Hello viewers and welcome to another GI Huddle. I'm here again with Michael Daly, Katina Media CEO. Michael, thanks very much for joining me.
Thanks for having me, Tim. It's a pleasure and as I just mentioned to you before we got started, for me this is a bit of fact-finding mission because it's a time of transition for Katina Media, plenty going on. It'd be great for our viewers to hear straight directly from the CEO what kind of things you're planning or undergoing at the moment. And I'll start with, obviously, you had the strategic review. This led to the sale of Ask Gamblers and many other things that internally you'll know as well.
What were the main outcomes of the review? Absolutely. So our 2022 strategic review was about determining our position in the world.
And. what was going to be the most investor value for the organization. So part of that review was looking at the gray market versus the white market trajectories. S Gambler's fabulous product for us had been, but was in a world that was a completely gray world.
We had been receiving letters from markets that were slowly shutting down or moving towards white, which is what the world is going to be doing more and more of. So Australia, Sweden. the Netherlands, Canada, all were sending out information that these were becoming not gray markets anymore, but black.
So we don't operate in black markets. So it made sense for us to start looking for what we were going to do. First questions are, can you take Ask Gamblers and make it a US product?
It's a very different, it's a directory style product made for a large number of operators, which is not the US or North American portfolio. Probably maybe might work in Latin America, but- Latin America is now also regulating as well into a fewer number of operators, probably in a regulated environment. So it didn't work.
And the strongest thing there was the consumer base, which went there to complain about issues with operators and help recovering money. Also not necessary in regulated markets. So it didn't fit with our portfolio moving towards a regulated focus because we were going to be in conflict with ourselves. So we decided it was best to. remove that asset.
And there are still more markets that they're going to have to curse out. It's one of the largest markets for gray market operators. There are like 800 operators operating under five licenses there.
Now, a large number of gray operators means that those are probably being served by directory services like that product. So at some point, that all may go away. That seems like a risk that we should rather be proactive about versus reactive too, because even if those operators open up in other markets, If that's a rev share product, then they already know the highest value players and they'll just directly take them versus work through an affiliate again. So it would make sense for us to look at other options for that and divestiture.
And it worked well with someone else's portfolio and what their strategy is. So good that it worked for the team and the product and for both companies. And so with that payment stream, we can then do some other things which were part of our strategic review, which were focused on.
maximizing investor value in these more uncertain economic environments. So for us, it was about how do we create shareholder value? And that is making sure that we have reached a position where debt is no longer a massive driver of interest payments and et cetera. Well, you know, those things fall below adjusted EBITDA, tax payments, et cetera, interest payments, but those are still impactful to the bottom line. And so we have millions.
And we have a small amount of debt compared to some of those out there in today's world. But interest payments are expensive as they were. Going forward, they're going to be more expensive as everybody has reached his points of refinancing. So our view was it was best to take said capital and reinvest it into the shareholder by reducing the amount of debt, looking at them.
Can we do share buybacks? Maybe dividends become on the table, other things. M&A also, but M&A probably more in a contained way because, again, it's just making sure that you can see the returns on that versus the cost of the capital to do so. So that was part of the strategic review. The other part was then post-strategic review, we announced we would, or end of it, we announced we would probably look at divesting other potential parts of the European business.
Same thing, there are markets that are still… less certain in terms of now the UK has come out with the white paper. So that's a little better. But there was markets that were uncertain. So we said, let's focus on the core markets for us in Europe, Italy and the UK. Let's look at what we do with the rest of those assets.
And maybe if UK and Italy, if the numbers are right and the teams find a good home like we did for Ask Gamblers, maybe it makes sense to take that value now and invest it into, again, either our shareholders maximizing the value of the organization or M&A without taking on more interest and debt in the Americas, since we know North America has a faster growth rate over the next 10 years, and Latin America as well. And then you saw us engage Carnegie, which was... Also part of this, so our team internally, we're pretty good at operations, I would argue, particularly on SEO organic, which is our forte in the affiliate space today. However, being able to make the best assessment for our investors of what the future should hold, if someone were to come forward with an interesting offer on acquiring some or all of the assets of the organization, of those that we weren't currently...
considering selling, which we denounced on the European side, or if the right strategic partnership or the like should come along, how do we assess that for what is best for our investors, our essential owners, for the medium and long term? My management team wasn't in the place to do that by themselves. And those sort of things become a massive distraction.
