Global Poker
Online Poker Report

Amaya Believes Casino, Sports Betting Could Boost PokerStars’ Revenue By Over 50%

Counting Up Profits
This article may be outdated. Get the latest news on here.

Amaya executives were (somewhat unsurprisingly) enthusiastic and detailed in their praise for their recent acquisition PokerStars on an earnings call covering the third quarter of 2014.

A complete transcript of the call can be found below. You can listen to the call on replay here (registration required) and view more information about the quarter and YTD performance from Amaya here.

Highlights from Amaya’s 3Q14 call

All emphasis mine.

  • “More than half of active players are playing” Spin and Go’s “regularly” said Baazov.
  • Mobile is driving growth at PokerStars. Over 50% of new registrations in 3Q14 came via mobile vs 40% in 2013.
  • In the UK, about two-thirds of new registrations came via mobile in 3Q14.
  • The rollout of casino on Full Tilt has been “positive so far” with “more than 30% of eligible poker players” trying a casino game during the quarter.
  • On the sports betting front, PokerStars is “continuing to develop a proprietary product and investing heavily to bring it to market as quickly as possible.”
  • Amaya believes the “addressable market for casino and sportsbook would be approximately 45%-60% of our poker market,” per Baazov.
  • Web and mobile versions of the casino product are coming in 2015.
  • The sole comment on New Jersey: Amaya is “in the process of seeking our transactional waiver for our B2C business in that state. That process is ongoing. We cannot comment on that until its conclusion.”
  • As widely reported, Amaya is selling Ongame to NYX Gaming as part of a larger deal that will see Amaya take a “substantial equity position” in NYX.

Transcript of Amaya 3Q14 call – November 14, 2014

Opening remarks

Operator: Good morning, Ladies and Gentlemen, and thank you for standing by. Welcome to Amaya’s 2014 Third Quarter Conference Call. Amaya issued an earnings press release this morning. The release has been filed on SEDAR and will be available on Amaya’s website at www.amayagaming.com.

Before beginning its formal remarks, Amaya would like to remind listeners that portions of today’s discussion contain forward-looking statements that reflect current views with respect to future events such as Amaya’s outlook for future performance, revenue, and adjusted EBITDA growth. Any such statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in these forward-looking statements. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. Factors that could cause results or events to differ materially from current expectations among other things include risks related to market factors and other factors discussed in materials filed with applicable securities regulatory authorities from time to time, including matters discussed under risk factors in the company’s annual information form for the year ended December 31, 2013 and its management information circular dated June 30, 2014. Amaya does not undertake to update any forward-looking statements except as required.

During the call there will be a discussion of some items that do not conform to IFRS including adjusted net income and adjusted EBITDA. Amaya has reconciled these items to the most comparable IFRS measures in today’s earnings release.

At this time all participants are in a listen-only mode. Following management’s commentary we will conduct a question and answer session. Instructions will be provided at that time for financial research and a list of better covering the company [?] [01:53] to queue up for questions. We ask that you please limit yourself to two questions per person and be mindful of others. If anyone has any difficulties here in the conference, please press * followed by 0 for operator assistance at any time. As a reminder, this conference is being recorded today, Friday, November 14, 2014. Replay details are included in the earnings release.

I will now turn the call over to David Baazov, Chief Executive Officer of Amaya. Please go ahead, Mr. Baazov.

Overview from CEO David Baazov

David Baazov: Thank you, Operator. Good morning, Ladies and Gentlemen. Thank you for participating on today’s call. I’m joined on the call today by Daniel Sebag, our Chief Financial Officer.

Our 2014 Third Quarter results were released today and are available on SEDAR where you can also find our financial statements and MD&A. We’re very pleased with our overall performance during the quarter driven by the positive contributions from our B2C business primarily comprised of the online gaming brands PokerStars and Full Tilt.

During the quarter we generated record results in revenues, adjusted EBITDA, adjusted EPS, and cash flow from operations. As a reminder, we completed the purchase of the B2C business during the quarter on August 1. Therefore results for Q3 only reflect two months of contribution from PokerStars and Full Tilt.

Despite not being a full quarter of contributions, the B2C business still accounted for the significant majority of our revenues and cash flow from operations for the period. These results illustrate how transformative the acquisition is for the company and the enormous platform for growth the business provides.

