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Edited Transcript of GAN.OQ earnings conference call or presentation 16-Nov-20 9:30pm GMT

·35 min read

Q3 2020 Gan Ltd Earnings Call Nov 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Gan Ltd earnings conference call or presentation Monday, November 16, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Dermot Stopford Smurfit GAN Limited - CEO & Director * Karen E. Flores GAN Limited - CFO & Director * Todd McTavish GAN Limited - Chief Legal Officer ================================================================================ Conference Call Participants ================================================================================ * Chad C. Beynon Macquarie Research - Head of US Consumer, SVP and Senior Analyst * Gregory Thomas Gibas Northland Capital Markets, Research Division - VP & Senior Research Analyst * Michael Joshua Nichols B. Riley Securities, Inc., Research Division - Senior Analyst of Discovery Group * Ryan Ronald Sigdahl Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to the GAN Limited Quarter 3 2020 Financial Results. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chief Legal Officer, Todd McTavish. Thank you. You may begin. -------------------------------------------------------------------------------- Todd McTavish, GAN Limited - Chief Legal Officer [2] -------------------------------------------------------------------------------- Thank you, Darryl, and good morning, everyone. GAN's third quarter earnings release was issued today after market and is posted on the company's website at gan.com. With me representing the company today are Dermot Smurfit, Chief Executive Officer; and Karen Fores, Chief Financial Officer. Before we begin, we'd like to remind you that except for factual statements made today, the information contained in this conference call, including any financial and related guidance to be provided, consists of forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words and expressions reflecting optimism and satisfaction with current prospects as well as statements in the future tense identify forward-looking statements, but their absence does not mean that a statement is not forward-looking. Forward-looking statements should not be interpreted as a guarantee of future performance or results as such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Some important factors that could cause such differences are discussed in the Risk Factors section of GAN's IPO prospectus dated May 5, 2020. Forward-looking statements speak only as of the date the statements are made, and the company assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes and other factors affecting forward-looking information, except to the extent required by applicable securities laws. With that, I'd like to turn the floor over to Karen for opening remarks. Please go ahead, Karen. -------------------------------------------------------------------------------- Karen E. Flores, GAN Limited - CFO & Director [3] -------------------------------------------------------------------------------- Thank you, Todd. Before Dermot takes the floor, I will take the opportunity to briefly summarize the key financial highlights, which will set the stage for both our detailed commentary. First, we executed on continued growth momentum, delivering revenue of $10.3 million on gross operator revenues of $142 million, with growth in online casino gaming as well as the resumption of sports betting throughout the quarter. Second, we have invested to expand our capability to deliver on being the leading technology and content supplier for Internet gambling, together with our corporate infrastructure to ensure governance aligned with the requirements of NASDAQ. This means we have logically invested to resource today for tomorrow's opportunity, having won substantial new clients since the date of our admission to NASDAQ. This is the nature of our rapid growth model and positions us for a rollout of expanded multistate client operations throughout 2021 and beyond. Finally, the transformative acquisition of Vincent Group p.l.c., better known as Coolbet, is now underway with an expected close in early Q1 to bring their sports capability online in the U.S. as a managed B2B sports offering integrated into our market leading platform. We believe this acquisition is being undertaken at a highly attractive valuation relative to the opportunity to roll out B2B sports betting services in the U.S. We have undertaken to acquire Coolbet for approximately $175 million, which represents 3.5x 2021 forecasted revenues. We believe this is a compelling purchase in light of industry comparable valuations. The transaction will be satisfied through approximately $95 million in cash and $80 million in equity to be issued at closing, with the equity tranche subject to structured shareholder lockup periods. We will seek new capital in the coming weeks to ensure GAN maintains a strong balance sheet post closing of this transaction. We intend to use a combination of cash on hand and an equity capital raise, subject to market conditions. We look forward to delivering the 2021 growth opportunity equipped with our Coolbet partners. Thank you, and I'll now invite Dermot to take the floor. -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [4] -------------------------------------------------------------------------------- Thank you, Karen, and good afternoon, everyone. GAN delivered revenue of $10.3 million in the third quarter, up 23% quarter-on-quarter and up 86% year-on-year. Of these quarterly revenues, 88% originated from our key strategic market of the United States, driven by the resumption of U.S. sports betting, rapid growth in online casino gaming and multiple deployments of our platform in