 million. The main part of that, and there is no change to previous quarters, are our intangible assets relating to our trademarks, our domains, our customer relations, customer databases and so forth. Cash and cash equivalents, it's important to mention, we had a cash balance at the end of the second quarter of EUR 82.6 million. Out of which, EUR 57 million are the proceeds of the rights issuance, and I will come to that in a slide or in 2 slides, explaining a little bit more in detail. On the equity and liability side, the borrowings are, during the second quarter, continuously the existing funds that we not yet, at that point in time, have repaid, but we did so during the middle of July with [ 1/3 ], as announced. And on the equity side, out of the EUR 224.2 million of equity, that includes EUR 57.4 million in a new line in our balance sheet, which are the hybrid capital securities as part of our rights issuance and refinancing properties. And again, I will explain that in a little bit more detail in 2 slides, I believe. Let us switch to the next slide then. So on the cash and debt, what you see is that we continued our trend with -- in a very positive way of our operating cash flow of EUR 17.4 million during the quarter. And again, as I mentioned, the cash balance at the end of the quarter was EUR 82.6 million with the main part of that being due to the rights issuance of our hybrid capital securities. We had a cash conversion of 134% that is worth to mention. We particularly took early efforts when the pandemic was arriving already at the end of the first quarter to make sure that we do not run into any issues on bad debt. So therefore, a lot of focus has been put from an accounts receivable perspective into collecting cash, which also has been pushing, to a certain extent, these balances during the second quarter. Our net interest-bearing debt, which is our borrowings at nominal value, net of our cash position has been at an amount of EUR 84.9 million, which then translated into the respective leverage ratio of 1.68, which is also what we know now our long-term target of staying below 1.75x. Let's switch to the next slide. So this slide is very comprehensive, and the purpose of that is to summarize what you see in our financial statements as of the 30th of June in relation to our refinancing, the rights issuance. So what you see in the first part of the balance sheet treatment as of the 30th of June, so we issued the rights of hybrid capital securities in Swedish krona, which was a nominal amount of SEK 684 million, which translated into a euro amount of EUR 65.7 million. Those EUR 65.7 million, if you take a look at the balance sheet, are reflected in equity in the way that issuance cost of EUR 8.3 million has been deducted. And the final equity that you find, as mentioned just before in our balance sheet in the line of hybrid capital securities, has been registered with EUR 57.1 million, the 2 numbers on the right-hand side. So EUR 8.3 million and EUR 57.4 together is EUR 65.7 million. So those are treatment from an equity perspective in the balance sheet. When it comes to the cash proceeds of this EUR 65.7 million, there are 2 elements that we registered as of the 30th of June in our balance sheet. On the one hand side, we had receivables of EUR 8.7 million, which is the cash proceeds that we did not yet receive at the end of the second quarter. And the other part was exactly what we received cash and cash equivalents of EUR 57 million, which is reflected in the cash balance that I just mentioned before. And here again, the EUR 57 million plus the EUR 8.7 million total to EUR 65.7 million for the rights issuance of hybrid capital security. Taking a look at the second part, the issuance cost and the net cash proceeds of this transaction in its entirety, as I mentioned on the top right, is a deduction in equity issuance cost. What has this issuance cost been? EUR 8.3 million. It has been advisory cost directly related to the issuance of the bonds, our financial advisers and legal advisers to a total amount of EUR 2 million. And then we had certain guarantees that guaranteed for the successful subscription of our rights issuance. Those centers could choose between a cash payment of their commission or to get paid in warrants. And you see here how that split eventually looked. So commission fees that have been paid in cash amounted to roughly EUR 400,000 and commission fees that have been paid through borrowings that have been issued amounted to EUR 5.9 million. So in its entirety, EUR 8.3 million. Only EUR 2.4 million out of those had a cash impact. If you move then here to the right-hand side, how does that look like from a total net cash proceeds perspective of this rights issuance? So we had a cash and cash equivalents input from the rights issuance of the EUR 57 million that you see on the right-hand side up there in the balance sheet. Then the issuance costs that had a cash impact of EUR 2.4 million deducted, the exceptional costs that I mentioned on the profit for the quarter side of EUR 1.7 million, but also relates to the rights issuance, not directly to the hybrid, but to the overall setup where we also amended the terms of our existing bonds and improved the expiry date by another year, so also deducting EUR 1.7 million, leading to net cash proceeds of EUR 52.9 million as of the 30th of June. And then the receivables that we had at the end of the second quarter, cash to be received after that reporting date, translating into net cash proceeds finally of EUR 61.6 million. So -- and then going to the third part of that slide, the net interest-bearing liability. So how did our net debt position really change? So as of the 30th of June, what you see here in that graph, our recurring credit facility with Swedbank amounted to EUR 12.5 million. The bonds that we registered at the end of the second quarter amounted to EUR 155 million, which is the then still entire sum of EUR 150 million, plus the 5% premium that we agreed during the amendment of the truce, so a final redemption rate of 105%. So that together amounted to EUR 155 million. Then the cash inflow of EUR 57 million from the rights issuance and the other cash part in our cash position, together, the EUR 82.6 million of the cash position in the balance sheet, resulting in net interest-bearing liabilities of EUR 84.9 million and a leverage, which is the ratio of those net interest-bearing lease liabilities to a 12 -- the last 12-month adjusted EBITDA of 1.68. Naturally, as we do not have now any need and intention to increase our debt situation for the remaining part of the year and the positive outlook for continuing our strategy into the business, it's very logical that these net interest-bearing liabilities would further decrease towards the end. So we're tracking towards the leverage of getting close to 1.0, which is extremely favorable. And of course, the entire results of that exercise of the refinancing. And with that, I will hand back to Per. Thank you.

