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Edited Transcript of GAN.L earnings conference call or presentation 13-Sep-19 3:00pm GMT

Half Year 2019 GAN PLC Earnings Call

London Sep 21, 2019 (Thomson StreetEvents) -- Edited Transcript of GAN PLC earnings conference call or presentation Friday, September 13, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dermot Stopford Smurfit

GAN plc - CEO & Director

* Rey del Valle

GAN plc - CFO

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Conference Call Participants

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* Brian David Kinstlinger

Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst

* John Cassarini;JAC Capital Advisors, LLC

* Joseph Robert Stauff

Susquehanna Financial Group, LLLP, Research Division - Credit Analyst

* Michael Mitchell

Davy, Research Division - Gaming and Leisure Analyst

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Presentation

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Operator [1]

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Greetings, welcome to GAN First Half of 2019 Financial Results Conference Call. (Operator Instructions) Please also note this conference is being recorded. I will now turn the call over to Rey Del Valle, CFO of GAN. Mr. Del Valle, you may now begin.

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Rey del Valle, GAN plc - CFO [2]

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Hello, everyone, and welcome to GAN's 2019 Half Year Earnings Conference Call. I'm Rey Del Valle, GAN's Chief Financial Officer. With me today is Dermot Smurfit, our CEO.

Earlier today, we released a press release disclosing our key operational and financial highlights. Please note that we will also be using an investor presentation as an accompaniment to this call. For those of you interested in following along, please visit our website at www.gan.com. We will refer to this presentation throughout this discussion.

And now, a brief statement about our safe harbor. On today's call, we will provide you with information regarding our half year 2019 performance. During this call, Dermot and I may provide forward-looking statements. Any statements referring to expectations, projections or other characterization of future events, including financial projections or future mark-to-market conditions, is a forward-looking statement based on assumptions as of today. Actual results may differ materially from those expressed in these forward-looking statements. Please keep in mind that we are not obligating ourselves to publicly release revisions of these forward-looking statements in light of new information or future events.

Our commentary today will also include non-GAAP financial measurements, such as Clean EBITDA. We believe that non-GAAP financial measures can provide additional tools for investors to use in evaluating operating results and trends. These non-GAAP measures should not be considered in isolation or as a substitute for the financial information prepared in accordance with IFRS, the International Financial Report Standards. Please refer to our 2019 H1 results publication for more information.

And now, I'll turn it over to Dermot Smurfit, GAN's CEO.

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Dermot Stopford Smurfit, GAN plc - CEO & Director [3]

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Thank you, Rey. Overall, we couldn't be happier to report these interim results. We've delivered a huge positive swing in revenues, delivered our maintenance cash profit and made more revenue in the first 6 months of this year than we did in the whole prior year, all driven by real money Internet gambling in America, which remains the most exciting growth opportunity for us and anyone taking part in this industry.

I'm turning now to Page 4 of the presentation. I'll take the opportunity on behalf of our Board of Directors to thank all of our employees for their contributions throughout the first half of this year, an exceptionally busy 6 months in which Internet sports betting in America has dominated our client's priorities and our own internal strategic agenda, a subject which I will return to later on in this presentation.

Today's agenda will provide a narrative on the first 6 months of 2019, but perhaps, more importantly, will serve as a guide to our path forward. It is with extreme satisfaction as the CEO of GAN and the representative of all GAN employees that I present these results to all fellow shareholders, results which deliver on the key promises made in the recent past that this company will transition to positive EBITDA and positive cash flow in 2019. And GAN has delivered the U.S. Internet gambling opportunity to its clients, and in return, are being rewarded by the operating leverage inherent in our software-as-a-service model where our clients' revenues can scale rapidly through our technology platform.

GBP 3 million of EBITDA and positive cash flow in the first 6 months bodes extremely well for the balance of 2019.

