Evoke plc (EVOK) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the 888 Holdings plc Full Year Results Investor Presentation. [Operator Instructions] I like to hand over to the Chairman, Lord Mendelsohn. Good afternoon.

Good afternoon, everyone, and thanks for joining us today for this call where we will run through 888's 2022 full year results and then take some questions. I'm Jon Mendelsohn. I've been on the Board of 888 for 2.5 years, acting as non-executive Chair for the last 2 years. At the end of January, I became Executive Chair taking on the responsibilities of an interim CEO, while the board is running a process to appoint a permanent CEO. I will comment further on the encouraging progress we have made with this process shortly. I'm here with our Chief Financial Officer, Yariv Dafna, who will cover the financials; and Ron Lewis, our Chief Strategy Officer, who will update on our strategic progress. We've already hosted calls for our institutional shareholders and analysts as well as for our lenders, and this is, of course, specifically for our retail shareholders. enabling you all to ask your questions and ensure that we, as a Board, are able to gather your input directly. It's important to us as a Board that we are working for you, our shareholders, and I'm delighted to have this opportunity to engage with you. So we'll start with Slide 2, which outlines our 3 key priorities as a Board and for our management team. Our management team ESG and sustainability and driving the execution of our plan articulated at our Capital Markets Day. We have a very strong operational management team in place and a Board priority right now is the appointment of a permanent CEO. We have been pleased with the depth and caliber of the candidates that we are engaging with and while making good progress with our search and our interviews. We intend to make an announcement of the new CEO in the coming months. Our second priority is ESG and sustainability and Vaughan will update on progress here shortly, but I would like to address upfront the critical area of player safety. At the end of March, the U.K. Gambling Commission announced a GBP 19 million settlement agreement with William Hill in relation to historic player safety failings. The failings occurred before we own William Hill and so we could have had no bearing on the areas that were investigated. The team had already taken significant real action, and we have further reinforced this following the acquisition. As a result, the business is now in a far stronger position from a compliance perspective. These historic failings are not acceptable to me or the board and the entire group shares the gambling commission's commitment to improve compliance standards across the industry. Finally, the Board's third priority is execution. We outlined clear plans to deliver shareholder value at our Capital Market Day, and in my capacity as Executive Chair and supported by the Board, we continue to work with our wider executive management team to deliver the potential of this business. I'm delighted to say we have made rapid progress with our integration and this enabled us to increase our planned synergies from GBP 100 million to GBP 150 million with about 3/4 of the benefit already coming in 2023. Turning to Slide 3. I would like to comment on the recent action that the Board took to suspend all VIP accounts in the Middle East as well as the swift actions we have taken to rectify this situation. Once we became aware of potential anti-money laundering and know your customer failures, the Board took swift action to suspend all our VIP players in the Middle East, while the compliance team investigated these failures. I'm pleased to say the investigation has concluded. The floors in the process have been remedied, and we are back in action taking business in the region in full compliance with our standards. This was an internal investigation, and I'm pleased with how efficiently the team dealt with the interruption. On the right-hand side of the slide, you can see our business mix following these changes in the Middle East. Based on our current run rate, overall regulated revenue is over 90% of the group and within a small dot-com portion, we will class most markets as in a process to regulation. And no individual market within this bucket accounts for over 2% of revenue. I will now hand over to Yariv to walk through the financials.

