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A Quick Take On High Roller Technologies, Inc.
High Roller Technologies, Inc. (HRLR) has filed to raise $17.25 million in an IPO of its common stock, according to an SEC S-1 registration statement.
The firm provides gambling enthusiasts with an online gambling destination site from their computer or mobile phone.
High Roller Technologies, Inc. is growing revenue at an accelerating rate of growth and is operating cash flow positive.
I’ll provide an update when we learn more IPO information from management.
High Roller Overview
Las Vegas, Nevada-based High Roller Technologies, Inc. was founded to offer real-money online casino gambling for thousands of games to players in certain jurisdictions in Europe, Asia-Pacific and the Americas.
Management is headed by co-founder, Chairman and CEO Michael Cribari, who has been with the firm since its inception and has been a director of Spike Up Media and Chairman of its parent firm Ellmount Interactive AB, a Swedish iGaming company
The company’s primary offerings include the following:
-
Video slots
-
Blackjack
-
Roulette
-
Baccarat
-
Craps
-
Video poker
-
Others.
The firm’s online websites are HighRoller.com, CasinoRoom.com, and Fruta.com.
Fruta has been recently soft-launched and is likely a Spanish language version that the company is preparing to enter Latin American markets with.
As of September 30, 2023, High Roller has booked fair market value investment of $22 million from investors, including Cascadia Holdings Limited, OEH Invest AB, Happy Hour Entertainment Holdings and Spike Up Media AB.
High Roller User Acquisition
The company seeks eligible players in regulated markets in Europe, the Americas and the Asia-Pacific region.
Management intends to seek entry into “one or more regulated North American markets” by using part of the proceeds of the IPO.
Advertising and Promotions expenses as a percentage of total revenue have trended lower as revenues have increased due to increasing economies of scale, as the figures below indicate:
|
Advertising and Promotions |
Expenses vs. Revenue |
|
Period |
Percentage |
|
Nine Months Ended Sept. 30, 2023 |
23.8% |
|
2022 |
25.2% |
|
2021 |
36.4% |
(Source – SEC).
The Advertising and Promotions efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Advertising and Promotions expense, rose to 2.0x in the most recent reporting period, indicating increasing efficiency in generating incremental revenue, as shown in the table below:
|
Advertising and Promotions |
Efficiency Rate |
|
Period |
Multiple |
|
Nine Months Ended Sept. 30, 2023 |
2.0 |
|
2022 |
1.1 |
(Source – SEC).
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
HRLR’s most recent calculation was 89% as of September 30, 2023, so the firm has performed extremely well in this regard, per the table below:
|
Rule of 40 |
Calculation |
|
Recent Rev. Growth % |
93% |
|
Operating Margin |
-4% |
|
Total |
89% |
(Source – SEC).
High Roller’s Market & Competition
According to a 2023 market research report by Grand View Research, the global market for online gambling (iGaming) was an estimated $70.8 billion in 2023 and is forecasted to reach $153.6 billion by 2030.
This represents a forecast CAGR (Compound Annual Growth Rate) of 11.7% from 2023 to 2030.
The main drivers for this expected growth are the growing trend of freemium modes of gaming, which feature a free trial and seek to convert free trial users to paying in some form for a premium experience and increasing smartphone and Internet penetration worldwide.
Also, the sports betting segment is expected to produce the highest growth rate through 2030 due to the growing popularity of professional sports leagues and competitions.
Major competitive or other industry participants include the following:
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888 Holdings Plc.
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Bally’s Corporation
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Bet 365 Group Ltd.
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Betsson AB
-
Entain Plc.
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FireKeepers
-
Flutter Entertainment Plc.
-
Churchill Downs Inc.
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Kindred Group
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Ladbrokes Coral Group Plc.
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Sky Betting and Gambling
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Sportech Plc.
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The Star Group Inc.
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William Hills Limited.
High Roller Technologies Financial Performance
The company’s recent financial results can be summarized as follows:
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Accelerating top line revenue growth
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Growing gross profit but dropping gross margin
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Reduced operating losses
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Variable cash flow from operations.