So engaging Carnegie, spending some time getting them up to speed on the state of the business, allows us, as those things come along and opportunities or a potential conversation around relisting or the like, we have an external advisor now who's familiar with us that we can utilize to help assess those things. So while some say the strategic review is still going on, my view is we are done with the strategic review. These are outtakes of it to help us be set up for what the world may bear that's in or outside of our control going forward in terms of you know, we may pursue something or we may be pursued.
And both those are slightly different scenarios and what you need to do to be best set to understand it. Yeah, I'm definitely going to ask you about the Carnegie and the second listing as well later on. Sure.
I'm glad you addressed the kind of the Ask AMBERS because I was going to ask that as a potential follow-up question, but it makes perfect sense that that was a key take from the strategic review. And I think a follow-up from what you said, I would want to ask, can you see a future where Katina is 100% America's? There is no European side to the business. So let's not first discount APAC.
We have operations in Japan. It is now our only grey market. And there are questions about the futures of the grey market there. The land-based casinos that I've been in gaming now 20 years this month, land-based and online. I think I entered the space they were talking about opening the casinos in Japan.
So it's a slow to change market. But it is a market that will change. But since they're moving towards regulated land base, it means online will move towards regulated over time.
We may be in a good position for that transition. Or it may require considering, is it something that needs to be shifted in strategy later? But again, it's a very slow moving.
But APAC has been a small contributor. bigger during COVID times when it blossomed. But again, it's gone back to its slower growth trajectory, but it's still a growth area for us potentially. But yes, I could see potentially if the market conditions are right in the Americas, and that is the best use of capital and growth, then we would potentially deprecate further the European operations in favor of the Americas. However, Hama...
That would be on the business side, the operational unit side. We are a global organization. There are exceptional skills in Europe for affiliates from people and technology.
Now, let's face it, it's 3x or more to have someone work in North America than it is globally. So why would we put all of our resources into North America? So you can expect us to be a global company regardless of at which point we choose which markets we're going to draw. revenues from.
Yeah, that definitely makes sense. As you say, the distinction between internal resources and operational. Like I said, you reported your Q1 recently.
We won't focus our whole interview on Q1 because there's a whole lot more going on at Katina. But a couple of reflections. Revenue was slightly down, which you described as satisfactory.
I think the point about New York launching last year does explain a lot of that. But I wanted to ask... That's not necessarily a point that other affiliates and operators maybe made in their Q1s. Is this because this focus on North America and also maybe strength in New York, that's quite a central part of the business for Katina.
Does that explain why it was very tough to compete with a time when New York launched this year? So, yes, so we were we were probably we've been ahead of our competitors in North America. There's been a series of acquisitions and other moves by competitors to enter the space over the last year or so or two years where they're starting to see those gains from that of, you know, things we didn't do on the M&A front because of the cost of those things or the positioning of ourselves.
And so. We did exceptionally well in New York last year. Remember, we did two acquisitions prior to New York, and we did say when we did those acquisitions that we did them because of their strength in certain markets that were coming up, New York being one of those. New York was a very strong launch for us.
Per capita, Ohio was better this year. So it was our strongest launch per capita, but per capita, it doesn't make up for the 8 million person difference, I think, between Ohio in New York and then the small addition of Louisiana in there the previous year. So it was a very hard competitive number for us to come up to.
So I was satisfied. Again, I won't ever be happy if we are not growing year over year, but there are the things we are, a CPA, mostly driven business in North America at this point. And so we take essentially the net present value of a rev stream of multiple years and compress a lot of that into whenever that player signs up.
And so In New York, a lot of those are in the first month or first quarter. And that was the same with Ohio. But New York bigger.
