Bragg Gaming Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 10 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the BRAD Gaming Group 2Q23 Earnings Conference Call. All lines have been I would now like to turn the call over to Yaniv Steelberg, Chief Strategy Officer. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining our Q2 2023 earnings conference call. I'm Yaniv Spielberg, Chief Strategy Officer for Broad Gaming Group. I'll be hosting today's call alongside my colleagues, CEO, Yaniv Sherman, we'll comment on our Q2 performance and Ronnen Kanwar, our CFO, will review and discuss our Q2 financial results. If you have not already done so, you can follow our earnings call presentation from our website at investors.

Speaker 1

Brag. .Group, again, that's investors with an s. Bragg. Group in the section called Latest Presentation. On this call, we will review Bragg's financial and operating results for the Q2 of 2023.

Speaker 1

Following our prepared remarks, we will open the conference call I'll start the call with some brief cautionary remarks regarding certain statements that may be made on this call. Certain statements made on this conference call and our responses to various questions may constitute forward looking information or future oriented financial information within the meaning of applicable securities law. Statements about expected growth, prospective results, strategic outlooks and financial and operational expectations, opportunities and projections rely on a number of assumptions concerning future events, including 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 we will conduct our respective customer 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 of company's control and which could cause the actual results, performance or achievements of the company to be materially different. There can be no assurances that these assumptions or estimates are accurate or that any of these expectations will prove accurate.

Speaker 1

For a complete discussion of these factors, please refer to our recently filed press release and other publicly available disclosure. I'd like to I'll turn the call now to Yaniv Sherman. Yaniv?

Speaker 2

Good morning. I'm Yaniv Sherman, Bragg's CEO. Welcome to our 2023 Q2 presentation. I'm going to touch a few notable highlights from our first half of the year, and then I'll let Ronen take you through our financial Turning to Slide 4, another busy quarter behind us in which we continue to execute our strategic vision for Bragg. We've been expanding Bragg's top tier partner network across Europe with landmark deals signed and new markets launched.

Speaker 2

Our Dutch dominance was complemented by a successful rollout in Switzerland. In parallel, we are progressing our content production with Bragg Studios taking its game development capabilities up a notch and producing it titles in growing cadence, we're delivering more differentiated content it started resonating across our different partners and markets and receiving recognition for it, such as our recent rollout of Devil's Lock. We also marked the launch of new games across our North American states, namely Pennsylvania, Michigan, Connecticut and New Jersey. I'll share more details around each one of these highlights shortly. I'd like to turn this now to Wamen, who will review our financial performance.

Speaker 3

Thank you, Yaniv, and good morning, everyone. I'll begin my comments on Slide 6. As Yaniv indicated earlier, the Q2 of 2023 was another successful step in our digital journey. We continue to execute against our mission and strategic plan, and we can see that in our financial and operational results. In the Q2, total revenue were up by 18.9 percent year over year to €24,700,000 continuing our growth momentum since the Q3 of 2021.

Speaker 3

The growth was mainly derived organically through our existing customer base launched in 2021 2022, in particular, the PAM and turnkey solution customers in the Netherlands, content offering and a solid revenue performance from Wall Street Gaming Studio customers. From an operational KPI perspective, total wagering generated by games and content offered by the group during the quarter was up by 31.2% from the same period in the previous year to €5,500,000,000 As you can see from the wagering chart on the right hand side, BRAX saw an ongoing positive trajectory from the Q3 of 2021, which demonstrates our ability to transform and diversify our operations. Gross profit for the quarter increased by 18.9 percent to €13,800,000 with gross profit margin remained at 55.9 percent level. The gross profit is primarily the result of increased revenue performance in all content products, while recording slightly lower Power and Managed Services revenues. Adjusted EBITDA for the quarter was up 51.3 percent to €4,700,000 with adjusted EBITDA margin reaching 19.2%, an improvement of 410 basis points from the same period in the previous year.

