Amaya's (AYA) CEO Rafi Ashkenazi on Q1 2016 Results - Earnings Call Transcript

| About: Amaya Inc. (AYA)

Amaya Inc. (NASDAQ:AYA)

Q1 2016 Results Earnings Conference Call

May 16, 2016, 05:30 PM ET

Executives

Tim Foran – Investor Relations

Rafi Ashkenazi – Interim Chief Executive Officer

Daniel Sebag – Chief Financial Officer

Analysts

Eyal Ofir – Dundee Capital Markets

Chad Beynon – Macquarie

Ralph Garcea – Cantor Fitzgerald

Maher Yaghi – Desjardins Capital

David McFadgen – Cormark Securities

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. [Operator Instructions] As a reminder, this conference is being recorded today, Monday, May 16, 2016. Replay details are included in the earnings release.

I would now like to turn the call over to Mr. Tim Foran, Amaya's Director of Investor Relations. Thank you, you may begin.

Tim Foran

Thank you operator, welcome to Amaya's First Quarter 2016 Conference Call. This afternoon Amaya issued an earnings press release and filed its unaudited interim consolidated financial statements and MD&A on EDGAR and SEDAR. These documents and the webcast presentation will also be available on Amaya's website at www.Amaya.com.

Before we begin, Amaya would like to remind listeners [Technical Difficulty] under applicable securities laws that reflect management's 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. Undue reliance should not be placed on such statements.

Factors that could cause actual results or events to differ materially from management's current expectations include, among other things, those factors discussed in the materials Amaya has filed or furnished with applicable securities regulatory authorities including, without limitation, matters discussed under caution regarding forward-looking statements, risk factors and uncertainties and limitations of key metrics and other data as applicable in Amaya's MD&A for the three months ended March 31, 2016, which is incorporated herein and are available on www.SEDAR.com, www.SEC.gov and on Amaya's website or that Amaya may file, furnish or post from time to time in the future. 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 undertakes no obligation to update any forward-looking statements to reflect, in particular, new information or future events or otherwise.

This call will reference non-IFRS and non-US GAAP financial measures, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per diluted share and the foreign exchange impact on revenues, also referred to as constant currency. Amaya believes these non-IFRS and non-US GAAP financial measures will provide investors with useful supplemental information, but the financial performance of its business enable comparison of financial results between periods where certain items may vary independent of business performance and allow for greater transparency with respect to key metrics used by management in operating its business.

Although management believes these financial measures are important in evaluating Amaya, they are not intended to be considered in isolation or as a substitute for or superior to financial information prepared and presented in accordance with IFRS or US GAAP. They're not recognized measures under IFRS or US GAAP and do not have standardized meanings prescribed by US GAAP or IFRS. These measures may be different from non-IFRS and non-US GAAP financial measures used by other companies, limiting its usefulness for comparison purposes. Moreover, presentation of certain of these measures is provided for year-over-year comparison purposes, and investors should be cautioned that the effect of the adjustments thereto provided herein have an actual effect on Amaya's operating results. Reconciliation to the nearest IFRS measures are included in Amaya's earnings press release and to MD&A for the three months ended March 31, 2016 and its Q1 2016 earnings presentation which is also available on Amaya's website.

Unless otherwise noted, all currency figures presented on this call are in US dollars. Please note a copy of our Company presentation is available through the webcast link provided in our earnings press release issued today. It will also be posted to our website.

I will now turn the call over to Rafi Ashkenazi, Interim Chief Executive Officer of Amaya.

Rafi Ashkenazi

Thank you, Tim. Good afternoon, ladies and gentlemen, and thank you for participating in today's call. I am joined on the call today by Daniel Sebag, our Chief Financial Officer.

Before we start, I'd like to introduce myself to those who may not know me. I've been in the online gaming industry for over 10 years. Prior to joining Rational Group, I spent seven years at Playtech where I was Chief Operating Officer and a member of the Board of Directors. I joined Rational Group in January 2013 as Chief Operating Officer and served in that capacity for two years before joining Amaya's corporate operation and senior management as Senior Vice President of Strategy. Since last November I've served the CEO of Rational Group and in late March, I was appointed interim CEO of Amaya. My passion for the Company runs deep and I'm fully committed to the organization, the shareholders and the successful execution of our strategy to deliver organic, diversified and sustainable growth.

Since taking over as Rational Group's CEO, I have focused on four strategic priorities. First, ensuring operational excellence throughout the organization to ensure we are identifying the areas of the business to improve efficiency and effectiveness without negatively impacting the quality of the product. Second, growing the poker category and our leadership position through reaching new audiences, opening the new markets and delivering innovative products and marketing [indiscernible].

Third, establishing a leadership position in casinos by building the highly competitive online casino offerings. Fourth, establishing competitive sportsbook. We began seeing the benefits of these efforts as Amaya had a very quarter first quarter with revenues increasing 6% year over year, adjusted EBITDA increasing 5% year over year and adjusted EPS increasing 26% year over year.