anticipation of the upcoming Michigan market activation. These results were also driven by $142 million in gross operator revenue, up 76% versus the third quarter in 2019. Underlying that performance was impressive year-on-year growth in online casino with gross operator revenue from casino games jumping from $26 million in the third quarter of last year to more than $95 million in the third quarter this year. Year-to-date, we delivered $413 million in gross operator revenue to all our clients by the end of September, which was up 112% from the same 9 months in 2019. When looking deeper into our year-to-date performance, the ramp-up in gross operator revenue from online casino gaming is highly impressive, with 306% growth year-over-year to $246 million compared to $60 million in casino gross operator revenue in the same period of 2019. Although the consumer attention and client demand remains focused on sports betting, the real core of the U.S. Internet gambling profit opportunity lies inherently within the online casino, which is only unlocked by the mass market appeal of sports betting. In a technical and operational capability, we will shortly possess, it has a theme I'll return to shortly. Stepping up a level, it's worth noting that the vast majority of all Internet gambling revenues are generated today in just 2 states: New Jersey and Pennsylvania, with the third major market of Michigan poised to commence. In Pennsylvania, the ramp-up of Internet gambling gross operator revenues continues to surpass expectations set in early 2019, predictably (inaudible) growth in online casino gaming. In neighboring New Jersey, they have just reported a new all-time monthly record in on online casino gaming revenues of $91 million, reflecting a 109% growth year-on-year. When you combine online casino gaming with Internet poker and, of course, Internet sports betting, New Jersey generated in excess of $132 million of gross operator revenue in that single state in the single month of October. This amount would have seemed implausible just 2 years ago. New Jersey is now on a path where Internet gambling revenues could be on a monthly run rate to exceed pre-COVID retail gaming revenues by the end of 2022. I'll state this again because it is incredibly important for everyone to understand the magnitude of the structural shift in the retail casino industry. New Jersey's Internet gambling market is on a growth path to exceed pre-COVID monthly retail casino gaming revenues within 18 months, possibly less. This all points to a bright line of truth that COVID, combined with the advent of Internet sports betting and the associated strong cross-sell of sports gamblers into online casino gaming, has manifestly altered expected future growth opportunities in this industry for decades to come. Since processing the first legal online casino bet in New Jersey back in November 2013, GAN has spent several years developing the U.S. Internet gambling opportunity for the benefit of our shareholders today, and we remain at the forefront of this expansionary wave. Two, strong recent client wins serve as high-profile illustrative examples. First off, we're supporting the national ambitions of the venerable Churchill Downs will be kicking off shortly in Michigan with significant existing digital and retail gaming assets to leverage online. Then there is the highly exciting 10-year contract we closed in Q3 with Wynn Resorts interactive division, who we will also bring online in Michigan with selected expansion opportunities in other incremental states already in discussion between the parties. Speaking of Wynn, it is worth noting we licensed our iBridge patent to them as part of our commercial deal structure, ensuring we secure above market pricing throughout the unprecedented 10-year contract term. Based on our experience today in Pennsylvania, we have seen, on average, 75% more value in aggregate deposits from those online gamblers who have linked to their retail reward cards to their regulated online gambling account versus those who have not linked any reward cards, proving out the massive value proposition of our iBridge in real money Internet gambling, just as we proved the same for simulated gaming over many years. However, the largest event in 2020 for our shareholders appears not to be in our admission to trading on NASDAQ, but the inflection point represented by our now announced acquisition of Coolbet, with regulated operations in both Europe and Latin America. This acquisition accelerates our previously announced pathway to $100 million in top line revenues. It unlocks the shareholder value opportunity to become a B2B sports betting provider in the U.S. and provides us with a fast-growing international strategy, which is entirely incremental to our existing international market activity in Italy. By way of key and recent performance highlights, Coolbet is net operating income breakeven year-to-date, despite the COVID sports impact in the second and third quarters of 2020, and is operating at significant levels of scale internationally. Last month, Coolbet served more than 50,000 active customers online, the vast majority are betting on both international and U.S. sports events, with our sportsbook retaining just under 10% on their sports handle. Their Internet gambling operations generated gross operator revenue of approximately $29 million in the 9 months to September 30, with more than $90 million in online bets processed last month alone. Coolbet is now on a firm annual run rate to deliver $50 million in top line revenue to GAN's combined P&L in 2021 and has exciting performance momentum in these final weeks of 2020. When combined, GAN's overall headcount as a group will exceed 400 in total, with $65 million in the trailing 12 months revenue. As background