Bragg Gaming Group Inc (BRAG) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Bragg Gaming FY 2020 Earnings Call. (Operator Instructions)

I would now like to hand the conference call to Mr. Yaniv Spielberg, Chief Strategy Officer. You may begin.

Thanks, Kevin. Good morning, everyone, and thank you for joining our fourth quarter and 2020 earnings conference call. We really appreciate your participation. I'm Yaniv Spielberg, Chief Strategy Officer for Bragg Gaming Group. I'll be leading today's call along with Bragg's CEO, Adam Arviv; and our CFO, Ronen Kannor.

In this call, we'll review Bragg's financial and operating results for the fourth quarter and the full year of 2020 and following our prepared remarks, we'll open this conference call to a question-and-answer session, which will be led by Adam.

I'll start the call with some brief cautionary remarks regarding certain statements that may be made on this call. Certain statements made on this conference call and our responses to various questions that you may ask may constitute forward-looking information for future-oriented financial information within the meaning of applicable securities laws.

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 marketing economic conditions, business prospects or opportunities, future plans and strategies, technological developments and anticipated events, trends and regulatory changes that may affect the corporation, its subsidiaries and their respective customers and industries.

While we believe these assumptions to be reasonable, they are subject to a number of risks, uncertainties and other factors, many of which are outside the company's control and which could cause the actual results, performance and achievement of the company to be materially different. There can be no assurance 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 our publicly available disclosures, which will be filed this morning on SEDAR.

Thanks for joining everyone. I'll now provide a business update, and I'll walk you through our recent operational and corporate development. Following my comments, as I mentioned, our CFO, Ronen Kannor, will review our key financial results for the fourth quarter and the full year and then Adam will take questions from the participants.

I'm very happy to announce that we've had an exceptional strong quarter, the best to date and year, achieving exceptional growth and accelerating our progress on our company's strategic plan. We welcome 2 new Board members to the Board, Paul Godfrey, who all Canadians and maybe even the Americans know; and Lara Falzon. Very excited to have them. Lara Falzon was just appointed starting this month.

We also announced yesterday the planned move of Bragg's Chair of the Board of Directors, Richard Carter, into the CEO role effective May 1, 2021, and we're very excited for this move. Co-Founder and Bragg interim CEO, Adam Arviv, has chosen to no longer hold a formal role within the company, but will continue to be actively involved in the company as a significant shareholder. So Adam Arviv will step down from the Board and the CEO position when Richard takes on.

Bragg's stellar performance in 2020 also prompted the company's graduation to the TSX senior exchange in January, moved from the TSX Venture, which we were trading on for about 2 years. So very excited to be on the big board in Canada and looking forward ahead.

Oryx gaming performance has been exceptional. For those of you who are first on our call, Oryx gaming as an innovative B2B gaming platform technology provider. We offer full turnkey retail online mobile and iGaming solution as well as an advanced content aggregator with sport book, lottery and marketing and operational support. Oryx has continued its rapid growth trajectory through 2020, building on the foundation established last year in 2019 and accelerating its path as we continuously enter new global jurisdictions.

I'd like everyone to note that on the call, both myself and Ronan will use euros, which are our operating currency. For the CAD equivalent, you can look at our press release that was released this morning.

Revenues grew rapidly in 2020, increasing by 74.6% to EUR 46.4 million. We also look at wagering revenue as a measure of the activity through the Oryx platform. The wagering revenue has increased significantly, rising 73.5% to EUR 11.8 billion as compared to EUR 6.8 billion during the full year of 2019.

Another KYC that we look at is unique players. We've seen a 113% increase in unique players using Bragg gaming and content, 5.87 million, up from 2.75 million during the same period of 2019. We continue to transform the business into a global player in the B2B gaming sector, as evidenced by our recruitment of Richard, Paul and Lara and by adherence to 3 pillars of growth that we set out at the beginning of the year.

The 3 pillars that we focus on are enhancing our technology and product offering to offer full tech stack and be in line with the new changes in the industry, diversifying our revenues and expansion into new geographies, collaborating on key players in each jurisdiction through strategic partnerships and content deals.

