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MGT CAPITAL INVESTMENTS, INC. (MGTI)·Q2 2015 Earnings Summary

Executive Summary

  • Q2 2015 total revenue was $0.261M, down 18% YoY, with gaming revenue $0.249M down 12% YoY as the company reduced overlays to improve economics; gaming gross margin rose to $0.153M (61% of gaming revenue), up 32% YoY and 20% sequentially .
  • Operating loss narrowed to $0.855M from $1.527M a year ago and ~$1.3M in Q1 2015, driven by a 39% YoY and >30% QoQ reduction in operating expenses; EPS was $(0.06) vs $(0.15) YoY and $(0.11) in Q1 .
  • Strategic catalyst: the company expects to close the sale of its fantasy sports assets to Random Outcome/Sportech on or before August 31, 2015, with cash consideration exceeding $4.3M plus equity warrants and a residual stake, contingent on financing led by Macquarie Capital Markets Canada Ltd. .
  • No earnings call transcript or formal numerical guidance was provided; coverage is sparse and S&P Global consensus estimates were unavailable for MGTI this quarter, limiting “beat/miss” comparison .

What Went Well and What Went Wrong

What Went Well

  • Gross margin improved meaningfully: gaming gross margin rose to $0.153M (61% of gaming revenue), up 32% YoY and 20% QoQ due to reduced overlay strategy in guaranteed contests .
  • Cost discipline: total operating expenses fell 39% YoY and over 30% QoQ, driving operating loss improvement to $(0.855)M from $(1.5)M YoY and $(1.3)M in Q1 .
  • Strategic monetization: signed Asset Purchase Agreement to sell DraftDay/MGT Sports, targeting >$4.3M cash plus equity and warrants; management: “DraftDay could not be going into better hands, and we firmly believe our residual interest will undergo enormous appreciation under Sportech’s leadership” .

What Went Wrong

  • Top-line pressure: Q2 2015 total revenue $0.261M fell 18% YoY; gaming revenue $0.249M down 12% YoY as the company prioritized margin over volume via reduced overlays .
  • Continued losses: net loss attributable to MGT was $(0.851)M and EPS $(0.06), reflecting small scale and transition phase ahead of asset sale .
  • Execution risk on asset sale: closing is contingent on buyer financing; terms amended to include $10K/day cash uplift to closing date and revised warrant structure, highlighting timing/funding uncertainty .

Financial Results

MetricQ2 2014Q1 2015Q2 2015
Total Revenue ($USD Thousands)320 217 261
Gaming Revenue ($USD Thousands)283 217 249
Licensing Revenue ($USD Thousands)37 0 12
Gaming Cost of Revenue ($USD Thousands)167 90 96
Gaming Gross Margin ($USD Thousands)116 127 153
Gaming Gross Margin (%)41% 58% 61%
Total Gross Margin ($USD Thousands)153 127 165
Total Operating Expenses ($USD Thousands)1,680 1,467 1,020
Operating Loss ($USD Thousands)(1,527) (1,340) (855)
Net Loss Attributable to MGT ($USD Thousands)(1,391) (1,294) (851)
EPS (Basic & Diluted, $USD)$(0.15) $(0.11) $(0.06)

Segment breakdown:

SegmentQ2 2014Q1 2015Q2 2015
Gaming Revenue ($USD Thousands)283 217 249
Licensing Revenue ($USD Thousands)37 0 12

KPIs and Balance Sheet snapshots:

KPIQ2 2014Q1 2015Q2 2015
Cash & Equivalents ($USD Thousands)1,455 (Dec 31, 2014) 1,380 1,097
Player Deposit Liability ($USD Thousands)952 (Dec 31, 2014) 773 742
G&A Expense ($USD Thousands)1,536 1,388 981
Sales & Marketing ($USD Thousands)91 79 39
R&D ($USD Thousands)53 0 0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Asset Sale Cash ConsiderationClose by end of Q2/Q3 2015$4.0M cash + up to ~$3.0M equity/warrants (total consideration ≈$7.0M) $4.0M cash plus $10,000/day from Jul 15, 2015 to closing; closing on/before Aug 31, 2015 at RO’s election Updated terms (raised cash via per‑day accrual)
Warrant StructureN/A1,000,000 one‑year warrants @ $1.00 1,500,000 three‑year warrants split: 500k @ $1.00, 500k @ $1.33, 500k @ $1.66 Revised/extended tenor and strikes
Residual Equity OwnershipPost‑closeUp to 7% RO common + 3% escrow shares 10% residual equity ownership in buyer referenced in Q2 PR (post amendments) Clarified residual stake
Closing Timeline2015“Before end of current quarter” (June) subject to financing Extended to on/before Aug 31, 2015 Timeline extended

