Gentoo Media Inc. (G2M) Earnings Call Transcript

Hi, and welcome to Redeye and today's presentation of Gentoo Media's Q2 Results will be presented by CEO, Jonas Warrer. And that will be followed by a Q&A session, moderated by me. And if you have any questions, please send them through on the website. So with that, I leave the word to you, Jonas.

Thanks, Hjalmar. Yes. Hello, everyone, and welcome to Gentoo Media's Q2 2025 Interim Report. My name is Jonas Warrer. I am the CEO of Gentoo Media and looking forward to the presentation today. Gentoo Media is a leading affiliate marketing company in iGaming with a diverse portfolio of websites, products and performance-driven services. We help Sportsbooks and casinos acquire players. And a simplified way of looking at it is that Gentoo Media is the bridge that connects players with operators, turning attention into action and traffic into the depositing players. iGaming affiliation is an integral part of the value chain in iGaming. I would say, most operators, they use affiliates as a primary channel to drive player intake. Affiliates can drive high-intent traffic. They can build trust to content. They can scale visibility very fast. They can also sustain above-the-line marketing campaigns with below-the-line initiatives, boosting conversions and retention, and they can reach niche audiences. Then as a secondary benefit, affiliates are very aware of what's going on in the market and can deliver a lot of market intelligence. We, of course, focus where it matters the most. That means turning attention into action and traffic into long-term value for our partners. Q2 2025 executive summary. Post demerger from GiG Software, a very transformative first half of '25, where we have taken decision -- decisive actions to build our future organization. The strategic realignment that was initiated in Q1 has been executed. The business has been stabilized. Costs have been reduced, operations have been simplified, and focus have been sharpened. Q2 revenue and also Q1 revenue is not at a level where we wanted it to be. Q2 revenue reflects short-term effects from the realignment that we have gone through in the quarter. We have also seen market headwinds, notably in Brazil, similar to Q1. A quarter ago, when I was standing here, in April, we saw signs of recovery in Brazil with revenue share margins improving. But unfortunately, then we saw that it turned out for the worse in May and June. It has also been a quarter with absence of bigger sports events, if I compare to the quarter in the previous year. However, we see very positive momentum in underlying business drivers. We have seen strong growth in our player intake, and we have seen very positive developments in value of deposits of the player base that we have generated. The portfolio -- website portfolio in Publishing has been consolidated, and we have also seen at the end of the quarter, a positive Google Core update rolled out with positive effects for the Publishing business. Paid has spent the first 6 months of the year in recalibrating the acquisition model with better conversion rates and lower cost per player achieved. So as I said, revenue is not where we want it to be, but all the underlying business drivers have progressed good. Revenue has been stabilized now. And then cost base have been adjusted to the performance that we have. We have a leaner, more efficient structure with benefits to materialize in the second half. Management is confident in margin recovery and sustainable profitable growth going ahead. And I think what we will see here is that we have a very different second half from first half. Financial Q2 highlights. Revenue of EUR 24.4 million, down from EUR 30.2 million in Q2 '24, but stable compared to the previous quarter. As said, revenue impacted by market headwinds, notably Brazil, the short-term effects from the strategic realignment and then the absence of major sports events compared to last year's calendar. Personnel expenses and other OpEx ended at EUR 8.8 million, down 10% from the previous quarter. Marketing expenses amounted to EUR 8.4 million, up EUR 1.5 million Q-on-Q, and that's driven by additional investments in key markets and notably Brazil, and that's broadly in line with the same period last year. EBITDA before special items ended at EUR 7.5 million compared to EUR 14.8 million in Q2 '24. Special items for Q2 totaled EUR 1.8 million due to restructuring and other nonrecurring costs. Cash flow from operations ended at EUR 7.7 million, and we have EUR 5.9 million in cash at banks end of June. Revenue split, very similar to the previous quarters for the many years. 16% of revenue comes from recurring revenue share agreements in the quarter. European revenue decreased 4% compared to Q2 '24. As I said also, it was -- this was a quarter with no Euro Cup if we compare to the previous year. Revenue in the Americas declined by 42% year-on-year, and that's primarily driven by the market headwinds in Brazil and then, of course, also the absence of Copa America. Europe and Americas contributed, respectively, 63% and 19% of quarterly revenue, remaining core focus markets for the business, very much also in line with previous quarters. Player intake and value of deposits developed positively in the quarter. Player intake reached 136,000 FTDs in Q2, up 12% year-on-year and 42% Q-on-Q. A lot of this, as you can see, driven by Paid. I think actually, this is the second highest player intake we have had. So this is a very positive number. Deposit -- value of deposits also developed positively and reached EUR 195 million, up 1.5% year-on-year and 6.6% Q-on-Q. And that's despite the seasonal impact of no major sports event in Q2 this year compared to Q2 last year. Paid delivered strong growth, supported by higher marketing investments, improved conversion rates and lower customer acquisition costs. This is the sort of acquisition model that I mentioned earlier that has been recalibrated. And we can really see now that we have a model, where all of -- a lot of details has been adjusted and have been made right, and we have a model now that can be rolled out and scaled. We also, as I said, have seen a positive Google Core update, initiated at the end of quarter, and that's expected to pick up player intake in Publishing post quarter. Group highlights. Revenue below expectations, but stabilized and with positive momentum in underlying business drivers. Player intake close to reaching an all-time high record in a low season quarter. Value of deposits rose year-on-year, and that's achieved without major sports events over you can see at the end of the quarter compared to the previous year. And then, of course, very importantly, strategic realignment executed in the quarter to position