December 2, 2021

Earn Money

Business Life

Edited Transcript of LEO.ST earnings conference call or presentation 6-May-20 7:00am GMT

STOCKHOLM May 25, 2020 (Thomson StreetEvents) — Edited Transcript of LeoVegas AB (publ) earnings conference call or presentation Wednesday, May 6, 2020 at 7:00:00am GMT

Ladies and gentlemen, thank you for standing by, and welcome to the LeoVegas Q1 Report 2020. (Operator Instructions) Also, I must advise that the call is being recorded today, Wednesday, the 6th of May 2020. And without any further delay, I would now like to hand over the call to your first speaker today, Mr. Gustaf Hagman. Thank you. Please go ahead.

Thank you. Good morning, everyone, and a warm welcome to our quarterly presentation for the first quarter 2020. So together with me today, I have Stefan Nelson, as always, our Group CFO. How are you doing, Stefan, back home in your quarantine?

Yes. Good morning, Gustaf. All good here in Malta. Good morning, everybody.

Let’s go ahead with the report here then and the Q1 highlights.

So our revenues during the first quarter amounted to EUR 89.4 million, and that’s an increase of 4%. We had about 53% locally regulated revenues. Depositing customers were 413,269, and that was 6% higher than last year. And this is a clear all-time high and gives us a great push into the second quarter as well. New depositing customers, 193,428. And finally, an EBITDA of EUR 9 million, correspondent — corresponding to an EBITDA margin of 10% and 24% year-on-year, quite strong. We’re also happy about the results given the negative FX effect of EUR 1.4 million during the quarter. These are our quarterly revenues since the launch of LeoVegas back in 2012, and LeoVegas has grown year-on-year every quarter since the company started.

Let’s now look at our product mix during the quarter. Casino Classic, which is basically our slot games, 74%; Live Casino, 17%; and Sport stands at 9%. Naturally, Sport will be affected in April and going forward due to canceled sport events. And these percentages are by gross gaming revenues as well.

Business update. Market update and COVID-19 update. First of all, it’s a human tragedy that we see right now, and the effects of COVID-19 crisis are hard to assess and the conditions are changing constantly. As an entrepreneur, I have a great understanding for other businesses that have been forced to fight for their survival. For us, the health of our employees, their families is the most important right now. And I’m extremely proud of how our employees have handled this difficult situation, working from home since our offices have been closed since mid-March. The ongoing crisis had less impact on online-based business. The online gaming is part of the entertainment industry, where people — and when people no longer are going to cinemas, restaurants and similar, more of their leisure budgets could be spent on other entertainments such as gaming. For LeoVegas, canceled and postponed sporting events have resulted in a sharp drop in revenues from sport games, which amounted — which accounted for 9% of revenues before the crisis. And at the same time, LeoVegas has slightly taken market share in the casino market, mainly from land-based casinos as well from competition — competitors that are more sports book-oriented. Our assessment is that the COVID-19 crisis this far has had a neutral to slightly negative effect in Sweden.

At the same time, we are concerned of the risk for global recession, during which people leisure and entertainment budgets could be exposed — expect to decrease even more, which in turn could affect their online habits.

Responsible gaming. We are concerned about the risk for problem gaming during the current circumstances. Regardless of the situation in our external operating environment or the economy, we put our customers’ safety first. We have tools that can be used to set deposits, loss limits — and loss limits, for example, and we are actively helping our customers with this and continuously informing about how to play responsible.

In an online digital world, everything is measurable. And we are working proactively with the help of our upgrade to detect tendencies for unsound behavior at an early stage. This allows us to act before the customers’ gaming becomes a problem.

In addition, we are exercising extra restraint in our advertising. And so far, we have not seen signs from our data that problem gaming among our established and new customers have risen. And we are paying great attention to the individual level to ensure that this remains the case. And again, remember that gambling online is safer in terms of verification of the customer ID, traceability and player behavior, as already mentioned, and also in payments since there’s no cash involved. So my message here is play safe, play online.

General business updates. We managed to migrate in the — our business in the U.K. into our own platform. That’s really successful, a big kudos to the team that made it happen. We’ve reached an agreement with the sellers of Royal Panda on the earn-out. It is great not to have that uncertainty on the balance sheet any longer. Several product improvements, primarily within payments, have driven our growth. And then Mårten Forste started as the new CEO during the quarter. A warm welcome to operations, Mårten.

