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spk03: Ladies and gentlemen, thank you for standing by. Welcome to the NeoGames third quarter 2022 earnings conference call. All participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you need assistance, Please signal a conference specialist by pressing star then zero on your telephone keypad. Please note that this conference is being recorded today, November 10, 2022. I would now like to turn the call over to Jacques Cornet with ICR.
spk08: Thank you, Operator, and hello, everyone. By now, you should have access to our third quarter 2022 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 use caution when interpreting and relying on them. We refer all of you to our recent SEC filings for 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, 2022, when it is filed with the SEC. During today's call, we will discuss non-IFRS 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. The reconciliation of these measures to the most directly comparable IFRS measures 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. With that, I'll turn the call over to Moti.
spk04: Thank you Jacques and good morning everyone. Last night we released our third quarter results which is our first full quarter combined with Aspire Global since the acquisition. I will begin by highlighting some key points about the quarter and then provide an update on our current initiatives and the trends we are seeing in the market. Raviv will then run through our financial results. During the third quarter we reached a number of significant milestones across our business lines, further increasing our conviction in the benefits of our integrated end-to-end iLottery, iGaming, and sports betting solutions as to offer to the global gaming market. We saw new markets move towards implementing an iLottery solution, signed iGaming and sport betting deals both in the U.S. and internationally, and continued the integration of the Aspire Global business. we are also proud to report record revenue results for the quarter, both on the consolidated basis, as well as for our core iLottery business. While we are far from done working to fully accomplish our goals, we see this quarter as a strong step in the right direction. First, a few financial highlights, which Raviv will expand upon later. On a consolidated basis, the total of revenues plus share of NPI revenues grew to $73.3 million, which includes a full quarter of Aspire Global. Looking at the pieces, our iLottery business posted the highest top-line quarterly results ever in our history. iLottery revenues and share of NPI revenues together were $24.7 million, up 22% compared to last year and up 8% compared to the June quarter. iGaming revenues were also up nearly 8% on a constant currency basis with particular strengths coming from the games and sports segments of the business. Taking a closer look at the iLottery segment of our business, we saw strong performance across our current accounts and positive developments on multiple legislative fronts. Driven by the July jackpot run, all of our major US customers experienced both year-over-year and quarter-over-quarter growth. While this is very encouraging in its own right, it becomes even more impressive when drilling down to the account level. Michigan volumes continued their sequential growth, which began in Q4 of last year, demonstrating the parallel growth potential of iLottery alongside iGaming as we anticipated would happen based on what we have seen in other markets in the US and globally. We believe that these results and those from the past few quarters support our thesis that iLottery and iGaming can and do grow in the same market. The Virginia lottery continues to outperform impressively with another strong quarter. It made us so proud to see them win the Global EGR Operator Award for 2022 as the Lottery Operator of the Year, a well-deserved win that we are honored to have such a strong partnership with doing our part by powering them with the best technology available and our market-leading suite of games for Neo Game Studio. New Hampshire and North Carolina also showed nice sequential growth, leveraging the July jackpot into the rest of the quarter. Considering the current state of the U.S. economy, we consider this a very positive sign as the macro outlook grows less and less clear. Turning to the state authorization front, we saw West Virginia come to market with a much anticipated RFP during the quarter following its RFI process. We view this as an interesting opportunity and look forward to demonstrating our competitive advantage to the state's lottery is they choose an iLottery solution that needs to grow and flourish in an already existing iGaming and online sport betting environment. Naturally, with the midterm elections having just taken place, Q3 did not see much progress on the legislative front in the U.S. However, we do believe that iLottery authorization will regain momentum in various states in 2023 following the elections, and in light of preparation of a macroeconomic environment that may suggest pressure on state budgets. On the gaming front, we made significant progress both in the U.S. and internationally, with particular strengths coming from our PariPlay content aggregation business. In the U.S., PariPlay was licensed in both Pennsylvania and Connecticut, The platform and games are now certified in five out of six regulated U.S. states, allowing us to bring content from both our wizard game studio and third parties to players across the country. We further bolstered Paraplay's position in the U.S. by signing additional content providers to the aggregator platform, with a few interesting ones signing exclusive deals with Paraplay to enter the U.S. market, demonstrating the strength of our offering. Finally, we expanded our relationship with BetMGM through the launch of content from Wizard Games on the BetMGM Casino platform in Michigan. This launch gives us three states, including New Jersey and West Virginia, in which our content is live with a market-leading BetMGM platform. Internationally, we signed a content distribution deal between PariPlay and ATG in Sweden to further enhance our content