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spk01: At this time, all participants are in listen-only mode. A question and answer will follow the formal presentation. Please note that this conference call is being recorded today, March 10, 2022. I will now turn the call over to Mr. Zach Skorning with ICR.
spk02: Thank you, Operator, and hello, everyone. By now, you should all have access to our fourth quarter and full year 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 will include forward-looking statements. These forward-looking statements, which are usually identified by use of 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 20F for the year ended December 31st, 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 measure is available in our earnings release 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'll turn the call over to Moti.
spk03: Thank you, Jack, and good morning, everyone. Last night, we released our fourth quarter and full year 2021 results. Before touching on the fourth quarter results, I will highlight some of the accomplishments we are proud of as we wrapped up our first full year as a publicly traded company. I will then provide an update on the fourth quarter as well as the trends we are seeing in the market before turning the call over to Raviv to run through our financials, business performance, and 2022 guidance. However, before I begin, I would like to dedicate a few words to our teammates and colleagues in Ukraine. On behalf of myself, our management team and board, as well as the entire Neogim family, our thoughts and actions or with our colleagues based in Ukraine and our families. They are enduring an unprecedented and unspeakable crisis in their nation, and their safety and well-being is our prime concern. They have shown unparalleled determination and bravery, and they have our wholehearted support in their justified cause. We continue to provide assistance to the best of our ability to support their relocation efforts to safe areas in and outside Ukraine, and we pray for these difficult times to end swiftly. I will provide further explanation in a few minutes about our business continuity efforts and impact. Looking back, it has been a very exciting year for Neogame. Our first full year as a publicly traded company. We remain concentrated on our vision to help drive iLottery customers to reach their full potential by empowering them with the best technology combined with powerful game experiences and a full complement of market-leading expertise and insights. In the U.S., according to Ehler and Krejcik, the top three states for all of 2021, as measured by gross eye lottery sales per capita, were Michigan, New Hampshire, and Virginia, all NeoGames customers. And this makes us very proud. Furthermore, while our customer state account only represents 33% of the population of states with iLottery, the new games powered states generate 67% of iLottery GGR generated in the entire U.S. market. In Alberta, investments in expanding gaming verticals powered PlayAlberta to a record year with a full rollout of draw-based games, live dealer, and online foreplay. More broadly, We launched multi-game progressive jackpots with instant content for three customers already, as well as innovative online raffle technology. We have launched several successful product innovations through our Neo Game Studios, titles which continue to be the cornerstone to the revenue growth we've seen across our key accounts. We entered into content deals with several national lotteries across Europe, including Austria, Italy, and most recently, Turkey, through our partner, SQL Fund. We also announced the first New Game Studio content deal in Canada with Atlantic Lottery Corporation. While the revenue benefits from these are currently modest, we view them as important fundamental investments in relationships that may grow with other future products and services we may be able to provide. We're also proud of our strong partnership with Cedars Entertainment, In 2021, as part of the Liberty Solution, we went live with five more states, and including New York, which launched in early January, and Illinois, which launched this week, bringing the total number of states that we support the online sports betting or IT gaming offering to 12 states. As a result, revenue contributions from this strong partnership have grown by almost 20% in 2021 compared to 2020. We ended 2021 with strong momentum that has carried over into the start of 2022. As I'm sure most of you are aware, in January, we announced our offer to acquire Aspire Global. This transaction represents a major strategic step forward for us and will create what we believe is a global leader across all interactive gaming verticals, including online lottery and the gaming industry. As I mentioned in our investor call held in January when we announced the transaction, we view the combination will inspire the natural strategic progression of our company. The transaction will enhance our scale and competitive position across all business lines. The transaction process continues to progress in line with our timing expectations, and we still expect it to close in the first half of 2022. Looking at our results, we continue to significantly grow our business year over year and outperform the market. For the fourth quarter, our revenues, combined with our share of NPI revenues, was $21.3 million, representing approximately 15% of year over year growth. For the full year, this number was $84.5 million, representing an increase of about 44% year over year. We are incredibly proud of these results and we'll continue to execute our growth strategy as we take this momentum into 2022. Looking closer at the recent trends we're seeing across our customer base, as reflected in our prior guidance, we saw single-digit sequential decrease in Michigan iLottery sales. However, with the momentum we saw during the latter part of Q4 and as we begin 2022, We believe trends are beginning to stabilize in the market as we anticipate that they may, and we hope to return to modest growth at some point during 2022. We continue to work closely to support the measures and disciplined approach demonstrated by the state lottery with its high lottery program and remain confident that the foundations our joint teams have built in the state will lead to sustainable long-term growth as we have seen in other markets with similar landscapes. Keep in mind, however, that year-over-year comps for the fourth quarter were partially impacted by the significant double jackpot run which started in December 2020. And we were particularly evident in the year-over-year comparison next quarter. Outside of Michigan, our North America accounts continue to benefit from robust growth due to the rollout of our platform and