Thank you very much. So next slide, please. It's now time for the outlook going forward. So if I can have the next slide after that, please. So when it comes to Q3, I'm happy to report that it started in a positive direction. We currently see that July in terms of revenue is 7% up compared to last year, which is a good start, considering that July this year is seen as quite low period for us. But also, what is interesting here that we're actually showing a growth also compared to June. So we started a lower quarter in a good way. And I think here it's important to say that the better part is ahead of us, considering that from mid or beginning mid-September, the U.S. sports is going to can start up. And what we hear, it's a quite big pent-up demand from that. So end of Q3 and beginning Q4 looks very positive in that sense. In July, what logic can understand that sports is starting to increase, while casino is pulling back a bit. And I think that is the trend we will see for us going forward as we have a good sports season ahead of us. That's not to say that casino is doing bad, of course, but it's more back to normal levels. So next slide, please. When we talk about U.S., we always tend to provide a U.S. update. And I think it's important, considering a lot of discussion we see out there, to repeat a couple of things about the U.S. market. In our case and in most of affiliate positions in the U.S., it's 100% CPA-based business, meaning that we get paid once we qualify a customer at a new operator. So every time we send any new customer, we get prepaid for that. After that, the customer deposit money, and they start to pay and bidding up there for revenue and handle assets over there. So we could see very good results coming from U.S. now in July, et cetera, in terms of handle. But bear in mind that those customers were already most of them generated with us before July. So that's why we are ahead in revenue generation compared with the revenue buildup in terms of handle, just to make that understood by everyone. When it comes to U.S. update in such case, we are today live in 8 states. And if you look at the following information about U.S., we can also see that more states are underway. The latest one to join was Colorado, which opened here in May, and we look forward to what that can mean when the NFL kicks off on September 10. In terms of COVID update, in terms of U.S., we can see that a lot of sports are ongoing now in a different kind of season. We're seeing NHL Hockey on TV, which is very unusual this time of the year. We've seen a lot of sports being changed. We also see how also that some NFL-related sports, which is the largest revenue phase, are a bit changed compared with previous year. We see that the preseason games typically happening in August is canceled. We also see that college football, in some case -- or in cases, has been canceled, meaning that there will be less such event. On the other hand, we hear from our investigation that there's a big pent-up demand for NFL or American Football once it starts. So we believe that once it kicks off, it would be a nice injection of incremental revenue for us. This is because a more [ sales up ] compared to last year. We -- hence, we estimate a lot of increased traffic, but also more operators are in play, meaning that there are bigger demand from our services. So end of the quarter, looking interesting, so to speak. Casino is back like more normal levels. The reason for that is that, for some time now, the states has opened up, as you know. Land-based casinos has opened up again, which was a big driver when they were closed for us as a lot of social casino revenue occurred at that time. We now, of course, unfortunately, see some states really fighting with the pandemic. And if that shuts, we have to see how that impacts our revenue numbers going forward for casino. But still, sports, of course, as we see it today, will continue. I think the key difference compared with previous year is that we foresee a bit regularity in terms of the revenue buildup. We typically see in U.S. that sports will build up a bit later in the quarter. We know that NFL is by far the largest revenue-generating sports out there and with that starting a bit later. Hence, we foresee the revenue coming in a bit later in Q3, but also spilling over into Q4. So all in all, we project nicely increased traffic numbers for the second half. We also see that we've been good in improving our conversion rates, meaning that on the traffic coming in, we're able to convert a larger percentage of players that we used to be, which is something that comes up after a time you've been active in the different states to understand exactly how to benefit from the traffic. So all in all, over time, it looks very positive. I think also what is really good, as