Q4 2021 Gan Ltd Earnings Call
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Greetings and welcome to Gans Q4 fiscal year 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 anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to.
Turn the conference over to your host Mr. Robert Shore V P of Investor Relations and capital markets. Please go ahead Sir.
Thank you Hector and good afternoon, everyone <unk> fourth quarter and full year 'twenty claim in the earnings release issued today after the market close and is posted on the company's website again dot com. Please note that the results are unaudited and preliminary and certain prior quarter results were adjusted in connection with the preparation of our 2021 on the financials.
The earnings release Accordingly, the preliminary results, which reflect the most current information available to us maybe subject to adjustments when we file our 10-K and should not be viewed as a substitute for a full year audited Russell.
With me today are chairman, President and CEO and care, Florida CFO . Please note that we are providing a powerpoint slides to accompany our prepared remarks, you may access these slides on the Investor Relations section of our website.
I'd like to direct you to satisfy the presentation, we posted to the IR portion of our website. It talks to our forward looking statements into legal disclosures along these lines I'd like to remind our audience say they may make forward looking statements on the call under Safe Harbor Federal Securities laws, which in each case, a qualified but forward looking disclaimers contained in our earnings release and the risk factors included in our SEC filings from time to.
And those statements may or may not come true.
We may also reference non-GAAP financial measures such as adjusted EBITDA, which are intended to supplement not substitute for comparable GAAP measures reconciliations of certain non-GAAP financial measures are provided in appendix of our presentation with that I'll turn the call, but our CEO Germans perfect debit.
Thank you Bobby and good afternoon, everyone. Please join me on the fourth slide of the presentation to discuss our fourth quarter and full year 2021 financial performance and operating segment results encompassing both our.
<unk> Enterprise software segment, and our international Internet Gaming segment we.
We will also discuss the outlook for the first quarter of 2022, which will deliver positive adjusted EBITDA and we will remain EBITDA profitable in each quarter as we progress through the balance of this calendar year.
With final major agenda items for this call. We will also discuss you use super Rgs clients and chain and lots of Mexico, and our newest platform client Oaklawn Park in Arkansas as well as our now filed the first patent litigation claim to pursue Infringers of our patented intellectual property, we call the <unk> framework.
Which enabled omnichannel gambling in America.
Looking back to 2021, our full year revenue increased over 250% to $125 million versus $35 million. In 2020. This was driven by the successful acquisition and subsequent integration of international DTC, operator, cool beds, which added a profitable high growth International <unk> sports.
That you led business as well as strong execution against our overall strategic plan our.
Our domestic <unk> division delivered $921 million of gross operated revenue to our BTB clients versus $545 million in 2020, and we are now operational in nine U S states with an expectation of increasing to a net 10 operational jurisdictions in North America by year end, including Ontario.
Canada launching next quarter.
We also made great progress on our <unk> strategy to acquire a greater and more profitable share of the <unk> value chain, including reaching an exclusive online content distribution deal with Ainsworth and acquiring a leading game studio and silverback and of course, reaching a milestone deal with Red rock resorts to provide our omnichannel technology platform to power.
Their existing retail and online sports betting business with a leading share of the Las Vegas locals market.
Turning now to the next slide Youll see a review of our key Kpis and metrics for fiscal 2021.
Our <unk> business remains on a strong growth path setting numerous performance records in 2021, and it grew 133% from the prior year last quarter or handle or amount wagered increased 12% from the prior quarter, while our cost per acquisition remains extremely low at just $46.
Per customer.
While our D to C. Underlying kpis were very strong we did see a volatile sports betting margin on a quarterly basis more specifically abnormal sports hold impacted revenue and adjusted EBITDA by approximately $4 million.
This European soccer hold anomaly was experienced by several major public operators with a presence in Europe , who reported low hold below historic norms.
I'll take the opportunity to note that year to date, our hold is tracking in line with normalized levels at roughly 7% and the underlying fundamentals over the business remains on solid ground.
On the <unk> side, we saw a 33% increase in annual revenue in the fourth quarter. The recurring portion of the business increased revenues by 11% from the prior quarter.
While the underlying consolidated business performance was strong the whole volatility caused us to report a loss in quarterly adjusted EBITDA.
This year, our number one focus is on improving our profitability adjusted EBITDA and margins, but at kindred our strategic growth initiatives.