So talking about the enhancement of our technology and product offering, Oryx primary growth is derived from its casino product and aggregator platform.

Oryx now offers more than 100 -- more than -- sorry, more than 10,000 seamlessly integrated casino games that can be accessed through a single player account. These games are provided by more than 100 of the industry's leading content studios such as Red Tiger, NetEnt, Evolution, Amatic and Pragmatic games and also include exclusive Oryx RGS remote gaming service studios such as Gamomat, Peter & Sons, CandleBets, Arcadem and Kalamba Games.

We continue to launch new games on a quarterly basis and continue to sign partnerships with these and other providers in order to provide a portfolio of gains for our customers. This is a very important point for us. The exclusive and unique content that we offer provides us with a unique competitive advantage in the market.

We continue to invest in platform enhancements, including new data-driven end user engagement tools, built on gamification engines such as leaderboard and tournaments. Even with our rapid pace of expansion, we've been able to maintain our ability to close contacts and integrate new content and customers at a significantly faster pace than industry standard as quickly as 2 to 4 weeks rather than the industry standard of sometimes 3 to 6 months. This is critical in ensuring that we stay ahead of the latest trends in gaming.

We also work on diversification and diversifying our revenues. We continue to add new customers and expand our global footprint. We've signed agreements with 21 operators in the quarter, just the fourth quarter, and 54 operators for 2020. Our pipeline continues to grow, and we've retained 100% of our customers since Bragg's inception in 2018. We've also focused on signing bigger, longer-term deals with larger operators we were able to offer more of our platform services.

Although our customer retention is excellent, in 2020 we decreased our dependence on our top 10 customers from 71% in 2019 to 58% in 2020. We also look at expansion into new markets. We entered 5 new regulated markets in 2020, including Spain, Denmark, Estonia, Latvia and Mexico.

Looking ahead at 2021, while the global outbreak of COVID-19 has had significant impact of global economy in 2020, we continue to -- and continues to affect the world in 2021, Bragg has not experienced a negative impact on revenue, but it actually experienced significant revenue in traffic as people look for entertainment that they can enjoy in their homes.

2020 was an extraordinary year for Bragg, and we're continuing the momentum into 2021. Our 2021 year strategy continues to focus on rapid expansion of our B2B gaming technology solutions gaming. We will continue to invest in our platform and integration capabilities in order to provide the best products and services for our customers.

We'll focus on expanding our presence in global regulated markets and strengthening our client base. We're also well capitalized, as you'll hear soon from Ronen and Adam and positioned to move ahead and execute on our strategic priorities.

As we have already indicated to the market, the U.S. market is a key target for us as Bragg, and we concentrate on increasing our share of the rapidly expanding market with iGaming being a larger verticals in sport betting. The latest numbers that we've seen is that the total addressable market for iGaming is anticipated to be greater than $40 billion in the U.S. and 100% legalization with the total addressable market for sport betting at $22 billion or just over $22 billion at full utilization.

We also believe that the Canadian market has strong long-term potential. And without being a Canadian company and a strong Canadian representation on the Board, we believe that we can achieve great numbers in the Canadian market. The TAM for total addressable market for both sport betting and iGaming in Canada is projected to be anywhere between $5 billion to $8 billion with full legalization.

We continue to explore M&A opportunities in the U.S. and globally to allow us to enter the market. Potentially integrating content providers that will provide an entry into the new markets by providing existing licenses and revenue or competitors where significant synergies can be realized. The company is also in advanced discussions with incremental customers across multiple license jurisdictions in North America, Europe, Latin America and, of course, U.S. and Canada.

With that, I'd like to turn the call over to CFO, Ronen Kannor, who will run through the results. Ronen, to you.

Thank you, Yaniv. Good morning, everyone. Glad to have you here on the call. At the start, I would like to remind you all that all figures share reported currency for Canadian dollars you consider in the press release.