to this transaction, since launching on NASDAQ, we commenced an exhaustive review of numerous sports betting technology owners. We surveyed more than 16 companies at various stages of maturity, and in doing so, learned diverse critical truth about the sports betting industry. In order to best serve managed sports betting to our current and future clients in the U.S., we needed to find not just sports technology, but also the people who stand behind that technology as the knowledgeable operators, the sports traders who know how to take positions on sporting events, those who know how to trade all sports, including U.S. sports, who know how to manage risk and ultimately, who understand how to generate profit from a volatile sports environment. Only by acquiring an owner-operator of sports betting technology would GAN secure the necessary tech, engineering and trading skills talent and their associated intellectual capital. Working with our advisers identified this acquisition as a rare industrial opportunity due to the symmetry of their technology with ours, permitting rapid integration, transport and deployment into the U.S. in 2021. More importantly, we identified a can do culture very much in line with GAN's own culture formed under challenging circumstances leading to well-earned success. By teaming up with Coolbet's experienced leadership, GAN will be equipped with state-of-the-art micro services-based technology, which has driven their award-winning sports betting experience, user interface and product for overseas users. It is this capability, which will now permit GAN to offer sports betting in the U.S. as a managed service as soon as reasonably possible in 2021, alongside our market-leading platform and extensive library of online casino games. Another perhaps timely reminder, in our last earnings call, I took the opportunity to outline the parameters of any sports acquisition we might consider. Adding a sports capability is a logical way to rapidly expand our share of clients' gross operator revenue flowing through our platform, and this acquisition will prove immediately accretive to both revenue and earnings. More importantly, we believe the culture of Coolbet aligns closely with GAN's, and there is a real shared excitement to bring their sports capability to America next year. And so in making this acquisition, it is important to indicate now that we only intend to bring Coolbet to the U.S. as a B2B product in service and that we are not planning to bring Coolbet's B2C platform to the domestic market at this time. Equally important to note is that GAN will continue to work alongside existing and valued third-party sports betting vendors who have integrated in GAN's platform at the request of our clients. And so sports betting and casino gaming go hand-in-hand in America, just as they have done in Europe and Asia for more than 2 decades. We, therefore, foresee substantial incremental regulation of Internet casino gaming by sports in 3 states in the future, particularly the need of incremental tax revenues to support their state budgets badly damaged in this continuing COVID environment. Shifting gear briefly and in an equally important strategic development for GAN, during the third quarter, we also launched our super RGS for casino content delivery in New Jersey and Pennsylvania, and we also prepared it for launch in Michigan as well. This super RGS delivers our market-leading portfolio of proprietary casino games, third-party casino games developed inherently within our platform and aggregated content from multiple RGS providers. All told, we are now delivering in excess of 800 casino games to our clients who maintain leadership positions in the market. The significance of the super RGS is that it will permit Internet gambling companies who are operating on a proprietary or competing third-party platform to integrate GAN's super RGS and launch our entire games portfolio on their website and mobile apps. This creates a technical and commercial vehicle for GAN to deliver its casino content across the entirety of the relevant U.S. interstate markets and not just onto our platform and clients' websites and mobile apps. We believe this will be an exciting incremental new market offering in 2021, particularly for new market entrants seeking 1 technical integration to catch up with major operators. We'll also allow existing operators to fill the gaps in their content portfolio by integrating GAN's super RGS. When successfully commercialized, GAN's super RGS should materially contribute to our gross operator revenues and generate high-margin content licensing revenues weighted towards the second half of 2021. We remain very much focused on executing against our growth strategy, while also investing in the people required to deliver on the business objectives of our clients. As Karen mentioned, we've been resourcing today for tomorrow's opportunity. As a reminder, since listing on NASDAQ, we have acquired multiple new additional clients of our platform, including Penn National for Simulated Gaming, Churchill Downs for nationwide rollout of real many Internet sports and casino gaming as well as securing that unprecedented 10-year deal to bring Wynn interactive online to Michigan, with expansion opportunities outside Michigan already under discussion. Looking ahead a few weeks into the end of this current quarter, we do anticipate the launch of Michigan with technical deployment for 3 clients completed and our licensing applications very much in good order. The date of launch is now in the hands of the regulatory process, with potential clarification anticipated shortly after Thanksgiving. It's worth noting the environment for retail and commercial gaming in Michigan has darkened somewhat overnight as Michigan's governor has ordered