the business for long-term growth and increased profitability. Publishing streamlined their portfolio to 70 sites, concentrating resources on flagship brands and higher potential local market assets. WSN, our North American-facing assets, delivered record quarterly revenue, reaching an all-time high with further growth expected. AskGamblers further expanded into sports with a BettingRank rolled out and also hosted the annual AskGamblers Awards, which is turning out to be a very popular event in the industry. End of quarter, Publishing uplift from June Google Core update, except AskGamblers. So what we have seen here is that Casinotopsonline, the asset and assets we have worked over the last 18 to 24 months to turn around and restore to previous glory. We have seen that in the Google Core update that, that domain benefited tremendously. We have seen positive uptick also for WSN. We have seen positive uptick for Time2play, and we are also seeing a positive uptick from several local sites. The only site that didn't benefit in that sense of the bigger ones in the Google Core update was AskGamblers. Post quarter, of course, initiatives have been launched to deal with this. Portfolio consolidation and tech reprioritisation executed in the quarter to drive a more efficient operation and business. In Paid, revenue below expectations impacted by Brazil and to a large degree, a good part of our Paid is also sports. And here, we also see the absence of major sports events if we compare year-over-year. However, player intake doubled Q-on-Q to 84,000 and grew 55% year-on-year. Marketing spend had an additional EUR 1.5 million extra versus Q1, and that's predominantly to grow the player base in Brazil, where we have seen very positive developments in terms of player behavior and also our ability to make players there at a good cost. However, revenue impact lagging in Q2, meaning a short-term impact on EBITDA for Paid and hence for the business. Clear market strategy has been implemented as part of the strategic realignment. As I said, the acquisition model have been optimized. We see stronger conversion rates. We see lower cost per player achieved through the quarter. H2 has a focus now on balancing revenue growth and EBITDA. Paid is poised to leverage the better acquisition model that has been refined over the first half of the year and then roll that out. But very important here to say, focus on balancing revenue growth with EBITDA for Paid. Strategic realignment executed in the quarter to address 5 priorities: rightsize the cost base, where we will have aimed for EUR 8 million to EUR 10 million in annual run rate savings. We organize the business for future growth in market teams, our portfolio and organizational adjustments. Then we have our commercial excellence track initiative, where a big part of this is our partner optimization program, working closer with partners and sitting a little bit tighter on them in terms of what are their strategies, what are they investing in markets and how long term are they thinking. We have also strengthened our technology platform. We have refined the leadership there, and we have enforced stricter priorities going forward, meaning that we are able to deliver faster on the tech projects that matters for us. We have also set out with an ambition to become the most attractive employer in the industry. We have promoted our chief -- we have promoted now. So we have a Chief People Officer, and we have a focus on a stronger people agenda. I think in this sense, when you go to a strategic realignment, as we have done, I think it's very important, of course, to realize the impact that this has had in employees. It's been a tough quarter for our employees, right? And we acknowledge that, and we also wanted to address this and deal with this going forward. So very important. The Google Core update completed post quarter, have had an overall positive impact on the Publishing portfolio with revenue gains expected in the second half of '25. Brazil player deposits is actually above pre-regulation levels, so developing very positive. However, of course, having seen this delay in revenue, we are, of course, very focused now on monitoring partner performance, profit margins in Brazil and also adjusting investment levels there if needed. We have also had delays in 2 key tech projects, which have deferred expected revenue contributions, I would say, for second half. And then we have seen that the revenue development in July and August that confirms that the business has stabilized, supported by a reduced cost base, resulting in restored EBITDA margins, but revenue has not accelerated to the same degree in July and August as we have expected. So in short, business performance has stabilized. Costs have been aligned with revenue improving margins, but revenue growth has been delayed and hence, more prudent guidance is provided now, unfortunately, with adjustments of revenue. So we are guiding on revenue at EUR 100 million to EUR 105 million. We maintain our guidance on EBITDA margins, although in the lower range, meaning that we guide an EBITDA margin at 40% to 41%. And then free cash flow from operations, we expect to be within EUR 27 million to EUR 30 million. The first half of '25 has been a period of recalibration, where we are taking one step back to be able to take 2 steps forward. We have taken decisive actions to rightsize the organization, creating a leaner and more agile company with a healthier cost base, both better equipped to execute on strategic priorities, go-to-market opportunities and also, of course, an organization now that is more healthy to deliver and restore the EBITDA margins that we have been -- that we are used to. So EBITDA has been impacted in the short term, but margins have been stored in the end of Q2 and will develop positively in the second half of '25. Revenue performance have stabilized, impacted both by market factors, but also by the strategic realignment that we have executed in Q2. We have seen, as I said, positive developments for our portfolio Publishing business and for our Paid business. I think one of the things to highlight here is that we have been able -- and also when we look post quarter, we are able to grow our legacy business. So for instance, we see now growth for our -- one of our flagship site Casinotopsonline that we have worked on for many quarters to restore to the former levels that it has been. As we enter the second half of the year, we do so with greater clarity and confidence. We have a robust portfolio of leading websites, a refined acquisition model, a more efficient cost structure, and we have a committed team driving scalable, profitable growth going forward. Thank you very much, and I hand over to Hjalmar.