On the next Slide, #5, it is with an equal amount of satisfaction that I provide the market with an update on our strategic review process which culminated in the decision yesterday by your Board of Directors to end the formal sale process and push forward with listing on a recognized investment exchange in the United States as soon as reasonably practical. Furthermore, it's worth stating unambiguously that there is significant continuing interest in GAN originating from both the casino equipment manufacturer space as well as the casino operator industry in the United States, which during the process, resulted in multiple bids being received from multiple bidding parties. These bids did not reflect the current or future value of GAN, given the explosive market growth.

While we continue through this strategic process, the market accelerated at a rapid rate, accelerating even faster with the launch of Pennsylvania. Your Board of Directors, who exercise their individual and collective judgment as well as accepting the objective advice from our mandated U.S. investment bank union gaming as well as our nominated adviser and broker, Davy Research in Dublin as well as our joint broker, Liberum, in the United Kingdom. Simply put, our exciting growth year-to-date made it impossible to accept bids from interested parties who are relying on our published 2018 financial performance and not on information published to the market today.

U.K. listed companies are legally prohibited from sharing information with interested parties during a sale process which is not already in the public domain or the public market, and such prohibition extends to providing forward-looking forecast. Accordingly, the information on our strong trading year-to-date and our material success licensing our strategic patents could not be shared with those interested parties until today. As a point of reminder, despite the cessation of the formal sales process today, we remain a publicly listed company and will carefully consider any and all unsolicited bids from credible, interested parties in the normal course of conduct. Furthermore, the offered value failed to recognize the overall strategic value now substantially realized of GAN's U.S. patent for integrating on property casino reward programs with our Internet gambling technology. The patent license fee of GBP 3 million is a culmination of several years' investment in procuring, protecting, and now, commercializing the patents, which many industry stakeholders will now accept has become an essential component in enabling U.S. casinos to leverage their retail properties and reward programs and compete effectively online against online-only operators of Internet gambling.

Remaining on this slide, I'll take a moment to reflect on promises made by me of the market in both September of last year and March of this year. I said then that we were transitioning to positive cash flow and will deliver positive EBITDA in 2019. I said that significant EBITDA margins were possible. We have now delivered them, and while there is deep, personal satisfaction in that delivery, there is greater personal imperative to recognize that this is a collective achievement delivered to our shareholders by my colleagues, those highly committed specialists employed by GAN across both coasts of the United States, in the U.K. and in Bulgaria and in Israel.

On Slide 6, this anonymized visual depicts the astonishing growth we witnessed in daily active gamblers across all of our U.S. clients operating real money Internet gambling on GAN's technology, across the 2 United States of New Jersey and Pennsylvania. GAN achieved an all-time record of real active money gamblers on a single day last Sunday, the first Sunday of the new NFL American football season, which will culminate in Super Bowl next February, when we anticipate managing hundreds of thousands of real money gamblers actively gambling online on that day, the biggest single day event on the U.S. sporting calendar.

Before I hand over to our CFO, it is worth reflecting on regulation of Internet gambling in America. In 2013, 3 U.S. states regulated. For nearly 4 years after 2013, little happened until Pennsylvania regulated Internet gambling in October of 2017. Then several months later, in May 2018, the Supreme Court lifted the federal ban on sports betting, and GAN launched Internet sports betting in New Jersey for our clients just 4 months later.

In the first 6 months of 2019, we've all witnessed a phenomenal amount of regulatory action in America. The indolent political pontification of prior years was replaced with hard legislative action in 2019, which in the first half saw bills enabling Internet gambling pass in Rhode Island, Montana, Indiana, Iowa, Tennessee, and perhaps most significantly, the state of Illinois, which surprised everyone back in June by legalizing Internet gambling on the last day of the Illinois legislative session. Each legislative bill passed into law creates a step change in the addressable market for U.S. Internet gambling operators and their infrastructure providers such as GAN. And I'm delighted to devise that GAN has recently received notice from an existing client for launch Internet sports betting in the state of Indiana, subject to regulatory consents. This existing client wishes to remain anonymous pending all parties' receipt of necessary regulatory consents, and we look forward to updating the market further in due course. The state of Indiana offers our shareholders to a population of 6.7 million and represents the third United States state that GAN will operate our technology platform in, having long established ourselves in New Jersey, and more recently, in the popular state of Pennsylvania.

