Bragg Gaming Group Inc (BRAG) 2024 Q1 法說會逐字稿

Thank you for standing by. My name is Gail, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bragg Gaming Group. First quarter '24 earnings conference call. (Operator Instructions).

I would now like to turn the conference over to Yaniv Spielberg, Chief Strategy Officer. You may begin.

Thank you, operator, and good morning, everyone, and thank you for joining our first quarter of 2024 earnings conference call, Yaniv Spielberg, Chief Strategy Officer; Bragg, Gaming Group. I'll be hosting today's call alongside my colleagues, our CEO, Matevz, who will comment on our first quarter performance and our CFO, Ronen, will review and discuss our first quarter financial results.

If you've not already done so you can follow our earnings call presentation from our website at investors as investors.bragg.group, in the section called latest presentation. On this call, we'll review Bragg's financial and operating results for the fourth quarter and fiscal year 2024. Following our prepared remarks, we'll open the conference call to a question-and-answer period.

I started 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 for future oriented financial information within the meaning of applicable securities law statements about expected growth, prospective resolve strategic outlook 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 may affect the corporation and 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, which could cause the actual results, performance or achievements of the company to be materially different.

There could be no assurances that these assumptions or estimates are accurate or that any of these expectations prove out here for a complete discussion of these risk factors, please refer to our recently filed press release and other publicly available disclosure. I'd like to turn the call now to our CEO, Matevž, go head.

Good morning, everyone. My name is Matevž Mazij . I'm Chairman and CEO. Brian, on this call, I'm going to make some initial comments, and I'll run through some key operational highlights from the first quarter of 2024, that, I'm going to pass the line over to Ronen Kannor, our CFO, who will take you through the company's financials. After our financial recap, I'll be talking more about some of our main strategic and operational focus areas before wrapping up with our outlook and summary, and we'll then open up the call to your questions.

To start, let me recap and comment briefly on the special committee, which we announced last quarter, which has been set up to review possible strategic alternatives for Bragg. This is a board run process chaired by independent director Don Robinson. The special committee was set up against the backdrop of recent market activity, which included plenty of gaming M&A and the recently price gains global IPO, and we have seen corresponding increased interest in Bragg,

Possible strategic alternatives may include a sale merger acquisition or additional investment While no assurances can be made that any transaction will be completed as a result of this process. Management has been informed by the special committee that the process is going well.

I am pleased to report that the special committee confirms it has retained bankers and counsel, London-based Oakvale Capital LLP and Blakes LLP, respectively, to assist with the process and that is encouraged by the progress me today.

As, we've previously indicated, the Board does not plan to provide any further updates on the process until it has material development to report on but in the meantime, management continues to focus on business growth and delivering on its strategic initiatives.

Turning now to operational highlights since the beginning of the year, post quarter end, we secured funding to support the working capital needs of the business and help with growth opportunities, including newly regulated markets. It is important to note that this financing is a one-year loan intended to provide the company with short-term financial flexibility, which supports our objective of maximizing shareholder value through the strategic alternatives review process.

Recently, we were pleased to report that we have hired our new Chief Commercial Officer, Neil Whyte, in what was a key open role and we have also been further strengthening our teams through the addition of key global Latam, UK, and US, hires. These hires ensure that we maximize the return on the content we develop and the technology that we've built and that we are able to fully deploy in all the jurisdictions in which we operate.

Once again, it is important to recognize that these hires are critical for achieving our growth objectives, and we'll have a direct impact on our ability to maximize shareholder value through the strategic alternatives review process. As you will be aware, this is Ron in his final quarterly earnings call and he will be departing the company in June. I thank Ron for his service to the company. And I can confirm that the Board is looking to recruit an experienced financial resource to lead the finance team and assist with the strategic alternatives review process.

