NeoGames S.A. (NGMS) Q1 2021 Earnings Call Transcript

NeoGames S.A. (NGMS 0.07%)
Q1 2021 Earnings Call
May 14, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to NeoGames first-quarter 2021 earnings conference call. [Operator instructions] Please note that this conference call is being recorded today, May 14, 2021.

I will now turn the call over to Jacques Cornet with ICR.

Jacques Cornet -- ICR

Thank you, operator, and hello, everyone. By now, everyone should have access to our first-quarter 2021 earnings release, which is available on the NeoGames website at www.neogames.com., in the Investor Relations section. Before we begin the formal remarks, I'll remind everyone that the discussion today will include forward-looking statements. Forward-looking statements, which are usually identified by use of words such as will, expect, anticipate, should, or other similar phrases, are not guarantees of future performance.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and therefore, you should exercise caution when interpreting and relying on them. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the Form 6-K for the quarter ended March 31, 2021, when it's filed with the SEC. During today's call, we will discuss non-IFRS financial measures, which we believe can be useful in evaluating the company's financial performance.

These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with IFRS. A reconciliation of these measures to the most directly comparable IFRS measures is available in our earnings release on the neogames.com website. Hosting the call today, we have Moti Malul, NeoGames' chief executive officer; and Raviv Adler, chief financial officer of the company. They will provide some opening remarks, and then we will open the call to questions.

With that, I'll turn the call over to Moti. 

Moti Malul -- Chief Executive Officer

Thank you, Jacques, and good morning, everyone. Welcome to our first-quarter earnings call. As you can see from our announcement, we're off to a strong start in 2021. We continue to execute ahead of expectations for our customers, unleashing their full iLottery potential, empowering them with the best technology platforms, the most entertaining game experiences, and a complete range of expertise, services, and market-leading solutions.

The strong start to the year was driven by a few factors, including continued strong performance in the recently launched jurisdictions of Virginia and Alberta and the double jackpot run in the U.S. during January. I'll touch on these in a moment. This morning, I will highlight some key points about our first-quarter 2021 performance and discuss the trends we're seeing thus far during 2021.

Afterwards, I will turn the call over to Raviv, our CFO, to run through our financials and business performance. For the first quarter, revenues were $13.3 million, which is up 46.5% compared to the first quarter last year. In addition, our share of NPI revenues for the quarter was $8.2 million, compared to $1 million during the first quarter of 2020. Looking at the two components added together, they equate to $21.5 million for the first quarter of 2021, representing growth of approximately 114% year over year.

Equally important is that we're growing profitably as our adjusted EBITDA growth outpaced revenue growth. For the first-quarter 2021, we generated adjusted EBITDA of $9.7 million, up about 148% compared to the same period last year. As I touched on briefly earlier in my remarks, the better-than-expected results for the quarter were due to a combination of a few factors. First, Virginia continues to operate ahead of expectations.

We're seeing a higher and accelerated adoption rate compared to what we experienced in other jurisdictions. As we said in our Q4 call, we revised our expectations higher after we saw a faster pace of their conversion into eInstant games sooner than expected. These trends continued through the first quarter and were even amplified with a double jackpot, which brought a significant increase in new players and enabled the lottery to introduce them to non-jackpot games and especially eInstant. Interestingly, as many of you know, online sports betting launched in Virginia during January.

Simply put, the launch of online sports betting has not slowed down iLottery in any way. iLottery sales continued to grow during the quarter, breaking records simultaneously with the introduction of online sports betting in the state. Second, outside of the U.S., revenues in Alberta exceeded our original expectations after only two full quarters of operations for the provinces only regulated iGaming and iLottery website play Alberta. Results are growing, and we continue to introduce new gaming verticals.

This quarter, we introduced live dealer, and we are beginning to implement the much-anticipated draw games vertical with a wide range of games. Third, results in Michigan continued to perform well side by side with the introduction of online sports betting and iGaming. There isn't -- there has been a lot of market focus in Michigan as more than 10 iGaming and online sports betting sites launched and aggressively advertised during the quarter. Along with what we are seeing in Virginia and what we have been experiencing in New Hampshire, our first-quarter results provide additional data points, supporting our view that iLottery can grow and thrive in parallel with the introduction of sports betting and other forms of online gaming given the unique proposition that lotteries have to their audiences.

