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spk07: Thank you for standing by. My name is JL 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. 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 would 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, press star one again. I would now like to turn the conference over to Yaniv Spielberg, Chief Strategy Officer.
spk06: You may begin. Thank you, operator.
spk00: Good morning, everyone, and thank you for joining our first quarter of 2024 earnings conference call. I'm Yaniv Spielberg, Chief Strategy Officer for Bright Gaming Group. I'll be hosting today's call alongside my colleagues. Our CEO, Matt, will comment on our first quarter performance. and our CFO, Ronan, 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 investors, that's investors with an S at the end, .brag.group in the section called Latest Presentation. On this call, we will review Brag'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 may constitute forward-looking information or future-oriented financial information within the meaning of applicable securities law. 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 markets and economical conditions, business prospects or opportunities, future plans and strategies, technological development 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're 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 assurances that these assumptions or estimates are accurate, or that any of these expectations would prove accurate. 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, Mats. Mats, go ahead.
spk09: Good morning, everyone. My name is Mateusz Mazzi. 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 Knorr, 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 BRAG. 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 prized Keynes Global IPO, and we have seen corresponding increased interest in BRAG. 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 council, London-based Oakville Capital, and Toronto-based Blake's, 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 with 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 white. 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 build, 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 Ronan's final quarterly earnings call, and he will be departing the company in June. I thank Ronan 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 BRAC 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 LAN-based slots developer Kingshow Games, which further boosts our strong exclusive games roadmap 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 and 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 BRAG was registered as an approved service provider by the Peruvian Ministry of Foreign Trade and Tourism. This B2B license allows us to distribute both our exclusive and aggregated game portfolio via the BRAG hub content delivery platform to operators in Peru. After Ronan 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 regulating 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 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 Light and Wonder's 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 CESAW. After Ronan has taken you through the financial results, I will come back to take some of these points in more detail. Ronan?
spk08: Thank you, Matt, and good morning, everyone. I'll begin my comments on slide seven. In the first quarter, total revenue were up by 4.2% quarter-over-quarter to 23.8 million euros. The growth was mainly derived organically by existing customer base, in particular the PAM and 10K Solution customers in the Netherlands, together with the content offering and solid revenue performance from the Wild Street Gaming Studio customers. Gross profit for the quarter decreased by 2.8% to 11.9 million euros, 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 partner derived from the managed services and aggregation product. Adjusted EBITDA for the quarter was down 12.4% to 3.4 million euros, with adjusted EBITDA margin decreasing by 270 base points to 14.3%. The change in margin is mainly the result of changing the revenue product mix, resulting in reduced gross profit, while increased level of selling general and administrative expenses. As of March 2024, cash balance ended at 7.7 million euros with a positive networking capital position. On April 2024, the company obtained a secured promissory note in a 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, 109 million revenue and 15.2 to 18.5 million of adjusted EBITDA. We continue to execute against our mission and strategic plan. We're 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 306 in base ones 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 gains and content revenue segment amounted to 19.4 million euros and represented 81.5% of the total revenue. This is opposed to last year of 17.6 million and 76.8%. Exclusive third party and proprietary content total revenue were also increased by 12.5% quarter over quarter to 7.3 million euros as opposed to 6.5 million, demonstrating a positive momentum. Proprietary content deployment is positively progressing both in the U.S. and the EU market by increasing distribution and gains performance constantly. BRAC 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 nine, adjusted EBITDA amounted to 3.4 million euros against an operating loss of 1.3. The gap was driven by the falling 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 will see on the slide, we ended the first quarter with a cash balance of 7.7 million euros compared to 8.8 million euros at December 31st, with outstanding liability of 2.5 million US dollars of convertible security. As of May 9th, 2024, total outstanding liability is further reduced to 2 million dollars. We expect to continue exercising the right to pay down the existing convertible security subject to ongoing management assessment. Networking capital, which is excluding the third consideration in convertible debt at the end of 31st of March 2024, amounted to 3.8 million euros compared to 5.1 million at the beginning of the year. Post-period end, the company secured 7 million US dollars debt facility with a related party to improve networking capital position to provide further flexibility to the company needs. From a cash flow perspective, cash generated from operating activities amounted to 2.7 million euros, with underlying performance reaching 3.6 million euros, with a negative movement in working capital and income taxes of 0.8 million euros. A total of 2.8 million euros used in investing activities, mainly related to the capitalization of software development costs, to a total value of 2.6 million euros and the remaining balance for property and equipment. and a total of 0.7 million euros used in finance activities, which is predominantly related to the repayment of loans in relation to the convertible security to the total of 0.5 million euros. 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 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 Matt to continue the commentary on strategy and operations.