Next, let me talk about our recent advancements in content development and deployment. In the first quarter, we released 19 new exclusive online casino games, including seven from our in-house Brock studios. This compares to 11 exclusive games launched in the first quarter of last year, and we will continue to grow our games portfolio at this cadence for the rest of the year.

During the first quarter, we launched online games in the US, for the first time from Popular land-based slots, developer King show games, which further boosts our strong exclusive games road map for North America. We also delivered and deployed our second custom slot game developed for Caesars digital Boardwalk slots, bankers and cash, which is now exclusively live on Caesars Palace, online casino and Caesars Sportsbook and Casino in Michigan and New Jersey.

We, continued to post growth in multiple international gaming jurisdictions and during the first quarter, we laid the foundations of growth in the soon to be regulated market of Peru, where Bragg was registered as an approved service provider by the Peruvian Ministry of Foreign Trade, and tourism Phase B two B license allows us to distribute both our exclusive and aggregated game portfolio via the brand hub content delivery platform to operators improve.

After Ron has presented our financial results for the quarter. I will give you an update on our momentum in the US, and Canada, with our exclusive content rollout and I will discuss some of the newly regulating or reforming our gaming jurisdictions in which we believe we are well positioned to take market share. We also continue to expand our distribution network for our exclusive content in existing markets and during the first quarter, we continued to expand in the US, by launching new online casino content with Golden Nugget in Michigan.

After quarter end, we were pleased to announce that we have agreed an international online casino content distribution deal with light and wonder this agreement will see our exclusive games, including from our proprietary studios, Atomic slot lab, Indigo Magic and Wall Street Gaming added to lighten wonders online ecosystem and opening up multiple new operator partners for us.

Lastly, this week, we announced that we continued to grow in Italy, Europe's second largest regulated gaming market, most recently by making our exclusive content available with leading local operators. Caesars after Ronan has taken you through the financial results, I will come back to take some of these points in more detail. Ronen?

Thank you, Matevz, and good morning, everyone. I'll begin my comments on Slide 7. In the first quarter, total revenue were up by 4.2% quarter over quarter to EUR23.8 million. Growth was mainly derived organically by existing customer base, in particular, the PAM and turnkey solution customers in the Netherlands, together with the content offering and solid revenue performance from the whilst the gaming studio customers.

Gross profit for the quarter decreased by 2.8% to EUR11.9 million with gross profit margin decreased to 49.9% quarter-over-quarter. Gross profit decline both in gross profit and margins is primarily due to the revised commercial terms agreed with key strategic partner derived from the managed services and aggregation products.

Adjusted EBITDA for the quarter was down 12.4% to EUR3.4 million, with adjusted EBITDA margin decreasing by 270 basis points to 14.3%. The change in margin is mainly the result of change in the revenue product mix, resulting in reduced gross profit while the increased level of selling, general and administrative expenses as of March 2024, cash balance ended at EUR7.7 billion with a positive net working capital position on April 2024, the Company obtained a secured promissory note in the principal amount of $7 million to certain entities controlled by the company's related party and bears interest at an annual rate of 14% payable quarterly.

The purpose of issuing the notice to provide the company with maximum financial flexibility as we continue to progress our strategic alternatives review process. And finally, the company reiterated its full year revenue and adjusted EBITDA guidance for 2024 at EUR102 million, EUR109 million revenue and EUR15.2 million to EUR18.5 million of adjusted EBITDA.

We, continue to execute against our mission and strategic plan with scaling up our business in line with both our revenue growth and continued improvement in product mix, as indicated in the right-hand side of the slide, gross profit decreased by 2.8% to EUR11.9 million, with margin dropping by 3.6 basis points to 49.9%. First quarter seen a decline both in gross profit margins due to revised commercial terms agreed with key strategic partner derived from the managed services and aggregation products.

In the first quarter, total games and content revenue segment amounted to EUR19.4 million and represented 81.5% of the total revenue as opposed to last year of EUR17.6 million and 76.8% exclusive third party and proprietary content total revenue were also increased by 12.5% quarter over quarter to EUR7.3 million as opposed to EUR6.5 million, demonstrating a positive momentum.

