GiG Software p.l.c. (GIGSDB) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the GiG Software plc Q2 Results Presentation. [Operator Instructions] Before I begin, I'd like to submit the following poll. If you give that your kind attention, I'm sure the company will be most grateful. I'd now like to hand over to CEO, Richard Carter. Richard, good morning.

Good morning, everybody, and thank you for joining us. I'm Richard Carter, the CEO of GiG Software, and I'm joined today by our CFO, Phil Richards. Together, we'll take you through our second quarter 2026 results, covering the financial performance of the quarter, our cost discipline program and the proposed upcoming acquisition of 888AFRICA, which we believe marks a real turning point for this business. Just briefly on the running order, I'll start with the key highlights from the quarter, and Phil will then take you through the financial review in detail. I'll then come back to close out with our strategic progress and outlook, including a deeper look at the 888AFRICA transaction, the African market opportunity. With that, let's move to our key highlights. First and most significantly, we've agreed to acquire an 80% stake in 888AFRICA for EUR 16.4 million. 888AFRICA is an increasingly profitable, cash-generative, leading B2C operator in the African market. We believe this transaction has multiple positive connotations for GiG's near-term and also longer-term profit and cash flow metrics as well as strategically positioning GiG towards one of the most attractive iGaming markets with unparalleled long-term growth opportunities. Now let's look at Q2. On an underlying basis, we delivered EUR 8.8 million of revenue and EUR 0.8 million of adjusted EBITDA for the quarter, and Phil will unpack the details behind these numbers shortly. We continue to build commercial momentum, signing 7 commercial agreements in the quarter, 4 contract renewals and 3 new operators for the newly regulated Alberta market. We also delivered 9 successful brand launches in the quarter. That takes us to 13 for the year-to-date, which is already ahead of the pace against our full year guidance range of 12 to 14. On the platform side, we achieved CoreX certification for the Spanish market, which will allow us to migrate customers off our legacy Alira platform and unlock further savings and efficiencies. And finally, on cost discipline, we've now implemented more than EUR 10 million of annualized cost savings with the impact flowing through from Q2 2026 onwards. I'll now hand over to Phil, who will take you through the numbers in detail. Phil?

