ZEAL Network SE

Thank you so much, Aaron, and good morning and welcome everyone to SEALs Earnings Call. I hope you will have access to the presentation. If you don't, please zoom into the IR section on our webpage. Let's move to the content slide, and there you will find today's agenda. We will start off with a summary of the first nine months, followed by a financial update. Then I would like to elaborate on our recently launched share buyback offer. We will then move on to our guidance before we finish off with the key takeaways. After the presentation, we will give you the opportunity, as we always do, to ask questions. I will now hand over to our CEO, Helmut Becker.

Thanks, Jonas. And good morning, everybody. So let me summarize the first three quarters of 2022. We had a record 120 million Euro jackpot in July, and we used that like we always do to invest in customer acquisition. So in the last quarter, we achieved more than 200,000 new registered customers, creating another big customer cohort with stable and high customer lifetime value. We're happy. that the highest financial court in Germany confirmed our position that certain services that we provided until the business model change that was in 2019, that they were not subject to VAT in Germany. And that means that 54 million euros VAT that we paid in the past plus interest will be refunded to us in the near future. In August, we expanded our B2B partner portfolio and entered into a cooperation with the German news portal NTV. So NTV users can now buy our lottery products on the NTV website. This is a part of our growth strategy. So besides acquiring customers directly into Lotto24 and Tip24, we want to go where the customers are. So our portfolio now includes NTV in addition to the one-on-one portals, WebDE and GMX, which are very big portals in Germany. Overall, we achieved further growth in the first nine months. Unlike many other e-commerce and customer businesses, we have so far not seen major negative impacts from inflation effects or reduced consumer confidence. We see that online lottery continues to be popular and we see strong customer loyalty. Apparently people want to dream or need to dream even in tough times. In the first nine months, we grew Billings by 10%. We grew EBITDA by 25% compared to 2021. And last but not least, we expanded our games business internationally We're now cooperating with the American full-service lottery provider, Park Renew Gaming, and they will integrate our online games into their video lottery terminals in Argentina and their online platforms in Peru. Let's go to the next page. That's page five. And let me take you through the current regulatory situation. And I would go straight to the games license or the virtual slot machine license, which is probably the most interesting topic for you. Unfortunately, that procedure has still not been completed. So let me just explain what's happened in July, 2021. At the beginning of the application phase, we applied for a permit to operate virtual slot machines. The application is still being reviewed by the authorities. According to our information, the reason for the delay is that there is uncertainty among some federal states as to if and how state lotteries, not us, but state lotteries may also offer virtual slot machine games on the same website. Unfortunately, this is also currently slowing down our application process. So we assume that this issue will be resolved by the gambling supervision or gambling regulatory authority within the next few months, and that the corresponding permits will be issued. The legal situation is clear, and there is no reason not to grant us, Lotto24 AG, such a permit. So back to you, Jonas, for the financial updates.