Proprietary content deployment is positively progressing both in the US, and EU, markets by increasing distribution and gains performance constantly Bragg is expecting an improvement in gross profit margin to take place in FY 2025 by increasing its higher-margin revenue portion of its proprietary content, PAM and turnkey solutions.

Moving to Slide 9. Adjusted EBITDA amounted to EUR3.4 million against an operating loss of EUR1.3 million. The gap was driven by the following non-cash and exceptional items, depreciation and amortization. The increase was the result of the additional level of investment, mainly in software development costs, exceptional costs relating to the legal and professional costs incurred associated to non-recurring corporate and regulatory matters and gain on remeasurement of deferred consideration associated with the acquisition of spin in June 2022 on a total outstanding deferred liability that was adjusted to reflect the change in the current fair value.

Moving to slide 10, as you'll see on the slide, we ended the first quarter with a cash balance of EUR7.7 million compared to EUR8.8 million at December 31st, with outstanding liability of USD2.5 million of convertible securities as of May ninth, 2020, for total outstanding liabilities further reduced to USD2 million as we expect to continue exercising the right to pay down the existing convertible securities subject to ongoing management assessment.

Net working capital, which is excluding deferred consideration and convertible debt at the end of 31st of March 2024, amounted to EUR3.8 million compared to EUR5.1 billion at the beginning of the year. Post period end, the company secured USD7 million debt facility with the related party to improve net working capital position to provide further flexibility to the company needs.

From a cash flow perspective, cash generated from operating activities amounted to EUR2.7 million with underlying performance reaching EUR3.6 million with a negative movement in working capital and income taxes of EUR0.8 million, a total of EUR2.8 million used in investing activities mainly related to the capitalization of software development costs to a total value of EUR2.6 billion and the remaining balance of property and equipment.

And a total of EUR0.7 million was used in finance activities, which is predominantly related to the repayment of loans in relation to the convertible security to the total of EUR0.5 million. Looking forward, management is projecting positive cash flow from operations, while there is no CapEx or technology that's required in the business.

Thank you very much, everyone. This will be my last quarter after four years with the company, I would like to thank all of my colleagues, especially my finance team and the board for all the support during the time and with that, I will hand over the call back to Matevz, to continue the commentary on strategy and operations.

Thank you, Ron. And last quarter, we showed you that we have seen encouraging growth in North America with exclusive content on our new Bragg RGS., notably in the fourth quarter, which is the sharp growth you can see in the chart on the right of this slide.

As you can see, this level of wagering activity on our exclusive games has continued through the first quarter. To the extent that we have seen an eight x increase in wagering on these games, which come both from our proprietary brands studios as well as from our powered by brand partners between April 2023 and March 2024.

Our localized portfolio for North America includes many online titles, which already have a following in the land-based sector, and we believe this represents a key strength in our portfolio for this market. We are encouraged that we will still see significant potential upside to come, including by continuing our rollout in Pennsylvania and Ontario and through opportunities in other Canadian provinces, where we see considerable interest in our portfolio of exclusive content, aggregated content and player engagement.

Our content is all supported by our FUSE engagement tools and in the coming months. We are looking forward to rolling out our first progressive jackpot on the Bragg RGS. in the US, as well as in Europe and other markets.

Our growth as a content provider in North America is being driven by both in-house and partner studios delivered and boosted by our newest RGS. technology and promotional functionality as we continue to consistently develop and deploy our exclusive online casino games.

We are building a critical mass of revenue generating content to games that we released last year and the year before continued to generate revenues for us, even as we roll out new games on a weekly basis. In the first quarter, we released 19 new exclusive games, including seven from our proprietary black studios this is up from 11 exclusive games released in the same period last year.