Thanks, Richard. Good morning, everyone. I'm going to walk you through the financial performance for the quarter and for the first half, starting with the headline summary, then the revenue bridge, our cost discipline program, EBITDA development and finally, the cash flow position. So starting with the headline numbers. Revenue for the quarter was EUR 8.8 million against EUR 9.3 million in Q2 2025. Adjusted EBITDA was EUR 0.8 million compared to the EUR 1 million a year ago at a 9% margin versus 11% last year. I want to be upfront about what's driving that year-on-year movement because it's important context. This was a solid quarter with no one-off revenue items, but our reported revenue was impacted by the insolvency of a significant customer, Richmond Atlantic, and that had a meaningful effect both on our top and, as I'll come to, our bad debt provisions for this quarter. Excluding that impact and lower setup fees, our underlying revenue growth was actually 14% up year-on-year. So the underlying trajectory of the recurring business remains positive. We also launched 9 new brands in the quarter, and our cost base decreased year-on-year, which I'll expand on over the next few slides. Looking at the chart on the right, you can see the quarterly progression of revenue and adjusted EBITDA from Q2 2025 through to Q2 2026. This slide bridges Q2 2025 revenue to Q2 2026 revenue, so you can see exactly what's moving. Customer growth added EUR 1 million. That's the underlying business doing what it should do. Working the other way, a change in setup fees took EUR 0.7 million out and other nonrecurring items took a further EUR 0.8 million out, bringing us to EUR 8.8 million of revenue in Q2 2026. On the right-hand side, 3 supporting metrics. Total revenue on a trailing 12-month basis to Q2 2026 was up 7% versus the prior trailing 12 months. Underlying recurring revenue growth year-on-year was up 14% and sportsbook revenue was up 6% year-on-year. So even though the reported quarterly number is down, the underlying growth engines of the business, recurring revenue and sportsbook are both moving in the right direction. Turning now to costs. Our total operating expenditure for 12 months to Q2 2026 fell to EUR 31.4 million, down from EUR 32.5 million in the 12 months to Q2 2025, a 3% reduction with personnel and marketing delivering the bulk of that saving. If we break that down, marketing costs came down EUR 0.2 million, a 14% reduction. Personnel costs came down EUR 0.9 million, a 4% reduction and the largest absolute saving reflecting completed restructuring. Other admin costs were broadly flat. The headline figures on the right summarize this, minus 3% on total operating expenditure trailing 12 months, minus 4% on personnel costs, which is the largest absolute saving at EUR 0.9 million for the trailing 12 months, reflecting, as I said before, the completed restructuring. Looking at this on a gross cash basis now, excluding salaries that are capitalized, gross operating expenses decreased 6% year-on-year by EUR 1.2 million from Q4 2025. You can see the quarterly trend on the chart, EUR 11.1 million in Q2 2025, rising to a peak of EUR 11.7 million in Q3 2025, EUR 11.6 million in Q4, EUR 11.3 million in Q1 '26, and we're now at EUR 10.4 million in Q2 '26. That's an 11% reduction from Q3 2025 peak. There are 2 things driving this. Firstly, we've reduced our FTE base by 25% since the 1st of January, streamlining our operations whilst using AI and operational efficiencies to mitigate any impact on delivery. Secondly, we're removing unprofitable operations entirely, exiting the U.S., the Philippines and our white-label business, which lets us focus on our core customers whilst cutting significant costs from the business. This bridge shows how we got from EUR 1 million of adjusted EBITDA in Q2 2025 to EUR 0.8 million in Q2 2026, a modest decline with a lot of positive detail underneath it. Revenue effects took the number down and COGS had a small negative impact too. But you can see that people costs added back EUR 0.9 million. That's the year-on-year reduction in people costs, excluding capitalized amounts flowing through positively. Marketing was broadly neutral. Other admin costs took a bit off. Net-net, we landed at EUR 0.8 million of adjusted EBITDA for Q2 '26. It's worth being clear on the adjustments here. This is EBITDA, excluding share-based compensation, bad debt provisions and ex-gratia payments of EUR 0.1 million, EUR 3 million and EUR 0.1 million, respectively, this year against EUR 0.1 million and EUR 0.1 million in the comparative period. A significant part of the EUR 3 million of bad debt provisions relates to Richmond Atlantic insolvency, as I mentioned earlier. And it's the reason our statutory EBITDA and EBIT numbers look materially different to the adjusted figures. The key message here is our annualized cost savings of more than EUR 10 million are now enacted from the end of Q2. So that -- the full benefit of that work is still to come through in the second half of 2026. Finally, on my section, cash flow. We continue to focus on reducing cash outflow, and I'm pleased to report a EUR 0.5 million quarter-on-quarter improvement in operational cash flow. If we walk through the waterfall, we started the quarter at EUR 5.4 million of cash at 31st of March. The loss from operations took EUR 7 million out. Depreciation and amortization added back EUR 5.1 million. Change in working capital added EUR 2.4 million and CapEx on PPE and development took EUR 3 million. We add EUR 5 million and adding -- financing activities added EUR 0.5 million. This brings us to the closing cash position of EUR 3.5 million. Looking ahead, we expect additional cash flow in the second half as the cash-generative 888 acquisition contributes, and we've strengthened our cash position with additional funding secured for that transaction. Now that's it from me on the numbers. And I'll now hand you back to Richard to take you through our strategic progress and the 888AFRICA opportunity in more detail.

