2015 FY RESULTS
28 APRIL, 2016
Conference Call Script
Good morning and afternoon and thank you for taking the time to join GAN’s 2015 full year results conference call. I am joined today by our CFO Desmond Glass.
Before commencing, I would refer you to the note on forward looking statements set out in our press release and which also applies to our discussion this morning. In advance of Q&A, we propose to go through our slide presentation which you may have; if not you can download the presentation from our website www.gan.com.
Before I move on to today’s presentation I would like to mention that from today our London Stock Exchange stock ticker will change from GAME to GAN, completing the rebranding exercise commenced in September last year with the launch of GAN.com.
Turning now to page 3 of the presentation.
On behalf of my fellow directors I would like to take the opportunity to thank our employees worldwide for supporting our complex enterprise software and services business throughout 2015.
By way of brief reminder, GAN is focused on the United States market and today we are principally engaged in delivering both real money Regulated Gaming and Simulated Gaming to US casino operator clients across multiple physical installations of the GameSTACK enterprise-level Internet gaming solution. Our mandate from investors at GAN’s IPO in November 2013 was to explore real money Regulated Gaming market opportunities in the United States as they arose. Simulated Gaming had not yet launched. Today our investment proposition has evolved significantly. Regulated Gaming in New Jersey out-performed expectations in 2015 but Simulated Gaming remained firmly at the center of our equity story with Average Revenue Per Daily Active User or ARPDAU again exceeding two dollars for the second year in a row and again greatly outperforming typical major social casino metrics which commonly report ARPDAU’s of between thirty and fifty cents.
Let me now offer a perspective on GAN’s rapid pace of progress during the twelve months of 2015. On the first of January 2015 GAN had one US client generating real money Regulated Gaming revenue in New Jersey. GAN also had two US clients generating income nationwide from Simulated Gaming. Twelve months on, at the end of 2015 GAN had six US clients generating revenue from Simulated Gaming with a seventh operator client generating revenue in Australia. Among GAN’s seven clients of Simulated Gaming live by year-end 2015, three of them were major US casino operators San Manuel in California, Maryland Live outside Baltimore Maryland and ACEP in Las Vegas Nevada. All three major new clients launched in the fourth quarter of 2015 driving significant growth in the same period.
Again in the fourth quarter of 2015, GAN also signed two new US clients for Simulated Gaming being The Borgata and Isle of Capri. GAN also entered into an agreement with The Borgata to become GAN’s second client for real money Regulated Gaming in New Jersey launching later this year should certain contractual conditions be met. This rapid progress signing new clients in 2015 exceeded expectations set at the beginning of 2015 and I would like to take the opportunity to thank GAN’s American team members leading our business development activities, particularly the commitment shown by our Vice President of Sales and Marketing Miss Dana Takrudtong.
As a final comment on this slide, exiting 2015 we maintained a consistent cost base when compared against 2014, representing a necessary sustained investment required in order to complete the development of key Simulated Gaming capabilities, in order to continue providing a high quality of service for existing clients and in order to deliver new clients online. These investments will deliver significant operational leverage to the business in 2016 as an increasing number of US casinos rely on GAN’s enterprise-level Internet gaming software solution and supporting services to engage with their customers online.
Turning now to page 4.
GAN’s strategy in the United States was set in 2013, proved its initial merits in 2014 and began to accelerate our client acquisition in 2015. We sought to prove our technical capability in real money Internet gaming in New Jersey, believing this would support sales of Simulated Gaming among major land-based US casinos correctly interested in adopting a technical platform which is proven in New Jersey for intra-State gaming and also capable of conducting on-property real money mobile Internet gaming. If anything, GAN initially underestimated the importance of this underlying real money capability in securing US casino operators as clients of Simulated Gaming. Today there is no comparable competing enterprise solution in the United States. GAN is the only provider of an Internet gaming solution for entering the social casino market which also offers a credible upgrade path to real money Regulated Gaming. Furthermore, GAN’s historic and ongoing focus on delivering a converged online-to-offline experience, integrated with a land-based casino operators loyalty program has also consistently maintained GAN’s US market leadership in Simulated Gaming.
