Earnings Call: Q1 2021

May 13, 2021

Earnings release

Good day and thank you for standing by. Welcome to the Bragg Gaming Group Q1 twenty twenty one Conference Call. At this time, participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Yaniv Spielberg, Chief Strategic Officer of Brad Gaming Group. Please go ahead. Thank you. Good morning, everyone, and thank you for joining our first quarter twenty twenty one earnings conference call. I'm Yaniv Spielberg, Chief Strategy Officer for Broad Gaming Group. I'll be hosting the call today along with Broad's newly announced Chief Executive Officer, Richard Carter, who'll share some opening remarks and an update on our business and Chief Financial Officer, Ronen Kanor, will provide a review of our financials. In this call, we'll review Bragg's financial and operating results for the first quarter of twenty twenty one. Following our prepared remarks, we'll open the conference call to a question and answer period. I'll start the call with some brief cautionary remarks regarding certain statements that may be made on this call. Certain statements made on this conference call and our responses to various questions may constitute forward looking information or future oriented financial information within the meaning of applicable securities law. Statements about expected growth, prospective results, strategic outlooks and financial and operational expectations, opportunities and projections rely on a number of assumptions concerning future events, including market and economic conditions, business prospects or opportunities, future plans and strategies, technological developments and anticipated events, trends and regulatory changes that may affect the corporation, its subsidiaries and their respective customers and industries. While we believe these assumptions to be reasonable, they are subject to a number of risks, uncertainties and other factors, many of which are outside the company's control and which could cause the actual results, performance or achievement of the company to be materially different. There can be no assurances that these assumptions or estimates are accurate or that any of these expectations would prove accurate. For a complete discussion of these factors, please refer to our recently filed press releases and our publicly available disclosure documents that we filed this morning as well. I'll now pass the call to Richard Carter, CEO of Bragg. Richard? Thank you, Yves, and good morning, everybody. To open, I'd like to say how excited I am to be speaking to you today. I joined Brad last October as Chairman of the Board because I recognized the potential of the company's technology and product offering. Now as Group CEO, I'm very much looking forward to building a market leading, virtually integrated iGaming business, which enables our clients to be successful and facilitates an outstanding user experience for their end users. On today's call, we will cover the following topics: our first quarter results and recent accomplishments our product and technology investments as well as the group's corporate developments. And before turning the call over to Ronan Kanor, I will talk about the spin acquisition we announced yesterday and the outlook for 2021. I'm pleased to announce that we continue to build on the strong momentum of 2020 with an excellent first quarter, outperforming our targets and accelerating our progress on the company's strategic plans. Revenues continued to grow in the first quarter, increasing by 62% to EUR 14,200,000.0. Wagering revenue also saw a significant increase, rising by 52% to EUR 3,500,000,000.0 compared to EUR 2,300,000,000.0 during the first quarter of twenty twenty. We've also seen a 54% increase in new players using the Brag Games and Confront, rising to EUR 2,400,000.0 from EUR 1,600,000.0 during the same quarter in 2020. We continue to transform the business into a global player in the B2B game sector and adhere to the three pillars of growth that we set out in early twenty twenty: enhancing our technology and product offering diversifying our revenue and expanding into new geographies and collaborating with key players in leading jurisdictions through strategic partnerships and content deals. Now in terms of enhancing our technology and product, we today offer more than 13,000 seamlessly integrated casino games that can be accessed through a single player account. These games are provided by more than 100 of the industry's leading content providers, including IGT, Peter and Sons, Gamma Knife, Red Tiger and Evolution Gaming, just to name a few. We launched 11 new casino games in the first quarter via our exclusive content partnerships. I'm very pleased to report that our first in house developed proprietary casino game recently launched across our network with encouraging early signs and with five more games planned during the remainder of 2021. This is a very important initiative for the group as it will enable us to create a point of differentiation and to increase engagement with our customers as well as giving the group access to medium term gross margin synergies as the in house content increases relative to third parties. In addition, we continue to focus on deepening and broadening our proprietary player engagement platform with its market leading gamification tools, allowing operators the ability to greatly enhance the customer experience, including personalized promotions and rewards tailored to individual players, which are completely platform and content agnostic. Now even with our rapid pace of expansion, we've been able to maintain our ability to close