GAN(GAN) - 2024 Q4 - Annual Report

PART I Item 1. Business GAN operates B2B SaaS and B2C online betting, with a merger agreement pending regulatory approval Business Overview GAN operates B2B SaaS for iGaming/sports betting and B2C 'Coolbet', with B2C revenue slightly down in 2024 - GAN Limited operates two main business lines: B2B (Software-as-a-Service solutions for online casino gaming and sports betting) and B2C (online sports betting and casino platform under the 'Coolbet' brand)[21] - The B2B segment offers the GameSTACK internet gaming platform and GAN Sports, focusing on enabling the U.S. casino industry's digital transformation for real money iGaming, online sports betting, and simulated gaming[22] B2C Revenue Breakdown (2024) | Product | Percentage of Total Revenue | | :-------------------- | :-------------------------- | | Online casino games | 60.2% | | Online sports betting | 36.0% | | Online peer-to-peer poker | 3.8% | - B2C revenue slightly decreased 2.3% from $86.3 million in 2023 to $84.3 million in 2024, primarily due to a decline in active customers in Latin American markets[23] Corporate History GAN pioneered UK online gaming, expanded globally, went public in 2020, and acquired Coolbet in 2021 - GAN commenced operations in 2002 in the United Kingdom, initially offering online games of skill[24] - The company launched its first real money casino gambling games in the UK in 2005 and deployed its technology platform in Italy in 2008[25] - The first version of the GameSTACK enterprise software platform was released in 2010, and the company processed the first legal online bet in New Jersey in 2013[26] - In May 2020, GAN Limited completed a reorganization, became the parent company of GAN plc, and completed its U.S. initial public offering, raising $62.4 million[27] - On January 1, 2021, GAN completed the acquisition of Coolbet for a total purchase price of $218.1 million, comprising cash and ordinary shares[28] - In September 2022, GAN launched GAN Sports, a modern sportsbook technology platform adapted for the U.S. B2B market, expanding into jurisdictions like Massachusetts and Nevada in 2023[30] Merger Agreement GAN entered a merger with SEGA SAMMY CREATION INC. for $1.97/share, expected to close in Q2 2025 - On November 7, 2023, GAN Limited entered into a Merger Agreement with SEGA SAMMY CREATION INC., under which GAN will become a wholly-owned subsidiary of SEGA SAMMY CREATION[31] - At the effective time of the Merger, each ordinary share will be converted into the right to receive $1.97 per share in cash[33] - The Merger is subject to customary closing conditions, including shareholder approval (received February 13, 2024) and regulatory approvals, with closing anticipated in the second quarter of 2025[32][33] iGaming and Online Sportsbook Industry and Background U.S. and Canada rapidly legalized sports betting and iGaming since 2018, creating new market opportunities - The Supreme Court overturned PASPA on May 14, 2018, allowing U.S. states to regulate sports betting and real money iGaming[34] - Canada passed Bill C-218 on June 22, 2021, removing the federal ban on single-game sports betting, with Ontario becoming the first province to regulate online gambling in April 2022[35] - As of December 31, 2024, 38 U.S. states and Washington D.C. have approved legalized sports betting, and real money iGaming is legal in eight states[36] Our Operating Models GAN's B2B provides a unified platform, while B2C offers direct-to-customer online betting via proprietary technology - The B2B segment's product strategy for GameSTACK and GAN Sports is to provide a unified, flexible, and highly scalable platform for real money iGaming and online sports betting[40] - The B2C segment offers real-money online sports betting, online casino, and peer-to-peer poker directly to customers through www.coolbet.com in Northern Europe and Latin America[43] - Coolbet utilizes proprietary technology and sportsbook software to provide a differentiated entertainment experience and enable rapid entry into new international markets[43] Our Products and Service Offerings GAN offers comprehensive B2B platforms and services, alongside its B2C Coolbet gaming site B2B GameSTACK Platform, Development and Support Services GameSTACK is a comprehensive, turnkey U.S. iGaming platform, offering account management, marketing, and compliance tools - GameSTACK is a turnkey, proprietary hosted software platform providing comprehensive tools for account setup, customer services, marketing, and converged gambling across land-based and internet channels[44] - The platform is optimized for real money iGaming (RMiG) in the U.S., featuring geolocation tracking, Know-Your-Customer processes, and a market-leading payments platform[47] GAN Sports retail and online sportsbook GAN Sports offers a complete turnkey online and retail sportsbook solution for U.S. casino operators - GAN Sports, developed from Coolbet technology, offers a complete turnkey solution for online and retail sports betting to U.S. casino operators, including self-service kiosks and mobile versions[50] Super Remote Gaming Server GameSTACK functions as a Super RGS, providing internet casino operators access to GAN's game content library for efficiency - GameSTACK can be configured as a 'super' remote gaming server (Super RGS) to provide existing internet casino operators with access to GAN's proprietary and third-party game content library, offering cost and time savings[51] Simulated Gaming Simulated Gaming extends U.S. casino brands online, integrating loyalty programs and sharing a common RMiG code base - The Simulated Gaming (SIM) product is designed for U.S. casino operators to extend their retail brand online, leveraging on-property rewards programs and using a common code base with GameSTACK for RMiG[52] iSight Back Office iSight offers operators daily back-office management tools, including content selection, player communications, and real-time analytics - iSight provides operators with day-to-day back-office management tools, including content selection, player communications, website layout, process automation, and real-time analytics[54] iBridge Framework The iBridge Framework links online players with loyalty offers by verifying them against offline loyalty databases - The proprietary iBridge Framework enables operators to engage online players with loyalty offers by automatically verifying new online players against existing offline loyalty databases[55] Development Services GAN provides platform development services, including