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2014)Previous Mentions (Q1 2015)Current Period (Q2 2015)Trend
Fantasy sports asset monetizationN/A (not found)Reviewing multiple indications of interest; intends to monetize while retaining stake Signed APA with RO/Sportech; terms amended; closing targeted by Aug 31 Escalating from interest to binding transaction
Cost reductions/opex disciplineN/AOpex flat vs prior quarter; cash utilization trending lower Opex down 39% YoY and >30% QoQ, driving smaller operating loss Strengthening
Overlay strategy/marginsN/AN/AReduced overlays; gaming gross margin improved to 61% of revenue Positive margin mix vs volume
Liquidity/cash runwayN/ASufficient cash plus DraftDay gross margin to operate at least through Apr 30, 2016 Cash & equivalents $1.097M at 6/30; sale proceeds expected Neutral to improving if sale closes
Regulatory/legal/IPN/APatent assertions noted at company level No new legal updates this quarter Stable

Note: No Q2 2015 earnings call transcript located; only press releases and 8-Ks were furnished .

Management Commentary

  • “The Company adopted a strategy to reduce overlay in its guaranteed contests. As a result, the gross margin from gaming operations was $153,000 (61% of revenue), up 32% as compared to $116,000… and up 20% sequentially from… $127,000” .
  • On sale: “At closing, the Company will receive over $4.3 million in cash plus a 10% residual equity ownership in the buyer… fundraising… led by Macquarie Capital Markets Canada Ltd., although there can be no assurance… prior to the expected closing date on or before August 31, 2015.” .
  • Q1 stance: “The Company intends to monetize its investment and also retain a significant stake in the future of this explosive market.” .
  • Original terms: “Approximately $7.0 million in total consideration, including $4.0 million cash; MGT will also retain an equity interest… with an initial valuation of up to $3.0 million.” .

Q&A Highlights

  • No Q2 2015 earnings call transcript or Q&A session was filed or furnished; investor communications consisted of 8‑K items and press releases .

Estimates Context

  • Wall Street consensus estimates via S&P Global were unavailable for MGTI for Q2 2015; no numeric consensus EPS or revenue comparisons could be reliably sourced. As a result, no “beat/miss” table is provided for this quarter .
  • Given microcap coverage constraints and the pending divestiture, we expect limited estimate participation and potential need for models to update post-close with deconsolidation effects .

Key Takeaways for Investors

  • Margin-first strategy is working: despite lower revenue, gaming gross margin and margin percent improved materially QoQ and YoY, aided by reduced overlays; continued opex cuts narrowed operating losses .
  • Transaction is the near-term catalyst: closing the DraftDay/MGT Sports sale (cash >$4.3M plus equity/warrants, residual stake) could materially improve liquidity and strategic optionality; financing and timing remain key risks .
  • Balance sheet shows adequate liquidity ahead of close with $1.097M cash and declining player deposit liabilities; proceeds would add flexibility for corporate actions or pivot strategy .
  • Earnings quality: no non‑GAAP adjustments disclosed; loss trajectory improving primarily via cost actions rather than top-line growth—watch sustainability if overlays remain lower .
  • Post‑sale narrative likely shifts to value realization from residual equity/warrants in buyer and redeployment of proceeds; monitor disclosures on the closing, equity stakes, and any retained obligations .
  • With no analyst consensus available, near‑term trading will hinge on transaction milestones and liquidity signals rather than fundamental estimate revisions; headlines on closing could drive volatility .