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GAN Reports First Quarter 2023 Financial Results

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Balance sheet actions strengthening financial position as strategic review process continues to progress

B2C active customers, deposits and turnover remain strong and continue to grow

B2B Gross Operator Revenue increases over 40% versus prior year quarter

IRVINE, Calif.–(BUSINESS WIRE)–GAN Limited (NASDAQ: GAN) (the “Company” or “GAN”), a leading North American B2B technology provider of real money internet gaming solutions and a leading International B2C operator of Internet sports betting, today reported its unaudited financial results for the quarter ended March 31, 2023.

Dermot Smurfit, CEO of GAN stated:

“Our first quarter showed another strong quarter of underlying KPIs for both our B2B and B2C businesses and B2B GOR and active customers, deposits, and turnover in B2C remain very encouraging. We also expect our deliberate efforts to reallocate capital and other resources toward our highest return opportunities to yield improved financial results in 2023 as we lean into GAN Sports in the U.S. and select international markets for B2C where we are best positioned and see reasonably attainable paths to profitability.”

“We are also progressing in our strategic alternatives review to evaluate the opportunities available to us maximize shareholder value. Our recent announcement and term loan transaction bolstered our financial position and allowed us to modify the conditions of our term loan, significantly reduce our interest expense, and strengthen our balance sheet. To be clear, this transaction should be viewed as a key step in the broader review process, but important one that allows us to evaluate the options available to us from a stronger position. Overall, we have been pleased with the nature of the strategic review up to this point, and we will provide updates as appropriate as the process unfolds. At present, there is no timetable for the completion of that process.”

First Quarter 2023 Compared to First Quarter 2022

 

GAN Limited

Key Financial Highlights

(Unaudited, in thousands unless otherwise specified)

 

 

Three Months Ended

 

 

 

March 31, 2023

 

March 31, 2022

 

Revenues

 

 

 

 

 

 

B2B

 

$

11,279

 

 

$

13,070

 

 

B2C

 

 

23,850

 

 

 

24,424

 

 

Total revenues

 

$

35,129

 

 

$

37,494

 

 

 

 

 

 

 

 

 

 

 

Profitability Measures

 

 

 

 

 

 

 

 

B2B segment contribution (1)

 

$

9,284

 

 

$

9,167

 

 

B2B segment contribution margin (1)

 

 

82.3

%

 

 

70.1

%

B2C segment contribution (1)

 

$

15,684

 

 

$

16,627

 

 

B2C segment contribution margin (1)

 

 

65.8

%

 

 

68.1

%

Net income (loss)

 

$

1,501

 

 

$

(4,499

)

Adjusted EBITDA (7)

 

$

39

 

 

$

2,971

 

 

 

 

 

 

 

 

 

 

 

Key Performance Indicators

 

 

 

 

 

 

 

 

B2B Gross Operator Revenue (2) (in millions)

 

$

422.8

 

 

$

297.8

 

 

B2B Take Rate (3)

 

 

2.7

%

 

 

4.4

%

B2C Active Customers (in thousands) (4)

 

 

257

 

 

 

230

 

 

B2C Marketing Spend Ratio (5)

 

 

21

%

 

 

19

%

B2C Sports Margin (6)

 

 

7.1

%

 

 

7.2

%

Brian Chang, Interim CFO of GAN, added:

“Our first quarter saw solid B2B and B2C KPIs that continue to show encouraging momentum and we remain focused on supporting expansion of GAN Sports in the U.S. with additional partners. We also took the very important step to execute our term loan amendment which we expect will save us roughly $4 million per year in reduced cash interest expense payments over the next few years, and significantly strengthens our balance sheet. However, we remain unable to provide our financial outlook for 2023 within a reasonable range until we reach the ultimate conclusion of the strategic review process.”

Strategic Review

In conjunction with its fourth quarter 2022 earnings announcement, the Company announced that it had initiated a strategic review process to assess a range of strategic alternatives to maximize shareholder value. The intention is to complete the strategic review process in a timely fashion. However, there can be no assurance that the review process will result in pursuing or completing any transaction, and no timetable has been set for completion of this process. The Company will provide updates, as appropriate.

Conference Call Details

Date/Time:

Wednesday, May 10, 2023, at 4:30 PM ET

Webcast:

https://www.webcast-eqs.com/ganlimited20230510

U.S. Toll-Free Dial-in:

(888) 437-3179

International Dial-in:

(862) 298-0702

To access the call, please dial in approximately ten minutes before the start of the call. An accompanying slide presentation will be available in PDF format on the “Events & Presentations” page of the investor relations portion of the Company’s website (http://investors.gan.com) after issuance of this earnings release.

