Newgioco Reports 7.8% Increase in First Quarter 2019 Revenues

Handle Increases 51.3% and GGR up 12.6%

NEW YORK, NY / ACCESSWIRE / May 16, 2019 / Newgioco Group, Inc. ("Newgioco" or the "Company") (OTCQB: NWGI), a sports betting and gaming technology company providing fully integrated software solutions to regulated online and land-based gaming and sports betting operators, headquartered in Toronto, Canada, with international gaming operations, reported its financial and operating results for the three months ended March 31, 2019.

First Quarter 2019 Financial and Business Highlights

• Solid Q1 Revenue of $9.3 million, up 7.8%.
  • Gross gaming revenue (GGR) of $10.4 million, up 12.6%.
  • Handle of $137.0 million, up 51.3%.
• Loss from operations of 1,314,879, compared to income from operations of $457,057.
• Net loss of $3.1 million compared to net income of $769,000 in 2018.
• Adjusted EBITDA of $(378,000) compared to $1.5 million in 2018.
• Web-shop locations in Italy increased by 50% from 1,000 to 1,500 locations.
• Agreement with Fleetwood Gaming, Inc. for the exclusive rights to distribute the ELYS sports and virtual betting products at select locations in the state of Montana.
• Multi-year agreement with the Chippewa Cree Tribe in Box Elder, Montana to deploy the ELYS sports betting platform at the Northern Winz Casino.
• Completed the acquisition of Virtual Generation Limited ("VG"), a leading developer of virtual gaming software, effective January 30, 2019 for approximately $4.5 million in a combination of cash and stock.

"This was a strong start to 2019 for Newgioco. We quickly established a presence in the rapidly expanding, greenfield U.S. market with two agreements in Montana for our ELYS sports betting platform which is due to commence a free-play pilot location in the very near future," commented Michele (Mike) Ciavarella, Newgioco Chief Executive Officer. "State legislatures in several states - including Montana - are moving rapidly to codify regulations for sports betting, and we are in position to crystallise opportunities as these legislative efforts come to fruition. 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."

"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 U.S.," added Mr. Ciavarella. "Total handle grew 51%, gross gaming revenue was up 12.6% and total revenue was also up 7.8% on a same period basis last year. We are also expanding our presence in Europe, especially in Italy where we are making progress in our stated goal to diversify revenues with our first revenues from global operations through the Virtual Generation acquisition earned in the first quarter. Web-based handle represented 63% of total handle in the first quarter, up from 51% in the first quarter last year. As a result, we continue to reduce the risk profile of our handle to revenue conversion, albeit with lower margin revenue from poker, lottery and casino products."

"Our 2018 discretionary investment plan is also paying off in Europe quite early in 2019," added Mr. Ciavarella. "The ratio of our investment to return in Italy saw exceptional multiples as reflected in the signing of major operators in Southern and other parts of Italy from established competitors that quickly increased our footprint by 50% from 1,000 to 1,500 web-based locations on a very low capital outlay. Simultaneously, we are continuing to invest strategically in the U.S., which did and will continue to contribute to our general and administrative costs for the foreseeable months. We consider the U.S. market as a significant greenfield opportunity requiring a three to five year investment and stabilization period, we are therefore continuing our discretionary spending to reinforce our presence in the markets we currently serve both inside and outside of Italy. In addition, while individual states enact their rules, and will likely fine tune them through this stabilization period, our rapid ex-Italy global deployments also represent significant growth catalysts for our ELYS platform. Therefore, our ex-Italy, U.S. and global outlook both represent attractive business multipliers over the near-term."

First Quarter 2019 Financial Summary (comparing Q1 2019 vs. Q1 2018)

Revenue

Revenue was $9.3 million, an increase of $672,000 or 7.8%, compared to revenue of $8.6 million 2018. The revenue increase was mainly attributable to a 51.3% increase in handle partially offset by a shift in gaming mix. Unfavorable foreign exchange rates had a non-cash impact of approximately $900,000 in the quarter, and on a constant currency basis, revenue would have been $10.2 million compared to $8.6 million, an increase of 18%.

General and Administrative Expenses

General and administrative expenses were $3.0 million compared to $2.1 million, an increase of 46.6% in the quarter as we continue to make investment in the U.S. operations to capture the regulated U.S. sports betting market. The increase was primarily due to significant front-loaded investments which included recruitment of staff in the U.S. with gaming experience, about $550,000 in technology development and software coding required for global expansion and platform certification, marketing, legal and other professional fees in support of the company's expansion to the U.S., and approximately $350,000 for increased product marketing efforts including tradeshows in London and the U.S.A. as well as $300,000 towards active brand communications and preparations for the listing of our shares on the NASDAQ stock exchange.

Interest expense was up from $0.2 million in Q1/2018 compared to $1.5 million in Q1/2019, the increase in interest expense is primarily from the amortization of debt discounts relating to the sale of convertible debentures in 2018 and is a non-cash (accounting) charge.

Direct Selling Costs

Direct selling costs represent the fees paid to the company's network service provider, license fees and commissions for field agents and promoters and are based on percentage of handle (turnover). Direct selling costs were $7.4 million compared to $6.1 million, an increase of 22.0%. The increase was primarily due to the significant increase in handle as these fees are linked as a percentage of handle.

