Bragg Gaming Group Inc

NASDAQ:BRAG

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Bragg Gaming Group Q2 2021 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker, Yaniv Spielberg. Thank you. Please go ahead.

[Yaniv Spielberg, Chief Strategy Officer & Company Secretary]

Thanks, Elise. Good morning, everyone, and thank you for joining our second quarter 2021 earnings conference call. I'm Yaniv Spielberg, Chief Strategy Officer for Bragg Gaming Group. I'll be hosting today's call alongside my colleagues, Ronen Kannor, our CFO, who will present the results; and our Chief Executive Officer, Richard Carter, who will comment on our H2 performance and give an update on the business. For the first time on this call, we will be presenting a Q2 presentation. So if you've not already done so, you can download our Q2 earnings call presentation from our website at bragg.games/investors. And on that page, you'll see Investors Presentation. The presentation is called 2021 Second Quarter Earnings Presentation to follow the points that Richard and Ronen will walk you through.In this call, we'll review Bragg's financial and operating results for the second quarter of 2021. Following our prepared remarks, we'll open the conference call to question-and-answer period. I'll start the call with some brief cautionary remarks regarding certain statements that may be made on this call. Certain statements made on this conference call and our responses to various questions may constitute forward-looking information or future-oriented financial information within the meaning of applicable securities law. Statements about expected growth, prospective results, strategic outlooks and financial and operational expectations, opportunities and projections rely on a number of assumptions concerning future events, including market and economic conditions, business prospects or opportunities, future plans and strategies, technological developments and anticipated events, trends and regulatory changes that may be -- that may affect the corporation and its subsidiaries and their respective customers and industries.While we believe these assumptions to be reasonable, they are subject to a number of risks, uncertainties and other factors, many of which are outside the company's control and which could cause the actual results, performance or achievement of the company to be materially different. There can be no assurances that these assumptions or estimates are accurate or that any of these expectations will prove accurate. For a complete discussion of these factors, please refer to our recently filed press release and other publicly available disclosure. I'd just like to remind the ones who haven't heard and just joined the call, so this time, we'll be presenting a Q2 press release. You can download the press release on our website, B-R-A-G-G, bragg.games/investors. And under the Investors Presentation, you'll see 2021 Second Quarter Earnings Presentation. I'd like to turn the call now to our CFO, Ronen Kannor. Ronen? So I think that we have a little bit of a problem at Ronen's connection. Well, just let me give us 1 second. Richard, do you want to take it and start with the rest of the presentation, and Ronen will join in a minute? He said that he was cut off, so he's calling back.

[Richard Carter, Group CEO & Director]

Sure. Do you want me to start with my slides then?

[Yaniv Spielberg, Chief Strategy Officer & Company Secretary]

Sure. And then -- sure, we'll go back to the financials only because Ronen was cut off from the call.

[Richard Carter, Group CEO & Director]

