Catena Media plc (CTM) Earnings Call Transcript & Summary

Hello, and welcome to the Catena Media Audiocast and Teleconference Q3 2020. [Operator Instructions] Just to remind you, this conference is being recorded. Today, I'm pleased to present CEO, Per Hellberg; and CFO, Peter Messner. Please begin your meeting.

Thank you very much, and a warm welcome to this Q3 presentation from Catena Media. Next slide, please. Our ambition today is to go through an interesting hour together where we go through, first, the Q3 results and details about that; but also then update you on the recent strategic review we have done, where we'll also come up with some more numbers about our future plans and financial targets. Our agenda today, as you've seen from 2 quarterly reports, business highlights and financials made by Peter Messner, and I'll come back to the outlook, as such. Next slide, please. This quarter brings a lot of different numbers, and I think different is the name how we internally and, I think, also external when trying to communicate this quarter. Obviously, the world is quite different from what we're used to. And what we experienced in the second quarter was a different quarter where we had a massive boost, especially in the Casino business, when Sports was down, then predominantly from U.S. and especially social casino. We had a big boost of that. At the same time, we also had very little [ live event ] activities, but in the end, we could do a record quarter. This quarter turned out very different. We had a good start if you look at the first month, but then, we couldn't really catch up with the later part of the quarter. Why was that? Well, it's basically coming from the European region, where both Sports and Casino was performing less than we thought it could do. And I will come back to that during this presentation. So if you look at the result as such, we see the total revenue down 6% compared with last year. But if we look into a bit more about the organic growth, what we've done is to establish ourselves. It's also down by then 3%. The reason for that downturn is even though U.S. and Asia are up, we have the European business being down. We also have, considering the size of U.S., an unfavorable ForEx situation in third quarter compared with previously, also impacted the result negatively. What brought down the total revenues more was the fact that we actually spent less in paid advertisings, or the paid revenue turned less during the quarter, mainly because of a few events to bet on, given that Sports were not yet full in -- back in full swing. Now if we then look at other things in the core numbers here, we see that we managed to improve our margins to 48% from 44% last year and that we went down in debt leverage from 3.42x last year to 1.32 this year. How is that possible? Well, obviously, we operate in a much stable business today. We've done a lot of actions to stabilize the cost base on the company and cost that will bring it down and improve efficiency, which are actually allowing some shifts here, resulting in increased profits this quarter to -- compared to last year by 4%. And I think what is important to bear in mind here that this is still -- even though we have invested quite considerably higher amounts into both U.S., Asia and Latin America, and still, we managed to generate more profits. Next slide, please. If you look at the business highlights then for the quarter, so what was the building blocks for this? And where do we have our concerns? Because obviously, this quarter did not play out as well as we want to do. And I would like to explain why that is. So first of all, we saw that, of course, Sports started to go back in the third quarter. It's not yet back to the levels where we originally thought it would be, but it's steadily increasing. I think something that we see here from [ the most ] peers in the affiliation and lead generation businesses that our trend trajectory is a bit different compared with operators. Once the business starts over again after market opening up, what we've seen is predominantly rev share activities faced by existing customers, while the new acquisition has been a bit slower. That's why we see our kind of trends not really correlating 100% to the operator trends. But when looking at our performance then for the quarter, we had a thing where we mentioned in the second quarter that was the Google update, where we initially didn't see a lot of a negative impact. As time grows but also after some further actions made by Google, we could actually see some sites being negatively impacted and especially in Germany, in our case. We saw in some other areas also, traffic going down. But on the other hand, we also saw deposit levels going up from those customers [ remain ] and that it was non-wanted traffic, so to say, that disappeared. All in all, this made that for the quarter, in the middle of the quarter up until the last part of it, we had a negative impact on certain sites, which we rectified by a lot of actions. And we could then see by the end of the quarter and also now into October, those sites started to increase up again. I will look into about the less ad paid advertising and also then unfavorable U.S. exchange rate, which has a certain impact. What was interesting to see though that even though some parts, mainly predominantly legacy area and existing markets in Europe, we could then see the key building blocks of our industry where our business, U.S. AskGamblers and Japan, showing strength. We could also see Italy doing very well. So we have those markets really helping us to balance the short term and the shortfalls we see from other markets. In U.S., as predicted, we saw that the revenue would start a bit later, and the reason for that was the fact that the key betting event over there and revenue driver for us, the American Football League, NFL, started to generate business a bit later because there were no preseason games. On top of that, we had a delayed college football, meaning that the revenue peak started very much late in the quarter. In terms of other sports, we also saw that European sports, in this case, we had a German football starting quite late by September 19 in order them to come up in the end of the quarter in more full swing than it started. What we've done in the company as well is we haven't changed our focus on building a bright future. We have continued our investments into the key markets, as I also will come back to a bit later, being U.S., but also in Asia and Latin America, where we injected more investments compared to previously, also during this quarter. And that has meant, too, that we're feeling quite sure about the building blocks out -- to build the future for us. And hence, we're also coming back later to our strategic review and the financial impacts that I have to the company. Another thing we started with, which I think is super important for the future, is that we started to restructure our tech and R&D but also our data and BI sectors in the business, where we brought in a lot of new people and restructuring that because even though we have had good work output coming from that, we wanted to increase the execution, but also use that to actually drive growth faster than cost. And we have a nice trend coming out from there now, but especially, we'll benefit that from a long time ahead. So with that said about the business highlights, I would like to hand over to Peter, who will run through the financial highlights for the quarter with you, and then I'm coming back with the outlook.

