GAN has accepted the resignation of long-serving CEO Dermot Smurfit.

Smurfit, who has been with the iGaming software supplier for 21 years, resigned as chief executive and a director of the company on 25 September 2023.

Having joined the company in 2003, Smurfit became CEO in 2010.

GAN has vowed to explore a potential consulting role for Smurfit, who remains a major stockholder in the Nasdaq-listed business.

GAN has since moved to appoint Seamus McGill as the firm’s interim CEO.

The 72-year-old previously served as chairman of the board at GAN and has been a member of the board of directors since 2014.

McGill boasts more than 25 years of experience in gaming and tech, and most recently held the role of president of JOINGO, a mobile software company in San Jose, California.

McGill also spent five years at Aristocrat Technologies as COO. Prior to that, he helped orchestrate the sale of Cyberview Technology to IGT while serving as president.

McGill will receive an annual base salary of $500k and will assume leadership of all executive functions at GAN, including leading the supplier’s strategic roadmap.

GAN opened a formal strategic review in Q4 2022.

A company SEC filing confirmed that GAN will continue evaluate non-binding indications of interest in the business, although there are currently no transaction agreements in place.

GAN’s Q1 2023 revenue slipped by 6.3% year-on-year to $35.1m as the business reported reductions across both its B2B and B2C business segments.

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, US market leader FanDuel.

This left the business with Q1 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.

GAN has reported a reduction in both B2B and B2C revenue in Q1 as the firm’s formal strategic review continues.

Topline numbers

GAN’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.

News nugget

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.

Best quote

Best question

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.

GAN’s Q3 revenue declined by 0.5% in real terms to $32.1m as costs relating to the translation of foreign currencies wiped out the gains of an otherwise successful quarter.

On a constant currency basis, the firm said, revenue was up around 8% year-on-year.

The business also turned adjusted EBITDA positive to the tune of $2.1m, compared to an $870,000 EBITDA loss in the prior-year period.

Still, GAN recorded a net loss of $6.9m for the quarter, though that is an improvement of 20% over Q3 2021’s $8.7m net loss.

The majority of the firm’s revenue came from its B2C segment, at $19.4m or 60.5% of the total. That represents a decline in real terms of 7.9% compared to the prior-year period, which again GAN said was the result of losses on the translation of foreign currencies against a continuously strengthening dollar.

The remaining $12.7m of revenue came from GAN’s B2B operations, as the business segment grew by 13.5% year-on-year.

Broken down by region, 32.9% of GAN’s revenue came from Europe in Q3, with a further 32.1% coming from the US and 29.6% from Latam.

The Rest of the World generated the remaining 5.4%. Of all the geographical regions reported on, the US was the only one to see significant growth in real terms year-on-year.

GAN CEO Dermot Smurfit said: “Our third quarter was highlighted by our launch of B2B sports betting technology and managed trading services in the US along with continued progress toward the domestic launch of GAMESTACK 2.0. 

“Customer feedback around GAN Sports as well as the unique value of our Super RGS portfolio remain key differentiators for GAN as we enhance our status of a leading provider of a true omnichannel gaming experience. 

“We are looking forward to what we expect to be a strong launch cadence of GAN Sports, the upcoming FIFA World Cup, as well as our entrance into the Mexico market.”

While foreign exchange costs led to a real-term decline in revenue, they also helped reduce the operating expenses paid out by the business, by some 2.8% to $27.8m.

GAN ended the quarter with $41.8m in cash, which was adversely affected to the tune of $3.4m relating to foreign exchange rates and a further $1.1m relating to fees associated with gaming licences for a new market entry.

GAN CFO Karen Flores: “Although we are expecting a significant increase in activity for the World Cup, the unique nature of the event and the wide range of potential outcomes for the quarter have led us to elect to suspend our guidance for the full year.”

While the business said that major sporting events such as the upcoming FIFA World Cup are generally positive events for gambling firms, uncertainty around the effects of the tournament have led it to suspend its previously issued earnings guidance for full-year 2022.

