Q1 2021 Gan Ltd Earnings Call
[music].
Greetings and welcome to <unk> first quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation if.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad a zone.
A reminder, this conference is being recorded it is now my pleasure to introduce your host Robert Shore head of Investor Relations. Thank you you may begin.
And good afternoon, everyone and first quarter 'twenty two on the earnings release was issued today after market close and is.
And what kind of the company's website again dot com, and we think and Eric Evans, President and Chief exactly all share and carrier, Florida. Our CFO. Please note and we provided a set of Powerpoint slides to accompany on prepared remarks, you may access. These slides on the Investor Relations section on our website and we will start on page two with our safe Harbor disclosure.
We'd like to remind you that expenses factual statements made today information contained in the conference call, including any financial and related guidance we provided.
Forward looking statements and involve risks uncertainties and assumptions and are difficult to predict words and expressions, reflecting optimism satisfaction with current prospects as well as statements and the future tense identify forward looking statements. Their absence does not mean a statement is not forward looking forward looking statements and knocking interpret as a guarantee of future performance or results and such.
And there's all sorts of risks and uncertainties could cause actual results to differ materially from those expressed in or suggested by the forward looking statements.
Important factors that could cause the San Francis are discussed and the risk factors section and against the annual report filed on form 10-K on March 31, 2021 forward looking statements speak only as of the day. The statements are made the company assumes no obligation to update forward looking statements to reflect actual results changes and assumptions or changes and other factors affecting forward looking statements information except and.
Except as required by applicable securities laws.
During the call there would be a discussion of some items that's not good for them to accounting principles generally accepted in the United States of America or U S. GAAP reconciliations of these non-GAAP measures. The most directly comparable U S. GAAP measure are included in the appendix of the Investor presentation and press release issued this morning, both of which are available on the investors tab on our website with that I like.
I'll turn the call and the Florida, Florida, Dermot and Trumping remark. Please go ahead, Darren Thank you Bobby and good afternoon, everyone.
Please join me on the fourth slide on the presentation released earlier today.
This was an impressive first quarter of delivering strong top line growth exceeding our stated guidance and executing new client wins and launches and together with the closing of the cool that acquisition today.
Today, we're announcing a major content distribution deal with Ainsworth, providing exclusive access to their proven land based content and I could not be any more pleased with what the team accomplished so far this year and enabling us to drive further growth going forwards.
Turning back to the first quarter, our top line increased 260% year over year with our new <unk> segment contributing over $14 million out of nearly $28 million and total revenue.
Underpinning our strong growth was Michigan's launch, which represented and historic achievement for Gan with three simultaneous client launches delivered on January the 22nd Mitch.
Michigan certainly hasn't disappointed.
With strong growth in Q1, continuing into Q2 centered very much on gaming as a major U S sports events came largely twin and.
Nearly $28 million combined revenues exceeded our guidance for a variety of positive and sustainable reasons, not just Michigan, but all jurisdictions worldwide for Gan operate continue to experience secular growth as the sports betting and calendar peak, while the underlying digitization of like gaming continued to drive.
And the real profit center on the U S industry, which is high gaming.
We also experienced a tailwind lift and the cool that sports margin at the end of the quarter, where the volatility of sports book can sometimes be hard to predict.
This first quarter proved yet again, our ability to execute from our b to b clients reinforcing the case for BDC operators to leverage proven <unk> technology providers, such as Gan, which are equipped with the optimized technology scaled engineering resources and specific experience required to get to market safely on day one on.
Market commencement with a highly competitive product offering.
Not only did we launched three BTC operating clients in Michigan on January the 20 <unk>.
Including the highly performance when is that product offering, but we also executed Churchill Downs multistate single App solution online across five states and good time before their Kentucky Derby with Tennessee launched on St. Patrick's Day, followed by the launches of Colorado, Pennsylvania, and Indiana, all in a single week.
And April.
This is a powerful demonstration of Gan engineering bandwidth objectively. Unlike anything available from competing BTB providers today, we remain U S market leaders and B to B and look forward to bringing additional clients such as the iconic Super book franchise all line across multiple states later this year.
We believe our sales pipeline is near term platform and Super Rgs opportunities across multiple states remains highly exciting.
Overseas, we saw substantial <unk> growth and the Italian market. Despite the lifting of COVID-19 Lockdowns, which we see as an important leading indicator for digital gaming here and the U S. Just as it was a leading indicator and the first quarter of last year. We are not seeing any evidence of a slowdown in growth and our real money gaming business here in America.
And even as retail casinos reopen and expand their internal capacity.
This demonstrates the solid demand for Internet sports betting and gaming as a combined offering and even in the seasonally quieter second quarter, we're seeing strong growth overall, driven by I gaming now operational in all four U S States being New Jersey, Pennsylvania, Michigan and most recently at the beginning of the month West Virginia.
All told we've already delivered 10 client launches year to date exceeding our total b to b client launches and all of 2020 and.
So last year, the online total addressable market or Tam here and the U S well sub $3 billion and.