we know that some states are on the way to launch as well we're looking at Tennessee, Virginia and Michigan for sports, which we prepared sites for a long time, and we can see that we rank very good for key search terms there. So when the states open up for regulated business, we will be able to transmit good traffic volumes from day 1. Also, Michigan will go for casino, which also preparing sites for and had them running for a long time and ensuring that we have top-ranking sites when it opens up. I think this is a result also that we can see in many states that when we went into the quarter, we thought actually that the pandemic would hindrance the regulatory process across the states. In fact, it actually had, in general, overall, a positive outcome because more states want to regulate in order to ensure that the gaming is controlled by the official body, but also that the tax income will benefit the U.S. citizens and not some foreign broad operator. So that's very positive. We can obviously see that some states are coming along earlier. Some are still dependent when the date will -- for launch will be, and I will come back to that on a bit later in the presentation. In the meantime, what we're doing is that we continue to invest in the U.S. in order to ensure a good dominant position also in the future. A key thing now with us running at the amount of sites we do is to make sure that the cost will update our content on these sites because good content drives good revenues. And we have recently decided to launch now an artificial intelligence-generated content product that helps us to magnify the amount of content created each day a lot, meaning that we can increase the amount of content on each side, but also we can also support much more sites for future states without ensuring that we have very good ranking pages. That will help us a lot to a stronger position than our governance we're seeing today. We're also looking at different solutions like how we can acquire more people from different kind of media channels. And one thing, of course, is that there's a lot of app-based data -- sports data-generating sites out there that are following everything in terms of American Sports. So for some of our sites, we're complementing them with apps in order to capture a larger part of the mobile channels, which also we're going to launch during the middle of the quarter -- sorry, in the middle of the second half. In terms of staff, we're continuously investing. We have onboarded new staff basically every month now the entire year. What they do is, one, to ensure that we're keeping the momentum up in the states we are, but also that they're securing good ranking sites in states about to launch 18 months ahead from now and sometimes even longer. This is to ensure that from day 1, they go live. We can benefit from the revenue there. One thing also we need to consider now is, of course, the euro has increased value in terms of exchange rate compared with U.S. dollars, and obviously that is impacting us a bit this quarter. But on the long term, of course, we foresee that, that should balance and not be a long-term impact for us. So next slide, please. If you're looking at the rollout, we always provide a slide for those who wants to have a bit more detail. But what you can see here is that, first of all, Colorado, in terms of sport and live in May, so that will benefit from when the NFL kicks off. Then we see the Michigan, which we believe are quite close to launch, but it depends a bit. We're hoping that can launch during this year late, but it's most likely not -- after running for the NFL kick-off, but later in the year. And so also, we see some potential revenues in Q4 coming in from that, that we didn't originally plan with. Other than that, we see Tennessee that are most likely going to launch in the beginning of Q4. We hope that it will be in time really now for the NFL, but we're not sure, but it's very near. And of course, that will be benefiting us as well. And then in the late 2020 or beginning '21, we foresee that Virginia will come onboard for sports as well. So all in all, what we can see is that we have a good momentum in the states we're in. We're waiting for the NFL buildup. And on top of that, during that part and later in the year, but especially pent-up good for 2021, we see a much larger reach in U.S., meaning that we foresee a continued nice, healthy growth in the U.S. for a long time forward. Next slide, please. So if you look at the outlook then for second half, we believe, as I mentioned, that the sports peak season starting from late Q3, as I just explained, and we believe that, that can be a very nice trend for us, ending the Q3 in style, but also starting Q4 in the same way. We see a good growth trend for our core brands in AskGamblers in