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29 September 2023

Bidstack Group Plc

("Bidstack" or "the Company")

Interim Results for six months ended 30 June 2023

Bidstack Group plc (AIM: BIDS.L), the native in-game advertising group, announces its unaudited results for the six months ended 30 June 2023.

The Interim Report for the period ended 30 June 2023 will be published on the Company's website - www.bidstack.com today.

Financial Update

·      Revenue of £1.967m (H1 2022: £2.046m), demonstrating a strong recovery following re-engagement with agencies and programmatic platforms after the termination of the Azerion commercial partnership in December 2022.  The underlying prior year comparison (H1 2022: £0.4m) highlights the growth in campaign sizes and quality of global brands;

·      Gross margin contracted to 25.9% (H1 2022: 39.9%), due to product mix which is expected to improve in H2 2023;

·      Period end cash balance £2.084m (30 June 2022: £3.672m)

Post Period End Highlights

·      Bidstack Sports, the dedicated sports technology division announced a partnership with StatusPRO's NFL PRO ERA and the Washington Commanders professional football team to control their virtual stadium for brand activations and fan engagement messaging;

·      Commencement of Venatus partnership on 4 September 2023, outsourcing Bidstack's in-game advertising network.  Venatus has sole ownership of direct sales of Bidstack's in-game inventory across US, UK, Germany, Canada, Australia and South Korea leveraging its extensive global sales presence;

·    A signed heads of terms, announced this morning in relation to a proposed multi-year licensing agreement with Virtual Sport Technology ("VST"), a sports marketing agency, subject to contract, for a licence fee of £1.5m (two equal instalments of £0.75m paid quarterly in advance), with Bidstack retaining a 70% share of future revenues during the initial term of 3 years.  Bidstack acts purely as the technology provider, empowering sports teams to reach fans within their virtual stadiums;

·      Following a comprehensive business review on the back of commercial partnerships announced a restructuring programme has been implemented to reduce monthly cash burn and prioritise resources.  The rationalisation in headcount, rephasing of hires, working capital management and reduction in operating expenses should deliver c.£3m p.a. of annualised savings;

·      Donald Stewart (Non-Executive Director) and Glen Calvert (Non-Executive Director) stepped down from the Board at the end of the Annual General Meeting on 21 July 2023;

·      Thomas Bullen (CFO) will step down from his role with immediate effect.  The Company will commence a search for a successor.

Current trading and outlook

As we reach the end of Q3, the Board now anticipates that revenue for FY23E will fall significantly short of previous market expectations, however due to improving gross margin and cost savings, EBITDA should be broadly in line. However, the Board believes that the outsourcing of our sales efforts should allow the Company to focus on its technology platform.

The business is transitioning to its next phase of growth however the following factors have impacted market expectations for the year:

·      The transition from in-house direct sales to Venatus in Q3 2023, the onboarding process is progressing well to ensure a healthy Q4 2023 and strong start to FY24.

·      The proposed licensing agreement with VST, subject to contract, includes a licence fee of £1.5m (two equal instalments of £0.75m paid quarterly in advance). 

·      Over the past several months, the Board and the Management team have diligently examined numerous possible financing options with the primary aim of securing the necessary capital to address the Company's immediate and mid-term funding requirements. After an extensive search for the best route to access capital by the Group, the Independent Directors believe that the proposed transaction announced with VST today, albeit a related party transaction and subject to contract, represents the best value for shareholders at this present time. However, the Board will continue to keep all future funding options under review.

·      The technical development of the open marketplace has unfortunately taken longer than anticipated.  While we do not expect open marketplace to be the primary source of company revenue going forward due to the increased focus on technology licensing, we are continuing to pursue this initiative to generate additional passive income from our existing mobile publishers.

·      Operating cost reductions should lower FY23E operating costs by c.£2m and generate annualised savings of c.£3m p.a. 

At the same time the Company will continue to pursue its claim against Azerion.

