GAN(US:GAN)2025-05-09 20:15PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents GAN Limited's unaudited condensed consolidated financial statements and detailed notes for Q1 2025 and Q4 2024 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | Change (k) | % Change | | :-------------------------------- | :------------- | :---------------- | :--------- | :------- | | Total assets | $75,156 | $77,146 | $(1,990) | -2.6% | | Total liabilities | $91,632 | $88,287 | $3,345 | 3.8% | | Total shareholders' deficit | $(16,476) | $(11,141) | $(5,335) | 47.9% | | Cash and cash equivalents | $39,942 | $38,742 | $1,200 | 3.1% | | Accounts receivable, net | $4,134 | $7,043 | $(2,909) | -41.3% | | Long-term debt | $48,092 | $46,875 | $1,217 | 2.6% | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (k) | % Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :------- | | Revenue | $29,366 | $30,651 | $(1,285) | -4.2% | | Operating costs and expenses | $34,417 | $33,954 | $463 | 1.4% | | Operating loss | $(5,051) | $(3,303) | $(1,748) | 52.9% | | Net loss | $(6,828) | $(4,160) | $(2,668) | 64.1% | | Loss per share, basic and diluted | $(0.15) | $(0.09) | $(0.06) | 66.7% | Condensed Consolidated Statements of Comprehensive Income (Loss) Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (k) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net loss | $(6,828) | $(4,160) | $(2,668) | | Foreign currency translation adjustments | $1,050 | $(767) | $1,817 | | Comprehensive loss | $(5,778) | $(4,927) | $(851) | Condensed Consolidated Statements of Changes in Shareholders' Equity (Deficit) Changes in Shareholders' Equity (Deficit) (in thousands) | Metric | Balance at Jan 1, 2025 | Net Loss | Foreign Currency Translation | Share-based Compensation | Balance at Mar 31, 2025 | | :-------------------------------- | :--------------------- | :------- | :--------------------------- | :----------------------- | :---------------------- | | Total Shareholders' (Deficit) Equity | $(11,141) | $(6,828) | $1,050 | $792 | $(16,476) | - Ordinary shares outstanding increased from 45,701,556 at January 1, 2025, to 46,153,365 at March 31, 202519 Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (k) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net cash provided by (used in) operating activities | $1,214 | $(280) | $1,494 | | Net cash used in investing activities | $(826) | $(727) | $(99) | | Net cash provided by financing activities | $0 | $3 | $(3) | | Effect of foreign exchange rates on cash | $812 | $(982) | $1,794 | | Net increase (decrease) in cash and cash equivalents | $1,200 | $(1,986) | $3,186 | | Cash and cash equivalents, end of period | $39,942 | $36,592 | $3,350 | Notes to Condensed Consolidated Financial Statements - GAN Limited operates as a B2B supplier of gaming systems (GameSTACK™, GAN Sports) and a B2C developer/operator of an online sports betting and casino platform (Coolbet brand) in Northern Europe, Latin America, and Canada24 - The company entered into a Merger Agreement with SEGA SAMMY CREATION INC. on November 7, 2023, with the merger expected to close in Q2 2025, converting each ordinary share into $1.97 cash252729 - Substantial doubt exists about the company's ability to continue as a going concern beyond April 14, 2026, if the merger does not close, due to the maturity of the Amended Credit Facility35 Revenue by Timing of Service Transfer (in thousands) | Revenue Type | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (k) | % Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :------- | | Services delivered at a point in time | $24,279 | $18,304 | $5,975 | 32.6% | | Services delivered over time | $5,087 | $12,347 | $(7,260) | -58.8% | | Total Revenue | $29,366 | $30,651 | $(1,285) | -4.2% | - One B2B customer accounted for 2.6% of total revenue in Q1 2025, a significant decrease from 19.8% in Q1 2024124 - Chile operations contributed 27.5% of total consolidated revenue in Q1 2025 (up from 21.0% in Q1 2024), despite ongoing regulatory uncertainty regarding VAT and the legality of online gaming142 - Ecuador imposed new tax obligations on sportsbook operations, leading to an accrued estimated tax liability of approximately $0.8 million as of July 1, 2024143 - A Synthetic Equity Addendum with Station Casinos LLC, tied to a change of control, is currently valued at approximately $0 due to the anticipated merger share price being below the $2.00 threshold and unmet revenue conditions144147 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operating results, segment performance, non-GAAP measures, liquidity, and going concern status Critical Accounting Policies and Estimates - No material changes occurred in critical accounting policies and estimates during the three months ended March 31, 2025, compared to those disclosed in the 2024 Annual Report on Form 10-K150 Forward-Looking Statements - Forward-looking statements are not guarantees of future performance, and actual results may differ significantly due to various factors, including those described in 'Item 1A. Risk Factors'152 - The company does not assume any obligation to update forward-looking statements unless required by law153 Overview - GAN Limited operates two reportable segments: B2B (SaaS solutions