Jackpotjoy plc Results for the Three and Six Months Ended 30 June 2017

  - Revenue grew 17%, or 16% on a like for like constant currency basis

   - 18% revenue growth in the Jackpotjoy segment (70% of Group revenue)

   - Adjusted EBITDA[1] increased 28%, or 31% on a like for like constant currency basis, reflecting strong growth across all business segments

   - Adjusted net income[1] increased 14% year on year

- Strong cash generation:

  - Operating cash flow growth of 21% year on year

   - 30p of operating cash flow per share[2]

   - Debt pay-down continues; adjusted net leverage ratio[3] including earn-out liabilities down to 3.6x

   - Gross debt including earn-outs reduced from £514.8 million at 31 December 2016 to £414.5 million

Following a very encouraging H1 and a solid start to Q3, the Board continues to expect robust revenue growth for FY17.

Operational highlights for the second quarter 

- Ongoing improvement in core KPIs^[4] year on year

   - Average Active Customers^[4] grew to 243,896 in LTM to 30 June 2017, an increase of 13% year on year

   - Average Real Money Gaming Revenue per month^[4] grew to £21.8 million, an increase of 16% year on year

   - Monthly Real Money Gaming Revenue per Average Active Customer^[4] of £89, an increase of 2% year on year

Business segments highlights for the second quarter 

- Jackpotjoy (70% of Group revenue) - Strong quarterly performance across all brands with revenue growth of 18% and Adjusted EBITDA[1] growth of 35%; Starspins and Botemania (21% of segment revenues) particularly strong due to growth in mobile and new products

- Vera&John (23% of Group revenue) - Revenue growth of 30% and adjusted EBITDA[1] growth of 21%

- Mandalay (7% of Group revenue) - Revenue flat compared to Q2 2016 and adjusted EBITDA[1] increase of 50% reflecting lower marketing spend versus the prior year

Financial highlights and corporate developments for the first half  

- Solid financial performance:

   - Revenue growth of 12% year on year on a like for like constant currency basis

   - Adjusted EBITDA^[1] increased 19% year on year on a like for like constant currency basis

   - Adjusted net income^[1] flat year on year

- On 25 January 2017, Jackpotjoy plc became the parent company of The Intertain Group Limited ("Intertain") following a plan of arrangement transaction (the "Arrangement") and Jackpotjoy plc began trading on the London Stock Exchange's ("LSE") main market for listed securities, under the ticker symbol "JPJ". Intertain's common shares were de-listed from the Toronto Stock Exchange ("TSX") and exchangeable shares that were issued by Intertain pursuant to the Arrangement began trading on the TSX under the ticker symbol "ITX"

- On 21 June 2017, Jackpotjoy plc made the final earn-out payment for the non-Spanish assets within the Jackpotjoy division amounting to £94.2 million, which was met by existing cash resources. The payment is the final instalment in relation to the Jackpotjoy and Starspins brands and also includes £30.3 million due on the earn-out for the Botemania brand. An estimated final payment of £34.5 million for the Botemania brand (discounted and probability weighted in accordance with IFRS), which is also expected to be met from cash resources, will be made in June 2018

Outlook  

The trading momentum witnessed during Q1 and which continued during Q2 and the early stages of Q3, helped to deliver a solid performance across the Group. We continue to expect robust top-line growth through H2. As previously flagged, there will be an impact on profitability in the second half from the introduction of UK point-of-consumption ("POC") tax on bonuses scheduled to commence in August 2017. Likewise, and also as previously highlighted, marketing spend will be weighted towards the second half of the financial year.

Andrew McIver, Chief Executive Officer, commented:  

"The second quarter has been another good quarter of growth across the Group with revenue increasing 17%, including top-line growth of 18% at our leading UK bingo brand, Jackpotjoy. Group adjusted EBITDA^[1] also grew strongly at 28%. This solid performance across the Group in the first half of the year allows us to reconfirm our full-year 2017 outlook.