We can turn to the next slide. Thank you very much, Per, and good morning, and a warm welcome to our Q3 results call from my end as well. Let's go for another slide to revenue and NDCs. So the organic search revenue declined by 3% year-over-year, and Per already commented on that, whereas total revenue declined by 6%. And as Per also indicated that the main reason in that part from the market is also the decrease in the paid revenue that's a 29% decrease versus last year because we significantly simply also spent less in direct costs, which contributed very positively to the improved gross margins. The paid revenue, as you see, increased versus the previous quarter by 33%, and that was, to a large extent, due to Sports having eventually returned after a very difficult second quarter, impacted by COVID-19. As Per also mentioned already, Sports is not yet back to the pre-COVID-19 levels as we expected, so we will see good progress there. The NDC has declined less than the total revenue during the quarter, and that's due to the stronger uptake that came from the returning Sports compared to a decline in the Casino segment. Versus the second quarter, Sports NDCs increased by 100%, whereas Casino NDCs decreased from really a peak NDC contribution, particularly from social casino as well from the U.S. in the second quarter. Let's go to the next slide, please, and take a closer look at our segments. Casino represented 64%; and Sports, 30% of total revenue this quarter, following a very different situation in Q2, as you understood, with a record high Casino share of 76% that we reported then due to the impact of COVID-19. The third segment, Financial Services, has been stable at 6% of total revenue. Casino normalized after the previous quarter's all-time high, particularly -- but not only in the U.S. And year-over-year, Casino only slightly declined by 2% after this peak in the second quarter now. With Sports having returned after Q2, the revenue grew by 49% versus the previous quarter, but again, it has not yet reached the pre-COVID-19 levels and therefore, has still been below previous year's numbers as well. When you take a look at the source of our revenue, the revenue split between what we gained from revenue share, cost per acquisition, CPA, and fixed fees, that has been fairly stable in its entirety. There was a shift from CPA to both revenue share and fixed fees versus the previous quarter, and that also has been mainly a result of returning Sports. Let's turn to the next slide and take a look at the segments and total quarter results then in terms of the adjusted EBITDA. So as you can see in the graph, the adjusted EBITDA for the first 9 months collectively is, in this year, is well ahead of last year. That's an increase of 23%. In Q3, our adjusted EBITDA grew by 4% year-over-year, while it declined versus the previous quarter, which again enjoyed a very positive margin due to the impact of a strong Casino performance and then COVID-19 lockdowns that affected Sports. Both Casino and also the Financial Services segments increased their EBITDA contributions as well as their margins. The Sports segment's EBITDA declined year-over-year, again, as a result of not yet having returned to the pre-COVID-19 levels, but it kept its margin at the same level as last year. And versus the second quarter, the Sports' EBITDA increased by 183%, quite tremendously. So all in all, the third quarter margin increased from 44% last year to 48%, and that's despite the slight decline in total revenue. Let's go to the next page, and let's have a look how the cost development that is, in fact, responsible for that margin increase has developed. So the total cost remained fairly stable as compared to the previous quarter and represented 52% of total revenue or EUR 12.9 million. The direct costs -- so we have 3 segments. The direct costs is the first one in the cost rows, steadily increased again during the quarter following the return of the Sports and represented approximately 10% of total revenues, slightly above first quarter levels, indeed, of this year. Despite our continued investments in the U.S., the personnel expenses increased only slightly versus last year, and that's the result of changes that we had in comparison to last year in the management structures. And there also have been certain accounting effects now between the second and the third quarter in relation to U.S. payroll and generally, vacation periods and such accruals there. The other operating expenses were kept on the level of the previous quarter, so fairly stable, saw a significant decrease versus the last year due to our reduced spend in, for example, outsourcing, marketing as well as office and travel-related costs and all due to the ongoing COVID-19 situation as well. And then again, as a result, our margin increased from 44% to 48%. Let's go to the next slide, please, and the profit for the quarter. So exceptional items, they account for a difference in our adjusted EBITDA to EBITDA. Now in Q3, such items amounted to EUR 200,000, and they were related to a reversal of overestimated expenses in relation to our refinancing. So there wasn't an income in that respect, to