Gentoo Media Inc. (G2M) Earnings Call Transcript

Hi and welcome to Redeye. Today, we are joined by Gentoo Media. Its Chairman, Mikael Harstad; and later also, Jonas Warrer, the CEO, will present the Q4 result. It will be followed by Q&A, which will be moderated by me, and if you have any questions, please send them through on the website. With that, I will leave over the word to you, Mikael. Please go ahead.

Thank you. Welcome and thank you for joining us today. My name is Mikael Harstad and I'm the Chairman of the Board. And today our CEO, Jonas, will present our fourth quarterly report for 2024. But I just wanted to start quickly to reflect a bit on 2024 and looking a bit what's going to come in 2025 as well. 2024 was a very transformative year for our business. We successfully completed the split from GiG platform and we now operate as a stand-alone entity, pure gambling affiliate company. This process of the split was quite complicated. It incurred a lot of distractions for our business and included obviously a lot of work for everyone involved. We also in 2024 experienced quite turbulent market conditions in the gambling industry in general and a lot of our competitors had to reevaluate their business model. But despite this, as Jonas soon will show, we managed to yet again reach record-breaking results and I think this shows that we are on the right track and proves the robustness and the strength of our business model like no other. And I just want to say I'm very proud of the team for doing this in 2024. Looking at 2025 and the future of Gentoo. We now have the opportunity to fully focus on expanding our business. We will prioritize organic growth out of our existing assets, but we'll also have the opportunity now to explore new partnerships and explore new acquisitions in ways that we haven't done before. We will also focus on creating shareholder value for our shareholders through strategic capital allocations. We are an extremely cash-generative business and as a stand-alone entity, we have new possibilities to create shareholder value and also streamline our debt structures. So this is very exciting for us. I also want to emphasize that we do have a clear view on where we want to go and how to get there and we will also focus on explaining and communicating that key vision to all our shareholders. We want everyone to be as excited about this company as we are and look forward to doing that in 2025. With that said, it's time for Jonas to show us what we've done during Q4. So I'll leave the floor to you.