And I also would like to say a few words to Robin, my co-founder of LeoVegas, that has decided to leave the Board of LeoVegas. Robin has been fundamental in the growth of LeoVegas and a great partner during these 9 years. And I’m looking forward to many years to come as a strong supporter of Leo. Thank you, Robin.

Greatest gaming platform. I just want to say a few words around our platform, our own platform that we call Rhino. So Rhino was built back in 2013 to 2015 with the main purpose to build our own platform geared for all situations in the future and of course, with the greatest and latest technology, future growth. We wanted to be able to steer our own destiny. And I think last year, when we launched our own brand, the GoGoCasino, and this quarter, where we managed to migrate 12 brands, is a great testimony of our technology-first platform. So all in all, our technology enables us to grow faster with a better and safer gaming experience for our customers, acquirer other operators as well as builder of brands.

LiveCasino.com. We are proud and excited to launch LiveCasino.com on our own technical platform. The team has done a fantastic job of taking the entire Live Casino experience to a whole new level. And LiveCasino.com is now being launched globally in a number of English-speaking markets and of course, the ambition to launch in several of the group’s locally licensed markets in the future. And given our ambition to take a position as a global leader in online casino, it’s natural to offer a brand targeted at Live Casino. And we wanted to create a natural gathering place of everyone who loves playing such games such as roulette and blackjack. And the brand offers a unique and innovative way to log in and register as a customer and goes in line with the company overall strategy and passion to be the king of casino.

ESG targets. Sustainability is often described in terms of ESG: environmental, social and governance factors. LeoVegas has decided to set ambitions, targets and measures for these 3 ESG pillars. And this is in an effort to be transparently clear and concretely show that LeoVegas is trying to achieve and it’s working on building a sustainable company and advocate for a sustainable gaming industry. The targets are followed up and reported in LeoVegas sustainability report on a yearly basis. Group management and the Board of Directors are responsible for ensuring that the company works with achieved set goals. And our ambition in responsible gaming then, “Retain and strengthen the position as a leader in responsible gaming.”

LeoVegas has a technology and data-driven approach towards responsible gaming. First, it’s fundamental in order to be effective and proactive in detecting an unsound behavior and take care of our customers. Today, approximately 10% of LeoVegas employees work specifically in roles tied to compliance and responsible gaming. And one example of our KPI that we report in our sustainability report are how our tools are used. For example, in 2019, almost 900,000 new deposit limits were set, and we reviewed over 15,000 customers from a responsible gaming perspective. And again, our entire work within sustainability can be read in our sustainability report that is published on our corporate website.

Market comments. So let’s start with the Nordics. Sorry, that was U.K. One too much. Nordics here. So Nordic stands for 41% of the group revenues with EUR 31.1 million. And Sweden — I think, on a whole, the Nordics region had a slightly weaker quarter, which was partly affected by a decrease in sports affecting activity at the end of the period and greater restrictions on bonuses and deposit limits in the Danish market.

And in Sweden, we continue to take market or gain market share in the first quarter. And there has been an independent study by Copenhagen Economics that the channelization in Sweden is only approximately 75% online casino versus the authority target of 90%. We believe that new proposed restrictions will hurt the channelization even further and risk destroying the entire Swedish regulation, unfortunately. NGR in April, unchanged versus the Q1 average so no impact from the COVID-19 situation in Sweden.

And other Nordics, somewhat softer development in the other Nordic markets, and GoGoCasino is to be launched in Finland during Q2.

Rest of Europe. Rest of Europe stands for 46% of the group revenues with EUR 39.9 million. We are now beginning to see a clear effect of the measures that we’re taking in the U.K. market. We closed the Royal Panda brands back in January and migrated the remaining brands. It’s a huge milestone for us as a company. And again, kudos to the guys, the tech and the platform teams, who made it happen. The remaining brands grew in total compared with both the same period a year ago and with the fourth quarter. So with all brands now operating on the same platform, we have created really good growth opportunities in the U.K. market going forward.