Thanks, Helmut. Let's now move to the next page, and I will start describing the jackpot situation for the year. On this jackpot slide, you can see the development for our two main products, Lotto 649 on top and Jurojackpot below. For Lotto 649, the jackpot remained at low level in the third quarter and did not exceed 25 million once, which is, of course, not what we hoped for. If you include the full nine months, it was better compared to the very weak jackpot situation we had last year. We actually, in the nine months, reached the 45 million mark that triggers the mandatory payout twice, which happened in January and April. And for those two times, also two consecutive draws, while in 2021, we had none. For Eurojackpot, we reached a record level of 120 million in July, but it didn't roll over a single time, which is statistically not what it should. It should roll over. And for the Euro jackpot has reached its maximum also only once compared to three times in 21. So it's clearly worse than last year. So in summary, slightly better jackpot than last year, but more in line with an average year. But I also just want to mention, until recently, Eurojacket has been below expectations, but with a nice development we had in late October and the beginning of November with EJ reaching its maximum of three times, we are now closer to a statistical average year for this product. Let's now move to the income statement, and you will find it on the next slide, which is slide eight. We grow revenues by 21%. But if you include the jackpot insurance income from the last year, and you should because it gives you a fair view, we still grow revenues by 14%. And this was supported by the slightly better jackpot situation, but also the higher share of high margin products. At the same time, we've continued to be very careful with our spending. And I deliberately now exclude marketing that I will come back to in a moment. Personal costs are slightly lower than last year with almost the same number of people. And the driver here is the weekly share price that in turn reduced the long-term incentive scheme provisions. Now coming back to marketing expenses, our big discretionary spending are more than 5 million above last year and more than 3 million more than the second quarter. This is entirely driven by the push we did when the EJ euro jackpot hit 120 million in July. As we mentioned already last year, this shows the correlation between jackpot, marketing investment, and then consequently the earnings we are reporting. Direct operating expenses are positively impacted by the lower credit losses and efficiency in the entire payment process. So despite the 10% increase in transaction volume, direct expenses only increased by 3% versus last year. Indirect operating expenses are up 24%, but it's mainly due to one effect in the same period of the previous year, as well an increase in insurance costs by 300,000. So nothing really to be worried about going forward. But just to complete the picture, we also had slight travel and training costs this quarter. Combined, this has led to an EBITDA that is up 25% from last year and now at 22 million. This equals to a 30% EBITDA margin. And finally, EBIT is up 40% and net profit after tax is up 65% and is now standing at 12.1 million. In the coming three slides, we'll look closer at some of the KPIs that we are tracking and would like to report on. So let's move to slide nine. Our billings grow to 544 million, or by 10%, with even strong growth in revenues, as I just mentioned. The growth is fueled by the strong July, but partly offset by two comparable weak months in August and September. Interesting is that if you would look only at these two main products, 649 and Euro-Japans, we grow them by 14%, while the state lottery, the TLTB, grow them, now I'm talking about offline and online, only by 5.8 percent this shows that we are indeed gaining market share versus the total market especially with high jackpot faces so even if the jackpot for the first three quarter were just average we continue to develop business strongly this should also be viewed in the light of the changes in the geopolitical and economic environment which negatively impact customer confidence not only for us but for the entire retail sector This shows the real resilience of the lottery offerings despite these uncertain times we're all facing. Gross margin of 12.8% is in line with previous quarter, but have improved 0.6 percentage point versus last year, and that's thanks to comparable more sales of high margin products like our famous lottery clubs. On the next slide, we have highlighted net cash and new registered customers. Let's first talk about net cash, which is up 45% since last year and now standing at 95 million euros. The main drivers are the strong cash generation, coupled with the inclusion of the 56 million VAT receivable that is now asserted as we won the case. This has been offside by the 48 million dividend payment we made in July. I do appreciate that this triggered the question what we will do with the high amount of net cash, which is clearly more than we need for normal operations. We are currently assessing to what extent it makes sense to use part of these funds in the coming years for operation purposes, including business expansion. And we will get back to you early next year, together with the earnings call at the latest, both on ordinary dividend policy and how to deal with this excess cash. Let's now talk about acquisition of new customers. In July, we had an extraordinary high jackpot when Eurojackpot reached its peak at 120 million. So the quarter low, we acquired 208,000 new registered customers, leading to an increase in the first nine months by 12% compared to last year. For the full year, we have now acquired 501,000. And as I already said, the quarter, in this quarter, we invested more than 10 million in marketing to capitalize on this favorable situation we had in July. Moving on to slide 11. The reported CPL, cost per lead, is showing an almost 9 euro 32% increase. However, this increase is to large extent by two special campaigns. Firstly, the vaccination campaign of last year that generated some free traffic and suppressed the comparison number. And secondly, the additional and experimental marketing investment for Friar Plus early this year. If you exclude these both effects from last year and this year, a fair comparison would be 34.6 euros in 2022 versus 31.2 last year. leading to a 11% increase year over year. And this increase is fully explained by the higher cost for social media, as well as some for the marketing push in July. The MAO, the monthly active use of having improved and continues to be about 1 million for the year. The driver is once again the jackpot situation that is better than last year. Average billing per user is still very high and slightly higher than last year. We're now about 58 euros, a 4% increase in average spend per customer. And the last quarter is slightly strong compared to the previous two quarters. Let me now give you some information on the recently launched share buyback program. So let's move to slide 13. As you probably have seen in the news flow, we've just launched a share buyback offer to our shareholders. So why are we doing this? As explained throughout the year, we want to improve our capital structure and return value to our shareholders. This has been done both by the special dividend we made in July and by this repurchase offer. Clearly, the current share price makes also the timing suitable for such a scheme. We announced the program on November 2nd, and yes, this is a document that is available on our website. The offer period started on November 9, meaning yesterday, and continues for three weeks until November 29. To make the offer attractive, we do offer a premium of close to 10% on the average price, which results in an offer price of 28 euros per share attended. The total amount we have allocated for this is 20 million euros, which is equal to approximately 714,000 shares, or 3.2% of the share capital. So even if we hope that our long-term shareholders continue to support us throughout our journey, this liquidity event gives you the opportunity to sell your seed shares without having the issue with the low liquidity on the stock exchange. Let me also touch on the outlook for this year that you will find on slide 15. So despite the turbulent and uncertain environment we're all facing, we are generally quite optimistic and still expect double-digit growth in this year. The resilience of our business model is robust. That's why we reconfirm our guidance for 2022, which is billings of at least 750 million, revenues of at least 105 million, EBITDA of at least 30 million. We do acknowledge the guidance looks somewhat ambitious. But we still believe this is possible, depending on how the jackpot develops and the marketing investment develops in the coming two months. As you know, high jackpots lead to high marketing investments, and this guidance was based on approximately 30 million in marketing, and we invested around 25 million in the first nine months. Over to you, Helmut, to bring this home.