Bragg Gaming Group Inc.

Good morning. My name is Rob and I will be your conference operator today. At this time, I'd like to welcome everyone to the Bragg Gaming Group first quarter 2022 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Yannib Spielberg, Chief Strategy Officer, you may begin your conference.

Good morning, everyone, and thank you for joining Brad's first quarter of 2022 results presentation. You'll hear today that our first quarter was our best quarter to date. We couldn't have done it without the hard work of every single member of our team, Slovenia, Malta, Las Vegas, Reno, and other places. So before we start, I want to take a moment and thank everyone for their hard work and continued hard work. With that said, I'm going to ask everyone to turn to the second page and look at the Safe Harbour Statement. Please familiarize yourself with the Safe Harbour Statement on the second page. Some of the comments that Ronan and I will make today will include forward-looking statements as defined in the Safe Harbour Statement. With that, I'll begin the presentation, and then I'll pass it to Ronan Kanur, who hosted with me this morning, to discuss the financials. Today, we'll discuss our quarterly highlights. We'll also discuss the strategic focus and focus on the content production that we ramped up. We'll talk about M&A, licensing, and new markets. Ronan will walk you guys through the financials and guidance, and then we'll conclude with an outlook and conclusion, at which time we'll open the line for questions. Thank you very much everyone for joining. I want to start with the quarterly highlights. The first quarter of 2022 was a strong quarter. Strong growth driven by ongoing content and platform expansion and new market strategy. You'll see that the first quarter strong financial performance, the strongest we've had to date. First quarter 2022 revenue came at 19.4 million euros. That's 36.4% growth on our first quarter of 21. The adjusted EBITDA for the first quarter came in at 3 million euros which is 26.2 percent growth on our first quarter of 21 and of course our gross profit margin increased by 490 basis points to 51.8 percent There's also been first quarter business momentum. Very strong revenue in Q1 was driven by underlying recurring revenue and recent new market expansion. Successful launch of new proprietary studio, Atomic Slot Lab, two titles that were released in Europe. We will talk about that more in a few slides. And then, of course, the continued successful rollout of new market strategy. We're live in the Czech Republic and Bahamas, and we continue our growth in the UK, Switzerland, and Spain. Recent developments include going live in Ontario. Ontario market opened up for operators on April 4th, and Bragg is a fully licensed gaming-related supplier in this new regulated market. We also entered the regulated Portuguese iGaming market for the first time with the BetClick launch, and we continue to grow our presence in the Dutch market, announcing our third and fourth-time customer, the brand 711, at MetNation. I want to shift gears and talk about expanding our strategic focus on content. It started, as I'm sure you guys are aware, with the acquisition of Wild Street in June of 2021. And we continue to focus on content as it becomes a very important factor in our success story. And I want to talk to you about the benefits of the proprietary and exclusive content extension on slide seven. You'll see that we continue to invest in our in-house gaming content and to integrate new exclusive content providers. We break down our content into two categories. We have our proprietary content, which you can see on the slide, slide seven at the top, and then the exclusive content providers at the bottom. The expansion of proprietary content is expected to drive gross profits and EBITDA margins. For proprietary content from our in-house studios, we capture approximately 100% of the revenues. For content from partner studios, we capture about 25% to 35% of the revenue, and we now have four in-house content studios, which includes Wild Streak, Spin when it closes, Atomic Slot Labs, and, of course, the Oryx Studio. We also have exclusive content that comes from our exclusive partners. Regular and diverse exclusive content from partner studios offers portfolio diversification and geographical differences. Games that are built on our remote gaming server are not available anywhere else in the market. We have diverse and localized portfolio where we can tailor to the European market and the North American market, and then upon expansion to other markets. And of course, we're leveraging proven track records and bringing land-based brands online, balanced with a selection of new, high-quality online first studios. And so I want to focus on the proprietary studio update on slide eight. And you'll see on the slide that we have really three studios that we can discuss on the slide, but one of the studios, the acquisition of Wild Streak, is broken down into online and land-based. Wild Streak, as you guys remember, is an acquisition that we did in June of 2021. We're on track to release five games via our partnership with Pragmatic Play this year. So far, the successful partnership which was established with