Germany then. Germany continues to grow, and it’s nearly back to the same level as in September last year when we were negatively affected by a payment provider that put restrictions on gaming payment. After many years, the German federal states have now agreed to regulate the online gaming market at a national level at the end of 2021. We believe this is positive development and something that we have looked forward to for a long time. However, as always, there are certain elements and restrictions in the draft regulation that may have a negative impact on the attractiveness for the players and on that player value. But over time, this might be compensated by lower compensation — lower competition and greater access to payment options and marketing channels. So we are waiting with confidence for all the details surrounding the future regulation in the German market. So all in all, Germany has recovered and are back to similar levels as in Q3 2019, and Germany plans to regulate in the end of 2021.

Let’s have a look at the rest of world. So rest of world stands at 13% of the group revenues, which is EUR 11.1 million. Somewhat weaker development in Canada, mitigated by good growth in most other rest of world markets. Focus to scale up markets that were launched during 2018 and ’19. And of course, we’re looking into more market entries during 2020.

To current trading. April ended up with EUR 37.6 million in revenues, and that’s a growth of 23% compared to April last year. I’d like to think about our performance in April as internal factors and external factors and that they are contributing equally to the growth in April.

A couple of internal factors. Well, we had the successful migration in the U.K., and we also made a number of improvements in the products and in the payment in a number of markets. And we managed to have a record large customer base at the start of the period on Q2. And I think our acquisition and retention machinery internally are working really, really well.

And external factors. The huge impact here is that we take market shares from the land-based gaming industry. This is mainly in markets where the land-based industry has been totally shut down due to the COVID-19 crisis, but also from competitors with a primarily sports betting focus.

In Sweden, which has been in the spotlight recently, generated — we generated a flat revenue growth in April versus the first quarter average monthly revenues and has not been a driver for growth in the beginning of the second quarter.

So at the same time, our assessment is also that the total gaming market in Europe has decreased as a result of the ongoing COVID-19 crisis. It’s hard to predict the long-term effect for LeoVegas, but the longer the crisis continues, the greater the risk is that the revenue will be negatively impacted by consumers’ reduced purchasing power. But LeoVegas is part of the entertainment wallets. And naturally, during quarantine, people can’t go to cinemas, restaurants, et cetera, and they will spend more time online, just as they do with other online products as food and e-commerce. And the strong already going — the trend with off-line goes online has accelerated clearly. We can see it in a number of markets, and that’s a really good shift.

And with that, I’ll leave to Stefan to run our business KPIs. Over to you, Stefan.

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [5]

——————————————————————————–

Thank you, Gustaf. We can move and go over to our customer base, if you can switch pages back there in Stockholm.

And so we had a good customer development in Q1, and that’s one of the things that we are most happy about. The customer KPIs were strong throughout the quarter. Our new depositing customers increased by 3% year-on-year and was up as much as 22% sequentially. It’s a new all-time high in Q1. Also, our returning depositing customers reached a new all-time high in Q1 and was up 10% Q-on-Q. That leaves us at a total depositing customer base increasing 6% year-on-year and 11% quarter-on-quarter. And overall, as I think Gustaf mentioned, we have been successful both in finding marketing channels where we can scale with good ROI. We have improved our SEO capabilities, and we have also worked a lot with improving our retention rates.

Take the next page. We can look at our player value. So while our customer base increased a lot, the average deposit per depositing customer in Q1 decreased 1% year-on-year and decreased 9% quarter-on-quarter in Q1. Also, the average NGR decreased both versus last year and versus the prior quarter. And this is what we have talked about before and reflects a long-term trend of more casual players and a lower share of high-value players. And we do, as we’ve talked about in previous quarters, expect our future growth to be driven by a growing player base, while the player value will be likely flat or even decline in the long term.

So with that said, if we take the next page. We have added a page to look a little more about — on April as well given the special situation we are in currently. And if we look here on the trends in April, importantly, we don’t see any change in the existing player behavior related to COVID-19. Growth in April is primarily driven by a record high player base. I mean the strong growth we see year-on-year in April in depositing customers is both related to our player base in March and in April, which is up more than 20% year-on-year. And that, of course, reflects the continued solid underlying momentum as well as the probable market shares from land-based operators during this time. Meanwhile, looking at the player value, it has increased in April versus the Q1 levels, but it’s still at normal levels, and it’s in line with the 2-year historical average. And in fact, the numbers we’ve seen in April is actually lower than the levels we saw in Q2 last year.

So to conclude, we see a healthy mix, which shows that we are taking market shares, not least in markets with a large land-based industry. And we don’t see any signs of increased problem gambling during this time, which is very positive.

