GAN(GAN) - 2023 Q4 - Annual Results

Company Announcement & Merger Update GAN Limited announced Q4 and full-year 2023 results and provided an update on its merger with Sega Sammy Holdings Fourth Quarter and Full Year 2023 Results Announcement GAN Limited reported unaudited financial results for Q4 and full year 2023, following shareholder approval of its merger - GAN Limited (NASDAQ: GAN) reported its unaudited financial results for the quarter and year ended December 31, 2023[2] Sega Sammy Merger Transaction Update GAN shareholders approved the merger with a Sega Sammy Holdings subsidiary, expected to close in late 2024 or early 2025 pending approvals - GAN shareholders approved the previously announced merger agreement and merger of GAN and a subsidiary of SEGA SAMMY CREATION INC., an affiliate of SEGA SAMMY HOLDINGS INC[3] - The closing of the merger is expected to occur in late 2024 or early 2025, subject to the satisfaction or waiver of certain conditions to closing, including the approval of the merger and change in control of GAN by certain gaming authorities[5] Financial Highlights This section provides an overview of GAN Limited's key financial performance for the fourth quarter and full year 2023 Fourth Quarter 2023 Financial Highlights Q4 2023 saw a 17% revenue decrease due to B2B rate changes and lack of major B2C sports events, while net loss improved and Adjusted EBITDA declined Q4 2023 Financial Highlights | Metric | Q4 2023 (Millions) | Q4 2022 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Total Revenue | $30.7 | $36.9 | -17% | | B2B Segment Revenue | $11.8 | $14.1 | -16.4% | | B2C Segment Revenue | $18.9 | $22.8 | -17.1% | | Total Segment Contribution | $20.9 | $26.9 | -22.3% | | Operating Expenses | $29.5 | $172.4 | -82.9% | | Net Loss | $(9.4) | $(147.7) | +93.6% | | Adjusted EBITDA | $(3.9) | $(0.4) | -875% | | B2B Gross Operator Revenue | $384.7 | $365.8 | +5% | - The decrease in B2B segment revenue was primarily driven by a decrease in contractual revenue rates related to the expiration of an exclusivity period with a B2B customer[3] - The decrease in B2C segment revenue was primarily driven by increased activity from the World Cup occurring in the fourth quarter of 2022, which did not have a comparable event in Q4 2023[3] Full Year 2023 Financial Highlights Full year 2023 saw a 9% revenue decrease, improved net loss due to prior year impairment, negative Adjusted EBITDA, but strong B2B Gross Operator Revenue growth Full Year 2023 Financial Highlights | Metric | FY 2023 (Millions) | FY 2022 (Millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :--------- | | Total Revenue | $129.4 | $141.5 | -9% | | B2B Segment Revenue | $43.2 | $54.1 | -20.1% | | B2C Segment Revenue | $86.2 | $87.5 | -1.5% | | Total Segment Contribution | $90.7 | $99.9 | -9.2% | | Operating Expenses | $121.0 | $292.4 | -58.6% | | Net Loss | $(34.4) | $(197.5) | +82.6% | | Adjusted EBITDA | $(8.4) | $6.0 | -240% | | Cash | $38.6 | $45.9 | -15.9% | | B2B Gross Operator Revenue | $1,657.8 | $1,224.4 | +35% | - The 20% decrease in B2B segment revenue was primarily driven by a decrease in contractual revenue rates related to the expiration of an exclusivity period with a B2B customer[7] - The 35% increase in B2B Gross Operator Revenue was primarily driven by organic growth with existing customer base in Pennsylvania, Michigan, New Jersey, and Connecticut[7] Detailed Financial Statements This section presents GAN Limited's consolidated statements of operations, segment revenue, geographical revenue, and Adjusted EBITDA reconciliation Consolidated Statements of Operations Consolidated statements show Q4 2023 net loss of $(9.4) million and FY 2023 net loss of $(34.4) million, improved due to lower operating expenses Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------- | :------ | :------ | :------ | :------ | | Revenue | $30,715 | $36,947 | $129,419 | $141,528 | | Cost of revenue | $9,812 | $10,036 | $38,700 | $41,634 | | Sales and marketing | $7,268 | $8,011 | $28,972 | $28,303 | | Product and technology | $8,277 | $10,267 | $38,243 | $35,195 | | General and administrative | $9,562 | $10,541 | $36,657 | $37,848 | | Impairment | — | $137,149 | — | $166,010 | | Depreciation and amortization | $4,378 | $6,414 | $17,161 | $23,276 | | Total operating costs and expenses | $39,297 | $182,418 | $159,733 | $334,037 | | Operating loss | $(8,582) | $(145,471) | $(30,314) | $(192,509) | | Net loss | $(9,376) | $(147,709) | $(34,444) | $(197,498) | - The Company completed a reorganization in Q2 2023, reclassifying operating expenses between sales and marketing, product and technology, and general and administrative, with prior year figures reclassified for comparability[23] Segment Revenue and Gross Profit Segment analysis shows declining B2B and B2C revenues and contributions for Q4 and FY 2023, though B2B segment contribution margin remained strong Segment Revenue and Gross Profit (in thousands) | Metric (in thousands) | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------- | :------ | :------ | :------ | :------ | | B2B Revenue | | | | | | Platform and content license fees | $8,357 | $12,311 | $31,466 | $43,519 | | Development services and other | $3,445 | $1,829 | $11,688 | $10,526 | | Total B2B revenue | $11,802 | $14,140 | $43,154 | $54,045 | | B2B segment contribution | $9,507 | $11,907 | $34,730 | $42,797 | | B2B segment contribution margin | 80.6% | 84.2% | 80.5% | 79.2% | | B2C Revenue | | | | | | Gaming | $18,913 | $22,807 | $86,265 | $87,483 | | Total B2C revenue | $18,913 | $22,807 | $86,265 | $87,483 | | B2C segment contribution | $11,396 | $15,004 | $55,989 | $57,097 | | B2C segment contribution margin | 60.3% | 65.8% | 64.9% | 65.3% | | Total segment contribution | $20,903 | $26,911 | $90,719 | $99,894 | | Total segment contribution margin | 68.1% | 72.8% | 70.1% | 70.6% | Revenue by Geography Revenue declined in the US and Latin America for Q4 and FY 2023, while Europe's full-year revenue increased and other regions showed mixed results Revenue by Geography (in thousands) | Geography (in thousands) | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :----------------------- | :------ | :------ | :------ | :------ | | United States | $8,487 | $12,084 | $31,758 | $45,615 | | Europe | $12,114 | $11,749 | $47,788 | $45,092 | | Latin America | $7,145 | $11,168 | $39,935 | $44,078 | | Rest of the world | $2,969 | $1,946 | $9,938 | $6,743 | | Total | $30,715 | $36,947 | $129,419 | $141,528 | Adjusted EBITDA Reconciliation Adjusted EBITDA was $(3.9) million for Q4 2023 and $(8.4) million for FY 2023, a significant decline from prior year due to revenue decrease Adjusted EBITDA Reconciliation (in thousands) | Metric (in thousands) | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------- | :------ | :------ | :------ | :------ | | Net loss | $(9,376) | $(147,709) | $(34,444) | $(197,498) | | Income tax expense (benefit) | $(247) | $3,429 | $138 | $3,942 | | Interest expense, net | $1,118 | $1,758 | $5,003 | $4,279 | | Depreciation and amortization | $4,378 | $6,414 | $17,161 | $23,276 | | Share-based compensation and related expense | $785 | $1,591 | $5,511 | $7,262 | | Impairment | — | $137,149 | — | $166,010 | | Adjusted EBITDA | $(3,884) | $(368) | $(8,395) | $6,042 | Historical Normalized Revenue Historical normalized revenue adjusts for a consistent 7.0% sports margin to provide a clearer view of underlying revenue trends Historical Normalized Revenue (in thousands) | Metric (in thousands) | Q4 2023 | Q3 2023 | Q2 2023 | Q1 2023 | | :-------------------- | :------ | :------ | :------ | :------ | | Revenue | $30,715 | $29,817 | $33,758 | $35,129 | | Normalized adjustments | $1,433 | $1,441 | $(2,331) | $(529) | | Normalized Revenue | $32,148 | $31,258 | $31,427 | $34,600 | | Actual sports margin | 6.5% | 6.0% | 8.5% | 7.1% | | Normalized sports margin | 7.0% | 7.0% | 7.0% | 7.0% | - The adjustments are based on the effects of a normalized sports margin of 7.0% for the year[31] Key Performance Indicators (KPIs) & Non-GAAP Measures This section outlines GAN's key performance indicators and definitions of non-GAAP financial measures used to assess business performance Key Performance Indicators Overview KPIs show 5% Q4 and 35% full-year B2B Gross Operator Revenue growth, but B2C Active Customers and Sports Margin declined in Q4 2023 Key Performance Indicators | KPI | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------- | :------ | :------ | :------ | :------ | | B2B Gross Operator Revenue (in millions) | $384.7 | $365.8 | $1,657.8 | $1,224.4 | | B2B Take Rate | 3.1% | 3.9% | 2.6% | 4.4% | | B2C Active Customers (in thousands) | 236 | 331 | 500 | 559 | | B2C Marketing Spend Ratio | 28% | 24% | 24% | 21% | | B2C Sports Margin | 6.5% | 6.5% | 7.0% | 6.9% | - B2B Gross Operator Revenue increased by 5% in Q4 2023 and 35% for the full year, primarily driven by organic growth with existing customers in Pennsylvania, Michigan, New Jersey, and Connecticut[3][7][9] - B2C KPIs were impacted by the World Cup in the prior year period, with no significant international sports events in the current year[3][7] Non-GAAP Financial Measures Definitions GAN defines key non-GAAP financial measures and performance indicators, including B2B Gross Operator Revenue, Adjusted EBITDA, and B2C Active Customers, for operational insights - B2B Gross Operator Revenue is defined as the sum of B2B corporate customers' gross revenue from virtual simulated gaming (SIM), gross gaming revenue from RMiG, and gross sports wins from sportsbook offerings, indicating the extent of transactions processed through the Company's B2B platforms[14] - Adjusted EBITDA is defined 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 infrequent or unusual items, used to compare operating performance and assess core business performance against industry peers[19] - B2C Active Customers are defined as users who place a wager during the period, allowing management to monitor customer segmentation, growth drivers, and platform traffic[16] About GAN & Disclosures This section provides an overview of GAN Limited's business, forward-looking statements, and investor contact information About GAN Limited GAN Limited is a leading North American B2B internet gaming technology provider and an international B2C sports betting operator, using its GameSTACK™ system - 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[10] - GAN 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[10] - 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[10] Forward-Looking Statements This section contains standard forward-looking statements about future expectations and trends, noting inherent risks and uncertainties, with no obligation to update - This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding anticipated trends in revenues, operating expenses, profitability, and the merger[11] - These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different[11] - The Company undertakes no obligation to update or revise any forward-looking statements for any reason, except as required by law[11] Investor Contacts Contact information for investor relations is provided for inquiries regarding GAN Limited - Investor Contacts: 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[20]