Pragmatic Play last year resulted in a total of seven games that were released and are currently live. These games that are released by Wild Streak show strong player retention and continued growth in the numbers. And of course, there's also other success stories of the Wild Streak online content, which have been released in other markets, like the Dragon Power, which has a record quarter in New Jersey in the first quarter of 2022, and was also recently launched in Michigan and West Virginia. The strength of the Wild Streak brand also resonates really well in the land base. wild street land-based has agreements with igt with sega sammy one game has already been released with igt in 2022 with four additional games currently in development the last three games that were released by the wild street gaming land-based version all made it to the top 25 Ehlers-Santini new core game reports with increasing sales. And the success of the IGT deals resulted in IGT actually extending the deal with Wild Street for additional four titles, which will start developing and deliver in the month and the year to come. There's also been four titles that launched this year with Sega Sammy, including the well-known online brands, Congo Cash and Fairy Dust. And these will go into the land base with SEGASAMI in the second quarter and third quarter of 2022. In addition to that, as we discussed in our last earning call, we've also created a new studio, a new in-house studio called Atomic Slot Lab. The launch of the new studio with high quality content focusing on the European markets. We released our first game Egyptian magic in the first quarter, which was a top five game ever released on our platform, on our RGS, our remote gaming server. We also released fairy doc, which launched in the first quarter towards the end of the first quarter of 2022 with increasing success. Total of 11 titles to launch this year in Europe through the atomic slot lab and 10 titles to be launched in the U S with customized math line count and other game variable for each market. The beauty in our ability to tailor games for the European and North American market is that we're able to leverage well-known brands, exceptional math, and exceptional graphics to tailor to the different markets, the European market and the North American market, with growing success. And then, of course, finally, our Orth Studio, which has been in operation for quite some time, has been revamped with new leadership, growing team and talent, and we revitalized the identity and quality of the game design and production, given what we've learned from the Wild Street Gaming and the Atomic Slot Ramp. Six new games are planned to launch in this calendar year, with our North American debut also expected this year with custom U.S.-specific masks. With that said, I want to focus on slide nine on the game release roadmap, both the proprietary and the exclusive content. You will note that in prior years, we had game releases in Europe and the rest of the world, mostly from partner studios, which were exclusive but not proprietary. If you look at 2022, you'll see that we're going to release 22 games out of 49 games that are proprietary games in Europe and the rest of the world. and we're going to release 22 games out of 39 games, proprietary games, in North America. This is important because quality is more important than quantity for us. The key point here that we want to drive is that we move from 20% proprietary content to about 45% proprietary content, and so we keep more of the revenue. Releasing 88 games in a year puts us up with top game publishers in the industry. To name one, Evolution Gaming, which includes Evolution, Net10, Red Tiger, and Big Time Gaming, also announced by coincidence that they'll release 88 games in 2022. 49 games that are released by us in Europe equate to almost one new game per week. And operators generally would struggle to take more than one game per week from one supplier. So it really ties in nicely for one game per week in the European market, both proprietary and exclusive content. And as we roll out our North American strategy, a similar strategy for the North American market with proprietary and exclusive content. With that said, I want to move on slide 10 to M&A, licensing a new market. Updating you on the SPIN transaction. We've talked about it a lot. We're hoping to close. I can assure everyone that we've submitted all the last documentations that were required for the Pennsylvania Gaming Control Board and have been sitting on their desk for review and consideration. We're hoping to be included in the May 18 agenda for the Pennsylvania Gaming Control Board. Once we get the approval from the Pennsylvania Gaming Control Board on the licensing of the individual and the entities, we'll be able to close the SPIN transaction. Despite the length of time that it's taking to close a SPIN transaction, I assure you, like I assured you in last quarter, we've been working as one unit with respect to the prospective deals in the North American market. We've been working with the labs. We've been working with agencies to get everything sorted. So once we get the clearance from the regulators, including the Pennsylvania regulator, we can hit the ground running and