Gambling.com Group Limited

16th is primarily due to the fact that our team was able to respond immediately to the changes and recalibrate our portfolio of owned and operated sites faster than had been initially expected. To date, the effects of the Google policy shift have also been less pronounced than originally expected. The second bigger picture factor is to highlight is the critical value we continue to create for our B2C online gambling operator clients. For nearly 30 years, performance marketing has proven to be one of, if not the biggest, source of new players for growing operators. We estimate that about 40% of the iGaming and 30% of the sports betting customers and operators' databases in established markets were delivered by the performance marketing channel. While these percentages are lower so far in North America, we expect that they will continue to trend toward the established markets as levels as players continue to mature and certainly as iGaming expansion eventually takes hold. Most importantly, as demonstrated by our Q2 results, we believe we are consistently growing our industry share on a global basis, and we are better positioned than ever before with the right assets technology, and teams to further this growth. And the third factor I want to remind everyone of this morning is the relentless digitization of the gambling and advertising worlds. While in certain established markets online gambling revenue dwarfs land-based gambling revenue, many of the world's largest economies are still at the beginning of their relationship with this industry. And digital advertising continues to grow in importance and influence as it offers marketers the highest level of visibility and certainty for the return on their investments. With our portfolio of platinum brands, such as Gambling.com, Bookies.com, and Casinos.com, we are in the sweet spot of this convergence, controlling the valuable, high-intent audience determined to become customers at our clients' websites. These factors combined with our strong first half performance now give us confidence to raise our revenue and adjusted EBITDA guidance for this year. The midpoints of our new guidance now reflect year-over-year revenue growth of 15% and adjusted EBITDA growth of 24%. This confidence in the business is the reason we have repurchased over 6% of our outstanding shares to date. We also remain as active as ever in evaluating M&A opportunities and will not hesitate to pursue the right targets. Our balance sheet and free cash flow generation enable us to both repurchase shares and fund acquisitions. And finally, we remain confident we are on a clear path towards generating $100 million in adjusted EBITDA given our exemplary execution, high cash flow generation, organic market share gains, and disciplined execution. M&A growth focus. Now let me turn the call over to Elias for a review of the second quarter financial highlights and details on our revised full-year outlook.

Thank you, Charles. Revenue of $30.5 million was a second quarter record as we delivered more than 108,000 NDCs to customers, up 19% compared to the year-ago period. The 18% year-over-year revenue increase primarily reflects strong growth in iGaming revenue across Europe. Revenue in the UK and Ireland rose 18% year-over-year. Other Europe was up 111%, and rest of the world revenue grew 70%, following strong performance by Gambling.com and our other owned and operated assets, and the initial contributions from the acquired FreeBest.com and related assets. Revenue in North America was stable year-on-year when factoring out the atypically strong OSB performance we saw in Q2 last year, which we discussed at the time. Inclusive of such performance, North American revenue was down 8% year-over-year. Gross profit increased 16% or 4 million year-over-year to 29.1 million. Cost of sales grew 60% year-over-year to 1.4 million, but was down 36% from the first quarter. Our cost of sales, which are directly related to our media partnership revenues, were higher in the second quarter than we anticipated at the time our Q1 call, as a higher level of this business was sustained through the quarter than expected at the time. Gross margins increased to 95% from 92% in the first quarter. Total operating expenses declined 15% to 20.8 million, reflecting the elimination of fair value movement in contingent consideration and a modest decrease in G&A, partially offset by increases in sales and marketing and technology expenses. Adjusted EBITDA increased 19% year-over-year to a second quarter record 11.2 million compared to 9.4 million in the year-ago quarter. The Q2 adjusted EBITDA margin of 37% was up from 36% in the year-ago quarter. Adjusted net income for the second quarter of 2024 rose 13% to 7.4 million from 6.5 million in the year-ago period, while adjusted diluted net income per share of 20 cents increased 18% from 17 per share in the second quarter of 2023. Operating cash flow of 0.2 million includes 7.2 million of the final BonusFinder.com payment. Excluding this payment, operating cash flow would have been 7.4 million. Free cash flow was 6 million in the second quarter compared to 8.7 million in the year-ago quarter, reflecting working capital movements and increased capital expenditure related to our new offices in the U.S. During the second quarter, we repurchased approximately 834,000 shares at an average price of 8.17 per share. To date, we have repurchased approximately 2.3 million shares at an average price of $8.76, representing more than 6% of the total outstanding shares. Earlier this week, we completed repurchases for the entirety of the previous 20 million share buyback authorization. Yesterday, the Board approved an additional 10 million authorization to continue share repurchases. June 30th, we had total cash of $7.5 million, a $17.8 million quarter-on-quarter decrease, reflecting cash utilized for share repurchases, the final cash payment of $13.6 million for BonusFinder.com, and the initial $20 million cash consideration paid for the acquisition of FreeBets.com and related assets. As of June 30th, we had drawn a total of $18 million on our $50 million credit facility. This morning, we raised our guidance for 2024 revenue to now be between 123 million to 127 million, with a midpoint representing 15% year-over-year growth. The midpoint of our new higher adjusted EBITDA range of 44 million to 47 million represents 24% year-over-year growth. Looking at some of the factors that comprise our outlook for the year, we continue to see strong demand for consumer sign-ups for new player accounts and operator demand for performance marketing services. As Charles highlighted, we expect to manage our portfolio websites to grow revenues in 2024 despite the impact of the Google policy change on our media partnerships. For the full year 2024 period, our guidance does not include contributions from any new acquisitions. The guidance also assumes no additional US state launches beyond the recent launch in North Carolina. We now expect full year cost of sales of 6.5 million, of which 3.7 million was incurred in the first half of the year. Finally, our guidance assumes an average Euro to USD exchange rate of 1.09 throughout 2024. Operator, We are now happy to open up the line for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on a telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from Jeff Stanchel with Stifel. Please go ahead.

