12 May: King dethroned; IGT says no on digital M&A +More
IGT, Better Collective, Raketech, Angler Gaming, FuboTV Q1s, Accel earnings call, AGS upgrade, AGA Q1 data
Welcome to another busy day for earnings. From yesterday, we have the news and views on IGT and FuboTV and a report on the earnings call from Accel. This morning brings more colour on the gaming affiliate sector with Q1s from Better Collective and Raketech. But we start with the breaking news from Flutter of Matt King’s departure from FanDuel and what that means for the planned US listing. Hint: refresh those timelines.
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BREAKING NEWS: King departs from FanDuel, Flutter US listing timeline lengthens
Game of thrones: Flutter has announced the surprise departure of FanDuel CEO Matt King who is leaving for unspecified pastures new. The news will impact the hopes for a separate listing for FanDuel - the company said it would “affect the timing” without giving any specifics and said it will “continue to keep this option under review.” The departure will disappoint the analysts. “We viewed the FanDuel listing as a way of narrowing the material valuation gap between Flutter and its US-listed peers,” said Jefferies this morning.
IGT
The top line
Revenues were up 25% to $1bn and ahead of street consensus of $876m. Adjusted EBITDA was up 72% YoY to $450m, well ahead of $309m consensus thanks to the ongoing economic recovery and structural cost savings. YoY growth in iGaming was 85%.
Lottery was up 48% YoY at $749m in global revenues, adjusted EBITDA rose 133% and to $447m, way above street consensus of $326m. Operating income was $260m, compared to operating loss of $218 million in the prior year period.
Global same store sales (SSS) grew by a record 32%, in the US and Canada the rise was 28% and 52% in Italy for lottery SSS. IGT’s gaming verticals were down 14% YoY to $266m revenue, but up from $250m sequentially. Adjusted EBITDA was down 30% to $19M.
The company closed the sale of its Italy B2C business for €950m and will use $650m of those proceeds towards paying back its €850M debt. The group said it would save $60m in interest payments. IGT has net debt of $7bn ($7.3bn 2020 YE) and $204m in free cash flow.
All things must pass: Both CEO Marco Sala and CFO Max Chiara said the cost reductions and banking actions executed in early 2020 were bearing fruit with $200m expected in FY savings. Sala however cautioned against overenthusiastic forecasts: “It should be acknowledged that some of the growth (in the past 12 months) is due to betting shop closures and a lack of entertainment options.” Still, the analysts were cheered by the recent disposal of the Italian B2C arm. Barry Jonas at Truist said it meant “no Italy gaming tax risks anymore.”
Potential iGaming split, but no M&A: Carlo Santarelli of Deutsche Bank said IGT’s iGaming division is on a run rate of $230-$250m for the year. Asked if it would consider breaking it out as a separate entity, Sala said if the growth continues “then of course we will consider breaking it out as a separate segment”. The group has had enhanced visibility in online since reorganising in Q320 and interactive channels are “driving phenomenal growth: $170m in 2020 and Q1 speaks for itself,” Sala added. Both executives however ruled out the possibility of M&A deals on the digital side of the business. “Not for time being; we have all we need to grow on the digital verticals.” Still, Santerelli said in a note that the online business was “inexplicably underappreciated.”
Distributed iGaming content: IGT will continue its North American focus on iGaming content as it is “what is driving revenues”. It could also collaborate with third-party studios to best optimise its vast games library. “We enjoyed 80% iGaming revenue growth with 25% market share in the US and 50% in Canada,” Sala said. He also pointed out that it is not as simple as launching them online and expecting returns to come in.
“You have to turn them into very good digital games. That can mean changing game mechanics or payouts and we sometimes work with third party studios to achieve this, as we did with Wheel of Fortune/Megaways in New Jersey and now it’s in Michigan, Canada and Italy.”
Driving down debt focus: Chiara said the maturity schedule on the group’s debt was stable saying the company had taken “significant actions.” Jefferies said that the results from the quarter, along with the delivering demonstrated the company’s business merits, and was supportive of a higher valuation.
Better Collective
The top line
Revenue was up 68% YoY to €39m with organic growth. EBITDA before special items rose 46% to €13.2m with EBITDA margins at 34%.
NDCs hit an all-time high of 180,000. Revenue from publishing 61%, paid media 39%. As previously communicated, its raised targets for 2021 are for revenues to exceed €180m and EBITDA of over €55m.
After period close April continued the growth path with a record monthly haul of €13.1m, up 185% on the prior year period of which 51% was organic. Organic growth in publishing was 87% due to weak Covid-affected Q120 comparative. Paid organic growth was 14% against a strong comparative.