I will now hand back to our Chief Financial Officer who will take us through the half-year financial highlights starting on Slide 8.

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Rey del Valle, GAN plc - CFO [4]

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Right. Thanks, Dermot. I'm pleased to report that GAN achieved profitability in H1, not only at the Clean EBITDA level, but also at the after-tax net income level. Let's review the financials starting with Slide 8.

2019 H1 total net revenues of GBP 11.3 million increased GBP 6.7 million from last year, a 145% increase. U.S. Real money gaming led the way with net revenues growing to GBP 6.6 million from GBP 600,000 last year. These revenues were stacked on the foundation of our Simulated Gaming in Italy businesses, which continue to drive recurring revenues and steady growth. Simulated Gaming net revenues of GBP 2.3 million grew 8% from last year. Italy's net revenue of GBP 1.8 million grew just over 2% from last year.

Next, we'll review Slide 9. For the full year of 2018, net revenues totaled GBP 10.6 million. We have exceeded that amount in just the first 6 months of 2019, with net revenues totaling GBP 11.3 million. Recurring revenues continue to grow. At the halfway point of 2019, we have already achieved over 70% of the recurring revenues recognized in all of 2018. Coupled with the launches in the second half of this year, which Dermot was just mentioning, bodes well for full year 2019 recurring revenue growth over last year.

On Slide 10, we see that Real money gaming revenues have increased GBP 6.5 million, an increase of 263% to GBP 9 million. This GBP 9 million total breaks down as following: It's GBP 4.3 million of recurring revenues, so this is from revenue shares and marketing services. So this recurring revenue line is up 103% from last year. GBP 1.7 million of additional fees related to development. And the GBP 3 million for the patent license. Simulated Gaming revenues are up 8% year-over-year to GBP 2.3 million, all of which is recurring.

Turning to Slide 11, we will review the overall financial picture. Net revenues grew 145%, and we keep repeating that because it's worth noting. Net revenues increased 145% to GBP 11.3 million in 2019 on the strength of U.S. Real money gaming, as we have been discussing. More importantly, because of our scalable model, most of this incremental revenue fell to the bottom line, which turned GAN EBITDA positive and net income turn positive. Clean EBITDA for the first half was a positive GBP 3 million. It's a GBP 3.4 million increase over the same period last year.

Balances of cash and equivalent increased from GBP 5.1 million last year to GBP 9.1 million this year as a result of improved cash management and also the growth of our business in the Real money gaming experience.

On Slide 12, we'll review expenses.

GAN's overall cost base totaled GBP 10.5 million in the first half of 2019, so it increased GBP 2.5 million over last year. It's important to note that much of this increase, GBP 1.9 million of that increase, was related to variable costs that increase directly with revenues. The remaining changes are related to previously announced staffing increases supporting the growth of new and existing contracts.

For further details, please refer to the 2019 half year financial results announcement that was posted today on gan.com.

I will now hand you back to Dermot to take you through the rest of the presentation.

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Dermot Stopford Smurfit, GAN plc - CEO & Director [5]

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Thank you, Rey. I'll now concentrate on our 2019 outlook, starting on Slide 14, which I'll ask you all to turn to now.

First, a powerful perspective. One year ago, on the first NFL Sunday of online sports betting, we had a little more than 5,000 people gamble online in our platform. Last Sunday was the same day just one year later, we handled upwards of 70,000 people who gambled on our platform on that same single day.

On the right-hand side, you'll see set out here, our quarterly key performance indicators. We've not actually offered an estimate for Q3 here due to the remaining 2 weeks in September and the extraordinary ramp-up of real money Internet gambling we've seen in Pennsylvania alongside New Jersey, which means we'll actually hold off for a change and update the market with complete calendar quarter 3 KPIs in early October.