So it is what it was for the Q1. Again, our goal is always to grow year over year. That's part of our beginning partnerships now that we know that they can work with NJ.com and other ones that we've announced and are moving forward in and after the quarter so that we can start to expand on things beyond just...
state launch growth periods. Yeah, absolutely. Related to that, you said in your CEO comments, you said the ambition was to be net cash positive, which could potentially enable kind of future acquisitions in the Americas.
You even touched on it earlier. Obviously, in the affiliate sector, you know, the big firms acquisitions are always on the table. But looking ahead, you know, what type of acquisitions could you be looking for? I know you mentioned. With a strategic review, there's plenty to think about.
There's plenty of options. But LATAM, more North American acquisitions, I'm sure this is something that you've given some thought over time. I give it thought a lot. And again, this is something we debate between the value of doing acquisitions versus the value to our shareholders and reducing the debt position and removing interest rates. Because if you're paying, if I have to refinance something and interest rates are 10, 12% now, then you have to make sure that what you're going to do is going to have that sort of immediately accretive impact.
that's going to offset the cost of that additional capital to do so. The world is not what it was two years ago in terms of M&A, in terms of pricing. However, we're also seeing opportunities.
For me, there are opportunities for affiliate type acquisitions, potentially in Latin America. There's probably a few in North America. But if I were to turn towards M&A, it's probably adding other things to our portfolio that are...
We're in the SEO organic focused on Google search for the most part as our organization today. We do a little paid, but we could amplify that greatly if we were to partner or potentially do M&A around that front so that we can bring in the tools and the teams that have more capabilities than we do currently internally. The other option is to grow those, which means a different trajectory on the growth rate of that, but still growth in the paid media sector, which has opportunity. There's things like ad tech. which we don't do a bit of really in our organization.
That means adding ads to your site in places where CPAs or links to operators isn't as beneficial because traffic has already been converted and they're just coming back to your sites. So those are other things and technologies and things that we could add through M&A going forward. But again, I think you're going to see a CSP very stingy on what we're willing to do on that front if it doesn't make near-term.
economic sense based on the cost of capital. Yeah, it's interesting to hear. So that's a distinction really between, I guess, an acquisition based on vertical or kind of type of traffic as opposed to geographical. That's interesting to hear. Somebody else you mentioned, projections, I think it was, if I'm not mistaken, revenue in 2025 of around kind of, you're expecting I think 125 million revenue for, Q1.
How confident, obviously that's a projection at this stage, but how confident are you guys given that that's a while away and a lot could happen? It's not Q1, it's by the end of 2025, to be clear. That's North America had 125 million USD.
Yeah, thanks for correcting me. It is easier for me to see the five or 10 year right now projection for our organization than it is the one year. We just had North Carolina, which finally looks like it's going to get across the line.
But, you know, I'm a believer. And again, lots of debate around it, as there is in everything. When you talk about the future, that the election cycle in the Americas is going to have an impact on the gaming legislation. It is while it does not directly affected by the presidential one, because these are state made decisions.
There is just a lot of partisan politics in North America. And gambling tends to be a very disfavored topic because it has so many points that someone can attempt to drive in as a negative in a campaign. So it's typically one that just doesn't get a lot of traction during a campaign cycle. A lot of campaigns going on for governors, president, state and senators, congressmen. So it looks like a period between now and the end of 2024 could be slower.
on those state launches, which are part of the cycle, because there are lots of, we have more states in play now with conversation than we ever had for both sports betting, but also online casino with New York discussing it, Indiana, Illinois, Virginia had it in discussion. I mean, a number of them have it in discussion. It's probably not going to get across the line maybe in the next year, but within the next two years, it gets a lot more likely.
And we sort of follow what Isla is. And Krychek put out on that front is sort of how we gave that guidance based on what they're saying. They think certain states are going to see for activity by 2025. But then by 2027, 2028, it becomes a lot clearer. A number of those that are in play will cross the line. Will the big ones, California, Texas, Florida, cross?
Some of them, I expect, will. I'm not sure all of them, but we'll see. Yeah.