So thank you, Phil. So I want to now spend the rest of our time today on 2 things. Firstly, the strategic reset we've been driving through the business this year; and secondly, the 888AFRICA acquisition, which I think fundamentally changes the growth profile of GiG. Our strategy during Q2 has been built around 4 pillars. First, concentrating our investment and commercial attention on key customers who are already growing well on our platform. Second, exiting unprofitable business and winding down business lines that don't meet clear and acceptable returns, which then frees up both resources and capital. Third, withdraw from unprofitable markets. We are exiting markets that we don't -- that don't offer a credible path to profitability, specifically the U.S., the Philippines and our white-label businesses. And fourth, rightsizing our headcount and operating costs to match a leaner, more focused business. At the beginning of the year, we announced an annualized cost saving program of EUR 4.5 million. That program has now been delivered. In June, we enacted an additional cost reduction program targeting a further EUR 6 million in annualized savings. The impact of this second program will begin to flow through the P&L from July onwards with the full impact realized from October. This provides a meaningful offset to the revenue reduction in the final quarter and positions the group well into next year. The cost reductions we have enacted are largely due to the strategic closure of our white-label business, specifically with SkyCity. While this move carries no revenue impact for the current year, it will result in significant resource reductions. Additionally, we are exiting both the Philippines and U.S. markets and as part of our strategy to focus on key profitable markets from Q3 onwards. As a result of these combined actions, we expect the impact of lower revenues on EBITDA to be substantially mitigated. The group on a stand-alone basis, excluding 888AFRICA, also remains on track to be cash generative by the end of the financial year, which is testament to the speed and discipline of our response. Now looking further ahead, the planned closure of the Spanish Alira platform during 2027 will deliver further annualized cost savings of EUR 1 million. In addition to the cost benefits, the migration away from Alira represents an opportunity to consolidate our technology offering and create incremental revenue upside as customers transition to our next-generation platform. And the impact of these developments can be clearly seen in the chart on this slide, which depicts an indicative trend analysis from Q1 through to Q4 2026. It shows stable revenue and cash OpEx declining sharply from around EUR 12.5 million in Q1 to converge with revenue by Q4. And most importantly, underlying cash flow moving to breakeven by Q4 2026. This is the clearest illustration of why we believe we're on track to be cash generative by the end of the financial year. Now let's turn to our proposed acquisition of 888AFRICA and why we believe this is such a compelling opportunity for GiG. So firstly, let's address why Africa. Well, quite simply, Africa's online gaming sector offers unparalleled long-term growth opportunities, driven by demographic, mobile and regulatory tailwinds that few other regions can match. So in terms of demographics, Africa has the youngest population in the world, with growth running at more than double the global average. Africa is a mobile-first market where connectivity is accelerating fast with substantial upside still ahead given the continent is only at 28% mobile connectivity today. This compares to 95% to 97% for the U.K. and North America, so providing a big runway for growth. And regulatory-wise, the landscape is fast maturing with market shifting from an informal play towards long-term compliant license frameworks, which we believe will help skew the market success further towards compliant operators such as 888AFRICA. Additionally, mobile money adoption is running above 70% and provides access to millions of new players across the continent. So given these powerful structural tailwinds, it's no surprise that the African region represents one of the most attractive growth opportunities in global iGaming with the market expected to rise from $11.6 billion today to $22 billion by 2030. And this is exactly why we've moved to secure a position in this market. Let me now talk specifically about the rationale for the proposed 888AFRICA transaction and what it brings to GiG. So firstly, it gives us a geographical revenue and profit diversification as well as entry into one of the fastest-growing iGaming regions globally. Two, we get immediate top line scale, adding over $50 million of annualized revenue to the combined group from completion. Three, it helps strengthen our product leadership and bolster our capability across the enlarged group. And fourthly, we've agreed a phased consideration over 10 months, funded both by our convertible debt facility and equity issuance. And then lastly, the combined group is immediately expected to be cash flow positive on a quarterly basis with a strengthened balance sheet. Now looking at the recent 888AFRICA quarterly financial performance. Total revenue has grown 32% from $11.3 million in Q4 2025 to $14.8 million in Q2 2026. Gross profit has grown 77% from USD 3.5 million to $6.2 million over the same period, while adjusted EBITDA has grown from a $2.2 million loss to a $1.9 million profit and EBIT, which equates to cash, has moved from a $3.2 million loss to a $1.1 million profit. This is a business that we believe is now well positioned to build on this recent positive progress, and we're really looking forward to helping contribute to future growth. We especially see some upside from both the gross margin line as well as from the OpEx lines of the P&L. And we'll update in more detail on this at our Q3 results in late October. So now turning to the 2026 guidance. Following the expected completion of the proposed 888AFRICA acquisition by the end of September, we now expect the combined group revenue of between EUR 44 million and EUR 48 million and adjusted EBITDA of between EUR 5 million and EUR 7 million. The remainder of the year will be characterized by continued cost discipline, integration of 888AFRICA and delivery against our committed launch schedule. So in summary, this has been a quarter of genuine operational progress alongside delivering more than EUR 10 million of annualized cost savings with the impact now flowing through from Q2 onwards. We've achieved 13 brand launches year-to-date, already ahead of our full year guidance, and we remain firmly focused on underlying cash flow generation. Looking forward, the proposed 888AFRICA acquisition will significantly accelerate our revenue, EBITDA and cash flow growth. And post integration, we expect the combined group of GiG and 888AFRICA to be cash flow positive on a quarterly basis. We are, in short, a sharper, fitter and more focused business, and we have ongoing confidence in GiG's future growth prospects. So thank you for listening, and Phil and I are now happy to take any questions you have.