About GAN Limited

GAN is a leading business-to-business supplier of internet gambling software-as-a-service solutions predominantly to the U.S. land-based casino industry and is a market-leading business-to-consumer operator of proprietary online sports betting technology internationally with market leadership positions in selected European and Latin American markets. In its B2B segment, GAN has developed a proprietary internet gambling enterprise software system, GameSTACK™, which it licenses to land-based U.S. casino operators as a turnkey technology solution for regulated real money internet gambling, encompassing internet gaming, internet sports betting and social casino gaming branded as Simulated Gaming.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this release that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding the Company’s strategic review, the Company’s anticipated trends in revenues (including new customer launches) and operating expenses, the anticipated improvement in profitability, the anticipated launch of regulated gaming in new U.S. states, the continued integration of Coolbet’s sports betting technology and international B2C operations, as well as statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature. These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements including those risks detailed under “Risk Factors” in our Annual Report on Form 10-K and subsequent periodic reports. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update or revise any forward-looking statements for any reason, except as required by law.

Key Performance Indicators and Non-GAAP Financial Measures

This release uses certain non-GAAP financial measures as defined in Securities and Exchange Commission rules. The Company reports financial results in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and also communicates with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable U.S. GAAP financial measures. These non-GAAP financial measures are intended to supplement the presentation of the Company’s financial results that are prepared in accordance with U.S. GAAP.

(1)

The Company excludes depreciation and amortization in certain segment calculations. 

(2)

The Company defines B2B Gross Operator Revenue as the sum of its B2B corporate customers’ gross revenue from virtual simulated gaming (SIM), gross gaming revenue from RMiG, and gross sports wins from sportsbook offerings. B2B Gross Operator Revenue, which is not comparable to financial information presented in conformity with U.S. GAAP, gives management and users of our financial statements an indication of the extent of transactions processed through the Company’s B2B corporate customers’ platforms and allows management to understand the extent of activity that the Company’s platform is processing. 

(3)

The Company defines B2B Take Rate as a quotient of B2B segment revenue retained by the Company over the total Gross Operator Revenue generated by our B2B corporate customers. The B2B Take Rate gives management and users of our financial statements an indication of the impact of the statutory terms and the efficiency of the commercial terms on the business.

(4)

The Company defines B2C Active Customers as a user that places a wager during the period. This metric allows management to monitor the customer segmentation, growth drivers, and ultimately creates opportunities to identify and add value to the user experience. This metric allows management and users of the financial statements to measure the platform traffic and track related trends.

(5)

The Company defines B2C Marketing Spend Ratio as the total B2C direct marketing expense for the period divided by the total B2C revenues. This metric allows management to measure the success of marketing costs during a given period. Additionally, this metric allows management to compare across jurisdictions and other subsets, as an additional indication of return on marketing investment.

(6)

The Company defines B2C Sports Margin as the ratio of wagers minus winnings to total amount wagered, adjusted for open wagers at period end. Sports betting involves a user placing a bet on the outcome of a sporting event with the chance to win a pre-determined amount, often referred to as fixed odds. Our B2C sportsbook revenue is generated by setting odds that are intended to provide a built-in theoretical margin in each sports bet offered to our users. This metric allows management to measure sportsbook performance against its expected outcome.

(7)

Management uses the non-GAAP measure of Adjusted EBITDA to measure its financial performance. Specifically, it uses Adjusted EBITDA (i) as a measure to compare its operating performance from period to period, as it removes the effect of items not directly resulting from core operations, and (ii) as a means of assessing its core business performance against others in the industry, because it eliminates some of the effects that are generated by differences in capital structure, depreciation, tax effects and unusual and infrequent events. The Company defines Adjusted EBITDA as net loss before interest expense (income), net, income tax expense (benefit), depreciation and amortization, impairments, share-based compensation expense and related expense, restructuring costs, and other items which the Board of Directors considers to be infrequent or unusual in nature. The presentation of Adjusted EBITDA is not intended to be used in isolation or as a substitute for any measure prepared in accordance with U.S. GAAP and Adjusted EBITDA may exclude financial information that some investors may consider important in evaluating the Company’s performance. Because Adjusted EBITDA is not a U.S. GAAP measure, the way the Company defines Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in the industry.

GAN Limited

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share amounts)

 

 

Three Months Ended

 

 

 

March 31, 2023

 

 

March 31, 2022

 

 

 

 

 

 

 

 

Revenue

 

$

35,129

 

 

 

$

37,494

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses

 

 

 

 

 

 

 

 

Cost of revenue (1)

 

 

10,161

 

 

 

 

11,700

 

 

Sales and marketing

 

 

7,184

 

 

 

 

6,098

 

 

Product and technology

 

 

9,578

 

 

 

 

8,954

 

 

General and administrative (1)

 

 

10,006

 

 

 

 

9,392

 

 

Restructuring

 

 

 

 

 

 

1,059

 

 

Depreciation and amortization

 

 

4,201

 

 

 

 

4,413

 

 

Total operating costs and expenses

 

 

41,130

 

 

 

 

41,616

 

 

Operating loss

 

 

(6,001

)

 

 

(4,122

)

Interest expense (income), net

 

 

1,716

 

 

 

 

(9

)

Other income, net

 

 

(9,292

)

 

 

 

 

Income (loss) before income taxes

 

 

1,575

 

 

 

 

(4,113

)

Income tax expense

 

 

74

 

 

 

 

386

 

