888 Holdings' (EIHDF) CEO Brian Mattingley on Q2 2014 Results - Earnings Call Transcript

Aug. 5.14 | About: 888 Holdings (EIHDF)

888 Holdings Plc. (OTCPK:EIHDF) Q2 2014 Earnings Call August 5, 2014 9:00 AM ET

Executives

Brian Mattingley – Chief Executive Officer

Aviad Kobrine – Chief Financial Officer

Itai Frieberger – Chief Operating Officer

Analysts

Vaughan Lewis – Morgan Stanley

Ivor Jones – Numis Securities

Operator

Good day and welcome to the 888 Holdings Q2 2014 KPIs IMS Analyst and Investor's Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Mattingley. Chief Executive, please go ahead, sir.

Brian Mattingley

Thank you very much indeed, Julian. Good day to everybody and thank you all for joining us on the call today. I am Brian Mattingley, CEO of 888 and I am joined today as ever by Aviad Kobrine, our CFO and Itai Frieberger, our Chief Operating Officer.

I take it as read that you have seen our announcement this morning and I will very briefly take you through a few of the highlights before opening up the call to questions. I am delighted to report that 888 has continued its strong performance in the second quarter, delivering a 15% year-on-year increase in revenue to $111 million.

This outcome is a combination with a very good start to the year, has resulted in a record breaking revenues of $225 million for the first half of 2014.

Effects and result has been driven by strong growth across both our B2C and B2B lines of business. B2C revenue in the second quarter was 11% higher year-on-year with Casino gain delivering an outstanding result with a 15% increase in revenue.

With this, Casino has now delivered a remarkable six consecutive quarters of double-digit revenue growth. An achievement that reflects the continued strength that the Casino offer as well as our excellent CRM system.

In Poker, we were able to deliver 2% increase in revenue despite highly competitive market. We have also maintained our position at number two in the global liquidity rankings according to Poker Scout and this resilient performance is testament, to the strength of our excellent Poker product and the consistent delivery of our strategy.

Bingo has continued to benefit from the turnaround plan, we embarked on last year. We have redressed the whole look, shape and feel of our Bingo customer experience and this has enabled us to deliver strong revenue growth of 17% in quarter two.

Our Sports offer once again performance well during quarter two, in line with our ambitious goals and expectations. Sport continues to provide a big opportunity for 888, both in terms of revenue and market share growth and we are continually looking at ways to further improve our offer.

For 2014 World Cup in Brazil, which continued post the period end was a successful 888 Sport and demonstrated by their enhanced Sports product can now truly compete with during major sporting events.

Revenue from Dragonfish, our B2B business was up an impressive 37% against the prior year driven by Bingo as well as contributions from our business in the US. In the US, we continue to make progress. In New Jersey, the 888 platform continues to enjoy a strong share of the total Poker market and the 888 brand is gaining further attraction.

Finally, I'm also pleased to report that trading in July remains strong with revenue for the month more than 50% higher than in 2013.

In summary, we are delighted with our strong performance in Q2, 2014 which resulted in a record breaking first half for 888 and we continue to look forward with confidence as we further develop the business.

With that, I'll now hand you back to our operator. Who will open up the call for your questions? Many thanks.

Question-and-Answer Session

Operator

(Operator Instructions) We will now take our first question from Vaughan Lewis from Morgan Stanley. Please go ahead.

Vaughan Lewis – Morgan Stanley

Hi guys. I've got two questions, if that's right. The first one, what's the underlying growth rate, if you exclude FX changes because obviously you've had quite a big benefit from the movement in the dollar and second one, out on Sports betting, can you just remind us what your plans are there and how do you get it at the moment, it doesn't look like it could be very big given the emerging offerings $87 million revenue in the quarter, but how much about exposed and what are your plans there?

And on the balance sheet and the cash flow. I mean, you're generating a lot of cash at the moment and from recent transactions it looks like, that is readily available for quite cheap, so would you consider further deals or share buybacks to highlight that to the strength of that cash flow? Thanks.