While still in the early days, we are pleased with the integration following the acquisition and we continue to be impressed with the professionalism and expertise of the management team of the business. The day-to-day operations of course continue to be run by this team who have developed the company into the leading online poker business in the world.

In recent years, management of the B2C business have been developing plans to grow the poker business and attract new players. During the third quarter and subsequently, we have been extremely pleased with the results of their implementation of strategic initiatives to increase engagement and new consumer acquisition by leveraging innovative poker variants, expansion into new gaming verticals, and the mobile platform.

Some operational highlights and KPIs include the launch of the new poker variant Spin & Go on PokerStars in Spain in July resulted in the 14% uplift in registration and 30% uplift in reactivation of inactive players compared to the same period last year with the strong results boosted by a strong television marketing campaign.

Spin & Go’s will launch globally near the end of the third quarter, and this has also resulted in a year-over-year increase in registration and reactivations with cost per acquisition remaining stable. More than half of active players are playing the game regularly and the game has provided an additional boost to mobile which had already been growing on an ongoing basis.

The company’s continued focus on providing the best mobile poker offering is helping drive acquisition of new customers. During the third quarter, mobile represented more than half of new worldwide registrations compared to approximately 40% in the same period in 2013.

The UK market in particular led the charge with approximately two-thirds of new registrations coming from via mobile. Throughout the year PokerStars has recorded strong year-over-year growth of 18% in new registrations and 11% growth in revenue, and increased its market share in the UK. This growth is opportune as the UK has recently moved to an independent regulatory and licensing scheme, one that we anticipate will both result in smaller operators with drive [?] [05:38] from this very large market and benefit larger license operators with the ability to maintain a competitive offering.

The business has also continued its expansion into adjacent gaming verticals. Earlier this year, Full Tilt launched its casino offering and during the third quarter and subsequently continued to bolster its offering through the integration of games from multiple providers including our own B2B online casino business. The results have been very positive thus far. More than 30% of eligible poker players in the quarter also played casino games, resulting in an incremental growth driven by an increase in deposits with a minimal impact to poker.

In the fourth quarter PokerStars made table games available to its player base in Spain with the rollout of additional games planned for 2015. The business has already achieved double digit market share on casino in Spain, and we believe we have grown the overall market as well.

Additionally, we anticipate the launch of casino on web and mobile in 2015 which will help increase cross sales and acquire new customers. Currently, weekly casino yield is higher than poker, but with the web and mobile version we anticipate that yield would increase to 1.5x-2.5x that of poker. Additionally, casino and sportsbook are verticals that respond well to mobile offerings.

Regarding the business’s sportsbook launch planned for the first half of 2015, the business is continuing to develop a proprietary product and investing heavily to bring it to market as quickly as possible. The business intends to leverage third-party services for non-differentiating components while we continue to control the payments, loyalty programs, customer service, and other key differentiating factors of the business.

We anticipate the continued rollout of casino and the launch of sportsbook will help attract new players and reactive players while resulting in strong, profitable growth in 2016 and beyond.

At this time we estimate our addressable market for casino and sportsbook would be approximately 45%-60% of our poker market.

Finally, at the end of the third quarter cumulative registration had grown to approximately 89 million. We anticipate providing additional KPIs in the future.

I will now turn the call over to Danny for a look at our financial results before returning to provide some outlook prior to the Q&A.

Financial results from CFO Daniel Sebag

Daniel Sebag: Thanks, David.

Starting with our top line, revenues were $239 million in the third quarter of 2014 compared to $39 million in Q3 2013 with growth driven by the consolidation of revenues from the B2C business. Although only two months contribution, the B2C business comprised approximately 87% of overall consolidated revenue. B2B business revenue declined due to a large sale of gaming machines that took place in Q3 2013, partially offset by an increase in participation arrangements revenues.

Moving on to expenses, our total expenses increased to $214 million from $34 million in Q3 2013 with the increase driven by acquisition costs related to the acquisition of the B2C business in August; increased selling, general, and administrative expenses related primarily to the consolidation of the B2C business; and amortization of intangible assets related to the acquisition of the B2C business. Adjusted EBITDA in the quarter was $108 million vs. $18 million in Q3 2013, with a significant majority generated by the B2C business. A reconciliation to IFRS net income is included in our earnings release. Adjusted EPS in the quarter was $70 million or $0.43 per diluted share vs. $7 million or $0.07 per diluted share in Q3 2013, reflecting the contribution of the B2C business. A reconciliation to IFRS net income is included in our earnings release.

