Q1 2022 Bragg Gaming Group Inc Earnings Call
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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 break gaming group first quarter 2022 results conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' 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 you need Spielberg Chief strategy Officer.
You may begin your conference.
Good morning, everyone and thank you for joining <unk> 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 every single member of our team Slovenia, Ballcocks 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.
Without that.
Ask everyone to turn to the second page and look at the Safe Harbor statement. Please familiarize yourself with the Safe Harbor statement on the second page as some of the comments that wanted and I will make today.
It will include forward looking statements as defined in the Safe Harbor statement.
With that I'll begin the presentation, and then I'll toss it to wanting to Nord hosted with me this morning to discuss the financials.
Today, we'll discuss our quarterly highlights will also describe the strategic focus and focus on the content production, though.
Ramped up.
We'll talk about M&A licensing in your markets Ronan will walk you guys through the financials and guidance and then we'll conclude with the outlook and conclusion at which time, we will open the line for questions. Thank.
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 need hard today.
First quarter 2022 revenue came at $19 4 million Euro that's 36, 4% growth on our first quarter of 'twenty one.
The adjusted EBITDA for the first quarter came in at 3 million euros, which is 26, 2% growth on our first quarter of 'twenty, one and of course, our gross profit margin increased by 490 basis points to 51, 8%.
Theres 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 , you will talk about that more in a few slides and then of course the continued successful rollout.
Of new market strategy, we're alive in the Czech Republic in Bahamas, and we continue our growth in the U K, Switzerland, and Spain reason.
Recent developments include going live in Ontario, Ontario market opened up or operators on April 4th and broad as a fully licensed gaming related supplier in this new regulated market we.
We also entered the regulated Portuguese I gave me market for the first time, a better click launch and we continue to grow our presence in the Dutch market announcing our third and fourth time customer the brand's 711 nation.
Yeah.
I wanted to shift gears and talk about expanding our strategic focus on content.
Started as I'm sure you guys are aware with the acquisition of Wall Street in June of 2021, and we continue to focus on content as it becomes a very important factor in our success story.
Wanted to talk to you about the benefits of the proprietary and exclusive content expansion on slide seven you'll see that we continue to invest in our in house gaining content into integrate new exclusive content providers, we breakdown our contradicts to category, we have our proprietary coffee because you can see on the slide slide seven at the top and then the.
Exclusive content providers at the bottom.
The expansion of our proprietary content is expected to drive gross profit and EBITDA margins for proprietary content from our in House Studios, we capture approximately 100% of the revenue.
Our content from parties studios, we capture about 25% to 35% of the revenue and we now have four in house content Studios, which include wild streak.
When it closes atomic slot lab and of course, the Orange 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 are built on our remote game server or not available anywhere else in the market, we have diverse and localized portfolio, where we can tailor to the European market with the North American market and then upon expansion throughout the market and of course were leveraging proven track record in bringing land based brand online.
Alex with a selection of new high quality online for studios.
So I want to focus on the proprietary studio update on slide eight and you will 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 Wall Street is broken down to online and land based.
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 will establish a pragmatic play last year resulted in total seven games that were released and currently lives. These.
James that are released by Wall Street show strong player retention and continued growth in the numbers.
Of course, there is also other success stories of the walls you go online content, which have been released in other markets like a dragon power, which had 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 Wall Street brand also resonates really well in the land based <unk>.
Wall Street land base has agreements with IGT with Chegg Asami. One game has already been released with IGT in 2022 with four additional games currently in development.
Our last three games that were released by the Wall Street gaming land based version.
Made it to the top 25, <unk> Nucor game report with increase in sales and the success of the IGT deals resulted in IGT actually expanding the deal with Wall Street for additional four titles, which will start developing and deliver in the months and the MDU to come.
There has also been for titles that launched this year with like a family, including the well known online brands Congo cash in fairy dust and these will go into the land base with <unk> in the second quarter and third quarter of 2022 and.