And in the mid to long term, we see a pathway to $20 billion and annual online revenues for our clients to capture and Gan to Sharon.
We have clients of all sizes today, and foresee that portfolio of clients continuing to growth as more states regulate online gambling and our clients combined have already captured 20% market share of existing major oil and gummy markets and longer term. We believe there will be significant diversity of size amongst our client base similar to retail gaming, but on.
The landscape is split roughly 50 50 between the tribal and commercial gaming operators of all sizes.
With Michigan's launch tribal gaming operators are only now beginning to explore the use of online gambling opportunity, our strength and serving simulated gaming to tribal operators coast to coast will stand us in good stead as more tried to contemplate their options on how to execute against the online opportunity and we can already see a clear path to major native American casino operators.
Engaging gan as it would be to be technology solution provider.
Cool that closed on the asset of the quarter and has proven to be a well timed acquisition completing completed as an increasingly attractive valuation.
Stated strategy of deploying their sports betting capability and the U S is playing out exactly as we expected and the business continues to impress which I'll return to in some detail later in this presentation.
Let's move onto the next slide slide five.
Michigan and strong market launch attracted nearly 700000 active player days and the first 30 days on market commencement several times more than any other U S market launch delivered by Gan and suggesting that the Michigan pre marketing playbook will be folded and future States and a quick reminder, Michigan.
And regulators permitted certain BDC operators upon application to start registering and funding accounts several weeks before the January 22nd launch.
There was also the apex U S. Sporting event known as Super Bowl just two weeks after market launch all of these factors played into the market share we enabled with three operator clients to capture.
We are intensely focused execution, we got all free clients to market on day, one and performed reliably at scale sense, including before during and after Super Bowl with an all time daily record of $14 6 million pets and seamless uninterrupted technical operations.
Also set out here and.
The U S b to C operators basic priorities as they relate to Gan.
Get to market first and every state operating reliably at scale and deliver a market, leading protocol free and deploy financial capital to acquire users efficiently and profitably.
These are the reasons and our view by optimized <unk> platform, such as gas will continue to win new clients and take market share regardless of any expressed appetite for internalizing technology.
Yeah, I'll take a brief moment to expand on the success of Michigan as it relates to our business model is.
Michigan is replicated across future states. We believe this could quickly accelerate the maturity curve of the U S online gambling Tam.
Though it is yet to be determined whether this will ultimately impact the longer term time or forecast from Michigan gross operating revenue for the first 12 months was originally $400 million then we increased that to $700 million in late March and now it's looking possible that Michigan will exceed $1 billion online and its first year.
So regardless of the long term impact the acceleration of the maturity curve will ultimately benefit Gan and also accelerating our payback period from launching new clients, which in turn will also accelerate our path to gaining operating leverage and driving increased profitability.
Coming back to the point of the technology, we deliver into the market the challenges associated with enabling this cannot be overstated and it will get harder over time as more states imposed and then change their own technical regimes. The intrastate markets of America are the toughest regulated technical markets for deploying.
Technology, and operating successfully and overtime you need a specific technical platform and experienced specialists at scale to manage the operations for BDC operator clients.
Other major BDC operators have the assets to address the overall opportunity, but not the underlying technical execution capability required either to deploy rapidly across multiple states or perhaps appropriately explore the gaming opportunity.
And your own tech is easy to say, but incredibly hard to do and even harder to do well. That's why we are today, a critical part and the industrial supply chain and will continue to be the go to solution for addressing internet gambling and the U S for all manner it would be to see operators.
The impact of simultaneous states regulating low forecast by Gan is now very much here and playing out exactly as we believed it would highlighting the increased value of our scarce technology, and even scarcer and proven engineering resources required to deploy and operate at scale.
Let's move on together to the next slide.
Right content, we've spoken to the importance of content since our NASDAQ Roadshows on 13 months ago. As we entered that process. We highlighted key game titles developed in house by Gan, including diverse table games video poker variants and a modest portfolio of Slops developed initially with Europe's markets and mind.
For U S slot content, we aggregated or plugged into our platform diverse third party slot content providers, including most major U S casino equipment manufacturers.
Back then we didnt own or control the all important machine based U S low games popular on casino floors of America.
These slot games when converted for online play and America greatly outperformed unknown slot games sourced from overseas.
Based on our recent analysis the typical BDC, operator will generate nearly twice as much online GTR from each American slot game than from an unknown international slot game.
Ainsworth has nearly eight slots already online and new Jersey, with another 15 and close development and.
And these perform extremely well from major BDC operators and this will be extended shortly to both Michigan and Pennsylvania and the immediate future.
Ainsworth has its own rgs or remote gaming server basically a technical bulk filled with our gains designed to be plugged into our platform such as gas.
This rgs has been integrated with Gan platform right now and our Super Rgs and will shortly be made available in the marketplace to existing Gan clients only by way of a technical integration with Gan.
Things worth will benefit by concentrating on building their own line slots from AC to nearly 200 number as opposed to investing and myriad platform by platform direct technical integrations.
Meanwhile, Gan will focus on distributing those slots and away, which benefits our current and future clients.
