XLMedia PLC

Welcome to XLMedia's Full Year Results 2023. I'm David King, the CEO, and I'll talk you through the results, including the finance section following Caroline Ackroyd's departure.

Marcus Rich, the Chair, will join me to take questions later. Business highlights.

[Technical Difficulty] launch when Ohio launched in January 2023. This is reflected in both revenues, profits, and the reduction in real money players that we were able to deliver during the period.

Albeit that represents a very good performance when we consider it in the light of the ever increasing competition that we saw in 2023 as new media entrants grew the scale of competition in the marketplace substantially during the course of the year. Let's just cover up some of the splits of the business and how it's -- how it sat in 2023.

As I said before, the number of scale of state launches in particular impacts period-on-period performance and comparison. Europe as a whole was down, 2%, and while the changing market conditions in the US has shifted the business mix with sport, North America, and CPA reducing as a percentage of the whole.

Gaming revenue share in Europe grew as a percentage of the whole, which is reflected in the chart that you can see in front of you. However, this does not change the business fundamentals, but does reflect the period-on-period impact, in particular of state launches in the US.

Partner revenues were 39% of group revenues, 90% of which was in the US. Post balance sheet events, I wanted to highlight for you, which many of you will already be familiar with, that we announced the sale of our European assets as a post balance sheet event in early April this year.

We received the first installment, as you will know, of 20 million on completion. And as a result, we are now focused on the North American business while continuing to support the buyer of the European assets in the transition from us to them.

In the information that we provided today, both in the presentation and in the RNS and CEO and CFO reports, we've attempted to increase the visibility of our North American business as that will be our continuing operations going forward. I mentioned, the real money player trend, earlier, the slight reduction we saw in 2023.

Well, this chart seeks to show you the trend over the three year period and in particular draws out the impact that I referred to of New York in 2022 H1. You can see that we've delivered growth in H2 '23 against H1 '23 which had the Ohio launch and that followed the entry into the market of ESPN Bet managed by Penn, having previously removed Basel from the market from an affiliate point of view earlier in the year.

I think the chart highlights the benefits of a regular flow of state launches, as you can see, running along the bottom. And, critically, it demonstrates the importance of a highly competitive operator market, buoyed, of course by the reentry of Penn with ESPN in H2 '23.

The North American regulation is obviously an evolving picture so a brief update if I may on that. And sport is legal live in 30 states and we participate in 21 of them for sport.

20 states are yet to regulate and this is an important part of the potential future of the business as that includes the largest states, Texas and California. Online casino, a much smaller part of our business is legal live in six states and we participate in four of them.

44 states are yet to regulate and those include New York, California and Texas, again three of the largest states in the US. We don't participate in states where there are operator monopolies, where there are other restrictions or indeed where we judge the state is too small to justify the investment in servicing that market and examples of a very small market might be for example Rhode Island or Vermont.

But, critically, and I think this is an important part of the future of business as states legalize. This presents a very significant opportunity for XLMedia both in sport, but also in growing our proposition in online casino.

Our priorities for 2024 have obviously been reset as a result of the sale that we made earlier this year. We are at this moment in the NFL off season in the US and as I think you all know everything slows down when the NFL season ends.

However, we are focused on preparing ourselves and our partners for the new season. By way of example, we're working on paid media app trials with a number of operators and we're looking at upgrading our content and our pages across both our sport and our casino sites in anticipation of the new season.

And we're working very closely, perhaps even more closely with all our partners. The majority of which I would flag have not been affected by the recent Google adjustments, and we are working with them to ensure that their content and promotional offerings, meet with the evolving requirements of the recent Google adjustments.

We don't have good visibility at the moment of operators' plans, but we will get some visibility of that as we get closer to the start of the NFL season. Spring and summer, we will see us support the migration of assets to Gambling.com while we seek to take out as much cost from the business as is appropriate commensurate with the scale and size of the business that we have in the US market, making sure that when we enter 2025, the cost base is reduced to the levels appropriate for the business going forward.

And in early October, we expect to receive the next payment of 10 million from Gambling.com following the sale of the European assets. And at that point, in quarter four, we will seek to make an initial distribution of proceeds to shareholders.

