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Full transcript below.
The call broke numerous pieces of news and provided insight into the plans – and ambitions – of Amaya as it completes the transition to functioning primarily as a provider of B2C online gaming products via PokerStars and Full Tilt.
A few of the more notable bits (all emphasis mine):
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Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Amaya’s 2014 fourth 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.amaya.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. 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 implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements.
Factors that could cause actual 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 – including, without limitation, matters discussed under “Business Risks and Uncertainties” in the company’s annual information form for the year ended December 31, 2014, available on www.sedar.com, or that may be filed from time to time in future.
The forward-looking statements contained herein reflect Amaya’s current views with respect to future events, and except as required by law. Amaya does not intend and undertake no obligation to update any forward-looking statements to reflect, in particular, new information or future events or otherwise.
During the call, there will be discussions of some items that do not conform to IFRS, including adjusted net earnings or loss-adjusted EBITDA, pro forma adjusted net earnings, and adjusted net leverage ratio. These measures are defined in Amaya’s 2014 earnings results press release from today, which is available on www.sedar.com. These financial measures are used by many investors to compare companies, and management believes they are important measures in evaluating Amaya. However, they are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS. Therefore, they may not be comparable to similar measures presented by other issuers. Investors are cautioned that such measures should not be constructed as alternatives to comparable IFRS measures determined in accordance with IFRS.
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 analysts that are covering the company to queue up for questions. We ask that you limit yourself to two questions per person and be mindful of others.
As a reminder, this conference is being recorded Tuesday, March 31, 2015. 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.
David: 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 results were released today and are available on SEDAR, where you can also find our financial statements and MD&A.
Transformation into a global leader in online consumer technology was completed in 2014 with the successful integration of PokerStars and Full Tilt into Amaya. This is evident in our record performance and continued strength during the fourth quarter and full year of 2014.
The strength and vitality of the PokerStars and Full Tilt businesses, and the millions of KYC verified customers who trust the brands, provides Amaya with a unique consumer web platform to build upon our success in gaming by adding new verticals, expanding into new markets, and reaching new consumers. This robust and proven technology platform also provides ample room to scale through organic customer growth, as well as through strategic acquisitions that expand our customer base and our consumer offerings.
I’ll provide more on our future growth strategies in a few minutes. First, I want to focus on our overall performance during the fourth quarter and for the full year. During the year, we generated record results in revenues, adjusted EBITDA, adjusted EPS, and cash flow from operations.
This was driven by our consumer business, which we refer to as B2C, and is comprised primarily of PokerStars and Full Tilt. Growth came primarily through increased online gaming revenue and sound expense management, while still making investments and adding personnel to the business, including in IT and R&D to prepare for future growth initiatives.
As a reminder, we completed the purchase of our B2C business during the third quarter, on August 1. Therefore, results for Q4 reflect the full quarter of contribution from the B2C business.
In the fourth quarter, B2C business revenues comprised greater than 90% of overall revenues. The consumer business is Amaya’s core platform for growth. In recognition of that, we have initiated a process to explore alternatives to divest our B2B business, with the aim of maximizing shareholder value by generating cash to facilitate debt repayment and/or share buybacks.
2014 was a year of transition for the company. However, it continued to grow its leadership position in poker, which is the core business for the company. It increased its market share, launched exciting new products, and continued to expand into emerging growth areas, such as Asia and Latin America. This continued global growth in poker reflects the expertise of the management team of the business and the fantastic services it provides.
PokerStars continues to execute on its plan to introduce poker as a competitive game of skill in emerging markets, while identifying opportunities to bring new players to the game through product innovation and creative consumer marketing programs.
2015 and beyond will not be different. We are a poker-first business and will build upon and leverage the popularity of our poker brands and our operational excellence to deliver future growth. Our goal is to double the poker sector in the next five years. We aim to drive growth in three primary ways.
Let me talk a little bit about new and emerging geographies and newly regulated jurisdictions. Notably, the company is making investments to grow its business in Asia, which is currently an emerging market for the game of poker but is historically a strong gambling market.
Recent poker pro and celebrity endorsements, the launch of PokerStars-sponsored live poker events, and branded poker rooms in casinos in new areas of Asia, such as Manila, are recent examples of this strategy. These initiatives stimulate consumer interest in poker and establish strategic business relationships with partners, regulators, and governments in emerging markets, ahead of potential regulation of online poker.