spk09: Thank you, Ronen. Last quarter, we showed you that we have seen encouraging growth in North America with exclusive content on our new BRAG 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 8X increase in wagering on these games, which come both from our proprietary BRAC studios as well as from our Powered by BRAC 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 BRAG RGS 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 games 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 seven from our proprietary BRAC 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 games from partner studios which enrich, diversify, and localize our roadmaps. 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 BRAC 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 BRAG in multiple provinces. We can still grow in Ontario, but we also see strong interest in exclusive content, aggregated 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 by a BRAG hub. 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 five 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 BRAC, 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 we're 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 23.8 million euros. representing record first quarter revenue from BRAG. Adjusted EBITDA in the quarter was 3.4 million euros, a decrease of 12.4% against the first quarter of 2023. As Ronan 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 11.4 million euros, 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 102 to 109 million euros for revenue, and of 15.2 to 18.5 million euros 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 BRAC 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.
spk07: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you're called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Please hold just one moment while we compile the roster. Your first question comes from line of Gianluca Tucci of Haywood Securities. Your line is open.
spk10: Hi, morning, guys. 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 distributions with big players in the works.
spk09: Hi, Gianluca. We're rolling out proprietary content and third-party exclusive content across our network of clients in various jurisdictions in the United States, Europe, and Latin America. And we're pleased with the performance of the content so far.
spk10: Okay. And like, you know, for like, you know, contextual, uh purposes how are these like staged rollouts through these new partners or is it just they just turn on a like light switch and it's available to other all of their brands globally how can you get into that level of like nuance if you can max yes so these rollouts um are largely dependent on the licensing
spk09: procedures and approvals and certification procedures. And as soon as these procedures are completed, we tend to roll out all of our content, obviously, according to a certain placement and promotions plan across all the brands that certain operators operate in a certain jurisdiction. Like I said, it largely depends on the licensing certification approvals process in a certain jurisdiction. and the marketing plan of these individual operators. But it's our desire to roll out simultaneously across all these brands in all the jurisdictions that B2C operators operate in as that provides the maximum effect.
spk10: Okay. Thanks for the color, Matt. And I guess to the extent that you can and are able to, you did mention that the process on the strategic front is going well, but has it met your expectations thus far in terms of activity or in terms of level of interest?
spk09: As I previously indicated, we don't plan to provide any updates on the process until we have a material development to report on.
spk10: Okay, fair enough. Perhaps maybe a question for Ronan. Can you remind us when the convert is expected to be paid off completely, Ronan? Hey, John, good morning. End of August. Okay, thank you.
spk07: Your next question comes from the line of Jordan Bender of Citizen JMP. Your line is open.
spk04: Good morning, Ronan. 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 the revenue opportunities brought on by some of these incremental opportunities?
spk05: You talked about France, Delaware, et cetera.
spk06: So the bar is.
spk09: very different in different jurisdictions. Like I said, again, 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 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 opportunities are concerned, we feel that a market 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.
spk04: 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 off several opening or newer markets. Should we think about that BRAG will be in those at some point down the line? Or is there some kind of bar you need to get over to say, you know, this is kind of worth it for us to enter these new markets?