This slide also speaks to the final part of our US Strategy, to bring US casino operators together as a combined Industry force tackling shared problems such as content licensing from manufacturers. Today, the essential parts of that strategy are now in place and expected to generate material benefits to each GAN client in 2016. All told, our clients now represent a powerful voice in the land-based casino market by operating forty-eight land-based US casinos properties containing nearly one hundred thousand slot machines and generating more than seven billion dollars annually in land-based gaming revenues.
We are now twenty-eight months into our mission here in the United States and I’m happy to report that GAN reached an Industry tipping point in December 2015 with the announcements of both Isle of Capri and The Borgata as clients, which has resulted in unprecedented sales momentum in the first few months of 2016 with three major US casino operators signing up to Simulated Gaming in as many months. GAN has benefitted from a massively shortened sales cycle in 2016 which appears set to continue throughout the balance of the year as more major US casino groups appear set to stake their claim in the fast-growing Social Casino market by relying on GAN’s Simulated Gaming enterprise software solution and related services to launch their own Social Casino experience tightly integrated with and designed to benefit their land-based gaming business.
We attribute this out-performance of Simulated Gaming to our unique patented approach in enabling land-based US casinos to launch online with a Simulated Gaming experience fully integrated with their existing land-based casino reward programs. For those listening in Europe who may be unfamiliar with the reward programs in most US casinos, they are similar to ‘air miles’ loyalty programs operated by commercial airlines. The more money you gamble inside a US casino, the more points you accumulate which can be redeemed inside the casino for more gambling, cash back or access to other amenities such as restaurants and hotels. This means certain actions undertaken online by our client’s customers generate reward points credited to the customer instantly by GAN’s patented software technology. In 2015 this converged incentive scheme was again proven to reduce the client’s customers propensity to spend money with competing social casino products and redirect that spend in favour of the client operator. This doesn’t mean a casino’s customers stop playing competing social casinos it just means they stop spending in competing social casinos due to the obvious rewards-related benefits of spending the same money with their local casino. By the end of 2015 GAN had completed a technical integration with IGT’s casino management system being the last major casino management system in the US to integrate with. This means GAN’s technology platform is now integrated with all major US casino management systems including those sold to US casino by incumbent casino equipment manufacturers Scientific Games, IGT, Aristocrat and KONAMI. This diverse integration capability identifies GAN as the stand-out market leader in delivering a converged Internet gaming solution to land-based casino operators who increasingly believe their rewards program lies at the heart of their competitive advantage online when compared against the majority of social casinos which simply provide time on device.
Our position in the US market is reinforced by GAN’s experience accumulated to date working with major casino clients as well as the number and quality of our US clients who tend to be well capitalized major casino operators each with several hundred millions of dollars in annual land-based gaming revenues. Simulated Gaming was also recognized last night by the US Industry with GAN winning ‘Freeplay Gaming Supplier of the Year’ award from eGaming Review North America at an awards event held in San Francisco. I would like to congratulate everyone at GAN and thank all team members for their contribution toward winning this prestigious Industry award.
Turning to page 5.
GAN’s strategy has also encompassed an approach best described as securing relationships with leading brands in all the key regional gaming markets across the country. In 2015 GAN made significant progress with nine clients coast-to-coast for Simulated Gaming and a single client for Regulated Gaming in New Jersey. The diverse locations of our clients across the United States are shown here. At the end of 2015 GAN identified the Southwest, the Pacific Northwest and Florida as those remaining key regional gaming markets in which we had not yet secured clients and by way of update I’m happy to confirm GAN’s recent client win announcement as securing a key client in the Southwest regional gaming market, the identity of which will be confirmed in due course. GAN remains in dialogue with a number of operators in the other two key regional gaming markets and reasonably expects to secure clients in one or more of those remaining key regional markets by year end.
Moving ahead a few slides to page 11.
On the subject of Regulated Gaming, New Jersey remains the key market in the US with Internet casino games generating one hundred and twenty five millions dollars in gross gaming revenue in 2015, up thirty three per cent on the ninety four million dollars generated from casino games in 2014. GAN remains critically focused on the casino gaming segment of the Industry and has assembled a market-leading portfolio of recognized Class III slot games together with GAN’s proprietary casino table games and the comprehensive iSight back office information management system.
