Yahoo Finance Bragg Gaming Group Inc. (NASDAQ:BRAG) Q1 2024 Earnings Call Transcript
Bragg Gaming Group Inc. (NASDAQ:BRAG) Q1 2024 Earnings Call Transcript May 11, 2024
Bragg Gaming Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Joe, 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.
Yaniv Spielberg : Thank you, operator. Good morning, everyone, and thank you for joining our first quarter of 2024 earnings conference call. I'm Yaniv Spielberg, Chief Strategy Officer for Bragg Gaming Group. I'll be hosting today's call alongside my colleagues, our CEO, Matt, who will comment on our first quarter performance, and our CFO, Ronen who will review and discuss our first quarter financial results. If you have not already done so, you can follow our earnings call presentation from our website at investorssdn.bragg.group in the section called latest presentation. On this call, we will review Bragg's financial and operating results for the first quarter of 2024. Following our prepared remarks, we'll open the conference call to a question-and-answer period.
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 they constitute forward-looking information or 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 market and economic conditions, business prospects or opportunities, future plans and strategies, technological developments and anticipated events, trends and regulatory changes that 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 and which could cause the actual results, performance or achievement of the company to be materially different. There could be no assurance that these assumptions or estimates are accurate or that any of these expectations will 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, Matt. Matt, go ahead.
Matt Mazij : Good morning, everyone. My name is Matevz Mazij. I'm Chairman and CEO of Bragg. 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. Then I'm going to pass the line over to Ronen Kannor, our CFO, who will take you through the company 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 Robertson.
The special committee was set up against the backdrop of recent market activity, which included plenty of iGaming M&A and the recently prided games global IPO, and we have seen corresponding increased interest in Bragg. Possible strategic alternatives may include a sell, 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 Oakley Capital and Toronto-based Blake, respectively, to assist with the process and that it is encouraged by the progress made to date. 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 put growth opportunities, including newly regulated markets. It is important to note that this financing is a 1-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 roll, and we have also been further strengthening our teams through the addition of Key Global, LATAM, U.K. and U.S. hires.
These hires ensure that we maximize the return on the content we develop and the technology that we 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 will have a direct impact on our ability to maximize shareholder value through the strategic alternatives review process. As you will be aware, this is Ronen's final quarterly earnings call, and he will be departing the company in June. I thank Ronen 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 7 from our in-house Bragg's 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 U.S. 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 in cash, which is now exclusively live on Caesars Palace online casino and Caesars Sportsbook online casino in Michigan and New Jersey.
We continued to push growth in multiple international iGaming 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 trained and tourism. This B2B license allows us to distribute both our exclusive and aggregated game portfolio via the Bragg hub content delivery platform to operators improve. After Ronen has presented our financial results for the quarter, I will give you an update on our momentum in the U.S. and Canada with our exclusive content rollout, and I will discuss some of the newly regulated or reforming iGaming 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 U.S. 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 & Wonder. This agreement will see our exclusive games, including from our proprietary studios, Automic Slot Lab, Indigo Magic and Wall Street Gaming added to Light & Wonders online ecosystem and opening up multiple new operator partners for us. Lastly, this week, we announced that we continue to grow in Italy, Europe's second largest regulated iGaming market, most recently by making our exclusive content available with leading local operator Caesars.
After Ronen has taken you through the financial results, I will come back to take some of these points in more detail. Ronen?
Ronen Kannor : Thank you, Matt, 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 EUR 23.8 million. The growth was mainly derived organically to our 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 Wild Streak Gaming studio customers. Gross profit for the quarter decreased by 2.8% to EUR 11.9 million, with gross profit margin decreased to 49.9%. The quarter-over-quarter gross profit decline, both in gross profit and margins is primarily due to the revised commercial terms agreed with key strategic partners derived from the managed services and aggregation products.
