GAN(GAN) - 2024 Q1 - Quarterly Results

Executive Summary & Q1 2024 Highlights CEO Commentary GAN's CEO highlighted strong B2B revenue growth and successful cost reduction initiatives in Q1 2024, with the merger with SegaSammy progressing as planned - B2B revenue grew nearly 10% in Q1 2024[2] - Operating expenses reduced by 20% due to ongoing cost initiatives[2] - B2C revenues impacted by lower sports margin, though new products (pre-built parlay bets) and major events (European Championship, Copa America) are anticipated[2] - Merger with SegaSammy remains on track to close in late 2024 or early 2025, with shareholder approval in February and CFIUS application submitted[2] Q1 2024 Financial & Operational Overview GAN reported a 13% decrease in total revenue for Q1 2024, primarily due to a B2C segment decline, while B2B revenue increased by 9% and operating expenses decreased by 20.6% Q1 2024 vs Q1 2023 Key Financials | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Total Revenue | $30.7 | $35.1 | -13% | | B2B Revenue | $12.3 | $11.3 | +9% | | B2C Revenue | $18.3 | $23.9 | -23.4% | | Total Segment Contribution | $21.3 | $25.0 | -14.8% | | Operating Expenses | $24.6 | $31.0 | -20.6% | | Net (Loss) Income | ($4.2) | $1.5 | N/A | | Adjusted EBITDA | ($0.6) | $0.0 | N/A | | Cash (as of period end) | $36.6 | $38.6 (Dec 31, 2023) | -5.2% | - B2B Gross Operator Revenue (GOR) increased 49% to $632.0 million, driven by organic growth in Pennsylvania, Michigan, New Jersey, Ontario, and Connecticut, despite a decrease in Take Rate[3] - B2C Active Customers declined due to limited customer acquisition in Latin America and fewer sporting events[3] Key Financial Highlights (Unaudited) Key Financial Highlights Table This section provides a detailed unaudited summary of key financial and performance indicators for Q1 2024 compared to Q1 2023, covering revenues, profitability, and KPIs Key Financial Highlights (Unaudited) | Metric | March 31, 2024 (in thousands) | March 31, 2023 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Revenues | | | | B2B | $12,347 | $11,279 | | B2C | $18,304 | $23,850 | | Total revenues | $30,651 | $35,129 | | Profitability Measures | | | | B2B segment contribution | $10,266 | $9,284 | | B2B segment contribution margin | 83.1% | 82.3% | | B2C segment contribution | $11,062 | $15,684 | | B2C segment contribution margin | 60.4% | 65.8% | | Net loss | ($4,160) | $1,501 | | Adjusted EBITDA | ($569) | $39 | | Key Performance Indicators | | | | B2B Gross Operator Revenue (in millions) | $632.0 | $422.8 | | B2B Take Rate | 2.0% | 2.7% | | B2C Active Customers (in thousands) | 222 | 257 | | B2C Marketing Spend Ratio | 23% | 21% | | B2C Sports Margin | 5.7% | 7.1% | Corporate Updates Sega Sammy Transaction Update GAN shareholders approved the merger with Sega Sammy, with applications submitted to CFIUS and gaming authorities, on track for late 2024 or early 2025 close - Merger with Sega Sammy approved by GAN shareholders on February 13, 2024[6] - Application submitted to the Committee on Foreign Investment in the U.S. (CFIUS) and relevant gaming regulatory authorities[6] - Transaction remains on track to close in late 2024 or early 2025[6] Conference Call Details Due to the pending merger with Sega Sammy, GAN will not host a conference call for its first quarter 2024 earnings release - No conference call for Q1 2024 earnings due to expected merger with Sega Sammy[7] Company Overview About GAN Limited GAN is a leading B2B supplier of internet gambling SaaS solutions to the U.S. land-based casino industry and a market-leading B2C operator internationally - GAN is a leading B2B supplier of internet gambling software-as-a-service (SaaS) solutions to the U.S. land-based casino industry[8] - GAN is also a market-leading B2C operator of proprietary online sports betting technology internationally, with strong positions in selected European and Latin American markets[8] - The B2B segment utilizes the proprietary GameSTACK internet gambling enterprise software system, licensed as a turnkey solution for internet gaming, internet sports betting, and social casino gaming (Simulated Gaming)[8] Forward-Looking Statements This section contains standard forward-looking statements regarding future expectations, subject to risks detailed in SEC filings, with no obligation to update - Statements in the release regarding future expectations, plans, and anticipated trends are forward-looking and involve known and unknown risks and uncertainties[9] - Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their date[9] - The Company undertakes no obligation to update or revise any forward-looking statements, except as required by law[9] Non-GAAP Financial Measures & KPIs Non-GAAP Financial Measures This section clarifies the use of non-GAAP financial measures as supplements to U.S. GAAP results, noting they are not substitutes and may not be comparable - The company uses non-GAAP financial measures to supplement U.S. GAAP results, but they are not substitutes for GAAP measures[10] - Non-GAAP measures may not be comparable to similarly titled measures used by other companies[17] Key Performance Indicator Definitions This section defines key performance indicators and non-GAAP financial measures used by GAN, explaining their purpose for management and investors B2B Gross Operator Revenue (GOR) B2B Gross Operator Revenue (GOR) is the sum of B2B corporate customers' gross revenue from virtual simulated gaming, RMiG, and gross sports wins - B2B GOR includes gross revenue from virtual simulated gaming, RMiG, and gross sports wins from sportsbook offerings[12] - This metric indicates the extent of transactions processed through the Company's B2B