So with that said, we can take the next page and — in which we will move back to Q1 again and have a look at the game margins. And the game margins in Q1 increased to 3.76%, and that’s up versus 3.62% in previous quarter, and it’s also slightly above the historical average of around 3.7%. And the casino margin was slightly above the historical average, while the sports book outperformed, not least in January, we saw very high sports betting margins. Meanwhile, the hold in Q1 increased slightly to 30% from 29% in Q4, and that is still in line with the long-term average level.

And that brings us to our deposit and NGR on the next page. And the deposits increased by 7% versus last year and 1% from Q4. And NGR also increased by 4% versus last year and 5% versus Q4. And the difference is that it usually is reflecting the shift in game margins between quarters.

If you go over to the next page, let’s have a look at the marketing spend during the quarter and the marketing KPIs. The marketing spend increased in Q1 versus Q4 to EUR 31 million, but it’s still below the level of Q1 last year. And I think more importantly to point out this quarter is our customer acquisition cost, which is actually down 14% versus Q4 and down 7% year-on-year to a record low level. And this is, of course, good. And as I mentioned before, this means that we have been successful in our efforts to scale our marketing with good ROI. It also reflects that we did a lot of campaigning in Q4, which we’re getting players in Q1 from those investments. And our market mix continues to shift more and more towards digital and trackable channels, where we are very focusing on measuring the ROI we generate.

So if we move over to the financials and look a bit at our results on Page 25. The report on adjusted EBITDA in Q1 was EUR 9 million, and there were no extraordinary costs in this quarter. The EBITDA reflects a margin of 10%. This implies a 24% EBITDA growth year-on-year, and this is despite that we have remained with a high investment level and also had unrealized FX losses of EUR 1.4 million during the quarter. And the FX losses mainly relate to revaluation of cash balances and other currencies than the euro, which was, of course, impacted by the FX volatility at the end of the quarter. And worth pointing out that these losses are unrealized.

So next page, we can look a bit at the buildup to our Q1 results compared to the prior quarter. And first and foremost, of course, our results in Q1 benefited from higher revenues. That, in turn, also drove a bit higher betting taxes in Q1, where we had a record high share of regulated revenues during this quarter. Meanwhile, our cost of sales were a bit lower, both in relative and absolute terms. And that reflects a continued improvement in supplier commercials, but also a reallocation of certain costs from cost of sales to operational expenses. I’ll get back to that.

Marketing spending, while increased a bit, as I talked about, personnel expenses decreased slightly versus the prior quarter. And then our operational expenses increased quite a bit, EUR 2 million. And that, of course, reflects both the unrealized FX losses, but also the reallocation of costs from cost of sales. And this will be the new normal, so to speak, that these costs will, in the future, also be in operation — operating expenses. But important to point out is that the underlying operational expenses in the quarter were largely unchanged compared to Q4 ’19. And that leads us to EUR 9 million in reported EBITDA in Q1.

Next page. Very quickly, just going down the P&L. Our adjusted EBIT for the period was 6.3%, and that’s when we exclude amortizations related to previous acquisitions. The reported EBIT, of course, includes regular amortizations of those previous M&A that we have done. Our adjusted net income for the period was at EUR 5.7 million in Q1.

And finally, our cash flow. And our cash flow from operating activities before any changes in working capital amounted to EUR 9.3 million, and that’s, of course, primarily driven by the underlying EBITDA results. We had a small decrease in working capital in Q1, which improved our cash flow. And meanwhile, we also made a payment of EUR 3 million as part of the earn-out agreement that we have signed with the sellers of Royal Panda. The remainder of this earn-out will be paid out in 2021 at the latest.

And that leaves us with a solid financial position. Our cash at the end of the quarter was about EUR 54 million, and our remaining debt is about EUR 70 million.

So with that, I leave the word back to you, Gustaf, for some concluding remarks.

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [6]

——————————————————————————–

Okay. Thank you, Stefan. So let’s summarize the Q1 and the start of Q2 here at 2020.