between EBITDA and adjusted EBITDA. Depreciation and amortization charges have been decreasing. In fact, they have been steadily decreasing since roughly the last quarter of last year as a result of previously acquired assets that have been fully amortized by now. And also due to certain office lease terminations in the summer, we recognized further reduction in amortization charges. And as a result of that, the operating profit increased, including our improvements, of course, on the EBITDA side by 22% to EUR 9.4 million this quarter. Interest payable on borrowings, that relates to the existing bonds and our revolving bank credit facility. And going forward, such interest will further decrease due to the repayment of those borrowings, which I will talk about in the next 2 slides. And at the same time, there will be interest in relation to the recently issued hybrid capital securities that will be added, and we had a first interest payment that occurred now in October. Other losses on financial liability, I commented on that during the first quarter and the second quarter calls as well. They relate to the change in the fair market valuation of our existing bonds, so it's purely an accounting treatment. So last year, in Q3, there was a significant gain, as you see here. And this year, there was a loss, and that is purely related to the fair market value of such bonds. It's important to note that these valuation movements, they do not have any cash flow effect, though. As a result, the profit and the earnings per share were affected in that respect negatively by that just mentioned revaluation loss. If you were to take that negative impact of the revaluation of the existing bonds out of this quarter and also the positive impact out of last year's quarter, the profit for the quarter would have increased actually slightly. Let's turn to the next slide then and talk about cash and our very strong cash position. The net cash generated from our operating activities decreased by 9%, but it has been negatively impacted by EUR 800,000 in tax payments, where the comparable tax payments only occurred in the final quarter of last year, so it's not necessarily a like-for-like comparison in that respect. As a result, the cash conversion was 70% below the peak in Q2 but, overall, following the seasonal pattern as was seen during the last year as well and as you see here in the graph on the left-hand side. During July, we had EUR 49.5 million of the existing bonds that were prepaid to the bondholders, and that was a mandatory prepayment that I talked about during the last quarter result as well, following the amended terms and conditions of the bonds that we agreed on in June this year. Also during the quarter, EUR 5 million of our revolving bank credit facility has been repaid. And in addition, following the rights issuance of our hybrid capital securities in June, the remaining cash proceeds that came in amounted to EUR 6.2 million. They have been received during July. And EUR 7.4 million in cash proceeds have been received from the exercise of warrants during the first 2 exercise windows that we had during that quarter. So as a result, our cash and cash equivalents amounted to EUR 45.4 million at the end of the quarter. Let's turn to my final slide and take a look at the company's debt position. So as mentioned on the previous slide, debt has been heavily reduced during the quarter due to the partial prepayment of the existing bonds and the repayment of parts of the revolving bank credit facility. The net interest-bearing liabilities amounted to EUR 67.4 million, that Per also mentioned on his first slide, at the end of the quarter, which is a significant improvement as compared to last year's EUR 150.8 million, and of course, the result of our successful refinancing that occurred this year. The leverage ratio, which is the net interest-bearing liabilities over adjusted EBITDA, amounted to 1.32, again, improving from the 1.68 from the previous quarter and, of course, considerably improving versus the last year. And we are continuing our trend towards 1.0 in that respect. Looking a bit ahead into the fourth quarter, what we already announced, we will voluntarily prepay EUR 6 million in nominal value of the existing bonds, and the entirety of the existing bonds have an outstanding nominal value of EUR 100.5 million. And we also will repay the entire remaining balance of EUR 7.5 million of the revolving bank credit facility in December, as has been agreed with our banking partner. If you take a look at the balance sheet, you will see that these 2 items together, the voluntary prepayment for the bonds and the entire repayment of the revolving bank credit facility amounting to roughly EUR 13.5 million, they are stated as borrowings in the current liabilities, and so that just impacts the working capital movements here. Both measures will, of course, further reduce our debt, and as a consequence, the interests that we are to pay going forward. And with that very promising look at our reduced debt levels and the further improvements I talked about, I will hand back to Per, who will continue with the outlook and our very bright future. Thank you.