Speaker 3

The change in margin is mainly as a result of scaling revenue, while maintaining controlled investment in salaries and subcontractors cost is part of the company's strategy to expand software development, product and senior management functions. Operating income for the quarter amounted to €1,300,000 an improvement of about €500,000 from the previous year and net income also increased by €300,000 to €400,000 We are pleased with our current trading and we are updating our 2023 revenue guidance range to €95,000,000 to €97,000,000 and adjusted EBITDA range to €15,500,000 to €16,500,000 As you can see on Slide 7, the gross profit margin continuing a growing trajectory since the Q3 of 2021 due to the shift in Bragg product mix. We continue to execute against our missions and strategic plan, and we are scaling up our business in line with both our revenue growth and continued movement in product mix, as indicated on the right hand side of the slide, product mix has changed noticeably since Q3 of 2021, but the revenue scaling, it is also trending towards we will be providing a strong financial performance in the future. We will now begin the presentation by leading to improvement in gross profit margins and overall profitability.

Speaker 3

Gross profit increased by 18.9 percent to $13,800,000 with margin stable from previous year to 55.9 percent, while increasing by 2 40 basis points from the previous quarter. The 2nd quarter revenue growth was driven mainly by the Dutch Palm and Turkey customers together with the outperformance of our content offering, which is Bragg Studios, powered by Bragg and Bragg Hub Aggregated Content. In the Q2, Content revenue segment increased to €18,900,000 and representing 76.6 percent of total revenue Compare to 69.3% in the previous year, highlighting Bragg's positive execution of content strategy. Proprietary content deployment is positively progressing both in the U. S.

Speaker 3

And EU markets by increasing both distribution and games performance. And as Yaniv indicated, we have recently marked another key milestones with the launch of a newest tech stack in Pennsylvania with our 4th U. S. State To date, we're launching another strategic partner in Michigan and Connecticut. As we indicated in our previous quarters, we are targeting gross profit margin to exceed 60% by full year of 2025, mainly by increasing the proportion of revenue, which comes from proprietary content, PAM and 10Q solutions.

Speaker 3

Moving to Slide 8, adjusted EBITDA amounted to €4,700,000 against an operating income of €1,300,000 the GAAP was driven by the following non cash and exceptional items: depreciation and amortization the increase of intangible amortization as part of Wazdrick and it's been acquisition in June 2021 June 2022, respectively, and the increase in capital software development costs over the period. Share based payment, a reduction in the charge of awards granted to teams, including senior management during the period composed of DSUs, RSUs and share options exception costs, which is mainly associated with the discounted contracted relationship of several employees and gain on re measurement of deferred consideration is cost mainly associated with acquisition of Spin in June 2022 on the total outstanding deferred liability. Moving to Slide 9. As you see on the slide, we ended the 2nd quarter with cash balance €10,700,000 compared to €11,300,000 at the beginning of the year, with outstanding liability of $7,000,000 of convertible security. We expect to continue exercising the right to pay down the existing convertible security subject to ongoing management assessment.

Speaker 3

During the Q2 and post quarter end, the company made cash repayment of $2,000,000 leaving outstanding balance of $6,000,000 as of today's date. Our net working capital at the end of June 2023 is €8,300,000 it's excluding deferred consideration compared to €6,600,000 at the beginning of the year. From a cash flow perspective, for the 6 months ended June 30, 2023, a total of €5,200,000 generated from operating activities with underlying performance reaching €7,400,000 offset by negative movement working capital and income taxes of €2,200,000 A total of €3,900,000 invested in intangible assets, mainly related to the capitalization of software development costs in the period and a total of €1,300,000 used to finance activities, Which is predominantly related to repayment of loans in relation to the convertible security in the total of €900,000 looking forward, management are projecting a positive free cash flow from operations, while there is no CapEx of technology debt required in the business. In addition, management is confident there are no current financing or debt requirements needs of the business. Improving net working capital position and free cash are primary objectives, and we will explain that in the next slide.

Speaker 3

I would like to take this opportunity to reiterate Bragg's clear plan to further improve financial performance by increasing gross profit and adjusted EBITDA margins to enhance net working capital, there are 3 fundamentals: revenue, diversifying revenue mix, focusing on distribution of an in house studio content and maintaining a profitable relationship with our exclusive partners. U. S. Acquisitions and Exclusive Partner Studios support accelerated U. S.