Thank you, Jon. Good afternoon, everyone, and thank you for joining this call. Starting with Slide 4, we present the main item in the bridge between 2021 actual to both the 2022 reported results in our financial statements and our pro forma results. On the left, you can see the revenue bridge starting from reported revenue of GBP 712 million in 2021. In July 2022, we completed the disposal of our Bingo business, which contributed GBP 27 million to the decline in 2022 revenues. On an organic basis, 888 revenue dropped by GBP 61 million reflecting the regulatory and compliance headwinds, including the closure of the Netherlands and the impact of our proactive approach to safer gambling in the U.K. The William Hill acquisition contributed GBP 615 million to H2 revenue, reflecting consolidation from the closing date on July 1, 2022. After reflecting this transaction, our reported revenue for the full year were GBP 1.24 billion. The Bingo business contributed GBP 20 million to revenue in the first half of 2022. After removing that and adding William Hill H1 revenue of GBP 630 million pro forma revenues for the full year were GBP 1.85 billion. On the right-hand side, you can see the same buildup from 2021 actuals to 2022 reported and pro forma adjusted EBITDA. It is important to say that revenue of GBP 1.85 billion and adjusted EBITDA of GBP 311 million were in line with our guidance from the Investor Day. In Slide 5, we present the revenue and adjusted EBITDA by segment on a pro forma basis. We operate the business in 2 main segments: the U.K., which include our U.K. and Ireland online businesses and our retail business; and the international, which includes all of our businesses outside the U.K., including the U.S. For the U.K., pro forma revenue were flat in 2022, reflecting a full year recovery of retail, which was up 54%, offset by online revenue down 20%. The decline in online reflects some of the COVID unwind as customers went back to retail and other leisure activity but mainly reflects the ongoing impact of our safer gambling measures, including reducing state limits for spot to GBP 5 and GBP 10 and implementing more affordability checks as soon as players have deposited GBP 500. For our international business, revenue were down 9%, reflecting strong performances in our core and growth markets offset by a bigger decline in our optimized market where we exited some markets, including the Netherlands. Excluding the Netherlands, revenue were down 4%. Adjusted EBITDA was GBP 311 million on a pro forma basis, in line with the consensus and representing an adjusted EBITDA margin of 17%. Turning to Slide 6. We made good progress on our 3 core priorities that we laid out at our Investor Day. Our first focus is execution of Synergies. We delivered GBP 25 million of cash synergies in 2022 and the good progress that was made on our integration enabled us to increase the 2023 target from GBP 54 million to GBP 111 million. Our second priority is improving our adjusted EBITDA Margin. As we have been executing on our integration plans and delivering improved ROI from our marketing spend, we have confidence in our plan to deliver an adjusted EBITDA margin above 20% in the full year 2023. And our third priority is Deleveraging. We ended the year with a net debt of GBP 1.73 billion, representing a leverage ratio of 5.6x on a pro forma basis, which dropped to a little over 4x after reflecting the full synergies. We continue to target below 3.5x in 2025 we will continue to be disciplined with capital allocation to prioritize debt reduction in the next couple of years. Our disciplined approach to capital allocation includes reviewing opportunities to generate cash from lower return or noncore assets. For example, we are selling some freehold property, and we have a 19.5% stake in SIS, which is undertaking a strategic review. Moving to Slide 7. I would like to provide some details about our Q1 performance and some commentary on our outlook for 2023. In Q1 2023, revenue were GBP 446 million compared to GBP 469 million on a pro forma basis in 2022. The decline of approximately 5% is broadly in line with what we expect for the full year. We are pleased with the customer engagement with active up 5% year-on-year, but we continue to see lower spend per player. The decline in the U.K. revenue reflected a drop of 9% in online caused by the ongoing impact of our safer gambling measure together with our focus on profitability that led us to remove loss-making or low-return revenues. While we are seeing lower online revenue as we continue to remix the business and drive a low spending recreational base, we expect to see in 2023 higher profits from the U.K. online segment and strong performance from the retail business. In our international markets, revenue were down approximately 11%, which reflects strong growth in some of our core and growth markets offset by disruption in some of our dot-com markets like the Middle East, where we expect to see GBP 25 million to GBP 30 million revenue headwind. In terms of the outlook, we expect 2023 revenues to be lower than 2022 by a low to mid-single-digit percentage largely as we outlined at our Investor Day and as we saw in the Q1 performance. On the profitability, I can say that we continue to track towards an adjusted EBITDA margin of above 20% for the full year. It's worth mentioning that EBITDA performance will be more H2 weighted given the timing of synergy realization. For other technical guidance matters, see more details in the appendix to this presentation. All of it is largely consistent with what we gave at our Capital Markets Day. Finally, on Slide 8. I just wanted to reiterate the 2025 financial targets introduced at the Capital Market Day last year. We are very focused on delivering a leaner, higher-margin, more efficient business that will unlock the strong potential of our business and drive rapid deleveraging. Supported by our focus on our core growth and pipeline market, we remain confident in our 2025 ambition for over GBP 2 billion of revenue, at least 23% of adjusted EBITDA margin, leverage of below 3.5x and over 35p of adjusted EPS. I would like to mention again that additional financial information can be found in the appendix. I will now hand over to Vaughan to run through the strategic highlights.

