Earnings Call: Q4 2019

May 14, 2020

Earnings release

Good afternoon, everyone. It's Yaniv Spielberg, BAD's Chief Strategy Officer. I want to thank everyone for joining our fourth quarter and full year twenty nineteen earnings conference call. I'd like to take a moment first before we start to apologize for everyone for the delay that happened this morning. As you guys might imagine, there's stressful times out there, and it did not pass on us. Everything is good now and now and we were able to send everything out, but due to unforeseen circumstances, have to deal with this unfortunate delay. During today's call, we'll review Bragg's financial and operating results for the fourth quarter of twenty nineteen and for the full 2019. Following our prepared remarks, we'll open the conference call to a question and answer session. The call today will be led by Dominic Manasur, Bragg's Chief Executive Officer. I'd just 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 call and our responses to various questions may constitute forward looking information and future oriented financial information within the meaning of the applicable securities law. Statements about growth, prospective results, strategic outlooks and financial and operational expectations, opportunities and projections rely on a number of assumptions concerning future events, including market, economical change, business prospects or opportunities, future plans and strategies, technological developments and anticipated events, trends and regulatory changes that affect the corporation, its subsidiaries and their respective customer 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 could cause the actual results, performance and achievements of the corporation to be materially different. There could be no assurance that these assumptions or estimates are accurate or that any of the expectations were accurate. For a complete discussion of these factors, please refer to our recently filed press release and our other publicly available disclosure that is available on SEDAR. With that being said, I'd like to pass the call to Dominic Mansour. Thank you very much, Yaniv. So it's Dominic Mansour here. I'm the Group Chief Executive Officer. I'd just like to start by saying good afternoon to everybody. Thank you for joining. I hope everyone's doing well during these somewhat challenging times. On today's call, I will primarily be providing an update on ORIX as well as walking you through some of the key operational developments. And after that, my plan is just to walk through some of the high level financial results for the fourth quarter as well as the full year 2019. As a quick overview and a reminder, ORIX Gaming is our core asset. It offers a full tanky retail online mobile iGaming platform. In particular, it has a very advanced content aggregator, that's a casino aggregator, as well as a sports book lottery. And we also provide marketing and operational services. So I would like to really cover three main areas with regards to ORIX initially. Firstly, the casino product. The primary growth driver of the business right now is coming through the casino product itself and in particular the aggregator platform. We've managed to have integrations that now reach over 8,000 different casino games all seamlessly integrated and accessed through one very simple single integration. And I'll expand a little bit about that shortly. In other developments over the course of 2019, we pushed out a very exciting new piece of product called ORIX Hub, which significantly expands our capabilities. And then on top of that, finally, the overall customer expansion. The customer base and the footprint is continuing to grow. We've onboarded a number of new customers. In particular, there's our first foray into The United States market with through partnership with a group called Seneca Gaming, who operates out of New York, three different land based casinos, which is in partnership with Camby Group who's providing the sports betting solution. And then on top of that, a number of sort of in the gaming world household names such as Leo Vega, Unibet and Mr. Green, just to name a few. In terms of the overall Rx performance during the full year and the fourth quarter, well, the revenues continued to grow sequentially throughout the whole year. We achieved EUR 26,600,000.0 by year end. That is roughly 41% growth year on year. This is from the results of a sustainable growing customer base. We're actually achieving some fantastic revenue retention. So as it stands, we have 91% retention of our customer base, which is clearly recognition of the quality of the platform and the capabilities as well as the seamless integration that I was referring to before. And touchwood, as they say, we, at this moment in time, have never lost a profitable customer. On top of that, the year has been successful on the basis that we've continued to diversify the customer base. So in December of twenty nineteen, in a single month, 57% of our revenue came from our top five customers as compared to 73% and for the same month of 2018. On top of that, the third area where we have really developed is our sort of geographical expansion. We're now compliant in 10 countries worldwide and that number continues to grow and we expect that number to continue to grow. Obviously, one of the key milestones of the year from our perspective was entering The U. S. Market, which we did, as I said earlier, through our deal with Cambium Seneca. And we are anticipating strong growth both from that relationship as well as the development of the legal landscape and our opportunity to win more business across all the regulated United States. As before, our most concentrated geography remains as they say the Schleswig Holstein, which is the state of Germany whereby online casino licenses are regulated. This represents approximately 40% of our revenues right now. But as I said, our