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spk03: Thank you, Operator, and good morning. By now, everyone should have access to our third quarter 2021 earnings release, which is available on the NeoGames website at www.neogames.com in the investor relations section. Before we begin our formal remarks, we need to remind everyone that the discussion today includes forward-looking statements. These forward-looking statements, which are usually identified by words such as will, expect, anticipate, should, or other similar phrases are not guarantees of future performance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and therefore you should exercise caution when interpreting and relying on them. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the form 6K for the quarter ended September 30th, 2021, when it is filed with the SEC. During today's call, we will discuss non-IFRS financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with IFRS. A reconciliation of these measures to the most directly comparable IFRS measures is available in our earnings release and on the neogames.com website. Hosting the call today, we have Moti Malul, Neogames Chief Executive Officer, and Raviv Adler, Chief Financial Officer of the company. They will provide some opening remarks, and then we will open the call to questions. And with that, I'm turning the call over to Moti.
spk02: Thank you, Jacques, and good morning, everyone. Welcome to our third quarter earnings call. This morning, I will highlight some key points about the third quarter performance and provide an update on the trends we're seeing in the market. Afterwards, I will turn the call over to Raviv to run through our financials and business performance. This quarter, we continued to progress our goals across key aspects of our business. For example, despite expected seasonality, we have seen growth in several of our accounts such as Virginia and New Hampshire, which continue to outperform expectations as the iLottery programs flourish and receive a strong reception in these markets. In Canada, we continued our investment in additional expansion of gaming verticals to power the very successful PlayAlberta brand by launching online sport betting, further to previous quarter investments in draw games and live dealer verticals. We continue to create and roll out unique content and enhance the player experiences. During the quarter, we began the rollout of our multi-game progressive jackpot feature across selected e-instant games from our NeoGames studio, with three of our customers significantly diversifying their games offering. The attraction and engagement of players with this feature enabled part of the growth we have seen in the quarter. Overall, we continue to significantly grow our business year over year. For the third quarter, revenues were $12 million, while our share of NPI revenues for the quarter was $8.3 million. Looking at the two components added together, they equate $20.2 million for the third quarter of 2021, representing growth of approximately 30% year over year. In terms of EBITDA, for the third quarter 2021, we generated adjusted EBITDA of $7.5 million. As a reminder, our EBITDA margins fluctuate and reflect investments in technology and operations as we continue to roll out across the new markets we are entering. For example, this quarter, much of this investment has been due to recent launches in Alberta of draw games late in the second quarter and sport betting in the third quarter, which introduced both new tech investments as well as some operational learnings. Most of these product investments have been one-time in nature, and we do not expect further extraordinary spending for the remainder of this year. Moving on to some other business updates, in Michigan, much is anticipated Results were impacted sequentially due to the various factors we have mentioned in previous reports, a combination of seasonality, post-COVID patterns, as well as heavy marketing spend by the iGaming competition in the state, especially towards quarter end. We continue to work closely to support the measured and disciplined approach demonstrated by the state lottery with its iLottery program building on foundations that we are confident will lead to sustainable, long-term growth of the program in this state, as we have seen in other markets with similar landscapes. On the gains front, we continue to view our constant rollout of gains with more customers around the world as an investment into future growth. In this regard, subsequent to quarter-ends, we launched our first suite of premium instant games with Lottomatica in Italy, further expanding our footprint in the Italian lottery market, where we now serve both Italian lotteries with our games content. One other good point of progress is our strong partnership with Caesars Entertainment, which continues to evolve and expand. In this quarter, we went live in Arizona where our technology is integrated into their unique Liberty platform for online sports betting and iGaming, which is now live in 10 markets and growing into the future. The regulatory environment and state authorization in the U.S. for iLottery continues to develop. This quarter, we have seen two states in different stages of the procurement process. The Connecticut Lottery commenced a public procurement process for an iLottery solution and services, and the West Virginia Lottery conducted an RFI process to gather information and insights on successful iLottery deployments as a precursor to a potential full procurement process, which may be expected in 2022. With that, I'll now turn the call over to Raviv.