I'm going to start a bit with the guidance, just looking at what it implies for the second half. And as you've been kind of implying, I guess, a lot stronger margin in H2 and mainly driven by reduced OpEx, I guess, and not that much top line. Is that correct?

Yes, that would be great to say. A lot of it is adjusting our costs to the business performance that we have. Of course, August looks better than July. We expect September to look better than August. And then, of course, we expect Q4 to traditionally be a very strong quarter for us, with seasonality. But I think how can I say it? What we have the most control of right now is our cost base. And I think we will see there a very different first half from the second half with improved margins and also with a more lean organization that can execute faster.

And regarding the cost, you saw some lowering of the OpEx, personnel and other OpEx in the quarter, but marketing costs were up a bit, but you expect that marketing costs will come down to a normal level. Is that a big benefit there? Or is it more like more savings in terms of other OpEx?

There will be lower marketing cost in Paid now right now. I mean, when we looked in Q2, we saw very positive dynamics in key markets and notably in Brazil, right, we could generate players at a very low cost. Player deposit levels are better than post-regulation or pre-regulation. So we saw a great opportunity here to build player base. But unfortunately, then we didn't see the revenue materialize in the quarter. We have seen a drag on revenue being delayed. And of course, then having seen that realization, I think it's prudent to then say in the next period, we have to have more balance on long-term revenue growth with EBITDA margins targets for that, right. So it will be more balanced. In an ideal world, when we see an opportunity to generate revenue at a good price, I would go for it. But of course, we need here to factor both to balance those factors in.

Right, right. And also a question in terms of the cash flow guidance, the free cash flow guidance. Is that -- what's the definition of that? I mean, how much of that will trickle down through the net cash actually? Is it after investments? Or does it also consider the interest costs?

Free cash flow from operations without the interest cost.

Okay. And also looking at that, I mean, how Q2 developed, I guess, in Q1, you mentioned the cut on low-margin activities and headwinds in Brazil. I think you highlighted headwinds in Brazil this quarter as well. Do you still see the low-margin activities impacting negatively? Or is that kind of fully cut out this quarter?