for iGaming and sports betting) and B2C (Coolbet online sports betting and casino platform)154 Net Loss (in thousands) | Period | Net Loss | | :-------------------------------- | :------- | | Three Months Ended March 31, 2025 | $(6,828) | | Three Months Ended March 31, 2024 | $(4,160) | - The company expects to achieve profitability through organic growth, expansion into new regulated jurisdictions, margin expansion from Coolbet integration, workforce streamlining, and new content offerings158 Consolidated Results of Operations Consolidated Results of Operations (in thousands) | Metric | Q1 2025 | Q1 2024 | Change (k) | % Change | | :-------------------------- | :------ | :------ | :--------- | :------- | | Revenue | $29,366 | $30,651 | $(1,285) | -4.2% | | Total operating costs and expenses | $34,417 | $33,954 | $463 | 1.4% | | Operating loss | $(5,051) | $(3,303) | $(1,748) | 52.9% | | Loss before income taxes | $(6,263) | $(4,409) | $(1,854) | 42.1% | | Net loss | $(6,828) | $(4,160) | $(2,668) | 64.1% | Consolidated Revenue by Geographic Region (in thousands) | Region | Q1 2025 | Q1 2024 | Change (k) | % Change | | :---------------- | :------ | :------ | :--------- | :------- | | United States | $4,735 | $9,092 | $(4,357) | -47.9% | | Europe | $15,466 | $11,604 | $3,862 | 33.3% | | Latin America | $8,414 | $6,896 | $1,518 | 22.0% | | Rest of the world | $751 | $3,059 | $(2,308) | -75.4% | | Total revenue | $29,366 | $30,651 | $(1,285) | -4.2% | Revenue - Revenue decreased by $1.3 million (4.2%) to $29.4 million in Q1 2025, primarily due to the expiration of a U.S. multistate B2B commercial contract162 - The decrease was partially offset by growth in the B2C segment, driven by increases in Latin America and Europe162 Cost of Revenue - Cost of revenue increased by $1.4 million (14.9%) to $10.7 million in Q1 2025, primarily due to increased gaming taxes in B2C operations in Latin America, driven by higher revenues159163 Sales and Marketing - Sales and marketing expense decreased by $0.1 million (1.7%) to $5.9 million in Q1 2025, mainly due to the deployment of an affiliate marketing strategy in Latin America, which reduced upfront customer acquisition costs159164 Product and Technology - Product and technology expense decreased by $1.8 million (18.2%) to $7.9 million in Q1 2025, primarily due to overall reductions in compensation costs and headcount from ongoing cost-saving initiatives159165 General and Administrative - General and administrative expense increased by $0.8 million (10.5%) to $7.9 million in Q1 2025, mainly due to the recording of a credit reserve related to a payment service provider (PSP)159166 Depreciation and Amortization - Depreciation and amortization expense increased by $0.2 million (9.5%) to $2.0 million in Q1 2025, primarily due to changes in the composition of depreciable assets159167 Income Tax Expense (Benefit) Income Tax Expense (Benefit) (in thousands) | Period | Income Tax Expense (Benefit) | Effective Tax Rate | | :-------------------------------- | :--------------------------- | :----------------- | | Three Months Ended March 31, 2025 | $565 | (9.0)% | | Three Months Ended March 31, 2024 | $(249) | 5.6% | - The difference in effective tax rate is primarily due to a mix of earnings in foreign jurisdictions subject to current or deferred tax and loss carryforwards not expected to be realized168 Segment Operating Results Segment Operating Results (in thousands) | Segment | Metric | Q1 2025 | Q1 2024 | Change (k) | % Change | | :---------------- | :---------------- | :------ | :------ | :--------- | :------- | | B2B | Revenue | $5,087 | $12,347 | $(7,260) | -58.8% | | | Cost of revenue | $2,191 | $2,081 | $110 | 5.3% | | | Segment contribution | $2,896 | $10,266 | $(7,370) | -71.8% | | B2C | Revenue | $24,279 | $18,304 | $5,975 | 32.6% | | | Cost of revenue | $8,518 | $7,242 | $1,276 | 17.6% | | | Segment contribution | $15,761 | $11,062 | $4,699 | 42.5% | B2B Segment - B2B revenue decreased by $7.3 million (58.8%) primarily due to the expiration of a multistate commercial contract171 - B2B cost of revenue increased by $0.1 million due to the expansion of B2B offerings in Nevada172 - B2B segment contribution decreased by 71.8% due to the significant revenue decline172 B2C Segment - B2C revenue increased by $6.0 million (32.6%) primarily due to increased player activity and higher margins in Europe and Latin America173 - B2C cost of revenue increased by $1.3 million primarily due to the increased revenues174 - B2C segment contribution increased by 42.5%, driven by the revenue growth174 Non-GAAP Financial Measures - Adjusted EBITDA is used as a non-GAAP measure to compare operating performance and assess core business against industry peers, excluding items not directly resulting from core operations175176 Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2025 | Q1 2024 | | :-------------------------------- | :------ | :------ | | Net loss | $(6,828) | $(4,160) | | Income tax expense (benefit) | $565 | $(249) | | Interest expense | $1,212 | $1,132 | | Depreciation and amortization | $2,013 | $1,839 | | Share-based compensation and related expense | $752 | $869 | | Credit reserve on PSP | $753 | $0 | | Transaction related costs | $22 | $0 | | Adjusted EBITDA | $(1,511) | $(569) | Key Performance Indicators Key Performance Indicators | KPI | Q1 2025 | Q1 2024 | Change | % Change | | :-------------------------------- | :------ | :------ | :------- | :------- | | B2B Gross Operator Revenue (in millions) | $144.6 | $632.0 | $(487.4) | -77.1% | | B2B Take Rate | 3.5% | 2.0% | 1.5% | 75.9% | | B2C Active Customers (in thousands) | 235 | 222 | 13 | 6.0% | | B2C Marketing Spend Ratio | 17.7% | 23.2% | -5.5% | -23.5% | | B2C Sports Margin | 8.6% | 5.7% | 2.9% | 50.4% | - The decrease in B2B Gross Operator Revenue was primarily driven by the expiration of a multistate commercial contract182 - The increase in B2B Take Rate was primarily driven by the expiration of a multistate commercial contract and a mix shift of revenue into higher take rate product offerings184 - The increase in B2C Active Customers was primarily driven by increased customer activity in Latin America and Europe186 - The decrease in B2C Marketing Spend Ratio was primarily driven by the deployment of affiliate marketing strategies in Latin America188 - The increase in B2C Sports Margin was primarily attributable to the outcomes of individual sporting events190 Liquidity and Capital Resources - Primary uses of cash include funding ongoing working capital needs and developing/maintaining proprietary software platforms191 - The company was in compliance with all financial covenants of its Credit Facility as of March 31, 2025, but potential future violations exist due to cash flow and net losses196 - Substantial doubt exists about the company's ability to continue as a going concern beyond April 14, 2026, if the merger does not close, due to the maturity of the Amended Credit Facility198 - Mitigation plans include deferral of hiring, exiting certain negative margin geographies, and reducing headcount to achieve cash flow targets197 Cash Flow Analysis (in thousands) | Activity | Q1 2025 | Q1 2024 | Change (k) | | :-------------------------------- | :------ | :------ | :--------- | | Net cash provided by (used in) operating activities | $1,214 | $(280) | $1,494 | | Net cash used in investing activities | $(826) | $(727) | $(99) | | Net cash provided by financing activities | $0 | $3 | $(3) | | Effect of foreign exchange rates on cash | $812 | $(982) | $1,794 | | Net increase (decrease) in cash and cash equivalents | $1,200 | $(1,986) | $3,186 | Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, GAN Limited is not required to provide detailed quantitative and qualitative disclosures about market risk - The company is not required to provide market risk disclosures as it qualifies as a smaller reporting company205 Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses in internal control over financial reporting, with remediation ongoing Evaluation of Disclosure Controls and Procedures - Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2025, due to identified material weaknesses in internal control over financial reporting208 - Despite the material weaknesses, management believes the condensed consolidated financial statements fairly present the company's financial position, results of operations, and cash flows208 Material Weakness in Internal Control Over Financial Reporting - A material weakness was identified in the company's internal control over financial reporting, specifically regarding the design of controls to evaluate risks from improper segregation of duties and the precision of manual controls for journal entry preparation and approval211 - This material weakness has not been resolved as of March 31, 2025211 Remediation Plans - The company is actively implementing measures to remediate the identified material weakness, including establishing appropriate controls to segregate journal entry preparation and formal, documented approvals212 - Remediation efforts are ongoing and subject to senior management and audit committee review, with full remediation expected once steps are completed and operating effectively for a sufficient period213214 Changes in Internal Controls Over Financial Reporting - Except for the ongoing remediation efforts for the identified material weakness, there were no other material changes in the company's internal control over financial reporting during the quarter215 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal actions but does not anticipate material adverse effects on its financial position or operations - The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business216 - Litigation outcomes are inherently uncertain and can adversely impact the company due to defense/settlement costs and diversion of management resources217 Item 1A. Risk Factors There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024218 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including merger agreements and required certifications - Exhibits include merger agreements with SEGA SAMMY CREATION INC. and certifications from the Chief Executive Officer and Chief Financial Officer220 SIGNATURES The report is formally signed by the Chief Executive Officer and Chief Financial Officer of GAN Limited - The report is signed by Seamus McGill, Chief Executive Officer, and Brian Chang, Chief Financial Officer, on May 9, 2025223