Speaker 3

Market penetration And strength our long term relationship with our Tier 1 customers in various markets and positioning Bragg as must have iGaming content and tech solution for our partners. From a margin perspective, improving gross profit margin by optimizing product mix, leveraging our PAM aggregated and exclusive content optimizing investment in tech and people, ensuring efficient revenue growth capitalizing on synergies to lower cost base and utilizing global operational functions and committing to our long term strategy of exceeding 60% gross profit and 25% of adjusted EBITDA margins by 2025. And for net working capital, strong performance leading to increased free cash flow, optimize CapEx and operation expenditure, exploring options to credit facility or line of credit to enhance working capital position and continue to utilize free cash from operation to repay convertible security to avoid further dilution. With that, I would like to turn back to Yaniv to continue with our business operational update.

Speaker 2

Thanks, Wenen. In Slide 12, you can see our recent progress further expanding Bragg's partner network with new Tier 1 contracts and relationships. These deals give us access in multiple markets and brand portfolios in one go, considerably extending our addressable market and distribution. Our ability to swiftly integrate and certify our tech and products has proven to be a competitive edge time and time again, taking Bragg to the next level. The landmark contracts and launches with Fludders, PokerStars and Ajarabet, the global deal with 88 William Hill for their full brand portfolio are just two examples of how our near and long term strategy is being pursued with local and global partners, a stepping stone in our growth and ability to continue to proprietary title releases, which we expect to accelerate in the second half of the year and into the next.

Speaker 2

This already has a demonstrable effect on margin as our proprietary content portion of gross profit is consistently increasing, Frac Studios are continuing to make great progress taking a larger share of wallet across different customers. Our Bragg developed Fuse engagement platform, coupled with Some of our best performing titles like For the Lute and Big Roar has been powering much of this activity. A wide range of competitions and promotions has resulted in increased engagement and gained stickiness with players, and we're only getting started with this exciting product portfolio. Moving on to Slide 14, I presented our content led strategy in the past and we are starting to see the results of our persistent investment into it. Establishing a high end game production factory is a monumental task, basically setting up a new business within the existing one.

Speaker 2

The core competency developed in Bragg Studios to adapt land based titles and bring them online is beginning to bear fruit on the back of proprietary titles coupled with exclusive relationships with the likes of King Show Games, Blueberry, Incredible Technologies and more, the production and rollout of Devil's Lock, a hit game developed in partnership with Blueberry is a great example. The game was very well received by players on both sides of the Atlantic and mark Bragg's foray into the Alias rankings as a top 10 new title for June in the U. S. This is an important milestone as it provides Bragg Studios with credentials and data backed track record that are pivotal in the competitive landscape. Our content roadmap includes several more land based titles currently in development as we look to leverage on this early success.

Speaker 2

Turning to Slide 15. In past presentations, I've outlined the importance of gaining access to new territories, monetizing our superior tech and products with competitive time to market. The Dutch market is a great example as we became the leading online we have successfully launched our platform through our successful partnerships, driven by our PAM and turnkey proposition. As you can see from this representation of our growing footprint, we've recently marked another successful rollout in the Swiss market, this time behind our proprietary and exclusive content, signing deals and integrating with almost 100 percent of the market's operators in a relatively short timeframe. This naturally complements our ongoing rollout in North America, we're looking to run this playbook in other major markets such as Italy, the U.

Speaker 2

K. And Latin America just to name a few. It's also important to note that we're using our entire product portfolio, not just games, to gain access to growth markets, aiming to further diversify our revenue sources. This will continue to be a major focus for us to expand Bragg's global distribution and penetration. In my last slide, I wanted to leave you with some key points for the first half of twenty twenty three as we are already deep into the second half of the year into 2024, a record first half for Bragg on both revenue and adjusted EBITDA, including achieving positive net income.

Speaker 2

We're utilizing free cash flow to proactively address our convertible security and maximize shareholder value going forward. Management is focused on leveraging our 2023 momentum to continue executing against our strategy, namely U. S. Deployment and proprietary revenues into 2024. Commercial relationship negotiations are in flight with the aim of extending and expanding existing key partnerships.

