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NeoGames S.A. (NASDAQ: NGMS)
Q4 2021 Earnings Call
Mar 10, 2022, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the NeoGames fourth quarter 2021earnings conference call [Operator instructions] Please note that this conference call is being recorded today, March 10, 2022. I will now turn the call over to Mr.
Jacques Cornet with ICR.
Jacques Cornet -- Investor Relations
Thank you, operator, and hello, everyone. By now, you should all have access to our fourth quarter and full year 2021 earnings release, which is available on the NeoGames website at www.neogames.com in the investor relations section. Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward-looking statements. These forward-looking statements, which are usually identified by use of words such as will, expect, anticipate, should or other similar phrases, are not guarantees of future performance.
These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and therefore, you should exercise caution when interpreting and relying on them. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the Form 20-F for the year ended December 31, 2021, when it is filed with the SEC. During today's call, we will discuss non-IFRS financial measures, which we believe can be useful in evaluating the company's financial performance.
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These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with IFRS. A reconciliation of these measures to the most directly comparable IFRS measure is available in our earnings release on the www.neogames.com website. Hosting the call today, we have Moti Malul, NeoGames' chief executive officer; and Raviv Adler, chief financial officer of the company. They will provide some opening remarks, and then we will open the call to questions.
And with that, I'll turn the call over to Moti.
Moti Malul -- Chief Executive Officer
Thank you, Jacques, and good morning, everyone. Last night, we released our fourth quarter and full year 2021 results. Before touching on the fourth quarter results, I will highlight some of the accomplishments we are proud of as we wrapped up our first full year as a publicly traded company. I will then provide an update on the fourth quarter as well as the trends we're seeing in the market before turning the call over to Raviv to run through our financials, business performance and 2022 guidance.
However, before I begin, I would like to dedicate a few words to our teammates and colleagues in Ukraine. On behalf of myself, our management team and board as well as the entire NeoGames family, our thought and action are with our colleagues based in Ukraine and their families. They are enduring an unprecedented and unspeakable crisis in their nation, and their safety and well-being is our prime concern. They have shown unparalleled determination and bravery, and they have our wholehearted support in their justified call.
We continue to provide assist to the best of our ability to support the relocation efforts to safe areas in and outside Ukraine, and we pray for these difficult times to end swiftly. I will provide further explanation in a few minutes about our business continuity effort and impact. Looking back, it has been a very exciting year for NeoGames, our first full year as a publicly traded company. We remain concentrated on our vision to help drive iLottery customers to reach their full potential by empowering them with the best technology, combined with powerful game experiences and a full complement of market-leading expertise and insights.
In the U.S., according to Eilers & Krejcik, the top three states for all of 2021, as measured by gross iLottery sales per capita, were Michigan, New Hampshire and Virginia, all NeoGames customers, and this makes us very proud. Furthermore, while our customer state accounts only represent 33% of the population of states with iLottery, the NeoGames-powered states generate 67% of iLottery GGR generated in the entire U.S. market. In Alberta, investments in expanding gaming verticals powered play Alberta to a record year, with the full rollout of draw-based games, live dealer and online sports betting.
More broadly, we launched multi-game progressive jackpot with instant content for three customers already as well as innovative online raffle technology. We have launched several successful product innovation through our NeoGames Studios, titles which continue to be the cornerstone to the revenue growth we've seen across our key accounts. We entered into content deals with several national lottery across Europe, including Austria, Italy and, most recently, Turkey through our partner Sisal Sans. We also announced the first NeoGames Studio content deal in Canada with Atlantic Lottery Corporation.
While the revenue benefits from games are currently modest, we view them as important fundamental investments in relationships that may grow with other future products and services we may be able to provide. We're also proud of our strong partnership with Caesars Entertainment. In 2021, as part of the Liberty solution, we went live with five more states and including New York, which launched in early January, and Illinois, which launched this week, bringing the total number of states that will support their online sport betting and live gaming offering to 12 states. As a result, revenue contributions from this strong partnership has grown by almost 20% in 2021 compared to 2020.
We ended 2021 with strong momentum that is carried over into the start of 2022. As I'm sure most of you are aware, in January, we announced our offer to acquire Aspire Global. This transaction represents a major strategic step forward for us and will create what we believe is a global leader across all interactive gaming verticals including online lottery and the gaming industry. As I mentioned on our investor call held in January, when we announced the transaction, we view the combination with Aspire as a natural strategic progression of our company.