spk01: Thanks, Moti. Before I get into the results, as a reminder, when we discuss our results, I would point out that all of our iLottery business in North America operates through our 50-50 joint venture, Neapolitan Interactive, or NPI, except in Michigan, which is reflected in our top-line revenues. Our contract in Virginia, New Hampshire, North Carolina, and the province of Alberta run through NPI. Except for the NPI contracts, we conduct all of our business through Neogames. As a result, from an accounting standpoint, as many of you know, we generate revenue and earnings through our only-owned operation and through our equity interest in NPI. Our revenue as reported on the income statement, which excludes our share of NPI revenues, was $11.9 million during the third quarter of 2021, down 8.8% over the same period last year. Our share of NPI revenue was $8.3 $8.3 million during the third quarter of 2021, compared with $2.5 million last year. The sum total of these two numbers was $20.2 million during the third quarter, representing an increase of about 30% year-over-year. Moving to EBITDA update for the quarter, our adjusted EBITDA was $7.5 million, which is down 3.8% compared with the $7.8 million last year. Sequentially, it's important to note that the fluctuation in our EBITDA margins is generally driven by two main factors. The first is that the new accounts and products ramp up. We often see increased costs earlier in the life cycle that stabilize over time. Secondly, differences in the product and services mix in gaming verticals offering drive varying margins. For example, on one hand, accounts that have limited offerings such as draw-based games only, or on the other hand, accounts with very wide offering, including gaming verticals, where we incur costs of third-party content drive lower margin than our average. As Moti mentioned, this quarter we have seen impacts on our EBITDA mainly associated with investment in both technology as well as in operational learnings, primarily in our operations in Alberta. These investments, by most, have been one-time in nature, and therefore we do not anticipate similar impacts in the remainder of the year. Overall, we are comfortable with where margins are and where they will be as the business matures. Diversifying and growing not only the customer base but also product types is an important element of our growth strategy as we wish to provide turnkey solutions to our customers. Turning to our balance sheet, we ended this quarter with about $68.2 million worth of cash. Our outstanding debt to the quarter was approximately $33 million at the weighted average interest rate of 1%, leaving us in a net cash position of $35.2 million. we have 25.2 million shares outstanding at the quarter end. During the quarter, we successfully completed an underwriting public secondary offering by one of our shareholders of almost 4 million shares of common stock, significantly increasing our public float. Regarding guidance, we are encouraged by the trends toward the end of the quarter and into early fall with some of our key accounts, enough to allow us to increase our overall annual revenue guidance to be between $82.5 and $84.5 million. At the midpoint, these revisions represent an increase of 5.2% compared to our prior range and represent year-over-year growth of approximately 42%. As we've indicated in the past, the revenue guidance does not include launching any new turnkey accounts. With that, I will turn the call back to Moti.
spk02: Thank you, Raviv. To summarize, we believe we are in a great position to continue executing on our growth strategy for both internal and external growth opportunities and are excited by the momentum we are generating. This month, actually, in about a week from today, we will see the first anniversary since our IPO last year. We firmly believe that our results continue to demonstrate the strength of our model in generating significant value for our customers, and thus for NeoGames and all our shareholders. NeoGames remains well positioned to continue to capitalize on the current landscape as a leader in the rapidly expanding global iLottery market. With that, we thank you for joining us this morning, and we are happy to answer any questions. Operator, please open the line for questions.
spk00: Thank you. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Jeff Stanchel with Stifel. Your line is open.
spk04: I wanted to start on the revised revenue guidance if possible. At the midpoint, it implies about $20 million for Q4, which is stable quarter-on-quarter. I was hoping you could just walk through some of the puts and takes that you contemplated there. On the one hand, you do have seasonality. and some ramp momentum in Virginia, Alberta, et cetera, going in your favor. Heading into Q4, on the other hand, visibility to some of these reopening headwinds you highlighted and some of the marketing spend in Michigan is still somewhat limited. So just curious how you guys think about the various puts and takes when you think about sequential growth Q3 into Q4.
spk01: Yeah, Jeff, thank you. It's basically a combination of two factors. The first one being, as you rightfully mentioned, is the trend that we see currently in Michigan, as opposed to continuation of growth in other accounts in Virginia and Alberta, and how those are going to be played out altogether into Q4 guidance, so Q4 expected revenues. So, you know, the three... Those are the three main accounts that generate revenues for our business, and the way they're going to play out during Q4, together with the seasonality effect that we see normally in Q4, is the main assumptions built into our guidance.
spk04: Okay, perfect. Really helpful. And then for my follow-up, we've heard one of your peers this earnings in a little bit in the prior talk vocally about rolling out a cloud-based solution across their iLottery contracts. Are you considering updating any of your U.S. contracts to something more comparable to your solution in Alberta? And if so, how should we think about the financial impact? Thanks.
spk02: Yeah. First of all, yes, we are already there when it is allowed. For example, we deployed Alberta in Canada purely over a cloud environment, and it's working phenomenally well. In the U.S., there has been certain combinations of regulatory components as well as specific guidance from lotteries that have prevented the move in a more massive way into the cloud so far. That other vendor, our good partners, IGT, that you have mentioned, have actually done that specifically with a game server, and it's definitely our intent to start with that front as well. And into the future, maybe be able to convince more and more states to the ability to deploy bigger parts of the solution than just the game servers into cloud environment. It's a bit too early to suggest what type of cost saving this would have on the business because there's fundamentally a few hybrid models that may impact that model.
spk04: Okay, great. Helpful encouraging as always. Thank you both very much. Thank you, Jeff.
spk00: Our next question comes from Barry Lewis with Truist Securities. Your line is open.