Thank you very much, Mikael, and hello everyone. My name is Jonas Warrer, the CEO of Gentoo Media. Very happy to be here today and present to you our Q4 2024 report. The planned separation is completed positioning Gentoo Media as a stand-alone company, as Mikael has just explained; greater flexibility to expand into new markets, invest in technology and pursue strategic acquisitions. As Mikael also said, it's been a very transformative 2024 and of course also a lot of work has gone into the split. The business has also been rebranded from Gaming Innovation Group to Gentoo Media. And I would say right now, we have further opportunities to improve our brand and revenues with investors and the market. We had a very transformative year delivering all-time high results and also, as Mikael said, despite also you can say challenges in the iGaming affiliate sector on a wider level. Very proud about that and very proud about the team behind it and thank you to everyone in Gentoo Media for that. With improved financial flexibility, management and Board are committed to unlocking long-term shareholder value and it's a new world now that we're entering and very excited about that. For those that are new to the company, if anybody is listening in, our business model is very simple. We connect players with bookmakers and casinos through a mix of our own websites and through a mix of marketing campaigns, for instance with Facebook or with Google Ads. We help players make informed decisions about gambling by connecting them with the right online bookmakers and casinos. You can say that is our existence and why we are here. Yearly performance: We ended at EUR 124.5 million in 2024, a growth of 41% of which 17% organic. If we look for '20 to '24, we have seen a 38% CAGR, which I'm very satisfied in seeing. If we look at EBITDA margin, we reached 57.2% giving an EBITDA margin at 46%. And if we look at the CAGR here also, it's nearly the same level at 34%. In the numbers here, as you can see in the notes, this is adjusted for onetime cost of the split of company in 2024 at EUR 1.456 million. Evolution by quarter just to show and I guess this is one of course that makes me very happy when I'm looking at it. Strong development since Q1 2020 and with a strong period of organic growth and then leading up also to starting a phase where we have also done acquisitions with the bigger AskGamblers' acquisition in Q1 '23 following the KaFe Rocks acquisition in Q4 '23 and then a few smaller acquisitions afterwards. Also as you can see here, of course very strong revenue growth and I think there will be questions to this later so let's just take it already now. We don't see the same growth in EBITDA margin right now in Q4, right, and there are explanations for this. And broadly speaking and looking forward, we always expect our EBITDA margins to be within the range of the 45% to 50%. So I would say this quarter is very much an outlier. Overall cash movement in 2024, I just wanted to illustrate the bigger movements here. A transformative year I think you can say due to split of the company and funding of the platform business. Acquisitions are well onboarded and the revenue streams fund themselves. And when we look at it in the 2 big posts that we have here, you can see that we have paid EUR 46 million in cash to platform and then we have generated around EUR 52 million in cash from operations and of course as we look forward, the cash to platform will not be there. This gives a lot of opportunity of course in terms of financial flexibility and it also opens up for, you can say, exciting discussions about capital allocation, which is something I think that the Board is very excited about having now those opportunities. So having those meaningful discussions and how to unlock shareholder value. Q4 business update. The 16th successive quarter with all-time high revenue ending at EUR 35.9 million, up 38% year-on-year, of which 18% is organic. Before special items, EBITDA was at EUR 14.3 million, up 31% year-on-year with a 40% margin. And as I said, this is not the range that we want the EBITDA margin to be in and this is not where we expect it to be going forward. We are and have been in the range of 45% to 50% and we do not see this change. We had in this quarter very high marketing expenses that grew 47% Q-on-Q partly driven by new initiatives in the quarter to drive revenue, but also to leverage the positive seasonality that we had. It's relatively easier to make players in Q4 as compared to other quarters. If we look at a normalized marketing spend, the EBITDA margin would have been 45%. We also in the quarter had extraordinary post-split costs establishing the business as stand-alone, which also lowered the EBITDA margin in the quarter. And then on top of this, I think I can say, as people can probably imagine; you go to a split, you build up new support functions in-house. There's of course you hit the ground running right and then you build up skill sets and you become better and better. And I don't think it's unfair to say that if we look at the year and the quarters, you would probably have a few costs from Q2 and Q3 that are actually taken in Q4. So I think I look forward during the new year to when we get into a very transformative year now and things are settling a little bit more down. We build up quality levels and we will get to a situation where we can be a bit more stable also in the way we report cost and the way we work with numbers because there's a little bit spikes going up and down here because we have not been too precise enough. Revenue split: 51% of revenue comes from recurring revenue share agreements growing 16% year-over-year. This is slightly down from what we normally see and again we expect that split normally to be in the range of 60% in revenue share earnings, 30% fixed fees and 10% in CPAs and we also expect to see that split going forward. Q4 had an unusual high amount of CPA amounts also because we launched quite a few new initiatives in Q4, which were to a large degree CPA driven in the beginning to accelerate the return on the advertising spend on those initiatives. Recurring revenue share earnings reached EUR 73 million in 2024 and I think a very exciting number below that is actually our value of deposits, which I will show very shortly, which is a very exciting number because essentially you can say what we see here is that we keep improving the value of the player base. We keep growing value of deposits that our players are generating and we keep improving recurring revenue share earnings. European revenue grew 33% year-on-year mainly driven by growth in markets outside the Nordics. The Nordics is still growing for us so we are still able to grow in our legacy market. But of course we are also very much growing in markets outside the Nordics in Europe and this is what we are seeing here with the 33%. Americas revenue increased 48% year-on-year and a lot of this is actually attributed to North America that doubled revenue in the period. Europe and Americas contributed roughly 60% and 20% of quarterly revenue remaining core focus markets going forward and this is a similar distribution to previous quarters. Player intake and value of deposits, one I'm very excited about. If we start with the player intake, as we have explained in the previous quarters, a very deliberate decision to focus on higher value markets and I think we can see it here, our player intake has actually decreased year-on-year 18% in line with this decision. At the same time we can actually see the value of deposits meaning the amount that all of the players generate with the operators where we have generated the players have grown 27% year-on-year in the quarter reaching EUR 200 million in Q4, up from EUR 192 million in Q3 and up from EUR 157 million in Q4 '23. When you put all of those numbers together, you can actually see that in 2024 our player base have generated EUR 767 million in value of deposits with partner operators and that's a 39% increase from 2023. This is to me where we have a lot of the value of the company going forward because this will at the end of the day continue to generate recurring revenue share, which in the end will secure sustainable long-term growth. Our focus and our strategy on focusing on higher value markets is yielding results, which we can see here. Diversification strategy, also an element that we touch upon in each quarter because it's a very vital part of our strategy going forward and again to secure long-term sustainable growth. Essentially more markets, more websites and more customers should drive revenue to mitigate risk and ensure sustained growth. You can say in layman's terms if there is any bump in the road, we want to minimize each bump's impact and make it as flat as possible and as small as possible. We do that by working with as many partners as possible, having as many