Q4 2021 Lottery.com Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the lottery Dot Com fourth quarter and full year 2021 conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require operator assistance. Please press Star then zero on your Touchtone telephone.
As a reminder, this conference may be recorded I would now like to introduce your host for today's conference Matt Sharpe. Please go ahead.
Thank you Michelle and good morning, everyone.
Appreciate you joining us today for lottery Dot Coms fourth quarter and full year 2021 earnings call statements. We make during this call that are not statements of historical fact constitute forward looking statements that are subject to risks uncertainties and other factors that could cause our actual results could differ materially from our historical results or from our forecast.
We assume no responsibility for updating forward looking statements for more information. Please refer to the risks uncertainties and other factors discussed in our SEC filings.
During the call management will also discuss certain non-GAAP measures, including pro forma revenues EBITDA and adjusted EBITDA that we believe will be useful in evaluating lottery dotcoms operating performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our press release and our earnings presentation, both of which are available on our website at IR bats lottery Dot com.
Joining us on today's call are co founder and CEO , Tony <unk>, and Ryan Dickinson, our president and CFO , our Chief legal officer, and CLO candidly leader will also be available during the Q&A session of the call.
I'll now turn the call over to Tony.
Thank you, Matt and thank you everyone for joining us on lottery Dot coms. The initial call as a public company today I'll cover our Q4 results Ryan <unk>, our CFO will cover our financial results and then I'll provide some updates on our key strategic initiatives and an overview of our perspective on providing guidance at.
At the conclusion of our prepared remarks, we'll be happy to answer your questions.
For those of you who are new to the company I'd like to begin with a quick overview of lottery Dot com.
Our leader in driving the transition of the $100 billion.
Lottery market online.
According to Eilers <unk> gaming marketing data research firm, 5% of U S. Lottery sales are currently conducted online.
With the carrier model, we offer users in the U S and internationally the ability to securely purchase genuine lottery games from the convenience of their mobile device or a computer.
Other industries have demonstrated the shift away from brick and mortar to mobile convenience is inevitable.
Throughout the U S state lotteries contribute supplemental revenues for multiple funding initiatives, including public education, social and veteran services health care and environmental and Wildlife Conservation.
As an early mover in the lottery Courier space, we have shown lottery and other governmental authorities that we operated trusted compliance and responsible solutions that reaches new users and demographics within their markets, providing increased revenue to the state lotteries and ultimately to funding those initiatives.
Since we started our first state in 2016, we have expanded to 12 jurisdictions in states in the U S and have consistently grown our user base.
Now having completed the business combination last October through which we became a publicly traded company and put about $43 million on our balance sheet, we have the resources to begin scaling our business.
Our growth strategy includes growing our BDC user base through marketing campaigns and entering new jurisdictions, leveraging lottery link our affiliate program and our affiliates to cost effectively reach new users and watching project Nexus, our blockchain enabled online gaming platform.
Longer term our goal is to broaden our product offerings into multiple forms of online gaming.
To provide our users with unique opportunities to play a variety of real money games directly from our platform.
Over the past year, we've made great accomplishments, including completing the business combination, establishing an exceptional management team, adding unparalleled talent to our team and continuing to build the infrastructure, we need for our future.
I'd like to reiterate my thanks to the lobby dot com team and the many other advisors and shareholders, who have supported us as we continue to advance the transition of the lottery market.
Okay.
Looking at our growth.
Looking at our 2021 growth at the same time that we completed our business combination during the fourth quarter. We also executed well on our growth initiatives, achieving fourth quarter revenue of $21 5 million up $18 $2 million or over 550% from the prior year.
Full year revenue was $68 5 million an increase of over 800% from 2020.
And including the pro forma full year effect from acquired interest in the two Mexican entities, we purchased in the middle of the year full year revenue totaled $75 million.
Importantly.
This growth was driven by the execution of strategic initiatives and with a focus on profitability as demonstrated by the $331 1 million of adjusted EBITDA, we generated in 2021.
Now I would like to provide some details on the execution of these initiatives starting with growing lottery link at its core and affiliate program is designed for the company to attract new users with little to no marketing spend.
As the affiliates manage the marketing efforts in consideration of a share of revenues generated by the new users they bring to lottery dot com.
With lottery link we believe we have enhanced our affiliate program, we'd sell our affiliates lottery link credits.
