NYX Gaming Group Limited Reports Second Quarter 2017 Results

Revenue of $61.0 million, up 73.3% year-over-year, and Adjusted EBITDA of $17.5 million

LAS VEGAS, NV, August 22, 2017 – NYX Gaming Group Limited (TSXV:NYX) (“NYX” or the “Company”) today announced financial and operating results for the second quarter ended June 30, 2017. All amounts expressed are in Canadian dollars unless otherwise noted.

“We saw positive momentum in the second quarter with sequential improvement in revenue, adjusted EBITDA, and adjusted EBITDA margin from the prior quarter,” said Matt Davey, CEO of NYX Gaming Group.  “Our development pipeline remains strong and we continue to sign new customers at a steady rate, as our sportsbook, gaming, and content offerings are resonating with customers and driving scale and operating leverage in our business.”

Second Quarter 2017 Highlights

  • Revenue of $61.0 million, or growth of 73.3% year-over-year;
  • Organic revenue growth of 50.6% year-over-year, excluding the impact of the OpenBet and Betdigital acquisitions in May 2016;
  • Royalty and license revenue of $31.9 million, or growth of 53.1% year-over-year;
  • Gross profit of $51.9 million, or 85.0% gross margin compared to 87.3% gross margin during the second quarter of 2016;
  • Adjusted EBITDA of $17.5 million, an increase of 66.7% over the prior year period;
  • Net cash provided by operating activities of $11.5 million compared to net cash provided by operating activities of $3.1 million during the second quarter of 2016 and $8.4 million during the first quarter of 2017;
  • Signed 18 new agreements for the Open Platform System (“OPS”) and Open Gaming System (“OGS”);
  • Launched OGS content across 13 new client sites; and
  • As of June 30, 2017, held development commitments with 36 customers that have not yet launched.

Second Quarter 2017 Operating Results and Highlights

During the second quarter of 2017, NYX signed 18 new agreements for OGS and OPS and successfully launched OGS content across 13 new client sites including Soft Swiss, JAXX, Sekabet, Casino Gran Madrid, and Goldbet. NYX also launched 21 new slot games on the OGS platform including games with PokerStars NJ, a Stars Group brand in New Jersey, USA.  This extends the Company’s long-standing partnership with The Stars Group as leaders in digital gaming in regulated territories.

As of June 30, 2017, the development pipeline remains strong as commitments were held with 36 customers that had not yet launched.  As of August 15, 2017, NYX has signed 16 new deals and launched five new clients since June 30, 2017.

On July 21, 2017, NYX closed an agreement with a leading alternative credit provider to refinance its existing debt and amend its existing £135.0 million term loan facility.  The Company added €74.9 million in term loan facilities and expanded its revolving credit facility from £5.0 million to £15.0 million.  As part of the debt refinancing, NYX redeemed all of its outstanding 10.0% Senior Secured Series A, B and C Debentures, repaid its $10.0 million 6.0% unsecured debenture, and repaid all outstanding amounts of its revolving credit facility. The resulting denomination of NYX’s debt now more closely matches geographical revenue concentration, and the Company’s estimated total annual cash interest expense has been reduced from approximately $28.0 million to $23.0 million going forward.

Summary of Results

The increase in revenue and gross profit for the three and six months ended June 30, 2017, compared to the prior year periods, was attributable to the results of operations from OpenBet acquired in May 2016, and new customer launches and development projects. The OpenBet acquisition has brought significant growth to the Company’s online sportsbook product offerings and presence in the online gaming industry.

