Evoke plc (EVOK) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the 888 Holdings plc Full Year Results Investor Presentation. [Operator Instructions] And I'd now like to hand over to Yariv Dafna, CFO; and Itai Pazner, CEO from 888. Good afternoon.

Thank you very much, and good afternoon, everyone. I'm Itai Pazner, the CEO of 888, and I'm joined here today with Yariv Dafna for an overview of our 2021 annual result results. We'll start with Slide 2 and some highlights for the year. And it was a really positive picture of the business that is in a really, really good shape. It's great to be able to report another set of record results for the company, with our revenues for the year up 15% to $980 million, and this is in line with our mid-teen growth that we guided at the first half of the year. So just to put this into a bit of context, and this is 75% higher than where we were in 2019. So over the course of the last 2 years, we've truly transformed the scale of this business, as well as a strong organic growth in 2021, we were very busy on our strategic expansion as well. In the U.S., we signed a landmark deal partnership with the Sports Illustrated to operate our Sportsbook brand in the U.S. under sisportsbook.com. In September, we announced a transformational acquisition of William Hill International, basically all of William Hill's and assets outside of the U.S. And in December, we announced the proposed sale of our Bingo business, which will enable us to increase the focus and the fantastic growth opportunities that we have ahead of us. So I'll talk about -- more about these and our refined long-term strategy soon. But for now, I'll hand over to Yariv to walk you through some of the financials of 2021.

Thanks, Itai. Good afternoon, everyone, and thank you for joining us. On Slide 3, I will walk you through how we convert our revenue into adjusted EBITDA. Our revenue were up 15% to a new record of $980 million. Our gross profit represent the revenue less variable costs such as gaming duty, royalty and rev share for third party, which will be mainly content provider and payment costs. We paid more in gaming duty, reflecting our growth in regulated markets, but we were able to offset most of the increase with efficiency in our other direct costs. As a result, the gross margin was broadly stable at 66%. Marketing is the biggest investment we make as a company. We invested in 2021, $307 million in marketing using our big data and marketing expertise to drive efficient and effective customer acquisition across our brands and markets. Our marketing ratio increased by a little over 3 percentage points, which partially reflects our increased investment in the U.S., with the launch of SI Sportsbook in September. In terms of operating costs, they increased by only 3%, reflecting our embedded operating leverage in our scalable proprietary technology. Our adjusted EBITDA margin was a little under 17%. The main change here was our increased investment in the U.S. So if we exclude that, our EBITDA margin was fairly stable. Our cash generation continues to be strong, and we ended the year with $175 million of cash, excluding customer balances. One quick word on the dividend. As we are planning to raise equity as part of the William Hill transaction completion, the Board has decided not to declare a final dividend for 2021, beyond the interim dividend that was declared already after the first half year result. However, no change in the dividend policy. Moving to Slide 4. One of our key goals is to build 888 into one of the leading regulated online betting and gaming businesses. We made further progress in 2021 with 17% growth in our regulated and taxed revenue, taking the mix to 74% of total revenue in 2021. We expect this process to continue and with new regulated markets such as Ontario and Netherlands, we expect to cross 80% this year already. On the right-hand side, we can see how diversified the business is from a geographic perspective. The U.K. remains the biggest market, with 40% of revenue and Italy revenue were up 37% and now, make up 12% of our revenue. The rest of EMEA was down from 38% to 34% of the total, following regulatory changes in Germany and the Netherlands and weakness in the Nordics business. But within this bucket, we have seen some really strong performance from our growth markets such as Romania and Ireland. The Americas, including U.S. made up 13% of our revenue. We are excited about the launching on locally regulated basis in Ontario in the coming weeks, following the receipt of the license. Together with our plan to launch in 3 or 4 additional states in the U.S. during the course of this year. Moving to Slide 5 and our current trading and outlook. Firstly, I will touch our current rating. We have started 2022 with improved momentum and are pleased with the trend we are seeing with customer and revenue so far this year. Average daily revenue in January and February are up by mid-single digits relative to Q4 2021. 2022 has some growth drivers such as Germany, the launch of Ontario, planned for [April], the new state launch in the U.S. and hopefully, the relaunch of the Netherlands under regulatory basis. With these new launches, our continued product development and customer focus in our key markets, we are confident that we are on track to achieve our 2022 target. With that, I will now hand over to Itai to tell you a bit more about our strategic priority, key achievement and growth plans.