Thanks, Yariv, and good afternoon, everyone, and thanks for joining us on this call. So turning to Slide 9 and a few highlights from our core markets in 2022. These represent about 70% of our online revenues to are the really key markets for us. In the U.K., while revenues were lower, this reflected the impact of our proactive safer gambling measures with a reduction in maximum stakes for slots and a further increase in the proportion of players that have deposit limits in place. While overall revenues are lower, it is really encouraging to see that we are growing our share of active customers and really driving a positive remixing of the business towards the lower spending recreational base. Turning to Italy in the middle. We were pleased to see strong market share gains in casino for 888 during the year. with a really strong recovery in the second half of 2022 as trading trends normalized following the disruption from COVID and similar trends in Spain on the right-hand side with a really strong improvement in trading in the second half of the year. Turning to Slide 10 and a few comments on how we focus on our other market groups. It was a really busy year in 2022 for our growth markets with product launches across multiple new regulated markets all on our proprietary platform, so we benefit from real scalability and cost efficiency. This progress continued into the start of this year, and we've been really pleased with the early signs of the SI Casino launch in Michigan. This has further reinforced our confidence in our U.S. strategy to focus on gaming states, where the combination of our world-class products and content platform and the strength of the SI brand give us huge competitive advantages. In our optimized markets, we focus more on cash flow and profitability rather than growth, and we were really pleased to see the contribution margin in these markets increased by 3 percentage points during the year. We've also been very pleased with our pipeline markets. Our Africa JV launched its first 4 locally regulated markets in the second half of 2022. And we've seen really strong progress in these markets with over 0.5 million customers already having enjoyed our products. We're looking forward to further country launches with our Africa JV soon. Turning to Slide 11, a few words on our key enablers and how we drive growth in our focus markets. Our key enablers are the 3 competitive advantages on the screen. So products and content leadership, world-class brands, and customer excellence. On the slide, you can see some great examples of our product and content leadership. This is all about using our tech expertise as a business to build great customer experiences. Things like our Bet Builder product called Build Your Odds. This was significantly enhanced during 2022 with leg tracking, live status and cash out, and this massively improves the customer experience and increases the chances that players will stay with us and come back to us. We also launched a new daily free play game that's branded with our Millionaire Genie, one of our leading in-house games. This provides a reason for our gaming customers to keep coming back to us, along with continued improvements in our AI personalization. In the middle, you can see some examples of our world-class brands the strength of these brands helps us to generate higher profitability, reducing the amount that we spent to acquire customers and helping to keep them playing with us for longer. On the right-hand side, you can see that our customer excellence focus is really working well. Our Net Promoter Score is increasing nicely, and we're also seeing an ongoing reduction in the proportion of customers that contact us as we address their pain points and remove them, so they don't need the resort to contacting us to resolve problems. Turning to Slide 12. I'm pleased to provide an update on our ESG and sustainability progress. Our whole approach to business and our strategy is built on a foundation of sustainability. This means making the right decisions to deliver long-term value for our stakeholders. Our sustainability plan is built around our 3 pillars of players, people and planet. For players, we've continued to build on our ambition to create a safer gambling environment. This does impact our revenues in the short term as we intervene more and we stop players from spending more, but it's the right thing to do to build a sustainable and trusted long-term business. For our people, we're committed to building a strong culture where colleagues can grow their careers and thrive. And for the planet, we were delighted to see a 44% reduction in our carbon emissions and the retail estate reached net 0 emissions during the year. I'd now like to hand back to Jon with a few words to conclude.