material websites as possible, being in as many markets as possible. If we look at the numbers, we can see that in Q4 and it is our wider portfolio of websites. If we look outside Top 5, that is actually driving very much the growth here. So non-Top 5 websites grew 55% year-on-year and now account for 69% of the quarterly revenue. Revenue from our Top 5 websites on the same level as last year now accounting for 31% of quarterly revenue. This means that we have a very diverse revenue coming from many different websites, which creates lower risk for us and more security going forward. If we look at the partner mix, you can see in Q4 '23 we had 178 partners where we generated more quarterly revenue above EUR 10,000 and that number is up at -- up to 313 in Q4 '24 growing 76%. And as the observant person can see here, we are probably plateaued at a level now where I don't think it's a target itself to grow the partner mix even further and have even more material partners, I would say, in the range where we are now plus 300. For me, it's a very diverse business where we have a very diverse partner mix. And then of course another worry here is then to say how big is the biggest partner then for us and how big is the Top 5 partner for us. And I can take a little bit of top off giving that insight. Of course we are not too happy about sharing business secrets. But if we look at it broadly, we can say that 60 customers or 60 of our big clients, they generate around 60% of revenue. So our Top 60 partners account for 1% each if I look at it from that average perspective, right? So a very diverse partner mix also and something that's very different from when we look 4 or 5 years ago. And as I said, I think this is the level where we would be at in the partner mix going forward. Priorities for start of 2025. A very transformative year in '24 and we need now to consolidate the organization and the business. When you go through all of the things we have been through in '24, of course a lot of focus has been needed to go there. And personally and I think for rest of many people in management and Gentoo Media, we look forward to having more time and focus now to move into optimizing the business that we have now, the very stable and growing business that we have. We also wanted to strengthen the presence of sports and sports betting on AskGamblers and continue the overall growth of the website, continue developing our recently acquired assets such as Casinomeister and then we still have a few assets in the KaFe Rocks portfolio that we still have really to give a strong push and grow even further. We want to regain former rankings for CasinoTopsOnline. This is something we have worked now on for over a year. I would actually call it a bit of an obsession in the organization. We want to have CasinoTopsOnline back to former glory where it was known as being one of the sites in the industry that generated the highest value players in big volumes. And we want to see that come back and we also want to prove to ourselves and to the market that we can do this turnaround. A lot of work has gone into that and I'm just counting the hours until hopefully there will be a Google update that will reverse things. Continue our integration of Titan Inc. to optimize SEO and content costs further. This has actually gone a bit faster than expected and looking forward, this will have a material impact on our cost, which essentially will drive down our SEO and content cost. We have also seen a strong opportunity in Q4 to leverage our network to cross-sell the services that Titan Inc. offers and this has worked quite well. And this is also an area that we hope to accelerate even further in '25. Our paid division should of course continue to expand reach and just grow the business even further or automate even further, become even more data-driven, more granular in how we attack markets. Then we need to adjust the business to new market regulation in Brazil. I think we are right now assessing the impact of the regulation, how many players have been reactivated, how big is the impact of the tax, all of those things. And there is a bit of -- we just need to land on our feet there and see how it will be. Long term we think and believe that Brazil will be an attractive market. But I think it's fair to say that short term we expect there to be some bumps on the road there. Conversion rate optimization is still an effort for us and I think personally an area where we can still do better than we do now. I think we are very good at acquiring traffic and I think we are very good at monetizing the traffic that we have converted. I think we can do actually 2-digit growth just by doing conversion rate optimization even better and becoming just better and better at converting the traffic that we have. Improved data utilization within the organization to ensure decisions are constantly driven by data insights. We have a lot of data available. We have a lot of dashboards available. At the end of the day, it only matters if our employees actually use the data and the dashboards and take decisions from that. This is something that's a focus area in '25 to getting people to move more and more into that state of mind. We have worked a lot on our media platform in '24, 2 projects that by now have been running for maybe 18 months each. We haven't yet rolled out the big work that has been done in each of them and this is something that we are looking forward to hopefully doing very shortly and also then of course to give our websites an extra new push, make them even more -- improve the quality even more, make them faster, better cover vitals, better geo targeting focus and features and whatnot. And then hopefully, we will see a revenue burst from the work that has gone into those 2 bigger IT projects. Summary: Gentoo Media navigated a transformative year in 2024 delivering all-time high results. Revenue for the year ended at EUR 124.5 million. It is the fifth consecutive year with all-time high revenue growing 38% in CAGR and it's the 16th consecutive quarter now with all-time high in revenue. EBITDA margin for the full year of 2024 ended at 46% reaching EUR 57.2 million in EBITDA. In the year, recurring revenue share accounted for 59% of earnings growing 32% year-on-year and recurring revenue share earnings reached EUR 73 million in the year. Behind that, we had this number with EUR 200 million in value of deposits in Q4 and EUR 767 million in value of deposits for 2024. In Q4, revenue ended at EUR 35.9 million reaching another all-time high; EBITDA ended at EUR 14.3 million. Europe and the Americas continue as core markets for the business growing respectively 33% and 48% year-on-year in the quarter making up respectively around 60% and 20% of our market split. Diversification strategy further executed to secure sustained growth; more markets, websites and partners drive revenue. Outlook: significant investments in the media and MarTech platform were made this year with the full revenue impact expected in 2025. I can say a little add-on to this in the world of iGaming and at least in the world of affiliation when you work with projects that goes on for more than 12 months, it seems like an eternity. We are very eager in Gentoo Media to onboard our next-gen media platform when that is ready to be launched and really look forward to seeing the boost that this will give us in capabilities and hopefully, hence also in revenue. Strong potential to improve performance on acquired websites such as Casinomeister also following this media platform rollout. As I've said earlier also, it's been a very intense and transformative year and there's no doubt that both for myself and also for some of rest of management, that has taken some focus away. So we really look forward now to have an opportunity to move a bit into the business again. For instance I look forward to have the chance to work for instance with a great website at casinomeister.com. Reestablishing CasinoTopsOnline as a flagship website will have a positive impact on 2025. This is something we have worked on for quarters, months and can even count years now and fingers crossed that we will see an impact here in '25. Gentoo Media realized cash generation from operations at EUR 52 million and funded Platform & Sportsbook with EUR 46 million during 2024. Strong operational cash flow generation post split of course expands our capital allocation options moving forward and I look forward to be able to having these exciting discussions. A score of interesting M&A opportunities are in the market and there's no slowdown expected here in 2025. The delist of the company's shares from Euronext Oslo Bors is in progress. The company expects double-digit organic revenue growth for 2025 and intend to provide a more specific guidance in the Q1 2025 presentation. Thank you very much. And then I think we'll hand over to the Q&A.

