GAN plc: 2018 Half Year Report

GAN plc (GAN or the Group), a leading B2B supplier of Internet gambling enterprise software-as-a-service solutions to the US and Europe land-based casino Industry, announces its results for the six months ended 30 June 2018. The full Financial and Operational Review are available on GANs website at www.gan.com.

Financial Overview

  • +28% increase in gross income to £23.8m (H1 2017: £18.6m)
  • Group Net Revenue of £4.6m (H1 2017: £4.1m), an increase of +11%
    • Recurring revenues grew by +19% YoY and now account for 92% of Net Revenue
    • The US and Italy accounted for 61% and 38% of Net Revenue, respectively
  • Clean EBITDA1 loss of £467,000 (H1 2017: profit of £24,000)
  • Loss after tax of £2.9m (H1 2017: loss after tax of £2.0m)
  • Basic loss per share of £0.04 (H1 2017: loss per share £0.03)
  • Cash and cash equivalents at 30 June 2018 of £5.1m (£2.7m at 31 December 2017)
    • A subscription by new investors for 15,000,000 new shares in the capital of the Company raised gross proceeds of £7.5m
    • The Company elected to redeem and repay in full, with interest, the £2,001,483 9% Convertible Unsecured Loan Notes 2022 issued by GAN in April 2017
  • Net Assets at 30 June 2018 of £12.3m (H1 2017: £9.0m)

Operational Overview and Current Developments

  • Welcomed the decision of the Supreme Court of the United States (“SCOTUS”) to overturn the previous Federal US prohibition on sports betting enshrined with the Professional and Amateur Sports Protection Act 1992 (“PASPA”)
  • Entered into a multi-year extension with key client PaddyPower Betfair Plc for the continued provision of Platform Services in New Jersey’s fast-growing Internet gaming market and the integration of their nominated Sports betting application from third party provider IGT, Inc, substantially completed in the period
  • Commenced a significant expansion of engineering resources principally in Sofia, Bulgaria with secondary recruitment in Las Vegas, Nevada in order to meet existing and expected demand from both existing clients and new clients for incremental real money Internet gambling services (particularly for sports betting in the US) and Simulated Gaming„¢
  • Opened ‘GAN Digital’ in Tel Aviv, Israel, an in-house marketing agency to provide digital user acquisition & retention services to selected GAN clients worldwide
  • Announced a strategic relationship with SBTECH to serve real money sports betting to GAN’s diverse US casino operator clients
  • Signed a multi-year agreement with GOLDBET Srl a leading Italian Internet sports betting & casino gaming operator in Italy’s regulated market
  • Signed the Mississippi Band of Choctaw Indians as a new client of Simulated Gaming„¢ expected to launch in Q4 2018

Post-period end:

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  • Launched Internet sports betting in New Jersey delivered for PaddyPower Betfair plc’s FanDuel Group, GAN’s first US client to operate Internet sports betting via the GAN Platform. The reported success of the Internet sports betting market in the first operating month of August 2018 may result in an increase in the speed of regulation of intra-State Internet gambling going forwards. It is believed that additional US States are now considering the regulation of Internet gambling
  • Extended for a multi-year period the existing agreement with Pennsylvanias largest land-based casino, Parx Casino, in order to prepare for the commencement of real money Internet gaming, real money Internet sports betting and on-property retail sports betting delivered via the GAN platform. Pennsylvanias real money Internet gambling market is now expected to commence in early 2019. This delay, due to a slower-than-expected issuance of regulations by the state agency, impacts GANs ability to recognise revenues derived from professional services fees already generated by GAN year-to-date and similar incremental professional service fees expected to be generated in Q3 2018 as preparations to launch our client Parx Casinos Internet gambling operations continue. Such fee-based revenues from the professional services rendered by GAN to its clients are recognised following the clients commercial launch of Internet gambling. Accordingly, revenue from professional services delivered to Parx Casino in H1 and H2 2018 will now be recognised in H1 2019.
  • Launched real money internet gaming for GANs second New Jersey client, Ocean Resort Casino (ORC), supported by GANs Turnkey Managed Services comprising technical operations management, software development, customer services & payments management together with associated regulatory consultancy. Ocean Resort Casino opened its land-based casino in Atlantic City on 28 June 2018 and the Internet casino delivered to ORC by GAN commenced operations of its desktop-only website on 10 July 2018. The secondary launch of mobile apps to enable end users to engage with ORCs Internet casino via their personal mobile devices has been materially delayed by the New Jersey regulatory process due to the demand for certification of new Internet sports betting systems. The full launch was originally planned for early Q2 2018
  • Full marketing of our Overseas Internet Casino in Europe commenced on 12 September 2018. This followed an extended period in Q3 restructuring certain operational arrangements to ensure an efficient deployment of the previously-reported $10m in user acquisition marketing provided to GAN, to develop their Internet gambling business in European regulated markets. Customer acquisition was originally planned for early Q2 2018