Dr. David Reeves, Chairman, said:

"The Board is pleased with the proposed acceleration of the business towards a technology licensing business.  The announcement of the partnership with Venatus and proposed agreement with VST in quick succession should enable the business to move rapidly to further adapt its cost base.  Looking ahead, Bidstack should now be well positioned to generate recurring revenue and capture upside potential.  I would like to thank the Board and management team for the hard work over the past six months."

James Draper, Chief Executive, said:

"The first six months of trading highlights the underlying growth in in-game advertising and was a crucial period in identifying opportunities to scale revenue which is evident in the shift in focus to enterprise customers.  This has led to some tough decisions regarding the personnel within the Group as we reviewed how we take our products to market.

The partnership with Venatus on our network gives Bidstack a well-respected partner in gaming as we generate revenue through brand activations for our contracted game publishers.

The proposed partnership with VST should empower our talented team to focus on the technology and supporting our customers.

The clear actions and positive financial impact over the medium to longer term of outsourcing media and technical sales concentrates Bidstack's efforts on compounding revenue with similar commercial prospects across other network and publisher partners."

For further information please contact:

Chairman's Statement

H1 2023 Trading and Post Period Updates

During the first six months of the year, Bidstack demonstrated underlying revenue growth and significant progress around enterprise customers. This has enabled rapid implementation of cost restructuring action and favourable product mix effect on gross margins taking effect from H2 2023 onwards.

Revenue has been predominantly driven by an internal direct sales strategy following the termination of the Azerion commercial partnership in December 2022.  The underlying revenue performance H1 2023: £1.967m (H12022 £0.4m ex-Azerion) represents c.400% increase from growing campaign sizes and rebookings with blue chip brands across all categories such as Kroger, Nerdwallet, JP Morgan Chase, Apple Arcade, McDonalds, Magnum, Samsung and Skoda.  This demonstrates a strong recovery as Bidstack adapted by re-engaging with agencies and programmatic platforms to maintain market share.  However, the strategy to outsource sales and identify a partner was a high priority for the management team.

The roll out of the open marketplace, a key revenue initiative faced technical delays and has unfortunately taken longer than anticipated which has hampered revenue expectations for the year.  While we do not expect the open marketplace to be the primary source of company revenue going forward due to increased focus on technology licensing, we are continuing to pursue this initiative to generate additional passive income for the existing mobile publishers. 

After the period end, Bidstack is accelerating its transition into an accretive technology licensing model.  This includes the outsourcing of its ad-network sales to gaming specialist agency Venatus and the proposed partnership with sports marketing agency Virtual Sport Technology to sell Bidstack's platform to sports leagues, teams and publishers.  

Outsourcing Bidstack's in-game advertising network to Venatus

The partnership with Venatus, a gaming specialist agency, commenced on the 4th September 2023 with the combined objective to aggressively accelerate market share gains and industry growth.  Venatus was founded in 2010 by Rob Gay (CEO) and Matt Cannon (COO) and is based in London with offices in New York, Los Angeles, Sydney and Seoul.  In 2021, Livingbridge private equity invested behind the global expansion of Venatus which is most recently reflected in key hires in the US.

Venatus has sole ownership of direct sales of Bidstack's in-game inventory across US, UK, Germany, Canada, Australia and South Korea leveraging its extensive global sales presence.  The access to Bidstack's intrinsic in-game network adds another dimension to the Venatus offer which centres on campaigns in-game, next to the game and around the game.

Bidstack and Venatus have historically worked together and both are pleased to leverage their relationship and synergies.  This partnership plays to Venatus' strength as a proven sales house within the gaming segment of the advertising industry and solidifies Bidstack's role as a technology provider.

Proposed multi-year licensing agreement with Virtual Sport Technology Limited

Sports leagues and teams have long been identified as enterprise customers of Bidstack's platform.  Until now, Bidstack and its competitors have been unable to monetise sports games within a fully licensed stadium due restrictions from official sponsors.  By placing the control of the brand activations into the hands of the leagues and teams, these licensed stadiums become monetisable for Bidstack's partners.  Bidstack acts purely as the technology provider, empowering sports teams to reach fans within their virtual stadiums with a level of targeting and flexibility that has never been possible in the world of sport before.