diversification into new geographies continues to reduce any exposure to a single country. On top of that, though, over the beginning the first quarter of this year, we've seen some positive developments in the German legal landscape with regards to online casinos. We do expect them to be beneficial to us. However, there is still an element of they're not entirely clear at this moment in time. Suffice to say that there is definitively a regulatory framework being put into place. And our experience in such scenarios is that a strong form of regulatory environment is a good thing for us. Outside of that, we've seen some really exciting growth coming in new territories such as Sweden, Romania, Croatia, Colombia as well, where we've won a lot of business in those newly regulated markets, too. Moving back to the platform and the technology, we've really invested quite a significant amount of our resources to continue to develop this platform throughout the year, and we continue to do so into 2020. As I mentioned, we have this new feature called ORIX Hub, which bolted onto it has a data analytics platform and a customer engagement platform as well as that. These are not unique in their own existence. However, what's unique is what we have developed is this is possible through one simplistic integration. And typically, without wanting to sound too techy here, typically, to be able to offer the complexity of features that we can do with one single API integration, most b to b providers would be required to provide a much more comprehensive player account management solution and a bigger technology footprint. We're able to do features such as competitions and leaderboards and tournaments on a personalized level, on a customer personalized level, including features with regards to the personalization of the game content, which is best sort of compared to the kind of stuff that Amazon does whereby you have recommendations, people who bought this product, bought that product and in the casino world, we translate that to people who played this game played that game. So you are able to really drive some strong lifetime values as a result of that. Again, these aren't features that don't exist in the market, but it's extremely unique to be able to integrate them with one API in a period of two to four weeks in some instances, whereas normally to get that level of functionality, you'd be talking six to nine months minimum. We launched leaderboards just the other day, in fact, and the results we've seen from them have been absolutely outstanding. Looking ahead into 2020, we've signed several new operators this year. We have a really, really healthy pipeline for the next few months. But the business is kind of reaching a point now where we are in a we have the ability to deliver products and services to Tier one customers. And as a result of that, we're now going to start focusing on bigger deals and less volume because we're in a position to be able to do so. On top of that, obviously, we will focus again on growing internationally in regulated markets and continuing to strengthen that client base. Moving forward, just to touch briefly before I jump into the financials, a quick review of the GiveMe Sport business that we previously owned. So back in June of twenty nineteen, we announced the strategic review of the business, which we completed using the third party advisers in January of this year and recently closed a transaction with a UK based group called Snack Media. It's an independent sports digital media business, and we're very happy to be able to now move on and focus management efforts, our resources on ORIX and purely on our B2B technology footprint, which as you know and you can see is growing at a fantastic rate. I think one of the key benefits from this transaction isn't just the management focus, but of course, the Gibbons four business was burning some cash. And as a result of that, we're now in a cash flow positive position and focused purely on our B2B. Moving into the financials. And before I do that and talk briefly about the fourth quarter and 2019, I would like to address a change to our management team. And unfortunately, Steven Prouds is unable to make the call today, who was our Chief Financial Officer and he's going to be stepping down from his position effective immediately for personal reasons. I would personally and I know the team would like to thank Steven for his hard work and his contributions to Bragg and really wish him and his family good health and success moving forward. On top of that, I guess, we're excited to be welcoming our new CFO to the team and in Ronan Knorr, who has good 18 of experience in a number of different financial management roles and online gaming, financial consulting as well. But most recently, Ronen was part of a group called Stride Gaming PLC where he was the CFO. Stride is an online gaming operator and Ronan was involved and led the reorganization of the business. He managed the initial public offering or the IPO of the company and the London Stock Exchange, the LSE, and has been involved in a lot of M and A and was pivotal in the eventual sale of that business to Rank. So we're super excited to have Ronen on board, and I think his profile fits to perfection with the kind of thing that we're looking to do and achieve with this business. So typically, moving on to the actual numbers themselves. So total revenue for the fourth quarter was €7,800,000 which equates to revenue of €26,600,000 for the full year. That is 41% growth over 2018 on a pro form a basis. EBITDA for the fourth quarter and the full year were €700,000 and €1,200,000 respectively. As I mentioned in the press release, which only just went out now, EBITDA did not hit our expectations. It was down to two factors, which are roughly equal, One of which was a bad debt provision that we fully expect to retain when the corona pandemic has passed. We have customers who