corporate customers' platforms[12] B2B Take Rate B2B Take Rate is the quotient of B2B segment revenue retained by the company over the total Gross Operator Revenue generated by B2B corporate customers - B2B Take Rate is the ratio of B2B segment revenue retained by GAN to the total GOR generated by B2B customers[13] - It indicates the impact of statutory and commercial terms on the business[13] B2C Active Customers B2C Active Customers are defined as users who place a wager during the period, a metric used to monitor customer segmentation, growth drivers, and platform traffic - B2C Active Customers are users who place a wager during the period[14] - This metric helps monitor customer segmentation, growth drivers, and platform traffic[14] B2C Marketing Spend Ratio The B2C Marketing Spend Ratio is the total B2C direct marketing expense divided by total B2C revenues, used to measure marketing investment success - B2C Marketing Spend Ratio is calculated as total B2C direct marketing expense divided by total B2C revenues[15] - This metric measures the success of marketing costs and allows for comparison across jurisdictions[15] B2C Sports Margin B2C Sports Margin is the ratio of wagers minus winnings to the total amount wagered, adjusted for open wagers, measuring sportsbook performance - B2C Sports Margin is the ratio of wagers minus winnings to total amount wagered, adjusted for open wagers[16] - It measures sportsbook performance against its expected outcome, reflecting the theoretical margin in sports bets[16] Adjusted EBITDA Adjusted EBITDA is a non-GAAP measure used to assess financial performance by removing effects not directly from core operations, such as interest, taxes, and non-cash items - Adjusted EBITDA is a non-GAAP measure used to compare operating performance and assess core business performance[17] - It excludes interest, taxes, depreciation, amortization, impairments, share-based compensation, restructuring costs, and other infrequent or unusual items from net loss[17] Investor Contacts Investor Contact Information This section provides contact information for investor relations, including GAN's Vice President of Investor Relations & Capital Markets and Alpha IR Group - Contact information for GAN's Investor Relations and Alpha IR Group is provided[18] Financial Statements (Unaudited) Consolidated Statements of Operations The consolidated statements of operations show a net loss of ($4.16) million for Q1 2024, compared to a net income of $1.50 million in Q1 2023, with total revenue decreasing by 12.7% YoY Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $30,651 | $35,129 | | Cost of revenue | $9,323 | $10,161 | | Sales and marketing | $6,017 | $7,184 | | Product and technology | $9,616 | $9,578 | | General and administrative | $7,159 | $10,006 | | Depreciation and amortization | $1,839 | $4,201 | | Total operating costs and expenses | $33,954 | $41,130 | | Operating loss | ($3,303) | ($6,001) | | Interest expense, net | $1,132 | $1,716 | | Other income, net | ($26) | ($9,292) | | (Loss) income before income taxes | ($4,409) | $1,575 | | Income tax (benefit) expense | ($249) | $74 | | Net (loss) income | ($4,160) | $1,501 | | (Loss) earnings per share, basic and diluted | ($0.09) | $0.03 | Segment Revenue and Gross Profit This section details revenue and segment contribution by B2B and B2C segments, with B2B revenue increasing by 9.5% YoY and B2C revenue decreasing by 23.3% YoY Segment Revenue and Gross Profit (Unaudited) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | | | | B2B Platform and content license fees | $9,667 | $8,627 | | B2B Development services and other | $2,680 | $2,652 | | Total B2B revenue | $12,347 | $11,279 | | Total B2C revenue | $18,304 | $23,850 | | Total revenue | $30,651 | $35,129 | | Gross Profit | | | | B2B segment contribution | $10,266 | $9,284 | | B2B segment contribution margin | 83.1% | 82.3% | | B2C segment contribution | $11,062 | $15,684 | | B2C segment contribution margin | 60.4% | 65.8% | | Total segment contribution | $21,328 | $24,968 | | Total segment contribution margin | 69.6% | 71.1% | Revenue by Geography Revenue from the United States increased by 6.8% YoY, while Europe and Latin America experienced declines of 8.5% and 38.8% respectively, with Rest of the World increasing by 14.7% Revenue by Geography (Unaudited) | Geography | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :---------------- | :-------------------------------- | :-------------------------------- | | United States | $9,092 | $8,516 | | Europe | $11,604 | $12,677 | | Latin America | $6,896 | $11,270 | | Rest of the world | $3,059 | $2,666 | | Total | $30,651 | $35,129 | Adjusted EBITDA Reconciliation The reconciliation shows an Adjusted EBITDA of ($0.57) million for Q1 2024, a decrease from $0.04 million in Q1 2023, primarily due to the shift from net income to net loss Adjusted EBITDA Reconciliation (Unaudited) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net (loss) income | ($4,160) | $1,501 | | Income tax (benefit) expense | ($249) | $74 | | Interest expense, net | $1,132 | $1,716 | | Gain on amendment of Content Licensing Agreement | — | ($9,292) | | Depreciation and amortization | $1,839 | $4,201 | | Share-based compensation and related expense | $869 | $1,839 | | Adjusted EBITDA | ($569) | $39 | Historical Sports Margin The actual sports margin for Q1 2024 was 5.7%, showing a decline from 6.5% in Q4 2023 and 7.1% in Q1 2023, indicating a downward trend over the past year Historical Sports Margin (Unaudited) | Period | Sports Margin | | :---------------- | :------------ | | March 31, 2024 | 5.7% | | December 31, 2023 | 6.5% | | September 30, 2023 | 6.0% | | June 30, 2023 | 8.5% |