A Comprehensive Look at NetEnt's Q1 2020 Interim Report

7.05.2020, 15:14

On April 22nd, 2020, NetEntertainment (NetEnt) released its interim report for the first quarter of 2020. We will walk you through the report so that you can stay up to date on the global gaming company’s recent developments.

NetEnt Promises Rapid and Confident Development During 2020

Q1 Figures

During Q1 of 2020, NetEnt brought in approximately SEK518 million (51.6 million USD) of revenue. The same period during 2019 had only brought in SEK418 million. NetEnt’s earnings before interest, taxes, depreciation, and amortization (EBITDA) were SEK229 million, corresponding to a 44.2% margin. This margin includes some restructuring costs that NetEnt had to finance, totaling SEK26 million. When adjusted to account for such costs, the earnings before interest, taxes, and amortization (EBITA) was SEK254 million compared to 2019’s Q1 SEK196 million.

Just looking at the earnings before interest and taxes (EBIT), NetEnt brought in SEK119 million, which was lower than 2019’s Q1 SEK126 million. However, after factoring in the aforementioned restructuring costs, 2020’s Q1 EBIT was SEK145 million and did, in fact, have a YoY increase.

NetEnt’s earnings after tax were found to be SEK82 million, which was a significant YoY decrease. To put things in perspective, 2019’s Q1 earnings after tax was SEK 120 million. Restructuring costs affected the earnings after tax, as did a non-recurring financial sum of SEK 40million. According to NetEnt’s interim report, that sum was related to the acquisition of Red Tiger. Specifically, it dealt with Red Tiger’s earnout, which is a contractual provision that gives a business seller extra compensation if the business fulfills certain financial provisions.

Q1 Events

After outlining the financial aspect of Q1, the report delved into the most significant events that NetEnt faced during the first quarter of 2020.

One huge event was that NetEnt integrated Red Tiger into its company in order to maximize synergy. When applied to business, synergy is when a collaboration of two (or more) organizations has a great impact than when those organizations worked alone.

Another event was NetEnt directed equity of shares in order to account for some of Red Tiger’s earnout sum. This action resulted in a share dilution of 2.6%.

12 new slot games were released. Six of these games were developed by NetEnt, while the other six were from Red Tiger. Out of these 12 games, the most successful was Piggy Riches Megaways. As you could assume from the name, this is a Megaways slot. Each reel spin changes the number of paylines, such as in Piggy Riches Megaways. This slot game has a maximum of 117,649 paylines and an RTP of 94.72%.

NetEnt’s online venue, “Live Casino,” began multiple new initiatives during Q1 2020. One such initiative was an upgrade of its UI for mobile devices. Another initiative was the addition of new tables to its Malta studio.

The report also mentioned that NetEnt CFO Lars Johansson chose to step down from his position after Q1 2020 came to a close.

CEO Comments

The final and lengthiest section of the interim report covered comments from NetEnt’s CEO, Therese Hillman. She opened up this part of the report by acknowledging the ongoing COVID-19 outbreak and the impact that it has had on the gambling industry. Hillman stated that NetEnt will always prioritize the safety and wellbeing of its employees. Surprisingly enough, she also said that NetEnt had not suffered any negative financial repercussions throughout the pandemic.

NetEnt will continue to make developments to ensure that it will be in a competitive position once this public health crisis subsides. Hillman is hopeful that NetEnt will be able to create both short-term and long-term growth opportunities. She placed emphasis on the importance that digitization will surely have on NetEnt’s future.

Next, Hillman touched on the Q1 revenue and how the heightened figure was affected by a spike in revenue during March and for the krona’s fall in value. According to Hillman, NetEnt’s Q1 total gaming revenues had a 12% YoY increase. Keep in mind, this was calculated on a proforma basis, which in this case means that Red Tiger’s 2019 Q1 figures were factored in even though the company had not yet been acquired by NetEnt.

Most of Q1 2020’s growth took place within the UK and the US. Conversely, Norway and Sweden’s revenues saw a fall. Hillman stated that 50% of NetEnt’s Q1 gaming revenue was accounted for by locally regulated markets. She also mentioned that Sweden only accounted for 6% of the company’s gaming revenue, which was lower than prior to the country’s gambling market re-regulation.

Hillman continued on to explain that NetEnt has been implementing infrastructural changes in order to be in a more competitive market position. One such change was full integration with Red Tiger. Hillman stated that the changes caused a workforce reduction of 120 employees, most of whom were located at the Stockholm branch. These layoffs should result in savings of SEK150 million during the second half of 2020. Hillman explained that Red Tiger is performing better than NetEnt expected, which will allow the continuation of expanding to more markets. In Q1, Italy and Slovakia’s markets took on Red Tiger games.

Hillman closed out her statement by discussing the changes made to NetEnt’s Live Casino, such as the aforementioned Malta table increase and the mobile UI upgrade. Hillman stated that NetEnt experienced record-setting numbers of new players each month since December of 2019. She believes that NetEnt is in an advantageous position to continue experiencing growth throughout the rest of 2020.