Q1 2022 Lottery.com Inc Earnings Call
Hello, and welcome to lottery Dotcoms first quarter 2022 earnings conference call.
This is Jesse and I'll be your operator for today's call.
If you would like to ask a question over the phone at the end of the prepared remarks, you me Preston Snarky, followed by the number one now I'd like to turn the call over to Matt Schlarb, Vice President of Investor Relations. Sir you May now begin.
Thank you Jessie and good morning, everyone. We appreciate you joining us today for lottery Dot Com first quarter 2022.
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 to differ materially from our historical results or from our forecasts.
Yes.
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.
During the call management will also discuss certain non-GAAP measures, including EBITDA and adjusted EBITDA that we believe may be useful in evaluating whether or not.
Yes.
These measures should not be considered in isolation or as a substitute for 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, which is available on our web.
Right.
That's right.
No.
Joining us on today's call are co founder and CEO , Tony <unk> our CFO .
I'd now like to turn the call over to Tony.
Thank you, Matt and thank you everyone for joining us today I'll begin by covering our Q1 highlights Ryan will cover our financial results and then I'll provide some updates on our key strategic initiatives.
At the conclusion of the prepared remarks, we will open up the floor for questions.
The first quarter was a positive one for lottery dot com as we focus on our core business. We continue to make progress executing our lottery link and PTC strategic growth initiative produced strong year over year growth and generated positive adjusted EBITDA and ended the first quarter with a strong balance sheet.
To provide some additional details on our strategic initiatives I'll begin deepwater.
We continue to pilot program in the first quarter with a master affiliate, we engaged with their sub assembly a national grocer.
This program contributed to revenue growth with the sale of a lot of credit to our master affiliate, which uses for promotional activity, while adding new users on the Baidu dot com platform with limited or no marketing spend.
This particular program with the sub affiliate broker also demonstrated lottery less ability to benefit national consumer brands in the UK.
Whenever a brand or retailer refers one of its customers they share in the gross profit of the new law without some user that's a new user.
That's a new law dot com you could generate for several years.
This means that the brand or retailer can increase and accreted recurring revenue stream from our customers.
While we are currently generating most of our water getting revenue from the sale of a lot of really credit I want to reiterate that lottery Lincoln ultimately and primarily designed to drive new refer to users to our PDC platform and.
And the sale of more gain scale through our BDC platform by both new and returning to users.
As activity picks up as those are a lot of the new partners as we all share in the revenue stream generated by the new and returning referred users.
Additionally, we believe that the lift that <unk> dot com games and services are an attractive promotional tool, which allows brands and retailers to uniquely connect with their customers offer specialized marketing campaign in select qualified consumers back to the brand or retailer, creating a loyalty, creating loyalty and commitment.
With all of these benefits, we believe that lateral length is well suited to affect new affiliates to the growing program.
Since the beginning of 2022, we have added new affiliates the lottery.
Including existing data customers.
Which are primarily digital publishers, and which we anticipate will generate increased revenue and profitability is a lot of U S affiliate and we would only have the data so far.
Turning to another key initiatives being built of our PC user base our focus during the first quarter was on conducting extensive testing on multiple media platforms to see where marketing dollars are yielding divestiture.
This focus on maintaining a favorable customer acquisition costs and retaining those users to improve customer service and ease of use on our platform are key parts of our strategy.
We generate profitability from new users.
It's important to note that as a gaming company, we are required to receive authorization from leading digital advertising company, such as Google and.
In order to advertise our products.
In March we finalized those approvals for our website mobile web app in iOS.
Competing testing in receiving these approvals were critical steps in the expansion of our biggest marketing campaign.
Additionally, the recent launch of project Nexus, which is designed to support increased user traffic promote promote user safety and improved performance is a crucial component of these expanded marketing initiatives and the activity we anticipate they will generate.
Our success in executing a lot everything and our growth initiatives contributed to year over year revenue growth of over 280% and adjusted EBITDA of $7 million.
We are proud of the way our team is focused on progress while generating positive adjusted EBITDA in the first quarter, which is a continuation of the strong positive adjusted EBITDA, we achieved in 2021.
