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GAN reduces headcount and lowers 2022 guidance after tough Q2

| By Robert Fletcher
Gambling solutions provider GAN has reduced its full-year revenue and earnings forecasts after posting lower-than-expected results for the second quarter of its 2022 financial year.
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Chief executive Dermot Smurfit also revealed that the business had already cut employee numbers in response to “current market dynamics”.

Though Smurfit said that the business continued to make “strong progress” executing its strategy during the three months to 30 June, several factors, largely out of its control, meant it was not able to reach expectations.

Smurfit, speaking on an earnings call, said these included foreign currency fluctuations against the US dollar and a tightened operating environment in certain markets in Europe that negatively impacted marketing and customer activity. 

To a lesser extent, Smurfit said results were also impacted by a slower-than-anticipated start in Ontario, the Canadian province that launched its legal online gambling market on 4 April.

However, Smurfit was upbeat about GAN’s future strategy, saying that the business has plans in place to grow and expand in the longer-term.

“We are taking specific actions to respond to changing business conditions while not losing sight that we are still in the very early innings of the rollout of US digital gaming and continue to strategically invest our capital,” Smurfit said.

“We are continuing to invest in our core B2B strategy here in the US, which remains an essential driver of shareholder value. Our one-stop shop B2B capability, now very much led by demand for GAN Sports, coupled with our seamless multistate single-wallet player account management platform remains at the heart of our right-to-win B2B market share over time, and we are excited by the visible B2B opportunities within our pipeline.

“Our B2C segment, however, did not fare so well in the second quarter despite showing strong underlying key performance indicators. We’ll continue to focus on operational excellence, but to be very clear, our B2C business remains healthy, profitable and growing.”

Group revenue for the quarter reached $35.0m (£29.1m/€34.5m), which was up 1.7% from $34.4m in the corresponding period last year.

B2B revenue increased 36.5% to $14.2m, helped by growth in the development services and other segments, though B2C gaming revenue slipped 13.3% to $20.8m due to a lower sports margin and unfavourable foreign currency fluctuation.

Operating costs rocketed by 96.0% to $72.7m, though this was primarily due to a non-cash goodwill impairment charge of $28.9m related to the acquisition of Coolbet.

Spending was also up across sales and marketing, product and technology, general and administrative and depreciation and amortisation, though Smurfit said cost-saving initiatives and other productivity measures are in place and working. This includes reducing the number of people employed by the business, where Smurfit said major steps have already been taken.

“On the expense side, our biggest expense item is labour,” he said. “We have implemented some headcount reductions and our ending headcount in June was 675 as compared to 730 at the start of this year.”

After accounting for an additional $1.3m in financial costs, this left a pre-tax loss of $38.6m – far wider than the $2.8m loss posted in Q2 of 2021. GAN received $229,000 worth of tax benefit, but ended the quarter with a net loss of $38.3m, compared to $3.8m last year.

In addition, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 62.9% to $1.3m.

As to how this impacted its first-half results, revenue for the six months to 30 June reached $72.5m, up 17.9% year-on-year. B2B revenue climbed 18.5% to $27.5m, while B2C revenue was also 18.0% higher at $45.2m.

Operating costs increased 65.3% to $114.4m, again mainly due to the impairment charge, while after including a further $1.3m in finance-related spending, pre-tax loss was $42.7m, in contrast to the $7.7m loss last year.

GAN paid $157,000 in income tax during the first half meaning it ended the period with a net loss of $42.8m, far wider than the $9.4m loss recorded in 2021. However, adjusted EBITDA edged up 4.9% year-on-year to $4.3m.

With GAN expecting a continued difficult foreign exchange environment and European headwinds to temporarily impact its results in the second half of the year, it reduced its full-year revenue forecast to between $142.5m and $152.5m, and adjusted EBITDA to a range of $10.0m to $15.0m.

“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,” Smurfit said.

“We are excited about the prospect of a stronger second half of the year, supported by the Fifa World Cup.”

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