Earnings Call: Q2 2020

Sep 1, 2020

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the Brat Gaming Group Q2 twenty twenty Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's conference is being recorded. I would now like to introduce your host for this conference call, Yanis Spielberg. You may begin. Good morning, everyone, and thank you for joining our second quarter twenty twenty earnings conference call. During today's call, we'll review Black's financial and operating results for the second quarter of twenty twenty. Following our prepared remarks, we'll open the conference call to question and answer session. The call today will be led by myself alongside Ronan Kanor, Black 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 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, strategies, technological developments, anticipated events, trends, and regulatory changes that affects 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 and which should cause the actual results, performance, or achievement of the corporation to be materially different. There can be no assurance that these assumptions or estimates are accurate, but that any of these expectations will prove accurate. For a complete discussion of these factors, please refer to our recently filed press release and our other publicly available disclosure documents are available on SEDAR. The conference call will be a little bit different this time around, and I'll lead the conference call. So good morning, everyone, and thank you for taking the time to join our earnings conference call. On today's call, I'll provide an update on our main asset, ORIX, as well as walking you through our recent operational developments. Following my comments, our CFO, Ronen Kanor, will run through our financial results for the second quarter. I'd like to address the corporate changes announced in our release on Thursday first. Our CEO, Dominic Mansour, has taken a paid leave for personal reasons. With that said, mister Adam Arviv, the founder of the Bragg business, has taken the role of interim CEO. He's on the call this morning, and he'll be happy to answer any questions. With that, I'll dive in some operational highlights. We've had a strong quarter and experiencing record growth, making continuous progress diversifying our revenues, expanding into new geographies. As a reminder, our main asset, Quartz Gaming, offers a full turnkey retail, online, mobile, and iGaming platform as well as an advanced content aggregators for both lottery and marketing and operational services. We continue to grow rapidly building the growth trajectory established in 2019. Revenues for the second quarter, grew exponentially to 12,100,000. This represents a 107% increase from q two of twenty nineteen and a 38% increase from q one of twenty twenty. We also experienced EBITDA increase, to €1,800,000. In the first half of twenty twenty, our revenues grew by 74% with growth mainly seen within our games and content services offering. 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 been focusing on are to enhance our technology and product offering, diversify our revenues, and expand into new geographies, and collaborating, with key players in the space through strategic collaborations and content deals. I'll provide an update on our activities within each of these areas. So we'll start by talking about the enhancement to technology and product offering. Our casino product, ORIX's ORIX's primary growth comes from the casino product and aggregator platform. Over 8,000 casino games are now seamlessly integrated and can be accessed through a single player account. Dedicated resources to continuous improvement of our platform, especially now with the uptick in traffic due to the increase in virtual gaming and activities. The new features that we've that we've rolled out in in the first half of twenty twenty includes real time tournaments and leaderboard tools. These tools enable operators to set up slot tournaments across multiple game providers with real time data feed, which allows players to track and compare the results with others, taking player engagement to the next level, and increasing retention for operators, which, of course, in turn results in higher, revenues for orgs. The data analytics platform 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 customers and more effectively target and engage them, then going down to retention of customers with our operators and resulting in better results for the Orange business. All these new features are available through a simplistic single integration. We close contracts and integrate at a significantly faster pace than the industry standard. We you know, the average for us is about two to four weeks compared to the industry standard of about three to six months. The second pillar is diversifying our revenues and expanding to new geographies. Our global customer base and footprint is growing with new customers coming on board each quarter. As you guys have seen from the release, we onboarded new clients in the second quarter, which continues the growth from the first quarter. We also continue to focus on customer diversification, both by geographic expansion and by decreasing our dependence on our top customers. We signed agreements with 11 industry leading companies in the quarter, including MaxSend and Superbit. We're in discussion with additional 25 customers to be onboarded through the rest of the year. Some of them have already been signed or waiting to be integrated, and some of them we have heads of terms agreed on and will be signed and integrated. In terms of the diversification, we're pleased to say that our customer concentration is improving with only about 45 of our revenues coming from our top five customers, and that's down from 66% in q two of last year. In terms of geographies, entering key geographies such as Croatia, Latin America, and Romania, We continue to build out our presence in The UK and The US for eventual rollout into The UK and The US. We decreased our dependence on the German