contracts and integrate new content and customers at significant pace. We launched nine new B2C operators during the period across a number of global jurisdictions, including PaaS, a state operator based in Finland iGaming platform, Senator and Swiss market leader, Casino Luverne and MaxBet in Romania. As I already mentioned, we launched 11 new exclusive casino content deals, fully certified and distributed throughout the entire network. And this is critical ensuring that we stay ahead of the competition. We are continually adding new customers, expanding our global footprint and are looking to diversify our revenue. In addition, our customer retention is excellent. Our dependence on the top 10 customers have decreased from 65% in Q1 twenty twenty to 62% in Q1 twenty twenty one, and I anticipate this trend to continue. We also entered an additional regulated jurisdiction in the first quarter with the launch in Switzerland with Casino Resume, and we expect to add more clients in this exciting new market over the coming quarters. Since the quarter end, we also expanded our presence in the Mexican online gaming market with our partnership with Le Grand, a leading local Tier one operator. Looking forward, we will continue to focus on entering new markets, and I'm pleased to report that we are in the process of applying for a U. K. License, which will give us access to one of the world's largest regulated online gaming markets. Turning to M and A. We're extremely excited about yesterday's announcement to acquire Spin Games. The acquisition is a game changer for Bragg. It will provide the foundations of our U. S. Strategy and offers compelling strategic and financial rationale. It's consistent with BRAC's previously announced strategy to diversify its revenue from European markets and to grow its U. S. Operations to capitalize on the growing U. S. And Canadian online casino market. Through the transaction, DRIVE will gain access to key strategic operator relationships in The U. S, including Bed MGM, Royal Digital, Banjo, Gold Mugger, Drakens to name a few. The initial timing of technical integration between Spin and ORIX are currently underway, and we expect the combined offering to deliver the benefit of the ORIX Advanced turnkey player engagement platform and premium content together with SPIN technology, local market know how, and its US operator relationships. We welcome Kent Young and the whole team on board, and we look forward to a highly successful future together. Now looking ahead, our 2021 strategy continues to focus on rapid expansion of our B2B gaming technology solution through our ORIX gaming assets. The company is in advanced discussions with potential new customers across multiple license restrictions in North America, Europe and Latin America. We'll continue to invest in our platform and integration capabilities in order to provide the best products and services to our customers, And we'll continue to explore further bolt on M and A opportunities in The U. S. And globally, where we believe we can exploit significant synergies and add material medium to long term shareholder value. In conclusion, we're off to a great start in 2021. We performed exceptionally well in the first quarter. We launched nine new customers, and our customer pipeline for the remainder of 2021 continued to grow, underpinning future growth. We advanced our in house proprietary content initiatives and with our acquisition of Spin Games laying the foundation for our strategy of building a Tier one vertically integrated iGaming business in The U. S, Rag Gaming has never been better positioned for long term success. With that, I'd like to turn the call over to our Chief Financial Officer, Yaron Kinall, who will run you through the first quarter results. Thank you, Richard. Good morning, everyone. As a first note, I'd like to say that all the numbers are presented in euros. Increased by 62% to EUR 14,200,000.0 in the first quarter of twenty twenty one compared to EUR 8,800,000.0 for the first quarter of twenty twenty, maintaining a quarterly growth momentum since Q1 twenty nineteen. Revenue growth is mainly derived from games and content services, which accounted for 86% of the total revenue as demand for the corporation unique games and content and technology proposition continues to grow. Quarter over quarter revenue increased by 3% from €13,800,000 in the fourth quarter of twenty twenty to 14,200,000.0 in the first quarter of twenty twenty one. Total wages was up 52% from the same period in 2020, totaling $3.3500000.0 euros to €3,500,000,000 The number of unique players also increased by 54% to 2,400,000. The strong growth numbers demonstrate a strong demand stemming from our unique content portfolio and continual technological advantages. The gross profit increased by 68% to EUR 6,600,000.0 compared to EUR 4,000,000 last year, with an increase of margin from 45% to 47%, which is mainly attributed to the shift in proportion of revenues from games and content to iGaming and turnkey services, the latter of which have lower associated cost of sales. The group profitability continues to improve as well. The adjusted EBITDA ended €2,300,000 in Q1 twenty twenty one, which is up 234% compared to €700,000 in Q1 twenty twenty, with an increase in margins from 8% to 16%, primarily as a result of higher scale and cost control. Net loss for the period was EUR 1,100,000.0, a decrease of EUR 4,600,000.0 from the previous quarter, mainly due to the full settlement of the ORIX earn out on January, resulting in nil expenditure for remeasurement of deferred and contingent consideration in the