Thank you, Paul, and thank you, Yariv, for your contribution earlier. Turning to Slide 13. This is a reminder of the scale and power of our business. Around GBP 1.8 billion in revenue that is predominantly generated from regulated and tax markets and over GBP 300 million in adjusted EBITDA. As you can see on the slide here, in terms of online revenues, we are now one of the largest operators globally. We as well as scale, this is a business with huge capabilities. We have world-class technology and products a portfolio of iconic brands and very strong teams across the business who have a proven track record of delivering excellent customer experiences, and we have a lot to learn and build together to make even more from what we have. Turning to Slide 14 to conclude with our continued progress against our position, plan, potential road map that we outlined at our Capital Markets Day event in November, and whose documents have been available on the website. We have very clear priorities to deliver a leaner, higher-margin, more efficient business that will drive rapid deleveraging and unlock the strong potential of our business. During the first half of 2022, we strengthened our strategic position through the combination with William Hill, the exit from Bingo and the formation of our African joint venture. During the second half and into this year, we are focused on the execution of our plan by integrating the businesses, delivering synergies and creating a streamlined business fit for higher margins and a platform for future growth. We have made excellent progress against our plans in a short period, and this gives us clear confidence that we are very well positioned to deliver our 2025 financial targets that will unlock and create shareholder value. I look forward to updating you in the coming months with the appointment of a permanent CEO as we continue to deliver the potential of this outstanding business. And with all that, we will now take this opportunity to listen and to answer your question.

[Operator Instructions] If I may, I'll start off with the first one, which reads as follows. Please, could you confirm, one, if the company remains on course to achieve the previously announced plans for the 2025 target and that the company has no intention to raise equity in order to reduce leverage.

Thank you for the question. I think it's important to state that to reaffirm what I just said, we feel very strongly on course for our 2025 targets. This has been the plan that we have and the plan that we are with great focus intense on delivering -- so yes, we feel confident that we still remain on course for those things. And at this stage, we have sufficient liquidity to deal with any of the issues that we have at this stage. Naturally, I will never rule everything hitting everything out. But certainly, as we stand at the moment, we are very pleased with the progress that we've made we're very determined to make sure that we deliver on everything that we said we will, in 2023 with no change and to see that plan come good by 2025. So we're really on course for keeping our heads down and keeping focused on that.

Let me turn to the next question, which really just follows. Do you still expect to realize the synergies given at the Capital Markets Day?

Yes, we are -- I mean, we've already said that we hope to extend, and we've announced our figures to say that we've extended what we believe to be the synergies. And we will continue to work hard to make sure we can drive as much of that in 2023 as possible. So yes, we have been confident of our synergy projections, and we've been able to, with good focus, be able to extend those a bit. So we're very comfortable with the presentation that we've given on synergies and the performance we have as a team in delivering that.

That's great. Any timing update on moving to a unified platform?

Yes, sure. That's a very good question. I think it's really important to understand that the -- and again, it's very useful to have a question on this to help really focus on the critical role of technology and products in our business. This is really the foundation stone of what we're doing, and we are working very hard we're rolling out a number of elements that were important strategic elements of the acquisition. And we've been launching Mr Green in Germany on the 888 platform, and we're looking to do that later in the year. with the migration from these -- from the -- in Sweden on to the 888 platform. We've got a number of plans and actually we're starting to think of some very, very useful -- very useful ways in which we can accelerate our capacity and technology and to improve our product strategy. So in broad terms, I think we're pretty consistent with where we have been in terms of -- in terms of our overall road map. But I think as time goes on, we start to see some of the potential the team start fusing together really well. I think that we'll be able to review this and to come with other things. But we remain on course with our plans that we have to make sure that we can get the maximum out of the very strong platform that we have and a very broad product and technology team that we now have in the organization.

Just to add a cut words on that. I mean, we're already seeing significant benefits from the integration of the businesses here. So for example, we launched Mr Green in Germany with a local casino license. There's not that many operators that have gaming licenses in Germany. So we were really pleased to do that, and we launched that on our in-house platform. So we get -- customers get the benefit of the full range of products and content great personalization, a great range of games that get recommended to players based on what they enjoy in their game style. And we get a huge sort of cost benefit of leveraging our in-house platform. So we're not paying sort of third-party fees for that pet platform. So we're already seeing significant benefits from the tech integration, and we expect that to continue, and that really underpins the strength of the business, the power of this combination where we get what's a leading brand in the German market in Mr Green. And really a leading technology product and content platform, which is our in-house proprietary platform.

Turning to the next question. I know you touched upon the fact that you've had a roadshow already, but the question was as follows. What would you say was the broad sentiment from institutional investors that you've met with?

