Catena Media recently issued its Q1 2023 interim report, revealing mixed performance. The firm recorded a decrease of 2% in revenue in North America due to a high comparative base from the record New York launch in January 2022. The group’s total revenue from continuing operations also witnessed a 5% decline.
However, strong player participation in Ohio, where online sports betting was legalised on January 1, 2023, accounted for one of the group’s most successful US state launches. In addition, a robust Super Bowl in February and the successful initiation of online sports betting in Massachusetts in March also contributed positively to Catena Media’s iGaming operations. The company also enjoyed significant revenue contributions from its media partnership with NJ.com.
The UK and Italian sports and casino branches of the group also reported a strong rebound in profitability. In contrast, April’s total revenue from continuing operations decreased by 12%, heavily influenced by the robust performance due to the Ontario launch in the same period of the previous year.
Other key statistics from the report include a decrease of 3% in new depositing customers and a decrease of 7% in adjusted EBITDA from continuing operations. On a positive note, the cash and cash equivalents recorded were EUR 52.4m on March 31, up from 26.7m the previous year.
Post the Q1 2023 period, Catena Media announced a significant long-term partnership to provide online sports betting and casino content to Lee Enterprises Inc., one of the largest newspaper publishers in the US. The company also appointed Erik Edeen as the interim CFO, effective May 22, 2023.
CEO Michael Daly’s comments, “I am pleased to report a satisfactory start to the year for Catena Media. The addition of Ohio and Massachusetts as new online sports betting states helped drive solid revenue in our core North American affiliation business during the period. We also achieved higher profitability in our European business in the wake of the strategic review we concluded at the end of last year.
“The margin improvement in our continuing operations in Europe was especially gratifying as it represents an immediate payback on our decision to target resources on our most profitable markets while also undertaking cost optimisation measures in selected areas as part of the strategic review. We also brought this amplified cost focus to bear on our already highly profitable North American business, where we see continued high margins for Catena Media even as well-established state and provincial markets mature.
“As expected, year-on-year group revenue decreased slightly due to challenging comparatives created by the record-breaking launch of online sports betting in New York in Q1 2022 and the go-live in Louisiana in the same quarter.
“The major market highlight during the quarter was the legalisation on 1 January of online sports betting in Ohio. The dedicated efforts of our North American team to maximise the advantageous timing just ahead of the February Super Bowl led to one of our best ever launches, albeit some way behind New York in gross revenue terms.
“We were also pleased to welcome Massachusetts as an online sportsbook state ahead of the March Madness basketball tournament. Our national and regional brands generated healthy revenue during the three weeks of the period during which Massachusetts was open. Maryland also made a solid contribution following its legalisation of online sportsbook in November last year.
“In sports and casino, organic revenue growth was especially strong in New Jersey due to a combination of our success in delivering strong organic search traffic and the media content partnership we announced last August with NJ.com. We believe that media collaborations with the right partners are a valuable way to gain exposure to a wider audience, and the NJ.com venture provided proof of that concept during the quarter.
“We were delighted in March to agree a long-term arrangement to provide online sports betting and casino content to Lee Enterprises Inc, one of the largest newspaper publishers in the US. Lee’s brands, which serve close to 80 markets in 26 US states, substantially broaden our North American audience for high-quality editorial and advertorial content about online sports betting and casino gaming.
“In Europe, higher profitability was accompanied by revenue gains in Italian casino and sports, while a favourable Cheltenham horse racing festival in May delivered a strong revenue boost in the UK.
“Looking ahead, we foresee that the flow of new state launches in North America will slow for the remainder of this year and likely also in 2024 as the US federal election cycle kicks in. Forthcoming elections tend to create a hiatus in gambling-related legislation, and 2023 appears to fit that pattern. So far, Kentucky is the only US state that has confirmed plans to legalise online sports betting this year.
“We expect state openings to resume, and perhaps even accelerate, once a new legislative cycle starts in 2025. A positive aspect in this context is the speed with which states now enact gaming-related legislation. In the past, it could take one or two years from legislative approval to actual launch. Today, the process is typically completed in months.
“In coming quarters, the quieter period we are now entering will be reflected in organic revenue comparisons with 2022, which was a high-intensity launch year, and with Q1 2023. To offset the slower launch calendar, we will focus on achieving further efficiencies in the business in order to continue delivering high margins.
“Our ambition is to be net cash positive already during the second half of this year as we leverage the positive impact of cost-reduction efforts on cash flow generation. The reduced financial risk consolidates a solid financial position that will enable us to capitalise on strategic opportunities, including acquisitions, in the Americas. It will also create scope for future share buybacks and dividends as we seek to deliver shareholder value. As yet, no timeline for such steps has been set.
“The North American market is still relatively early in its growth cycle and process, with many states and provinces yet to open for online sportsbook, and many more for online casino. Catena Media projects that revenue growth will resume in 2024, albeit at somewhat lower margins than the extremely high levels of the past couple of years, as we develop our business in existing states and capitalise on media partnerships. Based on current market research and our own estimates, we expect to reach USD 125m in revenue in 2025 – equivalent to a compound annual organic growth rate of 12 percent from 2022 – and an adjusted EBITDA margin exceeding 50 percent.
“In January, we engaged Carnegie Investment Bank to advise on exploratory discussions concerning strategic options for the group, including a potential sale of all remaining assets. North America represents a highly attractive opportunity for sustainable long-term growth, and Catena Media is well-positioned to be a leading affiliate in that market. We will continue working with Carnegie and remain open to strategic alternatives and structural options, which could potentially include a share listing in the US.
“In conclusion, I wish to warmly thank all our teams for their efforts in implementing our new, targeted structure so seamlessly and with such great success. We stand strong as we approach the next phase in our journey to drive high-margin growth in North America and other selected markets and maintain our agile position in this dynamic, fast-moving industry of ours.”