Japan. Basically, if you take away the peak they had from the COVID business, they are on a month-to-month nice growth trajectory. So we're doing good business with them and, of course, was incrementally helped by them during the market shutdown in April and May. So we foresee them to continue to grow slow over time, especially in the Q4 onwards where we have the peak season. Casino in general, as I mentioned, a bit more back to normal after the COVID peak. And in times like this also when we see that we have markets that are, in some cases, are challenging by the pandemic, but also, we also see opportunities in new markets where we've been in, we've been working a lot to try to expand our different brands into new segments or new geographies all over the world. And one thing was that, actually, as of today, we are live in Sweden with AskGamblers as a tenant to make sure that we can provide that for licensed operators in Sweden and give a good, healthy explanation about how the casino market works and benefit from the typical good features we have in AskGamblers. Our Bettingpro product, which was also launched in LatAm during last quarter, we are also now preparing that to launch it in one market, which among one is the Ukraine market soon to be regulated, which is good to grow in that part of the world as well. On top of that, we are having a lot of other interesting projects that we'll announce once they are about to be launched. One thing we talked about a long time that was a bit pushed away because of the COVID and the focus on maintaining revenues was the restructure of the sports segment, the legacy sports business in Europe, which actually was not stopped. We've been working on it. Hence, you can see the launch of Bettingpro into new markets and a lot of activities going on in the background. That continues and will continue to gradually improve figures during the year and during next year as well. As I mentioned before, we have a lot of ongoing investments into U.S., as already explained; into Asia, where we see, especially Japan, has seen a very nice growth potential in the coming years, which we want to benefit from; but also into Latin America, where we're starting to see the right trends in our core data points going forward. So all in all, I think it will be very exciting second half for us, but what will be different compared with last year is the revenue seasonality buildup with all the things that I mentioned. We believe that we will have a very interesting second half with sports in the U.S., a bit later than normal. We also believe that, at the same time, we can see sports really start to grow back in Q4, et cetera, while we're doing the best we can as normally to continue the growth trajectory of our core brands like AskGamblers and our Japanese business. So all in all, we believe we have a good portfolio of growth drivers for us here for the second half, but also to the trading kind of satisfying start of the new year as well. Next slide, please. So based on that, the key takeaways to summarize is that we recorded a very good quarter in terms of basically all KPIs here. It was the best quarter ever for U.S. Despite the absence on sports, the casino business was extremely high and helped us a lot as a lot of other segments went down because of pandemic. So all in all, a very good influx of incremental revenue through that. We have worked very hard, as also shown by Peter, to control the cost base. I mean coming up to quite nice cost efficiency now for quite many quarters back. And that even though with that, we have continued our investments. So we have a money outflow needed in future businesses and still manage to control the cost very good. We managed to complete the rights issue, which not only bringing down the debt level, but also we cleaned up the balance sheet in very good way. So in terms of company profile, we're in a much healthier state today than we used to be before. And as I mentioned, we started Q3 very nicely with a 7% year-on-year increase, and we're looking forward to what second half can bring to us in terms of all the issues I already mentioned. So all in all, I'm very proud of how we managed to conclude this quarter, obviously, with record numbers, and we are geared to basically attack anything what the market send towards us also going forward. That's it from the business presentation. Will you just change to the next slide, where we go through a bit of the key events and upcoming events going forward, just to summarize them. We have the report for the third quarter planned for and booked for 19th of November. Further than that, we have a year-end and Q4 report booked for February 24. And then we will issue the annual report on March 29. So based on that, I hand over to Q&A, if that would be any questions from the forum for us.