In addition to that as we discussed on our last earning call. We've also.
Created a new studio new in house studio called Atomic slot labs, the launch of the new studio with high quality content focusing on the European market. We released our first game Egyptian magic in the first quarter, which was a top five game ever released on our platform and our rgs or remote gaming server.
We also released very das, which launched in the first quarter towards the end of the first quarter of 2022 with increasing success.
Total of 11 pilots to launch this year Europe through the ophthalmic 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 and our ability to tailor gains for the European and North American market is that we're able to leverage well known brands exceptional.
And exceptional graphics to tailor to the different market the European market in the North American market with growing success.
Then of course finally, our Orange studio, which has been in operation for quite some time has been revamped with new leadership growing team in Thailand, and we revitalized the identity and quality of the game design and production given what we've learned from the Walter gaming in the ophthalmic slot labs fixed new games are planned to launch in this calendar year.
With our North American debuted also expected this year with custom use specific mass.
With that said I want to focus on slide nine on the game release roadmap, both the proprietary and 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.
You look at 2022.
You'll see that we're going to release 22 games at a 49 games that are proprietary gains in Europe , and the rest of the world and we're going to release 22 games out of 39 gains proprietary games in North America.
This is important because quality is more important than quantity for us.
A key point here, but 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 gain in a year puts us up with top game publishers in the industry.
To name one evolution gaming, which includes the evolution <unk> Red Tiger and Big time Gaming also announced by coincidence. The Dell released 88 games in 2022.
49 games that are released by us and Europe equate to almost one new game per week and operators are generally you 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 rollout our north American strategy a similar strategy.
For the North American markets with proprietary and exclusive content.
With that said I want to move on slide 10 to M&A licensing in new markets.
<unk> you on the spin transaction, we've talked about it a lot we're hoping to close I can assure everyone that we submitted all of the lost Documentations that were required for the Pennsylvania Gaming control Board and has been sitting on their desks for review and consideration. We are hoping to be included in the May 18 agenda for the Pennsylvania gaming control.
Once we get the approval from the Pennsylvania Gaming control board on the licensing of the individual and the entity will be able to close the spin transaction.
Despite the length of time that it's taking to close the spin transaction I assure you like I showed you in last quarters, we have been working as one unit with respect to the prospective deals in the North American market, we've been working with the lab, 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 orix technology, the whilst regain the orange games distributed through spin in the U S and of course in Ontario.
On Slide 12, you will see that we continued to rollout our content and technology and newly regulated markets in Europe , North America and globally.
New licenses and new market entries include the Ontario, Canada markets, which I discussed we obtain our supplier gaming license in March and the market rolled out as legal on April 4th and Bahamas, We obtain our supplier license in the first quarter and we've launched with island lock in March in the Czech Republic, we had it.
First market entry in February taking content live with the sign out group. We also have content agreement signed with micro game, which is Italy's largest distributor of online casino games and preparation for market entry later this year.
Got our Panama player account management certified for the Czech market and preparation for our player account management launch with Merck core later this year as well we announced in November of 'twenty, One and of course, we continue to rollout content in the United Kingdom launching with scaling up 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 'twenty to this of course paved 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 2002 as I mentioned, we're working tightly with Spain 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 of British Columbia, and we're hoping to leverage to spin the agreement with the BC LC and provide our content to the <unk> NBC in Canada.
As you guys are aware, we continue to work on licenses and certifications in various markets.
On slide 13, Youll see that brags addressable market continues to expand rapidly as online gaming companies grow aggressively and land based companies.
It looks to migrate online.
But I would expect to enter the north American market with our own proprietary content and exclusive content in the third quarter of 2002, we have started the rollout in Canada, Ontario was 808, we're hoping to get our final approvals from the U S regulators in this quarter and rollout our content proprietary and exclusive in the third quarter.
In the first quarter of 2022, <unk> 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 5 billion, which will include our existing markets, but also going live in Italy.
