Edited Transcript of CATME.ST earnings conference call or presentation 2-May-19 7:00am GMT

So you search till you find a good sport betting site or for a casino you can trust. You come into our domains. We, today, around about 1,200 brands out there or products as we call them. We guide you to make a decision, and once you make decision and you go to one of our business partners and spend some money there, whatever it can be, it can be doing a sports betting on Barcelona winning off a fantastic free kick yesterday or it can be that you want to learn how to chase CFDs, whatever it can be. You start to get a commercial agreement with our business partners, and we get paid.

The way we get paid are different, either we share a part of the lifetime revenue of the customer — the net revenue, the end-retail operators, or we take an upfront charge for delivering such traffic. We do a mix between those 2 or we do fixed fees, which is kind of regular advertising on the site where we say should you stay here for a certain time, it costs you this. We also do subscriptions, either on very detailed football or sports tips or on very interesting finance — professional finance-related stock trading information. So that’s the economic kind of business model that we operate within. We lead by search, and then we want to — you know that the search volume worldwide goes up all the time because there’s an information overflow, and you need to get help to get an answer. And being within that speed is not only good today, but even better for the future.

If you look at the business update, fast, when it comes to the revenue generation, et cetera. We have put together this slide. We have some things that we think are very positive, but have some things that are not very good and some are really not very good.

Let me start with the positive thing. United States, we’ve been onboard since a long time especially New York, which is a key state to generate revenue today. We continue to generate revenues, and we have a good team up there. We see more operators joining. Result only go through short-term revenue, but also when it comes to the big sports seasons coming up this end summer. More operators means more activities on the market, means more cost generation. But we continue to do good business there even today.

U.K., you remember that in Q4, we mentioned that we have a short-term decrease there due to several reasons. We have announced that all those has been arranged, and we’re actually growing nicely again in the U.K. Efficient, not only the fact that we can make our sites rank better and create better business. We have also managed to still get some nice or decent margin from the pay-per-click advertising. It was a key thing in Q4. But still we’re not up to the same spending level because we want to keep that in control. But also we have launched our first retention team, not only generating new customers, but also helping operators to maintain their customers for a long time. We help them to resend the traffic info, which we have a financial solution in place that we gain money from that as well, which is good.

Japan, growing nicely. Small market, but still very growth — nice growth trend by doing all-time high basically every month now going forward. Nice trend. That was in terms of organic growth, what we’re looking at. But another key thing we have been focusing on is the cost structure of the company where we have increased cost dramatically the last couple of years quarter-on-quarter. I’m happy to announce that the cost reaction is down in Q4 — in Q1 compared to Q4. It has to do with IFRS adjustments for rental offices, et cetera. But you can see that even by netting that away, you can see that we have a much more efficient business going out than we have ever had in that sense, comparably revenue. And that is how that will continue, and we’ll come back to that a bit later. But that’s also key part of our short-term structure, and they’re on to it now.

If you look at the things that are impacting the quarter in not supposed to weigh it on, typically, Q1 is, in this industry, lower than Q4. It has been that for a long time, and we have not seen that before because every quarter since start, we are more or less — and yet good revenue by acquisitions. But if you don’t acquire anymore, obviously, your business will turn more to the normal market logics, and therefore, we will see, and I also forecasted, some seasonality adjustments in this quarter. But on top of that, we have extra movements bringing the result down a bit.

And Sweden, I think for those who are active in this part of the world, and you see what the regulation in Sweden had caused for most of the operators up here, I don’t think it come as a surprise, but also we’re being affected by this.

In general, regulators are good. We see, historically, that when you regulate off to time, we bring — we increase our market share because it’s more difficult for an affiliate to run business in a regular market. There are more loss regulation compliance required, hence, operators tend to turn to us because they know that we can handle the traffic in a way that plays along with the regulation. But when we stood here some months ago, I think nobody in this industry could really realize what will happen in Sweden, and we see now where we shake the market in trying to find itself in a new regulatory environment, and that impacted us. And as you know, we communicated before that Sweden is more than 10% of our revenue. We obviously will have a hit on this as well. Obviously, we remain positive about Sweden in the future, but we don’t know really from when we will see a stabilization in the market here.

Casino. In general, we have a very good casino business, but there are some casino assets that we’re not happy with. And those are the ones that actually have not been maintained resource by probably because we have spent so many resource on-boarding on acquisitions we have made. This means that we have maintained them, but not made as much as we would have liked, meaning that they have lost a bit in ranking, meaning that there are less traffic. Those has been the key thing now in this quarter to address and also continue to do in the second quarter to do that, and we’ll see support of common ads. I’ll come back a bit later what to do there, but I have the impact here.

I think the last point is that for those following here the professional finance, which I know a lot of you do, you know that in the business we’re in, you see some very low volatility in the kind of trading instruments we work with. We see a giant out there went down with a 80% reduction on the revenues in Q1 due to this happening, and feeding them with new players then if there’s not been volatility in trading in this. Of course, that’s being impacted by how many customers we can do. But based on that, we have a restructure, and I’ll come back to what we do about that going forward and how we see a positive outcome from that.