As for an outlook governing the full year 2019, we are experiencing substantial growth in both Internet sports betting and casino gaming from existing clients in existing states. We also anticipate launching Parx casino in the neighboring state of New Jersey in early Q4, and repeat the fact that GAN has now received notice from an existing client to launch its Internet sports betting in the state of Indiana, subject, of course, to regulatory consent.

Beyond 2019, we can see a period of rapid, continued regulation of Internet gambling, and offer as a borrowed fact from Eilers & Krejcik Gaming, a leading U.S. research firm, that 32% of the U.S. population is now living in a state that has authorized sports betting.

Please join me on the next page where we set out additional information on the strategic review process, which started on March 29 this year and ended today, with a determined conclusion to list on a recognized investment exchange in the United States as a way of ensuring GAN has access to a natural audience of investors aligned with the business generating nearly 80% of its revenues from America.

On the next slide, Slide 16, we set out the pathway to listing in the United States as soon as recently practical, and have already appointed a senior consultant to help me as CEO manage the process as efficiently and rapidly as possible. The higher valuations awarded to software-as-a-service companies in the United States on equity capital markets are an obvious motivation, and we believe we have determined a viable path to securing such listing to materially benefit all shareholders in due course.

And in conclusion, on Slide 17, we have delivered solid financial results and we will continue to deliver for our clients, our shareholders and our employees. GAN is the leading provider of U.S. Internet gambling solutions today based on the aggregate Internet gambling revenues enabled by our platform in both New Jersey and Pennsylvania year-to-date. This achievement required extraordinary commitment in capital and time to position GAN to enjoy the benefits of delivering more U.S. casinos online as real money Internet gambling continues to regulate in what will surely be the largest and most lucrative market anywhere in the world.

And as a message to personal friends, former Chairman, our employees worldwide, I just want to say thank you for all of your support over the years. Reaching this point is a significant personal achievement, and I could only have done it with all of your support over an extended period. Thank you, everybody for listening to our presentation today. Operator, we're now happy to take any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Brian Kinstlinger with Alliance Global.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [2]

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As we look at New Jersey in terms of the month-to-month state winnings that you've talked about, is your growth tracking similarly? Or should we think about your share of the market gaining, and so then your numbers will be growing faster?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [3]

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Thanks, Brian. That's a great question. So let's just look at H1. As an example. We saw our clients, our combined clients, increasing the aggregate market share in New Jersey overtime. So not only are we tracking New Jersey growth, but we're exceeding that as a result of our clients steadily increasing market share through the back end of last year and the first 6 months of this year.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [4]

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And would you say the driving factor is because of the stronger sports brand that your customer or customers have, which is driving them more share to casino gambling. Is that how we should think about it?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [5]

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Yes. I mean there is a significant and widely discussed in the industry cross-sell for sports gambling into casino gaming. It is very significant, and we're not in a position to comment on actual percentages. But directionally, 15% to 20% of sports gamblers appear to be cross selling into the casino, and there is substantial room for growth, and that percentage of the total appears to be steadily increasing.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [6]

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Great. And then in terms of Pennsylvania, I know Parx has, right now, the quarter -- sorry, end of the half launched. Can talk about early execution there. And I don't know if you can give investors an idea since we're so far away, of how that's tracking for you guys, maybe in terms of revenue or in terms of player adoption. Any kind of metrics that can speak to how that's performing.

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Dermot Stopford Smurfit, GAN plc - CEO & Director [7]

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Well it's been an extremely rapid ramp-up. So we launched Internet sports betting in June. So just caught the tail-end of the second -- the first half year period. So not much in H1 came from Pennsylvania. But as we proceeded through the months of July and August and into September, we've seen Pennsylvania make a very significant contribution. And it's not as big as New Jersey, but it's directionally getting there, and it's certainly substantially more than half the level of activity in daily active gamblers as we see in New Jersey. So we will be surprised by the rapid ramp-up of Pennsylvania.