Speaker 2

And we're pleased with current trading, updating our 2023 guidance for revenues and adjusted EBITDA. I wanted to thank you all for attending this presentation. Just before we take your questions, I would like to acknowledge the latest natural disaster, which occurred in Slovenia last week. Home to hundreds of braggers, they're now trying to put their lives back on track we support them and their families during these efforts. We'll be happy to take any questions you may have at this point.

Speaker 2

Thank you.

Operator

At this time, I would like to remind everyone in order to ask a question your first question comes from the line of Gianluca Tucci from Haywood Securities. Your line is now open.

Speaker 4

Hi, good morning guys and congrats on a Strong quarter. I was just wondering, firstly, can you extrapolate the growth for us? Is it mainly coming from new geographies or is it new customer logos in existing markets.

Speaker 2

I'm doing okay. All right. Well, it's a combination. We've seen actually good traction with existing customers, but we're also seeing new customers, we mentioned the Swiss market is one market that we've been able to get to market very quickly from contract to deployment phases. We've actually parallel processed some of these processes and efforts, so we've been able to enjoy the effect.

Speaker 2

That's just one example. And generally speaking, we've been very focused on shortening our development commercial development and deployment cycles. So this is a combination of logos or customers from For the 2021 cohort, but also newer customers on the back of 'twenty two and even a few from early 'twenty three mostly around content that are starting to I show the effect towards the back of the first half, but it is a combination of new and legacy customers.

Speaker 4

That's great. Thanks, Yaniv. And on that point in terms of product development, it seems like you're on a good cadence here of title development, how's the roadmap for the second half in terms of new content look like?

Speaker 2

We're very excited about the second half of the year and into 'twenty four. We've been very focused over the past, I'd say 9 to 10 months in streamlining further streamlining the content production. We've signed some very interesting partnerships. We have great assets. So we're on track of hitting our even exceeding our game development deployment roadmap for this year.

Speaker 2

And the first half of next year is also looking very exciting, both for the U. S. Focused content and the global content. Naturally a few of the titles have been deployed in several markets, but we're sort of also focusing some of the content development on specific markets and partnerships now that the data is starting to sort of accumulate and we're able to craft the game based on specific operator or market preferences. So you'll be seeing more versions of successful games.

Speaker 2

That's exactly what we were aiming for in terms of our content deployment strategy, but we have resourced up and invested greatly over the last So we're starting to see the results there. We'll probably stabilize the number of titles produced and then distribute them on a more ongoing basis into 2024.

Speaker 4

Awesome. Thanks, Geneva. And then just lastly from our end, in your press release, it talks about optimizing key customer partnerships. What does that Exactly, Min, if you can help us extrapolate that.

Speaker 2

Well, it's a few things. Naturally, with some of the markets that we entered into like the Dutch market, like well, let's not switch, which spells something new, but mostly the Dutch market and other European and operator relationships, these contracts or relationships are sort of are maturing. They're moving past the launch. The initial market share grab going into 2, 3, even 4 years in, and we're now restructuring or renegotiating some of them with the aim of extending and expanding these key relationships, we naturally have a few some of them are in flight, so I can't comment directly, but some of them are good examples like Flutter, our contracts with PokerStars and Jarabet and our new contract with 888 William Hill are good examples of existing relationships that were essentially extended and expanded, so we can now access more brands in more markets and also offer more products like Fuse and additional titles and partners content partners into one Contract touchpoint and that's our aim. We want to make sure that every contract that we sign maximizes It's part of the operational efficiencies that Don Hand discussed, signed once and deployed many, but that's just one example.

Speaker 2

So we're sort of in the mid flight of a few key partnership negotiations and we'll hope to be updating further on some of them.

Speaker 4

Okay. That's great color. Thank you, guys. And again, congrats on a great quarter.

Speaker 2

Thanks. Thanks, Anupam.

Operator

Your next question comes from the line of Matthew Lee with Canaccord Genuity. Your line is open.

