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Good day, and welcome to 888 Holdings Q1 2021 Trading Update Webcast and Conference Call. At this time, I would like to turn the conference over to Itai Pazner, CEO. Please go ahead, sir.
Thank you. Good morning, everyone, and thank you for dialing in today for this conference call on our Q1 trading update that we released this morning. I'm Itai Pazner, CEO. And I'm joined by our CFO, Yariv Dafna; as well as our new Chief Strategy Officer, Vaughan Lewis. On today's call, we'll run through the financial update, and then I will provide a brief update on the business and the strategic progress during the quarter. We will then open up for your questions and we'll supply some answers. I'll now hand over to Yariv.
Thank you, Itai, and good morning, everyone. I'm pleased to report another strong trading update this morning, with revenue growing by 66% to $273 million in the first quarter of 2021. Looking at it on a constant currency basis, we are pleased with the growth of 56%, driven by our B2C business growing 57% and our B2B business growing 20%. It is important to note that the strong year-on-year performance benefited from a few specific factors: firstly, Q1 2020 is our last quarter of soft comparison before we saw a step-up in our business volume during 2020; secondly, many sporting events were canceled in March 2020, so there was very little spot volume at the end of the period last year; thirdly, most of our important markets have been under lockdown restriction, so many customers had less spending option and more time for digital entertainment; and finally, the U.S. dollar has depreciated, supporting the revenue growth reported in U.S. dollar. In terms of performance by product, all our products saw strong growth in Q1. In particular, we saw strong growth from Casino, which increased 68%; and Sport, which increased 53%. From a geographic perspective, our growth was driven by regulated and tax market, which contributed 76% of revenue in Q1, up from 73% in the prior year. We saw a strong performance in the U.K., Italy, Spain, Romania and Portugal, and we are confident that we will continue to drive market share gains in this important market. Turning now to the outlook. Our Q1 performance was ahead of Board expectations. As a result, we now expect our adjusted EBITDA for the full year to be broadly consistent with last year, despite the significant increase in our investment in the U.S. B2C business. As lockdown restrictions start to ease and retail and leisure venue reopen, we expect players to spend more time outside and together with the seasonality of our games, this is likely to slow down the online betting and gaming industry in the second half of the year. We will continue to monitor this carefully and keep managing our cost base to support our plan for this year and our long-term growth ambitions. With that, I will hand over to Itai for a few words on our strategic progress.
Thanks, Yariv. I'll just add a few highlights from our strategy perspective, and then we'll open up for questions. The highlight of the quarter was 888sport, where we rolled out are cutting-edge proprietary sports book across the U.K. and other important markets. The migration was a huge success with almost no interruption to services and the strong customer reaction to our new product, combined with really successful risk management. This is a real landmark for 888. And for the first time, we're now servicing the majority of our sports volume on our in-house platform. I'm really excited about the future for 888sport, and our new product and marketing plan give us confidence about future growth. Our product leadership focus continues to deliver strong results, and the customer reaction to our upgraded Poker8 platform was also really positive. In Casino, we continue to roll out our differentiated and leading content, including some great games from our in-house game studio Section 8. These product and content improvements supported really strong growth in our key regulated markets with the combined revenues from the U.K., Italy, Spain, Romania and Portugal, almost doubling. Alongside our game product improvements, we continue to make further progress with our safer gambling plans. We have continued rolling out our front-end safer gaming product, the Control Centre in more markets and we increased investment in people and processes to continue to make our games as safe as possible. So overall, it was another strong period with our proprietary technology, differentiated products and data-driven marketing, driving the company's strong results, and we remain confident about the future. With that, I'll now hand over for Q&A.
[Operator Instructions] We'll now take our first question from David Brohan from Goodbody.
Just wondering, on the U.S., can you give any update in terms of kind of target launch dates over there for new states? And then secondly, on the U.K., you flagged kind of your regulatory and compliance actions you're going to take, do we expect any of the impact of that to fall in H1? Or is it going to be more in H2?
So maybe on the first question about U.S., so the growth in the U.S. was consistent with the growth of the group. But again, this is still small, and Itai will expand later about our plan to launch a new suite in the U.S. With regard to the U.K. indeed, we expect the new restriction to affect more the second half of the year. This already start with a smaller impact. We will see growing impact in the second quarter, but definitely, more of the impact of this will come in the second half of the year. Itai, do you want to add about U.S.
Sure. So just regarding market launches, we're planning to launch in the first half of this year, which basically means in the next couple of months, we're planning to launch 2 additional poker states with our partnership with Caesars WSOP. And following that, we are planning to launch additional sports states in the U.S. This year and the beginning of next year, we have 3 additional B2C licenses that we acquired at the end of last year, and we're planning to launch them by the end of this year and beginning of next year, all 3 states.
[Operator Instructions] We will now take our next question from Simon Davies from Deutsche Bank.
