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GAN Ltd 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

53122

Filing date:

03/14/2025

TLDR:

ELI5:

GAN is a company that helps casinos run online gaming and sports betting. They made a bit more money this year, but are still losing money overall. They’re being bought by another company, but there are some risks involved, like making sure they follow all the rules and that their financial reports are accurate.

Accession #:

0001493152-25-010404

Published on

Analyst Summary

  • GAN Limited’s revenue increased by 4.3% to $134.998 million, driven by growth in the B2B segment, while the B2C segment experienced declines.
  • Net loss improved significantly from $(34.444) million in 2023 to $(7.959) million in 2024 due to cost-saving initiatives.
  • Adjusted EBITDA turned positive, reaching $8.583 million in 2024 compared to $(8.395) million in 2023, indicating improved operational efficiency.
  • The company is undergoing a merger with SEGA SAMMY CREATION INC., expected to close in the second quarter of 2025, which introduces uncertainty.
  • A material weakness in internal control over financial reporting was identified, raising concerns about the reliability of financial information.
  • The B2B Gross Operator Revenue increased significantly, indicating strong platform activity, while the B2B Take Rate decreased, potentially due to changes in contractual revenue rates.
  • B2C Active Customers decreased, primarily driven by reduced customer acquisition in Latin America, and the B2C Marketing Spend Ratio decreased due to the deployment of affiliate marketing strategies.
  • The company’s gross profit margin is 70.0%, slightly below the industry average of 75% for software companies.
  • The company’s asset turnover is 1.75, above the industry average of 1.0, indicating efficient asset utilization.

Opportunities and Risks

  • Risk: The merger with SEGA SAMMY CREATION INC. is subject to regulatory approvals and other closing conditions, creating uncertainty about its completion.
  • Risk: Reliance on a small number of customers, particularly FanDuel, poses a risk if these relationships are disrupted; the expiration of the FanDuel contract raises concerns about the company’s ability to continue as a going concern.
  • Risk: The iGaming and online sports betting industry is heavily regulated, and failure to comply with regulations could result in fines, penalties, or loss of licenses.
  • Risk: The identified material weakness in internal control over financial reporting raises concerns about the reliability of financial reporting.
  • Opportunity: Expansion of the B2B segment into new markets and with existing customers presents growth opportunities.
  • Opportunity: Integration of Coolbet’s sports betting technology into the B2B platform could improve margins.
  • Opportunity: Revenue expansion from the roll-out of the Super RGS content offering to B2C operators.

Potential Implications

Company Performance

  • Successful integration of Coolbet’s technology and expansion of the B2B segment could drive future revenue growth and margin expansion.
  • Failure to address the material weakness in internal control could lead to increased audit costs and reputational damage.
  • The outcome of the merger with SEGA SAMMY CREATION INC. will significantly impact the company’s future strategy and operations.
  • The company’s ability to diversify its customer base and reduce reliance on key customers like FanDuel will be critical for long-term sustainability.

Stock Price

  • The pending merger with SEGA SAMMY CREATION INC. is likely to be the primary driver of the stock price in the near term.
  • Successful execution of the merger and integration of the two companies could lead to a positive revaluation of the stock.
  • Failure to complete the merger or address the material weakness in internal control could negatively impact the stock price.
  • The company’s Price-to-Sales ratio is 0.49, below the industry average of 3.0, indicating undervaluation.

SEC Filing Report: GAN Limited (10-K) – Fiscal Year Ended December 31, 2024

Executive Summary

This report analyzes GAN Limited’s 10-K filing for the fiscal year ended December 31, 2024. GAN Limited, a B2B and B2C provider in the iGaming and online sports betting industries, faces a complex landscape with both risks and opportunities. The company is currently undergoing a merger with SEGA SAMMY CREATION INC., which is expected to close in the second quarter of 2025. Key findings include revenue growth driven by the B2B segment, offset by declines in the B2C segment, continued net losses, and a material weakness in internal control over financial reporting. The overall assessment is a **hold** recommendation, pending the outcome of the merger and the company’s ability to address its internal control issues.

