Business Wire | Nov 16, 2020 04:00PM EST

GAN Reports Third Quarter 2020 Financial Results

Nov. 16, 2020

IRVINE, Calif.--(BUSINESS WIRE)--Nov. 16, 2020--GAN Limited (the "Company" or "GAN") (NASDAQ: GAN), a leading business-to-business supplier of internet gaming software-as-a-service solutions primarily to the U.S. land-based casino industry, today reported its unaudited financial results for third quarter ended September 30, 2020.

Third Quarter Highlights Compared to Prior Year Quarter

* Quarterly revenue of $10.3 million, up 86% from $5.5 million * Real money Internet gaming ("RMiG") revenue of $7.7 million, up from $4.1 million * Simulated gaming revenue of $2.6 million, up from $1.4 million * Gross profit of $6.4 million, up from $2.4 million * Net loss attributable to equity holders was $4.1 million, or $0.14 basic and diluted per share, compared to net loss attributable to equity holders of $1.8 million, or $0.09 basic and diluted per share * Gross Operator Revenue(1) increased 76% to $142.3 million * Active Player-Days(2) and Average Revenue per Daily Active User(3) ("ARPDAU") increased 38% and 27%, respectively * Adjusted EBITDA(4) was $(0.1) million, up from $(0.4) million * Pending acquisition of Vincent Group p.l.c.("Coolbet") for (euro)149.1 million, a best-in-class RMiG platform with both Online Sports Betting ("OSB") and iGaming offerings, and a diversified revenue stream across Northern Europe, Latin America and Canada

Dermot Smurfit, CEO of GAN stated:

"We built strong momentum in the third quarter and our results were in-line with our expectations. We added multiple new RMiG and Simulated Gaming customers over the last several months, demonstrating the unique and highly differentiated capabilities of our SaaS platform for integrated iGaming and Online Sports Betting. GAN continues to prove it's the leading partner of choice for land-based casinos through an expanding solution offering, that allows our customers to quickly and efficiently expand their reach across the online gaming space. Our new customer pipeline in the U.S. remains strong and we're building exciting relationships that we believe have the ability to scale across our customers' casino portfolios as more states come online in the future. Our business remains strongly positioned to leverage the momentum of online sports betting and iGaming, which is clearly accelerating across the globe."

"I am also excited to announce the strategic acquisition of Coolbet, as we continue developing and investing in our capabilities. Coolbet is a best-in-class RMiG provider, with both Online Sports Betting and iGaming offerings. The acquisition will allow GAN to provide near-turnkey capabilities in Online Sports Betting, rounding out our B2B platform offering in the U.S. We view this acquisition as the next strategic move in our growth strategy as we look to diversify our business model and geographic exposure. Enhancing our B2B platform with Coolbet's solutions will allow us to leverage their proprietary OSB technology, engineering and know-how. We look forward to welcoming the Coolbet team to GAN and have already started to work diligently around our integration plans as we look to finalize the transaction over the next few months."

Third Quarter 2020 Compared to Third Quarter 2019Key Financial Highlights (Unaudited)Three Months Ended September 30, 2020 and 2019(in thousands of US$)

Three months ended September 30,

2020 2019

Revenue

RMiG Revenue 7,689 4,127

Simulated Gaming Revenue 2,577 1,389

Total Revenue 10,266 5,516



Profitability Measures

RMiG gross profit margin 73 % 64 %

Simulated Gaming gross profit margin 58 % 57 %

Net loss attributable to equity holders (4,078 ) (1,834 )

Adjusted EBITDA^(4) (114 ) (372 )



Key Performance Indicators

Gross Operator Revenue^(1) (US$ millions) 142.3 80.8

Active Player-Days^(2) (in millions) 7.5 5.4

ARPDAU^(3) (US$) 18.93 14.89

Gross Profit - Gross Profit for the third quarter of 2020 was $6.4 million or 62% compared to $2.4 million or 44% for the third quarter of 2019. RMiG gross profit increased by $3.0 million which was primarily attributable to new customer launches and organic growth, partially offset by the impact of lower margin hardware equipment sales in the third quarter of 2020. Simulated Gaming gross profit increased by $0.7 million, which was attributable to organic growth. The Company's depreciation and amortization included in cost of revenue was $0.8 million, a decrease of $0.3 million from the third quarter of 2019 due to certain development assets becoming fully amortized prior to third quarter of 2020.

