Good day ladies and gentlemen, and welcome to the Lottery.com Fourth Quarter and Full Year 2021 Conference Call. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to introduce your host for today’s conference Matt Schlarb. Please go ahead..

Thank you Michelle and good morning everyone. We appreciate you joining us today for Lottery.com’s fourth quarter and full year 2021 earnings call.

Statements that were made during this call that are not such statements of historical fact constitute forward-looking statements that are subject to risks, uncertainties and other factors that can cause our actual results to differ materially from our historical results or from our forecast.

We assume no responsibility for updating forward-looking statements. For more information, please refer to the risks, uncertainties and other factors discussed in our SEC filings.

During the call, management will also discuss certain non-GAAP measures, including pro forma revenues, EBITDA, and adjusted EBITDA that we believe will be useful in evaluating Lottery.com’s operating performance. These measures should not be considered in isolation or as a substitute to our financial results prepared in accordance with GAAP.

The reconciliation with these non-GAAP measures to the most directly comparable GAAP measures is available in our press release, in our earnings presentation, both of which are available on our website at ir.lottery.com. Joining us on today's call our co-founder and CEO, Tony DiMatteo, and Ryan Dickinson our President and CFO.

Our Chief Legal Officer and COO Katie Lever will also be available during the Q&A session of the call. I will now turn the call over to Tony..

Thank you, Matt. And thank you everyone for joining us on Lottery.com’s initial call as a public company. Today I'll cover our Q4 results, Ryan Dickinson our CFO will cover our financial results, and then I'll provide some updates on our key strategic initiatives and an overview of our perspective on providing guidance.

At the conclusion of our prepared remarks, we'll be happy to answer your questions. For those of you who are new to the company, I'd like to begin with a quick overview of Lottery.com. We are a leader in driving the transition of the $100 billion U.S. lottery market online.

According to Eilers and Krejcik, a gaming marketing data research firm 5% of U.S. lottery sales are currently conducted online. With the courier model, we offer users in the U.S. and internationally the ability to securely purchase genuine lottery games from the convenience of their mobile device or computer.

As other industries have demonstrated the shift away from brick-and-mortar to mobile convenience is inevitable. Throughout the U.S., state lotteries contributes supplemental revenues for multiple funding initiatives including the public education, social investment services, health care, and environmental and wildlife conservation.

As an early mover in the lottery courier space, we have shown lottery and other governmental authorities that we operate trusted compliance and responsible solutions that reaches new users and demographics within their markets, providing increased revenues to the state lotteries and ultimately to funding those initiatives.

Since we started our first state in 2016, we have expanded to 12 jurisdictions and states in the U.S. and have consistently grown our user base. Now, having completed the business combination last October, to which we became a publicly traded company and put about $43 million on our balance sheet, we have the resources to begin scaling our business.

Our growth strategy includes growing our B2C user base through marketing campaigns and entering new jurisdiction, leveraging lottery link, our affiliate program and our affiliates to cost effectively reach new users, and launching Project Nexus, our block chain enabled online gaming platform.

Longer term, our goal is to broaden our product offerings into multiple forms of online gaming, to provide our users with unique opportunities to play a variety of real money games directly from our platform.

Over the past year, we've made great accomplishments, including completing the business combination, establishing an exceptional management team, adding unparalleled talent to our team and continuing to build the infrastructure we need for our future.

I would like to reiterate my thanks to the Lottery.com team, and the many other advisors and shareholders who have supported us as we continue to advance the transition of the lottery market.

Looking at our growth -- looking at our 2021 growth, at the same time that we completed our business combination during the fourth quarter, we also executed well on our growth initiatives, achieving fourth quarter revenue of $21.5 million, up $18.2 million, or over 550% from the prior year.

Full year revenue was $68.5 million, an increase of over 800% from 2020. And including the pro forma full year effect from acquired interest in the two Mexican entities we purchased in the middle of the year, full year revenue totaled $70.5 million.

Importantly, this growth was driven by the execution of strategic initiatives and with a focus on profitability, as demonstrated by the $31.1 million of adjusted EBITDA we generated in 2021. Now I would like to provide some details on the execution of these initiatives starting with growing LotteryLink.

At its core, an affiliate program is designed for the company to attract new users with little to no marketing spend, as the affiliates manage the marketing efforts and consideration of a share of revenues generated by the new users they bring to Lottery.com. With LotteryLink, we believe we've enhanced our affiliate program.