spk09: So BRAC is going to be in those markets when and if those markets are fully regulated. We don't have an exact timeline, but we believe that further regulation is going to happen in Europe. and that we are going to be a supplier of tech to operators in those markets and supplier of content as well.
spk04: 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 what your total portfolio looks like today?
spk09: 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.
spk04: Thank you very much.
spk07: Thank you. Your next question comes from the line of Sid Delawary of Cormac Securities. Your line is open.
spk01: Hey, good morning. Firstly, if I can just focus on margins here. We saw some compression and I think it was nothing that us on the street didn't expect. Just given that the compression began in Q4, should we expect similar level of margin compression through Q2 and Q3? And then just to follow up to that, do you see any near-term opportunities related to your PAM or managed services within Netherlands to replace some of that lost revenue with that city?
spk09: 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 TIC stack and content. And I will let Ronan respond to the questions about the compressed margins.
spk08: Ronan. I said morning. Good morning. Hi. So as we communicate again in our trading update and several conversations, the margins relatively dropped because of the retreat of the deal with Bad City. But we're expecting during the next couple of quarters to increase our managed services with PAM with an aggressive pipeline, as Matt indicated earlier. That will improve the margin. And while we will be more focused on our proprietary content that currently is progressing very well, while that hits 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 the direction. The composition of revenue and content is higher than the payment and services at this stage. But second quarter, third, fourth, and the next year, we will see the impact and the effect, the positive impact, sorry, on 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 effect, but it's over time. I would look at the first quarter, second quarter 2025, and we'll see the margins are changing significantly towards improved margin, both on gross profit and adjusted EBITDA.
spk09: And to add to that, sorry, I will just add to my answer before myself. 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 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, 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 the process of supplying these stacks to clients that are going to operate in those jurisdictions.
spk01: Got it. Thanks. And just maybe if I can just, Max, 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. Are you seeing an impact in your customer base and the wagering activity just based on that just yet? Or do you think anything material comes out of those regulatory announcements? And how do you sort of see that market evolving this year?
spk09: We believe that it's very difficult to expect that the regulator will go back to square one and will ban slots only three years after they have regulated the market. And we have seen first set of restrictions being implemented last year, and we are seeing certain effect
spk01: uh to uh to wagering on you know in our portfolio b2c operators negative effect on this got it thanks um and then just one last one for me you highlighted peru um can you just maybe sort of touch on this market opportunity maybe just in terms of tam the existing gray market there and you know, how that sort of stacks up against the Dutch market like three years ago or any of the newly regulated markets that you've entered in the past?
spk06: So we expect the market to grow.
spk09: It is a decent market and we obviously do not have the data of the TAM in Peru because it was a grey market so far, and like I said, we expect to be going live with a number of clients in Peru as a content provider and as an aggregator.
spk07: Your next question comes from Jack Codera of Maxim Group. Your line is open.
spk03: Thank you. I'm calling in for Jack Venterardi. I wanted to touch on new title releases. So 19 new titles in one queue, and I think in the slides it says you're on track for 17 in two queue. 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? Thank you.
spk09: Thank you for your question. I will let Doug answer your question.
spk02: All right. Thank you. Yeah, 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 when to bring the right games to the market. Some are seasonal by nature as well. Some forward, we expect to refine that cadence. But we're launching quite a significant number of titles 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, you know, last days of the quarter, beginning of the next quarter. So, the numbers, even though they're only a week away, can skew slightly when you look at that big picture.
spk06: Okay, that's a helpful call. Thank you.
spk07: That concludes our Q&A session. I will now turn the conference back over to Yaniv Spielberg for closing remarks.
spk00: Thank you, everyone. I'd like to thank everybody who joined us this morning. I'd like to, as Matt already did, thank all the BRAG team for putting this all together and for another great quarter. And of course, I'd like to thank Ronan for all these years at BRAG, 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.
spk07: This concludes today's conference call. You may now disconnect.
spk00: Again, we wish him best of luck and success in his future endeavors.
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