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EEG Registered 3Q22 Revenue Growth, Liquidity Problems

Esports Entertainment Group (EEG) announced Monday its fiscal 2022 third quarter earnings report, significantly revising down its previously issued full-year revenue guidance.

Growth in Revenue, Gross Profit

Hoboken-based full stack esports and gambling operator EEG revealed for the three months ended March 31, 2022, net revenue of $15.7 million, representing an increase of 8% to $14.5 million the company reported in February for its fiscal 2022 second quarter performance.

Commenting on the results, EEG CEO Grant Johnson stated that the company “generated record-breaking quarterly revenue” at one of its proprietary iGaming brands Lucky Dino, achieved a “more balanced sportsbook hold,” and managed to improve “the overall profitability of the business via the implementation of its new “efficient marketing strategy.”

Gross profit for the quarter amounted to $9.4 million, up over 200% from the fiscal 2021 third quarter and representing an increase of 17.5% to the $8 million in gross profit EEG accounted for in the previous quarter.

Lack of Liquidity

Much like in the second fiscal quarter, EEG ended the period with GAAP net loss and non-GAAP adjusted EBITDA loss, $63.8 million and $7.3 million, respectively. Cash and cash equivalents at the end of the quarter were $9.4 million.

In the second quarter, GAAP loss of $34.5 million and non-GAAP EBITDA negative $6.8 million were attributed to strong regulatory headwinds while in the reported quarter now, EEG attributed the negative impact on its bottom line primarily to a $38.6 million asset impairment charge as well as a $20.6 million charge for a derivative debt liability.

Addressing the “near-term challenges” which are impacting the business’ ability to grow, Johnson singled out the “lack of liquidity” which stopped the company from fully monetizing its Helix, ggCircuit, and EGL esports assets and resulted in the multi-million impairment charge.

“We do not see a path to attractive profitability in the Helix business given its significant overhead and ongoing capex and are currently working to divest our two existing centers.”

Grant Johnson, CEO, EEG

Aggressive Cost Cutting Ahead

Johnson continued by outlining that the company decided to implement a number of strategies aimed at creating shareholder value, including simplifying its esports offering in an asset-light model that will allow for more efficient leverage of the assets. Aggressive cost cutting across all seven brands will also take place.

“To date, we’re projecting material savings over the next 12 months through an amended marketing strategy and through the implementation strategies to drive operating efficiencies.”

Grant Johnson, CEO, EEG

Johnson concluded his comments on EEG’s quarterly performance by stressing the objective for the company to achieve “breakeven as quickly as possible,” and based on the third quarter performance, revised the full-year revenue guidance of $70 million to $75 million issued after the second fiscal quarter report to $55 million to $60 million.

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