Our affiliates can redeem these lottery link credits for lottery games advertising credit design work marketing collateral software development and account management to promote the sale of our products and services.
Sale of these lottery linked credit generate a revenue stream for the company, while also generating new users with little to no marketing expense.
It is notable that upon redemption some of the products and services must be used prior to a predetermined exploration date.
In the fourth quarter.
Sales to an affiliate of lotteries credits used to acquire prepaid lottery games for use in a pilot promotional program at a national grocery chain accounted for a significant part of our growth.
In this pilot program the grocery providing its customers with a voucher redeemable for free lottery game at <unk> Dot com.
This is a great example of the power of lottery link to mutually benefit multiple parties. We benefited from increased gain sales and brand awareness the grocer incentivize customers to purchase more goods and the affiliate received a portion of profits generated by new lottery Dot com users.
Feedback feedback from this program has been positive and it is expected to expand to additional stores in Q2.
In addition to prepaid game sales in the fourth quarter Lottery link also generated revenue from the sale of credits to our affiliates for product development marketing materials and $3 million in prepaid advertising credits, we had on our balance sheet.
Which we used to promote the products to promote the product to their customers overall encouraged by I am encouraged by lateral length development in this quarter clearly demonstrated lottery links capabilities to help us grow our business.
Okay.
In our <unk> segment, we realized good growth in game sales versus the prior year and all user metrics. We track showed improvement as we benefited from RF and from the implementation of our dynamic pricing model earlier in the year.
We achieved this growth with virtually no spending on digital marketing in 2021, while we waited for the proceeds of the business combination.
In summary, we are proud of the results we achieved in the fourth quarter and the progress we have made in the execution of our strategic plan.
Now I would like to turn the call over to Ryan to cover the financials in more detail.
Thanks, Terry as mentioned fourth quarter revenue was $21 5 million, which represents a $18 2 million increase from the fourth quarter of 2020 gross profit was $18 3 million up $16 2 million from the previous year. The primary driver was the sale of.
Lottery linked credit from prepaid lottery games that were never redeemed due to an affiliate timing of an affiliate's promotional programs.
As a result, we recognize the revenue, but did not have associated Cogs for the sole credit and unused prepaid games. This resulted in a very large and very strong margins.
Over the next several quarters, we anticipate that we will continue to sell a significant amount of water airline credits in the first quarter again due to the variance between the amount of credits purchased for the redemption of prepaid lottery games and the delayed implementation of the associated promotion.
We expect many other credits that expire, resulting again in higher than normal gross profit. However, our affiliates' promotional program, including the previously announced grocery store promotion are scheduled to expand in the second quarter and we anticipate a higher percentage of credits will be utilized before exploration this will bring margins too.
More normalized levels, which are still attractive.
Net loss for the quarter was $12 9 million.
This includes $15 5 million for noncash stock compensation and interest expenses of $18 8 million interest expenses were driven by noncash and nonrecurring expenses for beneficial conversion feature associated with our convertible debt.
Immediately prior to the business combination approximately $64 million of convertible debt and accrued interest converted into equity, which triggered the accounting expense as a reminder.
The debt conversion to equity occurred prior to the business combination. So it did not dilute any public shareholders.
During the quarter, our cash outflows where interest payment.
For interest payments were $4 1 million going forward, we expect quarterly interest expense to be below 250002 thousand 22.
Moving to our balance sheet, we ended the year with $2062 6 million in cash, which was driven by approximately $43 million. We received from the business combination and the $30 million. We received from the sale of lottery line credit in the third quarter offset somewhat by a reduction in accounts.
Payable.
We also ended the fourth quarter with a large accounts receivable balance. This was driven by the sale of lottery online credit for prepaid games, we expect to receive less cash early in the second quarter.
For the full year, we generated revenue of $68 5 million or $75 million. If you include the full year impact of the interest we acquired in two Mexican entities played a lotto and accurate in June of 2021.
This represents an increase of over $16 million from 2020.
Driven by strong sales of lottery linked credit we also benefited from increased <unk> sales.
Gross profit totaled $49 4 million and was driven by the strong gross profit from lottery, one credit sales and from increased data sales, which generate margins above the other business lines.
Net loss of $9 3 million included $18 1 million of interest expense.
Again, driven by the noncash and nonrecurring expense for the beneficial conversion feature that resulted from that converting into equity in the fourth quarter net.