In the primary market of Europe, there is an ongoing trend toward countries establishing independent regulatory and licensing regimes. PokerStars holds licenses in 12 European jurisdictions, including, most recently, the United Kingdom.
The business is opportunistically looking to leverage its scale, reputation, and expertise to grow its business, including through targeted marketing efforts designed to grow market share in jurisdictions which have recently established gaming duties or other taxes, where we expect competitors to scale back marketing efforts.
Outside those continents, the company is aggressively pursuing growth opportunities in the Americas – notably, populous countries in South America and in the United States, where we are actively lobbying for online gaming legislation in a variety of key states, including California and Pennsylvania. We continue to work with the New Jersey regulator toward final approval to launch our consumer business in that state, where our B2B online casino business already operates.
While geographic expansion is anticipated to be the biggest driver of the growth of poker in future years, the business is also looking to grow organically through new and innovative marketing campaigns – including the use of endorsements from global celebrities and compelling consumer promotions – to increase the popularity of online poker.
Finally, we are filling our innovation pipeline with exciting new games and player promotions that we anticipate will reactivate lapsed players, excite new poker players, and gain more play from existing players.
This formula is evidenced by the successful launch and promotion of PokerStars’ new Spin & Go tournaments, which combine fast play with various jackpot-style payouts to players. It was first successful on Full Tilt as Jackpot Sit & Go. I’d like to let you know, after less than six months of play, PokerStars held its 100,000,000th Spin & Go tournament this month.
PokerStars and Full Tilt plan to launch more new game variants, improve upon their already industry-leading mobile poker offering, and implement social and engagement layers in the real-money offering. Poker is and will continue to be the primary focus. However, we plan to leverage the poker consumer base of more than 91 million cumulative registrations to build additional significant new revenue streams with other gaming and non-gaming offerings.
PokerStars and Full Tilt have already begun strategically rolling out other gaming offerings in order to attract new customers and serve the estimated 40%-50% of our existing customers who already have casino or sportsbook accounts on competitors’ platforms.
Full Tilt launched casino table games in February of 2014 and has bolstered this offering with the introduction of live dealer games, baccarat, and online slots from best-of-breed third-party providers, including Amaya’s online casino games provider.
Having established a relatively full casino offering, Full Tilt continues to achieve a cross-sell percentage to eligible players of greater than 30%, with the games generating a gross yield approximately double its poker yield.
PokerStars introduced casino table games to players in the regulated Spanish market in late Q3 before rolling them out globally as part of a voluntary upgrade of the PokerStars software in late Q4. The results were similarly strong, with yield multiples approximately 1.5 times the poker yield, despite only two games being available (blackjack and roulette). The software upgrade became mandatory for all PokerStars players this year, making blackjack and roulette games available to all eligible active users.
In Q1, PokerStars rolled out live dealer games and will soon introduce baccarat and online slots, as it anticipates adding more games in 2015.
We are expanding these games to be available on mobile apps in certain jurisdictions, and will introduce for the first time a browser-based casino in 2015. This will create opportunities to make casino a customer acquisition channel in its own right, offering new consumers the advantages of a shared online wallet with the most trusted brand in online gaming.
The initial experience with casino has been that a significant majority of the casino wagering has been on top of, rather than cannibalizing, the pre-existing poker economy.
I’m happy to say, this morning PokerStars took its very first sports bets as it began rolling out a beta version of its sports betting offering in select markets, with the intention of expanding across the dot-com global network through the next two quarters of 2015.
Sports betting is a very large, addressable market for the business and is a product that much of the current player base have been asking PokerStars to provide for some time. The business believes there is a strong crossover potential between the verticals, and PokerStars wants to grow the poker economy by attracting players from elsewhere who are currently making sports bets with other providers. The business anticipates this will help attract more recreational players to PokerStars poker games.
Notably, in conjunction with the beta launch of sports betting, players will be able to access their PokerStars accounts via their web browser for the first time. Accountholders will be able to securely log in to the PokerStars website with their existing PokerStars credentials to access sports betting and their PokerStars cashier. The intention is to develop this service for casino and poker in the near future.
We have also taken the strategic decision to enter the daily fantasy sports category and are pursuing parallel tracks of internal development and strategic acquisitions. We expect to provide more details on this strategy in the second half of 2015 but see a clear crossover from poker and daily fantasy sports.