But we also have to remember that even in this, we see a quarter that goes down from Q4. We’re also doing a lot of good things, and I think that’s the key thing on this presentation, that we know what is impacting the result but also know what we need to do to really make it grow. And we see a lot of growth already in parts of the company. And I think rewards like this, that we still have some of the best affiliate sites out there on the planet, good rewards. I will also show you later that we’re also being rewarded once again The Affiliate of the Year in North America. It shows that we’re doing the right things where it should be done. So I’m coming back to that a bit later.

But before that, I think it’s time for some details in terms of the numbers.

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Erik Edeen, Catena Media plc – Interim Group CFO [3]

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Great. I will guide you through some of our financials for the first quarter starting off with our revenue. Looking into our revenue, breaking it down a little bit further, we had our search revenue, grows to EUR 21.7 million in the first quarter; our paid revenue at EUR 3.5 million; and our subscription revenue at EUR 0.9 million for the first quarter, adding up to a total of EUR 26.1 million.

The growth year-over-year is 9%. Breaking that further down, we had our revenue share at 44%; our cost per acquisition at 39%; fixed fees at 13% of our total revenue; and our subscription revenue up to 4% of total revenue. The increase in subscription revenue is mainly driven by the investments we’ve done in the sports vertical as well as our Financial Services segment. The decrease within revenue share is mainly impacted by the regulations and legislations on the Swedish market in the first quarter.

Looking at the graph, you can see our LTM is increasing next to our revenue here, and we are up to EUR 107.2 million rolling 12.

If you look into our regulated and taxed markets, Per mentioned that we prioritize, we are good at acting in those markets as we are very good at following and tracking the regulations. That percentage of our total business rose to 78% for the first quarter, and organically, we grew by 80%.

I’ll guide you through some of our costs in the first quarter as well as the margin development. You can see here in the graph that we have a trend shift looking at our cost development. This graph includes personnel expenses, it includes other operating expenses and it includes our direct costs as well. And you can see here that we have a trend shift, we have focused quite some on cost control and cost efficiency in the past quarter. That is, however, impacted by IFRS 16 adjustments. But taking that out, you can still see that we are on track when it comes to following cost developments and a slowdown when it comes to the cost development trend.

When we look into our margin, we ended at the margin with 43% in first quarter compared to 44% in the fourth quarter. That was impacted by our direct cost in absolute numbers increase. Looking at our personnel expenses. Those were — they have a little bit of a decrease in absolute terms in comparison to revenue, as in this bridge. We are quite flat.

Looking into our operating expenses. As you can see here, 1.9% impact positively on the margin. However, that is impacted by the IFRS 16 adjustments in the quarter.

If we continue to look into our segment performance in the first quarter, our iGaming segment consisting of sports and casino stood for 94% of our total revenue in the first quarter and our Financial Services segment up to 6%, quite similar to the fourth quarter last year.

If we look into those different segments and the underlying performance, our revenue in the casino and sports betting business was EUR 24.6 million and at the margin at 46%, ending with a EBITDA at EUR 11.3 million.

Our Financial Services segment had a revenue of EUR 1.5 million and a EBITDA slightly below 0., ending up minus 0.1% and an EBITDA margin of minus 5%.

In this quarter, we have put quite some focus at fine-tuning our cost allocation key, and that impacts the Financial Services segment a little bit more here in the first quarter than before as we have focused at being even better at allocating our overhead costs to the right segments.

Looking into our financial cost structure. If we go below EBITDA, as you can see here, we’ve increased our depreciation and amortization in the first quarter mainly due as well to the IFRS 16 adjustments due to leases. Continuing further down, we had a fair value loss on our bond valuation when we did that. So in the fourth quarter, we had quite a big increase. Now, we see a decrease based on the fair value affecting the EPS in this quarter negatively.

We did not have any nonrecurring items in the first quarter this year.

If we continue to look at our NDC development, and as you can see here in the graph, our indicator, we are pretty much at the same level as we were in Q4 and maintained that, so quite flat.

Looking at NDCs, in total numbers, we saw a slight decrease in the first quarter mainly driven by the legislation in Sweden as we mentioned before, but as well some nonperforming casino products decreasing the NDC level a little bit. However, we are happy with continuing and maintaining high levels when we look at revenue per NDC.

If we look into our balance sheet and statement of financial position, that mainly consists of intangible assets on the asset side, EUR 340.1 million ending March.

Looking at our cash and cash equivalents, we were up to EUR 9.3 million. And on the liability side, the financing and the borrowings rose to EUR 148.5 million. And our amounts that is committed to — in acquisition, EUR 68.5 million, and of those, 3.5 — sorry, EUR 3 million is related to noncurrent commitments.

I will also give you slightly on our statement of cash flows. We are continuing to have a strong underlying operating cash flow in the company. We had a cash flow of EUR 9.1 million in operational cash flow in the first quarter ending at cash conversion rate of 81%. So we continue to have a strong underlying cash flow in the company, and the first quarter is continuing to show that as well.

On the financing side, as we’ve said before, for those of you are new here, we have the revolving credit line facility and we also have a senior unsecured bond with a total framework of EUR 250 million currently utilizing EUR 150 million of that framework.

Back to you, Per, strategy and outlook.

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Per Hellberg, Catena Media plc – CEO [4]

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Thank you. So obviously, a quarter that is a half face that’s happy and a half face that’s sad, and I think that’s how we look at it because, of course, we never like to report decreased revenues. But as you can see, we’re following this track. We were on to what we want to do by focusing on the assets we want to grow to make sure that we start to grow by keeping cost in control. And by then adding revenue, we should see a trend shift in margin trends while accelerating the margin later on. So I thought I should spend some time with you now talking about the future.