Gaining super Rgs and of course Gan sports.
Speaking of I gaming Super Rgs I'm excited to announce two new marquee clients today, the Italian giants automatically poised to enter the U S like gaming market and entertain that as a known domestically as the technology provider powering bet MGM.
In the fourth quarter, we acquired Silverback gaming for a total consideration of approximately $800000 silverback as a globally recognized a game studio with slot games that are currently distributed across European regulated markets to more than 100 PTC operators like gaming.
This investment should enable us to scale, our proprietary slot content in the coming years on a small targeted investments spend.
Finally, we recently secured a platform deal with Oaklawn Park in Arkansas, which will launch in the second half of this year.
Before discussing our 2022 outlook I want to mention some recent developments related to our intellectual property.
We've obviously seen operators, having tremendous success leveraging the land based patron databases online, which is a technology. We are patent protected until 2033 and monetize on multiple occasions for our non platform clients.
We recently took considered legal actions to defend our patented intellectual property to ensure that it remains but protected and monetize.
Additional legal action against Infringers will be taken as necessary to continue both protecting and monetizing this patented intellectual property.
This is something that we of course prefer not to do as long standing industry participants, but as the situation calls for it we're certainly not afraid to take legal action we.
We view these actions as investments that protect our intellectual property assets as we believe our patented technical capabilities are unique and very much enforceable.
Now jumping to our outlook for the full year of 2022, we are instituting revenue guidance of between $155 million and $165 million at the midpoint. This implies organic growth of nearly 30% year over year. We're also introducing full year adjusted EBITDA guidance for the first time in our forecasting.
Our range of $15 million to $20 million.
As I mentioned earlier, our focus in 2022 is on sustainable profitability and operating leverage we expect to be adjusted EBITDA positive every quarter and the current guidance is highly achievable.
I'd also like to take a couple of minutes to provide our thoughts on the current state of the U S. B to B market that is having a short term impact on our business. While we continue to remain bullish on the mid to longer term outlook over the BBB market here in the U S. There are some well documented near term headwinds in 2022. These include firstly certain BDC operators scaling back.
Baxter marketing spend secondarily market fragmentation has been slower to evolve than we previously expected and thirdly I gaming legislation has been slower to be enacted and sports betting legislation.
As a result of these these items, we're going to see some pressure on our <unk> segment in the near term with stronger growth forecasted for 2023 and beyond in the interim we'll lean into strong growth, we're seeing in PSC and see of course controlled <unk> growth. This year as we're focused on flawless timely and profitable delivery of new client launches.
With Michigan's fourth clients soaring Eagle casino poised to launch.
Along side, our major U S. Operator client launching in Ontario, Canada early in the second quarter.
Our mantra as a leadership team is to control what we can control and we have implemented several strategic actions to mitigate near term industry headwinds our U S contracts have been structured on a percentage of net gaming revenue. So there is a direct correlation with our revenues and what our clients spend in marketing, which is something we can.
To control. The first action is that we have now implemented revised contract terms for new deals with minimum revenue guarantees to ensure profitability for Gan on day, one whether a client decides where doesn't decide to market aggressively.
<unk> as many on the call already know we've been investing in games sports and gaming content, which enables a much wider client base along with a much greater share of the value chain.
Thirdly, we have a fast growing and profitable <unk> business to help offset some of the current short term challenges in the U S b to B market.
Finally, we are taking several measures to accelerate profitability such as increasingly moving our development efforts to international low cost locations, reducing our reliance on third party vendors and head count growth will be leveling off as we focus on executing on our existing contracted client pipeline this year.
That said I want to be very clear that our long term outlook remains robust I remain highly confident in our long term revenue 2026 target of between 500 $600 million and margins of over 30% with $225 million in topline revenue next year 2023.
Moving on to slide six.
Let me talk about our strategic priorities for fiscal 2022.
Our number one focus this year is squarely on achieving profitable growth. We've completed a thorough review of our cost structure and implemented several measures to accelerate current profitability our.
<unk> business is already cash generative and growing and we see opportunities to expand its geographic reach beyond existing markets.
On the theme of profitability the BDC business model is Capex light.
And it fits us as we evaluate potentially entering new international markets as entry will not require large capex commitment given we are an online only offering.