We believe casino and sportsbook are verticals that will respond well to mobile offerings. We have therefore been impressed with the business’s ability to continue to drive new customer acquisition through its leading mobile offerings, which are available for both iOS and Android devices.
The business has seen strong growth over the past three years in players, deposits, and gross gaming revenue coming from its mobile applications. Almost 60% of PokerStars’ new customer acquisitions were obtained via mobile in Q4.
At the end of 2014, cumulative registration had grown to more than 91 million.
I’ll now turn the call over to Danny for a look at financial results and outlook.
Daniel: Thanks, David. Starting with our top line, revenues were $369 million in the fourth quarter of 2014, compared to $37 million in Q4 of 2013, with the growth driven by the consolidation of revenues from the two businesses we acquired in 2014. Specifically, the B2C business comprised primarily of PokerStars and Full Tilt, which we acquired on August 1, and Diamond Game, which we acquired in February. For the quarter, the B2C business comprised approximately 92% of overall consolidated revenue.
Moving on to expenses, our total expenses increased to $345 million from $36 million in Q4 2013, with the increase driven by higher selling, general and administrative expenses related primarily to the consolidation of the B2C business and Diamond Game, and higher financial expenses which primarily related to interest on increased leverage.
Adjusted EBITDA in the quarter was $155 million, versus $17 million in Q4 of 2013, with the vast majority generated by the B2C business. A reconciliation to IFRS EBITDA and net income is included in our earnings release.
Adjusted net earnings in the quarter was $86 million, or $0.40 per diluted share, versus $11 million, or $0.12 per diluted share, in Q4 2013, with the increase reflecting the contribution of the acquired B2C business. A reconciliation to IFRS net income is included in our earnings release.
The corporation generated cash flows from operating activities of $56 million, compared to $3 million in Q4 2013. Our financial statements obviously do not include the performance of the B2C business for the full year of 2014, as we only acquired it on August 1. However, we can say that revenues for the B2C business in 2014 grew approximately 11% over 2013 to $1.258 billion. This excludes one-time revenues recorded in the fourth quarter of 2013. The growth was driven by increased poker revenues and other income, including casino revenues.
Adjusted EBITDA grew 23% over 2013 to approximately $530 million. Growth was driven by the increase in revenues, including high-margin income streams and expense management.
Looking back at our full-year results versus our previously announced 2014 guidance, on November 10, 2014, Amaya firmed its previously announced guidance for the full year of 2014 with revenue of $669 million to $715 million and adjusted EBITDA of $265 million to $285 million, with results expected at the high end of the range. The actual full-year 2014 revenues were $688 million, and adjusted EBITDA of $293 million.
Looking ahead for full-year 2015 guidance, today Amaya announced that it anticipates full-year revenues in the range of $1.62 billion to $1.74 billion. This is based on a USD to CAD exchange rate of 1.26, as at close on March 27, 2015. Assumptions include a full year of revenues from both Amaya’s B2C business (which comprises approximately 90% of revenues) and its B2B business (which is approximately 10% of revenues).
B2C revenue growth is anticipated to be driven by an increase in B2C poker, casino, and sportsbook business revenues. Amaya does not currently separate out revenues for the B2C business’s various product lines, but may consider doing so in the future once casino and sportsbook reach a stage it determines to be material enough to do so.
Adjusted EBITDA of $670 million to $750 million, this is based on a USD/CAD exchange rate of 1.26, as at close on March 27, 2015. Assumptions include a full year of adjusted EBITDA from the B2C business, which comprises approximately 90% of adjusted EBITDA, and the B2B business, which is approximately 10% of adjusted EBITDA.
B2C growth to be driven by B2C casino, sportsbook, and the core poker business, which is anticipated to offset an estimated $45 million in new value-added taxes and UK point-of-consumption taxes on the core poker business. This is net of that and POC taxes on casino and sportsbook, and an approximate $60 million impact from the reduction in purchasing power of global depositing currencies relative to the USD-denominated games. I’ll touch on this in a minute. Excluding the impact of that, point of consumption, and the FX impact, adjusted EBITDA guidance would have been, on a USD basis, approximately $636 million to $672 million.
Pro forma adjusted net earnings of $367 million to $415 million, or $1.77 to $2 per diluted share. This is a pro forma figure, as if the divestiture of the entire B2B business occurred as at December 31, 2014, and is designed to give fuller insight into the anticipated profitability of Amaya’s core B2C business.