No. In April, actually, as I said when I was standing here 3 months ago, in April, we saw improvement in numbers in Brazil with revenue share margins improving. Then unfortunately, we saw a huge decline in May and June. With the investments we have made in the market, the commitment we have made in the market long term, I think it's safe to say that we have had various dialogues with our partners there. And luckily, we see margins going up in July and in August quite a lot. And then, of course, we will keep monitoring it now. I think we'll sit very tight in that market and adjust if needed. We think it's a very good market. We think we will see the revenue coming out of the investments we have made, the EUR 1.5 million extra that we have invested in the market. But of course, we have to adjust, as I said, when we see a delay on it compared to what we expected in Q2.

Yes. A few more here from the audience on Brazil, so I'm going to try to a few more. I mean, if you could kind of isolate, I mean, the business without Brazil in Q2, would it still have been down compared to last year? Or how much was Brazil impacting?

Brazil was, of course, a notable impact. Then, of course, also we have a quarter where we don't have a Copa America right and Euro Cup. I think if what I look at the underlying business drivers, which normally is sort of the driver for revenue, our value of deposits is actually up year-on-year despite being at Q2, where, as I said, we haven't had that the extra spice from bigger sports events. So I would say underlying business drivers and beyond Brazil, business is healthy. But of course, revenue has disappointed, and there's no doubt about that. It has disappointed also myself and our -- and the Gentoo Media organization, and it's not where we want it to be.

Yes. Another one is, I mean, how should we view your position in Brazil right now? It sounds like you still believe it's a positive market, but right now, it's not as good as expected maybe. But do you see any chance of kind of exiting the market? Or is it still something where you want to be in?

No, we think it's a great market and a lot of things are looking good there, actually better than post regulation. Some of the player dynamics, at least we can generate players at a very low price. So we're very happy with it. But what we are not happy with is having revenue being delayed. And of course, we just need to adjust to that, right? So short term, there will be close monitoring of that market, what we invest in it, what we're going to make on it and how partners are performing. We still think it's a market for long term. But as I said, with this balance now, both revenue growth and EBITDA margins and profitability, we need to have a balanced approach there going forward.

Yes. And taking a look at FTD intake was very good this quarter, driven by Paid. Was that Brazil mainly or in a specific market that kind of grow that FTD intake?

All channels in paid have improved in Q2. And I would say, broadly speaking, over first half of '25, we've seen quite a turnaround for the broader acquisition model in Paid. Of course, a lot of the players come from Brazil also where we haven't invested that much, right? But all channels have developed nicely with a decrease in customer acquisition costs, what we pay to make a player, improvements in conversion rates, meaning that we can make more players from the same investments. And then in Paid, we are also working a little bit on some of the finer details below. So for instance, seeing if we can improve the CPA element that we get on the players that we generate in Paid. So we have maybe a hybrid model where we try to increase the CPA a little bit up to make the partners sort of cover the investment a little bit more with us. So a lot of things have been going up in Paid and very proud of the results that they have delivered there over the last 6 months. But yes, there has been a delay in revenue from Brazil, and that's one of the things that we are cautious about in the next period.

Yes, yes. And looking at your other markets and regions, is there any regions that you see a positive development in that you want to highlight or anything else that are seeing tough conditions?

North America, of course, developed very positive for us, with WSN reaching an all-time high in revenue in Q2 and also having a positive Google Core update that was rolled out end of June. So I think WSN on the North American market, the U.S. market is one market to highlight. Then we have seen, as I said, this turnaround for one of our legacy sites in the business, right, Casinotopsonline with various markets contributing to that, but very nice to see that we are able to turn a legacy asset around after sustained efforts in it and then start seeing its growth. We have also seen Time2play growth. And then we have seen some of our local markets where we have websites that are performing very strongly, doing good. So of course, Europe and South America is still Americas. And normally, 2, 3 quarters ago, we would have talked more about Brazil rise in a positive way. I think what we are seeing now in Q2 and going forward that the U.S. and the North American market is a market that's growing more and more for us, which, of course, we are very satisfied with.

And also a question, I mean, relating maybe to U.S. as well is prediction markets. Is that something you're seeing any revenue ration from I think you're seeing opportunities in?