Earnings Call: Q3 2020

Nov 23, 2020

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the Bragg Gaming Group Q3 twenty twenty Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Mr. Yaniv Spielberg, Chief Strategy Officer. Thank you. Please go ahead. Thanks, Jimmy. Good morning, everyone, and thank you for joining our third quarter twenty twenty earnings conference call. During today's call, we'll review Bragg's financial and operating results for the third quarter of twenty twenty. Following our prepared remarks, we'll open the conference call to a question and answer session. The call today will be led by myself, Bragg's Chief Strategy Officer, Romain Kanor, Ragh's Chief Financial Officer and Adam Arviv, Interim CEO. I'd like to start the call with some brief cautionary remarks regarding certain statements that may be made on the 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 markets and economic conditions, business prospects or opportunities, future plans and strategies, technological developments, and anticipated events, trends, regulatory changes that affect the corporation, its subsidiaries, and their respective customers and industries. While we believe these assumptions to be reasonable, they're subject to a number of risks, uncertainties, and other factors, many of which are outside the corporation's control, which could cause the actual results, performance, or achievements of the corporation to be materially different. There can be no assurances that these assumptions or estimates are accurate or that any of these expectations will prove accurate. For a complete discussion of these factors, please refer to our recently filed press release and other publicly available disclosure documents that we set out today. So with that said, good morning, everyone, and thank you for taking the time to join our earnings conference call. On today's call, I'll provide a business update as well as walk you through our recent operational and corporate developments. Following my comments, our CFO, Ronen Kanor, will run you through our financial results for the third quarter. I'm pleased to announce that we had another very strong quarter, experiencing exceptional and exponential growth and making continuous progress executing on our business strategy. We also welcome two new members to our management team. Adam Arviv, who's our interim chief executive officer and Richard Carter, former CEO of SBTech, who was appointed as a nonexecutive chair of our board of directors. I'll provide a few more details on this later. I'll now address performance. As you guys are aware, ORIX offers a full turnkey retail online mobile and iGaming platform as well as an advanced content aggregator, sport book lottery and marketing and operational services. We continue to grow rapidly, building on the growth trajectory established in 2019, which is continuing strongly into 2020. Revenue grew rapidly in the third quarter to €11,700,000 This represents 72 percent increase from Q3 of twenty nineteen and the third consecutive quarter of significant quarter over quarter growth. We've completely transformed the business throughout the first nine months of twenty twenty and have seen great success from our efforts. Revenues for the first nine months were 74% higher than the revenues in the same periods of 2019. We attribute this growth to a number of initiatives we've undertaken, all falling under three key pillars of growth. The three key pillars of growth within ORIX that we've made and been focusing on are onboarding new customers and increasing wallet share of current customers, enhancing our technology and product offering, and diversifying our revenues by expansion into new geographies. I'll provide an update on our activities within each of these areas now. Onboarding of new customers, we signed agreements with 14 new customers in the quarter and have additional, customers in late stage discussions. Our robust pipeline, has continued to grow throughout this year, and we've, had very high level of customer retention, having not lost a customer since brag inception in December of twenty eighteen. We're now focusing on signing larger, longer term deals with larger operators where we offer more platform services. The ORIX offering is unique, and we continue to win market share. The second pillar is the enhancement of the technology and product offering. ORIX's primary growth comes from casino product and aggregator platform. We now offer over 10,000 casino games that are seamlessly integrated and can be accessed through a single player account management system. These games are provided by over 80 of the industry's leading content providers such as Gamma Knob, Red Tiger, Columba and many others. This quarter, we launched 11 new games and continue to invest in partnership with these content providers in order to provide an all encompassing portfolio, which is unique and localized in nature. We continue to invest in platform enhancements, even more so now with the uptick in traffic due to the increase in virtual games and activities also as a result of of the pandemic. New features that we've rolled out include regional tournaments and leaderboard tools, which enable operators to set up slot tournaments across multi game providers with a real time data feed, which also allows players to track and compare their performance compared with others, taking player engagement to the next level and increasing retention. This also translates to higher KPIs for our customers or the operators. We've also included data analytics platform, which allows for real time collection and analysis of data from internal as well as third party systems, enabling operators to gain a better understanding of their customer and more effectively target and engage them. All these new features are available through a simplistic single integration. We closed contracts and integrated at significantly faster