All-action: The story for this year is the Action Network acquisition for $240m, a deal which CEO Jesper Søgaard said gives BC “clear market leadership” in the US where revenues for 2022 are expected to hit over €100m. “It provides us with an invaluable pool of knowledge and expertise,” he added. The company also restated its commitment to further M&A, referring to a “strong” current pipeline. On the presentation, BC noted it had completed 23 acquisitions since 2017 including Atema (see below), esports-focused HTLV.org (approximate growth of 40% since acquisition) and the US-focused RotoGrinders and VegasInsider businesses which have grown 120% since they were bought in 2019.
Brand positioning: Søgaard said the Action Network deal was part of the strategy to become a “broad-based media group.” “This transition means an increased focus on our branded product,” he said.
“Action Network is a very good example of a very strong brand that will be in an even better position in five years’ time, even more than it is today.”
Asked about future targets, Søgaard said Better Collective would continue its interest in “both large (acquisitions) and those with a very interesting strategic fit.” “And following that logic, any market that has developments with regard to regulation coming and of a certain size, that would be of interest to us and of strategic importance.”
Paid in full: BC’s previous top buyout before Action Network was the paid media specialist Atemi, which the company says has grown 60% in the first six months of ownership. BC now separates out paid from its publishing division, shining a light on the EBITDA differential between the two arms: publishing reported a margin of 51% while paid was down at 7%. CFO Flemming Pedersen said the margin at the latter was significantly impacted by the switch from a pure CPA model to a hybrid one in line with BC’s preference for revenue-share deals. Excluding this impact, paid segment margins would have been at 19%.
Raketech
The top line
Revenues were up 26.6% to €8.3m, 5.4% of which was organic growth (-10.7% Q120). However, QoQ revenues were down slightly..
The number of new depositing customers increased 23.5% to 39,874 and EBITDA was up 22% to €3.2m for an EBITDA margin of 38.7% (40.2% Q120). Quarterly profit was €1.1m.
The casino vertical generated the majority of Raketech’s revenue at 82.5%, up 4.2%, with sports-betting amounting to 17% revenue.
The group diversified its regional focus: revenues from the Nordic region dropped 21% to 65% and increased 21% to 35.1% from other markets, Japan and the US performing strongly during the period.
After period close, April revenues rose 16% to €2.8m.
Eastern eye: Non-Nordic revenue increased to 35% of total revenues, an all-time high and a significant move in the company’s drive to diversify away from its home markets. Japan, in particular, is the standout now representing 11% of the total. On the earnings call, CEO Oskar Mühlbach said Japan was “a very interesting market.” “We would expect double-digit growth in japan for the foreseeable future.” The company said the US openings in Michigan and Virginia “significantly pushed the needle.” This partly offset the issues in Denmark and Norway (where payment blocking was noted as an issue.)
Accel earnings call
The top line
As prefigured yesterday, revenues rose 38% to $147.1m while adjusted EBITDA rose 74% to $25.8m. Same-store sales rose 34%.
The company now has 2,470 VGT locations, up 5% YoY, featuring 12,720 machines, a rise of 14%. Its new guidance for 2021 is that it will have between 2,575 and 2,600 locations with between 13,375-13,525 VGTs. Revenue for the year will be between $650-$705m and adjusted EBITDA of between $117-$127m.
Popping down the hyper-local: The record quarterly results came despite a partial shutdown in January of Accel’s core market of Illinois. CEO Andy Rubenstein said the confidence levels of small business owners on which it relies was “picking up every day.” “The worst of Covid is clearly behind us, so the risk for a small business owner has been reduced,” he said. With more bars opening up, “that will allow us to build new opportunities in our pipeline in the next 12-18 months.” The focus will also be outside Illinois; Accel is in the process of closing the Century Gaming Technologies acquisition which will give it access to the markets of Montana and Nevada. Analysts at Macquarie said the results “set a bullish undertone for regional gaming companies” but they did question whether the high-growth was sustainable given the slowing machine and location growth.
The protraction of expansion: Rubenstein said on the call that VGT legislation was always a challenge given the opposition that often ranges against it, including casino owners and the anti-gambling lobby in any given state. This despite the prospect of greater tax revenues.
“Where we do see a lot of opportunity is there will be states that recognise the value of VGT gaming and the revenues it provides,” he said. “I hope legislators recognise the value we can bring to their budget and in the next year or so move that legislation towards the goal line.”
State legislators have moved more openly towards sports-betting regulation, but Rubenstein viewed this as a net positive for Accel. “It gets more people talking about gaming but more importantly it brings people out to bars to watch games and have that social environment. By bringing them to our point of sale, it introduces more people to VGTs.” Moreover, he said the widening potential for legislators to more readily consider online gaming would benefit Accel. “Our hope is it is available to anyone one who owns a license and therefore we are optimistic we will be able to participate.”