Great. Thanks. Morning, Charles. Thanks for taking our questions. Maybe starting now. on the current customer acquisition environment that you're seeing in North America. More specifically, we've heard from several operators this earnings season that the volume of users being acquired is surprising them to the upside, while cost per user acquired continues to decline, more specifically for the scaled players. I guess on that first dynamic, are you also seeing an uptick in organic searches on your site? Do you recognize that we see physical changes? in a fragmented affiliate landscape, which is curious to be able to discern with all the incremental user cohorts as well. And then on the second, on the declining cap, are you seeing any big shifts away from affiliate channels or pricing pressure, or is it reasonable to conclude that this comment really more refers to economies of scale on the brand awareness side of operator marketing budgets? Thanks. Thanks.

From our perspective, the operators don't radically, they don't meaningfully change their approach to affiliates quarter to quarter or year to year. And the thing that really drives our business is really supply. How many people are searching for what we're offering? And those trends are always up and to the right. The number of people searching for the high intent keywords in the United States continues to grow. and we continue to capture a greater share of it. Yes, operators, you know, have different moods and, you know, one quarter may be slightly more aggressive than other quarters, but by and large what's dictating the number of, you know, the amount of revenue we're able to generate with the clients is the supply of people that we can send to them. It makes sense that their CAC is coming down because from our perspective and consistent with the public comments that they have made, they have turned off a lot of things that were not working. A lot of the TV, radio, outdoor stuff that you can't track, no attribution, that's come way down, whereas there's been no meaningful change with the way they deal with affiliates. They know that works because they can track it. They have the attribution. It's black and white. So there's absolutely no reason that they would back off on that. So I think the reason the CAC has come down is because they have become more efficient overall. And as they have become more efficient, a greater proportion of their spend has come to companies like us.

That's great. Thank you for that, Charles. And then for my follow-up, turning to the comments made on your media partnerships and the raise to a four-year cost of sales guidance, I think both you, Charles, and Ellie have commented on this a bit, but I'd love to dig in a little bit further. So contribution from media partnerships is surprising a bit to the upside. Do you think this is more of a timing phenomenon just in terms of you know, taking time for Google to sort of manually, you know, push back on some of these media partners' involvement and affiliate offers? Or do you think this is kind of more durable with, you know, with more of these, you know, more of these media partners likely to stick around even after these changes roll through? And let me know if that makes sense. Thanks.

That's a great question, and, you know, we've been asking ourselves the same question. I think at this point we have a fair amount of clarity on the situation, although I wouldn't say that it's black and white and we understand exactly where the lines are with Google. When we updated guidance in May, we took a conservative view, as we had made clear at the time, given the changes were quite fresh and we had limited visibility. And now that we have more visibility, the Q2 contribution was higher than our guidance suggested at the time. Moving forward, we now expect cost of sales related to media partnerships to be approximately $6.5 million for the full year, 2024, versus the previous guidance of $4.7 million. And in H1, we already had $3.7 million in cost of sales. So from our perspective, there absolutely remains a bright future for these media partnerships. If they're the right partnerships, you know, there's certainly been a, you know, the wheat has been separated from the chaff big time. You know, we don't do very many of these, but when we do them, we do them with very substantial publishers, and that has absolutely inured to our benefit as these partnerships have evolved. but they are going to be less prominent than they have been in the past. We continue to be focused on being great partners to our media partners and are increasingly looking at all the different ways we can leverage our capabilities to help them beyond just organic SEO. There's a lot of different things that we can do for them, and obviously now is the right time to fully take advantage of that. And as you can see from our Q2 results and our RAISE guidance, Our owned and operated sites performed strongly during the quarter, and we're ahead of our expectations. The diminished visibility of media partnerships and search engines directly translates to improved visibility of our owned and operated sites, where our margins are substantially better.

