GAN Limited (NASDAQ: GAN) Q3 2020 Earnings Highlights
Dermot Smurfit, CEO
“…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 operating revenue, up 76% versus the third quarter in 2019.
Underlying that performance was impressive year-on-year growth in online casino with gross operating revenue from casino games jumping from $26 million in third quarter of last year, more than $95 million in the third quarter this year. Year-to-date, we delivered $413 million in gross operating revenue to all our clients by the end of September, which was up 112% from the same nine months in 2019.
When looking deeper into our year-to-date performance, the ramp up in gross operating revenue from online casino gaming is highly impressive, with 306% growth year-over-year to 240 $6 million, compared to $60 million in casino gross operating revenue in the same period of 2019.
While both 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 being a technical and operational capability, we will shortly possess it has a theme of return to shortly.
Stepping up the level, it’s worth noting that the vast majority of all internet gambling revenues are generated today in just two states, New Jersey and Pennsylvania, but the third major market of Michigan poised to commence.
In Pennsylvania the ramp up of internet gambling versus operating revenues continues to surpass expectations set in early 2019 predictably centered around growth in online casino gaming. In neighboring New Jersey, they’ve just reported a new all-time monthly record in online casino gaming revenues of $91 million, reflecting 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 operating revenue in that single state in the single month of October. This amount would have seemed implausible just two 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 bright line a 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 we 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 to Michigan with selected expansion opportunities and other incremental states already in discussion between the parties.
Speaking of Wynn, it is worth noting we license our iBridge patents to them as part of our commercial deal structure, ensuring we secured 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 their retail reward cards to their regulated online gambling account versus those who have not linked any reward cards.
Proving at the massive volume — value proposition of our iBridge patent in real money in an account linked just as we proved the same for simulated gaming over many years. However, the largest event in 2020 for shareholders appears not to be an admission to trading on NASDAQ, but the inflection point represented by or 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 topline 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 internal — 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 it’s operating at significant levels of scale internationally.
Last month Coolbet served more than 50,000 active customers online, the vast majority that’s both international and U.S. sports events, with our sports book retaining just under 10% on their sports handle.
Their internet gambling operations generated gross operating revenue of approximately $29 million in the nine 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 topline 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.”