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GG

Galaxy Gaming, Inc. (GLXZ)·Q1 2023 Earnings Summary

Executive Summary

  • Record Q1 revenue of $7.423M (+25% YoY) with adjusted EBITDA of $3.084M; net income $0.111M. Growth was driven by ~$1.3M of GG Core perpetual license sales and steady GG Digital expansion .
  • Guidance raised: FY2023 revenue (net of iGaming royalties) to $27.5–$28.5M from $26–$27M; adjusted EBITDA to $13.0–$13.25M from $12–$13M, assuming Q1 FX rates, no Ukraine impact, and no recession .
  • Liquidity/dleverage: Cash declined to $16.386M on receivables growth and payables decline; gross long-term debt $58.841M; Net Leverage 3.9x vs covenant max 6.0x; CFO targeting debt refinancing in late 2023 .
  • Strategic catalyst: 10-year extension of Evolution Group licensing agreement across online studios, reinforcing digital distribution and content reach .

What Went Well and What Went Wrong

  • What Went Well
    • Record quarterly revenue; GG Core benefitted from ~$1.3M perpetual license purchase; GG Digital net revenue grew to $2.3M from $2.1M YoY .
    • Net Leverage improved to 3.9x with $733K Fortress principal repaid; comfortably within 6.0x maximum .
    • GOS platform approved by testing lab in April; approvals now underway for jurisdictional sales .
  • What Went Wrong
    • Cash down 10% QoQ to $16.386M on increased receivables (largest customers) and decreased payables (largest vendor) .
    • Interest expense up to $2.204M in Q1 (higher benchmark rates); company still expects ~$9.0M interest in FY2023 .
    • FX headwinds still cloud YoY comparisons (management expects Q1 2023 to be the last quarter with adverse FX YoY effects) .

Financial Results

MetricQ3 2022Q4 2022Q1 2023
Revenue (USD Millions)$5.907 $5.940 $7.423
Net Income (USD Millions)$(0.699) $0.055 $0.111
Adjusted EBITDA (USD Millions)$2.350 $3.153 $3.084
Adjusted EBITDA Margin (%)39.8% ($2.350/$5.907) 53.1% ($3.153/$5.940) 41.6% ($3.084/$7.423)
Net Income Margin (%)(11.8%) ($-0.699/$5.907) 0.9% ($0.055/$5.940) 1.5% ($0.111/$7.423)
EPS (USD)Q1 2022Q1 2023
Diluted EPS$0.00 $0.00

Segment Revenue

Segment (USD Millions, Net)Q1 2022Q1 2023
GG Core$3.826 $5.172
GG Digital$2.093 $2.251
Perpetual License (Core, within Q1 2023)N/A~$1.300

Geography

GeographyQ1 2022 (USD Millions)Q1 2023 (USD Millions)
Americas$3.045 $4.472
EMEA$2.873 $2.951
Total$5.919 $7.423

KPIs

KPIQ1 2023
Cash and Equivalents (USD Millions)$16.386
Long-Term Debt (Gross, USD Millions)$58.841
Net Leverage (x)3.9x
Accounts Receivable (USD Millions)$5.668
Stockholders’ Deficit (USD Millions)$(17.513)
Interest Expense (USD Millions)$2.204

Notes:

  • Adjusted EBITDA is non-GAAP; reconciliation provided in filings . Q4 2022 Adjusted EBITDA benefitted from a one-time payroll tax credit of $575K net .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue (net of iGaming royalties)FY 2023$26–$27M $27.5–$28.5M Raised
Adjusted EBITDAFY 2023$12–$13M $13.0–$13.25M Raised
Interest ExpenseFY 2023~$(9.0)M ~$(9.0)M Maintained

Assumptions: no Ukraine war impact, no recession; FX held at Q1 levels .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2022)Previous Mentions (Q-1: Q4 2022)Current Period (Q1 2023)Trend
FX headwindsFX intensified; constant-currency revenue +19% QoQ; guided to midpoint/low-end ranges due to rates Constant-currency FY revenue would have been a record; 2023 forecast assumes Q4 FX Expect Q1 to be last quarter with YoY FX drag Improving
Digital/iGaming growthContinued growth; Bonus Craps contingent payment eliminated Expect double-digit online revenue growth in 2023 GG Digital net revenue $2.3M vs $2.1M YoY Expanding
GOS platform rolloutNew games/tech introduced at G2E; trials committed GOS 2.0 targeted for G2E October GOS approved by testing lab; starting approvals for jurisdictions Execution progressing
Leverage/debt strategyComfortable covenant compliance; guidance moderated due to rates Net leverage 4.0x at YE; interest expected ~$9M; hope to refinance in Q4 2023 Net Leverage 3.9x; targeting refinance late 2023 Improving balance sheet; plan
Strategic partnerships——10-year extension with Evolution Group for online content Strengthening distribution

Management Commentary

  • CEO: “2023 is off to a good start… revenues, which were a record, include approximately $1.3 million of perpetual license purchases… Without these purchases… GG Core revenues were $3.9 million vs $3.8 million in Q1 22… GG Digital… $2.3 million vs $2.1 million… In April, our GOS platform was approved by the testing lab…” .
  • CFO: “We paid down $733K of principal… Net Leverage was 3.9x… We saw an increase in receivables… decrease in payables… decrease in cash… liquidity will remain strong… target a refinancing of our debt in late 2023… increasing guidance for revenue… to $27.5–$28.5M and Adjusted EBITDA… to $13.0–$13.25M” .
  • Q4 management tone on 2023: “Expect double-digit revenue increases in our online business… GG Core revenue growth to accelerate over the course of the year as GoS systems get installed” .
  • Strategic partnership: “Extending our long-standing partnership with Evolution aligns with our focus to deliver the best table game content to everyone, everywhere… we are delighted to continue to be a part of this impressive product portfolio” .

Q&A Highlights

  • No earnings call transcript found for Q1 2023. Management invited investor questions by May 17 and planned to record answers on May 23; investor deck update signaled . No further Q&A disclosures available in filings .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2023 EPS and revenue was unavailable at time of request due to data access limits. Values retrieved from S&P Global were unavailable; therefore, estimate comparisons cannot be presented. Management did not provide quarterly guidance; annual guidance was raised as noted .

Key Takeaways for Investors

  • Guidance raise and record revenue are positive near-term catalysts; watch for incremental GG Core perpetual licenses in Q2 per management expectation .
  • Digital momentum + Evolution’s 10-year extension bolster the medium-term iGaming thesis and content distribution moat .
  • Margin profile: Q1 adjusted EBITDA margin 41.6%; Q4 margin was elevated by one-time payroll credit—normalize expectations accordingly .
  • Balance sheet: Cash decline driven by working capital; leverage within covenant and trending better; refinancing goal in late 2023 could reduce interest burden if achieved .
  • FX drag likely abating after Q1, potentially supporting clearer YoY comps in subsequent quarters .
  • Monitor interest expense run-rate (~$9M for FY2023) and rate environment as key headwinds to net income leverage .