GAN strategic review still ongoing as Q1 revenue declines

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GAN CEO Dermot Smurfit has claimed the first quarter of 2023 was “another strong quarter” for the company despite revenue decreasing in the period year-over-year.

Although B2B and B2C returns fell compared to the previous year, interim CFO Brian Chang noted both segments “continue to show encouraging momentum” and the company is still focused on expanding GAN Sports in the US.

In addition, GAN still hasn’t provided a 2023 financial outlook, as the strategic review announced in the fourth quarter earnings report is still ongoing and no timetable for completion has been set.

GAN Q1 revenue falls

For Q1, GAN reported a total revenue of $35.1m, a 6 per cent drop YoY (Q1 2022: $37.5m) with B2B income falling the most by 16 per cent to $11.3m (2022: $13.1m).

The company attributed the B2B revenue loss to a decline in contractual revenue rates from their largest customer in the segment, offset by overall growth in the segment thanks to the performance of the said customer.

Gross operator revenue improved by 42 per cent compared to the previous quarter ($297.8m) to $422.8m following “organic growth in Michigan, New Jersey, and existing customers in Pennsylvania”, jurisdiction expansion and retail sportsbook solution launches.

B2C revenue came in at $23.9m, down 2 per cent YoY (2022: $24.4m) due to a “weakening of the currencies”. Key performance indicators for the segment were strong as deposits, turnover and active customer numbers rose, with the latter increasing by 12 per cent to 257,000 (2022: 230,000) thanks to Latin American and customer retention growth.

Per region, European operations contributed the most with $12.7m (2022: $12.6m), followed by Latin America with $11.3m (2022: $12.2m), the United States with $8.5m ($11.5m) and the rest of the world with $2.7m (2022: $1.2m).

Smurfit commented: “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 US and select international markets for B2C where we are best positioned and see reasonably attainable paths to profitability.”

No timetable for strategic review

Net income improved for GAN to $1.5m, up from the $4.5m net loss the previous year. The company credited an amendment to a content licensing agreement to the gain.

Adjusted EBITDA was only $39,000 (2022: $3m) due to the lower B2B revenue totals and a reduction in B2B capitalised development.

Operating expenses amounted to $31m, a 4 per cent increase YoY (2022: $29.9m) following an uptick in B2C sales and marketing activities “to attract additional end-users particularly in Latin America”.

As previously mentioned, GAN’s strategic review announced at the end of Q4 is still ongoing and no timetable for completion has been set, but the company expects to announce the outcome in a “timely fashion”.

“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 US with additional partners,” Chang stated.

“We also took the very important step to execute our term loan amendment which we expect will save us roughly $4m 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.”

Smurfit added: “We are also progressing in our strategic alternatives review to evaluate the opportunities available to us and maximise 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 an 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.”