Finally U S. B to B is highly scalable and in the near term, we're implementing minimum revenue guarantees in our contracts to ensure our operating costs are more than covered regardless of clients' commitments deploying their marketing capital.
Moving onto our investment strategy, we will continue to smartly invest in high ROI opportunities, including Gan sports and Super Rgs. We will officially go live we can sports next quarter and Mississippi with Island view resort Casino and then we expect to launch with Red rock resorts in late 2022.
We continue to work to sign up major clients to our I gaming Super Rgs. In addition to the two we announced today.
Both initiatives will allow us to diversify our client base, we're capturing more of the value chain of the sports and gaming ecosystem.
In addition to those measures, we're implementing initiatives to improve our scalability and drive strong organic growth across the entire business <unk> is expected to see strong revenue growth and current European and Latin American markets and will be complemented by new exciting opportunities such as inventory in Canada in B to B, We will also launch inventory.
Next quarter with the technical implementation completed well ahead of the go live date.
In addition, Gan sports retail and online will also be launched in the second quarter in Mississippi.
We have also secured a deal with Oklahoma Park in Arkansas to provide a sports platform and there are currently only three licenses in the state. So we expect <unk> to have their fair share of sports betting revenue.
Moving on to slide seven as you can see here, we continue to add to our I gaming content Arsenal with a growing lineup of exclusive Ainsworth content augmenting our current in house lock games, a silverback works to develop cutting edge game titles for broad distribution across all major gaming markets domestically.
We remain in contract discussions with multiple tier one BDC operators of I gaming and based on our strong commercial demand. We continue to believe the majority of BDC operators of I gaming here in the U S will become clients of our Super Rgs overtime.
Again sports will go live with the island view Casino resort in southern Mississippi in the next quarter and the team is currently focused on preparing to field trial with Red rock resorts in the second half of this year.
Red rock represents a rare market opportunity not just to demonstrate our sports capability demonstrated at considerable scale in Nevada.
<unk> the most complex regulated market environment in America.
The Las Vegas locals market is $800 million plus existing retail and online sports gambling market with Red rock the clear market leader.
There is significant opportunity for <unk> for us to take share, but from winning new business and existing relationships, new partnerships and a general industry replacement cycle for both mobile and retail sports, which is highly favorable economics for again.
I'll end my prepared remarks on the eighth slide.
We know investors have near term concerns about the level of BDC operators spend on marketing costs in the U S, particularly around marquee sports events, such as March Madness and Super Bowl.
I'd like to remind investors we are not in the business of extensive marketing to acquire players while admittedly. The comparison is not exactly apples to apples given geographies cool debt right now is a profitable growing BDC business with a uniquely profitable customer acquisition profile driven by their operational experience in technology.
Further <unk> average cost per player acquisition was just $46 in 2021.
Our marketing spend as a percentage of GTR is less than 20%, which is just one third of that of USB to see operators.
This was accomplished through cost efficient marketing our sports focused branding emphasizes unique and has all the combination which is actually why we are often called the last bookmaker as well as sponsorships with local sports teams.
Finally, our customers gravitate to the cool bed brand, which is now internationally recognized and expanding their trademark polar bear mascot is widely visible threat external advertising as well as the physical events internationally.
This helps us easily make yourself standout more comparing the cost of our unruly pool of that to U S operators using celebrity ambassadors or the cost of our local sponsorships in Latin America, or Europe versus sponsoring a U S. Sports team is significantly more economical and this enables us to acquire players cost effectively and profitably.
To conclude my remarks, I'd like to add that I'm more excited now than ever about the prospects for Gan to deliver value for our shareholders. This year, we're focused on delivering accelerated profitability with a laser focus on cost discipline, optimizing deliberate operations and ROI targets threat.
Throughout the year, we expect continued robust growth recall that particularly with the upcoming soccer World Cup in <unk>, we expect to see controlled the growth as we expand our reach to new markets and new clients, including the upcoming launch of <unk> gaming for <unk> joint venture with MGM.
And lots of massacre of sports setting with the island view Casino resort in southern Mississippi and of course, the full platform launch for soaring Eagle in Michigan, and Michigan, and Oklahoma launch in Arkansas.
Finally, the field trial with Red rock resorts in the silver state of Nevada late in the year.