Finally, an adjusted net leverage ratio of 4 to 4.5 turns [? 21:23] at December 31, 2015. Adjusted net leverage ratio is defined as adjusted net debt divided by adjusted EBITDA, but after giving effect to the anticipated divestitures of our B2B assets.
For clarity, adjusted net debt means Amaya’s anticipated total financial leverage minus cash. For this measure, Amaya’s cash balance includes cash that is currently being set aside for the deferred payment that is the final piece of the purchase price for the Oldford Group, payable by 2017. The cash amount, though, does not assume any potential cash generated from the exercise of warrants that have maturity dates extending beyond 2015.
We currently anticipate Q1 will be our lowest quarter of the year, likely about 20% of the anticipated full-year figures, as the new verticals rolling out this year will provide benefits to the top and bottom line, and marketing initiatives and promotions (which we’ve been making investments for already) begin to launch in the second and future quarters. I will refer you to our cautionary comments on forward-looking statements and non-IFRS measures announced at the beginning of the call.
I’d like to provide a bit of clarity on currency at this time. As it relates to the B2C business, PokerStars and Full Tilt are global businesses. Greater than 60% of the business comes from the European Union. Due to this strong presence, approximately half of the deposits made on the platforms are made in Euros, which is by far the largest depositing currency. However, outside of the ring-fence markets of France, Italy, and Spain, which represent approximately 20% of the business, the vast majority of real-money poker gameplay occurs in USD.
Therefore, the recent decline in global currencies against the USD reduces the purchasing power of the global player base, which can impact revenues as calculated in USD, though it may not in Amaya’s reporting currency of Canadian dollars, if the CAD also declines relative to the USD as it has.
Additionally, the percentage drop in the global currency versus the USD does not typically result in a commensurate drop in USD revenue from that jurisdiction, as there is often a point of resistance due to the engagement of the player base. For example, from the beginning of this year to March 17, gross deposits in USD decreased just over 10%. However, on a domestic currency basis, deposits actually increased approximately 9%.
The B2C business employs a hedging strategy to mitigate payment-processing currency risk, including forward swaps. Amaya has also recently entered into cross-currency swap agreements designed to improve matching of the currency denomination of the assets and liabilities of Amaya’s B2C business, essentially meaning if the Euro drops relative to the USD below the rate of 1.1102, Amaya’s debt becomes cheaper.
Additionally, we anticipate the swaps will result in lower interest payments on existing debt, as the synthetic Euro-denominated debt has fixed Euro interest payments at an average rate of 4.6%, instead of the USD interest payment bearing a minimum floating interest rate of 5%, but which could be higher if LIBOR were to rise above 1%.
The swaps relate to our USD $1.75 billion seven-year first lien term loan secured on August 1, 2014. The swap agreements have a stated termination date of five years and have a notional amount of more than $1.74 billion.
I’ll now turn the call back to David.
David: Thanks, Danny. As you can see, the company is delivering on the high expectations we had for the PokerStars acquisition and our transformation. I’m particularly proud of management’s ability to perform very well despite numerous significant potential distractions, including the management changes related to Amaya’s ownership, the launch of significant new products, adjusting to the requirements of a listed company, and the ongoing review of trading activity in the company’s shares prior to the PokerStars acquisition being conducted by Quebec’s securities regulator. These are all significant management challenges that we are dealing with very successfully, as our results demonstrate.
I do want to address the ongoing AMF investigation briefly. At this time, I do not have any additional information regarding the substance of the investigation, but I can provide you with these key facts.
Amaya thoroughly reviewed the relevant internal activities around the Oldford Group acquisition and has found no evidence of any violation of Canadian securities laws or regulations, nor has the company been provided with any evidence that any executives, directors, or employees violated any securities regulations.
The AMF investigation is, to our knowledge, the only investigation into the trading of our shares. We continue to cooperate with the AMF and respond to requests by all relevant parties. We are confident that once reviews are complete, the AMF will reach the same conclusion that we have. If there were any violations of Canadian securities laws, they were not perpetrated by the company, officers, or directors.
The corporation intends to provide further updates on the investigation when it is permitted.
Turning our attention briefly to the future, I’d like to go over a few recent corporate developments. As we previously indicated, we are working on a dual listing, which is intended to be completed before October of 2015, but which we expect to complete earlier than that. As a global consumer Internet company, we have determined the most appropriate location is on the NASDAQ in New York City. We have therefore applied for a listing on the NASDAQ Global Select Market. We look forward to providing more details in the near future.
