Gaming Realms (LSE:GMR) — Interim Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the GAMING REALMS PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so, and these will be available via your investor meet company dashboard.

0:33 Before we begin, I would like to submit the following poll, and I would now like to hand you over to the executive management team from GAMING REALMS PLC. Mark, Jeff, good afternoon. Good afternoon. Thank you for having us. So I'm gonna go through a presentation to highlight who is GAMING REALMS, what we do, fantastic growth over the last few years, and also the exciting times ahead. And so based off our first half results for 2023. So moving on. So our business. First of all, you've got myself, CEO, Jeff with me as well, who's our CFO, and our other executive is Michael Buckley, our chairman.

1:25 And we've all Michael and I have had extensive, or very long experience in the online gambling industry. Jeff's been with us for almost four years now. We also have a really great experienced, management team now who've come from some of the biggest names within, the online gambling world, including Craig, who's in North America, whose grandfather actually invented Slingo, which we acquired in 2015 and is one of the biggest, unique selling points of our business.

2:03 So what what we do, essentially, we are a leading player in the real money and social gaming industry. We are a developer and licensor of online casino games, and we license those into the real money world. We own the Slingo IP, which we acquired in 2015. This is a unique very unique game format, very popular format, which is available essentially. The majority of our games are built from this. It's also a brand which has a great value in itself. We have licensed lingo, for example, into the lottery world where you can actually buy physical lottery scratch cards in over 40 states in The US, which are branded Slingo.

2:53 We've also seen it with online lottery scratch cards, as well as various other adjacent markets, and we always look for new opportunities in in this space. Our games are licensed, in the real money world, so we work with over a 150 online operators, regulated operators. We actually publish our games in the social gaming world as well, where you can find it on apps on your phone, and we see that as another way of monetizing the games we're building. And, also, underpinning all of this, we have our, proprietary online distribution platform, our remote game server, which hosts all of our games. We also host some third party games, which we distribute through our extensive network. And, again, this platform is built for scale and also to put other product down the pipeline.

3:49 A little bit about how we make our, revenue and our money. So our core business is the content licensing. It's the it's the biggest driver of growth, for us. Slingo is a very unique game. It's a cross between a slot and bingo, and it's actually become a sort of genre of game in itself. So lots of our partners' websites or operating sites will have Slingo section specifically on their site, which allows it stand out from all the thousands of other slot games on there. The game is actually very popular with players, and it has longer session times, we believe, than slot games and better retention rates for operators.

4:38 The model is that we our games generate revenue for all the operators and we earn a royalty fee off the back of that. We have a very diverse revenue stream here in many markets where we're growing in, and also we have a suite of 70 games, all contributing. As I discussed, we also license our brands to other adjacent markets. So we talked about the lottery scratch cards. You could also find Slinger games on on some of the social sites as well, the sites that we publish, but also Zynga, for example, have a couple of Slingo games that they built into slots. And our social gaming is our major app here is our bigger app is Slingo Arcade and we also have Slingo Casino.

5:27 And here is like a more traditional freemium based game where we get revenue from in app purchases and advertising revenue. We work with over a 150 leading brands in the world. This is a snapshot. This is constantly updating. We, for example, went live with 25 new operators in lots of different markets in the first half of the year. A couple of new ones. We're constantly updating this slide. A couple of new ones here, which we wanted to see before. A Bet three six five, who are leading international operator, and also BetClick, who we launched with in Portugal as a Portuguese market launch, just after the period, so in this half of the year. And that's had a nice launch as well.

6:18 So our strategy is for content licensing. We are looking to expand in new regulated, markets internationally. We've seen that, for example, very recently with the launch in Portugal. We have applications pending for British Columbia for that's a province in Canada for their state state lottery. We've also applied for a license recently in South Africa. We'll be applying for Greece soon as well. So we're constantly looking for new markets to launch in. But, also, what we've done very well over the first half of this year is we've been growing in the core markets where we've been going live. It's a heavy lift for a business like ours to launch in new markets. It's certifications of games.

7:09 It's a platform. It's commercial deals. It's localization of games. So as we've been launching in new markets, we've had big focus on that. But we now are at the scale where we can start to look back at some of the markets we've recently launched in and start to add new partners, take new games to market, and and grow the Slingo category of game. We're developing our relationships more closely with operators. For example, we very recently launched a Slingo Caesars game, and that's for the Caesars Interactive business in The US where we built a game which is tailored to them. We've also recently licensed Slingo to Entain to build a Slingo Bingo product for their for their bingo sites for Gala and Foxy Bingo, for example. So we're working closely with our partners to deliver the best gaming content for them. And we're also spending our time investing in new innovative games and the products in our platform so that we're able to scale, more quickly and more efficiently.