We've seen similar dynamics in other jurisdictions in Europe and in the U.S. Lastly, as we mentioned in our Q4 call, we've benefited from the double jackpot run from Mega Millions and PowerBall that carried into the early part of first quarter. While we initially enjoyed the benefits of increased traffic from these new players, we have been able to continue to develop deeper relationships with them, which will continue to benefit us over time. Looking further out at the landscape, we remain confident that the momentum we have generated over the past year has put us in a strong position to continue growing in our existing markets and to be well-positioned to take our success model -- our successful model to new markets.

We continue to believe that the global iLottery market is poised for growth and especially in the U.S. where we carry a market-leading position and the market is still very new and the opportunity for growth from both new states and live states is tremendous. When we look at how the U.S. market evolves.

many states continue to have internal conversations and make inquiries into iLottery, especially as they see the strong results coming out of existing live jurisdictions, particularly those where we operate. We remain deeply engaged in providing data and insights to demonstrate the success and importance of iLottery and the material impact it is having on good causes in state budgets. One of the main reasons for our success is the superiority of our technology and content. As always, it is important to mention that investors should expect us to keep investing in technology and product innovation as they drive the monetization advantage we provide our customers and provides the foundation for both internal and external growth.

The success we have achieved is clearly tied to the investments that we are making in the business, which will total roughly $20 million in this calendar year. Together with our technology, our content is a significant driver of growth for our business. The superb games developed by NeoGames Studio play a central role in driving the growth of our full turnkey accounts. We also see growing interest in our content by lotteries with existing iLottery programs once such deal has been announced with the launch with Austrian lotteries this quarter and we see similar interest in a growing pipeline.

We are proud that our results continue to strengthen as we execute our internal and external growth strategies. In terms of execution on internal growth, one other way to demonstrate our leadership in the U.S. market is by the fact that the top three U.S. states for iLottery in per capita sales are our markets -- Michigan, New Hampshire, and Virginia.

This demonstrates the value added to all our stakeholders including our shareholders and customers as well as served to highlight the value we present to prospective customers. With that, I'll now turn the call over to review.

Raviv Adler -- Chief Financial Officer

Thanks, Moti. Before I get into the results, as a reminder when we discuss our results, I will point out that all of our iLottery business in North America operates through a 50-50 joint venture NeoPollard Interactive, or NPI, except in Michigan, which is reflected in our top-line revenues. To be more precise, our contract in Virginia, New Hampshire, North Carolina, and the province of Alberta run through NPI. Except for the NPI contracts, we conduct all our business through NeoGames.

As a result, from an accounting standpoint, as many of you know, we generate revenues and earnings through our wholly owned operation and through our equity interests in NPI. Revenue as reported on the income statement, which excludes our share of NPR revenues was 13.3 million during the first quarter of 2021, up 46.5% over the same period last year. Our share of NPI revenue was 8.2 million during the first quarter of 2021, compared with 1 million last year. The sum total of these two numbers was 21.5 million during the first quarter, representing an increase over 113% year over year.

For the quarter, our adjusted EBITDA was 9.7 million, up 147%, compared with 3.9 million last year. As we continue to demonstrate our ability to grow profitability alongside with revenues. We started off 2021 strong, which puts us in a great position to continue to execute during the remainder of 2021. Favorable results in Virginia and Alberta added to its strong performance in our existing customers.

We're starting to see greater diversification in our revenues across a broader number of key accounts. Turning to our balance sheet, we ended up this quarter with about 63.3 million worth of cash and cash equivalents. Our outstanding debt at the quarter end was approximately 35.6 million at the weighted average interest rate of 1.17%, leaving us in a net cash position of 27.7 million. Moving into guidance.

As Moti mentioned, first-quarter results were ahead of our expectations. As we've mentioned, with several tailwinds including higher volumes in Michigan, Virginia, and Alberta, and as a result of the impact of the ongoing implication of stay-at-home policy in most of our jurisdictions as well as benefits from the dual U.S. jackpot run. The good news so far is that the retention rate for new players is in line with past rates, which favorable for the 2021 outlook.

As we look forward, we try to balance the aspects of what we can fairly control and estimate versus what we cannot control. With this in mind, looking ahead, we estimate that the full-year 2021 revenues plus our share of NPI revenues will be between $73 million and $77 million. At the midpoint, the guidance represents year-over-year growth of 28%. The revenue guidance does not include the launching of any new turnkey contracts.

