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GAN agrees Coolbet deal after strong Q3 revenue growth


Despite an 87.3% year-on-year rise in revenue during the third quarter, GAN saw costs of its expansion effort weigh on its bottom line, while the gambling technology provider has also agreed a deal to acquire Coolbet for €149.0m ($176.8m).

Total revenue for the three months to September 30 came to $10.3m, up from $5.5m in the corresponding quarter in 2019.

The provider experienced growth across both of its core operating segments, with its real-money igaming (RMiG) business its main source of income in the quarter, after revenue jumped 87.8% to $7.7m.

This growth was down to additional software-as-a-service and hardware revenue, GAN said, driven by deployments in Michigan, which is in the process of launching online betting and igaming.

Its free-to-play simulated gaming division, meanwhile, saw revenue grow 85.7% year-on-year to $2.6m, mainly as a result of new customer launches and strong performances from existing clients.

“We added multiple new RMiG and simulated gaming customers over the last several months, demonstrating the unique and highly differentiated capabilities of our SaaS platform for integrated igaming and online sports betting,” GAN’s chief executive Dermot Smurfit said.

“GAN continues to prove it’s the leading partner of choice for land-based casinos through an expanding solution offering, that allows our customers to quickly and efficiently expand their reach across the online gaming space.”

Cost of revenue increased by 25.8% to $3.9m, leaving a gross profit of $6.4m, up 166.7% from $2.4m in the previous year.

Administrative expenses jumped 153.7% to $10.4m, partly due to GAN increasing its workforce from 141 employees to 215 staff, as well as share-based compensation for directors and key personnel.

GAN said costs were also up due to increased professional services related to capital markets advisory, consulting, accounting advisory, tax advisory and legal expenses. These were all connected to corporate infrastructure and expansion projects, while additional compliance requirements after it became a public company in the US in May also weighed on the supplier’s bottom line.

However, the provider saw loss earnings before interest, tax, depreciation and amortisation (EBITDA) improve from $400,000 to $100,000.

In addition, GAN noted $900,000 of charges related to estimated tax provisions, which it said were due to tax advisory services and internal audits pertaining to VAT, as well as US legal costs.

Higher spending left GAN with an operating loss of $4.1m, compared to $1.7m in 2019. After accounting for $25,000 in finance expenses, loss before tax was also $4.1.

GAN received $5,000 in tax benefits during the quarter, which meant it ended Q3 with a net loss of $4.1m, compared to $1.9m last year.

Looking at GAN’s year-to-date performance, revenue for the nine months to the end of September was $26.3m, up 36.3% year-on-year.

Lower revenue-related costs meant gross profit improved by 86.5% to $16.9m, but after administrative costs rocketed 182.2% to $28.5m, this left an operating loss of $11.6m, compared to $1.0m last year.

Loss before tax widened from $1.1m to $12.1m, and after paying $312,000 in income tax, this resulted in a net loss of $12.4m, compared to $1.5m in 2019.

“Our new customer pipeline in the US remains strong and we’re building exciting relationships that we believe have the ability to scale across our customers’ casino portfolios as more states come online in the future,” Smurfit said.

“Our business remains strongly positioned to leverage the momentum of online sports betting and igaming, which is clearly accelerating across the globe.”

Meanwhile, GAN has signed a definitive purchase agreement to acquire Vincent Group, the business behind B2C igaming operator Coolbet, for €149.0m.

Subject to regulatory review and the satisfaction of certain closing conditions, the deal is expected to close in the first quarter of 2021, with GAN to fund the deal through a combination of cash and stock.

According to GAN, the acquisition would leverage Coolbet’s proprietary sports betting technology, which is anticipated to be integrated into GAN’s turnkey technology solutions for launch in the US RMiG market in the second half of next year.

Coolbet is currently live and licensed in Estonia, Malta and Sweden, with more than 84,000 active customers across all markets.

Acquiring Coolbet would provide additional opportunity to leverage its B2B experience and proprietary technology into Coolbet’s core markets and across its existing relationships with casino operators worldwide, GAN added.

The deal will also significantly increase the business’ headcount, with more than 175 Coolbet employees joining the business.

“From the onset of our IPO we have continued to enhance and perfect our internet gaming software-as-a-service solutions for the US market,” Smurfit said.

“As a part of that growth strategy, we have been clear that we needed to add a best-in-class sportsbook engine to round out our real money igaming platform, and we believe Coolbet is the perfect fit for both GAN and our customers

“Coolbet’s user interface and proprietary technical platform will enable us to quickly introduce the sportsbook offering to our land-based casino customers across the US, who need a flexible and customisable solution to online gaming.”

Smurfit said the deal would bring together two “best in class, high-growth offerings” together, making for a powerful combination.

“We expect to achieve significant revenue synergies across both platforms over the long-term and have structured the deal to be immediately accretive,” he added.