So Q1 revenues were EUR 89.4 million. That’s a 4% growth. Adjusted EBITDA at EUR 9 million, a 10% margin. Remember, the FX effect of EUR 1.4 million as well. Our U.K. brands are now operating and run on the group’s — on our own platform. We launched LiveCasino.com that had an increased focus on sustainability and ESG targets. And the COVID-19 has — so far had a neutral to negative impact on the Swedish revenues and a neutral to positive impact on international revenues, where we are taking market share from the land-based industry. And April revenues were EUR 37.6 million. That’s a 23% growth. And off-line goes online, I think that’s an acceleration of an already going — ongoing trend. And we see an all-time high in depositing customers due to this.

So finally, play safe, play online, play at LeoVegas.

And with that, let’s open up to questions.

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) So our first question is from the line of Martin Arnell from DNB Markets.

——————————————————————————–

Martin Arnell, DNB Markets, Research Division – Analyst [2]

——————————————————————————–

So my first question. On this strong Q2 trading that you experienced in April, can you elaborate a bit more on these reasons that you state? The payment flow, for example, what was that? And also, you mentioned a record large customer base at the start of Q2. What kind of customers is that? Is it any change from your intake before, et cetera? It would be interesting.

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [3]

——————————————————————————–

Well, thank you. I can start with the 2 first questions here around the payment solutions. Yes, we’ve done a lot of improvements in the products during Q1, and we see an ongoing effect from that into Q2. And payment providers is always something that we are trying to have several payments provider for every country in line sort of if one of them goes down. And we managed to find several good payment providers for several countries, which had bolstered revenues from those countries. And that’s a sustainable business, I would say. But also, the major shift would be at the land-based. We’re taking a lot of market share, thanks to land-based business. For instance, in Italy, where you have — the land-based business is around EUR 18.5 billion. And online, it’s only EUR 1.8 billion so far. And you can imagine what happens when that business closed down on the land-based — the land-based business closed down. So there’s a lot of shifts in movements towards online. And of course, the company who has the greatest product will win that race.

And when it comes to the customer base, maybe you can elaborate a little bit on that, Stefan, please?

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [4]

——————————————————————————–

Yes. Sure. I think, Martin, as you saw in our presentation, we’ve had a very strong customer development throughout Q1. So we’re kind of coming into Q2 with a strong momentum. And that’s also worth pointing out that when we got in quite many new NDCs during Q1, but also quite a low player value, this — we have been good at retention. I think we have improved that, and that’s a lot of small tweaks, et cetera, that has improved our retention rates. And of course, there are also some markets where we see a higher share, of course, of casino players than sports betting players these days. So I think it’s a mix of things, but primarily, actually, the momentum that we experienced in Q2 in many markets, to be fair.

——————————————————————————–

Martin Arnell, DNB Markets, Research Division – Analyst [5]

——————————————————————————–

Okay. Great. And also on the — what was the organic growth, excluding the U.K.? Is that something you can state?

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [6]

——————————————————————————–

No. I think we’ve stopped commenting on that. I think last year was a bit exceptional. What we have — what we can say, however, is that the remaining U.K. brands, excluding Panda, had — were growing both year-on-year and sequentially in Q1. So we will definitely see that we’ve turned the corner in the U.K.

——————————————————————————–

Martin Arnell, DNB Markets, Research Division – Analyst [7]

——————————————————————————–

Great. Okay. And you mentioned a lot in the report about this — the pressure in the land-based market, and that’s gaining you. What else — in addition to Italy, what other markets are you seeing this trend would be interesting to understand.

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [8]

——————————————————————————–

Well, U.K., clearly, a huge trend in the U.K. We see it in Germany, Spain, several markets. Not that much in Sweden, though, but those markets that I mentioned.

——————————————————————————–

Martin Arnell, DNB Markets, Research Division – Analyst [9]

——————————————————————————–

Okay. Excellent. And Stefan, on the cost outlook, I mean, you have a 15% margin target when 100% of revenue from locally licensed market, which could imply that your margin should be a lot bigger here in the near term. So — and I’m interesting to understand, on personnel, for example, do you still expect to keep staffing stable this year? And other OpEx, is there anything there? What do you expect in terms of marketing? Please elaborate on the OpEx breakdown.

