Bragg Gaming Group Inc. (NASDAQ:BRAG) Q3 2023 Earnings Call Transcript November 10, 2023
Operator: Welcome everyone to the Bragg Gaming Group Third Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Yaniv Spielberg, Chief Strategy Officer for Bragg Gaming Group. Yaniv, please go ahead.
Yaniv Spielberg: Thank you, operator. Good morning, everyone and thank you for joining our third quarter 2023 earnings conference call. I am Yaniv Spielberg, Chief Strategy Officer for Bragg Gaming Group. I’ll be hosting today’s call alongside my colleague, CEO, Matevz Mazij, who will comment on our third quarter performance; and Ronen Kannor, our CFO, will review and discuss our third quarter financial results. If you have not already done so, you can follow our earnings call presentation from our website at investors.bragg.group, that’s investors with an s, dot bragg, dot group, in the section called latest presentation. On this call, we will review Bragg’s financial and operating results for the third quarter of 2023.
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And 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 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 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 other publicly available disclosure. With that behind us, I’d like to turn the call to our CEO, Matevz. Matevz?
Matevz Mazij: Good morning, everyone. I’m Matevz Mazij, I’m Chairman and CEO of Bragg and I’m going to run through our operational highlights from the quarter, then I’ll hand over to our CFO, Ronen Kannor, who will take you through the financials. Afterwards, I’ll take a few of the points in a little more detail, wrapping up with our outlook and summary and then Ronen and I will be happy to take your questions. Turning now to Slide 4. I want to run through some of the key points of third quarter, the quarter in which I was appointed CEO. I have a long history at Bragg. I originally founded ORYX Gaming back in 2012, running the company until I sold ORYX to Bragg in 2018. As a part of that process, I also became Bragg’s largest shareholder.
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Q&A Session
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I continued as CEO of ORYX until in 2021, I stepped back from operations and joined Bragg’s Board of Directors. As a director, I have strongly supported our U.S. acquisitions, Wild Streak Gaming and Spin Games and was involved in developing our U.S. expansion strategy. I was subsequently appointed Chair of the Board earlier this year and then CEO at the end of August of this year. By appointing me as CEO, the Board was seeking to align and streamline the interest of Bragg shareholders with company operations and to unlock shareholder value, which is something I aim to do. So I’m delighted to be back in reporting on another quarter in which we continue to make good progress on our goals. After Ronen has presented the financials, I’m going to talk a little about our extended agreement with BetCity which will see us continue supplying our PAM content and content aggregation to BetCity into 2025.
And I’m also going to reiterate and expand a little on the key pillars of Bragg strategy of how we aim to take the business to the next level and to become a premier content and technology supplier to the growing global iGaming industry. Our content roadmap is going very strong. We are on track to launch 68 exclusive game titles globally this year, putting our output among the top tier of online casino game developers on the market. Almost half of these titles are from our proprietary Bragg Studios brands, generating higher gross profit for the business and we intend to continue at this pace. During the third quarter, we were pleased to see two of our powered by Bragg titles into the top 25 new slot rankings published by [indiscernible]. The success of Devil’s Lock by Blueberi and Ultra Rush Golden Steed from Incredible Technologies is a testament to our strategy in the U.S. of partnering with successful and familiar land-based slot brands and bringing them online exclusively available in the market via Bragg.
Our U.S. rollout of our newest content and technology continues with recent launches with local market leaders, BetMGM in New Jersey and with Panduit, Michigan and Connecticut, and we’re pleased to be able to leverage our slot production capabilities to build and release a bespoke game for Caesars Digital with Lady Luck Casino Egyptian Magic, which is now available exclusively to players of Caesars Pilots online casino in Michigan and New Jersey. Our ability and capacity to build bespoke game titles is an additional differentiation point where we can deliver added value to our customers and build long-term growth. In other markets, we continue to roll out our content with new customers. In Italy, we have launched with top two operators in the market, Latin Snaitech.
In Ontario, we went live with Bet365. And in the UK, we launched games with Unibet, which is one of the Kindred’s flagship brands. With that, I’m now going to hand over to Ronen to present our third quarter financials. Ronen?
Ronen Kannor: Thank you, Matevz, and good morning, everyone. I’ll begin my comments on Slide 6. As Matevz indicated earlier, the third quarter of 2023 was another positive step in our digital journey. We continue to execute against our mission and strategic plan, and we can sell it in our financial and operational results. In the third quarter, total revenue were up by 8% year-over-year to €22.6 million, continuing our growth momentum since the fourth quarter of 2021. The growth was mainly derived organically to our existing customer base, launch in financial year ‘21 and ‘22, in particular, the PAM and turnkey solution customers in the Netherlands, together with content offering and a solid revenue performance from the Wild Streak gaming to our customers.
Third quarter, however, showed a slight sequential drop of 8.5% as a result of bad failure revised extended commercial terms. From an operational KPI perspective, cultural wagering generated by gains and content offered by the group during the quarter was up by 24.6% from the same period in the previous year to €5.7 billion versus €4.6 billion in the same period last year. As you can see from the wagering chart on the right hand side, Bragg’s ongoing positive momentum from the fourth quarter of 2021, which demonstrates our ability to transform and diversify our operations. Gross profit for the quarter increased by 13.5% to €11.9 million, with gross profit margin slightly increased to 52.5% from 50% in the same period last year. The gross profit is primarily the result of increased revenue performance in all content products, while recording slightly lower paired managed services revenue, which also as a result of bad city renegotiated extended commercial terms.
Adjusted EBITDA for the quarter was up by 70.5% to €3.8 million, with adjusted EBITDA margin reaching 16.9%, an improvement of 620 basis points from the same period in the previous year. The change in margins mainly as a result of scale in revenue while maintaining control investment in salaries and subcontractors and other operational costs as part of the company’s strategy to expand software development, product and senior management functions. Operating loss increased by €0.5 million to €2.1 million, mainly as a result of a one-off termination of an employment contract and a loss from deferred consideration. We are pleased with the current trading, and we’re reiterating our 2023 revenue guidance range of €95 million to €97 million and adjusted EBITDA range of €15.5 million to €16.5 million.
As you can see on Slide 7, the gross profit margin continued to show a growing momentum during the fourth quarter of 2021 due to the change in Bragg product mix. We continue to execute against our mission and strategic plan, and we are scaling up our business in line with both our revenue growth and the continued movement in product mix as indicated on the right-hand side of the slide. Gross profit increased by 13.5% to €11.9 million, with margin increasing from previous year by 250 basis points to 52.5%. The third quarter revenue growth year-over-year was driven mainly by the Dutch PAM and Turnkey customers’ outperformance, together with the improvement of our content offering. In the third quarter, content revenue segment offering, which is including aggregated third-party exclusive third-party and proprietary content increased to €17.9 million and represented 79.4% of total revenue as opposed to 69.9% of previous year, highlighting Bragg’s execution of the content strategy.
Proprietary content development is positively progressing both in the U.S. and EU markets by increasing both distribution and games performance. And as Matevz indicated, we have recently marked another key milestone with our recent launch of our newest tech stack in New Jersey with BetMGM. As indicated in the previous quarters, we are targeting gross profit margin improvements to exceed 60% by full year 2025, mainly by increasing the proportion of revenue which comes from proprietary content, PAM and turnkey solutions. Moving to Slide 8. Adjusted EBITDA amounted to €3.8 million against an operating loss of €2.1 million. The GAAP was driven by the following noncash and exceptional items. Depreciation and amortization, the increase in intangible amortization is part of the Spin Games acquisition in June 2022, increased level of investment in software development and a change in the useful life of customer relationship.