A key priority for the Group is to reduce our historic debt burden. The business is highly cash generative with cash conversion in Q2 of 99%, excluding one-off and exceptional items^[5]. Consequently, our adjusted net leverage^[4] reduced from 4.0x to 3.6x during the six months and gross debt reduced from £514.8 million to £414.5 million.

A major milestone in this debt reduction was achieved in June when we made the final earn-out payment of £94.2 million for the non-Spanish assets within the Jackpotjoy segment, using existing cash resources, with the total consideration representing excellent value for shareholders."

Conference call 

A conference call for analysts and investors will be held today at 1.00pm BST / 8.00am ET. To participate, interested parties are asked to dial +44 (0) 20 3003 2666 or +1 800 608-0547, 10 minutes prior to the scheduled start of the call using the reference ''Jackpotjoy''.  A replay of this call will be available for 30 days by dialling +44 (0) 20 8196 1998 or +1 888 889-0604 and using reference 8097981#. A transcript will also be made available on http://www.jackpotjoyplc.com/investors.

Note Regarding Non-IFRS Measures 

The following non-IFRS measures are used in this release because management believes that they provide additional useful information regarding ongoing operating and financial performance. Readers are cautioned that the definitions are not recognised measures under IFRS, do not have standardised meanings prescribed by IFRS, and should not be considered in isolation or construed to be alternatives to revenues and net income (loss) and comprehensive income (loss) for the period determined in accordance with IFRS or as indicators of performance, liquidity or cash flows. The Group's method of calculating these measures may differ from the method used by other entities. Accordingly, the Group's measures may not be comparable to similarly titled measures used by other entities or in other jurisdictions.    

Adjusted net income, as defined by the Group, means net income plus or minus items of note that management may reasonably quantify and believes will provide the reader with a better understanding of the Group's underlying business performance. Adjusted net income is calculated by adjusting net income for accretion, amortisation of acquisition related purchase price intangibles and non-compete clauses, share-based compensation, Independent Committee related expenses, severance costs, loss/(gain) on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange, and gain on sale of intangible assets. The exclusion of accretion and share-based compensation eliminates the non-cash impact and the exclusion of amortisation of acquisition related purchase price intangibles and non-compete clauses, Independent Committee related expenses, severance costs, loss/(gain) on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange, and gain on sale of intangible assets eliminates items which management believes are non-operational and non-routine.   Adjusted net income is considered by some investors and analysts for the purpose of assisting in valuing a company.          

Adjusted EBITDA, as defined by the Group, is income before interest expense (net of interest income), income taxes, amortisation and depreciation, share-based compensation, Independent Committee related expenses, severance costs, loss/(gain) on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange, and gain on sale of intangible assets. Management believes that Adjusted EBITDA is another important indicator of the issuer's ability to generate liquidity to service outstanding debt and fund acquisition earn-out payments and uses this metric for such purpose. The exclusion of share-based compensation eliminates non-cash items and the exclusion of Independent Committee related expenses, loss/(gain) on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange, and gain on sale of intangible assets eliminates items which management believes are non-operational and non-routine.   

