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Good day, and welcome to the ZEAL Network SE First Quarter 2021 Results Conference Call. Today's conference is being recorded.At this time, I would like to turn the conference over to Jonas Mattsson, CFO. Please go ahead.
Thank you very much, and good morning, and welcome. I hope you all have access to the presentation. If not, it's also accessible on our homepage on the Investor Relations section.On this content slide, you'll find today's agenda, and we will start off with a summary of the first 3 months, followed by a financial update, our guidance and the upcoming AGM before we're finishing off with the key takeaways. After this, you will have the opportunity to ask questions.Let me start with the summary, so let's move directly to Slide 4. The world continues to suffer from corona, even if there is hope in sight with the ongoing vaccination. As discussed before, being an e-commerce company, we are set up to deal with the remote work, and so much has moved to the cloud or at least accessible from wherever you are. Other external factors like the general economy has been strong, but this has limited or actually no effect on our business. Our business is very resilient to any changes up and down the general economy.Of all external factors, the biggest driver is the overall jackpot situation, which has indeed been weak for both our main products throughout the first quarter and actually continued to be weak also in the month of April. But we have still been able to grow the business, which actually pleases me.Both billings, meaning the transaction volume and revenues, are up 17% and 19%, respectively. Gross margin increased. And as a result, also the profitability of the company improved significantly. And we are now in the Google Play Store, which is something we and the entire industry have strived for since many years. This allows us to have our brand visible in the Google Play Store, and we can use this as a good acquisition tool. And we'll come back more to this at the end of the presentation.Speaking about financial update. We can now, for the first time, compare like-for-like, meaning a quarter in 2020 where we operated as a broker with a quarter in 2021 where we're also, of course, operating as a broker. This is helping everyone now to analyze our business performance in a much simpler way.Let's now look at the financial in greater details, which will be find -- found on Slide 6. This is our income statement, a condensed version. This year has started off very nicely with revenue growth of 19% despite the low jackpot environment. This is slightly better than the billings growth, which is then supported by a more favorable product mix, meaning more premium products sold. Staff costs are mostly in line with last year since the majority of the people synergies were already included in last year numbers. We have continued investing in marketing even in this low-jackpot environment. This has led to fewer but still with high customer lifetime values.Regarding direct operating expenses, this is mostly driven by the higher volume that is to be seen as our variable cost and then some one-offs related to a switch in payment service provider. The latter will allow us to have more efficient profit, lower fraud and better charges going forward. All this has led to our main KPI, adjusted EBITDA, has risen 61% to EUR 4.6 million. And net profit after taxes are now at EUR 2.5 million.Let me now give you a bit more insight to some of the KPIs that you will find on Slide 7. As I said, our billings grew by 17% to EUR 163 million, which is very satisfying, considering, as I also said earlier, the jackpot situation we have experienced in the first quarter. Gross margin, which is telling us how much we'll keep, what turns into revenue, have improved the margin to 12.7%, which, as I said, is driven by the higher share of premium products. I do expect this to normalize on a slightly lower level though when the draw product, normal lottery products, get a higher share of the total volume.On Slide 8, we have highlighted net cash and new registered customers. Net cash is now at EUR 68 million, up 4%, mostly thanks to the earnings we made in the quarter. We have a healthy net cash situation, which is why we afford to pay an attractive dividend to you, which I will come back to shortly. As I said before, even if we are confident to ultimately win the VAT case, we have indicated the remaining VAT cash exposure, which is approximately EUR 22 million, EUR 23 million.Let me now talk about the acquisition of new customers. We continued to invest in marketing, and we have acquired close to 160,000 registered customers despite the jackpot situation. We clearly want this to be higher, especially when comparing to last year when we had record new customer. But as we know, it's always easier in a more favorable environment.On Slide 9, you will find further performance indicators. In this quarter, we have continued investing in marketing, and this has led to lower efficiency and higher CPL, cost per lead. But the value this customer brings is typically higher since we acquired customers that really want to play the lottery and not only jackpot hunters. If you then look at the return on investment of these customers, it's still a very high number. So what I said last year that cost per lead is an indicator, but not the guiding metric, holds true.Monthly active users increased to close to 970,000 and the 