aggregation platform's market leading position in Europe. Under the terms of the agreement, Sweden's largest operator will gain access to wizard games and select third party content through ParryPlay while giving us access to ATG's customer base of over 1.3 million users as of the end of 2021. Additionally, We established a partnership between Aspire Global and ITSP in Germany to provide a complete turnkey technology and gaming solution to one of Germany's largest gaming operators and expanding on the existing sports agreement between the parties that will be ready to go live once licenses are granted to our partner. While regulators in the country have been slower than expected in reviewing and issuing licenses for local operators, This contract puts us in a great position to benefit from the shift when it does eventually takes place. At the same time, it is worth pointing out the top line trends in Aspire Core, which is focused on providing turnkey iGaming solutions, including PAM, managed services, and all approved gaming verticals in regulated markets. In addition to the currency impact, which Raviv will touch upon further in his part, we are experiencing a more conservative pace of market opening and granting of licenses to applicant operators in certain regulated markets in Europe, such as Germany and Holland, which had a modest impact on our Q3 results. In B2Bet, our sports betting business, we saw strong growth across our accounts leading to quarter over quarter growth of over 25% and year-over-year growth of over 100% for the business line. We maintain this momentum by extending an agreement with our largest customer for an additional five years, demonstrating the strong partnership and successful cooperation between us. This customer is live in over 20 markets in Africa, and this extended partnership continues our dominant position in the region. Along with these developments in iLottery, iGaming, and sports betting, we also continue the integration of the NeoGames and Aspire platforms. ParryPlay has been integrated with the NeoGames platform in Alberta, launching strong titles from Wizard Game Studio that have captured significant share of wallet in that account, and we have also started to roll out content from third parties with plans to roll out many more in the future. In that regard, we have also integrated NeoGames Studio iLottery content into ParryPlay with plans to roll out that content into certain customers of ParryPlay in the quarters to come while also introducing its Fusion Aggregation platform to our lottery customers. In anticipation of our launch in Brazil in the first half of 2023, The B2BET sports betting platform has been integrated with the Neo Games iLottery solution. This collaboration of business units was key in our ability to win the Brazil opportunity, and we expect it to be equally important in similar opportunities going forward. Finally, before turning the call over to Raviv to walk through our financials in detail, I want to provide an update on the impact of the overall economy on our business which is a natural area of interest to our investor base in this time. Historically, as we've highlighted on previous calls, the lottery industry has been fairly resilient to macroeconomic changes. We are seeing this trend currently continue, as we have yet to see any degradation in player value or play behaviors across both iLottery and iGaming, despite the uncertain economic landscape. However, this is a trend we will continue to monitor going forward as the economic uncertainty continues. 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 Neapol Interactive, or NPI, except in Michigan, which is reflected in our main company revenues. Our contracts 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. Now turning to the results. Our platform continues to perform well on multiple fronts as we have grown the business both organically and inorganically over recent months in both our core iLottery business as well as the businesses we added through our acquisition of Aspire Global. We're proud to report record revenue results for the quarter, both on a consolidated basis as well as for the core iLottery business. In terms of the Aspire integration, as we have always said, We believe that the real value of the combination was from a revenue perspective. As we have progressed with the integration process, we have identified cost synergies in the range of 3 to 5 million. We expect to achieve these cost synergies on a run-rate basis by the end of the first anniversary of our acquisition of Aspire Global. During the third quarter of 2022, Our revenue, as reported on the income statement, which excludes our share of NPI revenues, was $62.2 million, of which $48.5 million is attributable to revenues from Aspire Global Business. Excluding Aspire Global's contribution, our results of $13.7 million represent year-over-year growth of 14.1%. Our share of NPI revenue reached 11.1% during the third quarter of 2022, up 34.4% compared to the same period last year. The sum total of these numbers was $73.3 million. For the quarter, our adjusted EBITDA was $17.6 million compared with $7.5 million in the same period last year, representing 135% increase. When considering the neogames high lottery business, we saw adjusted EBITDA increase to $9.9 million and margin expand to over 40%. Before reviewing the balance sheet, I want to highlight a couple of notes relevant to the results. As a reminder, Aspire Global has historically recognized its revenues on a gross basis, while Neo Games' iLottery business recognized revenues on a net basis. This results in higher revenue but lower margin for the Aspire Global business. As discussed on our last quarter call, we have been working with Aspire Global partners to adjust contracts to more closely align with our iLottery business. were encouraged by the preliminary results. Additionally, we wanted to flag again the impact of exchange rate fluctuation on the performance of the Aspire business. With much of the business revenues dominated in euros or British pounds, recent FX moves have muted the revenue growth when converted to US dollars. To provide better transparency on the strength of the