Other key highlights in Q1 included increased customer registration in PokerStars, the continued introduction of changes to improve the overall corporate experience and increase customer retention, extension of our online casino offerings and continued investment in our emerging online sportsbook. Amaya remains focused on executing our business plan and strategy. In turn, these drove strong Q1 results in our key metrics and performance indicators, including an increase in quarterly activity and quarterly net yield.

Importantly, I want to point out that average daily customer registration increased by 2.5 million. Our overall quarterly active uniques were over 2.63 million, an increase of approximately 1.7% over Q1 2016, which focused on growth in PokerStars that was partially offset by a declining in Full Tilt in Portugal as we await final approval for our relaunch.

Quarterly activity for PokerStars poker increased 2% which was offset by a reduction in quarterly active unique in Full Tilt. Our quarterly active uniques per casino were approximately 470,000 and for sportsbook were approximately 170,000, showing strong year-over-year growth. Our quarterly net growth which represents our real mine gaining revenue per quarterly active unique increased 4% year-over-year to $109 on a constant-currency basis focused quarterly net yields were $118, representing an increase of 12% year over year. The growth in quarterly net yield was due to the continued roll-out of additional casino games on the PokerStars real-money online casino.

Poker performance is gaining strength as we benefit from the initial public impact of our strategy of focusing on our recreation of the experience. The strong performance was driven by changes to the popularity program, the introduction of new and improved promotions and increased focus on CRM and customer [indiscernible]. We will continue to reinvest any incremental revenue from the improvement in poker in these areas.

We continue to pursue expansion of our product offering into new markets and in Q1 PokerStars achieved a major milestone by returning to the United States with a launch of PokerStarsNJ.com in the New Jersey regulated real-money online gaming market. Although it's early, we are very happy with our initial performance and during the month of April, our first full month of operation, we captured 46% of the online poker market in the state.

Our strategy in New Jersey is to build liquidity and market share in poker while at the same time growing the overall market and cross selling to casinos as we've done successfully in our other global markets. We look forward to growing our online poker and casino platform in New Jersey and continue to pursue expansion into other states as they work towards regulation.

Outside of poker our online casino and sportsbook product offering remain an important area of future growth. In a little over a year casino and sportsbook grew from approximately 6% of our total revenue to approximately 21% in Q1 2016.

Our casino offerings continue to grow quickly through cross setting to our existing poker customer database. And by providing a more complete and competitive range of casino games, including the wider selection of float which now total over 160 games that we believe will continue to attract new players from our existing poker customer base to drive additional profit and lifetime value. We recently started initial marketing for casino and anticipate launching broader external market initiatives in late 2016.

Our sportsbook offerings remain in investment mode as we continue to add resources and introduce product improvement and enhancement. In the first quarter we added horse racing and extended into Denmark. We launched Spin & Bet, an engaging and exciting betting product which allows customers to increase their total winnings by up to 10 times. We also launched initial marketing campaigns for the BetStars brand primarily the United Kingdom.

In summary, our performance in Q1 demonstrated the continued successful expansion of our casino and sportsbook offerings while maintaining focus on our core industry-leading poker offerings, as evidenced by an increasing number of quarterly active uniques and increased yields. This positive performance is a result of our strategy to grow poker and to positive trend is encouraging. In the month of April poker revenues and PokerStars grew 3% year over year and the profits are healthy and increasing. We are pleased with the progress of our strategy so far.

I will now turn the call over to Danny Sebag to provide further details on our Q1 financial performance.

Daniel Sebag

Thanks, Rafi. Before we begin please note that in Q1 we changed our presentational currency from Canadian dollars to US dollars. We are doing is because we believe the change will reduce the impact of movements in exchange rates on our reported results and provide shareholders with a more accurate reflection of our underlying performance. As such, all figures presented are in US dollars unless otherwise noted.

Our Q1 2016 revenues increased approximately 6% to $289 million versus Q1 2015. We had strong growth in casino and sportsbook revenue which helped to offset a year-over-year decline in poker revenue. This quarter poker revenues comprised approximately 75% of total revenues, and casino and sportsbook combined revenues comprised 21% as compared to approximately 90% and 6%, respectively, in Q1 2015.

Our poker revenue declined 11% in Q1 2016 primarily as the result of customers playing with a smaller deposit base during the quarter as compared to the prior-year period when they had not yet experienced the impact of the devaluation of their local currency against the US dollar which is the primary currency of game play. We also experienced a decline in the activity on the bolt off platform and cannibalization from our real-money online casino product.

However, the decline in poker revenue was offset to an extent by the previously announced changes to our loyalty program and new poker promotions which resulted in additional poker revenues.

As Rafi noted earlier, we are seeing positive trends and we have progressively closed the gap in poker revenue in each month of this year, culminating with 3% year-over-year growth on PokerStars for the month of April.

Our casino and sportsbook revenues increased 267% in Q1 2016, primarily as a result of the expansion of the casino offerings in traditional geographies and the continued roll-out of the casino product under the PokerStars brand, including the addition of third-party slots.

On a geographic basis Q1 2016 revenues were split approximately as follows: 64% from the 28 countries in the European Union, 17% from the rest of Europe, 13% from the Americas, and 6% from the rest of the world.