8:18 And and, essentially, this real hard work over the last few years is starting to pay off. And the top two charts here are probably sort of show how how we grow. As we add these are cumulative. So the more games we're launching and we're close to we're just over 70 now and operators, is just over a 150, that equates to more players playing our games and more bets placed on our games. So that, again, every half year, we're seeing growth. And in the first half of this year, the bets placed on our games were close to £3,000,000,000 worth, which shows the scale of our platform and what it's handling. And because our revenue is based on a percentage of essentially the revenue the operators earn, which is a tends to be the margin from the bets, we're seeing our revenue increase the same way as well.

9:14 Just just some KPIs, really. We have our financial statements which are out. We, our revenue was 11,500,000, sterling in the first half of the year with 4,000,000 of EBITDA. These are both sort of record performance for us. We have a a good margin as well, very high, adjusted EBITDA margin of over 40%. What's really great for us is we are growing everywhere at quite consistent pace. So the first half of this year, our North American revenues increased 37%, but also we increased 38% in all of the you know, for the rest of the world as well. So overall, we're growing very well. And even the post period, we've had continued growth of of 20% as well. So we're still growing into the second half of the year, which is with the momentum we have, we're hopefully going to just see this continue.

10:11 We're constantly adding new partners and adding new games and launching new markets. And this is a snapshot of the regulated markets where we are. The dark blue ones are where we've now live, and that's growing and growing. And you can see the light blue ones are markets that we are either application pending or or waiting to go live in. And here's I suppose I should add here that they're not all at the same scale. The US and The UK are our largest markets, but we are seeing growth now in all our key markets, which is really good to see. So UK, for example, very mature market.

10:59 We've still seen really good growth year on year. The US also is, for us, different levels of maturity. New Jersey's our leading market. That's a more mature market for us where we've been for five years. Pennsylvania and Michigan, though, are markets where we launched only two years ago. We still have a lag on games we have live there, so we're still seeing growth in those markets. We've got the addition of Connecticut at the back end of last year as well. So we're seeing lots of growth in The US, and as new markets open in The US, we should start to see this grow much much quicker growth, there. So that's really good. We have a nice pipeline of operators and games to onboard. As an example, we have, I think, 58 games at the half year. We're live in New Jersey, 28 games in Michigan, and 18 in Pennsylvania.

11:54 So we can start to see how Michigan and Pennsylvania, for example, can start to grow closer to New Jersey revenues, is our leading market in The US with the addition of the new games.

12:05 Canada is also a a recently regulate well, Ontario is a recently regulated market, and so we're starting to see big growth in the Canadian market now. We're live in Ontario and with Lotto Quebec. As I said, we've got British Columbia launching. We've also launched with some very big operators in the first half of this year, so they'll start to grow in Canada. Italy, again, has had huge growth year on year. We've been really focusing on the Italian market. We have, actually a specialist, Italian lady working on our team now who's working very close in the onboarding and process for getting content live and working with our partners there. And Spain and Netherlands are more recent markets for us where we're seeing growth.

12:53 So, really, what this gives me a lot of encouragement and makes me feel good is that the markets we're in, our core markets, players are really enjoying Slingo where we have high demand for our content. When we when we publish new games, they're very well promoted. We see good retention from players, and we also have a really long pipeline. It it takes time to build 10 so sort of a set so could ten month process on game development as there's a long process with some partners on commercial deals to go in live as well. So at any point in time, we have to have a very long pipeline of new opportunities, which is help helping our growth. I'll just hand over to Jeff to run through a couple of slides on our financials.

13:41 Sure. I'll try not to duplicate too much of what Mark's said over on the financials. I guess just the easiest way would just be running down the income statement line by line. So overall, group revenues were up 36% on the same period last year, and that's really driven by, the growth in the content licensing business, 37%. And as the previous slide showed, that's sort of driven across all all key markets and jurisdictions, which is good. Brand licensing, which, again, as Mark mentioned, is where we sort of take this Lingo IP and license that to other parties in adjacent markets. That was up to 1,000,000 compared to 300,000 in the same period last year. There was a couple of deals that were done in the first half driving that. And then the other segment social remained flat at 1,800,000.