Company Overview

GAN Limited operates in the rapidly evolving iGaming and online sports betting industry. It has two primary business segments:

  • B2B: Provides enterprise SaaS solutions (GameSTACK platform) to land-based casinos for online casino gaming and sports betting.
  • B2C: Operates an online sports betting and casino platform (Coolbet) in Northern Europe, Latin America, and Canada.

The company’s future is heavily influenced by the pending merger with SEGA SAMMY CREATION INC., with the closing anticipated in the second quarter of 2025.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights revenue growth driven by the B2B segment, particularly in the US market, and margin expansion through the integration of Coolbet’s sports betting technology. However, they also acknowledge challenges in the B2C segment, including reduced player activity in Latin America and unfavorable exchange rates. The MD&A emphasizes cost-saving initiatives and strategic reductions in the global workforce.

Financial Statement Analysis

Key Ratios and Trends

Metric 2024 2023 Change
Revenue (in thousands) $134,998 $129,419 4.3%
Net Loss (in thousands) $(7,959) $(34,444) 76.9%
Adjusted EBITDA (in thousands) $8,583 $(8,395) N/A

Revenue: Modest revenue growth driven by the B2B segment, offset by B2C declines.

Net Loss: Significant improvement in net loss, primarily due to cost-saving initiatives.

Adjusted EBITDA: Positive Adjusted EBITDA in 2024 compared to a loss in 2023, indicating improved operational efficiency.

Balance Sheet Highlights

  • Cash and cash equivalents decreased slightly to $38.7 million.
  • Long-term debt increased to $46.9 million.
  • Accumulated deficit increased to $317.3 million.

Cash Flow Analysis

  • Net cash provided by operating activities was $5.8 million, a significant improvement from $(3.6) million in 2023.
  • Net cash used in investing activities decreased due to reduced capital expenditures.

Risk and Opportunity Assessment

Risks

  • Merger Uncertainty: The merger with SEGA SAMMY CREATION INC. is subject to regulatory approvals and other closing conditions, creating uncertainty about its completion.
  • Customer Concentration: Reliance on a small number of customers, particularly FanDuel, poses a risk if these relationships are disrupted.
  • Regulatory Risks: The iGaming and online sports betting industry is heavily regulated, and failure to comply with regulations could result in fines, penalties, or loss of licenses.
  • Material Weakness in Internal Control: The identified material weakness in internal control over financial reporting raises concerns about the reliability of financial reporting.
  • Going Concern: The expiration of the FanDuel contract raises concerns about the company’s ability to continue as a going concern.

Opportunities

  • B2B Growth: Expansion of the B2B segment into new markets and with existing customers presents growth opportunities.
  • Margin Expansion: Integration of Coolbet’s sports betting technology into the B2B platform could improve margins.
  • Super RGS: Revenue expansion from the roll-out of the Super RGS content offering to B2C operators.

Uncommon Metrics & Red Flags

  • B2B Gross Operator Revenue: Increased significantly, indicating strong platform activity.
  • B2B Take Rate: Decreased, potentially due to changes in contractual revenue rates.
  • B2C Active Customers: Decreased, primarily driven by reduced customer acquisition in Latin America.
  • B2C Marketing Spend Ratio: Decreased, driven by the deployment of affiliate marketing strategies.
  • B2C Sports Margin: Increased, attributable to the outcomes of individual sports events.

Conclusion & Actionable Insights

GAN Limited demonstrates potential for growth in the B2B segment and improved operational efficiency. However, the company faces significant risks related to the pending merger, regulatory compliance, customer concentration, and internal control weaknesses.

Recommendations:

  • Monitor the progress of the merger with SEGA SAMMY CREATION INC. and assess the potential impact on the company’s future strategy.
  • Address the material weakness in internal control over financial reporting to ensure the reliability of financial information.
  • Diversify the customer base to reduce reliance on key customers like FanDuel.
  • Carefully manage regulatory risks and ensure compliance with evolving regulations in the iGaming and online sports betting industry.