introduction of new content throughout the year. As a result, Most of our accounts have more than doubled in their revenue contribution during 2021 compared to 2020. Specifically, both Alberta and Virginia have excelled beyond our expectations. In Alberta, for example, following the rollout of online sports betting, live dealer, and drawbait games, we have driven the market to become our second largest account, despite the fact that we only launched there a little over a year ago. We are very proud of the performance of this account and see it as a model of where we can add significant value to new accounts that make full use of our platform as we implement the widest range of offerings from iLottery to iGaming and Sparketing, driving significant revenue growth. Our relationship with Savka has also proven to be highly beneficial as they grew online GGR to be about 39% of their total GGR generated in the Czech Republic, another great example of our tech-driving growth for lottery operators expanded into a wider range of gaming particles. The regulatory environment and state authorization in the U.S. for iLottery continues to evolve in the states which we have discussed on prior calls. Among others, We see certain progression in iLottery legislative discussions in Ohio, and we continue to monitor for an RFP in West Virginia as a further step to the process that commenced late last year. Outside of the U.S., we see continued movement of lotteries formation and deregulation in the Brazilian market, which we believe will provide for iLottery opportunities in the years to come. With that, I want to come back to the conflict in Ukraine. As many investors are aware, we have a portion of our employees based in Ukraine. First, it's important to note that our revenues from ILO 3, which represents the vast majority of our revenue base, are driven from long-term recurring revenues which are not impacted by the crisis. To that end, a little bit of a background. Over the first part of the year, we have been planning for and are now implementing a business continuity program which includes several critical elements. First, by working with all of our global teams, we have successfully ensured that there has been no service or system disruption throughout our customer base. Second, we redeployed ongoing development efforts across our global teams, including many members of our Ukrainian teams who are currently operating from safe locations, both outside and inside Ukraine. Third, In order to mitigate the potential for future impacts to development and product innovation for our customer base, we have stepped up our recruitment activities in other locations where we have existing business relationships, such as Poland, Bulgaria, and others, as well as supporting the relocation efforts of our Ukrainian employees to safer regions, such as in the Czech Republic and elsewhere. Indeed, certain portions of our revenues Within the fee-for-services segment is revenue that was partially tied to our Ukrainian workforce, providing such development services that we are working to mitigate. Our guidance, which Raviv will cover in greater detail, is a bit wider than normal, and among other items, it takes into consideration all the possible outcomes related to the Ukrainian crisis. I would like to also mention in this regard that our entire customer base, in North America and Europe has been extremely accommodating and extending additional assistance in a variety of ways. For example, SASDA in the Czech Republic has been very helpful in our rapid effort to create a safe harbor for our employees to relocate to, and for this, we are very grateful. This is such a great demonstration to the strong relationships we have developed through the years with our customers. With that, I'll now turn the call over to Ravi.
spk07: Thank you, 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 contracts in Virginia, New Hampshire, North Carolina, and the province of Alberta run through NPI. Except for the NPI contract, we conduct all of our business through NeoGames. As a result, from an accounting standpoint, as many of you know, we generate revenues and earnings through our wholly owned operations and through our equity interest in NPI. Now turning to the results, our revenues as reported on the income statement, which excludes our share in NPI revenues, was 12.3 million during the fourth quarter of 2021, down 3.9% over the same period last year, primarily due to the decline in Michigan results and as we've explained during the year. Our share of NPI revenue was nine mil during the fourth quarter of 2021 compared with 4.5 million last year. The sum total of these two numbers was 21.3 million during the fourth quarter representing an increase of about 15% year over year. For the full year reported revenues were 50.5 million up 2.6% compared to 2020. Our share of NPR revenues was $34.1 million for the year, compared with $9.5 million in 2020. The sum total of these two numbers was $84.5 million, representing an increase of a bit below 44% year-over-year. Generally speaking, fourth quarter earnings were impacted by few one-time items. These non-recurring items impact include approximately $3.8 million as acquisition-related expenses related to our pending equity acquisition of Aspire Global, and about $2.6 million related to our employee stock-based compensation plan. Both of these items were adjusted in calculating our adjusted EBITDA for the quarter. For the quarter, our adjusted EBITDA was $7.9 million, which is down 13.9% compared with $9.1 million last year. Overall, we're 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. Turning to our balance sheet, we ended this quarter with about $66.1 million worth of cash and cash equivalents. Our outstanding debt at the quarter end was approximately $33.6 million at a weighted average interest rate of 1%, leaving us in a net cash position of $32.5 million. We have 25.5 million shares outstanding at the quarter end. A few words about guidance. We see the growth trends bolstered in 2021, primarily with the launches of new accounts to follow through in the growth from our existing customer base into 2022, although obviously with more modest growth rate. Therefore, we're initiating 2022 revenue guidance of between 90 to 97 million. At the midpoint, this would represent year-over-year revenue growth of approximately 11%. Keep in mind that the revenue guidance does not include the launch of any new turnkey contracts, nor presumes the close of the merger with Aspire Global, after which we are expecting to provide the market with a revised guidance. It also assumes the full range of possible outcomes from the Ukraine crisis, which is, as Moti mentioned, is why the range is wider than typical. With that, I will turn the call back to Moti.