initial deployment, ongoing software updates, and customization - GAN provides platform development services, including initial deployment of gaming hosting facilities and ongoing software updates for enhanced functionality or customization[56] Customer Support Services The company offers comprehensive term-based operational services, including turnkey marketing and 24/7 customer support - The company offers a range of term-based operational services, including full turnkey marketing (user acquisition, retention) and customer support (email, phone, live chat), with a 24/7 uptime guarantee[57] Non-U.S. B2C Product Offerings Coolbet.com operates outside the U.S., offering sports betting, casino, and poker in Northern Europe and Latin America - The B2C gaming site www.coolbet.com operates outside the U.S., predominantly in Northern Europe and Latin America, offering sports betting, poker, casino, live casino, and virtual sports[58] - Coolbet.com is built on proprietary software, including a sportsbook engine and risk management tools, allowing for rapid entry into new international markets with localized content[58] Sports Betting Coolbet manages an award-winning online sportsbook, providing pre-match and in-play wagers globally with expert-compiled odds - Coolbet manages an award-winning online sportsbook, offering various types of pre-match and in-play wagers on sporting events globally, with specialist odds compiled by in-house experts[60] Online Casino The online casino offers thousands of digital and live dealer games from recognized content creators, integrated into GAN's technology - The online casino offers thousands of digital and live dealer games from recognized content creators, integrated into GAN's proprietary technology, including over 8,500 third-party iGaming titles[61] Poker The poker offering allows registered customers to play real-time peer-to-peer cash games and tournaments on www.coolbet.com - The poker offering allows registered customers to play peer-to-peer poker in cash games and tournaments directly on www.coolbet.com in real-time[62] Competition GAN faces intense competition in B2B from content suppliers and technology providers, and in B2C from online operators - B2B operations compete with online casino content suppliers, retail casino operators developing proprietary online gaming capabilities, and other technology providers[63] - Principal competitive factors in B2B include rapid deployment, ease of integration, user registration/conversion, regulatory compliance, data security, and platform extensibility[64] - B2C operations compete against various online sportsbook and casino operators, with key competitive factors being customer experience, reliable odds, ease of use, and customer service[65] Customers and Ecosystem GAN's B2B serves casino operators, with FanDuel a key customer, while B2C serves over 1.9 million registered users - Principal B2B customers are retail casino operators and online casino brands seeking regulatory compliant, complete enterprise technology solutions[67][68] - For the year ended December 31, 2024, FanDuel accounted for 15.3% of total revenue (16.4% in 2023)[71] - FanDuel's exclusivity for casino gaming operations ended in January 2023, after which they pay a percentage of net gaming revenue; their current U.S. commercial contract expired in January 2025[72] - Coolbet.com had over 1.9 million registered customers as of December 31, 2024, with the majority of traffic from mobile users[74] Seasonality Online sports betting experiences seasonality driven by major sporting events, particularly football seasons and tournaments - Online sports betting operations experience seasonality based on the popularity of sporting events, particularly local and international football seasons and high-profile tournaments[75] Intellectual Property Rights GAN protects its intellectual property through copyright, trademark, trade secret laws, and contractual agreements - GAN relies on copyright, trademark, and trade secret laws, as well as license agreements and contractual protections, to safeguard its intellectual property[76] - As of December 31, 2024, the company had two registered trademarks in the United Kingdom related to its proprietary technology[77] Government Regulation GAN operates in a heavily regulated online gaming industry, requiring licenses and compliance with diverse international laws - The company is subject to extensive and evolving U.S. and foreign laws and regulations in the online gaming industry, with primary enforcement through regulatory licenses[79] - B2B operations are licensed and regulated by authorities in the U.K., Italy, Canada (Ontario), and numerous U.S. states, including New Jersey, Pennsylvania, Michigan, and Nevada[80] - B2C operations hold gaming licenses in Estonia, Malta, Mexico, Sweden, and Peru, and are subject to evolving data privacy regulations (e.g., GDPR, CCPA) and anti-money laundering laws[82][84] - GAN has an internal compliance program focusing on licensing, local gaming regulations, data protection, and anti-money laundering, utilizing tools like geolocation blocking and age verification[85][86] Social Responsibility GAN integrates responsible gaming tools into its platform to prevent problem gambling and ensures robust age verification - GAN integrates responsible gaming policies and tools into its GameSTACK software platform to detect and prevent problem gambling, offering features like deposit limits, wagering limits, self-exclusion, and cooling-off periods[89][90] - Teams are trained in responsible gaming to assist players, and robust age verification processes are in place to prevent minors from accessing gaming opportunities[90] Human Capital Resources As of December 31, 2024, GAN had 626 global employees, with a diverse workforce committed to competitive compensation and wellness - As of December 31, 2024, GAN had 626 total employees (621 full-time, 5 part-time), with approximately 90% located outside the United States[92] Workforce Distribution (December 31, 2024) | Category | Count / Percentage | | :--------------- | :----------------- | | By Region: | | | Europe | 511 | | United States | 62 | | Latin America | 31 | | Rest of World | 22 | | By Function: | | | Operations | 87% | | Non-operations | 13% | - The company is committed to a diverse global workforce, fostering inclusivity, offering competitive market-based wages and benefits, and supporting employee wellness and flexible working models[95][96][97] Information about Segment and Geographic Revenue