Exclusive content continues to be a key pillar of our growth strategy, and we balance our portfolio between in-house games, which carry high margins and gains from partner Studios, which enrich them diversify and localize our roadmaps.

If you have specific questions about content, Ron and Neil and I are joined today by David Fallon, our Group Director of content and founder of Wall Street Gaming, who would be pleased to answer.

As I mentioned earlier, we believe that Bragg is well placed to benefit from multiple jurisdictions on the brink of introducing or reforming gaming regulation. Brazil, is already a significant market for both our exclusive and aggregated content, and we recently hired our first dedicated account manager focused on growing our market share in what we see as one of the world's fastest growing gaming markets today.

In the United States, we still expect further regulation to open up online casino in more states in the coming years. This week, we received official permission to conduct gaming business transactions in Delaware, while our B2B license application there is being processed. So, we are on track to launch games in [Delivery] later this year, and we will be ready for other states as and when they regulate.

I have mentioned that we continue to see opportunities for Bragg, in multiple provinces. We can still grow in Ontario, but we also see strong interest and exclusive content aggregator content and player engagement technology in other provinces opportunities that we aim to develop in the coming months.

I also mentioned that we obtained our license for Peru in advance of new regulations, opening up the jurisdiction to exclusive and aggregated content delivered via brand club. Bragg is also well placed to enter the French gaming market. When or if new legislation is introduced, we see France as a potential top five global gaming jurisdiction in the coming years.

And we have the right content and technology ready to deliver to aspiring French online casino operators. Finland is in the process of moving away from what has been a state monopoly system. And as the market opens up, we see plenty of opportunities for Bragg, including for PAM aggregation, engagement and content delivery.

Other countries in the process of online gaming regulation that we see as having good potential for us include Poland, Chile, Argentina, South Africa and other African jurisdictions. We are confident that we are well placed to succeed in many of these markets because of our highly localized content and technology solutions and we have proven before in markets such as Netherlands that were fast to adapt and deploy to meet new regulations, giving us a valuable first mover advantage.

And so to conclude, our first quarter revenue rose 4.2% compared to the same period last year to EUR23.8 million, representing record first quarter revenue from Bragg, adjusted EBITDA in the quarter was EUR3.4 million, a decrease of 12.4% against the first quarter of 2023. As Ron has discussed, this is mainly an expected short-term decrease due to renegotiation with a key partner last year.

Gross profit for the first quarter of 2024 was EUR11.4 million, down 2.8% compared to the first quarter of 2023 and partially due to changes in our product mix. We completed refinancing, delivering balance sheet strength and flexibility, and we have been successful in filling key positions in our commercial and other teams which help us deliver on our ambitious growth plans with trading in line with expectations.

We are reiterating our full year revenue and adjusted EBITDA guidance with ranges of EUR102 million to EUR109 million for revenue of EUR15.2 million to EUR18.5 million for adjusted EBITDA.

And lastly, it is worth repeating that we are encouraged with the progress made to date in advancing our strategic alternatives review process and that the Board and management team continue to be 100% focused on maximizing shareholder value.

Thank you for listening, and I would also like to thank all of the dedicated staff of brag for their continued hard work and dedication this quarter and now I will turn the line back to the operator and Ronan you need, Doug and I would be happy to take questions.

Thank you.

(Operator Instructions)

Neal Gilmer from Haywood Securities,

Hi, morning, guys. On just to start off, I'm wondering if you can give us a bit of an update on how the recently signed content deals are rolling out global distribution deals are rolling out and if there are others of these types of distribution wins with big players are in the works?

Hi, John. Luca, we're rolling out proprietary content as a third-party exclusive content across our network of clients in various jurisdictions. I'm a United States, Europe and Latin America and were pleased with the performance of the continent. So far.

Okay, and, like, you know, for that Keynote contextual purposes, how are these like staged rollouts through these new partners? Or is it just they just turn on a light switch and it's available to other all of their brands globally. How can you get into that level like Nuance, if you can't, Max?