Net loss also included a $15 5 million of noncash stock comp and $4 1 million of operating expenses related to the business combination.
Full year, adjusted EBITDA, which excludes the impact of the noncash stock comp and the expenses associated with the business combination totaled $31 1 million and demonstrates our commitment to profitable growth.
Now I'd like to turn the call back to Tony to discuss some of our more recent developments related to our strategic initiatives.
Thank you Ryan we will start with RFP to see segments. After receiving the proceeds from the business combination we began running digital marketing campaigns at the beginning of 2022.
These campaigns recall and design for test and fine tune, our marketing strategy to reach potential customers as efficiently as possible.
Beginning in the second quarter, we plan on significantly broadening our <unk> marketing campaigns in order to expand our user base.
While the testing we conducted provided strong information about controlling customer acquisition costs, we do anticipate that our cash will trend moderately upward as we increase our marketing campaigns, but we do still expect the CAC remained favorable favorable compared to others in the industry.
As an example of the creative ways, we are reaching beauty customers. We recently announced an agreement with T mobile where we are their exclusive digital library brand for in vehicle advertising.
This agreement allows us to advertise on video screens with rights within rideshare vehicles.
We believe this agreement will allow us to reach a young technologically savvy and captive audience and excellent demographics for lottery dot com and the lottery industry.
Turning to another topic related to our <unk> segment.
I'd like to address the status of our plans to enter new jurisdiction.
While the process has taken longer than we initially anticipated we have recently increased our internal and external resources focused on our domestic jurisdictional expansion to expedite the process and expect to enter five new jurisdictions in the U S by the end of the year.
While we are working on entering new jurisdictions, we plan to deploy <unk> marketing resources to drive user growth in the jurisdictions in which we currently operate.
Keep in mind that in the U S. Only 5% of all lottery games are purchased online. So there is ample runway for growth.
I'd also like to provide an update on sports Dot com.
As we've discussed in the past, we believe that in the U S where the legalized sports betting market is extremely competitive and customer customer acquisition cost is expensive, we envisioned sports dot com, serving as an affiliate where overtime, we can leverage our low customer acquisition cost and receive referral fees or revenue share from existing.
Ports bidding companies.
Outside of the U S. We believe that there may be good opportunities to acquire established and high quality sports betting companies and benefit from both helping them grow under the sports Dot com umbrella and from cross selling our existing products.
Over the past several months, we have and are continuing to actively consider investment opportunities and partnerships. We continue to believe that like lottery Dot com sports Dot com is a very powerful brand and we will continue analyzing our pipeline of acquisition targets, while continuing to be stewards of our intellectual property and capital.
Now I'd like to provide an update on our <unk> and lottery link.
As we've previously mentioned the grocery store promotional campaign is expected to contribute to lottery linked credit sales over the next several quarters and the campaign is scheduled to expand to more stores in the second quarter.
Since the beginning of the year, we have added new affiliates and we are in advanced discussions to have more companies joined lottery link.
One example is the <unk> media group.
Which has a significant presence in Latin and South America recently joined Lottery link and will promote lobby dotcom product to their customers starting in one of their south American markets with plans to expand into new markets.
This is a great example of how an affiliate who is an expert in the market. It serves is creating an opportunity for us to expand our user base in new markets with virtually no marketing spend and return <unk> will benefit each time, one of its customers purchases a lottery dot com product.
Now moving to project next as.
We continue to make progress with its development and we are pleased to announce that we expect to implement phase one early in Q2 in phase one users will benefit from enhanced security and speed phase one will allow us to deploy updates more rapidly and scale our business more reliably and at a lower cost than our current system.
Our development team has regular has regular improvement scheduled that are designed to improve the user experience and convert potential customers into users.
We anticipate launching phase two by the end of Q3.
This phase will give us the ability to add revenue generating features to our existing products such as lottery pooling, where subject to applicable law a group of users can pull their tickets and share in any winnings.
We expect to launch phase III by the end of the year. This phase will support the launch of our own proprietary games that accept that accept payments in both fee or crypto currencies.
It's important to note that the actual launch of the game is also subject to regulatory and compliance requirements, which we are working on obtaining.
Also on the topic of project exit.
<unk> selected <unk> to be the blockchain technology that will support project mixes.
