Evoke (LSE:EVOK) — Full Year Results

0:02 Good afternoon, ladies and gentlemen, and welcome to the eight eighty eight Holdings PLC Full Year Results Investor Presentation. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll. And if you'd give that your kind attention, I'm sure the

0:33 company would be most grateful. And I'd now like to hand over to Yaref Dafner, CFO and Ittai Pazner, CEO from eight eighty eight. Good afternoon. Hi. Thank you very much, and good afternoon, everyone. I'm Itay Pazner, the c CEO of eight eighty eight, and I'm joined here today with Yariv Dafna for an overview of our 2021 annual result results. We'll start with the slide two and some highlights for the year, and it was a really positive picture of the business that is in a really, 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 $980,000,000.

1:22 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, this is 75% higher than where we were in 2019.

1:37 So over the course of the last two 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 US, we signed a landmark deal partnership with the Sports Illustrated to operate our our Sportsbook brand in The US under sisportsbook.com. In September, we announced a transformational acquisition of William Hill International, basically all of William Hill's assets outside of The US. And in December, we announced the proposed sale of our bingo business, which will enable us to increase the focus in the fantastic growth opportunities that we have ahead of us.

2:28 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, Itay. Good afternoon, everyone, and thank you for joining us. On slide three, I will walk you through how we convert our revenue into adjusted EBITDA. Our revenue were up 15% to a new record of $980,000,000 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, our growth in regulated markets, but we were able to offset most of the increase with efficiency in our other direct costs.

3:17 As a result, the gross margin was broadly stable at 66%.

3:23 Marketing is the biggest investment we make as a company. We invested in $20,213.00 $7,000,000 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 three percentage point, which partially reflect our increased investment in The US with the launch of SI Sportbook in September. In terms of operating cost, they increased by only 3%, reflecting our embedded operating leverage and our scalable proprietary technology. Our adjusted EBITDA margin was a little under 17%. The main change here, was our increased investment in The US. So if we exclude that, our EBITDA margin was fairly stable.

4:13 Our cash generation continued to to be strong, and we ended the year with $175,000,000 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 four. One of our key goals is to build eight eighty eight 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.

5:04 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 geographic perspective. The UK 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 market such as Romania and Ireland.

5:51 The America, including US, 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

6:05 or four additional states in The US during the course of this year. Moving to slide five and our current trading and outlook. Firstly, I will touch our current trading. We have started 2022 with improved momentum and 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 q four twenty twenty one. 2022 has some growth drivers such as Germany, the launch of Ontario planned for Epri, the new state launch in The US, and hopefully, the relaunch of The Netherlands on a 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 targets.

6:57 With that, I will now hand over to Itay to tell you a bit more about our strategic priority, key achievement and growth plans. Thank you, Yaurav. And now turning to slide six, I thought it would be useful to provide an outline of our refined growth strategy for the group. We have a clear framework and tools to deliver sustainable and long term growth built around these three 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 UK, Italy, and Spain are 59% of our revenues, and revenue growth was 18% in 2021 in these markets.

7:47 Our what we call our growth markets, which represent 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 three 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 at eighty eight. Thirdly, we will be supporting our growth with strategically and financially attractive m and a that enables us to benefit from the scale advantages.

8:38 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 seven, The USA, 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 the 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.

9:25 Now owning all of our technology gives us a low unit cost of production as well as enabling differentiation and localization in The US market. In terms of brand, Sports Illustrated is a household name brand in The US, and its new owners continue to make huge progress such as growing their digital, user footprint from 30,000,000 users, active users, monthly average users just a year ago when we signed the contract with them to now 50,000,000 users at the end of twenty twenty one. And

10:06 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 twenty five years, and and we're bringing all of this knowledge and expertise into The US market with this iconic brand of Sports Illustrated. Growing growing market access deals. So we've secured further market access deals, and now we're planning to launch into three to four more additional b to c markets with SI this year, starting with Virginia already in q two. Medium term, we expect to be in around 12 to 15 states in The US. We also launched poker with our b to b 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 five out of the six current regulated US Poker states.