Summary of Financial  Information

  Three Months Ended Six Months Ended
     
CAD$ (in 000s, except per share) June 30, June 30,
  2017 2016 2017 2016
 

Royalty and license 31,904 20,841 62,810 38,210
Professional services 28,815 11,885 56,547 13,331
Social gaming 295 2,485 580 3,322
 

Total revenue 61,014 35,211 119,937 54,863
Gross profit 51,856 30,754 103,929 46,996
Gross profit margin 85.0% 87.3% 86.7% 85.7%
Adjusted EBITDA 17,535 10,517 34,338 15,315
Adjusted EBITDA margin 28.7% 29.9% 28.6% 27.9%
Net loss (21,065) (36,543) (18,542) (45,680)
Basic and diluted loss per share (0.19) (0.72) (0.17) (0.90)
     
  June 30, December 31,
  2017 2016
Total assets 743,440 752,376
Total non-current liabilities 481,634 472,017

Revenue

Revenue for the three months ended June 30, 2017 was $61.0 million, up 73.3% compared to $35.2 million for the three months ended June 30, 2016. All revenue categories, with the exception of social gaming, grew primarily as a result of a full quarter contribution from the Company’s acquisition of OpenBet in May 2016, which provided $32.9 million for the three months ended June 30, 2017 versus $16.5 million for the three months ended June 2016. Other revenue contributors were new OGS customer site launches, new NextGen and third party gaming content on the OGS platform, and new client site launches of the Company’s OPS platform. Social gaming revenue for the three months ended June 30, 2017 decreased due to the Company’s divestiture of the social poker business in June 2017.

Gross Profit

Gross profit increased by $21.1 million, or 68.5%, for the three months ended June 30, 2017 to $51.9 million, compared to $30.8 million for the three months ended June 30, 2016.  The increase in gross profit was a result of  a revenue increase  from the underlying core  casino business  and the revenue impact from acquisitions. Gross profit margin was 85.0% for the three months ended June 30, 2017, compared to 87.3% for the three months ended June 30, 2016. The decline in gross margin was the result of higher payments to third party gaming content providers on the Company’s OGS platform.

General and Administrative Expenses

General and administrative expense, which includes marketing, administrative, and personnel costs, increased by $13.3 million to $36.6 million for the three months ended June 30, 2017, compared to $23.3 million for the three months ended June 30, 2016.  The increase was due primarily to the higher operating and personnel expenses associated with the Company’s acquisition of OpenBet.

Interest Expense, Fair Value Adjustment to Derivatives and Foreign Exchange

Interest expense was $11.0 million for the three months ended June 30, 2017, compared to $7.1 million for the three months ended June 30, 2016.  The increase in interest expense was due to additional borrowings related to the financing associated with the acquisition of OpenBet during the second quarter of 2016.  The current period was comprised of interest expense, net of interest income, plus amortization of debt issuance costs.

During the three months ended June 30, 2017, the Company recorded a loss on the fair value adjustment to derivatives of $13.6 million, compared to a gain of $8.3 million for the three months ended June 30, 2016. The loss was due primarily to the change in fair value of the embedded derivatives related to the Company’s debt instruments and equity conversion feature in the preferred shares.

Derivative financial instruments are recorded at fair value using the Black-Scholes options pricing model, Monte Carlo Simulation model, or a binomial option pricing model as appropriate. The main factors driving the change were volatility in the Company’s stock price and strike prices greater than the current stock price. As of June 30, 2017, the derivative liabilities and asset were valued at $29.8 million and $4.5 million, respectively.  While there is no cash impact to these changes, the volatile nature of the Company’s stock could cause large changes in value from period to period.

Foreign exchange gain for the three months ended June 30, 2017 was $1.0 million, compared to $0.4 million for the three months ended June 30, 2016.

Net Loss and Net Loss Per Share

The Company’s net loss for the three months ended June 30, 2017 was $21.1 million, compared to a net loss of $36.5 million for the three months ended June 30, 2016.  The current quarter net loss was primarily the result of a $13.6 million loss on fair value adjustment to the derivatives, $11.0 million of interest expense, net, and $7.7 million amortization expense for the three months ended June 30, 2017.  The prior year quarter’s loss was driven by a $23.9 million loss on exchange of debt and $13.4 million of acquisition and restructuring charges related to the integration of OpenBet and initiatives for the combined company going forward, partly offset by an $8.3 million gain on fair value adjustment to the derivatives.