If I can now, I'll move on to the financials and talk you through the finance section of the deck. You've seen the headlines already, but if I can just draw your attention to cash balance, you'll see that we had 4.8 million of cash at bank.

At the end of 2023 having paid down significant prior year acquisitions costs and, of course, some tax liabilities in respect to 2016 to 2020 in Israel. A little bit more information to give you some dimensions around the splits of the business between the European business and the ongoing North American business.

North America represented 55% of the business in 2023 with sport being 98% of the US revenues. In short, you can see that we remain a sport led business with an opportunity to grow our casino business over time.

On the left hand side of this chart, you can see the split of our revenues between revenue share hybrid and the light green of CPA. So in addition to being a sport led business, we're also a CPA led business, paid upfront a one-off payment when we introduce a new customer to an operator.

CPA recommends some 93% of North American revenue in 2023. Going forward, the business as a whole will not enjoy the same level of hybrid and revenue share largely driven by the European business in 2023, and so income will fluctuate with the NFL season and with operator investment plans and state launches as we have previously indicated.

On the right hand side of this chart, you can see that we have given you an estimate of the breakdown of profits for 2023 split between the North American business and the European business. In order to arrive at these adjusted EBITDA numbers, we've obviously had to allocate shared costs, PLC costs across the two regions in order to get to the estimates of adjusted EBITDA.

But we think that's helpful in guiding you to the scale of the ongoing profitability of the business. Business, as I said, is historically being run on an integrated basis sharing and leveraging cost and resource.

Tech, finance, PLC costs, as I say, have been allocated to North American and to Europe. And the results being that North America will deliver this year or delivered last year, I beg your pardon, about 5.5 million.

Going forward, as I've already said, and I will say a little more, later, we are going to take out more cost commensurate with the scale of the ongoing business, therefore, improving potentially the overall profitability of the business. I've spoken a little bit about costs and cost reduction and you can see here that we've been quite effective in the year at reducing the cost base of the business.

2023 saw us take out some 8 million of costs from the addressable cost base. That's something around 23% of the costs.

In technology, which had always been and still is to an extent a major cost line, we cut spend by some 3 million, 2.5 million of which benefited the profit and loss account. And staff costs in the period fell from 19 million to 16.5 million again, shipped, saving some $2.5 million in the period.

As I said, there is more to do on that front as we move from the European and North American business into a US only business. In getting to our adjusted EBITDA numbers, having reported a group operating loss of 44.9 million, we have to make number of adjustments so let me talk you through that.

We made an operating loss as a result of a non-cash impairment of our European and US sport assets. There is more detail in the statutory accounts on the detailed breakdown of that.

The decision to impair these assets reflects the uncertainty over the timing and level of future revenues and critically the discount rate that we're required to apply to future cash flows from our owned and operated assets, which is 25%. It's also worth noting, of course, that these assets performed very, very well in the early years and we have already generated significant profits from operating those assets.

Now in arriving at this adjusted EBITDA, we've also removed as you can see 3.1 million of exceptional minimum guarantee costs in respect of one partner contract. This contract expires in the summer of 2024 and what I refer to as top-up payments, the difference between what's generated from normal trading and the additional payment to match the minimum guarantee are being treated as exceptional.

And the reason for that is the contracts are short in term, the amount is large in scale, and is not a reflection of the underlying profitability and ongoing performance of the business. In terms of cash generation, group generated approaching 10 million of cash, in 2023, but it had to pay 3.5 million in terms of in tax in Israel in respect of 2016 to 2020.

And while cost savings, as I've already discussed, contributed substantially to the cash generation. We have had to invest in order to deliver those cost savings i.e.

invest in restructuring. CapEx reduced year-on-year as large project were completed in Europe in particular and in shared services.

With the US only business going forward CapEx will fall further in 2024 as part of the rightsizing work that we are currently undertaking. As you can also see from the chart, proceeds from the disposal of assets during the period, namely, some marginal casino assets and personal finance generated US$6 million and that was contributed to the funding of paying 7.4 million of historic acquisition payments.