1 million mark is clearly what we want to have, which I expect will happen in a better environment. Average billing per user is very high at EUR 56, which indicates that the customers that do play spend a lot every month.Let's now move to the outlook and the guidance that you will find on Slide 11. I can confirm that the guidance that we did announce end of March is still management's best estimate for the future. Let me reiterate the numbers. Billings of at least EUR 700 million, revenues of at least EUR 95 million and adjusted EBITDA of at least EUR 20 million.As you may recall, we last year had a very favorable jackpot situation, which drove activity. But for this guidance, we, of course, can only assume statistical average outcome for the future months plus the outcome that we have to date. And we also expect to continue invest in marketing, grow our market share. The planned marketing spend for the year is similar to last year of more than EUR 30 million.On Slide 12, we talk about the dividend policy. And I'm just confirming what we have already told you about and what is actually going to the AGM for approval. We are proposing to pay out EUR 20.2 million this year, which is 12% more than last year and more than double what we paid out the year before that. This corresponds to EUR 0.90 per share, and our intention is to increase to EUR 1 per share in 2002 (sic) [ 2022 ], leading then to payout of approximately EUR 22 million.Let me now briefly talk about the upcoming AGM, Annual General Meeting. On June 1, we will hold our AGM virtually also this year. Invitations with the registration documents were sent out at the beginning of this week to our shareholders. In addition to our usual items on the agenda of this AGM, this also have a special item, which you will see as #6 with a small arrow to it. And I would like to explain this in a little bit more detail.According to our latest annual financial statement, ZEAL has a restricted capital reserve in the amount of EUR 259 million. We, the Management Board and the Supervisory Board, propose to convert the majority of this restricted capital into free capital reserve. With this technical step, and I underline this is a technical step, we want to enable an efficient equity management in line with capital market requirements and, in particular, create conditions for a much more flexible dividend policy going forward. We will, therefore, be pleased and encourage you to register and vote as a shareholder at our upcoming AGM.Now I will hand over to Helmut that will take you through the key takeaways.
Thank you, Jonas. And so in Q1, we had a poor jackpot situation. And yet, we drove good billings and also we've seen a good revenue development. We've been able to increase our profitability. We have seen that, as expected, the new gambling treaty in Germany has now been ratified in all 16 German states, so that's going ahead as expected. And we now have the Lotto24 app in the Google Play Store, which gives us an opportunity to acquire more customers. So that's the summary of Q1.And with that, I think we should go straight into Q&A.
[Operator Instructions] We can now take our first question from Marius Fuhrberg from Warburg Research.
Yes. Actually, I have 3 questions. The first one is with regards to the product mix. You told us that you have, obviously, lots of more premium products in Q1. Could you guide us a little bit through how the development, especially for freiheit+ was? And how billings developed in -- for this product?The second one is, are there any changes or any proceeds or any developments in your -- or do you plan of establishing Instant Win Games now with the ratification of the Glücksspielstaatsvertrag?And the last one, you told us that you are confident with regards to the VAT case. Any news on this? Or is it still that you're not sure on -- neither on the timing nor the outcome?
So let me start with the product mix and the VAT, and then I will hand over to Helmut to talk about our plans for the games and in light with the Glücksspielstaatsvertrag.So the product mix, as you rightly pointed out, when I meant the premium product, I meant products like freiheit+ that has been very successful. We don't typically talk about billings per product. But we can clearly say that our shares of freiheit+ has been better than last year, which is thriving. And we are operating as an operator here. It's obviously coming with a higher margin.So we have recently launched with our one-to-one partner site. We -- in last quarter last year, we launched it on the Lotto24 brand. And 1 year ago, we launched it on the -- in March, actually, last year on the Tipp24 brand. So the big delta is really the freiheit+, but we also had a good development of lottery clubs, et cetera.In terms of VAT, unfortunately, I have no more information. We are assuming that the case will be in the statistical average, so the lead time between the first court decision until the second and the highest court in terms of financial matters, so that should happen sometime in 2022, but I'm only basing that on the statistical average lead time. There has been no discussion with the tax authority and no other court in the meantime. And I don't -- nothing to happen this year, but it's really by just my speculation when they will have worked through all the cases that are before us in the queue.So Helmut, maybe you can say a few things about games and the Glücksspielstaatsvertrag that is applicable from the second half?
