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Galaxy warns of trouble paying debts amid 88% Q2 revenue hit


Table games supplier Galaxy Gaming saw revenue collapse 87.8% year-on-year to just $664,000 in the second quarter of 2020 as it warned it may struggle to meet some of its covenants.

Todd Cravens, Galaxy’s president and chief executive, said Galaxy’s revenue from the quarter came almost entirely from igaming as closure of land-based casinos because of the novel coronavirus (Covid-19) meant it brought in almost no revenue from these clients.

“The second quarter of 2020 was painful for everyone in the global casino industry,” Cravens said. “We earned virtually no revenue from our land-based clients, almost all of whom were shut for the entire quarter. We used the time to develop new games and technologies that we hope to introduce later this year.

The closure of land-based casinos throughout the US meant that Europe, Middle East and Africa (EMEA) became Galaxy’s largest geographic source of revenue, bringing in $504,887, down 66.1%.

Revenue from North America and the Carribean, on the other hand, fell by 95.9% to $159,085.

Galaxy’s expenses, meanwhile, came to $3.2m, down 16.7%. Selling, general and administrative expenses made up the majority of this, at $2.4m, but fell by 17.0%.

Depreciation and amortisation costs came to $454,485, down 4.5%, while research and developments costs fell by 22.3% to $138,599 and share-based compensation expenses were down 16.9% at $176,669.

The business paid $7,902 for ancillary products or assembled components, an 83.2% year-on-year drop.

This resulted in an operating loss of $2.6m, compared to a $1.5m profit in Q2 2019.

The supplier received $2,126 in interest income, $11,302 through foreign currency exchange and $42,483 in fair value changes of its liabilities. However, it paid $177,170 in interest, plus a further $195,482 in share redemption.

Combined, these figures resulted in total financial expenses of $316,741, down 11.9%.

This resulted in a pre-tax loss of $2.9m, a steep decline from the $1.2m pre-tax profit Galaxy had made in Q2 of 2019.

However, the table game supplier received a $662,477 income tax benefit. This meant that its net loss came to $2.2m, after having made a net profit of $1.1m a year prior.

The supplier made a loss in its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of $1.4m, compared to $2.4m in 2019.

Turning to the first half of the year, Galaxy’s revenue declined by 52% to $5.2m. North America and the Carribean contributed $3.3m of this total, down 57.6%, while EMEA revenue fell 37.6% to $1.9m.

Operating expenses for the business came to $7.0m, down 17.4% year-on-year. Of this total, $5.4m (down 16.2%) was due to selling, general or administrative expenses.

A further $924,291 of expenses were incurred due to depreciation and amortisation, down 3.8%, while the supplier paid $294,252 in research and development costs, a 38.4% decline, and $334,265 in share-based compensation, down 24.4%.

This led to an operating loss of $1.9m, compared to a $2.3m profit in 2019.

Galaxy Gaming’s other expenses totaled $861,574, up 66.4% year-on-year and leading to a loss before tax of $2.7m. In the first half of 2019, the table game manufacturer made a pre-tax profit of $1.7m.

Following a $626,515 income tax benefit, the supplier’s net loss came to $2.1m, compared to a net profit of $1.6m in the first half of 2019.

Its adjusted EBITDA fell by 98%, narrowly remaining in the black at $80,000.

Total debt as of 30 June remained unchanged at $48.0m, but Cravens said the lower revenue may impact its ability to meet payments further in the future.

“”Our liquidity remained stable in Q2 as we drew down on our revolver and accessed funds through the [Paycheck Protection] program,” Cravens said. “We have been current in payments of interest and principal on our debt obligations even as our revenues were significantly diminished. 

“However, going forward, we expect that the second-quarter results will negatively affect our ability to meet one or more of the financial covenants in our bank debt, and we are pleased that Nevada State Bank has agreed to forbear enforcing certain of the covenants through the first quarter of 2021.”

Cravens added that Galaxy’s planned acquisition of Progressive Game Partners (PGP) is still set to go ahead as scheduled though and is set to close at some point this month.

“Our online gaming business continued to perform well, and we expect to close our acquisition of Progressive Games Partners LLC later in August, which will allow us to work more closely with our igaming clients.”

The deal to acquire PGP is worth $12.4m, of which Galaxy will pay between $6.4m and $10.4m in cash.

In March, Galaxy announced that it had suspended billing any casinos that closed due to Covid-19.

“These closures will put incredible burdens on our customers with respect to their own customers and employees and we don’t want to add to those burdens,” Cravens said at the time. “We hope the crisis passes quickly and we look forward to serving our customers again on the other side of this.”