Fourth quarter highlights. So Bragg revenue increased 75.7% to EUR 13.8 million last year, maintaining the solid quarter-on-quarter since Q1 2019. The wage generated by customers were up by 50.1% to EUR 3.2 billion compared to EUR 2.1 billion in the fourth quarter of 2019. We've also seen an increase of 70.1% in unique players using Bragg games and content, up to 2.5 million from the -- during the comparable period of 2019.

The adjusted EBITDA is 70.8% to EUR 1.3 million from EUR 0.7 million. The decrease is from 9.4% to 9.1%, that is professional fees and corporate costs increasing from the Venture Exchange to the Toronto Stock Exchange. For the period it was EUR 5.3 million which is in line with the Q4 '19 numbers. For the revenue realized, it increased from the same period in previous year by 74.6% to EUR 46.4 million as compared to EUR 26.5 million last year. Bragg's revenue growth was mainly the games with content services, as demand for the group unique games and content or position continues to grow.

The company's growth has been underpinned by continued investment in innovation in its technology and product offering. The adjusted EBITDA increased for the year by 432.8% to EUR 5.5 million as comparable to last year with EUR 1 million only. With margin increasing significantly from 3.9% to 11.9% adjusted EBITDA margin (technical difficulty).

The net loss for financial year 2020 was up to EUR 14.6 million from EUR 11.9 million last year as primarily due to the remeasurement of deferred and container consideration and accretion of liability.

The cash and cash equivalents for the fundraise -- fundraise and warrant exercise as of December 31, 2020, amounted to EUR 26.1 million as compared to EUR 0.7 million only in December 31, 2019. And as of today, the balance sheet has no outstanding debt with positive net working capital.

With that, I would like to know that if you're interested, you can find more detailed information financial performance in our December 31, 2020, financial statements and MD&A on SEDAR and on our Investor Relations page on our website at www.bragg.games.

And with that, I'll now turn the call over to operator for Q&A session. Thank you.

(Operator Instructions) Our first question comes from Matthew Lee with Canaccord.

Really great quarter. So just a quick housekeeping question first. Will you be switching over to Canadian dollar reporting in F '21 or are you going to continue to see euro-based reporting for the year?

We believe we're going to be -- sorry.

Yes. That's really the answer. Go ahead, you can answer that.

Yes, Matthew. Yes, we do the euro is sell functional currency, majority of the revenue comes in euro. We'll see how the year progressing and which kind of -- we're currently trading on the Toronto Stock Exchange. We look at it looking forward, probably towards the end of the year, we'll make a decision.

We definitely cannot do it in the middle of the year. It's not advisable. The local GAAP and remeasurement needs to be done. But towards the year, 2021, we'll take a decision in reporting the best insignificant for all share.

That's great. And then maybe just a bigger picture question. I mean, when you think about the North American expansion plan for Brag, can you offer a little bit more color as to what you're seeing in the market in terms of the best entrant for your company as well as the potential to enter through M&A?

So obviously, M&A is something that Richard and I have been we're working on extensively When he comes and officially takes the Chair on May 1, I think in the first few weeks, you'll -- the market updated version of our go-forward strategy, which will be focused in the North American market. As far as opportunities in North America, the RFPs that we are actively pursuing on a daily basis. And we're highly active in the North American market that is currently an RFP area.

Our next question comes from David McFadden with Cormark Securities.

A couple of questions. Just starting off with If you guys could give us an update, do you still expect that the regulation into force on July 1? Last I heard it there some debate in those various states that actually all agree on them. If you could give us an update there?

David. So yes, you're right. I mean the German market continues to grow, but the legal framework is still cloudy. It continues to proceed. But as you said, there's some changes that are happening. But what we understand and from our discussions with our counsel, Saxony, it seems like it will be adopted as the regulator. Those set up the office and we expect that the giving out like in the second half of the year. There's been some discussion on when exactly that will be. And of course, we continue to monitor the situation, and we'll update the market if and when required.

Okay. And then can you give us an update on the Netherlands? I know you guys announced a pretty significant partner in the Netherlands and that's supposed to go live with online gaming this year. Can you give us an update there and when it's exactly expected to go live?