I mean, those three are the big questions always. Yeah. If at least one of them comes into play, yeah, we're looking at it. a big different market um a couple of a couple of final questions from me um but but these are the ones i mentioned earlier that you kind of already touched on um you talked about kind of um you know if the if there was an offer for assets that you hadn't considered already considered selling was there ever kind of i guess an overall sale of katina is that something that was was ever crossed as a as something that's you know as a potential idea already is that something that could ever happen still you know i guess Yes, things are always on the table in financial markets. Things are always on the table in financial markets.
We're a publicly traded company. So, again, anybody can always come in with a public bid or, you know, would we would we theorize on what that would look like? Potentially, because that's our job is to especially now engaging Carnegie, who are smarter at this than maybe our internal team is on doing the assessment. You should look at all options.
You should never turn down a conversation or a discussion around something to consider. what is the absolute best value for a shareholder. But again, we are a publicly traded company. So if an offer came for the entire organization, that should be pretty well known by the market because we would go to the market with a viable offer and make sure they're the ones who have to vote on that. Essentially, we would need 90% of the shareholders, I think is the number for approval of said transaction.
So if there was such a thing, that will come forward to the markets in a very clear way. We have not put anything forward to the markets as of today. So that may answer part of that question. Cool.
Extremely related. I think it was at the very end of your CEO comments from Q1, and then you mentioned it earlier in the interview, potential second listing, or not second listing, but a US listing, which obviously on the face of it makes a lot of sense given the focus on operations in North America. But I just wanted to ask, what would be the benefits of that move?
And... Generally as well, because we've seen, for example, Fox has done a US listing and we've seen like Wanda has done an Australian listing. You know, just generally, what are the kind of benefits for a company of kind of having that extra listing? So the listing question and again, timing comes everything because of market conditions and the markets we're in and the markets we want to go to, as well as just our, you know, our own growth trajectory and making sure that that's a clear story and message.
As I said, the next year and a half, maybe. bumpy on some of the things in North America. So it's making sure we can be clear enough to the market if we consider such.
Also, the weight that that bears on an organization to go through something like that can be distracting. And we want to make sure it's not going to be distracting to the operational side of the business. So the benefits, though, are opening up new streams of investors. Look, we have a large pool of individual investors in Sweden, which we very much respect. We have a couple of large institutional investors.
North American investors, it is very difficult as an individual to invest in a company like Katina Media. which is in the Nordics. I'm probably on my eighth broker myself trying to figure out how to do that.
But there is more interest and appetite at the moment. I think this is why a number of companies are going there in North America around sports betting and the expansion of the business. The Nordic markets tend to be a little more contractionary on their interest in this type of activity. all for various good reasons.
But that means that the better place to find capital and investment is probably in the Americas. There's more desire there for this type of activity. So that to us is how do we unlock that? How do we make it easier for people to understand and invest in Katina Media so we can open up more capital resources for potentially then M&A, et cetera, that we could use that for? So that's sort of why we're looking at.
a relisting or a dual listing or all the ways you could get there, reverse mergers, what have you. There are many ways and some are better for the company overall in terms of not shutting down or distracting the company so much while you actually go through such a process. An IPO is a very, very difficult process in the US with Sarbanes-Oxley and other things you'd have to go through. So that will be a long and significant undertaking if we go that route.
But all options at this point are on the table. and timing remains a TBD on, and it also, just an if remains a TBD. It has to be assessed. And again, that is something that is being assessed. Well, Michael, thank you very much for your time and for your answers.
You know, I think the fact finding mission, it's worked, you know, the viewers have learned a lot more about the organization just from these questions, but also I think, you know, next few months, we'll learn a lot more, maybe a lot of the things you've alluded to, let's see what does happen. but as we've said you know anything can happen anything can happen the future is always uh more exciting to uh to project in the past because we all know what's already happened so uh we'll look forward to the coming months and we'll uh look forward to speaking to you again absolutely and best of luck as you say with the coming ones and immediately for q2 but obviously for the rest of the year as well thanks tim