pace than industry standard with as fast as two to four weeks compared to sometimes three to six months in the industry. We continue to diversify and expand into new geographies. Our global customer base and footprint is growing with new customers coming on board each quarter. We also continue to focus on customer diversification, both by geographic expansion and by decreasing our dependency on our top 10 customers. In terms of diversification, we're pleased to say that our customer concentration is improving with only 62% of the revenues coming from the top 10 customers, down from 76% in 2019 for the nine months that ended in in q three. In terms of geographies, this quarter, we we entered two new geographies, Denmark and Latvia. We'll continue to build out our presence in other geographies and including licensing efforts in The UK, where we anticipate continued success. The US market, of course, is a key target for us in 2021 with the market expected to grow nearly threefold by 2025. There are a number of players in The US market that we've we are very comparable to and have the same or very similar offerings. So in 2021, we're focused on increasing our market share in The United States and the North American market. The group also has exposure to revenues derived from customers who are predominantly German facing end users. Germany on is on course to be one of Europe's top largest regulated gaming market, and licenses are anticipated to be issued to online casino operators by July 2021. The near term impact of the changing regulatory landscape in the German market is likely to create negative revenue headwinds. However, our view is that in the medium and long term, the introduction of more regulatory and regulation similar to other established regulated markets will over time offset these negative headwinds as operators utilize more traditional marketing channels such as television and print media, which, of course, in turn will help increase participation and eventually the overall market size in the German market. The group will continue to monitor how the German market adjusts to the new regulatory framework and is already closely working with its German facing operators on helping to mitigate future adverse condition. With that said, I'd like to turn the call over to Roman Kanur, our Chief Financial Officer, who will run you through the third quarter results and guidance. Thank you, Yaniv. Good morning all. I would like to take the third quarter highlights. First, to start with, all figures are presented in euros. So the group revenue for the first quarter for the revenue for quarter ended September 30 increased from the same period in the previous year by 72 to €11,700,000 as opposed to quarter three twenty nineteen was €6,800,000 maintaining solid quarter on quarter revenue growth since Q1 twenty nineteen. Q3 revenue was slightly down by 3.3% compared to Q2 twenty twenty, but this is due to seasonality. In order to demonstrate in a better way what drives our performance, we introduced operational KPIs for the first time in this quarter. Total bets that tracks usage of our platforms were up 95% from the same period last year, totaling €3,300,000,000 of total bags. The amount of unique players also increased by 89% to €1,800,000 This strong growth number demonstrates solid demand stemming from our unique content portfolio and confidential technological advantages. Gross profit increased compared to the same period in the previous year by 73% to €5,100,000 as opposed to quarter three twenty nineteen of €2,900,000 with subsequent margin increasing by 0.3 basis points to 43.3 as opposed to 43 last quarter, mainly the results of revenue classification between 10 Q projects and gains during the quarter. Group profitability continues to improve with adjusted EBITDA increasing from the same period in previous year by $1,600,000 to $1,800,000 as opposed to Q3 'nineteen was only 0.2 with subsequent adjusted EBITDA margin increasing by 13.1 basis points to 15.7% compared to quarter three 'nineteen was only 2.6%. This is achieved as a result of reaching high scale and tight cost control. Total net loss for the period increased by 3,100,000 versus 3,200,000.0 last year, mainly as a result of increase of loss of remeasurement of deferred and contingent consideration in the period to reflect the fifth amendment agreement between Cavu and the group. With regard to the nine months or year to date highlights, the group revenue increased from the same period in the previous year by 74%, reaching €32,600,000 as opposed to last year was only €18,800,000 The group's revenue growth was mainly in the games and content services as demand for the group unique games and content proposition continues to grow. The group the company's growth has been underpinned by continued investment in innovation, technology and product offering. Adjusted EBITDA amounted to €4,300,000 as opposed to 300,000.0 last year, with margin increasing by 11.8 basis points to 13.2% compared to last year with only 1.4%. Operating loss amounted to €6,600,000 loss comparing to €5,200,000 loss last year. However, in order to reflect the most effective way the underlying performance of the group on a like for like basis, excluding the increase in remeasurement of the deferred and contingent consideration, the adjusted operating income for the period amounted to $1,700,000 positive as opposed to last year, which is €2,400,000 negative, a significant improvement due to scale reached, operation leverage and cost control. Cash flow from operating activities amounted to €6,700,000 during the nine months ended September 30 as opposed to negative €1,800,000 last year, mainly because of working capital movements. Cash flow due to investment activities amounted to €1,800,000 as opposed to €2,200,000 last year, which is attributable mainly to the capitalized software development costs. The cash and cash equivalent