Galaxy Gaming reported second-quarter 2026 revenue of $7.94 million, an increase of 5.4% from $7.53 million a year earlier. Recurring license revenue before royalties rose 7.1% to a record $9.85 million, while the company generated almost all of its reported revenue from recurring sources after royalty deductions and a small amount of perpetual system sales.
The results, filed on August 10, provide the clearest operating picture since Evolution ended its proposed acquisition of the Las Vegas table-games supplier. Digital revenue net of royalties increased 10.7% to $3.14 million, adjusted EBITDA rose 10.9% to $3.55 million and free cash flow increased 24.9% to $1.68 million.
Recurring Revenue Now Defines the Business
Galaxy recorded $9.85 million of recurring license revenue before royalties, compared with $9.20 million in Q2 2025. Perpetual license sales of progressive gaming systems fell 80.0% to $51,182. After $1.97 million of royalties were netted against gross revenue, the company reported total revenue of $7.94 million.
That mix means approximately 99% of reported revenue was connected to recurring licensing rather than perpetual system sales. A recurring model can improve visibility because revenue is generated through ongoing placements and content relationships, but it does not remove customer, regulatory or product risk. Renewals, installations, online distribution and casino activity still determine the durability of the base.
Digital Revenue Was the Fastest-Growing Segment
Gross digital revenue increased 8.3% to $4.36 million. Net of royalties, digital revenue rose by $303,289 to $3.14 million, representing 10.7% year-on-year growth. Galaxy attributed the improvement to expansion of its digital content into new markets and continued performance from competitive branded products.
Digital represented about 39.5% of reported quarterly revenue, with the core segment contributing the balance. The online business gives Galaxy distribution beyond physical table placements, but royalty expense is material: $1.22 million was netted from digital gross revenue in the quarter. Both gross growth and the amount retained after royalties matter when assessing segment economics.
Core Revenue Also Advanced
Core recurring license revenue rose 6.2% to $5.50 million before royalties. Galaxy said growth occurred across all geographies, led slightly by Europe, the Middle East and Africa on higher participation-based game revenue. Placements of Galaxy Operating System progressives contributed across regions. Net core revenue increased 2.3% to $4.80 million.
The difference between gross recurring growth and net core growth reflects royalties and the decline in perpetual sales. It also shows why the shift toward recurring placements should be evaluated over the life of installations rather than through a single quarter. Management believes recurring progressive placements generate more value than one-time sales, while continuing to offer perpetual licenses selectively.
Adjusted EBITDA and Free Cash Flow Improved
Adjusted EBITDA increased to $3.55 million from $3.20 million. Galaxy's reconciliation starts with net income of $997,000 and adds interest, taxes, depreciation, amortization and several adjustments, including a $505,361 non-income tax assessment. Because adjusted EBITDA excludes material items, it should be read alongside the GAAP statements rather than as a replacement for profit.
Free cash flow rose to $1.68 million from $1.34 million under Galaxy's definition. The company calculates the measure from adjusted EBITDA after cash interest, investing activity and cash income taxes. It is a useful indicator of internal funding capacity, but Galaxy explicitly cautions that the entire amount should not be assumed to be available for discretionary spending.
Operating Costs Grew Faster Than Revenue
Total costs and expenses increased 8.1% to $6.04 million, outpacing the 5.4% revenue gain. Selling, general and administrative expense rose 15.2% to $4.85 million, while depreciation and amortization increased 17.0% to $919,222. Research and development and component costs declined from the prior-year quarter.
As a result, operating income fell 2.3% to $1.90 million even though revenue and adjusted EBITDA improved. Net income still increased 4.9% to $997,000, helped by lower interest expense. The mixed movement is important: recurring and digital growth strengthened the revenue profile, but the statutory operating margin did not expand in the quarter.
Evolution Paid the Termination Fee
Evolution notified Galaxy on July 21 that it had terminated the merger agreement after the extended outside date passed without the remaining closing conditions being satisfied or waived. Galaxy's filing confirms that Evolution paid a cash termination fee of $5,234,678. The payment occurred after the June 30 quarter and is therefore a subsequent event, not part of Q2 operating revenue.
Keeping that distinction prevents the one-time payment from being confused with recurring business performance. The fee increases liquidity and affects capital allocation after the quarter, but it does not explain the reported 5.4% revenue growth, the 10.7% increase in digital revenue or the improvement in Q2 free cash flow.
Share Repurchases Have Already Started
Galaxy's board authorized a share repurchase program of up to $4.0 million on July 22. The program has no fixed expiration date and replaced a prior $750,000 authorization under which no shares were bought. A credit-agreement amendment permits the approved repurchases subject to liquidity, covenant and funding conditions tied to the Evolution termination fee.
On July 31, Galaxy completed a privately negotiated purchase of 330,758 shares for $514,202, or approximately $1.55 per share. That first transaction used about 12.9% of the authorized amount. Future purchases are not guaranteed and will depend on market conditions, available liquidity, credit restrictions and management's assessment of other investment needs.
The Post-Evolution Strategy Comes Into View
Without the acquisition, Galaxy remains an independent supplier with a growing digital operation, a broad recurring license base and responsibility for its own capital allocation. The Q2 filing suggests that management intends to combine investment in products and placements with selective returns of capital, rather than treating the termination fee as a substitute for operating cash generation.
The strategic test will be whether digital content and recurring core installations can sustain growth while expenses are controlled. Investors should watch retained digital revenue after royalties, new market approvals, progressive-system placements, free cash flow, debt service and the pace of repurchases. One record recurring quarter establishes momentum but not a complete long-term record.
Balance Sheet Capacity Still Has Limits
Galaxy reported $10.81 million of current assets and $26.96 million of total assets at June 30. The subsequent termination fee strengthened cash resources, but the amended credit agreement requires at least $5 million of unencumbered liquid assets after approved repurchases and continued compliance with financial covenants. The $4 million authorization is therefore a ceiling, not cash that must be spent.
That framework reinforces the importance of recurring free cash flow. Repurchases funded only by a one-time fee would eventually end, while digital and core licensing can replenish liquidity if growth continues. Capital returns should be monitored alongside product investment, interest payments and the cash required to support new placements and market approvals.
Bottom Line
Galaxy Gaming exited Q2 with a stronger recurring profile: revenue reached $7.94 million, digital revenue net of royalties increased 10.7%, adjusted EBITDA rose to $3.55 million and free cash flow climbed to $1.68 million. Recurring licensing accounted for virtually the entire reported revenue base, while one-time progressive system sales became immaterial.
The post-quarter events make the report more consequential. Evolution paid the $5.23 million termination fee, Galaxy authorized $4.0 million of repurchases and the company bought its first 330,758 shares under the program. The post-Evolution strategy is now measurable through recurring growth, digital expansion, cost discipline and the balance between reinvestment and capital returns.