Adjusted EBITDA for the quarter was down 12.4% to EUR 3.4 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 increased level of selling, general and administrative expenses. As of March 2020, cash balance ended at EUR 7.7 million 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 featuring the note is 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 102 million, 109 million revenue and 15.2 million to 18.5 million of adjusted EBITDA. We continue to execute against our mission and strategic plan. We are scaling up our business in line with both our revenue growth and the continued movement in product mix as indicated in the right-hand side of the slide. Gross profit decreased by 2.8% to 11.9 million, with margin dropping by 316 basis points to 49.9%. And First quarter, seen a decline both in gross profit and margins due to revised commercial terms agreed with key strategic partners derived from the managed services and aggregation products. In the first quarter, total gains in Content revenue segment amounted to EUR 19.4 million and represented 81.5% of the total revenue.
This as opposed to last year of 17.6 million and 76.8%. Exclusive third-party and proprietary content, total revenue will also increase by 12.5% quarter-over-quarter to EUR 7.3 million as opposed to EUR 6.5 million, demonstrating a positive momentum. Proprietary content deployment is positively progressing, both in the U.S. and EU markets by increasing distribution and gains performance constantly. Bragg is expecting an improvement in gross profit margin to take place in financial year 2025 by increasing its higher-margin revenue portion of its proprietary content, PAM and turnkey solutions. Moving to Slide 9. Adjusted EBITDA amounted to EUR 3.4 million against an operating loss of EUR 1.3 billion. The gap was driven by the following noncash and exception 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 nonrecurring corporate and regulatory matters in gain on remeasurement of deferred consideration associated with the acquisition of Spain 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 will see on the slide, we ended the first quarter with a cash balance of EUR 7.7 million compared to EUR 8.8 million at December 31, with outstanding liability of USD 2.5 million of convertible security. As of May 9, 2024, total outstanding liabilities further reduced to $2 million.
We expect to continue exercising the right to pay down the existing convertible security subject to ongoing management assessment. Net working capital, which is excluding the third consideration and convertible debt at the end of 31st of March 2024, amounted to EUR 3.8 million compared to EUR 5.1 million at the beginning of the year. Post period end, the company secured USD 7 million debt facility with a 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 EUR 2.7 million, with underlying performance reaching EUR 3.6 million with a negative movement in working capital and income taxes of EUR 0.8 million. A total of EUR 2.8 million used in investing activities, mainly related to the capitalization of software development costs to a total value of EUR 2.6 million and the remaining balance of property and equipment.
And a total of EUR 0.7 million used in finance activities, which is predominantly related to the repayment of loans in relation to the convertible security to the total of EUR 0.5 million. Looking forward, management is projecting positive cash flow from operations while there is no CapEx or technology debt required in the business. Thank you very much, everyone. This has been my last quarter after 4 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 Matt to continue the commentary on strategy and operations.
Matt Mazij : Thank you, Ronen. Last quarter, we showed you that we have seen encouraging growth in North America with exclusive content on our new Bragg. 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 8x increase in wagering on these games, which come both from our proprietary Bragg Studios as well as from our power by Bragg 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 Studios in the U.S. 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.
The gains that we released last year and the year before continue 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 7 from our proprietary Bragg Studios. This is up from 11 exclusive gains 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 diversify and localize our road maps. If you have specific questions about content, Ronen, Yaniv and I are joined today by Doug 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 iGaming 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 iGaming 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 Delaware 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 in exclusive content, aggregate content and player engagement technology in other processes, 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 by a Bragg. Bragg is also well placed to enter the French iGaming market when or if new legislation is introduced. We see France as a potential top 5 global iGaming 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 Brag, 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 EUR 23.8 million, representing record first quarter revenue for Bragg. Adjusted EBITDA in the quarter was EUR 3.4 million, a decrease of 12.4% against the first quarter of 2023. As Ronen 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 EUR 11.4 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 EUR 102 million to EUR 109 million for revenue and of EUR 15.2 million to EUR 18.5 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 at Bragg for their continued hard work and dedication this quarter.
And now I will turn the line back to the operator and Ronen, Yaniv, Doug and I will be happy to take questions.
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