[Operator Instructions] First question comes from Erik Moberg, ABG.

So first question, what is the net debt on a pro forma basis after the first subscription period here of the warrant?

Yes. On the warrants, we haven't commented on that because, given on what happened during the first exercise window, which was 10 days after our 10th of July completion of the rights issuance, we have not seen those proceeds. But the warrant as we released in the press release translated into a cash inflow of roughly EUR 7 million during the first exercise period. So that you can consider, of course, on my respective Slide #14, to further improve the net interest-bearing liabilities, plus further, of course, the continuing business from a cash perspective. We also repaid, from our cash balance, of course, the EUR 49.5 million of the existing bonds, but this doesn't further change our net interest-bearing liabilities position, given that we just reduced the debt side and the cash position at the same time. As of tomorrow, the second warrant exercise period will start for another 10 days. So it is hard to say what we would expect in terms of warrants exercising, but we will, of course, report that to the market as soon as that exercise window has closed again.

Okay. Fair enough. And in regards of Europe, did this part of the business actually see growth during Q2? And if we look for the remainder of the year, do you expect that this part of the business can come back to growth? Or should we expect it to be more flattish on a year-over-year basis?

I think we need to break that down. There's quite many impacts in when we summarize Europe. Will sports grow back? Yes, absolutely. We have more series on the way. We have been quite scarce on sports events in Q2, especially as most major leagues has been playing. Of course, now so far this month, we have a lot of leagues now on post just to restart soon again, and Q4 is looking to it. If you then look at the basic, I'd say, the legacy business in terms of casino, we foresee some of those sites start to go back from the Google update, while some did have no impact and are slowly growing. I think also here, we believe that we will see a nice impact to that also the later in the season ago, which is typically closer to come to Christmas, the more seasonality positive impacts we have. When it comes to AskGamblers, which has a very big global spread, we see good trends from that coming out now. We believe that it's more normalized now compared with the peak, but still it's growing very nicely compared with last year, and it's continuing to show good numbers and growth and the same kind of trends we see from Japan, which is not a legacy business, but still helps us. So all in all, we see that depending on the business units. Some are a bit more flattish, while some are projected to increase as time proceeds.

Got it. And if we continue to look into 2021 here for the legacy business in Europe, we have the Dutch regulation that continued to play during the fall. How much is [ clear ]? Or do you think that this could actually add growth for the legacy business?

I think there are a couple of things happening in Europe. First, we need to remember the impacts we've seen in Sweden and whether that will proceed or not. Now we're not particularly large in the Nordic region, but still we have some. After that, Germany is counter regulated, where we know that will have some impacts, but also deductions coming up. What we further then do more is that we are also adding our presence in more European markets where we haven't been predominantly large so far. So overall, our aim is not to reduce revenues, of course, in 2021, but rather gain them. Exactly what market and by when, I can't tell you right now because we can only announce once we've done those actions. But all in all, considering that in some markets, we've actually not been very good historically, but we're becoming better. Hence, we believe we can not only launch in a new market, but also increase our share in certain markets. So that's why we believe that we can do a lot better jobs in legacy business in the European market as such, plus in that all the other incentive work or kind of things we do in U.S., LatAm and elsewhere.

All right. So all things equal, looking into 2021, we should see this as a growing business.

Our legacy business?

Yes, exactly, your legacy business in Europe. We should see this growing business into 2021, all things equal.

That's what we're planning for.

Yes. All right. Fair enough. And in terms of the U.S., could you perhaps elaborate a bit on the CPA levels versus 1 year ago?