Cautionary Note Regarding Forward-Looking Information 

This release contains certain information and statements that may constitute "forward-looking information" (including future-oriented financial information and financial outlooks) within the meaning of applicable securities laws. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects", "estimates", "projects", "predicts", "targets", "seeks", "intends", "anticipates", or "believes" or the negative of such words or other variations of or synonyms for such words, or state that certain actions, events or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause actual results, performance, achievements or developments to be materially different from those anticipated by the Group and expressed or implied by the forward-looking statements. Forward-looking information contained in this release includes, but is not limited to, statements with respect to the Group's future financial performance (including with respect to 2017 trading, POC tax, and our ability to pay down debt and earn-outs from future internally generated cash), the future prospects of the Group's business and operations, the Group's growth opportunities and the execution of its growth strategies. Certain of these statements relating to the Company's anticipated revenue growth may constitute a financial outlook within the meaning of Canadian securities laws. These statements reflect the Group's current expectations related to future events or its future results, performance, achievements or developments, and future trends affecting the Group. All such statements, other than statements of historical fact, are forward-looking information. Such forward-looking information is based on a number of assumptions which may prove to be incorrect, including, but not limited to, the ability of the Group to secure, maintain and comply with all required licenses, permits and certifications to carry out business in the jurisdictions in which it currently operates or intends to operate; governmental and regulatory actions, including the introduction of new laws or changes in laws (or the interpretation thereof) related to online gaming; general business, economic and market conditions (including market growth rates and the withdrawal of the UK from the European Union); the Group operating in foreign jurisdictions, the competitive environment; the expected growth of the online gaming market and potential new market opportunities; anticipated and unanticipated costs; the protection of the Group's intellectual property rights; the Group's ability to successfully integrate and realise the benefits of its completed acquisitions; the expected earn-out payments required to be made; the Group's relationship with the Gamesys group and other third parties; the Group's debt service obligations and the ability of the Group to obtain additional financing, if, as and when required. Such statements could also be materially affected by risks relating to the lack of available and qualified personnel or management; stock market volatility; taxation policies; competition; foreign operations; the Group's limited operating history; and the Group's ability to access sufficient capital from internal or external sources. The foregoing risk factors are not intended to represent a complete list of factors that could affect the Group. Additional risk factors are discussed in Jackpotjoy plc's annual information form dated 29 March 2017. Although Jackpotjoy plc has attempted to identify important factors that could cause actual results, performance, achievements or developments to differ materially from those described in forward-looking statements, there may be other factors that cause actual results, performance, achievements or developments not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results, performance, achievement or developments are likely to differ, and may differ materially, from those expressed in or implied by the forward-looking information contained in this release. Accordingly, readers should not place undue reliance on forward-looking information. While subsequent events and developments may cause the Group's expectations, estimates and views to change, Jackpotjoy plc does not undertake or assume any obligation to update or revise any forward-looking information, except as required by applicable securities laws. The forward-looking information contained in this release should not be relied upon as representing the Group's expectations, estimates and views as of any date subsequent to the date of this release. The forward-looking information contained in this release is expressly qualified by this cautionary statement. Investors should not place undue reliance on forward-looking statements as the plans, intentions or expectations upon which they are based might not occur.  

Any future-oriented financial information or financial outlooks in this release are based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While Jackpotjoy plc considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. These risks, uncertainties and other factors include, but are not limited to: credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, and interest rates or tax rates. 

CHIEF EXECUTIVE OFFICER'S REVIEW 

I am pleased to report a strong performance by the Group over the first six months of 2017. Revenues increased 13% and adjusted EBITDA^[1] rose by 15%, driven primarily by 16% revenue growth in our Jackpotjoy segment, which represents 70% of the Group and remains the clear market leader in the UK. This robust financial performance resulted in strong cash generation across the Group with an adjusted EBITDA^[1] conversion rate of 77% - increasing to 101% pre-exceptionals^[5] - enabling us to continue to lower our leverage ratio^[3] down to 3.6x from 4.0x at the year-end.    

Operationally, the first half of the year has also been an important period for the Group. On 25 January, we completed our listing on the London Stock Exchange's main market and moved our corporate headquarters from Toronto to London. On 21 June, we successfully completed the final earn-out payment for the non-Spanish assets within the Jackpotjoy segment, which amounted to £94.2m and was met using existing cash resources.

The strong performance in the first half of 2017 is a result of the successful execution of the strategy we set out at our full-year results in March.  This strategy is built around four specific opportunities, with the goal to deliver further growth for the Group and build on our leading market position and loyal customer base.

1. Increasing market share  

Reported revenue growth of 13% in H1, which includes a 16% increase in our largest business segment Jackpotjoy, highlights that we are continuing to gain traction in our core markets, the majority of which are regulated. There are significant opportunities for growth within our existing footprint given the strong presence we enjoy in our markets. We remain focused on organic growth within our leading brand portfolios through game launches, marketing campaigns and cross-Group cost efficiencies.