And just to guide everybody on this call, not just yourself, Brian, these numbers will be in the public domain. So Pennsylvania is reporting on a monthly basis. We've been diligently reporting New Jersey's numbers as they come out, packaging them for easy consumption for GAN shareholders, and we will do the same for Pennsylvania. So Pennsylvania's on a slightly different clock, but you'll start to see RNSs being published at the London Stock Exchange relating specifically to Pennsylvania and our client's performance in that state.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [8]

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Great. 2 more questions, and I'll get back in the queue. First of all, in terms of West Virginia, do your customers already have a regulatory license? And then in general, once one of your customers have a regulatory license in place, how long did that take you then to launch a new site?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [9]

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Okay. Let's just generally say that when it comes to West Virginia, we participate in the revenues generated in West Virginia in the way that we expected and announced back in January of this year. But when it comes to the licensor of our clients, it's really a matter for our clients to comment on, what I can say is we move very quickly to get licensed in whichever state we need to. We're currently picking up sticks on licenser in the state of Indiana, which will take place -- or at least see us submitting an application over the course of the next couple of weeks. We're deep in the weeds on the Pennsylvania licensing process, which appears to be making excellent progress and should put us in position to receive our license in -- our full unqualified license in Pennsylvania in Q4 this year. And from our perspective, when a state passes legislation, there appears to be a delay between the bill and the market actually commencing of anywhere from 6 months, all the way up to 22 months, 22 months being the time it took Pennsylvania to actually launch since they regulated in October of 2017. And we think Pennsylvania's been an outlier, but somewhere within that range is where we reasonably expect most states to be. And from our standpoint, obviously, one of GAN's key asset is our compliance profile. We're good guys doing good business in every jurisdiction we go into. So from a licensing standpoint, we don't think it's complicated for GAN to get licensed. Certainly, that's been evidenced by New Jersey and the rapidity with which we received our full CSIE license in New Jersey. And we expect similar amounts of rapidity in Pennsylvania. So licensor, from our standpoint, is not a problem, although there are other companies in the United States who have already struggled with licensor, and will continue to struggle with licensor because of actions or business they chose to pursue in jurisdictions where they probably should not be taking bets. And I'll just leave it at that.

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Operator [10]

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(Operator Instructions) The next question is from the line of Michael Mitchell with Davy.

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Michael Mitchell, Davy, Research Division - Gaming and Leisure Analyst [11]

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Firstly, just in terms of understanding the prospects for adding additional clients on the real Moneygaming side, maybe you can talk about the outlook over the next 6 to 12 months in terms of adding new clients. And specifically within that, maybe if you could comment on whether they would likely to be in incremental states? Or actually, could you add new clients in existing states where you already have relationships and activity? And also, what kind of resource requirements internally this requires, if any, to add new clients in terms of scaling that platform?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [12]

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Thanks, Michael. Appreciate it. Yes, so we hope and expect to bring on board additional new U.S. casino operator groups as clients of GAN's technology and services in new and incremental states. So our story right now for the next 18 months isn't just about our existing clients in the existing states, or existing clients expanding into incremental states. We have a very solid sales pipeline. We nurture it and we yield it in an intelligent, logical way. So we try not to engineer car crashes. You don't want to have too many clients trying to launch at exactly the same time. So we do see incremental states. In addition to the state of Indiana, we got near-term visibility in other states, and we will, of course, update the market in due course. And then when it comes to resources, we're in pretty good shape at the moment. There will be selected incremental technology recruitment principally in Bulgaria and in Las Vegas over the coming 12 months or so. But we don't see any major ramp up, unlike, say, the second half of last year, where we made it abundantly clear that we were accelerating our onboarding of additional technology engineering resources, and that's a process which finished substantially in the first half of this year.

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Operator [13]

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The next question is from the line of John Cassarini with JAC Capital.