While our operating business generates deposits from players from around the world, most notably in Europe, game play is predominantly in US dollars. Therefore, our business is impacted by fluctuations in global currencies against the US dollar.

In Q1 2016 the purchasing power of our customer base continued to decline. Based on a weighted average of customer deposits, we estimate the value of our customers' local currencies declined 6.4% against the US dollar on a year-over-year basis.

Due to the impact of currency fluctuations on our business, we provided constant-currency comparisons to show how the underlying business performed, excluding the impact of foreign currency rate fluctuations. On a constant-currency basis, our Q1 2016 total revenue increased 14% versus the comparable prior-year period.

Our Q1 2016 real-money online poker revenue decreased 4% versus the comparable prior-year period. Our adjusted EBITDA of $123 million is an increase of approximately 9% in Q1 2016 versus the prior year.

Adjusted EBITDA during the quarter included approximately $5 million of net adjustments, notably, the exclusion of the $9 million unrealized mark-to-market gain on the value of our retained ownership of certain purchases of a subsidiary of NYX Gaming Group, $6 million of professional fees accrued by the company and the special committee of the Board of Directors, a majority of which are in connection with the strategic alternatives process and the AMF investigation, $3 million of certain US lobbying and legal expenses, including legal expenses in relation to the Kentucky bond, $2 million relating to terminations of affiliate and employment agreements, and $1 million relating to retention bonuses that are in relation to the Rational acquisition.

Adjusted EBITDA in Q1 2016 benefited from the expansion of online casino and reduced marketing spend on our Full Tilt brand, but was negatively impacted by new gaming duties in Austria and on certain casino and sportsbook offerings, including Spain.

Casino once again provided strong contribution, as we did not engage in external marketing, but rather continued to focus on cross selling. Profits from the casino vertical will continue to help support our investment in both sportsbook and PokerStars New Jersey.

Our adjusted net earnings grew 26% to $85 million in Q1 2016 versus Q1 2015, reflecting the increase in adjusted EBITDA and the reduction of interest expense. Adjusted net earnings per diluted share was $0.43 in Q1 2016 versus $0.34 in Q1 2015.

In Q1 2016, we generated approximately $45 million in operating cash flow from continuing operations versus $114 million in Q1 2015. The decrease is primarily due to a reduction in customer deposit balances as a result of the decrease in the number of high-volume net withdrawing customers on the site.

This was an anticipated outcome of the restructuring of our loyalty program. It was also due to the timing of our payments of 2015 supplier balances. Finally, it was due to the faster than anticipated collections of receivables from payment processors in Q4 2015 rather than in Q1 2016.

As previously noted, our working capital fluctuates, however, our needs are minimal over the course of the year. So far this year we have repaid a debenture of CAD30 million, continue to accrue for the deferred payment and reserved $40 million of cash as collateral for our previously announced Kentucky bond. Since the posting of the bond, there have been no material updates as it relates to Kentucky.

As Rafi mentioned, our April results were stronger. We estimate that we've generated approximately $96 million of revenue, representing an 11% increase over April 2015. Of the total revenue, real-money online poker revenue was $74 million which was flat year over year. PokerStars poker revenue grew approximately 3% year over year while Full Tilt remained challenged as we scaled back on investment as we prepared to migrate the players and brand.

Real money online casino and sportsbook revenue was $20 million, representing a significant increase over the prior-year period. On a constant-currency basis April's total revenue increased 14% while poker revenue increased 4% overall and 7% on PokerStars.

I will now turn the call back over to Rafi.

Rafi Ashkenazi

Thank you, Danny. As you can see from our Q1 results, we are executing our strategy effectively, capitalizing on growth opportunities and identifying efficiencies to expand the business and enhance shareholder value.

Since the end of Q1 we have seen a continued strengthening of our global corporate business, primarily the result of the changes I discussed earlier, rate increase that took effect in late March and our launch in New Jersey. We anticipate relaunching our offerings in Portugal in the second half of 2016 whilst we receive final approval of our license.

As it relates to Full Tilt, we expect the migration of the Full Tilt players and brands to the PokerStars platform to be completed this week. We believe this will improve the lifetime value and overall experience of Full Tilt players.

While poker remains our core business, our goal is to also establish a leadership position in casino. With one of the largest player bases in the industry, we believe we are well positioned to accomplishing that goal.

We will continue to improve our casino offerings by adding a number of slots from CRM providers throughout the year and begin extended marketing with the product to acquire casino first customers. We will also continue our expansion into sportsbook by improving our offerings, introducing BetStars in new markets such as Italy and France and gradually launching new marketing campaigns under the BetStars brand throughout Europe.

I am very proud of our staff around the world who have stayed focused on our customers by delivering high-quality customer service and superior gaming experience and will continue to deliver on our strategy each and every day. They are strong and resilient and are truly the heart and soul of the Company. As we continue to grow and grow, so too will the structure of our operations and staff.

I also want to acknowledge that after many years of service and valued contribution on August 1 Israel Rosenthal, the COO of Rational Group, will be leaving the Company. Following his departure, we will be utilize our existing senior management team who have experience in operational functions to assume Israel's responsibilities.