Okay. Good morning, everybody. So throughout the second quarter, we made meaningful progress with our strategic growth initiatives, including expanding existing customer relationships, building out the pipeline of premium in-house iGaming content and providing our content and offerings to new markets. These and other strategies are transforming Bragg into a leading, global, content-focused B2B iGaming provider. Now before reviewing our strategic growth initiatives in more detail, I want to address the new iGaming regulatory regime in Germany. So following the new iGaming regulatory regime in Germany, which became effective on July 1 this year, revenue contributions from this market are expected to decline in the second half of 2021 and into 2022 compared to historical levels.Now these changes are fully anticipated in Bragg's growth forecasts and are expected to be offset by strong growth in both new and existing markets as well as from new clients and from increased profit margins as a result of developing more proprietary content and from our acquisitions. In the first half of 2021, German revenue outperformed and represented 65% of total revenue, which has resulted in a higher base going into the July rule changes. Since those rule changes came into effect, player behavior and invoiced revenue has trended in line with our expectations. We have budgeted that monthly German revenue will bottom out in Q4 2021. Looking into 2022, we expect to launch additional new licensed clients in Germany, coupled with launching new in-house developed casino content. There is also an expectation that the German regulator should start to address the unregulated offshore operators later in 2021, which should limit some of the offshore flow to unlicensed operators. However, to be cautious, we are not assuming any recovery on the Q4 2021 run rate and anticipate German revenue to [ compromise ] approximately 10% of 2022 revenue. This slide that shows that German regulatory impact for 2021 has been fully anticipated in Bragg's growth forecast and is expected to be offset by strong growth in both new and existing markets as well as from new clients and from the acquisition of Wild Streak. We expect German regulatory impact of 2021 revenue to be EUR 8.2 million and for this to be offset by EUR 4 million from underlying market growth and EUR 4 million from the launch of new clients. We also anticipate that Wild Streak will now contribute EUR 2 million of revenue in 2021. This results in an updated 2021 revenue guidance for the group of EUR 49 million, up from EUR 47 million previously. We've also today increased our EBITDA guidance from EUR 4 million to EUR 5.4 million. Our previous EUR 4 million EBITDA guidance has been maintained. We have reflected EUR 1.4 million of EBITDA for Wild Streak. Now let's turn and look at the group's 2022 revenue outlook. So as already commented, we expect 2022 German regulatory impact to be more material and are estimating an EUR 18 million impact, but we expect this to be offset by entering to new markets like the U.K., Italy, Canada, the Netherlands and the U.S., which I'll talk about a little bit later.We also expect to see growth from clients launched in 2021 coming into 2022 and from the addition of new clients and by the ramping up of the delivery of games from our proprietary in-house content studio. We'll also see a full year contribution from acquisitions. Taken together, this is expected to result in 2022 revenue of between EUR 54 million to EUR 56 million, and we anticipate that EBITDA will be at least at the same level of 2021. Now let's look in more detail at strategic growth initiatives we started to advance in Q2, including our in-house content strategy, third-party content and new market entry plan that will not only rapidly mitigate the near-term German regulatory impact, but will enable the group to transform its future revenue growth opportunity and significantly expand group EBITDA margins over the medium term. An important building block for accelerating the strategic transition was the acquisition of Wild Streak, which we completed on the 2nd of June this year. Wild Streak will significantly help transform Bragg's business going forward as we shift from primarily providing third-party online content to be predominantly focused on providing in-house-developed online content that will carry significantly higher gross profit margins.Wild Streak, a leading U.S. and European-focused proprietary casino content studio, provides Bragg with a library of 40 casino content titles as well as expertise in game design, slot mathematics and advanced game features. As of June 30, Wild Streak had 7 online casino games live in key iGaming markets, including New Jersey, the U.K. and other regulated jurisdictions in Europe, which have helped grow Wild Streak's adjusted EBITDA by 940% during the first half of the year.Now looking forward, we believe that material further growth opportunities exist for the following reasons. Wild Streak had only 7 online games at the end of the second quarter with 4 released during the first 6 months of the year, but now has planned to release a minimum of 16 games a year in 2022 with that ramping up in the following years. In the U.S., Wild Streak was operational in only one state, New Jersey, and expect to grow into other regulated U.S. states in the second half. And finally, Wild Streak's offering will benefit from the large distribution network available through Oryx RGS and from the company's player engagement tools. Further underpinning growth, Wild Streak has also shown significant growth in GGR from Europe since the beginning of 2021, as shown in the next slide. It released 4 new titles with pragmatic play and plans to release one more game in 2021. These games achieved USD 37 million in GGR in the first half of 2021 and proven to be very sticky since being deployed, underpinning the quality of the Wild Streak game mechanics and features. As you can see in the next slide, compared to the average of our Q1 exclusive game releases by the Oryx RGS [Audio Gap] after release when compared to the first month of release. For example, in month 3, Wild Streak games showed wagering of around 50% of the levels seen in the first month compared to 30% of games we launched from other studios. As already stated, we expect Wild Streak to add EUR 2 million to group revenue in 2021 and EUR 1.4 million of EBITDA, which represents a 7-month contribution. While in 2022, at this stage, we expect Wild Streak to add EUR 5 million of revenue and close to EUR 4 million of EBITDA in 2022. Now another important milestone in the quarter was the acquisition of Spin. We continue to make progress with the U.S. and Canadian licensing process related to the Spin acquisition, and we expect to complete the acquisition in the fourth quarter, as previously communicated, pending regulatory approval. The technical integration between Spin Games and our Oryx Hub distribution platform is already completed, and the combined offering will deliver the benefits of Oryx's RGS in-house content, advanced player engagement and data tools, alongside Spin's U.S. market content and operator relationships, providing a differentiated and wildly -- widely distributed iGaming