That's great. Thanks for that color, Charles, and congrats on a strong quarter.

Thank you. The next question is from Barry Jonas with True Securities. Please go ahead.

Hey, guys. Good morning. You know, as we think about newer U.S. states versus more mature, is there a sizable difference in NDC growth? I mean, I guess we hear concerns around slower state legalization, and I just want to better understand that. Thanks.

Yeah, I think one point that we've been really keen to make to everybody that'll listen is that there's a very long, healthy growth opportunity after these new states finish launching. You know, in the first three months, you get a lot of interest, a lot of demand comes to market, there's a lot of activity, and then it kind of bottoms out. But after three months, it just keeps growing every year indefinitely. And that's where we're seeing growth in North America. It gives us a lot of confidence to expect growth in certain parts of our portfolio this year and growth overall in North America next year. But I think it's underappreciated how much some of these kind of the early cohort of regulated states are continuing to grow. You know, you look at New Jersey. New Jersey is still growing. I mean, there's a lot of growth outside of these new state launches. So, of course, we're, you know, really looking forward to the next new state launch. But even in the absence of one of them, we fully expect the business to be growing over the medium and long term.

That's great. Thank you for addressing that. And just as a follow-up, you know, curious if you could talk a little bit more about the M&A pipeline, any noticeable changes since Q1 earnings, and any areas you maybe are a little more focused on today than others.

Yeah. We continue to have a lot of great conversations, but we remain as famously picky as we've ever been. We look forward to announcing something when the time is right, but with our great organic growth, we don't feel like we're under any pressure to do something. We've already done a fantastic deal this year with the FreeBets.com acquisition, which is trending ahead of expectations. As we've already mentioned, we're spending a lot of time evaluating opportunities which are tangential or adjacent to the real money online gambling affiliate business that we know and love. There's a broad universe of opportunities for us to sell more things to our existing clients or leverage our existing skills in complementary businesses with similar margins and cash flow characteristics in the gaming space. So we'll be delighted when we announce something, but can't say any more than that at the moment.

All right, fair enough. Congrats on a great quarter. Thanks.

Thanks, Barry.

Thank you. The next question is from Chad Beynon with Macquarie Asset Management.

Please go ahead.

Hey, good morning. This is Aaron on for Chad. Thanks for taking our question. Just kind of going back to Google for a second. There was a recent court ruling that Google has been running an illegal monopoly on search. Can you just share any thoughts on how that might impact your business?

Hey, Aaron. Yeah, good question. If you go back to the Microsoft antitrust case, you know, it took the better part of a decade before they made any real headway in enforcing the antitrust desires of the government. I don't think absolutely nothing is going to happen imminently. It might be five years, it might be 10 years before anything happens. As in when it does happen, then sure, you can speculate about what the changes will actually mean, but five and 10 years is a long time in technology. I think by the time they got to the end of the road with Microsoft, the browser was less important than it was at the beginning of the process and the whole exercise seemed like a waste of time. You know, I think what would be more relevant to us would be the pace at which consumer search patterns are changing. And, you know, frankly, to date, we haven't seen any change as a result of, you know, generative AI and, you know, various kind of AI-enabled search engines. The volume of search that still comes off of Google is huge. I mean, it's higher than ever, and the traffic's still there. Nothing's changed. It's, you know, and that's obviously gives a lot of confidence, you know, more than a year into the new kind of era of generative AI that traditional search is simply, it's just two different products. It's two different things with two different use cases, and people are clearly continuing to use Google in the way they have for a long time. So, you know, if a if they actually spun off Android or actually managed to break it up, I think it'd be a long time from now. And I don't frankly see the search business being terribly impacted, but ask me again in five years.

Got it. Appreciate that. And then with regard to freebets, I believe we're still in the integration window you talked about last quarter, but can you update us on how the integration is going and whether your expectations for its contribution in 2024 has changed at all? Thank you.