Speaker 5

Hey, good morning guys. So I want to ask you about the confidence around some of your partnerships in Europe, particularly just given some of the M and A that's occurring in those markets. How are you feeling the long term opportunity around the?

Speaker 2

I think that we're we've been naturally been focusing on some of these conversations and relationships in the near past. We've been very focused on these dialogues. I can say that they've been going very well. I think that the overall target for everyone is to make sure that you sustain momentum. I think we've proven ourselves as a good partner and a platform and a team that you can rely on and ride with and really create an impact in markets, Central European markets are a good example of that.

Speaker 2

And I think that the focus right now is how do we preserve that momentum and help our partners compete and grow further in the near ending more long term. And I think that's the part of what my previous answer around key partnerships is, some of these contracts are getting into the second, third or fourth year and that's Exactly, our focus is prolonging them. I think by now we have good relationships and I think all of these conversations are held With a very good degree of good faith and the desire to preserve momentum.

Speaker 5

Okay, right. That's the color. And then in terms of margins, 19% on EBITDA was really much stronger than we expected. Now I know some of that's due to mix shift, but how sustainable is that high teen margin for 2023? And then maybe without getting into guidance, Do you expect that to continue to gain strength in 2024?

Speaker 2

Well, if you're referring to the 19% EBITDA margin, then our goal is definitely to maintain that level. And as Solon has outlined, our strategic goal is They exceed the 25% 60% gross profit threshold that we set initially we set it to 24%. We want to naturally exceed that To be more profitable into 2025 and beyond. So that's definitely something a very near term focus and we'll be looking to preserve that, naturally balance our growth needs. And if we need to invest Specifically around opportunities, we can do that.

Speaker 2

But we also want to demonstrate our ability to streamline and enjoy some of the synergies That we now have is a global organization. So that's definitely something we're looking to further expand. All right. Fair enough.

Speaker 5

And then lastly, Just in terms of the U. S. Market, can you just perhaps provide some updates into your progress there? Or even more preliminarily, Have you had any success with your games in that market?

Speaker 2

Well, first of all, we're progressing well. One of the key points around or the traits of the American market, the U. S. Market is that once you're in, the entry barriers quite high and we're definitely in, we're progressing. We're pushing very hard.

Speaker 2

This is naturally also dependent on our partners. So we have to work with them and some of them have in some cases unforeseen circumstances and we work with them to expedite some of the distribution. But so far, we've been working towards plan that we launched in Pennsylvania slightly ahead of schedule. And now we're looking to expanding each one of the states, each one of the 4 gaming states that we're live in and to further And both in terms of operators and share of wallet. In terms of the games, as I've outlined in my presentation, we've had some good start to roll out and then an even better one with some of the recent titles.

Speaker 2

So we've seen good success around some of our titles in the U. S, some of our exclusive relationships like Devil's Lot was mentioned, but it's not just that some of our proprietary games launched in Michigan and in New Jersey have seen good early success that we're now trying to Preserve in terms of momentum, but the games are definitely being adopted by players. I think the game development philosophy led by our Head of Content, Doug Fallon, out of Las Vegas is definitely showing that the direction that we want to go in and land based themes going online has been a great way to capitalize on it. So we're very excited about it and we're happy with the performance so far.

Speaker 5

All right. Thank you.

Speaker 2

Thanks, Meyer.

Operator

Your next question comes from the line of Jordan Bender with Bragg. Your line is open.

Speaker 6

Thanks for taking my question. I guess heading into the NFL season, that traditionally more Sports betting, but it is a big cross sell opportunity for some of the online operators in the United States. So what are you seeing in terms of like distribution from the from the operators as well as yourself. And I guess should we expect kind of an uptick in player adoption of your titles versus kind of years past?

Speaker 2

Well, that's a great question. Thanks, Jordan. Every year, we think that it will be a normal steady year and then we'll start looking I think the recent developments in the market, we've had some very exciting news over the past couple of weeks from some of our existing partners and some that we hope will be future partners soon. But I think what manifests itself at this point is they're all very excited about the upcoming NFL season, but I think what everyone is talking about right now is gaming Domino's line casino. And I think that was put to the forefront.