product offering.Following the completion of the transaction, we will gain access to key strategic operator relationships in the U.S. where Spin Games has over 30 customers, including iGaming customers, such as DraftKings, Golden Nugget, Penn National, to name a few. We plan to leverage these relationships to initially cross-sell our existing European casino content followed by the new, proprietary online casino content that we are currently developing to address the U.S. and Canadian markets. Now let's turn to the near-term and medium-term market size opportunities for the group. We believe the greatest opportunity for growth is in the online casino segment of the online gaming sector. Within the key markets of North America and Europe, online casino has the larger TAM relative to sports betting and has historically tended to be materially more profitable for operators. We expect the current trend for online casino regulation in North America to continue, underpinning the group's growth opportunity. Now Bragg, historically, given its European focus, has operated and targeted markets that represented only USD 2.8 billion. We're only 20% of the $14 billion European online casino market.Looking forward into 2022, we expect to increase the group's total addressable market by a factor of six-fold to $18 billion. This will be driven by entering the U.K. market with an estimated market size of $5.5 billion, entering the Italian market with an estimated size of $2 billion, the Dutch market with an estimated market size of $0.4 billion and the U.S. market with a TAM currently run rate of over $3 billion. And we expect all this to open up for Bragg during the fourth quarter of this year. Then as we move into 2022, we are very excited about the opportunities that the Canadian online casino market presents to the group given we will have relationships with many of the leading North American operators by the acquisition of Spin, coupled with our existing European operator relationships. In addition, via Spin, we expect to be licensed in British Columbia with a Q2 2022 go-live date already slated. And we are in the process of building our go-to-market strategy for Ontario for a Q1 2022 launch following the recent enactment of a law that creates a regulatory framework for a competitive iGaming and mobile sports bettings market. Now today, the Canadian online casino market is estimated to be currently worth approximately USD 600 million, which includes offshore operators. But following the privatization of Ontario and the expected market entry and investment from many of the leading global online gaming and sports-betting operators into this province, the total online Canadian casino market is expected to grow materially with an estimated TAM of between $2 billion to $3 billion by 2025.Now as a way of reference, Ontario represents about 40% of Canada's population. And if Ontario was a U.S. state, it would be the fifth largest state by population and, based on the current New Jersey online casino spend per adult, will have a TAM of approximately $2 billion. Now taking a closer look at our road map to expanding our market reach. We're already ramping up our presence in new European markets. We received our B2B license to supply in Greece last week. We have completed the certification of our games to the Netherlands in preparation when the market opens currently anticipated on October 1 this year. We've signed the platform deal with JVH, one of the leading Dutch land-based operators, and expect to announce more deals in the run-up to this market opening up.As mentioned, we expect to be ready to supply our games in the top European markets of the U.K. and Italy from late Q4 this year. While in 2022, we expect to ramp up in all of the territories as well as rolling out in the U.S., Canada and other markets globally. As you can see on the next slide, the other core pillar of our future growth will be driven by our in-house and third-party content strategy. We have made strong progress during the first half of 2021 in commercializing our in-house studio. And with the addition of Wild Streak, we're now in a strong position to increase our output of games produced from our in-house studios, which capture a greater share of the value chain compared to distribution of third-party games. The completion of the Spin acquisition in Q4 will also significantly add to this. In addition, we will continue to look to add differentiated and appealing third-party exclusive content and are currently in discussions with several Tier 1 studios for the exclusive rights of further slot titles for both the U.S. and Europe. On the next slide, we illustrate graphically the progress we are making and expect to make into 2022. This year, in 2021, we expect to release a total of 5 games from our in-house Oryx Gaming studio, which will represent about 11% of all exclusive games we'll release this year via the Oryx RGS. In 2022, we have a road map of 19 proprietary games to be launched in Europe from our Oryx Gaming studio, representing 33% of exclusive games which we plan to release via the Oryx RGS for the year.In addition, in 2022, we expect to release a further 4 proprietary games from the Oryx Gaming studio in the U.S., while our Las Vegas-based Wild Streak studio will release 10 proprietary games in the U.S., giving a total 40 fully owned online slot game titles expected to go live in the region and representing 37% of all exclusive games expected to be launched by the company in the U.S. in 2022. Overall, we plan to launch a combined 96 slot titles in 2022, which implies more than 100% year-on-year growth. And out of the 96 titles, 33% or 30% will be in-house-generated content versus 11% this year. Now let's look at how these key growth initiatives are expected to change our revenue and margin profile going forward. Today, as you know, the majority of our revenue and gross profit comes from the distribution of exclusive games built by third-party studios on our Oryx RGS. The revenue generated from these games is shared with our third-party studio partners in the form of a royalty fee, which depresses our gross profit margins. While revenue from our in-house platform and our in-house-developed games convert to close to a 100% gross margin. As we pivot towards our in-house live content strategy, we expect to take our gross profit margins from around 43% today up to 60% by 2024, which in turn will drive our EBITDA margins from 12%, which were in 2020, to between 20% to 25% by 2024.Now in conclusion, Bragg possesses many competitive advantages, including proprietary modern technology and development resources that enable us to innovate rapidly and develop content quickly. We -- with our technology platform, growing proprietary premium content portfolio, value-added player engagement tools and global distribution capabilities, we believe Bragg is well positioned to capture a growing share of the large global iGaming market. These factors, combined with our low capitalized expenditure requirements and predominantly fixed-cost operating model, will enable Bragg to materially grow revenue and adjusted EBITDA margins over the medium term. That concludes my comments. If Ronen is on the line, I'll pass it over to Ronen.