Thanks, Peter. So next slide, please. It's time for the outlook, and therefore, we jump yet another slide to the U.S. update slide. When we're looking at U.S., we are currently live in 9 states operating traffic, and obviously, it has been a very positive journey for us since the company acquired its business over in December 2016. So we're coming up to about 4 years of Catena-controlled business in the U.S., which have taught us a lot, but also then, because of that, makes us now, with the latest trend, better simulate and protect -- simulate the future for us and what we believe that could bring. Hence, also later, we're coming back to the strategic review. When it comes to this quarter, obviously, I've been through the reason about the revenue build up. That was a bit later than originally when compared to last year. We also saw that some markets, in this case, had a big bit of a kind of hangover like Pennsylvania because last year was the first NFL season. Now it was a bit different. Yes, there were more operators, but in general, it didn't perform as strong as it was like, like for last year, for example. Even though that I mentioned that social casino went down, it's still larger than it was last year. That's because of the COVID situation. We managed to maintain some of those customers who wants to -- the land-based casinos open up, they could maintain in the customer base and provide a continued value for us. The good thing also was that the state has recently launched -- has shown a good process, but we also saw that we had some additional states opening up in the quarter where we also had, for example, Illinois, short-term open up, not that many operators available to launch that quickly, but it helped building incremental revenue for us. And as we state here is that U.S. in the third quarter represent 30% of our iGaming business. And in that case also, that brings us up that we are according to our understanding and measures that we are the dominant #1 affiliate in the iGaming industry in the U.S. today. So if you look at the next slide, please, which is the U.S. short-term rollout. Here is a slide I've always show you to better understand how and what markets that are online and what we see ahead of us with some comments to make your understanding of the U.S. rollout a bit easier. We see here in what states that affiliation is okay to perform, and we see also where we are live. For the trained eye, we can see actually that we marked, in this case, Iowa, which actually is allowing affiliation, but not yet for registration. But here, we're doing a trial where we're actually sending traffic to land-based operators where they can sign up on our page, we send them on to do land-based business, and we charge for that. So that is something we're estimating to be an incremental business for us in states not yet going live on online days. So if you look at that, the buildup of states, if we look at the states that are coming, how do we foresee this to play out? What's around the corner for the short term next year, but also the longer term? Let's change to the next slide, please. Here, we try to put together and show you a bit about the potential. So currently, if we look at it, the states that are up and running today, those states represent 39 million in population. Of course, we foresee a big trend of continuous reach into those markets because online gambling is still a reasonably new business there, and we see that the penetration into those states continues. So we will foresee continued growth in those states. But if we then look what we see here to be launched within this quarter even but also up until the end of next year, we see states coming onboard that represent almost doubling or actually more than doubling than today's penetration. Timing for those, in some case, are unclear. Everything is in the works. But we also know [ why it's ] by the history that it takes some time until some states get their act together, while some states also sometimes are launched earlier than planned. So all in all, we see that there's a great injection of our upcoming business next year. Then we have about the rest. What do we foresee on the long term? Well, we try to split them down and showing you a bit where our focus lay as well. We have the giant states, which are New York, Florida, California and Texas, together representing almost 100 million in population, most likely come online in very different stages. But as you can see, it's, of course, not to be neglected in terms of general post-COVID kind of revenue generation. Hence, we are preparing many things for those states already even it can take many, many years ahead. But then also, we have a set of states mentioning at this, I'd say, what we call larger than farther, but those are all states with more than 5 million population that together represent close to 90 million. And then in the end, we have the smallest states, 1 million to 5 million people, about another 40 million. What we're trying to show with this is that an incredible potential in the U.S. Timing is not known, but for sure, the potential is there. And if we look at this, basically, we foresee that based on the history we have in the data collection, revenue and performance and player value, we foresee that maintaining our dominant position. Even though that we foresee payments per player over time, long term, probably going to decrease, but with this incredible potential, we definitely see U.S. to have the potential to -- revenue just same or even more revenue than the entire Catena Media does today. So the potential is there. We're in it. We know how it works. And therefore, I think it would be very wise then to put that into numbers, what that means for our shareholder long-term base, what you could expect and the market can expect