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 in the European market <unk> total addressable market will be at about $43 billion.
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 run in to discuss the financial and the guidance for the first quarter of 2022 and the rest of the year. Thank you Anne 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.
Loading of new strategic customers in various jurisdictions, mainly in the Netherlands in the Pam and managed service segment. In addition, we had a strong revenue performance from Wall Street gaming business, we acquired in June 2021.
<unk> API perspective, the total wagering generated by the gains in content ultra by Orix and Wall Street in the period was up by <unk>, 8%.
This 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 been affected during Q3 2021, but ever since we havent seeing a positive trend and momentum.
Also we noted last quarter, we have continued to retain 100% of our customers since 2019, and while our customer retention remained solid.
Top 10 customers had slightly change revenue for our top 10 customers was up by 12% to 75% of the total revenue compared to six 2% in Q1 2021, a trend we expect to improve over the next few quarters.
The gross profit increased by 57% to 10 million euros with margins, increasing as well by four nine percentage points to 51, 8%. This is primarily attributed to a higher proportion of revenue derived from our platform and managed services.
Second with <unk> proprietary games revenue, which has no cost of sales and this compares to license games and content, which have third party costs associated.
<unk> EBITDA for the quarter was up by 26% to 3 million euros with adjusted EBITDA margin, reaching 54, 3% decrease in adjusted by one 2% from the same period in the previous year, but with an improvement of five five percentage points from the previous quarter.
The decrease in margin is mainly as a result of scale and improvement in the product mix.
And managed services offset by the increased salaries and subcontractor cost as part of the corporation strategy of investment in its expansion of its software development products and senior management functions.
Now turning to slide 16, as I mentioned earlier entry into new markets in particular, the Netherlands has been exceptionally strong coupled with new clients wins and are ramping up with operators launched early in the year give us significant momentum to this financial year during the quarter the year 'twenty, one 'twenty two business revenue.
It was up by 15, 8% quarter over quarter, driven by new market launches existing client revenue. Excluding 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 while streak revenue was up by 35%.
The previous quarter as a result of strong performance of in house build games.
The underlying recurring group revenue, including license, Germany increased by 22% quarter over quarter.
You can see from the right hand side, we presented the Q1 'twenty two underlying business revenue mix that is moving into Q2 and for the whole year.
After offsetting the headwinds from the German market and the new regulatory changes took place in July 2021.
So overall, the new business pipeline, new market entry and more focused sales under the 2022 financial year revenue guidance.
Okay.
Slide 17, the gross profit expansion as you can see from the revenue and gross profit margin slide the gross profit margins in the growth momentum since Q2 2020 with 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 Pam.
Managed services and proprietary content, while improving gross profit margin and profitability as we indicated in the past platform and proprietary content products carrying no third party cost, which gives us the ability to scale up gross profit margins the perm in managed services.
Q1, 2022 gross profit margins.
As a result of the strong performance of the new Dutch customers.
And so I think we can put into demonstrated continued growth.
By substantial margin expansion, we highlighted the appointment of proprietary content play account management and managed services and this slide illustrates why it is so important for our growth and profitability.
Gross profit margin in 2020 was 43% and adjusted EBITDA margin with just 11, 9% as we were selling mostly third party gaming content, what time in minutes services accounting of less than 11% of the total revenue as we transition to higher proportion of platform managed services and proprietary content exchanges started.
Last year, you can see the effect in this quarter result, with a gross profit increase.
Eight three percentage points and adjusted EBITDA by three four percentage points, reaching 61%.
Gross profit margin and about 50% of adjusted EBITDA margins.
Into the future targets to achieve high gross profit of approximately 60% with adjusted EBITDA of 25% as a corporation operating leverage expected to increase given limited growth in employee costs and other overhead.
On slide 19 revenue adjusted EBITDA on this slide diesel how do we reconcile our operating loss to a positive adjusted EBITDA in this quarter adjusted EBITDA amounted to 3 million euros, and 15, 3% margin it gave us.