business, independent of currency moves, We've included a presentation of the business revenues growth rates on a constant currency basis in our earning release. It stated that the SPAR global revenue of $48.5 million for the third quarter reflects 8% growth when measured on a constant currency basis. This growth, however, is offset by 15.5 decrease caused by the impact of the foreign currency exchange rates. Turning to our balance sheet, we've entered this quarter with $60.3 million of cash and cash equivalents. At quarter end, our outstanding debt was approximately $192.8 million, or exchange on a Euro basis of $200.8 million, at a weighted average interest rate of 6.25, with 33.5 million shares outstanding. Additionally, we have an outstanding balance of $24.1 million for the short-term liability labeled deferred payment on business combination. As noted last quarter, this represents cash consideration to be paid to former Aspire shareholders as part of the transaction, and for analytical purposes, this balance should be netted against cash. With respect to guidance, we are encouraged by the trends in the business, and this allows us to provide a revised and tightened range that increases the midpoint. As a result, we expect revenues and our share of NPR revenues for the full year of 2022 to be in the range of 197 and 208 million, moving from the previous range of 194 to 208 million. As a reminder, these values includes contribution from Aspire Global starting on the date of the tender offer closed, June 16, 2022, through the reminder of the year. With that, I will turn the call back to Moti.
spk04: Thanks, Raviv. We are very pleased with the development and financial results of this past quarter. As our first full quarter following the acquisition of Aspire Global, we viewed it as crucial in proving the thesis behind the transaction and believe that we made significant progress in accomplishing this goal. We saw progress across all business lines and expect this momentum to continue as we fully integrate our businesses. We thank you for joining us to hear about this progress and look forward to providing updates in the future. With that, operator, please open the line for questions.
spk03: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Cassandra Lee with Jefferies. Please go ahead.
spk00: Hi, good morning, or good afternoon. It may be a little bit too early to think about 2023 guidance, but if we were just to start thinking about next year and without new jurisdictions or new contracts, how should we think about the growth rate across different revenue channels?
spk04: Hey, Cassandra. Good morning. Yeah, you're right that we're not at the point that we're providing guidance for 2023. I would generally make three comments relative to that. Number one, we are expecting to start to see revenues even if at the beginning they will be modest from Brazil. Number two, there's a few of our accounts that we feel haven't yet reached maturity and we are still expecting them to grow nicely. And number three, the new segments we've added to our business, and some of them did present impressive growth in the last quarter, are expected to continue to grow into next year. So you are right to say that on the iLottery segment, beyond Brazil, we haven't baked in revenues from deals in 2023. Of course, we are hopeful to achieve deals, but not necessarily significant revenues from New Deal. But that is not the case on the other segments of... of our business. Does that answer your question?
spk00: Yes, that is helpful. And if I may have one follow-up, thank you for laying out some cost synergies from the Aspire transaction. But if you are thinking about more high level, and I know it's a bit hard to quantify kind of revenue opportunities or synergies, I think we generally understand how having iGaming capabilities help you win iModern contracts. but we're kind of wondering how does your iLottery capabilities today help you win on the iGaming front?
spk04: Yeah, thank you. Excellent question. I think there's a couple of obvious areas where our iLottery business and deployment helps us win business on the iGaming side. The most obvious example is the U.S., where our significant deployment of systems allows us to be, I would say, number one or top three in the market for sure among B2B operators with systems live operating regulated and certified in markets. We are, in the combination of our lottery business and our support of Caesars, we are live today in 17 markets in the U.S. I believe Ohio is the 18th one, if I counted properly, which is, in our opinion, far greater than any other B2B platform provider in the market. And if you layer on top of that the PariPlay business, which represents our iGaming games side of the market or content side that is certified live and running in five states, then I believe that is an immediate boost to the SPIRE Global market entry of gaming into the U.S. market. because regulatory landscape would have required them to take a year or two before they can get to the point that we brought them with. And that's just one typical example. The other part is that in other places around the world, again, in areas, for example, take Brazil, where we are now deploying the first ever brand or customer that will go live in the regulated markets according to local regulations. The iGaming parts of regulation are expected to follow. The timeline is a little bit unclear, but they are in progress. Sport betting in particular, maybe iGaming a little bit later. The fact that we will be deployed live and running with a sport betting solution in H1 next year will be serving, and of course with our PAM, which is the same PAM that serves our iGaming business, would put us in a great position to to win additional deal on the iGaming side when sports betting regulation becomes in effect in that market. So if I zoom out, in every geography, one of our segments runs faster than the other because of how regulation progresses and opens the door for others to follow by being the first to invest in infrastructure and technology and regulation and certification and allowing the others to be way more cost efficient and time to market when they come into those regions.