Yes, so these rollouts are largely dependent on the licensing procedures and approvals and certification procedures. And as soon as these procedures are completed, we tend to rollout from all of our content, obviously, according to certain placement and promotions plan across all the brands that certain operators cooperate in a certain jurisdiction.

Like I said, it largely depends on the on the licensing certification and approvals process in certain jurisdiction and the marketing plan of these individual operators. But it's our desire to rollout simultaneously across all these bands in all the jurisdictions that need to see operators operate in as that provides maximum effect.

Okay. Thanks for the color match and I guess to the extent that you can and are able to David, you did mention that the process on the strategic front is going well, but it hasn't met your expectations thus far in terms of activity or in terms of level of interest?

As, I previously indicated, we don't plan to provide any updates on the process until we have a material development to report on.

Okay, fair enough. On perhaps maybe a question for Ronan. Can you remind us on when the convert is expected to be paid off completely around?

Hey, Gilmer, Good morning, from end of August.

Okay. Thank you.

Jordan Bender from JMP Securities

Good morning, Ron, and good luck on what comes next for my question. As you look at net entering new markets, what's the bar that you're looking for to enter these? And maybe can you help us walk through as the revenue opportunities brought on by some of these incremental opportunities you talked about Delaware, etcetera?

So, the bar is very different, very in there in different jurisdictions, like I said, again, and you have to go through the process of licensing in most of these jurisdictions, you have to go through approvals and certification processes for your tech for our tech and for our content.

You then have to go through the integration process with the operator's tech stack and beyond, make sure that your roadmap is well adapted to the needs of certain operators. This is a process that is pretty standard when launching any content on any of the operators in any regulated markets.

As, far as the official opportunity is concerned, we feel that on a like for like Delaware is going to grow significantly and that we are going to be one of the leading content providers in this market. I hope I answered your question.

Yeah, and I guess let me rephrase that. When you're looking at new markets, you look at your product roadmap and if you see the return, I guess ultimately what I'm trying to get at here is you kind of named several are opening or newer markets should we think about that Brad will be in those at some point down the line? Or is there some kind of bar you need to get over and say this is kind of worth it for us to enter these new markets.

So, Bragg is going to be in those markets when and if those markets are fully regulated, some we don't have an exact timeline, but we believe that further regulation is going to happen in Europe, and we are going to be a supplier of tech two operators in those markets and supplier of content as well.

Understood. Thank you. And then just based on what you know for the upcoming launches, or I guess let's just say 12 to 24 months, should the gross margin structure or your revenue mix look pretty consistent within those new markets, kind of a what your total portfolio looks like today?

Yes, but we do expect a change in the product mix. And we expect to aggressively monetize our content portfolio in existing markets and in newly regulated markets, which should increase our margin in the future.

Understood. Thank you very much.

Thank you.

Sid Dilawari from Cormark Securities

Hey, good morning, Firstly, if I can just focus on margins there. We saw some compression and I think it was nothing that us and the Street didn't expect and given that just given that the compression began in Q4, should we expect similar level of margin compression through Q2 and Q3? And then just as a follow-up to that, do you do you see any near-term opportunities related to your pad or managed services within Netherlands to replace some of that lost revenue with PET-CT.

So, we have a very strong pipeline of clients in the segment of turnkey solutions, which includes managed services and PAM and aggregation, obviously, third-party and proprietary content in existing jurisdictions and in what is expected to be a newly regulated European market and Latin American market.

And we believe that we are going to be able to report back on deals in the next 12 to 24 months that are going to include, like I said, both managed services and tech stack and content and I will let Ronen respond to your questions about it compressed margins front end, I save money.