Thank you, Yariv. And now, turning to Slide 6. I thought it would be useful to provide an outline of our refined growth strategy for the group. We have a clear framework to deliver sustainable and long-term growth, built around these 3 areas. Firstly, our market focus. This means that ensuring we invest our resources in the markets with the most attractive opportunities where we can deliver superior returns. Our core markets of the U.K., Italy and Spain are 59% of our revenues and revenue growth was 18% in 2021 in these markets or what we call our growth markets, which represents 21% of our revenue and growth here was around 26% in 2021, and those include markets such as Romania, Ireland and some further markets in Europe. Secondly, reinforcing our sustainable competitive advantages, these are 3 core pillars that act as our enablers and really drive market share gains in these markets. All of this is underpinned by our continued investment in our talented people across the group in 888. Thirdly, we will be supporting our growth with strategically and financially attractive M&A that enables us to benefit from the scale advantages. I'll now expand on some of these drivers and cover how 2021 was a huge year of progress in delivering against these elements of our strategy. So moving into Slide 7. The U.S.A., which is a really huge opportunity for the business. Revenue growth was 6% in the period, but we made great progress in creating a platform for profitable long-term growth in the market, with most of the required assets that we have now in place and ready to go in the market. So the first one is technology, and we launched the SI Sportsbook in Colorado over our in-house Sportsbook platform, and we're pleased with the launch from a technical perspective. Now, owning all of our technology gives us a low unit cost of production, as well as enabling differentiation and localization in the U.S. market. In terms of brand, Sports Illustrated is a household name brand in the U.S., and its new owners continue to make huge progress such as growing their digital user footprint from 30 million users -- active users, monthly average users just a year ago when we signed a contract with them to now, 50 million users at the end of 2021, and this gives us a real advantage with our marketing cost in the market going forward. Operational expertise. We have been amongst the best in the business for the last 25 years, and we're bringing all of this knowledge and expertise into the U.S. market with this iconic brand, of Sports Illustrated. Growing market access deals. So we have secured further market access deals, and now, we're planning to launch into 3 to 4 more additional B2C markets with SI this year, starting with Virginia already in Q2. Medium term, we expect to be in around 12 to 15 states in the U.S. We also launched Poker with our B2B partnership with the WSOP in Pennsylvania in the middle of the year, and we're ready to launch in Michigan subject to regulatory approval, which will bring us to be active in 5 out of the 6 current regulated U.S. poker space. Moving on to Slide 8. And one of our really key competitive advantages is our world-class marketing team and brands. So 888 is a world-renowned gaming brand and the only truly global casino brand. Supported by our world-class marketing capabilities, our performance marketing teams are experts in using real-time data to optimize the activity across the different marketing channels, and enabling us to react in real time to changing market conditions and deliver superior returns over our investments. In order to build our position as a leading casino brand, I'm delighted to tell you about the new master brand strategy that we've created, it's called Made to Play. This single 888 brand strategy is a new approach for us, and will unify all of our 888 sub-brands, which are 888Casino, 888sports and 888Poker under a single, consistent strong brand positioning. Having been one of the first online casinos and coming up to our 25th anniversary, our brand awareness, trust and credibility is very significant. We believe that our Made to Play plan really unites us behind the strong brand messages. But rather than just telling you about this, I think it would be better if we could have a look at this teaser of our master brand campaign. So please, let's play it. [Presentation]

