GAN Limited

Good afternoon, everyone. GAN's first quarter 2023 earnings release was issued today after the market closed and is posted on the company's website at GAN.com. With me today are Dremmer Smartfit, President and CEO, and Brian Chang, Interim CFO. I'd like to remind our audience today that we made the four different statements on the call, which are protected under a safe harbor afforded by the federal securities laws, and in each case are qualified for the four different disclaimers contained in our earnings release. Please record our files with the SEC to understand how we calculate any of these metrics discussed in today's call. With that, I'll turn the call over to our CEO, Dermot Smarfitt. Dermot, go ahead, please.

Thank you, Bobby, and good afternoon, everyone. I'm happy to update the market today that our iGaming exclusivity in the U.S. for FanDuel Group has now been extended on a rolling basis following the expiration of the initial exclusivity period in the first quarter. We believe this has been an overhang of uncertainty, and I'd like to thank the executives at FanDuel Group continuing to trust GAN with providing FanDuel with our mission-critical B2B solution. I'll also take the brief opportunity to highlight our B2C division's significant value proposition with revenues of nearly $90 million last year and an all-time revenue record in our largest B2C market achieved last month, speaking to the underlying growth opportunity ahead of us. The B2C division has also contributed their award-winning modern international sports technology to our B2B division, which during the first quarter was deployed at scale in both retail and online channels in Massachusetts for Wynn Resort's Encore Boston Harbor property. Wynn just reported a 20% increase in sign-ups to their Wynn Rewards loyalty program year-to-date attributed to their new sportsbook. And I believe that B2B partnership has an exciting future as we roll out together across the nation. In the first quarter, therefore, we made solid progress in executing our strategy in such a way that we are confident we will ultimately drive revenue gains and reduce our cost structure. Post-quarter end, we disclosed a restructuring of our debt with Sega Sammy Holdings Inc. that puts us on a significantly stronger financial footing. Firstly, we materially reduced our annual cash interest cost, and secondly, we eliminated potential covenant issues. Furthermore, we reduced the cost of exclusively licensing Ainsworth's iGaming content by $15 million in exchange for a small equity stake in our company. We also elected to exit our B2C division from the highly competitive Ontario, Canada market in order to deploy our marketing capital in faster rate of return markets available to us in Latin America. And as a reminder, our B2B division continues in Ontario, Canada, as both the exclusive PAM and iGaming platform provided to FanDuel, which is a strong partnership executing well together since launch just one year ago. These three steps already taken in this strategic review process evidence our clear commitment towards realizing shareholder value. Step one, restructure our debt. Step two, reduce exclusive Ainsworth iGaming content costs. And step three, exit B2C from Ontario. Speaking to the first step taken, I could not be happier with the outcome of this strategic debt capital refinancing, which I'm confident will be beneficial to our shareholders, our employees, and of course, our B2B clients. And I'll speak a bit more on the broader strategic review process in my closing remarks. So getting into the first quarter results, we generated revenue of $35.1 million, which was a decrease of 6% from the prior year quarter. The decline was primarily related to a decrease in our contractual revenue rates with a client in the B2B division, which correspondingly decreased our overall take rate for the B2B division. With respect to our take rate, we do expect this trend to trend upwards in the coming quarters as we roll out GAN sports across the United States. Our sports betting technology capability, and particularly our retail sports betting technology, carries a favorable economic model. Positively, our contract with the largest B2B customer remains in place until January of 2025, and some of the rate decrease is partially offset by their market share gains in domestic iGaming. B2C revenues in the first quarter were consistent year over year, even when factoring in adverse foreign exchange, with modest underlying growth on a local currency basis. In the wake of the World Cup, nearly 40% of new customers acquired during that soccer tournament were retained on CoolBet.com, which recently benefited from major soccer sponsorships in key Latin American markets, which appear to be performing well, with an all-time record in revenues and active players last month, pointing towards a solid return to growth for our B2C division. The underlying key performance indicators or KPIs, excluding the take rate, were very strong across both of our operating segments. On the B2B side, we processed $423 million of gross operator revenue through our platform, which was an increase of over 40% from the prior year period. B2C KPIs remain healthy post the Soccer World Cup with double digit or 12% growth in new customers. And importantly, our marketing spend ratio remains well below US peers at just 21%. Notably, this ratio is even lower for Latin American markets, which is a key focus of ours to drive profitable growth in geographies where we see better return profiles on customer acquisition marketing. Adjusted EBITDA was modestly positive as cost-saving measures all set the decrease in our revenue. The team remains focused on profitability and as we've mentioned in prior quarters, all our new real money iGaming or sports gambling B2B clients will be launching on the new Game Stack 2.0 version of our technology platform. While our first quarter revenue results are a bit lighter than our expectations, we're making great strides to reallocate resources to our higher return opportunities, to diversify our revenue base, and transition to our new technology platform that will meaningfully accelerate our scalability and improve our cost structure. As we noted last quarter, our focus, simply put, is on B2B GAN sports and LATAM B2C. On GAN sports, we've laid the groundwork for what we believe is the number one sports betting solution in the US market with a marquee client roster to prove it. In Massachusetts, our major partnership with Wynn Resorts yielded impressive 60 plus percent share of handle in the retail channel, attracting major VIP sports gamblers with individual retail sports wagers placed in excess of $100,000 on popular local and national sporting events, including the Super Bowl and March Madness. The historic regular season run by the Bruins resulted in a high level of betting interest but certainly proved to impact the overall performance margins of the retail book, while the mobile operations delivered very promising results in the first week of operations and are continuing well into the second quarter. We look forward to developing this major partnership with Wynn and rolling out nationally, including in Nevada, where we will be both their PAM and their sports tech provider across retail and online channels. GAN is now licensed in 18 U.S. states, and we ultimately expect GAN sports to be operational in every licensed U.S. jurisdiction. In Nevada, we continue to work through the licensing process. Moving to Cool Bet's growth in Latin America, it's clear that our strong performance during the World Cup has allowed us to grow our presence in these markets. We saw strong KPIs this quarter with new customer growth of over 10%, continued low customer acquisition costs, and encouraging, but still very early, initial metrics out of a recent entry into the Mexican market. Finally, our largest Latin market had a record April in net gaming revenue, partly driven by a new soccer team sponsorship, which appears to be delivering ahead of expectations in a toughening competitive climate. We will continue fine-tuning market and capital spend to the highest return regions throughout Latin America. To illustrate this point, We clearly exited the B2C market from Ontario, Canada, in order to shift marketing capital deployed at a 12-month rate of return to a six-month or faster rate of return in Latin American markets. Finally, our new platform, or GameStack 2.0, which combines the best elements of our existing platform and CoolVets technology, is progressing well. All of our new real money B2B gambling clients will be launched on Gamestack 2.0, which will result in greater functionality for the operators and conservatively result in $10 million in annual cash savings. I'll now turn the call over to our interim chief financial officer, Brian Chang, to provide more color on financial and accounting items, and then I'll conclude with additional color on strategy and the strategic review process. Brian, over to you.