from us. Hence, we have done and performed a strategic review. So if we kind of switch to next slide. During the autumn, the Board and management of the company has spent considerable time to look through the strategy going ahead. And I am happy to inform that we haven't changed the strategy that much. But what has become very clear is that the focus points we looked at, meaning U.S. will be the core driver, with continued investment in Asia because we see nice growth trend, high player values, big demand from operators. We will also increase to take early strong positions in Latin America, where the player values aren't as high as U.S. and Asia right now but growing fast, and we're seeing a very high increased demand of that, and we also know that especially Brazilian market has a bright future ahead. We have, therefore, continued to invest in those that we said we're going to do. We have also worked very hard with our cost structure in the company. And for the economic's existing markets in Europe or some being called legacy markets, the work continue there actually to turn them around. Now the COVID came in between a bit, which had -- and made us refocused a bit short term to maintain good business. But the works has really restarted again, especially looking at what we do for the Sports to take out costs and at the same time reinvest where we can to grow nice margins out from that business. All that in together means that the financial targets for the group, official financial targets, remains unchanged. So we want to establish a profitable double-digit growth on an annual base. We also want to operate in a net interest-bearing debt versus adjusted EBITDA of a range of 0 to 1.75. As we already informed earlier, we are below that threshold today. We are kind of operating 1.32. If we look in that, what this kind of action should bring to us, based on the proven data points, the revenue generation from predominantly U.S., but also Asia and now also Lat Am, we can easily model the predictions ahead of us and put a number to it. If we then look at that, means that based on these things and what we're trying to do in terms of investment, we foresee in the period between 2021 and '25 to be able to generate a cash in the increment of EUR 300 million to EUR 370 million. What are we going to use that for? Well, we see a combination of things. We are not looking away from acquisitions. We will definitely positively study acquisitions if we believe that, that will add more value to us and our shareholders rather than investing into our own business. Currently, we don't look specifically to anything. We rather look specifically to the great potential we'll have in the U.S. and the other markets because the return on investments for that we see is much stronger than acquiring something at high multiples. But interesting here, we also foresee to use the cash we generate to potential share buybacks but also in terms of allowing dividends going forward. And as we mentioned here, the Board is currently looking into eventually propose a dividend, [ the quarter ] as soon as in the later part of next year of earning from SEK 0.65 to SEK 0.75 per share and quarter. So with that said and what everything we're doing, we're very excited about being able to communicate this because it proves that the investments we have done, the focus areas that will turn around this business and generate revenue growth is already performing well. What we now is doing is restructuring the business that are somehow holding back the full potential to coming into a normal phase and actually has to start -- at some time to start to generate positive outcome on that as well. So all in that, together with the refinancing of the existing bond next year, we believe that we will be even stronger and well-positioned company that we are today. And also last year, we've done a big improvements from very high debt ratios to controlled ones now. And a good underlying fundamental business growth in the business based on the core markets I explained, we feel very confident that we can hit those long-term targets as explained on this page. Next slide, please. So the key takeaways of this presentation is the fact that, yes, we have a short-term revenue disruption, but because of explained reasons and controlled costs, we could still increase our EBITDA, adjusted EBITDA and margins as well. This, even though we see that Sports is not yet back for explained reason. We see now that it's coming back to again -- the states also come back a bit more of what we see in the operating market, even though we foresee us not growing as fast in terms of Sports initially as they do. We previously seen the negative impact of casino sites, but because of the work of a -- our own work to mitigate the Google update, but also the fact that we see the player behavior returning to more normality, we see that business segment will start to come back to normality, especially Europe. U.S., I've been through. Debt level, we've talked about. And we continue to operate very strongly in our core market here, U.S., which is allowing us to go up with, what we believe, a very positive financial future for the company, as I discussed in strategic review. So with that said, as the quote says here, yes, we have seen short-term disruptions, but we will not change our long-term focus. On the other hand, we're actually more confident about the long-term business now than we ever did. So with that, I would like to shift to the last slide of this presentation, just to remind you about the upcoming events, which is the year-end report on 24th of February. And then we start to present the first report of 2021 on the 29th of March. And then you also see the AGM date that has been set. That's it for me and Peter, and we'll now open up for questions.