Good morning, hi. So, as we're communicating in our trading update announced several conversations the margins relatively dropped because of the retreat of the deal we expected and, but we are expecting during the next couple of quarters to increase our managed services, the PAM with aggressive pipeline, as Matt indicated earlier, that will improve the margins and while we will be more focused on our proprietary content that currently the progressing very well was that hit a particular threshold?

I think the margin will scale up to the right direction. We always said that our margins are going to improve by the end of 2025. We're heading towards that direction the composition of revenue incontinence higher than dependent on IT services at this stage, but second quarter third, fourth and into next year, we will see the impact and the effect of the positive impact of the effect of those PAM customers and proprietary content, which every dollar contribution has a material effect on your gross profit and adjusted EBITDA.

So, yes, there is going to be a second, but it's over time and I would look at that the first quarter of second quarter 2025 and we'll see them. Margins are changing significantly towards improved margin, both on gross profit and adjusted EBITDA.

And to add to that, so I will just add to my answer before. So, we believe that we're perfectly placed to add clients in both existing markets and to win clients in what is going to be a newly regulated, some jurisdictions, both in Europe and United States and Latin America, and we are technically ready to deploy this, meaning we have the product.

We have the solutions both on the tech side, and we're perfectly placed to roll out content in all of these new jurisdictions and both from a proprietary portfolio and third-party portfolio. There are no significant changes that we would have to make to our portfolio in order to be leading via the process of supplying these stacks to clients that are going to operate in those jurisdictions.

Great thanks and then just maybe if I can just Matevz, just if I can get your color on the regular market conditions in the Netherlands, you know, we've been seeing a lot of announcements from the regulators and are you seeing an impact in your customer base and the wagering activity from just based on that just yet? Or and do you think anything material comes out of those regulatory announcements and how do you sort of see that market evolving this year?

We believe that it's very difficult to expect that the regulator will go back to square one and will ban and slots are only three years after they have regulated market. And we have seen first sets of percentage restrictions being implemented last year, and we are seeing certain effect too, as to wagering on your I mean, on portfolio of B2C operators, negative factors.

Got it, thanks and then just one last one for me. You highlighted Peru. Can you just maybe sort of touch on this market opportunity, maybe just in terms of TAM, the existing gray market there and how that sort of stacks up against the Dutch market like three years ago? Or any of the newly regulated markets that are entered in the past?

So, we expect the market to grow. It is a and is in market and we obviously do not have the data after Tom to improve because it was a great market so far. And like I said, we expect to be going live with number of clients in Peru as a content provider and as an aggregator.

Jack Vander Aarde from Maxim Group.

Thank you, (inaudible) for object, and you're already on I wanted to touch on new title releases. So 19 new titles in 1Q. And I think in the slides it says you're on track for [72 Q]. I was wondering can you provide any additional color on the kind of cadence of these releases for like the remainder of the year and kind of what gives you confidence in that half? Thank you.

Thank you for your question. I will let Doug answer your question.

And thank you again, look, title releases are also impacted by regular approvals, and so we're actually adjusting our release schedule based on the strategic value we see of one to bring the right games to the market. Some are seasonal by mix by nature as well.

So, forward, we expect to refine that cadence. But where we're launching quite a significant number of titles for the remainder of this year on both the partner side as well as the aggregation side or the proprietary content.

So, it really boils down to some timing issues when we report quarterly, like there is some titles where they get released the last days of the quarter beginning of the next quarter. So, the numbers, even though they're only a week away, can skew LABOR slightly when you look at that big picture,

Obviously, that's been helpful color. Thanks.

That concludes our Q&A session. I will now turn the conference back over to Yaniv Spielberg for closing remarks.

Thank you, everyone. I'd like to thank everybody who joined us this morning. I'd like to, as Matt's already did thing called the brag team for putting this all together for another great quarter. And of course, I'd like to thank Ronen for all these years.

Of drug, and we wish him best of luck and success in his future endeavors. We will chat soon for our Q2 presentation, but until then, have a great day.

This concludes today's conference call. You may now disconnect.