We will also be expanding in Canada as part of a major expansion to an existing BTB client relationship it won't see next month.
The outcome of all of this will be accelerating our adjusted EBITDA generation continued strong revenue growth and maximizing stakeholder value for our investors employees and clients.
With that I'll pass the discussion to our CFO , Karen Florida carrier.
Thank you chairman and good afternoon.
Start with a brief housekeeping item.
Comparison to the third quarter results give effects of prior period preliminary noncash adjustments, resulting in a reduced capitalization.
Currently developed software than previously reported as indicated in the preliminary earnings release in connection with the completion of our 10-K. The company is currently evaluating the materiality of such adjustments to our prior unaudited quarterly financials and additional disclosures regarding such adjustment will be forthcoming.
In Q4, we observed solid underlying growth trends and execution of our strategy, while temporary headwinds it allow OSB hold impacted our revenue and profit.
Revenue of $30 5 million was at 242% versus prior year, However were down 6% versus Q3 and lower than our expectations, which resulted in the full year coming in at the low end of our guidance of $125 million to $135 million.
Oh, what's the hold was the main driver of underperformance versus our guidance this quarter.
Revenue would have been $4 $2 million higher were it not for lower than forecast OSB hold rates with the flow through negative impact of 4 million to adjusted EBITDA over.
Over the course of 2021, our <unk> segment observed a standardized hold at six 8% in both the first and third quarters with an increase of nine 7% in Q2 related to favorable results for the house and a decrease of four 6% in Q4 related to player friendly event outcomes.
This anomaly not experienced since early 2018 for our BDC segment was also experienced by numerous public operators with a presence in Europe , who reported similar hold rates allow historic Norton.
Further details related to the impact of the historical normalized revenue can be found in the appendix of today's presentation.
The low holds presented a significant challenge for the quarter, we continue to be encouraged by the momentum of underlying trends in our BDC segment, which grew active customers in turnover on a strong trajectory in the period.
CBA continued to remain well below the peer group with a slight uptick quarter over quarter from $45 in Q3 to $46 in Q4.
Russell Uni customers of 220000 were up 12% versus Q3, and 145% versus prior year generating a record handle a $633 million.
Also at 12% versus Q3 and 116% versus prior year.
Overall Q4, <unk> segment revenue of $19 2 million declined 9% versus Q3 and increased 49% versus prior year on a pro forma basis.
Q4, <unk> segment revenue of $11 3 million increased 27% versus prior year and 1% versus Q3 as our prior quarter results included $1 5 million in hardware sales in advance of our 2022, new client launches.
The strongest gain in the quarter was made in our <unk> recurring SaaS and services revenue, which increased 16% versus Q3 and 144% versus prior year on continued organic growth in existing markets as reflected in the gross operator trend.
U S real money gaming SaaS revenue increased 22% versus Q3 and over 100% versus prior year.
Italy was up 1% versus prior quarter, and 9% versus prior year, while simulating gaming of the modest declines of 5% versus prior quarter and 6% versus prior year.
As a reminder, simulated or social gaming benefited from the Covid stay at home dynamic in 2021, and as such this year will be a difficult comp for accumulated gaming offering.
Operating expenses were $31 million in Q4 up $3 5 million or 13% versus Q3. This increase was driven by three primary factors first our hiring rate in the quarter represented a 9% increase of full time head count and we exited the year at 686 in place it really.
Increases in personnel costs in Q4 were partially offset by final adjustments to the 2021 short term incentive comp plan.
Second marketing spend increased primarily is related to our participation in the global gaming Expo in October for our <unk> business and as we continue to invest in DTC marketing programs to build on the momentum we have established in organically growing our international revenues, most notably in anticipation of our upcoming launch.
Ontario regulated market.
Third share based compensation expense increased versus Q3, while head count growth is typically the largest driver of this expense. The increase also reflects both a change in the long term incentive compensation structure, where we are now leveraging restricted stock unit strategically to foster a broad based ownership culture and drive long term return.
As well as key management hires and changes made in the period.
We also incurred a $5 million tax benefit quarter over quarter as it related to a $3 4 million reduction in our income tax provision to a benefit of 200000 full year. This.
This was largely driven by the release of evaluation allowance on our U S. Entity. In addition to the impact of our full year results and shift of income earned in expenses allocated between the U S and foreign jurisdictions.