11:12 Moving on to slide eight, and one of our really key competitive advantages is our world class marketing team and brands. So eight eighty eight 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 act to react in real time to changing market conditions and deliver superior returns on an or in a over our investments.

11:56 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 this single 88 brand strategy is a new approach for us and will unify all of our eight eighty eight sub brands, which are eighty eight casino, eighty eight sports, and eighty eight poker under a single, consistent, strong brand positioning. Having been one of the first online casinos and coming up to our twenty fifth on 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.

12:43 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. Many fly. Oh my. It's made to unwind. It's made to excite. At the right, they go. They're all the good. It's made

13:23 to unite. It's made for the newbies and for the OGs. Houston, I have a full house. It's made for you. And you. And you. And you. And you. And you. It's just made to play. Yeah. That works. Great. 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 strategy is value creation and value enhancing m and a

14:16 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 markets opportunities for us. In addition, William Hill is UK's leading sportsbook brand. And this asset along with a really strong challenger brand, mister Green, will support our sustainable and competitive advantages going forward.

15:02 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.

15:21 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 and a. So the launch of our long term strategic partnership with SI in The US, which I mentioned before, and the announce of 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 and a and partnership opportunities worldwide as we continue to build our position as a global leader in the online gaming and betting space.

16:07 We are particularly focused on strategic investments in emerging and attractive markets, which which will have excellent long term growth potential. Turning on to slide 11. So I'm pleased to to outline our refreshed 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 embedding and gaming leader, we are putting more focus on long term sustainability.

16:41 We are launching a refreshed ESG framework built around three 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 q four twenty twenty one have limits in place, And we're working to to increase this by both encouraging players to place limits themselves and increasing the number of customer limits that we proactively put in place. Our second pillar is made together, reflecting our our commitment to ensure an inclusive environment and supportive workplace environment.

17:33 Our people are the foundation of everything that we do and creating a a positive work environment where people can be the most innovative, creative, and productive is critical for our future.

17:46 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 three 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.

18:27 2021 was a record year for us financially, and we continue, to execute against our growth plans. It was all also a truly transformative 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 US. With that, I'll now be happy to take some of your questions. That's great. Yarev Ittai, thank you so much for updating investors this afternoon, and we'll just bring back up your cameras now. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. But just while Yarev and Ittai take a few moments to review those questions submitted already, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard.

19:34 Yaref, it's I. 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 and 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. Yeah. 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 it might 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 2000 and '20 and 2021 were obviously years of of a very strong growth figures. And we indicated during the year that we think that the the growth will normalize towards the end of the year in q four. And and we actually saw ourselves and the industry that q four was already trading against a very difficult comparable the year before.

20:48 So so it's q one. These were years of, I would say, a strong impact of of lockdowns and and COVID. And as we go towards end of the year, we see kind of a more normalized level of trading. And 2000 and and and '22, actually, in the first quarter of the year, we announced that we we shared that we're seeing a growth over q four, mid digit mid single digit growth over q four. So, you know, we see this as kind of the new base level, the the achievement that we got in the last couple of years. This is the base level from here we want to grow. We have some fantastic growth opportunities.

21:37 We're launching into three, essentially three markets that we know quite well, which is Germany, Netherlands, and Ontario, Canada. We're launching, in all three of them, subjected to regulatory approval. We launched in Germany sports last year. We are planning to launch casino and poker under our license this year. Canada, we're planning to launch in April next month in Ontario. And Netherlands, we're in the process of getting a license, to launch over the summer. These three markets alone represent, market potential of, by by analysts that quoted this by around of around 10 mil $10,000,000,000.

22:25 Just to put that into comparison, that's significantly bigger, than The UK, than The US market, and these are three markets that we know quite well intimate, intimately throughout the last ten 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 gonna be open to marketing activity and to all the things that we know how to do in regulated markets. And and that represents a very strong opportunity. Apart from that, we have The US that I shared, and that's just an emerging and and beginning, to grow. And like we shared here, we have our core and growth markets that we have been active in, we will be activating in in in continuous continuing to grow there. So just to to summarize out, 2022 is is kind of a year of a normalization.