spk03: Thank you. 2021 has been a transformational year for us. We grew significantly in all our KPIs, and we solidified our leadership position even further as the leading iLottery provider in the market, which drives consistent and solid success to our customer partners. And we have entered 2022 with a strategic announcement on our planned acquisition of Aspire Global, which will position us in front of an amazing opportunity to capitalize in the global markets of iLottery, iGaming, and online sports betting. To the end, once again, I would like to extend what I believe are joint wishes and prayers for everyone to the swift and safe resolution of the conflict in Ukraine. With that, we thank you for joining us this morning, and we're happy to answer any questions. Operator, please open the line for questions.
spk01: Thank you. And as a reminder, to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press the pound key. Please stand by while we compile the KineRoster. Your first question comes from Barry Jonas from Truist Securities.
spk05: Hey, guys. Thanks for taking my questions. First off, as you've had some time to dig in further, into Aspire, do you maybe have a better sense about potential revenue or cost synergies?
spk07: Yeah, thanks Barry, good morning. We've been looking into Aspire up till the point in time we've announced the transaction. As you are aware, we're now in a focus of completing the transaction by the timetable we've promised the market by the end of Q2 2022. We have a couple of errors in mind, but we are not providing any detail at this point in time, and we're waiting for the transaction to be closed.
spk05: Okay, understood. Then maybe just a higher-level question. What do you think is holding back the U.S. states that have not approved iLottery At this point, you know, is there something that maybe would spark more of a domino effect or a tipping point? What's the best way to think about that?
spk03: I don't think anything specific has changed from the various factors that are so-called holding back, as you said. It's just a natural, I would say, conservative progression of lotteries generally speaking, even in adopting other similar strategies. patterns like not only a lottery. If you take the keynote rollout across the U.S. state from when the first state launched it and where it is today, which is by the way only about half of the state, you can see another example in Texas products. It's related of course to the different ones. We see that the hesitation has always been around What we mentioned in the past, what impact will that do to retail? I mention again here, as we mentioned to all legislators, that we have seen nothing but parallel growth with retail. Expansion of gaining by government is always a sensitive matter, and they're taking it in a responsible manner. And we're doing our best to help our lotteries to continue and promote. What I can say that is very different on a positive note at this day than where we were a few years ago is that today there is no single director of any lottery in the U.S. that does not understand that iLottery, if they could, would be the best option for them to grow revenue into the future. If in the past there has been debate around that, this is now non-debatable. So now it's only a move on the legislation side. But it doesn't say that there's anything that has changed from the reasons we mentioned in the past.
spk05: Got it. All right. Thanks, guys. And hoping everyone in Ukraine on the team is safe.
spk03: Thank you, Barry.
spk01: Your next question comes from Jeff Stancho from Stifel. Your line's open. Great. Thanks.
spk04: Marty Moti, Raviv. It's good to hear from you both. I wanted to start on margins for a minute. I think last quarter you had talked to some non-recurring launch costs. Was there anything, you know, sort of one-time in nature? that impacted EBITDA margins specifically in Q4 is kind of the 37% or so the right way to think about the business as it stands with your current contract mix.
spk07: Yeah, thank you, Jeff. And indeed, you know, we ended up the quarter with roughly the same margin profiles in terms of numbers and percentages. We closed Q3. There has been some one-timers associated with some currency devaluation of the dollars against the expenses that we incur in Israel. But generally speaking, we believe comfortable with where the margins are currently trending, given the profile of customers and the revenue mix, and believe that the band of high 30s to low 40s would represent well where the business should trade, given our current customer mix and revenues profile.
spk04: Okay, that's great. Thank you, Raviv. And then for my follow-up, on the top-line guidance, you mentioned just an unclear impact from Ukraine being the main explainer for the difference in range. If memory serves, you know, your initial guide for 2021 had a $4 million spread between the low and the high end. It looks like you're going with $7 million for the guidance you introduced. You know, can I back the two out to get sort of what your thoughts are for potential impact to the fee-for-service business line for disruption in the Ukraine, or is there more to it than that?