[Ronen Kannor, Chief Financial Officer]

Yes. Yes, thank you, Richard, and good morning, everyone. And apologies for the technical issue. I will start with Slide #3. Our revenue continued to grow in the second quarter and increased by 27.6%, up to EUR 15.5 million. The key driver for growth derived from the gaming content segment and was driven organically by German-facing customers, alongside promising growth from European and rest of the world customers, which grew 20% sequentially and represented close to 40% of the total Q2 revenue.During the first half of 2021, the group launched approximately 20 customers, which should also lead to further growth and a continued improvement to the new customer pipeline for the following years. The wagering revenue generated by customers has increased, rising by 15.9% to EUR 3.8 billion as compared to EUR 3.3 billion during the second quarter of 2020.We've also seen a 21% increase in unique players using the Bragg games and content, which is up to 2.3 million from the 1.9 million last quarter. Both operational KPIs were in a positive direction. These strong growth numbers demonstrate the strong demand stemming from our unique content portfolio and continual development of technological advancements. The gross profit increased by 37.5% to EUR 7 million while improving the margin by 3 points to 45% as opposed to 42% last quarter. This is predominantly attributed to the shift in the proportion of revenue from the games and content into the iGaming and turnkey services, which represented today 12% of the revenue that has no cost of goods impact. The group profitability continued to improve. The adjusted EBITDA for the quarter was up by 8.5% to EUR 1.9 million with a margin of 12.3%. The margin decreased by 2.2 points, mainly because of the group investment in talent and our technology, compliance and sales teams as part of the group expansion plan. Now I'll comment on the business highlights in the second quarter. We are continually adding new customers and expanding our global footprint. During the quarter, we added 5 B2C operators in various jurisdictions. During the quarter, we also strengthened our foothold in Spain and Mexico by launching new partnership with Casumo and Logrand, respectively. We increased our casino gaming offering by launching 11 new exclusive slots, of which 2 were developed by our own in-house Oryx studios. We launched this new proprietary games across our network with encouraging trading signs with additional games planned for the remainder of the year. Our pipeline continues to grow and have retained 100% of our customers since Bragg's inflection in 2018. Although our customer retention is excellent, our dependence in our top 10 customers has also improved with a decrease from 64% in Q2 2020 to 57% in Q2 2021, and we anticipate this trend to continue. Now we'll move to the next slide, Page 4, and I'm going to talk about how we reconciled operating loss to a positive adjusted EBITDA. The adjusted EBITDA amounted to EUR 1.9 million with 12.3% margins and representing underlying improvement performance with an operating loss of EUR 1.8 million.The gap can be defined by 3 main noncash and exceptional items. The first is share-based payment charge as a result of awards of directors and management in Q1 of DSUs and RSUs. Second is the transaction and acquisition costs related to the transaction of Wild Streak and Spin Games and the deployment of the corporation M&A strategy. And third is exceptional costs. This includes legal and professional fees on the Nasdaq listing and other nonrecurring regulatory and legal matters. I'll now pass to Page 5 in the presentation. Bragg has a solid balance sheet with improved working capital from continuing operation. Cash balance in the end of June 30 was EUR 21 million as opposed to EUR 26 million in December 2020 with no debt facilities as these have all been cleared early this year. And net working capital was EUR 11.7 million as opposed to EUR 6.7 million at the beginning of the year. The group has a projected positive free cash flow generation, and there are no main CapEx or technology debt requirements for our strategy. From a cash flow perspective, in Q1, the group completed the acquisition of Oryx Gaming with a payment of EUR 11.5 million. In Q2, we completed the acquisition of Wild Streak in the value of EUR 8.2 million. And we raised financing from the exercise of warrants relating for last year's fundraise in the value of EUR 11 million. Now Richard and I are available to take some questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from the line of Matthew Lee with Canaccord.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Congrats on the good quarter. I just kind of wanted to talk a little about acquisition strategy here. Can you maybe highlight your priorities in terms of targets and if you feel like you have the adequate capital to capture the full acquisition opportunity right now?

[Richard Carter, Group CEO & Director]

We've made a couple of acquisitions recently, which basically closes the hole that we had. So as of right now, we are just integrating those into our portfolio, and we don't really feel the need that we need to make any acquisitions near term. So we're quite happy with where we are, and I think we've got enough on our plate to manage in the sort of near term.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Fair enough. But I mean if you're thinking about the content library and building the proprietary assets that you own, would that be possible to be supercharged by a couple of additional studio acquisitions? Or is that not something in your cards?