Administrative Expenses - Administrative expenses for the third quarter of 2020 were $10.4 million compared to $4.1 million for the third quarter of 2019. The increase in administrative expenses was primarily attributable to (i) personnel and related costs of increasing from approximately 141 employees to 215 employees, (ii) share-based compensation for directors and key personnel, and (iii) increased professional services related to capital markets advisory, consulting, accounting advisory, tax advisory and legal expenses incurred in connection with corporate infrastructure and expansion projects, and additional compliance requirements as a result of becoming a public company in the United States in May 2020.

Additionally, the Company incurred $0.9 million of charges related to estimated tax provisions. These estimated tax provisions are the result of tax advisory services and internal audits pertaining to VAT, as well as potential application of the South Dakota v. Wayfair Supreme Court decision on June 21, 2018 as it related to U.S. sales and use taxes.

Net Loss Attributable to Equity Holders - Net loss attributable to equity holders was $4.1 million, or $0.14 per diluted share, compared to net loss attributable to equity holders of $1.8 million, or $0.09 per diluted share for the third quarter of the prior year.

Adjusted EBITDA - Adjusted EBITDA for the third quarter of 2020 was $(0.1) million, compared to $(0.4) million for the third quarter of 2019. The increase was primarily driven by growth partially offset by higher administrative expenses.

Cash and Cash Equivalents - Cash and cash equivalents were $57.5 million at September 30, 2020, compared to $10.1 million at December 31, 2019. Increased cash and cash equivalents primarily reflect the net proceeds received from the Company's initial public offering residing in an interest-bearing account.

Coolbet Share Exchange Agreement

GAN announced today that it entered into a Share Exchange Agreement to acquire the Vincent Group p.l.c., and its flagship Coolbet brand for total consideration of (euro)149.1 million (subject to adjustment as provided in the Share Exchange Agreement). The acquisition is expected to close in the first quarter of 2021, subject to regulatory review and the satisfaction of certain closing conditions. GAN expects to fund the acquisition with (euro)80 million in cash and the remainder through an exchange of the Company's ordinary shares. Please see GAN's release on the announcement of the acquisition that was issued today for more details.

Outlook

Dermot Smurfit, CEO of GAN concluded:

"We look forward to the potential launch of multiple customers in Michigan, which are anticipated to go live in December. We are reiterating our previous outlook of $37 to $39 million in revenue this year, which includes IP licensing related deals subject to timing variability. Our pipeline remains robust, and we expect to see gross operator revenue accelerate as we progress through 2021. We also look forward to finalizing the acquisition of Coolbet in early 2021 and believe it will bring advantageous scale, geographic diversity and opportunity, as well as near-turnkey capabilities in Online Sports Betting that will help us further differentiate and enhance our U.S. platform. We remain confident that our unique position, differentiated solutions, strong management team, and solid financial position will enable us to continue to grow throughout 2021 and beyond."

Conference Call Details

Date/Time: Monday, November 16, 2020, at 4:30 PM EST

Webcast: https://www.webcast-eqs.com/ganlimited20201116/en

U.S. Toll-Free Dial In: (877) 407-0989

International Dial In: (201) 389-0921

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, "Results and Presentations" page of the Company's website ( http://gan.com/investors/results-and-presentations) after issuance of the 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. GAN has developed a proprietary internet gambling enterprise software system, GameSTACK(tm), which it licenses to land-based casino operators as a turnkey technology solution for regulated real-money internet gambling, encompassing internet gaming, internet sports gaming and virtual Simulated Gaming.

Non-GAAP Financial Measures

(1) The Company defines Gross Operator Revenue as the sum of its corporate customers' gross revenue from Simulated Gaming, gross gaming revenue from real money regulated iGaming, and gross sports win from real money regulated sports betting. Gross Operator Revenue, which is not comparable to financial information presented in conformity with GAAP, gives management and users an indication of the extent of transactions processed through the Company's corporate customers' platforms and allows management to understand the extent of activity that the Company's platform is processing.

(2) The Company defines Active Player-Days as unique individuals who log on and wager each day (either wagering with real money or playing with virtual credits used in Simulated Gaming), aggregated during the calendar year period. By way of illustrative example: one (1) unique individual logging in and wagering each day in a single calendar year would, in aggregate, represent 365 Active Player-Days. Active Player-Days provides an indicator of consistent and daily interaction that individuals have with the Company's platforms. Active Player-Days allows management and users to understand not only total users who interact with the platform but gives an idea of the frequency to which users are interacting with the platform, as someone who logs on and wagers multiple days are weighted heavier during the period than the user who only logs on and wagers one day.