The strategy has been that we should focus on organic growth, and we want to do double digit. We did all the way for that this quarter. It should be then obviously 10% or more, pretty close, but obviously brought down by Sweden. We then showed we have some websites we’re not really happy with especially in the casino segment. We have worked a lot, and we’re starting to see a trend shift there as well.

And of course, geographical expansion. We have a lot of interesting sites or products that we want to perform in more markets than they are in today. To do so, we want to use less brands. We don’t want to bring all 1,200 all over the planet because that would be impossible to do in an efficient manner. Also, I think it will be quite confusing for the consumer. I rather be in the few very strong brands well-known because that’s increased efficiency. If you do that right, we can actually operate more revenue with less cost percentage, and that’s exactly what we’re trying to do. So the cost control today has been focusing on continue to be very active on either OpEx to make that not rise much, if any, also personnel expenses, to keep that in control. We have, however, have figures like direct cost that actually moves with the revenue. So if it were up, the load in revenue, that will increase. I think that’s a positive momentum in the cost structure in that case.

So this is how we look at things, and I thought I wanted to be a bit detailed here because I think this tends to be what we’re working on. On Sweden, how do we see that? That’s the question I get. Will it remain this? Will it increase from when? We don’t know. I think we need to follow the market trend. The market needs to stabilize, but what we think is that it will repair itself and come back. Do we forecast a lot of revenue for that going forward? No, we don’t because we thought it’s better to focus elsewhere and build revenue there. And if Sweden comes back early, it’s a bonus for everyone rather than being dependent on it. So we are doing what we can. Of course, the market is also changing because we have the same market condition, operators change in their way of work, and so do we. So when that is done, we see potentially regain from that market.

Italy, news late last week that the marketing band that’s been there for a long time, news come out about that. And it seems today that it will not have a dramatic impact on the industry part we’re in, meaning affiliation. There will be impacts and there will be regulations, but nothing new to us. But it will not close down our business opportunities, so that was good news. So the weekend was spent talking future plans with operators, so it’s a little bit ongoing. So I think we can see a good potential than it is moving forward, but needs to be one on some clarified, but it seeks purpose, too, about that one. Those are the 2 kind of regulatory things that we wanted to mention here.

When it then comes to other organic growth opportunities, I think those sites that we’re not happy with, what happens is that if you don’t resource them, you cannot maintain the content quality as good as one have. And when you do that after a while you will stop losing ranking and then you need to do a lot of work, so what we’ve been doing lately is that we have been adding a lot of resources to work with the optimization of the site, going from ranking to be more content and to also work a lot with our different operators to revisit the offer structure here to make that we maximize, but also improve tech. It’s something that our COO, Johannes, sitting here in the room is also very much involved in and doing good job with. Therefore, we should see, during Q2, a trend change in this and walking into second half very strong in that case. A lot of work going on there.

But then also not only that, we’re looking at more brands we can bring globally and just recently launched a site we have that is very successful, NewCasinos.com, into Germany and more things are being rolled out just to make sure that we make use of the assets we have to grow them.

The most successful brand we have, AskGamblers. One of the strongest affiliation sites for casino in the planet has gone through a major technical makeover, we can say. Something that is not visible to customer, but it helps us to run that product in a good mode, core mode, bringing all the function — core functionalities to any market on the planet. It wasn’t restricted. It could not scale it in that way before. But we did that update now in Q1. And going forward, what we’re then doing is to bring this new updated model into the core we have for revenue-generating areas as we have, which is Germany and Sweden. So that is work we’re doing and will be rolled out. But also we want to launch within the new areas apparently, and we did good growth rate in Japan for our existing business. We’re going to launch it there during Q3. It’s been a high playing values in Japan, very good market trend. And we have a team there that can help us run it as well, so good market.

And then we also, now in the planning mode, are launching it out to additional markets for full year and some very big markets is the plan, but let me come back to you when that is coming closer.

This is to be added on top of the very good growth trend we’ve been seeing from AskGamblers. We mentioned last quarter — I think, last quarter, that we had close to 70% growth of AskGamblers last year. So it’s going well. It will have some incremental value to that trends. Japan, we already talked about.

And then financial services. We’re now going to focus on 3 brands. We have adjusted the organization likewise, and we are now also working that to scaling. We’re scaling into, as I mentioned before, to Italy. We’re doing what the market is scaling, and we’re making sure to use that, not by adding more cost to the model. We’re starting to see some positive changes there already.

So that’s what we’re focusing on. But then people say, “Hey, what about U.S.? Yes, what about U.S.?” Because here’s a very interesting thing. For your information, I got a lot of questions, how big is U.S.? Well, U.S. today is more than 10% of our revenue. And U.S. today is Nevada, Delaware and New Jersey. Nevada, Delaware, hardly no revenues. So it’s coming from New Jersey. It’s sports and casino New Jersey. Good thing there, as I mentioned, operators are increasing, meaning that more marketing is hitting the market. The awareness of that you can do this is increasing, hence, we also project a nice growth from existing markets in U.S. going forward, especially when the core seasons starts here during end summer.

We, today, have 27 full-time employees in the U.S. market focusing on existing products, but also on the products that — or the states that’s going to rollout. And as I also mentioned before, we have a higher margin than average in U.S. compared with any other markets. So every year we get there helps us to improve our total margin going forward.