Fubo TV
The top line
Fubo TV revenue grew 105% to a record $119.7m in Q1, with total subscribers up 105% YoY and 8% QoQ to 590K. The group increased its 2021 guidance 101% to $520-530m and subscribers guidance 53% to 830k-850k.
Adjusted EBITDA loss increased 26% to $46.5m, adjusted EBITDA margins were -38.8%, a 3,347bs improvement on -72.3% YoY.
Advertising revenue grew 206% YoY to $12.6m and subscription revenue increased 131% YoY to $107.1m. Monthly ARPU was up 28% to $69 and monthly advertising ARPU increased 57% YoY to $7.11. Adjusted margins were up 230 bps to 5.3% on Q1 2020 thanks to investment in product and package.
Fubo ‘o gas: CEO and co-founder David Gandler was bullish on the company’s prospects. “The model and differentiation points are clear. We’re building a new category (of company) where barriers to entry are high, so we’re confident and results are showing we’re able to execute,” he said. The benefits of combining a fully integrated sports streaming service and betting operation would become apparent with the launch of Fubo’s Vigtory online sportsbook in Q4. “But currently we’re a sports-first TV provider; people come for the sports and we have all the major US sports and have also acquired the rights to the South American World Cup qualifiers (Conmebol) and we will be adding wagering, that’s the difference.”
Competing on acquisition: Asked how Fubo would compete for wagering customers and balance its marketing budget.
“We have a really strong balance sheet with more $400m cash and we execute like no other company. We also don’t require the same type of funding. In 2021 we will probably spend under $50m and will get the book launched in three states: that leaves lots of space to innovate and take full advantage into 2022 and beyond.”
Gandler added that the group was good at driving subscriber acquisitions at optimal cost while its ability to engage with its viewers will help its net gaming revenues on the iGaming side as it won’t be competing as heavily around bonuses and promotions, “we’re pretty far ahead on that front,” he said.
Engaged audience: The group said the level of engagement from Fubo users, 129 hours per month on average, 22% of them have placed a bet, combined with sports content and wagering and the fact that “78 million households are still tethered to legacy platforms” meant the group knew how to leverage its assets to drive revenues. Gandler added he was a strong believer in aggregation. “Users want a unified offer and get all their viewing in one place”.
AGS analyst upgrade
Premium upgrade: Following on from AGS’ results last week, the analysts at Credit Suisse suggested street consensus is missing the potential uplift from the number of premium machines the company now has in the market compared to previously. The team say the AGS Starwall and Curve Premium offerings should both drive yields higher. Meanwhile, though interactive revenues remain small at present, they are accelerating. “We think there is a dichotomy between the AGS normal ship share (5-6%) and the implied future value for iGaming in the stock, which we think is zero.”
AGA commercial gaming tracker Q1
Fighting fit: The recovery from the depths of the Covid closures last year has been swift according to the data from the American Gaming Association commercial gaming tracker for Q1 which shows a total GGR of $11.1bn, 17% up on the prior year period. The figure also represents a 4% rise on the same period in 2019. March was the standout with GGR of $4.48bn, up 12.9% from the previous all-time high of $4bn in March 2019. The AGA pointed out that gaming outperformed the wider economy which grew by 6.5% in Q1.
Sports-betting and online boost: The driver was the expansion of sports-betting and online gaming. Traditional casino gaming rose 19.8% on Q120 to $9.37bn but that was down 10.1% on Q119. Sports-betting ($961.1m) and online gaming ($784.5m), meanwhile, pitched in a record 15.7% of total gaming GGR. Of 25 gaming states, 14 recorded a rise on Q119 figures including New Jersey (+30%) Pennsylvania (+24.8%) and Indiana (+7.1%). 12 states saw their highest ever monthly GGR in March.
Newslines
Welcome to Springfield: MGM and MGP have agreed the “when not if” (Truist) sale and leaseback arrangement for the MGM Springfield Casino in Massachusetts that is worth $400m to MGM and will see them pay an increased rental payment of $30m a year.
From A’s to LV: According to ESPN, the Oakland A’s could be following the Raiders to Las Vegas. Stalled stadium plans in the East Bay mean the MLB has given its papal blessing for a potential move and Las Vegas is a front-runner.
Play the game: LA-based Game Play Network has announced the closing of a new round of funding with strategic investments by HG Vora and other investors in the gaming and entertainment industry. The additional capital will enable the company to accelerate the expansion of its B2B business through strategic partnerships across a number of platform distribution models and business verticals. The company also announced a new partnership with Caesars Entertainment-owned SuperDraft.
Earnings calendar
11 May: IGT, Accel Entertainment earnings call, FuboTV
12 May: Better Collective, Raketech, Angler Games
13 May: Neogames, Rush Street Interactive
Contact us
Scott Longley scott@clearconcisemedia.com
Jake Pollard jake@openmediaservices.com