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John Cassarini;JAC Capital Advisors, LLC, [14]

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Great quarter, as usual. Can you hear me okay, Dermot?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [15]

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John, no problem.

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John Cassarini;JAC Capital Advisors, LLC, [16]

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Dermot, as you have similar clients in multiple jurisdiction states as you may, how does the benefits and the synergy of having clients in those jurisdictions help you gain market share and the strategic value of doing that?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [17]

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Yes, so there's enormous value that accumulates in years to GAN's benefit by being an incremental state. So if you're a technology platform that's up and running in New Jersey, that requires a massive amount of technology functions and optimizations. But then when you extend across the state line into Pennsylvania, while Pennsylvania regulations require yet another set of incremental technology functions and even games that are required to comply with certain different rules, like blackjack. So as you move from one state to another, and another, GAN as a technology platform gets more scarce and more valuable, because not only are we optimized extremely efficiently to convert marketing dollars into depositing players successfully, but we're also optimized to deploy clients in multiple different states, and it means we can get to market fastest. Because if another state publishes their own regulations, which represent a bunch of new things we have to develop, it's typically an incremental development cycle. It's 10% to 15% extra efforts on top of the initial effort to get live in a state like New Jersey. And America is different. It's not the same as Europe. European guys arriving, making landfall in New Jersey, it's just the beginning for them and their technology platform. It takes years of painful execution to implement not hundreds, but thousands of micro optimizations to ensure that all important conversion funnel is as effective as possible for your clients to turn their marketing dollars into first-time depositing players. And that's one of the core competitive advantages that GAN enjoys today. And we expect that to accelerate and get more advantageous to us over a period of time.

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John Cassarini;JAC Capital Advisors, LLC, [18]

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Great, excellent. Thank you. One follow up. Now that you've crossed into solidly profitable EBITDA territory, how should we think about each marginal dollar of revenue, how much of that should flow to the bottom -- the operating income line?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [19]

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I'll invite my CFO to comment on that.

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Rey del Valle, GAN plc - CFO [20]

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So John, it really depends on the source of revenue, but we're looking at about 65% of incremental net revenues falling straight to the bottom line.

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Operator [21]

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(Operator Instructions) The next question is from the line of Joe Stauff with Susquehanna.

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Joseph Robert Stauff, Susquehanna Financial Group, LLLP, Research Division - Credit Analyst [22]

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I wanted just to ask a couple of questions. Just on kind of like the status of where we are. I mean, in terms of the U.S. or evolution in online, there was obviously a rush to -- before, a lot of operators to get up and running. Kind of at the time, some were paying attention and some weren't to pass the end result ruling. And I was wondering basically some operators did choose quickly a platform provider or a competitor of yours. And I was wondering if any of those contracts are up and how you think about possibly winning them at this point in terms of your future pipeline. Or whatever you can share with us.

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Dermot Stopford Smurfit, GAN plc - CEO & Director [23]

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Yes. No problem, Joe. So there's, at the very highest level, it's all terribly reminiscent of a period in 2012 and early 2013 when all the New Jersey casinos were jumping up and down and waving and saying, who wants to be our technology platform provider? Or who wants to come in and effectively we're going to outsource Internet casino gaming to you guys or Internet poker to you guys. So skip forward to 2018, of what happens, there's obviously an influx of kind of European [REBs] who turn up in the United States and start waving big bags of cash around in order to win the hand of marriage of certain very large multistate, multi-property casino groups. That's exactly what we expected. However, a lot of these companies are B2C operators. They're not really B2B technology platform providers, not geared up in any real way at the technology level or the management level to serve very large, complicated multistate, multiproperty casinos. And they also don't enjoy the strategic advantage of being able to enable their clients, the casino operator, to integrate and properly leverage the rewards programs they built up over the years or decades. So we're patient, Joe. We tend to say, look, we're going to be in multiple different states at a time. We do believe we will kick certain direct competitors out of bed and take over their business. We do expect certain joint ventures that are being formed in a very flashy manner will fall apart because they just don't achieve what they set out to achieve. And certain big companies whether its 10 years' time or whatever the duration of the joint venture, the big multistate, multi-property operators will evaluate the performance and decide to take it in house. And at that point, they will look to partner with a company like GAN or perhaps one of our direct competitors because we are B2B enablers of casinos to move online, not just with the technology, but also with the services. So I think it's a very, very complex landscape. It offers us abundant opportunity today and in the future. And we clearly concluded that our future is extremely bright as an independent entity, specifically designed to move U.S. casinos online. I hope that answers the question. Feel free to ask the same thing again in a slightly different away if that's helpful to clarify.

