Gambling.com Group Limited

Hello, everyone, and welcome to Gambling.com Group's third quarter 2023 earnings results call. I am Peter McGough, the Vice President of Investor Relations. I am joined by Charles Gillespie, Chief Executive Officer and Co-Founder, and Elias Mark, Chief Financial Officer. This call is being webcast live through the Investor Relations section of our website at Gambling.com forward slash corporate forward slash investors. And the downloadable version of the presentation is available there as well. A webcast replay will be available on the website after the conclusion of this call. You may also contact investor relations support by emailing investors at gdcgroup.com. I would like to remind you that the information contained in this conference call, including any financial and related guidance to be provided, consists of forward-looking statements as defined by securities laws. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance, and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Some important factors that could cause such differences are discussed in the risk factors section of the gambling.com group's filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date the statements are made, and the company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. Please also see our references to forward-looking statements in the related presentation and press release. During the call, there will also be a discussion of non-IFRS financial measures. A description of these non-IFRS financial measures is included in the press release issued earlier today, and reconciliations of these non-IFRS financial measures to their most directly comparable IFRS measures are included in the appendix to the presentation and the press release, both of which are available in the Investors tab of our website. I'll now turn the call over to Charles.

Thank you, Peter, and welcome, everyone. This afternoon, we reported solid third quarter results driven by another quarter of strong organic growth in North America. Even with Q3 being a seasonally slow quarter, new depositing customers increased 26% year-over-year to more than 86,000, which contributed to 19% growth in revenue to $23.5 million, a third quarter record. Revenue growth was driven by North America and came despite only having three days of revenue from Kentucky's launch of sports betting compared to a full month of revenue from Kansas' sports betting debut in 2022. Third quarter adjusted EBITDA was $6.1 million and free cash flow was $1.6 million. September was the coming out party for our strategic media partnerships. Both Gannett and McClatchy performed ahead of our already high expectations. We have purposely focused on fewer, bigger partners that can give us access at scale to each market's premium digital media properties. This relatively new high performance model will help drive continued market share gains that will enhance top line and overall cash flow growth. The third quarter's performance demonstrates our ability to drive growth in existing regulated markets without the significant benefit of a new market launch. While we did have a tremendously strong start in Kentucky, it is a small state, and as just mentioned, only three days of activity fell in the third quarter given the late September launch. Turning to our near-term growth opportunities, the trend from our great launch in Kentucky on September 28th has continued into the fourth quarter. We still expect North Carolina to launch in the first half of 2024 and we will include the state in our guidance only when there is firm visibility on a launch date. So likely when we report our first fourth quarter results in March. As our Q3 results indicate, we continue to achieve strong organic growth in North America. Our performance reflects strength in both sports betting and iCasino. although iCasino remains a much smaller percentage of our North American business compared to our business outside of North America. Our new category-defining brand, Casinos.com, was launched during the quarter. While it is still early in its evolution, our vision for Casinos.com as a premier brand for everything casino-related is taking hold, and we continue to expect a meaningful ramp in contributions from Casinos.com beginning late next year. In our view, we have developed the best technology platform to monetize online gambling traffic. Every day we are making improvements to further optimize our search performance while leveraging data, science, and AI to perfect our algorithms used to monetize the high intent traffic we capture. Our ongoing return focused investments in our technology and our capabilities continue to help expand our competitive advantage and ensure we continue to deliver industry-leading organic growth. We're confident in our ability to continue to gain share in our existing regulated markets, and our organic growth will be evident again in the fourth quarter as we remain on track to deliver on our full year expectations. It is important to note that we are still very much in the early stages of what is a long-term growth trajectory for the industry. and for Gamley.com Group. So even as we deliver consistent, impressive, near-term, year-over-year growth against more challenging comps for our existing markets, we are confident that we have the right strategies and operating model in place to extend our revenue growth, strong margins, and free cash flow conversion for many years, which will help continue to drive great returns for our shareholders. With that, I will hand the call over to our CFO, Elias Mark for a more detailed review of the third quarter results and our guidance.