14:31 And then dropping down to the next row, marketing. So this was actually a question we had in advance. So I guess I can head that off on this slide. So the marketing costs actually relate predominantly to the social publishing business. Every couple of years or two to three years, we tend to need to put a bit of marketing into that business just to keep the player numbers rolling over and maintain revenues or even slightly grow them. So that's what we did in the first half of the year, and we don't expect that to repeat in in the second half. And then dropping down to variable costs. So really to look at this, you've kind of got to look at each segment in isolation because there are a couple of nuances between them, which can drive a couple of differences. So in the licensing business, the type of costs that fall into that bucket would be the brand licenses fees, sorry, that we pay to to third parties. So when we inward license brands and IP to build Slingo variants. So I

15:28 think the likes of Deal or No Deal, Starburst, Space Invaders, and so the fees that we pay them, which are all performance based. Also in there are platform costs, so where we integrate into a an operator via a third party aggregator or platform provider, those costs are also in that bucket, and then also the hosting costs that we incur. And those costs were 18% of content licensing revenues in the first half of the year, which is exactly the same percentage it was in the first half of last year and also for the full year of 2022, so very much where we expect them to be. And then in the social business, which is slightly different to the licensing business, that's a b to c business. So the costs or the fees that we incur from the various app stores, that drops into those variable costs, and that remained consistent with last year in the mid thirties percent.

16:21 And then down in admin expenses, about half of that increase is actually investment in our team, our people. So there was about a 10% increase in headcount period on period. And then the other smaller drivers of admin expenses was actually exchange differences was one quite interestingly. So being a sterling reporting business, we are exposed to movement and exchange rates on our cash balance and receivables. So that moved slightly unfavorably for us in the first half of twenty three. It was favorable in the first half of twenty two. So that swing is not material, but but it is sort of sizable. And then the other one is just as we've grown, we've taken on a few more professional advisers advisers. So all of that has dropped down to a 36% increase in EBITDA, and that absolute increase of 1,200,000 has pretty much fallen all the way down to profit before tax, which has increased by a million to 2,400,000.

17:19 And then flipping on to the following slide on the balance sheet, there's not too much I draw out on on this slide. I think the cash balance increasing is is probably one, so that's up 54% on the year end position. There were actually a couple of tax and indirect tax related timing differences, which would have seen that balance increase, slightly more impressively, but that's up around in the second half of the year. And then the only other one I'd probably draw out would be our current asset position. So despite the 36% growth we've seen, we've managed to keep our working capital sort of under control. So that receivable or asset position has actually remained very consistent with the year end, which is which is pleasing. Thanks, Jeff. Okay. So just went on to some of the opportunity and and growth plans we we have.

18:11 Just something to point out here. This this chart's actually an annual chart. It's just really to say outside The US market, we grew 26%, 22 versus 21. But in the first half of this year, year on year, we actually accelerated our growth to plus 38%. So we're actually seeing an increase in how we've been growing due to the markets and the focus to grow in each one, which actually shows, I think,

18:45 sort of proof that it's been beneficial for us to be launching in these markets and and sort of vindicates our our business model here. And inside The US as well, again, we've seen quite big growth again as a very North American market in the first half of this year. We're seeing how the Ontario and Quebec has added on top as well, and it shows as we start to add more and more markets in North America, this will continue to grow. And we still have a lot of potential for Michigan, Pennsylvania with the new games launching as well. As I said, each one of those has has the potential to be New Jersey size. So as you can see, quite a lot of growth here, before new markets open as well.

19:33 We do have plans. We're just assessing the West Virginia market at the moment and how we've been to it. So that's a smaller market again, but it's sort of the last one for us, for regulated markets in US. And, actually, for just for The US market, this is the some research which was done on where we feel this US market will go by 2027. In 2023, they're expecting this market overall to be a $6,000,000,000 market, and that's gonna grow sort of over three times by 2027. And that's probably with the addition of 10 more states, 10 to 12 more states. So we're very well positioned as states regulate.

20:21 We are able to obtain licenses. We know the work involved for certifying games, for certifying our platform, the investment needed. We've got the team there for business development. We have multistate contracts with the majority of the biggest operators in in the market, and we also have integration routes as well. Probably something I should touch on, we've also started to onboard third party studios to distribute their games into The US market. We've got one studio we're live with now. I think we've just launched the fourth game. We've got a couple more close to being certified as well, and we're taking those games to market. And it it just shows what our platform can do in other areas where we can grow the business in the markets we're in on top of what we're already doing.