Sure. We are a few months in at this point, and we have been consistently trending ahead of expectations in terms of the revenue produced by the acquired assets. The acquisition included a substantial base of NDCs previously referred on a revenue share basis. And this is where we have seen actuals exceed our expectations. We've already successfully migrated certain aspects of the acquired portfolio to our technology stack, including our ad tech. And we will continue our integration work across the entirety of the portfolio for another few quarters, but we expect to see benefits from this in Q4 as we drive increases in the number of NDCs produced by these assets. And we now expect that the assets will exit 2024 on a materially higher run rate than what was implied by our initial guidance when we announced the acquisition.

Understood. That all sounds great. Appreciate all the color. Thanks, guys.

Thank you. Before we take the next question, a reminder to all participants that you may press star and 1 to ask a question. The next question is from Clark Lampin with BTIG. Please go ahead.

Morning, everybody. Thanks for taking the questions. Charles, I wanted to see if maybe we could just drill down a little bit more on expectations of the balance of the year for growth, I guess, you know, in two ways. Sports betting versus iGaming, but then North America versus Europe. Should we expect, I guess, most of what we've seen in 2Q and the first half of the year to sort of continue over the balance? And I wanted to, I guess, kind of also follow up on your point around exit rates of growth for the year. If we're thinking about the performance business in general sort of being back on track right now, free bets, you know, I guess really hitting its stride, I guess, towards the end of the year. What does this, I guess, kind of suggest right now about the medium-term organic growth profile of this business overall? And then maybe for Elias, I guess, as part of that, what does, I guess, that medium-term growth rate translate to now from a cash flow standpoint? We have a pretty good sense of the outflows that are ahead. If we're thinking about inflows and, I guess, cash flow conversion off of this business, maybe give us a sense of of in addition to the top line outlook, what it translates to the bottom line. Thank you.

Hey, Clark. In terms of North American growth, to be clear, there's parts of our North American portfolio which have grown year on year in 2024 and will continue to grow in the second half of the year. That said, our media partnership business was a substantial proportion of our H2 2023 revenue in North America, and that will be substantially smaller this year. So on balance, we do not expect to grow overall in 2024 in North America. However, we are confident that we will continue to take meaningful market share in North America. Looking forward, we expect North America to grow modestly in 2025. from same-state sales alone. And when we get expanded regulation, of course, especially in iGaming, growth will really accelerate with more new state launches and or a wave of new operators entering the market. But never forget that this is a global business. And we have 18 years of history operating outside of North America, and we grew the UK and Ireland by 11.5% and other Europe by 75% in the first half of the year. On exit rates, you know, we haven't provided any specific guidance for 2025 yet, of course, but we do think it will be – double digit you know low double digits organic growth in north america even without any new state openings uh and and specifically in in the context of the free bets acquisition um you know when we tabled our initial uh guidance for that acquisition we said 10 million in revenue and 5 million in adjusted ebitda for the last three quarters of 2024 Of course, the first quarter of the year tends to be one of the best quarters of the year. So if you're looking at that on an annualized rate, you have to put a little extra weight on the Q1. And, you know, now we're saying for 2025, you know, we will exit 2024 with those assets on a substantially higher run rate. So that will set us up for growth both in – predominantly in – other Europe in the UK and Ireland next year.

I could just add to the second part of your question on our expectations for the second half of the year. And as you said, the expectation is that the UK and Ireland, other Europe and rest of the world will continue to be the growth drivers in the second half as we've seen in the first half of 2024. If you look at margins with the current proportion of our media partnership revenue, our H1 margins are indicative of run rate and correlates with the midpoint of our full year guidance. So our guidance, including 6.5 million in cost of sales for 2024, is expected to produce gross margins in the mid-90s. And the midpoint of our adjusted EBITDA margin for the full year is 36%, which is consistent with the first half of the year.

Thanks very much.

Thank you. The next question is from Ryan Sigda with Craig Hallam Capital Group. Please go ahead.

Hey, Charles Elias. Good day, guys. I want to start with Other Europe. Really nice strength and acceleration there. I guess anything to call out specifically and then maybe more broadly speaking, the benefit you guys saw from the Euros 2024? Just a

start with euros 2024. That's an easy one. You know, our, our sports betting business is predominantly in the US, you know, we, we have a iGaming first strategy around the world, we try not to, we don't go into markets, which don't have The only real exception to that is the U.S. because of the huge long-term iGaming opportunity, and entering now with sports betting is the obvious way to pre-position for that bright future. But in terms of other Europe, free bets saw some positive on-the-margins exceeded expectations and definitely caught a bit of a tailwind with the Euros. But in other Europe, you know, we've got new licenses in Greece and Romania. So we're now licensed in both jurisdictions and live in both markets. And we expect those to be growth drivers over the medium term so we can kind of maintain some of these elevated growth rates moving forward. But the free bets acquisition is a mix. It was both the contribution from the free bets acquisition and organic growth in our owned and operated assets.