Our financial statements obviously do not include the performance of Oldford Group in Q3 2013 as we only acquired this B2C business in August. However, we can say that revenues for this business in Q3 grew 8% year-over-year due to increased poker revenues and other income including PlayMoney chip sales and casino revenues. EBITDA grew 19% resulting from the increase in revenues and expense management including lower professional fees.

The corporation generated cash flows from operations of $139 million in Q3 2014. The B2C business contributed approximately 80% of our cash flows from continuing operations, which was approximately $145 million. A couple of notes on cash flows. The company did not pay interest on Oldford-related debt in the third quarter. Additionally, there was a $19 million realized foreign exchange gain contribution in connection with the acquisition of Oldford which is nonrecurring. However, we anticipate the strong cash flows of the B2C business will allow us to delever and support the business’s execution on its growth initiatives. Cash flow used for investing activities in Q2 and Q3 were $72.4 million driven by the U.S. $50 million deposit made in June related to the Rational Group acquisition. Cash flows from financing activities in Q3 was $4.7 billion driven by the proceeds from the equity in debt financing used for the acquisition of Oldford Group. Cash flows used for investing activities were $4.55 billion related to the acquisition of the Oldford Group.

On Monday, Amaya affirmed its 2013 full-year financial targets of revenues of $669-$715 million, adjusted EBITDA of $265-$285 million. Results are expected at the high end of the range due to the performance of the business in the third quarter and Q4 being a seasonally stronger quarter than Q3. I’ll refer you to our cautionary comments on forward-looking statements announced at the beginning of the call. We expect to provide 2015 guidance as part of our Q4 2014 earnings release.

I’ll now turn the call back over to David.

Corporate developments update from Baazov

Baazov: Thanks, Danny.

I’d like to go over a few recent corporate developments. As we announced in Q3, we’re quite proud that Amaya, which only went public in 2010, was recently added to the S&P/TSX Composite Index which represents the largest 250 issuers on the Toronto stock exchange. We are working on a dual listing which is expected to be completed before October of 2015, and we expect to provide more information on which exchange and where, New York or London, that will happen in the near future.

In light of recent consolidation within the gaming machine supplier industry, we recently initiated a strategic review process to explore alternatives for Cadillac Jack with the fundamental objective of an expedite in Cadillac Jack’s growth strategy and maximizing value for Amaya’s shareholders. We have no assurance that this process will result in the confirmation of any specific action and there is no defined timeline. We will provide an update if and when our board approves a specific action or otherwise gains further disclosure as appropriate or required.

We also announced today that we have reached a definitive agreement to divest Ongame, our B2B poker and player management platform provider to NYX Gaming Group. The divestiture is part of the strategic transaction with NYX in which we will make a strategic investment to take a substantial equity position in that company concurrent with the sale of Ongame. This transaction is part of our shift from B2B poker to B2C poker following our acquisition of PokerStars and Full Tilt allows us to capture any potential upside from the significant investments we’ve made in Ongame historically.

As background, we acquired Ongame from bwin.party in November 2012 as part of our efforts to expand our online gaming solutions. Ongame is also strategically important for us as we developed a new player management platform based on Ongame’s technology. This platform enabled us to establish an important presence in the newly regulated U.S. online gaming market in New Jersey by being the platform provider for Caesars Casino and to improve our own InterCasino offering by moving it onto the platform. That improvement enabled us to subsequently announce the sale of InterCasino in October 2013, which was completed earlier this year. Following that, as we shifted our focus to acquiring a B2C poker business, we deemed Ongame to be a noncore B2B business and classified it as held for sale last December.

Our definitive agreement with NYX would see NYX acquire ownership of Ongame’s poker and platform business with the transaction consideration being equivalent to a multiple of 8x Ongame’s 2015 EBITDA less any required working capital. We are also making a strategic $10 million investment in NYX Gaming Group equivalent to a significant equity position. Additionally, Amaya and NYX’s subsidiary NextGen Gaming will expand our existing agreement under which NextGen supplies innovative online slot content to Amaya. Closing of the transaction is subject to customary regulatory approvals and is anticipated to occur by the end of this month.