As always, we strive to deliver the best-in-class experience to our players and the most reliable sure and secured offerings. I'm confident we will continue to build upon our first-quarter momentum and successfully execute our long-term growth plan.

Before we open the line for questions, please note that at the direction of the special committee of the Board of Directors, we will be not addressing any questions relating to our ongoing strategic alternatives process, the AMF investigation, Mr. Baazov's leave of absence or related matters.

With that, operator, we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Eyal Ofir from Dundee Capital Markets. Please go ahead.

Eyal Ofir

Thanks. Thanks for the update. Can we walk through some of the - a little bit more into the nuances? You're giving a lot of KPIs here, which is great. Can you get into more of what you're seeing in terms of trend lines with the clients and the poker side, the conversion rates from poker to casino? And then how should we think about more of this marketing spend going forward as you launch marketing into Italy, France and other markets where you're launching your sportsbook product?

Rafi Ashkenazi

Okay so the KPI for the business are looking strong. We have very positive trend starting from January to April and actually we can see that trend continuing into May. From poker performance I think that we can see April flat year over year in terms of poker specifically, in US dollar terms which is quite positive.

And [Technical Difficulty] trends starting from January up until now, which means every single month from January to May, to now we are closing the gap versus last year on poker specifically. So these are very positive and quite encouraging KPIs for us. In terms of - go ahead.

Eyal Ofir

In terms of cannibalization, how much are you actually seeing cannibalization of the poker play in terms of outreach spend? Is it significant? Is it small? And then how much are you seeing on the flip-side because obviously the casino numbers are very impressive.

Rafi Ashkenazi

The casino numbers are quite impressive. But the casino revenues are incremental to the poker revenues. We do see obviously cannibalization because we are cross selling to our existing poker player base but we are maintaining and moderating this cannibalization. We are maintaining it on the same level for quite some time now. So I have no worries about the cannibalization and I'm foreseeing continued growth for casino.

Eyal Ofir

Okay, great. And then a follow up in terms of marketing spend over the next few quarters, how should we think about that as you plan to launch new marketing campaigns here?

Rafi Ashkenazi

So marketing spend for poker, poker is obviously our core vertical and we have a budget for the year and we're keeping this budget. In terms of BetStars and our sportsbook offering, we have a budget for sportsbook offering for the year, and again, nothing is going to change from that perspective.

We don't foresee any incremental or not significant, budget allocated for casino this year. We do have plans to start external marketing for casino towards the last quarter of the year. But all of that is within the budget and within the plans.

Eyal Ofir

Okay, great. And then before I pass the line, in terms of the next markets to open here, can you give us an update from a regulatory aspect, what's going on in the Russian and other markets? And I know that also that France recently opened the door to cross liquidity into other jurisdictions and I know you guys are number two there. What does that mean for you guys? I think that will be very positive. Thanks.

Rafi Ashkenazi

Okay so in terms of market, quite a lot of things going on. If I'm looking specifically on sportsbook, we are planning to launch in Italy and France. Italy is actually quite imminent. France, we are hoping to get a sportsbook up and running there before the Euro. It's obviously subject to license.

We still have quite a few markets. We are currently around 41% on sportsbook out of the overall addressable market that we can launch in. So we still have at least like 12%, 13% to grow from a sportsbook point of view.

In terms of poker, there are a lot of developments within the European market and outside of the European market. We continue to operate in Russia and we're quite optimistic that regulations will be introduced, hopefully even this year, towards the end of the year.

The development in other European markets is, as you probably know, in the Netherlands. We're also quite optimistic that this will happen either late this year or next year. And no, we are continuing to monitor all the markets and the plans are in place.

Eyal Ofir

Okay, great, I'll pass along. I'll come back into the queue, thank you.

Rafi Ashkenazi

Okay.

Operator

Thank you. Our next question comes from the line of Chad Beynon from Macquarie. Please go ahead.

Chad Beynon

Hi, thanks for taking my questions. Rafi, that was great color on the poker business and the KPIs. I wanted to drill into that a little bit further because of all the changes here with more of a recreational player database. Could you help us think about the seasonality of the poker business now that some of the VIPs have come out? Is the seasonality any different?

And then a second question on that. Do you think these players have been affected by the rake increases? Or are your rakes pretty similar to what you're seeing across your industry? Thanks.

Rafi Ashkenazi

Okay, so in terms of seasonality, I don't see any changes. Basically we are continuing exactly as like previous years. We don't see any impact on seasonality.

Those players that were more impacted, even in terms of retention levels, we can see that we are retaining the vast majority of them. We don't see any difference in terms of retention year over year, even for those players who are more effected than others.

In terms of rake increase, we introduced a rake increase late March. Up until now it's going quite well for us. April, as I mentioned before, it was a very strong month for us and this the first month in a while where we have poker revenues, specifically poker revenues, year on year in USD flat and growing nicely on PokerStars 3% in these trends continued into May. So altogether I would say that it's quite positive and we don't see any changes to seasonality.

Chad Beynon

Okay, thank you. And then my follow up on mobile, particularly on casino, where are you from a penetration standpoint going from desktop to mobile? And is this something that you think could be improved over the next couple months before you begin to go into the external marketing?