Segment and geographic revenue information is detailed in Note 13 to the Consolidated Financial Statements - Segment and geographic revenue information is detailed in Note 13 to the Consolidated Financial Statements[100] Available Information GAN's SEC filings, including the Form 10-K, are available on its investor website and the SEC's website - The company's Annual Report on Form 10-K and other SEC filings are available free of charge on its investor website (https://www.investors.gan.com) and the SEC's website (https://www.sec.gov)[101](index=101&type=chunk) Item 1A. Risk Factors Investing in GAN involves risks from financial performance, competition, merger uncertainties, regulatory compliance, and international operations Risks Related to Our Business GAN faces risks from historical losses, intense competition, customer concentration, sports betting losses, cybersecurity, and IP reliance - GAN has historically incurred net losses and negative cash flows, with an accumulated deficit of $317.3 million as of December 31, 2024, and a net loss of $8.0 million for the year[103] - The company operates in a rapidly evolving and highly competitive online gaming industry, requiring continuous development and adaptation to new technologies and regulatory changes[104][106] - Customer concentration is a significant risk; FanDuel accounted for 15.3% of total revenue and 42.4% of total accounts receivable for the year ended December 31, 2024[111] - B2C sports betting operations are exposed to losses from inaccurate odds determination or unfavorable event outcomes, and the business is sensitive to reductions in discretionary consumer spending[114][117] - The company faces significant cybersecurity risks, including potential breaches, system failures, fraud, and theft, which could damage its reputation, lead to financial losses, or incur regulatory fines[121][124] - Reliance on third-party content providers and the inability to protect intellectual property rights are key risks that could adversely affect competitive position and revenue[129][131] Risks Related to the Merger The proposed merger faces risks from regulatory delays, potential termination, and associated financial penalties - The completion of the merger with SEGA SAMMY CREATION INC. is subject to various regulatory approvals (gaming authorities, antitrust, CFIUS) which may be delayed or impose adverse conditions[143][144] - The Merger Agreement may be terminated if conditions are not fulfilled, or if gaming regulatory authorities impose restrictions that would materially adversely affect the combined company[145][146] - Failure to complete the Merger could result in a $6.0 million termination fee, substantial costs, diversion of management attention, and a negative impact on the company's stock price and future business[147][149] Risks Related to Regulation GAN operates in a heavily regulated online gaming environment, facing compliance costs, evolving tax laws, data privacy, and internal control weaknesses - The online gaming industry is heavily regulated, and failure to obtain or maintain applicable licenses or comply with evolving requirements could disrupt business operations and lead to fines or license revocation[148][152] - The proliferation of new and changing regulatory frameworks in the rapidly expanding online gaming industry increases compliance costs and the risk of non-compliance[154][155] - A significant portion of B2C revenue comes from 'unregulated' markets, where changes in regulation could lead to loss of business or increased expenses, and evolving tax regulations could result in additional tax liabilities[156][157] - Compliance with evolving data privacy regulations (e.g., GDPR, CCPA) may increase operating costs, and any violation could damage reputation, incur fines, or lead to lawsuits[159][160] - The company has identified a material weakness in internal control over financial reporting related to the segregation of duties over journal entry preparation and approval within the B2C segment[162][163] Risks Related to our International Operations International operations expose GAN to foreign currency fluctuations, diverse tax regimes, and potential PFIC classification for U.S. shareholders - Operating in many countries with significant operations outside the U.S. subjects the company to additional costs and risks, including challenges from cultural differences, political unrest, and varying tax regimes[165] - Fluctuations in foreign currency values (e.g., British Pound, Euro, Mexican Peso) can adversely affect reported revenue and profits due to global operations and transactions in multiple currencies[167] - Expansion subjects the company to taxation in numerous jurisdictions, and changes in tax laws or their interpretation could result in additional tax liabilities[169][170] - U.S. Holders of ordinary shares could face material adverse tax consequences if the company is classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes[172][174] Risks Related to Corporate Governance Matters Corporate governance risks include gaming law restrictions on share ownership, difficulties enforcing U.S. judgments, and anti-takeover provisions - Ownership of ordinary shares is restricted by gaming laws and company by-laws, potentially requiring persons found 'unsuitable' by gaming authorities to dispose of their shares[175][176] - As a Bermuda company, enforcing judgments obtained in U.S. courts against the company or its officers/directors may be difficult due to differences in legal systems and public policy[177][179] - The company's by-laws contain a broad waiver restricting shareholders from bringing legal action against officers and directors, except for fraud/dishonesty or violations of specific U.S. securities acts[181] - Provisions in the by-laws, such as restrictions on director nominations and the right to force sale of shares from 'unsuitable' persons, may discourage a change of control[182][183] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - None[184] Item 1C. Cybersecurity GAN maintains robust Information Security programs, aligned with ISO and NIST frameworks, overseen by a CISO and Board - The company collects, processes, stores, and transmits sensitive player data and has implemented Information Security programs aligned with ISO and NIST cybersecurity frameworks[185] - A dedicated Information Security team, led by a Vice President of Global Information Security (CISO) with over 20 years of experience, manages and monitors the security program[186][187] - Security measures include