Fully and execution of this deal with major gaming manufacturer is worth we now have distribution control over their content and a way designed to benefit Gan benefit Ainsworth and of course to the greater benefit of our clients.
Our take rate on gross operator revenues derived from gaming and the U S is expected by us to increase as a direct consequence of this deal and our CFO, Karen Florida will offer some additional color later on on this call.
We've been privileged to work on a multi month period with such progressive Progressive set of fault leaders Ainsworth, who understand the opportunity on line today is to rapidly scale, our online slots portfolio, but leaving online distribution again to our mutual benefit long term.
Okay, let's move on to the next slide slide seven please and so.
So to call that one of the fastest growing international sports led BDC operators worldwide powered by an impressive range of unique sports product features and trading capabilities, enabling them to call that market share profitably and some of the most mature and competitive markets and the world.
They had the foresight to bring their sports product to Latin America, and exactly the right moment and we see continued secular growth in that region for the next decade and beyond.
Today sports betting represents one quarter and combined group revenue up from 10% and 2019 and a similar proportion and 2020.
And as the U S sports betting licensing revenue stock and cool bed continues to grow internationally, we see sports betting revenue is growing to one third or perhaps even more of combined total revenues for GAAP and <unk> through 2021 and beyond.
I will take this opportunity to thank the directors employees and shareholders of cool that for their trust and commitment and joining forces formulate and legally with the closing of the acquisition on January the first more than 200 and highly capable team members have moved quickly and efficiently to integrate the technical and operational capability and they become key contribute.
<unk> scans mission here in America.
We very much look forward to demonstrating their unique sports betting experience online here in the U. S. Later this year under the <unk> brand of Gan sports with the online experience to be complemented by compelling retail offering, which we're looking forward to demonstrating at G. III Las Vegas, This year and event will all be relieved and privilege to attend in person.
As a reminder, cool that dot Com is the award winning <unk> website launched and nearly exactly five years ago and early 2016 and powered by proprietary technical platform capable of rendering unique and innovative sports gambling and experiences.
If you're lucky enough to reside and one of the nine countries served by cool that today, you can engage and a highly social sports betting offering designed for both recreational younger sports gamblers as well as the more mature veteran and sports gamblers, who value the transparency offered by cool that throughout the product experience.
You can watch and live stream and sports that are placed online you can even see where on Earth day, that's being placed you can follow other people, including popular influencers and even place bets alongside the Webex social media and social mechanics sits at the heart of cool that and have done since day one exactly.
Exactly five years ago.
Beyond the sports betting technology, there is a fiercely capable trading team, which continues to offer a unique pregame sports betting experience offering superior value and therefore excitement to sports gamblers disinterested and the generic pregame offered by most competitors.
Our recognized leadership and pre day malls and many major markets represents a significant competitive advantage, we're pregame betting representing roughly half of all total sports betting revenues.
For cool beds.
Beyond pre game trading cooled and also manages the risk and offers and users innovative <unk> and operates a degree of proprietary and running a live betting for flagship sports events, particularly and soccer and ice hockey as well as leveraging life benefits from third party providers and common with industry practice.
On the next slide slide eight we set out the key performance indicators for <unk> operating business, which balances its revenue equally between online sports betting and casino gaming.
81% growth and active customers year over year, and 17, 1% monetization rates represent two outstanding performance indicators.
We also draw investor's attention towards the industry outperformance and direct <unk> marketing spend as a percentage of total PTC revenue standing at just 14% as well as the industry, leading 78% retention and reactivation rate.
This social sports betting product experiences. So good consumers recommend fellow sports fans to try cool bet and that sits at the core of their ability to compete and scaled profitably and the markets. They serve.
These are the competitive advantages, we seek to confer on our U S. B to B clients, who are already solidly engaged and evaluating the Gan sports proposition.
It's a true privilege to present cool that performance indicators today as we believe they represent the very best of International Sports betting technology sports betting product experience and operational sports betting capability, which we are jointly leveraging to bring online here in the United States later this year.
So let's move on to the next slide slide nine and we can highlight our top priorities for the balance of the year.
The outlook for the balance of 2021 is positive we're confident we're in control, we resource our opportunity with Perceval bandwidth and will continue to execute for shareholders.
This means we will bring on board exciting new platform clients.
Patent licensing opportunities consequential to increased IP enforcement will implement the ainsworth exclusive content deal will also launch Gan sports will also launch new multistate clients Super book, and we will get Churchill downs to inspire and I'll call them live and our six state New Jersey.
And we will bring on the Super Rgs online and various online casino markets and of course, we will compete hard and the multiple ongoing rfps for delivering online and retail sports study to major U S casino operators, which we've been invited to participate and as a direct result of acquiring cool day.
As another beneficial consequence over the acquisition. We're also preparing to apply for a platform provider license and New York and conjunction with existing and prospective <unk> clients.
We also see incremental opportunities for deploying our platform and Ontario, Canada, as well as Arizona, Florida, and perhaps even Texas as we progress through the balance of this year and into the next.