Detroit's casinos to close this coming Wednesday. This, together with industry stakeholder support and vendor readiness, suggest we will see the first bet placed online in Michigan before year's end, some months before originally anticipated. I'll now take this opportunity to thank our shareholders for their continuing support of GAN as the leading provider of B2B enterprise software solutions for U.S. land-based casino operators. We anticipate maintaining and strengthening our leadership position as we move rapidly into 2021 and deliver on the opportunity represented by Michigan with Wynn Resorts, Churchill Downs and FanDuel. Also, our continuing mission is clearly stated, to bring retail casinos online with our technology platform, focused principally on delivering all forms of Internet gambling content, including casino gaming and sports betting. For retail casinos in those states without Internet gambling legislation, we offer simulated gaming now with the opportunity to upgrade to real money internet gambling as state-by-state regulation continues to emerge. This simulated gaming product continues to generate new business and new relationships for us. And in the quarter, we expanded the scope of simulated gaming to encompass simulated sports betting. This has proven popular amongst Ohio residents and serves as an excellent way to acquire Ohioans substantially in advance of regulated real money sports betting widely anticipated in 2021, not unlike the marketing advantage enjoyed by daily (inaudible) sports operators. And so we continue to see COVID-19 accelerating intrastate regulation of Internet gambling. Americans continue to spend more time at home consuming online entertainment of all kinds, and many state politicians continue their search for incremental revenue opportunities to replace lost tax income. We see all of this as continuing the favorable climate for incremental regulation of Internet gambling, and we welcome the market expansion in Maryland, Louisiana and South Dakota in the wake of our recent elections. In planning for a post-COVID industry environment, we have invested in our people by expanding our leadership bench to support our corporate infrastructure as a NASDAQ-listed company and continuing to invest in creating a [burst-able] engineering resources required to deploy game stack platform for existing and new clients. The challenge remains to increase our capabilities of delivering multiple clients online simultaneously across multiple states, delivering on the expansion objectives of our clients, and we are very proud to have 3 clients lined up for day 1 online operations in Michigan. Robust bandwidth amongst our engineering groups worldwide continues to remain a high priority. And Las Vegas continues to be fertile ground as we execute on rapid controlled expansion. I'm extremely proud of how hard our team worked to deliver record results this quarter and serve our clients. This great team will soon be complemented by the great people at Coolbet with whom we look forward to a prosperous 2021. And so with that, I will turn this dial up back over to our CFO and Board member, Karen Flores. -------------------------------------------------------------------------------- Karen E. Flores, GAN Limited - CFO & Director [5] -------------------------------------------------------------------------------- Thanks, Dermot. The announcement of our pending acquisition of Coolbet begins yet another exciting chapter in GAN's history. For the first time, we will be welcoming another organization into the company and we'll embark on this journey together to unlock the potential of creating the premier global online sports betting and iGaming technology supplier ecosystem. Coolbet has successfully scaled their business over the last several years and will provide GAN near turnkey capabilities in online sports betting. This acquisition is just 1 example of our unwavering commitment to deliver shareholder value, and we remain laser-focused on this objective in Q3. Before discussing our third quarter results in detail, I'd like to focus on 2 key highlights. First, since early summer, we put significant attention and effort towards evaluating both our technology stack and our organization in determining how best to deploy the capital we raised during the IPO to lay the foundation for our future success. We concluded on Coolbet, not only for the proprietary technology they've built, but also for the seamless cultural fit, we are thrilled to welcome the entire Coolbet organization to GAN. Second, forging ahead on our journey and being able to capitalize on opportunities as they arise, such as Coolbet, demands that we strengthen our corporate enterprise. We have made tremendous progress in shoring up areas of our infrastructure that has been historically challenged, onboarding more than 60 employees since the start of COVID and kicking off numerous core projects in the areas of product, technology, infrastructure and compliance. The investment in achieving operational excellence is not contained to just our people. The NASDAQ listing, coupled with our M&A strategy, has resulted in an elevated level of professional advisory services for a short-term period. This primarily includes accounting and tax advisory, capital markets advisory and outside legal in connection with corporate infrastructure expansion and additional compliance requirements as a result of becoming a U.S. public company this past May. We anticipate that this investment will continue through the first quarter of 2021, and will put us in a great position to achieve our long-term objectives. Now turning to a discussion of our third quarter results. I'm excited to report continued positive momentum with revenue of $10.3 million, an increase of 86% comparatively and 