10-Q: Galaxy Gaming Reports Q3 Profit Amidst Merger Delay

Galaxy Gaming, Inc. reported a net income of $1.04 million for Q3 2025, a significant turnaround from a prior-year loss, despite a slight revenue decline and a delay in its acquisition by Evolution.

Summary

• Galaxy Gaming reported a net income of $1,039,139 for the three months ended September 30, 2025, a substantial improvement from a net loss of $2,197,914 in the same period of 2024.
• For the nine months ended September 30, 2025, the company reduced its net loss to $31,786, compared to a net loss of $1,746,309 in the prior year period.
• Total revenue for Q3 2025 decreased by 4.2% to $7,325,142, primarily due to a 90.3% decline in perpetual license sales of progressive gaming systems and a slight 0.3% dip in recurring core revenue.
• Digital revenues, net of royalties, increased by 11.5% to $2,805,343 for Q3 2025, reflecting expansion onto new customer sites and the continued success of competitive products.
• Selling, general, and administrative expenses decreased significantly by 35.8% in Q3 2025, largely due to a $1,934,107 reduction in legal expenses incurred related to the Evolution acquisition.
• Interest expense decreased by 62.0% in Q3 2025, from $2,293,239 to $872,101, following the refinancing of debt from Fortress to BMO in January 2025.
• The merger with Evolution Malta Holding Limited, approved by stockholders on November 12, 2024, has been extended to January 18, 2026, as the Gaming Approval Closing Condition was not met by the original October 18, 2025 deadline.
• The company anticipates regulatory consideration for the merger in December 2025 and closing prior to the end of calendar year 2025, subject to regulatory approval and satisfaction of all closing conditions.
• Cash and cash equivalents decreased significantly from $18,118,043 at December 31, 2024, to $3,334,579 at September 30, 2025, primarily due to cash used in debt refinancing.

Sentiment

Score: 7

Explanation: The company demonstrated strong financial improvements in profitability and effective cost control, particularly through debt refinancing, and digital revenue growth. However, the overall revenue decline in core business and the delay in the significant Evolution merger, coupled with ongoing litigation, introduce uncertainty. The positive financial turnaround is tempered by these strategic and operational challenges.

Positives

• Achieved net income of $1,039,139 for Q3 2025, a substantial improvement from a net loss of $2,197,914 in Q3 2024.
• Reduced net loss for the nine months ended September 30, 2025, to $31,786, significantly better than the $1,746,309 loss in the prior year period.
• Digital revenues (net of royalties) grew by 11.5% in Q3 2025 and 9.7% for the nine-month period, indicating strong performance in the iGaming sector.
• Selling, general, and administrative expenses decreased by 35.8% in Q3 2025 and 15.7% for the nine-month period, driven by reduced special project legal expenses and other cost controls.
• Interest expense decreased by 62.0% in Q3 2025 and 59.5% for the nine-month period due to successful debt refinancing with BMO, leading to lower interest rates and principal balance.
• Net cash provided by operating activities increased to $5,469,738 for the nine months ended September 30, 2025, up from $3,027,456 in the prior year period.
• Total stockholders' deficit was reduced from $(20,054,339) at December 31, 2024, to $(19,063,715) at September 30, 2025.

Negatives

• Total revenue decreased by 4.2% in Q3 2025 and 6.3% for the nine-month period, primarily due to declines in core revenue and perpetual license sales.
• Perpetual license sales of progressive gaming systems plummeted by 90.3% in Q3 2025 and 72.4% for the nine-month period, attributed to timing of customer purchases.
• Recurring core revenue experienced a slight decline of 0.3% in Q3 2025 and 1.6% for the nine-month period, impacted by casino closures and reduced revenue tied to licensed third-party intellectual property.
• Cash and cash equivalents significantly decreased from $18,118,043 at December 31, 2024, to $3,334,579 at September 30, 2025, largely due to cash used in debt refinancing.
• A loss on extinguishment of debt of $2,969,585 was recognized for the nine months ended September 30, 2025, related to the refinancing of the Fortress loan.
• Interest income decreased by 97.7% in Q3 2025 and 93.0% for the nine-month period, primarily due to lower cash balances.

Risks

• Ability to complete the Merger on proposed terms or anticipated timeline, or at all, including securing necessary gaming regulatory approvals and satisfaction of other closing conditions.
• Occurrence of any event, change, or circumstance that could lead to the termination of the Merger Agreement.
• Risks that the proposed Merger disrupts current plans and operations or diverts management/employee attention.
• Risk that certain restrictions during the Merger's pendency may impact the company's ability to pursue business opportunities or strategic transactions.
• Risk of potential difficulties in retaining and hiring key personnel and maintaining customer/third-party relationships due to the proposed Merger.
• Risk that the proposed Merger may involve unexpected costs and/or unknown or inestimable liabilities.
• Risk that the company's business may suffer due to uncertainty surrounding the proposed Merger.
• Risk of stockholder litigation in connection with the proposed Merger affecting timing/occurrence or resulting in significant costs.
• Effects relating to the announcement or consummation of the proposed Merger on the market price of common stock or operating results.
• Ability to enter and maintain strategic alliances, product placements, or installations in land-based casinos or grow iGaming business.
• Ability to garner new market share, secure licenses in new jurisdictions, or maintain existing licenses.
• Ability to successfully develop or acquire and sell proprietary products.
• Compliance with regulations, including changes in gaming and non-gaming related statutes and regulations.
• Unfavorable economic conditions in the US and worldwide.
• Changes in international trade policies and the impact of tariffs.
• Level of indebtedness and restrictions/covenants in loan agreements.
• Dependence on major customers (Client A: 19.2% of 9-month revenue, Client B: 3.3% of 9-month revenue).
• Protection of intellectual property and ability to license third-party IP rights.
• Failure to maintain the integrity of information technology systems, including cyber-attacks or other failures.

