Bragg Gaming Group Inc. (BRAG) Q3 2026 Earnings Call Transcript

Good morning, everyone, and thank you for joining us for Bragg Gaming Group's third quarter 2026 earnings call. If you have joined by telephone, please note that you can find our earnings presentation as well as the financial results press release on our website at investors.bragg.group. Please note that certain statements on this call may constitute forward-looking information or future-oriented financial information. A full explanation of these risk factors is available on the second side of our third quarter 2026 earnings presentation titled forward-looking statements, as well as in the press release issued this morning and our other public disclosure. Bragg disclaims any obligation, except as required by law, to update or revise any forward-looking Thank you. On this call, Bragg's Chair of the Board, Matt Davey, Interim Chief Executive Officer Morton Tonneson, and Chief Financial Officer Robbie Bressler will discuss the company's third quarter performance and provide a business update. We will follow that up with a question and answer session. I would now like to turn the call over to Matt.

Good morning. I am Matt Davey, Chair of BRAG. I will be brief and I will not be taking questions today. That is for Morton and Robbie. I joined the board this year as a significant investor and I want to speak directly to our shareholders, many of whom are rightly frustrated with how the company and its share price have performed. Last week, the board made a strategic leadership change. We thank Matt for what he's built. We are pleased to continue as a strategic advisor to the company. We've asked Morton to lead the business as interim chief executive officer because he knows our business, our customers, and our team, and because he's built, scaled, and sold businesses in this industry before. He has the board's full confidence. The board's priorities are clear, disciplined execution, operating cash flow, and a simpler and more focused business. We will report against them plainly, quarter by quarter, including when the news is not good. In addition, I know the balance sheet is front of mind for many of you. It is for the board as well, and I want it to be clear. The board and key shareholders are prepared to provide sufficient flexibility to the company so that Bragg has the balance sheet and headroom it needs to execute the plan the board has asked management to deliver. That sits alongside a range of operational and financial options the board and management are working through. As a significant investor, my interests are aligned with yours, and I intend to back this business. With that, I'll hand over to Morton.

Thank you, Matt, and good morning, everyone. Before I turn to the quarter, let me say why I took this role. The quality of what is already here is what makes this a fantastic opportunity. Strong technology, growing proprietary content, and a licensed footprint across more than 30 regulated markets. I have been chief operating officer since March, so I know the business, the team, and the customers. And I'm not starting from a standing start. My focus is execution, delivery for our operating partners, and running a simpler and more focused business. Turning to the quarter, third quarter revenue was 20.6 million euros, down 23% year over year. Adjusted EBDA was 3 million euros at a margin of 15%. That is a step down, and I want to be clear about what sits behind it. The majority of the decline is the anticipated roll-off of legacy platform contracts in the Netherlands, which we've been signaling for several quarters. The remaining reflects lower revenue in certain other markets on regulatory and customer-specific factors. Gross margin moved the other way, improving to 56% from 55% year over year. And from 52% in the second quarter. And that's deliberate. We have been willing to let low margin aggregated volume go where it does not contribute. On costs, the restructuring programs announced in January and July are now visible, with salaries and subcontractors down 30% on an underlying basis in the quarter. Two other items to cover. First, Brazil. On September 25th, the president signed a provisional measure suspending licensed online and casino gaming, and operators were required to stop on the 6th of October. We ceased supplying our Brazilian customers in line with that timeline. Brazil was 2 million euros of revenue in the third quarter, down 37% year-over-year, even before the suspension, as third-party providers moved to direct integration with operators. It is predominantly low-margin aggregated content, so its contribution to the gross profit and to cash flow is materially smaller than its contribution to revenue. In the first month after we stopped supplying, our gross profit margin improved, which partly offset the revenue we have given up. Second, Drayton, which we completed on July 22nd and have consolidated since. The studios paid their own way from day one. In the 71 days we have owned them, they provided 0.7 million euros of revenue and 0.3 million euros of profit before Cortex. We paid for all of it in shares, no cash left the business, and it arrived with 1.5 million euros of cash of its own. It is early, and it is a lot of work ahead, but on evidence of this first part of the quarter, it is behaving the way we underwrote it. With that, I will hand over to Robbie for the financial details.