With that, they will turn the call back to Moti.

Moti Malul -- Chief Executive Officer

Thanks, Raviv. As I mentioned earlier, we're seeing success across the board in our markets. We ended the quarter as a clear market leader in every KPI in the growing U.S. iLottery market according to E&K Gaming U.S.

iLottery tracker report for the first quarter of 2021. Our results continue to demonstrate the strength of our model in generating significant value for our customers and thus for NeoGames and our shareholders. We remain excited by the momentum we are generating, and we believe NeoGames remains well-positioned to continue to capitalize on the current landscape as a leader in the rapidly expanding global iLottery market. With that, we thank you for joining us this morning and we're happy to answer any questions.

Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Jeff Stantial with Stifel. Your line is open. Please go ahead.

Jeff Stantial -- Stifel -- Analyst

Great. Thanks, operator. Morning, Moti, morning, Raviv. Great to hear from you this morning, and thanks for taking our question.

Moti Malul -- Chief Executive Officer

Hey, Jeff. Good morning to you, too.

Raviv Adler -- Chief Financial Officer

Hey, good morning. 

Jeff Stantial -- Stifel -- Analyst

Moti, last time we spoke about the Q4 earnings, you had mentioned a bit of an educational period playing out early in the year just getting some turnover among the decision-makers for lottery -- iLottery expansion. And you touched on this a bit in the prepared remarks but just curious if you could talk a bit further on how those are going at a high level. Do you find most are generally receptive to the idea of adding an online channel or are you hitting any sticking point in these discussions? Just any color there would be helpful.

Moti Malul -- Chief Executive Officer

Yes, of course, Jeff. Great question, of course. Yes, we do continue those discussions, and I would want to point out maybe two or three things that have come up in these. First of all, as more and more states launch online sports betting and are looking at what tax rates and what direct taxes are actually collected into state budgets, there is a growing interest that we see on iLottery in that and how it compares to the others.

It's not that one is on the expense of the other, but it helps us promote because largely -- because iLottery contributes much more than dollar spent than taxes collected through online sports betting or iGaming in the majority of the state structure. So, that's definitely a key point of discussions that we have with regulators. We've also seen that in quite a number of states, there have been bills introduced with different types and shapes of iLottery mentioned within them in Massachusetts, in Missouri, in Maryland, I think in Arkansas, and quite a few others, and other states that do not require bills. Connecticut has passed a bill, as you guys know, in a trend that we have noted in the past, which is looking at the comprehensive approach in gaming expansion in the state and discussing iLottery in the context of what other gaming expansion looks like for sports betting and iGaming.

So, that's a good sign forward. I would say the third thing that we are -- that we have experienced in Q1 was simply the fact that the mindset and attention of legislators has been largely to deal with COVID, so available bandwidth to discuss other issues were relatively limited and we have done our best to promote that. And we do expect that when states look into the rest of the year, the voice of what we had to say will turn itself into actions.

Jeff Stantial -- Stifel -- Analyst

OK. Great. Thanks. That's helpful and encouraging as well.

Switching gears a bit, I wanted to touch on content, specifically the trend of platform providers, also including third-party content and their offering. And you talked to this, you know, a little bit in the prepared remarks. As it stands, how much do your various USD contracts also offer access to third-party instant game content? And conversely, how many states are you involved with on the content side without necessarily holding the platform contract and how do you see this evolving if the market matures?

Moti Malul -- Chief Executive Officer

Sure. Specifically in the U.S., up until recently, we have taken a strategy that we wanted to focus the entire attention of our fantasy game studio to drive the growth of our turnkey accounts. However, as I said, both in North America as well as in Europe, we're now recalibrating those efforts to also introduce future deals that will see our content offered across iLottery programs that exist with other providers. So, we did take note too that one such was launched during the quarter in Austria and we are working on a pipeline of additional deals across the world.

In the turnkey accounts that we have in North America, whether it's in Alberta in Canada and also in the U.S., there are and quite a few of them third parties offering content as well and integrated to our -- into our platforms in order to be offered to the market.

Jeff Stantial -- Stifel -- Analyst

OK. Great. Thanks. That's very helpful.

That's all for me. I appreciate all the color and congrats on another really strong quarter here.