That's great. Richard, Phil, thank you very much indeed for updating investors. [Operator Instructions] I'd just like to remind you, the recording of this presentation along with a copy of the slides and the published Q&A will be available via your Investor Meet Company dashboard. Phil, Richard, you've had a number of questions from investors today. Jeremy, perhaps if I may just hand over to you to moderate us through the Q&A, and then I'll pick up from you at the end.

Thank you, Mark. We've had a number already submitted. So I think we should dive straight in. There's 2 initial questions for Phil here. First one, revenue is down 5% year-on-year in Q2 and 3% in H1. How concerned should investors be about underlying trajectory of the business? And a follow-up, why did adjusted EBITDA fall to EUR 0.8 million from EUR 1 million? And why did margin compress from 11% to 9%?

Yes. So I think -- thanks, Jeremy. I think we touched on this in the presentation. But for me, what we really need to look at is the underlying growth from nonrecurring (sic) [ recurring ] revenue. It's up 14% year-on-year. The sportsbook is growing nicely. So from my perspective, the business has never been in better health. So while the top line number for sure has come down a little bit, I'm looking at the quality of the revenue coming through and that growth trajectory. We've had some headwinds. We talked about Richmond Atlantic, for example, but we've done everything we can to mitigate the impact of this. And you can see that mitigation with the second part of your question in terms of how the EBIT has moved. So EBITDA hasn't moved by much despite the revenue decline because of the cost impact that we've had, like in the cost savings we've introduced, which we'll see further in Q3 and Q4. So for me, the underlying business is extremely healthy and moving in the right direction. The cash outflows are reducing. Our costs are reducing, underlying revenue is growing. So whilst the top headline numbers might look like there's a little decline, for me, it's the healthy part of the business that's growing that's important and the ability that we have had to mitigate the impact of any headwinds through looking at our cost base as well. So I see this as a really positive development.

Richard, just one on liquidity before we dive into a few on the proposed acquisition. Cash fell from EUR 9.9 million in the full year '25 to EUR 3.5 million at the half year. Is liquidity a concern?

So I think I'd address that by, like pointing to what we spoke about in the presentation. So firstly, the underlying GiG business now is moving towards generating positive cash. We proposed the acquisition of 888AFRICA, which will add significantly to obviously our revenue, EBITDA, but I think most importantly, to generating cash flow immediately. And also today, we've announced that we've raised EUR 8.5 million. And of that, EUR 2.5 million will support working capital on the balance sheet. So I think the combination of now the business not losing cash and then going to generate cash, adding 888AFRICA, which is a very cash-generative business and then some of the working capital from today's convertible and equity raise, I think, puts the balance sheet in a very, very strong, robust position. So no concerns there.

Okay. So I think let's dive into the acquisition now. I've got quite a few questions. Let's take 2 initially. Why 888AFRICA and why now? And how financially healthy is that business? And can you substantiate the growth claims that you've talked through today?

So why Africa, why now? I think I personally have been looking at Africa for 6 or 7 years. So it's -- anyone that's in the online gaming industry has always had an eye on Africa given the growth rates. But it's not an easy continent to get into for many reasons, regulatory-wise, product-wise, operational-wise. So we've been looking at this or I've personally been looking at this for a long time. GiG have been looking at this for the last, sort of, 12 months to enter the market on a purely B2B front. And it's just timing. This opportunity came along. We studied it. We thought, actually, this is for us, we want to enter this geography. And this is a, we think, an attractive business to buy, gives us the knowledge, gives us the entry into the market. It's obviously highly profitable, highly cash generative. So it ticks all the boxes. And we get real local expertise, which will then, we believe, will help shape our product road map, our technology. And then we will then probably within 12 months, look to launch a B2B business in Africa, which will be obviously incremental to the current, sort of, GiG numbers. So I think that's really the main reasons. It's a very attractive market. We're buying a business that we think has a great sort of runway ahead of growth. It's currently very cash generative. So it ticks all the boxes for us.

Okay. And just a quick follow-up on that. Can you give everyone on the call a little brief summary of the markets that 888AFRICA operates in? And what's its competitive position, kind of, in each of those markets?

Sure. So today, 888AFRICA operates in 3 markets: Mozambique, where it's market leader; Angola, where it's just in the process of growing its business; and then Tanzania, again, just in the early stages of growing its business. So it's mainly Mozambique, but with significant growth opportunities in Angola, which is a very attractive market and Tanzania, which is also a very, very attractive growth market.