Basic and diluted net loss per share were $0.19 for the three months ended June 30, 2017, compared to basic and diluted net loss per share of $0.72 for the three months ended June 30, 2016.

Adjusted  EBITDA

To supplement the Company’s condensed consolidated financial statements presented in accordance with IFRS, the Company uses Adjusted EBITDA, a measure they believe is appropriate to provide meaningful comparison with, and to enhance an overall understanding of, their past financial performance and prospects for the future.  The Company believes Adjusted EBITDA provides useful information to both management and investors by excluding specific expenses and gains that they believe are not indicative of their core operating results.  Further, Adjusted EBITDA is a measure of operating performance used by management, as well as industry analysts, to evaluate operations and operating performance and is widely used in the technology and gaming industry.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for measures of financial performance prepared in accordance with IFRS.  In addition, other companies in NYX Gaming Group’s industry may calculate Adjusted EBITDA differently than the Company does. A reconciliation of net loss to Adjusted EBITDA is provided in the table below.

The Company defines “Adjusted EBITDA” as net earnings (loss) before interest and other non-operating income (expense), income taxes, depreciation and amortization, impairment charges, share-based payments, gains and losses on the revaluing of contingent consideration and derivatives, foreign currency gains and losses, acquisition and restructuring costs, and other gains and losses.

CAD$ (in 000s) Three Months Ended June 30,   Six Months Ended June 30,
  2017   2016   2017      2016
 
 
Net loss $ (21,065)   $ (36,543)   $ (18,542)   $ (45,680)
Net tax expense (benefit) 2,917   1,281   3,587   (483)
 
Loss before tax (18,148)   (35,262)   (14,955)   (46,163)
Depreciation and amortization 8,449   6,261   17,095   10,723
Interest expense, net 10,985   7,062   22,107   9,428
 
EBITDA 1,286   (21,939)   22,247   (26,012)
Impairment of intangibles   166     6,651
Acquisition and restructuring costs 1,958   13,419   2,642   16,119
Foreign exchange loss (gain) (1,106)   (403)   235   (478)
Fair value adjustment to derivatives 13,595   (8,313)   3,745   (5,267)
Loss on exchange of debt   23,856     23,856
Revaluing contingent consideration       (6,077)
Share-based payments 1,031   345   1,854   472
Other expense 771   3,386   1,615   6,051
 
Adjusted EBITDA $ 17,535   $ 10,517   $ 34,338   $ 15,315

Adjusted EBITDA was $17.5 million for the three months ended June 30, 2017, compared to $10.5 million for the prior year period.  As the acquisition of OpenBet was completed on May 20, 2016, the current year period was positively impacted by a full quarter of contribution from OpenBet’s operations. Other expense for the three months ended June 30, 2017 included one-time costs primarily consisting of legal expenses and the business divestiture of social gaming.

Financial  Position as of June 30, 2017

  • Cash and cash equivalents (including restricted cash) of $35.8 million;
  • Total assets of $743.4 million;
  • Total liabilities of $562.6 million;
  • Total equity of $180.9 million; and
  • Total borrowings of $330.5 million.

Second Quarter 2017 Conference Call & Webcast

A conference call and webcast to discuss NYX Gaming Group's second quarter 2017 results will be held on August 22, 2017, at 5:30 a.m. PT (8:30 a.m. ET).  Matt Davey, CEO of NYX Gaming Group, and Eric Matejevich, CFO of NYX Gaming Group, will host the call. A question and answer session will follow the presentation. Interested parties are invited to join the call by accessing a live audio webcast at http://bit.ly/2vgVkxx or by dialing (647) 427-7450 or (888) 231-8191 prior to the scheduled start of the call. A replay of the conference call will be available by dialing (855) 859-2056 and using the reference number 65220945. The replay of this call will be available until August 29, 2017.

The Company will make NYX Gaming Group financial information for the quarter ended June 30, 2017 available to shareholders, prospective investors, broker-dealers and securities analysts on August 22, 2017.