The transaction will enhance our scale and competitive position across all business plans. The transaction process continues to progress in line with our timing expectations and we still expect it to close in the first half of 2022. Looking at our results, we continue to significantly grow our business year over year and outperform the market. For the fourth quarter, our revenues, combined with our share of NPI revenues, was $21.3 million, representing approximately 15% of year-over-year growth.
For the full year, this number was $84.5 million, representing an increase of about 44% year over year. We're incredibly proud of these results, and we'll continue to execute our growth strategy as we take this momentum into 2022. Looking closer at the recent trends we're seeing across our customer base. As reflected in our prior guidance, we saw single-digit sequential decrease in Michigan iLottery sales.
However, with the momentum we saw during the latter part of Q4 and as we begin 2022, we believe trends are beginning to stabilize in the market as we anticipate that they may, and we hope to return to modest growth at some point during 2022. We continue to work closely to support the measured and disciplined approach demonstrated by the state lottery with its iLottery program and remain confident that the foundation our joint teams have built in the state will lead to sustainable long-term growth as we have seen other markets with similar landscapes. Keep in mind, however, that year-over-year comps for the fourth quarter were partially impacted by the significant double jackpot trend, which started in December 2020 and we will particularly evident in the year-over-year comparison next quarter. Outside of Michigan, our North America accounts continued to benefit from robust growth due to the rollout of our platform and introduction of new content throughout the year.
As a result, most of our accounts have more than doubled in the revenue contribution during 2021 compared to 2020. Specifically, both Alberta and Virginia have excelled beyond our expectations. In Alberta, for example, following the rollout of online sports betting, live dealer and draw-based games, we have driven the market to become our second largest account despite the fact that we only launched there a little over a year ago. We are very proud of the performance of these accounts and see that the model of where we can add significant value to new accounts that make full use of our platform as we implement the widest range of offering from iLottery to iGaming and sports betting, driving significant revenue growth.
Our relationship with Sazka has also proven to be highly beneficial as they grew online GGR to be about 39% of their total GGR generated in the Czech Republic. Another great example of our tech driving growth for lottery operators expanded into a wider range of gaming verticals. The regulatory environment and state authorization in U.S. for iLottery continues to evolve in the states, which we have discussed on prior calls.
Among others, we see certain progression in iLottery legislative discussions in Ohio, and we continue to monitor for an autopsy in West Virginia as a further step to the process we commenced late last year. Outside of the U.S., we see continued movement of lotteries formation and deregulation in the Brazilian market, which we believe will provide for iLottery opportunities in the years to come. With that, I want to come back to the conflict in Ukraine. As many investors are aware, we have a portion of our employees based in Ukraine.
First, it's important to note that our revenues from iLottery, which represents the vast majority of our revenue base, are driven from long-term recurring revenues, which are not impacted by the crisis. To that end, a little bit of a background. Over the first part of the year, we have been planning for and are now implementing a business continuity program, which includes several critical elements. First, by working with all of our global teams, we have successfully ensured that there has been no service or system disruption throughout our customer base.
Second, we redeployed ongoing development efforts across our global teams, including many members of our Ukrainian teams who are currently operating from safe locations, both outside and Ukraine. Third, in order to mitigate the potential for future impacts to development and product innovation for our customer base, we have stepped up our recruitment activities in other locations where we have existing business relationship, such as Poland, Bulgaria and others as well as supporting the relocation efforts of our Ukrainian employees to safer regions, such as in the Czech Republic and elsewhere. Indeed, certain portions of our revenues within the fee-for-services segment is revenue that was partially tied to our Ukrainian workforce, providing such development services that we are working to mitigate. Our guidance, which Raviv will cover in greater detail, is a bit wider than normal as, among other items, it takes into consideration all the possible outcomes related to the Ukrainian crisis.
I would like to also mention in this regard that our entire customer base in North America and Europe has been extremely accommodating and expanding additional assistance in a variety of ways. For example, Sazka in the Czech Republic has been very helpful in our rapid effort to create a safe harbor for our employees to relocate to. And for this, we are very grateful. This is such a great demonstration for the strong relationships we have developed through the years with our customers.
With that, I'll now turn the call over to Raviv.