Yes. There are no changes in CPA levels. Of course, the mix is a bit different because we know that about a year ago, Pennsylvania started, which is due to the very tax scheme there comes in with a lower CPA. But if you look at the amount of -- or charge we can do today in any state, it has not decreased at all since then. And with more states now coming in with less taxation on the route, we believe that our average CPA, even though that there are more states further into life cycle, we don't foresee them coming down for a while because states opening up. There's a lot of operators there fighting for whatever traffic we can get. And with a larger part of our revenue coming from states with less tax regimes than Pennsylvania, logically, our income by customer had a potential to increase, if not just stabilize on very high levels as they are already. We have to remember that CPAs for casino, for example, is 3 to 5x higher than Europe for any customers. So with new states coming in, it would represent quite many million people. But also the fact that our penetration so far in existing regulated states are still very low, we believe we can have eventually a good growth journey for '21 as well, but especially thereafter as well as if some of the super states like California, Florida or New York are about to launch or whenever they're about to launch.

Got it. And just in regard to the competitive landscape in the U.S. within affiliate. If we compare the overall market versus 1 year ago, have you seen any changes? Or as it -- would you say that it has remained relatively the same?

I think everybody is fighting, of course. And rightfully, everybody should fight for this market because there's an extraordinary incremental revenue opportunity. When it comes to affiliation, it's all about ranking good sites. And historically, in Europe and elsewhere, there's been a lot of people having a lot of sites ranking in those states. And if you cannot beat them, you typically acquire them. The U.S. is a bit different because a lot of states where there are no traffic so far or regulated, there's been very few sites running. And we are in the good position that a lot of sites that are ranking are ours that we started a long time ago and are investing quite heavily in to make sure that we rank well, together with some other competitors as well. So our view is that on this states about to launch, we have still a very good market share of the word -- keyword ranking in those states, and we're doing a lot of investments to maintain that happening. So we cannot comment on the market share we have in U.S. today. We, of course, have quite good idea on what that is, but we're still maintaining a very dominant position in the U.S. markets as of today and plan to do so in the future as well.

Next question comes from Hjalmar Ahlberg, Kepler Cheuvreux.

Maybe a comment on the July growth here. I mean you [ outlined ] a bit and said you were up [ 7% ] last year and up from June and July as well. But can you give some more flavor on how to see this compared to last year? Because I mean last year, you had, I think, Italy impacting negatively from the marketing bans so that should have negative effects. So I mean it was July last year. So weak months, so if you compare last year, but of course, maybe we got June when we were up this year as well. But maybe just some flavor on how to think about July and Q3 as a whole.

Yes. I think to do a travel from last year to this year, you pretty much need to go through every revenue line as everything is completely different. We have to remember that the Italian business last year, yes, it was down. But as you remember, it was not -- we cannot -- major part of our business still planned for that season. But if you look at it, A, so what happened with casino compared with last year? This quarter, we are more or less in legacy business more or less in par, while AskGamblers in Japan doing more. But then we also know that in July, the sports revenues in U.S. have helped, but they're not very large so far. Everything is waiting for NFL in that case. What has been the thing that has basically put us down is a bit of the sports, of course, compared with last year, the legacy sports. So the growth has been driven by the core casino products to help up the result compared with last year. So that, in total, is driving more revenue for us than before, while the total sports segment is down compared with last year due to no reasons.

Okay. Got it. And I don't know if you can comment, but I mean how important is the NFL starting or being delayed into Q2 and Q4? Is that like minus 10% on a quarter? If you can have any comments on that.

No, I cannot comment on that. But obviously, as you can see historically and as you can imagine, the key thing happening, especially this year in U.S., will be the NFL kickoff and the coming games here, especially what they're going through now. According to our investigations done, we can see a lot of people waiting for that. So it is, of course, important for us. And as we said, it's very difficult to see what it mean and what time it means, but it's really incremental for us. So -- but I cannot comment about the percentage.

Yes. And going into Q3 and then the second half of the year. In Q2, there was very strong profitability, but you had some various cost being lower and also some OpEx being lower as you didn't invest in content and sports betting and so on. How is it going to Q3 and expect that you will invest more in both direct cost and other OpEx? So -- and then profitability-wise, I guess, it will be tough to keep the level seen in Q2.