Two from me, please. Can you talk us through the time frame for the remaining deployments of your Sports platform? And what impact have you seen so far in terms of churn rates and customer spend per head? And secondly, in Germany, can you talk us through the impact of regulation there, whether you've seen any surprises in terms of the impact so far?
Yes. Simon, I'll start with the Sports platform. So like we said about the majority of our sports trading is already being done over our new Spectate platform, which is performing very well. We have a few more countries that we need to migrate to Spectate, and we're planning to launch into further countries over the new Spectate platform. So overall, we're exactly on plan with our rollout plan. And I would say, in the next 18 months, we should complete the whole program.
Yes. I will answer on Germany. Maybe just to complete on the Sport, we have 70-plus percent of the volume already on our in-house platform. So this is just in terms of number. On Germany, Germany is actually as planned, we see a decline in the German business. This is a 40% to 50% decline year-over-year. Having said that, we are in process to get a license and we see Germany as an important market, which actually will be a growth engine for us in the future. From the moment that we will adjust ourself to the new regulation and the new license, from that moment, we will be able to grow our business in Germany, and we are going to invest also in this market, which we believe will be a very important one.
And sorry, just on Sports, have you seen any shift in churn rates for customers moving on to the new platform? Or any change in trends in terms of spend ahead?
So normally, in such -- when you have such a migration, you normally expect a certain level of churn. What I can tell you that it actually was better than expected. So really almost no disruption in the migration of customers from 1 platform to the new one.
We will now take our next question from Richard Stuber from Numis.
I just ask -- a few questions from me, first of all, please. On the U.S., I know you don't give too much of detail in terms of the B2B and B2C and revenues. But just thinking sort of longer term, some of the other operators have discussed of medium-term or longer-term margin targets. How would your structure -- what sort of margin targets would you get based upon your kind of understanding where you think you'll be? Are you -- is it going to be more like sort of 17% to 20% of, say, where you are for your core business? Or is it more of a 25%, 30%, which other competitors are doing? And the second question, just regarding your sort of latest views on M&A, in particular, to William Hills sort of international assets. Any sort of comments on what you plan to do there?
Richard, do you mind repeating the second question about the M&A.
Yes. I think previously, you've discussed that you were maybe interested in looking at William Hill's international assets. I was wondering if there's any sort of update there, whether you still think that they'll make a good fit? And just any kind of general comments on sort of M&A appetite.
Okay. So I will start with the U.S. and margin and so on. So basically, U.S. stand on 2 legs, the B2B and the B2C. Of course, the B2C is what is the main strategy to grow our business in the U.S., but we have a very important B2B business there, which also going to drive significant growth, and it's very important for us. In terms of the profitability in the U.S., so it's clear that in the next few years, we will have losses on the B2C side. And this is -- we already indicated that we are expecting these losses to grow by $10 million in this year versus last year. Overall, in terms of margin, so we have the ability to increase margin year-over-year. In terms of EBITDA margin, we have an operational leverage embedded in the business. Having said that, we see the market is in a very strong performance, and we see an opportunity to invest more now on product and marketing. So -- and we are more focused on achieving long-term targets rather than short term. So instead of now, we could easily increase margin in the short term, but looking at the view of the long term, we're making also decision to invest more on product and marketing. So this means that not necessarily in the short term, we will see increase in margin. M&A, I will hand over to Itai.
Yes. So Richard, we have a strong technological platform and product suite, which we believe can support significant scaling up in our business. We have a strong balance sheet, and we're creating cash. So where we will find attractive opportunities, we won't be afraid to pursue them. We don't comment on specific deals. We have mentioned William Hill in the past that, that could be something that we would be looking at. And I won't change my comment on that. But I think we're more confident than ever about M&A.
We will now take our next question from Ivor Jones from Peel Hunt.
Apologies, I missed a little bit of this call, so if this has already been asked, please tell me. But could you talk about the cross-sell performance of the new Poker platform and the shift to Spectate? You've emphasized in the past that, that was an important part of your ambition, so we can see the revenue numbers for those products. What can't we see in terms of the cross-sell driver into the very strong casino performance? Specifically on sports, you mentioned enhanced products as a driver of additional margin, is there something you could particularly point to that has driven and that's the cause of that margin consequence from product? And similarly, in relation to Control Centre, if we're trying to think how 888 is aligning itself with where particularly U.K. regulation might go, is there anything specific you could highlight now, you're a little bit further down the Control Centre road to tell us -- to help us understand how you're making that part of the business more sustainable?
Okay. Yes. So thanks, Ivor. So I'll start with the cross-sell of the different products, and this is something that we've been focusing on in terms of our overall product experiences across the 3 verticals: Casino, Poker and Sports. So the new products have not only focused on the products experience themselves, but also how players can access and reach content that we supply in the other categories. So we made that experience even easier, more natural, I'd like to call it. And therefore, we are seeing better cross-sell figures both from Poker and from Sports into Casino because the customer experience is better supply, and that's combined with the Casino content, the rich content that we're providing, our in-house games that we develop, the unique games that we develop. So I think overall, cross-sell figures are increased over the new products that we launched. In terms of the sports itself, the product is essential...
