Critical Mass

Part two.

We conclude our interview with Interblock’s Global CEO John Connelly, looking at how and why the company has grown, and more…

Casino International: How much has the company grown in the last 36 months, and what have been the main drivers for that, would you say?

John Connelly: We’re private so we don’t share numbers, but as a percentage we have been experiencing around 33% compounded annual growth rate over the past three years. If you compare that to industry standards or just business in general, there are not too many companies that would be able to say the same. We are very proud of this achievement and appreciate the amount of effort it has taken to reach this level.

A combination of new markets, proven products, innovation and a greater awareness of the incremental benefits surrounding Electronic Table Games; have all been a driving force in our growth.  The momentum within the ETG Segment can be seen where we might have placed a single product with six or eight seats in a casino two-years ago, we now see entire ETG sections of floors comprising of multiple products and distribution methods.  We also switched to a recurring revenue model, or a lease model versus a sale, which gave us the cash flow we needed to expand our R&D department and really start to invest in leap-frogging technology. This approach is just now starting to show dividends for us in product terms – and that’s what people will be seeing on our stand at G2E.

The story I tell people is that when I left Bally and joined Interblock, most people thought I meant Intralot, the lottery company. I would correct them, and they would ask what the company does; I’d say, they make ETGs. They then ask, what’s an ETG? At that time the company was very well known and very strong in certain markets, but in many they were relatively unknown. But if you did that today, it is fascinating to see how far the industry and its knowledge about the product sector has come. We are just beginning – this is the tip of the iceberg; the numbers we are experiencing, the trending, new carded play we are seeing on our products, it’s one of the few categories on the casino floor that operators can honestly say generates incremental dollars – it’s new money. It brings carded play from people that have not been in the casino before, players are staying longer, wagering more often, providing more handle, and we can verify this because major gaming groups globally have started to do complete diagnostics on ETGs; as a result we are seeing casino operators break ETGs apart in their analysis and reporting structures

Something I find fascinating is when you look back over three decades, the systems business was driven by Bally, IGT, Aristocrat, Konami – these were the major players. The systems were all designed to measure slots and table games, though more toward the slot side of the business. We are now seeing these reporting systems be updated by casinos to add a third column for the first time in decades, headed ‘electronic table games’.  It has become such a point of interest, now realising an ETG should not be lumped in with slots and equally, not with tables. The fact that there is now an acknowledgement ETGs are something to be measured separately, and desire to understand the segment more, is fascinating for me.

So I think we are just beginning as an industry, and it is our – and our competitors – responsibility to keep investing in the area to help operators position themselves for the future.

CI: Prior to your appointment, Interblock did not have great penetration into the US market; I think there were a few installations, but nothing like you are enjoying now.

JC: We have definitely seen a tremendous growth rate in our North American region. We historically had very few leased units on floor because when they performed, the casino would simply buy them. It was hard to build an infrastructure as a result, so we made the tough decision to say, we no longer want to sell, we want to make sure the product is maintained and we want to use the recurring revenue stream to innovate and drive incremental growth within the industry.

I was worried that the diversification of Interblock was not sustainable long term. We were deriving too much of our revenue from a single product, few markets and a small number of customers, which failed to allow me to sleep well at night. We were too concentrated, and had very little IP or patent protection.

The main barrier to entry we had was the industry itself. Coming from a larger company, I knew that someone would realise the potential of the segment and we were going to be challenged competitively. We needed to make some tough decisions to ensure we could sustain ourselves long term. Fast forward 36 months, we are infinitely more diversified; we are really a different company, in a far better position to sustain our growth and compete against some of the largest gaming companies in the world today, compared to where we were a few years ago. It’s never easy, but again I think as a team we have done a very good job creating an environment for ourselves heading into 2019 where we can really leapfrog the competition.

I always say to the team, let’s not follow – let’s lead. And to lead, we need to come up with innovative ideas. We are blessed with some of the best minds in gaming in that respect. Our objective is to show operators that we bring incremental EBITDA to their floor, with new players.

With our product portfolio and what that brings to the gaming floor, I think we are about to enter a phase in our company’s evolution where the decision-making of the operators to choose Interblock is going to become substantially easier.

CI: How is the Stadium concept going down worldwide?

JC: If you look at the trajectory of that alone, it has to be statistically one of the fastest-growing areas of casino floors today. Joc and I took a leap of faith three years ago and said, we think we can make this global; it went slowly at first and now we install a stadium on average every ten days. It has turned into a significant part of our business globally. The numbers are growing, and sustainable. In this industry, nobody wants to be first, second or third but you start getting to a point where there are 20, 30 products out there doing well, the industry then tends to latch on and move quickly – that’s where we are right now. If you don’t have a Stadium right now, you’re definitely thinking about it or have already decided to put one in.