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [10]

——————————————————————————–

Yes. Sure. I think to start off, I think we’re still very dedicated and focused on keeping our other operational expenses down and trying to flatten them out as much as possible. I think we’ve been pretty good, even though the OpEx line goes up and down for other reasons like FX in this quarter. But in general, I think we’ll continue to focus on that. In fact, we still are finding ways to find savings, which is good since we’ve worked with this quite some time now. When it comes to the personnel, as you know, we have actually — our staff base is lower than it was a year ago. I think looking from here, we — I think without putting any commitments into it, I think it’s reasonable that we might grow it a little bit. The more we grow our revenues, of course, and invest in new brands, such as LiveCasino.com, we might see some additions. But we don’t see any major changes. We’re getting more and more effective and smart to how we work as well. So definitely, this is an area where we expect to be able to scale up from.

——————————————————————————–

Martin Arnell, DNB Markets, Research Division – Analyst [11]

——————————————————————————–

And your marketing spending, how is the current situation impacting that?

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [12]

——————————————————————————–

I think in terms of marketing, as always, we are more ROI-focused, and that means the marketing goes up and down. And we’re, of course, not profit maximizing. With that said, I think Gustaf mentioned, we are definitely — we’re shifting focus in our marketing. We have a softer messaging. We’re investing more in RG campaigns, which is not acquisition-driven. So we’re doing other sorts of shifts as well right now due to the situation. And in some markets, we’re, of course, lowering the marketing spend. But in general, I would say that — I mean, a bit more on the long-term outlook, as long as we see this — the ROI that we’re seeing right now in — and a low customer acquisition cost and a good momentum, we obviously will continue to invest.

——————————————————————————–

Martin Arnell, DNB Markets, Research Division – Analyst [13]

——————————————————————————–

Okay. Great. And on the LiveCasino.com, what is sort of so unique about it aside from the brand? And also, when do you expect your launch in locally licensed markets? And can you say anything about the start? I know it’s very early, but…

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [14]

——————————————————————————–

Well, yes, it was launched on Monday, Martin, so it’s kind of early to talk about the start. But, well, we have social log-in from Google, Facebook, et cetera. And right now, it’s live in a couple of English-speaking countries. And we’ll see a little bit how that develops before we move into regulated — locally regulated countries.

——————————————————————————–

Martin Arnell, DNB Markets, Research Division – Analyst [15]

——————————————————————————–

Okay. Great. And just a final question for me. On Sweden, have you received any response from your letter to the Minister? And what do you expect in terms of timing and implementation of these restrictions that’s been imposed?

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [16]

——————————————————————————–

Well, first of all, it’s just proposals. So it’s still up for discussion if it’s going to be voted for or not. But if it is, we believe it’s very unlucky, actually, because it will drive sort of the black market. What’s happening is — what will happen is that the most vulnerable players will move to the black market. And clearly, the new Copenhagen Economics report, which came last week, it’s a clear sign of — that the channelization in Sweden for online casino is very, very low. It’s around 75% versus the goal — the target from the government of 90%. So by doing this, actually, the Minister is driving the black market. And it’s not good for the customers, the health of the customers or for the tax in Sweden or for the industry itself. So let’s really hope for — that it’s not going to be voted through as it looks like now.

——————————————————————————–

Operator [17]

——————————————————————————–

Next question is from the line of Oscar Erixon from Carnegie.

——————————————————————————–

Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [18]

——————————————————————————–

A few questions from me. First of all, regarding the strong trading in April here. Have you seen this strong momentum continuing into May? And do you expect it to continue throughout Q2? Or is there some factor that could tilt the picture of the strong growth here?

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [19]

——————————————————————————–

And so May, just a couple of days, and we’re not going to comment on May. We’re going to comment on April. And as I mentioned in the call, we believe it’s equally for — sort of internal factors and external factors, that — where the internal factors are, things that we’ve been working on for a long time, such as the improvements in the product, specifically with the payments and the migration in the U.K. that has created a really good foundation for future growth in the U.K. now. But also the way the machinery works, overall machinery, I would say, when it comes to customer acquisition and retention, which is a lot better now than have been for ages. So those are the internal factors.

And the external ones, as also mentioned in the call, the major one would be the land-based industry in several countries are closed down, and that’s really accelerating the shift from off-line into online. And we all know that within the online sector as well, the mobile part, which is — while LeoVegas is our core sort of mobile-first company here, it’s growing even faster than the regular online part. So I think there is a lot of a lot of changes happening right now throughout Europe, mainly in Europe, I would say, when it comes to shift from off-line to online. And I think a big part of that is probably here to stay. It’s just like with other industries. If you have started to buy food online and shop online, then you will probably continue doing it to a very large extent.