So I hope you enjoyed that as much as I did for the tenth time today. So moving on to slide -- the next slide, Slide 10. This is -- and the third foundation of our growth strategy and is value creation and value-enhancing M&A activity. And during 2021, we made huge progress in this area. So firstly, we announced a transformational acquisition of William Hill, which will almost triple the size of our business. This fits perfectly with our strategy by reinforcing our leadership position in the core markets, strengthening our position in our growth markets and introducing a couple of additional growth market opportunities for us. In addition, William Hill is U.K.'s leading sportsbook brand. And this asset, along with the really strong challenger brand, Mr. Green, will support our sustainable and competitive advantages going forward. The William Hill business has strong and complementary products and technology, great customer focus and a team of talented people that will come with the business. This will enable us to further reinforce our product leadership plan and improve the customer experience. We look forward to telling you more about the William Hill acquisition in the coming months as we move towards completion. Alongside this landmark acquisition, it's been a very busy year in other areas of M&A. So the launch of our long-term strategic partnership with SI in the U.S., which I mentioned before and the announced sale of our Bingo business, which will allow us now to increase our focus in the core growth opportunities that we described here. We also continue to assess a range of other M&A and partnership opportunities worldwide, as we continue to build our position as a global leader in the online gaming and betting space. We are particularly focused on strategic investments in emerging and attractive markets, which will have excellent long-term growth potential. Turning on to Slide 11. So I'm pleased to outline our refreshed ESG framework called Made for the Future. As we continue to grow as a business and focus on our long-term goal to be a global online and betting and gaming leader, we are putting more focus on long-term sustainability. We are launching a refreshed ESG framework built around 3 pillars. And over the course of this year, we will develop and announce robust targets for each one of these pillars. Our first pillar is made to play safely, reflecting our commitment to prevent harm through safer gaming. Our goal is to normalize the use of safer gambling tools. Over 40% of our active customers in Q4 2021 had limits in place, and we are working to increase this by both encouraging players to place the limits themselves and increasing the number of customer limits that we proactively put in place. Our second pillar is made together, reflecting our commitment to ensure an inclusive environment and supportive workplace environment. Our people are the foundation of everything that we do, and creating a positive work environment where people can be the most innovative, creative and productive is critical for our future. And our third pillar is made greener. The urgency and the importance of the climate crisis globally requires us to play our part. And at the end of 2021, I was really pleased to announce our commitment to net zero carbon emission by 2035. All of this is supported by a robust corporate governance framework, including oversight of these 3 critical areas from a new ESG committee at the Board that was set up during 2021. So turning to the last slide. Slide 12 and to conclude. 2021 was a record year for us financially, and we continue to execute against our growth plans. It was also a truly transformational year operationally and strategically for our business, as we continue to make significant progress against our plans to become a global online betting and gaming leader. As we look into 2022, we have started the year well and we're looking forward to completing the William Hill acquisition and further reinforcing our long-term growth plan, including our expansion into the U.S. With that, I'll now be happy to take some of your questions.

[Operator Instructions] Yariv, Itai, as you can see, investors have submitted a number of questions throughout your presentation. I wondered if I may ask you to open up your Q&A tab and if you could, read out the questions and give a response where it's appropriate to do so, and I'll pick up from you at the end. Thank you.

Yes. I'm just going through them quickly and see if we can combine a few together.

So maybe if I may, if I read out the questions, it might assist. So the first question we have here is very pleasing results. Can you expand on how you anticipate growth rates can continue to grow at these levels?

Yes. So 2020 and 2021, were obviously years of very strong growth figures. And we indicated during the year, that we think that the growth will normalize towards the end of the year in Q4. And we actually saw ourselves and the industry that Q4 was already trading against a very difficult comparable the year before. So it's Q1. These were years of, I would say, a slight impact of lockdowns and COVID. And as we go towards the end of the year, we see kind of a more normalized level of trading. On the 2022, actually, in the first quarter of the year, we announced that -- we shared that we're seeing a growth over Q4, mid-single-digit growth over Q4. So we see this as kind of the new base level, the achievement that we got in the last couple of years is the base level from here we want to grow. We have some fantastic growth opportunities. We're launching into 3 -- essentially, 3 markets that we know quite well, which is Germany, Netherlands and Ontario, Canada. We're launching in all 3 of them subjected to regulatory approval. We launched in Germany sports last year, we are planning to launch Casino and Poker under license this year. Canada, we're planning to launch in April. Next month, in Ontario. And Netherlands, we're in the process of getting the license to launch over the summer. These 3 markets alone represent a market potential of -- by analysts that covered this of around $10 billion. Just to put that into comparison, that's significantly bigger than the U.K., than the U.S. market, and these are 3 markets that we know quite well intimately throughout the last 10 years that we've been operating there. So we have a base of business. But now, we can grow there much more because it is going to be open to marketing activity and all the things that we now have to do in regulated markets, and that represents a very strong opportunity. Apart from that, we have the U.S. that I shared, and that's just emerging and beginning to grow. And like we shared here, we have our core and growth markets that we have been active in, and we will be activating and continuing to grow there. So just to summarize our 2022 is kind of a year of normalization. We expect to see flatter results compared to the last 3 years. But moving forward, the combination of these growth opportunities, obviously, with the combination of William Hill reflects a very big growth opportunity for us.

That's great. That sounds quite nicely to the next question, which relates to the U.S. opportunity. And the question is, is the U.S. opportunity running to plan? And what are the KPIs you're looking for as you roll out?