Future Outlook

The company anticipates regulatory consideration for the Evolution merger transaction to occur in December 2025, with the closing of the transaction expected prior to the end of the calendar year 2025, subject to regulatory approval and satisfaction of all closing conditions. The BMO term loan's maturity date is contingent on the merger's completion by December 31, 2025, otherwise it shortens to January 6, 2028. The company believes it has sufficient liquidity to fund operations and meet obligations for at least the next 12 months and intends to continue growth initiatives and investments despite potential legal and regulatory expenses.

Management Comments

• Management believes the accompanying unaudited interim condensed consolidated financial statements contain all necessary adjustments and disclosures to present fairly the financial position, results of operations, and cash flows for the periods presented.
• Management believes that disclosure of the Adjusted EBITDA metric offers investors, regulators and other stakeholders a view of our operations in the same manner management evaluates our performance.
• Management believes costs associated with litigation will not have a material impact on our financial position or liquidity but may be material to the results of operations in any given period.
• Management believes the disclosures set forth in the proxy statement comply fully with all applicable law and denies the allegations in the demand letters and complaints regarding the merger disclosures.

Industry Context

Galaxy Gaming operates in the global gaming industry, specializing in proprietary casino table games, side bets, and associated technology for both land-based and iGaming sectors. While the land-based core revenue experienced a slight decline, impacted by casino closures, the digital revenue stream showed robust growth, aligning with broader industry trends of increasing iGaming adoption and expansion. The ongoing merger with Evolution, a major player in the live casino and iGaming content space, positions Galaxy Gaming to potentially enhance its digital footprint and leverage Evolution's global reach, although the delay highlights the complexities of regulatory approvals in the highly regulated gaming sector.

Management Changes

Legal Proceedings

• Seven purported stockholders sent demands to the Company, with two filing complaints (Finger v. Galaxy Gaming, Inc., et al., Index No. 655536/2024 (N.Y. Sup. Ct.) and Coffman v. Galaxy Gaming, Inc., et al., Index No. 655530/2024 (N.Y. Sup. Ct.)) on October 18, 2024.
• The complaints allege that the definitive proxy statement on Schedule 14A (filed September 26, 2024) for the Evolution merger was materially incomplete and misleading, specifically regarding the company's financial projections and analyses by Macquarie Capital (USA) Inc.
• The company voluntarily supplemented disclosures on November 1, 2024, to address the claims, avoid nuisance and delays, and provide additional information to stockholders, while denying the allegations.

Stakeholder Impact

• Shareholders: Will receive $3.20 per share in cash upon merger completion, but face uncertainty due to merger delay and ongoing litigation. Shares will be delisted upon merger completion.
• Employees: No direct impact mentioned, but the merger could lead to changes in corporate structure and operations as the company becomes a wholly owned subsidiary.
• Customers: Continued provision of proprietary products and services for land-based and iGaming operations. Expansion of digital content onto new customer sites.
• Creditors: Benefited from debt refinancing, leading to reduced interest rates and a lower principal balance, improving the company's financial health in this area.
• Regulatory Authorities: Actively engaged with gaming regulators to secure necessary approvals for the merger, indicating ongoing scrutiny and compliance requirements.

Next Steps

• Actively engage with gaming regulators to secure approvals required for the Evolution merger.
• Anticipate regulatory consideration of the merger transaction in December 2025.
• Aim for closing of the Evolution merger transaction prior to the end of the calendar year 2025, subject to regulatory approval and satisfaction of all closing conditions.
• Continue to file applications for new or enhanced licenses in several jurisdictions.
• Continue growth initiatives and investments in personnel, assemblies in process, and research and development of products.

Key Dates

Recommendation

The company's financial performance shows a significant turnaround in profitability and effective cost management, particularly with the debt refinancing. Digital revenue growth is a positive indicator. However, the core business revenue is declining, and the major strategic event, the merger with Evolution, is delayed due to regulatory approvals and faces ongoing stockholder litigation. While the merger offers a clear exit at $3.20 per share, the uncertainty surrounding its timing and ultimate completion, combined with the underlying revenue challenges in the core business, suggests a 'hold' position. Investors should await further clarity on the merger's resolution and regulatory approvals before making significant new investment decisions, as the stock's future is largely tied to the acquisition price.

Keywords

Gaming, Casino, iGaming, Table Games, Evolution Merger, SEC 10-Q, Financial Results, Debt Refinancing, Regulatory Approval, GLXZ