current quarter. The weighted average number of shares of March 31 was 18,100,000.0 shares compared to 8,000,000 shares of March on a post consolidation basis. Loss per share was €06 versus €01 last year. Cash and cash equivalents of 03/31/2021 amounted of €30,100,000. December 1 was 26,100,000. On a corporate level, we recently announced our intent to cross list on the NASDAQ exchange, and we're finalizing the steps to make this happen. We currently expect to complete this process in late May or early June. Finally, in terms of guidance, we continue to target a full year 2021 revenue of EUR 47,000,000 and adjusted EBITDA of EUR 4,000,000 pre M and A. And while we have started this year strongly and I'm pleased to say momentum from Q1 continued into Q2, we remain mindful of the upcoming regulatory changes in Germany from July 1 and onwards. With that, I'll turn now the call over to the operator for any Q and A session. Thank you. Your first question comes from Neal Gilbert with Haywood Securities. Hey, good morning and congratulations on the quarter. And maybe I guess my first question might follow on the last comments there on the guidance. Obviously, if you take a look at the run rate from Q1, you're factoring in, obviously, a little bit of a decline in the second half of the year. Can you just provide maybe a little bit more color on some of assumptions that sort of go into that on both the sort of the revenue and EBITDA level? Sure. I'll take that. So first of all, we're assuming that obviously regulation, happens in Germany, from July. If you need some of the recent news flow, there are some question marks over if it will necessarily go ahead and will there be some, legal challenges, which could potentially delay it. But our working assumption is that from the July 1, that the market will be fully regulated and therefore, obviously, there'll be full compliance with with the regime. And so we've assumed that. We've obviously assumed that obviously creates an impact for our clients. Some clients will leave the market. And we try to be conservative. We've we've assumed a sort of medium, enforcement. If it is full enforcement, I think that will help our company because obviously, the local tier one operators will then be able to grow the market and hopefully there'll be greater generalization. So there's a lot of moving parts. We try to be as conservative as possible. We're assuming quite a significant decline obviously in our German business from July earnings. Okay. Thank you for that. I appreciate it. I guess my second question might be just on your U. S. Strategy following yesterday's announcement with Spin sort of as you work together to integrate and obviously close that transaction and access some of those markets, what's your overall philosophy for further penetration within The U. S? Is that closing this and working to get deeper into The U. S? Or are you still evaluating other opportunities, either whether it be M and A or working through your own licenses in certain states? Yeah. I mean, just to give a bit of background, I mean, we are obviously looking at running an organic strategy eventually in The U. S. It's just Spin obviously tremendously accelerates that. So we're already in the process of applications and and all that fun stuff. So in terms of looking forward, you know, Spin gives us that foundation to have all of the customer relationships. So it's a case that we'll be using them as our as our building blocks and spin boards into The US. And then obviously, you know, there is discussions at the moment in in certain states about further, iGaming regulation. We'll probably get one or two new markets over the next twelve to, you know, sixteen months and and we'll be going into that market as a combined entity. So we'll be using the combined entity effectively going into them. Okay, great. Thanks, Richard. Appreciate it. I'll pass the line. Thank you. Next question comes from Suthan Sukumar with Eight Capital. Hi, good morning, guys. It's Adir on for Suthan this morning. Good morning. Good morning. Just wanted to maybe kind of ask another question on SPIN. Can you maybe talk about the cross sell opportunity from the content from the European portfolio? How much of that is a relevant fit for The U. S. Consumer? And are there any maybe technical efforts that, you guys are gonna require in order to bring these to market? Yeah. It's a very good question. I I think in our in our, I can give you the view that that Ken has and he's obviously got a lot of knowledge, but I think one of the things which really excites Ken about this combination is that he's he's very bullish the European content we've got. A lot of it was created sort of for a lot it comes from a sort of land based sort of audience. And therefore, you know, the thought process of that will resonate very well with, with US customers. So I think it's a significant opportunity, over the next sort of twelve to twenty four months to to bring our European content, into The US market. And again, I think a lot of content won't necessarily work in Europe into The US, but we have a lot of sort of content that resonates from the land base. We think it will and that's that's Kent's view. In terms of the from a technical perspective, there's not we don't think there's a huge amount to do. There are there are some slight sort of rules in New Jersey in terms of some some payouts and things like that on on on the mass side. But, sort of the the the initial analysis suggests that, it should be actually relatively seamless and and quite incremental. Obviously, you need to go through this certification, but