Moti Malul -- Chief Executive Officer

Thank you, Jeff.

Operator

Thank you. And our next question comes from the line of Barry Jonas with Truist Securities. Your line is open. Please go ahead.

Matt Chole -- Truist Securities -- Analyst

Hello, gentlemen. It's actually Matt Chole in for Barry today. It's just kind of a high-level one to kick it off. The -- how are you guys thinking about, you know, the positive results we've seen around COVID for iLottery and how that influenced kind of the market, whether or not that's permanent, lingering, or how are you thinking about the impact of just COVID in general on the business?

Moti Malul -- Chief Executive Officer

Well, of course, COVID has impacted positively any type of business that dealt with online in the last year, and iLottery in that perspective was no exception. The book on post-COVID has not been written, as I said a few times. We may anticipate that some of that will turn into additional entertainment options that the players will start to reengage with. However, we are confident that the player base that joined during this more than a year of those two-year-and-a-half process will allow us to create longer-term relationships with them and reengage.

And we are definitely happy with the retention rates that we're seeing. So, it's still an unknown question, I would say carefully, on how much of that remains. But our view and what we are, I would say, anticipating is that we should be able to retain a major portion of that through marketing efforts.

Matt Chole -- Truist Securities -- Analyst

Got it. And you've talked a lot about Michigan and how successful that market's been. As we think about additional states potentially rolling out iLottery, just curious to get your thoughts on why that state has been so successful if there are things that other states should or should not follow.

Moti Malul -- Chief Executive Officer

As we said quite a few times in the past, Michigan was a tremendous success and still is driving the success that have shown the way forward for so many others. However, it's definitely not an exception. And as you can see, we have two other customers occupying the top three places of per-capita sales in the U.S. New Hampshire is performing fantastically well, and in many patterns, even ahead of what Michigan has done and relatively speaking to the timeline that they are live.

Virginia, that has been phenomenal and breaking records since they went live and we have reported that more specifically, you know, in Q4, in end of year. And we are seeing continuous trends into Q1. And I would say that the learning from what Michigan has done properly and correctly has been adopted by other customers and there is a lot of sharing between them. North Carolina is an account that's also interesting to mention.

While it still doesn't have the ability to offer eInstant and we're working with the lottery to try and approve that into the future. But, you know, even on a draw-games-only offering, since we have transitioned and launched with our solution in late 2019, to be more exact at the beginning of November 2019, about a year and a half has passed since and we have seen that the revenues on the similar portfolio that was available before transitioning to our solution are now coming close to three times what the lottery have experienced in the past. So, we definitely are working very close with our customers to show success even if only draw games are allowed.

Matt Chole -- Truist Securities -- Analyst

Perfect. And if you don't mind me sneak in one more in here. Just looking for maybe an update on a process in Ohio. You know, our understanding is there's a process in 2019, pops up in the news from time to time and NeoPollard has ultimately selected the winner.

There's still some uncertainty there. How do you expect the process to roll out from here?

Moti Malul -- Chief Executive Officer

There's been a number of different committees that have discussed the broader approach to gaming expansion in the state since the beginning of this year. We've been engaged with all of those committees to explain the potential, to explain our position. And, as I mentioned earlier, to try and educate for the cause and the importance of approving iLottery to go live in that state. Those processes have not yet completed themselves, and we remain closely connected with them to do our very best to ensure that the cause for the lottery primarily and also for us will end up positively.

Matt Chole -- Truist Securities -- Analyst

Very helpful, and congrats on the great quarter.

Moti Malul -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Chad Beynon with Macquarie. Your line is open. Please go ahead.

Chad Beynon -- Macquarie Group -- Analyst

Hi, Moti. Hi, Raviv. Thanks for taking my question. Nice first quarter.

Moti Malul -- Chief Executive Officer

Thank you.

Chad Beynon -- Macquarie Group -- Analyst

I wanted to start with EBITDA, understanding that you're not giving EBITDA guidance for 2021. You did give revenue guidance, which implies roughly 18 million of revenue per quarter for the next three quarters. You also mentioned that you're continuing to invest in technology $20 million for the year. Are there any other items that we should be mindful of when we think about either flow-through or how, you know, EBITDA could come into a clearer picture for the next three quarters? Thank you.