spk07: No, the wider range, as we've noted on our notes to the quarter, was mainly associated with the potential impact of the Ukraine crisis. which, as Barry noted, we all hope to see being concluded in the coming days in a safe way. That being said, and Moti touched it on his notes, we've taken all the mitigation plans required in terms of moving certain elements of the business to other teams globally, so that we expect that the vast majority is already mitigated within our existing performance. Um, that being said, we've provided wider range, uh, because we have, you know, given the changing circumstances on a daily basis. Um, it's, it's very difficult to predict how things would fall at the end. Um, with that notion, I would just add, and again, it was touched by Moti that a vast majority of our revenues is generated through the iLottery, uh, contract in the U S market. Um, and given the same, uh, the same, the same mix expectations also into 2022. If there's going to be some revenues impact, it's going to be marginal.
spk04: Okay, understood. That's helpful. Thank you. And if I could just squeeze in one last one, one quick clerical follow-up on the guide. So you mentioned no new contracts in guidance, but I just want to be clear. Does that include any contribution from getting instant tickets up and running in North Carolina, or would you count that likewise as a new contract?
spk07: North Carolina is blended into the guidance, mainly during the second half of the year. And this is one of the reasons why we've used the range that you see currently between the 90 to 97. Perfect. That's helpful. Thank you both.
spk01: Your next question comes from Chad Bannon from Macquarie. Your line is open.
spk06: Hi. Good morning, Moti and Raviv. Thanks for taking my question. I wanted to touch on Michigan. In your prepared remarks, you noted that trends have stabilized there. Wondering if you have any views in terms of why this is stabilized after only a little under a year in the market. Do you believe it's just been kind of the passage of time of people trialing the other products out there. And then is the lottery doing anything from a marketing standpoint to help you assure that this is stabilized? Thank you.
spk03: Thank you, Chad. Good question. Yes, the answer to everything in short is yes. We have mentioned in the past that actually it took maybe longer than expected for to get into stability and then looking at growth patterns in a competitive environment just because of the very fierce marketing spend by the others in the market. But we were hopeful that it would work. We will get to a point where this stabilizes and starts to see growth patterns. And we very much believe that there is good reason to believe we're there. We see through the numbers where they're coming from. and they do let us know that the growth is sustainable, and that's generated through the fact that new players that are joining into the system are lottery players because they know that there's gaming in space. So once we have finished with a mix and match of players that maybe won't actually belong to the other side and now we're incurring new players, those new players are coming into the activity, the iLottery program at the point of time that they are aware about everything else in the market, That's why we believe it's more sustainable. The lottery marketing is doing tremendous work, really, really, in the last couple of months. As we mentioned, they were very disciplined. They continue to be disciplined with marketing. And by the way, it seems like the entire online sports betting market is now joining their disciplined approach. But I think that this is working. And we have good reason to believe that we've reached a point of sustainability. Growth, it will be modest growth. We're not going to grow, you know, double digits year on year, given the competitive rate in the market. But we believe that there's good reasons to see that we shouldn't continue to decline.
spk06: Okay, perfect. Thank you. And then I wanted to ask about the fee-for-service contract with Caesars. Just wanted to get a little bit more of an understanding of how this should flow through. So my understanding is, you know, Caesars has made a pretty big push at the end of 2021 with your help with their new Liberty platform. I think they have, yeah, a few more markets, as you mentioned, where they'll be rolling out Illinois and then, you know, Canada and the like. Can you just help us understand that when Caesars gets to a point where There's no new launches, kind of how the revenue picture will start to look, given it's more of a fee-for-service. I guess there will always be new states for Caesars, but just trying to think about 22 versus 21 in terms of all the help that they will need from your team. Thanks.
spk03: Yeah. The activity that we support for Caesars, continues to grow and while it's not revenue shared directly, it is connected to the magnitude of the activity that we need to support for them. So with more states, there's more need for people that will monitor, maintain, handle goal lines, and so on and so forth, apart from just the development team. The development teams themselves are now focused on two aspects. One is the continuous rollout of markets and There is still ambition to do that in quite a number of states. I can't speak, of course, on behalf of Caesars, but we're supporting everything they're doing. And there is also side-by-side with that quite an enhanced and ambitious roadmap to improve the product itself. It's two parallel efforts. So it could be that at some point the part of the effort that is pointed towards state rollout will stabilize that quality. I have to say that, you know, we're not there yet according to what we see in terms of ambition, but the rest will continue to maintain its existence throughout the year.
spk06: Okay, great. Thank you very much, and best of luck.
spk03: Thank you, Chet. Thank you very much, Chet. Good luck to you, by the way, this weekend. Next week, sorry.
spk01: There's no further questions this time. I would now like to turn it over to Moody for closing remarks.
spk03: Yeah, thank you guys for joining the call. As always, we continue to appreciate any interest in our story and our company. And we're really, really thrilled from what we're seeing in front of us in 2022. Hoping for the swift resolution of the concept in Ukraine, as always, because These are first and foremost our friends. Thank you, everyone, for joining.
spk01: This concludes today's conference call. Thank you all for joining. You may now disconnect.
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