Yes. So we've signed a very big deal in the Netherlands with JVH. JVH is the largest private land-based operator in the Netherlands. It's like our Great Canadian gaming. The Netherlands is expected to go online. It's already done the last past in Q4 of 2021 of this year. And so we will provide the iGaming platform and the player account management and Kambi, our partner, will provide the support book. So we're expecting that to go live in Q4. We're working on the integration as we speak.

Okay. Great. And then Canada, there's a lot of discussion in Canada, particularly with Ontario, about allowing private operators to do online gaming in Ontario. I think it's Q4, Q1 next year, where it's expected to go live. I was just wondering if you could comment on your plans there and whether you expect to announce any partnerships in the short-term?

So on that note, I think Adam mentioned that we're very active in the U.S., and I'll echo that and say that we're very active in the Canadian market. I can say without getting into too many names that all the Canadian operators that you could think of or potential operators are working on their Canadian strategy. You're right by saying that Q4 and Q1 are the dates that potential Canadian operators have in mind. We're active in pursuing RFPs and RFI, and we're hoping to be able to announce something very soon to the market on our Canadian opportunities.

Okay. Okay. Great. And do you anticipate -- I think most people expect Ontario to go live Q4, Q1 next year. I haven't heard much chatter about any other provinces doing the same. Can you give us any feedback there on potential of other provinces in the short-term?

Yes. So we've heard other provinces as well. I mean there's some discussion about Québec. There's some discussion about BC. Again, without getting into too many details, we've been discussing at the various in the various jurisdictions. And I think that what you think about the market is probably what the operators are thinking Q4 of this year, potentially for licensing in Q1 2021 to go live.

Okay. And then lastly, just on the U.S., I was just wondering, can you give us a comment on what markets or what states you would expect to be more active in, in the short-term?

Yes, obviously, we're going to focus on those states that are casino focused for the casino businesses iGaming is allowed. So we're focused on that area, which are unique

And just to echo that, so we've -- of course, as part of our Seneca deal, we've submitted our applications for New York. We're working on New Jersey application as well. And then the plan for us would be, like Adam said, the follower iGaming at legal. So Pen, Michigan and others. And yes, we hope to have an update a substantial update for you guys very soon, most likely when Richard joins, especially as we continue to pursue opportunities in the U.S., both in terms of clients and M&A, of course.

Okay. And then just looking outside of the markets that we've talked about, are there any other markets that you see some pretty significant opportunity in the short term?

I think Latin America continues to be a big opportunity for us. I mean, ultimately, as a general global move, there is a move towards online gaming legalization and, I think, it presents a significant opportunity for us. The Netherlands is one example, but South America and Eastern Europe are going through a similar shift. And so we're focused on these markets, and we continue to go after every opportunity globally, where we see that the current is shifting towards online gaming.

Our next question comes from Colin George with Harwood Securities.

Congrats on the quarter. It's really impressive across all metrics. My first question comes with regards to the expanding margins and where you kind of see that going? Margins have expanded quite substantially well, diversifying your customer base and increasing revenue. So if you could just provide a bit more color on that and how that's achieved and where you see that going? That would be great.

Sorry, I feel like I missed the first part of the question. What was that?

Just how -- just a bit more color on the margin expansion for both EBITDA and overall of the business? You kind of diversify our customer base and expand into new markets. You almost expect that to kind of stay flat, but you've achieved quite a substantial expansion over the past year.

Absolutely, Ronen, do you want to take that?

Sorry, I'll -- I think I'll take up the margin question. And so we had a quite intensive year and a lot of customers during the year. Just margin. So additional, majority of our revenue comes from gaming content, which about gaming content and about a 7% on strong gaming platform.

So yes, the more gaming segment, where the cost of goods is at the result, the cost of goods is the mixture between gaming platform, which is to (technical difficulty) margin by 2 percentage points to 3 percentage points.

Going forward, we are working on to improve that like rising our own content, which is to the margin (technical difficulty) to sell more introduce gaming platform, which is also going to be providing much accordingly. But that is more (technical difficulty) this growth this year came significantly. So although we increased the revenue by 74%, the gross profit and the profitability capacity declined, but this is something And this is actually what we're focusing right now.