In conclusion, primarily related to the impact of low OSB hold our adjusted EBITDA loss widened during the period from 800000 in Q3 to $5 million in Q4 due to the tax benefit in period, our net loss improved slightly from $8 6 million in Q3 to $8 5 million in Q4.
Moving on to slide 11, and our full year results.
As I mentioned in my opening remarks, 2021 represented a year of making focused investments in executing our long term growth strategy with the closing of both the corvette and silverback acquisitions during the year.
We grew revenue over 250% and welcomed over 400, new employees and our now eight global offices, including over 300 employees for our new <unk> segment.
While we are pleased with the progress we have made in 2021 was a stake in the ground for where we're heading we're challenging ourselves this year to refine our execution strategy to align with the current market environment.
I'll elaborate on this momentarily and our full year guidance, but we'd like to take a moment to recap the foundation we've laid.
Integration of call that and scaling of our revenue to $125 million in 2021 has given us clear line of sight into extracting the operational efficiencies and progressive annual margin improvement in 2022 that we spoke about at our recent Investor day event.
In the last two years the business has operated at approximately adjusted EBITDA breakeven.
The slight improvement from negative $2 $3 million in 2020 to negative $100000 in 2021.
While our operating expenses grew as drove it through acquisitions and investments and technical and operational talent and corporate infrastructure related costs. We ended the year with the business sufficiently staffed which marks a critical turning point for the company.
We gained significant operating leverage in two key categories throughout the year, our product and technology costs and general and administrative costs declined as a percent of revenue to 17% and 39%, respectively, which combined were over 100% of revenue in 2020.
Our net income loss expanded from $20 2 million in 2020 to $24 9 million in 2021, given the effect of 11 6 million in purchase accounting amortization for the Covid acquisition.
We ended the quarter with $39 $5 million in cash on our balance sheet.
The decline versus Q3, primarily related to the low hold event.
And timing of payments related both to the exclusive content rights for the upcoming launch of our Super Rgs product offering as well as timing of payments related to our annual corporate insurance program.
Moving on to slide 12, and our full year guidance.
And we look forward to 2022 and as Dermot outlined the U S D to be operating environment remains challenging and we anticipate a majority of near term organic revenue growth will come from our <unk> segment.
Today, we are introducing full year revenue guidance of 155 million to $165 million, which implies 24% to 32% growth from 2021 levels.
We expect <unk> revenue to range $105 million to $110 million.
Representing growth of 34% to 40% versus 2021 and comprising approximately two thirds of total revenue.
<unk> segment will experience more modest growth, while we are scaling our gam sports and Super Rgs offerings in the near to mid term with an anticipated revenue range of $50 million to $55 million representing growth of 7% to 17% in 2022.
As Jeremy noted we are focused on controlling the controllable and accelerating near term profitability.
We implemented several measures to take cost out of the business without impacting operations, such as reducing our reliance on third party vendors and switching from development efforts to lower cost locations with highly skilled talent.
Related to costs I will also point out that our annual public company costs of approximately $8 million is almost entirely fixed in nature.
Lastly, as a reminder, our recurring <unk> revenue is highly scalable and we are still in the early innings of the rollout of the U S. I gaming OSB market.
Our BDC revenue projection includes the launch of the Ontario regulated market in the second quarter organic growth in existing territories, and a normalized hold rate of 7% throughout the year.
I am pleased to report that we are tracking in accordance with this metric for the Q1 quarter to date period.
Our <unk> revenue projection includes the launch of a tier one customer in the Ontario market in the second quarter as well as the launches are soaring Eagle and island view casino in Q2, and Red rock resorts in Q4.
We have adjusted our forecast to include the recent public statements and shift in strategy by our customer Churchill Downs as well as the recent migration of a BTB client in the northeast.
We have also assumed that stimulated gaming will be essentially flat year over year and that we will experience a modest decline in the Italy market.
Regarding our 2022 quarterly revenue cadence, we expect the first three quarters to represent 22% to 25% of revenue each with Q1, representing the lower end of that range in Q4, representing a higher proportion than observed in 2021.
Correcting for the low hold this past quarter and considering both it's the seasonally highest quarter of revenue and the World Cup event is occurring over the months of November and December .