Dermot Smurfit, CEO of GAN commented:

The first half of 2018 saw continued growth in recurring revenues to represent a record 92% of total Net Revenues in the period.

  • Recurring revenues were driven by the continued strength in Simulated Gaming„¢ in the US, which grew gross purchases by end user players +52% in H1 2018 as compared with the prior year same period H1 2017.
  • Significant growth was also experienced in Italy where gross gaming revenues increased +43% in H1 2018 against H1 2017.
  • In the US, New Jerseys Gross Gaming Revenues grew +22% in H1 2018 compared to H1 2017, out-performing the overall Internet gaming market growth rates in New Jersey thereby increasing market share.
  • The gross participatory revenues generated for our clients from both Simulated Gaming„¢and real money Internet gaming, in which GAN participates, grew at the blended rate of +36% in H1 2018 compared with H1 2017.

One-off setup fees derived from new client launches were constrained in H1 2018 by the need to re-assign internal engineering resources to existing clients in order to deliver on their critical business needs, including the integration of Internet sports betting which was substantially completed in H1 2018 and launched post-period end on 1 September 2018 for client PaddyPower Betfair plc in New Jersey. The decision to commit significant engineering resources to integrating and delivering sports betting was a long-term decision taken in the interests of shareholders in order to logically prioritise major existing clients high priority business objectives triggered by the material new opportunities presented by Internet sports betting in New Jersey and the Overseas Internet Casino in Europe.

We have also improved GANs balance sheet and cash position with an equity raise of GBP 7,500,000 though an over-subscribed placing of 15,000,000 new ordinary shares. The capital will be used to grow development resources in Sofia, Bulgaria and Las Vegas, NV to capture substantial incremental revenue opportunities available from Internet gaming and sports betting in New Jersey, Pennsylvania, and other US states expected to regulate internet gambling in the near future.

Regulatory delays will impact US real money gaming results in H2 2018, but we will continue to invest in resources to prepare for 2019 and beyond. GANs prospects for 2019 and beyond in Real Money Gambling are very encouraging given the initial results from the launches of internet sports for Paddy Power Betfair plcs FanDuel Group in New Jersey, Internet gaming for Ocean Resort Casino in New Jersey, and the start of customer acquisition marketing for Overseas Internet Casino.

By way of outlook on 2019, the recent launch of Internet sports betting, the Companys current sales pipeline and existing contracted clients are projected to significantly enhance GANs revenue and EBITDA prospects.

Notes

  1. Clean EBITDA is a non GAAP company specific measure and excludes interest, tax, depreciation, amortisation, share based payment expenses, certain non cash transactions and other items which the directors consider to be non-recurring and one time in nature. Where not explicitly mentioned, EBITDA refers to EBITDA from continuing operations.

Note regarding forward-looking statements

This announcement includes forward-looking statements, including statements concerning current expectations about future financial performance and economic and market conditions which GAN believes are reasonable. However, these statements are neither promises nor guarantees, but are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.

Half-Year Results | Conference Call Details

The GAN management team will host a conference call for analysts & institutional investors at 4pm BST (11am EDT / 8am PDT).

Please use the following dial in numbers:

UK Participants:0800 756 3429
US & Canada Participants:877-407-8629
International Participants:201-493-6715

The Half Year Results Press Release and Presentation is available to download from the website, www.GAN.com

Half-Year Results | Webcast

The call will also be simultaneously webcast over the Internet via the following link:

https://78449.themediaframe.com/dataconf/productusers/gan/mediaframe/26571/indexl.html

and such link will also be made available in the Results and Presentations section of GANs website www.GAN.com/investors/results-and-presentations

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