An operating loss of 0.2 million euros.
<unk> can be explained by the following noncash exceptional items depreciation amortization and increase of intangible amortization. That's part of the West Creek acquisition in June 2021. The ship is payment awards granted to senior management in Q1, 2022 compared to <unk> proposal <unk> RSC as an option.
And transaction acquisition costs costs associated with the Corporation M&A strategy moving to slide 20 at the end of March 2022 rack has a solid balance sheet and continues to deliver strong cash flow performance cash balance as of March 2020 was $18 4 million euros compared to 16 million at December 31.
During 'twenty, one with no debt facilities in place net working capital was $12 6 million euros compared to $11 6 million at the beginning of the year. We continue to project positive free cash flow from operation and as a reminder, our business strategy requires little capex related to technology and Thats required.
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 investment technology. The 2022 guidance, we reiterate our full year 2022 revenue guidance of 68 to 70.
2 million and adjusted EBITDA of nine 5% to $10 5 million euros.
With that I will turn the call back to Ganesh wondering that back to the operator, so unique and I can take your questions.
Thank you.
Thank you Ronan as everyone heard on this call. This morning from rolling in in the first quarter has proven to be our best quarter on record.
Right.
We continue our strong revenue growth, which is driven by underlying recurring business and new markets. We successfully launched new proprietary content studio and expanding our exclusive game roadmap. We continue to grow our total addressable market, which we project reached 21 5 billion.
By the end of the year, we're increasing our gross profit margin, our adjusted EBITDA margin, which are all driven by changing in our product mix and of course, we showed solid financial flexibility with a debt free balance sheet and so the strong Q1 2022 performance sets. The foundation for our continued successful execution of our growth strategy.
With that I want to thank everyone for joining us today and I want to thank the entire <unk> team for a very successful quarter and we can turn into the questions section now.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Our first question comes from the line of Neal Gilmer from Haywood Securities. Your line is open.
Yes, good morning, Congrats on a strong quarter guys.
Maybe want to start off with you you've maintained your guidance and obviously it was it was a great Q1.
Can you give us a little bit of color on the mentality of sort of maintaining that obviously, you're sort of conservative approach I get that it's early in the year.
But is there some seasonality that we should be expecting that a little bit softer Q2, and Q3 or.
Is the pending spin games acquisition, obviously this has taken longer to close than expected sort of factoring in until you sort of get that closed and have more visibility to to run through that.
Revenue line.
Yes. Thanks.
Neil and good morning, I think that you kind of answered. The question that you posed the answer is we're taking a conservative approach, but the reality is there is some seasonality that is built into our forecast.
Been a very strong quarter in <unk>.
We can say that the momentum is continuing into the rest of the year, but it's really early on in the year and it's difficult to predict what the rest of the year will look like on the revenue side. It's simple I mean, we're doing better than we were expecting and we are very confident and comfortable that we're going to.
And over deliver this year again on the EBIT side, we know that there is a lot of expenses that are going to be build into our U S. Rollout expansion. So we've decided at this stage to keep the.
The guidance as is for.
For now and then we'll monitor the situation. Once we finished the second quarter. If it continues to be as strong as we expect then we will update the guidance.
And then if I missed anything.
Couldnt agree more.
Good.
Okay, great. Thanks for that.
Just for my second question just to talk a little bit more about the strategy with respect to proprietary content versus.
Partnerships are you.
You had one one of your slides there sort of what your target profile is can you give us a little bit more color on sort of how you think about why you have that mix versus going more proprietary that obviously comes along with the higher margins is that just sort of diversify or just what youre thinking sort of a more longer term as you sort of establish that prescribe.
Terry content.
And so look if you if you recall on the slide on slide seven we talked about the benefits of proprietary and exclusive content in an ideal world of course, we want all the content to be proprietary to us, but there's limitations to what we can and can't do and if you think about the global expansion of the business, we need to have a tailored approach to <unk>.