Meanwhile, oversees the expert leadership accrual that will continue to expand in existing markets.
And launch and new geographies and capitalize on the tremendous momentum conferred upon them by their market, leading product offerings and features and user experience for both sports and casino and.
The cool bed CEO Anders Karlsen from Mark to me recently 2021 is a year on which they are expected to be more global events the vessel than in any single year and living memory as a result of COVID-19 and.
On the second quarter is already proving to be and extremely busy international sports calendar, which counteracts the seasonally quieter U S Sports Canada.
On particular note to the Copa America, and the European Championship soccer tournaments kicking off in June with the Cooper on particular relevance to cool beds Latin American business.
As you can see and as ever there's a low to do and an incredible amount of opportunity to capture which is why we've invested and the engineering capability and the last two quarters as well as consummating the strategic acquisition of cool that without delay just weeks after announcing the deal before Thanksgiving.
Importantly, as we're progressing into the second quarter, we're not experiencing any evidence of slowdown on gaming as the economy reopens and retail casino patrons return to retail gaming.
The compounding growth and high gaming now across four states more than outweighs any imperceptible reduction and demand for I gaming as retail casinos reopen and capacity and we prefer to think of the COVID-19 peak periods last year is simply and acceleration of I gaming adoption by retail gaming patrons with continuing allocation or they are available.
Well and spend on gaming to the online channel despite the increase and ability to return to the retail gaming environment.
And so in summary, our content strategy and launching of Gan sports is expected to enable us to capture higher wallet share of recurring revenue and cool that represents a meaningful opportunity to participate and the large international Tam of sports wagering.
And of course, we expect to win new <unk> clients and our track record of success positions us favorably and all new market opportunities.
Given the runway of growth ahead of us and robust BTB client demand, we have made a strategic decision to invest and our technology and talent this year.
This is the right decision as new client wins and retention of those clients, we will sustain and build a long term market leadership position. We already enjoyed today, while we anticipate positive full year adjusted EBITDA. It may not be until the fourth quarter that we see a return to normalized adjusted EBITDA margins as.
And as a new client cohort scale, we anticipate these investments will generate a strong return on capital, resulting in long term revenue growth profitability and value for our stakeholders.
With that I'll turn it over to our CFO, Karen Florida has to go through our financial performance current over to you. Thank you Darren and Hello to everyone on the call. Today are client success has created tremendous demand for our services right now and we're off to a very strong start in 2021 with a number and revenue record set during the quarter.
I'm extremely pleased with our results and momentum.
And we have and the business and our progress on strategic initiatives, including our newly expanded if our Rd ads content offering with enquired as well and closing of the Corbett acquisition on the first in January which is now included in our financial results.
A steady cadence of new state and client launches as well as the contribution of call that drove solid performance. This quarter. While we also continued to invest and our technology and team to scale the business and capture this unique market opportunity.
We operate and a highly competitive environment, whether it's the number one day to be enterprise platform and the U S or as one of the fastest growing EBIT I gaming companies and the world and we believe the investments we are making now and our full stack operating and global organization will lead to increased market share and value creation for all of our stakeholders before I jump in and Q1 result.
Let me briefly summarize key changes and the presentation of our financial statement.
You will notice our public filings narrowing <unk> kidney and segment.
And it would be and plays a relevant and your internet gaming and simulating gaming offerings and data fee increased <unk> and international operations. Additionally.
Additionally, our consolidated financial results now and paid the impact on the final purchase price associated with the cobalt acquisition, which was a total fair value of the assets acquired and liabilities assumed at $218 million.
And now turning to a discussion of our first quarter results on slide 11.
I'm excited to report we had very strong performance in both segments, which collectively drove a 263% year over year increase and revenue to $27 8 million, which includes the acquisition of Quebec and the current year period.
Disclosed in our 10-Q revenue growth on a consolidated pro forma basis, but 88% and a combine growth with revenue increasing from $14 8 million and the prior year period.
Our <unk> revenue increased 52% sequentially and 76 comparatively low rack.
Third high $13 5 million, which exceeds our previous record of $10 7 million by 27%.
Revenue from real money gaming was at 76% sequentially and 68% comparatively.
Hi, good morning.
Attributed to both our new partner launches and continued expansion as well and $3 million of patent licensing revenue recognized and require.
Simulated gaming was up 4% sequentially and 114% comparatively with year over year growth driven by the addition of Penn National and other key partnerships launched in 2020.
We also observed record revenue, and Italy, which increased 39% sequentially and 76% comparatively.
Underlying this positive momentum and our top line growth, where significant gains and our key performance indicators.
Record total <unk> growth operating revenue of $214 million, which was up 3% sequentially and 51% comparatively resulted in record high.
In SaaS revenue, increasing 49% quarter on quarter, and 96% year on year on <unk>.
Great and BBB gross operating revenue this quarter was six 3% down versus six 7% and the prior quarter and up versus five 4% from the prior year.
Worth reiterating that we've recently and third and volatility and our take rate and price operating revenue day to the dynamics of taxation and player bonus and with the new market and.