Brian Mattingley

Thank you, Vaughan. I'm going to ask Aviad, if he could first ask the point about growth rates excluding FX. I'll ask Itai, who's got his thing on the post, when it comes to Sport and if the two would allow me, I would like to take the last point, but first of all, can we ask Aviad, if he can give us an indication of the underlying growth rate, pre-FX?

Aviad Kobrine

Sure. Hi, Vaughan. The impact of the FX has been actually a mixed bag. While the strengthening Pound, surely increase will give us a back in relation to our Bingo business. On the other hand, some of the underlying currencies in which people play Poker actually weakens. So the impact would be without or if you like on constant FX, Poker growth rate would have been higher by about 3% or 3.5% and all growth rate, would have been about 3% to 3.5% lower than what we've recorded.

Brian Mattingley

Itai, can you talk about Sports, please?

Itai Frieberger

Yes, sure, hi Vaughan. Well, in Sports I think we'll be doing three things; first we see a lot of opportunity in Sports it's a massive industry and we are very small there. So there's a lot of opportunity for us to grow. We'll just increase our offering in Sports. So we offer more in live events, in more trading in more markets.

We are opening up more territories and allowing more people to find, what they're looking for when it comes to Sport. We've also uplifted our marketing when it comes to Sport. So we spend more now on Sport. I'm sure you saw, some of our offline in there, activities in Sport which is actually for the first time we went above the line when it comes to Sport and we see very good performance coming out of that.

So this is another opportunity for us to continue to pushing and continue increasing our business and profit of new sports customers and I think, the third one and this is a dual way. We are crossing customers from our core customer base and from Sport. So we actually enjoy additional life time value of our Sport customers, when we drive those customers into our different offering specifically to Casino as well as the Poker.

And we also cross our, as I said our existing customer base and offer them a proper Sports Group product. So I see a lot of opportunities there and I think, this is just the beginning of the growth in Sport. I'm not saying, we are going to be as big as the big Sports Group, but I think there is much of opportunity here for someone like us to take advantage of this market.

Brian Mattingley

Thank you very much. Aviad, Itai and Vaughan. Hopefully I'll give you something of an answer, you're quite happy with. First of all, I'll say that we're delighted of our – for the first time since the industry formed way back in the 90s. This industry now has the capacity to take some debt, which I think everybody must appreciate.

We have $62 million of corporate cash, we will continue to appraise every and any opportunity which comes across the desk to us, whether brought by merchant banks or analysts or whoever. This moment in time, we believe that could be and will be some opportunities potentially in the UK, as a result point of consumption tax and we are quite excited of the prospect of the industry going forward in the next six months or so. Intended [ph] also how.

Vaughan Lewis – Morgan Stanley

Can I just come back Sport one quickly. I mean, roughly how much is the $7 million revenue exactly, if we look back to Q1, 2013. You were making $8 million of revenue and emerging offering, so?

Brian Mattingley

But you should be aware emerging offering or walls [ph] in fact, combination of one or two products. One of those products, we have taken a conscious decision to, wouldn't say withdraw but actually, reduce our activity in that. Of the activity that is in emerging offer the majority of that is Sport and we have got to say that we have seen Sport grow significantly quarter-on-quarter.

Vaughan Lewis – Morgan Stanley

Okay, so probably [indiscernible] social pretty much zero, right now is it?

Brian Mattingley

Not far off.

Vaughan Lewis – Morgan Stanley

Okay, thanks.

Operator

(Operator Instructions) We will now take our next question from Ivor Jones from Numis. Please go ahead, your line is open.

Ivor Jones – Numis Securities

Good afternoon, can you talk a bit more Brian about what you said to Vaughan about things that you might buy, can I'm trying to?

Brian Mattingley

Can I – I don't want to correct you, deliberately either but it's not things that we might buy, what I'm saying there are opportunities in which we are aware of the circulate [ph] the business, the industry from time-to-time and therefore, what we are doing is, we are apprising every opportunity which crosses our desk. We are not necessarily at this moment looking at buying, we are not necessarily looking at doing anything.