are in a position to financially pay us, but due to the lockdown, physically unable to attend banks due to the pandemic. Secondly, we have some delays or we had some delays in the signing of two key contracts that we had expected to be signed in 2019. However, they weren't but have subsequently been signed and delivered in the first quarter of this year. As a result of the exceptional performance of the business that continues to perform ahead of forecast, the deferred consideration to the vendor of ORIX has increased by over 5,000,000 And I think with regards to financing the earn out, we have made a lot of progress in that regard. We've appointed Canacol Genuity to advise us on the process. And as a result of this and the overall situation, the founder of the ORIX business has agreed to an extension to the first earn out payment, which is now due at the September 2020. Just a final note on the current trading. It's worth noting we have very limited exposure to sports betting activity right now and derive the majority of our revenue from online casinos. As a result, we've seen some pretty impressive performance in the last few weeks. And to give you an idea of that, our current trading in terms of revenue is running more than double the same period last year. There will be a lot more financial information regarding the performance of the business and the financial statements in the MD and A, which is going on to SEDAR or should be on SEDAR as we speak. And before I move open up to some Q and A and just a couple of comments looking forward. Firstly, we remain laser focused on our strategy of growing now the B2B business through ORIX, which is our only revenue driver. We're confident that by focusing 100% of our resources and our energy into this asset, we're going to create a maximum amount of value for the company, the shareholders and obviously for our clients, too. There's a lot of opportunity on the horizon, probably more than I've ever seen before, and I've been in this industry for over twenty years now. I genuinely feel that we're better positioned than we have been to grow and capitalize on this expanding market. So I look forward to providing further updates in the coming months as we move forward. On which note, I'd like to open to the floor for any Q and A. Your first question is from the line of Collin Tang with Fundamental Research. Hey there, guys. So my first question is about the continued consideration. So as you guys mentioned, Bragg was able to extend this to September. Could you just speak more about sort of how this will be paid out because of the large amount? I would love to be able to explain more details with regards to that. I think the most that I can share with you right now is that the founder of the ORIX business was comfortable to extend the deadline to the September on the basis that we're in a strong position with regards to the opportunities that are being presented in front of us. In addition to that, we have appointed can of continuity who are assisting us in this process and advising us accordingly. So I think right now, I'm afraid that's really what I can disclose. Okay. No worries. And also my second question is, in light of the COVID-nineteen pandemic in The U. S, could you sort of speak about Bragg's current expansion strategy into The U. S? Sort of how has it affected your strategy going into The U. S? Sure. No problem. So given the fact that we are primarily focused on the online casino sector, we have seen if you look at the numbers coming out of New Jersey just for April, the online casino revenues have gone through the roof. Obviously, sports betting has collapsed. That, from our perspective, puts us in a very strong position moving forward. So we continue to build off the platform now with regards to, a, the partnership with Canby, which is opening a lot of opportunities to us b, the existing deal now in place with Seneca, which we're working hard to going through the licensing process and getting ready to build the platform out to move forward. I think our feeling with the market is given the importance to online casino is now to the overall revenue stream regardless of whether you're in The U. S. Or in Europe. And just to segue briefly, it's worth noting the numbers that we talk about and the exceptional growth of this business' experience is growth that's coming out of Europe, not out of The U. S. Right now. So the opportunity there is phenomenal. But we can be extremely strategic with our partnerships. This is not a volume game. And I think the platform that we've built with the aforementioned situation is certainly one that's fantastic for opportunity for the future. Awesome. Thank you. Your next question is from the line of Russell Poynthen with Edison. Good evening, Dominic. A couple of questions, if I may. First of all, you mentioned the retention rate of 91. Could you just talk about reasons why you tended to lose clients? Second question would be, you've talked about the strategy now is focusing on larger customers. Can you just talk about whether that changes the way you need to actually approach new customers, whether that becomes more difficult? And the third question, just apologies, I haven't got the financials in front of me. Could you just talk about is there anything in the numbers sort of the fourth quarter which has drastically changed? Think you talked potentially about what's happened in expense leverage and perhaps cash flow generation? Many thanks. Sure, no worries. So just going through those sequentially. With regards to the retention rate, you asked why we lose customer. Kind of amusingly, we actually have never lost a customer per se. The only situation that we've ever had where we are where a customer is no longer working with us is typically because they have gone out of business themselves for whatever reason. And that is I could count on one hand. In your second question regarding how we