[Operator Instructions] Our first question comes from the line of Erik Moberg of ABG.

First one, your peer BETCO reported similar organic numbers, and they guided a strong start here in Q4 with double-digit organic growth. Do you see the same pattern? Or is your business behaving differently?

I think our distribution, our revenues are quite different. So basically, as I explained, with Sports growing back faster, if there are larger Sports in your portfolio, you're probably going to go quicker. We have decided this time not to go out with a number because we did it in Q2 report because we're in very, very different quarter. But in the end then, we saw the quarter coming in differently. What we see is that we see a growth trend compared with Q3 now going into Q4, but the exact details we will not inform this time because we know that we cannot even predict really what next week will bring to us. So not to show too much guidance, we've decided not to show this, this time.

All right. And in terms of U.S., is this part of the business having a good start or no? We're all interested in hearing how U.S. has started given the strong data from the U.S. In Pennsylvania, for example, tremendous growth. Does that state -- does PA started good on a year-over-year basis for you as well?

Well, I cannot go in and comment specific states and months. But as we explained before, I think what is always important to remind that as we are 100% CPA company in the U.S., we don't have any rev share yet, as for previous explained reason that we believe that currently, it's much better to do CPA. If the hand goes up a certain month in U.S. state does not correlate to our revenues. We see -- as I mentioned, we had a late start of the quarter in Sports, this new review that we will push something into the Q4. So the only thing I can say is that U.S. is starting to perform strong. I'd advise you that we cannot directly correlate the Sports to previous handle with us because we get our revenues before even the handle starts.

Yes. Fair enough. But still, there has been a massive growth on a year-over-year basis. And I would also assume that the penetration of the population that gambles has increased, so that would still translate into CPA, correct?

Yes, if the reach increase and we send in the traffic, we should logically see more revenue coming out. How much that is, we don't comment on.

All right. And in terms of Q4, if we assume that the whole business is flat year-over-year and then you add the new states, do they help you on a year-over-year basis? Or are they still too small to actually make any significant contribution?

I think it differs a bit by state and what's going on there with the operator structure and what they do. In general, what we see, of course, with new states coming up, it always helps, of course. We also even might have a new state opening up already in Q4, if we're lucky. But exactly how that will play out is quite difficult to predict right now. But typically, more states helps revenue. But yet again, also, we know that, for example, December is a much lower month than September and October. So depending when they fall in and the activities, it builds -- kind of build different kind of revenue buildup. But obviously, all in all, new states is positive news for us.

Got it. And in regards with Europe, how much did it decline year-over-year? Just looking at the numbers, it must been quite drastic both Q-on-Q and year-over-year. How did this part of the business start in Q4? And where exactly are you in the turnaround? And when will this be visible in the numbers? Because we have talked about this for over a year now.

Yes, we have. But as I also mentioned before that we started reorganizing our costs. We then took a quite big step of exchanging the management in, for example, Sports and Casino, which started basically in February and March, and then came COVID, which we meant that we need to lose -- let that guard down and fully focus on what to do to utilize work from -- based on COVID, which obviously in Q2 turned out very well. So when that was more in control, we could restart again. Turning around, for example, our Sports business is a major task because a big part of the acquisitions that were made were based on paid acquisitions, PPC. What we're now turning around then to is more organic-driven by search traffic, and that takes quite some time. So basically, what we have done, which is also visible in our numbers now, is more taking out costs and making that more efficient, using those investments to build up quite large investment in U.S., which we're benefiting from. So even though that you see that the revenue has not yet come back from it in terms of cost transfer investment, you see that in the underlying numbers that we can still grow profits by still investing lots for future in the U.S. The Sports work is a constant thing that will take a long time. But we're now seeing that Sports are returning in Q4. We foresee a better revenue from Sports than in Q3 in Europe. Casino is -- the decline we see has leveled out, and we're starting to see good signs of starting to go back. But it depends all about also traffic behavior. When we see -- to search volumes, we're seeing that starting to work up again. But then, yet again, you need to add what's happening in a week or 2 from now on in terms of market shutdown. We hear now the market is shutting down. That can have a tremendous positive impact to Casino, or it can behave different from last time. And that's why it's quite difficult to predict where the quarters will end up like currently. What we need to do is just to prepare, use the previous knowledge and try to benefit from those kind of quick changes as much as we possibly can.