I'm going to start a bit with looking at the recent trading so to say, you ended the year quite strongly. Do you see this momentum kind of carry into Q1 as well or was it a very strong end to the year?

I think it was a very strong end to the year. We pushed the organization hard and also really had a focus on sales and getting revenue and building revenue and a lot of new initiatives were tested also in the quarter. As we go now into '25, we are looking into the profitability of some of those initiatives and whether they should be sustained because in line with our strategy to focus on higher value markets, of course we also want to focus on higher value activities. And there are some of the things that we launched in Q4 where right now we are trying to figure out can we improve marketing? Can we improve marketing spend enough to make this attractive opportunity for us going forward or can we improve revenue with the current marketing spend enough to make it attractive? So Q4 was a very good quarter. Of course I would love to stand here and say that we believe that next quarter will also be all-time high revenue. But I think I want to cloud the discussion here and say I do not expect Q1 to be another all-time high quarter. Q4 is just a very strong quarter seasonality-wise and on top of that, we really gave it a hard push and the organization did amazing.

And I think in Q3, you had kind of a weak sports win margin. Was there any kind of impact from that in Q4? Was it more like a normal sports win?

No, I would actually say the margin was okay, but I would normally have expected to be a tiny bit higher and I would also have expected the seasonality to be a tiny bit stronger. So some of the results that we saw in Q4 were also, as I said, driven by the fact that we really did -- we pushed a lot of new initiatives through. It's been quite hard on the organization. And also of course very rewarding to see how much you're actually able to do if you set a target and say we need to do this. So I think it was nice to see, at least for me as a manager, what we're able to actually achieve being the group of skilled people that we are.

And you talked about in the presentation a bit, but just a few questions on the profitability in Q4, maybe a bit weaker than we are used to, but you explained that some costs were maybe pushed into this quarter. But if you look forward from here, would you say that OpEx would be stable and if you grow top line, you would expand margin again or how will the dynamics kind of be in terms of like OpEx and top line growth?

I would say going forward we should have an EBITDA margin at 45% to 50%. If we deviate from that and go below that, that would suggest to me that we should look into optimizing the organization and our activities and we believe that we should be in the range of 45% to 50%, if that answers the question.

Yes, got it. And looking at Q4, I mean you mentioned some markets that did well. You talked about North America doubling revenue. Was that a specific asset or a specific, I don't know, region? If you can elaborate anything on that?