Thank you, Morten, and good morning, everyone. All of the numbers I refer to have been rounded, so they are approximate. Our reporting currency is euro, and I will stay in euros on the call. For the benefit of North American investors, we have provided a U.S. dollar equivalent conversion in our press release this morning. Third quarter revenue was 20.6 million euro, a decrease of 23% from the third quarter of 2025. That figure includes 0.7 million euro contributed by Drayton from the July 22nd acquisition date. Excluding Bet City, which completed its migration off of our platform in May, and excluding Drayton, normalized revenue was €20 million, down 12% year-over-year. Gross profit was €11.6 million against €14.7 million in the third quarter of 2025, a decrease of 21%. Gross margin improved by 155 basis points to 56% from 55% and by approximately 450 basis points from 52% in the second quarter of 2026. Adjusted EBITDA was 3 million euro against 4.4 million euro in the third quarter of 2025. The gross profit decline of €3.1 million outweighed approximately €1.6 million of operating cost savings delivered in the quarter. On those savings, compensation decreased 30% on an underlying basis. On a reported basis, there was €5.7 million against €6.8 million. And that purported figure carried 1.1 million of restructuring-related termination costs, which are treated as exceptionals and sit outside of adjusted EBITDA. Taken together, the January and July programs have reduced the global workforce by approximately 27% since the start of the year. The July program is still phasing in, so more of that benefit lands in the fourth quarter and into 2027. I'm going to speak to our product mix as it explains the positive movement in our margin. Lower margin third-party content was 39% of revenue in the quarter, down from 52% a year ago. Proprietary content was 19%, up from 16%, and exclusive content was 23%, up from 14%. That matters because third-party content is the line that carries almost most of our content costs. Third-party revenue fell 6.1 million euro year over year, but because of its margin profile, that gross profit impact was a fraction of that. Put simply, the revenue we have lost is concentrated in our lowest value product line, and that is why gross margin expanded while revenue declined. Within proprietary content, revenue from titles deployed in Canada and the United States grew 7% year-over-year and 21% for the nine months. Proprietary content and our platform and turnkey businesses are together about one-third of revenue and a materially larger share of gross profit. Those are the lines we are protecting and investing behind. Turning to the balance sheet, cash at September 30th was 2.5 million euro. Our 6 million USD revolving credit facility with Bank of Montreal remains in place with 5.2 million CAD drawn on it to date. One related point on Brazil, at September 30th, we had 2 million euro of trade-related receivables due from Brazilian customers, about 11% of the total. We have collected half a million euro of that since quarter end. Remaining balances are with customers who we have relationships with in other jurisdictions, and we are confident that these will be collected. Final point on Brazil, as Morton mentioned, the impact of this market shutdown is minimal on our bottom line. Finally, I will be direct about our cash position. Capitalized development spend has been running ahead of our operational cash generation, and that is the gap we have to close. It is a central priority, and it is a measure that I would hold us to over the next several quarters. Moving to our outlook, as mentioned, suspension of licensed online gaming in Brazil took effect after the end of the third quarter. We are not currently aware of any significant changes in the operational conditions that applied during the quarter, other than as described in this morning's press release. Our near-term focus is discipline execution, improved balance sheet strength, and operating cash flow, and the development and deployment of our technology content and services with the objective of driving growth and delivering shareholder value. Morten will take you through what that means in practice. So I'll pass it back to him. Thank you.

Thank you, Robbie. Let me close with where we are pointing the business. Four things. First, cash. We will bring investment spent and operating cash generation into a better balance, and we will be more selective about what we build. Second, proprietary content. It is our most profitable product, and it is where we have the clearest right to win. More of our capacity goes there, and the Drayton Studios add to that capacity. Third, focus. We are a simpler business than we were 12 months ago, and we will get simpler. Where a product or a market does not earn its place, we will say so. Fourth. Delivering for our operator partners. We are asking our customers to take more of our own content, and that only works if it's good, and if it lands on schedule. That is their commitment. I've been in the business for eight months and in this seat for a matter of days, so I'm not going to stand here and give you a transformative narrative today. What I will do is come back to you with a clear view, and in the meantime, run the company with discipline. Robbie and I are now available to take any questions. Thank you.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mike Hickey with Stone X. Your line is open, Mike. Please go ahead.

Yeah, thanks. Hey, guys. Good morning, Matt, Morton, Robbie. Just curious, I guess, first topic. On the North American content growth, I'm just curious if we could give more color here on the slowdown of proprietary content growth to 7% this quarter, and where you see the biggest opportunity today, I guess, to gain share in North America.

Thank you for the question. So, overall, we see and have a very good relationship with all the top operators in North America, and we keep building out our relationship, and with the added on. Of new studios and new content providers that we have taken in from Drayton, and a few other opportunities, we see significant opportunities in growing in the start of the of 2027 and beyond. I don't know, Robbie, if you want to add some comments as well.

Yeah, thanks for the question, Mike. So we do, with the acquisition of Drayton, and our ability to draw from multiple studios and continually looking to really take good value in the distribution that we have in North America, you know, that's something we've invested a lot in. And we have good, good infrastructure to be able to get content delivered to all top operators. And being able to draw from multiple studios, which we have that ability with Drayton, and also looking for good other studios who can really capitalize on our distribution. That is something that's a huge plus for us. And we believe that we have a huge opportunity to take that further and use that distribution. You know, we have the same breadth of ability to distribute in the U.S. as a company like Light and Wonder, and there's no reason why we can't be a solid alternative to do that. And I really think that that's going to be something we make inroads in as we move into 2027 and beyond.