21:19 We've got we've got the team and the relationships to do it. We've got great games to take to market as well. So I think The US shows or is seen as a huge opportunity for us. We we're still waiting for more states to to regulate. There are over 30 states which have regulated online sports betting,

21:42 yet only five states who've regulated, online casino. So as more of those can convert over time to online casino, which I should add, in the markets where online casinos are alive, they, the revenues from the online casinos are larger than the online sports betting in those mark in those states. So as more of those start to convert to online casino as well, our opportunity grows and grows. We are, as Jeff said, we are cash positive business now. We are growing top line, and we're growing our our EBITDA as well. So we're in a really healthy position and actually one which myself and the team are really excited about.

22:29 I think that is that is, it for presentation. I don't know if we move on to okay. Sorry. Perfect. Mark, Jeff, thank you very much indeed for your presentation this afternoon. If I may jump back in there before we move to the questions. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would 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 dashboard. Jeff, Mark, as you can see there in the Q and A tab, we have received a number of questions. And thank you to all of those on the call for taking the time to submit their questions. But, Mark, Jeff, if I could just hand back to you just to make your way through that q and a panel.

23:17 And if you could just read out the questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Perfect. Thank you. So these are in no sort of particular order in terms of types of questions, but the first question is, given the high level of profit now being generated, are there any plans for dividends to stop being paid? So thank you for thank you for that question, and and it's right. We've we've touched on the cash generation we're seeing, which we hope will increase, each reporting period. I think what we'll do is we'll complete the remainder of our 2023, financial year and actually see how how the year pans out.

24:05 I think before we publish our accounts, our full year statements in in April of next year, the board will sit down and consider and probably decide the best use of our funds available. And it really depends on the circumstances at that time. I suppose an example here would be to say, if two or three new states announce that they're going to be regulating, and it may not be in at that moment in time, then we're going to need some of our reserves to expand. There'll be investment in infrastructure in in whatever is needed in terms of certifications, integrations, or any changes to getting specific for those states.

24:51 So but I think that expansion would certainly be beneficial for shareholders. So we will probably I think my message here is probably we'll review and probably by April next year, we will have a better idea of of what the right level of distribution would be or if any at all depending on essentially the the fast paced nature of of how the landscape is changing for us. But it's definitely something that's really good that's on our horizon now. Next question is, what is the time frame, from selecting a new market to enter to achieving regulatory approval?

25:41 What is the cost in entering a new market? This is really depends every single market is different. So The US markets are quite a long lead time, just because there's quite a lot of due diligence on company directors, individuals, as well as the company itself. We are pretty well versed on how to do this now, but we still work at the pace of of the regulators in their investigations. And, also, there is, in state hosting as well as that means essentially putting new deployments, physical servers in in states where needed, which takes time and certification.

26:29 So The US states can take a long time essentially from from deciding to to go in live. Some have timelines of when they want the market to open. So if we're quick, we can normally you know, some will allow us to be in early. The later you enter a market, you're then in the long line of people going in. So Ontario is a good example where we we launched when the on the day the market launched. We we were quick and agile to be able to do that, which we'll do. Some of the European markets are a little quicker for us. They don't all require licenses, albeit they all require some level of change or certifications to games or reporting. So they are they can be quicker.

27:15 So, unfortunately, I can't I can't give a specific there. There was another just bear with me. There's one question which is what what number of new games do you look to bring to the market each year, and what marketing spend do you put behind them? So I guess we previously felt that 12 is the right number of of games to launch a year. So one a month is the right number that we can work with the commercial partners to really get behind those games rather than releasing far too many. I think we're gonna be slightly short of that this year. It's probably be 10 or 11 games. And then something we're thinking about or looking at moving forward is to have 12 focused games in each market. So at the moment, we will release 12 games, push them out globally, but we may look to tailor certain brands to certain markets or certain games to certain markets so that each market would have 12 games suited for that.