23% sequentially. Year-over-year, our combined simulated and real money iGaming SaaS revenue increased by 75%, while both comparatively and sequentially a contributing growth factor was our most recent client wins and the related deployment of multiple instances of the iBridge platform to Michigan in preparation for a December go live. We are excited to soon be launching 3 partners in the state. Additionally, the lift we experienced in the second quarter in our online simulated and casino iGaming segments as casinos were shuttered during COVID was sustained during Q3. In both categories, we observed 20%-plus quarter-over-quarter increases in active player days. However, our monetization declined slightly as related to content mix shifts within the quarter, balancing out the increase in active player days. For simulated, the launch of Penn National mid-August was also a contributing positive factor, and we look forward to scaling this business further over the coming months. Turning to gross margin. Quarter-over-quarter, we saw compression of 2 points as related to increased hardware revenue. However, on a year-to-date basis versus 2019, we have seen a substantial increase in operating leverage, with margins increasing to 47% to 64%. As our 2019 results include $4 million in patent licensing revenue, the operating leverage is even more significant excluding this, with margins increasing almost twofold from 33% to 64%. Administrative expenses for the third quarter of 2020 were $10.4 million compared to $4.1 million for the third quarter of 2019. The year-over-year increase in expenses was primarily attributable to our growing staff, expanded share-based compensation as related to the IPO and increased professional services, as I mentioned in my opening comments. On a year-to-date basis, we have incurred $6.8 million worth of share-based compensation related expense that will not recur in 2021. With respect to the strengthening of our corporate infrastructure, the company performed an audit of its global tax position, which has resulted in $900,000 of nonrecurring charges related to estimated tax provisions. These estimated provisions pertain to VAT as well as the potential application of the way for a Supreme Court decision in 2018 as related to U.S. sales and new tax on our simulated gaming business. Adjusted EBITDA improved slightly year-over-year from a loss of $400,000 to a loss of $100,000. Again, this reflects our current level of investment in product, technology, infrastructure and U.S. public company compliance. Our balance sheet remains strong with cash and cash equivalents of $57.5 million at quarter end, and we continued to remain debt-free. At this time, we are reiterating our full year revenue guidance of $37 million to $39 million based on commercialization of our intellectual property, subject to timing. With respect to 2021 guidance, we are still in the process of finalizing our plans, which will, of course, now include the addition of Coolbet. We will continue to refine our internal budgets as we move through Q4 and we'll issue formal 2021 revenue guidance on our Q4 and full year earnings call. Dermot, back to you for closing comments. -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [6] -------------------------------------------------------------------------------- Thank you all for joining today for our third earnings call as a U.S.-listed company. Again, we would like to thank all of our investors who backed our market leadership position, which we intend to extend in the coming period with the support of our colleagues at Coolbet. Our team is executing well to expand our client base and bring our existing clients online in new interstate markets despite the challenges presented by COVID-19 and limitations on business travel as well as unpredictable regulatory processes. Our technology team continues to grow here in the United States, and we remain one of the few active employers in hard hit local economies such as Las Vegas. Our future represents the future of American gambling, where all growth will likely be predominantly in the online channel for many years to come. We very much look forward to speaking with you all again early in 2021. Stay safe, wherever you may be. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Chad Beynon of Macquarie. -------------------------------------------------------------------------------- Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [2] -------------------------------------------------------------------------------- Congrats on the announcement. Dermot, I wanted to start with that. So you noted that you'll be bringing the B2B product of Coolbet to the U.S. So just so we can understand it. Once that's implemented, you'll essentially have a full turnkey sports betting product with risk trading, the betting engine. I guess what you're offering will be comparable to some of the comprehensive offerings like in SBTech, GVC, Kambi, et cetera? Just trying to understand if there's still major pieces that you'll have to outsource or you essentially be able to do everything at that point? -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [3] -------------------------------------------------------------------------------- Yes, Chad. Great question. Appreciate it. And Coolbet was, in fact, in the development stages of planning their own B2B offering services for deployment in the U.S. So our timing was not just lucky, but hugely convenient for both sides of the transaction. Yes, it will be a turnkey managed service. It will be fully data provisioned and traded with significant experience existing and has experience of U.S. sports betting. So we do think we're bringing a highly competitive offering as the sports betting engine trading risk management level. But furthermore, we're