Yes. So U.S. opportunity is running to plan. We plan to launch the first market last year. It was done within 3 to 4 months of signing the deal. The U.S. market, we launched the first market, which is Colorado, we call it kind of the test market. So that's where we put the first -- our U.S. platform out there for the first time. We did a lot of test and optimization of bonusing and of promotions and of the tech system itself. So that was the first market. We did a lot of adaptations, we're heading towards the launch of our second market, which is Virginia, which is happening in about a month or so. We're already in better shape than what we were in the first market and that's a lot of work to do in terms of [still] the integration with the site. So I think overall, we are on the plan, but there's a lot of improvements that we can do in order to get better results in the U.S. market. In terms of the KPIs that we're looking on, they're quite similar to the European ones. And we are trying to achieve a similar level of results to what we're seeing in Europe. As people probably know, there's kind of a gold rush in the U.S. and a lot of companies are spending a lot of money there in customer acquisition and a very high level of bonusing. So we're trying to do it in a bit more rational way and to use all the assets that come with SI, both in terms of content and brand association, but also, all kinds of things that we can give to our customers through SI that other operators can't, and that's what we're looking at as kind of our growth potential in America going forward.

Let's turn to the next question that we've received and thank you to all the investors that submitted calls this afternoon. The next question was as follows. Are you seeing any inflationary pressures within the business? And also, any impact on consumer spend and disposable income as it all tightens?

Yariv, do you want to take that one?

Yes, yes, sure. Of course, as a business which depends on consumer spending, we are indexed to any trend in the total spending among consumers. Until now, we didn't see something specific, although we are aware of all these inflation forecast. Actually, we see the opposite. We see in January, February running slightly better than Q4. But if this will become a trend which cross all the consumer industry, it could affect us as well.

Got a question here from Brett, who asks, are you still planning to raise the $400 million, $500 million in equity despite the fall in the share price?

Yes. So I want to remind everybody, so we are fully financed for the deal. The equity indication that we provide, it's -- it came in order to deleverage the level of the debt that we will have post closing. So this is absolutely up to us. And we said all the time that this will happen at the appropriate time. So we are following closely the current situation, and the Board will decide later on how exactly to do that. But for closing the deal, we don't have to have the equity.

That's great. If I can turn to a question from Tim. What do you see as the biggest challenge of the William Hill integration?

And so I'll take that. So we've been working with the teams at William Hill to start planning the integration. And obviously, it's an integration of 2 very big companies that need to be done and taken care of in a very, I would say, sensible matter. Obviously, we identified very strong components of technology on both sides, which at the end of the day, we want to land with 1 strong technological platform that supports the whole group. So we have to do that and identify the right components of the technology. And obviously, it's like every merger, the sensitivities around culture, 2 different companies, 2 very successful companies, but with a different culture, then we need to carefully merge these 2 businesses. But overall, I would say, from a strategic standpoint, these 2 companies put in front of themselves really the same strategy going forward in terms of markets, in terms of products. And we see this combination. It's quite a natural combination of companies. And I can tell you that I feel I can share the excitement that there is in teams on both sides because there's a sentiment that each one of these companies is good, individually, but together, they really can create the foundation or the base of the next leading global online gaming company.

That's great. Question around margins here, if I may. Where do you see margins going? Is there scope to increase? And how much does market spend drive this?

So in terms of the margin of the business, so potentially, we could have a much higher margin. We are investing more in several markets like U.S., like Germany, and we will have additional investment situation in Ontario and Netherlands, that they will come up. When all this market, the initial investment in order to go live and to secure the necessary market share that we want to achieve, we will be able to start increasing our margin because the marketing will be then at the cross company would be lower than the levels that you see today.

When were the details of the William Hill financing be disclosed, if that's something that you're able to share?

Well, so we already indicated that we are expecting to close the transaction in the second quarter. I would say, considering that we are now in March already. So you can expect that this will be more toward the end of the quarter rather than the beginning. But within Q2, we will publish a full prospectus. And within these prospectus, there will be the financial details of William Hill. There are final result of 2021 and a certain statement about the current trading of this business.

As it stands here, we've got one final question. So before I redirect investors to give you their feedback and their thoughts and expectations, maybe we can finish off with this question. Since William Hill will be the larger component of the business, can you share any insights into how their business is trending, both online and retail?

So we cannot comment on the trading of William Hill. I will make, maybe, only one comment about the retail. So if you look at other companies in the market that released results recently, you can see that there is a sentiment in the U.K. that retail is actually going back to the level that had before the COVID. And this is -- you hear that from all operators that have a significant retail business, and you can assume that this is the case, also, for a business like William in. Beyond that, unfortunately, we cannot comment on trading of William Hill.

If any further questions do come on, we'll make those available to you. So once again, thank you to you both for your time this afternoon. Could I please ask investors not to close this session as we'll now automatically redirect to investors to provide you their thoughts and expectations and provide their feedback. This will only to take a few moments to complete, but I'm sure will be very much appreciated by the company. On behalf of the management team of 888 Holdings, we'd like to thank you for attending today's presentation. That concludes today's session, so good afternoon to you all.