23:17 We expect to see flatter results compared to the last two 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. Thank you, Itay. That turns quite nicely to the the next question, which relates to The US opportunity. And the question is, is The US opportunity running to plan? And what are the KPIs you're looking for as you roll out? Yeah. So US opportunity is running to a a plan. We plan to launch the first market last year. It was done within three to four months of signing the deal. The The US market we launched the first market, which was Colorado. We we call it kind of a test market. So that's where we put the first our our US platform out there for the first time. We did a lot of test and optimization of of of bonusing and of promotions and of the the the the tech system itself. So that was the first market. We we we we did a lot of adaptations.

24:24 We're look we're heading towards the launch of our second market, which is Virginia, which is happening in in in about a month or so. We're already in better shape than what we were in the first market, and there's a lot of work to do in terms of still the integration with SI. So I think overall, we are on a plan, but there's a lot of improvements that we can do in order to get better results in The US market. In terms of the KPIs that we're looking on, they're 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 US, and a lot of companies are spending a lot of money there in customer acquisition and and very high level of bonusing.

25:17 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 kind of our growth potential in America looking forward. Thank you very much indeed. Let's turn to the next question that we've received. And thank you to all the investors that have submitted calls this afternoon. The next question reads 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? Yeah. Yeah. Sure. Of course, as a business, which depends on consumer spending, we are indexed to any trend in the total spend in among consumer.

26:14 Until now, we didn't see something specific, although we are aware of all the all these inflation forecast. Actually, it's we see the opposite. We see January, February running slightly better than q four. But, you know, if this will become a trend which cross all the consumer industry, it it could affect us as well. That's great. Thank you very much indeed, Yaref. I've got a question here from Brett who asks, are you still planning to raise the full 500,000,000 in equity despite the fall in the share price? Yeah. So I 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 of the debt that we will have post closing.

27:04 So this is absolutely up to us, and we said all the time that this will happen at at the appropriate time. So we are following closely the current situation, and the board will decide later on how exactly to to do that. But for closing the deal, we don't have to have the equity. That's great. Thank you very much indeed. If I can turn to a question from Tim w thank you, Tim. What do you see as the biggest challenge of the William Hill integration? So I'll I'll 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 two very big companies that needs to be done and taken care of in in a very, I would say, sensible manner.

27:57 Obviously, we identify very strong components of technology on both sides, which at the end of the day, we want to land with one 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, there are sensitivities around culture, two different companies, two very successful companies, but with the different cultures, and we need to carefully merge these, two businesses. But overall, I would say from a strategic standpoint, these two companies put in front of themselves really the same strategy going forward in terms of markets, in terms of products.

28:43 And and we see this combination as quite a natural combination of of 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 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. It's great. Thank you, Itay. Question around margins here, if if if I may. Where do you see margins going? Is there scope to increase, and how much does market spend drive this? So in in terms of the margin of the business, so potentially, we could have a much higher margin.

29:34 We are in investing mode in several market like US, like Germany, and we will have additional investment situation in Ontario and Netherlands that they will come up. When all these 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 cross company would be lower than the level that you see today. Thank you very much indeed. When would the details of the William Hill financing be disclosed, if that's something that you're able to share? Yeah. So we already indicated that we are expecting to close the transaction in the second quarter.

30:22 I would say considering that we are now in in March already, so you can expect that this will be more toward the end of the quarter rather than the beginning. But within q two, the we will publish a full prospectus. And within these prospectus, there will be the financial details of of William Hill, the final result of 2021, and certain statement about the current trading of of this business. That's great. 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?

31:09 So we cannot comment on the trading of of William Hill. I will make maybe only one comment about the retail. So if you look at other companies in market that that released result recently, you can see that there is a sentiment in The UK that retail is actually going back to the level that had before the the COVID. And this is you hear that from all operator that have a significant retail business, and you can assume that this is this is the case also for a business like William Hill. Beyond that, unfortunately, we cannot comment on trading of William Hill. That's great. It's I, Yarif, thank you so much indeed for for taking on all those questions. And of course, 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 via their feedback? This will only 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 eight eighty eight Holdings, we'd like to thank you for attending today's presentation.

32:19 That concludes today's session, so good afternoon to you all.