We continue to execute on our previously stated goal of divesting our B2B assets in a way that delivers the greatest shareholder value. Our recent announcements on the spinoff of Diamond Game and the proposed sale of Cadillac Jack are consistent with this strategy. We expect to provide further updates on the divestiture process of our other B2B business in the near future.
With the divestiture process well under way, we are focused on our growth strategy, expanding the existing business organically and through strategic acquisitions that will allow us to leverage our current platform, while adding new products, new geographies, and new consumers.
Again, it’s been a record year for Amaya, and we believe we have rewarded our shareholders by executing against the strategic vision that continues to come into sharper focus, even as we grow, and we believe will bring even greater opportunities for the future.
I’m just going to go off script for a second. I’d like to thank all the employees at Cadillac Jack for their tremendous effort and accomplishments in a little over two years that Amaya has owned the business. I’m sure there are probably too many individuals to name. Mauro Franic and Sigmund Lee, if you’re listening, you’ve really done a tremendous job and provided great leadership at that business. The sale comes with some mixed emotions for me, as I’ve truly enjoyed working with them and with all of Cadillac Jack in achieving the success that we have.
At this point, I’d like to ask the operator to open the lines for questions. Thank you all.
Operator: Our first question comes from the line of Eyal Ofir, from Dundee Capital.
Eyal: Thanks. Congratulations, guys, on the results and the strong guidance.
David: Thank you.
Eyal: First off, just in your prepared remarks you discussed how Full Tilt launched both the table games and slots, but the PokerStars platform has not gone into slots yet. Can you just talk about what you’ve launched, what jurisdictions, or what percentage you’ve actually hit biggest with the PokerStars rollout into casino? What should we expect for the rest of 2015? Obviously, the yield here is fairly significant. Should we anticipate in the back half, in terms of the yield on the casino product – what would we expect there as well?
David: Eyal, what I’d say is that currently, all we’ve launched from an online casino perspective is blackjack and roulette. Late in the first quarter, we also launched live dealer, some table games. We expect to launch baccarat and some slots in, I would say, the next 30 days. We’re going to continue filling up our full casino offering. I would say that it would be full, we expect, in Q3.
At the same time, the only other offering that’s outside of casino that we recently launched, sports betting, which was today.
Eyal: The sports betting, you talked about the beta launch today. When should we anticipate the rollout for the 50% of your market? How soon do we expect that to head over the year?
David: Yeah, we’re saying that that’s going to be done. Our expectation is it will be the next two quarters. You’re looking at by the end of Q3 the full launch. Whether it happens sooner, it’s possible. Right now, what we’re going to say is we take a similar approach to what we did with casino.
If you take a look at the cross-sell percentage and the yield that I mentioned during the call, that’s with blackjack and roulette. That’s two games, and that’s what we’re already doing.
Eyal: Okay, that’s great. Looking ahead into 2016, obviously you gave some pretty strong numbers on a pro forma for 2015 on the bottom line. You guys are making significant investments here on marketing, as we’ve seen the numbers in this quarter, but also your commentary. How should we think about the business growth, as you turn on 2016? What should we think about from an earnings standpoint as well, as we’re modelling this out? Thanks.
David: I’m going to let Danny touch on this a bit. I would say, from my perspective, we expect strong growth. It’s expected to be greater than 20%. Danny?
Daniel: Yeah, it’s a bit early to tell, but I expect that to be the case.
Eyal: Okay, great. Obviously, you guys are going to head into Asia and other jurisdictions. Can you talk about the regulatory landscape, what’s going on in Asia right now in specific jurisdictions? Also, in the U.S. there’s obviously been a headline for obviously everybody [33:10 inaudible] looking at potentially you guys entering the U.S. market. You talked about New Jersey and the status there, and California, which is [33:19 inaudible] and the progress in the other states [33:21 inaudible].
David: Yeah, that’s like an eight-point question. To talk a bit about Asia and what we expect there, we’re seeing – what we could say at this time is that we are working with regulators and governments in some of these Asian countries to come in and provide for and regulate online poker. We are strategically working in select jurisdictions with large population bases where we feel that there is a strong demand for poker.
As it relates to New Jersey, California, and other states, we are, as I said, actively lobbying. I think it’s very public and clear about the partnership and relationship with have with our coalition in the state of California, which we’re very, very pleased with. I’d have to say they are true partners in every sense.