This is a little summary of our acquisition payments both in 2023 and going forward. You can see that we paid 3 million in respect of CBWG and 4 million in respect of STS in 2023, and we have already paid 3.5 million in 2024 in Q1 in a final payment in respect of CBWG.

There isn't a further 4 million payment, a further final payment by STS still to pay at the end of quarter three 2024. We have a strong balance sheet now as a result of the cash that's been injected following the sale and, critically, the clearance of these outstanding liabilities as there are no further acquisition payments in respect to previous acquisitions due after the end of this year.

So we no longer carry at the end of the year any further liabilities for acquisitions. If I can just move on to summarize, I think, where we're at for 2024 obviously our purpose remains that of maximizing the value of the business.

But just to give you some context, as we seek to do that, apart from North Carolina which launched in middle of March, there are currently no further confirmed state launches in the US in the rest of this year either for sport or casino. Albeit there are four states that are currently looking at regulation.

Now while we support the European transition to Gambling.com, we are seeking as I said previously to minimize the short-term use of cash, and to reduce costs in advance of 2025. We're looking closely.

We're working closely more particularly with all our partners, as I said earlier, most of whom have not been impacted by the recent Google adjustments. And we expect to make as I said earlier an initial return of cash to shareholders following the sale of European business in Q4 2024.

If I then move on to outlook and give you a flavor of the direction of travel, we've had a good start to the year in Q1. North Carolina as I said launched in mid-March, but that's critically after the NFL season and despite a good performance we anticipate there being further opportunity within North Carolina when the new NFL season starts.

Therefore, quarter one this year is not going to be at the same scale as quarter one last year, Ohio having launched in January. Rightsizing the business will see us invest again in reducing cost, as I say, that in order that we can end 2025 with a reset cost base and a tech infrastructure commensurate with a US only business.

We will ensure that our owned and operated websites and our partners take advantage of opportunities that are being created by the changing competitive landscape in North America. Clearly, some of our partners, will have to change the way in which we present information, and as I said, other of our partners have not been impacted by the changes to-date.

And finally, following the sale of our European and Canada assets, we anticipate, that we will deliver adjusted EBITDA for the continuing operations of the American business of around 5 million for full year 2024. And 2025 will benefit from the full year effect of cost savings that we're implementing in 2024.

Thank you very much for taking time to listen to this presentation. We'll now move to questions-and-answers and Marcus Rich, our Chair, will join us for those questions-and-answer sessions.

Thank you. Thank you very much, everybody.

As I say, once again, can we now move to questions-and-answers? I have a couple of questions in front of me.

I will pick them up and ask Marcus to answer one of them as well. So if I read them out for you and then we can we will go into answering them.

So the first question, thank you, from James Rayner. Would the company consider selling the US assets, and does the media partner business have, excuse me, have value for potential buyers?

Let me take the media partner business and perhaps Marcus can answer the question about selling the US assets. James, yes, we consider the media partner to be extremely valuable.

Clearly, it has no value on our balance sheet. It is a profitable activity.

It gives us access to markets with, scalable partners in a way that you wouldn't otherwise achieve through some of the owned and operated assets. And as I say, it allows us to leverage our skills in terms of both the delivery of content and promotional content to a wider audience in order to generate additional revenues.

And as you've seen from the charts earlier, they did deliver significant revenues. There is a cost to that, of course, in the period.

The revenue share, i.e., the percentage received by our partners from the revenues generated was about 59%, wasn't flat. It was exactly 59% in 2023, nevertheless, leaving 41% of the revenue to contribute to our profitability.

So very much valuable to us. And, of course, a potential buyer would have to look at that and how it fits with its business, but we would judge it to be a very significant value, not least that we have a very good relationship with our partners and critically, to-date, have always been in a position to roll, contracts when they come to an end into extensions.

Marcus, do you want to pick up on the question of whether we would sell the US assets?

Yes. I will do, David.

Thank you for your question, James. We've had interest for the US assets, in particular since the announcement of the European disposal.

There is an active M& A market in the US as we see consolidation happening. As David said, we see further growth in the marketplace with 20 stakes still to regulate.

The Board's responsibility is to maximize shareholder value. So we, as a board, would have to consider any serious offer for the American business and benchmark that against what the ongoing P&L looks like for the business in the US moving forward.

