GAN is set to refocus its B2C business on Latam and European markets, according to a new strategy revealed alongside its Q4 and full-year 2022 financial results.
Topline numbers
Group revenue in Q4 totalled $36.9m, an increase of 21.4% year-on-year.
Of that, $22.8m came from the firm’s B2C operations via its Coolbet brand, up 18.7%, with the remaining $14.1m coming from GAN’s B2B segment, up 26% year-on-year.Adjusted EBITDA for the quarter came in at a $368,000 loss, reduced from a $6m EBITDA loss in Q4 2021.
After accounting for expenses including a $137.1m non-cash impairment charge, the business declared a net loss of $147.7m for Q4.
GAN said the impairment charge in the current quarter was a result of material reductions in its expected future cash flows from the B2B segment, a strategic decision not to pursue and invest further in its original content strategy, and a re-assessment of its growth strategy related to the B2C segment.
Those figures brought full-year 2022 revenue to $141.5m, a year-on-year increase of 14%, while annual adjusted EBITDA came in at a positive $6m, compared to a $2.8m EBITDA loss in full-year 2021.
Total net loss for 2022 was $197.5m, compared to a $30.6m net loss in 2021.
News nugget
Following the publication of its results, GAN has launched a company-wide formal strategic review process to evaluate how it can speed up its path to profitability and “a more attractive return profile”.
The business has engaged B. Riley Securities as its financial adviser to assist with the evaluation process, and is “well into discussions with multiple involved parties and simultaneously evaluating numerous options for the go-forward organisation of the company.”
However, GAN also noted that: ”there can be no assurance that the review process will result in pursuing or completing any transaction, and no timetable has been set for completion of this process.”
A renewed strategy in GAN’s B2C segment will also see the business turn its focus away from highly competitive markets including Ontario, to focus more closely on high-growth opportunities such as in Latam.
After announcing the withdrawal of Coolbet from the regulated Ontario market earlier this month, CEO Dermot Smurfit provided an update on the rationale behind the exit as well as the firm’s renewed focus on Latam markets.
GAN CEO Dermot Smurfit: “We think we’ve got a very real shot at a podium position in Mexico. Mexico has the advantage of being an existing regulated market and the sports-led operators have relatively weak sports betting experience to the consumers, so we think Coolbet has got a very serious advantage.”
While the business maintains a B2B presence in the US, it now intends to focus its B2C efforts more closely on less competitive, higher growth markets where the Coolbet brand has a better chance of standing out against the crowd.
Smurfit said in the firm’s earnings release: “It has become apparent to us that the capital requirements to gain market share for initiatives such as SuperRGS as well as in certain competitive markets for sports betting like Ontario, Canada do not provide a path toward achieving an acceptable ROI in a reasonable period of time.
“As such, we have elected to allocate capital away from these endeavours and toward more appropriate growth strategies. Accordingly, we are focused on leaning into the value that GAN Sports has demonstrated thus far and being a market leader in emerging Latin American markets through our B2C operations.”
One key Latam market for the business is Mexico.
Fielding questions on today’s earnings call, Smurfit added: “We think we’ve got a very real shot at a podium position in Mexico. Mexico has the advantage of being an existing regulated market and the sports-led operators have relatively weak sports betting experience to the consumers, so we think Coolbet has got a very serious advantage.”
Best quote
GAN CEO Dermot Smurfit: “[In Mexico,] you just don’t see the kind of competitive promotional-oriented mania that we saw in Ontario during the first several months of that market’s launch, where a lot of the US brands were pushing north very aggressively, combined with the entrenched operators who’d been there for for many, many years.”
Best question
The best question on today’s call came from Chad Beynon at Macquarie Securities, who asked what rates of retention Coolbet had seen from new customers acquired during the 2022 FIFA World Cup.
In response, CEO Smurfit said: “There’s always effectively the business equivalent of a hangover after a major soccer event like the World Cup.
“Industry expectations would be that you’re doing a great job if you see 40% retention quarter-on-quarter, and thankfully we’ve outperformed that expectation.“So we’re seeing great and very significant evidence of continued stickiness of the Coolbet sports betting offering and user experience.”
Current trading & outlook
Due to the commencement of its strategic review, GAN said it is unable to provide guidance for the full-year 2023 at this time.
Interim CFO Brian Chang said in the earnings release: “Given the range of potential outcomes related to the strategic review, we do not feel that we currently have an adequate level of visibility to confidently provide guidance for 2023 within a reasonable range.
“That said, we do expect a relatively swift resolution to the strategic review process and hope to be in a position to provide our financial outlook for 2023 at some point in the near future.
“In the meantime, we are acutely focused on supporting our key initiatives such as GAN Sports and seeking additional ways to manage our cost structure and improve our return profile.”
Indeed, following the end of the reporting period in early 2023, GAN Sports has launched with its third client in the US in the form of WynnBet at Encore Boston Harbor.
GAN’s retail and mobile sports betting launch with Wynn in Massachusetts is expected to be followed by a nationwide rollout on a state-by-state basis, with the partnership eventually extending across 18 US states.
Commenting on the firm’s past performance and future outlook, CEO Smurfit concluded: “While 2022 saw many important achievements, our profitability execution did not meet our expectations for the year. We understand that we have plenty of work to do in 2023 to improve our return profile and deliver better returns for our shareholders.
“We anticipate that the strategic review will facilitate that process with a renewed focus on higher ROI opportunities.”
Questions remain for the company’s financial future, however. During the earnings call, interim CFO Chang laid out a significant uncertainty for the business with regards to a term loan credit facility it currently holds.
He said: “Given our cash flow and net losses for the LTM period ended December 31 2022, and updates to our 2023 budget and long range plan, there’s the potential that the company could violate a financial covenant associated with its term loan in the future and result in a potential acceleration of our credit facility.
“If our lender were to accelerate the debt, it is possible that we could have an insufficient cash flow to support our operations for a full year following the date of issuance of consolidated financial statements.
“We are in continued negotiations with our lender and expect further amendments to the credit facility as needed to maintain compliance with the future financial covenants, but we cannot make any assurances regarding the likelihood, certainty or exact timing of further amendments to the credit facility.”
“We are in continued negotiations with our lender and expect further amendments to the credit facility as needed to maintain compliance with the future financial covenants, but we cannot make any assurances regarding the likelihood, certainty or exact timing of further amendments to the credit facility.”
AUTHOR