Below are relevant financial results derived from the firm’s registration statement:
|
Total Revenue |
||
|
Period |
Total Revenue |
% Variance vs. Prior |
|
Nine Months Ended Sept. 30, 2023 |
$22,484,426 |
93.4% |
|
2022 |
$18,491,548 |
37.5% |
|
2021 |
$13,445,065 |
|
|
Gross Profit (Loss) |
||
|
Period |
Gross Profit (Loss) |
% Variance vs. Prior |
|
Nine Months Ended Sept. 30, 2023 |
$ 12,354,865 |
74.6% |
|
2022 |
$10,948,750 |
-8.2% |
|
2021 |
$11,931,464 |
|
|
Gross Margin |
||
|
Period |
Gross Margin |
% Variance vs. Prior |
|
Nine Months Ended Sept. 30, 2023 |
54.95% |
-5.9% |
|
2022 |
59.21% |
-33.3% |
|
2021 |
88.74% |
|
|
Operating Profit (Loss) |
||
|
Period |
Operating Profit (Loss) |
Operating Margin |
|
Nine Months Ended Sept. 30, 2023 |
$(957,381) |
-4.3% |
|
2022 |
$(2,959,086) |
-16.0% |
|
2021 |
$1,000,193 |
7.4% |
|
Comprehensive Income (Loss) |
||
|
Period |
Comprehensive Income (Loss) |
Net Margin |
|
Nine Months Ended Sept. 30, 2023 |
$ (1,095,510) |
-4.9% |
|
2022 |
$ (3,067,757) |
-16.6% |
|
2021 |
$1,704,815 |
12.7% |
|
Cash Flow From Operations |
||
|
Period |
Cash Flow From Operations |
|
|
Nine Months Ended Sept. 30, 2023 |
$579,827 |
|
|
2022 |
$1,802,934 |
|
|
2021 |
$633,391 |
|
|
(Glossary Of Terms) |
(Source – SEC).
As of September 30, 2023, High Roller had $4.0 million in cash and $7.2 million in total liabilities.
Free cash flow during the twelve months ending September 30, 2023, was $1.4 million.
High Roller Technologies, Inc. IPO Details
High Roller intends to raise $17.25 million in gross proceeds from an IPO of its common stock, although the final figure may differ.
No existing shareholders have indicated an interest in purchasing shares at the IPO price.
Assuming a successful IPO at a trailing twelve-month revenue multiple of 4.5x and revenue of $29.35 million, the company’s market capitalization at IPO would approximate $132 million.
Management says it will use the net proceeds from the IPO as follows:
$4.5 million for marketing, promotion and advertising focused on new user acquisition;
$4.5 million to finance expansion to North American or other regulated markets;
$2.5 million to launch one or more new brands or verticals; and
the balance of proceeds for general working capital.
Marketing and advertising costs will be extended across all markets in which High Roller operates over the next 12 to 18 months.
(Source – SEC).
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, the firm or its subsidiaries are subject to legal or administrative claims totaling $298,000, of which $216,000 worth is under appeal.
The sole listed bookrunner of the IPO is ThinkEquity.
Commentary About High Roller’s IPO
HRLR is seeking U.S. public capital market investment to fund its growth initiatives and working capital requirements.
The company’s financials have produced increasing top line revenue growth, higher gross profit but lower gross margin, reduced operating losses and fluctuating cash flow from operations.
Free cash flow for the twelve months ending September 30, 2023, was $1.4 million.
Advertising and Promotions expenses as a percentage of total revenue have trended lower as revenue has increased; its Advertising and Promotions efficiency multiple was 2.0x in the most recent reporting period.
The firm currently plans to pay no dividends and retain future earnings, if any, for reinvestment back into the firm’s growth and working capital requirements.
HRLR’s recent capital spending history indicates it has spent moderately on capital expenditures as a percentage of its operating cash flow.
The market opportunity for iGaming is large and expected to grow materially in the coming years, however, it is subject to substantial competition as well as regulatory uncertainty depending on the jurisdiction involved.
For example, China has just announced a new set of rules regarding in-game spending, which may affect the online gambling industry there.
Risks to the company’s outlook as a public company include jurisdictional delays, compliance costs and related taxes.
Management says the firm qualifies as an “emerging growth company” as defined by the 2012 JOBS Act and may elect to take advantage of reduced public company reporting requirements; prospective shareholders would receive less information for the IPO and, in the future, as a publicly-held company within the requirements of the Act.
The company also claims to be a “smaller reporting company,” meaning it may be exempt from the more stringent financial reporting requirements before and after an IPO. For a non-exhaustive comparison of emerging growth company requirements and smaller reporting company reporting and related requirements, view a summary here.
Such company stocks have frequently performed poorly post-IPO.
When we learn more IPO details from management, such as proposed pricing and valuation figures, I’ll provide a final opinion on High Roller Technologies, Inc.
Expected IPO Pricing Date: To be announced.