Prior to today, we have not provided guidance for adjusted EBITDA, we are introducing this metric.
Metric now to provide more transparency into what we are focused on and how we are progressing towards improved economics.
This year, we expect our adjusted EBITDA to be between $15 million to $20 million, which includes modest headcount growth of 7% for the entire year, including our investments in <unk> and Super Archie ads as well as the full year effect of content fees related to the exclusive licensing arrangements for Super Rgs.
With the impact of investments we made in 2021 combined with the continued revenue growth, we are able to achieve with our newly scaled infrastructure. We expect that approximately 50% of the incremental revenue will flow through to adjusted EBITDA in the year ahead.
Let me repeat that 40% of incremental revenue will flow through to adjusted EBITDA.
From a quarterly perspective for 2022 we expect our adjusted EBITDA in Q1 to be between 2 million and 3 million, our adjusted EBITDA will build throughout the year, but the inflection in Q4 aligning with the traditional seasonality and World Cup finals. We are also targeting to be net income and free cash flow positive by Q4.
Sure.
A bridge from adjusted EBITDA to net income will shift slightly in 2022, as we anticipate increases in DNA share based compensation and income tax.
We are actively evaluating our capital structure and we'll be taking steps to ensure that we retain flexibility as we move forward through the year towards increased profitability.
We view our stock is undervalued at these levels, we had planned to repurchase stock this quarter, but the 4 million hold impact to our results delayed this plan.
We are currently evaluating raising a small amount of debt capital to both accelerate our <unk> investments and repurchase shares.
Wrapping up on slide 13.
While we arent pleased with the fourth quarter results the underlying performance of both <unk> and <unk> was strong in the quarter with the hold anomaly impacting our consolidated results.
Our 2022 outlets implies 28% revenue growth at the midpoint.
And $15 million to $20 million and adjusted EBITDA.
We expect to be adjusted EBITDA positive in every quarter. This year driven by our profitable <unk> business scaling our <unk> business that is largely recurring and cost controls we are implementing throughout the company.
Our focus for 2022 is squarely execution and cost control to drive near term profitability, while strategically investing in <unk> and Super Rgs.
Now I'll turn the line over to the operator to open it up for questions Hector back to you.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys Wonder woman.
Please while we poll for questions.
Our first question comes from the line of Chad Beynon with Macquarie. Please proceed with your question.
Hi, good afternoon, Thanks for taking my question.
Just wanted to dig into the B to B guide I feel like that's where some of the confusion is.
Can you just kind of help us think why you're assuming little positive impact from Super Rgs against sports.
Probably more so on the Super hard, yes, I would've thought that.
You should be able to kind of plug into other systems.
And then if your content is strong you'll be able to recognize those revenues.
And then the second part of that is as we look to 2023 German I think you confirmed the 2026, but I didn't know if I'm. If you were willing to confirm the 2023 outlook that you issued at the Investor day.
Yes, I'm happy to confirm that now.
$225 million in top line revenue in 2023 is it or more is what we see as of right now curb the narrative earlier on.
Two Super Rgs Super Rgs.
For a major operator clients such as those announced today will kick in in the second quarter, but theyre going to ramp throughout the year, hence the.
The relatively conservative view on the Super Rgs contribution scrap the totality of 2022. It does take time to do these deals chat it takes about six months due to contract.
It takes about three to four months due to technical integration typically those processes take place in the exact same timeframe in fact, many times a contract is the very last item.
Any announcements are made so the technical integration.
With some foreign team for example fees.
All done and awaiting submission.
It is a relatively well understood industrial cycle, but it's like a game of tennis played over a multi month period.
Okay. Thank you.
And then on the on the patent filing suit.
Well I guess more importantly are you assuming anything in terms of pet fee contribution in your 2022 guide and related to the suite I'm guessing that this will be.
Long drawn out process, but like you said it kind of raises awareness maybe others that are infringing our patents patents is that kind of the way to think about it in the near term.
Yes, I mean, there is our guidance already takes into account the anticipated very modest costs associated with the.
Legal actions taken Chad.
We don't assume.
Any any patents revenues in 2022 or 2023. So we are we are in.
In the envious position of having take to take these very specific legal steps to bring the parties to the table in order to seek and obtain fair and appropriate compensation for the use of our patented intellectual property.
Beyond that it's not really appropriate to comment.