And markets that we operate in whilst <unk> is doing exceptionally well in the markets that it is.
<unk> is doing exceptionally well in the markets that it is but there's other markets that are German speaking, therefore, gamma map does really well.
And then there's rollouts in the U S.
Land based companies like blueberry will resonate really well with the players and so to be versatile enough and to have a good approach to growing markets you want to have.
A lot of content that comes from mostly proprietary and exclusive but you have to have some sort of a growth strategy, where you kind of captured the rest of the world as well.
Okay, great. Thanks, very much so I'll pass the line congrats again on a great quarter.
Thanks Neil.
Your next question comes from the line of Matthew Lee from Canaccord Genuity. Your line is open.
Hey, good morning, guys, congrats on the quarter as well.
So as we've been talking about the growth drivers here. It seems like Germany is probably flat North America really hasnt taken off the ground yet so what's kind of pulling the wagon here.
Brian do you want to take that.
Yes. Thanks, good morning, good morning, Mathew Hydro so we had to again is an exceptional quarter.
Continuing with the fourth quarter, we said that the Dutch market is performing well more than we expected.
As a reminder, we have a couple of operators among them, we have two platform customers perform exceptionally well.
As you rightly said, Germany actually relatively flat as according to our expectations.
Haven't been approved yet only one was approved a few days ago waiting to see how the market is evolving.
We still have a lot of lineup customers still operating on the German market. So I think it's going to be when the news will come in the next few weeks hopefully.
We would be able to see probably more traction there.
And as you rightly said the U S market is still known operational my perspective waiting for the spin transaction to close and then we'll be full speed over there. So.
Just just to recap is the Dutch customers, which are performing well also we have.
Other jurisdictions as we starting U K is performing well.
Our expectations, we have other markets that we're enhancing and we are rolling out content in so it's all a mixture but with.
The highlight that the Dutch market is performing better than we expected.
And Matt I want to add one last thing.
It's a pretty positive.
It's a pretty positive that the Dutch sorry, the German government had issued a license so far which I think is on.
On track with what we were hoping to see some traction with licensing in Q2, and Q3 and for the rest of the year and so we are hoping that the relatively.
The relatively flat line that we forecasted for the German market will start picking up again once the licenses are issued and enforcement Kerry.
Alright, Thats, great color and then maybe on the North American front can you just give us an update on the progress youre seeing particularly in the Ontario market that just opened.
Yes.
The Ontario market has been.
Has been opened for months now.
We have one agreement that we discussed.
Market data to date agreement, we have a lot of other agreements in the background that we're working on and finalizing and so the agreements with the operators is one thing and the second side of this equation is licensing of licensing and certified our proprietary and exclusive content for the Ontario market.
And certifying our platform for the Ontario market, we're in the final stages of doing so.
And we internally believe that next month in June we will rollout a lot of big operators that everyone would know and some of our proprietary content that has been doing really well in the rest of the world.
Alright, that's great guys. That's it for me.
Thanks, Mike.
Thanks, Matt.
Your next question comes from the line of Ed <unk> from eight capital Your line is open.
Perfect. Thanks, guys and congrats on the quarter here I wanted to touch on your gaming platform strategy. I know you, obviously pointed out that youre seeing a lot of interest in the platform strategy in the Netherlands, but maybe what are some of your other jurisdictions that you've undertaken entered into do you think that the.
The platform strategy could become maybe.
More important to the overall strategy as we move forward.
So thats a great question I think that it's important to note that the I gaming platform strategy.
It is important for the business overall, because when you own the gaming platform. When you do the full turnkey solution youre getting a percentage of Rev share for all of the services that come around as well.
Talking about the content that you're talking about the managed services you are talking about the player engagement you are talking about the player account management and so it presents an immense opportunity to on the one hand increased revenue, but also increase their profitability.