(3) The Company defines Average Revenue per Daily Active User ("ARPDAU") as Gross Operator Revenue divided by the identified number of Active Player-Days. ARPDAU allows management to measure the value per daily user and track user interaction with the platforms, which helps both management and users of financial statements to understand the value per user that is driven by marketing efforts and data analysis obtained from the Company's platforms.

(4)Adjusted EBITDA is a non-GAAP financial measure that is provided as supplemental disclosure which is defined as net income (loss) attributable to equity holders before finance costs, income taxes, depreciation and amortization, share-based payment expense and related expense, initial public offering related costs and other items which our Board of Directors considers to be infrequent or unusual in nature. The infrequent or unusual items related to accruals for resolution of outstanding VAT taxes and outstanding U.S. sales and use taxes for the three and nine months ended September 30, 2020.

Management uses the non-GAAP measure Adjusted EBITDA to measure its financial performance. Specifically, it uses Adjusted EBITDA (1) 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 (2) 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 presentation of Adjusted EBITDA is not intended to be used in isolation or as a substitute for any measure prepared in accordance with GAAP. Adjusted EBITDA, as defined, may not be comparable to similarly titled measures used by other companies in the industry, and Adjusted EBITDA may exclude financial information that some investors may consider important in evaluating the Company's performance. Adjusted EBITDA, as calculated by the Company, along with a reconciliation to net income (loss) attributable to equity holders, the comparable GAAP equivalent measure, is included below.

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 pending acquisition of Coolbet and the anticipated benefits to the Company related thereto, the timing of closing the Coolbet acquisition, the Company's 2020 revenue guidance, the strength of the Company's customer pipeline and ability to scale as more states legalize real money iGaming, the Company's competitive position with respect to iGaming and online sports betting, anticipated trends in revenues (including new customer launches), operating expenses and gross operator revenue, and management's expectation of continued growth throughout 2021 and beyond, 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. 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.

No Offer of Securities

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities. Any offers, solicitations or offers to buy, or any sales of securities will be made in accordance with the registration requirements of the Securities Act of 1933, as amended ("Securities Act").

GAN LimitedInterim Condensed Consolidated Statement of Operations (Unaudited)Three and Nine Months Ended September 30, 2020 and 2019(in thousands of US$, except share data) Three months ended Nine months ended September 30, September 30,

2020 2019 2020 2019

Revenue 10,266 5,516 26,259 19,280

Cost of revenue 3,894 3,099 9,338 10,177

Gross profit 6,372 2,417 16,921 9,103

Administrative 10,430 4,079 28,540 10,146 expenses

Operating loss (4,058 ) (1,662 ) (11,619 ) (1,043 )

Net finance costs 25 31 454 93

Loss before income (4,083 ) (1,693 ) (12,073 ) (1,136 )taxes

Income tax (5 ) 141 312 409 (benefit) expense

Net lossattributable to (4,078 ) (1,834 ) (12,385 ) (1,545 )equity holders ofthe Parent



Loss per shareattributable toordinary (0.14 ) (0.09 ) (0.48 ) (0.07 )shareholders, basicand diluted

Weighted averageshares outstanding, 29,571,905 21,362,133 25,782,776 21,349,572 basic and diluted

GAN LimitedInterim Condensed Consolidated Statement of Financial Position (Unaudited)(in thousands of US$)September 30, 2020

December 31, 2019

ASSETS

Non-current assets

Intangible assets

6,008

5,164

Property, plant and equipment

655

190

Right-of-use assets

782

1,334

Lease deposits

68

115

Contract costs

291

57

Total non-current assets

7,804

6,860

Current assets

Cash and cash equivalents

57,489

10,098

Trade and other receivables

9,079

5,974

R&D tax credit receivable

-

1,127

Inventory

416

883

Prepayments

3,099

1,061

Lease deposits

77

80

Contract costs

55

29

Total current assets

70,215

19,252

Total assets

78,019

26,112

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Trade and other payables

13,358

6,760

Contract liabilities

1,561

3,023

Current portion of lease liabilities

299

692

Total current liabilities

15,218

10,475

Non-current liabilities

Lease liabilities

355

535

Total liabilities

15,573

11,010

Equity

62,446

15,102

Total liabilities and equity

78,019

26,112

GAN LimitedInterim Condensed Consolidated Statement of Financial Position (Unaudited)(in thousands of US$) September 30, 2020 December 31, 2019