Thank you. Next topic would be guidance and investor confidence. I guess what needs to be done, Phil, before you think you can provide guidance again, and how do you go about rebuilding investor confidence and your growth opportunity?

Thank you for the question. So, maybe I'll give a few comments first, Robbie, and hand back to you.

Sounds good.

Right now, building the confidence is, to a large extent, about our ability to execute. So, first and foremost, we anticipate an improved cash flow profile driven by acceleration in revenue growth and our operating discipline as number one. And as Robbie mentioned, some of the cost reductions that were effectuated in July hasn't filtered fully through and will impact further in Q4 and 2027. And then I think it's important that also what we have is our major shareholders and board are providing full capital support to secure that we keep being able to do the things we need to do.

And just to ask, yeah, I actually see those two points very, very connected. To bring back confidence in our story, we need to deliver on the fundamentals that are most important, which is cash generation and showing that we can move the business on a like-for-like basis in a positive direction. So in terms of us getting to where we need to get to issue guidance, we will provide updates on that and thoughts on that in the new year. We want to make sure that we are putting realistic expectations and that we are confident in our ability to deliver. With Morton aboard, I guess, less than a week, we've already been doing a ton of work to look at what 2027 is going to look like. What is our execution plan? How do we get this business to perform to the level that we believe it can perform? And when we, you know, we will come back with our thoughts on that. But with Morton fresh in the position, we're going to give it a little bit more time before we start talking about 2027 and beyond.

Last topic from us guys would be artificial intelligence. If you could just speak to where AI is, I guess, saving you time and money today, and how you think AI could change the way that you create games moving forward.

Sure, let me pick that up. So I think it's fair to say that AI has been and will be transformative on all levels from how I personally work through to most of the teams from our legal team and operational teams through to the actual development teams. And we're seeing... Either significantly more output with the same or in terms of being able to deliver the same with a lot less in some areas, and which is one of the reasons why we've been able to implement all of the cost reductions and still ensure that we've been able to deliver to our customers and will be able to deliver to our customers in the future. We anticipate that that will continue and accelerate, and we'll be able to still deliver significant optimization opportunities well into 2027 and beyond. That's a key parameter for us to be successful. The second question was specifically in relation to games. It goes without saying that we are looking deeply into how AI can help us in the production of games, and we are confident that almost all aspects of game development will be able to be accelerated significantly, all the way through to the ability to do Q&A in a manner that ensures higher or even better quality of game being pushed out. And we see that in the... Coming months, as we progress with these changes in our way of delivering games, that will impact and improve our throughput of the number of games and all the amount of resources that we need in order to produce the games. Anything to add from your side, Logan?

No, agreed. All right. Good luck, guys. Appreciate it. Thanks, Mike.

Your next question comes from the line of David McFadgen with ATB. Your line is open, David. Please go ahead.

Oh, great. Yeah, a couple of questions. So I'm just wondering what sources of capital the company could draw and should the company need it? And I know Matt doesn't want to answer any questions, but I was just wondering, is there a certain maximum dollar value that Matt or other big shareholders would be willing to step up and support the company?

Thank you for the question. David, do you want to answer that, Robby?

Sure. So, David, similar to how we've raised capital in the past recently, we would look to what options make the most sense. We do have a loan facility. We do have a very good facility with BMO. What drives increases in that is increases in our receivable balances. So we do work with them to see if there is more liquidity there, but we would look to do what is most advantageous for us to bring capital. And I don't want to get ahead in terms of saying exactly what would be most advantageous for us to do. But the message is that there is options out there, similar to the private placement we did recently, that had both board members and members of management participating in that. So there is a firm commitment and belief that Bragg is... Cash-wise, yeah, we wish we had more liquidity to us, but where we're moving operationally, Morton stepping in as our interim CEO, and the assets that we brought on from Drayton, we're confident that there's a lot of good here. Share price might not reflect that now, and I understand that, but we are confident and we will do what's most advantageous for us when it comes to bringing in more capital.

Okay, all right, thank you.

Thank you.

We have reached the end of the Q&A session. I will now turn the call back to Morten Tonneson for closing remarks.

Thank you. Thank you, everyone, for joining our call today. This was a quarter of change, and there's more work ahead. The business has real assets and a licensed footprint across more than 30 regulated markets and a cost base that is materially lighter than it was a year ago. Our job is now execution. Thank you for your interest and your continued support.

This concludes today's call. Thank you for attending. You may now disconnect.