XLMedia PLC (XLMDF) (Q2 2024) Earnings Call Transcript Highlights: Key Takeaways from the ...

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GuruFocus Research

Tue, Oct 1, 2024, 1:00 AM 4 min read

XLMedia PLC (XLMDF) successfully increased first-time depositors (FTDs) by 4% year-on-year, reaching 48,000 in the first half of 2024.
The company received $20 million in proceeds from the sale of its European business, strengthening its cash position to $19.4 million as of June 30, 2024.
Cost reduction initiatives are underway following the sale of the European business, aiming to align the cost base with the size of the US operations.
XLMedia PLC (XLMDF) is focusing on revenue diversification, including investments in paid media and daily fantasy sports (DFS), which are showing positive initial signs.
The company has no further acquisition payments due for historic acquisitions, providing financial stability moving forward.

Negative Points

Continuing revenues decreased to $10.4 million in H1 2024 from $16.9 million in H1 2023, reflecting a significant drop.
The launch of online sports betting in North Carolina did not match the revenue and FTD levels seen in Ohio and Massachusetts in H1 2023.
The US business is highly seasonal, with revenues heavily dependent on the NFL season and state launches, leading to unpredictability.
The company incurred a $6.2 million operating loss, with significant depreciation adjustments and $2.5 million in exceptional minimum guarantee payments.
Despite growing FTDs, the company has not seen the expected acceleration in revenue, indicating a relatively soft market.

Q & A Highlights

Warning! GuruFocus has detected 6 Warning Signs with XLMDF.

Q: Can you provide more details on the impact of the North Carolina launch compared to Ohio and Massachusetts? A: The North Carolina launch in March, post-NFL season, did not match the scale of Ohio and Massachusetts launches in H1 2023. This impacted both revenues and EBITDA. However, we successfully drove up FTDs year-on-year, delivering 48,000 in H1 2024 compared to 46,000 in the prior period, demonstrating underlying business growth. - David King, CEO

Q: How has the sale of the European business affected your revenue mix and cost structure? A: The sale has significantly shifted our business mix towards North America sports and CPA-led revenues. We are reducing costs while retaining staff to support the transfer of the business and assets. We aim to migrate to revenue share over time to create a more predictable revenue stream. - David King, CEO

Q: What are the financial implications of the exceptional minimum guarantee payments? A: The $2.5 million exceptional minimum guarantee payments relate to one media partner contract, which expired in August. No further costs will be incurred beyond August, although cash payments will be spread over 12 months. - David King, CEO

Q: Can you elaborate on the current cash position and any outstanding liabilities? A: As of June 30, we had $19.4 million in cash. We have cleared all acquisition payments for historic acquisitions and are focused on clearing outstanding liabilities, including minimum guarantee payments and tax liabilities. Once cleared, we will return cash to shareholders. - David King, CEO

Q: What are the strategic priorities for XLMedia moving forward? A: Our priorities include maximizing revenues and profits, enhancing assets, rightsizing the cost base, diversifying revenue streams, and expanding media partnerships. We are also preparing for future state launches and aim to return cash to shareholders once liabilities are cleared. - David King, CEO

Q: How are you addressing the softer market conditions observed in September? A: Despite good FTD volumes in September, revenue acceleration has been slower than expected. We need continued growth in FTDs and expect improvement in trends across October. - David King, CEO

Q: What steps are being taken to enhance the visibility and performance of your assets? A: We are investing in assets like SPD to enhance visibility and performance. Initial signs are positive, and we continue to see benefits in paid media and DFS. - David King, CEO

Q: How do you plan to manage the seasonal nature of the US business? A: The US business, being CPA-led, will be highly seasonal around the NFL season with periodic state launches creating spikes. We aim to migrate to revenue share over time to create a more predictable revenue stream. - David King, CEO

Q: What is the status of your media partnership activities? A: Media partnership activities remain critical. We continue to expand this business and are preparing for future state launches. - David King, CEO

Q: Can you provide more details on the cost reduction efforts following the sale of the European assets? A: We are rightsizing the cost base, removing costs, and reducing headcount to align with the size of the US business. By the end of the year, we expect to have a cost base commensurate with the US business size. - David King, CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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