also bringing an award-winning mobile front end purpose-built for sports gambling into the U.S., and it's one of the few areas where I think the U.S. sometimes lags, state-of-the-art in Europe and Asia. So we're very much looking forward to bringing these guys and a superior product into the U.S. for existing and future clients. -------------------------------------------------------------------------------- Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [4] -------------------------------------------------------------------------------- Great. Okay. And then on the B2C revs or B2C biz for Coolbet outside of the U.S., are there markets that you expect you'll have to exit if they're gray? Or do you believe that all the markets that Coolbet operates in right now, you'll be -- you want to stay in those markets? -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [5] -------------------------------------------------------------------------------- Yes. So again, a key criteria as part of our review of the market was ensuring that we had a similar attitude towards regulation and regulated markets. Coolbet has substantial B2C operations in Estonia, under license there; Sweden, under license there; and, of course, through Malta. So we're very happy with the compliance profile of Coolbet's overall B2C business, and we look forward to significant expansion in 2021. -------------------------------------------------------------------------------- Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [6] -------------------------------------------------------------------------------- Okay. And then lastly, just for the quarter, adjusted for the FanDuel OSB shift. Do you believe that your market share maintained Q3 versus Q2 or actually increased? Do you have a sense of kind of how that looked in the quarter? That's all for me. -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [7] -------------------------------------------------------------------------------- Yes, pretty much consistent, Chad. I mean sports betting's share obviously decreased in the quarter because we missed the September ramp up for NFL, and kicked off again. But in terms of online casino, we've seen a fairly consistent market share. So no particular change there. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Our next questions come from the line of Ryan Sigdahl with Craig-Hallum. -------------------------------------------------------------------------------- Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [9] -------------------------------------------------------------------------------- Great. And congrats on the business development. Just want to stay on the Coolbet topic for a few here to start. Since you mentioned the sports betting technology being integrated in the second half of 2021, having a full end-to-end offering, will your customers have the option to continue using Kambi or other third-party offerings for the sports betting engine? Or will you be transitioning everyone basically onto your full end-to-end solution? -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [10] -------------------------------------------------------------------------------- So -- right. Great question. I made it pretty clear in my narrative that we're going to be open to continuing to work with our valued third-party sports betting vendors already integrated into our platform. It's very much going to be at the choice of our existing and future clients as to whether or not they want to embrace the Coolbet sports offering. We do believe we have significant competitive advantages over the choices available to them today. And we certainly hope that over time, some of our existing clients will choose to deploy the Coolbet technology and displacement of existing sports betting vendors, but proof of the pudding's in the eating, and we're very excited to bring this to market early in 2021. -------------------------------------------------------------------------------- Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [11] -------------------------------------------------------------------------------- Got you. Apologies for missing that earlier. Then just as far as bringing Coolbet's technology to the U.S. on a B2B, is there any license considerations we should keep in mind there? Or since GAN has the licenses, can you basically integrate them and off and running? -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [12] -------------------------------------------------------------------------------- Yes, that's exactly right. So it gets folded under the umbrella of gaming licenses, privileged gaming license that we've secured over the years. We are not expecting any turbulence when it comes to gaming license or regulatory considerations. So it should be a pretty smooth entry into the U.S. under the very conservative compliance profile operated by GAN, which will, of course, continue. -------------------------------------------------------------------------------- Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [13] -------------------------------------------------------------------------------- And then one last on Coolbet, then I'm going to switch over to the core business for one. Are you able to share which regions are the largest for Coolbet and then any approximate market share by those regions? -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [14] -------------------------------------------------------------------------------- Regionally, Northern Europe, including Estonia, where they have a substantial business, and certain Latin American markets. But in terms of market share, we're not in a position to disclose individual market share