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ELYS: Leveraging Expanding Market Opportunities

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By M. Marin

NASDAQ:ELYS

READ THE FULL ELYS RESEARCH REPORT

Elys Game Technology (NASDAQ:ELYS) operates in the international leisure gaming industry and is a licensed gaming operator in Italy, offering a variety of lottery, casino and sports betting options there through both an onsite physical retail channel and a digital platform via its proprietary betting software, the Elys Game Board, that is integrated with a built-in player gaming account management system and sports book. We believe recent initiatives discussed below signal the importance of the company’s growth strategy and of the North American market to this strategy.

The company recently changed its name to Elys Game Technology, Corp. from Newgioco Group, Inc. We expect this move will better communicate the company’s strategy, as Elys’s goal is to expand installation of its Elys betting technology platform in its home market and internationally. The Elys platform offers and supports betting products through two distribution channels: online and a land-based retail channel. The Elys Game Board platform has been active in Italy since 2015.

Turnover, or betting handle, has grown from about $122 million in 2016 to $454 million in 2019 and is expected to continue to rise as the company pursues expansion initiatives. Management believes the Elys platform is highly scalable and can continue to support its growth initiatives and expansion, reflecting the company’s entrance into new markets combined with potential M&A transactions and the anticipated growth of the e-sports sector.

Turnover grew from about $122 million in 2016 to $454 million in 2019. Despite the impact of COVID-19, turnover reached $353.7 million through the first nine months of 2020. This is slightly (+0.5%) ahead of $352.2 million through the same point in 2019, as Elys has expanded its bricks-and-mortar footprint and integrated with a growing number of online operators.

Some 82% of turnover was web-based in 3Q 2020 compared to 40% in the same period of 2019. Conversely, only 18% was land-based in the 2020 3Q versus 60% in last year’s 3Q. Players have shifted to online access during the pandemic; Elys expects these sources of turnover – and fee revenue – to revert to more normalized levels post-COVID-19.

Expanding Addressable Market

With the May 2018 U.S. Supreme Court decision to overturn the Professional and Amateur Sports Protection Act (PASPA), individual states are able to legislate whether to allow sports betting on a state by state basis. This has provided opportunities for Elys, which already has formed agreements with operators in Montana and Washington, DC.

Moreover, Elys recently obtained GLI-33 certification to begin operating in Washington, D.C. The company intends to integrate Elys at POS terminals and has also formed a strategic partnership with the United Tote Company. The Elys platform is economical. It can be installed at a cost of approximately $70,000 per location compared to more than $0.5 million and even up to $2 million per site for some competitors' platforms, according to management. Additional states are expected to greenlight wagering, thereby expanding the company’s addressable market.

Moreover, legislation in front of the House of Commons of Canada, Bill C-13, proposes to legalize single-event sports wagering in Canada. If approved, the proposed changes would enable provinces and territories to offer single-event sport betting products except for horse racing. Local jurisdictions would be able to offer regulated betting online and in physical facilities. An estimated roughly C$80 billion is wagered annually in Canada on sports, according to management. Elys’s North American operations are headquartered in Canada.

In addition, Elys recently named Matteo Monteverdi CEO effective January 1, 2021. He was initially brought in to lead Elys’s international expansion and U.S. operations and to oversee development of the U.S. platform and expansion. As a former senior executive at Sportradar and also at IGT, he has extensive industry experience in North America and also understands the company’s home market.

Separately, Elys reported strong 3Q 2020 results: Revenue was up 43.6% year-over-year to $9.7 million. This brought year-to-date revenue through 3Q 2020 to $24.7 million compared to $25.1 million over the same period of 2019. Reflecting the economic downturn caused by the COVID-19 pandemic and the closure of many retail venues, including sports bars and restaurants that form the basis for much of the company's bricks-and-mortar channel, revenue had come under pressure earlier in 2020 but Elys was able to narrow the gap significantly in 3Q 2020.

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