All I'm saying is, there are two things; one I think we recognize now that the market is open for a debt [ph] instrument which will was never there before and secondly, we believe there will be a potential lucrative deal flow in the UK, as in when point of consumption tax, starts to take hold, but at this moment in time, not we're not looking at buying anything or whatever.

Ivor Jones – Numis Securities

And you will get to February next year and you'll have plenty of cash in the balance sheet, potentially for your third one-off dividends. I think after three, we get to keep it. How will you trade off the opportunities that might still be emerging in the UK market for acquisition against the appetizer [ph] shareholders for increased dividend, the very least if not one, further enhanced by raising debt?

Brian Mattingley

We have a stated divided policy, our dividend policy is 50% of accounting profit in any one years. The last two years we have appraised at the market the potential for us and we recognized that was little activity in mergers and acquisition type of approach, for us to take.

So we declared without any pressure, we declared an extra dividend. We will likewise do exactly the same this year. Our quality is quite clearly stated in our listing document. We will look 50% of our accounting profit and if, when we believe that we have a different [ph] opportunity or opportunities which means that we will stick, very rigidly to our accounting profit, we will do so at this moment in time. I can't give you any indication as to what will be the situation. We will not have any pressure placed upon us to declare a third special dividend, I can promise you that?

Ivor Jones – Numis Securities

I don't know, if can you promise a special replace but maybe you can say, you won't respond to it.

Brian Mattingley

We won't respond to it, either statement.

Ivor Jones – Numis Securities

And you didn't talk explicitly about Spain and Italy and I just wondered what portion of revenue is coming from those territories, it is either combined or separately?

Brian Mattingley

I would like if I can give you an overview and I'm going to throw open to my two colleagues, sort of talk about a little bit of the detail. In terms of Spain and Italy, you must be aware that we as of in Italy do not have a full suite of products. It is something that we are appraising the opportunities going forward. I think we have our own in Italy.

In terms of Spain again, we haven't seen any changes in market share, what we are doing in Spain is launching a Sports book fair for the beginning of the football season, literally that is going to be something, which will enhance our overall product offer and in both of those territories, we are looking seriously at increasing our activity in mobile technology, I don't know, if I can ask my colleagues to add to that, please?

Itai Frieberger

I will add one more point, Brian in Spain. I think the very big development in Spain which is the introduction of slots into Casino and we know from our experience from Italy slots would make a significant change through our revenue potentials in Spain and just one more on sport, you mentioned that and I did as well in mine, Spain is a sport-driven market, so we believe that Sport in Spain could enhance our position not only in Sport, but also in our other products in which we have a very significant market share already and I believe that would be a very strong and have a continuation to our business there.

Aviad Kobrine

And If I may add to that, our total revenue expected this year from Spain and Italy regulated is about 16% of booked revenue.

Ivor Jones – Numis Securities

That's great. Thank you all of you that and just one last question, please, I guess it tied particularly, what's next in terms of technology development. What is the most exciting thing that is being developed that we should know about and think about effecting revenue next year?

Itai Frieberger

Well I don't think, there is one game changer or life changing development thing that we've been working on right now, but I think just in Spain as Brian just mentioned mobile together with slots, together with Sport is a very important part of our development. In our core platform, we invest a lot and continue to enhance more capabilities specifically on mobile side.

We've been launching mobile applications, I think every month there's a new platform coming out. We're evaluating Poker going forward to see, how and about Poker 7 should look like, we've invested a lot of effort and currently with UK, regulation that would be applicable next year as well as point of consumption mitigation efforts that we will be taking.

So there is a lot going on and of course America, in which we are optimizing our position there and we need to optimize our offering in America to make sure, it's more profitable than it right now. So there is a lot going on, but I cannot specify or give you a specific indication of something that is happening specifically, sorry about that.

Ivor Jones – Numis Securities

When you talked about Sports, you said that there been a recent increase in the debts as products from Sports book, is that process complete say in the UK, obviously it's yet to be added to Spain have you optimized what product you want to offer on Sports?