We also ended the quarter with a solid balance sheet with nearly $51 million in cash and only $2 $5 million of debt.
The actions that we've taken to strengthen the balance sheet over the past year has provided the necessary capital to invest in our strategic growth initiatives and to help realize the significant market opportunity we have in front of us.
Now I will turn the call over to Ryan to cover our financials in more detail.
Thanks, Tony.
First quarter revenue was $21 2 million, which represents a 287% increase from the first quarter of 2021.
Very strong growth was driven by the sale of watery link credits to affiliate fees.
These credits are used for services, we provide with internal resources, such as prepaid promotion rewards development services account management, and the design and distribution of marketing material.
Gross profit was $18 million.
$8 5 million from the previous year.
As we discussed on our previous earnings call. The primary driver was the sale of lottery.
Credit for prepaid promotional rewards that expired without being used to consumers.
Without being issued to consumers due to the delayed timing of an affiliate's promotional programs.
As a result, we recognize the revenue but did not have associated Cogs are so old credit and unused prepaid promotion rewards. This resulted in margins above the expected average for lotteries on credit, which should be around 30% to 40%.
Operating expenses in the quarter were $33 8 million. This figure includes $22 two.
$2 million of expenses related to restricted stock awards granted as noncash stock compensation to several employee at the time of the business combination.
For clarity on this calculation and the accounting treatment.
This is calculated using a share price immediately prior to the closing of the business combination, which was $14 75.
<unk> also began at the time of the grant and amortized over the vesting period of the.
The equity as a result, the accounting expense is significantly larger than the current value of these rfps.
He's restricted stock awards are subject to vesting schedule and we'll continue to vest over the next four years.
Is that we will continue to recognize this noncash expense calculated on a share price of $14 at that time.
Other personnel cost increase relative to the prior year as a result of hiring in key positions and development marketing and compliance to support growth initiatives and public company expenses.
Public company expenses drove the increase increases in general and administration.
And other professional fees versus the prior year.
We are working to bring more of these responsibilities in house, which we believe will reduce you just meant is in the coming quarters.
We had no interest expenses and do not expect to incur any interest expense for the remainder of the year.
Net loss for the quarter totaled $15 8 million.
Our strong gross profit was offset by operating expenses, including the $22 2 million of noncash stock comp expense mentioned earlier.
Adjusted EBITDA totaled $7 7 million in the quarter compared to negative adjusted EBITDA of $2 6 million in the first quarter of 2021.
The increase was driven by the strong gross profit we generated partially offset by increased operating expenses.
Mainly associated with hiring of key employee support growth initiatives and public company.
Turning to our balance sheet, we maintained a strong balance sheet in the first quarter and ended Q1 with $58 million in cash and $3 $5 million of that cash.
Cash declined by $11 8 million for the fourth quarter, which was driven by a $14 1 million increase in accounts receivable.
A large amount of these receivables are with a master affiliate, which is an important client of ours given some of the delays in launching some of their program the timing of which was outside of their control. We have worked with them to extend the term of some of the receivable to be clear we have not reduced the amount we expect to receive from them just extended this time.
They are thinking about.
Half of these receivables are not due until the end of Q2.
We have received some payments so far in Q2 and expect to continue to receive payments as the quarter progresses.
Now I will turn the call back to Tony to provide an update on our strategic initiatives, including moderately project next to new jurisdictions and beautiful.
Thank you Bryan I'd like to start with the outlook for lottery.
As we know the luxury market in the U S presents a tremendous opportunity with over 100 billion in annual sales and only about 5% of these purchases occur online.
Even with our favorable customer acquisition costs, reaching all of these potential users.
Acquire a significant amount of capital not to mentioned time and other resources.
We believe that the affiliate model is core to our business in the most effective and efficient ways to expand our user base, which is why we are putting increased focus on growing our lottery link program.
By adding new Master and subsequently to the Lottery link program, we gain access to their sizeable customer base and some promotional programs. We can cost effectively convert these consumers into lottery dot com users.
To provide an update on the grocery promotional program.