2. Targeted marketing campaigns  

We continue to benefit from consistent and effective marketing campaigns and during H2 2017, we will return to UK television to further underpin the market-leading brand strength of Jackpotjoy. Our customer acquisition strategy delivers a high ROI in our key brands and our core female demographic has exhibited a high level of responsiveness to these campaigns.

3. Cross-selling opportunities  

Following the final earn-out payment for the non-Spanish assets we acquired from the Gamesys group, we are now permitted to cross-sell brands and product (bingo and casino) across our different business segments. We expect to be able to mitigate customer churn and increase LTV through effective cross-sell in the medium term, underpinned by effective marketing over both mobile and desktop platforms across the brand portfolio.

4. Product development, focusing on mobile offerings  

It has been well-documented that the online gaming market has undergone a transition in player engagement from desktop to mobile devices in recent years, and the pace of this shift is expected to increase whereby mobile devices will become the preferred platform for online bingo and casino gaming. Our latest results highlight that Jackpotjoy UK generated 61% of house wins from mobile, which was up from 57% in Q1. As well as continuing to address the mobile opportunity in the UK, we will continue to develop mobile offerings through platform enhancements across our overseas markets. In addition, we will look to add complimentary product (desktop and mobile) to our existing offer wherever appropriate.

To summarise, I am very pleased with the Group's performance over the first six months of 2017. The second quarter saw a continuation of the strong trading momentum witnessed during the first quarter and the early stages of Q3 have also seen a solid performance across the Group. Looking ahead, we continue to expect robust top-line growth through H2, although there may be an impact on margins from the introduction of the POC tax on bonuses in the UK, which is due to commence in August 2017. As previously flagged, marketing spend will also be weighted towards the second half of the financial year.  

I am confident that our good momentum in the first half of the year puts us in a strong position to continue to deliver on our plans throughout the rest of 2017.

Andrew McIver
Chief Executive Officer

15 August 2017

Financial Review 

Revenue 

The Group's revenues during the three months ended 30 June 2017 consisted of:

- £52.3 million in revenue earned from Jackpotjoy's operational activities

- £17.4 million in revenue earned from Vera&John's operational activities

- £5.5 million in revenue earned from Mandalay's operational activities

The Group's revenues during the three months ended 30 June 2016 consisted of:

- £44.5 million in revenue earned from Jackpotjoy's operational activities

- £13.4 million in revenue earned from Vera&John's operational activities

- £5.5 million in revenue earned from Mandalay's operational activities

- £0.9 million in other income related to the InterCasino platform migration from Amaya Inc.
  (the "Platform Migration Revenue") included in the Vera&John operating segment

The increase in revenue for the three months ended 30 June 2017 in comparison with the three months ended 30 June 2016 relates primarily to organic growth of the Vera&John and Jackpotjoy segments, where revenue increased by 30% and 18% respectively.

The Group's revenues during the six months ended 30 June 2017 consisted of:

- £103.0 million in revenue earned from Jackpotjoy's operational activities

- £33.1 million in revenue earned from Vera&John's operational activities

- £10.5 million in revenue earned from Mandalay's operational activities

The Group's revenues during the six months ended 30 June 2016 consisted of:

- £89.0 million in revenue earned from Jackpotjoy's operational activities

- £27.3 million in revenue earned from Vera&John's operational activities

- £11.3 million in revenue earned from Mandalay's operational activities

- £2.1 million in other income earned from the revenue guarantee (the "Revenue Guarantee") relating to the service agreement entered into with Amaya Inc. and Platform Migration Revenue included in the Vera&John operating segment

The increase in revenue for the six months ended 30 June 2017 in comparison with the six months ended 30 June 2016 relates primarily to organic growth of the Vera&John and Jackpotjoy segments, where revenue increased by 21% and 16% respectively.