28:11 But that may mean that there was more than 12 in total across the entire world. And then just the marketing spend behind them. There is some marketing spend. So you can see that in the financial statements. There is a little bit of marketing spend in in the licensing segment. It tends to be how we work with the operators, sort of there are some promotional discounts agreed, but it it tends to be working with them around placement and advertising and positioning. Thanks. It's one next question. When do you expect to push the Slingo brand into South America? So this is a bit more market specific. It is markets which are going some of the some of the markets there like Brazil, for example, are are preregulation there. They're looking at regulated iGaming, and we will definitely enter those markets as they regulate for sure and maybe some opportunity before, but, again, depends on on the on what the rules are there. We are live in Colombia in a regulated way and Mexico, albeit just starting our journeys in those markets.

29:29 But, yeah, we see big potential there. We feel that the Slingo game, it could be really popular in in in South America also. So we are it's definitely something we will look to do. It may be a level of localization of games as well to help sort of get the best impact when we launch. But, yep, certainly certainly important for us or will be an important market, an opportunity we're not in yet. A question here. How do you see potential m and a opportunities in the future? Will this involve acquiring other content providers or adding new capabilities? So this is this is an interesting question. Again, we'll come down to sort of our mixture of our cash reserves, the potential, I guess, assets or or business that we would look.

30:29 It certainly touches on a on an interesting point that having different capability on our platform could be very accretive to what we do, whether that's a specific marketing tools or, tournament features or something which can really help promote slinger games more. Albeit that's something that we could also develop in house. And then is that question of what's quicker to market or what works, better within our platform. And also content studios or other content, we have a very wide distribution. It's we have a really good distribution in The US market. We've been working on that for five years now. So just like we've been taking some third party studios to distribution to market, we could do that with other content we own. And, it it depends if we can find the right content at the right price and the right time, but it we will look at all or consider all sort of possibilities of of how we can grow. We've been very focused the last few years on organic growth.

31:35 It's we have a a really I think we have a really good opportunity with Slingo, and we have a team very focused to try and maximize the sort of opportunity we can do and and the markets we can be in as as best as possible. We've not wanted to be particularly distracted by other opportunities. However, we are getting going to get to the stage soon where we are large enough to be able to take on projects as well, and, they'll be accretive to what we're already doing. Well, here's one I think probably I touched on a little earlier. Assuming no US market's legalized in 2324, which new country's market do you plan to enter?

32:23 So we are applying for a license in Greece. We've applied for South Africa. We're applying for we've applied for the, lottery in British Columbia, for example, as well. We will assess new markets as well on top of that, but we are and then very much focused on growing the markets we're in. I'm hoping if no US market's open in '23 or '24, at least one or two will have announced when they're going to be launching early in '25, which case we'll also be gearing up the business to be launching as soon as possible in those markets. So we'll still be working hard, hopefully, some US markets for the prepare for launches also. Here's here's a question. What is the operator retention like? Do you have many operators leave at the end of the contract period?

33:22 The answer to that is is no. We have almost unless an operator is closing its operations in a market we're in, we pretty much have a 100% retention at the end of of contract. A lot of it's to do with well, there's two two sides to that. One is our games perform well anyway, on the whole. And secondly, we are on a performance based model, which allows operators to continue to carry our games and pay as essentially as they own revenue office. It's a it's a really nice model in that respect. But we have really strong sort of growth oh, so so really strong relationships with our partners. We work very hard with them in terms of reporting, use of data, games we're producing to try and have our games, you know, sort of played by the most amount of people in in all the markets we're in.

34:22 So that's it. I think I'm just seeing I think that's sort of questions over now, in the time, so maybe I'll hand back. Perfect. Yeah. Perfect. Mark, Jeff, thank you very much indeed for being so generous of your time and addressing all of those questions that came in, from investors this afternoon. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But, Mark, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments just to wrap up with, that'd be great.

35:10 Yeah. Well, firstly, I'd like to thank you all for your time for for joining the the presentation. Also, for your patience as we've been learning navigating around the portal. But, no. Listen. I suppose my message is we're really excited about what we're doing. I mean, we've got great IP, very unique. We have a really popular game format. We have a great team who are delivering. And we have a strong pipeline. We've been showing really consistent growth now for period on period, which is really exciting. But we can also see huge potential for growth in in the future with new markets opening, with really interesting projects and and ideas that we've got in our company for new for new content.

36:01 We are cash generative. We're profitable. We're growing top line. So, yes, we've it's a really happy space for us. We've and I suppose my I suppose what's really nice is we've just got fantastic momentum. So thank you very much. That's great. Mark, Jeff, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected, for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This won't take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of GAMING REALMS PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.