And then also last week, last week was a good week when it comes to news I guess because last week it was also announced that Pennsylvania — although week before, we rolled out finally. It was said to happen all in the beginning of this year, it was delayed, but now they’re saying that casino should start in July 15 and sports before that. Rumors already that some will launch this week or next week, but within May is what we look at for sports, which is very good because, A, we have a lot of good websites there. We have a very good ranking position over there since long time. B, we have the team in place. We have all the deal structure in place with operators that are there, and luckily, there are more than one operator. There’s a whole other bunch of operators there who wants to start from when it kicks off. And putting that in together and with low incremental cost we have, we believe that based on the population and based on what they do there, that this has a potential to double our revenue compared with today, which is 10% is coming from [day]. Well, quite simple what this will represent when it’s up and running. Let’s remember, very, very minor incremental cost. These trends (inaudible) than that to bottom line immediately. So obviously, we very, very feel about Pennsylvania coming up.

But it started on the moment we see. Well, before that, just to mention about the ranking we have, we are somewhat dominating the — a lot of ranking sites now and works in Pennsylvania. So we are prepared. So when people starts searching for this, they have a lot of traffic related to our sites.

But I thought I should put this together as well, and that is telling you before what’s going on in the states are being discussed. And actually, this page is wrong because last night, we also heard that Montana should be added by 2 new bills that are launched for the government to sign. So it’s happening fast. But the difficult thing is that from its past, the time line until they launch. New Jersey, it was a couple of weeks. Pennsylvania signed their casino bill in November 2017, which is 18 months ago. So it’s a different time line. But what we see now with the business build-up in U.S. is that more states want to push through because they want to utilize this opportunity to stop the illegal offshore betting, control it on the local legislations to protect the player and make tax income from this from the states. But in total, there are now 16 states they’re pushing to take movement into this. I think the most there are more likely a bit advance, so the other ones, as you see here, they are listed here and what to do, they tend to start with sports and then after that, add casino. Some go for both at the same time, and I should have said, you should add Montana to this.

How many will pass? Nobody knows because of all that’s happened. We say typically, historically 2, 3, maybe 4 can pass within 12 to 18 months, but it can be all of them, and that’s the tricky part. It can also only be one depending what’s happening. So in terms of our planning when this will happen, it’s extremely tough, but we know what happens when they launch. And with our positioning in these states, we also know that there’ll be an incremental business [trust] that is very high.

But if you put this just population-wise, there’s it’s some 6x more than New Jersey. It’s a huge opportunity for us out there, and then we need to see about the timing. And as I mentioned, we are well positioned. We are (inaudible) the preferred affiliates according to the market in U.S., and we’re planning to maintain that position.

Rollouts, this is what I said is hard. So I need to look — do like this. Compared with last quarter, you can see movements in Pennsylvania, especially for casino and sports betting. You can say Indiana is moving forward. It’s hard to say when, but it’s coming closer there because it’s good movement. It could happen already mid this year, end this year, but it can also happen in 2020. The other states, we don’t know and I thought all of them, but I put them there because they are pushing very, very hard to make this happen, but then we need to see about the timing. And then you have a bunch of other states down there that are also pushing a lot.

But you can see, this list is growing longer and longer every month, meaning that things are going to happen. We really once thought that 2022, 2024 was when the Big Bang should happen. Now people are talking more about ’21 and ’20 — mid ’20 to ’21, that it should really happen things. So that’s positive, extremely positive. And we are happy to have our very strong position over here.

So if you put all this together, what we can see about going forward? Well, we did EUR 26.1 million. If you take that start, what can happen? Well, we don’t see a big return on Sweden. I hope we’re wrong, but we don’t plan with it. But in other ways to bring it up, we continue to grow nice (inaudible) in Italy, we mentioned. Pennsylvania sport, good momentum to increase, so let’s hope it starts now this or next week or whenever in May. And of course, we’ll launch in more markets and seeing benefits of the markets we have launched into the new markets to start to do. In the meantime, we keep cost in control.

I mentioned about casino, the speed up of the force we have that should give nice income from that coming later in the year. AskGamblers casino, we talked about. And existing markets as well, but also remember that second half especially is always much larger in the traditional industry than the first. So we also have a seasonality impact.

So with this, we want to say that we’re not planning to stay in this revenue levels. We see that the market itself, historically, has the potential to increase, but then also that we’re doing a lot of things with existing assets to improve it and some new things, welcome things, like from U.S. is added on top.

How about costs then? Well, this is a picture of the development. You see a trend down for cost in Q1, but then you see coming up that we’re trying to maintain it on a flat level. But you still see that it’s increasing. I need to explain that. Other operational expenses we’re planning to be rather flat on.

Personnel expenses, typically we always have a small salary increase, but then also the better result, the more we accrue for incentive bonuses.

So if we plan to increase the result, we need to put more money away. But the big change here is that if we expect revenues to increase, we also need to book more cost away for direct cost, meaning revenue generating activities.

So if we will net that out, we have more or less a flat curve here is what we believe. So we’re not planning to increase cost at all in the same level that we historically have had.