Raviv Adler -- Chief Financial Officer
Thank you, Moti. Before I get into the results, as a reminder, when we discuss our results, I would point out that all of our iLottery business in North America operates through our 50-50 joint venture NeoPollard Interactive or NPI except in Michigan, which is reflected in our top-line revenues. Our contracts in Virginia and New Hampshire, North Carolina and the province of Alberta run through NPI. Except for the NPI contract, we conduct all of our business through NeoGames.
As a result, from an accounting standpoint, as many of you know, we generate revenues and earnings through our wholly owned operations and through our equity interest in NPI. Now, turning to the results. Our revenues, as reported on the income statement, which excludes our share in NPI revenues was $12.3 million during the fourth quarter of 2021, down 3.9% over the same period last year, primarily due to the decline in Michigan results and as we have explained during the year. Our share of NPI revenue was $9 million during the fourth quarter of 2021 compared with $4.5 million last year.
The sum total of these two numbers was $21.3 million during the fourth quarter, representing an increase of about 15% year over year. For the full year, reported revenues were $50.5 million, up 2.6% compared to 2020. Our share of NPI revenues was $34.1 million for the year compared with $9.5 million in 2020. The sum total of these two numbers was $84.5 million, representing an increase of a bit below 44% year over year.
Generally speaking, fourth quarter earnings were impacted by a few one-time items. These nonrecurring items impact include approximately $3.8 million as acquisition-related expenses related to our pending acquisition of Aspire Global and about $2.6 million related to our employee stock-based compensation plan. Both of these items were adjusted in calculating our adjusted EBITDA for the quarter. For the quarter, our adjusted EBITDA was $7.9 million, which is down 13.9% compared with $9.1 million last year.
Overall, we are comfortable with where margins are and where they will be as the business matures. Diversifying and growing not only the customer base but also product types is an important element of our growth strategy. Turning to our balance sheet. We ended this quarter with about $66.1 million worth of cash and cash equivalents.
Our outstanding debt at the quarter end was approximately $33.6 million at a weighted average interest rate of 1%, leaving us in a net cash position of $32.5 million. We have 25.5 million shares outstanding at the quarter end. A few words about guidance. We see the growth trends bolstered in 2021, primarily with the launches of new accounts to follow through in the growth from our existing customer base into 2022 although, obviously, with more modest growth rate.
Therefore, we're initiating 2022 revenue guidance of between $90 million to $97 million. At the midpoint, this would represent year-over-year revenue growth of approximately 11%. Keep in mind that the revenue guidance does not include the launch of any new turnkey contracts nor presumes the close of the merger with Aspire Global, after which we're expecting to provide the market with a revised guidance. It also assumes the full range of possible outcomes from the Ukraine crisis, which is, as Moti mentioned, is why the range is wider than typical.
With that, I will turn the call back to Moti.
Moti Malul -- Chief Executive Officer
Thanks, Raviv. 2021 has been a transformational year for us. We grew significantly in all our KPIs, and we solidified our leadership position even further as the leading iLottery provider in the market, which drives consistent and solid success to our customer partners. And we have entered 2022 with a strategic announcement on our planned acquisition of Aspire Global, which will position us in front of an amazing opportunity to capitalize in the global markets of iLottery, iGaming and online sports betting.
To the end, once again, I would like to extend what I believe our joint wishes and prayer for everyone to the swift and safe resolution of the conflict in Ukraine. With that, we thank you for joining us this morning, and we're happy to answer any questions. Operator, please open the line for questions.
Questions & Answers:
Operator
Thank you. [Operator instructions] Your first question comes from Barry Jonas from Truist Securities.
Barry Jonas -- Truist Securities -- Analyst
Hey, guys. Thanks for taking my questions. First off, as you've had some time to dig in further into Aspire, do you maybe have a better sense about potential revenue or cost synergies?
Raviv Adler -- Chief Financial Officer
Yeah. Thanks, Barry. Good morning. We've been looking into Aspire up till the point in time we've announced the transaction.
As you are aware, we're now in a focus of completing the transaction by the timetable we've promised the market, by the end of Q2 2022. We have a couple of areas in mind, but we are not providing any detail at this point in time, and we'll wait for the transaction to be closed.
Barry Jonas -- Truist Securities -- Analyst
OK. Understood. Then maybe just a higher-level question. What do you think is holding back the U.S.
states that have not approved iLottery at this point? Is there something that maybe would spark more of a domino effect or is there a tipping point? What's the best way to think about that?