Okay.
I'll jump back into the queue I appreciate it.
Jeff.
Our next question comes from David Bain with B Riley. Please proceed with your question.
Great. Thank you.
First maybe if we could just take a step back for a second and just look forward sort of just the U S online market liberalization potential large ones, even like California, you know part of our thesis has been.
Being more of an open online market model promoting kind of a licensing of mid level market candidates like tribes or you know.
Those kind of operators.
Or you know the.
The other side of the coin would be more like the New York model and I'm just kind of wondering as you look at your long term guide, how you sort of contemplate the future.
Yeah, David we're aligned with your thesis and that we see several more native American states coming online.
Unintended over the course of the next few years, we certainly look at California, as a major opportunity for Gan Gan technology.
For the complete enterprise solution <unk> to power the tribes as they move online.
I think and hope and I think this would be consistent with industry review the.
New York process appeared to have significant political influences that play.
And political characters influencing and I would hope we don't see many more repeats of the New York legislators and taxation environment that said, we have our first native American client delight in Michigan in a few weeks' time, they're excited to bring our fourth current life and that gives us a very real credible chip in the game for being a major <unk>.
To be provided to other native American tribes as these travel gave you states come online.
Okay, Great and just.
Maybe a follow up another big.
Kind of picture question.
Follow up on what Chad asked with Super Rgs, If we look at Ainsworth Silverback incredible tack I mean, you have a lot of exclusive content and post the customer acquisition that we anticipate how do you manage the process of where that fits within the PTC offerings to make it closer to lobby or are closer.
Having more eyeballs on it can you help us understand that that process a bit is it making the operator aware of kind of a land base.
Market share or other.
Other kind of statistics or is it relationship oriented how do I, how do we worked that back back and once you get the customer.
Yes, so on the BD side for example, some clients that are launching imminently. They are using our product and marketing services that we are effectively control of the virtual gaming floor in part of these games are located visibly.
The phraseology top deck the online casino is incredibly important for <unk>.
Customer engagement and revenue generation and in those instances, we are in control of that and take appropriate actions to highlight the ainsworth slot content and overtime to silverback gaming content.
In other instances it will be the b to b clients marketing team that will make their decisions about exactly where games are located in the virtual gaming floor, but of course, we got many ways of influencing that as the underlying platform provider, whether it's having associated leaderboards tournaments specific to ainsworth slots or add another bonus promotions specifically crafted to promote.
Engagement in place these are slots and we've certainly seen that outperformed the average in Michigan, whether it'd be enacted in the Super are Jeff since the very end of November last year.
Okay Awesome, and then I'm just going to go over one on one and that's Churchill exiting the market I mean based on the.
The comments by both yourself and Karen I can I assume that or can we assume that it wasn't overly material.
Are there mitigating factors for recovery there yes.
Yes, David I mean announcing an exit is very different to actually exiting this thing will continue on in the vast majority of the states for an extended period.
I believe the various different market access deals are provided to third parties to evaluate and we're in discussions with some of those third parties will be picking up and hopefully continuing the operations for <unk> clients yet to be determined but.
Last year was 3% of our revenues.
It's relatively modest for us and we have contractual financial downside protection situation, but I'm not.
Sure sure from the disappointment, we feel that Churchill, which as you know.
Fantastic retail oriented enterprise is exiting the space at least for now.
Right. Okay. Okay, great. Thanks, guys. Thank you.
Yes.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
And yes at the time, please limit to one question and one follow up our next question comes from David Katz with Jefferies. Please proceed with your question.
Hi, This is Cassandra asking on behalf of David. Thank you for taking my question.
Tricia, though has indicated that the unit economic is simply not possible for them to kind of continue this operations and even one marketing spend seems to be normalizing. There remains concerns whether they are in the room for the smaller operators in U S dollars.
Gaming just wanted to get your take on that assumption.
Well I'll take that Cassandra some perspective that in markets that offer I gaming and I think there is.
Relatively fair industrial perspective over time, I gaming legislation will continue to grow that.
Wherever it relatively unpredictable fashion, so states like Illinois, and Indiana, and others, who already have online sports betting will add I gaming overtime and the market environment, we have online sports betting retail sports betting and gaming there will be significant opportunities for even the smallest of players to drive.