So if you put revenue ideas on top of cost control, then we can start building a picture like that. And this is not — don’t trust the scale on this one, please. It’s up to the analyst to decide what will happen here. But if you can see the cost development here, what we’re trying to say and then you take all these activities we’re planning to do, only if Pennsylvania start to launch, how much that could generate plus other states, plus everything else we do, we look forward to a very bright future in this coming quarters, especially the second half.

So we believe that you will see the nice trend in margin development and we’ll continue to do that and send this company also into very nice trend into the next year.

But also as we mentioned, this — we will therefore remain at EUR 100 million EBITDA target. But to be honest, that target was based on the fact on U.S. states rollout timing and potential acquisitions. And I think — I definitely believe we can hit it, but I’m not sure if we can hit it in mid-2020 and 2020, beginning ’21, mid-’21. It all depends when the states rollout.

What I’m sure of is that excluding U.S., we will see very still good growth curve with controlled cost. And adding this on top, we will definitely hit it. But I cannot commit that it will be done by 31st of December, 2020. If we’re lucky, I committed before and confirmed before, if market delays a bit due to some reason, we will celebrate a bit later. That’s what I wanted to say. So we’re not walking away from the target, just we’re unsure about the timing.

So to summarize, important key takeaways. The problems occurred in U.K. in Q4 are sorted and we’re growing U.K. nice again. Nice trends from U.S. and very good things inside. We are focusing on organic growth and especially repairing things we’re not happy with, but also launching new sites across the world to benefit going forward. Sweden had an impact. We’re not sure when it comes back. But as you see, we still have the believe that we can do a fantastic journey going forward, even if Sweden wouldn’t come back on former levels soon, all by not growing costs. So it’s programmed for bright future. And except the weather here today, we feel that we live in a sunny environment going forward.

So thank you very much. And now we’re going into the Q&A session.

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Questions and Answers

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [1]

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Great. Per and Erik, let’s begin with the U.S. Could you elaborate a bit on — you have 27 full-time employees in the U.S. right now. Can you elaborate a bit on the scalability there with Pennsylvania now going live, hopefully, in a couple of weeks and a few more states. After that, perhaps next year, how many people will you need to be in the U.S., yes, let’s say, in a year’s time?

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Per Hellberg, Catena Media plc – CEO [2]

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I think amount depends about how quick it rolls out. But just to give an idea what we do. There’s a core amount of people there needed to do whatever we do with any product and place, which is maintain the site performance. And as more states open up, typically in sports, we need to add more local information. That is content creation. That’s normally not the most expensive part. You can find a lot of people writing about sports. But then also we want to make sure that the sites are — continue their kind of competitiveness, so therefore we add functionality. We are now building up where we want to do more video content on the sites and building up teams about that for states wise. So we’re adding these kind of things into it to make sure that we can maintain a very high market share. And also we have some central functions. With 27 people, you need somebody looking after these from an HR perspective, et cetera. But for example, if Montana will go up, what do we need? Predominantly, you will need content creators as mentioned before. You might need one if it’s far away in a country for local in the beginning, key account management, but what we see from all states is that there’s a couple of local players, they are the ones in actual months coming in. So from key account activities, don’t need much. So I would say that without being able to answer the amount because that depends on the rollout, we don’t foresee a big cost increase once it rolls out. So we see basic margin improvement for the total business if rollout starts or when — from when it starts.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [3]

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Great. And you mentioned that your assets rank very well in U.S. on different keywords. Could you elaborate a bit on that how that differs between different states, if it does, New Jersey, Pennsylvania and any other states that you listed in the presentation?

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Per Hellberg, Catena Media plc – CEO [4]

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Well, I think our team over there has spent a lot of time to try and predict which states that we’ll open when. And if you have a state like Utah, that’s likely to maybe never open. We don’t spend a lot of resources there. So we’re trying to predict all the time what to do and start to build signs and ranking there. Typically, we have had a strategy that if new states open up, we use brand names that can include that state names, PlayPennsylvania, PlayNewJersey, which is a good thing because when people search, they understand that our sign is related to that. Over time when more states open up, we don’t need this local (inaudible), so that we can do on the Play brand.

So we have focused not only bringing up local sites, but also having national brands there, plus that we bring insights. We already have a very good traffic. AskGamblers coming in from U.S. Most of the traffic we cannot use because it comes from states that are not regulated yet. But when it opens up, we do that. So it’s a big mixture of what we do. And I think that for the states we have on the list here, that’s exactly what we’re working on to make sure that they are ready from when they launch. And typically, we’re ready much before they launch because of uncertainty. So I think that for any of those states, we are well positioned today. But some of them are very early. And therefore, we haven’t spoke — focused a lot to get the traffic going there yet.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [5]

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Okay. But there are not any particular states that you want to highlight that in these states, we are very well positioned versus other…

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Per Hellberg, Catena Media plc – CEO [6]

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I think we would also focus in states where we’re not very well positioned. And at this stage, they are not in a place where we are dissatisfied where we’re today according to the plan to execute.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [7]

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All right. And moving back to Europe, Sweden. Could you elaborate a bit perhaps on the development in Q1? Give us some sort of impression on how it started, how it ended. Just paint the picture of…

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Per Hellberg, Catena Media plc – CEO [8]