[Richard Carter, Group CEO & Director]

We can supercharge that, and we're in the plans of putting that in place by adding a couple of games producers, which, given our scalability and given the resources we've got in place, if we add one games producer, we could probably add 20 titles a year. So if we have 2 or 3 games producers, we can turbocharge or supercharge our growth profile and then obviously have something we're looking to do. But of course, if we were -- with the right acquisitions out there, which is at the right price that we think adds value, then we would obviously look at that. But I think with -- it has to be an acquisition that adds value to our business and improves our business. And I think as we alluded to in this presentation, the performance of the last 3 games are the top percentiles of this industry. So it's going to be quite difficult to find that type of acquisition. We've been very fortunate. So we don't really want to be buying things that is dilutive to the underlying performance of what we're trying to weigh in that, which is at the premium end of the market.

[Matthew James Lee, Associate Analyst of Telecom and Media]

Right. And then maybe I could just clarify on the Canadian market. Is it fair to say that Bragg is going to be ready to go in terms of every province as iGaming gets liberalized?

[Richard Carter, Group CEO & Director]

Yes. Well, through the Spin acquisition, we obviously got British Columbia covered. We're obviously in the process and talking to other provinces. So -- and obviously, if they pivot and regulate, then we'll be well placed, but we're talking to the incumbent lotteries. And then obviously, from an Ontario perspective, I think we're well positioned. So yes is the answer to your question. I think we're well positioned to capture the opportunity in Canada.

[Operator]

Your next question comes from the line of Neal Gilmer with Haywood Securities.

[Neal Gilmer, Head of Research]

Congrats on the quarter. And I appreciate the slides that you walked through, particularly sort of understanding the moving parts there with Germany and your revenue guidance. I guess I wanted to touch on one thing -- or actually a couple of things. Number one is your guidance -- your revenue guidance for '22. I assume that includes the acquisition of Spin. I know you expect it to close in Q4. So I assume that that's sort of factored in from the start.But you made some comments that, what was in the press release, sort of the EBITDA should be sort of similar to '21. I guess I was thinking with the launch of all the games that you were talking about, I think you said 33 going into next year, obviously, the contribution of Wild Streak into that, surprised there's [ not ] a little bit of an opportunity for margin expansion next year aside from what you walked through on sort of your plan to get to 2024. Can you just sort of help understand the reconciliation?

[Richard Carter, Group CEO & Director]

Yes. I mean, obviously, as we go through next year, the plan is obviously to build out and establish a -- this content strategy. So we've achieved quite a bit of costs, specifically on the technology side, which will then enable us to significantly ramp up in later years and at much lower cost. So from that investment, if we were to take that out, and yes, you'd have definitely a bit more of expansion. And obviously, we're also growing next year into one of these markets, so U.K., Italy. So there's definitely a bit of costs that we need to put in there to help grow that.So as we go through next year, we'll look at that and hopefully come back with some more positive news around that level. But yes, I mean I think what you're saying makes sense, but we just -- given it's very early days and there's quite a few moving parts in terms of growth, and obviously, we want to -- this is not about next year. This is about '23 and '24. We really think, given the content we have, we have a real opportunity here to capture a sizable part of the market. And we want to make sure that we lay that investment to be able to do that.

[Neal Gilmer, Head of Research]

Okay. Great. That makes sense and helpful. I guess my second question, then I'll pass the line, just maybe digging a little bit further on some of your comments with respect to the German market, what you've put here as your expected impact or whatever. Is there a chance you're being overly conservative? Or you really think that that's sort of where things sort of trend out? So there's that one slide, I think it's Slide 6 here, where you sort of have where it comes down to sort of flat lines in that Q4. It looks like EUR 0.5 million a month. Is that sort of the worst-case scenario? Is there a couple of different things that you think that might transpire that could be slightly more positive to the impact of the German business for you guys?

[Richard Carter, Group CEO & Director]

Yes, we've obviously -- given there are quite a few unknowns in terms of Germany, we've tried to be very conservative with how we've factored that into the business. But in terms of -- what I'd tell you in terms of what are the sort of moving parts, look, the key is obviously a huge part of the market is still being played offshore.So if over the coming quarters, we start to see the regulator being a bit more aggressive, then that is the really big delta. And as more of the market comes onshore, that's obviously going to significantly help with our growth there. So that's the big sort of unknown. And we've sort of -- it's obviously difficult to predict when that will happen, if it will happen. So we've taken the view that that's not going to happen.Now obviously, July has done very well, and we'll have to see if August looks good. So we'll have to see how that continues -- that trend continues. But yes, I hope we're being conservative. But given that a lot of the market is still being played offshore, it's difficult to time when the regulator will make any news. But -- and we've seen this in other markets across Europe where significant demand in the market, if you look at Sweden, people estimate like 30% or 40% is still offshore. The other, obviously, important bit in Germany is it's still very, very early days. It's the summer, so I don't think operator has started to really spend a lot of money on marketing. So I think as they get a bit more confident and if we start to see a bit more move back onshore, then I think it should get some of our operators spending more money on marketing, and that will obviously transpire into greater revenue for us.And then the other area, obviously, is that we believe with the content we have and what -- and our understanding of the German market, we are going to release content into January next year. So that will hopefully also help us from a competitive market position. So there are quite a few sort of moving parts there, and we try to be as conservative as possible to give ourselves some upside into next year given the sort of unknowns that we have to deal with that.