then have the ORITS technology, the Wild Street game, the ORITS game distributed through SPIN in the U.S., and, of course, in Ontario. On slide 12, you'll see that we continue to roll out our content and technology in newly regulated markets in Europe, North America, and globally. New licenses and new market entries include the Ontario-Canada market, which I discussed. We obtained our supplier gaming license in March, and the market rolled out as legal on April 4th. In Bahamas, we obtained our supplier license in the first quarter, and we launched with Island Lock in March. In the Czech Republic, we had the first market entry in February, taking content live with the sign-out group. We also had content agreements signed with Microgame, which is Italy's largest distributor of online casino games, in preparation for market entry later this year. We got our PAM, our Player Account Management, certified for the Czech market in preparation for our Player Account Management launch with Merkur later this year as well. We announced in November of 21. And of course, we continue to roll out content in the United Kingdom, launching with SkillNet in January. So far, we've shown great progress in North America. We really are expecting to obtain our Pennsylvania license in the second quarter of 2022. This, of course, paves the way for the completion of the SPIN games acquisition in the second quarter and subsequent U.S. content rollout in the third quarter of 2022. As I mentioned, we're working with SPIN and the regulators to make sure that once we get the license and once we close the transaction, we have a smooth rollout of licensing and certification from the laboratories so we can hit the ground running. We've also applied this quarter for supplier license in British Columbia, and we're hoping to leverage the SPIN agreement with the BCLC and provide our content to the BCLC in BC in Canada. As you guys are aware, we continue to work on licenses and certifications in various markets. On slide 13, you'll see that Bragg's addressable market continues to expand rapidly as online gaming companies grow aggressively and land-based companies look to migrate online. BRAG expects to enter the North American market with our own proprietary content and exclusive content in the third quarter of 2022. We've started the rollout in Canada, in Ontario, with 888. We're hoping to get our final approvals from the U.S. regulators in this quarter and roll out our content, proprietary and exclusive, in the third quarter. Even in the first quarter of 2022, BRAG's total addressable market equates to about $13.5 billion, including the United Kingdom, Germany, Netherlands, Greece, and canada as we continue to get our licenses and certifications we're expecting to grow the total addressable market by the end of the fourth quarter to 21 and a half billion dollars which will include our existing market but also going live in italy united states rolling out canada including ontario and bc and other new markets if you look at the future We're estimating that by the end of 2026, including the growth in the North American market and the European market, Brad's total addressable market will be at about $43 billion, and that presents an immense opportunity for revenue diversification, revenue growth, and increasing customer base to grow our revenues well into the future. I'd like to turn the presentation to Ronan to discuss the financial and the guidance for the first quarter of 2022 and the rest of the year.

Thank you, Yaniv, and good morning, everyone. I'll begin my comments on slide 15. The first quarter revenue was up by 36.4% year over year to 19.4 million euros and up by 22.9% from the previous quarter, representing the record quarter we ever had. This performance derived mainly from the organic growth from its existing customer base, the onboarding of new strategic customers in various jurisdictions, mainly the Netherlands, in the PAM and managed service segments. In addition, we had a strong revenue performance from Wild Street Gaming that business required in June 2021. From a KPI perspective, the total wagering generated by games and content also by Oryx and Wild Street in the period was up by 0.8% from previous year to $3.8 billion, and with 23.2% growth from the previous quarter. And you can see from the wagering chart on the right-hand side, the new German market restrictions on gameplay had an effect during Q3 2021. But ever since, we have been seeing a positive trend and momentum. Also, we noted last quarter, we have continued to retain 100% of our customers since 2018. And while our customer retention remains solid, our dependence on top 10 customers has slightly changed. Revenue for our top 10 customers was up by 12% to 75% of the total revenue, compared to 62% in Q1 2021, a trend we expect to improve over the next few quarters. The gross profit increased by 50.7% to €10 million, with margins increasing as well by 4.9 percentage points to 51.8%. This is primarily attributed to higher proportion of revenue derived from our platform and managed services, alongside with wide-trade proprietary gains revenue, which has no cost of sale. And this compares to license gains and content, which have third-party costs associated. Adjusted EBITDA for the