Yes. So there will be a new regulation for games. The technical term in the law is virtuelle Automatenspiele. And we are planning to launch Instant Win Games on our sites going forward. However, we need to apply for a license first, and then we need to get a license. The authorities have said that they are going to be ready to take applications on the 1st of July. And then we don't know how long it will take them to work through those applications. We don't foresee any issues there. We should qualify for a license.And then the plan is to launch these Instant Win Games once we have a license. Technically, we are ready to do this. And we are excited about this opportunity because we know from the past that games resonate well with our user base, especially when you launch -- if you launch the right games for lottery players. And we know also from other markets that Instant Win Games are a successful product category.
We can now take our next question from Marie-Therese Gruebner from HAIB.
Yes. I have -- well, let's say, I didn't count them, but a few questions. When you say that the gross margin normalizes, of course, with the pickup in the more classical products, can you give us a -- kind of an idea where you want to land? I know you don't guide us specifically, but if you can give us a ballpark of where you would -- you could land on a normalized level after the high level of gross margin -- a very pleasing and high-level gross margin in the first quarter?My second question, your D&A, depreciation and amortization, charge for the first quarter, is it to assume that it's just the force of the full year number?And third and fourth are, similarly, the financial results line, is it fair to assume that we just multiply this by 4? Or are there any special effects to be expected on the tax level as well, please?
Okay. I think I can take those. So when -- let's talk about the gross margin. So last quarter, which we compare with, we are at 12.1%. We were slightly higher at 12.3%, 12.5% by the end of the year, depending on which months you're looking at, and now we're at 12.7%. This was fueled by, especially the additional freiheit+ sales and the premium product. I think this will come down slightly. We don't guide on this. So this is not the guidance, but somewhere in the mid-range of the 12%, so 12%, 12.3%, 12.5%. I think that's more realistic.So it's not a material decline, but I think we are on top. Obviously, our ambition is to grow this every month and every year, of course, by adding more premium products. But I think we need to be careful. And we do this in step. So slightly lower than the 12.7% would be my best estimate for the full year.Depreciation and amortization was your second question. And typically, this is 1 quarter, so take this time before you come to -- very close to the full year numbers. In this year, we have return of the subletting office in Hamburg and London. That's why we have decline in this one, but I think it's fair to say that times 4 is not too different from the full year results.The third question, can you remind me about that?
Yes, it pertains to your financial results. I think last year you had some special effects from the interest on the tax payments fueling some of the interest income. This is why I'm asking if the results we are seeing now is something we can extrapolate.
I think you can extrapolate them. We are obviously recording as a financial interest income. We're assuming we're going to win the VAT case. So the interest we will receive of this EUR 54 million that we paid more than a year ago, we are accruing that interest as we would have won the case. So that will increase in line with this quarter. So it's a fair assumption, yes.
Perfect. And then the tax rate also, can we assume we can extrapolate that level for the full year?
I think the tax level, yes, I would say, general, yes. The tax rate in Germany, you know it as I do, but we have a loss carryforward and tax rate is 32%, 32.5%, but we have tax losses carry forward. There are minimum taxation rules. So I think the EUR 600,000 -- sorry, that was the interest. I think the tax rate is probably 1/4 that you can see in this number, assuming similar profits.
We can now take our next question from Jack Cummings from Berenberg.
Just one for me. I know that you only launched the Lotto24 app towards the end of Q1 on the Google Play Store. But I was just wondering if you could give any color or commentary on whether you've seen any trends since it's gone up onto the Google Play Store and whether there's been good traction with the product, et cetera, or something along those lines.
Yes, let me take that question. It's too early, really. We have a very healthy mobile usage with our customer base anyway. And some of that is through the mobile website and some of it is through the apps. And of course, as we provide more apps in the App Store, that part is growing. But what we are really focused on is the acquisition opportunity.So what we are doing here is we are marketing and advertising the apps in the App Store -- in the Play Store. We are buying ads in networks. We're also using mobile advertising networks. And the -- our goal is to drive installs and also sign up new customers. And it's too early to talk about how much we can scale this because we are right now in the process of scaling this up.
There are no further questions on the line at this time. I would now like to turn the call back to the host for any additional or closing remarks.
So if there is any -- no more questions, I would like to take the opportunity to thank you very much for taking the time listening into this presentation and to be an investor in ZEAL. And of course, if you have any further questions, we are at your disposal. So please just reach out to our Investor Relations department or me, and I will be happy to guide you through your questions you may have. So thank you very much, and have a great day.
Thank you.
That concludes today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.