All right. Fair enough. That's some good flavor right there. But like all things equal, Q2 was a strong quarter despite no Sports. Q3 was underwhelming to say the very least. Based on where we are today, should we expect Q4 to come back to normalized levels?

Well, to be honest, I think normal is quite different from what it used to be. So we need to define what normal is. Because is the industry fully normal? No, it's not. Do we foresee that based on actions we do that we should foresee a better quarter in Q4 than Q3? The answer is yes.

Got it. And are you still saying that you will end at or below a net debt-to-EBITDA of 1x at the year-end? Is that the -- that's still the target, so to speak.

Well, basically, we never said that we should end at 1. We said that we should get close to 1. And based on the trends now, obviously, we are working ourselves down towards being closer to 1 than where we are today.

Fair enough. And in terms of the financial target here, you mentioned double-digit top line growth. Could you quantify a bit more specifically what you see for outlook for 2021 and where you expect costs to grow? Should we expect that your cost to rise, decline or stay relatively flat? If you could elaborate a bit on this, it would be great.

Well, we cannot do that today. We don't guide on 2021 yet. Obviously, what we see here and as you can calculate on these, that over the period, obviously, you cannot leave 1 year out not growing and going back in order to hit that kind of cash flow numbers and debt levels, combinations. So do we foresee that we want to bring up revenues next year? Yes, I think what we explained today, we foresee that. What do we work in cost? Well, on the existing cost base, we're looking at ways to get more efficient. And then also at the same time, without any doubt, we're also going to dramatically continue to increase our investments in the key growth areas like U.S., et cetera, given the great opportunity with that. What that means in margin, et cetera, we normally don't guide a year ahead. But obviously, we believe that based on the strategy we have, we have a plan. And the only thing we can say now is that what we said in the strategic review without going into a specific year plan.

Got it. And your cash flow guidance is rather strong to say the least. What does it mean for 2021? I mean, you mentioned that you're paying -- that you will start paying dividends in H2 2021. So I assume that you expect quite a significant uptick in growth from cash flow during 2021, right?

Well, if you look at it, we already have quite amount of cash in the company, adding another year at least at the same level or above. And then looking at the growth trend there now, you will see that there is definitely room to do that dividends. If you just -- even if you only will continue this level, given the cash situation we have and what we [ benefit by that ], that's the logic. If we then decide to do more things than that, spice it up over time with other actions, we have to see. But I think from just where we are today, adding the trends we see, that makes that possible, if the Board decides to propose that. That is because it's not been officially proposed yet.

Yes. But just overall, if you repay debt, could you still manage to actually pay out dividends? And just in general, in terms of the dividend strategy, do you expect dividends to grow with profits over time? Or should we just assume that it will be maintained at the levels you guided for there?

Well, I think we have said that we want to operate a business that is generating a certain amount of cash. Depending where the business is, what these targets say is that we want to move within a room of 0, 1.75. That depends whether we take on debt to grow or not. Taking up debt to grow means that it's a financial cost for the company doing so. The cash generation less that potential debt would still allow us to do this. So we have the room of maneuver depending on what we want to do as long as we continue to add cash above the levels we're doing today.

Fair enough. And just to add on to the previous question here. If you sort of start paying out dividends in H2 2021, as of where you are right now, at the earliest, when could you initiate a buyback program, do you think?

Well, we cannot comment on that.

All right. And then overall, I assume that the Board has been discussing quite a lot with you guys in regards to the very strategic alternatives in the last couple of quarters. For instance, one of the largest shareholders has expressed its views in terms of valuation of your peers, et cetera. How should we, as the outside of the boardroom, think about the reasons why you guys would decide to merge with another public or not public company? Historically, you've only acquired smaller assets. And now you also indicated that you're looking at M&A again. Would you and the Board be open to merge with another company? Or is this something that you're against in all scenarios?