of September 30 amounted €5,200,000 as opposed to the beginning of the year, is December 31, euros 700,000.0. Total assets for the current asset of September 30 amounted by 13,600,000.0 as opposed to beginning of the year was 8,300,000.0, and total current liabilities amounted 49,100,000.0 as opposed to 20.8 last in the beginning of the year, in which €33,000,000 attributed to the earn out payments composed of €22,000,000 to be settled in shares and €11,300,000 to be settled in cash. I would also like to discuss the recent financing we closed just last week. We announced that the company has closed its previously announced both deal and short form prospectus offering of units in a price of $0.70 per unit for a total gross proceeds of CAD 20,700,000.0, which include the exercise of over allotment options in full. Under the offering, 29,500,000.0 units were sold by a syndicate of underwriters, including Cormark Securities, Canaccord Genuity Corp, together with the core book runners of Haywood Securities, Paradigm, Capital, eight Capital collectively. We plan to use the proceeds of the offering predominantly to satisfy the payment due to the contingent consideration and should also shall be used for growth initiatives, working capital, general corporate purposes. Just to remind you all, the total numbers of common shares as of September 30 was 18.3 shares, which we had an additional 27,000,000 warrants and 1,600,000.0 special compensation warrants as well, and 9.9 fixed stocks and option to employees and directors. And as of today, the November 23, there was an increase of about 35,000,000 common shares between the reporting date and this announcement, predominantly because of the $2,529,500,000.0 common shares as a result of the offering and also 5,500,000.0 shares as a result of exercise of warrants in the last few weeks. Looking ahead, we anticipate strong finish of the year with the final weeks of 2020. We've already experienced solid trading momentum in Q4. We are comfortable with our 2020 financial year guidance. And for 2021, we focus to be in the range of €47,000,000 to €51,000,000 which is CAD 73,000,000 to CAD 79,000,000 and adjusted EBITDA for 'twenty one to be in the range of €6,300,000 to €6,700,000, which is 9,800,000.0 to 10,400,000.0 Canadian dollars. Looking ahead, our strategy is to focus on growing our B2B Gaming solutions. For ORIX, We continue to invest in our platform and integration capabilities in order to provide the best product and service to our customers. We focus on growing our international reach in regulated markets and strengthening our client base. And following the raise we closed last week, we believe we are well capitalized and positioned to move ahead and execute our strategic priorities. With that, I would like to know that if interested, you can find more detailed information about financial performance on the September 30 financial statements and management discussion analysis on SEDAR and on Investor Relations page on our website, Bracken Games. I'll now turn the call over to the operator for Q and A session. Thank you. Our first question comes from David McFadgen with Cormark Securities. Your line is now open. Thank you. Hi, guys. A couple of questions. Maybe I'll just start off with the guidance, for 2021. So you stated in your prepared remarks that with the legalization in Germany, there'll be some revenue headwinds. So I'm just wondering, does the guidance incorporate the revenue headwinds that you expect in Germany? And can you give any more details about that? Ramon? Yeah. Yeah. Hi. Hi, David. Good morning. How are you doing? So, yes, we we incorporated, we incorporate I mean, we we provide the guidance, and we, also said that, even said that we built around €6,000,000 hit to our numbers. So we have literally double hit in some some respect. On one hand, we projected 6,000,000 decline because of the regulatory headwinds we we anticipate this year in 2021, but, also, we didn't take into account any growth rate from Germany. So we usually have a dollar sold here. On one hand, we don't have the growth we anticipated in the last two, three years. We were growing about 40%, 60% this year, so we didn't count any kind of revenue for next year from Germany at all. And, definitely, we also added another 6,000,000 hits in our numbers. So just just to give you some kind of a like for like so if we took if we took the hit out of the 6,000,000, we were growing by 27% like for like. If we increase we if we're adding another growth in Germany, even 10% growth, we will be in around 35% in the year for year on year, like for like year on year. So this is our projection. This is our I mean, it's very difficult to explain now at this stage, which we have literally one and a half months when the transition period started. Very difficult to monitor different behavior of customers. What we're seeing within some customers that we are we see them, performing in line with our expectations, some of them below expectations. But as you probably know, and I think we discussed about it on the December 15, there's gonna be another stage of new rules gonna be imposed on operators. They won't be able to, and to make a spin or a bet within five seconds and, between one one stage. And, also, we we know there's gonna be €1, €1, limit on one particular bet. So that's why we're interpreting our numbers. Okay. Okay. That's that's helpful. And you put out a press release a few days ago about SwiftSoft. Can you give us an idea of how big that customer could be or the relevance of that customer? I'm I'm not very familiar with that company. Yeah. So so it's just yes. Yes. Thank you, sir. So it's a it's it's a multi jurisdiction it's a multistate operator that we just onboarded onto the platform. I mean, it's it's hard for us to say today how big it's going to be, but it's been, performing well with within the expectations. So we anticipate that