Gaming Realms PLC

LSE:GMR

Good afternoon, ladies and gentlemen, and welcome to the Gaming Realms plc Interim Results Investor Presentation. [Operator Instructions] 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's appropriate to do so, and these will be available via your Investor Meet Company dashboard.

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, Geoff, good afternoon.

Good afternoon. Thank you for having us. So I'm going to go through a presentation to highlight who is Gaming Realms, what we do, and our fantastic growth over the last few years and also the exciting times ahead. And so based of our first half results for 2023.

So moving on. So our business. First of all, you've got myself, CEO; Geoff with me as well, who is our CFO; and our other executive is Michael Buckley, our Chairman. And we've all -- Michael and I have had extensive or very long experience in the gambling industry. Geoff's been with us for almost 4 years now.

We also have a really great experienced management team now who have 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 it's one of the biggest unique selling points of our business.

So 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, a 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 Slingo, for example, into the lottery world, where you can actually buy physical lottery scratch cards in over 40 states in the U.S., which are branded Slingo. We also say, we've got online lottery scratch cards as well as various other adjacent markets, and we always look for new opportunities in this space.

Our games are licensed in the Real Money world. So we work with over 150 online operators, regulated operators. And 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 holds 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 products down the pipeline.

A little bit about how we make our revenue and our money. So our core business is the Content Licensing. 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 to 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 gains, and better retention rates for operators.

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 Slingo games on some of the social sites as well, the sites that we published, but also Zynga, for example, have a couple of Slingo games that they built in slots.

And our social gaming is -- all the major up here is our bigger up in single arcade, and we also have Slingo Casino. And here is like a more traditional premium based game where we get revenue from that in that purchases and advertising revenue.

We work with over 150 leading brands in the world. This is a snapshot. This is constantly updating. We, for example, went live with 25 new operators and 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 wouldn't have seen before. At bet365, we're a leading international operator. And also Betclic, 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.

So our strategy is -- for our Content Licensing, we are looking to expanding new regulated markets internationally. We've seen that, for example, very recently with the launch in Portugal. We have applications pending for British Colombia for -- that's a province in Canada, for their state lottery. We've also applied for a license recently in South Africa. We'll be playing 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, it's a platform, it's a commercial deal, it's localization of games. So as we've been launching in new markets, we've had a big focus on that. But we now are at a 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 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 U.S., 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 that -- that bingo sites, we got whole room for Slingo 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 product, and our platform, and so that we're able to scale more quickly and more efficiently. And essentially, this real hard work over the last few years is starting to pay off. And the top 2 charts here will probably sort of show 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 which is just over 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 in our games were close to GBP 3 billion worth, which shows the scale of our platform, what it's handling. And because our revenue is based on a percentage of essentially the revenue the operators earn, which is -- tends to be the margin from the bet, we're seeing our revenue increase the same way as well.

Just in KPIs, really, we have our financial statements, which are out. We -- our revenue was GBP 11.5 million in the first half of the year, with GBP 4.8 million of EBITDA. These are both sort of record performance for us. We have 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 -- for the rest of the world as well. So overall, we're growing very well.

And even the post period, we 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. We're constantly adding new partners and adding new games and launching in new markets.

This is a snapshot of the regulated markets where we are. The dark blue ones are where we're 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 waiting to go live in.

And here's -- I suppose I should add here that they're not all at the same scale. The U.S. and the U.K. are our largest markets, but we are seeing growth now in all our key markets, which is really good to see. So U.K., for example, a very mature market. We've still seen really good growth year-on-year. The U.S. also is, for us, different levels of maturity. New Jersey's are a leading market, that's a more mature market for us, where we've been for 5 years. Pennsylvania and Michigan, there were markets where we launched only 2 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've seen lots of growth in the U.S. And as new markets open in the U.S., we should start to see this grow -- 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. So we can start to see how Michigan and Pennsylvania, for example, can start to grow closer to New Jersey revenues, which is our leading market in the U.S. with the addition of the new games.

Canada is also a recently regulated -- 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 we're live to Quebec. And 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, had huge growth year-on-year. We've been really focusing on the Italian market. We have, actually, a specialist telling that he will be working on my team now. He's working very close in the onboarding and process for getting content live and working with our partners there.

In Spain and Netherlands, they are more recent markets for us where we're seeing growth. 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 publish new games, they're very well promoted. We see good retention from players.