positions. -------------------------------------------------------------------------------- Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [15] -------------------------------------------------------------------------------- Got it. And then just switching over to the core business. Expenses were a little bit higher than we were expecting in the quarter, mentioned some professional fees, some public company, et cetera. How should we think about EBITDA for the next several quarters? I think you mentioned kind of elevated costs through Q1. So is breakeven EBITDA the right assumption? Or just any directional commentary to kind of help with puts and takes there? -------------------------------------------------------------------------------- Karen E. Flores, GAN Limited - CFO & Director [16] -------------------------------------------------------------------------------- Yes. So we are going to be, as I mentioned, having continued advisory services through the fourth quarter and into Q1, as we're in process on a number of projects, which also includes converting our financials to GAAP and then anything associated specifically with the transaction. So we do anticipate that Q4 and Q1 will look similar to this quarter. -------------------------------------------------------------------------------- Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [17] -------------------------------------------------------------------------------- Good. One more for me and then I'll turn it over. You mentioned commercialization efforts on your patent, the rewards integration framework. Did I hear correctly, you said Wynn is using it in Michigan or will use it? Is that correct? One. And then can you talk about kind of the pipeline and how many operator assumptions you're assuming in your Q4 guidance? -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [18] -------------------------------------------------------------------------------- Well, happy to confirm that Wynn has licensed a patent, and we will deploy the iBridge patented capability. As already touched on, we saw an incredible uplift in online gamblers in Pennsylvania who linked their rewards card. They basically deposit 75% more than people who don't link their rewards card. So all very logical and symmetrical with our experience in simulated gaming. In terms of patent licensing, we've got multiple proposals out there at the moment. And beyond that, I think, we're not in a position to comment. -------------------------------------------------------------------------------- Ryan Ronald Sigdahl, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [19] -------------------------------------------------------------------------------- Are you able to say how many are in the guidance versus what's noted in your press release? -------------------------------------------------------------------------------- Karen E. Flores, GAN Limited - CFO & Director [20] -------------------------------------------------------------------------------- So again, our earnings guidance is contingent on -- is based on commercialization of our patent. And so a portion of that is in the fourth quarter. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Our next questions comes from the line of Josh Nichols with B. Riley FBR. -------------------------------------------------------------------------------- Michael Joshua Nichols, B. Riley Securities, Inc., Research Division - Senior Analyst of Discovery Group [22] -------------------------------------------------------------------------------- Just wanted to hit on a little bit. People have been talking about Coolbet, but it also does broaden GAN's opportunities to move outside the U.S. as well a little bit, given their current foothold. Could you elaborate on that a little bit and then provide a little bit more color on just what you think the tech advantage that Coolbet has that really attracted you to that business relative to some of the competing offerings? -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [23] -------------------------------------------------------------------------------- Yes. Thanks, Josh. That's a great question. So as touched on, we looked at 16, and that's sort of greater detail, depending on the scope of merits of each individual sports gambling operator. We actually found a lot of B2C sports operators that didn't really have proprietary sports betting tech at all. They kind of lend -- overly leaned or relied on third-party sports betting providers. So there's what I describe as the mirage of B2C operators in Europe, who don't, in fact, have any proprietary sports capability that's worth noting. Coolbet has got extensive in-house capability at all levels. They represent a full turnkey solution for deployment in the U.S. We believe they're extremely successful, bearing in mind the hypercompetitive markets of certain mature northern European markets. They're also excitingly positioned for structural growth in South America. There's a ton of opportunity in South America. There's a structural opportunity for growth, not just today, but as markets regulate from time to time, and that's, of course, where we see some significant synergies in deploying GAN's regulated markets platform, coupled to Coolbet's very compelling sports betting product proposition, which has won multiple awards over the last few years in these competitive European markets. -------------------------------------------------------------------------------- Michael Joshua Nichols, B. Riley Securities, Inc., Research Division - Senior Analyst of Discovery Group [24] -------------------------------------------------------------------------------- And then I just want to hit on, of course, second half being seasonally stronger than the first, typically. Could you provide any kind of outlook or what thoughts are for potential gross operator revenue for the fourth quarter? Or how things are potentially trending on that front? -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [25] -------------------------------------------------------------------------------- It's a little bit too early to comment specifically, Josh. I mean, we're certainly being happy with most parts of the business in Q4, and we're looking forward to hopefully taking the first bet online in Michigan by mid-December. But of course, we're in the hands of the regulatory gods. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Our next questions come from the line of Greg Gibas of Northland Securities. -------------------------------------------------------------------------------- Gregory Thomas Gibas, Northland Capital Markets, Research Division - VP & Senior Research Analyst [27] -------------------------------------------------------------------------------- Congrats on the acquisition. I guess just a follow-up on Coolbet, if I could. I think you said about $50 million in revenue expected in 2021. How should we think about the company's margin profile, and maybe how its OpEx additions will impact your OpEx after the integration is complete? -------------------------------------------------------------------------------- Karen E. Flores, GAN Limited - CFO & Director [28] -------------------------------------------------------------------------------- Yes. So we gave a little bit of insight relative to their current cost structure. I think on the call, we mentioned that they were operating -- they are operating -- net operating income breakeven on a year-to-date basis. And they have about 175 employees. So moving forward, I mean, they're doing an excellent job in managing the growth of the business. And we anticipate that the trajectory that they're currently on will continue into 2021 in terms of revenue and profitability, which is why we're saying it's immediately accretive. -------------------------------------------------------------------------------- Gregory Thomas Gibas, Northland Capital Markets, Research Division - VP & Senior Research Analyst [29] -------------------------------------------------------------------------------- Okay. Got it. And if I could follow-up on some of your prepared remarks. Regarding the partnership with Wynn, is it pretty reasonable to assume that as they roll out their online gaming offering in other markets outside of Michigan, that it wouldn't really make as much sense to go with different providers in every state. I guess how are you thinking about that logically? And then how are your discussions going with them? You said you're talking about those opportunities. But I guess, how -- can you give us anything more in terms of how those opportunities present themselves in additional markets? -------------------------------------------------------------------------------- Dermot Stopford Smurfit, GAN Limited - CEO & Director [30] -------------------------------------------------------------------------------- Yes. I would hope that Wynn executives wouldn't be upset with me for saying they seem to be indicating a broad sense of satisfaction with the way they have been working with GAN to get ready for Michigan. It's obviously been under taxing time lines across the whole enterprise, our side and theirs. And yes, there are expansionary opportunities with and for Wynn in additional states. But as with all things, when we're ready, we'll announce whatever may come off that. You pointed on perhaps a default logic that perhaps you would want to use multiple platforms in multiple states, but I do believe GAN has a very competitive positioning with the focus on convergence and integration of the rewards programs. And of course, Wynn, with their fabulous properties in Las Vegas and Massachusetts actually has a very substantial database of Michigan residents who we'd hope would be very prepared to leap online with them for both sports and casino. -------------------------------------------------------------------------------- Gregory Thomas Gibas, Northland Capital Markets, Research Division - VP & Senior Research Analyst [31] -------------------------------------------------------------------------------- Okay. Got it. That's a good point. And then I guess, lastly, just to kind of follow-up on the assumptions that go into guidance. I know you don't like to comment on revenue share expectations, but just wondering how you should think -- how we should think about kind of GOR or maybe how individual markets are expected to trend on a sequential basis? Or I guess, what's implied in your guidance? -------------------------------------------------------------------------------- Karen E. Flores, GAN Limited - CFO & Director [32] -------------------------------------------------------------------------------- Yes. So again, we've talked about continued ongoing growth with all of our customers. And so we were seeing expansions in the market. Dermot touched on that relative to New Jersey. And so we are expecting our current market shares to continue at steady state and grow with those markets. Of course, we're looking forward to the launch of Michigan. We're focused on continued commercialization of the patent, and we've talked about that on the last 2 calls as being part of the ongoing guidance as well. And so I think we're -- this year is really about setting us up for continued significant growth going into 2021. And a portion of that is organic and all of the clients that we're signing. And the pipeline for 2021 continues to be robust. And the sportsbook technology offering will help accelerate our $100 million target, as we've stated. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- There are no further questions at this time. On behalf of the GAN Limited team, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.