Moti Malul -- Chief Executive Officer
I don't think anything specific has changed from the various factors that are so-called holding back that you said. It's just a natural, I would say, conservative progression of lottery generally speaking, even in adopting other similar patterns like not only iLottery. If you take the keno rollout across the U.S. state from when the first state launched data and where it is today, which is by the way, only about half of the state, you can see another example in the products.
In retail, of course, with the different ones. We see that the hesitation has always been around what we mentioned in the past, what impact will that do to retail. I mentioned again here, as we mentioned to all legislators that we have seen nothing but parallel growth with retail. Expansion of gaming by government is always a sensitive matter, and they are taking it in a responsible manner, and we're doing our best to help our lotteries to continue and promote.
What I can say that is very different on a positive note at this day than where we were a few years ago is that today, there is no single director of any lottery in the U.S. that does not understand that iLottery, if they could, would be the best option for them to grow revenue into the future. If in the past, there has been debate around that, this is now nondebatable. So now it's only a move on the legislation front.
But it doesn't say that there's anything that has changed from the reasons we mentioned in the past.
Barry Jonas -- Truist Securities -- Analyst
Got it. All right. Thanks, guys, and hoping everyone in Ukraine on the team is safe.
Moti Malul -- Chief Executive Officer
Thank you, Barry.
Operator
Your next question comes from Jeff Stantial from Stifel. Your line is open.
Jeff Stantial -- Stifel Financial Corp. -- Analyst
Great. Thanks. Good morning, Moti, Raviv. It's good to hear from you both.
I wanted to start on margins for a minute. I think last quarter, you had talked to some nonrecurring launch costs. Was there anything sort of one-time in nature that impacted EBITDA margin? Specifically, in Q4, is kind of the 37% or so the right way to think about the business as it stands with your current contract mix?
Raviv Adler -- Chief Financial Officer
Yeah. Thank you, Jeff. And indeed, you know we ended up the quarter with roughly the same margin profiles in terms of numbers and percentages as we closed Q3. There has been some one-timers associated with some currency devaluation of the dollars against the expenses that we incur in Israel.
But in -- generally speaking, we believe comfortable with where the margins are currently trending, given the profile of customers and the revenue mix and believe that the band of high 30s to low 40s would represent well where the business should trade given our current customer mix and revenues profile.
Jeff Stantial -- Stifel Financial Corp. -- Analyst
OK. That's great. And then for my follow-up, on the top-line guidance, you mentioned just an unclear impact from Ukraine being the main explainer for the difference in range. If memory serves, your initial guide for 2021 had a $4 million spread between the low and the high end.
It looks like you're going with $7 million for the guidance you introduced. Can I back the two out to get sort of what your thoughts are for potential impact to the fee-for-service business line from disruption in the Ukraine or is there more to it than that?
Raviv Adler -- Chief Financial Officer
No, the wider range, as we've noted on our notes to the quarter, was mainly associated with the potential impact of the Ukraine crisis, which, as Barry noted, we all hope to see being concluded in the coming days in a safe way. That being said, and Moti touched it on his notes, we've taken all the mitigation plans required in terms of moving certain elements of the business to other teams globally so that we expect that the vast majority is already mitigated within our existing performance. That being said, we have provided a wider range because we have -- given the changing circumstances on a daily basis, it's very difficult to predict how things would fall at the end. With that notion, I would just add, and again, it was touched by Moti, that a vast majority of our revenues is generated through the iLottery contracts in the U.S.
market and given the same mix expectations also into 2022. If there's going to be some revenues impact, it's going to be marginal.
Jeff Stantial -- Stifel Financial Corp. -- Analyst
OK. Understood. That's helpful. Thank you.
And if I could just squeeze in one last one, one quick clerical follow-up on the guide. So you mentioned no new contracts in guidance, but I just want to be clear, does that include any contribution from getting instant tickets up and running in North Carolina? Or would you count that likewise as a new contract?
Raviv Adler -- Chief Financial Officer
North Carolina is blended into the guidance into -- mainly during the second half of the year. And this is the reason why we've used them. One of the reasons why we've used the range that you see currently between the 92, 97 -- 90 to 97, sorry.
Jeff Stantial -- Stifel Financial Corp. -- Analyst
Perfect. That's helpful. Thank you both.
Raviv Adler -- Chief Financial Officer
Thank you, Jeff.
Operator
Your next question comes from Chad Beynon from Macquarie. Your line is open.