Most of it is tech.
You mentioned correctly that in the Dutch market worked really well and I think it's a function of how the touch market transitioned from.
Great Black to white.
We see a similar effect in other European markets, we have a platform customer in the Czech Republic.
That is going to go lives and of course, we have a lot of platform customers in Germany waiting to go live once the regulation takes place for the North American market is slightly different because I think capital markets for the most part dictate four big operators to own their own platforms and therefore, you see the big guys Dropkin spend to bet MGM owns.
Or having exclusive ownership of the platform. It does give us an opportunity with land based operators going online for the first time and we're in various discussions with some of these and it also gives us an opportunity for some of the operators that are transitioning from a grey slash black market to a wide.
<unk>, we're their platform is not certified northern white market and there'll be looking for a platform that can carry them through the white market, so or at least.
The license market and so it gives us an opportunity to actually own a bigger value of the chain.
Great. Thank you I appreciate that for my second question I wanted to ask just about the Italian market entry you haven't mentioned I think on one besides that you intend on going live in <unk>.
Italian market later on this year given that Thats, the second largest gaming market in the.
In Europe , what are your expectations for that market do you would you have like a similar strategy related to maybe the UK market.
Given the similar levels of maturity in that market, but I'm, just thinking that could be a pretty big part of your strategy as well going forward, maybe your thoughts on that.
Yes, so youre right I mean, the Italian market is a mature market from a licensing and certification standpoint, it's slightly different than other markets that we operate in because most of the regulatory.
Burden is on the operators and therefore, it takes a lot longer for the operators to certified B to B providers, we've signed a deal with macro gaming.
To deliver our content to them, it's really on them to get all the paperwork and certification ready for launch we're expecting the launch to come.
As we said in the third quarter, but the approach in the Italian market, which is similar to the UK market. As you mentioned is to sell content and therefore going back to Neil's question localized content becomes really important because we don't typically produce content that we don't produce proprietary content for every market that were in there.
For partner exclusive studios become important in these markets, where we can get tailored content for these market that will resonate well with that with the players in that market.
Perfect.
Appreciate all the color congrats on the quarter guys I'll pass along thanks.
Thank you Dan.
Okay.
Your next question comes from the line of Sid <unk> from <unk> Securities. Your line is open.
Hey, guys. Thanks for taking my question.
Maybe if you can talk.
Some of the specifics regarding the regulatory hurdles.
On closing the spread acquisition I know you guys are working towards it.
Hopefully it should be closed by Q3 based on your guidance said during the call but.
Maybe if you can give us some specific as to why it's taken so long because I think initially when you announced this acquisition it was supposed to be closed in Q4.
So actually I really I really I'm really happy that you posed the question because I want to set the record straight and I think that when we when we did the transaction back in the day there was some indication from.
Past management that the transaction will close in Q4.
For those of you who are well versed in U S regulatory framework, especially as it relates to I gaming and sports betting you will know that in the U S. Licensing regime is very very complex and it's on a state by state level. So every state where we are applying for has its own regulator.
The DG in New Jersey, or the Michigan, a gaming control board or the Pennsylvania Gaming control Board or Connecticut. It is well known that Pennsylvania is.
Strict is very strict and licensing in Pennsylvania. It takes anywhere between 12 to 18 months in Pennsylvania. Unlike other jurisdictions say, New Jersey, Michigan. There is no such thing as a transactional waiver.
So in Pennsylvania, you actually have to get fully licensed and when I say fully license. It all personnel senior management, So CEO CFO COO myself and others and then every entity in the organization from the top call broad gaming group all the way to the R&D development company in March.
Uh huh.
With that said you can imagine that it's taken a long time to get all the paperwork sorted someone sent me a screenshot from the Pennsylvania Gaming control Board yesterday, we submitted our application to the Pennsylvania, The Pennsylvania Gaming control Board in August of last year.
And we've gone through the process of interviews.