Okay. That's helpful. And then just maybe on guidance on. During the Q3 call, you provided guidance both for Q4 and into 2021. You were in line with -- on the EBITDA kind of surpassed your revenue guidance. What do you -- are you providing any guidance for 2021? An update to the previous one or maintaining that relatively modest guidance provided at Q3?

Subsequently with Richard and I working on a North American strategy for a true expansion into North America, we decided to not provide guidance right now. (technical difficulty)

I think we lost.

Do you hear me?

Yes, now we can.

Yes. Sorry. So I was saying that we provided guidance -- we provided an update for our guidance on January 26. And we've decided to hold back on giving guidance now because we're working on our U.S. and Canadian strategy. So there's no point to update it or provide any new guidance. We'll provide new guidance at our next earnings.

(Operator Instructions) Our next question comes from with (inaudible) with Stifel.

Circling back on the M&A question. With the year behind us, can you talk about the impact on valuation for some of the targets you're looking at? And have the recent new lockdowns around the globe impacted your ability to close some transactions during the pandemic?

No. The COVID actually helped our everybody that has lost their brick-and-mortar business to actively pursuing an online business. So we're one of the few that they come running to. So it's been great for us. Also, I think there's a change in habit. So you're going to see even over your going to see a lot of the customers not go back to their old way of gaming.

So we'll retain a lot of those customers and our clients were all those customers. As far as the M&A goes, as you're aware, (technical difficulty) in valuations case. So we're going to make sure we start with the opportunities that we buy right because we understand the market (inaudible) we're looking for long-term benefits for our shareholders.

Okay. That's good color. Can you speak to the product road map 2021? I think the press release called out analytics and bonus features. Are there any other major products or service launches worth noting for the upcoming months?

Yes. So that's right. I mean we -- so now that we have that many customers over 100 customers, you can imagine that we aggregate a lot of data. That data is very useful for us, and we drive a lot of significant changes to the platform and the services that we offer from data analytics.

And so we continue to expand on these services, which ultimately allow for better gamification engines that we embed into the platform. In terms of additional kind of products for the road map, I think -- I mean, we continue to focus on that and enhance the current product that we have, whether it's a sport book or the ilottery product offering that we have. And then ultimately, I mean, this will all be complemented by M&A, whether it's games and content or game studios or complementary businesses to us.

Okay. Awesome. And then my last question is, can you talk about the penetration of the existing customer base? Like what has it been historically? And what's the opportunity here to expand the current speed of services and kind of upsell additional services to the customer base?

Yes. So when we sell to customers, the bigger customers, we normally start the games and content, I think that for those of you who've seen our presentation competitive advantages, one of our competitive advantage is the exclusive and unique content in our platform, and I refer to some of the content during the call Peter & Sons.

These are studios hosted on our remote game, which in the And so it's a great foot in the door for us because any operator that wants the content will have come to us. And then that opens the opportunity because ultimately, for us, integration is integration is integration.

Once they're integrated on to the platform, it's easier for us to upsell them existing products and services and new products and services, which means that when we open the door with the exclusive content that we have, we have the opportunity to increase the wallet share from our customers by upselling to them other products and services that are on the platform.

Whether it's the aggregator or the player account management or the sport book or the ilottery product in the games. So the entry point for us, mostly is games and content, which we have a competitive advantage on the exclusivity with these titles. And then the rest is just following up from that.

Our next question is a follow-up question from David McFadge with Cormark Securities.

Sorry, I forgot to ask you. Can you give us an update on your Nasdaq listing that you plant to have?

We're going to provide that update to the market Monday.

On Monday, you said?

Yes.

Our next question comes from (inaudible) who is a private investor.

Yes. I was about to ask also about the plans to register the Nasdaq. Any target date? And do you plan a reverse split in order to qualify, to be listed? And you should be aware that some brokers don't let the in the United States.

Yes. Again, on Monday, we're going to follow the market

And I'm not showing any further questions at this time.

We would like to thank everyone for joining the call, and we're looking forward to updating the market in the next few weeks on more exciting news that are coming out. Thank you very much.

Thank you very much, everyone.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.