The non-binding heads of terms terms for the proposed the multi-year licensing agreement with VST, which remains subject to contract, are as follows:

●     Bidstack would provide VST worldwide third party exclusivity to provide access to Bidstack's proprietary video game content management platform to rights-holders including sports leagues, teams and publishers for an initial term of three years with a further three year extension mutually available;

●     VST would pay Bidstack a licence fee of £1.5m (two equal instalments of £0.75m paid quarterly in advance);

●     Bidstack would provide certain support services to VST in consideration of a quarterly service fee of £45,000; and

●     Bidstack would capture upside of the growth potential through retaining a revenue share of 70 per cent.

As part of these arrangements, certain Bidstack employees would transfer their employment to VST with the consequent cost saving to Bidstack.

Cost savings

Following a comprehensive business review, a restructuring programme has been implemented to reduce the monthly cash burn and prioritise resources.  The Directors believe that the rationalisation in headcount, rephasing of hires, working capital management and reduction in operating expenses delivers c.£3m p.a. of annualised savings.  This is primarily driven by the positive impact of outsourcing of commercialisation to external parties whilst operating on a leaner cost base.

Board Changes and Review

As announced on the 18 July 2023, the Company has been undertaking a review of the respective roles and responsibilities of the Board. 

Following the Company's Annual General Meeting on 21^st July 2023, Donald Stewart (Non-Executive Director) and Glen Calvert (Non-Executive Director) both stepped down from the Board to focus on other business commitments.

Thomas Bullen (CFO) will step down from his role with immediate effect.  The Company will commence a search for a successor.

The Board will continue to evaluate its needs going forward and seek to review the structure, size, composition, skills and experience.  A committee of the Board shall make recommendations in regard to any adjustments considered necessary and the Company will make further announcements as appropriate.

Future Prospects

As we reach the end of Q3, the Board now anticipates that revenue for FY23E will fall significantly short of previous market expectations, however due to improving gross margin and cost savings, EBITDA should be broadly in line. However, the Board believes that the outsourcing of our sales efforts should allow the Company to focus on its technology platform.

The business is transitioning to its next phase of growth however the following factors has impacted market expectations for the year:

·      The transition from in-house direct sales to Venatus in Q3 2023, the onboarding process is progressing well to ensure a healthy Q4 2023 and strong start to FY24.

·      Signing of the non-binding heads of terms for the proposed multi-year licensing agreement with VST, for an initial £1.5m, with Bidstack retaining a 70% share of future revenues during the initial term of 3 years. 

·      The technical development of the open marketplace has unfortunately taken longer than anticipated.  While we do not expect open marketplace to be the primary source of company revenue going forward due to the increased focus on technology licensing, we are continuing to pursue this initiative to generate additional passive income from our existing mobile publishers;

·      Operating costs to reduce FY23E operating costs by c.£2m and generate annualised savings of c.£3m p.a. 

The recent developments enable Bidstack to scale revenue on a leaner cost base as it evolves into a technology provider empowering its enterprise customers.  Bidstack has improving visibility and commercial partnerships in place driven by:

·      Potential recurring revenue from VST's proposed licensing agreement that is expected to compound through retaining a revenue share;

·      Outsourcing of ad-network sales to Venatus' 40 gaming specialists in the following exclusive markets US, UK, Canada, Germany, South Korea and Australia;

·      Outsourcing of ad-network to remaining markets to known and trusted gaming specialists;

·      Optimisation of open marketplace in Q4 2023 and beyond following delayed rollout to generate passive revenue;

·      Benefit from rapid restructuring action that contracts the cost base as it migrates from a media model to a software-as-a-service model which significantly improves the working capital profile.

It is expected that the proposed commercial terms of the licensing agreement with VST and outsourcing of ad-network sales to Venatus will provide cash flow and limit dilution to existing shareholders.  However, the Board will also continue to keep all funding options under review.

Dr. David Reeves

Chairman

Unaudited Condensed Consolidated Statement of Total Comprehensive Income

for the interim period ended 30 June 2023

The above consolidated statement of profit and loss and other comprehensive loss for the period relates to continuing operations for the Group.