Thank you, Charles, and welcome, everyone. As Charles mentioned, we generated another quarter of strong financial results. Revenue increased 19% to 23.5 million compared to the prior year, ahead of expectations. In constant currency, revenue grew 11%. North American revenue rose 42% to 12.9 million, reflecting growth from our own websites and a terrific contribution from our US media partnerships as they scaled. After seven quarters of growth of an average of 28% in the UK and Ireland, we entered a period of more challenging year-over-year comparison, and revenue from the UK and Ireland of 6.9 million was similar to the year-ago period. Revenue from other Europe declined by 465,000 or 17% because of compliance driven product changes implemented for the German market. Elsewhere in Europe and in the rest of the world, we continue to see strong growth. New depositing customers grew 26% year over year to more than 86,000. As a result of the strength in our media partnership business, cost of sales during the third quarter amounted to 2.1 million compared to 600,000 last year. Total operating expenses in the third quarter grew 9% or 2% in constant currency to 16.6 million, excluding the fair value adjustment from the third quarter of 2022. There was no fair value adjustment operating expenses in Q3 2023 due to the early termination of the earn-out related to the bonus binder acquisition. While we substantially moderated the pace of hiring, the operating expense increase was primarily driven by higher headcount. Amortization expense decreased from 1.7 million to 432,000 as short-lived assets from the rotowire and bonus finder acquisitions are now fully amortized. For the full year, we expect to incur amortization expense of approximately 1.8 million. Net income totalled 5 million or 13 cents per diluted share, adjusted for the unwinding of deferred consideration Adjusted net income in the quarter was 5.4 million and adjusted earnings per share was 14 cents per diluted share. Adjusted EBITDA was 6.1 million in line with expectations. This includes the impact of 612,000 in allowance for bad debt as compared to an average of 241,000 of the previous four quarters. Adjusted EBITDA margin was 26% in the third quarter, reflecting the higher revenue contribution from our media partnerships, which grow higher cost of sales as compared to our own site. Our media partnership revenues continue to scale in the fourth quarter today. Exclusive of 2.9 million related to deferred payments for the acquisition of BonusFinder, cash generated from operations in Q3 2023 was 2.2 million. Cash receipts from the three weakest revenue months of the year, June, July and August, fall into the third quarter, resulting in seasonally weaker operating cash flow. We expect strong cash flow from operations in the fourth quarter. Free cash flow was 1.6 million. We remain able to entirely fund our organic growth initiatives from operating cash flow while continuing to generate positive free cash flow. Our cash balances as of September 30th, 2023 was 26.9 million, a 4.1 million quarterly sequential decline, primarily reflecting the 5.4 million total payments for the acquisition of BonusFinder. Our very strong balance sheet with significant cash balances and no interest bearing debt continues to provide us with a financial flexibility to pursue value enhancing transactions. Turning to our outlook. We expect to see typical positive seasonality in the fourth quarter as activity picks up during the autumn sports season on both sides of the Atlantic. Our third quarter results reinforce the fact that demand for performance marketing services for the online gambling industry remains very strong and our unique offerings will become more valuable to operators as they reach profitability. We continue to monitor consumer behavior closely And as of now, consumers appear to be pursuing entertainment from online gambling on a basis. As we enter the fourth quarter, we were monetizing NDCs in the US with revenue share arrangements more frequently than before, meaning that revenue from these NDCs will be recognized over a longer period of time. As a reminder, we remain agnostic on the inherent attractiveness of the revenue share commercial model versus the CPA model. We rely on our internal data science to identify the monetization options which maximize revenues in each circumstance. Our 2023 guidance continues to assume no benefit from additional market launches or acquisitions over the balance of the year, and now assumes the Euro to USD exchange rate of 1.07 for the fourth quarter. Given these factors and our Q3 performance, we are reiterating our 2023 full-year revenue guidance of 100 million to 104 million, even as we now expect a higher proportion of our MDCs to be monetized on revenue share than was forecasted when we raised our guidance in August. Likewise, we're also reiterating our 2023 full-year adjusted EBITDA guidance of 36 to 40 million, even though the strength in our media partnership business drives higher costs.