We'd sell our affiliate LotteryLink credits. Our affiliates can redeem these LotteryLink credits for lottery games, advertising credit, design work, marketing collateral, software development, and account management to promote the sale of our products and services.

The sale of these LotteryLink credits generate a revenue stream for the company while also generating new users with little to no marketing expense. It is notable that upon redemption, some of the products and services must be used prior to a predetermined expiration date.

In the fourth quarter, the sale to an affiliate of LotteryLink credits used to acquire prepaid lottery games for use in a pilot promotional program at a national grocery chain accounted for a significant part of our growth. In this pilot program, the grocer provided his customers with a voucher redeemable for free lottery game@lottery.com.

This is a great example of the power of lottery link to mutually benefit multiple parties. We've benefited from increased game sales and brand awareness, the grocer incentivizes his customers to purchase more goods, and the affiliate receives a portion of profits generated by new Lottery com users.

Feedback from this program has been positive and it is expected to expand to additional stores in Q2.

In addition to prepaid game sales in the fourth quarter, LotteryLink also generated revenue from the sale of credits to our affiliates for product development, marketing materials in $3 million in prepaid advertising credits we had on our balance sheet, which were used to promote the products to their customers.

Overall, I am encouraged by LotteryLink’s development and this quarter clearly demonstrated LotteryLink’s capabilities to help us grow our business.

In our B2C segment, we realized good growth in game sales versus the prior year and all user metrics we track showed improvement as we benefited from our app, and from the implementation of a dynamic pricing model earlier in the year.

We achieved this growth with virtually no spending on digital marketing in 2021, while we waited for the proceeds of the business combination. In summary, we are proud of the results we achieved in the fourth quarter and the progress we have made in the execution of our strategic plan.

Now I would like to turn the call over to Ryan to cover the financials in more detail..

Thanks Tony. As mentioned, fourth quarter revenue was $21.5 million, which represents a $18.2 million increase from the fourth quarter of 2020. Gross profit was $18.3 million up $16.2 million from the previous year.

The primary driver was the sale of LotteryLink credits from prepaid lottery games that were never redeemed due to the delay timing of affiliates promotional programs. As a result, we recognize the revenue but did not have associated cogs [ph] for the sole credit and unused prepaid game. This resulted in a very large and very strong margins.

Over the next several quarters, we anticipate that we will continue to sell a significant amount of LotteryLink credits in the first quarter again, due to the variance between the amount of credits purchased for the redemption of prepaid lottery games, and the delayed implementation of the associated promotions.

We expect many of the credits to expire resulting again and higher than normal gross profit. However, our affiliates promotional programs, including the previously announced grocery store promotion, are scheduled to expand in the second quarter and we anticipate a higher percentage of credits will be utilized before expiration.

This will bring margins to more normalized levels which are still attractive. Net loss for the quarter was $12.9 million. This includes $15.5 million for non-cash stock compensation and interest expenses of $18.8 million.

Interest expenses were driven by non-cash and non-reoccurring expenses for beneficial conversion feature associated with our convertible debt. Immediately prior to the business combination, approximately 64 million of convertible debt and accrued interest converted into equity, which triggered the accounting expense.

As a reminder, the debt conversion to equity occurred prior to the business combination, so it did not dilute any public shareholders. During the quarter, our cash outflows were interest payment for interest payment were $4.1 million. Going forward, we expect quarterly interest expenses to be below $250,000 in 2022.

Moving to our balance sheet, we ended the year with $62.6 million in cash, which was driven by the approximately $43 million we received from the business combination and the $30 million we received from the sale of LotteryLink credit in the third quarter offset somewhat by a reduction and accounts payable.

We also ended the fourth quarter with a large accounts receivable balance. This was driven by the sale of LotteryLink credits for prepaid games. We expect to receive this cash early in the second quarter.

For the full year, we generated revenue of $68.5 million or $70.5 million if you include the full year impact of the interest we acquired in two Mexican entities JuegaLotto and Aganar in June of 2021. This represents an increase of over $60 million from 2020.

Driven by strong sales of LotteryLink credit, we also have benefited from increased B2C sales. Gross Profit totaled $49.4 million and was driven by the strong gross profit from LotteryLink credit sales and from increased data sales, which generate margins above the other business lines.