Related to pricing of our enterprise platform offering for which we earn a revenue share on the net gaming revenue.
As a result, we are currently working towards providing new.
And more insightful and transparent and CPI tied to MTR, which we anticipate rolling out on the next earnings call.
On the subject of take rate I'd like to take a moment to further discuss the exclusive ainsworth content licensing deal and we first cited our content strategy as a method of.
Spanning our take rate approximately a year ago.
Tommy anticipated launch in early Q3, canola and Ainsworth recurring content licensing fees. They are deriving from our marine operations and their rvs and their roster of clients, including nearly all meet our BDC operators online who are not platform clients and Dan and Jim.
This manner not only do we start sharing and non client online casino revenue immediately, but we also extend our distribution reach across the entire industry.
I feel it is critical to our Super RBS strategy provides us further competitive differentiation and what the proven U S catalog and accelerate our capture of content licensing economics, while in parallel we also pursue on.
Content development.
And the entered into this deal at a highly attractive estimated return on investment nearly 30% with a base case scenario, a $50 million and incremental revenue and 12 million on incremental net income over the term with positive free cash flow beginning in 2020 accounts and we look forward to unlocking the value of this key strategic partner.
Over the five year term.
And now returning to our Q1 revenue results BDC.
<unk> segment revenue outperformed our expectations generating $14 3 million and quarterly revenue derived from the contribution of Quebec, and international sports betting and casino and gaming operations on a pro forma basis Coalbed grow its first quarter revenues, 83% year over year as a direct result, and increasing its active customer.
And by 81% and growing turnover by over 100%.
Key performance indicators remain at exceptional levels across the board and we are excited about the low acquisition cost highly scalable business and will continue to grow now under the umbrella of Gan.
Turning to adjusted EBITDA, we generated $1 7 million versus <unk>.
And 5 million in the prior year, our operating expense impacting adjusted EBITDA increased from $5 1 million to $26 1 million driven primarily by the addition of call that our expanded <unk> organization and public company and regulatory related costs and.
As Jeremy mentioned, we will continue to invest and our technical capability and delivery as well as invest to meet the demands of new and existing customers for the immediate future.
Contributing to a net loss of $4 5 million versus net income of 700000 and the prior year as higher amortization related to acquired intangibles of $2 9 million and an increase of $1 $2 million and share based compensation and related expense.
Our balance sheet remains strong with a cash balance of $52 2 million at quarter end and we continue to remain debt free granting us a clear path to focus on high growth initiatives and securing additional market share and delivering the best platform and technology to the market.
And now turning to slide 12.
We believe growth opportunities abound, and we will continue for the foreseeable future.
Our view is that these are the early innings for online sports and on gaining and based on current industry reports. We believe we will continue to see the rapid adoption of our gaming legislation.
Near term, our focus will be on capturing the potential opportunity in New York regulation, but in the years to come. We believe we will continue to have access to and large pool of potential clients across leading commercial and tribal operators and we are uniquely positioned as the only pure play <unk> operator focused on this enormous opportunity.
Internationally, the BDC business as president and some of the most exciting region and the world and we look forward to leveraging pullbacks, Knowhow and sports technology to implement our full service offering and the U S.
The Gan sports and Super Rgs offerings, our way to further enhance our scale and profitability and we have yet to see the impact these exciting investments will bring and the years to come on.
Our revenue has already been highly recurring and we believe these additional products will serve to further reduce our customer concentration increased geographic diversity and enable a higher take rate of operating revenue.
We are confidently executing against our long term strategy and with this we are increasing our revenue guidance from the original range of 102 $105 million to now $103 million to $108 million and I'll highlight that the midpoint of this range is three times, our 2020 revenues for Gan Dws's stand alone.
We arent, providing adjusted EBITDA guidance, we do expect to generate positive adjusted EBITDA. This year as we grow and scale, our top line and a great one.
And improving operating leverage through controlled growth and focus on efficiency and.
We hope to expand on these concepts further at our Investor Day event in early October during the first day at the global Gaming Expo in Las Vegas also known as <unk>.
We look forward to providing a deeper dive and <unk> capabilities and the long term and scalability of our day to be business as well as introduce other senior leaders here again more information on that will be forthcoming.
I'll now turn it back over to Dominic to conclude our remarks from it.
Thanks, Karen.
Turning to slide 13.
Simply put Gan is in better shape today than at any point in its recent history. There is clear opportunity for continued strong growth profitability and just winning with our expanded client base.
We delivered strong results this past quarter, driven by our talented team and.
Incredible and scarce technology offered.
These strong results should continue as we efficiently stand up new b to b clients and expand our b to b content offering to include Gan sports and Ainsworth exclusive slot portfolio.
<unk> will continue the first quarter's momentum internationally as major sports tournaments kickoff and June helping counteract the seasonally slower and sports betting calendar and U S and reflecting Gan NAV global reach.
We anticipate that our current execution strategy will ultimately yield a highly scalable and recurring business model, which will maximize value for all of our stakeholders.
That concludes our remarks, and we'll now open the line for questions.
Thank you.