Discoveries wherever else they need to do.
The process hasnt taken longer than what typically takes with Pennsylvania, I think it's about the expectations that were set to the market and so said. Thank you for doing it we were of the view that we're almost done we've done all the interviews we've submitted all the documents that have been sitting on the Pennsylvania gaming control personnel.
For approval and to be sent to the board, we're hoping to hear back from them and to be put on the agenda for the may 18th meeting and if we are on the May 18th meeting and we get the license then we will be.
Fully ready to close the spin transaction. So I. Appreciate the question I think it's good to set the record straight on that.
Okay, great. Thanks, Kevin Thanks for the color there that's really helpful.
And then just in terms of your.
Slide here.
I guess back half.
Of the year is more weighted towards like the growth through largely driven by North America, Italy, and some of these new market launch and when you talked about during the prepared remarks.
But just talking about the first half here can.
Can you maybe talk about if that's what will be driven largely by the U K and maybe.
If you have some initiatives going on there to sort of have some new launches in the U K market.
Maybe just talking about Netherlands, or how is how does the model lines performing.
Last few quarters has been very strong.
So if you can give some color on that that'd be great.
Yes, so I think that the answer is well the Dutch market has been performing really really well for two quarters and then it's pretty much has gone live in Q4 of 'twenty, one and it continues to perform really well in Q1 of 'twenty two.
As the Dutch market expands and when I say expanded the regulators issue more and more b to C. Licenses, we are actually onboarding more and more customers and so proportionately we feel that we're still a very big chunk of the market and I think about 20% of the gaming market in terms of the GTR.
Has been a very good launch and we've taken what we learned from that market and we are applying it to other markets. So we've launched.
In the Czech Republic, and it's been going quite well I mean, the U K market is different as we discussed earlier from from from someone else's question.
It's a mature market so the opportunity for Pam and I gaming platform.
More rare.
And so we're doing a content first approach in that market and it's very similar to the Italian market and so I think the growth that you've seen so far comes from the new markets that we've entered in 2021, the Dutch market to check market, some UK market and the growth that will continue in 'twenty two.
And onto 'twenty, three you'll see growth in the North American market, Ontario market BC market and of course, the U S. Once we close the spin transaction and get the licenses and the certifications to go live.
Okay, great. Thanks, and then just one last one for me.
How does this theres going for a CEO here any updates or progress to share on that front.
So based on the latest information that I have from our chairman to searches is almost done I think that they zoomed in on the top candidates and it's just a matter of.
Agreeing or negotiating on terms.
Based on what Paul Godfrey said to me.
It will be done this month.
Okay. Okay, great. Thanks, Alan Thanks for the color I'll pass along.
Thank you.
Your next question comes from the line of Lisa Thompson from Zacks Investment Research. Your line is open.
Good morning.
Oh, sorry.
Hi, Lisa.
Hi, there.
So I have a few questions about them first.
So it's a spin right from the date of May 18th two.
How long is it going to take for you to start booking revenues from Spain.
Ronan.
In terms of Liza do you referred to and with closing of the transaction or in terms of the accounting.
Well you said you were trying to get on the agenda for my 18th right if that happens.
How long does that take from that date to start killing.
I understand so ronen will correct me if I'm wrong, there is revenue in Spain already.
Right assuming that we are assuming that we are on the agenda for the may 18th and we closed. This month, we will start generating revenue as Bragg from spend on day, one because that revenue will become Brian revenue.
Yes, Okay, and then what happens after that as far as rolling it out.
So the plan for us we've been working closely with spend since we signed the deal.
We've we've gotten our platform certified we're working on getting the platform certified by the regulators and the labs, whether it's the DJ or July and then of course getting our content on their rgs and their content. Our rgs. So we can upsell and cross sell to their existing customers, which are the biggest.
U S operators, the drafting the fangled bet MGM or size of the world and so once we close the transaction and we're one of the same you will see cross selling and Upselling of our technology and our content to the spend customers.