Net loss of $9.3 million included $18.1 million of interest expense, again driven by the non-cash and non-reoccurring expense for the beneficial conversion feature that resulted from debt converting into equity in the fourth quarter.

Net loss also included $15.5 million of non-cash stock comp and $4.1 million of operating expenses related to the business combination. Full year adjusted EBTIDA, which excludes the impact of the non-tax stock comp and the expenses associated with the business combination, totaled $31.1 million and demonstrates our commitment to profitable growth.

Now I'd like to turn the call back to Tony to discuss some of our more recent developments related to our strategic initiatives..

Thank you, Ryan. We'll start with our B2C segments. After receiving the proceeds from the business combination, we began running digital marketing campaigns at the beginning of 2022. These campaigns were small and designed to test and fine tune our marketing strategy to reach potential customers as efficiently as possible.

Beginning in the second quarter, we plan on significantly broadening our B2C marketing campaigns in order to expand our user base. While the testing we conducted provided strong information about controlling customer acquisition costs, we do anticipate that our cash will trend moderately upward as we increase our marketing campaign.

But we do still expect the cash to remain favorable compared to others in the industry. As an example of the creative ways, we are reaching beauty customers; we recently announced an agreement with T-Mobile where we are their exclusive digital lobby brand for in-Vehicle Advertising.

This agreement allows us to advertise on video screens within rideshare vehicles. We believe this agreement will allow us to reach a young technologically savvy and captive audience, an excellent demographic for Lottery.com and the Lottery industry.

Turning to another topic related to our B2C segment, I'd like to address the status of our plans to enter new jurisdiction.

While the process has taken longer than we initially anticipated, we have recently increased our internal and external resources focused on our domestic jurisdictional expansion to expedite the process and expect to enter five new jurisdictions in the U.S. by the end of the year.

While we were working on entering new jurisdictions, we plan to deploy B2C marketing resources to drive user growth in the jurisdictions in which we currently operate. Keep in mind that in the U.S. only 5% of all lottery games are purchased online. So there is ample runway for growth. I'd also like to provide an update on forbes.com.

As we discussed in the past, we believe that in the U.S.

where the legalized sports betting market is extremely competitive and customer acquisition cost is expensive, we envision sports.com serving as an affiliate where over time, we can leverage our low customer acquisition costs and receive referral fees for revenue share from existing sports betting companies.

Outside of the U.S., we believe that there may be good opportunities to acquire established and high quality sports betting companies and benefit from both helping them grow under the sports.com umbrella and from cross selling our existing products.

Over the past several months, we have and are continuing to actively consider investment opportunities and partnerships. We continue to believe that like Lottery.com, sports.com is a very powerful brand and we will continue analyzing our pipeline of acquisition targets while continuing to be stewards of our intellectual property and capital.

Now I'd like to provide an update on a B2B and LotteryLink. As we previously mentioned, the grocery store promotional campaign is expected to contribute to LotteryLink credit sales over the next several quarters, and the campaign is scheduled to expand to more stores in the second quarter.

Since the beginning of the year, we have added new affiliates, and we are in advanced discussions to have more companies join LotteryLink. One example is the ICARO Media Group, which has a significant presence in Latin and South America.

They recently joined LotteryLink and will promote Lottery.com products to their customers starting in one of their South American markets with plans to expand into new markets.

This is a great example of our affiliate who is an expert in the market it serves is creating an opportunity for us to expand our user base in new markets with virtually no marketing spend. In return, it will -- benefits each time one of its customers purchases a Lottery.com product.

Now moving to Project Nexus, we continue to make progress with this development, and we are pleased to announce that we expect to implement Phase 1 early in Q2. In Phase 1, users will benefit from enhanced security and speed.

Phase 1 will allow us to deploy updates more rapidly and scale our business more reliably and at a lower cost than our current system. Our development team has regular improvements scheduled that are designed to improve the user experience and convert potential customers into users. We anticipate launching Phase 2 by the end of Q3.

This Phase will give us the ability to add revenue generating features to our existing products, such as lottery pooling, where subject to applicable law, a group of users can pull their tickets and share in any winnings. We expect to launch Phase 3 by the end of the year.

This Phase will support the launch of our own proprietary games that accept payments in both fiat or crypto currencies. It's important to note that the actual launch of the game is also subject to regulatory and compliance requirements, which we are working on obtaining.