This program expanded in April following a successful pilot program and has been well received by the grocery customers recently, our partner has discovered potential contractual conflicts with the regulator in that jurisdiction, where the program operated.
Together with our partner.
We have decided to pause the lotteries and campaign in this jurisdiction and are in discussions with them to pick up this program to more jurisdictions.
Given the initial success of given the initial success of the program.
We have spent many years building a reputation with USDA and do not want to jeopardize our or our partners reputation in exchange for short term gain.
So this particular campaign is expected to pivot to new jurisdictions. It has already provided a valuable case study that we can utilize and demonstrating lottery linked the ability for partners and brands to create recurring revenue streams through profit sharing and also engage their customers through compelling campaign.
We have had success communicating this value proposition to new potential affiliates and subsequently and look forward to activating new programs throughout 2022.
In addition to new affiliate, we have added a lot of the link.
Excuse me in addition to the new affiliates, we have added a lot of it linked since the beginning of this year. We are currently in advanced discussions with multiple new potential lottery linked partners from various industry, including national brands with both our retail and online presence.
Although lottery link has only been in existence for a few quarters. It has been a significant contributor to our growth and we are confident in its future ability to expand our user base and brand in a capital efficient manner.
Now for an update on project mix.
We have successfully launched phase one of metrics as a reminder, we expect phase one to significantly improve scalability security and the ability to quickly implement new product updates and launched new products.
These enhancements not only going to put users, but also improve our ability to scale the business and provide real time data for lottery link partner, so they can optimize their marketing efforts.
We have several new affiliates prepared and poised to send us new users now that project is operational.
With regards to new jurisdictions.
We are continuing to diligently.
Work on our expansion efforts and continue to anticipate that we will receive approvals to operate in five new domestic jurisdictions by the end of 2022, while we continue our efforts to receive the required approvals to enter these new jurisdictions, we are focusing our marketing efforts in existing states, where there remains a significant total addressable market.
As we scale in jurisdictions, where we currently operate we intend to use these key studies to demonstrate to other state how we can expand their greenfield and ultimately generate additional revenue for the state as well as an educational environmental and other causes that make that many lotteries contribute too.
Now moving to BDC.
We began expanding our direct to consumer advertising campaigns in April as we've outlined during our last call. These campaigns have launched on major digital media platforms and have been focused on targeting audiences, where our testing has indicated we received the highest return on investment.
As we all know jackpot sizes can have a significant impact on PVC tickets.
For example.
In the first quarter of 2021, both Powerball and Mega millions had a very very large jackpots over $1 billion.
This resulted in outsized gains that these large jackpots did not repeat to the same magnitude in the first quarter of this year. So we did not receive the same benefit.
However, when you compare 2022 details to our historical results for similar jackpot sizes, our sales have increased over 50%.
We believe a large driver of this strong performance is a result of new users. We have added through DTC campaign as well as new users a lottery link.
Importantly, since we've launched our customer acquisition campaign, our customers our customer acquisition costs have been trending in line with our expectations and only up a few dollars from our historical average of $4.
As we've long stated.
<unk> business model is focused on leveraging our strong brand to attract new customers at favorable cost and then retaining those customers and quickly bring them profitable.
While these campaigns have only been in operation for a few weeks. We are pleased with the initial results and are optimistic that we will be able to scale them as 2020 progresses and cost effectively expand our user base.
In summary, we've.
We've made progress executing on our strategic growth initiatives, we have set for the company and the whole team is focused on building on this momentum in 2022.
We believe that the foundation of our multi pronged growth strategy focused on profitability and a strong balance sheet, all combined to position us well for the future.
Jessie we'd like to open up the floor for questions.
Thank you speakers participants we will now begin the question and answer session. As a reminder, you May press the star key followed by the number one to ask a question over the phone to withdraw your request you May press the pound key.
Again, Thats star one to ask a question or the pound key to withdraw your request.
Speakers. Our first question is from the line of Brian Dobson of Chardan capital. Your line is now open.
Hi, good morning, Thanks for taking my question.
Good morning.
So.
I guess starting off on.
Marketing dollars I guess what are your what are your expected return on direct to consumer marketing dollars. You had mentioned that your acquisition costs are rising.