Chad Beynon -- Macquarie Group -- Analyst
Hi. Good morning, Moti and Raviv. Thanks for taking my question. Wanted to touch on Michigan.
In your prepared remarks, you noted that trends have stabilized there. Wondering if you have any views in terms of why this is stabilized after only a little under a year in the market. Do you believe it's just been kind of the passage of time of people trialing the other products out there? And then is the lottery doing anything from a marketing standpoint to help you assure that this has stabilized? Thank you.
Moti Malul -- Chief Executive Officer
Yeah. Thank you, Chad. It's a good question. Yes, the answer to everything, in short, is yes.
We have mentioned in the past that actually it took maybe longer than expected to get into stability and then looking at growth patterns in a competitive environment just because of the very fierce marketing spend by the others in the market, but we were hopeful that we could work. We will get to a point where this stabilizes and starts to see growth patterns, and we very much believe that there is good reason to believe we're there. We see through the numbers where they're coming from, and they do let us know that the growth is sustainable, and that's generated through the fact that new players that are joining into the system are lottery players because they know that there is gaming in state. So once we have finished with a mix and match of players that maybe won't actually belong to the other side and now we're incurring new players, those new players are coming into the activity, the iLottery program at the point of time that they are aware about everything in these areas in the market.
That's why we believe it's more sustainable. The lottery marketing is doing tremendous work really, really in the last couple of months. As we mentioned, they were very disciplined. We continue to be disciplined with marketing spend.
By the way, it seems like the entire online sports betting market is now joining their disciplined approach. But I think that this is working. And we have good reasons to believe that we've reached the point of sustainable growth. It will be modest growth.
We're not going to grow double digit year on year given the competitive rate facing the market. But we believe that there's good reasons to see that we were -- we shouldn't continue to decline.
Chad Beynon -- Macquarie Group -- Analyst
OK. Perfect. Thank you. And then I wanted to ask about the fee-for-service contract with Caesars.
Just wanted to get a little bit more of an understanding of how this should flow through. So my understanding is Caesars has made a pretty big push at the end of in 2021 with your help with their new Liberty platform. I think they have a few more markets, as you mentioned, where they'll be rolling out, Illinois and then Canada and the like. Can you just help us understand that when Caesars gets to a point where there's no new launches, kind of how the revenue picture will start to look given it's more of a fee for service? I guess there will always be new states for Caesars, but just trying to think about '22 versus '21 in terms of all the help that they will need from your team.
Thanks.
Moti Malul -- Chief Executive Officer
Yeah. The activity that we support for Caesars continues to grow. And while it's not revenue share director, it is connected to the magnitude of the activity that we need to support for them. So with more states, there's more needs for people that will monitor, maintain, handle roll line and so on and so forth, apart from just the development team.
The development teams themselves are now focused on two aspects. One is the continuous rollout of market. And there's still ambition to do that in quite a number of states. I can't speak, of course, on behalf of Caesars, but we're supporting everything they're doing.
And there is also, side by side with that, quite an enhanced and ambitious road map to improve the product itself. It's two parallel efforts. So it could be that, at some point, the part of the efforts that is pointed toward states rollout will stabilize that probably. I have to say that we are not there yet according to what we see in terms of ambition.
But the rest will continue to maintain its existence throughout the year.
Chad Beynon -- Macquarie Group -- Analyst
OK. Great. Thank you very much and best of luck.
Raviv Adler -- Chief Financial Officer
Thank you, Chad.
Moti Malul -- Chief Executive Officer
Thank you very much, Chad. Good luck to you, by the way, this week -- next week, sorry.
Operator
There's no further question at this time. I would now like to turn the call over to Moti for closing remarks.
Moti Malul -- Chief Executive Officer
Yes. Thank you, guys, for joining the call. As always, we continue to appreciate any interest in our story, in our company, and we're really, really thrilled from what we're seeing in front of us in 2022. Hoping for the swift resolution of the conflict in Ukraine as always because these are, first and foremost, our friends.
Thank you, everyone for joining.
Operator
[Operator signoff]
Duration: 33 minutes
Call participants:
Jacques Cornet -- Investor Relations
Moti Malul -- Chief Executive Officer
Raviv Adler -- Chief Financial Officer
Barry Jonas -- Truist Securities -- Analyst
Jeff Stantial -- Stifel Financial Corp. -- Analyst
Chad Beynon -- Macquarie Group -- Analyst
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