Finally, we recently announced that our B2C and B2B business have received continuation licenses to operate in the UK which recently implemented an independent regulatory and licensing scheme. Supporting enactment of legislation in newly regulated jurisdictions has long been a focus of PokerStars and Amaya alike.

Earlier this week we were pleased to announce that our coalition in California has expanded to include the San Manuel Band of Mission Indians. We’re incredibly excited to have them join us in our effort towards the regulation of intrastate online poker.

Regarding New Jersey, which has already regulated online gaming, we are in the process of seeking our transactional waiver for our B2C business in that state. That process is ongoing. We cannot comment on that until its conclusion.

As background, our B2B online business has already received multiple transactional waivers for both online gaming and land based gaming. Currently over two-thirds, approximately 75% of the corporation’s consolidating revenues are generated in the European Union and individually regulated markets. We conduct extensive legal due diligence regarding the markets in which we market our offerings, which is regularly reviewed by our compliance committee. At this time, we are comfortable with our regulatory posture in our current markets and we continue to maintain relationships with regulators in various jurisdictions in order to develop responsible and tact position [?] [16:14] means for them to regulate online gaming within their jurisdictions. While the timing of legislation implementation of regulatory and licensing schemes is difficult to predict, we expect the trend of jurisdictions regulating online gaming will continue.

At this point I’d like to ask the operator to open the lines for any questions. Thank you.

Question and answer

Operator: Ladies and Gentlemen, if you’d like to ask a question during this time, please press * and the number 1 on your telephone keypad. And we’ll pause for just a moment to compile the Q&A roster.

Our first question comes from the line of Eyal Ofir from Clarus Securities. Your line is open.

Eyal Ofir: Thanks. Congratulations guys on the good quarter here and first one out of the gate.

Baazov: Thanks.

Ofir: First question, you talked about entering Spain. You said you’re already in double digits market penetration. Can you just clarify that? Then the press release with Full Tilt crossout [?] [17:56] platform into casino sales of next of 30%, I think that’s a significant number. Can you just talk to that number as well, and do you expect PokerStars when you launch into more markets, do you expect that to be able to be sustainable? I’ll leave it after then.

Baazov: Eyal, on the first part as it relates to Spain, so we launched casino in Spain at the end of September and what I said during the call was that we are already exceeding double digit market share of casino in Spain. So yes, that’s accurate. We’re already exceeding and we have over double digit market share. As it relates to the crossout with Full Tilt, yes, we are seeing an excess of 30% crossout. I won’t specifically say that we anticipate to see the same in PokerStars or push it either way whether we should see more or less. I think that we’re going to take the time to see how it migrates.

Ofir: Great. Just in terms of the ongoing expansion into casino, when do you it expect it to launch Italy? I think you mentioned that would happen sometime this year. Then as you move forward into the UK market and other regions, how should we anticipate that rollout to happen?

Baazov: So I think that our anticipation is that right now Italy is expected to go out in Q1 and I’d say that right now from a timing perspective of when we anticipate to launch casino in terms of more markets or additional markets, I think we’re going to provide an update to that in the future. It will be messaged to the player base as well as the investor base pretty concurrently.

Ofir: Great. Now just before falling back into the queue, obviously you put Cadillac Jack up for sale. Can you just talk to what in your interims of that process and when you expect to be able to close something in that regard? Thanks. [xx] [20:24]

Baazov: Yes. As it relates to Cadillac Jack, until the board makes their decision we would not be able to provide any further color or comment on that until a final decision is rendered.

Ofir: Okay, but I’m assuming you’re already in that process and –

Baazov: Yes, we are in process, we’ve been in process since we put out that release to let the investor base to know that we are, but we would not be able to comment any further in terms of timing or what the results will be until such time as the board renders that decision.

Operator: Our next question comes from the line of Robert Young from Canaccord Genuity. Your line is open.

Robert Young: Hi and good morning. I was hoping that you could help me a little bit with the math on the guidance. The guidance of range of $265-$285 million, if you include the $108 million of EBITDA you reported this morning, year-to-date is $137 which leaves about $146 for the rest of the year. On first glance, that looks like a quarter-over-quarter increase but if I assume that only two months out of the three months here, it could actually be a decline in quarter-over-quarter EBITDA in Q4. I was wondering if you could talk about that, given that you just said that Q4 is a beneficial quarter seasonality and you’ve got to roll out in Spain. I don’t know how to reconcile those things. If you’d just give some more additional color around the Q4 guidance for EBITDA?