We chose algorithm because of their their technology aligns with the features project mix is designed to offer users. These include security scalability high throughput and a focus on reducing impact on the environment.
Another important area I'd like to discuss is the expansion of our talent base.
Over the past several months, we've actively been hiring in key areas throughout the company, including finance sales compliance marketing development and technology.
These additions to the lottery Dot com team are designed to support our expected growth and help us accelerate the execution of our strategic initiatives.
Now with respect to our outlook for the year. After a great deal of discussions internally about our guidance policy, we have decided not to provide quantitative guidance at this time and I'd like to share our reasonings with you.
First we are in the early stages of launching <unk> marketing campaigns on a large scale.
And while we have high confidence they will be successful and increase our user base and gain sales, we don't have visibility into the magnitude of this launch.
Second also at Jack as jackpot sizes have a significant impact both positive and negative on short term gain growth and average jackpots sizes can vary significantly from quarter to quarter and year to year.
Finally.
Several of our revenue streams like lottery linked credit sales and development work for third parties for project next it can be lumpy in terms of timing, which makes providing guidance for a specific time period challenging.
As our company matures and we have more data to support forecasting results, we will reassess our guidance policy, but we have not yet reached that point in our company's growth cycle.
Being said we are now at the end of our first quarter and I am pleased with how we've executed during the quarter and how we've adhere to our commitment to profitable growth.
Before opening the floor for questions I'd like to provide a few closing thoughts.
With large and growing addressable markets that are in the early stages of transitioning online we believe that lottery dot com as a brand and as a company as an excellent opportunity for growth.
In 2021, we were focused on building the necessary infrastructure and receiving the capital to execute our strategic growth plan.
Now that we have those in place we are focused on realizing the growth opportunities in front of us.
Our DTC marketing campaigns favorable customer acquisition cost expanding lottery link and new products and technologies all of which are supported by our talented team I am confident that we will capture these opportunities and generate long term value for shareholders.
Now operator, we'd like to open up the floor for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then the one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key one moment for questions.
And our first question comes from the line of Brian Thompson with Chardan capital market. Your line is open. Please go ahead.
Hi, good morning.
Good morning.
Great.
So you spoke you spoke of that product progress made to new markets.
Please go ahead. Your you just add William Thompson. The board is certainly a well respected name in New York politics. So can you give us a little bit.
The color about the progress.
Yes.
The progress that we're going through an estimate.
There are two jurisdictions in the United States that have any carrier application process in Europe , as well and we are going through all the steps required to go through that application process to which it will then be turned over to them. Once it is in their hands, it's really up to them and their timing for reveal.
And we are expected to get that over to them at some point this year.
Alright.
Can you just a little bit more color about what happened with the game credits during the fourth quarter.
What's the what's the lifespan of lottery linked credit and I guess.
No.
It's unfortunate for you for your affiliate that they expired, but but what would be like a normalized percentage of those credits that you expect to expire going forward what might be like a normalized margin rate per year.
That sales.
Look out over the next call it year or two.
Yes.
The margin varies depending on the type of credit sold.
Over time, I think the range should average between 3% to 40%.
As far as the exploration.
A portion of that.
The exploration is.
Not only applies once credits.
Credits are purchased and they do not expire unless they are redeemed for a particular cause that particular instance or use.
What triggered the typically a 90 day exploration periods.
Alright got it.
You had a sale of roughly $3 million prepaid AD credits in the quarter.
What would you estimate the market value of the AD credits that remain on your balance sheet.
Would you expect similar levels.
Sales moving forward on a quarterly basis.
Yes, I think it will we will continue to have advertising credits available for.
For sale to our affiliates.
And the credits that we.
Currently have.
I think the value at which we're currently selling them at will pretty much maintained as is over this year.
We're in discussions with other providers of credits that likely it will fall under the same.
Margins that we receive now when we sell any credit.
Alright, thanks for that additional color I appreciate it.
Thank you.
Again, if you have a question at this time. Please press Star then one on your Touchtone telephone.
Okay.
Okay.
I am showing no further questions and I would like to turn the conference back over to Tony Jamous CEO for any further remarks.
Thanks again for joining today's call as you've heard we're proud of our fourth quarter results and the progress we've made in executing our strategic plan.
We look forward to speaking with you again, when we report our Q1 of 2022 results. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a great day.
Thank you.
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<unk>.
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