And just for my follow-up question, specifically Rush Street or Bet Rivers, they were refining their affiliate strategy. They're cutting off certain low ROI affiliates effective September 1st while leaning in with others in iGaming-specific states. I guess two parts to the question here. One, did you get, did gambling.com sites get that termination letter? And then secondly, how do you think your properties have been performing from a customer ROI standpoint versus years past and also versus competitors as operators kind of refine their strategies here?

Yeah, I think from a customer ROI standpoint, we have always, not only are we iGaming first, but we're also... highest player value first. We know the keywords and search terms which are correlated with the highest player values. And those are the most competitive ones. Those are the hardest ones to get. But we have always gone for those first. And our clients understand that. And they understand that we are one of, if not the best, ROI affiliate to work with. It's hard to get kind of hard data out of them Evidence is that because they would naturally lose some leverage and pricing power with us, but it's a comment we have repeatedly heard from them. In terms of RSI, we work with RSI and over 250 other operators. We get a lot of respect for the team at RSI, but simply put, they are a small client. We continue to promote and work with them in various states. But their particular pullback in certain areas will not have any effect on us, and we raised guidance this morning.

Great. Thanks, Charles.

Good luck, guys.

Thank you. The next question is from David Katz with Jefferies. Please go ahead.

Hi, morning, everyone. Thanks for taking my question. It's, you know, I think we've talked about North America a decent amount. but to the degree that you can qualitatively, can you just talk about this long-term, you know, a hundred million and just help us maybe unpack it a little bit and how much of that, you know, becomes North America whenever it is that we sort of get there. I assume, you know, that's a much faster growing aspect of all this, unless I'm mistaken.

Yeah, look, we, we, As we said, we're very confident on reaching 100 million in adjusted EBITDA in the next couple of years. We're not going to put a specific timeline on it until we have more clarity on additional new state launches in the U.S. and also more clarity from an M&A perspective. Obviously, M&A will play some part in that, and North America will clearly play a substantial part in that. Um, you know, we get a lot of questions on Latin America, for example. And, you know, if you look at Latin America in the context of us reaching a hundred million in adjusted EBITDA, I don't need Latin America to get to a hundred million in adjusted EBITDA. But, you know, there's, there's a lot of opportunity in, in Latin America. Obviously Brazil is, is, is, you know, on, on everyone's tongue these days. Uh, Brazil, when, when Brazil fully regulates and people start paying taxes, The people with businesses in Brazil are going to be dealing with very different customer lifetime values. That doesn't affect us because we're not big in Brazil today. But Latin America and Brazil are, of course, interesting opportunities, stuff that we're looking at and thinking about. But just in the context of the overall global opportunity for this business, I would expect us to be able to get to the $100 million predominantly on the back of the markets, we're already in plus new state launches and some M&A. We wouldn't need to make some giant push into some region that we're not already active in.

Perfect. And I think you, Charles, maybe you set up my follow-up question pretty nicely, which is intuition suggests that, you know, should U.S. states raise tax rates to that changes the value proposition for operators and works to your benefit. Is that a fair assumption for us to make?

Yes and no. I mean, you know, if the taxes go up, the player LTVs come down, and that affects everyone in the whole ecosystem, including the players. This DraftKings surcharge thing, everybody's been talking about for the last couple of days, and obviously they've walked it back. But I thought it was really interesting, and I thought it was really a smart thing to do. You could debate about how they implement it, but the reality is these costs are real, and whatever manner the operators come up with, they're going to pass it along to the players. Maybe not the whole thing. Maybe it's just part of it. But this idea of putting it into some sort of separate bucket is actually an act of transparency that brings more attention to this issue. And more attention should be brought to this issue because at a certain level, the tax rates are unhelpful. It inhibits market growth. It doesn't allow the operators to compete effectively against the black market. It actually lowers the amount of tax that these states will be able to collect. So I think it's an, you know, I applaud DraftKings' efforts to highlight the issue. And, you know, but if, because it affects everybody, you know, our ability to sell our traffic is based on the value of that traffic. And if the taxes are higher, it's, It's not helpful.

Longer discussion than we have time for. Thank you very much.

Thanks, David. Thank you. Ladies and gentlemen, that was the last question for the question and answer session. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.