——————————————————————————–

Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [20]

——————————————————————————–

Great. And could you elaborate a bit on how you’re thinking about marketing now in Q2? Obviously, some markets, it’s become a bit sensitive to have high marketing exposure in TV and other channels. How do you think in terms of marketing? And also, given that Italy is likely one of the best performing markets, and there you can’t have any marketing, so is it reasonable to assume that marketing will be lower as a percentage of sales now in Q2?

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [21]

——————————————————————————–

Well, I can comment on the sort of the message in our marketing, and then maybe Stefan on the numbers here. But yes, we are taking a lot more cautious approach when it comes to marketing, and we’re doing a lot of responsible gaming marketing. We’ve done that in the U.K. for quite a long time. We’re doing it in several countries in Europe. And there is a pretty large campaign going live in Sweden as well when it comes to play safe and responsible. And I would say, as also I mentioned in the call, that it’s always safer to play online. So play safe, stay online, play at LeoVegas. That’s going to be our message throughout.

And when it comes to the numbers, maybe if you want to comment on that, Stefan.

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [22]

——————————————————————————–

Yes. Sure. I mean as you said, Gustaf, I mean, I think it’s — we have rather shifted in our messaging and working with — and reallocated money to RG campaigns, et cetera, in some of the markets like U.K. But Oscar, as you know, I mean, we stopped commenting or guiding on marketing spend because it has always turned out that we have problems ourselves predicting how it will end up. And I think that the same goes for this quarter. I think also, remember that some of our marketing spend is also related to affiliation rev share deals from the past, which is hard to control. So I think it’s difficult to give any guidance on how it will evolve. However, again, I think when we see good ROI, of course, then we continue to invest. But we are cautious in how we address the players at this stage.

——————————————————————————–

Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [23]

——————————————————————————–

Got it. And regarding the reallocation of costs, could you explain that a bit? Is it from direct costs that you’re reallocating to other OpEx? Or how to understand it?

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [24]

——————————————————————————–

Yes. It’s certain sports betting-related costs like for streaming, et cetera, which are more a fixed nature, which we have reallocated. I think the impact on the gross margin is about 0.6 percentage points from this reallocation. It’s — you can discuss. They have been allocated to direct costs in the past. But through our auditors, we found it more prudent that this should be in the OpEx line. So it’s basically just a move from one item line to another.

——————————————————————————–

Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [25]

——————————————————————————–

Got it. And a few questions also on the new brands. And — but first of all, Live Casino was 17% of sales now in Q1. If I remember correctly, it was 19% in Q4. So have you seen any disturbances in Q1? Or how do you explain that — the decrease in share of sales?

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [26]

——————————————————————————–

Stefan, have you looked into that?

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [27]

——————————————————————————–

Sorry. Regarding the LiveCasino.com? I didn’t catch the question really.

——————————————————————————–

Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [28]

——————————————————————————–

No. The overall Live Casino has decreased from 19% to 17%. Why would it be like that? I think you have fluctuations.

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [29]

——————————————————————————–

I think it’s just fluctuations in margins. I think we still see Live Casino as our fastest-growing product the past year or years even. I think last quarter, we had a bit stronger margins. It’s nothing that I have reflected at much on.

——————————————————————————–

Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [30]

——————————————————————————–

Got it. And regarding new brands, what do you expect from LiveCasino.com? It should be able to generate quite strong traffic, I suppose. And also, have you paid anything for the actual website address?

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [31]

——————————————————————————–

Well, actually, the website was acquired back in 2016, ’17, a couple of years ago. Very much — look, when we did that, we looked forward to build a worldwide operator in the live casino space. It has a great search value on Google, of course. So actually, when people are searching for a casino, Live Casino, blackjack, roulette, et cetera, it ends up among the top searches, which is very good for the customer acquisition, of course. And it’s early days, but it’s live in a couple of English-speaking countries, and it will be later on also launched in several of our locally licensed countries.

——————————————————————————–

Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [32]

——————————————————————————–

Got it. And 2 final questions from me, if I may. GoGoCasino has obviously had a strong start now in 2019. Are you feeling the competition now from newer brands such as Gala Casino from Betsson, for example, into March and April?

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [33]

——————————————————————————–

No. Not really.