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Yes. I think it will be quite a blurry picture because for those following the market, you can see operators that from the eye of the spectator looks extremely the same. We had a dramatic change in the quarter, even in months between each other. And of course, with us doing business with both of them, it also blurs our picture to make a good decision from it. We obviously saw a lot of decline in January, immediately. Reason for that, a, the regulators coming in, their self-exclusion limitation, but also the fact that a lot of operators have pushed a lot in Q4 to let a lot of customers in before the regulation starts. Then also, we saw some other operators having big problem in February while some of them regained some things in March. And because of that picture, it’s quite hard to predict the future. What we’re doing now is that based on that knowledge, we’re trying to refine our partnership with our operators, so that both can find a way through to find the right kind of customer at the right time moving forward. But it’s unfortunately too early to give any clear answer. This is exactly how it worked and what’s happened.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [9]

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Okay. And regarding this — there has been some news in the media about the potential ad ban in Sweden or some sort of restriction perhaps coming into force. How would that perhaps impact you? Of course, we don’t know how exactly — how it will pan out, but looking at what happened in Italy perhaps…

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Per Hellberg, Catena Media plc – CEO [10]

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Yes. It’s like a year ago that one happened. So I think it’s time for advertising ban discussion again, this time from the north part of Europe. What we see generally is that no country has been very successful in completely managing to ban advertising I think and this country specifically will be tough because the government is actually making a lot of business from this kind of industry as well. What it’s more about is to restrict the volume of it and what kind of marketing message you can have. That we see from a lot of parts of the world.

Typically, when that settles, we are not supposed to (inaudible) that because the opportunity for operators to use the media channels in full mode is restricted, but they still need the business volume. And therefore, they tend to go more to digital where we are active. So that’s why we believe that these restrictions, historically, we see it actually improves our business over time. But we need to look what it means and what they will do. But I think what started this was the extreme exposure on television to reach people that are basically not looking for this ad. What we’re doing is that we only serve this information to customer who wants to see, those who search for it. I think that’s a big difference.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [11]

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So potentially, it could be a net positive for you?

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Per Hellberg, Catena Media plc – CEO [12]

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Yes. I wouldn’t say it will be a net negative.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [13]

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And that’s also what you’re hoping for in Italy, I think?

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Per Hellberg, Catena Media plc – CEO [14]

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Definitely. We took the decision to maintain our business in Italy. But because of the upcoming ban and the chance of that being negative to our business, we took actions also to start launching incremental business in the live finance, et cetera, to maintain the value of the assets and still maintaining business there. Now obviously, as both things are happening, it looks promising.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [15]

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And speaking of finance there, posting a loss in the quarter perhaps due to some costs being allocated in a different manner than they have been historically. But could you elaborate a bit on the finance segment and when you expect that to turn back into positive territory again exactly in Q2 or what do you see?

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Per Hellberg, Catena Media plc – CEO [16]

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Our plan now is to deliver a better result in Q2 than in Q1. That’s the feeling we get now when looking first sight of the numbers because we want — starting to execute on the numbers. It’s been in constant struggle from the time when we bought it. We mentioned that many times before with high value of the company based on crypto and binding options. We know what happened with them. And now we’re also relating with CFDs being a bit tough one out there for the time being. And that’s where we’ve been very strong. However, now with the changed strategy there and the changed operations accordingly, we feel that we are able to start to turn that around now. So that’s the plan. So we’re not planning to book the same results going forward. That’s for sure.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [17]

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All right. And just a question, in your report, you mentioned that obviously revenues for Q1 was below expectations, but you expect to see positive development from the second quarter onwards. Could you just elaborate a bit on what positive development mean? What do you mean by that?

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Per Hellberg, Catena Media plc – CEO [18]

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Yes. I think that — what we mentioned here that, a, we’re not sending out as much money from the company as we used to do. I mean, percent wise, so we can costing control. I mean all these things mentioned here. That’s the positive element. I mean we see that we’re taking — we’re repairing what we feel is broken. We take the things that are working good to other new markets, and we have U.S. coming up. I think those are the quite nice bunch of positive momentum for us.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [19]

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Yes. I understand. But is it possible to quantify it a bit? Are you saying that revenues will increase sequentially versus Q1 given that…

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Per Hellberg, Catena Media plc – CEO [20]

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In Q2, you mean?

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [21]

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Yes. In Q2, given the decrease versus Q4. And now you’re saying that you expect a positive…

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Per Hellberg, Catena Media plc – CEO [22]

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Well, obviously, I’m not saying that we want to go down in Q2. That’s for sure. We have a plan. What we saw in the business was to grow in Q2, of course. And as you can see here, we also foresee even larger growth when coming out in the second half than first half. So we’re looking at it a bit optimistic going forward.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [23]

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All right. Any questions from the room here or perhaps from the telephone conference? Operator, are there any questions?

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Operator [24]

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(Operator Instructions) And we have a question from Mikael Laséen from Carnegie.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [25]

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Yes. Again, on Sweden, I missed just a couple of minutes there in the beginning, but can you may be say something more about revenue development quarter-on-quarter for you in Sweden? And what you saw in terms of revenue mix during the quarter? How the regulatory and activity levels affected that side? So that’s the first one.

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Per Hellberg, Catena Media plc – CEO [26]

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Okay. Mikael, I think that what we said here is that I need to look at what we have said officially and what we normally guide on. We have said that Sweden has been more than 10% of our revenue. If you look at the average impact on gaming operators in Q1, we see quite a dramatic downturn for all of them. If you apply that average on our business, it will imply the same thing. So looking at quite substantial decline in business in Sweden in the first quarter. The exact amount we don’t guide on.