quarter was up by 26% to €3 million, with adjusted EBITDA margin reaching 15.3%, decreasing just by 1.2% from the same period in the previous year, but with an improvement of 5.5 percentage points from the previous quarter. The decrease in margin is mainly the result of scale and improvement in the product mix of spam and managed services offset by the increased salaries and subcontractors cost as part of the corporation strategy of investment in its expansion of its software development, product, and senior management functions. Now turning to slide 16, as I mentioned earlier, Our entry into new markets, in particular the Netherlands, has been exceptionally strong, coupled with new client wins and a ramping up with operators launched earlier in the year give us significant momentum to this financial year. During the quarter, the new 2021-2022 business revenue was up by 15.8% to quarter-on-quarter during the new market launches. Existing client revenue, including Germany, has also seen a marked step up in growth from Q1 2021 by 43%, but 6% drop from the previous quarter, but this is due to seasonality. One-streak revenue was up by 35% from the previous quarter as a result of strong performance of in-house-built games. And the underlying recurring growth revenue, including licensed Germany, increased by 22% quarter over quarter. As you can see from the right-hand side, represented the Q1-22 underlying business revenue mix that is moving into Q2 and for the whole year after offsetting the headwinds from the German market since the new regulatory changes took place in July 2021. So overall, the new business pipeline, new market entry, and more focused sales undefeated the 2022 financial year revenue guidance. Slide 17, the gross profit expansion. As you can see from the revenue and gross profit margin slide, The gross profit margins are in the growth momentum since Q2 2020. We're scaling up in line with the revenue growth and movement in the product mix as presented in the bottom of the slide. The product mix changed since third quarter of last year and now trending towards spam, managed services, and proprietary content, while improving gross profit margins and profitability. As we indicated in the past, platform and proprietary content products are carrying no third-party costs, which gives us ability to scale up gross profit margins. The time and managed services improved the Q1 2022 cost-profit margins as a result of the strong performance of the new Dutch customers. In slide 18, it's important to demonstrate our continued growth complemented by substantial margin expansion. We highlighted the importance of proprietary content, the play account management, and the managed services. And this slide illustrates why it is so important for our growth and profitability. The gross profit margin in 2020 was 43%, and the adjusted EBITDA margin was just 11.9%. As we were selling mostly third-party gaming content, while payment managed services accounting of less than 11% of the total revenue. As we transition to higher proportion of platform, managed services, and proprietary content, a change that started last year, you can see the effect in this quarter result with gross profit increased by 8.3 percentage points and adjusted EBITDA by 3.4 percentage points, reaching 51% of gross profit margin and about 50% of adjusted EBITDA margins. As we look into the future, our target to achieve high gross profit of approximately 60% with adjusted EBITDA of 25% is a corporation operating leverage expected to increase given limited growth in employee costs and other overheads. In slide 19, revenue-adjusted EBITDA, on this slide, I'll detail how we reconcile our operating loss to positive-adjusted EBITDA in this quarter. Adjusted EBITDA amounted to €3 million and a 15.3% margin against an operating loss of €0.2 million. The gap can be explained by the following non-cash exception items. Depreciation amortization and increased intangible amortization as part of the Wall Street acquisition in June 2021. The share best payment awards granted to senior management in Q1 2022 compared to DSU, composed of DSUs, RSUs, and share options, and transaction acquisition costs, costs associated with the corporation M&A strategy. Moving to slide 20, at the end of March 2022, BRAC has a solid balance sheet and continues to deliver strong cash flow performance. Cash balance of March 2022 was 18.4 million euros compared to 16 million euros at December 31st, 2021, with no debt facilities in place. Networking capital was 12.6 million euros compared to 11.6 million at the beginning of the year. We continue to project quality free cash flow from operation. And as a reminder, our business strategy requires little capex related to technology and debt requirements. From a cash flow perspective, in the three months ended March 2022, we generated 3.8 million euros from operating activity while investing 1.2 million in software development costs as part of the investment in our technology. The 2022 guidance, we reiterate a full year 2022 revenue guidance of 68 to 72 million euros and adjusted EBITDA of 9.5 to 10.5 million euros. With that, I will turn the call back to Yaniv, following that back to the operator, so Yaniv and I can take your question. Thank you.