Raviv Adler -- Chief Financial Officer

Spot on, Chad. Thanks for the question. And without -- as you rightfully mentioned, without entering into EBITDA guidance or economics of particular accounts, we would just -- would like to point out, you know, your attention to the market's attention to the fact that -- and we've touched that also on our commentary relative to the diversification of our portfolio. There's differences in the accounts that we serve and the type of the offering that we offer any jurisdiction, which drives obviously, you know, different EBITDA margins from the traditional, I would say, iLottery program that we offer in the U.S., which you are familiar and the market's familiar with given our previous filings.

That being said, we're extremely happy with the margin that we managed to produce alongside with the revenues growth. And we do hope to see that the very same positive EBITDA trends going forward into the year. 

Chad Beynon -- Macquarie Group -- Analyst

OK, great. Thank you. And, yeah, I appreciate in light of you're not giving guidance. That's helpful.

And then with respect to the William Hill-Caesars transaction closing, I know that's been a nice contribution from the use of IP rights historically. Caesars recently talked about rolling out new markets. I had envisioned that you guys will be certainly helping them given your success with William Hill. Is there any update just in terms of how we should think about the current business? And then I'm guessing it's too early to tell, you know, how we should think about the long-term value of that relationship given the expiration, I believe, which is at the end of next year.

Thanks.

Moti Malul -- Chief Executive Officer

Thanks, Chad. Obviously, we're very happy with the relationship that we have with William Hill and now with Caesars. You have correctly said that they have even amplified their ambitions on market access, looking now also at converting certain Caesars brands to the platform on which we take a significant portion in the U.S. market.

The way that this has met us, and I believe we've touched it already in the Q4 and end of last year report, is simply that the type of services that we are providing to Caesars and William Hill have been asked to be extended with additional teams and additional efforts in order to support the accelerated -- the expected pace of opening new states and also now looking at additional brands and content types into that. So while these are -- this is not a revenue-share deal, as you recall, these additional services that we have been asked to amplify will most probably meet us with a certain portion of growth in that account revenues. You are correct to assume that the longer term is something that we haven't yet discussed with Caesars, but for the moment and for the foreseeable future, teams on both sides are focused on an accelerated opening of new markets and adding over the Caesars websites and brand.

Chad Beynon -- Macquarie Group -- Analyst

Thank you. And then lastly, I just wanted to ask about any M&A opportunities. I know, you know, last quarter you mentioned that there was nothing kind of on the table and everything, that you kind of plan to roll out would be in-house. But just given your cash position and, you know, the froth of the M&A market and the valuation of your stock, you know, do you envision other M&A kind of tuck-in opportunities that could fit into your strategy and what you offer from a comprehensive standpoint?

Moti Malul -- Chief Executive Officer

Yeah. Great question and a very valid one, Chad. I would say that, you know, as always, when we work as newcomers to the market, we prefer to take a crawl-walk-run approach. You know, up until now, we've built and concentrated with the learning how to be a member of the financial market.

We've been only listed just a bit less than six months, and we were mainly concentrated on internal growth and managing our infrastructure of working with the market and with you guys. But we are now entering of a strategic process to review what M&A should look like and what type of contribution we would want to see that play into the future of NeoGames. And I assume that the result of such a process that we would be taking with the board will be, you know, a further definition of the focus of those type of opportunities that we should be looking at.

Chad Beynon -- Macquarie Group -- Analyst

Thanks, Moti, and congrats on the quarter.

Moti Malul -- Chief Executive Officer

Thank you, Chad. Thanks a lot.

Operator

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Moti Malul for any further remarks.

Moti Malul -- Chief Executive Officer

Thank you. Thank you. We, first and foremost, thank you guys for joining us. You know, as the newcomers into the market, we have such a high appreciation for the interest that the market is showing in our company and in our performance, and the analysts that are taking the time to speak with us.

We are greatly, greatly appreciative of everyone's support, both our customers and our employees that have been working for more than a year in a COVID situation and helping the business moving forward. And that's it. Thank you, guys. Have a fantastic weekend ahead of you and good day.

Operator

[Operator signoff]

Duration: 33 minutes

Call participants:

Jacques Cornet -- ICR

Moti Malul -- Chief Executive Officer

Raviv Adler -- Chief Financial Officer

Jeff Stantial -- Stifel -- Analyst

Matt Chole -- Truist Securities -- Analyst

Chad Beynon -- Macquarie Group -- Analyst

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