 

Net income (loss)

 

$

1,501

 

 

 

$

(4,499

)

 

 

 

 

 

 

 

 

 

Earnings (loss) per share, basic and diluted

 

$

0.03

 

 

 

$

(0.11

)

 

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

42,982,255

 

 

 

 

42,252,661

 

 

Diluted

 

 

47,200,182

 

 

 

 

42,252,661

 

(1)

Excludes depreciation and amortization expense

 

 GAN Limited

Segment Revenue and Gross Profit (Unaudited)

(in thousands)

 

 

Three Months Ended

 

 

 

March 31, 2023

 

March 31, 2022

 

Revenue

 

 

 

 

 

 

B2B

 

 

 

 

 

 

 

 

Platform and content license fees

 

$

8,627

 

 

$

10,702

 

Development services and other

 

 

2,652

 

 

 

2,368

 

Total B2B revenue

 

 

11,279

 

 

 

13,070

 

 

 

 

 

 

 

 

 

 

B2C

 

 

 

 

 

 

 

 

Gaming

 

 

23,850

 

 

 

24,424

 

Total B2C revenue

 

 

23,850

 

 

 

24,424

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

35,129

 

 

$

37,494

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

B2B

 

 

 

 

 

 

 

 

Revenue

 

$

11,279

 

 

$

13,070

 

Cost of revenue (1)

 

 

1,995

 

 

 

3,903

 

B2B segment contribution

 

 

9,284

 

 

 

9,167

 

B2B segment contribution margin

 

 

82.3

%

 

 

70.1

%

 

 

 

 

 

 

 

 

 

B2C

 

 

 

 

 

 

 

 

Revenue

 

 

23,850

 

 

 

24,424

 

Cost of revenue (1)

 

 

8,166

 

 

 

7,797

 

B2C segment contribution

 

 

15,684

 

 

 

16,627

 

B2C segment contribution margin

 

 

65.8

%

 

 

68.1

%

 

 

 

 

 

 

 

 

 

Total segment contribution

 

$

24,968

 

 

$

25,794

 

Total segment contribution margin

 

 

71.1

%

 

 

68.8

%

(1)

Excludes depreciation and amortization expense

 

GAN Limited

Revenue by Geography (Unaudited)

(in thousands)

 

 

Three Months Ended

 

 

 

March 31, 2023

 

March 31, 2022

 

Revenue by geography *

 

 

 

 

 

 

 

 

United States

 

$

8,516

 

 

$

11,491

 

Europe

 

 

12,677

 

 

 

12,564

 

Latin America

 

 

11,270

 

 

 

12,225

 

Rest of the world

 

 

2,666

 

 

 

1,214

 

Total

 

$

35,129

 

 

$

37,494

 

*

Revenue is segmented based on the location of the Company’s customer.

 

GAN Limited

Adjusted EBITDA (Unaudited)

(in thousands)

 

 

Three Months Ended

 

 

 

March 31, 2023

 

 

March 31, 2022

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,501

 

 

 

$

(4,499

)

Income tax expense (benefit)

 

 

74

 

 

 

 

386

 

 

Interest expense (income), net

 

 

1,716

 

 

 

 

(9

)

Gain on amendment of Content Licensing Agreement

 

 

(9,292

)

 

 

 

 

Depreciation and amortization

 

 

4,201

 

 

 

 

4,413

 

 

Share-based compensation and related expense

 

 

1,839

 

 

 

 

1,621

 

 

Restructuring

 

 

 

 

 

 

1,059

 

 

Adjusted EBITDA

 

$

39

 

 

 

$

2,971

 

 

GAN Limited

Historical Normalized Revenue (Unaudited)

(in thousands)

 

 

Three Months Ended,

 

 

 

March 31,
2023

 

 

December 31,
2022

 

September 30,
2022

 

June 30,
2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

35,129

 

 

 

$

36,947

 

 

$

32,120

 

 

$

34,967

 

 

Normalized adjustments (1)

 

 

(529

)

 

 

619

 

 

 

493

 

 

 

(81

)

Normalized Revenue

 

$

34,600

 

 

 

$

37,566

 

 

$

32,613

 

 

$

34,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sports Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual sports margin

 

 

7.1

%

 

 

6.5

%

 

 

6.6

%

 

 

7.1

%

Normalized sports margin

 

 

7.0

%

 

 

7.0

%

 

 

7.0

%

 

 

7.0

%

(1)

The adjustments are based on the effects of a normalized sports margin of 7.0% for quarters in 2023 and 2022. Normalized revenue to gross gaming revenue ratios are based upon a rolling four-quarter average for each quarter within the B2C segment. Sports margin is the ratio of GGR to total amount wagered, which allows management to measure sportsbook performance against the expected outcome.

 

Contacts

Investors:

GAN
Robert Shore
Vice President, Investor Relations & Capital Markets
(610) 812-3519
rshore@GAN.com

Alpha IR Group
Ryan Coleman or Davis Snyder
(312) 445-2870
GAN@alpha-ir.com

Fonte BUSINESS WIRE

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