continuous risk assessments, vulnerability scans, periodic penetration testing, due diligence on technology vendors, and employee training[186] - The Board of Directors oversees cybersecurity and information technology matters, receiving updates from the CISO and CTO[188] Item 2. Properties GAN's headquarters is in Las Vegas, with leased regional offices in Bulgaria, Israel, and Estonia, deemed adequate - The corporate headquarters is in Las Vegas, Nevada, and regional offices are located in Bulgaria, Israel, and Estonia[189] - All corporate and regional offices are leased facilities[189] - The B2C segment operates out of European regional offices, while the B2B segment operates from the Las Vegas headquarters[189] Item 3. Legal Proceedings The company is involved in routine legal actions, none expected to materially impact its financial position or operations - The company may be subject to legal actions and claims arising from contracts or other matters in the ordinary course of business[190] - Management is not aware of any pending or threatened litigation considered to be other than routine legal proceedings[190] - The ultimate disposition of routine legal proceedings is not expected to have a material adverse effect on the company's financial position, results of operations, or liquidity[190] Item 4. Mine Safety Disclosures This item is not applicable to GAN Limited - Not applicable[191] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities GAN's ordinary shares are listed on Nasdaq, with no cash dividends or Q4 2024 share repurchases - GAN Limited's ordinary shares have been listed on The Nasdaq Capital Market under the symbol "GAN" since May 7, 2020[192] - The company has never declared or paid any cash dividends on its ordinary shares and intends to retain future earnings to finance business operations and expansion[194] - No share repurchases were made during the quarter ended December 31, 2024[195] Item 6. [Reserved] This item is reserved and contains no information - This item is reserved[196] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations GAN reported a reduced net loss of $8.0 million in 2024, with revenue growth from B2B expansion and B2C Europe, despite liquidity concerns Overview GAN operates B2B and B2C segments, reporting a net loss of $8.0 million in 2024, with future profitability expected from growth and cost savings - GAN Limited operates two reportable segments: B2B (SaaS solutions for iGaming and online sports betting) and B2C (Coolbet online sports betting and casino platform)[199] - The company reported a net loss of $8.0 million for the year ended December 31, 2024, an improvement from a $34.4 million net loss in 2023[203] - Future profitability is expected to be driven by organic growth, expansion into new regulated jurisdictions, margin expansion from Coolbet technology integration, workforce streamlining, Super RGS rollout, and B2C organic growth[203] Critical Accounting Policies and Estimates Revenue recognition, business combinations, share-based compensation, intangible asset impairment, and income taxes require significant management judgment Revenue Recognition Revenue recognition involves significant judgment in determining performance obligations, selling prices, and timing of control transfer - Revenue recognition requires significant judgment in determining performance obligations, stand-alone selling prices, transaction price allocation, and timing of control transfer, especially for bundled or highly customized solutions[205] Business Combinations Fair value determination for acquired assets and liabilities in business combinations requires significant management judgment and estimates - Determining the fair value of acquired assets and assumed liabilities in business combinations requires significant management judgment and estimates, including future cash flows, discount rates, and market prices[209] Share-Based Compensation Equity-classified share-based awards are expensed over the vesting period, measured at fair value using a Black-Scholes model with various estimates - Equity-classified share-based awards are measured at fair value at the grant date and expensed over the vesting period, using a Black-Scholes model that requires estimates for expected term, volatility, dividend yield, and risk-free interest rate[212][213][214][215][216] Capitalization and Impairment of Internally Generated Intangible Assets Management judges capitalization and useful lives of software development costs, reviewing intangible assets for impairment based on future cash flow estimates - Management exercises judgment in capitalizing development costs and determining the useful lives of software products, which are regularly reviewed for appropriateness[218] - Intangible assets are reviewed for impairment when events indicate the carrying amount may not be recoverable, requiring estimates related to future cash flows and discount rates[219] Income Taxes Income tax accounting requires significant judgment in interpreting tax laws, determining effective rates, and assessing deferred tax asset realizability - Income tax accounting requires significant judgment in interpreting tax laws across multiple jurisdictions, determining the effective tax rate, and assessing the realizability of deferred tax assets and uncertain tax positions[220][221][223] Consolidated Results of Operations GAN significantly reduced its operating and net losses in 2024, driven by revenue growth and decreased operating costs Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 The company reported a 4.3% revenue increase and an 88.1% reduction in operating loss, leading to a 76.9% decrease in net loss in 2024 Consolidated Results of Operations (2024 vs. 2023) | Metric | Year Ended Dec 31, 2024 (in thousands) | Year Ended Dec 31, 2023 (in thousands) | Change (Amount) | Change (Percent) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :---------------- | :--------------- | | Revenue | $134,998 | $129,419 | $5,579 | 4.3% | | Total operating costs and expenses | $138,598 | $159,733 | $(21,135) | (13.2)% | | Operating loss | $(3,600) | $(30,314) | $26,714 | (88.1)% | | Net loss | $(7,959) | $(34,444) | $26,485 | (76.9)% | Geographic Information U.S. and European revenues grew significantly in 2024, offsetting declines in Latin America and the rest of the world Consolidated Revenue by Geographic Region (2024 vs. 2023) | Region | Year Ended Dec 31, 2024 (in thousands) | Year Ended Dec 31, 2023 (in thousands) | Percentage of Revenue 2024 | Percentage of