Following the release of its Q2 results in August, GAN revised its full-year revenue guidance from a prior high of $165m down to $152.5m, while EBITDA forecasts fell to between $10m and $15m, compared to prior estimates of $15m and $20m.

“We remain focused on cost rationalisation efforts in order to protect our margins during a volatile and difficult macroeconomic backdrop while ensuring our organic investment behind our key initiatives such as GAN Sports and Super RGS,” said GAN CFO Karen Flores.

“While we are excited about the launch of GAN Sports and progress around other initiatives, as expected, a continued difficult foreign exchange environment and European headwinds impacted our third quarter performance, and we expect those factors to impact our fourth quarter as well. 

“Although we are expecting a significant increase in activity for the World Cup, the unique nature of the event and the wide range of potential outcomes for the quarter have led us to elect to suspend our guidance for the full year.”

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.

Coolbet founder and GAN shareholder Jan Svendsen made a splash last week by calling for the initiation of a process to replace the firm’s current board, as well as CEO Dermot Smurfit.

In a letter penned by Svendsen and addressed to GAN shareholders, the Coolbet founder took aim at GAN’s senior management team for delivering underwhelming results while taking home bumper salaries and bonuses.

The letter was published on Reddit and LinkedIn, and also set out Svendsen’s views on the events leading up to and following GAN’s acquisition of Estonian B2C and B2B sportsbook specialist Coolbet, which completed in January 2021.

Svendsen claimed he was “pushed out” of the business following the acquisition, after which he began to investigate GAN and study its organisational structure. 

He concluded that it was not a well structured business, particularly with regards to its IT team – although he pointed out that new CTO Jan Roos, formerly of Coolbet, “has done a good job of trying to clean up the ineffective mess that was inherited at GAN.”

Coolbet founder Jan Svendsen: “In my opinion, one of the responsibilities of the board is to look after GAN’s money; it does not seem wise to have the CFO serve on the board.”

Resigning from the firm – which Svendsen said he did in mid-2021 after being offered a role as an office manager in Spain – was “not a big problem”, he said, adding: “My problem now is that I currently hold 840,000 shares at GAN, and know personally that the leadership team at GAN is non-effective and the board is weak.”

At the time of writing, GAN’s $3.35 share price gives Svendsen’s stake in the business a valuation of $2.8m. At GAN’s 52-week high share price of $18.48, the shares would be worth $15.5m.

“I don’t think the board is very professional at GAN,” Svendsen wrote. “From what I heard, the chairman is an old friend of the Smurfit family. Dermot Smurfit’s uncle also serves on the board. In addition, the CFO of GAN, Karen Flores, serves on the board. 

“In my opinion, one of the responsibilities of the board is to look after GAN’s money; it does not seem wise to have the CFO serve on the board. My general impression is that the board is weak and more like a “yes Dermot” board.”

Svendsen blamed management for GAN’s lacklustre results in 2021, during which the newly acquired Coolbet business accounted for an increase in full-year revenue to $125.4m, compared to just $35.2m in 2020.

In spite of the underwhelming performance from GAN’s core business, Svendsen said: “One of the most disappointing issues is the amount of the salaries and bonuses the leaders and the board have been paying themselves.”

“2021 was a horrible year for GAN; GAN did not deliver on the bottom line and the share price dropped significantly. Regardless, the leadership team gave themselves huge bonuses. Why? Aren’t bonuses something you should pay out when you produce positive results?”

Coolbet founder Jan Svendsen: “GAN did not deliver on the bottom line and the share price dropped significantly. Regardless, the leadership team gave themselves huge bonuses.”

Svendsen also called out GAN’s share option programme, which he said “seemed to be a disaster.” Share options should be given across the organisation, he argued, whereas GAN’s programme saw share options granted almost exclusively to the board and management team.

Svendsen concluded therefore that a change of management is necessary to secure GAN’s future.