spk05: Hey, guys. How are you?
spk02: Hey, morning, Barry.
spk05: I think I'm going to go four for four here and ask if there are any updates in Ohio and the RFP you originally submitted there.
spk02: Not specifically to the RFP itself, but generally speaking, yes. I've updated in last quarter, and it's even more intensified. There are significant discussions among the bigger topic of gaming expansion on the different fronts in the states. There is also significant discussion taking place on how to approach iLottery. We're obviously embedded within these discussions, and we can't say if final decisions will be taken this side of the year or into next year, but we're definitely seeing good tractions and discussions with the different stakeholders in the states, whether it's the legislation cycles or other stakeholders, but nothing that we can report as being final at this point of time.
spk05: Got it. How should we be thinking about the market opportunity for NeoGames to expand its scope into iGaming further? And maybe just with that, can you remind us, are there any competitive limits tied to your Caesars relationship?
spk02: Yeah, we definitely see it may be a topic that requires more than just a minute or two sentences of a response list. We definitely see, you know, growing trends of convergence into gaming, even with our core lottery customer base, not in the U.S., but outside of the U.S. A demonstration of that is what we're doing in South Cup very successfully and what we're doing in Alberta very, very successfully. And we're seeing that elsewhere. When it comes to U.S. specifically, so to answer your question, there's no limitation on us to explore other gaming opportunities from a legal binding perspective. with what we do with Caesars. I remind you that our relationship with them is very strong and dedicated, and we're very happy with how that is trending.
spk05: Great, great. Okay, thank you so much, guys.
spk00: Thank you. Thank you. Our next question comes from Chad Baynard with Macquarie. Your line is open.
spk06: Hi, good morning. Congrats on the results and thanks for taking my question. I wanted to ask about the consultation process. You talked about a few states where you're currently exploring that and helping the governments. Given your strong spend per adult in Virginia and given how quickly that has ramped, now you have multiple states where you've been very successful. Does this further help your positioning just in terms of future market share, or is it still based on other factors, just kind of technical scores that aren't related? Just trying to figure out if the better that you do, the better position you are for new U.S. expansion. Thank you.
spk02: Hey, thanks, and good morning, Chad. First of all, we think that our position as a market leader in the U.S. is very strong and hopefully strong. it would put us in a position to win more and more of the deals that come into the market. Obviously, you know, we're not expecting to win all of those deals, but we're definitely well positioned. And yes, you know, the more we provide consistent success in each and every state that we open up, not only Virginia, but also all of the others, it definitely puts us in a good position for future wins as well. I would also say, though, that it gives us the ability to do something more than that. It gives us the ability to take the vast amounts of data that we collect from not one state but from quite a few in order to educate legislators in the different states side by side with the potential lottery customers on what that could do for them. And I think that's our focus today. Our focus is, first and foremost, to help lotteries within their states to get state authorization, and that is done through educating legislators to the good impact that iLottery can have into the state, the different good causes in the state. And there's a significant interest in the last couple of months as to the comparison of what revenues from iLottery programs can give to the state when compared to tax revenues from online sports betting. I think that we knew that at some point this will be a discussion topic, and we're definitely seeing that it is becoming one. We have nothing against sport betting whatsoever. We think it's great, and we can see that there's parallel growth for the programs in Virginia, in New Hampshire, and anywhere that we have with sport betting in the state. But I think the data we have from four states in the U.S., help us a lot to demonstrate the impact that it can have into good causes. So that's another point of assistance that we provide to the lottery industry.
spk06: Great. Thank you. And then with regards to M&A, I know you've talked about this on the last couple of calls. Obviously, following the IPO, you wanted to take your time, but now you have a pretty good cash position and you're generating free cash flow quarter after quarter. How are you thinking about M&A and maybe some of the areas within the tech stack that you could look to benefit from? Thank you.
spk02: Yeah, of course. Yes, indeed, Chad. As you recall, in the last earnings release, we've updated that we have conducted a strategic session together with our board and management gave recommendations as to quite a few different domains in which we think we will get into a better position. And these domains are different based on what we want to achieve geographically. The U.S. has different requirements for non-organic growth than, for example, Europe or Latin America or others. And so we have mapped those into the different ones. And, yeah, we are actively in the search process. There's nothing to report as of this point, but it's something that now we are way more active than we have been in the past after this strategic decision that we took. Thank you, Moti. Appreciate it.
spk00: Thank you. And I'm currently showing no questions at this time. I'd like to turn the call back over to Moti Maloud for closing remarks.
spk02: Yeah, thank you, Operator. Well, again, as I said at the closing of my earlier remarks today, we're looking at the clock, and we can't believe that in a week from now it will be a year since we went public. It's quite an exciting journey for us, and we are hopeful that we will continue to be able to drive good value to our shareholders and continue to have good interactions with the broader stakeholders in the industry. So thanks everyone for joining us this morning.
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