Profits from an online business just as we see in other jurisdictions in Europe and beyond.
And so I think really the question to bowls about how quickly. It is I gave me legislation gets implemented.
That will drive fragmentation of market share and that will ultimately.
Foster a.
Greatly expanded universe of potential be clients for Gan and I'd like to characterize the BTB opportunity here in the U S. S differed and somewhat delayed as opposed to materially impacted at a fundamental level I gaming and <unk>.
Legislation will continue here in the U S and it will be a very very substantial Tam over the course of next few years and we built this for the long term and transitioning the business to positive EBITDA in order to ensure that we are a.
Financially healthy and structured for success, albeit on a longer term basis.
Got it thank you for taking my question.
Thank you.
Our next question comes from Ryan signal with Craig Hallum Capital Group. Please proceed with your question.
Good afternoon.
Two questions and first one does piggy back off of the one that was just asked so I guess, what do you see in future states that's different than current states because many current states have online sports betting retail sports betting and I gaming and you have the likes of Churchill Downs, which as you said it is a very reputable known commodity.
When as well materially reducing spend not exiting that yet, but I guess why are the small operators why do you think fragmentation will be better in future states versus existing suits that have all three of those.
Well Ryan we have the unique advantage of the actual operating data in states like Michigan and I hold that Michigan is the perfect example of how to get it all right in one go New Jersey, Michigan share some common traits, you've got I gaming and online sports betting and retail sports betting and Michigan State for Eagle Ford commercial casino operators and tribal gaming.
Operators, so we know that in Michigan.
Relatively quickly clients have been consistently able to generate cash positive cash flow from their own wine operations. The vast majority of that centered around their online casino activities. So Michigan is a great model for if it that legislative framework gets re implemented low tax driveline commercial casino operators.
You get you get a significant opportunity for again and we're about to launch our fourth clients out of the 50 to total operators that will ever be online can that stake.
Maybe I don't know if the I thought the top I don't know five or six operators in Michigan had 90% plus of the market share which kind of.
Counteracts, the fragmented nature of what you're saying.
Yes.
Ryan Your question was about the ability of our clients to generate profits in these markets, which obviously you can choose them to enter the market in the first place.
No. It's on the fragmentation comment I believe that consolidation will happen amongst the largest players not fragmentation to the lower ones, which were seeing that happen, but anyway. We can we can take that offline.
Curious for my second question.
So it does the Super Rgs deal with an pain does that also include MGM.
It's specifically for delivery onto the bet MGM online product offerings here in the U S.
Great. Thank you good luck guys.
Thank you Sir.
Our next question comes from the line of Greg give us with Northland Securities. Please proceed with your question.
Hey, Thanks for taking the question.
Wondering if you could just discuss cool beds market share trends in both Europe and South America.
Yeah, Greg we've seen the Latin American market share trend expand very much in line with the overall market, but they are podium players in a selected number of Latin American markets at the moment.
Europe Europe is slightly more challenging I think maintaining their market share as opposed to greatly rapidly increasing them.
Okay, Great and then as a follow up Karen.
That you were saying.
EBITDA is not going to build throughout the year does that imply.
Sequentially ramping quarters on the adjusted EBITDA front.
Yeah.
Yeah, I mean, I think in general it will the ramp we'll follow the revenue trends that I outlined so you know that increasing 20, 22% to 25% of revenues so kind of building in the first three quarters, but there is a backloaded effect in the fourth quarter again, just because of the seasonally high period, but we also have the World Cup that we're looking forward.
Dale.
Okay got it thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Denmark, Smurfit CEO for closing remarks.
Thank you for joining today for our fourth quarter and full year 2021 earnings while there's some short term industry challenges in our <unk> business I'm confident we're taking strategic steps to mitigate these and continue to grow. The segment. In addition, we have SaaS growing profitable BDC segment that continues to follow a strong growth path, we've now transitioned to <unk>.
To generating positive EBITDA in the current first quarter in 2022 will be a full year of continued profitable execution as we launch Gan sports in the U S enter in <unk> and grow our Super Rgs business, while in conjunction taking costs out of our business without impacting strategic growth initiatives.
I do look forward to updating you on our progress throughout the balance of the year. Thank you all again.
This concludes today's conference you may disconnect your lines at this time and thank you all for your participation.
Okay.
Yes.
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