And what we also need to say that, historically, our business was created in Sweden. So at some point, it was 100%. Today, it’s much less because we’ll be going elsewhere and acquiring elsewhere. But it also has historically having been more weight on (inaudible) in Sweden than other markets, meaning that when player value goes down due to restriction of — and limitation of spending, it hits revenue share more than it hits acquisition numbers. So that’s why we had a kind of double impact on that, but we don’t guide on exact numbers by individual market like Sweden.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [27]

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Okay. Did you see any traffic changes in the market on your key money generating sites during the quarter in Sweden?

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Per Hellberg, Catena Media plc – CEO [28]

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Yes, we did. And I think it’s a combination of what’s going on there. We saw that people start to search for different kind of things after the regulation, which is quite logic because you cannot search for some things and more because you cannot market them in that way. But also as I mentioned here in the beginning that we have some casino sites that we’re not super happy with and some of them have business in Sweden. So also not only the fact the regulation, but because we have not maintained them probably due to resource allocations. We also had an impact on that. And that’s what we’re repairing now to get away from that problem.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [29]

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Okay. And any thoughts on the — what progress coming now from Swiss markets and how that could affect you?

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Per Hellberg, Catena Media plc – CEO [30]

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Well, I think — actually, a positive matter. For those who doesn’t know, Google had announced that they now started with pay-per-click advertising in Sweden, but only licensed players can do it. And as affiliates are on operate under license, we cannot use Google’s pay-per-click advertising. So the first 4 ads when they search and then the normal results come, though we cannot do that as an affiliate. On the other hand, most market doesn’t have that. But in Sweden, I see it like this. If it’s restricted only to a lot of regulated operators to fight for 4 spots, the price bidding because the open bidding cost will be extremely high. And on that traffic, they need to convert that into a decent acquisition number. And I’m sure that, that fight — considering the potential bans in TV advertising will increase a lot. That will be really expensive to bid for those search word, meaning that the customers that acquire from those will be quite expensive compared with the traffic we send. So if you tighten up to one media channel and everybody fights for that special digital, price goes up. It’s been the same in every kind of PPC market that’s been and it will happen in Sweden as well. So over time, we will not have a negative impact of that. I think we will gain business over time from that.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [31]

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Okay. Got it. I have also a couple of questions. One is regarding the organic growth. In the quarter, it was 8%, I think?

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Per Hellberg, Catena Media plc – CEO [32]

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Correct.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [33]

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But in total it was 9%. So that means that the acquisitions added not very much. Can you explain what happened because you did a lot of acquisitions last year from April, May, right?

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Per Hellberg, Catena Media plc – CEO [34]

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Correct. I think we need to look into this in — break it down a bit for you to understand because it’s a very valid question. We — as you remember, we changed the way how we do acquisition measurement or organic growth measurement. A year ago, it was including acquisitions. We took that out. So it’s now the pure organic growth of assets we had 12 months ago. But also, we don’t include search revenue — sorry, we don’t include pay-per-click advertising in growth — in organic growth because that can close up a lot of time. And if I just want to trade with my revenue, I start to buy pay-per-click for EUR 5 million a quarter, and you think I have a fantastic revenue while profit will be low. So we just look for the search traffic. And if we look at the percent-wise of the search — sorry, the pay-per-click volume a quarter ago versus now, you will see it was more. So therefore, we have actually a positive outcome of the organic growth. So the search revenue only increased 8%. But then also, as we mentioned, what we did — primarily, what we did in acquisitions in the second quarter onwards were financial assets. And those assets, as you remember, has decreased due to the crypto decline and privatization of binary options. So those assets has been reducing. And that’s the reason why you see this kind of a bit interesting development versus organic growth and revenue.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [35]

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Okay. But one thing if — well, I was thinking about that paid revenues were flat or increased a bit, actually. So actually — I mean, then you have other things that is going on behind the scene, so…

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Per Hellberg, Catena Media plc – CEO [36]

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Yes. I think…

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [37]

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Search traffic.

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Per Hellberg, Catena Media plc – CEO [38]

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Yes. But I think — yes, the search traffic is there. But then, as you say, if you look at the assets we have, but then it’s clear that some assets has reduced. And I think we’ve been very clear about that additional — those financial assets has been going down compared with when we acquired them, we had them there.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [39]

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Okay. Got it. And my final one, if I may. It’s regarding the contingent earn-out commitments that you have or not cooked into the (inaudible). What is the plan for that in the coming year? Can you say something about what we should expect?

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Erik Edeen, Catena Media plc – Interim Group CFO [40]

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Yes. Just to briefly — and what we also say and state in the report, we don’t guide on the exact date when that will happen, but we have current commitments and those are up to EUR 65.5 million and additional EUR 3 million in noncurrent commitments. And as a current commitment, that has to be settled within 12 months. So that’s what it is accounting wise and that’s also what we informed about. When it comes to payment of those earn-outs, we’re always looking to the possibility of using our cash and cash equivalents versus potentially other ways of financing those acquisitions.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [41]

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Okay. But can you say something about what is — what really has to — I mean, what they have to deliver to get those type of payments?

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Erik Edeen, Catena Media plc – Interim Group CFO [42]

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Yes.