Yes. So actually our Time2play website didn't have the best Google update. But then our wsn.com website had a very good Google update and from that, we have actually been able to drive quite a material revenue also from sweepstakes, which is a very exciting thing now in the industry. I think a lot of people are talking about that and of course also something we are pushing for. So yes, wsn.com is doing really great there now and we have also launched other activities around sweepstakes. I think when we look at this example here, this again just points to the strength of having a very wide website portfolio. We have gone through '24 with 3 Google core updates if I'm not mistaken, very eventful, a lot of things have happened. Some of this has been slightly positive for us and of course some sites have been affected, then we have the time to work on them and turn them around. We did that in August, right, where we turned 2 of our local championships around that were impacted in the start of the year. But at the same time when we have those Google updates, we also have sites that benefits and so far the sum of it has either been neutral or positive for us. And again diversification here. Don't go overboard on too few or too singular sites.

Yes. And these kind of 3 updates in 2024, is that kind of a higher activity from Google than historically and do you think that's the new normal or what do you think from here?

There's probably some experts that can make it even more precise than I can. But I think it's been an eventful '24 from Google, probably a little bit more eventful than normal. And I also think Google has sent out a bit more clear and harder signals on what they consider value-adding sites and helpful sites made by people for people. So yes, it's been a little bit more turbulent in '24 here than what we are used to. It's been quite okay for us. Of course the big stone in the shoe here is CasinoTopsOnline, which is really something that we really want to turn around and we want to have it back as being a website when you go to conferences that people would shake your hand and hug you and ask can I work with you? We want to get back to that state with that site. And it's also an obsession about showing the capabilities and the skills that we have. We have done several turnarounds of smaller local focused champion sites, but we also want to prove that we can do it for a big one.

And how does that work in reality? I mean do you like change things and then hope that you do the right thing for the next Google update or you kind of like in discussion with them what should we do to improve that?

No, never any discussions with Google. No, of course you need to try to understand what they're handling. But I think a lot of the discussions here is around how can we make a site that is helpful, even more helpful to our user, better and easier to use, usability is better and also how can we make a website that's faster and maybe also have some features that are unique in the market. So for instance if we look at AskGamblers with our casino complaint service, very proud about that having a team of over 10 people handling complaints and issues between operators and players. That's a very high value-add for players. And for CasinoTopsOnline, we have looked into what is the reason why a site as CasinoTopsOnline is there. We have our opinions there. I'm not going to share them with the market or with the competitors, but I have worked a lot on that. I think as a flagship site, you need to have a reason why you're there and this is something we are working on and have moved very far with CasinoTopsOnline and we just hope very soon to see the rewards from it.

And regarding Google updates, I think they mentioned that there's one coming out in April with kind of a change or maybe tougher rules on gambling-related websites. Is that something you have looked on or adapting to? Or...

Not something we think will impact us. There's also been something with paid ads, right, with Google Ads. No. Maybe it will probably make things a little bit easier for us to be honest here. I think maybe Google there is cleaning a little bit out and I think that will benefit us.

And a new website that you acquired last year, Casinomeister, you mentioned that you're doing some updates there. How big is the potential on that? Could you look at kind of AskGamblers potential if you're well with update or...

That will probably require a few years, but I think the potential is very big for that one. It's a very renowned website and really strong metrics for it. It's a domain that one should be able to get the domain to rank for high value transactional keywords relatively easy compared to many other domains. I was actually at a conference a few months ago where I suddenly saw that one of the operators had on the wall that they had been awarded the best casino by Casinomeister. Then you're now, wow, okay. So it is a big site for us. Unfortunately, with everything that has happened in '24, I don't think we have given it enough love yet to realize the potential there. And that's indeed something I'm personally looking forward to now having a little bit more time to move a little bit stronger back into the business and ensure that we keep growing organically, which is one of the core legs that we are standing on.

And in terms of diversification, I mean you mentioned that the kind of smaller sites are taking a slightly bigger share. Is there any difference in terms of profitability if you compare it like the Top 5 sites compared to these kind of smaller sites?

That's a hard one to say. Not at all. You can have smaller sites that are very profitable also and then of course some of our bigger sites like AskGamblers is also very profitable so no. I think if we look at our website portfolio now of course, one thing that's an attention point is Brazil, what will happen there right now? We already saw some impact from that in Q4 where operators were trying to adjust to the new regulatory regime and of course we see an impact from that now in Q1. It's a market regulation at least for us that went very fast what actually happened in the end and we are still trying to assess the situation there and then take actions based on that. Luckily, being diverse, we are not very dependent on Brazil. But of course it is a market for us and of course we believe that short term, there will be some bumps on the road there, but long term, it will be an attractive market and we just need to take the decision in the short term to adjust to that.