Rafi Ashkenazi

So there is quite a lot to do in terms of casino in mobile. We haven't launched our expanded mobile casino yet. We are planning to do so in the second half of the year, hopefully by the end of Q3.

When I say there's a lot to do, I mean in terms of the content. We're still rolling out content. We will be rolling out tier one content over the course of the year, constantly. What we see from casino point of view on mobile is that we are attracting a lot of recreational players.

Obviously the mobile players are more recreational than desktop players. The cross sell on the mobile is actually better than the cross sell that we have on desktop. We can see this trend developing quite positively.

And mobile is increasingly important to our business. Most of our acquisitions come from mobile. We have a very good trend in terms of departed from mobile or specifically net deposits on mobile increase the level of user and increased the level of activity. There is a lot to do but it is moving, I would say, exactly according to the plan.

Chad Beynon

Okay. Great. Best of luck. Thanks.

Operator

Thank you. Our next question comes from the line of Ralph Garcea from Cantor Fitzgerald. Please go ahead.

Ralph Garcea

Good evening, Rafi, and again, thanks for the update and the increased color. On the casino side, will the roll-out in games Q2 over Q1 be at the same pace as Q1 over Q4? And will you continue that throughout the year on the increase in games quarter over quarter?

Rafi Ashkenazi

Yes, we will continue to roll out content on casino constantly. Currently what we've done, we've reprioritized some of the content that we are releasing on casino, specifically targeting more of the tier one providers.

So we should see more exciting type of content on our offering. I would say that if we can release every quarter at least one tier one provider, that would be a very good pace for the Company.

Ralph Garcea

And then on sportsbook, do you think you will have France up and running before June 10? Or at least attach the play-off rounds for early in July on the Euro?

Rafi Ashkenazi

We are currently working with ARJEL and we are really hoping that this process with the regulator in France will be finalized before the Euro. The plan that we have is yes, we do want to have it before, but it's really not up to us. It's a process which is going on with the regulator in France.

Ralph Garcea

I see. And then what sort of growth did you see sequentially, let's say from January to April on the BetStars roll-out? Even just rough color or as you roll that out with the limited sports set, I guess.

Rafi Ashkenazi

So what we see on BetStars, we started the marketing campaign in the UK around mid January. The fact that we launched the BetStars then is actually quite positive since it's also helping us with our cross-selling being turn across to our existing database.

Every month we see better numbers in terms of the active players that we have on BetStars. The turnover that we have on BetStars, lot and value that we have. It's all moving in the right direction. And its sportsbook it's still in a growth mode. So it's actually quite expected to see sportsbook still growing. It's just the beginning.

Ralph Garcea

And are you still at above industry averages? You'd given that color back in February. Did that continue on the margin side?

Rafi Ashkenazi

Yes, I believe that we're still slightly above industry average with sports betting. But our volume are obviously quite different from the rest of the industry. I'm talking about the big operators out there. But yes, we are still slightly above the average.

Ralph Garcea

And then lastly, on the poker side, where do you see the business going for us [Technical Difficulty] in Latin America.

Rafi Ashkenazi

So I couldn't hear that.

Ralph Garcea

In Latin America, where do you see the biggest opportunity and the earliest from a compliance and regulatory perspective? Where do you see the biggest growth coming?

Rafi Ashkenazi

So Latin America, specifically the biggest growth would be likely Brazil. I'm hoping that regulation in Brazil will also kick in this year or next year. But Brazil would be the biggest one.

Obviously there are some discussions about Columbia and some developments which are happening there. Mexico would be a very interesting market for us. And if Argentina would open up, that would be also great. But I would say Brazil is probably the biggest one.

Ralph Garcea

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Maher Yaghi from Desjardins Capital. Please go ahead.

Maher Yaghi

Yes, thank you for taking my question. I have questions I wanted to ask. The first one is based on your April results on the casino and sportsbook, in the first quarter you had about $60 million of revenues and you're running at $20 million in April.

That's equivalent of about $60 million if I do it on a quarterly basis. Can you talk about the growth rates in casino? It seems like it's coming down quickly. Is there a lot of seasonality in April, May, June in terms of casino revenues that's driving the $20 million in April?

Rafi Ashkenazi

So casino revenues, the seasonality of casino is pretty much attached to the seasonality on poker. Most of our casino revenues are coming from cross selling into our existing poker player base. So there is obviously a line in between them.

What we can expect to see with casino is essentially not from the players' point of view' the number of players who are playing casino increase, but we should expect to see the ARPU, the average return per user, increase during April, May and June. And more so probably in July, August and September once we'll have the stand-alone mobile up and once we'll have more tier one content providers out there and once we release more content.

So to an extent, even though casino is obviously impacted by the seasonality in poker, since casino is still in a growth mode, I would say that it's not going to be impacted as much as poker.

Maher Yaghi

Okay. Is it fair to say that Q2, in terms of casino revenues, the growth rate might be decelerating because the pace of opening new games and entering new markets is smaller than what you did in Q4 in Q3, which led to the strong growth in Q1? Because when I look at the $20 million and I compare to the $60 million in Q1, it seems small.