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Operator [24]

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(Operator Instructions) We now have a follow-up question from Brian Kinstlinger with Alliance Global Partners.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [25]

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Great. I've got a few more. So a handful of states, obviously, have legalized sports and casino gaming. And as you grow, clearly, you said in the near term, 55% maybe drops to the bottom line of revenue. But at what point and what kind of scale would you need to add additional infrastructure to support that?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [26]

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The right way to looking -- of looking at it is the number that I'm talking about, and it's actually about 65%. That actually even includes incremental resources that would be necessary. If you were to look at it just status quo infrastructure or people resources, it could be 75% dropping to the bottom line. So it's about 10 points for incremental infrastructure to help support the growth.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [27]

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Great, that's helpful. And then maybe you can help investors understand the opportunity for their license fees of your patent. Obviously, you generated GBP 3 million of revenue, and that's not recurring. But is there opportunity to continue to sell this? And what is the opportunity?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [28]

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Sorry, Brian, just you broke up a little bit there. Would you mind repeating the question?

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [29]

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Yes. In talking about the patent that you generated GBP 3 million from, is there additional opportunity? I mean can you sell this patent? Or are you seeking fees for this patent for additional operators?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [30]

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Yes. So it's, again, as with all things U.S. related, it's complex. Firstly, it was GBP 3 million, not USD 3 million. I think the FX rate hasn't yet reached parity, but soon.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [31]

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(inaudible)

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Dermot Stopford Smurfit, GAN plc - CEO & Director [32]

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But no. So we take great pains to ensure everybody is -- wherever there's intellectual property, and invite them not to infringe our intellectual properties. So I think a lot of casinos have moved online, have steered away from fully and automatically and seamlessly integrating their on property rewards programs. I think it's a bit of a wake-up call for U.S. casinos that they're getting their lunch eaten by the online-only daily fancy sports operators that have come into the market very aggressively and have done an incredibly good job at execution. So I think the casino executive audience, the mindset is changing substantially. They're beginning to realize, well, hang on a sec. Our brands are perhaps not as strongly relevant as the DFS brands, so we do need to leverage our core asset. And our core asset is our existing customer base that have signed up for our loyalty program. And it really does sit at the heart of land-based casinos ability to engage and compete online. And we've done it in Pennsylvania, and we see a very, very significant uplift in value from patrons who have connected their rewards card to their online gambling account and received benefits in the on property retail channel as a consequence of gambling online with that particular casino. So convergence works. We've known this from Europe for the last 20 years. It works in the U.S. as well incredibly well Simulated Gaming, and we've now proven the case for real money gambling in Pennsylvania. And we think it will become higher up on the priority list of most U.S. casino operators when they consider, well hang on a sec, how do we better compete in the online channel against these very aggressive, very large, very professional European brands that are coming across the Atlantic. So I think the answer is yes, we are in discussion with U.S. casino groups that licensing our patent on a complete arms' length basis doesn't mean they have to use our technology platform. But obviously, we would love them to use our technology platform. It is available for licensor, and we are already in discussion with very large casino operators and we welcome more discussions on those lines.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [33]

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Great. Lastly, you touched on simulated. How should we think about that business? Is that a slow growth business maybe? And -- or if not, how do you grow that business? Is it more customers? Is it greater adoption? I'm just trying to understand the focus on that business. While you have this exceptionally high growth market in the U.S. in real gaming.