Financial Statements and Management's Discussion and Analysis

NYX Gaming Group's interim condensed consolidated financial statements, notes thereto and Management's Discussion and Analysis for the three months ended June 30, 2017 will be available on SEDAR at www.sedar.com. Additional information relating to NYX Gaming Group and its business may also be found on SEDAR and the Company's website at  www.nyxgaminggroup.com.

Disclaimer

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Caution  Regarding Forward-Looking Statements and Non-IFRS Financial Measures

Certain statements included herein, including those that express management's expectations or estimates of the Company’s future performance, constitute “forward-looking statements” within the meaning of applicable securities laws. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements.   Forward-looking statements are often identified by terms such as “may”, “will”, “would”, "should", “could”, “expects”, “plans”, “anticipates”, “believes”, “intends”, “trends”, “estimates”, “likely”, “predicts”, “potential”, or, in each case, their negative or other variations of these words or other comparable terminology, are intended to identify forward-looking statements. Forward-looking statements are based on certain assumptions regarding the Company's expected growth, results of operations, performance, industry trends and growth opportunities.  Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management at this time, are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies that could cause actual results to differ materially from those expressed or implied in such statements.  Because of the factors described herein, investors are cautioned not to put undue reliance on forward-looking statements, whether as a result of new information, future events or changes.  Applicable risks and uncertainties include, but are not limited to: credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates, the impact of government regulation on the online gaming industry and the risk that such regulation is subject to change, competition from other providers of online gaming services, the possibility that the Company may be unable to successfully integrate the acquired businesses, the risks associated with international and foreign operations, the impact of consolidations in the online gaming industry and the other risks identified under the heading “Risk Factors” in the Company’s final long form prospectus dated December 18, 2014 and final short form prospectuses dated July 9, 2015 and July 14, 2016, each as filed on SEDAR at www.sedar.com, and in other filings that NYX Gaming Group may make with applicable securities authorities in the future.  The forward-looking statements contained herein reflect NYX Gaming Group’s current views with respect to future events, and except as required by law, NYX Gaming Group does not intend, and undertakes no obligation, to update any forward-looking statements to reflect, in particular, new information or future events, or otherwise.

This press release contains certain non-IFRS financial measures and are noted where used. These measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations used by many investors to compare companies and management believes they are important measures in evaluating NYX Gaming Group. However, they are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS. Therefore, they may not be comparable to similar measures presented by other issuers.  Investors are cautioned that such measures should not be construed as alternatives to comparable IFRS measures determined in accordance with IFRS.

For Media Enquiries please contact:

Huw Thomas
Chief Corporate Development and Marketing Officer
NYX Gaming Group
E:  huw.thomas@nyxgg.com

For Investor Relations Enquiries please contact:

Dennis Fong Investor Relations
NYX Gaming Group
E:  investor.relations@nyxgg.com

About NYX Gaming Group

NYX Gaming Group Limited is a leading digital gaming software supplier for interactive, social, and mobile gaming worldwide, headquartered in Las Vegas, USA, with a staff of more than 1,000 employees globally. NYX delivers value by adhering to the highest standards of customer service, probity, and responsibility.

The Company has one of the broadest distribution bases in the industry, with over 200 unique customers. The award-winning NYX OGS™ (Open Gaming System), which allows licensees to leverage the best-of-breed, multi-vendor casino content from around the world, is acknowledged to be the industry’s market-leading gaming offering.  From its own studios and a broad partner network of the most innovative third party suppliers, NYX offers customers the widest portfolio of content available, with access to over 2,000 game titles, via OGS™.

In addition, NYX’s award winning sports betting division OpenBet is utilized and trusted by leading sports book operators, with its scale and performance world-renowned. In 2016, the OpenBet sportsbook processed more than two billion bets and broke new records at the 2017 Grand National, where it processed 68,000 peak bets-per-minute.

NYX Gaming Group Limited is listed on the TSX Venture Exchange under the symbol NYX. For more information about the Company, including press releases, links to SEDAR filings and other financial information, please visit the Company’s investor relations website at: www.nyxgaminggroup.com/investors.