Thanks, Marcus. We have a second question.

Again, I think, possibly also from James. The question is, what sort of capital allocation the company plans to do in Q4 dividends or buyback?

Also, what's the reason for delaying that for another few months? So I'll pick up that, Marcus, you may want to add to it.

And we obviously received 20 million, I beg your pardon, we received 20 million, and as we said, we need to in the announcement of that sale, but we would use that cash to fund, short-term revenue capital requirements, US business and, indeed, as I've said earlier, to invest in reducing the cost base commensurate with the ongoing US business. And that will take place, and that will use a level of cash over the coming few months.

And we will then see further 10 million in end of, well, at the beginning of October. And we judge once we have received bulk of those revenues and once we have completed, all our tax work, as we did say, there will also be confirmationally level, if any, of tax payable on the transaction and that work is obviously across multiple jurisdictions.

That work is ongoing. We don't expect that to be a substantial, but until we finish the work, we can't be definitive.

And therefore, we think it will be most suitable to wait, build our other utilities, including the 4 million payable again in the September and then we'll be in a position to make an initial payment. Question of whether it's dividends or buyback, we've actually had, lots of inbound information from a number of shareholders.

But in the event, they would prefer to see a tender offer, we are taking advice, of course, on what the best options are. The sense we have from our shareholders is that dividends is not the most attractive way to return funds.

They would either be through buyback or through tender offer. And near the time, we will obviously confirm which route we are proposing to take.

So this is primarily about getting our ducks in a row. As I've said before, getting our allowances cleared, getting clarity of the, cost needed to bring the business into size for the future and then making a significant distribution in quarter four to [indiscernible].

In Q4, we think of a capital sum rather than an income sum. Do you want to add to that, Marcus?

Yeah. I think the only thing to add is we want to firm this up, and we'll update people on the mechanic, in July when we do the interims because we'll have done, as David said, most of the pre-work up to that point.

Yes. And I have those two questions in front of me.

Are there any more questions? I hope very much we were able to give as much clarity and need both in the words that we've presented in our documents and in the presentation itself, give people a clarity.

But are there any further questions than anybody would like to ask? There is a live Q&A link in the webcast, so anyone on the call can pop their questions there and submit it, and we'll see it immediately.

If there are no more questions and, obviously, we are -- it's even worse to think of a question or finding it difficult to get into the Q&As, to raise the question, then please do email. You've got the contact details in the recent RNS and then so that you're able to contact us.

Please do that and we will attempt to respond to your question and provide an answer if you're having any difficulties, either getting in, as I say, or indeed, at this moment, have no more immediate questions. Marcus, anything else?

We got one more question that has just come in. Andreas Dennis.

Thank you, Andreas. Do you think the most recent Google update will have a positive effect on the [indiscernible] traffic of our owned assets for a potential buyer?

Andreas, yes. It's very early days.

Yes, and I think you would have seen announcements from some of our affiliate competitors. We are seeing upticks in the rankings of our owned and operated profit offices.

You'll be aware over time that there's large media players who come into the marketplace. Indeed, we work with, one or two ourselves, but there are a lot number of other very large media players in the US.

They obviously have very, very strong authority and therefore, Google ranking. And therefore, they have a very strong presence in all the markets in which they present their content, and that has had in short-term historically an impact on the visibility of some of our own inaugurated sites.

We're talking about things like Sports Betting Dime and Crossing Broad etcetera. The changes that Google implemented over the last couple weeks has definitely resulted in an increase in visibility of our pages and all our websites.

And, indeed, some of our smaller partners, we happen to see a very broad range of partners, some very large ones and some medium and, indeed, some very small. We've also seen similar significant improvements in the rankings, of some of the pages of number of our partners too.

So there is definitely a potential significant improvement in the value of our owned and operated profit owned and operated properties as a result of the Google changes. And, of course, there is no payaway owned and operated revenue stream.

Too early to call, if I'm honest, in terms of how that will impact in terms of improving performance either on these numbers, small number of partners you have been affected, and indeed how much impact it will have in some positive impact. But we are tracking that very closely.

We're working very closely with partners who have been impacted. We have working very closely with partners who have not.