Speaker 2

I think the more successful partners For the ones that have been able to cross sell, just as you alluded to, I would expect on the back of the new partnerships formed in the market that we'll see an uptick in marketing, But we'll also see, I expect, a more increased effort on product and, in player cross sell into casino. And I think that it's a great time to offer U. S. Focused casino content. I think we'll see much more competition in the market.

Speaker 2

I'm putting aside any future gaming states even with the existing states. I think this season last season was more of a steady state. I think more Companies were looking to stabilize their marketing expenditure. I think with increased competition, we'll see 2 things, more marketing dollars And more cross sell because people understand that profitability is tightly coupled with the gaming and sports Synergy. That's why we're definitely putting more focused on deploying and improving and streamlining our deployment capabilities in North America, we want to be able to have a steady cadence of U.

Speaker 2

S. Focused titles going into the NFL season early next year, that's just one of my prime goals, so we can be a good partner and help them and support them in their long term profitability goes.

Speaker 6

Great. And then on my follow-up, you That or will there be kind of investment needed or will there be any choppiness that will get us to that margin target?

Speaker 2

I think that right now what we're seeing is that, and again, looking into a year over a year of operation and our sort of revitalized strategy and mission and values, a lot of it is around efficiencies. So we are constantly focusing on streamlining the business and doing more with existing resources. Having said that, what can affect that is our only opportunities. If we see opportunities mostly around content production, either accelerating or creating new or new partnerships or new types of games, we may elect to focus or put a focused investment into those areas, May have a near term effect. In most cases, it's hiring more people in a shorter amount of time.

Speaker 2

Having said that, the business has ramped up Quite significantly over the past, I would say, 3 years, even the last 2 years, and we're now looking at a more stable organization and again, this is now optimizing. We're still hiring people. We're still looking to grow, but in a more controlled fashion. So we utilize what we have. So I would think about this linearly unless there is some specific opportunity that we'll have a good reason to go the other way for a certain amount of time, but at this point, we're definitely focused on sustaining that trajectory.

Speaker 6

Thanks, Neve. Nice quarter.

Speaker 2

Thank you.

Operator

Your next question

Speaker 7

you noted in the press release that you're aiming to continue to pay down the convertible note that you have about $6,000,000,000 on today. Kind of based on the cadence that you talked about in the press release, it seems like that will be fully repaid sometime maybe in the Q2 of Is that a fair way to think about it?

Speaker 2

That is the current pace and that's, I think that again, Barring any assessment or unforeseen events that would be the linear progress of that process, yes.

Speaker 7

Helpful. Thanks. And then if I look at the revenues from the Proprietary Content segment, it looks like you had a nice uptick, it looks like it's record revenues for you there in that segment. It also looks like that was mostly from outside the U. S.

Speaker 7

So just I want to kind of get some more information on where that proprietary content is coming from today. And then at what point do you have distribution that you think you need In the U. S. To really start to ramp revenue on the proprietary content side in the U. S?

Speaker 7

Thanks.

Speaker 2

Thanks, Ed. Well, first of all, the European portion of proprietary revenues have grown significantly, but it's only because it's growing faster. We've enjoyed good progress. Nominally, the content, the proprietary new proprietary content grew on both sides. So we're seeing more revenues of proprietary content, both in the U.

Speaker 2

S. And on our R and D proprietary content, the Atomic Slop Lab And WildSpeak, in Europe, that content, both proprietary and exclusive content, I also enjoyed rapid growth. So it's sort of 2 rabbits facing each other in that regard. That's the reason why we're seeing faster or more proportionate growth on the European side. On the U.

Speaker 2

S. Side, satisfactory distribution would be when we have every operator As the market signed up for direct integration, we're not there yet. I think we're already at a situation as we've I explained in the overview that we've just provided that we have the vast majority or the majority operators under contract and either integrated into our new tech stack or the existing spin one. So we believe we already have enough distribution to start creating more impact with more titles on the operators, but I think that once we hit that inflection point north of and it's pretty easy to take top 6 or 7 operators with our new content. We should hit that 90% mark in each one of those states.