Okay sounds good.
So ronen. So you say that Q2 is typically down 5% sequentially does the spin closing or any other factors change that this year.
No.
No Lisa.
We assume that that we will spin.
The spin will close we assumed the finished as of May what's the latest that we for the CMO.
It doesn't affect the spin one specifically this seasonality we applied for the main business.
But yes, we would normally see in Q2 Q3 slightly lower than than the quarters of the first and the fourth.
The spin there's no change in our.
<unk> will spin revenue consolidated effective for the first of June .
Okay great.
I was didn't really get to read the whole MBNA, yet, but I was shocked to see the Netherlands with almost half of revenues.
Is there any differences in gross margin between the geographies.
Or is everyone pretty much the same.
No no. So first of all it's a good question.
We are making better margins in territory and stable countries wherever you are rolling out a pen.
<unk> managed services. It makes it makes it all defense because when we distributing our content and also we are leveraging our technology and in services, we could increase that.
No.
But part of a wallet from a customer and actually increase our margin as you know and in managed services have no cost of sale.
Most of our proprietary content doesn't have any cost of sales.
Thats makes a lot of sense on other country, because they've mentioned, if we see U K U K and we're going to be in Italy. In the next few months and other market, we're selling only aggregating all of them to third party Rgs content definitely there's difference in your margin perspective.
So we.
If we look at the 2020 focus where we actually what we budgeted for the budget internally, we have new rollout the puck Pam customers in Netherlands, and other markets in Europe .
And in Germany would have as well so I know, Germany have the license yet, but the more platform, we have out there, especially in Europe , where where you're already familiar with 75 platform. We're using one particular license and localizing averaging lastly, we're operating we can increase the leverage signal.
Having said that.
Coming with exclusive content as we building without economic slowed and I was Street studios.
It's also a game changer, because it's not only we're getting by the margin the quality of the games proven to be top of.
The scale as we saying so.
Combination of the two it's not one against the other it's both of course, when we have a breakout managements estimates.
There is some kind of logic to push our content as well.
Relationship with those customers, we are running the operation for them. So it makes a lot of sense. So it's all ads on as one after another one plus one plus one plus one da Vinci XI in more than one five or six that's the concept.
Okay, Okay sounds complicated.
I you stated what your gross margin goals, where where do you think you can get to buy some fourth quarter.
So.
So we indicated in 2024, we're going to be 60%.
With margin and about 25% of adjusted EBITDA. If you look at this quarter, we finished around 52% and 50% of adjusted EBITDA.
Don't think that.
I think that by the end of the year, we aiming towards the 55 ish from 4% gross profit again, when we're rolling more of our games would have more customers like the U S government to rollout games. We believe we can push that currently it's quite low three 4% of our revenue.
Also when we have rollout of those play account management customers, which is the same question as I've said before we're going to see improvement in margins is going to be more towards the third quarter and fourth quarter and we might reach the 55 ish and then when we're going to have.
One of the slides Guinea presented about the game rollout when we have 12 games proprietary in Europe and in the U S. So 24 together next year, we're going to do in the double so what's going to happen more proprietary pumped and we're pushing it further out so we're going to get to the 50 768, that's how we exited building the building blocks of our gross profit margin with the gross profit margin would increase.
Revenue projection you adjusted EBITDA will automatically move from the 50% of the 25% because we're leveraging weird have enough everything is built in house, we have the content. We have the breakout room have the managed services.
And we have been time management already and to the entire organization building. So.
The operation costs will remain relatively flat growing slightly higher but then the scalability of the business will be will.
We'll be very well presented.
Alright, great. Thank you so much for that that's all my questions.
Thank you Lisa.
Okay.
And there are no further questions at this time, Mr. <unk> I turn the call back over to you for some closing remarks.
Thank you everyone I'd like to thank everyone that joined the call and we'll see you again in our second quarter.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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Sure.
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Okay.
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