feel we're better positioned to approach larger customers, I think from in my experience, signing small operators is really easy. You deal with management level of sort of mid management level of staff and you can sign and agree contracts. When you start dealing with the larger groups, their expectations is to better understand the real intricacies of the business and how the business operates. And by that, I mean, they want to understand your development process. They want to understand your security protocol. They want to know that your DDoS protection and your backup systems and so on and so forth are suitable. They become critical decision making points for these large operators, lotteries and casino groups. And what naturally happens in a business is, two years ago, we probably had 50 employees and we're now well over 200. What typically happens is you're able to build that infrastructure. You can build those processes into place. So it's without a shadow of a doubt, it's given us that the ability to do that and the economies of scale and the margins that we can get from these large customers are very appealing, albeit on a slightly slower sales cycle. With regards to the financials in Q4, did anything significant change? No, nothing at all. There was nothing materially different to what was there before with regards to expenses or anything. The only sort of fundamental change is more recent and that's with the exit of the GIVEMESPORT business. Now we don't have the cash burn that, that had on our shoulders. We continue to operate a very lean and efficient business, which is growing nicely. We have a good group of a fantastic team down in Slovenia. The team had the sort of reputation of the business is second to none. And we're getting to a point where we're starting to attract some real top tier talent locally, as a result of that, and we're quite choosy about who we can hire. Okay. Great. Can I just have a follow-up on the new business development, please? Sure. I mean, a lot of countries are being locked down now for two months or so. Can you talk about you talked about a healthy pet pipeline going forward. Could you talk about how many of those that pipeline has actually come in whilst the COVID lockdowns have been on or, you know, are just kind of running through the the clients that you had come before COVID struck? So it's a combination of the two and actually that's a I mean, it's great question. So we had an existing pipeline. There's pipeline of signed customers that would see us through for a few months anyway if we stopped selling as it were. But what happened with the lockdown was essentially it killed the sports betting industry and I can't overstate that at all. What came off the back of it was two things. Obviously, a huge migration of betting volume to casino games and in particular to virtuals. So those sports betting operators who also run have like some kind of virtual offering on their site, we're seeing a lot of a big migration towards those type of games. Now we have those in our portfolio. And so one of the things we saw was a bunch of customers who had always kind of considered casino a second tier product, somewhat irrelevant because they'd always presented themselves as a sports book, who suddenly approached us panicking. I mean, that's beyond no illusion. Their revenues had dropped 70%, 80% panicking for virtual sports, loads of casino content, features and functionality. As I was saying about our tech, the integration is is dead simple. So I can there's a a specific customer who from first phone call to go live, which happened a week after the the the lockdown, took two weeks. And they're a big customer, and they couldn't believe that we had the ability to do that installation that fast. That's great. Thanks so much. No worries. Your next question is from the line of Pratel Singh, a private investor. Hi. I was wondering what your company's cash burn is. And do you believe you have enough cash on hand to survive this pandemic? Thanks for the question. As I mentioned briefly, that we had a cash burn previously with regards to the GIVEMESPORT business that was literally burning cash. Now that we've exited that business, that doesn't exist anymore. And the performance inside of the Rx business is so strong, but it's producing sufficient capital that covers all of the entire group as well as the parent company cost. The pandemic itself, we don't really like banging the drum about this because it's negative experience that the world's having. But a little bit like Netflix, with people spending more time at home watching telly, they're also spending more time at home on various devices playing casino games, which has resulted in a positive impact to our revenues. Your next question is from Ralph Garcia with Focus Merchant Group. Hey, Dominic. Thanks for taking my questions. First on Germany, with lawmakers approving the new regulations, how is that going to impact your business? Would assume positively, but if you can just give some color on the opportunities in Germany under the new regulations. Mhmm. Sure. So I mean, firstly, it's it's worth clarifying that the new regulations haven't been put into force yet, and and that won't happen for another, twelve to fifteen months. Secondly, we're majority of our clients and the exposure to Germany are customers who all have a license in place in Schleswig Holstein, which is the only state which you can actually have a license in. Our expectation is those licensees are going to be able to continue to operate over the next twelve to fifteen months in this period. They call it a Doldung, which is a period of sort of the window between no regulation and new regulation. So they're okay to continue to operate across the whole of Germany under their current license. So that point one, very, very positive for us in the short term. Point two, the new regulations as we understand them right now, which