As it relates to New Jersey, I would say that we feel that this is coming. We would expect to receive and launch, I would say, in the next quarter.
Eyal: Okay, great. I’ll pass the line. Thank you.
Operator: Our next question comes from the line of Robert Young from Canaccord.
Robert: Hi. Good morning. Thanks for the detailed outlook. That’s great to see. I was hoping that you could bring it back to the poker business and give us a sense of what the organic growth of the Rational Group poker businesses were in Q4 and how you expect that to develop into Q1, now that we’re at the end of that quarter. Maybe at the same time, clarify what you said, that in Q1 you’re expecting that to be 20% of the full year. Is that revenue, EBITDA? What exactly is that? I’ve got a follow-up.
David: I would say the growth is mid-single digits. In terms of, Danny, what you were saying in terms of Q1, if you want to clarify that?
Daniel: Yeah. Q1, obviously there are a lot of new games that are going to be coming online. There are new verticals, new markets. Q1 is really a quarter where we’re making a lot of investments. We expect Q1 to be the weakest quarter of the entire year, representing approximately 20% of our guidance.
David: Rob, just to quantify, if the anticipated full launches of products and what I’ve been mentioning, probably in Q4, that perhaps some people haven’t taken note of, was the fact that there is a strong window of opportunity this calendar year, given that there’s the introduction of VAT, POC.
We clearly see marketing costs being driven down for people to be able have their EBITDA bridge. They’re lowering marketing costs. One of the initiatives I said we would be undertaking is increasing it. If we’re investing in marketing costs to get a benefit in Q3, you make that investment in Q1.
Robert: Okay. When you say 20%, that’s an EBITDA metric then?
Robert: Okay. My follow-up will be related to the gross yield that you provided on casino. You said it was around two times poker yield. Is that a blended number? Is that on the cross-sold players you’re seeing? Or is that on new players? Maybe if you could give us just a sense of what the yield per poker player is, to dimension that, that would be helpful.
David: I’d say it’s on a blended number, Rob. What was the second part of your question?
Robert: Can you give us a sense of what the yield per player on poker is?
David: We can’t. We haven’t provided that.
Robert: Okay. The last question from me, you said that you’re going to be poker first. But you also noted that you are planning some non-gaming offerings. I was wondering, what does that mean? Is that branding? How should we take those two statements together?
David: You’d have to stay tuned.
Robert: Okay. I’ll pass it on then.
Operator: Our next question comes from the line of Ralph Garcea from Cantor Fitzgerald.
Ralph: Hi. Good morning. I just wanted to clarify that 20% again for Q1. Is that also on your revenue or just on the EBITDA, as 20% of the full-year number?
Daniel: Hi. It actually is, yes.
Ralph: 20% of both revenue and EBITDA? Why I’m asking is it’s going to be the second full quarter for you guys under your belt. What sort of seasonality are you seeing, then, through Q1 on the PokerStars side and also on the casino, with the limited loss that you had, from a seasonality perspective?
David: From a seasonality perspective, I would say that typically Q4 is the strongest and is best. I just want to point out, when Danny is saying 20%, it’s 20% of our full year’s revenue, which is growing. That’s happening in Q1. You’re still seeing growth.
Ralph: Yeah. It’s the first time you’ve mentioned the fantasy sports side of the business. Have you guys already developed the product, or are you just going through the initial stage and your release of betas are in the second half of the year? What’s the planned rollout on the fantasy side?
David: The goal is to be up before the NFL season starts. We clearly see a strong demand for it. A lot of the, specifically, US players that were formerly PokerStars players would like to see us launch fantasy sports. I would say that’s the goal, really launching it by the NFL season. It’s a clear, strong crossover with poker.
Given the size of our database, you couldn’t actually acquire somebody and leverage their entire platform because nobody’s software, that we’ve seen, can currently support our volume that we would have if we launch fantasy sports.
Ralph: Okay. On the currency side, you’re using $1.26 for the USD. What exchange rate are you using for the Euro in the guidance?
Daniel: I’m using an average of 1.05 for Euro to USD.
Ralph: Okay. Thank you.
Operator: Our next question comes from the line of David McFadgen from Cormark Securities.
David M.: Hi. Danny, just a couple of questions. On your prepared remarks, you talked about the B2C revenue in 2014 as being $1.258 billion, up 14% year over year. Was that a US number?
Daniel: That’s a CAD number.
David M.: That’s a CAD number, okay. That excludes some one-time revenue that Stars pulled into their results?