ASSETS

Non-current assets

Intangible assets 6,008 5,164

Property, plant and equipment 655 190

Right-of-use assets 782 1,334

Lease deposits 68 115

Contract costs 291 57

Total non-current assets 7,804 6,860

Current assets

Cash and cash equivalents 57,489 10,098

Trade and other receivables 9,079 5,974

R&D tax credit receivable - 1,127

Inventory 416 883

Prepayments 3,099 1,061

Lease deposits 77 80

Contract costs 55 29

Total current assets 70,215 19,252

Total assets 78,019 26,112

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Trade and other payables 13,358 6,760

Contract liabilities 1,561 3,023

Current portion of lease liabilities 299 692

Total current liabilities 15,218 10,475

Non-current liabilities

Lease liabilities 355 535

Total liabilities 15,573 11,010

Equity 62,446 15,102

Total liabilities and equity 78,019 26,112

GAN LimitedInterim Condensed Consolidated Statement of Cash Flows (Unaudited)(in thousands of US$)Nine months ended September 30,

2020

2019

Cash flows from operating activities

Net loss attributable to equity holders

(12,385

)

(1,545

)

Adjustments to reconcile net loss to cash (used in) provided by operating activities

8,960

4,207

Changes in working capital accounts

848

1,709

Net cash (used in) provided by operating activities

(2,577

)

4,371

Cash flows from investing activities

Interest received

4

10

Purchase of intangible assets

(3,110

)

(2,279

)

Purchase of property, plant and equipment

(560

)

(380

)

Net cash used in investing activities

(3,666

)

(2,649

)

Cash flows from financing activities

Proceeds from issuance of shares in initial public offering, net

57,445

-

Payment of deferred offering costs

(1,678

)

-

Payment to previous shareholders

(2,525

)

-

Proceeds from exercise of share options

2,279

79

Payment of finance costs

(385

)

-

Capital element of lease liabilities payments

(609

)

(524

)

Interest paid on lease liabilities

(66

)

(105

)

Net cash provided by (used in) financing activities

54,461

(550

)

Effect of exchange rate on cash and cash equivalents

(827

)

442

Increase in cash and cash equivalents

47,391

1,614

Cash and cash equivalents, beginning of period

10,098

6,967

Cash and cash equivalents, end of period

57,489

8,581

GAN LimitedInterim Condensed Consolidated Statement of Cash Flows (Unaudited)(in thousands of US$) Nine months ended September 30,

2020 2019

Cash flows from operating activities

Net loss attributable to equity holders (12,385 ) (1,545 )

Adjustments to reconcile net loss to cash (used in) 8,960 4,207 provided by operating activities

Changes in working capital accounts 848 1,709

Net cash (used in) provided by operating activities (2,577 ) 4,371

Cash flows from investing activities

Interest received 4 10

Purchase of intangible assets (3,110 ) (2,279 )

Purchase of property, plant and equipment (560 ) (380 )

Net cash used in investing activities (3,666 ) (2,649 )

Cash flows from financing activities

Proceeds from issuance of shares in initial public 57,445 - offering, net

Payment of deferred offering costs (1,678 ) -

Payment to previous shareholders (2,525 ) -

Proceeds from exercise of share options 2,279 79

Payment of finance costs (385 ) -

Capital element of lease liabilities payments (609 ) (524 )

Interest paid on lease liabilities (66 ) (105 )

Net cash provided by (used in) financing activities 54,461 (550 )

Effect of exchange rate on cash and cash equivalents (827 ) 442

Increase in cash and cash equivalents 47,391 1,614

Cash and cash equivalents, beginning of period 10,098 6,967

Cash and cash equivalents, end of period 57,489 8,581

GAN LimitedSegment Revenue and Gross Profit (Unaudited)Three and Nine Months Ended September 30, 2020 and 2019(in thousands of US$)Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