Revenue 2023 | Change (Amount) | Change (Percent) | | :---------------- | :------------------------------------- | :------------------------------------- | :------------------------- | :------------------------- | :---------------- | :--------------- | | United States | $42,277 | $31,758 | 31.3% | 24.5% | $10,519 | 33.1% | | Europe | $52,324 | $47,788 | 38.8% | 36.9% | $4,536 | 9.5% | | Latin America | $31,467 | $39,935 | 23.3% | 30.9% | $(8,468) | (21.2)% | | Rest of the world | $8,930 | $9,938 | 6.6% | 7.7% | $(1,008) | (10.1)% | | Total revenue | $134,998 | $129,419 | 100.0% | 100.0% | $5,579 | 4.3% | - Finland revenue was $17.9 million in 2024 (vs. $16.7 million in 2023), Norway revenue was $19.5 million (vs. $16.0 million), Chile revenue was $29.6 million (vs. $36.4 million), and Canada revenue was $8.9 million (vs. $9.9 million)[226] Revenue Total revenue increased by $5.6 million (4.3%) in 2024, driven by B2B expansion and B2C European growth, despite Latin American declines - Total revenue increased by $5.6 million (4.3%) to $135.0 million in 2024, driven by B2B expansion in Nevada and Michigan (migration services) and B2C growth in Europe (player activity, higher margins)[227] - The increase was partially offset by declines in B2C operations in Latin America due to reduced player activity and unfavorable exchange rates[227] Cost of Revenue Cost of revenue increased by $1.7 million (4.5%) in 2024, primarily due to higher gaming taxes in Latin America and B2B expansion in Nevada - Cost of revenue increased by $1.7 million (4.5%) to $40.4 million in 2024, primarily due to increased gaming taxes in Latin American B2C operations and the expansion of B2B offerings in Nevada[228] Sales and Marketing Sales and marketing expense decreased by $3.7 million (12.7%) in 2024, mainly due to an affiliate marketing strategy in Latin America - Sales and marketing expense decreased by $3.7 million (12.7%) to $25.3 million in 2024, mainly attributable to the deployment of an affiliate marketing strategy in Latin America, which reduced upfront customer acquisition costs[229] Product and Technology Product and technology expense decreased by $4.0 million (10.5%) in 2024, primarily due to reduced compensation and headcount from cost-saving initiatives - Product and technology expense decreased by $4.0 million (10.5%) to $34.3 million in 2024, primarily due to overall reductions in compensation costs and headcount from ongoing cost-saving initiatives[230] General and Administrative General and administrative expense decreased by $5.7 million (15.5%) in 2024, mainly due to reduced compensation and headcount from cost-saving initiatives - General and administrative expense decreased by $5.7 million (15.5%) to $31.0 million in 2024, mainly due to overall reductions in compensation costs and headcount from ongoing cost-saving initiatives[231] Depreciation and Amortization Depreciation and amortization expense decreased by $9.5 million (55.5%) in 2024, primarily due to fully amortized assets - Depreciation and amortization expense decreased by $9.5 million (55.5%) to $7.6 million in 2024, primarily due to the reduction of depreciable assets that were fully amortized compared to the prior period[233] Income Tax Expense The company recorded an income tax benefit of $0.3 million in 2024, reflecting a mix of foreign earnings and unrealized loss carryforwards - The company recorded an income tax benefit of $0.3 million in 2024 (effective tax rate of 3.3%), compared to an income tax expense of $0.1 million in 2023 (effective tax rate of -0.4%)[234] - The difference is primarily due to a mix of earnings in foreign jurisdictions subject to current and deferred tax, and loss carryforwards in certain jurisdictions not expected to be realized[234] Segment Operating Results B2B revenue increased significantly due to U.S. expansion, while B2C revenue slightly decreased due to Latin American player activity Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 B2B revenue grew 17.5% and segment contribution increased 18.8%, while B2C revenue decreased 2.3% and contribution fell 4.8% Segment Operating Results (2024 vs. 2023) | Segment | Year Ended Dec 31, 2024 (in thousands) | Year Ended Dec 31, 2023 (in thousands) | Change (Amount) | Change (Percent) | | :-------------------- | :------------------------------------- | :------------------------------------- | :---------------- | :--------------- | | B2B Revenue | $50,716 | $43,154 | $7,562 | 17.5% | | B2B Cost of revenue | $9,459 | $8,424 | $1,035 | 12.3% | | B2B segment contribution | $41,257 | $34,730 | $6,527 | 18.8% | | B2C Revenue | $84,282 | $86,265 | $(1,983) | (2.3)% | | B2C Cost of revenue | $30,972 | $30,276 | $696 | 2.3% | | B2C segment contribution | $53,310 | $55,989 | $(2,679) | (4.8)% | B2B Segment B2B revenue increased by $7.6 million (17.5%) due to U.S. expansion and migration services, with a corresponding rise in cost of revenue - B2B revenue increased by $7.6 million (17.5%) primarily due to expansion in Nevada and recognition of migration service revenue and termination fees in Michigan and New York[237] - B2B cost of revenue increased by $1.0 million (12.3%) mainly due to the expansion of B2B offerings in Nevada[238] B2C Segment B2C revenue decreased by $2.0 million (2.3%) due to reduced Latin American player activity and unfavorable exchange rates, partially offset by European growth - B2C revenue decreased by $2.0 million (2.3%) primarily due to reduced player activity and unfavorable exchange rates in Latin America, partially offset by growth in Europe[239] - B2C cost of revenue remained relatively consistent with the prior year period[240] Non-GAAP Financial Measures Adjusted EBITDA is used by management to assess financial performance and compare core business operations Adjusted EBITDA Adjusted EBITDA improved significantly to $8.6 million in 2024 from a negative $8.4 million in 2023, reflecting operational improvements - Management uses Adjusted EBITDA to measure financial performance, comparing operating performance period-to-period and assessing core business against industry peers by removing effects of non-core items[241] Adjusted EBITDA Reconciliation to Net Loss (2024 vs. 2023) | Metric | Year Ended Dec 31, 2024 (in thousands) | Year Ended Dec 31, 2023 (in thousands) | | :------------------------------------------ | :------------------------------------- | :------------------------------------- | | Net loss | $(7,959) | $(34,444) | | Income tax expense (benefit) | $(275) | $138 | | Interest expense | $4,607 | $5,003 | | Gain on amendment of Content Licensing Agreement | — | $(9,718) | | Loss on debt extinguishment | — | $8,784 | | Contingent liability and related revaluation | — | $(830) | | Depreciation and amortization | $7,634 | $17,161 | | Share-based compensation and related expense | $3,688 | $5,511 | | Transaction related expenses | $888 | — | | Adjusted EBITDA | $8,583 | $(8,395) | Key Performance Indicators Key performance indicators show strong B2B Gross Operator Revenue growth but a declining B2B Take Rate, while B2C active customers decreased and sports margin improved Key Performance Indicators (2024 vs. 2023) | KPI | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | Change (Amount) | Change (Percent) | | :-------------------------- | :---------------------- | :---------------------- | :---------------- | :--------------- | | B2B Gross Operator Revenue (in millions) | $2,514.6 | $1,657.8 | $856.8 | 51.7% | | B2B Take Rate | 2.0% | 2.6% | (0.6)% | (22.5)% | | B2C Active Customers (in thousands) | 436 | 500 | (64) | (12.8)% | | B2C Marketing Spend Ratio | 21.7% | 23.6% | (1.9)% | (8.1)% | | B2C Sports Margin | 7.5% | 7.0% | 0.5% | 6.9% | B2B Gross Operator Revenue B2B Gross Operator Revenue increased by $856.8 million (51.7%) in 2024, driven by organic growth in key U.S. and Canadian markets - B2B Gross Operator Revenue increased by $856.8 million (51.7%) to $2,514.6 million in 2024, driven primarily by organic growth in Pennsylvania, Michigan, New Jersey, Connecticut, and Ontario[246][248] B2B Take Rate The B2B Take Rate decreased by 0.6 percentage points (22.5%) in 2024, primarily due to lower contractual revenue rates after an exclusivity period ended - The B2B Take Rate decreased by 0.6 percentage points (22.5%) to 2.0% in 2024, primarily due to a decrease in contractual revenue rates following the expiration of an exclusivity period with a B2B customer in 2023[246][250] B2C Active Customers B2C Active Customers decreased by 64 thousand (12.8%) in 2024, mainly due to reduced customer acquisition efforts in Latin America - B2C Active Customers decreased by 64 thousand (12.8%) to 436 thousand in 2024, primarily driven by reduced customer acquisition in Latin America[246][252] B2C Marketing Spend Ratio The B2C Marketing Spend Ratio decreased by 1.9 percentage points (8.1%) in 2024, primarily due to affiliate marketing strategies in Latin America - The B2C Marketing Spend Ratio decreased by 1.9 percentage points (8.1%) to 21.7% in 2024, primarily due to the deployment of affiliate marketing strategies in Latin America[246][254] B2C Sports Margin B2C Sports Margin increased by 0.5 percentage points (6.9%) in 2024, primarily attributed to favorable outcomes of individual sports events - B2C Sports Margin increased by 0.5 percentage points (6.9%) to 7.5% in 2024, primarily attributable to the outcomes of individual sports events[246][256] Liquidity and Capital Resources GAN faces going concern uncertainty due to the FanDuel contract expiration and debt maturity, despite generating positive cash from operations in 2024 Sources of Liquidity GAN had $38.7 million cash on hand as of December 31, 2024, but faces going concern doubt due to contract expiration and debt maturity - As of December 31, 2024, the company had an accumulated deficit of $317.3 million and incurred a net loss of $8.0 million for the year, generating $5.8 million in cash from operations[257] - Cash on hand totaled $38.7 million as of December 31, 2024, with liabilities to users at $9.9 million[257] - The Amended Credit Facility, with a principal balance of $42.0 million, matures on April 14, 2026[259] - The expiration of the U.S. commercial contract with FanDuel in January 2025 and the maturity of the Amended Credit Facility in April 2026 raise substantial doubt about the company's ability to continue as a going concern, though mitigation plans are in place[260][261] Material Cash Commitments Primary cash uses include working capital, content licensing, and software development, with capital expenditures decreasing in 2024 - Primary uses of cash include ongoing working capital needs, content licensing, and developing/maintaining proprietary software platforms[264] - The Content Licensing Agreement with a third-party provider concluded in March 2024, with the remaining $2.2 million liability settled[265] - Capital expenditures for investing activities were $3.1 million in 2024 (vs. $6.8 million in 2023), including $2.3 million for capitalized software development costs[267] Cash Flow Analysis Operating cash flow significantly improved in 2024, turning positive, while investing cash outflow decreased Summary of Cash Flow Activities (2024 vs. 2023) | Activity | Year Ended Dec 31, 2024 (in thousands) | Year Ended Dec 31, 2023 (in thousands) | Change (Amount) | Change (Percent) | | :------------------------------------ | :------------------------------------- | :------------------------------------- | :---------------- | :--------------- | | Net cash provided by (used in) operating activities | $5,813 | $(3,565) | $9,378 | n.m. | | Net cash used in investing activities | $(3,130) | $(6,815) | $3,685 | (54.1)% | | Net cash provided by financing activities | $2 | $1,347 | $(1,345) | (99.9)% | | Effect of foreign exchange rates on cash | $(2,521) | $1,691 | $(4,212) | n.m. | | Net increase (decrease) in cash | $164 | $(7,342) | $7,506 | n.m. | - Net cash provided by operating activities increased by $9.4 million, primarily due to a decrease in net loss after adjustments[269] - Net cash used in investing activities decreased by $3.7 million, mainly due to reduced capitalized software development costs and lower property and equipment purchases[270] Item 7A. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, GAN Limited is not required to provide market risk disclosures - As a smaller reporting company, GAN Limited is not required to provide the information for this item[272] Item 8. Financial Statements and Supplementary Data This section presents GAN's audited consolidated financial statements for 2024 and 2023, with an unqualified opinion from Grant Thornton LLP Report of Independent Registered Public Accounting Firm Grant Thornton LLP issued an unqualified opinion on GAN's 2024 and 2023 consolidated financial statements, affirming fair presentation in accordance with U.S. GAAP - Grant Thornton LLP issued an unqualified opinion on GAN Limited's consolidated financial statements for the years ended December 31, 2024 and 2023, stating they present fairly, in all material respects, the financial position and results of operations in conformity with U.S. GAAP[274][277] - The audit did not include an opinion on the effectiveness of the company's internal control over financial reporting[276] Consolidated Balance Sheets The consolidated balance sheets show total assets of $77.1 million and a shareholders' deficit of $(11.1 million) as of December 31, 2024 Consolidated Balance Sheets (as of December 31, 2024 and 2023) | ASSETS (in thousands) | Dec 31, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $38,742 | $38,578 | | Accounts receivable, net | $7,043 | $11,417 | | Prepaid expenses | $3,165 | $3,344 | | Other current assets | $3,879 | $3,202 | | Total current assets | $52,829 | $56,541 | | Capitalized software development costs, net | $7,430 | $8,370 | | Intangible assets, net | $8,825 | $12,358 | | Operating lease right-of-use assets, net | $3,417 | $4,340 | | Other assets | $4,645 | $5,895 | | Total assets | $77,146 | $87,504 | | LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | | | | Accounts payable | $5,615 | $6,971 | | Accrued compensation and benefits | $6,680 | $7,849 | | Accrued content license fees | $1,757 | $4,024 | | Liabilities to users | $9,853 | $10,185 | | Current operating lease liabilities | $912 | $804 | | Other current liabilities | $6,351 | $6,891 | | Total current liabilities | $31,168 | $36,724 | | Deferred income taxes | $3,169 | $3,793 | | Long-term debt | $46,875 | $42,189 | | Non-current operating lease liabilities | $2,528 | $3,577 | | Other liabilities | $4,547 | $5,825 | | Total liabilities | $88,287 | $92,108 | | Ordinary shares | $457 | $451 | | Additional paid-in capital | $339,720 | $336,552 | | Accumulated deficit | $(317,264) | $(309,305) | | Accumulated other comprehensive loss | $(34,054) | $(32,302) | | Total shareholders' equity (deficit) | $(11,141) | $(4,604) | | Total liabilities and shareholders' equity (deficit) | $77,146 | $87,504 | Consolidated Statements of Operations The consolidated statements of operations show a net loss of $8.0 million for 2024, a significant improvement from $34.4 million in 2023 Consolidated Statements of Operations (Years Ended December 31, 2024 and 2023) | (in thousands, except share and per share amounts) | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :------------------------------------------------- | :---------------------- | :---------------------- | | Revenue | $134,998 | $129,419 | | Operating costs and expenses: | | | | Cost of revenue | $40,431 | $38,700 | | Sales and marketing | $25,303 | $28,972 | | Product and technology | $34,246 | $38,243 | | General and administrative | $30,984 | $36,657 | | Depreciation and amortization | $7,634 | $17,161 | | Total operating costs and expenses | $138,598 | $159,733 | | Operating loss | $(3,600) | $(30,314) | | Other loss, net | $4,634 | $3,992 | | Loss before income taxes | $(8,234) | $(34,306) | | Income tax (benefit) expense | $(275) | $138 | | Net loss | $(7,959) | $(34,444) | | Loss per share, basic and diluted | $(0.18) | $(0.78) | | Weighted average ordinary shares outstanding, basic and diluted | 45,403,847 | 44,180,600 | Consolidated Statements of Comprehensive Loss The consolidated statements of comprehensive loss show a total comprehensive loss of $(9.7 million) in 2024, including foreign currency adjustments Consolidated Statements of Comprehensive Loss (Years Ended December 31, 2024 and 2023) | (in thousands) | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :------------------------------------ | :---------------------- | :---------------------- | | Net loss | $(7,959) | $(34,444) | | Other comprehensive loss, net of tax: | | | | Foreign currency translation adjustments | $(1,752) | $1,496 | | Comprehensive loss | $(9,711) | $(32,948) | Consolidated Statements of Changes in Shareholders' Equity (Deficit) Shareholders' equity (deficit) decreased to $(11.1 million) by December 31, 2024, primarily due to the net loss and foreign currency adjustments Consolidated Statements of Changes in Shareholders' Equity (Deficit) (Years Ended December 31, 2024 and 2023) | (in thousands, except share amounts) | Ordinary Shares (Shares) | Ordinary Shares (Amount) | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Shareholders' Equity (Deficit) | | :----------------------------------- | :----------------------- | :----------------------- | :------------------------- | :-------------------- | :----------------------------------- | :----------------------------------- | | Balance at January 1, 2023 | 42,894,211 | $429 | $328,998 | $(274,861) | $(33,798) | $20,768 | | Net loss | — | — | — | $(34,444) | — | $(34,444) | | Foreign currency translation adjustments | — | — | — | — | $1,496 | $1,496 | | Share-based compensation | — | — | $5,246 | — | — | $5,246 | | Restricted share activity | 829,895 | $8 | $306 | — | — | $314 | | Repurchase of restricted shares to pay tax liability | (142,004) | $(1) | $(212) | — | — | $(213) | | Issuance of ordinary shares upon exercise of share options | 181,516 | $1 | $201 | — | — | $202 | | Issuance of ordinary shares upon ESPP purchases | 57,960 | $1 | $63 | — | — | $64 | | Issuance of ordinary shares in connection with Content Provider Agreement | 1,250,000 | $13 | $1,950 | — | — | $1,963 | | Balance at December 31, 2023 | 45,071,578 | $451 | $336,552 | $(309,305) | $(32,302) | $(4,604) | | Net loss | — | — | — | $(7,959) | — | $(7,959) | | Foreign currency translation adjustments | — | — | — | — | $(1,752) | $(1,752) | | Share-based compensation | — | — | $3,554 | — | — | $3,554 | | Restricted share activity | 753,781 | $8 | $(7) | — | — | $1 | | Repurchase of restricted shares to pay tax liability | (261,390) | $(3) | $(380) | — | — | $(383) | | Issuance of ordinary shares upon exercise of share options | 137,587 | $1 | — | — | — | $1 | | Balance at December 31, 2024 | 45,701,556 | $457 | $339,720 | $(317,264) | $(34,054) | $(11,141) | Consolidated Statements of Cash Flows Operating activities generated $5.8 million in cash in 2024, a significant improvement from a cash outflow in 2023 Consolidated Statements of Cash Flows (Years Ended December 31, 2024 and 2023) | (in thousands) | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :------------------------------------ | :---------------------- | :---------------------- | | Net cash provided by (used in) operating activities | $5,813 | $(3,565) | | Net cash used in investing activities | $(3,130) | $(6,815) | | Net cash provided by financing activities | $2 | $1,347 | | Effect of foreign exchange rates on cash | $(2,521) | $1,691 | | Net