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Dermot Stopford Smurfit, GAN plc - CEO & Director [34]

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We look at it as a business that we can sell to all casinos in all states right now today, there are 48 states with approximately 1,000 casinos in them. So it's an excellent service. And it makes a lot of sense for our clients because not only do they generate a little bit of money online relative to their retail gaming revenues, but they also get to see their highest value casino gamblers visit on property more often, which is at the core of the commercial proposition for casino operators. It's not just to launch a social casino, but it's also to improve and make more effective their relationship with their land-based retail gaming patrons. It does work. It's been working extremely well. It's something that we're actively out there promoting and marketing, and we expect to sign up new customers relatively imminently, certainly within weeks as opposed to months. So it is something that is at the core of GAN's mission in the United States similar to gaming. There's a great to develop relationships with casinos over a long period well in advance of regulated real money Internet gambling actually arriving. And we've proven the model by upgrading Parx Casino in Pennsylvania to real money gambling, bringing the Chickasaw Nation online with real money gambling, and we expect that same model to continue to succeed.

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Operator [35]

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The next questions from the line of [Carlos Assafero], a private investor.

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Unidentified Participant, [36]

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A really impressive quarter. So my question is about West Virginia because what we saw on the news was that FanDuel was going there with their own account management -- so you mentioned that you were going to do that. So could you please clarify that?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [37]

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No problem, Carlos. Thanks for asking the question on behalf of everybody who's got the same question in their minds. So as we announced in January of this year, we share in the revenues generated by FanDuel using their own technology system, which they used in West Virginia because it's a state that's regulated by lottery as opposed to commercial gaming authority, which has very different technical requirements. We're very supportive of FanDuel's activities and their strategy going forward. And beyond that, we can't really comment.

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Unidentified Participant, [38]

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So beyond that, what -- could you please give more transparency about your relationship with FanDuel? Like what's the take rate in comparison to our casino system, and what's the share of your revenues that FanDuel now has?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [39]

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Carlos, I'm afraid you fit full within the category of anonymous private investor asking questions on an open public call. So I invite you to reach out to myself or our Head of Investor Relations to communicate further. But it's not just something I can be that specific on a public call, and nor would I want to kind of share commercially sensitive information to benefit our competitors.

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Unidentified Participant, [40]

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Okay. Cool, cool. No problem. So my last question is about growth profitability. So I mean you're growing 150%, and you're profitable. But is it the time to be profitable now? I mean you have printed that EBITDA, but maybe you should invest even more in growth, or maybe an acquisition or something. How do you gauge that?

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Dermot Stopford Smurfit, GAN plc - CEO & Director [41]

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Well, we're certainly not closed off to the concept of acquisitions, but there's very little that is super complementary and logical or obvious at this point. But for sure, opportunities will arise from time to time. But it's not high in our strategic agenda right now. In terms of profitability, for years, we have said we're going to make this, and we have a bit of a show-me story, and we want to continue to show, develop the track record of positive EBITDA. So this year, for sure, is not the time to go deep in investment in significant incremental engineering resources, which sits at the heart of our cost base. So I think maybe we'll revisit it next year. But as far as I'm concerned and as one of GAN's largest shareholders, I would like to see this company perform at the EBITDA level going forward. And at some point, perhaps when we have a little bit more of a track record, do other things.

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Operator [42]

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(Operator Instructions) At this time, I'll return the floor back to management for closing remarks.

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Dermot Stopford Smurfit, GAN plc - CEO & Director [43]

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Well in closing comments, it's been an extraordinary year-to-date building on top of a lot of investment in 2018. And I want to thank again everybody at GAN worldwide for all of their impressive contributions year-to-date, and please keep it up. So on that basis, thank you all for listening today and have an excellent day no matter whereabouts in the world you are, or whatever time zone you're in.

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Operator [44]

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Thank you, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.