[Operator]

Your next question comes from the line of Adhir Kadve with Eight Capital.

[Adhir Kadve, Research Analyst]

Congrats on the quarter. I just wanted to maybe touch on your customer pipeline. You said you're going to be entering all these -- several new markets, and you've obviously had a good streak of customer acquisitions. Can you maybe talk about what's in the pipeline? I know last quarter, you said you had several different customers in the pipeline. And maybe just speak to how they're converting and which markets maybe you see a more stronger entry into [indiscernible].

[Richard Carter, Group CEO & Director]

Sure. So the pipeline, I think, is significantly strengthening, and it's strengthening based on the fact that we now have market-leading content. And we're still going through the presentation and the road map. And the real drive in terms of sort of customer acquisition is going to occur over the next sort of 3 to 4 months. So -- but based on very early feedback and sort of very -- it's been very, very positive. So -- and you can see from Q1 and Q2.So as we go through the second half of this year, and obviously, as we go into more markets, we're naturally just going to add a lot more operators because these are all virgin territory for us, and there's obviously a lot of incumbent operators in these markets that we don't have relationships with. So I think when we come back in the next quarter, I think we'll be in a bit of a stronger position, and we'll give a bit more update on actually what we've seen in terms of that pipeline. But from what I see right now, it's expanding significantly, and I'm very optimistic about what conversion we'll get on, on that pipeline.

[Adhir Kadve, Research Analyst]

Okay. Great. And then I think last quarter, you guys mentioned that you launched your first proprietary in-house consumer games with Oryx. And you said, obviously, you have 5 more in the pipeline. Can you maybe speak on some of the early results from that one -- from the one game that you launched last quarter and kind of how you're going to use that for the 5 extra games that you're going to be adding this quarter?

[Richard Carter, Group CEO & Director]

Yes. I mean the one thing I'd say is, since obviously we made the Wild Streak acquisition, the world has changed upside down. So we've got one of the best gaming designers in the world with access to some of the best mathematicians. So looking at our game right now versus what's coming down the pipe, it's not really comparable. Now in terms of the performance of that game, it compared very favorably with the games we launched this year. So that's obviously exciting from that perspective. And then the second game obviously performed better than that. And recently, Doug Fallon, who's the founder of Wild Streak, has been overviewing the sort of upcoming games from the Oryx studio.So you can't really compare, I don't think, because just in the recent game is -- basically, just to give you an idea, I think over a 3-week period, we reviewed it and, I think, changed the math model 5x and some of the jackpot features. So it's a completely different proposition and game from what we had before. So -- but from that perspective, we're -- I'm pleasantly surprised with the performance given it's our first 2 games. And I think with the oversight of Doug and his team, you will see a material improvement in the next games coming.

[Operator]

Your next question comes from the line of David McFadgen with Cormark Securities.

[David John McFadgen, Director of Institutional Equity Research]

A couple of questions. Just first of all, on Germany, you talked about how a good portion of the market is still being served by offshore operators. I was wondering, can you give us an idea of what you think the percentage of the market is right now that's offshore still?

[Richard Carter, Group CEO & Director]

65%.

[David John McFadgen, Director of Institutional Equity Research]

Yes. Okay. And so that...

[Richard Carter, Group CEO & Director]

Maybe a little bit more. And the reason why it's that high, if you think about the sort of 80-20 rule, the really sort of profitable players or high rollers, they're all playing offshore. And so just disproportionately, it's a higher sort of proportion of the revenue which is offshore currently.

[David John McFadgen, Director of Institutional Equity Research]

So we're going to need some action from the regulator to [ sell ] that? Is that going to be the primary driver to get that down?

[Richard Carter, Group CEO & Director]

Well, there's -- I think you've got -- there's a couple of things. There's the onshore regulated market, which we expect to bottom out. I actually think it will grow considerably once operators start to market as new players come in. Remember what's happened overnight, you've gone from a market that had on a game an RTP sort of 94%, 95%. Now those RTPs are down at 90%, 92%. So it's going to take some time for players to adapt to that new market. And I think it's too early for us to comment, and I'll leave that to people that are much more qualified than me from an operator's perspective. We're sort of slightly pleasantly surprised of what we've seen so far, but it's still very, very early days. Now -- so you have this offshore market, which theoretically will probably continue for some time, especially the high -- the bigger high rollers. And then you've got this new market, which people obviously adapt the new sort of world of this sort of different RTP.And then slowly with more time, as it goes by, more innovations and games and then just the industry just growing, from a marketing perspective, onshore, then hopefully, you should see some reasonable growth on the actual regulated marketplace. And over time, I guess what we've seen in other markets is that the offshore market will slowly decrease. But to get that big chunk back onshore, given a 5.3% wagering tax, I think it would be an optimistic assumption.