facing operators, where German facing operators now represent roughly 28% of our revenues. That's down from 47% in q two of twenty nineteen. We focus on diversifying new geographies in order to reduce exposure to any single country. The third pillar is the collaboration with key players in in the space through strategic collaborations and content deals. The new partnership deal with New York based Seneca Gaming Corporation, Camby Group that was signed in late twenty nineteen, represented our entry into the the lucrative US market. As you guys may recall, we're providing Seneca with casino services and player account management to the three New York casinos. Who are advancing the technical integration and hoping to be live with the Seneca Gaming Corporation in their three casinos in q one of twenty twenty one. We continue to sign content deals with key providers in the space in order to enhance and supplement our unique content offering. I'll turn to, looking ahead. We anticipate very strong growth growth throughout the rest of 2020. We've already experienced great trending momentum in q three. While the global outbreak of the COVID nineteen has had and continues to have a significant impact on the global economy, the online gambling industry has experienced a positive momentum like other online industries. And as a result, Brag has benefited from this positive momentum. We've actually experienced a significant increase in traffic as people explore entertainment alternatives they can enjoy in their own homes, and we hope to build on this momentum throughout the rest of the year. Looking ahead, our strategy is focused on growing our b to b gaming solutions through ORIX. We continue to invest in our platform and integration capabilities in order to provide the best products and services to our customers. We're focused on growing our international reach in regulated market markets and strengthening our client base in addition to entering new geographies, including the lucrative North American ones. And we have financial plan, capital restructuring, and strategic initiatives that we will discuss further in today's call or on today's call. We're confident that we're well positioned in the fast growing market, and we have the tools that we need to continue on this amazing growth trajectory that we've experienced in the first half of twenty twenty. With that said, I'd like to turn the call over to Ronen Kanor, our chief financial officer, who'll run you through the second quarter and the first half financials. So, Ronen, on to you. Thanks, Yaniv. Thanks, Yaniv and Adam. Good morning, all. I'll run through the highlights of the second quarter and the first half financials. Just for clarify, all figures are presented in euros. It's according to how we're reporting our financials and NMD and A. So with regards to the second quarter, the group revenue for the quarter ended June 30 increased for the same period in the previous year by 107% to €12,100,000 as opposed to previous year which is €5,900,000 and by 38% from the prior quarter while maintaining its solid quarterly growth momentum since Q1 twenty nineteen. The gross profit increased compared to the same period in the previous year by 100% to €5,100,000 as opposed to €2,600,000 previous year with subsequent margins decreasing by only 1% to 42%, mainly as a result of revenue classification and growth towards content and aggregator. The adjusted EBITDA increased from the same period in the previous year by €2,100,000 reaching €1,800,000 in the end of this quarter as opposed to a loss of €300,000 last year with subsequent adjusted margins, EBITDA margins increasing by 19 basis points reaching 14.4% in the end of this quarter. Just to remind you the negative 5% in previous year. And this is achieved as a result of reaching high scale and tight cost control. The total net loss for the period decreased by €5,300,000 from the same period in the previous year to €400,000 positive as opposed to net loss of €5,700,000 negative last quarter. This is achieved as a result of increased revenue and scale, share based payment credits from the sale of the GIVEMESPORT unit. And also we didn't have any losses on the remeasurement of the contingent consideration in this particular period. With regards to the first half highlights, the group revenue increased from the same period in the previous year by 74% to €20,900,000 as opposed to last year was €12,000,000. The group revenue growth was mainly in games and content services, as Aniv mentioned, and demand for the unique games and content proposition material to grow. It's important to highlight. The company's growth in the period has been underpinned by continued investment and innovation in technology and product offering, which includes the launch of Oryx Hub, the launch of new data analytics platform, and customer engagement platforms, which demonstrating again and getting the potential of the group to further leverage its technology to accelerate growth. The adjusted EBITDA for h one amounted to €2,500,000 as opposed to only €100,000 the previous year, an increase of €2,400,000 for the period with margin increasing by 11 basis points to 12%. Cash flow from operating activities amounted to €3,100,000 during the h one period as opposed to negative €2,300,000 last year, mainly the results of working capital movement. The cash flow used investment activities predominantly in attributed attributable to software capitalized software development costs. Cash and cash equivalents as of 06/30/2020 amounted €2,500,000 as compared to 12/31/2019 was only €700,000,000. I will finish with the working capital position. The total current assets as of 06/30/2020 amounted to 11,700,000.0 as opposed to December 31, which was 8.3. And current liabilities, including the deferred consideration, which is all now presented in a short term liabilities, amounted to 44,000,000 as opposed to December, which was only 20.8. Finally, as you know, you can find more detailed information on our financial performance in our 06/30/2020 financial statement and MD and A on the SEDAR or on our Investor Relations page on our website. With that, I will turn the call to the operator for any Q and A session. If your question has been answered and you wish to move yourself in the queue, please press the pound key. Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star and the one key on your touch tone telephone. Our first question comes from Greg Weaver with Invictus. Could you give a little more detail on how you're handling the contingent consideration? Sorry. Thank you. Adam, do you wanna answer contingent consideration question? Hi. How are you? Hi. Sorry about that. I assume you were referring to the burnout that's outstanding. Correct. K. So so it's one of the reasons I I've gotten involved. I'm I'm one of the largest shareholders of the company, and and I'm bringing on my my group to provide both debt and equity to offset any any negative effects on the stock by doing a raise at this point. Based on what's going on in The US and the the valuations that are these companies are getting that are our competition, I feel that, you know, an uplisting is the most important thing for us. So so I'm stepping in with my own checkbook and my partner's checkbooks, and we're gonna make sure that we settle all of all of the requirements to the founder of ORIX. So you're issuing new equity at the current price level? We're finalizing now, but we're it's gonna be most likely right around here. Yes. Right. So no outside investors have an opportunity to invest at this level? There there will be the opportunity for them, but it's gonna be backstopped by us. So so Okay. We won't we won't be we won't be putting any pressure on the stock by going to the market. We're gonna backstop it and then provide the outside market the opportunity to participate. And if if there's demand, then great. And if there isn't, then we'll just we'll we'll fund it ourselves. Okay. And the timing sounds like it's reasonably imminent. I believe the the extension ran through September, was it? Yeah. It it ends September 30, but we're we're in talks on that as well, which we can call you directly and update you. Okay. But we expect to, by the end of this month, have everything settled and file an application for an uplisting with with everything meeting all requirements. Okay. Alright. That sounds reasonable. And Yeah. Mean, obviously Listen. Our objective is to get on NASDAQ. When you look at our comps out there, you know, I mean, I would say one of the easiest comps for us to look at would be GAN. You know? And and, you know, if you look at our if you look at our revenues and EBITDA, you know, we're we're bigger than them in in revenue and EBITDA. The only difference between us and them is that they have they have revenue from The US, and we don't currently. But, you know, another reason why I stepped in is is to focus on bringing my relationship in The US to the company and and opportunities in The US because, obviously, that's where people are getting the values of of of, you know, this perceived value that that everybody is looking to obtain in in the North American market. Right. And and just a question on the business. The the Germany concentration, which you noted was down substantially. Now did you back into that, or the other stuff grew enough just to shrink it? So this is Yanis Gilbert. I think the answer is both. Some of the German some of the German operators that we have had had shrunken slightly. And, of course, our other clients had grown in addition to onboarding new clients, which resulted in the actual concentration of the German facing business to be reduced. And that's still legally up in the air at this point in terms of online gaming? Yeah. So in I mean, depending on how much you know about the the German market. So there was supposed to be a transition period that was going to start around October of twenty twenty, so next month. The 16 states and the federal government have had some, you know, issues on agreeing on the timing and the terms of that transition period. So, you know, we we've spoken to our lawyers, both our gaming lawyers in in England, Wiggins, and our German lawyers in Germany, Humbush and Humbush, and their view is that there's still no clear answer on whether or not that transition period is actually going to to take place. But companies that are going to be in compliance with in that transition period will be viewed favorably once that full fledged regulation is approved in 2021. Or its platform the Or its platform as a b to b platform allows our customers to be compliant. So we're of the view that, you know, our clients, most of them will be compliant because they're, you know, in the SH licensing regime. And in addition to that, we we have indications from them that their plan is to be compliant. And and finally, the the the licensing or at least the transitionary period in Germany from what we understand is gonna hurt mostly table games, slots, which is most of our clients in in Germany, are somewhat immune and are doing better than their competitors in the table games. Okay. Appreciate the color. And and and and just lastly, any any time frame on Dominic coming back in your to take over? So Dominic is is is obviously stepping aside for personal reasons, and I can't really get into details on this as it's a personal matter. But, you know, I'll I'll assure you that Dominic and the chairman of Brad Paul Tackett continue to have ongoing discussions. And, you know, when there's something to update the markets, we'll we'll absolutely do so. Okay. Thanks for taking my questions. No problem. Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your touch tone telephone. And I'm not showing any further questions at this time. I'd like to turn the call over call the callback over to our host. So thank you everyone for joining the second quarter of twenty twenty, our results, and we look forward to continue and providing good good results in the quarters to come. Thanks a lot, everyone, for joining. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.