I think that being against the scenario that -- any kind of scenario that will benefit to shareholders, we should not have the positions that we have. We always need to look in what is best for our shareholders long term. And if that is buying, merging, doing other actions with the funds we have and in order to improve long-term value in the business, that's what we need to look at. We are not against anything except doing bad decisions.

What -- hypothetically speaking, what are the most important factors you take into consideration when you evaluate a theoretical bid or a merger proposal?

Well, what do you normally do every time you want to buy something? You see whether it can bring long-term value to you. Long-term value can be that you jointly, by merging an asset into your portfolio, that you can maintain revenue growth by taking out cost because otherwise, you won't bring value or that you prevent competition to be as strong as you want it to be. I think those are the basic fundamentals. But we also know that 1 plus 1 doesn't already come 2 or 3. So that's why you need to be quite focused on this. And based on the history in this company, we don't want to acquire business just of short-term growth quarterly revenues. We want to do it in order to constantly improve the cash generation by being able to generate the kind of cash flow, as we inform today. So as every time, every proposition comes up that we find ourselves that are contacting us, we will always review. And if it's interesting, we will follow the local laws and regulation communicated. Otherwise, we just keep signing and continue what we're good at and driving our own business.

And to add on that, in terms of your share price, is it basically at the same levels as at the time of IPO? You've changed CEOs a couple of times, and the share count has risen quite significantly over the years. Many investors that I speak with are extremely keen to understand whether you believe that the value of the business is worth much more than it is today, especially after this quarter, when we saw a decline on a year-over-year basis here on revenue.

Yes. But I think if you're urging in the middle of this session that the trend of this company [ puts you now over ] 1 quarter, I don't -- I wouldn't do that. Well, first of all, I don't comment share price. It's up for the market to decide. Do we believe today that the company is in different shape than it was 2 years ago or 3 years ago when the share price peaked? Yes. What was handed over after that share price peak is what we're still working with. Do we believe that we have a better cost base, cost structure today, decrease -- I mean, not growing cost as well as revenue? Yes, we proved that. Have we sorted out the debt level ratios issues we had because of that trend and that built that share price? Yes, we have. Do we have a better opportunity ahead of us than we had at that time because that price was given by acquisition but not that much future looking? Yes, we have. So do we believe that we can create a value? Yes, we have, which was also communicated in today's presentation by the share -- by the cash flow that we initiated. So I think that answers all those questions.

And also one of your largest shareholders that also had Board representation suggested that you could do separate listing in the U.S. What's your view on this? And could this be a scenario going forward?

I think we're always looking at ways to make our share reach as much interest as possible. Considering where we are in the U.S., I think we would do wrong if we're not looking at that opportunity. Whether then it's beneficial for us giving, therefore, the takes, whether the timing is right or wrong, it's something we also evaluate. If we conclude that, no, it's not good for the company, we won't do it. If we conclude that it is, we will then continue our investigation and decide timing for that. But obviously, nothing that is in works right now.

And just hypothetically speaking, you guided how large U.S. was in terms of revenue. But based on EBITDA and how much cash flow it generates, could you perhaps give us some flavor if it would -- if you would be able to absorb the costs of being listed in the U.S. as of right now?

No. No, we cannot comment on that.

And our next question comes from the line of Mikael Laséen of Carnegie.

Lots of questions, but I have a few more. On this cash flow trajectory or cash flow target that you announced today, that means roughly EUR 60 million cash flow per year and well, EUR 15 million per quarter. That's easy to understand. But what's -- how do you see this developing ahead, the trajectory into 2025?

Yes. I think if you look what we present today about, of course, key driver, as was mentioned in the report and in the presentation today, is our U.S. position. That's going to be one of the core drivers for [ all this ]. So it depends very much when we believe those states will come live and what they can do. Obviously, we look later in that period. We have a larger amount of states, larger population probably want to be reached. Hence, we also foresee a larger cash generation later in the period as we are in a growth stage. So would we have a static EUR 60 million or whatever it might be over the time? No, it won't. It will be less in the beginning, more in the end because of the market movements.

Okay. And how do you find -- how do you define operating cash flow? What's included in that?

Peter, would you like to add anything on that?

Well, it's the cash flow from operating activities as per the standard, simply stating.

So leasing cost or investments in intangibles and so on, right?