BIDS.L Regulatory News (BIDS)

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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 21st 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.

Unaudited Condensed Consolidated Statement of Financial Position

as at 30 June 2023

The interim financial report was approved by the board of Directors on 29 September 23 and signed on its behalf by:

David Reeves

Chairman of Bidstack Group Plc

Unaudited Condensed Consolidated Statement of Changes in Equity

for the six months to 30 June 2023

Unaudited Condensed Consolidated Statement of Changes in Equity

for the six months to 30 June 2022

Audited Consolidated Statement of Changes in Equity

for the year ended 31 December 2022

Unaudited Condensed Consolidated Statement of Cash Flows

for the interim period ended 30 June 2023

Notes to the unaudited interim report for six months ended 30 June 2023

1 General information

The Company is a public limited company which is admitted to trading on the AIM Market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of the registered office is Wework The Hewett 3rd Floor, 14 Hewett Street, London, United Kingdom, EC2A 3NP. The registered number of the company is 04466195.

2 Basic of preparation

The condensed consolidated interim financial statements consolidates those of the Company and its trading subsidiaries, Bidstack Limited, Pubguard Ltd, Bidstack SIA, Bidstack Technologies Ltd, Bidstack Sports Limited and Bidstack Inc. (together the "Group") for the six months ended 30 June 2023. These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.

These condensed consolidated interim financial statements have been prepared in accordance with the AIM rules and the recognition and measurement requirements of UK-adopted International Accounting Standards ("UK-IAS") and adopting the accounting policies that will be applied in the 31 December 2023 annual financial statements.

These condensed consolidated financial statements should be read in conjunction with the financial statements for the year ended 31 December 2022, which is available on the Group's website at www.bidstack.com.

3 Accounting policies

Going concern

The interim results have been prepared on a going concern basis which assumes that the Group will be able to continue trading for the foreseeable future. Although an operating loss has been reported for the reporting period and an operating loss is expected to be incurred in the 12 months subsequent to the date of this report, the Directors believe, having considered all available information, including the cash resources currently available to the Group, that the Group will have sufficient funds to meet its expected committed and contractual expenditure for the foreseeable future. Thus, the Directors continue to adopt the going concern basis of accounting in preparing the interim financial report for the period ended 30 June 2023.

Summary of significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in the financial statements disclosed as at and for the year ended 31 December 2022.

4 Critical accounting judgements and estimates

The preparation of the condensed consolidated interim financial statements requires directors to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these judgements and estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the audited consolidated financial statements for the year ended 31 December 2022.

5 Loss per share

Basic and diluted loss per share

The calculation of basic and diluted loss per share is based upon the loss of attributable to equity holders divided by the weighted average number of shares in issue during the period.

The loss incurred by the Group means that the effect of any outstanding warrants and options would be considered anti-dilutive and is ignored for the purposes of the loss per share calculation.

All ordinary shares are equally eligible to receive dividends and the repayment of capital and represent equal votes at meetings of shareholders.

6 Share based payment expense.

The calculation of the share-based payment expense is based on the grant date fair value to establish the fair value per instrument. This fair value is multiplied by the number of options that are expected to vest after considering performance conditions and the likelihood of these performance conditions being met.

In the six months to June 2023, the revenue targets set as performance conditions the for the LTIP awards made in December 2021 ("LTIP 2021") and LTIP awards made in December 2022 ("LTIP 2022") are now not expected to meet the minimum threshold for vesting for the year ended 31 December 2023. The revenue targets for FY2024 and FY2025 for both LTIP 2021 and LTIP 2022 are currently expected to be met.

The result of result of this is a remeasurement to the options expected to vest and reversal of the expense associated with these options equates to £458,032, which has been offset against the underlying charge for options continuing to vest as normal.

7 Intangible assets

Research and development costs are internally generated intangible assets associated with the development of the Group's products. 

8 Trade and other receivables

The Group applies the IFRS 9 simplified approach to measuring expected credit losses (ECL) which uses a lifetime expected loss allowance for all trade receivables. The trade receivables do not contain a significant financing component as the credit terms offered by the Group to its customers are 45 days. 

The Group measures ECL based on historical data by determining the historical default rates to be applied to the Group's trade receivables. The Group adjusted the historical default rates to incorporate forward looking information looking at any linear or non-linear relationships that could impact the Group's credit losses.

The Group apply those default rates against the trade receivables that have been analysed out into time buckets based on their risk profile to determine the ECL to be applied. The Group separately assesses the trade receivables for any bad debt provisions.

During the period end 30 June 2023, the Group has made a nil bad debt provision against the trade receivables. 

9 Share capital and share premium

All ordinary shares are equally eligible to receive dividends and the repayment of capital and represent equal votes at meetings of shareholders.