Well let's see. If we start with PPC, there are a couple of things impacting here. First of all, the reason why we didn't invest in that in Q2 was because of the lack of sports demands. Of course, you don't like keywords for that. So that is the same, obviously. When it comes to casino, we did some investments, of course, but was held back sometimes because there was a quite big demand for PPC clicks during the time as a lot of sports were down. So everyone wants to benefit from casino, meaning that the margins possible estimate from that segment were lower than normal, and we want to prioritize profitability than growth. So hence, we held it back. How do we then foresee this for the quarter? Well obviously, now when more sports coming up, logically, there will be more things to buy. When it comes to the pricing of that, we have to see how things plays out in different markets. If the margins are good, we will increase the spending, which then also would reflect on the revenues, of course. If not, we will hold back, which might reduce the revenues a lot, but on the other hand, improve profitability. So I think we sit with a good hand here that we can very much decide that. And the good thing with that is because the search revenue as such is quite healthy for us now. So if we believe we can add some and have a good margin, fine. Otherwise, we won't do it. But that is all about what's happening now with the sports and how things spins up. So it's just -- we're sitting with a lot of different strategies how to kind of focus what to do based on that. When it comes to content generation, yes, we are increasing that level, of course, in sports as it grows. But I -- basically, I would say that the sports revenue is more or less projected to grow percent-wise more than the cost will. So if we invest those costs and the sports coming up to the kind of same levels, that investment should not decrease the margin as such.

Okay. Got it. And maybe a question on the Swedish market, the launch of AskGamblers. I mean, we do this now with the changed regulation. Did you see a lot of players being -- wanting to term and change operators because of the deposit limits? And do you see more need of an affiliation in Sweden right now? Or is it just the timing was not related to that?

Well I think, in general, we see some markets like U.K. and Sweden being quite aggressive and that -- or that's advanced in regulatory issues. We need to learn that because we know that a lot of markets probably during the future will follow. Even though regulation, Sweden is a very large casino market with a big turnaround of casino players. And being able to support them in their own local language and also from us to learn data points how they behave, I think it's extremely good knowledge to have also future markets about go the same path. So one thing is, of course, to localize the business to give better services to Swedish payers. The other thing is to gain a lot of knowledge from that going forward into new markets.

And we have a lot of Swedish traffic on AskGamblers before this language change. Or would we expect that to increase a lot with the new language?

Well we have to see. Typically, launching new talent won't explode your business over day. It's something you gradually build up because you also need to learn, from our side, how to better treat them in their local language, et cetera. But if we didn't fought, it will gradually increase. We will, of course, not do it. So we are hopeful that we can expand our business in that terms in Sweden through this.

Next question comes from Mikael Laséen, Carnegie.

Yes. A couple of questions. First of all, on the cost development in the second half, you mentioned and commented on the direct costs as well. Can you also update us on the personnel side, what do you expect?

Yes. The personnel side -- yes. So as I mentioned during the first half of the year, but in particularly since the start of the pandemic, we have been freezing our holdings through development given the uncertainty, which is reflected, of course, in the numbers that you see for the entire first half year. Given that we are a growing business, it doesn't make a lot of sense to not further invest into it, the main assets that we have, which is our employees driving our businesses in the various parts of the world. So what I expect now gradually on the personnel expenses during the second half of the year, and Per already mentioned on that, we have been recruiting people pretty much every month. But it may be more of a way -- the more we see, and particularly in those markets like the U.S. and further states are coming up, and we start to prepare for really taking these benefits very early on to increase personnel expenses towards the end of the year. So we will be higher than on an average personnel expense that you have seen in the first half of the year, for sure. The same is true a little bit on the other OpEx as well. We have been particularly low now in the second quarter. I expect that we go up to a level of pre-COVID that you have seen in the first quarter of this year, but certainly not back to levels that you have seen during the last year, given that we made certain cost transformation and savings measures since last year in that area. Direct costs, Per already commented on that. So we see, of course, this continuous transition from what we have continued to see also during the last year, if you take a look at those quarters and the amount of revenue that we made from -- paid revenue that we made from those investments. So those are certainly not in any way close to what we have seen during the previous year, but we will further evaluate where we see a very good return on investment as long as we are not jeopardizing our margins in that respect. But we previously said that our direct costs always played out in a range of 10% to 15%. I believe that, that is too big of a range. I would expect something more like in the lower part of that range. But again, it is following the business opportunities that we have, new states in the U.S., sports again, et cetera, et cetera. All in all, you can expect that our cost base is not necessarily increasing in comparison to what you've seen during the last year, so I would assume that we are improving our margins, of course, during this year.

