GAN hails B2B gains as overall revenue grows by just 2% in Q2 2022

GAN has reported a modest 2% year-on-year (YoY) revenue increase in its Q2 2022 report to $35.4m, with increases in its B2B and B2C segments but drops in its adjusted EBITDA.

Delivering its financial report for the period, the Nasdaq-listed supplier hailed strong growth in its B2B segment but confirmed this was offset by a decrease in its B2C segment revenue driven by lower sports margin and “unfavourable” impacts of currency fluctuation.

As a segment, B2B generated YoY revenue growth of 36%, with Q2 revenue rising to $14.2m thanks (in part) to increases in development services and other revenue motivated by hardware sales and organic growth across the US.

B2B gross operator revenue (GOR) rocketed 28% YoY during Q2 to $283m.

This increase was driven primarily by expansion of existing clients into new jurisdictions, such as Connecticut and Ontario, Canada, coupled with the launch of RMiG (real money internet gaming) solutions for new customers in existing jurisdictions, such as Michigan.

GAN’s B2C segment saw Q2 revenue slide 13% from a 2021 high of $24m to just $20.1m in Q2 2022.

B2C revenue was impacted by a 260-bps decrease in the sports margin from the prior year period to 7.1% as well as a $2.4m hit from unfavourable foreign currency fluctuations.

Its total handle increased 8% during the same period due to what the firm called “organic demand” for its Coolbet product offering.

GAN’s adjusted EBITDA dropped from a Q2 2021 high of $3.5m to a Q2 2022 figure of $1.3m.

The primary driver of the decrease was increased B2C segment sales and marketing expenses related to securing key sponsorships to drive continued growth and brand awareness, particularly in Latin America in advance of the 2022 FIFA World Cup.

In tandem with this, the supplier’s operating expenses almost tripled during Q2 2022 from $26.8m to $62.3m, inclusive of a $28.9m non-cash goodwill impairment charge relating to the firm’s B2B segment.

Depreciation and amortization expenditure increased by $2.4m because of higher expenses, while sales and marketing expenses rose $1.8m on the back of the Latin American expansion.

GAN CEO Dermot Smurfit welcomed the “strong progress” made by the supplier during Q2, citing the key additives of its GAMESTACK 2.0 platform and the launch of GAN Sports in the US as pillars enabling the firm to perform in a “difficult” macroeconomic environment.

“Our cost-saving initiatives and other productivity measures are working and will enhance our long-term profitability profile,” Smurfit explained.

“Both our B2B and B2C segments continue to demonstrate unique technology and capabilities, as customer adoption and new launches remain on a positive trend.

“GAN is now licensed in 16 US states, and Ontario, Canada, and has begun the initial stages of entering the Mexican market.

“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,” Smurfit added.

Expanding on the performance of the B2C segment during Q2, Smurfit referenced foreign currency headwinds as well as “softness” outside of GAN’s main growth market of Latin America.

“This is driven by marketing challenges in certain markets in Europe, which are contracting active users, and we have softened our outlook for B2C operations in the regulated market of Ontario due to the intensely competitive environment,” the GAN CEO explained.

In respect of cost-cutting, Smurfit confirmed a three-pronged approach, beginning with the reduction of GAN’s employee headcount by more than 55 staff during the Q2 period.

“While we have reduced headcount and are slowing our hiring ramp, the benefit of the integration and launch of GAMESTACK 2.0 and its $10m in annual synergies will allow us to focus resources to remain on track with our long-term strategies,” Smurfit told investors in the GAN Q2 earnings call.

“Second, marketing spend in B2C is flexible and easily dialled up and down. We are reallocating spend only to the highest ROI [return on investment] countries, and we’ll dial back where we aren’t seeing a strong return.

“Third, in Ontario, we are launching a data app prior to the end of the quarter, and we’ll continue to monitor the return on advertising spend and customer LTVs [lifetime values] in this market to ensure it enhances our future growth,” he added.

Alluding to the future, Smurfit cited a “robust launch schedule” for the GAN sports offering throughout 2023 and the prospect of a stronger H2 period supported by increased demand arising from the FIFA World Cup.