10-K: GAN Limited Reports FY24 Results Amidst Pending Merger with SEGA SAMMY CREATION

GAN Limited announces its FY24 results, highlighting revenue growth and cost-saving initiatives while navigating a merger agreement with SEGA SAMMY CREATION.

Summary

• GAN Limited's FY24 revenue increased by 4.3% to $135.0 million, driven by growth in the United States and Europe.
• The company's net loss decreased significantly from $34.4 million in 2023 to $8.0 million in 2024 due to cost-saving initiatives.
• B2B revenue increased by 17.5%, while B2C revenue decreased by 2.3% due to reduced player activity in Latin America.
• The company is currently undergoing a merger with SEGA SAMMY CREATION, expected to close in the second quarter of 2025.
• GAN Limited is addressing a material weakness in internal control over financial reporting related to segregation of duties.
• The company is implementing mitigation plans to address the expiration of its U.S. commercial contract with FanDuel in January 2025.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While revenue increased and losses decreased, there are concerns about the FanDuel contract expiration, a material weakness in internal controls, and the pending merger's uncertainty.

Positives

• Revenue increased by 4.3% year-over-year, indicating growth in the business.
• Net loss decreased significantly, demonstrating improved financial performance.
• B2B segment experienced substantial revenue growth, driven by expansion in the U.S.
• Cost-saving initiatives led to a reduction in operating expenses.
• The company is actively addressing a material weakness in internal control over financial reporting.

Negatives

• B2C revenue decreased due to challenges in Latin American markets.
• The company identified a material weakness in internal control over financial reporting.
• The expiration of the FanDuel contract in January 2025 poses a risk to future revenue.
• The company has an accumulated deficit of $317.3 million.

Risks

• Failure to successfully consummate the proposed merger with SEGA SAMMY CREATION, INC.
• The online gaming industry is highly competitive, and failure to compete effectively could reduce margins or market share.
• The company's business operations are subject to substantial variability, which may make it difficult to forecast financial results.
• The online gaming industry is heavily regulated, and failure to obtain or maintain applicable licensure or approvals could be disruptive to the business.
• The company has business operations located in many countries and a significant level of operations outside of the U.S., which subjects it to additional costs and risks.
• The company faces cyber security risks that could result in damage to its reputation and/or subject it to fines, payment of damages, lawsuits and restrictions on its use of data.
• The company has identified a material weakness in connection with its internal control over financial reporting which, if not remediated, could adversely affect its business, reputation and stock price.

Future Outlook

The company anticipates the closing of the merger with SEGA SAMMY CREATION in the second quarter of 2025 and is implementing mitigation plans to address the expiration of the FanDuel contract in January 2025.

Management Comments

• Management believes that the current technology is highly scalable and can support the launch of product offerings for new customers and in new jurisdictions.
• Management expects to improve profitability through increased revenues, margin expansion, and strategic cost reductions.

Industry Context

The announcement comes as the online gaming industry continues to evolve rapidly, with increasing regulation and competition. GAN Limited is positioning itself to capitalize on the growth of the U.S. market while also maintaining a presence in international markets.

Comparison to Industry Standards

• GAN Limited operates in a competitive market with companies like Scientific Games, IGT, and Aristocrat Leisure providing similar B2B solutions.
• The B2C segment competes with major online sportsbook and casino operators such as Flutter Entertainment (FanDuel), Entain (BetMGM), and DraftKings.
• GAN's B2B take rate of 2.0% is within the range of industry standards for platform providers, but can vary based on contract terms and market conditions.
• The company's focus on U.S. expansion aligns with the broader industry trend of capitalizing on the growth of regulated online gaming in the U.S. market.

Legal Proceedings

• The Company may be subject to legal actions and claims arising from contracts or other matters from time to time in the ordinary course of business.
• Management is not aware of any pending or threatened litigation, which are considered other than routine legal proceedings.

Stakeholder Impact

• Shareholders will be impacted by the pending merger with SEGA SAMMY CREATION, which will result in a cash payment of $1.97 per share.
• Employees may be affected by cost-saving initiatives, including potential headcount reductions.
• Customers will continue to receive services from GAN Limited, with potential changes following the merger.
• Suppliers and creditors will be impacted by the company's financial performance and the pending merger.

Next Steps

• The company will continue to work towards closing the merger with SEGA SAMMY CREATION in Q2 2025.
• GAN Limited will implement mitigation plans to address the expiration of the FanDuel contract.
• The company will continue to implement controls to remediate the material weakness in internal controls.

Key Dates