Thank you, Dermot, and good afternoon, everyone. Before we discuss our quarterly results, I wanted to provide some more details on our amended credit facility as well as the amendment to our Ainsworth Agreement, each of which were executed as part of the first phases of our strategic review. We believe these changes were truly a great outcome for GAN and its stakeholders. As a result of the amendment to our credit facility, we were able to secure waivers for all potential events of default and amended certain financial covenants, and we are very pleased to report that we are now fully in compliance with all of our financial covenants. Our new interest rate is fixed at 8% compared to our prior rate that was variable based on SOFR, which was effectively 15.5% in the prior year quarter. In addition to lower fixed interest rate, our interest rate is paid in kind, otherwise known as PIC interest, which allows us to defer any cash interest until the maturity of the loan. While we will still recognize interest expense through our P&L, there will be no cash outflows until maturity. We estimate this will result in $4 million annual savings in cash interest. Related to our agreement with Ainsworth, as Dermot noted, we reduced our future cash commitments by $15 million or $5 million on an annual basis in exchange for an equity stake in the company of 1.25 million shares. This will modestly increase our share count from $42.6 million to approximately $43.8 million. As a result of this amendment, we recognized a $9.2 million gain in the quarter that is recorded in other income that significantly contributed to the reported net income this quarter of $1.5 million. From a cash perspective, the amendments to our credit facility and Ainsworth agreements will lead to a reduced cash outflows of approximately $9 million per year. Moving on to the quarter, B2B revenues were $8.6 million versus $10.7 million in the prior year period. This is primarily attributable to a decrease in our take rate as described earlier. For expenses, our capitalized development run rates have been adjusted, which added approximately $1.5 million of expenses to our P&L, but did not impact free cash flow. We also note that FX in the quarter did not materially impact us, as the majority of our foreign revenues and expenses are aligned, and constant currency exposure was a wash on earnings. Lastly, we ended the quarter with $40.8 million in cash, down from $45.9 million as of year end. driven primarily from changes in working capital. Our cash balance at the end of April approximated our year-end balance. With that, I'll turn the call back over to Dermot.