Sorry, can I just pause you on that?
Yes.
I just wonder, when you look at that cross-sell, today's statement says Casino revenue up 80%. Do you look at that in a way that says, "I know that 20 percentage points of that 80% is coming from cross-sell that wasn't there the year before." So I understand what you said in concept. I just wonder if there's a way that you can quantify the impact?
I'd like to think that we're benefiting from a larger share of wallet in our products because we're providing a superior experience. We can project the level of cross-sell between the products. Obviously, we have a lot of historical data. And like I said, we are seeing -- some of the enhanced KPIs that we're seeing on the new product launches are also related to better cross-sell.
Ivor, I would try to help here. We don't provide data on the growth per gateway, which means including the cross-sell. But I can tell you that the Poker performance in the first quarter in terms of growth was more than double the level of the growth you see when we analyzed it as a product. So definitely, we see a better and more efficient cross-sell from Poker to mainly Casino.
And then -- sorry, I didn't write down the other two.
It was the Sport. In terms of the Sport, it's an enhanced product. So I would say the enhancement that we are referring to is mainly the flexibility. We are managing our own trading right now. So we have a better control on how to run the product. And this can influence also on the margin that we are able to -- so again, that was always the part of being the owner of the product that gives you the flexibility to run it. And on the...
But it's not really product, in the sense if something that a consumer sees.
Yes, there are many things that the consumers see that are enhanced from the past product. We shared some of them in our product webinar. That includes the AI, that shows the right events to the right players. The speed and the performance of the platform is significantly better from a technological perspective and some further kind of search features that we launch on the Sports platform. So it's a combination of product enhancements, product performance from a technical perspective in trading that's showing an overall better result.
Yes. Ivor, the last question was around the Control Centre. So just with regard to the Control Centre, so we are -- we launched the Control Centre. We are expanding it and over product. And I would say that the time that we have it active is not enough in order to draw a conclusion on that. But it's definitely part of our new framework of responsible gaming. This include the Control Centre launch plus some change to the level and the threshold and restriction that we are applying on our customer. And definitely, all the initiatives that we are taking on this field will have more impact on the remainder of this year. And the impact on the first quarter was not that significant, but we definitely expect this to come more in Q2 and even more in the second half of the year.
Our next question comes from James Wheatcroft from Jefferies.
I've got sort of 3 small ones. So firstly, you talked about rolling out Sports to some more countries. I'm wondering whether there's going to be any enhanced products, you're going to -- the full suite of Sports product that's out there currently, obviously, changes to that and improvements going forward? Secondly, just a sort of follow-up on Ivor's points around the margin in Sports. Can you give us some guidance as to sort of how much is related to structural improvements? So what would be your view now, the underlying win margin? And then lastly, just in terms of first-time depositors, is there anything we should find interesting about those people? Are they depositing in a different way, different amounts, et cetera, to what you've historically seen?
Sorry, the last question, again, please?
Just around the first-time depositors, any interesting characteristics around them?
In Sports or in general?
In general.
Okay. So I'll speak about the product and the FTDs, and Yariv can elaborate on the margins. So in terms of the Sports product, we launched it, it's basically version 1 of Spectate that was launched in January this year. The first objective was to have a smooth migration process of the key territories that we migrated over to the new platform, from a consumer's perspective, without disruption and, obviously, providing at least as good as an experience. Now there's a long list of product enhancements on top of the additional territories that we're planning to launch the platform in. There's a long list that the team is working on. And as the product evolves over time, I think the experience and the features that we're going to launch are going to be in line with our overall product vision, again, that we shared in the webinar session that we did. So like I said, it's performing very well, but it's only the first steps of this new product, and that's why we have high hope for the sports vertical as a growth engine for us going forward. That's in terms of the Sport. In terms of FTDs, we saw continuous strong trend of FTDs coming in, in the first quarter of the year. Again, this is related to restrictions in the different markets that we operate in terms of COVID and people spending more time at home. We do believe that this will normalize over time, and we will start seeing what we call the normal seasonality and even maybe an enhanced seasonality in the summer because people are spending more -- will be spending much more time than usual outdoor. They'll be spending more time in restaurants and bars, which they haven't been able to do so in the last few months. So I think that will kind of normalize, but we did benefit from a very strong quarter in terms of FTDs.
James, in terms of Sport margins. So we enjoy a decent margin in the first quarter, similar to the one we saw in Q4, which was above the average. So I would say that the growth on Sport business during the first quarter was a combination of a good Sport margin, but also a great increase in the number of players.
As there are no further questions at this time, I would like to turn the call back to Itai Pazner for any additional or closing remarks.
Yes. Thank you very much for joining us today. As we said earlier, we're really pleased with our Q1 results, driven by our differentiated products and our data-driven marketing. We're excited and confident about the future of 888, and look forward to telling you more in our interim results in August. In the meantime, if you have any further questions, please get in touch with any one of us. Thank you very much, and have a great day.