spk00: Great. Thank you for taking my question.
spk03: The next question comes from Barry Jonas with Truist Securities. Please go ahead.
spk06: Hi, guys. This is Ramin Sobhani on behalf of Barry. Thanks for taking our question. Congrats on signing the Georgia Lottery contract. Can you provide any additional color on the ramp that you see for the contract there and Any expectations on the size of the opportunity? Do you have any visibility on kind of similar opportunities there as well, where you aren't the platform provider?
spk04: Yes, thank you for the question. It's definitely a good one. As you said, that up until recently, we kept our really market-leading games from Neo Game Studios serving in the U.S. only on our full turnkey accounts. We have always seen demand for those games which are known to be great performers across iLottery customers in the U.S. which do not have the turnkey solution from us. And the first one that we have signed such a deal in the U.S. By the way, we've done so in Canada already last year, and we've announced a deal that we've done with Atlantic Lottery that is also not a turnkey customer for us. We expect to go live with Georgia again Q1, Q2 next year, really depending yet on customer projects, which are not necessarily completely into our control. A long time, the lottery there is growing to be bigger and bigger in its iLottery business, and I think that with our good games, we have the chance to capture interesting parts of their wallet share. If you look at the other opportunities currently in the U.S. market where similar opportunities exist, then the bigger one of those is, for example, Pennsylvania, of course, Kentucky, and there are smaller opportunities as well with the lotteries of D.C., for example, that is also live and running with the iLottery program. So generally speaking, I would say yes, it is our intent um, into next year to continue, uh, looking to get into contract, hopefully with, uh, with those customers in the market, which are operating iLottery programs, but do not yet have content from us.
spk06: Got it. Great. Thanks for that color. Um, and I guess just as a quick followup on a, on a different, uh, uh, on your, uh, jackpot comments, um, given the, uh, the, the really nice run, we were just seeing, uh, that just ended. How should we think about quantifying the upside there? Maybe you can relate it to how the previous run in Q3 went. Any additional color there would be helpful.
spk04: I would be careful providing guidance into Q4, but two things. First of all, yes, you could definitely expect, as always, that when there's a jackpot run, especially when it happens at the beginning of a quarter, it pushes numbers in that specific month but also allows a follow-through to the following months. I would say, again, I'll try to remain general here, that while this jackpot has been fantastic in its size, the market as a whole, and not only our customers, have seen a trend where the pickup rates of players into the jackpot were later in time into the jackpot than what happened in July. There's a number of potential explanations to this. One of them is simply that the media coverage of the U.S. elections did not allow for the jackpot until it reached very significant numbers to plow through the cluster of media and others. Numbers were impressive and significant for sure, but the only color I could give at this point of time is that it took a little bit longer to pick up public momentum. But jackpots are never bad for our business. That's something that is a known fact. I hope it's helpful.
spk06: Thank you, sir. Very helpful. I appreciate you taking our questions. Thank you.
spk04: Thank you.
spk03: The next question comes from Jeff Stanchel with Stifel. Please go ahead.
spk05: Hey, great. Thanks for the morning, mostly, Raviv. Thanks for taking our questions. Starting off on guidance, maybe sort of a follow-up to the prior question. I was just hoping, Raviv, you could kind of walk through some of the puts and takes on raising the low end of guidance. On the one hand, you do have the Powerball jackpot in Q4. which should help, so it sounds like sort of a later tailwind from that than you'd normally expect. On the other hand, the strong USD continues to impact the Aspire business. Is there anything else relative to prior guidance we should be contemplating for kind of thinking through the raise to the low end? Thanks.
spk02: Yeah, Jeff, good morning and thanks. You've basically touched the vast majority of the points. The Powerball jackpot this month would certainly be a positive trend to our revenues in the quarter. That would, to some extent, be set off against FX, headwinds, and other factors that were reported on the Aspire core segment in our quarter results, and both two factors are The main reasons for us, you know, increasing our lower end of the guidance.
spk05: Okay, great. That's helpful. Thank you. And then for my follow-up, you talked to, you know, some really impressive results in the acquired BTO, bet assets, paraplay, continuing to execute on new market opportunities. You know, the third piece of that business, the core platform business, looks like revenue's We're down about 6% year on year in constant currency. Can you just talk a bit more about what's driving that contraction and kind of how you see run rate growth moving forward?