He believes the business does have a path to growth, although the development of GAN Sports, a B2B solution built on Coolbet’s software, will likely help the firm take new steps in B2B markets.

“But using so many resources from Coolbet to clean up the GAN B2B mess also comes with a price for B2C. The growth of Coolbet is slowing down a lot, and that may not be so smart when Coolbet is the only part of GAN that is making the money.”

Svendsen said he wrote the letter in the hope that it may ignite a process leading to a new board of directors and executive management team at GAN.

“It is a company with great potential because of what Coolbet brings to the table. We need a leader who can collect the troops and who respects all the employees of the company. Someone who can keep up the quality and be more vigilant about spending money.

“I must be very clear that this is posted only from me as a worried shareholder. I don’t have any ambition or intention to have a management or director role in GAN,” Svendsen concluded.

GAN has not yet responded to an iGaming NEXT request for comment.

The share price of Nasdaq-listed GAN has fallen by 18% in pre-market trading today (23 March) after the supplier reported full-year 2021 revenue of $125.4m.

The annual growth, which more than tripled year-on-year, was driven by the acquisition of B2C sports betting business Coolbet, which GAN bought in January 2021 for €149.1m.

In full-year 2020, when the business operated exclusively on a B2B basis, total revenue came to just $35.2m.

For 2021, most of GAN’s revenue was generated by its B2C segment at $78.6m. This operating division was created after the integration of Coolbet, an Estonian sportsbook built on its own proprietary technology stack.

B2B revenue for the year totalled $46.8m, a 33.2% increase on 2020, mostly driven by a $10.7m increase in platform and content fees.

Despite declaring a gross profit of $84.1m for the year, GAN’s adjusted EBITDA loss came to $84,000, while net losses reached $24.9m – up from $20.2m in 2020.

During Q4 2021 specifically, the business generated $30.5m in revenue, consisting of $11.3m in B2B and $19.2m in B2C revenue.

While there is no year-on-year Q4 comparison to be made due to the acquisition of Coolbet, Q4 2021 revenue represented a 5.5% downturn quarter-on-quarter from a Q3 total of $32.3m.

Adjusted EBITDA loss for Q4 was $5.0m, while net losses came to $8.5m, compared to positive EBITDA of $39,000 and a net loss of $7.9m in Q3.

“Our fourth quarter financial results were adversely affected by the volatile sports margin in our B2C segment consistent with other international operators, which was partially offset by continued strong new customer growth,” said GAN CEO Dermot Smurfit. 

“However, our fourth quarter was highlighted by strategically important wins for GAN along with new state launches for clients such as FanDuel in Connecticut and our entrance into Ontario when iGaming and online sports betting officially goes live.”

The business also completed its acquisition of online casino developer Silverback Gaming during the fourth quarter, which it said would help to solidify its future as a B2B gaming supplier.

“Looking out to 2022, we envision a year of improved financial performance driven by existing growth in B2C, the launch of Ontario, new state launches in the US and continued momentum behind our key initiatives like SuperRGS, and GAN Sports,” Smurfit continued. 

“We are acutely focused on our profitability in 2022 and have taken decisive actions to improve our profitability metrics and margins.”

GAN recently filed a lawsuit against MGM Resorts over the alleged infringement of one of its patents relating to the use of customer loyalty software linking land-based and online gaming accounts.

“This is something that we, of course, prefer not to do of long-standing industry participants,” Smurfit said on GAN’s Q4 earnings call. “But as the situation calls for it, we’re certainly not afraid to take legal action.”

GAN CFO Karen Flores is predicting full-year 2022 revenue of between $155m and $165m and adjusted EBITDA in the range of $15m to $20m.

“We are entering the new year with encouraging momentum around the launch of new clients and the advancement of initiatives such as SuperRGS and GAN Sports while strategically focused on implementing cost controls to accelerate profitability to help drive improved shareholder returns in 2022,” Flores added.