Baazov: Yes. Rob, right now we’re basically maintaining a guidance on a higher end of the range that’s effectively – without getting into granular reconciliations for the entire year – that’s the effective year statement at this point in time.

Young: Okay. Second question for me is, in the press release you noted that the net income from discontinued operations was a loss of $17.6 million but the net income from continued operations was $26.4 million. I was wondering if that’s both $40 million in difference, Danny. I was wondering if you could help us understand the components of that?

Sebag: The components of the discontinued operations, the loss stems from two factors. Effectively we’re selling Ongame so you’re looking at the results of operations from Ongame for the period, which was a loss. You’re also looking at the net assets that were transferred over to NYX, and there’s a loss on that disposal as well. So that’s really effectively what’s included in the loss from discontinued operations.

Young: Great. In the Ongame asset, you’re including Amaya Game Office in that as well, that’s right? That’s seen as the same asset?

Sebag: The Ongame asset includes two technologies predominantly, the Ongame poker product and the Amaya Game Office as well. That technology is being transferred as well.

Young: Okay. Last little question for me, just what you said about Spain, congratulations on that market share, that’s very impressive. Was that revenue or users that you’re stating as double digit market share? And I’ll pass the line. Thank you very much.

Sebag: Rob, that would be in revenue.

Operator: Our next question comes from the line of David McFatchen from Carl Marks Securities. Your line is open.

David McFatchen: Thank you. A couple of questions. I was wondering if you can help us out with the Ongame proceeds. You talk about the valuation that you would be receiving is 8x 2015 EBITDA, but I believe the EBITDA has been trending negative, so I was just wondering if you can help us out with what EBITDA might be in 2015 or what the potential proceeds could be?

Baazov: Yeah, David, it’s marginal consideration proceeds. Essentially that’s what we’re doing. It’s more strategic.

McFatchen: Okay. Then could you give us an update on the impact to the business from increased taxation out of France and Germany and any other European countries that are implementing a VAT on online gaming for 2015?

Baazov: So David, we haven’t quantified that publicly yet. However, I would say that there are interlevers to counter taxes that the business has not typically placed, but we look to increase market share in the less competitive regulated market and reduce some marketing expenses after establishing a dominant position.

McFatchen: Okay. Then you talked about the Oldford Group’s results for Q3. You said for the entire quarter I believe that revenue is up 8%, EBITDA was up 19%, so it appears as though Oldford’s business was not at all negatively impacted from World Cup which is something we’ve seen with other online poker businesses that they were impacted by World Cup. Can you talk to that?

Baazov: David, it doesn’t include July. We bought the business in August and World Cup ended in July.

McFatchen: Oh, okay. So that’s just for the two months.

Baazov: Correct.

McFatchen: Oh, okay.

Baazov: But from a year-over-year perspective, quarter-over-quarter we received 8% revenue as well as the EBITDA growth of approximately 19% as Danny had mentioned, but I would say that the World Cup portion of it was only the month of July, it’s the first little bit, really, right? So overall we still saw quarter-over-quarter growth.

McFatchen: Okay. Just to clarify, when you were talking about that quarter-over-quarter growth was it three months to three months, or two months to –

Baazov: It is three months to three months, yes.

McFatchen: It is three months to three months.

Sebag: Yeah, it is.

McFatchen: Okay. I guess that’s it for me. Thank you.

Operator: We have no further questions in queue at this time. I’ll turn the call back over to our presenters.

Baazov: I would like to thank everyone for participating on today’s call. We certainly appreciate your questions and your ongoing interest and support of Amaya. Thank you and goodbye.

Operator: Ladies and Gentlemen, this concludes today’s conference call. Thank you for joining us. You may now disconnect.

End of Audio [26:33]

Transcript is copyrighted material and provided as-is. Inaudible passages marked with [xx] or [?] and timestamp. Headers have been added.

You have permission to reprint up to 400 words from transcript if you identify OnlinePokerReport as the source and link back to this document.

Sign Up For The Grove Report – US Online Gambling Industry Insights Delivered To Your Inbox:
Chris Grove
- Chris is the publisher of OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.