Great. And it would be great also if you can comment on the revenue generated from the U.S., approximately your exposure cut to those markets.

We haven't gone out with that number for a fair reason because the volatility is so high for month-to-month. And I think we, later in the year, have to see how that is doing on a kind of combined version. So as you can understand, in Q2, it was very high compared with normal. And I see now, for example, in the beginning now on the third quarter, it will be much less only to get back to higher amounts in the end of the quarter and then in Q4. So we have avoided to comment that because it's extremely volatile and changing all the time. But obviously, it's -- was much higher than the previously announced 20% of our total business in Q2.

Yes. We're thinking more about the revenue trend 12 months or 6 months rolling, for example. I mean, of course, monthly revenues or, of course, highly volatile. Okay. Fair enough. Yes. When -- so if you also can comment maybe on the -- how much of your U.S. revenue is generated by New York and Pennsylvania. I would assume that those 2 states are quite likely dominating your activity for...

Yes, yes, they are. Because if you look in general for the states we're active in, if you're looking by size, obviously, New York and Pennsylvania, we have both sports and casino, which is big. Then we have Indiana, of course, but in sports. And we have then smaller states like Rhode Island, et cetera, which is quite small in terms of that. So they are definitely dominating. And the good thing we see here is also that, for example, in Pennsylvania, even more operators coming in now, we won't have traffic. So we still see a very high demand from our services there going forward. But that's why also we're looking forward to a couple of larger states coming in now being really active now with Michigan on the way, et cetera. So we get a better balance there and not only living by the increased penetration in those days you mentioned, but also that we get further state by coming in from scratch and gradually buildup. And hence, we are very positive about the future growth trends we see in the U.S.

Okay. Which states in the U.S. are you most excited about?

I think it's hard -- there's 2 different things. Even if you look in New York and Pennsylvania, you still have a quite low penetration. So we foresee a lot of growth coming in for several years to come. Compared with penetrations like in the Northern and Central Europe or Western Europe, they're far from there so far. It's still in the beginning phase. So that means that even in the active states, we have a lot of positive to do. Of course, if I look now forward now, Michigan for me is something that is really tempting because of the size and the culture of gaming in that state. So that will be interesting. But then there's a lot of, of course, in all the other states, cooking to become next to like Illinois, et cetera, which are also extremely nice state for us to go into. So it's -- we have more than 1 favorite, if you put it like that.

[Operator Instructions] We have no further audio questions. Dear speakers, back to you.

We do have a question through e-mail. And it's, "Do you think you will benefit from changes in Sweden?" I think Per will take it.

You can look at that in 2 ways. In general, will the gaming industry benefit from the change in Sweden? Predominantly not. But on the other hand, this is the future we're facing, stronger regulation. The question is, therefore, how we will adapt to make the business. Clear is that in this situation, historically, we see that people search for more information to understand where they can get the best services, et cetera, which is quite positive for us being in that part of the world in terms of our business model. Furthermore, considering that we have been quite small in Sweden, because we haven't focused that much on product development there lately, as I mentioned, we want to do -- give that market better services by our key brands we have, but also the fact that pick up a lot of data points so we can learn from that for other markets who would about to go through the same. So all in all, I would say that, over time, I'm feeling that we can do a better business in Sweden, both in terms of revenue, but also from an operational point of view and data management point of view.

Thank you. No further questions by e-mail.

Okay. I think that then concludes. On behalf of myself and Peter, I would like to -- thanks for your attention. Looking forward to speak to you again on the next quarter report, if not before. Thank you very much.

Thank you very much.

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.