We will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May Press Star two and if you would like to remove your question from the Q4 participants using speaker equipment and may be necessary to pick up your handset before pressing the star.
Okay.
Our first question comes from the line of Chad staying on.
And with Macquarie Group. Please proceed with your question.
Hi, Good afternoon, Jeremy Karen Thanks for taking my question Nice results.
Wanted to start on on the guidance so based on what Youre seeing or I guess based on what we're seeing and April out of the public data and.
And markets like Michigan, and New Jersey, Yes gaming numbers as you noted continued to be very strong and you mentioned that theres no slowdown at this point. So can you can you help us think about the $3 million positive revision revision to your annual guidance and how that.
You know kind of how that works into the $3 million beat and the first quarter anything else that we should be thinking out throughout the year positives or negatives there were different and how you've thought about this at the end of March when you gave the last annual guidance. Thank you.
Yeah. Thank you David.
So we mentioned during.
During garments from arc that sport.
And now called that being part of the company is from 25% of our total revenues and and we.
We have seen that of course, the support side of BDC can be quite volatile and so we have included a base case and our guidance. So we're.
And we're taking into consideration that as well as the fact that we're not completely out of the woods, yet with respect to COVID-19 and so we are cautiously watching those things through the second quarter and our.
Our guidance that we just reiterated.
And they as a base case scenarios and we do think depending on execution and.
The content deal as well as a gambit of esports out there those are areas, where there could be upside and of course as we've mentioned before we do not include patent licensing and all.
Our guidance and so if anything were to happen.
Between now and the end of the year from a patent licensing perspective that would be and increase as well.
Great. Thanks, and then.
Can you provide any more color just in terms of comments around investing and the business you talked about technology and talent and obviously sacrifice some of the some of the near term EBITDA opportunities, but you know at what point do you think you'll have kind of a full team in place and yeah. How are you thinking about what.
It's out there.
And if you were able to acquire that.
And that'll help you position the company for the future. Thanks, Yes, so Chad you're kind of self answered to a degree so investing in growth and future market share getting the right talent on board levering up and certain scenarios for growth overall and this is.
This is all about capturing these long term multi year relationships to be somebody's platform data points and time and industry, where we've been surprised at not only the organic <unk> client opportunities and U S, which are basically a jump ball for everybody engaged and the marketplace, but more interestingly existing single state clients suddenly.
And asking to go multi states, which is a big lift internally and then secondarily you've had.
Pretty interesting surge in competitive replacement opportunities, which I think again simply reflects the.
Relatively.
Our understanding of just how complicated all of this stuff has to do whether it's in and individual real money gambling and state or multistate.
Our multistate capability is really sat at the heart of that is people have kind of <unk>.
Reevaluated their exiting choice and don't actually maybe maybe we need and alternative providers again and has become rather a default go to solution, that's proven and not not a risk of any live quickly and any individual or multiple state marketplace and I think thats been the incremental surge and b to b.
Platform demand that we are having to address and it's absolutely the right decision for us to go what we're gonna need and additional launch team, perhaps even to over the course of the next quarter or two it takes time and <unk> typically six months to engage and Upskill and operationally switch on our new.
New client launch.
Quarter of some sorts. So it's absolutely about resourcing not just today's opportunity from our existing clients, but also responding to be able to capture these new BW platform client opportunities that really come up for grabs and such a such a fleeting way momentarily before they disappear from view again.
And unless you are ready and capable of bringing them online within.
Four to six months, just as we did in Michigan and you can see us signing a contract win in September of last year and gave them life and January members. Just one of three major client deployment and so really it's about ensuring that we don't we don't.
We don't Miss these extraordinary opportunities and we are open for business very much so and we expect to have new beta clients imminently.
Thanks, Jeremy and bridge here and congrats on the quarter.
Thank you and cap.
Our next question comes from the line of Ryan and signal with Craig Hallum. Please proceed with your question.
Good afternoon, guys. Thanks for taking my questions.
Curious on the Ainsworth agreement is at and exclusive distribution agreement or are you acquiring the online IP and then secondly, you mentioned, Karen you mentioned $50 million and incremental revenue over five years.
And what does that agreement start and then how much of that contribution is included in the fiscal 'twenty one guidance.
Yeah, Thanks, Brian So I'll, let them comment on from and the strategic points and the deal as well, but as far as the starting point.
I mentioned, we are assuming that it launches early part of the third quarter and so.
And there is lets say on.
And a low single millions number and Thats included in the current guidance again, as we really get into that deal and.
Get our sea legs, if you will.
Again, there is potential upside as we have a base case included and the guidance that will be.
And really evaluating that early on and the partner and should be able to talk about it more on the next earnings call.
Thanks, Karen and Brian on the strategic stuff, yes, its exclusive distributions were not acquiring any of the Ainsworth intellectual property. This is Ah and Nash.
The size and mutual back scratching and the sense that they get a focus all of their tech team on just scaling that online slots portfolio right. Because if there is a game about getting scaled quickly with online flow portfolios. There at 80 individual titles many of them iconic recognizable major titles like the bromine reels and Mustang monies of the world and.