And we also have a really long pipeline. It takes time to build sort of a circa 10-month process on game development as this is a long process with some partners on commercial deals to go live as well. So at any point in time, we have to have a very long pipeline of new opportunities, which is helping our growth.

I'll just hand over to Geoff to run through a couple of slides on our financials.

Sure. I'll try not to duplicate too much of what Mark said on the financials. I guess, just the easiest way is to 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 key markets and jurisdictions, which is good.

Brand licensing, which, again, as Mark mentioned, is where we sort of take the Slingo IP, and license that to other parties in adjacent markets. That was up to 1 million, 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 1.8 million. And then dropping down to the next row, marketing. So this is 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 2, 3 years, we tend to need to put a bit of marketing into that business just to key in 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 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 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 third parties. So when we inward license brands and IP to build Slingo variance, I think the likes of Deal or No Deal, Starburst, Space Invaders, and the fees that we pay them, which are all performance-based.

Also in there are platform costs, so where we integrate into an operator by a third-party aggregator or platform provider, those costs 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 B2C 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 from the mid-30s percents.

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 head count period-on-period. And then those smaller drivers of admin expenses was -- actually exchange differences was one quite interestingly.

So being us in reporting business, we are exposed to movement in exchange rates on our cash balance and receivables. So that moved slightly unfavorably for us in the first half of '23. It was favorable in the first half of '22. So that swing is not material, 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 advises.

So all of that has dropped down to a 36% increase in EBITDA. And that absolute increase of 1.2 million has pretty much fallen all the way down to profit before tax, which has increased GBP 1 million to GBP 2.4 million.

And then flipping on to the following slide on the balance sheet. There's not too much I draw out on this slide. I think the cash balance increasing is probably 1. So that's up 54% on the year-end position. There were actually a couple of tax and indirect tax related to timing differences, which would have seen that balance increase slightly more impressively, but that's not planned in the second half of the year.

And then the only other one I'd probably draw 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 pleasing.

Okay. So just going on to some of the opportunity and growth plans we have. Just something to point out here. This chart is actually an annual chart. It's just really to say outside the U.S. 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 the -- due to the markets in there and the focus to grow in each one, which actually shows, I think, sort of prove that it's been beneficial for us to be launching in these markets, and sort of indicates our business model here.

And inside the U.S. as well, again, we've seen quite big growth again. It's pre 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. 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 the potential to be New Jersey side. So -- as you can see quite a lot of growth here before new markets open as well.

We do have plans, we're just assessing the West Virginia market at the moment and how we've done to it. So that's a smaller market again, but it's sort of the last one for us for regulated markets in U.S.

And actually, just for the U.S. market, this is the -- some research, which was done on where we feel this U.S. market will go by 2027. In 2023, they're expecting this market overall to be a $6 billion market. And that's going to grow sort of over 3x 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. We are able to obtain licenses. We know the work involved for certifying games, for certifying our platform and the investment needed. We've got the team there for business development. We have multistate contracts, the majority of the biggest operators 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 U.S. market. We've got 1 studio we're live with now, we 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 just shows what our platform can do, and other areas where we can grow the business in the markets we're in on top of what we're already doing. And 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 U.S. shows or is seen as a huge opportunity for us. We're still waiting for more states to regulate. There are over 30 states, which have regulated online sports betting, yet only 5 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 live, the revenues from the online casinos are larger than the online sports betting in those states.

So as more of those start to convert to online casino as well, our opportunity grows and grows. We are -- as Geoff said, we are cash positive business now. We are growing top line, and we're growing our EBITDA as well.

So we're in a really healthy position. And actually one which myself and the team are really excited about.

I think that is it for presentation. If we move on to -- okay, sorry.

Perfect. Mark, Geoff, thank you very much indeed for your presentation this afternoon. If I may just jump back in there before we move to the questions.

[Operator Instructions] 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&A can be accessed via your invested dashboard.

Geoff, Mark, as you can see there in the Q&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, Geoff, if I could just hand back to you just to make your way through that Q&A panel. And if you could just read out the questions, and give your response as well as 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 start being paid?

So thank you for that question. And it's right, 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 the year pans out.

I think before we publish our accounts, our full year statements 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 2 or 3 new states announced 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 whatever is needed in terms of certifications, integrations or any changes to game specific for those states.

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 what the right level of distribution would be, or if any at all, depending on, essentially, the fast paced nature of how the landscape is changing for us. But it's definitely something that's really good on our horizon now.