Speaker 2

I That will be a fantastic achievement that will allow us to really crank up the revenue effect of these games. We're pretty close, but we're not there yet. And we're also looking besides the actual distribution, we're also looking to deepen those relationships So we can actually deploy more content faster and help the operators monetize those games Better, it's not just about deploying the games. It's also creating traction with the players, promotions, all sorts of marketing activities, in some cases, some exclusive efforts and some features that you're building into games that are focused on specific markets, just to name a few things. So it's a bit more complicated than just distribution, but we definitely have enough challenges ahead of us in that regard.

Speaker 2

We have a lot of runway In the U. S. And I will take that inflection point toward the back of the year and into the next.

Speaker 7

Great. Thank you for the color. Thanks a lot.

Operator

Your next question comes from the line of Jack Vander Aarde from Maxim Group, your line is now open.

Speaker 8

Okay, great. Good morning, guys. Solid results. Thanks for taking my questions. So, Yaniv, you guys had another strong top line quarter, slightly raised the 2023 guide.

Speaker 8

You launched 30 new games in the first half, plan to launch another 40 in the second half. It seems like your implied second half outlook is rather conservative for all this momentum, are there any notable headwinds that you're being cautious of in particular that you'd speak to?

Speaker 2

Well, I think that we've sort of touched on it with some key partnerships discussions that we've been having recently, we've had a long and hard discussion around that. We thought we'd be prudent to take those into considerations while we're assessing the second half of the year. Having said that, we have decided to update our guidance on both revenue and adjusted EBITDA considering or including an assessment The potential effect there, so we need to balance those two things out. We see good momentum In the 1st few weeks of the second half, so we're confident in our guidance at this point. But again, we had to take these discussions some of these discussions into consideration.

Speaker 2

So we have a line of sight into to the outcome of those discussions and naturally we're aiming to expand and expand those. But again, we wanted to I would I'd love to have shared more details at this point, but because they're in flight, we'll need to wait a little bit longer. And once we have more information, we'll be able to share it. But I was just balancing between the 2, the current momentum and potential new deals that we'll be securing hopefully in the near term.

Speaker 8

Okay, great. That's helpful. And then just one more for me. Maybe in terms of ranking your key markets, considering you've only kind of recently entered the U. S.

Speaker 8

And that will continue to ramp significantly, Dutch market has been your top market. I know in the past, Germany used to be your top performer historically, and that's kind of been on pause. Just maybe as you go forward and things your recent, I guess market penetrations and expansions continue to ramp. Just as you look in 2024, 2025, can you just help us understand what you see or envision as your top markets?

Speaker 2

Well, first of all, Bragg has we deployed its latest tech stack and content, as you've mentioned recently, in 22 in the U. S, but the Spin and Wildtree that were acquired and now part of the Bragg family have been operating in the market almost at its inception. So I think we've had a good Track record that we've adopted sort of assimilated into our DNA that we're trying to leverage on. And yes, we have a lot of runway in that market. Looking ahead on the back of our existing top markets, I believe that we have so much runway still besides the U.

Speaker 2

S. In the U. K, which is still the single biggest, as you break down the U. S. Into states, the U.

Speaker 2

K. Is still the single biggest online regulated market We're just getting started there. We've seen some great progress with our proprietary content in that market, but we have so much to do there. Italy, the 2nd biggest market is also a prime target for us and we want to start Seeing progress with content and other products in that market. So I would say that and then continuing our position in the Dutch market and latest license securing and or that license in Sweden, I would definitely see us or look for us to be in 20 24, 25 and beyond that, to have those Western European, Central and Western European high on our our marketplace and further diversifies.

Speaker 2

So it's the U. K, it's Italy, it's Sweden. The beauty around these markets is that some of the deals that we signed that I mentioned like Focus RS and 888 already cover all these markets in Once Loopso will be looking to utilize and leverage on those new contracts to do exactly that, to be able to develop points and deploy many, Canada, I think, is another runway. Ontario, we've again, we've only Seemed some early success there, but that market should be up to be a major North American market and the other provinces are also higher on our list. And our recent deployment in Mexico and Latin America, I think Brazil has recently regulated sports gaming, So main markets there, the top 2 or 3 markets in Latin America.