Well, I think that if I were to summarize it as follows: I think it's important to the institutional investors that we've been delivering on the plans. That we didn't produce unexpected surprises that we have been working diligently on delivering on those plans and our performance is in line with what we said it would be. So there is an important sense in which they've seen us stabilize develop and start to sort of really deliver on what we said we can do with no surprises. So they've been very encouraging and we'll be very keen, like [iGaming shareholders] to keep our feet to the fire during the course of the year to make sure we carry on delivery in the way that we always said that we worked. So they've been very supportive in this round of discussions. And we've been very pleased to be able to report good steady progress.

Given the market cap of the business, why don't you buy back shares?

Well, there are many contraction. For the moment, I would just say that we are looking to ensure that our performance and what we're going to do is exactly as we've outlined before, and to drive that to the end point of the year. I'll make the same general comment, which is that there are many different things that we can consider and can look at. But at this stage, there is no appetite for us to do anything externally. And certainly, our focus internally is delivering on the plans that we've stated. So we're going to remain focused on that. And there may be a point to have these further discussions and different discussions, and broader ones with a range of possibilities. But that's not for now. That will be for a later time when we feel that we've been able to trade through the year in the way that we want to.

Turning to the next question. Any thoughts on the U.K. gambling at review and any implications that this may have on the business.

Well, I have a lot. But I mean you would expect so. But what I'm going to do is I'm going to ask Yariv to talk about the impact on the business from the expectations that we have at this stage.

Yes. So in general, we mentioned quite a lot all the measures that we took in the business, including reducing the stake limits already to 5 and 10 and more affordability checks that we do as soon as customer deposited GBP 500. All these put us in a better position to deal with what will come out of the Gambling Act review. Of course, we need to wait and see how exactly it will land, but we believe that we are positioned well for absorbing a significant part of what will come with this. And in any case, from a timing point of view, it seems like it's a more 2024 event rather than 2023 then.

Next question here. What are your thoughts on paying out a dividend over the next couple of years? Will you be looking to reinvest exits excess profits? Or will the dividend be delivered? And I know you've kind of touched upon your immediate goals, but any color on that?

No. Well, certainly, I think in answer to Tom's question, look, we've been pretty clear that we've taken this on as a major acquisition with a degree of leverage and that we're focused on delevering that position. So we have already stated that we don't intend to pay dividend until the leverage ratio is 3 or under. And so for the next couple of years, the expectation for any shareholder should be that we will focus and be ruthlessly identifying our ability to delever as strongly and as quickly as possible. And for the shares, of course, that has a disproportionate impact on being accretive for growth. So we're not looking to pay dividends now. We are looking to make sure that we fund our continued growth in development and to make sure the business continues to flourish, but our focus will be on deleverage and it won't be on paying a dividend until we get the leverage to a position that we're entirely comfortable with.

Question from Mark Chee, who asks if the CEO has only one big goal, would it be to reduce leverage to 3.5x EBITDA?

Well, I'm not sure that I will give -- I mean I'm not sure when the new Chief Executive Officer comes in and I become the non-Executive Chairman again, but I will say that will be the one big goal. I think that's inherent in our plan. to try and make sure that we do that. I might think more ambitiously about tasking the new Chief Executive Officer with an even bigger goal than that. So I think it's important to say that our focus has to be on ensuring that we delever effectively. We continue to grow the business. We continue to grow EBITDA. We continue to run an efficient business, and we continue to excel in customer experiences and product offering our technology underpinnings. Those are the things that we have to do. And if we had an ambition, it would be to look at our slides that I presented to you, where it looks at the sort of people that we're sort of competing with and trying to become an effective global operator. I suspect that the target that we will give the new Chief Executive Officer will be a much bigger sense of ambition about where they can drive the business.

I think you've touched on the gambling white paper that Mohit asks, can you provide more color around the safer gambling measures? I think you've touched on that, but if anything else there that you want to add. And really, do you have any view on whether loss limits or slot limits may have? What impact they may have on the business?