have been ratified, but there's possibility for some minor changes. They do facilitate a regulated environment that has some caveats around it. So we have our expectation is going to be a very, very material up side on the basis that this is for the first time in twenty plus years, we're looking at Germany actually having something resembling a decent set of of regulations, which is a is the is the upside. The downside of it is there's gonna be some limitations on on, that are imposed on the operators themselves and the players. Those are, by way of example, a per spin limit of €1 or a monthly loss limit, so, on an individual's basis of a thousand euros. So they could be bringing some of this upside down. So until we've done further analysis on that, I think the net effect is naturally going to be positive because we continue to see that as a great thing. But we're not in a position where we're going to overhype this thing on the basis of on an assumption that any regulations are good regulations, we're going to be a little bit more prudent on that. And as a result of that, we haven't adjusted or adapted any of our forecasting. The start date is 07/01/2021. Do the existing guys just roll over into a new license? Or is there going to be No. Not necessarily. But our understanding is they're in a preferential position so long as they have been in compliance with that existing license. Okay. And just on the on the sports betting side, just to get some color. I mean, Bundesliga starts this weekend. The Italian league will start in mid June. With your Canby relationship, I mean, will you be able to participate in some of that through the second half of the year as, you know, we'll see what happens with the NHL, with the the NFL season, NBA, etcetera. But just from the European standpoint, you know, the French have canceled the season, but with Germany and Italy starting up again and then leading into the start of the new season in the fall. Will you be able to participate in that in the second half of this year? Yeah. Without a doubt. And and, you know, just to be clear that, you know, the the lion's share of our revenue is coming through the casino. The impact that the sports have on us is that you can see you can actually there's a great chart I was looking at today on the New Jersey numbers in April. You can see when they launched sports betting online, that online gaming picks up on the back of it because what it does is just simply raises awareness. It builds traffic to these sports betting sites. So individual go to to bet on the sports and then while they're there, they go and play the casino game, which is actually a lot more lucrative for for the operator than the sports betting. So they are encouraged to do that. So our expectation is that, that could be a positive for us. But in the meantime, we're quite happy in the status quo. It's not been a bad situation for us. And your guidance for this year takes into account converting how much of your pipeline or just with the existing customer base and sort of growing that organically through through the pandemic? It's a combination of the two. So the majority of the growth is through the existing customer base, and a reasonable double digit percentage would come from signing and the onboarding of new customers. But they do typically take a while to get up to speed, if you like, to really see the revenue flowing through. Okay. Thank you very much. You're welcome. Your next question is from Ari Zanid, a private investor. Hi, Dominic. I just have one question. I'm looking at the release on the financial guidance. And in February, you had released a similar 2020 guidance. So I'm to assume that this guidance doesn't take into account any of the impact of what's happening now in terms of COVID-nineteen? Correct. Hi, Harry. You're absolutely right. So we've studied this data and the performance very, very closely. As I mentioned, current trading is the average of the last thirty days is double the same period of last year. So it's clearly performing fantastically well for us. That said, how long ago was it now? Eight weeks ago, the world was spun upside down. And whilst upside down seems to be to the advantage of online casino operators, how it right sizes itself, again, we just don't know. And we think it's better to be prudent with our forecasting on the assumption that this situation may or may not last and the world could be about to hit a huge recession here. So as I speak, we're enjoying the performance, but that doesn't there's no reason why we expect that to continue indefinitely. So we think that our guidance is solid. We're very, very confident that we're going to be able to hit it. Long may this the current trading continue to perform under better circumstances around the world. Just a follow-up to that. Have you when you when you talked about how you signed some clients since then, you know, people that have been sports focused, those clients those are actually new clients that are come into the pipeline. Right? So even if things come back, let's say, you know, the world came back to normal, are those actually new clients now that can continue to generate revenue for you, or does that not continue? No. That's you're absolutely right. It's a great question. So, customer x was never a customer, was a sports betting operator, came to us because they desperately needed good quality content to mitigate the losses of sports betting. Now we're live and performing very well. There is no reason why these guys would switch you off when everything went back to normal. It's not the way the industry operates. Okay. Thank you. You're welcome. At this time, I would like to turn it back over to manual marks. There are no further questions. Great. Well, all that remains to be said from me is thank you all for your time. Thank you for listening, and I look forward to updating you again in the future. Thanks everyone for dialing in.