FanDuel contract renegotiation drives 14% B2B revenue decline for GAN in Q1
Topline numbersGAN’s Q1 2023 revenue slipped by 6.3% year-on-year to $35.1m as the business saw reductions across both its B2B and B2C business segments.
B2B revenue took the biggest hit, falling 13.7% to $11.3m, while B2C revenue fell by 2.4% to $23.9m.
The reduction in B2B revenue was the result of a renegotiation of the company’s contractual revenue rates with its largest customer in that segment, FanDuel.
The revenue left the business with adjusted EBITDA of close to zero, at just $39,000. That represented a significant decline from the $3m in adjusted EBITDA reported in Q1 2022.
Despite posting an operating loss of $6m (down from a $4.1m operating loss in Q1 2022), the business declared a net income of $1.5m after accounting for a $9.3m gain on the amendment of a content licensing agreement alongside for interest, tax, amortisation and depreciation expenses.
The $9.3m gain came from changes to an agreement with Ainsworth Technologies, under which GAN issued 1.25 million new shares to the business in order to reduce the cost of exclusively licensing its iGaming content by $15m.
Posting a net profit for the quarter represented a significant turnaround from the $4.5m net loss posted in Q1 2022, and gave the business earnings per share of $0.03, compared to a loss per share of $0.11 in the prior year.
A formal strategic review process continues at GAN after it was initiated in Q4 2022.
During Q1, the company executed the plan’s three initial steps, namely the reduction of its future cash commitments to Ainsworth Technologies through its content partnership, the restructuring of its debt obligations to reduce interest expenses and the removal of its B2C Coolbet brand from the Ontario market.
On the firm’s Q1 earnings call, CEO Dermot Smurfit said: “While each of these steps are immensely positive in isolation, the strategic review continues forward and we will update the market when appropriate.”
The business’ new strategy consists of focusing on its B2B efforts in North America via GAN Sports and B2C operations in Latam via Coolbet, where it said the rate of return on investment is significantly greater than in higher-cost markets such as Ontario.
In the B2B division, meanwhile, GAN has renewed an exclusive partnership with FanDuel for the provision of its iGaming platform and PAM in the US and Ontario.
While the contract renegotiation was blamed for the reduction in GAN’s B2B revenue in Q1, the business said the dip was partially offset by an increase in FanDuel’s share of the North American iGaming market.
The business has also begun the process of rolling out operations with Wynn Resorts, with “a very large number of markets going live this summer” with the casino operator.GAN first rolled out operations with Wynn in Massachusetts, for both land-based and online sports betting, which Smurfit said was a “super positive rollout” and garnered significant attention across the industry.
In addition, pending regulatory approval in Nevada, GAN expects to go live with Station Casinos this summer, which Smurfit said he thinks will be “a massive and highly impactful industry-wide shift in the tectonic plates of vendor infrastructure provision in major gaming markets.”
Smurfit concluded that the business expects to onboard further new B2B clients for its GAN Sports offering throughout 2023.
Chad Beynon from Macquarie Group asked GAN’s CEO what progress the business had made in Mexico and if the business is still “as excited” as it was about the market when it announced its renewed focus on Latam earlier this year.
In response, CEO Smurfit said the business is still excited about Mexico, but that launching there has been “perhaps a little bit slower out of the gates than we anticipated at the very beginning of this year.”
Smurfit added that early indications in the market are positive, however, and that “as with all new market entries, you have to be very, very patient and optimise the conversion funnel to new depositing players before you start allocating significant amounts of marketing capital.”
The business therefore expects to continue optimising its product, he said, although it has been “extremely well received in all the Latin American markets that it’s rolled out into.”
GAN’s renewed focus on Latam markets has therefore left the business “very excited about the B2C division and the return to growth prospects after a relatively pedestrian growth performance in 2022, which is behind our expectations,” Smurfit said.
“But the indicators in the current quarter and looking forward through the year are very positive,” he concluded.
Current trading and outlook
Due to the continuing strategic review, GAN declined to provide any earnings guidance for the rest of 2023.
“The variability of potential outcomes prevents us from providing an outlook within a reasonable range,” Smurfit said, “although we expect to be in a position to provide guidance for the year upon the resolution of these discussions hopefully in the near future.”
In the company’s Q1 report, the business said it was assessing a range of strategic alternatives to maximise shareholder value.
Alluding to the possibility of a sale of the business, it added: “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.
“The company will provide updates, as appropriate,” it concluded.