most of these games have been certified anyway anyway by July. You'd have to go through the sort of New Jersey process. I mean, that obviously takes a little bit of time and has a little cost. But overall, no, very limited amounts of change needs to be undertaken. Okay. That's great. Thanks for that color. Maybe just aside from the actual content, are there any other aspects of the Brag tech stack that you can see, leveraging across the acquired spin base, outside of content group? Yeah. I think there is. I think, I mentioned that we have have a player engagement platform, and I think, that's going to become increasingly, important in The US market. The ability to be able to personalize promotions and rewards, you know, tailored to individuals, I I think it's it's gonna be a really expanding part of the marketplace, having jackpots and things like that. We're working, over the coming quarters in in deepening and broadening our jackpot offering as well. So I think that player engagement platform, will be another key area of the product offering that we'll bring from ORIX, into SPIN and into the North American market. Okay. That's great. Thank you very much. And just one quick question on The UK market. I know you said that the licensing was kind of on track. Is there any potential timing there? I'd be very disappointed if we're not live in in q four. Obviously, with COVID and things like that, the SLAs on the license application maybe extended a little bit. But as I say, I'd be disappointed if they're not live in Q4 of this year. Awesome. Thanks a lot guys. I appreciate all the color. I'll pass away. Thank you. Your next question comes from Matthew Lee with Canaccord. Hey, good morning everyone. Good morning. So just in terms of backlog, can you maybe disclose how many customers have signed on right now but aren't launched yet? Ronan, do you have any color on that? Yeah. We have a list of quite a few customers that's been signed or in the process of being signed waiting for from our side, from the counterparty side. We're talking about dozens of customers at least in the next q two, q two, q '3 that we are looking to sign. I don't have the specific number. It's just because it's it's quite a big list, but we have quite a couple and We can can come back to you on that. I mean, I remember last week on one of the calls, I mean, the pipeline was sort of, like, 85 of that pipeline. We'll come back to you with the exact number that's moved into the other buckets of of, you know, where they are in terms of contract negotiations and signed. So that's a good question. All right. That's perfect. And maybe just a follow on with regards to guidance. If Q2 looks relatively similar to Q1, does that fundamentally mean that your expectation for EBITDA in Q3 and Q4 is zero to maybe a little bit negative? There's a lot of moving parts. We're obviously investing significantly in our in house content. As we've already guided at the beginning of year, we're expanding the team. We're also entering The US market. So there's there's quite a few moving parts in terms of the business, but there is there is a potential of that. Yeah. Do want me to do anything? No. I think it's fine. I think it's fine. Thanks. Yeah. Alright. Then just lastly, on the M and A front, I mean, what do you think is the next target for Brag? I assume that spin is kind of the first kind of move for you guys in the North American market. But are you still interested in adding a sports book? I know that was something we talked about earlier on. We're interested in adding, you know, product verticals and businesses that we think can create significant shareholder value, not just for the sake sake of it. So, if if we can if we can find the right product verticals that we think fit with, our culture and our value for shareholders, then we'll do it. We're not gonna particularly go around focusing on lots of different areas, and just doing it for the sake of it. But clearly, I I think, we all know what's happened in terms of inflation in in the online sportsbook market over the last sort of, you know, twelve months. So we'll have to see how that settles down. All right. Thanks, guys. Thank you. Your next question comes from David McFadden with Cormark Securities. Hi. A couple of questions. So just looking at your guidance statement, we put a pre M and A qualifier on there, and I was just wondering how we should interpret that. It's just to say, obviously, that we in terms of don't know when it's been exactly gonna close. Yeah. Obviously, it could close a lot sooner. And and, you know, obviously, if we did any other M and A, it's just a pre M and A just to get it clean and and relevant to our last guidance. Okay. Okay. And then just on the gross profit change, I didn't fully understand, you know, what was driving gross profit there. Maybe maybe you could just elaborate on that. Yeah. Ronan, do you wanna say this, please? Yeah. Hi, David. Good morning. How are doing? So we we we we we're discussing about that in every single announcement. We're saying they'll have the composition of our revenue composition of two segments, gaming content and gaming platform. We said 82% of this revenue in this particular quarter was on gaming content. Last quarter, if you remember, Q4 was 89%. Previously, was 88%. When we have some most signs of more revenue comes from gaming content, alternative services, In particular quarter, the the weight the weighted amount of those particular revenue from gaming consoles are higher. We have less cost of cost of goods associated to that. If you remember, cost of games with content comes with the