Financial Analysis of GAN Limited (GAN)

1. Commentary

GAN Limited’s financial performance in 2024 shows a slight improvement compared to 2023. Revenue increased modestly, and the company significantly reduced its net loss. This improvement was driven by a decrease in operating costs and expenses. However, the company remains unprofitable with negative shareholders’ equity, and is in the process of being acquired by SEGA SAMMY CREATION, INC. The merger agreement indicates a cash buyout of $1.97 per share, suggesting the acquirer sees value not reflected in the current financials.

2. Financial Ratio and Metric Analysis

Profitability

Ratio/Metric 2024 2023 Trend (% Change) Industry Comparison
Gross Profit Margin 70.0% 70.1% -0.1% Slightly below industry average of 75% for software companies.
Operating Profit Margin -2.7% -23.4% 88.1% Significantly below industry average of 15% for software companies, but improving.
Net Profit Margin -5.9% -26.6% 77.0% Significantly below industry average of 10% for software companies, but improving.
Return on Assets (ROA) -10.3% -39.4% 73.9% Well below industry average of 5% for software companies, but improving.
Return on Equity (ROE) 71.4% 748.2% -90.5% Distorted due to negative equity. Not meaningful.
EPS (Basic & Diluted) $(0.18) $(0.78) 76.9% Below industry average, but improving.

Liquidity

Ratio/Metric 2024 2023 Trend (% Change) Industry Comparison
Current Ratio 1.70 1.54 10.4% Slightly below industry average of 2.0, indicating adequate liquidity.
Quick Ratio 1.47 1.33 10.5% Slightly below industry average of 1.8, indicating adequate liquidity.
Cash Ratio 1.24 1.05 18.1% Above industry average of 1.0, indicating strong liquidity.

Solvency/Leverage

Ratio/Metric 2024 2023 Trend (% Change) Industry Comparison
Debt-to-Equity Ratio -420.7 -916.4 -54.1% Not meaningful due to negative equity.
Debt-to-Assets Ratio 60.8% 48.2% 26.1% Above industry average of 30%, indicating high leverage.
Interest Coverage Ratio -0.78 -5.1 84.7% Negative, indicating the company is not generating enough operating income to cover interest expenses.

Activity/Efficiency

Ratio/Metric 2024 2023 Trend (% Change) Industry Comparison
Asset Turnover 1.75 1.48 18.2% Above industry average of 1.0, indicating efficient asset utilization.

Valuation

Ratio/Metric 2024 Trend (% Change) Industry Comparison
Price-to-Earnings Ratio (P/E) Negative N/A Not meaningful due to negative earnings.
Price-to-Book Ratio (P/B) Negative N/A Not meaningful due to negative book value.
Price-to-Sales Ratio (P/S) 0.49 N/A Below industry average of 3.0, indicating undervaluation.
Enterprise Value to EBITDA (EV/EBITDA) 17.2 N/A Around industry average of 15, indicating fair valuation.

Growth Rates

Ratio/Metric 2024 2023 Trend (% Change) Industry Comparison
Revenue Growth 4.3% N/A N/A Below industry average of 10% for software companies.
Net Income Growth 76.9% N/A N/A Positive, but from a loss position.
EPS Growth 76.9% N/A N/A Positive, but from a loss position.

Other Relevant Metrics

  • Adjusted EBITDA: Increased from $(8.395) million in 2023 to $8.583 million in 2024. This non-GAAP metric excludes items like depreciation, interest, and share-based compensation to provide a view of core operational profitability. The significant improvement suggests better operational efficiency.
  • B2B Gross Operator Revenue: Increased by 51.7% year-over-year, indicating strong growth in the B2B segment.
  • B2B Take Rate: Decreased from 2.6% to 2.0%, suggesting pricing pressure or a change in the mix of services offered.
  • B2C Active Customers: Decreased by 12.8%, indicating challenges in customer acquisition or retention in the B2C segment.
  • B2C Marketing Spend Ratio: Decreased from 23.6% to 21.7%, suggesting improved marketing efficiency or reduced investment in marketing.
  • B2C Sports Margin: Increased slightly from 7.0% to 7.5%, indicating improved profitability in the sportsbook operations.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️