it's going to be, you know, a good customer, especially given the fact that it's a multistate operator. Okay. And so maybe just one follow-up, just on the guidance. Are you expecting much out of The US market, or is that just excluded from the guidance to be conservative? It's excluded from the guidance. Okay. Alright. Okay. That's it for me. Thank you. Thanks, David. Thank you. Our next question comes from Ed Solba with Spartan. Your line is now open. Good morning. Congrats on the results. I'm looking at the 2021 guidance. How much are you forecasting COVID in terms of helping your results? Good morning, Ed. It it's interesting because what we saw in the last couple of months since h two to h so so q q two to q three and q four, we didn't see much effect when when, you know, when q two, a of a lot of companies, a lot of countries actually went through a lockdown. But we saw that because of organic growth, majority of the revenue remained almost stable. So we didn't take into account any kind of additional tailwind in that respect. We just assumed that this is gonna be a change globally. A lot of operators will use online going forward regardless. So we we didn't and we didn't factor it positively. We didn't factor it. There's gonna be a a decline because of that. So we we just continue with our organic growth rate, which is embedding what actually is going on in the market today. Okay. Well then, in terms of 2020, how much I mean, do you consider yourself a stay at home stock? The how much was the positive results impacted by the COVID, the lockdowns, in terms of people turning to, online gaming? So the best way for us to demonstrate it, if you look at the q one and q two numbers, we had a growth from q two to q one about 38% growth. But we also we also onboarded about 33 customers in the last in the first quarter and for the second quarter. So we we we intended to work on a basis. It's about 10% to 15% as a one off because we're not embedding anything the quarter going forward. But this is what we saw if we're comparing the numbers like for like. We did analysis. We just spent 10 to 15%. But since q two onwards, because of the amount of customer we embedded, I don't think we something is that we didn't make any changes to that, and I think it's gonna be the new reality. So, it's not reflected differently or in in other way in q in 2021. Okay. Well, that's that's interesting. So you you think you it's more organic growth than the COVID tailwind? And and and Yeah. You see. Your '21 results are also more organic. You're not you're not thinking there's a headwind from maybe a vaccine or something? No. No. We didn't take into account any kind of because, well, nobody knows. Secondly, we didn't take into account. Of course, there's gonna be seasonality. The seasonality might change because of lockdowns. Right. But we already we already saw it in the last seven, eight months. So it didn't really make any significant impact on the portfolio of customers we have. Okay. And thank you for that. And then second question, in terms of cash, I know you have a lot of warrants that are expiring end of the month. What what are you what are your thoughts in terms of use of proceeds from the cash, assuming that there are those warrants are exercised? So majority, we are have now I'm sending about 23,000,000 warrants to be to be expired in the end of this month. We definitely have the new 40,000,000 warrants that's being just just issued on the new on the new fundraise, and they have different conditions, of course. As we said, we're gonna use them for working capital first. Future opportunities, we're looking for different type of an m and a's and and and enhancement to our product slash portfolio of games and other corporate needs, but this is predominantly, and we're we're gonna use them. We don't have a we have a big road map of of what's gonna expansion gonna look like, but we didn't put them specifically for one one of them. But, definitely, it's gonna be nice to have those those discussion in the balance sheet. And, definitely, we'll support any future m and a or enhancement of our portfolio. Okay. So so in terms of your road map, you you're you're looking at cash acquisitions, and what what type of acquisitions would you be looking at? We are talking in in in our perspective, the the three main pillars for that. First of all, enhancing our content. As you know, if you look at our profit and loss, we have the the the we we're selling content. We have platform we're selling our iGaming platform, and, also, we're selling content and games. Majority of the game we're offering is exclusive to us. Our long term contracts are exclusive to us. We definitely want to actually improve our profitability by acquiring content if it's it's currently serving us or new content we're gonna we're gonna locate and and trace that's gonna support our our potential growth. So this is one of the things. Secondly, we have m and a of further businesses, which is complete or doing exactly as we are as as we are doing and also to expand and increase market share. So this is another opportunity that we're always talking about. And, of course, new new opportunities around, you know, around the world, partnership with a strategic partnership that we need the cash flow for that particular case. So we have three buckets, and then we look in them every single time. But there's a lot of opportunities out there. Okay. Thank you very much. Thank you. I'm showing no further questions in the queue at this time. I'd like to turn the call back to Yanis Fieldberg for any closing remarks. Thank you, everyone, for joining the call today and your interest in the Broadstory. We appreciate your time and look forward to providing updates on our progress over the next few months. Thank you everyone. Thank you. Thank you. Ladies and gentlemen, this concludes your conference for today. You may now disconnect.