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Mikael Laséen, Carnegie Investment Bank AB, Research Division – Head of Software & Services and Financial Analyst [43]

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They have to deliver quite the growth. But from here, if you can say something what is really needed for that to be paid out?

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Erik Edeen, Catena Media plc – Interim Group CFO [44]

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Yes. Not more than that we are — every month, we are tracking down the line performance of those assets. And before, it’s — performance-based earn-outs are basically performance based. So we look at the underlying performance in the assets. It’s different parameters that we assess. And then we evaluate it against the contracts and the commitment we have. And every month and every quarter, we’ll reassess that based on the latest performance. So that’s how the process works. We cannot elaborate further on any potential changes and how those underlying assets will perform, but it is an underlying evaluation every quarter and every month due to those commitments.

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Operator [45]

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We have another question from the line of (inaudible), private investor.

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Unidentified Participant, [46]

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Okay. You’re saying you focus on high-value industry customers from now on, but every customer is very accretive in this game business. So why focus so much on high-value customers, especially since regulations tend to try to dampen the large depositions and high gamblers — high stake gamblers.

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Per Hellberg, Catena Media plc – CEO [47]

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Well, I think it’s — first of all, it’s — in one way, quite a simple question to answer because that’s what our operators demand and want to have. And the more of those you can send over, the more traffic you will have from operators. I think our view is that how we see that Google change, what happens the kind of search volumes out. We’re always trying to build the business on trying to create the max — the best mix of customers versus the margin we can create and the cost we apply to do it. And what we see now, what we’re going to do forward in the markets we do, especially focusing on U.S. where the buyer (inaudible) and is higher, focusing on Japan whenever they (inaudible) you will have that trend. That does not mean that we say no to traffic. But when we build our sites, we want to go for that and try to get everyone that has come with a higher value with them is always prioritized for large volume on those who doesn’t generate a lot of revenue because our operators do not only want to pay for the big spenders, so to speak.

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Unidentified Participant, [48]

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Okay. And one more question, Per. Since now we’re a pretty mature company in many ways, what new verticals do you look into like loans or credit cards or even leisure platforms that’s white label?

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Per Hellberg, Catena Media plc – CEO [49]

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Yes. I think — it’s a good question. I get it often. That’s definitely part of our future to grow and become even more global. But as I also said here, there’s a lot of things we want to repair. What we’re trying to do is an extremely efficient engine that works regardless. And as soon as something comes up, we nourish it. And when it can walk by itself, we throw it into the engine and it starts to grow. This turnaround now is to make sure whether all the assets we have bought, we have a very efficient engine to run and that it runs very efficiently. And from that part onwards, we start to look at potential new verticals. But as you can see, even within gaming, we’re not far from done yet. There’s a lot of things going on. So we focus on making sure that we focus on the low hanging fruit to do that. And after that, we start to grow. But you’re right, we’re going to do that, but sometimes in the future. First, we maximize where we are today.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [50]

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All right. We have a question in the room here.

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Unidentified Analyst, [51]

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So despite no World Cup this year coming up, you’re saying that you probably want to grow Q-over-Q. And Sweden, we don’t have any (inaudible) when it’s going to change for the positive. So what’s the plan for you guys to make the Q-over-Q growth despite no World Cup?

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Per Hellberg, Catena Media plc – CEO [52]

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Well, I think I mentioned that 20 minutes ago. We’re growing in U.S. We have launched new programs of this sort in the (inaudible). We are sorting the problems we have with casino products. We’re hoping Pennsylvania will go live for sports. So I think there are a couple of things that we believe can bring the revenues up from first quarter.

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Unidentified Analyst, [53]

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And gamblers. Now you’re saying that we’ll go to Japan in Q3 and probably another market by the end of year. So how is the rollout plan going or is it going to take 3 to 6 months for each country or is it different than…

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Per Hellberg, Catena Media plc – CEO [54]

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No. I think it all depends because the reason why AskGamblers successful is that have (inaudible) massive amount of information. I mean there are thousands of pages on that site that we operate and to do that into new language level take some time. And when you have it, you then need to make sure that you launch in the market where we have account management and operator knowledge. Or if you bring it another side of the world, you need to be up as well. Now we have prepared (inaudible). We’re doing a lot of translation work now and then we need to see how soon we can roll it out. But also you have to remember, once we launch it, there’s some time before it starts to having traffic. The good thing though is sit like us, gamblers is that Google also prioritize ranking on sites that are large in other markets. So that’s what we’re doing, but I cannot declare about exact dates, et cetera, but the team in Belgrade are working long hours now.

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Unidentified Participant, [55]

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So we can expect a faster rollout going forward?

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Per Hellberg, Catena Media plc – CEO [56]

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I think you can expect what we mentioned today and then I need to come back about the exact dates of that going forward, but we’re working very hard to maximize the potential of that product, for sure.

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Christian Hellman, Nordea Markets, Research Division – Director of Small and Mid Cap [57]

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All right. If there are no further questions, I think that will sum up the Q&A session. And with those words, I hand over to you, Per, for the closing remarks.

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Per Hellberg, Catena Media plc – CEO [58]

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Well, thanks everyone for logging in. I hope to see you now. And of course, remember these dates. 19 of August, (inaudible) shouldn’t begin in the middle of summer holidays, so we’re doing it here. And then November and then you have the February numbers post. So please book it, and hope to see you soon, again. Thank you.