Well, I'll cover part and then I'll hand over to Yariv also to deal with some of those questions. And I think I'll also ask Von to add some final comments on this area. I think it's important to say the following. Firstly, there have been historic failings that we've had to come to terms with. They've been mainly in process and procedures. And there have been some difficulty with some of the experiences that the customers have had. I think across all of those areas, we've done a huge amount to ensure that we've got the right policies, the right procedures, the right people in place and the right way to deal with those across all of those. So there are a large number of elements of work that we've done and continue to do and continue to test to make sure that we're dealing with that. Some of those come through discussion and inspection by the gambling commission, some come through other regulators across the world, and some through our own assessment. So we are constantly doing it, but we have taken very, very strong steps in this direction. Because, one, we've had some issues to deal with. Two, we want to get ahead. And three, we see where regulation is, and we want to make sure that we are in a better position to get the customer the best experience in what they will feel to be a much more tightly regulated market. So that's one of the things that we're doing. And certainly, it's not inherent in anticipation, but it's not accidental that the white paper is coming as to why the Gambling Commission has taken some of the views that it has. And I think that we've done more. We've been very prudent as Vaughan outlined. So I think that we've got a lot factored in that will come as a result of the white paper, but there will be other issues. And I'll ask Yariv to go through what we've estimated and 1 to give a strategic overview as well.

Yes. So it's difficult really to quantify what will be the impact and for 2 reasons. First of all, you never can effect exactly the behavior of the customer for such a reduction. And second, because we don't know where it will land. What we hear right now is probably there is possibility of GBP 2 limit for a certain group of people under 25, but it's unclear what will happen for the people about that. But I can say we did quite a lot on the stock limit already, and we are today between 5 and 10. Five to our understanding is the lowest level that you can find today in the market. There are still operator in the market with 10, 20 and 50 and some of them even above 100. So we are expecting to have a lower impact compared to other operators, which are still running on a higher number.

And from a sort of medium-term strategic perspective, I think all of this hard work that we've done in the last 18 months in terms of reducing those limits putting extra player protections in making sure that we are building a product and content and marketing and offer suite that is tailored towards that sustainable, lower spending recreational customer base, we're really starting to see the benefits of that with higher active volumes of players. So we're seeing growth in terms of that lower spending recreational base. And as we really build our plans around that sustainable relationship with our customers, where they're enjoying their time with us, they're spending within their limits and they keep coming back to us as part of an overall leisure and recreational experience. That will put us in a really strong position for the future. So with those evolving regulations that Jon has been talking about, we've really been working hard to remix and rebalance our business to get ahead of that. And as we look forward with William Hill, we've got 1 of the top 2 Sportsbook brands in the U.K. with William Hill and 888. We've got 2 of the top 3 gaming brands in the U.K. and we've got some of the best products, technology and operating skills out there. So as we look forward to that sort of future environment with clearer regulations with a level playing field, and with an industry that's being driven by that lower spending recreational base, we feel like we've got the really strong capabilities and assets to drive the business forward and to grow market share in the U.K. over the next coming years or 10 years plus. So I think all of that hard work over the last period has put us in a really strong position as we look forward to a stronger and better regulated U.K. market.

Well, that's great. And thank you to all the investors something their questions. That's the final question, and I know investor feedback will be important to you all, and I'll shortly redirect those on the call to give you their thoughts and expectations. But I wonder before doing so, if I may, minus come back to you just for a few closing comments and then our redirect investors to give you the feedback.

Thank you. Thank you very much. Look, I just wanted to sort of, in a sense, finish off by being very clear about how we see the next year. The next year, again, it's tough work to complete the integration to build this platform is exactly what Vaughan says. And so -- we are very grateful for the support that you as shareholders are showing them for being part of this journey with us. We will be very, very focused on delivering the plans that we say. We're not going to start to talking huge high solution sort of stuff -- about stuff that's not going to happen. We are going to give you exactly what we promised to do and deliver it and deliver a very, very exciting and new company, a new business using different skills, bigger platforms, bigger brands, bigger capacity bigger skills. So the next year will be, for us, a very committed 1 of change, transformation and development, and we hope that we'll be able to focus on the issues of delevering of building our EBITDA, building our margin to show what sort of business this can become. And that over the course of the year, not on media bounce, but over the course of the year, a sustainable development and growth of our share price will continue to rise, and we'll continue to develop and show a good, steady progress throughout that period. So thank you for your support, and thank you for being part of this journey with us. And we hope to engage with you again in due course.

That's great. Thank you very much, indeed, updating investors today. [Operator Instructions] On behalf of the entire management team of 888 Holdings, I'd like to thank you for attending today's presentation, and good afternoon to you all.