All of them are seeking our guidance and support. So, we think, net-net-net there is certain for our avenue value increment.

I have another question actually from BP. Is the goodwill valuation on the US assets a realistic value we might achieve on any disposal?

I think in the event they were disposal, clearly, the value of that asset would have to be determined relative to what was acquired. And you'll recall when we sold European assets, when we sold them absent the corporate costs.

And when you're doing a valuation internally in a business as we do for our US assets, we have to apply the corporate costs by the shares, technology, finance and PLC costs. So the evaluation of both the European assets and the US assets shown on our balance sheet is having absorbed, what I would call share and corporate costs, which in the event of a buyer may not acquire.

And therefore, one would expect the value to the buyer to be more on a marginal benefit basis rather than fully absorbed basis. Are all outstanding tax issues resolved by any future potential, which may still come out of BP?

We made a provision in the balance sheet for, the full estimate, the maximum liability that we would incur on trading profits. We obviously are working to ensure we don't actually incur the full level of that tax liability.

We're also working to ensure that the costs of acquiring the assets that are being disposed of are able to be offset against the proceeds to minimize any tax liabilities from disposal. So, there are no, unexpected tax liabilities out there.

Well, by definition, we provide it for what we know. Would the whole company be more likely than the sale of the assets?

I mean that's Giovanni. Marcus, would you like to pick up the question on the sale again?

Yeah. I mean, the we had, conversations about the full PLC disposal.

The dilemma was really threefold. One is people were pegging the price to the share price with AIM generating probably a 45% premium where we were quite clear that the asset value of the business was significantly greater than the aggregated share price.

Secondly, the assets were clearly the incoming identified separation, so partners were more interested in the individual assets. And the third component is, we felt we could deliver significantly more shareholder value, with the sale by doing it as an asset sale rather than a full PLC sale as we prove with the European one where we got two times, market cap.

Thanks, Markus. The next question is coming.

Do you think the USA assets are working more than the EU assets? I think it's always, not some time appropriate for us to be attributing, estimates of value.

Other than to do so is full part of the formal, annual book in terms and evaluation review using the appropriate tools. So, clearly, the value of the European assets reflected the shape and nature of the market and the value to that buyer at that time.

I personally think these assets are good assets with significant potential, as I've already said. Market is increasingly competitive, but as a result of these recent changes are our owned and operated assets, which there are things that are on the balance sheet.

Their valuation could and would improve if their trading is through the result of these recent changes. But we I must say we remain very enthusiastic about the potential both of them in trading terms, but also in value terms for the USA assets.

And it says, can you give a little bit more color on the earnout from the recent disposal, BP? And so you will recall that in the transaction with, gambling, there's a $37.5 million fixed price and there's up to $5 million of earnout.

That $5 million of earnout is based on the business in the Gambling.com's hands, achieving certain revenue performance levels. Again, we have some visibility clearly of how that's performing at the moment, and I can say that for the first month, we are very pleased with the trading performance of the business that is now owned by, obviously, by another party.

And if that were to continue then we would expect to see some form of payout from that. But at this moment, we have to wait until the full year out at the end of this financial year, the nine months, and that will ultimately determine, what the payout from that earnout is.

We don't we no longer control, obviously, the revenue stream, but we continue to support them. And as I said, we, believe that performance is good so far.

All right. Well, thank you very much again for those additional questions.

I think we have one more, actually. Sorry that's just roll up the screen.

Can you clarify your value of the current and the cash balance on the retained US dollars or have you converted? And BP we have retained them in US dollars.

We obviously reached a very simple report and most of our transactions are in US dollars and going forward will be in US dollars with the exceptional, small number of Israeli costs and UK costs. Those cash balances that we currently enjoy are currently on deposit earning interest and made for maximum use of both short and slightly longer term rates that remain in US dollars.

Okay. Thank you very much for those questions.

Very helpful questions. If there are no more, we will end this session, but I'll repeat.

If there are any further questions that come to mind, please do send them and we will attempt to resolve and answer them. Okay.

We'll close down the session. Thank you very much, everyone, for your time.

Marcus, thank you very much.

Yes. Thank you.