A few dollars per head I guess, how are you thinking about returns about deploy marketing dollars at this point.
Yes, so <unk> historically sales in Q1 or about 50% above ticket sales for similar sizes as Tony mentioned.
<unk> over the last 12 months, our annual growth profit per user has been around is turning around a little higher than that $35 and our retention rate is about 80%.
The LTV for the last 12 months is about $176. So it's not only scaling up a little bit a couple of dollars from our original $4.
We believe the.
The return on that until it's still pretty powerful with that level of LTV.
Okay. Thanks, and I guess, you continue to commit marketing dollars.
I guess when do you expect to see direct to consumer sales is this I guess.
How long will it take for these marketing efforts to take.
Take holds between call it deployment of cash.
Consumer is showing up at the door, how long is that.
Yeah.
Some of it now as he said a comparatively to similar jackpot sizes, we're already seeing some of that happen.
But on a larger scale, we believe we will start to see some of that trickle in on this quarter.
And then moving forward I believe it'll it'll continue.
Tomorrow.
The additional launch of Nexus are certainly going to help on that as we kind of discussed before the scalability of access and the ability for us to.
Gail that product allow.
Allows us to really push the marketing envelope.
And then have the availability available for that influx of new user base.
Alright, I guess.
Turning over to lottery leg.
You had mentioned suspending his initial campaigns there I guess could you can you give us a little bit more color on the reasoning you had mentioned that you had.
Potential.
Potential jurisdictional risk.
Yeah. The jurisdiction that we are in there was a.
Contractual.
So they had with the state lottery of that jurisdiction.
As a result, they wanted to slowdown and a pause in that jurisdiction and kind of pivot to the other jurisdictions that we havent really originally been discussing.
Okay, and I guess can you can you give us a little bit more.
More color on what that what that conflict was are you are you confident you won't run into the same issue in other jurisdictions.
It was unique to this particular customer.
It was.
Essentially exclusivity contract that they already had in place so.
That's not a common thing that I think will run up against but it wasn't at the dealer.
Okay. Thanks.
Yes.
And then the quarter benefited from expired bottler related credits do you expect.
Such expired credits to continue to benefit.
Revenues and earnings in the <unk> or for the balance of the year or are we seeing call. It the tail end of that.
Q2 will definitely see more of those being used and what we've seen in the past.
Issued out.
And.
We have a.
We have a really good relationship with the.
The affiliate that this is this is.
And I believe that even though this particular campaigned it hit a pause and is delaying a few things.
We have plenty of things now certainly now with Nexus launching thinking they have some type of capability.
Affiliates that they've had ready and fully but have been waiting for our scalability and availability of that capability and that will help here now in excess of that.
Yeah.
Yes, I guess given the size of the.
The expired lottery when credits do you think that that consumer will we will return and purchase additional fresh credits going forward.
Yes.
And then could you just could you just give us a little bit more.
More color on that on the new notes receivable.
I'm, sorry say that again.
Could you just give us a little bit more color on notes receivable you mentioned that you had.
Extended their receivables deadline for one of your key consumer a little bit about the reasoning is that in your your confidence level.
Yes.
Yes.
Yeah, Yeah as mentioned earlier some of the delays in launching some of the programs were kind of outside of the control and the.
The spirit of good partnership we are working with them to then what that Continental is Panther plate.
Okay.
Got it alright, well I think that I think that does it for us thanks very much.
One thing I'll just note on a laptop or two is that about half of the receivables that are they're not due until the end of the quarter. So the extension, we're providing us with the other half.
And I guess what is your what is your confidence interval on being able to flex the ones that were not extended upon.
We're confident that there is not going to be a partnership.
Alright, thanks very much.
Thank you participants I'll now turn the call back over to lottery Dot Coms panel for closing remarks.
Thank you again, everyone for joining today's call as you've heard we are pushing ahead with many exciting marketing and other initiatives and our focus on profitable growth. We look forward to updating you on our progress in our next earnings call. Thank you.
This concludes today's conference call. Thank you all for joining you may now disconnect.
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