Daniel: Exactly. In 2013, there were some one-time revenues. There was a change in accounting policy in 2013 in Q4 that resulted in one-time revenues that were factored out of our analysis.
David M.: Okay. That’s the dormant accounts?
Daniel: That is it.
David M.: Yeah, okay. Can you provide us any color on tax implications for Cadillac Jack and Diamond Game individually?
Daniel: As it relates to that transaction, obviously we absolutely have some color. Until we complete the transaction, I can’t really give any guidance on the ultimate tax impact.
David M.: Okay. Then just one additional one, if I may. Also in your prepared remarks, you talked about Q1, that the gross deposits decreased 10%. I wasn’t able to follow along. Can you just provide some color on that?
Daniel: On a domestic basis, currencies are actually up. On a US basis, when you convert the actual domestic deposits into USD, they’re down because of the movement of the USD relative to the Euro. The domestic players are increasing their deposits by 9% in their actual local currency. It indicates poker is robust in that respect.
David M.: But then when you convert it back into CAD, you gain some of that back, right?
Daniel: That is correct.
David M.: Okay. That’s it for me. Thanks.
Operator: Our next question comes from the line of Steve Li from IAS.
Steve: Good morning, David, Danny. First question, you guys have a relatively big market share on your poker side. Going forward, what are the challenges to maintain that market share or even to increase it? Is it through more marketing spend, or is it through more product innovation?
David: I’d say it’s both. I would say that given the window of opportunity for this calendar year with the introduction of VAT, POC, etc., we see the cost of acquiring an online casino player actually coming down a bit, which it hasn’t done so in more than the last five years. We are spending more from a marketing perspective this calendar year. While at the same time, clearly with product innovation you actually grow your player base, as we can see with Spin & Go. We plan to do both.
Steve: Great. Long-term, what are your trends? Do you see that trend to continue? Where do you think your cost of acquisition of new customers is coming down, especially with new opportunities related to new geographic markets, new segments? You are about to launch sports bet and things like that. Is that still reasonable to think that your cost of acquisition will go down?
David: Yes, we believe that it will. The predominant factor here is, as I clearly stated on the call, our goal is to double the size of poker in the next five years. That happens through three primary ways. Obviously, geographic expansion has been a massive growth driver for the expansion of poker, historically. We still believe that there is a lot of growth there. Product innovation is going to be another one. But currently PokerStars enjoys the lowest cost of player acquisition in the industry already.
Steve: Perfect. Can you discuss quickly the challenges to release a new product like for the sports bet towards Q3? What are your expectations down the road in three to five years? Do you think that the market, how significant can it be?
David: The launch of sports betting has actually occurred today. The expectation is that it will be fully rolled out to all the available players in Q3. We take the same measured approach that we have historically. We are not in a rush. If we are going to do it, we want to do it right. I’d say that sports betting as a vertical not could be, but will be very significant of a vertical for Amaya. It will probably become the second-largest vertical, eclipsing casino over time.
Steve: Maybe a little follow-up question, is there any ROI for you guys when you guys sign up [? 46:14] sports delivery? Is there a kind of metric that you guys look for in terms of increasing number of leads, or is it just increasing your brand presence?
David: I didn’t understand part of your question. Increasing, you said, leads?
Steve: When you guys sign up [? 46:40] deliveries, are there key metrics that you guys look for initially in those geographic markets, in terms of increasing new customer base? Or it’s just driving the brand and making sure they’re increasing the awareness of your platform?
David: We measure an ROI on every single marketing campaign that we do. In terms of brand awareness, our brand awareness of PokerStars is already in excess of 60% on a global basis on international awareness. The purpose here is we measure every single marketing campaign in ROI.
You are launching two new verticals at a time when people are actually, in most cases, spending less in marketing. We are taking advantage of that and have allowed to have an increased marketing spend on that basis.
How do we measure what we are looking for is, I’m not just looking at the predictable portion – which will be cross-selling, which will be because we have this massive customer player pool that will immediately start to play on our verticals the day we offer it to not have wallet management. They won’t need to manage a wallet off two different sites or three different sites, and they can now amalgamate it on one site.
What we are actually looking for the most is independent customer acquisition in those channels specifically, based on having a better product offering than our peers.
Steve: Thanks a lot for taking my questions.
Operator: This concludes today’s Q&A session. I now turn the call back over for closing remarks.
David: I’d 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.
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