Expansion costs push Newgioco to net loss in Q1

17 May 2019

Betting technology supplier Newgioco has cited expenses related to its ongoing expansion plans as the main reason for posting a net loss in the opening quarter of the year.

Revenue for the three months through to March 31, 2019 amounted to $9.3m (£7.3m/€8.3m), up 7.8% from $8.6m in the opening quarter of last year.

Newgioco said this increase was primarily due to a 51.3% increase in handle partially offset by a shift in gaming mix.

The supplier also noted that unfavourable foreign exchange rates had a non-cash impact of around $900,000, and, on a constant currency basis, revenue would have been $10.2m compared to $8.6 million, an increase of 18%.

However, this revenue growth was accompanied by a jump in expenses across several areas of the business. General and administrative expenses were up 46.6% to $3.0m as a result of investment to support Newgioco’s US expansion.

Interest expense was up from $200,000 to $1.5m due to the amortisation of debt discounts relating to the sale of convertible debentures, while net interest costs climbed from $212,000 to $1.5m as a result of non-cash interest of $1.3m.

Newgioco also saw direct selling costs rise from $6.1m to $7.4m, primarily due to the increase in handle.

As a result of higher costs, Newgioco slipped to a net loss of $3.1m, compared to an income of $457,057 in the corresponding period last year. Net loss included $1.1m in added expenses, such as trade show costs and executive compensation, as well as spending on expansion initiatives in both the US and Italy.

Newgioco warned that expenses are likely to increase as it continues to invest in its B2B SaaS strategy, with a primary focus on the US, as well as leveraging its existing presence in 12 other countries.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) was a negative $378,000 compared to a positive figure of $1.5m last year.

CEO Michele Ciavarella was largely positive about the quarterly performance, praising Newgioco for its progress in the US and outlining further growth prospects in the market as more states legalise sports betting.

Shortly after the end of the quarter, Newgioco agreed a multi-year deal to provide its ELYS sports betting platform to the Chippewa Cree Tribe and its Northern Winz Casino in Montana. Last week, Montana Governor Steve Bullock signed a bill into law, legalising sports betting in the state.

“We have expanded our sales and marketing budget and increased our presence at trade shows to build awareness for our industry leading ELYS sports betting platform, and this has directly led to strong brand recognition and a growing sales pipeline,” Ciavarella said.

“Simultaneously, our sports betting business continues to enjoy robust growth, giving us the available resources to judiciously invest in growing our emerging SaaS business with our mainline focus on the US.

“We consider the US market as a significant greenfield opportunity requiring a three to five year investment and stabilisation period, we are therefore continuing our discretionary spending to reinforce our presence in the markets we currently serve both inside and outside of Italy.”

Image: Ken Teegardin