Also, on the topic of Project Nexus, we have selected our Algorand to be the blockchain technology that will support Project Nexus. We chose Algorand because of their --their technology aligns with the features Project Nexus is designed to offer users.

These include security, scalability, high throughput, and a focus on reducing impact on the environment. Another important area I'd like to discuss is the expansion of our talent base.

Over the past several months, we've actively been hiring in key areas throughout the company, including finance, sales, compliance, marketing, development and technology. These additions to the Lottery.com team are designed to support our expected growth and help us accelerate the execution of our strategic initiatives.

Now, with respect to our outlook for the year. After a great deal of discussions internally about our guidance policy, we've decided not to provide the quantitative guidance at this time, and I'd like to share our reasons with you. First, we are in the early stages of launching our B2C marketing campaigns on a large scale.

And while we have high competence, they will be successful and increase our user base and game sales, we don't have visibility into the magnitude of this launch.

Second, also as jackpot prices have a significant impact both positive and negative on short term gain growth, and average jackpot prices can vary significantly from quarter-to-quarter and year-to-year.

Finally, several of our revenue streams like LotteryLink credit sales and development work for third parties for Project Nexus can be lumpy in terms of timing, which means providing guidance for a specific time period is challenging.

As our company matures, and we have more data to support forecasting results, we will reassess our guidance policy, but we have not yet reached that point in our company's growth cycle.

That being said, we are now at the end of our first quarter, and I am pleased with how we've executed during the quarter and how we've adhered to our commitment to profitable growth. Before opening the floor for questions, I'd like to provide a few closing thoughts.

With large and growing addressable markets that are in the early stages of transitioning online, we believe that Lottery.com as a brand and as a company has an excellent opportunity for growth. In 2021, we were focused on building the necessary infrastructure and receiving the capital to execute our strategic growth plan.

Now that we have those in place, we are focused on realizing the growth opportunities in front of us.

With our B2C marketing campaigns, favorable customer acquisition costs, expanding LotteryLink and new products and technologies, all of which are supported by our talented team, I am confident that we will capture these opportunities and generate long term value for shareholders. Now operator, we'd like to open up the floor for questions..

Thank you.[Operator Instructions] And our first question comes from the line of Brian Dobson with Trussard [ph] and Capital Market. Your line is open. Please go ahead..

Hi, good morning. So you spoke about product progress made the entrance to new markets. How are things going in New York? You just add William Thompson to the board. He's certainly a well-respected name in New York politics.

So can you give us a little bit a little bit of color about the progress in that state?.

Yes, so the progress that we're going through an assay [ph]. There are two jurisdictions in the United States that have a courier application process in New York and one of them and we are going through all the steps required to do it through that application process through which it will then be turned over to them.

Once it is in their hands, it's really up to them and their timing for review. And we are expected to get that over to them some point this year..

Alright. And, can you give us just a little bit more color about what happened with the game credits during the fourth quarter. What's the lifespan of a LotteryLink credit. And I guess, it's unfortunate for your affiliate that they expired.

But what would be like a normalized percentage of those credits that you expect to aspire going forward? And what might be like a normalized margin rate for that type of sales as we look out over the next call it year or two?.

Yes, the margin varies depending on the type of credit pooled. Over time, I think the range should average of between 30% to 40%. As far as the expiration portion of that, the expiration is only applies once credits -- for the credits are purchased. And they do not expire unless they are redeemed for a particular cause.

That particular instance or use is what triggers the typically a 90-day expiration period..

Alright, got it. And then do it a sale of roughly $3 million of prepaid add credits in the quarter.

What would you estimate the market value of the add credits that remain on your balance sheet and you expect similar levels of sales moving forward on a quarterly basis?.

Yes, I think that will we'll continue to have advertising credits available for sale to our affiliates. And the credits that we currently have I think the value of which we're currently selling them at will pretty much maintain as is over this year.

We are in discussions with other providers of credits that likely will fall under the same margins that we received now when we sell any credit..

Alright, thanks for that additional color. Appreciate it..

Thank you. [Operator Instructions] I'm showing no further questions. And I would like to turn the conference back over to Tony DiMatteo for any further remarks..

Thanks again for joining today's call. As you've heard, we're proud of our fourth quarter results and the progress we've made in executing our strategic plan. We look forward to speaking with you again when we report our Q1 2022 results. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect everyone have a great day..