Rafi Ashkenazi

Yes, I would say that it's fair to say that there would be a slow-down in casino growth in Q2, which is, again, affected by the seasonality on poker. It will be also affected by the roll-out of the new games. We do have plans to roll out a significant tier one content provider towards the end of Q2 two and probably will see a boost in Q3 onwards.

Maher Yaghi

Right…

Rafi Ashkenazi

I think it is fair to say that it will be a slow-down in Q2 for casino.

Maher Yaghi

Okay, great. Now my second question was related to cash from operations. Danny, you mentioned the working capital usage of cash that took pace in Q1. And I look at your customer deposits.

They went down by about $36 million quarter over quarter. I guess that's related to the change in how you want to operate the point system. Should we expect more draw-down here? Or in your view we've gone through the clean up here?

Daniel Sebag

I think that was the initial changes and that's, I'd call it a one-time movement which we expect to normalize over the course of the year. The changes to the IP system, obviously you had a very favorable impact in terms of the ecosystem and we see that reflected in better revenues.

You can see what's happening in April and May in terms of poker revenue, which are both very strong months as it relates to poker. As well, the margins obviously in poker have improved as a result of these changes.

So they're very beneficial but they are very targeted and as a result, we found that a lot of high-volume net withdrawing players were withdrawing cash, their cash from the system, it wasn't our cash.

Having said that, the benefits are pretty significant for the Company. And we also see it reflected in terms of recreational players where their revenues are better than at any point in 2015 or even 2014.

Maher Yaghi

Okay, great. So in your view the biggest portion of this decline has already taken place. But there's still maybe some additional decline to expect throughout this year. But the bulk is done already.

Daniel Sebag

As I said, I expect it pretty much to normalize. And I expect to see obviously the operating cash flow in successive quarters to improve relative to working capital.

Maher Yaghi

Okay, great. And in terms of excess cash flow produced in the first quarter, it looks like you guys did about $21 million of excess free cash flow. How is that compared to last year?

Daniel Sebag

The free cash flow, it was about $36 million, if you take operating cash flow minus CapEx. Again, the changes to the IP scheme were one factor that impacted that.

And the other factor is in Q4 we renegotiated in terms of the suppliers and had extended terms, and so there was a larger payout than usual in Q1, reflecting the changes in supplier terms as well. But those were significant drivers to cash flow.

Not to mention the fact that in terms of the actual Q1, we set aside about $35 million for the bond, for the collateral for the Kentucky bond. So that was another impact to working capital and cash flow as well.

Maher Yaghi

Okay. I was more referring to the excess cash that's under the credit agreement because you set aside only $7.5 million in the quarter for the deferred payment, which is like 35%, that comes out to $21 million of free cash.

Daniel Sebag

Yes, that's affected by the cash we set aside as well.

Maher Yaghi

Oh, okay. I see.

Daniel Sebag

It's not just about the EBITDA, it's also about cash flow we set aside in terms of investments or collateral, et cetera.

Maher Yaghi

Okay. And one last question related to the Board of Directors and nominations. I noticed yourselves and the nomination for the Board, can you talk about your decision not to be on the Board next quarter?

Daniel Sebag

Yes, I think it the goal is to get a more independent Board with additional financial expertise amongst the independents. I think its best practice, if you look at Fortune 500 companies, there's only about 20 CFOs in Fortune 500 companies on boards.

And the vast majority of those have been on boards for about 10 years as well. So I think it's the right move from a governance perspective and it was voluntary on my part.

Maher Yaghi

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of David McFadgen from Cormark Securities. Please go ahead.

David McFadgen

Thank you. I was wondering if you can give us an idea of the magnitude of the rake increase that you implemented.

Rafi Ashkenazi

It's approximately 4%.

David McFadgen

Okay. And when I look at your April results, we see poker is flat. It was actually up 4% on a constant-currency basis. Do we conclude that you have now lapped this FX impact where it resulted in lower purchasing power on behalf of your customers?

Daniel Sebag

So what I'd say is that first of all, the basket of currencies in Q1 has declined. And even in the month of April it actually declined by a couple points so it's still a headwind that the company is facing.

But I think that the changes implemented in terms of the IP which targeted not only improving the poker economy but offsetting things like FX have been successful and you're seeing that in April and May results so far.

David McFadgen

So when do you think you'll actually lap that FX impact?

Daniel Sebag

FX is a reality of the business, so there is sensitivity to FX. But having optimized the poker economy, I think we're headed in the right direction and we're seeing that. If you actually look at our poker revenue and you compare it each month of the year, as Rafi said, January versus last January, February versus last February, et cetera, it continues to improve in terms of the gap.

And we've turned the corner where in April we've actually surpassed last April and we are continuing that in terms of May. But the reality is that FX is a fact that actually impacts our business and it can go in either direction, correct?

David McFadgen

Okay. So maybe another question on Russia, in Q1 you disclosed that on a constant-currency basis, your poker revenue was down 4%. Can you give us an idea on how the Russian market performed? Because there has been chatter about Russia trying to clamp down again on websites and so on.