[David John McFadgen, Director of Institutional Equity Research]

Okay. And then just in terms of the new markets, I'm just looking at Slide 8 here, in terms of new markets, the Netherlands, you announced a customer -- a very big customer that you're going to be serving. And can you talk about any customers that you're going to be serving in the U.K. and only in Canada? Or is it just too early right now?

[Richard Carter, Group CEO & Director]

Not really. I mean I think you can go through the relationships we have. And we've quite a lot of the big operators in -- specifically in the U.K. The big operators in Italy are more the incumbent operators. They don't tend to operate in multiple jurisdictions. So we have a lot of relationships already with the U.K. operators that are operating in some of the markets where we focus.But I think we obviously applied for our license. We're still waiting for that. And once we get that, I think it'll be prudent to just wait for that and then we'll talk about it. But clearly, there's quite a bit of overlap with customers we have today in other markets that are in the U.K. So I think we said it before, but there's not particularly a great deal of investment needed to sort of turn that on the U.K. It's a little bit more in Italy.

[David John McFadgen, Director of Institutional Equity Research]

And then I guess in Canada, we'll hear announcements of the deals that you've put in place?

[Richard Carter, Group CEO & Director]

Well, yes, I mean we've got the British Columbia deal, which is a very nice deal through Spin. We'll have other -- they're talking to the other lotteries, so we'd expect more of the other lotteries to follow. And then the regs, I was reading, came out in the last few days. So we've been going through that. And then I think operators will -- should start to be ready at sort of Q4-ish, late Q4. And yes, and you'll hear from us around that.And given our -- the Wild Streak business, and obviously, given how well those games perform land-based, we're very optimistic about that content and that really resonating in the Canadian market. I mean, just as an example, Dragon Power, which is a game that Wild Streak launched, it's a top-performing game in New Jersey, month in, month out, continues to be performing very, very strongly. So we've got a lot of confidence that the content we have will really resonate in the Canadian market and create a really sizable new earnings stream for the company.

[David John McFadgen, Director of Institutional Equity Research]

Okay. And then just on Slide 8, you talked about the 2021 pipeline. So existing customers in various markets is forecast to grow in a growth rate of 10%. Is that them -- is the primary driver there is them taking more of your gains? Is that -- yes, I'm just wondering what...

[Richard Carter, Group CEO & Director]

Say that again, sorry?

[David John McFadgen, Director of Institutional Equity Research]

Is the primary driver for these existing customers to grow 10% in the 2021 pipeline, is that from them taking more gains from you and just using more of your content?

[Richard Carter, Group CEO & Director]

Yes, it's a combination of, yes, different things, obviously, then growing their business. So they're growing our games. If you look at most markets, most operators are growing 10% to 15% depending on the market. So they're bringing new operators in, they're going to play your content. And then there's also an element of some new -- some existing content and then new content. So it's a combination. Predominantly, though, it's just basically underlying market growth.

[Operator]

[Operator Instructions] Your next question comes from the line of Lisa Thompson with Zacks Investment.

[Lisa R. Thompson, Senior Technology Analyst]

I just have -- I have a few questions about what you're thinking about next year. Do you have any feel what your revenue breakdown might be between North America and Europe by 2022?

[Richard Carter, Group CEO & Director]

I do, but I don't really want to get into that level of detail right now. But clearly, I think we've given some guidance on Wild Streak, and a good chunk of that is going to be U.S. and North America. But we'll update on that probably later on in the year. I don't want to get drawn on dissecting the market.

[Lisa R. Thompson, Senior Technology Analyst]

Okay. And should -- does there -- any significant difference in gross margins between the 2 geographies? Or is it just based on how many of your proprietary games sell where?

[Richard Carter, Group CEO & Director]

I mean, yes, it depends, obviously. Is there any difference between gross profit margins in the U.S. and Europe? Not materially. I think you could probably argue, there's probably -- we can probably -- we get more scalability in Europe and the rest of the world because it's not the same processes. And obviously, the U.S. is just at the moment 4 smaller markets, but it's not material.

[Lisa R. Thompson, Senior Technology Analyst]

Okay. Do you ever anticipate that maybe your top 10 customers might not be the same top 10 next year?

[Richard Carter, Group CEO & Director]

Yes, definitely.

[Lisa R. Thompson, Senior Technology Analyst]

Okay. And just as trying to relate to your proprietary games, as an old video game analyst, are there -- is there a possibility to have like breakout games that are widely profitable and popular?