I would like to take this opportunity to emphasise that GAN's enterprise-level technology platform for Internet gaming is a truly scarce asset, managed by an equally-scarce team of experienced specialists managing one of a handful of fast-growing real money Regulated Gaming businesses in New Jersey. This positions GAN to capture significant market share in any incremental US intra-State markets which may regulate Internet gaming over time, including Pennsylvania, New York and Michigan The market perception of GAN’s leadership was greatly reinforced only last night by GAN winning the prestigious ‘Casino Platform Supplier of the Year’ award from eGaming Review North America, as voted for by a group of US Industry peers.
Turning briefly to page 12.
Turning to those US States which might choose to regulate real money Internet gaming in the near future, GAN remains uniquely well positioned in Pennsylvania with Parx Casino where GAN has installed an instance of the GameSTACK Internet gaming system on-property in preparation for Regulated Gaming. Today, Parx Casino operates the Simulated Gaming website ParxOnline.com but is well positioned to use the exact same Internet gaming solution for real money Regulated Gaming in the event enabling legislation comes to pass.
Other than Pennsylvania, other US States considering regulation include New York, California, Florida and Michigan and GAN has clients of Simulated Gaming in both California and New York positioning GAN for any Regulated Gaming opportunities, which might emerge in either State over time.
Moving ahead three slides to page 15.
Returning to the subject of Simulated Gaming, we present these graphs here on page 15 as visual evidence of that momentum expressed by the significant growth in both participatory income and active players originating from the United States. Other product-specific drivers of growth in 2015 include our enhanced mobile product, expansion of the gaming content portfolio, and enhanced gaming platform features including real time competitive slot tournaments, experience points and leveling-up systems.
As a reminder, GAN coined the term Simulated Gaming in 2013 and in doing so defined the market opportunity of B2B Social Casino gaming technology and services delivered to US land-based casinos. These land-based casinos will have an increasingly important role to play in the multi-billion dollar Social Casino market in future years particularly in their regional US gaming markets. The growth of Simulated Gaming visualized on this page represents a tiny proportion of the market opportunity for our clients and ourselves, which will be increasingly unlocked as US casino clients accept the growing body of evidence that Simulated Gaming greatly supports existing on-property gaming and commit to invest materially in user acquisition both within their regional market and beyond. We look forward to selected US casino clients of GAN committing increased amounts of marketing capital to user acquisition over time and feel the opportunity to grow Simulated Gaming revenues remains a compelling investment opportunity for our clients.
Moving onto my final slide on page 20 and by way of outlook we are and will continue scaling the Simulated Gaming revenues in 2016 with the launch of multiple new clients including The Borgata, Jack Entertainment, Isle of Capri and two further anonymous clients in the Southwest and Northeast. The acceleration of marketing services delivered to selected US casino operator clients will also drive growth in Simulated Gaming revenues in 2016.
We will also continue to deliver on the strong Simulated Gaming pipeline in the United States and build strategic relationships with stakeholders in key intra-State US markets in advance of regulation.
New Jersey remains a strategic priority in 2016 with continued growth of Betfair Casino dot com anticipated and delivery of The Borgata, subject to certain contractual conditions being met, scheduled for Summer of this year. With more than two years actual operational experience in New Jersey we have successfully established ourselves as a market-leading technology provider in New Jersey and reasonably anticipate additional New Jersey casino operators will choose our regulated real money Internet gaming services on their merits, over time. The scarcity value of the Company’s regulated real money technology, compliance profile, content portfolio, people, experience, skills and capabilities will serve as a foundation for developing incremental future shareholder value in New Jersey and beyond.
Continuing to support the underlying Internet Gaming System development and Company’s expansion in the United States remains a priority justified by the growth of Regulated Gaming in New Jersey together with the number and scale of those US casinos which have already adopted Simulated Gaming and the strength of our sales pipeline.
By way of closing comment on our outlook going forwards, as a Company we will continue to build our base of recurring revenues with a focus on the quality, higher margin revenue delivered in 2015 and with two challenging years now behind us we are confident of the Company’s ability to generate significant revenue growth in the current year and a material level of earnings commencing in 2017, even in the absence of securing a System Sale.
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