spk02: Thanks. Yeah, I think the nature of the core business of Aspire, it's mainly, we call it a timing issue, where on the comparable periods, on the revenue side, on the core, you've seen markets such as Netherlands, for example, who has been transitioning into regulated market, you know, region and licenses has not yet been granted to operators that are having signed contracts with the SPAR, so it didn't yet go live. Same goes for the regulation in Germany and some slowdown in the pace of issuing licenses. You know, all those two factors, those both two factors are or something which is to some extent delaying the launch of the new regulated market on the core. And this is the reasons why you see on the comparable period to some extent the drop of the 6% that you're touching.
spk05: Great. That's helpful. Thank you both.
spk03: The next question comes from Chad Benyon with Macquarie. Please go ahead.
spk07: Hi, good morning. Thanks for taking my question. Thanks. I wanted to start with margins, I guess, specifically focusing in on the distribution expenses. Obviously, this is the first full quarter with Aspire, so we're kind of learning how the margins flow through currently with how you guys are reporting. But anything to highlight just in terms of maybe inflationary pressure, tech costs regarding the distribution expenses? And until you recognize the synergies in the back half of 23, any change in terms of how we should think about margins in the near term? Thanks.
spk02: Chad, good morning. So the reason of the trends that you see on the distribution line item on the P&L is basically By the vast majority, it's the way revenues are being presented in the P&L. As we've touched both on our commentary on the quarter and last quarter, we're running a process with the partners of Aspire to try and move the presentation method for next year into net. That has the the potential of expanding the margins, especially on the Aspire business. You know, we haven't completed that process yet, but the results so far are encouraging. We haven't seen any other trends relative to the macroeconomic environment that impact the distribution expenses. And the reason they have been impacting the margin is, again, due to the gross presentation of revenues.
spk07: Perfect, thanks. Okay, so you're not seeing any inflationary pressure on that employee side. This is kind of as expected, really just kind of flowing in?
spk02: Exactly.
spk07: Okay, thanks. And then on the balance sheet, I know it's very early right now and there's a lot of things ahead of you that you're kind of focused on. But how are you thinking about where you want to run this company from a net leverage standpoint? And if there are opportunities for more tuck-in acquisitions, when and how big could this fold into your offerings? Thank you.
spk02: Um, so from, from a net leverage perspective, you know, we have, um, quite strict and clear guidance by our board. Um, which, uh, which suggests that, um, the net leverage or, or, you know, the net leverage of the business would run around, um, three and, uh, hopefully down during 2023. Um, and I'll, I'll let multi touch the tacking acquisition.
spk04: Yeah. You know, obviously as we shared, uh, we do have in mind. a couple of areas that we would benefit strategically from certain attacking acquisitions, but it is tied to net leverage as well that we do not necessarily wish to go significantly beyond where we are now. Plus, in an environment where interest rates could and maybe are expected to still grow, especially in Europe where they haven't reached areas where the U.S. is and our debt is tied to debt, we would need to be mindful of making sure that we are going into such stocking acquisitions connected with where the business is from the ability to reduce its net leverage profile. Great. Thank you. Best of luck. Appreciate it. Thank you, Chad, as always.
spk03: This concludes our question and answer session. I would like to turn the conference back over to Moti Malul for any closing remarks.
spk04: Thank you. Thank you guys for joining us again. I would say that the only additional perspective I want to give beyond the good questions we were asked this morning and hopefully the material that we provided in the opening comments is that Our business now is not made of one segment, but actually four. And we believe it's very impressive that three out of those four showed significant revenue increase and performance. And it's natural when you have four verticals or four segments to your business that in timing perspective, not all of them would grow at the same timing and in the same pace. And that's why, for example, at Sparkore that we were asked about is experiencing something that they have experienced many times in the past, where they're in line of business when they have transitioned into a fully regulated market, and that happened when they transitioned into the UK, it happened when they transitioned into Denmark and certain other markets, then this transition period always comes with a level of uncertainty of how long it would take, which is controlled by by regulators, but when I zoom out from management perspective, I think that we are very encouraged by the fact that we have four growth pillars to our business that allows us to grow on most of them, if not always on all of them. So that's the only additional perspective I want to provide to everyone on our call, and as always, we are extremely appreciative for the interest that you are taking in our company, and we'll continue to do our best to meet your expectations. Thank you everyone and good morning.
spk03: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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