[Richard Carter, Group CEO & Director]

There is, obviously, and we're hoping we get that. We're not assuming that. We've taken extremely conservative assumptions around that because it's very difficult to sort of forecast that. But if the games in the U.S. are anywhere near the same level as Dragon Power, then we're massively underestimating the performance of our games. If the games are going to be anywhere near like the games that have been launched so far on pragmatic, again, we're significantly underestimating. And it's very, very difficult.You can talk to all the content studios, it's very difficult to predict. I speak to all these entrepreneurs that run these studios, and they can't tell you if the game is really going to be a breakout game. They can tell you if it's going to be a good game. So yes, I mean, it's very, very difficult to predict a breakout game. But I mean as a business, we need to provide a consistent level of performance to our partners. And if we're able to just do that, then that just will materially strengthen our relationships, and that will allow us to grow and be an incredibly profitable business. If we obviously were able to get a hit, then obviously that would have a halo effect as well. And that will just obviously lead to the advantages of having that, so in terms of just publicity and, obviously, underlying performance from that game.But it's about consistency rather than having a one-hit wonder. We want to be in a position where we ramp up into '23 and '24 and our games are just consistently performing, which is what's been the case with the Wild Streak games over the last year.

[Lisa R. Thompson, Senior Technology Analyst]

In your industry, do you have the opportunity or the -- to, like, say, license things, characters or, on the opposite side, get ad revenues you should incorporate within a game for -- from hit movies or something? Is that a thing?

[Richard Carter, Group CEO & Director]

Yes. So in the last 3 weeks, we've been having conversations with third parties and looking at brand licensing. So a lot of the major land-based operators, specifically in the U.S., will tend to have a portfolio, a brand licensing portfolio. Sci Games has James Bond, and IGT has its brand licensing, and [ Hexage ] has it. And it's similar in the online space. And so yes, we're currently looking at those options. And I think we will probably definitely look to have some branded content over the medium term.

[Operator]

Your next question comes from the line of [ Daniel Weiss ] with [ MCO ].

[Unknown Analyst]

I'm just wondering if you can give the update on the Nasdaq listing? Any color there?

[Richard Carter, Group CEO & Director]

Well, not really. I mean the color is we've put in the presentation. I mean, Yaniv, do you want to talk about where we are with it in terms of the process?

[Yaniv Spielberg, Chief Strategy Officer & Company Secretary]

Yes, it's just a procedural process. As Richard said, Daniel, it's -- the paperwork has all been filed with the regulators. It's just a waiting game now. It's obviously hard to say how long is the wait game because it's regulators. But we're confident, as we said in our last press release, that it will happen soon. So we're just waiting to get the approvals.

[Operator]

Your next question comes from the line of [ Peter Wiley ] with [ Kraplin ].

[Unknown Analyst]

Just a final question from my side, and most of my questions have been asked. Just on the competitive landscape for acquisition target like Wild Streak and Spin, can you maybe just talk to us how competitive is that market out there?

[Richard Carter, Group CEO & Director]

Sure. Well, I think it's got a lot more competitive in the last 3 or 4 months. I think you're starting to see more people sort of looking at the sort of strategy that we've been putting in place. Sci Games bought Lightning Box. And there's no doubt that the valuations on these businesses are definitely increasing.So we've been very fortunate that we're able to do the acquisitions when we did them. And we're also very fortunate that we have the technology and the infrastructure to significantly scale up our business. We're just adding a few more mathematicians and a few more game producers. We don't need to go out now and pay the sort of prices that people are asking for. But there are still opportunities out there. And I think one of the advantages that we bring is that obviously we will -- we are obviously pivoting to list on the Nasdaq and just having that equity angle. And obviously, the 2 deals we've done so far are very significant proportion of those 2 deals. The 2 founders took equity. And obviously, they believe in the long-term combination of the businesses.So definitely a bit more competition. I think there's definitely a bit more people sort of circling and looking at casino content. And I'm sure you've all seen the DraftKings, Golden Nugget, and I think -- and also the commentary around casino and the profitability of casino and the growth that it offers. So I think it's definitely a bit of a hot space. And yes, let's leave it at that. Hope that answers your question.

[Operator]

At this time, there are no further questions. I will now turn the call back over to management for any closing remarks.

[Yaniv Spielberg, Chief Strategy Officer & Company Secretary]

Thank you, everyone, for joining the call. I hope we answered all your questions. And of course, as always, if there's any questions remaining, you can always reach us at [e-mail]. Thanks, everyone, and enjoy the rest of the day.

[Richard Carter, Group CEO & Director]

Thank you.

[Operator]

Ladies and gentlemen, that does conclude today's conference. We thank you for participating. You may now disconnect.