Speaker 2

So we'll be looking to include each one of these markets, especially around content and content delivery and turnkey services in our longer term mid and longer term deployment plans, we've already had some good initial success in each one of these markets. We've stuck a flag in, Now we need to start expanding our presence in them so we can further diversify, but these would be our top focuses for the next 2 or 3 years.

Speaker 8

Okay, excellent. I appreciate the color and again, solid results. Thanks.

Speaker 2

Thank you.

Operator

Our next question and final question comes from David McFadgen of Cormark Securities. Clement, your line is now open.

Speaker 9

Okay, great. Yes, I was just maybe another question on gross margin. I'm just wondering what it would be contingent upon to get to the It's in a matter of just keeping the cost,

Speaker 2

but I would think that would

Speaker 9

be more For the EBITDA margin, sorry, Daniel?

Speaker 2

Yes. Dave, can you just repeat the question? You're a bit cut off.

Speaker 9

Sorry, what would the what would it take or what is it contingent upon to achieve the gross margin of 60% that you're looking at to achieve in fiscal 2025?

Speaker 2

Wanda, you want to take that?

Speaker 3

Sure, David. Good morning. How are you doing? So, as we indicated in the past, the success to getting 60% and above all depends on how we can, a, grow our revenue, but more importantly, to grow our proprietary content. As you can see in the last couple of quarters, the top part of the bar on Slide 7, we're growing not only the nominal value of the revenue, but we're also growing the proprietary content itself.

Speaker 3

I believe once as Yaniv indicated, there's going to be more, how to say, accelerated revenue in the U. S. And our titles will be Accepted well. We've already accepted well, but it will be much more distributed through all our network, including the Tier 1 customers And at the European and the U. S.

Speaker 3

Side, this 9.7% could be easily 10% to 15%. That will be the differentiator to hit the 60%. Not to mention that we still keep the PAM because PAM and managed services are keeping your margin very high. Aggregate Content improvement of the commercials and scalability with customers. So those revenue buckets will also come with better cost of sale or better gross profit and that will automatically mathematically, we're just 4% off from the 60%.

Speaker 3

And I think it's just a matter of couple of quarters that we're going to be there. We said it 2 years ago, we're going to be 60% by 2024 and above that by 2025. And I think that's the only items we are focusing on because that's going to bring us higher. And of course, that will also increase our adjusted EBITDA margins. As Jenny mentioned before, we're investing, but we're not heavily investing only unless we have particular opportunities.

Speaker 3

So we're keeping our costs quite controlled, and hence, we managed to achieve 19% of adjusted EBITDA this quarter, 70% last quarter and we're progressing on that side as well.

Speaker 9

Okay. And then just a question on the Georgian market. Is that a new market for you guys? I'm just wondering how optimistic you are about that market.

Speaker 2

It is a new market for us in terms of our content and our products. Georgia market has proven to be quite sizable, it's not Tier 1 European or Asian market, but it's definitely a market crunching above the toy class over the last few years. It's all addressable market there. And I think it was twofold. 1 is, we're partnering with a market leader.

Speaker 2

Jarvett is clear market leader and it's always good to hit the ground when you're riding the biggest horse. And it was another milestone in our relationship with the Flutter Group. Again, to my point around single point relationships that sort of they're not duplicated because in some cases you need to do a little bit more overhead in deployment, but generally speaking, accessing the family, some of the Tier 1 operators are now a family of brands in markets, and this is a good example between the Jarabed and the PokerStars to building that relationship and start deploying our more frequently across more of these brands. So Agara Bet is definitely doing a great it's been in the works for quite some time And we were very excited to be launching in that market and also about to be short timeframe.

Speaker 9

Okay. All right. Thanks, guys.

Speaker 2

Thank you.

Operator

I will now turn the call back over to Chief Strategy Officer, Janus Bill Baird for closing remarks.

Speaker 1

I would like to thank all of you guys for joining our call today, we look forward to hosting you on our next call for Q3 of 2023. Have a great day, everybody.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Bragg Gaming Group Q2 2023
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