Haynesworth content is incredibly popular and well positioned and can have distributed across retail gaming floors in the U S and I think they've got another 15 titles that are close to the boat.
But it should be rolled out for the end of the year and they're going to continue to build that up to 200 potential even more than that over the course of the deal terms and very much and exclusive distribution.
And specifically here in the U S and we think it's going to confirm a lot of competitive advantage to our <unk> platform clients and future clients of our Super urgent.
And then maybe a follow up.
On top of Chad's previous question on guidance, you raised guidance by $3 million on each end of the range. You just beat Q1 year range by 3 million you mentioned the upside at the end of the quarter and the last week kind of relative to when you gave that as well as you just said a couple of million dollars here four ainsworth incremental.
Well as Michigan, and basically significantly exceeding expectations, So I guess.
And what isn't going as well or what what are the offsets there that I'm missing.
Yeah, So again.
We look at guidance, we're also looking at potential risk relative to the fourth block and we.
And we just closed on and call that acquisition on January one so it's something we're continuing to monitor and.
And when we're in the midst of that and we're looking at it sort of on a week over week based on its me understand that there can be a good bit about volatility there and of course for the first quarter and ended in our favor but were going into the equivalents March Madness, and then Wes and let.
And with Copa and the June timeframe and so.
And we're going to be looking at that and.
And the trends associated with that and how that is managed to really day more comfort around the volatility that could exist and the sports book. So that's just again, a little bit of a hedge there and and we look at it right now from a base case scenario and with respect to aim for it and some of the other items that you mentioned and you know Ainsworth and the deal that we've been working on for.
A long time, so it wasn't clean and again in our original protection and I won't go into all the ins and outs and whats in our projection but of course, we assume new business. When we originally put out the guidance of 100 and 205 on the first quarter. So again, we're continuing to monitor it and well update the market on the net.
Uh huh.
And then just switching over curious how you think about when interactive and the opportunity there given its recent spinoff and merger with its back theyre going to have significantly more capital to accelerate marketing and market share gains et cetera. We also mentioned proprietary in house Tech a lot of basketball shoes scientific.
Games and a few other states.
Kind of the puts and takes there how do you view that relationship and opportunity to expand it and other states and incredibly positive Ryan. Thanks for the day shut up on that we're actually and the process of integrating the front and I think when they talk about proprietary technology. They talk about the front and mobile app the vessels very well known and respected for and that's been integrated to sit on top of that.
<unk> platform and just as it has been and other states that wind is already launched and actually I do pointed out a number of factors a win the first and most important one is that they licensed our patents as part of the contract deal in September of last year that is to integrate the rewards program had been talking up the $13 million.
Award members and their database we've seen this brand.
Certainly and the online casino outperform any of the other online casinos, we've launched for any other vs.
And as the operator clients and any other states I mean this brand is a special brand when it comes to the financial capital that they've raised to go after the opportunity and how to run on the podium.
The numbers are and the public domain, it's a very significant war chest. They have but any other comment beyond that would be four wins executives to provide to the market and it wouldn't be appropriate for me to comment on this place.
Yeah. That's helpful. Yeah, there's certainly going to get more aggressive.
Curious can.
Can you remind me what what is included in the patent license with when and how long. It was what states that includes how low it was quantified and then if there's upside.
And get more users and then what was kind of part of that initial agreement.
It's a it's a 10 year deal commencing from launch and so we launched in January of this year.
Patent license extends only to Michigan and the contract terms only encompass operations and Michigan.
I would hope they would speak kindly of us and certainly we've enabled us not just to be there and on day, one but to take it.
A reasonably interesting share of the market pretty quickly out of the gate. So a.
Very very strong relationship it's collaborations at this point and we're excited to see what happens next.
Great. Thanks, and good luck I'll hop back in queue. Thanks, Brian.
Okay.
Our next question comes from the line of David Bain with B Riley FBR.
Please proceed with your question.
Okay.
Okay.
Okay.
David Bain your line is live.
I'm, sorry for that Hey, sorry, I was on mute congratulations on the quarter and of course the Ainsworth.
On her.
Standing Ainsworth is one of the larger players can we anticipate continued unique content, either tuck ins or exclusives going forward as either you or not and opportunistic or even a core strategy and you know understanding you're not disclosing exact acquired right purchase amount can you give us some color on structure.
You know upfront cash component with some ongoing split is that sort of what we should look at either with this.
Deal or something going forward.
Yeah, Thank you, David and I and.
And I won't call it out.
And I wanted to chat on weekends, but [laughter].
[laughter] of course, you know, we we stated a year ago that we're going to be focused on and our content strategy and progressing that as far as we want to take it we do see that the M&A valuations and the market are we think overheated a little bit and so really we're taking and alternative.
Approach that wouldn't necessarily include at least for now and M&A. So it is definitely focused on them.
Smaller tuck ins and potential actually hired.
And that's why we can start building out the O&M content and then we're going to continue to be opportunity opportunistic relative to licensing deals that we think are attractive and a big piece on what we're looking at what content and I'll. Just reiterate that is that we want the content to be proven in the U S market. So there is a lot of content.