Next question is, what is the time frame from selecting a new market to enter to achieving regulatory approval? What is the cost in entering a new market?

This is -- really depends. Every single market is different. So the U.S. 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 the regulators in their investigations.

And also, there is in-state hosting, as well as -- that means, essentially putting new deployments, critical service in states where needed, which takes time and certification.

So the U.S. states can take a long time, essentially, from deciding to go live. Some have timelines on when they want the market to open. So if we're quick, we can normally -- some will allow us to be in early. The later you went from a market, you're then in the long line of people going in.

So Ontario is a good example where we launched. On the day the market launched, 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 there, they can be quicker. So unfortunately, I can't give a specific there.

There was another, just bear with me.

There was one question which is, what number of new games do you look to bring to the market each year? And what marketing spend you put behind them? So I guess we previously felt that 12 is the right number of games to launch a year. So 1 a month is the right number that we can work with the commercial partners to really get behind those games rather than releasing them far too many.

I think we're going to be slightly short of that this year, it's probably maybe 10 or 11 games. And then something we're thinking about, we're 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. But that may mean that there was more than 12 in total across the entire world.

And then just the marketing spend been behind them. There is some marketing spend. As you can see that in the financial statements, there is a little bit of marketing spend in the Licensing segment. It tends to be how we work with the operators, sort of -- there are some promotional discounts agreed. But it tends to be working with them around placement and advertising and positioning.

And there'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 markets there like Brazil, for example, a pre-regulation there. They're looking at regulated iGaming. We will definitely enter those markets as they regulate for sure. And maybe some opportunity before, but again, depends on what the rules are there.

We are live in Colombia in a regulated way and Mexico, albeit, just starting our journey in those markets. But yes, we see big potential there. We feel that the Slingo game could be really popular in South America also.

So we are -- this is 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 yes, certainly important for us or will be an important market and an opportunity we're not in yet.

And question here. How do you see potential M&A opportunities in the future? Will this involve acquiring other content providers or adding new capabilities?

So 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 business that we would look. It certainly touches on an interesting point that having different capability on our platform could be very accretive to what we do, and whether that's specific marketing tools or tournament features or something which can really help promote Slingo games more. Albeit, that's something that we could also develop in-house. And then it's 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. We have a really good distribution in the U.S. market. We've been working on that for 5 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 again, it depends if we can find the right content at the right price at the right time. But we will look at all or consider all sort of possibilities of how we can grow.

We've been very focus the last few years on organic growth. It's -- we have a really -- I think, we have a really good opportunity with Slingo. We have a team very focused to try and maximize the sort of opportunity we can do in the markets we can be in as best as possible. And we would not wanted to be particularly distracted by other opportunities. However, we are going to get to the stage where we are large enough to be able to take on projects as well. And hopefully, they'll be accretive to what we're already doing.

Here's one. Well, I think, probably I touched on a little bit earlier. Assuming now the U.S. markets legalize in '23, '24, which new countries market you plan to enter? So we are applying for a license in Greece. We've applied to 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 no U.S. markets open in '22, or '24, at least 1 or 2 will have announced when they're going to be launching early in '25, in which case, we'll also be gearing up the business to the launching as soon as possible in those markets.

So we'll still be working hard, hopefully, on some U.S. markets for their types of launches also.

Here's a question. What is the operator retention like? Do you have many operators leave at the end of the contract period?

The answer to that is no. We have almost -- unless an operator is closing its operations in a market we're in, we pretty much have 100% retention at the end of contract. A lot of it to do with -- well, there's 2 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 it essentially as they earn revenue off it. It's a really nice model in that respect.

But we have really strong sort of growth -- sort of really strong relationships with our partners. We work very hard with them, and in terms of reporting use of data, the games we're producing to try and have our games sort of played by the most amount of people in all the markets we're in.

And so that's it. I think, I'm seeing -- I think that's sort of questions over now in the time. So maybe I'll hand back.

Perfect. Mark, Geoff, 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 would be great.

Yes. Well, firstly, I'd like to thank you all for your time for joining 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. 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 the future with new markets opening, with really interesting projects and ideas that we've got in our company for new content. We are cash generative, we're profitable, we grow the top line.

So yes, it's a really happy space for us. And I suppose, what's really nice is we've just got fantastic momentum. So thank you very much.

That's great. Mark, Geoff, 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 will 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.