RMiG

SaaS Revenue

4,803

2,868

13,706

7,235

Service Revenue

1,413

1,259

4,453

2,798

Other

1,473

-

1,473

4,904

RMiG Revenue

7,689

4,127

19,632

14,937

Simulated Gaming

SaaS Revenue

2,111

1,084

5,563

3,467

Service Revenue

466

305

1,064

876

Simulated Gaming Revenue

2,577

1,389

6,627

4,343

Total Revenue

10,266

5,516

26,259

19,280

RMiG

Revenue

7,689

4,127

19,632

14,937

Cost of sales (excl. depreciation and amortization)

2,062

1,484

4,322

4,988

RMiG Segment Gross Profit

5,627

2,643

15,310

9,949

Segment gross profit margin %

73

%

64

%

78

%

67

%

Simulated Gaming

Revenue

2,577

1,389

6,627

4,343

Cost of sales (excl. depreciation and amortization)

1,074

598

2,727

1,744

Simulated Gaming Segment Gross Profit

1,503

791

3,900

2,599

Segment gross profit margin %

58

%

57

%

59

%

60

%

Cost of sales, depreciation and amortization

758

1,017

2,289

3,445

Total Gross Profit

6,372

2,417

16,921

9,103

Gross profit margin %

62

%

44

%

64

%

47

%

GAN LimitedSegment Revenue and Gross Profit (Unaudited)Three and Nine Months Ended September 30, 2020 and 2019(in thousands of US$) Three months ended Nine months ended September 30, September 30,

2020 2019 2020 2019

RMiG

SaaS Revenue 4,803 2,868 13,706 7,235

Service Revenue 1,413 1,259 4,453 2,798

Other 1,473 - 1,473 4,904

RMiG Revenue 7,689 4,127 19,632 14,937



Simulated Gaming

SaaS Revenue 2,111 1,084 5,563 3,467

Service Revenue 466 305 1,064 876

Simulated Gaming Revenue 2,577 1,389 6,627 4,343



Total Revenue 10,266 5,516 26,259 19,280



RMiG

Revenue 7,689 4,127 19,632 14,937

Cost of sales (excl. depreciation and 2,062 1,484 4,322 4,988 amortization)

RMiG Segment Gross Profit 5,627 2,643 15,310 9,949

Segment gross profit margin % 73 % 64 % 78 % 67 %



Simulated Gaming

Revenue 2,577 1,389 6,627 4,343

Cost of sales (excl. depreciation and 1,074 598 2,727 1,744 amortization)

Simulated Gaming Segment Gross Profit 1,503 791 3,900 2,599

Segment gross profit margin % 58 % 57 % 59 % 60 %



Cost of sales, depreciation and 758 1,017 2,289 3,445 amortization

Total Gross Profit 6,372 2,417 16,921 9,103

Gross profit margin % 62 % 44 % 64 % 47 %

GAN LimitedRevenue by Geography (Unaudited)Three and Nine Months Ended September 30, 2020 and 2019(in thousands of US$)Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

Revenue by Geography*

United States

8,662

4,455

21,957

15,887Italy

1,279

1,047

3,714

3,315U.K. and Channel Islands

10

1

253

4Rest of the world

315

13

335

74Total

10,266

5,516

26,259

19,280* Revenue is segmented based upon the location of the legal entity of the Company's customer

(in thousands of US$)

Three months ended September 30,

Nine months ended September 30,

2020

2019

2020

2019

Net loss attributable to equity holders

(4,078

)

(1,834

)

(12,385)(1,545

)

Income tax (benefit) expense

(5

)

141

312409

Loss before income taxes

(4,083

)

(1,693

)

(12,073)(1,136

)

Non-operating expense

Net finance costs

25

31

454

93

Depreciation expense

269

195

610

627

Amortization expense

716

961

2,166

3,264

1,010

1,187

3,230

3,984

EBITDA

(3,073

)

(506

)

(8,843

)2,848

Share-based payment and related expense

2,020

134

9,503

392

Initial public offering transaction related

-

-

2,831

-

Tax related provisions

939

-

939

-

Adjusted EBITDA

(114

)

(372

)

4,430

3,240

Adjusted EBITDA margin %

(1

)%

(7

)%

17%17

%

View source version on businesswire.com: https://www.businesswire.com/news/home/20201116005978/en/

CONTACT: Investor Contacts:

CONTACT: GAN Jack Wielebinski Head of Investor Relations (214) 799-4660 jwielebinski@GAN.com

CONTACT: Alpha IR Group Sofia Byrne or Chris Hodges (312) 445-2870 GAN@alpha-ir.com