GAN stock sinks as management reduces full-year revenue and EBITDA guidance
GAN has reduced earnings guidance for full-year 2022 after Q2 revenue increased by just 1.7%, with significant B2B growth offset by a reduction in B2C revenue.
The supplier’s stock has slipped by more than 19% as investors reacted to the announcement. Full-year revenue guidance has been trimmed from a prior high of $165m down to $152.5m, while EBITDA forecasts have fallen to between $10m and $15m, compared to prior estimates of $15m and $20m.
B2B revenue rose 36.5%, which GAN said was driven primarily by an increase in development services and other revenue, including hardware sales and organic growth in real-money US iGaming.
B2C revenue, meanwhile, fell by 13.3% from $24m in the prior year period to $20.8m. GAN said this was the result of an unfavourable sports margin, which came in at 7.1%, down from 9.7%, on top of a $2.4m reduction from the impact of foreign currency inflation.
Indeed, GAN said that the amount wagered on its Coolbet B2C brand increased by 8% annually, suggesting the business could have reported revenue growth under more favourable market conditions.
Additionally, the number of active customers across GAN’s B2C products grew by 39% year-on-year, due to growth in Latam and strong customer relations, the firm said.
Following the end of the quarter, Coolbet achieved the milestone of 1 million registered customers on its platform.
Headwinds for the B2C segment, however, included the tightening of operating environments in certain European markets and a slower than anticipated start in the regulated Ontario market.
Further, Q2 2021 marked a tough comparative period for the business, as the period featured two major global football tournaments, in addition to a higher hold on sports handle at the time.
GAN CFO Karen Flores: “It has become clear that a difficult foreign exchange environment and European headwinds will temporarily impact our results in the second half of the year. As a result, we are lowering our full-year revenue expectation.”
GAN CEO Dermot Smurfit told investors on the firm’s Q2 earnings call: “We’ll continue to focus on operational excellence, but to be very clear, our B2C business remains healthy, profitable and growing.”
Gross profit across the business came to $24.5m, an increase of 2.1%, while operating expenses more than doubled from $26.8m to $62.3m. This was primarily down to the inclusion of a $28.9m non-cash goodwill impairment charge relating to the B2B segment during the quarter, GAN said.
Those costs left the business with a net loss of $38.3m, more than 10x the prior year period’s $3.8m loss. Adjusted EBITDA was just $1.3m, down more than 60% from $3.5m.
The company retains significant cash on hand though, with $49.1m as of 30 June, an increase of $9.6m compared to the end of 2021.
“Our deliberate, focused efforts to improve our profitability are bearing results in the midst of the difficult macroeconomic and inflationary environment, as seen through our adjusted EBITDA in the quarter,” said GAN CFO Karen Flores.
GAN CEO Dermot Smurfit: “We expect a robust launch schedule for GAN Sports throughout the US in 2023, which will further our position as a leading provider of a true omnichannel gaming experience. We are excited about the prospect of a stronger second half of the year, supported by the FIFA World Cup.”
“All of our cost savings actions have been executed without hindering our longer-term strategy or ability to accelerate future growth. During the quarter, we were also able to repurchase roughly $1m of our stock in the open market and completed a $30m term loan to facilitate our investment in our strategic initiatives.
“However, it has become clear that a difficult foreign exchange environment and European headwinds will temporarily impact our results in the second half of the year. As a result, we are lowering our full year revenue expectation to $142.5m to $152.5m, and adjusted EBITDA expectations to be in the range of $10m to $15m for the full year.”
GAN’s main objectives for the rest of the year include the expansion of its Super RGS iGaming aggregation platform, which has just signed Caesars Entertainment as a new client.
That deal lifts the content distribution network’s reach to around 50% of the overall US iGaming market, CEO Smurfit added, up from 20% at the beginning of 2022 and well on the way to its target of 80% in 2023.
Smurfit added that the business is also ready to roll out its new GameSTACK 2.0 platform, and will shortly launch online and retail GAN Sports technology in two states.
“We are excited about the momentum behind our key initiatives, such as Super RGS, and the customer feedback surrounding the uniqueness and value of our exclusive gaming content has been highly encouraging and validating.
“We expect a robust launch schedule for GAN Sports throughout the US in 2023, which will further our position as a leading provider of a true omnichannel gaming experience. We are excited about the prospect of a stronger second half of the year, supported by the FIFA World Cup,” Smurfit concluded.