increase (decrease) in cash | $164 | $(7,342) | | Cash and cash equivalents, beginning of period | $38,578 | $45,920 | | Cash and cash equivalents, end of period | $38,742 | $38,578 | | Supplemental Cash Flow Information: | | | | Cash paid for: Interest | $2 | $1,068 | | Cash paid for: Income taxes | $438 | $331 | Notes to Consolidated Financial Statements These notes provide detailed information on GAN's operations, accounting policies, acquisitions, assets, debt, equity, and other financial matters NOTE 1 – NATURE OF OPERATIONS GAN is a Bermuda-based holding company with B2B and B2C segments, currently undergoing a merger with SEGA SAMMY CREATION INC - GAN Limited is a Bermuda-based holding company operating B2B (GameSTACK, GAN Sports) and B2C (Coolbet) segments in the online gaming industry[293][294] - The company entered into a Merger Agreement with SEGA SAMMY CREATION INC. on November 7, 2023, with GAN to become a wholly-owned subsidiary, and shareholders approved the merger on February 13, 2024[295][297] - The merger consideration is $1.97 per ordinary share in cash, and closing is anticipated in the second quarter of 2025, subject to regulatory approvals[296][297] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements adhere to U.S. GAAP, but going concern doubt exists due to contract expiration and debt maturity, despite compliance with covenants - The consolidated financial statements are prepared in accordance with U.S. GAAP and include the Parent and its wholly-owned subsidiaries[298] - As of December 31, 2024, the company had an accumulated deficit of $317.3 million and a net loss of $8.0 million for the year, raising substantial doubt about its ability to continue as a going concern due to the FanDuel contract expiration and debt maturity[299][302] - The Amended Credit Facility, with a principal balance of $42.0 million, matures on April 14, 2026, and the company was in compliance with all financial covenants as of December 31, 2024[301] - Revenue from B2B operations is primarily from its GameSTACK SaaS platform, with fees based on a percentage of casino operator's net gaming revenue or net sportsbook win, recognized over time[312][314] - Revenue from B2C gaming operations (sportsbook, casino, poker) is reported net of player winnings and bonuses, recognized at the conclusion of each contest or wager[323][324][325] - Cost of revenue primarily consists of variable costs such as content license fees, payment processing fees, platform technology costs, gaming duties, and sportsbook feed services[329] - The company is subject to income taxes in multiple jurisdictions and recognizes deferred tax assets and liabilities, with a valuation allowance applied to deferred tax assets not expected to be realized[358] NOTE 3 – ACQUISITION An amended Content Licensing Agreement with Ainsworth Game Technology, initially a $24.9 million business combination, was terminated in March 2024 - The Content Licensing Agreement with Ainsworth Game Technology, amended in April 2022, was accounted for as a business combination with a total consideration of $24.9 million[365][367] - In December 2022, the company recognized an impairment of $19.1 million associated with the identified intangible assets from this business combination[368] - A further amendment in March 2023 reduced the contract term to March 31, 2024, and decreased fixed fees payable, with the remaining liability settled in March 2024[369][370] NOTE 4 – PROPERTY AND EQUIPMENT, NET Net property and equipment totaled $3.0 million as of December 31, 2024, with depreciation expense of $1.5 million for the year Property and Equipment, Net (as of December 31, 2024 and 2023) | (in thousands) | Dec 31, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Fixtures, fittings and equipment | $4,323 | $5,052 | | Platform hardware | $1,817 | $2,251 | | Total property and equipment, cost | $6,140 | $7,303 | | Less: accumulated depreciation | $(3,111) | $(3,144) | | Total | $3,029 | $4,159 | - Depreciation expense related to property and equipment was $1,535 thousand for 2024 and $1,648 thousand for 2023[371] NOTE 5 – CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET Net capitalized software development costs were $7.4 million as of December 31, 2024, with amortization expense of $2.8 million for the year Capitalized Software Development Costs, Net (as of December 31, 2024 and 2023) | (in thousands) | Dec 31, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Capitalized software development costs | $12,456 | $10,759 | | Development in progress | $357 | $494 | | Total capitalized software development, cost | $12,813 | $11,253 | | Less: accumulated amortization | $(5,383) | $(2,883) | | Total | $7,430 | $8,370 | - Amortization expense related to capitalized software development costs was $2,785 thousand for 2024 and $1,972 thousand for 2023[373] NOTE 6 – INTANGIBLE ASSETS Net definite-lived intangible assets totaled $8.8 million as of December 31, 2024, with estimated amortization of $3.1 million in 2025 Definite-Lived Intangible Assets, Net (as of December 31, 2024 and 2023) | (in thousands) | Dec 31, 2024 Net Carrying Amount | Dec 31, 2023 Net Carrying Amount | | :-------------------------- | :------------------------------- | :------------------------------- | | Developed technology | $4,108 | $5,958 | | Customer relationships | $634 | $1,142 | | Trade names and trademarks | $2,795 | $3,660 | | Gaming licenses | $1,288 | $1,598 | | Total | $8,825 | $12,358 | - Amortization expense related to intangible assets was $3,315 thousand for 2024 and $13,543 thousand for 2023[375] Estimated Amortization Expense for Intangible Assets (Next Five Years) | Year | Amount (in thousands) | | :--- | :-------------------- | | 2025 | $3,114 | | 2026 | $2,666 | | 2027 | $2,094 | | 2028 | $932 | | 2029 | $19 | | Total | $8,825 | NOTE 7 – DEBT The Amended Credit Facility has a $42.0 million principal balance, maturing in April 2026, with $4.7 million in interest expense for 2024 - On April 13, 2023, the Credit Facility was amended, increasing the principal balance from $30.0 million to $42.0 million with 8.0% accrued paid-in-kind (PIK) interest, maturing on April 14, 2026[379][380] - The company incurred $7.3 million in prepayment premiums and $3.1 million in debt issuance costs related to the Amended Credit Facility[380] Long-Term Debt, Net (as of December 31, 2024) | (in thousands) | Amount | | :-------------------------- | :----- | | Principal | $48,305 | | Less unamortized debt issuance costs | $(1,430) | | Long-term debt, net | **$