Daniel Sebag

So in terms of Russia, obviously the ruble has been down significantly, 20%, and that actually has an impact on net deposits per se. That's been the most dramatic impact in terms of Russia. But outside of that, revenue is relatively consistent after taking into effect the impact of the FX.

David McFadgen

Okay. And then lastly, can you give us an idea of what the impact to EBITDA will be from shutting down the Full Tilt platform and moving everybody over to PokerStars?

Daniel Sebag

Yes, so what we would expect is obviously there, we expect that some players in the migration may get lost. So there would be a revenue impact but we would probably in terms of the restructuring of the operational effectiveness program, that we have Full Tilt in terms of pooling liquidity, we expect savings of around $8 million from the initial Full Tilt to a full liquidity and streamline those operations.

David McFadgen

So it would be $8 million obtaining but some of that could be offset by some lost revenues?

Daniel Sebag

Some last revenue, exactly.

David McFadgen

Okay. All right, Thank you.

Operator

Thank you. Our next question is a follow up from the line of Eyal Ofir from Dundee Capital Markets. Please go ahead.

Eyal Ofir

Thanks, I have a few follow-ups here. One, Danny, you mentioned the working capital impact was also due to the blog you guys put up so that's $35 million US that was put up, is that correct?

Daniel Sebag

That is correct. That was an impact to free cash flow, so it showed up as investing outflows. It's $35 million in Q1 and additional 5 million in the month of April.

Eyal Ofir

Okay. Then in terms of the customer deposits, you're saying that you plan to see that becoming more stable at this point?

Daniel Sebag

Yes, we expect it to normalize, exactly. Expect that to normalize. But if you actually look at the net depositing behavior and the net deposits year to date, actually the net deposits, that's actually up overall if you look at recreational players and PokerStars as well.

Full Tilt, since we've were going through this effort of migrating Full Tilt and pooling liquidity, you noticed that obviously, that had an impact in both terms of both revenue and net deposits to the Full Tilt level. But on PokerStars we're seeing positive growth.

Eyal Ofir

Okay. And then, Rafi, a question for you. I think you just talked about seeing player counts continue to increase and the revenue performance being pretty strong, April over April, May over May, I imagine as well. I think some folks look at the poker reports and obviously that looks at real-money like real-money gaming versus the tournament play.

Can you speak to where you guys are in terms of revenue contribution between tournaments and those traditional poker hands and how that's gone? And then also on the mobile front, obviously that's been a big category for you guys, how that's progressed in the quarter as well, please. Thanks.

Rafi Ashkenazi

I think that looking at PokerStars will not give you a true reflection of the performance of the business. We have been actively shifting players from cash games into tournaments. Spin & Bet has been performing quite well for quite some time now, as you know. Apart from that, we launched a knockout poker which also, again, deflects some players from cash games into tournaments.

So altogether today the majority of our revenue - actually for quite some time now - is generated through tournaments. I can't give you the exact distribution between tournaments and cash game, but I can tell you the tournament is the majority of the revenues.

In terms of casino, casino is quite positive and quite encouraging on a few different levels. First of all, what we see since we've made the changes is that this pool of rough, of recreational players, is improving.

You mentioned cash games. I can tell you that, for example in cash games and zoom games it has improved by approximately 10% which means that we are keeping those customers that we are acquiring for a longer time and we are allowing them to generate more revenues.

Most of our acquisition is coming from casinos. Those players are spending most of their time on, sorry, I meant on mobile. And most of these players are spending most of their time on mobile and that's why we see mobile numbers going up.

If I'm looking, there was a question about deposits, if I'm looking at deposits which are coming through mobile, it's something that we see improvement every single month. I will say that, going back to what Danny said, it would be a better view on the business performance to look at net deposits. Net deposits on mobile are quite phenomenal. So altogether, the strategy that we are executing for quite some time now, is working quite well.

Eyal Ofir

Okay, good. And then one last question before I pass again. Obviously there was a question earlier on the casino side of the equation that's potentially slowing down. I think what I'd like for you to talk about is in terms of ARPU per player in the casino side of the business so far, how does that compare to traditional casino players? Or casino revenue per player with the traditional operators out there?

What do you need to do to get to that level? Like how much more content do you need to bring on and how many more, maybe you need to spend more money on marketing and casino on the second half. To get your thoughts on that would be great. Thanks.

Rafi Ashkenazi

Okay. So we are well below the industry standard on ARPU. There are a few different parameters when you measure in ARPU. First of all, we don't have enough content yet. And content will obviously going to tier one content specifically, progressive slots and generally just more content and offering on the side will increase ARPU.

Apart from that there is also a very significant part here which we haven't started yet. If you look at other traditional casino operators out there, the vast majority of the revenues would be generated by VIP players. That will obviously increase the ARPU, the average ARPU per player, quite dramatically.

We haven't started any VIP treatment with our casino players. It hasn't started yet, so there is a lot of ARPU that we can generate there. We are not going to deal with those VIP players until we have like a proper offering on the side. We'll have a nice lobby for VIP players. We'll have obviously a stand-alone casino client that they can enjoy.