Itai Frieberger

No, we are continuing onto to increase our offering in both new markets and in the UK and we think, the best example I can give you in the UK would be additional live events that we are buying now, so I can't remember about how you know the exact number that we have, but we are increasing that significantly so, customers in the UK will be able to find more live events available on our platform just as much as you would find on the big sports book.

Live streaming would be another one, we are considering exactly where to invest there and you will find more streaming capabilities in our work site and there are some back office capabilities that now with the increased Sports performance we understand that there are quite a few opportunities using our core platform, which we regard as best-in-class in industry, so that we can optimize our offering when it comes to Sport pure and cross sale sports to other offering, which we know is a very good and a very healthy, the way they do increase revenues.

So there is another thing that we push in the UK, when it comes to Sport.

Ivor Jones – Numis Securities

That's great. Thank you very much.

Operator

We will now take our next question from Vaughan Lewis from Morgan Stanley. Please go ahead, your line is open.

Vaughan Lewis – Morgan Stanley

Hi just a couple of follow ups, if that's okay. Aviad, did you say Italy and Spain combined would be 16% of revenues, this year?

Aviad Kobrine

Yes, confirmed.

Vaughan Lewis – Morgan Stanley

And on, if the US is the only other fully regulated market and can you give us any sort of flavor about how much of revenue that makes up?

Aviad Kobrine

Clearly, the UK is also fully regulated market in addition to the US. We haven't published revenue from the US at the moment. We will consider, if we want to do it. We are not going to do it right now.

Vaughan Lewis – Morgan Stanley

Okay and one final one, if that's okay. Any thoughts on the acquisition of PokerStars any new initial structure and whether that will have any impact on your business in Europe or in the US or the rest of the world? Thanks.

Brian Mattingley

Vaughan, we have as a management team I'm sure, some different points of view on that, although I think uniformly [ph] we believe that we are capable and confident to be able, to match anything that Poker Stars brings our way. I don't think, we are particularly worried about that.

We trade very profitably in Spain with PokerStars as the market leader. We actually have grown our Poker business in all of the market, that Poker Stars are in and I can just say that, by demonstrating within our B2C business, we have grown Poker in quarter two, by 2%. I think, if you try and look underneath the numbers of PokerStars.

PokerStars were about static, so I personally do not believe that there is going to be any cannibalization in our existing markets. If you look, they're good or excellent or superb Poker . I would raise the question that we are also superb at six consecutive quarters of double-digit growth have shown in Casino and again, don't expect or anticipate any cannibalization there.

I don't know, if my colleagues want to add to that, please?

Itai Frieberger

Vaughan, this is Itai. I think, you got it. I don't see any concern from that, you know if you look at the liquidity trend by the way, you see that we're – our liquidity trends are better than that, then the rest of the industry. I don't think, then introducing Casino is going to turn or is going to cannibalize on our casino. It's a completely different business between cross savings customers from Poker into Casino as oppose to creating a proper Casino operation. It takes a lot of time, a lot of effort and we welcome competition.

Vaughan Lewis – Morgan Stanley

Great. Thank you.

Aviad Kobrine

Vaughan, I just wanted to apologize, I gave you the wrong number, 16% is the wrong number. I do apologize. Italy and Spain at the end of the year represent 8% of revenue and not 16%. I apologize.

Vaughan Lewis – Morgan Stanley

Okay. Thank you.

Operator

As there are no further questions in the queue, that will conclude today's question-and-answer session. I would now like to turn you back to the host for any additional or closing remarks.

Brian Mattingley

Lovely, thank you very much indeed, operator. Again I would like to thank you all for taking the time to join the call today. I would just like to add one final remark that the results that you see here today are as a result of a very dedicated and loyal team of people, who work at 888 and without their loyalty and without their dedication, without their expertise. We would not have achieved, what we've got today. So as the Chief Executive of this wonderful company. I would just like to thank them dearly for all they've done and would expect them to deliver as well in the second half, as we've done in the first half.

We are very happy with consensus and we look forward to delivering a great set of half year result on the 27 August. Many thanks to you all. Good bye.

Operator

That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen. You may now disconnect.

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