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
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
- Total revenue of $35.1 million decreased 6% compared to
the prior year quarter.
- B2B segment revenue was $11.3 million versus $13.1
million. The decrease was primarily attributable to a decrease in
our contractual revenue rates of our largest B2B customer. The
effects of the rate decrease were partially offset by overall
growth in the B2B segment due to strong performance of our largest
B2B customer.
- B2C segment revenue was $23.9 million versus $24.4
million. The decrease was primarily due to the weakening of the
currencies in which we derive our B2C operations’ revenues relative
to the U.S. Dollar.
- Total segment contribution was $25.0 million versus
$25.8 million. B2B segment contribution increased modestly as
declines in revenues were largely consistent with the decreases in
cost of revenues. This was offset by a decline in B2C segment
contribution related to increased cost of revenues as a result of
entering into a new market.
- Operating expenses were $31.0 million versus
$29.9 million. The increase was primarily attributable to
increased sales and marketing activities within our B2C operations
to attract additional end-users particularly in Latin America.
- Net income (loss) of $1.5 versus ($4.5) million. The
increase in net income was primarily driven by a gain attributable
to an amendment to one of our Content Licensing Agreements.
- Adjusted EBITDA was $0.0 million versus $3.0
million, primarily related to lower total revenue in the B2B
segment of $1.8 million as described above. The remaining decrease
was attributable to a reduction in capitalized development in the
B2B segment.
- Cash was $40.8 million as of March 31, 2023 versus $45.9
million as of the prior year quarter. The decrease was primarily
related to timing of collections received impacting working
capital.
- B2C KPI’s during the quarter were strong as the Company
continued to grow its number of active customers, deposits and
turnover. Active Customers increased 12% from the prior year period
driven by growth in Latin America and strong customer
retention.
- B2B Gross Operator Revenue (“GOR”) totaled $422.8
million versus $297.8 million in the prior year quarter, a 42%
increase. The increase was driven primarily by organic growth in
Michigan, New Jersey, and existing customers in Pennsylvania.
Additional growth provided from expansion of new and existing
clients into new jurisdictions, such as Arkansas and Ontario, and
the launch of retail sportsbook solution for new and existing
customers in new jurisdictions such as Mississippi and
Massachusetts.
- Subsequent to quarter end, the Company successfully
amended the Credit Facility to waive all events of default, amend
certain financial covenants, assign the rights to the Credit
Facility from its existing lender to a third party, and increase
the principal balance from $30.0 million to $42.0 million with
accrued paid in-kind (“PIK”) interest of 8.0% per year (together,
the “Amended Credit Facility”).
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230510005957/en/
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
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