Interest Expense

Net interest expense that includes $1.3 million of non-cash interest was $1.5 million compared to $212,000 in 2018, which was the result of interest expense incurred on debentures issued in 2018.

Net Income (Loss)

Net loss was $3.1 million, or ($0.04) per diluted share based on a weighted average of 76,394,867 shares outstanding, compared to net income of $769,000, or $0.01 per diluted share based on a fully-diluted weighted average shares outstanding of 76,096,053. The net loss included $1.1 million in added expenses, included trade show expenses that was $300,000 higher than last year, executive compensation that was $100,000 higher than last year as well as recently initiated brand communications. The net loss for the quarter ended March 31, 2019 also included $441,000 in spending in anticipation of future growth, particularly in North America, and $400,000 retail agent commissions due to the growth of handle in Italy. We expect expenses to ramp higher as we continue to invest in our B2B SaaS strategy with a primary focus on the U.S. as well as leveraging our existing footprint in 12 countries including Italy, from our strong cash balance.

Other Comprehensive Income / (Loss)

For the quarter, the Company recorded income of approximately $56,180 for foreign currency translation adjustment, compared to income of approximately $64,518 for foreign currency translation adjustment in Q1 2018.

Adjusted EBITDA

Adjusted EBITDA for the quarter was a negative $378,000 compared to $1.5 million. A reconciliation from Comprehensive Income (Loss), as shown in the company's Consolidated Statements of Operations and Comprehensive Income (Loss), to Adjusted EBITDA is included in the tables of this press release.

Balance Sheet Summary

The Company had $5.2 million in unrestricted cash and cash equivalents as of March 31, 2019 compared to $6.3 million at December 31, 2018 as the Company used discretionary available cash to increase tradeshow presence and brand communications. With the resulting successful handle growth from the 2018 discretionary spend, the Company expects to continue to prudently invest available discretionary cash to expand its footprint through countries and regions which it currently has operations through Multigioco, Rifa, Ulisse and Virtual Generation will continue brand visibility and building its U.S. team.

Non-GAAP Financial Measure - Adjusted EBITDA

This news release includes information on Adjusted EBITDA, which is a non-GAAP financial measure as defined by SEC Regulation G.

Management believes that Adjusted EBITDA, when viewed with our results under GAAP and the accompanying reconciliations, provides useful information about our period-over-period growth. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our Company and our management team.

Adjusted EBITDA is a non-GAAP financial measure. We calculate adjusted EBITDA by taking comprehensive income (loss), and adding back the expenses related to foreign currency translation adjustment, total other expenses(loss), income taxes, product readiness and U.S market launch and adjustment for salary figures in prior years. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures. Adjusted EBITDA should not be construed as a substitute for comprehensive income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position, as Adjusted EBITDA is not defined by GAAP. A reconciliation of Adjusted EBITDA to comprehensive income (loss) is provided in the tables at the end of this press release.

Conference Call

The Company hosted a conference call with investors and interested parties to listen to the operating results and comments from executives. A replay will be available until May 29, 2019 which can be accessed by dialing 1-844-512-2921 if calling within the United States or 1-412-317-6671 if calling internationally. Please use passcode 13690851 to access the replay.

In addition a live webcast is available over the Internet and is accessible at http://public.viavid.com/index.php?id=134591.

About Newgioco Group, Inc.

Newgioco Group, Inc., headquartered in Toronto, Canada, is a vertically-integrated leisure gaming technology company, with fully licensed online and land-based gaming operations and innovative betting technology platforms that provide bet processing for casinos and other gaming operators. The Company conducts its business under the registered brand Newgioco primarily through its internet-based betting distribution network on its website, www.newgioco.it as well as retail neighborhood betting shops situated throughout Italy.

The Company offers its clients a full suite of leisure gaming products and services, such as sports betting, virtual sports, online casino, poker, bingo, interactive games and slots. Newgioco also owns and operates innovative betting platform software providing both B2B and B2C bet processing for casinos, sports betting and other online and land-based gaming operators. Additional information including information about EBITDA presentation is available on our corporate website at www.newgiocogroup.com and will remain on our website indefinitely as we will continue to present values for EBITDA.

Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are identified by the use of the words "could," "believe," "anticipate," "intend," "estimate," "expect," "may," "continue," "predict," "potential," "project" and similar expressions that are intended to identify forward-looking statements. These forward-looking statements are based on management's expectations and assumptions as of the date of this press release and are subject to a number of risks and uncertainties, many of which are difficult to predict that could cause actual results to differ materially from current expectations and assumptions from those set forth or implied by any forward-looking statements. Important factors that could cause actual results to differ materially from current expectations include the risk factors described in Newgioco's Annual Report on Form 10-K and subsequent filings with the U.S. Securities and Exchange Commission, including subsequent periodic reports on Forms 10-Q and 8-K. The information in this release is provided only as of the date of this release, and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events, except as required by law.

For further information, please contact:

Hayden IR

Brett Maas (646) 536-7331
[email protected]

NEWGIOCO GROUP, INC.
Consolidated Balance Sheets
(Unaudited)

NEWGIOCO GROUP, INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)

NEWGIOCO GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)

NEWGIOCO GROUP, INC.
Calculation of Adjusted Earnings Before Interest,
Taxes, Depreciation and Amortization (Non-GAAP)

SOURCE: Newgioco Group, Inc.