So there are a lot of factors which are impacting the ARPU and we still have a lot to go. I can't give you like the exact difference between us and the operators but we are we way, way, we still have a way to go with that.

Eyal Ofir

Okay. So I imagine it's probably less than half of what they have in terms of ARPU.

Rafi Ashkenazi

Yes, I wouldn't say, I was about to say around 50%.

Eyal Ofir

Okay. And then in terms of the VIP program, when do you expect you'll launch that? Is that a Q4 time line?

Rafi Ashkenazi

Yes, that would be likely a Q4 timeline. We are generally planning to have a new loyalty system for the entire site probably launching next year. And in Q4 we're going to build up the VIP treatment for casino players and later on for sports betting players which we haven't started there as well, and also for poker players. So all of that would be combined into one program.

Eyal Ofir

Okay. And before I pass it on one last question. You talk about sports betting before. Is there any specific features you want to have before you go into Italy or France, before you go launch there? Thanks, and I will pass it on.

Rafi Ashkenazi

Yes, we have a plan for sports betting before we go to Italy and France. The plan is not necessarily directed into these markets. It's a plan directed specifically for the Euro in 2016. It's a quite comprehensive plan in terms of the offering that we currently have on the side.

Some of the cash-out functionality, more improvement on the Spin & Bet. We want to change a little bit some elements there in terms of the Spin & Bet, some UX and UI improvement. So we have quite a significant improvement between now and the Euro which is not too far from today that we would like to implement before we properly launch in Italy and France.

Eyal Ofir

Okay, great. Thank you.

Operator

Thank you. Our next question is a follow up from the line of Ralph Garcea from Cantor Fitzgerald. Please go ahead.

Ralph Garcea

Yes, guys. A couple of quick follow-ups. On the registered users, you've been averaging 2 million-plus quarter over quarter. Did that continue through April into May? And is it linear through the quarters or are you just adding then regularly as marketing campaigns kick in?

Rafi Ashkenazi

Yes, it's based on the marketing campaigns that we are running.

Ralph Garcea

And has it been mainly in emerging markets or where have you, I mean, we've seen a lot of your commercials appear in Canada. Are you equally as busy in the US and in Europe with these campaigns?

Rafi Ashkenazi

No, we're operating, our marketing campaigns are running globally. There are the tier one markets for us where we have an increased budget for marketing. Specifically I'll give you an example, specifically in the UK since we launched the BetStars brand, also in the UK you will have an increased marketing budget combined between poker and sportsbook in the UK.

But yes, our marketing budget goes across multiple different markets with a focus on the tier one and the tier two markets. So UK and Germany and Italy and France, that's where a lot of our marketing budget would go, Spain.

Ralph Garcea

And roughly the registered user increases, do they follow your revenues splits by geography? Or are you growing faster in certain geographies?

Rafi Ashkenazi

So I am not sure I am following the question.

Ralph Garcea

Let's say the 2 million, the 2.6 million increase in registered users in Q1, did that follow the splits geographically from your revenue side? Or are you growing faster in emerging markets for registered users?

Rafi Ashkenazi

So as far as the marketing efforts, whenever we are launching, the last four, five months almost, we've improved our ROI, the return on investment, on our marketing campaigns. Whenever we are launching a TV campaign in a certain market, we see a quite significant uplift in terms of acquisition. But not only acquisition, we also see a significant uplift in terms of reactivating our players.

There are obviously some markets which are growing a little bit faster. I can give you like, Romania is a very positive market for us. We're quite happy with the results that we see in Romania.

And there are some other markets where we see the numbers in both those, let's say, emerging markets performing better than the more mature markets. But altogether, I would say that on an average, whenever we are running a marketing campaign, we are expecting to see a positive ROI and an increase in uplift in registration and reactivation.

Ralph Garcea

Excellent. On the recreational player, is he giving you an incremental dollar on casino and one on sportsbook? Or where is he choosing to spend that? You're still getting 2X-plus leverage on the recreational player across your other platforms?

Rafi Ashkenazi

The recreational players are cross-selling better than our existing players or than what we can refer to as the more professional players, the more professional poker players. We see a higher level of cross sell with the newly acquired players to casino and to sportsbook which is quite encouraging.

The focus for the Company has been this year to acquire as many recreational player acquisition is the key. It's definitely a key to grow the business and it's a key to grow everything vertical. We do see a better performance of this newly acquired players, primarily from mobile, when we are referring specifically to cross sell into the new verticals.

Ralph Garcea

Okay and then one last one for Danny. When sportsbook gets above 10% of revenue, will you split it out in a separate line item?

Daniel Sebag

When it gets above 5% I'll split it our in a separate revenue line item.

Ralph Garcea

So that'll be the end of Q2 hopefully.

Daniel Sebag

Right now Q1 is only about $5 million so I think you have to wait a bit more than that.

Ralph Garcea

Okay, thank you.

Operator

Thank you, ladies and gentlemen, there are no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.

Rafi Ashkenazi

Thank you, operator. 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 good-bye.

Operator

Thank you, ladies and gentlemen, this does conclude our teleconference for today. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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