cost of goods, which is the cost of using those particular games, royalty payment, royalty base. So we have more weight on games and our gaming platform and turnkey solution. From time for quarter to quarter, what we have is literally changing gross profit margin. And we anticipate that those particular platform will continue with us going forward because it's a long long contract. And we believe that we'll start scaling down to be more gross profit oriented and more profitable. So I assume it's gonna be about 46%, 48%, 67. That's what we're we're trading. So it's all about the composition of revenue. Okay. Alright. Thank you. And then can you give us an update on The Netherlands? Because I know you've signed a contract with a big operator in The Netherlands going live. I'm not sure exactly when, but can you give us an update on that market? Well, I've been looking at focusing on Netherlands for five years, and it's been going on for quite a while. But I think I think finally, it's hopefully I think going live in October this year. So that's, you know, moving forward with that and the expectation is that we'll be live in early October. Okay. Sounds great. And then just an update on your Nasdaq listing. Anything new there? No. I think Rohnen Rohnen touched on it. You know, we're we're continuing to proceed and, you know, currently expect to complete that process late May or June. That's what we communicated recently. Okay. Okay, great. That's it for me. Thanks. Thanks very much. Your next question comes from Lisa Thompson with Zacks Investment. Good morning. Good morning. So just to clarify a little bit. For Q2, do you expect the revenues to be up sequentially and margins also? We're not talking we've not talked about what we expect in terms of Q2, just given yearly guidance. Okay. And expense We've wise made it clear that we started the quarter one. Alright. Will we expect expenses to be around the 7,100,000.0 level going forward quarterly, or does it come down or up? We'll move around. Ronan, do you wanna yeah. Which which Ronan again. Which kind of expenses? You're talking about the operation expenses? Yes. I think they remain I think they remain the same. It'd be guided on the January 26. We are gonna see more investment coming on on the cost side and investment in in The US. It's for compliance. It's the chief executive. It's for technology. So it's just slightly increased those, you know, scaling up. Key two will be slightly higher than q one and so on. So, yeah, it's slightly higher than that. But you have to normalize, you know, the shared debt payments and exceptional costs. We just need to take them out to come with a real like for like, comparison. Right. Okay. And if you were to look at, like, a pro form a with spend for the first quarter, what would gross margins look like? Unfortunately, given our our move on to the Nasdaq exchange and the documents we are compiling, our advisers and lawyer army of lawyers and bankers told us that we're not allowed to comment on that until that document has come out. So you have to, like, I think, a couple of weeks before we can get into the detail of the the numbers. Can we assume it's a higher number? A higher number than? In the current Oh, you can shoot we can't really talk about it. I mean, the company is pivoting away and building its own content. So we'll we'll give we'll give hopefully, we'll be able to get guidance once this once this move to Nasdaq has has occurred. Are you are you on account to our plan then? Is there anything else you can add? Think No. No. The clear clear message from the lawyer is in the bank. Yeah. Correct. Apologies. Alright. And then my last question is when you say UK market is gonna go live, what specifically does that mean? Do you have customers that are ready to flip a switch or how does that work? Yeah. So let me just give you a bit of background. So in terms of so, obviously, we operate in almost every European market. So we have the relationships with all of the the major players in work. So we've got those contract relationships. We may have to add some addendums, but it's but we can, you know, we can do that pretty quickly. We've got the integrations, again. So, you know, it's pretty seamless. So in terms of it's not quite flipping a switch, you know, that's how you should think about it. So, you know, I think we'll be pretty we'll be able to obviously, some of the content needs to be slightly changed for for for some of the rules in in in The UK. But again, that's a tremendous amount of work. So we should be able to bring quite a significant library of our exclusive content, turn it on with a lot of the operators in The UK and pretty quickly target one of the biggest casino markets in the world. There will be a period of, let's say, three or four or five months just as we roll out across into all the different customers. But, you know, within a couple of quarters then, you know, we should be up to speed and, you know, it should be a material market for us, which we haven't assumed in our numbers. So once we get closer to to getting the license and we've got a bit more certainty on it, then we we will be able to give a bit of guidance around The UK, but clearly it's a big market. Great. Thanks. That helps. That's all my questions. Thank you. Thank you. There are no further questions at this time. Thank you everyone for joining the call today and for your interest in the back story. We appreciate your time and look forward to providing updates on progress over the next few months. Thank you everyone. Thank you for participating in today's conference. You may now disconnect.