That is.
And you know available internationally, but we don't think it necessarily resonates and so we do have a very focused strategy on U S premium content and so with respect to the Ainsworth deal specifically.
Yes, there are testament commitments associated with that it's over the course of the deal we're not going to reveal those terms, specifically, but again I would just say.
We are expecting a very high return on.
That's been there.
Alright.
Okay, Great and then my follow up would be just a bigger picture on hybrids and I know you spoke.
To this with win on that discussion a little bit but is there a balance or what is the balance between levering you know that.
Patent for incorporation of core technologies for value add for the client and Gan versus you know straight patent licensing and are you gauging now more acknowledgment of the pattern and your and your discussion with operators that are continuing to see what's going on you know see wagers coming from online and invest more.
Yes, well, there's been plenty of data points, even year to date.
Enhancing and if anything the understanding of the value that the patented average framework delivers to BDC operators already active in multiple states, who have relatively recently implemented that capability and we think the rewards program of retail casinos.
As always and we will continue to always sit at their ability or update the heart of their ability to compete aggressively against online only players. So it's an incredibly important and strategic and selective property asset of ours I think it is very well known within the industry and patent licensing is always a balancing act.
There is a need to enforce our intellectual property here in the U S in on a per.
Principally balanced and measured way.
And we intend to continue to press the merits of licensing and intellectual property on people, who may or may not be infringing on it even today. So we are very.
Conservative we're very careful.
And we know the enhanced actual value, we priced it and licensed it at a market rate and we will continue to respond to the opportunities with a real degree of flexibility, but for sure. If this is probably the most important piece of <unk>.
Parents of technical capability that exists in the crossover world between retail and online gambling today.
Awesome, Okay. Thank you.
And the interest upon and if we can limit ourselves to one question and one follow up.
Our next question comes from the line of Greg give us with Northland Securities. Please proceed with your question.
Hey, good afternoon, Germany, Kara and thanks for taking the questions and congrats on the strong results.
I guess.
You mentioned and the BDC offering.
Net outperforming your internal expectations.
I'm just wondering I guess, if you could discuss a little bit more about what drove that outperformance maybe to what degree and then whether you expect that.
Better than expected strength.
Sustainable going forward.
Okay.
Yeah. So on.
On the secular growth that they're seeing particularly in Latin America. It just continues to outpace where we had originally thought that it would be so that there they're doing great and they have and an incredibly social.
<unk> low acquisition cost model and its it.
Really do an excellent job of effectively scaling that business. So we're just seeing a lot of morality and lot of traction and the markets that they are competing in.
And you know again, there in terms and is the way that they manage the sports margins, specifically and worked out.
And in our favor at the end of the corner and so that's really what kind of tenants over the top with that but again you know all along as we get further into it well test the waters, there and make sure that we're comfortable.
And that they're managing the risk appropriately and and we'll guide according to our base case associated with that.
Okay, great and if I could follow up on on guidance you know I know you don't Wanna be too specific here, but.
You know you mentioned positive adjusted EBITDA this year.
Was just wondering if you could maybe discuss how you expect operating expenses and go.
Going forward and maybe what are the notable.
Drivers or changes that you would see this year.
So you know we expect operating expenses to as we're talking about further investment and a lot of that is really around staffing and additional launch team cube front run the demand that we're seeing and it takes us.
Generally speaking about six months to fully staff launch team and because of what we're seeing where there was a slight seth and the sales pipeline, where I would say even a few months ago a lot of the opportunities that we're talking about or maybe singles day now we're seeing more.
And I assess toward multistate deals which are.
Way more technical way more complicated and it just takes more resources and so we want to be able to meet those demands again. These are not just on.
And new opportunities that we had originally envisioned or set out on Florida.
And for the last few months. These are opportunities that are coming our way that are also replacement platform opportunities and.
So we feel like it's really important to continue to adopt that we are going to see the operating expenses tick up a little bit and as I said, we're also focused on efficient growth.
<unk> growth relative to that head count. So we are managing those costs appropriately and as we look to potentially staffing and and new labor markets that we're not in today and so it's something that's under evaluation to make sure. It is inefficient use of spend and we do expect it to level off towards the end of the air.
Okay sounds good I appreciate the additional color.
Okay.
There are no further questions and the queue I'd like to hand, the call back to Mr. Smith for closing remarks.
No problem. Thank you all for joining us today for our first quarter earnings I'd like to thank our investors and back to our U S market leadership position. We now have a deeper stable long term clients, we're willing to be market share and have reduced our day to be client concentration.
We've got firm visibility of our domestic and international growth and solid control over our business going forwards, which is now equipped with both a strong balance sheet and the perceval bandwidth and engineering resources required to continue delivering for all of our clients Accordingly.
Accordingly, we look forward to continuing with the strong execution and the first quarter as we progressed through yet another exciting year and America's young online gambling industry looking.
Looking forward to speaking with you all again in August Thanks for your time, if you will.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.