Costs and expenses  

   
                                                                Six month
                                                                   period
                                     Three month  Three month       ended     Six month
                                    period ended period ended              period ended

                                                                  30 June
                                    30 June 2017 30 June 2016        2017  30 June 2016

                                      (GBP000's)   (GBP000's)  (GBP000's)    (GBP000's)

    Expenses
    Distribution costs                    34,302       32,293      65,546        62,151
    Administration costs                  27,664       22,884      52,877        45,361
    Transaction related costs                  -        4,866       1,315         6,164
    Severance costs                            -        5,695           -         5,695
                                          61,966       65,738     119,738       119,371

Distribution costs  

   
                  Three month  Three month period  Six month period   Six month period
                 period ended               ended             ended              ended

                 30 June 2017        30 June 2016      30 June 2017       30 June 2016

                   (GBP000's)          (GBP000's)        (GBP000's)         (GBP000's)

    Selling
    and
    marketing   10,846              12,334             20,449            21,566
    Licensing
    fees        11,826              10,170             22,912            20,638
    Gaming
    taxes        8,469               7,048             16,461            14,164
    Processing
    fees         3,161               2,741              5,724             5,783
                34,302              32,293             65,546            62,151

Selling and marketing expenses consist of payments made to affiliates and general marketing expenses related to each brand.  Licensing fees consist of the fees for the Mandalay and Jackpotjoy segments to operate on their respective platforms and game suppliers' fees paid by the Vera&John and Jackpotjoy segments. Gaming taxes largely consist of POC tax, which is a 15% tax on Real Money Gaming Revenue^[4] introduced in the UK in December 2014. Processing fees consist of costs associated with using payment providers and include payment service provider transaction and handling costs, as well as deposit and withdrawal fees.  With the exception of selling and marketing expenses, distribution costs tend to be variable in relation to revenue.

The increase in distribution costs for the three and six months ended 30 June 2017 compared to the same periods in 2016 is mainly due to higher revenues achieved, slightly offset by lower selling and marketing costs.

Administrative costs 

   
                                   Three month   Three month     Six month      Six month
                                  period ended  period ended  period ended   period ended

                                  30 June 2017  30 June 2016  30 June 2017   30 June 2016

                                    (GBP000's)    (GBP000's)    (GBP000's)     (GBP000's)

    Compensation and benefits            8,016         6,916        16,091         12,801
    Professional fees                      797           525         2,005          2,818
    General and administrative           2,440         1,314         4,621          2,636
    Amortisation and
    depreciation                        16,411        14,129        30,160         27,106
                                        27,664        22,884        52,877         45,361

Compensation and benefits costs consist of salaries, wages, bonuses, directors' fees, benefits and share-based compensation expense. The increase in costs for the three and six months ended 30 June 2017 compared to the same period in 2016 relate to staff additions and salary increases in various business units, as well as an increase in share-based compensation related to options granted during Q3 2016.  

Professional fees consist mainly of legal, accounting and audit fees.

The variance in professional fees for the three and six months ended 30 June 2017 compared to the same periods in 2016 relates to increases in consulting and legal costs associated with the Group's growth and dual listings on both the LSE and TSX. These increases were largely offset as prior year balances included one-time costs related to the Independent Committee.

General and administrative expenses consist of items, such as rent and occupancy, travel and accommodation, insurance, listing fees, technology and development costs, and other office overhead charges. The increase in these expenses for the three and six months ended 30 June 2017 compared to the same period in the prior year can be attributed to slightly higher travel, rent and overhead costs due to staff additions.

Amortisation and depreciation consists of amortisation of the Group's tangible and intangible assets over their useful lives. The increase in amortisation for both the three and six months ended 30 June 2017 is due to intangible and tangible asset additions since Q1 2016, particularly the non-compete clauses (as defined below).

Transaction related costs 

Transaction related costs consist of legal, professional, due diligence, and special committee fees; other direct costs/fees associated with transactions and acquisitions contemplated or completed; and costs associated with the UK strategic review undertaken by the Intertain board of directors and implementing Intertain's UK-centered strategic initiatives.  

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