——————————————————————————–

Oscar Erixon, Carnegie Investment Bank AB, Research Division – Financial Analyst [34]

——————————————————————————–

Got it. And final question. German regulation, do you expect it to be as tough as the initial comment suggests? And also, how likely is it to go live in 2021? And do you see a risk for a blackout period to be similarly as in the Netherlands?

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [35]

——————————————————————————–

So there has been no talks around the blackout period like in the Netherlands. But when it comes to these early drafts of the regulation, I think as in every countries, it will change. Hopefully, the German authorities are looking at what we’re doing in — the industry is doing in the Denmark, Sweden, U.K. and so on. And they will probably understand that putting a restriction, like the ones that they have a draft that is, is not pretty good. Then you will create a huge black market from start, which is not good for the care of the customers or the tax situation in Germany, et cetera.

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [36]

——————————————————————————–

Let’s see if we have any more questions.

——————————————————————————–

Operator [37]

——————————————————————————–

(Operator Instructions) Okay. It looks like there are no further questions. Sir, please continue.

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [38]

——————————————————————————–

Sorry. No more questions?

——————————————————————————–

Operator [39]

——————————————————————————–

Yes, sir. No more further questions. Please continue.

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [40]

——————————————————————————–

Okay. So if there is no further questions, then we are — okay, well, let’s have a look at the Internet then. What do we got here, Philip?

——————————————————————————–

Philip Doftvik, LeoVegas AB (publ) – Director of IR & Corporate Finance [41]

——————————————————————————–

So the first question is regarding the new brands that you launched, LiveCasino.com. What is to be expected in the future? You have Live Casino now, GoGoCasino a year ago. Is that the frequency we can expect going forward with new brands?

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [42]

——————————————————————————–

Well, we can see our multi-brand platform and the ability to launch new brands. When we see sort of an opportunity in the market, it could be a locally regulated market ex Sweden, we could fairly easily now launch a new brand. It doesn’t necessarily have to be a casino brand. It could be sports. It could be something else. So we have the ability to do it. And then just up to — set ourselves and the opportunities in these countries. So clearly, yes, there will be more brands going forward.

——————————————————————————–

Philip Doftvik, LeoVegas AB (publ) – Director of IR & Corporate Finance [43]

——————————————————————————–

Okay. Second question, what is the estimated size of the remaining earn-out of Royal Panda?

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [44]

——————————————————————————–

Stefan, would you like to comment on that one?

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [45]

——————————————————————————–

So the remaining, we have agreed not to announce the exact amount. What I can say is that it’s slightly below what we have — what we had reserved on our balance sheet. And as I commented, we have made the first payment, and the remaining payment will be made in 2021 at the latest. So all in all, it’s a lot in line with what we had reserved.

——————————————————————————–

Philip Doftvik, LeoVegas AB (publ) – Director of IR & Corporate Finance [46]

——————————————————————————–

Good. And then we have some questions on the cost side for you, Stefan. Basically, how scalable is the OpEx base now? If revenues continues to grow, will OpEx stay stable? Or how will that potentially develop going forward?

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [47]

——————————————————————————–

Yes. I think it was the same question that Martin asked before more or less. And I think, again, to just comment, I think that we — this is definitely areas where we should see scale benefits, and we are working hard with our OpEx to hold it flattish as much as possible. Then of course, the more we grow, the more we usually need to add some more costs, some more staff. But definitely, this should be an area where we should see operating leverage.

——————————————————————————–

Philip Doftvik, LeoVegas AB (publ) – Director of IR & Corporate Finance [48]

——————————————————————————–

Good. And then the final question is regarding buybacks of shares. So maybe you can just remind the listeners about the notice of the AGM on Friday regarding buyback.

——————————————————————————–

Gustaf Hagman, LeoVegas AB (publ) – Co-Founder, President & CEO [49]

——————————————————————————–

Well, yes, it’s going to be decided on Friday so there’s nothing to discuss as of now actually.

Okay. If there is no more questions, then I say thank you, guys. Thank you, everyone, for listening in to our Q1 report 2020, and see you next time. Okay.

——————————————————————————–

Stefan Nelson, LeoVegas AB (publ) – CFO [50]

——————————————————————————–

Thank you.

——————————————————————————–

Operator [51]

——————————————————————————–

So that does conclude our conference for today. Thank you all for participating. You may all disconnect. Speakers, please stand by.

Source Article